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Luca Pfeifer: Hello, everyone, and welcome to our fourth quarter 2025 results call. This event is being recorded. Our speakers today will be our CEO, Marcelo Benitez; and Bart Vanhaeren, CFO of the company. The slides for today's presentation are available on our website, along with the earnings release and our financial statements. Now please turn to Slide 2 for the safe harbor disclosure. We will be making forward-looking statements, which involve risks and uncertainties, which could have a material impact on our results. On Slide 3, we define the non-IFRS metrics that we will reference throughout this presentation, and you can find reconciliation tables in the back of our earnings release and on our website. With those disclaimers out of the way, let me turn the call over to our CEO, Marcelo Benitez. Marcelo? Marcelo Benitez: Thank you, Luca, and good day to everyone. We closed 2025 with strong operational and financial performance and a clear top line acceleration. During the year, we successfully integrated Ecuador and Uruguay, expanding to 11 countries. This footprint diversifies our revenue base and supported robust sustainable free cash flow generation going forward. Two weeks ago, alongside NJJ, we expanded further to Chile, our 12 markets, which we will address further in the sections that follow. In addition to the expansion to Chile, we have moved quickly to stabilize and integrate the newly acquired business in Uruguay and Ecuador. On the first day of the acquisition, we appointed a new General Manager, a new CFO and a new CTO. Within the first week, we redesigned the executive team and their direct reports. And within the first month, we applied our playbook with discipline, including 30% reduction in headcount. I'm pleased to share that today, we already consider these operations business as usual, reflecting the speed and effectiveness of our integration approach. Turning to our operations. Our pre-to-post strategy continues to deliver. We added more than 200,000 postpaid customers in the quarter and 1.8 million customers if we include Ecuador and Uruguay. This is not just growth. It's a structural upgrade of our postpaid base. We also made meaningful progress in Home, adding 40,000 net new homes, reinforcing our ambition to be a full mobile and fixed operator across the region. Financially, execution translated into results. Adjusted EBITDA reached $778 million for the year. EBITDA margin stood at a strong 47%. We delivered $278 million of equity free cash flow in Q4, taking full year eFCF to $916 million or $864 million, excluding tower sales proceeds. This performance exceeded our guidance even after absorbing onetime impact such as DOJ and other legal settlements. As we close 2025, I want to recognize our Tigo team. Thank you for an exceptional year. This was not easy. We integrated new markets, accelerated growth, strengthened cash flow, all while maintaining financial discipline. This combination only happens with focus, teamwork and ownership across the organization. Because of your work, we entered 2026 stronger, more diversified and with a real momentum. Thank you. Now let's move to our Mobile business. The engine is strengthening, and Mobile delivered another strong quarter. Service revenue totaled $954 million, including $112 million from Ecuador and Uruguay. Excluding perimeter effects, mobile service revenue grew 5.7% or $43 million year-over-year, a clear acceleration. This performance reflects disciplined execution across 3 core strategies: network investment. We continue to deliver the best connectivity experience through a disciplined deleveraging strategy and highly granular return-focused CapEx allocation. Our investments are targeted where they create measurable impact to customers and drive long-term value. Second, pre- to post migration. Postpaid customers reached 9.1 million, up 12.6% year-over-year when excluding the perimeter expansion. Only 22% of our 49 million customers are postpaid. The runway remains long. Third, prepaid base management. Revenue grew 3%. We are preserving scale through strong commercial execution and increasing ARPU with a simple, easy-to-understand more-for-more value proposition. Now let's move to our Home business. During the quarter, we added 40,000 home customers, and our Home customer base increased 5.1% year-over-year. We are focused on expanding high-speed broadband to low penetrated areas while accelerated fixed mobile convergence, which delivers materially lower churn versus non-FMC customers. As a result, Home service revenues declined a marginal 0.3% year-over-year, marking a second consecutive quarter of essentially flat performance. Given our ongoing commercial efforts and simplified pricing strategy, we are confident in a return to home revenue growth in 2026. Next, I will review our B2B business. Digital service revenues increased 40.7% year-over-year to $79 million in the quarter, excluding the perimeter expansion. This growth reflects a combination of onetime government projects in Colombia and Panama, alongside strong underlying momentum in our digital portfolio. Beyond digital, we continue to see solid performance across the broader B2B segment. Mobile service revenues growth in B2B was 7%, while the SME segment is accelerating, reaching 5% growth after starting the year with low single-digit growth. Overall, this demonstrates improving execution, stronger commercial traction and increasing relevance of our digital solutions across enterprise customers. Let's turn to Guatemala, our best-in-class operation. Postpaid grew 20% year-over-year. Mobile service revenue increased 5.9%. Operating cash flow grew over 17% in the quarter. Full year operating cash flow reached a record of $791 million. Even from a leadership position, the team continues to excel in performance, outstanding execution. Congratulations to the Guatemala team. Colombia is another clear success story. We delivered strong results across all business lines with postpaid mobile and home customer bases, both expanding 10% year-on-year. Our value proposition of best-in-class mobile coverage and broadband speeds continue to drive share gains and monetization. In line with this momentum, service revenue growth increased 6.9% year-on-year and adjusted EBITDA reached a record quarterly margin of 44%. This is a remarkable outcome given the fragmented nature of the Colombian telecom market. My thanks go to the Colombia team for delivering such strong results. As recently announced, we have acquired EPM 50% stake in Tigo UNE and now own 100% of our Colombia operation. With full ownership, we are well positioned to consolidate our market presence and further optimize our operations. This also places us in an excellent position to begin the integration of Coltel, a strategic initiative on which I will share more in a moment. Turning to Panama. We see encouraging signs of top line acceleration. Our postpaid customer base expanded 14.6% year-on-year and mobile service revenue grew 4.5% year-on-year, reaching $84 million in the quarter. On the right side of the slide, you will note that adjusted EBITDA reached $94 million or 49.8%, primarily due to several onetime items that impacted Q4 profitability. Panama remains in our Club 50 in full year performance, and we are confident that they will remain so in 2026. Before handling the call over to Bart, let me update you on our key strategic projects. As noted earlier, our Colombia operation is performing at its best, setting a strong foundation for market consolidation. As announced in February 5, we acquired 2/3 stake of Coltel from Telefonica, gaining operational control. Our management teams are already on the ground, taking initial steps to strengthen the business. Regarding the 33% stake from La Nacion, as you know, there is a formal privatization process with a time line that sets the potential closing of the transaction for La Nacion stake in April 2026. On February 10, we announced a transaction with NJJ to acquire Telefonica operations in Chile, a strategically important balance sheet protected move for Millicom. Together with NJJ, we are acquiring 100% of Telefonica stake in its Chilean business through a joint venture vehicle with NJJ acquiring 51% and Millicom, the remaining 49%. The upfront payment is $50 million. Telefonica may receive up to $150 million in earn-out considerations, fully funded by the acquired company's own cash. None of the transactions obligations, including existing debt, are recourse to Millicom. At closing, Telefonica also contributed approximately $92 million to ensure balance sheet stability. This structure allows us to strengthen the business from day 1 and provides a clear path to full ownership. In years 5 and 6, we have the option to acquire NJJ's stake at a valuation based on Millicom trading multiples less a 10% discount. If we do not exercise, NJJ can acquire our stake on the same terms. This creates a meaningful long-term upside with limited upfront risk. Chile is a sophisticated market with clear operational upside. Applying our proven playbook, we see a path to stabilization and performance improvement. This transaction expands our South America presence while preserving flexibility and leverage discipline. With that, let me turn the call over to Bart. Bart Vanhaeren: Thank you, Marcelo. Let's now take a deeper look at our financial performance for the quarter and the full year. Service revenues for the quarter reached $1.55 billion, up 15.9% year-on-year. Excluding $131 million contributions from our newly acquired operations in Ecuador and Uruguay, service revenues increased 5.2% year-on-year organically. We are very pleased with this performance. It's a direct result of our strategy, delivering the best network experience, maintaining a commercial focus on the pre to post migration and fixed mobile convergence. These efforts continue to reduce churn and support healthy ARPU expansion. At the same time, a little word of caution. We have $16 million in B2B government projects in Panama and Colombia, boosting revenues this quarter but are not necessarily recurring in nature. Adjusted EBITDA for the quarter increased 25.9% year-on-year, reaching $778 million, representing an EBITDA margin of 47.1%. Here again, Ecuador and Uruguay contributed meaningfully, adding approximately $45 million to adjusted EBITDA. Excluding this effect, adjusted EBITDA still grew 18% year-on-year to $732 million. Three key factors drove this robust year-on-year improvement. One, outstanding operational performance, particularly in Colombia, Guatemala and Paraguay; two, relentless focus on margin enhancement, both in our local operations and across HQ expenditures. three, positive FX impacts, which for the first time in 2025 supported EBITDA growth. Finally, equity free cash flow grew $139 million or 17.9% over the last 12 months, reaching $916 million. Excluding infrastructure sales, we reached $864 million equity free cash flow this year, which is a number we measure ourselves against. As Marcelo highlighted earlier, we are proud to have exceeded both our own guidance and market expectations despite currency headwinds for much of the year, particularly in Bolivia alongside $118 million DOJ settlement and other cleanups as disclosed in our Q3 results. With favorable currency evolution, including in Bolivia, this positions us very well for the entry point of 2026. Let me now turn to service revenue performance by country. I will briefly reference Guatemala, Colombia and Panama, as Marcelo already addressed the main dynamics. Guatemala delivered solid growth with stable market share in our strongest market. Colombia, exceptional commercial execution and favorable FX tailwinds produced an outstanding year with Home business now contributing to growth. We are excited and ready to execute on the upcoming in-market consolidation opportunity. Panama returned to solid growth, up 4.9% year-on-year, supported by an expanding postpaid base as well as some one-off governmental projects mentioned earlier. Paraguay, revenue growth was flat year-on-year in constant currency but reached $154 million for the quarter in real USD. Underlying, though, we have real growth driven by postpaid subscriber growth and ARPU increases, which were offset by one-offs that benefited Q4 2024, without which we would have seen a 2% organic growth. Bolivia service revenue returned to triple-digit territory for the first time in 2025, up 5.5% year-on-year to $105 million. The Boliviano has strengthened significantly since the elections and shows signs of stabilization in Q4 of this year. We are now converting Bolivianos to USD around 9 Boliviano per USD. In the other countries, which includes Ecuador and Uruguay for this quarter, in addition to Costa Rica, Nicaragua and El Salvador grew 6% organically or 69%, including inorganic growth. Let's now turn to the next slide, reviewing EBITDA. As highlighted in my opening remarks, we are very pleased with the strong profitability delivered this quarter with group adjusted EBITDA reaching a robust margin of 47.1%, including below average margins coming from Ecuador and Uruguay that include restructuring costs. As shown on Slide 16, all of our major operations contributed to this performance, each delivering meaningful year-over-year margin expansion. Let's now review the performance of each country in more detail. Our strongest operation, Guatemala, reached $241 million in adjusted EBITDA for the quarter, up 11.3% year-on-year in local currency, driven by improved revenue performance, particularly in postpaid and continued disciplined cost control. Colombia delivered another exceptional quarter with adjusted EBITDA reaching a record $174 million, up 24.6% year-on-year. Strong postpaid ARPU and disciplined cost management leave this operation in an excellent shape as we assume control of Coltel. Two points of attention here. One, we expect the margin to come down in Q1 due to material increase in minimum wages by the government; and two, although having control over Coltel, we expect to run the company a couple of months independently until we buy out the government. This is expected for April, assuming the time lines of the privatization process doesn't change. In Panama, adjusted EBITDA grew 4.5% year-on-year, reaching $94 million, benefiting from the revenue momentum mentioned earlier. Paraguay reported another strong quarter with adjusted EBITDA up 11.8% in local currency to $83 million and a margin of 52.1% we are encouraged by this margin expansion as we keep costs in check while our customer base continues to grow. In Bolivia, FX rates stabilized during the fourth quarter, combined with disciplined ARPU growth and strong cost control, leading to a margin of 53%. This places Bolivia as our newest and sixth member of our Club 50, which is our countries with an EBITDA margin above 50%. Congratulations to the team for this outstanding result. And as Marcelo says, a very exclusive club where you can get in but never get out. Turning to other countries. Excluding the new operations in Uruguay and Ecuador, adjusted EBITDA in Nicaragua, El Salvador and Costa Rica increased 13.1% to $106 million. The new operations contributed $45 million to our EBITDA even as we began initial headcount-related efficiency programs. In Q3, we told you that we focused on solving a lot of the corporate matters with settlements with DOJ, Telefonica, getting our 2026 budget so that in Q4, we could concentrate on the business, the entry point of 2026 and the integration of Uruguay and Ecuador. As Marcelo mentioned in his opening remarks, we hit the ground running and captured efficiencies from day 1. Are there more low-hanging fruit compared to other countries? Sure. But I was just looking at preliminary unaudited adjusted EBITDA numbers for January and was very pleased to see both countries already achieving mid-40s adjusted EBITDA margin levels. Let's now turn to Slide 17 for a review of our fourth quarter equity free cash flow. We began the quarter with strong operational momentum, resulting in a $163 million year-over-year uplift in adjusted EBITDA. This was the single largest contributor to our equity free cash flow expansion for the period. Working capital and other payments decreased by $94 million year-on-year, largely driven by $180 million DOJ settlement we disclosed during our Q3 results in November. This extraordinary impact was partially offset by favorable timing in payables. Taxes paid increased $33 million consistent with higher profitability across the group and the settlement of certain tax litigations during the quarter. As expected, lease payments increased $48 million year-on-year, reflecting the full quarter impact of our tower sale and leaseback transaction as well as the incremental leases from our newly acquired operations in Ecuador and Uruguay. Finally, we recorded a $30 million increase in repatriation from our joint venture in Honduras following the infrastructure transaction. Putting all these items together, equity free cash flow increased by $42 million year-on-year, reaching $278 million. Now please turn to the next slide for a look at our equity free cash flow and leverage for the full year 2025. I won't go over each of these points individually, and I will simply highlight that most of the improvement came from a mix of higher EBITDA for $284 million, lower spectrum charges for $63 million and about $74 million in finance charges. These effects were partly offset by an increase in taxes paid of $96 million that included settlements, cash CapEx increase of $82 million and working capital and other charges of $75 million. In summary, for the year, equity free cash flow increased $139 million to $916 million or $864 million, excluding Lati, our strongest performance to date. Let me now walk you through the net debt bridge and resulting leverage at year-end. We began the quarter with $4.6 billion in net debt, corresponding to 2.09 leverage as disclosed in Q3. We generated $278 million equity free cash flow in the quarter, and we received the cash proceeds of $236 million from tower sales executed at the end of Q3. During the quarter, we distributed $0.75 per share in ordinary dividends and $1.25 per share in extraordinary dividends tied to the tower sale proceeds. In total, we distributed $334 million to our shareholders, increasing leverage by 0.14. Adding the operations of Ecuador and Uruguay increased our leverage by approximately 0.35. Bringing these factors together, quarter end leverage was 2.31, comfortably below our target of below 2.5. even after absorbing the additional perimeter. This is a remarkable achievement. Lastly, on a pro forma basis, including last 12 months adjusted EBITDA from Uruguay and Ecuador, leverage would have been 2.17. This reinforces our confidence that we will reduce leverage further as we enhance profitability in the acquired operations. Let's now have a look at our financial targets. We are extremely proud of our 2025 results, which reflect both operational excellence and disciplined financial management. Our regional footprint continues to provide important diversification benefits, enabling us to offset volatility in individual markets, such as the FX devaluation in Bolivia this year through the performance of the broader portfolio. That said, we operate in Latin America, a region known for macro volatility, and we must factor in stabilization needs of Ecuador, Uruguay and the Coltel acquisition in Colombia. For 2026, we project an equity free cash flow of at least $900 million. Regarding leverage, we expect our leverage to increase a bit on the back of the different acquisitions in Colombia. We had about $570 million for the 50% stake in Tigo Colombia acquired from EPM. This is about $170 million more than anticipated due to FX, with about $220 million from the acquisitions of Telefonica shares in Coltel, and we expect another $220 million from the acquisition of La Nacion shares in Coltel. With all that, we see our leverage increase a little more than anticipated in the first half of 2026. But then in the second half of the year, we expect to bring leverage down again to around 2.5 by year-end to then land within our guided range of 2.0 to 2.5 in 2027. With that, let me turn the call back to Luca. Luca Pfeifer: We'll now begin our question-and-answer session. As a reminder, if you would like to ask a question, please let us know by e-mailing us at investors@millicom.com and we will add you to the queue. Our first question of the day comes from Leonardo Olmos from UBS. I think Leonardo has some technological issues. Since Leonardo has been able to ask his question, please continue with Livea Mizobata from JPMorgan. Leonardo? Leonardo Olmos: So 2 on our end. So the first one, regarding the acquisition of the operations in Chile, I just wanted to know your view on the current competitive environment and how you assess the operational and balance sheet conditions of the asset that you bought from Telefonica. That's the first one. And the second one, just a quick -- maybe more color on what is embedded in this equity free cash flow guidance for this year, especially regarding the impacts from the ongoing integrations. Marcelo Benitez: I will take the first one, Leonardo, and I will let Bart answer the second one. First of all, it's a luxury for us to be in Chile. Chile has a very strong macroeconomics, dollar stability -- currency stability and also it's an investment-grade country. So we do believe in the long-term prospect of Chile. If we go to the competitive environment, yes, it is a very fragmented market. We are nevertheless #1 in Home subscribers and our position in Mobile is #2. So we do believe that there is we can forecast long-term or midterm market consolidation but that is not the main reason why we got in Chile. Our playbook fits very well to the Chilean operation, and we are getting very good at executing it. In just 2 weeks, we appointed a new CEO, a new CTO and a new CFO. Then we -- in the first week, we appointed the [indiscernible]. And as we speak today, we are executing the downsize of the Chilean operation. So despite the fact that we are losing money every day in Chile today, we do think we can bring the operation this year to equity free cash flow neutral and from then, start looking and receiving the benefits of a new run rate with a new operating model. So that will be Chile. Bart? Bart Vanhaeren: For the equity free cash flow, Leonardo [indiscernible]. So we have, on an organic basis, $864 million equity free cash flow, right? So many people will add the $180 million for the DOJ that is embedded in those costs, $980 million, right, the 2 combined. And then going into 2026, we have Uruguay and Ecuador contributing a little bit to the equity free cash flow starting in the year. You can estimate low to mid-double-digit equity free cash flow from the 2 countries combined. So with that, you get to $1 billion starting the year but then you have to put a number of risks next year. The big one is Coltel. And also we did acquire Coltel now just a couple of weeks ago, which is on a negative run rate equity free cash flow, right? So we know how to turn around that business. We have done it in Colombia with our own Tigo business. But then you also have the restructuring costs and the acquisition that -- so all that together should be close to zero but there are risk on the execution if you go into the negatives. Besides Coltel, you get currency risk and macro risk in Lat Am, it's inherent to our region. Look where we started the year, where we are now, it's -- the good thing is we have now a platform that is diversified and can weather some storms. But it's risk that we need to take into account political risk, tax risk, legal risk but also upsides. We're starting the year with a very favorable currency. Will it sustain during the year? We don't know, but it's a good start, and then we could have extra growth. So all that together is how we get to this $900 million balanced view on equity free cash flow for 2026. Maybe in the same trend, we're not giving guidance beyond 2026, if you look in the medium term, we do hope that Uruguay, Ecuador and Colombia will align to the average equity free cash flow to revenue and profitability, which is this year around 15%. And so in run rate, that's why they all should converge to. That's our ambition, right? So on the $2.2 billion acquired revenue, 15% equity free cash flow would be a good ambition to have. Leonardo Olmos: Just a quick follow-up, if I may. You mentioned the equity cash flow impact expected for Colombia -- from Coltel, I'm sorry. What about the operations in Uruguay and Ecuador, if you could comment on that. Bart Vanhaeren: I mentioned at the beginning. So for 2026, low to mid-double-digit equity free cash flow. Operator: Thank you. Our next question comes from Livea Mizobata from JPMorgan. Livea? Livea Mizobata: So I have 2 topics that I would like to explore. The first one is, of course, margins. You have had consistently raising margins, have been consistently raising margins. And I feel like fourth quarter was like remarkable on that front. So congrats on that. The first thing that comes into our mind is how sustainable is that? And particularly, I would like to touch upon some operations. So the first one is Colombian operation. This has been particularly strong. So it was way above our expectations. And what we would like to know is like what have been done in this operation, particularly this quarter and what we can expect in 2026, given the deal process? And I would also like to know a little bit about your expectations for Ecuador and Uruguay, if the fourth quarter level is a good proxy for 2026. And then the second topic that I would like to ask you about is M&A, of course. So 2025 was an intense year. Something that we often receive as a question from investors is if Tigo would be willing to go to new countries and the ones that they always ask us about is particularly Brazil, Mexico, Venezuela and even Argentina now. So can you comment a little bit about your appetite for acquisitions? How are you thinking about capital allocation for this year given the recent moves? Marcelo Benitez: Thank you, Livea, for your questions, and thanks for your kind comments about our results. I will start with the margins question. So basically, the margins increase or expansion that we see that is consistent during the quarters has to do with 2 things. Number one is because our efficiencies programs are not onetime. These are part of our operating business. Still, we review every purchase order from $1. Still, we challenge each and -- every and each new contract. So our battle is against the inertia, and that's how we operate on a day-to-day basis. We can add that now -- we can add to that now the top line growth. As you can -- as you -- maybe you recall, we started the year with 0 top line growth, and we ended the year around 5%, a bit more than 5% growth. So that is bringing us more scale and also that scale is translated in a better operating leverage. If I -- when going to Colombia, when we talk about margins in Colombia, it's more or less the same story but in a larger volume. We are growing our mobile base and our home base by 10% year-over-year. So this expansion of our top line -- our customer base and top line growth is bringing us new scale, combined with the efficiency program that I already mentioned is what is translating into better margins. Where do we see Colombia is this sustainable and increasing in the future? The answer is yes. Of course, during the merger, you have some -- you need to transition through the integration and that brings some extra cost. But there is no reason why in Colombia, we cannot -- that Colombia cannot be part of our Club 50. And finally, Ecuador and Uruguay, we already are operating Ecuador and Uruguay as business as usual, and we already did a lot of the efficiencies that we call the efficiencies Phase 1, the one that we need to do the first 60, 90 days. We already did that last year. We start -- we took these operations with around 30% margin. We are above 40% already in these 2 countries. So we do believe this is absolutely sustainable. There is still a lot to do in the Phase 2 of these efficiency programs, and we should start looking at top line growth at the end of this year. So in 2027, we will have the full benefit of our playbook. But the Phase 1 that has to do with efficiency, we are looking at it right now. Bart Vanhaeren: And I think on the back of what Marcelo said, you see that quarter-on-quarter, the growth has been accelerating. So hence as well the operational leverage that comes from that through the margins down to the equity free cash flow. If we look at the M&A, so bigger picture, right, what's our M&A strategy? What are we looking at? Now first of all, we're focused on turning around the businesses that we acquired, right? So it went really quick. In Q4, we already did Uruguay and Ecuador, as Marcelo said, they're now on run rate in business as usual. We have now Coltel and Chile to deal with. So that's our main priority. If we look at the M&A strategy, first has always been in-market consolidation, right? And over the last few years, we did Panama, Nicaragua and now Colombia. And many of our markets are not 2-player markets with not a lot of immediate consolidation targets in the remaining. There are still 3 or 4 players in Costa Rica, but has been difficult to do something as our last transaction got canceled. Salvador, Paraguay and Uruguay, which are still 3 or 4 player markets. Adjacent markets, right? So we did Uruguay, Ecuador and now Chile. And what are the main sizable markets that remain would be Venezuela and Peru, basically, right, on the continent. I'm deliberately excluding Mexico and Brazil. It's not market for us. It's too big, too complicated. It's not something that we have immediately on the radar to enter. And as well Argentina, where the dice are already thrown, right? So the M&A already happened last year. There's nothing to go and do there. So the focus on adjacencies would then be mainly Peru and Venezuela should they when they come to the market. And then obviously, minorities. We did already Guatemala. We did already Panama. We did now Colombia. So what is remaining is Honduras. In Honduras, I kind of like to have a partner. It hedges us a little bit against the currency. Honduras, the lempira is one of our most volatile currencies this year next to the Boliviano. And then in Chile, we just did a JV. So we're thinking there more longer term. As you know, we have this option in year 5 and 6. So that's more a longer-term discussion to have. Livea Mizobata: That's very clear. And just back on the point of margins, I think soon we will stop discussing the 50 clubs and it will be the 60 clubs, right? Like from the level that you are delivering, this is totally achievable, I guess. Let's see. Luca Pfeifer: Thank you, Livea. The next question comes from Andreas Joelsson. I see he just dropped. Maybe let's give him another second if he reconnects. There he is. So next question from Andreas Joelsson from DNB. We cannot hear you, Andreas. Let's see. No, we -- unfortunately, we don't have any audio on your side, Andreas. Maybe let's give it another try later on. If we can then continue with Phani Kanumuri from HSBC, please. Phani Kumar Kanumuri: So my questions are on your shareholder remuneration. How are you looking at it in the light of the acquisition charges that you have? The second one is on Guatemala. We are seeing a strong increase in subscribers as well as accelerating revenue growth. What is driving that? Are you able to increase the prices in Guatemala in specific? And probably the third question is on the appetite for postpaid in your region. I mean the countries that you operate in are still very highly prepaid. So what is driving the increase and upgrade to postpaid in these regions? So those are the 3 questions. Bart Vanhaeren: You take the second one. Sorry, first question revenue growth, appetite for postpaid. Marcelo Benitez: I can take that and you take the dividend. So Revenue growth in Guatemala was the first question, Phani. Guatemala is our most, I would say, it's the example we have of excellent execution, brilliant execution. Guatemala started the process of pushing customers from prepaid to postpaid. They are growing that at a 20% month-over-month. They have only 12% of postpaid customers over the total customers. So the run rate -- the opportunity to expand is big. The other dimension is we invested in the network. So we have a very, very strong mobile network in Guatemala. And also, we expanded coverage. We have more than 200 sites with a vision of having at least 500 aggregated new sites in Guatemala. And finally, there is a very, very sharp base management in prepaid. So prepaid for the first time, we are being able to increase ARPU by increasing allowances and the size of the ticket. So in that combination, yes, the foundation is a solid network with a very granular dimensioning and way to allocate CapEx, migration from prepaid to postpaid at a rate of 20% quarter-over-quarter. And finally, prepaid base management. And this is brilliant execution from the Guatemala team. And congrats again, Guatemala. You are our north in terms of how to operate and become and open the Club 60 in the very near future. What is behind the migration from prepaid to postpaid? And this is very simple to understand, Phani, when you think -- when you see that the prepaid customer is only connected 15 days per month. Who wants to be connected only 15 days per month? So what are the drivers that makes this migration to accelerate in the group, I would say, in all the operations and has to do, number one, with the network investment and with this granular view on where to put the money is where the demand is. Number two, has to do with a very simple migration process, and that has 2 key elements. One is a very simple value proposition. We have no more than 3 to 4 plans to migrate prepaid customers to postpaid customers. And the second part is it has to be easy. Now you can migrate from your phone from prepaid to postpaid with 2 clicks. That's it. We are already profiled you. We already know that you are -- you have -- I mean, you are using -- your demand for data is higher than the allowance that the prepaid gives you. So they just need to put their names, names, some data and then you are activated. So these are the things that are making this migration a machinery to increase customer satisfaction, more days connected and more ARPU. So Bart on dividends? Bart Vanhaeren: Yes. So we are not giving guidance on dividends. So that's maybe an unfortunate question. But let me give some color on how we're thinking about this. I think I mentioned before that I'd like to distribute 2/3 of the equity free cash flow to shareholders. In 2025, this has been in the form of dividends and extraordinary dividends. And so yes, we go from $750 million guidance to $900 million guidance equity free cash flow. There is 20% uplift. But at the same time, I'm also triangulating with our net debt, right? And so on the back of these acquisitions, we're going to appear through temporarily through this 2.5x leverage. So ideally, I want to see the leverage come down again before really touching too much on the dividend. So sustain yes, grow is the question. So sustain yes, grow maybe. So give us a few more weeks until we get better views on the risk regarding to Coltel, how do we land, how do we executing against the current guidance? And then within our Q1 results, we'll give more color. There will also be around the time we have to call for the AGM. And so it will be more clearer in a few more weeks. So a little bit of patience on that. Luca Pfeifer: Thank you very much, Phani. Let's see if we can give Andreas another shot on his questions. If the audio doesn't work, I believe I have a good idea... Andreas Joelsson: Yes, we test. Can you hear me? Luca Pfeifer: Yes, loud and clear. Andreas Joelsson: Perfect. Two quite easy questions from my side. First of all, how much restructuring are you planning to do in 2026 in terms of costs? And secondly, if you can explain a little bit the quite good growth -- sequential growth in mobile ARPU during the quarter. I guess there is some FX element, but also there must be something else underlying. So it would be interesting to hear that and your thoughts on that going forward as well. Marcelo Benitez: Thank you, Andreas, for your question. I will take the second one, and Bart will take the first one. So on the second one, what's behind the ARPU increase? 50% of the ARPU increase comes from the positive or the currency appreciation of our countries. 50% of that comes from 2 things. One is pre to post migrations. So that is an uplift of ARPU more or less of 50% and ARPU price increases in prepaid through a very simple value proposition of more for more and give you more days connected or more allowances for a higher ticket. So those are the 2 things that organically are making the ARPU growth. Bart Vanhaeren: Yes. Regarding the restructuring costs, so far in Uruguay and Ecuador combined, we did about $20 million in 2025, and that then mostly relates to ERC restructuring. In 2026, I'm then looking more towards Coltel rather than Uruguay and Ecuador. And there, we probably are looking towards -- with all the restructuring that needs to be done there, more towards a triple-digit number to really to get the business back to a run rate that we are used to. Andreas Joelsson: Perfect. And just a follow-up on the ARPU. That growth that you related to, was that sequential or year-on-year? Marcelo Benitez: No, no. The growth is year-on-year. But also, you can see a sequential growth quarter-over-quarter but it's not 5%, 4.7%, I think it's ARPU growth. Luca Pfeifer: Thank you very much, Andreas. And our final question of the day will come from Eduardo Nieto from JPMorgan. Eduardo Nieto Leal: Just a quick one from my side. Thinking about the pending payments for M&A, it seems like most of it will be 1Q but I'm just curious where you see leverage peaking this year? And at what level kind of related to the question that Phani asked, at what level would you be comfortable stopping dividend payments if leverage gets a little bit higher than you would expect? Bart Vanhaeren: So payments on M&A. So Q4, we did Ecuador and Uruguay done, right? In Q1, we have the $570 million from the purchase of the EPM held shares in our Tigo operation. And we also have $220 million out of which about $60 million is deferred for the acquisition of the Telefonica shares in Coltel. So that's all done in Q1. And then as you saw, the minimum price in the privatization process done by La Nacion for their stake in Coltel is also about $220 million and that we expect in Q4, okay? Remember that we also have extraordinary dividends coming into Q4 of another $1.25 per share, which was part of the $2.50 that was announced last year payable in October and [indiscernible] 50%. So with that, yes, our leverage is going to increase in the first half of the year. So we're going to pierce through that 2.5x leverage. But then in line with the guidance, we hope by end of the year to be back around 2.5. And then in 2027, again, comfortably within the 2.0 to 2.5 range, in line with our policy. cutting dividend is not on the radar at all. We've been quite accurate with our forecasting. So at this moment, it's not even on the table. We're looking at sustaining it and potentially growing over time as our leverage comes back below the 2.5. Eduardo Nieto Leal: Got it. And just maybe a quick follow-up. You asked, is there a level at which leverage would make you uncomfortable as CFO here? Bart Vanhaeren: Well, any leverage makes me uncomfortable if you ask me but not uncomfortable but you want to have a strong balance sheet to be able to do things. And we have now been able to do things, thanks to our strong balance sheet. We add 4 operations in 1 year and also Uruguay, Ecuador, Colombia. And as you saw, we did some structuring around Chile exactly to protect the balance sheet. Do I believe we're going to do really good in Chile? Yes, absolutely. But I also don't want to bet the house on that. And so we said, okay, let's put a nonrecourse structure, 49%, we don't consolidate, let us do our work. And hopefully, we're talking about upsides in the future and not about risks on the balance sheet. So I think we're at the leverage where we feel comfortable, including the Coltel acquisition. And from there, I want to see deleveraging before doing other stuff on balance sheet. Luca Pfeifer: Thank you very much, Eduardo. That was our final question for today and concludes the question-and-answer session. Thank you so much for your time and for connecting, and we see you all for our first quarter results in May. Marcelo Benitez: Thank you.
Operator: Good morning. My name is Rob, and I will be your conference operator today. I would like to welcome everyone to the call. [Operator Instructions] I'd now like to introduce Beth DelGiacco, Vice President of Corporate Affairs. You may now begin your conference. Beth DelGiacco: Thank you. Two press releases were issued earlier today, one sharing the positive results from our Phase III ADAPT OCULUS study and the other, which outlines our fourth quarter and full year 2025 financial results and business update. These can be found on our website along with the presentation for today's webcast. Before we begin on Slide 2, I'd like to remind you that forward-looking statements may be presented during this call. These may include statements about our future expectations, clinical developments, regulatory time lines, the potential success of our product candidates, financial projections and upcoming milestones. Actual results may differ materially from those indicated by these statements. argenx is not under any obligation to update statements regarding the future or to conform those statements in relation to actual results unless required by law. I'm joined on the call today by Karen Massey, Chief Operating Officer; Karl Gubitz, Chief Financial Officer; Luc Truyen, Chief Medical Officer; Sandrine Piret-Gerard, Chief Commercialization Officer; and Tim Van Hauwermeiren, Chief Executive Officer. I'll now turn the call over to Karen. Karen Massey: Thank you, Beth, and welcome, everyone. I'll begin on Slide 3. 2025 was an incredible year of execution for argenx. We reached 19,000 patients globally, driven in part by the successful launch of our prefilled syringe for self-injection. We also continue to advance our deep and differentiated immunology pipeline, including 4 new molecules from our IIP, positioning us for sustained long-term growth. This progress is grounded in our commitment to patients to innovate in ways that don't just improve care, but meaningfully change what patients can expect from their treatment. I'm speaking to you today from our U.S. national team meeting, where hearing directly from patients is a powerful reminder of why our work matters. One moment in particular, stayed with me. We recently received a handwritten note from a patient, thanking the team for the impact VYVGART has had on her life. We later learned that before starting treatment, she had been living with very severe MG symptoms that significantly limited her day-to-day activities. Today, at the meeting, we saw a video of the patient about a year into treatment with VYVGART Hytrulo, sharing an update from a hype she was on. She is thriving. It's one individual story, but it reinforces the real-world difference VYVGART can make. Slide 4. At the start of the year, we outlined our strategic priorities for 2026 that will guide our next chapter of growth towards Vision 2030. We want to impact more patients globally with VYVGART through broader patient adoption and label expansion. We're shaping the future of FcRn medicines with next-generation molecules, delivery modalities and combination approaches and delivering the next wave of immunology innovation, supported by a strong late-stage portfolio and a goal of at least one new pipeline candidate per year. Slide 5. VYVGART is leading the growth of biologics in both MG and CIDP, and we're confident that we have the right strategies and milestones ahead to sustain this momentum. Today marks an exciting moment for ocular MG patients with the positive ADAPT OCULUS results, which Luc will discuss shortly. Together with our progress in seronegative MG, we see a meaningful opportunity to broaden VYVGART's reach to patients who have historically had limited or no targeted treatment options. What's guided us here is a long-standing commitment to the MG community and to advancing our understanding of the underlying biology of the diseases we treat. Across MG populations, our data confirm that disease is driven by pathogenic IgGs regardless of antibody status. In seronegative MG, we demonstrated a clinically meaningful improvement in MG-ADL in the overall population with responses becoming more pronounced with subsequent treatment cycles across all subtypes. In ocular MG, we're seeing that same biology extend to another patient population with VYVGART meeting its primary endpoint and driving clear improvements in ptosis and diplopia. Our seronegative PDUFA date is May 10. And based on today's results, we see a clear path to expanding our label into ocular MG as well, positioning VYVGART to have the broadest MG label and to reach our target addressable population of approximately 60,000 patients in the U.S. In CIDP, we're also having a meaningful impact on patients with clinical data showing functional improvement and these benefits increasingly reflected in real-world experience. VYVGART is driving a paradigm shift in CIDP. While there remains significant opportunity within the initial 12,000 addressable patient population, we're also beginning to see expansion beyond that population, a core focus as we build leadership in CIDP. Sandrine will speak more to this later in the call. Slide 6. Over the next 12 to 18 months, we have multiple avenues for expansion beyond MG and CIDP, including autoimmune myositis and Sjogren's disease, which broaden VYVGART's footprint into rheumatology. In particular, our work in IMNM highlights a significant unmet need with an estimated 20,000 patients and no approved treatment options today. Meanwhile, our upcoming Q4 readout for empasiprubart in MMN marks an important milestone, positioning us to advance a second medicine to patients and extending our neurology footprint with a first-in-class C2 inhibitor. We have an opportunity to address a clear unmet need in MMN with IVIg as the only approved treatment and symptom progression in 60% of patients. Slide 7. Lastly, we continue to strengthen the pipeline that will shape our long-term future. VYVGART is just the beginning of FcRn leadership that we aim to establish for decades to come. As part of this, we're advancing 2 next-generation assets, ARGX-213 and ARGX-124. We're investing in efgartigimod anchored combination approaches and new delivery modalities like the auto-injector and oral peptide capabilities. At the same time, we're seeing real momentum across our broader innovation platform, progressing first-in-class molecules like ARGX-121 targeting IgA and ARGX-118 targeting Galectin-10. We are deliberately source agnostic in how we identify new biology drawing from both leading academic research and opportunities emerging within biopharma. In 2026, we expect to progress 3 Phase I programs, including a program from our Tensegrity collaboration, reinforcing our ability to bring forward high-quality science wherever it originates. We have an exciting year ahead of us with a strong foundation in place and exciting progress across the pipeline. Let's turn to the data that's shaping our next steps. Luc? Luc Truyen: Thank you, Karen. I'm excited to share the positive outcome of our Phase III ADAPT OCULUS study. Our second MG expansion milestone to hit just months after we shared positive seronegative data. Let's turn to Slide 8. Together with leading global experts, our team designed the first registrational study in ocular myasthenia gravis, filling a long-standing gap for the patient population that has historically been excluded from clinical trials. We leveraged the screening period to ensure patients had a confirmed diagnosis of ocular MG, defined as MGFA Class I, meaning patients had meaningful measurable eye symptoms without evidence of generalized disease. Patients were also required to be on stable background therapy. 141 patients were randomized 1:1 to VYVGART Hytrulo versus placebo. And in Part A, they received 4 weekly injections. In Part B, participants received multiple cycles of VYVGART Hytrulo. The primary endpoint of the study was a change in MGII patient-reported ocular score from baseline to day 29, a measure focused on the key ocular symptoms of myasthenia gravis, diplopia and ptosis. Slide 9. The study met its primary endpoints. Treatment with VYVGART Hytrulo led to a statistically significant improvement in MGII patient-reported ocular score at week 4 compared to placebo with a p-value of 0.012. VYVGART-treated patients experienced a mean 4.04 point improvement compared to a 1.99 point improvement on placebo, including clear improvements on diplopia and ptosis. VYVGART was well tolerated, upholding its consistently strong safety profile with no new safety signals. We will present a broader data set at an upcoming medical meeting. This is a big day for patients. Ocular MG strips people of independence. Many suffer from headaches and the persistent double vision and drooping eyelids don't just affect eyesight, they can take away the ability to drive, work and confidently engage in daily life, often with a heavy psychological burden and stigma. And today, too many patients are still relying on chronic steroids and symptomatic therapy, which comes with an unacceptable treatment burden over time. For the first time, we are bringing forward a therapy that specifically addresses the underlying pathological mechanism of ocular MG, and that is something we should all be excited about. Based on these results, we plan to file an sBLA with the FDA. Now before I turn the call over to Karl, I want to sincerely thank the investigator site teams and most importantly, the patients and families who made this study possible. Karl? Karl Gubitz: Thank you, Luc. Slide 10. The fourth quarter and full year 2025 financial results are detailed in this morning's press release. Product net sales are consistent with our preannouncement in January at $1.3 billion for the fourth quarter and $4.2 billion for the full year, which represents a year-over-year growth of 90%. Regional breakdown of product revenue in Q4 2025 reflects $1.1 billion in the U.S., $63 million in Japan, $110 million in the rest of the world and $26 million in product supplied to Zai Lab in China. The product net sales in the U.S. grew by 68% from the fourth quarter of the prior year, reflecting solid patient demand and prescriber confidence driven by PFS. The gross to net adjustments and the net pricing in the U.S. are in line with the prior quarter. Next slide, Slide 11. Total operating expenses in the fourth quarter are $955 million, representing an increase of $149 million compared to the third quarter. Cost of sales for the quarter is $150 million as our year-to-date gross margin remains consistent at 11%. The combined R&D and SG&A expenses totaled $2.7 billion for the full year, which is in line with our financial guidance for 2025 discussed in our most recent earnings call. Looking ahead into 2026, operating expenses will continue to grow at a similar percentage as in prior years. SG&A growth will support the significant revenue growth in our current markets as well as expansion into new patient populations. R&D expenses will increase due to our continued commitment to execute on our pipeline. Our operating profit for the quarter is $367 million and $1.1 billion for the year, which marks our first year of annual operating profitability. Tax for the quarter and full year reflects a net benefit. This is largely due to nonrecurring tax items and favorable foreign exchange movements. Going forward, you should continue to expect an effective tax rate in the low to mid-teens. This brings us to the profit for the fourth quarter of $533 million and $1.3 billion for the full year, respectively. Our cash balance represented by cash, cash equivalents and current financial assets is $4.4 billion at the end of the fourth quarter, which represents a more than $1 billion increase over the year. The strength of our balance sheet allows us to invest with confidence in growing our commercial business as well as our pipeline. I will now turn the call over to Sandrine, who will provide details on the commercial front. Sandrine Piret-Gerard: Thank you, Karl. Slide 12. I'm thrilled to be joining argenx at such a pivotal moment. What excites me most is the combination of bold science and a deeply patient-driven mission, what I often describe as science with purpose. I've spent time in the field already, met clinicians and seen firsthand the real impact our science is having on patients' lives. With Vision 2030 as a road map, we have a clear path to meaningfully improve the lives of more than 50,000 patients. Slide 13. Echoing Karen, we entered 2026 from a position of strength following a year of phenomenal execution. We closed 2025 with approximately 19,000 patients on treatment globally, reflecting consistent growth across all regions and all indications. We successfully launched the prefilled syringe, which has proven to be a key driver in increased overall VYVGART demand. At the end of the fourth quarter, we had more than 4,700 prescribers, including dozen new prescribers since the PFS launch. This momentum underscores the execution strength of our field teams, the added convenience the PFS brings to patients and the growing confidence in VYVGART among clinicians. As we highlighted at the start of the year, our next chapter is about applying a proven indication expansion playbook to reach even more patients. MG and CIDP remain the cornerstone of our commercial strength, and we are well positioned to build on that foundation as we scale. Slide 14. We entered the MG market with strong biology and a first-in-class therapy. Since then, we have redefined what patients and clinicians can expect with the highest MSE and a favorable safety and tolerability profile. As a result, VYVGART is the fastest-growing and #1 prescribed biologics in MG with continued momentum driven by earlier line adoption. 6 out of 10 MG patients starting on biologic start with VYVGART. 70% of VYVGART patients are already coming from orals, and we believe the PFS will continue to help drive near-term growth. We are now on track to reach 18,000 additional patients through 2 label expanding opportunities, seronegative and ocular MG. Seronegative MG alone has the potential to move us towards the broadest possible MG label with our May PDUFA just around the corner. And ocular MG gives us a chance to be the first to market in a patient group that has had no precision treatment options. What gives us confidence here is that these expansions build on strong relationships we have already established with neurologists, many of whom are confident in VYVGART through experience treating generalized MG. Slide 15. We are earlier in the CIDP launch trajectory, but are delivering on the same disciplined approach that has led to our successful market expansion in MG. Significant opportunity remains within the 12 dozen patients who are not well managed on current treatment, and our focus today is on continued evidence generation, patient activation and new prescriber adoption. Clinicians continue to respond to the meaningful functional benefit data and well-characterized safety shown in the ADHERE trial. The prefilled syringe is further driving uptake by reducing the administration burden and offering more flexibility to patients. Worth noting, we secured an important access win for PFS in Q4 with UnitedHealthcare, broadening our covered lives to over 90%. CIDP is a highly heterogeneous disease, and we are committed to advancing the science to expand our reach to broader set of patients. Our biomarker program is designed to better define responders and unlock earlier and broader use, and we are advancing empasiprubart in a head-to-head study against IVIg to further explore the bounds of efficacy. Together, these efforts position us to expand the CIDP population we can serve and continue shaping this market over the long term. Slide 16. Our clinical pipeline continues to broaden and deepen, providing a multiyear runway for commercial growth. I'm excited to join the company at this pivotal moment to help scale the organization thoughtfully and translate this pipeline into even greater patient impact. With that, I'll now turn the call over to Tim. Tim Van Hauwermeiren: Thank you, Sandrine. Reflecting on where we stand, argenx has never been better positioned, and our leadership transition comes at the right moment as we enter our next phase of growth. Karen is the right leader to take this forward. She understands our innovation playbook, leads with patients at the center of every decision and brings the operational discipline needed to continue executing against Vision 2030 and beyond. I have complete confidence that she will nurture what has always made argenx special while driving the next chapter of growth for the company. My dedication to argenx and to our mission remains as strong as ever. I look forward to supporting Karen and the entire leadership team as we continue to advance meaningful innovation and deliver for patients and shareholders alike. With that, operator, we will open the call up to questions. Operator: [Operator Instructions] Your first question today comes from the line of Tazeen Ahmad from Bank of America. Tazeen Ahmad: First off, Karen, congratulations on the new role. We're looking forward to continuing to work with you. And Tim, what else can I say, but thank you. You've set the example for everyone to follow, and we wish you the best in your new upcoming role as well. So my first question is going to be on the addition of both seronegative as well as based on today's results, assuming ocular MG to the revenue stream for VYVGART. How should we think about, number one, what the average price would be for each of these subindications? And can you talk to us about what proportion -- you talked to us about how many patients there are. But have you done any market data research to indicate what proportion of those patients are more likely to seek this type of treatment? Karen Massey: Well, thank you, Tazeen, for your comments and also for your question. It's a really exciting day for ocular MG patients and certainly for argenx, as you call out. It's important to think about the fact that we are now the first and only -- or VYVGART is the first and only to have positive data for patients with ocular MG. So a really exciting day for patients. And as you called out, that, combined with the seronegative data that just read out a few months ago, and we have the PDUFA date in May, really positions us well for continued sustained growth in MG and I think an expansion even further of our leadership position in MG. So we're very excited to share that data today. I'll let Karl talk to the price in a moment. But just on the second part of your question around the addressable market, we obviously have done quite a bit of market research, and we'll continue to do so to prepare for how best to go to market. But the best numbers to look at are those that we've provided with the seronegative expanding the addressable market by 11,000 patients and ocular by 7,000 patients that we've provided before. That 7,000 patients in ocular MG, that's not the total ocular MG patient population. That's actually the portion that when we've done the research before, we thought would be eligible for VYVGART. So that's the number that I would stick with. And obviously, as we get closer to -- as we unpack the data more, as we get closer to submission and hopefully approval, we'll be able to provide more color on that. And then maybe, Karl, you could comment on the price. Karl Gubitz: Thank you, Karen and Tazeen, thank you for the question. Yes, we still have to have the discussions with the players, of course. But I do want to mention that we have a strong capability and market access. It is an enabler of our launch, not a hurdle, and the value proposition of VYVGART is well understood and appreciated by all stakeholders. At this stage, I will say that we would expect to have broad access also for seronegative and ocular, and we can assume a similar price as MG, i.e., $225,000 the net benefit or a net price to argenx. Thank you for the question. Operator: Your next question comes from the line of Danielle Brill from Truist Securities. Danielle Brill Bongero: I think I'll ask a question on the CIDP opportunity. Karen, you mentioned in your prepared remarks that you're beginning to see expansion beyond the initial 12,000 patients that you were targeting. Can you elaborate a bit? Are you seeing a step-up in frontline use? And then I think you also mentioned that you secured additional coverage, broadening coverage for PFS to over 90% of covered lives. What impact do you expect this to have on adoption rates in the setting going forward? Karen Massey: Thanks, Danielle, for the question and the interest in CIDP, we're really pleased with the continued growth in CIDP. So, yes, we laid out that the strategy was first to focus on that 12,000 patients that are treated -- that are already treated, but continue to have symptoms. And that is -- continues to be where we see the majority of our patients and the majority of our growth. But you'll recall that our label does allow us to be used in a broader patient population. And there are some payer policies actually that also allow that. So we are starting to see some use of VYVGART beyond just the switch from IVIg. In general, it's still about at 85% of our patients are being switched from IVIg, but there are some that are coming directly. I think as prescribers and neurologists get more experience with VYVGART and see the impact in the real world, then over time, we'll start to see that expansion even more. And as you said, continuing to expand access with the recent UnitedHealthcare decision and having 90% coverage, that also helps to contribute to our growth. So I would say what to expect in CIDP is that continued steady momentum. We're still early in the launch. And so I think we still have some quite a bit of growth ahead of us. Operator: Your next question comes from the line of Derek Archila from Wells Fargo. Derek Archila: Congrats on the progress in the Phase III win today. So I had a question on, do you think approval in ocular MG will drive more utilization in the less advanced MG patients? And I guess, is there anything in the data set that you'll present in the future that could demonstrate prevention of progression to more generalized disease? Karen Massey: Yes. Thanks for the question, Derek. I'll comment on the first and then maybe, Luc, I can hand it to you for the data. So certainly, I think that our hypothesis, I mean, we know that in MG, the majority of patients first do present with ocular symptoms and then the majority of those ocular MG patients do transition into gMG. So a big part of our strategy is expanding the use of biologics to earlier line uses of MG. We are already seeing that. Biologic use is growing in generalized MG. We are driving -- we get 6 out of 10 of those patients that are first use biologics. So we're driving a lot of that earlier use and a lot of that growth. As you say, I think the ocular MG data will help us with that strategy and will provide a halo to that strategy. And then maybe, Luc, you could comment on the data and progression. Luc Truyen: Yes. Thanks, Karen, and thanks, Derek, for the question, which is close to my heart. So with the data in hand, we show that we can meaningfully impact the current symptomatology of ocular MG, which is not MG like. It's a significantly debilitating state to be in. But of course, the excitement of continuing to collect long-term data as we are planning to do and compare that to what is known with the natural progression, which, as Karen said, is a high percentage up to 80% will allow us to make some statements on do we delay progression to generalized MG. So I would say stay tuned. Operator: Your next question comes from the line of Yatin Suneja from Guggenheim. Yatin Suneja: Just with regard to the Q1 dynamics, could you point to us if there are any particular consideration that we should have for Q1 in particular? Karen Massey: Yes. Thanks for the question. And it's important as we're in Q1. So obviously, across the industry, we can see the pattern that there always are Q1 dynamics around reverifications and winter storms, of which we've had quite a few in the last couple of weeks. So argenx and VYVGART are, of course, privy to the same, those same seasonal dynamics. And we saw that last year as well. If you recall, we did have a slowdown in Q1. And then in the end of the year, we delivered 90% full year growth. So I think you can recognize the pattern and expect that. But maybe, Sandrine, you could comment on the underlying dynamics that we're seeing since you've joined. Sandrine Piret-Gerard: Yes. Thank you, Karen. And this is something that I looked at before joining argenx, what is the growth we are seeing. And year-after-year, we have been delivering consistent growth, and this is a pattern you can expect this year, full year because the underlying dynamic are very healthy. I mean when you look at the new patient starts, the provider and the prescriber expansion. When you look at our access, we just mentioned that, but also how strong we are and VYVGART is in leading the growth of the overall biologic market. These are all amazing underlying factors that will help us continue that growth. And then you have the PFS that was launched less than a year ago that drove a lot of momentum last year, plus the expansion of the labels that we are expecting both for seronegative and later for ocular. So all are good underlying factors that will help us continue that growth, as Karen mentioned. Operator: Your next question comes from the line of James Gordon from Barclays. James Gordon: James Gordon from Barclays. The question was on VYVGART for myositis. And my question was, what is the efficacy bar you're looking to exceed in the Phase III in myositis in Q3? What's a good result? Is there hope to be more efficacious than [ brepo ] or JAK/TYK and what they did in the VALOR trial? Or is it more -- a good result would be if you had a similar efficacy and you are better tolerated as well? So what's good and what's really good? And could I also just squeeze in a clarification, not a question, but just normally, there's an OpEx guide, but I didn't see a formal guide this year. Should we assume a similar pace of OpEx growth this year as last year, so '25 similar pace of '26 and maybe more R&D and less SG&A? How do we think about spend this year, please? Karen Massey: Yes. Thanks for the questions there, James. And so I'll open. I'll hand over to Luc to provide some more color on myositis and then Karl on OpEx. But the first thing that I just wanted to frame is when you think about myositis, it's right out of the argenx playbook. I mean there is so little options available to patients here, really limited innovation in the market. And so what we're looking for is a statistical significant benefit coming out of this study. In the DM, in IMNM, there are no approved therapies available. And you heard in the script that there are 20,000 patients with IMNM. So for them, any benefit, I think, is clinically meaningful. But maybe, Luc, you could talk about how we're thinking about the study. Luc Truyen: Yes. Thanks and also for laying it up that this is not a singular indication. So this is a constellation of indications that each have somewhat different pathological drivers. We continued our Phase III program based on the strength of a robust Phase II, which gave us the confidence that we could provide meaningful benefit across the 3 subsets. Ultimately, the data will speak once we complete Phase III. With respect to relative benefit compared to others, of course, studies are hard to compare. And the DM result of brepo certainly is encouraging for the DM patients. But we believe that in DM, multiple modes of actions could play a role. And therefore, we will go on the strength of our own data. In any event, positive data in these diseases is always good for the patient. Karen Massey: Thank you, Luc. And maybe, Karl, a comment on the OpEx. Karl Gubitz: James, thank you for the question. Yes, in 2025, we spent around $2.7 billion on combined R&D and SG&A. That is around 30%, 3-0 percent increase over 2024. Looking ahead, you can expect the combined R&D and SG&A to grow at a similar rate with most of the growth in R&D because that is where we're going to invest to set the company up for the long run, investing in our very exciting pipeline. So thank you for the question, James. Operator: Your next question comes from the line of Alex Thompson from Stifel. Alexander Thompson: Maybe on Graves, I was wondering if you could comment on where you're at from a regulatory discussion perspective on starting the pivotal and whether you think that a single pivotal could be sufficient for an sBLA or whether you might need 2 studies. Karen Massey: Yes. Thanks for the question. We're excited about our Graves program, and it's well underway. Luc, do you want to comment on our strategy around the single study? Luc Truyen: Well, I mean, the ability to run a single study has sufficient evidence of efficacy and be able to define a benefit risk is actually not new. That always existed, but it was at the discretion of the individual divisions as to how much they accepted that or not. This particular division has asked us at this moment for 2 trials, which we are executing on. Karen Massey: Your next question comes from the line of Matt Phipps from William Blair. Matthew Phipps: Congrats on the quarter and progress here. Just wondering if you might be able to give us any more details on the auto-injector, how you can position that versus the PFS and maybe if that can just continue the continued expansion you're seeing from that PFS launch across indications. Karen Massey: Yes. Thanks for the question. We're excited about the auto-injector, and I think it just reinforces our innovation playbook, right, just continually bringing more and more innovation as we drive leadership in the MG market. So auto-injector is on track. We have planned for 2027. And the way we've talked about it is it won't be such a step forward in the way that PFS was because if you recall, the big step forward for prefilled syringe was that we moved from HCP administration to patient administration, and that was a meaningful and important step forward for many patients, giving them the freedom to self-inject. So auto-injector doesn't provide that step change, but it does provide an important step, for patients that provides a better experience for those patients and especially those that are needle phobic. Actually, we mentioned earlier, we're here at the U.S. National Field Meeting. We had a patient just yesterday that was talking to our team, and she was sharing that she wanted to wait for auto-injector because the prefilled syringe needle was something that she was a little nervous about. So it does provide value to patients, but it's not such a step forward that you should think of it as an accelerator in the way that the prefilled syringe was. Operator: Your next question comes from the line of Akash Tewari from Jefferies. Amy Li: This is Amy on for Akash. Maybe just a quick one on your 2 next-gen FcRns 124 and 213. Are you seeing an accelerated path to registrational study? And can you give us a sense of how you're thinking about the indication and then the size of these trials? Karen Massey: Yes. Thanks for the question and the interest in our future portfolio. Maybe I can start. The way that we think about our leadership of FcRn over the coming decades is that we know there is a lot of opportunity for FcRn, in fact, probably more than we can explore with VYVGART alone. And so we see the opportunity of having 2 next-generation molecules as opening up the opportunity to provide a better patient experience in some of the indications we're already in, but also start to push the biology even further and expand the indications that we can -- that an FcRn is making a difference to patients. So I think that's the strategy that we're planning. We think each of the next-generation molecules brings -- will bring that benefit to patients. Thanks for the question. Operator: Your next question comes from the line of Yaron Werber from TD Cowen. Yaron Werber: Congrats on the ocular study. If you don't mind, maybe a couple of questions. For EMPASSION, you switched the primary endpoint to grip strength. In the previous study in ARDA, you gave us sort of the ranges of grip strength. So maybe help us understand how is it powered? Is it superiority sort of head-to-head? What's clinically meaningful? And then secondly, Karen, we have a huge confidence in you, and congrats on the role. Tim, we're just -- we continue to get questions on the timing. I know, obviously, Peter is retiring as Chair. So maybe give us a little bit of a sense what drove your decision to kind of step up the chair. Karen Massey: Thanks for the questions, Yaron. I'll hand it over to Luc first to talk about EMPASSION. And then, Tim, maybe you can take the follow-up question. Luc Truyen: Yes. So in fact, this is a story of growing insights in data as they matured. As we looked at ARDA and ARDA plus, so the Phase IIs, the signal we saw in grip strength gave us increasing confidence that this is really a real and patient-relevant outcome with an increasing separation over time or improvement over time, which in these patients was not seen before. And that's ultimately why in discussion with agency, we started utilizing this endpoint as the primary. You asked about superiority. The study is set up as a non-inferiority study, but with a prespecified option that if noninferiority is met, that we can formally test superiority. The data will ultimately drive that [ tree ]. Karen Massey: Thank you, Luc. And Tim? Tim Van Hauwermeiren: Thank you for the question. I think we're doing this transition out of a position of strength. I think now is the time to do the transition because the business and the organization is in a very healthy and a very strong state. You have seen the pipeline. You know the profitability, which we achieved during the course of last year, very strong foundation of the business. Also from an internal candidate point of view, we are ready. Karen knows the innovation playbook. She's a very strong carrier of the culture of the company, and she's ready to help us scale into our future because she know new therapeutic areas will come on back relatively soon. So consider this as a proactive move based on a position of strength. Thanks for the question. Operator: Your next question comes from the line of Thomas Smith from Leerink Partners. Thomas Smith: I was just wondering if you could provide a bit more color on the Phase IIa results for adimanebart in ALS. Obviously, really difficult indication, very complex biology. But just wondering if there are any learnings from this study that could be applied to the Phase III CMS program or potentially other indications. Karen Massey: Yes, I'll let Luc comment on the data. Luc Truyen: Yes. Thanks for that question. Evidently not an outcome we were hoping for. We felt we had the moral obligation to explore ALS as an indication given our mode of action, trying to -- in this disease where there's very, very limited treatment options to see if we could move the dial. From our POC, the data, unfortunately, don't supports progressing, but we learned a lot, not in the least about how novel endpoints could be used, and we hope to share that knowledge with the field. With respect to impact and learnings on CMS, the context of treatment is fundamentally different. And CMS is directly in the biology of this molecule with the DOK-7 and other mutations affecting the mask receptor. And so that's a much more direct application of this molecule. So we don't think there's a read-through. And on our SMA program, likewise, there is a backdrop of approved treatments. The gene therapies are very well established. And we are going to evaluate whether we can have an add-on efficacy there, which is a different situation than ALS altogether. Operator: Your next question comes from the line of Rajan Sharma from Goldman Sachs. Rajan Sharma: I had just a question on VYVGART growth dynamics through 2026. So just thinking about kind of the underlying growth outside of potential new indications, how should we think about growth across the various formulations of the drug? And if you could maybe just comment on competitive dynamics. I realize there's been a recent new approval in myasthenia gravis. Could you just talk to your confidence in the VYVGART profile and to what extent you think you may be impacted by that emerging competition? Karen Massey: Great. Thanks for the question. What -- I'll provide just one comment, which is one of the things that I think is incredible 5 years out from launch for VYVGART is that what we're seeing is continued growth across all indications, all geographies and all product presentations. And I think that's a sign that there's space for all of the different product presentations, and it's important that we're bringing those innovations. But Sandrine, maybe I can hand over to you to talk about the growth outlook for MG and CIDP. Sandrine Piret-Gerard: Yes. Thank you, Karen. And I can maybe also help answer the question on the competition but that was a second question. So I think for MG, I mean, we have seen an amazing growth year-on-year. And we have, as I mentioned earlier, healthy fundamentals. I mean, our product, VYVGART is being used earlier and earlier. I mean, as I mentioned in the opening, 70% actually are coming from orals. And then on VYVGART, when you have 10 patients coming on biologics, 6 of them are actually starting with VYVGART. So this shows that this is the molecule that patients start on when they are starting on biologics. PFS is the one that has been driving and helping us drive strong growth last year. And as Karen just mentioned, we expect to continue to grow across all mode of administration, including PFS. And then the label expansion, of course, is going to help us this year, starting with seronegative. If you look at CIDP, I mean, we have -- we are still early in launch. So we have launched roughly 1.5 years ago, and we are still have a lot of room within the 12,000 patients that are not fully well managed. And beyond that, we are working very, very hard to lift any challenges either with payers or the inertia of prescribers to start earlier with VYVGART. So overall, very strong dynamics expected for this year like we had in the prior years. So now going to your question on the competition. Actually, we welcome competition. For me, this is -- and for us, this is a sign of progress, and this is a sign of innovation, and that's great for patients to have multiple options. This expands the overall market and VYVGART benefits from a market expansions. I just mentioned that 6 out of 10 patients starting on biologics go on VYVGART. So the more the market expands, the better it is for us. And as we are a data-driven company, all the data we have generated support our confidence that VYVGART profile will help us continue leading that category and remain the #1 prescribed biologics in MG from an efficacy viewpoint, and we are the only one that can really show the strong MSE, the robust safety that fosters earlier use, the ability to meaningfully reduce steroids and then as we mentioned, multiple flexibility on either IV subcutaneous or PFS. So when you take that all together, I mean, we believe that we have a very, very strong profile for continuing our leadership there. Karen Massey: Great. Thanks, Sandrine. Operator: [Operator Instructions] Your next question comes from the line of Sean Laaman from Morgan Stanley. Morgan Gryga: This is Morgan on for Sean. Maybe one on the financials. So with VYVGART delivering $4.2 billion this year in net sales and 90% year-over-year growth resulting in the first year of operating profitability. How should we think about the sustainability of this growth profile as penetration deepens in MG and CIDP throughout this year and next year? Karen Massey: Yes. Thanks for the question. Karl, maybe you want to talk about the growth profile? Karl Gubitz: Yes. I think what we're building here is a long-term sustainable business, as Sandrine already mentioned, we see a lot of growth in MG and CIDP going forward. And the way we look at the financials long term is that revenue growth should exceed OpEx growth, which basically will return operating margins, which will increase over time. That in itself, of course, is not the objective of the company. We have very clear capital allocation priorities, and we're executing on those priorities. But what we should see is that we're going to build on our very strong balance sheet. We currently have $4.4 billion of cash in the bank. And going forward, that number should increase. So I think you can look forward to a long-term sustainable and profitable business. Thank you for your question, Morgan. Operator: Your next question comes from the line of Sophia Graeff Buhl Nielsen from JPMorgan. Sophia Graeff Buhl Nielsen: So just on the Phase III readout for VYVGART in myositis, could you clarify, would you have data to support approval by subgroup? Or will this largely be dependent on the overall data? I think you've been very clear on that the high unmet need within IMNM and the large patient population that could be addressed there and also the heterogeneity within DM. Given these dynamics, would you see these as relatively equally sized commercial opportunities despite the differences in addressable TAMs you've highlighted? Karen Massey: Yes. Thanks for the question. Maybe, Luc, you can talk to the basket trial and our approach, and then I can comment on the commercial opportunity. Luc Truyen: Yes. So the Phase III setup is indeed that we can make statements on all 3 subsets. And of course, the ultimate reflection of that in label will be connecting the data with the regulatory discussion. But in principle, all 3 could be in scope. Karen Massey: Thank you, Luc. And then in terms of the commercial opportunity, the way I think about it, I mean, the total myositis population that we're studying, we think about in terms of it being an MG-like opportunity. But obviously, there are other subtypes. And I like to think about the 2 bookends of the subtypes. So we talked -- you mentioned IMNM. So IMNM, there are no other approved treatment options. There's about 20,000 IMNM patients. So what you can imagine there is that from a commercial perspective, you could imagine that we'll be able to gain a high portion of those patients because there are no other treatment options and the biology is so clear. On the other end of the spectrum, you can think of DM. There are more patients in DM, but it's also more heterogeneous in dermatomyositis. There's also more innovation coming to the dermatomyositis space. So that will grow that patient population. Innovation is good for patients. And I think let's see the data, how it reads out, but I think we should have a good value proposition to be able to compete in that population if the data reads out. So overall, total population MG-like, but the subgroups provide quite different dynamics from a commercial perspective. Thanks for the question. Operator: Your next question comes from the line of Suzanne van Voorthuizen from Kempen. Suzanne van Voorthuizen: It's one on empa and MMN in particular. There was a change in the dosing regimen between the Phase II and III and the Phase III is also head-to-head. Could you elaborate on how you navigate the potential risks that these 2 changes introduce? What gives you comfort that the study can confirm empa's non-inferiority? And I'm also wondering if you can give some color on how you went about setting the non-inferiority margin in this progressive disease? Karen Massey: Thank you. I think that's for you, Luc. Luc Truyen: Yes. Thanks for that question. And I can tell you a lot of thought went into that based on the data again from ARDA, where we tested multiple regimens, and we're able to model and look at an exposure response relationship, which ultimately made us choose the dose regimen we went for. In terms of then choosing or choosing to go head-to-head, here, the thinking was if we were taking placebo-controlled study, we could have a lot of events because people on placebo in this progressive disease, as you say, will need rescue. And therefore, we said, well, why not just do them straight head-to-head? So that was that decision. The second one, how do you determine a non-inferiority margin? And this is actually also where the data on grip strength come in because the only available data on IVIg are on grip strength. So that's why we use that measure to determine the non-inferiority margin. Given the data we see from ARDA, one of the features that is different is that we continuously seem to improve grip strength, something which is not seen in the experience with IVIg. And that gives us confidence that we can at least meet but hopefully beat IVIg. Karen Massey: That's great. Thanks, Luc. And when you zoom out, I think what you can see with your answer is the approach that we take for -- with our programs, strong biology rationale, derisking with a Phase II. And I think we're well positioned for success commercially with this head-to-head data that in the way that you've laid it out. So look forward to that data in Q4. Thanks, Luc. Operator: Your next question comes from the line of Allison Bratzel from Piper Sandler. Allison Bratzel: Just a follow-up on ocular MG and the potential for early treatment with VYVGART to prevent progression to generalized disease. Is that something you're able to capture in Part B of the oculus trial? Or just how long of a follow-up do you need to confidently be able to make that claim? Just any more color there would be appreciated. Luc Truyen: Yes. Thanks for that question to allow me again to go on one of my favorite topics, which is can we slow MG progression. So the open-label extension following Stage B, which we call Stage B, is going to give us over 2 years of data, which if you look at extent epidemiological data, et cetera, should give us enough window to capture these people progressing and whether or not it's to the rate that's there in the outside world. The caveat, of course, is this is noncontrolled data. So any expression of this delaying might have to be in a publication or if the real-world evidence is deemed strong enough in a discussion with the agency. Karen Massey: Yes. I think that's what's exciting about this data, along with some of the other evidence generation that we're doing, a Phase IV study in early disease to be able to see that progression. But I think regardless, one thing that's important is with ocular MG is the symptom burden is significant and the opportunity to transform lives of patients suffering from ocular MG is significant even without the disease progression. So I think we can demonstrate that benefit in the short and the long term. Thanks, Luc. Operator: Your next question comes from the line of Luca Issi from RBC Capital. Luca Issi: Congrats on the progress. Maybe, Luc, if I could circle back on ocular myasthenia gravis here. Again, I appreciate this is a fresh off the press, but how should we think about the kind of clinical significance of the data here, again, in the context of the p-value of 0.012. And then maybe related to it, can you confirm the use of steroids or other therapy was relatively well balanced between the 2 arms, so we can kind of definitively say that the benefit here is coming from VYVGART and is not confounded by any other therapies? Luc Truyen: Yes. Thanks for that question. And of course, we don't share too many detailed data because we want to make sure that the representation in an external conference isn't impacted by doing so. But to come back to the -- yes, we have significant p-value, but that was driven by, in our mind, a very relevant treatment difference between active and placebo. Remember, these endpoints range is between 0 to 18 and to show an active 4-point difference for that individual patient is certainly a relevant outcome. So we feel that in totality, this is a meaningful signal that we have shown. And with respect to balancing on steroids, steroids were allowed but had to be stable. And we are confident that there's no imbalance in the outcome based on anything there. Karen Massey: And maybe just to add to your question on clinical significance. I mean, Luc mentioned in the script, what -- when you think about what the impact that ocular MG has, what patients will tell you is that it strips them of their independence. They lose -- because of the double vision, they lose the ability to drive, they lose the ability to work. And so it has a real impact on their quality of life. So there's no other treatments available other than steroids. So any benefit that we can provide and certainly this a 4-point benefit that we've seen is demonstrable benefit for patients and I think clinically very meaningful. Operator: Your next question comes from the line of Justin Smith from Bernstein. Justin Steven Smith: Just a very quick one, if you could talk about the commentary with regards to switching off subcutaneous Ig on to VYVGART and how that's changed over the last 3 months? Karen Massey: Yes, I'm happy to. Well, I think what you're asking about is there was an -- FDA looking into real-world evidence around switching and CIDP worsening. Actually, we had good news that we have completed that review and the label has been updated with some helpful guidance to HCPs around when switching from IVIg to VYVGART. So I think we're well positioned moving forward. That label update reinforces what we knew from ADHERE and reinforces the risk-benefit profile of VYVGART. Thanks for the question. Operator: Your next question comes from the line of Samantha Semenkow from Citi. Samantha Semenkow: Just one on the ocular MG opportunity. I'm wondering, can you speak to the mix of treating physicians that you're expecting for this patient population? Are they mainly managed by neurologists, ophthalmologists or even neuro-ophthalmologists? And I'm wondering how much education you think you need on the opportunity to drive VYVGART utilization in this segment? Karen Massey: Yes. Thanks for the question. Maybe, Sandrine, you can talk about that and also related to seronegative because we have the PDUFA date coming up in May. And just is there -- are there any changes for our field or the targeting strategy with this label -- with these potential label expansions? Sandrine Piret-Gerard: That's a great question. Actually, we have a big overlap between the current prescribers and the target group we are visiting and the people that will be prescribing for MG in both seronegative and ocular. So it's mostly a neurologist-driven disease. So we don't expect to have to change our footprint. And actually, we increased our footprint early 2024. If you remember, we doubled our footprint to be able to not only target academic medical centers, but then to also be able to visit the community neurologists where we feel the majority of the patients are being taken care of. So you won't see a change of our approach there. And with the big overlap, we're confident we can target the majority of the potential and the prescribers. Operator: Your next question comes from the line of Victor Floch from BNP Paribas. Victor Floch: One question on ARGX-213. So I believe the last time you've updated us on time lines where you were pointing out Phase I results sometimes in H1 this year. So I was just wondering whether we should expect you to discuss those data or to a broader extent, your -- like the development program of that product later this year. Karen Massey: Yes. Thanks for the question. And again, the interest in our next-gen. We are excited. So we're moving forward with 213, and we've shared that update previously, and it is in the clinic. We're working on the indication strategy at the moment and our path forward, and we'll certainly share that when we have an update to share. Thanks for the question. Operator: And our final question today comes from the line of Douglas Tsao from H.C. Wainwright. Douglas Tsao: Just on oMG as a follow-up, we have heard from clinicians who have tried to use it in patients presenting with ocular symptoms, but they've had pushback from payers just given the fact it wasn't sort of on label. I'm just curious if you could provide some perspective on when you think it might start to become a contributor? Will it be sort of getting it added to the label? Or will there be a process where you need to also then talk to payers? Just sort of trying to understand the sequencing when we should think about this because it does seem to be a fairly meaningful commercial opportunity for you. Karen Massey: Yes. Thank you. And I agree it is a meaningful opportunity and a meaningful benefit for patients. So what you can expect, I mean, we'll file as soon as we can based on this data, and I think we have a well-oiled machine. So we'll do that as soon as possible, and then we'll see when the PDUFA date is, assuming the submission is accepted by the FDA. What we normally guide to is because we will need to have conversations with payers, and we will need to change those contracts. What we usually guide to is that it takes about 2 quarters after approval to get those payer policies in place and to really start to see the impact of the opportunity. So we'll take it step by step. And step number one will be preparing the filing as quickly as possible. Thank you. Operator: And this concludes today's conference call. We thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to Donaldson Company's Second Quarter Fiscal Year 2026 Earnings Webcast and Conference Call. [Operator Instructions] I would now like to turn the conference over to Sarika Dhadwal, Head of Investor Relations. Please go ahead. Sarika Dhadwal: Good morning. Thank you for joining Donaldson's Second Quarter Fiscal 2026 Earnings Conference Call. With me today are Tod Carpenter, Chairman, President and CEO; Rich Lewis, Incoming President and CEO; and Brad Pogalz, Chief Financial Officer. This morning, we will provide a summary of our second quarter performance and our outlook for fiscal 2026. During today's call, we will discuss non-GAAP or adjusted results. For second quarter 2026, non-GAAP results exclude pretax charges of $6.7 million, including $2.9 million of restructuring and other, and $3.8 million of business development charges. This compares to prior year pretax charges of $6.6 million, including $2.2 million of restructuring and other, and $4.4 million of business development charges. A reconciliation of GAAP to non-GAAP metrics is provided within the schedules attached to this morning's press release. Additionally, please keep in mind that any forward-looking statements made during this call are subject to risks and uncertainties, which are described in our press release and SEC filings. With that, I will now turn the call over to Tod. Tod Carpenter: Thanks, Sarika. Good morning, everyone. Donaldson Company achieved record sales in the second quarter as we worked hard to meet strong customer demand across all 3 of our segments. Our underlying business is robust as evidenced by our high backlogs and continued strong order intake. While we faced short-term execution challenges in our Industrial segment, we saw strength in areas such as independent aftermarket within Mobile Solutions and Food and Beverage and Disk Drive within Life Sciences. We also announced the acquisition of Facet, the largest acquisition in company history, which I will discuss in a few minutes. Entering the second half of the year, I have confidence in the strength of our organization and our commitment to deliver on our updated fiscal 2026 outlook, which represents record sales of approximately $3.8 billion with operating margin and adjusted earnings per share at all-time highs. Throughout our history, our talented global teams have demonstrated a commitment to deliver for all of our stakeholders, including our customers, shareholders and employees. We continually do this through our leadership position in filtration, which was built on decades of solving our customers' most difficult filtration problems; our best-in-class technology, uniquely powerful because we focus on filtration capabilities and then leverage these technologies across markets; our ability to help customers meet evolving environmental and operational goals by helping to protect equipment, processes and people; and our clear strategic and balanced growth strategy. This is how we have and will continue to win. In late January, we announced our next President and CEO, Rich Lewis, effective next week on March 2. This transition reflects a long-term succession planning process that comes at a time when we are well positioned for the future, thanks to the talent, dedication and discipline of our global team. Rich has been with Donaldson since 2002 and has been our Chief Operating Officer since August. On behalf of the entire organization, I want to congratulate him, and I look forward to his future success. Before I turn it over to Rich to discuss our second quarter results in more detail, I want to touch on our recent acquisition of Facet, which we are very excited about. This acquisition complements and expands Donaldson's product portfolio, bringing high-performance fuel and fluid filtration capabilities for mission-critical applications and broadening our exposure to durable end markets such as Aerospace and Defense and Power Generation. Importantly, approximately 70% of Facet's revenue are driven by recurring regulated replacement part sales, a nice fit with our already large composition of replacement parts. Facet makes us stronger, adding nearly $110 million in sales with gross margins and EBITDA margins significantly above our current company average. The company has low capital intensity and strong cash flows. We look forward to welcoming the Facet team to Donaldson and reporting on our combined performance. Now I will turn it over to Rich, who will talk more about the second quarter highlights, and then Brad will take us through the financials in more detail. Rich? Richard Lewis: Thanks, Tod. Good morning, everyone. First, I'd like to thank Tod for his leadership and congratulate him on his successful Donaldson career, including his impact as CEO over the past 11 years. I am honored to step into the CEO role and look forward to working alongside our broader leadership team to build on our momentum and deliver for our stakeholders. I also look forward to my continued partnership with Tod as he transitions to the Executive Chairman position. Now I'll cover our second quarter results. At a high level, sales were a record $896 million, 3% above prior year with growth across all 3 segments. Currency translation and pricing benefits were partially offset by volume declines in both Mobile and Industrial Solutions. Operating margin was 14%, down from 15.2% a year ago as a result of gross margin pressure. Volume deleveraging, concentrated operational inefficiencies related to our production shifts to support higher demand in Power Generation and footprint optimization costs negatively impacted gross margin in the quarter. Adjusted earnings per share were $0.83, flat versus the record achieved in 2025. Now looking at our segments. Mobile Solutions sales were $557 million, up 2% driven by currency benefits. Aftermarket sales were $447 million, up 1% with high single-digit growth in our independent channel, offset by OE channel declines. Overall, we are benefiting from share gains and increases in global vehicle utilization. On the first-fit side, off-road sales of $86 million increased 8% as we cycle against weak market conditions from prior year, particularly in agriculture. On-Road sales of $23 million decreased 9% as a result of continued declines in global truck production. Touching on our Mobile business in China. Sales were up 18% due to strength in off-road and aftermarket. This marks our sixth consecutive quarter of growth in China, and we are optimistic about the future opportunities in this important market. In Industrial Solutions, sales were $260 million, a 2% increase compared with 2025, driven by currency benefits. IFS sales of $223 million grew 7% from continued strength in Power Generation, particularly in North America and Europe, and demand for new equipment remains significant. Rounding out our Industrial Solutions performance, Aerospace and Defense sales were $37 million, down 19% versus prior year due to project timing, primarily in defense. In Life Sciences, sales of $80 million increased 16% year-over-year, largely as a result of robust growth in Food and Beverage and Disk Drive. In Food and Beverage, our largest business within Life Sciences, new equipment sales grew substantially in all regions, laying the foundation for future replacement parts sales growth. We continue to win, including in areas such as liquid cooling for data centers, and we are winning with key OEMs and channel partners through our strong sales processes and technology-led products. Given our second quarter results and our expectations for the second half of the year, we are updating our margin and earnings outlook for fiscal 2026. At the midpoint of our revised guidance ranges, we continue to expect a record year for Donaldson, now inclusive of record sales of $3.8 billion and sales growth in each of our segments, consistent with our previous expectations. Operating margin expansion of 50 basis points to an all-time high of 16.2%, including second half operating margin consistent with our prior guidance. Earnings per share of $3.97, roughly 8% above prior year, and free cash flow conversion of approximately 90%, which provides us capital allocation optionality to return value to our shareholders. In summary, I am proud of the agility and resilience displayed by the Donaldson team as we navigate some short-term operational headwinds to set ourselves up for stronger performance over the long term. With that, I will now turn it over to Brad, who will provide more details on the financials and our outlook for fiscal 2026. Brad? Brad Pogalz: Thanks, Rich. Good morning, everyone. I want to start by thanking the Donaldson team. They demonstrated tremendous agility as we work to deliver for our customers while making progress on several big projects, including the work done on the Facet acquisition. Facet will be an important addition to our company. We expect to close in the next couple of quarters. And as Tod mentioned, Facet will make us stronger, strategically and financially. Beyond Facet, we're focused on delivering the strong second half performance reflected in our guidance. But first, a summary of our results. Note that my profit comments exclude the impact from the nonrecurring charges Sarika referenced earlier. Total sales increased 3% and adjusted EPS of $0.83 was flat year-over-year. Operating margin declined 120 basis points to 14% due primarily to the impact from discrete operational issues on gross margin. Second quarter gross margin was 33.7%, down 150 basis points from the prior year and below our expectations. About 60 basis points of the total gross margin decline was due to deleveraging from lower volume in the Mobile and Industrial segments. We anticipated some year-over-year gross margin pressure in the quarter as there were certain businesses, particularly OE aftermarket and defense with difficult comparisons from last year. But the timing of orders and delivery had a greater impact than planned. For the second half of fiscal '26, we expect the volume pressures abate based on our strong backlogs and the leverage that comes with our typical second half sales step-up. Second quarter gross margin was also impacted by inefficiencies driven by changes we are making to our manufacturing footprint. One item that spiked this quarter relates to Power Generation and specifically, the production of our large turbine systems. To meet the super cycle demand and deliver on customer-specific requirements of producing in North America, last year, we began producing these large systems for the first time at one of our facilities in Mexico. The combination of a protracted startup process in Mexico and surging demand resulted in a gross margin headwind of about 40 basis points in the quarter. We have plans in place to accelerate our improvement and expect to make progress in the second half of this fiscal year. Another area where we expect improvement in the second half relates to our ongoing footprint optimization initiatives. This fiscal year is an important milestone for this work with the most significant projects expected to be completed by fiscal year-end. In the quarter, we had about 30 basis points of gross margin pressure as we go through the final stages of a plant closure in the U.S. and associated transfer of production. Once through this heavy lift period, we will begin to realize cost benefits later in this fiscal year and into the future. While gross margin in the second quarter was not to our expectation, the drivers of the performance reflects short-term headwinds from the work we are doing to establish long-term efficiencies in several of our most important businesses. Our forecast contemplates sequential improvement in gross margin and full year expansion. I'm confident we will deliver on that target. At the same time, our team continues to do an excellent job managing our operating expenses. As a rate of sales, operating expenses improved to 19.7% from 20% a year ago, reflecting benefits from the structural cost optimization initiatives launched during the prior fiscal year as well as continued expense discipline. We are prioritizing opportunities while conserving where we can, providing necessary offsets to the footprint work we are doing. In terms of segment profitability, Mobile Solutions pretax profit margin was 16.8%, down 60 basis points from prior year, primarily due to volume deleveraging in the aftermarket OE channel and footprint optimization efforts. Industrial Solutions pretax margin was 11.9%, down from 16.1% in 2025, stemming from the previously mentioned operational inefficiencies and footprint optimization costs. With improving plant efficiency and benefits from leverage on higher sales, we expect Industrial pretax operating margin to step up notably in the second half. Life Sciences pretax margin improved to 9.3% from a loss of about 1% a year ago. Strong sales in our higher-margin Food and Beverage and Disk Drive businesses and benefits from a more focused expense structure following optimization programs a year ago drove the improvement. Turning to our fiscal '26 outlook. First on sales, we are reaffirming our consolidated sales guidance of 1% to 5% growth, with stronger-than-expected sales in Mobile Solutions and Life Sciences being offset by lower Industrial Solutions sales. Our forecast assumes pricing and currency translation will each contribute about 1% to growth. Within Mobile Solutions, we're increasing our growth forecast to a range between 2% and 6% compared with flat to up 4% previously, primarily due to favorable currency. We are raising our guidance for aftermarket and now expect sales up mid-single digits versus our previous low single-digit forecast, primarily due to strength in our independent channel from currency, pricing and volume. Consistent with our prior guidance, off-road sales remain on track to grow mid-single digits, mainly due to a modest rebound following significant declines in agriculture a year ago. On-road sales are expected to be flat for the year, also in line with our prior guidance due to muted global truck production. In Industrial Solutions, sales are forecast between a decline of 1% and an increase of 3% versus the previous expectation for growth between 2% and 6%. Sales of IFS are now expected to grow in the low single digits, down from mid-single digits previously, due largely to declines in sales of dust collection and industrial hydraulics systems. Aerospace and Defense sales are projected to decline mid-single digits versus flat previously due to the timing of certain programs. In Life Sciences, we are increasing our sales forecast as benefits from favorable currency translation are expected to complement already strong Food and Beverage and Disk Drive momentum. To that end, we project sales to increase between 5% and 9% versus a 1% to 5% increase previously. We expect benefits from sales leverage and continued cost discipline to generate full year pretax margin in the mid- to high single digits, up from mid-single digits previously. Given our second quarter performance and our outlook for the balance of the year, we revised our operating margin guidance to a range between 16% and 16.4%, a decline of 30 basis points at the midpoint from our prior forecast. Despite the temporary gross margin headwinds in second quarter, the full year operating margin forecast still reflects a record level and at the midpoint, an incremental margin approaching 35%. With that change, we now expect fiscal 2026 EPS between $3.93 and $4.01 per share. At the midpoint of $3.97, we are projecting EPS growth of 8% on 3% sales growth. Our earnings guidance contemplates a second half step-up in sales, supported by our strong backlogs as well as gross margin expansion resulting from the operating improvements I discussed earlier. Now on to our balance sheet and cash flow outlook. Our capital expenditures are expected to be between $60 million and $75 million with focused investments, including new products and technologies across all verticals. We continue to project cash conversion in the range of 85% to 95%, an improvement versus 2025 and consistent with historical averages. The balance sheet remains a strength of Donaldson's with our net leverage ratio currently at 0.7x. Adjusting for the Facet acquisition, Donaldson would have a net leverage ratio of approximately 1.7x, still leaving us ample financial flexibility to thoughtfully invest for our future growth. As we think about shareholder value creation for the long term, our capital allocation priorities are unchanged. First, reinvest back into the company. We are the leader in technology-led filtration and intend on maintaining our position. R&D investments in strategically important high-growth, high-margin areas where we have a clear path to win will drive our success. Our longer-term efforts are also supported by ongoing working capital investments and capital expenditures. Our second capital deployment priority is disciplined M&A. We actively work through a pipeline of opportunities. Discipline is key to our approach. We are excited about our Facet acquisition and look forward to pursuing additional opportunities that meet our strategic and financial criteria. We are creating long-term value through our growth investments, but also through the return of cash to our shareholders. Our third capital allocation priority is dividends. Calendar year 2025 was our 70th year in a row of paying dividends and the 30th in a row of increasing our dividend. We have every intention of maintaining our status as a proud member of the S&P High-Yield Dividend Aristocrat Index. Share repurchase is our fourth capital deployment priority and it has always been the variable component. Given the pending close on our acquisition of Facet, we do not expect to repurchase additional shares in the balance of this fiscal year. Year-to-date, we have repurchased 1.2%, which offsets dilution. And our focus now is using the strength of our business to rapidly pay down debt. Looking beyond the quarter, the underlying fundamentals of our business are strong, and we have the right priorities to deliver another year of profitable growth and value creation. Now I'll turn the call back to Tod. Tod Carpenter: Thanks, Brad. As I sit and reflect today, I am particularly pleased with Donaldson Company's continued evolution as a premier global provider of technology-led filtration solutions, and I'm excited for the opportunities that lie ahead. It has been a privilege to be part of this organization for the last 30 years and an honor to have led the company for the last 11. I'll not be far away as I take on the role of Executive Chairman. I am highly confident in our teams around the globe who make Donaldson what it is and who I know will reach new heights under Rich's leadership. With that, I'll now turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Angel Castillo with Morgan Stanley. Oliver Z Jiang: This is Oliver on for Angel today. Can I just double click on A&D. I know you guys guided down here for '26. Is that because of projects shifting into 2027 or something to do with underlying demand? And then how should we think about your guide versus what you're seeing for Facet? Is that just a product of different portfolios and aftermarket? Richard Lewis: Oliver, this is Rich. Yes, let's -- I'll take your first question. So when you think about A&D, we're coming off record sales levels the last couple of years. And clearly, we've had suppressed revenue in the first half of the year. It's really a combination of two things. So we've got some timing issues on some of our military projects. These can be lumpy. We also have supply chain challenges as well that are ongoing. I would say this, overall, we're very comfortable with the order intake. If you think about the backlog of this business sort of post October, it's up over 20%. So orders are coming in nicely. We feel really good that the second half run rate is going to be significantly improved. The name of the game is really going to be working with our suppliers and making sure we can ship all the orders. Some of these suppliers are single-sourced directed buys. We are trying to qualify new suppliers. These projects can take quite some time. But overall, it's really about muscling through this order book. So we'll see a significant step-up in the second half. And then as far as Facet goes, we do play in different parts of the market. And they're exposed to different types of -- they're more military fixed wing. They're are also a lot of marine. We tend to be more ground vehicle. And so we play in different parts of the market, but we'll start to see improved performance in the second half on the revenue. Oliver Z Jiang: Great. That's really helpful. And then just maybe one follow-up on Industrial. I know some footprint changes this quarter. Do you kind of expect that to continue or abate somewhat into fiscal 3Q and 4Q? And then can you talk just a little bit about what that buys you in terms of Power Gen? Does that potentially expand throughput or potentially even a bigger portfolio there? So any color there would be helpful. Richard Lewis: Sure. Yes, let's take the footprint optimization work. I know we've been talking about this for a while. These projects are pretty complex. They typically last 12 to 24 months. We have had an accelerated amount of activity in this space over the last couple of years. Just to put it into perspective, we have 4 plant closures that we've been working on, none of which touch Power Gen. It's other parts of the industrial business. Two of these are in their final phase, which basically means the plants are closed. The assets have been transferred to the new location, and they're working through the learning curve and the productivity increase. We would expect that work to come to a conclusion through the balance of the fiscal year. We also have two other ones. We will close those plants in quarter 3. And they'll be working through the learning curve and the productivity increase in Q4. Maybe a way to think about it is you'll start to see the benefit, the margin improvement benefit in our guide in F'27. We also do these projects for a couple of reasons. We're trying to reduce our asset base, and we're also trying to reduce or improve our risk profile. So we believe these projects ultimately will be very successful, but we do have a few more months here of work ahead of us. Operator: Your next question comes from the line of Bryan Blair with Oppenheimer. Bryan Blair: Tod, congratulations on a very successful career, including over a decade as CEO. And Rich, congrats on the [indiscernible]. Tod Carpenter: Thanks, Bryan. Richard Lewis: Thanks, Bryan. Bryan Blair: Of course. I was hoping that you guys could offer a little more color on how IFS orders trended through fiscal Q2 and what your team is seeing thus far in Q3. Year-on-year growth was stronger sequentially, aligning with the prior guidance framework of mid-single-digit growth. Power Gen, some inefficiencies in the second quarter, but certainly a good guy in terms of growth path. Brad, I know you called out dust collection and hydraulic systems as the areas of relative weakness. I guess, if you can offer some finer points on whether there is accelerated weakness through fiscal Q2 into Q3 in those areas or you're simply taking a more cautious or conservative stance on continued macro uncertainty. Richard Lewis: Yes. So maybe I'll take the business side, the macro and then if Brad wants to add anything on the numbers, he can weight in as well. So if we sort of disaggregate IFS, you mentioned it, Power Gen is clearly very, very strong right now. Just at a big picture, we're booked through the end of the fiscal and we've loaded fairly solid bookings already into the next 2 fiscal years. So we're feeling really good about the demand on Power Gen. And it's pretty broad-based. We're seeing it across sort of the compressed gas side on the oil and gas piece and on peak and base load energy generation. A lot of that's tied to the data center push that's going on. On the IFS side, yes, we're seeing -- it's a bit mixed. Globally, we see relatively decent order patterns outside of the Americas. The Americas have been pretty soft. And we're still seeing a fair bit of quoting activity in the Americas. I think the uncertainty in the economy is driving people to be cautious on pulling the trigger on POs. On the -- I would say, across the board, if you look at replacement parts, those continue to perform very well. We see good utilization rates and good order intake on the replacement side. Brad Pogalz: Bryan, this is Brad then. I'll just add. I think as you look at the first couple of quarters, dust collection is about where it was in the second quarter in terms of the overall year-over-year conditions. So not much to comment there, but I do want to underscore a point Rich made. This is really about our new systems and the first-fit side of the business. The machines are still running. Aftermarket is still doing well in IFS, and we've got good opportunities there with our placement. It's just about getting these capital expenditure decisions of our customers to break free a little bit. Bryan Blair: Understood. That's helpful color. Facet is an intriguing deal for your team, certainly mix enhancing. Can you speak to the historical growth rates of the asset, whether we should expect accelerated growth under Donaldson ownership? If so, what the drivers are there? And then how we should think about P&L impact looking to fiscal '27? I know you had said close within the next couple of quarters, so sometime in the fiscal back half. But if we look to next year, how should we think about impact? Richard Lewis: Yes. Maybe just -- I'll just take a step back if it's okay and just talk a little bit about Facet from a broader perspective. I mean we're really excited about Facet potentially join the Donaldson family. Obviously, we'll continue to work through the regulatory process to close this deal in the next couple of quarters. But this is a business that we've been following and frankly, admiring for a long time. It's a perfect fit for what we're trying to do on an M&A side. So it's high-level recurring filtration revenue. They've got a durable competitive advantage given the sort of the regulatory nature of their end market, and it sits in a high-margin, high-growth business. We'll talk about the growth rates here in a second. And as we've gotten to know the team there, we think it's also a very good fit culturally, really good folks, very committed to their customers a deep, deep knowledge. Now the growth rates, so as we put in the deck that we posted out on our website, yes, they're high single digits, and it's a mix of volume and pricing. And we would expect that to continue. They have a lot of potential growth opportunities outside of their core military and commercial markets on the aerospace side. And those are a lot of markets that we play well in on our industrial. So we hope over time that we'll find significant growth synergies. We have not baked that into our expectations. That's all upside. But yes, it's going to be a good fit for us, and we're really excited about it. Brad Pogalz: Bryan, on the P&L side then, Obviously, we expect to close in a couple of quarters. So nothing factored into the fiscal '26 guidance, but you mentioned fiscal '27. As we think ahead, I think the important point that we said in the prepared remarks is that it's mix positive on our most important operating metrics, gross margin and EBITDA. Obviously, this is a business then that we will work to integrate properly. We don't expect much in the way of cost synergies, a few million dollars, but more from procurement because it sits in a unique spot relative to where we sit in these markets. So I think, overall, we'll give more detail with fiscal '27 guidance, but we're excited about this from the strategic side that Rich mentioned and the financial implications to Donaldson. Operator: Your next question comes from the line of Tim Thein with Raymond James. Timothy Thein: Congrats again to both Rich and Tod. And Tod, I'm hopeful that you're able to observe its turnaround and go for basketball and retirement. Tod Carpenter: Thanks, Tim. Timothy Thein: Yes, only one way to go. The question is on the mobile business. And just in terms of the -- based on the full year guide, it implies that the growth in that line picks up a little bit in the second half. Maybe you can just talk about -- you mentioned the strength -- continued strength in the independent channel. Just maybe what your you're seeing and hearing from the OEM dealers. And then looking out a bit, how do you expect that eventually as the first-fit business hopefully rebounds? How would you expect kind of the interplay between those 2? Maybe just what you've observed historically when you start to see the first-fit side begin to pick up? That's the first question. Richard Lewis: Thanks, Tim. Maybe let me break this down. Let's talk about the replacement parts side for a second. So as you pointed out, the releasement part orders through our independent channel have been very strong. We still continue to see that performance continuing. No slowdown there at all. When we think about the OE side, this year, we returned to, what I would call, a sort of typical normal year-end, their fiscal year-end inventory management practices. So we did see a pretty good pull back relative to the prior year where we actually saw people stocking up, which was pretty atypical. So year-over-year, it was a pretty drastic change. What we always look for is when you come out of those holidays, what happens with your backlogs? And we saw a sharp increase. Unlike our independent aftermarket, which is really you get orders, you ship them within 24 hours, our OE partners do give us really good visibility on lead times. And we've seen a sharp increase in our hard backlogs on the OE. So we're really confident the second half will be a significant improvement there. Maybe touching on the first-fit markets. If you think about ag and truck, they still continue to be performing near, what we would call, bottom of the cycle. We're monitoring this closely because when these markets come back, and hopefully, this answer your question, they come back aggressively. I think 20% to 30%. And we want to be really ready to make sure we address our customers' needs. So we're staying very tight with our customers on that. I will say we're seeing signs of pockets or optimism and ag with some increased order intake on the first-fit side with select OEs, but it's not broad-based at this point. Also, in the truck market, we're having signals from some of our truck manufacturers that in the second half of calendar year '26, so which will be our fiscal year '27, they're planning for increased truck builds. I would say we remain cautious on this and being ready for the upturn because when it does happen, it happens aggressively. But that's how we characterize the markets as we sit here today. Timothy Thein: Yes. That's great. That's super helpful. And then maybe, I don't know, Brad, just how to think about the -- it's kind of a multipronged answer. But just as that growth, again, if you kind of outlined, if and when that begins to come in, how to think about just the mix impact on margins in that segment? Again, I'm sure there's multiple variables that go into that. But any help you can give on that in terms of how we should be thinking about the incrementals as that mix eventually kind of normalizes? Brad Pogalz: Sure. Well, you hit the main point. It is multivariable, but there's a mix impact as we sell more to the OEs and especially on the new equipment as that comes back. But honestly, that's something to Rich's point, that we're getting ready for. And while we may have a little bit of a rate mix impact that we talk about in future quarters, the earnings will flow to the bottom line from that. And I think we'll get very nice leverage on it as it moves through the P&L. And then the other side, and I just want to -- it's a modest tangent to your question, but to the point Rich made and about these markets, I think we will also see some bounce back in the Mobile Solutions segment in the quarter. There was a part of my script where I talked about the volume deleveraging. This will bounce back. So when we think specifically about the second half of the year, we would expect Mobile Solutions profit acceleration from here as the volume starts to come in as well. Operator: Your next question comes from the line of Adam Farley with Stifel. Adam Farley: Can we go back to the operating efficiencies and power generation? I just wanted to put a finer point on what exactly happened there? What was the underlying cause? And then just expectations on how that kind of ramps going forward? Brad Pogalz: Yes. So I gave you the macro perspective on Power Gen. So clearly, the demand is very strong. We're in the middle of sort of rebalancing our product portfolio across both sites so we can maximize output. So we've moved production into our facility in Monterrey, Mexico. We've ramped that facility's capacity up significantly through a combination of process improvements to increase flow and a dramatic increase in staffing. And so we're working through the learning curve and onboarding these employees. A lot of the hiring is behind us, and now it's really about training and onboarding these employees in the third quarter here. We do expect output from this site to continue to improve with this increased capacity and their productivity will continue to get better throughout the fiscal year. Adam Farley: Okay. And then maybe one more on the pending acquisition of Facet. Could you maybe talk about the total addressable market for Facet, Facet's market position and maybe primary competitors in the space? Richard Lewis: Yes. So from a competitor standpoint, they're one of the leaders. There's a couple historic players that lead in this space, and then it fragments from there. They play in a lot of different markets. And so they're in the commercial, the marine and military space. We believe there's a lot of headroom for continued growth. And some of the interesting opportunities are actually in what I would consider maybe our core industrial markets, which would be relatively new to them. And so yes, there's a lot of space for us to grow this business over the coming years. Operator: Your next question comes from the line of Brian Drab with William Blair. Brian Drab: Congratulations, Tod and Rich. I'll follow up more with both of you later and save the sentimental stuff for the nonpublic call. Some of the strongest growth lately has been coming from the Life Sciences segment, of course. And I was wondering if you could just talk a little bit about that Disk Drive business. I know you've talked about the HAMR technology in the past that's driving incremental demand for your products. What is the -- even though the growth is so strong lately, I'm wondering, could that accelerate. Could that business be much bigger? And how tied are you to the data center build-out? And can you just talk a little bit about that business, who your customers are and what the TAM is for you in that space? Richard Lewis: Yes. Brian, as you point out, the Life Science business has been doing very well. We restructured that business last year to bring more focus. And the 2 largest businesses, Food and Bev and Disk Drive have been really excelling. On the Disk Drive side, if you think about what's driving a lot of that demand, it is AI and cloud storage. There's a strong demand for drives and more and more dense storage. HAMR clearly addresses that. I would say our growth is a combination of market comeback and share gains. And we do believe that the market has runway to grow. A lot of our customers are building at very high utilization rates right now. And so as they bring on more capacity, the demand feels like it's there for the foreseeable future. So HAMR has been a big success so far. We've ramped that business up with one of our OE customers this year, and we look forward to that continuing to gain market penetration. Brian Drab: And your technology or products that you're -- that's used in that application is what exactly? Can you just remind me? Richard Lewis: Yes. So it's a filter. In the early days, it was a filter to remove particles,, much like some of the air filters. But as these drives have become way more sophisticated, now we're doing absorption technologies that really take out harmful gases and fumes. These drives are very, very, very sensitive. And that's part of our share gain in this space. As the technology continue to increase, we were able to continue to differentiate our capabilities and take additional market share there. Brian Drab: And then is there any detail that you can give on your liquid cooling exposure? I know you mentioned it today on the call again, but what products, technologies are you supplying there? And what's the potential addressable market for Donaldson there? Richard Lewis: Yes. So on the liquid cooling, it's really an extension of the products that we sell in the Food and Bev. Their products have applicability in several other process filtration applications. And this is one. We've seen a sharp uptick in interest. A lot of these data centers are converting from air cooling to liquid cooling and our products fit very nicely with that. It's a pretty fragmented market right now because there's really no clear standards on the systems. And so I'd say it's a bit early to judge how big it's going to be. But certainly, we're seeing a lot of activity and a lot of interest in that space. Operator: Your next question comes from the line of Laurence Alexander with Jefferies. Laurence Alexander: Just two quick ones. First, on the Power Gen side, can you give some perspective on how you think the competitive market has changed, the competitive landscape has changed since the last cycle? And do you -- how much more capacity expansion do you think you would need to do to keep up with the order books that have been announced by the equipment makers? And secondly, on the acquisition, what's your time frame for the acquisition to get to an acceptable return on capital? Richard Lewis: So I'll take the Power Gen, and then I'll let Brad address the second question. So from a Power Gen perspective, yes, I mean, the demand is very, very high. I would say the dynamic that's different now is because, as you're aware, we sort of narrowed our focus after the last cycle. We're seeing, I would say, more interest in being fair and balanced with the commercial deals. And so we'll continue to take orders that make sense for us commercially. We're increasing our capacity in our Mexico facility fairly significantly. And so we believe we're in a good position from addressing our customers' needs. They have many other constraints besides our product. And so it feels like we're well aligned with what their build capability is right now. Brad Pogalz: Laurence, this is Brad. In terms of the returns, this is much more of a strategic acquisition than a synergy play. And with that, thinking about it on a cash basis, probably more at our cost of capital in the 5-year time horizon. But I think the really positive side of this business is it's throwing off cash immediately. We get to earnings accretion pretty rapidly. We said year 2. And of course, our goal is to make that even faster. Operator: Your next question comes from the line of Rob Mason with Baird. Robert Mason: And Tod, Rich, I'll offer my congrats on passing the baton there as well. Rich, I think in your comments earlier, you talked about the second half margin outlook had not really changed in the updated guidance. But it does sound like there's more work to do on the footprint optimization effort to -- it just kind of give us a feel for the confidence level around the ability to ramp margins whether that means the third quarter margin step up more meaningfully or if that happens more in the fourth and just -- yes, again, just kind of the confidence level to keep that margin -- second half margin outlook intact, just given the second quarter challenges. Richard Lewis: Yes, I think -- I mean you hit on it, Rob. Clearly, we need to see the volume come back in our OE and Aerospace and Defense businesses. We have those backlogs. So we feel really confident on that part. We'll have to continue to fight through the supply chain issues on the A&D, but the team is really focused on that, and they're working hand in hand with our suppliers. So that part of it, we feel pretty strongly that we're in a good position. The restructuring work, as I mentioned, a couple of these are done. And so we should start to see the costs go down and some of the benefits start to feather in. The other 2 are still ongoing in Q3. Probably the risk there is if there is a delay or there's any unexpected problems. But right now, we're on track. And certainly, we would expect to have those finished up here by the end of the fiscal for sure. And then Power Gen, as we mentioned, we've doubled the workforce down there just in our first quarter. And so we feel good. The turnover is low. The staffing is starting to become productive. So we need to see continued progress on that in the second half. But based on all the observations with the team, we're well on track for them to continue to accelerate improvement through the second half of the year. Brad Pogalz: Rob, I'm going to add one point, too. And I think an important note here is as we look at the second half step up, some of that comes with expense leverage as well. We've got really good controls over what's going on with expenses in the company. When you think about the improvement in the second half, a big portion of that also comes from the natural leverage. So as Rich said, we've got the backlogs to deliver the sales. We'll keep expenses at a rate that's, give or take, are at a dollar level. That's give or take where we were in the first half. So there's the leverage that comes with that, too. Robert Mason: Okay. Very good. That was actually my next question. Just the jumping off point there, given second quarter OpEx anyway was step down sequentially. Maybe just last question. Just thought process. Again, it's smaller business, I understand on the first-fit side. We're certainly aware of the on-road, the truck challenges. But this -- it does -- to reach flat for the year does kind of infer that you see some recovery in that business. I mean should we just be putting all that recovery in the fourth quarter? When I say recovery, sequentially in the fourth quarter. Brad Pogalz: Yes. I think the move towards the second half and late in the second half is it. I will -- I mean, of course, Rich said this earlier about the trough. We're seeing some green shoots out there. I think the public data sources that many of us follow suggest even an increase in truck production in Class 8 heavy-duty in North America this year. So there are some things that give us encouragement. On top of it, we talked last quarter about some of the moves of programs within this business that we've won. I think that's an important part of our first-fit business is we're still gaining share with the OEs. So to the extent that production comes back, that's just incremental growth for us. Operator: And that concludes our question-and-answer session. And I will now turn the conference back over to Rich Lewis for closing comments. Richard Lewis: That concludes our call today. Thanks to everyone who participated. We look forward to reporting our third quarter fiscal 2026 results in June. Goodbye. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Juan Cases: Good morning, everyone, and thank you for attending the 2025 Results Call of ACS Group. I'm joined by our Corporate General Manager, Angel Garcia Altozano; and our Chief Financial Officer, Emilio Grande. As usual, after the presentation, we'll host a Q&A session to provide you with any clarification that you may need. Those who are connected via our website can ask their questions through the established channel. So let's start with the first slide of our presentation. In 2025, the group delivered very strong operational and financial results with solid growth in sales, backlog and net profit, backed by robust cash flow generation. We're making solid progress in executing our strategy, increasingly leveraging our global footprint and engineering expertise to drive sustainable growth. We continue to actively pursue highly attractive equity investments opportunities across both traditional and next-generation markets, generating long-term value for all our stakeholders. Let me give another view of the key highlights for the period. Ordinary net profit reached EUR 857 million, up 25.3% or 32.4% FX adjusted, exceeding our top end of our revised guidance. On a reported basis, net profit stood at EUR 950 million. Sales and EBITDA were up by 20% and 20%, respectively, driven by the robust momentum across all our segments. Operating margins improved as well across the group. Net operating cash flow reached EUR 2.2 billion in the last 12 months. This is up EUR 320 million adjusted for factoring variations, highlighting the quality of our profit growth. As a result of this strong cash flow generation, the group achieved a net cash position of EUR 17 million at the end of 2025. This is after allocating EUR 2.1 billion to strategic investments and shareholder remuneration. Strategic investments include EUR 564 million in data center projects, EUR 436 million of the Dornan acquisition and EUR 200 million of the capital contribution to Abertis. In addition, EUR 448 million were allocated to shareholder remuneration. New orders during the year of EUR 62.5 billion, showing an accelerating growth trend up approximately 27% FX adjusted, resulting in a higher book-to-bill ratio of 1.3x. Within the outstanding new orders figure, digital infrastructure represented approximately 28% or EUR 17.6 billion with growth of around 130% year-on-year FX adjusted. The order backlog grew by 14.6% FX adjusted, reaching EUR 92.9 billion, supported by sustained demand in biopharma, defense, critical minerals and data centers. Looking ahead, we remain very confident in the group's outlook and set our ordinary net profit growth target of 20% to 25% for 2026 up to EUR 1.070 billion underpinned by strong fundamentals. Let's take a closer look at the group's consolidated performance for the period. Sales rose by 19.7% to EUR 49.8 billion, driven by the exceptional performance of Turner, which achieved approximately 34% organic growth or 40.3% FX adjusted, particularly supported by digital infrastructure, health care and education projects. This momentum was further enhanced by the integration of Dornan and the full consolidation of this since second quarter of 2024. EBITDA increased by 25% to EUR 3.1 billion, with margin expansions across all segments and at overall group level. Profit before tax amounted to EUR 1.7 billion, up 67.3%. On a comparable basis, PBT grew by 24.8%, particularly fueled by Turner's outperformance and the solid evolution of Flatiron Dragados. We delivered a strong ordinary net profit growth of 25.3% year-on-year on a comparable basis, reaching EUR 857 million, above the top end of our full year guidance. Turning now to the ordinary net profit split. I would like to highlight the following: Turner delivered an outstanding performance with its contribution rising 66.6% to EUR 549 million, driven by the strong growth in high-tech markets and improved margins. CIMIC contributed EUR 199 million, supported by the strong growth in data centers, biopharma, health care and education, but also the natural resources. Engineering & Construction recorded a very strong result, growing 35.7% year-on-year, reflecting a higher contribution from Flatiron Dragados and solid results in HOCHTIEF Europe. Abertis delivered a resilient operational performance during that period despite nonoperational impacts. During the year, the group implemented efficiency measures involving EUR 32 million in restructuring costs, aimed at streamlining operations and unlocking synergies that will enhance performance in the coming years. Slide 5 highlights the group's strong and consistent cash flow generation. Net operating cash flow amounted to EUR 2.2 billion, supported by a robust EBITDA, uplift of 25% and outstanding level of cash conversion. Adjusted for factoring variations, the net operating cash flow increased by EUR 320 million. Building on this, the acceleration of cash flow generation in the fourth quarter further improved the previous quarter last 12 months figure of EUR 2 billion. We reached a net cash position as of December 2025 of EUR 17 million, showing an improvement of EUR 719 million since December 2024. This performance is primarily the result of the group's strong net operating cash flow, facilitating significant strategic capital allocation initiatives. In the period, we have executed EUR 1.7 billion in financial investments, including EUR 564 million in data center projects, EUR 436 million for the Dornan acquisition, EUR 316 million of M&A, EUR 207 million in other net infrastructure equity investments and EUR 200 million for the Abertis capital contribution. Financial divestments of EUR 1 billion, including the 50% sales of UGL Transport, the data center platform 50% divestment and the final settlement of ACS Industrial. Additionally, EUR 448 million of cash were allocated to shareholders' remuneration. Our disciplined approach to capital deployment supports our long-term growth strategy while maintaining a solid financial position. Moving on to Slide 7. Our order backlog stands at an all-time high of EUR 92.9 billion as of December 2025. This growth was underpinned by a very strong order intake of EUR 62.5 billion, up 26.6% FX adjusted, resulting in an improved book-to-bill ratio of 1.3x. This very positive performance reflects the group's continued success in securing high-quality projects across strategic growth markets, particularly in data centers, defense, biopharma, critical minerals and nuclear. Notably, digital infrastructure now accounts for approximately 28% of new orders, up circa 130% year-on-year FX adjusted, driven by the strong sustainable demand in data centers. We're also seeing strong traction in Germany, where positioning allow us to benefit from the country's increased focus on infrastructure investment. New awards in Germany grew by approximately 41% year-on-year, reinforcing our ability to capture opportunities in these key markets. In the following slide, we can see a selection of recent awards. It is worth placing these projects in the broader context of the ACS Group strategy, where we have continued advancing to become a leader in rapidly expanding strategic growth verticals, including artificial intelligence, digital and tech sector, energy, including nuclear, critical minerals and defense. This momentum builds on a long established locally embedded presence in core infrastructure markets in North America, Australia and Europe, which remains the foundation of our competitive strength and our ability to scale into these next-generation markets as a life cycle partner. Let's start with the digital infrastructure and advanced tech sector, where we command a leading position. Growth in the global data center market remains extremely strong. Soaring demand for cloud services and AI is expected to quadruple DC and compute CapEx by 2035, boosted by the growth of generative AI and further cloud migration. The group has the resources and capabilities as a firmly established global end-to-end solutions provider to meet this rising demand. During the period, we have been awarded several new large-scale data center projects. Among these new awards we can find. The announcement of the construction of the 902-megawatt data center complex in Wisconsin, which is part of the $500 billion Stargate program. Most recently, Turner was awarded a role in the delivery of the $10 billion 1-gigawatt data center companies for Meta in India. In Europe, Turner was awarded the construction of a 160-megawatt data center in the Netherlands. This is the result of Turner's expansion strategy into Europe with Dornan executing a project for recurring Turner client. We'll also be building a 58-megawatt data center in Malaysia for a long-standing repeat client. Construction has already started for a data center in Alcal , a joint collaboration with Dragados, Iridium, Turner, ensures with participation in the context of the data center platform. Additionally, we have solid medium-term visibility via our order book and our expanding product pipeline in North America, Europe and Asia Pacific. Energy-related infrastructure represents another strategic growth vector for the group, with structurally rising demand driven by the global energy and security of supply. ACS is strategically positioned across the full energy value chain from generation and storage to transmission and advanced technologies, with strong end-to-end capabilities and global engineering expertise. With several decades of experience designing and building nuclear power plants and complex energy facilities worldwide for leading utilities, the group is well placed to support the deployment of the next-generation technologies, including small modular reactors or SMRs as well as new build storage and decommissioning projects. This positions us in a market expected to exceed EUR 500 billion investment in Europe by 2050. At the beginning of 2026, an important spreading milestone was reached when we were selected as part of the Amentum's global project delivery team for the Rolls-Royce SMR nuclear program. And during the final quarter of 2025, we secured a major nuclear and civil works framework contract worth up to EUR 685 million, lasting up to 15 years involving civil infrastructure works at the Sellafield nuclear site in the U.K. Turning to renewables. We continue to strengthen our market presence, particularly in Australia, where our companies have delivered more than 20 major renewable and storage projects. Reflecting this momentum in new awards, CIMIC subsidiary UGL was selected for the Western Downs Stage 3 Battery project in Queensland, Australia to construct a major renewable energy storage facility with energy storage capacity of 1,220 megawatts hour. Let me turn now to Critical Minerals and Natural Resources, another strategic growth market for us. We're capitalizing on accelerating demand for critical minerals, driven by clean energy technologies, digital infrastructure and defense modernization. Leveraging the combined capabilities of Sedgman and Thiess, we have established a global position in minerals, processing and sustainable mining services across key commodities such as lithium, copper, rare earth, nickel, vanadium, uranium and zinc. In December, the group expanded its partnership with Vulcan Energy through a significant cornerstone equity investment, while securing an end-to-end role in the development of its lithium production and processing infrastructure in Germany. Under the agreement, we have also been appointed as EPCM contractor and named preferred supplier for the project's civil works. In addition, we have been awarded contract by Hindustan Zinc to support the delivery of India's first zinc tailing recycling facility. We're recently awarded the Mount Pleasant operation contract extension in New South Wales, Australia to provide full mining services. Moving now to Defense, where infrastructure investment is expected to increase substantially worldwide. In Europe, major multiyear defense investment plans, including in Germany, present substantial opportunities in defense-related capital works and potentially via the public-private partnership model. And in the U.S. and Australia, governments are also planning major increases in defense spending over the next decade. At the end of 2025, the group's defense backlog stood at EUR 3.5 billion, which included a recently secured involvement in a major 10-year collaborative contract for the German armed forces in Hamburg with a total project value of EUR 1 billion. Our North American civil business, Flatiron Dragados being selected as one of the companies for a 10-year construction contract for the U.S. Air Force Civil Engineering Center. And other projects, including the construction of a major dry dock at Pearl Harbor for the U.S. Navy, works for the Royal Australian Air Force base in Queensland and defense infrastructure upgrades in Australia. In biopharma, health and social infrastructure, we continue to hold in positions with several significant new orders such as: First, the New York Public Health Laboratory, consolidating the largest and most advanced state public health laboratory in the U.S. under one roof, the Regional One Health Hospital campus, a once-in-a-generation investment to expand critical services and strengthen community access to care in Memphis. The Philadelphia arena, including the construction management for the new state-of-the-art arena in the South Philadelphia sports complex. Two major building contracts in Germany, a hospital newbuild project in Flensburg, the first one in Germany using integrated project delivery and a PPP project for a research and administration building in Kiel. Finally, the group is also a global leader in transport and sustainable infrastructure with a very positive outlook driven by several infrastructure stimulus packages. In Australia, we were awarded the Perth Airport, new runway construction as well as the Queensland's Gateway to Bruce upgrade. We secured the I-59, I-40 highway upgrade in Duisburg, Germany. Recently, we won the Battery Park Resiliency project, a $1.7 billion construction in New York. And in Sweden, we secured a EUR 1 billion high-speed rail project under collaborative model delivery, part of the East Link program. Let us now move into the performance by segment. On Slide 10, we begin with Turner, which is delivering exceptional results, consolidating its leadership in strategic sectors. Sales grew by 33.9%, reaching EUR 25.8 billion, mainly driven by organic growth across data center projects as well as solid growth in areas such as health care, education, sports and airports. This solid performance was further supported by the contribution from Dornan, whose exceptional performance was up 70% in the year. Profit before tax increased to EUR 921 million, representing an outstanding increase of more than 61%. This was supported by continued margin expansion of approximately 80 basis points to 3.6%, reflecting Turner's successful strategy, focused on advanced technology projects in line with the group's strategic objectives. Net operating cash flow increased by EUR 523 million to an exceptional EUR 1.2 billion. Net cash as of December '25 was EUR 3.3 billion, up EUR 179 million even after the acquisition of Dornan. Turner's commercial strength are demonstrated by its new orders of EUR 33.6 billion in the year, an increase of 44.2% FX-adjusted driving record order backlog to EUR 37.7 billion. Moving on to our operations in the Asia Pacific region, we turn to CIMIC, where sales registered strong growth in the strategic areas such as advanced technology, health care and defense and were 11.2% higher, supported by the full consolidation of this and despite the winding down of large transport infrastructure projects. EBITDA margins grew by approximately 30 basis points underpinned by strong contribution from high-tech jobs across both UGL and Leighton Asia. Ordinary profit before tax increased by 12.3% year-on-year, FX adjusted to EUR 473 million. Attributable net profit grew by 1.4% FX adjusted year-on-year. Net operating cash flow before factoring grew by EUR 43 million, supporting a strong EUR 366 million net cash improvement, which also includes divestment of 50% of UGL Transport and the data center project. Our order backlog was solid, reaching EUR 21.8 billion, up 6% year-on-year adjusted on a comparable basis. New orders were up 5.6% FX adjusted, with particularly strong growth in data center, defense and critical minerals. Turning now to Engineering & Construction segment on Slide 12. We can see solid growth with consolidated sales increasing 15.1% year-on-year FX adjusted to over EUR 10.6 billion, driven by the strong performance in North America and the robust contributions from both Dragados and HOCHTIEF Engineering & Construction. EBITDA margin increased by 53 basis points to 5.9%, supported by significant contribution from Flatiron Dragados. Ordinary profit before tax grew significantly by 45.2% FX adjusted to EUR 275 million. and a strong cash conversion with net cash position up EUR 118 million. Engineering & Construction backlog rose by 10% FX adjusted to EUR 30.1 billion, reflecting a strong order intake of EUR 13.6 billion with notable momentum in sustainable mobility and transportation infrastructure. Looking ahead, the outlook remains very positive. And as I highlighted, we are particularly well positioned to benefit from the infrastructure investment plan in Germany. Continuing now with the Infrastructure segment on Slide 13. Iridium's increased its sales by 45%, driven by the additional contribution of the A13, the financial close of the SR-400 in Georgia and general positive performance across operating entities. Also, as you might know, we have been recently prequalified for the I-77 in North Carolina. This adds to the previous 2 prequalifications of the I-25 in Georgia and I-24 in Tennessee. Abertis' recurring business showed growth above 6%, although financial contribution was impacted by nonoperating results. Abertis distributed a dividend of approximately EUR 600 million in the second quarter of 2025. In the next slide, we provide for your reference, a breakdown of the invested capital and valuation as of December '25 for the portfolio of all assets in our greenfield platforms. Among others, we are now including the valuation of our stake in the data center platform as well as the average value that research analysts are assigning to our SR-400 project. On the next slide, we take a more detailed look at the Abertis numbers. Traffic grew by 2.1%, supported by a strong performance of heavy vehicle traffic. And we saw strong results particularly in Spain, Chile and France. On a like-for-like basis, the company delivered robust revenue and EBITDA growth of 4.5% and 6.2%, respectively, underpinned by the geographical diversification of the portfolio and inflation-linked tariffs. Regarding portfolio development, as you know, Abertis acquired 51.2% stake in the A63 toll road in France. Additionally, Abertis was awarded a 21-year extension and tariff-adjusted of Fluminense and acquired the remaining 49.9% stake in Tunels de Vallvidrera and Cadi. In Chile, the Santiago-Los Vilos concession began operations. Abertis has improved its liquidity and financial strength with net debt set at EUR 22.7 billion. On Slide 16, we show the breakdown of key figures by country for Abertis portfolio. Next, as we do every year, we dedicate a brief section to reviewing some strategic updates. This slide highlights the progress we are making across our strategic growth verticals, both from a developer and a contractor perspective. We have already discussed many of these key milestones in earlier slides. So let me quickly go over the key points. In digital, we continue leading in data centers. The backlog has grown at circa 70% CAGR over the past 3 years. Some important recent awards include the 1 gigawatt project from Meta in India announced only a few weeks ago. As a developer, 100 of our data center platform sites are now grid-connected with around 80% power supply already secured. We are in advanced negotiations for lease agreements covering 150 megawatts IT in the first instance, and we're targeting to sign the first lease in the first half of the year. In Defense, we are on track to deliver the 2030 revenue ambition of EUR 10 billion, driven by major wins like the German Armed Forces campus and the long-term contract for the U.S. Air Force. We're also seeing strong progress in critical metals. We recently acquired an engineering company in the U.S. Additionally, our participation in Vulcan is another crucial strategic step. Lastly, let me stress again the delivery partner role of our consortium with Amentum on Rolls-Royce Nuclear SMR program. Overall, these wins reflect our decisive progress in reinforcing our end-to-end leadership and leveraging our investment opportunities. On Slide 19, we take a deeper look at the outlook for AI-driven data center growth. ACS is strongly positioned to benefit from rising data center infrastructure investment underpinned by sustained structural demand. Market fundamentals continue to accelerate and hyperscaler demand provides multibillion, multiyear visibility. Our global data center intake has more than doubled in '25, up to EUR 17 billion. And finally, AI evolution is not only strengthening our backlog growth prospects, it's also enhancing our core capabilities and opening new growth avenues for ACS. And before we move to the conclusion, this slide delivers a simple yet powerful message. We have already achieved in 2025, our key 2024 CMD goals for '26, 1 year ahead of schedule. Revenue and NPAT have both reached or exceeded the goals we set for 2026, while the net operating cash flow generated between '24 and '25 exceeds the target set for the full 3-year period. To conclude our review of the full year 2025 results, let me highlight the key achievements of the group. First, we delivered a strong operational performance with sales reaching EUR 49.8 billion, up 19.7% year-on-year and ordinary net profit of EUR 857 million, up 25.3% and exceeding the top end of our guidance. The group demonstrated outstanding cash generation with net operating cash flow of EUR 2.2 billion, which in turn supported net financial investments of EUR 1.7 billion. Our order backlog stands at record high of EUR 92.9 million, underpinned by EUR 62.5 billion in new orders, up 26.9% FX adjusted, including EUR 17.6 billion in digital infra order intake. It's also worth highlighting the progress of our data center development platform, our partnership with BlackRock GIP to develop more than 1.7 gigawatt worldwide was a major milestone that reinforced our leadership in one of the fastest-growing global markets. And finally, we remain confident in our ability to continue executing our proven strategy. For '26, we're setting an ordinary net profit growth target of 20%, 25% up to EUR 1.070 billion. Looking ahead to 2026, we remain focused on our strategic growth markets and disciplined capital allocation. As discussed, we see significant infrastructure investment opportunities and continue to pursue bolt-on acquisitions to strengthen our engineering capabilities and long-term growth prospects. We're well positioned to continue delivering sustainable growth and attractive shareholder returns. Thank you again for joining us today. And now we look forward to your questions. Luis Prieto: Luis Prieto from Kepler Chevreux. I had 3 questions, if I could, please. The first one is we've seen the share prices of both stocks do beautifully. And I just wanted to ask you, to what extent it would be tempting for you to maybe reduce the stake in Turner through a listing in order to upstream monies and pay for development and investments at ACS level or, for example, do a reduction in the HOCHTIEF stake and with the same purpose and increase investments. The second question, we're seeing the same assets held for sale on the balance sheet in energy. They've been there for a while now. Any updates of how those disposals are evolving and when we should expect outcomes, news? And then finally, referring to one of the things you were commenting before, you have visibility in your order book until some point in 2028, but you make reference to another -- to a pipeline beyond that, which is obviously essential to sustain the valuations and the expectations that you have for earnings in data centers. Can you give us an order of magnitude of that pipeline beyond the order book that you might have over the today to 2030 period? Juan Cases: Thank you so much, Luis. So let me start. We do not have plans to reduce our shareholding in Turner so far right now or to reduce in HOCHTIEF. And let me take the chance to speak about the way we see the valuation of our share. And I get back to our Investors Day at the end of last year. First of all, we have 2 main businesses, right? The one that is visible through our EBITDA and that's supported by the growth of Turner, our future growth in Germany and HOCHTIEF and the performance of CIMIC. And what we are seeing is 2 main things, without getting into a lot of the details. A Turner that continues growing, a Turner that before 2020 was giving EUR 350 million PBT. And right now this year has delivered EUR 1.45 billion, but with a guidance of up to 30%, which would be around EUR 1.34 million in '26, which we consider very conservative, right? And the reason why we kind of increase is obviously before we are taking into account a lot of the planning, we rely on hyperscalers, we rely on clients, and we are in that planning mode, and we need to land on something before reaching a resolution. And also the U.S. dollars with all our assumptions imply that it will continue to go in the devaluation mode. So that's on the business, right? Now -- so Turner has multiplied by around 3.5x in a few years. But we believe that will continue growing at a very significant path. So not only has grown 70% in U.S. dollars, '25, and we're already giving a guidance of 30%. And we believe that we can double Turner. Now the question is in how many years, but certainly in a reasonable short to medium-term time. Then we do have the multipliers of Turner, right? Turner has a significant portion of its backlog in data centers. We are seeing that our peers in data center space are at more than 30x EBITDA between 20 to more than 30x. Average consensus for Turner is way below that, right? And the rest of the business in Turner goes through semiconductors, batteries, biopharma and other sectors that will continue improving margins. In data centers, we gave a feature for Turner of reaching revenue just in data centers around EUR 25 billion by 2030. So that's a business, right? Then we see Germany growing and defense growing, and we're not including any of these -- the verticals that we're working right now because we do consider that the real value will be seen medium to long term, nuclear, critical metals, et cetera. So we believe on the share and the share valuation. But what the share is not reflecting for obvious reasons is the assets because that's not reflected in the EBITDA. And a lot of what we're doing right now, it's investing in the assets, right? Data center platform, the edge data center platform, additional to the big one with BlackRock, greenfield, Abertis growth and not Abertis growth just inorganic M&A, but the organic M&A and the renegotiation of the contracts that we will provide some visibility this year, right? And then what we're doing in critical metals, industrial energy, et cetera. So we believe that the share will continue to reflect the value of all of this. So right now, we are not taking the view that it's the right time to sell anything basically. Two, asset for sales, I mean, we -- the reality is that there is a combination of facts here, right? One is from an operating net cash flow basis in the Capital Markets Day, we were always talking about approximately EUR 1.5 billion net operating cash flow, post dividend, EUR 600 million in dividends or shareholder remuneration, we had EUR 900 million net for acquisitions, basically or investment. Now that EUR 1.5 billion has ended up being EUR 2.2 billion this year, EUR 2.1 billion last year. So basically, we're talking about EUR 1.4 billion to EUR 1.5 billion firepower per year net of shareholders' remuneration, right? If you multiply that by 5 from now to 2030, there are significant firepower for investments. So there's a strategic piece that we're not so much in a hurry to divest some of the industrial assets. Plus, we want to make sure that they perform in the right way to maximize value, right? So there's a combination of both things. Now your third question was about the pipeline ambition. So you saw on the screen, we are close to EUR 93 billion backlog. Most of our projects, and this has been the real change of strategy in the last 4 years, by moving from being a commodity in construction to being an end-to-end service provider, most of our contracts are not low-price lump sum RFPs. They come at the back of a long negotiating process, design, planning and working with our clients. So there's approximately EUR 25 billion that are not reflected in the backlog, but we are currently working with our clients. Out of the EUR 25 billion, there's EUR 18 billion in Turner, approximately USD 22 billion, at Turner and out of which there's approximately a little bit more than half of it that is data centers. So all of that contribute to our visibility in the medium term and how comfortable we are with our potentially -- I mean our potential guidance that we believe not only at HOCHTIEF, but ACS is conservative, but we need to see how a lot of these projects land and when they do land. Unknown Analyst: This is [ Salvador Lindse ] from Alantra Equities. The first one is on Turner. I see you reported over EUR 3 billion in net cash. I was just wondering whether Turner needs so much cash to operate? And what would your policy on business cross-financing each other or are you moving cash flow to the headquarters in the future could be just to understand how your reported group net cash position is fully available for investments. And the second question would be on the timing and magnitude of the new cycles. Just wondering whether you see something like defense or nuclear reactors or critical minerals potentially becoming as big as the data center investment cycle is likely going to be? Or if it's just long term, but probably more spaced out and not as big as the current investment is? Juan Cases: So starting with Turner. The reason why Turner holds so much cash, and we're not taking it out of Turner is we have 2 reasons. The first one is bonding needs, right, in order to operate. I mean, Turner is reaching the USD 30 billion revenues just in the U.S., and that requires bonding and require security and making sure that you have the right collateral indemnity in the U.S. So that is a big driver of keeping that cash in Turner. But obviously, it's -- I mean, above what they need. The other thing is, for us, it's very important that Turner continues growing. And for Turner to continue growing, there's a few strategies that we're going to put in place. The first one is we need to continue adding engineering capabilities to Turner, number one. The good thing is that right now, with AI, you can escalate that very, very fast, but it will require some investments. The other one is the modularization strategy at Turner because that's the future of construction. So there's additional investments that we're going to be doing in that space. So let's preserve the cash because Turner will need some of that for investments to continue to grow. The good thing about Turner is what they have demonstrated with Dornan is that they can multiply it by 3, the value one company in almost a year, right? So we're quite confident that it's a very good place to allocate capital. Your second question was about the new cycle. So let's go through each one of them. Nuclear. Yes, Nuclear will be like data centers, but more long term, right? We are not expecting to see. But if we want to be in the long term and creating another cycle like data centers, we'll need to wait, right? But it's a long term. It's very high tech oriented. You need a lot of engineering and you need to be from the very beginning, developing that part, right? So it's a long term. We won't see anything in the P&L probably in the short term, but certainly, we are creating a lot of value. And nuclear, it's a very important part of the future not just of AI, but in global of energy. Defense. So defense 2 things can happen. The first one is we keep a Defense 1.0, which is basically infrastructure, and we expect that to continue growing, right? The EUR 800 billion of Germany starts being allocated. Last year, they spent EUR 74 billion. 2026, we're expecting EUR 127 billion, but they start allocating. And you start seeing that. I mean, HOCHTIEF has doubled, now tripling backlog and we will continue growing at the back of that. Same thing in Australia. We need to still see how it's going to develop some of the U.K., U.S., Australia initiatives they have in Australia. They are allocating like around EUR 40 billion in the next 5 years. but hasn't been allocated yet. And then we have North America, where we continue. Now Infrastructure 1.0 will not generate a cycle like data centers, right? It will allow us to grow at a very good pace, but it will not be a data center cycle unless we jump into Defense 2.0. And that's something that without getting into the more radical part of defense, but the dual use technology. That's something we're analyzing, and we haven't made any decision yet. It's easy for us as we do the infrastructure and client request for the full integration, not just the civil building component of it, but we're analyzing what to do with that. Critical metals, I do think that it can be a good cycle. I don't dare to say as good as data centers. It pretty much depends on right now, the rare earth initiatives of the U.S., how serious is it, a very important part. A lot of the copper projects in South America that they are going to initiate. So we are going to track. And then obviously, lithium and batteries evolvement, right? So depending on those 3 variables, it can be a very good cycle as well. And right now, we're not seeing that reflect in our balance sheet because it's pure engineering what we're doing at this stage. Once we have engineering that, we jump into the PCM part of it, which is where the revenues and the EBITDA is, not in engineering. So that's what is now reflected in our P&L. Ãlvaro Navarro: Alvaro Navarro from Bestinver. I have 2 questions. The first one about the dividend policy. After the strong results release and following that HOCHTIEF increase by 26% its dividend. Are you considering to revisit your dividend policy and go up from the around EUR 2 per share right now? And the second one is about this. I think that this year, you have the possibility to execute the put option over the remaining 40%. Is this a possibility? Or are you managing other alternatives? Juan Cases: Thank you, Alvaro. Starting with the dividend policy. I mean, we're always proud of being a yield plus growth company, right? We offer the 2 of those. The yield because traditionally, we have always had a very good dividend policy traditionally. But in growth because right now, we are in other vertical with high growth and high tech, and we want to make sure that we take advantage of being or becoming a leader in those verticals. That's why we are cautious with the dividend policy. Having said that, it's true. We are growing a lot. And yes, there's cash available. So we haven't landed in any conclusion, but most likely we'll increase our dividend policy up above the EUR 2 per share this year. To how much we are analyzing. On the Thiess, we cannot execute the put until the end of this year 2026, with the cash flow being paid in January '27. If there was an opportunity to acquire in advance, we would take it. But that doesn't depend on us. It depends on our partner. Unknown Analyst: It's Victor from Investing. Congrats for the results. I have 3 questions. The first one is on CIMIC. When do you expect a revamp on the cash flows at CIMIC after derisking of the backlog? The second one is going to be if you can confirm at the end of the year, a Capital Market Day in order to provide 3 years guidance for the group? And finally, what is your expectations about the data centers to be commissioned in the half of the year in the initial conversations? How do you feel about that? Juan Cases: Okay. So starting with CIMIC. What's happening in CIMIC, and that's a difference versus North America, Europe and the rest of the geographies is that a lot of the high-tech projects, energy projects, industrial projects are replacing civil and more traditional projects, right? We are building a lot of the additional backlog in Europe on top of the civil that hasn't been reduced -- hasn't been reduced. And in the case of North America, in the case of Turner, residential has disappeared. Commercial office space has gone down significantly in the last 4 years, but the high tech, it's so big and advanced technology, which account right now for 60% of the backlog of Turner, that, I mean, has replaced part of the old market but has exceeded well in advance and above. In the case of CIMIC, New South Wales, Victoria, Queensland has reduced significantly, tremendously the amount of expenditure in transport and civil, right, which were the big jobs. West Gate coming to an end, Cross River Rail coming to an end, all the WestConnex', the North West Rail, the Western Sydney project, all the rail level crossing programs in Victoria and so on and on and on, right? All of them are gone. Each one of these deals were like $5 billion. right? So it's very difficult to replace with transmission line, substations, energy plants, renewables, data centers, all that plant. So the problem is that we are growing and all those areas, CIMIC, UGL, Leighton Asia, they are growing significantly even Thiess, but not to the extent that they can replace those projects. Plus, those projects, they are collaborative. They do not have big advance payments. And right now, we are -- as we finalize those projects, we've been contributing. That 10% advanced payment that we took 5 years ago, we are pretty much spending right now. So you see that winding off cash at CIMIC not being replaced by the new project, right? So that's the issue. Now eventually, those projects will finally be done and which we are not far away. I mean, there's only 2 to go, out of 9, right? So it's a very good position to be. But I mean, so it will happen soon. Will that be in '26 or '27? I mean we'll see. Then on the Capital Markets Day, yes, we're going to have a Capital Markets Day like the one we had in '24, not like the Investor Day we had at the end of last year. We haven't confirmed the date. Don't take me on the month, most likely at the end of October, but not -- but it will be confirmed eventually. And then on Alcal de Henares, I'm going to take the chance to give an update on the data center platform, okay? So Alcal de Henares, which is around 20 megawatts utility like 14, 18 megawatts. That will be commercialized and in operations or at least service to commence operations by -- before the end of the year, Alcal . We will have additional 250 megawatts, before the end of the year, commercialized, probably North America, beginning of construction. And I think that's a reasonable number. And then obviously, that will -- only those once they are commercialized, that will justify in excess of the value of the price paid by our partner for the platform. Unknown Executive: Thank you. That's time for the questions from the other side. Let's start because some of the analysts and investors that have asked about clarification on the guidance. Regarding the guidance, one is, are we using exchange for dollar stable or devaluation of dollar or what it? And regarding also the guidance, what about the free cash flow? The operating free cash flow has been significantly higher. Marcin Wojtal from BofA is asking us if this EUR 1.5 billion free cash flow per annum could be in the lower side, and we could upgrade that. Juan Cases: Okay. So on the U.S. dollar revaluation, one of the reasons why our guidance is conservative. One of the reasons is because we are assuming that the U.S. dollar will continue to go south, and that's reflected in our guidance for the year. That's the most logical and unreasonable assumption in this stage. On the free cash flow, we prefer to be prudent when it comes to free cash flow. It's true that we -- in the Capital Markets Day, we spoke about the EUR 1.5 billion that has ended up being EUR 2.1 billion and EUR 2.2 billion, respectively. And if the market continues to grow, I mean, we certainly, those are the kind of levels that we can expect. But all our plan, all our capital allocation, all our firepower is based on EUR 1.5 billion, right, to make sure because we want to have also -- I mean more conservative approach to factoring, to confirming to that, I mean, we want to make sure that we are cautious in keeping our cash flow as clean as possible. So basically, I don't dare to give a forecast about the net operating cash flow. Obviously, growth typically drives a high net operating cash flows. But again, our firepower is based on a lower amount of the EUR 1.5 billion. Unknown Executive: And regarding that, there are some questions about our capital allocation strategy, especially on the infra assets, particularly Dario Maglione from BNP Paribas is asking us about an update on the status of SR-400, the project the managed lane in Atlanta, but also what is the overview on our capital allocation strategy in this particular assets? Juan Cases: So I get back to the Investor Day at the end of last year, right? Let's assume that we are able to generate the EUR 1.5 billion. Again, we are way above that at this stage, but all our numbers have been run with that scenario. That post shareholders' remuneration, we would have a net of EUR 900 million. From now to 2030, we multiply by 5, so that's EUR 4.5 billion. And we're still, out of the EUR 3 billion, the 1 -- the EUR 2 billion to EUR 3 billion noncore assets that we could divest that we did announce in 2024 in our Capital Markets Day, we have divested EUR 1.5 billion, there's EUR 1.5 billion left. So all of that comes up to EUR 6 billion. What do we want to do with those EUR 6 billion, right? And there's upside because -- I mean, this year, we had EUR 700 million upside to that amount. First, we want to spend in greenfield projects, managed lanes. So EUR 400 million. We got prequalified in the 25 in Georgia, we got prequalified in I-24 Tennessee. We recently got prequalified in the I-77 in North Carolina. There's 2 projects to go, the 285 West in Georgia, and the other one in Virginia. So that's an important part. The other part is data centers. We have the first platform that we signed with BlackRock GIP. We have the edge data center platform, and we are -- and we do have assets, big assets out of the first platform that we are working on them to secure the power and to pursue commercialization. We're looking at opportunities like in critical metals, like we did in Vulcan in Europe, and other potential opportunities in critical metals but also in the energy space. So I mean, a big part of that is going to greenfield. We have another EUR 1.5 billion that probably will go to M&A. And that M&A could bring Abertis, could bring bolt-on acquisitions for some of the things that I said before to enforce Turner engineering and our capabilities. So we are comfortable in general in the capital allocation. Unknown Executive: This question from Marcin as well from BofA regarding Abertis. Do you consider Abertis EUR 600 million annual dividend to be sustainable for the next 5 to 10 years? What is your idea on Abertis strategy? Juan Cases: Abertis is, if everything goes as per the plan, we hope to give a very good picture of the organization. First of all, let's get back to a few numbers of Abertis. Back in 2018, the EBITDA of Abertis was around EUR 3.5 billion, but we lost EUR 1 billion in PPPs that expired, right? So that's basically -- it was EUR 2.5 billion. This year, we have EUR 4.4 billion EBITDA. And our prospects post France, post France are right now between EUR 4.4 billion and EUR 4.9 billion post Sanef? When you look at some of the ratios, and I think we have given some of these ratios in the past, the net debt ratio pretty much versus EBITDA, I think that has gone from 6.6 to 5.2. I think we gave that figure. But our backlog EBITDA versus the net debt has gone up from 3.4 to 5.8, right? So that gives you a view of how we are managing Abertis in the last years. The most important thing in Abertis that there's 3 things going on right now, or 2, the renegotiation of further contracts, and we will give transparency this year, but very important increases of the overall EBITDA of Abertis at the back of these renegotiations and a couple of transactions that we're pursuing with Abertis. We hope that these transactions, the combination of these transactions will give enough visibility not just to the market, but the rating agencies that our FFO versus net debt ratio that has been increasingly from 7 to very high numbers. That is the main restriction to the dividend distribution will be unlocked and we'll get back to normal dividends. And that, yes, will confirm that not only that EUR 600 million is sustainable on time, but we'll have growth to the future and will increase the valuation of Abertis significantly, which right now is like the ugly duck for all the analysts, right? So that will be a nice one eventually. Unknown Executive: I'll change the topic as Graham Hunt from Jefferies is asking about the environment we have in data centers market, the competitive environment you're encountering as you assess additional data center development opportunities. Are you seeing any difference by region, Europe, Australia, of course, U.S. market? What is our position on that front? How we can be as competitive as we are demonstrating? Juan Cases: So different answers to this question, which is a very important topic. In general terms, we continue seeing huge investment. And we do see very important investments in CapEx, but more importantly, the hyperscalers because they need to plan the next 3 to 5 years ahead, they are giving a lot of visibility of what's coming. From the EUR 420 billion that were spent in data centers in '24, they are expecting altogether to reach EUR 1.1 trillion per year '29, right? So that's the kind of amount we're talking about in the market. There's pros and cons in terms of competitiveness, right? The pro is that right now, we believe we're more competitive than before because before, we were -- for every 20-megawatt data center, we were competing with 14 consortiums. For the 2 gigawatts to 4 gigawatts, there's no competition, right? There's little competition. it's more open book. It's more about the hyperscalers know exactly the price of these things and what competitive looks like, right? They don't need to put long-term RFPs. That's a waste of time for them. right? So what we need to make sure is we compete against ourselves and what hyperscalers can do, which is the bar, which is a very high bar, by the way, because they have a tremendous capability. They could do it themselves. If they use us or another contractor company is because they can do it in the same way or better than what they can, right? So that competition is that's one factor. On the other side, what we are seeing is that time is of the essence, but every year is more of the essence. So hyperscalers want to see is a huge reduction in the timing of construction of these data centers. So that's why we are investing in modular construction, and that's why we continue to increase the timing and therefore, making us more competitive. In terms of U.S. versus Europe versus Australia, completely different markets. U.S. is dominated by the fact that they use is a superpower in AI, that they are training the models, that they have all kind of data storage and most of the American companies, they rule the world when it comes to data, right? So that's why you're seeing the 2 gigawatts, the 4 gigawatts. Anything you do in the U.S., you commercialize very quick, right? There's a huge, very liquid market for this from hyperscalers but also medium companies, small companies. There's a lot of AI processing inference. There's a lot of AI training. There's a lot of data storage. And there's a race to become the most powerful data storage hyperscaler. Europe is very slow. And Europe is very slow because right now, there's a debate about what a data center can provide. And there's always a mismatch between direct and indirect value. Direct value. There's always a combination of high energy, high water, low employment. Indirectly, every time you have megawatts of AI process interference, or ecosystem, you build a huge ecosystem of start-ups around data center. And some example, like Virginia, when they got to the 2.7, 2.4 gigawatt capacity, I think that they brought -- they created 10,000 new start-ups as a consequence. Even some of the big operations in the U.S. moved into Virginia, but the same thing in other places. Something similar happened in Ireland, that plus tax incentives a few years ago. And you will be seeing that in Europe. So more and more and more countries, they see data centers as strategic national investments. But that takes time to get to that conclusion, right? Plus once you -- so that delays things a little bit, but it will come. Having said that, Europe is not training AI models yet. Europe doesn't have big hyperscalers yet. They are the American ones, mainly investing in Europe. And the power in Europe is very much intervened and has some restrictions, different country to country, but in the same line, right? So that doesn't help to the development of more data centers in the short term. But it will come, not as big, but it certainly will come and the industry will come to Europe. Asia Pacific, we've seen that booming, but obviously, they are not trained -- except China that -- I exclude China for now. They are not training big AI models, and they do not have that storage, but certainly Leighton Asia has been super active. Out of the backlog we currently have, there's like EUR 2 billion just in Asia Pacific without including Australia. And then Australia, it's going slow moving into data centers, but we're seeing progress in the country towards data centers. Unknown Executive: In that sense, Dario Maglione is asking about the data centers in Spain outlook because he asked that as we plan to have around 800 megawatts of data centers through our JV platform by 2032, how strong is the demand for data centers in Spain? Enough to absorb this amount? Juan Cases: Potentially, yes. potential, yes. That depends. In Spain, what I do think is going to happen is hyperscalers first will fold their demand with their current development. Once they go beyond that, then they will start asking for additional capacity, and that's where a lot of that excess capacity will be used, on a large scale. I'm not talking about ours. I'm talking about Spain, the countries in general, right? But there's demand for a medium companies that right now, they are not doing their own development, but they are looking for, I mean, megawatts of data centers available. I do think that the restriction is not so much on the demand. The restriction is more on the power. When we speak about AI or inference demand, that's different, right? Because that's a very more unique energy demand. It's not like pure data storage. It's more about inference. It's more about AI processing. I think that, that will take more time in Spain versus the rest of Europe or the U.S. Unknown Executive: Final question is coming from Filipe Leite from CaixaBank BPI. Regarding the platform, the data centers platform, he has 2 specific questions. One is regarding the commercialization? Any news about the commercialization on data centers for this year? And the second is much more technical. He's asking about why the cash in from the recent agreement with BlackRock GIP, sorry, is lower than the EUR 500 million we announced, which has been accounted for EUR 428 million? Juan Cases: Okay. I'll start with the first one, and then I will add to this, and I will ask Emilio to add anything he considers. Well, on the first one, I already said before, before 2026, we expect to have in Spain, 14 megawatts IT, which is basically 20 commercialized and built, in the U.S. like 250. And I believe that those could be conservative figures, and then we'll continue adding that every year. When it comes to the platform, I think that is just the inflow versus the outflow net. Emilio, if you want to add? Emilio Grande: Yes, correct. So the net number was estimated to be EUR 500 million is when we announced the transaction last year. It's slightly below that. The net number, EUR 860 million, minus EUR 400 million something. And the only reason is because of the terms of the agreement and the exact amount of investment as of the date of closing. So that's the gap or the difference between the EUR 500 million and the actual cash in net. Unknown Executive: Final question is regarding, as you mentioned, we are pursuing some managed lanes opportunities in U.S. Could you clarify why the consortium structure for the different bids are different from what we have been doing in the past? Or why the first? What is the reason that we have different partners? Juan Cases: No. I mean, we have only 2 consortiums. The main one with Meridiam, Acciona. I mean, we won with them 400 and were prequalified in the 285 and A24 with them in Georgia and Tennessee, respectively. In the case of North Carolina, Kiewit has been a traditional partner of Flatiron in North Carolina. I mean as you know, in terms of macro figures, Kiewit is the largest civil contractor company in the U.S. We are the second largest. But in North Carolina, in particular, we are both very, very strong in the lead positions, and we have been traditional partners. So some of these conversations were back before our consortium with Acciona. So it's just a specific situation in North Carolina. Unknown Executive: There's no more questions from the web. Juan Cases: Any further questions? Okay. Excellent. So thank you very much, everyone, for coming and joining on the phone. Look forward to any questions on an ongoing basis with the next days or weeks. Thanks a lot.
Operator: Hello, and thank you for standing by for Baidu's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Juan Lin, Baidu's Director of Investor Relations. Juan Lin: Hello, everyone, and welcome to Baidu's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. Baidu's earnings release was distributed earlier today, and you can find a copy on our website as well as on newswire services. On the call today, we have Robin Li, our Co-Founder and CEO; Julius Rong Luo, our EVP in charge of Baidu Mobile Ecosystem Group, MEG; Dou Shen, our EVP in charge of Baidu AI Cloud Group, ACG; and Henry Haijian Hu, our CFO. After our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and other filings with the SEC and Hong Kong Stock Exchange. Baidu does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Our earnings press release and this call includes discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Baidu's IR website. I will now turn the call over to our CEO, Robin. Yanhong Li: Hello, everyone. In Q4, Baidu General Business total revenue was RMB 26.1 billion. Revenue from our core AI-powered business exceeded RMB 11 billion, accounting for 43% of Baidu General Business revenue. In AI Cloud Infra, subscription-based revenue from AI accelerator infrastructure grew 143% year-over-year, accelerating further from 128% in Q3. Meanwhile, Apollo Go maintained its robust momentum, delivering 3.4 million fully driverless operational rides in the quarter. Total rides increased by over 200% year-over-year. 2025 marked the third year of our journey in Gen AI and a pivotal year where AI became the new core of our portfolio. In 2025, we made substantial progress in scaling AI across our businesses, accelerating AI cloud growth, expanding robotaxi operations with improved unit economics and deepening AI integration into our mobile ecosystem. Looking at our portfolio through an AI native lens, momentum across our core AI-powered businesses continue to build in 2025. AI Cloud Infra gained strong traction through its highly efficient and cost-effective training and inference capabilities. Revenue from AI Cloud Infra reached approximately RMB 20 billion in 2025, up 34% year-over-year, outpacing industry growth. Our AI application portfolio is among the most comprehensive in the industry, combining AI-empowered flagship products with AI native offerings that unlock entirely new use cases. For the full year 2025, revenue from AI applications exceeded RMB 10 billion. Apollo Go achieved a significant landmark. We delivered over 10 million fully driverless operational rides in 2025 alone. To date, we have provided a total of over 20 million rides to the public cumulatively. With our accelerated global expansion, Apollo Go's footprint has now reached 26 cities worldwide, reinforcing our leadership in autonomous ride-hailing services. Lastly, our AI native marketing services, including digital humans and agents, sustained strong growth with revenue up 110% year-over-year. Collectively, these results demonstrate AI's growing contribution to Baidu's value creation and our ability to translate AI capabilities into scalable commercial impact. Now let me share the key highlights of the quarter, starting with our proprietary AI chips. This quarter, we announced the proposed spin-off and separate listing of Kunlunxin. After more than a decade of steadfast investment in self-developed AI chips, we are proud to see the market increasingly recognize their value and proven performance. This milestone validates our long-term strategic vision and unlocks new opportunities for value creation. Our AI chips are built on a proprietary architecture developed in-house from day 1. They deliver stable, high-performance AI computing at scale with broad compatibility across different models and frameworks. This enables customers to deploy faster with lower integration costs. What distinguishes our AI chips is a proven track record of large-scale, real-world deployments with leading enterprises across diverse industries, spanning financial services, telecommunications, energy and Internet sectors. Customers choose our chips for reliable performance, stable supply at scale, exceptional software compatibility and strong efficiency, especially in inference workloads. Looking ahead, we see significant opportunities for both Baidu and Kunlunxin as AI infrastructure demand continues to accelerate. Next, I will turn to our AI cloud infrastructure. Our infrastructure is among the most advanced in China, powered by a diverse mix of domestic and international high-performance computing resources. In Q4, subscription-based revenue from AI accelerator infrastructure grew 143% year-over-year, achieving triple-digit growth for the full year 2025. Importantly, we saw a continued shift toward a more recurring, structurally healthier revenue model. The robust growth was fueled by rapidly expanding enterprise AI adoption. As customers integrate AI into core operations, the unique value of our full stack end-to-end AI architecture becomes increasingly evident. By owning and optimizing across all 4 layers, we achieved sustained advantages in stability and cost effectiveness, better addressing enterprises' needs for AI deployment. These advantages are translating into tangible market momentum, fueling accelerated adoption of our AI Cloud Infra. In Q4, we further broadened our client reach. Leading enterprise clients deepen their partnerships with us, driving increases in both usage and spending. We also saw healthy growth contribution from our mid-tier clients. We continue to strengthen our presence in diverse industries, like Internet services, gaming, autonomous driving and embedded AI, underscoring the versatility of our infrastructure. Embodied AI, in particular, showed notable momentum. Revenue from this vertical doubled quarter-over-quarter in Q4. We onboarded a new wave of leading humanoid robotics companies, cementing our position as the go-to cloud service provider for China's fast-growing embodied AI industry. Next, I'll cover our foundation model progress, which is a critical part of our AI capabilities. We remain fully committed to advancing our proprietary foundation model, ERNIE. Following the unveil of ERNIE 5.0 last quarter, we launched an updated version in January. As we advance ERNIE, we remain guided by a clear application-driven approach, making ERNIE strongest where it matters most for our portfolio. To execute this approach more effectively, we recently restructured our model development organization into 2 dedicated teams. One team advances ERNIE state-of-the-art foundation model capabilities, maintaining our technological edge in this fast-evolving space. The other team tailors models for specific business needs, reducing costs, improving response latency and optimizing model size and efficiency to ensure our technologies are not just cutting edge, but readily scalable across our businesses. Close collaboration between both teams ensures our technologies stay grounded in real-world needs while our applications benefit from continuous technological advancement. Now turning to AI applications. This is where we believe AI's greatest value will ultimately reside. We are pioneering AI applications to solve complex real-world problems for both individuals and enterprises. Let me share our progress across multiple key areas, starting with AI-powered search. In Q4, we continued our AI search transformation, pursuing one of the most comprehensive and ambitious transformations globally. Our focus remains on continuously improving the quality of AI search results while expanding what users can accomplish directly within search. This quarter, for example, we introduced AI-generated infographics into our search results, utilizing text-based information where appropriate to make key insights immediately clear and digestible. We've also integrated more MCP capabilities across key scenarios, including e-commerce, health care and local services. This enables actions such as shopping, booking and health care consultation to be completed seamlessly within the search experience. During the Chinese New Year, we moved quickly to embrace the latest AI agent innovation by integrating OpenClaw, a recently popular open source agent framework directly into Baidu app with one-click access, enabling our users to immediately benefit from cutting-edge agentic AI capabilities with an MAU of around 700 million. We provide easy access to OpenClaw for almost half of the Chinese population. For ERNIE Assistant, which is the AI chatbot integrated across our platform, we enhanced the user experience by introducing broader multimodal capabilities. This improvement have been well received by users, driving ERNIE Assistant's MAU to exceed 200 million in December. We are also scaling our AI search API. Adoption has accelerated in Q4 with call volume up over 110% quarter-over-quarter. With industry-leading authority, comprehensiveness and newly added multilingual capabilities, our AI search API is now opening up broader possibilities for the international market. Next is digital humans, which represent a compelling form of AI application. They combine visual presence, voice and real-time interaction to create more engaging and effective experiences. In December 2025, the number of digital humans live streaming on our platform increased nearly 200% year-over-year. Beyond Baidu's own platforms, our digital human technology is expanding to empower the broader industry. Leading companies have partnered with us, including Jingdong, Zuoyebang and TikTok, validating the performance and efficiency of our digital humans. On the technology front, we believe our hyperrealistic digital human represents the next generation of capabilities. This quarter, production costs declined to roughly 1/3 of previous quarter levels, bring industry-leading cost performance and positioning this technology for broader adoption. Another area of progress is Miaoda, our vibe coding platform, which enables users without coding experience to build applications through natural language, including WeChat Mini Programs, websites, mini games and more. Following the Q4 launch of Miaoda's international version, MeDo, users globally have created over 1 million AI applications as of early February, all without writing a single line of code. Looking ahead, we see meaningful opportunities to unlock even greater possibilities in AI application development. Lastly, we are using AI to solve operational problems and drive efficiency gains across industries. One example is Yijian, our advanced visual intelligence platform. Yijian enables enterprises to automate operational compliance and safety checks through intelligent visual analysis. While known brands across coffee chains, quick service restaurants and fine dining are now using Yijian to ensure high standard operations across their thousands of locations. Another example is FM Agent, our self-evolving agent, designed to solve complex operational challenges. By autonomously reasoning across data, rules and real-world constraints, it simulates countless scenarios to identify best solutions. We've seen strong validation both internally through our own cloud resource optimization and externally across industries like manufacturing, energy, finance and logistics, where efficiency improvement is a universal priority. On the organizational front, we recently established the Personal Super Intelligence Business Group, or PSIG. PSIG unifies Baidu Wenku and Baidu Drive, our 2 flagship consumer-facing AI applications. Even before this organizational integration, the 2 teams have already collaborated at the product level to deliver innovations like Free Canvas and GenFlow. This new group enables even deeper collaboration going forward as we accelerate the rollout of new applications to foster a robust growth curve driven by application layer innovation. Shifting to physical AI. Apollo Go represents our largest AI application in the physical world. 2025 was a year of accelerated scaling for Apollo Go, where we reinforced our leadership in operational scale and achieved significant progress in global expansion. We continue to expand fully driverless operations at pace, delivering 3.4 million fully driverless operational rides in Q4 with weekly rides peaking at over 300,000. Total rides grew by over 200% year-over-year. Cumulative rides provided to the public have surpassed 20 million as of February 2026, firmly cementing our position as the world's leading autonomous ride-hailing service provider. We entered 2026 with momentum across key international markets. In the U.K., we advanced our partnerships with Uber and Lyft moving forward with plans to pilot autonomous vehicles in London with testing expected to begin in the first half of 2026. This represents an important step in Apollo Go's international expansion, extending our right-hand drive robotaxi capabilities from Hong Kong to another strategically important market. In Switzerland, we initiated testing in St. Gallen following our market entry last quarter. In the Middle East, we achieved progress in both Abu Dhabi and Dubai. In Abu Dhabi, we launched a fully autonomous ride-hailing services on Yas Island in January with AutoGo. In Dubai, we secured the city's first fully driverless testing permit from the Roads and Transport Authority. We also announced the next phase of our global partnership with Uber to bring our fully autonomous ride-hailing services to Dubai via the Uber platform. These are critical milestones that accelerate our progress across the Emirates. In Asia, we entered a new market, South Korea, starting with the Seoul metropolitan area, further expanding our presence across the Asian region. Meanwhile, in Hong Kong, we expanded our open road testing into Tsuen Wan and initiated cross-district testing between Airport Island and Tung Chung, bringing us closer to commercial readiness there. As of February 2026, Apollo Go's global footprint reached 26 cities, demonstrating the scalability of our autonomous driving technology across diverse regulatory and operational environments. Looking ahead, we are focused on accelerating expansion to more cities globally while continuously improving operational excellence and unit economics. Our growing experience across diverse markets gives us confidence in our ability to scale further, and we expect more cities to achieve positive unit economics over time. Underpinning this expansion, safety remains our top priority and the foundation of everything we do. Our autonomous ride-hailing service is the safest globally with our fully driverless vehicles experience an airbag deployment accident only once every over 12 million kilometers. As we scale, we will continue strengthening safety standards and ensure sustained reliability. Ultimately, our mission is to harness AI to transform mobility, making it fundamentally safer, more affordable and more comfortable and improving how millions of people move, work and live. In summary, with AI now firmly integrated across our portfolio, we believe we are well positioned to deliver sustainable value and shape the next phase of the AI era. With that, let me turn the call over to Henry to go through the financial results. Haijian He: Thank you, Robin, and hello, everyone. We are making progress on our key focus areas. Over the recent quarters, we've enhanced disclosure for greater transparency and driven operational efficiency improvements. This quarter, we took a significant step to unlock value from our strategic AI chip investments through the proposed Kunlunxin spin-off and a separate listing, a milestone we are particularly pleased with. We've also announced a new USD 5 billion share repurchase program and adopted a dividend policy for the first time. Additionally, we've sharpened our strategic focus on high-potential AI applications by forming a PSIG business group, integrating Baidu Wenku and Baidu Drive. These actions reflect our consistent execution and ongoing focus on creating shareholder value. Looking at Q4 results, we saw positive momentum. Baidu General Business total revenue increased 6% quarter-over-quarter with non-GAAP operating profit, expanding 28% sequentially to RMB 2.8 billion. Operating cash flow for Baidu turned positive in Q3 and remained positive in Q4, generating a combined RMB 3.9 billion across both quarters. In terms of our core AI-powered business, in Q4, revenue exceeded RMB 11 billion, accounting for 43% of Baidu General Business revenue. We are seeing strong momentum across several areas. AI Cloud Infra continues to gain market traction and outpace industry average. Our AI application portfolio is expanding rapidly with strong enterprise adoption. Combining AI Cloud Infra and AI applications, our cloud revenue reached RMB 30 billion for the full year 2025. Meanwhile, Apollo Go reinforces its position as a global leader in autonomous ride-hailing with one of the industry's largest footprints and the strongest growth momentum. And AI native marketing services is growing fast. These results demonstrate our progress, and we believe this is just the beginning. We have a robust pipeline of initiatives ahead, and we are confident in our ability to create lasting shareholder value. Now let me walk through the details of our fourth quarter and full year 2025 financial results. Total revenues in Q4 were RMB 32.7 billion, increasing 5% quarter-over-quarter, primarily due to an increase in Baidu core AI-powered business. Total revenues for the full year 2025 were RMB 129.1 billion, decreasing 3% year-over-year, primarily due to a decrease in legacy business, partially offset by an increase in Baidu core AI-powered business. Cost of revenues was RMB 18.3 billion in Q4, which remained flat quarter-over-quarter. Cost of revenues was RMB 72.4 billion in 2025, increasing 10% year-over-year, primarily due to an increase in costs related to Baidu core AI-powered business. Operating expenses were RMB 13.0 billion in Q4, increasing 10% quarter-over-quarter, primarily due to an increase in expected credit losses and a onetime employee severance costs to improve efficiency. Operating expenses were RMB 46.3 billion in 2025, increasing 1% year-over-year. Impairment of long-lived assets was RMB 16.2 billion in 2025, attributable to an impairment loss of core asset group. Operating income was RMB 1.5 billion in Q4, and operating margin was 5%. Operating loss was RMB 5.8 billion in 2025 and operating loss margin was 5%. Excluding impairment of long-lived assets, operating income was RMB 10.4 billion in 2025. Non-GAAP operating income was RMB 3.0 billion in Q4, and non-GAAP operating margin was 9%. Non-GAAP operating income was RMB 15.0 billion in 2025, and non-GAAP operating margin was 12%. In Q4, total other income net was RMB 1.2 billion compared to RMB 1.9 billion last quarter. Income tax expense was RMB 1.0 billion compared to income tax benefit of RMB 1.8 billion of the quarter. In 2025, total other income net was RMB 12.5 billion compared to RMB 7.4 billion in the same period last year. Income tax expense was RMB 1.3 billion compared to RMB 4.4 billion in the same period last year. In Q4, net income attributable to Baidu was RMB 1.8 billion, net margin for Baidu was 5% and diluted earnings per ADS was RMB 3.71. Non-GAAP net income attributable to Baidu was RMB 3.9 billion, non-GAAP net margin for Baidu was 12%, and non-GAAP diluted earnings per ADS was RMB 10.62. In 2025, net income attributable to Baidu was RMB 5.6 billion, net margin for Baidu was 4% and diluted earnings per ADS was RMB 11.78. Excluding the impact of impairment of long-lived assets, net income attributable to Baidu was RMB 19.4 billion. Non-GAAP net income attributable to Baidu was RMB 18.9 billion, non-GAAP net margin for Baidu was 15% and non-GAAP diluted earnings per ADS was RMB 53.41. We define total cash and investments as cash, cash equivalents, restricted cash short-term investments, net, long-term time deposits and held-to-maturity investments and adjusted long-term investments. As of December 31, 2025, total cash and investments were RMB 294.1 billion. In Q4, operating cash flow was RMB 2.6 billion. In 2025, operating cash flow was negative RMB 3.0 billion, which remained positive for the past 2 consecutive quarters. Baidu General business had approximately 29,000 employees as of December 31, 2025. With that, operator, let's now open the call for questions. Operator: [Operator Instructions] Your first question comes from Alicia Yap with Citigroup. Alicis a Yap: I have questions related to the model. So we have noticed very active model iteration recently. How does management view the current competitive landscape? And then Baidu recently also released updated ERNIE 5.0 and also make some organizational adjustments. So could management discuss the strategic rationale behind these moves and also how the company thinks about the relationship between the model evolution and also the application in your overall AI strategy? Yanhong Li: Alicia, this is Robin. We did see very active model releases recently. The market is highly competitive and moving fast. But amid all the competition, we've always believed that applications matter more than models because models ultimately create value through applications. That is why we always take an application-driven approach with ERNIE. Model improvements are guided by the most valuable and promising use cases. And this has been consistent across every iteration of ERNIE. As I just mentioned, recently, we released the updated version of ERNIE 5.0. At the same time, we've been proactively making organizational changes to stay agile in the fast-moving market. We restructured our model team into different focus areas. One team continues pushing frontier capabilities at the foundation model level to maintain technical leadership. ERNIE has clear strength in several key areas, such as creative writing, omnimodel understanding and instruction following. We are confident we will keep improving ERNIE's performance across key application scenarios. Meanwhile, this high-value application scenarios continuously provide ERNIE with real data and feedback, driving model iteration and making ERNIE better and better. The other team works much closer to specific business needs and application scenarios focused on reducing costs, improving speed and increasing efficiency or leveraging the best available models for specific use cases, all aimed at helping businesses better leverage AI based on their actual needs. We recognize that model capabilities are broad and application scenarios can be highly diverse. And no single model can lead everywhere. So we fully leverage ERNIE where it has clear strengths, and we are open to using other models where they are better suited. The goal is always to achieve the best application outcomes. So to sum up, we will continue with our application-driven approach using real application needs to continuously iterate and optimize our models while also keep refining applications themselves to deliver better and better results, ultimately, creating tangible value for users and businesses. Operator: Your next question comes from Alex Yao with JPMorgan. Alex Yao: I have one question about the Baidu AI Cloud. We noticed that Baidu AI Cloud revenue delivered strong growth for the full year 2025. Can you elaborate and help us understand the key growth driver behind the robust revenue growth number? And how should we think about the AI cloud revenue growth outlook in 2026? Dou Shen: Thank you, Alex. This is Dou. For 2025, our AI cloud revenue, which includes revenue from AI Cloud Infra and AI applications, reached RMB 30 billion. Revenue from AI Cloud Infra grew 34% year-over-year, outpacing the broader market. Within AI Cloud Infra, subscription-based revenue from AI accelerator infrastructure grew 143% year-over-year in Q4 and has become the primary growth driver, demonstrating strong momentum. We remain highly confident in sustaining strong growth momentum in 2026. Underpinning our growth is the accelerating enterprise AI adoption. We are seeing a demand growth in both training and inference workloads, and we expect the demand for AI computing to keep expanding, creating significant opportunities ahead. Baidu's full stack end-to-end AI architecture is a key differentiator in capturing such opportunity. Under the foundation of this architecture is our industry-leading AI infrastructure, which achieves an excellent balance across performance, efficiency and cost. Our AI infra is powered by a diverse mix of chips. We have built deep expertise in heterogeneous computing and unified scheduling, which enables us to efficiently manage computing resources from different chip vendors and achieve industry-leading performance and efficiency. In the meanwhile, our proprietary chip capabilities provide a significant competitive advantage. As Robin just mentioned, our self-developed Kunlunxin AI chips deliver strong performance, compatibility and cost efficiency. They have been deployed at scale with leading enterprise customers across financial services, telecom, energy and Internet sectors and the market feedback has been very positive. Kunlunxin serves as a key component of our own cloud platforms computing power, playing an important role in our overall AI infra. As AI demand grows, the advantages of our AI infra will become increasingly evident. Beyond AI infra we just discussed, we are continuously evolving our best-in-class agent infra to help enterprises rapidly build and deploy AI agents at scale. We keep bringing in the latest, most cutting-edge capabilities. For example, we recently launched simplified open cloud deployment on Baidu AI Cloud, which streamlines the process so that even users with no coding experience can quickly deploy their own open cloud agents. Then looking into 2026, as enterprise AI deployments deepen further, we are confident that our cloud business will continue to grow faster than the industry. We expect AI Cloud Infra to maintain strong momentum with AI accelerator infrastructure continuing to serve as a core driver, propelling our overall cloud business toward a more sustainable and high-quality growth mode. Operator: Your next question comes from Lincoln Kong with GS. Lincoln Kong: So actually, this quarter, we see this AI-powered business continue to deliver a pretty solid growth. So how does management view the current stage development for those AI-powered business? So when should we expect this share to exceed, say, 50% of the Baidu General Business? And what will be the key driver going forward for the AI-powered business? Yanhong Li: Okay. Let me start by sharing how we think about our core AI-powered business. This includes AI cloud infrastructure, AI applications like Baidu Wenku and Baidu Drive and our robotaxi business, Apollo Go, and our AI-native marketing services, including agents and digital humans. AI-powered business organizes our business according to the nature of our products and services, where AI is empowering each to create meaningful customer value and business impact. In Q4, AI-powered business revenue exceeded RMB 11 billion. That's like 43% of Baidu General Business revenue. This percentage has been rapidly increasing over the recent quarters, and AI-powered business is becoming the core driver of our overall revenue growth. Each of our AI-powered businesses has clear strategic positioning and competitive advantage. First, AI Cloud Infra. We see enterprises scale AI from pilots to production and our full stack end-to-end AI capabilities enable strong performance at competitive cost. AI Cloud Infra revenue grew faster than the industry average in 2025 with subscription-based AI accelerator infrastructure revenue accelerating sharply in Q4. And second, it's AI applications. We've always believed AI's ultimate value will settle at the application layer, and we built one of China's most comprehensive AI application portfolios. As AI capabilities continue to evolve and new use cases emerge, we see significant expansion potential in this business. And then third is the robotaxi business, Apollo Go. Apollo Go is scaling rapidly while expanding internationally. We lead globally in operating scale, safety record, efficiency and cost structure. And the fourth is AI native marketing services like agents and digital humans. They improved engagement and conversion, and we're seeing strong market adoption with great potential ahead. So looking to the mid- to long term, as enterprise AI deployment deepens, monetization capabilities of AI applications improve and physical AI applications such as autonomous driving continue to expand, and we're confident in the growth trajectory of our AI-powered business. This AI-powered business aren't isolated. They continuously reinforce each other through our full stack capabilities. And based on current visibility, we believe our core AI-powered business will become the majority of Baidu General Business in the foreseeable future. Operator: Your next question comes from Wei Xiong. Wei Xiong: Could management elaborate on the framework that you use to allocate capital, including shareholder returns, organic investment and potential strategic opportunities? And also, could management comment on the long-term strategic positioning of Kunlunxin within the Baidu Group? Haijian He: This is Henry. I believe many of you may have noticed our recent series of initiatives. These include enhancing our disclosures, improving operational efficiency, optimizing our organizational structure, advancing the proposed Kunlunxin spin-off and separate listing and also announcing our new share repurchase program and the first dividend policy. And recently, we're also reforming the PSIG, the Personal Super Intelligent Group business group, integrating Baidu Wenku and Baidu Drive. Altogether, these moves reflect a coherent execution framework, demonstrating our improved management execution and ongoing commitment to creating shareholder value. I think take our new share repurchase program as one example. We are very focused on providing clear and sustainable returns to shareholders. So in the recent, in February, the Board has approved a new USD 5 billion share repurchase program, which we plan to execute on a regular basis in a very disciplined and transparent manner. We are also introducing Baidu first dividend policy. We believe the introduction of the policy alongside with a sizable buyback program will further strengthen our shareholder return profile and attract a broader range of investors, thereby further diversifying our investor base. As we mentioned, the proposed spin-off and a separate listing of Kunlunxin is another good example. We are making very good progress of the listing process. Kunlunxin is a result of over a decade of investment and represents a critical infrastructure component of our full-stack AI capabilities. We believe this spin-off and a separate listing will receive strong market recognition and unlock significant value for Baidu as a group. So looking ahead, we firmly believe the company has tremendous value, and we will continue unlocking it through various initiatives. We remain committed to deliver sustainable and consistent returns to our shareholders. So more initiatives will follow in due course. So stay tuned with us. Thank you. Operator: Your next question comes from Gary Yu with Morgan Stanley. Gary Yu: My question is on robotaxi. First of all, congratulations on the robotaxi expansion into more countries, especially to my hometown Hong Kong. Can you share your overseas strategy in 2026? And what are your key competitive advantages there? And also with Waymo recently valued at $126 billion, how is management thinking about unlocking Apollo Go's value? Would you consider a spin-off? Yanhong Li: Gary, as I mentioned last quarter, I believe robotaxi has reached a tipping point globally. Through continuous delivery of safe autonomous drives and positive word of mouth, we're seeing more countries and regions creating supportive environment for robotaxi operations. We believe the industry will accelerate in 2026. Apollo Go is a clear global leader in this space. We've completed over 20 million cumulative rides. At peak period, our weekly fully driverless rides exceeded 300,000. To date, Apollo Go fleets have accumulated more than 300 million autonomous kilometers, including over 190 million fully driverless autonomous kilometers with an outstanding safety record. And we continue advancing our industry-leading technology to make rides safer and more comfortable. We're also accelerating international expansion to capture global opportunities. Today, our global footprint spans 26 cities across different continents, covering both left-hand and right-hand drive robotaxi market. Our autonomous driving system works reliably anywhere across different traffic patterns and different urban environments. Notably, very few players have entered right-hand drive robotaxi market, while we've already established a presence and are making rapid progress. Moreover, we have a fundamental cost advantage. RT6 is the world's first purpose-built production vehicle designed from the ground up for Level 4 autonomous driving. At under USD 30,000 per vehicle, RT6 offers the industry's best cost structure and combined with our leading operational efficiency, this enables us to achieve the lowest cost per mile globally while maintaining superior safety. We were the first to achieve UE breakeven in Wuhan in late 2024. And as you know, most major cities have higher ride-hailing prices than Wuhan. To accelerate global expansion, we are leveraging diverse strategic partnerships. For example, we are collaborating with Uber and Lyft in London to launch this year and in Dubai with Uber also. These partnerships drive faster, more efficient market expansion. We see Apollo Go as a strategic growth engine with significant long-term potential. Many major cities are short of human drivers. More supply via robotaxi service not only offer safer rides, but also stimulate ride-hailing demand, therefore, add tax revenue to the government. It also releases precious land from parking spaces and provide additional monetization opportunities for these real estate assets. Our focus is on 3 areas: first, aggressively scale up safe and comfortable operations by deploying more vehicles. Second, continuously improving unit economics with the goal of achieving UE breakeven in more cities this year. Third, expanding with flexible business models, both domestically and internationally. As for strategic options, we will remain flexible and evaluate the best path that maximizes long-term shareholder returns. And of course, our focus is always on execution and sustainable growth. We believe the autonomous ride-hailing sector as a whole remains undervalued. Over time, we expect valuations across the sector to better reflect the transformative potential of this technology, which creates meaningful upside opportunity for Apollo Go. Operator: Next question comes from Miranda Lang with Bank of America Securities. Xiaomeng Zhuang: Wish you a happy year of hope. So my question is about competition. We have seen that the consumer-facing AI competition is intensifying recently, especially during the Chinese New Year. How do you assess the current competitive dynamics? Where do you see Baidu's AI2C products such as the early assistance, differentiation and also positioning in this market? And lastly, how to think about the path to monetization? Rong Luo: This is Julius. The AI2C product market is highly competitive. We have seen some competitors about very aggressive market strategies to rapidly scale their user base in the past Chinese New Year. However, as technology and products evolve rapidly, we still believe our core strategy should remain grounded in actual user needs. We are highly committed to continuously enhancing our existing products and services capabilities through AI innovations to better serve our users. In our flagship consumer-facing products, like Baidu app today, we have built a ERNIE Assistant to strengthen our service capabilities across the entire user journey, from information thinking to providing solutions and completing tasks. On information thinking, we have significantly enhanced our users assess information through ERNIE Assistant. For example, we have improved the answer accuracy and relevance through RAG, and ERNIE Assistant maintains low error rates with minimal hallucinations, delivering the highly trustworthy content to users. We have also integrated the multilingual AI such as API capabilities that can enable the users to assess the broad information sources during conversations, improving the information richness and usability. And especially for scenarios like travel planning, which is quite helpful. And in December, ERNIE Assistant's MAU surpassed 200 million and with conversation rounds and engagements growing quite fast. For past complexion, we are integrating MCP agents to connect users with tools and real-word services. This quarter alone, we're adding nearly 100 service capabilities, especially in health care, travel, education and e-commerce. For example, through the Baidu Health MCP integrated into ERNIE Assistant, users can assess a range of health care capabilities, spending online to offline services. In e-commerce, our MCP module saw a very strong GMV growth quarter-over-quarter. Meanwhile, we are taking a different approach with the stand-alone ERNIE app, our positioning as a platform for innovation and experimentation. Our earlier multi-model AI features have gained good traction with the young audiences. And more recently, we have added AI capabilities focused on the workplace productivity, tapping into ERNIE's ability to handle the complex tasks in professional settings. We are seeing the promising early signals in these productivity scenarios. We take a measured approach to monetize the AI tools and products, prioritizing the product excellence and the user experiences. Monetization will follow naturally as the products mature. Thank you for your question. Operator: Your next question comes from Ellie Jiang with Macquarie. Ellie Jiang: My question is mostly focusing on the AI investment. How do you think about the AI-related CapEx over the next 12 to 24 months? How should we think about the return profile of these AI investments and the expected impact on the ROIC over time? Broadly speaking, where do you see further efficiency opportunities to support margin and cash flow improvements in the future? Haijian He: This is Henry. First of all, on CapEx and AI investment, since we have launched early in March of 2023, we have invested over RMB 100 billion in AI. Going forward, we will continue to maintain this level of investment density. Second, we are very conscious about returns and understand investors' focus on the return on capital invested. That's why we have work to improve our financial performance, and we have delivered good results on key metrics over the past few quarters. For example, in Q4, gross profit for Baidu grew double digits sequentially and non-GAAP operating income for Baidu increase about 35% quarter-over-quarter. We also performed better on the margin profile, both on gross margin and operating margin increasing sequentially. Importantly, operating cash flow for Baidu turned positive in Q3 and remained positive in Q4. With the second half, operating cash flow reached nearly RMB 4 billion. Free cash flow for Baidu also turned positive in Q4. Thirdly, we have also found and explored alternate ways of supporting our financial needs including, for example, operational and financing leasing as well as we have access to the low-cost interest banking borrowing. For example, some of these bank borrowings and the leasing facilities carry the interest rates as low as below 2%. Though these approaches help us maintain a healthy long-term financing structure while sustaining our AI investments and support our business growth. So in summary, we will continue to maintain our AI investment density, while balancing investor focus on profitability and return time lines. We believe that even with significant AI investment, our operating cash flow remain positive going forward as well. Thank you. Operator: Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.
Alexander Saverys: Good afternoon, and welcome to the CMB.TECH Earnings Conference Call for the Fourth Quarter of 2025. My name is Alexander Saverys, and I'm joined here by my colleagues, Joris, Enya and Ludovic. We will touch upon our classic topics. We'll start with our financial highlights. We will then give you a market update and finish with a conclusion and a Q&A. And for the financial highlights, I'd like to hand it over to Ludovic. Ludovic Saverys: Thanks, Alex, and good afternoon, everybody. As usual, we start with a snapshot of our company, where here, we've shown you the key metrics of the fleet, roughly 40 ships with about a $10.7 billion fair market value. This is excluding the vessels we have sold already. Our market cap sits today at $4.2 billion after a nice run-up on the share. We have $1.5 billion CapEx remaining as from end of January and operate a modern fleet of 5.9 years. Dry bulk today is predominantly 60% of our total fair market value with the other divisions showing the rest of the value of the fleet. Zooming in on the highlights of the Q4, we had a net profit of $90 million bringing the full year profit to $140 million. And the EBITDA of this quarter was $322 million to end the year on a $943 million EBITDA. Our liquidity sits at a pretty strong $560 million and our covenants for the bonds on the equity on total assets sits at 31% and for the rest of our loan agreements at 44%. We've had a pretty remarkable Q4 where we were able to delever the company, at the same time, pay dividends again, which we'll discuss later and strengthen the balance sheet with a couple of actions that we've performed in the company. Running through it, the result, I mentioned $90 million. We had some nonrecurring one-off and sometimes even noncash impact on the results, which are mostly related to the finalization of the integration of the merger with Golden Ocean. There's IT costs, but there was also, I would say, refinancing costs that we had to take as a one-off on arrangement fees, success fees in Q4. On top of that, we had roughly $15 million, 1-5 of nonrecurring costs on the SG&A, which is tax reversals and other, again, integration fees from the Golden Ocean merger. The liquidity stands at $560 million, which is quite strong with the good markets, with the sale of assets, and we'll discuss later, gives us a lot of capabilities to further strengthen the balance sheet in 2026. The acquisition, if you recall, the first 50%, 49% of Golden Ocean, we bought through a bridge facility. Happy to inform that it was fully paid back end of January. There was also some costs related to that of acceleration of arrangement fees. But this will give an interest saving of roughly $42 million for 2026. So quite happy to say that we were able to do this, but that also we were able to repay it out of own cash, but also some releveraging on other dry bulk ships. The contract backlog sits at $3.05 billion. Alex will go in further detail, but we added in Q4 roughly $304 million, primarily on Capesizes and on one CSOV. Happy to tell that there an interim dividend declared of $0.16. This is roughly $45 million of dividend being paid later in April. We feel that the balance sheet has strengthened good enough to increase from the $0.05 we previously paid in the quarters to a somewhat higher dividend. This dividend is not yet the dividend that we announced in the press release on the sale of the 6 VLCCs of 50%. So this -- the capital gain on those ships will be taken in Q1 and Q2, and the Board will decide on the dividends at that moment. We've had a very active delivery schedule in Q4, 6 newbuildings, but Alex will talk about it later. But more importantly, for our balance sheet, we were able to, in Q4, Q1 and Q2 already secured more than $420 million in capital gains. That's profit that is locked in. $50 million was booked in Q4. But in Q2 and in Q1, we have already a guaranteed $370 million profit, which gives us a lot of opportunities for the rest of the year. We have a large spot exposure still on tankers, but predominantly on dry bulk. If you look at 2026, we have roughly 53,000 shipping days from which 44,000 are spots. And if we zoom in into dry bulk, where we have a pretty strong feeling that there will be a good market in 2026. We have 36,000 days from which 27,000 on Capesizes and Newcastlemaxes. This means $10,000 up on our breakevens brings in $270 million in cash flow. When we look on the right side, we always like to position on the segments we are active in compared to the order book to fleet ratio. The bottom segments are compared to some of the other shipping segments on the relatively low side on the order book. When we look at Capesize and Panamax, I think we're very well positioned to look for better markets in 2026. Looking at the CapEx program. It's a recurring slide we like to show. As of end of January, we have roughly $1.5 billion remaining CapEx from which $216 million will come from our own cash. You can see in this slide, which is quite interesting is that the next 12 months will be a heavy delivery schedule, roughly $1.2 billion will be paid to the yards. All the financing has been secured. And if we look at the cash from the sale of the VLCCs and Capesize we've already done, the whole CapEx has been taken care of. This also shows that within 12 months, every sale, every cash flow generation we'll have will give us an opportunity again to look at dividends, delever further in an even more accelerated way. The free cash flow, we've given an estimation based on hypothetical rates that you see on the bottom right. I think we're still pretty conservative if you look at today's markets. But should we have the estimated rates even with 20% where we're already in today, this would create a $700 million free cash flow on top of the normal debt repayments. This gives us ample capability to pay back the Nordic bonds, which we anticipate just to pay out of own cash, continue to fund the CapEx and delever the company in an accelerated way. This was the financial highlights. I'll move on to the market update and give the floor to Alex. Alexander Saverys: Thank you, Ludovic. I want to update you on the various markets where CMB.TECH is active. You see our overview sheet where we put all our markets and zoom in on the demand side, supply side and where we see the balance. This slide has fundamentally not really changed compared to 3 months ago. We are still positive on dry bulk tankers and offshore. We are cautious on the container side and on the chemical side. If you look at dry bulk specifically, you see that we see very nice ton-mile growth for iron ore and bauxite in 2026, which is a positive. On the supply side, the order book to fleet has grown a bit. There's been some more orders for Capesizes and Newcastlemaxes for delivery in 2028 and 2029, but we still believe it's a manageable 12.4%. The fleet growth this year in Capes specifically will only be 2.3%, and we see the trade growing by more than that. So all in all, the balance is positive. On our dry bulk side in Bocimar, we have 87 spot vessels. There's another 9 vessels that will be delivered to us that will also be traded spot unless we have fixed the charter. And with the addition of the recent charters that we concluded, we have now 16 ships on charter, and that's another 3 newbuildings on charter as well coming later this year, beginning 2027. On the tanker side, the figure in pure supply/demand is a little bit more muted. There is more fleet growth than demand growth at least on paper, but there's a big element of sentiment, and I'll zoom into that when we speak about Euronav that has propelled the market to very, very high levels. All in all, sentiment is good. Earnings are good. The tanker market is still very positive. Our tanker fleet with the sales of the 8 vessels recently has reduced a bit. We still have 12 vessels on the spot, another 3 newbuildings coming. And then we have 10 vessels on time charter with another 2 newbuildings that will also be on charter, but I'll talk about that when we talk about Euronav. Containers and chemicals, I'll handle a bit later. And then just on the offshore energy, which is both on the offshore wind and the offshore oil and gas. Specifically on the wind, we are seeing a slight acceleration again of the installation of capacity, which should support our CTV and CSOV markets. And on the supply side, we have seen basically a slowing down of ordering new vessels. The order book to fleet for CTV stands at 13%, which we think is very manageable. Order book to fleet for the CSOVs is much higher. But again, there is also a lot more demand for that type of vessels, specifically from the offshore oil and gas markets. I want to run you through a couple of slides for Bocimar and dry bulk, starting with the overview of what Bocimar has done in Q4 and Q1. We have 36 Newcastlemaxes on the water. We have another 10 newbuilding Newcastlemaxes that will all be delivered by the first quarter of 2027. In Q4, we achieved actuals of close to $35,000. Q1 quarter-to-date, we are at slightly more than $30,000 a day. We have 37 Capes on the water. There, the results in Q4 were $30,000 and Q1 to date, we are at $26,000. These are strong rates Definitely, for the first quarter of the year, we are seeing rates that have not been as strong over the last 15 years. So we are seeing a very strong Q1. We have sold the Golden Magnum and the Belgravia and we'll record a capital gain of $8 million in the first quarter. Our 30 Kamsarmaxes and Panamaxes are all on the water. We achieved rates of $17,300 in Q4 and $13,200 so far in this quarter. You can see the breakeven levels and what we have achieved on the right side. Just a couple of important indicators on the right side. We see that there's a lot of green indicators, a lot of support for dry bulk demand. Just the inventories on iron ore in China are up. The coal imports in China are down. These are slightly more negative indicators. But all in all, we see more positive signs than negatives for dry bulk. Here on this slide, we look at the order book to fleet ratio for Capesizes and why we believe that vessel values could well be supported for the next 2 or 3 years. We basically have put on the right side of the slide, the recent number of vessels that have been delivered, including the newbuilding prices that are being quoted by brokers and compare that to the last time we were in a dry bulk boom. Here, basically, we want to say that as long as the order book is around the levels that we see, this market still will be supported on asset values. We don't see an oversupply coming. The fleet profile for Capes and for Panamaxes, again, it's a recurring theme. There's very little scrapping going on. We see that vessels are aging, aging rapidly. We are now at close to 150 Capes that are over 20 years of age, close to 600 Capes over 15 years of age, and the numbers on Panamaxes are even more important. So if the market one day would correct and scrapping would start, this would definitely be something that can balance the market. When we look at Q4 and Q1, the 2 big themes for us, definitely for our Capes and NUCs have been iron ore and bauxite. You can see on these graphs, the rainfall and then the volume of iron ore and bauxite that's being loaded in the Atlantic, in West Africa and in the Pacific. What we have seen specifically with West Africa on the bauxite side, but now also the iron ore will start playing a very important role is that it is a bit counter seasonal compared to the weaker seasons that we have used to be seeing in the Pacific for Australia predominantly and the Atlantic for Brazil. So it is helping our market. It is balancing the market. There are more opportunities for large bulkers to load cargo even in the first quarter of the year. And as you can see, the rates have reacted very positively to these volumes. Capesize market fundamentals this year are positive. I mentioned it when we spoke about the overview. We see a ton-mile increase in demand of 2.7% and a fleet growth of 2.3%. So we expect the utilization to creep up. We are already around the 90% utilization mark. This could go to 91%, 92% in the coming months. The big market moves in dry bulk and then specifically for iron ore is -- well, you can see them on this slide, all the volumes coming out of West Africa, Brazil, Australia. We see that iron ore, according to the forecast will continue to grow. So seaborne iron ore will continue to grow. It will come from areas that are far away from the main customer for these goods, which is China, which is good for ton-mile demand. And you can see that the same story can go for bauxite. We have been very surprised by volumes of bauxite in January. So the number of 184 million tons could well go higher if this trend continues this year. So very supportive of these 2 commodities, both in volume and in ton-mile for 2026. I will say a few words about Euronav and the crude oil tanker market. Starting with our fleet of VLCCs. So the fleet has been reduced. We have sold 8 of our older vessels as we have announced last month. We are left with 3 VLCCs on the water. That's one 2016 built ship and 2 newbuildings. And then we have another 3 eco VLCCs coming in the next couple of months. So our fleet of VLCCs is 6 ships in total. You can see what we have achieved in terms of rates, around $75,000, both in Q4 and in Q1 quarter-to-date. The Suezmaxes, we have 17 Suezmaxes on the water. We have another 2 vessels delivering very soon. These 2 vessels, these 2 newbuildings have been fixed on long-term time charters. But for the spot fleet, we achieved rates around the $60,000 to $65,000 mark, both in Q4 and in Q1. The markets there are very, very supportive, watch the space because the numbers that we have been seeing over the last couple of weeks are way higher than the numbers that we are reporting here. If you look at the key indicators, a lot of green indicators, the market is supported. We are seeing the tanker fleet growing a bit. But all in all, both in sentiment and in fundamentals, we see that the tanker market right now is very supportive, and that's probably the understatement. It is more than supported is actually very high. The sustainability of the expanding crude tanker order book will depend a lot on the durability and the potential uptick in scrapping. The order book has risen. We are seeing more orders for VLCCs and Suezmaxes. These orders will not come through this year or next year. But as from 2028, this is something to watch because the market balance will depend a lot on how many vessels we can scrap to make sure that the amount of newbuildings that are coming to the market will not distort the market to the downside. Demand durability of crude tankers, all the different agencies have different numbers. It's not always easy to follow. It looks like we are producing more oil in the world today than we are actually using. And so the only big explanation for that can be that someone and particularly the Chinese are probably stockpiling oil in great numbers. That as long as this continues, it is, of course, very supportive for the oil tanker markets. Depending on what will happen in the next 6 months, both with the oil price and on geopolitics, of course, all these scenarios can be rewritten. But for the time being, what we're seeing is an oversupplied oil market, whereby the oversupply is absorbed in stockpiling. Sanctions remain a very important theme, the Russia-Ukraine conflict, what's happening or what will happen in Iran and of course, Venezuela. We just wanted to highlight one interesting graph on the right side, whereas we see that the Indian crude imports from Russia have gone down after the sanctions that the U.S. imposed in December. We see actually that probably China has picked up some of that slack, as you can see on the graphs to the right. A few words about Delphis and our container vessels. As you know, our 4 container vessels on the water have been fixed on long-term charters for 10 years. We have one more newbuilding delivering this year, which will be under a 15-year time charter contract. So we are not really exposed to the spot market. If you look at the spot freight market, it's a downhill slope. We see that the SCFI is actually trending downwards. So spot freight rates are down. Interestingly, the charter market is still quite supported. So not a lot of charter vessels available. Some big liners still fighting for market share and chartering vessels. We expect this actually to go down going forward because there is still a very significant order book to be delivered both this year in '27 and in '28. Bochem and our chemical tankers, we have 8 ships on the water. You can see the performance in Q4 on the right side. So there's a mix of time charters mostly, but we also have 2 vessels operating in a spot pool. Bochem still has an order book of 8 vessels. We have 2 product tankers coming this year. We then have another 6 chemical tankers in '28 and '29. All these vessels have been fixed on long-term time charters. So our spot exposure is relatively limited. And what we see on the spot market is a slightly declining market, nothing dramatic, but definitely, the rates are not what they were in 2024. So still seeing okay rates, but definitely, things are going down a little bit. And then I want to end with a very good performing business unit recently. That's Windcat. We have taken delivery of 2 of our CSOVs last year. One CSOV has been trading for the last 4 to 6 months on the spot market, but earning very good rates, as you can see on the right side, the equivalent in Q4 of $108,000 a day. The other one has been fixed on a 3-year agreement for work in the North Sea. We still have another 4 CSOVs coming and one larger CSOV is CSOV XL this year and next, but the market is very supportive. And it's supported because the oil and gas market requires good modern offshore supply vessels. And these good modern offshore supply vessels, in some instances, were earmarked for the wind business but actually can now earn better rates in oil and gas, and that is where they are going. On the wind market, we're actually seeing some positive evolutions as well. Last year was a bit slow in terms of delivery of new projects. But in North Sea and Europe, we are seeing new projects coming on stream this year and next, which will necessitate demand for CSOVs and CTVs. CTVs, we have a large fleet of close to 60 vessels on the water. You can see the rates that we achieved. We definitely are satisfied with the rates that we achieved and are looking forward for probably a better 2026 than 2025. So this ends our market update. I'd now like to hand it over to Enya for the Q&A. Enya Derkinderen: [Operator Instructions] So we will now start taking the first question. Frode Morkedal, you can now unmute and ask your question, please. Frode Morkedal: Yes. Can you hear me? Alexander Saverys: Yes. Perfect. Frode Morkedal: Okay. Perfect. On this Golden Ocean bridge repayment, is it fair to assume that the strong tanker market helped you with this? And specifically, obviously, the sale of the 8 VLCCs must have been instrumental in being able to repay this way ahead of schedule, right? So that's -- and also you could just remind us the numbers we're talking about, how large was the bridge facility? And what's the net proceeds of these 8 plus 2 Capes, I guess, you sold? Ludovic Saverys: Yes. If it's okay, Alex, I'll take that one. So just to remind, we had a $1.4 billion acquisition facility given by the banks. We only drew upon $1.3 billion. So that was the actual exposure we had fully drawn to buying the first 40% and then another 9% of the market. Of that $1.3 billion, quite quickly after the merger in August, we re-levered the ships of Golden Ocean with a $2 billion facility. And we used $750 million of cash of the releveraging to pay down to $550 million. And that $550 million was what we carried since, I would say, September until 2 weeks ago, $550 million, which half of it has been paid with operational cash flow and cash from sale of vessels with a little bit of the Q3 vessels we sold delivered in Q4, but also some of the tankers, as you mentioned. And then there is roughly half of it, $270 million, which we shifted from the "expensive $2 billion facility with Golden Ocean with some Chinese leasing that we did execute last December." And that was -- so roughly $260 million that we did. So own cash, only about $260 million, $270 million on that. And I think the sale of the tankers, especially the 6 plus 2 Capes and then the remaining 2 has even further strengthened, I think, the belief on the Board to pay more dividends, delever more and then also get a comfort on the Nordic bonds for the remaining of the year that the cash out of the 8 tankers was roughly $420 million cash. So that obviously gives good opportunities to do all of the above that we mentioned. Frode Morkedal: Right. So is it still that the target is to bring down the LTV -- net LTV to around 50%? And at that point, you could... Ludovic Saverys: At that point, Frode, I think the target -- the long-term target is at 50% LTV. The LTV today end of December was roughly 55%. Now with the increase in tanker rates -- in tanker value, sorry, as everybody has seen in the market, we're probably already at those levels. But that is the target. I think it's more important to say what are the opportunities with every dollar that comes in from sale of operational cash. And then we stick to the point that it can be dividends, it can be further deleveraging. It can be accelerating the payments on some of the revolvers that we have to reduce the interest costs. Because one thing, when you do M&A, there is a cost of it, especially when you leverage buyouts. And we have seen that in 2025, the SG&A was higher because of lawyer, success fees, refinancing. And hopefully, going forward, our interest costs in '25 should go much lower, that is because there's no more bridge because we are changing expensive or more expensive bank debt sometimes with Chinese leasing and other cheaper, I would say, instruments. Frode Morkedal: Right. So is it fair to assume that you would probably wait for the bond maturity or some type of refinancing before you step up the dividend payments, even if you are probably approaching 50% earlier than this, right? Ludovic Saverys: I think the decision of the Board of the $0.16 that we paid today is testimony that I think we can do both paying dividends, both delevering and both continuing to delivering all the newbuilds. Frode Morkedal: Great. Final question is on NAV. What do you see about investment opportunities, specifically newbuilds, I guess. For example, in tankers, I mean, I'm hearing it's starting to get tempting to start ordering VLCCs, right, because you can order at $120-something million and the prompt resale is $40 million to $50 million higher. So that type of, let's say, [ arm ] is opening up and maybe that is interesting. What's your view? Alexander Saverys: Our view is that the ship you ordered today at $120 million, delivers in 2029. So today, it might look cheap. In 2029, it might look very expensive. Right now, Frode, we are not actively pursuing tanker newbuilding plans. We are, of course, opportunistic. We will look at any possibility that comes across. But right now, right now, we'd rather enjoy the spot market and not order any tankers. Enya Derkinderen: The next one is Petter Haugen. You may now unmute and ask your question, please. Petter Haugen: In terms of -- well, I suppose then turning through this question upside down. You still have tankers, although now it's predominantly Suezmax tankers, obviously. Would you consider to sell some of those in order to, well, do the combination of further paying down debt and dividends? Alexander Saverys: Yes, Petter. Look, the first thing we wanted to do over the last 1.5 years is to sell our older vessels. I think we've done a good job at that so far. So obviously, we still maybe have 1 or 2 older vessels that could be up for sale. The second thing is if we see an exceptionally high price for any asset, we will always look at it. Look, trading ships, buying and selling ships is part of our business. And where we like to keep our younger vessels, we will never say no to a very high price. Do we need it to deliver? No. That I would say, I think the heavy lifting on delevering has been done. I think operational cash flows can bring us to a very comfortable leverage over the next 9 months. But we will always be ship traders. If someone comes with a very high price on any assets, we will look at it. Petter Haugen: Understood. And in terms of your dry bulk fleet, sort of the same question there. I suppose we've seen how the market has appreciated your -- yes, your sales and the communicated increase in dividends. So on the Capesize fleet, there are, I suppose, more opportunities still to sell older ships. But is that done now? Or is that still on the table? I know that you say that you sell at the right price. That's true to all of us, I would say. But in light of the very strong tanker market and increasingly strong dry bulk markets. I would -- well, in interpretation of your earlier statements, I would think that you were contemplating to sell more rather than the opposite. Alexander Saverys: No, I think that is not really correct. I think on the dry bulk side, we believe we are not yet where the tanker market is right now. We think this market has a lot more in it, and we would like to let it run. So stay spot exposed unless we find some good charter parties. And as you've seen, we fixed 5 of our Capes for 5 years at what we believe are very good rates or unless, again, an exceptional price comes along. But I don't think we're there yet. So we're very happy with the dry bulk fleet we have now. We have sold some of our older vessels. And now we really want to just enjoy the market for the next couple of quarters. Enya Derkinderen: Now, Kristof Samoy, you can now unmute and ask your question, please. Kristof Samoy: I have 2. One on long-term charters. You've concluded these 5-year charters for your Capesizes. Could you disclose the counterparty? And then secondly, we've also seen in the market that Vale has been ordering quite some newbuild VLOCs. Would your Newcastlemaxes have been competitive for the trade? Or were they particularly looking for 400,000 deadweight ton plus vessels for the transportation? That's the first bulk of my question. And then secondly, on the U.S. Maritime Action Plan proposal. I recall when we discussed USTR and the impact or the potential impact of USTR in previous calls that you indicated that the impact would be fairly limited because you have little port calls in the U.S. Does this logic still apply to the now proposed U.S. Maritime Action Plan? Or are there like substantial differences there that you see for CMB? Alexander Saverys: Okay. Thanks, Kristof. So first, the counterpart of the charters, that's confidential. So we are not disclosing that, but it's a very good counterpart. On Vale and their large ore Valemaxes, typically, what they like is to do very, very long-term deal at very, very low returns. That's not something we like. Could our Newcastlemaxes have completed, of course, but then we would have accepted a very, very low return. That's usually these large projects, and we leave that to some of the specialists in Asia. And our relationship with Vale on the spot market is still there. We do business with them with our Newcastlemaxes. On what is happening in the U.S., Kristof, you will agree with me that the only thing we know is that we don't know. Things are changing by the day. When you say that we don't have a lot of port calls in the U.S., that's actually not true on the tanker side. Don't forget, we do quite a lot of business with our tankers in the United States. But under the USTR and all the other regulations, we would have been exempt anyway because energy was going to be exempt. The new package that is there, it's too early to assess what the impact would be on our business. Enya Derkinderen: Climent Molins, you can now unmute and ask your question. Climent Molins: I wanted to follow up on Kristof's question on the Capesize charters. Could you disclose the rate on the contracts? Or is it confidential as well? And secondly, what's your current stance on potentially adding more coverage based on your forward outlook on the dry bulk side? Alexander Saverys: Yes. Thank you, Climent. So no, again, we can't disclose the rate. But I think if you look into broker reports, how they quote a 5-year Cape rate, and add a little bit to that because our vessels are more modern and better than what brokers are quoting, then you're probably in the ballpark. But so unfortunately, we cannot disclose the rate. Would we look at taking more coverage? Yes. Answer is yes. We have said this in this call many times. We think that, ultimately, we want to create stable cash flows in our company. We will not do it at any price. But when markets move in the kind of zones we are now, we will actively engage with our customers to see whether we can take more long-term cover. Climent Molins: Makes sense. And I also wanted to ask about the dividends on the gains on sales. I assumed a few minutes late, and you may have already touched upon this, but is it fair to assume you'll declare a dividend on that front on both Q1 and Q2 based on the reported gains? Alexander Saverys: The answer is definitely on Q1. And again, if you take back full discretionary dividend policy, I think every quarter, we look at it. We had a very good Q4 quarter. We were able to achieve a lot of the internal check the boxes to reinstate, I would say, a somewhat higher dividend than before. So the $0.16 was purely on Q4. Q1, we have already $270 million profit, which we announced our intention to pay a dividend on it. So that will be decided and confirmed, I would say, on that part in the May earnings release for Q1. And as the market continues, as we continue probably to shift from sales to really operational cash flow and take out the remaining parts of the new build program and the bonds, it frees up a lot more capacity for dividends. But again, we're not going to commit to a fixed percentage. I think it will be quarter-by-quarter that we look at, but it's fair to say that it all looks pretty good. Enya Derkinderen: We have 2 more questions in the Q&A. So the first one is, do you expect Sinokor?behavior to trigger a regulatory reaction? Alexander Saverys: I don't know. You should ask Sinokor. Enya Derkinderen: And then the second one is, what are your expectations on framework changes after the European Industry Summit? Alexander Saverys: I think the theme of that summit was more the industry based on land and not specifically on the maritime side. But I do think it's great that our politicians are aware that if we want to make sure that prosperity continues in Europe, we need to change certain things. And that can only help our vibrant maritime industry, which, as you know, is very strong here in Europe. Enya Derkinderen: We have one more question live. [ Victor ], you may now unmute and ask your question. Unknown Analyst: I had a quick question regarding your leverage. Do you intend to lower it back to pre-2025? Or do you have a figure in mind on the leverage you're looking for? Also on the equity ratio, you haven't moved a lot on this part. And just wondering how far you are within your covenants? And last question, can you give us more flavor on the recent cooperation you signed with China for your new project there? Ludovic Saverys: Yes. [ Victor ], thanks for the questions. On the leverage, we have a target of 50% loan-to-value. I think we're not far off. If you would take today's value, especially with the increase in tankers, we're there or thereabouts. I think it's about making sure that combined with the long-term cash flows that you have, but also the opportunities you see. I just recall, we did increase our leverage quite dramatically with the Golden Ocean opportunity. But I think as shareholders, we're all pretty happy that we did. That leverage has reduced. and we're now positioned with another 90 dry bulk ships in what is seemingly a strong market. So we do justify that increase in leverage tactically. The equity ratio, just to remind, we have a pretty low book value, which is, I would say, taking a long success because we buy or order quite cheaply, and we don't re-rate our assets in book values. If you look more towards the value-adjusted equity, which we showed on slide -- on the overview slide, that has, I would say, equity ratio increased quite dramatically with the adjustment on fair market value. The bond covenant of 31% in Q4, you don't have to be a mathematician to see that if you add another $370 million of profit in Q1, Q2 on fixed sales. I think that covenant is high and dry definitely until the maturity of the bonds in September. And so we mentioned that we will probably not issue a new bond to just pay back at maturity. So we're good in all covenants, by the way, and you'll see that in the audited financials end of March. Alexander Saverys: And then Victor, to answer your question on our investments and our joint venture in China. You know that we are building ammonia-powered vessels that will deliver this year. We have secured an offtake of green ammonia in China. And we have also invested in a company that provides the logistics for that ammonia, bringing the ammonia from the factory where it is produced to the tank and from the tank with a bunker barge to our ship. So that is the nature of our investment there. Ludovic Saverys: And for everybody, we mentioned this, this is quite a small investment. We took a stake to better understand, to better control that logistics and to see how that is developing. But we we're talking a couple of tens of millions, but definitely not a huge investment. Unknown Analyst: And last question, if you allow me this. Do you have a target on the EU ETS price? Alexander Saverys: That I want to pay or that I want the market to go to. Unknown Analyst: That you want the market to go to for your investments to be more interesting for our customers. Alexander Saverys: It's a very good question, Victor. Of course, the higher, the better because then there will be more incentive for people to use our assets in European waters. Okay. Thank you, Victor. Enya Derkinderen: Okay. Then Quirijn want to ask a question. You can now unmute. Quirijn Mulder: Quirijn Mulder from ING. You sound quite optimistic about the wind offshore market. Can you maybe give some idea about the utilization and let me say, the future prospects? Let me say, is it more what you see from your order book? Or is it more what you see in the market happening? Maybe you can elaborate a little bit on that. Alexander Saverys: Yes. So I think the optimism comes from 2 sides. The first side is purely related to the wind and the new parks that will be developed in the next 3 to 4 years. As you know, a lot of projects over the last 2, 3 years have been either halted or delayed. What we do see is that certain projects are still coming through in the North Sea, which will create additional demand for offshore wind supply vessels. But we're also optimistic Quirijn because our assets that we are deploying for wind parks can also be deployed in offshore oil and gas markets. There, the fleet has been aging, has not been renewed sufficiently. The quality and the comfort of the assets in the oil and gas markets is much less than the ones in the wind markets. So our assets that are suited for wind are actually in very high demand to serve the oil and gas markets. And what we're trying to do over the last 6 to 9 months is basically to make sure that our ships can earn good money in oil and gas. And then once they have done their job, their transition to better wind markets. Quirijn Mulder: Okay. But let me say the contract size is very different in wind compared to oil and gas, as you might know. So wind in general is longer, more -- let me say, more -- takes longer time, especially. And oil and gas short time, short time contracts, et cetera. So... Alexander Saverys: That's not really true. You see long-term contracts in oil and gas and you see spot contracts in wind. Our CSOVs have been ordered to operate on the spot market first. And as and when we see longer-term contracts, then we go for it. What we have not done, unlike some of our competitors is order these vessels with a charter attached because there the charters were very, very low paying. Ludovic Saverys: It's a little bit the similar analogy with the Vale contracts that, yes, there are certain peers that accept not the IRRs we would accept. And hence, with the balance sheet that we have, the strength we have, the knowledge in the market, we order speculatively spot based on long-term fundamentals and then wait a little bit until, as Alex mentioned, we see good long-term contracts as we've done on the second CSOV, which is actually quite profitable contracts over 3 years. Enya Derkinderen: I think this concludes the questions. Alexander Saverys: Okay. So I'd like to thank everyone for dialing in today. Thank you for your questions. Thank you for your attention. You know that if you have any other questions, we are here to answer them. Do reach out to us if you have any further questions. And I look forward to speaking to you on our next call. Thank you very much. Bye-bye.
Operator: Thank you for standing by, and welcome to The E.W. Scripps Company's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Carolyn Micheli, Head of Investor Relations. Please go ahead. Carolyn Micheli: Thank you, Latif. Good morning, everyone, and thank you for joining us for a discussion of The E.W. Scripps Company's financial results and business strategies. You can visit scripps.com for more information and a link to the replay of this call. A reminder that our conference call and webcast include forward-looking statements based on management's current outlook, and actual results may differ materially. Factors that may cause them to differ are outlined in our SEC filings. We do not intend to update any forward-looking statements we make today. Included on this call will be a discussion of certain non-GAAP financial measures that are provided as supplements to assist management and the public in their analysis and valuation of the company. These metrics are not formulated in accordance with GAAP and are not meant to replace GAAP financial measures and may differ from other companies' uses or formulations. Reconciliations of these measures are included in our earnings release. We'll hear this morning from Chief Financial Officer, Jason Combs; and then Scripps' President and CEO, Adam Symson. Here's Jason. Jason Combs: Good morning, everyone, and thank you for joining us. This marks our fourth consecutive quarter of reporting financial results that met or exceeded expectations on nearly every reporting line. Our growth strategies around network streaming distribution and Scripps Sports are helping us outpace local and national peer companies, supported by strong sales execution and disciplined expense management. I'll recap our fourth quarter 2025 results in a moment, but first, I wanted to touch on a few important activities we've undertaken since our last reporting period. On February 11, we announced a transformation plan to grow enterprise EBITDA by $125 million to $150 million by 2028. Our plan balances rightsizing our current expense structure with implementing new ways to grow revenue and profitability. The EBITDA improvement is one aspect of our larger company transformation plan, which Adam will discuss in a few minutes. You'll start to see the financial benefits of our plan in the second half of this year. We expect total in-year EBITDA impact of $20 million to $30 million and to go into 2027 with an annualized run rate of $60 million to $75. We expect the benefits to contribute to a significantly improved leverage ratio by year-end. This plan builds on the work we've already done to improve our division margins in recent years. In fact, for 2025, we exceeded our guidance for margin performance in the Scripps Networks division. We guided to 400 to 600 basis points of expansion over 2024 and delivered nearly 700 basis points. In the Local Media division, we kept expenses down despite new partnerships in valuable and growth-driving sports rights. In another strategic move to improve margins, we are exercising our option to reacquire 23 TV stations affiliated with ION that we had to divest when we bought the network 5 years ago. We anticipate the aggregate purchase price to be about $54 million. The transaction allows us to expand our already sizable spectrum holdings. After close, we will no longer be paying the owner of those stations affiliate fees. So acquiring these station assets will be immediately accretive to the Scripps Networks division segment profit and margins. We will seek waivers for the transaction under the FCC's current television station ownership rules. On February 9, we announced the sale of Court TV, which did not require regulatory approval and closed on that date. This transaction reflects our disciplined approach to capital allocation. We've monetized an asset while also securing a multiyear spectrum lease that instantly improves our operating performance. The transaction is immediately accretive to the Scripps Networks segment profit and division margin. The divestiture reflects Scripps' practice of growing businesses and then making strategic decisions about how we unlock the greatest value. We also were pleased to find a fitting owner in Law&Crime, founded and run by ABC News Chief Legal Analyst, Dan Abrams. On the local media M&A front, we are progressing towards closing on our station swaps with Gray and the sales of WFTX in Fort Myers, Florida and WRTV in Indianapolis. Gross proceeds from the Fort Myers and Indianapolis sales will be $123 million. We expect Fort Myers to close in the coming weeks and Indianapolis to follow soon after, pending FCC approval. We're also optimistic about closing in the coming months for the Gray Stations transaction. All of this acquisition and divestiture activity with the stations, the ION affiliates and the sale of Court TV support our strategy of evaluating and maximizing the value of our assets, improving margins while reducing our debt and leverage ratios. Now let's review fourth quarter financial results, and then I'll share some guidance for the first quarter and the full year. During the fourth quarter, our Local Media division revenue was $360 million, down 30% due to the absence of political advertising revenue compared to the prior year. Core advertising, however, was up 12% for the quarter. Let me repeat that. Core was up 12% in the quarter. All 5 of our top categories grew year-over-year, including our largest services at 19%. Gambling was up 32%. Our local sports strategy is a key contributor to our core advertising growth, and it's not just the addition of the Tampa Bay Lightning this year. We also saw continued strong revenue growth during Q4 in our existing local sports markets, Las Vegas, Salt Lake City and South Florida. Local Media distribution revenue was down 1.6%. Expenses for the division were down about 1% year-over-year. Local Media segment profit was $50 million compared to $199 million in Q4 of last year's political cycle. For the first quarter, we expect Local Media division revenue to be up low to mid-single digits. The big story here again is growth in core advertising revenue, which we expect to be up in the mid-single-digit range. In addition to the live sports strategy that also helped drive fourth quarter growth, we have the benefit in Q1 of the Winter Olympics and the Super Bowl on our 11 NBC stations. In the back half of 2026, we expect Local Media division revenue to grow through record midterm election spending. In the 2022 midterm election, we took in about $200 million. This year, we're expecting strong spending in our markets due to U.S. Senate and gubernatorial races in Arizona, Colorado, Michigan, Nevada, Ohio and Wisconsin. We also are encouraged by ad impact reports showing local broadcasters and related media will retain about half of the projected record spending. We expect local media distribution to benefit from about 70% of our pay TV subscriber households renewing this year. For the year, we expect low single-digit growth in gross revenue and low teens percent growth in net distribution revenue as a result of both the top line growth and declining affiliate fees. Turning back to the first quarter guidance. We expect Local Media expenses to be up low single digits. Backing out the new expense for the Lightning, Local Media expenses are down. Now let's review highlights for the Scripps Networks division fourth quarter results and first quarter guidance. In the fourth quarter, Scripps Networks revenue was $199 million, down less than 8% compared to Q4 2024 and well ahead of guidance and the marketplace. Connected TV revenue was up nearly 10% for the same quarter last year and 30% for the full year. The division's expenses for the quarter were down 13% due to lower employee-related costs and operational expense reductions. Scripps Networks segment profit was $64 million, and the segment margin was 32%. For the first quarter, we expect Scripps Networks division revenue to be down in the high single-digit range. We expect Scripps Networks expenses to be down in the low single digits for Q1. Turning to the segment labeled other. In the fourth quarter, we reported a loss of $8 million. Shared services and corporate expenses were $22 million. For the first quarter, we expect that line to be about $27 million. The expected increase is due to higher medical claims and increased insurance premiums. For the fourth quarter, we reported a loss of $0.51 per share. The quarter included a $19.5 million noncash charge for our held-for-sale Court TV assets, $2.4 million in restructuring costs and a $2.4 million loss on extinguishment of debt. These items increased the loss attributable to shareholders by $0.20 per share. In addition, the preferred stock dividend has a negative impact on earnings per share even when we don't pay it. This quarter, it reduced EPS by $0.18. Now I'd like to share our full year guidance for a few below-the-line items. For 2026, we expect to pay cash interest of between $180 million and $190 million, cash taxes of $15 million to $20 million, capital expenditures of $60 million to $70 million and depreciation and amortization of $140 million to $150 million. We also are required to make a minimum contribution of $4.5 million to our pension plan this year. On December 31, we had no borrowings outstanding on our revolving credit facilities. Cash and cash equivalents totaled $28 million and net debt was $2.3 billion. Also during the quarter, we paid down $55 million on our B2 term loan. Net leverage at the end -- at year-end was 4.8x per the calculations in our credit agreements. Looking ahead to the end of 2026, I expect a meaningful reduction in our net leverage ratio as we execute our plan to improve EBITDA and reap the benefits of a robust midterm election cycle, our Scripps Sport strategy and accretive M&A and pay down debt. Improving the balance sheet and reducing both our debt and leverage ratio remain our highest capital allocation priorities. And now here's Adam. Adam Symson: Thank you, Jason. Good morning, everybody. We were very pleased to close out 2025 with strong financial results that have again met or exceeded expectations across the board. We delivered these results by doing exactly what we said we'd do, getting more from the assets we have, our local stations and our networks and executing with focus and discipline. What does that look like? Well, in the Scripps Network division, we exceeded our full year 2025 guidance by delivering nearly 700 basis points of year-over-year margin improvement. This success was driven by our live sports strategy, our streaming revenue initiatives and disciplined expense management. In Local Media, expenses remained flat for the year even as we brought on new growth-driving local sports rights. We've kept expenses down partly by driving down network affiliate fees, reflecting a fundamental shift in the network affiliate dynamic that we expect will continue working in our favor. Now we're building significant momentum for 2026. This year, we expect our financial performance to be buoyed by record midterm election spending, local sports partnerships that are driving industry-leading core advertising performance, national professional sports on ION, the Winter Olympics and the World Cup, continued connected TV revenue growth that outperforms the market and accretive M&A. Two weeks ago, we announced an enterprise-wide transformation plan designed to improve operating performance and unlock new value. As part of that plan, we will grow our enterprise EBITDA run rate by $125 million to $150 million by 2028. We'll achieve this improved EBITDA through cost savings and just as importantly, through revenue growth initiatives. We're leaning hard into the opportunities that technology, AI and automation can deliver to how we operate, the tools we use in our work and the revenue we generate. But we also are being thoughtful. After much research experimentation and testing in the space, I can confidently say that this shift will enhance revenue and not diminish the quality nor the quantity of our work. On the contrary, making full use of technology is exactly what is necessary to modernize and improve it and to ensure we can stay committed to American audiences and advertisers. While we're now unveiling our plan for investors and sharing quantifiable targets for financial models, we actually launched this effort a year ago. Last summer, we consolidated and centralized every technology, engineering and IT function in the company to enhance efficiency and efficacy. We knew those changes had to be a precursor to this plan given the role AI, automation and technology will play in our future. The plan we are now executing will improve EBITDA by nearly 1/3, taking full advantage of opportunities for efficiency. But make no mistake about it, this is not about contraction, it's about growth. For Scripps, it has always been about growth. This company was founded nearly 150 years ago. Our founder, E.W. Scripps, was a savvy capitalist who understood from the outset that doing well and doing good weren't in conflict at all. Rather, they were critical to each other. E.W.'s entrepreneurial spirit has often driven this company to take a contrarian approach to the marketplace and investors have benefited. For the entirety of our history, we have leaned into opportunities others overlooked, starting with the company's founding when E.W. built a newspaper empire directed at the working class, a segment of the population that had been mostly ignored by other newspaper, [ barons ] of its time. That customer-first approach has continued into more modern times such as when we were laying coax cable in the ground, even as skeptics said no one would pay for television. And when we built HGTV and the original Scripps lifestyle cable networks, while peers focused on their high-margin newspapers. More recently, combining the Katz networks and ION allowed us to diversify away from retransmission revenue, increase the revenue yield on our spectrum and move into the burgeoning marketplace of streaming. The networks business has allowed us to use ION stations to capitalize on our unparalleled reach with the collapse of the regional sports networks and to carve out a leadership position in women's sports, all of which is fueling the revenue growth performance differentiating us today. Now you are witnessing yet another Scripps inflection point that builds upon this recent success. Whereas in E.W. Scripps' Day, information, news and entertainment were scarce, today, they are abundant. What is scarce is real human connection. Scripps is uniquely positioned to create value through a fundamental reorientation around what is becoming our company's greatest role in society today. That is during a time of political polarization, disinformation and discord, when Americans feel -- report feeling increasingly isolated and alone, we see an open lane for economic value creation by embracing the mission to help Americans make authentic personal connections. Today, Scripps operates in the parts of media where the opportunity for connection is real and shared, local communities, live sports, trusted journalism and entertainment brands that still gather audiences across generations. These are environments that drive engagement, deliver measurable outcomes for advertisers and create durable customer and consumer relationships. Because of our company's long-standing reputation for independence and community stewardship, we are uniquely positioned at this moment to deliver what Americans need most, a coalescing sense of purpose and connection. Through our local neighborhood news strategy, we are connecting people to one another and to the communities where they live. Our sports and entertainment programming is connecting people to their passions, to their favorite teams and to one another through meaningful experiences. Our advertising products are moving past aggregating eyeballs to connecting brands and businesses with the valuable customers they seek. And we're both growing and identifying new business opportunities similarly centered on the consumer and connection. Our transformation strategy has 2 major elements. First, we're going even further to improve our operating results. This is the EBITDA growth that I discussed earlier. It's the accretive M&A and portfolio optimization we've been undertaking as a result of the long overdue changes in the regulatory environment, and it's the continued focus on improving our balance sheet. Becoming more efficient, leveraging technology, AI and automation and consolidation-driven M&A are crucial to creating shareholder value, but they're not paths to organic growth. In some cases, they're merely short-term financial engineering. And so the second aspect of our transformation, we grow organically. Our new company vision, we create connection is opening up opportunities that are both adjacent to our current businesses and outside of them where we have a right to win. We expect both adjacencies and greenfield opportunities to produce benefits to the bottom line. For a good example of this strategy, look at what we're already doing with Scripps Sports. I defy you to come up with anything in this country that connects people to each other and to their communities right now more than live sports. When audiences, advertisers, teams and leagues all told us that they were navigating distinct challenges in the fragmented media marketplace, we leveraged our unparalleled reach with linear television and streaming to solve their problems, moving us into an entirely new marketplace that is creating the revenue growth and our earnings that you're not seeing with our peers. That's a straight line between our focus on connection, the customers' problems to be solved and economic value for Scripps shareholders. Our company is palpably energized by the opportunity. Several weeks ago, we gathered more than 200 Scripps employees together to begin executing this transformation plan. And in the weeks since, the circle has been steadily expanding. Our colleagues across the country are engaged in this work and are excited by the opportunity to drive this important company further, faster and into the future and so am I. The next few years will be pivotal as we accelerate our momentum. So I'm grateful that the Scripps Board has decided to extend my contract until the end of 2029. I have the collective creativity and talent of nearly 5,000 colleagues behind me. I believe deeply in our ability to execute yet another Scripps transformation, and I am committed to seeing it through. And now, operator, we're ready for questions. Operator: [Operator Instructions]. Our first question comes from the line of Dan Kurnos of Benchmark StoneX. Daniel Kurnos: First, Adam, let me just say congrats on your extension. You've obviously shepherded the company through a lot of turbulent times. So I think well deserved for you. So with that, I guess 2 questions. First, just on the broader environment, Adam, you've always said and you clearly have demonstrated so far that you're open to unlocking value for shareholders, a lot of moving pieces here with both acquisitions and divestitures. Do you think it's change? Like how are you contemplating in sort of the -- we're running tangent here. We've got a transformation plan. But if the FCC eliminates the cap and then we see Nexstar- TEGNA close, does that change the landscape in the way that you think things will maybe fall into place or other opportunity sets that could come about? And then I have a follow-up. Adam Symson: Yes. Thanks, Dan, and I appreciate the kind words. From my perspective, transformation actually positions us better for the possibility of participating in M&A. But as I said earlier, consolidation, which I absolutely think is an opportunity and necessary is financial engineering. And what we're after, what even a post-consolidation Scripps would have to be after is organic growth. Relative to M&A, it's important to note, we've been active in the M&A marketplace from the outset, executing our plan to improve the performance of our portfolio and to improve the balance sheet. Every deal that we have announced has either put cash in our pocket or it will increase segment profit and some benefit both. I'm referencing the announced sales of the 2 stations at premium sellers' multiples, the Gray swap, the sale of Court TV, the acquisition we announced today of more than 20 stations from INYO that will fold into our networks portfolio and increase segment profit margins. And honestly, I don't think this work is finished. I think we'll continue to look for opportunities to optimize our portfolio and take advantage of changes to the regulatory environment. Daniel Kurnos: So with that said, Adam, I think you gave a couple of examples of how you plan on driving organic growth, but where will we see that? How long will it take to achieve? You've done great things with CTV, for example, and ION. Obviously, local sports and women's sports has been a driver. I assume you're not going to give us the road map on some of the adjacencies or even sort of some of the tangents given for competitive reasons, but is there any way for you to help us think through when we start to see some of these changes and to what degree and any other incremental examples you could give us besides the one you gave in your prepared remarks? Adam Symson: Yes, absolutely. I mean, look, I think the growth is going to come from both work that we're doing to enhance the yield on our current businesses and from new opportunities we're seeing in extensions and adjacencies to the businesses we're in now as well as new marketplaces of opportunity where we have the right to win. The platforms we have that we own today are so powerful. We see massive opportunities to leverage them to grow enterprise value, significant opportunities ahead. I would also say there's significant top line upside from things like revenue yield management, improvements to seller productivity and accountability and additional centralized decision-making. This business has traditionally been, I would say, slow to adopt technology in the back office and the front office, this industry. And there's been a fundamental shift in the way technology opens up that opportunity, and we're going to change that tradition at Scripps. We're going to really lean into that opportunity to both improve the efficiency of the business, but also improve the yield that we drive from our current assets while we explore and then move after other growth opportunities that we expect to be focused on bottom line improvement. Operator: Our next question comes from the line of Michael Kupinski of NOBLE Capital Markets. Michael Kupinski: A couple of questions. You mentioned some key advertising categories were driving core, and congratulations on a very strong core in the fourth quarter. I was wondering how some of the more interest-sensitive categories are performing like auto and some of the housing categories are performing in the first quarter. If you can just kind of give us a sense of how that's performing in the first quarter. Jason Combs: Yes. And so we guided to core up mid-single digits in the first quarter, and we saw January start pretty strong, 4 of our top 5 categories were up in January, 2 of them actually up more than 10% and so there are some categories you mentioned, for example, home services type categories that maybe is a little bit weaker right now. But services, our largest category, continues to be strong. Gambling has been strong and automotive has showed some relative strength as well. Adam Symson: I would also add, Mike, besides the category level view, first quarter, particularly in local, is starting off very strong as a result of the sports partnerships that we have and the upside we have to continue the growth we saw in the fourth quarter with those partnerships. Jason Combs: Yes. And I think an important point there, and we mentioned in the [ script ], but I want to reiterate it, it's not just the addition of the Tampa Bay Lightning, which is a new contract for us, every one of our NHL deals in local is growing in the first quarter versus the prior year. So we're not only winning the deals, but we're continuing to grow them once they -- once we win them. Michael Kupinski: Got you. And then in terms of political, I know that in the last cycle, we had such strong political that political is being booked in advanced. And so I was just wondering how much visibility do you have in Q2 and Q3 in political advertising at this point? Adam Symson: Thanks, Mike. Yes, I mean, we're looking at the races. The portfolio -- our portfolio lines up quite nicely. We have 16 governors' races, 7 of them, I expect to be highly competitive. There are 6 states and 26 U.S. congressional house races that are expected to be pretty competitive. As it relates to the U.S. Senate, I'd say we have a couple of very competitive races, notably in Kentucky to replace Mitch McConnell and the special election that will be taking place in Ohio to replace JD Vance. The good news is broadcast is going to take the lion's share with projections of about 51% of total political spend going to broadcast. But I think it's also really important to point out that Scripps is not built like other local broadcasters because of our network businesses and the success we have in connected TV. So we're also competing in a really meaningful way with our CTV inventory and that's also going to benefit us during political years. For example, during January, we already saw significant activity in political on CTV with the bulk of that spend concentrated in Texas, Kentucky, North Carolina and Illinois. So we're taking dollars out of some of the markets today that we don't even have local broadcast in. So when you think about our opportunity in political, it is going to be reflected both in linear with local broadcast and a very strong year with linear political as well as CTV. Michael Kupinski: Got you. And then in terms of your targeted $125 million to $150 million in annualized EBITDA growth, can you break down how much of that is expected to cost savings versus revenue initiatives? And then also, can you break down that between the segments? Jason Combs: Yes. So Mike, we are looking across sort of each and every revenue and expense line. I don't think we're going to provide a breakdown of exactly how that's going to hit. But I will tell you, you're going to see an impact across the enterprise. Each segment, corporate, there's a focus both on the revenue side, as you said, revenue growth, improving our yield, identifying adjacencies, identifying greenfield opportunities, but also looking at operational efficiencies within our workforce, third-party spend, all of those sorts of things. I mean we are turning over every rock here. Adam Symson: Yes. Just a little additional commentary. That number, $125 million to $150 million, that's a bankable plan. I think you can take that to the bank as far as I'm concerned. And that should give you a sense as to what the split looks like. I do think there's going to be significant top line opportunity and growth as a result of this transformation, as I talked about. This is a growth oriented transformation as we reorient the company towards our new vision of we create connection. But the EBITDA improvement will absolutely be bankable. Michael Kupinski: Got you. And so Adam, if I hear you correctly, then if there were, let's say, other disruptions and things like that, that you would then look at further cost reductions to achieve that target? Is that what I'm hearing? Adam Symson: I'm not sure I understood. Michael Kupinski: Like in other words, like if there were -- if we did go through, let's say, some disruptions in the economy and things like that, that you're saying that the $125 million to $150 million is bankable in terms of achieving that goal, that you would look at other cost reductions to achieve that? Adam Symson: I am very confident in the $125 million to $150 million target. Just to like sort of frame it up, we've spent months examining every opportunity in every corner of the business and the company, the front office, the back office. As I said, I'm confident we'll deliver on the EBITDA targets and be a stronger, more nimble and more aggressive company. This is not some sort of notional plan. This is a well laid out and executed plan. Operator: Our next question comes from the line of Steven Cahall of Wells Fargo. Steven Cahall: A few more on the transformation plan. Maybe first, Jason, the $20 million to $30 million that you talked about for '26, is that a run rate number? Or do we think about that as the actual contribution of EBITDA dollars that are additive to like a base case for 2026. And Adam, I mean, this is a massive undertaking. It's very ambitious. I think it's like 30% additive to EBITDA, and you talked about how it's bankable. How do you just think about some of the risk of revenue impact? I mean I imagine a lot of these things either touch current employees, maybe even spook sometimes a little bit of employees in this age of AI disruption. So how do you go about managing the employee base to make sure that everyone is able to execute against this and you don't face any of that? And then I just have a quick follow-up on M&A. Jason Combs: Steve, I'll go first. So the $20 million to $30 million is the in-year impact. So it's additive to '26 and any baseline model you have there. The run rate annualized savings we would expect as we exit the year this year is $60 million to $75 million. Adam Symson: Yes, Steven, I mean, there's no question this is a really ambitious undertaking. But I'll tell you, we have engaged employees across the company in the process. This is not a top-down process. This is a bottoms-up process that has really given many of our employees a tremendous sense of agency. And so there's a lot of energy in the company to get this done. Does that mean everybody is on board with the changes? Of course, not. But I think the vast majority of our employees recognize that this company is just really, really important to our stakeholders, not only our shareholders, but the communities that we serve as well as, frankly, our democracy at this time. And they are bought into this role that we can play in our society. Over the last couple of years, we have already been aggressively upskilling our employees relative to the use of automation, technology and AI. On nearly every town hall I'm on, I talk about the importance of employees upskilling and the role that technology is going to have, not only in this company and not only in this industry, but more broadly in the environment, the workplace environment overall. And that's really a part of, I would say, the consistent approach we've taken to working with our employees to communicate with them with candor and with compassion. And so I feel really good about the behavioral change that will come as a result of this transformation. This isn't just a transformation of workflows, processes, this is actually a transformation that will see us evolve a much more nimble, aggressive and competitive company where our employees are both combining a level of accountability and performance orientation as well as sort of the mission approach that Scripps has always been known for. So I feel really great about our employees and their engagement in this process. Steven Cahall: Great. And then just on the M&A front, I mean, I know we don't like to talk about sort of theoretical things that may or may not happen. You had a very specific situation over the last few months. I get the impression that the way Sinclair came wasn't necessarily the way that the Board or management would like to engage. But I get the impression that after a proposal, things have kind of now ended. So I guess, is that correct that they've ended? And can you talk about maybe why there isn't scope for more engagement around that potential transaction? Adam Symson: Yes. Look, back last year, the Scripps Board of Directors made it clear that Sinclair's proposal wasn't in the interest of all Scripps stakeholders nor shareholders, and they rejected the Sinclair acquisition proposal. Nothing new has happened since, and I really don't expect it to. Operator: Our next question comes from the line of Craig Huber of Huber Research Partners. Craig Huber: My first question, can you talk about the cost savings plan here you have. Can you talk about -- give me some examples, if you would, please, about how AI is going to help you save costs, improve your product, et cetera? Just give us some examples on that front, please. Adam Symson: Sure, Craig. So look, there are both significant top line and expense side opportunities using technology and AI. On the expense side, I think opportunities include additional centralization and automation, leveraging cloud computing for production workflows, enhancing news gathering, marketing operations and enhancing external spend. Again, 2 important points to be made about these examples. These aren't broad themes or broad brush sort of ideas. They're plans with real business cases. And that's how I have the confidence to know that we're going to execute on that $125 million to $150 million in EBITDA improvement. Second, I believe strongly that the cost savings will actually improve our product because I think we're going to bring greater efficacy, more agility to the company. Both content and advertising will be improved. And I think it's going to improve our service to audiences and advertisers and, of course, improve our opportunity for top line value. Going back to Steven's question, I make sure I answered it clearly. I don't see this in any way as diminishing top line value. I see this as actually enhancing top line value. Craig Huber: And then when you say helping with the news gathering, just go a little bit deeper on that, please, and the content, just how AI is specifically going to help you on that front, please? Adam Symson: Yes. Look, over the last couple of -- yes, sure. Over the last couple of years, as fragmentation has proliferated and people have turned to more and more platforms for their news and information. We have continued to ask our employees to do more with less. And that has diminished the quality of our product. AI opens up the opportunity for us to actually ensure that our reporters, our field journalists are spending their time doing that which they got into the business to do, actually report to ensure that they are connecting with the communities that they serve, to ensure that they are speaking directly to our consumer, to ensure that they're actually able to attend the news events and not have to rush off in order to then post something on the web and then immediately put something on social media and then do 4 live shots and -- so using AI in order to care for some of those things is already opening up opportunity for our journalists to spend more time doing journalism and less time doing what I would characterize as some of the performative aspects or the distribution or production aspects of their job. We want them creating the content. That's where the value is, that's what differentiates us from the commodity news and information that's out there. We don't want them spending their time rewriting broadcast scripts into an AP-style story that can go on the web. There's technology that can care for that, and we are already using it. Craig Huber: Great. I appreciate that. And then talk to us, if you would, please, about your expectations maybe for the timing of possibly getting rid of the 39% ownership cap and maybe also maybe touch on where do you think things are at now in terms of down the road here being able to negotiate with the virtual MVPDs on your own behalf as a local TV station operator as opposed to relying on the networks. What do you think the path is to get that fixed to get it resolved? Does it have to go through Congress or can the FCC do it on that second point? Adam Symson: Yes. Well, I mean, I think that you asked 2 different things. I'll talk first about maybe my view on the cap. Look, I think the FCC recognizes that local news, local sports and local programming now entirely depends on the durability of local television, right? The newspapers are just a shell of what they are. And standing in the way of that durability are the rules that essentially prevent consolidation, both in market and nationally. So we think lifting of the cap and consolidation is necessary to compete on an equal playing field with the national diversified media companies, frankly, to give us the leverage necessary with the networks that are already using their leverage essentially to impair our ability to serve local communities. And I think the Chairman rightly recognizes that using their economic leverage to control the local airwaves is a de facto violation of the Communications Act. And so I believe that the Chairman and the FCC will ultimately rectify that by both allowing limited in-market consolidation as well as lifting of the cap. You heard us announce today that we're acquiring the rest of the stations that we divested when we acquired ION, the INYO stations, that will require a waiver or a lifting of the cap to get done, and I have a lot of confidence that we'll be able to see that through. I believe this commission is acting in a way that will rebalance the marketplace. I don't think it's about favoring one platform or another. I think it's just in a way that's trying to make things more fair so that the American people know that they can rely on local television for generations to come. At the same time, I'm now more optimistic that the DOJ has come to recognize that its approach to the local market definition should evolve because I think the evidence is fairly obvious to anyone who examines it. The net effect should be that the FCC will adopt the courts ruling that strikes down the prohibition against owning 2 big 4s and then the DOJ will recognize what Chairman Carr already has that we don't just compete against local TV stations. We compete for ad dollars in a crowded and a complex video marketplace. And some in-market consolidation is not only okay, it's actually going to benefit consumers because it's going to safeguard journalism in the markets that we serve. As far as the virtual MVPDs, I'm not sure that, that's top of anybody's priority list right now from a government regulatory perspective. Clearly, we would be better off and we think that both the networks and the local affiliates would be better off if we were to negotiate directly with the virtual MVPDs. In fact, in some cases, I think the virtual MVPDs and the network relationship is compromised because of cross ownership. So I would expect us to continue beating that drum and I know that there are folks in Congress that agree. I do think it probably takes a reclassification of the virtual MVPDs as MVPDs. But you just saw that happen in Europe. And frankly, I don't think there's any reason why we should differentiate between the delivery of our product over Wi-Fi or coax or broadcast. To me, all the same rules apply, the same copyright rules apply and frankly, so should the same business dynamics. Craig Huber: So just a quick follow-up there. So what do you think the timing is to lift or eliminate the 39% ownership cap? Do you think it might get done here in the next, say, 2 months? Adam Symson: I mean, honestly, Craig, there are people far smarter than I am who -- or better connected than I am who might know that answer. Any answer I gave you would be pure speculation. I think it's in the offering, I think it's coming, whether it's within 2 months, I don't know. My job is to run this company in a way that adheres to the rules of our regulator, and we will continue to do that while recognizing that we have a regulator who is certainly open to doing the things that are necessary in order to benefit the business and rebalance the ecosystem. Craig Huber: Sorry, one last question. Just can you give us a little more meat and potatoes view? What about this ION transaction you're looking to do to pick up these additional TV stations here? What it means for your company, why you're excited about it? Maybe some financial metrics, I don't know if you can go into that detail or not. Jason Combs: Yes, Craig. So just a reminder that we had to divest these stations to comply with the FCC rules back in 2021. And with current regulatory environment, we think it's the right time to reacquire them. The ownership of these stations is immediately accretive from both the segment profit and a margin perspective, plus we also get some favorable tax benefits. So we have -- this transaction will ultimately relieve a significant onetime tax liability we've been carrying on our balance sheet. So when you kind of put all of that together, it just seemed like the right thing to do. There is some regulatory approval, as we said. But ultimately, this deal allows us to see an immediate lift because right now, we're paying an affiliate fee to the INYO party for these stations, which goes away as soon as this transaction is closed. Operator: Our next question comes from the line of [ Shanna Chung ] of Barclays. Gengxuan Qiu: I realize it could be smaller, but could you provide any additional color on the proceeds from the Court TV sale and maybe any economics in terms of multiples there? And then I guess, are you guys looking to sell any other assets like Court TV? Jason Combs: Yes. Thanks, Shanna. So we were really pleased, as we said, to find buyer for such a great and distinctive brand like Court TV. We are not disclosing any specific financial terms. But I will point out the transaction includes both a cash consideration upfront as well as a long-term distribution agreement. So that kind of ultimately created the economic package that we felt was in our best interest to go ahead and execute. Adam Symson: And Shanna, I guess I'd say broadly, we will continue to look at opportunities in the M&A marketplace, particularly in our Local Media division, where we have the opportunity to get premium multiples for noncore assets that we think can both improve the operating performance of our portfolio and help us improve the balance sheet. Gengxuan Qiu: And then just on Scripps Networks. I know in 4Q and 1Q, when you guys don't have the WNBA, there tends to be a bit more pressure on Scripps Networks top line. I think the guide was a little softer than expected even under the seasonality. So just you guys talked about positive commentary on political on CTV and growth in advertising in that channel. I guess, is the guidance based on heavy live sports in the Super Bowl and Olympics in 1Q that diverted some ad dollars in that channel? Or are you seeing increased competition on the CTV side with more and more players adding kind of FAST channels? Jason Combs: Yes, I can take that. So from a Q1 guide perspective, you are correct that networks because of the sports franchises we have there, typically sees a bit more strength in the summer months when we have the WNBA and NWSL. And so as such, I think we would be looking to have probably more favorable guide and comp in second and third quarter. When you kind of unpack the guide of down high singles, there's a couple of things. And one of which I just talked about on the last question is core TV. Core TV is going to create a negative comp for us as we move forward through the rest of this year. So the guide we gave had 5 weeks of revenue for core TV in it versus the prior year, which had obviously the entire quarter. So you have the core TV comp issue there. You also -- we did see some weakness in DR pricing as we entered the quarter tied to kind of just some of the macroeconomic factors that would impact the DR category. And then the last thing is, and it ties back to my comment on sports, we talked quite a bit last year about the upfronts and the fact that the upfront from last year, which is currently rolling through our P&L, generally outside of sports programming was a weaker upfront. And so we saw that reflected in our Q4 results in our Q1 guide. But we are -- we did do really well in the upfront last year tied to our sports properties. So we hope to see that, and we'll see that benefit as we move into the second quarter. Adam Symson: On the FAST front, I would say, yes, there are more FAST channels out there than ever. But frankly, our channels are among the most premium channels in the marketplace. We have terrific partnerships with the distributors. And so we don't expect to see growth abate. I mean I think we've forecasted double-digit growth, and I expect to continue to see that. Operator: Our next question comes from the line of Ken Silver of Stifel. Ken Silver: Just 2 topics. First, on the core advertising guide that you gave for the first quarter, I think you said up mid-single digits. I just want to clarify, does that include the Super Bowl and the Olympics? Jason Combs: Yes, it does. Yes, it includes the Super Bowl and Olympics. We have 11 NBC affiliates. So we did see some benefit tied to those as well as a lift tied to all of our local sports rights, or NHL deals we have. Ken Silver: Got it. So I guess, I don't know if you want to parse it a little bit, like if you excluded the Olympics and Super Bowl, any sense of how much it would be up? Jason Combs: So I don't think we're kind of breaking that out. We did see a strong performance in our Olympics revenue. We were up about 13% versus where we were back in 2022 and saw a bit of a lift on the Super Bowl as well, switching from Fox last year to NBC. But I don't think we're breaking out beyond that level of detail. Adam Symson: I think you also said that our partnerships with live sports on the local level was already seeing significant growth in the first quarter. Jason Combs: Also, which each of our NHL contracts. I mean, Tampa Bay is obviously new in the first quarter, but all of the rest of our NHL contracts are showing nice growth year-over-year in their second and third year with us. Ken Silver: All right. Well, hopefully, you get a bigger lift now after the gold metal. So I hope that goes well. And then just -- I want to just ask you one thing. You mentioned in your prepared remarks about lower reverse comp to the networks. And maybe this is review, but can you just talk about that, why you expect it to be down? Jason Combs: Yes. So we've been talking about that for the last couple of years, I feel like where we -- there was a paradigm shift from affiliate fees from increasing to flattish over the last, call it, 2 to 3 years. And now as we see continued pressure on top line with subscriber churn and frankly, in terms of the product we receive where there's less exclusivity, more -- take the NBA example with NBC, where a lot of that product is available on Peacock, we've been able to successfully negotiate decreases as we move forward on the affiliate fees. And so while we do expect to see some continued growth on our top line retrans revenue, and we guided to kind of up low singles, I think the bigger story is the expectation for declining affiliate fees this year. Ken Silver: Okay. And you mentioned NBC Peacock, but is it with the other networks, too? Jason Combs: Yes. Yes. Operator: We have a follow-up question from the line of Craig Huber of Huber Research Partners. Craig Huber: Just a couple of follow-ups, if I could. Adam, how would you describe the advertising environment right now, say, versus a year or 2 years ago? Do you feel it's any better out there, the environment that you're operating in, both on the Scripps Network side as well as the local TV station side? Just give us some puts and takes on how you're feeling broadly on that front. Adam Symson: I'd say probably the same, and I'd chalk it up to macro uncertainty. In the same way that Wall Street has its days in which uncertainty drives it up and drives it down, I think on the local and the network side, that level of uncertainty, an unclear picture on what tariffs are going to be has had an impact on marketers' willingness to spend and has often resulted in buys being placed later and a little bit more of a murky environment for media. I don't see travesty. I don't see advertising recession as much as I see just general softness. I will say our strategy in sports has been all about acquiring the premium inventory for the must-watch programming that advertisers still flock to. And so when I look at what we've got with respect to ION and women's sports and the way we've been able to leverage that inventory in order to drive value across our portfolio in networks, I think that's been a huge driver of success for us. Likewise -- and you can see that when you compare us to our peers in networks. And likewise, in local, sports has opened up entirely new categories of advertisers and new advertisers that weren't necessarily local television advertisers that come to the table for us with our local sports franchises. So again, while we have seen what I would characterize as sort of a sideways environment, we have been excelling at opening up new opportunity for us and expanding the number of advertisers and the kinds of advertisers we serve because of the strategies we're executing. Operator: Thank you. Ladies and gentlemen, that is all the time we have for Q&A and does conclude today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Perrigo Q4 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 26, 2026. I would now like to turn the conference over to Bradley Joseph. Please go ahead. Bradley Joseph: Good morning, and good afternoon, everyone. Welcome to Perrigo's Fourth Quarter and Full Year 2025 Earnings Conference Call. A copy of the release we issued this morning and the accompanying presentation for today's discussion are available within the Investors section of the perrigo.com website. Joining today's call are Perrigo's President and CEO, Patrick Lockwood-Taylor; and CFO, Eduardo Bezerra. I'd like to remind everyone that during this presentation, participants will make certain forward-looking statements. Please refer to the slides for information regarding these statements, which are subject to important risks and uncertainties. We will reference adjusted financial measures that are non-GAAP in nature. See the appendix for the earnings presentation for additional details and reconciliations of all non-GAAP to GAAP financial measures presented. Finally, Patrick's discussion will address only non-GAAP financial measures. Now to the agenda. We have several topics to cover today. Patrick will first walk through a market overview and summarize fourth quarter and full year 2025 results. We will then cover our continued progress on the Three-S Plan and our transition to new reporting segments, which will begin in the first quarter of 2026. Finally, to walk through our 2026 outlook, after which Eduardo will cover 2025 segment highlights, balance sheet and capital allocation, our operational enhancement program and close out with further details of our '26 outlook. And with that, I'll turn it over to Patrick. Patrick Lockwood-Taylor: Thanks, Brad. Good morning, good afternoon, and thank you for joining today's call. 2025 was a year of meaningful progress for Perrigo. We continue transforming the company into a world-class consumer health leader, and the results of that work are increasingly visible in the marketplace. We are winning with consumers and customers, and that momentum is reflected in the strong market share gains and incremental business we secured with key retailers. These wins are a clear sign that our strategy is embedded and delivering. Despite a soft market environment, we delivered EPS in line with our revised guidance, a solid improvement versus the prior year. And we made strong progress on our Three-S Plan to simplify, streamline and strengthen the business even as the infant formula business continued to face structural challenges that affected both our financials and our outlook. Our outlook for 2026 reflects the realities of the current market and the work required to offset headwinds as we enter the year, which we believe are temporary. We expect the environment to improve in the second half, and we remain confident in our ability to build on our progress and position Perrigo for long-term growth and value creation. Even as the U.S. OTC market was challenged, we gained solid market share across most of the categories where we compete. Importantly, our share gains accelerated throughout the year, reversing years of decline. As consumers traded into store brands, we strengthened our partnerships with retailers, gaining over $100 million in new distribution and competitive takeaways and improved in-store execution. This is significant. This speaks to the underlying health of our business and the fact that we are winning back with both consumers and customers. We are seeing the same positive momentum in Europe. Our key brands are gaining share despite a soft market environment and our brand building, innovation and go-to-market efforts are translating into stronger marketplace performance. The share gains we are seeing across both regions reinforce that our strategy is working. We remain committed to making essential self-care accessible to everyone, leveraging more than 250 molecules and formulations across all price points and value tiers and the power of our scale, which is roughly 10x that of our nearest competitors. Turning to our financial results for the fourth quarter and full year 2025. As outlined in our press release this morning, we are providing results through 2 lenses: All-In and CORE Perrigo. All-In reflects our historical operations, while CORE Perrigo reflects our go-forward business, excluding infant formula and announced divestitures, primarily the Dermacosmetics business. To provide greater clarity into underlying performance, I will highlight results for All-In and CORE Perrigo. For the full year, despite soft market conditions that impacted consumption and net sales, we delivered strong operating income and EPS growth through operational rigor and disciplined cost management. Our All-In business grew operating income by 2% and EPS by 7%, finishing at $2.75, right in line with our revised guidance. CORE Perrigo operating income was up 7%, with core EPS up 14%. In the fourth quarter, market weakness continued to weigh on results. CORE Organic net sales declined 2% in the quarter despite strong share gains. And CORE operating income declined by $4 million or 2%, resulting in CORE EPS of $0.76, a decline of $0.02. Importantly, we made significant progress on our Three-S Plan in 2025. First, we stabilized our store brand business, evidenced by solid share and distribution gaps. We also stabilized supply in infant formula, recovering service levels above 90% even as demand recovery slowed and competition intensified. Second, we streamlined the business, focusing our portfolio through actions such as the announced sale of the Dermacosmetics business, which is expected to close in the second quarter of this year, pending final antitrust clearance and continuing to assess the role of Infant Formula and Oral Care. We also executed major efficiency initiatives, including Project Energize and supply chain reinvention, totaling $320 million in benefits, which drove improvements in operating income and EPS. This cost discipline will continue in 2026, which Eduardo will detail shortly. Third, we strengthened our portfolio and capabilities. Our key brands gained share, our innovation pipeline tripled in value versus the prior year, and we deepened retailer partnerships with next level demand generation capabilities. With our new category model now embedded and our executive team fully in place, we believe we are well positioned to drive end-to-end enterprise performance and to continue executing our Three-S Plan. Beginning with our first quarter 2026 results, we will introduce new reporting segments: Self-care, Specialty Care and Infant Formula. Oral Care, Dermacosmetics and other smaller distribution brands will be reported in Other. This new segmentation aligns with our global operating model and enhances transparency across our categories. It also provides a clear view of CORE Perrigo, business that will power our future. Now turning to our 2026 outlook, which reflects challenging market conditions and the actions necessary to combat temporary headwinds. As mentioned, we expect OTC market consumption to remain negative in the first half of 2026 as consumption so far in 2026 has further weakened in the markets we operate due in part to a soft cough and cold season compared to the prior year. So, the sales in the U.S. OTC market are down 5.1% over the last 13 weeks versus a year ago compared with a 4.3% decline in the fourth quarter and a 1.2% decline for full year 2025. Due to this slow consumption, retailers are also adjusting their inventory levels to current demand. This will be particularly noticeable in our first quarter results given this number and the scale of challenges we face. Amid these slow market conditions, however, we expect to grow share ahead of the market. Building on our 2025 momentum, 2026 performance will be driven by consumer-centric innovation, amplified demand generation with top customers, targeted and opportunistic geographic expansion for our priority brands and continued distribution gains. We also anticipate temporary but significant impact from plant under absorption stemming from lower sales volumes in 2025 for both OTC and Infant Formula. This translates into an unfavorable EPS impact to all CORE Perrigo in 2026 of approximately $0.60. For CORE Perrigo, we expect organic net sales growth in 2026 to range from negative 3.5% to positive 0.5% compared to 2025, with CORE EPS in the range of $2.25 to $2.55. We view 2026 as a transition year as we work through near-term headwinds and impacts from temporary underabsorption and market softness. We remain confident that our differentiated strategy, the stronger consumer base we built in 2025 and a more focused portfolio will position us for healthier top line growth as conditions normalize. I would also like to note that we are completing a growth algorithm for CORE Perrigo and the early indicators are encouraging across growth, cash flow and margin expansion. We look forward to sharing more on this later in the year. In closing, our focus for 2026 is clear: Grow share in our key brands and deliver our innovation pipeline, continue driving U.S. store brand demand generation in partnership with retailers, deliver operational and cost-saving programs, continue our portfolio assessment efforts and drive our category model and performance culture. We made clear progress winning with consumers and customers in 2025, and we are excited about the possibilities ahead. We believe we are very well positioned to create long-term value. And with that, I'll turn it over to Eduardo. Eduardo Bezerra: Thank you, Patrick. I appreciate everyone joining us today. Before getting to the details of our financials, I want to note that our 2025 GAAP results include noncash accounting impacts, including a goodwill impairment charge of $1.3 billion. Impairment is a nuanced issue, which merits both historic acquisition costs of businesses purchased over time with the realities of the current stock price. Certain historically acquired business have not performed as initially expected when acquired. Management must now address these realities and plan for the future. This impairment does not impact our strategy, cash flows or ability to execute. In addition, looking ahead to the first quarter, we need to reallocate goodwill from our existing to our new reporting units, which Patrick highlighted. While the aggregate fair and carrying values are unchanged from December 31, 2025, the redistribution of goodwill across our new reporting units may present a different outcome with surpluses in many and shortages in a few. As a result, the company may record additional noncash goodwill impairment charges of up to $350 million in the first quarter of 2026. In contrast to impairment, which reflects historical business performance, our decision to place business under strategic review is a reaction to external events informed by growth options and priorities for Perrigo in the future. Now to our results. As highlighted, we're introducing a new concept of CORE Perrigo results or just CORE, which excludes different formula and announced divestitures, primarily the Dermacosmetics business. From this point on, my comments will focus on adjusted non-GAAP results unless otherwise noted. Turning to results to our business units, starting with CSCI. Full year CORE organic net sales decreased 0.2% as growth from new products, share gains across most of our key brands and increased supply of Pain & Sleep Aids products were more than offset by lower consumption. Fourth quarter CORE organic net sales decreased 1.4% compared to the prior year due to continued consumer softness in the OTC category, combined with a softer cough and cold season compared to last year. Full year CORE operating income grew 11.6% as savings from Project Energize and lower variable expenses more than offset unfavorable impacts from gross profit flow-through. Fourth quarter core operating income increased 10.3% due to favorable foreign currency. All-In net sales and operating income growth for both fourth quarter and full year included the impact of divestiture. Turning to CSCI. Full year CORE organic net sales decreased 3% due to lower contract manufacturing revenue, soft category consumption and the prior year Opill launch stocking benefit, partially offset by share gains. CORE organic net sales for the quarter decreased 2.4%, also driven by contract manufacturing and OTC category consumption, partially offset by share gains. All-In net sales for the quarter and full year include the declines in Infant Formula net sales of roughly 25% and 10%, respectively, as growth in store brands was more than offset by lower contract manufacturing and lower distribution of the Good Start brand. CORE operating income for the full year and fourth quarter decreased 2.4% and 6.2%, respectively, both driven by the impact from lower net sales volumes and price investments, partially offset by benefits from Project Energize savings and lower variable operating expenses. Fourth quarter All-In operating income declined $29 million, including a negative impact of $21 million from Infant Formula. Moving now to cash. Exiting 2025, we had $532 million of cash on the balance sheet and fourth quarter operating cash flow was $175 million, bringing our total for the year to $239 million. We ended 2025 with a net leverage ratio of 4x, slightly above our updated projection due to currency translation on gross debt and lower cash balances at year-end. Our capital allocation priorities remain unchanged. Business growth, reducing total debt and net leverage and returning value to shareholders through our dividend. As a reminder, we expect proceeds from Dermacosmetics to contribute to debt reduction in the second quarter. As highlighted, we start with our first quarter 2026 earnings report, we will align our segment reporting to our commercial operating model. To aid comparability, we will recast selected historical financial results based on the new reporting segment, which we expect to furnish on an 8-K in April. This reporting segment change will have no impact on the company's historical consolidated financial position, results of operations or cash flows. Given the external dynamics we project in 2026, we will remain disciplined in managing our costs. We're implementing a new 2-year operational enhancement program to further improve productivity, streamline operations and enhance competitiveness. We're focused on evolving our structure to improve agility, accelerate decision-making and better leverage technology. As part of these efforts, we expect a global workforce reduction of approximately 7%, and we will also target operational cost reductions, mainly in our supply chain and distribution network. These efforts are expected to deliver annualized pretax savings of $80 million to $100 million with approximately 80% of the savings expected in 2026. Total cost to achieve these savings are expected to be approximately $80 million to $90 million. Now a bit more color on our 2026 outlook. We expect CORE Perrigo organic net sales growth of minus 3.5% to plus 0.5% year-over-year. CORE gross margin is expected between 39% and 40%, with CORE operating margin expected between 15% and 16%. Still within CORE, we expect higher costs from temporary OTC plans under absorption to dissipate over the next 12 months with the pace of returning to normalized levels depending on timing and levels of sales and production volumes. These cost pressures in addition to higher advertising promotion and the reset of variable incentive plans will be mostly offset through 2 levers: first, the benefits from our new operational enhancement program and in addition, targeted savings primarily procurement efficiencies driven in part by lower expected production volumes, along with the deferral of certain projects that are nonessential to our 2026 strategic objectives. Turning to our All-In outlook, which includes Infant Formula and assumes we divest the Dermacosmetics business during the second quarter of the year, we expect All-In net sales growth of minus 5.5% to minus 1.5%. Gross margin of 36.5% to 37.5%, operating margin between 12.5% and 13.5% and EPS in the range of $2 to $2.30. Finally, on operating cash flow. As we advance our Three-S Plan, we're taking on temporary cash costs to drive productivity, streamline operations and improve our risk profile, balanced with our commitment to reducing net leverage. For 2026, we expect operating cash flow conversion to remain in the mid-60 percentage range and net leverage to end the year roughly in line with or slightly better than 2025. As we are providing outlooks for All-In and CORE Perrigo for ease of comparison, we've included 2025 actuals for both in the appendix of this presentation. Let me quickly walk through our 2026 EPS bridge. Removing Infant Formula in divestitures yields a 2025 CORE baseline of $2.52. From there, other absorption, investments in advertising promotion and incentives normalization are largely offset by base business performance and cost savings actions. These, combined with the year-over-year net effect from interest, taxes and share count and FX result in our CORE EPS range of $2.25 to $2.55. The All-In EPS range of $2 to $2.30 reflects the expected impact from Infant Formula and divestiture. CORE EPS phasing is approximately 30% to 35% in the first half and 65% to 70% in the second half, which is modestly above our typical pattern. This reflects the expected timing of net sales, including impact from the current soft cough and cold season versus the prior year, the evolution of our savings program and impact from underabsorption. In closing, we remain disciplined, realistic and focused on the elements we control. The strategic actions underway as part of our Three-S Plan are strengthening our foundation for long-term value creation, and we're confident that CORE Perrigo can deliver steady growth, resilient margins and consistent cash generation. The steps we're talking now will continue strengthening our Consumer Health business to deliver for our consumers, customers and shareholders. Now I will turn the call back to Brad. Brad? Bradley Joseph: Thanks, Eduardo. Operator, will you please open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Keith Devas with Jefferies. Keith Devas: A lot to get through, so I'll try to keep it brief. But maybe just going to your outlook for 2026. I think you mentioned some of the pressures in the first half in terms of cough/cold and overall consumption as well, and you're expecting kind of second half improvement. So maybe just some more color or context on what's driving that second half improvement? And then maybe longer term what's needed for the categories, particularly in OTC, both in the U.S. and abroad to get it back to stable and then hopefully growth? Patrick Lockwood-Taylor: Keith, thank you for the question. As you can imagine, we put a significant amount of analysis on this as have a lot of our competitors. There are several components to answering this. First thing is what's causing the decline. We see the great majority of that as being transitory in nature. There has been household -- long-term household reduction in certain subcategories, but they are a small part of our overall business. So what do I mean by transitory, we saw some trade down. We saw consumers trading down into smaller units. We saw rollbacks from national brands. And the biggest effect is we didn't see price increases to the scale that we've historically seen. That temporarily took a lot of value out of the market. And we need to think of that as about 90% of the calls. We start to catch up with those effects in the latter part of quarter 2 and increasingly through the second half. So what the effect of that is it just normalizes. Unless you see additional value erosion versus that base, then by definition, it stabilizes. That is the effect that we see and increasingly in the second half. To get more down to the specifics of what's building our confidence: one, we expect to continue growing share; two, we expect store brand OTC to continue growing share. Second, about 60% of the value of our innovation is in the second half of this year, about 65% of our opportunistic geographic expansion is in the second half of this year. Our competitive takeaway, this is our distribution gains, more than half is in the second half. And then this work you've heard us describing this demand generation, which is driving key retailers' store brand category and their share of it and our share of that, almost 2/3 of that lands in the second half of this year as well. So as we combine all of those factors, that leads us to a more favorable second half outlook. Keith Devas: Got it. That's very helpful. Maybe just as a follow-up, just an update on kind of the liquidity and the leverage position. You're doing a new restructuring program. There's some cash charges there. And just in terms of the overall outlook for the business units, it sounds like it's a little bit pressured at least in the first half. So just as you think about the guide and keeping net leverage flat year-over-year, just if you think that gives you enough flex to reinvest in the business appropriately to try to get some of the changes that you're hoping for? And then just your other commitments in terms of the dividend and kind of putting it all together, how you feel in terms of update on liquidity and leverage would be helpful. Eduardo Bezerra: Thank you, Keith. Our capital allocation priorities remain unchanged, right? So we will continue to invest in the business, right, through investing in innovation as well as technology to continue to accelerate and in connection with our announced new enhancement program. We continue to focus on reducing leverage, right? So we expect the closure of the Dermacosmetics sale in early second quarter. And we're going to use those proceeds, as we mentioned before, to reduce our debt, right? And also continue to return value to our shareholders through dividends, right? So we held our dividend and we continue to assess that as we always have done. I think the important thing is we see 2026 as a transitory year, right? So it's very important to highlight, we see significant impact on under absorption that we talked a little bit on the call about $0.60, and we expect a significant portion of that to be recovered into 2027. And also these operational enhancement programs, they should sustain over time. So despite we see, let's say, from a free cash flow standpoint, a challenging year, we expect that to be a transitory and that things should improve as we look into 2027. Operator: And your next question comes from the line of Chris Schott with JPMorgan. Ethan Brown: This is Ethan on for Chris. Maybe just to start off, a lot of helpful color on the OTC business today. Just wanted to get some color on how you're thinking about the recovery of margins there and if that will start to be recovered kind of through the second half of this year or if that's more 2027 plus? Eduardo Bezerra: Well, thank you for the question. So a couple of comments there, right? So we're seeing an under-absorption impacting our margins in 2026, right? So -- and that's one of the key reasons why we're pushing for the operational enhancement program, right, that we're implementing this year. We believe though that's transitory in nature. And that mainly reflects the impact of softening that happened in the second half of last year. So despite our significant share gain that we have in the OTC store brand business in the U.S. as well as in our key brands in international, we still carried a strong inventory. And of course, the cost of that inventory has increased, and we see that transitory impact into 2026. But as I mentioned, this should be transitory in nature as we see the market normalize more in the second half of the year and into 2027, that should dissipate and we should see an improvement in our margins on OTC going forward. Ethan Brown: Super helpful. And maybe just one other question from me is looking to the Infant Formula business, how are you thinking about the path to kind of normalizing operations and margins going forward and the different actions you can take? And more broadly on the strategic review, just how are you thinking about the different options available, what any kind of sale might look like? And if that isn't available, what other actions you could take there? Eduardo Bezerra: Okay. Yes. So this formula review remains ongoing, right? So we're working with the advisers to assess all available options, right? So how do we -- can we optimize our operations, any potential partnerships and/or potential divestments, right? So it's too early to comment on much progress on that side because that -- there's a lot to be completed at this time, and we're going to provide more details in the coming calls as it progress. Operator: And your next question comes from the line of Susan Anderson with Canaccord Genuity. Susan Anderson: I was curious, just looking at the CORE sales categories, I guess, which categories are you seeing kind of with the most negative growth that's driving that guide towards the lower end for this year? And I guess, what categories are doing better than those? Patrick Lockwood-Taylor: Susan, thank you for that. So off the top of my head, I don't have the data in front of me, but the more preventative categories are typically doing better. So VMS, some of the subcategories of digestive wellness. The categories doing poorer on a very short-term basis, as you know, are cough/cold, and particular subsegments of pain, mainly pill dosing is where we're seeing systemic household decline. That's a small part of our business, but other parts of pain, in particular, topical creams are actually performing very well. Allergy, interestingly, also performing well in the early part of this year. As we try to map out the recovery of each of those subsegments, we see growth strengthening in some of those prevention categories. Allergy and cough/cold, obviously seasonally dependent, but of quite weak seasons, we see quite favorable -- we expect average season, which it follows is better than '25. We don't see anything that's going to change pain pill household penetration data, but that is a very small effect for us over the next 3 years. Susan Anderson: Okay. Great. That's really helpful. And then maybe just a follow-up on the capital allocation question. I guess, are you guys comfortable with the dividend level where it's at? Is that still a priority? And then I guess, with the plans for deleveraging with the Derma proceeds, I guess, what are your long-term leverage goals as well? Patrick Lockwood-Taylor: I'll take and then Eduardo because this is an important question that both of us should respond to. So our capital allocation priorities are clear, and they are unchanged. We invest in the business, reduce leverage and return value to shareholders through dividends. We held our dividend, as you know, but we will continue to assess our capital allocation priorities according to what's best for the business and what delivers the best sustainable shareholder return. Eduardo Bezerra: Yes. And just on top of that, in terms of leverage, right, so for '26, as we highlighted, we expect that to be in line or slightly better than 2025. So that's mainly because of the onetime impacts that we're seeing in the business impacting our adjusted EBITDA. And so as we look into -- as we previously expected to be below 3x in 2027, but because these transitory effects in the marketplace, we're now anticipating to achieve that level over the next 2 to 3 years as the new organizational enhancement program completes, our strategic reviews on both Infant Formula and Oral Care advance and consumption recovers over time. So more precise, timing will depend on all these factors, Susan. Susan Anderson: Okay. Great. And then maybe if I could just add one more on the infant nutrition business. I think it's dilutive to earnings now. I guess, did it ever get back to positive earnings? And then did it turn negative? And I guess if you guys end up keeping it, what will it take to kind of get that back to accretive to earnings? Eduardo Bezerra: Well, as I mentioned, we continue to assess the strategic review, right? So we're working on all the available options. And of course, we're going to look into which is the one that optimize not only the P&L, but also the cash flow as well. This is an important thing that we have been commenting that over several years, Infant Formula has consumed cash and so we're looking at that comprehensive of what's going to be the best option for shareholders on both aspects, right? So because at the end of the day, we need to be committed to improve our cash flow generation going forward. Patrick Lockwood-Taylor: Yes. Just to add a bit more sort of commercial perspective on that. We expect to continue growing share. I know the data that you see is total market, including VIC. We obviously look -- excluding VIC because we don't participate in that. Within that analysis, we see good store brand growth. We are confident as retailers reset their shelves later on this year, that will be favorable for us as we have innovation and launching that targets some of the foreign brands that we're seeing in the U.S. that will be positive for us. So we actually expect low to mid-single-digit revenue growth on Infant Formula this year. That allows us to clear this lower margin inventory, which has been a big factor for us in our EPS guidance. In doing, that starts to restore to '24, '25 levels gross profit. So that's how this model will play through this year from a commercial standpoint. Now to Eduardo's point, there is no doubt we need to look at plant optimization, set capacity in line with long-term volume and optimize cost and cash accordingly. Those are material margin and cash flow expansion opportunities for us should we go that route. Operator: And your last question comes from Daniel Biolsi with Hedgeye. Daniel Biolsi: Just following up on the last question. How much working capital like on average or whatever you can share is associated with the Infant Formula business? Eduardo Bezerra: Well, so it's significant because of the inventory levels that we have built in the prior year, expecting a significant share gain in the second half of the year, given the dynamics that we have explored and shared in the past, both further government intervention and also continued import products coming into the country significantly, that has impacted our ability to recover the share the way we had planned and shared in Investor Day last year, right? So that led to higher inventories, right, so at the end of 2025. And as Patrick mentioned, this low to mid-single-digit net sales plan should help deplete that inventory this year, right? So -- and that should bring working capital to more normalized levels versus what we faced in the past. Daniel Biolsi: Okay. And then I'm encouraged by the gross margins close to flat, excluding the Infant Formula business. And you mentioned in the prepared comments that there was a price investment in CSCI. What did you see? Like what kind of response did you see from those price investments in CSCI? Patrick Lockwood-Taylor: Yes. I mean this is an annual effect. We compete across a broad range of molecules. There is capacity available either in the U.S. or from low-cost overseas manufacturers. And just as frankly, because of supplier substitution, that squeezes margin. That has just been a reality in some of our molecules 20 years, okay? And that is just an annual cost of participation. We have a systemic program now that addresses that, which is productivity, mix, innovation, expanding into more profitable adjacencies and of course, driving more volume into our plants. Every point of utilization is worth about $10 million for us. We have got much better at master planning those activities just recognizing that cost of commoditization. That allows us to hold or improve gross profit year-on-year, but it is an important element of where we play, okay? I think historically, we've probably undervalued that and that has introduced risk into our P&L. But I feel we have much more visibility and control of that going forward. As we also drive the salience of our branded business by focusing more on brand, by focusing more on branded growth and share growth, that obviously also has a very positive impact on not just GP but OI margin as well. Obviously, branded tends to be higher. So really, it's being much better at managing the gross profit profile of our store brand business whilst driving the salience of our branded business. That allows us to protect and enhance both OI and GP. Operator: And that concludes our question-and-answer session. I would like to hand it back to Patrick Lockwood-Taylor for closing remarks. Patrick Lockwood-Taylor: Yes. Thank you very much, and thank you for joining us today and for those good questions. This is a tough market environment, and we have to lead what we control and manage with excellence, what we can't control. We're fixing the fundamentals of this business, and we believe we're positioning the business for quality growth, growing share now consistently after many years of decline. We're expanding category size in partnership with our key retailers. Store brand OTC in the U.S. is growing share, and we're growing share of that growing category. We're improving our financial structure. OI margin has expanded by 230 basis points over the past 2.5 years. Our net leverage is down from 5.5 to 4, and we will continue to deleverage. Our operations are more effective, more consistent and more compliant. We have 30-plus inspections in '25 with no critical or major observations and no recalls. We lead in quality assurance. Our leadership team and our senior management is in place. They're experienced, world-class, they're performance-driven and they're cost competitive. We now have in place an expandable growth model that will drive TSR. We have a differentiated and clear purpose. We exist to provide essential everyday self-care for everyone. We streamlined our portfolio, playing in the markets and increasingly in categories where we have the right to win and is an attractive size of profit. These categories reinforce and are driven by the core strengths of this company. We have more molecules. We cover more price points. Ultimately, that allows us to reach more consumers. We're developing even deeper and more strategic customer partnerships. We win through scaled, high-quality regionalized supply chains. We have extensive regulatory interface, and that allows us to shape the regulatory environment for these categories going forward. We're now set to go after geographic and category opportunities where we can operationalize these strengths in order to drive advantage. Recall, we only serve 10% of the world consumers today. This provides us with a tremendous growth runway. We've divested businesses where we can't leverage our growth model, e.g. Dermacosmetics, rare diseases, et cetera. In conclusion, we increasingly believe in our model and the path forward. 2027 is shaping up as a meaningful growth year. Again, thanks for joining us. Operator: Thank you. And ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to FS KKR Capital Corp.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note that the conference is being recorded. At this time, Anna Kleinhenn, Head of Investor Relations will proceed with the introduction. Ms. Kleinhenn, you may begin. Anna Kleinhenn: Thank you. Good morning, and welcome to FS KKR Capital Corp.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. Please note that FS KKR Capital Corp. may be referred to as FSK, the fund or the company throughout the call. Today's conference call is being recorded, and an audio replay of the call will be available for 30 days. Replay information is included in a press release that FSK issued yesterday. In addition, FSK has posted on its website a presentation containing supplemental financial information with respect to its portfolio and financial performance for the quarter ended December 31, 2025. A link to today's webcast and the presentation is available on the For Investors section of the company's website under Events and Presentations. Please note that this call is the property of FSK. Any unauthorized rebroadcast of this call in any form is strictly prohibited. Today's conference call includes forward-looking statements and are subject to risks and uncertainties that could affect FSK or the economy generally. We ask that you refer to FSK's most recent filings with the SEC for important factors and risks that could cause actual results or outcomes to differ materially from these statements. FSK does not undertake to update its forward-looking statements unless required to do so by law. In addition, this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures can be found in FSK's fourth quarter earnings release that was filed with the SEC on February 25, 2026. Non-GAAP information should be considered supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly named measures reported by other companies. To obtain copies of the company's latest SEC filings, please visit FSK's website. Speaking on today's call will be Michael Forman, Chief Executive Officer and Chairman; Dan Pietrzak, Chief Investment Officer and President; and Steven Lilly, Chief Financial Officer. Also joining us on the call today are Co-Chief Operating Officers, Drew O'Toole and Ryan Wilson. I'll now turn the call over to Michael. Michael Forman: Thank you, Anna, and good morning, everyone. Thank you all for joining FSK's Fourth Quarter and Full Year 2025 Earnings Conference Call. I'd like to start today's call by reviewing the goals we set for 2025 and discussing how we performed against those priorities. Our first goal was to originate attractive, well-structured investments, which would be accretive to the quality of our investment portfolio. During 2025, we achieved this goal as our investment team leveraged its deep sponsor relationships to originate $5.6 billion of predominantly first lien and asset-based finance investments. Second, we set out to provide shareholders with $2.80 per share of total distributions through a combination of our quarterly base and supplemental distributions. Our spillover income, which purposely was increased during the high interest rate environment allowed us to achieve the objective even against the backdrop of a declining interest rate environment. Our third goal was to continue proactively laddering the right side of our balance sheet. During 2025, we continued to optimize our capital structure by issuing $400 million of new unsecured notes, closing on a new $400 million bilateral lending facility, diversifying our funding sources through 2 new middle market CLOs and further enhancing our liquidity profile through an amendment to our senior secured revolving credit facility that increased our total commitment, extended the maturity and reduced pricing. Despite the achievement of these goals, during the second quarter and fourth quarter of 2025, we experienced downward pressure on a few specific investments across our portfolio, which resulted in a decline in our net asset value. We acknowledge that noninvestment-grade private debt investing necessarily will result in underperforming assets from time to time. However, we are disappointed by these markdowns. Dan, of course, will discuss these topics in more detail later in the call. Looking ahead to 2026, our goals are as follows: First, we expect to address underperforming assets through restructurings, exits and continued proactive portfolio monitoring to reduce the number of nonaccruals and non-income-producing investments in the portfolio. Second, we will continue our strategy of focusing on first lien senior secured originations with the goal of continuing to increase the overall quality and diversification of our investment portfolio while simultaneously continuing to focus on rotating a portion of our legacy investments. Third, we remain focused on preserving our strong liquidity and balance sheet flexibility by keeping net leverage within our target range and maintaining ample revolver capacity to manage volatility and selectively deploy capital. Turning to our fourth quarter results. FSK generated net investment income totaling $0.48 per share and adjusted net investment income of $0.52 per share as compared to our public guidance of $0.51 and $0.56 per share, respectively. Our net asset value share declined by 5% to $20.89 compared to $21.99 as of the end of the third quarter. The 2 primary components of the quarterly change in net asset value are a $0.22 per share decline as a result of our $0.70 per share distribution compared to our GAAP NII of $0.48 per share and an $0.87 per share decline as a result of downward pressure on certain investments. From a liquidity standpoint, we ended the quarter with approximately $3.8 billion of available liquidity. Based upon our updated dividend framework and expected operating results, our Board declared a total first quarter distribution of $0.48 per share, consisting of our base distribution of $0.45 per share and a supplemental distribution of $0.03 per share. This represents a 100% payout of our GAAP net investment income and a 9.2% yield on our ending fourth quarter net asset value. With that, I'll turn the call over to Dan to provide additional color on the market and the quarter. Daniel Pietrzak: Thanks, Michael. I'd like to start by focusing on FSK's recent performance. As Michael noted, our recent underperformance reflects challenges in certain legacy investments, including Production Resource Group, as well as challenges in certain current adviser originated investments such as Medallia, Cubic Corp, KBS and 48forty. We are actively engaged in each of these situations and are pursuing company-specific solutions to stabilize performance and maximize recoveries, although we acknowledge each company faces challenges unique to a specific business. We also acknowledge that our nonaccrual assets are higher than we would like, which tempers our near- to intermediate-term view from an NII standpoint. Specifically, this means that our 2026 dividend, which we originally believed would equate to approximately 10% of net asset value, may now be more in the range of 9% of net asset value. Stepping back a bit, focusing on the current adviser's long-term performance. Since the formation of the FS/KKR Advisor 8 years ago, we have originated $34 billion of investments in FSK, generating an unlevered IRR of 9.1% since inception. And while recent nonaccruals have emerged from this body of work, we do believe some level of defaults is inevitable in a sub-investment-grade portfolio, particularly across various market cycles. Nevertheless, we are focused on the work ahead of us during 2026 and beyond, not only to establish more stability in our investment portfolio, but also to regain the market's confidence in our ability to deliver more consistent results on a quarter-to-quarter basis. And with that, I'll turn to a few specific comments about the quarter. During the fourth quarter, approximately 50% of net realized and unrealized losses were attributable to 4 investments: Production Resource Group, Medallia, Peraton and Cubic Corp. We have spoken about most of these investments in detail in the past. However, I'll give a quick update on each name. PRG, a legacy investment, is a leading provider of integrated entertainment and live event production solutions. PRG continues to be impacted by softer operating performance due to headwinds in their TV, film and music segments. During the quarter, we incurred approximately $47 million of net losses. Medallia, an enterprise software as-a-service experience management platform, has faced competitive pressures, which have resulted in the company's recent financial underperformance. This investment contributed $29 million of unrealized losses during the quarter. Peraton, a provider of technology-focused services and solutions to U.S. government agencies, contributed $23 million of unrealized losses during the quarter. Cubic Corp, an existing nonaccrual investment, is a diversified technology provider to defense and civil-related agencies across governments throughout the world. Over recent periods, the company has experienced order and implementation delays, resulting in the current period valuation. Cubic Corp contributed $21 million of unrealized depreciation during the quarter. Turning to the investing environment. During 2025, we experienced a 13% increase in the number of investment opportunities we evaluated, though I would highlight we are remaining extremely selective. We are focused on continuing to diversify our portfolio by taking smaller position sizes in a greater number of borrowers. Additionally, based on the opportunities we are seeing in the market today, we continue to believe the best risk-adjusted returns are in first lien loans and asset-based finance investments. During the fourth quarter, we originated approximately $1.1 billion of new investments. Approximately 80% of our new investments were focused on add-on financings to existing portfolio companies and long-term KKR relationships. Our new investments, combined with $806 million of net sales and repayments when factoring in sales to our joint venture, equated to a net portfolio increase of $292 million. New originations consisted of approximately 65% in first lien loans, 15% in asset-based finance investments, 18% in capital calls to the joint venture and 2% in equity and other investments. Our new direct lending investment commitments had a weighted average EBITDA of approximately $352 million, 6.2x leverage through our security and a weighted average coupon of approximately SOFR plus 475 basis points. We continue to focus on upper middle market companies with EBITDA in the $50 million to $150 million range across a diverse set of industries and sectors. As of December 31, the weighted average EBITDA of our portfolio companies was $236 million, and the median EBITDA was $132 million. Our portfolio companies reported a weighted average year-over-year EBITDA growth rate of approximately 4% across companies in which we have invested in, since April of 2018. Median interest coverage increased to 1.9x compared to 1.8x at the end of the third quarter. Software and services currently represents 16% of our investment portfolio, diversified across 50 issuers with an average position size of 33 basis points of our total investment portfolio. Average and median EBITDA of approximately $162 million and $110 million, and a median LTV of approximately 39%. This segment of our portfolio historically has been one of our best performers and has been underwritten with a particular focus on primary customer relationships and the durability of revenue and cash flow streams attached to those relationships. We will continue to assess potential future AI risks with each investment we analyze as our current belief is that widespread AI adoption may result in an overall expansion of the addressable market, even though it likely will negatively impact certain companies, which either have not yet achieved meaningful positive cash flows or are less well positioned from a customer retention standpoint. During the fourth quarter, 5 investments were added to nonaccrual status and 1 was removed. New nonaccrual assets include Alacrity Solutions, Amerivet Partners, Dental Care Alliance, Gracent and Lionbridge Technologies. Together, these investments totaled $255 million of cost and $214 million of fair value across our investment portfolio. As previously disclosed, Production Resource Group was removed from nonaccrual status. As of December 31, nonaccruals represented 5.5% of our portfolio on a cost basis and 3.4% of our portfolio on a fair value basis. This compares to 5% of our portfolio on a cost basis and 2.9% of our portfolio on a fair value basis as of September 30. Nonaccruals relating to the 90% of our portfolio, which has been originated by KKR Credit were 5.1% on a cost basis and 3.1% on a fair value basis as of the end of the fourth quarter. This compares to 3.4% on a cost basis and 1.8% on a fair value basis as of the end of the third quarter. And while we acknowledge that this nonaccrual rate is above the long-term BDC industry average cost basis, nonaccrual rate of approximately 3.8%, we also recognize that this measure is a point-in-time data point. KKR's long-term average cost basis nonaccrual rate since April 2018 is 1.2%. In summary, with regard to our investment portfolio, we recognize there's work to be done, which may result in an above-average level of portfolio volatility during certain periods, coupled with lower levels of net investment income as compared to prior estimates. Portfolio metrics do move over time, and we believe our investment and workout team are well equipped to successfully navigate this period of elevated portfolio volatility. Lastly, subsequent to quarter end, we announced that the aggregate capital commitment to our joint venture with South Carolina Retirement Systems Group Trust increased from $2.8 billion to approximately $2.975 billion, reflecting an additional net $175 million contribution from our partner. Following this transaction, our partners' ownership percentage climbed from 12.5% to 21.1%, and our ownership percentage changed from 87.5% to 78.9%. We and our partner have been very pleased with the performance of the JV to date, and this incremental capital positions the joint venture to continue scaling while fully leveraging the breadth and depth of the KKR credit investment platform. With that, I'll turn the call over to Steven to go through our financial results. Steven Lilly: Thanks, Dan. As of December 31, 2025, FSK's investment portfolio had a fair value of $13 billion, consisting of 232 portfolio companies. At the end of the fourth quarter, our 10 largest portfolio companies represented approximately 19% of the fair value of our portfolio compared to 20% as of the end of the third quarter. We remain focused on senior secured investments as our portfolio consisted of approximately 58% first lien loans and 62% senior secured debt as of December 31. In addition, our joint venture represented approximately 15% of the fair value of our portfolio as of the end of the fourth quarter. As a result, when investors consider our entire portfolio, looking through to the investments in our joint venture, then first lien loans total approximately 68% of our total portfolio and senior secured investments total approximately 72% of our portfolio as of December 31. The weighted average yield on accruing debt investments was 10% as of December 31, a decrease of 50 basis points compared to 10.5% as of September 30. As a reminder, the calculation of weighted average yield is adjusted to exclude the accretion associated with the merger of FSKR. Turning to our quarterly operating results. Our total investment income was $348 million for the fourth quarter, a decrease of $25 million compared to the third quarter. The primary components of our total quarterly investment income were as follows: Total interest income was $256 million, representing a decrease of $29 million quarter-over-quarter. The decline in interest income was driven by investments placed on nonaccrual during the quarter, lower base rates and the repayment of higher-yielding investments. Dividend and fee income totaled $92 million, an increase of $4 million quarter-over-quarter. Our total dividend and fee income is summarized as follows: $58 million of dividend income from our joint venture, other dividends from various portfolio companies totaling approximately $28 million during the quarter and fee income totaling approximately $6 million during the quarter. Our total expenses were $213 million during the fourth quarter, a decrease of $1 million compared to the third quarter. The primary components of our total expenses were as follows: Our interest expense totaled $110 million, a decrease of $6 million quarter-over-quarter, and our weighted average cost of debt was 5.1% as of December 31. Management fees totaled $50 million, a decrease of $1 million quarter-over-quarter. Incentive fees totaled $28 million, a decrease of $5 million from the third quarter. Other expenses totaled $7 million, a decrease of $3 million quarter-over-quarter. And lastly, excise tax totaled $18 million during the quarter. The detailed bridge in our net asset value per share on a quarter-over-quarter basis is as follows: Our ending third quarter 2025 net asset value per share of $21.99 was increased by GAAP net investment income of $0.48 per share and was decreased by $0.87 per share due to a decrease in the overall value of our investment portfolio. We experienced a $0.01 per share reduction in net asset value from realized loss on extinguishment of debt and a $0.70 per share reduction as a result of the total quarterly distribution paid during the quarter. The sum of these activities results in our December 31, 2025 net asset value per share of $20.89. From a forward-looking guidance perspective, we expect first quarter 2026 GAAP net investment income to approximate $0.45 per share, and we expect our adjusted net investment income to approximate $0.44 per share. The detailed components of our first quarter guidance are as follows: Our recurring interest income on a GAAP basis is expected to approximate $226 million. We expect recurring dividend income associated with our joint venture to approximate $60 million. We expect fee and other dividend income to approximate $29 million. From an expense standpoint, we expect our management fees to approximate $48 million. We expect incentive fees to approximate $26 million. We expect interest expense to approximate $104 million, and we expect other G&A expenses to approximate $9 million. Capital Structure. In December, we closed our third middle market CLO, raising $363 million of low-cost secured debt priced at a weighted average rate of SOFR plus 157 basis points. We are pleased with this financing given it is match funded with no mark-to-market at an attractive rate. As of December 31, our gross and net debt-to-equity levels were 130% and 122%, respectively, compared to 120% and 116% at September 30. Our leverage remains within our target range of 1 to 1.25x net debt to equity. At the end of the fourth quarter, our available liquidity was $3.8 billion and approximately 62% of our drawn balance sheet and 43% of our committed balance sheet was comprised of unsecured debt. Pro forma for the $1 billion unsecured bonds that matured on January 15, 2026, 49% of our drawn balance sheet and 38% of our committed balance sheet was comprised of unsecured debt, and our next balance sheet maturity is a $400 million bond in January of 2027. And with that, I'll turn the call back to Michael for a few closing remarks before we open the call for questions. Michael Forman: Thank you, Steven. As we enter 2026, we actively are focused on working through the portfolio-related items Dan discussed in detail. Our new and recent originations are performing well, and the vast majority of our portfolio continues to perform in line with our original expectations. As a result, we believe our scale, experience and proactive portfolio management will enable us to maximize recoveries and to continue providing shareholders with an attractive level of current income relative to the risk-free rate. As always, we appreciate you joining us today. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Finian O'Shea with Wells Fargo Securities. Finian O'Shea: So just to start, like big picture, FSK is shrinking, which makes it worse, and likely stuck below book. So do you ever think about like a grand bargain where, say, the FS side allows for a lower fee, and then the KKR side puts in some balance sheet money to inject life into the BDC and ultimately show that the partnership model can work? Daniel Pietrzak: I mean that's probably a bit of a complicated question. But I think if you take a step back, I think we have been, I think, both sides quite happy with just the partnership. I mean, clearly, this has been a harder quarter. But if you do think about, we have originated $34 billion of investments into FSK in the last 8 years. The last quarters have felt bumpy, but we're sort of 9.1% sort of IRR sort of against those. I think we've got some work to do clearly on the portfolio. I think we've got some work to do, to your point about how to either grow this thing or create some levers as it relates to income growth. The short or the low-hanging fruit there is we do have too many non-income-producing assets, right? We're roughly 9.5% there. I think we've been stuck with that for a while because that really started with some of the older assets that were here. But I think us as a team have gone through, I'd say, a laundry list of things as I would think about kind of a forward operating plan as we evolve this thing for '26 and '27. I don't think this is a quarterly sort of discussion as we work on that evolution. Finian O'Shea: Okay. Sorry about that. A follow-on on the performance fee. So one of your peers yesterday, Blackstone, they had a few write-downs. They got a little bit less of an incentive fee. The stock was fine. Do you think that makes sense to revisit again? The look back that is? Daniel Pietrzak: Yes. And I mean, I think we're kind of quite cognizant of fee structures and constantly sort of mapping that to the market or at least where we sit versus others in the market and then also thinking about where we sit vis-a-vis sort of dividend numbers, right? I think at the $0.48-odd number, we're sort of roughly 9.2%. But I think that -- we'll call it a valuation, we as a team and we're constantly sort of thinking about and we'll be discussing those sort of matters. But I think we're, in a lot of ways, focused on the total earnings sort of here in that 9.2%, which probably lower than we want to be today, but probably above kind of historical average. Operator: Your next question comes from the line of Ethan Kaye with Lucid Capital Markets. Ethan Kaye: Wondering if there's anything you can kind of point to any common thread or common denominator here across the positions that drove the underperformance this quarter? Daniel Pietrzak: Yes, Ethan, thanks for the question. Maybe I'll put it in a couple of buckets, right? If you do look at the 5 names that were added to nonaccruals, 2 of those are in the sort of medical or sort of health care roll-up space, right? That's one area we are kind of keeping an eye on. I think we've seen a lot of names performing well there, but that has been a space where wage inflation sort of has mattered, retention has mattered. That's been across kind of dental as well as the vet area. So that is probably what I'd say one common theme out there on the nonaccrual side. I think the other names where we've seen some of the marks and we went through in the script, I mean, 4 names drove 50-odd percent of that. One of them is PRG, which has been a tough name for a long time. We've got a lot of resources sort of attached to that, but that's very much idiosyncratic to that name. The rest of it, I would just probably put in the camp of we'll call it operational sort of underperformance. There's a little bit of [indiscernible] or government sort of contract risk embedded in there, but I think that still plays through the system with someone like a Peraton or sort of a Cubic. So there are -- on one hand, some themes with the medical roll-ups on some hand, some themes with kind of the [indiscernible] sort of government sort of points and then some of it just boils down to operational performance. Ethan Kaye: Got it. And then I guess the 3 kind of other non-legacy names you mentioned as well as at least I think one of the new nonaccrual names seem to be either software-centric or software adjacent, if I'm not mistaken. I'm just curious if there's any kind of -- we're obviously hearing a lot about the emergence of AI and the risk that poses to software companies. Wondering if any kind of pressure from that dynamic? Daniel Pietrzak: Yes. No, it's a very fair question considering what's going on news-wise. I mean the overall portfolio from software for us is about 16%. I think we have been evaluating what I would call AI risk in that portfolio for some time, not just on the back of the recent news flow. We do have the benefit of working with our private equity colleagues and have come up with this sort of what I'll call framework looking at 20 different data points to assess what might be high risk or not. I think from an investing perspective, we have focused on what I would call mission-critical products, those that are sort of hard to rip out or have focused on those businesses that, in our opinion, truly have proprietary data. I think we have not been active in the ARR space, right? We do have one ARR loan left, which is Medallia, which we sort of talked about. I think when you put all that together, when we look at our portfolio, we got sort of roughly 2% of the names that we think have a high AI risk attached to them. Of the names you kind of referred to, you look at the ones that were talked about as it relates to driving the mark. I don't think that they actually had anything to do with AI as it relates to underperformance. It's really more in that operational camp. The one that did would be Lionbridge, right? That business is a language translation business and sort of a gaming business. The language business has, in our opinion, had some headwinds from that. We think the gaming business is quite attractive. I think for a long time, and I think we still might believe we could be covered from that gaming business. But really not AI-driven is the summary point. Operator: Your next question comes from the line of Arren Cyganovich with Truist Securities. Arren Cyganovich: The 2026 goal of kind of dealing with the problem credits, maximizing value can often take a while to unfold. How are you kind of approaching this to try to both quickly address these, but also maximize the value that you're going to get from potential restructuring? Daniel Pietrzak: Yes. And the line is not great, but I think the question was around sort of maximizing value. So if I don't answer it fully, please add to it. I think we did talk about our '26 goals, right? I mean, clearly, addressing these underperforming assets has to be top of that list. I think the other parts of it relate to getting more diversification in the portfolio. That's been a big focus and needs to continue to be. And then obviously, thinking about liquidity. We've got a deep and solid investment [indiscernible], specifically those who function on the workout side. We've got 25-odd people focused on portfolio monitoring. I do think, Arren, it's a little bit of a case-by-case basis. I think there are some things that I would expect to be multiyear events, and some of the PRG has been multiyear already. I think there are some where we think there could be a either faster sale process either because it would be accretive or sort of a risk management point. In several of these businesses, we have replaced management teams, brought in new senior leadership, used our senior adviser network. So it will be case by case. I would caution to say that it's not an overnight thing, right? We do believe it will take some time. That's why we're talking about things over kind of a longer period, which I would call sort of '26 and '27. Arren Cyganovich: Got it. And maybe you could just provide a little more details on the JV equity changes there and what drove that? And how much of a drag will that be from the dividend income associated with that? Daniel Pietrzak: Yes. Fair question. We've been happy with the joint venture. I think that's the starting point, right? We've talked about a lot on prior calls about getting that towards its target number of roughly 10% to 15%. It's been at the upper end of that range. We do want to see it continue to grow over time, which that was really the driver here. South Carolina has been a great partner for us. Then putting additional capital in, I think you can just equate to FSK kind of selling a portfolio or an asset sort of that kind of the mark and then you can use those proceeds to reinvest into other places. So there's some offset to that to your question around any sort of dividend reduction. But the point and the purpose of it was to allow the entity to grow. My guess is, over time, you will see our percentage potentially sort of tick back up as we continue to put additional sort of capital in there. That's not necessarily automatically will happen, but it's something that sort of could happen. But it's about trying to continue to grow. I think it will have a certain amount of an impact out of the gate. I think we're mindful about that, but I think we were pretty happy to continue this good partnership with South Carolina. Operator: Your next question comes from the line of Casey Alexander with Compass Point Research & Trading. Casey Alexander: I have one question and one follow-up. My first question is, look, I hate to bring up what might seem like a tired old refrain. But at the moment, the stock is trading at 55% of book, and that kind of screams not to invest in new loans, but to take repayments and start buying the stock. Could you guys give us some feeling for your temper in regards to beginning to initiate meaningful stock repurchases? And I know -- look, I know the employees have bought the stock. I know the advisers bought the stock. But at this point in time, your only road to increasing NAV at this point in time is accretive share repurchases at such a dramatic discount to book value. Daniel Pietrzak: Yes. Casey, thanks for the question. I think we understand the point there. I think as the entity, these numbers might not be perfect, but I think we have historically bought back $350 million of stock. That's probably more than sort of most out there. It is something that we do have to consider. I think the only thing on the other side of that, that I just need to be mindful about is the market noise and/or volatility. And I do believe some of that is overdone out there broadly, but that's kind of top of mind and then where we're at vis-a-vis sort of leverage and target leverage. But it is, yes, something that we will be talking about. Casey Alexander: Yes. And the fact that maybe some of the movement in the stock is related to broader market noise would argue even more, I would think, to buying it here because some of that will then be relieved by the absence of the market noise, and this would be the most accretive level. My second question is there have been multiple reports of pretty material dislocation in the fix and flip market. And FSK has a significant investment in Toorak. And so I was wondering if you could remind us what the structure of the Toorak investment is and how it's performing? Daniel Pietrzak: Yes. Yes. So if you go back, I mean, that investment was initially made in 2016. It, in a lot of ways, started out in probably thinking about it almost as a trade, right, meaning that there was no institutional footprint out there. We wanted to capitalize on that. When we did the deal back in '16, I probably would have been happy with -- if we did kind of $1 billion to $2 billion of loans. I think when we do look at it today, right, we've done $12.5 billion of loans. I think the cumulative losses for the entity over the 10 years have been kind of roughly $100 million, so that's held up pretty well. I think we have seen -- and I don't think your point is wrong, Casey. I'll come back to the other side of that. I think we have seen some positive of point, their direct origination business did almost $800 million or $820 million last year. They do have a business in the U.K. that's been quite effective and quite strong. I think we have seen higher delinquencies in the U.S., roughly 10%, although that's been sort of stabilizing. I think we have seen ROEs challenged, right? Some of that relates to the delinquency numbers. Some of that relates to the rate environment where the interest rate on the loans did not move anywhere near the financing cost did, right? That has had an impact on us, right? Our dividends out of Toorak which have historically been roughly 10% per year have been lower. We've seen some impact to the mark there. But arguably, over the 10-year period has been a positive story. It is treated like a portfolio company, meaning it is an active originator on a direct basis as well as a buyer of loans in the U.S. and the U.K. And so we can either be the benefactor of those cash flows or it's a partnership with the management team, you could look for a monetization event down the road. But I think you're not wrong about the noise. I think there's been a little bit of let's call it, LTV type risk against some of the loans that have originated, especially from some of the smaller guys. Fortunately, Toorak hasn't had really any or -- de minimis exposure to things like that. But I think the ROE has been the bigger one. Operator: Your next question comes to the line of Rick Shane with JPMorgan. Richard Shane: Look, Casey really covered, I think, as far as I'm concerned, the most important structural issue in terms of repurchasing shares. Look, you guys had over $5 billion come in last year, $5 billion the year before that. Presumably, the run rate in terms of repayments will be similar this year, which should provide a fair amount of liquidity for repurchases. I haven't -- listening to all the BDC calls, I haven't heard anybody make a super compelling case for, wow, there's this incredible dislocation, this opportunity to deploy capital into new loans that's so attractive. What is out there that's actually more accretive to both earnings and again, to NAV than repurchasing shares at this point? Daniel Pietrzak: Yes. And thanks for the question, Rick. I think the investing environment has been -- maybe the right word is interesting over the last handful of years, right? There's been a lot of different forms of market events to the market. I think on the direct lending side, to be fair, has felt decently tight in terms of -- you have seen spread compression. I think a lot of that has had to do with the fact of inflows were high. I do think the inflows from the wealth channel was a driver of that, and that was really coupled with, let's call it, lower-than-normal M&A volume. So you can talk about a little bit of a market technical out there. I think the offset to that is, I think the quality of the companies that have been accessing the market has been strong. I think the size of the companies that have been accessing the market has been good. I think we prefer to lend to those larger companies. I think the thing we have tried to focus on is getting diversification in the book, right? So that was growing the joint venture was one form of that. We got up to the target number. We have seen some compelling opportunities in the asset-based finance. We talked about some of those on prior deals -- I'm sorry, prior calls, either the Harley-Davidson or the PayPal. But I understand the point. I think we need to take all that into consideration as we move forward. I would say one thing. I probably am expecting a more lender-friendly environment as we go through the course of '26. I think that will very much skew based upon how open the capital markets is, which it is pretty open right now. But I think you'll see the flows maybe sort of temper a bit, and then you'll have to see what happens in the capital markets as the sort of probably primary driver of that. But our eyes are focused on. Richard Shane: I appreciate the answer. Look, there's the old curse may you live in interesting times. I'm not sure about you guys, but I'm tired of interesting times. Operator: Your next question comes from the line of Robert Dodd with Raymond James. Robert Dodd: Excuse me. Sorry, I'm coupling from Rick's line because I agree with him on that one. Just a couple of questions on credit, not surprising. On the main markdowns this quarter, I mean, PRG, Medallia, Peraton, I mean, Cubic is already on nonaccrual. Those are the 3, I mean, PRG just came off, nonaccrual, it is markdown. I mean, looking at the scale of the marks, I got a question. Are there -- is there a high probability that those businesses end up on nonaccrual as well or large segments of them? Do they have to go through aggressive restructurings where even if they don't go on nonaccrual, you equitize a bunch of the debt. And those -- is there an incremental risk in addition, obviously, to the 5 new ones this quarter, those 3, PRG, which has been a multiyear process already, but the first restructuring didn't stick. Is there a material risk that there's more earnings loss to come from those assets? Daniel Pietrzak: Yes. And Rob, thanks. I think on each of those names, there's what I would call some level of active dialogue or sort of active sort of monitoring. I mean Peraton is probably as much of a -- over time, it's evolved to as much of a Level 2 asset as sort of Level 3. So I think there's some of that component in there. So I think as we -- as you go down the list of those, right, I think we're trying to make significant changes on the PRG side. There is a large chunk of more sort of equity-like risk that's in the non-income-producing bucket. I think the lenders have been doing a lot of work on the Cubic side, but there still is, quite frankly, some headwinds from the government. I think Peraton had some good news, right, during Q4 as it related to sort of a big contract win. And I think we're going to spend time with the other lenders, and I'm sure in discussions with the sponsor on Medallia. There's a lot of capital below us in Medallia, but performance has been more difficult, really operational, though non-AI. So they're all live situations. Robert Dodd: Got it. Got it. And then on to the -- you mentioned this in response to another question. I mean the health care and the roll-up issue. I mean a few years ago, physician office rollups. I'm not talking about your portfolio at this point. And then it became dental. I mean you've got DCA, but a lot of other people in DCA and 2 other dental businesses went back on nonaccrual this quarter elsewhere. And you had -- I mean, obviously, that's been an evolving theme. The roll-up issue within the health care space has become -- it doesn't seem to be getting fixed, right, broadly across the space. Is there -- this continues to spiral? I mean there's still plenty of dental businesses that aren't currently feeling those pressures across -- in your portfolio and elsewhere. And the same thing like with vets and what's the next shooter to drop on the roll-up strategy kind of breaking down as it exists in your portfolio as a [indiscernible] obviously? Daniel Pietrzak: Yes. I mean I think that is a fair question. And I think you're correct. It was for some period of time, probably one of the darlings of both PE and direct lending. We -- it is an emerging theme in our mind or it has been for the last handful of quarters. I think we saw it initially on things that were, let's call it, consumer discretionary sort of focused, right? So they were sort of struggling. We have seen, as I talked about before, kind of the wage inflation remains sort of a challenge there. We have seen, we'll call it a very different performance even within the dental space on certain names. And some of that goes to, we'll call it, structure of business or how the employees are getting compensated, whether they own part of their individual practice or whether everybody owns something sort of on top. So it is a little case specific. I think for us, we're 5.7% of the portfolio is in these medical sort of roll-ups, 3.3% of that is dental. DCA went on nonaccrual. It got sort of marked down this quarter. I think we feel pretty good about that business, that team. I think we were in, what I'll call it, live discussions with the junior debt holders and sponsors there. It feels like it's going to be a 1L-led solution. But that business is actually doing, we'll call it, broadly okay or at least in line with plan, but I think being a '21 investment at a different rate environment, just over-levered. We have seen some other names out there that have inside of this quarter, struggled a bit more in the dental space, right? We have one of those in affordable care. But it is a bit of a hotspot right now and one that we're focused on. Operator: Your next question comes from the line of Dillon Heins with B. Riley Securities. Dillon Heins: I know we talked about this quite a little bit here, but I guess what was the inflection point coming from last quarter's expectations of decreasing nonaccruals? There was the pro forma guide of 3.6% on cost and 1.9% of fair value after PRG restructuring. But I guess like what -- yes, what was the breaking point coming from that to where we are now? Daniel Pietrzak: Yes. And again, another fair question. I do think -- just to be fair, I think the 3.6% was just kind of giving a pro forma knowing that PRG had sort of fallen off. It wasn't trying to sort of necessarily guide, but if that was the impression, we'll work better on communication there. I think that if you look at the nonaccruals, really the 3 of the names are quite small from a market value perspective. The real drivers are really DCA and Lionbridge. I just talked about DCA on the prior call. That was a live conversation with those who are subordinate to us, and it's going a different way than I think we would have assumed or thought it was going. And then on Lionbridge, we were in an active sales process. We do think parts of that business are still interesting. And that was the one space in the portfolio where there was some direct, in my mind, kind of AI impact, not just performance, but the kind of overall mood around the business, which I think made that sort of sales process hard. So I think the events relating to what we were at DCA and Lionbridge were the drivers. Operator: Your next question comes from the line of Finian O'Shea with Wells Fargo Securities. Finian O'Shea: I'll be less abstract this time. I wanted to get an update on the -- I know you talked about the dividend a little bit, but part of the sort of lead up to the finality here was the spillover item. Can you give us an update there? Did you like reach your target range? And/or should we anticipate specials like on top of the supplemental program? Daniel Pietrzak: Yes. And I'll let Steven kind of go through that. I think just for everybody's benefit on the call, just as a reminder, right, we did change the dividend effect of the dividend policy in the last call to be more sort of base and supplemental, the 45 base and supplemental sort of thereafter. But Steven, do you want to add? Steven Lilly: Yes. Then we ended the year, I think the number in the 10-K is the estimate $464 million or so of spillover. And as you will certainly note, based on the current dividend, that's sort of 3.5 quarters or so. What I would say in that is as we have -- what we've seen kind of during late '24 and through 2025 as the ABF portfolio has continued to ramp and international structured investments and partnerships and things, we're making estimates at this point in the year of what tax could be. And then in certain investments, whether or not cash is received, there's -- if they're quarter paper profits, and we are allocating our portion of tax, which would go into spillover. So there can be some timing differences on that. And so we will know much more in the kind of August, September time frame. But I think we stand by what we've said before, which is if we need to make a payment later in the year, we will certainly do that. But I think it's too early to tell if some of these reversals could happen or where the final partnership tax returns will come in over the summer months. So it's a little bit of wait and see. But certainly, when there's news, we will announce it. Finian O'Shea: Yes. No, I appreciate it. So it's not like last year where it's overpaying like the 45% is your true like NOI target? Steven Lilly: Yes. I think what we've said in terms of the dividend is as GAAP net investment income moves quarter-to-quarter, then the dividend will move as well. And then if we need to make an additional payment later in the year to satisfy something from a spillover related basis, we will do that, which is, as I think you're pointing out, different than the concept last year of effectively guaranteeing the market that we're going to pay $0.70 for all 4 quarters of 2025 because for other reasons, more over-earning reasons in the higher interest rate period, the spillover balance had grown. Operator: This concludes the question-and-answer session. And I would now like to turn it back to Dan Pietrzak for closing remarks. Daniel Pietrzak: Thank you, everyone, for your time on the call today. We very much appreciate it. We are available for any follow-up questions as needed. And if not, we look forward to speaking with you on our Q1 call. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Greetings, and welcome to the TG Therapeutics Fourth Quarter and Year-End 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Jenna Bosco, Chief Communications Officer. Please proceed. Jenna Bosco: Thank you. Welcome, everyone, and thank you for joining us this morning. I'm Jenna Bosco, and with me to discuss TG Therapeutics' Fourth Quarter and Year-end 2025 financial results are Michael Weiss, our Chairman and Chief Executive Officer; Adam Waldman, our Chief Commercial Officer; and Sean Power, our Chief Financial Officer. Following our safe harbor statement, Mike will begin with an overview of our recent corporate developments. Adam will provide an update on our commercial efforts, and Sean will review our financial results before we open the call for Q&A. Before we begin, I'd like to remind everyone that today's discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include expectations regarding our future operating and financial performance, including sales trends, revenue guidance, projected milestones, development plans and outlook for our marketed products. Please note that these statements are subject to risks and uncertainties that could cause our actual results to differ materially from those indicated. These risks are detailed in our SEC filings. Additionally, any forward-looking statements made today reflect our views only as of this date, and we disclaim any obligation to update or revise them. As a reminder, this conference call is being recorded and will be available for replay for the next 30 days on our corporate website at www.tgtherapeutics.com. With that, I'll turn the call over to Mike Weiss, our CEO. Michael Weiss: Thank you, Jenna, and good morning, everyone, and thank you for joining us today. 2025 was a defining year for TG Therapeutics. We didn't just grow, we scaled, we strengthened and we demonstrated that BRIUMVI is becoming a foundational therapy in relapsing multiple sclerosis. Let's start with what matters most, performance. We delivered approximately $616 million in total global revenue, the vast majority of which came from $594 million of BRIUMVI U.S. net sales, and we capped the year with a strong fourth quarter of $183 million. That represents approximately 92% year-over-year growth and 20% sequential growth from Q4 over Q3. Those numbers reflect something simple. Physicians are choosing BRIUMVI, patients are staying on BRIUMVI and confidence in the product continues to build. That confidence is reinforced by our 6-year open-label extension data from ULTIMATE I and II presented at ECTRIMS this past September. Nearly 90% of the patients were free from 24-week confirmed disability progression after 6 years of continuous treatment, 6 years and the relapse rate seen in the 6-year BRIUMVI treatment translates into 1 relapse occurring in every 83 years of treatment. And importantly, no new safety signals emerged. On the R&D front, we advanced our Phase III ENHANCE study, evaluating consolidation of the day 1 and day 15 BRIUMVI infusions into a single 600-milligram dose. Enrollment is complete. We expect top line data midyear with the potential 2027 launch of this consolidated treatment schedule. If successful, this could meaningfully simplify the treatment experience. We believe effective therapies should not only work well, but be as convenient as possible for patients, which brings me to our subcutaneous program. We are developing a self-administered at-home subcu BRIUMVI to be delivered via an auto-injector. Our Phase III study is evaluating 2 dosing schedules, every 2 months and quarterly administration. The trial is now approximately 75% enrolled, and we're targeting pivotal top-line data later this year or early next year with a potential 2028 launch. We see this program as having significant commercial potential. The subcu portion of the anti-CD20 market is substantial and being able to compete in this space, we believe, could nearly double our total addressable market opportunity. Beyond MS, we are actively advancing plans to explore BRIUMVI in additional autoimmune indications, including having treated a series of Myasthenia Gravis patients in a Phase I study. And finally, Azer-cel, our allogeneic anti-CD19 CAR-T is being studied in patients with progressive MS. It's still early, but momentum is building. Our clinical trial sites are identifying patients quickly. In fact, demand is exceeding available trial slots. That tells us something important. There is a real unmet medical need. We look forward to sharing updates from this program later this year. Turning to some financials. I'll leave the details to Adam and Sean, but suffice to say, we expect to continue generating positive cash flow in 2026 and beyond, which gives us a rare financial flexibility within the biotech universe. We've been clear about our capital priorities, invest to maximize the multibillion-dollar BRIUMVI opportunity, expand the pipeline judiciously for sustained future growth, repurchase shares when we believe TG is materially undervalued and otherwise allocate capital in ways that generate long-term returns. With respect to share buybacks, we completed our first $100 million share repurchase program, and the Board authorized an additional $100 million last year. At current levels, we view our shares as significantly undervalued relative to the cash flow profile we expect over the coming years, and we will not hesitate to act accordingly, including adding leverage to reduce our share count. And to be clear, we purchased shares to create long-term value, not for the optics. Before closing, I want to touch on something I'm personally very proud of. Many of you saw Christina Applegate launched Next In MS during Super Bowl 60. We are honored to partner with her on this platform. Next In MS is about honest, unfiltered conversations about life with MS, about difficult realities about resilience beyond treatment decisions. We're not just commercializing BRIUMVI. We're building the MS company that shows up for patients beyond the prescription. To close, at TG, our mission remains simple: deliver meaningful therapies, simplify treatment, create lasting value for patients and shareholders. I'll now turn the call over to Adam Waldman, our Chief Commercial Officer, for a detailed commercial update. Adam, go ahead. Adam Waldman: Thanks, Mike, and good morning, everyone. 2025 was a year of continued acceleration for BRIUMVI, and we closed the year with another strong quarter of execution and growth, further expanding our position in the RMS market. For the fourth quarter of 2025, we delivered U.S. net sales of $183 million and continued sequential expansion versus Q3. For the full year, BRIUMVI U.S. net revenue reached $594 million, reflecting sustained momentum built on the strong commercial foundation established in the first 3 years of launch. Growth throughout the year was driven by consistent and increasing year-over-year new patient starts, continued expansion of our prescriber base, better-than-expected persistence, greater depth within high-volume infusion accounts. Importantly, growth was broad-based across both academic and community settings, reflecting rising physician confidence and expanding utilization. BRIUMVI continues to strengthen its competitive position within a large and growing anti-CD20 market. Within the IV anti-CD20 segment, we continue to gain dynamic share. Physicians remain focused on proven efficacy, long-term safety experience and operational efficiency and BRIUMVI's 1-hour twice yearly maintenance infusion profile supported by multiyear data continues to resonate in a competitive environment. We are seeing a balanced mix of treatment-naive and switch patients, reinforcing both the breadth of the opportunity and the continued expansion of our footprint within the class. Our execution remains strong across all commercial functions, and TG is emerging as a leader in the therapeutic category. As the franchise continues to scale, we have continued to invest behind the business. During 2025, we expanded our field organization to deepen coverage in high-opportunity geographies and broaden our reach among community neurologists and independent infusion centers. That expanded footprint is driving increased prescriber engagement and positions us to accelerate further penetration in 2026. We also expanded our direct-to-patient engagement efforts during the year. In addition to our national BRIUMVI campaign, as Mike mentioned, we recently announced our partnership with Christina Applegate to launch NextInMS.com, a new educational platform designed to provide resources and information to individuals living with RMS and their caregivers. Christina's long-standing advocacy within the MS community brings credibility and visibility to broader conversations around navigating life with MS. Through Next In MS, our focus is on education, empowerment and encouraging informed dialogue between patients and their health care providers. As BRIUMVI continues to scale, we believe it's important to engage thoughtfully and meaningfully within the MS community, and this partnership reflects our growing leadership position in the space and our long-term commitment to supporting the MS community. As we look to 2026, we are reaffirming our previously issued full year U.S. BRIUMVI net revenue guidance of $825 million to $850 million, with total global revenue at $875 million to $900 million. Our outlook reflects continued growth driven by expanding prescriber adoption, increasing depth within existing accounts and ongoing share gains and a growing installed base of patients with strong persistence on therapy. We've entered 2026 with real momentum. New patient starts are tracking to our strongest level since launch. Physician confidence continues to build and our share trajectory within the IV anti-CD20 segment remains favorable. Importantly, after operating alongside competitive entrants for several quarters, BRIUMVI has demonstrated that it can compete effectively and continue to expand its position within the class. Turning to the first quarter and based on the strong demand trends we are seeing earlier in the year, we expect U.S. revenue to grow sequentially over Q4 levels to approximately $185 million to $190 million, even after accounting for typical seasonal headwinds. As we have mentioned previously, the first quarter generally reflects routine factors such as benefit reverifications and gross to net variability driven by deductible resets, which can influence the timing of net revenue early in the year. These dynamics are consistent with what we have seen historically in the category and are fully incorporated into our full year guidance. We also expect ex-U.S. revenue to be in the range of $5 million to $10 million for the first quarter. Taken together, the strength of demand and continued share expansion gives us confidence in our reaffirmed guidance and our ability to drive meaningful growth in 2026. To summarize, we have delivered another year of strong growth in 2025. We continue to gain share in a competitive IV anti-CD20 market. We have invested meaningfully in field expansion and direct-to-consumer initiatives to support the next phase of growth. We are off to a very strong start in 2026, tracking to record new patient enrollments entering the year. BRIUMVI is now a scaled and expanding franchise, and we believe the commercial platform we've built positions us well to continue driving meaningful growth in the year ahead. With that, I'll turn it over to Sean to walk through the financials. Sean Power: Thank you, Adam, and thanks, everyone, for joining us. Earlier this morning, we released our fourth quarter and full year 2025 financial results, which are available in the Investors and Media section of our website. I'll begin with a discussion of our revenue for the fourth quarter and full year, which Adam briefly touched on. We are pleased to report U.S. BRIUMVI net product revenue of $182.7 million during the fourth quarter. Total net product revenue for the quarter was $189.1 million, which includes $6.4 million of product revenue related to sales to our partner, Neuraxpharm in support of ex-U.S. commercialization. For the full year 2025, global revenue was approximately $616 million, predominantly comprised of $594 million in U.S. BRIUMVI net product revenue, $12.8 million in revenue from products supplied to Neuraxpharm and $9.4 million in royalty and other revenue. Our gross margin for the quarter was slightly below typical as a result of timing of sales to our ex-U.S. partner and a onetime inventory reserve. Shifting to operating expenses, which we define as R&D and SG&A, excluding noncash comp. Full year 2025 expenses totaled approximately $328 million, in line with our prior guidance of $300 million to $320 million. The modest variance was driven primarily by incremental manufacturing and development costs related to subcutaneous BRIUMVI and continued commercial investment. Revenue growth significantly exceeded the increase in operating expenses, resulting in operating income of $123 million for the year. For the fourth quarter, net income was $23 million or $0.14 per diluted share. For the full year 2025, net income totaled $447.2 million or $2.77 per diluted share compared to $23.4 million or $0.15 per diluted share in 2024. As a reminder, 2025 results including nonrecurring income tax benefit of approximately $340 million, which relates primarily to the release of our deferred tax asset valuation allowance in the third quarter. Turning to our balance sheet and capital position. We ended the year with more than $600 million in current assets, approximately $200 million in cash, cash equivalents and investment securities, $300 million in accounts receivable and $140 million in inventory. During the year, we completed our previously authorized $100 million share repurchase program, purchasing approximately 3.5 million shares at an average price of $28.55 per share. The Board has since authorized an additional $100 million share repurchase program, reflecting continued confidence in our long-term outlook. Looking ahead to 2026, we expect full year operating expenses of approximately $350 million, excluding noncash comp, plus approximately $100 million in expenses associated with subcutaneous BRIUMVI manufacturing and secondary manufacturer start-up activities. These costs run through R&D today, but if the programs are successful, the related inventory would be sold in future periods with little to no associated cost of goods as the manufacturing expense has already been recognized, positively impacting gross margin in future periods. In summary, 2025 represented a year of strong execution for TG. We delivered substantial revenue growth, generated meaningful operating income and positioned the company for continued expansion in 2026. With that, I will now turn the call back over to the conference operator to begin the Q&A. Operator: [Operator Instructions] The first question comes from Michael DiFiore with Evercore ISI. Michael DiFiore: 2 for me. Roche has recently highlighted accelerating subcu uptake in community practices and Novartis continues to emphasize strong growth in the -- in self-administered first-line use. You've described broad momentum across academic and community settings in the HCP administered segment. So my question is, can you help us think about how those dynamics fit together and where you're currently seeing the strongest incremental momentum by site of care? And I have a follow-up. Michael Weiss: Sure. Thanks for the question. Adam, do you want to go ahead? Adam Waldman: Yes, sure. Thanks for the question, Mike. So listen, we've now operated alongside the new entry from Roche for several quarters now. We continue to seek share gains in the IV segment. Physicians seem to be -- continue to be driven by clinical data, long-term data, operational considerations. It seems like the majority of the de novo business seems to be coming from Ocrevus IV. But importantly, we're also -- we're not seeing any decreases in the switches from Ocrevus to BRIUMVI. So that's an important factor, too. And in terms of what's driving our share, we're seeing growth across both private practice and academic centers. We think it's the durability of the clinical profile, as Mike mentioned, the 6-year data, especially the safety data within there and the efficacy data. We continue to believe the operational advantages of BRIUMVI, the 1-hour infusion, the twice a year are relevant for patients and infusion centers. We continue to expand prescriber breadth and depth with our expansion of our field force. And I think we're seeing great momentum. And as I mentioned, the underlying demand is very strong. Enrollments are tracking to the highest since launch. And we continue to see share gains across the board, across patient types, across sites of care. And importantly, also, we see very strong persistence. So overall, really strong and the fundamentals are great. Michael DiFiore: Very helpful. And my follow-up question is on gross to net. You previously noted that gross to net can fluctuate with site of care mix, particularly in hospital exposure. So as these -- as growth evolves across channels, are you seeing any meaningful change in gross to net assumptions? Or does your prior framework still hold? Adam Waldman: Yes. As I mentioned in the prepared remarks, gross to net can vary quarter-to-quarter. In Q1, gross to net is influenced by deductible resets and high utilization of co-pay programs. Consistent with what we've seen historically, does not represent a structural change in how we think about gross to net. It's a Q1 dynamic. Our full year guide reflects the net revenue profile for this year. It is a Q1 dynamic that seems to be consistent with what we see across the CD20 space, also other specialty products, and it's fully baked into our full year guidance. So I hope that answers the question. Operator: The next question comes from Tara Bancroft with TD Cowen. Tara Bancroft: So I'm curious to hear your thoughts around positioning now that you're several years into this launch, but guidance for Q1 and the year are pretty conservative. So I was hoping you could give us some more detail on the proportion of new versus switch patients and how much revenue now is from patients that are remaining on treatment for these extended periods of time and whether new patient starts are still growing or leveling off and why? Sean Power: Thanks. Adam, it's all you still. Adam Waldman: Go ahead. Yes. Thanks for the question, Tara. Listen, I think I'll just reiterate what we're seeing. The majority -- we're seeing record new patient enrollments here. We're still seeing growth. We're seeing great share gains in the IV segment. And I think that's being driven by the things that I mentioned, durability of the clinical profile, the 6-year data, the operational advantages, our investment in both the expansion of our field force. It could very well be our DTC efforts, although hard to single out a single factor here. But all these things, I think, are leading to continued confidence in the product across the board, and that's why we're seeing such a great demand that we're seeing right now. As far as new versus switch, I mentioned a couple of quarters ago, the business becomes more predictable as we've now walked into more switch. Sorry, not switch, repeat patients. So we are seeing more and more repeat patients as a bigger part of our business as that patients continue to pancake from quarter-to-quarter and stay on therapy for long periods of time. As I mentioned before, also, our persistence is quite strong. And so we're seeing patients staying on therapy for -- it looks like out to week 48, week 72, week 96 seems very good. So all those things are leading to growth. We do expect -- we do expect growth in 2026 and meaningful growth in our guidance. Operator: The next question comes from Prakhar Agrawal with Cantor Fitzgerald. Prakhar Agrawal: Congrats on the quarter. Maybe just a follow-up on the new patient start. Adam, you said you're seeing good growth in new patient starts, but I'm trying to connect the dots between your commentary as well as what's implied in the guidance because based on our math, the guidance would imply a more modest year-on-year growth on new patient starts. So how much conservatism is baked into the guidance? Or should we expect a lot higher gross to net for full year 2026? And secondly, how much incremental investments would you need for the subcu launch? And what would be the plans to commercialize subcu BRIUMVI ex-U.S. given that it seems to be a large market for drugs like Kesimpta, so there could be a lot of value there. Adam Waldman: Yes. Mike, do you want me to continue to go here? Michael Weiss: Yes. Why don't you and just start off. Go ahead. Adam Waldman: Yes. I mean, look, we're early in the year here. Like I said, we're seeing a strong start to the year. We're early here. We'll continue to update the guidance as we see fit, as we continue to get more time with -- we'll see how we do throughout the year. It's, of course, possible that we could see outperformance that could come from continued new patient starts. We could see incremental share gains. We could see better-than-expected persistence. That's -- we're being somewhat conservative here. But so far, the year is starting are strong, but we're -- again, we're only in February. So we'll see how that goes. And then in Q1, we're seeing just a disconnect in Q1 prior to your question, strong new patient growth. However, you do face the Q1 issues and headwinds as I described on gross to net and benefit reverification. And then Mike, I don't know if you want to take the subcu question. Michael Weiss: Sure. Yes. I mean in terms of incremental investment, Prakhar, I mean, Adam can answer this as well as me, but overlap between our current field force for IV to subcu is, I think, about 80%. So I don't -- there's not a huge incremental cost. There will obviously be some incremental marketing costs associated with it. But overall, it's not a huge incremental investment to launch subcu in the U.S. As for ex-U.S., we expect our partners at Neurax will opt into that program when offered it. And so we'll work with them on the ex-U.S. strategy at that point. Operator: The next question comes from Corinne Johnson, Goldman Sachs. Corinne Jenkins: Maybe continuing on the conversation on subcu. Some of the competitors started providing color on the role I think a subcu offering could play over time with respect to IV versus subcu share. I guess what is your perspective there, particularly given the variety of dosing options within subcu that could be coming over the next couple of years, including obviously, BRIUMVI? Sean Power: Sure. I'll give it a start, Adam, you can supplement if you like. Look, the subcu portion of the market has been relatively stable for a while, I think 35% to maybe 40% it fluctuates up and down quarter-to-quarter. Long term, the more options that are available creates more energy in that space and more people marketing in that space. So I do believe that over time, with new options available, that space can expand and probably will expand. To what extent is hard to predict at this moment, but I do think there's probably some forces that will push people towards subcu at home over time. And yes, so I do think that market will continue to -- Adam, any additional thoughts? Adam Waldman: No, that's perfect. Sean. Operator: The next question comes from Brian Cheng with JPMorgan. Lut Ming Cheng: Just looking at the existing sales force, is there any potential need for a refocus of their goal this year? And are there pockets of opportunities that you think might be more important this year just given more adoption on the subcu side? And then on a related note, how should we think about the expenses projection related to the DTC campaign that you have set up for this year? What magnitude of a step-up can we expect? Sean Power: Thanks, Brian. Adam, do you want to lead us off here? Adam Waldman: Sure. Yes. Thanks for the question, Brian. We -- as I've mentioned before, we continue to take a strategic expansion approach to our field force. We have continued to add people as we've seen opportunities to do so. We're looking at it strategically. We add people where we see opportunity and continue to hire the best people that we can find in the area. As far as a new goal, I don't know that it needs a new goal. I think we have a pay-for-performance culture and an accountable culture. We've hired the best people in the industry. This team is fantastic, and they continue to deliver on what we've asked them to do. So I don't think we need a new goal. I think we have a great team. I'm very confident in the commercial functions, as I mentioned, I think they're doing an excellent job. Operator: The next question comes from William Wood with B. Riley. William Wood: So thinking about some of your -- the subcu Phase III that's going on currently. I'm just curious when we might actually see or if there's a chance that we might see any subcu bioequivalence data generated. So how we can sort of think about that, the Phase III readout later this year? And then also in terms of some of the earlier-stage programs, I know you've got Phase I ongoing in Myasthenia Gravis. But just curious if and when we might expect to see some of these earlier stage data from the earlier-stage programs, any of that reading out later this year at conference? Michael Weiss: Sure. Thanks for the question, William. In terms of subcu, yes, as we discussed, Phase III is approximately 75% enrolled. We continue to be excited about that program and it's -- the opportunity for us there. Phase III data is expected later this year or early next year. In terms of the Phase I bioequivalence data, it's been coming in. The study is actually, I think, just about to close formally. So there's overlap between the Phase III and the Phase I just for follow-up and all those kinds of things. So the Phase I is, I think, just about closing up or maybe it's not there yet, but getting close. We'll take a look at the timing of conferences and the timing of the Phase III data and see if it makes sense to actually put the Phase I data out or not based on timing of where we are at the Phase III and the conference schedule that's available once that data is fully evaluated and presentable format. So the answer is, I don't know as of yet. But like I said, based on the preliminary data, we're feeling very good about the program and very excited about the Phase III outcome that will be later this year. In terms of Phase I MG, I have not talked to the team yet about what their plans are for presenting that information. Anecdotally, I know the study -- the patients who have been treated with MG look quite good in terms of their response to the drug, which I don't think is much of a surprise to anybody. But I'll check back with the team and I'll be able to give some more guidance later on that once I find out what their plans are. Operator: The next question comes from Emily Bodnar with H.C. Wainwright. Emily Bodnar: In terms of the ENHANCE trial and launching that next year, can you just talk about how you think about that from a market perspective and if you see any potential for kind of incremental revenue growth with implementing that launch? And then maybe if you could just talk a bit about some early metrics that you're tracking with the DTC launch and the Next In MS program? Michael Weiss: Sure. Thanks for the question, Emily. So in terms of the ENHANCE trial launch and incremental potential from that, I'll take a crack, Adam, and then please jump in. We've done some market research. Generally speaking, it's extremely positive feedback on eliminating the second dose, the convenience factor for both patient and for centers is viewed very high in the research we're doing. Anecdotally, I've personally been in advisory boards recently where people are even more enthusiastic than they've previously been about reducing that first dose. In terms of incremental market share gains, I think from our research and from the anecdotal experience that we have, we do believe that it will help us continue to gain market share gains in this area. Again, it's just -- every time we make it easier, it's just -- it's better. In terms of -- the other side of it is in terms of switches, people are excited about it to use this on label for switches, which we think will be helpful there. And generally speaking, if you're looking at going on IV OCREVUS or IV BRIUMVI, you now have another reason or another convenience reason to go on to BRIUMVI, eliminating that first dose, which they still have -- we'll still have 2 doses upfront for their IV plus the much longer infusion. So yes, we do think that will have a positive impact, and we're looking forward to that launch. Adam, anything more on that topic? Adam Waldman: No, I think you covered it. That was great. Michael Weiss: Okay. And then the second part of the question was early metrics on DTC. I know that's one of Adam's favorite topics, so I'll hand it off to him. Adam Waldman: Yes. No, thanks for the question, Emily, and asking about our partnership with Christina and Next In MS. As I mentioned, we view these efforts as building long-term category leadership. The feedback from customers and patients and advocacy groups has been incredibly positive. so far. Obviously, we're looking at in terms of metrics that you asked about, the engagement with the content has been -- has exceeded our expectations. We're looking at the number of people who sign up on our website, the number of website visits, number of sessions, and we'll continue to track it. But so far, everything has exceeded our expectations and the engagement with the materials has been fantastic. Operator: Thank you. At this time, I would like to turn the call back to Mike Weiss for closing comments. Michael Weiss: Great. Thank you, operator. And thanks again, everyone, for joining us. '25 was a very strong year for us. '26, we expect to be even stronger, including a number of very exciting catalysts, including the top line data from our ENHANCE trial, some preliminary data from Azer-cel and then perhaps the biggest one of all at the end of the year or early next year, pivotal data from the subcutaneous BRIUMVI program. To our TG employees, thank you always for your dedication to those living with MS. To the health care providers, individuals with MS and their families. Thank you for your trust. And to our long-term shareholders, thank you for recognizing the potential of what we are building here at TG. We're just getting started. Have a great day. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
David Baquero: Hello. Welcome to this presentation of Atresmedia. This year, we were going to give the presentation in Spanish, but you can also receive the translation in English. We have a simultaneous translation service. And Silvio Gonzalez, who is the VP, will give the presentation presenting the results for 2025 and a quick overview of the strategic plan update. and also the Financial Director and myself, helping with the question of the issue of the questions. Without further ado, I'd like to hand the floor to Silvio to present the results for the year. Silvio Moreno: Good afternoon. We're going to have a quick overview of 2025. And as always, 2025 was a complicated year for the sector for macro reasons and certain sections such as automation and also because there are different competitors in streaming platforms. And this has also meant that it's been a rather complicated and challenging year. And we try to be rigorous in terms of the application of our strategy in terms of audience and the market and our products. It's been once again a very successful year. We have been leaders in audience far ahead of our competitors in the field of audiovisuals, TV and digital audiovisuals. I apologize, but we are receiving continual interruptions in the audio. We can give you the following data. In TV, we had a market share of 26.1%. And as we will see, not just in terms of global -- in overall global market share of 28.15% with the premium markets, 22.6 million monthly, which is the leading platform in this country. And in radio, it's been an excellent year with more than 3 million listeners per day, which is the best figure since 2015. And we can -- this confirms the strength of our brands. In terms of markets, -- in terms of the advertising market, it's grown at approximately 1%. And in the 2 sectors where there's been -- for example, in terms of revenue, there's been a downturn in TV of 4.4%. And in radio, it's increased by 2.6%. This has resulted in total revenues of over EUR 1 billithey're, which is slightly lower than last year. And there's been -- well, audiovisual has also fallen by 2% in total revenues and radios by plus 4%. This has given us a pro forma EBITDA. Well, as you know, we carried out an incentive redundancy plan, early redundancy plan. The EBITDA is EUR 133 million. In terms of dividends paid in 2025, EUR 146 million. And we also have to take into account the impact year-on-year. The pro forma EBITDA is EUR 146 million and a net EUR 133 million and net profit, EUR 96 million. The financial position at the end of the year gives us a good net cash position, a very high cash conversion rate of 0.9. And it's been an exceptional year in terms of dividends. We've paid EUR 146 million in dividends at a ratio of EUR 0.64 per share, which is the highest since 2017. I think that the year 2025 has been an excellent year for our shareholders. And if we take into account share revaluation, and also high profitability, the total shareholder return for 2025 was plus 26%. But now I'd like to analyze the different pillars of Spanish advertising market of Atresmedia. The total market has fallen by 4.4% in TV, and radio plus 12.6%. Outdoor has increased by 6.7%, which is above the average for the sector. And you have to remember that this is a sector which is going to complement our results. And that shows you the performance of the advertising market in the outdoor segment in the last year. And you can see that the growth is not that high, but it's been constant since 2020. As always, we try to ensure that this drop in the market doesn't have an impact on our prices. We'll look at this later on, and we compare this with digital products in our offer to our 360 offer to our clients over the year. And the figures remain fairly solid in this respect. As regards audience share by groups, we have to see that it's been an excellent year. For 5 years, we are leading audience share, increasing the gap between ourselves and our next competitor. And that's important. In reality, we compete with Mediaset because it's the only commercial competitor that's access to the publicity market, the advertising market. There you can see also the curve for TV, which is the Spanish national broadcasting company, TVE, and that continues to be an important player within the advertising market. So it's been an excellent year in terms of audience share in terms of total audience share and also the total day and also in prime time. And this all gives us an advantage with respect to our main competitor, which is Mediaset Spain. As regards to audiovisual main milestones, we can highlight the following. Again, 2025, we've been the absolute Spanish leader. Atresmedia is the first, let's say, you can see we have 4 consecutive leading in total individual and prime time audiences and contents are of significant quality. And the audience appreciates that quality. Furthermore, we've consolidated our position as a stable channel with stable channels. We're stable in the mornings with our newest channels and both during -- at bid day and also in prime time. We are practically leaders in the majority of these slots during the day, and that's allowed us to achieve stable results. And the forecast is that we will continue to achieve good results in the coming years in audience figures and also in terms of the revenues we obtained from our business. As regards Atresmedia Digital, again, it's another year in which we're leaders in these different platforms among users in AVOD and SVOD. In AVOD, we have 2.5 million users, monthly video users and 18 million registered users and more than 750,000 subscribers as of December '25 and 20 million hours of video consumed with a local platform that's able to offer quality content and achieve a large number of subscribers. As regards Atresmedia Webs, of all of the products that we develop, which is not within AtresPlayer, we have the audiovisual group with the #1 audiovisual group and the seventh overall in terms of most visited sites with 22.6 million average for -- and then also in others in the digital sphere under influence marketing H2H, which is above -- growing at above market average and Smartclip, which has had a complicated time. It's suffered a lot, but it's maintaining its position as a company, maintaining its profitability, but it's been a complicated time in digital advertising. So I think that they've achieved excellent results and good penetration in that particular segment. And we'd like to focus a little bit more on Atresmedia audiovisual content. We increased by 10% year-on-year with 750,000 subscribers. And again, we've tried to adapt the prices for all of our subscribers, which has offered a good return. That hasn't affected our audience figures too much, and the results have been pretty good. Apart from that, the platform has been very successful, thanks to strategic mix of content. Disney+, for example, it's important to value quality and Disney+ values the quality and also the market position of our platform. Another important point as part of our 360 platform, -- and something which we'd also like to focus on at the end is the agreements that we've reached, the agreements with the main streaming platforms in the country such as Prime, Movistar, et cetera. And that's another important part of our business because this also allows us, thanks to the flow of content sales to develop products of quality, more expensive products and with a very loyal audience. And also in terms of international TV, we're also the leader in -- we've got 32% of the Spanish film box office in Atres Cine or Atres Films with 14 films in distribution. And in international, well, we have 58 million households, which is plus 7.3% year-on-year. It's part of our strategic plan. Well, we continue to maintain 58 million households, and that is also a way of generating additional revenues apart from those that we achieve in other segments. And in the middle of the year, we acquired the company, Last Lap. Last Lap is an events company, which focuses fundamentally on sports and also experiential marketing. And I have to be honest that the incorporation has gone very, very well. The second half of the year was much better than the year -- previous year in the same period. And additionally, we are going to merge this with the events part of Atresmedia. So this will give rise to a company with a turnover of approximately EUR 50 million. We're talking about an average of 3 events per day, and that will make us one of the leading events companies in the Spanish market. So this market is fairly fragmented, I have to say. And I'd like to talk a little bit about Atresmedia Radio. As I said before, our radio is working very well. the audience figures, approximately 3 million listeners and that is the best data since 2021 and the best data since 2015. So that's the figure for Onda Cero is the best figure since 2015, and Access Radio has achieved the best figure since 2021. Our prime time radio programs with Carlos Alsina has achieved historic audience figures achieving more than 1.7 million listeners per day. But apart from that, I think it's also the program with most credibility and the most rigor in terms of its journalism, let's say, in the field of radio in Spain. So we're extremely happy with the results that have been achieved with that program in 2025. And as regards the revenues for the entire year, well, there you have the figures slightly lower than the figures that we achieved in 2024, EUR 1,002.3 million compared with EUR 1,017.9 million. And there you can see the breakdown. OpEx pro forma that's ex post the incentive redundancy plan is EUR 86.9 million -- EUR 868.9 million, which is plus 3.4% compared with last year. To a like-for-like comparison, then the OpEx is -- would probably have declined if it wasn't for that. And in cost terms, we are very, very committed. The pro forma EBITDA, EUR 133.3 million, which gives us a net profit on a pro forma basis of EUR 96.3 million compared with EUR 120.3 million in the previous year. The entire pro forma results, well, EUR 45 million, which corresponded to the redundancy plan, which have been provisioned accordingly, but the impact on cash flow is something that is felt during the entire period. So it doesn't reduce in any way the cash flow structure of the group and the financial structure that we have. We analyze now revenues by segment. And we can see how this EUR 1 billion has been distributed. There you can see the figures for compared with financial year 2024. And fundamentally, well, the main decrease has this been downturn of EUR 49 million in audiovisual. We are going to -- we've managed to offset this with improvements in content production and distribution of EUR 1 million and others in perimeter, EUR 29 million. That's a total of EUR 30 million. In contrast, radio has performed much better with an increase of plus EUR 3 million, increasing from EUR 83 million to EUR 86 million. Therefore, we're trying to ensure that the weakness displayed by the audiovisual sector this year is bolstered and led by the incorporation of companies that are leaders in other sectors, which will allow us to achieve greater stability. In terms of OpEx by sentence, by segment, there you can see EUR 869 million in the total group compared with EUR 840 million last year. If we consider the contributions of new perimeter companies, then OpEx by segment would be more or less flat line or possibly negative in some instances. So we continue with the idea of adjusting in cost terms with a view to maintaining our quality and our competitive quality because that is something that will allow us to generate income, revenues and based on a pricing policy that ensures that we are clearly the group that offers better prices compared with the competitors in the rest of the sector. As regards to EBITDA, well, -- the EBITDA in 2024 was EUR 178 million, which has dropped to EUR 133 million. Most of that decrease corresponds to the group's audiovisual segment for the reasons I explained before. The performance has been much worse than we expected compared in the publicity market. Some sectors have virtually disappeared such as the mobile banking sector, publicity. And that is largely due -- and also there's also not mobile phone, it's the automobile sector. And there's also a lot of uncertainty regarding the impact of electric vehicles. And we're also observing that the automobile market -- publicity market is actually increasing this year. As regards Atresmedia cash flow, well, there you have the figures there. In 2024, plus EUR 140 million, operating cash flow, EUR 126 million. And again, we've had EUR 146 million for the payment of dividends, M&A, EUR 22 million. Therefore, we end with a net financial position of plus EUR 58 million, high -- a strong financial stability. Okay. Let's move on to our strategic overview. Well, we've tried to -- you have to highlight the cost discipline that we managed to maintain and also maintaining a leading position. We've also tried to incorporate in our perimeter companies that are in sectors that have great growth capacity in the future, such as Last Lap and [ Cera ] and the companies I mentioned earlier. In terms of Atresmedia strategic overview, -- we would like to highlight 7 pillars or levers on which we have based our strategic plan. Although the strategic plan has to change and adapt to the changing environment, we believe that these are the different areas that we really have to focus on. First of all, consolidating leadership in audiovisual radio. We must be leaders in audiovisuals and radio. That's fundamental. It's essential that we continue to produce good content. Digital is core. It continues to be in the new segment because that's the only way that we can really offer a product to the market, which is of interest to our listeners and to our viewers. So that is a challenge that we consider to be essential. And we will fight to maintain our leading position. We've been leaders now for 5 years. It may seem easy. But whenever the actual -- the market changes, we have to adapt as well. And it's essential that we -- our contents and products are accepted by our users, and these are things that are often outside our control. We continue with the idea of maximizing content exploitation cycle and becoming increasingly efficient in these areas. Our aim is to ensure that leadership in audiovisual production is something that we have to extend very, very clearly throughout the whole of our perimeter. Apart from being leaders, it's essential that we have new products. And these new products will allow us to ask higher prices from our users in the market. We ended the year with a gap with respect to Mediaset of approximately 27%. So clearly, we are perhaps in the high pricing slot the gap compared with 2008. And in the case of radio, well, you have to consider the different revenues that are generated per listener in the industry. We have the highest revenues per listener in the industry. We want to continue being leaders in audience share in commercial products, and we want to maintain our premium pricing because we want to try to ensure that we can offer content that offer greater quality for -- and also are much more profitable for our advertisers. Some time again -- well, some time ago, we developed our audiovisual platform, AtresPlayer. And this is an essential element in our roster of services. We've not just incorporated traditional audiovisuals, but also our AtresPlayer platform with the AVOD and SVOD options. The idea here is to ensure that we're able to optimize our inventories and to try to get the most out of the product. We want to continue with our pricing policy review and also explore new distribution agreements and also empower our international SVOD platform or payment platform. So the idea is to explore digital as an essential element as part of the pack, which also is accompanied by special prices because, as you know, some of the low prices are not that interesting for us. We want to occupy the premium audiovisual market with prices of approximately EUR 13 or EUR 14 per, which is almost 7x more than the EUR 2.5 of traditional television. That's just for comparison purposes. We've also demonstrated that our commitment to content and the ability to actually develop all of the spheres in which we operate is a strategy that clearly yields successful results and generating revenues from every single element, no matter how small it is within that package is essential. And I think that the operation has been exceptional in the last year. In the case of Netflix, well, there was a good operation there. And we've also achieved the leading Spanish-speaking series on Netflix last year. Another example, we can also see how in each of the different segments in which we operate, this is something that we're really exploiting. So I think that we're really exploiting all of our products and trying to get the most value-added and revenues from those products. That is a strategy that we've seen has worked very well, and we have to continue developing this. We have to continue to support and reinforce that because through that strategy, we've been able to maintain stable and significant revenue. In the area of content production, we have decided that if we want to become leaders, we need to be leaders in quality and also leaders in content production. Approximately EUR 400 million each year in content production. This means that we are leaders by a long shot. And we've increased our production in Spanish producers because apart from giving good financial results, it also allows us to establish a very close relationship with the content producers. And that is something that we want to maintain as part of our strategy. We continue to be leaders in fiction and cinema. And the aim is to continue the trend that we maintained in previous years. We would like to improve production processes by incorporating AI. Many production processes are done now almost exclusively with AI. So we're incorporating AI in our, let's say, way of working. And we've always said that we believe that AI-based processes can control quality. And this is fundamental, particularly in the case of news programs and current affairs programs. We want to be responsible producers. We want to ensure that everything is controlled. We don't want to have problems for young viewers caused to -- due to errors committed on the part of our teams. We don't want to just base our production process on AI. We need the human element as well. But we always have to incorporate this vision into our production processes. What else have we done? Well, I have to mention Last Lap, as I highlighted earlier. It's been one of the most active years in the history of Atresmedia in terms of corporate operations with EUR 17 million in Last Lap, and they achieved better results than last year. In terms of the synergies with Atresmedia events, this will give us a combined revenue potential of EUR 50 million. And we believe that since they have a presence in Portugal, this has enormous opportunities for organic and inorganic growth because it's a very dispersed sector. And we believe that we can consolidate our position there. As regards to Clear Channel, the price of the agreement is EUR 115 million to acquire 100% of Clear Channel Spain. It's a strategic operation in the outdoor advertising segment. We are in the process of achieve -- we're awaiting approval by the CNMC. It's expected in the first quarter of 2026, but this is something that we don't control. So we expect that by the end of the first semester of this year or if not the first quarter of this year, then we should receive approval from the CNMC. We have high hopes with this acquisition. We believe it's a digital component that will give us a greater variety and possibility to digitalize other areas, and this will generate more value. And apart from offering a higher quality offer, it's something that we have great hopes for. And as always, we are really focused on improving our efficiency. We've developed this voluntary redundancy plan. And also, we've also tried to work on a restructuring process and action plan for rapid implementation. And the aim of this plan, it's 136 people that will be affected by this voluntary redundancy plan. And it's part of this objective of becoming more efficient. And I think that the corporate climate in Atresmedia is enviable for many of our competitors. And we aim to improve all of our internal and commercial processes to become more efficient and more cost efficient as well. So in the area -- again, we want to incorporate AI in our commercial processes, but it's also important to highlight that year after year, our commercial area is one of the most innovative commercial areas and which is capable of offering more innovative products. This year has been key. And it's one of the reasons why we are key players in our premium segment. And we hope to generate better returns, and that will continue to be the case. And every year, well, that area has done their job very, very well, and it will continue to do so. So we expect that we will see in 2026 continuing in this process of corporate efficiency as a priority. Yes. And to summarize the year, I think it's important to highlight our efforts to maximize shareholder returns with a total shareholder return of 26% dividends paid of EUR 146 million with a dividend yield of 13%. It's an estimated operating cash flow ratio with respect to EBITDA of 0.9. And in M&A, we would like to explore markets which we believe can actually add something of value to our group. And these are part of the targets that we have set. and which will fundamentally support the audiovisual area. So it's been a complicated year from the market perspective, but we performed relatively well. And for shareholders, it's probably been the best year in the history of Atresmedia. What do we expect for 2026? Well, we expect a difficult year, a difficult year. It's clear that the geopolitical and economic uncertainty and shocks don't cease, they continue. So it seems as if we're always living on knife's edge. Because of what's happening in the States, the markets are going up and down. Nobody ever knows what's going to happen with Iran, for example. So the macroeconomic situation is rather complex, rather complicated. As regards Atresmedia, we expect following the poor performance of the audiovisual advertising market last year and largely due to the uncertainty. Part of this may have been resolved, but we're not sure if any other additional uncertainties will occur. We expect the audiovisual market to more or less be flat. The radio segment will increase slightly at approximately 2%, 3% growth is what we estimate. But in outdoor, we really believe that we will achieve midrange growth, much in line with this year, like 5% or 6%. Therefore, total revenue for Atresmedia will be more or less stable at constant perimeter. And we would have to add the revenues generated by -- Last Lap in the first half of the year because we integrated Last Lap last year and also Clear Channel. We expect an EBITDA margin of somewhere in the region of 15%. And we also expect to end the year provided we -- these forecasts are fulfilled with a net financial position of minus EUR 25 million because you have to take into account that we've included the payment of dividends, the payment for the acquisition of Clear Channel and also we're pending a cash-in in the region of EUR 45 million from the tax authorities following the decision of the Supreme Court, which certain rulings that were issued before against us. So we hope that, that is something that will be concluded in the first semester of the year. The Board at its meeting yesterday, and this was supported by the general shareholder meeting, a complementary dividend of EUR 47 million, EUR 0.21 per share, which is the same amount that was -- or the same ratio as in the interim dividend. And so -- we have the feeling that there's a great deal of uncertainty in the market. We have to maintain our clear strategy, a strategy that is reasonable, but is also yielding results. We consider that it's important to maintain market prices. And to do so, we have to be creative and innovative, offering new products in the audiovisual digital sector. And we are optimistic because we believe that the contribution of the companies that we've onboarded in our perimeter will be very significant for our group. So that is how we see the year 2026. Thank you. David Baquero: Thank you. We now have a Q&A session, and we would like -- we would be delighted to answer any questions that you may have. Operator: [Operator Instructions] And the first question is from [indiscernible] from Bestinver Securities. Unknown Analyst: I have 3 questions regarding audiovisuals and one about Clear Channel. As regards audiovisual, the first question is last year, we saw a significant deterioration in the relative performance of TV compared with other platforms or media. I would like to know beyond the trends that you've highlighted in the sector, I would like to know what you consider the reason for this deceleration in the relative performance of TV is. Do you believe it's due to, on the one hand, the increase in audience of TVE, which has been promoted by strong public spending. And I know that you don't compete there in publicity, but you do an audience share? Or do you believe it's due to the eruption or the sudden appearance of many of these strong streaming platforms? What are the reasons do you consider for this different performance compared with other media? And secondly, a clarification because it's possible that I didn't read the slides properly. But in the presentation, you referred to publicity performance that's flatlined in audiovisuals, but the results that you presented indicate that you expect that audiovisual investment will improve with respect to last year. So I just would like to understand if you're referring exclusively to television or if it includes TV and digital. It's just to obtain a better clarification about what that concept includes and a better explanation about that flatline growth and the type of performance that you're beginning to see this year in the different segments. And the final question regarding Clear Channel. The question is if the delays in the decision of the CNMC is causing any impediments in this process. And with the integration of this company, what would be your management priorities in the short term? Pricing? Or what do you consider to be the main objectives there? And I apologize for the long questions as a gentleman. Unknown Executive: Thank you. I'll begin with the final question, Clear Channel. Well, Clear Channel surprised us a lot because we thought that it was going to be an operation that wouldn't have arouse too much doubt in the minds of the CNMC. In fact, it's also a interest in the market. We didn't expect this lead to such an in-depth analysis and these delays as is occurring. We haven't received any latest information from the CNMC regarding the process. So we've got no idea what the result will be. And whether it's an operation that they will approve without any further queries or whether we'll have to do anything more. And why is it good for the company? Well, the company has got a problem. I'm not sure if you know. All Clear Channel operations in Europe, I think it's only Spain remains. And there's also been a purchase by the parent company in the United States. We apologize, but the quality of the audio is extremely poor from the main room. And I think that they're also considering the impact this will have on their shareholders. So the situation is not good for Clear Channel either. I believe that Clear Channel as well as the majority of outdoor platforms or media have a certain process of digitalization to undergo. We have to consider the role of digital media, and we consider the contribution will be significant because at the end of the day, that's also a way of generating audiovisual products that many people can see on digital platforms. So we believe that the future is very positive. And what do we consider to be the reasons for the decrease or the decline in the audiovisual market? Well, in part, it's due to the situation of uncertainty in many sectors. So they are holding back on their investments. And for example, one example is the automobile sector. And this is important in terms of volume and price. Our revenues comprise 2 main pillars, the subscribers who acquire premium products at premium prices. And at the end of the day, we've observed that -- there's been little change in some segments, but there's been an overweighting of household spending compared with added value. And this has led to a decrease in the value of the market. Again, we apologize, but the audio from the main room is extremely poor, and it's very difficult to translate. As I said, such as the automobile sector, this year, we hope that there will be a significant improvement. But that's one of the reasons why the market fell last year. Competition has hurt us because it was the first full year of streaming platforms. And and also the cultural sponsorship -- the sponsorship of cultural programs by TVE, which is the Spanish national broadcasting company has also hurt us. It's important to maintain strict cost control. We're able to produce quality products being efficient and highly dynamic and efficient in costs. As regards to the other question that you had regarding whether the market had flatlined, we were performing more or less the same as we did before. We expect our performance to be very similar to last year, as I explained in the strategic overview. So when we talk about an improvement of the market, we expect it to improve with respect to last year. In the first 2 months of the year, in January and February this year, the performance has been negative, but better than we expected because as I said, we've managed to recover in certain areas. And we'll have to see exactly how the year evolves. But at the moment, we are actually better than we initially expected. And we'll have to see how the year evolves. And I think that I've answered all the questions there. Operator: The next question comes from Fernando Cordero, Banco Santander. Fernando Cordero: The first question concerns the comment that you made. about the importance of audience share leadership and also with respect to your main competitor in 2025, that audience leadership, when we also look at the evolution of the public television channel, it's the question about the difference in market share. I would like to know what the difference is due to and whether you believe that it's something that the market will end up reflecting. Do you believe that that's a relative performance on your part? And secondly, as regards your diversification policy, with Last Lap and Clear Channels in corporations, where do you think that you would have to grow in the medium and long term? Unknown Executive: As regards to audience share leadership, it's important to remember that our main focus is on leading audience with respect to Mediaset, which is our commercial competitor, although we would like to be the global leaders, which we are, but we would always like to try to be the audience share leaders with respect to our main competitor, not the public channel. If you were to -- although there's been a decrease in market share, if you look at the evolution of market share or audience share, there's been a certain degree of flexibility evident. -- the market share that we obtained between both of us is very high. In the first 2 months of this year, based on the data we have, we are actually improving our share. We have seen that there is a certain degree of structural stability in audience shares in the market between Mediaset and ourselves. In terms of diversification, well, everything related to publicity, the advertising market and all of the variables you have to consider, whether it's marketing, new media or platforms or highly digitalized platforms or media. You have to remember that we are actually working very strongly on the digital segment of the market, which is one of our main lines of action. And in the area of content, we believe that it makes sense to commit to that area significantly. But these will continue to be minority participations in, let's say, a producers. Perhaps economically speaking, they may not be performing as well compared with the in-house production, let's say. So we're analyzing different opportunities. executive opportunities, and we're also looking at opportunities for new markets where the prices are attractive. and where the markets are mature. And we're focusing on that at the moment. But at present, we don't have any operations in the pipeline, any other operations in the pipeline. We will have to see how Last Lap evolves and also Clear Channel once that agreement has been confirmed because these have been the 2 most important acquisitions that we have made since the creation of the company. And then we have to consider the net financial position of EUR 25 million -- minus EUR 25 million. We have to consider our participation in cyber and what could happen with cyber between now and the future because the value there is important. Fernando Cordero: Just one follow-up question regarding the first reflection regarding audience leadership. And I'm very grateful for your comments that you've seen that the market is -- has a structural distribution. Given that scenario, how would you reflect on reflecting that market situation where cost evolution is less flexible and extrapolate that to your investment in content for Open TV? Unknown Executive: I would say that the audiovisual market which is related to more traditional TV is where things are more stable, where there's an important difference in share is in digital with respect to our main competitor. I have to say that the digital market is still developing, still evolving. So we've got still quite a lot to discover. In terms of our aim to maintain leadership at other times in the life of the company, we've always focused on trying to maintain that leadership. And this also allows us to maintain a premium pricing, which is very important for the company. It's true that there's not much flexibility in the audience share, but there has been some variation. And we've noticed that we have increased our market share, our audience share with respect to our nearest competitor. But given the wide range of products and offer, it's not easy to achieve changes in audience share. We don't expect major improvements in revenues. I'm referring to old style TV. But in terms of our capacity, let's say, our vision for the universe by that, I refer to all of the different segments, whether it's AVOD, SVOD, content production, et cetera, that is where we can achieve better revenues. In short, it's true that traditional audiovisuals is in the period of maturity. And we believe that content production in the digital universes where we can achieve better results and better revenues. The work we've done there has been very good, but we still think there's still a lot to be done. And Fernando, let me just add one more thing. It's true that the audience shares or the audience share figures have been very similar with respect to last year. And -- but I think that a difference of 2% in audience share compared to the nearest competitor is quite a lot. It's approximately EUR 30 million or EUR 15 million, the gentleman corrects himself. So that has a big impact on results. that percentage difference in audience share is not so important, but rather the value of the content that allow us to be leaders in all of our different windows or slots. I don't think we could separate from our traditional TV lines. We couldn't separate that differential product compared with television, which may be 10x better if we didn't have those types of contents with those -- with the audience. Operator: [Operator Instructions] And the next question comes from Inigo Egusquiza from Kepler. Íñigo Egusquiza: I have 3 questions, very quick questions. Firstly, Silvio, a follow-up on something that you mentioned regarding publicity in January and February on television this year. If you could quantify a little more from things that I've discussed with other people in the sector. I understand that January and February, there hadn't been as significant decreases in October and November, but there had been increases in publicity indeed. I'd like to have -- ask if you could give me a little bit more detail about those figures. And secondly, the OpEx figure for 2025, you mentioned various times that if we were to exclude the new companies that have been integrated in the perimeter, it would have [ outlined ]. Could you explain that OpEx figure a little more? Because from the figures that I have in mind, -- Last Lap had a higher OpEx, but I think that you've only consolidated H2H. So I'm a little surprised that, that increase in OpEx in 2025. Could you clarify those figures a little more? And the third question is more about the guidance that you've given for 2026. You referred to the EBITDA margin and returning to 15%. In 2025, I think it was in the region of 13%. Could you explain a little given your revenue plan, I understand that this has been due to improvements in your OpEx figures. Could you explain the impacts and also explain the savings in the voluntary redundancy plan, which I understand is going to be rolled out gradually, but perhaps you could specify and give us more details about those figures. Unknown Executive: As regards to your comments about flatline OpEx, it's important to remember that Last Lap -- the acquisition of Last Lap took place at the end of last year. And that means that if you were to exclude the OpEx of Last Lap and a company that we incorporated called the equality or something, this would mean that the OpEx growth like-to-like would be approximately 7%. That's the explanation regarding OpEx. Secondly, as regards to the period of January to February, the publicity or the advertising market is seeing a decrease of approximately 5%. In our annual plan, we expected that to be greater. So we're more or less in line with what was actually forecast. But that was the performance in January and February. And the final question, the third question was, well, our challenge there is to be more efficient. We would like to reduce costs in relation to each of our products. That's a challenge. And obviously, when you start to embark on new areas of business, it's difficult to obtain higher margins. In the case of Clear Channel, the margin was 18%, and it could probably increase. So we're now thinking about the effect that this could have for Atresmedia. That's the idea there. Operator: There are no more questions at this moment in time. So I would like to hand the floor to the speakers. David Baquero: I would like to thank everyone for your questions. If you have any doubts or questions following this presentation, we will be delighted to answer. Thank you very much for your attention, for your participation, and we wish you all a very good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Sam Ullrich, Vice President, Investor Relations. Sam Ullrich: Thank you, Andrew. Good morning, and welcome to our fourth quarter 2025 earnings conference call. After the company's prepared remarks, we will open the call for your questions. The company's 2025 fourth quarter business results were released yesterday afternoon. A copy of this release announcing results and other financial and statistical information about the period to be presented in this conference call, including information required by Regulation G, is available at the section of the company's website titled News, located at churchilldownsincorporated.com as well as in the website's Investors section. Before we get started, I would like to remind you that some of the statements that we make today may include forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC, specifically the most recent reports on Form 10-Q and Form 10-K. Any forward-looking statements that we make are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in yesterday's earnings press release. The press release and Form 10-K are available on our website at churchilldownsincorporated.com. And now I'll turn the call over to our Chief Executive Officer, Mr. Bill Carstanjen. William C. Carstanjen: Thanks, Sam. Good morning, everyone. With me today are several members of our team, including Bill Mudd, our President and Chief Operating Officer; Marcia Dall, our Chief Financial Officer; and Brad Blackwell, our General Counsel. I will begin with a review of our 2025 performance and key accomplishments and then discuss our strategic priorities and growth plans. Marcia will follow up with the details on our financial results and capital management strategy. After her remarks, we will take your questions. First, let's recap last year. 2025 was another very strong year for Churchill Downs. We delivered record net revenue and record adjusted EBITDA, exceeding our prior record set in 2024. We also delivered record adjusted EBITDA in both our live and historical racing segment and our Wagering Services and Solutions segment. Our regional gaming portfolio delivered a solid performance as well. Importantly, we advanced several key strategic and operational initiatives during the year. We hosted another highly successful Kentucky Derby following the milestone 150th Derby in 2024. Despite facing a challenging comparison and economic uncertainty early in 2025, including tariff-related volatility during the later part of our sales cycle, our team executed exceptionally well. We generated record handle for the Kentucky Derby race, the Derby Day program and Derby Week overall, along with the highest television ratings in nearly 40 years. We were just below the prior year's record earnings level, but we expect to return to consistent and meaningful growth across all metrics, including adjusted EBITDA this year. Our guests experienced the first year of our newly renovated starting gate Pavilion in Courtyard, which now offers improved seating, elevated amenities and a more upscale social environment for approximately 8,100 guests. 2025 was the second year of operations for our redesigned Paddock. This project significantly enhanced the on-track experience and strengthened both the in-person and broadcast presentation of our racing product and overall event. The Paddock and related investments provide a long-term foundation for accelerated continued growth at Churchill Downs Racetrack. While the Kentucky Derby is the longest continuously run sporting event in the United States, we believe there remains substantial opportunity to further expand its reach and impact. During the past year, we have also grown our HRM footprint. In Kentucky, we opened our Owensboro venue last February. And just yesterday, we held the grand opening of Marshall Yards Racing and Gaming in Calvert City, Kentucky. In Virginia, we expanded our Richmond property and opened Roseshire Gaming Parlor in Henrico County. We also made significant progress growing the Rose in Northern Virginia in its first full year of operations. In addition, we announced plans to invest $180 million to $200 million to develop Rockingham Casino in Salem, New Hampshire. We also received regulatory approval in Kentucky to introduce electronic table games based on historical horse racing. In early February of this year, we introduced our first roulette electronic table games in our Kentucky HRM facilities. All of this was accomplished while maintaining prudent leverage levels and preserving financial flexibility for future growth. We have laid the foundation for many more years of growth. As we look to 2026 and beyond, we are more excited than ever about our strategic plans that we believe will create significant shareholder value over the long term. Our strategy centers on 5 key priorities. First, continue to grow the Kentucky Derby. For this year's Derby, we will unveil the newly renovated Mansion, which is one of the most prestigious and desired areas of Churchill Downs Racetrack. We will also complete the renovations of the Finish Line Suites, our most exclusive and valuable suite product, which will include a number of new and unique amenities for the enjoyment of our guests. Both projects are on time and on budget. Looking further ahead, we will finish the Victory Run project in time for the 2028 Kentucky Derby. This new structure located just past the finish line will feature premium suites, box seatings and multiple high-end dining experiences, growing our net seating capacity in this area by 1,400 people or 22% and improving the experience for close to 8,000 of our guests. For the 2027 Derby, Derby 153, we will offer an interim covered upgraded seating product in the Victory Run section with stadium seating boxes and enhanced amenities. More broadly, we will continue to evaluate long-term investments that will maintain and broaden the Derby's global appeal while elevating the guest experience. We are also expanding Derby Week itself. In 2025, we welcomed 375 guests -- 75,000 guests across the week, the equivalent of 5 Super Bowls. This year, we are adding racing on Sunday, April 26, marking the first Sunday racing during Derby Week in over 15 years, expanding our festival of racing to 7 live race dates across the 8 calendar days. This year, the Kentucky Oaks will move to prime time on NBC and Peacock between 80 and 90 p.m. Eastern Standard Time. The Oaks is already the fourth highest betting race in the United States behind only the Kentucky Derby itself, the Preakness and the Belmont steaks. This national prime time placement further validates the Oaks as a nationally prestigious event and strengthens Derby Week as a multi-day platform. This is the day we celebrate high fashion and women's health advocacy, while everyone adds at least a splash of pink to their outfits and watches the Thoroughbred Racing's Best 3-year-old fillies race. On Saturday, May 2, Derby Week culminates with the running of the 152nd Kentucky Derby. The Derby is America's greatest day of racing by every possible metric and arguably the world's as well. The second component of our strategic plan is to grow our HRM portfolio. We will continue expanding our HRM venues in Kentucky and Virginia, supporting the funding of racing purses and local agricultural industries while generating attractive economic returns. Construction of Rockingham Grand Casino in Salem, New Hampshire will continue through 2026 and 2027 with an expected mid-2027 opening. This property is located in a highly attractive market, including more than 800,000 adults within a 20-mile radius and over 4.9 million people in the Greater Boston MSA. As I mentioned previously, investment in this facility is expected to be in the $180 million to $200 million. We also retain rights to the Chasers HRM license and we will pursue appropriate development opportunities for that license in the future. Third, we will expand Exacta, our HRM technology business within our owned HRM venues as well as with other third-party HRM properties, both in the United States and internationally. Our vertical integration through the purchase of Exacta in 2024 has provided significant support and margin improvement for the growth of our HRM businesses in Kentucky and Virginia. Exacta will also be the cornerstone of our technology in our upcoming Rockingham venue in New Hampshire. The recent introduction of Roulette Electronic table games or ETGs in Kentucky allows us to further leverage this platform. As we develop additional HRM-based ETGs, including potential offerings such as Craps and Blackjack, we expect continued benefits for our shareholders. Additionally, we are expanding our B2B business in both the U.S. and internationally. In December, a third-party HRM property in Wichita, Kansas opened with a significant portion of their gaming floor utilizing our technology. We are also providing Exacta technology in Alabama and continue to explore international opportunities. Fourth, we will grow our TwinSpires horse racing business. We see continued opportunity in our TwinSpires platform on both the B2C and B2B sides of the business. Wagering on premier events such as the Kentucky Oats and the Kentucky Derby has grown meaningfully in recent years, and we believe the broader market opportunity remains attractive as consumers continue to migrate online. Finally, we remain focused on disciplined investments across our portfolio. We will continue refining operations within our regional gaming assets and selectively investing where returns are compelling. We believe that our regional gaming assets will enjoy a nice tailwind in 2026 and beyond from our consumers receiving higher tax refunds because of the new federal tax laws. Across initiatives, we prioritize sustainable long-term growth aligned with our core competencies and disciplined capital allocation. In summary, 2025 was a record year for Churchill Downs. We enter 2026 with strong momentum from our flagship asset, the Kentucky Derby as well as from our HRM and technology initiatives. We maintain a strong balance sheet and remain focused on driving adjusted EBITDA growth, free cash flow and long-term total shareholder returns through consistent execution. We will also pursue disciplined growth with ancillary or adjacent opportunities aligned with our long-term strategic plans. We see a bright future based on these principles. Finally, the 152nd Kentucky Derby is now 65 days away. Demand is strong, and we are pacing ahead of prior years, including ahead of the milestone 150th Kentucky Derby. If you have not purchased your tickets yet, I would encourage you to do so as we anticipate being fully sold out. With that, I'll turn the call over to Marcia, and then we will take your questions. Marcia? Marcia Dall: Thanks, Bill, and good morning, everyone. Our team delivered record fourth quarter net revenue and adjusted EBITDA from our diversified portfolio, continued organic growth and returns from our recent property investments. As Bill mentioned, 2025 marked another record year for our company. Excluding 2020, we have now achieved 9 consecutive years of record revenue and record adjusted EBITDA, a clear reflection of the durability of our strategy and the consistency of our execution. Today, I'll provide highlights on our financial performance and then discuss capital management. Churchill Downs Racetrack delivered record full year adjusted EBITDA. Our growth continues to be fueled by disciplined capital investments, expanded sponsorships and record wagering activity. At the same time, our team's focus on operational efficiency has driven strong top line growth and sustained high margins from this iconic asset. Looking ahead, we expect the Derby to generate $15 million to $20 million of incremental adjusted EBITDA in 2026. The combination of the new NBC broadcast contract renewal, the expansion of Derby Week race days, strong ticket sales, increased sponsorship interest and continued wagering growth provides the foundation for another record-setting year. We are very pleased with the performance of our HRM venues in both Kentucky and Virginia and remain confident in their long-term high-margin growth potential as we continue to successfully penetrate these high potential markets. In Kentucky, our HRM properties generated record adjusted EBITDA in 2025, supported by the successful opening of Owensboro in February and strong performance across the portfolio. Despite significant January weather events this year, reported statewide GGR grew at a double-digit rate year-over-year, demonstrating the strength of underlying demand and our competitive positioning. In Virginia, our HRM venues also delivered record adjusted EBITDA. The Rose continues to ramp as we expand -- as expected, as we expand our presence in Northern Virginia. Importantly, the Roads delivered sequential growth in GGR per unit in every quarter of 2025. We are still in the early stages of this property's growth and given the attractive demographics and strong local leadership, we see meaningful runway ahead. Although Virginia experienced weather disruptions in January of this year, our same-store HRM properties performed in line with the prior year on a GGR basis, reflecting the resilience of our customer base. Regarding our Wagering Services and Solutions segment, adjusted EBITDA in this segment increased 7% in 2025, primarily driven by continued growth in our Exacta business. Our vertical integration strategy is delivering tangible benefits as we expand in existing locations and enter new markets. This segment remains an important strategic lever that enhances both growth and operating efficiency across our broader HRM business. And regarding our Gaming segment, our regional gaming properties demonstrated resilience throughout 2025 despite temporary headwinds, including roadwork and local curfews in Mississippi and minor weather impacts in December. Our full year 2025 same-store wholly owned casino margins, excluding racing, declined modestly by 0.8 points compared to 2024, primarily reflecting performance in Mississippi. Importantly, overall regional gaming consumer behavior in the fourth quarter remained consistent with recent trends, reinforcing the stability of our core customer base. We also believe the recently enacted federal tax legislation may provide a meaningful tailwind to both our regional gaming and HRM businesses. provisions such as the elimination of taxes on tips up to $25,000, elimination of taxes on overtime, enhanced deductions for individuals 65 and older and expanded state and local tax deduction limits could increase income for many of our customers in the months ahead. Our capital allocation strategy continues to support disciplined growth with a focus on shareholder returns. In 2025, we generated a record $700 million of free cash flow or $9.75 per share, following a record year in 2024. This consistent free cash flow generation demonstrates the strength and scalability of our portfolio. Maintenance capital was $70 million in 2025, and we expect to invest between $90 million and $110 million in 2026. These investments include incremental HRM-related capital in Kentucky and Virginia, including new ETGs in Kentucky as well as the continued enhancements of the iconic Churchill Downs Racetrack. Project capital was $205 million in 2025, and we expect to invest between $180 million and $220 million in 2026. The updated range reflects the timing of expected spend related to our Kentucky Derby capital projects and the Rockingham Grand Casino development in Salem, New Hampshire. We remain confident that these investments will generate attractive long-term returns. We also continue to return significant capital to our shareholders. In 2025, we repurchased more than 4.2 million shares and returned over $456 million through share repurchases and dividends. The dividend paid in January of this year marked our 15th consecutive year of dividends per share increases, a strong signal of our confidence in the company's future cash flow generation. At the end of December 2025, our bank covenant net leverage was 4.1x. Based on our expected EBITDA growth and the timing of new facility openings, we expect our bank covenant net leverage to decrease below 4x during 2026. In closing, as Bill said, 2025 was a strong year for our company with record financial results. We entered 2026 with strong momentum, multiple growth drivers and a unique portfolio of high-quality assets positioned for continued expansion. We remain focused on disciplined capital allocation, operational excellence and delivering sustainable long-term shareholder value. With that, I'll turn the call back over to Bill to open the line for questions. Bill? William C. Carstanjen: Thank you, Marcia. We're ready now to take your questions. Operator: [Operator Instructions] And our first question comes from the line of Barry Jonas with Truist. Barry Jonas: I wanted to talk about the Derby. Any more color, Bill, you can give on early pricing and demand trends you're seeing so far for Derby 152 as well as the Derby Week. And I think, Marcia, your comments about $15 million to $20 million are extremely helpful. Just curious like what is the differential between the high and low end and the opportunities to exceed that would be helpful. William C. Carstanjen: Thanks, Barry. So the Derby is firing on all cylinders. Certainly, when it comes to ticket sales, we've been pleased. We're in the latter stages of our sales process now. So we just plan on finishing strong and rolling that up as we get to the Derby Day itself. But so far, throughout the cycle, it's been very, very encouraging. And you heard Marcia give the $15 million to $20 million number that she gave. So sponsorships look good. Wagering, we won't know until the day of itself. But certainly, if you look at the trends that we've seen, those have been overwhelmingly positive as we head into 2026. So we have good expectations, strong expectations for that. And then I'm personally excited to add the additional day of racing. We have the interest, we have the horse stock. We have the customer base. We have the fan interest and the global interest. So we need to give our fans and our guests more of what they're asking for. So adding the extra day, I'm excited about that as well. So as we head through the end of February, all systems are go. And now it's about clear execution and just giving the team the resources they need to execute their jobs. And so I expect they'll do so. Operator: And our next question comes from the line of David Katz with Jefferies. David Katz: I wanted to focus on Kentucky HRMs, which were kind of a standout in the quarter or noted as a standout growth. Just some more perspective on it. How much of it is being aided by ETGs? Where is that process and how far along it is? And when we look at Kentucky holistically over the long term, how much growth do you think there is still ahead to be had, if you can put some qualitative parameters around that? William C. Carstanjen: Happy to do that, David. Thank you. So first, we're just rolling those out as we are into February. So ETGs aren't a part of the story from the prior quarter in any way. I think what you're seeing in Kentucky is the continued evolution of the product and the building of those markets, whether you look at Louisville or Northern Kentucky or Southwestern Kentucky, which services the Clarksville and Nashville markets. The product keeps getting better, the teams keep getting better, and we keep finding avenues to grow. So I think we have more in the hopper there. And certainly, going forward, as we look at the introduction of ETGs as a product, that's going to take place over a period of time. Right now, we're just rolling out, beginning the experiments with Roulette. That's the first product. And so that's something that will add to our offering, add to sort of the holistic experience of what our facilities offer and we'll build on those over the course of this year and the years to come. But I think what you're seeing is a powerful product that keeps improving and a team that keeps getting better and finding ways to harvest the market in Kentucky and surrounding Kentucky. Operator: And our next question comes from the line of Chad Beynon with Macquarie Capital. Chad Beynon: I wanted to ask about wagering growth, I guess, for this year's Derby and then for the future. Prediction markets have cut into some of the other sorts of mobile and digital online wagering. Curious if you've seen anything kind of in your segment thus far and if you think there could be any impact coming. William C. Carstanjen: Thanks for the question, Chad. Sure. Happy to address that. So first, I'd say, in general, we see gravitation towards the bigger events. The Derby just getting bigger. The Oaks, I think a lot of people are surprised to realize that's the fourth most bet race in the United States, just getting bigger. So I think there's a flight to quality. I think good content is increasingly important. And that's why as a company, we focus more on that. We focus on building around Derby Day, building our big days, delivering content to our customers. With respect to the second half of your question, which was prediction markets, we operate under a different legal paradigm than other sports offerings in the United States. Pari-mutuel wagering on horse racing is conducted under the Interstate Horse Racing Act, which is a federal umbrella statute that essentially gives us a series of rights, call them intellectual property rights in our content. So to take wagers across any form, whether it be a sports wagering platform, another horse racing platform such as an ADW or a prediction markets platform, you need our express consent. You can't just do it without that. So we haven't agreed to provide our content to prediction markets. We feel like we have plenty of distribution, and we like the terms of our distribution. So that's our focus for delivering access to our content to the customer base out there. And for the time being, that's how we expect to proceed. And that's what's best for our customers and our constituents, including the horsemen. So fiction markets are not a part of the pari-mutuel wagering on horse racing story nor would I expect it to be any time in the future. Operator: Our next question comes from the line of Jordan Bender with Citizens. Jordan Bender: Bill, legislative processes are often harder to understand than not. So can you maybe just talk about what you're hearing in Virginia on the ground in terms of the iGaming bill of what might happen or might not happen in the state? William C. Carstanjen: Legislative processes happen every year when the states are in session. So every year, we're heavily engaged and we monitor them and certainly participate to the extent that we can. So iGaming is bad news for Virginia. It's not law. It's something that's been discussed. And there are 2 different bills in the House and the Senate that have gone through. I don't think it's good for the environment in Virginia. We certainly have made that point clear. And I think a lot of legislators and certainly, when you see the polling, that's what the people think as well. So I would say that when you look at any legislative process, including the one in Virginia, there's lots of noise and there are lots of back and forth during the throes of it. But we firmly believe that iGaming is a bad construct for Virginia. We think many legislators there believe that as well. We continue to share our views and certainly listen to others. So I think it's important that folks don't react to the ebbs and flows of the legislative process and wait to see what the end of that process is. And we remain confident that the legislature and the Governor of Virginia will get it right in Virginia. Operator: Your next question comes from the line of Dan Politzer with JPMorgan. Daniel Politzer: Bill, maybe a high level, we tended to think of Churchill as a sum of the parts story for some time. And I think that you mentioned some of the benefits or aspects of the portfolio where you do have vertical integration and cost synergies there. Can you maybe talk about high level how you think about the parts of the portfolio fitting together? Are there any elements where you feel like that you get inbounds on or that you feel like might not be natural fits over the longer term? William C. Carstanjen: Sure, Dan. Thanks for the question. Always great to talk to you again. So we've built a really interesting collection of businesses. And we found ways to link those businesses and improve those businesses by focusing on a couple of key attributes. One is we look for growth margins, growth businesses, and then we focus with great vigor on margins. So as we've built our ADW business, we focused on margins. As we've expanded the track, same. As we got into HRMs, we looked at the technology services required to deliver that product, and we decided to vertically integrate there. So across the portfolio, we constantly evaluate what we can improve, where we see the most opportunity to improve and how all these businesses can fit together synergistically over time to drive improvements in margins. So I think that question is never answered for good or forever. I think it's constantly an evolving landscape under which we evaluate our businesses, and it's always an exciting part of what we do, do what we do well, grow our businesses, improve our margins and then see where these businesses fit within our company and within our industries as a whole. So that's part of our challenge. That's something we focus on a lot. And I think the answer today could be a different answer than tomorrow. It's a constantly evolving landscape with lots of opportunities for us. Operator: And our next question comes from the line of Daniel Guglielmo with Capital One Securities. Daniel Guglielmo: In your remarks, you mentioned Kansas and Alabama as having Exacta customers. Are there additional U.S. states that could add historical racing down the road where you all can use your integrated platform and know-how for medium-term growth? William C. Carstanjen: Well, we've been -- Dan, thanks for that question. We've been really thrilled with the results that we've demonstrated in Virginia, in Kentucky, in New Hampshire, now in Kansas, Alabama, et cetera. So we think that when legislators look across different jurisdictions, when they look at what HRM has delivered for the states that have implemented it, it's a really good story. It's a story that creates lots of jobs. It creates lots of capital investment. It ties in most of the time into key agricultural industries in the state. So it's a really good story that's really delivered for the states that have done it. So part of the challenge going forward now, part of the opportunity going forward is to get that message out into other states and tell the story because unlike other industries out there, we've delivered on our promises. We've delivered on the expectations. And really, it's time to explain that to states that consider it. So there are numerous states out there that at some level have looked at HRMs and it's percolating at some level. And our job and the job of our team is to help that story along and develop those relationships in other states so that we can see opportunities like we've seen in the states so far. Operator: And next question comes from the line of Jeff Stantial with Stifel. Jeffrey Stantial: Bill, could you just talk a little bit on sort of what's been executed so far on early implementation of AI into your team's processes? Where have you seen the most success so far? And what's the road map look like here for further implementation in '26? William C. Carstanjen: Sure, Jeff. Thanks for that question. I really divide AI into 2 categories in terms of how it can help our company. First, how does it make our customers better? That's -- for us, pari-mutuel wagering, we're not the house. We're not on the other end of the wager. We're there to help our customers. The customers play amongst themselves and all the other pari-mutuel customers who are playing in a pool across the world. So we are incented in every way to make our customers better. So for those -- so examples of how AI can help our business and help our customers, for those of you with TwinSpires account, you'll see the little button in the right-hand corner, and that's an AI product that gives you an analysis of each race, gives you some of the attributes and some of the indicators to look on -- look for in each race. We've rolled that out to 5 tracks, and we plan on expanding it and improving it and making it even more robust. But that's a general tool that will give you a nice leg up on any race you're looking at to give you a sense of what you need to pay attention to and why. We're also working on another tool that we expect will be delivered at some point in the future, which is completely interactive, and you can talk and ask any questions that you have on a specific race or a specific horse. So those are big priorities for our business and things we think we can deliver to our customers to make them better, and we have every incentive to want to do that. In terms of as a business as a whole, we're looking forward to what vendors and what providers can do out there to make us better at marketing, to make us better at cost management, to make us better at acquisition of everything that goes into our business. So we embrace AI. We think it's incumbent on us to find ways that it can help our business, and we'll continue to do that. But we're a company that embraces it and thinks, first and foremost, how do we help our customers interact and enjoy our product better and then how do we make our business itself better and drive higher margins. Operator: And our next question comes from the line of Brandt Montour with Barclays. Brandt Montour: I wanted to circle back on the Derby. I mean it's well noted. your confidence in your prepared remarks and some of the answers earlier. But thinking about pacing and what you said this year versus last year, I think it might warrant just a little bit of extra color given I think last year at this time, you were pacing ahead and sort of this -- it seems like you're way more confident this year. But can you give us a little bit more in terms of KPIs? Do you have more cushion heading into the final couple of months of ticket sales? Do you have more pricing or revenue growth embedded in what you've sold so far? Anything like that would be helpful. William C. Carstanjen: Yes, Brandon, thanks for the question. So we've always had very good visibility to into the Derby, especially at this point in the process. I think last year, we were thrown off our game slightly because this is about when the tariffs were first introduced, and it disrupted our sales process for a period of time. This year, we're back on track. We're following our KPIs. We're watching ticket sales each week. We're comparing them to prior years. We're comparing them to plan. We're watching sponsorship and licensing. We're watching every avenue of our business. So generally, over the years, we've had great confidence based on prior track record on what to expect as we go along. And I think that's this year as well. And I think unlike last year where we might have seen some headwinds, especially with the sudden -- the shock of the tariffs when they were first started being discussed. This year, we feel like we're seeing tailwinds in particular tax bill benefits. We think something like that is only a material good guy for us. So to the extent we can predict the macro environment and how we think it impacts us, what we see out there looks more like tailwinds than headwinds for the remainder of the next 6 or 8 weeks. Operator: And our next question comes from the line of Shaun Kelley with Bank of America. Shaun Kelley: I think in the prepared remarks, you talked a little bit about some of the Virginia core trends you were seeing through January. Just wondering if you could elaborate a little bit on what your expectation is for the balance of the year just for the ramp-up at the Rose? And also any thoughts about Northern Virginia casino competition, which has come up a couple of times and I think continues to be around even though I think it requires a referendum. William C. Carstanjen: Thanks, Shaun. So yes, we've -- Marcia alluded to it in her comments. Certainly, the country has seen some disruptive weather, but our business has performed very strong in January, and she wanted to make a particular mention of that in her comments today. So Virginia is a story where particularly around the Rose, you can compare it with some of our properties in Virginia in terms of size and scope of facility. There should be a long runway, and we expect there to be a long runway of continued improvement and continued growth. It is about the most exciting market we could imagine in terms of the demographics, the size of the population, the wealth and the other attributes of the population. So we have a lot of work to do and a lot of growth to go get in Virginia. And the tail end of your question regarding another Northern Virginia casino or property, what I can say about that is that's something that we deal with every year in the legislature. It's something that gets talked about and discussed. It's a long way from happening. And also, it's a very big market. So there's plenty there for us, especially where we are in the Southern I-95 corridor of that market. That's where we're focused on. So we're going to be running our game plan to continue to build that. I think you can see from our numbers that we've demonstrated, we know how to do that in 2025. And in general, we have product improvement, product expansion and refinement of our models across Virginia, and that's what we're going to focus on in 2026. And I don't -- I guess I would clarify that I don't expect any competition in the Northern Virginia in the near term. And that's all I would -- I can ever comment on is what's going to happen now and in the near term. That's just legislative noise that we deal with every year. And right now, we just need to focus on building our business because that's where the opportunity for us is. Operator: And next question comes from the line of Trey Bowers with Wells Fargo. Raymond Bowers: I guess just related to -- Marcia brought up the high free cash flow generation that you guys saw last year. And I know historically, you guys have kind of utilized share repurchase during periods of dislocation. But just wondering, is the company now looks forward to a period of pretty significant free cash flow, it feels like going forward. Do you guys think maybe potentially become more formulaic with repurchase? And as you think about kind of capital allocation with the shares at a level like this, does that change some dynamics in terms of a new project? William C. Carstanjen: Yes, Trey, thank you. So yes, Marcia alluded to it, we're in a situation of strong cash flow. It's a reflection of how we've built our company and how we run it. And it's also a reflection of the changes in the tax law, which benefit us. So we're stronger than we've ever been. And certainly, it's a very positive outlook as we look forward. What we do with our free cash flow is something we talk about and think about every day, and we're very, very careful about it. You mentioned share repurchases. That's always and has been for a long time, an important element of our capital management and we value that or evaluate that against our other uses for cash. So as we look forward and plan the next number of years for our business, certainly, we will look at share repurchases and balance it against other things we want to spend our money on. And all is for your benefit, it's for the benefit of the shareholders. We're trying to make sure that we do things that generate the highest and best returns for our shareholders, and it's good to have options. So we balance that against leverage, against investment, share repurchases, et cetera. It all goes into the hopper, and we try to make the best decisions that we can. And it's good to have the option and it's good to have the cash to do so. Operator: And our next question comes from the line of Joe Stauff with Susquehanna. Joseph Stauff: Bill, just a quick follow-up on electronic table games in Kentucky. Just wondering what the bottleneck is on your ability to increase the availability of those units in Kentucky. And then my larger question is really going back to the Derby. And just thinking about how well you've done strategically about on the event side of the business and ticket revenue and upgrading, getting returns on that. But just wondering, in a world clearly where sports rights and sponsorship demand is really skyrocketing, how you think about the opportunities both for media rights and sponsorship. I know you just renewed with NBC, but sponsorships. I mean, I'm sure they're like mega sponsors out of the Middle East and Japan and so forth. Just wondering how to think about that. William C. Carstanjen: Thanks for the question, Joe. So first, ETGs. This is a new product. It's a thrill to be involved in something like this, just like I feel the same way I felt as we were developing HRMs. It's a thrill to be a part of something like this, and you need to do it right. So Roulette was the first game we got developed and through the Kentucky regulatory process, and we need to go demonstrate responsible rolling out and growth of that. And as we do that, we're working on other products. And I think as a team, we move as fast as we responsibly can, but it's important to do this right. So this is all good stuff to come. This is about doing this right, doing it in a way where the regulators are comfortable where the customer understands what we're doing, where we create the space on the floor, where we get the volume on the floor correct in terms of units versus other games in demand. So this is the beginning of that process. This is the beginning of a wonderful mountain to climb, and I'm excited to climb and it's going to take us time as we introduce new products and grow out the products as we introduce them. So all good stuff on that. No bottleneck, all just responsible, careful, thoughtful rolling out of something that's new. With respect to the Derby, yes, we've been flattered and very much increasingly focused on international, the Middle East, you may have seen we've introduced 3 new road to the Derby races that are based in the Middle East. So we have a total of 4 now. So lots and lots of interest from other parts of the world, particularly in the Middle East. And that's all good as we build our sponsorship and we build all the different avenues of how we grow the Derby. But certainly, we're privileged to stand on those that came before us. The Derby has a significant international component to its brand, but it's never been harvested. And this is the team that's now charged with harvesting that and growing it. And it starts with selling them the dream, the ability to get their horses to this race to get their participation directly with the rooting interest in this race. So I think you'll see focus and I think you'll see growth and development on that avenue for our company, and that's part of how we drive sponsorships going forward, high-end attendance going forward and other avenues, too, licensing, wagering potentially. Those are all payoffs for thoughtfully and successfully growing international participation. Operator: I'll now hand the call back over to CEO, Bill Carstanjen, for any closing remarks. William C. Carstanjen: Thanks, Andrew. Everyone, thank you for those great questions. Thank you for participating in the call today. We're always happy to have these calls and get a chance to talk about what we do here. We're proud of what we do. And now we're going to go back to our offices, put our heads down and get ready for the next big couple of things to come, including getting ready for the Kentucky Derby. So thanks, and we'll talk to you again soon. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Eni's 2025 Fourth Quarter and Full Year Results Conference Call hosted by Mr. Claudio Descalzi, Chief Executive Officer. [Operator Instructions] I'm now handing you over to your host to begin today's conference. Thank you. Claudio Descalzi: Thank you. Good morning, everyone. 2025 was a year of exceptional progress at Eni. We developed and executed our distinctive strategy in many cases, exceeding our original target. We will discuss in detail our updated plan at the forecoming Capital Markets update in March. But I can say at this point that 2025 provide an excellent guide to what you should expect the future to hold for Eni. Last year's result proved the value of our consistent strategies, strong operational and financial performance, timely project delivery to support growth and diversified investment for the short- and long-term to generate further value for investors. Specifically, looking in detail at the 3 main business pillars, the successes are compelling. First, Global Natural Resources. We started up 6 major projects as planned. This supported an underlying production increase of 4%, well above our original full year guidance and growth above 7% over the 2022, 2025 period, leading among our peers. Project execution is a clear strength of ours, and both Agogo, Angola and Congo LNG are further examples of our leadership in time to market. In addition, we took FIDs on 4 major new projects, 3 of which are operated, driving a stronger service replacement ratio of above 160% and meaning we currently have 500,000 barrels per day of production under development, securing our medium-term outlook. At the portfolio level, we have also established a new platform of growth by creating our largest business combination with Petronas in Indonesia and Malaysia. And we are progressing our Argentina LNG project with YPF and XRG. Alongside our continued exploration success underpins long-term outlook. We discovered 900 million barrels of new resources in 2025, reaffirming our industry-leading track record. Now over 10 billion barrel of resources discovered since 2014 at less than $1 per barrel from multiple geographies and different geological plays. Our focus on value as well as volume is also emphasized by our continued action to valorize our resources through dual exploration. As we did in Indonesia with the business combination in Cote d'Ivoire and high grade our portfolio through tail asset divestment. GGP is business we have comprehensively transformed in the past few years. And notwithstanding a softer market, we delivered EBIT above EUR 1 billion for the fourth consecutive year. Gas to power was also a strong contributor in 2025. And together, this result emphasized the work underway to capture more margin from our equity production. Second, our transition activities. They generate material growth and value creation and are important in diversifying and strengthening any earnings. In a year that was not remarkable for market improvement, we improved the robustness of our integrated business models, and we have been rewarded with strong earnings, EUR 2 billion of EBITDA and by the validation from the market with a contribution of EUR 5.8 billion from top private equity firms. These deals were completed in a multiple around -- with a multiple around 3x those of Eni stand-alone implying over EUR 23 billion of enterprise value for these new business lines. We are locking in further growth with both Plenitude and Enilive. Plenitude expanded its renewable capacity by more than 40% in 2025 and we'll add 10% to its customer base in 2026 on closing the agreed Acea Energia acquisition. Enilive has 3 new biorefineries under construction and 2 more have recently reached FID, together representing a further net 2 million tonnes of annual capacity. And third, industrial transformation. Changes in the energy market bring challenges that we are successfully mitigating but also opportunities. In this context, we are advancing the transformation of our traditional refineries. And we have set out the decisive measures to address challenges in our chemical business that are the same impacting the entire European industry. In 2025, we accelerated these actions, closing the crackers at Brindisi and Priolo 3 to 6 months earlier than planned. At the same time, we are transforming Versalis towards bio, circular and specialized products. The strategic and operational progress achieved in 2025 translates into exceptional financial delivery. Robust financial position is critical in managing the cycle, preserving flexibility and delivering our strategy. Last year, CFFO at EUR 12.5 billion was EUR 1.5 billion ahead of plan on a scenario-adjusted basis. Responding promptly to the more challenging scenario, we cut gross CapEx from a planned EUR 9 billion to EUR 8.5 billion, and we identified cash initiatives totaling EUR 4 billion raised from an initial EUR 2 billion, including delivering EUR 0.5 billion of savings. Net CapEx on a pro-forma basis was lower than EUR 5 billion versus our initial expectation of EUR 6.5 billion to EUR 7 billion as we executed on more portfolio activity for better value. As a result, pro-forma gearing at year-end was 14%, with net debt down almost EUR 3 billion over the year. These outcomes gave us the opportunity to raise our share buyback by 20% from EUR 1.5 billion to EUR 1.8 billion, achieving the unique combination in 2025 of both lowering debt and enhancing shareholder distribution. In Q4, pro-forma adjusted EBIT was EUR 2.9 billion, up 6% year-on-year despite the lower oil price and weaker dollar. We reported excellent E&P result with production up 7% year-on-year and 5% sequentially at 1.839 million barrels per day, underpinned by the positive impact of 2025 start-ups. Full year production of 1.7 million to 8 million barrels per day was 2% above our guidance for the year. GGP Q4 EBIT of EUR 0.1 billion delivered on our raised full year guidance of more than EUR 1 billion despite relatively low volatile markets. Plenitude and Enilive together delivered EUR 2 billion of pro-forma adjusted EBIT in the year and Enilive benefited from improved bio margins in the quarter, part offsetting seasonally lower marketing. Refining returned to profit in the quarter, albeit held back by relatively low utilization rates, while chemicals continued to see a weak scenario setting the early benefits of the restructuring underway. Q4 adjusted net profit was EUR 1.2 billion with a tax rate of 37% as we adjusted to a full year rate of 44%, just below guidance. CFFO in Q4 was EUR 3 billion, representing excellent cash conversion again, helped by the material cash initiatives we undertook in the year. Full year cash flow at EUR 12.5 billion was EUR 1.5 billion above our full year guidance on a scenario adjusted basis. Thanks to a release in working capital and our actions around the portfolio, we were able to fund our CapEx, shareholder distributions and other commitments and also to significantly reduce debt. Gross organic CapEx in the quarter was EUR 2.6 billion, taking the full year figure to EUR 8.5 billion, EUR 0.5 billion less than our original plan. Valorizations and portfolio activities have raised around EUR 10 billion over the past 2 years. In 2025, we completed more than EUR 6.5 billion in valorization of portfolio activity, which meant that adjusting to a pro-forma basis, net CapEx was lower than EUR 5 billion, around EUR 2 billion below our original plan. But 2025 is not a one-off year. For 2026, we expect to limit our gross CapEx to around EUR 7 billion and net CapEx at around EUR 5 billion. We reduced net debt over 2025 by almost EUR 3 billion, as we said, bringing gearing to 15% at year-end or 14% on a pro-forma basis. We can confirm that we expect pro-forma gearing in 2026 to remain at historically low levels at between 10% to 15%. Our shareholder distribution details, we have to revert to the CMU in March, but we can confirm a full funded attractive and growing dividend is our first priority. In the last 5 years, we have raised the dividend by an average of 5% per year, reflecting underlying growth and the reduction of sharing issue. At the same time, we have additional tool of distribution via the buyback that reflects our policy of showing cash flow generation and upside. In 2025, for example, we raised the buyback by 20%, the third occasion in the past 4 years, we have increased distributions. In conclusion, 2025 was a clear outcome of Eni strategy in action. Looking ahead, we will update our -- on our plan in March, but strategy remain unchanged. The choices we make in how we do business are driven by our industrial, technological and commercial strength and by a business model that has proven to perform in strong and soft market conditions. The upstream will grow organically at a sector-leading rate, leveraging our exploration successes and our proven ability to fast track time to market while managing costs and delivering the value from our business combinations and partnerships. On the energy transition, we will deliver the programs outlined by -- for Plenitude and Enilive while developing CCS, fusion, battery storage and data centers for hyperscalers, coupled with Blue Power and exploring opportunities in critical minerals. Portfolio activity will again be material in 2026 as we continue to pursue disciplined capital alignment and value disclosure. In March, we will share with you the details that underpin this outlook and which support continued highly attractive investor returns. And now with the rest of Eni top management are ready to take your questions. Thank you. Operator: [Operator Instructions] First question is from Alejandro Vigil, Santander. Alejandro Vigil: Congratulations for the results. I have 2 questions about the upstream business. Definitely, you will elaborate more on the Capital Markets Day. But I'm very interested in the outlook for this year, thanks to the contribution of the joint venture with Petronas, if you can elaborate about potential increase in production driven by this joint venture? And the second question is about Kazakhstan. There is a lot of noise in the media, and I would like to know your view about the situation in the country. Claudio Descalzi: Okay. Thank you. Thank you for the questions. I just give you a few words about Petronas and the outlook and Kazakhstan, then Guido -- and I will give where are the possibility to expand and elaborate on these 2 questions. So Petronas, I think that Petronas will be finalized by the second -- end of the second quarter. And it's going to give a contribution clearly, yes. We cannot be precise now. I think that we can give you more detail on the -- in March, but clearly is going to give a contribution in terms of production for 6 months. And as you know, we are going to have immediately a company that is producing about 300,000 barrels per day, but we have already project that we're going to implement FID in the next years to reach 500,000 barrels per day. We already drilled in Indonesia, as you know, successful wells that we can tie into the existing infrastructure. So we talk about reserves, not just resources. Kazakhstan -- Kazakhstan, I think that is a long story because in the last -- in the last 15 years, every 3, 2 years, we have some renegotiation and some, I can say, dispute, but more discussion because we are friends. And as always happen between friends, we always find a solution. So I'm positive about the future. But now I think that Guido can take over and give you more detail. Guido Brusco: Yes. Thanks, Claudio. So barring from more details coming in the next CMU, of course, the growth of production next year will be driven by the project we have started up recently. So we will see more production coming from Congo, from Norway, from Angola, from UAE and of course, from Indonesia. But as I said, more details will come in a few more weeks. As far as Kazakhstan, of course, as you know, the Republic has advanced several arbitration claims regarding production performance, cost recovery, environmental matters, sulfur storage and the JV is defending. There is a broad claim here, which -- it's in the arbitration court at the moment, and we do not expect a result before 2027, 2028. However, we continue as the operator is saying, confirm that operation have been conducted in compliance with the law of Kazakhstan and the operator had always possessed the required permits. And therefore, we are challenging this sulfur refine in all the courts. Operator: Thanks, Alex. We can now pass over to Michele Della Vigna at Goldman Sachs. Michele Della Vigna: Congratulations on the results. I wanted to ask 2 questions. First, on your CapEx guidance for '26 of EUR 7 billion. I was wondering if you could walk us through the bridge between the EUR 1.5 billion this year and the EUR 7 billion. Clearly, the deconsolidation of Indonesia plays a part, but if you could give us a bit more detail? And then secondly, the more we look at all of your discoveries and access in the last couple of years, it feels like you probably have the best pipeline of new projects you've ever had in your corporate history. How should we think about your priorities for FID in 2026, given the wealth of opportunities between Namibia, Indonesia, Cote d'Ivoire and all of your recent discoveries? Claudio Descalzi: Okay. Thank you. Thank you for the question. So it's true, we said that we cut our CapEx or we reduced our CapEx from EUR 8.5 billion this year to EUR 7 billion. That is a reduction in terms of CapEx optimization. We are not reducing the growth. We are not touching the growth of the company, but just we became more efficient because we did -- we have a strategy or we applied the strategy to be more efficient starting from the exploration. So exploring and go to the place where we have existing facilities. And then this year, we had a very excellent success. Also last year, we are moving at EUR 1 billion or less than EUR 1 billion resource discoveries in the right place where we have infrastructure. That means that we can continue to reduce CapEx because we need less CapEx to produce more, more, more production. That was a strategy that is not something that you can start overnight. It's something that we start in 2011, '12, '13. It's something that we built day by day because we never stop exploration. We never stop exploring. We never stop developing. We never stop going directly to the development and working as upstreamer. So that is the reason why we can reduce our gross CapEx. Then we have other points that maybe Guido can explain to you that is an additional important unless that can explain why we can reduce CapEx. Guido, you can explain. Guido Brusco: Yes, Claudio. And I mean, just building on what you were saying about the advantaged barrels. The project we have started up in the last 4, 5 years and the prospective project, which you will have more visibility in the Capital Market update are projects with, first of all, low unit development cost. Second, they have longer plateau. So we can devote less CapEx to maintain the production and fight the decline and more CapEx for the growth at the same CapEx level in a nutshell. As far as concerned, your question, Michele, about the -- what will come next year. Of course, we have a great degree of optionality. We have a very large and diverse portfolio of projects. But clearly, next year, the project that we will focus more in terms of FID is Argentina, Ivory Coast, Cyprus, plus a few more geographies in Africa. Operator: We're going to now move on to Biraj Borkhataria at RBC. Biraj Borkhataria: Just to follow up on the CapEx point and the number you guided today. How much of that year-on-year change is the Indonesia CapEx coming out as you deconsolidate it? And is there anything you can say on the CFFO contribution that will be removed also when you deconsolidate that production? And then second question is just on Versalis. You've now closed down the crackers, but we haven't seen that sort of come through in the P&L. So do you still expect to be EBIT breakeven in 2027? And what should we expect for 2026? Claudio Descalzi: Okay. CapEx in Indonesia, we already said that Indonesia is not -- I think that we can start working in Indonesia after the finalization of the business combination of the new company that we expect in the second quarter. So I think in any case, the impact on CapEx on Indonesia will not be very large this year because then we have FID to take maybe in '26, but mainly in 2027. For Versalis, I think Adriano, CEO of Versalis, can give some answer, and some light. Adriano Alfani: Sure. Thank you for the question. I mean we have seen some improvement in the second half of 2025 following the shutdown of the 2 crackers that, as we said before, we move forward and we stopped earlier than what was original plan. Unfortunately, the positive impact, although you remember what we said in the previous call that the impact of 2 major cracker shutdown, you start to see after 12, 18 months. So we've seen some positive impact, and this helped in order to mitigate the deterioration in the scenario. So we have seen improvement in the second half of 2025 compared to the second half of 2024, and we continue to see also in the beginning of the months of 2026. We are taking additional actions in order to mitigate the plan that is not coming as expected in terms of scenario. I'm pretty sure that you have seen so many shutdowns have been announced in the last 3 years, close to 160 shutdown announcement. And in the next capital market update, we are going to share the plan for the next 2, 3 years. Operator: We're going to move to Lydia Rainforth at Barclays. Lydia Rainforth: Two questions, if I could, please. The first one, on the exploration side and building a little bit on Michele's question earlier, you've clearly been very, very successful in what you've done. Can you actually give us what the success rate is now? Are we looking at sort of 1 in 2, 4 out of 5 wells? I'm just trying to work out what that success rate is. And then secondly, just on AI, clearly, you've got a lot of computing power. I'm just wondering what you're seeing, if you're seeing any benefits at this point or what your plans are around that. Guido Brusco: On exploration, last year, we've been very, very successful and success rate was exceptionally high. As you could also notice from the very low write-off we basically written in our books. So it was really exceptionally high, very close to 100%, the success rate last year. On the AI, as you may be aware, last year, we've opened a new business line on data center, coupled with the gas-fired plant. We have a plan with international partners to develop a data center in the north of Italy, close to Milan up to 500 megawatts split in different phases. We have a first phase which will go from 80 to 100 megawatts and the second phase to 500 megawatts. And this is in an area which is underdeveloped and in a country like Italy, which has foreseen a demand of AI center by 2030 up to 1 -- the impact, of course, we are forerunner in terms of application of technology and super computational capacity on our activity and the exploration success is one example of it. Of course, AI will apply also on other segment of the business in the upstream like the production improvement, drilling and project improvement, rotating machine enhancement. So we expect a significant impact on the AI. Just to remind that in the industry, we have already one of the lowest downtime for the production facilities, which is around -- which is less than 1%, while the average of the industry, WoodMac data is around 3.5%. Operator: We're now going to move to Irene Himona at Bernstein. Irene Himona: Congratulations on a strong year, especially in the upstream. Can you please say, firstly, what did you change exactly to high-grade production? What does that involve? Secondly, can you remind us what upstream tax rate we should expect in an environment of $65 to $70 Brent? And then finally, very quickly, looking at the 10 billion BOE of resource you have discovered since 2014, can you say roughly what the split is between gas and liquids, please? Guido Brusco: On the what we did basically question of the high grading, of course, in our portfolio, we are bringing onstream project with very high profitable cash flow per barrel. And we are divesting late-life assets. So the combination of these 2 elements. So the new project and the late-life asset disposal is high-grading our portfolio. And you may have also seen that if we compare the free cash flow per barrel from 2024 to 2025, we have seen a 10% increase. On the tax rate... Claudio Descalzi: Before talking about the tax rate, so you remarked a very successful increase in our production. Absolutely what we said is true. So we have a different quality in terms of barrel, so higher cash flow per barrel, but also we have been successful for -- in the last years to be in terms of time to market -- time to market and budget. So we have been able to not only respect our schedule, but in most of the case, faster. So that clearly impacted positively. The production impact and internal rate of return of all our projects. And we are respected on all the budget. So that is something that maybe is not clear or explicit to all -- to everybody, to investors, to all our community, but that is one key point of success in terms of results and the value of our volume. Tax rate. Francesco Gattei: On the tax rate, as you have seen, there is a fluctuation that are mainly related to clearly to the composition. In this case, you mentioned the upstream tax rate. So on the composition in terms of production contribution in different countries on the exploration write-off and some additional one-off factors that could imply or determine certain effects. In the 2026, the expectation is to -- with a $62 that is, for the time being, our assumption, a tax rate that should be in the range of 45% to 50%. Clearly, if the price will improve, there will be a lower tax rate. Guido Brusco: Just to complete, you made another question, the split between oil and gas of the discovery is 70% gas and 30% oil. Operator: We are now going to move over to Josh Stone at UBS. Joshua Eliot Stone: Two questions, please. One, I wanted to pick on -- up on this Italian energy reform that got passed and whether you had a chance to estimate the initial impacts because it looks like there's quite complicated, lots of moving parts. It's connected to gas spreads, the ETFs and tax. Maybe you could just talk about how you're thinking about that being a net positive or net negative and the different impacts on your different parts of the businesses, that would be useful. And then second question on the buyback. I know we've got to be patient for the actual number, but I was hoping you can maybe share just your thought process here and the importance you put on buybacks after the re-rating of your stock. And am I right in saying when you set this buyback, you'll be using the $62 oil price deck for 2026? Claudio Descalzi: About the energy bill that you were referring in Italy, clearly, the impact is slightly negative, but quite marginal because you have to consider that as Eni, we are not just a supplier and a producer, but we are also an important industrial player in the country with different activities spanning from the refinery, chemicals, bio-refineries and also certain upstream activity, clearly. So you have to consider that the overall effect is mitigated by this double exposure. So it's absolutely, let's say, marginal towards the overall performance of Eni. In terms of buyback, I was mentioning before, the reference is $62 for the expectation for the next year in terms of pricing, we have to confirm at the next Capital Market Day. Clearly, you know what is the structure of our distribution policy. When we set up a buyback that is clearly the variable component of our distribution, this is a floor. And historically, we proved that this is the floor because we raised the floor 3 times on 4 years. And the scope is substantially to share the upside that will emerge both in the performance and the scenario to our investors. We will provide all the details in the Capital Market Day at the end of March. Operator: So now we are looking for Alastair Syme at Citigroup. Alastair has disappeared off the list, apologies. We're going to move to Matt Lofting at JPMorgan. Matthew Lofting: Congratulations on the strength of execution throughout 2025. Just 2 quick questions from my side. First, coming back to the net debt and gearing targets. I wondered, you mentioned Asia and the JV earlier. I wondered whether there was any other accounting effects in those targets, including any allowance for a possible deconsolidation of Plenitude, which I know has been sort of talked about in the past. And then secondly, Eni is obviously one of the companies in the industry that's retained a presence in Venezuela. Do you have any thoughts at this point on the near and longer-term upside that could sit there for you in the country and how you'd sort of think about ranking that within the range of portfolio opportunities that you have from a capital allocation and risk reward perspective? Claudio Descalzi: Thank you. So Francesco, look after gearing, and I look after Venezuela. Francesco Gattei: Okay. Clearly, about the gearing target that we provide you is, let's say, an effect of a number of actions and levers. As we said before, there is a strong operational performance, cash flow improvement, CapEx efficiency. And clearly, the satellite model that helps to, let's say, transform this potential contribution in terms of growth in stand-alone companies or entities that will be able by themselves to provide the debt. We are studying different solutions. You were referring to Plenitude, but clearly, we are working on different concepts and potentially this could be, but it's something that will be eventually disclosed at the proper time. Claudio Descalzi: Venezuela, what I can say that, for sure, is an upside for us, an upside from several point of view, not just 1, 2, maybe 3 upside, different kind of upside. The first one that through the general licenses, #50 that has been issued a few days before, 1 week, I think, we can recover our gas. So Venezuela can pay through using crude, the gas that we deliver to the domestic market. So that is already a big upside before we were stuck for almost 1 year. And that creates a very buildup of our outstanding. So now that is done. Then there is a second upside. We have blocks, we have oil. We are in one of the best block in the Orinoco belt. We are also offshore with Corocoro. And that possible additional development can use to recover the past cost or the past outstanding that's around EUR 3 billion. And that is another upside. So for sure, we are working with some American companies to see if we are creating a joint venture to develop this field are producing. But clearly, they can grow our production quite quickly, and that is a possible upside. And the third upside is gas. Gas is something that is needed. You have to consider that U.S. have to increase or deliver additional EUR 20 billion or more EUR 20 billion in 1 year -- less than 1 year because with the sanction on the LNG gas and Russian gas, we need to compensate this EUR 20 billion. So you asked to -- they have to increase. But U.S. need also gas in domestic market. So the gas that we discovered about 20 Tcf in Perla with additional prospects that are really located in the right position, not just to deliver domestic gas, but also to export to Europe is a third opportunity. And clearly, these are in line with what President Trump wants. I mean, develop the oil and gas in Venezuela -- for Venezuela first, but also to create a different kind of environment in the region. So I see that very positively. Operator: So we'll move to Martijn Rats at Morgan Stanley. Martijn? Martijn Rats: Yes. To be honest, most of my question has largely been asked, but I've got one left. There have been a couple of articles saying that you're interested in sort of revitalizing some of the oil trading business within E&I and including some partnerships with some other firms. I was wondering if you could provide some color around that issue, what your thoughts are in that area. Guido Brusco: We've started a journey to improve our trading and extract more value from this segment of the business. And we've -- first of all, we've created one single organization. So we have put under one umbrella all the trading arms of the company all along the value chain to extract all the margins. That's the number one. Number two, we have changed also some of our approaches to the risk. We are becoming a little bit more -- a little bit less risk adverse. And number three, we are, of course, looking at different way to do business. And in doing that, of course, we have started a dialogue with some international trading players in the recent months. Operator: We are going to move to Massimo Bonisoli at Equita. Massimo Bonisoli: My 2 questions. One on CapEx. Net M&A was around EUR 4 billion in 2025, roughly EUR 2 billion above the initial guidance with EUR 2 billion target also for 2026, does this implicitly rise your opportunities over the 4-year plan? So I'm curious to understand if you have more options in your portfolio than 1 year ago? And the second question on biofuels. How do you see biofuels trading environment evolving in 2026, particularly in terms of margins and market balance between supply and demand? Claudio Descalzi: Yes. Thank you, Massimo. About the net CapEx and the portfolio effect, as you can see, we continue to upgrade our portfolio to leverage on our capability to execute and to explore and to have success for the dual exploration model to valorize as we have done so far, the business line that will be recognized as valuable through the transition. So there is a large list of opportunity. Remember, last year, we declared there was a risk amount and the result at the end in terms of value and the higher effect is the fact that clearly, we had a positive result at the end. So in terms of this year effect of EUR 2 billion, you can also already appreciate that we completed in early January the first disposal. It was the Ivory Coast top-up. And this is something that is already on our, let's say, results. And we are moving to additional progress or activity related in particular, Indonesia, 10% is a program that is ongoing and some other additional element. We continue to work, and you should expect as we had last year, eventually upside because we generally risk our overall portfolio program. Stefano Ballista: Yes. On biofuel, thanks for the question, Massimo. Biofuel, we see the development is absolutely constructive. We estimate biofuel demand in 2026 above EUR 20 million. This year, it's going to be around EUR 16 million, so a significant step-up. It's going to be driven mainly by Europe and U.S. Main reason for this demand growth is twofold. In Europe is the well-known Renewable Energy Directive #3. We quoted the Germany example even in previous call. I just want to add that on top of getting extra GHG reduction target and the ban of double counting, they are even asking to allow site investigation in countries -- foreign countries that are providing flows to Germany in order to be that flow accountable. And this is actually a positive evolvement for the supply-demand balance. So this is another good news. Talking about U.S., actually, just yesterday, the EPA said that within the end of March, they want to finalize the new renewable volume target. Expectation is to have a significant increase between 35% and 40% increase. We are seeing this already on the RIN prices. RIN prices improved by 40% from the beginning of the year. And this happened without an improvement in terms of RIN generation. So this means that in order to cope with the new EPA target, we need to have RIN generation improvement, and this is going to drive economic margins improvement itself. Last comment, this year, we saw a reduction, a destocking of the RIN banking. It's about EUR 0.5 billion destocking. And this is a turning point that revert the trends that we saw previous year when the RIN banking actually got exactly in the opposite direction with an increase of EUR 2 billion. We expect this trend to definitely move forward and to rebalancing the supply demands overall. Operator: We're going to move now to Mark Wilson at Jefferies. Mark, if you're online. Mark Wilson: Okay. You said earlier how the strategic path that has got you where you are in upstream is not one that you can start overnight, the exploration, the infrastructure, as you say, you've never stopped. Now you've also spoke to AI impacting exploration. And on the last call, you spoke to the technical hedge that floating LNG is giving you. So -- but my question is that it's impossible to have this kind of delivery alone. So I'd like to ask which third-party areas other than the ones already spoken to across your upstream partners or indeed oilfield service contractors, where has the greatest improvement been to assist your delivery? Is it drilling, reservoir characteristic, E&C cycle time, shipyards? Is it something else? That would be my question. Claudio Descalzi: Thank you for the question. It's very interesting. No, first of all, we are never alone in the life. I have a lot of colleagues with me in Eni, but we are not alone in terms of strategy. When other company outsourcing, we are in-sourcing, that means that we kept in our company all the main competencies. That started in the 2000 and so 2011, 2012, we decided to in-source. So we didn't follow the mainstream that say reduce cost and may your contractors as a main contractor, they do everything in Turkey. Now we want to take our end in each project. And that means that in the last, I think, 16, 17 years, we put our competencies and we increased our competencies in all the different segments of our business. I talked about E&P, not only. We increased the R&D investment. We opened up 7 R&D centers. We increased our R&D people [ 1,200 ] people. And we have in our end technology in drilling, reservoir or seismic and development, and we made a revolution in our time to market, the best we can say in time to market. So we are not alone, but we are alone in terms of the choices we made in the last 15 years. So I think that, that is the main reason. I don't know if we share this point, you want to say something else. I hope and I think... Guido Brusco: It couldn't be better. Operator: We're going to move to Paul Redman at BNP Paribas. Paul? Paul Redman: Just 2, please. First was you achieved EUR 4 billion of cash initiative benefit in 2025. I wanted to ask how much of that is roll or could roll over into 2026? And secondly, I know people have asked but kind of -- and it is early, seeing you've got a Capital Markets Day in a few weeks' time. But I wanted to ask about how you think about allocating to shareholder. You currently allocate based on a percent of cash flow from operations, but you've clearly paid above that percentage. And I think part of that has been driven by acceleration of divestments. So I wanted -- and this year, you're guiding EUR 2 billion of divestments. So I wanted to ask if you still believe that percentage of cash flow from operations is the appropriate way to allocate cash flow to shareholders. Claudio Descalzi: First of all, about the cash initiative, you have seen that we executed. I think that there is a lot of evidence through the results that we achieved that we started with EUR 2 billion, we raised to EUR 3 billion and then EUR 4 billion, and we performed. Most of that are one-off factors that doesn't mean that they will be reverted, but actually will be rolling. So we are executing our cash management in a different way than before, optimizing the time to market of this cash needs, and there were a lot of opportunity. We continue to study because I believe that generally in managing a huge amount of cash in a company's Eni, there is still a lot of pockets or upside that are -- have to be discovered. It is a sort of treasury search that we look for. So we do expect something also, but this is probably we have to wait a bit, 3 weeks for additional disclosure. On the cash flow from operation reference, the idea of having cash flow from operation as a starting point for distribution is because we want to put the shareholders at the top of our priority. So the first line of cash flow is the cash flow from operation, pre-working capital. And clearly, there is all the other factors that come later. So the free cash flow could be another way to distribute. Clearly, you have to change the percentage because you are speaking about different absolute figures. But at the end of the day, the logic of having cash flow from operation is giving the reference in terms of priority versus the distribution line. We will see again also in the next Capital Market Day, what will be the announcement and what will be eventually the percentage that we allocate. Operator: And we're going to go to the last question. We found Alastair. Al, you around. Al at Citigroup. Alastair Syme: Yes. So the question I had was really on -- well, I mean, there's been a lot of commentary in Italy and across the European Union about the European carbon scheme, the ETS. And you have a foot in several camps here, you're a carbon emitter, you're a power generator, you've got a CCS business. So can you give us a sense of where you think the political discussion is and what, if any, changes you would like to see? And if I could poke in a second question. Do you have any update on the well you're drilling offshore, Libya? Guido Brusco: Yes. Libya offshore, we are currently drilling one exploration well, and we'll announce results when they become available, of course. Claudio Descalzi: I think that we are very ready to talk about drilling reservoir explorations and all we want. But on ETS, honestly, we cannot give you a lot of light is the tax we pay. I don't know. Honestly, there is a big debate today because in Europe, the industry is suffering a lot. It's not growing. In the contrary, they are squeezing the industry in Europe with all the different kind of taxes and green deals that impacted negatively all the kind of industry. ETS is one of these taxes. And Europe is the only country that apply these taxes at a very high level. So when we talk at competition with the rest of the world, it's not easy to compete one and the other and not really applying the same kind of rules. So that's what I can say, but I [ do ] not want to enter any political debate. It's not our business. I prefer to increase production and get good results for my company instead to cry about taxes I'm paying. Thank you. Alastair Syme: Claudia, can I ask, does it make you think differently about putting capital on the CCS business given that there is a potential that the legislation could change? Claudio Descalzi: No, I think that change has been made already have been in taxonomy and they've been accepted at least. At the moment, in Holland, especially in U.K. and now in Italy, so we have at least 3 countries where the CCS can be developed. In U.K., they made a big, I think, effort for the future. And for that reason, they -- now the investment has started and also the project has been sanctioned. In Holland, I think that is going to follow. And Italy, we are very close to have a new law, but we have a huge amount of potential to be explored and we constitute the company. We already got interest from investors, and we have already an investor with us in the company. So I'm positive and Europe after years, now they accepted this important tool to reduce CO2 emissions. And clearly, the CCS is the counterpart of the ETS because the CC, so the capture now has not matched yet, but now with the ETS that is close to EUR 90 or between EUR 80 and EUR 90 per tonne, I think that the CCS based on the existing assets, not on new development, is very good from an economic point of view. It's very positive. Operator: Thanks, Claudio. Thanks, Al. That brings us to the end of the call. Thank you very much for your attention, both today and through 2025. And we look forward to speaking to you all in greater detail on the new strategy and plan or the strategy and the new plan on the 19th of March. So we'll see you all then. Thank you very much.
Operator: Good morning, everyone. Welcome to the TD Bank Group First Quarter 2026 Earnings Conference Call. I would now like to turn the meeting over to Ms. Brooke Hales, Head of Investor Relations. Please go ahead, Ms. Hales. Brooke Hales: Thank you, operator. Good morning, and welcome to TD Bank Group's First Quarter 2026 Results Presentation. We will begin today's presentation with remarks from Raymond Chun, the bank's CEO; followed by Leo Salom, Group Head, U.S. Banking, after which Kelvin Tran, the bank's CFO, will present our first quarter operating results. Ajai Bambawale, Chief Risk Officer, will then offer comments on credit quality, after which we will invite questions from analysts on the phone. Also present today to answer your questions are Sona Mehta, Group Head, Canadian Personal Banking; Barbara Hooper, Group Head, Canadian Business Banking; Paul Clark, Group Head, Wealth Management and Insurance; and Tim Wiggan, Group Head, Wholesale Banking. Please turn to the next slide. Our comments during this call 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 uses non-GAAP financial measures to arrive at adjusted results. The bank believes that adjusted results provided readers with a better understanding of how management views the bank's performance. Ray, Leo and Kelvin will be referring to adjusted results in their remarks. Additional information about non-GAAP measures and material factors and assumptions is available in our Q1 2026 MD&A. I would also like to note that effective this quarter, the bank renamed its U.S. Retail segment to U.S. Banking to better reflect the segment's financial products and services. With that, let me turn the presentation over to Ray. Raymond Chun: Thank you, Brooke, and good morning, everyone. Thanks for joining us. We had another strong quarter as we continue to demonstrate momentum across our strategic priorities. In Q1, the bank delivered a strong quarter with record earnings of $4.2 billion and EPS of $2.44, powering an ROE of 4.2%, up 100 basis points year-over-year. We saw robust trading and fee income growth in our markets-driven businesses, volume growth in Canadian P&C Banking and margin expansion. Impaired PCLs ticked up quarter-over-quarter in wholesale and U.S. commercial, reflecting a small number of borrowers across various industries. Overall, credit performance was in line with our expectations. We continue to expect fiscal 2026 PCLs to fall within a range of 40 to 50 basis points. Ajai will share more details shortly in his remarks. Our year-over-year expense growth continued to moderate this quarter, and we delivered positive operating leverage for the third consecutive quarter. We are on track to achieve our 3% to 4% expense growth target for fiscal 2026. The bank's Q1 CET1 ratio was 14.5% with strong organic capital accretion in the quarter. In January, we completed our $8 billion share buyback and launched our new $7 billion share buyback. As of the end of Q1, we had bought back approximately 84 million shares across these 2 buyback programs. We remain committed to consistently returning excess capital to our shareholders. We have conviction that TD's current share price does not fully reflect the bank's intrinsic value. TD has strong momentum, and we see considerable upside from here. Even with significant share buybacks, TD's robust organic capital accretion means it will take time for the bank to reach a 13% CET1 ratio. This is an enviable position for any bank and a unique advantage for TD. We are managing towards a 13% CET1 ratio by the second half of fiscal 2027. Overall, we have momentum across our businesses as we continue to deliver on our strategies to deepen relationships, make TD simpler and faster and execute with discipline. We continue to see potential upside to our 6% to 8% EPS growth and 13% ROE targets for fiscal 2026, provided that positive macroeconomic conditions continue. Please turn to Slide 3. Canadian Personal and Commercial Banking delivered record revenue, PTPP, earnings, deposit and loan volumes. In real estate secured lending, loans were up 5% year-over-year, and we continue to achieve sequential origination margin expansion. In addition, we saw record Q1 originations in our proprietary channels. In cards, we delivered the highest quarterly acquisition in a decade, driven by record pre-approvals for our existing clients and record point-of-sale deepening in our branches. We saw continued acceleration in the business bank with loans and non-term deposits up 6% and 7% year-over-year, respectively. At Investor Day, we laid out our strategy to capture deepening opportunities, including frontline expansion. We have added over 300 business bankers, an increase of 10% since the end of fiscal 2024, and we are seeing the benefits of that strategy play through. In U.S. Banking, we saw continued momentum across our core business lines as we deepen relationships with our clients. Mid-market lending balances were up 4% year-over-year, and we saw strong pipeline growth with commitments up 15% over the same period. U.S. proprietary credit card balances were up 15% year-over-year with record digital acquisition. Earlier this month, we completed the conversion of Nordstrom's card clients onto our servicing platform. This is an important strategic milestone that provides scale as we build out our credit card franchise. In our U.S. wealth business, total client assets were up 12% year-over-year with mass affluent client assets up 18% year-over-year. Wealth Management and Insurance delivered record earnings and assets. Let me start by congratulating the direct investing team. Last week, our leadership in the market was once again recognized when personal finance expert, Rob Carrick, said TD Direct investing is still king among Canadians online trading platforms. As we saw in Canadian business banking, our frontline expansion strategy is also delivering results in wealth. We added almost 200 financial planners and advisers since the end of fiscal 2024. In the most recent data, TD took 19 basis points of market share in financial planning with newly hired planners delivering strong growth. This month, we successfully combined our discretionary business in private wealth management. This simplifies our business model, enhances our value proposition to clients and helps position us for outsized growth. It is expected to unlock $40 million in platform and operational efficiencies as outlined at Investor Day. And in insurance, we continue to build on our position as Canada's leading digital direct insurer with almost 80% of our clients digitally engaged, strong progress to our Investor Day target of 90% plus. We have significant growth aspirations for our insurance business, and we are mitigating the volatility that comes with that growth. This quarter, we issued another innovative cat bond in the Canadian market, the first that offers protection against aggregate losses of small- and medium-sized cat events. Wholesale Banking delivered record revenue and earnings, supported by strong client activities across Global Markets and Corporate Investment Banking. The team continued to make progress on disciplined execution, achieving improved ROE and moderated year-over-year expense growth this quarter. Reflecting continued momentum, TD Cowen ranked in the top 10 in 10 categories in the 2025 Extel Global Fixed Income Survey and TD Securities was awarded the Best Trade Finance Bank in North America by Trade Treasury Payments. Please turn to Slide 4. This quarter, we continue to make progress against our strategy to deepen relationships, make TD simpler and faster and execute with discipline. As we shared at Investor Day, TD has significant opportunities to grow franchise relationships across the bank. This quarter, we drove increased penetration rates in both consumer and small business credit cards in Canada and in our proprietary bank card in the U.S. We are also making progress on our deepening targets in TD Securities. We launched Synthetic Prime in the U.S. and Europe. Our clients have told us they want to diversify their prime providers and our robust balance sheet and capabilities position us well for this opportunity. Our target of $1 billion in value from AI over the medium term reflects both our progress to date and our confidence in what's ahead. A core tenet of our AI strategy is to build once and use many times, scaling AI through repeatable patterns that lead to faster AI deployments and reduced cost of delivery. We saw the benefits of this approach with our GenAI knowledge management solution, which we first introduced in our contact centers last year and have now deployed across our over 1,000 branches in Canada. Questions that used to have colleagues jumping through screens are now answered in seconds. We are taking the same approach with agentic AI. We launched the initial scaling of an agentic AI solution to simplify the RESL pre-adjudication process. This provides the foundation for broader agentic AI adoption across RESL and other businesses. We are executing with discipline across the bank. Kelvin will share more details on our efforts to deliver structural cost reduction in his remarks. We have a clear strategy that is driving higher ROE with 4 consecutive quarters of ROE improvement in U.S. Banking and ROE up over 400 basis points year-over-year in Wholesale Banking. I remain confident that we will achieve the medium-term targets that we laid out at Investor Day. In fact, for ROE, we may get there faster than we expected. At our current earnings, achieving a 13% CET1 ratio through share repurchases translates into approximately 100 basis points of ROE. Delivering on our $2 billion to $2.5 billion cost takeout would yield an additional 150 basis points of ROE. And all our businesses are laser-focused on driving ROE to their Investor Day targets. With these levers and our strong performance in Q1, I am confident in our path to 16% ROE. Please turn to Slide 5. TD is the only Canadian company ranked in the top 100 most valuable brands in the world by brand finance, and we continue to invest to extend this leadership and deepen our client relationships. Earlier this month, we launched our new brand, reinforcing that in this complex digital-first world, TD will always be more human by delivering simpler, more intuitive and more connected banking experiences in every interaction and in every channel. Thank you to our colleagues across the bank for your dedication and commitment. TD is back to winning because of you. With that, I will hand it over to Leo. Leo Salom: Thank you very much, Ray, and good morning, everyone. Please turn to Slide 6. As we enter into 2026, we remain focused on our #1 priority and continue to make good progress as expected against our U.S. AML remediation program. This quarter, we continued to improve the efficiency, the efficacy and the accuracy of our program. This month, our new KYC platform went live to our business users. This is an important milestone as it delivers a centralized platform that enables the collection and maintenance of customer information in a single know your customer profile. As we complete the full implementation of this new system in the coming months, we will gain better insights about our customers, establishing an important building block of a strong AML program. In addition, as we've spoken about previously, we are continuing to work on additional AI and machine learning capabilities. We implemented machine learning models in our transaction monitoring system last year and additional models will be deployed in our program over the coming quarters. Finally, we rolled out an enhanced financial crime risk assessment methodology that is data-driven, resulting in a more sophisticated assessment of the bank's financial crimes risk. I'm pleased with the work that our teams have been able to accomplish, and I'm certain that we are building a sustainable program that will serve us well into the future. From a financial perspective, while investments will fluctuate from quarter-to-quarter, we continue to expect our AML remediation spend to be $500 million in fiscal 2026. That said, the composition of our spend will gradually change towards validation work and look-back costs as we complete our remaining management remediation actions. With that, I'll turn it over to Kelvin. Kelvin Vi Tran: Thank you, Leo. Please turn to Slide 7. Driven by robust top line momentum, coupled with disciplined execution, TD delivered a strong quarter with record earnings. Total bank PTPP was up 19% year-over-year after removing the impact of the U.S. strategic card portfolio, FX and insurance service expenses. We've shared the details on Slide 23. Revenue grew 11% year-over-year, reflecting growth across all of our businesses. At 43 basis points, total PCLs were within our guided range. Expenses increased 7% year-over-year with approximately 1% driven by variable compensation, foreign exchange and the impact of the U.S. strategic card portfolio. We delivered our third consecutive quarter of positive operating leverage. Please turn to Slide 8. This quarter, we incurred restructuring charges of $200 million pretax driven by further workforce optimization. We have now concluded the restructuring program with total charges of $886 million pretax. We expect fully realized annual cost savings of $775 million pretax. Our restructuring program is one part of our broader efforts to drive structural cost reduction across the bank. As you heard at Investor Day, we are targeting $2 billion to $2.5 billion in annualized cost savings over the medium term. AI is helping power these savings as we scale through repeatable patterns driving faster deployment and reduce cost of delivery. Strong cost management and a deeper understanding of unit costs are also critical components of this effort. In insurance, we expect to deliver over $150 million of claims cost reductions over the medium term through vendor optimization and AI deployment and fraud detection and process reengineering. This will drive reduced time lines for claims fraud detection and increase speed and accuracy for claims resolution, further enhancing the client experience. We're also making progress in wealth. Investments in process improvement, digital and AI capabilities are expected to reduce the time it takes to complete a financial plan by 50%, creating capacity for higher-value advisory and business development activities. This is just the beginning. We look forward to providing further updates as this work progresses. Please turn to Slide 9. Canadian Personal and Commercial Banking delivered record revenue, PTPP, earnings, deposit and loan volumes. Average deposits rose 3% year-over-year, reflecting 3% growth in personal deposits and 5% growth in business deposits. Average loan volumes rose 5% year-over-year with 5% growth in personal volumes and 6% growth in business volumes. NIM was stable, up 1 basis point quarter-over-quarter. With good revenue and disciplined expense management, we delivered over 200 basis points of operating leverage. We made strategic investments to deepen relationships such as adding business bankers in priority markets and equally to create simpler and faster client experiences that also reduce structural unit costs, including our launch of the RESL pre-adjudication agentic AI capability that Ray shared. Going forward, we will take the opportunity to invest in our strategic priorities while continuing with disciplined execution. As we look forward to Q2, we again expect net interest margin to be relatively stable. Please turn to Slide 10. In U.S. Banking, year-over-year, earnings were up 22%, PTPP was up 7% and ROTCE expanded by 330 basis points to 14.7%. Excluding sweeps and targeted runoff in our government banking business, deposits were up 1% year-over-year. Core loans grew 2% year-over-year, reflecting continued strength in bank card, home equity and middle market. Net interest margin was 3.38%, up 13 basis points quarter-over-quarter, driven by an adjustment for client deposit rates in the prior quarter and higher loan margins from improved product mix. As we look forward to Q2, we expect NIM to modestly increase. Expenses increased 8% year-over-year, reflecting higher governance and control costs and employee-related expenses. As Ray mentioned, earlier this month, we completed the conversion of Nordstrom card clients onto our servicing platform. Going forward, for Nordstrom, TD will have a higher share of revenue and expected losses. Slide 22 provides an illustrative example of the accounting for our strategic card partnerships. As a result of the Nordstrom change and consistent with similar transactions, we expect the receivable adjustment of USD 145 million to be treated as an item of note in Q2. The Nordstrom conversion was fully reflected in the guidance that we provided at Investor Day. U.S. Banking is on track to achieve our target of USD 2.9 billion in earnings in fiscal 2026. In addition, I wanted to highlight a change in the presentation of our financials for U.S. Banking. TD invests in tax advantaged entities to support the communities in which we operate while generating income tax benefits. Previously, losses on these investments were recognized in noninterest income, while the related tax benefits were recognized in provision for income taxes. Effective this quarter, to promote comparability with U.S. peers, we reclassified the losses from noninterest income to provision for income taxes in U.S. banking. In accordance with IFRS, we made offsetting adjustment in corporate segment so that there is no change in noninterest income or provision for income taxes at the total bank level. This change lowers the efficiency ratio in U.S. banking. As a result, we updated our medium-term target and now expect U.S. Banking to deliver an efficiency ratio in the mid-50s by fiscal 2029. Please turn to Slide 11. In Q1, Wealth Management and Insurance delivered record earnings and assets. We saw market share gains across our businesses, led by 97 basis points of revenue share growth year-over-year in direct investing. Trades per day were up 10% year-over-year, driven by new client growth and deeper relationships. ETF assets surpassed $31 billion, up from $17 billion at the end of fiscal 2024 and well on our way to our medium-term target of $54 billion. In Insurance, we continue to focus on profitable growth, increasing ROE by 80 basis points year-over-year. Sequentially, expenses for the segment, excluding variable compensation, were down 2%, reflecting disciplined expense management. We are driving structural cost savings while investing for the future, including unifying our discretionary private wealth businesses and our new TD Easy Trade app. Please turn to Slide 12. Wholesale Banking delivered record revenue and earnings driven by broad-based performance across Global Markets and Corporate and Investment Banking with strength in commodities, global equity derivative and advisory fees and equity underwriting. Overall, performance reflects the depth and diversification of the platform, combined with high levels of client activity and constructive market conditions. Impaired PCLs increased, reflecting a small number of borrowers across various industries. Ajai will share more detail shortly in his remarks. Expenses increased 5% year-over-year as we continue to invest in technology and front-office capabilities, spending to support business growth and higher variable compensation. Return on equity for the quarter was 12.6%, driven by strong revenue growth, moderating expense growth and disciplined capital management. Please turn to Slide 13. Corporate net loss for the quarter was $153 million, a smaller loss than the same quarter last year, reflecting higher revenue from treasury and balance sheet management activities, partially offset by higher net corporate expenses. Please turn to Slide 14. The common equity Tier 1 ratio ended the quarter at 14.5%, down 15 basis points sequentially. We delivered strong organic capital accretion this quarter. The bank repurchased 19 million common shares under its previous and current share buyback programs in Q1, which reduced CET1 by 38 basis points. As Ray said, TD's capital position is a competitive advantage. We remain committed to consistently returning excess capital to our shareholders. And with that, I will turn it over to Ajai. Ajai Bambawale: Okay. Well, thank you, Kelvin, and good morning, everyone. I was pleased with the bank's overall credit performance this quarter. Now let me turn to the results, starting on Slide 15. Gross impaired loan formations were 27 basis points, an increase of 4 basis points quarter-over-quarter. The increase was largely recorded across the wholesale banking and U.S. commercial lending portfolios related to a small number of borrowers across a range of industries, partially offset by lower formations in the Canadian commercial lending portfolio. Please turn to Slide 16. Gross impaired loans increased 2 basis points quarter-over-quarter to 58 basis points or $5.59 billion. The increase was reflected in the U.S. commercial and Canadian consumer portfolios, partially offset by lower impairments in Canadian commercial. Please turn to Slide 17. Recall that our presentation reports PCL ratios, both gross and net of the partner share of the U.S. strategic card PCLs. We remind you that U.S. card PCLs recorded in the corporate segment are fully absorbed by our partners and do not impact the bank's net income. The bank's provision for credit losses was 43 basis points, an increase of $57 million or 2 basis points quarter-over-quarter, driven by the Wholesale Banking segment, partially offset by lower provisions in Canadian Personal and Commercial Banking. Please turn to Slide 18. Impaired PCLs were $1.16 billion, increasing $221 million quarter-over-quarter, largely as a result of credit migration in the wholesale and U.S. commercial lending portfolios related to a small number of borrowers across a range of industries, partially offset by lower provisions in Canadian commercial. More than half of the increase in the bank's impaired PCLs this quarter was due to a single borrower in the wholesale segment. We do not expect the level of impaired provisions in wholesale this quarter to be reflective of a typical run rate moving forward. The bank recorded a performing PCL recovery of $125 million, reflecting improvement in the macroeconomic forecast and migration from performing to impaired in the wholesale and U.S. commercial lending portfolios. The performing PCL recovery was primarily recorded in the U.S. Banking and Wholesale segments. Please turn to Slide 19. The allowance for credit losses decreased $144 million quarter-over-quarter related to a $156 million impact from foreign exchange, improvement in the Canadian and U.S. economic forecasts, partially offset by higher impaired allowance in the wholesale and U.S. commercial lending portfolios. Now to summarize, the bank exhibited strong credit performance this quarter as PCLs were within the guidance offered at the end of last year. Additionally, we remain prudently provisioned with allowance coverage of gross loans at 99 basis points, including more than $500 million in reserves set aside for ongoing elevated policy and trade uncertainty. Looking forward, while results may vary by quarter and are subject to changes to economic conditions, we continue to expect fiscal 2026 PCLs to fall within a range of 40 to 50 basis points. TD is well positioned to operate through a variety of economic scenarios, considering our prudent provisioning, broad diversification across products and geographies, our strong capital position and our through-the-cycle underwriting standards. With that, operator, we are now ready to begin the Q&A session. Operator: [Operator Instructions] The first question comes from Matthew Lee with Canaccord Genuity. Matthew Lee: If we assume you reach 13% CET1 ratio by the end of 2027 and your cost savings continue to improve and you achieve the earnings growth in your targets, I think my math suggests that you can get to that 16% ROE by the exit of 2027. Can you maybe talk about factors might prevent you from getting there or whether it's just a matter of accounting for the unknowns? Raymond Chun: Thanks, Matt. It's Ray. Thanks for the question. As I said at the end of our Q4 results, I mean, we are definitely seeing good momentum coming out of, first and foremost, fiscal 2025, and you saw that momentum carry through. And you're seeing that play through on our ROE at 14.2% after the first quarter. The way I would think about it, Matt, is on some of the things that we control. If you think about our CET1 ratio getting down to the 13% by the second half of 2026 -- 2027, as I commented in my comments, that gives us another 100 basis points. We are well on pace on our $2 billion to $2.5 billion expense takeout and the discipline and the structural cost reduction. We're actually a bit ahead of schedule, I would say, on the things that we're focused on. That gives us another 150 basis points pickup on that. And so -- and if you look across our businesses for the quarter, every business at TD improved their ROE as per our Investor Day commitment. So, what I would say is that we're certainly -- as I said even in our Q4 comments, we are ahead of pace as to what we thought during Investor Day, and our confidence is high on getting to the 16% ROE that the guidance that we gave. That's the way I would think about it. Matthew Lee: Okay. That's helpful. And then maybe just a quick one on the U.S. loan book. Total loans were down 9%, but core loans were up 2%. Can you just maybe help us understand what the areas of focus are in terms of growing that book in the U.S.? And when we should start thinking about core loan growth being to outpace the identified sales and runoffs? Leo Salom: So Matt, thanks for the question. So if you look at the core loan growth for the quarter, it was 2%. If I can break that down for you, we saw really strong consumer lending growth. As I prioritized in our Investor Day discussion, our credit card book, particularly our bank card book is a major area of focus for us. So just to give you a sense of the momentum that we've got in that segment, we saw 15% balance growth for the quarter. Unit sales were up 33% on a year-on-year basis. We use the term penetration rate as a critical indicator of the cards portfolio success, and we saw a 200 basis point increase in the penetration of credit cards to our deposit client base on a year-on-year basis. So we're making progress towards that plus 30% figure that we gave at Investor Day. And sales activities were strong coming out of the seasonal Christmas rush. So you put all those things together, we are pleased about our consumer lending growth anchored by that cards performance. On the commercial side, a bit more of a tale of 2 cities. at the higher end, at the corporate mid-market business, we're seeing relatively good activity and loan demand. So our mid-market business, we saw 4% growth. And Ray, I think, commented in his comments, we saw 15% growth in actual commitments. So the pipelines look good at the top end of the -- at the larger corporate end of the market. Likewise, in our specialty business, higher education, which is a really important segment for us, we saw loan growth of about 5%. So at the higher end, we're seeing good loan demand and the economic momentum in the U.S. is translating into good loan growth. Where we're seeing a little bit of sluggishness in the U.S. market broadly is at the small business and sort of the lower-end community banking level. That segment is growing a little slower. And I think that those businesses are just more susceptible to the trade uncertainty, the supply chain disruptions and just the current state of interest rates. So I think there, we're still seeing some muted growth. But when you take everything as a whole, I'm quite pleased with the 2% growth on balance. I would expect that growth rate to moderately accelerate over the next couple of quarters. And we should -- to your point around when should the entire portfolio switch over to a net growth position. We are targeting that in the third quarter, total loans, so that would include the -- those loans that have been identified for runoff, we would actually post net loan growth at the aggregate bank level in the U.S. Operator: The next question comes from Gabriel Dechaine with National Bank Financial. Gabriel Dechaine: Yes. I just got a quick one here on credit performance because we saw the impaired going and performing going in a different direction here, and you did a good job explaining the -- what was going on in the impaired book and your expectations going forward. Just wondering about the performing release. I guess part of it is the U.S. some runoff, but what macro changes did you make that might have resulted in these pretty material releases? Ajai Bambawale: Yes. Thanks, Gabe, for the question. So again, I'll start by saying our performance release, it's well founded, and it's been through all our governance processes. And there are really 2 drivers of that release. One is the macro changes. And if you go and look at our disclosures, you'll see the unemployment numbers have improved both Canada and the United States, and you'll see the GDP numbers have also improved. That drove part of the release, okay? The second part, actually don't even think about it as a release, okay? We built performing against names that were migrating. When that loan moves from performing to impaired, I have to reverse the performance and add it to the impaired. So those are the 2 component parts. But again, as I said, it's well founded. Operator: The next question comes from Paul Holden with CIBC Capital Markets. Paul Holden: Two questions related to Leo's business. I guess, first is with respect to the NIM expansion, 13 basis points this quarter, guidance for modest expansion next quarter. I think that was the same guidance we got this quarter. So what drove the upside this quarter and the potential it follows through next quarter? And then second part of the question, with that good NIM expansion with you talking about loan growth starting to improve and crossing over to positive in Q3 and what I'm seeing good expense discipline, can we start to expect to see positive operating leverage and lower efficiency ratio out of the U.S. Bank in 2026? Leo Salom: So Paul, let me take both of those, and then maybe I'll give you a sort of a summary view on the aggregate U.S. performance. Let me start with the NIM. We delivered NIM of 338 basis points, up 13 basis points quarter-on-quarter, 52 basis points on a year-on-year basis. So obviously, a strong print. Really 3 factors. One, the remaining impact of all the loan repositioning work that we did last year, which obviously gave us a strong tailwind. Second, selective repricing activities across both the deposit and loan book as we adjust the overall balance sheet to its new size. And third, the tailwinds that we're enjoying from tractor on rates. So those were the 3 primary drivers. And that was offset ever so slightly by the repricing by the Fed rate cut. As we look at the next period, I won't have quite as much tailwind from the bond repositioning activity because that's already reflected in our NII. But I till think that we'll have margin expansion opportunities that'll be more modest in nature. And then as we think about the rest of the year, obviously, that tractor tailwind will still be there, but we'll have to absorb the Fed rate cuts that are planned for the second half of the year. So that's basically in a nutshell where we think overall NII is going to be. But as you saw, the net interest income number on an absolute basis from a revenue perspective was up 10% year-on-year. So we're really pleased with the momentum that we're seeing there in aggregate. With regards to overall loan performance or the state of the business broadly, I couldn't be more pleased with the quarter. NIA $723, up 22% on a year-on-year basis and driven by both top line revenue growth and sound credit performance. I think it was a good solid profile. We are seeing acceleration in those critical loan areas that you mentioned, and I would expect that to continue over the next few quarters. But I do want to hit your expense point. A lot of effort is going into our expense strategies, expense -- strategic cost management strategies. As you would have seen this quarter, we did close 51 stores as we announced in the Investor Day. So we are going to see distribution savings. We continue to lean into our vendor management programs with a sizable win this past quarter, which certainly will contribute to our expense run rate profile going forward. AI and some of the process automation work is still front and center. And we are beginning to see some degree of opportunities to at least change the resourcing mix associated with our remediation programs, all of which should create some downward pressure on expenses for the balance of the year. So you put the revenue momentum that we're enjoying now, the pricing discipline we've put in place, the expense focus that we have and will continue to materialize over the rest of the year, I feel quite confident with regards to the outlook for the rest of the year. Paul Holden: Okay. That's good. One follow-up, if you don't mind. Just looking at the quarter-over-quarter change in branch count down roughly 5%, but FTE up roughly 2.5%. Maybe you can just talk quickly into in terms of where you're adding headcount, and then I'll stop there. Leo Salom: Paul, I'm glad you brought it up because I should have mentioned it before, but we had a really important transaction that we closed. We successfully converted the Nordstrom portfolio onto our platform. So effective this past weekend, we are now servicing all of Nordstrom onto our platform. So the FTE increase that you saw was essentially additional call center representatives, our collection staff and fraud to be able to manage that expanded volume flow that now we'll be managing directly. Previously, it was managed in Nordstrom. So we've taken -- we've expanded our staffing to be able to support that portfolio. Operator: The next question comes from Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: I just wanted to -- a question for Sona. If I remember correctly, I think at the Investor Day, the medium-term type of targets for your business would have had efficiency ratios, which I think you're at right now and ROEs around, I think, where you're at right now or at least where in this quarter. So is this as good as it gets for your business from those sorts of metrics? Or is there still room for improvement here, Sona? Sona Mehta: Thanks, Sohrab, for the question. Yes, you're referencing our Investor Day targets. So both on efficiency ratio and ROE, we're targeting the 40% range. Sohrab, maybe if I just step back and look at both of those. So our efficiency ratio, obviously, this quarter, both from a revenue and an expense perspective, we're pleased with the performance this quarter. As I look at what we talked about at Investor Day, there's a number of levers that we have to manage efficiency ratio and improve efficiency ratio. We talked about distribution optimization. We talked about tech platforms and procurement. But what has become an even greater driver, I would say, since Investor Day is how we will deploy AI to favor efficiency ratio. Maybe I'll just spend a few seconds on that. Our approach there is really to drive simple and fast experiences, but they come with real P&L outcomes. One example I would share with you. So you heard me talk a lot at Investor Day about speed and specialization. It's absolutely core to our RESL strategy. And so we recently deployed and started to scale agentic AI into the RESL workflow. That's taking pre-adjudication processes from 15 hours down to minutes. So it's delivering speed to decision. As we said, speed was a big strategy, a better colleague experience that helps us win more business. And of course, it takes out structural cost as well. So I think what you will see is a number of things that we will do will benefit efficiency ratio and will benefit ROE over the long term. And these are short-cycle cases that we get up and down and deliver real value. So back to your point, I think we're very pleased with the performance, and we'll continue to lead in, and we're making very good progress on our Investor Day targets across the board. Sohrab Movahedi: And I think if I heard you correctly, but correct me if I'm wrong, since Investor Day, you would have -- you would move these targets higher basically, lower expense ratio and higher ROE just because of the traction on AI. Is that fair? Sona Mehta: Not quite. I think you will see us lean heavily in. Our targets, we hold on our specific targets, but the momentum and progress is incredible. We just see an engine that is humming and we see lots of possibilities. Raymond Chun: Maybe I'll just jump in for a second also. What I would add is that the benefits that we think we will get now from an AI perspective, how we put out the $1 billion, $500 million in revenue, $500 million in expenses, as Sona outlined with one example with the agentic. We now see how much that can be scaled across the organization across every business line. So if you think about this mortgage example, it can be applied in credit cards, can be applied in small business banking, can be applied in commercial banking in the U.S. And so I do think we're going to get more from the value from an AI perspective beyond the $1 billion that Sona commented on. And then again, we're seeing good momentum, better momentum than what we had thought during Investor Day as -- which was only 6 months ago. So I think a great start to the year and lots of momentum. And then if the macro environment continues, we do think we have upside both to our ROE at the enterprise level and to the EPS guidance that we provided. Operator: There are no more questions in the queue at this time. I would now like to return the call to Mr. Raymond Chun for closing remarks. Raymond Chun: Well, thank you, operator, and thank you, everyone, for joining us today. We appreciate your questions and comments. In Q1, we continued our strong momentum, delivering robust top line growth, positive operating leverage and record earnings. ROE was 14.2%, up 100 basis points year-over-year as we continue to execute against the strategies and targets that we've shared with you. Fiscal 2026 is off to a strong start, and I'm confident TD will continue to deliver for its shareholders. I look forward to connecting with all of you again next quarter. Thank you. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Thank you for standing by. My name is Janice, and I will be your conference operator for today. At this time, I would like to welcome everyone to the ACI Worldwide Inc. Fourth Quarter and Full Year Ended 2025 Financial Results. [Operator Instructions] I would now like to turn the call over to John Kraft. Please go ahead. John Kraft: Thank you, and good morning, everyone. On today's call, we will discuss ACI Worldwide's Fourth quarter and full year 2025 results as well as our financial outlook for 2026. We will then open the line for your questions. The slides accompanying this webcast can be found at aciworldwide.com under the Investor Relations tab and will remain available after the call. As always, today's call is subject to safe harbor and forward-looking statements. You can find the full text of these statements in our earnings press release and in our filings with the SEC. These documents describe important risk factors that could cause actual results to differ materially from those indicated in any forward-looking statements. Joining me this morning are Tom Warsop, our President and CEO; and Bobby Leibrock, our Chief Financial Officer. Tom will begin with an overview of our Q4 and full year performance, strategic highlights and the progress we're making against our long-term plan. Bobby will then review our financial results in more detail, including segment performance, cash flow and our outlook for 2026. We will then open the line for questions. With that, I'll turn it over to Tom. Thomas Warsop: Thanks, John, and good morning, everyone. I appreciate you joining our Q4 and full year 2025 earnings call, and let me start with the headline. 2025 was a very strong year for ACI. We delivered another year of double-digit revenue growth, improving margins and solid free cash flow, all of which are consistent with or better than the long-term financial framework we outlined at our Investor Day 2 years ago. For the full year 2025, we delivered $1.76 billion in total revenue. That's up 10% from 2024, and that was our second consecutive year of double-digit revenue growth. Adjusted EBITDA increased 9% to $507 (sic) [ 506 ] million, and our adjusted net EBITDA margin expanded to 42%. We also continue to execute against our capital deployment strategy. Our balance sheet remains exceptionally strong, and we ended 2025 with $196 million of cash on hand, net debt leverage ratio of 1.2x. This gives us significant flexibility to continue executing on our growth agenda while also returning capital to shareholders. In 2025, we repurchased 4.2 million shares, about 4% of the outstanding shares at the beginning of the year for $203 million. This strong performance is a direct reflection of our committed focus to our multiyear value creation strategy. As a reminder, our strategy emphasizes growth within our core vertical markets, disciplined operational execution and a return-driven approach to capital allocation. I also want to take a moment to discuss some of the important strategic successes we had at a segment level during 2025. First, in our Payment Software segment, in 2025, we took a major step forward in scaling our Bank and Merchant businesses by unifying them into a new segment, we call Payment Software. This increases efficiency, accelerates innovation, and it simplifies our operating structure. This part of our business delivered 9% revenue growth and 10% adjusted EBITDA growth. Demand was broad-based with Issuing and Acquiring Solutions growing 11%, building on strong double-digit growth in 2024. The year also saw meaningful growth in real-time payments with new contracts for both central infrastructure and bank solutions. In the fourth quarter, we signed a large European bank to Connetic, our cloud-native payments hub. This was the second Connetic signing in 2025, and that's further validation of its differentiated architecture and our long-term modernization vision. Customer interest continues to accelerate. Connetic is central to our long-term strategy. It offers customers both the immediate stability of proven technology and a path to modernization through a modern cloud-native architecture. Connetic's combination of capability, ACI's proven reliability and future readiness are major differentiators. Earlier in the year, we also signed one of our largest competitive takeaways in the Asia Pacific region in our Issuing and Acquiring segment. We're making progress on getting this customer live, and we fully expect to use them as a reference as we actively pursue other potential customers with outdated systems. In real-time account-to-account payments, we continue to sign new logos and extend our reach with existing customers. In Q4, we signed an important expansion with PayNet, Malaysia's real-time account-to-account national infrastructure. In the fourth quarter, we also went live with Banco de la Republica, the Central Bank of Colombia, which was a very strategic regional win for ACI. We also renewed and expanded our relationship with Canada's leading digital payments network. In the U.S., FedNow and RTP adoption is slowly increasing, and we're optimistic that volumes will continue to grow and be material. In 2025, ACI's Biller segment delivered another year of strong, consistent performance with full year revenues growing 13% and segment adjusted EBITDA expanding year-over-year, reflecting continued transaction growth and investment in advancing our market-leading Speedpay platform. The segment benefited from sustained momentum across core electronic bill payment transaction growth and ongoing customer adoption of ACI's go-forward platform, Speedpay One. We added many new biller logos and expanded relationships with many other customers, including one of the country's largest insurance billers and a top credit union to add new payment types and an upgraded modern payment experience. ACI is gaining share in the Biller market as more billers consolidate onto modern outsourced digital bill pay platforms. ACI is increasingly the partner of choice. I'll let Bobby cover the financials in a moment. But first, I want to address a topic that's top of mind for many investors, the impact of generative AI on the software industry and the volatility that has come with this. At ACI, we view generative AI as a significant opportunity, not a threat. We are already deploying it across the enterprise to improve engineering productivity, to enhance customer outcomes and to reduce structural costs, all while supporting our strong margins and cash flow profile. There's been a lot of speculation about whether AI could fundamentally disrupt software. While modern AI tools are very effective at generating code, and we use them extensively for this, ACI's platforms are not simply collections of software modules or computer programs. They're large-scale, mission-critical transaction processing systems operating at global scale, built on decades of payments expertise, deeply embedded regulatory and network rules and proprietary data derived from billions of transactions. Generative AI is a powerful tool, but is only one component of what's required to design, operate and continuously evolve industrial-grade payments platforms. From a technical perspective, our advantage rests on 3 foundations: transaction level data at massive scale, deep domain expertise in payment message flows and exception handling and highly resilient infrastructure engineered for always-on high-throughput environments. AI augments these foundations. It does not replace them. And when combined, those 3 foundations are difficult to replace and they provide ACI with durable, long-term competitive advantage and they lead to strong, sticky relationships. We at ACI are applying AI in 3 primary ways: first, engineering productivity. Our development teams are using a combination of industry standard and proprietary AI tools to accelerate design, coding, testing and maintenance across extremely complex code bases. These platforms involve thousands of interdependent components, integrations and country-specific variations and AI helps our engineers move faster while maintaining the reliability and security our customers require. As adoption deepens and training completes, we expect these productivity gains to compound over time. Second, operational efficiency. We're using AI to automate and scale knowledge-intensive workflows across our business. One example is our ability to index, query and analyze our entire corpus of customer contracts in real time. This allows us to instantly assess regulatory impacts, contractual obligations and pricing terms across the installed base, and that dramatically increases productivity in legal and compliance functions while lowering costs as we scale our business. Third, and I think most importantly, enhanced customer value. I want to give you an example within ACI Connetic, we're applying AI models trained on data from billions of historical transactions to address one of the most complex and costly problems in payments, exception handling and payment repair. Today, many large institutions employ hundreds of people to manually resolve errors in high-volume payments. By embedding AI-driven intelligence directly into the transaction flow, we are able to automatically identify likely corrections when there is an error and dramatically reduce manual intervention. The result is lower operating costs, faster settlement and a materially better customer experience. This capability cannot be created by an LLM, Large Language Model alone. It requires deep domain expertise, purpose-built software and of course, unmatched data at scale. In short, while we understand the broader concerns around AI and software at ACI, we're leaning in. We have an AI-first approach across the company that's coordinated through what we call our Velocity program, and we are already seeing tangible benefits across productivity, efficiency and [ customer ] outcomes. And quite simply, the combination of our resilient infrastructure, our extensive proprietary data and our unique domain expertise will allow ACI to continue delivering mission-critical payment and billing software that is deeply embedded in our customers' operations and very difficult to replace. We believe this positions ACI to remain a leader as payments technology continues to evolve. And one last important item before I turn it over to Bobby. I'm pleased to share that as part of our ongoing Board refreshment process, we announced today the appointment of Kim deBeers, whose unique skill set and deep professional and advisory experience will further strengthen the Board of Directors' governance approach and risk culture, complementing the backgrounds of our other directors. This appointment follows the previously announced additions of Didier Lamouche and Todd Ford back in October of 2025. And as part of a planned succession, Jan Estep and Charlie Peters have transitioned off the Board. I would personally like to welcome Kim and of course, thank Jan and Charlie for their many years of helpful service. I've enjoyed our time together, and I look forward to hearing about your future endeavors. In summary, 2025 was another year of significant progress for ACI Worldwide. We had strong balanced growth, expanding profitability and broadening global demand for all of our solutions, including our cloud-native Connetic platform. And we continue to invest in our AI-first road map, including Connetic capabilities such as real-time payments and digital currency connectivity, including Stablecoins, reflecting the themes we've talked about throughout 2025. I'm proud of our team, and I'm excited for the opportunities ahead to continue our shareholder value creation journey. I'll hand it over to Bobby to talk more about our financial results and the outlook for 2026. Bobby? Robert Leibrock: Thank you, Tom, and good morning, everyone. I'll begin with a brief review of our fourth quarter results, then focus primarily on our full year 2025 performance, reflecting our long-term full year approach to managing the business. I'll close with our outlook and capital allocation priorities for 2026. The fourth quarter was a solid close to a year of strong execution. Total revenue in the quarter was $482 million, up 6% year-over-year, and recurring revenue was $304 million, up 13%, reflecting continued strength across both segments and growing demand for our recurring software-led offerings. For the full year, total revenue was $1.76 billion, representing 10% growth versus 2024. Recurring revenue was $1.21 billion, up 11%, underscoring the durability and quality of our revenue base. We delivered adjusted EBITDA of $506 million, an increase of 9% year-over-year and expanded net adjusted EBITDA margin to 42%, reflecting disciplined execution and the operating leverage inherent in our software model, which provides flexibility to continue investing in the business while returning capital to shareholders. Net new ARR bookings increased 7% to $70 million, while new license and services bookings were $255 million, down 12%. This year-over-year comparison primarily reflects the timing of contract signings between periods. With 2025 representing a more normalized Q4 to Q1 booking cadence and no change in underlying demand or deal quality. As Tom outlined, our results reflect broad-based demand across both segments and continued customer adoption of our modern payment and bill pay platforms. In Payment Software, revenue increased 9% to $942 million, and adjusted EBITDA grew 10% to $544 million. We continue to see increasing demand for our cloud-based offerings with SaaS revenue growing 15% in Q4 and 11% for the full year, alongside continued strength across our broader Payment Software portfolio. Growth was broad-based across issuing and acquiring, real-time payments, fraud management and merchant solutions. We also continue to make progress advancing ACI Connetic, including the key customer wins Tom referenced as part of our long-term platform and modernization strategy. As payment complexity increases globally, our large bank and [ processor ] customers continue to expand their relationships with ACI over time. Turning to Biller. Revenue increased 13% to $818 million, and adjusted EBITDA grew 7% to $141 million. Growth was driven by continued transaction volume with existing customers and strong new business momentum across utilities, government and consumer finance as more billers consolidate on to modern digital bill pay platforms. The segment continues to perform consistently with a revenue profile and margin structure that are well understood and predictable. We also continue to make progress advancing Speedpay One, our next-generation biller platform, which supports our long-term modernization strategy for the segment. Both segments provide a balanced growth profile with recurring revenue and exposure to multiple end markets, while each continues to invest in modern platforms and capabilities to meet evolving customer needs. Turning to cash flow and the balance sheet. Cash flow from operating activities in 2025 was $323 million compared to $359 million in 2024, reflecting normal timing differences in working capital, including receivables and deferred revenue. Underlying cash generation remains strong. We ended the year with $196 million of cash on hand and total debt of $823 million, resulting in a net debt leverage ratio of 1.2x adjusted EBITDA, below our targeted leverage range of 2x. Our balance sheet remains a significant strategic asset and provides flexibility to invest in growth while returning capital to shareholders. Capital allocation continues to be a core component of our value creation framework. In 2025, we returned $203 million to shareholders through the repurchase of approximately 4.2 million shares or about 4% of shares outstanding. We ended the year with $456 million remaining on our current share repurchase authorization. Turning to our outlook for 2026. Building on the momentum Tom described, our guidance reflects the durability of our recurring revenue base and continued growth driven by new customer wins, share of wallet expansion and increasing adoption of our cloud-native and real-time payment capabilities. For the full year, we expect revenue growth of 7% to 9% on a constant currency basis or $1.88 billion to $1.91 billion. For the first quarter, we expect revenue in the range of $405 million to $415 million. In terms of revenue phasing, we continue to expect a more second half weighted revenue profile with approximately 44% of full year revenue in the first half of 2026 and 56% in the second half, consistent with historical seasonality. We expect adjusted EBITDA of $530 million to $550 million for the full year and $88 million to $93 million in the first quarter. This outlook reflects continued cost discipline while reinvesting in high-return initiatives and maintaining flexibility to support our long-term road map. As we look at capital deployment for 2026, our approach reflects the strength and flexibility of our current financial position. We expect to allocate approximately 50% to 60% of our cash flow from operating activities to share repurchases in 2026, subject to market conditions and business needs, while continuing to invest organically and preserving capacity for disciplined strategic M&A within our targeted leverage range. To provide additional transparency and support investor understanding below adjusted EBITDA, our current expectations include net interest expense of approximately $30 million for the full year, depreciation and amortization of approximately $90 million, noncash compensation expense of approximately $65 million to $75 million and an effective tax rate of approximately 25%. We also expect capital expenditures of approximately $45 million in 2026 and cash taxes in the range of $80 million to $90 million. On share count, we expect diluted shares outstanding of approximately 105 million, excluding any impact from future share repurchase activity. Stepping back from detailed guidance, I want to put both our 2025 performance and our 2026 outlook into broader context. Since joining ACI last year, the consistency of execution and financial discipline across the organization has been clear. In 2025, we delivered double-digit revenue growth, expanded margins, strong cash flow generation and meaningful capital returns. Looking ahead to 2026, we enter with solid momentum, strong customer demand and a position of financial strength that allows us to both return capital to shareholders and invest in a compelling innovation agenda to support continued execution. With that, Tom and I would be happy to take your questions. Operator: [Operator Instructions] Your first question is coming from the line of Jeff Cantwell with Seaport Research. Jeffrey Cantwell: I think you answered the big questions that are out there right now about AI in your prepared remarks. I wanted to ask you a question on your revenue guidance for 2026. Can you just go through the building blocks and cadence? By building blocks, I'm curious how you get to an acceleration in the back half of the year? Is that coming from the Payment Software segment or from Biller? And what are those drivers under the hood? And then kind of second, what gives you the confidence that you can accelerate revenue growth in the back half? I know you tend to have a lot of visibility. So I want to kick the tires on that back half acceleration and what you see as the drivers? Robert Leibrock: Jeff, it's Bobby. I'll jump in. So I appreciate the question. And to put it in context, if I zoom out and look at 2025, we delivered 10% growth. We had a strong start to the year, as we talked about at 15% in first half '25 and then delivered 10% in the full year. So some of this, as you point out, is going to be how the phasing 1 year compares to the next. But I appreciate the question because it really shows the strength that we see entering 2026. Think about our guidance of 7% to 9% growth. I'll start with a statement of that's pretty balanced across both of our segments. We see both Biller and Payment Software with strength to contribute into that high single-digit model. We have, as you mentioned, given our high recurring revenue model, we've got great visibility in this guidance looking at this year. And as you think about the first half versus the second half, a lot of that's going to do with the renewal fees phasing we see in that visibility and as we see the implementations and the new bookings and such that we've signed this year. So we feel good about the demand we're seeing across the board and how that plays out throughout the year. Thomas Warsop: Yes. And Jeff, this is Tom. The -- Bobby already said this, but I'll just say it a little bit differently. We have a lot of visibility, as you highlighted, and not -- not just on the renewal book. Just as a reminder for everybody, I know you all know this, but when we sign a renewal, it doesn't matter when you sign it, the book -- the revenue gets recognized on the date of renewal. So that -- we can do a lot to accelerate signing. We can't do much to -- we can't do anything really to change when that revenue gets recognized. So we have a lot of visibility there. We also have a great deal of visibility to the deals that we talked about a few of them specifically, deals that were signed in 2025 and being implemented in 2026. And so revenue recognition typically happens when you go live and you start to see volume in the Biller and Merchant part of the business, especially. And so we have a lot of visibility there. We -- those deals are on track to implement as expected, and then we have high confidence in the revenue coming through. And we have very strong and growing pipeline in our key products, especially our Connetic products. So all of that gives us a lot of confidence, and it's a little bit more back-end weighted than last year, but that's sort of a normal thing that it fluctuates a little bit year-to-year, largely based on that renewal book, but also in tandem with the deals that we signed and expect to implement. Jeffrey Cantwell: Got it. And then this is a little technical, but if we take the midpoints of your 2026 guidance, it does look like adjusted EBITDA, while it tracks revenue growth more or less, it does imply a slight compression. So my question is, can you talk about why, meaning what's in the business plan for this year? Or maybe should we chalk that up in some of the conservatism you guys have shown over the past couple of years. What are the main call-outs for adjusted EBITDA margins for this coming year? Robert Leibrock: Yes, I'll jump in. So as you point out, on the revenue, as I mentioned, we're guiding 7% to 9% growth. We feel good about that, the visibility of it. And we feel good about the operating leverage we're seeing in the business. The guide on EBITDA is -- on a growth basis is about 6% to 9% as well. So both kind of straddling at high single-digit range. As you think underneath of it, we expanded about 100 basis points of margin in 2025. That's, I think, about 300 basis points in 2024. We're showing the operating leverage. And if I look at this past year, 2025 is going to play out -- or 2026 will play out similar to 2025, where we're re-purposing these investments for our new platforms like Connetic and Speedpay One. If I comment on 2025, the 100 basis points of margin, underneath of that, we doubled our investment in our Connetic platform by re-prioritizing that. We have similar focus around productivity entering this year. And some of this is the flexibility to invest throughout the year as we continue to build that out, Jeff. But I think we feel good about that. The other thing I'd mention, I hope you appreciate the additional transparency below the EBITDA line items. We tried to give you our visibility there. We have to model that out. And I think what you'll see is good double-digit growth on top of that high single-digit EBITDA is possible when you get into the other components that would drive EPS and other pieces, too. Thomas Warsop: Yes. And Jeff, just to comment on your comment about conservatism. I think I hope that everyone agrees that over the last several years, we've tried to always do what we say. And so you could call that conservatism. We call it prudence, I think. We want to make sure that we give you guidance that we feel highly confident in. And we want to make sure that we continue to deliver on the commitments we make to you. Operator: Your next question is coming from the line of George Sutton with Craig-Hallum. George Sutton: And first, Tom, that was as impressive an explanation of the AI relevance to what you do that I've heard. So I think that was helpful. I wanted to address Connetic in terms of the pipeline. You continue to reference a growing pipeline. Obviously, prior to what you said today, you had signed just one bank with a small use case, but it sounds like there's more significant things coming in addition to the bank you just announced today. So can you walk through the pipeline there? Thomas Warsop: Sure. So yes, you're absolutely right. We expected to have a relatively longer ramp of new signings. I always expected that you might remember, we can go back a year or more, and I was -- I think I was telling everyone on our earnings calls that I had actually not given the sales team permission to sell Connetic because we wanted to make sure we were ready and that the product was there, and we started actively selling last year first -- in the first quarter of last year. So we're actually quite pleased with the traction that we've gotten, the sales that we have. They're as expected, and that's great. but the real question is what about the pipeline. And we feel very good about the pipeline. Connetic is the fastest-growing portion of our overall pipeline by a significant margin. And that's exactly what we expected. It's exactly what we want. And another important point is we did start -- you mentioned, I think you said a limited use case. It was a very important use case for a European bank was the first signing that we had. And again, we understood that because there's a lot of pressure and focus on financial institutions in Europe around instant payments. We knew that customers would need that help, and that's why we built -- completely built out that portion of Connetic's capabilities. We continue to expand and Bobby was just talking about the continued investment in future products, and Connetic is a big part of that. We continue to expand the functionality and very shortly, we will be launching the card portion of ACI Connetic. And that will significantly expand the use cases that we can support with our general availability versions of Connetic. So that's exciting. But even before we launched that portion, we're seeing significant growth month-on-month on the pipeline. Now these are long sales cycles. These are big decisions for these financial institutions. And again, we expected that, but we are making excellent progress. Pipeline is growing. We continue to add functionality and will continue to add functionality, which continues to increase the level of interest. And then one, I think, quite important point, when I look at the pipeline overall for Connetic, the 2026 potential closes, about 2/3 of those opportunities on a numbers basis are mid-tier financial institutions. So remember, if we go back, you will probably recall that we made a very specific point of saying that we were targeting the mid-tier, which is something we've never targeted as a company before. And so that pipeline, that is actually growing even faster than the total pipeline. And again, 2/3 of the opportunities we're working on right now are in that mid-tier segment, which is completely net new for us. So it's good news all the way around. We're excited about it. Our sales teams are very excited about having these really compelling value propositions for our customers. George Sutton: One other thing on real-time payments. You mentioned the addition of some additional logos. As a golfer, I'll ask it in this context. What hole are we on in your view relative to real-time payment -- penetration? Thomas Warsop: Yes. I like that analogy, George. We're -- I think we're still pretty early in the cycle. We've done a good job at ACI over the last 3 or 4 years of planting flags on the real-time payment side. As I mentioned, we had all the different flavors of real-time payments wins. We had some really important implementations, for example, in Colombia that I specifically mentioned. And we're seeing growth in transactions, and that will ultimately lead to growth in revenue. In 2025, that part of our business grew about 8%, and we expect it to continue to be a significant contributor to our growth overall. But I'd say we're still early days. We've talked a lot about it. We've had good growth. We have a lot of wins to show across the world. But I think in terms of overall adoption and volumes, we're still in relatively early innings. Sorry, you said golf. So on an early hole. Front line, George. Operator: Your final question is coming from the line of Charles Nabhan with Stephens. Charles Nabhan: I want to put a finer point on some of the 2 earlier questions. In the past, you've called renewals as an uplift upon renewals as a tailwind. You've called out CPI, you've called out pricing. You've called out an uplift coming from volumes. Could you maybe touch on that tailwind? And if you're seeing any change in the uplift you're seeing upon renewals? It sounds like we're still early days in terms of the RTP adoption. But any -- are you seeing any changes in that uplift upon renewals? It sounds like we're -- again, it sounds like we're still on the front line, but I wanted to get a little clarity about that as we think about the building blocks for '26 and '27. Robert Leibrock: Yes. I'll jump in, Chuck. I appreciate the question. It's Bobby. And I'll talk about it across both businesses. And I think a lot of the times when we talk about those 4 or 5 areas, we've talked about Payment Software, which I'll come to. And -- but first, I'll start on the Biller business that grew 13% last year. In that business, recurring revenue business, processing model, cloud-native model, that 13% really had a couple of buckets there. One would be the high retention rates we're seeing and the new logos underneath of it and the transactions. We see opportunity to continue to grow in that business, one, through price and also through value-added services we can put into there. And that business model, I see the first 3 buckets more around retention rates, transactions and new logos. I think we have opportunity for the fourth and fifth, which would be price and value-added services. So that 13% very solid. The second part and a lot of the question, you're mostly asking a Payment Software question where we grew 9% last year. Really happy with that off of a double-digit growth in the prior year in 2024. Underneath of that, similar to the Biller business, our retention rates are very nice. You add on top of that the transactions we're seeing, which continue to grow in mid-single digit across the market in terms of transaction base. We get respectable price in this area. And then I think we're in the early innings in terms of the lift you're going to see in there across real-time payments, especially fraud and the payment intelligent capabilities that we're investing in that will continue to grow those customer relationships and then Connetic. So those are the pieces. I will say the fifth though is always new logos. And this is an area where we had much better progress in 2025. And the focus that Eric and the team have across this, our General Manager for this space on new logo, new logo pipeline is only intensifying. So I see good upside in those last 2 buckets in this business around expansion into the rest of the portfolio and new logos. Thomas Warsop: Yes. And Chuck, just one thing to add there. You specifically asked about uplift on renewal. And we continue to see very strong performance in that area. We're extremely good at driving cross-sell, upsell, price and which -- all of which contribute to that uplift on renewal. So we're very good at it. We expect -- we're not seeing -- we're seeing upside there, not downside. Charles Nabhan: Got it. And as a follow-up, I wanted to ask about strategic M&A. You mentioned that in your prepared remarks. I wanted to get a sense for -- and you did a deal -- a small deal last year. I wanted to see if there's any particular areas of interest you could point to with respect to inorganic growth. Thomas Warsop: Yes, absolutely. So we -- I have the same comment I've had for quite some time on this. There are 2 main areas where we're focused, and we will be opportunistic on this. We're not -- this is not something where we're out there every day seeking something to buy. But there are a couple of areas. One would be an ability to accelerate what we're doing with Connetic because as I mentioned before, we continue to add features, functions, capabilities into Connetic. And if we find a technology, and it would likely be a technology acquisition, we buy it because we like the technology. If we found something that would enable us to go faster in building out the -- what we think are the market-leading capabilities of Connetic, that would be very interesting for us. And we certainly have capacity if we find the right opportunities. That's one, accelerate Connetic. Number two, would be if we can -- if we found something that would enable us to expand geographically, for example, there aren't many areas around the world where we don't have a significant presence, but there are a couple of holes, and that could be interesting for us to take a bigger focus on a particular geography, could be interesting. So those are the 2 primary areas that we've been open to, and I think we still are open to those, but with a lot of focus in making sure that we are really pushing on Connetic, accelerating that as much as we possibly can, both with our organic investments that Bobby mentioned before and then potentially inorganic. Although there's nothing -- I don't have anything to announce, but that would be interesting to us. Robert Leibrock: And I think, Tom, if I could add, let me put it in context, Chuck, of our broader capital allocation strategy. So last year, we generated $323 million of cash flow from operating activity, and we returned over $200 million of that to shareholders through share repurchase. We continue to invest in the business. We paid down our debt to 1.2x leverage. What we wanted to do is get out in front of that this year and give investors the confidence that we have similar levels of planning to deploy 50% to 60% of our cash flow from operating activity, which tends to convert at about, call it, 60%, 2/3 of our EBITDA to return that to shareholders this year. In addition to that, that gives us the flexibility to do exactly what Tom just said around opportunistic M&A. And as I said in the comments and you saw it in our press release, and we think we can do that within our 2x leverage that we see. So looking across the market, I think we've tried to give a lot more transparency in how we plan to deploy capital this year and be opportunistic to invest in the business organically like Connetic, continue to look at inorganic opportunities, but maintain our commitment to shareholders with that 50% to 60% return to shareholders through share repurchase. Operator: Currently, we don't have any other questions in queue. I'll turn the call back over to Tom for closing remarks. Please go ahead. Thomas Warsop: Thanks, Jess. And thank you all for joining us, and thanks for the insightful questions. I just want to make a couple of comments to close. We feel great about 2026. We feel great about the momentum we're seeing. Our guidance reflects the clear visibility we have into pipelines, renewals and implementation schedule. We've talked quite a bit about that this morning. We're taking an AI-first approach across the company. We're already seeing tangible benefits in customer outcomes and productivity. And at the same time, we're very clear-eyed about what creates durable advantage in our industry. The platforms we operate are mission-critical. Obviously, they're highly reliable, and they need to continue to be so. They're deeply embedded in our customers' critical workflows, and we sit at the center of payment flows that are global, highly regulated and increasingly complex. From our cloud-native orchestration with Connetic to Speedpay's never miss a payment standards, ACI's leading domain expertise and unrivaled global data has earned us trust over many decades. With a clear strategy, resilient portfolio, accelerating growth and significant financial flexibility, we're well positioned to continue delivering long-term value for our shareholders. Thank you very much again for joining us. Have a wonderful day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to the Qnity Fourth Quarter and Full Year 2025 Conference and Webcast Call. [Operator Instructions] Please be advised that today's call is being recorded. I will now turn the call over to Nahla Azmy, Vice President of Investor Relations. You may begin. Nahla Azmy: Thank you, and good morning, everyone, and welcome to Qnity's Fourth Quarter and Full Year 2025 Earnings Call. I'm joined by Jon Kemp, Qnity's Chief Executive Officer; and Mike Goss, Qnity's Interim Chief Financial Officer. Earlier today, we issued our earnings release along with a supplemental slide presentation, which can be found on ir.qnityelectronics.com. Before we begin, I would like to remind you that today's discussion will include some forward-looking statements. These statements represent our best view of predictions and expectations for the future, but numerous risks and uncertainties may cause actual results to differ. Please refer to our earnings release and SEC filings for a discussion of these risk. We will also be discussing certain non-GAAP financial measures. And I refer you to our earnings materials for information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure. With that, it's now my pleasure to turn it over to Jon. Jon Kemp: Thank you for joining us this morning for our first earnings call as a stand-alone public company. When we launched Qnity late last year, we detailed our focus on establishing ourselves as the premier technology solutions provider across the semiconductor value chain. That means being the partner of choice to customers at every stage from chip fabrication to advanced packaging and interconnect to thermal management. And it means understanding where the market is going, so that we can stay one step ahead, delivering more innovative and integrated solutions to address our customers' most complex challenges. As the industry continues to rapidly evolve, we're proving that the next lead in AI and other advanced technologies will be powered by materials innovation, and that's where Qnity leads, with chip designs becoming more complex, materials fit smooth, shape, connect and protect our paramount as the leading pure-play provider of integrated solutions for the semiconductor value chain, this dynamic creates powerful near and long-term growth drivers for Qnity. We're leveraging three core structural advantages to capitalize on these demand tailwinds. First, the unparalleled breadth and depth of our portfolio enable us to offer end-to-end solutions to our customers. Second, our innovation capabilities have earned us a seat at the design table with global technology companies. And third, our local-for-local approach with manufacturing facilities and R&D centers located close to customers wherever they operate. Turning our attention to last year's financial results, our fourth quarter and full year 2025 performance is a testament to the strength of our portfolio, the trust our customers place in us and our ability to execute on our value creation strategy. We delivered our seventh consecutive quarter of strong organic growth, and we outperformed the market exceeding our full year 2025 financial objectives. We grew organic sales by 10%, including strong growth in both operating segments. Reflecting a full year of stand-alone public company costs. Pro forma adjusted operating EBITDA was up 11% year-over-year with strong margins. In our Semiconductor Technologies segment, we grew organic sales 8% in 2025, driven mostly by strong demand for semi fab consumables. AI and high-performance computing led demand drove double-digit sales growth in advanced nodes and advanced packaging, and we benefited from ongoing improvement in mature nodes and NAND. Our Interconnect Solutions segment had an exceptional year, growing organic sales 12%, led by continued AI and data center tailwinds. Our core drivers in this segment continue to be advanced packaging, advanced interconnects and thermal management. Across the portfolio, our innovation engine remains at the heart of our growth strategy. In chip fabrication, our customers require improved performance, quality and yield. That's because even small gains in quality or yield can create huge value. We're continuing to execute our strategy to increasingly shift our portfolio to leading-edge technology. In 2025, our advanced logic and high-bandwidth memory business grew mid-teens. And we made further progress towards reaching the 45% to 50% advanced node exposure target we highlighted at our Investor Day. Our CMP portfolio is evidence of that strategy at work. It's a structurally growing opportunity that's directly linked to advancing the AI semiconductor road map. In October, we introduced our Emblem CMP pad platform a breakthrough innovation that set a new standard for pad design, defect control and performance. These new pads address the aggressive planarization requirements of the most advanced chips including N3 and N2 Logic and HBM3 and 4 memory. The feedback from customers has been outstanding. And the platform's external recognition underscores the differentiated value we're bringing to the market. Similarly, we're continuing to see strong growth from our CMP advanced cleans and slurries products across leading-edge logic and memory devices. By targeting specialized formulations, we're building on our leadership in CMP and extending our position in this critical manufacturing process securing new wins across both front-end chip fabrication and advanced packaging. As you can see, our innovation approach is driven by listening to our customers. building on decades of experience as a partner of choice to leading fabs and OEMs, pushing the boundaries of what's possible and investing in the kind of collaborative innovation that moves the industry forward. As we continue to roll out new solutions, our Process of Record or POR wins are building meaningful long-term momentum. These wins are tied to high-growth opportunities aligned directly with our customers' technology road map. And in 2025, we secured POR wins across every single line of business. These wins represent early design selections that typically scale into commercial production over the next 2 to 3 years. Positioning our technology to be embedded in future generations of semiconductors and other advanced electronics. This only deepens our level of partnership and expands our content with leading players in the semiconductor value chain and gives us greater visibility into future sales growth and conviction that our strategy is working. Our top priority is creating additional high-value opportunities to progress alongside customer road maps. And we're committed to making the R&D and manufacturing capacity investments necessary to support the strong advanced node ramp activity we expect in 2026 and beyond. Given this surge in activity, I'd like to share some more details on what we're currently seeing in each of our segments and how we expect our end markets to evolve in 2026. In semi, customers continue to invest in their most advanced technologies. In advanced logic, this includes the continued scaling of 3-nanometer and early production of 2-nanometer. In memory, we're seeing next-generation DRAM and HBM as well as transitions to higher layer count NAND architectures. We remain ideally positioned to capitalize on this shift through both the increased use of more complex 3D structures and the adoption of more chip layers, giving us a stable, repeatable revenue stream as production volumes increase. In ICS, advanced packaging continues to be a core theme of every recent customer conversation because of the central role it plays in unlocking next-generation technologies. Including increasing chip density and performance while also reducing power consumption, facilitating development of smaller, more efficient devices. One of the reasons Qnity is so well positioned to capture meaningful growth in advanced packaging is because it integrates solutions from both semi and ICS. In 2025, advanced packaging solutions represented approximately 10% of Qnity net sales. From an end market perspective, our portfolio continues to evolve based on more durable structural demand shifts. Data centers are where we're seeing the most benefit from these dynamics. However, we're also seeing continued signs of increasing content and demand recovery in other industrial markets like automotive, communication infrastructure and aerospace and defense. As these end markets start to incorporate more advanced AI-driven technology into applications, we expect meaningful opportunities to continue increasing Qnity content. On the consumer side, next-generation devices are increasingly shifting towards edge computing, meaning on device generative AI, which is also requiring greater content opportunities for us. The significant demand for AI and high-performance computing workloads is creating additional pressure on the global memory market. We continue to watch for signs of potential downstream impacts into end market demand. The key here is that our exposure is primarily to premium devices, which we expect to be a more resilient part of the market. I also want to mention some of the trends we're seeing on the ground floor, namely the ongoing improvement in fab utilization rates. In advanced logic, we expect utilization to increase from the high 70s at year-end 2025 to low to mid-80s in 2026, while mature logic will continue improving towards the mid- to high 70s. In memory, we expect DRAM fab utilization to increase from mid-80s in 2025 to high 80s while NAND utilization is expected to reach the upper 70s or low 80s in 2026. With strong utilization rates and accelerating capacity expansion more than ever, customers are prioritizing supply security. We've spent the past several years making strategic investments in capacity and capabilities across our network to support growth in advanced logic and memory as well as advanced packaging and thermal materials. Our local-for-local model and recent expansion throughout Asia and the United States position Qnity to capture additional content and share while ensuring long-term strategic relevance. Before turning the call over to Mike, I'd like to touch on the multiyear transformation plan we're also announcing today, which is expected to deliver approximately $100 million EBITDA run rate benefit by the end of 2028. This plan, which Mike will step through in more detail, reflects our commitment to continuous improvement and ensuring Qnity remains well positioned to lead in the markets we serve across the semiconductor value chain. It's all about driving future growth and profitability by simplifying our operating structure, increasing quality and efficiency, unlocking innovation capacity and concentrating our efforts on high potential markets and customers. With that, I'll turn it over to our Interim CFO, Mike Goss, to discuss our financial results and 2026 guidance. Mike brings deep experience and knowledge of the business, having served as Qnity's Chief Accounting Officer and FP&A leader. I've known Mike for many years, and we've been fortunate that he was able to jump right in. Mike? Michael Goss: Thanks, Jon, and good morning, everyone. We had a strong finish to the year with fourth quarter net sales of $1.2 billion, up 8% year-over-year as we continue to capitalize on key growth drivers namely advanced nodes, advanced packaging and interconnect as well as thermal management solutions. We delivered this strong performance even as $40 million of sales shifted from the fourth quarter to the third due to our spin-related transition as discussed on our last call. Adjusted pro forma operating EBITDA was $349 million and adjusted pro forma EPS for the fourth quarter was $0.82. For the full year, we grew net sales by 10% to $4.75 billion and achieved adjusted pro forma operating EBITDA of $1.4 billion. Resulting in adjusted pro forma operating EBITDA margin of 29.5%. Margins reflect segment mix dynamics as the strong growth in ICS influenced our overall margin profile. Adjusted pro forma EPS for the full year was $3.35, equating to a 12% year-over-year increase, including adjustments for including investments. In Interconnect Solutions, we delivered net sales of $2.1 billion with organic growth of 12%, led by advanced packaging, advanced interconnects and thermal management, all of which increased more than 20% for the year as we sealed up several exciting wins at leading fabs and OEMs. As a reminder, these are the fastest-growing solutions in our ICS portfolio, which led to significant operating leverage for the year. Segment adjusted pro forma operating EBITDA margin was just over 25% as strong growth more than offset strategic investments driving margin expansion of over 175 basis points year-over-year. For the full year, we generated $706 million of adjusted pro forma free cash flow, equating to 15% of net sales, reflecting strong operating performance, disciplined execution and favorable working capital following the spin. At year-end, our total cash balance was over $900 million. This healthy cash position enhances our overall financial flexibility enabling us to fund strategic investments and maintain a balanced return-focused capital allocation framework. At our Investor Day last fall, we outlined a clear and comprehensive set of capital allocation priorities. Our first priority will always be organic reinvestment into the business to sustain above-market growth. We anticipate elevating CapEx investment in 2026 to 9% of sales, driven by investments to strengthen our local for local footprint in key geographies and our transformation initiatives. Consistent with our midterm financial objectives, we expect CapEx to return to our normal run rate of roughly 6% of net sales in future years. As Jon highlighted, the industry is continuing to see advanced node ramp activity in 2026, supported by substantial global investment. Over the last 3 years, we've added new capacity in all of our semi businesses, and we'll continue to invest in growth to keep pace with the industry. Importantly, as these near-term investments moderate, and CapEx returns to our normalized run rate. We expect free cash flow margins to be in the mid-teens as a percentage of net sales. With our strong financial position, we have the optionality to explore selective accretive M&A. The industry is growing rapidly, and we view acquisitions as a compelling use of capital to bolster our trajectory. We're actively pursuing a robust pipeline that would further enhance our portfolio and will remain disciplined in evaluating any potential transactions. We're also committed to capital returns. In December, we declared our first quarter dividend. In addition, today, we announced that our Board of Directors approved a $500 million share repurchase authorization. This program is designed to provide flexibility for opportunistic purchases depending on market conditions. Finally, we have the option to voluntarily pay down debt to continue strengthening our balance sheet. We ended the year with net leverage of approximately 2.2x, well below our long-term target of less than 3x. I'd now like to share some additional details on our transformation plan, which we expect to further improve our growth potential and financial strength. Our actions will focus on three key areas: first, commercial and innovation excellence to enhance speed and sales effectiveness, deepen our foothold with customers on the cutting edge of technology and continue spurring innovation within our powerful R&D engine. Second, driving productivity and quality improvements across the company through operational automation and tailored AI applications. This work will be further enabled by our ongoing IT systems independence effort. Finally, strengthening our local for local operating model by streamlining our supply chain, simplifying our legal entity structure and optimizing our footprint to more effectively leverage our scale. We expect these combined actions to deliver approximately $100 million in EBITDA run rate benefit by the end of 2028 with approximately $140 million in cost to achieve over the next 2 to 3 years. We will pursue long-term structural investments, executing against three key areas during these early phase of the program, resulting in a majority of these onetime costs occurring in 2026 and 2027. Now I'd like to talk about our financial guidance for 2026. Overall, our strong financial performance in 2025 positions us to enter the year with solid momentum. Looking ahead, our competitive advantages and consistent execution give us confidence in our ability to continue driving growth as we capitalize on the demand trends we're seeing across end markets, fueled by AI, high-performance computing and advanced connectivity. MSI wafer start data remains a good indicator for Qnity's overall demand, and we continue to expect MSI to grow approximately mid-single digits this year. For full year 2026, we expect net sales to be in the range of $4.97 billion to $5.17 billion. Adjusted operating EBITDA to be in the range of $1.465 billion to $1.575 billion, adjusted EPS to be in the range of $3.55 to $3.95 and adjusted free cash flow to be in the range of $450 million to $550 million. Looking ahead at the first quarter, momentum from AI-led demand continues across high-performance computing and advanced connectivity with notable strength in the ICS segment. Overall, we expect sequential net sales growth high single digits with a similar margin profile to the fourth quarter. Our team continues to be focused on keeping pace with customer demand and delivering solutions for the most advanced technologies. With that, let me turn it back over to Jon for his final thoughts before we begin the Q&A. Jon Kemp: Thanks, Mike. I'd like to briefly recap a few key takeaways from today's discussion. First, we sustained our strong organic growth momentum in 2025 and delivered on each of our financial objectives for the year. Our newly introduced full year 2026 guidance reflects our conviction that we can continue building on this momentum. Second, we've established ourselves as a partner of choice to customers in the semiconductor value chain, and we are relentlessly focused on investing in cutting-edge innovation and capacity to create high-value growth opportunities alongside our customers. Finally, as we look ahead, we're taking decisive steps to create even more value for shareholders, including our transformation plan and share repurchase authorization, providing avenues to increase returns. In short, our team is focused on delivering on our strategic priorities. We have strong confidence in the strength of our platform and our ability to capitalize on the opportunities ahead. Thank you again for joining. Operator, we can now open the line for Q&A. Operator: [Operator Instructions] And we'll go first to Bhavesh Lodaya with BMO Capital Markets. Bhavesh Lodaya: Semiconductor trends are pretty strong here. I appreciate some of the color you provided on your prepared remarks. As we look at your EBITDA guide, can you provide some thoughts on what you're building into that, maybe perhaps on MSI, PCBs or any of the key metrics that you would like to touch on. Jon Kemp: Yes. Thanks, Bhavesh. I appreciate that. And when we think about it, we're expecting MSI, as Mike indicated in his prepared remarks, we're expecting MSI to be mid-single digits, not terribly different from what we saw in 2025. And I would say on the printed circuit board side, we believe MSI is the best overall indicator. But if you look at the indicators around PCB, they're kind of in that same ballpark kind of that mid-single-digit range. So there's not a lot of spread between some of the broader macro indicators, which is really kind of why we've anchored our guidance to kind of where the -- right down the fairway towards where the market estimates are plus our outperformance content advantage, which is kind of how we got to the midpoint of the guidance range that we gave today. Bhavesh Lodaya: Got it. And in terms of -- if I caught the tail end of your remarks, correct, for the first quarter, you're expecting high single-digit top line growth sequentially and similar margins to fourth quarter. Could you touch on how you see -- just because it's your first year, could you touch on how your quarterly cadence for the year? Michael Goss: Yes. Thanks for the question. At a high level, ever since we came out of the 2023 downturn, we've seen less seasonality in our business. And so as we move into 20 the guide we have for the first quarter, like we said, is high single digits. And we will expect to see consistent steady performance through the year. We do tend to see a peak -- a little bit of a peak in the third quarter. But overall, we do see that steady performance through the year, and that's what reflected in our -- at least in our first quarter guide that we talked about. Jon Kemp: And I would say that's not terribly different from what we saw in 2025. But keep in mind, as Mike alluded to in his prepared remarks, we had a little bit of a timing swing of some sales in the third quarter, which created a little bit of an elevated peak in the third quarter of 2025 because of the IT system cutover. But if you strip that out, we expect a very similar seasonal pattern in 2025, 2026. Operator: Thank you. And we'll go next to John Roberts with Mizuho. John Ezekiel Roberts: The base tax rate in 2026 is low 20%. That's a nice improvement from the initial pro forma rate, but it's still above many of our other companies. Do you have a long-term rate target? And how much further reduction in tax rate do you think you can do? Michael Goss: Yes. Thanks, John. It's a good question. At a high level, we've seen nice improvement, obviously, from '25 versus what we're forecasting for '26. Over the medium term, I expect we'll continue to work through that and eventually get into place consistent with our peers in that high-teens percentage. John Ezekiel Roberts: Great. And then is CMP used in advanced packaging as well? Is there a planarization step before the devices are directly connected to each other? Jon Kemp: Yes, John, great question. So at a high level, yes, the CMP processes, including pads, slurries, cleans are used in advanced packaging. It's one of the fastest growth areas within our advanced packaging portfolio. and that continues to increase over time as you get into taller, more complex structures, the planarization to ensure that really efficient copper-to-copper bonding, whether that's in traditional formats or even going to hybrid bonding format, that planarization step is critical for advanced packaging. Operator: And we'll move next to Christopher Parkinson with Wolfe Research. Christopher Parkinson: So I'll keep it simple. Now that it's -- you're a fully independent company and you've gone through the CMD and kind of all the outlooks and we have a pretty good sense of your algo relative to your end market expectations. How should we be thinking about op leverage throughout the year in both semi and ICS, where you've been in the last couple of quarters and where you expect to be and kind of what -- the Street should be monitoring to assess that aspect of your business? Jon Kemp: Yes. [ John ], I think that overall, I think our -- if you take a look at how we performed in 2025, I think we're pleased with that performance. Given the relative segment mix, that 29.5% overall margin performance, 40 bps of margin expansion year-over-year is a nice outcome, obviously, really strong operating leverage within the ICS segment. Within the semi segment, margins came in kind of in the mid-30s, kind of right in line with our expectations in that business with all of the intense activity around the scaling of advanced nodes we've made some incremental investments in our R&D and engineering organizations to support the scale-up of those advanced nodes. And so -- and within there -- from any quarter-to-quarter, there's always a little bit of fluctuation in product mix, and that's what's really driving that in that segment. When you look at the ICS business, you look at where the growth drivers of that business continue to be between advanced packaging, advanced interconnects and thermal management. All of those grew more than 20% in 2025. Those are also the highest value parts of that business. And so we got the benefit of really great volumes in that business combined with some favorable product mix, that led to the 175 basis points of margin expansion. I would expect kind of similar dynamics next year and we've talked about even going back to our Capital Markets Day that we believe that the Interconnect segment had opportunity to kind of grow margins at a faster pace than the semi. But over time, I think there's opportunity to do better in both segments. Christopher Parkinson: Great. And a quick follow-up. Can you just, once again, a lot of moving parts out of the spin on the balance sheet, free for cash flow people are going to be pleasantly surprised with the $500 million share repo. But in terms of just the free cash flow in terms of the outlook conversion, where you currently are and where you expect to be, can you just give us a little walk throughout the year and how you think -- how you believe things are ultimately going to play out. Michael Goss: Yes. Thanks. Great question. Yes, we've ended the year with obviously a real strong cash position and strong cash flow generation in the $700 million range. And as you said, in the guide for '26, we are guiding to about $500 million of free cash flow, on an adjusted basis. And that's really driven by the main updates are accelerated or elevated rather, CapEx to around 9% of sales, and that's driven by the continued ramps that we're seeing in node transitions. And so we're accelerating our elevating that CapEx to support our local to local investments. We also have the IT independence work that we're continuing through as well as the transformation program that we've announced today. And so that really drives an elevated CapEx in '26. And that's the main driver versus what we talked about back at Investor Day and puts us in that $500 million range of free cash flow for the year. Jon Kemp: What I would add, Chris, there is the way that we think about it is this business really kind of generates cash flow on an annual basis. in that mid-teens percentage of sales, right? And so that's really kind of as you think about us over time. Mike said, we've got some of these onetime items that will influence kind of the cash flow in 2026. But over time, we should be generating cash in that mid-teens percent of sales. Operator: We'll go next to Jim Schneider with Goldman Sachs. James Schneider: I was wondering if you could maybe address specifically how you expect the Internet connect growth to play out over the course of 2026, whether that's sort of higher or lower than the overall corporate average you outlined? And the reason I ask is because as you talked about the memory pricing seems to be generating some demand destruction in the consumer electronic supply chain particularly in China. So maybe can you talk about whether you baked in any kind of material headwind in ICS for this year? And then related to that, can you specifically talk about your China sales in the quarter and what you're expecting for China over the course of this year? Jon Kemp: Jim, you'll have to help me. I think that was like three or four questions in one. So I'll try and cover some of these pieces. Maybe I'll start with just to road map this a little bit. I'll start with some of the dynamics that we're seeing in the memory market. I'll give it to Mike and have him comment on kind of the ICS segment, how we think about kind of the segment differences between the segments and the year, and then I'll come back to your China question to finish. So when we think about -- from a growth perspective, we're excited about the progress that the memory market continues to make, especially in next-generation DRAM and HBM as well as the ongoing transition to higher layer count NAND architectures. We're capturing nice growth from rising content in those advanced technologies, and we're still seeing utilization rates. Obviously, there's some capacity concerns there that I think everybody is aware of. It's been a hot topic over the last few weeks. I just want to level set our exposure the memory market is about 20% of our semi portfolio. About 80% is on the logic side. And within memory, our exposure is largely driven to unit-driven consumables. So kind of a pricing kind of out of the equation, it's really driven by the volumes on that side. It is important to note that our exposure is primarily on what I would call premium devices. And in any type of constrained environment, we would expect premium devices to be the more resilient side of the overall market, which kind of limits our relative exposure. Obviously, we're closely monitoring the situation in constant conversations with our customers. And then if you take a step back for a minute and you think about where these chips are going, whether they're going to data centers or whether they're going to consumer devices, we're really well positioned to pick up that demand no matter which end market it ultimately goes to. And that's kind of why we feel really good about kind of our growth prospects for the year. Mike, I'll hand it off to you. Michael Goss: Yes. Thanks, Jon. And just to reground obviously, we've guided for our first quarter at high single digits for the total company. And for full year, we've got a midpoint -- the implied midpoint in our guidance. But sales of that, a little over 6.5% growth year-over-year. And obviously, that's a mix of the two segments. We exited the year nicely with ICS continuing to see a lot of strength where they outperformed the semi growth a bit. And so we're really expecting to see that same momentum in that same mix profile continue through the year where ICS will be probably a little bit stronger than sunny. Jon Kemp: And maybe just to finish up, Jim, on your -- on the China question to come back to that. China remains a critical market for us given its central role in the semiconductor value chain and just position is a large domestic market as well. In 2025, China grew high single digits for us. Frankly, that was better than what we were expecting. And China accounted for just over 30% of our total sales, also kind of in line with our expectations. In terms of what we're seeing on the ground floor in China, I would say that particularly in the second half of the year, we sort of normalize to what I would say, the same type of buying behavior we see in other geographies, namely that customers are buying based on a combination of performance, quality and supply reliability. And that's where our local-for-local operating model really serves us well in places like China because we have that really well built out local infrastructure to be able to serve the market. If you think about it from a growth perspective, I mentioned the high single-digit growth rate in China. We are seeing faster growth kind of -- in all of our other geographies, the rest of Asia as well as the Americas both grew double digit for us over the course of the year, and we're expecting similar dynamics going into 2026. Operator: And we'll go next to Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: I guess I just wanted to ask a question about the guidance, first of all. So at the low end, I think you're up about 4.5%. What would be some of the things that would maybe push you towards that end? And similarly, at the high end, it's pretty significant growth. So maybe you can just kind of help us frame that -- those two ranges as well? Jon Kemp: Yes, Arun, thanks for the question. When you think about the guidance range and some of the puts and takes, obviously, I characterized it before with Bhavesh's question on kind of what got us to the midpoint of the guide. When you think about kind of the low end of the range, what would have to happen for that to happen, it would be kind of more constraints really coming from the memory market and if that started to see kind of significant demand destruction that's outside the parameters of how we think the year is going to unfold. If you go to the high end, a lot of the growth expectations that we have this year, given the strong utilization rates and the most advanced technologies across our portfolio, it's really tied to capacity expansions at our customers and their ability to scale new node transitions and bring that capacity online. Obviously, there's a significant amount of global investment in those most advanced technologies, and we're working closely with our customers to help them scale up that production as effectively as possible. If we can get some of that incremental capacity online, we've got a lot of really nice content growth connected to no transitions and that capacity. So as it comes online, we'll benefit not just from the volume growth, but from the increased content coming off of those advanced nodes. Arun Viswanathan: Okay. And on the transformation plan, is there a kind of a framework on how we should think that should play out over the next 3 years? Do you expect that -- those gains ratably? And maybe you can just detail some of the initiatives that you're undertaking there? Is it mainly kind of footprint optimization, SG&A reduction? Or what else would you describe as part of the plan? Michael Goss: Yes. Thanks for the question. The transformation initiatives are in a couple of big buckets, as I said in my prepared remarks, really around productivity efforts commercial and innovation and our local-for-local model. And I'd say roughly of that $100 million benefit for EBITDA. We'll expect to see that come roughly half in the productivity space. And then the other half is split equally across commercial innovation as well as that look for local to local model. As far as what's in our guide for '26, I do expect we'll have a small amount of that benefit and that's reflected in our guide. And then ultimately, the remainder of that benefit comes in the 2027, 2028 time frame. Jon Kemp: Maybe just to give you a little bit of specifics on some of the things we're excited about are as part of that within the productivity space, we're excited to really go aggressively after deploying some of the automation and tailored AI applications that we believe will help unlock incremental capacity strengthen our quality and ultimately improve our supply resiliency for our customers. That's a nice lever there. Some of the procure -- I think there are some procurement benefits and there's also some simplifications in our supply chain, around optimizing our warehouse presence and how we're positioned around the globe to better serve our customers. I mean if you think in some of the other categories, particularly on the commercial and innovation excellence, it's really about how we're driving the right level of attention to each of our customer segments. Obviously, historically, we've had a really strong focus kind of on our top 10, and we've talked about that in the past. But there's a lot of folks in the middle and maybe at the lower end that we can still do better with. And so taking advantage of digital tools to make sure that we can serve the customers more effectively and accelerate and on the innovation side, deploying some of those tools to increase the clock speed and the pace of our product development, which ultimately will give us an opportunity to work on more engaging with our customers. Over the past few years, we've seen a steady increase in the number of engagements that we have with customers and OEMs, and we want to unlock the innovation capacity to support as many of those as possible. So those are some of the bigger items inside this transformation program. Operator: We'll go next to Melissa Weathers with Deutsche Bank. Melissa Weathers: I wanted to, I guess, first, talk a little more high level on the ICS business. It seems like there's a lot of innovation happening over the next 2 years on the packaging side, on the thermal side. The thermal side is the piece that I understand the least. I think a lot of semiconductor investors you don't really get that part of the story. So can you talk about as we think about the next 2 years, like which parts of this ICS business, should we be excited for what kind of content increases should we be expecting maybe on a per device basis? Jon Kemp: Yes. So when you think about kind of the ICS business, the three core drivers in that business are really advanced packaging, advanced interconnect and thermal management. within the advanced packaging space. We've got new technologies on [ starter ] and copper interconnect chemistry, which really brings great surface uniformity and purity to help make sure that those advanced packaging or maintaining the right level of signal integrity and reliability. And it's being broadly adopted from kind of our key fab as well as the OSAT customers that are really driving the growth in advanced packaging. We're also doing some -- in the advanced interconnect space. It's really getting to upgrading circuit board technology from traditional circuit boards to high layer count and HDI circuit board where you're getting finer lines and tighter spaces in order to help drive the signal reliability in places like data centers. And if you do that, you're starting to get into that again where there's nice technology leverage between kind of what maybe we were using 10, 15 years ago in the semi side, it's now relevant on the ICS side because of the tighter lines and spaces that those circuit boards are doing. So really nice technology leverage, as you get into high-density interconnect and high layer count circuit board. And then on the thermal side, this is -- all three of these spaces grew by 20% year-over-year in 2025, and they will really continue to be the source of growth going forward. On the thermal side, we've launched some new novel technologies in both thermal pads as well as gap filler -- liquid gap fillers. Some Phase Change Materials, and we're excited by other innovations and working closely with some of our OEM partners. Obviously, it's a critical need, especially in the data center segment. And we've seen a rapid adoption by a lot of the cloud service providing companies and OEMs in that space, and we're excited by the opportunity to continue to partner with them to bring these next-generation thermal solutions into the market. All of this is connected to what I said in my prepared remarks really around kind of the increasing number of POR wins across every business. Melissa Weathers: If I could squeeze one more in. Just on the mainstream side, the mainstream nodes in foundry logic. I get -- it seems like you're expecting utilization to maybe gradually improve throughout the year. I think we've heard some pretty mixed takes from like, say, the analog or the power semi guys on the demand trends that you're seeing. So can you just give a little more color on what you're seeing in mainstream nodes, maybe across, I don't know, end markets? Just any other color there would be helpful. Jon Kemp: Yes, happy to do that. So at a high level, I would say that we're encouraged by the ongoing recovery in mature logic. We believe that inventories are relatively healthy. Customers are already seeing small sequential improvements in utilization rates. I think we've seen that from a lot of those players kind of through this earnings season. We expect the recovery will likely, from a pacing standpoint, continue to be relatively modest given the connection to the global memory market. From a utilization point of view, we expect utilization rates, which kind of steadily improved through 2025. And from the low 70s into the mid-70s. I would say our expectations are for a similar pace -- a similar recovery in 2026 as to what we saw in 2025, maybe going from the mid- year-end to the mid, maybe even start to get into the high 70s range. Depending on the availability and kind of how the broader industrial economy goes. Obviously, the biggest drivers there, the data center markets have done really well. And I think there's plenty of room in the broader industrial economy across communication infrastructure and automotive just to name a few for us to have some additional wins. And as we see that, that's really what will allow kind of the semi segment to get back to kind of the normal -- the more normalized growth rate that we would expect. Operator: And we'll come next to Aleksey Yefremov with KeyBanc Capital Markets. Aleksey Yefremov: I wanted to come back to your first quarter comments. I think you talked about high single-digit sequential growth. It does seem quite a bit above your normal seasonality, if I look at the history. Is there anything unusual in Q1? And as a result, are there any consequences or how we should think about second quarter? Is kind of second quarter being flat versus Q1 the bad gas for us at this point? Jon Kemp: So I'll maybe start there, Aleksey, and then ask Mike to comment further. So when we think about the first quarter, we are seeing some different types of behaviors. Usually, there would be a little bit of a seasonal decline kind of third quarter to fourth quarter and then fourth quarter into first quarter. I think I'll go back to what I mentioned in my prepared remarks around some of the structural demand shift that we're seeing in some of our end markets. that as we get into really a lot of the strength in the current market environment is really driven by data center, the high-performance computing. And that -- and the benefits that we're seeing there is sort of overshadowing and the benefits there are greater than the normal seasonal weakness that we would see from consumer electronics. And I think it's a testament to the strength of our portfolio that we're really well diversified and positioned across different end markets to be able to pick up those benefits. And so the same type of trends that we saw in the fourth quarter results is continuing into the first quarter with that strength. And all things being equal, that's kind of the state of play in the different end markets right now. As we get through the year, going back to the previous question, to the extent that we start to see opportunities in some of the other parts of the industrial markets, whether it's automotive, communication infrastructure, aerospace and defense, all of those represent nice content as you start to get AI capabilities, moving from, say, cloud computing and data centers to edge computing kind of at point of interface, whether that's in the car, the factory or with the consumer as we start to see more of that AI capability diversified into different end markets we expect that will continue to drive fairly robust growth rates. Mike, anything else to add there? Michael Goss: Yes. Thanks, Jon. I think the thing I would add to that is, as I said before in one of the earlier questions, would you expect to see the steady demand through the year with a little bit of a peak in the third quarter. I'd say the other color I'd give is on the back half of the year, we do expect some scale-up on node transitions, as well as the ongoing evolution in the memory market dynamics. And so as you'd expect, we'll continue to provide additional perspective and information on what we're seeing as the year progresses. Aleksey Yefremov: And I think you said that you had 20% growth and 20% plus growth in both advanced packaging and thermal management, EMI shielding. Kind of a 2-part question. Should we think about those types of growth rates as sort of achievable in your thoughts for '26? And also, it seems to me that thermal management kind of stepped up because I recall you've been talking about kind of growth there in the teens now. It's in the 20s. So is it the case that thermal management growth have accelerated? Jon Kemp: Yes. Great question, Aleksey. It's obviously a dynamic that we're watching closely, and we're in constant conversations with our customers if I take a step back and I think about kind of what happened in 2025 and how that plays forward into 2026. In 2025, the ICS business broadly kind of the custodian of those key technologies, benefited from a lot of available capacity that was able to rapidly scale up in 2025. And what we're seeing as we go into 2026. Obviously, a lot of our customers and folks throughout the industry are making significant investments to expand the capacity for both advanced packaging as well as kind of the place in the manufacturing process where the thermal materials would get added as a lot of the pacing and the growth rates that we expect in 2026, are largely driven by the incremental capacity that our customers are able to bring online. So demand is strong in those areas. So it's not a matter of demand. It's really a matter of how fast can we get that incremental capacity online. And then we'll work with our customers as we make those we're pretty consistently getting increasing content wins with the customers in both of those areas. So is that incremental capacity comes online, we're confident in our ability to sustain that growth. Operator: And our last question comes from Edward Yang with Oppenheimer. Edward Yang: Jon, nice quarter, and thanks for the time I just wanted to come back to the level of conservatism that's embedded in the 2026 revenue guide around 6.5% or so. And again, if we step back, you did 10% growth in 2025, it looks like according to the first quarter guidance, up high single digits sequentially, that would mean you'd be growing more like mid-teens year-over-year growth in the first quarter. So is it just conservatism? And Mike talked about, again, steady growth throughout the year and even possibly second half, I guess, inflection, which would be consistent with what we're hearing from the rest of the semi food chain. So just some additional color to tie everything together, I suppose. Jon Kemp: Sure, Ed. I think what I would what I would maybe start with is just go back to kind of where we started the Q&A part of today in terms of how did we get to the midpoint of the guide. The midpoint of the guide was really anchored around the expectations for MSI and the PCB market is the two best market indicators, both of those kind of being in that mid-single-digit range. And then adding on that, our expectations that we can outperform that. Obviously, we had nice outperformance in 2026. I'd like to think that we can be able to -- we're in a good position to be able to sustain that outperformance. To some extent, it is contingent on getting some of the incremental capacity for those most advanced technologies. And then obviously, the memory market dynamics that we talked about is what's kind of keeping us a little bit on the we want to take a little bit more of a wait-and-see approach to see how that continues to evolve as we get into the year. And kind of given where we're at in the first quarter, obviously, we're highly confident in where we're at for the first quarter. And then we'll provide additional color as to how these dynamics are unfolding as we get to the second half of the year. Mike, anything else you'd add there? Michael Goss: Yes. I think the other thing I would add is just anchoring back to our overall midterm framework with sales growth in that 6% to 7% range, and that's part of what drove the midpoint of the guide that we have this year, obviously, we're continuing to see, as Jon said, the mix dynamics between the two segments, and we'll obviously continue to strive for opportunities to drive margin expansion from volume and product mix enhancement as we continue to serve and see growth in the most advanced technologies. So over time, I would also expect the transformation program that we're launching to help drive that enhanced performance as we move through the year. Edward Yang: Okay. And for my follow-up, I just want to come back to this, I guess, your leverage to the memory cycle and the various puts and takes. And obviously, we understand what the upside is from your exposure to the memory cycle. And Jon, you touched on, again, maybe there could be some potential offsets. But I think during the call, you also mentioned you do expect to grow stronger than semi in 2026. So I guess the base scenario, is it fair to say that you're not really seeing any offsets necessarily from higher memory cycle. But again, just to be conservative, you are baking in some potential impacts that may or may not occur. Jon Kemp: Yes. I think, Ed, the way that we think about it is, as I said, when I was talking a little bit about the specifics in the memory market is that wherever those memory chips are going we're going to pick up the benefit of that demand. So it's not so much of some of the reasons why we're confident in that ICS growth is if we're getting growth in the consumer -- from consumer electronics devices, that's great. We've got great content, a lot of that, especially on the premium side of the market, which we expect to be more resilient. If instead, those chips are being allocated more to serve the needs of data centers. That's -- I might argue that's slightly even more favorable because we're going to pick up probably higher content in data centers and margin and even we will in the consumer electronics side. So we're really well positioned from the diversification of our portfolio to be in a position that no matter where that growth comes from, we're going to be able to pick it up with kind of premium content. Operator: Thank you. At this time, we have reached our allotted time for questions. This does conclude today's question-and-answer session as well as Qnity's Fourth Quarter and Full Year 2025 Call and Webcast. You may now disconnect your line at this time, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to Akebia's Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mercedes Carrasco, Senior Director of IR. Please go ahead. Mercedes Carrasco: Thank you, and welcome to Akebia's Fourth Quarter and Full Year 2025 Financial Results and Business Update Conference Call. Please note that a press release was issued earlier today, Thursday, February 26, detailing our fourth quarter and full year 2025 financial results, and that release is available on the Investors section of our website. For your convenience, a replay of today's call will be available on our website after we conclude. Joining me for today's call, we have John Butler, Chief Executive Officer; Nick Grund, Chief Commercial Officer; and Erik Ostrowski, Chief Financial and Chief Business Officer. Dr. Steven Burke, our Chief Medical Officer and Head of Research and Development, is available for Q&A dialing in from the Annual Dialysis Conference in Kansas City today, where Akebia will present data on Vafseo this weekend. I'd like to remind everyone that this call includes forward-looking statements. Each forward-looking statement on this call is subject to risks and uncertainties that could cause actual results to differ materially from those described in these statements. Additional information describing these risks is included in the financial results press release that we issued on February 26 as well in the Risk Factors and Management Discussion and Analysis section of our most recent annual report filed with the SEC. With that, I'd like to introduce our CEO, John Butler. John Butler: Thanks, Mercedes, and thanks to all of you for joining us this morning. 2025 was an important year for Akebia, marked by the commercial launch of Vafseo, vadadustat, our oral HIF-PH inhibitor for the treatment of anemia due to chronic kidney disease for patients on dialysis. Vafseo, along with our phosphate binder Auryxia, generated $227 million in net product revenue in 2025, during which time we also progressed multiple post-marketing clinical trials and advanced and enhanced our growing pipeline. Let's start with Vafseo. 2025 got off to a very fast start before a number of challenges flattened demand in the second half of the year. We addressed those challenges head on, and we believe today, we're starting to see the demand growth that we've expected. Most importantly, the body of evidence is growing that supports the potential for Vafseo to become standard of care in what is a $1 billion U.S. market opportunity after the TDAPA period ends when we expect Vafseo will be priced roughly in parity with ESA pricing. While we didn't see the growth we expected in the second half of 2025, we built real excitement for Vafseo. Today, just over a year into the launch, more than 1,000 prescribers at 24 different dialysis organizations have written a prescription for Vafseo and 290,000 patients have access to Vafseo in dialysis clinics with a protocol in place. I'm particularly encouraged by the shifting dynamics we began to see in Q4 that are continuing in Q1 that suggest greater breadth of prescribers as well as improving adherence rates. Nick will provide more detail on these very encouraging trends in his remarks. Now a key element of our strategy to have Vafseo become standard of care includes continuing to generate data supporting the benefits of managing anemia with a more physiologic approach compared to ESAs. At the ASN meeting in November, we presented a post-hoc hierarchical composite endpoint analysis of prospectively collected outcomes of death and hospitalization from our Phase III INNO2VATE program in dialysis. This analysis demonstrated that patients treated with Vafseo experienced a lower risk of dying or being hospitalized than patients treated with the ESA comparator. This coming weekend at the ADC in Kansas City, we're presenting a cost comparison of Vafseo versus darbepoetin based on INNO2VATE data. In this analysis, Vafseo showed a 7.7% lower annual hospitalization rate, 16% reduction in hospitalization days and based on Medicare cost data, approximately 15% lower Medicare hospitalization costs for patients treated with Vafseo versus darbepoetin. Reduced hospitalization translated into a cost savings of about $3,700 per patient per year, meaning a savings of almost $2 billion per year if all eligible patients were treated with Vafseo. These results are meaningful for dialysis providers, Medicare and other payers and, most importantly, for patients. Late this year, we'll have the results from the VOCAL study that we're conducting at DaVita clinics that's evaluating Vafseo's dose 3 times weekly. The trial also contains a substudy of red blood cell characteristics, which we believe could make a compelling argument for Vafseo. Fundamentally, when you manage hemoglobin levels with a more physiologic approach, you get a more physiologic and potentially better functioning red blood cell. The VOCAL data will be followed by results from the VOICE trial being run by USRC, evaluating Vafseo versus standard of care on a hierarchical composite of all-cause mortality and hospitalization rates, data expected in early 2027. In my experience, in order to make a drug standard of care, particularly with nephrologists, you have to continue to deliver data that demonstrates the benefit of the product for their patients versus current treatment. Now in addition to the launch of Vafseo in 2025, we introduced our rare kidney disease pipeline, which we believe will be an additional and important value driver for the company going forward. Strategically, this initiative is a natural extension for us as it leverages our expertise in kidney disease drug development, broadens our presence within the kidney disease community and fits squarely within our corporate mission. We will host an R&D Day for investors on April 2 to discuss our mid-stage assets in detail, namely praliciguat and AKB-097 as well as introduce our early HIF-PHI AKB-9090. Praliciguat is an oral once-daily soluble guanylate cyclase stimulator being evaluated in a Phase II clinical trial of focal segmental glomerulosclerosis or FSGS. We expect to enroll up to approximately 60 patients in this trial, which will evaluate change from baseline in urine protein to creatinine ratio, or UPCR, at 24 weeks as the primary endpoint. Both the extensive preclinical work in FSGS disease models as well as previous clinical results praliciguat in diabetic kidney disease give us confidence in the potential for the therapy to impact FSGS. AKB-097 is our tissue-targeted complement inhibitor that we acquired late last year. We believe this product candidate could have comparable efficacy to the most efficacious currently approved products in a well-characterized pathway. While the tissue targeting allows for the potential to: first, avoid the box warning for infection risk; and second, to deliver the drug in a more convenient dosing regimen. We believe this has best-in-class potential. We plan to initiate a Phase II open-label basket trial in the second half of this year. We will be looking at initial indications of IgA nephropathy, lupus nephritis and C3 glomerulopathy. These diseases represent a multibillion-dollar market opportunity in areas of high unmet need. As part of the basket study, we'll be evaluating safety, tolerability, pharmacokinetics, pharmacodynamics and effects on disease-relevant biomarkers such as proteinuria and kidney function. As this is an open-label basket study, we expect to begin to report initial data in 2027. And lastly, we plan to initiate a Phase I study in healthy volunteers of AKB-9090 in the first half of 2026 with top-line results later this year. Our initial target disease area for 9090 is acute kidney injury associated with cardiac surgery. Our research and development team is working hard to deliver these important catalysts as quickly as possible. But of course, all of this work will be built on the success of Vafseo. Now let me turn it over to Nick to give more granularity on the launch. Nicholas Grund: Thanks, John. Good morning, folks. Like John, I'm encouraged by the growth potential for Vafseo in 2026, which is supported by early Q1 data. But first, let me recap the quarter 4 2025. During the quarter, approximately 800 prescribers wrote a prescription for Vafseo, and each prescriber on average wrote approximately 10.3 prescriptions. Of note, 128 of those were new prescribers. During quarter 4, we were pleased to see our customer base expand and the number of new starts at dialysis organizations outside of USRC, specifically at DaVita and IRC, increased over Q3. Approximately 25% of new patients came from dialysis organizations other than USRC during the fourth quarter. That said, Vafseo demand in quarter 4 was slightly down versus quarter 3 as we reported $6.2 million in Vafseo net product revenue on about $11 million in demand. We believe the slight decrease in demand, specifically in quarter 4, was primarily a result of a lower number of patient starts at dialysis organizations deciding to transition to an observed in-center dosing protocol and thereby waiting until the observed dosing protocol was available. USRC, for example, began to transition in November in approximately 25% of clinics. By the end of Q1, we expect the vast majority of USRC in-center patients to be receiving Vafseo 3 times a week while receiving dialysis utilizing USRC's observed dosing protocol. Of note, USRC's decision to transition to an in-center observed dosing protocol did result in a reduction in their inventory as they shifted from shipping a bottle to a patient's home to stocking bottles at their centers. The distribution change resulted in a onetime inventory drawdown impact of about $4.8 million in the fourth quarter of 2025. Now let's turn to 2026. We begin the year on an optimistic note as we are already building momentum. At present, 290,000 patients have prescribing access as DCI has implemented a Vafseo protocol. With the almost fivefold increase in prescriber access since the end of Q3 2025 and our field teams actively calling on physicians with expanded access, we are seeing an expansion of brand awareness and a comfort prescribing Vafseo within the nephrology community. Additional commercial trends give us confidence in quarter 1 and the year ahead. First, we saw improved adherence from the beginning of 2025 through the end of the year and continuing into 2026. More importantly, the percentage of patients who got an initial refill rose from approximately 75% for all daily dosing patients in the first 9 months of 2025 to approximately 91% among the small subset of patients who were on observed dosing regimen. Looking at early patient data from January, we've continued to see an improvement in first refill adherence with approximately 87% among the now larger subset of patients on an observed dosing regimen. We're encouraged by this improvement, and we'll continue to monitor adherence rates in 2026 as centers implement their observed dosing protocols. Second, we are also seeing a nice pickup in utilization and broader adoption from IRC, the fourth largest dialysis center, after IRC Vafseo available in late August and implemented an observed dosing protocol late in quarter 4. In addition, ECI has started to put patients on therapy. We also see the number of prescribers within DaVita starting to increase with some physicians trialing Vafseo in their patients. This has led to a higher percentage of new patients being from non-USRC clinics than in 2025. The investment dialysis organizations continue to making Vafseo, taking the time and effort to integrate the therapy into protocols and care plans make me believe that providers and prescribers understand the clinical benefit Vafseo can deliver and are committed to using it long term. As prescribers continue to gain real-world experience as they transition patients on to Vafseo, I expect the momentum to continue to build. Our dedicated sales team is focused on increasing the breadth and depth of prescribing, a critical step to becoming standard of care for patients on dialysis. Let me now turn it over to Erik. Erik Ostrowski: Thanks, Nick. As John mentioned, we saw strong top line performance in calendar year '25 as net product revenues increased nearly 50% over calendar year '24, driven by the U.S. introduction of Vafseo and increased sales of Auryxia. Our continued careful expense management in 2025 allowed us to both invest in R&D initiatives we believe can generate significant shareholder value and maintain our solid financial position. We are excited for a strong 2026 and executing on our plans to grow Vafseo revenues and advance our pipeline, including our mid-stage rare kidney disease programs. I'll now provide an overview of our Q4 '25 and calendar year '25 financial results as compared to the prior year. Total revenues were $57.6 million in Q4 '25 compared to $46.5 million in Q4 '24 and $236.2 million in calendar year '25 compared to $160.2 million in calendar year '24. These increases were driven by sales of Vafseo and an increase in Auryxia sales. Vafseo net product revenues were $6.2 million in Q4 '25 and $45.8 million in calendar year '25. As Nick mentioned, Q4 Vafseo sales were negatively impacted by the inventory drawdown at USRC. Auryxia net product revenues were $48.1 million in Q4 '25 compared to $44.4 million in Q4 '24 and $181.5 million in calendar year '25 compared to $152.2 million in calendar year '24. We note that we anticipate generic competition for Auryxia to expand this year beyond the current authorized generic competition and therefore, expect Auryxia revenues to decrease in 2026 as compared to 2025 Auryxia revenues. Turning to expenses. Cost of goods sold was $12.5 million in Q4 '25 compared to $20.4 million in Q4 '24 and $39.5 million in calendar year '25 compared to $63.2 million in calendar year '24. COGS in both periods was driven by higher Auryxia sales volumes in 2025 and was impacted by the elimination in 2025 of a quarterly $9 million noncash intangible amortization charge we incurred through Q4 of 2024. In addition, COGS for calendar year '24 included a $12.3 million benefit due to our ability to sell inventory previously written down as excess inventory. Of note, Vafseo-related COGS in both periods of 2025 was derived from prelaunch inventory, which does not include the full cost of manufacturing as a portion of those inventory-related expenses were recorded as R&D expenses in the period incurred prior to Vafseo's approval in the U.S. R&D expenses were $26.6 million in Q4 '25 compared to $11.8 million in Q4 '24 and $62.4 million in calendar year '25 compared to $37.7 million in calendar year '24. The increase in expenses in both periods was driven by increased clinical trial-related activities for Vafseo and our other product candidates, higher headcount-related costs as well as by a $12.8 million charge incurred during Q4 '25 related to acquired in-process R&D costs associated with the acquisition of AKB-097. SG&A expenses were $26.1 million in Q4 '25 compared to $27.7 million in Q4 '24 and $107.5 million in calendar year '25 compared to $106.5 million in calendar year '24. Net loss in Q4 '25 decreased to $12.2 million as compared to a net loss of $22.8 million in Q4 '24. Net loss for the year also decreased to $5.3 million in calendar year '25 as compared to a net loss of $69.4 million in calendar year '24. The decrease in net loss in both periods was driven by the increase in net product revenues, which was partially offset by higher expenses. Turning to the balance sheet. Cash and cash equivalents as of December 31, 2025, were $184.8 million as compared to $51.9 million as of December 31, 2024. We believe our existing cash resources and cash from operations will be sufficient to fund our current operating plans for at least the next 2 years. With that, we welcome questions. Operator: [Operator Instructions] Our first question comes from the line of Julian Harrison of BTIG. Julian Harrison: I have a few, and I'll just go one by one here. First, can you talk more about your expectations for sequential Vafseo growth in 2026? Wondering also how we should be thinking about that in relation to your inventory adjusted demand in the fourth quarter of 2025. Second, to what extent do you expect data from the VOICE study to potentially accelerate uptake next year across dialysis providers? And then finally, I'm curious how operationalized the Vafseo access at DaVita currently is? Are the VOCAL data a big gating step there? Or do you expect broad commercial uptake at DaVita before the VOCAL data are reported? John Butler: Great. That's a great list, Julian. Thanks. So expectations for growth first in Vafseo. So we're not guiding for revenue. So I'll start with that. I mean I think it's -- again, when you're in a launch, particularly in this dialysis market, as you saw last year, we certainly -- I certainly expected, a, that dialysis providers would latch on to the opportunities around TDAPA more quickly, and we certainly didn't anticipate the issues we had with adherence, but we're certainly dealing with those, as I said, very much head on. But I think the way to think about it is kind of forget the inventory fluctuations. We give you the demand number and really think about that, right? I mean demand basically has been flat. We had $12 million in the third quarter, $11 million in the fourth quarter, and it was actually $12 million in the second quarter as well, right? So we absolutely expect and are seeing growth from that level. We don't know exactly how quickly that will increase. I think people are kind of looking for this sort of magical hockey stick. And when I think about launches that I've been a part of in this market that didn't have the complexity of the dialysis provider in between, I mean I go way back in time to sevelamer or Renagel launch, we did $20 million in the first year, $55 million in the second year, $130 million or something in the third year. Ultimately, it was a $1.3 billion product, right? But nephrologists don't adopt products like oncologists, right? And you definitely have a more measured growth. And I think that's what we're seeing here as well, particularly, I think as you look at DaVita, where DaVita has made the product available but aren't sending out lists to physicians of patients that have reimbursement. They're leaving it to the physician to make the decision. That's fine. That's on our field teams to sell and educate physicians about the benefits. And it's things like the data from VOICE. So you look at the data from the ASN meeting last year, it's super important data, right? We'll make a huge impact, but it's not published yet, right? So it's been submitted for publication. It's just been presented at ASN. Our medical affairs folks can't educate physicians with that data until there's a reprint in publication, peer-reviewed, which we expect is going to happen this year. But then the same thing will be the case with the cost analysis that's being presented this weekend. We have to get those things published. And I think you'll see the same with VOICE and VOCAL as well. As these things are published available and our sales and medical affairs folks can use them, these are the things that influence utilization and physicians. And I've never been more confident that the data that we're generating supports that managing anemia with a HIF-PHI and the only one that's available is Vafseo is going to be standard of care for this patient population. It really is just a question of how quickly that happens. And we're seeing growth now. We're confident in that growth, but we're not in a place where we want to guide around that. We want to see it continue to move in the direction that it's moving now. And maybe, Nick, you can talk more about operationalizing at DaVita? Nicholas Grund: Yes. And so certainly, DaVita made the product widely available throughout their "village" in late Q4. And as they've started to focus on educating their physicians, they're really starting with the home dialysis population. That population within DaVita is greater than 30,000 patients. So just about the size of USRC. And so that's a great step. It really fits with USRC in total. It really fits well within the profile of Vafseo. So super excited about that. Second, they're also really contemplating an observed dosing protocol, which will certainly hopefully handle some of the adherence challenges that we've seen in the past. And so -- but DaVita is not going to, as John suggested, send out lists and compel physicians to try it. It's our field teams, whether that be medical, educating them about Vafseo or sales selling Vaio that are really going to help physicians try and then increase usage and then ultimately adopt Vafseo as a standard of care. And so when we think about that process, DaVita is a fairly big organization, getting them to try, and we're very encouraged. In the quarter 4, we saw a number of DaVita physicians starting to utilize Vafseo, and that's continued into quarter 1. And so as John suggested, we're not going to see this hockey stick inflection. It is going to be steady growth month-over-month, quarter-over-quarter as we start to penetrate deeper in terms of breadth and depth. John Butler: I mean it definitely depends on how you define a hockey stick, right? 3 quarters of flat sales, it will be -- you will have growth. So that's -- you can call that a hockey stick. We do expect that to continue to grow. It really is about what's the slope of that curve, right? And again, I think as I said, one of the things that surprised me most was that it didn't happen faster because of the economic benefits of using the drug during TDAPA. But at the end of the day, it was always about the clinical benefit. And that's what we're showing now. And Nick talked about the observed dosing protocols that are being put in place. We really do think by the end of the year, most patients who are being treated in center are going to be treated with that observed dosing and that observed dosing means they get it 3 times a week when they're sitting in the chair. That helps greatly with compliance. And the anecdotes that we're hearing from physicians that have begun utilizing 3 times weekly dosing are -- and more importantly, maybe the anemia managers that are managing those patients on a daily basis, they're really very, very positive. So we're really excited that DaVita is moving forward with that as well. And if they focus in the first part of the year on their home population, that will be fantastic for us from a growth perspective. Hopefully, that helps, Julian. Operator: Our next question comes from the line of Roger Song of Jefferies. Unknown Analyst: Congrats on the progress. This is [ Nabil ] on for Roger. It's encouraging to hear about the improvement in the first refill adherence. I was curious if you could comment on how second and third refill rates are trending. And then any other comments just on the anemia manager education? And then I have a second one. John Butler: Nick, do you want to take that one? Nicholas Grund: Yes. And so super -- let's kind of repeat the first refill because I think it is significant. So historically, we've seen roughly a 75% adherence on the first refill. So a patient receives an initial prescription, that first refill is the next prescription. And so that moving from 75% to 91% in the fourth quarter in that small subset of patients was really an important, I'll call it, bellwether for what we're going to see moving on. We were waiting for the bigger subset in quarter 1 and specifically in January to say, okay, now is it really coming to fruition in a larger patient population? And it is. We're seeing this 87% first refill rate. As they moved into the second prescription, I think your question is a really good one. We've seen a significant continuation of that adherence rate. And so you have to remember, these patients have significant comorbidities, co-mortality, they receive transplant. There's always an underlying, let's call it, 2% to 4% discontinuation rate in that population every single month. And so we've seen this continuation of this high 80%, 90% adherence rate even through the second prescription is starting to lead towards some positive trends for annual adherence rates. John Butler: And the other thing you're going to see, as the clinical data continues to build, even if a patient -- one of the main reasons that a patient would go off is if they feel like they have some GI tolerability issues. But we know those are transient, right? And what we've seen from physicians who really believe in the clinical benefit, they talk to the patient and say, I understand what you're dealing with, but we put you on this medicine for a reason. We really believe this is going to benefit you. I want you to try to work through it and it will go away, and it does. And then there's other physicians or nurse managers who aren't as sole on the drug, maybe it's a way to say it or don't have the same level of education on the product benefits. And they'll acquiescent and take the patient off, right? So Nick, do you want to add something? Nicholas Grund: Yes. The only thing I'd probably add is by people moving from daily dosing to observed therapy in the clinic, what we've seen is a number of restarts of patients, patients coming back in. That means that physicians are saying, "Hey, that patient who may not have been compliant the first time around by being able to give it to them in the chair, we now can go back to that patient because we believe in the value that Vafseo might bring and by being able to dose it in the clinic 3 times a week has allowed them to offset that compliance challenge and really provide Vafseo for that patient. John Butler: Nabil, you had a question. I'm sorry, I didn't write it down. I can't remember what it is. Unknown Analyst: Yes. Just on the 9090 asset, again, congrats on the progress here. Just curious how that's -- if you can comment a little bit more on how that's mechanistically differentiated from prior SPHs? And then any other thoughts there? John Butler: On 9090, Steve, you want -- can you take that one? Steven Burke: The molecule has a different pharmacokinetics and a slightly different profile. Vadadustat tends to preferentially target the liver. That's where the erythropoietin is made, whereas 9090, because of its structural differences, has more widespread tissue penetration, so it gets into the lung and the kidney. And in our nonclinical models of ischemia reperfusion injury, 9090 was clearly the best compound that we had for that indication, whereas vadadustat probably would not work in that indication. So it's all about the structure and the PK. John Butler: Nabil, I think your other question was around anemia manager education. And I think it's maybe important to point out, we definitely recognize how significant that is. And a lot of that education has to be done through the medical affairs folks, our MSLs. We made the decision earlier this year to expand our medical affairs group, so that we have more folks feet on the ground, if you will, doing that education. So much of this data that's coming out really needs to be delivered, whether it's to a physician, KME or an anemia manager through the medical function rather than the sales function. So we're still finalizing the last couple of positions there, but those folks have kind of hit the ground running and really ramping up our education. Nick, do you want to add something? Nicholas Grund: It's great to see that the dialysis organizations are actually participating in that education, right? So USRC, we've had great advocacy from Dr. Dittrich and Dr. Block all along, and they've been educating proactively. Within DaVita, they have a centralized anemia management model. So those folks aren't necessarily in the clinic, and they've been educating their centralized anemia managers themselves, which also is a great step for getting folks comfortable with Vafseo. Operator: And our next question comes from the line of Roanna Ruiz of Leerink Partners. Unknown Analyst: This is Michael on for Roanna Ruiz at Leerink Partners. For Vocal study, can you give us a sense of what success looks like? Is this primarily about demonstrating TIW non-inferiority versus ESAs? Or are you powering for superiority on any endpoint? Also, how important is the RBC sub-study in differentiating Vafseo's mechanism? John Butler: Steve, do you want to take that one? Steven Burke: Sure. Yes. No, you're right about the study. It's 350 patients. DaVita felt it was important for them to do the study in their own units, partly to operationalize it, but also establish that the drug is as safe and effective as the ESAs, Mircera that they're using today. I suspect we'll see superiority on some of the hemoglobin-related safety endpoints, which we saw in the FOCUS study. So less rapid rises, less high hemoglobins and less need for dose adjustments. But it's not -- that's all prespecified, but it's not like it's a primary endpoint. The primary endpoint is non-inferiority for hemoglobin control, which makes sense because you're targeting people to a range of hemoglobin [indiscernible]. I do think the red blood cell study will be interesting and important because I think there may be some people who aren't really as close to this don't understand how different Vafseo is from ESAs, where ESAs, you're basically giving a recombinant human EPO, it binds to receptor on cells in the bone marrow and helps them differentiate into red blood cells. But Vafseo does so many more things. And we already know that the red blood cells that are made under the influence of Vafseo are different. They're bigger. They have more hemoglobin. They have a more uniform distribution of width. So this additional information, I think, will build on what we know to be true today that the red blood cells really are different. So I think it gives physicians a reason to believe that Vafseo is different. And then when we have data around things like death and hospitalization, it makes more sense to them. There's a mechanism by which they can understand these clinical benefits. Unknown Analyst: Got it. Another question, if I may. Have you reactivated the IND for AKB-097 yet? And are there any changes you made to the protocol from Q32 that was previously aligned with FDA? John Butler: That's a great question. We have been reworking the protocol just to make it simpler. But fundamentally, it's the same protocol that FDA agreed to with Q32. We're just trying to make it less operationally complex so that it's easier to recruit and easier to run. And we won't activate that IND until we resubmit the protocol that we're very close to finalizing. So I hope that answered your question. Operator: Our next question comes from the line of Allison Bratzel of Piper Sandler. Unknown Analyst: This is Ashley on for Allison Bratzel of Piper Sandler. Just one question from us because you guys did a great job of answering our other questions. But just on the R&D Day on April 2, when you're discussing your pipeline, can you help frame some expectations for investors? What should investors look forward to? What level of detail are you planning to provide? Any color there would be super helpful. John Butler: Sure, Ashley. So obviously, we're still bringing together the agenda for that. As I said, I mean, we really will focus -- there's so much that we could talk about. And that's kind of the exciting thing for the company right now. There are so many areas we can go. But I think we really want to focus on praliciguat and 097. And we think it's important that you hear from other people other than Akebia employees. I mean you'll hear from Akebia employees, but we really want to bring in KMEs to talk about -- when we think about the process we went through to make the decision to in-license 097, Steve always kind of says when Erik brought this forward, it was like, oh, another complement inhibitor, do we really need this? And it was really talking to KMEs, one of whom we expect you'll be able to hear at the R&D Day that this concept of a next-generation complement inhibitor really -- I think those are the words that were used. And so hearing the excitement around that product from people other than Akebia employees, I think, is important. And it will give us the opportunity. We haven't had the opportunity to kind of go into depth on the data that underlies the decisions we made, the data -- the preclinical data on praliciguat, for instance, that gave us confidence in moving forward in FSGS. And then it was exciting to get a question on 9090 on this call. But we -- this is the first product we're putting in the clinic from our own discovery efforts, small but mighty discovery efforts at Akebia and kind of introducing that product and answering questions like Nabil asked about what differentiates it from vadadustat. So we think it will be a very robust day. I mean it's kind of thing you can spend 6 hours on, but we'll do it in a much more streamlined fashion. But I think it will -- right now, we just introduced this rare kidney pipeline in December. And I don't think people really have had the opportunity to focus on it because quite rightly, they're focusing on the Vafseo launch. We're really happy with how the Vafseo launch is going. We think that will continue to deliver for the company and be the financial driver for continuing to build the pipeline. But now people will be able to really understand what we've got and why we're so excited about not just the rare kidney pipeline, but our capabilities in expanding that HIF pipeline as well. Operator: I'm showing no further questions at this time. I'll now turn it back to John Butler for closing remarks. John Butler: Great. Thank you, Marvin. I do want to take a moment again to outline the catalyst-rich next 12 months that we have at Akebia. In addition to watching our progress towards standard of care for Vafseo in the $1 billion dialysis market, we'll see Vafseo top-line data from VOCAL in Q4 and VOICE in Q1 of '27. We'll initiate the 097 basket study in the second half and expect to see the first data in 2027, and we'll begin and complete the Phase I study of AKB-9090 during the course of this year as well as continuing to enroll praliciguat Phase II in FSGS. We are very excited about the present and future for Akebia. We're eager to share more about our pipeline programs at our R&D Day on April 2, and I look forward to speaking to you then. Have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Eni's 2025 Fourth Quarter and Full Year Results Conference Call hosted by Mr. Claudio Descalzi, Chief Executive Officer. [Operator Instructions] I'm now handing you over to your host to begin today's conference. Thank you. Claudio Descalzi: Thank you. Good morning, everyone. 2025 was a year of exceptional progress at Eni. We developed and executed our distinctive strategy in many cases, exceeding our original target. We will discuss in detail our updated plan at the forecoming Capital Markets update in March. But I can say at this point that 2025 provide an excellent guide to what you should expect the future to hold for Eni. Last year's result proved the value of our consistent strategies, strong operational and financial performance, timely project delivery to support growth and diversified investment for the short- and long-term to generate further value for investors. Specifically, looking in detail at the 3 main business pillars, the successes are compelling. First, Global Natural Resources. We started up 6 major projects as planned. This supported an underlying production increase of 4%, well above our original full year guidance and growth above 7% over the 2022, 2025 period, leading among our peers. Project execution is a clear strength of ours, and both Agogo, Angola and Congo LNG are further examples of our leadership in time to market. In addition, we took FIDs on 4 major new projects, 3 of which are operated, driving a stronger service replacement ratio of above 160% and meaning we currently have 500,000 barrels per day of production under development, securing our medium-term outlook. At the portfolio level, we have also established a new platform of growth by creating our largest business combination with Petronas in Indonesia and Malaysia. And we are progressing our Argentina LNG project with YPF and XRG. Alongside our continued exploration success underpins long-term outlook. We discovered 900 million barrels of new resources in 2025, reaffirming our industry-leading track record. Now over 10 billion barrel of resources discovered since 2014 at less than $1 per barrel from multiple geographies and different geological plays. Our focus on value as well as volume is also emphasized by our continued action to valorize our resources through dual exploration. As we did in Indonesia with the business combination in Cote d'Ivoire and high grade our portfolio through tail asset divestment. GGP is business we have comprehensively transformed in the past few years. And notwithstanding a softer market, we delivered EBIT above EUR 1 billion for the fourth consecutive year. Gas to power was also a strong contributor in 2025. And together, this result emphasized the work underway to capture more margin from our equity production. Second, our transition activities. They generate material growth and value creation and are important in diversifying and strengthening any earnings. In a year that was not remarkable for market improvement, we improved the robustness of our integrated business models, and we have been rewarded with strong earnings, EUR 2 billion of EBITDA and by the validation from the market with a contribution of EUR 5.8 billion from top private equity firms. These deals were completed in a multiple around -- with a multiple around 3x those of Eni stand-alone implying over EUR 23 billion of enterprise value for these new business lines. We are locking in further growth with both Plenitude and Enilive. Plenitude expanded its renewable capacity by more than 40% in 2025 and we'll add 10% to its customer base in 2026 on closing the agreed Acea Energia acquisition. Enilive has 3 new biorefineries under construction and 2 more have recently reached FID, together representing a further net 2 million tonnes of annual capacity. And third, industrial transformation. Changes in the energy market bring challenges that we are successfully mitigating but also opportunities. In this context, we are advancing the transformation of our traditional refineries. And we have set out the decisive measures to address challenges in our chemical business that are the same impacting the entire European industry. In 2025, we accelerated these actions, closing the crackers at Brindisi and Priolo 3 to 6 months earlier than planned. At the same time, we are transforming Versalis towards bio, circular and specialized products. The strategic and operational progress achieved in 2025 translates into exceptional financial delivery. Robust financial position is critical in managing the cycle, preserving flexibility and delivering our strategy. Last year, CFFO at EUR 12.5 billion was EUR 1.5 billion ahead of plan on a scenario-adjusted basis. Responding promptly to the more challenging scenario, we cut gross CapEx from a planned EUR 9 billion to EUR 8.5 billion, and we identified cash initiatives totaling EUR 4 billion raised from an initial EUR 2 billion, including delivering EUR 0.5 billion of savings. Net CapEx on a pro-forma basis was lower than EUR 5 billion versus our initial expectation of EUR 6.5 billion to EUR 7 billion as we executed on more portfolio activity for better value. As a result, pro-forma gearing at year-end was 14%, with net debt down almost EUR 3 billion over the year. These outcomes gave us the opportunity to raise our share buyback by 20% from EUR 1.5 billion to EUR 1.8 billion, achieving the unique combination in 2025 of both lowering debt and enhancing shareholder distribution. In Q4, pro-forma adjusted EBIT was EUR 2.9 billion, up 6% year-on-year despite the lower oil price and weaker dollar. We reported excellent E&P result with production up 7% year-on-year and 5% sequentially at 1.839 million barrels per day, underpinned by the positive impact of 2025 start-ups. Full year production of 1.7 million to 8 million barrels per day was 2% above our guidance for the year. GGP Q4 EBIT of EUR 0.1 billion delivered on our raised full year guidance of more than EUR 1 billion despite relatively low volatile markets. Plenitude and Enilive together delivered EUR 2 billion of pro-forma adjusted EBIT in the year and Enilive benefited from improved bio margins in the quarter, part offsetting seasonally lower marketing. Refining returned to profit in the quarter, albeit held back by relatively low utilization rates, while chemicals continued to see a weak scenario setting the early benefits of the restructuring underway. Q4 adjusted net profit was EUR 1.2 billion with a tax rate of 37% as we adjusted to a full year rate of 44%, just below guidance. CFFO in Q4 was EUR 3 billion, representing excellent cash conversion again, helped by the material cash initiatives we undertook in the year. Full year cash flow at EUR 12.5 billion was EUR 1.5 billion above our full year guidance on a scenario adjusted basis. Thanks to a release in working capital and our actions around the portfolio, we were able to fund our CapEx, shareholder distributions and other commitments and also to significantly reduce debt. Gross organic CapEx in the quarter was EUR 2.6 billion, taking the full year figure to EUR 8.5 billion, EUR 0.5 billion less than our original plan. Valorizations and portfolio activities have raised around EUR 10 billion over the past 2 years. In 2025, we completed more than EUR 6.5 billion in valorization of portfolio activity, which meant that adjusting to a pro-forma basis, net CapEx was lower than EUR 5 billion, around EUR 2 billion below our original plan. But 2025 is not a one-off year. For 2026, we expect to limit our gross CapEx to around EUR 7 billion and net CapEx at around EUR 5 billion. We reduced net debt over 2025 by almost EUR 3 billion, as we said, bringing gearing to 15% at year-end or 14% on a pro-forma basis. We can confirm that we expect pro-forma gearing in 2026 to remain at historically low levels at between 10% to 15%. Our shareholder distribution details, we have to revert to the CMU in March, but we can confirm a full funded attractive and growing dividend is our first priority. In the last 5 years, we have raised the dividend by an average of 5% per year, reflecting underlying growth and the reduction of sharing issue. At the same time, we have additional tool of distribution via the buyback that reflects our policy of showing cash flow generation and upside. In 2025, for example, we raised the buyback by 20%, the third occasion in the past 4 years, we have increased distributions. In conclusion, 2025 was a clear outcome of Eni strategy in action. Looking ahead, we will update our -- on our plan in March, but strategy remain unchanged. The choices we make in how we do business are driven by our industrial, technological and commercial strength and by a business model that has proven to perform in strong and soft market conditions. The upstream will grow organically at a sector-leading rate, leveraging our exploration successes and our proven ability to fast track time to market while managing costs and delivering the value from our business combinations and partnerships. On the energy transition, we will deliver the programs outlined by -- for Plenitude and Enilive while developing CCS, fusion, battery storage and data centers for hyperscalers, coupled with Blue Power and exploring opportunities in critical minerals. Portfolio activity will again be material in 2026 as we continue to pursue disciplined capital alignment and value disclosure. In March, we will share with you the details that underpin this outlook and which support continued highly attractive investor returns. And now with the rest of Eni top management are ready to take your questions. Thank you. Operator: [Operator Instructions] First question is from Alejandro Vigil, Santander. Alejandro Vigil: Congratulations for the results. I have 2 questions about the upstream business. Definitely, you will elaborate more on the Capital Markets Day. But I'm very interested in the outlook for this year, thanks to the contribution of the joint venture with Petronas, if you can elaborate about potential increase in production driven by this joint venture? And the second question is about Kazakhstan. There is a lot of noise in the media, and I would like to know your view about the situation in the country. Claudio Descalzi: Okay. Thank you. Thank you for the questions. I just give you a few words about Petronas and the outlook and Kazakhstan, then Guido -- and I will give where are the possibility to expand and elaborate on these 2 questions. So Petronas, I think that Petronas will be finalized by the second -- end of the second quarter. And it's going to give a contribution clearly, yes. We cannot be precise now. I think that we can give you more detail on the -- in March, but clearly is going to give a contribution in terms of production for 6 months. And as you know, we are going to have immediately a company that is producing about 300,000 barrels per day, but we have already project that we're going to implement FID in the next years to reach 500,000 barrels per day. We already drilled in Indonesia, as you know, successful wells that we can tie into the existing infrastructure. So we talk about reserves, not just resources. Kazakhstan -- Kazakhstan, I think that is a long story because in the last -- in the last 15 years, every 3, 2 years, we have some renegotiation and some, I can say, dispute, but more discussion because we are friends. And as always happen between friends, we always find a solution. So I'm positive about the future. But now I think that Guido can take over and give you more detail. Guido Brusco: Yes. Thanks, Claudio. So barring from more details coming in the next CMU, of course, the growth of production next year will be driven by the project we have started up recently. So we will see more production coming from Congo, from Norway, from Angola, from UAE and of course, from Indonesia. But as I said, more details will come in a few more weeks. As far as Kazakhstan, of course, as you know, the Republic has advanced several arbitration claims regarding production performance, cost recovery, environmental matters, sulfur storage and the JV is defending. There is a broad claim here, which -- it's in the arbitration court at the moment, and we do not expect a result before 2027, 2028. However, we continue as the operator is saying, confirm that operation have been conducted in compliance with the law of Kazakhstan and the operator had always possessed the required permits. And therefore, we are challenging this sulfur refine in all the courts. Operator: Thanks, Alex. We can now pass over to Michele Della Vigna at Goldman Sachs. Michele Della Vigna: Congratulations on the results. I wanted to ask 2 questions. First, on your CapEx guidance for '26 of EUR 7 billion. I was wondering if you could walk us through the bridge between the EUR 1.5 billion this year and the EUR 7 billion. Clearly, the deconsolidation of Indonesia plays a part, but if you could give us a bit more detail? And then secondly, the more we look at all of your discoveries and access in the last couple of years, it feels like you probably have the best pipeline of new projects you've ever had in your corporate history. How should we think about your priorities for FID in 2026, given the wealth of opportunities between Namibia, Indonesia, Cote d'Ivoire and all of your recent discoveries? Claudio Descalzi: Okay. Thank you. Thank you for the question. So it's true, we said that we cut our CapEx or we reduced our CapEx from EUR 8.5 billion this year to EUR 7 billion. That is a reduction in terms of CapEx optimization. We are not reducing the growth. We are not touching the growth of the company, but just we became more efficient because we did -- we have a strategy or we applied the strategy to be more efficient starting from the exploration. So exploring and go to the place where we have existing facilities. And then this year, we had a very excellent success. Also last year, we are moving at EUR 1 billion or less than EUR 1 billion resource discoveries in the right place where we have infrastructure. That means that we can continue to reduce CapEx because we need less CapEx to produce more, more, more production. That was a strategy that is not something that you can start overnight. It's something that we start in 2011, '12, '13. It's something that we built day by day because we never stop exploration. We never stop exploring. We never stop developing. We never stop going directly to the development and working as upstreamer. So that is the reason why we can reduce our gross CapEx. Then we have other points that maybe Guido can explain to you that is an additional important unless that can explain why we can reduce CapEx. Guido, you can explain. Guido Brusco: Yes, Claudio. And I mean, just building on what you were saying about the advantaged barrels. The project we have started up in the last 4, 5 years and the prospective project, which you will have more visibility in the Capital Market update are projects with, first of all, low unit development cost. Second, they have longer plateau. So we can devote less CapEx to maintain the production and fight the decline and more CapEx for the growth at the same CapEx level in a nutshell. As far as concerned, your question, Michele, about the -- what will come next year. Of course, we have a great degree of optionality. We have a very large and diverse portfolio of projects. But clearly, next year, the project that we will focus more in terms of FID is Argentina, Ivory Coast, Cyprus, plus a few more geographies in Africa. Operator: We're going to now move on to Biraj Borkhataria at RBC. Biraj Borkhataria: Just to follow up on the CapEx point and the number you guided today. How much of that year-on-year change is the Indonesia CapEx coming out as you deconsolidate it? And is there anything you can say on the CFFO contribution that will be removed also when you deconsolidate that production? And then second question is just on Versalis. You've now closed down the crackers, but we haven't seen that sort of come through in the P&L. So do you still expect to be EBIT breakeven in 2027? And what should we expect for 2026? Claudio Descalzi: Okay. CapEx in Indonesia, we already said that Indonesia is not -- I think that we can start working in Indonesia after the finalization of the business combination of the new company that we expect in the second quarter. So I think in any case, the impact on CapEx on Indonesia will not be very large this year because then we have FID to take maybe in '26, but mainly in 2027. For Versalis, I think Adriano, CEO of Versalis, can give some answer, and some light. Adriano Alfani: Sure. Thank you for the question. I mean we have seen some improvement in the second half of 2025 following the shutdown of the 2 crackers that, as we said before, we move forward and we stopped earlier than what was original plan. Unfortunately, the positive impact, although you remember what we said in the previous call that the impact of 2 major cracker shutdown, you start to see after 12, 18 months. So we've seen some positive impact, and this helped in order to mitigate the deterioration in the scenario. So we have seen improvement in the second half of 2025 compared to the second half of 2024, and we continue to see also in the beginning of the months of 2026. We are taking additional actions in order to mitigate the plan that is not coming as expected in terms of scenario. I'm pretty sure that you have seen so many shutdowns have been announced in the last 3 years, close to 160 shutdown announcement. And in the next capital market update, we are going to share the plan for the next 2, 3 years. Operator: We're going to move to Lydia Rainforth at Barclays. Lydia Rainforth: Two questions, if I could, please. The first one, on the exploration side and building a little bit on Michele's question earlier, you've clearly been very, very successful in what you've done. Can you actually give us what the success rate is now? Are we looking at sort of 1 in 2, 4 out of 5 wells? I'm just trying to work out what that success rate is. And then secondly, just on AI, clearly, you've got a lot of computing power. I'm just wondering what you're seeing, if you're seeing any benefits at this point or what your plans are around that. Guido Brusco: On exploration, last year, we've been very, very successful and success rate was exceptionally high. As you could also notice from the very low write-off we basically written in our books. So it was really exceptionally high, very close to 100%, the success rate last year. On the AI, as you may be aware, last year, we've opened a new business line on data center, coupled with the gas-fired plant. We have a plan with international partners to develop a data center in the north of Italy, close to Milan up to 500 megawatts split in different phases. We have a first phase which will go from 80 to 100 megawatts and the second phase to 500 megawatts. And this is in an area which is underdeveloped and in a country like Italy, which has foreseen a demand of AI center by 2030 up to 1 -- the impact, of course, we are forerunner in terms of application of technology and super computational capacity on our activity and the exploration success is one example of it. Of course, AI will apply also on other segment of the business in the upstream like the production improvement, drilling and project improvement, rotating machine enhancement. So we expect a significant impact on the AI. Just to remind that in the industry, we have already one of the lowest downtime for the production facilities, which is around -- which is less than 1%, while the average of the industry, WoodMac data is around 3.5%. Operator: We're now going to move to Irene Himona at Bernstein. Irene Himona: Congratulations on a strong year, especially in the upstream. Can you please say, firstly, what did you change exactly to high-grade production? What does that involve? Secondly, can you remind us what upstream tax rate we should expect in an environment of $65 to $70 Brent? And then finally, very quickly, looking at the 10 billion BOE of resource you have discovered since 2014, can you say roughly what the split is between gas and liquids, please? Guido Brusco: On the what we did basically question of the high grading, of course, in our portfolio, we are bringing onstream project with very high profitable cash flow per barrel. And we are divesting late-life assets. So the combination of these 2 elements. So the new project and the late-life asset disposal is high-grading our portfolio. And you may have also seen that if we compare the free cash flow per barrel from 2024 to 2025, we have seen a 10% increase. On the tax rate... Claudio Descalzi: Before talking about the tax rate, so you remarked a very successful increase in our production. Absolutely what we said is true. So we have a different quality in terms of barrel, so higher cash flow per barrel, but also we have been successful for -- in the last years to be in terms of time to market -- time to market and budget. So we have been able to not only respect our schedule, but in most of the case, faster. So that clearly impacted positively. The production impact and internal rate of return of all our projects. And we are respected on all the budget. So that is something that maybe is not clear or explicit to all -- to everybody, to investors, to all our community, but that is one key point of success in terms of results and the value of our volume. Tax rate. Francesco Gattei: On the tax rate, as you have seen, there is a fluctuation that are mainly related to clearly to the composition. In this case, you mentioned the upstream tax rate. So on the composition in terms of production contribution in different countries on the exploration write-off and some additional one-off factors that could imply or determine certain effects. In the 2026, the expectation is to -- with a $62 that is, for the time being, our assumption, a tax rate that should be in the range of 45% to 50%. Clearly, if the price will improve, there will be a lower tax rate. Guido Brusco: Just to complete, you made another question, the split between oil and gas of the discovery is 70% gas and 30% oil. Operator: We are now going to move over to Josh Stone at UBS. Joshua Eliot Stone: Two questions, please. One, I wanted to pick on -- up on this Italian energy reform that got passed and whether you had a chance to estimate the initial impacts because it looks like there's quite complicated, lots of moving parts. It's connected to gas spreads, the ETFs and tax. Maybe you could just talk about how you're thinking about that being a net positive or net negative and the different impacts on your different parts of the businesses, that would be useful. And then second question on the buyback. I know we've got to be patient for the actual number, but I was hoping you can maybe share just your thought process here and the importance you put on buybacks after the re-rating of your stock. And am I right in saying when you set this buyback, you'll be using the $62 oil price deck for 2026? Claudio Descalzi: About the energy bill that you were referring in Italy, clearly, the impact is slightly negative, but quite marginal because you have to consider that as Eni, we are not just a supplier and a producer, but we are also an important industrial player in the country with different activities spanning from the refinery, chemicals, bio-refineries and also certain upstream activity, clearly. So you have to consider that the overall effect is mitigated by this double exposure. So it's absolutely, let's say, marginal towards the overall performance of Eni. In terms of buyback, I was mentioning before, the reference is $62 for the expectation for the next year in terms of pricing, we have to confirm at the next Capital Market Day. Clearly, you know what is the structure of our distribution policy. When we set up a buyback that is clearly the variable component of our distribution, this is a floor. And historically, we proved that this is the floor because we raised the floor 3 times on 4 years. And the scope is substantially to share the upside that will emerge both in the performance and the scenario to our investors. We will provide all the details in the Capital Market Day at the end of March. Operator: So now we are looking for Alastair Syme at Citigroup. Alastair has disappeared off the list, apologies. We're going to move to Matt Lofting at JPMorgan. Matthew Lofting: Congratulations on the strength of execution throughout 2025. Just 2 quick questions from my side. First, coming back to the net debt and gearing targets. I wondered, you mentioned Asia and the JV earlier. I wondered whether there was any other accounting effects in those targets, including any allowance for a possible deconsolidation of Plenitude, which I know has been sort of talked about in the past. And then secondly, Eni is obviously one of the companies in the industry that's retained a presence in Venezuela. Do you have any thoughts at this point on the near and longer-term upside that could sit there for you in the country and how you'd sort of think about ranking that within the range of portfolio opportunities that you have from a capital allocation and risk reward perspective? Claudio Descalzi: Thank you. So Francesco, look after gearing, and I look after Venezuela. Francesco Gattei: Okay. Clearly, about the gearing target that we provide you is, let's say, an effect of a number of actions and levers. As we said before, there is a strong operational performance, cash flow improvement, CapEx efficiency. And clearly, the satellite model that helps to, let's say, transform this potential contribution in terms of growth in stand-alone companies or entities that will be able by themselves to provide the debt. We are studying different solutions. You were referring to Plenitude, but clearly, we are working on different concepts and potentially this could be, but it's something that will be eventually disclosed at the proper time. Claudio Descalzi: Venezuela, what I can say that, for sure, is an upside for us, an upside from several point of view, not just 1, 2, maybe 3 upside, different kind of upside. The first one that through the general licenses, #50 that has been issued a few days before, 1 week, I think, we can recover our gas. So Venezuela can pay through using crude, the gas that we deliver to the domestic market. So that is already a big upside before we were stuck for almost 1 year. And that creates a very buildup of our outstanding. So now that is done. Then there is a second upside. We have blocks, we have oil. We are in one of the best block in the Orinoco belt. We are also offshore with Corocoro. And that possible additional development can use to recover the past cost or the past outstanding that's around EUR 3 billion. And that is another upside. So for sure, we are working with some American companies to see if we are creating a joint venture to develop this field are producing. But clearly, they can grow our production quite quickly, and that is a possible upside. And the third upside is gas. Gas is something that is needed. You have to consider that U.S. have to increase or deliver additional EUR 20 billion or more EUR 20 billion in 1 year -- less than 1 year because with the sanction on the LNG gas and Russian gas, we need to compensate this EUR 20 billion. So you asked to -- they have to increase. But U.S. need also gas in domestic market. So the gas that we discovered about 20 Tcf in Perla with additional prospects that are really located in the right position, not just to deliver domestic gas, but also to export to Europe is a third opportunity. And clearly, these are in line with what President Trump wants. I mean, develop the oil and gas in Venezuela -- for Venezuela first, but also to create a different kind of environment in the region. So I see that very positively. Operator: So we'll move to Martijn Rats at Morgan Stanley. Martijn? Martijn Rats: Yes. To be honest, most of my question has largely been asked, but I've got one left. There have been a couple of articles saying that you're interested in sort of revitalizing some of the oil trading business within E&I and including some partnerships with some other firms. I was wondering if you could provide some color around that issue, what your thoughts are in that area. Guido Brusco: We've started a journey to improve our trading and extract more value from this segment of the business. And we've -- first of all, we've created one single organization. So we have put under one umbrella all the trading arms of the company all along the value chain to extract all the margins. That's the number one. Number two, we have changed also some of our approaches to the risk. We are becoming a little bit more -- a little bit less risk adverse. And number three, we are, of course, looking at different way to do business. And in doing that, of course, we have started a dialogue with some international trading players in the recent months. Operator: We are going to move to Massimo Bonisoli at Equita. Massimo Bonisoli: My 2 questions. One on CapEx. Net M&A was around EUR 4 billion in 2025, roughly EUR 2 billion above the initial guidance with EUR 2 billion target also for 2026, does this implicitly rise your opportunities over the 4-year plan? So I'm curious to understand if you have more options in your portfolio than 1 year ago? And the second question on biofuels. How do you see biofuels trading environment evolving in 2026, particularly in terms of margins and market balance between supply and demand? Claudio Descalzi: Yes. Thank you, Massimo. About the net CapEx and the portfolio effect, as you can see, we continue to upgrade our portfolio to leverage on our capability to execute and to explore and to have success for the dual exploration model to valorize as we have done so far, the business line that will be recognized as valuable through the transition. So there is a large list of opportunity. Remember, last year, we declared there was a risk amount and the result at the end in terms of value and the higher effect is the fact that clearly, we had a positive result at the end. So in terms of this year effect of EUR 2 billion, you can also already appreciate that we completed in early January the first disposal. It was the Ivory Coast top-up. And this is something that is already on our, let's say, results. And we are moving to additional progress or activity related in particular, Indonesia, 10% is a program that is ongoing and some other additional element. We continue to work, and you should expect as we had last year, eventually upside because we generally risk our overall portfolio program. Stefano Ballista: Yes. On biofuel, thanks for the question, Massimo. Biofuel, we see the development is absolutely constructive. We estimate biofuel demand in 2026 above EUR 20 million. This year, it's going to be around EUR 16 million, so a significant step-up. It's going to be driven mainly by Europe and U.S. Main reason for this demand growth is twofold. In Europe is the well-known Renewable Energy Directive #3. We quoted the Germany example even in previous call. I just want to add that on top of getting extra GHG reduction target and the ban of double counting, they are even asking to allow site investigation in countries -- foreign countries that are providing flows to Germany in order to be that flow accountable. And this is actually a positive evolvement for the supply-demand balance. So this is another good news. Talking about U.S., actually, just yesterday, the EPA said that within the end of March, they want to finalize the new renewable volume target. Expectation is to have a significant increase between 35% and 40% increase. We are seeing this already on the RIN prices. RIN prices improved by 40% from the beginning of the year. And this happened without an improvement in terms of RIN generation. So this means that in order to cope with the new EPA target, we need to have RIN generation improvement, and this is going to drive economic margins improvement itself. Last comment, this year, we saw a reduction, a destocking of the RIN banking. It's about EUR 0.5 billion destocking. And this is a turning point that revert the trends that we saw previous year when the RIN banking actually got exactly in the opposite direction with an increase of EUR 2 billion. We expect this trend to definitely move forward and to rebalancing the supply demands overall. Operator: We're going to move now to Mark Wilson at Jefferies. Mark, if you're online. Mark Wilson: Okay. You said earlier how the strategic path that has got you where you are in upstream is not one that you can start overnight, the exploration, the infrastructure, as you say, you've never stopped. Now you've also spoke to AI impacting exploration. And on the last call, you spoke to the technical hedge that floating LNG is giving you. So -- but my question is that it's impossible to have this kind of delivery alone. So I'd like to ask which third-party areas other than the ones already spoken to across your upstream partners or indeed oilfield service contractors, where has the greatest improvement been to assist your delivery? Is it drilling, reservoir characteristic, E&C cycle time, shipyards? Is it something else? That would be my question. Claudio Descalzi: Thank you for the question. It's very interesting. No, first of all, we are never alone in the life. I have a lot of colleagues with me in Eni, but we are not alone in terms of strategy. When other company outsourcing, we are in-sourcing, that means that we kept in our company all the main competencies. That started in the 2000 and so 2011, 2012, we decided to in-source. So we didn't follow the mainstream that say reduce cost and may your contractors as a main contractor, they do everything in Turkey. Now we want to take our end in each project. And that means that in the last, I think, 16, 17 years, we put our competencies and we increased our competencies in all the different segments of our business. I talked about E&P, not only. We increased the R&D investment. We opened up 7 R&D centers. We increased our R&D people [ 1,200 ] people. And we have in our end technology in drilling, reservoir or seismic and development, and we made a revolution in our time to market, the best we can say in time to market. So we are not alone, but we are alone in terms of the choices we made in the last 15 years. So I think that, that is the main reason. I don't know if we share this point, you want to say something else. I hope and I think... Guido Brusco: It couldn't be better. Operator: We're going to move to Paul Redman at BNP Paribas. Paul? Paul Redman: Just 2, please. First was you achieved EUR 4 billion of cash initiative benefit in 2025. I wanted to ask how much of that is roll or could roll over into 2026? And secondly, I know people have asked but kind of -- and it is early, seeing you've got a Capital Markets Day in a few weeks' time. But I wanted to ask about how you think about allocating to shareholder. You currently allocate based on a percent of cash flow from operations, but you've clearly paid above that percentage. And I think part of that has been driven by acceleration of divestments. So I wanted -- and this year, you're guiding EUR 2 billion of divestments. So I wanted to ask if you still believe that percentage of cash flow from operations is the appropriate way to allocate cash flow to shareholders. Claudio Descalzi: First of all, about the cash initiative, you have seen that we executed. I think that there is a lot of evidence through the results that we achieved that we started with EUR 2 billion, we raised to EUR 3 billion and then EUR 4 billion, and we performed. Most of that are one-off factors that doesn't mean that they will be reverted, but actually will be rolling. So we are executing our cash management in a different way than before, optimizing the time to market of this cash needs, and there were a lot of opportunity. We continue to study because I believe that generally in managing a huge amount of cash in a company's Eni, there is still a lot of pockets or upside that are -- have to be discovered. It is a sort of treasury search that we look for. So we do expect something also, but this is probably we have to wait a bit, 3 weeks for additional disclosure. On the cash flow from operation reference, the idea of having cash flow from operation as a starting point for distribution is because we want to put the shareholders at the top of our priority. So the first line of cash flow is the cash flow from operation, pre-working capital. And clearly, there is all the other factors that come later. So the free cash flow could be another way to distribute. Clearly, you have to change the percentage because you are speaking about different absolute figures. But at the end of the day, the logic of having cash flow from operation is giving the reference in terms of priority versus the distribution line. We will see again also in the next Capital Market Day, what will be the announcement and what will be eventually the percentage that we allocate. Operator: And we're going to go to the last question. We found Alastair. Al, you around. Al at Citigroup. Alastair Syme: Yes. So the question I had was really on -- well, I mean, there's been a lot of commentary in Italy and across the European Union about the European carbon scheme, the ETS. And you have a foot in several camps here, you're a carbon emitter, you're a power generator, you've got a CCS business. So can you give us a sense of where you think the political discussion is and what, if any, changes you would like to see? And if I could poke in a second question. Do you have any update on the well you're drilling offshore, Libya? Guido Brusco: Yes. Libya offshore, we are currently drilling one exploration well, and we'll announce results when they become available, of course. Claudio Descalzi: I think that we are very ready to talk about drilling reservoir explorations and all we want. But on ETS, honestly, we cannot give you a lot of light is the tax we pay. I don't know. Honestly, there is a big debate today because in Europe, the industry is suffering a lot. It's not growing. In the contrary, they are squeezing the industry in Europe with all the different kind of taxes and green deals that impacted negatively all the kind of industry. ETS is one of these taxes. And Europe is the only country that apply these taxes at a very high level. So when we talk at competition with the rest of the world, it's not easy to compete one and the other and not really applying the same kind of rules. So that's what I can say, but I [ do ] not want to enter any political debate. It's not our business. I prefer to increase production and get good results for my company instead to cry about taxes I'm paying. Thank you. Alastair Syme: Claudia, can I ask, does it make you think differently about putting capital on the CCS business given that there is a potential that the legislation could change? Claudio Descalzi: No, I think that change has been made already have been in taxonomy and they've been accepted at least. At the moment, in Holland, especially in U.K. and now in Italy, so we have at least 3 countries where the CCS can be developed. In U.K., they made a big, I think, effort for the future. And for that reason, they -- now the investment has started and also the project has been sanctioned. In Holland, I think that is going to follow. And Italy, we are very close to have a new law, but we have a huge amount of potential to be explored and we constitute the company. We already got interest from investors, and we have already an investor with us in the company. So I'm positive and Europe after years, now they accepted this important tool to reduce CO2 emissions. And clearly, the CCS is the counterpart of the ETS because the CC, so the capture now has not matched yet, but now with the ETS that is close to EUR 90 or between EUR 80 and EUR 90 per tonne, I think that the CCS based on the existing assets, not on new development, is very good from an economic point of view. It's very positive. Operator: Thanks, Claudio. Thanks, Al. That brings us to the end of the call. Thank you very much for your attention, both today and through 2025. And we look forward to speaking to you all in greater detail on the new strategy and plan or the strategy and the new plan on the 19th of March. So we'll see you all then. Thank you very much.
Guy Featherstone: Okay. Good morning, everyone. I'm Guy Featherstone, Investor Relations. Before we start, I'd like to remind you that any forward-looking statements or projections made by Hikma during this call are made in good faith based on information currently available and are subject to risks and uncertainties that may cause actual results to differ materially from those projected. For further information, please see the Principal Risks and Uncertainties section in Hikma's annual report. Thank you for joining this Q&A meeting for Hikma's 2025 full year results. Our pre-recorded presentation is available on our website, and this will be a Q&A session. We're joined today by Said Darwazah, CEO; Mazen Darwazah, Executive Vice Chairman and Deputy CEO; Khalid Nabilsi, Deputy CEO, North America and Europe; Hafrun Fridriksdottir, President, U.S. and Global Head of R&D. We're also joined by Jon Kafer, who heads up the U.S. Injectables Commercial Business. And we have Areb Kurdi recently appointed acting CFO; and Susan Ringdal, Investor Relations, also in the room. And with that, I will hand over to Said. Said Darwazah: Thank you very much, and good morning, everybody, and to my old friends, hello again. The decision for me to take over as CEO again was not really a very easy decision, giving up the beach and the sun and the good life was difficult. But I really felt very strongly compelled to do this, okay? I remember before we IPO-ed, we were discussing the ideas of IPOing and not IPOing and my father saying my worry is that one day, the team we lose sight of the long term and start looking at short-term and short-term wins. This is the only thing that I'm worried about. And frankly, in many ways, this is what happened. I think the company had sort of started looking at short-term wins and fixation on modules of the injectable and so on and really lost track. So that's why I felt very, very strongly about coming back again. And as you know also, I had to -- I decided to give up the Chair position to concentrate 100% for the next 2 years on the CEO role. I want to also remind you that last time when I came in, we had a similar situation with Rx business, the generic business was also doing not very well when I had to step in back again. And for a long -- for a period of a year or so, everybody was on us saying get rid of this division, it's weighing you down. Why are you keeping it? But we said we will do what's required. We set reasonable targets of GBP 100 million to GBP 130 million in EBIT, and we said we will fix it. And here we are, a few years later, we're looking at that business, and it has margins of close to 20% and EBIT of GBP 200 million or so. So we've done this before. And we feel -- I feel, we feel that we know exactly what needs to be done. It really is not a complicated formula. It's a simple formula. You need to do the right investments. You need to get the right people, the right talent, and take quick decisions. So as I've said this morning, my focus is very clear. So number one, you want stability. We want this 2 years where people can relax and focus on what is required for them rather than worry who is going to come in and what's going to happen. So we're reassuring our people, our stakeholders, our investors. This is -- Hikma is a very, very strong company, and we have a slide that shows the CAGR of the last 5-year growth. This company has consistently delivered growth and quite good growth. Also, I'd like to remind you all that we have EBITDA margins of 25% while many of our competitors are striving to get to 22%. The second thing is agility. We want to implement a structure of quick decision-making and to allow people across the Board to take these decisions. We don't want the decision-making to be centralized with one or a few people or the executive committee. Rather, we need to empower people across the Board to take decisions. I've always said companies that empower their youngsters, their under 40 crowd are the ones that will be here tomorrow, those that do not will disappear. So we'll be focusing on empowering everybody across the business so that we take these decisions. And the investment, we have to accelerate the investment. We have to take the investments that we need to do. So one of the first things we've done is we've taken the R&D budget out of the segment. So the segment heads cannot play with R&D budget to achieve their targets. It's now a corporate decision. We have a budget for it, which is an aggressive budget. We have spent last year building the team. As you remember, we acquired a great team in Croatia. Hafrun joined the company 2 years ago now and Hafrun has a long, long track record in R&D, and she is directly in charge of the R&D team. So the other things we need to do is hire the right people. Again, Jon took over as Commercial Head of North America or U.S. injectables and immediately said we need to hire so many people. Well, what are you doing? We need to -- somebody said, Jon, go ahead and do it, and he has already hired so many people and added to the team. We also hired a supply chain. We have now a fantastic supply chain team in place that will be working to make sure that we don't have bottlenecks across the group. And we are still looking to hire some more people like ahead of CMO. We are interviewing now. We want to hire somebody that has a lot of experience in CMO because we feel very strongly that Hikma is well primed to be a major CMO supplier. And finally, what I started by saying the fear of my father when we went IPO-ed, long-term growth, focus on the long term, and that's what we are doing now. We are focused on the long term. We are doing the right investments. We are adding, as we said, the R&D budget is much higher than it was before. I think we're targeting 5% to 6% now to spend on R&D. Hiring the right people. Giving the plant managers the decision to buy the right equipment when they needed, not waiting for central engineering to come before they can buy that. So all these changes that we are taking, all these changes we are implementing, I think, will be excellent for the future. Then I think we have to look at the structure that we are saying, why this new structure? Some people have said it looks too complex. In my opinion, for me at least and for the team, it's a very simple structure. The MENA team is a fantastic team, strong team that has been doing an excellent job for the last 40 years. Hikma this year was #1 company in MENA among all companies, this is a big deal. And it's the MENA team that has delivered this. Mazen and his team have been doing this. So it was a no-brainer that the injectables and the MENA report to them instead of being a distraction for the whole team. And then Europe and, let's say, North America, U.S.A., they share many plants, and they share the products. So although doing businesses in Europe is different, but it's the same products and the same manufacturing teams. Khalid has been with us for quite some time now, and he has shown to be doing a great job. He understands this business, and we believe that it was time for him to step up and take a strong P&L position. I am very comfortable that he will do a great job. And Hafrun since she joined the company, has just [indiscernible] us all. She has done such an incredible job with Rx, such an incredible job with the R&D team and hiring the right people and getting the right things in place and at some point, we will be sharing a clear R&D strategy for everybody. We are more than comfortable that with the help of Jon and his team and the Rx team that has already proven to be an extremely effective team, we are very confident that this is the right way to go. So we believe it's an extremely good company. We're in a very good position. We have a strong track record, a very strong record of growth. We will be investing heavily in the next 2 years. And we know that we will go back to the -- moving forward, we will go back to much stronger growth than what we have shown. Although what we have done is still quite good. We believe that we will do much better than that. James Gordon: It's James Gordon from Barclays. Maybe first question, just on the organizational structure you mentioned, and I do follow the logic about having people in each geography running the geography. But then at least your reporting, I believe, is still injectables, Rx and branded. So might you actually just change the company and make it by the 3 geographies rather than the 3 types of division. Because ultimately, who is ultimately responsible for injectables now because it seems like lots of people have got responsibilities is the first question, maybe if I break them up. Said Darwazah: Well, we said that for this year and maybe for the foreseeable future, we'll continue to report the injectable results because we didn't want to say, why are you running away from that? But reality from a management point of view, when you look at Europe and the U.S.A., it's 90% of the injectable business. And as I said, it is very different from the MENA injectables. The MENA injectables, there's a lot of products that are in-licensed and brought up from outside while the U.S. is much more focused than Europe on manufacturing. So Khalid, Hafrun, obviously, but ultimately Khalid is in charge of the U.S. and Europe and will be in charge. And of course, myself, I will be working very, very closely with them. So I think this gives us the opportunity to really focus on the business rather than -- I think just forget the tail end, which is the MENA injectables. And as I said, I'm very comfortable that the MENA team will do a much better job than before. So the bulk of the business now, there is a clear focus on it. And we will be reporting geographically as well as segmentally for the foreseeable future. James Gordon: Maybe just the second question would be, so what is the outlook now for injectables as in what's going to make it grow faster? And is the idea that now you've reset the margin to the level of this year, but you'd have a similar growth rate on the top line as you were previously hoping for? Said Darwazah: First of all, as we said, the amount -- the budget for the R&D is much bigger than it was the year before. So actually, if R&D growth was similar to the years before, then the results will be much better. But we said, no, we have to do this. We have to take this decision now. We have to invest. So again, it's investing. There's really -- it's not -- you have to invest in the right people. And as I said, we have hired many, many people and there's still more to come. The R&D team, and we will be sharing more about R&D moving forward. And we believe that Hikma is extremely well positioned for CMO business. And we are in the process of recruiting a Head of CMO in addition to the CMO team we have. So all these things will be working together to achieve, let me say, growth in the midterm to long term for the injectables. Khalid Nabilsi: So James, just on the outlook for the injectable business. We know that this is not something that we would like to be growing. It's we have challenges at '25, and this is something that we know that and '26. There are different reasons for this. It's -- as I said in my presentation, is reduced CMO. One of our main customers want to do a domestic manufacturing in the U.S. So we have a reduced contribution from that. This is something that we cannot offer until we have Xellia up and running in 2028. We are less optimistic on, let's say, the biosimilar that we have, although it's a very small part of our business and liraglutide. And one of the product launches -- main product launches has been pushed. So of course, going forward, we are going to go back to return to very good growth for the injectable on top line and in terms of the EBIT. So any company, any business goes into challenges, '25, '26 was a challenging year. I think from here, from '27, we are going to see a different outlook for the injectable business, as we used to see in the past. Susan Ringdal: And just some examples. So of course, TYZAVAN is an important product for us. That will drive some of the growth that we achieved this year, but we expect that to do even better in 2027. So that will be an important growth driver. Some of the products that we expected to launch this year push to next year. So that will be, again, another growth driver for '27. We've got, of course, continued expansion in Europe. That's been an important growth driver for us. That will continue. MENA has been also a good business. We signed 6 new biosimilars in MENA. So there is -- there are a lot of opportunities to grow, but I think as Khalid said, this is sort of a reset. Said Darwazah: So the challenge is, obviously, as you right point out with the injectables and what we're doing with it. But I'd also like to remind everybody, this is a much bigger company than just the injectables, right? We have 3 very strong divisions. Two of them that are doing extremely well. The MENA is growing at a very fast rate with very good margins. And the Rx as I said, has done much better than anybody anticipated 2 years ago, if I told you we'd be doing 20% margins and this kind of EBITDA, people -- why did we keep on pushing you to sell it? So we -- there will be a lot of focus. There will be a lot of investment and we feel very, very strongly that in the medium to long term, this business will -- it is already, in my opinion, one of the best businesses. If you compare our margins to our competitors yesterday who upgraded from 18% to 19%. We are way ahead of them. Again, other competitors saying we want to be at 22% EBITDA, we are at 25% EBITDA. So this is a very good business. It's driven by 3 engines. And as we said, the focus is on long-term cost and total profitability growth in earnings per share rather than just focus on -- keep on focusing. And I think this is what really hurt us the last few years. The over focus on the margins of the injectables where people are saying, don't sell anything less than 32, don't accept anything. If I can get $300 million worth of orders opportunity and 28%, I shouldn't take them. Of course, we need. So that's why the focus will be on top line growth and bottom line growth rather than margin. Hafrun Fridriksdottir: If I may add a little bit about that, how we are going to grow the injectable business moving forward. I don't know if you had the opportunity to listen to our presentation this morning. But I mean we talked -- at least talked a lot about the ready-to-use platform. And even though, of course, the first product is TYZAVAN, as Susan mentioned, but we have multiple others in the pipeline and -- but those products that will be launched probably in early '28. So do you not see short-term, I mean, growth because of those products, but we have multiple products in the pipeline and I talked about, I think, 15 ready-to-use product in our pipeline. And so of course, moving forward, we will see the revenue and we will see the growth from this platform, which I'm very excited about. So I just to revisit, I think it's a really good business. Zain Ebrahim: Zain Ebrahim, JPMorgan. So the first question would just be a follow-up on the previous answer in terms of what you described on the CMO challenges from one of your customers wanting to switch the manufacturing from Europe to the U.S. So how do you see that risk going forward for the rest of the injectables CMO business? And just broadly, how do you see outlook for CMO overall from here, I know you've got the -- there's the small molecule contract in Rx contributing this year, ramping next year. So just to remind us how you're seeing that outlook? Said Darwazah: Well, the first thing we did, we looked at our plants in the U.S.A., for instance, we looked at the Cherry Hill plant. And see -- so what were the bottlenecks, what was needed. Many times, it's a small thing that you need to do to increase capacity. So working on increasing capacity significantly at Cherry Hill and that will help us with the CMO business as more and more companies want to manufacture in the U.S.A. Of course, we'll talk about the Rx later CMO because they already have a lot of orders in business. And then we acquired the Bedford site specifically for this. And it's a big site. It has a lot of equipment in it. It needs to be reengineered in a more modern way. We're working on that diligently, sometimes new lines take a bit long to get -- you need to order them it takes 1.5 years to 2 years for the lines to be again. After they come in, you have to install, qualify and get FDA approval. So it's a bit of a long process, long-winded. That's why we're guiding to '28. But with most of the CMO, the big business you get the order and the expectation as you deliver 2 to 3 years down the road. They don't expect to deliver tomorrow because it's a process of moving products and so on. So that's why we feel very strongly about hiring ahead of CMO, somebody that has already strong experience, has well good knowledge of the industry and has good contacts with the companies that want to have CMO business. So we're very confident like in '28 and forward for the injectables will have a very strong CMO business. For now, we will be showing that the Rx already has very strong CMO business. So overall, it will become a quite significant part of our business, let's say, 3 years down the road. Zain Ebrahim: Very helpful. And second question is on R&D. So an increase of 5% to 6% of group sales. Are you now comfortable with that as a ratio in terms of thinking about that level going forward? And I... Said Darwazah: You ask me or you ask her? If you ask her, she says, no, we need more. If you ask me, it's enough. Zain Ebrahim: And when do we say pay off from those investments? Because I know you mentioned '28 for the ready-to-use but you started something increase in R&D last year. So just to... Hafrun Fridriksdottir: Yes, of course, we slightly increased the investment in R&D last year, but that was I mean, really a slight increase. But we also reorganized R&D organization. So now we have a global R&D organization. And we also moved activity from U.S. into Croatia. So of course, that is clearly helping significantly on the injectable business, but we also have a very strong team focusing on inhalation, semisolid and liquids in Columbus in Ohio and then, of course, our team in Jordan is focusing on solid oral. So I strongly believe that we have the right team in place. Would always like more money for R&D, yes, of course, I would, so Said is correct there, but I feel very confident with 5% to 6% of the revenue in spent of R&D. I think that's just in line with what our competitors are doing. Khalid Nabilsi: And we are going to see these returns coming into the coming years. Some of it will come in '27, some of it to come in '28 or '29 onwards. Hafrun Fridriksdottir: Yes. Of course. R&D takes time, everyone knows that. Beatrice Fairbairn: Beatrice Fairbairn at Berenberg. You discussed the focus on long-term growth. I mean one of the targets out there is this kind of GBP 5 billion 2030 revenue target. My question really was does it still stand? And would you be able to give some color in terms of what is needed to get there and how that looks like over the coming years? And then just on your delay systems timing of some of the product launches and injectables, do you feel like the new time line that you've got are realistic and kind of how confident you that you're going to be able to launch these products on time. Said Darwazah: Why don't you take this first part about the GBP 5 billion? Susan Ringdal: Yes. So the GBP 5 billion, when we set the GBP 5 billion target, we said that this was -- it was an aspirational target, but we felt that it was very achievable with the business plan that we had and our business model, which has been to do bolt-on acquisitions as a matter, of course. So we still do feel comfortable that GBP 5 billion is within reach. It is -- we have -- we definitely see an acceleration of growth after 2026. And I think today, it would require a bit of inorganic growth, but yes, it is very much within the reach. Khalid Nabilsi: [indiscernible] organic growth. It's not like we are talking about transformation, like more of a product acquisition. So we are very close to the aspirational target of GBP 5 billion. And if you look into the 3 businesses, like the branded is delivering very good growth and acceleration. If you look into the past, it was 5%, 6%. Today, we are guiding more at 7% to 8%. This is driving growth, high-value products that we are getting into the MENA region. If you look into the number of licensing deals that we've been signing over the past 5 years has increased significantly. And now we are becoming more and more the partner of choice. So this is going to be a key driver. Rx has grown with the CMO business. We are going to see more contribution coming in '27, '28, '29. So this is as well going to drive the growth. And injectable, of course, with all these RTUs and the products that we are working on, it's going to accelerate the growth for the injectable business. Remember, the injectable business has a large portfolio. So there will be always opportunities. There will always be shortages. Europe, we are seeing a very good growth. Great potential, especially that the market is lacking products. So we are being the, I would say, most reliable hospital supplier in Europe now. All hospitals are coming to us and governments coming to us, say, we want this product. The agility that we have in Europe, providing the products on time is differentiating us versus others. And this is why we've seen 23% growth this year in the injectable in Europe. Same for MENA. It's not just like the 6 biosimilar. We have many products that we have that we are going to launch in MENA for biosimilars. So this is going to be the growth driver and we are very confident of our ability to continue growing the business. As said, '25, '26 might look challenging for the business, but this is a business cycle. But from here, we are going to continue growing. Said Darwazah: The short answer is yes, the GBP 5 billion is very achievable. We are extremely confident in our '26 guidance. And yes, the injectable launches that we'll be seeing in '28 and further will deliver the kind of growth that we need to be there. Victor Floch: Victor Floch, BNP Paribas. Maybe just 1 question on Rx. That one seems to be -- to go pretty well. And it looks like you have like even some room in terms of margin. You've been investing even like more than what you're using -- actively investing for injectables. So can you discuss like the different moving parts this year? I mean the base business, I mean, I think there might be some competition on certain products. On the other -- on the flip side, you have some service payment from your CMO partner. And are you expecting at some point to be able to update the market on was that CMO? What kind of -- what is the product? And what are the economics behind that? I mean, just have a bit more visibility on the CMO because it's a huge moving plant for Rx for sure. Hafrun Fridriksdottir: Yes. So this year, the revenue from the CMO business will probably be around 10% of our business, but our target in 2030 is up to 20%, at least my target. So we are not going to share the name of our customers, but we are working with not only 1 big customer, but actually multiple and some of them were talking about contracts which have not been signed but are in negotiation phase and we will be signing within the next, let's say, next few months. So that's going very well. And you also asked about the base business. For example, a product like Advil has been doing very well last year, and we expect the same this year. Fluticasone, we are the biggest volume driver in U.S. for fluticasone, as an example or for nasals, so -- and that is a business which continues to do very well. And all our base business has been doing really well last year, and we haven't really seen any change at least for the first 2 months of the year. So it's quite -- it's more stable than maybe most people believe it is. Susan Ringdal: And I can just remind people that we have Jon who's the Commercial Head of Injectables on the line; and Mazen, Deputy CEO for MENA. So don't hesitate to address questions to them as well. Hafrun Fridriksdottir: Certainly for Jon. You should really ask him questions now because he woke up very early for you. Christian Glennie: Christian Glennie, Stifel. Again, not to belabor the point, but on injectables and the margin, just to be clear around it's been quite a dramatic shift, right, from mid-30s to high 20s now. There isn't something sort of -- well, combination, one is you talked about the extra investments needed implication potentially maybe that you were underinvested before to some extent. So the margin was sort of where it was at -- and/or is that fair? And then the second part is, is there something more structural around the market from a sort of pricing and competition issue that means margin has -- the direction of travel has gone. Said Darwazah: Okay. So first one, as I said, I mean, clearly, we said we're taking the R&D budgets out of the divisions and putting as a corporate. So clearly indicating that at some point, division heads were sort of reducing R&D expenditure to get higher margins. So by taking that out and having it as a corporate with a fixed number that we agree on, I think that will -- there will be lower margins a little bit to start with. But we are very confident that with the investments they are making in R&D, the new pipeline, the expansion in the manufacturing and the CMO that we will be achieving higher margins mid- to long-term. Okay. The second question was? Christian Glennie: Structural something in the market because you've got [indiscernible]. Said Darwazah: There's always competition. There's always people coming in. You lose a few products. We lost 2 or 3 products that not lost. We have competition coming in 2 or 3 products that we're doing extremely well. And that's why when you have such a well-diversified portfolio and you have so many products, other products can pick up and the new launches can pick up. So the market has always been competitive. It's always been competition is coming in. Do we feel that there's more competition in some areas, yes, in some areas, no. But we are confident that with all the changes we're making, we are fine. Khalid Nabilsi: It's not like structural change in the market. It's the pricing is around, let's say, if we exclude the 2 top products that we have, it's 4% or almost less. So low to mid-single digit plus erosion that we've seen in this business. So nothing is abnormal. Hafrun Fridriksdottir: And maybe if I may add. So I think over the last few years, the supply from third party has increased significantly. And third party, of course, is not as profitable as if you're making the product internally. So I think it has been going from 20% to 30% over the last few years. So that's, of course, affecting the profitability. But also, I mean, there are different part of the business, which has higher profit than other parts. Of course, while you are building the business -- injectable business in MENA, which is less profitable than the business in U.S. and in Europe, of course, that will affect the overall injectable profitability, and that business has clearly been growing as well. So those are at least 2 reasons in addition to... Khalid Nabilsi: If you exclude the MENA margins, both for the Europe and North America injectable business, the margin is not 30%. Christian Glennie: Maybe the natural follow-up, I know you're probably reluctant to guide beyond kind of '26, but just to get a sense for that margin and is '27 to '28 the floor? And then maybe that's similar until you really get into Xellia and then margins to improve? Or is this... Said Darwazah: And again, we're saying we're very comfortable that '28 and further margins improve. I think once we assess everything and we have the plan, the right plan in place. Are we going to be giving... Khalid Nabilsi: May I take this one. In a way we'll be guided to '27, '28. And I said in my presentation this morning, you can assume this is for the coming few years, but it's not like if we have an opportunity that is top 30, we are going to say no to it. So we don't want to be strictly held on these margins because we are going to focus on growing the profits and the EPS rather than just focusing on the margin, as I mentioned. So you can't consider like this '27 or '28 to the next 3 years. But what has changed, just repeating to what I said earlier this morning. From the November, when we said the floor is 30% is literally increased investments in R&D. We are increasing GBP 15 million this year versus last year in injectable. You look into the investments that we are having, as I mentioned, fitting in sales and marketing, so -- and the CMO. This is why we are going down like 2 to 3 percentage points. It's not something structural in the business, but it's more investing for the future. Guy Featherstone: Just going to jump to the line for a quick question. Operator: [Operator Instructions] Our first question comes from the line of Kane Slutzkin of Deutsche Bank -- Deutsche Numis. Kane Slutzkin: Just -- sorry, could you just clarify, I missed the last point on the higher R&D in injectables. But could you just sort of clarify sort of lower guide as sort of those moving factors between higher R&D versus the lower CMO work like in terms of which has moved the needle more there? I assume it's the R&D, but if you could just clarify that. And then just -- you're obviously spending some time doing the strategic review. I'm just wondering at what point do you think you will be able to sort of reinstate a midterm or a new midterm guide? And then just finally, on the buyback, just I guess, why has it sort of taken so long to do it? And could we see a more permanent feature going forward if shares sort of remain where they are? Hafrun Fridriksdottir: I think I can maybe take the R&D question. If I could hear him correctly. I think he was asking for the spending for R&D and the overall increase in spending for R&D this year compared to last year is around $45 million year-over-year. I think that was your question, but I'm not really. Guy Featherstone: Kane, could you just repeat your last question? Kane Slutzkin: Yes, I was just wondering sort of in that lower guide, how much of it is sort of the lower CMO work you referred to versus R&D in terms of what's impacting the guide down? Guy Featherstone: Injectables margin guide, how much is CMO versus [indiscernible]. Susan Ringdal: I think, Kane, it's more evenly split across R&D, sales and marketing and CMO. I would say those are the 3 biggest factors there of more or less the same magnitude. Said Darwazah: And the buyback, I agree with you, is taking too long, but we have taken the decision to do that GBP 250 million this year. Susan Ringdal: In terms of the medium-term guide, I think we'll get back to you on that. We know that it's important for the market. We want to get it right. And so yes, I think we'll come back to you. Operator: Thank you. There are no further questions. I'd now like to hand the call back to the Hikma team. Unknown Analyst: Julie Simmons, Panmure Liberum. Just on a more product-specific basis. I'm wondering with TYZAVAN. Clearly, you've just launched it. It feels like the sort of momentum is pushed out a little bit to '27. Are you noticing anything from the first sales in the market there? Unknown Executive: This is Jon. Said Darwazah: You're on mute Jon. Unknown Executive: No, I am not on mute. Okay, great. Good morning, everybody. So we are an active launch mode for TYZAVAN. Let me just frame the market because this is important to understand because the RTU bag platform will follow a similar pattern. Vancomycin is a widely used product within the U.S., there's about 41 million grams of the product used in multiple forms from a very lyophilized powder to a frozen bag to obviously our ready-to-use bag. What we are selling is a system and a process change, which in large hospital systems and large hospital groups that by default, TYZAVAN would become the vancomycin of choice. So it is really more of a process change. Now to put it in perspective, we have already converted 13% of the entire gram market with our existing vancomycin ready-to-use bag. So we have a platform. We will expand that. Within that network, there's about 22,000 sites of care that use vancomycin within the U.S., all forms, long-term care, hospitals and such. Our existing customer base on the existing bag product represents about 15% of those sites. So there is a very large universe of hospitals and health systems that have not used our historical bag. So there is a large opportunity there. So you have to think in terms of it as a process progression. So we're going to expand our existing base by expanding the usage of the product without restriction, and then we're also penetrating the customer bases that have been -- that have not used our bag in the past. So yes, this is going to be a progression into the back half of the year. But the momentum that we're seeing right now is very active and very encouraging. Unknown Analyst: And just following up on that from a sort of RTU perspective longer term. Do you think once a site has switched over to 1 RTU, it makes it easier to switching to another for a different product? Unknown Executive: Yes. And that's exactly why the way we're approaching this first one is extremely important. We want to make sure we have the processes in place. Hospitals and groups, they have to reprogram medical -- electronic medical record systems, infusion pumps, SOPs, ordering patterns, storage platforms because you're bringing in a new form. So as we work with TYZAVAN as the foundational product, we want to make sure we fully integrate it properly. And I do believe that, that will help us going forward with the additional bags as they come to market. Charlie Haywood: Charlie Haywood, Bank of America. First one is just in our models, would it be reasonable to assume that a I guess, at this stage, mid -- 30% midterm injectable margin is off the table, given focus on profitable growth. And then I'll get to the second one in a sec. Susan Ringdal: Yes. Charlie Haywood: Okay. And then the second one is just on the midterm guide, which obviously since giving you, we've seen 2 cuts too. So first is, I guess, talk through the decision to issue the midterm guide if there were some underlying concerns on the spending, the short-term focus to give that? And then secondly, sort of how can you reassure us and the market that this is sort of the last of the big cuts and we're back to something profitable. We can be returning some in growth from here. Said Darwazah: Again, as I said before, it's not a complicated formula. You do -- you have the right people. You have the right equipment, you have the right facilities, you have the right R&D. All of these things, when you invest properly, you take timely decisions to take -- to move the business forward. This is a formula for success, and we've got this formula for 40 years. So we sort of slowed down decision-making. It became too centralized. We were not investing properly in the right places, and now we're reversing that. So that's why we feel very confident that midterm, we will deliver what we're talking about. Khalid Nabilsi: And this is why, as well, '27 is going to be a year where we -- '27 is going to be as well a year that we'll see a growth. So it's the bottom on the injectable. And from here, we are going to grow the top line and in bottom line. In addition to the other 2 businesses, they continue to grow, as I said earlier. Charlie Haywood: Just a third one if I may. You talked to obviously heavy investment in the next 2 years. How confident are you that this is a 2-year journey of heavy investment, and that won't spill into 3 or 4 as the investments start continuing? Said Darwazah: The investment is -- it's not a short term. It will continue to be, but we will see that -- we'll start seeing the results of what we're doing now, 3 years down the road and will it further, but when we look at our 5-year CapEx, our 5-year R&D orders, all this will continue to grow. Khalid Nabilsi: Maybe just to add to what Said just mentioned. In terms of the R&D, it takes time to see results, as Hafrun said, in terms of sales and marketing, these are quick wins. So you invest today, it's not like going to take so much time till you get the returns. And this is what Jon is focusing on. So you will have these investments and at the same time, give you an example on the supply chain, having somebody now focusing on the global supply chain would reduce our inventory levels will reduce the slow-moving items, which it was very big this year, failure to supply, so the immediate impact will be significant improvement to margins. So this is why we are saying that we are moving in the right direction. And I think the results of this will come in the coming years, and we are confident about our medium-term outlook. Unknown Analyst: Christopher Richardson from Jefferies. A couple if I may. You lowered CDMO or CMO expectations, sorry, for the year as some customers require domestic production, which you said you can't offer. I was just wondering if there are any reasons for that. Khalid Nabilsi: It's -- as we said, in Xellia, our Bedford acquisition is going to be up and running towards 2028. So it's the same machinery, the same lines. It's replicate to what we have in Portugal. Now we couldn't offer because we don't have that facility up and running. So once we have that facility up and running, towards the end of '27, early '28, we'll be able to offer. Said Darwazah: And as I said, again, the Cherry Hill plant and the other plants we looked at optimizing the capacity there looking at the bottlenecks, bringing in the lines that are required to up the manufacturing capacity. Hafrun Fridriksdottir: And if I can add something about the Rx business because we are only talking about injectables and as I mentioned, I mean, we have this huge, I mean, of course, manufacturing site in Ohio, both for solid orals, for nasals, for inhalations. And that site has been getting a lot of attraction over the last year or so since all this discussion about domestic manufacturing started to happen in U.S. So there's a lot of interest in us in producing products for different clients. So I think this is going to be a big opportunity for us moving forward, both in the Rx and also in the injectable business. Said Darwazah: Many times clients come in, let's say, for the solid oil, then they feel you're very comfortable with you and they open up and move injectables and other things to for you. Unknown Analyst: Great. And just the guide cut in November was due to equipment delays. I was just wondering what the situation is now and what caused you to walk away from '27 and whether the timing for Bedford has changed at all? Khalid Nabilsi: There's no change to the guide that we had in late November. So all what we said that we are going to ramp up -- start ramping up towards the end of '27 and the commercialization will start '28. So no change to our plans. Unknown Analyst: Great. And maybe just a quick follow-on. I was wondering if you could comment on the oral generics pipeline and the margins in U.S. Rx excluding any Xyrem impact. Hafrun Fridriksdottir: Excluding, sorry? Unknown Analyst: The impact of Xyrem? Hafrun Fridriksdottir: Sodium oxybate. Okay. So last year, sodium oxybate was dragging down our profitability so the rest of the business was actually compensating for the low profit of that product. We managed to negotiate a better deal, at least for this year and for next year. So we will have slightly better profit on that product. But -- so it will not be dragging down the overall profit for the Rx business. Is it helping this year? It potentially will. Said Darwazah: Zain, some more. Zain Ebrahim: Zain Ebrahim from JPMorgan. Thanks for the follow-up. So on CMO, you mentioned you're looking for a new head of CMO. So just the characteristics you're looking for in the Head of CMO in terms of the type of -- the kind of the profile that you're looking at and when we could expect the appointment? And does this mark a potential shift to making CMO like a fourth division that we source also about in the past in terms of strategically. So integrating the Rx and injectable team. Said Darwazah: Historically, we used to the CMO as a fill-up. So we focus -- this is extra capacity, let's get products to fill it up. And then when we were approached or we found a client to come in and use the Rx side it was more of a long-term agreement. So long-term agreements require dedicated facilities, they require dedicated lines and sometimes dedicated teams, and it's a lot of investment to do that. And it takes time to come in and -- but it's a long term. So this is the right -- this is what we want to do, not just bringing in short-term fixes. So to do that, you need somebody that has been doing that for a very long time that knows which companies require CMO business. And also, I think more importantly, when you do the contract, when you're looking at, let's say, 5 billion tablets or something, $0.05 per tablet extra gives you $50 million in profitability. So having the right negotiation skills, the right contract skills all these things. So this is what we're looking at. Now we have this but we think that getting a very senior person that has done this successfully is the right way to go. And as I said, we are interviewing, there are several people out there that are available with this kind of talent. And yes, it could be a fourth division very much so. Zain Ebrahim: Just a question on the CMO headwind for '26. Is that -- was that 1 customer you lost, that's gone from Europe to U.S. I guess how is that conversation and how are conversations with the remaining customers to ensure that won't happen with someone else before the '28? Khalid Nabilsi: It was 1 of our customers. It's not like they are shying away completely. They still have business with us, but they decided to -- some of their manufacturing for their own benefits. They wanted to have it in the U.S. So it's not like the business is going down. It's to replace, it's going to take some time to get a new customer, but we are confident of our ability to continue growing the CMO business. So it's a matter of time. But when we have the Xellia, of course, up and running, and we will have much more clients, much more capacity to offer as well. Said Darwazah: There's a lot of demand for U.S. manufacturing and I think the Bedford acquisition and what we're doing now although it's going to take a little time. But like I said, if you want to get a client that will work with you long term, anyway, it will take 2 years before you can move in the product. So now is the right time to get the clients and get the orders so you can put the processes in and do the submissions and all these things, the tech transfers and so on and so by '28 and more, you'll be ready to launch. So it's the demand is there, and we are talking to a lot of companies. Hafrun Fridriksdottir: So what they are saying is that if we would have that capacity in U.S. to take on those products in U.S., we could probably potentially have kept that customer. So -- but we didn't have the capacity at that time. So I think that's -- but now we are building that. So moving forward, we are. Susan Ringdal: And if you remember as well, when we did this acquisition and we took the Bedford site on, it was because we were reasonably capacity constrained in our existing facilities. And so we weren't really very actively selling CMO business at the moment because we're pretty much and we don't have a lot of spare capacity for CMO without the Bedford site. Christian Glennie: Christian Glennie. Thanks for the follow-up. Just maybe on Rx and just a couple of ones there on the I think you've alluded to a couple of other things around the moving -- the margin to 20% just to clarify the step-up this year to 20%? And is the 20%, again, another kind of the base for the business going forward, do you think? And then just finally on nasal epinephrine, what's the update there? And obviously, it's been delayed. So what's the expectation around that? I think it had been seen as potentially quite a significant product for you. So just an update there. Hafrun Fridriksdottir: So maybe first on the margin. Is 20% the best we can do? No, I think probably you will probably see some improvement moving forward as, I mean, in '27, even '28 as well. I'm not going to give you any numbers, but I think -- I don't think that's necessarily the top of the pie. With regards to epinephrine as I think we -- I talked about last time when they had this conversation, we -- there were some requirements from FDA to run some additional study. That study is ongoing and we are planning to submit in U.S. in, let's say, after a few months now. And we did file a product in U.K. last year, we will be filing in Europe as well. And we are actively discussing our licensing product in Europe. So that's -- yes, so that's the update. But because we have been working so closely with FDA over the last year or so on the product, I strongly believe that the review time will potentially be shorter than and maybe we thought in the beginning. So it will be an exciting product for us. Said Darwazah: Somebody asked Mazen a question about the MENA. He's bored. James Gordon: James from Barclays again. Just we're talking about margins, and we're talking about generic margin and an injectable margin? Hafrun Fridriksdottir: Rx. Unknown Analyst: Rx, apologies. But then I've also heard effectively, you're going to centralize R&D spend and that we could think of the divisions as being a bit ex R&D. You're going to think about what that ex R&D performance is. So if we're rebuilding our models of today, is that how we should be thinking about Hikma now? And are you going to start giving us then what the margins are for these 3 divisions without R&D and then the central R&D line? What do we do with [indiscernible]? Khalid Nabilsi: Eventually, this year, we did not want to -- too much changes to you -- changing your model. But eventually, next year, you'll start seeing the margin without the R&D. With and without. James Gordon: Bridge this year and then we do a rebuild for our next year. Yes. Susan Ringdal: Mazen, I think it would be great. Maybe I think 1 of the strengths for the business in the MENA in the past year has been all of the partnerships that we've signed. We have excellent momentum in terms of signing new partnerships. Maybe you could just talk a bit about why Hikma seems to be the partner of choice and MENA. Said Darwazah: You are on mute. Mazen, mute. Susan Ringdal: No, he's not. The sound is just very low. Said Darwazah: Looks like he's on mute. Hafrun Fridriksdottir: Luckily, you didn't ask him any questions. Said Darwazah: Okay. Next question till he comes back. Guy Featherstone: [indiscernible] Said for closing remarks at this point. Said Darwazah: Sorry? Khalid Nabilsi: Closing remarks. Said Darwazah: Well, again, it's -- first of all, it's good for me. I'm very happy to be back as CEO, and I'm very happy to give up the Chair position to be able to do this. We have an extremely good team. We work very, very well together. We have, I think, a very, very strong business. As we said, if you look at the last 5-year CAGR and the years before, you've seen how this business continues to grow. We will continue to grow. We are taking quick decisions. We are implementing a culture of quick decision-making. I also talked about the younger people in the company. So for instance, from now on, the executive committees and the leadership council and so on, we will have -- we will mix and match not only beyond seniority, we will be having more younger people join. There is obviously something we didn't talk about, a lot of focus on AI and seeing how AI can be implemented to move the business forward. So all in all, I feel very, very positive about this. This is a strong company that has been growing for a very long term, has very solid foundation as a strong leadership team and a lot of talent across the board. And I'm very confident that we will be delivering the kind of growth that we expect from ourselves and our shareholders expect from us. Thank you. Thank you, everyone. Appreciate you joining us.
Operator: Good day, and welcome to the Carlyle Credit Income Fund's First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Joseph Castilla. Please go ahead. Joseph Castilla: Good morning, and welcome to Carlyle Credit Income Fund's First Quarter 2026 Earnings Call. With me on the call today is Nishil Mehta, CCIF Principal Executive Officer and President; Lauren Basmadjian, CCIF's Chair; and Carlyle's Global Head of Liquid Credit; and Nelson Joseph, CCIF's Principal Financial Officer. Last night, we issued our Q1 financial statements and a corresponding press release and earnings presentation discussing our results, which are available on the Investor Relations section of our website. Following our remarks today, we will hold a question-and-answer session for analysts and institutional investors. This call is being webcast, and a replay will be available on our website. Any forward-looking statements made today do not guarantee future performance and any undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on the Form N-CSR. These risks and uncertainties could cause actual results to differ materially from those indicated. Carlyle Credit Income Fund assumes no obligation to update any forward-looking statements at any time. During the conference call, we may discuss adjusted net investment income per common share and core net investment income per common share, which are calculated and presented on a basis other than in accordance with GAAP. We use these non-GAAP financial measures internally to analyze and evaluate financial results and performance, and we believe these non-GAAP financial measures are useful to investors gauging the quality of the Fund's financial performance identifying trends in its results and providing meaningful period-to-period comparisons. The presentation of this non-GAAP measure is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation. With that, I'll turn the call over to Nishil. Nishil Mehta: Thanks, Joe. Good morning, everyone, and thank you all for joining CCIF's quarterly earnings call. The CLO equity class faced challenges in 2025, including continued loan repricings and bear sentiment, which weighed on returns for both CLO equity market and CCIF. However, credit fundamentals remained strong and default rates continue to decline. To mitigate this market-wide weakness, we continue to focus on optimizing the portfolio, including completing accretive refinancings and resets and defensively positioning the portfolio with experienced CLO managers. I'd like to highlight the Fund's activities over the last quarter and key stats on the portfolio as of December 31. CCIF's underlying CLO investments generated an annualized cash-on-cash yield of 22.67% for the quarter, which resulted in $0.48 of recurring cash flows for the quarter at the fund level. New CLO investments during the quarter totaled $13.1 million with a weighted average GAAP yield of 13.6%. We rotated out of 2 CLOs investments for total proceeds of $4.4 million as part of our continued optimization process. Within CCIF's portfolio, we completed 3 resets in the first quarter of 2026, resulting in 26 refinancings and resets in calendar year 2025, reducing the cost of liabilities by 31 basis points on average. We expect refinancing and reset activity to continue taking advantage of historically tight CLO liability spreads. We refinanced $52 million of the Series A Term Preferred Shares with a coupon of 8.75% with lower cost preferred shares with a weighted average coupon of 7.33%. The weighted average years left in reinvestment increased slightly from 3.3 years to 3.4 years. This provides CLOs mangers the opportunity to capitalize on periods of volatility through active management. There are also 0 CLOs in the portfolio that are post reinvestment period. We believe a portfolio weighted average junior overcollateralization cushion of 4.48% is healthy and offsets potential default and losses in the underlying loan portfolios. The average percentage of loans rated CCC by S&P was 4.2%, below the 7.5% CCC limit in CLOs. And the percentage of loans trading below 80 is 3.8% below the market average. The weighted average spread of the underlying loan portfolio was 3.06%, a 6 basis point decline from the prior quarter. This decline is consistent with the broader market and is driven by a record repricing wave and the loan market over the past 2 years. This has significantly impacted the earnings power of CLO equity as CLO resets and refinancings have not been able to fully offset the spread compression. Within CCIF's portfolio, the excess spread and the underling CLOs has declined approximately 32% since December 31, 2023, resulting in GAAP yield to further decline to 13.6%. Following discussion with our Board of Directors, we have revised our monthly dividend to $0.06 per share. When revising the dividend level, our Board considered CCIF's current and expected GAAP yields while also focusing on our objective to support net asset value. The revised dividend level of $0.06 per share results in an annualized dividend of 20% based on the closing share price as of February 23, 2026. The loan spread compression has also resulted in a decline in demand for CLO equity, causing a decline in valuations across the market and CCIF. Notwithstanding the decline in loan spreads, CLO equity benefits from historically low funding costs secured during a period of tight liability spreads, which provides a strong foundation for forward returns. As discussed last quarter, loan spreads have historically followed multiyear cycles. Current levels are similar to those observed in 2018 and was followed by a meaningful spread widening in the following 2.5 years due to a better supply-demand balance and market volatility. We believe CLO equity today is positioned to benefit from potential spread widening. Loan supply increased in the fourth quarter of 2025, and we expect loan supply to remain elevated in the first half of 2026 based on the current pipeline and discussions we have with our internal capital markets and private equity teams. A sustained increase in volumes would help rebalance market technicals and support wider performing loan spreads. The recent volatility related to concerns on AI disintermediation may further dampen repricing volumes and conversely increase loan spreads. With funding costs locked in at attractive levels, any normalization of loan spreads could meaningfully enhance excess spread, particularly for deals with longer reinvestment runway. As a result, we expect equity outcomes to increasingly reflect vintage, structure and manager execution, reinforcing the importance of selectivity. With that, I will now hand the call over to Lauren to discuss the current market environment. Lauren Basmadjian: Thank you, Nishil. I'd now like to provide an update on the recent developments across both the loan and CLO markets. CLO issuance totaled $53 billion for the quarter, bringing 2025 issuance to a record $211 billion. Including resets and refinancings, total gross CLO activity reached an all-time high of $538 billion, surpassing the prior annual record set in 2024. CLO liability spreads tightened across the capital stack over the course of the year, approaching the post-great financial tight, we witnessed in the first quarter of 2025. This tightening only partially offset the impact of loan spread compression and CLOs that were in their non-call periods could not take advantage of tightening liability spreads. Reset and refinancing activity remained robust, with $52 billion of refinancings and $20 billion of resets pricing during the quarter, as managers extended reinvestment periods and lower financing costs. The share of U.S. CLOs out of their reinvestment period has declined to roughly 11%, down from about 40% in 2023, reflecting a market with expanded reinvestment capacity. Turning to the loan market. Leveraged loans delivered resilient performance in 2025 despite rate cuts and concerns related to tariff implementation. In 2025, the LSTA leveraged loan index returned 5.9%, and in the fourth quarter, the index returned approximately 1.2%. Similar to prior quarters, issuance activity was driven largely by repricing as borrowers took advantage of the lack of loan supply and lowered their interest expense. Credit fundamentals within Carlyle's U.S. loan portfolio of more than 550 borrowers remain encouraging based on the most recent quarter of reporting. Free cash flow generation continues to be a key focus, with over 70% of borrowers producing free cash flow in the third quarter, the highest level we've seen over the past year. Revenue and EBITDA growth remained healthy at 6% and 7% year-over-year. Overall, borrower performance and credit quality remains broadly resilient, though we are seeing pockets of fundamental weakness in building products and chemicals. While software companies have recently traded down on the fear of AI threats, we have not yet seen this result in worsening sales or earnings growth for most of these companies. The broadly syndicated loan default rate inclusive of LMEs has declined from a peak of 4.5% at the end of 2024 to 2.9% by year-end 2025, moving closer to historical averages. We could see this pickup during 2026 as more loans are trading under 80 due to recent fears around AI, but we don't expect it to hit the peak witnessed in the fourth quarter of 2024. CCIF's underlying loan portfolio experienced a default rate of 1.1%, inclusive of out-of-court restructuring. CCIF has been able to achieve a lower default rate by leveraging our in-house credit expertise from over 20 U.S. credit analysts to complete bottom-up fundamental analysis on underlying loan portfolio. We are increasingly focused on the evolving implications of AI-driven disruption across leveraged finance. We believe AI risk, specifically in software companies, it's currently less about near-term operating deterioration and more about compressing valuations, potentially slowing growth in sales, and the need to invest behind an AI solution to defend incumbent positions. We think it will take time to see who the winners and losers will be in the sector, but we view the fourth quarter 2025 earnings season as an important checkpoint to further evaluate AI's impact on demand trends, margins and business model resilience at the borrower level. I will now turn the call back to Nelson, our CFO, to discuss financial results. Nelson Joseph: Thank you, Lauren. Today, I will begin with a review of our first quarter earnings. Total investment income for the first quarter was $7.1 million or $0.34 per share. Total expenses for the quarter were $5.2 million. Total net investment income for the first quarter was $2 million or $0.09 per share, compared to $0.15 in the prior quarter, driven by $0.06 per share of interest expense from the amortization of deferred offering costs associated with the redemption of the Fund's Series A Term Preferred Shares. Adjusted net investment income for the first quarter was $3.7 million or $0.17 per share in line with the prior quarter. Adjusted NII adjusts for the $0.08 per share impact from the amortization of the OID and issuance costs for the Fund's preferred shares and credit facility. Core net investment income for the first quarter was $0.32 per share, also in line with the prior quarter. $0.32 of core net investment income provides dividend coverage of 178% on our revised monthly dividend of $0.06 per share. We believe core net investment income is a more accurate representation of CCIF distribution requirement. Net asset value as of December 31 was $5.17 per share. Our net asset value and valuations are based on bid side mark we received from a third party on 100% of the CLO portfolio. We continue to hold one legacy real estate asset in the portfolio. The fair market value of the loan is $2.2 million. The third-party we engage to sell our position continues to work through the sales process. Now turning to the funding side of CCIF. During the quarter, we refinanced $52 million 8.75% Series A Term Preferred Shares through the issuance of $30 million of 7.375% Series D Term Preferred Shares and a private placement of 5-year 7.25% Series E Convertible Preferred Shares that generated net proceeds before expenses of approximately $16.3 million. The Series B Term Preferred Shares are listed on the New York Stock Exchange under the symbol CCID. The holders of the Series E Convertible Preferred Shares have the option after 6 months to convert the shares into common stock at the greater of NAV or the average closing price of the 5 previous trading days. This resulted in a reduction in the cost of capital by approximately 1.42%. With that, I will turn it back to Nishil. Nishil Mehta: Thanks, Nelson. We remain confident in the fundamentals of CCIF's portfolio, which remains defensively positioned. We remain focused on experienced managers and transactions that demonstrate durable par build and disciplined credit underwriting. We are deploying capital selectively, prioritizing opportunities that offer attractive relative value across both new issue and seasoned transactions. We continue to leverage the depth of the Carlyle Liquid Credit platform and our collaborative One Carlyle platform to source and invest in high-quality CLO portfolios through a disciplined bottom-up 15-step investment process. I would like to now turn it over to the operator to answer any questions. Operator: [Operator Instructions] And our first question will come from the line of Gaurav Mehta with Alliance Global Partners. Gaurav Mehta: I wanted to maybe ask you on some of the trends that you're seeing in the market as far as loan repricing and the yields and the spreads. I know in the prepared remarks, you said you saw an increase in loan supply in 4Q '25, and it seems like it may remain high in Q1 '26. So just wondering if you could just comment on what you guys are expecting as far as demand and supply and where yields and spreads are heading? Lauren Basmadjian: Sure. So I'd say that, generally speaking, the repricings have stopped. The volatility in the market around AI fears have led to loan prices trading down and about 20% of the market now is trading over par which has stopped -- generally stopped the repricing. There is a decent sized backlog of announced deals that will come to market in the first quarter, maybe into the second quarter, though, I do worry or wonder if we'll see that slow down again after we get through all the announced deals, as there's been more uncertainty and volatility in the loan market, there may be a slowdown in M&A transactions. Gaurav Mehta: Okay. Maybe following up on your comments around AI-driven disruptions. How is that impacting your investment thesis and how you're approaching your investments in the CLO market? Nishil Mehta: Yes. Gaurav, it's Nishil. So maybe I'll talk about it in a couple of different ways. One, you're seeing more of an immediate impact, which is really just the volatility, Lauren just mentioned regarding loan prices. That is, as a result, creating some volatility in the valuations of CLOs. But that's really more of the near-term impact. I think longer term, the impact that AI will have on these companies and borrowers is kind of to be determined, given this is not a concern that's tomorrow or the next day. It's really a multiyear potential impact. But also to Lauren's point, the one positive is the volatility has really created a market where you're not seeing loan repricings. We saw a fairly large wave of loan repricing in January. That has definitely declined. And we are in the middle of fourth quarter earnings, which continue to remain strong. So as we mentioned in the prepared remarks, the fundamentals of the overall portfolio continues to remain strong. Operator: And that will come from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: In Nishil's prepared comments, he mentioned some optimism that maybe there are some factors that can contribute to spread widening here in 2026. And kind of maybe a two-part question. One, are you seeing any actual signs in the market that, that are starting to happen? And two, if they were to widen materially, how much does that impact your ability to have additional resets and refis in the portfolio? Lauren Basmadjian: Yes. So the discount margins have definitely widened over the last month in the loan market. Loan spreads don't reprice automatically as the risk premium changes. So really, the price adjustment is the loan price versus the spread. The way that we'll start to add spread back to portfolios and CLOs will be with new issues coming at wider spreads, which we do anticipate. There isn't a lot of new issue in market. But as I said, there is a real pipeline ahead of us. So I would expect those loans to come with higher spreads than what we've seen over the last couple of quarters. Nishil Mehta: And then just on the refinancing and resetting front when it comes to CLOs. Look, the market in January and even earlier this month, probably hit post GFC tights when it came to liability spreads. We are seeing some widening given the reflective of what's going on in the broader loan market and fixed income markets. But from -- on a historical basis, the liability spreads are still relatively tight. So our expectation, at least based on the market today, is there will still be opportunities to refinance -- to complete refinancings and resets within the portfolio. Erik Zwick: That's very helpful. And I guess, positive to hear that seeing some loan spread widening there, which would -- that's been a large driver of the impact to NAV over the past year. So it seems like there's some potential here that the majority of the kind of decline in NAV for this cycle has hopefully been realized at this point. I realize you don't have a crystal ball, but is that the right way to think about it? Nishil Mehta: Yes. Look, obviously, the market is dynamic, and it's hard to predict what's going to happen in the future. But as Lauren mentioned, with the repricings kind of fading away and the discount margin within loans increasing. If we start to see continued supply and M&A activity, that should result in an increase in loan spreads and overall widening. Lauren Basmadjian: And the one other thing, though, it's not a gigantic part of our market, but it's worth mentioning that there are still loans that are maturing in 2027, 2028. Even into 2029, where I would assume management teams want to push out maturities. When we had seen these extensions before, you were not seeing an increase in coupon. In fact, sometimes you were seeing a decrease in coupon. I would imagine that's another way to capture spread in this market is as we see borrowers come back to push out maturities, they may have to offer more spread on the loans. Erik Zwick: And one last one for me and then I'll step aside. Just given the impact on the fair value of the portfolio that the spread tightening has had. Just kind of give you our overall thoughts on leverage in the portfolio today and how you think to manage it from here? Nishil Mehta: Yes. So as you can see in our earnings presentation, leverage is at the high end of our target. And so that's something that we're mindful of. And so I think over time, we'll look to bring that back to kind of historical target. Operator: [Operator Instructions] Our next question comes from the line of Timothy D'Agostino with B. Riley. Timothy D'Agostino: I guess just one quick one for me. You've mentioned that loan repricings have pretty much kind of all been done, and you did see some in January. I guess, it'd be interesting to like hear a little bit more and just get a little more color on how the market for you all looks different in February than in January, just given everything around software. And I don't know, just maybe some color on what you're seeing. Lauren Basmadjian: Yes. I'd say that performing credit that doesn't have sort of an AI fear around it is down maybe 0.5 point to 0.75 point. And then names that have some AI fear could be down more significantly. We've seen some real volatility in software names. But it's also spread to other areas like asset managers, insurance brokers and anything that really you see an AI headline around. So it's created opportunity where there's finally volatility in the market, you could source loans and build par because most of the market is trading under par. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Castilla for any closing remarks. Joseph Castilla: Thank you all for joining. We look forward to speaking to everyone next quarter, if not sooner. Please feel free to reach out if you have any questions, and thank you all again for your support. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.