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David de la Roz: Good afternoon, everyone, and thank you all for joining us today for the Q3 fiscal year 2026 results presentation for the 9 months ending 31st of December 2025. I'm David de Roz, the Director of Investor Relations at eDreams ODIGEO. As always, you can find the results materials, including the presentation and our results report in the Investor Relations section of our website. I will now pass you over to Dana Dunne, our CEO, who will take you through the first part of the presentation. Dana Dunne: Thank you, David, and good afternoon, everyone. Thank you for joining us today. We're going to discuss 3 things. The first is I'll do a brief update of our first 9 months' results of FY '26 and the outlook, which we are on track. Second, David Elizaga, our CFO, will take you through the Prime model and how it continues to drive very strong growth. Third, I will then share some closing remarks on why we think we are significantly undervalued. Please turn to Slide 4, which is a summary of our performance for the first 9 months of fiscal year 2026. We're firmly on track to deliver on our new guidance. In the first 9 months, adjusted EBITDA increased 74% year-on-year to EUR 138.4 million. Adjusted EBITDA isolates operational performance from cash timing effects of the move from annual subscription to annual subscription with monthly installments. So this 74% increase of adjusted EBITDA shows the strength of the underlying business absent the cash timing effects. Prime membership. We reached 7.7 million members, up 13% year-on-year. As of January, we hit 7.8 million subscribers and reaffirm our FY '26 target of 7.9 million. Cash EBITDA improved by 2% to EUR 126.7 million compared to the 9 months of FY '25, which was partially impacted by the investments we are making in the new businesses, the temporary instability in our Ryanair content, and the timing impact of the move from annual subscription to annual subscription with monthly installments. Despite this, growth resulted in a substantial expansion of our profit margins and is also on track to meet our FY '26 target of EUR 155 million cash EBITDA. In terms of revenue mix, Prime-related revenue now accounts for 75% of cash revenue margin and grew 7% year-on-year. I will cover this in my closing remarks, but it's important to briefly highlight that our strategy review update back in November 2026 was done from a position of strength and is a high conviction move based on solid data from extensive live operations. All in all, we will deliver a much better business, faster growing, more profitable, and more diversified, and we are significantly undervalued. Moreover, we are committed to shareholders' returns, and a proof of this is that we've repurchased 23 million in shares this quarter, with EUR 100 million committed through September 2027. We have already amortized 12 million shares, which is 9.4% of the share capital. And at today's prices, 24% share of eDO's market capitalization is pending to be repurchased between January 2026 and September 2027. And this represents a yield to our shareholders of around 33%, and very few companies out there are doing the same. Now I'll pass this over to David, who will take you through our Prime model strong growth. David Corrales: Thank you, Dana. If you could all please turn to Slide 6 of the presentation, I will take you through the Prime model. In the last 12 months, Prime cash revenue margin grew 7%, with Prime now representing 75% of the total. Even more impressive is the Prime cash marginal profit, which grew 18%, with Prime contributing a dominant 89% of our total cash marginal profit. This reiterates the fact that IDO is a subscription business focused on travel and that the strong growth of Prime more than offsets the anticipated decline in the non-Prime side of the business. If you could all please turn to Slide 7 of the presentation, I will take you through the key highlights of our Prime P&L. Looking at the 9-month P&L, our cash EBITDA reached EUR 126.7 million, that's a 2% increase. This was achieved despite headwinds, including investments in new products, temporary instability in Ryanair content, and the timing impact of moving to annual subscription with monthly installs. Notably, our cash marginal profit margin expanded by 5 percentage points to 42%. Looking at Prime's impact on profitability and the drivers behind that growth. Our cash marginal profit, a key measure of profitability, grew by 3%, reaching EUR 207.8 million. This shows that our business is not just growing, but each transaction is becoming more profitable. This improvement is due to the maturity of our Prime member base. As members stay with us longer, their profitability grows, which is evident in the 7% increase in cash marginal profit for Prime and its margin increasing by 4 percentage points over the past year. This is having a positive ripple effect on our entire business as our overall cash EBITDA margin improved by 3 percentage points from 23% in the 9 months of fiscal '25 to 26% in the 9 months of fiscal '26. Cash EBITDA for the 9 months reached EUR 126.7 million, marking a 2% year-on-year increase. Adjusted EBITDA, which isolates operational performance from cash timing effects of the move from annual subscription to annual with monthly installments, increased 74% to EUR 138.4 million. Looking at revenue performance. In the 9 months of fiscal '26, we have observed a few key changes in our revenue margin. Cash revenue margin for Prime decreased by 1% versus the 9 months of fiscal '25. While member growth was a positive factor, it was offset by an enlarged test in the first quarter of fiscal '26 and the move from the second quarter of fiscal '26 to the annual with monthly installment subscription fees and the progressive implementation of this option in the current quarter. Please turn to Slide 8 of the presentation. Revenue margin, excluding the adjusted revenue items, increased by 3% versus the 9 months of fiscal '25 to EUR 502.8 million. This improvement was driven by a substantial 16% increase in revenue margin for Prime, resulting from expansion of our Prime member base. The growth in revenue margin for Prime, as anticipated, was partly offset by the revenue margin for non-Prime, which decreased 24% versus the 9 months of fiscal '25, due to the switch of our customers from non-prime to prime and more generally to the focus on the prime side of the business. Variable costs decreased by 15% despite revenue margin is 3% above the 9 months of fiscal '25, as the increase in maturity of the Prime members reduces acquisition costs. Fixed costs increased by EUR 3.3 million, driven primarily by an increase in provisions and higher external fees costs. As a result, adjusted EBITDA, which isolates the operational performance from the cash timing effects of the move from annual subscription to annual with monthly installments, increased 74% to EUR 138.4 million from EUR 79.7 million in the 9 months of fiscal '25. Adjusted net income stood at EUR 63.8 million in the 9 months of fiscal '26. Turning now to Slide 9. I will take you through the cash flow statement. Our cash generation remains robust despite the transition to the annual with monthly installment subscription program. In terms of the operations, the cash flow from operating activities rose by EUR 31.1 million to EUR 79.1 million. In the working capital, we saw an outflow of EUR 42.9 million compared to an outflow of EUR 27.3 million in the 9 months of fiscal '25, primarily driven by a decrease of EUR 55 million in the variations of the prime deferred revenue. This variance is largely attributable to the timing impact of transitioning the subscription model from upfront annual payments to an annual subscription with monthly installments. This impact was partially offset by an improved working capital performance, notably driven by the hotel segment. In financing, we used EUR 96.3 million in financing activities, which includes significant acquisition of treasury shares as part of our buyback of EUR 55.9 million for the 9-month period. I will now turn the presentation back to Dana to do some closing remarks. Dana Dunne: Thank you, David. Please turn to Slide 11 of the presentation. I'll take you through some of our closing remarks. Let me start by reiterating that our strategic review update back in November 2025 was done from a position of strength, and it is a high conviction move based upon solid data from having done this for over 1 to 2 years, and in fact, having run Prime now for well over 8 years. First, we are accelerating the growth and the profile of the business. We expect record net adds of 1.5 million to 2 million per year between FY '28 and FY '30. These are growth rates of 15% to 20% per annum, which is much higher growth profile than the trajectory that we were on. Second, we have derisked the business model. The new guidance is built on conservative high certainty foundations. We have built our new guidance on conservative foundations by lowering expectations for Ryanair content and pivoting to annual commitment with monthly installment subscription fees. And third, this is a team that delivers. It is not just the first time we have announced a long-term plan. And in fact, each time we have announced one, we have met our 3-year guidance. We did this in 2017 to 2019. We did this in 2021 to 2025. All in all, while we face a temporary timing impact on cash metrics as we move to an annual subscription with monthly installments, this shift allows us to capture a much larger market share and higher-quality and more diversified revenue streams. And we are still guaranteed to get this money from customers. It is merely a timing difference in recognition of the money. If you could please move to Slide 12. We are positioning for accelerated growth with a team that delivers. We are setting targets that are very clear, 13 million Prime members and EUR 270 million in cash EBITDA by FY '30. Our growth trajectory will deliver record net adds of 1.5 million to 2 million per year between FY '28 and FY '30. Cash EBITDA margins will dip to roughly 15% in FY '27 during the peak investment phase and will return to 23% by FY '30 as these new members mature. And to be very clear, the anticipated decline in EBITDA margin over the next few years is solely due to expansion into new products and geographies as a result of the initial investment to support the company's future growth. You saw exactly this in FY '22 to FY '25, and you'll see this again in the coming years. Please turn now to Slide 13. We've done this before. eDO is a team that delivers. It's not the first time we've announced a long-term plan, and each time we have met our 3-year guidance. We have clearly demonstrated our ability to deliver on our long-term plan, such as the very aggressive targets we put in November 2021 or March 2025. That strategic shift involves significantly more risk than this latest one, and yet we still delivered on the previous one despite headwinds like Omicron, Ukraine, Middle East wars, double-digit inflation, and consumer confidence below pre-pandemic levels. So the market should have no doubt that we will again meet or exceed all of our long-term plan targets. Furthermore, the current strategy is more conservative and designed to ensure future growth, building upon the existing solid foundation. If you could please move to Slide 14. We believe there is a significant disconnect between our performance and our valuation. In terms of the implied multiples at current prices, we are trading at 4.4 and 4 FY '26 cash EBITDA and adjusted EBITDA. The opportunity, if we apply the average multiples of other OTAs or B2C subscription companies, they trade at roughly 8.3 and 11, respectively. So there's a massive upside potential as we hit the lowest point of our investment plan in FY '27 and accelerate thereafter. Please turn to Slide 15. We think it's important to highlight that we are not alone. Other successful subscription companies like Netflix broadened their business, but yet it caused a share price decline, and then the share price rerated as the company executed on their plan. Again, we have a track record in 8 years' history of doing this. If you could please turn to Slide 16. In sum, we are delivering a much better business, and we believe we are significantly undervalued. We are achieving higher growth with a 15% to 20% Prime member CAGR between FY '27 and FY '30. We are seeing higher customer lifetime value and stronger loyalty with a 10%-plus increase in NPS. By FY '30, 66% of our volume will be diversified away from the core European flight market. So we're inviting you to join us as we believe the current share price is significantly undervalued as we execute this final stage of becoming the world's preeminent travel subscription platform. The market is currently using conservative assumptions and high discount rates, valuing us at an implied 6.4x EV to cash EBITDA for FY '26, well below the 8.3 and 11x average for global OTAs and B2C subscription businesses. The onetime cash unwind is planned, but we are still guaranteed to get the cash. Growth will accelerate, and the valuation gap represents a massive upside for investors who recognize the strength of the world's leading travel subscription platform. I will reiterate once again, this is a high conviction move based upon solid data from extensive time of running this business and not a defensive move. It was a change to a higher growth strategy done from a position of strength and confidence. And I will conclude by saying that we will continue the share buyback as we are committed to shareholders' returns. If you could please turn to Slide 17. A proof of it is that we repurchased $23 million in shares this quarter, with $100 million committed from October 2025 through September 2027. We have already amortized 12 million shares. That's 9.4% of the share capital. And at today's share price, 24% share of eDO's market capitalization is pending to be repurchased between January 2026 and September 2027. This represents a yield to our shareholders of around 33%. There are very few companies out there doing the same. This concludes my closing remarks, and I will now pass it back to David. David Corrales: Thank you, Dana. With that, we will now take your questions. David Corrales: [Operator Instructions] Should we not have time to respond to questions from the webcast, the Investor Relations team will make sure those are answered afterwards. Now I'm going to start reading the questions. The first set of questions comes from Carlos Crevigno of Banco Santander. The first one says, how has your access to Ryanair's content evolved over the last 3 months? I'll take it. Dana Dunne: [indiscernible] Ryanair, this situation is similar to the one that we announced back in November 2025, the last time we spoke. We still do have access to Ryanair, albeit at significantly lower levels than what we've had historically. I want to really point out this does not affect our new strategy plan, as we have derisked this plan as we explained in November '25 and use much lower assumptions. We are absolutely 100% focusing on our growth plan and really making this fundamental transformation switch from annual to annual commitment with monthly, quarterly, and growing in all of the new markets and the new product categories, which in turn has real upside for shareholders. David Corrales: The second question from Carlos today is, could you comment on initial progress of Prime introduction in your new markets? I think this one is as well for you, Dana. Dana Dunne: Sure. Let's see. Let me take us back to what we said in November 2025, is that we've been in these markets now for 12 to 18 months. And we know absolutely what the results are. And this is no different than having run Prime for actually over 80 in so many other markets. Now in these specific markets, the test -- sorry, the results are positive. We've concentrated on 5 key countries. And all of them today continue to perform extremely well as planned and as announced back in November as well, but even what we've seen over the past kind of 1 to almost 2 years now. We see very significant growth. We see very good attachment. We see very good NPS. We see very good LTV to CAC. All of our key metrics are absolutely on track. David Corrales: The next question comes from Luis Padrón de la Cruz of GVC Gaesco, and it says, when you use OTAs ratios to your own valuation, you assume that OTAs are well valued, undervalued, or overvalued at current market prices. I'll take that one. We actually made no judgment in that assessment as to if either the OTAs or the B2C subscription companies are undervalued or overvalued. We're just taking a view of what we think should be at the very least a floor valuation to ourselves, to eDreams. And if you notice, we take the lowest point in our projections to act as the driver of the valuation. We're taking the fiscal year '27. So the worst possible year that we could choose, and we're taking the 2 sets of comparables that we have. Even if you take the lowest point, the current valuation of the share doesn't make any sense. If I had done that same graph, I don't know, 1 month ago, the multiples would have been higher. That's to say independent from this. And maybe those multiples increase in the future. That's also independent of this. Even with our lowest point of financial projections, and you apply a multiple to it, the current share price doesn't make any sense. That's the point that we're making in that slide. We now have a set of questions from Nizla Naizer from Deutsche Bank. The first one says, can you share some thoughts on how you view the threat from agentic AI agents that search, book, and pay for travel on behalf of individuals. Would you consider also launching an app within ChatGPT? Dana Dunne: Absolutely. So let me take it. Overall, we believe that we're well-positioned for this, and I'll explain why. But I can understand that from a broader context, even though Nisla didn't actually use this, there's other questions as well from investors that say, are you concerned about LLMs, disintermediating, et cetera. And so let me kind of cover Nizla's and the broader question here. And in fact, I'm also going to weave into my answer how we even see opportunities within this for us. So let me cover 3 things or 3 parts to this. The first part would be around complexity. It's really critical to understand how complex the business actually is. There are huge amount of technicalities like different IATA licensing, financial agreements -- sorry, financial guarantees, complexities and servicing, including delays, cancellation, amendments, refunds, different payments, et cetera. Remember also, there's post bookings, prebooking, people can be in airports, et cetera. There's huge amounts of complexities within there. And it's really important to focus on the key buying criteria of a customer so that they feel delighted on that. And there's a lot of price and non-price things within that in there. Now that complexity is extremely difficult to get right even from a price point of view, for an LLM. And that is where it really plays to, in essence, our advantage, but on all the non-price, all the technicalities, complexities, it really does play to us. Let me just give you some simple examples on this. So you see lots of airlines are not even set up to offer advanced booking and post-booking capabilities. And even the large, let's say, call them legacy carriers also struggle to offer a seamless online booking flow. And we have built a business by offering a better user experience. When you look at the NPS of us versus anybody else, we have the best in the industry, and there's a big delta between us and everybody else. And we're years ahead. And we do that already, already today by using AI and agentic AI. Many of you that have known us for a while know that we were one of the first companies over 10 years ago investing in AI, and we leverage it. Let me just also make the statement that, look, we've heard this hype about blockchains are really going to disintermediate us. Voice assistants are going to disintermediate us. Google, in general, is going to disintermediate us and not only travel, but in all other industries. And it's simply not true because people don't appreciate the amount of complexity and making certain that you meet the consumers' key buying criteria for it and do it in a better way than anybody else. The second part to this equation is around distribution and how an LLM and the business is monetized, which again relates to the concept of lifetime value of a customer. Now the LLMs need to make money. Many of them actually don't today. And the proven monetization model is one that Google has used for search. And most of them have said that they will pursue a similar type of model as well. And so that means that they'll pass on the transaction to a merchant like an OTA, for example. And so in this, let's say, emerging environment where the LLM passes on the transaction, a new option will be set up. Now we have subscription, and we have a better consumer proposition and higher monetization per customer. And so that means that we're able to outcompete most players in this distribution race. We see this, in fact, as playing more to our strengths for it. Lastly, consumer. We have a cutting-edge platform, and we have the high levels of customer NPS, I mentioned. So what that has also translated into when we focus on the key buying criteria of customers, we have created new and unique products and offerings that either very few or in many cases, no one else in the industry does and create. And so that takes it one step further to even delight and provide even more value to customers. I would say just lastly is that our platform, because it is one of the leading-edge AI platforms, we are well prepared. We already get traffic from some of the LLMs, and we're absolutely set up to distribute our content through emerging agentic channels, regardless of what those would absolutely be, be it on an app, et cetera. Let me stop there. David Corrales: The next question from Nizla Naizer is, can you give us an update on the rail product offered within Prime? Has this helped drive engagement and customer acquisitions already? Dana Dunne: So let me take that, David. I think rail is absolutely performing very well for us. It's fully rolled out in Spain. There's also on our plan to do even more feature functionality changes because we think that we can actually create even more competitive advantage, even more barriers to entry, so to speak, even more stickiness and unique differentiation with our rail product in Spain and other countries. But already today it is highly competitive. I shared with you in November about how we're doing from a distribution and capturing customers. We're doing very well. I shared with you, I believe, on the NPS, and the NPS is extremely good for it. So overall, it is absolutely doing well. David Corrales: And the last question from Nizla says, the Prime net adds in January of about 70,000 appear to be quite strong. Was there anything incremental driving this performance? Are you expecting this momentum to continue for the rest of the quarter? So yes, yes, the performance has been good on the first month of, say, the quarter from January to March, but that was as expected. The seasonality of our business is one in which the quarter from October to December is overall a low seasonality quarter, whereas the quarter from January to March is a high seasonality quarter. So yes, the performance has been very good, but we continue to stick by our numbers of reaching 7.9 million card members by the end of March, which is 600,000 net adds. The next set of questions come from [indiscernible] of Al Maria Funds. The first question says, looking at your strategic growth plans through fiscal '30, the cash EBITDA margins imply that you're still investing for Apple growth in fiscal '30 without providing official fiscal '31 numbers, and you talk at a high level for post fiscal '30 growth. How does a new plan with expanded markets and services compare to the previous post-fiscal '30 plan? So let me remind first that what we have said. And what we have said is that from fiscal '28 to fiscal '30, we will grow the Prime member base by between 15% and 20% per annum. That is between 1.5 million and 2 million net adds per annum. and that we will grow the cash EBITDA by 33% per annum over that period. So as you can see, the cash EBITDA is going to grow more than the Prime member base. The reason for that is that as we incorporate a lot of new year 1 members in all of the areas of expansion that we're going into the new geographies, the new products like train, those in the first year have relatively low margins. And then when they go into the second and the third year, they come to much higher margins. So the same way that it happened in the cycle from 2021 to 2025, in which you saw top-line volume growth and you saw a much higher increase in the margins that compounded and get you much higher absolute EBITDA growth, you're going to see that as well in the cycle from fiscal '27 to fiscal '30. Now you're asking about fiscal '31, now I get into the heart of your question. You're going to have in fiscal '31, still high top-line growth. I'm not going to venture a number, but you will still be in the double digits for sure. And you will have, at the same time, a continued expansion in the margins. We have said that the margins will go from a 15% cash EBITDA margin in fiscal '27 to about 23% cash EBITDA margin in fiscal '30. For fiscal '31, you should continue to expect an expansion of the margins. So you're going to have, again, a growth in EBITDA in '31, which will be higher than the top line growth with an expansion of the margin. The second question has already been answered. It was about AI. The third question says, eDreams headcount is up 5% year-over-year. This is obviously to support future growth. There is a narrative that people in technology positions can be replaced. Can you talk about your experiences with this and thoughts on continued headcount growth to support the growth of eDreams? I'll take that. I think if you look again, there's a very useful parallel in the cycle from '21 to '25 and how we executed that and the way we're going about the execution of this upcoming cycle. In the process going from '21 to '25, we went from 2 million members to 7.25 million members. And in order to achieve that growth and go to all of the markets in which we expanded Prime, we increased the headcount from roughly 1,000 employees to about 1,800 employees. So that's an 80% increase in the headcount. We're now going into a cycle in which we're going to go from 7.5 million, 7.6 million, like we were a quarter ago to more than 13 million members. That's actually in absolute and in percentage higher than the growth from 2 to 7. And we're going to do it by increasing the headcount, like you're saying, only by single digits. That tells you that the leverage that we're getting from the new AI technologies that facilitate the coding make our software development workforce much more productive than what it was before. So absent that improvements in productivity, we would have had all other things being equal, to increase the headcount a lot more. So you already probably saw a press release that we did, I think, a few weeks ago, in which we let the market know that already, as of today, 30% of the software code that we put into production has been written by AI, supervised by a human, but it has been written by AI. The fourth question says, in December, the Italian Competition Authority fined Ryanair EUR 0.25 billion for withholding content from OTAs and degrading the OTAs, including eDreams. Where are you at with Ryanair content? Does this ruling help speed up getting full access to the content? And lastly, the Italian authority unearthed evidence that the Ryanair CEO, in communications to the Board and shareholders, blamed their sales declines associated with blocking OTAs on a boycott from the OTAs and not an action taken by management. Do you think there will be any ramifications for Ryanair given this evidence unearthed by the Italian Competition Authority? Dana Dunne: So let me take that. So I think I mentioned in terms of the access for Ryanair continues to be volatile. But I also want to just highlight to everybody, again, our results no longer depend upon Ryanair's meaning hitting our guidance, as we've derisked that in our projections. Now in terms of the question, the AGM ruling, yes, does confirm that Ryanair used massive disparaging campaigns to coerce OTAs into restrictive agreements. It's important to note that eDreams maintains its legal right to distribute flights without such agreements, and this has been confirmed by European high courts. In terms of the denigration, as you may know, we have secured a significant legal win with an unfair competition condemnation against Ryanair in Spain, and we will continue to defend our business and seek enforcement of the ruling. At the heart of our business, though, is we have access to Ryanair on a volatile basis. We are absolutely on plan and derisk our plan. And we have a consumer-led business, which we've demonstrated again and again that consumers hold us in really high NPS and our existing base of customers, we have demonstrated and shared data repeatedly with investors and analysts that Ryanair-like customers stay with us irregardless of whether we have full access or not of Ryanair and that they have extremely strong retention rates, renewal rates and satisfaction Prime. Now obviously, in terms of the ramifications of the evidence that you talked about, we've commented on those when the ruling came out, and we'll continue to monitor closely the situation to see if other authorities or anybody else takes actions on them. David Corrales: The next set of questions come from Guilherme Sampaio of CaixaBank. The first one says, do you still see no changes in churn or bad debt in the movement to a more phased payment scheme? I'd say that what we have seen in the 3 months since November is perfectly in line with the results of the test that we conducted for a period of 2 years. So no news. The second question from the same analyst is there are EUR 4 million nonrecurring items booked in the Q3 on those attached to LTIP. Could you provide more detail of the nature of this? And what is the level of nonrecurring costs that we should expect for fiscal '26? This EUR 4 million are tied to legal proceedings in Germany. There's a note that describes them. It's note 22.14 in the financial statements. So for full details, you can go in there. These are nonrecurring in nature, and you should expect that the level of nonrecurring items in the Q4 would be in line with other quarters, Q1, Q2, et cetera. Let me go now to the next investor. The next investor is [indiscernible] from Barclays. Could you touch on average order basket trends in the quarter? And any color on current Prime booking volumes, it would be helpful. Look, I would separate the 2 things. On the one hand is the booking volumes of the Prime members, and those continue to evolve according to the historical track record and in line with the increases in the Prime members. A different aspect is what we call the average basket size. And what we see in the comparison versus the past for this quarter is that we see a continued decrease in the average basket size. There are a couple of elements in the in which we are noticing changes in behavior from the customer. There is less percentage of the bookings on intercontinental routes, which are migrating to continental routes. So those are, if you want to simplify, Europeans preferring to go to European destinations as opposed to cross the ocean or going to Asia, let's say. And then on the other hand, what we see as well is more occasions in which people break down the return flight from the original flights, and they book, let's say, 2 one ways instead of aggregate, and they disperse those in time, and that also affects the average basket value of each one of the individual bookings. The next set of questions, although one is already answered. So the next 2 questions come from [indiscernible]. The first one says, can you provide more color on churn for Prime members and give us an idea on the split of monthly versus annual members, new versus existing Prime members, and number of products used by members? Well, that's a rather long question. Let me try to take it in a fashion. The churn we don't disclose, but there's nothing new about the churn of the Prime members. In terms of new versus existing Prime members, of course, in a period in which we show less increase in the net adds, like this year, which we're going to have 600,000 net adds versus the previous year at 1 million net adds, you have more existing. And you can see that in the progression of the margins, right? The progression of the margins is because you have more members in the year 2, 3, 4, 5, which would have higher margins than the members in the first year. In terms of the products used by members, let's say, there's no change there in terms of the frequency of the bookings that we see. T he second question says what metric or trigger would result in the business stopping share buybacks during the expansion phase. I'd say that as long as we continue to see performance in line with our expectations of the plan, so if we deliver the cash EBITDA that we have forecasted, and therefore, the cash flows that follow, there is going to be no change in the share buyback. So share buybacks are financed by the cash flows produced by the business. So as long as the business produces the same level of cash flows, we are going to have the same plan of repurchases. What we are not going to do, I mean, just be triple clear, is to incur additional debt in order to fund purchases of shares. The purchase of shares are funded with the cash flows produced by the business. Next question from Lazar is actually repeated from the previous one. The next question from Martinez [indiscernible] Capital is what is driving the ARPU decline? Okay. Let's remember what the ARPU -- how the ARPU is calculated. The ARPU is the cash revenue margin over the last 12 months divided by the average number of Prime members over that same period of time. So therefore, it is a cash metric. So one of the consequences of starting to incorporate into our member base, those that get into an annual subscription, but with monthly payments is that for people that joined, let's say, 6 months ago, we have received 6 monthly payments but not 12 monthly payments, whereas when you had the whole member base being on annual upfront payment, even if they join on day 365 of the period, they still pay you the full subscription fee. So you're going to see a natural softness in the ARPU going until the end of fiscal '27 derived precisely for this. And this is already a guidance that we gave to the market, and we said that the ARPU was going to go to a range between 60 and 65, and then after that would start to increase in fiscal '28 and beyond. There's another question that says from Cos of Swiss Life. Don't you think that it makes more sense from a stakeholder perspective to buy back your bonds roughly 50 points below par at 8% plus yield level versus continuing share buybacks? Well, I disagree, and the math is not very complicated to do. You point to an 8% plus yield level. I'd say the free cash flow yield from our projections is well in excess of that 8% plus. And therefore, it is a better financial investment to repurchase shares than to repurchase bonds. The next question comes from Linda from [ Arc ]. It says in terms of maintaining and defending your credit rating, which actions are currently on the table? Among others, would you consider the suspension of share buybacks? I'd say that the rating agencies have just refreshed their assessment on us based on the strategy that we communicated in November. And that strategy included inside the plan to repurchase 100 million of shares over a period of 24 months. So that's already factored in. It doesn't -- therefore, to defend the current rating, we don't need to change the action plan for that. The next question comes from [ Alice Stack ] of DB. You report 11,000 net adds in the Q3 compared to around 70,000 net adds in January alone from the fourth quarter so far. What reason would you attribute to this inflection in membership growth? Sorry, this is a repeated question. We already responded this question in the set of question from [indiscernible]. The next question from BNP Paribas is also answered. The next question has also been answered. It's a question from Giacomo Fumagamani of Arm. And it says, when you say that hotel performance was weak, what specifically do you mean? Less hotel supply, users changing habits, et cetera? I'm very confused about the question because we have never said that the hotel performance is weak. Actually, we're very satisfied with the performance of our hotel segment. And it continues to make very good progress. The penetration of how many hotels do we sell for every flight that we sell continues to increase. The amount of customer satisfaction of the members that use the hotel product is superior to the customer satisfaction of those that only use the flight product. So I actually don't know what this investor is referring to. The next question says, what has been the trend -- is from the same investor, what has been the trend in user base for Prime users in terms of age and user type? Dana Dunne: I'll do that. Yes. So first of all, overall Prime pretty much represents the market. So when you try to segment the market and look at, let's say, age distribution or socioeconomics, or you can think about even long-haul, short-haul, et cetera, many different types of things. We pretty much represent the online market with the following exception, we skew positively in a couple of segments and quite strongly in 1 of the 2 in particular. And that's obviously Gen Z. We over skew versus the market and also in millennials as well. David Corrales: Yes. I'm going to jump over several questions, which are repeated with the ones that have already come up. I'm going over to -- this one is new to Bharath Nagaraj from Cantor Fitzgerald. It says, how is the health of the consumer currently and travel still high on priorities for consumers despite worries about job losses, fears from AI generating job losses, et cetera. I'd say it's very consistent with the trends that we have seen in the previous quarters. If you look at public data out there that anyone can look at, you see, for instance, the data that IATA publishes on a monthly basis about the number of flights which are booked by people, or you look at another source is Eurocontrol that reports about the number of planes that actually fly in discount. It's another angle of the same thing. You can see that there are increases in volumes of about mid-single digit year-on-year, and that has been consistent over the last 2, 3 quarters. So in terms of leisure travel, I'd say that nothing has really changed upwards or downwards. It is a very resilient category in which people prefer to give up other discretionary expenses before they give up travel, and we continue to see that with the behavior of the consumers. And the next question is from Serena Mont of Santander. It says the recent legal requirement in Spain for subscription services to inform a customer whether he or she wants to renew or not. Could this have an impact in churn rate in your opinion? Have you noticed some early signals on that? Dana Dunne: Absolutely. So first of all, obviously, we're fully compliant with local regulations in each markets where we operate. We're fully transparent. We're transparent with our customers. We have not seen a structural churn deterioration from increased transparency. And I think we've even made comments about how, actually, in the sense our retention of customers is increasing. If you look at our NPS scores also, they continue to increase in these markets, including in Spain. And that all supports the fact that we have a strong offering is valued by customers, and we have as good, if not even better retention of customers than what we had, let's say, a year ago. David Corrales: The next question comes from -- it's a new question from an investor that already asked before [indiscernible] and it says, can you comment why other OTAs are not following a similar subscription business model? Dana Dunne: Yes, absolutely. So let me take that. So there's a couple of things. The first one is that we've been at this for over 8 years. Now in that period of time, there have been other companies that have come into the market and then have exited from a subscription-based business. And I think there's a lot of things that one really needs to do in order to get it right. And you've seen the NPS is very high for us. And you've also seen that our margins are good in the first year when you acquire a customer initially, and you have the CAC, obviously, the margins are very low. But assuming you have a really strong, good proposition, then you get into the year 2 plus, where you have very good margins. And that's what you've seen. And you've seen that like, for example, in '21 and 2025, as we grew the base of year 2-plus customers as a proportion to year 1, our margins continue to grow, and you even see that in our most recent results. And that also links with obviously the investment phase, as we acquire more year 1 customers proportion than what we had in the past, it does put some pressure in our margins, and then it comes back as we move the proportion of the year 2 plus customers, and we get to higher basis of those customers. That whole dip or that funding, a lot of companies don't want to go through. They also need to transform their business because subscription is fundamentally different offering, and you have to do things from the different types of, let's say, pricing, marketing, customer servicing, even cash management, every aspect of the company has to be transformed. Now we've done that, but it's a massive company transformation. So these are probably some of the reasons why some companies either have decided not to do it and/or some of the companies that did decide to try to do it have pulled back. David, back to you. David Corrales: Yes. There is a second question. Can you comment on the mix of products customers use? I understand holiday packages to be more profitable compared to just flights. Where do you see the mix shifting over your expansion phase? Will there still be a high focus on flights? Or is there an expectation that this will evolve over time? Dana Dunne: Yes. Why don't I take it? A couple of things. One is that we're really a consumer-led subscription-led consumer business. So we focus on that individual consumer. And so the most important driver for us is obviously the number of members, and then obviously moving those into year 2+, which we do very well. In terms of the individual product categories, we don't make, let's say, more money or less money on a certain product category. What we did when we set up our model a long time ago is we said that we're going to set up a model that's very similar to Costco in the sense that you don't try to price really a profit margin into your daily transactions of it. And instead, if I call it the profit pool is your subscription. Now because you don't price in a profit margin there, obviously that gives -- it meets a key buying criteria of the customer, and it delights them and they'll be coming back and coming back at the end of, let's say, the year period, they'll be more likely to renew because they've been relying on one of their key criteria for it. So that's where we've set up our model. So it's important to focus much more on the NPS that we have on the satisfaction of the customers and on the number of customers we actually have. David Corrales: The next question comes from [indiscernible]. Says you're currently executing a share buyback, of which EUR 77 million remain until September of 2027. Why don't you consider a tender offer at, say, EUR 5? This company should be trading between EUR 10 and EUR 15. This is a very low, low price. Of course, I agree with you, we've said repeatedly that the share price is severely undervalued. But then let me bring back together a couple of things that I said to separate questions today that I think are going to help you to understand the path that we're taking. The commitment to invest EUR 100 million over a period of 24 months is one in which we, let's say, face the repurchases with the production of the cash flows. So we first generate the cash flows, and then we invest the cash flows. And another thing that I've said today is that we do not intend to increase debt to fund repurchases of shares. So if we wanted to invest tomorrow, EUR 77 million, we would have to incur that to then do the tender offer and then repay the debt over the next 20 months or so as we generate the cash flows. That's the path that we said that we are not comfortable taking. So we will continue to buy progressively according to the generation of the cash flows. I think we're out of time. Thank you very much for a lot of interest in the business and joining our webcast today. Before we conclude the call, I would like to inform you that on Thursday, the 28th of May, we will be hosting our conference call for the full year 2026 results presentation. In the meantime, we will be very happy to receive your questions via our Investor Relations team or in the investor e-mail address, which is investors@edriimsolidia.com. Have an excellent rest of Thursday and rest of the week, and looking forward to speak soon. Thank you.
Remon Vos: Good morning, everyone, from CTP here in Prague, Czech Republic. Excited. And thanks for dialing in. It's good to have you on the call. We are going to talk about the 2025 results, which are good. But before we start, I'd also like to look back. 2025, you could say, has been 25 years of growth. We have completed our first building in 2000 here in the Czech Republic in Humpolec, where we did our first CTPark model. The CTPark Humpolec was the first site we acquired, initially 10 hectares, and later on we had the opportunity to grow that park. So that's where we first started with a club house where we looked for people and did establish a small team and did then develop a number of properties, and those buildings are still fully leased and many of the tenants which we initially had actually, they're still there, and they have been able to grow their business. So 25 years of continuous growth, which started with nothing, with a piece of land, and then building and second, et cetera, et cetera. So thank you very much to all the very loyal clients, all those companies who we have been working with, the companies who gave us the opportunity to work for them outside of the Czech Republic later on. And of course, thank you very much to all people we've been working with a lot over the past 25 years. And thank you to all other partners and of course, the fantastic team here at CTP, which in the meantime is 1,000 people, more than 1,000 actually nowadays. So that has been 25 years of continuous growth, good times, bad times with all kind of different opportunities along the way. So '25 has been a strong year, has been a good year with good results, which illustrates also the growth engine, the thing we like to do, we like to grow and the largest growth engine in the business here in Europe. So last year has been also an important year for us, because we added another country. We opened up business in Italy. In the meantime, we have more than 200,000 square meters of projects under construction in Italy, mostly pre-leased, 70%. We do that in south of Milan, close to Piacenza, Castel San Giovanni, but also in Padua, and we have other projects underway. At the same time, we set up a team of people in Italy, and we have a land bank to build an average of, we thing, 200,000 square meters of properties over the next years, and we hope within 5 years to hit the 1 million square meter lettable area target in Italy as well. We see good opportunities in Italy. Overall, we see opportunity in Europe over the next years. So we're quite happy with the entry so far, and we're making good progress. The land bank, mostly North Italy, but also strategic sites in the region of Rome. So there's also other places where we believe we will be successful in the development of our industrial properties, again, mostly for existing clients, so the companies who are already renting from us in other markets. For those clients, we plan to develop properties in Italy. And the amount of business we do for existing clients is approximately 70%, 7-0 percent of the total amount of business we do. When we look at drivers for Europe, it's definitely near-shoring Asian companies coming a setup shop in Europe for Europe. I mentioned defense, but also technology, semiconductor industry, consumer goods. People have more free time, so they go out biking, running. Pets, massive industry. We do multiple facilities for pet food producers, pharmaceuticals. So there's a whole of consumer spending, means people have more money to spend than they had 25 years ago when we started here, and we see that in other markets in Serbia, in Slovakia, in Romania, where we came initially maybe for low-cost manufacturing and later turned into manufacturing for domestic market. And nowadays, Central Europe is the engine of Europe. Here is where you go for manufacturing. And yes, it's all positive. So relatively good outlook, and we have a number of growth drivers. We are not in it for the short, we're in it for long. So we have plans for the next 25 years. And those plans are definitely to make CTP a global player and to grow with our clients and to use all the experience we have building business parks. Last year, we signed 2.3 million square meters of new leases, 2.3 million, which is a bit more than we did the year before. In '24, we did some 10% less. Rental rates were a bit higher last year in '25 compared to '24, approximately almost 5% higher rents than same building in a year earlier, in 2024. So a bit rental growth, 10% more deals, and still around 10% yield on cost. Target, midterm ambition, continue to grow with existing clients, which we have a lot of them. Good companies. They pay on time. 99.7% is rent collections of money which we charge to tenants, which is paid. And as I said, most of them on time, good companies. 70% of all new business we do with existing clients have 80% retention rate. And this is also important to mention, 75% of all the projects we do are being built within existing business parks. So we don't do stand-alone boxes. We really create an address, a park, an environment, an ecosystem with sufficient infrastructure and manage these facilities for people to work, develop themselves, to create business together, to work together, to grow stronger, and to have a stable business park. Also not overexpose to one specific industry, you want to mix it up with different industries. It's also good for labor market. We see a lot of automatization among our tenants. So they continue to invest in their facilities, in their production lines, in their technologies, which is good as well. We break it down at CTP, as you know. We talk about 3 things. We have the operator, which is the income-producing part. So the part of the company will look after the buildings which we have built over the past 25 years, with EUR 840 million of rental income, on the way to hit EUR 1 billion rental income next year. So it's the operator with good occupancy level, always above 90%, between 93%, 95%, depends a little bit on the market and the location where you are. It depends also on how much property we actually build to enter a market and you need time for the market to absorb all those buildings, but remain at the target around 93%, 95%. That's the operator. Then we have the developer. Those are the people at CTP who develop properties or who build business parks and properties. Quite active now also with inventing new type of properties, adjustments, constantly working on making these buildings better, both the existing refurbishment upgrades, but also new properties. And better means flexibility. So we have generic designed buildings for multiple generations, energy consumption, maintenance, those things are important when you design a property. That's what these guys are busy with. Some highlights as well what we've done in terms of completions last year, 1.3 million square meter, 180,000 square meter in Bucharest; 65,000 square meter in the CTPark Budapest in Hungary, but also, of course, in Brno, Czech Republic, yes, the home of CTP, where we have built millions of square meters. Last year, we did a deal with FedEx, for example, just to mention one. Part of our 30-30 plan, right, to grow to 30 million square meters. 2 million square meters under construction this year, which is good for EUR 150 million of rental income. Another highlight, maybe if you talk about those 2 million, we do a lot in Poland, the largest economy, largest country in Central Europe, very dynamic. Can do, a lot of support from the government, very good locations, I think we have secured a good team on the ground. So there we invest a significant amount of money now building properties, mostly leased, in and around Warsaw, but also Upper Silesia, Katowice, Zabrze, as well as along the German border on the west side of Poland. So we see there good opportunity, as well as in Gdansk, by the way. Another highlight, I would -- yes, Bucharest, Romania has been good, is still strong. Serbia is strong. Germany this year is important to get things going in Mülheim. Some of you have been on the Capital Markets Day event last year, we looked at Mülheim Energy Park with E.ON, Siemens and more to come. So that's happening, making good progress in Düsseldorf as well as in Wuppertal. So overall, quite positive about Germany as well. I think, yes, well established and good position. Last but not least, the growth engine, the third activity, we look globally at opportunities in different countries. And how does this work? Well, it comes from clients. Clients tell us, okay, we are going to that market, because we see growth. We need properties. Are you there? Sometimes we are, sometimes we are not. If we are not, then we have a closer look at such a market. We think shall we go there? Does it make sense now? And we constantly do that. Sometimes we do not enter. Sometimes we have a closer look. Now we always have the desire, as you know, to also become active outside of Europe, because we see other opportunities in other markets. And we found good opportunities in Vietnam and strong demand from existing clients. So we continue to have a closer look. We announced it last September. And so far, we've been making some good progress, having a closer look at the market and the opportunity. We have a few people in the meantime on board. So we have a CTP Vietnam, and we have there a small team of experienced industrial property people. Vietnam, obviously strategically located, 100 million people, very productive workforce, but also quite young people, around 30 years of age. So in the future also, you will see consumer spending. Well connected to the rest of the world. And that will also give an opportunity to get us feet on the ground in Asia and also closer to other Asian companies who look at coming to Europe. And then we'll keep you up to date on developments we are making. Yes, it's not only about getting bigger, we need to also get a better company. So we are obviously constantly working on getting a better company with maybe doing more buildings with less people, more efficient, more effective, different processes and procedures. We automatize. For example, when it comes to property management, when it comes to energy consumption, we know exactly how much energy tenants consume in their buildings. We can help them again with energy management with clear understanding of the condition of the building, and when there are issues, property management related, then we can fix that. We have a clear system for that in place in the meantime to monitor all the maintenance and repairs, which potentially are needed. So both energy consumption as well as maintenance and repairs to make sure buildings are in good condition and remain in a good condition. That's one example. And there's many other things we've done, whereby we've introduced new processes, better, and software and automatize, standardize, digitalize the company, and that makes us think better and quicker and more efficient to continue to grow our business. Yes. So we're looking forward very much to the next 25 years. Thank you for your attention. I will hand over to Rob. Some of you know Rob. He's not really new to CTP, but as IR, we are happy to have him on board and look forward to answering your questions. Robert Jones: Turning to the financial highlights. Net rental income increased by an impressive 14.1% to EUR 738 million, driven by record leasing of 2.1 million square meters, excluding Italy. Like-for-like rental growth came in at 4.5% in FY '25, accelerating from the 4% we delivered in FY '24, and this was driven by indexation and positive rent reversion capture. We also delivered record development completions of over 1.3 million square meters with occupancy at the year-end still remaining stable at 93%. Annualized rental income increased by 13% to EUR 840 million, illustrating the strong cash flow generation of our portfolio and locked-in growth profile of our business for 2026. Company-specific adjusted EPRA earnings increased double digit by 11.3% year-on-year to EUR 405 million. CTP's company-specific adjusted earnings per share amounted to EUR 0.85, an increase of 6.3% year-on-year, as we also made positive progress on our debt refinancing during the period. This EPS figure was just EUR 0.01 variance to guidance, driven by the timing of development completions in Q4 '25 with some moving to Q1 '26. As we look forward, the important message here is that our medium-term double-digit annualized growth trajectory is unchanged, as Richard will highlight shortly. Now looking at the valuation results. The revaluation of the portfolio for 2025 came to over EUR 1.1 billion, a key contributor to our leading total accounting return for the period. Of this positive portfolio performance, EUR 422 million was driven by the construction and leasing progress on our developments, while EUR 649 million came from the revaluation of our standing portfolio with the balance from our land bank. As at the year-end, the total portfolio gross asset value now stands at EUR 18.5 billion, up 15.6% from FY '24. CTP's reversionary yield stood at a conservative 6.9% at full year '25. For '26, we expect further selective yield compression and positive ERV growth in line with inflation. This is also illustrated by the new leases that we signed in '25, where rents were a solid 4% higher than 2024, adjusting for country mix. The supportive demand drivers of our business remain present, whether that be near-shoring, manufacturing in Europe for Europe, businesses upgrading their supply chains or reacting to the changing global landscape alongside increasing deglobalization of political agendas. Our core CEE markets, where industrial and logistics space per capita is half of that of many of other Western European markets, continues to benefit from these supportive trends alongside our own Western European markets and our opportunities being assessed outside of Europe. We are not short of opportunity, nor are we short of capital, with that opportunity driven primarily by the embedded value to be unlocked from CTP's existing land bank of more than 33 million square meters with the majority next to our existing CTParks. This land bank that we have on our balance sheet allows us to facilitate our tenants growth as a solution provider for their real estate needs. We remain active in the market for the acquisition of land, especially in Poland and Germany, and we replenish and, in a number of cases, grow the land bank in existing markets where returns are the most attractive. Now as Remon mentioned, we also continue to look to enter markets such as Vietnam, following on from our successful CTP Italy market entry at the back end of last year. Our EPRA NTA per share increased from EUR 18.08 at year-end '24, up to EUR 20.39 FY '25, and this represents a strong increase of 12.8% during the period. With this NTA growth, in conjunction with our dividend distributions, we delivered a total accounting return to our shareholders of 16.1% over the past 12 months, highlighting our superior total return profile, which is underappreciated by the equity market within the real estate sector. I now hand over to Richard. Richard Wilkinson: 2025 was another year of solid growth for CTP as we continue on our journey to 30 million square meters of GLA, a doubling of the current portfolio. The company's interconnected business units, the operator, the developer and the growth engine are all supported by our strong access to debt capital markets, diversified funding structure and multiple sources of liquidity provided from across the globe. 2025 saw us receive an investment-grade credit rating upgrade to BBB flat from Standard & Poor's. Moody's also have a positive outlook on our credit rating, confirming the growth trajectory of our business. This January, we again evidenced the high institutional demand for our debt, issuing a 4.5-year bond at a spread of only 92 basis points with a peak order book of over EUR 4 billion. Looking forward, we will continue to diversify our sources of debt funding as well as managing our liquidity to ensure we do not hold material excess cash. We also target growing our share of unsecured debt towards 80% of total outstanding debt. Turning to the key credit metrics. Our interest coverage ratio was unchanged quarter-on-quarter at 2.5x, and we expect this level to be the bottom. Our normalized net debt-to-EBITDA remained broadly stable at 9.3x and our loan-to-value stood at 46.1%. This LTV is marginally higher than our 40% to 45% target due to us seizing the acquisition opportunity in Italy at the end of 2025. In Italy, we will deliver 200,000 square meters of GLA in 2026, more than 10% of our annual target. And with a land bank of over 8 million square meters, we have a long runway for growth in Italy, a country with a significant undersupply of modern A-class industrial and logistics space. As our development pipeline is completed and over 10% yield on cost and revaluation gains are fully booked, we expect loan-to-value to move back towards our target range. To complete our development pipeline of 1.4 million to 1.7 million square meters in 2026, we do not need additional equity capital due to our sector-leading yield on cost around 10% from projects to be delivered in 2026. Every euro we invest in our pipeline increases our ICR and decreases our net debt-to-EBITDA as our leasing income comes on stream. This allows us to grow group rental income at double-digit rates while simultaneously improving the most important credit metrics. In 2025, we signed EUR 1.7 billion of unsecured debt to fund our development business, debt refinancing and our growth engine. We continue to demonstrate our ongoing strong market access whilst actively managing our funding costs. During the year, we renegotiated or repaid EUR 1.6 billion of our most expensive bank loans. Looking through 2026 and beyond, CTP maintains a conservative debt maturity profile. We repaid EUR 350 million of bonds maturing in January, and our only remaining bond maturity in 2026 is EUR 275 million maturing at the end of September. Looking further ahead, maturities remain limited over 2027 and 2028 with less than EUR 1 billion in total outstanding. Our liquidity at the end of 2025 stood at EUR 2 billion, comprised of EUR 700 million of cash and our EUR 1.3 billion RCF, more than sufficient to meet our cash needs for the next 12 months. The average debt maturity stands at 4.8 years, and the weighted average cost of debt was 3.3%, which represents only a marginal increase compared to year-end 2024. We do not expect a material increase in our average cost of debt as our marginal cost of funding is currently below 3.5% for the 5-year midterm period. Regarding the midterm outlook, a key message here is that the medium-term growth outlook for CTP remains unaltered. At our 2025 Capital Markets Day, we introduced our ambition to double the size of our portfolio to 30 million square meters. We expect to grow top line income around 15% per annum, driven by rental growth in our operator business alongside double-digit organic GLA growth from our developer business as we build on our unrivaled land bank at 10% yield on cost, supported by our growth engine as it seeks attractive global investment and growth opportunities. Digging deeper into those attractive return drivers. Firstly, we have the operator, over 1,500 supportive tenants who pay on time, stay with us and grow with us. Secondly, we have our development business, led by the strategic land bank of more than 33 million square meters, either on balance sheet or under option, located mainly around our existing parks. This is the key component of our portfolio growth ambition. And thirdly, we have the growth engine, the global identifier of shareholder value-accretive land-led acquisition opportunities to continue to deliver high returns well above our cost of capital. We also continue to see above inflationary rental growth across our markets, supported by income reversion capture, positive near-shoring trend, production in Europe for Europe, and ongoing e-commerce growth driven by rising disposable incomes across our strong Central Eastern European region and our Western European markets. Previously, unlike the rest of the sector, we did not capitalize interest on development activities, which made comparability between companies for investors more difficult and made CTP appear more expensive on a simple earnings multiple basis. Going forward, we now capitalize interest to provide reporting harmonization with all other European real estate companies. Following this change, we now set our company-specific adjusted EPRA earnings per share guidance for 2026 at EUR 1.01 to EUR 1.03. This implies year-on-year growth of 9% at the lower end of the range, rising to 11% at the top end of the range when compared to the 2025 result. In summary, CTP delivers leading shareholder returns as a growth business with income and cash flow growth, development profit growth and the growth engine lever through expanding our global exposure. Thank you for your attention. We now welcome your questions. Operator: [Operator Instructions] With that, we'll take our first question from Marios Pastou from Bernstein. Marios Pastou: I've got 2 questions from my side, one on the development pace and then one on capitalized interest. Just firstly, on development. So you had some delays in 2025. You also then added Italy. I'm just questioning why there isn't any upgrade really to the guidance range for the development targets for 2026, and whether there's any kind of room to beat on this going forward? And then secondly, on capitalizing interest, I suppose another question really on why you've decided to implement this change now. Not all companies do this, and whether you'll continue to headline both numbers going forward? Richard Wilkinson: Yes. Thanks, Marios. I'll take the interest capitalization question first. look, as we've been on the market now for 5 years, if someone wants to look at the real estate sector, they fire up their Bloomberg and they sought companies by earnings multiples, if everyone else is capitalizing interest and we are not, we screen expensive compared to the market. So basically, what we're doing is we're just aligning ourselves with the standard market practice of all the logistics players. And the timing, we think that -- we've increasingly heard from investors that when they look at us first, they think you screen expensive. And then when we dig in, we understand better why that first look isn't always helpful. We understand investors are time poor. So we want to try and make it easy for them to have a simpler comparison going forward. And on that basis, we will publish the EPS targets and results, including the capitalization, not excluding it. Regarding the development pace, maybe I start and then Remon maybe comes in. Regarding the guidance for 2026, we're coming out with something that we are very confident that we can deliver. We think the 1.4 million to 1.7 million is something that is very achievable with us. The lower end of that range would be a new record for deliveries for us, but we're confident that we can reach that. We know we missed on the EPS guidance for last year, and we don't want to disappoint the market in any way going forward. Operator: Our next question comes from John Vuong from Kempen. John Vuong: Just on the pre-let for 2026, could you elaborate a bit more on the mix of developments in existing and new locations and how that compares to last year? And have you started relatively more developments in existing locations essentially? Or did leasing start a bit slower than last year's pipeline given the 30% pre-let rate? Richard Wilkinson: Yes. Thanks for the question, John. Yes, regarding the overall pre-let, we stand at 30% at the start of the year, which is in line with our 30% to 35% range that we've been doing over the last years. In terms of the existing parks, the pre-let is 23%; in new parks, the pre-let is 62%. So consistent with what we've been doing over the last years and what we've been reporting in parks, where we know the demand, where we understand the tenant requirements coming up, we are willing to start with a lower pre-let ratio. And finally, I would also highlight that we have another 175,000 square meters of pre-let projects that we have not started yet. So you don't see those in the pre-let ratio. Robert Jones: John, this is Rob Jones. The other thing to add is, we're still very comfortable on our 80% to 90% target for pre-letting at delivery for '26. We obviously delivered 88% in 2025, so very much towards the top end of that range, and are happy to guide for that 80% to 90% again for 2026. So yes, we're pretty comfortable there. Operator: Our next question comes from Jonathan Kownator from Goldman Sachs. Jonathan Kownator: Just coming back to the guidance, please. So 2 questions really. The first one, I think your guidance previously excluded Italy. Now it does include Italy for EUR 200,000. So overall, the entire amount has not changed, meaning that it's probably a bit lower for the rest of the business. Is it just risk management; ultimately, that's the amount of space you're comfortable having to let or deliver as a package? Or are there differences that you've noticed in terms of appetite for different countries? That's the first question. The second question, please. The growth implied by your guidance from the top line seems to be a bit stronger than the growth at the bottom line, and yet you highlighted that your marginal cost of debt is pretty close to the in-place. So is there something that we're missing here? Or are you expecting some additional costs that we need to be aware of? Robert Jones: Jonathan, I can touch on both of those, and I'll pass over to Richard for part of the second half, the second question. So on the guidance for deliveries for '26, you're absolutely right, 1.4 million to 1.7 million square meters. We initially announced that '26 guidance, obviously, towards the second half of last year prior to the Italy transaction. But it's important to understand that we obviously had a high degree of probability internally that we were going to complete on that Italy transaction. So when we gave that raised guidance, and as Richard touched on earlier, even at the bottom end of the range, it's still a record in terms of what we've delivered in previous years. That included our expectations for the Italy deliveries of 200,000 square meters, which, of course, is already substantially pre-let for '26. And when you think about Italy going forward in your model, we are guiding to 250,000 to 300,000 square meters of deliveries from 2027 looking forward, so an increase thereafter. So I guess the takeaway from that is, do we think that there's further upside in the 1.4 million to 1.7 million? No, very comfortable with the range and it includes Italy. Just on the top line growth versus bottom line, so you're right in your assessment. But I think one important point to make is, yes, our weighted average cost of debt today, which is about 3.3%, is very similar to our marginal. We did debt issuance at the start of the year where we issued 4.5-year money at 3.375%. So very, very close to our weighted average cost of debt. But don't forget, we do have a debt instrument bond that matures in September this year. I think, remember, the coupon on that is 0.625%. If we refinance that with, say, 5-year money today, that would probably cost 3.4%, 3.5% all in. So it's important to be aware of that. But obviously, then looking thereafter, from '27 onwards, we're then in a position where we've got no refinancing upcoming that has a notably different coupon to our marginal cost of debt. Richard, I don't know if you want to add anything to that? Richard Wilkinson: No. I mean, unfortunately, we never see the top line flowing one-to-one through to the bottom line. Of course, we would love to see that. I think one of the things to please bear in mind in this year is, also we'll be building up a team in Italy and there's some costs associated with that. And although we have the pre-let deliveries to come, they're coming in Q4. So there's not going to be a lot of income to offset the ramp-up in the costs. Secondly, we've continued to investigate the opportunities in the Vietnamese market and are looking to build up a team there over time as well. Robert Jones: And of course, as you -- sorry, go ahead. I was going to say, as you say, despite those points that Richard makes, we're still in a position where at the midpoint of our earnings guidance for '26, it still represents double-digit EPRA EPS growth year-on-year despite that investment we're making in the business. Remon Vos: And maybe to add also for you, Jonathan, it's also -- for the cost of debt is also the annualized impact from '25. So you cannot only look at '26, because, yes, as Rob explained, we had, of course, the bonds in January and then in September, but it's also the annualized impact of '25, which is, of course, reflected already in the average cost of debt, but still has an impact on our '26 EPS. So if you do the math, and you can do it relatively easily, also if you look to the refinancings we have done in '25, you see that the impact is still a few cents on the overall EPS. Jonathan Kownator: Okay. So if I understand correctly, cost of debt and admin cost you're building as opposed to being a bit less confident on the top line, right? Remon Vos: Correct. Richard Wilkinson: Yes, absolutely correct. Remon Vos: If you want, I can add something on the supply, because it keeps coming back, this question. So first of all, we look after the income-producing part of the portfolio. We make sure that we are happy with the occupancy rate. And then we will continue to build if we can lease. So we are going to not build buildings if we are not confident we can lease those buildings. So we balance between supply and demand. And while doing that, we do gain market share. So if there's an opportunity to develop and to lease properties, we do. And that's what Rob explained in his presentation, as we've been doing over the past years, we do gain market share. So we build as soon as we believe we can lease. Operator: Our next question comes from Frederic Renard from Kepler Cheuvreux. Frederic Renard: First of all, let me flag that your line is not really great. So I'm not so sure it's just me. So just flagging. Then I would like to comment on 2 elements. First, on the long-term guidance of 30 million square meters. Even with Italy today, the pace of growth is important, but far from the level which would bring you to a portfolio of 30 million square meters by 2030. So it seems basically that your existing market is not absorbing what you are delivering at the moment from an external point of view. Can you comment on that first? And then maybe on the second question, if I compute your vacancy in terms of square meters, it looks like your portfolio is at 1 million square meters of vacancy, which is quite sizable. What is structural here in the mix? And finally, on the pre-letting, you mentioned 88%. But actually, if you compute the pre-letting in Q4, it came close or slightly below 80%. So can we conclude that there is some kind of a softer demand in the market at the moment versus what you had in mind 1 year ago? Richard Wilkinson: Yes. So in terms of our midterm ambition, I mean, we said 30 million we would like to achieve target. It's an ambition, we want to get to 30 million square meters by 2030. If you compound our portfolio by 12.5% per year for the next 5 years, you're going to get to somewhere around 26 million, 26.5 million square meters. And there's a small gap there, but we think that there may be opportunities or there will be opportunities to find one or the other attractive acquisition over the next 5 years. We talk about a relatively midterm perspective there, Fred. So I think we're comfortable with that level of ambition and our ability to realize that. If we can do 15% a year, which would be the top of our organic growth rate, then we get almost to the 30 million square meters. But it's our ambition and we're comfortable with that at the moment. In terms of the vacancy, as Remon just said, we're always balancing supply and demand in our parks and in and around our parks. Our business model is to run a vacancy of -- we target around 95% occupancy going forward. And as the portfolio grows, that means the absolute square meters of vacancy increases. So yes, at some stage, that gets to 1 million square meters, that's simple math. That's part of our business model that we live with, we accept that vacancy rate, because we feel that gives us a competitive advantage when tenants are looking for space in the short term, because not everyone is planning years in advance. Sometimes people need space quickly, and then the ability to act quickly and grab a tenant and meet their demand puts you in a better position to retain and grow with them then also going forward. And regarding the pre-let for Q4, look, across the year, we delivered 88% towards the top end of our 80% to 90% guidance. We try not to get too hung up on the volatility of any one quarter. Short-term trend is not our target. As Remon said in his presentation, we're in it for the long term. That's why we have the land bank that we have mostly in existing parks or with the potential to build a new park of more than 100,000 square meters for each park. That's the real value driver for us and... [Technical Difficulty] Operator: It seems we have lost audio with our speakers. Please stand by whilst we're getting them reconnected. Robert Jones: Yes. Let me continue. I think Richard dropped out. Operator: Okay. Hold on. I'll just transfer you back over, because I've moved you out of the main room. I'll transfer you back over now. Remon Vos: Okay. I'm still here as well. Operator: We'll now continue. Robert Jones: Sorry for the connection drop. I think Richard dropped out, but let me continue on where he stopped. So if you look to the pre-letting as always, so I think last year, when you look to the Q3 of '24, we were at 95%. At the end of the year, we came also within the range. So there is always a bit quarter-by-quarter movements and that comes indeed back to our business where we are mostly developing in our existing business parks. If you also look to the quantum of leasing that we are doing, yes, 1 million of vacancy might seem a lot, but we sign 2.3 million square meters of leases each year. So if you look to the overall amount of leasing that we are doing, 1 million square meters is less than half a year for us. So yes, of course, with the scale of the portfolio, that becomes a larger number. But in our overall leasing capacity, that's ultimately important for us, because it all comes back to tenant demand. That is ultimately the key thing when we are looking for, are we starting the next development, where are we starting the next development, and where do we see growth. Operator: We'll now take our next question from Vivien Maquet from Degroof Petercam. Vivien Maquet: I think your line dropped again, but I hope you will hear me. A couple of follow-up questions from me. Maybe when it comes to the deliveries, can you quantify the volume of deliveries that was moved to Q1 2026? And if possible, what kind of level of pre-let do you have on this project? And maybe I ask my other question afterwards, if you can hear me? Robert Jones: Yes, sure. So if you look to the deliveries, we came out on the lower end, of course, of the 1.3 million to 1.6 million that we guided for. We were planning to be more in the middle or the higher end of the range, but that's business. So if you look to what has shifted, that's basically, say, 150,000 square meter or so to the next year. So that's also -- it's reflected in the overall pre-letting, of course, for this year, the 30%. But like Richard mentioned, actually, the 30% might look a bit low compared to previous years. But on top, we have the 175,000 square meter of projects leased that haven't started yet. Some of that also will be delivered in '26. So it's always a mix of those elements. So that is basically the impact on the shift of deliveries, and that will help a bit in '26, and that's why we are so comfortable with the 1.4 million to 1.7 million for this year. Remon Vos: And let me add to that, maybe an important one, is structural vacancy. There is nothing like that. There is not buildings which are empty for years and years and years, okay? So it's just adding supply to the market and then you need the market, you need some time for the market to absorb all that space, and that's what we are doing. So when it comes to buildings which have been vacant for a longer term, then I can think of properties in Germany. As you remember, we entered the German market through an acquisition of buying Deutsche Industrie, which is a mix of some fantastic locations, redevelopment opportunity, but all the buildings, so there is some vacancies, and we need time to refurbish those buildings, which have started, but that takes a bit of time. It's all part of the budget and it makes a lot of commercial sense. But then you have buildings which will not produce income for a while because you're doing some refurbishments now. And there's some vacancy in the German portfolio, you can see, but our core portfolio, all of the stuff we built, there's no structural vacancies. There are some vacancies here and there because of the supply. But again, this goes down to CTP's business model. So I suggest you have a good look and listen to all the nice videos we have done to understand the way we run it. It took us more time to get to 15 million square meters. It took us 25 years to get to 15 million square meters. It's going to not take us 25 years to add another 15 million square meters, to grow to 30 million, because we know the game of how to develop and with whom, and with all of the clients we have, that gives us great opportunities to continue to do what we do. But yes, 5% from 30 million is 1.5 million square meters. Operator: Our next question comes from Eleanor Frew from Barclays. Eleanor Frew: One question, please, on the reconciliation between your company-specific EPRA EPS and EPRA EPS. The adjustment this year was a lot larger than last year. Can you talk us through the reasons for that? And also, what should we expect on that adjustment moving forward? Is this the new run rate? Robert Jones: There were some one-offs in that adjustment. And I think we already discussed that in the H1 and Q3. I think on the tax side, you saw a positive, especially in the first half of the year. So the tax adjustment for '26 will be lower. That's one. There are also some in the other expenses where there were some one-off adjustments, for example, related to some transaction that in the end did not take place, which is booked in the other expenses and therefore, adjusted, of course, in the recurring elements. So there are some of the one-offs in '25, which are slightly higher than I would expect on a run rate basis. So that should be less in '26. Operator: Our next question comes from Steven Boumans from ABN AMRO - ODDO BHF. Steven Boumans: Some technical questions for me. What's the assumptions on the capitalized interest? So what's the interest rate that you use and what loan on cost do you assume? Second, what's the impact on the average yield on cost for the change there due to the capitalized interest? Can I assume that will increase the cost of development? And last one, do you assume a similar number of shares year-end '26 as in '25? Robert Jones: Yes, Steven. So in terms of -- go on. Marios, do you want to go -- we had a problem with our line. Yes. So apologies for that. And I hope that you can hear us properly, because Fred was saying that he couldn't hear us and then we dropped. So apologies for that technical lapse. In terms of the capitalized interest, what level do we use? We use the actual cost in the balance sheet, so the average cost of debt. So for this year, it's 3.3%. In terms of the yield on cost impact, that would be somewhere around 30 basis points. And there was a third question as well, but I lost the connection on that one. I'm sorry, Steven. Steven Boumans: So the last one, the number of shares you assume in your full year '26 outlook, is that the same as in '25? Robert Jones: Yes, we're not -- yes, it's slightly higher because it incorporates the dividends that we're paying. As you know, we proposed a final dividend of EUR 0.32 for the full year. We'll also have an interim dividend later in the year. Based on past behavior of the shareholders and expected behavior, we would expect the majority of that to be taken up in scrip. So there will be an increase in the number of shares as a consequence of the scrip dividend. But otherwise, we're not planning on an increase in the share capital. As I said in the presentation, we don't need to raise equity to fund the development pipeline, the 1.4 million to 1.7 million that we're very confident to deliver. Operator: Our next question comes from Suraj Goyal from Green Street. Suraj Goyal: Hope you can hear me. The rent levels for new leases in '25 were around 4% higher compared to 2024, but I noticed it was lower in Bulgaria, Serbia, Hungary and also flat in Romania. I wanted to find out what the reason for this is, and if this is reflective of some of the softness or normalization in operating fundamentals across Eastern Europe. And then are you able to give any color on the market split of the 3.8% ERV growth that you quote? Robert Jones: Yes. So maybe I'll deal with the technical part, maybe Remon will pick up on the overall tenant demand and how we see rents going overall. Yes, I mean, it depends a little bit country by country as to where we're leasing within that country. So certain parks have higher rent levels than others. So if you're very close in town -- in the capital, you're going to get a higher rent than if you're leasing in one of the regional cities. So the mix there across the countries is generally to do with where we're doing the leasing in that specific quarter or in that year. So generally speaking, if we look at our ERVs, the ERVs across the portfolio are increasing. So location for location, like-for-like, we're seeing across the portfolio, a general increase in the rent levels. But we don't expect that to -- that's different location for location, depends on the supply, on the demand in the individual location at the time. Overall, you will see rents continuing, we think, to grow inflation plus over time. There will be markets where it's going quicker, at a point in time markets where it's going slower. But overall, we're very happy with the rent level development that we're seeing across the whole region. Operator: Our next question comes from Vivien Maquet from Degroof Petercam. Vivien Maquet: Sorry, I had 2 other questions that was skipped. First is on the retention rate. Just trying to understand the decline to roughly 81%, if I recall. And how do you see a normalized retention rate going forward? Robert Jones: Yes. Look, I think our retention rate historically has been 80% to 85%. There have been times where it's been a bit higher. There have been times where it's been a bit lower. We would think that generally, if we look, 70% to 75% of our new leasing, last year was 71%, is done with existing tenants. So we would think that 80% to 85% is a reasonable rate to expect in terms of tenant retention. So you're retaining the vast majority of your tenants, but you won't never keep everyone. Vivien Maquet: All right. And then one last question on the goodwill impairment. Can you comment on that one? Robert Jones: Yes, sure. That goes to our German acquisition back in 2022. And what we see -- last year we saw a nice uptick in the valuations of our portfolio in Germany. And as the valuations increase, then the goodwill that we recognized at the time of the acquisition decreases. Operator: Our next question comes from Bart Gysens from Morgan Stanley. Bart Gysens: Quick question on the dividend payout ratio. So you're saying that for '26, the dividend payout ratio remains unchanged. But of course, the accounting policy of starting to capitalize interest increases your reported EPS by 10%. So will you now start paying a higher percentage of this previously more cash EPS? Or will you gravitate towards the lower end of that range to reflect this accounting policy change? Robert Jones: Yes. Bart, good question. Yes, I think that we'll end up gravitating towards more 70%, 72%, 73% rather than historically, we've been 75%, 76%, 77%, something like that. Bart Gysens: But that would still mean a higher percentage payout, right, on the previous... Robert Jones: No, you end up -- if you're 70%, you're almost the same. There shouldn't be a material increase in cash out as a consequence of the capitalization of the interest. Operator: We'll now take some questions from the webcast. Our next question comes from Laurent Saint Aubin from Sofidy. Can you please comment on the decline in your client retention rate to 81%? Robert Jones: So we already answered that question. So yes, look, like I said, we're targeting generally expecting to be between 80% and 85% in our tenant retention. In '24, we were 84%; in '25, we're 81%. So very comfortable with that. Operator: And then our next question is from Wim Lewi from KBC Securities. What is expected impact of the capitalization of interest costs on your yield on cost expectation? Robert Jones: Yes. Again, that's another question I answered earlier. It's around 30 basis points. Operator: And then our next question from Crispin Royle-Davies from Nuveen. Are you going to keep the same payout ratio against the new definition of earnings, or adjust this downwards to keep cash payout ratio the same? Robert Jones: Yes. So payout ratio will stay within -- or move towards the bottom end of the 70% to 80% payout range. Cash outflow for the business remaining relatively unchanged given the majority of our divi is taking scrip. Operator: With that, we have no further questions in the queue at this time. So I'll hand back over to the management team for some closing comments. Remon Vos: Yes. So thank you very much, everyone, for your questions and your interest. I'd just like to underline that we continue to see really attractive midterm growth potential, primarily in and around our existing CTParks, but also with the addition of Italy and hopefully an addition in Vietnam, we think that we have everything in place for the next leg of growth. And we wish you all a good day. Thank you very much for your attention. Robert Jones: And you're invited for the Capital Markets Day in September, right, in Warsaw. Remon Vos: Yes, of course. Sorry. Thanks very much. Richard Wilkinson: Thank you very much, everybody. Operator: Thank you all for joining. That concludes today's call. You may now disconnect your lines.
Operator: Welcome to Arkema's Full Year 2025 results and outlook conference call. For your information, this call is being recorded. [Operator Instructions] I will now hand you over to Thierry Le Henaff, Chairman and Chief Executive Officer. Sir, please go ahead. Thierry Le Hénaff: Thank you very much. Good morning, everybody. Welcome to Arkema's Full Year 2025 Results Conference Call. With me today are Marie-Jose, our CFO; and the Investor Relations team. As always, the slides used during this webcast are available on our website. And together with Marie-Jose, we will be available to answer your questions at the end of the presentation. In 2025, the macroeconomic environment was, as you know, particularly challenging, probably one of the most difficult our industry has faced in the last 20 years. The second part of the year, in particular, was marked by subdued demand across many end markets. The slowdown in the U.S., while Europe remained at low levels. This reflected ongoing cautiousness of economic factors as well as tight year-end inventory management at many of our customers. On the other hand, Asia continued to be the most dynamic region for the group, in particular, China, where we could see an acceleration in certain sectors like electric mobility, advanced electronics and sustainable consumer goods as well. As you could expect in this context, the group focused on its fundamentals of customer proximity and innovation while strengthening its cost and cash initiatives. The teams have been fully mobilized on a daily basis to best address the environment and strictly control the operations. As a result, we generated a high level of cash at EUR 464 million, well above our revised guidance of EUR 300 million. This performance was also better than last year's level despite the significant EBITDA decrease. EBITDA stood indeed at EUR 1.25 billion with a margin of 13.8%, so close to 14%, not living up to our expectation at the beginning of our year, but not different from what most of our peers have experienced. We were able to offset fixed cost inflation and delivered around EUR 90 million of fixed and variable cost savings in 2025, nearly doubling our initial annual target set at CMD. This work will be pursued in 2026 as we strive to offset against the inflation, and we should, therefore, be able to deliver the 2028 cumulative cost savings target of EUR 250 million, 2 years in advance. As you can see in Slide 7, the group has launched a number of new initiatives to make the organization even more efficient, leading to more than 2% headcount reduction in 2025, and we anticipate a further reduction of around 3% per year over the next 3 years. Our performance continued to be supported by several of our key attractive markets, namely batteries, sports, 3D printing, healthcare and new generation fluorospecialties with low global warming potential, which benefited from strong dynamics with sales up 16% year-on-year. This market will continue to grow in the future and contribute to the ramp-up of our major projects listed on Slide 5. These projects delivered around EUR 60 million additional EBITDA in 2025, and we expect this trend to continue in 2026. The group will benefit from the ramp-up of the recent investment in the U.S. and Asia, successfully started in 2025 and early 2026, namely our new 1233zd and the DMDS unit in the U.S. as well as the Rilsan Clear transparent polymer capacity downstream of the polyamide 11 plant in Singapore. In addition, our investment in PVDF in the U.S. is planned to start up in the first half of 2026, increasing our capacity by 15% in the region. PIAM should continue to benefit from the launch of new smartphones, notably foldable and ultra slim models in which polyamide is becoming essential to answer their higher requirements in terms of reliability and thermal management. PIAM should also start benefiting from successful diversification into new high-end application in industry markets. After this important wave of organic projects, offering significant room for growth midterm, Arkema will further reduce its CapEx envelope to EUR 600 million in 2026. This level will enable the group to continue investing in targeted projects with high returns and fast payback. We did not only focus on the very short term but continue to build Arkema for the future by developing strategic partnership with leaders in their domain in order to strengthen our positioning in key markets such as batteries or sports. Maintaining our efforts in R&D is key in order to stay differentiated and accelerate our growth in high-end applications. We stay focused on sustainable innovation. We leverage our competencies by collaborating with doctors, OOYOO in carbon capture is a good example. Coming back to our 2025 EBITDA performance, outside of the negative currency impact, the low cycle in upstream acrylics and the decline of old generation refrigerant explained most of the decrease. The rest of Arkema's business was far more resilient, but this performance to a certain extent, was overshadowed by these other activities. That's why in order to improve the reading of the group's results, we have decided to implement a new segmentation starting in 2026 to better highlight the distinct dynamics and business models of the resilient and fast-growing platforms within Specialty Materials compared to the most cyclical and last industrial activities, which will be rebooked in a new segment called Primary Materials. The global Arkema polyamide business will be included in this new segment. This business has been much more volatile in recent years than it used to be, as you can see Slide 21. However, looking back since the acquisition of our American assets in 2010, this activity has been tremendously cash generative, largely contributing to further growth portfolio transformation over the past year. So we continue to leverage our strong industrial and commercial position in acrylics to generate solid cash generation and capital returns over the cycle. The new segmentation will also bring more visibility to our next-generation low GWP solution for air conditioning, which were actively managed to enhance our prospects. They will now be integrated into the fluorospecialties portfolio and will benefit from accelerated growth in applications like heat pumps and data centers. On the other hand, old generation refrigerants that have been a highly profitable and cash-generative business since 2020, probably exceeding potential proceeds from a disposal will join the Primary Material segment. While this business will quickly fade over the coming years, Arkema will benefit on the other end and within the Specialty Materials from the ongoing growth of the low GWP solution, generating substantial value. I believe this new segmentation will provide the financial community with greater transparency on Arkema's portfolio business drivers and Specialty Materials performance. Finally, I think it's important, I also want to quickly highlight some of our CSR results where we made again strong progress and achieved quite good performance in 2025. This is the case for our climate plan, where the group's numerous initiatives to reduce its carbon footprint are paying off. We reduced our Scope 1 and 2 emissions by 48.7% at the end of 2025 compared to 2029, fully in line with our target. And we have also decided to strengthen our ambition in water withdrawals and introduced a new target on waste treatment, another key priority for Arkema. Lastly, given the strength of the group's balance sheet, the Board has decided to propose a stable dividend of EUR 3.60 per share to the Annual General Meeting despite the challenging macro, which is a sign of confidence, both in the quality of the portfolio and in the relevance of the strategy. Thank you for your attention. I will now hand over to Marie-Jose, who will review in more detail the financial results before I come back to discuss the outlook with you. Marie-José Donsion: Thank you, Thierry, and good morning, everyone. So as commented by Thierry, 2025 was a challenging year. Starting with revenues of EUR 9.1 billion. Sales were down 5% year-on-year that were impacted by a negative 2.9% currency effect reflecting mainly the weakening of the U.S. dollar against the euro, but also from other currencies, including the Chinese Yuan and Korean Won. The scope effect at plus 1.6% reflecting the integration of Dow's laminating adhesives. Volumes were down 1.6%, reflecting the overall weak demand environment in Europe and North America as well as a tight inventory management by customers in the fourth quarter. On the other hand, we continue to benefit from a positive dynamic in Asia and more particularly in China, mainly driven by high-performance polymers. The price effect was a negative 2.1% impacted essentially by the acrylics cycle and by the refrigerant gases that are transitioning from old to new generation. Our other activities showed a more limited price decrease of 0.9% in the context of declining cost of raw materials. The group EBITDA came in at EUR 1.25 billion, including EUR 40 million negative currency effect. Let's mention first, Q4, which is a seasonally low quarter. The decline in EBITDA in the fourth quarter reflected the overall weak demand environment in Europe and in the U.S. as well as the strong destocking due to tight year-end inventory management at our customers and ourselves, actually, which impacted particularly our Adhesives and Advanced Materials segment. Looking now at the full year performance by segment. Adhesives margin came in at around 14% if we exclude the dilutive effect of Dow's laminating adhesives business still in its integration phase. Full year EBITDA reflected the weak demand in industrial additives and the slowdown in the U.S. in the second half, notably in flexible packaging, transportation and construction. Positive performance continues to be supported by our ongoing work on efficiency and our price discipline. Advanced Materials resisted well with a broadly stable volumes and prices, delivering an EBITDA margin of 17.9%. High Performance Polymers in particular, showed a 2% organic growth on the year, supported by new business developments in batteries, sports and 3D printing and the ongoing positive dynamic in Asia. The segment's EBITDA was nonetheless impacted by the negative currency effect by an unfavorable mix in performance additives as well as by lower volumes in Europe and in U.S. In Coatings, EBITDA was impacted by the low cycle conditions in the upstream acrylics as well as by the weak demand environment in coating market. Construction and decorative paints market in Europe and U.S. were subdued. The performance of the segment was therefore significantly lower than last year despite the resilience of downstream activities. Lastly, Intermediates EBITDA was mostly impacted by the decline in refrigerants in the first half of the year, while acrylics in Asia improved slightly. The group's recurring EBIT amounted to EUR 564 million, which corresponds to a recurring EBIT margin of 6.2%. It takes into account EUR 687 million of recurring fixed asset depreciation, higher than last year due to the integration of Dow's laminating adhesives and to the starting amortization of new production units, which came online during 2025. Nonrecurring items amounted to EUR 276 million. They include EUR 144 million of PPA depreciation and EUR 132 million of one-off charges, notably the restructuring costs linked to the hydrogen peroxide site in France. Financial expenses stood at minus EUR 125 million. The increase versus last year reflects the increased interest costs of our bonds on one hand and the lower interest on invested cash on the other hand. All in all, adjusted net income amounted to EUR 328 million, which corresponds to EUR 4.34 per share. Moving on to cash and debt. Arkema delivered a strong cash flow generation with recurring cash flow standing at EUR 464 million. This reflects our continuous initiatives to tightly manage our working capital. Working capital ratio on annualized sales reached 12.5% from EBITDA. And the EBITDA to operating cash conversion rate stood at 88%. Our spend in capital expenditure amounted to EUR 636 million, below the level of our recurring depreciation in . Free cash flow amounted to EUR 390 million, including a nonrecurring outflow of EUR 74 million, linked essentially to restructuring costs. Taking into account these elements, Arkema's net debt and hybrid bonds were slightly down at EUR 3.2 billion, which includes a EUR 1.1 billion hybrid bonds. The group continues to enjoy a strong balance sheet with a net debt to last 12-month EBITDA ratio of 2.5x. Note that our 2026 maturities were all prefinanced till 2025. The EUR 300 million outstanding hybrid bond issued in January 2020 was redeemed in January 2026. So our portfolio of hybrid bonds at the end of this month -- end of Jan is back at EUR 800 million. I hand it over back to Thierry now. Thierry Le Hénaff: Thank you, Marie-Jose, for this explanation. So if we exchange all the outlook for this year. So at the beginning of the year, the environment remains and there is no surprise to find the continuity of the second half of last year, with limited visibility and weak demand. The currency effect, you saw it continues to be a headwind following the further weakening of the USD and Asian currencies against the euro. In this context, as we said already, our first priority will continue to focus. And I think we did a good job last year, and we'll continue to do a good job this year on the elements under our control. This means, in particular, optimization of fixed costs, optimization of variable costs, CapEx and working capital. Besides, we continue to rely on the progressive ramp-up of our major project and it's slower than expected because of the macro, but is still material for the company, and it will support the Arkema growth in the long run. So for '26 versus '25, we expect this project to contribute around EUR 50 million of additional EBITDA. It will continue to help us this year and in the following year to reinforce our geographical footprint, since we anticipate more long-term development potential in Asia and in the U.S. In light of these elements for 2026, the group aims for its EBITDA to grow slightly at constant FX, and we prefer, obviously, to reason at constant FX, given the unusual volatility of exchange rates against the euro, not only the USD, as I mentioned, but also most of the Asian currencies. The year-on-year comparison will be more challenging in H1, and more particularly in Q1 since last year profile was more weighted on the first semester with significant destocking in the second half. Besides the currency effect on Q1 should be negative estimated at EUR 25 million. If we put the currency effect aside, we expect in 2026, the macro more or less similar to '25. The comparison with last year should ease progressively until the end of the year, including specifically to Arkema, the ramp-up of our major project. As a result, we anticipate the performance of the 2 halves more balanced in '26 than in '25. So thank you very much for your attention. And together with Marie-Jose, we are ready to answer the questions you may have. Operator: [Operator Instructions] The first question comes from Tom Wrigglesworth with Morgan Stanley. Thomas Wrigglesworth: Two, if I may. First, could you talk a little bit about the construction end markets by region? And how -- and kind of help us understand how much step down you saw in the U.S. in the second half and how much weight that weighs on 2026? And conversely, there are expectations that construction refurbishment improves in Europe in '26. Do you see anything in your order books or in your discussions with customers that kind of talk to that? And then secondly, if I may, just around obviously very strong free cash flow in the fourth quarter. How much of that was your decision to really cut the working capital versus the pricing element rolling through working capital, i.e., as we look at working capital for '26, if we do start to see some volume improvement at some point, do you need to see a rapid increase in working capital to meet that demand? Thierry Le Hénaff: Okay. I will let Marie-Jose answer on the working capital. On the construction market, it's an interesting question because, as you know, we have -- compared to other peers, we have more -- we are more weighted in construction, especially Europe and U.S. and in Asia is less than that. I would say, and it joins your question, in fact, to a certain extent, the answer is in your question. Europe, we have reached certainly a bottom. I'm quite cautious on the signals because we have been caught several times by surprise. My feeling is that let's say, there is a little bit of incremental improvement, but to be confirmed, okay? So Europe is like the bottom, it does not decrease anymore. And if there was a trend, it would be incrementally slightly better. In the U.S., clearly in second semester, it was one of the bad surprise. We are down in terms of business development. I would be -- I know the elasticity and the agility of the U.S. economy. So I would not extrapolate necessarily what we saw in the second semester in the U.S. with what it could be this year. What is clear is that -- and this is a difference with Europe, U.S. decreased second semester of last year in construction, while Europe gave the impression, it was more at the bottom and with a little bit more positive. So U.S. we will see. I know that the administration -- Trump administration is trying to put in place some measures in order to support construction-related activities. We'll see if it brings -- it brings some support, but there are so many variables that are difficult to know today. So I would be cautious as I am on the macro -- overall macro economy, let's take month by month and see how things are developing. Marie-José Donsion: On the cash? Thierry Le Hénaff: Yes, the cash. Marie-José Donsion: A few comments. So basically, you saw the working capital landed at 12.5% of our annual sales, frankly, reflecting the similar work that our customers have been doing on their end. For 2026 at constant macro, I would expect, frankly, a flat working cap. In case of a rebound, then for sure, working cap should increase in a commensurate way versus those 12.5% or 13% of our sales. Thomas Wrigglesworth: Okay. Just as a quick follow-up. I mean, do you think that the industry or the supply chain has overcut inventories and working capital? It just feels like everybody has cut aggressively at the end of last year and then aggressively cut again in the end of 2025 -- sorry, '24 and '25. I guess investors are surprised as to how much destocking has taken place. So any commentary or color there as to the level of inventories in the system would be very helpful. Thierry Le Hénaff: Certainly, this question is worth a lot of money. The difficulty, as you know, and you know as much as I know, Tom, is in the supply chain in chemicals, they are complex and they are longer. So it's -- and fragmented, so it's very difficult to have a clear view what is sure is that. And it has been, to a certain extent, a little bit of a mystery for all of us because normally, when you have a cycle in chemicals doesn't last so long. It's clear that we see destock. Now we are already talking about end of destocking, 18 months ago, we thought it was already long. So -- but it's clear that the stock for most of the chain seems to be rather low, but they are low if there is a rebound, if there is no rebound, certainly, the chain can live with that. So my theory is still the same. It does not change. And is that at a certain point, you will get a rebound. We don't know when it will happen. We don't know when and when the rebound will come, the chain will be under big pressure. This is obvious, but we don't know when. And there will be nuances depending on which region, which end market, which product line, et cetera. But basically, this is a typical cycle of chemicals, where you have volume and pricing on the both directions depending on the -- if it goes down or it goes up, always amplifying the industry. Then we have to be a bit patient, but it will come at a certain time. We don't know we'll see. So your question is valid. Certainly stock are less at the end of this year than they were at the end of '24, '24 was less than end of '23. But now this is a demand which will be the main driver of the stock. Operator: The next question comes from Matthew Yates of Bank of America. Matthew Yates: I'd like to ask about the new structure, the divisional restatement. Not the first time the company has done that since its creation. And I heard your introductory remarks about the benefits of transparency. But I would put it to you that there is an argument that it highlights a lack of industrial logic to the portfolio that you can move things around so frequently. It hurts investors' ability to track performance over time because we lose that transparency. So can you just elaborate a little bit more as to why you think this is a good decision. And by association, have you changed reporting lines or management structure? I had a quick glance at your exec committee on the website, which hasn't changed. But is there going to be a change in roles and responsibilities that may help us bring some better operational performance and some genuine benefit of this move? Thierry Le Hénaff: First of all, Matthew, we don't change so often. And here, we are talking about an incremental change. I think the difficulty we had and hopefully, it was well explained in our -- and we are completely open to discuss more with you and who wants. The difficulty we had were 2 things. The first one, we got the impression that on the Specialty Material business, which is whatever definition, by far, the large majority of Arkema portfolio. We are really doing a great job and this year, we were frustrated by the fact that we could not read it and you could not read it simply. And the reason was that we have -- things have changed over the past 3 years, the world has changed. I think maybe we change, but I think it's good to be agile and to try to be as transparent and as clear as possible in a world which is changing a lot, where yourself, ourselves, all our stakeholders are trying to understand what is happening and on what you can really rely and build for the future. And what we saw is that in fact on the refrigerant gas, while we saw that we were mostly old generation gases and little development in new generation, and this is why we wanted to sell it because we saw that there was no future and it was far from our sustainable strategy. What we saw is 2 things: that the old generation that we know already, were going to -- were phasing out or fading out and with an acceleration in the past 2 years. But on the other side, we're far stronger, far better, far quicker in the development of new generation, not for the traditional application in refrigerant, but for new application, heat pump, data center, energy efficiency in the buildings, which were really completely core in terms of the strategy of Arkema with some of niches, same end market, same kind of growth pattern, et cetera. So we wanted absolutely to recognize that. And this is why a part of this we split between old and new generation, and it makes completely sense from a portfolio standpoint that this new generation joins them. We have already started to do it, join the HPP. The second thing with regard to acrylics, for a long time, and we had -- I know discussion together on that. We are absolutely convinced that we would be able, for Europe and U.S., to stabilize their volatility by developing the downstream. It was true for Asia, but Asia, we knew that it would be quite limited. But Europe and U.S., we thought we could go at further on this path to balance the upstream and the downstream. But in fact, we have seen that the targets were not so many. In fact, we bought already most of this target with Sartomer and Coatex. And the second thing was that not only we were -- we decided when we bought Bostik to put most of our allocation of cash for acquisition for adhesives. And the second trend that we see, which is linked to the fact that the world is becoming far more volatile than it was in the old time. You can see on every parameter, the FX, the -- also the macro figures in this or that market, et cetera, or the brand evolution. In fact, it reinforces the volatility of the acrylic acids, the acrylics monomers. And we wanted to also to -- so we decided to put back China, Europe and U.S. together, and to recognize that in the portfolio, we have a minority, a small minority, which around 15% of the portfolio which is really in nature, more volatile. Even if on the -- over the cycle, we still generate a lot of a lot of cash. And for acrylics, it's normal because the upstream goes with this downstream. The upstream is a basic material. We know that basic material. So we think that with this evolution of the world that we want to recognize, the more volatility of what is now in primary materials, we are able really to be -- to show you that all the jobs that we have been doing on the Specialty Materials is really bearing its fruit with quite a resilience and the growth over time. And it was in this context of '25, which was completely atypical and unexpected. They were able to deliver minus 5% EBITDA evolution, which, frankly speaking, given the level of the context or the challenges of the context was quite a good performance. So for us, it was far easier to explain it like this. So you have to take it as a better reading now. This is why we did it. So hopefully, it will -- and we are ready to discuss with any of you. For us, it reinforced the quality of the reading on the performance and also of the benefit of the strategy we have been leading over the past 10 years. Matthew Yates: Okay. Can I ask a follow-up? Because from your answer, it sounds like the concept of integration across the value chain hasn't worked and is no longer valid. So this goes above and beyond simply the way you're reporting it. It questions the actual strategy of the company. Are you open to the idea of exiting the 3 upstream acrylics plants if there were to be a possible buyer out there? Or are they still core to the broader group? Thierry Le Hénaff: No. I would say that we have to take it for what it is, which is a better reading and reporting of where we are. Acrylics remains a backbone, which is important of the downstream. So, so far, I would say, is really part of the portfolio. And anyway, the results are quite low. So it's not at all even beyond what you say, the topic of disposal. Now as you say and you have seen the history of Arkema, there is never any taboo. So I think that for the time being, it's quite a reporting topic, and we have to take it as such. Operator: The next question comes from Laurent Favre of BNP. Laurent Favre: My first question, I guess, is on HPP where we had a stable Q2, stable each Q3 and Q4, I think a bit of a collapse down -- sales down 15%. We saw something similar with your peer this morning. And I was wondering if you could talk about what you're seeing on beyond, I guess, destocking, what you're seeing on competitive pressures and in particular, maybe some kind of commoditization risk? That's question number one. And the second one just to echo the comments from Matthew. I think best practice for us, especially if you're talking about adding transparency would be to have sort of restatements for the divisions going back to at least 2023. That would be really, I think, helpful for investors and for us. But a question related to the restatement is around acrylics. EU, U.S. I think it looks like you had EUR 13 million of EBITDA in 2025. And I was wondering how you're thinking about this going forward? It seems that we still have capacity additions in the industry in 2026 and maybe 2027. So are you expecting acrylics EU, U.S. to still be around that sort of breakeven EBITDA for '26 before we eventually see a recovery? What did you bake in the guidance? Thierry Le Hénaff: Okay. So with regard to the first question, I really think that the end of the year and you mentioned also our peers on the -- on the HPP is really driven by the destock of customer. When I saw -- we saw in detail, you can imagine the dynamics to really understand the results beyond the fact that the impact of the FX was more important in Q4. Don't forget that. What we saw is that the impact of destock was quite high. And destock, it happened less in Asia, where by culture, they don't stock a lot, but in Europe and U.S. So in fact, not only we have destock globally, but the fact that the destock was more pronounced in Europe and U.S., where culturally, our customers have more stock changed the geographical mix, okay? And it weighs on the profitability evolution. So the geographical mix was especially this low sales in the U.S. was a little bit of a surprise and that was linked to the destocking. We have spent a lot of time, as you can imagine, in this kind of contact with our customers. We knew, we understood that they would be very cautious in terms of stock at the end of the year. So this destocking topic is not just a matter of the chemical industry. Our customers, they destock, our suppliers, they destock, everybody try to finish the year with stock, which was, I would not say minimal, but more reasonable than they were given the level of the demand. So for me, it's not a matter of more competition or anything special sort of change in evolution, we would have seen in Q4. It's really a matter of customer by customer destock, as you can imagine, we check our market shares very precisely also, no. So -- and you know Q4 is the last quarter of the year. So sometimes you can have certain years, you can have a little bit of amplification of the low demand. But I would not consider this sort of new trend at all. It's not my feeling. And as you know, in HPP, we put a lot of efforts on the new business development, innovation and I think this is a paradox. I think we have been good on that. And so the growth is there. We are able to differentiate versus competition. And the market is not easy, but we are not particularly concerned for the next few years. On restatement, so I pass the message to the Investor Relations team will do what we can, but the idea is certainly not to lose you on the contrary, is to help you. So don't worry on that. We'll do our best. Yes. And with acrylics, yes, EBITDA, you could make the math, at least maybe we're not -- it's complicated for you. But as you could see, you could try to find some new information that you had not before. So it helps you also. I can see you started to work on the acrylics. Clearly, we are surprised by the, let's say, the depth of the cycle of acrylics is something. In fact, we have to go back to 2010 and the acquisition of the acrylics from Dow where the cycle were more or less that one. And I don't know if it makes you more comfortable. A year after, it was our one of best product line. So I think everybody has to be modest on anticipating. So I think that acrylics was under -- in Europe and U.S., was more under pressure than expected clearly in '25. We expect for the time being, something in, hopefully, a little bit of improvement, but something not far from what we saw in '25. Operator: The next question comes from Emmanuel Matot of ODDO BHF. Emmanuel Matot: Three questions for me. First, does that make sense to believe that H2 could be in line with H1 in terms of EBITDA? Is that the seasonality you are factoring into your guidance for 2026 because it's quite unusual historically? Second, given the ramp-up of your major projects , why do you expect those projects to have a lower additional contribution to the group's EBITDA in 2026? Because you are mentioning only EUR 50 million contribution compared to EUR 60 million last year. It seems to be cautious. And last question. Do you feel that the authorities in Europe are more willing than in the past to help you and the sector regain competitiveness significantly and protect you more from unfair competition, in particular, from China? Thierry Le Hénaff: Thank you, Emmanuel, for the question. On the first one, we didn't say it would be equal, we say it will be more balanced. So because on the contrary, in '25 was atypical, in terms of seasonality, but I'd say it would be at par H1 and H2. It's just the imbalance we had in '25 would be more back to normal, I would say. On the project, it's just -- in fact, there is no -- maybe it's counterintuitive, but it's not because you do a EUR 60 million in one year and EUR 50 million the following year. We are talking about incremental, as you know, additional EBITDA, okay? It depends on the momentum of the project. If in '24, you had a project which was started with the first step in '25, with the first step, which was very high in terms of contribution, the year after the same project can deliver far less on top of it. So you can deliver on a project. I don't know I will give you an example. You deliver on 5 years EUR 100 million. You can have the first year of EUR 40 million, the second year EUR 20 million and then EUR 10 million, et cetera. So it's not linked. So what is important is cumulative, and it depends on the phasing of the projects. Some have started 3 years ago. Some will after -- have just started at the end of last year. So don't -- there is no relation, I would say. What is important is accumulation. If we are cautious so much the better, it will depend on the macro. But I think that we should count on the EUR 50 million, I think it's reasonable. But the projects are -- what is more important beyond the figures is that we confirm that the positioning of the project is still completely valid from a strategic standpoint, from a geographical standpoint. And I think this is good news. This means that since the world is changing, your question could have been also, do you think that some of the projects are not relevant anymore because there were a change. It's not the case. We really confirm the quality of the projects. They are all meaningful even if it takes more time to develop than we would have thought at the beginning. On the last question, yes, we think that -- so first of all, we are a global company. So this is not Arkema protected. This is the assets of Arkema in Europe, but we have assets everywhere. And we will be pragmatic at the end, even if we like our region our country, we put our money where we believe we can be competitive and we can develop. And now with regard to Europe, yes, authorities have understood the danger for the industrial assets of chemical company, but also beyond chemicals in Europe. This seems to be more aware of the danger, more protective, think more about competitiveness. So in terms of let's say, awareness and intent, I would say, is positive in terms of act for the time being, we see nothing. Operator: The next question comes from Chetan Udeshi of JPMorgan. Chetan Udeshi: I had maybe 2, maybe 3, I don't know, but I'll try. The first one was just I'm looking at your Advanced Materials Q4 numbers. And I mean you're saying you had destocking, but then your revenue in Q4 is actually above Q3 and your EBITDA has been -- I mean it seems revenue is up EUR 10 million versus Q3. EBITDA is down EUR 40 million versus Q3. So I'm just curious what happened there? And maybe just to challenge your comment that Arkema is doing very well in Specialties. It doesn't seem like when I look at your numbers in Adhesives or Advanced Materials that's really coming through in terms of numbers. The EBITDA in both these divisions are down quite dramatically year-on-year. So just curious why you think we should think Arkema is doing well, and this is not a competitive pressure that is coming through in the business? And the last question I had was just in Q1 -- sorry, Q1 guidance. Historically, if I go like many years back, your typically, Q1 will be up 20% to 30% versus Q4. But in the last 2 years, we've had a more modest improvement of 1% to 5%. What should we think in terms of the magnitude of that seasonal rebound that we should have in mind for Q1? Thierry Le Hénaff: Okay, Chetan. I try to understand your -- the rationale of your questions. When you compare Q4 with Q2 with -- on Advanced Materials or no, I think on Advanced Materials, this is the answer to Laurent. This is a destock. So the destock -- as I said, which was not the case in Q3 happened mostly in Europe and the U.S. We have strong destocking in the U.S., and this is where in terms of added value, we are higher than in Asia. So the geographical mix is working against us. That's all. You have all the figures. So at the end, but it's more -- it's really the destock and the geographical mix. We have some high-value applications in Europe and U.S., which really completely destock. And sometimes just in December, you have no order because your customers are just optimizing their stock. So this is what happened. But from what I see with other peers that I know that you have some peers you especially follow. You can see that we -- destock was all across the board by many peers. So I would say no, no, I confirm what we say. Then your second question that is... Marie-José Donsion: It's the seasonality between Q1. Thierry Le Hénaff: No, there was another one. Marie-José Donsion: We said we are doing well in Specialty, but Chetan seems to flag that Adhesives and Materials were not so great. Thierry Le Hénaff: No, I think what we -- I don't really understand what your question. But what we say is that I'm sure you are referring to my point to Matthew on the transparency, why we changed segmentation. I think what we see very clearly is that the EBITDA of the Specialty Material over the year has declined by 5%, which we consider in macroeconomic, which is one of the worst we have seen in 30 years is performance, which show the quality of this portfolio. That's all. For the rest, you have your own opinion as the rest. But we consider that we have minus 5% EBITDA in really more than trough conditions. On 85% of the portfolio is a performance which need to be appreciated and to be highlighted. This is what we do. This is -- we think it was worth doing it. With regard to the Q1 guidance, we will not enter into precise figures. The only thing that we can say is that Q1 will be above Q4. There is a seasonality. The macro is comparable, certainly destocking should be less and the seasonality, typical, is better in Q1. We agree that in the recent years, it has been a bit less higher compared to Q4 than it was before. So you have some reference points that you can take. But I think this is a qualitative element that it will certainly not be the kind of seasonality you could find a few years ago. It's more typical of the more recent years, but Q1 will be above Q4, no surprises there. The macro should be quite comparable, but the destocking will be less also. Okay. And don't forget the FX impact of EUR 25 million that we have mentioned. Operator: The next question comes from James Hooper of Bernstein. James Hooper: Can we go into a little bit more detail around the outlook, please? Specifically, kind of division through division, if that's possible? And another thing I'd like to try and understand is, obviously, you're guiding for the EUR 50 million cumulative effect from the projects. But is there a cannibalization impact on some of the existing revenues? Because I'm just trying to bridge to the kind of the -- how this -- and also the kind of impact of the specialty groups versus refrigerants? Thierry Le Hénaff: With the outlook, I think we -- you got our press release and -- and what we can say at this stage on the outlook. So we are not given -- I think we have never given any guidance by division. We give a guidance for the whole company. Now I would say the macro and this is -- this was our feeling in '25, especially if you look at the new segmentation, I would say the macro is similar for each of the business, and there is there geographical footprint is quite comparable. The end markets are a little bit different, but they are all diversified in terms of end market. So I would not make a big difference by division. And there was a question of Laurent on the primary products materials with the weight of acrylics, et cetera, where we think it will stay at least for the first part of the year at a low level. But for the rest, I think the macro should be similar. Now on HPP, you will benefit more of Advanced Materials. You will benefit more from the projects than the rest -- than the other division. You could see that in -- if you take the list of the project is more in Advanced Materials and in Adhesives, but certainly Advanced Materials than the other division. Construction in Europe, we mentioned that I think, should more help the Adhesives and the Coating. So I'm sure you factored also old generation refrigerant and the primary material. So you have some nuances depending on which division you are talking about. So overall, a similar picture, but with some nuances that you know pretty well if you take our slide because you have where the projects are located. You have this discussion on construction, the discussion on old generation refrigerant and the acrylics. On the project, the EUR 50 million, I don't know what you mean by cannibalization, but there is no cannibalization. So this means this is a really -- at least it does not cannibalize other product line, if it is your question, a new product line would replace another one. No, it's not the case, except with refrigerant, where refrigerant is -- that is one project. And in fact, it's not for us in the case of the new refrigerant business, the end market is not the same. So it's not a cannibalization, but we know that old generation disappear, new generation are coming. But for the rest, no, I didn't see any cannibalization coming from the projects. James Hooper: And can I just ask a quick follow-up as well in terms of the cash outlook as well? Because I don't think you've given formal guidance for cash. Marie-José Donsion: So on the cash outlook, as we said at, let's say, comparable macro, cash performance should be quite comparable, let's say, provided that you take into account that the working capital would remain flat. So you see, in fact, for 2025, the contribution of the working capital variance. If we assume macro remains comparable, then there is no change in working capital expected in '26. Operator: Mr. Le Henaff, there are no more questions registered right now, so back to you for any closing remarks you may have. Thierry Le Hénaff: Yes. So first of all, thank you very much for your attention. I think this new year will be quite interesting as was the previous one. I think the team is really focused on the 2 time horizon, as you know, and as you could appreciate the efforts, cash, fixed costs, which are very important, so we'll continue then with a lot of engagement, and we still are confident on our major projects. It's a very important part. It takes more time than expected to develop them in the current macro, but it will really be a very material contributor in the coming years. And for the rest, we confirm that we have really strong positioning on most of our business lines. And even if the macro for the time being, remain rather weak, we think that our leadership position is really a support in this kind of environment. So looking forward to meeting you at different occasions. And have a good day. Thank you. Operator: Ladies and gentlemen, this concludes this conference call. Arkema thanks you for your participation. You may now disconnect.
Reese McNeel: Hello, everyone, and welcome to this Q4 2025 results presentation for Prosafe. My name is Reese McNeel, and I am the CEO. I'd like to just highlight here to start off where we are. Prosafe, we are the largest operator in the accommodation market. I think we have a very strong high-end fleet of 5 units, a leading position in Brazil. I think there's very strong market fundamentals. And today, I want to spend a little bit more time on talking about the market that we're in. And we have a really strong focus, particularly the last quarters, on cost and improving our strategic position. Coming back a little bit to Q4. I was very happy with the Q4 results. I think Q4, if I look back to get to the EBITDA that we had in Q4, we have to go back to 2022. So I think it was one of the strongest quarters we've had in many years. It's also a quarter where we had all 5 of our rigs operating and all 5 of our rigs earning. I think again, we got to go back quite a while since we've seen that. And I think that's a reflection of how strong the market is. Also had a very strong operating performance with 100% fleet utilization. So basically, essentially no downtime. So really strong operations and also good safety performance. A little bit on the marketing side, very important, of course, as well. We did sign an LOI for the Caledonia for 2027, very happy about that. I think as part and parcel of that LOI, also, we will -- we have agreed to sort of an upfront payment structure. So I think that's also going to be beneficial for us. And of course, we're looking for additional work for the Caledonia to fill the gap, but very happy that we were able to secure something for the Caledonia. When we come to sort of CapEx and looking at CapEx going forward, we did move the SPSs, which we had originally planned in 2025. They have now been moved into 2026. And actually, we'll be starting those SPSs here very shortly in the coming weeks, and that is both for the Safe Zephyrus and the Safe Notos. I'll let Halvdan talk a little bit more about the financials when we come to that, and I will go through on the next few slides a little bit more in depth on how I see the market and maybe what our strategic focus is. Again, largest operator of the offshore accommodation, where are our units today, 3 in Brazil, 1 in Australia. And the Caledonia, which we just demobilized, she was off contract on the 22nd. We're very happy with that. We actually got all the options exercised, which we had on that contract. It was originally a 6-month contract with 3 months options. We got all the options exercised. We're very happy about that and really safe and well, she performed extremely well on this contract, but she has now been demobilized and will -- is laid up in Scapa Flow. Looking a little bit at the backlog picture. You'll see this last year, we did successfully extend the Safe Notos. She will go on to her new contract from the 1st of September. One thing that we're actually very happy about there is that we have been able to organize it such that during this SPS period, we will also do any contract modifications that need to be done. So we do not need to bring the rig in between the 2 contracts. That is something that we often see in Brazil is that you need to go in between contracts, but we will avoid that. We will do all this work now in this SPS period, and she will be on the newer day rate of close to $140,000 a day from 1st of September. Safe Boreas, also very pleased. We got to Australia, we got there on time. Client was not quite ready for us so we have actually agreed with the client that the fixed -- the 15-month firm period for Boreas will only start when she has the gangway down, and the gangway is not down yet although we're expecting that quite soon now. So in essence, we have gained a little bit more fixed term on that Boreas contract. Caledonia, as I mentioned, the LOI, let's see if we can fill the space. There are some opportunities out there, but I would categorize this as cautiously optimistic, just given kind of the time where we are already for 2026, a lot of clients have already locked in their work programs for summer of '26. A very key strategic focus for us in the coming months. And I think if -- those who are following us, you will know that I have said many times that I think H1 is going to be the time frame when I think we will know more about the Safe Zephyrus and the Safe Eurus. I'm still very much there. They're running off contract in April, May '27, and then in the fall of '27, Petrobras has been very clear that they wish to extend the units that are rolling off, not only ours but others, extend or recontract. So we are expecting to see some tender activity, but I'll come on to that. There's also opportunities with other providers in Brazil. And I think one of our key competitors also has demonstrated that by putting together a good work from other players in Brazil. A little bit more on the market. Again, I very much like where we are. We are not -- so we are very much a late cycle provider. We're very much focused on the brownfield and very much focused on maintenance to FPSOs. We do, do some hookup work. That's why it's here, 20%. A good example of that is Boreas. She's doing actually a hookup job. She's not doing a maintenance job. But the 3 in Brazil and Caledonia, they were all in this category, I would say, of operations, maintenance, tie-back, doing this type of life extension type work. And I think I'll touch a little bit on that, but I think with the increasing number of FPSOs and increasing number of on water assets, I think there's strong demand in that area. Some may be familiar with this slide. This is a bit how we look at the market and where rigs are positioned. The market hasn't grown in the last quarter from our perspective, it's still sitting at 31. There are a couple of these heavy lift units, which are on their way. They won work in Brazil so they're on their way so there might be some shift in where the assets are located. But generally, the market has been flat. And again, you see that South America, and that's largely Brazil is the main market for these assets. We continue to have a leading position with the largest player, one of the largest players in this market. And I continue to believe, a firm believer that this is a market which needs to -- which would significantly -- would need to and would significantly benefit from consolidation. All the players here, we're all sitting on $15 million, $20 million of SG&A alone. So I think there would be a strong benefit. So I think as the market improves, that's something that we've been quite vocal about that we continue to focus and see what kind of opportunities may be out there to play a role in that consolidation. Demand and supply, I think demand is actually at a 10-year high in this market. We got to go back to the last peak before we can see where the demand is. You see that on the graph here on the side there. When we look at the higher-end units, we're close to 90% utilization. So there's very little supply available. When I'm talking about high-end units, I'm talking about DP3 semi-submersible vessels. I think maybe some here in Norway will -- have heard the news that there's a proposal to walk to work on FPSO in Norway. That was rejected by the unions, but there is actually no available DP3 Norwegian compliant rig to actually do that work in '26. So the market is very tight. Also recent tender out in Brazil for this summer. And also if they want a high-end unit, there's actually no supply readily available. So I'm very positive about the market, and that is actually flowing through into higher and higher day rates. So our Safe Notos is on $75,000 a day. That was a contract obviously entered into 4 years ago. New contracts, $140,000. Latest done is actually $150,000, and we actually see in the North Sea, of course, for a shorter -- not a 4-year contract, a shorter contract, we see rates going above now the $200,000 level. So again, we got to go back quite a bit of time before we have seen those rate levels. And I listed out here also on the side of the slide a little bit because a lot of people ask me, they say, Reese, you're solely dependent on Petrobras in Brazil. I said, well, we are working a lot for Petrobras, but actually, there is quite a lot of other work now in Brazil as well. So I listed out some of the names, but I think PRIO has been using, Brava, I think you see some of these announcements from our competitors. SBM, MODEC, I think there's many of the players in Brazil, large FPSO operators who are now also using accommodation. And I think this trend is definitely going to continue. It's a trend which we have seen and actually recently even is picking up. West Africa, we also see quite a few opportunities, rigs going to Nigeria. We even see some opportunities in the Mediterranean. There's a working rig, working in Libya, there's one working in Israel. So I think the market has more depth than just Brazil. And I think there is also more demand out there than simply Petrobras. So I'm very optimistic on the market. I think we will continue to see day rates, solid day rates here going forward into the next couple of years. And just again to reiterate, that's a similar rate trend. It's not only Brazil where we see rates going up, but we see the same in the rest of the world. And if I look at even the latest done in the last quarter, we haven't seen any sign of this trend sort of lagging. In fact, it continues to be very strong. I'd like to talk a little bit about kind of the operations. I mentioned some of that already before, 100% utilization in Q4. I think that was great, great achievement to get all the rigs working again. If I roll back to when I joined, we had a couple of rigs still sitting idle. I think we've cleaned up the fleet. We've sold some of the assets. We've got all the rigs back working. So I think really good achievement from everybody. And if I look into Q1, I think the biggest impact that you see there on the bar chart -- on the line chart here, the biggest impact here is, obviously, we are taking rigs to SPS. We got 2 rigs that have a bit of time out, and the Caledonia is obviously rolling off. So we will see a little bit lower utilization with the Caledonia coming off and also with the rigs working -- with the rigs out on SPS. Yes, on the SPS, yes, 40 days for Zephyrus, 50 days for Notos, doing a little bit more work than simply an SPS. Some people ask me, "Do you need that much time to do only the special survey?" Well, actually, we are using this opportunity as well to do modifications that are required for the new contract, but also to do some exchange and overhaul some thrusters. The rigs are approaching the 10-year mark. So there is a need actually to do a little bit more maintenance, and this is the ideal opportunity. Backlog, probably no surprise when you see the high utilization backlog also at close to a 10-year high. And I think, again, the Caledonia LOI, very happy with that. And I think our focus really in the coming quarter, as I mentioned, is very much on Eurus and Zephyrus extensions. That's really the key going forward here and to successfully execute, of course, these SPSs. So with that, I'll hand over to Halvdan, who will talk you through a few of the financials. Halvdan Kielland: Okay. Thank you. Great to be here. As Reese mentioned, EBITDA in the quarter has been fantastic, one of the best we've had in a while, almost tripled year-over-year. You'll see a significant increase in charter income. This is mostly due to the fantastic utilization we've had and the Boreas on full rate from 15th of December. Other income of $20 million, this is largely cost reimbursements that's coming from -- out of the Boreas contract in Australia, and we expect kind of a limited EBITDA margin contribution from that going forward. No real surprises on the income statement, significant step-up in net profit in the quarter, $5.3 million, kind of the important part here, interest expense, this reflects the full interest expense, including the PIK interest. So you'll see that on the next slide, the actual cash interest is slightly lower. The full year 2025 includes a significant portion of the recapitalization gain. Other than that, again, just a fantastic quarter on the income side. Now moving on to the most important part, the cash flow. CapEx of $9 million. This is mostly related to the tail end of the Boreas contract and the start-up of the Safe Zephyrus SPS. The large shift in working capital here is very natural with the beginning of the Safe Boreas contract, and we do expect kind of looking forward into 2026. Of course, we see that there's a large negative shift here, but we expect a lot of this to be recouped during 2026, and will have a significantly positive impact for the year. Cash position of $65.3 million. I think the important thing is here that we feel very comfortable that we are well covered on our liquidity to go into these 2 SPSs and for all our projects going forward. Strengthened balance sheet. Of course, we do see that we are in the best position that we have been for a while. As I said, liquidity that we feel very comfortable with going forward. Significant reduction even just quarter-over-quarter in net debt to EBITDA. Of course, this is largely due to the step-up in EBITDA. We would also like to see both sides of the fraction decrease on this. And yes, much better equity ratio. In terms of capital structure, no real changes. The only thing is we've repaid a small portion of the Eurus seller's credit, and we've added on the PIK interest for the senior secured facility. And we currently are paying that as PIK interest and we'll continue to do so as long as we feel the need to. Worth mentioning here, currently, the way this is structured, the whole debt stack is due in August 2028 at the same time as the Eurus facility. There is an option to push this out if the Eurus facility can get extended. The main tranche of $233 million can be pushed out until latest 31st of December 2029. Now we talked a little bit about where we are and where we've come from, going into where we'd like to go, $40 million of EBITDA in the year. Of course, as those of you who follow the company will know, we are still working on some legacy rates, specifically for the Eurus and the Notos. We see that the step-up on these, the Notos will go -- have that step-up expected around September onwards. But of course, for the Eurus and even the Zephyrus, this will be a massive increase. So we see that the potential on these new contracts should be able to bring us to around $90 million to $100 million of EBITDA, which on our current debt stack would bring us from around 6 to closer to 2. And of course, this is just on the increase in EBITDA. Of course, as a company, we'd like to get to the point where we can start to deleverage our balance sheet as well and bring both sides down. Talking a little bit about asset values. I think you can pretty comfortably say that if we start a replacement cost, there's not going to be any -- I mean I can't say for certainty, but looking at the value and looking at the cost, there's not going to be any new builds of these kind of vessels anytime soon. The market, we're very comfortable in saying that the market would have to have a substantial rate increase for people to even start considering it. In terms of broker valuations, we feel that is significantly above where the market is today. So we do feel that in terms of asset valuation, we do have some room to grow. Now to give you a little bit about our thoughts for the future, here is Reese. Reese McNeel: Thank you, Halvdan. I'll wrap it up here a little bit, and then I think there's also some questions that I have received. So I think a little bit on the outlook and the guidance. We gave guidance last year, $35 million to $40 million of EBITDA. We ended up in the higher range of that guidance, again, driven largely by the fact that we had all the units working and working well. Looking into 2026, we've given quite a large guidance range, $45 million to $55 million on the EBITDA. We do expect obviously an improvement of earnings. We'll have Boreas on contract throughout the full year, and we will also have the Notos rolling on to a new contract. So we do expect a little bit of an uptick in that. And as Halvdan said, we expect a pretty strong improvement in working capital. We had, obviously, the ramp-up of Boreas in the fall, and we had some of the SPS costs, which we took also in the fall, which had a negative working capital impact, but we're going to see a positive working capital impact throughout 2026. So all in all, I think we'll see an improvement in 2026. And the real key focus for me looking ahead is very much on to the new contracts and what we can secure with Eurus and Zephyrus. So with that, I'll end the formal part of the presentation. Reese McNeel: I do have a few questions, which I have received. So I will read them out here to the audience and then answer some of them to the best that I can. One of the questions was a question regarding Nova and Vega. I think we've talked about Nova and Vega several times. These are 2 rigs, which were actually built in 2015, 2016 by Axis Offshore and acquired by Prosafe. They're actually the last 2 remaining semi-submersible accommodation -- accommodation rigs, if you will, or specifically built for accommodation. I had the luxury of actually going on board a few weeks ago. They do actually look very nice. The takeout delivery price plus the cost to -- obviously, they've been sitting there for 10 years, so you need to spend some money to take care of obsolescence. And then you would also need to mobilize them to a location, most likely would be Brazil or West Africa. So our sort of take is if you added up that delivery price plus all that, you're probably in the range of $230 million to $250 million for each rig. It's probably not a lot of science behind if you look at sort of our EV per rig, we're probably more like 80-ish to 90-ish, depending a bit on which rig you're talking about. Broker values is around $100 million, $130 million, $150 million. So clearly, the sort of takeout delivery price or the all-in price for these rigs is quite high relative to where things are trading. We have had a consistent dialogue with the yard, and we continue to have that to see if we can find an amicable solution to get us into a position to take delivery of these rigs. We've continued to market them. So we have bid them in all the last tenders. But I think the key to sort of unlocking this is, of course, to see a continued improvement in the market, but we probably also need to -- we need to come to some kind of a structure with the yard, which we haven't to date. So hopefully, that gives a little bit of color on Nova and Vega. Back to a couple of other questions here. Yes. Another question was, give a little bit more color on Safe Caledonia and our plans. The way that I see Safe Caledonia is very much sort of, if we have worked for her, that's great. We keep her in the fleet. She's actually a pretty old vessel. She's 40 years old. So she's -- I like to make a joke that she's older than probably many of the guys in our office. But she was -- she had a significant renewal program in 2012, well over $100 million was put into her then. So she's actually a very nice rig. I've had the fortune to be on board a few times. And I think what we saw now with her performance for Ithaca was really strong. She had really good connectivity even through a large part of the winter. And I think the client was extremely happy with the unit and her performance. So on the back of that, we won a new contract in '27. And as I mentioned, Ithaca is actually funding or prefunding, subject to us signing the final contract, which we expect now in Q1. They will actually be funding a lot of that upfront. So in essence, we are not putting in a lot of our capital to keep her there and to keep her well ready for 2027. So for me, that's a perfect situation. We're not having to necessarily put out money. We've got a good contract for her, and we actually see now in '26 that she was one of our better earners. So I'm actually a bit more optimistic on Caledonia than I was if I roll myself back a couple of years. And I also see that in the U.K. market, there is work actually coming up. So I'm relatively optimistic, but we are very much taking this year by year. We got a job for '27. We basically got it funded through to '26, and we'll take a view. We'll try to find her some work in '28 or '29, but she's obviously not an asset that we are going to take a ton of risk on, if you want to put it like that. But I think there's a good market at the moment. I think we can actually keep her quite busy. The final question I saw popping in was with regards to my belief in FPSOs and the need for these units to supply FPSOs, the continuing need and how -- and a bit more color on that. And I guess, again, I've had the luxury and the opportunity to actually be offshore in Brazil on several of our units and the opportunity to actually see some of the FPSOs we're working against. And I think the corrosion level in Brazil, if you talk to some of our clients, they talk about 4 to 5x the corrosion level that you would see in the North Sea. These units need a lot of maintenance, whether it's Petrobras units or MODEC units or SBM units or any of them. There's a big maintenance need. And I think we have also seen actually ANP, the regulator in Brazil also shutting down some units. If we look at Peregrino, it was actually shut in by the regulator with a need for maintenance. So what we're hearing from our clients is they need the maintenance. And also what we are seeing is, again, as I mentioned, with Brava using PRIO using Petro Rio, I think there's a number of MODEC, there's a number of clients in Brazil. So I think there's clearly not only sort of the sort of theoretical that they need -- they're getting older, they're high corrosion, but actually, we actually see clients using. And I think interestingly enough, we see a bit the same in Norway. If you look where the accommodation units are working, they're largely working now this against FPSOs rather than, again, new installations. And I don't see this FPSO trend declining. There's many FPSOs on order into Brazil, but also Guyana. And I guess if we're looking even further down the line, then we're talking Namibia. But I'm very optimistic about sort of the underlying demand driver for our units. I'll just take one last check. I think that was it from questions, unless there's any questions from the audience here. Go ahead, Lucas. Unknown Analyst: So what kind of OpEx number for Caledonia did you bake in, in your guidance number? Reese McNeel: Yes. So Caledonia has about $35,000 OpEx when she's working and she has about $20,000 when she's going to be laid up. And of course, we also have some costs associated with laying her up. So we will have a few million dollars of cost just to get her, of course, get her property laid up. Unknown Analyst: And your CapEx expectations beyond '26. I mean you are doing 2 major SPSs in '26. So '27, '28, what's kind of the run rate that you are looking at? Reese McNeel: Yes. No, that's a very good question. I think what we're seeing is SPS costs tend to be in the sort of $20 million to $30 million range. So we're doing this. We've done quite a few of the SPSs. So if we can -- we're going to have another 5 years on Notos, another 5 years on Zephyrus. Eurus is coming up, I think, end of '28, '29. So I think -- but those are kind of $20 million to $30 million chunks per rig, but they are all kind of now in the 2031, 2029 time frame. And I think one of the key questions here, of course, is always when you're getting on to new contracts, is there going to be a requirement for contract-specific modifications or CapEx. So a good example is now, when we transition Notos onto her new contract with Petrobras, there is some CapEx, which is required according to the contract. In exchange, we did get a mob fee from Petrobras. So you match them off. But I think what exactly the CapEx will be in the coming '27, '28, leaving aside SPS, I think that's a little bit dependent on which contracts and the contract structure that we enter into. But generally, we're looking at $2 million to $4 million a rig outside of SPSs. Unknown Analyst: Okay. And the kind of reimbursables that you incurred in the Q4, is it going to continue in '26, given the structure of the contract? Reese McNeel: Yes. I think the reimbursables will continue to be quite high, but Q4 was particularly high because the heavy lift vessel itself, the entire chartering of the heavy lift vessel from Norway to Brazil was a reimbursable. And that was a double-digit million figure. So we won't see the same level of reimbursables. But we'll continue to see some reimbursables. But the market is -- the markup is sub-5%. Okay, with that, thank you very much, everyone, for coming and for listening in. Thank you.
Remon Vos: Good morning, everyone, from CTP here in Prague, Czech Republic. Excited. And thanks for dialing in. It's good to have you on the call. We are going to talk about the 2025 results, which are good. But before we start, I'd also like to look back. 2025, you could say, has been 25 years of growth. We have completed our first building in 2000 here in the Czech Republic in Humpolec, where we did our first CTPark model. The CTPark Humpolec was the first site we acquired, initially 10 hectares, and later on we had the opportunity to grow that park. So that's where we first started with a club house where we looked for people and did establish a small team and did then develop a number of properties, and those buildings are still fully leased and many of the tenants which we initially had actually, they're still there, and they have been able to grow their business. So 25 years of continuous growth, which started with nothing, with a piece of land, and then building and second, et cetera, et cetera. So thank you very much to all the very loyal clients, all those companies who we have been working with, the companies who gave us the opportunity to work for them outside of the Czech Republic later on. And of course, thank you very much to all people we've been working with a lot over the past 25 years. And thank you to all other partners and of course, the fantastic team here at CTP, which in the meantime is 1,000 people, more than 1,000 actually nowadays. So that has been 25 years of continuous growth, good times, bad times with all kind of different opportunities along the way. So '25 has been a strong year, has been a good year with good results, which illustrates also the growth engine, the thing we like to do, we like to grow and the largest growth engine in the business here in Europe. So last year has been also an important year for us, because we added another country. We opened up business in Italy. In the meantime, we have more than 200,000 square meters of projects under construction in Italy, mostly pre-leased, 70%. We do that in south of Milan, close to Piacenza, Castel San Giovanni, but also in Padua, and we have other projects underway. At the same time, we set up a team of people in Italy, and we have a land bank to build an average of, we thing, 200,000 square meters of properties over the next years, and we hope within 5 years to hit the 1 million square meter lettable area target in Italy as well. We see good opportunities in Italy. Overall, we see opportunity in Europe over the next years. So we're quite happy with the entry so far, and we're making good progress. The land bank, mostly North Italy, but also strategic sites in the region of Rome. So there's also other places where we believe we will be successful in the development of our industrial properties, again, mostly for existing clients, so the companies who are already renting from us in other markets. For those clients, we plan to develop properties in Italy. And the amount of business we do for existing clients is approximately 70%, 7-0 percent of the total amount of business we do. When we look at drivers for Europe, it's definitely near-shoring Asian companies coming a setup shop in Europe for Europe. I mentioned defense, but also technology, semiconductor industry, consumer goods. People have more free time, so they go out biking, running. Pets, massive industry. We do multiple facilities for pet food producers, pharmaceuticals. So there's a whole of consumer spending, means people have more money to spend than they had 25 years ago when we started here, and we see that in other markets in Serbia, in Slovakia, in Romania, where we came initially maybe for low-cost manufacturing and later turned into manufacturing for domestic market. And nowadays, Central Europe is the engine of Europe. Here is where you go for manufacturing. And yes, it's all positive. So relatively good outlook, and we have a number of growth drivers. We are not in it for the short, we're in it for long. So we have plans for the next 25 years. And those plans are definitely to make CTP a global player and to grow with our clients and to use all the experience we have building business parks. Last year, we signed 2.3 million square meters of new leases, 2.3 million, which is a bit more than we did the year before. In '24, we did some 10% less. Rental rates were a bit higher last year in '25 compared to '24, approximately almost 5% higher rents than same building in a year earlier, in 2024. So a bit rental growth, 10% more deals, and still around 10% yield on cost. Target, midterm ambition, continue to grow with existing clients, which we have a lot of them. Good companies. They pay on time. 99.7% is rent collections of money which we charge to tenants, which is paid. And as I said, most of them on time, good companies. 70% of all new business we do with existing clients have 80% retention rate. And this is also important to mention, 75% of all the projects we do are being built within existing business parks. So we don't do stand-alone boxes. We really create an address, a park, an environment, an ecosystem with sufficient infrastructure and manage these facilities for people to work, develop themselves, to create business together, to work together, to grow stronger, and to have a stable business park. Also not overexpose to one specific industry, you want to mix it up with different industries. It's also good for labor market. We see a lot of automatization among our tenants. So they continue to invest in their facilities, in their production lines, in their technologies, which is good as well. We break it down at CTP, as you know. We talk about 3 things. We have the operator, which is the income-producing part. So the part of the company will look after the buildings which we have built over the past 25 years, with EUR 840 million of rental income, on the way to hit EUR 1 billion rental income next year. So it's the operator with good occupancy level, always above 90%, between 93%, 95%, depends a little bit on the market and the location where you are. It depends also on how much property we actually build to enter a market and you need time for the market to absorb all those buildings, but remain at the target around 93%, 95%. That's the operator. Then we have the developer. Those are the people at CTP who develop properties or who build business parks and properties. Quite active now also with inventing new type of properties, adjustments, constantly working on making these buildings better, both the existing refurbishment upgrades, but also new properties. And better means flexibility. So we have generic designed buildings for multiple generations, energy consumption, maintenance, those things are important when you design a property. That's what these guys are busy with. Some highlights as well what we've done in terms of completions last year, 1.3 million square meter, 180,000 square meter in Bucharest; 65,000 square meter in the CTPark Budapest in Hungary, but also, of course, in Brno, Czech Republic, yes, the home of CTP, where we have built millions of square meters. Last year, we did a deal with FedEx, for example, just to mention one. Part of our 30-30 plan, right, to grow to 30 million square meters. 2 million square meters under construction this year, which is good for EUR 150 million of rental income. Another highlight, maybe if you talk about those 2 million, we do a lot in Poland, the largest economy, largest country in Central Europe, very dynamic. Can do, a lot of support from the government, very good locations, I think we have secured a good team on the ground. So there we invest a significant amount of money now building properties, mostly leased, in and around Warsaw, but also Upper Silesia, Katowice, Zabrze, as well as along the German border on the west side of Poland. So we see there good opportunity, as well as in Gdansk, by the way. Another highlight, I would -- yes, Bucharest, Romania has been good, is still strong. Serbia is strong. Germany this year is important to get things going in Mülheim. Some of you have been on the Capital Markets Day event last year, we looked at Mülheim Energy Park with E.ON, Siemens and more to come. So that's happening, making good progress in Düsseldorf as well as in Wuppertal. So overall, quite positive about Germany as well. I think, yes, well established and good position. Last but not least, the growth engine, the third activity, we look globally at opportunities in different countries. And how does this work? Well, it comes from clients. Clients tell us, okay, we are going to that market, because we see growth. We need properties. Are you there? Sometimes we are, sometimes we are not. If we are not, then we have a closer look at such a market. We think shall we go there? Does it make sense now? And we constantly do that. Sometimes we do not enter. Sometimes we have a closer look. Now we always have the desire, as you know, to also become active outside of Europe, because we see other opportunities in other markets. And we found good opportunities in Vietnam and strong demand from existing clients. So we continue to have a closer look. We announced it last September. And so far, we've been making some good progress, having a closer look at the market and the opportunity. We have a few people in the meantime on board. So we have a CTP Vietnam, and we have there a small team of experienced industrial property people. Vietnam, obviously strategically located, 100 million people, very productive workforce, but also quite young people, around 30 years of age. So in the future also, you will see consumer spending. Well connected to the rest of the world. And that will also give an opportunity to get us feet on the ground in Asia and also closer to other Asian companies who look at coming to Europe. And then we'll keep you up to date on developments we are making. Yes, it's not only about getting bigger, we need to also get a better company. So we are obviously constantly working on getting a better company with maybe doing more buildings with less people, more efficient, more effective, different processes and procedures. We automatize. For example, when it comes to property management, when it comes to energy consumption, we know exactly how much energy tenants consume in their buildings. We can help them again with energy management with clear understanding of the condition of the building, and when there are issues, property management related, then we can fix that. We have a clear system for that in place in the meantime to monitor all the maintenance and repairs, which potentially are needed. So both energy consumption as well as maintenance and repairs to make sure buildings are in good condition and remain in a good condition. That's one example. And there's many other things we've done, whereby we've introduced new processes, better, and software and automatize, standardize, digitalize the company, and that makes us think better and quicker and more efficient to continue to grow our business. Yes. So we're looking forward very much to the next 25 years. Thank you for your attention. I will hand over to Rob. Some of you know Rob. He's not really new to CTP, but as IR, we are happy to have him on board and look forward to answering your questions. Robert Jones: Turning to the financial highlights. Net rental income increased by an impressive 14.1% to EUR 738 million, driven by record leasing of 2.1 million square meters, excluding Italy. Like-for-like rental growth came in at 4.5% in FY '25, accelerating from the 4% we delivered in FY '24, and this was driven by indexation and positive rent reversion capture. We also delivered record development completions of over 1.3 million square meters with occupancy at the year-end still remaining stable at 93%. Annualized rental income increased by 13% to EUR 840 million, illustrating the strong cash flow generation of our portfolio and locked-in growth profile of our business for 2026. Company-specific adjusted EPRA earnings increased double digit by 11.3% year-on-year to EUR 405 million. CTP's company-specific adjusted earnings per share amounted to EUR 0.85, an increase of 6.3% year-on-year, as we also made positive progress on our debt refinancing during the period. This EPS figure was just EUR 0.01 variance to guidance, driven by the timing of development completions in Q4 '25 with some moving to Q1 '26. As we look forward, the important message here is that our medium-term double-digit annualized growth trajectory is unchanged, as Richard will highlight shortly. Now looking at the valuation results. The revaluation of the portfolio for 2025 came to over EUR 1.1 billion, a key contributor to our leading total accounting return for the period. Of this positive portfolio performance, EUR 422 million was driven by the construction and leasing progress on our developments, while EUR 649 million came from the revaluation of our standing portfolio with the balance from our land bank. As at the year-end, the total portfolio gross asset value now stands at EUR 18.5 billion, up 15.6% from FY '24. CTP's reversionary yield stood at a conservative 6.9% at full year '25. For '26, we expect further selective yield compression and positive ERV growth in line with inflation. This is also illustrated by the new leases that we signed in '25, where rents were a solid 4% higher than 2024, adjusting for country mix. The supportive demand drivers of our business remain present, whether that be near-shoring, manufacturing in Europe for Europe, businesses upgrading their supply chains or reacting to the changing global landscape alongside increasing deglobalization of political agendas. Our core CEE markets, where industrial and logistics space per capita is half of that of many of other Western European markets, continues to benefit from these supportive trends alongside our own Western European markets and our opportunities being assessed outside of Europe. We are not short of opportunity, nor are we short of capital, with that opportunity driven primarily by the embedded value to be unlocked from CTP's existing land bank of more than 33 million square meters with the majority next to our existing CTParks. This land bank that we have on our balance sheet allows us to facilitate our tenants growth as a solution provider for their real estate needs. We remain active in the market for the acquisition of land, especially in Poland and Germany, and we replenish and, in a number of cases, grow the land bank in existing markets where returns are the most attractive. Now as Remon mentioned, we also continue to look to enter markets such as Vietnam, following on from our successful CTP Italy market entry at the back end of last year. Our EPRA NTA per share increased from EUR 18.08 at year-end '24, up to EUR 20.39 FY '25, and this represents a strong increase of 12.8% during the period. With this NTA growth, in conjunction with our dividend distributions, we delivered a total accounting return to our shareholders of 16.1% over the past 12 months, highlighting our superior total return profile, which is underappreciated by the equity market within the real estate sector. I now hand over to Richard. Richard Wilkinson: 2025 was another year of solid growth for CTP as we continue on our journey to 30 million square meters of GLA, a doubling of the current portfolio. The company's interconnected business units, the operator, the developer and the growth engine are all supported by our strong access to debt capital markets, diversified funding structure and multiple sources of liquidity provided from across the globe. 2025 saw us receive an investment-grade credit rating upgrade to BBB flat from Standard & Poor's. Moody's also have a positive outlook on our credit rating, confirming the growth trajectory of our business. This January, we again evidenced the high institutional demand for our debt, issuing a 4.5-year bond at a spread of only 92 basis points with a peak order book of over EUR 4 billion. Looking forward, we will continue to diversify our sources of debt funding as well as managing our liquidity to ensure we do not hold material excess cash. We also target growing our share of unsecured debt towards 80% of total outstanding debt. Turning to the key credit metrics. Our interest coverage ratio was unchanged quarter-on-quarter at 2.5x, and we expect this level to be the bottom. Our normalized net debt-to-EBITDA remained broadly stable at 9.3x and our loan-to-value stood at 46.1%. This LTV is marginally higher than our 40% to 45% target due to us seizing the acquisition opportunity in Italy at the end of 2025. In Italy, we will deliver 200,000 square meters of GLA in 2026, more than 10% of our annual target. And with a land bank of over 8 million square meters, we have a long runway for growth in Italy, a country with a significant undersupply of modern A-class industrial and logistics space. As our development pipeline is completed and over 10% yield on cost and revaluation gains are fully booked, we expect loan-to-value to move back towards our target range. To complete our development pipeline of 1.4 million to 1.7 million square meters in 2026, we do not need additional equity capital due to our sector-leading yield on cost around 10% from projects to be delivered in 2026. Every euro we invest in our pipeline increases our ICR and decreases our net debt-to-EBITDA as our leasing income comes on stream. This allows us to grow group rental income at double-digit rates while simultaneously improving the most important credit metrics. In 2025, we signed EUR 1.7 billion of unsecured debt to fund our development business, debt refinancing and our growth engine. We continue to demonstrate our ongoing strong market access whilst actively managing our funding costs. During the year, we renegotiated or repaid EUR 1.6 billion of our most expensive bank loans. Looking through 2026 and beyond, CTP maintains a conservative debt maturity profile. We repaid EUR 350 million of bonds maturing in January, and our only remaining bond maturity in 2026 is EUR 275 million maturing at the end of September. Looking further ahead, maturities remain limited over 2027 and 2028 with less than EUR 1 billion in total outstanding. Our liquidity at the end of 2025 stood at EUR 2 billion, comprised of EUR 700 million of cash and our EUR 1.3 billion RCF, more than sufficient to meet our cash needs for the next 12 months. The average debt maturity stands at 4.8 years, and the weighted average cost of debt was 3.3%, which represents only a marginal increase compared to year-end 2024. We do not expect a material increase in our average cost of debt as our marginal cost of funding is currently below 3.5% for the 5-year midterm period. Regarding the midterm outlook, a key message here is that the medium-term growth outlook for CTP remains unaltered. At our 2025 Capital Markets Day, we introduced our ambition to double the size of our portfolio to 30 million square meters. We expect to grow top line income around 15% per annum, driven by rental growth in our operator business alongside double-digit organic GLA growth from our developer business as we build on our unrivaled land bank at 10% yield on cost, supported by our growth engine as it seeks attractive global investment and growth opportunities. Digging deeper into those attractive return drivers. Firstly, we have the operator, over 1,500 supportive tenants who pay on time, stay with us and grow with us. Secondly, we have our development business, led by the strategic land bank of more than 33 million square meters, either on balance sheet or under option, located mainly around our existing parks. This is the key component of our portfolio growth ambition. And thirdly, we have the growth engine, the global identifier of shareholder value-accretive land-led acquisition opportunities to continue to deliver high returns well above our cost of capital. We also continue to see above inflationary rental growth across our markets, supported by income reversion capture, positive near-shoring trend, production in Europe for Europe, and ongoing e-commerce growth driven by rising disposable incomes across our strong Central Eastern European region and our Western European markets. Previously, unlike the rest of the sector, we did not capitalize interest on development activities, which made comparability between companies for investors more difficult and made CTP appear more expensive on a simple earnings multiple basis. Going forward, we now capitalize interest to provide reporting harmonization with all other European real estate companies. Following this change, we now set our company-specific adjusted EPRA earnings per share guidance for 2026 at EUR 1.01 to EUR 1.03. This implies year-on-year growth of 9% at the lower end of the range, rising to 11% at the top end of the range when compared to the 2025 result. In summary, CTP delivers leading shareholder returns as a growth business with income and cash flow growth, development profit growth and the growth engine lever through expanding our global exposure. Thank you for your attention. We now welcome your questions. Operator: [Operator Instructions] With that, we'll take our first question from Marios Pastou from Bernstein. Marios Pastou: I've got 2 questions from my side, one on the development pace and then one on capitalized interest. Just firstly, on development. So you had some delays in 2025. You also then added Italy. I'm just questioning why there isn't any upgrade really to the guidance range for the development targets for 2026, and whether there's any kind of room to beat on this going forward? And then secondly, on capitalizing interest, I suppose another question really on why you've decided to implement this change now. Not all companies do this, and whether you'll continue to headline both numbers going forward? Richard Wilkinson: Yes. Thanks, Marios. I'll take the interest capitalization question first. look, as we've been on the market now for 5 years, if someone wants to look at the real estate sector, they fire up their Bloomberg and they sought companies by earnings multiples, if everyone else is capitalizing interest and we are not, we screen expensive compared to the market. So basically, what we're doing is we're just aligning ourselves with the standard market practice of all the logistics players. And the timing, we think that -- we've increasingly heard from investors that when they look at us first, they think you screen expensive. And then when we dig in, we understand better why that first look isn't always helpful. We understand investors are time poor. So we want to try and make it easy for them to have a simpler comparison going forward. And on that basis, we will publish the EPS targets and results, including the capitalization, not excluding it. Regarding the development pace, maybe I start and then Remon maybe comes in. Regarding the guidance for 2026, we're coming out with something that we are very confident that we can deliver. We think the 1.4 million to 1.7 million is something that is very achievable with us. The lower end of that range would be a new record for deliveries for us, but we're confident that we can reach that. We know we missed on the EPS guidance for last year, and we don't want to disappoint the market in any way going forward. Operator: Our next question comes from John Vuong from Kempen. John Vuong: Just on the pre-let for 2026, could you elaborate a bit more on the mix of developments in existing and new locations and how that compares to last year? And have you started relatively more developments in existing locations essentially? Or did leasing start a bit slower than last year's pipeline given the 30% pre-let rate? Richard Wilkinson: Yes. Thanks for the question, John. Yes, regarding the overall pre-let, we stand at 30% at the start of the year, which is in line with our 30% to 35% range that we've been doing over the last years. In terms of the existing parks, the pre-let is 23%; in new parks, the pre-let is 62%. So consistent with what we've been doing over the last years and what we've been reporting in parks, where we know the demand, where we understand the tenant requirements coming up, we are willing to start with a lower pre-let ratio. And finally, I would also highlight that we have another 175,000 square meters of pre-let projects that we have not started yet. So you don't see those in the pre-let ratio. Robert Jones: John, this is Rob Jones. The other thing to add is, we're still very comfortable on our 80% to 90% target for pre-letting at delivery for '26. We obviously delivered 88% in 2025, so very much towards the top end of that range, and are happy to guide for that 80% to 90% again for 2026. So yes, we're pretty comfortable there. Operator: Our next question comes from Jonathan Kownator from Goldman Sachs. Jonathan Kownator: Just coming back to the guidance, please. So 2 questions really. The first one, I think your guidance previously excluded Italy. Now it does include Italy for EUR 200,000. So overall, the entire amount has not changed, meaning that it's probably a bit lower for the rest of the business. Is it just risk management; ultimately, that's the amount of space you're comfortable having to let or deliver as a package? Or are there differences that you've noticed in terms of appetite for different countries? That's the first question. The second question, please. The growth implied by your guidance from the top line seems to be a bit stronger than the growth at the bottom line, and yet you highlighted that your marginal cost of debt is pretty close to the in-place. So is there something that we're missing here? Or are you expecting some additional costs that we need to be aware of? Robert Jones: Jonathan, I can touch on both of those, and I'll pass over to Richard for part of the second half, the second question. So on the guidance for deliveries for '26, you're absolutely right, 1.4 million to 1.7 million square meters. We initially announced that '26 guidance, obviously, towards the second half of last year prior to the Italy transaction. But it's important to understand that we obviously had a high degree of probability internally that we were going to complete on that Italy transaction. So when we gave that raised guidance, and as Richard touched on earlier, even at the bottom end of the range, it's still a record in terms of what we've delivered in previous years. That included our expectations for the Italy deliveries of 200,000 square meters, which, of course, is already substantially pre-let for '26. And when you think about Italy going forward in your model, we are guiding to 250,000 to 300,000 square meters of deliveries from 2027 looking forward, so an increase thereafter. So I guess the takeaway from that is, do we think that there's further upside in the 1.4 million to 1.7 million? No, very comfortable with the range and it includes Italy. Just on the top line growth versus bottom line, so you're right in your assessment. But I think one important point to make is, yes, our weighted average cost of debt today, which is about 3.3%, is very similar to our marginal. We did debt issuance at the start of the year where we issued 4.5-year money at 3.375%. So very, very close to our weighted average cost of debt. But don't forget, we do have a debt instrument bond that matures in September this year. I think, remember, the coupon on that is 0.625%. If we refinance that with, say, 5-year money today, that would probably cost 3.4%, 3.5% all in. So it's important to be aware of that. But obviously, then looking thereafter, from '27 onwards, we're then in a position where we've got no refinancing upcoming that has a notably different coupon to our marginal cost of debt. Richard, I don't know if you want to add anything to that? Richard Wilkinson: No. I mean, unfortunately, we never see the top line flowing one-to-one through to the bottom line. Of course, we would love to see that. I think one of the things to please bear in mind in this year is, also we'll be building up a team in Italy and there's some costs associated with that. And although we have the pre-let deliveries to come, they're coming in Q4. So there's not going to be a lot of income to offset the ramp-up in the costs. Secondly, we've continued to investigate the opportunities in the Vietnamese market and are looking to build up a team there over time as well. Robert Jones: And of course, as you -- sorry, go ahead. I was going to say, as you say, despite those points that Richard makes, we're still in a position where at the midpoint of our earnings guidance for '26, it still represents double-digit EPRA EPS growth year-on-year despite that investment we're making in the business. Remon Vos: And maybe to add also for you, Jonathan, it's also -- for the cost of debt is also the annualized impact from '25. So you cannot only look at '26, because, yes, as Rob explained, we had, of course, the bonds in January and then in September, but it's also the annualized impact of '25, which is, of course, reflected already in the average cost of debt, but still has an impact on our '26 EPS. So if you do the math, and you can do it relatively easily, also if you look to the refinancings we have done in '25, you see that the impact is still a few cents on the overall EPS. Jonathan Kownator: Okay. So if I understand correctly, cost of debt and admin cost you're building as opposed to being a bit less confident on the top line, right? Remon Vos: Correct. Richard Wilkinson: Yes, absolutely correct. Remon Vos: If you want, I can add something on the supply, because it keeps coming back, this question. So first of all, we look after the income-producing part of the portfolio. We make sure that we are happy with the occupancy rate. And then we will continue to build if we can lease. So we are going to not build buildings if we are not confident we can lease those buildings. So we balance between supply and demand. And while doing that, we do gain market share. So if there's an opportunity to develop and to lease properties, we do. And that's what Rob explained in his presentation, as we've been doing over the past years, we do gain market share. So we build as soon as we believe we can lease. Operator: Our next question comes from Frederic Renard from Kepler Cheuvreux. Frederic Renard: First of all, let me flag that your line is not really great. So I'm not so sure it's just me. So just flagging. Then I would like to comment on 2 elements. First, on the long-term guidance of 30 million square meters. Even with Italy today, the pace of growth is important, but far from the level which would bring you to a portfolio of 30 million square meters by 2030. So it seems basically that your existing market is not absorbing what you are delivering at the moment from an external point of view. Can you comment on that first? And then maybe on the second question, if I compute your vacancy in terms of square meters, it looks like your portfolio is at 1 million square meters of vacancy, which is quite sizable. What is structural here in the mix? And finally, on the pre-letting, you mentioned 88%. But actually, if you compute the pre-letting in Q4, it came close or slightly below 80%. So can we conclude that there is some kind of a softer demand in the market at the moment versus what you had in mind 1 year ago? Richard Wilkinson: Yes. So in terms of our midterm ambition, I mean, we said 30 million we would like to achieve target. It's an ambition, we want to get to 30 million square meters by 2030. If you compound our portfolio by 12.5% per year for the next 5 years, you're going to get to somewhere around 26 million, 26.5 million square meters. And there's a small gap there, but we think that there may be opportunities or there will be opportunities to find one or the other attractive acquisition over the next 5 years. We talk about a relatively midterm perspective there, Fred. So I think we're comfortable with that level of ambition and our ability to realize that. If we can do 15% a year, which would be the top of our organic growth rate, then we get almost to the 30 million square meters. But it's our ambition and we're comfortable with that at the moment. In terms of the vacancy, as Remon just said, we're always balancing supply and demand in our parks and in and around our parks. Our business model is to run a vacancy of -- we target around 95% occupancy going forward. And as the portfolio grows, that means the absolute square meters of vacancy increases. So yes, at some stage, that gets to 1 million square meters, that's simple math. That's part of our business model that we live with, we accept that vacancy rate, because we feel that gives us a competitive advantage when tenants are looking for space in the short term, because not everyone is planning years in advance. Sometimes people need space quickly, and then the ability to act quickly and grab a tenant and meet their demand puts you in a better position to retain and grow with them then also going forward. And regarding the pre-let for Q4, look, across the year, we delivered 88% towards the top end of our 80% to 90% guidance. We try not to get too hung up on the volatility of any one quarter. Short-term trend is not our target. As Remon said in his presentation, we're in it for the long term. That's why we have the land bank that we have mostly in existing parks or with the potential to build a new park of more than 100,000 square meters for each park. That's the real value driver for us and... [Technical Difficulty] Operator: It seems we have lost audio with our speakers. Please stand by whilst we're getting them reconnected. Robert Jones: Yes. Let me continue. I think Richard dropped out. Operator: Okay. Hold on. I'll just transfer you back over, because I've moved you out of the main room. I'll transfer you back over now. Remon Vos: Okay. I'm still here as well. Operator: We'll now continue. Robert Jones: Sorry for the connection drop. I think Richard dropped out, but let me continue on where he stopped. So if you look to the pre-letting as always, so I think last year, when you look to the Q3 of '24, we were at 95%. At the end of the year, we came also within the range. So there is always a bit quarter-by-quarter movements and that comes indeed back to our business where we are mostly developing in our existing business parks. If you also look to the quantum of leasing that we are doing, yes, 1 million of vacancy might seem a lot, but we sign 2.3 million square meters of leases each year. So if you look to the overall amount of leasing that we are doing, 1 million square meters is less than half a year for us. So yes, of course, with the scale of the portfolio, that becomes a larger number. But in our overall leasing capacity, that's ultimately important for us, because it all comes back to tenant demand. That is ultimately the key thing when we are looking for, are we starting the next development, where are we starting the next development, and where do we see growth. Operator: We'll now take our next question from Vivien Maquet from Degroof Petercam. Vivien Maquet: I think your line dropped again, but I hope you will hear me. A couple of follow-up questions from me. Maybe when it comes to the deliveries, can you quantify the volume of deliveries that was moved to Q1 2026? And if possible, what kind of level of pre-let do you have on this project? And maybe I ask my other question afterwards, if you can hear me? Robert Jones: Yes, sure. So if you look to the deliveries, we came out on the lower end, of course, of the 1.3 million to 1.6 million that we guided for. We were planning to be more in the middle or the higher end of the range, but that's business. So if you look to what has shifted, that's basically, say, 150,000 square meter or so to the next year. So that's also -- it's reflected in the overall pre-letting, of course, for this year, the 30%. But like Richard mentioned, actually, the 30% might look a bit low compared to previous years. But on top, we have the 175,000 square meter of projects leased that haven't started yet. Some of that also will be delivered in '26. So it's always a mix of those elements. So that is basically the impact on the shift of deliveries, and that will help a bit in '26, and that's why we are so comfortable with the 1.4 million to 1.7 million for this year. Remon Vos: And let me add to that, maybe an important one, is structural vacancy. There is nothing like that. There is not buildings which are empty for years and years and years, okay? So it's just adding supply to the market and then you need the market, you need some time for the market to absorb all that space, and that's what we are doing. So when it comes to buildings which have been vacant for a longer term, then I can think of properties in Germany. As you remember, we entered the German market through an acquisition of buying Deutsche Industrie, which is a mix of some fantastic locations, redevelopment opportunity, but all the buildings, so there is some vacancies, and we need time to refurbish those buildings, which have started, but that takes a bit of time. It's all part of the budget and it makes a lot of commercial sense. But then you have buildings which will not produce income for a while because you're doing some refurbishments now. And there's some vacancy in the German portfolio, you can see, but our core portfolio, all of the stuff we built, there's no structural vacancies. There are some vacancies here and there because of the supply. But again, this goes down to CTP's business model. So I suggest you have a good look and listen to all the nice videos we have done to understand the way we run it. It took us more time to get to 15 million square meters. It took us 25 years to get to 15 million square meters. It's going to not take us 25 years to add another 15 million square meters, to grow to 30 million, because we know the game of how to develop and with whom, and with all of the clients we have, that gives us great opportunities to continue to do what we do. But yes, 5% from 30 million is 1.5 million square meters. Operator: Our next question comes from Eleanor Frew from Barclays. Eleanor Frew: One question, please, on the reconciliation between your company-specific EPRA EPS and EPRA EPS. The adjustment this year was a lot larger than last year. Can you talk us through the reasons for that? And also, what should we expect on that adjustment moving forward? Is this the new run rate? Robert Jones: There were some one-offs in that adjustment. And I think we already discussed that in the H1 and Q3. I think on the tax side, you saw a positive, especially in the first half of the year. So the tax adjustment for '26 will be lower. That's one. There are also some in the other expenses where there were some one-off adjustments, for example, related to some transaction that in the end did not take place, which is booked in the other expenses and therefore, adjusted, of course, in the recurring elements. So there are some of the one-offs in '25, which are slightly higher than I would expect on a run rate basis. So that should be less in '26. Operator: Our next question comes from Steven Boumans from ABN AMRO - ODDO BHF. Steven Boumans: Some technical questions for me. What's the assumptions on the capitalized interest? So what's the interest rate that you use and what loan on cost do you assume? Second, what's the impact on the average yield on cost for the change there due to the capitalized interest? Can I assume that will increase the cost of development? And last one, do you assume a similar number of shares year-end '26 as in '25? Robert Jones: Yes, Steven. So in terms of -- go on. Marios, do you want to go -- we had a problem with our line. Yes. So apologies for that. And I hope that you can hear us properly, because Fred was saying that he couldn't hear us and then we dropped. So apologies for that technical lapse. In terms of the capitalized interest, what level do we use? We use the actual cost in the balance sheet, so the average cost of debt. So for this year, it's 3.3%. In terms of the yield on cost impact, that would be somewhere around 30 basis points. And there was a third question as well, but I lost the connection on that one. I'm sorry, Steven. Steven Boumans: So the last one, the number of shares you assume in your full year '26 outlook, is that the same as in '25? Robert Jones: Yes, we're not -- yes, it's slightly higher because it incorporates the dividends that we're paying. As you know, we proposed a final dividend of EUR 0.32 for the full year. We'll also have an interim dividend later in the year. Based on past behavior of the shareholders and expected behavior, we would expect the majority of that to be taken up in scrip. So there will be an increase in the number of shares as a consequence of the scrip dividend. But otherwise, we're not planning on an increase in the share capital. As I said in the presentation, we don't need to raise equity to fund the development pipeline, the 1.4 million to 1.7 million that we're very confident to deliver. Operator: Our next question comes from Suraj Goyal from Green Street. Suraj Goyal: Hope you can hear me. The rent levels for new leases in '25 were around 4% higher compared to 2024, but I noticed it was lower in Bulgaria, Serbia, Hungary and also flat in Romania. I wanted to find out what the reason for this is, and if this is reflective of some of the softness or normalization in operating fundamentals across Eastern Europe. And then are you able to give any color on the market split of the 3.8% ERV growth that you quote? Robert Jones: Yes. So maybe I'll deal with the technical part, maybe Remon will pick up on the overall tenant demand and how we see rents going overall. Yes, I mean, it depends a little bit country by country as to where we're leasing within that country. So certain parks have higher rent levels than others. So if you're very close in town -- in the capital, you're going to get a higher rent than if you're leasing in one of the regional cities. So the mix there across the countries is generally to do with where we're doing the leasing in that specific quarter or in that year. So generally speaking, if we look at our ERVs, the ERVs across the portfolio are increasing. So location for location, like-for-like, we're seeing across the portfolio, a general increase in the rent levels. But we don't expect that to -- that's different location for location, depends on the supply, on the demand in the individual location at the time. Overall, you will see rents continuing, we think, to grow inflation plus over time. There will be markets where it's going quicker, at a point in time markets where it's going slower. But overall, we're very happy with the rent level development that we're seeing across the whole region. Operator: Our next question comes from Vivien Maquet from Degroof Petercam. Vivien Maquet: Sorry, I had 2 other questions that was skipped. First is on the retention rate. Just trying to understand the decline to roughly 81%, if I recall. And how do you see a normalized retention rate going forward? Robert Jones: Yes. Look, I think our retention rate historically has been 80% to 85%. There have been times where it's been a bit higher. There have been times where it's been a bit lower. We would think that generally, if we look, 70% to 75% of our new leasing, last year was 71%, is done with existing tenants. So we would think that 80% to 85% is a reasonable rate to expect in terms of tenant retention. So you're retaining the vast majority of your tenants, but you won't never keep everyone. Vivien Maquet: All right. And then one last question on the goodwill impairment. Can you comment on that one? Robert Jones: Yes, sure. That goes to our German acquisition back in 2022. And what we see -- last year we saw a nice uptick in the valuations of our portfolio in Germany. And as the valuations increase, then the goodwill that we recognized at the time of the acquisition decreases. Operator: Our next question comes from Bart Gysens from Morgan Stanley. Bart Gysens: Quick question on the dividend payout ratio. So you're saying that for '26, the dividend payout ratio remains unchanged. But of course, the accounting policy of starting to capitalize interest increases your reported EPS by 10%. So will you now start paying a higher percentage of this previously more cash EPS? Or will you gravitate towards the lower end of that range to reflect this accounting policy change? Robert Jones: Yes. Bart, good question. Yes, I think that we'll end up gravitating towards more 70%, 72%, 73% rather than historically, we've been 75%, 76%, 77%, something like that. Bart Gysens: But that would still mean a higher percentage payout, right, on the previous... Robert Jones: No, you end up -- if you're 70%, you're almost the same. There shouldn't be a material increase in cash out as a consequence of the capitalization of the interest. Operator: We'll now take some questions from the webcast. Our next question comes from Laurent Saint Aubin from Sofidy. Can you please comment on the decline in your client retention rate to 81%? Robert Jones: So we already answered that question. So yes, look, like I said, we're targeting generally expecting to be between 80% and 85% in our tenant retention. In '24, we were 84%; in '25, we're 81%. So very comfortable with that. Operator: And then our next question is from Wim Lewi from KBC Securities. What is expected impact of the capitalization of interest costs on your yield on cost expectation? Robert Jones: Yes. Again, that's another question I answered earlier. It's around 30 basis points. Operator: And then our next question from Crispin Royle-Davies from Nuveen. Are you going to keep the same payout ratio against the new definition of earnings, or adjust this downwards to keep cash payout ratio the same? Robert Jones: Yes. So payout ratio will stay within -- or move towards the bottom end of the 70% to 80% payout range. Cash outflow for the business remaining relatively unchanged given the majority of our divi is taking scrip. Operator: With that, we have no further questions in the queue at this time. So I'll hand back over to the management team for some closing comments. Remon Vos: Yes. So thank you very much, everyone, for your questions and your interest. I'd just like to underline that we continue to see really attractive midterm growth potential, primarily in and around our existing CTParks, but also with the addition of Italy and hopefully an addition in Vietnam, we think that we have everything in place for the next leg of growth. And we wish you all a good day. Thank you very much for your attention. Robert Jones: And you're invited for the Capital Markets Day in September, right, in Warsaw. Remon Vos: Yes, of course. Sorry. Thanks very much. Richard Wilkinson: Thank you very much, everybody. Operator: Thank you all for joining. That concludes today's call. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen. Welcome to the RBC's 2026 First Quarter Results Conference Call. Please be advised that this call is being recorded [Operator Instructions] I would now like to turn the meeting over to Asim Imran. Please go ahead. Asim Imran: Thank you, and good morning, everyone. Speaking today will be Dave McKay, President and Chief Executive Officer; Katherine Gibson, Chief Financial Officer; and Graeme Hepworth, Chief Risk Officer. Also joining us today for your questions, Erica Nielsen, Group Head, Personal Banking; Sean Amato-Gauci, Group Head, Commercial Banking; Neil McLaughlin, Group Head, Wealth Management; Derek Neldner, Group Head, Capital Markets; and Jennifer Publicover, Group Head, Insurance. As noted on Slide 2, our comments may contain forward-looking statements, which involve assumptions and have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. [Operator Instructions] With that, I'll turn it over to Dave. David McKay: Thank you, Asim. Good morning, everyone, and thank you for joining us. Today, we reported record earnings of $5.8 billion and adjusted earnings of $5.9 billion. Pre-provision pretax earnings were nearly $8.5 billion and were up 14% from last year. These strong results were underpinned by record revenue of nearly $18 billion and a 5% operating leverage. Both Wealth Management and Capital Markets reported record revenue and pre-provision pretax earnings benefiting from a constructive environment for our market-related businesses. Personal Banking and Commercial Banking reported record results underpinned by growth in [ money and balances ], higher margins and strong operating leverage as well. This was achieved even as housing conditions and uncertainty around trade policies continue to temper loan growth in Canada. Our return on assets increased to nearly 90 basis points and we bought back over 4 million shares this quarter for approximately $1 billion. Our performance delivered a return on equity of 17.6% on the foundation of a robust 13.7% common equity Tier 1 ratio. This powerful combination drove 9% growth in retained earnings. Before covering client activity and business results, I'll briefly discuss the macro environment shaping our revenue drivers. The Canadian economy remained resilient through the elevated uncertainty from persistent and evolving geopolitical and trade tensions. GDP and job growth continued despite lower immigration levels and household balance sheets are improving. That said, the impact from tariffs on the economy varies depending on the clients or sectors. We are seeing strong profitability and improving productivity for many of our corporate clients, while commercial clients and tariff-impacted sectors and geographies are facing headwinds. And the impact of the K-shaped economy continues to bifurcate Canadian. Going forward, we expect increased fiscal [ stemness ] and the diversification of new trading relationships to create a multiplier effect of supporting economic growth and client activity over the near to medium term. With this context, I will now speak briefly to key trends we are seeing across our businesses as seen on Slide 5. In Personal Banking, mortgage growth remained modest as housing demand remained soft in key regions. This was due to the affordability challenges, economic uncertainty and a pullback in immigration levels. Looking forward, given weaker demand, we reiterate our low to mid-single-digit mortgage growth guidance for the year. This growth will be supported by proprietary mortgage specialist sales force, capturing switch opportunities and driving strong retention through increased investments in channel capacity. Further, our recently announced strategic partnership with realtor.ca, will create new top-of-funnel opportunities. The strength of our money in franchise was on display again this quarter. We saw growth across demand deposits and mutual funds as many of our clients sought higher returns amidst term deposit renewals. The aggregate flows to personal savings accounts, GICs and mutual funds increased almost 50% from last quarter, driving strong revenue growth. Commercial Banking loans were up 4% with strength in health care and agriculture. Growth was moderated by a tariff-related slowdown in supply chain sectors and demand-driven headwinds in commercial real estate, which represents approximately 40% of the portfolio. On a provincial level, Ontario continues to experience tariff-related headwinds, while we are seeing resilience in the Prairies. Even though larger clients are cautiously returning to growth mode, we expect commercial loan growth to stay closer to the lower end of our mid- to high single-digit range for the year, the longer we go without clarity on the CUSMA trade negotiations. Deposit growth was stronger, up 5% year-over-year, reflecting broad-based expansion across nearly all sectors amidst the competitive landscape. To build on this momentum, we continue to invest across our sales force capacity and enhanced digital and AI-driven underwriting capabilities while elevating our transaction banking offerings. Our Wealth Management segment had a very strong quarter, generating over $6 billion in revenue, $1.7 billion in pre-provision pretax earnings and $1.3 billion in net income. Growth in fee-based assets benefited from market appreciation as North American equity markets rose double digits year-over-year and bond indices also moved higher. In addition, we recorded strong net new assets over the last 12 months, benefiting from clients moving back into the markets as well as continued adviser recruitment. Assets under administration were up 13% year-over-year in Canadian Wealth Management, surpassing $1 trillion for the first time. U.S. Wealth Management AUA was up 12% to USD 777 billion and RBC GAM assets under management were up 11% to $796 billion. Furthermore, City National's earnings continued to grow with both pre-provision pretax earnings and net income more than doubling year-over-year. This quarter, wealth management announced the expansion of RBC Echelon, our premier platform for a growing base of ultra-high net worth U.S. clients. We're also addressing the needs of new and aspiring self-directed investors by launching GoSmart, an intuitive mobile-first platform integrated within the RBC mobile app. Capital Markets also had a record quarter with revenue of $4 billion, pre-provision pretax earnings of $1.9 billion and net income of $1.5 billion. Global Markets generated record revenue of $2.2 billion with robust client activity amidst a constructive environment. We benefited from notable performance in equities, where we've made strategic investments to bolster our equity derivatives and financing capabilities. Corporate & Investment Banking benefited from higher debt and equity origination activity, higher M&A activity and higher North American lending revenue with average loans up 8% from last year. We continue to have a healthy M&A and origination pipeline as the macro and regulatory environment is expected to support growing fee pools. I now want to talk about our focus on compounding long-term shareholder value. Our philosophy has remained consistent. As noted last quarter, we constantly evaluate opportunities to optimize shareholder value, not to just maximize ROE. We concurrently want to enhance client-driven profitable growth while upholding our disciplined risk appetite and we have done both. This requires both the deployment of capital as well as leveraging our structural advantages in funding and noninterest expenses, along with our leading franchises, distribution and technology. On dividends, we look to progressive increases underpinned by sustainable earnings growth as we strive towards the midpoint of our 40% to 50% medium-term objective. When it comes to the level of share buybacks during times of uncertainty and volatility, we are aware of our book value multiples and intend to maintain capital levels near the higher end of our targeted range. Similarly, we have a high bar when it comes to acquisitions and we'll continue to be patient for the right opportunities to accelerate growth instead of solving capability gaps. Our priority continues to be investing to organically grow our businesses. The on [ top left ] side of Slide 6 highlights the organic RWA deployed to support our clients' financing needs and growth aspirations discussed earlier. We have increased the level of client-driven growth given an expanding suite of opportunities. Organic RWA growth this quarter was greater than the quarterly average of each of the last 3 years. Our diversified business model allows us to strategically grow RWA through a changing macro environment. We took advantage of constructive opportunities to utilize our resources to grow access across our capital markets businesses over the past year and reduced client demand and lower growth in commercial banking. The bottom left charts on Page 6 illustrates growth by ROE bands across our segments and sub lines of business. When it comes to allocating capital to drive client growth, we don't just allocate capital to grow the highest ROE businesses, we also look to strengthen market share and invest in new technologies and lay the foundation for new growth verticals to enhance future value and diversification across One RBC. These create a flywheel multiplier effect for driving durable ancillary revenue streams. Important point to make is that some of our largest businesses are inherently capital-light and do not need a lot of capital to grow. These are mostly funded by noninterest expenses, growth in less capital-intensive higher ROE businesses is a key driver of our revenue mix and growth. A relatively equal weighting between capital-light fee-based revenue and more capital-intensive net interest income provides us an attractive business mix as well as a lower credit risk profile. While some of our capital-intensive businesses generated returns below our expectations in fiscal 2025, this was partly due to several headwinds, which we expect to reverse over time. These include elevated PCL on performing loans, higher wholesale PCL, elevated spend in the U.S. and lower mortgage spreads due to increased competition. Furthermore, we look to offset any dilution from growing businesses with a lower stand-alone ROE by deepening client relationships to drive improved revenue productivity while also becoming more efficient. We also won't grow for the sake of growth, as evidenced by our discipline on mortgage growth and pricing amidst intense competition. We target profitable revenue growth that drives future value. Looking forward, we see momentum and significant opportunities to organically deploy capital across our diversified business model to accelerate profitable revenue growth. We are growing capital markets, corporate loans, which would initially generate a lower stand-alone ROE. However, this growth creates opportunities to add on higher ROE revenue such as transaction banking and investment banking fees. Additionally, we will continue to support client activities by deploying RWA into our financing businesses, which can further monetize sales and trading intermediation activities. A combination of growth and deepening relationships drives a higher segment and client relationship ROE. Another strategic initiative is to align transaction banking with our growing City National Bank commercial loan book as we build out teams while launching U.S. mortgage and credit card products to increase penetration within a high net worth client segment in U.S. Wealth Management. We also expect meaningful opportunities in commercial banking when we have certainty around CUSMA and when we start seeing the execution of large-scale infrastructure projects highlighted in the Canadian federal budget. The segment's ROE of over 16% this quarter highlights the power of the franchise when PCLs normalize. We are applying similar approaches across our strategic initiatives, some of which are listed on the right-hand side of Slide 6. We're not trying to just acquire loans, we are building relationships, and there are a lot of opportunities to grow without diluting our ROE. To close, we are focused on creating sustainable shareholder value by accelerating our ambitions to drive both profitable growth and a premium ROE underpinned by our Investor Day targets, including improving revenue productivity and cost efficiencies. We also remain committed to using our strong internal capital generation to return capital to shareholders through both dividends and buybacks. Our future success will include opportunities to turn our highest potential AI use cases into solutions that bring value to clients. To do that, we recently announced that our group head, technology and operations, Bruce Ross, will lead our newly created AI group to accelerate our AI ambitions. Moving into the group head technology and operations role is Naim Kazmi, a transformational leader who has held multiple leadership roles as most recently, the technology lead for the successful close and convert integration of HSBC Canada. We look forward to their continued success. And with that, Katherine, over to you. Katherine Gibson: Thanks, Dave, and good morning, everyone. Starting with Slide 8. This quarter, we reported strong results with diluted earnings per share of $4.03, adjusted diluted earnings per share of $4.08 was up 13% from last year, reflecting solid revenue growth and adjusted all bank operating leverage of 4.3%. Turning to capital on Slide 9. The CET1 ratio of 13.7% was up 20 basis points from last quarter, reflecting strong internal capital generation of 79 basis points underpinned by our 17.6% ROE. A modest benefit from changes in regulatory updates and market-driven OCI gains also contributed to the increase. This was partly offset by higher dividends as announced last quarter and higher RWA from the strong client-driven business growth that Dave just spoke to. Share buybacks of 4.2 million shares for approximately $1 billion, largely in line with last quarter's pace also had an impact. Moving to Slide 10. All bank net interest income was up 8% from last year or up 7%, excluding trading revenue, reflecting strong growth in Personal Banking and solid results in Commercial Banking and Capital Markets. All banks net interest margin was down 7 basis points from last quarter, largely due to seasonally higher financing activities in capital markets. All bank NIM, excluding trading revenue, was up 1 basis point from last quarter largely due to higher net interest income on certain transactions in capital markets, which were offset in noninterest income. Canadian Banking NIM was flat relative to last quarter largely reflecting favorable product mix, driven by growth in non-maturity deposits. Continued benefits from our structural tractor hedging strategy also contributed due to a combination of beneficial 5-year swap [ spread rule on ] trends and continued growth in notional balances. This was offset by pricing competition and lower purchase price accounting accretion benefits related to the acquisition of HSBC Bank Canada, which we guided to last quarter. Excluding the PPA accretion roll-off impact, Canadian Banking NIM would have been up [ 2 ] basis points. Moving to Slide 11. Reported noninterest expense was up 2% and adjusted noninterest expense was up 3% from last year. Adjusted expense growth was largely driven by higher variable compensation consistent with higher revenues in Wealth Management and Capital Markets. Higher salaries and pension and benefits-related costs also contributed to the increase, largely driven by a net increase in headcount. This was offset by the impact of FX translation and lower share-based compensation, which was driven by changes in equity markets and our own share price. Our expense growth also reflected the realization of cost synergies from the acquisition of HSBC Bank Canada and higher severance last year. Excluding these impacts, our expense growth would have been in the mid-single-digit range. On taxes, the adjusted non-TEB effective tax rate of 21.9% was up approximately 1.5 percentage points from last quarter, reflecting changes in earnings mix. I'll now turn to our Q1 segment results beginning on Slide 12. Personal Banking reported record results of approximately $2 billion this quarter. Focusing on Personal Banking in Canada, net income was up 18% from last year, and the segment generated operating leverage of 9%. Revenue growth was 9% with net interest income up 10% reflecting higher margins and volume growth. Noninterest income was up 8% from last year, largely reflecting higher mutual fund revenue. Loan growth of 4% was driven by growth across all portfolios. Deposit growth was flat as growth in lower cost demand deposits was offset by a decline in term deposits, concurrent with lower interest rates. However, this quarter, we generated over $2 billion in retail mutual fund net sales compared to the $5 billion we generated in all of fiscal 2025, reflecting the strength of our money in franchise. We expect this momentum to continue next quarter, including benefits from the seasonally active retirement contribution period. Turning to Slide 13. Commercial Banking reported record net income of $863 million, up 11% from last year. Pre-provision pretax earnings was up 5% from last year, driven by revenue growth from higher volumes and well-managed expenses. Deposits increased 5% from last year or 2% sequentially, driven by growth in non-maturity deposits, partly offset by a decline in term deposits. Loan growth continued to moderate to 4% year-over-year or 1% sequentially with tariff-related uncertainties impacting demand in key sectors and geographies. Turning to Wealth Management on Slide 14. Net income of $1.3 billion was up 32% from last year, reflecting record revenue. Noninterest income was up 11% reflecting higher fee-based client assets driven by market appreciation as well as net new assets. Strong retail mutual fund net sales over the last 12 months, including this quarter, were partly offset by outflows in short-term institutional mandates, which can be lumpy in nature. Transactional revenue, driven by client activity in U.S. Wealth Management also contributed. Net interest income was up 4% from last year, driven by higher deposit growth in Canadian Wealth Management as well as higher spreads and loan growth in U.S. Wealth Management, including City National Bank. City National's net income increased to USD 143 million. Record revenue this quarter was partly offset by higher expenses, including higher variable compensation and staff costs, including adviser recruitment. Turning to our Capital Markets results on Slide 15. Net income of $1.5 billion increased 3% from last year. Record pre-provision pretax earnings of $1.9 billion were up 11% from last year, partly offset by higher variable compensation. Global Markets revenue was up 7% from last year, reflecting record equity trading as well as strength in repo products, partly offset by softer credit trading results. Corporate and Investment Banking revenue was flat year-over-year. Investment banking revenue was down 6% from last year, offsetting lending and transaction banking revenue that was up 6%. Turning to Slide 16. Insurance net income of $213 million was down 22% from last year, reflecting a $65 million reinsurance recapture gain in the prior year. Return on equity for the business was 24.9%, reflecting the increase in attributed capital for insurance as guided to in our fourth quarter call. We continue to target a mid- to high 20% medium-term ROE. The U.S. region net income of USD 716 million was up 2% from last year, driven by a pickup in client activity in both capital markets and wealth management, including City National as well as some benefits of strong markets and improved operational efficiency. This was partly offset by higher PCL. I'll now spend a few minutes updating our outlook for 2026. Consistent with last quarter, we expect annual all bank net interest income growth, excluding trading, to be in the mid-single-digit range. This includes the majority of the remaining $80 million PPA accretion roll-off next quarter, which translates to approximately a 4 basis point impact to Canadian banking NIM. Noninterest income is expected to benefit from robust client activity in market-related businesses. That said, capital markets is seasonally stronger in the first quarter, particularly in certain trading businesses, consistent with increased client activity. As a reminder, starting next quarter, we'll also begin to see the modest impact of reduced fees in personal banking in line with regulations set out in last year's federal budget. Also recall the second quarter has fewer days than the other quarters. We continue to expect all bank expense growth to be in the mid-single-digit range for the year due to the realization of previously committed costs and ongoing investments. This includes the growth initiatives that Dave spoke to earlier. Investments in technology and safety and soundness framework of the bank continue to be a priority, given emerging opportunities and risks where we spend approximately $1 billion annually. Nonetheless, we continue to expect positive all-bank operating leverage for the year, including 1% to 2% for Canadian Banking as we continue to focus on efficiencies across the bank, including AI-related benefits. We expect the adjusted non-test effective tax rate to move towards the higher end of our 21% to 23% previously guided range over the next 12 months. In contrast, we expect corporate support segment losses to now trend closer to the lower end of the $100 million to $150 million range per quarter. On capital, we expect a modest 10 basis point negative impact to our CET1 ratio next quarter, reflecting changes to retail capital parameters. To conclude, we remain focused on continuing to drive sustainable shareholder value through capital allocation, centered on client-driven organic growth within our risk appetite, along with returning capital to shareholders. With that, I'll now turn it over to Graeme. Graeme Hepworth: Thank you, Katherine, and good morning, everyone. Starting on Slide 17, I'll discuss our allowances in the context of the macroeconomic environment and ongoing trade uncertainty. We remain cautiously optimistic on the outlook for the Canadian economy. We expect to see mild growth and continued stabilization in the economy, supported by prior rate cuts, ongoing trade diversification initiatives and targeted fiscal measures. Looking ahead, while we believe the Canadian economy has demonstrated resilience, factors such as U.S. trade policy, the upcoming CUSMA joint review and geopolitical tensions add ongoing uncertainty to our outlook. Against this backdrop, we have maintained a prudent approach with our allowances. While our base outlook assumes that current CUSMA exemptions and tariffs are maintained going forward, to reflect the uncertainty of outcomes, we have retained elevated [ weightings ] to our downside scenarios consistent with the last three quarters. As a reminder, in the second quarter of 2025, we introduced a trade disruption scenario into our IFRS 9 framework. This scenario captures the risk of Canada facing significantly higher tariffs across all exports but also reflects the potential for a severe North American recession driven by escalating global trade wars. When certain trade conditions have widened the range of possible outcomes, we feel the potential downside risk of a CUSMA [ trial ] been appropriately captured in our allowances supporting our financial resilience through the cycle. Turning to Slide 18. We took a total of $28 million or 1 basis point of provisions on performing loans this quarter, reflecting unfavorable changes in credit quality and portfolio growth partially offset by a favorable impact from our macroeconomic forecast. Moving to Slide 19. PCL on impaired loans of 40 basis points was up 2 basis points or $84 million relative to last quarter with higher provisions in Capital Markets and Personal Banking, partially offset by lower provisions in Commercial Banking. In Capital Markets, provisions on impaired loans were up $130 million from the prior quarter. Most notably, we incurred a large provision related to a borrower in the consumer discretionary sector as well as to a previously impaired borrower in the financial services sector. We also continue to see provisions in the commercial real estate sector consistent with ongoing headwinds in that space. In our commercial banking portfolio, PCL on impaired loans was down $73 million compared to last quarter, reflecting lower provisions on larger borrowers. While we saw a better performance in Q1, we expect losses to remain elevated in the coming quarters given the ongoing soft economic conditions, particularly in cyclical industries. As a reminder, impairments and recognized losses in our wholesale portfolios are inherently more difficult to predict and can be more episodic quarter-to-quarter. In Personal Banking, PCL on impaired loans increased by $27 million, driven by higher provisions in residential mortgages and credit cards partially offset by lower provisions in personal lending. We continue to see a more localized impact in our retail portfolios with higher provisions driven by softness in Ontario and the Greater Toronto region. Residential mortgage provisions are increasing as expected due to these regional factors and pressures from higher payments at mortgage renewal. We expect these pressures to abate as they exit 2026 with average payment increases at renewal decreasing substantially in 2027. We remain confident in the quality of our mortgage portfolio, underwriting and collateral. Moving to Slide 20. Gross impaired loans of $9.2 billion were up by $485 million or 3 basis points from last quarter, largely driven by 3 segments. In Personal Banking, gross impaired loans increased by $294 million quarter-over-quarter, largely driven by new formations in the Canadian residential mortgage portfolio. In Wealth Management, gross impaired loans increased by $90 million, driven by CNB with newly impaired loans in the commercial real estate and consumer staple sectors. In Commercial Banking, gross impaired loans increased by $88 million quarter-over-quarter, [ largely formations ] in the quarter related to borrowers in the transportation and industrial product sectors. To conclude, despite higher episodic losses in capital markets this quarter, we remain confident in the overall quality, diversification and resilience of our portfolios. We still expect full year 2026 provisions on impaired loans to remain within the guidance previously provided. Credit outcomes will continue to depend on the extent and duration of tariffs, the performance of labor markets, interest rates and real estate prices, factors we are actively monitoring as the trade and geopolitical landscape evolves. As always, we continue to proactively manage risk through the cycle and evaluate multiple scenarios across our credit and stress testing frameworks. We remain well provisioned and capitalized to withstand a wide range of macroeconomic and geopolitical outcomes. With that, operator, let's open the lines for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: Yes. So I wanted to go back, the Slide 6 is extremely helpful. So thanks for laying it out that way. But there's something you said like around that slide around profitable growth at a premium ROE. From an investment standpoint, it comes down to a relative game. So when we look at that Slide 6, maybe just talk to us about -- there are lots of tailwinds in capital markets today that the industry is benefiting from. As we think about the advantage that Royal has because of scale, because of market leadership position in many businesses, what are things that Royal can do that some of your peers may not be able to do as [ profitably ] that we, as investors, should think about? David McKay: That's fair. Maybe I'll ask Derek to start because you referred specifically to capital markets. And then myself, Sean or Erica will maybe answer that question in the context of Canadian Banking. So Derek, maybe the scale advantage that you have in capital markets. Derek Neldner: Sure. Thanks for the question, Ebrahim. So as you know, we've obviously been investing in the capital markets business now for many decades and have established very much a global footprint with today, about 70% of our revenue coming from outside of Canada. I think those investments over multiple decades have really put us in a position where we do bring advantages in terms of our global footprint, the diversification of our business, both across client segments sectors and products. And then obviously, the scale that, that brings, not just the scale within capital markets, but the scale of RBC that we can more broadly leverage. So what does that allow us to do from a competitive advantage perspective? I think, first, you've really seen that come through in the sustainability of our results. That breadth across geographies and products and client segments has allowed us to deliver. We believe, very sustainable results at lower volatility than some of our industry peers. Importantly, from a client perspective, the cross-border platform we have allows us to serve our clients across multiple markets, whether that be in financing or advisory or sales and trading intermediation which is very important as our clients get bigger and scale themselves and are looking for partners that can serve them across all their needs and allows us to pursue and support them in larger transactions, which again, scale is a theme we're seeing across industries, and our clients are looking for partners that can support them. And then finally, I would just say, very importantly, the scale advantages that we have and the sustainability and diversification of our business allows us to continue to invest very consistently over the cycle. And we're not going to chase certain themes at a certain point in the market cycle but allows us to pursue a very consistent strategy, make the investments in talent, technology with our balance sheet resources to really build long-term durable client franchises. And then finally, it allows us to do that without stretching on risk. So we've got lots of different avenues where we can invest organically, continue to build the business. We want to be thoughtful, particularly at this point in the cycle. And so we feel we can do that without compromising our risk appetite in any way. David McKay: Thanks, Derek. Ebrahim, when we think about scale, we think about in the context of operating scale, brand scale, data scale among a number of dimensions. And when you think about the operating scale of the Canadian Bank, Consumer and Commercial Banking operating at a combined productivity ratio, I think, 35%, 36%, it allows us to compete for business and drive a high ROE at the same price, same risk level allows us to price more flexibility. When you have a 30% advantage over your competitors are [ when they're in the ] mid-40s, it allows us enormous flexibility within our risk appetite to earn a higher ROE on the same piece of business or price more aggressively if we want to serve that client. So on the operating scale side, it's clear the advantages that gives us and it drives that consistent premium ROE -- operating ROE that we've driven. And maybe I'll turn it to Erica because it's such an important question, right, go on and spend a little more time on it. It's a great question, maybe about data scale and brand scale, Erica, [ in your business ]? Erica Nielsen: Thanks, Dave. So maybe just a comment on the data scale. One of the most important things that we see going forward as we serve more Canadians in the Canadian marketplace is our ability to understand and understand what those consumer needs are, understand the everyday financial of those consumer needs and then use that information to build models that allow us to further grow our business, further penetrate that business. When we look at the ability of our models, particularly those AI-based models that we're looking at. Now we can see very different outcomes based on the scale of consumers that we see in the Canadian marketplace. And so we look at that as a significant opportunity for us to grow our businesses differentially based on the data scale and the activity scale that we see in our client franchise. David McKay: Thanks. So that's a big part of our Investor Day thesis. I think -- we probably have a long queue, we should move on, but I appreciate that question. Operating data, balance sheet, brand scale are a big part of how we drive consistent premium growth in ROE. Operator: Your next question comes from the line of John Aiken with Jefferies. John Aiken: I was hoping to drill down a little bit on City National. I think Katherine mentioned in her commentary that there were a bit of headwinds in terms of provisions. I wanted to discuss the outlook for '26, '27 and how much work is left to be [indiscernible]? Or have we finished with most of the heavy lifting? David McKay: I think you heard incorrectly, there's a tailwind from [indiscernible], not a headwind. We're having great credit experience in City National. We serve a premium, affluent and entrepreneurial commercial customer. Any other clarity on that, Katherine? Katherine Gibson: No. I would just say in my comments, I was just calling out the strength of their earnings this quarter and In addition to the clean credit book growth, the really strong loan growth, deposit growth, profitable growth, and we're really pleased with the results that we see now on a continued basis over a few quarters. So as we go forward, really seeing them deliver against the targets that they have set out almost a year ago with that profitable top line growth, driving the efficiencies and it's really materializing with more to come. David McKay: Yes. And we are well on our way to meeting and exceeding our Investor Day targets in City National. We are very excited about being on a growth front footing right now with that business, profitability-wise and customer growth-wise. So I don't foresee the credit headwinds that you mentioned. Operator: Your next question comes from the line of Gabriel Dechaine with National Bank Financial. Gabriel Dechaine: Katherine, can you repeat what you said about the Canadian banking NIM and the impact of HSBC? That accretion runoff and stuff in Q2? Katherine Gibson: Yes, happy to. So what we saw as an impact this quarter was the PPA rolling off related to HSBC and so it's starting to roll off this quarter, which was the 2 basis points impact, and we're going to see it largely kind of fully roll off. There's a little bit that will last throughout the rest of the year, but it will be a 4 basis point impact. Having said all that, we're still seeing like a positive momentum from our tractor strategy we're seeing positive impact from the deposit mix shift as we're seeing those flows move into non term. We're also, as I said in my comments, seen really positive flows into mutual funds. So I know that doesn't necessarily show up in NIM, but it's showing up in overall revenue growth. And then you would have seen in the charts that we've included, there is still competitive pressure that is a bit of an unknown going forward. But we're seeing that on GICs and we're also seeing in the commercial book and a little bit still on the mortgages as well. Gabriel Dechaine: So margin down for the next quarter? Katherine Gibson: Yes, not -- the impact will be 4 basis points, and we don't give specific guidance out on NIM. We kind of pushed towards the guidance on the NII, excluding trading. But I would say you could look to kind of track to a stable expectation on NIM as we go forward. Gabriel Dechaine: Got it. And for Dave, just -- we hear this comment every now and then like pressure to deploy capital, which -- I don't think that applies to Royal. You got a lot of capital but you're going to nearly an 18% ROE. I didn't see a huge boost from capital markets that helped, but it wasn't like outsized this quarter. So are you just willing to sit on excess capital and wait for the organic growth to come, and then we'll see like a leg up then that type of thing? David McKay: That's a great question as we are put our third quarter consecutively of 17-plus percent ROE. It's driven from the strength of the business, not largely from buybacks. We haven't seen the benefit of our AI benefits that we discussed the $700 million to $1 billion benefits as we've invested that money and are still on track to deliver that for investors. So we're excited about that. We do, to your point, have significant capital to buy back shares. And we're certainly looking to continue to do that and grow into that. So we will be able to improve that ROE through some share buybacks. And then from an organic perspective, we want to spend more time talking about it. We do see more growth coming from a significant number of projects that are going to get built in this country, whether it's deployment of our defense industry spend, it's the energy infrastructure we need to be, the Arctic infrastructure, the minerals infrastructure, all these multiple use capabilities that the Prime Minister and the government has talked about is going to require a significant amount of domestic and foreign capital. One of the reasons we're looking to intermediate that capital from places like the Middle East as well into the country. So I think from that perspective, we see an acceleration of growth opportunities coming at us on the organic side that we're trying to anticipate the timing on that. It's hard to predict some of these larger projects. But again, we anticipate good growth coming. And the third thing I'd say we continue to be on the lookout for the right acquisition. It's not that we're avoiding them. Just none have met our hurdles at the end of the day and the hurdles that we promised you to drive accretion. At the end of the day, they are all significantly dilutive, and that's not acceptable to us. We don't grow for the sake of growth. We're here to create shareholder value. So it's not that we're not looking, that we understand the business we want to grow. They're all in the businesses that we talked about. What's global wealth, U.S. wealth, commercial banking, those are the types of acquisitions we would look at and nothing's met our hurdle rate. So we continue to be active in all fronts in creating shareholder value. And I think that you should get comforted by the number of levers we have to pull to enhance ROEs and create growth at the same time. Operator: Your next question comes from the line of Paul Holden with CIBC. Paul Holden: A question for Graeme. So Dave talked about loan growth being near the bottom end of the guidance range for the year due to sort of softer economic conditions in Canada persisting. What does that imply for the PCL guidance? I know you've restated the PCL guidance. Does that mean, should be assuming something at the upper end of the range, would you assume? And then sort of tied to that, I'm really curious by [ the good ] slide on -- I think it's Slide 34 where you show the mortgage portfolio, sort of the component of the higher risk where LTVs over [ 80 ] and credit bureau score below [ 6.85 ], and we saw some change in that number quarter-over-quarter. So maybe just on the question is talk to us about Canadian consumer risk and what that might mean for PCLs. Graeme Hepworth: Thanks, Paul. I think the comments they made around kind of softness on the growth side is quite consistent with the guidance we've given in Q4, and we're persisting into Q1. We continue to see the Canadian economy in particular not certainly weakening into a recessionary [ state of point ], but struggling with kind of pretty modest growth. And there's certainly regional effects, particularly when we talk about the consumer side of our portfolio, we particularly see weakness in Ontario consistent with kind of the elevated levels of employment we see in the region. And I think when we talked about in our guidance previously and that persists into Q1 is that we really kind of saw 2026 being a year where we were going to kind of be in this plateau of relatively elevated credit losses. And as things are really kind of trending sideways, there's some near-term headwinds that haven't changed that are still playing out. Those are headwinds like the increasing payments that many of our mortgage clients are going through. We've got the kind of ongoing kind of trade and tariff uncertainty. And again, that's impacting many sectors that we've talked about in the commercial side, but that does play through into the consumer side as well. And again, a lot of that is centered in the GTA in Ontario as well. So overall, I wouldn't say -- I think our view on the consumer has changed a lot in Q1 versus Q4. We're seeing a lot of the things we talked about then persist into Q1. When we look at the different products, I would say we see some indicators of stability and kind of early delinquencies in products like our mortgage product, [indiscernible] our unsecured lending products. Areas like indirect auto where we've seen maybe some recent trends in impairments that were improving, but the earlier delinquencies there are showing a bit of a [ softening ]. And so there's some pluses and minuses there, and we pull that together. That's what's kind of leading to us persisting kind of our view that the forecast and guidance we provided in Q4 still holds now. That's kind of the rough view of the consumer side. I'd say. The wholesale side is where we see more volatility, right? And I think we kind of called that out in Q4, and we're seeing that play out pretty much in Q1. Wholesale is by nature are just going to -- is going to be more volatile quarter-to-quarter. Interesting in our portfolio, you've seen kind of that play out in both directions. I think in capital markets, we obviously saw elevated levels of impairments and risk playing through in the quarter. Let me kind of compare that against a lot of the forward-looking metrics we look at in the wholesale book, things like our watch list and we've been into our special [ home group ] ratings migration. Those are all stable, if not improving. And so we don't see this as a new indicator that capital markets is resetting at a higher level. Likewise, Commercial Banking had a much improved quarter this quarter. But that's a business where, likewise, the indicators are still high and risk is still elevated. And so when you put wholesale together, we still think we're going to be in an elevated environment for the year, but it's going to be pluses and minuses as we work our way through each quarter. So -- and overall, very consistent, I would say, with Q4, but a few pluses and minuses as we look throughout the portfolio. Operator: Your next question comes from the line of Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: Okay I just wanted to go back to Slide 6 and ask a question of there, in particular, [ maybe Graeme ]. You're kind of listed a couple of times as both capital-intensive and moderate capital intensive use of, I guess, resources here. So when you go to grow your corporate lending, for example, before some of the benefits come through, should we be expecting a bit of a, I don't know, moderation or mellowing in your segment ROE before it picks up. And as you do more corporate banking, Graeme, do we need to think about Royal's through the cycle average PCL with a greater volatility around it, even if it comes in around the same. So if you could just provide some color as to what the outlook may look like, not necessarily over the next 12 months, but over the next 24, 36 and beyond. Derek Neldner: Sure. Thanks, Sohrab. It's Derek. I'll start and then Graeme can obviously chime in on the second part of your question. Just a few things I would highlight. So on that Slide 6, as you know, Capital Markets has a broad portfolio of businesses. Some are more capital intensive, such as the corporate banking loan book. Some are moderate being parts of our Global Markets business. But I would also highlight, we have some very low capital intensity businesses, such as investment banking and transaction banking that are key growth areas for us as well. And so when we look at how we might deploy organic capital, it's really across all of these areas. For the more capital or moderate capital intensity through direct capital employment through financing and lending. And then through the less capital-intensive areas, it's really through NIE as we invest in talent and technology. To your specific question on what should you expect from the ROE, we would not expect a deterioration in our ROE. We think we can deploy capital, while at the same time, do that across the portfolio to continue on the trajectory of moving our ROE target higher consistent with what we articulated at Investor Day, and you've obviously seen that in the last two quarters as our ROE has continued to trend upwards. So it's a balance between ROE and growth we think we can invest across the portfolio, drive accelerated growth while continuing to migrate our ROE higher. Graeme Hepworth: Maybe just sort of add on the kind of risk element to that question, just kind of say a few things on that. I think while capital markets has been growing and there are plans to grow, if you kind of pull up and look at what [ tapped ] over the last 3 to 5 years, and you use kind of a metric like RWA as an indicator. We've actually seen the RWA footprint of capital markets kind of abate or kind of remain a stable proportion of RBC's overall risk profile. And so no, I don't expect it will kind of dramatically change kind of the volatility of our credit book per se. [ Look ], where the growth is happening, say, on the loan book or off the markets business on the financing side, it tends to be kind of higher grade corporate relationships that we're driving more of. And so I wouldn't expect it to be kind of driving volatility in a really distinct or unique way there. So as it stands, again, in the plan, we have a kind of a very well-articulated risk appetite. I don't think anything that we're laying out here has us changing our risk appetite. That's consistent with what we messaged at Investor Day. So no change in approach on that at this point. Operator: Your next question comes from the line of Mario Mendonca with TD Securities. Mario Mendonca: Dave, perhaps just a quick question. I was intrigued by a comment you made in your prepared remarks. You said -- and it was in the context of returning capital in the form of buybacks. You said something to be effect of, "And we acknowledge where the price of the book is." And I may have misheard you, but what message were you trying to convey if I did, in fact, head you correctly? David McKay: Just as we came out of Q4 into Q1 and saw the significant run-up in the share price, we looked at the volatility in the marketplace. And I think we tempered some of our buyback activity through Q1. As you saw, we maintained a kind of consistent level as we had in previous quarters between [ $800 billion ]. It was probably more most attributable to the uncertainty in the marketplace. And we exited the quarter thinking we'd be buying back shares at a certain level and ended up having a target much higher. So it's just a combination of events. I wouldn't attribute anything specific to the share price because we continue to buy back at $225, $230, $235 a share throughout the quarter. So we maintained an even cadence to the quarter versus an acceleration through the quarter. So I wouldn't attribute anything. It's more the uncertainty of the geopolitical situation that caused us to hedge a little bit through the quarter. Mario Mendonca: And then when you made reference to wanting to be at the high end of your target capital range, just remind me is [indiscernible] the high end? Or would you take -- that's the high end? David McKay: [ You ] let it run up a little bit. We had a significant quarter where we earned a great return, and we're very capital efficient and it moved up to [ 13.7 ]. It just gives us more flexibility to deploy that into buybacks and growth in the coming quarter. Mario Mendonca: And then just maybe I think one other thing. When you think about your U.S. franchise, I think CNB went through a rough patch. It's clearly out the other end, things are looking much better than they were a couple of years ago. Does that give you the confidence? And maybe this is the right way to ask it, is does the institution have the stomach for another meaningful U.S. banking transaction? David McKay: Does it have the stomach? Absolutely. Accretive shareholder value and the synergies lead to that shareholder value. It's all about your business case. And can you extract synergies versus the price and the competition. I mean we expect to have significant competition for any commercial property that we'd be looking at or wealth management property. And therefore, does your synergy start compete and can you earn a return on it. So we spent all our time building hypothetical synergy cases for each of these opportunities, and we talk about them, what would we do with this franchise differently than the current management team does. How do you put a valuation on that, and that leads us to be disciplined in any approach. So we know we have capital strength. We know our currency is strong, and therefore, we want to grow, but we're going to grow and create shareholder value at the same time. Operator: Your next question comes from the line of Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: Just a quick follow-up maybe for Erica and Sean, as we think about the margin outlook for the Canadian banking business, maybe just talk to what you're seeing on deposit pricing on term deposits versus acquiring new households I'm just trying to get a sense of what the competitive dynamics look on both fronts and the implications that may have as we think about just margins over the next year or two? Erica Nielsen: Yes. Thanks, Ebrahim, for the question. It's Erica. Maybe just a couple of reflections. As it relates to the pricing and the competition that we're seeing on our deposit franchise, particularly with GIC, I would say that it still continues to be a competitive market. And that is coming from a group of clients who are largely in 1-year term deposits, and they're looking now to make the determination of is it time for equities or is it time to remain in the GIC portfolio. And so we are watching that portfolio and trying to guide clients appropriately. So we want to make sure that, a, first and foremost, as we retain the dollars at RBC to grow our money in franchise. And then we follow what the client need is based on, should they remain in the GIC portfolio or should they largely move into the mutual fund portfolio. We see increasing, as Katherine talked about in her remarks, increasing rotation into mutual funds. But at the end of the day, our core metric is that we keep the dollars in the RBC franchise. And then as it relates to client acquisition, as you can imagine, there is -- client acquisition is challenged for all of us in this market at this point given the rollback in immigration in Canada. And so we are competing aggressively in that marketplace to switch Canadians across the different institutions and win, and we have had good success in our business at attracting with our value propositions, RBC Vantage, the Avion portfolio, acquiring clients into our core checking and savings businesses so that we can continue to grow that franchise. But that is -- remains competitive across all of our peer set. Sean Amato-Gauci: It's Sean. So on the commercial side, we are seeing continued mix -- product mix shift from term into demand as kind of the clients perceive the opportunity cost of holding excess liquidity to be low and are giving up some yield to maintain flexibility in this current environment. Just to give you some context there, we saw term obviously peak in 2023 or so at peak levels of rate increases at approximately 20% of the portfolio. The trough was about 8% to 9% in the early stages of COVID. We're in the close to the 14% range now. So while there's potential tailwind opportunity, we think that will continue to abate over the coming quarters. But we do see customers being more liquid and especially at the upper end of the portfolio, keeping sort of powder dry as we see investment activity starting to pick up on the lending side by the same clients who are being much more active than sort of the core commercial and smaller base. David McKay: Thanks, Sean. I think that's our last question. And I know you need to jump to another call, so maybe I'll wrap up here. So a strong quarter for RBC across all our businesses client-driven growth. As you heard Katherine say, we earned through some margin headwinds from the PPA. We earned through some tax increases. We earned through some PCL increases. So it just talks to the earnings power of the organization and what -- where headwinds will become tailwinds. You saw the very strong capital efficiency well into -- well on our way to, as one of you referred to at 18% with tailwinds as well, as I highlighted around, we haven't seen the AI benefits yet, which are coming and are on track, or we're confident of. We haven't really bought back shares that are utilizing the capital surplus capital that we have that creates opportunities there and the growth that's coming to deploy that organically as well. And I'm going to finish where we started with Ebrahim's question on scale. I mean when you're looking at these lower capital-intensive businesses that are so important in driving our business, whether it's wealth, or the transaction banking opportunity. The operating scale we have allows us to invest in this type of growth and get ahead of the curve. When you deploy $0.5 billion into your transaction banking platform because it's essential to your [ competitors ] in the future, but also the profitability that's going to come from that platform in the future. I think it's very significant. We've absorbed all that into our current run rate. So as you think about the ability to invest our NIE organically into growth. Neil's GoSmart initiative, which you didn't have a chance to talk about today, creating higher ROE, lower capital growth largely comes from your NIE efficiency and your NIE scale. And I think we -- that is the characteristics of our platform, and that's the benefits you see in getting ahead of these and creating revenue growth and [ profit and growth ] from that. So thank you for your questions. I know you have another call. Appreciate your interest and questions, and we'll see you next quarter. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Celsius Holdings Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Paul Wiseman, Investor Relations. Please go ahead. Paul Wiseman: Good morning, and thank you for joining Celsius Holdings 2025 earnings webcast. With me today are John Fieldly, Chairman and CEO; Jarrod Langhans, Chief Financial Officer; and Toby David, Chief of Staff. We'll take questions following the prepared remarks. Our fourth quarter and full year 2025 earnings press release was issued this morning, with all materials available on our website, ir.celsiusholdingsinc.com, and on the SEC's website, sec.gov. An audio replay of this webcast will also be accessible later today. Today's discussion includes forward-looking statements based on our current expectations and information. These statements involve risks and uncertainties, many beyond the company's control. Celsius Holdings disclaims any duty to update forward-looking statements except as required by law. Please review our safe harbor statements and risk factors in today's press release and in our most recent filings with the SEC, which contain additional information and a description of risks that may result in actual results differing materially from those contemplated by our forward-looking statements. We will present results on both a GAAP and non-GAAP basis. Non-GAAP measures like adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, adjusted SG&A and adjusted SG&A as a percentage of revenue, and their GAAP reconciliations, are detailed in our Q4 and full year earnings release. And non-GAAP financial measures should not be used as a substitute for our results reported in accordance with GAAP. With that, I'll turn it over to John. John Fieldly: Thank you, Paul. Good morning, everyone, and thank you for joining us today to discuss our fourth quarter and full year results for fiscal year 2025. As I look back in 2025, the message is clear: We continue to execute with momentum and operating discipline, and we are reinforcing the scale of our platform as we build a modern energy portfolio. One of the reasons we feel good about the progress is that we delivered full year record revenue of $2.5 billion, reflecting our disciplined approach to growth and the material scale we've accomplished. At the core, our focus is straightforward. We stay close to the consumer and we execute with consistency alongside Pepsi and our retail partners, which creates the opportunity to grow in a sustainable and profitable way over time. With that as context, let me start with the portfolio: what we see across CELSIUS, Alani Nu and Rockstar Energy. Across the portfolio, we continue to manage and invest in CELSIUS, Alani Nu and Rockstar Energy with the intent to broaden our reach. Our combined portfolio represents approximately 1/5 of the U.S. energy market in tracked channels for the full year, which we believe to be very impressive both on an absolute basis and relatively. In addition, our portfolio includes 2 billion-dollar brands, validating that sustainability and scale of our portfolio. Each brand can win in its own way, and our focus is to enable that to happen more and more. We operate with precision, making sure that we are present where it counts, bringing the right innovation and activating demand in a way that strengthens our core, not just the moment. When you look at the CELSIUS brand, the opportunity is about strengthening momentum and executing in a way that positions us to outgrow the category over time. We are focused on the fundamentals that drive that outcome: staying disciplined with SKU productivity, sharpening revenue growth management and promotional efficiency, maintaining a consistent innovation cadence, and elevating market execution with Pepsi and our retail partners, particularly during key priority periods. LIVE. FIT. GO. continues to be the core part of how we connect with consumers, and we remain focused on the long-term runway and household penetration, expanding reach while also driving frequency and loyalty as modern energy becomes more embedded in daily routines. For Alani, we continue to see momentum supported by the strength of our core brand and the opportunity to expand distribution. As the brand transitions into the PepsiCo system, we are focused on what is complete, what remains in motion and what improves as the transition finishes. We saw the momentum with Cherry Bomb as the first limited time offer in the PepsiCo system, and we are taking those key learnings forward. And with Rockstar, our integration remains on track, and we expect to complete the remaining integration in the first half of 2026. Importantly, this is not just about completing 1 integration. It's about strengthening our growing operations. We are building repeatable processes, executing transitions with discipline and refining a playbook that improves how we manage complexity across our growing portfolio. On that note, let me give you a quick update on the integration and transition progress across the portfolio. Starting with Alani Nu, we are making strong progress moving the business into the PepsiCo system. As of year-end, we are substantially complete on the U.S. DSD transition. The way we're approaching the remaining work is intentional and methodical and is designed to make sure we set up the portfolio the right way with Pepsi and our retail partners. And they are brought in on this too. We believe we are set up for success and we continue to expect the Alani implementation and integration to be completed by the end of the first quarter of 2026. With Rockstar, we are progressing through the remaining integration steps and staying focused on the work required to fully bring the brand into our operating model. We are executing against a clear plan and remain on track to complete the integration in the first half of 2026. And when you talk about success, it is very clear. It is consistent execution, a more focused SKU set and improving the margin structure over time as we bring the brand further into our platform. As we think about brand health and durability, our view is rooted in what drives loyalty and relevance. Across the portfolio, we continue to differentiate through sugar-free and flavor innovation, and really believe the category continues to support brands that stay closely aligned with evolving consumer preferences. Looking at 2026, our focus is on making sure that loyalty and brand relevance remains durable. That means staying consistent on what each brand stands for, continuing to bring innovation that creates trial and drives frequency, and executing with that kind of operational discipline that protects the long-term value of our business. We kicked off 2026 by making our Fizz-Free line available nationally. And we see a meaningful opportunity as there's many consumers that prefer beverages without carbonation or like the optionality of fizz or fizz-free. Across 2026, you will see a more intentional innovation and a limited time offer cadence, supported by broader distribution and strong end market execution. For Alani, that also includes expanding distribution of the core SKUs as we complete the transition into the PepsiCo system. International represents a meaningful long-term growth opportunity for us. Today we are present in approximately 10 markets. While international remains a smaller portion of the total business, we see a significant runway as global consumer trends increasingly mirror what we're seeing in the U.S., particularly around fitness, wellness and better-for-you energy. Our approach to expansion is intentional. We are prioritizing focused market selection, clear entry plans and ensure the right execution model is in place before we scale. This is not about entering as many markets as possible. It's about building our brands the right way, with strong local partnerships, disciplined launch plans and sustained marketing and distribution support. To support this next phase, we've brought on Garrett Quigley as President of International. Garrett brings deep experience scaling beverage brands globally and is building a dedicated international sales and marketing organization to expand our footprint in a thoughtful and profitable manner. As global consumer behaviors continue to shift towards zero sugar, functional energy that fits into daily routines, we believe our portfolio is well positioned to participate in that structural growth. We will continue to prioritize strong execution and long-term value creation as we build our international presence. That same focus on execution and scale also shapes how we're evolving our marketing capabilities. On marketing, we're continuing to sharpen how we tell our story and activate demand across the portfolio. Historically, our brands use separate creative teams across different companies. A key step forward, the creation of our new brand studio, a full-service in-house agency built to drive brand growth with speed, consistency and sophistication. More than a creative team, the brand studio is a strategic engine that will shape, produce and scale how our brands show up across every consumer touch point, from packaging and campaigns, to digital-first content and 3D motion graphics. And importantly, this strengthens our ability to run the portfolio in a more intentional way, helping us reach more consumers and connect awareness to trial, and ultimately, to retail activation. The scale of our portfolio allows us to leverage the team, maintain clear control of each brand's voice. Innovation remains central to how we grow the portfolio. That includes leaning into consumer preferences, like fizz-free, while also deploying limited time offers in a disciplined way. For us, LTOs are not about chasing short-term spikes. They are about expanding the funnel, driving incremental trial, reinforcing the strength of the core portfolio. When executed with the right distribution and retail alignment, they can become a repeatable lever within our broader growth framework. Energy remains one of the most attractive growth areas in beverage, with zero sugar offerings leading expansion. We believe our positioning allows us to help grow the category, not just participate in it, by staying relevant to consumers and executing with discipline across both mature and white space markets. And that matters because it speaks to the runway. In more mature markets, the work is about consistency, innovation and driving frequency. In white space markets, the focus is on building awareness, expanding distribution and scaling trial, all while staying disciplined to how we execute. Our partnerships and activations are part of how we do that. We continue to leverage partnerships and others to connect awareness to trial and then the retail activation. These programs are designed to put the brands in motion, in real consumer moments and to convert that energy into demand where consumers shop. Through our social media community building as well as our macro and micro influencer bases, we are building excitement, brand awareness and loyalty to further grow the brands. And we're also proud to see Alani Nu recognized by BevNET's 2025 Brand of the Year. Congratulations to all of our team members. That recognition reflects the strength of our brand and the momentum we're building as we expand reach and execution. Finally, as we look ahead, we have a clear strategy and priorities for 2026 and believe they will support sustainable, profitable growth. Our focus on continuing to strengthen the platform we have built, executing with discipline across the portfolio and staying closely aligned with consumers as the category continues to evolve. Across each of these priorities, our intent is the same: execute consistently, strengthen our operating system and create long-term value. With that, I'll turn it over to Jarrod to walk through our financials. He'll begin with some context around the Rockstar accounting treatment, then cover full year and quarterly results. Jarrod? Jarrod Langhans: Thanks, John, and good morning, everyone. From a financial perspective, we have a lot to cover. As John noted, I'll begin with Rockstar given the accounting treatment during the integration, then move to Alani and brand CELSIUS to walk through the components of our consolidated results. Beginning with Rockstar, during the quarter, we were actively integrating the brand into our supply chain, back office and commercial organization, which impacted how certain sales activities reflected under generally accepted accounting principles. As a result, some components were required to be recorded in other income rather than net sales. For the quarter, $45 million was recorded within net sales and an additional $6 million was recorded in other income. As we move into the first quarter, we expect to fully transition the U.S. portion of the business to the finished goods model and we expect that only the Canadian portion will remain in the other income. We expect the Canadian portion of transition to the finished goods model in the first half of 2026. On a full year basis, we recorded $56 million in net sales for Rockstar and an additional $13 million in other income. And as we sit here 6 to 8 weeks into 2026, we remain confident the brand continues to resonate with many consumers, and we have a plan to stabilize the business and move it back into growth over the next handful of years as previously discussed. Turning to Alani Nu, during the fourth quarter, Alani achieved record net sales of $370 million, benefiting from significant ongoing customer demand, increased distribution points and increased orders as we move the business out of its prior distribution system and into the PepsiCo distribution system. On a pro forma basis, that would equate to growth of 136% for the quarter compared to the prior year. In the 9 months since we purchased the brand, Alani has contributed $1 billion to our net sales. During the quarter, we continued to execute against the integration plan we presented in May, and we are pleased to note we remain on track, including moving the business into our supply chain, back office and commercial operations. We have also moved a substantial portion of the distribution network into the Pepsi system, with only a few pieces of the DSD network remaining outside of Pepsi today. Moving a substantial portion of the business into Pepsi was a significant operational milestone, and I want to recognize the teams across our organization, our former distribution partners and Pepsi for making that happen as seamlessly as it did. We also saw the execution show up in innovation. Cherry Bomb, our first Alani LTO launched in the Pepsi system, and was very successful running out in record time. With strong pull-through, we saw increased orders in the last few weeks of the year above and beyond our initial projections, supporting triple-digit growth in the first 6 to 8 weeks of the year. As we look across 2026, we expect continued expansion into more locations with more SKUs and overall triple-digit space gains. As expected, the transition of Alani into Pepsi drove increased orders and strong execution, which in turn impacted reported results for brand CELSIUS as we manage the timing and sequencing of inventory movements within the Pepsi system as we balance the Alani load-in with total inventory across the network. As a result, scanner data is a healthy 12.8% for the quarter, while underlying GAAP sales for CELSIUS showed a 7.7% decline due to the timing activities noted. When combining brand CELSIUS inventory movements with the Alani load-in, the company had a net benefit of approximately $25 million. Just a year ago, we were coming off a period in which both the category and brand CELSIUS experienced pressure in the back half of 2024, with some continued softness in the first quarter of 2025. As a result, we put a plan in place across our commercial organization, and we are pleased by the improvements seen since then where tracked sales are more aligned with the upper range of the energy category growth. As a result, for the full year, brand CELSIUS delivered $1.46 billion of net sales, growing 7.5% year-over-year. So combining everything for the fourth quarter, consolidated revenue was approximately $722 million and full year consolidated revenue was $2.5 billion, including having 2 billion-dollar brands. Taking a step down the P&L, for the 3 months ended December 31, 2025, gross profit increased by $175.1 million to $341.8 million from $166.7 million for the prior year period. Gross profit margin was 47.4%, compared to 50.2% in the prior year period, reflecting dilution from Rockstar Energy, higher cost of product related to integration costs and tariffs, partially offset by improved outbound freight, lower consolidation billbacks as a percentage of revenue and favorable product impact mix. As previously discussed, gross margin was impacted by onetime integration and distribution transition costs associated with the timing and sequencing of integrating Alani Nu and Rockstar and transitioning Alani into the Pepsi DSD system. While operational efficiencies and revenue growth management will be ongoing initiatives, we continue to expect the Alani integration to be completed by the end of the first quarter of 2026, and we expect the Rockstar integration to be completed in the first half of 2026. As integrations progress and ongoing initiatives take hold, we expect margins to expand across 2026 and return to a more normalized profile, with gross margins in the low 50s driven by savings across raw materials, scrap, manufacturing tolling fees, freight and package and brand mix, offset in part by tariffs and aluminum costs. For the full year, gross profit increased by (sic) [ at ] approximately $1.27 billion, from $680 million in 2024. Gross profit margin increased by 20 basis points from the prior year to 50.4% in 2025. Sales and marketing expense in the fourth quarter was $249.2 million or 34.5% of sales, and administrative expense was $66.6 million or 9.2% of sales. Adjusted for distributor termination and integration costs of $81 million, sales and marketing expense in the fourth quarter was 23.3% of sales, and administrative expense was 8.5% of sales when adjusting for $5 million in acquisition and integration costs. On a GAAP basis, we reported a net income of $24.7 million for the quarter. On a non-GAAP basis, adjusted EBITDA was $134.1 million, up from $62.9 million in the prior year period. Adjusted SG&A for the quarter was 31.8% of sales. For the full year, sales and marketing expense was $876.3 million or 34.8% of sales, and administrative expense was $250 million or 9.9% of sales. Adjusted for distributor termination and integration costs of $327.5 million, the full year sales and marketing expense was 21.8% of sales, and administrative expense was 7.5% of sales when adjusting for $60.2 million of acquisition and integration and other costs. Adjusted SG&A for the year was 29.4% of sales. We had an adjusted EBITDA margin of approximately 18.6% for the quarter. For the full year, on a GAAP basis, we reported net income of $108 million, and adjusted EBITDA was $619.6 million, representing an adjusted EBITDA margin of approximately 24.6%. On cash flow and the balance sheet, we remain focused on free cash flow generation and working capital discipline. We ended the year with $399 million in cash and approximately $670 million in total debt. Operating cash flow was $359 million. Working capital reflects the timing dynamics we discussed earlier, including inventory positioning and customer order cadence during the transition period. As cadence normalizes, we expect working capital volatility to moderate. On capital deployment, we remain focused on 3 priorities. One, investing to support brand growth and integration execution. Two, strengthening the balance sheet. And three, returning capital to shareholders. During the quarter, we reduced debt by approximately $200 million and repurchased $40 million of shares. We ended the period with $260 million remaining under our share repurchase program. We will continue to evaluate repurchase activity based on cash generation, market conditions and capital priorities while preserving flexibility for strategic M&A opportunities. As we look at 2026, I want to briefly frame how we are thinking about cadence and variability following an active fourth quarter. As I mentioned, the fourth quarter included integration and distribution transition activity that we expected, and those actions created timing effects within the Pepsi network. At times, reported results can vary when shipments, inventory positioning and promotions are not perfectly aligned with consumer takeaway. When that occurs, it is typically a function of timing and sequencing, and we will continue to be clear about what we believe is transitory versus what we believe reflects underlying trends. As we progress through the first half of 2026, we expect those impacts to moderate as integration milestones are completed. We remain focused on tightening alignment between shipments and underlying takeaway where possible, while recognizing that periods of integration and large customer ordering cycles can still create some quarter-to-quarter variability. On pricing and revenue growth management, we are taking a portfolio approach with greater precision and ROI discipline. Revenue growth management for us is not about broad-based price increases. It's about shaping the business through mix, price pack architecture by channel, pack strategy, and disciplined promotion to improve both growth and quality of earnings. As we scale, we are tailoring price pack architecture by channel, sharpening priority periods and using data to allocate investment where it drives the highest return. Over time, this should lead to promotional activity that is tighter, more intentional and more measurable. In addition, aligned planning and the captaincy with Pepsi support more consistent end market execution and a more repeatable commercial playbook across retailers. With that, I'll turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Filippo Falorni with Citi. Filippo Falorni: The shelf space gains that you discussed last week at the CAGNY conference for both CELSIUS and Alani, can you give us a bit of an update on the spring shelf space resets and when we should start to see some of the benefits from the shelf space gains? And then in particular for the brand CELSIUS, you explained the gap versus consumption in Q4. That was very helpful to add it to the release, so thank you for that. So could we see an improvement in Q1 as we think about it on a reported sales basis given the shelf space for brand CELSIUS? John Fieldly: I appreciate the questions. In regards to the shelf gains, historically, we've seen them really materialize through and kind of finalize right around the end of spring, has historically been when the final resets take place as everyone is gearing up, as we call, the beverage summer selling season. So we do expect those to continue to materialize through the end of spring, really with the biggest gains, especially for Alani, would be in convenience. So that's been a big white space opportunity for the portfolio as well as with the CELSIUS portfolio. And really excited about, as we're heading into summer, especially leading off with a lot of our innovation that's coming. In regards to some of the timing and some of the differences as we look through consumption data versus the revenue that's recognized as we sell through to our distributor, there is timing and sequencing. Jarrod made some comments on that in our prepared remarks. Jarrod, do you want to provide any color? Historically, we don't provide any forward-looking information. But we do anticipate there could be gaps going forward within consumption on a weekly or within a moment of time. But over the long term, we'll start to see some more consistency there. But Jarrod? Jarrod Langhans: Yes. I mean if you look at it from a portfolio perspective, I think you'll see it tighten up quicker than if you're going specifically brand by brand, because we are looking at different things across the calendar. So for instance, we just launched an LTO, the Lime Slush, it's delicious, with Alani, so you'll see some spikes in some of the data. We also have LTOs coming out with CELSIUS this year. So depending upon the timing of those activities, you might see some differences within the scanner data versus load-ins in those kind of things. And then as we continue to expand distribution, with Alani in particular, as we continue to move across the Pepsi system and gain shelf space, you'll see some expansion there. And then you'll also see expansion within CELSIUS with the 17% space gains that we had as well. Operator: Your next question comes from the line of Peter Grom with UBS. Peter Grom: Great. I wanted to follow up on that. Obviously, a lot of moving pieces as it relates to the top line growth. But when we think about the $25 million net benefit from CELSIUS versus Alani, can you help us unpack what that looks like from a brand perspective? And then I guess, Jarrod, maybe more specifically as you think about Alani, would you expect inventory levels to remain elevated as we move through this transition? And similar to kind of what we saw when CELSIUS moved into the Pepsi system a couple of years ago, implying that maybe more of the unwind would be a 4Q, into '27 dynamic? Or would you anticipate maybe kind of some under-shipment to occur faster? Jarrod Langhans: Peter, so as we're looking at Q4 and into the future, I'd say John and I are committed to tightening up the peaks and the valleys of the data. With the captaincy and the more aligned partnership we have with our largest distributor, we're definitely much tighter and working very closely. We actually had the supply chain from their team in -- back in January. So we're committed to really tightening up those peaks and valleys. From an operational perspective, we'll continue to have our supply chain and commercial teams focused on what ultimately is going to drive the success of our modern energy portfolio, which is winning at the register as that is where we're going to win or lose. So if we have the opportunity to load an additional volume of 1 brand kind of at or near the end of the quarter while adjusting another brand, while maintaining our service levels and the growth of those brands, that's something that we're committed to doing so that we win. So as we look at kind of the results that you saw in the quarter, we benefited to the tune of roughly $25 million in our reported results. We were excited to see brand CELSIUS come out of gate with low double-digit growth and great service levels while seeing Alani kind of rocket out of the gate with triple-digit growth. And we have seen brand CELSIUS orders align more closely to the tracked data as we look at kind of the initial deliveries and orders in 2026. I will caveat that by saying there are 4 to 5 more weeks in the quarter, so we'll continue to manage the business holistically and make adjustments along the way as we do manage the portfolio. So I think there -- again, we'll manage the peaks and the valleys. I think, as a portfolio, playing a much more scaled business, we'll be able to get those a bit tighter and manage that. So we don't have as many kind of as much volatility as we've seen historically when we just had a 1 brand and when we were really learning each other within that supply chain. If I go back to kind of Q4 and I boil it down, if I'm looking at our supply chain around DSD in particular, as we approached the end of Q4, we did adjust an additional week for brand CELSIUS and loaded in additional Alani. That benefited Alani. And it benefited the portfolio from a net basis, as I said. So this didn't have an impact on service levels, and we continue to win at the register with both brands. And as John mentioned, as a proof point, we're picking up roughly 17% additional space with brand CELSIUS in '26, really as a result of that scanner growth and, obviously, even more with Alani, triple-digit space gains with Alani. Operator: Your next question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I guess I had a question on gross margins. You mentioned you expect your gross margins to return to a more normalized profile, in the mid-50% range, across this year. So maybe first, could you touch on the potential impact that the Midwest premium is having on your business near term? And then second, can you give us a sense of phasing gross margins this year? And then I guess beyond this year, how should we think about the evolution of your margins over the next few years? Can you highlight maybe some of the key puts and takes that we should think about? John Fieldly: No, excellent question. I would say in regards to the margin profile, and a lot of the infrastructure and strategies we've built about building on our orbit model with the CELSIUS portfolio, further looking at opportunities with supply chain, purchasing strategies, as well as vertical integration with the acquisition of our co-packer over a year ago, really driving further leverage and scale and efficiencies through that location. We also, as we're further integrating Alani and Rockstar, as it's moving through orbit over the next several quarters, we'll be able to gain additional leverage as well. Jarrod, do you want to provide additional color in regards to some of the timing around that and also some of the opportunities we see as we're progressing to this low to mid-50% margin profile by the end of the year? Jarrod Langhans: Yes. So I think our target for this year is to get back to a more normalized low 50s. In terms of the opportunity, we do see ability to move up into the mid-50s like you noted. I wouldn't necessarily call that a '26 target, but definitely a near-term target, into the next handful of years. Some of the things that are going to drive our benefit in order to get back, call it, from the 47.4% that we sat in Q4, and work our way to the low 50s, are really getting the cost of sales, the COGS, the raw material prices in line with what you see with brand CELSIUS. So we are working through that with Alani and with Rockstar. We're a bit ahead on Alani, so we should have that cost structure in place by the end of Q1. For Rockstar, we should have that in place by the end of Q2. Some of that has to do with integration, some of that has to do with just moving through the inventory balances and moving through some of the higher raw material costs as we have them fully integrated. So Alani will be fully integrated by end of Q1 and Rockstar by the end of Q2. So we've got those costs. Some other things that are going to benefit us is our orbit model and our freight structure. Getting them fully baked into that structure will provide us with benefit. Our mix, when you kind of look at a blended mix of our price pack and promotion strategy, will also be beneficial. So you kind of put those together. If you look at Q4, some of the kind of onetime things we had, we did have some transition costs where we had some COGS write-offs and we had some scrap and things like that, that were more onetime, so those will be gone after Q4. And so we'll have that benefit directly into Q1. But really, the goal is, once we get through that first half of the year, to be in good shape to get into that low 50s as you look at the back half of the year. Those do also factor in the Midwest premium that has picked up as well as tariffs. So depending upon where the Midwest premium goes, there could be some impact in terms of timing. And as well as tariffs, if the tariffs kind of subside quicker, then there's an opportunity to get to some of those numbers quicker. Operator: Your next question comes from the line of Andrea Teixeira with JPMorgan. Andrea Teixeira: So I was hoping to see, John, if we step back and think about the 3-brand portfolio and the opportunities of trimming at some point the SKUs and -- or you think that this cadence of LTOs now with Celsius, like how is the experience that you've had? And how do you think velocity, obviously, with the increase in shelf space, you obviously will have a reduction in velocity at some point, but just thinking of how to position the SKUs, how to position the category? And we all know this is a record year of innovation for everyone in the space. So hoping to see how you're seeing that set. And what are you hearing from the retailers as far as the competitor set and the -- what we think going forward? And just also on the -- just a clarification on the margin. It's very encouraging to see that you see the opportunity for synergies and improvements in the execution. I also was encouraged to hear from you guys at CAGNY in terms of the systems and visibility. So I was hoping to see if you can kind of wrap it up on how predictable your sales have been with the view from Pepsi and how you can see margins evolving as we go from a promo perspective. John Fieldly: Excellent, Andrea. In your question, you're absolutely right in regards to the overall category and what we're seeing as driving growth. Innovation has been a key factor of that. And also, innovation has been a great, not only for our portfolio, but the total category -- it's bringing new consumers in. And we're starting to see, as in CAGNY, we were talking about the evolution of a category, expanding day parts, expanding usage occasions. Big opportunity is social occasions with energy drinks. As we're seeing alcohol and liquor come into some challenges and headwinds, and what we're seeing is consumers are switching to energy drinks to -- as a replacement. And that's a huge opportunity with our CELSIUS mocktails and dirty Alanis that we have out there. So that's a big push for us as well. They continue to bring excitement and new consumers, new occasions in. When you look at the SKU prioritization, that's the beauty of a portfolio. We're able to really maximize the value of the portfolio now with CELSIUS, Alani and Rockstar, making sure we're maximizing the SKUs really for the channel and also for a regional basis. So that's going to allow us to put the fastest-turning SKUs on -- in the coolers, in the planograms. The space allocations are also, that we're seeing with resets, 17% with CELSIUS and over 100% with Alani, is allowing us not only getting additional slots and distribution and more flavors and availability in retail, but also additional points of disruption. And having that path to purchase is so important, those cold checkouts, the impulse purchases, the expanded shelf space in the dry sets. So that's all going to come into landing on exactly what you're talking about, velocity. Velocity is very important in the category. That's what is going to continue to drive it. We feel confident with the innovation. We're going to see the space gains. We're focused on velocity with some of our marketing strategies. Jarrod mentioned Lime Slush just hitting within our LTO strategy. And the LTOs are designed to lift up the core, to bring new consumers into the portfolio, into the franchise, and then build that daily consumption, daily routine. The other big area we see a huge opportunity is with the female consumer. That's a big opportunity. We're seeing them expand purchase occasions. There's a higher adoption rate that's taking place as well. And our portfolio is really positioned to leverage that tailwind with Alani and with CELSIUS. So we think we're really well positioned there, especially as coming through the finalization of the resets at the end of spring. Really excited about great innovation from an LTO standpoint, not only for Alani, but also for CELSIUS. We got some great innovation coming out, and it's going to be an exciting summer for us. Talk about the synergies and some of the costs within our system, Jarrod touched on that in our prepared remarks, and I also covered it, in regards to some of the investments we've made, the vertical integration, the optimization of our purchasing strategies, the further investment we've made in revenue management. Revenue management, RGM, is a really big component as we maximize the value. We're not just a singular brand anymore going on promotion against many other brands. We're really to maximize that value within the portfolio, gain that trial, gain that scale and compete at the highest level within the energy category. So I think when you look at all those components there, where consumers are, where our portfolio is connecting with consumers and then also the infrastructure we built here with the organization, really sets us up to continue to optimize and improve and continue to grow this category. Operator: Your next question comes from the line of Kevin Grundy with BNP Paribas. Kevin Grundy: Great to see you at CAGNY last week. John, just a follow-up, and Jarrod, for you as well, the distribution gains again. Not to beat the dead horse. But obviously, super strong with Alani up triple digits, CELSIUS up 17%. Three questions here, if I may. Number one, what -- can you quantify what you sort of estimate the distribution gains to be for the category given the strength? That would be question number one. Number two, where are the shelf space gains coming from for Alani and CELSIUS? To the extent it's sort of above and beyond what you'd expect with the category, which certainly would seem to be the case, where are the shelf space gains being sourced from within the category? And then just lastly, I think Andrea was sort of touching on this, with respect to velocity. When we think about holistically the innovation that's coming on and which seems like a really strong pipeline, but you're moving in to new areas, new geographies, particularly in convenience, how should we think holistically about velocity growth for CELSIUS and Alani this year sort of vis-a-vis the TDP gains that you're going to benefit from? John Fieldly: Kevin, great questions. We spent some time on the category on the space gains we anticipate for CELSIUS. But I think to your point in regards to the category, like where is that coming from? And when you look at the energy category, and it continues to grow as a larger percentage of LRB, retailers are expanding more space. They're expanding half-coolers and doors and more dry shelves. Like in the convenience channel, we're hearing from a lot of retailers, they're optimizing some of the beer coolers just to -- they're trying to get as much productivity out of these coolers as possible. So you've heard that. Juice category as well, and high premium waters as well has been under pressure. So those are areas that retailers are making those decisions. I think each retailer is a little bit different on how they're being able to carve out more space. But there is a lot more space coming in the energy category as it's becoming part of a daily lifestyle, daily routine, daily -- and expanded usage occasions. Historically, it's been an impulse purchase, and convenience has been a main driver of that, over 60% of sales. But if you look at large format and you look at the space gains we saw over the last 2 years, we expect anticipated space gains in large format as they can capture a larger share of that -- of those energy drink sales that will continue to grow. So seeing a variety of different retailers react differently, but many in convenience are, we're hearing, cooler doors within the beer category getting a little optimized there. And then you look at where we are within velocity, we're here to grow velocity. That's really important. That's a major KPI within our organization, within our teams. I think with the space gains, when you look at Alani particularly, we're expanding that distribution, right? So it's going into a lot of locations that are new. Many retailers, many regions, Alani is going to be new. So we will likely see a lower velocity entering new segments of the regions, within also channels and retailers, that we're going to have to build up those velocities. So each channel is going to be different. Each market is going to be different. But any time, just like when we saw CELSIUS, as you expand out broader, we did see reduced velocities as that expansion takes place. And then you build upon that. Remember, consumers are -- it's a daily routine, it's a daily lifestyle. We've got to get these brands into a cadence where consumers are purchasing on a frequency. And gaining distribution just doesn't mean the product starts flying right away. There is great momentum behind these brands. We're really excited about it. It's part of the LTO strategy, the innovation strategy to get trial and awareness. But that is something we're very keen on, is continuing to build velocity over time. Operator: Your next question comes from the line of Gerald Pascarelli with Needham & Company LLC. Gerald Pascarelli: A couple of things. Just a housekeeping question going back to the cadence, Jarrod. I just want to make sure I'm understanding this correctly. But are there any parts of the inventory benefit that Alani got this quarter that should in any way be considered a pull forward in revenue? It doesn't sound like it just based on the distribution opportunities ahead, but just wanted to confirm that. And then John, just going back to the shelf space growth that you're expecting for Alani this year, is there a way for you to broadly contextualize that in terms of what we saw for core CELSIUS back in 2022 when that brand transitioned? I understand that back then, CELSIUS has been benefiting in part from lost shelf space from Bang. But yes, just curious if you could provide your thoughts on how we should view that 102% in the context of the prior transition. Any similarities and differences? And then I guess, how that compares in this environment with a more competitive landscape. Jarrod Langhans: Yes, I'll jump in first, Gerald. In terms of pull-through, I do think we saw opportunity to load in even more of Alani with the ability of the Pepsi distribution system and really how quickly they were able to get Alani out from an ACV perspective across the shelf. So I think there was, I would call that more of an opportunity than a load-in, that we took advantage of. And you saw coming out of the gate with the triple-digit growth that Alani has hit pretty quickly, and we continue to see that expand. And then with our Cherry Bomb, we did -- that was kind of one of the pieces that was loaded in at the end of the year, and that really got depleted pretty quickly, record time. So we got the Lime Slush going out. We're looking for, hopefully, another record from an LTO perspective. But I would definitely see that as more of an opportunistic move as opposed to a pull back or pull forward. John Fieldly: In regards to some of the expansion when we look back on the CELSIUS integration, expansion to the PepsiCo network, and then timing of resets upon that, CELSIUS went in, in September, Alani's going in, obviously, in December. There are some similarities, but there's many differences as well. I think when you look at CELSIUS and Alani, when they were starting off, CELSIUS was at a lower ACV versus where Alani is. I think when you look at Alani, similar opportunities in convenience on distribution gains there. And yes, you are right, when we went into -- through that process, CELSIUS did take a lot of space from Bang at that point in time. But I will say when you look at Alani and the opportunity and you look at the category, this category has extremely strong growth. And although Alani will not likely be replacing brands, the category is expanding. We're hearing retailers expand their shelf presence for energy. So that's what really allowed Alani to gain some of that -- the large distribution gains as well. Also, the consumer dynamics have changed as the -- as I mentioned, usage occasions have expanded. More females are coming into the category and increasing consumption. So there's a lot of different dynamics at play. Although there are some similarities, there's a variety of differences just due to the evolution of the category and the growth we've seen in energy overall, as well as the innovation that's come in. And it's an exciting time for the portfolio. Coming out of NACS, where we presented in October, we felt the energy from a lot of retailers and the excitement about CELSIUS. And now with the partnership with Pepsi, being the energy captain with the Celsius Holdings portfolio, and having that distribution confidence and breadth. A lot of retailers really want to make sure you can keep those shelves full, especially with the velocity and how quickly these products turn. So that is really a show of confidence and really allowed our key accounts team to take advantage of those opportunities and gain that additional distribution for the total portfolio. Operator: There are no further questions at this time. I will now turn the call over to John Fieldly, Chairman and Chief Executive Officer, for closing remarks. John Fieldly: Thank you again for joining us today. 2025 was truly a defining year for Celsius Holdings. We recorded a record $2.5 billion and continue to scale a true modern energy portfolio with CELSIUS, Alani Nu and Rockstar Energy. As we move through 2026, our priorities are clear: execute with discipline, strengthen our operating system and stay closely aligned with consumers as the category continues to evolve. I want to take this opportunity to thank our employees, our partners and all of our customers out there for their focus, their teamwork that makes this all possible. We appreciate your support, and we look forward to updating you next quarter. Until then, grab a CELSIUS and live fit. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss Climb Global Solutions' financial results for the fourth quarter and full year ended December 31, 2025. Joining us today are Climb's CEO, Mr. Dale Foster; the company's CFO, Mr. Matthew Sullivan; and the company's Investor Relations adviser, Mr. Sean Mansouri with Elevate IR. By now, everyone should have access to the fourth quarter and full year 2025 earnings press release, which was issued yesterday afternoon and approximately 4:05 p.m. Eastern Time. The release is available in the Investor Relations section of Climb Global Solutions' website at www.climbglobalsolutions.com. This call will also be available for webcast replay on the company's website. [Operator Instructions] I'd now like to turn the call over to Mr. Mansouri for introductory comments. Sean Mansouri: Thank you. Before I introduce Dale, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements. Our presentation also includes certain key operational metrics and non-GAAP financial measures, including gross billings, adjusted EBITDA, adjusted net income and EPS and effective margin as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures, in accordance with SEC rules. I'd now like to turn the call over to Climb's CEO, Dale Foster. Dale Foster: Thank you, Sean, and good morning, everyone. 2025 was another exceptional year for Climb as we generated record results across all key financial metrics. These achievements reflect the continued execution of our teams that are driving organic growth by strengthening relationships with existing vendors and customers, selectively adding innovative technologies to our line card and while driving and delivering operational efficiencies throughout our business. In the fourth quarter alone, we evaluated nearly 100 potential vendor relationships and signed agreements with only 2 of them. Notably, in December, we launched our partnership with Fortinet, a global leader in cybersecurity and securing secure network solutions serving enterprises. They also serve service providers, government customers worldwide. Fortinet is quickly becoming a primary onboarding focus, and we expect to ramp them up quickly, and we'll become a meaningful contributor to both their business and client business. We look forward to building a long-term mutual beneficial relationship with Fortinet and their channel while delivering incremental value to our reseller network. While we focused most of our efforts in Q4 on onboarding Fortinet, there were other positive achievements from the alliance perspective. The fourth quarter of 2025 was only the second full quarter since we kicked off our relationship with Darktrace. As a reminder, Darktrace is a cybersecurity company that uses self-learning AI to detect, investigate and respond to cyber threats in real time across the entire organization's digital infrastructure. In Q4, Climb had 70 partners transact over $13 million in Darktrace product offerings with significantly more quoted pipeline ahead of us. We continue to work closely with the Darktrace team to expand partner enablement and drive broader adoption across our channel, positioning the relationship for sustained long-term growth. In addition to strengthening our vendor portfolio, earlier this week, we announced the acquisition of interworks.cloud, a Greece-based specialist cloud distributor serving the Southeastern Europe reseller market, including Greece, Malta, Cyprus and Bulgaria and more. Interworks brings an established regional platform with over 600 cloud resellers and managed service providers, along with a curated vendor portfolio that includes Acronis, Google Workspace, AnyDesk, Blackwall and most notably, Microsoft. I've had the pleasure of working alongside the Interworks team for nearly a decade now. And over that time, we've developed a strong alignment in our culture, strategy and partner focus. They bring an experienced management team, a well-established Microsoft CSP business and a multi-country footprint and deep expertise in cloud marketplace and MSP-focused distribution. Together, these capabilities enhance our ability to drive cross-sell opportunities, deepen our engagement with our vendors and reseller partners and further position Climb as a distributor of choice across the Southeastern Europe region. A critical component of this transaction is that we are bringing the full Interworks organization into Climb, and this team will become part of our overall EMEA go-to-market structure. Maintaining the strength of their local leadership and partner relationships was a priority for us, and we believe continuity at the operational level will be essential in sustaining momentum in the region. At the same time, by integrating Interworks into our broader infrastructure, we can provide additional resources, scale, strategic investment to accelerate their growth. We expect the transaction to be immediately accretive to our earnings and adjusted EBITDA and look forward to the unlocking synergies and cross-selling opportunities as we integrate Interworks into our global platform in the coming months. Looking ahead, we remain focused on accelerating organic growth. And at the same time, we have our internal development team building generative AI solutions to make our entire team more efficient. We will also continue to pursue accretive M&A opportunities that can strengthen our vendor portfolio and expand our geographic footprint. We believe these initiatives, coupled with our disciplined execution and strong balance sheet, will enable us to deliver on our organic and inorganic growth objectives in 2026. With that, I will turn the call over to our CFO, Matt Sullivan, and he will take you through the financial results. Matt? Matthew Sullivan: Thank you, Dale, and good morning, everyone. A quick reminder as we review the financial results for our fourth quarter, all comparisons and variance commentary refer to the prior year quarter unless otherwise specified. As reported in our earnings press release, gross billings increased 3% to $625.4 million compared to $605 million in the year ago quarter. Distribution segment gross billings increased 4% to $602.3 million, and Solutions segment gross billings remained flat at $23.1 million. Net sales in the fourth quarter of 2025 increased 20% to $193.8 million compared to $161.8 million, which primarily reflects organic growth from new and existing vendors. As we've mentioned in the past, the calculation of net sales is influenced by product mix and the respective adjustment to convert gross billings to net sales for financial reporting purposes under U.S. GAAP. In the fourth quarter, we had an increase in sales of products that were recognized on a gross basis and therefore, leads to a smaller adjustment from gross billings to net sales. Gross profit in the fourth quarter was $29.8 million compared to $31.2 million. The decrease was primarily driven by a large vendor transaction in the year-ago period that carried a higher-than-average margin profile. Selling, general and administrative expenses in the fourth quarter of 2025 were $18.2 million compared to $17.1 million in the year-ago period. SG&A as a percentage of gross billings was 2.9% for the fourth quarter of 2025 compared to 2.8% in the year-ago period. Net income in the fourth quarter of 2025 remained flat at $7 million or $1.52 per diluted share compared to the prior year period. Adjusted net income was $7 million or $1.53 per diluted share compared to $10.3 million or $2.26 per diluted share for the year-ago period. Adjusted EBITDA in the fourth quarter of 2025 was $13 million compared to $16.1 million for the same period in 2024. The decrease was primarily driven by a large vendor transaction in the year-ago period that carried a higher flow-through to adjusted EBITDA as sales compensation expense related to this transaction was paid through a contingent earn-out. And that was included in the change in fair value of acquisition contingent consideration add back with an adjusted EBITDA in the year-ago period. Effective margin, which is defined as adjusted EBITDA as a percentage of gross profit, was 43.6% compared to 51.5% for the same period in 2024. Turning to our balance sheet. Cash and cash equivalents were $36.6 million as of December 31, 2025 compared to $29.8 million on December 31, 2024, while working capital increased by $27.7 million during this period. The increase was primarily attributed to the timing of receivable collections and payables. As of December 31, we had $200,000 of outstanding debt with no borrowings outstanding under our $50 million revolving credit facility. Consistent with our capital allocation priorities, the Board has determined to suspend our quarterly cash dividend beginning in the first quarter of 2026. This decision allows us to retain additional capital to support organic growth initiatives and strategic acquisitions while further strengthening our financial flexibility. Based on the company's strong return on equity, the company plans to reinvest the capital for higher growth initiatives. Looking ahead, our strong liquidity position provides us with the flexibility to pursue both organic and inorganic growth opportunities while expanding our relationships with vendors and customers worldwide. We will continue to be active on the M&A front as we evaluate accretive targets that can strengthen our vendor profile and expand our geographic footprint. With a disciplined approach to expansion and a continued focus on execution, we believe we are well positioned to deliver another year of growth and enhance profitability in 2026. Dale, back to you. Dale Foster: Yes. Thanks, Matt. And before we open this up for questions, I'd like to address a couple of points on -- some of them that just come up over the last couple of days when everybody has seen some of the AI disruption in the market. First, on the dividend, a thoughtful decision made by our Board and one that I fully support. As we evaluate the opportunities in front of us, we believe the best way to drive long-term shareholder value at this stage is through disciplined capital allocation and strategic reinvestments in the business. We operate in an ecosystem where many of our customers and vendors are backed by private equity firms, which has provided us kind of a unique perspective on how successful operators deploy capital and accelerate growth and also enhance the returns with their portfolio companies. We intend to take a similar tactic at Climb. And candidly, we've already begun to do so in the way of our now 6 acquisitions in the last 6 years with the addition of interworks.cloud. With a strong balance sheet and liquidity position, our priority is to allocate capital toward initiatives that improve operational efficiency and strengthen our competitive position. That includes continuing to streamline processes, leveraging AI and automation tools where appropriate, utilizing prudent leverage when enhances our returns and pursuing strategic acquisitions in our ecosystem that align with our go-to-market strategy. And we believe all this will create long-term shareholder value for our shareholders. The second point, which is over the last couple of days on the AI disruption, these are disruption of AI engines and large language models, large language models or LLMs that has come into our market and more specific, how they going to interface with or take out SaaS vendors we currently are carrying or prospecting. So I've been around a long time in this business and remember a similar talk track about around the cloud. I had to do a look up. AWS announced in 2006 that cloud was open for business. That was 20 years ago. And just 20 years later, and it was just last year that cloud workloads that were workloads and storage in the cloud just passed the 50% threshold versus on-prem or private clouds or private on-prem environments. So the real-world environment today for cloud is really a hybrid one. Do I believe or yes, that AI will move much faster than 20 years for an adoption rate? For sure, that's going to happen. But we still believe it's going to be more of a hybrid environment, just like cloud is. I think it's 90% hybrid right now. So the AI environment will be a hybrid one. While we are very small and we're a very nimble company in our market, we are still connecting technology builders with users. We can pivot quickly, as we have done over these last 8 years. As the market moves, we will move and move at that same speed. And whether we have a stand-alone AI systems, AI agents, hybrid SaaS that's out there or Platform-as-a-Service, we will be selling emerging technology products that solve real-world problems. And regardless of the computing environment, we believe we will have a place as that connector of technology. And this concludes our remarks, and we'll take it to the operator for questions. Operator: [Operator Instructions] And we'll take our first question from Keith Housum with Northcoast Research. Keith Housum: Congratulations on the acquisition here. Just looking at that large acquisition that happened in the prior year, can you guys just give any scope in terms of how big that was in terms of we want to kind of think about what the year-over-year performance was without that? Any way that we can kind of scale it out? Matthew Sullivan: Yes. So we talked a bit about it last quarter. And thanks, Keith, for joining and calling and dialing in. When you remove that large transaction in Q4 of last year, our recurring and organic growth still was in the high teens for Q4 compared to Q4 of last year. Keith Housum: Great. And that's both on a gross billings as well as EBITDA basis? Matthew Sullivan: Correct. Yes. Keith Housum: Great. Appreciate that. And then you guys, I think it was early last year, announced the departure of Citrix. And can you talk a little bit about the impact that had in the quarter? Have you guys been able to completely offset that loss with other vendors? Dale Foster: Yes, I'll take that quickly. So we still had input from Citrix, and we still have it through 2029. It's some residual stuff because of the nature of some of the agreements that go out with our customers that's a year-over-year recurring. But -- so we had impact -- not as impactful in Q1 of 2025. But then the rest of the year, we looked at it as a $50 million to $60 million hole. And if you -- I was at our SKO over in the U.K., and our team still with that big hole, grew at 3%. So they made that entire $60 million up in the last 3 quarters, which is a testament to, number one, picking up new vendors. They picked up vendors that we have on the U.S. side, like I said. And we've continued to say that we're signing global contracts now. So it's the choice of the sales teams in their regions of what they want to sell. And some of them are pushed on them, other ones are that they're prospecting on their own. So the team did an incredible job. I mean, we kept -- and like I love to say, Keith, is that we're salespeople, we'll take the next product and take it out to market. And they filled that pretty quickly and expanded some relationships with vendors that actually compete with Citrix, and we took some of that over back that we lost. Keith Housum: Great. Impressive. I appreciate that. Turning over to the Interworks acquisition here, the 86% growth in EBITDA year-over-year. How should we think about going forward, like the go-forward run rate or the starting point. I mean, was there anything unique in that 86%? Or is that roughly $1 million in EBITDA a good starting point for those guys? Dale Foster: Yes. That's a good starting point for them. But it's -- there's a couple of things that we didn't get into detail on the call. But -- so Microsoft came up and said, "Hey, we're going to consolidate our distribution worldwide," and they set a threshold. So there was a lot of scrambling over the last 14 months that said, if you don't meet this threshold, you'll lose your distribution agreement with Microsoft. And both us and interworks.cloud were in that same position on our client side. And we want to keep that relationship because we believe Microsoft is a Tier 1, but it's also where people want to go. And so there's 2 reasons. Number one, we were to combine as a company, we get to that $30 million threshold with Microsoft. Number two, we are moving into a cloud environment, and we've talked about it for a while. And I'm going to have our CPC event with all of our top customers and vendors next week. But I'm going to have a slide just on our failures. And one of the failures we've had is we haven't been able to get to our 2.0 of expedition of our cloud marketplace or platform. Well, Interworks is already there. They're transacting in a very eloquent way with their customers, almost like a self-service. And they do a lot with MSPs, hybrid VARs that we do this as well, but not as quickly as they do. So it's going to be a learning curve in the DNA transfer between the 2 companies. Their parent company that we acquired them from is called Infiterra, which is the platform that we both use. And actually, all of our locations use that platform. So we see more and more of our vendors going on to the platform and marketplace. And the Greek team will help us and educate our teams on the U.S. side and the Europe side. Keith Housum: Great. I appreciate that. And then I guess final question for me before I turn it over. The working capital increase and the timing of collections, has that already been worked through? Or how should we think about that going forward? Matthew Sullivan: Yes. So that's a normal -- it's a usual timing difference. So with the large transaction at the end of last year, those receivables and payables have already been collected during 2025, and then it's been worked through here in early 2026. Operator: We'll take our next question from Vincent Colicchio with Barrington Research. Vincent Colicchio: Yes, Dale, congrats on beating the expectations this quarter. Was your growth broad-based across your top 20 on an organic basis? And were there any lumpy deals in the quarter? Dale Foster: So thanks, Vince. Good to talk to you. So no lumpy deals in the quarter like we had before 2024 and Q4, but it was across our vendors. The ones I talked about, Darktrace continues to rise up. We talked about our top 2 vendors, Sophos and SolarWinds. SolarWinds, I think we talked about in the last release, they were acquired by Turn Capital or Turn/River. And so there was some disruption as they went through their pricing model changes, but we actually finished really strong with SolarWinds as they've gotten through some of their pricing structure and their go-to-market. But other than that, it's the top 20 make that biggest impact, and it's been very stable. Vincent Colicchio: And has the revenue momentum that you've seen in the quarter carried through in '26? Dale Foster: You're always going to see Q4, and it's always been this way is always our biggest quarter because people going back to -- we have our reoccurring revenue with our annual subscription. So Q4 has always been large, so it will continue to be large because that's when the renewals come up. We do the Douglas Stewart acquisition, and you'll see a rebranding kick off next week for all the Climb stuff on the [ SLED ] and education side. But they typically have a down quarter in Q1 that we experienced last year because it's just flat and then all the buying picks up for that. But other than that, it's pretty cyclical like it has been for the last 5, 6 years. Vincent Colicchio: On the AI side, have you identified use cases for internal use? Are you at that stage? Dale Foster: We have. So Vishal, our new CIO, has been on board now for 7, 8 months. He is the most popular person in our company because everybody is looking to him to solve efficiency issues, right? And we've -- he is front and center at our sales kickoffs. So we have a tech guy kicking off, and people are asking. And it becomes quite the entertainment, having our CIO be the center of attention, which is great because we're just solving so many internal things that we need to work on. We went live with our ERP almost 2 years ago. And now it's how to make that more efficient, what AI tools. And if you look at Vishal's background, right, so he came from WWT, which is a $30 billion reseller, one of our customers, one we have great relationships with. But he's already gone through a lot of this because of the they have the dollars to really spend on this and adopt it early. So he's really running kind of the same plan that he had at WWT. So he sees what needs to be done, and it's how fast we can implement it. So we've done a couple of things. We have a bigger implementation and development team inside of Climb. We have outsourced some of the smaller connector products, projects that we have, whether it's EDI or XML or APIs. So everything is moving faster. And he's identified so many different efficiencies because we still -- and what I'd like to say is we're the fastest of the turtles. So if you look at distribution has been done what we've been doing for 30 years. What we're doing is moving a license key from a vendor all the way to a user. And our goal is to do that much faster, but we're still doing things that we did 15, 20 years ago. So Vishal is saying, hey, we can do this much quicker and without the expense of the labor that we have right now. Vincent Colicchio: What is the time line for when Interworks can provide cross-selling synergies? Dale Foster: So our teams -- because we have the Microsoft distribution agreement already and Microsoft is well aware of ahead of time with confidentiality of the agreements, we have it for all the EU countries. So we are going to -- if you take a look at it just from just a mental geographic look, here we have the U.K. and Ireland that we're very strong in. And now we have Southeastern -- or Southwestern Europe, Southeastern Europe. And between those 2, we have 20 countries in between there that we're going to attack with that Microsoft agreement and then all of the cottage industry products that go with that. So Interworks, number one, will be onboarding vendors that they see as a great fit that we have because we have a big robust portfolio of vendors compared to them. And then on their side, they already have in the cloud on the marketplace vendors that are transacting that we will take advantage of. So you'll see those integrate very quickly. And the fact that we're already using the same platform, it's really getting those 2 interconnected so that the teams see it pretty seamless, and so do our customers. Vincent Colicchio: And last question for me. In your conversations with resellers, what is the pulse on the market in terms of the health of the market versus the prior quarter? Dale Foster: Yes, I would be better to answer that next week as we have an open session with our resellers. But as far as -- and I'll take this from the vendor standpoint first, and that is, Vince, there are so many vendors coming at us, right? We have to say no. We have to say no because there's that many, and we have to keep moving our threshold up as far as what can we do in the first 18 months. It used to be $2 million or $3 million. Now is it $15 million that we can do in the first 18 months before we even sign them? What is the real go-to market? Does it fit ours? So we're just asking a lot more questions because we know when Charles, our Chief Alliance Officer, says yes, that's when all the man hours kick in for us. So we want to make sure that we have a good base to start with before we say yes to that vendor to onboard them. On the reseller side, we haven't seen slowdown. We've seen some consolidation between companies buying each other up, which is a natural occurrence for us. But for us, we're typically transacting with both parties anyway. So it's just a timing thing. Operator: We'll take our next question from Bill Dezellem with Tieton Capital. William Dezellem: Would you please walk through the size of the Fortinet relationship and what the potential is for that to move the needle for Climb? Dale Foster: Yes. So Bill, thanks. So they're -- take a look at Fortinet, they're on the NASDAQ, right? A great company. We -- the relationship started from the top. It usually starts in the middle and then moves up, but this one started at the top with the C-level. They have some of the bigger distributors that are out there. They have 2 of the largest distributors in the world. So why do they need Climb? It's really for what we do for companies that are just getting into the market, and that is to fill in a lot of the gaps and being that high-touch distributor that's going into a wider market than just Tier 1 or Fortune 500 companies. So if you look at what their overall sales, and I think they break them down, the -- it's about a $2.5 billion addressable market in the U.S. that they're already selling into. And who are they competing against, right? If you look up the stack, they're competing with Palo Alto, Juniper and Cisco. That's their 3 big above them. They're considered #4. And then below them -- we carry some of those lines below them, but they said, wait a second, we have a targeted distributor. They have field sellers. And I think this would be the most important thing to take away, and that is when we're talking to their executives, they said, wait a second. You mean we can fly into a region because we have regional salespeople? And we can -- and your sales reps will take us into 3 new resellers that we've never met before. I'm like, that's what they do every day with vendors. They don't get that from Tier 1 or the top distributors because they can't take them in there when they're selling Cisco, Juniper and Palo Alto and those customers because they're like, hey, we're displacing one of our other vendors. We don't have that issue at all. We don't have a really cross-competing product with Fortinet. We have a bunch of smaller ones, but nothing that goes as wide as Fortinet goes. And if you look at what they do, I mean, they -- Fortinet goes all the way from firewall to cameras, right? I mean, they are such engineering-type company, so it's a good fit for us. And the acceptance -- so look at $2.5 billion, 10% of that is something that we're going after in the next 18 months, and we think we can get there. And I think Fortinet will be our top 3 vendor this time next year. William Dezellem: So Dale, if I do that math, 10% of $2.5 billion, are you saying that you're thinking that this could lead to $250 million of gross billings for you? And I guess it would be '27 if we look out a year from now? Dale Foster: Yes, I think so. I think it's 18 months that we'll get on that run rate for them. It's just a good relationship. The Fortinet teams -- the first thing that really happens -- and when I say this magic happens, it's when our field sellers get with their field sellers and go into new accounts and give their value pitch. It only takes a couple of times to do that, and then our teams take it from there, and they don't have to do a 4-legged call. It's them delivering the Fortinet pitch as they get familiar with it. So we're getting closer and closer to them. They've been just a great partner. They feel like a small company touch to us, which is refreshing. William Dezellem: That's helpful. And then -- and congratulations, by the way. That's a great win. Actually, let me take that one step further. Do you see other companies that are in a similar situation where all of a sudden, someone in their C-suite is saying the same thing that you heard from the Fortinet leaders? Dale Foster: I feel like you're reading my e-mail, but yes, we were getting many inbound from companies that are much, much larger. And I mean, I'll bring up CrowdStrike. We talked to them about 2 years ago, we were in a competitive with some of the other distributors. They decided to go a different direction based on some of the -- just some of the support that some of these logistics would give them or potentially say that they would give them. But if I go back 6 years, Bill, we were out there signing companies that would fog and mirror and just go after them because we needed to have more products for our sales teams to sell. Now the focus is curating the ones and the relationships that we currently have or almost ready to sign to make sure that they're really the right ones for us. But yes, are we getting larger companies and larger at bats with them without having to prospect them? For sure. There's some multi -- in the $500 million to $600 million range of companies we're talking to on a regular basis. And a lot of times, we say no because they're not ready for us or we're not ready for them. It could be a connection through systems that we don't think that we can -- we'll burn more cycles than it's worth, but we are getting a lot of those at bats. And the other thing is we say we have a limited line card, but it keeps sneaking up on us and then we push our vendors over to Climb Elevate just to transact. And I want to continue to limit our line card. We say it's 70. I want it to be 50, but really, it's 100 right now because we haven't pushed them over our Climb Elevate where we'll still transact, but we -- it just burn cycles, and we want to focus our sales and marketing and service cycles on our top 50. William Dezellem: And a couple more questions. Let me shift to Citrix. The implication of the way that, that change took place last year is that the comparison that you all are going to have in Q2, Q3 and Q4 of this year could lead to very strong comps given that you last year simply had to fill in that hole, and now you're going to be building off of that. Is that the right way to think about that? Dale Foster: It is. I guess it feels like it's already been done with us, Bill, because we've been there, done there, forgot about it, right? We have already filled it in with other vendors. We know what our run rates are. And that's the nice thing about this recurring revenue model is we know that 80% to 90% of what we sold last year, that as long as we're doing a good job and the vendor is still producing a good product and good updates, that we're going to get that renewal. I mean, the goal is to have the renewal rate over 100%, which means they're picking up more license and seats going forward. But yes, we don't -- we really haven't thought about it that way. We look at just what our run rate is, what is our piece with Citrix. We've already forgot about that. It's been in the news quite a bit just on the different [ tax ] that Citrix has made. Their last one was kind of funny that they said that they are truly a channel company, even though they cut a big chunk of the channel out a year ago. I think they thought people forgot about it. But we've replaced it with -- we have 2 or 3 different lines. We're getting ready to sign a line that goes back to our Citrix customers. We were replacing with some of the Microsoft business, which is a competitor to Citrix. And same thing with Parallels, which is another one of our vendors that we replaced that hole with. William Dezellem: Great. And then one final question, please. I think that yesterday, VAST and Supermicro signed or announced a deal. What are the implications, if any, for -- that with you all? Dale Foster: Yes. And so VAST Data, they have their user conference. We have people there in Salt Lake this week of our team members, both from the European side, which is a bigger number, and then from the U.S. side. And I think it's a good thing. I assume they'll use the conference to announce that. At. But if you -- I think it's only good, right? VAST says they're a software company, but there's still -- it's a big piece of hardware that goes in the distributors, or it's the OEMs like the Supermicro. And we have a relationship with Supermicro we've had for the last 10 years. It's a good thing because right now, a lot of their builds are being done by a company called Telrad that Arrow bought. So that's the build. So what does it do? It just makes it faster because right now, VAST is dependent on this hardware GPUs, who has the GPUs, who has the mettle to put their software on top of to run. So I think it will actually speed up the actual delivery cycle of all these big AI engines that need fast data storage because that's what VAST does. I mean, they are -- it's about how fast they can deliver data up to an AI engine. So I think it's only a good thing. And Supermicro has some of the best products out there. I mean, that's how most of the -- if everybody remembers the HCI, the compute space with Nutanix and Rubrik, that was all based on Supermicro for the longest time. So it's just a good alternative to what they currently had. So it's the #2, and I think it will be good. Operator: We'll take our next question from [ Howard Root ], who is a private investor. Howard, please check the mute function on your device. Unknown Attendee: Congratulations on a nice conclusion to the year. I'll try to be brief. I got two questions, one on M&A. It looks like the Interworks was kind of right within the middle of your playbook. It's a territory expansion. You've got synergies, you knew them very well. And then it's at 9.4x adjusted EBITDA. Is that -- how do you see that fitting in? Is that the way to look at it? Is that a little expensive? What do you see as the market out there for acquisitions going forward? Has it come down based on market turmoil? Where are you right now? Dale Foster: So Bill -- sorry, Bill. Sorry, Howard. So Howard, here's how we kind of think about it, and we go back to our early days of acquisitions when we were trading in that 7 to 9 range, and that's kind of where we look to start. And it depends on 4 or 5 different things. And with these guys, number one, we knew them for a long time. We know their parent company very well. So it's the comfort factor that way, plus the Microsoft piece of it as far as we want, like, why do you need really, any Microsoft. It's still just a great cornerstone to have in your platform marketplace and in your company because you can add so many products around that to support it. But the other piece of it is what is their margin profile? And their margin profile compared to us is double what we have in the U.S. So will we pay a little bit more than that 8? And I always -- I don't know why. I always say, hey, we're going to start at 8 and then what are the positives and negatives. If you look back to the DSS transaction, why was that a less multiple? Real simple. I mean, they were all focused on Adobe. So if you lose Adobe, there's just more risk involved in that. So that's how that negotiation happened. On this side, their margins are higher. They're in a territory that we are not in and not even selling into. And the nice thing about it, they're in a territory that's not that competitive that is starving for new vendors to get into. So that's how the negotiations went to get to that. But I'm still looking in that same range. We started at 8, and we'll go up or down from there. Unknown Attendee: So just kind of looking on that, following up on that. To me, the only reason to eliminate the dividend is really to grow a pile to do bigger acquisitions. This is relatively smaller compared to like, Douglas Stewart was bigger, and that was 18 months ago. I kind of look at -- is that a slow pace for you over these 18 months? I mean, it seems that you want to do at least 1 or 2 a year. And then is that the way you look at the dividend? Because to cut the dividend to spend money internally where you're generating plenty of cash for your internal projects, it has to be using that cash. And we hate to see it pile up in treasury, but really to apply it to buy synergistic targets, and you must be seeing plenty of them out there maybe larger than the Interworks deal? Dale Foster: Without giving you specifics, Howard, you're spot on. You're spot on. There's a lot of deals coming at us. We are going to use the capital. I mean, we talked that we are very CapEx-light, and we are going to accelerate our acquisition interfaces. I have -- if you look at my travel, I've been in Western Europe more than I have been before because there's that many targets, there's that many ones coming at us. The roll-up that we have talked about that happened in the U.S. from 2006 to 2017 is happening in Europe, and we want to be part of it. Here's the good thing for Climb. You have these 3 massive distributors we talk about all the time. They're $50 billion plus. The targets that we're looking at are so insignificant for them unless they were a real strategic reason. We're not competing with them. We're competing with other strategics that are similar in size, which is only 2 or 3 of them over there, or they're doing a roll-up between the 2 companies to get larger, to make more of a significant impact or could be a regional expansion. So right now, I can't tell you how many I've talked to, but how many that we're in discussions with is a lot more than a handful. So yes, the dividend will be going toward the M&A side of things that we think like we always say, is it going to be accretive to us? Is it going to be an expansion? Is it going to be a vendor acquisition that we can't get or it's going to take too long to get that vendor signed that we think we can take to other regions? But it's all those things lined up, it has not changed since we started this. Unknown Attendee: And the pace of acquisitions, you'd expect to do 1 or 2 in 2026? Dale Foster: I'm -- yes. Unknown Attendee: Okay. All right. Well, yes, I don't want to make you uncomfortable answering stuff on that. But it just seems that we had 18 months since the last one, and that was not because of lack of effort, but just -- it didn't come together. And maybe now this is the breaking, and you get 3 here in the next year instead of 0. Second question for me on profitability. And here, congratulations. You had a really tough comparable in Q4 and having to deal with that. So I'll kind of ignore that a little bit because of the large vendor transaction you had that affected billings and your gross profit. But if you look at it over a year, your gross billings were up 18%. Your gross profit was up a little bit less than that. Your margin on gross billings was -- slipped below 5%. And your SG&A, because of the Douglas Stewart, kind of up 20%. So your income from operations only went up about 4% for the year. And quarterly, your leverage is kind of slipping a little bit. And where -- can you give us a quick how that happened and where you see that go from here? And does the Fortinet and Darktrace additions change your profile? And it looks like Interworks kind of helps you a little bit on that financial profile as well. But do you see that reverting back up where your gross profit on gross billings is above 5% and your SG&A rises less than the increase in gross billings in the year? Dale Foster: So Howard, we're holding in that -- just look at that 5% range. And yes, we slipped it in a quarter. There are some other things in the background that have been happening that I won't get into some of that stuff. But I can tell you that the focus is -- and I wish I could share some of the slides I shared with our Board, but it's showing how much manual stuff that we talk -- we deal with in the company. And like I said on the earnings call, we're doing the same thing that we did 30 years ago in distribution. And Vishal is helping us change that mindset. The first thing when the Board agreed to go into a new ERP system was the first prime mover to get more efficient. The second one is taking that ERP system and the associate applications with connectors and taking just a lot of cost out of the business, right? We are touching way too many, and I'll just give you some inside baseball. We do 12 quotes and perform 12 quotes for about every order that we get. The first move we had about 4 years ago was when we moved our average sale price per order up from $200 to $1,500. So we're doing the same work. We're just seeing the quote size is 7x bigger. So that's number one. It's the efficiency that we think that we can get out of our systems to keep the same labor force that we have today and be 1.5x the size. And that is the real goal. And back to your -- Howard, that you love to point out, that [ 532 ]. And this is what I talked about our SKOs, both in the U.S. and Europe and then saying how can I move my 3 to 2.5 and my 2 to 2.5, right, so that I can split the profit and the cost of the SG&A to a 50-50, which I think is our goal and has been our goal for the last couple of years. But it is going to be about efficiencies. Of course, AI is heavy into our company right now doing that. But we look at it as a generative AI, which just makes everybody more efficient so we can expand and do more with our top vendors. Operator: At this time, there are no further questions in the queue. I will now turn the meeting back over to Mr. Dale Foster. Dale Foster: Thank you to our shareholders, Board and all the Climb team members. And I just want to welcome our new Greek team on board. We had our first kickoff and town hall yesterday with the team. Look forward to everybody being able to meet each other like I have over the last couple of years. And with that, we'll conclude the call. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Hello, and welcome to the Montrose Environmental 4Q '25 Earnings Call. [Operator Instructions] Now I would like to turn the call over to Adrianne Griffin, Senior Vice President of Investor Relations and Treasury. You may begin. Adrianne Griffin: Thank you, operator. Welcome to our fourth quarter 2025 earnings call. Joining me today are Vijay Manthripragada, our President and Chief Executive Officer; and Allan Dicks, our Chief Financial Officer. During our prepared remarks today, we will refer to our earnings presentation, which is available on the Investors section of our website. Our earnings release is also available on the website. Moving to Slide 2. I would like to remind everyone that today's call includes forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when evaluating our operating performance and financial outlook. We refer you to our recent SEC filings, including our yet-to-be filed annual report on Form 10-K for the fiscal year ended December 31, 2025, which identifies the principal risks and uncertainties that could affect any forward-looking statements and our future performance. We assume no obligation to update any forward-looking statements. On today's call, we will discuss or provide certain non-GAAP financial measures, such as consolidated adjusted EBITDA, adjusted net income, adjusted net income per share, and free cash flow. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. Please see the appendix to the earnings presentation or our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures, and a reconciliation of their most directly comparable GAAP measure. With that, I would now like to turn the call over to Vijay. Vijay Manthripragada: Thank you, Adrienne, and welcome to everyone joining us today. I will start with an update on our record 2025 results, provide 2026 guidance, and speak generally about the earnings presentation shared on our website. Allan will then provide the financial highlights, and following our prepared remarks, we will host the question-and-answer session. Before we get into the numbers, I want to acknowledge the extraordinary work of our approximately 3,500 colleagues around the world. 2025 was a record year across every key dimension: revenue, EBITDA, and cash flow. The reason we win quarter after quarter and year after year isn't luck or timing. It's because we bring science, field expertise, and urgency to the problems our clients need solved right now. Our results continue to demonstrate that environmental stewardship, human development, and shareholder value creation are not intention. At Montrose, we are for planet and for progress. As we have noted each quarter, our business is best assessed on an annual basis as demand for environmental science-based solutions does not follow consistent quarterly patterns. We manage our operations on an annual basis, and we recommend you similarly view our performance that way. With that context, I'm extremely pleased to report that 2025 was the strongest year in Montrose's history. We delivered full year revenue of $830.5 million and consolidated adjusted EBITDA of $116.2 million, both record highs and both well above the initial guidance we provided at the start of 2025. Let me put that record performance in context. Revenue grew 19.3% versus 2024, driven by organic growth of 12.7%, which meaningfully exceeded our long-term organic growth target of 7% to 9%. All 3 segments delivered solid organic revenue growth, thriving despite the ongoing regulatory uncertainty from the U.S. federal government. Consolidated adjusted EBITDA grew 21.3% year-over-year, and our consolidated adjusted EBITDA margin expanded for the third consecutive year, reaching 14% in 2025, representing 180 basis points of improvement since 2022. And importantly, we did not just grow the top and bottom line. We delivered record cash flow and exceeded every major strategic objective we set for ourselves in 2025, which Allan will expand upon in his remarks. Montrose has now delivered approximately 20% revenue CAGR from 2020 through 2025, outpacing the Russell 2000 constituent average, driven by roughly 13% average annual organic growth and resilient demand tailwinds across our diversified end markets. I am very proud of this team for delivering these exceptional results while maintaining their focus on our mission and on our clients. I also want to take a moment to address something directly because we continue to hear questions about it from investors. There is a persistent narrative in the market that U.S. regulatory volatility and uncertainty creates meaningful headwinds for Montrose. Let me be direct. The macro and regulatory backdrop for environmental services and solutions remains as constructive as we have seen, and the performance we delivered in 2025 is the clearest possible evidence of that. In 2025, approximately 90% of our clients operated in a diverse subset of private sector industries, including energy, utilities, transportation, industrial manufacturing, chemicals, and technology. Our work creates more efficient operations, reduces their environmental impact, and derisks their growth. We achieved this by delivering environmental consulting, measurement, and treatment through a unified service model. The real economy still needs a reliable environmental partner, and this demand doesn't stop for a new headline cycle. As industrial activity picks up in our key markets in the U.S., Australia, and Canada, we are seeing increased demand from the mining industry, pharmaceutical companies, particularly the GLP-1 manufacturers, the semiconductor industry, and technology companies building data centers. The air monitoring or water treatment needs for our clients in these sectors has picked up materially and were not part of our outlook 18 months ago. We expect these dynamics to support strong organic growth well into the foreseeable future. Despite the strong demand tailwinds across the majority of our business, 2 regulatory dynamics, in particular, have garnered a fair amount of recent attention. On methane, the market perception is that recent EPA framework changes, such as the Endangerment Finding repeal, threaten our business. The reality is there is no material impact on our services expected in the near term. Even though the essence of U.S. EPA changes haven't altered the regulations underpinning our work, more importantly, our methane services work is concentrated with large operators in states with independent stringent regulations, including states like Colorado, Texas, California, and Pennsylvania, states that have implemented their own monitoring frameworks and continue to set expectations that require credible monitoring and abatement. Meanwhile, the EU methane regulation extends the market for emissions monitoring, reporting, verification, and abatement to exporters, including U.S. LNG and oil producers. Because Montrose invested early in advanced monitoring and verification-ready technologies, our energy clients can achieve better, faster, and more cost-effective outcomes. With global deadlines phasing through 2030, demand is now more predictable. And on PFAS, while the market remains focused on headlines, PFAS is already a high-margin growth driver across our segments. U.S. EPA and White House actions continue to elevate PFAS as a priority. In Q2 2025, the U.S. EPA provided clarity on national PFAS standards, which expanded our pipeline. Ongoing state actions around maximum contaminant levels, AFFF remediation, and industrial discharge standards are also driving long-term demand for our services. States and utilities are tightening expectations around landfill leachate, for example. And as a result, pretreatment and full-scale opportunities increased for Montrose in 2025, and we expect elevated accretive organic growth in water treatment through 2026 and beyond. We are seeing similar demand increases in our Australian market. On broader regulatory uncertainty, again, our track record speaks for itself. We have delivered consistent organic growth across multiple administrations and regulatory cycles. This is not a coincidence. It is a function of our business model. Our business is predominantly private sector, with U.S. federal government exposure of less than 3% of revenue. The private sector clients that represent 90% of our work are not waiting on Washington. They have their own environmental obligations, their own sustainability commitments, and their own operational needs that drive sustained, predictable demand for our services. It is important to note that our addressable market for water treatment extends well beyond PFAS itself. Our water treatment total addressable market exceeds $250 billion. Ours is a water technology business, not just a PFAS business. Our IP and process expertise are solving challenges across contaminants and industries, from pharma and semiconductors to waste and industrial clients. PFAS is a tailwind, but the larger story is scalable, trusted water technology solutions. The short answer for Montrose is this: macro and regulatory drivers are tailwinds that endure. The backdrop is familiar, economic volatility, policy fluctuations, and evolving regulatory frameworks drive complexity that creates demand for the various services where we choose to compete and where we have built capability. Our private sector clients tell us 3 things consistently: their long-term outlook has not changed, domestic industrial activity is a net positive, and they remain committed to state regulations and international rules because compliance is a license to grow. With more than 6,000 clients, we've seen very few material changes to operating policies. That durability underpins our confidence. We expect to publish a study with the Financial Times around Q2 2026 that demonstrates how the private sector is responding to U.S. environmental policy volatility. By and large, the data shows that the private sector, Montrose's clients, are staying the course and that steadiness is manifesting in our numbers. These dynamics are a meaningful part of our confidence as we launch our 2026 guidance. Transitioning first to our priorities for 2026. Our strategic focus is clear and consistent with what you have heard from us. Let me take this in 3 pieces. First, organic revenue growth and margin expansion. Our go-to-market strategy, anchored by cross-selling our unique portfolio of services to private sector clients, coupled with regulatory and policy tailwinds across our key markets, and broad increases in industrial activity, continues to demonstrate the resilience and compounding power of our integrated platform. We have exited 2025 with strong momentum in all 3 segments, and we see broad-based demand across the private sector clients in 2026. As one data point, the percent of revenue from cross-selling increased from 53% to 62%. Our growth is not dependent on acquiring any more customers, but rather on deepening the relationship with our existing customers. Second, strong cash flow generation. We have consistently prioritized working capital discipline and operational efficiency. The 93% operating cash conversion we delivered in 2025 was extraordinary. While we do not expect to sustain that exact level, we remain confident in achieving 60% operating cash conversion in 2026, which exceeds our long-term 50%-plus operating cash flow to consolidated adjusted EBITDA target. Free cash flow is also expected to remain robust in 2026, providing the foundation for our capital allocation strategy. Third, strategic capital allocation. Now that we have completed the balance sheet simplification we committed to in 2025, we have expanded flexibility to deploy capital in ways that enhance the shareholder value, including through organic investments, M&A, and share repurchases. I will come back to each of these in a moment. Turning to our 2026 outlook. We are introducing guidance of $840 million to $900 million in revenue and $125 million to $130 million in consolidated adjusted EBITDA. At the midpoint, that represents approximately 10% EBITDA growth compared to 2025. This guidance does not assume any acquisition impact. We are targeting approximately 15% consolidated adjusted EBITDA margins in 2026, reflecting the operating leverage inherent in our model, ongoing efficiency gains, and the benefit of our higher-margin service mix. This is an important signpost for us and one I want to clearly anchor on for the investment community. Organic revenue growth of 7% to 9% remains our long-term expectation. And for 2026, we expect to be at the high end of that range. Revenue in the second half of 2026 is expected to be higher than the first half, with the second half contributing approximately 60% of full year consolidated adjusted EBITDA given the timing of current projects. Our 2026 environmental emergency response revenue assumption is in the range of $50 million to $70 million, consistent with our long-term framework. As always, our formal guidance assumes no impact from future acquisitions. I also want to highlight a milestone that is easy to overlook, but tells a powerful story about the compounding cash generation power of this business. Between 2025 and 2026, we expect to generate approximately $180 million in cumulative operating cash flow. We achieved record operating cash flow of $107 million in 2025 alone, a 93% conversion rate. We expect sustained strong conversion in 2026, supported by ongoing margin expansion and working capital discipline. This trajectory positions Montrose to continue enhancing cash flow and driving shareholder value. Before I hand the call over to Allan, I want to reaffirm the framework that underpins our capital allocation philosophy and our ability to create long-term shareholder value. On organic investments, we will continue allocating 1% to 2% of revenue annually to high-return investments in proprietary technology, software development, patents, R&D, and growth capital expenditures. These are the innovations that expand our applications and strengthen our competitive position over time. And they are a large part of why our organic growth has averaged 13% for the past 5 years. On balance sheet strength, our strong liquidity provides flexibility for strategic initiatives while we maintain a disciplined and balanced approach. On share repurchases, I am pleased to announce that we are in a strong position to begin returning capital directly to shareholders through our existing $40 million share repurchase authorization. Considering the ongoing disconnect between the company's strong financial and operating performance, our near- and long-term optimistic outlook, and our current public stock valuation, the program reflects our confidence in Montrose's business trajectory. The confidence we have in our performance, our 2026 outlook, and the macro tailwinds supporting this business makes this the right moment to begin this program in a systematic and ongoing way. On acquisitions, having delivered on every objective we set when we announced the acquisition pause in late 2024, including full balance sheet simplification, record cash flow and continued margin expansion, we are now in a strong position to return to accretive acquisitions in 2026. Acquisitions remain a key part of our long-term strategy, our growth algorithm, and our investment thesis, and our pipeline today is as robust as we've seen in recent years. As we have said before, we will remain prudent on leverage. We remain focused on highly strategic, accretive tuck-ins that enhance cross-selling opportunities, expand market presence, and optimize our service mix for continued margin enhancement. In summary, 2025 was a record year for Montrose in every meaningful sense. We delivered record revenue, record EBITDA, record cash flow, and record margins. We exceeded every key strategic objective we set for ourselves. We enter 2026 with a simplified balance sheet, strong liquidity position, and clear strategic momentum. Demand remains very strong in all of our key markets, the United States, Australia, and Canada. I am extremely proud of the Montrose team and everything they have accomplished, and I remain deeply optimistic about what lies ahead. Thank you for your continued interest in Montrose. And with that, I will hand it over to Allan. Allan Dicks: Thanks, Vijay. Our record 2025 results demonstrate our ability to deliver for our clients, shareholders, and employees. These results included robust organic growth driven by ongoing cross-selling success, a third consecutive year of profitability improvement, driven by our focus on higher-margin services and operational efficiency, simplification of our balance sheet ahead of schedule, and lower-than-expected leverage due to record cash flow and earnings. Beginning with a discussion of our revenue performance. Fourth quarter revenue increased to $193.3 million compared to $189.1 million in the prior year period. Full year 2025 revenues increased by 19.3% versus 2024, totaling $830.5 million, well above our initial guidance. The primary drivers of full year revenue growth were strong organic growth across all 3 segments, totaling $81.8 million, or 12.7%, stronger-than-expected environmental emergency response revenue, and contributions from acquisitions closed in 2024. Turning to profitability. Fourth quarter consolidated adjusted EBITDA was $23.9 million, or 12.4% of revenue, compared to $27.2 million, or 14.4% of revenue, in the prior year quarter. Fourth quarter results benefited from improved margins in consulting and advisory services, offset by lower margins in the Measurement and Analysis and Remediation and Reuse segments, and expenses related to the wind down of our renewables business. For the full year, consolidated adjusted EBITDA increased 21.3% to $116.2 million, or 14% of revenue, resulting in our third consecutive year of margin expansion and 180 basis points of improvements since 2022. Turning to GAAP results. Net loss in the fourth quarter improved to $8.2 million, or $0.23 loss per diluted share attributable to common shareholders compared to a net loss of $28.2 million, or $0.90 net loss per diluted share in the prior year. This $20 million year-over-year improvement in net loss primarily resulted from lower stock-based compensation expense following the cancellation of stock appreciation rights in the prior year and lower income tax expense in the current year. The $0.67 comparative period improvement in loss per share was primarily due to the improved net loss and the elimination of Series A-2 dividends following the full redemption of the remaining preferred equity instrument on July 1, 2025. For the full year 2025, net loss improved to $0.8 million, or $0.14 loss per diluted share compared to a net loss of $62.3 million, or $2.22 net loss per diluted share in 2024. This $61.5 million year-over-year improvement in net loss primarily resulted from the increase in income from operations and the $20.2 million fair value gain related to the Series A-2 preferred stock redemption, partially offset by higher interest and income tax expenses. The $2.08 comparative period improvement in loss per share primarily resulted from lower net loss, lower Series A-2 dividends, and an increase in weighted average diluted common shares outstanding. On an adjusted basis, fourth quarter adjusted net income and diluted earnings per share were $13.5 million and $0.35, respectively, compared to $14.7 million and $0.29 in the prior year quarter. Adjusted net income decreased due to lower operating margins in the current period, while diluted adjusted earnings per share benefited from the elimination of the Series A-2 dividend and lower fully diluted shares outstanding. For the full year 2025, adjusted net income and diluted EPS were $60.7 million and $1.36, respectively, compared to $55.8 million and $1.08 in the prior year. The year-over-year increase in adjusted net income reflects higher revenues and improved margins, partially offset by higher interest and income tax expenses. Diluted adjusted EPS benefited from the elimination of the Series A-2 dividend following the full redemption in 2025. I will note that the increase in interest expense was partially attributable to the incremental borrowings to redeem the Series A-2 preferred. The year-over-year incremental interest expense of $3.7 million was more than offset by the reduction in Series A-2 dividends of $6.9 million. And with the Series A-2 now fully redeemed, this cash flow benefit will continue to be realized. Please note that our diluted adjusted EPS is calculated using adjusted net income attributable to stockholders divided by fully diluted shares, which we believe is currently the most helpful net income per share metric for Montrose and common equity investors. I will now discuss our performance by segment, focusing my comments on the full year. In our Assessment, Permitting and Response segment, full year revenue increased 43%, or $92.6 million, to $307.4 million. The primary drivers were organic growth of $57.8 million in nonresponse consulting and advisory services, including remediation consulting work cross-sold from the large environmental incident response in the second quarter, environmental emergency response growth of $29 million, and 2024 acquisition contributions of $5.8 million. This segment is a strong illustration of the power of our integrated platform and our ability to convert an emergency response into a long-term remediation consulting engagement and is precisely the cross-selling model we have been building. Full year segment adjusted EBITDA was $68.5 million, up from $48 million in the prior year. Adjusted EBITDA margin was 22.3% of revenue, essentially flat with the prior year. We expect margins in the segment to strengthen in 2026 due to strong expected demand, pricing discipline, and operational efficiency. Turning to our Measurement and Analysis segment. During 2025, this segment significantly outperformed the prior year, as utilization drove efficiency gains and our team enhanced operating performance. Full year revenue grew 9.6% to $245.9 million from $224.4 million in the prior year, driven by organic growth of $12 million from increased demand for air quality and laboratory services, as well as 2024 acquisition contributions of $11.6 million. The most compelling story for this segment is the margin performance. Full year segment adjusted EBITDA was $64.4 million, or 26.2% of revenue compared to $50.5 million, or 22.5% of revenue in the prior year, a 370 basis point margin expansion. This improvement reflects improved operating discipline, growth in higher-margin laboratory services, and operating leverage across air quality services. We expect segment margins to remain elevated and well ahead of our long-term guidance and as compared to 2024, although modestly lower than 2025. In our Remediation and Reuse segment, full year revenue grew 7.8% to $277.3 million from $257.2 million in the prior year. Revenue growth was driven by organic growth of $12 million, primarily in water treatment services, and 2024 acquisition contributions of $8.1 million, partially offset by $9.8 million of lower revenues from renewable services as part of the strategic wind-down and exit of that business. Full year segment adjusted EBITDA was $36.3 million, or 13.1% of revenue, compared to $38.3 million, or 14.9% of revenue in the prior year, primarily driven by the $4.4 million loss associated with the strategic wind-down of our renewable energy operations. In 2026, segment margins are expected to improve as our water treatment business continues to benefit from organic growth and operating leverage. Importantly, we did not just deliver record top and bottom line results. We also delivered record cash flow. We achieved $107 million in operating cash flow, representing an extraordinary 93% conversion of consolidated adjusted EBITDA, well above our 50%-plus long-term target. We also generated record free cash flow of $87 million, or 75% of consolidated adjusted EBITDA. Beyond these financial results, we exceeded every major strategic objective we set for ourselves in 2025. We fully redeemed the remaining $122 million of our Series A-2 preferred stock 6 months ahead of schedule, permanently simplifying our capital structure and eliminating all future Series A-2 dividends. We exited the year with a leverage ratio of 2.5x, exceeding our year-end target of below 3x and had substantial available liquidity of $225 million, which demonstrates the balance sheet strength that positions us well for the next phase of our growth strategy. In short, 2025 was a record year across every major financial metric: revenue, EBITDA, cash flow, and balance sheet strength. We enter 2026 with strong momentum, a clear strategy, and a team that has earned the right to be confident. We look forward to demonstrating continued progress throughout the year. Operator, we are ready to open the lines for questions. Operator: [Operator Instructions] And our first question comes from the line of Tim Mulrooney with William Blair. Timothy Mulrooney: Congrats on capping off a strong year of execution here in 2025. I wanted to start out with a guidance question, just a simple one. You provided full year revenue and EBITDA outlook. But look, I know you're not a quarterly company, but I'm hoping you could provide just a little bit more color on how to think about your expectations for the cadence as we move through the year. Allan Dicks: Yes. Tim, let me take that. It's a good question. You're right, this is not a quarterly business, but there are some interesting comparisons to '25 given some of the timing of the emergency response revenue. So at a high level, we expect revenues to be split roughly 50-50 front half/back half. And then within the front half, about 40% Q1, 60% Q2, okay? On EBITDA, we expect a split of -- just the first half, second half, 40% first half, 60% second half. And then within the first half, about 1/3 is Q1 and 2/3 Q2. Timothy Mulrooney: If I go back, Allan, and I go back and look at your EBITDA breakdown, it's actually not that different than what we've seen in some prior years. So... Allan Dicks: That's right. Yes. Q1 is just a very seasonally slow quarter. Obviously, the timing of emergency response, which is impossible to predict, can move that around quite significantly. We always assume the midpoint of that $50 million to $70 million, and roughly apportion it with $15 million a quarter. So there could be a light quarter, there could be a heavy quarter. So that's certainly going to move those percentages around. But those numbers I just gave you assume an even distribution of that $60 million ER revenue, guidance midpoint. Timothy Mulrooney: You know what, another thing I wanted to ask, about switching gears completely, is this topic of AI. We saw a broad sell-off in engineering and design firms over the last couple of weeks due to concerns about disruption from AI and Montrose has occasionally comped against some of these companies. How do you think about the net impact from AI on your business, and more specifically, your engineering and design work? Vijay Manthripragada: Let me take that, Tim. Look, these are exceptional firms. Many of these firms you reference are our clients. And so I'll speak generically, Tim. You know the space as well as anyone, right? I think a lot of the concerns there seem to be tied to AI's ability to disrupt the more formulaic and algorithmic tasks that some of these firms do. Our work is much more bespoke, and I'm happy to expand into that further to the extent it's of interest. But as we think about a simple example is the complexity of the water treatment and how that's constantly changing or the field-based nature of our work. The gist of it is we are not an A&E firm, and Montrose is much more insulated from those dynamics than are some of the firms that you referenced, Tim. But look, we're not being Pollyannish about this. I mean, prior to my life at Montrose, I came from a technology firm. So I'm acutely sensitive to both the risks and opportunities that AI and large language models present. And I would frame it in the context of 3 frameworks that we look at. One is there is absolutely an opportunity for us to drive efficiency with the type of work that we do. And we are already in the process of doing that. And so what I mean by that is using large language model-based technologies to make ourselves more efficient, which should drive margins and create upside opportunity into the future. The second is on the revenue side as a large data aggregator. We are already in the early stages of harnessing some of this technology to work with our clients, so for example, with our sensor networks and real-time air monitoring. So there's a revenue stream opportunity that's new that we are pretty excited about. And then, independent of what we're doing internally, Tim, the technology companies that are driving a lot of this activity are Montrose's clients. And so it is early days. We have been careful not to talk about this too much until we really are ready to be very precise about exactly what we're doing. But it is already manifesting in our revenue, meaning the environmental work we're doing for technology companies, and specifically around data centers and AI, saw some really nice growth last year off of, again, a small base. And then we expect to continue to see that really nice growth into the foreseeable future. None of that is in our numbers in terms of our 7% to 9% organic growth today. We want to be careful about not overpromising. But there's clearly some really nice tailwinds and opportunity for Montrose as we look at this more broadly. Does that answer your question? Timothy Mulrooney: Yes, it does and makes a lot of sense, so thank you. Maybe I'll just wrap it up with one more, if you don't mind, if I squeeze one more in because I did hear you make that comment in your prepared remarks, Vijay, about some of these emerging thematics, these nascent opportunities that weren't necessarily around 18 months ago, whether it's -- I think you listed mining, pharma, semi, data center. Allan Dicks: Yes. Timothy Mulrooney: And it goes to your commentary of seeing more tailwinds than headwinds. I'm just curious, as you think about these opportunities, which ones you're most excited about, I guess, as we move through 2026 and 2027. Vijay Manthripragada: Yes. We -- so a lot of these are already our clients, Tim. So some of them are growing opportunities as we speak, and some of the others are pipeline opportunities that have popped up. So just to explain what I mean, within the pharma space, the GLP-1 manufacturers, there are PFAS byproducts that come through the manufacturing process. And so they have been working with us to determine, given some of our unique IP and technology, to how to extract some of the short-chain PFAS that come out of that process. So that's a new set of opportunities. We haven't really addressed that before. That's in our pipeline now. I'm pretty excited about what that looks like, you call it, into the '27 onwards time frame. Contrasted with the data center work that I referenced earlier, that is already in a small way in our revenue and our revenue growth profile, and I expect that to expand further. As we think about the semiconductor industry, a lot of those have been clients of Montrose. As activity picks up and they start to build out some of these centers and manufacturing capabilities, there's a host of opportunities for us as we think about our integrated environmental platform that are opening up that didn't exist before. So we're quite excited about that. A lot of this is tied to our water technology business, Tim, which we expect to grow double digits in '26 compared to '25. And as we think about the long-term or even medium-term, this represents incremental upside to what we saw even 18 months ago. So that's what we meant in the commentary, and hopefully, that adds some more color. Operator: And your next question comes from the line of Jim Ricchiuti with Needham & Co. James Ricchiuti: I appreciate the additional color, Allan, by the way, in response to Tim's question about thinking about the year. So thank you for that. You've touched on some of this in the question I have coming up is just where you see the biggest opportunities from an organic growth standpoint. And I think you highlighted, Vijay, some of the end markets, some of the -- but I'm curious how that might translate down to some of the business lines and where you see the biggest opportunity for organic growth. Vijay Manthripragada: Yes. There's a couple of areas where we're quite optimistic about what the future looks like, Jim. So one area, as I just alluded to, is our water technology business, which we expect to grow really nicely into the foreseeable future. It's going to be accretive to our growth trajectory over time. It certainly will be to our numbers in 2026. So that's a particular area of focus. We remain quite optimistic with our core business around testing and consulting as well. Despite all of the volatility, the uncertainty that's in the market right now is creating tailwinds for us. And so we're seeing ongoing demand for our testing business, both field-based and lab-based. And we're also seeing really nice demand tailwinds for our consulting business -- environmental consulting business. And there's been some really nice opportunities for us that have come up. As Tim asked about earlier, we've seen in Australia, for example, with our mining clients. In the Canadian market, we've seen a really nice uptick in activity tied to Prime Minister Carney's initiatives around Canadian infrastructure build-out. And then here at our home market in the U.S., the increased industrial activity is driving really nice demand tailwinds for us. And so as we look out into 2026, the type of business that we're seeing and the mix is a little different than we've seen in the past. But all of those areas excite me, and there's ways for us to harvest those opportunities, both organically and inorganically, which we're excited to jump on. James Ricchiuti: You guys are making some nice progress on cross-selling. Any particular areas or verticals that's been driving that improvement that we're seeing? Vijay Manthripragada: It's largely just execution, Jim. We alluded to this before. Our response business is a spectacular cross-sell engine. And strategically, it represents really nice opportunities post response to drive testing work and remediation work, specifically around soil and water remediation. And so a lot of the improvement you saw in 2025 was tied to ongoing execution against that original plan. So it's more of the same blocking and tackling. We've made investments in our commercial infrastructure. We've brought in some incredible talent, some very seasoned leaders that are sector leaders and well-known names in the industry. And so a lot of that has been the reason why we're seeing improvements on that metric, and we expect to see that into the foreseeable future. James Ricchiuti: One quick final question for me. You sound optimistic on the PFAS side of the business. Can you say what the PFAS revenues -- and you may have. I may have missed it -- represented in 2025 and what the growth rate was? Vijay Manthripragada: Yes. It remains about 10% to 15% of our business, Jim. And I think we've historically -- and this is really something we should have done a better job at -- but we've historically talked about our water technology business primarily in the context of PFAS. And what we're seeing now is that our water technology business is getting pulled into PFAS demand cycles, but it's more a family or a group of contaminants, including PFAS that we're treating. So for example, when we're dealing with landfill leachate, which has been a really nice growth market for us, the waste industry that is, we're removing all kinds of contaminants in addition to PFAS, not just PFAS. So as we look at it in aggregate, that's part of the reason why we see so much -- why we have so much optimism in what the future looks like, because it's now become embedded in the set of contaminants that folks want to remove. And so the numbers are still very similar to what we talked about before, Jim, 10% to 15% of revenue with double-digit growth expected into 2026. Operator: [Operator Instructions] And our next question comes from the line of Tami Zakaria with J.P. Morgan. Tami Zakaria: Congrats on the wonderful results. Question on M&A. Good to see you're planning on doing M&A. Could you elaborate on the potential size of the deals in terms of maybe revenue or EBITDA that you're looking at, which segments you're focused on, any sense of the timing, first half versus back half? Any color would be helpful. Vijay Manthripragada: Yes, Tami, let me start with that, and Allan, you should certainly jump in. There is nothing imminent. And so as you look out to Q1 or even the first part of Q2, it is unlikely we're going to do anything there from an acquisition perspective. We're going to be very measured. We're talking about small, bolt-on acquisitions. We are very sensitive to leverage. As you know, we've talked about that, and we think about this in the context of broader capital allocation strategies to maximize returns. So with that background and with that underpinning, we see some really nice opportunities on the testing side of our business, Tami, and we see some really nice opportunities across the Australian, Canadian, and U.S. markets on the consulting side of our business. And so we will likely start to, in a measured way, bolt on some really accretive assets, both strategically accretive and financially accretive, sometime in the back half of the year. As you know, we don't control deal timing, so that may fluctuate a little bit. But with what we see in the pipeline today, from a timing perspective, should we close transactions, and we may not close any, but we certainly expect to close some, we will likely do it in the back half of this year. Tami Zakaria: And a follow-up on the quarterly color you gave, which was very helpful. I just wanted to understand 1Q in particular. It seems like it's going to start off a little lighter before things pick up. So is it just emergency response revenues being lumpy? Or is there headwinds in some other segments as well that's making 1Q smaller and then we expect to pick up as the year progresses. So what's driving the revenue outlook for the first quarter? Allan Dicks: Yes, I can take that. You're right. It is primarily lower emergency response. We're 2/3 of the way through Q1, and so we have visibility at least for that period of time into what emergency response has been. And then to a lesser extent, there is some project timing and tougher comparisons year-over-year in Q1 that lighten as we progress through the year. Operator: There's no further questions at this time, and that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the U.S. Physical Therapy, Inc. second quarter 2025 Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. In order to ask a question during the session, please press star followed by the number one on your telephone keypad. Please be advised that today's conference call is being recorded. If you require any further assistance, please press star 0. I would now like to turn the call over to Christopher J. Reading, Chairman and CEO. Please go ahead, sir. Christopher J. Reading: Thank you. Good morning, everyone, and welcome to U.S. Physical Therapy, Inc.’s second quarter 2025 Earnings Call. With me on the call are Carey P. Hendrickson, our Chief Financial Officer; Eric Joseph Williams, our President and Chief Operating Officer in the East; Graham Reeve, Chief Operating Officer in the West; Rick Benstein, our Executive Vice President and General Counsel; and Jason Curtis, our Senior Vice President, Accounting and Finance. Before we begin today’s call, we need to cover a brief disclosure, which I will ask Jason to go ahead and read. Jason Curtis: Thank you, Chris. The presentation includes forward-looking statements, which involve certain risks and uncertainties. These forward-looking statements are based on the company's current views and assumptions. The company's actual results may vary materially from those anticipated. Please see the company's filings with the Securities and Exchange Commission for more information. This presentation also contains certain non-GAAP measures as defined in Regulation G, and the related reconciliations can be found in the company's earnings release, and the company presentations on our website. Christopher J. Reading: Thanks, Jason. So, I am going to do this, I think, a lot like I did it last time—more of a candid overview—which allows me to tell the story a little bit better. I want to start out by thanking our partners, our staff, and our home office support around the country for just doing an excellent job. I am going to share with you some statistics that we do not normally share, we have not shared before. That relates to patient sentiment around our care. So the clinical staff, our partners, they are doing a wonderful job. We have had good strong focus and execution in a number of areas this quarter. We will talk about that. I also want to mention our industrial injury prevention partnerships. Both are really firing on all cylinders at this point. We have added a number of very large opportunities, some of which have not even started yet. And we continue to be very, very bullish about that part of our business. As we go through the stats, you will understand why. So for the second quarter—talk about physical therapy first and volumes—record second quarter for us. As you all know, the second quarter is typically our busiest quarter in terms of peak volume. And so every second quarter, pretty much—you know, last year the same was a record quarter for us a year ago. This year, our visits per clinic per day jumped to 32.7, up really nicely from, again, last year's second quarter record of 30.6. The drivers around this I think, more than anything, are happy patients who love us at the end of their care, who refer their family and friends and neighbors to us, and when pickleball happens, you know, a year or two down the road, they come back and see us. This is the stat I want to share with you that we really have not talked about before. Not a new stat for us. We measure every quarter. We have an outside company tabulate our surveys. This is company-wide. Our Net Promoter Score is 93.5. Now, just to give you some perspective, before this call, I googled what a good Net Promoter Score for a health care company is, and I got two answers. Good was 30, and excellent was 50. And so the way that we get these results tabulated, we are able to see what percentage of patients are active promoters of our business, and we are at 95%. Only 1% of our patients is a negative or detractor. So that puts us in amazingly good standing and an amazing category. Part of the reason for our success, obviously, is what we try to do every day. On the injury prevention side, again, I cannot say enough good things about our teams. Both partnerships are doing really well. Revenue is up 22.6%. Gross profit up 25.8% compared to the prior year quarter. And again, we are working on some really large contracts—one new in the auto industry, actually several new, many. One really large one and one very large one to come later in the year. Revenues in PT were up 17.3%. We added over 50 net clinics compared to the prior year period. And for the first time through this first six months, we exceeded 3,000,000 visits on a year-to-date basis so far. We were also able to drive a slight increase in our net rate, despite the Medicare headwinds, which you all know all too well about. And I just want to point out that if you go back to the period before these Medicare cuts started—which have been sequential layered cuts for a number of years—the impact in this year on those stacked cuts is right around $25,000,000. That is straight off the profit line. It has been a huge impact. It has been a major headwind. On a year-over-year basis, I cannot remember exactly—Carey can tell us—but between $5,000,000 and $6,000,000 compared to last year and this year. 8%–8.5% of our earnings on last year's number, maybe even a little bit more than that. And so to grow over 20% with that kind of a headwind consistently, we are really happy about right now. Things are coming together. Our salaries and related cost was up on a per-visit basis ever so slightly, less than 1%. But our overall cost per visit was down slightly. And really, I think beginning in March and continuing forward, we are beginning to get traction on a number of the initiatives that we have been working on that will help us impact cost, that will help us continue to drive more volume. And we are feeling better about things right now than we have in some time. When you look at PT, our gross profit margin—and we are going to say adjusted very, very slightly, I think around a couple of hundred thousand dollars only relating to an incentive payment that Metro had as a result of closing that deal—our gross profit margin came in at 21.1% for the quarter. So that is a nice move forward as well. On the development front, we have added home care business, a couple of physical therapy acquisitions. We have more to come for the remainder of the year. We intend to focus hard on our injury prevention business, given the organic and the overall growth elements in that business, the margins, just the performance of both those teams. We widened our industry verticals in that space. We widened our service offerings in that space. We are competing and winning large contracts. We are able to do that with some margin improvement as well. And so that business is very strong for us and has continued to be strong, really, for a very long time. The combination of these positive factors has caused us to look out over the remainder of the year and increase guidance, which is now between $93,000,000 and $97,000,000 adjusted EBITDA. And then before I turn it over to Carey—because I skipped through a lot of things, I wanted to tell the story—Carey is going to go through the numbers with a little bit more granularity. Again, I just want to thank our teams. At times, we endeavor every day to try to make a difference, to try to make a positive impact in patients' lives, or within the injury prevention space, in the lives of the workers who are working at our nation's largest companies, most prestigious companies, and we are having an impact. We are making the world in our little way better. And we feel really good about that. And so I want to thank everybody that is involved in that. It is making a difference, and we appreciate it very much. Carey, if you would, go ahead. Carey P. Hendrickson: Great. Thank you, Chris, and good morning, everyone. As Chris mentioned, we are very pleased with our second quarter results. A few performance metrics that stood out to me: we achieved a new company record—32.7 average visits per clinic per day. That was the highest in our history. Our salaries and related costs, as Chris mentioned, increased slightly—just 0.7% compared to the prior year. That is the smallest increase in that metric we have had since 2023. Our total operating cost per visit actually decreased year over year. Our PT margin, as Chris noted, improved to 21.1%, up from 20.1% in the second quarter of last year. Our IIP revenue, excluding acquisitions—so on an organic basis—grew 18.4%. Our IIP gross profit increased 21.8% on an organic basis. Our adjusted EBITDA increased to $26,900,000 in the second quarter of 2025, which was up $4,700,000 from the second quarter of last year. And then our adjusted EBITDA margin expanded to 17.5%, up from 16.4% in the second quarter of last year. So all of those metrics I was really pleased with. Turning to patient visit volumes, our average visits per day were 33 in April, 32.9 in May, and 32.3 in June. That slight taper in June is consistent with our historical summer patterns, when volumes dip slightly in the summer months before rebounding again in mid-August. We recorded 1,532,263 clinic visits in the second quarter and then also had 28,493 home care visits. This is the first time we have reported home care visits separately from our in-clinic visits. They stem from the home care business that we acquired through the Metro PT transaction in New York in the fourth quarter of last year. We will continue to report those separately going forward. For reference, we had 22,943 in-home visits in the first quarter of this year. And that number—the year-to-date number—is in the release too, just so you will have that for going forward. Our net rate per patient visit was $105.33. That is ahead of the $105.05 we achieved in the second quarter of last year, but it is slightly less than what we had in the first quarter at $105.66. As a reminder, we absorbed a 2.9% Medicare rate reduction that took effect at the beginning of the year. And also our largest payer in Michigan, which is our third-largest state with 56 clinics, implemented a policy change on April 1 that negatively impacted our net rate a little bit in that state. So that was a bit of a headwind too. Even with those headwinds though, our net rate held up well in the second quarter, and we expect it to grow from there. We continue our efforts to have a strategic focus on increasing reimbursement rates through targeted contract negotiations, as well as efforts to grow our higher net rate workers’ comp business. Workers’ comp represented 10.4% of our net patient revenues in the second quarter, with visits increasing 8.4% year over year. We remain fully committed to all of our rate-enhancing initiatives, and we are working on those every day. Physical therapy revenues were $168,300,000 in the second quarter of 2025, which represented a $24,800,000, or 17.3%, increase compared to the same period last year. The majority of that growth was driven by acquisitions completed since the second quarter of last year—most notably that Metro acquisition that we made in New York last November—that was $19,600,000 of the $24,800,000. Physical therapy operating costs were $133,100,000. That was an increase of $18,400,000, or 16%, over the prior-year quarter. Importantly, we managed costs effectively. Our salaries and related costs, as I mentioned, were just up 0.7%, at $60.08 per visit. And our total operating costs, as I also mentioned, were actually down year over year per visit. Our physical therapy profit margin, I noted already, is 21.1%. That is our highest quarterly margin since 2023. And that, of course, reflects solid revenue growth and the cost management. Our IIP delivered another strong performance in the second quarter. Our IIP net revenues increased $5,300,000, or 22.6%, compared to the second quarter of 2024, and income rose $1,300,000, or 25.8%, over the prior-year quarter. Then I gave the organic numbers earlier: IIP revenues increased 18.4% and gross profit up 21.8%. The IIP margin for the second quarter was 22%, which is up from 21.4% in the same quarter last year, reflecting strong top-line growth and continued focus on operational execution. Our corporate costs remained in line with expectations. They were 8.7% of net revenue in the second quarter compared to 8.5% in the second quarter of last year. We are in the early stages of implementing a new enterprise-wide financial and human resources system. Implementation costs related to that project will continue through 2026. And consistent with our practice for similar nonrecurring costs, we will add those costs back in our adjusted EBITDA calculation. Year to date, we have incurred $221,000 in implementation costs. That was really related to the selection part of our implementation. And we will start full-bore on our implementation in the third quarter. And that will always be itemized on our non-GAAP reconciliation page. Operating results were $12,400,000, up from $11,000,000 in the second quarter last year. And on a per-share basis, we were $0.81 versus $0.73 in the prior-year quarter. Our balance sheet remains in excellent shape. We currently have $135,000,000 in our term loan. A swap agreement in place fixes that interest rate at 4.7%. That extends through mid-2027. In addition, we have a $175,000,000 revolving credit facility that had $245,000,000 drawn on it at 06/30/2025. We ended the quarter with $34,100,000 in cash. As disclosed in our earnings release, the Board of Directors authorized a share repurchase program this week providing us the flexibility to repurchase up to $25,000,000 of our shares through 12/31/2026, if market conditions are appropriate. We view this as a prudent tool to have at our disposal. However, acquisitions will continue to be our primary capital allocation priority consistent with our strategic growth strategy. Our performance in the first half of the year has been strong, exceeding our expectations coming into the year. And we believe we are well positioned for a solid second half as well. And as a result, we have raised our full year 2025 adjusted EBITDA guidance from a range of $88,000,000 to $93,000,000 to the new range of $93,000,000 to $97,000,000. In effect, the high end of our prior range becomes the low end of our new range, with a $4,000,000 increase at the top. So with that, I will turn the call back over to Chris. Christopher J. Reading: I want to mention one more thing. We are happy with where we are this quarter and the progress—still have plenty of things to work on, which to me is also encouraging because we are not there yet. We have room for improvement. One of those things I want to point out, as a matter of perspective, relates to our same-store growth in mature facilities, which this quarter was a little bit lighter than maybe everybody expected. It was over 1%, but not in what I would call our normal range. Still a few markets where staffing is a little tight, and with cost control, it probably put a little bit of a damper on us. I want to point out one thing, though. Back in the spring, we initiated a staged rollout of cash-based programs. We have not spent a lot of time talking about it. As with anything, it takes a little time to get traction. We are getting real traction with that now. And so in our other income line—this does not show up as additional visits, although some are patients who are coming in for these cash-based services—we have generated about $900,000 worth of additional revenue, a lot of that coming from our cash-based services, which are continuing to ramp up as we go forward. And so that is an added benefit that we really have not had before. We are seeing some of our partnerships do extraordinarily well with that. So with that, that concludes our prepared and our candid comments, and we would like to go ahead and open it up for questions. Operator: Thank you. You may remove yourself from the queue at any time by pressing star 2. We will now open for questions. Our first question will come from Brian Gil Tanquilut with Jefferies. Your line is open. Brian Gil Tanquilut: Hey, good morning, guys, and congrats on a solid quarter. Maybe I will start with a follow-up or a question around your last comment. So as I think about your same-store outlook, how would you characterize demand for your services or just broadly in the market versus, like you were saying, kind of pulling back and managing the cost because of the clinician, the labor situation? And then maybe how do I think about your capacity versus thinking about maybe de novo builds in the future as you start bumping up against capacity constraints potentially? Christopher J. Reading: Yeah. Well, demand is really, Brian—demand is really solid pretty much everywhere. Now, there is a little push-pull we have to manage always when trying to get costs under control, and so you are trying not to be fat, to use that term—to have too many slack resources—yet you are still trying to meet demand. And we certainly—it is not perfect—have some markets where the market is still a little tight, where we have additional FTEs we need to hire where the demand is strong and yet, you know, we need some more resources. Other places are being dialed in where they need to be. So, that is a work in progress. The cash-based programs are helping us to generate additional revenue. And so that has been kind of a net add for us that we have not had before. And I am trying to remember the second part of your question. Brian Gil Tanquilut: Just as you think about capital deployment into maybe de novos as you start bumping up against capacity constraints. Christopher J. Reading: Yeah. On the de novo side, look, we are going to—We have had this market where we have had some headwinds, and we have had to deal with that. This is going to be probably the strongest de novo year that we have had since I have been with the company, so de novos are going to be good this year. They are on a really good pace. We are making adjustments and have made adjustments on the recruiting side of the house, on the residency side, which gets more students into our programs. So we think we will be able to continue to ramp into the demand. We just have to keep it dialed in right now, but I do not see it impacting our de novo openings. Frankly, in markets like New York, where net rate is considerably higher than most of our competition, particularly our small competition, we are able to do these small “AquaNovos,” which frankly we do not even announce. But we are able to do those at very, very nice multiples and get a nice rate lift as a result and a lot more resources to help them grow and scale. And so that is going to continue to be strong as well. Brian Gil Tanquilut: Chris, to follow up on that, I mean, as we think about capital deployment—obviously, the announcement of the dividend is positive—so just curious how you and the Board thought about that decision to introduce a dividend just when it sounds like this is going to be one of your best de novo years. Just thinking about the balance sheet, the cash generation, and then, yeah, just the decision to do the buyback. Christopher J. Reading: Yeah. So you mentioned dividend. The dividend is ongoing. And so we have been paying the dividend for a long time. Brian Gil Tanquilut: Sorry, sorry, my bad. I meant the buyback. Christopher J. Reading: The buyback is new. Look, we feel like the stock has been undervalued for some time. We understand health care services and having a little bit of a tough year, and we have had some Medicare headwinds, and we are making progress and continuing to grow the company. We wanted to be in a position to have flexibility at, you know, at a certain level where we could go in and demonstrate our belief that we are going to continue to grow this company and do well over time. So it gives us flexibility. As Carey mentioned, it is not our first preference for capital deployment. I would say our first preference right now, frankly, is directed toward injury prevention, where the embedded organic elements of that business are really, really strong. The next would be PT, and then, you know, on from there. We will be disciplined about any share buyback, and it is going to be dependent on other capital demands and really where the stock is at any given time. Brian Gil Tanquilut: Got it. Chris, if I may throw one more question. As I think about just the efficiency of your physical therapists, we hear about AI tools in the market aimed at physical therapists. I mean, is that something that you are throwing in the mix that is helping you out? And then maybe kind of related tangentially, you talked about your home PT business. Just if there is anything out there that you can share with us in terms of the dynamics there because, obviously, it is new to us investors, on what that business looks like. Thank you. Christopher J. Reading: Yeah. There are some cool AI tools right now. We are deploying AI-backed technologies for clinical documentation, which is helping people get through their least favorite thing of the day if you are a clinician, which is to document all the cool stuff that you did with somebody in physical therapy. You have to document a lot of things—sets and reps and weight, and motions and, you know, joint-related movements. And so it is tedious and it takes time. And so this ambient listening AI-driven assist is helping our clinicians get through that much quicker, much more efficiently. We are just on the front end of rolling that out, but that has been well received. We are rolling out what I would call, broadly, you know, a semi-virtualization of the front desk, which enables us not to go completely virtual, because I do not think we are ready for that yet—not in order; I do not think patients are ready—but an augmented situation, where we are able to focus efforts from across multiple clinics through one individual that may be on-site or remote somewhere and be much, much more efficient and save the number of front desk FTEs, which continue to be a labor challenge for us just in terms of longevity. Unlike our PT group, which, frankly, right now, is having the least amount of turnover that we have seen in maybe my recollection—really good right now. These tools are helping us get some margin and efficiencies in areas where we just have not been able to do that in the past. And we are early, but it is directionally encouraging. Thank you. Brian Gil Tanquilut: Thanks, Brian. Operator: Thank you. Our next question will come from Joanna Sylvia Gajuk with Bank of America. Your line is open. Joanna Sylvia Gajuk: Hi. So maybe first on the metric that really stood out besides the visits per clinic, but the cost per visit by a decline at all costs, right? So maybe in that context, can you walk us through or give us some update on your labor management strategies, the wage—maybe talk about turnover and other metrics you can share? Because it sounds like you are doing a pretty good job there. Christopher J. Reading: Yeah. Eric, you want to go ahead and take that, talk about turnover and some of the things we are working on and what we are seeing? Eric Joseph Williams: Yeah. This is—you know, again, you will recall from our quarterly conversations here, we made a lot of investments in systems and resources in 2024 that are really starting to pay dividends for us in 2025 as it relates to recruiting and retention. We have seen a 25% increase in student clinical rotations across our partnerships in 2025. Part of that was participating in a student rotation matching program with software—the exact software that is being used by all of the PT schools out there. So we have seen almost a 200-student pickup this year. We put in a new applicant tracking system in 2024 that has also given us better company-wide visibility across our partnerships to all the applicants who are applying for jobs. It gives us a better opportunity to follow up with these applicants, track them pre-hire, post-hire. And then for the ones, of course, that do not take jobs with us, we have this huge database that we are building of people that we can go back to when we do have job openings. So systems have made a big difference. Putting in some additional resources to help us on the recruiting front made a big difference for us. And the mentorship piece has been a major focus for us, and we really push that hard with our partners to make sure that we are connecting and spending time with the younger therapists that we bring on board in order to reduce turnover rates. As Chris mentioned, these are the lowest turnover rates we have seen for the six months this year—January through June—the lowest numbers we have seen in the last seven years. So it is absolutely making an impact for us. The pieces that we are really excited about—and Chris referenced one of them; I will touch base on that in a second—this mentorship piece, while we are really focusing it on a partnership level, which is where our clinical staff goes to work, we are in the process of building out a software platform that is going to allow us to expand our mentorship programs beyond the four walls of the clinic and beyond the existing partnership. It is going to give us the ability to connect clinicians across our company with each other, let people that have particular interests or specialties have an opportunity to connect with people that might not have that specialty within the partnership but have that expertise, and we can take advantage of that across our entire company. So we are excited about that. We think that will pay dividends for us as it relates to our ability to retain and staff. Those are the big ones. Chris, you mentioned AI—I will talk about that as well. We are in the early innings of using that voice recognition technology that Chris talked about. I think we have that in the hands of 200 or 250 PTs right now. It has been really, really well received. And I think that is going to have an impact for us over time with retention as well. I mean, you can reduce documentation as to things that clinicians hate to do the most. And right now, there are a lot of people dabbling in it. I think we are farther ahead than most. I think we are farther ahead than most large platforms experimenting with that right now. And I think that is going to help us attract and retain staff going forward. So I hope that gives some context. Joanna Sylvia Gajuk: Are you willing to share the actual turnover number that you track? Eric Joseph Williams: We actually will—we post that. We will report that publicly at the end of the year, and you will find that in our ESG. Christopher J. Reading: Yeah. Joanna, I do not want to be in a position quarter to quarter to add to our already exhaustive list of metrics, but we are in a good spot right now. In a really good spot. Joanna Sylvia Gajuk: Yes, sounds like no. Thank you. And if I may, another topic—Medicare rates—right? Been a headwind for a couple of years now, but it sounds like for 2026 there is going to be rate updates. So the overall physician fee schedule is going up between 0.5% or more—3.6%, 2.8%. And then we had an estimated like 2.5% or so for physical therapy codes. Can you talk about your estimate for your company in terms of how the rate increase would translate for your portfolio into next year? Thank you. Christopher J. Reading: Yes. Let me make a quick comment, and then I am going to kick it to Carey and help get you through the specifics. This year—and this is the proposed rule, so there is going to be a lot of commentary and certainly a lot from the PT industry—this year was the most complicated of any year that I can remember literally in my career. They changed kind of metaphorically a lot of knobs. The thing about turning knobs—they turned a lot of different knobs for RVUs, for work values, for geographic index factors. And there were particularly large swings on the geography side—so much that both us and the APTA thought that some of the tables were not correct. And so our overall assessment is—Carey can get into the specifics—but we think there is more work to be done, obviously, with CMS. Carey P. Hendrickson: Yes. Thank you. So, Joanna, we have looked at it, looking at the various geographies and what the changes were in those geographies based on where we are and the rate increases in those geographies. I think we are probably going to see somewhere between a 1% and a 1.75% increase—something like that. For us, again, positive. We are just happy to have a positive increase and not be looking at negative numbers for next year. So we are really pleased about that. If it is in that 1% to 1.75% range, that would be somewhere between $2,000,000 and $3,000,000 of a positive for us next year on the top line. And then from an EBITDA standpoint, it would translate to somewhere between $1,500,000 and $2,500,000. Again, this is a preliminary ruling. We will know the final ruling in December, and we will see if anything changes. But that is kind of where we see it today. Christopher J. Reading: Yeah. We certainly hope that it will be positive, no longer a headwind. The irony is, unfortunately, when you get under the hood and see how the sausage is made, the specialties that have the most extraordinary increases in the cost of equipment—so very expensive equipment—and have the most highly litigated areas where there are exposures to litigation and other things, which you just heard, you know, the number of patients that love us on a percentage basis. So physical therapy in general does not have that problem. And so we are making a decided push where we know that we save the system a lot of money. In fact, in the state of Maryland, where physical therapy, on a pilot program of CMS, is in the position as kind of a primary care for musculoskeletal, they determine—the physical therapists do—what happens. There is a massive annual aggregate savings. We think we should be front and center on that. So yes, we are pushing. We hope it gets better. We think there are some flaws in the existing methodology, and beyond the state of Maryland—which could be a big pay-for with CMS—to extend that to a reasonable, rational cost-of-living increase for the fee schedule. We are going to be working on that between now and year-end, and we are hoping to use those results. Joanna Sylvia Gajuk: Great. Appreciate the color. Thank you so much. Christopher J. Reading: Thanks, Joanna. Operator: Thank you. Our next question will come from Benjamin Michael Rossi with JPMorgan. Your line is open. Benjamin Michael Rossi: Hi, good morning. Thanks for taking my question here. Christopher J. Reading: Good morning, Ben. Benjamin Michael Rossi: So turning to the IIP segment performance. You mentioned adding some services here over the course of the year. Certainly seems to be off to a strong start to the first half with margins expanding year over year. Is it fair to say that that segment is coming in ahead of your initial expectations as we head into the seasonally stronger 3Q? Christopher J. Reading: Yes. I do not have in front of me exactly what our budget was, but we are definitely ahead of budget. There is a little different seasonal pattern with injury prevention. We tend to be a little light in January like everywhere else, and a little light in December where, in some of the big auto manufacturers and some of the nation's biggest manufacturers, there is an early shutdown in December. So that impacts our earnings a little bit. But if you go back, not just for this first half or this quarter, but on a year-over-year-over-year basis, injury prevention has really done well for us and had really strong organic growth. We continue to be bullish. We are spending more time in development in that area. And we are identifying good companies. And, of course, like anything else, we have got to get things done. But we expect to continue to deploy capital directionally there. Benjamin Michael Rossi: Got it. And I guess this is a follow-up to your comments on Medicare PFS rates. Obviously, it seems like the change for 2026 is kind of amounting to more of like a one-time fix, and it does not necessarily address anything in 2027 and does not obviously take you out of that $25,000,000 hole you described after decreases in recent years. Can you just walk us through where your conversations stand with your counterparts at the federal level and maybe how they are framing the decision to include that one-time fix for 2026 in the OPBBA? Christopher J. Reading: Yeah. I think it depends on who you talk to, but nobody in Congress is happy that this is an annual issue. It seems like that is how we fund the government each year—through this crisis management process that eventually ultimately gets done. A lot of chicken on both sides. And so it is certainly not the optimal way to do anything. It is certainly not fair to providers to have a one-month runway, basically, where you are notified in December what the final decision is, and then you have until all of January—through the holiday—to get things ready to go. We should have a multiyear plan. It should be locked. All of the lawmakers believe that is the way it should be. And yet, you know, let us call it a ten-year kind of permanent fix on the physician fee schedule—about a $100,000,000,000 event. And so they need savings to be able to do that. One of the big areas that we think is a saver—and we are going to use an outside Beltway analytics group to take the results that we have seen from the EQUIP study in Maryland and extrapolate those real results over the nation and create what we think is a massive savings for the system—with physical therapists in that key role, as kind of the primary care director of the musculoskeletal case. And so that is a possible pay-for—a physician fee schedule fix. It has gotten a lot of very positive attention among our lawmakers, our Congress, on both sides. CMS, I would tell you, is kind of a difficult place to be because it is so siloed. And so people have one small fraction of what amounts to a very complicated series of areas and rules and responsibilities. So we will see. But we need more than a one-year fix for sure. Each year, we hear about tariffs and all the revenue that is created. We have AMA and the hospital association—everybody else wants more than a year-to-year fix. It is unsustainable. Benjamin Michael Rossi: Great. Thanks for the additional commentary here. Operator: Thank you. Our next question will come from Lawrence Scott Solow with CJS Securities. Your line is open. Lawrence Scott Solow: Good morning, guys. Thanks for taking the question. Most of my questions have been actually answered. Just a couple. I am just curious—so the 7%, or nearly 7%, year-over-year increase in visits per day per clinic, and then the modest growth in labor and then overall operating expenses per visit—how much of that just relates to the acceleration in closures last year? I know you closed like 30 clinics, I think back in Q3. So it feels like a lot of that is just more efficiencies driving these gains. Is that fair to say? And then second part of the question is, I know you sort of discussed last year some cost-cutting initiatives. You never really put a number on it, but you thought you could add up to maybe even double-digit millions over time. I am curious how that has played into the good performance this quarter. Christopher J. Reading: There are relative pieces and parts of every one of those that go together and, you know, at the end of the day, it is like baking a cake. There are a lot of ingredients, and you hope it tastes good. I do not have in front of me the exact ingredients. In fact, some blend together, so it is a little bit hard to measure. Cost efficiencies, you know, on one hand, create both challenges and opportunities sometimes in terms of volume-related aspects. And so we are trying to do the best we can to balance technology efficiency, appropriate levels of labor—which minute to minute are never perfect—perceived demand, expansion. It is pretty complicated. It is running a business, and there are a lot of moving parts. And so all those things are coming together. What you are hearing is we are feeling more confident that the things that we have done, which again, as you point out, are multifaceted—they are coming together in the right way. But as I pointed out earlier, it is not perfect. We still have plenty to work on. There is still plenty of opportunity. The team is focused on it. But where we are feels a little better than where we have been for maybe a while now. Carey P. Hendrickson: Right. And in terms of factors in the visits-per-day growth, one of the drivers is the addition of Metro in November. And so it has been higher since that point. We were probably running at about 31 before, and then that has kicked up a little bit because Metro averages about 45 visits per clinic per day. So that does a little bit, but there is still really good growth in that overall visits per clinic per day. Lawrence Scott Solow: Well, that is a good segue then, Carey, into Metro. So curious—it sounds like that is progressing really well. And I know when you acquired—at the time of the acquisition—you spoke about a lot of opportunities, and I guess these Aqua de novo openings sound like that is happening at Metro. And I assume since New York has one of the better rates, that probably benefits you guys disproportionately too. Christopher J. Reading: Yeah. We have a strong team there. Michael and his team are strong. Clinically, they are strong operators. They are strong in development. And so we have plenty of opportunities to chew on and work our way through for what should be a long period of time. So they are doing well. AquaNovos being just one of those. Carey P. Hendrickson: And one of the things that has been really positive there—and we have talked about this before—is the net rate increase we have seen at Metro since we acquired them. That is one of the things we do with acquisitions. We look at trying to improve their contracts as we bring them over. When we first acquired Metro, the first month for Metro was around a $101 net rate. That averaged $104.50 in the first quarter, and that was $107.50 in the second quarter. So we have really seen some nice rate improvement there. That does not show up in the majority clinics line; instead, it shows up in the clinic additions line. But I just wanted to point out that we are seeing really good net rate increases there at Metro. So that is helpful as well. Lawrence Scott Solow: And could you just walk through the pricing breakout in the quarter? I guess, do you discuss that? Usually, you give us kind of what commercial pricing was in the quarter. I know I heard you discuss the workers’ comp piece. Did you give any more detail on the commercial side? Carey P. Hendrickson: Sure. Happy to. So the $105.33 overall—commercial rates were around $105.50, so that was a nice increase in commercial rates. Workers’ comp was still a little bit north of $150. Medicare is a little north of $92 per visit, which is really good. Those are the three primary categories. The others were relatively stable as well—Medicaid, personal injury, self-pay. Lawrence Scott Solow: Great. Okay. Appreciate it. Thanks, guys. Operator: Thank you. Our next question will come from Jared Phillip Haase with William Blair. Your line is open. Jared Phillip Haase: Hey, good morning. Thanks for taking all the questions. And nice to see the continued momentum there. I think you mentioned a number of larger opportunities that have not started yet. So I am wondering if there is any way that you can contextualize what that backlog looks like or any way to frame up what the incremental revenue opportunity is and how that might compare to prior years? Christopher J. Reading: Yeah. I do not have it in front of me. And my preference—and maybe I need to be a little bit careful—my preference is to not constitute revenue ahead of when we have generated it, either in development or otherwise. And so we are definitely making progress. We are having a good year. I am not prepared to get into the potential because, frankly, it is all about staffing, and the team has done a fantastic job both with the auto industry major contract that we got where we needed to hire 50 FTEs to staff that. If we had not hired 50—if we had only hired 20 or 30—the revenue generation would have been different. So I really cannot afford to be that far out on a limb, and I do not want to be in that position, so we are not going to do that. But as that comes about and we are realizing it, I am happy to talk more about it—once it actually happens. Jared Phillip Haase: Yeah. That is fair. That totally makes sense. Maybe I will ask a follow-up. And I think you all have made some public comments in the past about some of the virtual PT applications that are out there. And I think recently, one of the larger ones announced they are building out sort of a network of in-person providers as a way to kind of supplement their digital offering. So I am wondering if you have any more that you can say about that. Would you consider participating in a network like that with a virtual partner? You know, how are you thinking about maybe the potential opportunity in terms of, call it, patient acquisition or opening up any referral channel? Christopher J. Reading: Yeah. Again, I do not want to speculate too much in hypothetical situations. And I say that because a lot of the virtual providers have sold a very low-cost, per-member, generic, “PT service-level” solution—not delivered by therapists. It is delivered either through an app or backed up by call center employees who, for the most part, are not licensed clinical folks. They follow the script. And so what has been sold is they can take all comers and any diagnosis and very complicated things—post-op reconstructions and rotator cuff repairs—and, frankly, I will tell you my opinion is that cannot be done efficiently or effectively. So I think they are in a tough spot where they have to figure out whether it is the bricks-and-mortar solution to add to a virtual offering. Have we had discussions with one or more providers about that? Yes. It remains to be seen whether that is something that the industry is accepting of or not. Reciprocally, we are now using technology—an augmented solution—that we use with our patients through companies like Limber, who has been a nice partner for us, that has objective measures of motion and activity and other things which help us be better informed to guide that care. And there will be a point in time—and we are not there yet because we are working on some really important things—there will be a time when we focus more on a broader digital solution and, in some cases, that I think will help to augment what we do for our patients, make us a little bit more geographically flexible. But we are going to approach it very differently than groups that have done it so far. I think they have tried to do too much, and I think they are finding out it is not possible to deliver it that way. Jared Phillip Haase: Okay. That is great. Thank you. I appreciate all the color. Operator: Thank you. Our next question will come from Jiten Sanghai with Quarry Partners. Your line is open. Jiten Sanghai: Hey, guys. Congrats on a great quarter and appreciate the questions and answers. Maybe two for me. You know, clearly, the volume growth—the record Q2—is great, but one is, is there a theoretical capacity we should think about? Because is the system operating at 90% or some x percent? And then related point, if you think about the de novos, what is the staffing environment like? How will you recruit x number of FTEs? I think, Chris, you mentioned maybe a record year for opening de novos. So how will you attract the number of FTEs? And, you know, finding them is hard, but the question is not just finding them. It is what you pay them and how the economics work. So I think two parts to this. If you could address both, that would be super helpful. Thank you. Christopher J. Reading: Yeah. So on the capacity side, think of it this way—our capacity really is not limited by physical footprint. Generally speaking, a typical clinic may be open from 7 to 6, but we have the ability in that same physical footprint—which has peak times and also has slower times—to fill in certainly some of the slower times. Then we have the ability to extend hours and do other things. So our visits-per-clinic-per-day number can continue to grow. It is not constrained by our physical footprint, so our constraint correlates with our staffing. And so we have to have the staff available. As you mentioned, it may be a little bit over time—as we have shown—ultimately getting that number up the next five or ten visits per day. That will not happen overnight, but there really is the possibility to move forward as long as we can continue, as you mentioned, to find staff. And I would point you back to Eric’s comments around the investments that we have made in recruiting and retention, and school affiliations, residency programs, mentorship, and other things to try to have a stable bench from which to draw to backfill a clinic with a lot of people with tenure so they can grow and learn. And it is easier to absorb that way. The more senior therapists are the ones that go and open the next adjacent clinic—not the new grad, but the more senior person—and that more senior person then gets backed up maybe by somebody more junior. So again, it is not perfect. The market is competitive and in some cases it is tight. But we are finding people, and we are growing, and we expect to continue to be able to do that, particularly with the investments that we have made over the last six to nine months. Jiten Sanghai: And, Chris, that is super helpful because what it sounds like is there is no theoretical capacity. So whatever your margin guide suggests for this year using your updated EBITDA range, as we think about next year or beyond, there should be some flow-through or increase in EBITDA. So your margins should expand over time as you have incremental volumes. Is that the right general lens? I do not know if you can quantify that or if that is just a good sound bite to end on from my perspective. Christopher J. Reading: No, I think it is a reasonable sound bite. There are certainly points of inflection where when you have to level up, you may go back a little bit before you can go forward again. But generally, you are right. The last few patients of the day are incrementally more profitable. Your fixed costs are covered. That is one of the reasons why you see our total cost per visit come down a bit this quarter—because of the jump in visits per clinic per day. Hopefully—with particularly continued commercial rate wins, continued war comp and other payers—we get more than enough to offset what might be a little bit of wage pressure year to year. That wage pressure for us—preferably getting that with some efficiencies. And again, I would point to some of the initiatives around AI and virtualization at the front desk, which are really just now getting started, but should give us some additional lift as we go forward. And Metro, with wins like we are seeing in rate growth—we are well below right now the $7 more a visit, but that combination gives us more than enough to offset the average increase that people got at the end of the year—five, six, seven dollars a visit. You have to deliver it. You have to make it happen, but I am hopeful at this point that we can continue to execute on that. Jiten Sanghai: Great. Thank you for your time, guys. Appreciate it. Carey P. Hendrickson: Thank you. Eric Joseph Williams: Thank you. Operator: Our next question will come from Michael John Petusky with Barrington Research. Your line is open. Christopher J. Reading: Hey, Mike. Michael John Petusky: Hey, good morning. Christopher J. Reading: Hey, good morning. Michael John Petusky: You gave sort of the hard numbers on the rate per visit. I am just curious—commercial pricing—I am assuming that was up a little bit in the quarter. Do you have a percentage that was up versus the comparable period a year ago? Christopher J. Reading: Carey. Carey P. Hendrickson: Sure. It was up about 1% to 1.5% versus last year’s second quarter. The second quarter of last year is actually the strongest quarter for commercial rates last year. It is up 2.2% from the first quarter. So we had a nice bump in the second quarter versus the first quarter in that commercial rate. Michael John Petusky: Okay. And the issue in Michigan with the large payer—how much impact did that have on the commercial pricing overall? I mean, did that take it down 20 basis points—more than that? Carey P. Hendrickson: Yes. It was a payer rule change. Let me calculate just a second. I know the impact is about a $0.30 per-visit impact or so. So it would have been—we would have been kind of right at the first quarter number had it not been for that Michigan rule change. Michael John Petusky: Okay. So is there anything to suggest that what is going on in terms of that payer in Michigan could be an issue elsewhere? Or do you really feel like this is sort of an isolated situation? Christopher J. Reading: Mike, I mean, I wish it was uniform. Maybe I should not wish that. I mean, we have got—each year—people are going to try different things. Michigan has had some ebb and flow with this payer. On a number of different fronts, utilization caps and other things have been challenged and even litigated. So it has bounced around a bit at different points in time, and we do not see it, as Carey said, as a contagion kind of thing at all. I do not see a contagion problem necessarily. And it is really no different this year than prior years. But that is one that we have called out this year, which is a little bit of a headwind—where in 48 or 49 other states it is not an issue. Carey P. Hendrickson: Yeah. And, Mike, as Chris said, there are always puts and takes on the net rate. And, you know, you will have things like that. But then we have got other things that are overcoming it in others. Michael John Petusky: Okay. Great. That is what I was trying to get at. So, Chris, earlier, you said that IIP felt like it was a top priority in terms of capital allocation. When you were talking about that, were you sort of talking about it in terms of internal investment—hiring trainers and such? Or are we talking about more in terms of external assets that you may try to sort of build on the base of business—or both? Thanks. Christopher J. Reading: Yeah. Well, it is always internal, but that is really not a problem, and I really do not think about that. Maybe I should, but when I talk about capital allocation, that is just a matter of course. What I am talking about is investing in additional companies to continue to fill in our service complement, to build on what we have, give us more opportunities for cross-sell, and to continue to grow as we have the last few years. It will be ongoing, but we are actively involved, and we spent more time this year, I think, probably than ever before, attending conferences and getting face-to-face meetings and being active in the space. People now kind of know who we are. And while it is a much smaller space in aggregate than the PT world, we are making some progress. And so do not be surprised if we are active and continue to be in that area. The team is doing a really good job, and we like the embedded growth elements in this business—particularly, I think—not to make any kind of a political statement—but if manufacturing is going to increase in this country, and I think just with the announcement yesterday on Apple and others, there is going to be a push to onshore manufacturing, and we are positioned pretty well to benefit from that. Michael John Petusky: Absolutely. Hey, let me just sneak one last one in, and then I will let the next person ask questions. Because you mentioned on the last conference call that you guys had been involved in sort of a deep operational review with your top 40 partnerships. I am just wondering—anything interesting, surprising—anything come out of that that you would be willing to share that might matter? Christopher J. Reading: Yeah. The only thing that I will share is that those calls have been important. What partners have appreciated—it is a couple of things. One, beginning with COVID and the year after COVID, we were both lean and busy. And it was kind of a good year to benchmark against. But, you know, I use the analogy—it is like your weight may fluctuate since college days. If you use your college days as the yardstick to see change, this is a great comparative point—or maybe a difficult comparative point. As you go forward, the change over time—you lose track of where you were, and pretty soon your belt does not fit the same way anymore. And you lose where you are in space a little bit. And, you know, that is one measure where it is kind of pretty easy to keep track of, but we are measuring a bunch of different things in this business—visible, tangible tools that our partners get every month that compare where they are now to where they were at the most efficient point and how things stack against that. There have been a lot of influences that have caused certain things to happen that are just part of the reality. But I think having now a really good yardstick to see change has been kind of a really good tool. And so we have used that, and we are making progress. And I think our partners have been very understanding and appreciative, and we are seeing change as a result. Eric Joseph Williams: Thank you. Christopher J. Reading: Sure. Operator: Thank you. It appears we have no further questions at this time. I will now turn the program back over to management for any additional or closing remarks. Christopher J. Reading: Look, it has been a good call. Thank you all for your questions—a lot of really good questions. Carey and I are available for the rest of the day. And whenever you need us, we appreciate your time and attention, and particularly your support. We hope you have a great day. Thanks. Carey P. Hendrickson: Thank you. Operator: Thank you, ladies and gentlemen. This concludes today's event. You may now disconnect.
Operator: Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Real Estate Finance, Inc. fourth quarter 2025 earnings call. After the speakers' remarks, all lines will be placed on mute to prevent any background noise. There will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Kristen Griffith, Investor Relations. Please go ahead. Thank you. Kristen Griffith: Good day, everyone, and welcome to NexPoint Real Estate Finance, Inc.'s conference call to review the company's results for the fourth quarter ended December 31, 2025. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer, and Matthew Ryan McGraner, Executive Vice President and Chief Investment Officer. As a reminder, this call is being webcast through the company's website at investors.nexpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations, assumptions, and beliefs. Listeners should not place undue reliance on any forward-looking statements and are encouraged to review the company's Annual Report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect the forward-looking statements. The statements made during this conference call speak as of today's date, and, except as required by law, NexPoint Real Estate Finance, Inc. does not undertake any obligation to publicly update or revise any forward-looking statement. This conference call also includes an analysis of non-GAAP financial measures. For a more complete discussion of these non-GAAP financial measures, see the company's presentation that was filed earlier today. I will now turn the call over to Paul Richards for the financial results. Please go ahead, Paul. Paul Richards: Thanks, Kristen, and good morning, everyone. I will walk through our quarterly results, cover the balance sheet, and provide guidance for Q1 before turning it over to Matthew Ryan McGraner for a deeper dive on the portfolio and the macro lending environment. Fourth quarter results are as follows. We reported net income of $0.52 per diluted share compared to $0.043 in Q4 2024. The increase was driven by unrealized gains on our preferred stock and stock warrant investments. Earnings available for distribution came in at $0.48 per diluted share, compared to $0.83 in Q4 2024. Cash available for distribution was $0.53 per diluted share, up from $0.47 in the prior quarter. We paid a regular dividend of $0.50 per share in the fourth quarter, which was 1.06x covered by cash available for distribution. The Board has declared a dividend of $0.50 per share for 2026. Book value per share increased 1.4% from Q3 to $19.10 per diluted share, primarily driven by unrealized gains on preferred stock investments and stock warrants. Turning to new investment activity during the quarter, we funded $5.7 million on a loan with a monthly coupon of SOFR plus 900 basis points with a 14% floor, along with $22.5 million on a loan paying an 11% monthly coupon. We also funded a combined $17.4 million across two marina loans at a 13% monthly coupon. On the capital markets side, we raised $60.5 million in gross proceeds from our Series B preferred stock offering. For the full year, we reported net income of $2.09 per diluted share. When we issued our percent notes in October 2020, we were in a zero-interest-rate environment. The new notes carry a two-year term with prepayment flexibility, which positions us well in the declining interest-rate environment. We are pleased with this execution and look forward to terming out the remaining unsecured notes in 2026. On that note, we have $180 million of unsecured notes maturing in May, and we are actively reviewing several options to achieve the best execution and pricing on the refinancing. We also recently launched our Series C 8% preferred stock at $25 per share. Through the end of the year, we sold approximately 80,000 shares for total gross proceeds of $2 million and a total of $14.1 million through today. Lastly, subsequent to quarter-end, we entered into a re-REMIC transaction on our 2017-K62 D/B piece with Mizuho. Under this structure, we are selling the B piece and purchasing a horizontal risk retention tranche, which represents roughly 5.8% of the re-REMICs. This transaction reduces our mark-to-market repo financing. On a go-forward basis, the interest expense savings and reinvestment capacity are expected to be around $0.30 to $0.34 per share accretive to annual CAD. Moving to guidance for the first quarter, debt would be reduced by $75.2 million, and our debt-to-equity ratio would decrease to 0.83x, and the HRR tranche carries an expected yield of 18.5%. Earnings available for distribution are expected to be $0.40 per diluted share at the midpoint, with a range of $0.35 to $0.45. Cash available for distribution is expected to be $0.50 per diluted share at the midpoint, with a range of $0.45 to $0.55. We view this as a compelling example of actively managing our B-piece portfolio to unlock value and improve our capital efficiency. I will now turn the call over to Matthew Ryan McGraner for a detailed discussion of the portfolio and the current market environment. Matthew Ryan McGraner: I am excited to speak to everyone today about NexPoint Real Estate Finance, Inc.'s pipeline and trends in our main verticals. I also want to thank our team here, as Paul just mentioned, and all of our partners for another quality quarter for the business and our shareholders with great execution. As it relates to our main verticals, I am very pleased with our portfolio of assets in this era of major AI disruption. Indeed, NexPoint Real Estate Finance, Inc. has been steady and intentional about our asset selection. Thankfully, NexPoint Real Estate Finance, Inc., and by extension, NexPoint Real Estate Finance, Inc., especially, is not investing in AI scare-trade assets or assets historically levered to these property types. We are intentional about our residential and self-storage exposure, both recession-resilient property types necessary for everyday life. The introduction of AI to these property types has only improved efficiency and margins in these businesses and not rendered them obsolete. Moreover, the demand funnel for our life science collateral is widening to AI companies themselves, which need the purpose-built lab-type buildings to house their compute infrastructure. Our Alewife project is a perfect example. Indeed, the introduction of AI to these property types has only improved efficiency and margins, and the demographic and AI tailwinds are real in elite educational districts producing this AI talent. Even our life science exposures are in first-to-fill assets. Lab and AI tenants could go to older converted assets for half the rent, but they must have the infrastructure and bones of these purpose-built, well-located assets, and they will pay for it. So let me start there with life science. For the quarter, our largest single-asset exposure in life science, Alewife Park, is now 64% leased at a 9% debt yield, with RFPs, LOIs, and leases now totaling 2.8x the square footage of the project. Momentum has materially increased since the Lila leases, and we expect this trend to continue to have the project fully leased in 2026, yielding a debt yield with a 12-handle. More broadly, certainly less expensive alternatives exist in the suburbs or in second-gen space. The first-to-fill buildings in elite academic ecosystems have the infrastructure and specifications tenants require. For one, health, wellness, and longevity of life were already rapidly growing trends before the latest AI disruption. Our basis in our collateral is 30% to 60% below replacement cost for these assets, and that is just replacement cost, let alone the need to justify a profit for a new life science development. In short, we really like our portfolio and where it is positioned, especially relative to comps, and the demographic and AI tailwinds are real. The second tenet of our thesis in leaning in when we did is that new supply over the near term is nonexistent. We believe each of these have a massive tailwind for purpose-built new life science product since the 1980s and do see the new lease inflection this year. On the residential front, we continue to work through the highest supply cycle since the 1980s. I detailed this on prior calls, but just to quickly repeat, we think multifamily rents will inflect positive with most of our market exposure occurring in 2026. We attribute this to four main factors: persistent structural demand; the cost to own a home is three times more than to rent an apartment in our markets; a 60% decline in new market-rate deliveries from the peak; and construction starts running approximately 70% below their 2020 peak, locking in a multiyear supply trough. Advances in health and wellness are adding longevity to the population, creating somewhat of a demographic backstop to demand. On the self-storage front, Q3 REIT earnings came in slightly above expectations, but revenue was flat to slightly negative year-over-year. Q4 and full-year performance are expected to show flat revenue and a 50 to 150 basis point decline in NOI. Occupancy generally remains under pressure, with industry average ending 2025 at 89%, down 210 basis points from the start of the year. The primary culprit is a sluggish housing market as home sales remain near multiyear lows and mortgage rates stay elevated, reducing a key demand driver for self-storage. Rates are the bright spot. However, after two years of falling rates—some down 20% from COVID-era highs—moving rates have been trending up since May 2025 and should help offset some of the occupancy weakness. Also good news: supply remains constrained at just under 3% of existing stock, and material cost inflation and high financing costs are deterring new development. Deliveries are already projected as low as 1% over the next couple of years, which should eventually restore pricing power and return NOI growth to the historical 3% to 5% range. Our NexPoint storage portfolio significantly outperformed the broader industry in 2025, finishing the year at 91.7% occupancy, exceeding its NOI budget by 3.2%, and growing NOI 13% over 2024. Looking into 2026, NOI growth is expected to moderate to 4%, reflecting portfolio stabilization, softer demand, and rate constraints on our two LA properties, but still notably higher than the broader industry. On the SFR and BTR front, fundamentals continue to outperform the broader multifamily segment generally. Our SFR collateral remains some of the best performing within our portfolio, with steady occupancies in the mid-90s, with positive new lease and renewal growth as well. In recent discussion with the agencies, and notwithstanding recent proposed regulation limiting institutional ownership in the sector, Fannie and Freddie remain open to finance build-to-rent assets. Indeed, we believe this is an immense area of opportunity should this void materialize. We have significant relationships and channels available to us to capitalize on these opportunities. We are reviewing approximately $5.555 billion of BTR and $90 million of multifamily product. Again, we are very pleased with the portfolio's performance and look forward to deploying more capital this year in 2026. Again, I want to thank the team here for their hard work, and now we would like to turn the call over to the operator for questions. As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Operator: We will now open for questions. Your first question comes from the line of Crispin Love from Piper Sandler. Your line is live. Ben Graham: Hi. How is it going? Can you hear me all right? Paul Richards: We hear you great. Ben Graham: Awesome. Thank you so much. This is Ben Graham in for Chris Love. Thanks for taking the question. Thank you. When do you believe you could be covering the dividend on a more consistent basis with EAD? I am wondering what the major factors are that are driving the EAD guidance range, and your confidence in the current level of dividend sustainability. Thank you. Paul Richards: Hey. Great getting to talk to you. So, you know, dividend coverage and sustainability—yes, our EAD is a little below our CAD, but the majority of that is, again, the bridge from EAD to CAD and amortization of premium, some accretion of discounts, and depreciation on REO. We believe that CAD is the better indicator of dividend sustainability. We have continued to recommend a $0.50 dividend to the Board, and they have approved it every time. We feel very good on the go-forward, one, from the re-REMIC transaction we discussed; two, from the continued Series C raise and redeployment at a 200 to 400 basis point net interest margin for that number to grow over time as well. We feel well positioned for the future and for dividend sustainability. Matthew Ryan McGraner: I will just add to that. We have consistently out-earned our dividend since our inception and have stable book value. We are going on the offensive and really like our cost of capital again to drive the results that you are seeing here, which, relative to the comps, we think is pretty good. Ben Graham: Awesome. Thank you so much. When you look at your portfolio areas between multifamily, single family rental, self-storage, life sciences, etc., how do you expect the administration's focus on real estate and single-family affordability to impact some of the areas where you are invested? I am wondering what areas you are most excited about today. And then, if I could ask one more question, thank you. Matthew Ryan McGraner: I think, at a time when there was no capital available, we leaned into life sciences when we did last year. Right now, where we are spending the most time is on the BTR and the multifamily front on the new construction and stretched senior side, providing B-notes and selling off A-notes for both new construction and new lease-up deals, both on the BTR front and on the multifamily front. As it relates to the recent proposed regulations, I think it is still too early to tell, but our organization has been involved in some of the regulatory process—if you will, lobbying process—in DC. From our exposure, we feel very good about mainly focusing on built-for-rent assets, which are adding to the housing stock and not detracting from it. We still think that there is going to be a need to provide capital in that space. What is more interesting, and I think more in the bull's-eye of the proposed regulations, are proposals on limiting institutional buyers from purchasing scattered-site SFR. How that all shakes out in terms of the financeability of homes off of the MLS is probably too early to tell, but I think the ABS market on the scattered-site front is still very active and still, I would say, wide open, even post the announcements. I think that market still continues to trade well, and the origination volume is still open. To the extent that it is closed, and scattered-site becomes a little out of favor with the broader lending environment because of political pressure, I do think that is an opportunity for us to enter that market and provide capital and liquidity, because we are obviously very comfortable with it. Ben Graham: Awesome. Thank you so much for taking my questions. Operator: Your next question comes from the line of Jade Joseph Rahmani from KBW. Your line is live. Jade Joseph Rahmani: Thank you very much. Can you touch on the provision for credit loss that took place in the quarter—around $12 million—and what you expect on that going forward? Paul Richards: Absolutely, Jade. This is Paul. We updated our calculation to be, again, more conservative, and now it includes a severe downside scenario to align with our peer group. I would say that one-third of it was just our general reserve component to the CECL provision, and the other, call it, 66% were on deals that we have already taken a CECL reserve on, which were on a few of the pref deals that we spoke about last quarter. On the go-forward expectations, I think we are at that trough, and there really are not any more problem areas on the pref book or in the portfolio. I think this would probably level off in 2026. Jade Joseph Rahmani: Thank you very much. And just on the life science project, which has bucked the trend in the industry of a downdraft in leasing activity, could you give your thoughts as to what the project's specific characteristics are that drove the positive performance? And if you are seeing, outside of this project, any uptick in life science leasing activity that might make you look at other deals in that sector? Matthew Ryan McGraner: Yes, you bet. I would say the Alewife Park project is one of the very few life science, purpose-built, on-grade facilities in West Cambridge on mass transit lines, with all the qualities and infrastructure tenants require. I think when this project—part of it—opened and was CO'd, it was probably into some of the worst market dynamics that we faced historically in life science. Lila Sciences needed space, and we were the only building that could, at that time, house their needs and their infrastructure. Then it is the cluster effect: once you get a good tenant such as Lila, backed by a very well-heeled investor base, those tenants continue to drive more leasing activity, and people want to be around them. So I think we might have gotten lucky, but I will take it. More broadly, across the portfolio, I think activity in the last 30 to 60 days coming out of JPMorgan in San Francisco has shown a lot of optimism. We are seeing more capital, and the CFOs and folks in charge of capital allocation decisions are finally making those decisions. I also think some of the biggest demands are coming from AI-designed life sciences. Whether it is life sciences or AI for life sciences, the widening of the funnel will come from AI. These AI companies with this compute infrastructure need the air quality, the power, and the infrastructure of purpose-built new buildings, and they have to go into purpose-built new buildings with all the specifications. I do not see that waning anytime soon. Jade Joseph Rahmani: Thank you. Thanks. Operator: Your final question comes from the line of Gabe Poguey from Raymond James. Your line is live. Gabe Poguey: Hey. Good morning, guys. Thanks for taking the time. Can you give a little more detail around the loans you made in the quarter—specifically the $22.5 million loan at 11%? I assume the SOFR plus 900 loan is Alewife. Any incremental color around those loans would be helpful. Paul Richards: Sure. As you mentioned, there was the one loan, which was our continued commitment on the Alewife project. The other two loans were roughly $10 million plus for a self-storage deal in Hialeah—very sound, very great attachment point—and a preferred position for two marinas that we really believe in, with the cash flow, etc. The last one covered at 13%. Again, we expect to find these types of deals using more of a rifle-shot approach, as Matthew mentioned, in our sales or pipeline funnels. You can expect to see more of the multifamily and these types of deals in the future. Gabe Poguey: Got it. And then, Matthew, you talked about the potential regulation out of DC, but the opportunity set to go direct on build-to-rent—whether you are that solution capital, pref, mezz, etc. Can you talk about how big that sandbox could be for you as you think about what NexPoint Real Estate Finance, Inc. holistically looks at, what NexPoint Real Estate Finance, Inc. has touched, and how you think about how big that bucket could be over time? Matthew Ryan McGraner: You bet. That is a great question. For our single-family equity business, they have roughly $550 million of BTR under contract and review about $200 million of new build-to-rent construction product in any given month. We are seeing all of that, obviously, in terms of deal flow, and we look at both the debt and the equity. It has been a steady pipeline and an origination funnel for us, and one that we are really trying to get the word out on—with the Walkers and Dunlops, the JLLs, the CBs—and say, “We are open for business on build-to-rent new construction.” We can play up and down the cap stack wherever the opportunity is and take over at CFO financing, or we can finance at CFO. We are not going to go into a greenfield project next to a cow pasture in the middle of nowhere; you have to be smart about the asset selection. We are looking mainly on the smaller side—50 to 125, 150 units—that just feel more like an extension of the community. We certainly think there is plenty to do there in 2026 and beyond. Operator: There are no further questions. I would like to turn it back over to the management team for closing remarks. Matthew Ryan McGraner: Thank you very much for all your interest and participation in NexPoint Real Estate Finance, Inc., and we look forward to speaking with you next quarter. Thanks again.
Operator: Good day, and welcome to the Cheniere Energy, Inc. Fourth Quarter and Full Year 2025 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Randy Bhatia. Please go ahead. Randy Bhatia: Thanks, Operator. Good morning, everyone, and welcome to Cheniere Energy, Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. The slide presentation and access to the webcast of today's call are available at cheniere.com. Before we begin, I would like to remind all listeners that our remarks, including answers to your questions, may contain forward-looking statements, and actual results could differ materially from what is described in these statements. Slide 2 of our presentation contains a discussion of those forward-looking statements and associated risks. In addition, we may include references to certain non-GAAP financial measures, such as consolidated adjusted EBITDA and distributable cash flow. A reconciliation of these measures to the most comparable GAAP financial measure can be found in the appendix of the slide presentation. As part of our discussion of Cheniere Energy, Inc.'s results, today's call may also include selected financial information and results for Cheniere Energy Partners, L.P., or CQP. We do not intend to cover CQP's results separately from those of Cheniere Energy, Inc. The call agenda is shown on Slide 3. Jack A. Fusco, Cheniere Energy, Inc.'s President and CEO, will begin with operating and financial highlights as well as Cheniere Energy, Inc.'s growth outlook. Anatol Feygin, our Chief Commercial Officer, will then provide an update on the LNG market, and Zach Davis, our CFO, will review our financial results, 2026 guidance, and long-term capital allocation plan. After prepared remarks, we will open the call for Q&A. I will now turn the call over to Jack A. Fusco, President and CEO. Jack A. Fusco: Thank you, Randy. Good morning, everyone. Thanks for joining us today as we review our results from the fourth quarter and the full year 2025 and we look forward to 2026. Before we dive into the results and outlook, I would like to take a moment to acknowledge a significant occasion that occurred here at Cheniere Energy, Inc. earlier this week. On Tuesday, we celebrated the tenth anniversary of our first export cargo, a milestone achievement that not only ushered in a new era of prosperity for Cheniere Energy, Inc., but for the U.S. and global energy markets as well. The significance of that first cargo cannot be overstated. In fact, earlier this week, I participated in the Transatlantic Gas Security Summit in Washington, D.C., with Energy Secretary Chris Wright, Secretary Doug Burgum, as well as leaders and ministers from over a dozen countries where the anniversary of our first cargo was commemorated. Getting to the point of that cargo being exported was a Herculean effort. Cheniere Energy, Inc. charted an unprecedented path in order to realize our vision. In doing so, we resolved a myriad of project development challenges, enabling the energy abundance and affordability we enjoy here in America to reach international markets, while rewriting the LNG rule book on long-term contracting by leveraging the vast natural gas resource and in-place energy infrastructure of the United States. Now, ten years and nearly 5,000 cargoes later, we have cemented our position as the industry's gold standard. We lead the U.S. LNG industry thanks first and foremost to the Cheniere Energy, Inc. workforce and their steadfast commitment to safety and excellence, which they demonstrate every single day. We also would not be here today without the unwavering support of our over three dozen long-term customers, construction partner Bechtel, our community partners, regulatory agencies, and financial stakeholders. Together, we have achieved something truly transformative in our first ten years, and we are just getting started. Please turn to Slide 5, where I will highlight our key results and accomplishments for the fourth quarter. We had an excellent fourth quarter operationally, and we generated consolidated adjusted EBITDA of approximately $2,000,000,000, bringing our total for the full year to $6,940,000,000 at the high end of our guidance range. We generated distributable cash flow of approximately $1,500,000,000 in the fourth quarter and approximately $5,300,000,000 for the full year, which is approximately $100,000,000 above the high end of our guidance range. Net income totaled approximately $2,300,000,000 in the fourth quarter. 2025 was a record year for LNG production, totaling 670 cargoes, or over 46,000,000 tons. During the fourth quarter, we exported 185 LNG cargoes from our facilities. This is an increase of 22 cargoes compared to the third quarter as not only did we benefit from additional volumes from Stage 3, production reliability, and the seasonal benefit in production, we also had improved and reduced unplanned maintenance compared to the third quarter as our efforts to mitigate some of the feed gas-related challenges we addressed on the last call delivered positive results across the quarter. Looking ahead to the remainder of 2026, we are on track to set another annual production record aided by the expected completion of the remaining three trains at Stage 3. I am pleased to introduce our 2026 financial guidance of $6,750,000,000 to $7,250,000,000 in consolidated adjusted EBITDA, $4,350,000,000 to $4,850,000,000 in distributable cash flow, and $3.10 to $3.40 in per unit distributions at CQP. These ranges reflect our forecast for higher production in 2026 offset by lower margins on spot cargoes than last year, as well as the start-up of a number of long-term contracts over the course of the year. We look forward to once again delivering financial results within our guidance ranges. The 2020 Vision capital allocation plan we revealed in 2022 has been completed, and in typical Cheniere Energy, Inc. fashion on capital deployment and share buyback, it was completed ahead of schedule. We have deployed over $20,000,000,000 across our capital allocation priorities and have achieved over $20 per share of run-rate DCF. In conjunction with our advanced progress, our Board of Directors has increased our share repurchase authorization to over $10,000,000,000 through 2030 after approving a $9,000,000,000 increase. And lastly, early this morning, we announced a new long-term SPA with CPC Corporation of Taiwan for up to 1,200,000 tons per annum on a delivered basis. It commences later this year and extends through 2050, and will bolster our contracted profile as we continue to grow our platform. This is our second long-term SPA with CPC following the approximately 25-year, 2,000,000-ton SPA we signed in 2018, which commenced in 2021. This SPA is a salient reminder that our product provides customers with long-term visibility through commodity cycles, certainty, and reliable supply in light of the recent volatility in the market, and contracting appetite is not dictated by the trajectory of margins in the front of the curve, but to support the lasting demand for our product for decades to come. I am very proud that CPC has become another repeat long-term customer of Cheniere Energy, Inc. It is clear evidence of how much the market values the reliability and customer focus that has come to define our first ten years of LNG export operations. Turn now to Slide 6, where I will provide an update on our major growth projects. Construction progress on Corpus Christi Stage 3 has advanced to approximately 95% complete, with the substantial completion of Trains 3 and 4 in the fourth quarter. Our forecast for the expected substantial completion of Trains 5, 6, and 7 to occur in spring, summer, and fall respectively is unchanged from our last call but moving in the right direction based on recent progress. I am pleased to announce that first LNG has been achieved at Train 5 this week, supporting that forecasted timeline. On CCL midscale Trains 8 and 9, groundwork and site prep continues, progressing extremely well, with work streams currently focused on concrete piling, piling work is already halfway complete, as well as further materials procurement and spool and steel fabrication. All the piles for Train 8 have been set. Substantial completion for these trains is forecast in 2028. As construction progresses, I am optimistic we have some advancement on that timeline. And nearby at our Gregory Power Plant, work on the planned expansion and interconnect is going well. We are set to optimize our power strategy with a ramp-up of Stage 3 and midscale 8 and 9. The SPL expansion project is our next major growth project, and we are making significant progress along multiple parallel paths advancing the first phase of this project towards FID as our visibility and confidence in this project continues to grow. We have secured significant commercial support for this brownfield capacity expansion, we continue to prepare the CQP complex for conservatively financing the project, and we are working diligently on project cost with Bechtel while advancing the project through the permitting process. We currently expect to be in a good position to receive our permits by the end of this year and make FID on the first phase in 2027. Back at Corpus Christi, our major CCL expansion is advancing well, with the critical path items and FID timeline of a brownfield Phase 1 approximately six months to a year behind the same at SPL. The full FERC application was submitted earlier this month. We have line of sight to accretively grow our LNG platform by approximately 50% from today, meeting the Cheniere Energy, Inc. standard while adhering to our disciplined capital investment parameters, including the Phase 1 expansions at Sabine Pass and Corpus Christi. We are full steam ahead on these development projects and have excellent line of sight to bring both of these projects to life and deliver market-leading contracted infrastructure returns to our stakeholders. With that, I will now hand the call over to Anatol to discuss the LNG market. Thank you again for your continued support of Cheniere Energy, Inc. Anatol Feygin: Thanks, Jack, and good morning, everyone. Before I get into the LNG market update, first some comments about the SPA we announced this morning with our longtime customer CPC. It is not only a core long-term transaction in its own right, but also an all-but-perfect summation of our strategy and value proposition. Like most of the transactions we have executed in this cycle, it is with a repeat customer. Reliable LNG supply is absolutely critical to Taiwan’s rapidly growing economy, and we take pride that CPC put its trust in our ability to perform. It is approximately a 1,200,000-ton contract that is yet another transaction we have executed that extends beyond the middle of this century. We look forward to starting this incremental tranche later this year with our usual unwavering commitment to our multi-decade partner, CPC. It features a number of bespoke components, as buyers continue to value Cheniere Energy, Inc.’s customer-focused tailored solutions. All of the things that set us apart from the competition—safety, operational excellence, customer-first approach, and a stellar execution track record chief among them—have and will continue to contribute meaningfully to our commercial approach and ability to sign contracts like this one that support our disciplined growth plans. Together with constructive LNG market fundamentals supporting a clear need for more capacity, we will continue to leverage our advantages in the market to accretively commercialize our brownfield growth projects and target market-leading multi-decade returns to shareholders. Now please turn to Slide 8. As you can see from the chart on the left, 2025 was another year of generally elevated and volatile spot prices. A key driver supporting the overall elevated prices relative to historical norms was the strong pull on LNG cargoes from Europe as demand rose approximately 27% year over year in the fourth quarter and remained above the levels seen over the past four years. Trade disputes and geopolitical conflicts fueled uncertainty and sent prices soaring at various points throughout the year. Europe set a new annual record for LNG imports in 2025, reaching about 125,000,000 tons, aided by new LNG supply and the replenishment of underground storage inventories, which were approximately 20 BCM at a 14 BCM deficit today, about 25% behind last year, in fact, with a cold snap in January spiking prices once again. European storage levels are once again starting the year at five-year lows, or approximately 140 cargoes. Until additional volumes come to relieve the market, Europe will likely maintain its premium pricing to ensure readiness for next winter. Furthermore, a 17 BCM year-on-year reduction in pipeline from Norway, North Africa, and of course, Russia, were more than offset by LNG imports, as shown on the top middle chart. We expect these drivers will help keep LNG demand in Europe resilient, especially in light of the EU Parliament's vote to ban all residual Russian gas including Russian LNG by 2027. In contrast, Asian LNG imports in aggregate contracted slightly last year, likely as a consequence of the still-elevated levels of TTF spot prices in 2025 incentivizing greater deliveries into Europe. Asia's LNG consumption was down about 4% in 2025, lowered by 12,400,000 tons year on year to 270,000,000 tons but still comfortably within the five-year range for the region. A mix of factors were at play across Asia driving these import levels. Seasonal demand was impacted due to milder weather in the region, while China, the largest and most diverse LNG market in the world, continued to redirect cargoes to markets of higher margin, namely Europe, as it took advantage of its LNG delivery flexibility. While many of the major markets in Asia saw year-on-year declines, China's was the largest, as LNG imports declined 16% or 12,100,000 tons year on year due to muted industrial demand, macroeconomic challenges, and optimizing some of its LNG into higher value markets. Gas demand growth of about 3% in China in 2025 was below the 7% average in recent years. Additionally, higher piped gas flows from Russia, which were up 30.6% year on year, and increased domestic gas production, up 6.3% year on year, also contributed. With that said, as we watched LNG prices fall in November and December and into January, we saw a rapid increase in Chinese LNG imports and active restocking in South Korea, highlighting the at-the-ready price-sensitive depth of demand for LNG. Both of which were partially offset by lower gas burn in Japan. The year-on-year growth in the market area was supported across JKT. LNG imports were up 1.4% or 1,900,000 tons in 2025. We continue to expect robust growth in China's appetite for LNG to become the LNG industry's first market to meaningfully surpass 100,000,000 tons per annum in the medium to long term. In contrast, LNG imports to South and Southeast Asia decreased by 3.8 or 2,600,000 tons year on year. India’s imports were down 7% to 25 MTPA, while those in Pakistan were down 15% to 6.7 MTPA, in large part due to milder weather versus 2024 as well as these being price-sensitive markets. High spot prices, coupled with efforts to reduce gas sector circular debt in Pakistan, led to levy and tariff increases which curtailed LNG imports amid macroeconomic challenges following the devastating monsoon floods of last year. In summary, slightly lower LNG imports year on year across Asia are in large part due to sustained elevated price levels in 2025, but we are steadfast in our expectation that moderating pricing going forward will generate a market increase in gas and LNG consumption, as evidenced by the late-year surge in imports when prices moderated, as well as the continued strength in long-term contracting across the region as counterparties seek to secure and diversify their gas supply into the second half of this century. Additionally, given the record level of U.S. FIDs taken last year, we expect the price trajectory to continue to normalize as supply additions increase. We saw this starting to materialize at the end of 2025 when production from our Corpus Christi Stage 3 trains, among others, began to ramp up in scale and size. Let us turn to the next page to expand on this. We see fairly ratable supply growth over the next five years, which we expect to further moderate and stabilize the forward price outlook to bring the depth of LNG demand to the forefront. These projects are expected to enter service by the end of the decade. Commercial activity in 2025 enabled project sponsors to greenlight over 60,000,000 tons per annum of LNG capacity in the U.S. and about 10 MTPA in other regions, which, along with a few additional projects vying for FID this year, should support a steady stream of supply additions extending into the early 2030s, creating the next LNG supply wave. The escalation between feast and famine in relatively short cycles in the industry in recent decades has made it challenging for price-sensitive demand segments to grow and prosper. This has particularly been the case in the emerging markets of Asia, where there has been limited aggregate import growth since 2021 amid the current multiyear period of low supply growth and high spot prices. The region's price elasticity is clearly illustrated by the correlation between the spot price of LNG and the rate of growth in LNG consumption in the price-sensitive markets in Asia excluding JKT. During the five-year period to 2021, spot prices in nominal terms averaged approximately $7 per MMBtu, and Asia's price-sensitive markets grew imports by a compounded average rate of almost 20%. In contrast, the compound annual growth rate for these same markets dropped to just 1.7% in the period from 2021 to 2025 when JKM averaged $18 per MMBtu. We expect lower LNG spot prices with the coming growth in supply to stimulate demand in these markets over the coming years. While the scale of impact and specific growth drivers vary by market, the overall net growth in each of the Asian regions is expected to be above, and in most cases well above, the levels seen over the past four years. In summary, 2025 marked the end of a multiyear period of low supply growth. We see 2026 as the start of a multiyear LNG supply cycle, one that will improve availability and affordability of reliable supply and in turn stimulate price-sensitive Asian LNG demand that has historically driven this industry. With two long-term contracts signed with two of the largest Asian LNG buyers in the last six months, we continue to do our part to support the long-term energy priorities and long-term demand growth of the region with our flexible and reliable LNG supply. We believe that safely, reliably, and affordably supporting this growth will allow us to capture incremental long-term commitments to fully underwrite much of our growth up to 75,000,000 tons per annum. With over 95% of our capacity for the next ten years contracted, we are well positioned to further execute on our capital allocation strategy through the cycles. We have sufficient contracts in place today in support of our disciplined, accretive brownfield growth strategy. With that, I will turn the call over to Zach to review our financial results and guidance. Zach Davis: Thanks, Anatol. Good morning, everyone. I am pleased to be here today to discuss our financial results and plans going forward. Turn to Slide 11. For the fourth quarter and full year 2025, consolidated adjusted EBITDA was approximately $2,000,000,000 and $6,900,000,000, and distributable cash flow was approximately $1,500,000,000 and $5,300,000,000 respectively. We generated net income of approximately $2,300,000,000. EBITDA came in at the high end of the guidance range, and DCF ended up above the high end of the range despite being close to fully sold out on our open capacity as of the last call. This outperformance can be attributed to further optimization locked in during the fourth quarter, higher lifting margin due to higher year-end Henry Hub pricing, and certain end-of-year cargoes being delivered in 2025 instead of early 2026. Compared to 2024, our 2025 results reflect higher total volumes of LNG produced across our platform, primarily as a result of the substantial completion of Trains 1 through 4 at CCL Stage 3, which resulted in almost doubling our spot capacity year over year from approximately 2 to approximately 4,000,000 tons that we were able to proactively lock in for 2025 at similar levels as the year prior, at over $8 per MMBtu margins on average. The year also benefited from higher Henry Hub pricing and more volume supporting lifting margin, and greater optimization activities upstream and downstream of the sites compared to 2024. These increases were partially offset by higher O&M costs primarily related to the substantial completion of the initial midscale trains at Stage 3 and the major maintenance turnaround at SPL during the year. While we have many significant achievements to highlight from 2025, I am particularly proud of the execution of our long-term capital allocation objectives and the early completion of our 2020 Vision capital allocation plan, ahead of schedule this quarter after a strong 2025. Last year, we deployed over $6,000,000,000 towards accretive growth, shareholder returns, and balance sheet management. We paid out approximately 60% of our distributable cash flow towards shareholder returns in the form of share repurchases and dividends. During the year, we repurchased over 12,100,000 shares for approximately $2,700,000,000, and the fourth quarter was the second consecutive quarter of over $1,000,000,000 in share buybacks. This brought our shares outstanding down to approximately 212,000,000 as of year-end. As of last week, we are down to approximately 210,000,000 shares outstanding, with less than $1,000,000,000 remaining on the $4,000,000,000 share repurchase authorization from 2024, once again highlighting the power of the plan to accelerate to be opportunistic and value-accretive during periods of share price dislocation, representing over $450,000,000 for common shareholders. We remain committed to growing our dividend by approximately 10% annually through the end of this decade, bringing total dividends declared for 2025 to $2.11, while maintaining the financial flexibility essential to our long-term capital allocation plan and our disciplined approach to accretive growth with an investment-grade balance sheet. In 2025, we repaid $652,000,000 of long-term indebtedness, fully retiring the SPL 2025 notes, partially redeeming the SPL 2026 notes, and amortizing a portion of the SPL 2037 notes. Earlier this month, we paid down the remaining $200,000,000 of SPL 2026 notes, leaving us with no debt maturities anywhere in the Cheniere Energy, Inc. complex until 2027. Our strategic management of our balance sheet earned us five distinct credit rating upgrades during the year, highlighting our trajectory to a mid- to high-BBB investment-grade corporate structure. In 2025, we equity-funded approximately $2,300,000,000 of CapEx across our business, including $1,200,000,000 on Stage 3 and deployed over $800,000,000 towards the midscale 8 and 9 debottlenecking project. During the year, we also began drawing on our CCL term loan during the fourth quarter with a $550,000,000 draw. In the context of almost $6,000,000,000 and over $1,000,000,000 funded to date for Stage 3 and midscale 8 and 9, respectively, this highlights part of how we have strengthened the balance sheet over time. In addition, we continue to deploy capital towards the SPL expansion as we progress development and permitting, and CCL expansion projects Jack highlighted, as well as on our Gregory Power Plant at Corpus to support incremental power needs over time as Stage 3 and Trains 8 and 9 are completed. We maintain substantial liquidity with approximately $1,600,000,000 in consolidated cash and billions of dollars of undrawn revolver and term loan capacity throughout the Cheniere Energy, Inc. complex. We are ideally positioned to fund our disciplined growth objectives while retaining significant financial flexibility fundamental to our capital allocation framework. Turn now to Slide 12, where I will discuss our 2026 financial guidance and outlook for the year. Today, we are introducing our full-year 2026 guidance ranges of $6,750,000,000 to $7,250,000,000 of consolidated adjusted EBITDA and $4,350,000,000 to $4,850,000,000 of distributable cash flow, and $3.10 to $3.40 per common unit of distributions from CQP. Compared to 2025 results, these ranges reflect additional production from a full year of operations of Trains 1 through 4 of Stage 3, the substantial completion of Trains 5 through 7 across this year, higher levels of contractedness as several new contracts will commence during the year, and lower margins on spot cargoes as prices have moderated. We also have a one-time benefit from the confirmation of the alternative fuel tax credit in the first quarter, contributing over $300,000,000 to EBITDA and DCF in our cost of sales. Our production forecast remains approximately 51,000,000 to 53,000,000 tons of LNG across our two sites this year, up approximately 5,000,000 tons year over year, inclusive of forecast Stage 3 volumes from Trains 5 to 7 and planned maintenance and resiliency efforts across both sites. With approximately 4,000,000 tons of incremental contractedness in 2026, or approximately 46 to 47,000,000 tons of long-term contracts, approximately 1,000,000 tons of commissioning/in-transit timing volumes, and over 4,000,000 tons of volumes forward sold by CMI to date, which is up from approximately 1,500,000 tons as of the last call. We now forecast less than 1,000,000 tons, or less than 50 TBtu, of unsold open capacity remaining in 2026, underscoring the cash flow visibility of the contracted platform. Despite having little open volumes exposed to the market, consistent with our prior practice of initial guidance, we are introducing these $500,000,000 guidance ranges as results could still be impacted by a number of factors, including variability in our production forecast, the ramp-up and specific timing of substantial completion of Trains 5 through 7 at Stage 3, contributions from optimization activities during the balance of the year, the timing of certain cargoes around year-end, and the impact that Henry Hub volatility can have on lifting margin. As we move through the year and the potential impact of these variables on our financial forecast reduces, we expect to tighten the guidance ranges. Also consistent with precedent, the year-over-year decline in the 2026 DCF guidance range is primarily due to the discrete tax benefit that we had in 2025. Our distribution per unit guidance at CQP for 2026 is wider than it had been last year, as the wider range provides the flexibility to potentially reinvest some of CQP's distributable cash flow towards limited notices to proceed for the 2027. Turn now to Slide 13. We are proud to announce the completion of our 2020 Vision capital allocation plan. We introduced the plan in 2022 with the goal of deploying over $20,000,000,000 of available cash across our capital allocation pillars of shareholder returns, accretive growth, and balance sheet management, to reach over $20 per share of run-rate DCF by 2026, and under that program, we have now surpassed those objectives almost a year ahead of schedule. Under the plan, we repaid approximately $5,500,000,000 of long-term indebtedness, which has led to 22 distinct credit rating upgrades, bringing our issuer rating at CEI from high yield when we started the plan to solidly investment grade today. We deployed approximately $6,500,000,000 towards equity funding our growth CapEx. While most of this spend was for Stage 3, the initial trains of which have come online ahead of schedule, we also funded CapEx related to the midscale Trains 8 and 9 project, as well as development and engineering related to the SPL and CCL expansion projects and CapEx related to our Gregory Power Plant adjacent to Corpus. Most significantly, we redeployed almost $9,000,000,000 towards shareholder returns in the form of share buybacks and dividends. Under the plan, we repurchased approximately 40,000,000 shares, or over 15% of our shares outstanding, for over $7,000,000,000. We also increased our quarterly dividend by approximately 68% since our inaugural dividend in 2021, representing approximately $1,500,000,000 of dividends declared under the plan. Given our accelerated progress under our $4,000,000,000 share repurchase authorization, with only $1,200,000,000 remaining as of year-end and aided by the fact that our LNG platform is over 95% contracted through 2030, our Board of Directors has approved an upsize of our share repurchase authorization to enable over $10,000,000,000 from 2026 through 2030. This $9,000,000,000 upsize to our authorization is a major extension of our comprehensive capital allocation strategy and a clear mark of confidence in our business model's contracted cash flow visibility and our capital investment discipline that has been developed to withstand the cyclicality of commodity markets. We now have the financial strength to not only opportunistically deploy approximately $10,000,000,000 into share repurchases over the next five years—approximately 20% of our market cap—but simultaneously grow our dividend by 10% per annum the rest of this decade and budget for FIDs at the Cheniere Energy, Inc. standard at both sites. The all-of-the-above capital allocation strategy for Cheniere Energy, Inc. remains firmly intact. These initial phases of the SPL and CCL expansion projects, developed to maximize brownfield economics, are expected to bring our total liquefaction capacity up to approximately 75,000,000 tons per year, with a risk-adjusted return profile unmatched in this industry and supported by decades of take-or-pay contracted cash flows from creditworthy counterparties. Accordingly, we are resetting our target run-rate DCF per share to reach approximately $30 by the end of this decade after the full deployment of the repurchase authorization, approximately 175,000,000 shares outstanding, and the completion of the first phases of our brownfield expansions at both Sabine Pass and Corpus Christi. Even before accounting for the growth, we are now in position to reach $25 of DCF per share by simply following through with our upsized share repurchase authorization. As we have done since our first export cargo ten years ago, we will continue to leverage our many advantages to create sustainable and growing long-term value for our shareholders while supplying our global customer base with our secure, reliable, and affordable LNG through cycles and for decades to come. That concludes our prepared remarks. Thank you for your time and your interest in Cheniere Energy, Inc. Operator, we are ready to open the line for questions. Operator: Thank you. If you would like to ask a question, please press star 1. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up question. Again, press star 1 to ask a question. The first question will come from Jeremy Bryan Tonet with JPMorgan. Jeremy Bryan Tonet: Thanks for all the detail today in the slides. Anatol, I want to turn to Slide 9 and the big uptick you see in Asia there. Could you talk a bit more about how demand across Asia from 2026 through 2030 might be influencing the tone of commercial conversations as you look to lock in more supply agreements? And separately, we have seen some weather activity here locally and force majeure from some gas producers, predominantly in the Haynesville. Did that have any impact on Cheniere Energy, Inc.? Anatol Feygin: Sure, Jeremy. Good morning, and thank you. Look, we have always been of the view that moderate prices are good for this industry. As we have said over the last few years, one of the things that we expect to change as this wave of supply moves through the market is that the world will recalibrate its outlook on 2040 and that 700,000,000-ton outlook. But even with the 700,000,000-ton outlook, we do expect—obviously—long-term contract economics have been much lower than spot prices over the last few years, and we think that continues to be appealing. Reliable, stable, very secure product is something that the world will need more of, and we think that our reliability and security of supply are very valuable. Even in the fourth quarter, the world signed over 17,000,000 tons of long-term contracts, primarily driven by Asia. So we are very, very constructive on what global LNG demand is going to look like over the coming decades, and we are proud to be part of that wave, and we will continue to find these core opportunities to work with customers that value our reliability and our security of supply. Jack A. Fusco: Hi, Jeremy. It’s Jack. On the weather-related events, first and foremost, I was really pleased with the way our winter emergency preparedness at the facilities and operating teams were able to position ourselves and take care of the facilities to make sure that there was no harm to either our employees or to any of the equipment. They once again far exceeded storm firm. There was not anything material one way or the other. We saw price blowout and producers declaring force majeure; we were able to manage around that, operate in the system to help support some of the local areas, and it was a slight positive to optimization for the first month of the year. Zach Davis: Yeah, that’s right, Jeremy. Overall optimization for the first month of the year is baked into the guidance we just gave you for this year, but only for January. And just to be clear on how we think about optimization and guidance, if it is not officially locked in, it is not in the guidance. So as things accrue into February and for the rest of the quarter, we will give a clearer update on the May call. We have a ways to go to catch up to the amount of optimization EBITDA that was generated in 2025 for 2026, and that is part of the upside to the current guidance that we just provided. Operator: The next question will come from Spiro Michael Dounis with Citi. Spiro Michael Dounis: Thanks, Operator. Good morning, team. First question just on commercial progress, a bit of a two-part question. As you noted, you have about 10,000,000 tons per annum signed up now to support the next set of growth projects. Does the next SPA that you sign from here start to underwrite the expansions beyond Phase 1 of Sabine and Corpus? And where would you say market LNG contracted margins are right now, especially in light of some competing projects being rationalized? Anatol Feygin: Yes, thanks, Spiro. I would say at this point, the first train of our super brownfield expansions is spoken for, and we have some modest amount of work to do on the second one. Obviously it depends on the economics and on the volume of the SPAs, but I think some single-digit millions of tons still need to be contracted to get us into the right position for Train 2 of the expansions, namely the large-scale train of Corpus that we filed for. In terms of market margins, you are absolutely right—it is a very competitive market. We had over 60,000,000 tons of FIDs in the U.S. last year. A number of those tons are still not contracted, so that is a dynamic we see in the market as well as those few projects that are still trying to get to the finish line. But as you also know, we do our utmost not to compete in that commoditized market of the 20-year CP product, and everything that you will see from us going forward is a relatively bespoke product that receives the premium that we think we deserve for our reliability. Jack A. Fusco: And, Spiro, this is Jack. In my conversations—and in my keynote address—having ten years of export capability here at Cheniere Energy, Inc., over 5,000 cargoes delivered, and never missing a foundation customer cargo means a lot to the JERAs and the CPCs and the POLINs—you can go on and on. Those building gas infrastructure now want to ensure that they get the LNG they need, and the deals that Anatol and the team have been able to execute reflect a premium customers are willing to pay to ensure that reliability. Zach Davis: And the fact that we are well over 95% contracted now, not just through 2030 but 2035, is why we were able to make the announcements we did today. The cash flow visibility is basically unparalleled, solidifying the run-rate guidance—if not better—comfortably within our range. So we are in a good place right now. If someone does not have that in their model—let’s say, the first phase of Sabine—and increased shareholder returns, that $10,000,000,000 of buyback better be finished a lot sooner. Message received. Spiro Michael Dounis: Alright, message received. Second question: Jack, you noted in your prepared remarks that you had already started to benefit on the nitrogen and inert gas side even in the fourth quarter. Last call you indicated a long-term plan to deal with excess nitrogen. Have you beaten that estimate? Would you say you have dealt with that issue, or is there still more to go? Jack A. Fusco: There is still more to go. It is a combination of issues, Spiro. The nitrogen is just an inert gas—it takes up space, so we have to evacuate it. What caused us a hiccup in the third quarter was variability in feed gas with heavies—C12 to be exact. The process engineers and operating folks put their heads together with suppliers and some oil companies, and we figured out different operating modes that are starting to pay dividends. We have adjusted operating modes, and we have been able to buy and inject certain solvents as fast and as much as possible. Some of the capital that Zach referenced is for longer-term resiliency of our facilities to make sure the front end can handle variability in gas coming from anywhere. Zach Davis: And I will credit the whole team that maybe we were at the lower end of production last year in our range, but still got to the high end of our financial guidance as we proactively sold open capacity. Stage 3 progressed really well and came online with four trains, and the optimization came through. This year, the production guidance that stayed intact since last call bakes in a healthy amount of planned maintenance for these resiliency efforts. If that does not take as long, we will update both production and financial guidance. Operator: The next question will come from Theresa Chen with Barclays. Good morning. Theresa Chen: Great to see the continued commercial success in your second DTC SPA. Maybe putting a finer point on the economics of the commercialization process at this point, can you provide any quantitative color on your outlook for the production fees based on your recent success and ongoing commercialization—what would you say is the range at this point? And more broadly, going back to Anatol's comments and the earlier question about elasticity, what evidence of demand elasticity have you seen already in your commercial discussions for long-term contracts, taking into account the significant incremental liquefaction capacity set to enter the market through the end of the decade and beyond? Anatol Feygin: Yes, Theresa. As Zach and I have said for many quarters now, we are very comfortable with the $2.50 to $3.00 range, and we are really doing things above the midpoint of that range. But as we have said to you and others, I cannot tell you that if we needed to contract 20,000,000 tons of additional volumes to get to super brownfield economics and meet our investment parameters, we would be able to maintain that. So to your question and Spiro's, the “market economics” are not at that level; we would say they are below that level for U.S. product. It is our performance, reliability, and commercial engagement—our flawless performance and ability to continue to deliver day in and day out—that give us the ability to capture these premium contracts. On price elasticity, even in the rearview mirror, the LNG market has had periods where in the aggregate it has consumed about 600,000,000 tons. As you look at where price-elastic markets can land, the numbers are comfortably above what we have operating and under construction today. There is well over 1,200,000,000 tons of regas capacity, growing to 1,400 with what is under construction. Markets like Vietnam—obviously from a very small base—grew over 200%, and that market alone will likely be well north of 10,000,000 tons by early next decade. Asia should grow from the roughly 270,000,000-ton level, where it has been stuck due to high prices, to well over 400,000,000 tons as affordable supply—ratably affordable over years—stimulates investment. We remain sanguine, and as long as we keep contracting at those economics and underwriting disciplined expansion plans, we hope the market remains constructive and continues to grow. But we are quite immune from those dynamics given our contracted platform. Theresa Chen: That is very helpful. Thank you. Switching gears, as gas-fired power demand reaches new highs across the U.S., partly driven by growing data center electricity needs, there are concerns that rising LNG exports could exacerbate domestic affordability pressures. What is your view on this? Do you see these dynamics affecting Cheniere Energy, Inc.'s ability to permit and/or commercialize incremental capacity? And how do domestic affordability issues reconcile with LNG's importance as a strategic trade and geopolitical lever for the U.S.? Jack A. Fusco: I will start, then hand it to Anatol. Theresa, it takes us 18 months to two years to get a permit, our pipeline plans are filed with FERC and made public, and then it is another three to four years for construction. In all cases, we buy firm transportation—we have it to all five basins. We process 24/7 and provide stability in cash flow to producers and midstream companies that has never existed before in their lifetime, allowing them to grow significantly. When the first cargo left Sabine Pass in February 2016, U.S. gas production was around 67–68 Bcf/d. Today it is well over 110 Bcf/d, in part because they see the exports coming. Having been on the gas-to-power side most of my career, gas-to-power generally does not like buying firm transportation or paying forward for gas—they prefer interruptible supply at the cheapest price possible to price into real-time markets. That can help in the short term but is not helpful longer term for production growth. We are starting to see that whole paradigm on exports shift in Washington as we explain how the markets really work. Anatol Feygin: Three quick points. One, we do not think we compete for molecules with those incremental demand centers. By definition, they will try to build in places with trapped resource and limited infrastructure to access markets, whereas we rely on points of liquidity—quasi-religion for us as we supply our customers. Two, even the EIA says 2026–2027 will not see the same level as 2024 for gas-for-power, so we think the market may be disappointed by the rate at which gas demand into power grows. Three, for our product and our customers, NYMEX is a pass-through, and we do not expect tremendous competition in the Southwest Louisiana pool that is NYMEX for those molecules. We are optimistic the domestic resource is there to meet all needs, and we are careful about how we approach expansions; our current infrastructure is more than sufficient to avail us of the molecules that we need. Operator: We will go to Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Hi. Good morning. In 2025, there was significant EPC CapEx escalation in LNG greenfield costs. Can you talk about the drivers of that and whether that has begun to moderate? And as a follow-up, is CapEx escalation impacting brownfield projects like yours as materially? Jack A. Fusco: Jean Ann, as you know, we FID’d Trains 8 and 9 and did so within our financial parameters that Zach laid out. We do see some escalation and are working through it with Bechtel. We have managed it by issuing limited notices to proceed on longer lead-time items. At this point, lead times worry me more than inflation. We also optimized our plan to get economies of scale and reduce dollars per ton for both SPL and CCL expansions. We asked for identical repeat trains—another SPL 6 for SPL 7, and another CCL 3 for CCL 4—which should help on all fronts. Zach Davis: And on the math, it is transparent—we file quarterly CapEx and PP&E. We basically have the lowest cost per ton, the best or highest SPAs, the lowest leverage, and the least amount of equity partners. We are well placed for the FIDs of Train 7 and Train 4. We are permitting more than that, but we see a path to hold to the standard by being as super brownfield as possible right now. Jean Ann Salisbury: Very clear. Thank you. Operator: Moving on to Michael Blum with Wells Fargo. Michael Blum: Thanks. In terms of your December FERC filing to increase CCL Stage 3 and midscale 8 and 9 by 5,000,000 tons, can you talk about the timing to achieve that expansion, and how to think about the use case for that incremental capacity? Zach Davis: Those filings reflect continued debottlenecking and engineering of the site that we plan to take advantage of over time. That increment is to accommodate peak production at certain times of the year at Corpus. It folds into the broader story that we will likely FID a train at each site plus debottlenecking projects—that is how we get to 75,000,000 tons. Ideally, a first phase of a Train 4 at Corpus plus other items will make the economics crystal clear as accretive and within our parameters. Michael Blum: Got it. And on the new CPC contract you announced this morning, when do you expect it to kick in during 2026? Anatol Feygin: It starts midyear. Some of how we structure transactions includes flexibility we can take advantage of as we debottleneck. That is why we are a little cagey with the 1,200,000 tons—this is the number for the vast majority of the term, but it includes some flexibility starting mid-2026. Michael Blum: Understood. Thank you. Operator: The next question comes from Jason Gabelman with TD Cowen. Jason Gabelman: Hello. Thanks for taking my question. You mentioned the ramp-up in Corpus Stage 3 is going very well, and it seems like those trains could come online earlier than contemplated in your volume guidance. How do you think about the upside to that volume guidance? And as a follow-up, on additional expansions beyond the very brownfield trains at Sabine and Corpus: Anatol, you mentioned roughly 20,000,000 tons’ worth of SPA opportunities. Do those support the higher margin guidance embedded in your economics, and do they support higher-cost trains beyond the initial brownfield opportunities? Zach Davis: Still early in the year, and note we did not update substantial completion dates of Trains 5 through 7 in guidance. We just achieved first LNG at Train 5 earlier this month. To put some math on it, if all three trains were a month early, at current margins, that is comfortably over $50,000,000 of incremental EBITDA over the year. We are already four-for-four, and it is looking like five-for-five of being early, but in February it is too soon to tell. We will update as trains come online through the year. Anatol Feygin: Jason, to clarify, if we had to do 20, we would not be able—at current “market” levels—to maintain the $2.50 to $3.00 standard. Market economics today are below $2.50. Our performance, reliability, and commercial engagement allow us to capture premium contracts and maintain brownfield economics to meet our investment parameters. Beyond that, it is a step-function change in CapEx per ton that today’s market economics do not support for meeting our parameters. Zach Davis: Jack’s whiteboard got us to 75,000,000 tons, and we will go from there. Jason Gabelman: Got it. Thanks. Operator: Our last question will come from John McKay with Goldman Sachs. John McKay: Hey, thanks for the time. Back to the macros for you, Anatol. On Slide 9 you are showing strong growth for China through 2030. What price do you think underwrites that growth? And on coal-to-gas switching, what is your framework for magnitude? Anatol Feygin: Our guess—subject to hedging—is delivered LNG in the $8 to $9 range against $60–$65 Brent. China is massively fragmented and distributed—dozens of companies, multiple business models and competing fuels. The market is approaching 300,000,000 tons of regas capacity, mostly coastal, and over 200 GW of installed gas-fired capacity. At the right price, it can consume substantial volumes. In 2025, for a host of reasons, it behaved as a quintessential invisible hand and redirected cargoes to where most profitable. At high single-digit delivered prices, we think China comes roaring back like 2018–2019. John McKay: Super interesting. Last quick one for Zach, maybe Jack as well. Latest thoughts on the dividend—where that could grow over time, especially with the $30 per share framing—and how that plays relative to buybacks? Zach Davis: We are following through on what we have said: committed to growing the dividend by about 10% a year through the decade. Over time, we will get to something over a 20% payout ratio—different than most in midstream. Our shareholder return policy is on average 60% of DCF, with roughly 50% of that 60% as buybacks. This flexibility lets us self-fund equity for Stage 3, Trains 8–9, and first phases at both projects, while being opportunistic on buybacks, as we were the last couple of quarters and earlier this year. We like this approach; the 10% compounding gets powerful later this decade. John McKay: That is clear. Thank you. Appreciate the time. Operator: And that does conclude the call.
Operator: If you need assistance at any time, good day, everyone, and welcome to the Standard Motor Products, Inc. fourth quarter 2025 earnings call. All participants are in a listen-only mode during the question-and-answer session. Please note today’s call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the call over to Anthony Cristello, Vice President of Investor Relations. Please go ahead. Anthony Cristello: Thank you, Chloe, and good morning, everyone, and thank you for joining us on Standard Motor Products, Inc.'s fourth quarter 2025 earnings conference call. With me today are Larry Sills, Chairman Emeritus; Eric Sills, Chairman and Chief Executive Officer; Jim Burke, Chief Operating Officer; and Nathan R. Iles, Chief Financial Officer. On our call today, Eric will give an overview of our performance in the quarter, and Nathan will then discuss our financial results. Eric will then provide some concluding remarks and open the call up for Q&A. Before we begin this morning, I would like to remind you that some of the material that we will be discussing today may include forward-looking statements regarding our business and expected financial results. When we use words like “believe,” “estimate,” or “expect,” these are general forward-looking statements. Although we believe that the statements are reasonable, they are based on information currently available to us and certain assumptions made by management, and we cannot assure you that they will be correct. You should also read our filings with the Securities and Exchange Commission for a discussion of the risks and uncertainties that could cause our actual results to differ from the forward-looking statements reflected in these remarks. Eric Sills: Thank you, Anthony, and good morning, everyone. We are pleased with our results. The strong performance we have been experiencing continued into the fourth quarter, putting a cap on a solid year with good momentum heading into 2026. Our top line grew by over 12% in the quarter and over 22% for the year, and while much of this was from our Nissens acquisition consummated in late 2024, excluding Nissens we are up about 4% for the quarter and the year. Strong sales performance combined with various internal initiatives generated a favorable bottom line, both in terms of earnings growth and EBITDA margin expansion. All of our segments performed well. Let me go through them, starting with North American Vehicle Control. Sales were up a very strong 3.3% against a difficult comparison from the previous year, with several key contributing factors. First, our products are non-discretionary and largely DIFM, and so in general, the category outperforms in uncertain economic times. On top of that, we believe our customers’ success with our well-regarded spread is evidenced by their strong sell-through, and their POS was up in the mid-single digits throughout the year. As you look at the subcategories, you will note that the wire sets are a category in secular decline. Wire sets saw a 27% to 10% drop-off in the quarter, bringing the entire representable percent of the segment down to less than 10% of Vehicle Control. As such, certain customers chose to reset their shelves in the second half, right-sizing their inventories for this mature category. It is important to note that their wire set POS for this period was only down in the mid-single digits, which is more reflective of ongoing demand. Lastly, our sales in the segment benefited in the back half of the year as we began to pass through our tariffs at cost. Turning to Temperature Control, robust sales continued, up nearly 6% over a very difficult comp, though the fourth quarter is the smallest in this heat-related business. In a seasonal category like this, the cadence across orders can vary year to year, so the key measure is full-year sales, and for the full year, the segment was up more than 12%. So what is driving this? As we described on the last call, the air conditioning season seems to be elongating, starting earlier and ending later. Customers are recognizing this and getting their inventory in place ahead of the season to be able to take advantage of early demand. We also believe a key driver is the success of our A/C kit program, where we have all you need to do the repair included in a pre-packed kit. Over the last several years, we have seen increased adoption of our kits, which consist of the replacement of several system components. Not only does this increase the ticket due to more of the related parts getting included, but it also leads to an air conditioning repair done right, and it tends to end with a happier end customer as the repairs are more successful. Lastly, think about our newest segment—Nissens Automotive—which has been a part of Standard Motor Products, Inc. since November 2024. We completed our first full calendar year of ownership, and we are delighted with its performance, both in and of itself and as a complement to our other businesses and the synergies it creates. Sales remained strong, contributing $64 million in the quarter and $305 million for the year, with mid-single digit increases from 2024 in local currency. While there are reports from others with business in Europe of a general softening of the market, Nissens continues to excel. We attribute this to three primary dynamics. First, we participate in many of the same non-discretionary categories as in the U.S., which tend to remain stable in difficult economic times. Second, we enjoy strong sales in Eastern and Southern Europe, which have been outperforming other parts of the continent. But most importantly, we are gaining share. Our preliminary focus was on savings and enhanced pull-through by the workshops that seek best cost on sourced products. We are also deeply engaged in seeking synergies—insourcing as appropriate, leveraging our increased purchasing power on freight and logistics, and so on. We are also focused on cross-selling, adding coverage in new categories on both sides of the ocean. And while these initiatives can take time to show in the numbers, they represent exciting opportunities. Lastly, I will speak to our non-aftermarket segment, Engineered Solutions. It operates out of the same plants producing the same product types. It enhances our quality capabilities and access to new technologies. It provides an OE pedigree to leverage in the aftermarket, and while we can expect the segment to be more cyclical than the aftermarket, it can be subject to more volatility than the aftermarket, as it will rise and fall with demands for new vehicles and equipment across our different end markets. Halfway through 2024, business started to drop off, leading to several consecutive quarters of sluggish demand. I believe this trend reversed mid-2025, and we have experienced sequential improvement. Q4 was up about 6% over the previous year, and although the full year was down slightly, the momentum is stable. Over the past several months, we had entered a more stable environment. Finally, let me speak briefly about the current tariff landscape and its impact on our business. In the fourth quarter, our tariff-related costs were essentially offset by price. Obviously, there have been recent changes where certain tariffs are eliminated and new ones take effect. We are digesting the rules, but we have developed processes and methodologies with our customers that allow for this flexing, and we plan to continue to operate from a successful playbook. Further, we believe that our diverse global footprint will continue to provide us with a competitive advantage. The new rules allow continued exemption for USMCA-compliant goods, which is a significant part of our offer. It is worth reiterating that most of our products are non-discretionary, and as product decisions are typically made by professional repair facilities, they are relatively price inelastic at the end consumer, as our sell-through confirms. I will now turn the call over to Nathan Iles for the quarter’s financial results. Nathan R. Iles: Alright. Thank you, Eric. Good morning, everyone. As we go through the numbers, I will first give some color on the results for the quarter by segment and then look at the consolidated results for both the quarter and year. I will then cover some key cash flow metrics and finish with an update on our financial outlook for the full year of 2026. First, looking at our Vehicle Control segment, you can see on the slide that net sales of $193.7 million in Q4 were up 3.3% while being up against a difficult comparison from a year ago when the segment grew 4.9%. While we continue to see a decline in sales of wire, as Eric noted, we were pleased to see the engine, electrical, and safety categories grow a combined 6.3% versus Q4 last year. Vehicle Control’s adjusted EBITDA in the fourth quarter was even with last year at 11.1%. Adjusted EBITDA margin was flat as higher sales volume was offset by some gross margin rate compression from passing through tariffs at cost, as well as some higher distribution expenses as we transition into our new warehouse. Turning to Temperature Control, net sales in the quarter for that segment of $61.5 million were up 5.9% for the reasons Eric said. Temperature Control’s adjusted EBITDA increased in Q4 to 13%, due to higher sales volumes that led to a higher gross margin rate, as well as improved operating expenses as a percent of sales for the quarter. While adjusted EBITDA was very good in the fourth quarter, keep in mind that the fourth quarter profit is generally lower than other quarters, as it is a low point in the year for sales volume. Next, let me touch on Nissens. This fourth quarter was the first time we have year-over-year results, as we acquired the business on 11/01/2024, and so the fourth quarter was up from last year, partly reflecting an additional month of results in 2025, but also continued strength in the segment. Adjusted EBITDA for Nissens increased to 10.1% of net sales in Q4, and the full-year adjusted EBITDA margin of 15.9% was in line with expectations. As this was our first full year of ownership of Nissens, this was the first year we needed to assess the internal control environment of this formerly private business according to Sarbanes-Oxley requirements. As noted in our 10-K filed earlier today, we disclosed that we identified a material weakness in internal controls in our Nissens segment over financial reporting related to its general information technology controls. We are expeditiously taking action to remediate controls as we do a thorough review of all our numbers, and we received a clean opinion from KPMG. Turning to Engineered Solutions, sales in that segment in the quarter were up 6.3%, and we were pleased to see growth return to the segment as we lap market softness that began in the second half of last year. Adjusted EBITDA for Engineered Solutions in the quarter was up from last year, as higher sales led to better gross margin and operating expense leverage. While we did incur some one-time costs related to winding down certain customer programs in the quarter, these were adjusted for non-GAAP reporting. Let me just say we had a great quarter and year. We were pleased to see both the top and bottom line increase in this segment. Consolidated sales increased 12.2%, and adjusted EBITDA increased to 9.7% of net sales in the quarter. Further, non-GAAP diluted earnings per share were up 19.1% as a result of higher sales and the strength of operating performance. For the full year of 2025, our sales increased 22.4% over last year, and 4% excluding Nissens, helped by strong sales in both our North American aftermarket segments. Our adjusted EBITDA was up 160 basis points, and our non-GAAP diluted earnings per share increased 26.8%. We were pleased to see our top line coming right in line with prior expectations, while our bottom line came in above the range previously provided. Turning now to cash flows, cash generated from operations for the full year of $57.4 million was down $19.3 million from last year. Our cash flow was lower in 2025 mainly due to an increase in inventory during Q4 as our business continues to grow and we prepared for the upcoming selling season. Note that part of the increase in inventory is also due to higher tariff costs during the year. CapEx is slightly lower than last year as capital spending related to the DC is nearing completion. Financing activity shows payments of $27.3 million of dividends, as well as $27.7 million of borrowings on our credit agreement. Note that we repaid $51.4 million on our credit from Q2 through Q4, and with that, our net debt stood at $546.7 million. We finished the quarter with a leverage ratio of 2.7 times EBITDA, and believe we are on track to get to our target of 2.0 times by 2026. Before I finish, I want to give an update on our sales and profit expectations for the full year of 2026. Before I do, let me note that our 2026 outlook does not take into account changes in U.S. tariffs on imported goods. We follow changes closely, but things change continuously, creating uncertainty in the market. Whatever the impact is on our business, we will continue to offset our costs with a dollar-for-dollar pass-through in pricing. We expect sales growth in 2026 to be in the low- to mid-single-digit percentage range, driven by continued momentum in North America and Europe and more stable market conditions in our Engineered Solutions segment. Our outlook for adjusted EBITDA margin is a range of 11% to 12% of net sales and reflects margin benefits of sales growth, but also some continued margin compression from passing through tariffs at cost, and continued investment in our business. Regarding operating expenses, keep in mind these expenses are incurred more ratably across the year and as such will fluctuate with seasonality in the business. In connection with our adjusted EBITDA outlook, we anticipate total operating expenses inclusive of factoring will be approximately $106 million to $114 million each quarter in 2026. We expect interest expense on outstanding debt to be about $30 million for the full year and depreciation and amortization to increase to $45 million to $50 million, as we will have a full year of depreciation on distribution center investments. Finally, as noted, there is a seasonal aspect to our business with regard to Temp Control products we sell in North America and Europe. Our preseason can span across Q1 and Q2 with some variability between quarters, and given we saw a large amount of growth in Q1 last year in these products, we will be going up against a difficult comparison in Q1 2026, so it is important to look at the first half of the year in total regarding cadence of sales. To wrap up, we are very pleased with our sales and earnings growth in 2025 and that we can share expectations for further growth in 2026. We continue to execute on many initiatives, including integration of Nissens, and expect to realize increasing benefits from that in 2026. Thank you for your time. I will turn the call back to Eric for some final comments. Eric Sills: Thank you, Nathan. In closing, let me just spend a moment discussing how we are viewing things in 2026 and beyond. Even in the face of a challenging economic environment, we have enjoyed several consecutive quarters of strong performance and believe that this momentum will continue. Within our legacy business, the North American aftermarket, we operate in strong and stable markets and are outperforming due to a combination of structural advantages, customer relationships, and execution. We target the repair professionals with quality products and brands they trust, and these are the folks making the purchasing decisions, creating pull-through to our channel partners. And we nurture our customer relationships with a program they value and with the execution they rely on. We have made great strides in diversifying our business with new product categories, all with the focus on seeking complementary attributes. Our recent geographic expansion with the acquisition of Nissens is exceeding our expectations. They continue to impress us as terrific operators with strong relationships with their customers. They enjoy many of the same benefits I just described for us here, both in terms of market dynamics and their place in it, and the more we work together, the more we are impressed with their team, their capabilities, and our ability to identify opportunities. Our Engineered Solutions business is on the rebound, and while it can be volatile, it is a strong complement to our core business and generates favorable returns. We continue to gain traction with blue-chip customers around the world, leveraging the breadth of our offering and our capabilities. And as we become known, doors are opening for us. And while we continue to see supply chain complexity, we feel that we can navigate it better than most, and so we remain very bullish about the future. We will now open for questions. Operator: Thank you. If you would like to ask a question, please press star one. Our first question comes from Scott Stember with Roth Capital. Your line is open. Scott Stember: Thank you, gentlemen, and congrats on the very impressive results. Eric Sills: Thank you, Scott. Scott Stember: Eric, in Vehicle Control, in the release it says that your filter or POS was essentially in line with what you had seen through the first three quarters. Does that assume that you were up low- to mid-single digits at sell-through? Eric Sills: Yes, that is correct. And if I was unclear on that, I apologize. The POS was pretty consistent really all year long for the big players, which was in the mid-single digits. Scott Stember: Okay. And very strong growth in the business outside of wire. Maybe just talk about some of that. I know you have been much more focused on increasing your portfolio of products earlier in their life cycle and with more complexity in electronics. Maybe just talk about how that is coming about. Eric Sills: Yes, great question. And that is one of the reasons why we do break the subcategories out the way that we do. We have carved out the wire business to show that it does perform differently just where it is in its life cycle. To the other areas where we do continue to see growth, our Vehicle Control offering is extremely broad, expands many, many categories whether it is addressing conventional engines or safety-related products or other electrical products around the vehicle, and what we are seeing is a proliferation of not only SKU opportunities but also replacement rates on some of the newer technologies. So it is an evolving category. It is a growing category. In the aftermarket, nothing moves very quickly, as you know. Scott Stember: Can you talk about cross-selling, new customers introducing to each other, and, I guess, cross-pollination of products? Some of these initiatives? Eric Sills: In the aftermarket, nothing moves very quickly, as you know. But what we are seeing is that there continues to be opportunities for growth across both conventional technologies and some of the newer ones. Since you started by asking about the growth opportunities, let me respond to that. We have a lot in common product categories. So, for example, we both sell air conditioning compressors. What we did over the course of 2025 was to look first at where we saw gaps for us to expand their North American coverage with what we already had, and some opportunities where they had some SKUs that made sense for us to add. But the bigger area that we are excited about is identifying entire categories that one was in and the other was not, and so we added several of these in 2025 for the Nissens offering, some in Nissens Europe and some in Nissens North America, really capitalizing on product strength that Standard Motor Products, Inc. brought to the table. Ignition coils is a really great category here. It is one we are very strong as a manufacturer of. We manufacture them all in Poland, which is a great selling point in Europe for Europe. We launched in December a line of ignition coils. Now it is about getting out there in the market, getting traction—getting some shelf placement with the distributors—so really 2025 was a year of putting the programs in place. We expanded some of their air conditioning subcategories that they were not in on both sides of the ocean. We are excited about the potential. This is really one of the things we came into this acquisition thinking—that while we have a lot of common categories to seek synergies, we also have these complementary categories to add and seek growth. Scott Stember: Got it. And then one more on the cost side of things, and this is the area you have been talking about all year long, as you have looked at commonizing vendors, beefing up those vendors, and figuring out where there are cost-type synergies. You had talked about an $8 million to $12 million run-rate savings by 2026. Are you still comfortable with that? And then a follow-up on the timing of the remediation of the internal control issue in Europe, with both the technical solution and compensating controls. Eric Sills: We came into this saying that we would have a run rate of $8 million to $12 million in savings by 2026. We are very comfortable with that. We believe we are ahead of that. It is important to note this does not all hit the Nissens P&L. This gets spread across the entire enterprise P&L because, as we have seen, the savings can benefit both sides as we each benefit the other in what we bring to the table. Nathan R. Iles: Yep. And, Scott, like I said, we are working on it. I believe we are making very good progress, and we will update you as soon as we can on that front. Eric Sills: Thank you, Scott. Operator: We will take our next question from Bret Jordan with Jefferies. Your line is open. Bret Jordan: Hey. Good morning, guys. Eric Sills: Good morning, Bret. Bret Jordan: You talked about a tough comp in Temperature Control in the first quarter, but could you maybe give us some color as to the cooling season? Eric Sills: What we are seeing is ongoing good preseason order requirements across the customer base. As Nathan pointed out, this can hit the first quarter, it can hit in the second quarter. A lot depends on when we ship. It usually ends up being right at that crossover point. Last year, we did a lot of them in the first quarter. That is why you saw last year’s Q1 was really very strong. This year, we think it is going to be more normalized. Inventories are up slightly, but they are really tracking with how much their sales are up, so they are prepared versus previous years in terms of readiness for the season. Bret Jordan: A couple of the large parts distributors in Europe are talking about private label programs that they are emphasizing. Can you be a private label supplier via Nissens and pick up share if they gain share with private label? Eric Sills: Certainly. We do a little bit of private label there today. We really have been emphasizing our brands, and the majority of our sales there—about 80% or so of our sales in Europe—are under the Nissens brand. We have two other brands: AVA and one that is more dedicated to commercial vehicles called Highway. So each has its positioning within the space depending on customer need. But we do see private labeling as something that is a successful partnership when it works well for both partners, and so if we see opportunities there, we will certainly capitalize on those and pick up share if they gain share with private label. Bret Jordan: And then, obviously, you get good visibility on tariff outcomes here. Is there any opportunity for tariff rebate collection, or are you just not as exposed to some of that Asian import product? Eric Sills: We are in the same boat as everybody else. I think that is still very unclear. If you are asking about refunds from the AIPA tariffs, I think it is still very unclear how that is going to play out. If there is an opportunity, we will certainly avail ourselves of that, but I think we are aligned with what we are hearing in the broader market. Operator: And once more for your questions, that is star one. We will pause just a moment. At this time, there are no further questions in the queue. I would now like to close the Q&A session. Eric Sills: We want to thank everyone for participating in our conference call today. There was a lot of information presented, and we will be happy to answer any follow-up questions you may have. Our contact information is available with Investor Relations.
Operator: Good day, everyone, and thank you for joining us for the Gray Media, Inc. Q4 2025 Earnings Release Call. To signal for a question, please press star followed by the digit one on your telephone keypad. Also, today's meeting is being recorded. I am pleased to turn the floor over to Chairman and CEO, Hilton Hatchett Howell, for opening remarks and introductions. Welcome, sir. Hilton Hatchett Howell: Thank you, operator. Good morning, everyone. As the operator mentioned, this is Hilton Hatchett Howell. I am Chairman and CEO of Gray Media, Inc., and I want to thank all of you for joining our fourth quarter 2025 earnings call. As usual, all of our executive officers are here with me in Atlanta: Donald Patrick LaPlatney, our President and Co-CEO; Sandy Breland, our Chief Operating Officer; Kevin P. Latek, our Chief Legal and Development Officer; and Jeffrey R. Gignac, our Chief Financial Officer. And joining us for the first time is Alan Steven Gould, our newly appointed Vice President of Investor Relations, who many of you know from his prior role as a sell-side analyst. Alan joined us in December, and we are thrilled to have him on board. We will begin with a disclaimer that Alan will provide. We believe his insights will help us better engage with investors at a time when much is changing in our business. Alan Steven Gould: Thank you, Hilton. Good morning, everyone. I want to say how thrilled I am to join Gray Media, Inc. and work with this outstanding team. After many years as a sell-side analyst covering the media industry, I have tremendous respect for what Gray Media, Inc. has built and the strategic direction Hilton and the team are charting. Today, we filed with the SEC our Form 8-K, our fourth quarter earnings release, and updated slides. Later today, we will file with the SEC our annual report on Form 10-K. Net retransmission revenue and certain leverage ratios are among the non-GAAP metrics we may reference. These metrics are not meant to replace GAAP measurements but are provided as supplements to assist the public in its analysis and valuation of our company. Further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on our website. All statements and comments made by management during this conference call, other than statements of historical facts, should be deemed forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements as a result of various important factors that are contained in our most recent filings with the SEC. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. I now return the call to Hilton. Hilton Hatchett Howell: Thank you, Alan. Today, we are very pleased to announce that our results for 2025 compared very favorably to our previously issued guidance for both revenues and expenses. Total revenue in 2025 was $792 million, above the high end of our guidance for the quarter. Total operating expenses before depreciation, amortization, impairment, and gain or loss on disposal of assets in the fourth quarter were $618 million, which was $5 million below the low end of our guidance. Notably, within these results, our broadcasting expenses actually declined as compared to fourth quarter 2024. On a full-year basis, broadcasting expenses declined by $78 million, or about 3%, in 2025 as compared to 2024. Net loss attributable to common stockholders was $23 million in 2025. Adjusted EBITDA was $179 million in 2025. Political advertising revenue of $12 million finished above our expectations for an off-cycle period. There is one particular item I would like to highlight from our fourth quarter financial results: our net retransmission revenue, which is our retransmission revenue less our network affiliation fees, returned to growth in 2025 as compared to 2024. You have heard us talk in prior quarters about the need to create a more sustainable model in light of subscriber trends. Returning to growth in net retrans is a clear sign of progress on this multiyear effort. On a full-year basis, our net retransmission revenue stabilized at $547 million in 2025, similar to 2024. In addition to these operating results, we have now completed our recently announced acquisition of WBBJ-TV in Jackson, Tennessee from Vaheckel for $25 million. We are continuing to work towards regulatory approvals and expect to close our other announced transactions in the next several months. We also continue to make progress in strengthening our balance sheet during 2025. We opportunistically issued a $250 million add-on to our second lien notes through a private placement. Now I will let Jeff provide additional details on that opportunistic transaction. We are entering 2026 poised to close our delevering M&A transactions, and we expect to both reduce our debt and leverage ratio through what we believe will be a fantastic 2026 political cycle for Gray Media, Inc. Our newscasts continued to attract engaged local audiences in 2025, we continue to enhance our local content offerings and have won prestigious journalistic honors, including a total of 10 national Edward R. Murrow Awards, the most of any media company in the United States. This honor underscores the culture of journalistic excellence that is across our company. We have added a number of local and regional live sports broadcasts throughout our portfolio. InvestigateTV premiered its third season in September and also launched a multiplatform project to educate viewers about AI. Yesterday, we announced a new program called Aging Untold that will launch across our footprint next week. This new series features a panel of experienced industry professionals offering insight and solutions for people entering a new chapter of life as well as their families and caregivers. We believe the program addresses the most important lifestyle topics that nearly everyone faces now or will soon face, and yet no one is really covering in-depth. We have also continued to renew and expand our local professional sports portfolio. And another example, just yesterday, we reached an agreement to broadcast an additional five A’s baseball games and will now broadcast 20 A’s games in Las Vegas. Meanwhile, our digital team is now very busily rolling out the transition of all of our digital apps and websites to the Quick Play platform powered by Google Cloud. This personalized streaming platform will revolutionize how our viewers find and connect with our content, and we are honored and excited to be Google’s first broadcast partner for Quick Play. In December, we renewed our affiliation agreement covering our 54 NBC markets for three additional years. Earlier this month, we renewed and expanded our Telemundo portfolio to include 47 markets, reaching 1,600,000 Spanish-speaking households. This was good timing with NBC hosting a very successful Super Bowl and the Winter Olympics, and the NBA All-Star events all this month, and with Telemundo providing the only Spanish-language broadcast for both the Super Bowl and this summer’s FIFA World Cup. Finally, we are continuing our efforts to bring in the right development partners to further monetize our investment at Assembly Atlanta. Our net capital investment in Assembly in 2025 was essentially zero. But we expect to have more announcements about the next phase of development as we move through 2026. One additional issue I would like to add is that we have struck a deal with Intense Tennis that will begin actually competing in June, and we will be carrying it here locally in Atlanta and on our Peachtree Sports broadcasting network. 2025 was a pivotal year for Gray Media, Inc. We are excited about entering 2026 on a firm foundation that will lead to enhanced value for all our stakeholders. At this time, I will turn the call over to Pat to address our operations. Donald Patrick LaPlatney: Thank you, Hilton. Fourth quarter core advertising revenue started strong in October, which was up low double digits versus a comp from 2024 that included significant political displacement, including financial, health, and home improvement. Finished the quarter slightly above the high end of our guidance, up 3% compared to 2024. In terms of our core advertising categories, we saw continued strength in services; legal again showed strong growth in Q4, and that trend continues as we look ahead to our guidance for 2026. There was also a nice pickup in gaming and lottery/gambling in the fourth quarter that is also reflected in our Q1 2026 guidance. Automotive finished fourth quarter down low single digits. Recall that in 2025, we were down 8% primarily on tariff uncertainty. For the full year, core finished down 3%. And it is encouraging that 2025 finished in positive territory versus the second half 2024. And our new local direct business continued to grow low single digits over the same period in 2024. Digital continued its healthy growth in the fourth quarter, up low double digits. Our sales teams continue to perform admirably in a challenging environment. Political ad revenue exceeded our expectations in fourth quarter 2025. Our guide for 2025 was $7 million to $8 million and our actual results came in at $12 million. Once again, we saw some revenue from issue advertisers supporting the President’s legislative priorities. We also saw good results in Virginia from the 2025 state governor and attorney general races. Our first quarter 2026 guidance is for core ad revenue to be approximately flat with 2025. Super Bowl generated $11 million on our 54 NBC affiliates and 47 Telemundo affiliates in 2026, compared to $9 million on our FOX affiliates in 2025. We will also benefit from the Winter Olympics on NBC in 2026, and 47 Telemundo affiliates in 2026. We are excited about the upcoming midterm election season. Across categories in the first quarter, as I mentioned before, legal services and lottery/gaming are bright spots. We are also seeing signs of improvement in auto, which is currently flattish. We estimate that our net revenue from the Games will contribute $15 million in the quarter versus $8 million during the 2022 Games. Our first quarter 2026 guidance for political is to be $25 million to $30 million, which compares to $26 million in 2022, which is a comparable period for the 2026 midterm elections. The map in 2026 looks to be very favorable for our TV station footprint, with all 10 competitive Senate races, nearly all of the 13 competitive gubernatorial races, and countless other competitive races in markets where we operate top-ranked local news stations. Jeff will now address the key financial developments. Jeffrey R. Gignac: Thanks, Pat. As Hilton mentioned earlier, we made further progress on our balance sheet during the fourth quarter. We completed a $250 million add-on to our 9.58% second lien notes at 102 and used a portion of the proceeds to call $125 million of our 10.5% first lien notes at 103. We finished fourth quarter with over $1.1 billion in liquidity and $232 million in availability under our open market debt repurchase authorization while also reducing our interest cost. Our leverage metrics at year-end 2025 were 2.43 times first lien leverage ratio, 3.65 times secured leverage ratio, and 5.8 times total leverage ratio, each using the calculation in our senior credit agreement. We expect that our delevering M&A transactions together with political revenue in 2026 will help us make significant progress on our leverage during 2026. Our expense reductions are once again reflected in our results. In 2025, our broadcasting station operating expenses, excluding network affiliation fees, were down $10 million, or 3%, compared to fourth quarter 2024. Let me elaborate a little bit more on net retrans as this is important to understanding our financial picture. Hilton mentioned the return to growth in fourth quarter 2025 versus fourth quarter 2024. In fourth quarter, our network affiliation expenses declined by 13%, while our retransmission consent revenue declined by 7% versus fourth quarter 2024. Remember, the WANF moving to an independent station affected both the revenue and expense sides of the net retransmission equation starting in third quarter 2025. That also means that our results are not comparable to our peers when you look at these numbers in isolation. Fourth quarter 2025 is the first quarter where the full impact of that change is reflected in our results. Our fourth quarter guide was for a slight decline in net retransmission revenue, but we ended up with growth in net retrans of about $4 million, which is largely attributable to better-than-expected subscriber trends. For the full year, net retransmission revenue finished at $547 million in 2025 versus $550 million in 2024, which is essentially flat. Our first quarter guide of $148 million to $156 million indicates that we expect continued modest growth in net retransmission revenue. And without giving a full-year guide, our current expectation is that net retransmission revenue will grow slightly for full year 2026 as compared to 2025. You will also notice that we are guiding Q1 broadcasting expenses to be down 3% at the midpoint versus 2025. This would be a similar decline to full year 2025, but less than the 7% year-over-year decline reported in fourth quarter 2025, which is primarily due to the timing of certain annual expenses as well as normal inflationary adjustments at year-end. We finished 2025 at $74 million of capital expenditures excluding Assembly Atlanta, which is in line with our revised guidance. Net of reimbursements related to public infrastructure at Assembly Atlanta, our net capital investment in Assembly Atlanta during 2025 was $1 million. We currently estimate that our 2026 company-wide CapEx will be approximately $140 million as we take advantage of bonus depreciation during political years. For some context, we have historically invested about $25 million more during political years. For 2026, the increase will be a little more than usual. We will also have several building-related construction projects within the TV business that we intentionally scheduled to coincide with our stronger cash position this year. This concludes my prepared remarks, and I will return the call back to Hilton. Hilton Hatchett Howell: Thank you, Jeff. And now, operator, we will open up the call to any questions that anyone may have. Operator: Thank you, gentlemen. And to our audience listening today, a reminder that it is star and one on your telephone keypad if you would like to join today’s question queue. Reminder also, if you are joining today on a speakerphone, initially we ask that you limit yourselves to one question and one follow-up. And then if you have additional, you are invited to resignal using star and one. We will hear first today from the line of Daniel Louis Kurnos at Benchmark. Daniel Louis Kurnos: Great. Thanks. Good morning. Nice results, guys. Outside of Nexstar, I mean, we will see a lot of moving pieces there. But if it does get done, Nexstar after the tweet seems pretty confident they are going to get their deal done by the end of the second quarter. If Hilton, just first for you, I have been asking everybody this. Does that change the way that you guys think as assets become available? It takes some of the risk off the table. The change had you guys maybe approach anything either larger, more transformative in addition to all of the accretive stuff you have already done? And then, Jeff, just a quick one for you. Appreciate the color on net. I know there is going to be timing delta with when you guys have renewals, but is modest growth in net retrans the right way to think about the trajectory from here on out with just some lumpiness in years when you do not have renewals? Thank you. Jeffrey R. Gignac: I will tackle the question for me first. So, yes, Dan. We have talked about the multiyear effort to get to a sustainable model on the net retrans side, which would start to look maybe more like inflationary growth type of arrangement. So that is what we are—that is, I think, the right way to think about that. Hilton Hatchett Howell: I am happy about it. I can reiterate Nexstar’s optimism about our own transactions. We have five different transactions before the FCC and the DOJ, and we are very optimistic about getting that closed, hopefully, very early in 2026. And then with regard to, you know, if Nexstar-TEGNA closes, sure, that will present a number of issues competitively. And it may put a little impetus on our company to get larger. But that is something that the whole industry is just going to have to take a look at. I wish Nexstar all the best. They, like we, believe that consolidation is important for the industry because it is critically important that we maintain local news in all of the markets, all the 210 markets across the United States. And as our industry faces broader competition from the massive companies, from Google to Meta to all the rest, getting larger is an absolute requirement. So, you know, we are delighted that they are optimistic, and I am personally looking forward to clarity in terms of what the rules are because you hate to launch a deal and then not be able to get it to completion. But we have got new optimism on that potential. Operator: Great. Thanks, Hilton. Thanks, Jeff. We will move forward to the line of Steven Lee Cahall at Wells Fargo. Steven Lee Cahall: Thanks. So a couple of questions pertaining to leverage. So, you know, Jeff, you said significant progress to leverage in 2026. I think the M&A deals you have announced are about a quarter turn of deleveraging. I think about something that sort of rounds to four times as, like, what significant progress means and if it maybe could get you towards that ZIP code to unlocking your equity value. And then sort of a bigger-picture follow-on, you know, you have done a lot to bring down leverage. But it is gradual. You know, an equity merger with synergies could do that in a much shorter amount of time or to a greater extent. I know you are being very patient and deliberate in terms of looking at those types of transactions. But could you just give us an update on the state of industry conversations between maybe yourselves and other levered broadcast and how we should just think about that continued opportunity? Jeffrey R. Gignac: Steven, we are not going to talk about private conversations. We have consistently said that we are—we will look at any transaction that we think makes sense for us and whoever the partner is. From the announced M&A, yes, about a quarter turn. If you could tell me exactly what the political number is going to be this year, I could give you a pretty good direction on exactly where we will land. But when I say progress, we have been pretty clear in our actions about what we are doing on the leverage side: managing the top of the capital structure, making sure we are proactive in having the runway that we need. We know the longer-term objective is to get back towards that four times. So now we have this political cycle plus the next one before our next maturity. We will continue to be judicious in lowering the quantum of debt outstanding and proactively addressing maturities as we have in the past. And then, so that is another avenue to help us accelerate that deleveraging. Steven Lee Cahall: And if I could squeeze in a quick follow-on, I certainly get the constructive direction of net retrans. Just to help us understand since WANF is in there right now, would it look even better if the WANF noise was not in there in 2026? Jeffrey R. Gignac: Look, WANF is in there, so I cannot speculate about what it would look like if it were not. It was all part of a broader negotiation, and you are seeing the results of not just that but a whole bunch of other negotiations that are out there and, importantly, the improving subscriber trends. So it is hundreds of contracts, like we have talked about, that all result in the number. And part of the reason we went to giving that number is both the gross retransmission revenue and the network costs create a lot of noise for us relative to peers. But the point here is that our net is getting back to growth, which is critically important. Part of what we have been doing is chasing the denominator because of the drag from net retrans. So that is also why we are pointing people to that, because that will also help us as the denominator flattens out and hopefully returns to growing here in the not-too-distant future. All of that will help us get to a better spot from a leverage point of view. Operator: Our next question today comes from the line of Aaron Watts at Deutsche Bank. Aaron Watts: Hi, everyone. Thanks for having me on. I had two questions, if I may. The first on advertising. Can you just talk a bit more about the health of the core ad backdrop? Based on what you are seeing so far in the year, what optimism do you have that core ad can grow as you move through 2026, acknowledging your first quarter guide and the robust political that is going to roll through? Donald Patrick LaPlatney: Yeah. So look, Aaron, it is Pat LaPlatney. I think given the large expected political, looking for growth in this kind of year can be challenging. And in Q1, we are calling it flat. Obviously, we have a lot of NBC affiliates. The month of February for us has been pretty strong with the Olympics and the Super Bowl. You have to remember that we also have non-NBC affiliates too. It is helpful. We are optimistic about the market, but we have to be fully aware that political is going to get really, really heavy once you get into August, September. And so that is going to impact the core numbers. Aaron Watts: Okay. That makes sense. And then if I could just ask one more: The potential for the NFL to reassess its TV rights this year has raised some concerns around economics and also potential dilution of content to digital platforms. Do you still view this potential renegotiation as an overall positive for the space and for Gray Media, Inc.? And I guess specifically on the side, you just renewed your affiliation agreement with NBC, who is in the midst of their first season with the NBA. Any learnings from that renewal that can be informative of how sports rights price increases absorbed by the networks might trickle down to the local affiliates? Like yourselves. Kevin P. Latek: You know, in general, extending the NFL contracts is a big, big positive for the industry. The NFL is a huge driver of audience for our TV stations. Keeping the NFL on broadcast is critical, and we fully believe that will happen. There is a lot of speculation out there—speculation around the platforms coming in, picking up a package. I am not going to comment on the NBC–NBA deal or anything else that is out there. It is a negotiation at the end of the day. I mean, there is going to be dialogue around how sports rights work their way through the ecosystem like they always do. I am not sure you can compare one directly to another, but net-net, keeping marquee sports on broadcast remains a positive for affiliates and viewers. Operator: Thanks. Craig Huber with Huber Research Partners, your line is open for our next question. Craig Anthony Huber: Great. Thank you. Just a housekeeping question. You said a few times here that your subscriber trends for retrans have improved. Can you just quantify that for us? I mean, how much better was the year-over-year that impacted your revenues in the fourth quarter versus how it was trending a year before? How much better is it, please? Kevin P. Latek: Hi, Craig. This is Kevin. We have not disclosed subscriber numbers, I think, ever. What we have said is our trends are similar to what is reported publicly for the ATV industry, given that we are fairly well dispersed from large markets to small markets. There are still declines overall in our ATV subs, but the rate of decline has slowed. We are seeing some improvement in the traditional MVPDs. There are still increases in virtual MVPDs. The net result is that there is still a rate of decline, but the rate of decline has slowed. Hilton Hatchett Howell: And I am not sure any other companies are providing much more clarity than that. So we are not going to provide more detail on that, and I do not think any of our peers are either. We pretty well disperse with the U.S. population. We have markets from Atlanta, Georgia to North Platte, Nebraska. So we are similarly situated to the broader ecosystem. Craig Anthony Huber: Okay. And then the second question on Atlanta Assembly, just update us, if you would, then as I typically like to ask you: How much money have you put into it on a net basis so far? The overall net cost of that project, and how much further out do you think until you will start to get a real proper return off that in terms of leasing out the space, etcetera, that you will be happy with versus that overall cost. Much further out is that that you think at this stage? Hilton Hatchett Howell: This is Hilton. We actually will have a number of transactions that we will likely be announcing through the course of 2026 that are not producing, you know, that we purchased when we bought the General Motors plant. And right now, we have got 80 plus or minus acres. And we have got a lot of potential joint ventures that will be opening up there soon, and we will be announcing. But right now, we cannot say too much about that one way or another. Jeffrey R. Gignac: To answer the other part of your question, Craig, it is around $630 million as of 2025, net of all of the reimbursements that we received through the end of the year. Craig Anthony Huber: That is a net number, right? Jeffrey R. Gignac: Net of reimbursements, yes. Craig Anthony Huber: Okay. Great. Thank you. I do have a follow-up. On the AI front, can you just give us some examples of how AI is helping you from a cost efficiency standpoint? Speed of what you guys provide on your services—news, advertising, etcetera. What is the benefit of AI so far? What are the examples that you are most excited about that you are implementing? And if it is not replacing human beings, how would you categorize that? I assume it is too hard to figure out how much potential cost savings it may have at this stage on an annual basis? Sandy Breland: We are seeing benefits really across the company. We unveiled our own app, Gray AI—sort of our own ChatGPT, if you will—and we are really finding it allows us to be much more efficient for time-consuming tasks, things that can be automated. For journalists, for example, it can help in converting a broadcast story to a story that will air on or run on other platforms. So things that previously would take hours can literally be done in a matter of minutes, allowing our journalists to spend more time on their important work of reporting and enterprise reporting. One thing to note, though, is that our internal policy is any final product is signed off on by a human. That is really important to us. But it certainly has allowed us to be much more efficient. And even in things like sales—prospecting, for example—the opportunities there allow us to really focus on the important core work and free up time for that work. It is a little early to quantify annualized cost savings. Quite honestly, we have really been using it to make us more efficient, more productive, and more responsive to our communities. Hilton Hatchett Howell: Listen. The way we are using Gray AI across the company is like having a thousand extra interns that we are not paying for. There are a lot of mechanical tasks like building a sales pitch or converting a story for the web or building and adding information to databases that people do that takes away from their creative energies. And if we could offload that to an intern—or a thousand interns—we would do that. And just like our intern policy, everything gets reviewed by a Gray employee before it becomes final. So if you want to talk expense savings, it is like saving the cost of a thousand interns. It is making us more productive, but we are thinking about this as efficiency to provide better, faster, more, and not about saving money. But it is one way to quantify a cost—it is like saving the money on a thousand interns. Operator: And we thank each of our audience members who shared their questions and comments today. Mr. Howell, I am happy to turn the floor back to you, sir, for any additional or closing remarks that you have got. Hilton Hatchett Howell: Thank you. So in closing, our fourth quarter was very busy, and we accomplished numerous objectives like the rest of 2025, and that will have long-term benefits for our company. We will continue to take actions to enhance our value for advertisers, our investors, and for the communities we serve. We thank everyone for joining the call today, and we look forward to our Q1 call coming up soon. Thank you. Operator: Ladies and gentlemen, this does conclude today’s Gray Media, Inc. Q4 2025 earnings conference call. We thank you all for your participation. You may now disconnect your lines.
Operator: Joining us today are Gregory S. Marcus, Chairman, President, and Chief Executive Officer, and Chad Paris, Chief Financial Officer and Treasurer of The Marcus Corporation. As a reminder, this conference is being recorded. An operator will be happy to assist you. At this time, I would like to turn the program over to Mr. Paris for his opening remarks. Please go ahead, sir. Thank you, Drew. Chad Paris: Good morning, and welcome to our fiscal 2025 fourth quarter conference call. I need to begin by stating that we plan to make a number of forward-looking statements on our call today, which may be identified by our use of words such as “believe,” “anticipate,” “expect,” or other similar words. Our forward-looking statements are subject to certain risks and uncertainties which may cause our actual results to differ materially from those expected or projected in our forward-looking statements. These statements are only made as of the date of this conference call, and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. The risks and uncertainties which could impact our ability to achieve our expectations identified in our forward-looking statements and our fourth quarter results, are included under the headings “Forward-Looking Statements” in the press release we issued this morning announcing Form 10-Ks, and in the “Risk Factors” section of our annual report, which you can access on the SEC’s website. Additionally, we refer you to the disclosures and reconciliations we provided in today’s earnings press release regarding the use of adjusted EBITDA, a non-GAAP financial measure, in evaluating our performance and its limitations, a copy of which is available on the Investor Relations page of our website at investors.marcuscorp.com. All right. With that behind us, this morning, I will start by spending a few minutes sharing the results from our fourth quarter and the full year, and discuss our balance sheet, liquidity, and capital allocation, and then I will turn the call over to Gregory S. Marcus who will focus his prepared remarks on where our businesses are today and what we see ahead for 2026. We will then open up the call for questions. This morning, we reported a quarter of solid execution and results, with both divisions delivering year-over-year revenue and earnings growth and outperforming their industries. In theaters, a film slate that featured a favorable film mix coupled with strong per-cap growth drove meaningfully improved market share. In hotels, our renovated properties were winning in their markets, attracting increased leisure demand at higher rates that drove our RevPAR outperformance, capping a record revenue and EBITDA year for the division for the 2025. Turning to the numbers and starting with a few highlights from our consolidated results, we generated consolidated revenues of $193,500,000, a 2.8% increase compared to the fourth quarter last year, with revenue growth in both divisions. Our fourth quarter operating income of $1,700,000 was negatively impacted by $5,200,000 of non-cash impairment charges in the theater division, which are excluded from adjusted EBITDA. Excluding the charges, our fourth quarter operating income was $6,900,000, growing 5.2% compared to operating income of $6,600,000 in 2024, excluding impairment charges and nonrecurring expenses in the prior year. We delivered $26,800,000 of consolidated adjusted EBITDA, a 3.6% increase over the prior-year fourth quarter. There is one unusual item in the fourth quarter below operating income that impacted our net earnings and earnings per share that I would like to highlight. Our fourth quarter and full-year income tax benefit includes an approximately $7,600,000, or $0.24 per share, benefit from federal and state historic tax credits earned related to the completion of the Hilton Milwaukee renovation. The impact of the credits is excluded from our adjusted EBITDA operating results. For the full year fiscal 2025, consolidated revenues increased just over 3% from the prior year with revenue growth in both divisions. Consolidated operating income for the year was $17,100,000. Excluding the fourth quarter theaters impairment charges, full-year operating income was $22,200,000 compared to operating income of $25,900,000 in fiscal 2024, excluding impairments and nonrecurring expenses in the prior year. Finally, adjusted EBITDA for the full year decreased 3.1% to $99,300,000. Turning to our segment results, I will start with theaters. Our fourth quarter fiscal 2025 total revenue of $123,800,000 increased 2.2% compared to the prior-year fourth quarter. It is important to note the shift in our fiscal calendar favorably impacted our revenue and attendance comparisons over the prior-year periods. Our fiscal year ended on December 31 this year compared to December 26 in fiscal 2024, resulting in five additional days in our fiscal fourth quarter during the busy week between the holidays compared to the prior year, while removing four days in late September when business is slower, and resulting in one net additional operating day for the quarter. The shift in our fiscal calendar and additional days between the holidays had a 6.8 percentage point favorable impact on admissions revenue growth and a 6.4 percentage point favorable impact on attendance growth compared with the prior-year fourth quarter. On a calendar quarter basis in both periods, comparable theater admission revenue increased 6.1% over 2024 with a more favorable mix of family films that played well in our markets. Comparable theater attendance decreased 5.7% in 2025 compared with the prior-year fiscal fourth quarter, while on a calendar quarter basis in both periods, comparable theater attendance decreased 12.1%. Average admission price increased 12.7% during 2025 compared to last year and was positively impacted by strategic ticket price optimization actions implemented during peak demand periods, changes to promotions during the holiday periods, and a higher mix of 3D tickets. According to data received from Comscore and compiled by us to evaluate our fiscal 2025 fourth quarter results using our comparable fiscal weeks, U.S. box office receipts decreased 1.5% during our fiscal 2025 fourth quarter compared to U.S. box office receipts in 2024, indicating our theaters led the industry, outperforming by approximately 7.6 percentage points. We believe our outperformance is primarily attributed to our strategic pricing actions with the slightly less concentrated film slate resulting in less than a one percentage point decrease in overall film cost as a percentage of admission revenues for the fourth quarter. For the full year, film cost as a percentage of admission revenues was flat compared to fiscal 2024. Per-capita concession, food and beverage revenues increased by 7.2% during 2025 compared to last year’s fourth quarter, which was driven by increases in incidence rate, higher merchandise sales, concessions pricing changes, as well as a favorable film slate that featured multiple titles appealing to family audiences, a genre where our circuit typically performs well. Our top 10 films in the quarter represented approximately 70% of the box office in 2025 compared to approximately 75% for the top 10 films in the fourth quarter last year. On the higher revenues, theater division adjusted EBITDA was $24,100,000, just under a two percentage point increase compared to the prior year. Reimbursements were $60,400,000 for 2025, a 5% increase compared to the prior year. Turning to the hotel division revenues and results, RevPAR for our owned hotels grew 3.5% during the fourth quarter compared to the prior-year quarter, driven primarily by higher revenues, as our newly renovated hotels continue to attract demand and drive higher rates. Our properties continue to perform well against the industry as a whole. Average daily rates grew 5.6% during the fourth quarter compared to the prior-year quarter, with our average occupancy rate for our owned hotels at 60.2% during 2025, a 1.2 percentage point decrease in our occupancy rate compared to 2024. The shift in our fiscal calendar and net one additional operating day in the quarter had an insignificant impact on the hotel division revenues and results. Based on data from STR, when comparing our RevPAR results to comparable upper-upscale hotels throughout the U.S., the upper-upscale segment experienced an increase in RevPAR of 0.8% during the fourth quarter compared to 2024, indicating that our hotels outperformed the industry by 2.7 percentage points. Comparable competitive hotels in our markets experienced a RevPAR decrease of 2% for 2025 compared to 2024, indicating that our hotels outperformed their competitive set by 5.5 percentage points, as well as a heavier mix of transient leisure demand at higher rates. Group demand remained generally steady during 2025, with group rooms representing 35% of our total room mix compared to 36% of our room mix in 2024, with our group mix in 2025 reverting to more typical levels. Finally, hotels’ fourth quarter adjusted EBITDA was $7,300,000, an increase of 3.4% compared to the prior-year quarter. Shifting to cash flow and the balance sheet, our cash flow from operations was $48,800,000 in 2025 compared to $52,600,000 in the prior-year quarter, with the decrease in cash flow from operations due to unfavorable working capital changes related to the timing of payments relative to our fiscal year-end. For the full year, cash flow from operations was $84,200,000 compared to just under $104,000,000 in fiscal 2024. Total capital expenditures for fiscal 2025 were $83,000,000 compared to $79,200,000 in fiscal 2024, which was primarily comprised of Hilton Milwaukee renovation project payments and maintenance projects in both businesses. During the fourth quarter, we repurchased approximately 118,000 shares of our common stock for $1,800,000 in cash. This brings our share repurchases for 2025 to just over 1,100,000 shares, or approximately 3.6% of our outstanding shares at the beginning of the year, returning approximately $18,000,000 in cash. Our cumulative buybacks since resuming share repurchases in the third quarter of 2024 are now over 1,800,000 shares, or approximately 5.7% of our outstanding share count when we began, returning nearly $28,000,000 in capital to shareholders. In total, over the last two years, we have returned over $45,000,000 in capital to shareholders through share repurchases and dividends paid during fiscal 2024 and 2025. We remain committed to returning capital to shareholders through our quarterly dividend and share repurchases. We plan to grow the dividend over time and opportunistically repurchase shares when we generate cash in excess of our near-term ability to reinvest or deploy for strategic growth. We are disciplined in our approach. While we often do not control the timing or availability of deals, we continue to actively search for opportunities to deploy capital to grow our businesses. Looking ahead, an overview of our current capital allocation priorities for 2026: We expect total capital expenditures of $50,000,000 to $55,000,000 based on our current portfolio of assets, with approximately $25,000,000 to $30,000,000 in hotels, and $20,000,000 to $25,000,000 in theaters. The timing of our planned capital projects may impact our actual capital expenditures during fiscal 2026, and we will continue to provide updates as the year progresses. We expect this decrease in capital expenditures to result in a significant increase in free cash flow in 2026, which will be allocated to opportunistic growth investments and returning capital to shareholders. With that, I will now turn the call over to Gregory S. Marcus. Gregory S. Marcus: Thanks, Chad. Good morning, everyone. We delivered another record year in our hotel division. With Chad covering many of the details of the quarter, I would like to start today by reflecting a bit on the year. As is often the case with our two divisions, the story of the year was a bit mixed, while successfully executing on some very big projects that we expect to have long-term returns. In theaters, while the box office came up short of expectations for the year, audiences continue to come out and have strong demand for the theatrical experience. We have periods of steady product supply. Because of the hits-driven nature of the business, the difference between a decent year and what would have been considered a great success was essentially one or two films that did not hit as expected. For our company specifically, our fourth quarter results were quite strong, with both businesses outperforming their industries. Theaters featured a diverse film slate with family content that played well in our markets and helped us achieve strong market share. In hotels, strong leisure demand, particularly at our recently renovated assets, helped us end the year on a high note. Importantly, the fourth quarter film slate featured a diverse mix of films across genres that played well in our Midwestern markets and appealed to wide ranges of audiences, particularly families. I will start today with our theater division. We achieved above-average market share for seven of the top 10 films in the quarter, including particularly strong share from Wicked, Zootopia 2, and Avatar: Fire and Ash. We exit the year with good momentum, and as we look ahead to 2026, we are encouraged by the growth opportunities that we see ahead. Chad went over the numbers for the quarter with you, including our strong per-cap growth for both concessions and food and beverage, as well as average ticket price that drove our outperformance for the quarter. Second-tier films beyond the top 10 also made important contributions to the overall box office, with mid-sized films like Regretting You, One Battle After Another, Marty Supreme, and Song Song Blue delivering compelling stories that audiences wanted to experience on the big screen, rather than sitting at home on their couch. The well-rounded holiday slate offered something for everyone, and it is a great example of when our industry is at its best. While we had great blockbuster films like Avatar and Wicked that drew big crowds, the box office was so much more than the tentpoles, with multiple films working at once that appealed to different types of audiences. Our market share was also strong with several movies in the second-tier films, including double our normal market share for the Milwaukee-based hometown favorite story, Song Song Glu. While the overall industry box office was softer than anticipated, we continue to believe this is largely a function of product supply and individual film performance. October was impacted by softer carryover from September releases than we saw last year, as well as a few titles that did not hit as we hoped. November’s slate had one less tentpole film over the Thanksgiving holiday compared to 2024, when the box office included Wicked, Moana 2, and Gladiator 2. This dynamic continues to illustrate the importance of maintaining consistent and steady product supply that is balanced throughout the year to support the momentum of moviegoing. And we had a more robust film slate in December. We again saw audiences come out as we would expect. As Chad discussed, we saw strong per-capita growth during the quarter, with the average ticket prices benefiting from our ongoing price optimization efforts. As we have discussed throughout 2025, this has been an evolving effort to strike the right balance between capturing price during peak demand periods, as we did during the busy holiday periods in the fourth quarter, and maximizing attendance by having various price points for different types of customers. In addition to optimizing price, we are focused on other opportunities to grow per-capita by looking at every step in the customer journey. During the fourth quarter, we began rolling out a new queuing line system that consolidates multiple concession lines into a single line that is then served by multiple concession attendants. The single line moves faster, improving customer perception, and is proving effective at increasing per-capita candy and merchandise sales. During the quarter, we made progress testing several initiatives that we believe will be drivers of per-cap growth in 2026. First, for a significant majority of our customers, their first interaction with us is the digital ticket purchase. While we have offered web- and mobile app-based ticketing for many years, we saw an opportunity to improve this purchase experience. We have completely redesigned our digital ticketing experience to make the purchasing experience as easy, fast, and frictionless as possible. In November, we launched a new digital ticketing experience for mobile web browsers and our mobile app, followed by the launch of an entirely newly designed marcusleaders.com website in early February. The new site simplifies finding the movie, theater, and showtimes that work for customers, while speeding up the process of seat selection and payments. We are very encouraged by the early feedback from customers. Second, we continue to focus on improving the customer experience for our best-in-class menu of expanded food and beverage options. Again, the goal here is simple. We know from experience that when customers order concessions, food, and beverage on our mobile app, they buy more as they are consistently presented with upsell and cross-sell offers. We are working to significantly improve our mobile web ordering experience and are going to make the ordering process as easy and frictionless as possible. We are well positioned for the ramp-up in business as we head into spring and summer movie season. Third, we are working on improving the digital ordering experience and fast, with integrated digital wallet payment options that significantly speed up the transaction process. In December, we began testing QR code food and beverage ordering for delivery to seats at two of our dine-in Movie Tavern locations, for those customers who want a fast digital ordering experience but have not yet downloaded our app. The QR code ordering is simple, and the early results have shown encouraging growth in F&B per caps at these locations. We are in the process of rolling out QR code ordering to all our 20 Movie Tavern and Dine-In theaters. This will be followed by a redesigned food and beverage digital purchase experience in our mobile web and app for all locations later this year. For those customers who prefer the more traditional purchase experience at the box office, concession stand, and our bars and restaurants, we began rolling out new tap-pay terminals in the fourth quarter, and we expect to have the rollout complete at all points of sale by the end of the first quarter. We expect these investments in technology will not only make the purchasing process easier for our customers and enhance per caps, we expect to get additional data and insight into our customers and their preferences through the new payment technology we are integrating across our various sales channels. We expect to leverage these insights to better tailor our communications and marketing with more customized offers and highlight coming events of interest. We believe it is very important to have programs that promote and incentivize repeat moviegoing, and we have created several with this goal in mind, including Marcus Passports, Marcus Mystery Movie, and Marcus Movie Club. These programs can also have the added benefit of bringing customers out to see a broader range of small and mid-sized films in addition to the blockbuster films, which we believe supports a healthier overall exhibition ecosystem. While these programs offer a lower ticket price in the short term, they are important drivers of long-term future income. In November, we reached the one-year anniversary of Marcus Movie Club, our subscription program that offers monthly or annual memberships with several great benefits for customers, including a 20% food and beverage discount, access to additional companion tickets for $9.99, and waived digital ticketing convenience fees. After our first year of Movie Club, we added free Marcus Mystery Movies as a new benefit for members, and we continue to look for ways to drive membership and usage of the program. Approximately 38% of members have selected the annual membership, which we believe supports our long-term goal of driving repeat moviegoing. Marcus Movie Club is one of several programs that promote and incentivize repeat moviegoing, including Marcus Passports, Marcus Mystery Movie, and our loyalty program Marcus Magical Movie Rewards, which now has 6,900,000 members. As we look ahead, we are very excited by a 2026 movie slate that includes several potentially very strong titles, including Jumanji 3, Toy Story 5, Minions and Monsters, The Odyssey, The Mandalorian and Grogu, Dune: Messiah, Spider-Man: Brand New Day, the Super Mario Galaxy movie, and Avengers: Doomsday, just to name a few. There are many more great films coming, as noted in today’s earnings release. The current slate has a stronger mix of tentpole films, and the grossing potential of 2026 franchises is greater based on their historical predecessor box office performances. Looking even further ahead, the early look at the 2027 film slate also looks strong with major franchises, including Shrek 5, Star Wars: Starfighter, Minecraft 2, Frozen 3, The Batman Part Two, Sonic the Hedgehog 4, Spider-Man: Beyond the Spider-Verse, The Legend of Zelda, Avengers: Secret Wars, and many more. We are excited about the momentum that is building in theaters and the film slate ahead in the coming years, and we remain very positive and optimistic about the long-term future for the industry and our theater business. Moving to our Hotels & Resorts division, you have seen the segment numbers and Chad shared the highlights of our performance metrics for the quarter, so I will focus my comments on the year overall and looking ahead. We are pleased to report that, after another strong quarter to end the year, our hotels team delivered another record-breaking revenue and adjusted EBITDA year in fiscal 2025. This is quite the achievement, given that we are comparing against a record fiscal 2024 that benefited from the Republican National Convention and election-related business that did not recur in 2025. Even more impressive considering that we also completed the largest hotel renovation project in our history at the Hilton Milwaukee, which disrupted operations and negatively impacted results with a significant number of rooms at the hotel out of service during the first half of the year. Even with the negative impact of the renovation, our RevPAR growth outperformed our competitive set for the year by 1.2 percentage points, and we really saw an inflection point once we completed the renovation, as we outperformed the competitive sets by over five percentage points in the second half of the year. The demand environment was mixed in 2025 with group demand generally remaining strong, particularly at our properties that play well to group business. Leisure demand was mixed across our portfolio in 2025 compared to last year, with some markets seeing softness while others were positive. Demand remains strongest at the upper end of the market, and our upper-upscale properties are performing well in an environment where consumers continue to gravitate toward premium experiences. While we have made significant capital investments in our hotels over the few years, we have also been disciplined with the returns required for these projects. Milwaukee is a good example of our approach. The Hilton Milwaukee renovation wrapped up in the fourth quarter with the lobby and lounge, public common spaces, ballrooms, meeting space, and updated 554 guest rooms. It looks fantastic, and it is a convention center hotel that Milwaukee can be proud of. As we chose not to renovate the 175-room west wing of the hotel and remove the rooms from the Hilton system at the end of December. Place. Running approximately 3% of in the year for the year. Place. Running approximately 3% of in the year for the year. Ahead of where we were at this time last year. Looking a bit further out to 2027, group pace is slightly behind where we were at this time last year for the next year out. Banquet and catering pace for 2026 and 2027 is ahead of where we were at this time last year. Based on the current demand environment and our future bookings, our outlook for 2026 remains positive. We are excited about the opportunities for future growth in the hotels business. I would like to once again express my appreciation for our dedicated associates at The Marcus Corporation. Chad Paris: On behalf of our Board of Directors and our entire executive team, thank you to all of our associates. Their outstanding work and commitment to serving our customers is responsible for our success. They are our most important asset, and we appreciate all that they do every day. Operator: Thank you. If you would like to ask a question on today’s call, please press star, and to withdraw your question, it is star followed by 2. We will now open for questions. We will go to Eric Wold from Texas Capital Securities. Your line is open. Please proceed. Eric Wold: Thank you. Good morning, guys. There was a lot of shifts in the pricing strategy last year. I guess, first question on the theater segment. You sounded like you implemented a few more things in the holiday period. Maybe give us a sense of what we should expect throughout 2026 in terms of cadence based on the programs currently in place, what you will come up against in this May, and how that should play out throughout the year? And then on the hotel side, given the comments you made around seeing increased leisure demand and higher ADR as the renovations have come to fruition last year, maybe give us a sense of what you are seeing in terms of bookings in 2025, and then as we look forward, what you are seeing with leisure versus group and if you expect to see more of a shift back to leisure in your mind? And if that is the case, what do you see as the implication of that? Chad Paris: Thanks, Eric. Yes, in terms of the cadence through the year, really, it is going to be the anniversarying of our price changes that we made midyear in 2025. I do not see customer sensitivity to price changes. We do want to continue to drive attendance, so it is really going to be more about per caps in that business on the F&B side, and that is where our focus is going to be. And then on the hotel side, you started lapping some of the headwinds in May. I would say, through the first part of the year, we are trying to be very thoughtful about customer sensitivity to price changes. Maybe give us a sense of what you will come up against in May and how that should play out throughout the year. Got it. Gregory S. Marcus: Let me start with the very last part of your question on group pace. You may recall at the beginning of 2025, we were seeing very significant increases in group pace early in the year, and then that flattened out a bit. We ended the year with growth that was mid-single digits, but we started the year much higher than that, and so we had a huge step-up early in the year last year, which is, I think, in part why our pace for 2026 is at, right at the moment, low single digit, because we had a big step-up last year. Timing of when those events get booked really can vary from year to year, and so I would not read too much into what we are seeing right now for 2027. It is still pretty early. Group overall remains healthy, and as we have said over the last few months, or a few quarters, our renovated properties are winning really well with groups. What we have seen, at least in the fourth quarter, is we are also doing a really nice job, even in the slow season, capturing strong leisure demand around the weekends, and we did that here in the fourth quarter. Upper-upscale continues to perform better than the lower end of the market. The nature of our properties—these “special assets”—is that they play in both the group and leisure. That is the good thing about our properties that we have talked about; our properties play well to that type of customer. If we see softening in one area, we can start to be more aggressive in another. Even in a flat overall demand environment in leisure, we can capture demand there. If you look at them, they are located and demo really well. We see a share nicely. Eric Wold: Got it. Helpful. Thank you both. Operator: Our next question comes from Michael Hickey from Stonex. Your line is now open. Please go ahead. Michael Hickey: Thank you. Hey, Greg, Chad. Congrats, guys, on a great 4Q with outperform. Greg, your 2026 setup here sounds very encouraging on both the theater side and the hotel side. The slate looks exceptional. It seems like it will meet your demand there. Do you see a sort of mid-single digit type growth on the top line, and the premise leverage step up—step up is a big word—relative to 2025 growth on the top line? Do you think you can exceed that and free cash flow conversion? And I have got a follow-up. Thanks, guys. Gregory S. Marcus: Well, you know, hope springs eternal. Hope is going to tell you hope springs eternal in the theater business. Soon. I mean, it certainly, as you said, on paper, looks good. It looks like it plays to our markets, and we talked about it, but this is an art form. We do not know how it is going to turn out. In 2025, we did not have one blockbuster over $500,000,000. That was a challenge, and it looks like the potential for these is better. We have a very significant PLF footprint. It is probably the highest penetration of PLFs in the industry. We are very focused on making sure that our prices are market appropriate and that we are offering the right product for the right customer, so when those customers are there, we are going to be able to capture the top line and the bottom line. Yet, as you know, our pricing strategies have lots on. We are prepared to capitalize and maximize on whatever comes our way. We have programs for the customers that do not want to spend as much—our Tuesday program remains very robust. A big push for us this year is going to be our Movie Club as we continue to really build that base of business. If you are in our theaters now, if you do not join the club, you are not paying attention. I mean, they are just really working hard to build that base of business. It reminds me a lot of the hotel business where you sometimes fill a hotel with a base of customers to sort of shrink the size of your hotel. And I think others in the industry who have seen a significant buildup in membership on the theater side enjoy that benefit of a continued income stream. So we are very focused on that as well. Then on the hotel side, we will continue to see the benefits of all the investment we have made in these properties. They look so good. We should see good performance as long as the economy stays solid, we will be in good shape. The only thing I would add on the film mix is that the family slate that we see ahead for 2026 should benefit a circuit like ours in the markets that we are in. In 2025, we did not really have a family animated film that hit, and we saw the power of that over the holidays with Zootopia. As we look at the slate for summer 2026, I do think that is a net positive for Marcus Theatres. And that dovetails nicely with the Hilton and that line in Milwaukee as our convention center continues to perform better. Chad Paris: Yes, Mike. I will take the last part of this question. In terms of contribution and leverage on the incremental revenue, historically the theater business contributes at around 50% on the contribution margin line to EBITDA. And with our step down in CapEx this year, I think our free cash flow conversion on that is going to be very strong. Michael Hickey: Very helpful. On M&A, you said “actively searching.” I do not know if I have heard that from you before. Are you a little bit more aggressive now looking at maybe some M&A? And I guess, with the Warner Brother deal hanging here, Greg, if that ices theater deals or not. Regardless of that, maybe some color there because I wonder how active the market is, but I do not think it has been great. And then on the hotel side, I am not sure how active the market is. So just curious where you are focusing your attention. Do you see the biggest opportunity, whether it is theaters, hotels, or maybe another area that could be complementary to your overall business today? Gregory S. Marcus: Transaction markets have been pretty slow across the entire industry. As interest rates went up, cap rates got elevated. The economy is strong enough, the businesses are okay, so there were not forced sales. People were doing well enough to wait, or at least they are going to try and wait. It is a waiting game. That has really slowed up that market a fair amount. That is a very good point. You are right. Look, I will sort of work back to this: a lot of private equity investors with a five-year hold write a pro forma and they write a cap rate, and if cap rates are 100 to 200 basis points higher, it messes up the returns pretty significantly. So they can wait. On the theater side, again, there is very, very little transaction activity that we are seeing. We will look at anything that would come our way if we think it makes sense. A big challenge a lot of these guys have are very expensive leases, and a lot of that needs to be figured out. But then you bring up a very interesting point, which we talk about, which is, okay, what other adjacencies can we have? We have worked through these huge capital investments that we have had to go through, and so now when we have free cash flow, we are looking at the leverage we can pull, whether it is buying back stock or dividends. If we can find good investments, we would like to make them. It is very tax efficient to not pay the capital out if we can keep it invested within the company for our investors. That can be a great return. And if we cannot, then we will distribute cash as we have talked about. Michael Hickey: Nice. Thanks, guys. Good luck. Gregory S. Marcus: Thanks, Mike. Operator: Our next question comes from Andrew Edward Crum from B. Riley Securities. Your line is now open. Please proceed. Andrew Edward Crum: Okay. Thanks. Hey, guys. Good morning. I want to ask about the occupancy rate. It was down year-on-year in 4Q. Was that election-related in the year-ago period? Was it the closing of the West Wing of the Milwaukee? Or was it something else? And would you anticipate that rebounding in 2026? Chad Paris: Hi, Drew. Yes, I would start with occupancy in the fourth quarter last year did get a benefit from a bunch of group business related to the election. That definitely provided a tailwind last year. I do think in some of our markets this year, there is clearly some softness. It is very much a mix story that is market-specific and, at times, even property-specific. It is not an obvious softening trend in our markets where we are at, and we are outperforming the softness generally because of the quality of the assets and the investments that we have made. So I think the way to think about it is we should look to outperform what our markets do, even if we see some of the softness. Andrew Edward Crum: Got it. Okay. Thanks, Chad. And then Mike’s last question focused on M&A. Given the opportunity to review the portfolio, in the past you guys have made selective divestitures. Any updates there? Any comments you can give us in terms of how you are thinking about that? Gregory S. Marcus: You know, look, we are always looking at our assets, and we come at it from a strong real estate mentality. One of the things that is important, as you saw in the last few years as the bubble came across the investments, is we have to look and decide, okay, is the investment going to be a good investment for us? And if we do not think the investment is the right investment for us, we can then divest ourselves of the asset, and that will happen occasionally. We do not have any major divestiture planned right this minute, but if something makes sense or the markets get very hot, we are always looking at that and saying, okay, what is the right long-term choice for these assets for our company? Chad Paris: And, Drew, we tend to immediately think about hotels in that context, but we own a lot of theater real estate, and portfolio management is an ongoing process. We are continuously looking at the performance of individual theater locations and highest and best use for the real estate. I would just suggest that store will continue to be part of a potential source of making changes, and we could add some locations too. In the past, we have monetized noncore real estate in our theater business. We might take investment and change some of the uses on some of our theater sites, and we can make investments to do that too. Again, one of our hidden assets is our real estate, and we have come at this for decades from a real estate perspective, and we may make investments on our properties that would maximize the highest and best use of that real estate. Andrew Edward Crum: Got it. Thanks, guys. Operator: As a reminder, if you would like to ask a question on today’s call, please press star. And to withdraw your question, it is star followed by two. Our next question is from Patrick William Sholl from Barrington Research. Your line is now open. Please proceed. Patrick William Sholl: Hi. Thanks for taking the question. Just maybe another question around capital allocation and M&A. Could you maybe discuss some of the differences in underwriting or opportunities in expansion, whether organic or M&A, and the differences in underwriting—just additional new builds versus the I know you talked about the difficulty with some of the leases and potential M&A—but any sort of update on those competing priorities? Chad Paris: Pat, I mean, we have looked at a number of things in the last year plus and done a fair amount of work on different opportunities. In the theater business, the challenge on M&A, consistently, has been the leases and the number of locations in a theater circuit that work and do not work when you look at a circuit overall. That mix of locations that do not work has made it very hard to get deals done if you are going to have to assume the lease. And so it really requires more of a ground game in looking and doing onesie-twosie type deals where you are picking up individual theaters in that space. That is really how we look at the underwriting—at a more granular level than in the past. New builds—we think about it. We think about attractive markets. But right now, with the product supply challenges, it is just tough to get the math to work on new construction. We are going to keep looking at it, but at the moment, it is not something I think you are going to see us do a lot of in the near term. Patrick William Sholl: Okay. And then on concessions, you had mentioned the QR ordering is helping to increase incidence. I was wondering what other components of the per-cap trends in the quarter—was it between pricing or mix and things like that? What else contributed to the per-cap trends in the quarter? Chad Paris: Yes. So in the fourth quarter, the QR code ordering actually had a really small impact. I think that is more of a 2026 benefit. We were doing a handful of test locations late in the quarter, but at those test locations, we are really encouraged by what we are seeing, and I think that is going to be a meaningful piece of our per-cap uplift for our dine-in theaters in the coming year. In the fourth quarter specifically, it was mostly incidence rate and capturing more customers. It was some of the queuing line benefit that Greg talked about and getting the basket size to grow with customers that are going to the concession stand. We have seen some traction with that, which is really encouraging. There was a little bit of price, but price was not really the primary component of what we saw in the fourth quarter. I think there was certainly some benefit in a holiday quarter of people making events of going out to the movies and just generally spending more, and I think that is encouraging to see the health of the consumer that we continue to see in the fourth quarter. Operator: Okay. Thank you. Chad Paris: Thanks, Drew. We would like to thank everybody for joining us today, and we look forward to talking to you once again in May when we release our first quarter 2026 results. Until then, thank you, and have a great day.
Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, I will be your conference operator today. At this time, I would like to welcome everyone to the California Water Service Group Q4 2025 and full-year earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. I would now like to turn the conference over to James Lynch, Chief Financial Officer. You may begin. Thank you, Desiree. James Lynch: Welcome everyone to the fourth quarter and full-year 2025 results call for California Water Service Group. With me today is Martin Kropelnicki, our Chairman and CEO; Shilen Patel, our Chief Business Development Officer; and Greg Milleman, our Vice President of Rates and Regulatory Affairs. Replay dial-in information for this call can be found in our quarterly results earnings release, which was issued yesterday. The call replay will be available until April 27, 2026. The Company has a slide deck to accompany today's earnings call on the Company's website at www.calwatergroup.com. The slide deck was furnished with an 8-K and is also available. As a reminder, before we begin, before looking at our fourth quarter 2025 results, I would like to cover forward-looking statements. During our call, we may make certain forward-looking statements, and because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the Company's current expectations. As a result, we strongly advise all current shareholders and interested parties to carefully read the Company's disclosures on risks and uncertainties found in our Form 10, Form 10-Q, press releases, and other reports filed with the Securities and Exchange Commission. I will now turn the call over to Martin. Martin Kropelnicki: Thanks, Jim. Good morning, everyone. I cannot think of a more appropriate way to kick off our 100th year of operations as an essential utility than by quickly talking about two deals we announced. First and foremost, yesterday, we executed an agreement to purchase the Nevada and Oregon operations from Nexus Water. We have been busy working with them over the last few months to put that deal together, and we will be talking about the deal later on today. Secondly, in December, we announced we have reached an agreement to purchase the outstanding minority interest in the Texas joint venture that we help start, BVRT Holdings, and become the sole owner of seven Texas water and wastewater utilities. In addition, while we do not have a general rate case decision for the 2024 rate case for California yet, we know it is actively being worked on, and we expect to get a rate decision soon. Based on what we are seeing and where the commissioner is in the process, questions they are asking, etc., we know it is actively being worked on and we know it is a priority within the commission to get that done soon. In addition, during the quarter, we filed and we are expecting a decision for our consolidated rate case in Texas, and we have also filed a rate case in the state of Washington. So if I can get everyone to go to page five, please. We will do a quick recap on what we did for the year. First and foremost, we went into the fourth quarter really ahead of budget and performing well. But I think as many of you saw, we had a major storm on the West Coast in December, and the financial results in December were clearly affected by wet, cold weather. This is really the second time we have had an atmospheric river that really hit the whole West Coast. Normally, if you think about California, it is a long state, and while we might get wet weather in Northern California, the demand for water services stays high in Southern California because it tends to be warmer. This is one of those storms that was from all the way from the Canadian border all the way down to the Baja Coast on the California side, to the Gulf of Mexico, and so we had a pretty big weather impact that Jim will be talking about later. As a highlight for 2025, we invested a record $517,000,000 into our infrastructure systems, and that includes an additional $52,300,000 invested in the fourth quarter alone. In 2025, we increased our annual dividend by a record 10.7%, and that was followed by our 59th annual dividend increase earlier this year in 2026 by an additional 8%. We received, during the fourth quarter, our extension for our cost of capital in the state of California, which allows us to retain a 10.27% ROE until January 2028. I believe this is one of the highest ROEs of a water utility in North America. And we have received approval to increase interim rates by the commission. When the decision did not come out in December, the commission gave us the green light to implement an interim rate increase of 3% that we implemented in January in California. So overall, a busy year from that perspective on the rate side. In addition to that, we also maintained our A+ stable credit rating from S&P, which I believe is one of the highest rated utilities in North America. There is a lot to get into in the details, so I am going to turn it back to Jim to go through some of the details on the financial results. Jim? James Lynch: Great. Thanks, Martin. In Q4 2025, revenue was $220,000,000 and that compares to $222,000,000 in 2024. Net income for the quarter was $11,500,000, or $0.19 per diluted share, compared to the prior year period of $19,700,000, or $0.33 per diluted share. As Martin mentioned, our results in the fourth quarter were negatively impacted by the strong statewide weather pattern over much of California during the month of December that created exceptionally wet and cold weather. Moving to slide six, you can see the impact of this and other activities during the fourth quarter on our earnings results as compared to 2024. While tariff rate changes and other regulatory activities generated an increase of $0.48 per share, the weather-induced consumption decline led to a $0.59 earnings per share decrease. In fact, of the $12,700,000 in consumption decrease experienced in 2025, $14,600,000 of it occurred in the fourth quarter. In addition, the three-year conservation program approved in the 2021 rate case ended in Q4, with final expenses and the expense true-up reducing earnings by $0.10 per share. Slide eight shows our 2025 year-end financial results. As many of you know, the Company's delayed 2021 rate case decision resulted in 2023 interim rate relief, which was recorded in 2024. So in reporting our results, we have presented both the GAAP and non-GAAP measures for 2024, essentially removing the impact of the 2023 interim rate relief from our 2024 results. Operating revenue for 2025 was $1,000,000,000. This compared to $1,370,000,000 in 2024. When compared to non-GAAP 2024 revenue of $949,300,000, our revenue for the year actually increased by $50,800,000, or approximately 5.4%. Net income attributed to Group was $128,200,000 compared to net income of $190,800,000 in 2024. Again, when compared to 2024 non-GAAP income of $126,800,000, our net income increased $1,400,000, or 1%. In 2025, diluted earnings per share was $2.15 compared to $3.25 in 2024. And, again, removing the 2023 rate relief from our 2024 numbers, the non-GAAP 2024 earnings per share was $2.16, which was essentially flat when you compare it to 2025. Turning to slide nine. The primary drivers of our 2025 diluted earnings per share were tariff rate changes and other regulatory activities, consumption decreases of $0.19 per share, and depreciation expense increases of $0.18 per share. Combined, these added $1.05 per diluted share. Turning to slide 10, the increases were primarily offset by wholesale water rates that, net of the volume decreases, reduced diluted earnings per share by $0.27, and by income taxes, which were lower year-over-year due to lower taxable income and the related effects on our income tax rate. We continue to make significant investments in our water infrastructure during 2025 to ensure the delivery of safe, reliable water service. Our capital investments for the quarter and year-to-date were $152,300,000 and $517,000,000, respectively. This record level of annual investment represents a 19.8% increase over construction levels in 2024. As a reminder, our capital investment estimates for 2026 and 2027 presented on this slide do not include $235,000,000 of anticipated remaining PFAS project expenditures, which we expect will be incurred over the next few years. In addition, the estimates do not include any capital investments required in Nevada or Oregon. The positive impact of our capital investment program and what it is having on our rate base is presented on slide 11. If approved as requested, the 2024 California GRC, coupled with planned capital investments in our utilities in other states and our recently announced system acquisitions in Nevada and Oregon, would result in a compounded annual rate base growth of almost 12% through 2027. Moving to slide 12. We continue to maintain a strong liquidity profile to execute our capital plan, to fund BVRT greenfield utility growth, and to integrate Nevada and Oregon systems. At year-end, we had $51,800,000 in unrestricted cash and $45,600,000 in restricted cash, along with approximately $470,000,000 available on our bank lines of credit. We maintain credit facilities totaling $600,000,000 that are expandable to $800,000,000, with maturities extending to March 2028. On October 1, 2025, we issued $370,000,000 in long-term financing, which consisted of a combination of Group notes and Cal Water first mortgage bonds. We also renewed our ATM program in May 2025 with a $350,000,000 shelf registration, and completed $1,500,000 of program sales in the 2025 fourth quarter. Importantly, underscoring the strength of our balance sheet, both Group and Cal Water maintained strong credit ratings of A+ stable from S&P Global. And finally, in January 2026, we declared our 324th consecutive quarterly dividend of $0.33 per share. We also announced our intended 2026 annual dividend of $1.34 per share. The $0.10 per share increase represents an 8.1% increase over 2025. This would be our 59th consecutive announced increase. So we had a lot going on in 2025, and we are really looking forward to 2026. With that, I will turn it back over to Martin. Martin Kropelnicki: Alright. Thanks, Jim. And just to remind everyone, 2025 was the third year of the rate case. When you look at the press releases, people might say, well, you are essentially flat year-over-year. You are off a penny year-over-year, but remember coming out of COVID, there was a pretty big spike in inflation. We have absorbed those costs within that period, and we are waiting for rate relief on that. Historically, the third year of the rate case in California, being approximately 92% of our total operations, we really feel that inflationary lag in that third year. So all in, I am happy with how we ended up the year. We would have ended up stronger if we did not have that atmospheric river really wipe out the West Coast consumption here in December. But, overall, I think we finished the year in a good position as we wait for the rate case in California. I am on slide 13, and I want to talk a little bit more about the deal with our friends at Nexus Water. When you look at slide 13, this acquisition is meaningful because it strengthens our position as a leader in the Western US by adding two additional states and diversifying our geographic footprint. In addition to that, it also increases our regulatory diversification by X. If you exclude BVRT, this adds about 40% to our operations outside the state of California. So the geographical diversification and the regulatory diversification, we think, are really, really important. At year-end 2025, the acquired systems represent about $109,000,000 of rate base and a purchase price of approximately two times rate base, consistent with our allocation of capital and our disciplined approach to looking at acquisitions. In addition, at the proposed purchase price, we believe this deal will be accretive within the first year, backing out some of the one-time integration costs that we will have entering these two new markets, closing the deal, and welcoming the Nexus employees to California Water Service Group once the deal is approved by the regulatory commissions in the appropriate jurisdictions. So overall, we are really happy with this deal. We expect it to be accretive the first year, and we look forward to integrating the systems onto our platform. Moving on to slide 14, it just gives you an illustration of what the footprint looks like as we operate and expand into a total of eight states. So again, diversifying out of California, extending our footprint in these other states, and I was doing some work in preparation with our board and looking back in 1926 when we were founded, and we started with four little water systems in Northern California and how they have grown. At some point, we bought the system called Bear Gulch in the 1920s and early 1930s, and I am sure some people thought, why would they want to buy a system down in Silicon Valley? All it is is farmland down there. So, you know, as we acquire these new systems, you know, we like to think of them as seeds in robust markets that will grow over time, and that is consistent with our capital strategy. Look for systems in growing markets that we can continue to invest capital in and grow out their infrastructure to continue to improve service and spread our baseline cost over a larger base. Both states, Oregon and Nevada, operate under a hybrid ratemaking framework, which really provides some visibility into the future rate relief for capital investments that are needed. In addition, Nevada allows for a DSIC, which we think is a regulatory best practice, and the framework is consistent with our existing long-term infrastructure investment strategy. On slide 14, this deal will add about 36,000 equivalent residential units, so it is water and wastewater. With a larger footprint, we see opportunities to optimize our corporate costs and leverage our base to allow us to lower the overall marginal cost for customers while making sure we meet and exceed water quality standards and build resiliency into the system. We will also benefit from strong regulatory relationships within the states. We were very impressed with the employees and the states of Oregon and Nevada. As we know, we are big believers in strong regulatory relationships, and we believe that is the underpinning of the long-term stability of the system and our success on the regulatory side. In addition, these systems come with embedded growth pipelines, including both tuck-in acquisitions and other opportunities to add around the existing systems to grow out. So we are excited about that. And then finally, we were very impressed with the staff and the asset quality of the systems. When you look at deals, I think most of you know Shilen as our Chief Business Development Officer, but a lot of times you go look at someone and they look different than you or they operate different than you. You know, we were very impressed with the operation in Nexus Water. Looking at slide 16, I am going to hand that over to Shilen. It is not surprising for those of you that know Rob McClain and the management team at Nexus. They do a very good job, not only with their people, but with the quality of their systems that they operate in. So we look forward to a smooth approval process with the commissions in Oregon and Nevada, integrating the systems onto our platform, especially in the state of Nevada, which we deem as a high-growth state. Shilen has also been our General Manager in Texas, managing our Texas operations. Shilen, you want to talk about the transaction we executed and what is going on in Texas? Shilen Patel: Yes. Thank you, Martin. We have entered into an agreement to acquire the remaining outstanding membership interest in BVRT in Texas. As you recall, it was a joint venture, and we are acquiring a minority. Upon closing, we will become the sole owner of seven regulated water and wastewater utilities located in the high-growth corridor between Austin and San Antonio. As you can see on this slide, at 2025 year-end we have more than 19,000 committed customers, about 5,000 are connected currently, with an additional 20,000 likely in the next foreseeable future, and then about 100,000 in the long-term potential customers as our systems grow and mature. The transaction will require our Texas subsidiary to file a change-of-control application, and it is contingent on regulatory approval and other customary closing conditions, including the PUCT and also California Water Service Group board approval once we receive PUCT approval. Strategically, consolidating full ownership enhances governance, simplifies the structure, and allows us to fully capture the long-term growth and infrastructure investment opportunities within this market. We continue to expand through ongoing system buildouts, with sustained customer growth and infrastructure enhancements, really positioning the platform to support that growth. I am really looking forward to continuing to build on the successes that the team locally have put in place for the last six to seven years. Martin, I will turn it to you. Martin Kropelnicki: Sure. Thanks, Shilen. Greg Milleman: Turning to the 2024 California general rate case, we are expecting a proposed decision very soon. As we previously reported, in the case we proposed to invest $1,600,000,000 in water infrastructure in order to continue providing safe and reliable water service to our customers. We also requested revenue adjustments of just a little under $3,000,000 over the three-year period. Given where we are in the process, and given the fact that the commission can vote as early as 30 days after the proposed decision is issued and oral arguments are made, we believe that if the commission were to issue a proposed decision by March 5, there would be adequate time for the commission to consider and adopt the final decision at the next voting meeting on April 9. Obviously, we will provide an update when we receive the proposed decision. Turning to slide 18. I will provide a brief update on regulatory activity across our other jurisdictions, and I will start with Hawaii. In November 2025, we filed a rate case in Hawaii for our Kapalua district requesting $2,200,000 in annual revenues to recover higher operating costs and system improvements. Additionally, in October 2025, the Hawaii PUC approved a $4,700,000 annual revenue increase for Hawaii Water's five Waikoloa systems, with a two-year phase-in that began in October 2025. Moving to Texas, during 2025 interim rates were adopted and implemented in July 2025. These rates are not subject to refund, and we are waiting on a final PUCT approval that is currently pending. Moving to Washington. In September 2025, Washington Water filed a rate case with the Washington Utilities and Transportation Commission requesting a $4,900,000 annual revenue increase to recover costs of system investments and rising operating costs. We expect the case to be completed and new rates implemented in 2026. Overall, these filings demonstrate our continued investment in infrastructure, proactive regulatory engagement, and disciplined efforts to align rates with the cost of providing safe, reliable service. Martin, back to you. Martin Kropelnicki: Thanks, Greg. And I am now on that last page. So what are we focused on in 2026, our centennial year? First and foremost, we are committed to a timely completion with Nexus Water for Nevada and for Oregon and working with Nexus Water to completely transition there, and in a way that is good for customers and good for the employees. We expect to successfully close those transactions on time. We will continue to pursue growth opportunities in these high-growth areas, as well as change-of-control applications that we are working on. And then, of course, once we get the 2024 rate case done, it is a three-year cycle in California, and then we have the rate case that Greg just mentioned in Hawaii and in Mexico—well, it just keeps moving forward. As Greg mentioned, we have a lot of regulatory activities going on, whether it is the acquisitions we announced or planning the 2027 general rate case. Again, just to remind everyone, the primary growth engine at California Water Service Group is really the reinvestment of existing capital into our rate base. And as Jim said, we were just about 10% year-over-year in CapEx. That is the primary growth genetics, any of the PFAS stuff. And then, secondarily, we plan on strategic acquisitions like what we have done here with Nexus that add to the existing platform. But having criteria that we use to evaluate acquisitions is really important because we want to maintain that 10% cadence on the CapEx line, while balancing public health and sustainability and reliability. Affordability continues to be an issue. We know and understand that. We have been able to keep our rates affordable and maintain our rate base growth and ensure our systems are resilient, and we are building resiliency into our systems as we deal with things like climate change. And then, of course, lastly, we continue our disciplined strategy on the regulatory side, working with our regulators, staying focused on the rate cases, getting those to put us to the needs of our customer, and continuing with our capital replacement program. So we will continue looking at that and making sure we are being disciplined. With that, Desiree, we will open it up for questions, please. Operator: We will now open for questions. If you would like to ask a question, press star then the number one on your telephone keypad. Martin Kropelnicki: I would say that the California Water Association over the past three or four years has been really focused on educating the commissioners about the impacts of the delays on customers, and we have seen actions moving to get the cases out on a more timely basis. Second, one of the lead advocates for that is the commissioner that is assigned to our case, Commissioner Matt Baker, and he is very focused on getting decisions out on time. And then the third thing with where we are feeling where our proposed decision should be coming out pretty soon is the water division staff at the commission has been asking us for information to help them process and get to publish the PD. Very similar to what they did in the 2018 GRCs right before the PDs came out. And that long term, the cases will come out on a more timely basis. So that is where I feel. And then short term for our case, we see it coming out in the very near future. James Lynch: We were not getting questions. As Greg said, we got a lot of questions at the very, very end, and then the stuff was submitted, and then we waited and waited and waited and waited. There was not a lot of communication. Martin Kropelnicki: I was being politically correct in my opening comments, Davis. But you know, in the last rate case, it was just kind of like a black hole. The PD came out all of a sudden. It has been really different in this case. The judge, when it was delayed, gave us the 3% interim rate increase right away, which we thought was good. They have been asking questions throughout the process, which is good. And so we have seen a lot of activity, which leads us to believe they are very focused on it. They have not given us any assurances of a date, but it has been very clear that they have made it a priority at the commission. I think the other big thing that has changed now from where it was in the 2021 rate case is affordability is a big issue. And when you deal with things in California like the skyrocketing electric rates that people had to deal with and gas rates that are up, you know, the commissions are getting more scrutiny about rate increases. And so you cannot get a rate case out and have the idea of making our rate increase look worse than what it really is. I do not think the commission likes being in that position. And while you have an assigned ALJ, it can vary commissioner by commissioner. The real hearing officer really is the commissioner because they deal with those complaints from customers when rates go up. And so the commissioner kind of sets the tone in these cases. So I think we are fortunate we have Baker assigned to our case, who used to run the Office of Ratepayer Advocates. He has been setting the tone: we need to get the rate cases out on time and be reasonable and diligent in our approach. So I think for now, I frankly expect to get a decision here relatively soon. Obviously, when it comes out, it is material. So we 18 it right away when it comes out. Davis: That is super helpful, and thank you both for all the details there. Davis: Maybe my second question, Martin, I appreciate you bringing up the DSIC in Nevada. I was just going to ask about maybe the friendliness of operating environments, or specifically any key regulatory mechanisms in either Oregon or Nevada that are worth calling out, either that are in place now or that you might be pursuing. That would be helpful. And I think, Jim, you also mentioned in your comments, CapEx, of course, does not include potential investments in these, and maybe it is too early to say, but any thoughts on what those might look like would be helpful too. Greg Milleman: Yeah. Sure. Let us start with Nevada. Nevada has a very reasonable commission environment, which is positive. They also have decoupling in Nevada. They allow construction work in progress in rate base. They have a mechanism for interim rate memorandum accounts if your case is late. They allow adjustments for changes in your water production costs from your wholesalers, and their cases take about six months to complete. In Oregon, they have a hybrid system of a rate case with a historic test year that allows about a half year of capital improvements in your first year being included in the case. In addition, Nevada allows for a DSIC. They are allowing consolidated or statewide rates to be phased in over six years for the water systems. In Oregon, about half of the systems are nonregulated wastewater systems. Nexus has treated them as they treat their regulated entities, and they file a rate case for those entities. Those are the kind of frameworks in the two states. James Lynch: Yeah. And I think as far as the CapEx goes, Davis, as a result of that, there is kind of a capital plan in their last rate case. So as we move forward and get more familiarity with the systems, that number could change. But I would expect in the first couple of years, somewhere between $20,000,000 to $30,000,000 in CapEx between the two systems. First of all, they are historic. We can clearly work through them, but Nevada did file a pre-approval of what the levels are going to be at least in Nevada. We feel there is also a lot of opportunity there for tuck-in acquisitions around the systems, especially in Nevada. I think there is some great opportunity there that we are going to be able to take advantage of, not only because it provides us the diversification that Martin talked about, but because there is an opportunity for us to continue investment growth. Davis: Super helpful again and thank you. Maybe if I could be greedy and sneak in one more quick one. I saw yesterday the EPA appears to have officially moved forward now with the PFAS push-out that has been talked about for a few quarters. I know we have talked about this before, and Martin, you have said your plans here probably will not change. Continue to make the upgrades as they come. But maybe just give any update on funds that are flowing as a result of the class action suit, and then if that first piece is indeed correct. And thank you very much. James Lynch: Yeah. No. Good question, Davis. I think I have used the example: it is really hard to look at a mother with their child and say, yes, there is something in the water that is not safe, but do not worry about it for three years. That just does not work. And I think consumers have gotten fairly well educated on water, because, you know, as a utility, our product is consumable, and it is ingested. There is no room for error on water quality. It is absolutely critical. That is why it is in our bonus plan. That is why it is published right up front. We show what the ramifications are. Our goal is to meet all primary and secondary water quality standards every moment that we operate in. Obviously, as this becomes a new MCL, we have to be compliant with it. So we are moving forward with our plans. What we have seen when you have had this fight between the states and feds on when does it go, where does it go—if the feds have said, hey, we might delay this three years—we have seen states say, okay, but we are going to make it effective sooner. Because, again, I do not think anyone wants to not protect their citizens. I think that is really important. So we are moving ahead as planned. In 2025, I believe we spent about $20,000,000 on our PFAS programs, and that is really getting all the program logistics up, the planning for all the construction, putting the contracts out to bid, procuring all the materials, and scheduling out. We are running it as a corporate, group-sponsored program. There is a PMO—project management office—with a very good engineer leading that program. The senior management team gets updates on it all the time, and everything is being scheduled out. We are going to continue going full steam ahead. I expect in 2026 we are going to spend between $50,000,000 and $70,000,000 on PFAS. Again, that is incremental to the capital numbers that Jim has shared. In terms of recoveries, what is the net amount that we have recovered so far? Is it forty-some-odd million? James Lynch: The net amount is slightly below $40,000,000 after the attorneys have taken out their share of the proceeds. But we continue to work on other opportunities to fund those investments. We have a pretty strong grant program underway that is really going to help us, I think, in some of our more challenged districts and states. So we are looking at potential grant dollars in addition to the recovery dollars. The other thing I would just add is that $235,000,000 that we are anticipating in terms of spend for PFAS, you have to think of it in two tranches. One is the treatment, and the other is where new wells need to be drilled in order to either replace old wells or to put new wells in where we do not believe there is as big of a contamination problem. The treatment is going to be in place much quicker than the wells. It usually takes us three, four, five years depending upon the permitting process to get those wells going. A majority of the treatment, we anticipate right now, will be put in place by the 2020 step—well, it is phased, but yes. Davis: Outstanding. Thank you very much. Appreciate all the detail. Martin Kropelnicki: Alright, Davis. Have a good day. Please feel free to call with follow-up. Take care. Operator: And, again, if you would like to ask a question, press star then the number one on your telephone keypad. There are no further questions at this time. I would like to turn the call back over to Martin Kropelnicki for closing remarks. Martin Kropelnicki: Alright, Desiree. Thank you everyone for joining us here today. Obviously, 2026 is starting off with a bang. We have plenty to do on our agenda at California Water Service Group, and we will look forward to integrating the acquisitions that we talked about, the Nexus acquisitions as well as the BVRT acquisitions that we announced, getting the rate cases—staying focused on the rate cases, getting those to put us as quickly as possible—and then continuing with the PFAS treatment in our capital program. There will be plenty to talk about at the end of Q1, and we will look forward to giving you an update then. So until then, thanks for joining us today. Be safe, and we will talk to everyone soon. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining in. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0. Any member of our team will be happy to help you. Please standby. Your meeting is about to begin. Good morning, ladies and gentlemen. Thank you for standing by. Today's call is being recorded. Welcome to the Ellington Financial Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, all participants have been placed in listen-only mode. The floor will be open for your questions following the presentation. If you would like to ask a question during that time, simply press star then the number 1 on your telephone keypad. If at any time your question has been answered, you may remove yourself from the queue by pressing star 2. Lastly, if you should require operator assistance, please press star 0. It is now my pleasure to turn the call over to Alaael-Deen Shilleh. You may begin. Thank you. Alaael-Deen Shilleh: Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical in nature and involve risks and uncertainties detailed in our annual and quarterly reports filed with the SEC. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. The company undertakes no obligation to update these forward-looking statements. Joining me today are Laurence Penn, Chief Executive Officer of Ellington Financial Inc.; Mark Tecotzky, Co-Chief Investment Officer; and JR Herlihy, Chief Financial Officer. Today's call will track the presentation. Our fourth quarter earnings conference call presentation is available on our website, ellingtonfinancial.com, and all statements and references to figures are qualified by the important notice and end notes in the back of the presentation. With that, I will hand the call over to Larry. Laurence Penn: Thanks, Alaael-Deen. Good morning, everyone. Thank you for joining us today. I will begin on slide three of the presentation. Ellington Financial Inc. closed out 2025 on a high note, capping a year of consistently strong performance, portfolio growth, and liability optimization. In the fourth quarter, and building on the momentum established throughout the year, our adjusted distributable earnings continue to substantially exceed our dividends. We further expanded our investment portfolio from our unsecured notes offering and from our RTL securitization, which I will discuss later. While we were deploying the proceeds, I am all the more pleased with these results and ADE of $0.47 per share, which once again exceeded our $0.39 per share of dividends. For the fourth quarter, we reported GAAP net income, given that we experienced some short-term drags and we continue to enhance our balance sheet. Our results were driven by exceptional performance in our loan origination and securitization platforms, with outsized contributions once again from our Longbridge segment. Our results were also reinforced by excellent credit performance across our residential and commercial loan portfolios. In early October, we successfully completed a $400,000,000 unsecured notes offering, our largest to date, marking a significant step forward in the evolution of our capital structure, and are encouraged by the significant premium at which the bonds continue to trade today. Consistent with our stated intentions, we used a portion of the offering proceeds to reduce short-term repo financing. During the quarter, we also capitalized on the continued strength of the securitization market, completing seven additional securitizations over the course of the quarter. Most notably, in November, we completed our first securitization of residential transition loans. This securitization carries a revolving structure. So as our securitized RTL loans pay off, we can effectively reuse the securitization debt on a non-recourse, non mark-to-market basis to finance our flow of new RTL originations. Subsequent to year end, we completed our first securitization of agency-eligible mortgage loans. This expansion allows us to term out financing, replacing repo financing and further enhancing balance sheet resilience and capital efficiency. With that securitization, we have now expanded our EFMT-branded securitization shelf to encompass five different residential loan sectors across all of our major residential loan strategies. Since launching our RTL strategy back in 2018, RTLs have generated consistently strong returns on equity for us. The aftermath of 2022 and 2023, however, as credit spreads widened and the yield curve inverted, securitization economics for RTL were typically unattractive relative to simple repo financing. That calculus has now shifted. The yield curve normalized, with securitization spreads relatively tight, and with the rating agencies taking a more constructive view of the product, securitization economics are now superior for RTL. The result is attractive long-term non mark-to-market financing, helping us manufacture high-yielding retained tranches and enhance EFC's overall portfolio returns. As to our agency-eligible loan strategy, we initiated that strategy just last year, adding about $250,000,000 of loans in that sector over the course of 2025. This move reflected a more general theme that we have highlighted on our prior earnings calls: moving into sectors where the GSEs are gradually reducing their footprint, which clears the way for private capital to step in and capture attractive risk-adjusted returns. We view the agency-eligible sector, particularly those subsectors where we think LLPAs are too high, as presenting a potentially significant long-term opportunity for EFC, especially given all the obvious synergies with our underwriting abilities, our sourcing channels, and the quality of our securitization platform. We also believe that the opportunities in the agency-eligible sector space only get better as policymakers appear increasingly receptive to an expanded role for private capital. Shifting over to EFC's balance sheet, we continue to focus on optimizing our capital structure and maximizing our resilience. In the fourth quarter, thanks to our unsecured notes offering, we almost doubled the proportion of our total recourse borrowings represented by long-term non mark-to-market borrowings, and we increased our unencumbered assets by about 45%. Alongside these balance sheet enhancements, we continued to lean into attractive investment opportunities in the fourth quarter. We deployed a portion of the proceeds from the notes offering into new investment opportunities, expanding our portfolio by 9% even after accounting for all our securitization activity. Our portfolio continues to benefit from strong origination and acquisition volumes across non-QM loans, agency-eligible loans, closed-end second-lien loans, proprietary reverse mortgages, and commercial mortgage bridge loans. By year end, we had largely deployed the full proceeds of the notes offering to generate the precise amount of proceeds we needed to redeem our highest-cost tranche, and all this momentum has carried into 2026, positioning the portfolio for continued earnings strength into the new year. In January, with our common stock trading at a premium to book value per share, we raised common equity on an accretive basis, net of all deal costs. The issuance was not only accretive but highly targeted. We sized the offering to announce the redemption of our series A preferred stock, and we announced the redemption of that tranche immediately following the closing of the offering. The coupon on our series A preferred stock was over 9%. So starting tomorrow, when the required 30-day notice period ends and the redemption of that tranche is completed, our common shareholders will immediately see the benefit of a lower overall cost of capital. We will continue to monitor the preferred equity market with an eye toward potentially refinancing that capital at a later date and at a lower cost. With that, please turn to slide five and I will turn the call over to JR to walk through our financial results in more detail. JR? JR Herlihy: Larry. Good morning, everyone. For the fourth quarter, we reported GAAP net income of $0.14 per common share on a fully mark-to-market basis and ADE of $0.47 per share. On slide five, you can see the ADE breakdown by segment: $0.35 per share from credit, $0.04 from agency, and $0.13 from the Longbridge segment. Partially offsetting these results were net realized and unrealized losses on some of our other credit hedges as well as losses on residential REO. On slide six, you can see the portfolio income breakdown by strategy. In the credit portfolio, net interest income increased sequentially, and we also generated net realized and unrealized gains on non-QM retained tranches and forward MSR-related investments. We continue to benefit from excellent earnings from our affiliate loan originators along with strong credit performance across our loan businesses, including sequentially lower 90-day delinquency rates and continued low life-to-date realized credit losses in both our residential and commercial loan portfolios, as shown on slide 15. In the agency strategy, declining interest rate volatility and tightening agency yield spreads were broadly supportive of our portfolio in the fourth quarter. We generated strong results, led by net gains on both long agency RMBS and interest rate hedges. The Longbridge segment had another excellent quarter as well with positive contributions from both originations and servicing. Origination profits were driven by sequentially higher origination volumes, continued strong origination margins, and net gains related to two proprietary loan securitizations completed during the quarter. On the servicing side, steady base servicing net income, net gains on interest rate hedges, and a net gain on the HMBS MSR equivalent all contributed positively. Turning now to portfolio changes during the quarter, slide seven shows a 15% increase in our adjusted long credit portfolio to $4,100,000,000 quarter over quarter. Non-QM loans, agency-eligible loans, closed-end second-lien loans, commercial mortgage bridge loans, ABS, and CLOs all expanded. Our portfolio of retained RMBS tranches also grew, reflecting the securitizations we executed during the quarter. These increases were partially offset by the impact of loans sold in securitizations. Our short-duration loan portfolios continue to return capital at a healthy pace. For our RTL, commercial mortgage, and consumer loan portfolios, we received total principal paydowns of $207,000,000 during the fourth quarter, which represented 12.7% of the client fair value of those portfolios. On slide eight, you can see that our total long agency RMBS portfolio decreased slightly to $218,000,000 coming into the quarter. Slide nine illustrates that our Longbridge portfolio decreased by 18% to $617,000,000, as continued strong proprietary reverse mortgage loan origination volume was more than offset by the completion of two securitizations. Please turn next to slide 10 for a summary of our borrowings. At December 31, the total weighted average borrowing rate on recourse borrowings decreased by 32 basis points to 5.67% overall, as the impact of lower short-term rates and tighter repo spreads more than offset the impact of a higher proportion of unsecured notes. Meanwhile, we lengthened the term of some of our larger warehouse lines, and as a result, the overall weighted average remaining term on our repo extended by 38% quarter over quarter to nearly nine months, which is detailed on slide 24. Quarter over quarter, net interest margin on our credit portfolio decreased by 28 basis points, with lower asset yields more than offsetting a lower cost of funds. Our average asset yield declined, but that was only because we had a higher proportion of our assets constituting loans held in warehouses pending securitization. This larger warehouse portfolio was the result of the deployment of the proceeds from the notes offering. The NIM on agency decreased by nine basis points driven by a decrease in asset yields. At December 31, our recourse debt to equity ratio was 1.9 to 1, up modestly from 1.8 to 1 as of September 30. As noted earlier, we issued $400,000,000 of unsecured notes during the quarter, a portion of which replaced repo borrowings. However, the remaining proceeds were deployed alongside incremental borrowings into new investments and securitizations, and higher total equity, resulting in a modest net increase in the overall leverage ratio. For the same reason, our overall debt to equity ratio increased to 9.0 to 1 from 8.6 to 1. As Larry mentioned, our balance sheet metrics strengthened meaningfully during the quarter. Quarter over quarter, out of our total recourse borrowings, the share of long-term non mark-to-market financings increased to 30% from 17%, and the share of unsecured borrowings increased to 18% from 8%. Unencumbered assets also grew meaningfully, increasing 45% to $1,770,000,000, which was about 90–95% of total equity. Over time, we expect to continue this shift toward a greater proportion of unsecured, non mark-to-market, and longer-term financings through additional unsecured note issuance and securitizations, and the replacement of our highest-cost repo borrowings. We view this transition as a fundamental evolution of our balance sheet that is enhancing risk management and earnings stability, and which we hope will also support stronger credit ratings for EFC and lower borrowing cost over time. As I mentioned last quarter, we selected the fair value option on our notes, as we have for our other unsecured debt. We mark them to market through the income statement. As a result, we expensed all associated deal costs in October rather than amortizing them over the life of the notes. And with credit spreads tightening during the quarter, we also recorded an unrealized loss in the notes for the quarter. These nonrecurring items, together with some short-term negative carry pending full deployment of the new note proceeds, represented a significant drag on our GAAP earnings for the quarter. At year end, book value per share was $13.16, and the economic return for the fourth quarter was 4.6% annualized. With that, I will pass it over to Mark. Thanks, JR. Mark Tecotzky: This was a highly productive quarter for EFC. We continued to execute our loan-origination-to-securitization playbook, completing seven securitizations in Q4 across a variety of loan types, and that momentum has carried into 2026. Over the course of 2025, we expanded our footprint well beyond non-QM where we started. Our securitization platform now encompasses second liens, reverse mortgages, residential transition loans, and agency-eligible loans. Over time, EFC has gotten a lot more efficient at maximizing profitability and managing risk across the full life cycle of a loan. From purchase commitment through securitization exit, we target a gain-on-sale profit to the securitization trust while hedging execution risk along the way. Then at securitization time, we work to create high-yielding retained investments while adding to our growing portfolio of call options. When executed well in a cooperative market, this process is a virtuous cycle that is accretive to earnings at each step and is a key driver of the results we have delivered over time. Another benefit of our large securitization platform is that it allows us to provide consistent, competitive pricing to our origination partners and our affiliated originators. First, we earn a levered return while ramping for a deal; then at securitization, we sell in securitizations which typically comprise more than 90% of a given deal, and we retain things at attractive yields. What is more, the growing value of our stakes in those affiliated originators continued to generate strong results for EFC both during the quarter and throughout 2025. But we were not just productive on the asset side of the balance sheet. As Larry and JR mentioned, we are excited about the long-term benefits to EFC of being a Moody's- and Fitch-rated bond issuer. The combination of the substantial non mark-to-market financing we have built from being an active securitizer and now our latest bond issuance with very broad institutional participation has been important to protect earnings as asset spreads have tightened, and in the fourth quarter, we were able to both extend term and lower our repo financing spreads even further. I do not mean to imply that there is anything wrong with using repo as a financing tool. There is not. Repo markets functioned extremely well throughout 2025. We have also achieved tighter spreads in the investment-grade bonds, steadily reducing our dependence on short-term mark-to-market repo financing. There were several important government policy announcements this past quarter and throughout 2025 that are relevant to EFC. The announcement of $200,000,000,000 of GSE MBS purchases was probably the most prominent. I will not go into details because there are not many, but I will point out that this is not quantitative easing. Unlike QE, it is unlikely to meaningfully reduce duration or negative convexity in the market, and, critically, it does not create bank reserves. What it has done is put a floor under agency MBS spreads and, by extension, other AAA-rated mortgage bonds like non-QM, second lien, and agency-eligible AAA tranches. But perhaps the more important point is that we are operating in a time of heightened policy uncertainty: potential restrictions on institutional purchases of single-family rentals, G-fee reductions, LLPA changes, mortgage insurance premium cuts are all on the table, each carrying implications for prepayment speeds, for the relative attractiveness of private-label versus GSE execution, and maybe even for home prices. We have been focused on thinking carefully about these uncertainties and positioning the portfolio accordingly. As shown on slide four, our strong net portfolio growth was strong in the fourth quarter even after taking into account our strong securitization volume. This reflects years of methodically building out our capabilities to make it easy for partners to sell us loans while continuing to build symbiotic relationships with originators. Our goal is not to compete on price alone, but to differentiate through service quality and creative loan programs that respond to evolving markets. Not everything went according to plan this quarter. There have been some well-publicized challenges with bank loans, and our CLO portfolio, while small, was a modest drag. The RCL strategy also underperformed, weighed by securitization costs and REO workouts. Delinquencies there remain quite manageable, and in fact, we have seen strong resolution outcomes in January. We also had small losses in CMBS and ABS. Given that these kinds of air pockets were spread widely across credit-sensitive markets in Q4, the price drop is well beyond any change in fundamental value. If anything, these dislocations are creating opportunities. Looking ahead, we need to keep our eye on credit. The housing market is showing somewhat broader signs of weakness than a year ago, and more and more borrowers are having trouble staying current. We have kept significant credit hedges in place as shown on slide 20, which I view as idiosyncratic rather than systemic, and we will look to add securities where our analysis indicates attractive value. We continue to invest in our technology and sourcing to grow our loan origination footprint, which has been a key driver of our returns. Now back to Larry. Laurence Penn: 2025 was an important year for Ellington Financial Inc., and I would like to close by highlighting what we achieved and how those accomplishments position us for 2026. I will group 2025's achievements into five categories. First, we covered our dividend—adjusted distributable earnings in each of the four quarters of 2025—marking six consecutive quarters of dividend coverage. That consistency is particularly meaningful given how volatile markets have been. It underscores both the resilience of our earnings engine and the benefits of our diversification. Second, we significantly strengthened our liability structure. Over the course of the year, we completed 25 securitizations compared to just seven in 2024. We added several attractive new facilities. We improved terms on existing secured financing lines. Taken together, these efforts supported not only portfolio growth but also a meaningful and deliberate evolution of our funding profile—one that is more durable, more flexible, and better suited to support our long-term objectives—and set the stage for more notes offerings in the future. We issued $400,000,000 of unsecured notes. Third, our loan originator affiliates had exceptional performance. They grew origination volume, gained market share, and made excellent earnings contributions to Ellington Financial Inc.'s bottom line. Our vertical integration continues to provide us with a tangible competitive advantage, driving loan sourcing, supporting securitization scale, and strengthening our earnings power. Fourth, we continue to keep realized credit losses exceptionally low, which is a testament to our underwriting discipline and the depth of our asset management capabilities. Our delinquent inventory remains modest in size and is resolving nicely. Remember, we mark to market through the income statement, so for any loans that we expect to resolve below par, we have already taken that hit. Fifth, and central to our growth story, we expanded our portfolio by almost 20% year over year to nearly $5,000,000,000 while remaining disciplined on credit and risk management. That growth reflects both the payoff from technology initiatives and the addition of new strategic equity stakes with forward flow agreements to our diverse roster of sellers. The flow we are seeing at Ellington from our residential loan origination portal, which we launched just twelve months ago, is currently around $400,000,000 per month and growing. The success of our loan portal is a powerful demonstration of how Ellington's proprietary technology can scale EFC's sourcing footprint, improve underwriting efficiency, and deepen EFC's vertically integrated model. Complementing our investments in technology, we added two new strategic loan originator equity stakes in 2025, each paired with forward flow agreements that provide high-quality recurring loan flow. As to strategic initiatives, I am pleased to report that we are now in contract to acquire a small residential mortgage servicer, and are awaiting regulatory approval. Once completed, this acquisition will further enhance our vertical integration by bringing more servicing capabilities in-house. While it will take some time to build out the platform and design the servicing protocols, I believe that this acquisition will ultimately provide us with better control over our servicing outcomes and strengthen our ability to manage our loan portfolios across market cycles, especially for delinquent assets. Together, these technology and strategic initiatives were key drivers of our portfolio growth in 2025, and we expect them to continue to support momentum in 2026. Our priorities for 2026 are clear. We are focused on growing our loan origination market share while maintaining strong credit performance, which, together with our securitization platform, should drive disciplined portfolio growth. I am also pleased to report that 2026 is off to an excellent start. We are estimating that EFC generated an economic return of approximately 2% in January, with loan production and portfolio growth remaining strong, particularly in our non-QM, commercial mortgage bridge, and reverse mortgage loan businesses. Over EFC's nearly twenty-year history, I believe that we have consistently demonstrated disciplined stewardship of shareholder capital and a willingness to act opportunistically when market conditions are favorable. The common stock offering we executed efficiently with institutional orders alone and our decision to redeem our series A preferred stock reflect that approach. We evaluated a range of alternatives, including refinancing our series A preferred with new preferred equity, but given the persistent wide pricing we have seen in the preferred market, we felt the choice was clear. Using a targeted common stock offering, which was more than two and a half times oversubscribed, underscored strong market support for the transaction and its rationale. In summary, I believe that expanding our loan sourcing, securitizing frequently and efficiently, strengthening our liability structure, and optimizing our capital base, all combined with our disciplined risk and liquidity management, position Ellington Financial Inc. to deliver resilient earnings and stable dividend coverage over time and across market environments. Our team deserves a lot of credit for all the hard work they have put in to help make this happen. With that, we will now open for questions. Operator, please go ahead. Operator: Thank you. If you would like to ask a question, press 1 now on your telephone keypad. Once again, that is 1 to ask a question. We will take our first question from Douglas Harter with UBS. Please go ahead. Your line is open. Douglas Michael Harter: Thanks, and good morning. Hoping you could talk a little bit more about the decision to buy the servicer. Should we assume that we could get those outcomes without doing it in-house? Or is it more a way to kind of optimize the loan portfolio? And then just a clarification, is this something that would just be used for the Ellington portfolio, or could it be used for third-party clients? And, you know, is this entity owned within EFC, or is it going to be owned at broader Ellington? Laurence Penn: Hey, Doug. So there were really a few considerations. There has been a tremendous consolidation in the servicing industry. You saw Mr. Cooper buy Rushmore, and now Mr. Cooper being bought by Rocket. So the big-box servicers are bigger, and there is less high-touch servicing capability out there to work with borrowers that hit any kind of challenge. If they hit a speed bump, have a loss of income, get behind in a payment, we believe that it is important for us to generate the best risk-adjusted returns, that we have best-in-class protocols and best-in-class technology for handling later-stage collection. So this is not about scaling something to be a low-cost Fannie servicer where you are just dealing with servicing for massive efficiencies. This is just the recognition that as there has been consolidation in the servicing industry, there are not a lot of good alternatives to work with borrowers that hit any kind of challenge. So, you know, we just concluded that if we wanted to achieve that, it was something we had to build. We think that there is not enough of those capabilities out there in the marketplace that we could sort of assume that we could get those outcomes without doing it in-house. Owned within EFC. The way I think about it is our job right now is to build out the technology, to build out the protocols, to have this servicer be what we regard as best in class, and to demonstrate that to ourselves by seeing its servicing metrics—roll-to-delinquency rates and how you deal with borrowers that hit a speed bump—and how well it is operating efficiently. So the first thing, we need to build it, get it to where we want it to be. There is a lot of sort of champion–challenger. Once we do that, I certainly think that there is going to be other investors in the mortgage space that are going to recognize there is not a lot of capability out there now for later-stage collections and might well have an interest in benefiting from what we are building. Operator: Thank you, Doug. We will move now to Eric Hagen of BTIG. Please go ahead. Your line is open. Eric J. Hagen: Can you discuss conditions right now for applying repo to the retained tranches held from securitization for non-QM and RTL? Have the terms improved, and are there scenarios where you could apply even more leverage to the retained tranches, and what would the returns look like? Mark Tecotzky: Sure. I can take it. I mentioned in my prepared remarks, the repo market functioned really well this year. You had a gradually declining fed funds rate, and then the Fed injected some reserves into the system where they thought bank reserves were getting low. So repo functioned extremely well. Financing spreads on retained tranches are relatively low. I would say that those retained tranches are sort of inherently levered. You are dealing with small tranches at the bottom of the capital stack in securitization, where most of the cash flow is coming from excess spread. So those tranches, by nature of the investment and their leverage, already have a lot of price volatility. I do not see us wanting to add more leverage on those tranches. We tend to operate the company very conservatively when it comes to repo. By that, I mean that we have internal haircuts that are significantly higher than the advance rates our repo lenders would give us. So we might have loan strategies where lenders would lend us 90–95 cents on the dollar versus the loan, and internally, we will think that we want to only borrow less than that to make sure we have cash on hand if you have spread volatility, things like that. We have plenty of ability to raise leverage if we want to. I do not feel as though, given the inherent price volatility, the retained tranches are probably a place where we would look to add it. Laurence Penn: I was just going to add that, sure, we have some financing in that. But if you think about our long-term goals around our financing structure, liability structure, think about unsecured notes, which we did a debt deal at 7 3/8, now trading in the high sixes. Think about our preferred equity, eight-ish percent on preferred. It is our unsecured notes. Those are really more the instruments of financing that. Now, of course, those are not as low cost as repo, but remember, we are looking for this virtuous cycle, as Mark said. If we are well into the teens just on an unlevered yield and we are financing at 6–7%, it does not take much leverage, just from those instruments, to have 20% plus ROE. So we do not really need a lot of leverage. And you think about the kind of repo that we said we paid down when we did that notes offering in October in the fourth quarter—it was exactly the higher-cost repo that we would pay down first. Eric J. Hagen: Thank you very much. Thank you. Operator: We will move on to Trevor Cranston of Citizens JMP. Please go ahead. Your line is open. Trevor John Cranston: Hey. Thanks. Mark mentioned the government policy announcements during the quarter and the potential impact they have on Ellington. Can you maybe expand a little bit on specifically how you guys are approaching the agency-eligible market, given the potential for changes to LLPAs or G-fees, which could come about, I suppose, over the course of the year, and sort of how that flows through to pricing, prepay, and convexity risk on those types of loans? Thanks. Mark Tecotzky: Sure. Hey, Trevor. It is a great question. We do not have a crystal ball. We have a lot of resources to monitor potential policy changes, and I would say with this administration, lots of things are on the table. So the genesis of agency-eligible investor loans and second homes getting securitized in the private-label market—you have seen this off and on for the last five years. It certainly has accelerated some. The reason is that the loan-level price adjustments combined with the G-fee are so far in excess of expected losses in those markets that the private-label market has better pricing on the credit risk there, and it is overall better execution for loan originators. So it is flowing that way. Now, if there is a big change in LLPAs, it is possible the math could tilt back to Fannie/Freddie, and you could see a reduction in volume there. I would say right now the execution is not close. So a small change in LLPAs I do not think is going to move the needle. You are still going to see the lion's share of that volume in the higher LLPA category, not the super low LTV stuff, but still go in private label. We have to watch it. That is why I wanted to put that in the prepared remarks: pricing structures in the market are in place now, and if pricing structures in the market change, it can change the economics and the opportunity set and what we do. I would say right now it would take a fairly significant change in LLPAs and G-fees to swing the pendulum back over to GSE execution on those loans. But it can certainly happen, and that is something that we can monitor. We cannot hedge it, and we cannot control it. Now, the other implication is on the prepayment side of things. If you have a big enough change in LLPA—sort of like when people talk about prepayment models, they talk about elbow shifts—and changes in LLPA represent an elbow shift. You basically make certain loans more refinanceable. So when we evaluate either premium investments in that space or the IOs you create, you know, an inverse IO, you have a prepayment model, and the prepayment model is calibrated to current market levels. The prepayment model does not know that an LLPA cut or a G-fee cut can happen in the future. So what we do to take into account that risk right now in those sectors is ramp up speeds higher than what you would get just to a calibrated model now. We think it is enough for risk. That is something we want to manage to and take into account and properly probability-weight when we look at the distribution of recurrent returns. I would say that we are not the only ones in the market to view this as a heightened risk. So you can dial up your prepayment speeds on those sectors and still buy things at market levels with very attractive returns. It is not as though the other market participants are ignoring this risk or turning a blind eye to it in the pricing. Trevor John Cranston: Yep. That makes sense. Okay. Thanks very much. Mark Tecotzky: Thanks, Trevor. Operator: Thank you. We will now move on to Bose George of KBW. Your line is now open. Frank Gilabetti: Good morning, guys. Thanks for taking my question. You had another strong quarter in origination activity. Can you just discuss the current margins year to date, the current competition you are seeing? Laurence Penn: Mark, why do you cover the forward space? I will cover the reverse space. Mark Tecotzky: Sure. So in the forward space—non-QM, second liens, agency-eligible investor—I would say the competitive landscape in 2025 was competitive, but I would not characterize it as cutthroat competition. When we would think about our loan-level pricing that we put out every day, or where we are going to buy bulk packages from either affiliated originators or just originators we partner with, we could price things at levels such that I thought we had a gain on sale securitizing them and retain things at attractive yields. I think that it was competitive, but you could still price things with the margin. It was not the case in 2025 that the pricing pressure seemed cutthroat or that you were not compensated for taking the risk you are having to take on. Laurence Penn: Thanks. And then let me cover the reverse space. Let us separate it into two parts: there is the HECM originations—the FHA-guaranteed product—then there is proprietary. Rates have not changed much recently and are still high relative to 2020–2021. So HECM volume, industry-wide, has not grown a lot recently. If rates do drop, it would have a lot of room to grow substantially. We are—Longbridge has been at times the highest, second highest, always in the top three originators in the HECM space. There is competition. The margins—gain-on-sale margins—are driven to a large extent by spreads in the marketplace as to where you can sell the Ginnie Mae, the HMBS. That was certainly a tailwind in the last half of last year. It has been nice margins. But right now, margins are excellent, and volumes are quite steady. On the prop side, there is competition in the prop space, and again the gain-on-sale margin is going to be driven a lot by the securitization exit spreads. As long as securitization spreads remain tight—which, as I said, we just did record low spreads on our last deal on our AAAs—the gain-on-sale margins there I think will continue to be excellent. The volume there is growing as the products—the proprietary products—are expanding. We make tweaks to them all the time, and we feel really good about volumes there continuing to increase for Longbridge. Frank Gilabetti: Great. That is very helpful. Then I would love to get your thoughts on the potential changes to bank capital standards and whether you think banks could become more active? Mark Tecotzky: You know, it is interesting. All the credible mortgage researchers that have years of experience and access to data expected much more significant bank buying in 2025 than they actually saw. What you have seen them doing instead is, with these big negative swap spreads, just buying treasuries and match funding them with swaps. We have not seen a lot of bank buying in pass-throughs or CMBS holdings as well as their pass-through holdings. In Q4, you saw, I think it was the first time in many years, that banks reduced their pass-through holdings. Spread levels now are tighter than what they were for most of 2025. So maybe these capital regs will change things. I just do not know. I think it is certainly possible you could see them retain more loans. There has been some of that going on, especially the adjustable-rate loans like the 7/1 loans. I know some of these regs are intended to have banks get more involved in the servicing market. I think that is something you could see them do. But the big players in servicing—and the big transactions, the big sales, the big buyers—it has mostly been on the nonbank side for a while. We will have to see. Operator: Thank you. We will now move on to Timothy D'Agostino of B. Riley Securities. Your line is open. Timothy DeAgostino: Yeah. Hi. Thanks for the commentary today. I guess, at the start of '26, it would be great if you could maybe lay out some of the biggest priorities or what is on the top of mind for management in accomplishing in 2026. Understanding that integrating the mortgage servicer, increasing long-term financing, maybe within the portfolio, whether it is the allocation or in the capital stack using more cash to buy back preferred or something like that. It would just be great to get maybe a couple points that you all are looking to accomplish in '26 that are kind of at the top of mind. Thank you. Laurence Penn: Mark, let me handle the capital structure side of it, and then you could talk about what we are looking at in terms of maybe from a portfolio allocation perspective. On the capital structure side, look, we just did redeem that preferred. We have another preferred that is going to become callable at that point, and it becomes callable at that point. Of course, there is a chance we could call that as well. It is something that we would absolutely consider at that time. We also will continue to monitor the preferred market. We saw some of our peers, in terms of where they issued preferred, and we did not like it, did not like the prints that we saw. We did not think that was appropriate for us to issue there. But should an opportunity arise, we could absolutely look to replace the preferred that we redeemed with probably similarly sized preferred. I think that you look at our capital structure right now, and as I mentioned, we think that our marginal use of that capital is better than the coupon on the preferred. There is no reason we are in no sort of real hurry to call it. We have a lot of optionality when that happens. As long as that spread is a little tighter than the last one, we could be in the market with certainly another offering later in the year. We will see. You know, there is no real science around this, but I think most companies would probably look at just a slightly higher percentage of the equity base in preferred as something that was more typical in the space. So I think that is something that we will monitor throughout the year. And then, absolutely, I think if we need the capital—and I mentioned the fact that our unsecured notes, the Moody's- and Fitch-rated notes that we issued early in the fourth quarter—they have tightened. Of course, we would love them to continue to tighten. JR Herlihy: Hey, Tim. Thanks for the question. I would say that those five categories Larry laid out—covering the dividend with ADE and continuing to have consistent and strong earnings; strengthening our liability structure; supporting our originator affiliates, more market share growth; managing through delinquencies—we talked about how delinquencies declined quarter over quarter; make a lot of progress cleaning up sub-performers, continue on that theme; and then continuing to grow—are really key to our performance and growth accomplishments in 2025 and are very relevant to your question for 2026. Just looking at the numbers, we were almost $5,000,000,000 of portfolio holdings at year end. That was $2.5 billion a little more than two years ago, and leverage has actually declined over that same period from 2.3 to 1.9. So we have been able to accomplish that growth without taking up leverage. Looking forward in 2026, I do not want to just say more of the same, but kind of continuing to expand on each of those themes, supplementing them with additional strategic relationships with originators and continuing to add on the technology front, just improving the overall earnings quality, if you will, that we are delivering to shareholders. We want steady earnings, steady book value, dividend coverage, and keep that franchise going. And by the way, think about some of our peers—other mortgage REITs—that have hit some big stumbling blocks where they can borrow money, especially on an unsecured basis, has suffered immensely. We want to be the most attractive for debt investors to place their money in our space. My doubling comment is really about credit and Longbridge. We have taken agency down, and that has taken leverage down, and I am really focusing on the credit and Longbridge portfolios when I give that statistic. Mark Tecotzky: I would just leave you with one thought. What we talk about in the earnings call, what you see in the earnings presentation, is what EFC is currently doing—how we drove returns in 2025 and the focus of this call, Q4 2025. But it is almost twenty-odd years since this company has been around—private and then going public—and over that time, we have generated returns in a lot of areas, and I think it speaks to the breadth of the capabilities of Ellington Management Group. You have seen CRT be a driver from time to time, legacy nonagencies, unsecured consumer, auto, aircraft; you have seen us involved in mobile home lending. We have tremendous capabilities in CLOs, tremendous capabilities in buying distressed commercial loans. There are so many capabilities, skilled PMs, experienced researchers across almost all structured products within Ellington. I fully expect in all these areas that we are not always going to be doing what we are doing right now. The opportunity set for Ellington Financial Inc. will evolve over time. You could see an opportunity in auto; you could see an opportunity in unsecured consumer. Those have been small parts of the portfolio recently, but they can get interesting and exciting and priced really attractively over time. I put in that thing about the policy risk now because it is true. We are thinking about it. We are trying to position for it. We can predict what is likely, but we do not have a crystal ball to predict exactly what is going to happen. The resources and capabilities that Ellington Financial Inc. is able to access by its shared services agreement with Ellington Management Group, I think, gives us a tremendous opportunity set. Laurence Penn: I want to highlight one sector, Mark, which is the small-balance commercial sector. Look, everyone knows that there are sectors of the commercial mortgage market that have been under a lot of stress, and I think we have done a great job in terms of managing our portfolio with really minimal issues there. That has put us in a great position. We are seeing auctions from sellers, and it is such a highly fragmented market. It is a very sometimes geographically localized market. So we do not compete—certainly not with big banks—on those bridge loans. Sure, spreads have tightened overall, but our financing spreads have also tightened commensurately. That has been a growth area for us recently. I think it will continue to be. The technicals are, well, bad for sellers, good for buyers. So I think that is definitely an area where we are going to continue to see stress and opportunity. Timothy DeAgostino: Awesome. Well, quick second question: regarding book value today, I might have missed it earlier, but could you give us an update, whether that be in a dollar figure or just directionally? JR Herlihy: Good morning, guys. Thanks for taking the question. We mentioned an economic return of approximately 2% for the month of January. We have not put out January month-end yet. We should be putting those out again in the next few days—early next week. So that would imply that book value is up one-ish percent, net of the dividend. Those numbers are rough now, but that is the direction. Operator: Thank you. We will now move on to Jason Weaver with JonesTrading. Your line is open. Jason Weaver: Awesome. Thank you again for the time this morning. Congrats on the quarter. Just thinking about—in the prepared remarks, you spoke to the expanded opportunity set, partially due to the expansion of the seller network. Given the growth in size and flexibility of your financing capacity, would it be fair to expect a wider range on intra-quarter recourse leverage and a greater acceleration of securitization activity moving forward? JR Herlihy: Could you repeat that? And a greater acceleration of securitization deals? Jason Weaver: Yeah. So, you know, given how the flexibility and scope of your financing platform has increased markedly, would it be fair to expect a wider range on leverage moving quarter to quarter? JR Herlihy: Yeah. So, certainly, intra-quarter, like if we showed month-end recourse debt-to-equity, it fluctuates. We had two deals that had not closed as of January and closed in early February. Pushing those forward from January would have taken leverage down, but they were still on balance and closed early in the month of February. So there is certainly noise within a quarter. We will see expansion to the extent we can do more. I think thematically, our securitization pace has been really high. We are off to a strong start. We are through six, seven weeks of 2026. We are ahead of the pace of 2025, which was almost above three times faster than 2024. So that acceleration continues, at least so far. I think if something happens where we feel like securitization spreads—let us say they widen out—we do not like them, then I think it is quite possible that we would have more loans in warehouse at quarter end and slightly higher leverage, but that would be somewhat temporary. Jason Weaver: Got it. Thank you for that. And then the new RTL securitization that you priced, can you speak a little bit more to the structure there? Specifically, I was wondering what the reinvestment period window looks like. Laurence Penn: Sure. As I mentioned, it is a revolver. I believe it is a two-year reinvestment period. So every month we can replace basically the loans that pay off with new loans. It is important because the average life is obviously a lot less than two years for those loans, so it makes the financing a lot more efficient. Jason Weaver: Got it. That makes sense. I appreciate the color. Laurence Penn: Alright. I think, operator, I think that is it. Look, I apologize for the delay. Thanks for sticking around for the call. We will make sure that we pay the phone bill on time next time. We appreciate your patience. It was a great quarter. We look forward to a great year. Thank you. Operator: We thank you for participating in the Ellington Financial Inc. Fourth Quarter 2025 Earnings Conference Call. Your line is now disconnected, and have a wonderful day.
Operator: Please continue to stand by for the Loar Holdings Inc. Q4 conference call. We will begin momentarily. Greetings, and welcome to the Loar Holdings Inc. Q4 and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ian McKillop, Director of Investor Relations. You may begin. Ian McKillop: Thank you, Brock. Good morning, everyone, and welcome to the Loar Holdings Inc. Q4 and Full Year 2025 Earnings Conference Call. Presenting on the call this morning are Loar Holdings Inc.’s Chief Executive and Executive Co-Chairman, Dirkson R. Charles; Executive Co-Chairman, Brett N. Milgrim; Treasurer and Chief Financial Officer, Glenn D’Alessandro; as well as myself, Ian McKillop, the Director of Investor Relations. Please visit our website at loregroup.com to obtain a slide deck and call replay information. Before we begin, we would like to remind you that statements made during this call, which are not in fact, are forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the company’s latest filings with the SEC available through the Investor Relations section of our website or at sec.gov. We would also like to advise you that during the call, we will be referring to adjusted EBITDA, adjusted EBITDA margin, and adjusted earnings per share, each of which is a non-GAAP financial measure. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliations. To begin today, I will now turn the call over to Dirkson. Dirkson R. Charles: Thanks, Ian. Good morning to my mates and all our partners participating on this call. I am Dirkson, Founder, CEO, Executive Co-Chairman of Loar Holdings Inc. As you all know, Loar Holdings Inc. was founded fourteen years ago with the mission of building an aerospace industrial cash compounder, wrapped in a culture that all our mates can be proud of. Fourteen years into our journey, I am as excited about our future as I have ever been. In 2025, we once again delivered predictable and consistent financial performance, exceeding all our key annual financial goals. Sales, adjusted EBITDA, adjusted EBITDA margins, and free cash flow were all annual records for Loar Holdings Inc. But my excitement really comes from looking forward to 2026 and the opportunity to break all those records we set last year. Look. Looking into the future, all our end markets have strong tailwinds. The commercial aftermarket has experienced an increase in the average age of the in-service fleet. Pre-COVID, the average was approximately 11 years. Today, it sits at fourteen-plus years. The older the fleet, the more demand for aftermarket parts. We love that. This is a trend we can expect to continue well into the 2030s, as delivery of new aircraft continues to fall short of demand. In addition, the commercial aftermarket has witnessed a decrease in the number of aircraft retired each year. Historically, 2.5% of the fleet is retired. However, from 2022 through 2025, the retirement rate has continuously decreased, reaching a low of 1.5% in 2025. Aging fleets, reduced retirement, all lead to one thing: greater demand for our parts into the future. With regards to the equipment manufacturers, who are sitting on record backlogs of orders for future delivery, they have done an excellent job in addressing ongoing supply chain challenges, shortages of skilled labor and raw materials, constrained production, and geopolitical uncertainty to now be able to increase production. For example, Airbus and Boeing plan to produce approximately 1,900 and 1,300 aircraft over the next two years, respectively. This would represent a compound annual growth rate increase of 15% over 2025 production rates. Our proprietary products that align fit on these aircraft will generate increased sales for us as production ramps. Now, with regards to the defense market, which has been heavily influenced by the current geopolitical environment, European nations have increased their military spending to the highest percentage of GDP in decades. In the U.S., there is talk of a $1.5 trillion defense budget. Combined, these trends will lead to greater opportunities for us to provide more products and solutions. So given our balanced portfolio, 50% OE, approximately 50% aftermarket, the broad spectrum of our products across all end markets, combined with executing all along all our value drivers, we expect to continue to grow sales at 10%+ organically and adjusted EBITDA at 15%+ annually into the foreseeable future. We continue to grow inorganically as well. Every time we add a new member to our family of companies, we view it as adding capabilities to the Loar Holdings Inc. toolkit. The larger the toolkit, the larger the revenue synergies. I am pleased to welcome our new mates from L and B and Harper. L and B brings new capabilities to our toolkit and we are excited to add our new mates to the team. Harper is a company I have personally known for eighteen years and could not be happier knowing that this once employee-owned company chose us to carry their brand into the future. No option, just a good old-fashioned getting to know each other and realizing that our culture is made for a perfect match. Bob and Carla, welcome to team Loar Holdings Inc. With that said, Loar Holdings Inc. is a family of companies with a very simple approach to creating shareholder value. First, we believe that providing our business units with an entrepreneurial and collaborative environment to advance their brands, we will generate above-market growth rates. Since our inception in 2012 through the end of calendar year 2025, we have grown sales and adjusted EBITDA at a compound annual growth rate of over 30–40%, respectively. Second, we executed along four value streams. We identified pain points within the aerospace industry and look to solve those problems through organically launching new products. In calendar year 2026, we expect that new product growth will be the number one driver of our organic growth as we qualify new parts in the first half of the year, fueling increased sales starting in 2026. As you all know, we track this pipeline of opportunities monthly. This pipeline represents a list of opportunities derived from listening to our customers, identifying their pain points, and developing direct solutions for them. These solutions are created from the sharing of ideas, best practices, and customer synergies across the group, which directly results in a high degree of collaboration that we foster across our business units. The pipeline represents over $600 million in sales over the next five years without including the benefit of top-line synergies we expect to achieve since adding the capability to produce fans, motors, interior latching mechanisms, and C-track fittings to our toolkit through the additions of L and B and Harper. We are focused on optimizing the way we manufacture, go to market, and manage our companies to enhance productivity. Each year, we will identify initiatives that will allow us to continually improve our performance, with a focus on one or two major efforts that can be expected to expand margins. We continuously investigate ways to improve our mine collect, gather, and utilize data. Enhancing our management ERP and other systems and processes allows us to efficiently leverage data and drive financial and operational efficiencies. Each year, we achieve more price than our cost of inflation, which is one of the levers we use to continuously improve margins year after year, except for the occasional temporary dilution due to acquiring a business with diluted margins or incurring costs because of being a public company. Regardless of these temporary headwinds, we continue to improve our margins. Most importantly, we are committed to developing and improving the talent of our mates because our success is solely, solely a result of their dedication and commitment. To all my mates, as always, thank you so much for your commitment and hard work. I will now turn it over to Brett to walk you through the key characteristics of our portfolio and our commitment to our inorganic growth. Brett N. Milgrim: Thanks, Dirk, and good morning, everybody. One of the key drivers of our exceptional performance this quarter and this year, and maybe more importantly our consistent performance over a very long period of time, is because we have a very diverse portfolio of products that covers virtually all end markets, platforms, customers, and is balanced across the OE and aftermarket spectrum. Said another way, we have content on virtually anything that flies today, and that is by design as opposed to relying on any particular platform, end market, or specific product line. We just want to have exposure to and be balanced across a very large and growing overall aerospace and defense market. We accomplish this through a very broad portfolio, the vast majority of which consists of proprietary products, which allows us to drive growth, achieve value pricing, and create strong customer relationships and corresponding cross-selling opportunities. Effectively, we have positioned ourselves to capture the 20-, 30-, 40-, or even 50-year annuity that any one particular platform may provide, whether it is a commercial aircraft, military aircraft, or in part of its OE or aftermarket portion of its life cycle. Our proprietary products are not only growing as a percentage of our total portfolio, but also growing in the aggregate, as we have a long history now supplementing our organic growth with M&A activity and a large pipeline of opportunities. What we are seeing today with M&A is a very active market with many willing potential sellers, but as such, we think a market like this requires an appropriate amount of discipline, whether it is related to price or just the quality of the assets for sale. That discipline is something we have been very focused about in creating the portfolio we have today, and as a result, we have done one to two deals a year for a fairly long time now, irrespective of macro conditions or the like. So we remain a very active and consistent acquirer of assets and fully expect 2026 to be another active year. In fact, since going public less than two years ago, we have invested over $1.1 billion of capital in M&A, which is far and away our greatest use of free cash flow and, along with strong organic growth, has resulted in us doubling the size of the business in two years as a public company when you include our latest announced deals. To Dirk’s earlier point, we feel very confident in a business model that, through organic means and acquisition-related growth, can at least triple every five years, and we are certainly ahead of that pace since becoming a public company. Our newest family members, L and B and Harper, both represent the type of businesses that we want in the portfolio. Obviously, we have not had the chance to speak since announcing the closures of either L and B or Harper, but we are really excited about both. I think these companies represent what I was mentioning earlier—two very different product lines serving different end markets and customers—but both are right down the middle of the types of businesses we want to own: proprietary content in niche markets with meaningful aftermarket opportunities. Just to review two of the names that are on this page here, LMB—I think most of you know because that is a business that we announced many, many months ago—we are very glad to finally have closed that, I think, in December. LMB is a business located in the southern portion of France. It is a great business that manufactures what we call engineered cooling devices and solutions. Said another way, think customized and ruggedized fans, and motors and systems that go into niche applications in military content, whether it is an aircraft or a ground vehicle. It is a 100% proprietary product portfolio with what we think is a very, very meaningful opportunity to increase the aftermarket side of the business today, which is less heavily weighted towards currently. It also serves an end market that we have not really had a lot of exposure to, but it has a lot of tailwinds today, which is the European defense market. So we think that is going to be very strong for the next couple of years. And it is a business that today is margin accretive to overall Loar Holdings Inc., and it has a real growth opportunity to enter the world’s largest military market here in the U.S., which it does very, very little of. So we are very excited about the opportunities in front of us. Harper, as Dirkson referenced, is actually a business that we have been familiar with since our days at McKechnie. This is a business that, again, we call interior securing components, but think interior latching mechanisms and the like. We are familiar with it through McKechnie because we had a latching business called Hartwell back in the 2007 to 2010 time frame, and we are very familiar with Harper due to its stellar reputation, high-quality products, and excellent, excellent relationship with Boeing. So Harper serves a completely different market than LMB in that it primarily serves the commercial market. Like I said, it has an excellent, excellent representation with Boeing. They have been recognized as one of Boeing’s most trusted suppliers, and we think that relationship can foster further cross-selling opportunities with Boeing, with other parts of the commercial market, and really be a value-added piece of the portfolio. We are really, really excited about both LMB and Harper. We can already see the collaboration with other business units, as we think these new products are going to be value added to the overall portfolio, which Ian will tell you about next. Ian McKillop: Every quarter, we share this slide about highlighting our products, but the real power of this portfolio is not just any one of these products. It is the combined capabilities that Dirkson spoke about earlier. We have added two new capabilities: interior latching assemblies, as you can see in the top right; hyper fans and cooling devices, with our acquisition of LMB. This product offering, with over 25,000 SKUs, of which no one SKU makes up more than 3% of our overall revenue, brings our customers something that is incredibly unique: a set of capabilities that can serve them and can be adjusted to meet their needs. I will now pass the call back to Glenn. Glenn D’Alessandro: Thank you, Ian. Good morning, everyone. Let me start by discussing sales by our end markets. This comparison will be on a pro forma basis as if each of our businesses were owned as of the first day of the earliest period presented. This market discussion includes the acquisition of Applied Avionics in Q3 2024 and BeeLite in Q3 2025. It does not include our latest acquisitions of L and B Fans and Motors or Harper Engineering. We achieved record sales during calendar year 2025. In total, our sales increased to $500 million, which is a 15% increase as compared to the prior year. Our Q4 sales were also a record, increasing 17% versus the prior-year quarter. These increases were driven by strong performances in commercial aftermarket, commercial OEM, and defense. Our commercial aftermarket sales saw an increase of 19% in calendar year 2025 versus 2024. It increased 34% in Q4 2025 versus Q4 2024. This is primarily driven by the continued strength in demand for commercial air travel and an aging commercial fleet. Our total commercial OEM sales saw an increase of 11% in calendar year 2025 versus 2024. It increased 8% in Q4 2025 versus Q4 2024. This increase was driven by higher sales across a significant portion of the platforms we supply, along with an improvement production environment for commercial OEMs. The increase of 19% in our defense sales in calendar year 2025 versus 2024 and 14% in Q4 2025 versus Q4 2024 was primarily due to strong demand across multiple platforms and an increase in market share as a result of new product launches. Defense sales will continue to be lumpy given the nature of the ordering patterns of our end customers for our products. Let me recap our financial highlights for 2025. Sales increased 19.3%, or 16.9% excluding acquisition sales, over the prior period. Our gross profit margin for Q4 2025 increased by 320 basis points as compared to the prior-year period. This increase was primarily due to our operating leverage, the execution of our strategic value drivers, as well as a favorable sales mix. Our increase in net income of $9 million in Q4 2025 versus Q4 2024 is primarily due to lower interest. Adjusted EBITDA was up $10 million in Q4 2025 versus Q4 2024. Adjusted EBITDA margins were 38.7% due to our operating leverage, the execution of our strategic value drivers, and a favorable sales mix. This was partially offset by additional costs associated with being a public company, including Sarbanes-Oxley compliance, and additional organizational costs to support our reporting, governance, and control needs. For the full year of 2025, sales increased 23.2%, or 12.7% excluding acquisition sales. Our gross profit margin for the full year was 52.7%, which is up 330 basis points as compared to the prior-year period. Our net income increased $50 million in calendar year 2025 versus 2024. This was driven by lower interest expense and higher operating income. Our adjusted EBITDA was a record $189 million in calendar year 2025. This is up $43 million versus 2024. Adjusted EBITDA margins were up 180 basis points due to our operating leverage, the execution of our strategic value drivers, and a favorable sales mix. This was partially offset by the additional costs associated with being a public company. We do not see an increase in these types of public company costs going forward. We believe the run rate of these costs is fully reflected in our calendar year 2025 results. Our free cash flow conversion, which is defined as cash flow from operations less capital expenditures, was 138% for calendar year 2025, and it is 160% if you exclude a one-time $10 million tax benefit we received from the One Big Beautiful Bill Act. Let me now turn the call back over to Dirkson to share our outlook for 2026. Dirkson R. Charles: Thanks, Glenn. Look, we are extremely excited to share upward revisions to our 2026 outlook. As I said earlier, each of our end markets is experiencing strong demand tailwinds. So our focus is on executing our value drivers to continue to position us to at least, as Brett said earlier, at least triple adjusted EBITDA every five years including acquisitions, as we have done consistently since our inception except during COVID. As always, our view is on a pro forma basis assuming we own all of our business units since the beginning of 2025. With that said, we still expect commercial OEM and aftermarket growth will be low double digits in 2026 for all of the reasons I highlighted earlier, while our defense end market sales will be up mid-single digits, as we come off a fantastic year of 19% growth in 2025 over 2024. As we have always said, growth in the defense end market will be choppy. These market assumptions, along with the additions of L and B and Harper to our family of companies and our continued execution of our value drivers, allow us to meet or exceed the following for calendar year 2026: net sales between $640 million and $650 million; adjusted EBITDA between $253 million and $258 million; adjusted EBITDA margin of approximately 40%. Once again, we demonstrate our ability to continually improve margins. Net income between $59 million and $63 million, while adjusted EPS between $0.76 and $0.80 per share, which is a reduction in our guide only because of the incremental non-cash depreciation and amortization related to the acquisitions of L and B and Harper, as well as the interest associated with funding those acquisitions. As we discussed earlier, capital expenditures will be in line with our historical rate of approximately 3% of sales, at $19 million. We have increased full-year interest expense to $80 million because of the funds we borrowed to fund the acquisitions of L and B and Harper. We expect both acquisitions to meet our investment hurdle of doubling adjusted EBITDA in three to five years and to be accretive to earnings in calendar year 2027. Our effective tax rate 25%, depreciation and amortization of $75 million, and non-cash stock-based comp of approximately $17 million. Share count remains the same, 97 million. So look. Please note that all of the amounts I have just outlined for you relating to calendar year 2026 performance assume no additional acquisitions. However, as Brett said earlier, our drumbeat is to complete one or two acquisitions each year. We just cannot predict the timing of such acquisitions, and I will add that the activity around acquisitions is even at a higher level than it was when we chatted last quarter. So we are excited about that also. Operator: Okay, with that, we will now be conducting a question-and-answer session. If you would like to ask a question, please press star-one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star-two if you would like to remove your question from the queue. If using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question today comes from John Gordon of Citi. Please proceed with your question. John Gordon: Hey, guys. Thanks for taking my question. I have one clarification and one kind of more real question. The clarification is obviously we see the revised outlook and across all the metrics that I think drive the stock most, it has gone up—margin, you know, EBITDA, etc. And I think the analysts that are close to the name kind of understand what is going on here. But I wanted to just give you a chance to spend an extra second on the adjusted EPS kind of revision lower and what is driving that, and just make sure that it is super clear for everybody. Yeah. Glenn D’Alessandro: John, thank you for asking the question. I really appreciate that because we realized that can be a little bit confusing for folks. Look. When we gave our guide last quarter, we did not have the acquisitions included in it, right. So that did not include LMB and it did not include Harper. And happens always when you are doing an acquisition, you incur accounting, legal fees, and the like—let us call it, we call those transaction expenses, right. That is incurred, that affects EPS. In addition—those are one-time in nature though—yeah. In addition, we are required for accounting reasons to write up the assets and also write off some of the intangible assets to amortization. All non-cash that gets charged against net income. All of those are what is driving the change, including the additional interest, to the EPS. So non-cash mostly is the biggest driver. John Gordon: Got it. Thank you. Sorry for a second there. That is very helpful. My sort of more real question is you sounded very optimistic about the M&A pipeline. And that is something we have heard from other companies as well. And we have seen it in rising deal activity across A&D. You mentioned one to two M&A deals a year. I wanted to just sort of press on that. And the question is could we see an elevated rate above that range for a bit? Could we see deal size go up? You know, how do you think that this kind of more active and maybe more interesting deal environment manifests itself for Loar Holdings Inc. versus historical norms? Brett N. Milgrim: The short answer, John, is yes and yes. Meaning we are seeing more deal flow. We are seeing more active sellers. We are just overall seeing a more active market in this space, given what we see as good visibility, good performance, and quite candidly, good valuations, which makes for active sellers. Like I said before, though, that also means that we need to have more discipline because we need to make sure that we see the requisite returns in anything we do. So we talk about one to two deals a year simply as a proxy, given the historical trends. In any given year, it could be significantly more. It really just depends on the opportunities in front of us, and we will always, always be opportunistic and always, always be disciplined such that if prices get too high or quality of assets for sale are too low, or there are things that we do not see the return in, we are not going to do it simply and exclusively because it is an “active market.” We have been very, very consistent over, I think, a relatively long period of time now. And I think our track record kind of speaks for itself. So I use the one to two deals as a proxy and nothing more. And we are going to be opportunistic as we go here in 2026. John Gordon: Appreciate it. Great color. Thanks, guys. Brett N. Milgrim: Yeah, no problem. Thanks, John. Thanks, John. Thanks, John. Operator: The next question is from Kristine Liwag of Morgan Stanley. Please proceed with your question. Kristine Liwag: Hey, good morning, everyone, and thanks for all the color you have provided. You know, in the quarter, you guys called out 17% organic sales growth. I was wondering if you could talk about the building blocks of that organic growth. It is pretty robust above industry market. So if you were to look at, you know, on a same-store, you know, apples-to-apples, volume, what would it have been? And then also how much of this growth was from your new product introduction? And how do we think about this throughout 2026? Dirkson R. Charles: Hi, Christine, and thanks for asking the question. In terms of what is driving our—I will use your terminology—organic growth. Look, I think I have said this before. Prior to the most recent time, I would say volume was the biggest, the biggest driver, if you break it up between volume, price, and new business. But as we think about 2026 and going forward—and 2025—the new product introduction is really the largest driver of our organic growth and which is where we think we actually differentiate ourselves from others, because that is $600 million of opportunity that I talked about earlier. We are actually at the cusp now of really starting to get the benefit of that. So in 2026 and beyond—so since 2026, 2027—we expect that will be the largest driver of organic growth going into, you know, the next 12, 24 months. Brett N. Milgrim: Yeah. And just to add something, you know, for the calendar year 2025, I think our quote-unquote organic growth is actually better than as represented as the number we put in the Q, and you saw it on what Glenn’s slide—pro forma growth, which really is the more appropriate measure to measure organic because it gives us credit for the organic growth in the acquisitions we did—was actually closer to 15% relative to the 12.9% as reported. So 15% organic pro forma growth, as if we had owned all the businesses at the beginning of the initial period, I think, is really, really spectacular and something that we are very proud of. Kristine Liwag: Thanks for the color, guys. I mean, these are standout numbers. And, you know, following up on the deal dynamics, being able to close LMB fans and motor, you know, being a French asset. You know I think it seems like a pretty incredible way to close that kind of deal, especially with the French government ownership. When you are looking at the pool of available assets, how much more interest do you have in expanding out international capabilities? Is there more of a potentially roll-up fragmented pool you can pull from in the European market? And how does your ability to close LMB give you confidence that maybe, hey, you have got another rich pool to pull from. Yeah. Brett N. Milgrim: Excellent question. So look, as you guys know—and you know, particularly Christine—it is a global industry, aerospace that is. And so I think over time you will see us continuing to do more and more outside the borders of the U.S. specifically. That being said, the opportunity set remains huge, particularly for the size deals that we are looking to acquire. We have more opportunities than we will ever get to. I have said that many, many times. And in Europe in particular, now that we have four businesses over there, which really serve as a base of infrastructure and management, talent, and resources that we never had before, it exponentially increases our ability to build off those things, to own more assets. So Europe obviously is a very big market. We are just getting started there. So whether it is Europe, the U.S., or elsewhere, I think you are going to continue to see us expand internationally and, you know, mirror the footprint of the overall industry. Kristine Liwag: Super helpful. And if I could sneak a third one in, you know, we mostly focus on your commercial aerospace business, but defense has been also seeing significant increases. You know, Dirkson, you talked about the potential $1.5 trillion. And look, in Europe, if they want to increase to 5% of GDP, you are seeing fairly large numbers across the board. What we have seen is that the concern about the ability of the supply chain and the industrial base to support this growth has been a priority. When you look at your role as a supplier in this environment with strong operational skills, I mean, look at your margin and your ability to deliver to your customers. How do you see yourself in that ecosystem? What problems could you incrementally solve and could you see outsized growth in your defense business versus what top lines are just from that vertical integration and the supply chain and your ability to be able to get product in the hands of your customer? So not to lead the witness, but—and maybe I did a little bit—it would be helpful to understand how you think about that defense growth. Ian McKillop: Yeah, I mean, you know, Christine, this is Ian. We always view defense growth as lumpy, right. But I think that actually, given that fact, we have a very strong operational mindset that we can react when our customers need us to react. So I think that is positioned us well because you are right. I mean, across the global environment, everything is pointing to strong tailwinds in defense. And our team is ready to meet that need, should it be there or when it is there. So I think we are well positioned to capture those things. And I think, you know, to Dirkson’s point on that $600 million list of opportunities, right? Defense opportunities are in there. And so we are focused on helping support our customers in the way they need it. And we welcome any new opportunities as they come. Dirkson R. Charles: If I can add. And by the way, Christine, that is another really, really great, great question. I just want to piggyback a little bit on what Ian was leading you. So yes, we think that we could solve a lot of the supply chain—I will use your terminology—issues relative to the plethora of capabilities that we have, right, which is why we think about our toolkit. And I will tell you that we have had numerous conversations with customers that lead to opportunities that are not adding to that $600 million at this point. So I will just give you an example. LMB—there are a number of opportunities where we could solve issues on this side of the pond that are not being solved overseas because of the lack of the customer synergies that LMB had existing by itself, right. So we will be able to solve a lot more issues with the supply chain because we can now introduce that capability to customers on this side of the pond. That is just one. There is a plethora of others. And so I would not be surprised if—giving a little bit of guidance here—if that $600 million went up significantly by the time we get to the next quarter in terms of the opportunity set, driven by your question. There is going to be a number of defense opportunities that we can be helpful with, adding those capabilities. So great, great question. And by the way, congratulations on the promotion. I heard. Thanks, Erickson. Operator: The next question is from Sheila Kahyaoglu, Jefferies. Please proceed with your question. Sheila Kahyaoglu: Good morning, guys, and thank you so much. I have three questions, if it is okay. So maybe I will start on the acquisitions—Harper and LMB. I know you guys have given lots of color, and I appreciated on LMB what it does. And Harper too, given it is such a great supplier to Boeing. Maybe can you clarify the 100% proprietary products? How much are the process? Do you own the manufacturing, the IP? It all? As I have been asked a few times, and I think, you know, there are some misconceptions around the type of assets you guys buy and what proprietary means. And then as you think about the scope, I think LMB makes a lot of sense. As you answered to Christine on expanding it, how do you think about other markets Harper or other suppliers Harper could get into? Thanks. Dirkson R. Charles: No. Another really good question. Let me, let me, let me start from your last and I will go to your initial question. Okay. Let us start with Harper—100% proprietary. 99.9%. Some of them are listening, so I will be totally straight. 99.9% proprietary. And the way we think about proprietary—I will use this terminology. I know there are lawyers listening—but we think of it as where you are the primary source. I will use that terminology of the product that you are supplying. It is your design. 99.9% for Harper. Their design, their names on the drawing. You cannot go anywhere else to get that part than to go to Harper. So let us take that definition and expand it to the total portfolio of Loar Holdings Inc., because we get this question a lot. When we did our S-1 two years ago, we said 85% of our portfolio was proprietary. I will tell you this today, because we just recently did that math: 85% is now 89%. So it is all heading in the right direction. And the reason being is because that is where the growth is coming from—our proprietary products. And that is where we are investing our capacity, and not just inorganically, but also organically. So that has grown tremendously. And the other place you can see it—and you can check the box as to whether or not you have a business or a portfolio that is really proprietary—is to look at margins. That is one of the reasons—we do not talk about it a lot—but it is one of the reasons why our margins continuously go up and to the right, right, because we are investing in the proprietary nature and products where we are solving issues for our customers, using those proprietary products. So it is increasing tremendously. Now I will go back to Harper. Harper is one of four companies—four out of thousands of suppliers to Boeing—that has a collaborative agreement. Now what does that mean? That means they are joined at the hip. That means Boeing has an issue, they pick up the phone and they call Harper relative to capabilities that Harper has. Here is the beauty of what we have just done by adding them to the Loar platform: they now pick up the phone and call Harper; Harper calls the group and says, can you solve any of these problems? So we have expanded that collaboration with Boeing to include all of the Loar business units. That is the way we think about it. So no, we are excited about it for the reasons I just answered—that Christine’s question—but I am super, super excited about Harper and the relationships and synergies I am going to get from adding the company. Its reputation, its capabilities, and most importantly, the talented folks in that building to our team. Sheila Kahyaoglu: It makes a lot of sense. I am going to ask another one. You know, on these two deals, how do we think about the pathway to accretion on EPS? And how do we think about accretion on cash EPS? Brett N. Milgrim: Well, it is very simple—growth, and growth is a function of all the things that Dirkson Charles just spoke about. So in every deal we do, as I think you know, we have said many, many times, we look to see a path to doubling EBITDA, at least, in no more than three to five years. Quite frankly, in certain cases—and I will use one that you all know, since it was the first deal we did going public—Applied Avionics is well ahead of that schedule. We think for LMB and Harper—and quite frankly for any deal going forward which we use debt financing for, which by definition will make it dilutive to net income—we think most of these deals, but in particular Harper because you asked about it, will be accretive within a year. So in 2027, on a net income basis, we think Harper will be accretive. And that is a function of growing the earnings, growing the EBITDA, and, you know, doing all the things that we do to add value for these businesses. Does that answer your question? Sheila Kahyaoglu: Yes, it does. Thank you. And then last one, the 34% commercial aftermarket growth was pretty stellar. Any way to parse that out? Dirkson R. Charles: Let me start with this. So I am—a little bit about who I am. So my lucky number is 13. Everybody is going to go, why are you saying this? I am saying it for one reason—born January 13th. So 13 is my lucky number. The only time I do not like 13 is when I have to report earnings every 13 weeks. That is the only time I do not like 13. So there is good and bad to reporting 13 weeks at a time, right? The great news is we have proprietary products in the aftermarket. That is a high demand, right. We have customers who—I will give you an example—distributors who want to be exclusive. And we 100% say no, right. But again, the demand exists. What we saw in the fourth quarter—tremendous demand for our parts. Folks placing orders. It actually, I would say, positively surprised me—again, it is only 13 weeks, right—because usually at the end of the calendar year, most people are trying to manage inventory. In this case, we have customers who want to distribute our products, and we are just seeing more of it. Now, going forward, as I said earlier, where we see growth and where we really put our foot down on growth is on new business introductions. And I will use two examples—the only two I ever use—brakes. We got about a dozen programs that we are working on. Half of them are now certified. The other half we hope to have done by the end of the year. That is why I am excited about the second half of the year growth rate. I will go back to Harper one last time. Harper makes the locking mechanisms that go in the cockpit door barrier for Boeing aircraft. Now, you always hear us say we are so, so awesome on Airbus. Nobody ever asks about Boeing. Boeing. Yeah. So Boeing—Boeing—now having Harper as part of us, it gives us the opportunity in the aftermarket to really chase those parts, right, in terms of cockpit barriers. So as we think about growth in 2026, commercial aftermarket will continue to be low double digits for the year. Maybe a little choppy. But really, really strong given the strength in the fourth quarter that we have seen this year. So, Sheila, if I can just say this—because thanks for asking the question—we see no slowdown in demand for commercial aftermarket. And I think it is reflected in our numbers. Sheila Kahyaoglu: Great. Thank you guys so much. Operator: The next question is from Ken Herbert of RBC Capital Markets. Please proceed with your question. Ken Herbert: Yeah, hey, good morning, everybody. As I think about—just to follow up on that point—and maybe as we think about, you know, call it double-digit organic growth in your commercial markets in the guide for 2026, can I interpret what you are saying that new business will be the largest contributor to that growth relative to volume and price? Dirkson R. Charles: Yes. Okay. Can I—can I? That is the right short answer. So let me just say something relative to that, right, because we say this all the time and this is probably a good time to really send this message across. Brett always says—I listen to him say it all the time—that we use price as just the filler. Discretionary, right. It is discretionary. Can we increase price significantly? 100%—every day of the week, all day long. That is what proprietary means—going back to the previous question. We want to grow—five years from now, we will be three times the size. Check, check, check that box. We want to grow up to be a company that people do not point at and go, you are gouging me, right. You are chasing price above everything else. We want to truly partner with our customers, right. And so yes—Ken, the answer to your question is yes, we are focused on new business and that is going to be a big driver. Brett N. Milgrim: Yeah. And just as it relates to price, you know, again, with the caveat being that we want to drive margins only one way. So I think there is a slide in our investment deck that we put in the appendix that shows you over the last five, six, seven years, margins have only gone one way. We will have our margins start with a four in front of it. I think everybody on the IPO road show had asked us, when are we going to reach 40% EBITDA margins? And of course, you know, at the time we cannot give specific guidance in that regard. But here we are just two years later, and I can tell you unequivocally, margins are only going one way—and that is up. That Brett. Ken Herbert: Hey, maybe just to—yeah—just to clarify one other point, the up 34 in the fourth quarter, I think, Dirkson Charles, was any part of that from, like, new distribution agreements or maybe any pull forward ahead of either price increases or inventory build in the channel? I just want to make sure there was not—not anything unusual, but understand the dynamics of that 34%. Dirkson R. Charles: No. No. Great, great question. The short answer, again, is no. No pull forward, no special distribution agreements. I will tell you that we have distributors that are fighting over their end customer and wanting to be good, you know, suppliers to them. And again, whether it is a kit that they are trying to put together and our parts are included, or they want to be able to say, I can sell that part that no one else can, right? We are just seeing more demand, Ken. But no, no pull ahead. None of that. Ken Herbert: Okay. Perfect. And just one final question on the 2026 guide. Do you have any—how would you frame the risk around the commercial aftermarket versus OE growth? And to what extent maybe have you sort of de-risked the guide relative to what could be choppiness on the OE side versus what sounds like pretty consistent sort of aftermarket performance? Dirkson R. Charles: Great question. So let us start with OE. So on the OE side, what we have done—if you take Boeing and Airbus build rates—depending on the product line that we are producing, we have discounted it anywhere from 10% to 20%—10% at the low end, 20% at the high end—relative to the build rates that people are projecting. So could there be upside there? Absolutely. With regards to the aftermarket, yes, I do agree with you that we believe that that is going to continuously grow significantly double digits. Again, the only problem I have is reporting every 13 weeks, right. Can we have a period of time where it is 14% and then the next quarter it is, you know, 9.5% or whatever? Absolutely. But over the year and the long term, double-digit growth is what we seek. Ken Herbert: Thanks, Dirkson Charles. Dirkson R. Charles: Thank you, sir. Thanks, Ken. Additional questions. Operator: At this time, I would like to turn the floor back over to Dirkson Charles for closing comments. Dirkson R. Charles: Look. Thanks, everyone, participating on today’s call. I love it when we can share our story. We are super, super excited about our future. I will say for the third time, maybe the fourth. Given what we have done over the last 14 years, we expect to continue to do the same, which means adjusted EBITDA goes from $1 today to $3 five years from now. That is our focus and that is how we want to build this business. And we want to build it in a very special way. We want to have great mates living in a great environment, not being gouged customers, but growing the business consistently. We want to build this aerospace and defense cash compounder for a very, very long time. So look, with that I have two things to say. One. Happy birthday, Ellen. Thanks for participating on the call. You know who you are. And two, I look forward to talking to you guys in 13 weeks—even though you know it is 13 weeks. Thanks, guys. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference.
Operator: Welcome to the FTI Consulting Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mollie Hawkes, Head of Investor Relations. Please go ahead. Mollie Hawkes: Good morning. Welcome to the FTI Consulting conference call to discuss the company's fourth quarter and full year 2025 earnings results as reported this morning. Management will begin with formal remarks, after which, we will take your questions. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act, including the company's outlook and expectations for full year 2026 based on management's current beliefs and expectations. These forward-looking statements involve many risks and uncertainties, assumptions and estimates and other factors that could cause actual results to differ materially from such statements. For a discussion of risk factors and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the safe harbor statement in the earnings press release issued this morning. A copy of which is available on our Investor Relations website at www.fticonsulting.com as well as other disclosures under the heading of Risk Factors and forward-looking Information in our annual report on Form 10-K for the year ended December 31, 2025, our quarterly reports on Form 10-Q and in our other filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call and will not be updated. FCI assumes no obligation to update these forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law. During the call, we will discuss certain non-GAAP financial measures. A discussion of any non-GAAP financial measures discussed on this call and reconciliations to the most directly comparable GAAP measures are issued in the press release and the accompanying financial tables that we issued this morning. Lastly, there are 2 items that have been posted to the Investor Relations section of our website for your reference. These include a quarterly earnings presentation and an Excel and PDF of our historical, financial and operating data, which have been updated to include our fourth quarter and full year 2025 results. With these formalities out of the way, I'm joined today by Steve Gunby, our CEO and Chairman; and Paul Linton, our Interim Chief Financial Officer and Chief Strategy and Transformation Officer. At this time, I would like to turn the call over to our CEO and Chairman, Steve. Steve Gunby: Thank you, Molly. Welcome, everyone. Thank you all for joining us today. As I guess some of you have seen already this morning, we reported once again record fourth quarter revenues and record results for this year. I'm hoping that many people on this call know by now that those sorts of record results are not unusual for us. But in this case, given the challenges we faced when we started the year, I'd like to pause on those results a bit more than I typically do and reflect a bit on just how we got here. If you remember, at the beginning of 2025, we talked about the fact that in 2025, we were probably facing more headwinds than I think perhaps we've ever faced during my time here. We talked about the fact in the second half of the year, most of our businesses were slow. In fact, we thought some of the markets we were in were slow, and we are bringing that slowness into 2025. We talked about the fact that though we have a terrifically competitive Tech business. It was facing dramatic declines in second request activity. We talked about the fact that FLC, which was showing the strength we always thought that business could command, was now facing uncertainty regarding demand due to the potential regulatory enforcement changes in the United States. And perhaps most important, on top of all that, we talked about the major challenges we were facing within our Compass Lexecon business, E con. It's a great business, with the world's leading professionals but a business that was facing truly substantial disruption heading into 2025. If you remember that discussion, those discussions of the headwinds from the beginning of the year -- the fact that in the face of all those challenges, our teams delivered the 11th year in a row of adjusted EPS growth and another record year of revenue to me, at least, and I hope some of you, is incredibly powerful, may be more powerful and more noteworthy than just simply another record year and maybe more -- even more powerful than our results in the years where everything seemed to go right. The ability to deliver those sorts of results in the face of those challenges. To me, it's about as convincing an argument for the resilience of this company as I could imagine. And to me, it underscores something that I will come back to, which is not just the powerful trajectory of this company over the last while because powerful trajectories [indiscernible] looking backwards with the incredibly bright future that, that sort of performance portends for this company. So let me take a moment to go back through that year in a little bit more detail. In terms of the negative headwinds we talked about at the beginning of the year, unfortunately most to them turned out to be real. The impact of the slowdown in second activity request, the second activity levels actually did happen and in fact, it worsened in the first half of the year. And CorpFin had an even slower first quarter than we expected. And Compass Lexecon, though we were able during the course of the year to attract some terrific talent, the adjusted EBITDA impact we faced in 2025 was actually substantially worse than we anticipated at the beginning of the year. So how in the face of all that, did we end up with this record year? As Paul will talk about, we did have some onetime things that helped us this year, but those are not the primary story. The primary reason we delivered those sorts of powerful results is because we have such a set of multifaceted powerful businesses, not one great business, but multiple great businesses. with people in those businesses who take responsibility, who take responsibility for making the core investments that drive the business. Who take responsibility for standing by those investors, working them so they can come to fruition. The sorts of actions that we have driven in those businesses in a lot of places around the world, in prior years and in '25 were the actions that allowed us to overcome the headwinds we faced. Let me give a little bit more detail. And let me start with a difficult story, the Tech story this year, at least for parts of the year. Tech business did have a slow year overall. Important, what we always do when we face a business that's slow is evaluate, is it because of the competitive position? Or is it because of transient market factor. If it's -- our position is strong, we continue to support that business, continue to invest in that business. And if you remember, we have, over the last few years, talked about just how powerful our Tech business is, how it strengthened itself competitively and how much share it has gained as a result. When we looked at Tech performance this year, we did not find that those truths have changed. We found the market was slow. Second requests were slow. So we supported that business, the great teams we have in that business, we invested, we attracted talent. And so when the market started to turn later in the year, we were the beneficiaries. So even though Tech business did have a down year overall. You can see in that down here, you can see the resilience that competitiveness and that strength and it began to show up once again in tech's fourth quarter results. In ECon, the situation is a bit different. There, the economics did not improve as the year went on. If you remember, the Compass Lexecon disruption really only started to hit us somewhere in the middle of the second quarter and intensified as the legacy revenue from the professionals who departed slowed down as the year went on. And though we were able to add some terrific talent, talent that we believe over the long term will be terrific assets for this business, those investments in 2025 as usual at the outset hurt the P&L. So unlike Tech, Compass Lexecon did not do a u-turn in terms of quarterly results in 2025. Actually, the year got worse as it went on. And overall, the impact was worse than we anticipated at the beginning of the year. As I alluded to above, what happened is that those results in Compass Lexecon and Tech were overcome by truly terrific performances in the rest of our businesses, businesses in CorpFin and FLC and in Stratcom. I can't do possibly do justice to all the efforts by all the people to make that come to fruition. In CorpFin, for example, there are so many things that made a difference. The results there are attributable to both things we did within the year with really terrific nimble management but also the result of powerful multiyear investments that teams have made in different practices and different geographies. Investments that, for example, have allowed us to transform over the last few years, our restructuring business from what at one point was primarily a U.S. credit or right restructuring business to be a global leader in restructuring, playing and leading in many places on both creditor and company side, which in turn, I believe, makes us right now the #1 or #2 position in restructuring in more markets around the world than any other player. Those sorts of moves individually look small, but collectively, they have allowed us to move from a position 15 years ago when we were not the prime player to win, say, the bulk of the global Lehman Brothers bankruptcy to today where we are top of mind team, the top of my team, I believe, to help with the massive global engagement, whether it's Hertz or Steinhoff a couple of years ago or this year with Sunnova Energy, Spirit Airlines, Wolfspeed or others. And that is just talking to the transformation of our restructuring position equally or perhaps even more powerfully are the result of our investments our teams have made in building multiple businesses beyond restructuring. Our set of transaction businesses, which delivered record results this year even in slow markets and our transformation set of services, which despite having some extraordinary slow market, delivered a terrific second half of the year. And our teams did all that while continuing to recruit record levels of senior talent and promoting our next generation of experts, which, of course, bodes extremely well for our future. In FLC, the progress we have seen reflects the great positions we have built now over multiple years, combined with enhanced leadership and enhanced communication, of those capabilities to the market. Entering the year, however, even with that strength, we had concerns about headwinds from policy shifts like the slowdown in FCPA and other changes in regulations. In the face of those headwinds, our performance in FLC this year, have to be honest, actually astoundedly. I think there were a couple of different factors that particularly drove it. First of all, in slow markets, it is often the case that the strongest players tend to take share, and I believe the actions and investments that leadership have taken, particularly in the U.S. but not limited to the U.S. over the last few years has positioned us to win some of the biggest jobs in the market. If you win the biggest jobs in the market, even if there aren't that many big jobs, you can be up when the market is down. And I think that was part of the reason we were successful this year. The other reason, I think, was the nimbleness of this team in multiple places around the world. Our leaders believe in the proposition that we have built, but they also understand there are multiple potential markets for those propositions. And so understand that the federal government is enforcing certain regulations, but the state governments are, we need to go talk to the people who are working with the state AGs. Our folks did that sort of pivoting activity this year. And that nimbleness allowed us to grow and extend our relevance with clients even though certain places, which have been a big source of revenue in prior years were slow in the face of the regulatory changes. Let me turn to Stratcom. Stratcom, as you know, after close to 10 years of growth, had a bit of slowness over the past couple of years. And so early in 2025, the leadership team did reevaluate some of the bets and they took some corrective action. But at least as important, that team also had the confidence to continue to make investments in many parts of the world and in many parts of the business where we've been succeeding and have conviction. Those sorts of investments in areas like corporate reputation, public affairs, M&A, activism, crisis, together with some terrific promotions and hires in prior years, drove a powerful return to growth for Stratcom this year. If you add this all up, the headwinds certainly were there in 2025. The combination of Tech and ECon added up to almost $100 million of adjusted EBITDA headwind last year. Those headwinds were partially overcome by some onetime benefits like positive litigation settlement. But the primary factor driving this outperformance was $135 million of adjusted EBITDA growth in the other 3 segments. Let me leave 2025 behind. And if I may share a few thoughts about where I believe that leaves us going into 2026 and beyond. Entering '26, we still have some substantial headwinds, particularly early in the year. The most substantial one involves Compass Lexecon, which Paul will talk about, where we have the full cost impact in our P&L, but still haven't yet started to see anywhere near the full benefit of the people we've added. And critically, in the first couple of quarters, we are cycling the part of the year last year before the disruption really started to impact us. So for the first half of '26, the year-on-year comparisons will be quite difficult for Econ Consulting. The second headwind relates to onetime benefit even though they weren't the primary reason we outperformed in 2025, there were some significant benefits in last year's first quarter, mainly again the positive legal settlement I mentioned. So again, early in the year, we have the issue of cycling those. The third headwind is different, more fundamental and more related to the business and something we've seen from time to time in the past. As you've seen, we continue to add senior head count last year. And given our low leverage expert model, we will continue to add senior head count when the right people become available. And as you know, that investment is a negative hit to P&L initially. Although we are a senior-led model and even with AI-created efficiencies, we do need also superb junior people to support those senior people. And because of caution coming into last year, we didn't do quite as good a job as we could have been adding the terrific junior people to support the senior people. And so we are looking to add junior talent, particularly in the second half of the year. So because of those near-term headwinds, though we are targeting are clearly targeting stronger revenue growth and targeting solid growth in adjusted EPS again next year. We are not yet back to forecasting the sort of double-digit growth in EPS that we have averaged since 2017, not yet back to that. Let me try to put '24, '25 and our outlook for '26 into a broader perspective. If you look over the last 24 or 30 months, many competitors have faced some of the slowest markets they've seen in many years. And some like us have had their own idiosyncratic disruptions of significance, ours obviously being the disruption in Compass Lexecon business. And we've been affected by those. Of course, we have, all companies are, and all companies face those sorts of things over time. If in the face of that, we achieved the midpoint of our guidance in 2026. Notwithstanding all that, we will deliver adjusted EPS growth for the 12th year in a row. And we will do that while continuing to invest in great senior talent and junior talent. We will have the largest, most powerful group of senior and junior professionals that we've ever had, we will be working on the most powerful set of assignments, brand building assignments, supporting our clients on their most critical issues and opportunities, which in turn will further enhance our brand. To me, that shows once again, yes, there are lots of idiosyncratic effects that can affect you and they can affect you substantially for a bit. They are a short-term transient market forces that can be a headwind. But my 40 years of professional services say that if we focus on the things you can control, the things you believe in, making sure you have great value propositions in areas of real importance for clients and you focus relentlessly on being the best in those over any intermediate period. The factors you control, trump the idiosyncratic factors and you persevere, you succeed no matter what the markets are. I think the last 2 years as well as the last 5 and 10 have shown that. They show the immense power of having great teams of committed leading experts, particularly in today's increasingly disrupted world. All of that leaves me notwithstanding any headwinds we faced in '25 or facing '26 or beyond enormously confident about the power and future trajectory of this company. With that, let me turn this over to you, Paul. Paul Linton: Thank you, Steve, and good morning, everybody. But as Steve said, we delivered another record year. So I'm pleased to take you through our full year and quarterly performance and provide our guidance for 2026. Beginning with our full year 2025 results. Record revenues of $3.79 billion increased 2.4% compared to 2024, which reflects record performance in our CorpFin, FLC and Stratcom segments as each of those businesses delivered double-digit organic growth in 2025. This robust growth more than offset declines in our Economic Consulting and Tech segment, which, as Steve discussed, faced headwinds this year. Important, even with those headwinds, which were worse than we anticipated at the beginning of 2025, the breadth and depth of our offerings allowed us once again to deliver record revenues as well as record adjusted EBITDA of $463.6 million and record GAAP and adjusted EPS of $8.24 and $8.83, respectively. Now turning to the details of the fourth quarter. Revenues of $990.7 million increased 10.7% compared to the prior year quarter. As discussed in our Q3 earnings call, we expected the fourth quarter seasonal slowdown across the business. Instead, revenues increased 3.6% sequentially with every business, except FLC delivering sequential growth. Fourth quarter net income of $54.5 million increased 9.7% compared to the prior year quarter. The increase in net income was partially offset by an $11.8 million valuation allowance expense again certain prior year foreign deferred tax assets. GAAP EPS of $1.78 increased 29% compared to the prior year quarter. Adjusted EPS of $1.78 increased 14.1% compared to the prior year quarter. As a reminder, Q4 '24 adjusted EPS excluded an $0.18 special charge related to severance. Both GAAP and adjusted EPS included the valuation allowance expense which reduced EPS by $0.38. SG&A of $213.6 million compared to $208.1 million in Q4 of 2024. The increase was primarily due to higher variable compensation, legal and business development expenses, which were partially offset by lower bad debt and travel and entertainment expenses. Adjusted EBITDA of $106.2 million or 10.7% of revenues compared to $73.7 million or 8.2% of revenues in the prior year quarter. Our fourth quarter effective tax rate of 37.1% compared to 16.9% in Q4 of 2024. Absent the valuation expense, our effective tax rate would have been 23.6%. Billable head count decreased 3.2% and non-billable head count decreased 2.5% compared to the prior year quarter. Now turning to our performance at the segment level for the fourth quarter. Corp Fin record revenues of $423.2 million increased 26.1% compared to the prior year quarter. The increase was primarily due to higher demand and realized bill rates in turnaround and restructuring, which grew 25%, transactions, which grew 46% and transformation, which grew 13% as well as higher success fees. Notably, in transactions, our strength is more than just market driven. For example, our top 20 engagements in Q4 2025 more than doubled in size compared to Q4 2024. Our engagements have expanded in size and scope as we bring more of our services to our clients across the deal life cycle. In turnaround restructuring, our record quarterly revenues were driven by rules in some of the largest bankruptcies around the world from Spirit Airlines in the U.S. to Prax Oil Refinery in the U.K. and Azul Airlines in Brazil. In the fourth quarter, turnaround and restructuring represented 47%, transformation represented 28%, and transactions represented 25% of segment revenues. Adjusted segment EBITDA of $80.1 million or 18.9% of segment revenues compared to $44.7 million or 13.3% of segment revenues in the prior year quarter. The increase was primarily due to higher revenues, which was partially offset by an increase in compensation particularly variable compensation and higher SG&A and pass-through expenses. Sequentially, CorpFin revenues increased 4.5%, primarily due to a 10% increase in transformation a 6% increase in turnaround and restructuring services -- or revenues, which was partially offset by a 4% decrease in transactions. Turning to FLC. In FLC, revenues of $192.9 million increased 9.7% compared to Q4 2024. The increase was primarily due to higher realized bill rates for risk and investigation services. Notably, financial services has been a key driver of growth throughout 2025, as this industry is facing a convergence of regulatory and technological fits. For example, we have been hired by many leading financial services companies to evaluate whether the use of AI models by our clients and their partners are in compliance with regulatory standards. The assessment requires expertise in data analysis and understanding of applicable laws and regulations as well as experience and credibility with the regulatory agencies. Adjusted segment EBITDA of $23.8 million or 12.3% of segment revenues compared to $18 million or 10.2% of segment revenues in the prior year quarter. The increase was primarily due to higher revenues which was partially offset by an increase in variable compensation. As I mentioned earlier, FLC was the only business that saw a sequential revenue decline. However, the decline was only 1% compared to an extraordinary Q3, which had record quarterly revenues. FLC's fantastic performance this year showcases how much deep expertise matters. When the clients are facing their most high stakes challenges. And important, our ability to shift our focus as clients' needs change. This is reflected not only in the headline cases or expert supported but also in our revenue per billable professional, which has increased 22% over the last 3 years. Economic Consulting revenues of $176.2 million decreased 14.5% compared to Q4 of 2024. The decrease was primarily due to lower demand for non-M&A and M&A-related antitrust services which was partially offset by higher demand for financial economic services and higher realized bill rates for international arbitration services. Adjusted segment EBITDA of $1 million or 0.6% of segment revenues compared to $15.8 million or 7.7% of segment revenues in the prior year quarter. The decrease was primarily due to lower revenues and an increase in forgivable loan amortization, which was partially offset by lower compensation and bad debt. As you may recall, in Q4 of 2024, Economic Consulting had higher than usual bad debt related to one completed matter. Sequentially, ECon revenues increased 1.8% primarily due to higher national arbitration service revenue. In Technology, revenues of $99 million increased 9.3% compared to Q4 of 2024. This increase was primarily due to higher demand for litigation and M&A-related second request services. Adjusted segment EBITDA of $14.8 million or 14.9% of segment revenues compared to $6.6 million or 7.2% of segment revenues in the prior year quarter. This increase was primarily due to higher revenues. Sequentially, technology revenues increased 5.3% primarily due to higher information governance and litigation services. Important, our technology revenues increased 7% and adjusted segment EBITDA increased 69% in the second half of 2025 compared to the first half of 2025 due to higher second request and litigation revenues. Stratcom's revenue of $99.4 million increased 14.8% compared to Q4 of 2024. That increase was primarily due to higher demand for corporate reputation services and an increase in pass-through revenues. Adjusted segment EBITDA of $19 million or 19.2% of segment revenues compared to $13.8 million or 15.9% of segment revenues in the prior year quarter. This increase was primarily due to higher revenues, which was partially offset by higher pass-through expenses and variable compensation. Sequentially, Stratcom's revenues increased 11.2% and primarily due to a $3.4 million increase in pass-through revenues and higher-than-expected demand for corporate reputation and financial communications services. Stratcom's fantastic Q4 and record 2025 performance underscore the relevance of our expert-driven model when clients are facing [ bet ] the company issues and the value of that expertise is reflected in our higher revenue per billable professional. Let me now discuss key cash flow and balance sheet items. Net cash provided by operating activities of $152.1 million for the year ended December 31, 2025, compared to $395.1 million for the year ended December 31, 2024. The largest driver of the year-over-year decline was higher forgivable loan issuances. In Q4, we issued $3 million in forgivable loans net of repayment following $18 million, $72 million and $162 million of forgivable loans to existing and new employees and affiliates net of repayments in Q3, Q2 and Q1, respectively for total issuances of $255 million in 2025. During the quarter, we repurchased 519,944 shares at an average per share price of $160.58 for a total cost of $83.5 million. During full year 2025, we repurchased 5.3 million shares or 15% of our shares outstanding at an average price of $163.07 for a total cost of $858.6 million. As of December 31, 2025, approximately $491.8 million remained available under our stock repurchase authorization. Base sales outstanding of 88 days at December 31, 2025, compared to 97 days at December 31, 2024. Now turning to our 2026 guidance. We are, as usual, providing guidance for revenues and EPS. We estimate that revenue will range between $3.94 billion and $4.1 billion. We estimate GAAP EPS will range between $8.90 and $9.50. We do not expect there to be a variance between GAAP and adjusted EPS. Our 2026 guidance reflects several key factors that shape our outlook. First, I want to address an issue that is a major focus in the marketplace, AI. Embedded in our guidance is our experience that the proliferation and broad adoption of AI will continue to be a significant positive for FTI. Important that we are not a software developer or reliant on commodity services. FTI is a low leverage, expertise-driven firm. We leverage technology in many places, which is in support of highly expert-driven work and crisis situations and in times of transformation. Our competitive advantage is we have senior people, we're able to operate in high-stakes matters where clients need accountability and judgment and people who can quickly help them navigate those situations for the right results. Our history has shown that FTI has benefited in periods of disruption. When risk is elevated and when markets are facing discontinuous change, regulatory shifts or heightened litigation or businesses need to be rebuilt or restructured. We are already finding that AI is generating entirely new categories of work. For example, we are supporting clients in a new set of high-profile disputes which involve AI companies and how users are interacting with AI, from ownership of AI generated content, the harm caused by AI misinformation and bias, the unauthorized use of data and privacy concerns. We believe the rapid pace of AI innovation, experimentation and adoption will be one of the most disruptive events in our lifetime. And that disruption is and will drive demand for our experts. Second, the midpoint of our revenue guidance reflects a 6.1% year-over-year growth. To achieve the midpoint of our range, we expect aggregate revenue growth across CorpFin, FLC, Tech and Stratcoms to exceed that midpoint. CorpFin, FLC and Stratcoms are coming off record performances in 2025 and enter 2026 with solid momentum. This is particularly true in transactions and restructuring, risk and investigations, construction solutions and data and analytics and corporate reputation. And as is typical for our business, this momentum is supported by several large engagements. As those matters conclude, they may not be immediately replaced, which we have reflected in our guidance. Tech rebounded in the second half of 2025 and enter 2026 on a much strengthened trajectory. Third, our guidance assumes a multiyear rebuild in our Compass Lexecon business. We are excited about the talent we have retained and attracted and we believe this business has one of the strongest benches of academic economists globally. While we have stabilized our cost base, we continue to face headwinds as we cycle a first half 2025 that was not fully impacted by the revenue -- by revenue disruption or increased cost of retaining and attracting talent. As a result of these tough comparisons on certain compensation costs in Q1 we expect Economic Consulting adjusted segment EBITDA to reach its lowest point in Q1 2026. We expect the business to no longer be a drag on year-over-year EBITDA growth in the second half of 2026. Fourth, we continue to invest in talent. In 2025, we announced 85 senior hires. And in 2026, we plan to build teams around these leaders while selectively adding junior, senior -- sorry, adding senior professionals, where we see the right opportunities. We also expect more junior hiring in parts of the business were hiring lagged in 2025. Fifth, while we remain committed to disciplined cost control, we expect SG&A expenses for the full year to be approximately $45 million higher than in 2025. In particular, Q1 2026 SG&A is expected to be approximately $30 million higher than Q1 2025, primarily due to legal settlement gains in Q1 2025 that will not recur. We will also hold our all Senior Manager -- Senior Managing Directors meeting in April of 2026, resulting in higher event-related expenses primarily in Q2. And lastly, we expect an effective tax rate of 22% to 24%, which compares with 27% in 2025. Overall, our guidance reflects our best judgment at the midpoint and recognizes that our largely fixed cost structure can lead to outsized earnings impact from modest changes in revenue. Before I close, I want to emphasize a few key themes that I believe underscore the attractiveness of our company. First, our diverse portfolio of services allows us to support our clients regardless of economic cycles. From turnaround restructuring to M&A to cybersecurity investigations to crisis communications. Second, as discussed, we are a top destination for great talent. Third, our management team is focused on both growth and utilization. Fourth, our business generates excellent free cash flow, and we have a strong balance sheet that provides us the flexibility to boost shareholder value through organic growth, share buybacks and acquisitions when we see the right ones. These factors combined are powerful and they have been consistent across quarters and years. That consistency has allowed us to deliver 8 years in a row of record revenues and in 11 years in a row of adjusted EPS growth. Importantly, we delivered this performance not only in the areas where market factors were on our side, but also in areas where we faced headwinds, such as 2025. We are tremendously confident in the power of this company and its potential. With that, let's open up the call for your questions. Operator: [Operator Instructions] Our first question today comes from Andrew Nicholas with William Blair. Andrew Nicholas: I wanted to start with one that's pretty similar to the one I started with last quarter, which is just on Economic Consulting. Specifically, how would you -- how much of the kind of stabilization quarter-over-quarter or even the improvement in terms of year-over-year declines would you attribute to the market environment versus improved productivity from some of your recent hires? And on the latter point, just a broader update on how you're feeling about the ramp in productivity of the academic focused hires in particular as you look ahead to '26? Steve Gunby: Thank you, Andrew. Look, I think, as Paul indicated, I think we are not yet at the bottom of the economics of our ECon practice, primarily driven by the Compass Lexecon situation. And of course, the year-on-year in the first half of this year will continue to be a drag given the fact that the impacts really didn't hit us until somewhere in the middle of the second quarter. And I think that's because we've added costs, both to retain people and we've added these great people. And as of yet, we have not yet seen material revenue gains. We've seen some individuals who brought revenue. Some of the people who came, who can bring revenue are still required by their contracts to be doing revenue with the prior employers. And then some of the people we hire are more early-stage academics who have longer-term futures. So it is a slow ramp on the revenue side, particularly in the U.S., is really what I'm talking about. I think -- and particularly in the U.S. antitrust business, there's really 3 different businesses here. The U.S. finance business was hit on the comp line to help retain people, well, we didn't really lose anybody, and the revenue was actually up in '25, and we feel like that's in pretty good shape. The European business was down even though we didn't lose much talent. And that might have been market conditions. It might have been us being a little distracted by the fight to keep our people. But we are expecting that to get back to solidity by the second half of the year. And we have early signs that it is -- the revenues are coming back there. The real issue is the U.S. antitrust business, where we invested a lot to add that talent and it's slow progress. I think it's an amazingly good group of economists. It is not an aggressive group of business developers. And so you got to get out there and let the lawyers know that you have these great talent. And I think it's taken a while for us to do that. I think we're now finally doing it in a bigger way, and we're getting receptivity as you might imagine. And I think if you look recently for example, the [ Med case, ] which was a major, major case a few weeks ago, the judge cited our testifiers, Dennis Carlton, John List, these are the leading academics that we're talking about. But I don't think most lawyers knew that John List was with us until then, and we're changing that. But I think it's a work in progress, but it's a worthwhile endeavor, but I can't tell you it's a median rebound there. Does that help? Andrew Nicholas: Yes, absolutely. No, that's super helpful. And then I guess my follow-up question. Paul, you talked about AI and the defensibility of the model. in this kind of new AI paradigm. But I'm curious maybe addressing or talking about it from a different perspective, which is on the restructuring front. To the extent that AI is a disruptor as we expect it to be. Do you expect that to positively impact demand for restructuring or business transformation? And if that's the case, how do you feel you're kind of situated from a staffing or capacity perspective to capture that upside and drive growth in that business in that type of scenario? Paul Linton: Maybe I'll start and then see if Steve wants to weigh in. We -- I think we believe we've built the #1 or #2 global restructuring practice. So from that standpoint, we benefit from disruption in markets as businesses have to go through financial difficulties, whether we're helping on the creditor side or on the company side. So from that standpoint, I think we feel well positioned to benefit. Now the timing of disruption from AI or from other factors, I think that's anyone's guess how quickly that will unfold. Surely, there will be winners and losers as AI disrupts business, various businesses in various industries, whether that hits in '26 or '27 or '28 I think that's less certain. Regardless, I think we're well positioned once it starts to happen and once it starts to unfold. Steve Gunby: Maybe I could just broaden that point here. I think that the key thing is our company exists because there is disruption in the world. If the world were calm, no bankruptcies, no crisis, no litigation, no difficulties, no M&A, no stress I don't think my company would exist. We exist because the world is complicated, changes fast. It has disruptive elements. It has -- there's litigation, somebody does you wrong, you sue somebody. And it takes real expertise to navigate those and to win the litigation and to dive in to figure out what happened on the cyber account and so forth. So our company exists because in times of crisis and disruption, you need the leading experts. You don't need technology. You need leading experts who know how to use the latest technology, and that's what we are, which is why we are finding that AI so far -- and we believe going forward will be a positive for our company. So I hope that's helpful, Andrew. Operator: [Operator Instructions] The next question comes from James Yaro with Goldman Sachs. Unknown Analyst: [ Divyam ] here on behalf of James. I know you touched upon this aspect in the prepared remarks, but could you update us on the impact of AI on the business? What are the impacts you are seeing thus far. You've talked about this being a positive for the business in 2026. Could you elaborate around -- more around that aspect where you will see any benefits? And whether there are any more negative impacts, which you can foresee? Steve Gunby: Yes. Look, I think risk a little redundancy. I think the main places where we're seeing the benefit is more on the revenue side. Do we have some efficiency gains? Of course. Will we need as many people summarizing EU regulations in Brussels at the lowest level, the summarization function? You don't need as many. But do you still need people who understand what EU regulations are going to do. The impact on the company? Or are they going to actually enforce it the advice, the value-added, you need that. You need that. And by the way, as the world gets more disruptive and there's EU regulations on AI, you need people who could do that and understand AI and so forth. And so -- we think our Brussels business is a growth business. Do you tweak the leverage a little bit? Yes, you tweak the leverage. But mostly, so far, we're not finding it on efficiency. And we haven't yet torn apart all our cost structures and then are claiming big dollar gains on that. Where it is, is, this disrupted world is triggering demand. And the last question said, will it trigger more bankruptcies and so forth? We suspect it will at some point. I don't think that's where it is. But I think as Paul referred to, in our FLC practice, where the regulatory changes, you have AI companies that are, what do you call, fintech companies that are using AI models that somebody has to go into that fintech company and figure out, is it violating regulatory standards. And that requires somebody who understands regulation, who understands the regulators and is credible with the regulators who could testify in court if they needed to and understands how to tear apart in AI algorithm. How many people do you know that can do that. And so we get work from this. And we think that the more disruption happens from AI, the more of those sorts of things are going to happen, whether it's crisis, communications around those sorts of things or it's bankruptcies around those sorts of things or it's investigations around those sorts of things. So that's why we're feeling like over the next years, this is a positive force for a firm that is like ours, a low leverage, expert-driven firm positioned against disruption. Does that help? Unknown Analyst: Yes, that is super helpful. As a follow-up, there appears to be some market disruptions that are impacting the capital market, which could impact a few of your businesses. Could you speak to whether you're seeing any impact thus far? And could there be some if this AI disruption continues? Steve Gunby: Yes. No, of course, I don't know which ones, there seems to be less disruption in the market. But for example, I think we were involved in one way or another in a couple of the private credit perturbations that happened a while ago. And obviously, we have capability to help in any sort of credit thing there, whether it's investigations, fraud investigations or its bankruptcy or it's advising creditors on those sorts of things. To the extent that I think Jamie Dimon said when you see a cockroach, you rarely see just 1 to the extent he's right. We're positioned on that market to be of help to people. But I think in general, when there's economic dislocation something pops out, whether it's bankruptcy or it turns out that somebody who's committing fraud or somebody just needs to advice or there's M&A opportunities, and we are positioned against all of those. Does that help? Unknown Analyst: Yes. Again, that's helpful. One last question from our end. You reduced debt by $145 million Q-o-Q and repurchased less debt and at least what we thought. Could you help us think through the capital deployment priorities from here and view on the ability to add leverage from here? Steve Gunby: I didn't understand the point about us reducing debt less than you expected. Is that the question? Or you're saying going forward? What's your question? Unknown Analyst: No. So debt reduced by $145 million Q-o-Q in 4Q '25 and the repurchases were less than what we had at least thought about heading into the earnings. So just wanted to get some clarity around the capital deployment priorities heading from here. Steve Gunby: Yes. Look, I think our capital strategy has been the same for -- since I've gotten here, which is part of the thing that makes our company -- the 2 things that create value for our shareholders are organic growth and the ability to sustain organic growth. And then given that it's organic growth primarily, and it's not acquisitions, we can grow organically and have very positive cash flow. And so therefore, the other issue is for us to use our cash wisely. And our definition of why, is, use of cash is dependent on circumstances. A-plus acquisitions that come along, they don't come along that often, and they don't come along with the right culture of people that often and they don't come along with the right culture and cheap and reasonable price. But when they do, when we have them, we do them. Historically, that's not been the primary use of cash. When we had high expense debt, we got rid of some of the high expense debt. And then on share buybacks, we have been very opportunistic. Our experience is that our company is a sustained growth engine and sometimes the market believes and then at least 3 times in my 10 years here, the market has fallen out of belief. One in 2017 when -- even though we were forecasting reaffirmed guidance, the stock dropped back into the 30s, one at the end of 2020 when we said the restructuring boom from COVID was over and yet, it didn't mean demise for our company because our testifiers were now able to go back in court and the stock dropped from 154 to I think, 96. And then the third, candidly, this year, where we clearly expressed the view of headwinds. But we also expressed the view that those were temporary headwinds that we thought we could overcome. And we don't believe the market fully understood. And so we don't buy shares back every quarter, but when we believe the market has fundamentally overgeneralized a short-term hit, and we think we can create value for our shareholders by going in. And so I think all 3 of those times, we bought well north of 5% of our company back. And so that's what we monitor. And if we find the right opportunities, we're not afraid to jump on it. And as you've mentioned, whatever you say about our debt situation, is tiny, right? I mean I think our net debt in the fourth quarter might have been $100 million, which puts us like 1/4 of EBITDA. So I think we have plenty of opportunity to do whatever seems to make sense going forward. Does that help? Operator: As there are no analysts left in our queue, this concludes our question-and-answer session. Steve Gunby: Let me just say thank you all for your attention and your support. It was an interesting year with a fair amount of challenges. I have to say I'm so excited about our team's ability to weather those challenges and important different than when I got here 10 years ago, how many people in our company have now the confidence to if they have a slow quarter to continue to invest behind great businesses and great people. We have now proved time and time again that, that works for the multiyear trajectory. And it builds a firm that people want to join and be part of. It's a fun journey, we look forward to continuing it with you. Thanks for your time. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Vericel Corporation Fourth Quarter 2025 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Eric Burns, Vericel's Vice President of Finance and Investor Relations. Please go ahead, sir. Eric Burns: Thank you, operator, and good morning, everyone. Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo; and our Chief Financial Officer, Joe Mara. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and are described more fully in our filings with the SEC. In addition, all forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Please note that a copy of our fourth quarter financial results press release and a short presentation with highlights from today's call are available in the Investor Relations section of our website. I will now turn the call over to Nick. Dominick C. Colangelo: Thank you, Eric, and good morning, everyone. As highlighted in our preliminary financial results release last month, the company had a strong close to the year and delivered outstanding financial and business results in the fourth quarter with significant revenue and profit growth and continued progress across a number of key business initiatives. From a financial perspective, the company generated record fourth quarter total revenue, which increased 23% over last year and exceeded our guidance for the quarter. This strong revenue performance drove significant margin expansion and profit growth as the company delivered record net income, gross margin of nearly 80% and adjusted EBITDA margin of 40% for the quarter. We also ended the year with approximately $200 million in cash and investments and no debt as we continue to elevate the company's top-tier financial profile. We also achieved several key business objectives in the quarter, including the successful completion of the MACI sales force expansion, and the initiation of the MACI Ankle clinical study and made substantial progress on other long-term growth initiatives as we remain on track to begin commercial manufacturing of MACI in our new facility this year and to potentially launch MACI outside the United States in 2027. MACI's second half momentum continued in the fourth quarter with record revenue of more than $84 million, representing 23% growth versus the prior year. This performance was driven by strong underlying fundamentals as we had the highest number of MACI implants, implanting surgeons, surgeons taking biopsies and biopsies in any quarter since launch. MACI's performance was particularly strong in December across all key performance metrics, including biopsy and implant procedures as our commercial and operations team executed exceptionally well to close the year. MACI's leadership position in the cartilage repair market has continued to strengthen since we launched the product in the U.S. in 2017. Over the past 9 years, MACI has generated compound annual revenue growth of 24% and has delivered revenue growth of 20% or more in each of the last 3 years. Notably, as of the end of 2025, more than 20,000 patients have now been treated with MACI. We believe that MACI's strong clinical profile, together with the surgeon and patient benefits of a simpler, less invasive surgery, have driven MACI's strong growth and will continue to do so moving forward. In addition, MACI's best-in-class pricing and reimbursement profile with prior authorization approval rates remaining over 95% for commercial patients in 2025, demonstrates the significant clinical value MACI represents to payors, hospitals, surgeons and patients. With this strong MACI foundation in place as we move into the new year, we're focused on executing on 3 strategic imperatives that we believe will position the company for sustained, strong revenue and profit growth in 2026 and the years ahead. First, we're focused on capitalizing on our larger MACI sales force, which will meaningfully increase our reach across the entire MACI customer base. Starting the year with a significantly larger footprint provides an opportunity to not only continue to drive the expansion of new MACI surgeons, but also to drive deeper penetration and increased utilization within our current MACI surgeon base. We're also implementing a number of important commercial excellence initiatives across the organization. We've made significant investments in new tools and additional resources to enhance our commercial analytics and standardize best practices across our larger sales team, which we believe will elevate execution across our commercial organization and drive deeper penetration within our surgeon user base, unlocking another key growth driver for MACI. Based on these initiatives and the quality of our entire expanded sales force, we expect that MACI sales rep productivity will return to 2025 levels as early as next year. Our second strategic priority is to leverage MACI Arthro to drive continued strong growth in smaller cartilage defects, principally on the femoral condyles, which represents the largest segment of MACI's addressable market. As we discussed throughout 2025, we've been very successful in training physicians on the MACI Arthro technique with approximately 1,000 surgeons trained to date. Importantly, MACI Arthro trained surgeons have continued to demonstrate a significant increase in biopsy and implant growth following training, and for those surgeons that have completed the MACI Arthro case, even higher biopsy and implant growth and higher conversion rates. With this foundation in place, our objective is to leverage MACI Arthro to drive significant growth in the treatment of small condyle defects, which historically have represented a smaller percentage of our overall patient volume and a lower growth segment for MACI. Notably, growth in the small condyle defect segment accelerated in MACI Arthro's first full year on the market in 2025 as this segment became one of the highest MACI implant growth segments along with the patella segment, which consistently has been our highest volume and fastest-growing segment. We believe that the positive trends are driven by the fact that MACI Arthro is a less invasive procedure with the potential for improved patient outcomes. Early data from ongoing investigator case series suggest a significant reduction in postsurgical pain, improved range of motion and a meaningful acceleration in the time line to achieving full weight bearing following MACI Arthro treatment. These initial results suggest very positive patient outcomes that could also lead to shorter overall rehab and recovery time lines. We expect these case series to be presented at upcoming industry meetings and in publications, and we continue to work with additional surgeons as they complete MACI Arthro cases to collect prospective outcomes data in our MACI clinical registry. Our third strategic imperative is to leverage our life cycle management initiatives to position the company for sustained longer-term growth. To that end, we initiated the Phase III MACI Ankle MASCOT clinical study in the fourth quarter. A potential MACI Ankle indication represents a substantial growth opportunity with an estimated addressable market of more than $1 billion and would also enable the company to expand into other areas of the orthopedics market. We also remain on track to initiate commercial manufacturing for MACI in our new facility this year, which will allow the company to potentially commercialize MACI outside the United States. We're taking a staged approach to MACI OUS expansion with the first phase targeting a planned launch in the U.K. The U.K. represents an ideal first step for MACI OUS expansion as there's clearly defined expedited approval and reimbursement pathways, a high level of awareness and surgeon advocacy given that MACI was previously on the market in the U.K. and concentrated points of care with a dozen or so centers of excellence for the treatment of cartilage injuries. We expect to submit a marketing authorization application to the U.K. MHRA in the middle of this year and potentially launch MACI in the U.K. in 2027 as we seek to expand the long-term growth and value creation opportunities for the company. In summary, the company executed extremely well in the fourth quarter, generated record revenue and financial results, while achieving a number of key objectives that help position the company for continued growth in 2026 and beyond. I'll now turn the call over to Joe to discuss our financial results and 2026 guidance in more detail. Joseph Mara: Thank you, Nick, and good morning, everyone. As Nick referenced, the company had an outstanding close to the year with record fourth quarter revenue of $92.9 million and 23% growth versus the prior year. For the full year, total revenue increased to $276.3 million, which was above the high end of our guidance range for the year. MACI also had a strong close to the year with record fourth quarter revenue of $84.1 million, representing 23% growth versus the prior year and 51% sequential growth versus the third quarter. For the full year, MACI revenue increased 21% to $239.5 million, and Burn Care fourth quarter revenue was $8.8 million, which was above our guidance range for the quarter. For the full year, Burn Care revenue was $36.8 million, consisting of $32.1 million of Epicel revenue and $4.7 million of NexoBrid revenue. The company's substantial growth in the fourth quarter translated into significant margin expansion with gross profit of more than $73 million in the quarter or 79% of revenue and adjusted EBITDA of more than $37 million or 40% of revenue, representing the company's highest quarterly margins in any quarter to date. On a full year basis, the company also delivered meaningful margin expansion with 74% gross margin, an increase of nearly 200 basis points compared to the prior year and 26% adjusted EBITDA margin, an increase of over 300 basis points versus the prior year, which were both above our guidance to start the year despite the incremental investments in 2025 for our new facility and the MACI's sales force expansion. GAAP net income also grew nearly 60% to $16.5 million for the full year as the company's profit growth continues to significantly outpace our strong revenue growth. Finally, the company generated full year operating cash flow of $52 million and ended the year with approximately $200 million in cash and investments, an increase of $35 million during the second half of the year as the expected inflection in our cash generation following the completion of our new manufacturing facility is now being realized. Turning to our financial guidance. We are entering 2026 with a great deal of momentum and have gotten off to a very strong start of the year in the first quarter. Consistent with our commentary on our prior earnings call regarding 2026 revenue for both franchises, we expect total company revenue this year of approximately $316 million to $326 million. For MACI, we expect another year of strong revenue growth. And as a starting point for our guidance, we expect MACI revenue of approximately $280 million to $286 million for the full year. Our initial guidance reflects a continuation of current MACI key growth driver trends, including surgeon growth, biopsies per surgeon, conversion rate and price to start the year, recognizing that there is an opportunity for outperformance based on the momentum in our key performance indicators, our expanded sales force and the commercial initiatives that we have put in place. As part of our initial framework, we expect a similar quarterly mix of MACI full year revenue as last year and importantly, a similar growth rate for MACI each quarter this year versus the prior year. For Burn Care, we are maintaining our run rate approach to guidance with revenue of approximately $9 million to $10 million per quarter, recognizing that revenue can vary on a quarterly basis. For the full year, this points to approximately $36 million to $40 million of total Burn Care revenue. Of note, we are not assuming any additional NexoBrid revenue in our initial guidance related to a potential BARDA award, although there is a reasonable possibility for incremental NexoBrid BARDA revenue during the year. For the first quarter, we are on track to exceed 20% total company revenue growth as we are off to a very strong start to the year for both franchises. MACI's fourth quarter momentum has continued into this year with MACI performance trending toward higher first quarter growth than in recent years and Burn Care performance trends have also been strong to start the year. As such, we expect MACI revenue of approximately $54 million to $55 million and Burn Care revenue of $9 million to $10 million for the first quarter. Moving down the P&L. For the full year, we expect gross margin of approximately 75% and adjusted EBITDA margin of approximately 27%, which accounts for additional costs related to our new Burlington manufacturing facility, the incremental investments related to our MACI sales force expansion and increased MACI Ankle MASCOT clinical trial expense as patient enrollment begins. We expect total operating expenses to be approximately $220 million for the full year and anticipate a similar level of spend each quarter. For the first quarter, we expect gross margin of approximately 70% and adjusted EBITDA margin of approximately 10%. Overall, 2026 is set up to be another positive year for the company with strong top-line revenue growth as well as continued margin expansion and profit growth. As we look ahead, we believe that the durable growth of our portfolio positions the company to sustain strong top-line growth in the years ahead and supports our midterm revenue and profitability targets. This concludes our prepared remarks. We will now open the call to your questions. Operator: [Operator Instructions] We'll move to our first question, Ryan Zimmerman with BTIG. Ryan Zimmerman: Busy morning for a lot of us, so I'll try and squeeze in both questions. But I think there was a number of price increases on MACI that were taken in 2025. Correct me if I'm wrong on that, Joe. But how do you think about kind of the mix of price versus volume? If you reflect back on 2025, particularly on volume, I think, investors are rightly concerned that price drove some of the growth. And then as you look ahead to '26, how do you think about that balance as well? Joseph Mara: All right. I'll start -- do you want to ask your second question or just start there? Ryan Zimmerman: Sorry, let's just start there. Sorry, Joe. Keeping me honest. Joseph Mara: Yes. So look, from a pricing perspective, obviously, that remains a key growth driver for us. Nick talked about in his prepared remarks, our kind of access position remains very strong. I think over 95% of our commercial cases from a prior authorization perspective are approved. So kind of looking back historically, and I would say looking forward, certainly, pricing kind of has been and will remain part of our growth algorithm. If you look at the second half of last year, obviously, there was a significant improvement in the MACI performance. I'd say that step-up was volume driven, although, of course, I would say both price and volume play a part in the growth. Ryan Zimmerman: Yes. Okay. And then one of the other key, I think, variables to the algorithm is new doctor growth. And so as you think about kind of who is adopting Arthro, I'm curious if you could reflect on maybe kind of existing or same-store sales dynamics relative to kind of new doctor growth. And appreciate the comments you gave about those adopting Arthro certainly being more robust. But is that a reflection of your existing customer base or potentially new doctor growth? Dominick C. Colangelo: Ryan, I'll start. It's Nick. I think the sort of ratio of trained surgeons that we talked about previously has held throughout the year. So about 2/3 come from existing MACI users split between kind of former patella users and patella and condyle users and then about 1/3 from sort of either prior open targets who had not adopted MACI at that time and then obviously, the new arthro-only surgeons. So that's kind of remained relatively consistent. And I'd say the dynamics that we see once the surgeons are trained regardless of which bucket they come out of sort of hold true in terms of obviously increasing if they're new, but even sort of former users increasing both biopsy and growth rates. And then particularly when they start doing Arthro cases, their growth rates for both biopsies and implants are even higher, and their conversion rate was higher for the year as well. So all obviously very encouraging trends for us as we move forward. Operator: We'll go next to Mike Kratky with Leerink Partners. Samuil-Hrabar Gatev: This is Sam on for Mike. So just during your 3Q '25 earnings call, I think, you had mentioned that 20% growth for MACI would kind of be a good starting point for fiscal 2026. But the current guidance kind of implies growth slightly below that at roughly 18% at the midpoint. Is this just a function of kind of 4Q being a little bit better than expected? And is there anything that materially changed from then versus now when you issued the new guidance here? Joseph Mara: Yes. So I'll start. I mean I'll just give a quick update on the guidance maybe overall. And I would say just on that last part, I mean nothing certainly materially changed. I think if anything, we probably really ended the year a bit stronger across the business, which was great. So just in terms of the guidance framework, to your question, I would say, if you look at both franchises, it's really consistent with the commentary we gave in the last call. So on the MACI side, the guidance is kind of in that low to mid $280 million range. That's consistent, I think, right on top of consensus or very close. We talked about in the last call, having that similar year-over-year incremental growth, which I think accomplishes as well kind of the midpoint of that range and the $282 million or $283 million is right in line with last year, which is about a $42 million increase. I'd say on the specific question around the 20%, I mean, obviously, there's a range around MACI. We want to be prudent to start the year. But what we said in the last call, in addition to having that similar incremental growth was, I think coming into the call, there were analysts kind of on either side of that number. And I think we were comfortable with something at that range, but I think we try to be clear that we were not going to guide above that. So I think more than anything, it's probably just being prudent on the MACI side, but we feel really good about the start of the year on MACI and the full year. And then just quickly on Burn Care, I think that's important as well. So that one is pretty straightforward. We said last quarter, we're going to maintain this run rate framework, which I think has worked well in the last couple of quarters, in particular, call it, $9 million to $10 million per quarter, get to $36 million to $40 million or $38 million at the midpoint. One thing that is probably a bit off coming into the call is we referenced the high 30s last quarter, but if you actually look at external estimates, they're kind of more into the lower 40s. So that's obviously impacting both Burn Care and the total company external starting point. So I do want to point that out. So you put that together, I think we have a nice balanced guide, something around, call it, mid-280 or middle of that range rather and high 30s in Burn Care, you're probably around 320 or so at the midpoint, which we think is a very balanced starting point. And then just briefly on Q1, because I think, that's important as well in the context of the guide. So just to reiterate what we said in the call, we think we're off to a great start on track to exceed 20% as a company for the quarter. The MACI metrics have been really strong, and we are guiding Q1 higher than we've trended and certainly higher than we've guided in the last couple of years. So obviously, feel good about MACI. Burn Care has had a strong start as well. So very much on track to that run rate for Q1. So we think that sets us up well. And then lastly, just on the MACI question and just generally, I think as we talked about in the last call, I'd say we just want a very, I would say, prudent and disciplined start of the year in our initial guide. So MACI has a ton of momentum, we have a number of initiatives, including the increased sales force. We did see some inflection in some of our growth drivers in the second half, but we're not baking any of that in. We're assuming pretty similar trends on a full year basis. And similarly, I would say, on the Burn Care side, there's certainly an opportunity for incremental BARDA revenue. I think that's a reasonable possibility, but we're not baking that in. So I think it's prudent on both franchises. And just one last point on MACI. We did make the comments. If you look at the full year growth rate at the midpoint of that range, it's actually right in line with our Q1 guide. And so we felt like starting the year with not only a similar mix of business because we know our business is seasonal, but pretty -- or essentially consistent growth rates, really the same growth rate across all 4 quarters was a good way to start the year, and I think positions us really well to potentially outperform on that if we execute well. But I think it's a prudent way to start the year, again, just given the seasonality of our business. Operator: We'll go next to Richard Newitter with Truist Securities. Felipe Lamar: This is Felipe on for Rich. So just on the sales force expansion, you guys pretty quickly expanded your territories about 30% in the last couple of months. So I'm just wondering like just talk me through like rep adds and the strategy for the year and I guess, how you expect those new territories to ramp? And then just a second question, if you could give some guidance and expectations for free cash flow ramp for the year, that would be helpful. Dominick C. Colangelo: It's Nick. I'll start with the sales force expansion one. And obviously, we're really excited about the expansion. As you will recall from last year, we decided to accelerate the expansion into Q4 because we wanted to support what we knew were going to be significantly higher volumes in Q4 and make sure that we were positioned to take advantage of this momentum in MACI for the entire year and not kind of have the sales force expansion in the first third of the year. So really excited about that. Obviously, the larger footprint, as I mentioned on my prepared remarks, will increase our reach across the surgeon base and really gives us an opportunity to drive expansion of surgeons and deeper penetration in our existing surgeons. And I would just say, I think the team executed flawlessly on the expansion. Obviously, people outside of the company can worry about disruption when you're expanding the sales force in your largest quarter. So great job by our sales and commercial leadership team to execute and put a plan in place, great job by both the new and existing reps in the fourth quarter to not only drive our highest quarter ever, but to position us well as we come into 2026. As we mentioned earlier, these are extremely experienced and talented reps that we think, together with our existing sales force are going to drive strong performance as we move forward through the year. So that's an important piece of it. I mentioned on the call that we expect our rep productivity to kind of get back to last year's level as quickly as next year. So really excited about the opportunity for the sales force expansion and what it's going to mean for our business. Joseph Mara: Yes. And then in terms of kind of the sort of cash flow question, I think probably the best way to think about -- we're not guiding to that specifically, but obviously, we think we are in an inflecting cash flow position, which is great. Generally, I think what we talk about is our adjusted EBITDA is a good proxy for operating cash flow. It doesn't always line up because there could be collections at the end of the year and some timing differences. But kind of over time, that tends to be a pretty good proxy for the most part. And then you kind of look at our run rate on the CapEx side in the last couple of quarters, it's been in the low single-digit millions, obviously, much lower as we've gotten back to more of a steady state after getting through the building projects. So that's probably the right way to think about it, but we don't have a specific number we've guided to there. Operator: And we'll move next to Mason Carrico with Stephens. Mason Carrico: In the context of your MACI outlook for this year and recognizing your comments, Joe, that leaves some room for upside, how should we think about what's baked in, in terms of the larger sales force conversion rates, maybe surgeon growth that's in the guide today? Joseph Mara: Yes. So again, from a MACI perspective, I think we wanted to start the year with a very balanced view. Obviously, Q1 is off to a good start. And so I think as you think about the key growth drivers there, as I said, I would say you can think of those as similar on a full year basis, whether you're talking about kind of some of the key biopsy drivers or whatnot. I wouldn't say there's anything specific or kind of baking in, in terms of the new sales force. I think it's probably more just overall looking at the overall trends. To kind of Nick's earlier point, I think we have pretty high expectations of our new adds and are excited about just the increased reach and frequency we're going to have. So we do think that can be impactful over time, but we're actually not really baking anything into the guide. And obviously, it's a long sales cycle, so you want to have a little bit of patience there. But obviously, at the same time, we expect that to kind of get back to our rep productivity rates pretty quickly. So I think there's certainly an opportunity if the teams can do a good job to help drive that outperformance, but nothing specific that we've baked in, assuming kind of any sort of inflection in trends. Mason Carrico: Okay. Would you be able to share any thoughts or anything you can point us to on how conversion rates for MACI tracked over the course of 2025? What proof are you seeing that Arthro might be able to improve the conversion rates and really shorten that time from biopsy to implant? Dominick C. Colangelo: Yes. So I think on an overall basis, as Joe mentioned, that conversion rates were relatively stable for the year. But as I mentioned, within that segment of MACI Arthro trained surgeons that actually performed a case, again, we see higher biopsy and implant growth rates than MACI Arthro trained surgeons generally, which are higher than the overall average. And then we do see higher conversion rates for those MACI Arthro implanting surgeons as well. So that's the evidence, as I mentioned on my earlier remarks. Operator: And we'll move next to Jeffrey Cohen with Ladenburg Thalmann. Jeffrey Cohen: So in particular, could you unpack OpEx a little bit for your '26 guide? And curious on the sales force expansion from last year, if there's any pull-through or any anticipated expansion for this year in R&D as well? Joseph Mara: Yes. So I think we gave guidance at the total company level. So we said approximately $220 million on a full year basis in OpEx. Probably the easy way to think about that is, call it, $55 million a quarter, pretty consistent, including the first quarter. I think to your kind of question and point, I mean, one thing we've been talking about is as we move into '26, there are some incremental costs that are going to flow through the P&L, including on the OpEx side. So to your question on the SG&A side, certainly, it's the expansion of the sales force. So it's roughly 30 people. You can think of that as probably something in the $10 million range on an annual basis. And then I'd say a pretty meaningful increase on the R&D side as well as part of that, where you can think about, obviously, the Ankle trial, which was kind of in a start-up phase is now thinking of kind of more sites, and patient enrollment and whatnot. So those are really the 2 key drivers from an OpEx perspective that we baked in on a full year basis. Jeffrey Cohen: Okay. And then as a follow-up, with the Arthro surgeons out there, the anticipation for '26 is being driven by new surgeons or repeat surgeons? Are there 1,000 more surgeons to reach this year, or are you seeing more drive from existing physicians? Dominick C. Colangelo: Jeff, it's Nick. As I mentioned in my remarks, I mean, the sales force and MACI Arthro combined, give us a greater reach on the sales force side. And then with MACI Arthro, we expect to continue to train surgeons, but we're really focused given the dynamics you see with those trained and implanting surgeons on sort of the depth of penetration that you can achieve with those surgeons in their practice. And so that is a meaningful piece of what we're doing. We've already trained a good portion of our existing MACI users. Again, I think we'll continue to do that, and it will bring new surgeons into the fold with MACI Arthro. But again, getting depth into those practices is really a key growth driver and the subject of a lot of our commercial excellence initiatives that we referenced earlier on the call. Operator: We'll move next to Caitlin Roberts with Canaccord Genuity. Unknown Analyst: It's [ Michaela ] on for Caitlin. Our first one is, are you continuing to see dormant Epicel accounts reactivated given NexoBrid? And what does the next stage of NexoBrid adoption look like, if you can give any more color there? Dominick C. Colangelo: So we definitely see more Epicel dormant accounts. So that has continued as we've sort of, I think, just by way of reference, we now have our entire Burn Care team of 17 territories cross-selling both products. So you certainly see additional dormant accounts each year coming on board. Again, it's a pretty sporadic patient base. And so you can have hospitals that may or may not see a patient in that particular year, but we definitely are bringing on additional Epicel accounts. And then on NexoBrid, obviously, changing the standard of care takes time, but we're continuing to see progress there. We launched the product with about 90 target accounts. To date, over 70 accounts have actually placed orders for NexoBrid. So good penetration on the overall number of accounts. And as we've talked about on prior calls, it's really about how do you move all of the accounts up the curve to be consistent users, which is what we're in the process of doing. So we remain sort of optimistic on what NexoBrid can do as we move forward. And as Joe mentioned, while we're not baking any sort of BARDA award revenue into our guidance, we think that is a strong possibility for the year. And if so, that will reinforce NexoBrid as a standard of care in addition to sort of some important financial enhancements for the company as well. Unknown Analyst: And then maybe just another quick one from us. Do you have any updates on when the MACI Arthro 2.0 instruments will be launched and maybe what improvements you're making? Dominick C. Colangelo: Yes. So that's an ongoing process. We wanted to have MACI Arthro instruments on the market for a sufficient period of time in the first year and then gather feedback on enhancements that would be most important to continue sort of a journey of making MACI Arthro a simpler, less invasive procedure. So I'd say we're kind of gathering up that market input now depending on changes, these things can be by the time you develop new instruments, go through the sort of validation process, the approval process, et cetera, it's, call it, an 18-month or more process. So that would suggest maybe next year, probably at the earliest that we would have additional enhancements. Operator: We'll move next to RK with H.C. Wainwright. Swayampakula Ramakanth: Just a quick question on gross margin. So you recorded 79% gross margin in the fourth quarter, but the 2026 guidance calls for a margin of 75%. So I'm just trying to understand the 400 basis point compression. Is that coming from trying to get the manufacturing start-up activities going? Or is it some amount of depreciation baked into it? And when all is said and done and the MACI manufacturing is completely transitioned into the Burlington facility, what could be the steady-state margin profile? Joseph Mara: And thanks for the question. I would say, just a reminder, when we talked about the 79% margin, that's based on our Q4 performance in 2025. And so we do see some seasonality in terms of margins and just because our business, particularly MACI is so Q4 driven, of course, in terms of the mix of the year, we do tend to see our margins scale up in that quarter. So when you look on a kind of more apples and apples, I would say, full year basis, last year, on a full year basis, we did 74% next year for 2026, rather, we're guiding to 75%. So some increase on a year-over-year basis. Broadly, I would say there are kind of some additional costs that we are absorbing as we move into the new facility here in Burlington and now have kind of multiple facilities that we're operating, but I still feel like that's the right guidance assumption for the year. And then longer-term, just a reminder, we said on the gross margin side and we think we can get into the high 70s by the end of the decade. And I would say just generally kind of already being on a full year basis in the mid-70s and trending that way this year to start the year, I think we're pretty well positioned in terms of that kind of long-term target that's out there. And then maybe just to bring your Q4 data point back, I think Q4 is helpful when you look at those margins because we tend to grow into similar margins over time as the company grows more on an annual basis. So it is a good marker to look at. But again, I think on a full year basis, it is an increase on the gross margin side. It's just comparing Q4 to full year. Swayampakula Ramakanth: One quick question on the ex-U.S. business. So as you were stating, Nick, that you're planning to submit to the U.K. regulatory authorities in mid-2026 or in 2026. So how are you planning the commercial infrastructure there? Is this going to be a direct launch by you, or do you plan to enter into some sort of a partnership to initiate that business? Dominick C. Colangelo: Yes. Thanks RK. So as I mentioned on -- in my prepared remarks, the U.K. is a very attractive first step for us for MACI OUS expansion because I mean it is an expedited approval pathway, mutual recognition pathway. So that is very attractive as well as established reimbursement pathways. And I also mentioned there's a concentrated call point. So there's a dozen or so centers of excellence where patients in the U.K. with cartilage injuries are treated, which means it doesn't require a big commercial footprint. So we would absolutely plan to commercialize on our own in the U.K. Operator: We'll take our next question from Josh Jennings with TD Cowen. Joshua Jennings: I know you're not breaking out MACI Arthro contributions directly and we're thinking about the MACI franchise holistically. But I was hoping maybe qualitative, you can just share with us just whether the MACI Arthro launch in 2025 exceeded your internal expectations or in line with your external expectations, but it seems like it's exceeded it and including what's going on in this first quarter of 2026, where you're combating historical, seasonal trends and you're going to -- thinking you're going to deliver 20% growth or forecasting 20% growth of that MACI franchise here in 1Q '26. Dominick C. Colangelo: Yes, thanks Josh. So yes, I mean -- I think when you look at different dimensions of the MACI Arthro launch, I mean, surgeon training, as we said, we've now trained a meaningful portion of our surgeon base, which is great. Their behavior, as you mentioned, and I've mentioned a couple of times, is exactly what you'd want to see in terms of increasing growth rates and now for MACI Arthro implanters having higher conversion rates. I'd say when you look at MACI growth overall, we had nearly a couple of hundred basis points of growth. And when you look at that in the context of the increased growth rate in our small condyle defect segment, it clearly accounted essentially for that accelerated growth for the year for MACI. So yes, from that perspective, we're very pleased. Obviously, we entered last year with 150 trained surgeons. We enter this year with kind of more like 900, as we mentioned early in the year that's now grown since that time. And so there's an opportunity if those trends continue to really sort of meaningfully impact the business as we move through 2026 and beyond. Joshua Jennings: And then I know -- I was just hoping if you could share some details on this BARDA RFP, it sounds like the team is more optimistic that will come through. But what's left? Is it just administrative sign-off? And then I think this is in the public domain, but maybe just help us think about if that does come through, what type of revenue contributions in 2026 and beyond could this BARDA RFP deliver for Vericel? Dominick C. Colangelo: Yes. So as you're aware, there were kind of 3 components to the RFP from BARDA. One was kind of strategic stockpiling for national preparedness and procurement revenue that would result from that. There was a desire to add additional indications for blast trauma and funding for that and then for a room temperature stable formulation as well. So there were kind of 3 components to it that would flow through our income statement differently. That obviously was impacted by the government shutdown initially. As you're well aware, there were parts of funding for 2026 that were pushed out to the end of January, and that's still an ongoing issue. So while HHS was funded for the year as of the close of January, that's only a few weeks ago and so obviously, getting the machinery up and running takes a little time, it seems. But we do think there's a pretty strong possibility that we'll be able to get that award done this year, and it would have the impacts that we mentioned. The RFP obviously set forth the stockpiling numbers, starting with 2,750 units and then additional procurement down the line. The exact revenue that would come out of that, we're not prepared to share right now. It's obviously subject to the negotiations on pricing and so on, but as that moves forward, we can share more about that. Operator: And that will wrap our question-and-answer session. I will now turn the call back over to CEO, Nick Colangelo, for any additional or closing remarks. Dominick C. Colangelo: Okay. Well, thanks, everyone, for joining us this morning. As we've mentioned, the company had an outstanding fourth quarter and is very well positioned to continue to deliver on what we believe is a unique combination of sustained high revenue growth and profitability in 2026 and the years ahead. We look forward to providing further updates on our progress on our next call. So thanks again, and have a great day. Operator: Thank you. That will conclude today's conference. Ladies and gentlemen, we thank you for your participation. You may disconnect at this time.