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Heli Jamsa: Good afternoon, and welcome to Qt Group's Q4 2025 Results Presentation. My name is Heli Jamsa, IR Lead. And with me today are our CEO, Juha Varelius; and Interim CFO, Ann Zetterberg, to present the results. After the presentations, we will have Q&A first in the room. And if there's time left, move on to the questions from the lines. Without further ado, please, Juha, the floor is yours. Juha Varelius: Thank you. Thank you. Good afternoon, everyone. And we have a same agenda, as always. I go a bit through what happened on Q4, and then Ann is going to go through the numbers in more detail. I'll talk a bit about the future outlook and then questions. So the Q4, we had a growth of 12.6% or 18.6% comparable currencies. And of course, IAR acquisition, which we completed -- contributed in this development. And IAR was EUR 8.1 million on Q4, and our organic growth was 6.1%. So it was a -- compared to the very difficult year we had last year, it was a decent quarter, and we were happy on that. Our EBITA margin was 35.6% and the EUR 27.5 million, and that's -- there is a decrease compared to last year, but we did have a one-off cost on the acquisition that were burdening that. I'm going to talk more about the overall market environment. But of course, the -- even the year changed, the market environment hasn't changed that much. So we had quite a bit challenges last year which affected our customers in a way that we had tariffs and whatnot uncertainties. So the selling developer licenses last year was slow, if put it on one word. So the -- on the whole year, we ended up on EUR 216.3 million, which is a increase of 6.6% on comparable currencies. So we went pretty much in the middle of our guidance. The distribution license revenue grew very well last year. There were a lot of new things coming into the market, new programs started, which ended up on the 26.4% growth. And of course, the main growth drivers, industries for distribution licenses is the automotive, medical and industrial manufacturing. The whole year EBITA was EUR 51.8 million, and there was a decrease. EBITA margin was 24%. Our personnel increased end of the year to 1,100 out of which 215 are IAR employees. So -- but we did continue our own hiring as well. The one-off costs for IAR acquisition, EUR 5.8 million. We're going to talk that also a bit later, but the -- of course, we all know that the IAR profitability has been less than the Qt. So that affects the overall profitability of the group going forward this year. We haven't disclosed the ARR before. And on the ARR we had a growth of 8.3%. And there on the small print is that the -- it is Qt and the QA developer license base and it does not include the IAR licenses and distribution licenses. So that ARR is the Qt and QA business. We plan to give that ARR number now in the future also in the half year sequence. So you can see that because one of the questions affecting our revenue has always been the shift from 1 to 3-year licenses. Of course, last year, we did see the cautiousness in our customers. So the -- it was slowness in sales, but it was also people shifting from 3 year to 1 year. So now presenting this ARR, we don't have to -- you don't have to worry about the shift from 1 -- 3 year to 1 year because we can follow the ARR. And our plan is to give that number now next time after second quarter and so on. Obviously, it's a number that doesn't change that much. We might even go on a quarterly basis if that's needed. But the -- like I said, it's much slower moving -- slower moving measurement. Well, here are some of the product-related things we did in 2025. There are always questions about AI. Is AI going to eat our lunch in a way that the -- you know that there are a lot of predictions on AI that the -- no developers are needed and AI is going to do all the code. Well, at least as of now, we don't see that development. We do see that there are a lot of AI assistants being used like we are offering them in Qt and our design studios and on Squish. So on writing test scripts, for example, you can use AI and then the Squish does the actual testing. So they help on that. But do we see that the -- specifically on embedded world that the AI would become and replace the developers, that kind of a development, we don't see as of yet. At the same time, of course, it's good to realize that I think that the U.S. companies are planning to invest EUR 500 billion, EUR 600 billion next year. So obviously, they are expecting to get something out of it. But I have -- I don't see that developers would be going away next year or even in the coming years in that sense. On the partnering side, we -- on Axivion, we do have partnerships with NVIDIA CUDA. So the -- when you're doing CUDA code, you can -- or using CUDA, you can use the Axivion. On the R&D, on the defense sector, we did have the FACE certifications and working with Infineon over there, on the AI consumer power devices. And then we are expanding our ecosystem through the Qt bridges, which will enable more languages over there basically. These are just some of the highlights that we are working on the product development. So in general, our product has -- all our products have always been very good. We get a very good feedback. So this is just to show a few examples that we do continue our R&D and we do -- we are on the forefront of product development all the time, making sure that all the Qt products are very competitive in the market, and that seems to be the case on all the customer surveys from our users. With this, Ann, please. Some numbers. Ann Zetterberg: Yes. I am Ann Zetterberg. I am -- I have been the CFO of IAR for -- I'm on my fifth year now. And with the acquisition of IAR, I had the opportunity then to step up and become the interim CFO for Qt. And I'm going to tell you a little about the numbers then for this quarterly report. So delighted to meet you all. There will be a bit of a P&L first, maybe a little repeat on what Juha just mentioned. But we had -- in Q4, we had a growth of 12.6% and after exchange rate impact, it was 18.6% at comparable currencies and the organic growth with removal of IAR revenue, which was EUR 8.1 million, that was EUR 6.1 million. And we -- in -- for 2025, the growth was 3.5%. Exchange rate impact has been pretty bad, both for Q4 and for the full year, especially the dollar has behaved very, very badly for us. And the growth there for 2025 at comparable currencies was 6.6% and the organic growth was 2.6%. But as Juha also said, we plan to show the ARR as that shows better the yearly underlying growth for the company. It doesn't -- it's not affected from which contract length the customers chooses. As we recognize 95% of the contracts upfront, it depends -- it matters a lot if they choose a 5-year contract or a 1-year contract for revenue, but ARR illustrates the underlying growth very stably, and that is growing good for us. It was 8.3% of growth for the Qt part, excluding IAR during the year. And then looking at expenses, the personnel and year-on-year grew by 267 individuals. That's a growth of 31%. But of course, a lot of that relates to the IAR acquisitions, 215 people worked at IAR at the acquisition. And -- so that increased the headcount to 1,136, both on average for the year, but also at the year-end. And IAR contributed EUR 4.8 million in staff costs in the P&L. Under other OpEx, the IAR acquisition had some extra costs then, EUR 4.1 million in Q4 and EUR 5.8 million during the year. And also, I wanted to highlight, even though it's a very small cost, the capitalized asset as IAR has interpreted IAS 38 a bit differently than Qt has and has capitalized R&D assets in the balance sheet. Presently, there is EUR 5.4 million of capitalized unfinished assets in the balance sheet of IAR and those are expected to be finished under 2026. But this means that we will have a small positive effect on the P&L from these capitalizations, removing costs and putting it into the balance sheet. I don't expect any large amounts from this, but it is still good to understand that this is what it looks like now. Over time, there will be some harmonization within the group, so all companies look at this in the same way. And then, of course, the profitability, like Juha just mentioned, has gone down. The EBITA margins are lower both for Q4 and for the year. IAR has a lower profitability. So that contributes to that and as does the acquisition costs. But of course, when you join 2 companies, there are also opportunities for integration, efficiencies and cost reductions, which we are going to work with on starting this year. And this means that the earnings per share has gone down to EUR 0.73 for the quarter and EUR 1.25 for 2025. So then moving on to the balance sheet. A lot has happened to the balance sheet, obviously, from the acquisition of IAR. The preliminary PPA added EUR 204 million in net assets to the balance sheet. Of that, goodwill was EUR 122 million. And then there were identified other intangible assets of almost EUR 90 million. Those were customer relations, technology and trademarks. And those will be written off over 15 years. So the amortization yearly net of tax would be EUR 4.8 million. And also the PPA added, or the acquisition added other net assets of EUR 11.2 million in IAR. Some of those assets on the asset side of the balance sheet and some on the debt side sort of spread over, but the net of them all are EUR 11.2 million. Some of those assets were trade receivables then, which increased the trade receivable balance to EUR 58.7 million in the balance sheet. And there are also other receivables, which could be good to know, one booking of EUR 5.1 million as we have booked the full value, 100% of the shares to the balance sheet, as there is arbitration going on, and we are obligated to buy the rest of the shares. We are not showing any minorities under equity and so because it's only a matter of time until we own 100% of the shares. But that can also be good to know. And then the ending cash balance was EUR 40 million -- EUR 40.1 million, a little lower than compared to last year as we have made this large acquisition. And as the balance sheet has expanded, the equity ratio has gone down from 81% to 50% and also the interest-bearing debt has increased. The interest-bearing debt is EUR 143.2 million. And of those, EUR 134.4 million are debt relating to the acquisition of IAR. So we have paid off some of the debt already. It was EUR 150 million from -- to begin with. And also on the deferred tax on the debt side relating to those intangible assets that were EUR 90 million on the other side, there is also deferred tax booked on the other side which is EUR 18.5 million. So good to understand that also how the PPA affects the balance sheet. And on the short-term liabilities, there is a debt of EUR 5.1 million, which is the amount we expect to pay for the remaining shares of IAR after the arbitration is finalized. And then I can just, as a final note, say that operating cash flow then had gone down a bit, but mainly because of the profitability going down. So nothing strange about that. And with that, I suppose I'm done with the financials, and we will take questions afterwards, but I will then leave to you, Juha, to take the next of the slides. Juha Varelius: Thank you. So 2026. Well, I think the first big thing is that the -- during the next 3 years, as you know, the IAR has been on a perpetual model. And our -- during the next 3 years, we are -- our target is to shift that into subscription model. That's roughly the -- by the way, the same plan we did have the -- early on with Qt when we did this a few years back. And if this goes as planned, the IAR revenue will be going down this year. So it's going to be decreasing this year. And then depending on how aggressively that goes down this year, then the swing back will be bigger next year. So -- but it's the early phases. So we've started the journey. We have now a couple of months behind us. So it's to make -- exact predictions at this point is there is a bit of a room for that estimate still. The -- well, the -- I think it's -- the market has been uncertain so long, that the uncertainty will definitely continue. As we know, there are a lot of global tensions going on as we speak, and that's what we're looking this year. Some of our customers are in a challenging environment. The -- like in automotive, the Chinese automotive manufacturers are putting a pressure on the European manufacturers. And at the same time, there are tariffs that's obviously going to continue all this year. And so on and so forth. So I think that on the industries, the automotive will be in challenge, Medical will not so, and the industry automation seems to be doing pretty well. Defense is doing really well. So in -- if I now look at the 2 of our biggest industries, they are actually medical and defense at this point of time. So they've grown quite substantially over there where they've been. The long-term growth prospects, well, like I said on the AI, this software really defines the value of the products. Each product will have software going forward and the new versions of it we don't see on embedded, that the AI would be eating all that market away far out from that. But we do see AI improving our own products on many respects, and that's what we are implementing. So before we've given our estimates that -- we've given you a range, but we gave up on that range. So now we're saying that the -- our full year net sales will increase at least 10%. So we're saying that, that's the floor, but we are not giving a range. So we're not giving the upper part guidance. So that's a bit different. And we're saying that our operating profit margin will be at least 15%. So again, we're saying that, that's the floor. We're not giving the upper range. So we've -- we're not giving those ranges anymore. Going forward, we're going to start after Q1 or after Q1, we're going to start giving you more info on the -- on how the -- well, we'll start sharing this ARR, which will give you a better understanding. You don't have to worry about the shift on the 3 to 1-year licenses. And then we're looking at the -- we're going to give you more on the revenue per product, so you get a better understanding on the -- how the licenses -- distribution licenses are coming. So we're looking to open up that a bit. I don't know if it's going to make your life any easier because there is a lot of fluctuations. But at least you can then see that fluctuation. So the -- we've been listening -- what you've been asking and -- so that's the -- but more to come on that later. I think the ARR actually will help you more than seeing the license -- distribution license sales and whatnot, but the -- more than that. So do you have any questions? Okay. Matti Riikonen: It's Matti Riikonen, DNB Carnegie. A couple of questions. They are very simple. Do you expect the legacy Qt business to decline in 2026? Juha Varelius: Simple answer, no. Matti Riikonen: Okay. Do you have a rough estimate of how much IAR's revenue would decline in '26 versus '25, if you give a broad range? You say it's going to decline and you say that you don't know yet, but roughly where is -- where are your thoughts at the moment? Juha Varelius: Well, double-digit. Matti Riikonen: All right. Juha Varelius: Low double-digit. Matti Riikonen: And third question before I give the mic to somebody else. How will IAR's fixed cost base develop in 2026? Juha Varelius: Simple question, longer answer. The -- well, I mean, we're not looking to increase the IAR cost base. So what you're going to see now is that the IAR -- the revenue decline really depends on the -- how well can we go on a subscription, and we try to go as aggressive as possible. So the -- if I say low double-digit revenue decline, somewhere there, right? I don't know yet, but somewhere there. And then 2027, I do expect to see a double-digit -- high double-digit growth on the -- maybe close to 20-something, to give you an idea how it's roughly good work, right? On a cost level, when we see costs, obviously, we're not going to be increasing costs because the prices are increasing, right? But the -- we do have some R&D-related initiatives over there where we think that we're going to be increasing cost, and they are related into the fact that the IAR is very much on a functional safety critical environment in automotives and whatnot. We are looking for a product development that we can broaden that segment roughly, to put on a broad perspective. And then we have few places where we're going to -- mainly on sales, we're going to increase sales costs, but we're talking very modest cost increases on the IAR side. So if you look at the old IAR, I know you have the numbers from there, we're looking very -- we're looking some cost increases, but fairly modest over there. But still, if you model that -- the revenue development on IAR numbers with that revenue dip, you're going to be seeing that the EBITA contribution for the whole group this year is going to be pretty much breakeven or even slightly negative. So we're not looking for -- first of all, on the guidance, we are -- those are the bottom lines. They are the floors. They are not the -- we see that, that's the bottom, bottom, right? So we do expect a bigger numbers. And then the IAR negative contribution will be on this year, but when it swings next year, we don't -- there is no need to increase costs for that because it's basically a price increase. So it will swing the IAR EBITA. Well, it's a license sales. So everything that the revenue will be increasing will go directly to bottom line. So that's the implication. On Qt Group, we are -- well, you call it legacy group. So the time changes. But -- so we'll figure out the better name than legacy. Anyway, the old Qt, we're not expecting organic decline, and we're not expecting that the -- what we saw last year, the bottom line, we're not expecting there to see a declining EBITA that we had last year. So the -- and that's the bottom performance, right? So we expect that the bottom performance be last year level and higher from there. So that's kind of the overall picture. So it's maybe not that gloomy than you were first thinking. I don't know how gloomy you were, but that's my educated guess. But thank you for the simple questions. Matti Riikonen: That's all from me so far. Jaakko Tyrväinen: Jaakko Tyrvainen from SEB. On distribution licenses, what happened in the sales in Q4 since I recall that the commentary after the first 9 months performance was rather moderate also in this revenue stream? So I'm curious whether there were some customers filling up their inventories in terms of distribution licenses? And how should we look at the revenue stream for '26? Juha Varelius: Yes. Thanks. So well, maybe later on the first Q when we open up a more broad distribution, you're going to see -- But the distribution licenses is really hard to predict because the -- it's not like this -- I mean, quarter-on-quarter like last year, it went like -- well, first quarter, second quarter boom and then up again, and that changes every year. So the quarters are not alike. So you can't expect that what was last year and second quarter is going to be the same. And that makes it difficult. And as you know, the distribution licenses go that -- some customers buy them afterwards, telling that how much they [ chipped ] and some people buy a chunk on prebuy. And that's why it's hard to predict. On a general level, we can always see that we know that the -- some big new products, productions are coming into the market, then we know on a yearly level, what's going to happen. So last year was on that sense, very good. So if you look last year numbers and distribution licenses for this year, I would take them slightly down. That's my expectation for this year given the market volatility, given the -- what's the customer demand in Europe and whatnot. So the -- I mean, at the end of the day, our distribution license revenue comes from product, what the consumers are buying, right? So the -- that's in a general terms, it follows. And we do have -- we are in 70 industries. We are both on commercial devices like industrial automation, robots and whatnot, stuff that goes into hospitals, stuff that goes into factories, but also on consumer goods like auto, cars and whatnot. So that's where the fluctuation really comes. So I would not put on my model same growth this year than we had last year. This is going to be substantially lower. So same number or a bit below. That would be my best guess. And -- that's a guess. Jaakko Tyrväinen: Understand very well. And just to confirm, Q4 was strong in distribution license? Juha Varelius: Yes, yes, yes, I was a good. So last year, on distribution licenses, Q2 was very good. Q3 was very weak. Q4 was good. Q2 was, if I remember correctly, the best on distribution licenses last year and does not mean that, that's going to replicate. It really goes like this. Jaakko Tyrväinen: Good. Then on the ARR, thanks for sharing that to us and the growth of 8% there. Could you give some color on how much of this was pricing and how much was coming from the effect that customers changed from 3 year to 1 year, which obviously should have kind of positive pricing impact on the ARR number -- annualized ARR number? Juha Varelius: That -- Very good and detailed question that I -- those numbers I don't have. We can come back later, but those I don't have out of my head. But the -- on general level, I can say that there was some shift from 3 year to 1 year, if I look on a whole year number, but it's slowing down. That shift is slowing down. But definitely, what we saw through all the year was the fact that on renewals, the -- what people used to do is that they had something and then they renewed older licenses. Nowadays, customers are counting that how many developers we really have, how many licenses we really need. And in general, money has been very tight. I mean our customers are very -- they're very tight on money. So they are looking all the costs. And on many R&D budgets are such now that the R&D budgets are not growing, but the -- so if they do something additional, they need to stop doing something old. Jaakko Tyrväinen: Good. And then my final one on the possible AI disruption also in the embedded side, I heard what you said. But could you give us for -- kind of for a dummy explanation why the embedded world, what are the barrier entries for AI native solutions to break in? Juha Varelius: Well, as of today, what we see, first of all, that you have lots of safety critical, you have lots of functional safety type of things like car brakes and whatnot, you need certificates and there are -- there is a very tight regulation what you need in order to have software. So you can't just ask AI that do me a car brake system, thank you and implement it, right? The second is that the -- on embedded, the software goes into products, right? And in products if you need to do a product recall, that is really, really expensive. So you have to be fairly certain that what you're doing. The third is that the embedded is fairly slow moving. There are huge companies building these cars and all these devices, medical devices and whatnot. So the time of the change and how secure they need to be that if I'm building this medical device, that nothing really goes wrong. So they change relatively slowly, right? Whereas if you think that on a website that I want to do a mobile application, I do a mobile application, if it works, great. If it doesn't work, it doesn't matter so much. So the -- it's kind of a different environment. And then if you think about coding, just building the software is -- it's one part of the process. You need to define what you want. You need to discuss with people that what are we building, what this product is doing and on and on and on. And AI is definitely not ready for that yet, right? So the -- where it's really going to end, we'll see, but that's what we see as of today. So there are -- we see AI as assistance and the -- like if you're designing something, you can use AI to give you creative ideas because as people, we tend to start looking one-way street. AI can open up your creativity and whatnot, but yet you're still using tools. So my prediction is that the next phase you're going to see on SaaS environment and the products like ours is yet another pricing change. We're doing this just to mess you up, right? So -- but yet another pricing change. And the pricing change is going to be that -- the pricing, I think, is going to go more towards from that the -- what has been built, how much the tool has been used rather than a deficit, right? So that's where I see the AI is going. And I had a -- one breakfast discussion and the person pointed out that the -- remember a couple of years back -- this person said to me that remember a couple of years back, everybody in Finland were talking that the -- even grandmas need to learn coding because software is in every device and everybody needs to learn how to code so that we can use these products, and they were all kind of coding school starts and whatnot. That was 2 years ago. Now everybody is talking that developers are -- nobody needs developers anymore. So there is a bit of a hype on the speed of the change. I mean, over time, of course, AI is going to -- 10 years from now, AI has changed a lot how we work, but -- and live our lives. But in the near future, I don't see much of effect. Then on the -- and this is the Qt development, right? On the IAR compiler business where you need all the certificates and whatnot, there is no way you can use the AI for a long time. And then on our testing tools, well, whatever you do with AI, you need to test. So I see that there's going to be more and more software that needs to be tested because you can't rely on AI. So the testing business is going to grow substantially as a market. Felix Henriksson: Felix Henriksson, Nordea. Three questions. Firstly, on Q4. The revenue growth organically accelerated a little bit, and we discussed about the distribution licenses being strong, but was there anything else that improved? For example, the lack of large deals that we saw in earlier quarters, did that -- did those sort of come back at all? Juha Varelius: No. no. If I look on the regions, the -- I would say that the -- we're doing well in APAC. We're doing okay in Europe. We have room for improvement in Europe in some markets. And then in general, we have lots of room to improve in the U.S. So the majority of our softness has been in U.S. And then we come to the point that the -- if we talk about the AI or if we talk about that the -- is there a competing product or is there a price change? What I see in the market is that we're doing fine in APAC, we're doing fine in Europe and the main softness we have is in U.S. and even in U.S., we have some teams that are doing okay, but then some teams are really suffering in that respect. So that's why I'm fairly confident that it's not about AI eating our market because if it would be, it would be eating our market everywhere globally, right? And this is more a local softness we are having. Same thing for prices and competition because we have same type of -- in APAC, we have the same industries and same type of customers we have elsewhere. So our softness basically has come last year that we've been a bit soft, been a U.S. related, right? And I'm very confident that we can fix that and get the efficiencies over there on a better shape. Felix Henriksson: Right. And then on the guidance, you mentioned that you're no longer giving those ranges, upper end. Can you expand on that a little bit? What's changed with your guidance philosophy in a way that triggered that change? Juha Varelius: Yes. I wasn't very good at that last year. Felix Henriksson: Okay. So maybe more conservatism in that way? Juha Varelius: Yes, yes, absolutely. Yes. Well, hey, we gave 2 profit warnings was not on my plan. Felix Henriksson: Fair enough. And lastly, on distribution licenses, I mean, we've started to see memory prices going up and there are some supply constraints emerging that potentially are impacting your customers, I presume. Do you think that's a sort of potential headwind when you look ahead and what are your customers saying when it comes to this? Juha Varelius: No, that's a downwind because the -- that's where Qt really signs. The fact that if you use Qt, you can do more with less memory. So that's the -- I mean, that's been the basic promise since the beginning. So the -- with Qt, you can have the same performance with the lower-end hardware, and that's the main selling point we are having as of today. And so higher price is better for us because at the end of the day, our customers will have to build those products anyway. So then it's a question of that how -- what kind of performance they want, what kind of end user experience they want. And that's where we sign. And that's where like Android doesn't sign, right? You use Android and you need a lot more hardware than using Qt and so on and so forth. Same goes with Unity. So most of our competitors, they may be in some use cases like Unity, Unreal, they might be able to do a better 3D visualization or it looks better, but it consumes so much hardware that if we go on a lower-end hardware, we can beat them. And you can get good enough, you can get a fairly good performance and a lot lower hardware using Qt. So that works for our benefit. Antti Luiro: It's Antti Luiro from Inderes. One question. We know that the last year's growth was quite sluggish and there is still uncertainty around this year. So is that affecting your own investment plans? Or are you just keep on going with all the growth investments that you have planned before? Juha Varelius: Yes. I mean, yes, we will continue our investments, yes, for sure. That's the -- no doubt about that. And we do have these few areas where we see the -- well, first of all, I think that we wouldn't be here in the first place if our products wouldn't be so competitive. So we need to keep them in that way. And then, of course, we are exploring the opportunities that the AI is opening up, and we need to do product development to have AI agents in our own products and so on and so forth. And you're going to hear product releases as we go forward this year. So yes, definitely, we're going to do that. Then at the same token, like the -- Ann was saying over here that we just merged 2 companies. And of course, we are going through all the processes, we're going through the -- that where can we be more efficient. So we've grown very fast. We are 1,200 people. And the -- so we do have also the efficiency programs, if you like. But it's -- so it's not all more, more, more. It's also efficiencies at the same time, and that's very much on and stable as well. Waltteri Rossi: Waltteri Rossi from Danske Bank. A few questions about AI. Did I hear correctly that you said that you might change your pricing model in the future due to AI? Juha Varelius: Yes. I said that, that's probably going to be the first change that we see on AI that the SaaS models pricings will start changing more from based on the consume of the tool rather than the deficit. I did not say that we're going to do that change, and I did not say that we're going to do that change this year, but I said that, that's what I see that the -- how AI is going to be affecting SaaS companies in general that the pricing will change going forward. I don't see that AI will be taking over the tools business per se. Waltteri Rossi: Yes. I understand, but no time line for that? Juha Varelius: No, no, no, no, no. Waltteri Rossi: Okay. But that would imply in a way that there is at least a big threat on your developer license sales? Juha Varelius: No. No, I don't see it that way. I see it that the -- that's going to be the effect that the SaaS business will go more towards that, that the people are charged at how much you use the tool rather than the per deficit. I see that development coming. But no time line, definitely not this year, next year or so. No. Waltteri Rossi: Okay. Well, next one is still on AI. What would you say is basically Qt's value proposition for the customers because there's the argument that AI will make developers' work more efficient. So that's kind of eating up your -- one of your value propositions. So what else do you basically offer for the customers? Juha Varelius: Well, we offer a tool that they can build their graphical user interface or applications. And as we are here today, AI is not capable of that. So you need the human and you need the tool. And then it's debatable that when will AI be able to do that, if ever. And then we see that if you need certifications, you need -- like on defense, like in automotive, on many industries, on medical, there's a long list certifications you need to meet. So who's going to train an AI that will meet those certifications and make sure that AI does the things every time in that particular manner and everything is met. I mean, that's years away, if ever. Waltteri Rossi: Yes, yes. I agree. But still on that, actually, a follow-up. We know that programmers are already today using AI assistance. But are you saying that you don't see your customers yet using them? Juha Varelius: No. And you see a lot of developers using AI on the web technologies. So if you want to do a simple mobile application, you can do that or you want to do web pages, you want to do your own homepage, you can use AI for that. But of course, they are so simple that you can -- if you want to do your own web pages, you can have -- they are on a web already. So what AI does is that it takes a web page and then it produces a new web page, right, that you can do. But on embedded building on products, no. Waltteri Rossi: One last on AI. So can you please elaborate how Qt is currently using AI in the framework? Or do you have add-on or something? Juha Varelius: Yes, you can have add-ons. You can have assistance over there that helps you getting started. For example, on the -- on testing, you can use AI, that it helps you doing the testing script and these type of things. So it helps you kind of where you can think that it helps you building a bit of a story or text, but yet still you have to read it and modify it. That's what we see as of today. Waltteri Rossi: All right. Then one last question on the usual 1 to 3-year licenses. So do you have a number on how much that shift from 3-year licenses to 1-year licenses impacted last years? Juha Varelius: No, but we're going to give you the ARR, so you can start following that. Matti Riikonen: Matti Riikonen, Carnegie, a couple of questions more. They are even more simple. First of all, you discussed the capital -- capitalized cost policy so that you would basically go towards Qt's policy, which I read that you would not any longer capitalize some costs that IAR has. Should we expect that there would be none whatsoever on the capitalized costs in '26? Ann Zetterberg: Because we have unfinished assets in the IAR balance sheet, and we need to continue capitalizing on those according to IAS 38. So there will be some capitalization of R&D assets during 2026. But we expect that those will be finished under 2026 assets that are not finished. And after that, we will harmonize between the companies so we can find a common application of IAS 38... Juha Varelius: Because -- I want to come over here, so we have you in the camera as well. Ann Zetterberg: Yes, sorry. I apologize. Yes, about the capitalization since Qt and IAR has handled the IAS 38 application very differently. So IAR has been capitalizing R&D assets into the balance sheet, which increases the profitability and then you write off the assets over time. And after the acquisitions, we kind of cleaned out the balance sheet. But the assets that are not finished, they are still there, and we will have to follow IAS 38. We will have to continue to capitalize on those until they are finished. Otherwise, we don't follow the bookkeeping rules correctly, and we don't want to break them. So that will happen. And in that time, we will evaluate and harmonize between the companies so we can have a common approach to this. And then I expect that we will not capitalize anymore, but I cannot 100% tell you that, that will happen. But we will have to have a common approach anyway within the group on how we handle this adjoiner [indiscernible]. Matti Riikonen: What kind of magnitude of capitalizations do you think there would be in '26? Ann Zetterberg: It will not be a lot. Those assets are almost finished. They're EUR 5.4 million there now. So I don't expect there to be any huge capitalizations. As you saw during Q4 on those assets, we capitalized EUR 200,000. So it wasn't a lot. So you can -- then -- it can go up and it kind of go down a little depending on how much work the R&D department puts into various projects. But I don't expect it to be -- I mean, anything that affects the profitability much, but it can be good for an analyst to understand that this is a difference from how Qt has handled it before. Matti Riikonen: Right. That's helpful. Then second question is about the annual recurring revenue disclosure that you plan, which is an excellent idea. How long into the history will you bring that? So is it possible that you would bring maybe a couple of years' history so that we could start to track it already from there and not just from here on because, of course, in the ARR pattern, the history is what counts and current day is less interesting if you don't know the history? Juha Varelius: We already gave the last year number, right? Matti Riikonen: That's not a very long history. Juha Varelius: Well, it's the last year. Well, we'll look into that. Yes, great question. We didn't think it that way, but we'll look into it. And on capitalization, it's like Ann said, that there are a few projects we need to continue. But of course, in general, going forward, on a longer term, we're not looking to capitalize. So we rather implement the Qt policy going forward and not capitalize the development. Yes. It's a better way. Jaakko Tyrväinen: Jaakko Tyrvainen, SEB. A brief follow-up on the profitability dynamics and IAR part of that. Let's say, the revenue is down double-digit something, like you said, Juha, would this imply that IAR as a stand-alone would be at breakeven or even red numbers in '26? Juha Varelius: Red. Ann Zetterberg: This is... Waltteri Rossi: Sorry, one last one from me. You said you are going to continue... Juha Varelius: You were? Waltteri Rossi: Waltteri Rossi, Danske Bank. You said that you are going to continue recruiting this year. So could you elaborate a bit on where exactly are you going to recruit? Or you said invest, but... Juha Varelius: Regionally or by function. Waltteri Rossi: Say again, I didn't... Juha Varelius: I mean regionally. Well, I mean, I think that the -- we do have a few markets where we're going to be increasing personnel, probably the U.K. is one, and these are small numbers, but then they add up for our Italian business. More or less in Japan, we're going to be increasing the personnel, the China probably. And the -- so in particular markets, I think in the U.S., we're pretty much on a headcount we like to be at this point of time. On R&D, there are these new technologies like the one that interests you a lot, which is the AI. So of course, on these new technology areas, we -- instead of trying to learn them ourselves, we are hiring people. So we do have some of these new technology areas. If I look in general on the R&D, the Qt is very well staffed. The QA business function itself, it's still on the investment mode. So over there, you're going to see pretty much on each and every function. So a bit of marketing, a bit of sales, a bit of product management, a bit of the R&D. On IAR, we are strengthening some of the R&D functions over there. So IAR, I would say that the most personnel additions will be on the product R&D side and then some on sales. But when you have so many different locations, you add up and then you get the personnel increase, that's basically what we're looking for. Heli Jamsa: Thank you so much. I believe that concludes all the questions from the room. And as we are running out of time, I give it back to Juha for closing remarks. Juha Varelius: Okay. That came quick. So thank you very much for being here today. And the -- as we go into this year, like I said, the -- one -- the very big item for us this year is going to be the subscription change on IAR. So going from perpetual to subscription, that's the one of the core things we're doing. And of course, integrating IAR into the Qt family. So we're going to be a bigger, happy family. We are also looking forward this year that, yes, it's going to be a challenging year. I'd like to emphasize that the guidance we gave was not a range. So we just gave a bottom line that what is the floor level where we expect to be this year. Of course, we are expecting to be better on those numbers. And the -- on the profitability side, we're not looking on Q2 decrease on profitability nor on sales, but the IAR subscription change will affect our profitability this year. And so that's why the lower guidance. Where it's going to end up then that how aggressive can we be, remains to be seen. In any case, the 2027 for IAR will be a revenue growth year and a profitability year, then the question is that how steep is that curve over there. It's still very early phases to see that how rapidly we can drive this subscription change. I think with these words, thank you very much.
Operator: Greetings, and welcome to the Eagle Point Income Company Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I will turn the conference over to Mr. Darren Daugherty from Prosek Partners. You may begin. Darren Daugherty: Thank you, operator, and good morning. Welcome to Eagle Point Income Company's Earnings Conference Call for the Fourth Quarter and Fiscal Year 2025. Speaking on the call today are Thomas Majewski, Chairman and Chief Executive Officer of the company; Dan Ko, Senior Principal and Portfolio Manager for the company's Adviser; and Lena Umnova, Chief Accounting Officer for the Adviser. Before we begin, I would like to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the company's actual results to differ materially from such projections. For further information on factors that could impact the company and the statements and projections contained herein, please refer to the company's filings with the SEC. Each forward-looking statement or projection of financial information made during this call is based on the information available to us as of the date of this call. We disclaim any obligation to update our forward-looking statements unless required by law. Earlier today, we filed our full year 2025 audited financial statements and fourth quarter investor presentation with the SEC. These are also available in the Investor Relations section of the company's website, eaglepointincome.com. A replay of this call will also be made available later today. I will now turn the call over to Thomas Majewski, Chairman and Chief Executive Officer of Eagle Point Income Company. Tom? Thomas Majewski: Thank you, Darren, and good morning, everyone. During 2025, the CLO market experienced challenging conditions, and the company was not immune to these broad market dynamics. While default rates in the loan market remain below long-term historic averages, the company's financial performance and total return for shareholders last year were adversely impacted by a number of key factors. These factors included the effect of reduced SOFR levels on CLO debt investment income, ongoing loan spread compression impacting our CLO equity portfolio and a broader negative general sentiment in the market towards credit. Throughout the year, we actively managed our portfolio within our investment mandate as the market evolved, seeking opportunities across both CLO debt and equity as well as certain other asset classes beyond CLOs. We believe our long-term distribution track record reflects the durability of our strategy across different interest rate cycles and credit environments. As we move into 2026, we believe healthy underlying borrower fundamentals and our disciplined approach will position us well. Looking at the company's results for the year, EIC generated a GAAP return on equity of negative 0.7% and a total return on our common stock of negative 15.2%, assuming reinvestment of distributions. We paid $1.98 per share in cash distributions to our common shareholders or 15% of our average stock price during the year. During 2025, the elevated level of CLO refinancings, resets and calls contributed to early repayments across our CLO debt portfolio. Paydowns within our CLO debt portfolio totaled $147 million during the year. Because many of these investments were purchased at discounts and were then repaid at par, the repayments did generate $0.12 a share of realized capital gains during the year. During the course of 2025, we participated in 10 resets and 6 refinancings across our CLO equity portfolio. Each reset extended the reinvestment period to 5 years and together with the refinancings resulted in average CLO debt cost savings of 46 basis points for those CLOs. Looking at the fourth quarter results from last year, the company generated net investment income less realized losses of $0.03 per share, which was comprised of $0.35 of net investment income and offset by $0.32 of realized losses. The realized losses were primarily attributable to portfolio repositioning, including rotating out of certain positions from underperforming CLO collateral managers. The fourth quarter net investment income of $0.35 per share compares to $0.39 of net investment income per share recognized in the prior quarter. The decline in net investment income was driven primarily by 2 factors; first, SOFR declined during the quarter, reflecting the continuation of Fed rate cuts in the second half of 2025. This directly impacted our CLO debt portfolio as the coupons on our CLO debt positions generally have a floating rate based on SOFR. Second, continued tightening in broadly syndicated loan spreads, which has outpaced the decline in CLO liability costs also reduced earnings from our CLO equity portfolio. We refer to this market dynamic as spread compression. Despite the decrease in net investment income, portfolio cash flows remain robust. Recurring cash flows for the fourth quarter totaled $19 million or $0.79 per share, and that compares to the prior quarter's $17 million or $0.67 per share, representing an approximate 18% increase quarter-over-quarter. The increase reflects the quality and diversification of the company's investment portfolio. And notably, fourth quarter recurring cash flows exceeded our regular common distributions and total expenses by about $0.15 per share. NAV decreased to $13.31 per share as of December 31, which is down from $14.21 per share at the end of September. This was largely driven by continued loan spread compression, which has caused CLO equity valuations to decline. Our GAAP return on equity for the fourth quarter was negative 4.2%. Our investment strategy allows us to deploy capital across CLO debt, CLO equity and other credit asset classes in both the primary and secondary markets. This flexibility enhances our ability to allocate capital where we find the most compelling relative value. During the fourth quarter, we deployed about $45 million into new investments. Of that amount, $26 million was invested in other credit asset classes such as infrastructure credit, asset-backed securities, portfolio debt securities and regulatory capital relief transactions with a weighted average effective yield of 21.6%. Importantly, our adviser has expertise in these other credit strategies and has been invested in them for some time for other funds and accounts that our adviser manages. We've also continued to actively optimize our capital structure seeking to reduce financing costs. During the fourth quarter, we completed the full redemption of our 7.75% Series B term preferred stock. We also entered into a new revolving credit facility with an attractive cost of capital and a 3-year maturity. And then earlier today, we announced our intention to fully redeem the company's 8% Series C term preferred stock, which at present represents our highest cost of capital. During the quarter, we also repurchased $19 million of common stock at an average discount to NAV of 18.2%, resulting in a NAV accretion of approximately $0.14 per share. In November 2025, we announced that our Board of Directors had increased our common share repurchase authorization to $60 million. These actions reflect our ongoing commitment to enhancing shareholder value, and we expect to opportunistically continue buying back shares when they are trading at material discounts to NAV. We believe our shares remain undervalued and repurchasing them represents a very attractive use of the company's capital. Last week, we declared 3 monthly distributions of $0.11 per share for the second quarter of 2026, which is in line with the distributions we declared for the first quarter. We believe the current monthly distribution level of $0.11 per share aligns with the company's near-term earning potential in today's lower interest rate environment. As a reminder, when setting the monthly distribution level, the company's Board of Directors considers numerous factors, including the cash flow generated from the company's investment portfolio, our GAAP earnings and the company's requirement to distribute substantially all of its taxable income. CLO debt is a floating rate asset, so it is expected that our earnings power will generally move in line with benchmark rates. That said, we continue to believe CLO junior debt offers compelling risk-adjusted returns compared to many other broader credit market opportunities. We believe the company's portfolio is well positioned to drive returns in any economic environment and rate cycle. The scale and experience of our adviser, Eagle Point, remain key advantages as we seek to capitalize on opportunities in a dynamic market environment. I'll now turn the call over to Senior Principal and Portfolio Manager, Dan Ko, for an update on the market. Daniel Ko: Thanks, Tom. I'll provide a quick update on both the loan and CLO markets during the fourth quarter. Loan market fundamentals remained largely stable through the year despite occasional bouts of volatility due to headlines concerning tariffs, interest rates and global geopolitical factors. Loan issuers continue to have positive growth in their revenues and EBITDA throughout the year, contributing to a relatively healthy credit market. The S&P UBS Global Leveraged Loan Index posted a 1.2% return for the fourth quarter and a 5.9% return for the entirety of 2025. The trailing 12-month default rate decreased from 1.5% at the end of September to 1.2% as of December 31, still considerably below the long-term average of 2.6%. As of December 31, our portfolio's default exposure was 32 basis points. Continued rate declines should support a lower default rate environment as issuers save on interest costs. CLO new issuance rose slightly to $55 billion in the fourth quarter, totaling $209 billion for 2025, surpassing the 2024 record of $202 billion. Fourth quarter resets and refinancings were $54 billion and $20 billion, respectively. Combined full year CLO issuance, including resets and refinancings, hit $546 billion for 2025, exceeding last year's total volume of $511 billion. Tight loan spreads and increased supply of new issue CLOs were headwinds to CLO equity returns, causing some pressure on our results. At the same time, new issue loan activity is picking up with several large loan deals recently announced. This increase in supply could cause loan spreads to widen as the market absorbs higher loan volumes, leading to potentially higher equity cash flows in the future and creating a potential tailwind for CLO equity. CLO debt spreads have remained resilient despite the modest volatility that we observed in the fourth quarter. Our CLO BB positions, which are focused on the higher quality portion of the market, benefit from attractive yields and our subordination. As of December 31, we had $52 million of cash and undrawn revolver capacity available, providing ample liquidity to deploy into attractive investment opportunities or opportunistically repurchase our stock and deliver long-term value for our shareholders. With that, I'll hand the call over to our advisers' Chief Accounting Officer, Lena Umnova, to walk through our financial results. Lena Umnova: Thank you, Dan. During the fourth quarter, the company recorded net investment income or NII less realized losses from investments of $0.7 million or $0.03 per share. This compares to NII less realized losses of $0.26 per share in the prior quarter and NII and realized gains of $0.54 per share in the fourth quarter of the last year. Including unrealized investment portfolio losses, GAAP net loss was $15 million or $0.60 per share for the fourth quarter. This compares to GAAP net income of $0.43 per share for the third quarter. The company's fourth quarter net loss was comprised of investment income of $15 million, offset by net unrealized losses of investments of $16 million, net realized losses of $8 million and financing and operating expenses of $6 million. In addition, the company recorded an other comprehensive loss attributable to changes in the mark-to-market of the company's liabilities recorded at fair value of $1 million for the fourth quarter. We paid 3 monthly distributions of $0.13 per share during the fourth quarter of 2025. And last week, we declared monthly distributions of $0.11 per share for the second quarter of 2026, in line with the distributions for the first quarter of 2026. As of December month end, the company had outstanding preferred securities, which totaled 31% of total assets less current liabilities. This is within our long-term target leverage ratio range of 25% to 35%, where we expect to operate the company under normal market conditions. As of December 31, the company's NAV was $312 million or $13.31 per share versus $14.21 per share as of September month end. During the fourth quarter, we repurchased over 1.6 million shares of our common stock for $19 million at an average discount to NAV of 18.2% per share that resulted in NAV accretion of $0.14 per share. Looking at our portfolio activity during the month end of January, the company received recurring cash flows from its investment portfolio of $14 million. To note, some of the company's investments are still expected to make payments later in the quarter. As of January month end, net of pending investment transactions and settlements, the company had $85 million of cash and revolver capacity available for investment and other purposes. Management's unaudited estimate of the company's NAV as of January month end was between $13.23 per share and $13.33 per share. I will now turn the call back to Tom to provide closing remarks before we take your questions. Thomas Majewski: Thanks, Lena. The fourth quarter reflected our continued focus on active portfolio management amid dynamic market conditions. Performance faced technical headwinds driven by spread compression in the leveraged loan market and the pace of repricings rather than deterioration in credit fundamentals. Throughout this environment, we have focused on relative value and disciplined capital allocation across CLO debt and selectively CLO equity and other asset classes in the credit market beyond CLOs. We continue to actively execute on our share repurchase program as we view our stock as undervalued and believe repurchasing shares at a discount represents an attractive use of capital. Looking ahead, we remain constructive on the CLO market fundamentals. We have a robust pipeline of refinancings and resets, which we believe will help lower the liability costs in our CLO equity portfolio. At the same time, increased new issue loan activity may help rebalance supply and demand in the loan market over time, which we also believe could be incrementally supportive for CLO equity. Overall, we believe the current market environment represents a compelling opportunity for patient, well-capitalized investors with a strong balance sheet, active portfolio management and a continued focus on relative value, we believe Eagle Point is well positioned to navigate the evolving market conditions and deliver solid risk-adjusted returns and long-term value for our shareholders. Thank you for your time and interest in Eagle Point Income Company. Lena, Dan and I will now open the call to your questions. Operator? Operator: [Operator Instructions] Our first questions come from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start with just a follow-up on some of your comments, Tom, about the realized losses in the quarter being driven by rotating out of some underperforming managers. Wonder if you could just add a little more color to that on what particular measures or metrics were they kind of falling short of expectations? Just kind of curious if you can add something there. Daniel Ko: Erik, this is Dan. So I guess in terms of the underperforming collateral managers, these are some of the ones that had, I guess, more credit issues and kind of loan spread compression that we had kind of anticipated on the CLO equity side. Maybe there were a handful kind of on the CLO BB side as well that have kind of underperformed our expectations on credit. And so we just thought that it was best to exit and kind of rotate into both other CLOs, but also some of the asset classes away from CLOs that you've seen kind of grow kind of within your portfolio, whether it's collateralized fund obligations, asset-backed securities and then some other portfolio debt securities, which are all kind of asset classes that Eagle Point and other funds -- within Eagle Point are investing in. We just found kind of better relative value there. And so thought we would kind of enhance the yield of the portfolio as well as kind of add a little bit of diversity within the portfolio through those. Erik Zwick: That's great color. And then in terms of the announced redemption of the Series C term preferred stock, curious about your source of funds for redeeming that? Is it kind of a combination of cash on hand and maybe utilization of the new revolver? Or how do you plan to fund that? Daniel Ko: Yes, exactly. So there's -- it's definitely the revolver, new revolver that's in place. There's kind of cash on hand, but also just there continues to be a lot of refis and resets. So for our CLO debt, that means that we're getting paid off kind of at par stuff that we typically bought at a discount earlier. So we're achieving that convexity and then able to kind of get par back and use those proceeds to ultimately pay back the EICC. Erik Zwick: Got it. And then last one for me. In the press release, there's an indication that the weighted average expected yield on the CLO portfolio was 12.5% at the end of the quarter, and that was up from 11.6%. Curious the driver of that increase, was it kind of income related or more in the denominator, just the change in the fair market value of the portfolio? Daniel Ko: I think it's more just so that we -- it was a little bit, I guess, of the denominator, but it was also just kind of being able to redeploy into kind of wider yielding assets versus CLO BBs and CLO equity. So it's really that kind of non-CLO bucket that was accretive. Erik Zwick: Got it. That's preferred rather than a change in the denominator. Operator: Our next questions come from the line of Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Lena, were there any nonrecurring items in the earnings? Lena Umnova: No, there were none, this quarter. Christopher Nolan: Okay. And then I guess a follow-up on Erik's question on the refi. Should we expect the investment balance sheet investment portfolio to shrink in the first quarter and possibly into the second quarter as well relative to year-end? Daniel Ko: No. I mean, I guess we're obviously redeeming kind of the EICCs, but -- and we have been kind of opportunistically buying back our stock. That being said, we typically, over the long-term target a 25% to 35% leverage ratio. And we're -- I guess, with the EICCs being redeemed, we'll be kind of on the lower end of that. So I guess we have that target of 25% to 35%. And I guess that's really kind of all I can say for now. Christopher Nolan: Okay. And then I guess for the indication is you're going to be focusing less on CLO, more on alternative credit assets. Are these going to be assets which you have any sort of direct exposure you directly underwriting let say, a company? Or is it you're going to be buying packaged securities as before? Daniel Ko: Yes. No. So this is -- these are investments that are being made kind of across the Eagle Point platform and other funds or accounts that we manage. We have dedicated teams that are focusing on these investments. And then the EIC based on kind of the merits of the investment and based on kind of my decision as the portfolio manager can participate in these investments. And so relative to kind of the opportunities that we were seeing in CLOs, we found that these other non-CLO investments, I guess, provided a better relative value opportunity. So that could change tomorrow if we find kind of CLOs provide a better kind of relative value kind of attractive yield. But during the fourth quarter, we found better relative value within these kind of non-CLO asset classes. Operator: We have reached the end of our question-and-answer session. I would now like to hand the call back over to Tom Majewski for any closing comments. Thomas Majewski: Great. Thank you very much, everyone. We appreciate your time and interest in Eagle Point Income Company. Hopefully, we're giving some good color on the strategy for the portfolio as we move forward. Certainly, we'll remain in the foreseeable future to the focus on the core of a CLO BB portfolio, but with the goal of enhancing the return where we can just as we've added CLO equity from time to time, similarly introducing some other asset classes that we're investing in across Eagle Point's broader platform where we see opportunities on a relative basis to add incremental value. So we're excited about the company. Our #1 job is to be delivering strong returns to shareholders through credit products. And we believe as we continue to evolve the strategy of the portfolio consistent with broader developments here at our firm, we're excited for the future prospects for EIC. We appreciate your time and attention. Lena, Dan and I are around today if anyone has any follow-up questions. Thank you. Operator: Thank you, ladies and gentlemen. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Operator: Ladies and gentlemen, thank you for standing by. My name is Demi, and I'll be your conference operator today. At this time, I would like to welcome you to the Payoneer Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Michelle Wang. Please go ahead. Michelle Wang: Thank you, operator. With me on today's call are Payoneer's Chief Executive Officer, John Caplan; and Payoneer's Chief Financial Officer, Bea Ordonez. Before we begin, I'd like to remind you that today's call may contain forward-looking statements, which are subject to risks and uncertainties. For more information, please refer to our filings with the SEC, which are available in the Investor Relations section of payoneer.com. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them, except as required by law. In addition, today's call may include non-GAAP measures. These measures should be considered in addition to and not instead of GAAP financial measures. Reconciliation to the nearest GAAP measure can be found in today's earnings materials, which are available on our website. Additionally, please note we have posted an earnings presentation supplement alongside our earnings press release on investor.payoneer.com. All comparisons made on today's call are on a year-over-year basis, unless otherwise noted. With that, I'd like to turn the call over to John to begin. John Caplan: Good morning, everyone, and thank you for joining us. Payoneer is the financial operating system for Global Commerce. We have a 20-year head start building assets, network effects and brand that are highly differentiated and difficult to replicate. We have proven product market fit, deep global distribution and the payment and regulatory infrastructure to support profitable growth at scale. We are capturing share in a large and growing market and continue to strengthen our strategic advantages every quarter. First, Payoneer has global scale that eliminates the friction of growing cross-border. We processed over $87 billion in volume across 190 countries and territories in 2025. When a manufacturer in Vietnam pays a supplier in Mexico, when a business in India wants to sell on Japan's e-commerce marketplaces, or a software developer in Dubai invoices a client in Germany, we're there. Payoneer supports cross-border commerce across every SMB use case. Second, trust and safety built over decades. We are regulated in key markets around the world and have built robust compliance infrastructure based on years of experience navigating the challenges associated with cross-border payments, particularly those into and out of emerging markets. Third, we are driving growing profitability through discipline. We've increased adjusted EBITDA ex-interest from negative $25 million in 2023 to positive $40 million in 2025, while investing in innovation and strengthening our capabilities. We're entering 2026 with conviction around our margin expansion opportunity. We are orienting Payoneer towards an AI-first strategy, which will reshape our customer experience, operations and cost structure. The impact is tangible across every major function. Engineering is shipping code meaningfully faster. Our go-to-market team is using AI for scoring leads, improving funnel efficiency and increasing ROI. And in our customer support and compliance teams, AI agents are creating a flywheel effect, better customer outcomes, greater efficiency for our teams and a structurally lower cost base. Our leading position in cross-border B2B payments uniquely positions us as stablecoins and AI fundamentally reshape global money movement. We are the beneficiaries of this innovation and have the assets, scale and market position to capture outsized value. Before I dive into our record 2025 results, I'd like to spend a moment on our 2026 outlook. We plan to deliver significant core profitability expansion. We expect to more than double core adjusted EBITDA to $90 million at the midpoint. Revenue ex-interest of $900 million to $940 million represents 12% growth at the midpoint. This accounts for finishing the work we started in 2025 to optimize our checkout business and our customer portfolio. These actions are expected to reduce our 2026 revenue growth by approximately 300 basis points, but will lead to higher margins and a stronger, healthier customer portfolio. We plan to exit the year with mid-teens growth and mid-teens core margins. Now turning to our results. 2025 was a pivotal year for Payoneer. We increased the utility we provide to our customers, made deliberate choices about where to focus in a dynamic environment and executed and innovated with discipline. The results, they speak for themselves. We grew revenue ex-interest 14%. B2B revenue grew twice as fast at 28% as we take share from traditional financial institutions. B2B now represents 30% of our revenue ex-interest, up from 20% in 2023. We strengthened and expanded our ecosystem of enterprise relationships, including with Airbnb, Upwork, TikTok Live, Alibaba, Mercado Libre and Best Buy. 21% ARPU expansion ex-interest, driven by upmarket momentum and multiproduct adoption, 9 basis points of SMB take rate expansion, $7.9 billion of customer funds held in Payoneer accounts, up 13% year-over-year and outpacing volume growth. We have hedging strategies in place to reduce interest rate sensitivity. We have locked in a substantial portion of interest income for 2026, 2027 and 2028 regardless of the interest rate environment. We improved our unit economics and are driving meaningful efficiencies in our operations. Other operating expenses, which include customer onboarding, support and KYC costs were down 3% in 2025. While at the same time, we grew volume and revenue, mix shifted to more complex verticals such as B2B and added to our regulatory licenses. Total adjusted EBITDA of $272 million, a 26% margin was up year-over-year, as we unlocked substantial operating leverage and powered through a $25 million headwind from declining interest income. We delivered $40 million of adjusted EBITDA ex-interest, nearly triple versus 2024. We generated significant free cash flow of $146 million, representing nearly 200% free cash flow conversion. These aren't just great numbers. They reflect a healthy, strong business that is positioned for long-term value creation. We believe our current share price does not fully reflect the strength of our balance sheet, the durability of our cash flows, or our long-term growth opportunities, including those from Agentic Commerce and stablecoin. We've continued to align our capital allocation with our conviction in the intrinsic value of our business. In 2025, we stepped up our buybacks, repurchasing $175 million of shares, including $80 million in Q4 alone. We plan to continue buying our shares at or close to these levels. Since we began our transformation in 2023, we prioritized unlocking Payoneer's full potential with a sharp focus on profitability. At our inaugural Investor Day, we presented the first phase of our strategy and disclosed metrics that focused on "ideal customer profiles" customers that were profitable based on a simple minimum volume threshold. In the 2 years since, we have delivered meaningful impact. Today, we're proud to share that all customer cohorts are profitable. We've grown our ICP base by 8% and increased ARPU by more than 50%. We've delivered a 17% CAGR in our revenue ex-interest, and we've significantly expanded core profitability and demonstrated consistent 25% adjusted EBITDA margins in the declining interest rate environment. We're now entering the next stage of our transformation. We're moving further upmarket to focus on larger, more sophisticated customers. Customers receiving tens of thousands, or even hundreds of thousands of dollars a month on Payoneer's platform are generally scaled, often multi-entity, multi-geography businesses. These businesses have proven business models, complex cross-border needs and potential for significant wallet share expansion. They also demonstrate significantly higher ARPU, retention and product adoption characteristics. We have strong product market fit and proven ability to serve these businesses. For example, Customers with $600,000 or more of annual average volume in their Payoneer account now represent 42% of our revenue, and they were our fastest-growing segment in 2025, driving 60% of our overall growth. The UAE is a great example of a region where our upmarket strategy is taking hold. The city of Dubai is 1 of 5 major global business hubs. Its economy is projected to double over the next decade, driven by service exports and 20,000 foreign-owned companies registered there in 2025 alone. Payoneer is successfully acquiring and serving these cross-border businesses, which is driving our strong results. Our business from customers in the UAE generated over $1 billion in volume and $15 million of revenue in 2025. Revenue is growing nearly 50% year-over-year, driven by large IT and digital marketing agencies. To support our upmarket strategy, we are making targeted investments to expand and enhance our value prop. For example, we recently launched expanded capabilities in Mexico and Indonesia. We plan to expand our product offerings in India, the world's fastest-growing large economy, supported by our recent in-principle license authorization. We recently acquired Boundless, which deepens our workforce management capabilities for global teams. And we're adding more partners to expand working capital and credit solutions, enabling customers to access the capital they need to invest in inventory, marketing and expansion. We will press our near-term advantages and make bold bets to position ourselves at the center of ongoing innovation in the payment space. One of these big bets is stablecoin. We believe Payoneer is uniquely positioned to bridge traditional finance and blockchain-based payments. Here's why. We have world-class last mile infrastructure in emerging markets, supported by the robust and complex regulatory framework necessary to operate compliantly at scale. We have deep compliance expertise to onboard and support customers in markets that are complex to serve. We have long-standing trusted relationships with millions of cross-border SMBs around the world. We are partnering with Bridge, a Stripe company to launch stablecoin capabilities. We launched a wait list a few weeks ago and have brought our first customers live. What's most exciting about this is that stablecoin is TAM expanding for Payoneer. We are seeing meaningful interest from larger scaled businesses that fit the upmarket profile we're pursuing, and we are seeing new customers come to Payoneer for these features across a diverse set of markets and industries. As part of our broader stablecoin strategy, we have also just this week applied to establish an uninsured national trust bank in the United States. We expect this will enable Payoneer to seamlessly integrate stablecoin capabilities within our broader ecosystem. We plan to unlock utility for our customers, remove complexity and barriers to entry and open up additional addressable markets for a new breed of digitally native global businesses. We are on a multiyear journey to position Payoneer as a category-defining company in cross-border commerce. We have demonstrated that we have the right team, a strong position in the market and a track record of successful execution. I'm proud of our team, grateful to our customers and excited for our future. Thank you all for your confidence and support of Payoneer. I'll now turn it over to Bea to discuss our financial results and 2026 guidance in more detail. Bea Ordonez: Thank you, John, and thank you all for joining the call today. Payoneer's full year results, mid-teens growth, 26% adjusted EBITDA margin and significant cash flow generation demonstrate the strength of our business. We are delivering profitable growth, optimizing transaction cost economics, unlocking meaningful leverage and making investments to position our business for sustained long-term growth while returning capital to our shareholders. Turning to our fourth quarter results. We delivered record quarterly revenue of $275 million, with revenue, excluding interest income, up 9%, driven primarily by strong and accelerating growth in our B2B franchise and the ongoing implementation of our pricing strategy. ARPU increased 15% in the quarter as we continue to focus our efforts on larger customers and drive increased adoption of higher-yielding products. ARPU, excluding interest income, was up 21%, marking our sixth consecutive quarter of 20% plus expansion. Total volume grew 10% year-over-year, reflecting strong enterprise payouts volumes with SMB volumes growing by 5%. Volume from SMBs that sell on marketplaces was up 1%. We saw an acceleration in marketplace volumes intra-quarter and mid-single-digit volume growth during the holiday season, in line with broader industry trends. Fourth quarter B2B volume growth of 21% accelerated significantly sequentially, led by strong acquisition and ramp-up of large customers, especially in China, Asia Pacific and EMEA. Our B2B franchise accounted for 30% of our revenue, excluding interest income in the fourth quarter, and we are confident that we can continue to deliver strong growth as we penetrate this massive market. During 2025, we saw strong and accelerating growth in enterprise payout volumes. Full year enterprise payout volumes grew 17% with growth reaching 27% in the fourth quarter. As John noted, this strong growth was driven by both expanding and deepening relationships with existing clients and from onboarding new enterprise clients, including Airbnb, TikTok Live and Best Buy, among others. Enterprise customers value our global scale and reach, the security of our platform and our extensive payout network. For example, we recently renewed our relationship with Upwork, which has been an important partner for us for over 15 years. Together, we will continue to support the ambitions of entrepreneurs globally, and we are actively exploring stablecoin payout solutions together, reflecting our commitment to innovation and to investing in the future of money movement. Given strong momentum in 2025 and our current pipeline, we believe we are well positioned to continue driving strong enterprise payout volume growth in 2026. Our Q4 SMB take rate of 113 basis points was up approximately 4 basis points year-over-year as we continue to drive faster growth in higher take rate areas of the business and from the ongoing execution of our pricing strategy. Customer funds increased 13% year-over-year to $7.9 billion, partially offsetting the impact of lower interest rates on our interest income revenue. We generated interest income of $56 million in the quarter. Customer funds grew at a substantially higher rate than SMB volumes in 2025, a direct reflection of the trust customers place in our platform and of the utility we provide through our multicurrency accounts receivable and accounts payable capabilities. We have developed and implemented a robust interest rate hedging program designed to secure portions of our interest income as interest rates, especially in the U.S., continue to decline. As of December 31, 2025, we had hedges in place related to approximately $4 billion or 51% of customer funds through our portfolio of treasury securities and term deposits and through derivative instruments. Through these programs, we have secured over $130 million of interest income in 2026, over $110 million in 2027 and over $90 million in 2028, irrespective of the direction of short-term interest rates. We plan to lock in additional amounts through reinvestment as the portfolio runs off, providing a durable revenue stream. On a go-forward basis, our expectation remains that balances should broadly grow in line with volumes over time, while balance behavior is, of course, impacted by a range of factors, including customer usage behavior, the global macro environment and prevailing interest and FX rates. Total operating expenses of $246 million increased 6%, primarily driven by increases in IT and communication expenses and labor-related expenses, including from the impact of our EasyLink acquisition in China. Transaction costs of $43 million were roughly flat year-over-year despite a 9% growth in revenue, excluding interest income, primarily from greater operational efficiency and from the impact of the new agreement we signed with Mastercard in July. Transaction costs represented 15.6% of revenue, a decrease of around 90 basis points year-over-year, even with the impact of lower interest income. Excluding interest income, transaction costs represented 19.6% of revenue, a decrease of approximately 180 basis points reflecting the improving profitability and margin characteristics of our portfolio. Sales and marketing expense increased $5 million or 8%, primarily due to a higher labor-related costs and increased incentives related to our card offering. G&A expense increased $5 million or 15%, primarily due to higher labor-related costs, including from our EasyLink acquisition, higher facilities costs related to our offices in Israel and higher IT and communication costs. R&D expense was roughly flat, while other operating expenses decreased by $3 million or 6%, primarily due to lower consulting fees and lower labor and related expenses. Adjusted EBITDA was $69 million, representing a 25% adjusted EBITDA margin in the quarter. Adjusted EBITDA, excluding interest income, was $13 million, a five-fold increase versus the prior year period. For full year 2025, we generated $40 million in adjusted EBITDA, excluding interest income, nearly 3x the 2024 number. We are unlocking meaningful leverage through our increased scale, the deepening of key strategic relationships and ongoing efficiency and cost discipline. Net income was $19 million compared to $18 million in the fourth quarter of last year. Basic and diluted earnings per share were both $0.05, in line with the prior year period. We ended the quarter with cash and cash equivalents of $416 million. For full year 2025, we generated significant free cash flow of $146 million, nearly 200% of our reported net income, enabling us to both invest in our business and return capital to shareholders. Additionally, in January 2026, we announced the acquisition of Boundless, an Ireland-based employer of record platform for approximately $13 million plus earn-out provisions amounting to up to $4 million. During the quarter, we repurchased approximately $80 million of shares at a weighted average price of $5.76, a significant acceleration from the third quarter. And as of December 31, had approximately $192 million remaining on our current share repurchase authorization. Turning to our 2026 guidance. Our 2026 guidance reflects our confidence in continuing to drive strong growth in our SMB franchise and in our ability to unlock substantial and sustained leverage in our business model. We expect revenue to be between $1,090 million and $1,130 million with $190 million of interest income and revenue, excluding interest income between $900 million and $940 million. We expect core revenue growth of 12% at the midpoint. As John highlighted, we are taking deliberate actions in 2026 to move our business upmarket and to deliver sustainable higher-margin growth. Our core revenue guidance includes an approximately 300 basis point headwind to our growth rate, reflecting anticipated churn related to our transition to Stripe's Checkout solution as well as from changes to our acquisition focus and onboarding flows. We have been migrating our Checkout offering to the new Stripe solution over the past 6 months and are pleased with our progress and the expanded capabilities our customers can now access. We expect the transition to be accretive to both revenue less transaction costs and adjusted EBITDA in 2026 and that this new partnership construct should continue to deliver more favorable yield and margin dynamics as we scale. We expect to accelerate our revenue ex interest growth over the course of 2026 as we execute on our upmarket strategy, optimize our portfolio, realize the full quarter impact of pricing initiatives rolling out throughout the year and lap tougher comps, including with respect to the timing of tariff impact. We expect high single-digit growth in the first half of the year, increasing sequentially in the second half to exit the year at a mid-teens growth rate. We expect to drive significant incremental profitability as we focus on portfolio health, customer mix and expense discipline. We believe this focus, along with the investments we are making to drive long-term profitable growth, position us to deliver mid-teens growth rate in 2027 and beyond and ongoing expansion in our profitability, excluding interest income. Our 2026 guidance at the midpoint assumes high teens B2B volume growth, mid-single-digit growth in volume from SMBs that sell on marketplaces and mid-teens enterprise payout volume growth. We expect transaction costs to be approximately 15% of revenue, down 70 basis points year-over-year from the impact of ongoing optimization in our bank and processor network, including our renewed agreement with Mastercard and from the migration of our checkout portfolio to the Stripe solution. We expect revenue less transaction costs to grow faster than revenues, even including the impact of a $42 million decrease in interest income. Our guidance for adjusted OpEx, which represents revenue less transaction costs and adjusted EBITDA is approximately $660 million at the midpoint, a 7% increase year-over-year. At constant currency, we expect adjusted OpEx to grow roughly 4% year-over-year, significantly lower than our growth in revenue, excluding interest income. This reflects our focus on increasing the profitability of our core business from investments in our platform, including in Agentic AI-driven solutions and from further diversifying the distribution of our labor footprint, including by increasing our presence in India. We are strategically moving the company towards an AI-first strategy in 2026, to drive step function efficiency gains across our entire ecosystem. Agentic models are being deployed to increase product delivery velocity, improve our customer experience, drive go-to-market ROI and reduce resource-heavy workflows, particularly in customer support and compliance. We opened a new technology hub in Gurgaon, India in 2025, building on our existing presence in the world's fastest-growing major economy and allowing us to access India's deep technology expertise. We are also expanding our operations and compliance hub in Bangalore, India. Our 2026 OpEx plan also include meaningful investments related to our stablecoin offerings and our bank charter application, which, if approved, we expect further position us for sustained long-term growth. We expect adjusted EBITDA to be between $275 million and $285 million, an approximately 25% margin and an increase of around $8 million year-over-year despite an estimated headwind of approximately $42 million in interest income. Excluding interest income, we expect to deliver adjusted EBITDA of between $85 million and $95 million, more than twice the 2025 level and achieving a double-digit margin for the first time as a public company. Also for the first time as a public company, we expect adjusted EBITDA, excluding interest income to be positive even when fully burdened for stock-based compensation. We expect adjusted EBITDA ex interest income will meaningfully scale over the course of the year as we fully lap the impact of tariff policy changes introduced in the second quarter of 2025 as we continue to scale our B2B franchise and as we lap near-term headwinds from our checkout migration and other portfolio actions. We also expect our overall adjusted EBITDA margin will increase sequentially throughout the year. Payoneer enables cross-border global commerce at scale, and our business benefits from the ongoing globalization and digitization of commerce. We remain focused on supporting and serving the third-party sellers that are critical to e-commerce marketplaces and on further penetrating the massive cross-border B2B segment. We are making meaningful investments in our platform, including in our money movement capabilities and in our regulated infrastructure. We are shifting our business towards a higher quality, healthier and more sustainable portfolio and unlocking significant leverage in our core business. We believe that, our current market valuation represents a significant discount to the intrinsic value of our company. Beginning in the fourth quarter of 2025, we significantly accelerated the pace of our share repurchase program. In the fourth quarter, we repurchased approximately $80 million worth of shares and assuming fairly comparable stock price levels to today, would expect to use the entirety of our remaining $192 million in repurchase authorization in 2026. 2025 was a record year for Payoneer. We drove strong profitable growth in a dynamic macro environment, unlocked significant leverage in our core business and made important investments to strengthen our franchise. We are now happy to answer any questions you may have. Operator, please open the line. Operator: [Operator Instructions] Your first question comes from the line of Cris Kennedy with William Blair. Cristopher Kennedy: As you move upmarket, what metrics should we follow or what KPIs should we track to see the progress as you make that strategy? Because we know your segment disclosures will be changing. John Caplan: Yes. Cris, great question. And I think the way I think about it and the team here thinks about it is we have a really strong business upmarket. In Q4 of '25, the customers that did over $50,000 accounted for 42% of our revenue, up 10 percentage points versus the first quarter of 2022. So we have a very healthy and strong upmarket business, and we see really solid product adoption, more average volume per customer and very strong ARPU. And we will continue to share with our shareholders the ARPU growth, the traction we have, cross-selling products and our volume per customer growth. Cristopher Kennedy: Okay. Understood. And then real quickly on the profitability, core profitability, clearly, you're making progress there. Can you talk about the long-term opportunity to expand margins on that metric? Bea Ordonez: Yes. Thanks for the question, Cris. Yes, look, we're really focused on expanding the ex-interest profitability in the business. Our guidance at the midpoint calls for $90 million of core adjusted EBITDA before interest income, and that's more than 2x what we delivered in the prior year. So significant leverage unlock. We're growing our top line. We're increasing our margins, including the margins we get from our transaction-based business, and we're improving the profitability and long-term health of the portfolio. All of that is showing up in those metrics, and we feel confident that we can continue to deliver that kind of unlock. We talked a little bit about the AI-first strategy that we're deploying. So as I look out beyond 2026, we feel really good about our ability to continue to unlock leverage in the business. Operator: Your next question comes from the line of Nate Svensson with Deutsche Bank. Christopher Svensson: Hoping you could talk a little bit more about the trends in the marketplace business. So volume growth did decelerate a bit, but you did call out an acceleration intra-quarter, I think, to mid-single digits. And I know a lot of folks out there try to track some of the larger third-party marketplace data as a proxy for your business here. I know that's an apples-to-oranges comparison. But nonetheless, I would love to hear about trends on what you saw in marketplace and kind of how you expect that to play out in '26 to get to the mid-single-digit volume guide for the year. Bea Ordonez: Yes. Thanks for the question, Nate. So look, we had called out back in November when we reported Q3 that we were seeing slightly softer October marketplace volume. We indicated thereafter that we were seeing similar trends in November. So what we saw is more or less in line with the expectations. We actually saw a strong holiday season, right, back end of November and into December, mid-single-digit marketplace volume growth in December, which look, to your point around sort of apples to oranges as we look to the broader holiday spending trends is in line with those broader trends at mid-single digit. And we've seen modest acceleration in that marketplace volume coming into January and February. So look, again, last year was a pretty dynamic environment. I think we saw the impact in sort of late Q3 and into Q4 of tariffs. We're seeing modest acceleration coming into the year. Our franchise is strong, and we feel good about continuing to accelerate off of this baseline. Christopher Svensson: That's helpful. And nice to hear the January and February commentary. I guess, just the follow-up question, just more broadly on the 2026 guide. So it's nice to hear that you're expecting to accelerate through the year, exit at mid-teens. I know, you mentioned some of the lapping impacts, the transition from optimizing checkout, customer portfolio, all that stuff. But I think like the big question that I have, and I'm getting this morning is just on the confidence and visibility in that core trends in the business. Again, you mentioned the lapping impacts and the other initiatives. But really just more color on your confidence visibility into getting us to a mid-teens exit rate as we leave 2026. Bea Ordonez: Yes. Thanks for the question. So look, we've called for high single-digit core revenue growth in the front half of the year, accelerating to exit in those mid-teens. A few factors give us confidence there and are driving that acceleration. One, and I think maybe foremost, we're seeing significant acceleration in our B2B business. That was -- that grew 21% in volume terms in Q4. So we're seeing really nice momentum in that business. It grew intra-quarter and good momentum coming into the year from really everything you heard in the prepared remarks, our focus on high-value customers, getting more focused on new and differentiated acquisition motions. The ongoing acceleration in our enterprise business as we continue to ramp up new partners. We talked about some of those names, some of those logos on the call. That's driving some of that. The benefits in the back half of the year of some of the pricing strategies that we continue to roll out, largely targeted at the long tail. John talked a little bit on the call. around how we look at that portfolio overall. And then finally, as we noted, really just lapping, if you like, the headwinds and getting to the back half of the year, lapping that tariff impact and some of the headwinds that we talked about in terms of the portfolio actions we're taking, including the transition to Stripe, and that transition is more front-end loaded. So a long list of things, but a carefully sort of worked out view on how we accelerate the business throughout the year. Operator: Next question comes from the line of Sanjay Sakhrani with KBW. Sanjay Sakhrani: Maybe you guys could talk a little bit about sort of the opportunity for the bank and sort of how you see that unfolding for yourselves and maybe just the time line from here? Bea Ordonez: Yes. Thanks for that question, Sanjay. Look, we're really excited about the momentum in this space. As we called out, this is a strategic investment, both rolling out capabilities with Bridge in terms of stablecoin capabilities, and our bank charter application. We think that positions us at the center of really ongoing innovation in the payment space. And so we've made those announcements over the last couple of weeks. We've been hard at work across a range of work streams, including launching those capabilities. In terms of the bank charter, it really allows us to do a few things, right? It allows us to be able to issue and manage reserves in a compliant infrastructure in support of stablecoins. It allows us down the line to custody should we choose to do so. But ultimately, it does what Payoneer does as a part of our core value proposition, right? It brings these digital currencies into a regulated and trusted ecosystem and one where we can seamlessly integrate into the fiat rails and the existing fiat ecosystem that we already operate for our customers. So think of it as a step within that broader strategy. We're really excited. We're working hard, and we really do think it positions us at the center of innovation in the cross-border payment space. Sanjay Sakhrani: Okay. Great. And maybe just like a 2-part question on some of the questions that were asked before. But that 300 basis point headwind, sort of is that the final piece? And then we no longer have any sort of impact from transitioning the customer base or any of the services? And then secondly, just as we think about these tariffs and the start and start and changes in policy, I'm curious how you think that affects your business and sort of the marketplaces. Bea Ordonez: Yes, happy to take the first part. So yes, we called out that headwind to provide that disclosure, and it's really 2 elements. One, it's the transition to the Stripe solution. And we called out high single-digit million headwind to revenue in '26. we're very comfortable with that headwind, right? We've talked about this solution. It delivers best-in-class capabilities to our customers and ultimately, higher-yielding, better margin portfolio dynamics. So that is part of it. The other actions are really sort of in line with what we've talked about shifting to a healthier portfolio, and we're comfortable that we leave those behind as we exit 2026. Again, moving towards that larger portfolio of customers, lower risk portfolio that really gives us confidence to build sustainably at that mid-teens growth. John Caplan: And just on the tariffs, I think we are very confident that actually the shifting tariff landscape actually presents a real opportunity for Payoneer. And I think, it's driven by our global presence, a, and our ability to capture those shifting trade flows as Chinese sellers and Chinese merchants globalize their focus on distribution, they're increasingly turning to Payoneer as their financial operating system. The uncertainty in 2025 with the stop-start nature of the tariffs caused sellers to have to try to stop and start, frankly. But now that we begin to see normalization, obviously, the Supreme Court last week creates a little bit more uncertainty. But I imagine heading into the April meeting that with President Trump and Chairman Xi, we should ultimately see clarity and certainty, which will be a tailwind for Payoneer long term. Operator: And there are no further questions at this time. I will turn the call back over to John Caplan for closing remarks. John Caplan: Thank you, and thank you, everybody, for joining us today and for your participation this morning. We delivered record results in 2025, and we're excited about the significant opportunities for us in '26 and beyond. I want to thank our team globally for their hard work, commitment to our customers, to one another, to our shareholders, and we look forward to speaking with you again in May. Thanks, everybody. Operator: This concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab's Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. It's now my pleasure to turn the floor over to Christine Chiou, Senior Vice President of Investor Relations. Thank you. Please go ahead. Christine Chiou: Thank you, operator. Hello, and welcome, everyone. Today's earnings call will be led by Dr. Samantha Du, Zai Lab's Founder, CEO and Chairperson. She will be joined by Josh Smiley, President and Chief Operating Officer; Dr. Rafael Amado, President and Head of Global Research and Development; and Dr. Yajing Chen, Chief Financial Officer. Dr. Shan He, our Chief Business Officer, will also be available to answer questions during the Q&A portion of the call. As a reminder, during today's call, we will be making certain forward-looking statements based on our current expectations. These statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from what we expect due to a variety of factors, including those discussed in our SEC filings. We will also refer to adjusted loss from operations, which is a non-GAAP financial measure. Please refer to our earnings release furnished with the SEC on February 26, 2026, for additional information on this non-GAAP financial measure. At this time, it is my pleasure to turn the call over to Dr. Samantha Du. Ying Du: Thanks, Christine. Good morning, and good evening, everyone. Thank you for joining us today. Zai Lab is at an important point in our evolution. We are building a company increasingly defined by global innovation, resting on a foundation supported by a commercially profitable China business and R&D infrastructure. Today, our global oncology, immunology pipeline is reaching a scale and maturity that fundamentally changes the profile of this company. We have multiple global programs advancing rapidly through the clinic and with zoci in pivotal stage. We see a clear path toward our first potential U.S. approval by 2028. Importantly, we advanced zoci from IND to global Phase III in less than 2 years, an industry-leading pace that reflects the strength of our integrated U.S. and China development model. This capability enables faster, more capital-efficient execution, is now being applied across our broader pipeline. Our China business continues to provide stability and leverage for our global R&D efforts. Despite a challenging macro and operating environment, full year revenue grew 15% year-on-year, and our commercial profitability continues to improve. Looking ahead to 2026, our priorities are very clear. This is a year focused on execution and preparation. We expect several meaningful pipeline catalysts, including clinical data for zoci in brain metastasis, neuroendocrine carcinoma and first-line small cell lung cancer as well as first-in-human data from our IL-13/IL-31 receptor bispecific program in atopic dermatitis. On the regional side, we have important pivotal data readouts for large opportunities such as povetacicept in IgAN and elegrobart in thyroid eye disease, both of which enhance the durability of our China growth engine. Business development remains an important lever for us. Our presence and capabilities in China provides access to one of the world's most important fast-evolving innovation ecosystems, creating opportunities that can meaningfully strengthen and prioritize both our global and regional pipeline. Ultimately, our objective is to build a company that can make a lasting difference for patients while creating substantial value for shareholders. With that, I'll now hand the call over to Rafael, who will walk you through the progress of our R&D pipeline. Rafael? Rafael Amado: Thank you, Samantha. 2025 was a year of significant progress for our R&D organization as we continue to build globally competitive pipeline. Over the course of the year, we initiated a pivotal trial in oncology, advanced one additional oncology program into the clinic and moved our lead immunology asset into clinical development. With that, I'd like to walk you through our progress, starting with zoci, our potential first and best-in-class DLL3-targeting ADC and a cornerstone of Zai Lab's global oncology portfolio. In second-line and third-line small cell lung cancer, we have initiated a global registrational Phase III study, which will enroll approximately 480 patients across second-line post-platinum and third-line post-tarlatamab settings with a control arm reflecting real-world global practice, including topotecan, lurbinectedin or amrubicin. Importantly, zoci has advanced at a rapid pace, significantly faster than is typically observed for programs in this space. Based on current time lines, we anticipate a potential accelerated approval submission in 2027 and our first global approval in 2028. Clinically, zoci has demonstrated encouraging efficacy in heavily pretreated extensive-stage small cell lung cancer, including an 80% objective response rate in 10 patients with untreated brain metastases. The ability to treat both intracranial and extracranial disease without treatment interruptions represent a meaningful potential advantage for patients, and we look forward to presenting this data in the coming months. Equally important, zoci continues to stand out for its favorable safety profile with low rates of severe treatment-related adverse events. We believe this profile supports zoci's potential role as a backbone ADC in first-line combination regimens, including those that reduce chemotherapy burden. We plan to initiate a first-line pivotal trial in small cell lung cancer and to advance zoci into additional novel combination regimens before year-end. Beyond small cell lung cancer, we see a compelling opportunity for zoci in neuroendocrine carcinomas or NECs, a large underserved population with no approved DLL3-targeted therapies. Enrollment in our global Phase Ib/II is progressing very well, and we plan to present initial data this year with the goal of initiating a registration-enabling study by the year-end. Taken together, we believe zoci's differentiated efficacy and safety profiles, including activity in brain metastases, positions it to address a significant unmet need across small cell lung cancer and neuroendocrine carcinomas where the total addressable global market is estimated to exceed $9 billion. Beyond zoci, our next wave of innovative global assets continues to advance rapidly. ZL-6201, our internally discovered LRRC15-targeting ADC, received U.S. IND clearance and the global Phase I study was quickly initiated thereafter. ZL-1222, our PD-1/IL-12 immunocytokine is progressing through IND-enabling studies and ZL-1311, a next-generation T-cell engager or TCE targeting MUC17, represents our first globally owned TCE with an IND planned by year-end. In immunology, ZL-1503 is our internally discovered IL-13/IL-31 receptor alpha bispecific antibody for atopic dermatitis and is designed to address both itch and inflammation with the potential for enhanced and faster onset of efficacy associated with less frequent dosing than current biologics. The global Phase I/Ib study is enrolling well, and we expect first-in-human data later this year. Now turning briefly to our key late-stage regional programs, starting with our immunology portfolio. Efgartigimod continues to expand across multiple autoimmune indications with ongoing development across a broad clinical program. Recent late-stage results support further label expansion and additional Phase III readouts are expected this year and next with China being a valuable contributor to global enrollment. Povetacicept remains on track with an interim analysis for the global RAINIER Phase III study for IgAN planned for the first half of 2026, and enrollment is ongoing in the global pivotal OLYMPUS Phase II/III study for primary membranous nephropathy. Lastly, for elegrobart, our partner, Viridian expects to report top line data for the global registrational REVEAL-1 study in active TED. This will be in the first quarter of 2026, followed by top line results from the global registrational REVEAL-2 study in chronic TED in the second quarter of 2026. Elegrobart has the potential to become the first subcutaneous IGF-1R therapy approved for TED in China. Turning to our local oncology portfolio. For TIVDAK, we expect approval in China in the first half of 2026, which will build naturally on our established ZEJULA commercial platform, further deepening our leadership in women's cancers. Finally, for Tumor Treating Fields, the FDA approval for Optune Pax in locally advanced pancreatic cancer earlier this month represents an important milestone in this disease, and we will work closely with China's NMPA under the innovative medical device pathway to support an expedited review. Together, these achievements reflect the depth and quality of our pipeline, one that is advancing with speed and efficiency. And with that, I'll hand it over to Josh. Joshua Smiley: Thank you, Rafael, and hello, everyone. Before getting into quarterly performance by product, I want to briefly frame how the business progressed more broadly in 2025. During the year, we made important progress across market access, portfolio optimization and business development. We successfully completed NRDL renewals for key products and achieved guideline updates supporting VYVGART in generalized myasthenia gravis and KarXT in schizophrenia, both of which strengthen the durability of our commercial portfolio over the long term. At the same time, we sharpened our focus by divesting noncore assets and regions, allowing us to reallocate resources toward higher priority growth opportunities and to improve operational efficiency. From a business development perspective, we maintained a highly selective and strategic approach. During the year, we entered targeted collaborations to explore novel combination strategies in first-line small cell lung cancer and strengthen our oncology platform with the addition of a MUC17/CD3 T-cell engager. Together, these actions reflect our disciplined approach to external innovation, complementing our internal pipeline while preserving financial flexibility. With that broader context, I'll now turn to our quarterly commercial performance. Fourth quarter revenues increased 17% year-over-year to $127 million, and full year revenues grew 15% to $460 million, reflecting steady progress across our commercial portfolio. Starting with VYVGART. Physician confidence remains strong and patient demand has been stable. Fourth quarter revenues, however, reflected channel dynamics related to NRDL renewal and hospital purchasing patterns. In 2026, we expect a more measured near-term growth profile influenced by pricing dynamics and evolving competition. The long-term trajectory of the franchise remains intact, supported by clinical guideline expansion, affordability initiatives and additional indications and formulations. Turning briefly to ZEJULA. We delivered a strong fourth quarter driven by first-line BRCA-positive new patient starts. While some variability is expected early in the year due to volume-based procurement dynamics for olaparib and seasonality, ZEJULA remains well positioned in the first-line setting. Looking ahead, KarXT represents a significant near-term growth opportunity. We expect to initiate the commercial launch in the second quarter of 2026 with a clear focus on disciplined execution, building disease awareness, establishing clinical confidence and laying the groundwork for broader adoption. Recent inclusion in a national expert consensus on negative symptom management builds on last year's inclusion in national treatment guidelines and reinforces growing recognition of KarXT's profile. In summary, 2026 is a year focused on maintaining the strength and stability of our existing business while preparing for multiple growth opportunities ahead. That includes continuing to build the VYVGART franchise, executing a high-quality launch for KarXT in schizophrenia and advancing key late-stage assets such as povetacicept in IgAN, elegrobart in TED and TTFields in pancreatic cancer. The investments we are making across commercial and R&D today are designed to support a multiyear growth trajectory extending well beyond 2026. And with that, I will now pass the call over to Yajing to take us through our financial results. Yajing? Yajing Chen: Thank you, Josh. Now I will discuss highlights from our fourth quarter and full year 2025 financial results compared to the prior year period. Fourth quarter total revenue grew 17% year-over-year to $127.6 million, driven by strong contributions from XACDURO and NUZYRA. XACDURO performance reflected strong patient demand and expanding hospital adoption, though supply constraints during the year limited the full realization of underlying demand. NUZYRA continued to benefit from broader market coverage and increased penetration. Total revenues for the full year were $460.2 million, representing 15% year-over-year growth. Turning now to our expenses. Our commitment to financial discipline is reflected in improved operating leverage with both R&D and SG&A declining as a percentage of revenue year-over-year. R&D expenses for the full year declined 6%, driven by lower personnel compensation costs and increased in the fourth quarter due to fast progression of global clinical trials. SG&A expenses decreased 12% and 7% year-over-year for the fourth quarter and full year, mainly due to the reduction in general and administrative expenses because of strategic resource optimization. As a result, loss from operations improved 19% for the full year to $229.4 million and improved 25% when adjusted to exclude noncash expenses, including depreciation, amortization and share-based compensation. We maintain a strong cash position, ending the quarter with $790 million. Looking to 2026, our focus remains on strengthening the foundation of our regional business, executing across our global pipeline and thoughtful capital deployment to support both near-term launches and the long-term growth drivers. With a strong balance sheet, we are well positioned to execute against these priorities. And with that, I would now like to turn the call back over to the operator to open up lines for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Jonathan Chang of Leerink Partners. Jonathan Chang: First question, can you provide any color on how we should be thinking about revenues and expenses for 2026? And then second question on the global pipeline for zoci, can you remind us of the implications of the intracranial activity in patients with brain mets? And how does this impact the opportunity and positioning of the drug? Joshua Smiley: Thanks, Jonathan. It's Josh. I'll start with 2026, ask Yajing to make a comment, and then we'll hand it over to Rafael to talk about zoci. I think as we think about 2026, as we mentioned on the upfront comments, we see good growth opportunities for VYVGART. We're seeing good volume gains throughout the second half of the year. We expect that to continue in 2026. We're pleased with how we're -- how we ended the year with ZEJULA. And while we're facing a generic market now for Lynparza, we expect to continue to hold our position and in some cases, hopefully grow. XACDURO should be a good driver for us this year. And of course, then we've got a couple of important launches coming. COBENFY in the second quarter, we will begin our commercial launch and then TIVDAK later this year. So I think when you think about those things together, certainly, we're looking for good commercial performance and good growth on the top line for the year. For expenses, I think we're in good shape on SG&A, very modest investments required to support launches. Obviously, we're going to put the field sales force in place to launch COBENFY, and that will drive some incremental costs. But I think otherwise, we're in good shape as it relates to synergies and efficiencies across our SG&A. R&D should be relatively in line with what we've seen in the last few years. Obviously, big focus and resource allocation to our global portfolio. But as some of our late-phase opportunities start to -- in China start to come offline, we've got capacity there. So I think sort of flat to very modest growth in R&D. So this year, pretty straightforward thinking. Obviously, we've got some pushes and pulls as it relates to when things are approved and when we get them into the market and otherwise. I think then as we think about '27 and on, we'll start to get the benefits of these launches like COBENFY and TIVDAK and some of the assets that Rafael talked about in his upfront comments. Yajing, I don't know if you want to add anything to that? Yajing Chen: Maybe just to add a little bit more dynamics in 2026. I mean 2026 is a transition year. I think underlying demand growth, as Josh talked about, is very true. Also, we want to be mindful of other dynamics, moving pieces, including the IV -- the VYVGART IV price adjustment and maybe later on the rebate dynamics in the fourth quarter for VYVGART, the Hytrulo. So -- and then we are sort of like looking at the hospital budgeting purchasing behavior as well. So this is part of the reason that we want -- we are probably not going to provide the full year guidance at this time, but those are the moving pieces. When we get more clarity, we can share more specifics later in the year. Joshua Smiley: Thanks, Yajing. Rafael, do you want to talk about zoci, please? Rafael Amado: Yes, absolutely. So brain metastases, obviously, in this disease is a big problem. About 70% of patients develop brain metastases. And I think the speed with which patients' experience responses with zoci is well appreciated among investigators and it's actually one of the key properties of the molecule. So we've reported up to 80% response rates in patients with untreated metastases. So there are 2 situations. If a patient comes in with brain metastases, oftentimes, they have to have brachytherapy or some local regional therapy, which delays systemic therapy, whereas if it's an uncomplicated untreated met, patients can go into zoci directly. And we see, again, pretty high activity in the brain. The other is there are some drugs that may have activity, but then there is a high rate of relapse in the brain where the brain is a sanctuary site. So using zoci prevents recurrences in the brain, which is really important. So we've reported in RECIST criteria before, and we're planning to report now in the first half of the year using RANO criteria, which is a response assessment that is used in neuro-oncology is a much more stringent one where it's bidimensional and uses 50% instead of 30%. So it really characterizes the responses in the brain, and we look forward to presenting that in the first half of this year. Operator: [Operator Instructions] Our next question comes from the line of Li Watsek from Cantor. Li Wang Watsek: I guess my first question is more about sort of the U.S.-China development model that you alluded to in the opening. So I just wonder, can you elaborate a little bit more other than maybe sourcing assets from the region? I guess, how much clinical derisking or time line acceleration can you achieve by leveraging some of the resources in the region? Joshua Smiley: Thanks, Li. It's Josh. Rafael, why don't you talk a little bit about this point to Li's question? Rafael Amado: Sure. So our model obviously has been speedy development in China based on pretty efficient development structure as well as regulatory and other functions in China, and that's led to the success of registrations local regionally. And now we're applying that speed, relationship with investigators and sites to add China to global trials or to be the sole site when we want go/no-go decisions with products. So we now have all our global trials really, including China participation, and that really has allowed us to move with speed and quality. So, that will be also the case for Phase III studies. We expect that China will participate and enroll about 1/3 of the patients, at least that's our expectation, for instance, on our current pivotal trial in second-line with zoci. So I think all in all, this efficiency that we have built over the course of the past 10 years in China is serving us well as we are now expanding our pipeline towards global assets. And we are seeing the fruits of that by, for instance, zoci moving within 2 years to Phase III from IND as an example. Li Wang Watsek: Okay. And then my second question is on zoci. And obviously, you guys are going to present data in neuroendocrine. So just wanted to get a little color in terms of expectations, what sort of data you guys going to present, what's good data? And in terms of regulatory pathways, can you maybe just conduct a single-arm study to get approval, maybe expand a little on that as well? Rafael Amado: Yes. NEC is a complex group of diseases and first-line is treated with chemotherapy. There is the gastroenteropancreatic subgroup and then other neuroendocrine carcinomas that exclude lung because lung tends to have a different prognosis. And when you look across the board in second-line, chemotherapy really has dismal activity in terms of response rate and PFS. So our study has started in second-line and is looking at GEP, neuroendocrine carcinoma, non-GEP neuroendocrine carcinomas or extrapulmonary. And then there's a group that is looking at neuroendocrine tumors, which are less aggressive. So an initial data set will be presented in second-line. We are pleased with what we're seeing thus far. We will have, I think, sufficient patients to make an assessment in terms of the response. The durability may be limited, but we think that there's enough information there to present in the first half of this year. And there may be about 60-plus patients that will be included in this analysis. Like you said, we are sort of ourselves seeking a regulatory path for NEC in second-line. And this is actually the subject of regulatory discussions that we're initiating now in terms of whether a single-arm would be sufficient or whether a randomized trial would be required. It's unclear what the control arm would be in the second option, but it's still a possibility. So those discussions are beginning now as we uncover the data. And we're also thinking about what to do in frontline as well. As you know, some T-cell engagers are getting into this space, and we would probably consider something in first-line in combination, but that is standalone in the future. We want to sort of see what we can do to help patients in second-line where options are just scarce. Operator: [Operator Instructions] Our next question comes from Michael Yee of UBS. Michael Yee: We have 2 questions. First, just wanted to understand, given all the thoughts and comments you have talked about regarding steady revenue growth and pushes and pulls as it relates to financials this year. Does the company believe that they could achieve breakeven or profitability by the end of the year? Do you think that's something that is achievable given what we had expectations for last year? And then the second question is, obviously, zoci and DLL3 are critically important. What is the expectation for completion of enrollment and the timing of reading out the primary endpoint on response rate in order to file? Joshua Smiley: Great. Thanks, Mike. How about Yajing, you talk about the cash flow, and then we'll hand it over to Rafael. Yajing Chen: Yes. So our corporate profitability, I mean the cash flow breakeven is definitely continue to be a very clear objective for Zai Lab. We will manage the business accordingly. Our business right now is commercially profitable today. That provides a stable foundation for the company. At the corporate level, I think the timing of the profitability is really driven by the 2 primary factors. One is the top line growth, the rate of the growth and the other one is the level of investment that we choose to make in the high-value global programs. So I think at this time, we remain efficient, disciplined in our spending. We do expect the corporate profitability to emerge. I won't be able to share the guidance for 2026, where we're going to be, but that's definitely the goal for us to continue to drive. And also, I want to mention that we are focused on progressing towards the goal, but also focus on continue to expand our global pipeline. So we do want to preserve the flexibility to invest when we see the strong value. Joshua Smiley: Thanks, Yajing. Go ahead, Rafael. Rafael Amado: Thanks, Josh, and thanks, Michael, for the question. So the study started in December. It's a global trial. It started in the U.S. first, and China is coming online imminently as Europe will and North America and other countries in Asia as well, Asia Pacific. Our plan is to have about 75% of the patients enrolled by the end of the year. We have to have everybody enrolled before we do the interim analysis for response. And we think that we will finish enrollment at the end of the first quarter of next year and do the analysis and subsequently file. So we're hoping for an approval in 2028. And the study, as you know, is a combination of second-line as well as post-tarlatamab patients, and we're balancing the accrual of each one of those subgroups in the study. So 2027 end of accrual and filing and 2028, hopefully, accelerated approval. Operator: [Operator Instructions] Our next question comes from Yigal Nochomovitz from Citigroup. Caroline DePaul: This is Caroline on for Yigal. Could you talk about your strategy to grow VYVGART, specifically how to increase cycles per patient? Joshua Smiley: Thanks, Caroline. VYVGART, we are focused on moving the cycles per patient to the minimum of 3, which is what's embedded in the national myasthenia gravis guidelines in China that were updated in July of last year. Of course, in the clinical data, getting out to 5 or more over a 12-month period demonstrates really significant benefits. But our focus right now is on 3. We're making reasonable progress, and we made reasonable progress in 2025. We -- if you just look at average cycles closing out the year in 2025, we improved versus 2024 by more than 50%. So we're on the way, but we're not yet on average at 3. So I think we've got a couple of key initiatives to help drive that focus. I mean the first is to leverage the guidelines, and that's through our medical professionals and our sales professionals. And I think that's really important, and we're seeing the benefit of that. We know guidelines make a big difference in China. They make a big difference in most markets. And this has been just -- it's been a build the market approach with VYVGART. So I think we're making good progress there and certainly have the clinical data and now the national guidelines to support that. We are also working on affordability initiatives, while NRDL listing is clear for VYVGART, patients do pay co-pay and pay out of pocket. So we've got in place an online support program that helps patients navigate things like appointments and resources and otherwise to help on the logistics and the co-pay. We have a targeted co-pay assistance program that helps, and it really is focused on the national guidelines and focused on ensuring we can get patients out to 3 cycles without -- with as minimum economic burden as possible. We are seeing the benefits of those focus points. And I do expect during the year that we'll continue to see good expansion in duration of therapy and get the majority of our -- certainly patients who are in the acute phase of the disease, the majority of those patients, I think this year are going to get to 3 and more cycles. We also, this year, though, are expanding, really focusing on patients who are in the non-acute phase. They, of course, also benefit from long-term therapy and getting 3 or more cycles, but that's probably going to be a little bit longer climb to get there. So I think as we look at the data throughout the year, we've got great patient expansion opportunities by leveraging our strength in acute patients, moving to non-acute. Those acute patients, I think the initiatives are underway and having results that will get us out to those on average, 3 or more cycles. And then the non-acute patients will start to pick up and add certainly good volume growth throughout the year. So I think that's -- we're quite excited about the opportunities with VYVGART this year, the opportunities to get to many more patients and for them to get the full benefits of the drug through persistence and duration. Operator: [Operator Instructions] Our next question comes from Anupam Rama from JPMorgan. Anupam Rama: On the global second, third-line DLL3 study, which is enrolling patients, you kind of talked about this, but can you remind us what the ultimate regional breakdown of sites is going to be given this is a global effort? And is there a breakdown of patients that need to be ex China, for U.S. and more global approvals? Joshua Smiley: Thanks, Anupam. I'll start, but Rafael can talk about the enrollment and how we're thinking about that. But I think first, if we look at small cell lung cancer and focus first on the U.S., I think in the second-line and later settings, we see about 15,000 patients available. First-line is probably 25,000. If we sort of look at that on a major market, Western market sort of look, that's probably 100,000 patients total in small cell lung cancer that are eligible for treatment in first or later-line settings. So it's a big opportunity. And of course, when we sort of size that and you guys have done this as well, it's approaching $10 billion probably in terms of total opportunity, and we think zoci can fit really well in that space. I think when we look at neuroendocrine, we're probably in the U.S., it's somewhere in that [ 5,000 to 10,000 ] sort of range, maybe similarly in other markets. We have more to learn here, I think, as we continue to work through the trial. But it's not insignificant, I guess, is what I would say. Rafael, maybe you can talk about enrollment. Rafael Amado: Sure. The distribution, I think, of the countries and patients coming from China and other regions is really designed to make sure that we have enough patients post-tarlatamab that reflect real-world usage in the United States. That may be up to 30% of patients or so coming from the United States. About 30% of patients will come from China. This is a reasonable number. I don't think it's ever been questioned that a percent of patients of that magnitude can jeopardize approval in a positive study. The rest of the patients will come from Europe. in terms of post-tarlatamab patients, obviously, we count on Japan as well. We count on the U.K., some countries where a lot of studies have been done with tarlatamab. And obviously, the United States where tarlatamab is gaining market share. So I think that's probably the distribution that you should expect on the study. Operator: [Operator Instructions] Our next question comes from the line of Cui Cui of Jefferies. Cui Cui: So I have 3 questions for the management team. The first one is as a follow-up to the JPMorgan question. So could you please share some more details on zoci? So because for this time, we are also very excited to see the clinical trial design for the first-line small cell lung cancer, including the [ combo regimen ] and also for the strategy of NEC. Will it also be advanced to the first-line treatment in the future? And my second question is regarding the KarXT. So what should we expect from KarXT in 2026 and 2027? And how will you build your commercialization team going onward? And my last question is also -- because for the past 1 year, we also saw some deals regarding the autoimmune bispecific. So can we talk about some [Technical Difficulty]... Joshua Smiley: Thanks, Cui Cui. Rafael, why don't you start and then I'll come back in with the next 2. Rafael Amado: Yes. Maybe I'll focus on the first-line opportunity. I mean just the overarching sort of desire for zoci to be the centerpiece ADC for different lines of therapies and combinations. And that is because of its low incidence of grade 3 toxicity, activity in the brain and high response rate really and durability. So on first-line, we've seen in the first study, the Phase I/II study 001, we've been enrolling patients in first-line for some time. We started with a doublet with atezolizumab and then a triplet adding carboplatin. And we hope to present mature data towards the second half of this year. We have -- just to give you a sense, we've treated about 60 patients or so, and we continue to follow these patients. I think once we have an idea of the activity, we will then make a decision of what the design of the frontline study should be. Our desire is for it to be one that spares chemotherapy. But also, we have our eyes on how the frontline set of landscape is going to change with the entrance of IMDELLTRA potentially in frontline and other TCEs in frontline. And if we continue to see this high level of activity, we will be testing with other agents as well to see whether this combination offers even more activity for patients in first-line. So I think stay tuned to the data, but our final design will be when we actually see the entire durability and activity in first-line with the data that we've been able to elicit from the Phase I/II study. Joshua Smiley: Thanks, Rafael. I'll talk about KarXT for a minute. Cui Cui, we're really excited about this opportunity, was approved without only -- product approved without a black box in this setting, first new mechanism in more than 70 years. So there's a really exciting introduction here. We'll launch the product commercially in the second quarter. So we're going through all the process now of getting product in and labeled and inspected and otherwise. So second quarter, we'll be out with the product in the market. Of course, we don't have NRDL listing this year, just given the timing, but we do expect that in 2027. So this year's focus will be on getting physicians' experience using the drug, getting a commercial team up and running. I think prescribing here is really concentrated in China. So while there were, I think, in 2024, over 2 billion days of atypical antipsychotic prescription use. We -- when we look at how that's prescribed and how it's managed, it's probably 800 institutions, give or take, that make up a vast majority of that volume, at least from a sort of initial prescribing and monitoring perspective. So we'll focus on those institutions at launch. That generates something in the range of 100 plus or minus sort of commercial team. So very focused this year, and we'll expand as necessary, but we do see this as a relatively efficient big opportunity. And again, for this year, I think in terms of financials, I wouldn't expect significant sales. Again, this is going to be a non-NRDL product for patients who otherwise aren't going to have things like commercial insurance or other access to payment mechanisms. But for 2027, I think if you look at NRDL and how to think about this, if you look at the branded olanzapine, for example, it's in the range, I think, of about $5 a day on NRDL, paliperidone, similar. So there's, I think, a pretty straightforward reference here. Final comment I'll make on KarXT is I do think this is a relatively straightforward opportunity. Atypical antipsychotics are monotherapy, is like 90-plus percent of the standard of care today. This is a drug that brings great additional benefits in terms of safety and negative symptoms, and we'll be educating physicians on those points this year in preparation for what I think will be an exciting unlock in terms of financial value beginning in 2027. On business development, we've got Shan on the phone and Rafael, we're spending a lot of time around the world looking at opportunities. But certainly, as you mentioned, I think if you look at the innovation happening in China, particularly in areas that we're interested in oncology and immunology modalities like ADCs and T-cell engagers, there's a lot of good opportunities to pick from, and you should expect us to continue to do that. We announced recently a deal on the MUC17, which I mentioned earlier. And I think that's kind of our typical kind of deals you should think about from us would be late preclinical targets that are -- have some biological precedence and where we can move fast, leverage the clinical development expertise that Rafael talked about earlier and have a chance to introduce first and best-in-class products in oncology and immunology to the world, and we're really excited about that. Operator: We will now take the last question from Linhai Zhao from Goldman Sachs. Linhai Zhao: My question is around zoci. The first one is regarding the Phase III trial for the second-line small cell lung cancer. Understood that the current clinical protocol does not take tarlatamab as a control arm, but it was allowed to be available both as a prior treatment option and the post-progression treatment options. So on that end, I want to collect your thoughts on the potential risk of having an elongated OS for the control arm given that you're allowing tarlatamab both before and after the second-line treatment? That's the first question. And the second question is about first-line. Understood that you're going to share the Phase I trial data for both doublet and triplet in the second half. And just want to collect your detailed plans about when do you want to make a decision on what to choose from doublet versus triplet in first-line? Joshua Smiley: Go ahead, Rafael. Rafael Amado: Thanks for the question. Maybe let's start from the second one. In terms of first-line, we would like to start the first-line study, Phase III study this year. So in spite of the fact that it may take some time for us to see durability, we may just use a landmark in terms of patients without progression at a given number of months and then make a decision. And again, our strong desire is to spare chemotherapy because that's really what leads to most of the morbidity. And most patients can only get about 4 cycles of carbo/etoposide and a checkpoint inhibitor because they progress, actually, the majority of them, some of them are intolerant. So if we're able to give more therapy with ZL-1310 plus a checkpoint inhibitor with the kinds of responses that we see in second-line, we should be better in first-line, and we think we stand a good chance of actually having a positive trial. So that's for first-line. I expect that we will launch a study by the end of the year. And then with regards to your question about tarlatamab, I mean, the patients will be post-tarlatamab in both arms, but they can only come in if they have progressed on tarlatamab. So they -- some may have responded and progressed, some may have been de novo resistant patients, but they will be equally in each arm and the study is stratified for post-tarlatamab versus no tarlatamab. So in that regard, I think each arm will perform equally. With regards to post-progression therapies, the same things apply. We obviously cannot control post-progression therapy. Some patients may get tarlatamab, some may get lurbi, some may get something else. But they should, because it's a sufficiently large study, get those therapies equally in each arm. So whatever advantage tarlatamab may afford in terms of survival, it should be the same in each one of the arms. So we're not really concerned about bias here, particularly in the post-tarlatamab patients that entered the study because they're stratified, and again, they can only come in if they have progressed. So I hope this answers your question. Linhai Zhao: Just to quickly clarify that you're saying that you're not really concerned about bias between the 2 arms. Can you share a bit more because I would say if the patients use zoci in the second-line, would the physicians still wish to use tarlatamab after zoci? Rafael Amado: The physician may use tarlatamab after zoci, but so could they after topotecan, for instance, or lurbinectedin. So I guess what I was saying is that tarlatamab is a post-progression therapy, which, again, in survival studies, in any study, we cannot control, but they should be used equally frequently in both arms, because once they progress, it's up to the investigator to decide what therapy to use. Operator: We have come to the end of the question-and-answer session. With that, I would like to hand the call back to Samantha Du for closing remarks. Ying Du: Thank you, operator. Thanks, everyone, for taking the time to join us on the call. We appreciate all your support and look forward to updating you again after the first quarter of 2026. Operator, you may now disconnect this call. Operator: Thank you. That concludes today's conference call. Thank you all for participating. You may now disconnect your lines.
Operator: Good morning. My name is Corey, and I'll be your conference operator today. I would like to welcome everyone to Cronos Group's 2025 Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. At this time, I would like to turn the call over to Harrison Aaron, Senior Director, Investor Relations and Corporate Development. Please go ahead. Harrison Aaron: Thank you, Corey, and thank you for joining us today to review Cronos' fourth quarter and full year financial and business performance in 2025. Today, I am joined by our Chairman, President and CEO, Mike Gorenstein; and our CFO, Anna Shlimak. Cronos issued a news release announcing our financial results this morning, which is filed on our EDGAR and SEDAR profiles. This information and the prepared remarks will also be available on our website under Investor Relations. Before I turn the call over to Mike, let me remind you that we may make forward-looking statements and refer to non-GAAP financial measures during this call. These forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Factors that could cause actual results to differ materially from expectations are detailed in our earnings materials and our SEC filings that are available on our website, by which any forward-looking statements made during this call are qualified in their entirety. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in the earnings materials that are available on our website. Lastly, we will be making statements regarding market share information throughout this conference call, and unless otherwise stated, all market share data is provided by Hifyre. We will now make prepared remarks, and then we'll move to a question-and-answer session. With that, I'll pass it over to Cronos' Chairman, President and CEO, Michael Gorenstein. Michael Gorenstein: Thanks, Harrison. Cronos delivered a record year in 2025, growing net revenue by 25% organically, underscoring the continued strength of our core business and the progress we are making towards our strategic priority. We achieved record net revenue in the fourth quarter and for the full year, and we delivered record full year gross profit and adjusted EBITDA. These results reflect strong consumer demand for our leading brands and the growing contribution from Israel and our international platform. In Canada, we delivered record quarterly net revenue, up 42% year-over-year with key contributions from flower, vapes and edibles. Spinach continues to be a standout performer in the Canadian market and the second-most popular brand nationally. In vapes, Spinach delivered stellar performance in the quarter. In December, Spinach became the #2 overall vape brand in Canada, rising from the #4 share position in the first quarter of 2025. Within the vape cartridges subcategory, Spinach achieved #1 market share in the fourth quarter with our Cherry Crush and Blueberry Dynamite flavors as the 2 best-selling vape cartridges nationwide. This performance in vapes is a testament to our ability to leverage extensive R&D and consumer insights work to develop market-leading products that strongly resonate with consumers. We're looking to build on this momentum, and towards the end of the fourth quarter, we unveiled Spinach Puffers, our newest innovation in the all-in-one vape device category. Puffers offer bold flavors of high-quality liquid diamond-infused cannabis in a modern palm-style format with a dual ceramic coil for maximum flavor and smooth draws and a uniquely satisfying tactile grip. Puffers initially launched in select markets within Canada with distribution broadening to other Canadian provinces in early 2026. Innovation continues to be one of our biggest competitive advantages, and Puffers is another example of how we raise the bar on product quality, design and flavor. As we continue building loyalty with consumers, our focus remains on creating products that look, feel and taste great, delivering the exceptional experiences that define the Spinach brand. In edibles, Sour continued to deliver strong growth while maintaining category leadership with market share approaching 22% for the quarter. Growth was driven by fully blasted multipacks, which despite having just launched in mid-2025, were 4 of the top 10 selling edible SKUs in Canada in the fourth quarter, including the #1 edible SKU nationwide, reinforcing Spinach's leadership position in edibles and demonstrating the success of our innovation pipeline. In flower, Spinach remained the #4 brand in the quarter with supply constraints limiting growth potential. With the expansion of GrowCo now complete and the expanded cultivation space continuing to get dialed in, we expect these supply constraints to ease in 2026. Turning to Lord Jones. The brand remains the market leader in Canada in hash and live resin-infused pre-rolls, reinforcing its strength in premium formats where quality and differentiation matter most. Earlier this month, Lord Jones launched in Israel with a lineup of curated premium flower offerings featuring cold-cured large buds available in a series of limited-time drops, marking an important step in broadening the brand's presence. Internationally, PEACE NATURALS and LIFT posted another impressive quarter. In Israel, net revenue grew 52% year-over-year, the eighth consecutive quarter of record net revenue for Cronos in the market. PEACE NATURALS remained the top-selling brand in the market based on pharmacy data collected by Cronos, continuing to benefit from strong brand equity, consistent product quality and stellar commercial execution. Outside of Israel, PEACE NATURALS and LIFT drove a strong quarter for our other international markets, with net revenue up 68% year-over-year, led by growth in Germany as shipment timing normalized and demand remains strong. We capped off the year with the December announcement that we entered into a definitive agreement to acquire CanAdelaar, with closing expected in the first half of 2026. CanAdelaar is the largest company operating with the Netherlands legal adult-use cannabis program based on CanAdelaar management data, and is the only industrial-scale greenhouse cultivator within the program. Under the agreement, Cronos will acquire CanAdelaar for upfront consideration of EUR 57.5 million, or approximately $67.5 million, subject to certain adjustments with additional contingent consideration based on 0.5x CanAdelaar's normalized EBITDA in '26 and '27. The Netherlands has a deep cannabis heritage, and its coffee shops, which serve as cannabis retailers are known worldwide to have played a foundational role in the evolution of the legal cannabis industry. The Dutch legal adult-use cannabis program was enacted in 2020 to establish a closed regulated cannabis supply chain in 10 participating municipalities with the start-up phase beginning in the fourth quarter of 2023, and the program officially launching on April 7, 2025. The program is scheduled to run for 4 years from that date with the Dutch government retaining the option to extend it by up to an additional 18 months. The program is well designed and regulated to limit cannabis to responsible levels among adult consumers only, serving as a potential model for other countries. We are committed to the continuity of the program and cooperation with regulators, municipalities and all industry stakeholders to ensure its long-term success. Under the program, all 72 cannabis retailers in the 10 participating municipalities are now required to source their cannabis products exclusively from 1 of 10 licensed producers, including CanAdelaar. Including the 72 cannabis retailers in the program, there are a total of 562 cannabis retailers in the Netherlands based on data from the Dutch government, allowing for a potentially significant increase in the addressable market should the program be eventually expanded to additional municipalities or nationwide. European expansion is an important area of focus for us. And if completed, acquiring a market leader in Europe's largest adult-use cannabis market will allow us to further leverage our investments in borderless products at scale. Combined with a highly attractive financial profile and the expectation for accretion from the transaction, we're excited to bring CanAdelaar under the Cronos umbrella and to build upon the foundation that the company has established. Cronos maintains the strongest balance sheet in the industry with no debt and $832 million in cash, cash equivalents and short-term investments, allowing us to continue investing in growth, innovation and global expansion. Now I'll turn it over to Anna to walk you through our fourth quarter and full year financials. Anna Shlimak: Thanks, Mike, and good morning, everyone. I'll now review our fourth quarter 2025 results. The company reported consolidated net revenue of $44.5 million, a 47% increase year-over-year. The net revenue increase was driven by higher cannabis flower sales in Israel, Canada and other countries and higher cannabis extract sales in the Canadian market. Gross profit and adjusted gross profit in the fourth quarter were $16.2 million, equating to a 36% margin, a 670 basis point improvement from the 30% adjusted gross margin in Q4 2024. The year-over-year margin improvement was driven by higher average sales prices due primarily to a mix shift to Israel and other countries and higher sales volume. Adjusted gross margin declined from the levels realized in the first 3 quarters of 2025. This was driven by adverse production quality mix at GrowCo, as GrowCo dialed in the expansion as well as an expense timing in Q4 as part of that ramp-up. For full year 2025, adjusted gross margin of 43%, and we would view this as a reasonable margin level for the business. Operating expenses, excluding restructuring costs and impairments, were $22.5 million in the quarter, a modest year-over-year increase of $0.3 million. Adjusted EBITDA in the fourth quarter was $0.5 million, an improvement of $7.7 million year-over-year, driven by higher adjusted gross profit. While remaining positive, adjusted EBITDA was lower than reported in the first 3 quarters of the year, given the gross margin pressures and expense timing. We remain confident in the operating leverage of the business as production stabilizes and scale efficiencies are realized. Turning to the balance sheet and cash flow statement, the company ended the quarter with $832 million in cash, cash equivalents and short-term investments, up $8 million from Q3 2025, driven primarily by positive cash flow from operations before changes in working capital of $18 million and $3 million of proceeds from the sale of Cronos fermentation facility, partially offset by a $7 million working capital outflow, $4 million of share repurchases and $2 million of CapEx spend. In addition to this cash balance, we hold $21 million of loans receivable and $8 million of other investments. In summary, our fourth quarter jump in top line set a net revenue record, setting the stage for bottom line growth in 2026. For full year 2025, we achieved record net revenue, gross profit and adjusted EBITDA, demonstrating continued improvement in our operating fundamentals as we execute against our business objectives. With that, I would like to hand it back to Mike for a brief comment before going into Q&A. Michael Gorenstein: Thanks, Anna. In summary, we delivered meaningful improvements to our business and financial results in 2025, growing net revenue organically by 25% year-over-year, strengthening our competitive positioning across key markets and product categories. It's important to understand the context of this organic growth relative to our peers. Not only do we grow without acquisition, though most of our peers have ATMs and have been issuing shares to fund their businesses with a strong balance sheet and self-sustaining business, we have an active share repurchase program that led to a declining share count over the course of 2025. Looking ahead to 2026, we continue to be committed to our share repurchase program. We also will be opportunistic and disciplined while evaluating M&A opportunities. CanAdelaar is an example of a transaction that allows us to advance our borderless product strategy and establish a strong foothold in an important market. In addition to new market opportunities, we will also look for strong brands and IP that we can add to our portfolio. We see multiple drivers of continued momentum this year. The expected closing of the CanAdelaar transaction, increased production capacity following GrowCo's expansion, continued growth in our branded products and our increasing presence in international markets. We remain focused on delivering sustainable top line growth at attractive gross margins while maintaining disciplined cost management as we continue to scale Cronos globally and position the business for long-term success. Thank you, and we'll now open the call for questions. Operator: [Operator Instructions] Our first question comes from Bill Kirk of ROTH Capital Partners. William Kirk: I was hoping to talk a bit about product allocation coming out of the new GrowCo capacity. How are decisions made of where to send that product? How did it kind of get allocated in 4Q? And are there any considerations like permit timing or things like that, that might change the future allocation from what we see in 4Q? Michael Gorenstein: Thanks, Bill. I think when -- historically, we've been trying to figure out how to deal from a position of shortage and allocate. And so there's been a balance between how do we make sure that we're keeping a certain level of demand in markets, but also focusing on margin. And I think now that we have more supply coming online, and expect kind of the quality of supply to be consistent with what we've historically had. We'll be able to start filling more product in Canada, but also be a little bit more aggressive in scaling in Europe. So I think in Q4, you saw us trying to get a lot of the new product coming out. So we didn't maybe have the same normal fills we would, but that should go back starting this year to more consistent with what we had in the past with the exception that there's more product available for Canada than we historically had. William Kirk: Got it. And then, Anna, you talked about go-forward gross margins being similar to 2025 full year levels. What in particular leads to improving gross margin of what you reported in 4Q? Is it more price? Is it better mix? Is it lower costs? And then with the greater sales and scale from GrowCo, why can't gross margin be higher than 2025? Anna Shlimak: Sure. Thanks, Bill. Yes. So I mean, in Q4, there was a kind of a couple of adversities we faced. So we had some expansion-related production quality mix from the GrowCo scale-up as well as some onetime expenses that flow through COGS due to the ramp-up. So kind of those headwinds has impacted Q4, which we don't expect to have going forward. So that's why we feel like that full year 43% margin range is reasonable for us for the business. Look, I think there's potential for some margin expansion in the future, but we have to really be balanced, right? You could also have margin compression in Europe. We don't really know at this moment, but we feel good about kind of that full year 2025 run rate going forward. Operator: Our next question comes from the line of Kenric Tyghe of Canaccord Genuity Capital Markets. Kenric Tyghe: If I could just jump in with a follow-up on the gross margin quickly. I know you're calling out sort of similar levels to full year '25. Just for clarification, would those expectations factor in the close of CanAdelaar? Or is there a potential further upside, and that's perhaps what you're alluding to in your comments about there could be some further expansion through the year? How should we just think about the potential evolution here following up on your earlier comment? Anna Shlimak: Sure. So my comments were just for Cronos as a stand-alone business, not considering CanAdelaar that it is a profitable business as well with very nice gross margins. So we could see some margin expansion from that. But just from -- more speaking to our business as a stand-alone that 43% go-forward. Kenric Tyghe: I appreciate the clarification. And then just timing in the quarter, if I could, looking to the revenue and the revenue beat, you did call out that sort of 68% growth in international. I think it was plus 52% in Israel. How much of the revenue beat in quarter was timing shift versus just, call it, pure Q4? Anna Shlimak: Sure. So some of the -- there was some timing shifts for those international markets outside of Israel going from Q3 to Q4. We had some kind of shipping time as we move into Q4, but the rest is pretty -- our business is growing. So you should expect to see that from us going forward across our markets. Kenric Tyghe: Great. Sorry, maybe just one quick final one. CapEx, any sort of key initiatives we should be thinking through this year? Or is it reasonable to think that we'd be looking at something less than $10 million on the -- year given the spend in Q4 and what we currently understand your needs or goal will be in 2026? Anna Shlimak: Yes, I think that's right. I think those are appropriate levels for us going forward. Operator: Our next question comes from the line of Ryan Neal of TD Cowen. Ryan Neal: This is Ryan stepping in for Derek. Just want to quickly start on the domestic market. So obviously, you saw Canada was up more than 40% year-over-year. Can you guys just talk a little bit about some of the drivers there? And especially, I know you mentioned in Q3, there were still some softer flower sales due to the domestic supply constraints. Michael Gorenstein: Yes. I think one of the biggest drivers here is just having additional supply. And I think that's something that you'll see continue to work through. Before this quarter, we've really just been struggling with how to allocate the limited product we had. And I think now that we're starting to have more product come online that allows us to fill existing demand in the markets that we're already in. Ryan Neal: Great. And then you guys obviously have a pretty large capital base. I'm just curious how you view the current pipeline of potential opportunities and how you might deploy some of that moving forward? Michael Gorenstein: Sure. I think, first, staying committed to the buyback is an important thing for us. There's a lot that we're looking at internationally. I think whether that falls in the bucket of a new market and is there anything we can do to expand our platform, but also, are there new products, new brands that we can put on our existing platform and get the benefit of expanding those into new markets. So we'll continue to be disciplined and be opportunistic. And as you've seen from 2025, when there's opportunities, we'll certainly act on them. Ryan Neal: Great. And then I'll just put one more question in here. So curious about some of the innovation you guys are doing. I know you, at last call, mentioned a few launches. How are those trending? And sort of what are the categories that you're seeing the most strength in? Michael Gorenstein: Yes. I think one that you don't always see sort of immediately, and it's harder to measure, but genetics is a really important one for us. So there's a lot we've been doing over the years, breeding. And I think you're seeing every year the successes that come out of that, and we have some really interesting projects in genetics. So very excited there. Continuing to innovate in edibles is really important for us, keeping sours fresh. But I think that maybe the most exciting one for this quarter, and you'll see showing up in the data in Q1 in vapes, puffers. So it's our all-in-one. We've put a lot of time and work in making sure that this is going to be a big driver for us. And I think you're seeing the early success already. So puffers is, I think, all of us are very excited about right now. Operator: Our next question comes from the line of Pablo Zuanic of Zuanic & Associates. Pablo Zuanic: Mike, can you explain in the context of the consolidation we are seeing in Germany, Hifyre, DEMECAN, OGI, Sanity, why Holland was a priority over Germany, especially with the market consolidating and some distributors still being available? Michael Gorenstein: Sure. I think when I look at Germany, the first thing is, there's still regulatory uncertainty, and you've got some movement that's going through, and we expect in the coming months to get certainty. But I also think when you look at availability of licenses, distribution and opportunity to get into the market, it's there's plenty of opportunity to get in. There are many options there. And I think from a business model perspective, it can be difficult because some of the distributors that you look at buying, well, they have many brands on the platform. So there's a lot of different distribution. And I think you're not sure if you're picking up a business, are you're still going to have that distribution business because you're distributing your competitors. So it's something we continue to evaluate, think about the smartest way that we could deepen our presence in the market, but we thought the Netherlands was much more sort of on strategy. It's a market that without making an acquisition, we would have no way to get in because it's closed as far as import/export. It has its own supply base, its own brand. And we feel like it's not a step towards getting towards adult use and building a brand. It is moving directly into the adult-use market, in a place where you've had a 50-year history of adult-use sales, and we think gets the most brand leverage for any market across Europe, just given the kind of culture and history around the Netherlands coffee shops. And so we thought it just made a lot of sense, and it was a really unique opportunity for us. Pablo Zuanic: And then just a quick follow-up. Look, I mean, in markets like Australia, we've seen operators, distributors taking control of downstream assets, whether it's clinics or even online pharmacies. We're beginning to see that in Germany apparently, and it's happening in the U.K. I mean, Curaleaf owns a clinic there and an online pharmacy. How do you think about downstream opportunities medium, longer term? Or is that something that you prefer not to be involved in? Michael Gorenstein: It's a great question. I think we take a really long-term view on any acquisitions and capital spend. And I think it can be market specific, but I'm always looking at where do I think the market is going to end up. And if it's something where it's a more temporary business or we're worried regulations are going to change it, it's something where we prefer to be a customer than an owner of the assets. But if I think it's going to be locked in for longer, and we can model it out and see there's a long-term payback to being an owner versus a customer, then it's something we would consider. And I think it's really market specific, but I do go back to the experience we saw early in Canada. So if it's a market where we think it's going to go adult use or if it's a market where we think that regulations can change what that funnel looks like, it's something we would rather just spend money to help with marketing and demand versus be sort of an owner of that part of the funnel. Pablo Zuanic: And one last one, if I may. I know this is going back in time, but what lessons can you take from the option you had acquired in PharmaCann, right? You have an option to buy, I think, a stake in the company. And I know that's a while ago, but what lessons did the company learn from that? And how do you think about that lesson as the U.S. begins to reschedule? Michael Gorenstein: So I cut out there for a minute. I heard what lessons. And could you just repeat the part after that, I apologize. Pablo Zuanic: Yes, I'm going to repeat. I'm sorry. Yes, I'm going to repeat. No, going back in time, I believe that Cronos had an option to acquire a stake in PharmaCann in the U.S., right? That company hasn't done too well. What lessons did Cronos learn from that? And how does that color you are thinking about future opportunities in the U.S. as that country reschedules cannabis? Michael Gorenstein: No, it's a great question. I think there's two things that I would specifically point to. The first is that when we did that, it was a little bit of a hedge. If you recall, the timing was around sort of craze around the STATES Act. We didn't -- it was roughly 10% on the option. And part of the reason was we want to make sure we had distribution secured if you had reg move. And so part of that is it's still important. We didn't do a larger stake, and that we were being, I'd say, a little bit more disciplined and controlled. But I think also a bigger part is that you can't really move ahead of regulations. I think what we've seen in this industry is that when you try to be aggressive and move ahead of regulations, it doesn't usually work out. And specifically in the U.S., I think trying to get creative with structures doesn't always work to your advantage and making sure that you have a path to control, and you have ways of operationally being able to pivot when things change is pretty important. So the U.S. is really the market where I think those lessons are going to be most applicable given the federal legality, but size of the business in spite of that, still, I think, extremely important market and something that we monitor and think of other ways to get in, but it feels like until you have the actual opportunity to move in and operate and be able to directly own, it's better to just continue developing the portfolio and building up strength outside of the U.S. Operator: Thank you very much. This concludes the Cronos Group question-and-answer session. Thank you very much, and you may now disconnect.
Operator: Good morning, and good afternoon, everyone. Well, thank you for joining us for KBR's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Drew, and I'll be the operator on the call today. During the call after the prepared remarks, we'll have a Q&A session. [Operator Instructions]. With that, it's my pleasure to hand over to Rachael Goldwait, Head of Investor Relations, to begin. Please go ahead when you're ready. Rachael Goldwait: Stuart and Shad will provide highlights from the quarter and full year and then open the call for your questions. Today's earnings presentation is available on the Investors section of our website at kbr.com. This discussion includes forward-looking statements reflecting KBR's views about future events and their potential impact on performance as outlined on Slide 2. These matters involve risks and uncertainties that could cause actual results to differ materially from these forward-looking statements as discussed in our most recent Form 10-K available on our website. This discussion also includes non-GAAP financial measures that the company believes to be useful metrics for investors. A reconciliation of these non-GAAP measures to the nearest GAAP measure is included at the end of our earnings presentation. I will now turn the call over to Stuart. Stuart Bradie: Thank you, Rachael, and good morning, everyone. I will pick up on Slide 4. As we always do at KBR, I want to start with a brief Zero Harm moment. In 2025, we delivered industry-leading safety performance with our TRIR reaching an all-time low of 0.033 and Zero Harm days reaching an all-time high at 96%. These results really reflect strong discipline and accountability across our operations. More importantly, we speak to the culture we've built inside KBR. We focus on creating an environment where people look out for one another and where safety and well-being are part of how we operate every single day. That culture is especially important as we move through the spin, and it underpins the execution and results we will walk through today. On to Slide 5. Today's call will cover these key topics. First, I'll start with how we delivered our strategy in 2025. From there, I'll touch on why we see improving momentum and visibility as we move into 2026 across both segments, including how the quality of our earnings continues to improve. It's really important. I'll provide an update on the spin itself. And finally, Shad will walk through our financial performance for the year and of course, our guidance for 2026. On to Slide 6 and strategy. So as we enter the year, I want to start with a simple message. We executed our strategy in 2025 despite a very challenging award environment across both segments. We stayed disciplined, focused on what we can control and made meaningful progress across each of our strategic pillars. Firstly, drive and expand. In sustainable tech, we continue to expand globally with particular momentum in the global [ South ] and you've heard us say that before. We also made deliberate progress growing our OpEx-facing businesses, both organically and inorganically. And this, of course, reduces our exposure to CapEx cycles. The SWAT acquisition within our Brown & Root joint venture BRIS, which closed in January, was a key milestone, more than doubling the EBITDA of that business. In Mission Tech, we continue to leverage contract vehicles, including recent Air Force and Space Force awards, which you'll have seen, while expanding internationally and strengthening our presence in Washington. And that's to deepen engagement with both the administration and the Pentagon. Second, to deliver innovation. Innovation remains central to our strategy. In Sustainable Tech, we launched INSITE 3.0 this quarter through a new venture with Applied, enhancing operational performance across KBR licensed ammonia plants using physics-based AI. We also continue to advance Mura and other technologies as a long-term growth platform. In Mission Tech, our focus on deepening customer relationships and advancing our technology road map is paying off. Recognition as a top 10 Australian defense contractor, the Nova Excellence Award from NASA and the recent Golden Dome Shield seat all reflect is progress. Post-LinQuest, the establishment of a new Chief Technology Officer role and our digital design labs are strengthening our position as a true capability partner. Thirdly, drive operational excellence. Operational execution was a clear strength in 2025. We expanded margins by more than 100 basis points and generated operating cash flow with a conversion rate of 110%, delivering over $30 million in cost savings and expect this margin and cash performance momentum to continue into 2026. And finally, deploy capital effectively. We delivered $413 million in capital to shareholders in the year, and that's the highest in the last decade, successfully integrated LinQuest and delevered the balance sheet within a year. As we prepare for the spin, we remain highly disciplined, ensuring both companies are positioned with appropriate capital structures from day 1. With that context, let's turn to our segment performance, starting with Sustainable Tech on Slide 7. 2025 was a challenging year for Sustainable Tech, marked by a sharp decline in petrochemicals CapEx and a pause in many green projects as customers shifted their focus towards affordability and energy security. Now despite this backdrop, SPS proved remarkably resilient. Margins held up well in the first half of the year, and our teams responded really quickly, pivoting towards the Global South, LNG, ammonia and OpEx-driven markets where demand fundamentals remain strong. That pivot clearly showed up in the results. We delivered strong book-to-bill in both the third and fourth quarters and exited the year with solid work under contract for 2026. Geographically, Global South was a major source of strength with wins across Iraq, Saudi Arabia, Kuwait and Singapore. In LNG, we secured both the Abadi and the Coastal Bend front-end engineering design contracts, reinforcing our front-end positioning. And in ammonia, awards were truly global, reflecting the durability of our technology portfolio. We also continue to advance emerging technologies, including lithium extraction. And in Hydro-PRT recycling, after ongoing commissioning challenges, I'm pleased to report they are now operating continuously producing on-spec product with ramp-up expected through 2026. Now as we look ahead, our growth opportunities in 2026 are directly aligned with these same themes. To anchor that outlook, fourth quarter book-to-bill was 1.6x with a trailing 12 months book-to-bill of 1.2x. Backlog ended the year at $4.2 billion, and that's up 5% year-over-year and up more than 20%, excluding Plaquemines LNG. Our near-term pipeline, excluding LNG, is approximately $5 billion with about 80% from repeat customers showing the relationships that we have developed over time. And work under contract covers roughly 63% of our 2026 guidance, putting us above normative levels for this business going into the year. With that, let's turn to Mission Tech and on to Slide 8. Mission Tech also faced a challenging environment, as you're well aware, in '25, including award delays, reduced contingency activity and for us, particularly in Europe and the impact of the government shutdown. Despite those headwinds, MTS performed well. Revenue held up year-over-year, margins improved and cash performance was excellent. And this reflects a disciplined execution approach and the quality of the underlying portfolio. Strategically, we continue to move upmarket. Activity expanded with the U.S. Space Force and Air Force Research Lab, validating the LinQuest acquisition. We secured positions on key multiple award contract vehicles and defended several important recompetes, including HHPC and Tubuti. While we did lose the COSMOS recompete in 2025, this was at the lower end of margin returns within the portfolio. Importantly, there are no material recompete revenues expected in '26, reducing near-term recompete risk. Internationally, a standout, particularly Australia, with approximately $800 million in defense award contracts and high single-digit year-over-year revenue growth. While contingency activity declined in certain areas, the broader defense and intelligence portfolio performed well, particularly in missile defense, naval air, digital engineering and in R&D. Cross-business synergy bids are becoming increasingly important, and we have several opportunities in the pipeline that reflect a similar integrated cross-business approach. Looking ahead, the full year 2026 Defense Appropriations Act has been enacted. And MTS, we believe, is well aligned with this funding. We expect award cadence to improve, particularly in the second half of the year, supported by strong bid volume and contract vehicle leverage. To anchor that outlook, the trailing 12-month book-to-bill was 1.0. Backlog and options ended the year at $19.1 billion, and that's up 15% year-over-year with 40% funded, excluding PFIs. Bids awaiting awards totaled $17 billion with 80% of that number representing new business. We expect to bid more than $25 billion in 2026, and that will be up double digits year-over-year. Finally, work under contract already covers approximately 82% of our '26 guidance with minimal recompete exposure. On to Slide 9. Next, I'll provide an update on the spin-off transaction, which remains an important part of our strategy to sharpen focus and drive long-term value creation for shareholders, as you're well aware. Preparations continue to progress in line with our plan and our targeted distribution is anticipated in the second half of 2026. From a readiness standpoint, we are making steady tangible progress. Carve-out audits and pro forma financial statements are underway to support the Form 10 process. As committed, we made our initial confidential filing in late December, and we currently expect to file an amendment incorporating full year audited '25 financials in March '26. A similar time line is progressing for the private letter memo with the IRS, so all on track. We are also continuing to refine the transaction perimeter to ensure operational clarity and strong stand-alone positioning for both companies. And as part of that effort, we have decided to move the Frazer Nash Consultancy business and the U.K. Civil Nuclear project portfolio into Sustainable Tech. We have provided a supplemental financial information sheet for modeling purposes, and this is accessible via the QR code. And this change has no material impact to our long-term segment growth CAGRs or margins. As discussed previously, CEO and CFO recruitment efforts are underway. And in the interim, I have appointed Mark Sopp as Interim Spin CEO, leveraging his role as spin transitioning lead. And this positions Mark to effectively serve in the capacity while the search for a permanent CEO continues. These efforts, along with early branding initiatives support the future stand-alone companies are progressing in parallel with the broader separation work streams. Importantly, a dedicated spin transaction team continues to drive execution across the organization, really helping to minimize disruption to day-to-day operations while maintaining momentum. And I think you can see that in the delivery of the '25 bottom line results. The level of internal engagement and coordination continues to build, which gives us confidence in our ability to execute the transaction effectively. We'll continue to keep you updated, of course, as we progress. And with that, I'll turn it over to Shad. Shad Evans: Thanks, Stuart, and thank you to everyone for joining us today. I'm excited to step into the CFO role at an important time for KBR. Microsoft built a strong finance organization and a disciplined foundation, and I'm grateful for his leadership and the opportunity to build on that work. Looking ahead, my focus is straightforward: deliver on our financial commitments, support the financing and investor milestones associated with the Spin and maintain a disciplined financial structure that advances our strategy. With that, let's turn to the fourth quarter results on Slide 11. Revenues were $1.85 billion, down $223 million year-over-year, primarily reflecting award timing in MTS and reductions in EUCOM contingency scope. More importantly, profitability and execution were strong. Adjusted EBITDA increased $12 million and margins were 12.6%, up 190 basis points, driven by disciplined program execution and favorable mix as EUCOM volumes declined from lower-margin work. Adjusted EPS was $0.99, up $0.09 year-over-year, reflecting the stronger adjusted EBITDA performance and lower share count following open market repurchases. Turning to Slide 12 and our full year results. Revenues were approximately $7.8 billion, up modestly year-over-year despite the market volatility. We delivered strong performance in defense and intelligence programs, supported by the LinQuest acquisition, continued momentum in Australia aligned with its defense priorities and sustained demand in STS across our engineering, professional services and technology offerings. Adjusted EBITDA increased $100 million, and full year margins were 12.4%, up more than 100 basis points year-over-year. As Stuart mentioned, this performance reflects prioritizing high-margin growth, disciplined program execution and continued delivery on cost-saving initiatives across the business. Adjusted EPS was $3.93, up $0.60 versus prior year and supported by the increase in adjusted EBITDA and share repurchases, partially offset by higher interest expense and higher income taxes due to international mix in our underlying rate. That same dynamic is reflected in our 2026 ETR guidance, which I'll cover in a moment. Cash was a key highlight. Operating cash flow was $557 million, representing 110% conversion to adjusted net income. We exited the year with strong liquidity heading into 2026. Overall, revenues and adjusted EBITDA within our ranges for the year and adjusted EPS and operating cash flow exceeded the top end of our guided ranges. Turning to Slide 13. I'll focus on a few financial proof points that support the progress Stuart just outlined in Sustainable Tech. As discussed earlier, the market environment shifted materially in 2025. From a financial standpoint, STS offset those headwinds through mix, geographical expansion and increased exposure to OpEx-oriented and structurally stronger demand areas. That operating discipline is clearly showing up in the quality of earnings. Adjusted EBITDA has grown 16% since 2023, outpacing revenue growth and reflecting improved mix and cost execution. While margins were modestly elevated in 2025, we are on pace to meet our long-term margin target of 20% plus in 2027. This performance was delivered alongside strong cash conversion of more than 80% and a trailing 12-month book-to-bill of 1.2, providing good visibility as we enter 2026. Lastly, due to the recurring nature of risk and alignment with our OpEx strategy, we plan to update our adjusted EBITDA calculation beginning in 2026 to reflect our share of unconsolidated JV operating income. Previously, risk and other unconsolidated JVs were reflected through JV net income. This change improves transparency and aligns EBITDA with how we manage the business. Prior periods will not be recast as the impact is not material. Turning to Slide 14. I'll focus on the financial implications of the Mission Tech progress Stuart just outlined. From a financial perspective, the portfolio continues to move towards higher quality of earnings, driven by mix improvements, disciplined program selection and favorable contract structures aligned to the most durable and well-funded national security priorities. Since 2023, the integration of LinQuest, strong international execution and a more selective business development approach have supported mid-single-digit revenue growth while improving margin quality. Importantly, that improvement has been driven by commercial acumen and contract discipline, including a greater focus on fixed price and technically differentiated work, not volume. Even with near-term headwinds from award timing and process activity, the team remained highly selective in bids and recompetes, prioritizing returns and contract terms over scale. That discipline is showing up in sustained margin performance and a robust pipeline. Against that backdrop, the business is preparing for the spend with improving economics, solid visibility and strong alignment to long-term national security demand. Turning to Slide 15. Capital allocation and balance sheet discipline remain key strengths. In 2025, we returned a record $413 million to shareholders through buybacks and dividends, and we ended the year with net leverage of 2.2x. That reflects both strong cash generation and disciplined deployment. Looking ahead to 2026, our priorities remain unchanged. We're committed to maintaining an attractive and stable dividend through the spin transaction. And to that end, our Board approved an annual dividend of $0.66 per share or $0.165 per quarter for 2026. We also continue to invest selectively where returns are compelling. In January, we invested approximately $115 million to fund our proportional share of the SWAT OpEx acquisition with BRIS. A strategic transaction that enhances resilience to CapEx cycles and supports our OpEx expansion. As we execute this investment and absorb typical first quarter cash uses, including incentive payments, leverage may trend up modestly in the first half of the year before coming back down below the targeted 2.5 level as cash builds throughout the year. Ahead of respective Investor Days, which we plan to conduct before the spin, each segment will assess its capital deployment priorities based on its stand-alone profile. I'll now turn to Slide 16 and our fiscal 2026 guidance. We're providing full year outlook for a consolidated company to establish a clear baseline. The stand-alone outlook to be updated as we progress towards the planned spin in the second half of 2026. With that in mind, for fiscal 2026, we are guiding revenues in the range of $7.9 billion to $8.36 billion, adjusted EBITDA of $980 million to $1.04 billion, adjusted EPS of $3.87 to $4.22 and adjusted operating cash flow of $560 million to $600 million. At the midpoint, this implies approximately 4% year-over-year growth across all key metrics. We expect transition costs related to the spin to be approximately $140 million to $180 million, inclusive of onetime IT capital costs. To ensure transparency around ongoing performance, we will introduce an adjusted operating cash flow and an adjusted free cash flow metric in 2026 that add back spin-related cash outflows, allowing investors to better assess the core cash-generating capability of the business. From a modeling perspective, the guide assumes low double-digit growth in STS at our normative long-term margins of 20% plus. MTS is expected to grow at low single digits, also at a normative margin of 10% plus, which we expect to continue to improve over time. Capital expenditures are expected to be in the range of $40 million to $50 million for the year. Our projected effective tax rate is 26% to 28%, higher than the current year, and as I mentioned earlier, primarily reflecting a greater mix of work in the Global South. Estimated adjusted share count was 127 million, which is exactly where we exited 2025. We expect revenues and adjusted EPS to be weighted approximately 46% to the first half and 54% to the second half of the year. For modeling purposes, we expect Q1 '26 to be largely in line with Q4 '25. And on a recast basis, we anticipate moderate sequential growth in MTS as EUCOM is at its base activity levels and partially offset by seasonal sequential declines in FTS. As a reminder, we will be comping against elevated EUCOM contingency in the first 2 quarters of '26, which is roughly $60 million to $70 million per quarter. Our guidance includes key assumptions that are worth highlighting given the current political and economic environment. First, we assume the resolution of outstanding protests in the first half of the year. With award cadence in Mission Tech improving as the year progresses. Second, we assume that all material programs we currently support remain in place. Should that change materially, we will, of course, update as appropriate. Third, we assume modest improvement in interest rates in the second half of the year and stable foreign exchange rates relative to current levels. In closing, our 2026 guidance reflects a disciplined view of the current environment. We entered the year with solid work under contract, strong growth momentum and a highly committed global team. And with that, I'll turn it back to Stuart. Stuart Bradie: Thanks, Shad. I'm on Slide 17 with some key takeaways, and I'll close with 4 key messages. First, we executed with discipline in a challenging environment. Despite pressure across awards and funding, we delivered results in line with our updated guidance. We expanded margins and generated strong cash and returned that cash at record levels to shareholders. That performance under pressure reflects the strength of our operating model and the quality of the people inside KBR, our teams. Second, both segments exit 2025 with improving momentum and of course, visibility. In Sustainable Tech, the portfolio is better aligned to structurally stronger demand, while in Mission Tech, margin discipline, pipeline strength and funding visibility position the business well as award cadence improves into 2026. Third, the quality and the durability of our earnings continues to improve. Across the portfolio, we are being more selective. We're continually moving upmarket and leaning into innovation and digital differentiation. That focus is really driving better mix, more resilient margins and stronger cash generation over time. And finally, our spin-off prep is advancing as planned. We are making steady progress on separation readiness, capital structure planning and leadership and operational clarity, all with the goal of creating two focused, well-positioned stand-alone companies and, of course, delivering long-term value for our shareholders. With that, I'll turn it over to the operator who will open the call for Q&A. Thank you. Operator: [Operator Instructions] Our first question today comes from Tobey Sommer from Truist. Tobey Sommer: I was wondering if you could describe to us what the pipeline in STS is for sizable projects with Plaquemines closing out probably next year. Just to give us a sense for how we may be able to fill that hole and even grow. Stuart Bradie: Thanks, Tobey. Not an unexpected question. In terms of the book-to-bill in Q3 and Q4, I think you've seen the performance has been impressive across the spectrum. That includes technology and obviously, the broader capability set in the Middle East, and that's coming through and particularly in the OpEx area, which we feel is a strategic growth avenue we want to get after due to its -- due to the long-term contract nature of that giving sort of visibility into earnings over time. We've started this year in Q1 very strongly again in bookings in STS. So again, I think directionally, that's a very positive thing to see and obviously to disclose today. In terms of the broader pipeline, it's -- we've got a global business, as you're well aware. We see significant opportunity across the globe and across our capability set, and that includes ammonia and technology. It includes the broader technology set. I talked a little bit about Mura in my prepared remarks also. They are now running well. They've come through the 72-hour test products on spec and have actually sold that product already. So we'll see that ramp up through the course, and they've got a number of projects in their pipeline as well, which both as an investor and executor and technology provider, we will take advantage of. In the broader LNG area, which is one aspect of our business, it's not their business. I would say that we've got obviously work going on in Abadi. We've got Coastal Bend front-end design also ongoing. And we've got a number of others that we can't tell you about today, unfortunately, that we're looking at as we move through this year. I think the other key takeaway here is that many have looked at the equity and earnings line and seen that really as just Plaquemines coming through. We talked a few quarters ago about the importance we felt BRIS would be delivering in that area over time. They've really sort of outperformed as we headed into the end of this year and have a very strong book-to-bill themselves. And then with the addition of swap, we're obviously more than doubling that EBITDA contribution, which is why we're going to be showing you that more transparently going forward. And that all comes through the equity and earnings line that will start to hopefully get people thinking a little bit differently about the quality of earnings and the longevity of that earnings coming through the equity and earnings line. So hopefully, that gives you a rounded view of that. Tobey Sommer: It does. If I may ask my follow-up on the MTS side, backlog and options growth pretty substantial in the mid-teens and as well as the sizable awaiting award category. Maybe you could give us some color as to the drivers of the 15% growth in backlog as well as the more exciting areas where you've got bids awaiting award. Stuart Bradie: Yes. Thanks, Tobey. Obviously, we've announced a number of wins. We talked a little bit about HHPC and Tubuti, which come through with a number of year options in them, which helps in that arena. And more recently and very excitingly, the sort of Space Force and Air Force awards in the sort of higher-end digital area, starting to see some momentum around that. But just the broad portfolio internationally has been terrific as you -- as we talked about again in the prepared remarks. So that's really the story coming into the end of this year. As we look out into next year, obviously, we've got the work that's under protest. And I know Shad talked about that in his prepared remarks. And that's quite exciting because it takes us to new customers as well in terms of broadening our reach. And really, the work we're doing in missile defense, the work we're doing with Space Force, et cetera. And obviously, the award of the SHIELD, IDIQ really position us well for workflows under the sort of Golden Dome program also. And we're really seeing tangible wins in that arena as we've press released already. So that sets us up nicely for the future. But I am also excited about what's happening internationally, and it's a piece of our business that everyone sort of doesn't really talk about enough with Australia growing significantly, continually moving up market with an enormous backlog given its successful wins last year and really the U.K. as well with increased defense spending happening across not just in the U.K., but the broader Europe arena. Really positions us well going into '26 and actually well beyond, of course. So I think that's, again, gives you a sort of overall picture. We're very excited about the defense and intel portfolio in the U.S. The work on the protest is a lot of that in the R&S segment, of course. And then we obviously have the international portfolio that's performing extremely well, and I'll reiterate that better margins just because of its commercial nature. Operator: Our next question comes from Mariana Perez Mora from Bank of America. Mariana Perez Mora: So my first question is going to be to STS. And I think we and all the investment community will welcome more clarity on the EBITDA and the contribution from the joint ventures. But like in the meantime, how should we think about Plaquemines for how long it's going to contribute at these levels? And how should we think about Lake Charles or at least like Energy Transfer pausing and canceling that project and the impact to that contribution? And if we think, I don't know, 3 years from now, what are the opportunities you guys have to maintain that level of contribution from joint ventures? Stuart Bradie: That's a good strategic question, probably one best answered more fulsomely at the Investor Day, Mariana. But ultimately, as we said before, the contribution from Plaquemines will run consistently through all this year and into early next year. The increased focus in what we're doing around this and the addition of SWAT, and we're looking at obviously more organic and inorganic growth in that arena to build out that portfolio. And we'll talk about that more as we get through the rest of the year. And that bit of the business is performing really, really well. And so that will be an increasing part of that equity and earnings contribution, which is why we want to be more transparent around it to give, to give investors more confidence on the continued equity and earnings performance. But also it's on top line growth and top line growth and the associated EBITDA generation coming from that portfolio. And I think the book-to-bill of 1.6, again, really demonstrates the momentum that we're having, particularly in the Global South, but ultimately across the portfolio and really sort of delivering, I guess, confidence of future earnings. And that's why we've -- we're confident on the sort of double-digit growth on the revenue line for STS going forward. So I think, again, more to come on that at Investor Day. We'll get more into sort of the granular details there. But strategically, that's where we're heading. Mariana Perez Mora: And my follow-up on MTS you talk about Australia. You have been discussing that for a couple of quarters, how strong it is. And now you talk about the U.K. How is the award environment in the U.K. in general going? Like what is your book-to-bill? How meaningful are the opportunities in the near term? And what are the expectations for growth there? Stuart Bradie: Yes, good question. '25 was a slow award cadence in the U.K. due to the typical defense reviews and U.S. [ weak ] appropriations and really sort of pointing a pounds in this case to where the spend is going to be. That process is now behind us, and we can see clear spend priorities going into '26, which is why we are feeling pretty good about where we are and where we're positioned in the U.K. Again, more to come, and we'll get more granular in the Investor Day. But I think directionally, you can sense there is -- we've come through what is a flat year in the U.K. And now moving into a growth cycle within our portfolio. Operator: Our next question comes from Ian Zaffino from Oppenheimer. Ian Zaffino: Question would also be on MTS. Can you maybe give us the kind of the components of the guidance there? I'd imagine defense and intel will be very nicely up above kind of the guidance. But what should we expect maybe for readiness and sustainment? And any other kind of color you could give us on that? Stuart Bradie: Yes, quite right. Defense and intel is up, as Shad talked about. Science and Space is down due to pressure on NASA budgets, as you would expect. So that's contained within the guide. And then we've got RNS and the protests that are more aligned to RNS as we look through the course of the year. So assuming that they are successful, we will grow RNS nicely as well as the international portfolio we talked about. And it's also worth saying that -- but as I said in my prepared remarks, we did lose some of our recompetes, which were at the lower end of our margin performance. But in terms of the guide, although many -- well, not many, some of them are under protest, a couple of them are under protest. We have not assumed that we will be successful in those protests in the guide. So we've taken a fairly firm view that if we were successful, that would be upside. Ian Zaffino: Okay. And then you made a comment about doing M&A. How should we think about that? Is this something that's going to wait until after the spin, pre-spin? I don't want to jump the gun on the Investor Day, but how do you think about separating these businesses? Is it going to be 100% you thinking 80%? Just to get our arms around how you're thinking about capital allocation pre and then also post spin. Stuart Bradie: Yes. No, thanks. So our statements that we made when we announced the spin still hold. In terms of the leverage, the net leverage we're expecting to come out of those businesses is circa 2 on STS and circa 3 on MTS, which is well within market norms. We might be a little bit north or south of that, but we're not going to be far away. So those are good numbers to work from today. In terms of we've got some firepower, of course, as we go through the year to achieve those leverages. And if we find accretive M&A, we don't want to stand still. And I think we've proven that with the acquisition of SWAT to really advance our strategy in the sort of long recurring cycle of OpEx type contracts, and we'll be looking to expand in areas of strategic importance. So -- but we won't get out over our skis. We won't really sort of -- unless there's some significant transformational thing in the middle of a spin, which will be highly unusual. But ultimately, these will be fairly modest but accretive and strategic acquisitions. We don't want to stand still in this period as we've proven through the SWAT acquisition, which is a highly accretive deal for us. Shad Evans: Yes. And maybe just to build on that, Ian, on deployment, the year typically begins, as you know, with several funded and cash commitments around annual incentive and dividends. And this year, we'll also be incurring some spin-related transition costs as well. And so when you combine those with the strategic investment that Stuart said at the outset, with the normal capital expenditures, they effectively consume a lot of the free cash flow in the first part of the year. So as the year progresses, we'll, of course, continue to assess opportunities to deploy any excess cash, obviously, in the most effective manner in close consultation with our Board. But our focus really is, as we said all along, is making sure we're setting both of these businesses up with really strong balance sheets out of the gate. Operator: Our next question comes from Jerry Revich from Wells Fargo. Unknown Analyst: This is Kevin Uherek on for Jerry. Just had a question on SCS. Would it be possible if you could rank order the growth outlook by end market in 2026? Stuart Bradie: I think that really is one for Investor Day. Where we've got -- we've said this before, several avenues of growth. We're expanding our footprint in Iraq. We announced major wins there recently. We're expanding our footprint in Saudi Arabia across -- and both in different areas of the market. Of course, we picked up the Coastal Bend LNG feed and awarded front-end design in LNG. Technology continues to perform. It's difficult to give you a point estimate in that right now because of just the timing. But I would say that the way the portfolio performs, that double-digit growth is the way to think about it at the consolidated level. And we'll be obviously, as a stand-alone STS business, we'll be digging into this in more detail when we get to Investor Day. Jerry Revich: Got it. Understood. And then on the Mission Solutions piece on EUCOM cadence, does fourth quarter represent the run rate in activity? Or should we expect a step down in 1Q? Shad Evans: Yes, Kevin, it does. And so I'll just remind you though that the first and second quarters of '26 have a bit of a tough comp, $60 million to $70 million of what I'll call elevated levels as that then threw down and is now at its steady run rate coming into '26. Operator: Our next question comes from Adam Bubes from Goldman Sachs. Adam Bubes: In MTS, margins for the full year 2025, I think, were 10.4%. And it sounds like mix is improving there. So can you just expand on the puts and takes on the margin outlook for MTS embedded in the 2026 guide? Shad Evans: Yes. So happy to take that, Adam. Despite some of the macro headwinds that Stuart pointed out, I think operational performance throughout '25 is really strong. And as you said, resulted in a 10.4% margin, which again is in line with our long-term expectations for this business and really, I think, reflective of the profit first business development mindset within that organization. While we do hope to improve margins over time as we continue to see mix of that business move towards more fixed price work, we've not assumed any uplift in '26. And so it's flat sequentially from the 2025 run rates. Adam Bubes: Got it. Understood. And then you've talked a little bit about today increasing mix of recurring OpEx and digital solutions. Is there any way to contextualize what percent of revenues today is OpEx driven and where you think that can head over time? Stuart Bradie: So again, I think we -- obviously more an Investor Day there. Sorry, I keep saying that, but obviously, that's firmly on our minds. But that's part of the reason we are sort of showing more transparency around that OpEx business in BRIS. We do have an OpEx-facing business that we own 100% in the international arena, and we'll bring that all together when we meet later in the year for that Investor Day to show you just the opportunity there. We'll describe some of the long-term nature of those contracts. We'll give you an overall margin profile of that particular area. It's certainly within a range and what the outlook is. But we're excited about that strategically. We do think that assets across the world, of course, have increased significantly over this last decade. But the level of digital solutioning and thinking through how you can help your customer keep the plant up or make it more efficient and do predictive and analytics that support that is exciting, and we're right in the middle of all that. So I do think it's -- as assets age, there's going to be more volume of business in this area. And obviously, it's -- the demand is increasing, and we feel we're very well placed over time to take advantage of that. And I think for investors, I think the strategic upside of that is that the contracts are longer term in nature. There's greater visibility of earnings and cash across that book of business. So that's directionally where we're heading, but more to come again in Investor Day. Operator: Our next question comes from the line of Sangita Jain from KeyBanc Capital Markets. Sangita Jain: If I can ask 2 questions on MPS. My first one is, are you still exploring a sale of that segment? Can you speak to the process if you are? And is that still an option as you move towards the split? Stuart Bradie: I mean, you know I can't answer that question. So it's -- I mean we are committed to shareholder value. We've said that many times, it's 100% the truth. We're going through this spin process to prove that out and demonstrate that. We're open to approaches. We're open to anything that will enhance shareholder value. That's all I can really say at this point. Sangita Jain: Understood. And then on the MPS awards in protest, can you provide a little more detail on how many awards you're protesting and if any of them are outsized versus the others and also the timing that you're anticipating of those resolutions? Stuart Bradie: Yes, these are fairly in the public domain. The Mission Iraq award is circa $1 billion, and that's with the State Department. Then we have a classified program called K2A that's in the similar ZIP code. And then there's some -- we did get one out of protest in our favor, which was the prepositioned stock in Europe. So that's now running through the numbers. And that's the key ones at the moment. And obviously, we are protesting the COSMOS loss and the Diego loss as we speak. So -- but again, I would reiterate those are not in our numbers, the latter 2. So that's kind of where we're at today. Operator: Our final question comes from Andrew Kaplowitz from Citigroup. Andrew Kaplowitz: Stuart, can you talk a little bit more maybe about impacts of AI on KBR? I think you mentioned it briefly in prepared remarks, but how do we think about the mix between software and services and MTS? I mean you mentioned digital and sort of the growth there. I think there's quite a few security and regulatory barriers that should protect your business versus AI. But maybe you could elaborate on how you think about AI's impact on KBR's businesses. Stuart Bradie: Yes. We talked a little bit about this before, I think, in last quarter that I think there's a number of companies that created AI departments, et cetera. And I think they probably spend a lot of money with not a lot of gain. We've been very disciplined around how we approach this, and we very much look at use case solutions that actually drive an ROI. We've got a number of activities inside MTS that are funded by government, as you would expect, as we look at that from an R&D perspective, and that hangs off the back of our digital engineering labs that we press released recently and talked a little bit about in the prepared remarks, which are gaining good traction because of the speed to market of R&D projects, et cetera, as you would expect. More in the STS world, again, looking very strongly at use cases around accelerating engineering, making sure there's checks and balances within that engineering that avoid human errors, speed up progress. But at the same time, looking at how we operate facilities across the world or our customers operate facilities and using particularly digital twins and applying AI and machine learning to really sort of draw data and get trending over time to know what good looks like and make sure that operators can intercede at the appropriate time or the maintenance crews can intercede at the appropriate time. So it's a multifaceted approach, but ultimately, it's driven by use case ROI, and we put quite a bit of front-end effort into that, Andy, rather than just saying AI is good and just running at it. We've been quite disciplined. And that's on the front of office. I think in the back of office, increasing use of bots to drive efficiency and decrease human error, keep our SG&A in check or reduce it in fact, over time. We're rolling out Microsoft Dynamics across the STS portfolio, which is really the forefront of a digitalized ERP because our project controls, which gives us all the project data hangs off that, and we can look at things real time and start to make real-time decisions on commercial execution. And we've also got digital procurement hanging off the back of that and with a similar upside. And so I think that whole digital project execution philosophy underpinned by really a very modern and digitally enabled ERP is going to stand us in really good stead as we come out of the spin. So I think it's multifaceted this front of office driven by use case, the back of office, again, driven by use case, but obviously with different drivers. Andrew Kaplowitz: And Stuart, you just mentioned it, but like when I looked at the release for STS margin, it mentioned ERP. And so we always think about sort of ERP implementation as, I guess, a risk factor, but you got to over 20% margins again for '26. So how do you think about STS margins? Are they kind of going to be consistent here over the next few quarters? And do we expect improvement in '26 versus '25? Stuart Bradie: Yes. Quite right on the ERP. It's typically a risk. Our teams have done a fantastic job. We've rolled out Dynamics just to be fully transparent, we did a pilot in Singapore. It went well. We rolled it out in Australia, added more functionality, went back to Singapore, increased their functionality, rolled it out in India, rolled it out in the U.K. And now we're looking at how we roll corporate out in the U.S. and then we'll move to the Middle East. So I think we've proven that we can roll this out without blowing it out, which is always the risk. So hats off to our teams in sort of managing the execution and the implementation. In terms of margins across STS, I think we'll just stick with our statement that it's 20-plus percent across the portfolio. And as you've seen, we have done as we are prudent in how we account for things. And as we close out projects, you will get ups in certain months. But I think over the piece, the portfolio performance is 20-plus percent. And I think that's a good measure to stick with. Operator: Thank you. With that, we have no further questions in the queue. So I'll hand back over to Stuart Bradie for some closing remarks. Stuart Bradie: Thank you. Thank you very much. So just a few final thoughts. I think as we discussed on the call, 2025 started off as challenging a year as we've seen in many. But I think it really underscored the strength of the KBR portfolio. Our geographical reach being truly global and understanding each of the countries and the different drivers is a real plus, a very diversified customer base. And that really drove a lot of a true lack of concentration risk and being agile, both in terms of how we do a business and our business model that gives both Mission Tech and Sustainable Tech real resilience. And I think that came through in the -- particularly in the bottom line and the cash performance through the course of the year. So despite external noise, we did execute on our strategy, and we did so with discipline. And that's really about our people. The quality of our people and the commitment of our people is unbelievable, and my hats off to them. And so while we face revenue headwinds, margins did expand, cash was strong and that really, really reinforces the underlying health of the broader portfolio. So as we enter '26, we've got a solid foundation in both businesses, strong work under contract and as we discussed on the call, a strong pipeline. So I think we're really well positioned in both businesses as we head towards the spin and as we enter 2026. So thank you again for joining today's call. I would welcome Shad and Rachael officially to the team in this forum. And obviously, we'll be talking soon. So thank you very much. Operator: Thank you. That concludes today's call. You may now disconnect your lines. Thank you for joining.
Operator: Hello, ladies and gentlemen. Thank you for standing by, and welcome to Zai Lab's Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. It's now my pleasure to turn the floor over to Christine Chiou, Senior Vice President of Investor Relations. Thank you. Please go ahead. Christine Chiou: Thank you, operator. Hello, and welcome, everyone. Today's earnings call will be led by Dr. Samantha Du, Zai Lab's Founder, CEO and Chairperson. She will be joined by Josh Smiley, President and Chief Operating Officer; Dr. Rafael Amado, President and Head of Global Research and Development; and Dr. Yajing Chen, Chief Financial Officer. Dr. Shan He, our Chief Business Officer, will also be available to answer questions during the Q&A portion of the call. As a reminder, during today's call, we will be making certain forward-looking statements based on our current expectations. These statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from what we expect due to a variety of factors, including those discussed in our SEC filings. We will also refer to adjusted loss from operations, which is a non-GAAP financial measure. Please refer to our earnings release furnished with the SEC on February 26, 2026, for additional information on this non-GAAP financial measure. At this time, it is my pleasure to turn the call over to Dr. Samantha Du. Ying Du: Thanks, Christine. Good morning, and good evening, everyone. Thank you for joining us today. Zai Lab is at an important point in our evolution. We are building a company increasingly defined by global innovation, resting on a foundation supported by a commercially profitable China business and R&D infrastructure. Today, our global oncology, immunology pipeline is reaching a scale and maturity that fundamentally changes the profile of this company. We have multiple global programs advancing rapidly through the clinic and with zoci in pivotal stage. We see a clear path toward our first potential U.S. approval by 2028. Importantly, we advanced zoci from IND to global Phase III in less than 2 years, an industry-leading pace that reflects the strength of our integrated U.S. and China development model. This capability enables faster, more capital-efficient execution, is now being applied across our broader pipeline. Our China business continues to provide stability and leverage for our global R&D efforts. Despite a challenging macro and operating environment, full year revenue grew 15% year-on-year, and our commercial profitability continues to improve. Looking ahead to 2026, our priorities are very clear. This is a year focused on execution and preparation. We expect several meaningful pipeline catalysts, including clinical data for zoci in brain metastasis, neuroendocrine carcinoma and first-line small cell lung cancer as well as first-in-human data from our IL-13/IL-31 receptor bispecific program in atopic dermatitis. On the regional side, we have important pivotal data readouts for large opportunities such as povetacicept in IgAN and elegrobart in thyroid eye disease, both of which enhance the durability of our China growth engine. Business development remains an important lever for us. Our presence and capabilities in China provides access to one of the world's most important fast-evolving innovation ecosystems, creating opportunities that can meaningfully strengthen and prioritize both our global and regional pipeline. Ultimately, our objective is to build a company that can make a lasting difference for patients while creating substantial value for shareholders. With that, I'll now hand the call over to Rafael, who will walk you through the progress of our R&D pipeline. Rafael? Rafael Amado: Thank you, Samantha. 2025 was a year of significant progress for our R&D organization as we continue to build globally competitive pipeline. Over the course of the year, we initiated a pivotal trial in oncology, advanced one additional oncology program into the clinic and moved our lead immunology asset into clinical development. With that, I'd like to walk you through our progress, starting with zoci, our potential first and best-in-class DLL3-targeting ADC and a cornerstone of Zai Lab's global oncology portfolio. In second-line and third-line small cell lung cancer, we have initiated a global registrational Phase III study, which will enroll approximately 480 patients across second-line post-platinum and third-line post-tarlatamab settings with a control arm reflecting real-world global practice, including topotecan, lurbinectedin or amrubicin. Importantly, zoci has advanced at a rapid pace, significantly faster than is typically observed for programs in this space. Based on current time lines, we anticipate a potential accelerated approval submission in 2027 and our first global approval in 2028. Clinically, zoci has demonstrated encouraging efficacy in heavily pretreated extensive-stage small cell lung cancer, including an 80% objective response rate in 10 patients with untreated brain metastases. The ability to treat both intracranial and extracranial disease without treatment interruptions represent a meaningful potential advantage for patients, and we look forward to presenting this data in the coming months. Equally important, zoci continues to stand out for its favorable safety profile with low rates of severe treatment-related adverse events. We believe this profile supports zoci's potential role as a backbone ADC in first-line combination regimens, including those that reduce chemotherapy burden. We plan to initiate a first-line pivotal trial in small cell lung cancer and to advance zoci into additional novel combination regimens before year-end. Beyond small cell lung cancer, we see a compelling opportunity for zoci in neuroendocrine carcinomas or NECs, a large underserved population with no approved DLL3-targeted therapies. Enrollment in our global Phase Ib/II is progressing very well, and we plan to present initial data this year with the goal of initiating a registration-enabling study by the year-end. Taken together, we believe zoci's differentiated efficacy and safety profiles, including activity in brain metastases, positions it to address a significant unmet need across small cell lung cancer and neuroendocrine carcinomas where the total addressable global market is estimated to exceed $9 billion. Beyond zoci, our next wave of innovative global assets continues to advance rapidly. ZL-6201, our internally discovered LRRC15-targeting ADC, received U.S. IND clearance and the global Phase I study was quickly initiated thereafter. ZL-1222, our PD-1/IL-12 immunocytokine is progressing through IND-enabling studies and ZL-1311, a next-generation T-cell engager or TCE targeting MUC17, represents our first globally owned TCE with an IND planned by year-end. In immunology, ZL-1503 is our internally discovered IL-13/IL-31 receptor alpha bispecific antibody for atopic dermatitis and is designed to address both itch and inflammation with the potential for enhanced and faster onset of efficacy associated with less frequent dosing than current biologics. The global Phase I/Ib study is enrolling well, and we expect first-in-human data later this year. Now turning briefly to our key late-stage regional programs, starting with our immunology portfolio. Efgartigimod continues to expand across multiple autoimmune indications with ongoing development across a broad clinical program. Recent late-stage results support further label expansion and additional Phase III readouts are expected this year and next with China being a valuable contributor to global enrollment. Povetacicept remains on track with an interim analysis for the global RAINIER Phase III study for IgAN planned for the first half of 2026, and enrollment is ongoing in the global pivotal OLYMPUS Phase II/III study for primary membranous nephropathy. Lastly, for elegrobart, our partner, Viridian expects to report top line data for the global registrational REVEAL-1 study in active TED. This will be in the first quarter of 2026, followed by top line results from the global registrational REVEAL-2 study in chronic TED in the second quarter of 2026. Elegrobart has the potential to become the first subcutaneous IGF-1R therapy approved for TED in China. Turning to our local oncology portfolio. For TIVDAK, we expect approval in China in the first half of 2026, which will build naturally on our established ZEJULA commercial platform, further deepening our leadership in women's cancers. Finally, for Tumor Treating Fields, the FDA approval for Optune Pax in locally advanced pancreatic cancer earlier this month represents an important milestone in this disease, and we will work closely with China's NMPA under the innovative medical device pathway to support an expedited review. Together, these achievements reflect the depth and quality of our pipeline, one that is advancing with speed and efficiency. And with that, I'll hand it over to Josh. Joshua Smiley: Thank you, Rafael, and hello, everyone. Before getting into quarterly performance by product, I want to briefly frame how the business progressed more broadly in 2025. During the year, we made important progress across market access, portfolio optimization and business development. We successfully completed NRDL renewals for key products and achieved guideline updates supporting VYVGART in generalized myasthenia gravis and KarXT in schizophrenia, both of which strengthen the durability of our commercial portfolio over the long term. At the same time, we sharpened our focus by divesting noncore assets and regions, allowing us to reallocate resources toward higher priority growth opportunities and to improve operational efficiency. From a business development perspective, we maintained a highly selective and strategic approach. During the year, we entered targeted collaborations to explore novel combination strategies in first-line small cell lung cancer and strengthen our oncology platform with the addition of a MUC17/CD3 T-cell engager. Together, these actions reflect our disciplined approach to external innovation, complementing our internal pipeline while preserving financial flexibility. With that broader context, I'll now turn to our quarterly commercial performance. Fourth quarter revenues increased 17% year-over-year to $127 million, and full year revenues grew 15% to $460 million, reflecting steady progress across our commercial portfolio. Starting with VYVGART. Physician confidence remains strong and patient demand has been stable. Fourth quarter revenues, however, reflected channel dynamics related to NRDL renewal and hospital purchasing patterns. In 2026, we expect a more measured near-term growth profile influenced by pricing dynamics and evolving competition. The long-term trajectory of the franchise remains intact, supported by clinical guideline expansion, affordability initiatives and additional indications and formulations. Turning briefly to ZEJULA. We delivered a strong fourth quarter driven by first-line BRCA-positive new patient starts. While some variability is expected early in the year due to volume-based procurement dynamics for olaparib and seasonality, ZEJULA remains well positioned in the first-line setting. Looking ahead, KarXT represents a significant near-term growth opportunity. We expect to initiate the commercial launch in the second quarter of 2026 with a clear focus on disciplined execution, building disease awareness, establishing clinical confidence and laying the groundwork for broader adoption. Recent inclusion in a national expert consensus on negative symptom management builds on last year's inclusion in national treatment guidelines and reinforces growing recognition of KarXT's profile. In summary, 2026 is a year focused on maintaining the strength and stability of our existing business while preparing for multiple growth opportunities ahead. That includes continuing to build the VYVGART franchise, executing a high-quality launch for KarXT in schizophrenia and advancing key late-stage assets such as povetacicept in IgAN, elegrobart in TED and TTFields in pancreatic cancer. The investments we are making across commercial and R&D today are designed to support a multiyear growth trajectory extending well beyond 2026. And with that, I will now pass the call over to Yajing to take us through our financial results. Yajing? Yajing Chen: Thank you, Josh. Now I will discuss highlights from our fourth quarter and full year 2025 financial results compared to the prior year period. Fourth quarter total revenue grew 17% year-over-year to $127.6 million, driven by strong contributions from XACDURO and NUZYRA. XACDURO performance reflected strong patient demand and expanding hospital adoption, though supply constraints during the year limited the full realization of underlying demand. NUZYRA continued to benefit from broader market coverage and increased penetration. Total revenues for the full year were $460.2 million, representing 15% year-over-year growth. Turning now to our expenses. Our commitment to financial discipline is reflected in improved operating leverage with both R&D and SG&A declining as a percentage of revenue year-over-year. R&D expenses for the full year declined 6%, driven by lower personnel compensation costs and increased in the fourth quarter due to fast progression of global clinical trials. SG&A expenses decreased 12% and 7% year-over-year for the fourth quarter and full year, mainly due to the reduction in general and administrative expenses because of strategic resource optimization. As a result, loss from operations improved 19% for the full year to $229.4 million and improved 25% when adjusted to exclude noncash expenses, including depreciation, amortization and share-based compensation. We maintain a strong cash position, ending the quarter with $790 million. Looking to 2026, our focus remains on strengthening the foundation of our regional business, executing across our global pipeline and thoughtful capital deployment to support both near-term launches and the long-term growth drivers. With a strong balance sheet, we are well positioned to execute against these priorities. And with that, I would now like to turn the call back over to the operator to open up lines for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Jonathan Chang of Leerink Partners. Jonathan Chang: First question, can you provide any color on how we should be thinking about revenues and expenses for 2026? And then second question on the global pipeline for zoci, can you remind us of the implications of the intracranial activity in patients with brain mets? And how does this impact the opportunity and positioning of the drug? Joshua Smiley: Thanks, Jonathan. It's Josh. I'll start with 2026, ask Yajing to make a comment, and then we'll hand it over to Rafael to talk about zoci. I think as we think about 2026, as we mentioned on the upfront comments, we see good growth opportunities for VYVGART. We're seeing good volume gains throughout the second half of the year. We expect that to continue in 2026. We're pleased with how we're -- how we ended the year with ZEJULA. And while we're facing a generic market now for Lynparza, we expect to continue to hold our position and in some cases, hopefully grow. XACDURO should be a good driver for us this year. And of course, then we've got a couple of important launches coming. COBENFY in the second quarter, we will begin our commercial launch and then TIVDAK later this year. So I think when you think about those things together, certainly, we're looking for good commercial performance and good growth on the top line for the year. For expenses, I think we're in good shape on SG&A, very modest investments required to support launches. Obviously, we're going to put the field sales force in place to launch COBENFY, and that will drive some incremental costs. But I think otherwise, we're in good shape as it relates to synergies and efficiencies across our SG&A. R&D should be relatively in line with what we've seen in the last few years. Obviously, big focus and resource allocation to our global portfolio. But as some of our late-phase opportunities start to -- in China start to come offline, we've got capacity there. So I think sort of flat to very modest growth in R&D. So this year, pretty straightforward thinking. Obviously, we've got some pushes and pulls as it relates to when things are approved and when we get them into the market and otherwise. I think then as we think about '27 and on, we'll start to get the benefits of these launches like COBENFY and TIVDAK and some of the assets that Rafael talked about in his upfront comments. Yajing, I don't know if you want to add anything to that? Yajing Chen: Maybe just to add a little bit more dynamics in 2026. I mean 2026 is a transition year. I think underlying demand growth, as Josh talked about, is very true. Also, we want to be mindful of other dynamics, moving pieces, including the IV -- the VYVGART IV price adjustment and maybe later on the rebate dynamics in the fourth quarter for VYVGART, the Hytrulo. So -- and then we are sort of like looking at the hospital budgeting purchasing behavior as well. So this is part of the reason that we want -- we are probably not going to provide the full year guidance at this time, but those are the moving pieces. When we get more clarity, we can share more specifics later in the year. Joshua Smiley: Thanks, Yajing. Rafael, do you want to talk about zoci, please? Rafael Amado: Yes, absolutely. So brain metastases, obviously, in this disease is a big problem. About 70% of patients develop brain metastases. And I think the speed with which patients' experience responses with zoci is well appreciated among investigators and it's actually one of the key properties of the molecule. So we've reported up to 80% response rates in patients with untreated metastases. So there are 2 situations. If a patient comes in with brain metastases, oftentimes, they have to have brachytherapy or some local regional therapy, which delays systemic therapy, whereas if it's an uncomplicated untreated met, patients can go into zoci directly. And we see, again, pretty high activity in the brain. The other is there are some drugs that may have activity, but then there is a high rate of relapse in the brain where the brain is a sanctuary site. So using zoci prevents recurrences in the brain, which is really important. So we've reported in RECIST criteria before, and we're planning to report now in the first half of the year using RANO criteria, which is a response assessment that is used in neuro-oncology is a much more stringent one where it's bidimensional and uses 50% instead of 30%. So it really characterizes the responses in the brain, and we look forward to presenting that in the first half of this year. Operator: [Operator Instructions] Our next question comes from the line of Li Watsek from Cantor. Li Wang Watsek: I guess my first question is more about sort of the U.S.-China development model that you alluded to in the opening. So I just wonder, can you elaborate a little bit more other than maybe sourcing assets from the region? I guess, how much clinical derisking or time line acceleration can you achieve by leveraging some of the resources in the region? Joshua Smiley: Thanks, Li. It's Josh. Rafael, why don't you talk a little bit about this point to Li's question? Rafael Amado: Sure. So our model obviously has been speedy development in China based on pretty efficient development structure as well as regulatory and other functions in China, and that's led to the success of registrations local regionally. And now we're applying that speed, relationship with investigators and sites to add China to global trials or to be the sole site when we want go/no-go decisions with products. So we now have all our global trials really, including China participation, and that really has allowed us to move with speed and quality. So, that will be also the case for Phase III studies. We expect that China will participate and enroll about 1/3 of the patients, at least that's our expectation, for instance, on our current pivotal trial in second-line with zoci. So I think all in all, this efficiency that we have built over the course of the past 10 years in China is serving us well as we are now expanding our pipeline towards global assets. And we are seeing the fruits of that by, for instance, zoci moving within 2 years to Phase III from IND as an example. Li Wang Watsek: Okay. And then my second question is on zoci. And obviously, you guys are going to present data in neuroendocrine. So just wanted to get a little color in terms of expectations, what sort of data you guys going to present, what's good data? And in terms of regulatory pathways, can you maybe just conduct a single-arm study to get approval, maybe expand a little on that as well? Rafael Amado: Yes. NEC is a complex group of diseases and first-line is treated with chemotherapy. There is the gastroenteropancreatic subgroup and then other neuroendocrine carcinomas that exclude lung because lung tends to have a different prognosis. And when you look across the board in second-line, chemotherapy really has dismal activity in terms of response rate and PFS. So our study has started in second-line and is looking at GEP, neuroendocrine carcinoma, non-GEP neuroendocrine carcinomas or extrapulmonary. And then there's a group that is looking at neuroendocrine tumors, which are less aggressive. So an initial data set will be presented in second-line. We are pleased with what we're seeing thus far. We will have, I think, sufficient patients to make an assessment in terms of the response. The durability may be limited, but we think that there's enough information there to present in the first half of this year. And there may be about 60-plus patients that will be included in this analysis. Like you said, we are sort of ourselves seeking a regulatory path for NEC in second-line. And this is actually the subject of regulatory discussions that we're initiating now in terms of whether a single-arm would be sufficient or whether a randomized trial would be required. It's unclear what the control arm would be in the second option, but it's still a possibility. So those discussions are beginning now as we uncover the data. And we're also thinking about what to do in frontline as well. As you know, some T-cell engagers are getting into this space, and we would probably consider something in first-line in combination, but that is standalone in the future. We want to sort of see what we can do to help patients in second-line where options are just scarce. Operator: [Operator Instructions] Our next question comes from Michael Yee of UBS. Michael Yee: We have 2 questions. First, just wanted to understand, given all the thoughts and comments you have talked about regarding steady revenue growth and pushes and pulls as it relates to financials this year. Does the company believe that they could achieve breakeven or profitability by the end of the year? Do you think that's something that is achievable given what we had expectations for last year? And then the second question is, obviously, zoci and DLL3 are critically important. What is the expectation for completion of enrollment and the timing of reading out the primary endpoint on response rate in order to file? Joshua Smiley: Great. Thanks, Mike. How about Yajing, you talk about the cash flow, and then we'll hand it over to Rafael. Yajing Chen: Yes. So our corporate profitability, I mean the cash flow breakeven is definitely continue to be a very clear objective for Zai Lab. We will manage the business accordingly. Our business right now is commercially profitable today. That provides a stable foundation for the company. At the corporate level, I think the timing of the profitability is really driven by the 2 primary factors. One is the top line growth, the rate of the growth and the other one is the level of investment that we choose to make in the high-value global programs. So I think at this time, we remain efficient, disciplined in our spending. We do expect the corporate profitability to emerge. I won't be able to share the guidance for 2026, where we're going to be, but that's definitely the goal for us to continue to drive. And also, I want to mention that we are focused on progressing towards the goal, but also focus on continue to expand our global pipeline. So we do want to preserve the flexibility to invest when we see the strong value. Joshua Smiley: Thanks, Yajing. Go ahead, Rafael. Rafael Amado: Thanks, Josh, and thanks, Michael, for the question. So the study started in December. It's a global trial. It started in the U.S. first, and China is coming online imminently as Europe will and North America and other countries in Asia as well, Asia Pacific. Our plan is to have about 75% of the patients enrolled by the end of the year. We have to have everybody enrolled before we do the interim analysis for response. And we think that we will finish enrollment at the end of the first quarter of next year and do the analysis and subsequently file. So we're hoping for an approval in 2028. And the study, as you know, is a combination of second-line as well as post-tarlatamab patients, and we're balancing the accrual of each one of those subgroups in the study. So 2027 end of accrual and filing and 2028, hopefully, accelerated approval. Operator: [Operator Instructions] Our next question comes from Yigal Nochomovitz from Citigroup. Caroline DePaul: This is Caroline on for Yigal. Could you talk about your strategy to grow VYVGART, specifically how to increase cycles per patient? Joshua Smiley: Thanks, Caroline. VYVGART, we are focused on moving the cycles per patient to the minimum of 3, which is what's embedded in the national myasthenia gravis guidelines in China that were updated in July of last year. Of course, in the clinical data, getting out to 5 or more over a 12-month period demonstrates really significant benefits. But our focus right now is on 3. We're making reasonable progress, and we made reasonable progress in 2025. We -- if you just look at average cycles closing out the year in 2025, we improved versus 2024 by more than 50%. So we're on the way, but we're not yet on average at 3. So I think we've got a couple of key initiatives to help drive that focus. I mean the first is to leverage the guidelines, and that's through our medical professionals and our sales professionals. And I think that's really important, and we're seeing the benefit of that. We know guidelines make a big difference in China. They make a big difference in most markets. And this has been just -- it's been a build the market approach with VYVGART. So I think we're making good progress there and certainly have the clinical data and now the national guidelines to support that. We are also working on affordability initiatives, while NRDL listing is clear for VYVGART, patients do pay co-pay and pay out of pocket. So we've got in place an online support program that helps patients navigate things like appointments and resources and otherwise to help on the logistics and the co-pay. We have a targeted co-pay assistance program that helps, and it really is focused on the national guidelines and focused on ensuring we can get patients out to 3 cycles without -- with as minimum economic burden as possible. We are seeing the benefits of those focus points. And I do expect during the year that we'll continue to see good expansion in duration of therapy and get the majority of our -- certainly patients who are in the acute phase of the disease, the majority of those patients, I think this year are going to get to 3 and more cycles. We also, this year, though, are expanding, really focusing on patients who are in the non-acute phase. They, of course, also benefit from long-term therapy and getting 3 or more cycles, but that's probably going to be a little bit longer climb to get there. So I think as we look at the data throughout the year, we've got great patient expansion opportunities by leveraging our strength in acute patients, moving to non-acute. Those acute patients, I think the initiatives are underway and having results that will get us out to those on average, 3 or more cycles. And then the non-acute patients will start to pick up and add certainly good volume growth throughout the year. So I think that's -- we're quite excited about the opportunities with VYVGART this year, the opportunities to get to many more patients and for them to get the full benefits of the drug through persistence and duration. Operator: [Operator Instructions] Our next question comes from Anupam Rama from JPMorgan. Anupam Rama: On the global second, third-line DLL3 study, which is enrolling patients, you kind of talked about this, but can you remind us what the ultimate regional breakdown of sites is going to be given this is a global effort? And is there a breakdown of patients that need to be ex China, for U.S. and more global approvals? Joshua Smiley: Thanks, Anupam. I'll start, but Rafael can talk about the enrollment and how we're thinking about that. But I think first, if we look at small cell lung cancer and focus first on the U.S., I think in the second-line and later settings, we see about 15,000 patients available. First-line is probably 25,000. If we sort of look at that on a major market, Western market sort of look, that's probably 100,000 patients total in small cell lung cancer that are eligible for treatment in first or later-line settings. So it's a big opportunity. And of course, when we sort of size that and you guys have done this as well, it's approaching $10 billion probably in terms of total opportunity, and we think zoci can fit really well in that space. I think when we look at neuroendocrine, we're probably in the U.S., it's somewhere in that [ 5,000 to 10,000 ] sort of range, maybe similarly in other markets. We have more to learn here, I think, as we continue to work through the trial. But it's not insignificant, I guess, is what I would say. Rafael, maybe you can talk about enrollment. Rafael Amado: Sure. The distribution, I think, of the countries and patients coming from China and other regions is really designed to make sure that we have enough patients post-tarlatamab that reflect real-world usage in the United States. That may be up to 30% of patients or so coming from the United States. About 30% of patients will come from China. This is a reasonable number. I don't think it's ever been questioned that a percent of patients of that magnitude can jeopardize approval in a positive study. The rest of the patients will come from Europe. in terms of post-tarlatamab patients, obviously, we count on Japan as well. We count on the U.K., some countries where a lot of studies have been done with tarlatamab. And obviously, the United States where tarlatamab is gaining market share. So I think that's probably the distribution that you should expect on the study. Operator: [Operator Instructions] Our next question comes from the line of Cui Cui of Jefferies. Cui Cui: So I have 3 questions for the management team. The first one is as a follow-up to the JPMorgan question. So could you please share some more details on zoci? So because for this time, we are also very excited to see the clinical trial design for the first-line small cell lung cancer, including the [ combo regimen ] and also for the strategy of NEC. Will it also be advanced to the first-line treatment in the future? And my second question is regarding the KarXT. So what should we expect from KarXT in 2026 and 2027? And how will you build your commercialization team going onward? And my last question is also -- because for the past 1 year, we also saw some deals regarding the autoimmune bispecific. So can we talk about some [Technical Difficulty]... Joshua Smiley: Thanks, Cui Cui. Rafael, why don't you start and then I'll come back in with the next 2. Rafael Amado: Yes. Maybe I'll focus on the first-line opportunity. I mean just the overarching sort of desire for zoci to be the centerpiece ADC for different lines of therapies and combinations. And that is because of its low incidence of grade 3 toxicity, activity in the brain and high response rate really and durability. So on first-line, we've seen in the first study, the Phase I/II study 001, we've been enrolling patients in first-line for some time. We started with a doublet with atezolizumab and then a triplet adding carboplatin. And we hope to present mature data towards the second half of this year. We have -- just to give you a sense, we've treated about 60 patients or so, and we continue to follow these patients. I think once we have an idea of the activity, we will then make a decision of what the design of the frontline study should be. Our desire is for it to be one that spares chemotherapy. But also, we have our eyes on how the frontline set of landscape is going to change with the entrance of IMDELLTRA potentially in frontline and other TCEs in frontline. And if we continue to see this high level of activity, we will be testing with other agents as well to see whether this combination offers even more activity for patients in first-line. So I think stay tuned to the data, but our final design will be when we actually see the entire durability and activity in first-line with the data that we've been able to elicit from the Phase I/II study. Joshua Smiley: Thanks, Rafael. I'll talk about KarXT for a minute. Cui Cui, we're really excited about this opportunity, was approved without only -- product approved without a black box in this setting, first new mechanism in more than 70 years. So there's a really exciting introduction here. We'll launch the product commercially in the second quarter. So we're going through all the process now of getting product in and labeled and inspected and otherwise. So second quarter, we'll be out with the product in the market. Of course, we don't have NRDL listing this year, just given the timing, but we do expect that in 2027. So this year's focus will be on getting physicians' experience using the drug, getting a commercial team up and running. I think prescribing here is really concentrated in China. So while there were, I think, in 2024, over 2 billion days of atypical antipsychotic prescription use. We -- when we look at how that's prescribed and how it's managed, it's probably 800 institutions, give or take, that make up a vast majority of that volume, at least from a sort of initial prescribing and monitoring perspective. So we'll focus on those institutions at launch. That generates something in the range of 100 plus or minus sort of commercial team. So very focused this year, and we'll expand as necessary, but we do see this as a relatively efficient big opportunity. And again, for this year, I think in terms of financials, I wouldn't expect significant sales. Again, this is going to be a non-NRDL product for patients who otherwise aren't going to have things like commercial insurance or other access to payment mechanisms. But for 2027, I think if you look at NRDL and how to think about this, if you look at the branded olanzapine, for example, it's in the range, I think, of about $5 a day on NRDL, paliperidone, similar. So there's, I think, a pretty straightforward reference here. Final comment I'll make on KarXT is I do think this is a relatively straightforward opportunity. Atypical antipsychotics are monotherapy, is like 90-plus percent of the standard of care today. This is a drug that brings great additional benefits in terms of safety and negative symptoms, and we'll be educating physicians on those points this year in preparation for what I think will be an exciting unlock in terms of financial value beginning in 2027. On business development, we've got Shan on the phone and Rafael, we're spending a lot of time around the world looking at opportunities. But certainly, as you mentioned, I think if you look at the innovation happening in China, particularly in areas that we're interested in oncology and immunology modalities like ADCs and T-cell engagers, there's a lot of good opportunities to pick from, and you should expect us to continue to do that. We announced recently a deal on the MUC17, which I mentioned earlier. And I think that's kind of our typical kind of deals you should think about from us would be late preclinical targets that are -- have some biological precedence and where we can move fast, leverage the clinical development expertise that Rafael talked about earlier and have a chance to introduce first and best-in-class products in oncology and immunology to the world, and we're really excited about that. Operator: We will now take the last question from Linhai Zhao from Goldman Sachs. Linhai Zhao: My question is around zoci. The first one is regarding the Phase III trial for the second-line small cell lung cancer. Understood that the current clinical protocol does not take tarlatamab as a control arm, but it was allowed to be available both as a prior treatment option and the post-progression treatment options. So on that end, I want to collect your thoughts on the potential risk of having an elongated OS for the control arm given that you're allowing tarlatamab both before and after the second-line treatment? That's the first question. And the second question is about first-line. Understood that you're going to share the Phase I trial data for both doublet and triplet in the second half. And just want to collect your detailed plans about when do you want to make a decision on what to choose from doublet versus triplet in first-line? Joshua Smiley: Go ahead, Rafael. Rafael Amado: Thanks for the question. Maybe let's start from the second one. In terms of first-line, we would like to start the first-line study, Phase III study this year. So in spite of the fact that it may take some time for us to see durability, we may just use a landmark in terms of patients without progression at a given number of months and then make a decision. And again, our strong desire is to spare chemotherapy because that's really what leads to most of the morbidity. And most patients can only get about 4 cycles of carbo/etoposide and a checkpoint inhibitor because they progress, actually, the majority of them, some of them are intolerant. So if we're able to give more therapy with ZL-1310 plus a checkpoint inhibitor with the kinds of responses that we see in second-line, we should be better in first-line, and we think we stand a good chance of actually having a positive trial. So that's for first-line. I expect that we will launch a study by the end of the year. And then with regards to your question about tarlatamab, I mean, the patients will be post-tarlatamab in both arms, but they can only come in if they have progressed on tarlatamab. So they -- some may have responded and progressed, some may have been de novo resistant patients, but they will be equally in each arm and the study is stratified for post-tarlatamab versus no tarlatamab. So in that regard, I think each arm will perform equally. With regards to post-progression therapies, the same things apply. We obviously cannot control post-progression therapy. Some patients may get tarlatamab, some may get lurbi, some may get something else. But they should, because it's a sufficiently large study, get those therapies equally in each arm. So whatever advantage tarlatamab may afford in terms of survival, it should be the same in each one of the arms. So we're not really concerned about bias here, particularly in the post-tarlatamab patients that entered the study because they're stratified, and again, they can only come in if they have progressed. So I hope this answers your question. Linhai Zhao: Just to quickly clarify that you're saying that you're not really concerned about bias between the 2 arms. Can you share a bit more because I would say if the patients use zoci in the second-line, would the physicians still wish to use tarlatamab after zoci? Rafael Amado: The physician may use tarlatamab after zoci, but so could they after topotecan, for instance, or lurbinectedin. So I guess what I was saying is that tarlatamab is a post-progression therapy, which, again, in survival studies, in any study, we cannot control, but they should be used equally frequently in both arms, because once they progress, it's up to the investigator to decide what therapy to use. Operator: We have come to the end of the question-and-answer session. With that, I would like to hand the call back to Samantha Du for closing remarks. Ying Du: Thank you, operator. Thanks, everyone, for taking the time to join us on the call. We appreciate all your support and look forward to updating you again after the first quarter of 2026. Operator, you may now disconnect this call. Operator: Thank you. That concludes today's conference call. Thank you all for participating. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to Anika's Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 26, 2026. I would now like to turn the call over to Matt Hall, Executive Director, Corporate Development and Investor Relations. Please proceed. Matthew Hall: Good morning, and thank you for joining us for Anika's Fourth Quarter and Year-end 2025 Conference Call and Webcast. I'm Matt Hall, Anika's Executive Director of Corporate Development and Investor Relations. Our earnings press release was issued earlier this morning and is available on our Investor Relations website located at www.anika.com as are the supplementary PowerPoint slides that will be used to the discussion today. With me on the call today are Steve Griffin, President and Chief Executive Officer; and Ian McLeod, Senior Vice President, Chief Accounting Officer and Treasurer. They will present our fourth quarter and year-end 2025 financial results and business highlights. Please take a moment and open the slide presentation and refer to Slide #2. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance or achievements. We make no obligation to update these statements should future financial data or events occur that differ from the forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance. In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, which may include adjusted gross margin, adjusted EBITDA, adjusted net income from continuing operations and adjusted earnings per share from continuing operations which are used in addition to results presented in accordance with GAAP financial measures. We believe the non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. Reconciliation of these adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the presentation slide deck and our fourth quarter and full year 2025 press release. And now I'd like to turn the call over to our President and CEO, Steve Griffin. Steve? Stephen Griffin: Good morning, everyone, and thank you for joining us. Before turning to the results, I want to express how grateful I am for the opportunity to lead Anika and for the continued trust and support of our Board as I step into the CEO role. I also want to recognize Cheryl Blanchard for her leadership in repositioning the company and for the partnership she has provided through this transition. Under her tenure, Anika took important steps to sharpen its focus, including portfolio actions and progress across Integrity, Hyalofast and Cingal, which put us in a stronger position to execute going forward. I'm especially appreciative that in her new role as Executive Chair, we will continue to benefit from Cheryl's experience, perspective and relationships as we execute on our priorities particularly as we work to advance key regulatory, commercial and pipeline initiatives. As we begin today's call, I want to clearly outline the 3 strategic priorities that guide how we run the business, allocate capital and measure success. These priorities build directly on the foundation established under Cheryl's leadership and sharpen our execution as we move forward. First, revenue growth driven by the commercial channel. Our top priority is accelerating sustainable revenue growth with the commercial channel as the primary driver. This includes continued expansion of our international OA pain portfolio and scaling Integrity as a differentiated regenerative platform. These businesses generate attractive, stable margins, give us greater control over pricing and reduce our reliance on our OEM channel partners while meaningfully improving revenue diversification over time. The second priority is advancing our HA-based innovation pipeline, centered on Integrity, Hyalofast, Cingal and longer-term development opportunities. These programs address large underserved markets and will further Anika's leadership position in hyaluronic acid. We've made meaningful progress in recent years and remain focused on advancing these programs toward regulatory approvals in the markets where they are not yet approved. Third, improving operational execution. The third priority in an increased area of focus is strengthening operational execution. This includes improving manufacturing productivity, yield and capacity, which directly supports growth in both our commercial business and our OEM partnership with J&J MedTech, which continues to drive double-digit growth in Monovisc unit shipments. At the same time, we are establishing a more streamlined organizational design to improve profitability and cash generation. This is not a change in direction, but a sharpening of execution to ensure strategy translates into improved financial performance. With that framework in mind, I want to walk through our 2025 performance through the lens of these 3 priorities. First, revenue growth. In 2025, revenue growth was led by strong performance in our commercial channel, driven by international OA pain management and continued adoption of Integrity. With these two contributors together delivering commercial channel revenue growth of 22% in the fourth quarter and 15% for the full year, in line with our guidance. Internationally, our OA pain management portfolio, which includes Monovisc, Orthovisc and Cingal, delivered another year of strong growth and share gains. International OA pain revenue increased 28% in the fourth quarter and 12% for the full year, reflecting outstanding execution by our global teams and the durability of these products across multiple regions. Hyalofast also continued to gain traction outside the U.S., benefiting from its ease of use and differentiation. Importantly, our international business has driven strong double-digit growth with a lean cost structure. Integrity also had an exceptional year. In 2025, Integrity procedures and revenue more than doubled to approximately $6 million, marking its seventh consecutive quarter of sequential growth. Since launch, more than 2,500 surgeries have been performed with over 300 surgeons using the product and a majority scheduling additional cases. During the fourth quarter alone, approximately 600 surgeries were performed, up 20% sequentially, supported by continued surgeon adoption, new size introductions and expanding tendon applications. In 2025, our commercial growth was offset by our OEM channel as a result of a more challenging U.S. OA pain management pricing environment. OEM revenue declined 12% in the fourth quarter and 17% for the full year, consistent with expectations. Importantly, J&J MedTech, which sells Orthovisc and Monovisc maintained their market-leading position. As we focus on growing total company revenue, driven by outperformance in our commercial channel, we continue to work with our OEM partners to drive stability and predictability. Second, advancing the innovation pipeline. Through 2025, we continue to advance our HA-based innovation pipeline with meaningful progress across Hyalofast, Cingal and building on the Integrity platform. For HYALOFAST, we submitted the third and final module of the PMA to the FDA in the fourth quarter of 2025, including results from the FastTRACK Phase III study. As we previously reported, while the study did not achieve its prespecified co-primary endpoints, it did demonstrate statistically significant improvements across key measures of pain and function used to approve other cartilage repair products. As expected, we received a deficiency letter from the FDA in the first quarter of 2026 related to CMC and clinical data. While we can never make an assurance of FDA approval, we are actively engaging with the FDA, and we remain confident in the evidence supporting Hyalofast's clinical value. Cingal also made important progress during the year. Cingal has now surpassed 1 million injections across more than 40 international markets and continues to demonstrate strong clinician adoption. In the U.S. The FDA identified two remaining filing requirements for Cingal. The first was a set of required toxicity studies, which we initiated and successfully completed in 2025. The second requirement, the bioequivalence study was initiated in December 2025 and is now underway. Together, these steps keep us on track toward NDA submission and position Cingal as a differentiated solution and a large next-generation OA pain management market. Finally, Integrity continues to mature, not only commercially but clinically. We are now past the halfway point in our post-market clinical study and remain on track to complete enrollment this year. As a reminder, the post-market clinical study data will be used to support NDR filing, which will enable continued Integrity growth outside the U.S. and accelerate commercial growth in the U.S. In addition, a peer-reviewed MRI-based manuscript, led by Dr. Chris Baker, has been accepted for publication, demonstrating early clinical outcomes that align with our preclinical data and support Integrity's differentiated profile. Our third strategic priority, operational execution was a significant contributor to improved financial performance in the second half of 2025. Through improved manufacturing productivity, higher yields and increased throughput, we delivered expanded gross margins, positive operating income for the fourth quarter and meaningful free cash flow. These improvements not only strengthen profitability, but also enhanced our ability to support increased volumes for both our commercial products and our OEM partner. Fourth quarter revenue performance, which included the recovery of late shipments, demonstrated how increased volume and disciplined execution can drive improved throughput and productivity. While we do not expect these margins at this level every quarter, the quarter provides a clear illustration of the operating leverage that we can achieve as volumes grow, and we continue to deploy our teams efficiently. Operational execution goes beyond manufacturing and includes our ability to deliver growth with a lean, efficient back office organization that supports improved profitability. In line with this, we recently implemented a new organizational structure designed to streamline leadership layers, reduce expenses and better align resources with our highest priority growth initiatives. These changes include a combination of senior leadership role eliminations and releveling to better match the current scale of our operations. As we implement these changes, we will work through role transitions over the coming months, supported by the strong team we have here at place at Anika. As part of this evolution, we mutually agreed with David Colleran that he would transition from his role as Executive Vice President, General Counsel and Corporate Secretary, effective May 2026. I want to thank David for his leadership and many contributions over the past 6 years. All of the announced changes impact our G&A functions. Together with the recent leadership transitions, these actions are expected to drive approximately $2.5 million in annualized head count savings in addition to more than $3 million in stock-based compensation savings. As responsibilities are transitioned internally and the work is realigned, we expect to see improved profitability in the coming quarters. As part of this new organizational structure and as I step into the CEO role, Ian McLeod, our current Chief Accounting Officer since 2021 has assumed broader responsibilities across our finance and legal organizations. With these changes, we will not backfill the CFO, COO or General Counsel roles. Responsibilities are being absorbed by experienced senior leaders, creating a more efficient structure that supports sustained profitability and improved cash generation. With these priorities, accelerating growth, advancing innovation and strengthening operational execution firmly in place, we enter 2026 with clarity, momentum and confidence in our ability to deliver improved performance and long-term value. With that, I'll turn it over to Ian to walk through the financial results. Ian McLeod: Thanks, Steve. Before I walk through the financials, I want to take a moment to briefly introduce myself. I've had the privilege of serving as Anika's Chief Accounting Officer since 2021 and I'm excited to step into this expanded role supporting both our finance and legal organizations. I look forward to continuing to work closely with Steve and the broader leadership team as we execute our strategy. With that, let me turn to the results. Please refer to Slide 5 of the presentation as I provide updates on the fourth quarter of 2025. In the fourth quarter, Anika generated $30.6 million in total revenue which was flat year-over-year, consistent with our revised full year expectations. Commercial channel revenue grew 22%, reaching $13.3 million driven by strong international execution and continued momentum in Integrity, which is exceeding our commercial expectations. Our international OA pain management business remains a key contributor delivered 28% growth in the quarter, led by sustained market share gains for Monovisc and Cingal across several regions. In the OEM channel, revenue was $17.3 million for the fourth quarter down 12% year-over-year, in line with our revised full year expectations. Pricing for Monovisc and Orthovisc sold through J&J MedTech was lower year-over-year as previously communicated. Despite these pricing headwinds, both products continue to hold strong market leadership positions and contribute meaningfully to Anika's overall profitability. Non-orthopedic revenue also declined quarter, reflecting lower demand for legacy products. In the fourth quarter, gross GAAP gross margin increased to 63% from 56% in the prior year reflecting higher revenue from international OA pain sales and higher volumes of U.S. OA pain, both of which improved throughput and productivity within our manufacturing operations. The margin improvement underscores the structural benefits of our revolving revenue mix and positions us well for improvements in profitability as we move into 2026. We're pleased with the improvements in the second half gross margin and will continue to drive improvements in manufacturing operations into 2026 to increase throughput. In the fourth quarter, operating expenses were $18.5 million, up from $17.8 million in the same year last year. Selling, general and administrative expenses increased to $12.1 million compared to $11.3 million a year ago, driven by higher sales and marketing expenses, primarily with the growth of Integrity. Research and development expense was $6.5 million, flat versus prior year as we continue to invest in key regulatory and clinical programs, including ongoing work on Hyalofast and Cingal. We continue to monitor our total operating expenses closely to focus on disciplined spending, while advancing the program's most critical to long-term growth. Total adjusted EBITDA from continuing operations was $4.5 million in the quarter, higher than our revised guidance, reflecting strong commercial channel performance and expanding gross margin. Discontinued operations include the Arthrosurface and Parcus results, which were divested in late 2024 and early 2025, with all material transition work completed, we do not anticipate discontinued operations activity going forward. Now turn to Slide 6, where I will discuss full year results. For the full year 2025, Anika generated total revenue of $112.8 million, a decline of 6% compared to the prior year and consistent with our revised guidance for the year. Commercial channel revenue was $48.4 million, up 15% compared to the prior year and continues to be a key growth driver in increasing adoption across all our international HA-based OA pain management portfolio and continued Integrity growth. International OA pain management remained a bright spot, reflecting the strong execution of our international commercial team and distributor network and Integrity continues to outperform, driven by increased U.S. adoption and more than doubling revenue to $6 million in 2025. Revenue in our OEM channel totaled $64.4 million, down 17% year-over-year, in line with adjusted expectations. The decline was primarily driven by pricing and market dynamics of Monovisc and Orthovisc in the U.S. market. GAAP gross margin for the full year was 57% compared to 63% in 2024, reflecting product mix, higher manufacturing costs driven by the manufacturing disruptions from earlier in the year and legacy program costs. Looking at operating expenses for the full year. We continue to strengthen our discipline across the organization while ensuring we invested in the programs most critical to our long-term growth. Total operating expenses for 2025 were $74.9 million, down from $81.1 million in the prior year, reflecting the meaningful cost actions we executed throughout the year and our continued focus on efficiency. R&D expenses were $25.8 million, essentially flat with the prior year as we continue to invest in the regulatory and clinical work activity supporting Hyalofast and Cingal as well as the ongoing expansion of the Integrity platform. In total, we invested approximately [ $5.2 million ] in 2025 to support Hyalofast and Cingal-related regulatory and clinical activities, representing focused investments that will generate meaningful future benefit across both our OA pain management and regenerative solutions portfolios. SG&A expenses were $49.1 million, a reduction from $55.6 million in 2024 driven by lower G&A head count and expense discipline. For 2025, adjusted EBITDA was $5.3 million or approximately 5% of revenue which represents an outperformance versus our revised full year outlook of minus 3% to plus 3%. Our results reflect the positive impact of revenue, slightly ahead of expectations improved manufacturing yields and disciplined cost management. For the full year 2025, we generated $11.2 million in operating cash flow, an improvement over the $5.4 million we generated in 2024 driven by efficient working capital management and lower expenses. Capital expenditures for the year were $6.8 million, reflecting our continued investment in our manufacturing facility to support higher expected output of OA management and regenerative solutions products. We ended the year with $57.5 million in cash with no debt providing us with a strong liquidity decision and the flexibility to continue investing in our growth priorities while executing our share repurchase program. As previously communicated, we initiated a $15 million 10b5-1 stock repurchase plan in November 2025. In the fourth quarter, we purchased 5.5 million common stock. To date, the company has purchased $10.7 million in stock, and the program is expected to be complete in the second quarter of 2026. Now please turn to Slide 7, as I turn the call back over to Steve to review our financial outlook for 2026. Stephen Griffin: Thanks, Ian. For 2026, Anika is maintaining its previously communicated revenue guidance ranges by channel and introducing a total company revenue outlook. At the total company level, we expect full year revenue between $114 million and $122.5 million, representing a 1% to 9% year-over-year growth. This outlook reflects continued momentum in our commercial channel and the market dynamics in our OEM business. Within the commercial channel, we are maintaining our outlook of 10% to 20% growth year-over-year or $53 million to $58 million. Growth is expected to be driven by ongoing expansion of Integrity in the U.S. market, sustained Hyalofast performance outside the U.S. and increasing adoption of our international OA pain management portfolio. For the OEM channel, we are maintaining our revenue expectation of flat to down 5% year-over-year or $61 million to $64.5 million. This reflects anticipated Monovisc unit volume growth partially offset by lower pricing, while Orthovisc is remaining modestly flat for the year. Turning to profitability. As we expect adjusted EBITDA of 5% to 10% of revenue, at the midpoint of this range, this improvement reflects higher expected revenue led by the commercial channel growth, the benefit of our recently initiated G&A cost reduction actions, including leadership changes, as well as productivity and manufacturing gains supporting increased OA pain production, partially offset by modestly lower U.S. OEM pricing dynamics. To close, we entered 2026 with clarity, momentum and a strong foundation for sustained performance. Our commercial channel is delivering. Our innovation pipeline is advancing with purpose, and our operational execution is driving meaningful improvements in profitability and cash generation. We have the right strategy, the right organization and the right team in place to execute. I'm confident in our ability to build on this progress and create long-term value for our shareholders. Thank you for your continued support, and we look forward to updating you on our progress throughout the year. With that, we'll open the line for questions. Operator: [Operator Instructions] Your first question comes from Mike Petusky from Barrington Research. Michael Petusky: Steve, so real quick on the guidance slide, you guys have U.S. Hyalofast in 2027. And I'm just curious, is a meaningful contribution from Hyalofast in the U.S. aiming the '27, 10% to 20% guide? Stephen Griffin: I appreciate the question. We had previously shared that we had included about $3 million of anticipated revenue for Hyalofast in '27. We haven't changed that outlook, so it remains the same. Obviously, it's contingent upon approval in the U.S. So that's kind of the big open item that we'll work our way through, but that's the dollar amount associated with it. Michael Petusky: Okay. All right. Okay then. Then sort of moving on. In terms of the gross margin, obviously, was really strong this quarter. I'm just wondering as we sort of reset for '26, I mean, should we be thinking more like high 50s for sort of a normalized gross margin? I'm assuming that what you just delivered is not likely, at least sustainable in the near term, although you may get there over time. Stephen Griffin: Yes, Mike, I think you framed it very well. I think that's exactly what we're planning for. As you noted, I think it illustrates the capability that we have to deliver within our existing business and manufacturing capabilities. To your point, it's not always going to be at that level, but it gives our team something that we're shooting for over the longer term. The high 50s that you just noted though, is appropriate. Michael Petusky: Okay. Two more real quick. Obviously, a nice positive free cash for the year and evidently for the quarter. In terms of what you see going forward? And I know it's not an official part of your guidance, but I'm just curious, do you expect free cash to grow off of '25 levels? And if so, I mean, will it be slight or will be somewhat material? Stephen Griffin: Yes, sure. I would say '26 cash -- I expect it to be probably somewhat in line with '25 just given some of the puts and takes and dynamics that we just referred to. Obviously, we've got to work through some of the restructuring-related elements of the things that I just noted earlier about some of the operating expenses for the business. At this point, though I'd say modestly in line with the '25 results. Michael Petusky: Okay. And then just one more, and I'll let other people have a shot here. Obviously, international OA pain outperformed, had a really good year. I'm just curious, in terms of the dynamics internationally, I mean, are there countries where you're there, you're approved, but you're really sort of under optimizing? And then are there also new countries that you don't really have a foothold in, but you could actually commercially launch products? Stephen Griffin: Sure. Our international OA pain franchise is led by James Chase, who's done an excellent job, as you can tell, in creating a really sustained momentum. And I think it is a multitude of contributors. So first and foremost is market share gains in the places where we play today as well as growth in new markets. There's no one single market that stands out to kind of drive this top line growth. And I'd say he's got a long-term pipeline for each product in each country targeted with each distributor that we work with to find the right opportunities, and it goes out many years. So we're very pleased with the results that he's been able to generate consistently over the last 5 to 6 years, and we look forward to continuing to do that in this year's plan as well. Operator: Your next question comes from Anderson Schock from B.Riley Securities. Anderson Schock: Congrats on the strong quarter. So first, on the OEM channel, so you posted some strong sequential improvement, about 9% from the third quarter despite the continued pricing headwinds. Could you unpack what drove that improvement? And as you look at early 2026 order patterns in your conversations with J&J, what gives you the confidence that OEM lands flat to modestly lower for the full year? Stephen Griffin: Sure. Anderson, thanks for the questions. It's nice Like to talk to you again. We did see a bit of an increase, and I think it's tied primarily to volume and user demand. I noted earlier that we still see very strong end-user demand from a unit perspective on Monovisc, which is the largest contributing factor to the sequential improvement that you're noting. When we look to 2026, we've had many conversations with J&J as they look at the future of this market. We expect to see continued market share gains and volume growth, offset modestly by price. A little too early probably to tell exactly how it will play out. I mean, this is one of those businesses where it could be a little lumpy, and there is some fourth quarter dynamics in the United States to some extent. But we'll see it play out over the course of this year, but suffice to say that we believe that this is the appropriate guide for the year. Anderson Schock: Okay. Got it. And then with both the toxicity studies for Cingal now completed, the bioequivalent study initiated in December. Could you provide a more specific time line for the study's completion and expected NDA filing? Stephen Griffin: Sure. I appreciate the question. So the timing of the NDA filing is going to be paced by the enrollment of the bioequivalent study, which is the final clinical requirement for the submission, and we noted we began enrollment for that in December. The enrollment is ongoing, and the study remains on track. And in parallel to that, our teams are actively preparing other components associated with the NDA, so that we're positioned to move forward efficiently. Once the study is complete, I haven't been able to necessarily give you a timetable, but as we progress further down enrollment of bioequivalence study, we expect to provide that time frame. Anderson Schock: Okay. Got it. And then Integrity had $6 million of revenue for '25, more than doubling as guided. And as we think about '26 commercial channel guidance, can you help us frame how much of that growth is from Integrity versus international OA pain? And are there any revenue or procedure volume targets for Integrity in '26? Stephen Griffin: Internally, absolutely. In terms of what we will share externally, what I would say is we do expect another strong year in the commercial channel on the international OA pain side kind of in that double-digit range that we've seen. And I think when we look at Integrity, it had a very good year, obviously, from a variance percentage basis, it was up almost 100%. I don't think it's going to be up near that same range, but we're still talking about strong double-digit growth, and we're very pleased with the performance in the United States on that growth on Integrity. I'll give further updates as we go throughout the year in terms of the performance. Anderson Schock: Okay. Got it. And then finally, so you launched the larger shapes and sizes for Integrity. I guess, how is the early uptake trending? And is this opening up meaningful new call points beyond your existing shoulder focused surgeon base? Stephen Griffin: We did. We launched two new shapes and sizes last year, and it's gone well. We've seen strong uptick on those products. I'd say this market is still majority rotator cuff. So when we look at the overall market procedures, the rotator cuff represents still the largest portion of it, the largest portion of our overall revenue. But I think the new shapes and sizes help increase surgeon adoption and get further expansion into some of those smaller adjacent markets. We're pleased with how well it's gone so far and look forward to continue to drive adoption into 2026. Operator: Your next question comes from Mike Petusky from Barrington Research. Michael Petusky: All right. Excellent. I have a couple more, I appreciate the follow-up. Steve, in terms of the bioequivalence study, what is the targeted enrollment? Stephen Griffin: It's just under 60 patients. Michael Petusky: I mean is that -- I have no idea, is it fairly easy to enroll patients for this kind of study? Or is it a slog? Stephen Griffin: I wouldn't call it a slog. I mean it does have specific enrollment criteria designed to meet the FDA requirements. We're executing well, but enrollment can take slightly longer than maybe a typical bioequivalent study. So far, it's on track to what we would have expected. Michael Petusky: Okay. All right. And then would you be willing to share sort of the revenue run rate that Integrity ended the year with in Q4? I mean is it -- I mean, is it run-rating that $7 million, $8 million. Any help there? Stephen Griffin: We haven't necessarily broken it out by quarter, but we did $6 million over the course of the full year, and I think we noted that it grew 20% sequentially from 3Q to 4Q. So it's at a pretty decent run rate as we exit the year. I will also note, though, that, that tends to be the case. There's some fourth quarter seasonality just in the United States associated with procedural volumes. So as we look to the start this year, we do expect that seasonality effect to kind of continue, but we're very pleased with its growth. Michael Petusky: Okay. Great. And then just one last question. I guess around capital allocation. Obviously, you guys said what you said on finishing up the share repurchase commitment. But as you sort of look at the fact that you guys have been -- if presumably generate some free cash this year, you've got $55-plus million net cash on the balance sheet. I mean outside of the share repurchase, I mean, what are the priorities? I mean, is it potentially some small sort of tuck-in M&A? Or is that just not a thing you can focus on giving given where you are right now? Stephen Griffin: I appreciate the question, Mike. I would say our capital allocation priorities start first and foremost with being able to deliver for our patients and customers. So we obviously are spending CapEx to improve our manufacturing operations here in Bedford. We will continue to do that. So we'll make investments into our manufacturing capability, and that is the first and foremost. The second thing that we talk about is capital allocation is the investments we're making into our U.S. sales channel, those are still investments that we are making, and we very consciously evaluate those. And while we operate with a level of expense discipline, it is still an investment nonetheless, I think longer term, there are certainly opportunities for us to evaluate what else we may do. But at this point, it's not something that we're looking to share. We've got a lot on our plate in the very near term, some of the restructuring activities that we mentioned earlier, plus the activities for Integrity, Hyalofast and Cingal, knows a lot on our plate, a lot of shareholder value that can be generated by executing well. And I think the 3 strategic priorities we laid out at the very beginning: first, commercial revenue growth; second, advancing our R&D pipeline; and third, executing with operational discipline. Those are the priorities for us in the near future. Operator: And there are no further questions at this time. I will turn the call back over to Steve Griffin for closing remarks. Stephen Griffin: Great. Thank you all for joining us today. We hope you have a great week. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the Acme United Q4 and Year-End 2025 Financial Results Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Walter Johnsen, Chairman and CEO. Please go ahead, sir. Walter Johnsen: Good morning. Welcome to the Fourth Quarter and Year-end 2026 (sic) [ 2025 ] Earnings Conference Call for Acme United Corporation. I'm Walter C. Johnsen, Chairman and CEO. With me is Paul Driscoll, our Chief Financial Officer, who will first read the safe harbor statement. Paul? Paul Driscoll: Forward-looking statements in this conference call, including, without limitation, statements related to the company's plans, strategies, objectives, expectations, intentions and adequacy of capital and other resources are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, including, among others, those arising as a result of a challenging global macroeconomic environment characterized by continued high inflation, high interest rates and the imposition of new tariffs or changes in existing tariff rates. In addition, we've experienced supply chain disruptions, and we may experience these disruptions in the future. We are also subject to additional risks and uncertainties as described in our periodic filings with the Securities and Exchange Commission and in our current earnings release. Walter Johnsen: Thank you, Paul. Acme United delivered record sales and earnings in 2025. It was not easy, but we did better than we ever have. Our net sales were $196.5 million. Net income was $10.2 million, and earnings per share were $2.49. When high global tariffs were announced in April 2025, our customers scrambled. They delayed and canceled retail promotions, opted to have no stock rather than import items for losses and searched for new lower-cost sources. We have purchased extra inventory at the end of 2024 in anticipation of some increased tariff levels and supplied our regular customers with their planned orders. Our team in the United States and Asia reacted quickly. When the Chinese tariffs for our products were reduced from 145% to 30% in late April 2025, we put over 50 containers on the water within days. We worked with our suppliers to open new factories in Vietnam, Thailand and Malaysia. We increased our production in India and Egypt. We negotiated cost reductions from our suppliers, obtained lower freight rates, generated productivity from savings in our domestic plants and increased prices very modestly. Our team supported our customers, and they delivered. There were many highlights in 2025. Our first aid team introduced a patented automatic replenishment system for refills. This product sensors components that were used, lost or became obsolete in an industrial first aid kit, and automatically generates replenishment orders. A typical customer will save 30% to 50% and sometimes more over traditional van-based delivery. The Westcott team expanded our market share of cutting tools, particularly in the craft market. We used our patented nonstick technology to develop differentiated products to work with tapes, glues and sticky substances. We also increased our line of ceramic tools to safely cut and open boxes, and increased sales of our industrial cutting tools. We invested in robotics in 3 sites in the United States to assemble refills of first aid components. These investments in the recurring portion of our first aid business are generating savings and improving product quality. We installed new software to optimize inventory placement in our large warehouse in Rocky Mount, North Carolina. We then streamlined the process flow of inventory and purchased drones to nightly do inventory reconciliation. Acme United purchased a 78,000 square foot plant on 12 acres in Mt. Pleasant, Tennessee for approximately $6 million. This facility will expand production of our Spill Magic cleanup products, bodily fluid kits and blood-borne pathogen kits. We are moving into the facility in the first quarter of 2026, and we have just purchased new automated processing equipment. We continue to purchase advanced production equipment for our Med-Nap facility in Brooksville, Florida to produce medical-grade alcohol prep pads, antiseptic wipes, and other items used in our first aid kits. We are building a microbiology lab, expanding our quality assurance team and preparing our documentation and controls to be a serious domestic supplier to the broader U.S. medical market. In January 2026, we purchased My Medic, which is the leading direct-to-consumer supplier of advanced first aid and bleed control products in the United States. And it has over 500,000 social media followers and a product line that we hope to expand. The company had revenues of approximately $19 million in 2025, and the purchase price was $18.7 million. Our first aid business in Canada grew strongly. We gained share in the industrial and retail sectors and continued expansion of our e-commerce business. And sales of Hawktree Solutions, which was acquired out of bankruptcy in late 2023, exceeded our expectations. In Europe, we expanded our market share in cutting despite an overall weak economy. We acquired a direct-to-consumer supplier of cutting and sharpening tools in October 2025. Annual sales were approximately $2 million for this acquisition, and the purchase price was $1.6 million. In our first aid segment in Europe, we expanded the marketing and sales team, improved product sourcing costs and began to expand aggressively. As we move into 2026, we see growth in our first aid and medical segments and a return to more normal merchandising and promotion in the retail market. We are excited about the investments we have made in domestic production and our expanded international sourcing. And we believe we are very well positioned as we enter 2026. I will now turn the call to Paul. Paul Driscoll: Acme's net sales for the fourth quarter were $47.5 million compared to $45.9 million in 2024, an increase of 3%. Sales for the year ended December 31, 2025, were $196.5 million compared to $194.5 million in 2024, an increase of 1%. Net sales in the U.S. segment in the fourth quarter were constant compared to the fourth quarter of 2024. U.S. sales declined 1% for the year ended December 31. Sales of first aid and medical products were strong. However, sales of school and office products were lower mainly due to the cancellation of customer orders as a result of tariff uncertainty. Net sales in Europe increased 22% in local currency for the quarter. Sales for the year ended December 31, 2025, increased 4% compared to 2024. The sales increase for both the quarter and the year was mainly due to additional sales from the line of cutting and sharpening tools acquired on October 1, 2025. Net sales in Canada increased 14% in local currency for the quarter. Sales for the year ended December 31, 2025, increased 16% compared to 2024. Sales of first aid products were strong. However, there was a decline in sales of school and office products. The gross margin was 38.2% in the fourth quarter of 2025 compared to 38.7% in 2024. The gross margin for the year was 39.4% compared to 39.3% in 2024. SG&A expenses for the fourth quarter of 2025 were $15.2 million or 32% of sales compared with $15.5 million or 34% of sales for the same period of 2024. SG&A expenses for the 12 months of 2025 were $62.7 million or 32% of sales compared with $62.2 million or 32% of sales in 2024. Operating profit in the fourth quarter of 2025 increased 27% compared to the fourth quarter of 2024. Interest expense for the year went from $1.9 million in 2024 to $1.6 million in 2025. The decline in interest expense was due to a combination of lower debt and lower interest rates. Net income for the fourth quarter of 2025 was $1.9 million or $0.46 per diluted share compared to $1.7 million or $0.41 per diluted share in the fourth quarter of 2024, an increase of 10% in net income and 12% in diluted earnings per share. Net income for the year ended December 31, 2025, was $10.2 million or $2.49 per diluted share compared to $10 million or $2.45 per diluted share in 2024, an increase of 2% in both net income and diluted earnings per share. The company's bank debt less cash on December 31, 2025, was $18.5 million compared to $21.5 million on December 31, 2024. During the 12-month period, we paid $2.3 million in dividends, purchased the line of cutting and sharpening products in Germany for $1.6 million and generated $13 million in free cash flow before the $6 million purchase of our new facility in Tennessee. Walter Johnsen: Thank you, Paul. I will now open the call to questions. Operator: [Operator Instructions] Our first question today is coming from Jim Marrone from Singular Research. Jim Marrone: Walter, nice quarter. I had a couple of questions on the acquisition. So as far as the integration, if you could just kind of share a little bit on how you plan on integrating My Medic? Is it going to be part of the first aid offering to the same customers or something completely different? If you could speak to that? And before you answer that, just a couple of more questions with regards to that acquisition. The revenues are approximately $19 million and you purchased it for $19 million. Do you have an idea of what the multiple is on that as far as maybe an EV or EBITDA multiple? And was it acquired using all cash or a combination of other things? Walter Johnsen: Okay. So the acquisition of My Medic we think is a pretty meaningful acquisition for the company. It's got 0.5 million social media followers. And to put that in perspective, when we were at the SHOT Show, which is a very, very large military gun and hunting show in Las Vegas a week later after we purchased My Medic, I felt like we had one of the leading brands on the SHOT Show floor, it was just amazing to see the people that were coming in. One moment, I'd be looking at the Israeli military, another SEAL team and then hunters and outdoorsmen and police departments and security personnel. So that acquisition gives us a direct-to-consumer business that we hope to expand. And we intend to do that by differentiating some of the products within first aid to be able to be going into selected retail, not broad retail, selected retail where it complements the sale of direct-to-consumer, perhaps with different products. It will all be part of the first aid offering, and we'll be able -- we hope to be able to broaden the direct-to-consumer sales of other items that we carry within the Acme first aid and medical area. For example, we have Safety Made, which personalizes medical products, including first aid kits. It's a very, very simple step for us to be able to do personalization for the L.A. police department, for example, or one of the military units that comes by, and we can do that domestically and quickly. Sales were $19 million, and the EBITDA was somewhere between $1 million and $1.5 million. So you can figure out the EBITDA from that. The purchase price, while it was $18.6 million, there was $1 million, which was an earn-out for hitting some growth objectives during the next 2 years. And then there was a holdback of about $3 million for various potential contingent liabilities. So the net out-of-pocket was about $4 million less than the $18.6 million purchase price. We're excited about it, and we're careful because the team built something special, and we want to keep it. But we have sourcing capabilities that are, we believe, unsurpassed in the first aid area given our scale and our operations globally. And we have a broad product line that we think we can help them supplement and a direct-to-consumer, I mean, a direct sales force to retail. So all in all, it's a great platform with wonderful people. And our job is to integrate but carefully. Jim Marrone: Right. Great. Just as a follow-up. So when you say select retailers, we assume that it will be the same retailers that you sell the cutting tools to? Or would it be a different distribution? Walter Johnsen: We sell to almost every retailer in North America. And so we have a pretty broad choice of where we do that, but we wanted to be selective. And that list is still being developed. But I hope we're successful and we're able to tell you where that has distribution in the coming quarters. Jim Marrone: Right. And as far as looking forward, and you mentioned that there may be further acquisitions down the road. Will it be -- will it continue in first aid and medical? Or could it possibly be in the cutting tools segment? Where do you see the acquisitions going forward? Walter Johnsen: Well, acquisitions are opportunistic, of course, but we also self-generate most of the deals. And we're looking to expand both our horizontal distribution, in other words, buying competitors and taking a half step away from some of the core current first aid items to be able to expand how we can address pre-hospital emergencies. And that's a very broad market. My belief is we'll probably find an acquisition that either does that in first aid or medical, or it's a supplier of components, for example like Med-Nap that made the alcohol prep pads that go into first aid kits. So it might be a vertical acquisition as well. But that's the primary area we're looking. Operator: [Operator Instructions] We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. Walter Johnsen: Well if there are no further questions, this call is complete. I look forward to delivering good results in the first quarter and the rest of the year. And I look forward also to speaking with you at the end of the first quarter. Thank you for joining us. Goodbye. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Joahnna Soriano: Good afternoon, everyone. Thank you for joining us today, and welcome to Ayala Land's Full Year 2025 briefing. Let me begin by introducing our panel, Meean Dy, President and CEO; Jed Quimpo, CFO and Treasurer; Mike Jugo, Head of the Premium Residential Business Group; Mariana Zobel De Ayala, Group Head for Leasing and Hospitality. We are also joined today by members of our management committee, Robert Lao, Head of Strategic Growth, New Ventures and Central Land acquisition; Darwin Salipsip, Group Head of Construction Management; Raquel Cruz, Head of the Core Residential Business Group; and Isa Sagun, Chief Human Resource Officer. We likewise acknowledge your presence of our broader management team. Please note that the press release and presentation materials are available on our Investor Relations website. For any questions that we may not be able to address during the briefing, we will respond via e-mail at the soonest possible time. At this point, I'd like to turn it over to our CFO, Jed Quimpo for his presentation. Jose Eduardo Quimpo: Thanks, Joe. Again, good afternoon to everyone, and thank you for joining us this afternoon for our full year 2025 analyst briefing. Allow me to present the key highlights of our 2025 financial and operating results, and then I will give the floor to our CEO. We are pleased to report that Ayala Land delivered total revenues of PHP 190.2 billion, up 5% versus prior year and net income of PHP 39.1 billion, up 39% versus prior year. Excluding gain from our sale of our 50% stake in Alabang Commercial Corporation and what we call as core revenues. Core revenues amounted to PHP 178.9 billion just 1% below prior year, and core net income reached PHP 30.6 billion, up 8% versus prior year. We invested in capital expenditures totaling PHP 92.9 billion, up 10% versus prior year with notable increase in our leasing and hospitality asset investments. Our balance sheet remains strong with net gearing ending at 0.78:1 within our guardrails on leverage. On portfolio segment revenues, despite market headwinds, Property Development revenues reached PHP 113.9 billion, plus 1% versus prior year following strong bookings of estate lots and offices for sale offsetting lower residential revenues. Leasing and Hospitality revenues reached PHP 48.7 billion, plus 7% driven by broad-based growth across all our segments, this despite ongoing renovations in key malls and hotels. Service revenues was down to PHP 11.8 billion, minus 34%, as a result of lower third-party contracts of our construction business and the absence of airline revenues, which we sold late 2024. Interest and other income was up PHP 15.8 billion primarily driven by gains from the sale of our stake in Alabang Commercial Corporation amounting to over PHP 11 billion. On our income statement, first, as mentioned, total revenues reached PHP 190.2 billion, plus 5% versus prior year. This is on the back of, number one, real estate revenues reaching PHP 174.5 billion, just slightly lower versus prior year as we saw stable property development revenues, improving leasing and hospitality revenues, but tempered by lower service revenues. Our interest and other income was up 275% primarily driven by the sale of Alabang Commercial Corporation. Total expenses reached PHP 134.1 billion, down 3%. We registered lower real estate expenses, PHP 104 billion, down 7% driven by the revenue mix where there was an increase in sales of estate lots an increase in share of leasing business in our overall mix and the absence of airline expenses. General and administrative expenses amounted to PHP 10 billion, up 9% and we registered a GAE ratio versus core revenues of 6%. Interest expense, financing and other charges amounted to PHP 20.1 billion, primarily driven by 2 factors. First, increase in total borrowings and increase in cost of debt; and number two, in 2024, we reversed provisions previously made for airline operations following its sale late 2024. Earnings before income tax came in at PHP 56.1 billion, registering EBIT margin of 40% and on a core EBIT margin basis 36%, 300 basis points better versus prior year. Provision for income tax was at PHP 10.5 billion with an effective tax rate similar to that of prior year. Noncontrolling interest increased by 7% to PHP 6.4 billion, mainly due to the higher net income of AREIT attributable to its own public shareholders. Consolidated net income climbed to PHP 39.1 billion, excluding the gain from the sale of Alabang Commercial Center core NIAT grew by 8% to PHP 30.6 billion, just shy of the 2x 2025 GDP growth. Turning to our detailed revenue breakdown. Property development was stable at PHP 113.9 billion despite market headwinds. Residential revenues hit PHP 91.4 billion, slightly lower by 4% versus prior year on strong core residential bookings, partially offsetting weakness in the premium residential bookings. Estate lots rose to PHP 17.7 billion, up 21% on strong bookings from Circuit Makati, Arca South in Taguig and Centralia in Pampanga. Office for sale increased to PHP 4.8 billion, up 40% on robust new bookings at One Vertis Plaza in Quezon City and the Genetic Corporate Plaza in Makati. On leasing and hospitality, broad-based growth across the entire portfolio, delivering revenues of PHP 48.7 billion. Despite ongoing reinventions in our flagship malls, shopping center revenues reached PHP 24.2 billion, 5% up versus prior year due to higher occupancy, lease rates and merchant sales. Offices reached PHP 12.2 billion, 5% higher on stable occupancy and higher average portfolio rental rates. On hospitality, it climbed to PHP 10.6 billion, up 9% on higher room rates and new capacity following our purchase of New World. Again, this despite renovations in key hotel assets for most of 2025. Industrials jumped to PHP 1.7 billion, up 37% versus prior year, on the contribution of industrial land, which we housed in AREIT and new cold storage facilities. Services was 34% lower year-on-year at PHP 11.8 billion. Construction stood at PHP 8.9 billion, 31% lower versus prior year, following our completion of third-party data center project in 2024. Property management and others dipped 42% to PHP 2.9 billion due to the absence of airline revenues. Property management by itself was stable, delivering PHP 1.9 billion. In terms of margins, most of our product gross margins and EBITDA margins are within our targets. For the Property Development business, Residential business registered 47% for horizontal products and 41% for our vertical products. Estate lots came in at 55%, primarily as a result of the product mix, and office for sale was steady at 48%. On our Leasing and Hospitality business, shopping centers delivered stable 64% EBITDA margin. Offices was likewise stable at 89%. Hospitality was at 22%, which we expect to improve with renovated room capacity now back online, which we brought back in 4Q 2025. Dry warehouses was stable at 78%. Cold storage was at 23%, which we similarly expect to trend up as we stabilize new capacity that we brought in. Services which is composed of construction and property management are at 5%, well within our expectations. Next, let me walk you through the operating performance highlights of our businesses, starting with Property Development. Total sales across our Property Development portfolio amounted to PHP 142.3 billion, basically flat versus prior year. Premium sales was slightly down at 3%, again, this despite market headwinds. Core was up 1% on our focused sales effort to move our inventory and stay ahead of the industry. Estate lots delivered PHP 17.1 billion in sales, up 16% as we saw robust interest in our various commercial, industrial and leisure lands. We launched a total of PHP 60.4 billion projects in 2025, notably 40% lower versus prior year, in line with our continued focus of capital efficiency. Deep diving on the residential products. Residential sales was sustained at PHP 125.2 billion, just 1% down versus prior year. By segment, our premium generated nearly PHP 80 billion in sales at PHP 78.6 billion. Our core market delivered positive year-on-year growth at PHP 46.6 billion. On an overall basis, our residential revenue as of end 2025 stood at 19 months, better than the 22 months as of end 2024. By product type, vertical sales was resilient at PHP 82.3 billion, up 2% year-on-year anchored by Laurean. Horizontal sales declined by 7% to PHP 42.9 billion as we saw buyers look at our estate lots as an alternative. We launched a total of PHP 46.6 billion in residential products last year, again, notably 42% lower versus prior year as we focus ourselves on selling existing inventory. Almost 3/4 of our buyers are local Filipinos and on a year-on-year basis was flat. Sales to overseas Filipinos stood at 17% which declined by 4% to PHP 20.7 billion, and sales to other nationalities was lower by 7% to PHP 12.8 billion, primarily attributable to sentiment headwinds or tighter terms and our shift to more premium segment products. Moving on to the op stats of our Leasing and Hospitality business. First, on shopping centers. We manage a total gross leasable area of 2.2 million square meters in 2025 and opened 29,000 square meters of gross leasable area during that year. With additional space in Ayala Malls Vermosa, and the opening of new malls in Evo City and Park Triangle. Lease-out was 1% higher year-on-year at 91%. We have a rolling pipeline of over 800,000 square meters of new mall space, 86% will be within our existing and our future estates. For 2026 alone, we will open over 200,000 in GLA, our largest annual incremental GLA to deal. This includes new malls at Arca South, Gatewalk in Cebu, an additional leasable area in Park Triangle, TriNoma, Nuvali, Evo City, and Greenville. On offices, our total GLA stood at 1.5 million square meters, and we opened 48,000 square meters with new assets in Nuvali and Atria in Iloilo. Portfolio average lease out is at 87%, 4% lower versus prior year, following completion of new facilities. Lease rate is up 2% despite continuing elevated supply in the market. Our 5-year expansion pipeline is over 300,000 square meters. Most of which will be concentrated in our key estate in Makati, BGC, Vertis North and Cebu. On hospitality, we ended the year with 4,658 rooms with net additional rooms of close to 400 primarily driven by the acquisition of New World last year. Hotel occupancy improved to 68%, plus 1% versus prior year, and resource occupancy was stable at 42%. Our updated pipeline involves the following, we look to open Mandarin Hotel this year, bringing in an additional 276 rooms, and in the next 5 years, build out and deliver over 1,500 additional keys. Finally, on our industrial real estate business, we ended the year with dry warehouse portfolio of over 380,000 square meters and cold storage pallet positions of 31,500. This boosted by acquisitions that we made in 2025. Our lease out on a dry warehouse is at 85%, following the addition of new capacity. On cold storage, it improved to 80% with new clients, sign-ups and robust demand from clients. We are looking to double our cold storage capacity in the next few years and have likewise secured sites for potential build-to-suit dry warehouses to expand our portfolio. For this year 2026, we are opening an additional 9,000 pallet positions of new cold storage capacity at Artico Consolacion in Cebu City. As mentioned, we invested a total of PHP 92.9 billion in CapEx, 10% higher versus prior year. Leasing and Hospitality was a major driver, doubling investment to PHP 27.1 billion and accounting for just under 30% of our total spend. Of this total spend for leasing and hospitality, 3/4 of which went to expansion CapEx, and 1/4 to reinvention initiatives. CapEx for residential was 38% of total primarily focusing on build-out of projects for delivery. Estates investments comprised 18% of total CapEx and the balance of 15% were for continuing land acquisition commitments. Our debt position continues to be well managed with 90% contracted into long tenures. Total gross debt as of end December 2025 stood at PHP 318 billion, up 13% versus prior year. We have kept our average maturity stable at 4.8 years. Our average borrowing cost was slightly up, ending at 5.5%. A bit over 70% of our debt is on a fixed basis and just other 30% is on a floating basis and of the floating component, almost 1/3 of that as an option to convert the fix. Our balance sheet remains strong, with net gearing ratio of 0.78:1. Cash and cash equivalents stood at PHP 19 billion. Our stockholders' equity grew by 7% to PHP 385 billion. Our current ratio is at 1.59:1, and our interest coverage ratio, just looking at core earnings is healthy at 4.9x. To summarize, Ayala Land delivered total revenues of PHP 190.2 billion and net income of PHP 39.1 billion, excluding gain from the sale of our 50% stake in Alabang Commercial Center, core revenues registered PHP 178.9 billion and core net income reached PHP 30.6 billion, up 8% versus prior year. Thank you. Joahnna Soriano: Thank you, Jed. We'll pass it onto our CEO for her message. Anna Maria Margarita Dy: Thank you, and good afternoon. Thank you for joining our full year 2025 analyst briefing. So I won't revisit the 2025 numbers in detail because Jed has already covered them thoroughly. Instead, let me step back and highlight what sits behind the results and how we're positioning the business for the next phase. Let's start with what 2025 demonstrated. Number one, capital efficiency is improving. We delivered roughly the same level of residential sales in 2025 as in 2024, but with 40% fewer launches. This tells us two things. First, our products are sustaining demand well beyond their initial launch cycles. And second, our sales organization is extracting more value from our existing inventory. A market like this, capital discipline matters, we are becoming more productive with every peso deployed. Number two, active portfolio management and shareholder returns. The sale of Alabang Town Center allowed us to recycle capital from a matured asset and fund higher return opportunities. This reflects the discipline we aim to consistently apply in managing and recycling capital. You've seen this, you've seen us take these steps when we sold AirSWIFT in 2024 and then repositioned by acquiring New World Hotel in 2025. At the same time, we continued to return significant capital to our stakeholders or to our shareholders, distributing 65% of prior year's income through dividends and share buybacks. We have concluded our share buyback program, and we'll be canceling the shares acquired under it supporting 10% EPS growth, all told, we delivered ROE of 12.5% in 2025. Even in a tight market, our ambition remains the same, to deliver earnings growth at the multiple of GDP growth. Number three, the leasing pivot is underway. We have been steadily repositioning to balance the portfolio with recurring income and that shift is becoming more visible in the numbers. Our leasing business delivered 7% year-on-year revenue growth. And excluding the reinvention related disruptions, growth would have been 11%. Renovated malls and hotels are being reopened. The New World acquisition has expanded our hospitality footprint. And going forward, leasing will account for a larger share of capital deployment. 38% of total full year CapEx from 29% in full year 2025. By 2027, we expect our EBITDA to roughly balance between leasing and development, strengthening our earnings profile and balancing profitability and growth. Number four, quality is a long-term differentiator. Quality is job #1 remains a work in progress, but we are seeing tangible proof points. Park Central Towers is now turning over and has been very well received by buyers and industry partners. Laurean Residences reflects our next generation of design thinking and deeper integration with our hospitality capabilities. The Heights Katipunan shows our focus on student residence with targeted amenities and enhanced security. Across our flagship malls, say the hotels and need the resorts, reinvestments are producing more contemporary, consumer-relevant and higher-yielding assets. These investments don't just translate into earnings overnight, but they strengthen pricing power, market position and secure long-term returns. Here are outlook and priorities for 2026. We are planning for another challenging year. The reality is that GDP growth is projected to stay below 5% and residential supply in Metro Manila remains elevated. But we are not waiting for this cycle to turn. We are leaning into the parts of the portfolio that grow more reliably while keeping our property development business stable and capital efficient. Number one, we will accelerate our leasing growth. The biggest driver of earnings growth in 2026 will be leasing. We will start with sweating existing assets, many of our renovated malls and hotels are now operational and the focus shifts to consumer delight and operational excellence. After completing the renovation of 5 key assets in 2025, our focus is now monetizing these upgrades, and we project a 10% to 20% room rate uplift from these newly renovated properties. The reinvention of our flagship malls will be completed by the end of June 2026. So by middle of this year with the reopening of Glorietta and Greenbelt and following the completion of Ayala Center Cebu and TriNoma in December 2025, we expect these renovations to generate a 15% to 20% uplift on rent. Alongside extracting value from recently completed assets, we will continue expanding the leasing platform. Leasing will account for a larger share of capital deployment as we scale malls, offices and hospitality within our states. In 2026, we will open over 200,000 square meters of new retail GLA, the largest single year addition in our history. We started with the opening of Arca South Mall last weekend and saw over 200,000 visitors in just the first weekend. We will open over 70,000 square meters of new office space in Evo City, Arca South and Gatewalk. In addition, we signed 3 new major leases with big multinational firms in Quezon City and Cebu totaling 82,000 square meters. The Mandarin Oriental will reopen in the fourth quarter, adding another 276 rooms to our hotel portfolio, but more importantly, this marks the return of 5-star hospitality to Makati after more than a decade. We are scaling our cold storage business thoughtfully, working towards doubling current capacity over the next few years. These represent meaningful steps in recurring income that will build over the next several years. Number two, keep residential stable, but more disciplined. On property development, despite market headwinds, our objective is to keep it stable as we lean in on the strength of our domestic and international sales team -- teams and by focusing on projects where we have high conviction on value proposition and sales momentum. This approach allows us to protect margins and ensure we maintain our market leadership. We have clear sight of PHP 30 billion of new launches firmly scheduled for 2026, and we have already launched pipeline that we can move on as we see market windows open. This gives us flexibility to scale quickly as the demand supply dynamics improve. We expect to deliver roughly the same level of residential sales as we did in 2025, and we will continue to be #1 in the residential space. Number three, continued disciplined capital returns. We are maintaining our 30% of prior year's net income dividend payout. We are also declaring a special dividend from part of the ATC or Alabang Town Center or Alabang Commercial Center proceeds, and we will continue to return excess capital to shareholders where appropriate. Four, protect the balance sheet and preserve flexibility. Historically, in periods like this, opportunities tend to surface, and we are beginning to see some of this emerge. Maintaining a strong balance sheet ensures we have the capacity to deploy capital quickly when these opportunities meet our return thresholds and strengthen our strategic position. For this reason, we will manage our existing businesses within their means and keep sufficient balance sheet headroom to act decisively when the right investments present themselves. So for 2026, we expect steady property development revenues and retaining our #1 position, a double-digit growth in leasing revenues with the biggest ever delivery of leasing GLA, continued margin improvement from operational excellence PHP 70 billion to PHP 80 billion in CapEx with a higher proportion going towards leasing and debt levels to be maintained well within our guardrails. Taken together, this positions us to generate earnings growth ahead of GDP and deliver higher return of capital via dividends to our shareholders. Thank you. Joahnna Soriano: [Operator Instructions] Rafael go ahead. Rafael Alfonso Javier: Rafe from BofA Securities. First of all, congrats on the good earnings result for the full year '25. My first question would be on the lot sales. I understand that I think there was a lot of catch-up that you did in the fourth quarter. I wanted to know how we -- how it's -- how it will look this year, I mean in terms of the quantum and the timing so that I mean, it will help us also with forecasting going forward. Yes. That's my first question. Anna Maria Margarita Dy: So maybe let me answer that first question first. So we always say that lot sales are about 15% of our -- that's how we look at it. 15% of our total pickup for the year. And for 2026, that's still what we're looking at. Now in terms of timing, that frankly is a little bit harder to predict because these are deals and I'm sure you noticed that on the third quarter, it was actually quite weak. So these were deals that were still being worked on, and they would just happen to close on the fourth quarter. So there is a level of, I guess, lumpiness when it comes to these transactions. But at least when we're looking at the full year, it's still about 15% of the pickup is what we're looking at for our lot sales. Rafael Alfonso Javier: Okay. And my next question is on land bank utilization. I understand it is also part of the mandate last year to really net utilize rather than acquire. How is the progress last year? Jose Eduardo Quimpo: So our total utilization, Rafael last year is over 800. So the more precise number is 879. Rafael Alfonso Javier: Okay. I think my last question is just a housekeeping one on the residential inventory level. How is it looking so far? Do you have a target to -- I mean, a target level that you want to achieve this year? Joseph Carmichael Jugo: Yes. So thank you for the question, Rafe. So we've actually improved the inventory levels by a month. We ended the year about 19 months coming from 20 months and our aspiration for this year is to be somewhere in the 17- to 18-month range. Joahnna Soriano: Jelline from JPMorgan also has a question. She's virtual attendee today. Sorry, there seems to be feedback. We have a question here from Niki Franco from Abacus Securities. He has a couple of questions. Number one, what's our outlook for borrowing costs this year? Jose Eduardo Quimpo: Yes, I'll take that one. So as you know, there are projected or there has already been a reduction on policy rates. And when we talk to the analysts, the projection is there could also be another one. So taking this in mind, the way we model 2026 is that we are expecting or we're targeting to keep our borrowing cost at similar levels. So we ended the year at 5.5% We aim to keep it at 5.5% . Joahnna Soriano: The second question is of the 1.5 million office leasing portfolio, what percent is leased to BPOs? Mariana Zobel De Ayala: 70%. Joahnna Soriano: Of the 200,000 retail GLA to be opened this year, how much of this new space versus reopen spaces? Mariana Zobel De Ayala: That's entirely new space. Joahnna Soriano: Okay. If there are no questions from the floor, we'll call in Jelline next -- sorry, Gilbert, go ahead. Gilbert Lopez: More granularity or discuss your dividend policy. Moving forward, now that to end here buyback. Anna Maria Margarita Dy: So I think even before the buyback, we were already doing about 30% of prior year's net income, which we intend to keep, so we're maintaining that. This year, in particular, we're doing a special dividend because of -- from the proceeds of the sale of Alabang Commercial Center. I think the 30% is probably what we are seeing something that's more stable for now. Going forward, it's really special dividends in the event that we have an asset monetization event. Gilbert Lopez: So thank you, Meean. So for the special this year, how much does that bring your payout to inclusive of the special? Jose Eduardo Quimpo: So it should drop here about 33% of prior year. Gilbert Lopez: So it's around 10% -- so from 30% becomes 33%. Anna Maria Margarita Dy: Of core net income. Joahnna Soriano: Go ahead, Jelline. Yes, if you can just type in the question, we'll move on to Joan. Sorry, I think we're having some technical difficulties. So we'll just wait for the investors to type in the questions. Okay. So this one is from Daniela Picacho AB Capital. On residential launches, just to clarify, PHP 30 billion is your base case target for 2026. If so, what would be the triggers to push that higher? Is it purely dependent and you bring in your inventory life to sub 17 to 18 months? Or would you have to consider overall or system-wide inventory you see 4 years worth of inventory life? Also, can you remind us of the inventory life for your premium is. Anna Maria Margarita Dy: We don't generally provide the breakdown, but let me answer the first question. So there are 2 figures. One is our inventory level, which may not necessarily be the only thing. The second is, what would be the competitive environment in that particular area. So I think the analysis would need to be more specific to the target market of the project. So for example, you're launching something in geography A, then we'll have to look at who else is playing in geography A? And what's the inventory going to be out there? . Joahnna Soriano: On malls, you guided for roughly 15% to 20% rental uplift from reinvented projects. Could you quantify how much of this uplift should realistically flow into 2026 revenues versus later years? And what portion of this is already locked through signed leases? Mariana Zobel De Ayala: So the 15% to 20% uplift should be seen immediately for 2026. The basket of merchant replacement program, Jelline, we talked about already took effect. Now Obviously, that also happens on a rolling basis because every year, we allocate a certain part of the GLA, which we refresh or reinvent. Joahnna Soriano: Thank you, Mariana. We also have a question here from [indiscernible] can you provide an overall outlook on the demand scenario in the residential segment both at the premium and core and in Makati and other provinces as well? Yes, this is for residential. Anna Maria Margarita Dy: I suppose for us, the demand outlook remains very positive. Our launches have actually been very well received, I think, Laurean, which we launched this year 37%. Joahnna Soriano: 37% Heights Katipunan at 17%. Anna Maria Margarita Dy: Yes, 17%. So if you ask us, actually, we believe that demand continues to be robust. Maybe where this question is coming from is why the relatively low level of launch for this year. So for us, it's not so much a demand issue. It's really more of a supply issue. And we'd like to make sure that, I guess, this industry-wide supplies first taken up before we push more supply out there. So I think that's really the concern. It's not that we are concerned about the demand. It's just we want the supply to be absorbed first before we launch full blast again. Joahnna Soriano: He also has a question here on the current level of cancellations in the residential segment. We're now at 7.7% as of full year 2025, which is slightly better than 7.9% in the 9 months 2025. Any other questions from the floor? Still waiting for two to type Go ahead, Carl. Carl Stanley Sy: This is Carl Sy of Regis Partners. I just have a few questions, mostly on the residential segment. So first, it looks like the reservation sales of the core segment fell in the fourth quarter, both on a year-on-year and quarter-on-quarter basis. From what I can tell, there were still promotions and discounts offered during that period. So while I understand there was, let's say, a flood control corruption scandal going on. Is that -- do you attribute the weakness mostly to that? Or is there some other -- something else? Also on the residential segment looking ahead, do you have some launch plans? Do you have a more positive outlook on core versus premium or Metro Manila versus provincial? Joseph Carmichael Jugo: I think quarter 4, as we all know, a lot of negative sentiment. So I think that we didn't heavily -- whether it's a premium or our core market. But what we are looking at is really specific performances of certain projects. I think the Heights project, when you launched it, it's now at 17%. And Laurean had a very, very good take-up. We are ending as of today, PHP 10.4 billion or it's 37%. So the demand is there, based on certain projects and locations. As our CEO mentioned, certain geographies is really more challenging because of the supply situation now. Anna Maria Margarita Dy: Maybe to add to that. So your second -- I'll try to answer. Second question is, are you more confident about certain segments. So horizontal, we remain very bullish, horizontal -- obviously, horizontal ex Metro Manila. In fact, most of our launches, except one will be horizontal this year, including some provincial horizontal launches outside Metro Manila. In terms of core, why did core decline in the fourth quarter, I think there's -- Katipunan got launched first quarter of this year. So I think there's a recovery in the first quarter. Carl Stanley Sy: When you see a horizontal launches predominantly in 2026, would it be fair to say that's mostly premium? Anna Maria Margarita Dy: No. Actually, we will be launching core horizontal as well this year. Carl Stanley Sy: Got it. And then I'll ask a little bit about the office segment. I think if I heard correctly, you signed about 80,000 square meters of space already for this year. And with some context here, a lot of investors are concerned about the BPO sector, particularly in light of artificial intelligence. I want to check if the 80,000 square meters is predominantly BPO? Mariana Zobel De Ayala: Yes, it is. I think we're still tracking -- I think IBPAP believes that from a revenue standpoint, BPO should grow 5% from a headcount standpoint, 2% to 3%. So we generally follow that guidance. That being said, our headquarter offices actually grew at a faster clip than BPO unsurprisingly. Joahnna Soriano: I think Jelline's questions were similar to Carl, but we have a couple of other questions from Consilium. Can you please provide clarity on your -- okay, sorry, Sangam, we don't provide the breakdown for inventory. And then they're also asking about the strong pickup in the lot sales. Does this indicate that improving sentiment to premium level. Anna Maria Margarita Dy: I think we achieved what we set out what we thought would achieve. I mean it's just that some of the sales we thought would have happened in the third quarter ended up happening on the fourth quarter. But I guess the same forecast last year as this year, about 15% of our sales, our total take-up will be coming from the lot sales. Joahnna Soriano: Correct. We have a question here from RJ Aguirre of UBS. He wants to ask about the rationale behind selling ATC. This is arguably one of the group sought after Millstone location. And on market market, it's up for rebidding, this is going to be a priority for the group. Jose Eduardo Quimpo: So yes. So let me take the question on Alabang Commercial Center. So just to frame it, if you look at the gross leasable area attributable to Alabang Town Center, that's actually less than 5% of our 2.2 million square meters. So I think from a portfolio management basis, it's not super impactful. If you use 5%, that's being a threshold of something that is impactful. Number two, if you run valuation, we are effectively sold at a cap rate of 3%, 3% cap rate. So as most of you know, when we transact something, for example, with AREIT, we turn out in the area of 6.5% to 6.8%. So having a buyer that's willing to pay a cap rate -- effective cap rate of 3% was a clear -- from a financial perspective, a clear value offer on the table. What allows -- what it allows us to do is actually be able to recycle a substantial amount of capital. So if you imagine if we can generate yields on our commercial leasing assets in the area of 10% to 12%, the money that you raise on a 3% cap rate and redeploy, you have sufficient capital to, number one, reinvest in very similar footprint and number two, have sufficient available balances to actually provide tangible returns on capital. So when I say returns of capital, it gives us an opportunity, for example, to give special dividends as what we're doing in 2026. Anna Maria Margarita Dy: Yes, it's really a straightforward, I guess, capital recycling story. We're getting returns from a very mature asset. Meanwhile, we're opening 200,000 square meters of mall space today. We have 600,000 square meters of malls under construction and under planning. So this is simply reallocating capital from an asset that is already matured to one where we believe there will be more upside. The second question had to do with market market. So I think it's also been disclosed by BCA that we are in discussion for the extension of market market on the portion of the property that they are thinking of bidding out. I think we are also seeing in the news some government assets that they would like to privatize and to dispose. And as I said earlier, we do want to keep headroom in our balance sheet because times like this opportunities seem to surface. Joahnna Soriano: We have a question from Niki of Abacus Securities. With major advances in artificial intelligence models announced in recent months, how concerned is management about the large exposure to BPOs, primarily in offices, but also the possible knock-on effects for residential? Mariana Zobel De Ayala: Maybe I'll take for the offices portion. I think in the short term, we actually feel it might help -- the technology might help leapfrog some of the challenges on education and training side. I think generally speaking, medium to longer term, we're focused on opportunities around low vacancy areas and high-traffic areas. So that would be Makati, BGC, Candon City and Cebu. So I guess that's to say that we do imagine that AI will take effect on the sector. Anna Maria Margarita Dy: I guess the second question was AI impact on... Joahnna Soriano: Knock-on effects to residential, if any, in relation to... Anna Maria Margarita Dy: I suppose it's -- the effect would be more macro in nature. If AI affects BPOs and BPOs affect the GDP or the economy and employment, then that's the more indirect but impactful negative effect on residential. But direct effect, I don't think we see anything. Joahnna Soriano: These are the questions of Joy Wang from HSBC. What is your precommitment occupancy for the 200,000 new space to be introduced this year, is a 15% to 20% increase in rent just under rental rate for the new space. Mariana Zobel De Ayala: Yes. So I think we've committed to keep our lease-up rate at 91%. So that will be, again, blended across the entire portfolio, taking into account that some of the newer malls will take a little more time to mature. In terms of the rental rate, so the 15% to 20% quoted was really on the merchant replacement program. So that's taking existing tenants and replacing them for higher-yielding tenants. Joahnna Soriano: This one is for Jed. How should we think about the special dividend policy? Would this be a percent increase of the investment gain during the year or the previous year? I think this was already answered earlier by Jed. So the dividend policy, 30% of prior year's income. We're increasing that to 33%. So it's effectively a 10% increase from our existing dividend policy. Jose Eduardo Quimpo: Yes. So we're tracking 33% of prior year's income. I'm sure you already saw the disclosure. So regular cash dividend stays at 30% of prior year's core net income, but we saw the opportunity to return capital. And so we're declaring an additional 10% of that by way of special dividends. Joahnna Soriano: She also has a follow-up question. Management mentioned about capital return to shareholders while keeping sufficient capital for investment, what is the right balance sheet capacity that management wants to keep? How much more capital can we expect management to return to shareholders? Jose Eduardo Quimpo: Yes. So on returns to capital, as I mentioned, we are tracking 30% plus an additional 3% regular and special dividends, that's for 2026. That's what we're planning on. In terms of leverage position, as mentioned, we are at 0.78x net debt to equity in terms of our balance sheet. From our perspective -- from management's perspective, we want to make sure that we don't reach one. So from our that room between 0.78:1 is actually the dry powder that we want to give. And the more we're able to expand that, the more it allows us to give room for key acquisition opportunities. Joahnna Soriano: We have questions now from Jelline with JPMorgan. On capital deployment, launches and CapEx budgets appear lower on a year-on-year basis, while management does not intend to increase the buyback program. How do you plan to deploy freed up capital? What will entail to commit to a higher minimum dividend payout? I guess from a regular standpoint? Jose Eduardo Quimpo: So I guess Jelline, the math, eventually, if you run all your models is that you'll probably see us taking on very little incremental debt for 2026. So from overall sources and uses of funds, the net change is really that you'll see Ayala Land aim to minimize incremental debt for 2026. Joahnna Soriano: She also asked for the RFO mix in 4Q 2025, that's 8%. In terms of inventory to be completed this year, we're looking at about PHP 6 billion or 3.5% of inventory. Any more questions from the floor? Unknown Analyst: I'm Paul from [indiscernible] first of all, congrats on your 4Q results. I have questions about the -- first about the mall performance. I'd like to ask for the occupancy rate of your newly opened malls like Park Triangle and Arca South. And what's the current tenant behavior regarding this -- on the newly opened malls? Mariana Zobel De Ayala: So for Arca, we're actually almost 90% leased out for the first phase that we opened. And for Park Triangle, we're 65% leased out. Unknown Analyst: Thanks Mariana. And another follow-up question is how much is Ayala Malls same mall sales growth for full year 2025 compared to 2024. Mariana Zobel De Ayala: Yes. Same mall revenue growth was 7%, and the overall sales growth was 10% year-on-year. Unknown Analyst: Excluding reinvention, how much is the... Mariana Zobel De Ayala: One moment, let me get that for you. Joahnna Soriano: Yes. Ex reinvention. Mariana Zobel De Ayala: Yes. Okay. Ex-reinvention. Those figures that I gave. Unknown Analyst: And another question about the RFO promos. Can you provide us a recap or a refresh on how the management is currently trying to reduce the current inventory there. That's what RFO promos are you offering? And how much discounts are usually available for buyers? Joseph Carmichael Jugo: So generally, the RFO promos are stretch payment schemes or fairly sizable cash discounts. But I also want to highlight that our RFO situation now is much, much lower. It only represents 4% of total inventory. So it's quite low. Joahnna Soriano: We have one final question from Daniela Picacho. Just a follow-up. Just a follow-up. You said resi cancellation rates have improved to about 7% to 8%. Could you share whether recent cancellations are concentrated in specific price segments, geographies or older vintages? I'm curious if newer bookings are showing better buyer quality. Joseph Carmichael Jugo: So on the better buyer quality, what we've done and that has also admittedly impacted sales as we've tightened up on some of the down payment requirements. So even some of our launches, we do require down payments, especially for the core market. So that should help future cancellations or prospective cancellations. Most of the cancellations are actually in certain areas. So it's not spread out throughout the -- all of the projects within the premium core products. Anna Maria Margarita Dy: Sorry just cancel it's a percent of revenue. It's very close to where we were already in 2019. I think we were 6%, if I'm not mistaken, we were about 6% in 2019 before the pandemic, about 6% of cancellation. 6% of revenues. Cancellations is equal to about 6% of revenue. So now we're at about 8%, which is a very big movement from where we started a few months -- a few years ago. Joahnna Soriano: Correct, yes. Okay. Last question from the floor. Okay. If no more questions, that concludes our briefing on Ayala Land's for 2025. If you have any further questions, please feel free to reach out to the team. A recording of this briefing will also be made available on our website. Once again, thank you for joining us this afternoon.
Operator: Greetings, and welcome to the Kimbell Royalty Partners Fourth Quarter Earnings Conference Call [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rick Black, Investor Relations. Thank you, Rick. You may begin. Rick Black: Thank you, operator, and welcome, everyone, to the Kimbell Royalty Partners conference call to discuss fourth quarter financial and operational results. This is for the time period ending December 31, 2025. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the IR section of kimbellrp.com. Information recorded on this call speaks only as of today, February 26, 2026, so please be advised that any time-sensitive information may no longer be accurate as of the date of any replay listening or transcript reading. I would also like to remind you that the statements made in today's discussion that are not historical facts, including statements of expectations or future events or future financial performance are considered forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We will be making forward-looking statements as part of today's call, which, by their nature, are uncertain and outside of the company's control. Actual results may differ materially. Please refer to today's earnings press release for our disclosure on forward-looking statements. These factors as well as other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Management will also refer to non-GAAP measures, including adjusted EBITDA and cash available for distribution. Reconciliations to the nearest GAAP measures can be found at the end of today's earnings press release. Kimbell assumes no obligation to publicly update or revise any forward-looking statements. And with that, I would now like to turn the call over to Bob Ravnaas, Kimbell Royalty Partners' Chairman and Chief Executive Officer. Bob? Bob Ravnaas: Thank you, Rick, and good morning, everyone. We appreciate you joining us this morning. With me today are several members of our senior management team, including Davis Ravnaas, our President and Chief Financial Officer; Matt Daly, our Chief Operating Officer; and Blayne Rhynsburger, our Controller. To start off, we are pleased to report strong fourth quarter results that helped cap off another outstanding year for Kimbell. We began 2025 with a $230 million acquisition of mineral and royalty interest beneath the historic Mabee Ranch in the Midland Basin, strengthening the Permian Basin as our leading area for production, activity and inventory. During the second quarter, we redeemed 50% of the Series A cumulative convertible preferred units, simplifying capital structure and lowering our cost of capital. In the fourth quarter, we grew production organically from the third quarter and exceeded the midpoint of our guidance. The favorable fourth quarter performance allowed us to declare a Q4 2025 distribution of $0.37 per common unit, up 6% from Q3 2025 as we continue to focus on returning value to unitholders. For the year, we returned $1.60 per common unit through quarterly distributions, all classified as return of capital and 100% free of dividend income taxes while also reducing debt through disciplined balance sheet management. I'm also pleased to report that our proved developed reserves increased approximately 8% in 2025 to a record level of nearly 73 million Boe. Our active rig count remains strong with 85 rigs drilling across our acreage, representing a market share of U.S. land rigs at 16%. In addition, our line-of-site wells continue to be above the number of wells needed to maintain flat production, giving us confidence in the resilience of our production as we progress through 2026. Now before turning the call over to Davis, I'd like to take a moment to provide some high-level comments on a topic we have received considerable investor interest about recently, which is our Barnett-Woodford potential across the Permian Basin. We own all depths across the vast majority of our massive acreage position in our portfolio, which means that we stand to benefit considerably from any development in new formations, including the Barnett-Woodford. As a mineral owner, we do not have to pay for test pilot programs or delineation projects, making this a meaningful catalyst for increased free cash flow from our unitholders for our unitholders in the future. We have already seen development of the Barnett-Woodford on our assets from some of our major operators, and we expect this to accelerate. Finally, as we reflect on 2025, we are grateful to our employees, Board and advisers for another successful year at Kimbell as we remain focused on generating long-term unitholder value. And now I'll turn the call over to Davis. Davis Ravnaas: Thanks, Bob, and good morning, everyone. As Bob mentioned, 2025 was another excellent year for Kimbell. I'll start by reviewing our financial results for the fourth quarter. Oil, natural gas and NGL revenues totaled $76 million during the fourth quarter and run rate production was 25,627 Boe per day, which exceeded the midpoint of our guidance. On the expense side, fourth quarter general and administrative expenses were $10.4 million, $6.2 million of which was cash G&A expense or $2.63 per Boe, within our guidance range. For the full year 2025, cash G&A expense was $2.51 per Boe, below the midpoint of guidance, reflecting operational discipline and positive operating leverage. Total fourth quarter consolidated adjusted EBITDA was $64.8 million. You will find a reconciliation of both consolidated adjusted EBITDA and cash available for distribution at the end of our news release. This morning, we announced a cash distribution of $0.37 per common unit for the fourth quarter. We estimate that approximately 100% of this distribution is expected to be considered return of capital and not subject to dividend taxes, further enhancing the after-tax return to our common unitholders. This represents a cash distribution payment to common unitholders that equates to 75% of cash available for distribution, and the remaining 25% will be used to pay down a portion of the outstanding borrowings under Kimbell's secured revolving credit facility. Moving now to our balance sheet and liquidity. As a reminder, on December 16, 2025, Kimbell amended its existing credit agreement to, among other things, reaffirm our borrowing base and elected commitments of $625 million, lower the cost of bank debt financing by a combined 35 basis points and extend the maturity to December 16, 2030. At December 31, 2025, we had approximately $441.5 million in debt outstanding under our secured revolving credit facility, which represented a net debt to trailing 12-months consolidated adjusted EBITDA of approximately 1.5x. We also had approximately $183.5 million in undrawn capacity under the secured revolving credit facility as of December 31, 2025. We continue to maintain a conservative balance sheet and remain very comfortable with our strong financial position, the support of our expanding bank syndicate and our financial flexibility. Today, we are also releasing our financial and operational guidance ranges for 2026. Our production guidance at the midpoint remains unchanged from 2025 at 25,500 Boe per day and demonstrates the ongoing development, diversity and stability of our production base. We remain confident about the prospects for continued development in 2026, given the number of rigs actively drilling on our acreage, especially in the Permian, as well as our line-of-site wells exceeding our maintenance well count. In closing, 2025 marked a period of significant industry consolidation across our U.S. peer group. Looking ahead to 2026, we are excited about our position as a leading consolidator in the highly fragmented U.S. oil and natural gas royalty sector, which we estimate exceeds $650 billion in size. Long-term demand for U.S. energy is expected to continue to grow, and we are well positioned to benefit through our diversified portfolio of high-quality royalty assets across the leading U.S. basins. With that, operator, we are now ready for questions. Operator: [Operator Instructions] Our first question comes from the line of Nick Armato with Texas Capital. Nicholas Armato: So for the first one, maybe regarding your 2026 guidance, while I realize you don't provide quarterly guidance, could you perhaps speak to your expected production cadence for the year from 4Q '25 levels? Davis Ravnaas: I would say relatively stable. It's difficult to predict, obviously, because we don't control development. But I think you can assume a relatively stable development cadence over the course of 2026. Nicholas Armato: Perfect. Makes sense. And then for my follow-up, I wanted to ask about the competitive landscape for M&A. After last year's industry consolidation, how would you characterize the competitive landscape outside of the Permian now that there's maybe less competition? Davis Ravnaas: Yes, it's a great question. I'd say that we have 2 advantages the way we see it in terms of our competitive positioning. First, we can target deals that are very meaningful to us in the $100 million to $500 million size range. And we can also focus as we have historically in every basin across the country. So we're not just focused on one basin. So I think the combination of those 2 factors puts us in a unique position to be competitive on high-quality assets that are within that medium-sized range that can be meaningfully accretive to us, but they are also perhaps in out-of-favor basins. And a good example of that would be the LongPoint acquisition that we did a few years ago, which has been tremendously successful for us. A large portion of that acreage was the Mid-Con. And I think a lot of folks that are focused on the Permian only weren't interested in buying that package because of the significant Mid-Con component. The Mid-Con is an area that we are extremely bullish on. There's a favorable dynamic now with gas and NGL price improvement. We've seen recent consolidation within that basin, specifically within Oklahoma. And we remain very confident that that's going to be a basin of significant growth and will add a lot of value to our business going forward. Operator: Our next question comes from the line of Tim Rezvan with KeyBanc Capital Markets. Timothy Rezvan: First one, I saw your net line-of-site maintenance well assumption increased to 6.8 from 6.5. We thought that was interesting given that you're still heavily exposed to the Permian and lateral lengths and EURs and IP rates are all going up significantly as operators push longer laterals. So I thought that net count might actually come down a bit. A [ till ] is different from what it was 7 years ago in terms of the production profile. So can you walk us through kind of what drove that change? Davis Ravnaas: Sure. Pretty simple explanation. We determine that calculation once a year because a lot of work goes into it. And last year, in the first quarter in January, we acquired Boren, so 100% high upside unconventional horizontal properties. So when you add that into our mix, you would expect to see a very modest increase in the maintenance level. Timothy Rezvan: Okay. So just folding that in. Okay. Davis Ravnaas: Yes, exactly. Timothy Rezvan: Okay. That's helpful. And then as a follow-up, I noticed your net debt, and I think you're allowed to use net debt now in your numbers, so we'll look for that going forward, down $30 million in the last 6 months. I know there's no rush or urgency on the mezzanine equity. I'm sure, all else equal, you prefer to kind of clean that up. If we continue to see kind of the steady free cash flow whittling down debt and improving liquidity, how are you thinking about maybe addressing that? Would you look maybe in the back half of the year to take some down? Or is it more like leave it as is to give you optionality if there's M&A? Just trying to understand those dynamics. Davis Ravnaas: No, no, no. It's a good question. So there is a minimum threshold for the amount that we can redeem at any given time. We would probably anticipate redeeming some portion of it in the latter half of the year, but we'll be opportunistic about when we choose to do that and weigh the balance between cash interest expense on our RBL and what we're paying on the mezzanine. Operator: Our next question comes from the line of Noah Hungness with Bank of America. Noah Hungness: I wanted to start off here on realizations. Can you maybe just help us how to think about the natural gas realizations as a percent of Henry Hub, NGL realizations as a percent of WTI and differentials for crude for this year? Davis Ravnaas: Sure. Noah, Matt, maybe I'll turn that over to you. I know we almost always see some seasonality as we see realizations quarter-to-quarter. But Matt, maybe you can add some more detail to that. Matthew Daly: Yes, yes. So the oil differential was flat at 2% between Q3 and Q4. natural gas was 18% in Q3, went to 24% in Q4, and then NGLs was flat quarter-over-quarter. And you're right, David. Generally, we see for natural gas differential sort of a seasonal increase in differentials during the winter months. So Q4 and Q1, you'll see higher differentials. And as we get into Q2 and Q3, it will likely go back down closer to 18%. Obviously, with Waha and the takeaway capacity being built out of the Permian over the next couple of years, we expect that will certainly improve the long-term differentials for natural gas as those pipelines get in place. But again, it's more of a seasonal item. Again, Q4, Q1, a little bit higher differential for gas and drops in Q2 and Q3. Noah Hungness: And the NGL realizations, should we just kind of assume it's flat versus what 4Q was? Matthew Daly: I would assume flat between Q3 and Q4. Noah Hungness: Great. And then kind of building off of the realizations questions here. Can you guys maybe just talk about what the Waha price inflection in '27 will mean for you guys and kind of what your exposure to that theme is? Davis Ravnaas: I mean it should be a significant improvement for us and everyone else that's in the Permian. But Matt, I'll let you answer that question. Matthew Daly: Yes. I mean over 85% of our gas production is outside Waha. So you have -- you do have 15% that's exposed to that pricing, which is obviously was very low recently. So can we quantify the impact? I mean it's certainly going to be a catalyst, I think, for improving differentials as you get into the latter part of this year and into '27. We haven't quantified the improvement, but we're looking forward to seeing those differentials sort of long term much lower as those pipelines come into place. Davis Ravnaas: No, I think what we're more excited -- about I think what we're more excited about in the Permian is just the continued development of different benches. So we're seeing what seems like a rapid acceleration of delineation within the Woodford-Barnett area. So I know Bob commented a little bit on that in his opening comments, but that's a real opportunity for us to drive production growth across our basin at no cost to us. We're seeing just tremendous interest in developing the Woodford going forward. And I think that's a huge tailwind for our business. Noah Hungness: And do you guys -- I guess, just responding to that, do you guys think that -- is this more of a story where the activity will improve production? Or do you think you'll receive a bit of a revenue tailwind on the lease bonus side first? And if so, like do you have a rough idea how much that might be? Davis Ravnaas: More on the production side, good question. Almost all of our acreage is leased. So we will probably get some lease bonus impact from that. And when I think about that, it's going to be acreage that we own in areas that could be prospective for Woodford-Barnett, maybe more on the platform side than the Midland Basin that are currently unleased. But on the leased acreage, I mean, it's pretty easy just to go to our investor presentation and look at our Permian map. I mean, we just have tremendous exposure at all depth to that specific formation. So to the extent that, that continues to be developed, and we've already seen some developments. So on the Mabee Ranch, for example, Conoco has drilled a couple of wells that have been very good, and then we're surrounded by activity from other operators like Oxy and Fasken. So it is real. It's something that we've noticed in speaking to operators, their interest level increasing dramatically on that play. And I think you'll -- I'm sure across your coverage universe, you've seen other Permian operators talk about their development plans pursuant to that. So it's just a great example of why minerals are a wonderful business model. Operators that are on our properties are some of the most innovative people in America, and they're just constantly looking for ways to improve production, whether that's enhancing production techniques or drilling at different depths and different formations. And the good news is that as a mineral owner, we don't have to pay for any of that experimentation or proving out the best areas in which to apply CapEx. So it's going to be a nice windfall for us, and we believe in it. Noah Hungness: Are those leases HBP? Or are they set to expire, which means that the operators are kind of on the time line to get those drilled? Davis Ravnaas: Almost all of our acreage is HBP. Operator: There are no further questions at this time. I'd like to pass the call back to management for any closing remarks. Davis Ravnaas: Thanks to all, and have a wonderful rest of your week. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. My name is Liz, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Shenandoah Telecommunications Company Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Lucas Binder, Vice President of Corporate Finance for Shentel. Please go ahead. Lucas Binder: Good morning, and thank you for joining us. The purpose of today's call is to review Shentel's results for the fourth quarter and full year 2025. Our results were announced in a press release distributed this morning. In addition, we filed our Form 10-K and also a Form S-3 with the SEC to fulfill our Horizon merger contractual requirements to GCM. The presentation we will be reviewing is included on the Investor page on our investor.shentel.com website. Please note that an audio replay of this call will be made available later today. The details are set forth in the press release announcing this call. With us on the call today are Ed McKay, President and Chief Executive Officer; and Jim Volk, Senior Vice President and Chief Financial Officer. After the prepared remarks, we will conduct a question-and-answer session. I refer you to Slide 2 of the presentation, which contains our safe harbor disclaimer and remind you that this conference may include forward-looking statements subject to certain risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements. Additionally, we have provided a detailed discussion of various risk factors in our SEC filings, which you are encouraged to review. You are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements. With that, I will now turn the call over to Ed. Go ahead, Ed. Edward McKay: Thanks, Lucas, and good morning, everyone. Thank you for joining us today. This past year marked another important step forward for Shentel as we continue to execute on our fiber-first strategy. Strong year-over-year growth in both Glo Fiber and Commercial Fiber drove a notable shift in our revenue mix with our fiber-based lines of business surpassing our incumbent broadband revenue in the fourth quarter. Throughout 2025, we remain disciplined and focused on our 4 strategic pillars that continue to guide our operational and financial priorities, building on our long history of success, completing our fiber network expansion, accelerating growth and positioning the business to inflect to positive free cash flow in 2027. I'm pleased with the way our team delivered on each of these priorities, strengthening our position and keeping our strategy firmly on track. Starting on Slide 4, we share some of our full year highlights. At year-end 2025, we passed approximately 427,000 homes and businesses in our Glo Fiber expansion markets, an annual increase of 81,000 passings. Our government subsidized passings in incumbent broadband markets more than doubled year-over-year to 22,000 and penetration in these areas has already reached 31%. We are well on our way to substantially completing construction for these capital-intensive expansion projects by the end of 2026. Glo Fiber data RGUs grew 35% in 2025 to 88,000, and we maintained data ARPU by driving customers to higher speed tiers. Lastly, we successfully refinanced our debt with our inaugural ABS financing in December that will save us approximately 170 basis points in cash interest expense and extend our maturities to 2030. We finished 2025 with strong momentum, driving customer growth, expanding our high-value fiber business and strengthening our balance sheet. This performance gives us confidence in our trajectory as we move into 2026. Turning to Slide 5. We show our integrated broadband network that spans more than 19,000 fiber route miles across 8 states with over 679,000 total broadband passings. Our markets have compelling competitive dynamics that differentiate us from our peers in the broadband industry. 88% of our Glo Fiber passings are duopoly markets with only one fixed broadband competitor. And in our incumbent markets, 70% of our passings have no fixed broadband competitor. As we enter the home stretch of our Glo Fiber expansion, we remain focused on return on investment. Due to rising aerial make-ready costs in some areas, we have recently decided to pass on investments in certain Ohio markets where the cost to pass increased, reducing our ability to earn a return on investments above our hurdle rate of 15%. As you can see on the map, all of the planned Glo Fiber markets have been launched and our primary focus in 2026 is adding passings in our Virginia, Pennsylvania, Maryland and Ohio markets. Despite the reduction in targeted passings, we remain confident in our plans to achieve positive free cash flow in 2027. On Slide 6, our sales and marketing team continues to drive growth in our Glo Fiber expansion markets. In the fourth quarter, we added 5,300 new customers and more than 6,000 total data, video and voice revenue-generating units. For full year 2025, we added approximately 23,000 new customers and 26,000 total RGUs. As a result, total Glo Fiber revenue-generating units surpassed 103,000 by year-end, up 33% compared to the prior year. Moving to Slide 7. The fourth quarter marked our strongest construction period of the year with more than 26,000 Glo Fiber passings completed, bringing total passings to just under 427,000. While the significant increase in new passings kept penetration flat quarter-over-quarter at 20.6%, penetration improved 1.8 percentage points year-over-year. Penetration trends across our Glo Fiber cohorts are shown on Slide 8 and reflect blended penetration rates for both residential and small and medium business passings. Business passings account for about 8% of our total passings, and they typically exhibit a slower penetration ramp than residential passings. However, business customers generate data ARPU that is more than 40% higher than residential customers. Due to the slower business ramp, cohorts with a higher concentration of business passings can show lower penetration. This dynamic is evident in the Q4 2023, Q1 and Q4 2024, and Q1 2025 cohorts, which have a significantly higher mix of business passings than other cohorts. Excluding the differences in residential and business mix, penetration growth in our Glo Fiber expansion markets has followed a consistent and predictable pattern with steady increases as cohorts mature. Our earliest cohorts launched in 2019 and 2020 now have an average data penetration rate of more than 37%. On Slide 9, we highlight our most recent Net Promoter Score customer satisfaction survey, where we received an outstanding score of 61. This result compares very favorably with cable competitors that often have single-digit scores. Our continued focus on customer service is a key driver of our low churn with average monthly churn of 1.01% in the fourth quarter and 1.07% for full year 2025. Broadband data average revenue per user increased to more than $77 in the fourth quarter, representing a 2.3% year-over-year increase. Midway through the third quarter, we introduced new promotional rate plans offering higher speeds for the 5-year price guarantee. With these plans available for a full quarter, more than 75% of our new residential subscribers selected speeds of 1 gig or higher, including 20% choosing 2-gig service and 5% choosing 5-gig service. The increase in ARPU was driven by our shift away from a first month free promotion in prior periods, along with strong adoption of the 5-year price guarantee plans in the fourth quarter. As these plans continue to roll through our base, we expect data ARPU to decline by approximately 1% over the next few quarters before stabilizing. Turning to Slide 10. We show our operating performance for the incumbent broadband markets. At the end of 2025, we served about 112,000 broadband data customers, reflecting a year-over-year increase of over 600. Data, voice and video RGUs totaled more than 158,000 at the end of the year, down 3% year-over-year, primarily due to video customers moving to online streaming services. Total broadband passings in our incumbent markets grew to 252,000 at year-end, up about 13,000 compared to the prior year. This increase was driven by the construction of government-subsidized passings in previously unserved areas. We've substantially completed construction and fulfilled our grant obligations in Virginia, and we expect to complete the remaining 1,300 government-subsidized incumbent grant passings in West Virginia in 2026. As a result of our government grant fiber construction, approximately 21% of our incumbent broadband passings are now equipped with fiber-to-the-home technology. As shown on Slide 7, these new subsidized passings represent a strong growth catalyst for our incumbent markets with data penetration exceeding 45% within 6 quarters of a neighborhood launch. Our earliest cohort from the first quarter of 2023 has reached 61% penetration, and we've already achieved an aggregate penetration of 31% across more than 22,000 subsidized passings. Moving to Slide 12. Monthly broadband data churn improved sequentially and remained steady year-over-year at 1.47% for the fourth quarter. Our rate card strategy offering greater value with higher speeds at the same price continues to be effective at mitigating churn. As expected, broadband data ARPU declined 2.4% from a year ago to $82, driven by the addition of new customers with more aggressive pricing in competitive markets. Our Commercial Fiber business is highlighted on Slide 13. In the fourth quarter, incremental monthly bookings exceeded 155,000, in line with the prior year period. After record bookings in the first half of 2025, second half bookings increased almost 9% compared to the second half of 2024. We're seeing strong performance across a broad and diverse customer base, including wireless carriers, mid-market and enterprise customers, wholesale partners, educational institutions and state and local governments. Our service delivery team installed $191,000 in new monthly revenue in the fourth quarter, down modestly as we continue to work through the backlog and move bookings to revenue more quickly. Average monthly compression and disconnect churn remained very low at 0.6% in the fourth quarter, driven by exceptional support from our network operations center and sales team. Before I turn the call over to Jim, I want to briefly address the recently announced reduction in force. On February 23, we announced a workforce reduction of approximately 10% of our employees to better align our staffing levels with the planned completion of the construction phase of Glo Fiber. Impacted employees will have a staggered departure dates through the end of 2026 with the largest impact in the fourth quarter. All affected employees are eligible for severance pay and benefits as well as career transition services. We expect to incur approximately $3.1 million in restructuring costs and anticipate annual savings of roughly $12.3 million starting in 2027, split evenly between operating expenses and capitalized labor. While our major Glo Fiber market expansion is nearing completion by year-end, we remain firmly focused on driving continued growth in Glo Fiber and Commercial Fiber and delivering the high level of service our customers expect and deserve. I'll now turn the call over to Jim to walk you through our 2025 financial results and our outlook for 2026. James Volk: Thank you, Ed, and good morning, everyone. I'll start on Slide 15 with the financial results for the fourth quarter 2025. Revenues grew 7.2% to $91.6 million, driven by another quarter of strong Glo Fiber expansion market revenue growth of $6.5 million or 39%, driven by a 37% increase in data subscribers and a 2% increase in data ARPU. Commercial Fiber revenue grew $2 million or 10.8% year-over-year, driven primarily by a negative deferred revenue adjustment in the fourth quarter of 2024. Incumbent broadband markets revenue declined $1.7 million, primarily due to lower video and data revenues from a 14.8% decline in video RGUs as customers switched to streaming video services and a 2.4% decline in data ARPU due to a more aggressive rate card in competitive markets. Broadband data subscribers did grow 0.6% year-over-year. RLEC revenue declined $500,000, primarily due to lower DSL revenue from a 24.4% decline in DSL RGUs, partially due to customers migrating to our broadband data service in the recently constructed passings supported by government grants. Adjusted EBITDA grew $8 million or 31.3% to $33.5 million, driven by $6.2 million in revenue growth and $1.8 million in lower expenses from a combination of Horizon synergy savings, higher capitalized labor from a strong quarter of fiber construction and lower bad debt. Adjusted EBITDA margins increased 670 basis points to 36.5% in the fourth quarter due to a combination of recurring synergy savings seasonality due to a strong quarter of fiber construction, favorably impacting higher capitalized labor and lower network compensation expenses and nonrecurring bad debt expense adjustments. We expect adjusted EBITDA margin to decline slightly in the first half of 2026 before expanding again in the second half of 2026. On Slide 16, we share our last 5-year financial results. Revenues and adjusted EBITDA grew at a compounded annual growth rate of 10% and 16%, respectively. We believe these growth rates are industry-leading among publicly traded broadband companies. Please note that we acquired $19 million of annual run rate EBITDA when we acquired Horizon in 2024. This was fully offset by $12 million of lower EBITDA when we sold our tower business in the same year and $7 million in lower EBITDA from backhaul revenue churn due to the onetime network rationalization event following T-Mobile's acquisition of Sprint. While we are proud of our team's performance over the past 5 years, we are even more excited about our growth prospects over the next 5 years when we expect low double-digit EBITDA growth rates, combined with significantly lower capital intensity starting in 2027. Turning to Slide 17 for our annual guidance for 2026. We expect 2026 revenues of $370 million to $377 million or 4.4% growth based upon the midpoint. We are guiding to adjusted EBITDA of $131 million to $136 million or 12.1% growth based upon the midpoint. We expect 2026 CapEx net of grant reimbursements to be $220 million to $250 million or a 21% decline at the midpoint. Moving to Slide 18. We invested $359 million in capital expenditures in 2025 and collected $63 million in government grants for net CapEx of $296 million. We have completed construction of 84% of Target Glo Fiber passings and 94% of target incumbent government grant passings in unserved areas. In summary, capital intensity is trending down as we get closer to the end of the expansion phase. Capital intensity declined from 91% in '24 to 83% in '25 and to a range of 59% to 67% in '26 based upon our guidance. For 2027, we are currently trending to the high end of the long-term target capital intensity range we provided a year ago. We expect our residential businesses to be in the 25% range and our commercial business in the 30% range initially before declining further over time as our businesses scale. I'd now like to update you on our refinanced credit facilities and liquidity on Slide 19. As previously announced in December, we successfully refinanced our $675 million term loan and revolving credit facility with a hybrid capital structure featuring asset-backed securitization or ABS notes supported by most of our fiber business and a revolving credit facility backed primarily by our incumbent business. The ABS notes include $567 million of privately placed investment-grade notes to institutional investors due December 2030 with a weighted average interest rate of 5.69% and $175 million variable funding note facility or VFN, with a group of financial institutions. The VFN has a maturity date of December 2029 and bears interest at SOFR plus 175 basis points. The VFN is a revolving facility within the ABS special purpose entities that is also investment-grade rated and securitized by the same fiber assets and customer contracts. It is also governed by the same ABS indenture as the ABS notes. We did not borrow from the VFN as of December 31, 2025. Concurrently, we established a new $175 million revolving credit facility, or RCF, with a group of financial investors maturing December 2030. The RCF bears interest at SOFR plus 250 to 300 basis points, depending upon net leverage as defined in the RCF agreement. We borrowed $75 million from the RCF as of December 31, 2025. Please note that these are 2 discrete credit facilities separated legally by special purpose entities established for ABS. Shentel and the non-ABS entities have no recourse to the loans of the ABS entities. Likewise, the ABS entities have no recourse to the loans of the RCF. As of December 31, we had $642 million in outstanding debt with a weighted average interest rate of 5.75%. This compares favorably to September 30 weighted average interest rate of our prior credit facility of 7.47%, saving us 172 basis points in cash interest, driven by the investment-grade rated ABS notes. Based on our current debt levels, this will save us $11 million annually in cash interest. Total available liquidity was approximately $235 million as of December 31, consisting of $27 million of cash and cash equivalents, $21 million in restricted cash as required by the ABS indenture, $44 million available under the VFN, $93 million under the RCF and $50 million available under government grants. In addition, the company has over $130 million of VFN commitments that are not available to draw as of December 31. The available capacity of the VFN will increase based upon fiber revenue growth from the ABS entities, multiplied by a net operating income margin as defined in the ABS indenture and a 6.25 multiple. We are very pleased with our new credit facilities and the financial flexibility they will provide us in future years. In summary, as noted on Slide 20, we have 3 catalysts converging that we expect will lead us to generating and growing positive free cash flow in 2027 and beyond. Low double-digit adjusted EBITDA growth rates driven by our fiber businesses, declining capital intensity as we exit the construction phase of our business plan in 2027 and declining cost of capital after refinancing our debt in December 2025 with primarily investment-grade ABS notes. This is a very exciting time for Shentel and our shareholders. Thank you, operator. We are now ready for questions. Operator: [Operator Instructions] Your first question comes from the line of Hamed Khorsand with BWS Financial. Hamed Khorsand: About the markets that you've decided not to enter in Ohio, how much CapEx are you looking to save? And is it all being -- was it all planned for '26? So it already brings down the CapEx that you're projecting for '26? James Volk: Yes. Hamed, the CapEx per passing in this last year is roughly going to be around $1,400 per passing. Now some of that money has been previously spent in prior years, and we're now really focusing primarily on just placing the fiber. So it's mainly construction labor at this stage, which will probably be about 75% of the $1,400 or, call it, $1,000 per passing. The markets that we decided to pass on wasn't an issue of timing as much as it was an issue of return on investment. As Ed mentioned in his scripted comments, the cost of aerial make-ready has gone up significantly, like 2 and 3x in some markets. And it just made it uneconomical for us to build these markets and get a return on investment as we've expected of roughly 15%. Hamed Khorsand: Okay. And from a competitive standpoint, you introduced this 5-year guarantee, I think, last quarter. Have you seen any step down as far as competitive pressures go? Or is it still the same? Edward McKay: Hamed, recently, one of our large cable competitors actually increased their prices on their 5-year guarantee. But that just happened recently here in the first quarter. Other than that, we haven't seen significant changes since we launched the 5-year price guarantee. Hamed Khorsand: Okay. And then you had said, if I heard you right, that it takes a bit longer on the business than on the residential. How fast -- I don't think I heard you say how fast it takes for residential to sign up. Edward McKay: Sorry, say again, for a residential customer to sign up? Hamed Khorsand: Yes, to sign up for service. I know you were talking about how there's a delayed factor when it comes to business customers. Edward McKay: Yes. So with the business customers, in many cases, they're under contract. We have to wait for that contract to roll off. And in some markets, there are actually multiple providers going after business customers. So we expect terminal penetration on business customers to be lower than residential. But then residential customers that ramp to our target 37% plus penetration rate, we're tracking 5 to 7 years after we launch a market. Operator: Your next question comes from the line of Vikash Harlalka with New Street Research. Vikash Harlalka: I just have a couple of questions. Why did you feel the need to offer a 5-year price guarantee plans? Was it because competition was going in that direction? And then how does that impact ARPU growth? And I'll ask my second after you answer this one. Edward McKay: Yes. So it was in response to competition. One of our large cable competitors launched a 5-year price guarantee. We did initially see some impact on gross adds when they launched it, didn't see any impact on churn. But once we launched our own 5-year price guarantee, that impact on gross adds, we felt was mitigated. And as I mentioned on the -- in my script, we do expect short-term impact on ARPU as this 5-year price guarantees roll through about 1% over the next few quarters, but we expect it to stabilize after that in our Glo Fiber markets. Vikash Harlalka: Got it. And then I have one strategic question. We recently met with many small private fiber operators. There seems to be a lot of appetite for M&A. Could you just remind us how you're thinking about M&A? And if you're looking to buy fiber assets out there, what characteristics are you looking for in any potential targets? Edward McKay: Well, I'd say we've certainly seen consolidation start. We believe consolidation will continue. At this point in time, we're focused on successfully completing our build plan, accelerating customer growth and then reaching that positive free cash flow inflection point in 2027. So that's really our main focus right now. As we look ahead further into the future, from an M&A standpoint, we'd be most interested in a pure-play fiber provider, less interested in a cable provider and not interested at all in a copper provider. Operator: We have no further questions at this time. I will now turn the call back over to Jim Volk for closing remarks. James Volk: Well, thanks, everyone, for joining our call this morning. As I mentioned earlier, this is a very exciting time for Shentel, and we look forward to updating you on our progress in future quarters. Thank you. Have a good day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Nautilus Biotechnology Q4 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ji-Yon Yi, Investor Relations. Please go ahead. Ji-Yon Yi: Thank you. Earlier today, Nautilus released financial results for the quarter ended December 31, 2025. If you haven't received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to investorrelations@nautilus.bio. Joining me today from Nautilus are Sujal Patel, Co-Founder and CEO; Parag Mallick, Co-Founder and Chief Scientist; and Anna Mowry, Chief Financial Officer. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release Nautilus issued today. Except as required by law, Nautilus disclaims any intention or obligation to update or revise any financial or product pipeline projections or other forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast on February 26, 2026. With that, I'll turn the call over to Sujal. Sujal Patel: Thanks, Ji-Yon, and thank you all for joining us today. Before turning to the quarter, I want to briefly remind everyone of what we're building and why we believe it matters. Nautilus was founded to address a long-standing challenge in life sciences, the lack of technologies capable of comprehensively measuring the proteome with the sensitivity, scale and reproducibility needed to fully understand biology and disease. Our proprietary Iterative Mapping methodology is designed to analyze single intact protein molecules at scale and generate highly reproducible digital protein counts. This methodology is delivered through the Nautilus platform, an integrated system of instrumentation, consumables and software, which can support both broad-scale proteome analysis and targeted proteoform characterization on a single platform. Over time, we believe this data foundation will unlock new biological insight, integrate more effectively with other omics modalities, support next-generation AI-driven discovery in human health and medicine and ultimately help accelerate the development of new therapeutics and diagnostics. With that context, Q4 marked a strong close to 2025 as we continue to make tangible progress towards commercialization, deepen external validation and build momentum with leading research institutions. A key highlight of that progress was our presence at the US Human Proteome Organization Conference, or US HUPO in St. Louis, Missouri this week, where we publicly unveiled the Nautilus Voyager instrument in dramatic fashion to a large audience of influential researchers and prospective future customers, providing the proteomics community with its first tangible view of the instrument we've been building. The response was highly positive and reinforced the strong interest we're seeing from researchers seeking a new class of protein measurement technology. Importantly, when designing Voyager, we were intentional about creating an instrument that looked and felt different, one that conveyed sophistication and innovation while still being approachable and easy to use. We wanted an instrument that reflected the ambition of what we're building while also fitting naturally into modern research environments. And the feedback we received confirmed that this balance resonated strongly with the community. Building on the capabilities of the Voyager instrument and supported by the encouraging tau data we've seen emerging from our early collaborators, we elected to launch our Early Access Program for Iterative Mapping in January earlier than previously communicated. This milestone represents a meaningful step in Nautilus' transition from development to active customer engagement, enabling partners to submit samples, receive data and provide feedback in a streamlined manner. Initial customer response has been encouraging. And while these early engagements are not intended to drive near-term revenue, they are designed to enable real biological discovery, support publications and grant applications and ensure our workflows and data outputs align closely with customers' needs, an approach consistent with how many transformative life sciences platforms has successfully entered the market. The Early Access Program will begin with our Tau proteoform assay and establish a foundation for future assay expansion covering additional proteoform targets and broad-scale applications. Importantly, we believe this early access launch also reflects a forthcoming diversity of assays for our platform beyond tau. For example, in late January, we announced a collaboration with Weill Cornell Medicine-Qatar and The Michael J. Fox Foundation focused on alpha-synuclein proteoforms in Parkinson's disease. This MJFF-funded project, $1.6 million in total with $1.2 million coming to Nautilus, combines Professor Hilal Lashuel's deep expertise in neurodegeneration with Nautilus' ability to measure proteins and their functional variants at the single molecule resolution. Understanding alpha-synuclein proteoforms is a priority for MJFF, and we believe this collaboration is a strong example of how Iterative Mapping can be extended to additional high-value proteoform targets and disease areas over time. On the technology front, we continue to make strong progress as we moved into the later stages of our broad-scale assay configuration change. This work is designed to better align with our expanding probe library and improve overall platform performance. We're now seeing the first data from the updated assay on new chips and early readouts are encouraging. Parag will walk through these technical details in more depth, and I'll return later to discuss how this progress informs our expectations for 2026. Taken together, these developments reflect steady progress towards commercialization grounded in real samples, real data, real customer engagement and increasing external validation. Throughout 2025, we remain disciplined in how we invested our resources, meaningfully reducing expenses while continuing to advance our most important technical and strategic priorities. I want to recognize our scientific and engineering teams for their continued focus and execution. With that, I'll turn the call over to Parag. Parag Mallick: Thanks, Sujal. I'll now provide an update on our technology and product progress, including what we're learning from our development work and the external validation we're seeing through collaborations. Overall, Q4 was a strong quarter of execution for our product and scientific teams. We continue to see growing validation of the Nautilus platform through both internal development and external partnerships. Importantly, we are increasingly moving beyond demonstrating that the technology works and towards applying it to obtain remarkable biological insights, not possible with existing proteomics approaches. This shift from capability to meaningful application is an important marker of platform maturity and a central focus for the team. Collaborations continue to play a critical role in validating the platform and demonstrating real-world relevance. During the quarter, we completed work with the Buck Institute for Research on Aging, culminating in the presentation of novel tau biology at World HUPO and most recently at US HUPO, and we are now supporting our partners as they prepare their findings for publication. In parallel, through our collaboration with the Allen Institute for Brain Science, we analyzed human brain samples spanning multiple brain regions, genetic backgrounds and disease severities. We believe this work represents the most comprehensive and quantitative Tau proteoforms landscape study to date. Notably, we are observing clear differences in Tau proteoforms patterns across disease severity and brain regions, signals that are not detectable using conventional proteomics approaches and that may help explain variability in disease progression and clinical outcomes. We also anticipate that such insights may be essential for developing the next generation of therapies for neurodegenerative diseases. Stepping back, what stands out is that the data emerging from these collaborations is not only technically robust, but biologically compelling. With each additional study, we gained confidence that Iterative Mapping is enabling access to important biology that has remained out of reach for existing technologies. We believe this new class of proteoform level data has the potential to drive real-world impact by deepening our understanding of disease mechanisms, revealing new therapeutic targets and enabling the development of more precise biomarkers for diagnosis, patient stratification and treatment monitoring. Ultimately, our goal is to demonstrate to the broader scientific community that this represents a transformative foundation of information, one that can help accelerate drug discovery workflows and improve the probability of success in developing new therapeutics. From a platform development perspective, we made meaningful progress across both our broadscale assay and our proteoform assay portfolio, while also gaining greater clarity on the remaining work required to reach our next milestones. Starting with the broadscale assay, we continued advancing our assay, including advancing the assay configuration change we have discussed previously and are now routinely employing our new configuration. During the quarter, we achieved several encouraging milestones, including performing our largest scale experiments to date, which demonstrated Iterative Mapping-based decoding of proteins from increasingly complex mixtures, including cell lysates. In addition, we made good progress on hardening the fabrication process for our new flow cell configuration, and showing assay performance characteristics such as increased on-target binding that give us indications our new assay configuration will enable an expanded affinity reagent library. The work completed in Q4 helped validate key elements of the new configuration and clarify the primary levers needed to drive further performance improvements as we scale towards complex biological samples. Progress on Proteoform assays remains strong. The Tau Proteoform assay continues to track as our first early access offering, and we remain on schedule to begin processing samples through the Early Access Program by the end of Q1. Verification and validation activities are largely complete, and the assay is meeting our requirements for accuracy, dynamic range, reproducibility and stability, marking an important step as we transition tau from development into a high-quality commercial-ready product. In parallel, we formally initiated our proteoform expansion pipeline. As Sujal mentioned, we launched an 18-month collaboration funded by The Michael J. Fox Foundation to develop an alpha-synuclein proteoform quantification assay, extending the platform into Parkinson's disease. This program includes development of a pilot assay focused on key post-translational modifications, optimization of enrichment and sample preparation workflows and application of the technology to human brain and biofluid samples. We view this collaboration as an important opportunity to further demonstrate the breadth of Iterative Mapping beyond tau and to expand our proteoform capabilities into additional high-value disease targets. While much of our current momentum is in neurodegeneration, it's important to emphasize that Iterative Mapping is not limited to neuroscience. We see meaningful long-term potential across oncology, immunology, cardiology and beyond. We are currently evaluating multiple oncology-focused candidate proteins with the goal of having an oncology-focused proteoform assay enter early access in the second half of 2026. We believe oncology represents a compelling next market opportunity, providing access to a broader customer base while also aligning well with the capabilities of our platform to deliver proteoform level resolution and highly reproducible measurement in complex biological systems. Overall, Q4 represented a strong quarter of technical execution as we continued advancing our Voyager instrument and end-to-end platform. We made meaningful progress on the broadscale assay configuration change and began generating initial data from the new approach while also advancing our proteoform portfolio with tau on track for early access sample processing by the end of this quarter. At the same time, the growing body of externally generated data from collaborators like the Buck Institute and the Allen Institute continues to validate both the robustness of our measurements and the unique biological insight enabled by Iterative Mapping. Taken together, these developments reflect continued platform maturation and reinforce our confidence in the technical foundation required to scale our assays, broaden our target portfolio and support future commercial deployment. With that, I'll turn the call over to Anna to review our financials. Anna Mowry: Thanks, Parag. Turning to our financial results. We continue to demonstrate strong operating discipline in Q4 and throughout 2025. Total operating expenses were $15.4 million for the fourth quarter of 2025, a decrease of 23% from the prior year period and $66.8 million for the fiscal year 2025, a decrease of 18% year-over-year. Research and development expenses were $41.1 million for fiscal year 2025 compared to $50.5 million in fiscal year 2024, representing a decrease of $9.4 million or 19%. This decrease was driven primarily by a $4.5 million reduction in laboratory supplies and equipment expenses, reflecting operating efficiencies, lower development-related costs and continued cost optimization efforts. We also saw a $2.4 million decrease in salaries and related benefits, driven by savings from the reduction in force implemented in the first quarter of 2025, along with a $1.9 million decrease in stock-based compensation expense. General and administrative expenses were $25.7 million for fiscal year 2025 compared to $31.0 million in fiscal year 2024, a decrease of $5.3 million or 17%. This decrease was primarily due to a $3.9 million reduction in stock-based compensation expense, along with a $1.3 million decrease in professional services, largely attributable to lower legal and consulting costs. We ended the quarter with $156.1 million in cash, cash equivalents and investments. Cash burn in 2025 was $50.2 million, down from $57.8 million in 2024, reflecting the benefit of lower headcount and development expenses. Looking ahead, we expect total operating expenses for the full year 2026 to increase as we continue investing in platform development, support the expansion of our Early Access Program and advance commercial readiness activities. We currently anticipate total operating expense growth of approximately 15% to 20% in 2026, and we expect full year 2026 cash burn to be in the range of $65 million to $70 million. Based on these assumptions, we continue to believe our financial plan supports a cash runway that extends through 2027. Following the launch of our Early Access Program in January, our initial customer engagements are primarily with academic key opinion leaders seeking early access to the tau offering to support exploratory research and grant applications. While we expect modest services revenue later in 2026, we anticipate the primary revenue ramp will begin in 2027 once we start shipping instruments. As a reminder, instrument placements drive our recurring consumables business and together, they create a scalable top line. We believe the instrument and consumables ramp will accelerate meaningfully once both our proteoform and broadscale capabilities are generally available, enabling customers to deploy the full power of the platform and driving broader commercial adoption. As Sujal noted earlier, we also announced grant funding from The Michael J. Fox Foundation to support development of an alpha-synuclein proteoform assay. Under this agreement, we expect to receive approximately $1.2 million with development and sample analysis work occurring over approximately 18 months across 2026 and 2027. Revenue will be recognized as the underlying work progresses. Back to you, Sujal. Sujal Patel: Thanks, Anna. As we wrap up, 2025 was a year of meaningful progress for Nautilus as we continued advancing the platform and began transitioning toward external engagement. That momentum carried into early 2026 with the launch of our Iterative Mapping Early Access Program and was further highlighted this week by the debut of the Voyager instrument at US HUPO, where we introduced the system directly to the proteomics community. Together, these milestones represent important steps in putting the platform into the hands of researchers. Looking ahead, we expect 2026 to be a pivotal execution year. We plan to begin progressing early access customers into tau services projects, expand early access to include a second proteoform assay focused on an oncology target and introduce broadscale capabilities into early access later in the year. In parallel, we expect to place Voyager instruments externally through beta deployments as an important validation step ahead of commercialization. We expect to initiate our commercial launch in late 2026 by opening the Voyager platform for preorders with instrument installations at customer sites beginning in early '27. At launch, we expect general availability to include the Voyager instrument, our Tau proteoform assay and a second proteoform assay. We anticipate general availability of our broadscale capabilities in the first half of '27 as we continue expanding our platform's assay portfolio. We're encouraged by the momentum we continue to see from collaborators and partners applying Nautilus' Iterative Mapping technology to complex disease-relevant biology, and by the steady progress we've made across our assay development and operational priorities. Together, these efforts position us to begin translating years of investment in what we believe will be meaningful scientific and ultimately commercial impact. I'm proud of the work that our team has accomplished and grateful to our collaborators for their partnership and trust. With a strong foundation in place and a clear path forward, we remain focused on disciplined execution as we advance the platform towards broader deployment. Thank you for joining us today. With that, we'll be happy to take your questions. Operator? Operator: [Operator Instructions] Our first question comes from Subbu Nambi from Guggenheim. Subhalaxmi Nambi: There was a lot of focus on the technical milestones you achieved in Q4 that provide you with the foundation for further technical improvements. Building off of that, I have a couple of questions. What comes next? By that, I mean, what are the next milestones and what metrics materially get better building off of the technical milestones you achieved in Q4? And second, have you shared these milestones with any of the key customers, especially those focused on tau? And if so, have these new developments catalyzed the path to placements? Parag Mallick: Thanks, Subbu. I'll take that one. I think there are a couple of key sets of technical milestones, and I'll try and describe each of them. One of the really key technical milestones was the completion of the final studies of the Tau proteoform assay to make sure that it was ready and an incredibly performing assay for our Early Access Program. That data has been shared back with early customers. They're excited about the quality of the assay and really thrilled that we're -- at the data that we're able to produce. The second set of progress were on instrument readiness. And as we mentioned, coming out of our evaluation instrument at the Buck, the data we learned from that. And internally, that was really what positioned us for the announcement of the reveal of the instrument at the US HUPO conference earlier this week, and tremendous excitement about folks really being able to get their hands on the instrument and see it was great. I think the other aspect that we've been discussing in terms of moving forward are the expansion of the proteoform platform to additional targets. We mentioned alpha-synuclein and an oncology-focused target. And I think the people are -- remain very excited about proteoforms across domains. And so seeing progress towards other proteoforms validating that the platform is not just a neuro platform, but is a platform that can apply across different domains is something that we've heard a lot of positive excitement about. And then on the broadscale side, as we mentioned, the expansion of both the scale of assays that we're performing as well as the further progress on the configuration change. I think all of those things are really key contributors. As we look forward, what we're looking at are levers like increase -- further increasing on-target binding, minimizing off-target binding. We continue to progress working on assay stability of the new configuration chips that are stable over hundreds of cycles. All of these are challenges that require optimization, not innovation. Operator: [Operator Instructions] our next question comes from Dan Brennan from TD Cowen. Kyle Boucher: This is Kyle on for Dan. So starting with this year, I know you said no material contribution from early access in terms of revenue and a modest contribution later this year from service and reiterated the commercial launch for later this year. But do you anticipate any revenue at all from a commercial launch later this year? I think the Street was modeling a few million dollars in revenue all the way out in the fourth quarter. And then maybe building off of that, have you discussed anything new around pricing for the Voyager instrument? Anna Mowry: Kyle, I can definitely give you a little bit more color there. As you reiterated, we don't see our early access engagements as a major driver of revenue that although we do expect some modest services revenue later in the year, our revenue for 2026 will really come from two sources. First, I'm anticipating a portion of The Michael J. Fox grant funding to be recognized as revenue in 2026 with the remainder flowing into 2027. While the work that we do for that grant may vary depending on the quarter, I think it's reasonable to expect some revenue coming in from that. On top of that, with a handful of early access customers converting to revenue within the year. I'm looking at a target of closer to, say, $0.5 million for 2026. The revenue ramp tied to instruments is really coming in 2027. On the pricing front, we don't have anything in addition to any changes from what we've talked about previously. Kyle Boucher: Got it. And then maybe can you just give a little bit more color on how the Early Access Program is going, maybe some of the feedback you've received from these early customers? And then I guess building on that, can you speak to how your sales funnel is building ahead of the commercial launch later this year? Sujal Patel: Yes. Let me tackle -- Kyle, let me tackle, this is Sujal. I'll tackle the commercial pieces of that, and Parag can give you some of the early feedback because really the early feedback is just from the Buck Institute and the Allen Institute who've been working with us in the very early stages of the early access or the late stages of their collaborations. In terms of funnel, when we launched that Early Access Program, one of the things that we said in our prepared remarks was that we elected to launch it earlier than previously communicated. And that is because the data quality and the excitement that we are seeing from customers based on the early data from the Buck and from the Allen Institute, and our own internal data as well as through our partners who were -- who worked with us on the preprint that is out now, which is MSCI and Mount Sinai. All of that data was really exciting. We elected to get out to launch. Now it's a little bit earlier than we were thinking. It's important to point out, we have absolutely 0 sales capacity in the company right now. There's not a single salesperson in the company. And so the funnel build is something in earnest that we really just began. And so HUPO was a great opportunity to get in front of a lot of potential customers. And in earnest, we will begin the sales capacity build this quarter and then continuing through the year with just a few targeted headcount. And so it's a pretty much a surgical strike sort of approach, right? It's not going to be a lot of commercial build, but we'll start to see that funnel build. Parag, do you want to talk about the feedback that we've received? Parag Mallick: Yes, absolutely. I think a highlight of the US HUPO meeting was very much Birgit Schilling's presentation of her latest data, looking at both different brain regions of -- that complemented across these 3-xTg mice models. And then a study where she was looking at genetic alterations that predispose people -- well, either predispose people to Alzheimer's disease or are protective. And that has been a really big open question in the field about why there was this link between this gene called ApoE and Alzheimer's disease, what actually occurred, how was this linked to tau. And her data this proteoform level detail really highlighted that those genotypes potentially led to changes in tau phosphorylation and that was a critical predisposing factor. Now it's very early data, but it is exciting to have a tool that can allow us to finally see what the downstream consequences of this either protective or extremely deleterious mutation might be. And so I think we've heard from other folks at the conference, both how excited they were to see the data, how much they appreciated the quality of the data that the story itself and the multiomic link was extremely exciting to them and something that they want the ability to be able to forge those connections and see things they haven't been able to see before. So it was really exciting to get that feedback from the community. Operator: I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Veolia Annual Results 2025 Conference Call with Estelle Brachlianoff, CEO; and Emmanuelle Menning, CFO; and also Daniel Tugues, Country Director of Spain. [Operator Instructions] This call is being recorded today, Thursday, February 26, 2026. I would now like to turn the conference over to Ms. Estelle Brachlianoff. Please go ahead. Estelle Brachlianoff: Thank you, and good morning, everyone. Thank you for joining this conference call to present Veolia's 2025 results. I'm accompanied by Emmanuelle Menning, our CFO; and by Daniel Tugues, Head of Spain. I'm on Slide 4. 2025 was the second year of our 4-year GreenUp plan, and I consider it as a truly pivotal year in our trajectory, and I will tell you how. 2025 was another year of outperformance and historical high. We exceeded our guidance with an organic EBITDA growth of plus 6.3%, above the target range of 5% to 6% despite a complex environment and with a particularly robust fourth quarter. In the 2 years since the start of GreenUp, we have significantly improved our profitability with an increase of 150 bp in our EBITDA margin and plus 11.8% average annual growth of current net income. The first half of GreenUp is a real success, and we are fully in line with our trajectory, even ahead when it comes to our ROCE at 9.4% after tax at the end of 2025. This is 2 years in advance of our targets. But in 2025, above all, we resolutely resumed external growth with 2 major multibillion dollars acquisitions in Water Technologies and U.S. Hazardous Waste, two of our growth boosters accelerating, therefore, the group's transformation towards more international and technology-driven businesses and enhancing the group's growth profile for the years to come. We have also enhanced our shareholder return in 2025 as we complemented our dividend policy with a multiyear share buyback program related to our employee shareholder plan. The excellent 2025 result as well as our strong fundamentals allow us to be very confident for '26 with an ambitious guidance and full confirmation of our GreenUp trajectory building a stronger group going forward. I'm now on Page 4 -- 5, sorry, where you see that 2025 results are at a historic high and largely exceed our initial objectives. Revenue reached EUR 44.4 billion, up 2.8%, excluding energy price, which are essentially pass-through for us, as you know. EBITDA increased by a substantial 6.3% on a like-for-like basis, above our 5% to 6% guidance range and shows a margin improvement of 70 basis points, above plus 80 basis points in '24. We are now at the historical high of 15.9% margin rate -- EBITDA margin rate in Veolia. This is thanks to our continued performance improvement and recurring efficiency gains with an enhanced performance outside Europe, where EBITDA jumped by plus 9.3%, complemented by the last synergies coming from the Suez acquisition 4 years ago. Current net income was up plus 9.1%, in line with our guidance and demonstrating our strong operating leverage. Net financial debt remains well under control at EUR 19.7 billion, even after EUR 2.3 billion of net financial acquisition, closed in '25. Our leverage ratio is at 2.79x at the end of '25, well below 3x, testimony to our strong financial discipline and our capacity to have room for maneuver in the future. Finally, we reach our ROCE targets 2 years in advance and achieved a remarkable 9.4% after-tax ROCE in 2025. Page 6 illustrates our enhanced growth in international markets, notably outside Europe, where our businesses are not only faster growing, but also more profitable with an EBITDA margin already at 17.8%, which is better than the 15.9%, nevertheless, a historical high for the group as a whole. Our revenue grew by 4.1% organically outside Europe with an excellent performances in Latin America, Africa and the Middle East, notably. Emmanuelle will detail each zone performance in a minute, but I would like here to highlight a few key commercial successes. In the Middle East, after years in the making and technical design, we were awarded, and we've just signed a few days ago, a $500 million project in Saudi Arabia for the Saudi Aramco TotalEnergies Consortium, SATORP. We will design, build and operate a massive new plant to treat the super complex effluent of this petrochemical site. In the U.S., in addition to the strategic execution of Clean Earth, which we expect to close mid-'26, our biggest and most transformative acquisitions since the merger with Suez. As you know, we've complemented the strong organic growth with 3 tuck-in and hazardous waste, which are high value creative. In Chile, we signed the first hybrid municipal industrial desalination plant in Valpara so. In India, we secured 2 strategic contracts for 2 of Mumbai's larger water treatment plants. Both facilities will use Veolia cutting-edge technologies. Finally, in Europe, we also enjoyed a very encouraging commercial momentum. Page 7 shows our performance split by activities. On the one hand, our booster activities, which is Water Technologies, Hazardous Waste and Bioenergies have continued to grow at a steady pace in '25, plus 4.3% organic and plus 8% including tuck-ins, almost 2x faster than Strongholds. Strongholds on the other hand, confirmed their resilience and infrastructure life profile with a 2.2% growth. As you know, Strongholds and Boosters go hand in hand with 30% of our revenue coming from a combination of activities. Those numbers are a confirmation of the sustained demand for our proprietary solutions to tackle critical needs from securing water supply to treating pollutant and protecting health. This top line performance translates well into value creation with EBITDA up 4.8% for Stronghold and jumping by 12.1% for Boosters. Emmanuelle will give you all the details in a few moments. 2025 was also the year of the successful launch of new technology and offers. I would like to give you two examples on Slide 8. First, in PFAS treatment, which, as you know, is a fast-growing and very promising business unit opportunity for Veolia. We achieved EUR 259 million of revenue in PFAS in '25, which is up 25% versus 0 in 2022. And as you know, we aim to reach EUR 1 billion by 2030. In 2025, we developed BeyondPFAS, our end-to-end management solution from detection to disposal, combining Water Technologies and Hazardous Waste and including our DropFast proprietary technology to optimize HTI disposal. We already provide PFAS treatment in the U.S., in France and in Australia, and we've already deployed 30 PFAS removal units in our U.S. water operations and plan an extra 15. In the area of new urban energy, we presented our new Ecothermal Grid offer in Poznan last November. It's a truly green heating and cooling solutions for existing and greenfield networks, using untapped local sources of energy, which is really unique at Veolia. We target EUR 350 million extra revenue in 2030. We actually already have a pipeline of GBP 1 billion of projects in the U.K. as part of the deployment of our new Ecothermal Grid offering, and I'm very pleased we were recently awarded a first in this U.K. pipeline with flagship scientific Wellcome Genome Campus in Cambridge. I'm now on Slide 9. In 2 years, the delivery of the GreenUp plan, combining resilience and growth was above our own expectation, both in terms of growth performance and strategic transformation. And this in spite of a complex economic and political context, which impacted foreign exchange rates, fiscal stability and production costs, notably energy costs. These first 2 years were indeed marked by a strong improvement in our profitability and value creation with an average annual 11.8% growth in current net income group share between '23 and '25, combined with a spectacular improvement of ROCE post tax to a record high 9.4% in '25. Our performance during these first 2 years was also augmented by the completion of Suez Energy Plan, which evidenced our capacity to boost the performance of the business we integrate. On Slide 10, given our very strong '25 results, the Board proposed to the AGM a dividend of EUR 1.5 per share, up 7% versus '24 and 20% since '23 and in line with our EPS growth. Since the start of GreenUp, I really -- as I mentioned in the beginning, we have also enhanced our shareholder return as we complemented our dividend policy with a multiyear share buyback program in order to offset the impact of our employee shareholding program. And this represented EUR 402 million in 2025. 2025 was a pivotal year in many ways. I'm on Slide 11. First, 2025 was the last year of Suez integration. We successfully completed our integration plan with EUR 534 million of synergies delivered in full year, above our initial target of EUR 500 million. This clearly demonstrates our track record in securing delivery of value creation when it comes to external growth, and we will, of course, apply those skills to the Clean Earth's acquisition. Moreover, 2025 has also been the year where we've crystallized strategic move consistent with our GreenUp strategy, investing in priority in highly innovative and technology-driven activities, our Boosters and outside Europe. Two major acquisitions were signed or closed in '25, creating value and enhancing the group's growth profile going forward. This began in the spring with EUR 1.5 billion invested in Water Technologies to buy out the minority interest and to fully merge our entities, and be in a position to extract EUR 90 million of additional synergies and enhance our growth capabilities on a worldwide dynamic market. We then accelerated external growth in Hazardous Waste. First, with several tuck-ins for a total amount of almost EUR 370 million in the U.S., in Japan and in Brazil. And finally, with the strategic acquisition of Clean Earth in the U.S. This $3 billion acquisition, the largest in Suez will allow us to double our size in Hazardous Waste in the U.S., positioning us as #2. Veolia will strengthen its presence in the U.S. altogether with more than $6 billion turnover and a very strong position to deliver unique solutions and technologies to remove pollutants, to secure water supply and support reshoring of strategic industries. The complementary of Clean Earth and Veolia's assets in the U.S. will enable us to extract significant synergies of $120 million and will be accretive from 2027, excluding PPA, assuming a closing midyear '26. On Slide 12, we've illustrated the accelerated portfolio transformation underway with EUR 8 billion of asset rotation in 4 years towards a group that is stronger, more international and more technology-rich. This transformation enhances our sustained growth profile and will create additional value for many years to come. We started GreenUp with a divestment program of around EUR 1 billion, including the disposal of our SADE French construction activity and the non-duplicable sulfuric acid generation activity region. In '25, we will have crystallized major acquisition in our boosters, specifically in Water Tech and with Clean Earth to close in '26. We will divest an additional EUR 2 billion in the 2 years post closing of Clean Earth. The typical candidates for disposal are assets that are mature or nonstrategic or undercritical in size. I would like to highlight the fact that these divestitures are not all financing purposes as well finance Clean Earth on our balance sheet and recover 3x leverage as soon as '27, but rather in order to keep flexibility for investment in faster-growing activities or geographies. Acquisitions, net of disposal represent a cumulative net financial investment of EUR 2.5 billion compared to the EUR 2.2 billion initially envisaged for GreenUp. Before we move to our guidance for '26, I would like on Slide 13 to emphasize the group's sustainable growth engine, which explains how we could be confident about our future performance. The demand for our services has never been stronger. And it is here to stay whilst crisis multiple because the proprietary solutions Veolia provides are answers to critical needs for industries and cities alike. Indeed, our customers, businesses and committees are facing growing challenges in terms of water scarcity, water quality, pollution control, supply chain interruption and a growing determination to achieve strategic independence and accelerate industrial reshoring. In short, for cities to deliver essential services for industries to produce, for economies to grow, one thing is nonnegotiable. This is environmental security, securing water, securing energy, securing supply chains, protecting health. We secure water supply to cities by leveraging our unique patent of technologies, our efficient network distribution using AI, by resuming wastewater and running energy-efficient desalination plants. We secure supply chain for industries by mining waste or waste heat to secure local sources of energy or critical minerals, thus avoiding dependents on long-distance imports. We protect health with Hazardous Waste management and depollution, ensuring that drinking water is at the highest standard and securing the license to operate for strategic industries such as MicroE or pharma. Whatever the turbulence in the world, Veolia's mission and unique offer is, therefore, to keep vital resources available, reliable and affordable to enhance strategic autonomy and to take advantage of sustained demand for our services and technology. On Slide 14, I would like now to share how Veolia is uniquely positioned to benefit from this sustained demand as we've built a unique powerhouse for environmental security. Our worldwide leadership and presence in 44 countries always in the top 3, gives us size to innovate and develop unique technologies through our 14 R&D centers. As you may remember, we hold more than 4,400 patents in water treatment, for instance. Our proprietary solutions are then locally delivered, and tailor-made to fit each community or industrial complex specific needs. We are really multi-local in our delivery, which explains why we are not affected by tariffs and why ForEx does not impact our margin rate and central government are not central to us. In addition, our customer base is really varied. 50% from municipalities or public authorities, 50% from private customers and wide ranging from retail and hospitals to microelectronics, pharma or oil and gas. This variety is combined with the long duration of our contracts, 11 years on average. The high Net Promoter Score, which ensures a renewal rate of over 90% and with no one single contract representing more than a small percentage of the group revenue. This offers massive resilience in our performance. Finally, we provide a unique combination of waste water and energy solutions. That's our edge. It's already delivering 1/3 of the group's revenue from these combinations. Veolia has really transformed into a unique global powerhouse for environmental security, organized to grow and innovate whilst ensuring resilience and long-term performance in an uncertain world. This sustained demand and unique positioning gives me high confidence for the years to come as the group has never been stronger. I'm on Slide 15. The GreenUp trajectory is fully confirmed. I would like to highlight why our organic EBITDA and net result growth are sustainable for the years to come because they are fueled by top line growth, supported by sustained demand for critical services, boosted performance in certain activity, notably Hazardous Waste and Water Technologies, superior and continued effort on efficiency and cost control, as well as an ability to react quickly and strongly when needed with specific action plan, as we will see in a minute with Spain and a good track record in successful integrating companies when we complement organic with external growth. For 2026, we have very ambitious targets on an organic basis, which will be complemented by the Clean Earth acquisition when we close the deal. On a stand-alone basis, we expect a continued solid organic revenue growth, excluding energy price, an organic EBITDA growth of 5% to 6%, and I would like to highlight this is without Suez synergies since they are now behind us, a current net income growth of at least plus 8% at constant ForEx. The dividend will continue to grow in line with current EPS and our leverage ratio will be below or equal 3x before Clean Earth. And after Clean Earth, equal or slightly above 3x. As you know, we would consolidate Clean Earth for only part of the year, and we'll be back to 3x or below 3x in 2027. As you know, we have to go through various regulatory approvals before we close the Clean Earth acquisition, which we said will be accretive from year 2 and current EPS. Assuming the closing happens mid-'26, which is the best assumption we can do now, this would mean synergies will start in '27, and the transaction will be accretive to current net income from 2027 before PPA. The $2 billion -- sorry, EUR 2 billion disposal program should be delivered in the 2 years post-closing of Clean Earth acquisition. Before Emmanuelle details our '25 results, I will hand over to Daniel Tugues, Head of Spain. He will give you some color about how we can drive performance improvement and sustain margin increase as well as top line growth in what is a historical activity and typical stronghold for us, thanks to our agility. Daniel, floor is yours. Daniel Tugues: Thank you, Estelle, and good morning, everyone. I'm Daniel Tugues, Country Head for Spain. I'm very happy to be here today to present Veolia's 2025 results and illustrate our GreenUp execution with a focus on our activities in Spain over the past 2 years. Estelle just mentioned, Veolia is unique because we are an environmental security powerhouse. and this is highly relevant in Spain, where climate change and the scarcity of resources, notably water are central to our citizens' concerns. Indeed, 70% of Spanish people believe that they are vulnerable to the effects of climate change, which are already happening in Spain. Citizens still vulnerable, and I'm afraid they are right. 75% of our land is threatened by desertification. We just went through the worst drought on record, which ended last spring, and it is going to get worse with 20% less precipitation expected by 2050. As it is recognized, these impacts could prove far more costly than the capital expenditure required for adaptation. This is precisely what Veolia is doing in Spain, driving ecological transformation by providing efficient water networks and reuse solutions, by securing supply chains for industries, providing them with local energy and by protecting health with waste management and depollution. Given this geography, it is no accident that we developed innovative solutions early on, such as wastewater reuse, which already accounts for 15% of our water supply and growing and other nonconventional resources such as desalination. To illustrate the point, during the past drought, the water coming out of the tap in Barcelona was sourced 1/3 from traditional sources, rivers and wells, 1/3 from desalination and 1/3 from water reuse. We have shared this experience with our Veolia colleagues. First, with our French colleagues across the building and also with our American teams who are very much looking forward to deploying those solutions in their countries. Veolia is strongly positioned to tackle Spain's critical needs. Spain is the fourth largest country of operations for Veolia, with EUR 2.8 billion in revenues or EUR 3 billion if we include the activities of our specialized business units for Water Technologies and Hazardous Waste. Our presence has grown significantly since 2022 with the integration of Suez and notably Aguas de Barcelona. The defining feature of our presence in Spain is our strong local footprint, deeply embedded across territories and communities. Starting with water, which represents 70% of our revenue. In a nutshell, Veolia is the #1 water provider in the country, locally anchored and positioned across the complete water cycle management from production and distribution of drinking water to the collection and treatment of wastewater. We run long-term concessions such as Aguas de Barcelona, Aguas de Murcia, Aguas de Alicante and many others, and we are also active in water technologies and operate several industrial wastewater treatment plants and desalination facilities. such as those in Tenerife and Almer a. In energy, Veolia is the #1 in building energy services and also leader in energy efficiency. Examples include EcoEnergies, the Barcelona District Heating and Cooling network using residual energies and energy efficiency projects for sites like Hospital Reina Sofia in Cordoba and maybe other similar sites around the country. In waste, we provide circular economy solutions for municipalities and industrial clients, notably in plastic recycling, waste-to-energy and hazardous waste, the latter including a high-temperature incinerator near Tarragona. Our strategy going forward is not only to continue developing those businesses and enhance profitability but also to constantly innovate at EUR 1 billion, especially given the strong demand for treating new pollutants for more simpler solutions and for new sources of local energy from waste or wastewater. On a personal level, having spent many years focused on water, I can say that the One Veolia project is like a tremendous opportunity to me. As for the whole of Veolia, 2025 has been a pivotal year for Spain, and I would like to show you how we have been able to recover while improving our profitability over the past 2 years since the launch of GreenUp. Given the underwhelming performance we faced in 2022 and '23, notably in water concessions, we decided to launch a specific action plan in 2023 called Hunter associated with specific objectives and incentives for managers, not only at the national level but also at the regional one. And I must say that Hunter benefited a lot by leveraging Veolia's performance culture and tools in our Spanish operations, including internal benchmarking on operational costs and KPIs as well as a proven methodology. To boost the top line, we launched a tariff campaign to catch up with cost in water concessions with a tailor-made approach for each of our more than 1,000 contracts. In parallel, we deployed a commercial excellence program to enhance our offers, and we also complemented our organic growth with 13 tuck-ins, mainly in energy efficiency, which were highly value accretive as they are actually plug and play. Over 2 years, this represented EUR 87 million in enterprise value, bought at an average multiple of 7.4x EBITDA. In terms of operational performance, we largely improved our efficiency, not least with AI. For instance, we put in place an AI customer service tool across Spain, that currently deals with more than 1,000 daily transactions, improving availability of our customer service, omnichannel 24/7 no waiting, while at the same time, saving nearly EUR 1 million. Those efficiency measures were complemented by the synergies delivered from the Suez integration. All in all, Spain delivered EUR 109 million in efficiencies plus synergies from 2023 to '25. All that resulted in a very significant improvement of our growth and performance. In 2 years, revenue has grown by 12% and EBITDA by no less than 40%. We are very proud of these results as we are even ahead of our plan to hence Spain's performance. But this is not the end of the journey, as I am focused on continuing to deliver sustainable and profitable growth for Veolia. Demand for all our services in the country is strong, and the power of One Veolia offers many possibilities for combining our diverse expertise to secure essential services. Thank you for your attention, and I will now hand over to Emmanuelle. Emmanuelle Menning: Thank you, Estelle. Thank you, Daniel, and good morning, everyone. Veolia 2025 results are very strong, perfectly aligned with our GreenUp trajectory and above our initial guidance and that on many grounds. For growth, we continue to deliver solid growth, thanks to strong underlying business trends and fueled by boosters, which progressed by 4.3% and even 8% if we consider tuck-ins. Second, performance in the first 2 years of GreenUp, we considerably improved our profitability driven by strong intrinsic growth and synergies, leading in 2025 to an EBITDA organic growth of 6.3% and to a very strong improvement of 70 bp of our EBITDA margin in 16%, which reflects the success of our strategic choices. We maintain a robust operational leverage, enabling us to grow current net income at a faster pace. And third, capital allocation, while we resume external growth in 2025, we maintain a very strong balance sheet with a leverage ratio below 3x at year-end, thanks to our strong free cash flow. And finally, value creation, the successful GreenUp execution led to an outstanding ROCE, which is the best measurement of our value creation at 9.4%, which was our objective for 2027, so delivered 2 years in advance. With EUR 34.4 billion in revenue, we experienced a solid growth of 2.8%. The operating leverage and the delivery of efficiencies and synergies were excellent and resulted in solid organic EBITDA growth of 6.3%, above guidance, current EBIT growth of 8.9%, current net income growth of 9.1%, with underlying higher growth, even higher if we restate for last year set capital gain. Net financial debt reached EUR 19.7 billion. The leverage ratio reached 2.79x, below 3x as expected. ForEx impact was significant as announced due to lower U.S. dollar and LatAm currency. This reflects the improved performance of our international activities, which is increasing value creation. But as you know, as a multi-local group with very limited international trade, ForEx has very limited impact on margin rate and on net income level. Moving to Slide 23, you can see the revenue and EBITDA evolution by geography. The main features in 2025 was the enhancement of our growth outside Europe and the superior growth of EBITDA in both outside Europe and Water Tech segments. In Q4, EBITDA growth accelerate as announced at the end of Q3, thanks to the benefit of our action plan notably in France and the good performance of Water Tech. I will start with Water Technologies, for which 70% of our activities are recurring, corresponding to product, mobile unit and chemicals, while 30% is more volatile by nature, what we call projects. In 2025 and especially in the first 9 months, project revenue was impacted by the timing of milestone delivery and a strong comparison basis versus last year. And as we announced in Q3, Water Tech revenue rebounded in Q4 and grew by 3.6% for the full year, excluding project by 4.6%. Operational performance was excellent with EBITDA growth of 14%. America, Africa, Middle East and APAC performed well in 2025 with revenue growth of 4.1% and EBITDA growth of 9.3%. Europe grew by 3.3%. And finally, France and Hazardous Waste Europe, revenue was flat, but EBITDA increased by a significant 6.3%, thanks to good Hazardous Waste performance, efficiency action in solid waste and resilient water activity. Now let's take a look at our performance by businesses. Very solid growth in our Strongholds, which proved themselves very resilient with very high margin and capacity to continue increasing EBITDA growth. Let's start with Municipal Water. Revenue increased by 3.5% with a remarkable EBITDA progression of plus 6.1%. We continue to benefit from good indexation, have achieved successful tariff renegotiation in Spain, and in the U.S., which protect our future earnings. Volumes were on a very good trend, up close to 3% in Europe. Solid waste revenue grew by plus 0.5% with a very strong EBITDA progression of plus 6.8%, which illustrates our capacity to implement efficiency plan, supporting EBITDA improvement. Revenue from District Heating Network increased by plus 1.7%, excluding energy prices, thanks to a sustained e-tariffs. Let's move on to our Boosters performance on Slide 25, which have gone very well, with revenue up by 4.3% and by 8% including tuck-ins. Overall, EBITDA performance is excellent, up by 12% with an increase of the average EBITDA margin by 100 bp, which confirms GreenUp choices. Skipping Water Tech that I am just commenting and started with Hazardous Waste. Revenue increased by 5.3%, including tuck-ins and 3.8% organically with EBITDA up by 12.8%, which is outstanding. I would like to highlight especially the strong growth in the U.S., up plus 9.2%, including tuck-ins, fueled by incineration volumes and mix. In Bioenergy, revenue was up plus 5.8%, excluding energy prices, and EBITDA increased by 5.1% with strong sales momentum in Belgium, Southern Europe and in the Middle East. The revenue bridge on Slide 26 explain the drivers of our growth in 2025. Negative ForEx impact decrease in Q4. Scope was slightly negative as the impact of 2024 divestiture, SADE, Lydec and RGS was compensated for a large part by the favorable impact of 2025 external growth. The impact will turn positive in 2026. The expected consolidation of Clean Earth in the second semester 2026 will further contribute. The impact of energy prices was as expected, divided by 2 compared to last year. Recycled prices were neutral. Weather effects after a colder winter at the beginning of year in Europe, Q4 was marginally helpful. The contribution of commerce and volume was comparable to last year. And finally, price effects were, as expected, lower than in 2024 due to lower inflation and contribute plus 1.4% to top line growth. On Page 27, you have the EBITDA bridge detailing our organic growth of 6.3%, above the annual guidance between 5% and 6%. Negative ForEx impact increased in Q4, as mentioned earlier. This impact was very much ups and down the line for EBIT and current net income. Scope was slightly negative, but as expected, was positive in Q4. The impact of energy was minus EUR 40 million, less than last year as expected, while recycled prices were slightly up, plus EUR 10 million. Intrinsic growth contributed by a significant plus 4.8% to EBITDA growth, thanks to the combination of commerce volume works for 2% and pricing productivity efficiency for 2.8%, it accelerated in Q4, thanks to the benefit of our action plan in France and the rebound in Water Tech, including new synergies, and I'll come back later to those synergies. Now let's dive into our second lever of value creation after growth, which is performance and efficiency. I am now on Slide 28, which shows our 2025 performance. In terms of our yearly efficiency plan, we achieved EUR 399 million in gain in line with our annual target of EUR 350 million, which we will, for sure, renew in 2026. Efficiency are indeed a permanent level of value creation embedded in our operation and therefore, one we can count on for years to come, not to say forever. It is worth noting that digital and AI gain already account for 23% of our recurring operational efficiency. Suez synergies are fully completed, as Estelle mentioned. We have achieved another EUR 100 million of gain in 2025 for a cumulative total of EUR 534 million since day 1, well above our initial objective of EUR 500 million, which, as you know, was raised a year ago to EUR 530 million. This overachievement is a testimony to our capacity to successfully integrate our acquisitions and the clear marker of the success of the Suez merger. Going forward, we will benefit from the synergies coming from the merger of our 2 Water Technology entities following the buyout of the 30% minority stake of CDPQ in June '25. We target EUR 90 million by '27 and EUR 20 million have already been achieved. On top of that, after we closed the acquisition of Clean Earth mid-'26, we will start the integration process and target a total amount of $120 million of synergies between 2027 and 2030. Let's now analyze our performance below EBITDA, and I am on Slide 30. Going down to current EBIT, this slide illustrates perfectly the operational leverage of our business model. 2.8% revenue growth, 6.3% EBITDA growth and 8.9% EBIT increase. Current EBIT grew to EUR 3.7 billion at a faster pace than EBITDA. I am particularly pleased with our financial results, which excluding financial capital gains, show a slight decrease of EUR 21 million of our financial charges. This was due to a combination of a well-controlled cost of debt and lower other financial charges coming notably from French exchange results. We did not benefit in 2025 from net financial capital gain contrary to 2024 with the SADE disposal. The tax charges were only slightly higher by EUR 11 million, and our current tax rate decrease from 27.1% to 25.4%, thanks to the benefits of Water Technologies fiscal synergies. Finally, current net income increased by 9.1% at constant ForEx in line with our debt. Moving to net income group share, I am on Slide 31. Noncurrent charges were stable at minus EUR 433 million. They include additional integration costs coming from Water Tech merger, one-off restructuring charges and an exceptional litigation provision in 2025. Net income group share reached EUR 1.2 billion, showing an excellent growth of 10.9%. Now free cash flow generation, which is key. I am on Slide 32. I am satisfied with the progression of the net free cash flow of EUR 39 million at constant ForEx, which we achieved despite the working capital evolution due to less project down payment in Q4 and one-off litigation payments in 2025, including Flint for around EUR 70 million. The underlying evolution of our working capital was, in fact, quite good with another reduction in the DSO of 5 days to 74 days. Thanks to our dedicated plan, which will continue quicker invoices. We have a clear plan to reduce time to invoice, cash collection, new ERP with use of AI. CapEx was once again under site control and was stable in 2025. CapEx will remain under control but continue to include significant growth CapEx, which will generate EBITDA. As you can see on Slide 33, net financial debt is well under control, which is EUR 19.6 billion at the end of 2025 versus EUR 17.8 billion at the end of 2024. This increase of EUR 1.8 billion is due to the resumption of external growth with EUR 2.3 billion of financial investment, which includes the purchase of the Water Tech minority stake for EUR 1.5 billion. This was not at the detriment of our leverage, which remained well below 3x at 2.79x. This bridge also reminds you of our share buyback program, which has been launched to offset the dilution of the employee shareholding program for EUR 400 million in 2025. We have, again, in '25, successfully issued new bonds, which attracted market interest and was done with very good market conditions. I will also mention that 85% of our net financial debt is at fixed rate. Our balance sheet, therefore, remains very strong. Both rating agencies confirmed strong investment-grade rating in '25. Before concluding, this slide reminds you of our 2026 guidance, which Estelle has commented earlier, continued solid organic revenue growth, excluding energy prices, EBITDA organic growth between 5% and 6%; current net income of minimum 8% at constant ForEx, excluding Clean Earth, which we will close mid-'26 and which will be accretive as soon as '27, excluding PPA, leverage ratio equal or below 3x, including Clean Earth and equal or slightly above 3x with Clean Earth acquisition. And as usual, our dividend will grow in line with our current EPS. And we fully confirm our GreenUp objective. Finally, let me remind you that we have started our $2 billion nonstrategic asset divestiture program, which I cannot, of course, give you detail, but which will also contribute to the continued soundness of our balance sheet while providing us with balance sheet headroom. Thank you for your attention. Estelle Brachlianoff: Thank you, Emmanuelle. Thank you, Daniel, and we are ready, 3 of us, to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Arthur Sitbon with Morgan Stanley. Arthur Sitbon: I was wondering basically about your 2026 current net income target, which is at constant FX and basically without the Clean Earth impact. I was wondering if you could provide some more thoughts on at the current FX levels, what do you see as the mark-to-market impact from FX on your 2026 numbers as well as potential comments to understand a bit the magnitude of the Clean Earth impact for 2026? And you confirm the GreenUp target. So you talked about 8% growth in net income in 2026, but there is more growth. It's a 10% pace annual for -- by 2027 for the GreenUp target. So I was wondering basically if we should understand that net income growth will considerably accelerate in 2027. And my last question is just on your broader medium-term objectives. I was wondering if at some point you would consider rolling over your targets and maybe guiding to 2028 and 2029 or if we should wait for early 2028 for your new business plan? Estelle Brachlianoff: Thank you for your questions. Many different ones. Just a few things. We're very happy about the 2025 results, which was a very value accretive and a history high and well on our trajectory of GreenUp and even exceeded some of the target in EBITDA and in ROCE, just to mention the 2 of them. In terms of the guidance for '26, you have noted that the guidance left-hand side of the slide, if you want, is without Clean Earth and after Suez merger. So in a way, it's a kind of stand-alone. But of course, the acquisition of Clean Earth will be accretive for years to come. So the way to have a look at it, and that's why it's an ambitious one. We are saying that without any Suez synergies and before the accretion and the synergies of Clean Earth, we are able to deliver in '26 5% to 6% organic growth of EBITDA and at least 8%. So it can be more than 8%, but it's at least 8% of net results. That's what the guidance says. So I just wanted to highlight that it was after Suez and before Clean Earth. which means that it's really a confident and ambitious guidance, which I'm very confident we will deliver. In terms of the global ForEx element, and it's not only on like net results, it's on everything. I just want to highlight again that ForEx for us is a translation, not transaction. In other terms, as I tried to explain, we are a multi-local delivery company, which means that the cost and revenue are in the same currency. And therefore, ForEx up or down doesn't impact our margin. And we've proven it in '25. We've proven in '24, within 2 years, plus 150 business point -- bp, sorry, of margin increase. So proof is in the pudding, as you say in English, that it doesn't impact our margin. And as you know, ForEx translation at 100 at the top of our P&L goes down to 20 basically, so 20% or divided by 5 when it comes to net results, that's the global figures that we've already mentioned. But again, ForEx for us is not a real thing, as you know, like it doesn't impact our margin. It's more a sign of our being international and goes up and down, but it's not a question of anything, but the translation of us being very international. In terms of the targets midterm. So what the GreenUp trajectory, which I could fully confirm today and have fully confirmed it today, is 10% on average over 4 years, assuming, of course, more than 8% this year, and there is no reason why it should slow down going forward. We've achieved already 12% in the first 2 years of the plan. So we are really on the at least 10%, which we've said we would deliver in the GreenUp trajectory. So I guess that's a confirmation again. So another way to see the guidance for '26 on net result is in '25, we said and we have delivered around 9% of net result increase. And this was with Suez synergies in. And in '26, we said we'll do more than 8% without Suez synergies, and again, before like any positive effects of the Clean Earth synergies. So in terms of rolling over targets, that's always a good question. We have a few moving parts here. And the big one is the timing of the closing of Clean Earth, which everything is running exactly as we expected so far. But I will wait until we have the various authorization before we can have a clear timing, but that's a good point. At one point, we will be able to show visibility over years beyond 2027 GreenUp. But what I can say from now on is we've already crystallized with the acquisition of Clean Earth, value creation beyond 2027 with the synergies as well as enhanced revenue growth. So the more the company is international innovation-driven, which we are transforming quite rapidly the portfolio into, the more in the years to come and beyond '27, you will have a company, which is enhanced growth and enhanced value creation, in particular, thanks to the synergies of Clean Earth. I don't know if you want to complement something, Emmanuelle? Emmanuelle Menning: So maybe one element. So very quickly, as mentioned by Estelle, the figure that you see and the 2026 guidance is fully aligned with GreenUp. We have demonstrated in the past a very good result for the first part of GreenUp. I'm not going to mention again the ROCE, which is absolutely amazing 2 years in advance. And as mentioned by Estelle, you have seen the trajectory in terms of EBITDA with a target between 5% and 6% which is very strong, which is long term and which also show our capacity to grow on high potential growth and high-margin businesses as without the merger -- the Suez merger synergies, we are continuing on the same trend. In terms of ForEx impact, you will have at net result level, it's our estimation based on the ForEx rate for -- at the end of December, an amount which is similar to what you had in 2025. So '26 equal to 2025. You were mentioning... Estelle Brachlianoff: It's difficult to say because ForEx goes up, ForEx goes down, like it's super uncertain. Emmanuelle Menning: Yes, it's with the estimation that we have for the -- at the end of 2025. And where you're right is that, of course, in 2027, we will benefit from synergies from Clean Earth and the full synergies also of Water Technologies. And the element, which is, for us, very important is that you know at Veolia that the trains are arriving on time. You have seen what we were able to do with ROCE, with EBITDA, and we don't have any intention to stop and to not have this impact. Estelle Brachlianoff: You can't confirm that. Operator: Your next question comes from the line of Bartek Kubicki with Bernstein. Bartlomiej Kubicki: I would like to discuss 2 aspects as well, please. Firstly, if we think about tariffs overall in waste and water in 2026, where do you see them moving and more specifically in France as 2025 was relatively subdued in terms of revenues increase in both waste and water? And secondly, if we think about your M&As, which has just happened and which are about to happen this year, just 2 sub questions. A, what will be the contribution of Clean Earth into your net income once it is being acquired? And secondly, what will happen to your integration costs with now 2 companies, or in 2026, 2 companies being integrated into your group? Shall we expect an increase going forward? Or shall we stay flat at around whatever EUR 30 million, EUR 40 million per annum as in the past? Estelle Brachlianoff: Thanks for your two questions. So in terms of waste and water price more so than tariff, probably, I don't know, and specifically in France, a few things. Altogether in terms of price for our activities, as you know, 70% of the Veolia revenue is indexed and 30% is prices in pricing. And as we said, like inflation is relatively neutral or slightly positive for us, which means that when the cost base goes up, the price go automatically up or via pricing and vice versa. So everything is a way to protect our margins. So I think the priority for us is to protect our margin. In terms of anticipation for '26 in France, it will depend on inflation and a few indexation formulas, which have anniversary dates. I don't expect a big plus in '26 in terms of this indexation given the inflation is relatively low, but that was anticipated. And again, that cost base and revenue base are in the same type of range. What I could say in addition is, in a way, the proof is in the delivery of our performance in France in '25 because we had a revenue which was relatively flat roughly but a big plus in EBITDA, which you see on slide -- I can't remember where it is. But anyway, you will see that in our pack. And this is thanks to our action plan. And in a way, that's exactly the same example, which Daniel just highlighted in Spain. We increased our EBITDA by a lot more than our revenue, thanks to a lot of efficiency plans, and it was specifically the case in Spain and France because we anticipated it. We knew that there won't be a big push from the revenue, from tariff or from specifically or indexation or from the economy. And we launched specific action plans. So it was Hunter in Spain. It was called Ariane in France, and it delivers results. It delivers results in EBITDA level. So what we expect in '26 is exactly the same as we've seen in '25. Top line probably modest, but EBITDA will grow again in '26 in France and in Spain, plus Daniel has ambition on the top line as well, as you've heard him explaining earlier on. In terms of M&A and Clean Earth's net income. So basically, the question is the timing of the closing. We said it would be accretive in current EPS from year 2. So assuming the closing is mid-'26, it will mean year 2 is mid-'28. So mid-'28 is not a point where you look at the net result because it's end of the year. So assuming, again, end of mid-'26 we close. It will mean that in '27, it will be accretive before PPA and in '28 accretive even after PPA, if you want. So more accretive before PPA and accretive altogether, including the PPA. And it's a very modest dilution in 2026. Again, assuming the timing I just highlighted, modest as in what really, really less than 0.5% of potential dilution, again, assuming the timing I just highlighted. And integration costs, we've highlighted, we will have integration costs in the 4 years of the delivery of the synergies. So synergies $120 million in 4 years. And integration costs, we said... Emmanuelle Menning: We communicated when we when we did the signing at the end of November, so it's less than the $120 million. It would be around $90 million. Estelle Brachlianoff: Yes, we said $90 million over 4 years. You have years with a bit more, years with a bit less. But roughly, if you divide on average the $90 million by 4 years, you have a good estimate. Operator: And your next question comes from the line of Olly Jeffery with Deutsche Bank. Olly Jeffery: Two questions for me as well, please. The first one is staying on the topic of M&A. You're looking to divest EUR 2 billion of investments or assets rather within 2 years of closing the Clean Earth deal. Could we expect you to get on the front of that and do that potentially some divestments by the end of this year? And do you have any color at all now on what type of assets you might be looking to or geographies you might be looking to divest in? And the second question is on hazardous waste in the U.S., but again, connected to Clean Earth. In the U.S., you've got finite incinerators, potentially more onshoring coming to the country. That seems like quite a good combination for having pricing power going forward. Compared to when you made the Clean Earth acquisition, do you think actually the environment for hazardous waste in the U.S. has improved? And we've seen some hazardous waste peer share prices in the U.S. do particularly well year-to-date. Estelle Brachlianoff: Two good questions. So on the EUR 2 billion disposal in the 2 years following the closing of Clean Earth, a few things. The timing I mean, we have, as you can imagine, a list with Emmanuelle and with the various options, and I won't be detail -- I will not detail them today. Nevertheless, I can give you a little bit of color on this list. So we have not anticipated a big sell in '26. We will go on with the traditional small and medium portfolio rotation, which we do every year anyway, but nothing as a big as a big object is in our plan so far. So what are the typical candidates in this list, which is another way of answering your question. I guess, threefold, one is mature. The other one is nonstrategic. And the third one is not in the top 3. Let me explain them one by one. What I mean by mature, it means a business, which we don't think we can grow much more the profit in the years to come. I'm talking about the profit here. As you can imagine, in some of our Stronghold activities, we still have a way to increase our profitability, and therefore, we would keep them. So it's really the -- if we are the max of profitability, and we don't anticipate any way to go better. The second, like criteria is what I call nonstrategic. Nonstrategic, typically, it's what we've done when we've divested the SADE, which is a construction business. We said years ago, we don't want to be in construction. We want to be in technology. And that was a good example of that. The third one is what I call non-top 3. As you've seen in our geographical strategy, there is an element of when we are in a country, we want to be in the top 3 of this activity in this country. It's a key element to have pricing power, for instance, which is what we said earlier on. We have a few smaller objects which are not yet in the top 3. So either we have a way to put them in the list in the years to come or if not, we will divest them. So that's the 3 criteria lists, which met the list which we have with Emmanuelle, and we have various option and will deliver in the 2 years following the Clean Earth closing. In terms of Hazardous Waste, you're right, we're super happy about Hazardous Waste business in the U.S. And there is nothing in the last few months, which is anything but confirming it's a very good acquisition, the Clean Earth one. Synergies-wise, platform-wise, including to be able to develop other services of Veolia beyond the Hazardous Waste. So you're right, the trend is good. We've seen a very good Q4 in Hazardous Waste in the U.S. for us. If I remember why it's a 7% organic growth for Q4, which is a very good positive way to end the year, and to begin the next one. So all the lights are really on a green light. We are very, very confident it will create a lot of value for years to come. Operator: Next question comes from the line of Juan Rodriguez with Kepler. Juan Rodriguez: I have two on my side, if I may, more follow-ups. The first one is on guidance at the net income level in 2026. I want to be clear. You said that you expect no synergies from Suez, but it does include water tech synergies on 2026. Is that right? And can you please quantify the fiscal positive effect that the water tech synergies had on your 2025 results because it supported a lower tax rate? And are they part of the EUR 90 million synergies that you're targeting. So this is the first one. And the second one is on France. You said that performance was slightly better in 2025 despite weaker revenues. Can you please quantify the level of the performance that you had in here? And what is expected ex Hazardous Waste? And what is expected for 2026? You signal some improvement in the region, [indiscernible] in the low to mid-high single digits. So some color on that would be helpful. Estelle Brachlianoff: So I've tried to note down all your question. Hopefully, I won't miss anyone, anything. So you're right, the net income guidance before Clean Earth acquisition in '26 does not include any Suez synergies because it's over. Does include, of course, the recurring gains, which will, again, efficiency gain more than EUR 350 million again in '26. And does includes some of the CDPQ water tech synergies, but they are not of the same magnitude of the Suez acquisition. That's why I won't compare apple and pear. But you're right, they do include some synergies of the water tech. I want to say that it started well with -- in H2, we already had EUR 20 million, if I remember, Emmanuelle, of synergies from the Water Tech acquisition, which was delivered in H2. We've closed in on the 1st of July. So EUR 90 million over 3 years, EUR 20 million already delivered in H2. There will be another lot in '26, another lot in '27. And that's when I mentioned the synergies as in EUR 90 million over 3 years. This is the EBITDA synergies, if you want, because we said clearly that they were on top of that fiscal and in a way, net income synergies, which already were delivered a lot in '25. So EUR 20 million of EBITDA, if you want synergies already, plus already some fiscal synergies in '25. Do you want to comment on the fiscal tax rate. Fiscal tax rate, maybe, Emmanuelle. Emmanuelle Menning: With pleasure. Thank you for your question. So as you know, in the GreenUp plan, we targeted a tax rate of 27%. Our current tax rate in 2025 decreased significantly from 27.1% at the end of '24 to 25.4%, thanks partially to the benefit of our water technology synergies. As an example, in the U.K., we have been able to offset past and future tax losses, which were not recognized before. In France, also, we were able to merge the total group of Water Technology. And also in 2025, we benefit from a positive impact led by the anticipation reduction of the CIT rate in Germany. So all of that is contributing to the good tax rate and we have also a positive ambition for 2026, which participate to the net result as the fact that we have the cost of debt fully under control. And on your question about France EBITDA, hopefully, you have the answer on Slide 23. Where you see the business unit Front and Hazardous Waste Europe with a revenue which was basically flat compared to -- or slightly negative compared to '24 with all the -- what we said about indexation formulas and so on and so forth, but a plus 6.3% EBITDA growth. So I think that's the type of results we see from the specific action plan we've launched 2 years ago in Veolia, we just don't wait. We anticipate and act quickly and strongly. So this was called Ariane in France, and you see the results. And this was called Hunter in Spain. And you've seen in Spain, and it was presented by -- because it's kind of a bit the same, plus 14% EBITDA growth in '25 compared to '24 in Spain. And we won't stop here. So you can go on with this type of improvement in '26 for France and for Spain. Operator: And your next question comes from the line of Davide Candela with Intesa Sanpaolo. Davide Candela: I have two, if I may. The first one is if you can share with us sensitivity on energy prices, mostly with regards to Europe. I know that in most cases, the energy component is a pass-through for you, but at least if you can provide a bit of sensitivity that would likely most refer to your WTE plans throughout Europe and so on? That would be the first one. Second one is with regards to your approach to demand. You said that the demand for your services is strongly increasing. I was wondering if you can share how you approach that in the sense that you are being selective in waiting. And so taking the most valuable contracts or opportunities or on the other hand, you are taking a more aggressive approach in trying to put more pressure on power on your prices and just being proactive in trying to take demand from your clients directly. And with regards to that also on volumes, which is the capability you have to attract more and more and if there is a risk of saturation in that respect And yes, that will be the second one. Estelle Brachlianoff: Thank you. So energy price sensitivity. So you're right, energy price for us are global pass-through. This is why we published and we've been publishing for years now, excluding energy price. Why is that so? Because we mainly sell heat and when you know the price of the entrance as in what we have to buy to produce the heat for the district heating net price goes up, the tariff goes up. And that's why it protects our margin again. The little effect, which is not what I said, is on the cogeneration of electricity, if you want, and the ancillary service is associated with it, where it's a little bit more into our margin. So it's more -- it's not the main product for us. We're not a producer of power. We're not at all. But we use all the equipment and infrastructure we have, specifically in district heating and things like that to try to deliver ancillary services in addition and on top. So this top-up is what can go up and down, and it's a little bit more like variable for us. If you have a view over 3, 4, 5 years in a way, you can see that in our figures because as you can imagine, the price of energy in Europe has gone through the roof in '22 and then down very massively in '23 and '24. And you can have a look at the sequence of our EBITDA in our Energy business over 4 years. There was a big plus, a small minus for the reason I just mentioned in terms of the cogeneration of electricity. But altogether, the curve is on the up over these few years. So in a way, we've demonstrated what I said in the figures from '22 to '25. In terms of the demand for our service, what I was trying to highlight is, I was asked a lot of questions about, okay, is Veolia about ecology, the environment? Yes, we are, but we are more about critical needs. I think this is important. So whatever the elections results are in a country, we're not about politics here. We're about critical needs for industries and population. That's what makes us super resilient when it comes to supply of water, when it comes to supply of critical materials and critical minerals, when it comes to supply of energy, we produce local resources Therefore, they don't depend from like far away imports, disruption of supply chain and so on and so forth, which is very key for all our customers. So that's why the demand is, in a way, the more the crisis, the more the demand is paramount because we are really critical for our customers. In terms of your question about how selective are we shooting everywhere? It's the former of the latter. We still are very selective. We don't want revenue for the sake of it. We want revenue, which can create value not only for 1 year but for years to come. The 2 keywords are resilience and growth here. The business model of Veolia is really sustainable growth and for years, which means that we've intentionally decided not to bid for specific tenders, for instance, in West municipal collection because it was not value creative for us to focus on what is very value creative, typically our growth boosters. So we are very selective and the choices are clear, the growth Boosters. So Water Technologies, Hazardous Waste and bioenergy. In terms of where we go for saturation at one point in terms of volume, do have a limit in a way, in our plants and installed base. This is not exactly the way it works. In water, the needs go with the growth of the population or the growth of the industries and the plants do follow, if you want, and that's what we've seen regularly. In terms of Hazardous Waste, it could have been a limiting factor, and that's exactly why we have invested in 5 new facilities across the globe, which are just ramping up from last year till 2028, exactly to be ensuring we unlock the future growth. So we're not only at Veolia talking about the guidance for '26. And when I say we have an enhanced profile of growth for years to come, I can talk to you about '28, '29, 2030, even with the Clean Earth acquisition synergies and investments we've made. Operator: And your next question comes from the line of Philippe Ourpatian with ODDO BHF. Philippe Ourpatian: I have three questions, in fact. One is a slight, I would say, a clarification concerning the efficiencies means that the Slide 27 is showing EUR 326 million growth in performances on which you have some price effects and volume effects. I would like to know exactly what was the amount of the efficiencies you were mentioning, in fact, previously in your slide has separated from works, volumes and commerce. That's the first question. And in this question, there is also another one concerning the next slide, which is the 28, where you are mentioning EUR 399 million. It's over the target of EUR 350 million of efficiencies. Could you spread it a little bit more by activities or geographies? You mentioned France and Spain as a specific plan, but to have more color about where this EUR 399 million were generated? Second point -- second question is hazardous waste. Could you just remind us or elaborate more about the new facilities because Germany -- in Hazardous Waste, Germany has started, if I'm not wrong. And there is some other geography where you are working, U.S., U.K., Saudi Arabia and Asia. Could you just remind us, in order to take into account those volumes and maybe value creation effects? And last, you just issued a press release concerning India. Your famous French competitor also issued a lot of press release concerning this area. It seems to me that India was not an easy country. We have seen Suez losing a lot of money years ago in this contract. What has changed in this market concerning water? And what are the level of risk or capital employed you are injecting in this kind of country, even if I do think that it's mainly through OEM contract? Estelle Brachlianoff: It looks like you have not only the question, but the answers, and you're right. But I will elaborate in a minute. So efficiencies in a way, the answer is on Page 28. So efficiency, EUR 399 million, which we've retained 47%, right, Emmanuelle? Emmanuelle Menning: Absolutely. So [Foreign Language] Philippe. So roughly, when you say -- you're absolutely right, from the EUR 399 million which have been fueled by all the specific action plan also which were in France and in Spain and the rest is, as you know, fully embedded in our business for 70%. We have been able to retain 47%. When you look at this number, if you want precise number, we have volumes commerce, which is around 10% growth and pricing net efficiency, which is around 2.8% growth. So roughly EUR 140 million and EUR 190 million. Estelle Brachlianoff: So 47% of EUR 399 million equals EUR 189 million, plus volume and commerce, roughly equals what you see on the slide. And where is it mainly? So the beauty of the Veolia's model, it's everywhere. That's why we're so confident we can keep it forever because it's a series of plants everywhere in the globe, which have initiatives, which combined give you the number. The specifics where you have more than the average are France, Spain and China. France, Spain and China launch specific plans, which were more than the average, given the fact that we're disappointed by the result in '23, basically for those geographies. So we've launched specific action plan with specific names, the Hunter, the Ariane and there was an equivalent one in China. And that's why on those geographies, we have a perfectly big disconnect between revenue and EBITDA growth because this was thanks to the very, very well-executed delivery of this plant, which again won't stop. Hazardous Waste. So the various Hazardous Waste -- yes, do you want to add something on the... Emmanuelle Menning: Yes, with pleasure. So you know us perfectly well, Philippe. Regarding the efficiency, one point that I wanted to add. As you know, 70% is fully embedded in our business model. It's what we sell, selling price increase, purchasing and procurement improvements. And on top of the 3 specific plans that Estelle has mentioned, and which are taking a lot of energy to the French team, but also to Daniel in Spain. So with very, very specific action plan where you have strong SG&A efficiency on top of procurement and on top of operational improvement, we have launched this year, and you see it in our results. What we call, it was a project which was called Mobi. So we are dealing with a lot of energy of what we consider as assets, which are not as performance as we wanted them to be, meaning that for us, it's a clear approach of upper out and all the team is working very, very strongly to it, and it's in all our geographies, and it is contributing toward our leverage -- operational leverage that you see and the increase of EBIT of 8.9%. Estelle Brachlianoff: In terms of Hazardous Waste, you're right, we have 5 new plants which are under construction or under commissioning. In terms of the sequence, we've showed it during our deep dive on waste a few months ago. So we are exactly on the trajectory we showed you at that time, which means that just to refresh your memory, you have a phase of construction, but then you have like what we call cold commissioning and then hot commissioning and then ramping up of operational performance with a commercial -- commercializing the plant. So depending on the difference, what we call by ramping up, again, cold commissioning, hot commissioning and then commercializing progressively the total capacity of the plant. It takes quite a while. It's not you press a button and it's on and off and 100% instantly. It takes usually between the cold, hot commissioning and the full capacity 2 to 3 years. Just to give you an idea. This is classical in this business, but then you're here forever, which has its merit. And in terms of the as orders of the being in this situation, the first to come online has been the Saudi one which has already gone through the -- and I hope I won't miss one, but the cold and hot commissioning and we are in the ramping up of the commercial activity, then the next on the line is Blue Jay, which is our facility in the U.K. in solvent, which is in the ramping up mode as well. I think we've finished the hot commissioning, and we are in the ramping up of the commercial activity. Then the next on the new will be the German one you mentioned, but which is not there yet. We are more at the end of the construction phase, if you want, not yet in the commissioning one. The next one will be in Asia and the next one will be in the U.S. All that means that combined, if I remember well, we've put again the figures in our presentation. But if I remember what it's 285,000 tonnes of capacity, which will be active at the end of GreenUp, but out of 130,000 tonnes of capacity when they are fully ramped up 100%, so 1 or 2 years after the end of GreenUp. And India, you're exactly right. We're not doing crazy things in India. That's why I was super proud about this contract, which is new of its kind. You've answered yourself the question, like there is not funds employed at all of Veolia. We've delivered technologies, and then we'll have 15 years of O&M contract. So it's not about funds employed here. It's about selling technology and know-how in terms of maintaining plant. Those are massive ones. We are talking about a plant, which will be able to sustain the water supply for 60% of the entire Mumbai global population, which I remember is a 12 million like population. So those are massive, and I'm very happy that it was without risk associated exactly, as you said. So we're not chasing revenue for the sake of it. So we said we will exit construction. So in India, many, many -- so it's EUR 250 million backlog, by the way. We are not chasing revenue for the sake of it. So that's why a lot of the contracts which were announced by competitors, we didn't even bid to be honest, because we don't want to be in construction and pouring concrete. This is not what we do. We do sell technology, plus we do want to be in the O&M. All the rest, we just don't go for it at all. So we are super selective in India as elsewhere, but this opportunity was a very, very good one. Operator: [Operator Instructions] Your next question comes from the line of Charles Swabey with HSBC. Charles Swabey: Just one question for me on efficiency gains. And the '23 that came from digital and AI in '25, can you give us an idea how this compares to your assumptions when you put together the GreenUp plan? Would you say that they have exceeded expectations? And how should we think about this going forward? Estelle Brachlianoff: Thanks for your question. We have no idea there will be AI at this level when we launched GreenUp, which was at the end of '23, we've conceived the whole thing and launched it beginning of '24. So we had no specific expectation. We knew we were already very much into digital. or AI, but not GenAI, if you want. And this is really ramping up and a big potential for future efficiencies in the years to come. I think 23% is already a big figure. So we're not the style of talking about things we're trying to deliver that instead of talking too much. And I think that was a proof of it. We've picked our battles as well because some of it is more a miss than delivering new results. We've picked the tools, which actually are delivering real efficiencies. Real efficiencies for us means consumer less water, produce more green energy. This is the criteria, which we've picked a few proof of concepts and there were many of them, we've picked a few just to be on the scaling up front. Emmanuelle Menning: And what is also absolutely amazing is the increase of the percentage of digital. It was in the past 5%, 10% of our efficiency gain and now it's 20%, and it will continue to increase. Estelle Brachlianoff: You're right. Yes. I will say thank you very much. It looks like we have no further questions. And just wanted to say how happy we are about 2025, which not only was on target or even beyond targets in a few different KPIs, but as well as really a pivotal year for Veolia. We've crystallized major transformation in our portfolio, which will generate really enhanced growth and value creation for years to come and years with a lot of assets, as in '26, '27, '28, '29. I'm very confident about Veolia's trajectory, and there is more to come. Thank you very much. And let me, before I finish, I invite you not to miss what we've put on the slide, which are a few dates. If you want to have more information about our ESG agenda and multifaceted performance that's a webinar on the 23rd of March, and we'll have a deep dive on innovation, tech and AI in London on the 14th of April. Thank you very much. Operator: Thank you. And ladies and gentlemen, this now concludes today's presentation. Thank you all for joining. You may now disconnect.
Operator: Greetings, and welcome to Kodiak Gas Services Conference Call and Webcast to review fourth quarter and full year 2025 results. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Graham Sones, Vice President, Investor Relations. Thank you. You may begin. Graham Sones: Good morning, and thank you for joining us for the Kodiak Gas Services webcast to review fourth quarter and full year 2025 results. Participating from the company today are Mickey McKee, President and Chief Executive Officer; and John Griggs, Executive Vice President and Chief Financial Officer. Following my remarks, Mickey and John will review recent developments, discuss our financial results and 2026 outlook, and then we'll open the call for Q&A. There will be a replay of today's call available via webcast and also by phone until March 12, 2026. Information on how to access the replay can be found on the Investors tab of our website at kodiakgas.com. Please note that information reported on this call speaks only as of today, February 26, 2026, and therefore, you're advised that such information may no longer be accurate as of the time of any replay listening or transcript reading. Comments made by management during this call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views, beliefs and assumptions of Kodiak's management based on information currently available. Although we believe the expectations referenced in these forward-looking statements are reasonable, various risks, uncertainties and contingencies could cause the company's actual results, performance or achievements to differ materially from those expressed in the statements made by management, and management can give no assurance that such statements or expectations will prove to be correct. The comments today will also include certain non-GAAP financial measures. Details and reconciliations to the most comparable GAAP measures are included in yesterday's earnings release, which can be found on our website. And now I'd like to turn the call over to Kodiak's President and CEO, Mr. Mickey McKee. Mickey? Robert McKee: Thanks, Graham, and thank you all for joining us today. I'd like to begin today's call, as we do with all meetings at Kodiak by discussing safety. I've said this before, but our goal is for each of our employees to return home safely to their families at the end of every day. We made great strides in our safety performance in 2025, but our goal remains 0 work-related injuries. I want to thank our safety and training teams who work hard to equip our employees with the knowledge and tools to do their job safely, our customers for embracing our safety culture; and lastly, our technicians who embody our safety-first mindset. 2025 was another record-setting year for Kodiak. We entered the year with a plan to continue to high-grade our compression fleet by divesting underutilized nonstrategic small horsepower units and to exit operations in noncore areas, allowing us to focus on our core large horsepower operations. I'm proud to say that we ended 2025 with 100% of our operations located in the U.S. and with the largest average horsepower fleet in the industry. The work we did high-grading our fleet also allowed us to deliver strong increases in fleet utilization, adjusted gross margins and free cash flow. Given the high margins and stable operations, our core compression business generates predictable, growing contracted cash flows that we reinvest both in our compression fleet and in tools and technologies that set us up for future success. Some of our highlights from the last year include: successfully implementing a new ERP system to provide us enterprise-wide, real-time information in order to make more informed business decisions. Our team did an amazing job with the rollout of the new software. We've been operating in the new system without issue since August 1. And at year-end, we closed our accounting books in record time, an extraordinary execution by Kodiak. Investing further in AI and machine learning technologies to drive operational excellence and better customer outcomes. We've deployed our custom large language model to help our technicians quickly diagnose issues encountered in the field and are using agentic AI to source repair parts across our system. Our technology road map for 2026 includes wearable devices and autonomous solutions to enhance our technicians capabilities, collect more data on our fleet, reduce risk and allow our people to focus on high-value activities. And we also broke ground on a new state-of-the-art training and operations facility in Midland. The new industry-leading facility is expected to be the largest of its kind, allowing us to continue to train and develop the best workforce in the industry. We plan to move in, in May. Financially, we successfully managed the exit of our former private equity sponsor, eliminating any perceived equity overhang. As a recap, EQT owned approximately 76% of our shares after we went public in 2023. Over the last 1.5 years, through a series of secondary offerings, EQT completely exited its Kodiak investment, much earlier than originally expected. We appreciate everyone who participated in the stock offerings. Additionally, we overhauled our balance sheet, terming out a large portion of our ABL. This further reduced our reliance on secured bank debt, increased liquidity and extended our weighted average debt maturity, providing us with enhanced balance sheet strength and financial flexibility. Also at year-end, I'm proud to say that we delivered on the promise we made at IPO and achieved our leverage target of 3.5x. Lastly, we maintained our commitment to return capital to shareholders. We increased our dividend with Q4's declared dividend up 20% year-over-year, and we bought back over $100 million in common stock at an average price of $33.79 per share. In total, we returned over $260 million to our shareholders this year. By all measures, 2025 was a great year for Kodiak. And with the recently announced acquisition of Distributed Power Solutions, we're starting 2026 with a lot of positive momentum. We'll give more details after we close, but I can say that we've received a lot of inbound interest in our new distributed power offerings since the announcement and are already working to procure additional power generation capacity through our existing network of vendors to deploy this year after we close. We think the market will continue to move in our direction as large power consumers are increasingly looking to lock in 10-year plus deals for base power. On to Contract Services, as we have said before, we are really excited about compression. Compression and power are very synergistic and align well for our customers and ongoing relationships. We ended 2025 with $4.35 million revenue generating horsepower. Average horsepower per revenue generating unit was 970, a figure that continues to lead the industry and has increased each quarter since we closed the CSI acquisition. For the year, we added approximately 150,000 new large horsepower to our fleet. Our investments to grow our fleet along with strategic divestitures of noncore units drove our fleet utilization to 98%, another industry-leading metrics. As we will discuss later in our outlook for 2026, despite slowing oil production growth, the outlook for natural gas supply growth remains highly visible. Last year, Permian natural gas production grew 10% or roughly 2 Bcf per day. Keep in mind, this production growth happened in a limited takeaway environment with negative pricing in West Texas for most of the year. Given the increasing gas-to-oil ratios, we expect sustainable gas growth out of the Permian Basin even in a flat oil environment. This favorable backdrop is driving strong compression demand, one of the many reasons why I'm excited about our 2026 capital spending program, which I'll discuss later. Yesterday, we released our fourth quarter and full year 2025 financial results. I'll hit the highlights and let John provide more details. For the year, Kodiak set new records in total revenue, adjusted EBITDA, discretionary cash flow and free cash flow. Total revenue grew by 13% to $1.3 billion and adjusted EBITDA grew by 17%, $715 million. The growth was driven by the outstanding execution of our core strategy by Kodiak personnel and our ongoing investment in organic large horsepower growth and the deployment of our technology and AI initiatives. Our technology advances are the result of several years of development, and we are just starting to see the efficiency improvement of our investment. We've significantly reduced the cost of media repairs to our fleet by using data to identify abnormal operating conditions and address them before they turn into expensive component failures. These early wins give us confidence to continue to invest in technology, allowing us to increase equipment availability and reduce mechanical failures, driving additional value to our customers, and increasing our operating margins. We generated $230 million of free cash flow in 2025 after investing to grow our large horsepower fleet and high grading our overall fleet. Our strong free cash flow led to an industry-leading free cash flow yield and allowed us to reduce outstanding debt and achieve our stated leverage ratio goal of 3.5x at year-end. Now diving into fourth quarter results. We once again delivered year-over-year growth in contract services revenues and adjusted gross margin. Impressively, our Contract Services adjusted gross margin percentage increased 247 basis points year-over-year to 69.2%, exceeding the high end of our guidance. Adjusted EBITDA for the quarter was up 9% year-over-year to $184 million, setting a new company record. Given strong customer demand, historically high industry-wide utilization, and capital discipline in a contract compression industry, pricing conversations with customers continue to be constructive. During 2025, we recontracted approximately 40% of our fleet and exited the year with only 10% of our contracts on a month-to-month basis with the rest under multiyear contracts. While we have a smaller percentage of our horsepower up for recontracting in 2026, the compression market remains tight with horsepower pricing continuing to increase. In our Other Services segment, fourth quarter results reflected a sequential pickup in activity as we had a positive uptick in shop services and station construction revenues. Overall, this segment generates free cash flow with minimal capital investment. Next, I'd like to discuss the evolving natural gas market and increasing lead times for large horsepower engines. Over the next 3 quarters, approximately 4.5 Bcf per day of incremental Permian gas pipeline takeaway capacity is expected to come online. And there's another 7 Bcf per day of additional Permian takeaway pipelines expected by the end of the decade. What's more, we have seen estimates from research firms of more than 2 Bcf per day of in-basin gas consumption for power generation by the end of the decade, including distributed power like DPS and major power plants. This is on top of the highly visible increase in feed gas required for U.S. LNG. After ramping up by roughly 3 Bcf per day in 2025, LNG export capacity is set to increase by another 2 Bcf per day in 2026, with an additional 13 Bcf per day of LNG export capacity expected by the end of 2035. These developments will have a resoundingly positive impact on gas pricing and production in the Permian Basin. A combination of higher in-basin demand, increased takeaway capacity, better pricing and ever-increasing gas to oil ratio is expected to lead to substantial Permian gas volume growth in the back half of this decade. The significant step-up in midstream and compression capacity needed to support the gas growth in the Permian Basin, in addition to the rapidly growing demand for distributed power generation has driven lead times for new large horsepower compression equipment to greater than 100 weeks. The combination of extended lead times and highly visible compression demand has required our commercial team to engage with customers about longer-term plans. We've already begun receiving commitments from customers for new compression equipment in 2027 and 2028. On the supply chain side, we're using our buying power and leading position in the industry to secure new compression equipment and are confident we'll be able to hit our long-term horsepower growth targets despite historically high lead times as we've already secured engine deliveries and shop space into 2028. In total, we expect to deploy over 750,000 new large horsepower compression between now and the end of 2030. Now turning to our outlook for 2026. We have a lot of positive momentum heading into the year. Despite the increased lead times for new equipment, we plan on delivering approximately 150,000 new unit horsepower in 2026 with an average horsepower per unit of approximately 1,700 horsepower, further solidifying our position as the industry leader in large horsepower compression. We're also in discussions with a handful of our customers about purchase leaseback opportunities and expect to announce one soon. We view purchase leaseback transactions as low-risk acquisitions, they have the benefit of accelerating our growth and compelling returns on invested capital without adding additional compression capacity to the market. The strong pricing environment we've seen for the last several years continues, and we expect to deliver further margin increases as we capture operating efficiencies. And we're seeing positive signs in the station construction business, part sales and our Other Services segment. In summary, we had a great year. Our adjusted EBITDA significantly exceeded both our initial guidance for the year and our latest update, driven by operational efficiency and cost management. We high-graded our fleet, exited international operations and achieved our leverage target of 3.5x. We have numerous tailwinds heading into 2026 as demand for contract compression remains strong and utilization rates continue to be at record highs. We're extremely excited to add distributed power to our business offerings and believe the outlook for that business will allow us to increase our underlying growth rate and drive higher margins. And now I'll pass the call to John Griggs, to further discuss our financial results and our outlook for 2026. John? John Griggs: Thank you. At the risk of sounding like a broken record, 2025 was an outstanding year. There's just no other way to say it. From a financial perspective, we exited the year with the lowest leverage, most liquidity and highest EBITDA free cash flow and contract services adjusted gross margin in our company's history. Our new enterprise-wide business system meaningfully reduces SOX-related risk and is increasingly providing us with enhanced visibility into our operating and financial performance, giving our company's leaders far better data and insights to ultimately make faster and better business decisions. Our financial strength has never been better equipped to capture all of the growth opportunities that are in front of us today. Before I tackle the financial highlights, I'd like to give a shout out to my team. I am so proud of everything they've accomplished over the past couple of years, an IPO and all of that entails, the CSI acquisition and integration, several capital markets transactions, more than $2 billion in bond issuances and ERP implementation and more recently, moving to full SOX compliance. It's been a big, big, big lift, but they've risen the occasion time to time again. I'm privileged to lead them, and I look forward to seeing them continue to do great things as we move forward. Let's turn to the financial highlights. For the year, we reported total revenue of approximately $1.3 billion, a 13% increase over 2024. The growth was primarily driven by the addition of new horsepower, price increases from recontracting activity and solid operational execution. We reported adjusted net income of $139 million and adjusted EBITDA of approximately $715 million, up 51% and 17%, respectively, from the prior year. For the fourth quarter, total revenues were nearly $333 million, up 3% sequentially as we benefited from a large amount of recontracting that happened around the beginning of the fourth quarter. Revenue for ending horsepower was $23.10 at year-end, a 2% increase from the previous quarter and up approximately 5% from the previous year's quarter. As we discussed last quarter, the fourth quarter sequential increase in dollars for revenue-generating horsepower was driven by the combination of less overall new horsepower being set in Q4 in conjunction with solid pricing for new units set during the third quarter plus recontracting during Q4 at ever higher rates. Our Contract Services adjusted gross margin percentage for the fourth quarter exceeded 69%. That's up 90 basis points sequentially and 247 basis points year-over-year. The margin improvement is a reflection of the success we've realized in achieving higher average pricing for horsepower alongside lower operating expense for horsepower, which itself was a function of new technology, process and training initiatives that either reduce costs, defer spend or improve labor productivity or some combination of all 3. In our Other Services segment, revenues were just over $31 million in Q4 with an adjusted gross margin percentage of 13%. The sequential increase in revenues was driven primarily by an increase in shop services and station construction revenues. Reported SG&A for the quarter was $38.9 million, and after adjusting for nonrecurring or noncash items, it was $29.7 million, down nearly 6% in the prior quarter. Net income attributable to common shareholders for the fourth quarter was almost $25 million or $0.28 per diluted share. Excluding asset impairment, severance and transaction expenses and other onetime items, adjusted net income was $35 million or $0.40 per diluted share. Now let's turn to capital expenditures. Maintenance CapEx for the quarter was approximately $22 million, and it was $76 million for the year, which was at the low end of our annual guidance range. The same investments in technology and the insights we're gaining from them are also allowing us to extend overhaul intervals and thereby defer associated spend on a major portion of our fleet. As expected, growth CapEx declined sharply this quarter to approximately $25 million. For the year, we added approximately $150,000 in new unit horsepower, in line with previous expectations. Other CapEx was just under $12 million for the quarter, slightly down from the prior quarter. Discretionary cash flow came in at $113 million, an increase of approximately $5 million versus the comparable quarter from last year. Free cash flow, which we define as discretionary cash flow less growth in other CapEx plus the proceeds from asset sales was $79 million, a new quarterly company record. For the year, we generated approximately $462 million in discretionary cash flow. Our discretionary cash flow is one of our most important business metrics. It drives our growth, and it funds the return of capital to shareholders. The long-term growth of our core compression business, and therefore, our discretionary cash flow is directly correlated with the nearly irrefutable secular growth in domestic natural gas production, and our cash flows are heavily contracted under take-or-pay contracts with inflation escalators. As a result, we tend to produce growing but stable discretionary cash flow, even in times of severe commodity price volatility, which is something we can't emphasize enough. With regard to the balance sheet, as Mickey highlighted earlier, we delivered on the promise we made to investors at the time of our IPO that we get our leverage down to 3.5x by the time we exited 2025. We exited the year with the strongest balance sheet we've ever had with approximately $1.5 billion in undrawn liquidity and over 3 years before our first debt maturity. To recap, in 2025, we termed out $1.4 billion for of our bank debt in the bond market, including the first issuance of the 10-year bond in the compression sector, when we amended our ABL to reduce interest rate spreads and enhance financial flexibility. Last, our Board declared, and we paid last week a dividend of $0.49 per share, even with 2 increases totaling nearly 20% in 2025, our dividend was well covered for the quarter at 2.6x. Let's turn to our '26 guidance. We provided our customary metrics in yesterday's release. Keep in mind, our guidance metrics don't include the recently announced DPS acquisition. We plan on revising our guidance for the inclusion of that business after we close the transaction, which we would expect to occur around the beginning of the second quarter. For the year, we expect overall revenue to range between $1.37 billion and $1.43 billion. We expect the adjusted gross margin percentage within the Contract Services segment to range between 67.5% and 69.5%. Our 2026 adjusted EBITDA guidance range is around $750 million to $780 million, with the midpoint representing annual growth of approximately 8%, directly in line with the upper single-digit percentage annual growth rate that we believe is possible in our core compression business for the foreseeable future. We expect maintenance CapEx to be in the range of $75 million to $85 million, essentially flat with last year, something that would not have been possible had we not been investing in the people, process and systems that allowed us to meaningfully defer maintenance spend without harming our assets or their long-term performance. We see growth capital expenditures landing between $235 million and $265 million. The vast majority of our growth CapEx goes towards buying and installing new units. While the balance gets invested in things like fleet-oriented enhancements and conversions, emissions-related projects and operation-centric technology. Other capital expenditures, which includes fleet upgrades, make rate expenditures, rolling stock, real estate, capitalized aspects of our training programs are expected to range between $40 million and $50 million. In terms of capital allocation, returning capital to shareholders is important to us. We expect to grow our dividend annually and opportunistically repurchase stock. Prior to the acquisition of DPS, our stated goal is to invest organically at a level that allowed us to deliver long-term annual growth in adjusted EBITDA in the upper single-digit percentage range. Following the acquisition of DPS, we believe we can grow faster than that and have similar or better returns on invested capital. To wrap it up, '25 was another record-setting year at Kodiak. We're extremely proud of all that we accomplished and the work we did to lay the foundation for future growth. The outlook for contract compression related services is stronger than ever. By our estimation, it looks like it will remain that way for a while, and we're in the process of further increasing our earnings growth rate with the pending acquisition of Distributed Power Solutions. With that, I'll hand it back to Mickey. Robert McKee: Thanks, John. It's an exciting time to be at Kodiak. Our business model, which generates highly visible, stable and recurring cash flows is performing well. The demand outlook for contract compression remains robust, demonstrated by our ability to maintain strong pricing and continued growth in our industry-leading horsepower utilization. Our new unit horsepower order book is fully contracted for 2026 and into 2027, and we're actively working on finishing 2027 and 2028 as we capitalize on the robust outlook for growth in natural gas. Besides the top line growth, we took steps to increase margins by divesting noncore units and investing in technology to reduce costs and increase uptime. The pending DPS acquisition will further increase our earnings potential and growth outlook, enhancing our ability to return capital and drive ongoing value for Kodiak shareholders. Needless to say, we're excited about our future. Thanks for your participation today, and now we're happy to open up the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from Jim Rollyson with Raymond James. James Rollyson: Mickey, maybe just starting with the lead time comments, obviously, all you guys are seeing the same thing. And I'm curious, it's great to see the CapEx commitment on the compression side that just underscores, I think, your view there. But as you think about '27, '28 and where lead times have escalated to here pretty rapidly, how are customers thinking about that? How are you guys planning for that? Because I'm imagining that not only impacts your ability to grow on the compression side, but it's also on the power side once you get that closed. So maybe just some kind of color how you navigate that. Robert McKee: Jim, thanks for joining us today. Yes, it's been a challenge and it's a very fluid environment right now. We've been working really hard over the last couple of weeks to make sure that we secure our supply chain. And we -- like I said in my prepared comments, we've got -- we've got shop space and engines actually secured right now throughout 2027 and into 2028 and doing our best to stay ahead of that and make sure that we have adequate supply for what was the amount that we want to grow in the compression segment here. So I think, as you know, most of our customers also own their own compression equipment partially in their fleets. And so all of our customers already understand the tightness in the supply in the market and are willing to engage in those conversations well ahead of time for us to make sure that we have their needs covered. So our commercial team is doing a great job of staying ahead of it, and we're making sure that we're monitoring that situation on a real-time basis because I can tell you, it is changing by the hour. James Rollyson: Understood. And the other thing, you guys have had a slide in your deck since you IPO-ed kind of about the cost of equipment up 50%, let's say, pre-COVID to relative today. And obviously, that's driven a lot of pricing growth over time as you price new units and mark your fleet up over time. Curious with recent conversation with Caterpillar, given their lead times today, are they talking about more material pricing increases? And if so, wouldn't that allow you over time to kind of reap the same benefits going forward at some point? Robert McKee: Yes. I mean 2 parts to that question, right? I mean, I would expect that going forward that we'll have some pricing power and to be able to have constructive conversations with our customers there because the cost of replacement equipment, naturally, I would think with 100-plus lead times with Caterpillar, would increase. So like I said, the -- our customer base is all very cognizant of what's going on there in that pricing dynamic there. So we haven't heard of significant price increases coming out of Caterpillar yet, but it's something that I would probably expect. Operator: Our next question comes from John Mackay with Goldman Sachs. John Mackay: Maybe I'll pick up on that first question from earlier. Could you talk a little bit more about what is driving the tightness in the market right now kind of specifically. I think we understand some of the broader trends, but would love to hear a little bit more from you on kind of why we've gotten so tight so quickly here. Robert McKee: John, thanks for joining us this morning. Yes, it's really a pretty interesting discussion that we've had with Caterpillar over the last several months on what's driving the tightness in the market here. And I think a lot of people would assume that it is power that is driving kind of the increased lead times here. And it really is a power discussion. But a lot of the Permian power processing plants for rich natural gas that are going in, in the Permian Basin right now, which there's a lot of them being built, they don't have the access to grid power. So traditionally, in those power plants, you'd see 75,000 horsepower worth of electric motor-driven units for inlet compression for propane compression for residue compression in those plants within the 4 walls because of the limited access to power that these guys have out there, specifically in the Permian. They're having to turn those electric motors within the 4 walls of those plants into large horsepower natural gas-driven engines to drive those -- to drive that compression within those plants. So I think that, that's a dynamic that really nobody saw coming towards us and is really a driver from the limited access to grid power that people have today and the extended lead times to get hooked up to the grid, which we've heard it can be 7 to 8 years at some point in time. So like I said, these midstream guys and the people that are building these plants out here are having to turn to gas-driven engines versus electric motor-driven -- electric motors in those plants. So it's creating a kind of a new level of demand that we haven't seen previously. John Mackay: That's interesting. It sounds like a good time to get into the power business, but we can talk about that more in April. Second one for me is just on gross margins. Fourth quarter is really strong. You guys have been generally doing very well on that front. I think the '26 guide points to it being a little flatter. Would love just to hear your general comments on the trajectory there, maybe some conservatism baked in maybe some of the cost savings you've talked about in the past on the AI side. Can you walk us through that? John Griggs: Yes, sure. So John, I'll take it. This is John Griggs. So we thought a lot about that as we put the guide out, we anticipated we'd get some questions. And one thing that we know is the fourth quarter was a really clean quarter. Our business is highly predictable, but you're always going to have some gremlins that happen within your cost of goods sold, and we really just didn't see many of those, whether that's a lot of hard work, a lot of technology, a lot of planning, great operations and a little bit of luck, we're not exactly sure, but it happened. And when I look at everybody kind of focuses on our dollar per ending horsepower, we also study our $1 per our Contract Services cost of operations for ending horsepower. And it's been really flat until the fourth quarter would have dropped meaningfully. So I think we probably have a little bit of conservatism in case it gets back on trend to where it was for the prior 3 quarters. Now with that said, I think you hit the nail on the head in that. Pricing continues to be strong and all the investments we've made in, let's say, 2 big buckets, technology, the operational technology, we're starting to see a return on those investments during '25, and we expect to continue to see it in '26. And all the investment we've made in our people around training, those absolutely have an impact on that cost of goods sold, and we expected to see it. So hopefully, as the year goes on, we'll be able to walk that number up. But that does explain kind of where we guided. Operator: Our next question is from Doug Irwin with Citi. Douglas Irwin: Maybe to add one more on lead times to start. Great to hear that customers are already having conversations out into 2028. But curious just in the context of potential 2-year lead times, if that changes just your general risk appetite to potentially look to maybe orders and capacity on spec, just to be able to make sure you're able to secure it in advance. Robert McKee: Doug, this is Mickey. Yes. I mean, look, it's a different conversation that we're having with our Board today than it was 6 months ago to where we were looking at capacity and lead times that were inside of a year and having contracts to back those up. So we're having to do a little bit more of spec ordering today and making sure that we've got some shop space locked up and engines locked up, so we are having to take a little bit more risk there. However, I would say that, that is mitigated a little bit by the fact that we don't have to commit to 100% of that CapEx cost 2 years out. We might have some engines, some extra engines and that kind of thing that are there. If the demand doesn't come through like we fully expect it to, but -- so there is a little bit more risk appetite to order some equipment on spec out a little bit farther out right now. But again, like I said, that's not for 100% of that cost. It's for a portion of that cost. John Griggs: And I do want to add on there, too. I think it's really important. As we think about this, a, we have like a macro view of the future where we think production levels are going to be. And we've stated over and over and over again, really since IPO that we think we can grow our fleet volumetrically by that 3% to 5% per year. So everything -- and I should say we have really, really like sophisticated customers today with long-term development plans, and we're in close communication with them. We view them as partners. So virtually everything that we're buying that is ahead of that commitment. We think it's completely in line with kind of our base case on where that market is headed and where our customers will be. So it feels like a really low-risk proposition to us. Douglas Irwin: Got it. That's helpful. And then maybe a quick one on Power. Realize you haven't given guidance there, but just curious in the context of the guidance you just gave for the base business, just how you're thinking about your capacity to invest in power here over the near term? Robert McKee: Yes, Doug. I mean, look, we bought the DPS platform because we've been looking at the power business for over a year now looking for the right entry point. We want to make sure that we could pair up our operational expertise with high-quality commercial and engineering expertise on the power side, and we settled on the DPS acquisition because they really checked all those boxes. It's a really high-quality platform that we think we can put a strong operational platform behind as well as a strong balance sheet behind. And our full intention is to grow that business. And we'll come back after we close and give a little bit better guidance on kind of what we think the growth opportunity looks like. But we fully intend to grow that business, and we think that there's some opportunities to acquire some megawatts of power even this year to be able to deploy this year. And we're leveraging our relationships that we have with existing vendors and our Caterpillar network to make sure that we can secure some of that equipment and put it to work this year and then come back to you after close with kind of a more fulsome view of what we think the long-term growth outlook looks like for that business. But we fully plan on growing it starting this year and putting some significant growth capital behind that side of the business as well. Operator: Our next question is from [ Gaby Cerny ] with William Blair. Neal Dingmann: This is Neal Dingmann. Guys, can you just talk about -- Mickey, you've always talked about just external growth. And I know, again, you have the backlog right now with compression. So I'm just wondering, would you approach some of your customers more aggressively to try to add that way? Robert McKee: Yes, Neal, you kind of broke up a little bit on us there. Can you -- do you mind repeating the question? Well, you might have lost. Yes, are you there, Neal? Well, I think that the gist of the question -- sorry about that. I think the gist of the question was kind of approaching our customers with kind of a two-pronged approach on compression and as well as power needs. And we certainly think that, that is an opportunity for us going forward. We've got a lot of customers, specifically in the Permian that are looking at microgrid development and establishing their own power out there in the Permian, and we definitely are having those conversations with them already. And definitely think we can leverage those relationships and the operational expertise to grow that business with our existing customer base as well. Neal Dingmann: That was exactly it, Mickey. And then just secondly, on the LNG. Mickey, you've always talked about kind of a formula -- I think early in the IPO process, you even talked about a formula for potential LNG demand. Does that formula still exist? And can you kind of remind me about where potential is around maybe the LNG upside demand? Robert McKee: Yes, absolutely. Look, we think that there's a significant amount of LNG feed gas that's going to be required throughout the United States. And as you know, we talk about the Permian a lot, but we're also in every major oil and gas producing region in the United States with commercial and operational presence there. So we're positioned well to provide compression for no matter where that gas is going to come from. We know there's going to be a significant amount of gas production for both behind-the-meter power and for LNG destock. So we think we're in a great position to be able to be there. I think you're referencing -- we're significantly in the Permian Basin. You're probably referencing the compression intensity metrics that we talk about. One of the reasons why the last 5 years of our business have been so robust is because of the amount of compression it takes to produce one molecule of natural gas out of the Permian Basin because there's compression needed for gas lift. There's compression needed within the 4 walls of processing plants, gathering all those things. So we still firmly believe that the Permian Basin with oil prices being relatively resilient over $60, that there's great economics for our customer base to not only continue to, at a minimum, keep oil production flat, but given gas to oil ratio increases and that kind of thing -- there's going to be significant gas growth out of the Permian, which is going to require a ton of compression to produce that, especially with these new takeaway capacity lines coming into play in the Permian Basin. So we're really excited about the opportunity. We think it's going to be a massive amount of natural gas growth over the next -- throughout the end of the decade and into the 2030s, and we're positioned well to take advantage of that, both on the compression and the power side. Operator: Our next question comes from Elias Jossen with JPMorgan Chase. Elias Jossen: Maybe just wanted to start on the visibility you're seeing in the contract compression business. You talked a little bit about seeing 750,000 horsepower through 2030. Maybe just the conversations you're having with customers that kind of support that? And then it seems that would support sort of this mid-single-digit EBITDA growth in just the contract compression business alone based on your historical execution. Is that a fair way to think about it, just continuing the strong growth that we've seen? Robert McKee: Elias, good to hear from you this morning. Yes, that is absolutely our intent is to continue that up into the right trajectory in the compression business and then layer the power business on top of that. We've got very high visibility into our growth. Like I said, we're engaging in conversations with customers right now for 2028 capacity. And there's a very large appetite for multiple of our customers that we're in discussions with right now for multiyear contracting and renewals of the existing equipment that we're seeing elongated types of renewal time frames right there. We're in discussions with multiple customers about 7- and 10-year renewals on that stuff, which is a really great development for our business and the visibility of our existing asset base and the growth of that over time. So we've never really given multiple year kind of guidance or indications of what we expect for horsepower growth, but we feel pretty good about it right now, and that's why we brought it into this call in our prepared remarks today that we really do see a multiyear growth case that is going to underpin kind of our cash flows and stable earnings for a long, long time. Elias Jossen: That's awesome. And maybe just sticking with the Contract Services business. I know you guys talked a bit about sort of operational execution driving gross margins higher, and you did give us a guide there. But maybe just on the overall pricing outlook. I think previously, you've talked about exiting this year at around $24 per horsepower per month. Any reason to think that would be different or higher or just high level, what you're seeing right now on the overall sort of fleet pricing? Robert McKee: Yes. As we said, conversations with customers have been very constructive and continue to be. We're not seeing any significant change in pricing on equipment going forward. I think John did mention it in his prepared remarks, we do have less of a percentage of our fleet that's up for recontracting this year. I think last year, we recontracted 40% of the fleet. This year, it's kind of in the low 20%. So I would say that our ability to raise prices on the existing fleet is just as strong as it ever has, albeit it might be a little bit more muted of a contribution this year because of the limited amount of equipment that we have kind of coming up for recontracting. That being said, our goal is still to reach that $24 of horsepower by the end of the year, and we feel pretty good that we're going to get there by the end of the year and feel good about that target. Operator: Our next question comes from [ Nate Pendleton ] with Texas Capital Bank. Unknown Analyst: Congrats on the quarter. I wanted to dive a bit deeper into your prepared remarks regarding applying AI and machine learning to improve the business. Can you provide your view on how these developments can further improve financials from here? And perhaps how well those technologies can apply to the newly acquired power assets? Robert McKee: Nate, thanks for joining us. Yes, we're really excited about what we've done in the technology space. We think we've got some first mover type of advantages there. We've really done a great job through our technology group and our operations group in adopting that kind of stuff. And we've already rolled out kind of conditions-based maintenances to where we're not just saying, hey, you need to change this oil in this equipment every 90 days, but we're letting the equipment tell us today when that oil needs to be changed based on kind of operating conditions and oil sampling and that kind of stuff. And we're able to recognize when that equipment is operating outside of the bounds of kind of where it should be. And that's provided a pretty significant uplift in our gross margins because we're able to kind of extend maintenance intervals based on the health of the machine, not necessarily based on time. I've said it many, many times before, we used to change the oil in our cars every 3,000 miles. Now, we're going 10,000 miles in our cars and trucks, and they tell us when they need the oil change in them. So that's a result of technology and looking at the status of the equipment rather than how it is actually -- rather than a time-based type of an interval. We're also applying that on our major maintenance cycles as well and extending those major maintenance cycles, which is why you've seen a growth in the fleet, but our maintenance capital line item staying flat throughout the year, the last couple of years, and we're happy to see that. The upside that we have there is we haven't applied those -- that stuff across the whole fleet yet. We've tested it in '24 and '25. We've rolled it out to a much larger portion of the fleet now. And now we have the ability to roll it out to an even larger portion of the fleet going forward. So we should see continued impact on technology through deploying that technology and then looking at how that applies to the power world, we think that we have a long, long history of operating cat equipment. We've got -- we're acquiring a business that has a significant amount of power that's driven by 3516 Caterpillar engines. And we think we can apply the same metrics to -- on the power side and apply our technology there. So we're really excited to be kind of first movers in that space, too, as kind of one of the first companies that had significant operating history in Caterpillar equipment to be able to apply that expertise and operating kind of regimen to really the same engines that are just driving power generators versus gas compressors. So we're excited about that, and we think we'll be able to have the same kind of impact there on that operation. Unknown Analyst: Thanks for the detail there. And then as my follow-up, I guess, going to the DPS acquisition. I know there is limited you can say at this point, but can you provide any high-level details about the inbound interest since announcing the deal that you alluded to in the prepared remarks? Robert McKee: Yes. I can't talk a ton about it obviously yet, but we have to stay a little bit at arm's length with DPS right now on the commercial side, just for antitrust issues and that kind of thing. I think everybody understands that. However, independent of our discussions with DPS, we have had inbound calls from multiple data centers and multiple customers that have recognized the fact that we're bringing an operational expertise into a world that is -- there's a lot of competition out there. And however, that competition doesn't have nearly the experience that we do in operating large horsepower equipment. And the customer base out there is really starting to take notice of the -- of the ability that we'll have to apply that operational expertise in the power world as well. I said it a little bit earlier, we really were hunting for a company that really had a significant commercial expertise in the power division as well as engineering expertise DPS is one of the only companies that has a multiyear contract and has been operating for multiple years already on a data center project, right? So they have experience. They understand AI load management that is required for some of the challenges that go along with powering a data center, and we feel like we've got a really, really great opportunity to make a big impact in that business by combining the commercial and engineering expertise of DPS with Kodiak's operational expertise. Operator: Our next question is from Selman Akyol with Stifel. Selman Akyol: Two quick ones for me and just more little follow-ups. In your previous question, I think you referenced sort of 40% of contracts recontracted and then 10% in your opening comments for '26. The question is this, how much of recontracting for 2027? Robert McKee: That's a good question. I actually haven't run those numbers, Selman. Thanks for joining us. Sorry, -- to be honest with you, I don't have that number at my fingertips. It's something that we'll be looking at. But I can tell you that kind of on average, we expect 25% to 30% of our fleet recontracts every year, and we would expect that to be in the in the 2027 outlook. To be honest with you though, we actually are having some really constructive conversations with customers right now about pulling forward some of those recontracting efforts. I mentioned earlier, we've -- we're in conversations with some customers about some 7- and 10-year renewals right now. And quite frankly, some of that stuff is -- stuff that's not even up for recontracting in 2026, and it would be pulling that forward from '27 and '28 in some cases, too. So we're really excited about that. And so it's kind of a moving target a little bit right now. But for argument's sake, really 25% to 30% of our contracts in any given year would come due, and that's our full expectation for '27. Selman Akyol: Okay. Great. I mean repricing into a stronger environment. Then the other one, just real quick. So you talked about potentially ordering some engines on spec and then you said you wouldn't have to commit 100% of the capital. But could those engines be swapped over to DPS if you didn't have a need for them? Robert McKee: Yes, we think they can. So we definitely can -- we'll be looking at how we do that and how we manage that supply chain, but we can definitely would be able to kind of by some of those slots and maybe hopefully be able to kind of manage whether they support compression or power. Operator: We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Kodiak's CEO, Mickey McKee. Robert McKee: Thank you, operator, and thank you for everyone participating in today's call. We look forward to speaking with you again after we report our results for the first quarter. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Greetings, and welcome to the Crescent Energy Q4 2025 Results Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Reid Gallagher, Investor Relations. Thank you. Reid Gallagher: Good morning, and thank you for joining Crescent's Fourth Quarter and Full Year 2025 Conference Call. Today's prepared remarks will come from our CEO, David Rockecharlie, and our CFO, Brandi Kendall. Our Chief Operating Officer and Executive Vice President of Investments, will also be available during Q&A. Today's call may contain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties, including commodity price volatility, global geopolitical conflict our business strategies and other factors that may cause actual results to differ from those expressed or implied in these statements and or other disclosures. We have no obligation to update any forward-looking statements after today's call. In addition, today's discussion may include disclosure regarding non-GAAP financial measures. A reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure, please reference our 10-K and earnings press release available under the Investors section on our website. With that, I'll hand it over to David. David Rockecharlie: Good morning, and thank you for joining us. 2025 was a transformational year for Crescent. Our team delivered strong performance by executing on our consistent strategy, and capitalizing on our leading combination of investing and operating skills. As a result, we entered 2026 better positioned than ever with more scale, more focus and more opportunity. As always, I'd like to begin with 3 key takeaways. First, our base business continues to deliver impressive results. In 2025, we generated significant free cash flow exceeded expectations on both production and capital and demonstrated the durability of our investing and operating model, and we are bringing that significant momentum into our 2026 plan. Second, we are now a focused and scaled operator in 3 premier basins, the Eagle Ford, the Permian and the Uinta, and we see tremendous upside potential across our portfolio. Our investing and divesting activity materially upgraded the quality and scale of our portfolio. In total, we executed nearly $5 billion of transactions in 2025. We closing over $4 billion of acquisitions at less than 3x EBITDA and divesting nearly $1 billion of noncore assets at over 5x EBITDA. This is how we compound value recycling capital out of noncore positions and into higher return, scalable assets where we can apply our operational playbook to drive value for years to come. You have seen us successfully execute our strategy in the Eagle Ford. Over multiple years, we have built a top 3 position while generating strong returns and hundreds of millions of annual synergies. It is just the beginning for us in the Permian, but we are off to a strong start, and we are doubling our original synergy target. And third, our equity value proposition is even more compelling. We will continue to build long-term value through strong free cash flow and returns from our base business, but we also have significant upside catalysts embedded in our business. We are excited to introduce one of those key catalysts today, our world-class minerals platform, present royalties. Let me now discuss our strong fourth quarter in more detail. We produced 268,000 barrels of oil equivalent per day for the quarter, including 106,000 barrels of oil per day and generated approximately $239 million of levered free cash flow. In the fourth quarter, our activity was focused predominantly in the Eagle Ford gas and condensate windows to capitalize on strength in the natural gas curve. Early performance has been strong and our ability to allocate capital across both oil and gas weighted inventory enhances the durability of our returns in a volatile commodity environment. Operationally, we continue to raise the bar across our asset base. Over the past year, we have increased drilling and completion efficiencies, extended lateral lengths and expanded the use of final frac operations across our footprint. These initiatives drove a 15% reduction in drilling and completion cost per foot year-over-year and contributed to full year CapEx outperformance. Our operational expertise is foundational to our strategy of buying assets and making them better and we intend to apply the same proven playbook to our newly acquired Permian assets, which gives us confidence in our increased synergy target. Our entry into the Permian was a defining step in Crescent's evolution. Today, we operate scaled positions across 3 premier basins, the Eagle Ford, the Permian and the Uinta, which is complemented by a substantial and world-class minerals portfolio. This combination provides inventory depth, commodity flexibility and a durable free cash flow profile that positions us to outperform through cycles. Turning to our new Permian assets. Integration has progressed seamlessly. As we have spent more time with the assets, our conviction in the value creation opportunity has increased. This acquisition remains one of the most compelling we've evaluated with immediate accretion across key metrics and highly attractive cash-on-cash returns. Importantly, our synergy targets are now 100% higher than what we underwrote which meaningfully enhances expected investment returns. That increase reflects clear visibility into incremental operational efficiencies, overhead optimization, marketing improvements, and additional balance sheet opportunities as we implement the Crescent playbook. Looking ahead to 2026, our plan reflects the consistent execution of our long-term free cash flow strategy. Our focus is on maximizing free cash flow while maintaining operational and capital allocation flexibility. We expect to run a 6- to 7-rig program across our asset footprint. Four rigs in the Eagle Ford will span multiple phase windows, providing flexibility to pursue the highest returns across commodity cycles. One rig in the Uinta will target our core Uteland Butte formation and continue prudent delineation of the upside across our significant resource base, following the success of our Eastern JV. And in the Permian consistent with our acquisition announcement, we are rightsizing capital and operational intensity with a disciplined 1- to 2-rig program. Our upgraded portfolio enhanced capital efficiency and commodity flexibility position us to generate some of the strongest development returns we have seen in recent years despite the current commodity price volatility. In addition to upgrading our operated portfolio, we're excited to announce the formation of Crescent Royalties. This is a major milestone in our strategy to build a leading royalties business. We have been active buyers of minerals and royalty assets for nearly 15 years and have built one of the largest and most established minerals and royalties platforms in the sector. anchored by a core position in the Eagle Ford under world-class operators. Today, our minerals portfolio contributes approximately $160 million of annual cash flow. By placing these assets within a dedicated capital structure, we enhance strategic flexibility and create additional pathways for long-term value recognition. With Crescent's differentiated knowledge, experience, and sourcing pipeline, we see meaningful opportunity to continue scaling this platform in a value-accretive manner. Our transformation in 2025 was significant and a testament to the power of our consistent strategy. We are relentlessly focused on building a great business with a great team that talented people feel proud to be a part of. With our success in 2025, we are well positioned to continue on our trajectory with more scale, more focus and more opportunity than ever before. With that, I'll turn the call over to Brandi. Brandi Kendall: Thanks, David. Crescent delivered another quarter of strong financial performance, generating approximately $536 million of adjusted EBITDA with $226 million of capital expenditures and approximately $239 million of levered free cash flow. These results underscore the significant free cash flow generation capacity of our portfolio and the strength of our lower capital intensity operating model. Our free cash flow enables what we view as an all-of-the-above return to capital framework. First, it provides substantial coverage of our fixed dividend. We declared a $0.12 per share dividend for the quarter, equating to an approximate 5% annualized yield, and our cash flow profile provides significant cushion to support and sustain that return. Second, it allows us to meaningfully strengthen the balance sheet. During the quarter, we repaid more than $700 million of debt, and we retain the capacity to continue deleveraging throughout the course of 2026. And third, it gives us flexibility to repurchase shares when market dislocation occurs. We increased our buyback authorization to $400 million, providing the ability to repurchase a meaningful amount of shares when we believe doing so represents an attractive use of capital. Our balance sheet remains strong. Our liquidity is significant, and our capital allocation framework is disciplined, flexible and focused on long-term per share value creation. With that, I'll turn the call back to David. David Rockecharlie: Thanks, Brandi. Let me close by reiterating our 3 key messages. First, our base business is strong, improving and generating meaningful cash flow, and we are bringing significant momentum into our 2026 plan. Second, our 2025 investing and divesting activity materially upgraded our portfolio. We entered the Permian at compelling value with significant synergy potential and exited noncore assets at attractive multiples. And third, Crescent's value proposition has never been more compelling. We combine investing discipline with operational expertise. We generate substantial and durable free cash flow, and we have multiple pathways to drive long-term per share value creation. We are larger, more focused and better positioned than we've ever been and we believe we are just getting started. Thank you for your time this morning, and I will now open it up for Q&A. Operator: [Operator Instructions] The first question is from Bert Donnes from William Blair. Bertrand Donnes: On Crescent royalties, could you maybe help us understand where we are in the value creation process. It seems evident to us that the value is not really showing up in the shares if you use peer multiples. And you noted scaling the business is probably maybe the next step. But what options are you open to or what options are you not open to eventually monetize the assets? David Rockecharlie: Yes, it's David. Great question. I think the most important place to start is that this has been a core business of ours. We've built a scale portfolio over the last 15 years. It's world-class assets and there is significant embedded value in the company, and we want to make sure that investors and Crescent understand what they are. The other couple of key messages I would give, these assets that we've put together are among the lowest cost in the Lower 48. We think they've got tremendous upside potential in just what we already own. But we see significant future growth potential just like we do in the rest of the business. I'll let Clay give you a little bit more color on that. John Rynd: Yes, the only thing I'd note is, we view this as realist on in terms of value creation in terms of allowing our shareholders to kind of recognize the value that we see embedded in the business. As David mentioned, we kind of see clear pathway for growth. We've been able to compound this business at 20% annual growth over the last 5 years. We continue to see a pathway for kind of accretive growth for the business. And then we're committed in 2026 to continue in to unlock value for our shareholders with this business. Bertrand Donnes: Sounds great. And then maybe just one for Brandi. On the -- maybe the [ Vanilla ] upstream M&A. We've kind of heard both sides of the story that this is a seller's market, prices are reaching high watermarks but also that inventory is drying up, and you should probably be grabbing inventory while you can. So just wondering if Crescent thinks this is a time where maybe you do whatever it takes to win a bid like maybe the Canadian Curling team? Or is it smarter just take a step back and catch a few low-priced silvers like the hockey team? David Rockecharlie: Bert, it's David. I'll take that one, and thanks for an amazing setup. What I would say a couple of things. Your comment just makes me want to communicate how many significant catalysts that we think we have in the company. But to run through them on the M&A side, we've just completed a transformational year. We think we made a great entry into the Permian a fantastic value. That integration is going great. As you know, our #1 thing when we make an acquisition is to get that right. What you should hear from us today is that it's going really well. We think it's going to be a tremendous long-term opportunity for us. From a preparedness perspective, we're active in the market all the time, and we're ready to be opportunistic. From an actionability perspective, which is very different, what we're telling you is we see a huge amount of opportunity even within the company. So we're focused on driving value with what we already own. We're focused on making sure investors understand all the levers we have in the business, including, as we've talked about, the royalties assets, which, again, are world-class and scaled. And the market, from our perspective, we'll be ready when it's there. So it's an interesting time right now, but we're kind of always in the market. But the #1 thing is, are we prepared to be opportunistic? And yes, we are. Operator: The next question is from Charles Meade from Johnson Rice. Charles Meade: Good morning David, to you and your whole team there. On the desire to grow the mineral royalty position, can you talk about what advantage Crescent has in that process. My impression is it's generally a pretty competitive market, but it's less competitive. There's fewer players as you get to the size you guys are playing in. But what do you view or your advantages that let you compound this value 20% year-over-year? And perhaps are there -- is there one geography over another where you think there's the most opportunity? David Rockecharlie: Yes, I'd say a couple of things, and it goes back to just the core of kind of who we are as a company, which is we're investors and operators. So we've got the core skill set and activity on the technical and operational side that we're looking at assets that we operate every day and paying attention to what others are doing. And then on the investing side, not only are we disciplined we're very active. It's a core competency. So we see -- and we try to see everything. So when you put that together, at the end of the day, we're obviously, there is no difference in how we go about growing. We're investing in minerals and we do the operating business. it's about patience. It's about sticking to the returns and asset profiles we want. And what we found is we've been able to compound in both of these asset classes over time as long as we're patient and disciplined and prepared and acquiring the assets that we want to own. So I do think the track record speaks for itself. But the inherent advantages we have are really who we are as a company and just really what we've built, how integrated team we are and how well we combine investing and operating expertise. Charles Meade: Got it. And then if I could ask a question that drills down on your Midland Basin position. I know it's relatively new for you guys. But there's another operator that made a big -- really a big review about the Barnett, the prospective of the Barnett in the Midland Basin. And I know there's been operators who -- it's not new that companies have been targeting the Barnett, but there were some new information with some, frankly, impressive rates. So I'm curious, I know you guys have only had your hands on those assets since December, but have you -- do you have any kind of estimate on Barnett potential that you'd be able to share? David Rockecharlie: David again, and then I'll let Joey and Clay also give you some more context on your broader Midland question. But very specifically, I'd say 2 things. We think we've made a phenomenal entry into the basin. We feel really good about it. It's going well, and we think we got it at great value. So we don't feel any, what I'll call, pressure to do anything other than make sure we get that integration and then synergy capture right. The second thing I would say, kind of before I hand it off is if you look at really our strategy in action and what we've been able to do in the Eagle Ford, we put together a very significant position really over a decade. We're now a top 3 producer in that basin. And a lot of the resource that we're developing today was not thought to be there or thought to be economic at the time we acquired it, which is fantastic. So I would just say we have high hopes for our entire business in terms of the long-term inventory potential without trying to comment specifically on the Barnett. But I'll let Joey and Clay also give you some more perspective just on how the Midland and Permian is going. John Rynd: Yes. The only thing I'd add, Charles, is clearly, we mentioned a lot when we talk about M&A, how active we are. And in the market. I think the same thing would apply to resource expansion. And so you'd expect us to be kind of very actively following where the market there and what opportunity we have. And as David mentioned, I think one of the big reasons you're hearing so much excitement for us on the on the Permian entry is that we think there's a ton of opportunity around that asset base. So really excited about where we sit today. Jerome Hall: Yes. And Charles, in regard, we've seen the same announcements on the Barnett and we just consider that potentially more upside to what we've already highlighted. And so looking forward to exploring that with everybody else and seeing what we can do with it. Operator: The next question is from Michael Furrow from Pickering Energy Partners. Michael Furrow: I'd like to stick on Crescent Royalties quickly. We appreciate your comments that the strategy sounds quite clear towards adding scale. But given that this is a different business model, are the acquisition rate is going to be consistent with legacy Crescent 5-year payback period at a 2x multiple of invested capital? John Rynd: Yes, that's right. It's the same lens we bring, right? So as you know, right, this is cash flow orientation on the royalty side, clear focus on 2x multiple money and very clear focus on NAV per share and free cash flow per share accretion. So what we are excited about in the business is we've been able to build it the way we built it. with those as kind of our core focus, and that is the opportunities that we see going forward. Michael Furrow: All right. That's great. I appreciate the color there. As a follow-up, I was hoping for some clarification on one of your slides in the deck, Slide 11 here. So by our math, it looks like the implied oil rate for the fourth quarter in the Permian was nearly 70,000 barrels a day, represent a pretty meaningful step up from the 3Q level of like 61,000 and even more impressive is that you're disclosing 0 turning in the fourth quarter. So are there moving pieces here in terms of what was disclosed or maybe some M&A or other transactions that occurred? Just trying to square that circle. Brandi Kendall: Michael, so no additional transaction I would say that our base business outperformed production expectations in the fourth quarter. I think we're carrying forward good momentum into 2026. I will also flag though that Vital did not bring on any new wells since early October. So that business was in decline, and that's ultimately what's translating into a pretty flat oil production cadence for 2026. Operator: The next question is from Philip Jungwirth from BMO. Phillip Jungwirth: Congrats on the successful Vital integration and increase on synergies. On the well costs, I know these numbers are not always apples-to-apples across companies, but I think you're at $700 per foot in the Midland, $875 in the Delaware. I know there's a lot of tough competitors in these basins, but it does feel like there's a nice gap you could reduce. I know we're just getting started, but just wondering how much runway do you see to lower in Permian well cost beyond what's being underwritten currently in the asset. Jerome Hall: Philip, thanks for the question. Yes, we're going to be working the DMC piece of it diligently. We do see some great opportunity for improvement. We've already seen some even in the short time that we've had things moving forward. The other part of it that I always like to encourage people, point out to people is just the value of slowing down the fact that we slowed down, get the opportunity to catch our breath, understand from the past learnings from Vital and apply the things that we're going to do going forward. Just a slower pace gives us a better opportunity for higher capital efficiency and reducing costs. So we're very bullish on our opportunity to reduce well cost in the Permian. Phillip Jungwirth: Okay. And slowing down is actually going to be my follow-up here. Just on the base decline, Vital used to give us a year-end figure for oil and BOE. Last year, it was 42% for oil and 36% per BOE. So I'm guessing this is a lot lower today, but any sense on where the Permian base decline is now or by year-end '26? And just to confirm an earlier comment, can we imply that Permian oil production is also going to trend flat through the year similar to the Total company? Brandi Kendall: Philip, this is Brandi. I think similar to my prior comments, I would expect relatively flat oil volumes, both in the Eagle Ford and in the Permian throughout the course of 2026. Phillip Jungwirth: Okay. Great. And then anything on the base decline? Brandi Kendall: Yes. On a corporate level, we did pick up post the merger pro forma for divestitures were in the high 20s that across the base -- the broader business, but expect to kind of get back to our corporate target of 25% or below over the next 12 to 18 months. Operator: The next question is from Jarrod Giroue from Stephens. Jarrod Giroue: Congrats on a strong quarter. So my first question is around synergies from the Vital acquisition. In your release, you stated that Crescent had already hit $40 million plus in synergies from the deal, and it's causing you to double your annual target of about $190 million. I was hoping you could give a little color on what you -- what savings you've already seen and what you expect to get to the $190 million? Brandi Kendall: Hey Jarrod, it's Brandi. I'll start, and then I'll turn it over to Joey. So with respect to the $40 million that has been captured to date, I would say, largely overhead, duplicative public company expenses as well as cost of capital synergies. Of the 100% increase on synergies, I would say 50% of that is op related. And then the remaining 50% is additional overhead, incremental marketing synergies and then additional opportunities to further drive down cost of capital. Jerome Hall: And Jarrod, one of the things since I've been here at Crescent that's been incredibly impressive. This has gone back in history their 16th asset that they've acquired since going public and have a very good, tried and true playbook on integration. I've been incredibly impressed efficiently. We've been able to integrate these assets. The team integrations and operational performance are exceeding our expectations. Just some color on some things specifically. Going forward, we'll be increasing the number of wells per pad, which will allow us to implement simulfrac. We're also increasing lateral lengths by doing land trades. So we'll be able to increase our capital efficiency there. The supply chain opportunities are starting to come to us now that we're a company of scale, combining services and contracts. Some specific examples, combining contracts on generators, compression, chemicals, tubulars, and as I was explaining to Charles, just don't underestimate the value of slowing down. Slowing down gives us better operational planning, which drives better execution. Also on the LOE side, huge opportunity on the artificial lift side with our cash flow focus free cash flow focus. We're focusing on long-term value versus short time rates. So that affects the ESP sizing and how we do the timing of artificial lift spots. The list is pretty long. All of these opportunities will be feathering in over 2026, but we're pretty excited and looking forward to getting through 2026 and capturing all the synergies. Jarrod Giroue: That's great. And then just my second question, with the earnings release, you announced an upsized and extended share repurchase authorization of $400 million. So just kind of curious how Crescent prioritizes shareholder return between the base dividend, shareholder returns and debt reduction in 2026? Brandi Kendall: Jarrod, this is Brandi. So no change to kind of key capital allocation priorities. The balance sheet and the dividend or top. We're prioritizing deleveraging well so retaining the flexibility, right? We kind of talked about all of the above return to capital program. But again, I think in the immediate term, it's all about the balance sheet, the increase in the buyback, though does allow us to be opportunistic. It allows us to move the needle with the authorization program if the stock is significantly dislocated. Operator: The next question is from Jonathan Mardini from KeyBanc Capital Markets. Jonathan Mardini: Just given the capacity or the ability for minerals companies to run at higher leverage ratios, the latest spotlighting of Crescent royalties change the way you think about leverage over time? Or would you target that 1.5x ratio at the minerals level? So just how we should think about leverage on a consolidated basis trending through this year? Brandi Kendall: Good question. I would say no fundamental change. It's how we think about leverage across the broader business, long-term target continues to be 1x. We do believe that we were pretty conservative financing these latest minerals acquisitions. We expect to be below 1.5x by year-end. And then there's clearly just significant asset coverage given where this asset class trades relative to that leverage target. Jonathan Mardini: Okay. I appreciate the details. And moving upstream on your Eagle Ford asset slide, we show laterals your Central and Southern regions increasing by about 2,000 feet compared to 2025. Can you just talk about what's driving this expected step-up and maybe how we should expect this to impact D&C cost per foot in 2026? John Rynd: Jonathan, this is Clay. I'm happy to start, and then I'll turn it to Joey. I think part of that is, as we've talked about, our ability to kind of build scale in the Eagle Ford has given us a huge opportunity to continue to drive capital efficiency by extending laterals assets of joint ventures, just blocking and tackling in terms of putting the position together and giving ourselves the best shot on capital efficiency. But turn to Joey also. Jerome Hall: Yes, Jonathan. Obviously, one of the simplest ways to become more efficient is to drill longer laterals. So it's really as simple as that. But I also point to the fact that we're increasing the pad sizes as well which allows us to increase the percentage of simulfrac. We'll be up to 70% of our pads in South Texas regional beyond simulfrac. So those 2 things combined really push our capital efficiency higher and higher. So it's all good things happening. Operator: The next question is from John Abbott from Wolfe Research. John Abbott: I'll just jump to the Uinta for a moment here. I mean, part of your program this year is sort of delineating the other zones in that area.When you think about that asset, how do you think about the optionality of the Uinta at this point in time that is not as significant part of your portfolio as in the past? David Rockecharlie: John, it's David. Great question. I'd say a couple of things. Just to hit optionality immediately and succinctly in our control, how we want to handle it. So that's just a fantastic asset to have. It's obviously intentional on our part as well as part of our strategy. So we feel really good about 2 things in that area. We can deliver really strong returns in a I'll call normalized oil market. We're making great returns there and been view now. And then just the resource potential there is incredible. We've seen our offset operators continue to expand that opportunity. We entered there below PDP value. So we feel great about what I'll call just methodically going through the opportunity and expanding it over time. And as Joey said, the ability operationally to just go at the pace you want to go just provides tremendous optionality. But we think of it as more or less a 1 rig area for us and just slow and steady continued expansion of the opportunity is what we expect. John Abbott: Appreciate it. And then the follow-up question is really on maintenance CapEx and long-term oil. Based off your current plans, I guess, you could exit the year, with 1 rig maybe in the Permian. Let's say, maintenance CapEx long term. I was talking to Brandi about last night, it's $1.3 billion to $1.4 billion long term, well, maybe about 130,000 barrels per day. I guess my question is, is if we do see a more constructive environment in the second half of this year and as we sort of look out to 2027, '28, could you decide to plateau at a higher level? Or is 1 rig in the Permian really where you want to be? Or could you decide, hey, if we have a more constructive environment, let's just be a little bit higher than 130 long term? David Rockecharlie: John, it's David again. I'm happy to take that. Long story short is we feel really good about what I'll call running the business at a target reinvestment rate, and we've done that all the time. Our key goal is returns and free cash flow. So yes, back to your topic of optionality. We've got the ability to do more everywhere, which means not that we're going to do more everywhere, but we can allocate our development activity to the best return. So if oil development is higher returning, you will see us allocating more capital towards oil and vice versa. You've seen the gas market strengthen. We've had more allocation there. So I think it will be purely a function of rate of return. -- and then we actually have oil opportunity in the Eagle Ford and the UN in the Permian. So I think we could do it anywhere. But yes, you're correctly pointing out that we've got good optionality in the Permian. Operator: The next question is from Lloyd Byron from Jefferies. Unknown Analyst: Congrats on all the progress. Can I just go back and get a couple of clarifications. I don't know if it was Joe that was talking about costs, but another way to kind of ask it, is there an optimal scale for you guys going forward? And I'm just thinking about in the Permian or the Uinta, you've done such a good job in the Eagle Ford with scale. David Rockecharlie: This is David. I'll give you a sort of simple response and then Brandi give you maybe a little more context strategically. What we are seeing is that we've got the scale we need to continue to drive value within the current business. around operations. We see tremendous upside in continuing to drive efficiencies across these assets. And in particular, as you know, the newest assets in the company are recent, call it, 12 to 18 months ago, Eagle Ford acquisitions and then the entry into the Permian. So we feel like we've got plenty of scale there to continue to drive value. However, we think this industry through cycle presents significant opportunity for our business strategy to grow through acquisition opportunistically. And so we also see significant scale potential beyond what we already have, in particular, in the Eagle Ford and the Permian. And so I think that's what we're looking for. But those acquisitions are all going to stand on their own, and they're going to be, because we think the value is right because we think we're ready to do them and we see an ability to do what we do, which is buy assets and make them better. I think we would tell you we've got the scale we need today to drive significant value on our existing footprint. Unknown Analyst: Okay. That makes sense. And then let me come back to [indiscernible] and a little bit. And I know you're -- it's a nice steady growth going forward, but are there any bottlenecks at this point, takeaway rail, permitting? Could you grow it faster if you wanted to, I guess, my question. Brandi Kendall: Lloyd, I'll start. So we could grow it faster if we want it. I think we've always thought about this asset as kind of a 1-rig asset but the basin has really transformed over the last couple of years given rail, given kind of debottlenecking on the gas side of things. So I would say no constraint from an oil or gas midstream perspective. Operator: There are no further questions at this time. I would like to turn the floor back over to David Rockecharlie for closing comments. David Rockecharlie: Perfect. Thank you all again. We really appreciate again, the opportunity every quarter to share how we're doing. And hopefully, the key takeaways all came through, which is base business, high performing with a lot of momentum. We completely transformed the portfolio last year into a much more focused scale business. And again, we think the company has a tremendous amount of catalysts both on the existing assets, but also one of the things we really are highlighting this quarter is the opportunity in our Minerals business in that segment. So we'll continue to keep you updated as we move forward. And again, thank you for the support. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and thank you for standing by. Welcome to the Dorman Products Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to Alex Whitelam, Vice President of Investor Relations. Thank you, sir. Please go ahead. Alexander Whitelam: Thank you. Good morning, everyone. Welcome to Dorman's Fourth Quarter 2025 Earnings Conference Call. I'm joined by Kevin Olsen, Dorman's Chief Executive Officer; and David Hession, Dorman's Chief Financial Officer. Additionally, Charles Rayfield, who will officially step into the role of Chief Financial Officer following our upcoming filing of the 2025 10-K is in attendance. Kevin will provide a quick overview, along with an update on each of our business segments and their respective markets. Then David will review the consolidated results before turning it back over to Kevin for our outlook and closing remarks. After that, we'll open the call for questions. By now, everyone should have access to our earnings release and earnings call presentation, which are available on the Investor Relations portion of our website at dormanproducts.com. Before we begin, I'd like to remind everyone that our prepared remarks, earnings release and investor presentation include forward-looking statements within the meaning of federal securities laws. We advise the listeners to review the risk factors and cautionary statements in our most recent 10-Q, 10-K and earnings release for important material assumptions, expectations and factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. We'll also reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our earnings release and in the appendix to this earnings call presentation, both of which can be found on the Investor Relations section of Dorman's website. Finally, during the Q&A portion of today's call, we ask that participants limit themselves to 1 question with 1 follow-up and to rejoin the queue if they have additional questions. And with that, I'll turn the call over to Kevin. Kevin Olsen: Thanks, Alex. Good morning, and thank you for joining our Fourth Quarter 2025 Earnings Call. As Alex mentioned, I'll start with our achievements in 2025, a high-level review of the results for Q4 and updates for each of our segments before turning it over to David. Let me start on Slide 3. As you'll recall, in last year's Q4 earnings call, we laid out a clear set of strategic priorities for 2025, critical areas where we plan to commit time, resources and investments to advance our long-term goals. I'm pleased to report that we delivered on what we said we would do. First, innovation. We had an exceptional year with record sales from new products, launching thousands of new SKUs, including some home runs like the electronic power steering rack, along with many singles, doubles and triples. We also made meaningful investments in our product development function. Our current new product pipeline is as strong as it's ever been with a growing mix of opportunities involving complex electronic solutions, an area where we believe we have a distinct competitive advantage. Innovation remains the lifeblood of Dorman and the progress we made this year positions us extremely well for the future. Second, operational excellence. We advanced productivity across the organization, including deploying new automation technologies in our distribution centers. These initiatives improved service levels for customers, enhanced availability for end users and generated tangible savings. We see continued opportunity here, and we'll keep driving efficiency and performance across our facilities. Third, supply chain excellence. Despite a complex tariff environment, we executed as planned. In 2025, we further diversified our global sourcing footprint, meeting our goal to reduce supply from China to below 40%. Strengthening supply chain resilience remains a key priority, and we continue to build deep strategic relationships with suppliers around the world. 2026, we expect our supply from China will further be reduced to approximately 30% of our total spend. Fourth, channel expansion. In both heavy-duty and specialty vehicle, we expanded our reach and won new business. With Dayton, we drove wins by leaning into categories where we had competitive advantages. And with SuperATV, we expanded our dealer network and nondiscretionary portfolio. And finally, strategic growth. While M&A activity in the aftermarket was quiet overall in 2025, we capitalized on organic growth opportunities across each of our segments and end markets with category and customer wins. On the M&A front, we deepened relationships with potential sellers and continue to evaluate new opportunities. We're hopeful that the coming quarters will bring more activity to the M&A market. Overall, our priorities were clear, and we executed with discipline. We're proud of what we achieved in 2025 and even more confident in the foundation we built for continued growth and value creation. Turning to Slide 4. These accomplishments translated into outstanding financial performance for the year. Let me cover a few of the highlights. Net sales reached $2.13 billion, up 6% year-over-year. Growth was driven by strong demand in our light-duty segment during the first half as well as successful execution of our tariff-related pricing initiatives in the back half. While broader market conditions presented some headwinds for heavy-duty and specialty vehicle, the teams executed on their commercialization initiatives during the year. We also delivered meaningful margin expansion and earnings growth for 2025. Although cash flow was impacted by increased tariffs, our earnings strength and cash management strategy allowed us to continue investing in the business, further strengthen the balance sheet and return capital to our shareholders. Our achievements and performance in 2025 are the direct result of the hard work and dedication that our contributors bring to Dorman every day. So I'd like to take a minute to thank and recognize everyone across the organization who worked tirelessly to navigate through the dynamic changes and challenges faced throughout the year, all while driving innovation, delivering operational improvements and putting our customers and end users at the forefront of everything we do. I'm proud of the talented team we have at Dorman and what we've accomplished together. I look forward to building on the success in 2026. Speaking of talent, I also want to welcome Charles Rayfield as our new CFO. Charles comes to Dorman with extensive CFO experience in both privately held and publicly traded companies. I know a few of you have had the opportunity to make quick introductions, and we're looking forward to having Charles on our future calls and getting out on the road in coming quarters. Next, on Slide 5, let me touch on the high-level results for the fourth quarter. Consolidated net sales were $538 million, up slightly from Q4 2024, but below our internal expectations. Our tariff-related pricing actions supported modest growth. However, shipment volume was down year-over-year due to a larger customer adjusting their ordering patterns in the quarter, which I'll cover in a moment. Despite lower-than-expected net sales in the fourth quarter, gross margins exceeded our expectations, allowing us to deliver adjusted diluted EPS for the year at the high end of our guidance range. A couple of factors I'll highlight contributed to this result. First, we shipped more pre-tariff lower cost inventory, driven in part by lower-than-expected volume in the quarter. Second, our team did a nice job managing expenses across the organization. Together, these drivers allowed us to report adjusted diluted earnings per share of $2.17 for the quarter. As we anticipated, cash generation improved sequentially with $42 million in operating cash flow in Q4. Additionally, we further strengthened our balance sheet and returned $25 million to shareholders through share repurchases. Finally, we are issuing 2026 guidance that demonstrates our confidence in delivering strong top line growth through innovation and commercialization initiatives and reflects the timing impacts relating to tariffs. I'll walk through that outlook in more detail shortly. So while there are several moving parts in the quarter, I'm pleased with our year-end results and have confidence in our team's ability to continue executing on our strategy and drive strong long-term profitable growth. Next, let me provide our results and market observations for each of our business segments while highlighting some of our recent accomplishments in each. Turning to Slide 6. I'll begin with our light-duty business. Net sales in the fourth quarter were $429 million, up slightly over the same period in 2024. We estimate that POS at our large customers was up mid-single digits year-over-year for the fourth quarter. And when you look at POS over the entirety of 2025, it directionally aligned with net sales. As I just mentioned, the team did an excellent job executing on our pricing initiatives. This helped offset lower shipment volume resulting from a larger customer that significantly shifted their ordering pattern during the quarter to reduce inventory. Also, keep in mind that last year's fourth quarter was exceptionally strong with execution on a number of large programs. As it relates to the specific customer ordering change, we expect to see continued order fluctuations in the first quarter of 2026, with stabilization returning in the second quarter. Overall, we believe the nondiscretionary nature of our product portfolio and our new product development strategy will allow us to drive outperformance over the long term. Next, we drove stronger-than-expected gross margin, given more lower cost pre-tariff inventory shipped during the quarter, partially as a result of lower-than-expected volume. We also drove continued savings with our ongoing supplier diversification and productivity initiatives. Operating margin was down slightly year-over-year, largely because of the higher factoring costs related to tariffs. Looking more broadly at the light-duty market, macro trends continue to remain positive with VIO and vehicle miles traveled increasing year-over-year. Additionally, OEM platform changes continue to present opportunities for our new product development strategy, especially in complex electronics. On this point, we continue to invest in our complex electronic capabilities as EV, hybrid and ICE vehicles are increasingly being equipped with more digital systems. We have the infrastructure and expertise to address complex electronic failures with more than 15 years of experience with data logging, electronics design and co-development to provide our customers with sophisticated software-enabled solutions. Our current new product pipeline includes the highest proportion of complex electronics in our history. As an example of this, we recently launched a fuel pump driver module for a wide range of Toyota and Lexus models. Assembled in the U.S., this solution is precision engineered to replace the original equipment module, which can fail after exposure to heat and environmental elements. Fuel pump driver module showcases Dorman's ability to apply OEM-level electronics engineering and manufacturing in high-volume applications. With more than 2.5 million vehicles in operation across Toyota and Lexus platforms. This module allows us to bring our advanced power electronics capabilities to drivers looking for extended vehicle life with an easy-to-install and cost-effective solution. Great job by our product development team for identifying and bringing this opportunity to market. Next, let me turn to Slide 7 for our heavy-duty business. Net sales grew 6% year-over-year in the fourth quarter despite continued pressure in the trucking and freight industry. The heavy-duty team did a nice job executing on the pricing front while also driving more business wins. Operating margin expanded 130 basis points year-over-year as a result of the timing around tariffs, similar to our light-duty business. We remain focused on improving both our commercial and operational execution in the heavy-duty segment to achieve our long-term goal of mid-teens operating margin. Looking across the sector, the great freight recession continued in the fourth quarter, where tariff and general market uncertainty continue to add pressure on the trucking and freight industry. That said, softer new vehicle sales across the last several years have led to an increase in the average heavy-duty vehicle age, a trend which we expect to continue for the next several years. All in all, there continues to be mixed signals within the market, making it hard to predict the timing of rebound. But we're tracking it closely, controlling what we can control and investing where appropriate to capitalize on business wins. One example of this would be the recent expansion of our medium-duty product offering and omnichannel approach. Medium-duty vehicles are typically part of larger fleets focused on last-mile delivery. used in ports, large campuses, industrial settings and for deliveries to our homes and businesses. These are high mileage vehicles, making many stops, so they experience quite a bit of wear and tear. Historically, fleet managers will rely on their dealer relationships for key repairs in their medium-duty fleet. However, through our wholesale distribution network and direct sales relationships, we're approaching this channel with improved focus to provide fleet managers with more optionality and cost savings while maintaining these critical assets. On Slide 8, I'll provide an overview of the Specialty Vehicle segment. Top line growth in the fourth quarter was flat year-over-year with pricing initiatives on certain categories offsetting softer spending in the overall segment. Operating margin was down year-over-year in the fourth quarter, primarily due to increased wage and benefit expenses. I'd note that the overall change in profit dollars is relatively low, and the team did a nice job managing expenses in specific areas of the business that are more controllable. Again, longer term, we are targeting a high teens margin profile for the business, supported by expanding new product pipeline, especially with nondiscretionary parts. While market challenges persist, UTV and ATV ridership remains strong. This condition remained consistent through 2025. So we're not seeing an impact to overall end-user demand for these products, just timing delays in purchases. New machine sales are also rebounding in the 2024 and 2025 levels and dealers have generally rightsized their vehicle inventory positions. We expect that as economic conditions improve, riders will resume enhancing and repairing their vehicles. On the new product development front, SuperATV continues to demonstrate its speed and agility in bringing solutions to the evolving aftermarket. We recently launched a 4-inch and 6-inch portal gear lift for the CF Moto UForce U10. As CF Moto's newest high-demand UTV hit the market, SuperATV was the first and currently the only manufacturer to deliver portal lift solutions for this model. Our portals enable riders to customize and elevate performance with the durability and capability SuperATV is known for. This patented early to market position reinforces our strategic advantage, the ability to evaluate new vehicle platforms quickly, engineer high-quality components and release fully tested products ahead of competitors. Congrats to the SuperATV team on another successful launch. With that, I'll turn it over to David to cover our results in more detail. David? David Hession: Thanks, Kevin. Turning to Slide 9. Let me provide more detail on our consolidated results. Net sales in the fourth quarter were $538 million, up $4 million or approximately 1% year-over-year. As Kevin highlighted, our net sales performance across the enterprise was largely driven by our pricing initiatives. In addition to the tough comparison we had in Q4 2024, where we had strong growth, volume this year was impacted by a larger customer that significantly changed their ordering pattern during the quarter to reduce inventory. That said, we believe these timing shifts will normalize through the second quarter of 2026. Adjusted gross margin came in higher than expected for the quarter at 42.6%. This was a 90 basis point increase compared to last year's fourth quarter. As Kevin mentioned, this margin expansion was driven by more pre-tariff lower cost inventory shipped during the quarter, partially as a result of lower-than-expected volume. Supplier diversification and productivity initiatives across the organization also contributed to our strong margin performance. Adjusted SG&A expense as a percentage of net sales was 25.2%, up 100 basis points compared to the same period last year. The uptick was largely tied to increased expenses related to funding the higher tariffs, along with higher wage and benefit costs in the quarter. Adjusted operating income was $93 million and flat compared to last year's fourth quarter. Adjusted operating margin was 17.4%, down slightly compared to the same period. As we discussed in prior quarters, there has been continued pressure on the trucking and freight industry impacting our heavy-duty segment. As a result, we recorded a noncash goodwill impairment charge in the fourth quarter of approximately $51 million after taxes. This is reflected in our GAAP results included in our press release, but has been adjusted out in adjusted diluted EPS. With that, adjusted diluted EPS in the fourth quarter was $2.17, down 1% year-over-year, but up against a very strong fourth quarter 2024. Interest expense was lower on debt reduction, and our tax rate was lower in the fourth quarter of 2024 due to discrete items that did not repeat this year. Let me quickly cover our full year results on Slide 10. As Kevin mentioned in our 2025 highlights, net sales increased 6% year-over-year with the first half driven by strong demand in our light-duty business and our pricing initiatives related to tariffs driving our performance in the second half. New products saw a record year of sales and the commercialization initiatives we've discussed throughout the year were positive drivers of our top line results. Operating income increased 17% over 2024 and operating margins were up 170 basis points to 17.8%. Again, this margin performance was driven by tariff-related timing dynamics, along with the supplier diversification and productivity initiatives driven by our segments. Let me also provide some additional color on our earnings. Adjusted diluted EPS was $8.87 for 2025, a 24% increase compared to the year prior. Now with full visibility of the impacts that the additional tariffs had on our results for the year, we thought it would be helpful to quantify this impact for the investment community. When including the timing dynamics of price and costs, along with the onetime miscellaneous expenses associated with tariffs, we estimate a full year impact of approximately $1.25 to our adjusted diluted EPS. While this is purely an estimate, we thought it would help contextualize pre-tariff comparison to 2024 and set a framework for our 2026 guidance, which Kevin will cover in a moment. Turning to our cash flow on Slide 11. As we expected, cash generation improved sequentially from Q3 to Q4. While tariffs continue to impact our inventory spend, we drove $42 million in operating cash flow during the quarter, a $30 million improvement from Q3. This allowed us to repay $16 million of debt and resume our share repurchases with approximately $25 million deployed in the fourth quarter. While we covered this extensively throughout the year, our full year operating cash flow was down 51% in 2025 compared to 2024. With capital expenditures essentially consistent, free cash flow was down 61% year-over-year. Again, the majority of this decline was tied to higher cost inventory as a result of tariffs. Looking ahead in 2026, we expect operating and free cash flow to continue improving before normalizing in the back half of the year. I'll reinforce that we ended 2025 with a strong balance sheet and liquidity position. Throughout the year, we successfully managed tariffs and higher cost inventory with our asset-light operating model and cash management, all while investing in key organic growth opportunities for the organization. As you can see on Slide 12, net debt was $391 million at the end of the year, which was down $42 million compared to the same time the year prior. Our net leverage ratio was 0.89x adjusted EBITDA compared to 1.12x at the end of 2024. And finally, our total liquidity was $648 million at the end of 2025, up from $642 million at the end of the prior year. I'll conclude by commenting how proud I am of the work our team has done to build the financial foundation that the company sits on today and look forward to seeing where Kevin, Charles and all my fellow contributors take Dorman into the future. To the analysts and investors that I've had the pleasure of working with over the past 7 years, thank you for all of your support and confidence in our team. With that, I'll turn it back to Kevin to cover guidance before we get into the Q&A. Kevin Olsen: Thanks, David. Let me dive into the guidance we are providing for 2026 on Slide 13. As we discussed in our Q2 and Q3 earnings calls, tariffs created timing nuances related to when price and costs took effect on our results. This created a tale of 2 halves in 2025, where the first half was on a typical price and inventory cost schedule and then pricing took effect in the second half without the associated higher cost inventory selling through. As we discussed today, this continued into the fourth quarter as we shipped out less inventory with the highest levels of tariffs. Therefore, we expect to see the higher cost inventory hit more in the first half of 2026 before normalizing later in the year. Starting with the top line. We expect total net sales growth to be in the range of 7% to 9% for the year and directionally the same range for each of the segments. This growth target reflects both a modest level of volume improvement over 2025, along with the impact of pricing. Two factors to keep in mind. First, we had a strong first half of 2025 from a volume perspective. Second, as we've covered in our last several calls, 2025 only saw increased tariff pricing begin to take effect in Q3. So the full year impact is a positive. Let me provide a bit of additional color around cadence for the year. From a margin perspective, we expect operating margin will reduce temporarily in the first quarter, but we expect our margin profile will meaningfully improve through the back half of the year. This is because of the FIFO lag on reduced costs from lower tariffs, along with our continued supplier diversification, productivity and automation initiatives driving more savings throughout the year. For the full year, we expect to deliver an operating margin in the range of 15% to 16% with a more normalized high teens rate as we exit 2026. As a reference point, if you look back to our performance in 2023, with the inflationary environment following the global pandemic, we had a similar situation where the business began the year with subdued margins and then finished the year strong. We're expecting a similar cadence with operating margins this year. Point is we've managed through inflationary cycles before, and we have the playbook to handle the timing nuances. Next, for 2026, we expect a full year tax rate of approximately 23.5%. This could vary from quarter-to-quarter as discrete items are recognized. Finally, for adjusted diluted earnings per share, we expect 2026 to be in the range of $8.10 to $8.50. Let me provide some additional context around this range. As David mentioned, we estimate that the additional tariffs that took effect in 2025 had an impact of $1.25 on our full year adjusted diluted EPS. Excluding this benefit, our adjusted diluted EPS would have been approximately $7.62 or a 7% increase over 2024. And our 2026 EPS guidance range represents a growth rate of 6% to 12% on a comparable basis. Again, this is purely an estimate, but we felt it was important to help outline the overall impact tariffs have had on the business. From a cadence perspective, we expect that EPS will see the toughest year-over-year comparison in the first quarter, with growth rates normalizing towards the end of the year. I'll mention that this is more color than we ordinarily provide. But given the complexities and nuances with the timing impacts of tariffs and price, we hope it might be helpful context as we think about 2026. All this said, we continue to live in an environment with significant uncertainty as it relates to tariffs and global trade dynamics. The recent IEEPA ruling by the Supreme Court last week and the new Section 122 global tariffs announced over the weekend have added additional complexity and uncertainty. For clarity, our guidance today reflects an assumption that future tariff levels will remain generally consistent with those that were in place prior to the IEEPA ruling, and therefore, we expect the overall impact to our business will likely be directionally the same. Additionally, our guidance does not reflect any potential IEEPA-based tariff refunds that may be issued or claimed in the future. Should any material changes to tariffs or trade disruptions significantly impact our business or alter our expectations, we may look to update our guidance. Just to finish up on Slide 14, I'd like to reiterate my congratulations to our entire team for delivering strong performance in 2025 and operationally executing exactly what we said we would do. While there are a number of moving parts in 2026, our guidance reflects our ability to navigate through the challenges tariffs have presented and deliver strong long-term growth for our shareholders. We'll continue driving innovation for our customers and end users, further improving our commercial and operational execution and strategically investing in opportunities where we can win in our respective markets. We value your partnership, and thank you for your support. Finally, I wanted to take a moment to thank and recognize David as this will be his last earnings call. Since joining the company in 2019, David has played an integral role in our success, helping lead through a global pandemic, supply chain disruptions and 2 rounds of tariffs. Now I understand why you're retiring. In all seriousness, David, your mark on Dorman will be felt for a long time. So thank you for your service, and we wish you all the best in retirement. With that, I would like to now open the call up for questions. Operator? Operator: [Operator Instructions] Our first question comes from Scott Stember from ROTH Capital. Scott Stember: David, congrats on your retirement, and it was great working with you. David Hession: Thanks, Scott. It's been a pleasure. I appreciate it. Scott Stember: So beyond the tariff noise within the guidance, I'm just trying to make sure I get a sense of how, I guess, the light-duty business is doing. It sounds like mid-single-digit POS growth. There was a lot of pricing in there as well. But I know you typically don't parse this out, but I'm just trying to get a sense of what volume looks like on a POS basis. Just trying to get a sense of how you guys are matching up with what the O'Reilly's and the AutoZone's are saying. Kevin Olsen: Yes, Scott. Yes, thanks for the question. Good question. Look, the light-duty business, the macros remain very strong. I mean the sweet spot of the vehicle, the 7- to 14-year-old vehicle continues to increase. Miles driven continue to be up. The age of the vehicle now is approaching 13 years. So overall, we see a very constructive environment as we go into 2026. As you said, our POS was up mid-single digit in the quarter, very similar to what we saw in the third quarter. So not a lot of change there. The one dynamic, obviously, that we pointed out in our prepared remarks was, obviously, sales were down a bit as it related to POS because of the one customer who changed their order patterns in the fourth quarter. But other than that, we remain real constructive on the aftermarket here as we move into 2026. Scott Stember: Got it. And your guidance for 7% to 9% growth for the year, very robust. Obviously, it sounds like there'll be some additional pricing actions coming through. But maybe talk about POS versus sell-in. Are we basically saying that you would expect that POS would be up in that mid- to high single-digit range for the year? Kevin Olsen: Yes. I mean we're assuming roughly mid-single-digit POS as we move through 2026. There is -- you mentioned new pricing. I'll just clarify that a little bit. It's more of a wrap of the pricing, a full year impact of the pricing that we already put in place in 2025. So there will be a bit of a favorable benefit to that. Outside of that, we'll see POS growth that will drive our sales growth on top of new product. So we had -- as we mentioned in our prepared remarks, we had a very robust year in 2025 from a new product standpoint. As a matter of fact, we had a record year for new product sales, which will carry over and we'll get a large bump from a full year impact of that. And we're anticipating another real strong year for new product sales as well. Operator: Our next question comes from Bret Jordan from Jefferies LLC. Bret Jordan: When we look at the inventory growth year-over-year, could you sort of parse out what of that is in tariff price, units versus cost in that inventory? Kevin Olsen: Yes, Bret, the largest proportion of inventory growth that you've seen really starting at midyear at Liberation Day is the higher tariff cost. There is some additional lift there just because volume was up, but also we did purchase ahead of the tariffs that temporarily lifted our inventory levels as well. But the largest component is increased cost from tariffs. Bret Jordan: Okay. And then I guess when you think about the customer base ex the advanced math, about the POS, the cadence through the quarter, and I guess maybe if you could give us any color on early '26. Are you seeing the underlying traction improving at the sort of end user demand? Kevin Olsen: Yes. So as we mentioned, Bret, POS was very similar in the fourth quarter that we saw in the third quarter. And as we rounded into 2026, January was essentially in line with what we saw in the fourth quarter, and we did see a modest uptick in February. As you know, March is a pretty key month for the aftermarket as we get ready for the spring selling season. So obviously, we're hoping that, that continues that progress that we saw in February. Operator: Our next question comes from Jeff Lick from Stephens Inc. Jeffrey Lick: David, best of luck. David Hession: Thanks, Jeff. Jeffrey Lick: So if you just look at the exit rate of sales. Light-duty flat, heavy-duty 5% and specialty 0. What gives you confidence? Your guidance of 7% to 9% assumes there's going to be quite an acceleration. I was wondering if maybe you could just give a little more granularity. And then am I right to interpret that you're still going to see some tariff benefit in Q1 and Q2? And then maybe if you could peel back. You also made a comment, Kevin, I think, to Scott's question about POS sales with the customer with the auto -- the order pattern change, were they actually down then? So maybe just kind of what gives you -- the 7% to 9% implies an acceleration. So maybe just a little more granularity. Kevin Olsen: Yes. Sure. So full year sales growth in 2025 was about 6%. What happened in the fourth quarter, Jeff, I'm glad you brought this up. We had one of our largest customers shift their order patterns in the fourth quarter as they're going through some supply chain and distribution center consolidation. If that -- if we saw order rates kind of continue like we did in the third quarter, we would have been well within the guidance that we issued to TheStreet. Just to give you a little context, orders were down from that customer nearly 40% from the third quarter. That's obviously not going to continue as we move through 2026. We see -- we're going to continue to see some disruption early this year, which we've seen that starting to normalize. And as we exit the first quarter, we should be back to more normal ordering patterns as it relates to POS. So if you kind of take that and you add that to the new product, which always will drive above-market growth for us, which it has historically. And then the pricing, the full year wrap of the pricing, we'll get a full year of that, whereas in 2025, that really didn't start taking effect until midway through the third quarter. You add those kind of together, we're pretty confident with the sales guide that we put out there. Jeffrey Lick: And then just as a follow-up on gross margin. So if I'm correct in recalling, you guys have use pricing increases to increase dollar for dollar as opposed to percentage. So naturally, you're going to recoup the gross profit dollar, but that implies your gross margin will be down with that kind of pricing strategy. So am I correct then that the bigger impact as these -- as the COGS catch up will be Q1 and Q2 and then I guess, margin would be down in Q3 and Q4, but just not as much. Is that fair? Kevin Olsen: Well, it's why we gave some additional clarification, Jeff, to the margin outlook, which we haven't done historically. So when you think about -- you are correct, when we did pass through tariff pricing, it was dollar for dollar, and that will have an impact on margin percentages, but not margin dollars, as you point out. We've guided to an operating margin percent of 15% to 16% for full year 2026 with exiting at a higher rate than that, high teens. Just for some context, back in 2024, before tariffs were implemented, our operating margin was 16%. So we believe as we work through this higher tariff inventory in the first half, we have visibility to kind of the cost in our -- that has built up in our inventory. On top of that, when -- after Liberation Day, we obviously went right to work on negotiating better prices from our suppliers, further diversifying our supply chain, going from higher tariff regions to lower tariff regions, working on productivity initiatives. All those savings essentially are baked into the inventory and will come through in the back half of the year. Remember, any time we either have a cost increase to an input cost or cost decrease, it usually takes about 7 to 8 months to work its way through our inventory because of FIFO accounting. And that's what's causing a lot of the confusion with our numbers. I also point out that if you step back and kind of take out the timing issues of 2025 and 2026, our implied guidance for 2026, 2-year growth rate will be about 15% compared to 2024, the 2-year stack. EPS growth will be about 16.5% over 2024. So again, if you kind of step back and take out all the timing noise, those are really the levels that we have historically driven, and we continue to believe that we can continue to drive those levels of growth going forward. Jeffrey Lick: That's awesome. Listen, I really appreciate the color and granularity and I'm sure everyone else does as well. Kevin Olsen: You got it. Operator: Our next question comes from Tristan Thomas-Martin from BMO Capital Markets. Tristan Thomas-Martin: A broader kind of question. You called out like complex electronics growth. How should we think about kind of like your content TAM on an EV versus an ICE vehicle? Kevin Olsen: Okay. So I'll start off -- good question, by the way, Tristan. I'll say that we're -- as we view ICE vehicles or pure plug-in electric vehicles, I guess that's what you're calling an EV or hybrid vehicles, we're drivetrain agnostic. So whatever the drivetrain is going to be, we have the capability to develop parts that fail for either of those drivetrains or systems. As we look at complex electronics, it continues to be a larger and larger portion of our portfolio, whether that be ICE, plug-in electric or hybrid. And so I -- and if we look at the product funnel, our new product opportunities looking out 3 years. Complex Electronics is the highest proportion of that funnel than it's ever been, which, as we've talked about before, we believe that is our competitive moat as we look around at competition around the aftermarket. So it's obviously -- we view it as a very favorable dynamic. And obviously, Complex Electronics carry a much higher ASP than a pure mechanical part. Tristan Thomas-Martin: Yes. And then just switching to specialty vehicles. I think you used the term rebound in your kind of slides and script. So how are you thinking about kind of new vehicle kind of end market sales in '26? Kevin Olsen: Yes, good question. We didn't -- I don't think we call the market rebound. I think what we said was new vehicle sales have rebounded a bit, which they have. Hopefully, that trend continues. And we see that inventory in the dealer channel has stabilized and we believe at healthy levels. So listen, we're not waiting or banking on a big market rebound. We're just working on the factors that we can control, continue to expand our footprint, particularly on the West Coast, which we've had a lot of success with, continue to drive new product development growth, particularly on the nondiscretionary repair side, which has been a big initiative of ours and taking market share. We're just -- and frankly, controlling our costs. The market will be the market. I can't control that. But we feel real confident in the actions that we've taken to continue to look to drive growth. When the market does return, I think we're going to be very well positioned. Tristan Thomas-Martin: Got it. David, enjoy the retirement. David Hession: Thank you, Tristan. Appreciate it. Operator: Our next question comes from David Lantz from Wells Fargo. David Lantz: David, congratulations again. David Hession: Thank you. I appreciate it. David Lantz: So light-duty order fluctuations are expected to continue in Q1, but I just wanted to make sure the message is that segment sales should still grow in the quarter and then accelerate through the year from there. And then within the 7% to 9% top line sales for the year, curious if you can parse out how you think your subsegment performance will shake out relative to each of the broader categories. Kevin Olsen: Yes. I mean -- David, I'll say that we didn't break out how much is going to be price and volume in the 7% to 9%. I think I've covered in general, why we're comfortable with the growth guidance that we put out there. Look, I mean, not a lot has changed. I mean we feel that we've got good growth opportunities in all 3 segments. Light-duty, new product development, as I said before, we had a record year in 2025. We think we're going to have another strong year in 2026. Ordering patterns from our large customer will come back into line. We see very solid growth in the LV business in 2026, and we got the pricing ramp that I mentioned earlier. You have some similar dynamics, frankly, in the other 2 segments. In heavy duty, I'll just kind of remind everyone that heavy duty is probably the least exposed to tariff. But we've seen a couple of good quarters of growth. We had 6% growth in the fourth quarter. Again, we're not calling a rebound in the market for sure. We're just going to focus on the things that we can control and continue to take market share and deal with any tariff pricing that we're exposed to in that market, too. So that will drive a little bit of the uptick. And same with specialty vehicle. I kind of covered that on Tristan's calls, but we continue to drive further market share gains as we expand in underserved regions in the country and continue to drive new product development growth, which we've been successful with. So that's what gives us the confidence to hit the guide that we put out there. David Lantz: Got it. That's helpful. And then on the balance sheet, it's really healthy. So curious if you can walk through how you're thinking about M&A in 2026 between potential tuck-in opportunities and geographic expansion and then balancing that with share repurchases. Kevin Olsen: Yes. Look, our capital deployment strategy really hasn't changed. I mean, first, we're going to look at debt levels. We've obviously paid down significant levels of debt since our previous large acquisition of SuperATV and our leverage ratios are very moderate levels right now. Second, we look to invest in organic growth, new product development. That obviously is our highest area of returns, and we're going to continue to invest there. And third, as you point out, we look to deploy capital for M&A. We have a lot of dry powder right now given our debt structure and our leverage and our -- frankly, our cash flow, which we really haven't talked about yet, but cash flow was much improved in the fourth quarter as compared to the third quarter. We generated about $76 million of free cash flow last year in 2025, well below what we would normally generate due to the tariffs. As you -- as we look at 2026 from a free cash flow standpoint, I think we'll be -- you can kind of look back to 2024, more normal levels of free cash flow. We generated close to $200 million. So I think we're expecting a more normalized free cash flow year as we move forward. And then if M&A opportunities don't present themselves, we look to return capital to shareholders. And historically, we've done that opportunistically through share repurchases and which we resumed here in the fourth quarter of 2025. So look, just in general, on the M&A front, I'd say that as we pointed out in our prepared remarks, 2025 was a real quiet year, I mean, for obvious reasons. I think with all the turmoil with tariffs, it was kind of tough for companies to get a good handle on what valuations should be. I think that's kind of getting behind us now. And so I think we'll see a much higher level of activity here in 2026. Operator: Our next question comes from Gary Prestopino from Barrington Research. Gary Prestopino: Kevin, you're doing real well with Complex Electronics, new products and all that. And at times, I think you've been a little bit reticent to talk about just the growth that's being contributed there by the new products. But if you could give us an idea on your top line, is it 50 basis points, 100 basis points, 200 basis points? It seems that is going to be, I think, a key driver of growth going forward. And then I have a follow-up on Complex Electronics. Kevin Olsen: Yes, Gary, I'd point you to -- look, historically, we have not broken out how -- for competitive reasons, and I think you hope you can understand that, the scale of our Complex Electronics portfolio we believe we have a competitive moat there, and we really like to protect that moat. And in terms of new product, I'll point you to -- we continue to launch thousands of SKUs. That will come out in the 10-K that will be issued on Friday, tomorrow. But you'll see a nice growth in SKUs. We continue to point out, we did highlight from a new product sales growth dollars was a record in 2025. And I think we continue to drive increased throughput. The amount of the funnel that we have, that's our forward-looking repair opportunity funnel continues, as we've talked about publicly, it's the highest that it's been historically. We feel real good. Look, Gary, you look back at our growth trajectory over the last 5, 6, 7 years, as we've said, we feel real comfortable that we can deliver outsized growth compared to market. The aftermarket has grown anywhere from 3% to 4% historically. We've delivered between 7% and 8% growth historically. We believe we can continue to do that. Gary Prestopino: Okay. That's fair. And then I just -- in the context of, and I think another question was raised about the TAM on complex electronics, but I think it was more or less directed towards the EV side. I mean, in general, what are you seeing as far as that TAM goes across all the vehicles in operation? I mean, are you seeing the need for a doubling of what you can provide to the market on a complex electronics side as cars get more technologically advanced? Kevin Olsen: Yes. I'm not going to -- yes, Gary, very good question, and it is related to the one I answered earlier. I would say that I'll reference back to what I mentioned earlier. As we look forward to repair opportunities, we have pretty good headlights as to what's failing in the marketplace. And when you look at that universe of opportunities, Complex Electronics continues to be a larger and larger proportion of that universe. And that's going to continue, right? I mean, if you look at the technology that's on vehicles coming off the line today, it's much different than it was 5 years ago, 10 years ago for sure. So those repair opportunities are going to continue to grow. I'm not going to really comment on the doubling, but I will tell you that one of our major focuses is how do we continue to increase our throughput there and how do we reduce our development time on Complex Electronics. And because we're going to see more and more electromechanical part opportunities in the future. Gary Prestopino: Okay. David, best of luck and hit them straight in your retirement. David Hession: Thanks, Gary. I appreciate it. I've enjoyed working with you. Gary Prestopino: All right. Have a good one. David Hession: Thanks. Operator: Our next question comes from Justin Ages from CJS Securities. Justin Ages: Congrats on the retirement, David. David Hession: Thanks. I appreciate it. Justin Ages: Question on heavy duty. It's been a couple of quarters now where you've highlighted some new business wins. So I just wanted to dig in a little bit what's driving those new business wins? And how should we think about -- is it coming as share gains? Or is it new products? Just want a little more color on that. Kevin Olsen: Yes. Great question, Justin. It's a combination of both, right? We did mention that we do have a bit of a lift in the fourth quarter from tariff pricing, but the majority of that gain is due to competitive wins. And that comes in the way of just share gain execution in the marketplace, but also new product development. As we've talked about before, one of the reasons why we really like the heavy-duty platform and Dayton products in particular, was that we could port over our new product development process and really drive outsized growth there. I think -- and that takes some time as we need to get that flywheel going, which we've been doing. So we're really comfortable in terms of our prospects of growth as we continue to build out our portfolio and our categories with above frame products. And so yes, it's why -- it's one of the major reasons why we really like the heavy-duty business, the opportunity to drive new product development growth. Justin Ages: Great. And then on margin, in '25, you highlighted outside of pricing increases, some productivity initiatives that helped margins expand. And you mentioned them into '26 as well. So I just wanted to get a little more color on what some of those productivity and automation initiatives are that you're looking towards. Kevin Olsen: Yes, sure. I mean there's a suite of things, Justin. Great question. I mean if you think about -- I mentioned earlier, obviously, we're -- first and foremost, as tariffs have come into the frame again, we're obviously looking to get the best acquisition cost that we can around the globe. So we're constantly in negotiation with our manufacturing partners around the world. Secondly, we have now built a global supply chain team that is very capable around the world in many different countries. We're able to look to optimal manufacturing locations that -- where we get the best value proposition overall, kind of cost, quality, price proposition. So we continue to do that. And lastly, as you mentioned, productivity in our -- kind of inside our 4 walls would be -- we made some significant investments in automating our DCs, which is a high cost for us. Those investments have been very successful. We continue to see great productivity being driven on the direct labor front. That will continue. We view that as early innings, frankly, in terms of where we are on the automation curve. So we'll continue to focus on that as we move forward. And then we're constantly looking to look to ways to increase productivity in all of our functions around the business. For instance, we drove outsized new product development growth and SKU growth this year without adding that commensurate level of resources. And that's process improvement, tools, better tools, better organizational structure. So we're going to continue to look to do things like that to drive productivity. Operator: Our next question comes from Bret Jordan from Jefferies LLC. Bret Jordan: Just a quick follow-up on Complex Electronics. You talked about the ASP being higher. Given the lack of aftermarket competitors in that space, is the gross margin substantially higher as well? Kevin Olsen: Yes. Good question, Bret. I think we've -- yes, we've talked about this previously. Look, certainly, it depends on the ASP. But in most cases, when we're just competing against the OE, that's going to be our highest level of gross margin percentage, just in general, whether it's a Complex Electronic or not. So obviously, we look to maximize margins where we have a high level of investment like we do in Complex Electronics, we're clearly looking to make sure that we make those commensurate returns as well. So yes, in a lot of cases, it's a high level of gross margin. Operator: That concludes the question-and-answer session, and this concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Welcome to the HEICO Corporation First Quarter 2026 Financial Results Call. My name is Samara, and I will be your operator for today's call. Certain statements in this conference call will constitute forward-looking statements, which are subject to risks, uncertainties and contingencies. HEICO's actual results may differ materially from those expressed in or implied by those forward-looking statements. Factors that could cause such differences include, among others, the severity, magnitude and duration of public health threats, our liquidity and the amount and timing of cash generation, lower commercial air travel, airline fleet changes or airline purchasing decisions, which could cause lower demand for our goods and services; product specification costs and requirements, which could cause an increase in our cost to complete contracts; governmental and regulatory demands, export policies and restrictions; reductions in defense, space or homeland security spending by U.S. and/or foreign customers or competition from existing and new competitors, which could reduce our sales; our ability to introduce new products and services at profitable pricing levels, which could reduce our sales or sales growth; product development or manufacturing difficulties, which could increase our product development and manufacturing costs and delay sales; cybersecurity events or other disruptions of our information technology systems could adversely affect our business and our ability to make acquisitions, including obtaining any applicable domestic and/or foreign governmental approvals and achieve operating synergies from acquired businesses; customer credit risk, interest, foreign currency exchange and income tax rates; and economic conditions, including the effects of inflation within and outside of the aviation, defense, space, medical, telecommunications and electronics industries, which could negatively impact our costs and revenues. Parties listening to this call are encouraged to review all of HEICO's filings with the Securities and Exchange Commission, including, but not limited to, filings on Form 10-K, Form 10-Q and Form 8-K. We undertake no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events or otherwise, except to the extent required by applicable law. I now turn the call over to Eric Mendelson, HEICO's Co-Chief Executive Officer. Eric Mendelson: Thank you, Samara, and good morning to everyone on this call. Thank you for joining us, and we welcome you to this HEICO First Quarter Fiscal '26 Earnings Announcement Teleconference. I'm Eric Mendelson, HEICO's Co-Chairman and Co-CEO. I am joined here this morning by Victor Mendelson, HEICO's other Co-Chairman and Co-CEO; and Carlos Macau, our Executive Vice President and CFO. We received many nice comments about Victor's extemporaneous remarks as he opened our last conference call to discuss HEICO's 2025 fourth quarter results. So we thought our listeners would appreciate a little insight into HEICO before we discuss HEICO's 2026 first quarter results. Obviously, HEICO's 2026 first quarter results reflect continued growth, and we are very proud of them, especially considering that only 36 years ago, HEICO had only $25 million in revenue, $2 million in earnings and 200 team members. Our dad, Victor and I would often question ourselves, how is our 36-year 23% compound annual growth rate in share price possible, especially when we were rarely leveraged at more than 2x EBITDA. First, we have to thank God for these results. But second, we realized that Dad always had a saying, do the right thing, which was our mantra 24/7 365 for the past 36 years. It wasn't just the same. It was embedded in every single decision, every part sold or repaired, every company acquired and simply everything we did. Obedience to the unenforceable became our DNA from the time Victor and I were small children to now when we are 60 and 58 years old. Doing the right thing means making honorable choices when nobody is looking. It means spending tens of millions of dollars on quality systems, not because our customers or regulators require them, but because we know it's a good investment that protects our brand. It means properly reserving for obsolete or excess inventory, not because our auditors require it, but because we know it's needed and mistakes must be learned from, recognized, learned from and never repeated, not swept under the rug in order to protect reported earnings. These are just 2 of the many things that HEICO has done routinely over decades and why we've never had a onetime unusual charge to earnings, whereby the economic earnings of the upcycle are largely erased following a black swan event and investors don't realize much of the earnings never existed in the first place. Considering our terrific results, we're even more proud of them, given the added cost that many people don't appreciate, but everyone benefits from in the long run. HEICO was built for long-term and sustainable cash generation, which permits our earnings and cash flow to compound decade after decade, not just year after year. We are not into programs of the year, buzzwords or comparing ourselves to others hoping to get a higher multiple on our shares. We're designed for long-term challenging but sustainable earnings increases. I hope this provided a little insight into HEICO's secret sauce as you listen to our first quarter results. Before reviewing our operating results in detail, I want to take a moment to thank and recognize all of the people who made our excellent performance possible. HEICO's sustained growth and consistent profitability result directly from our team members' talent, dedication and hard work. Our team members drive our success and differentiate us from other companies. Thank you all for all of your continued commitment and for contributing to another strong outstanding quarter. We are very proud of the first quarter results, which reflect consolidated margin expansion, record net income and strong increases in operating income and net sales. We remain very bullish and optimistic about HEICO's ability to win new opportunities in fiscal '26 and continue our growth, profitability and strong cash generation legacy. To summarize the highlights of our first quarter of fiscal '26 record results, consolidated net income increased 13% to a record $190.2 million or $1.35 per diluted share in the first quarter of fiscal '26, up from $168 million or $1.20 per diluted share in the first quarter of fiscal '25. Consolidated operating income and net sales in the first quarter of fiscal '26 improved by 15% and 14%, respectively, as compared to the first quarter of fiscal '25. Net income attributable to HEICO in the first quarter of fiscal '26 and '25 were both favorably impacted by a discrete income tax benefit from stock option exercises. The benefit in the first quarter of fiscal '26, net of noncontrolling interests was $21.8 million or $0.15 per diluted share as compared to $26.5 million or $0.19 per diluted share in the first quarter of fiscal '25. By the way, that means we got a higher benefit from the discrete income tax benefit from stock options last year as compared to this year. The Flight Support Group delivered strong results in operating income and net sales, achieving quarterly increases of 21% and 15%, respectively, as compared to the first quarter of fiscal '25. The increases principally reflect strong organic growth of 12%, driven by increased demand across all of Flight Support Group's product lines as well as the contributions from our fiscal '25 acquisitions. The Electronic Technologies Group net sales improved 12% as compared to the first quarter of fiscal '25. The increase principally reflects strong organic growth of 6%, driven by increased demand across most of our products as well as contributions from our fiscal '25 and '26 acquisitions. Cash flow provided by operating activities was $178.6 million in the first quarter of fiscal '26. Operating cash flow for the quarter was negatively impacted by distributions of approximately $22.7 million to a long-term team member over 40 years and participant in the HEICO Leadership Compensation Plan, the LCP. The LCP is fully funded and all sources of cash for these distributions are derived from investments in corporate-owned life insurance policies, which are considered investing cash inflows within our statement of cash flows. As a result, the LCP distributions are not an actual use of cash. We will have another large LCP distribution during the remainder of fiscal '26 of approximately $73 million, which will negatively impact operating cash flows. However, since the LCP, as I said, is fully funded, the distribution will continue to be net cash neutral to HEICO. Consolidated EBITDA increased 14% to $312 million in the first quarter of fiscal '26, up from $273.9 million in the first quarter of fiscal '25. Our net debt-to-EBITDA ratio was 1.79x as a result as of January 31, '26, as compared to 1.6x as of October 31, '25. The increase in our leverage ratio is a direct result of the successful completion of an acquisition during the first quarter. Acquisition activity in both operating segments remains very strong with a very healthy pipeline of opportunities. We continue to target complementary businesses that align strategically and financially, focusing on disciplined accretive transactions that enhance HEICO's long-term value. In January 26, we paid our regular semiannual cash dividend of $0.12 per share. This represented our 95th consecutive semiannual cash dividend since 1979. Now I'd like to take a moment to discuss our recent acquisition activity. In January, our Electronic Technologies Group acquired 100% of Axillon Aerospace's Fuel Containment Business, which was renamed Rockmart Fuel Containment. Rockmart designs and manufactures advanced fuel containment solutions, primarily for military fixed and rotary wing aircraft. The purchase price of this acquisition was paid in cash using proceeds from our revolving credit facility, and we are very excited that Rockmart has joined the HEICO family, and we are very excited about their future contribution to HEICO's earnings. Earlier this month, the Flight Support Group acquired 100% of EthosEnergy Group Limited. Ethos provides repair solutions for engine components and accessories for various industrial gas turbine, aeroderivative gas turbine, aerospace and defense engine platforms. I'm sure everyone on this call is keenly aware of the tremendous increase in demand for power caused by the exponential demand in AI or artificial intelligence and LLMs or large language model adoption. And this power is largely expected to be created through the use of industrial gas turbines and aeroderivative gas turbines. HEICO is obviously excited to enter this market and bring our technical capability and OEM relationships to serve this growing power demand. And we believe HEICO's acquisition of Ethos provides us with the perfect platform to sell our high-quality repair solutions to satisfy these rapidly growing needs. The purchase price of this acquisition was paid with a combination of cash using proceeds from our revolving credit facility and shares of HEICO Class A common stock. And this week, the Flight Support Group entered into an agreement to acquire 80% of the stock of a company that provides a range of services for commercial aviation and defense component platforms. Closing is subject to governmental approval and standard closing conditions and is expected to occur in the second quarter of fiscal '26. The remaining 20% will continue to be owned by certain members of the seller's management team. We expect these acquisitions to be accretive to our earnings within the year following the acquisition. I now turn the call over to Victor Mendelson, HEICO's other Co-Chairman and Co-CEO to discuss the first quarter results of our Flight Support and Electronic Technologies Groups in further detail. Victor Mendelson: Eric, thank you very much. Before we get into the details, I echo what Eric mentioned at the outset of the call and thank our team members, the HEICO team members. The results we're discussing today are a direct reflection of their talent, their discipline and commitment to execution. Their collaboration and focus on excellence in all they do and all we do is truly inspiring. The Flight Support Group's net sales increased 15% to $820 million in the first quarter of fiscal '26, up from $713.2 million in the first quarter of fiscal '25. The net sales increase in the first quarter of fiscal '25 stems from strong organic growth of 12% and the impact from our fiscal '25 acquisitions. The organic net sales growth reflects increased demand across all of our product lines. The Flight Support Group's operating income increased 21% to $200.7 million in the first quarter of fiscal '25, up from $166.1 million in the first quarter of fiscal '25. The operating income increase in the first quarter of fiscal '26 was principally driven by the previously mentioned net sales growth, SG&A expense efficiencies realized from the net sales growth and an improved gross profit margin. That improved gross profit margin principally resulted from the previously mentioned higher net sales and a more favorable product mix within our repair and overhaul parts and services product lines. The Flight Support Group's operating margin improved to 24.5% in the first quarter, very impressive in the first quarter of fiscal '26, up from 23.3% in the first quarter of fiscal '25. The increased operating margin in the first quarter of fiscal '26 principally reflects a decrease in SG&A expenses as a percent of net sales, mainly reflecting the previously mentioned SG&A expense efficiencies and improved gross margin. Acquisition-related intangible amortization expense consumed 260 basis points, approximately 260 basis points of our operating income in the first quarter of fiscal '26. So the FSG's cash margin before amortization, or EBITA, as we call it, was approximately 27.1%, which is excellent and has been consistently excellent and is 110 basis points higher than the comparable FSG cash margin of 26% in the first quarter of '25. Obviously, we are very, very happy with the continued operational excellence and improving cash generation demonstrated by the businesses in the FSG. Now turning to the first quarter results for the Electronic Technologies Group. The group's net sales increased 12% to $370.7 million in the first quarter of fiscal '26, up from $330.3 million in the first quarter of fiscal '25. The net sales increase was occasioned by strong 6% organic growth and the impact from our fiscal '25 and '26 acquisitions. The organic net sales growth is mainly attributable to increased sales of our aerospace and defense and other product -- electronics products, partially offset by a decrease in space product sales. The Electronic Technologies Group's operating income was $73.2 million in the first quarter of fiscal '26 as compared to $76.5 million in the first quarter of fiscal '25. That operating income decrease principally reflects a decrease in gross profit margin, partially offset by the previously mentioned net sales growth. The decrease in gross profit margin, and this is important, resulted from a less favorable product mix of defense products and the previously mentioned decrease in net sales of space products, partially offset by the previously mentioned increase in net sales of our aerospace products. As you know, quarterly margin variability in our ETG is consistent with the group's history, and there are periods in which shipments of lower, though not low margin products are a greater proportion of our sales than in other quarters, which is predominantly based on shipment schedules. Based on our backlogs and our shipment plans, we expect the ETG margins to improve as the year progresses, particularly in the second half of the year. The Electronic Technologies Group's operating margin was 19.8% in the first quarter of fiscal '25 as compared to 23.1% in the first quarter of fiscal '25 -- excuse me, 19.8% in the first quarter of fiscal '26 as compared to 23.1% in the first quarter of fiscal '25. The decreased operating margin principally reflects the previously mentioned lower gross profit. And you may recall that we experienced similar unfavorable mixes from time to time, including the first quarter of fiscal '24 and the rest of the year was quite healthy for us, and we're expecting the same kind of thing this year. Importantly, before acquisition-related intangibles amortization expense, our operating margin was approximately 24% as intangibles amortization consumes over 410 basis points of our margin is, as you know, how we judge our businesses, and it most closely correlates to cash. On a true operating basis, these are still excellent margins even though we would not be satisfied with them on a full year basis. The ETG's strong margins resulted in another record backlog, demonstrating both strong demand for our products and robust end markets. Our shipments and shipment mix are typically uneven during the course of the year. We experienced some of that unevenness in our shipment mix this quarter, which was not a surprise and is a pattern we've often discussed on these calls and elsewhere. We are pleased with the quarter's organic growth and are particularly excited about the opportunities in defense, commercial aerospace and space for the remainder of fiscal '26. And I should add that this optimism is supported by the record backlog and increasing order volumes we've experienced. Thank you, and I turn the call back over to Eric. Eric Mendelson: Thank you, Victor. Our team is filled with optimism as we look at the remainder of fiscal '26. We expect continued sales momentum in both Flight Support and the Electronic Technologies Group, supported by organic demand for our products, together with the impact of recent acquisitions. The current pro business agenda in the United States continues to align well with our long-term goals, providing key markets like defense, space and commercial aviation with a very strong tailwind in funding. We remain focused on pursuing selective acquisition opportunities that align with our growth strategy. Our disciplined focus to financial management continues to emphasize long-term shareholder value through a combination of strategic acquisitions and organic growth while preserving financial strength and flexibility. Acquisition activity remains extremely robust across both business segments, supported by an outstanding pipeline of potential opportunities currently under evaluation. Our acquisitions teams are busier than ever working on these potential transactions as one of HEICO's core strengths is identifying high-quality businesses that complement and reinforce our strategic positioning. We believe HEICO is the preferred buyer for sellers seeking a great home for their businesses. Consistent with our long-standing acquisition philosophy, we will only pursue opportunities that meet our strict financial and strategic criteria are accretive and have the potential to generate durable long-term value for our shareholders. We thank you for listening to this call. And now, Samara, if you'd like to open up the floor for questions, we're happy to answer them. Operator: Thank you. [Operator Instructions] And we'll take our first question from Larry Solow with CJS Securities. Lawrence Solow: Great. I guess first question for Victor. Just I think maybe the ETG putting a little pressure on the shares this morning. It sounds like -- and I know you referenced Q1 '24. It sounds like the mix issue is completely temporary. It was a pretty significant sequential drop, but any more color on that, your backlog, I guess, the mix. It doesn't sound like you have any termination and we could bounce right back to that low to mid-20s range for the year. Is that fair to say? Victor Mendelson: Yes, I think that's absolutely right. That's our expectation. And based on the shipment schedules and what we have, that's what we're expecting. And it isn't unusual for us to move around. It may be lower than the average. But we get -- sometimes we get the perfect storm of good shipment schedules and sometimes we got the perfect storm of unfortunate shipment schedules. But -- and that's why we really guide people to look at the full year on the ETG, particularly as it moves on throughout the quarters. And the experience we had on this was in multiple different products and subsidiaries, as I said, sort of the perfect storm on the downside, if you will, on margins, very heavily mix related, extremely heavily mix related. And right now, what we have scheduled for shipments and what our subsidiaries are showing on the -- as the year wears on is pretty exciting. Of course, we'll have to see. There are no guarantees, I always say in life. But right now, I'm feeling good about what our companies are telling us, feeling very good about what our companies are telling us. Lawrence Solow: Right. And it feels like a great environment for a lot of your companies, right, in the defense side for sure. Victor Mendelson: Yes. I mean if you look at our orders and you look at our backlog in the group and how it's been growing, it's very exciting. And the mix of what's been growing is a nice mix overall. So feeling good about it. Nothing is ever easy, but feeling good about it. Lawrence Solow: Yes, sure. And while I got you a pretty nice sized acquisition, the Axillon, I guess, you renamed Rockmart Fuel. I think it's your third largest ever in HEICO history. So any more color on this? Is this your usual sort of type multiple and accretion we should expect over time? Victor Mendelson: It's a very nice business. It is a -- it's a supplier and has done a lot of business with one of our other subsidiaries, Robertson Fuel Systems. We -- they will be operating separately, but there's a lot that they can do for each other in terms of production, smoothing out production as well as new designs and being pretty innovative for our customers. And so that will actually -- that is reporting to the Robertson business to keep things very streamlined and easy. I think it's -- we expect that to be -- it has been growing. We expect it to continue to grow. There's a big aftermarket, if you will, cycle to it replacement cycle that appears to be growing. We appear to be in the early innings of that. So we're pretty happy with it. As we said, we expect it to be accretive to earnings in the first year of ownership. We've only owned it for about a month. So, so far, so good. But I won't declare victory or anything else based on 1 month. So right now, feeling pretty good about it. Lawrence Solow: Great. If I could just one quickly for Eric. Just the organic growth, still very strong at 12% on a difficult comp. I'm just curious, historically, Q1, you usually have seen some seasonal slowdown. We haven't in the last couple of years in the recovery and growth on the aerospace side. But just curious, any thoughts on -- are we maybe just getting into a little more normal seasonality where Q1 actually drops a little bit from Q4, which we hadn't seen in a couple of years, but we used to see if we go back. Eric Mendelson: Larry, thank you very much for your question. I mean, you're absolutely correct. I mean, in general, if you look last year, Q1 was the lightest organic growth, likewise in 2024 as well. I'm particularly proud of these results given the high comps that we had in the prior years. We had very high comps basically for the last 4 years and to post 12% organic growth on top of them, I think, is really outstanding. And if you will, we didn't stuff the channel. There's a whole bunch of inventory that could have gone out which didn't go out for various reasons. But we're very careful to make sure that we do what the customers want. I'm very happy with these numbers. I think they reflect very well on the group. Operator: And we'll take our next question from Peter Arment with Baird. Peter Arment: Nice results as usual. Victor, maybe we could just drill in a little bit to try to understand the space kind of mix. I know in the past, it's been a nice margin contributor for ETG. But could you describe a little bit? I think you were a little more GEO-oriented versus like the LEO market. Is that still true just given the overall mix and just how you see the overall kind of setup for HEICO, given all the demand for LEO market? Victor Mendelson: Yes. It's a very good question. Originally, the business was more heavily GEO -- and over time, I would say now we're more heavily LEO. And that -- in the businesses that were GEO originally, shifting to LEO isn't cheap, right? The margins are less. There's a lot of different product design and R&D that goes into that. And -- but that -- I think we're getting through, if you will, sort of the other side of that over the course of this year. And we still have a pretty good offering for GEO, but we go where the customers are, and that's really the LEO market. And we have some great businesses with very strong margins in LEO, too, by the way. Actually, I think now some really strong margins there. So -- but that, as you may recall, too, has been a very uneven -- very, very uneven business, I mean, from quarter-to-quarter. And we like space, but we're not going to be too much of a space company for that reason. And you probably noticed that. We've limited. We've been careful how we've grown in space for that reason. Peter Arment: Got it. I appreciate the color there. And then, Eric, just briefly, can you give a little commentary there a competitor bought a PMA business. And obviously, you guys still, I think, are kind of the leader in PMAs. Is this a deal that had overlap with you? Or how should we view that? Eric Mendelson: Thanks, Peter, for your question. Well, you know how the old saying goes, imitation is the highest form of flattery. And for years, when we started doing this, people thought we were crazy to be in the PMA business. And then they thought we were crazy to be in the repair business and distribution and all the things we did. And those people who were smart enough to invest in HEICO did extremely well. So we think this is a sign that the PMA market is incredibly strong, and there are a tremendous number of PMA candidates out there. People have asked me, what does this mean for HEICO's competitive positioning? And we feel very strongly about HEICO's competitive positioning. We have a -- we've been running this company for 36 years, and we've always focused on the customer and always focused on generating value for the customer. And I would venture to guess we probably have the best customer relationships in the entire industry. And I don't anticipate that to change. And that's because we add value, we do what we say we're going to do, and people know when they work with HEICO, they're getting a top quality product. So we still have a tremendous presence in that market. We are totally committed to it. And I think it shows that others are recognizing the value of the PMA business. Operator: And we'll take our next question from Ken Herbert with RBC Capital Markets. Kenneth Herbert: Yes, Eric, maybe just wanted to follow up on your just comments there. I think there's a belief that PMA represents one of the real secular growing markets coming out of the pandemic as the industry continues to face a lot of service challenges. Can you just maybe comment from an industry perspective, what kind of growth you're seeing in PMA and where maybe you see specific opportunities for HEICO, either in markets you typically haven't been in or maybe with customer sets or any other ways you look at the market to help us better frame how PMA is actually really doing broadly and for you, obviously, here as we continue to see the recovery. Eric Mendelson: Yes, Ken, I would be happy to answer that. And first of all, I really recognize you as you were one of the early -- one of the analysts who very early on figured out that what HEICO was doing in the PMA space was going to be very successful, both to the airlines as well as for our shareholders and team members and those who followed your advice have profited handsomely. We are very committed and have never been more excited about the PMA business than we are today. We are -- we've got roughly 20,000 different parts. It is a huge catalog and a huge competitive advantage because when we want to develop a new part, I mean, there's very little stuff in this world, which is truly, truly new to us. We've got this catalog. We're able to go back and reference the drawings, the specifications, the vendors, the manufacturing processes and the barrier to entry is tremendous in doing that. So what we really need is greater acceptance at the airlines. And we've spoken about this for many years, why don't the airlines buy even more? And why don't they push us to buy even more. We're very happy with what we've done, but why isn't it even more? And I do think, to your point, that coming out of COVID, they recognize what we've said all along that PMA isn't only about price. It's about turn time and making sure that you've got an alternate vendor and you have the part on the shelf. I have got tremendous respect for all of our competitors who supply parts to the industry. It's a very hard thing to forecast the demand for a particular part. You never know what it's going to be, and it depends on so many things, including the type of build that was done by either the airline or the repair station at the prior shop visit for the engine or the component. If times were good and they had plenty of money and then they put a lot of new parts in, then when the component comes back, you're not going to need a lot of parts. But if times weren't good and they did the minimum, then you're going to need a lot of parts. And the problem is for all of the vendors, it becomes extremely difficult to forecast in that situation. So what we've always said is that HEICO provides not only top quality and outstanding value and cost savings, but we also provide availability. And this is something that has become front and center since COVID. So we're happy about that. When you look at the -- you asked specifically the products that we're doing, our sales in the PMA business are roughly 3/4 non-engine, which would be components, airframe, interior and about 25% engine. Our engine business is at a record level. We are doing extremely well. We are developing more engine parts. The airlines want us to develop more engine parts. I think you've written about the cost of engine overhaul and the cost to overhaul some of these new engines is significantly higher than the cost to overhaul some of the existing engines. So we think that there's going to be tremendous opportunity for us throughout the entire value chain. And I don't want to pick on just engines, but on components as well. The newer components are extraordinarily expensive. I mean they are off the charts nuts on the prices that they are charging. So I think that HEICO is going to do extraordinarily well. in our PMA and repair businesses as we help airlines reduce their costs and keep them somewhat manageable and provide an alternate source of supply. I can't get into obvious specific product types or manufacturer types for competitive reasons. We'd rather just go do our thing and satisfy the airlines. Kenneth Herbert: Yes. I appreciate all the color, Eric. Just to put a finer point on that. Carlos Macau: I might just add to what Eric just said, just to maybe put a few leaves on the tree, if you would. Our organic growth in our aftermarket business, which is our parts and repair business was up organically in the teens and Specialty Products is in the high single digits. So to echo what Eric said, I mean, our end markets in aerospace are very robust and our guys are executing. I just thought you might find that nugget helpful. Kenneth Herbert: I appreciate that, Carlos. And maybe just to put a finer point on it. Historically, the argument was the lessors and maybe some of the emerging market airlines didn't use PMA much. Are you seeing any shift in customer types and adoptions? Eric Mendelson: Yes. We are seeing shifts in customer types and adoptions. The airlines recognize they need this. I'm aware of all sorts of activity and initiatives, which I'd rather not call out on this call for competitive reasons, but we think that they are going to benefit HEICO tremendously. Operator: And we'll take our next question from Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe my first question, I just wanted to clarify something I joined later on the call. With Ethos, was it paid through A Class shares? And Eric, how do we think about those distributions happening because I think you were mentioning it. And why was it A Class versus the common stock? Eric Mendelson: Yes, I'd be happy to answer. So most of the consideration was cash. So I think it was roughly -- Carlos knows the exact percentage, but I think it was over 80% in cash, if I'm not mistaken. Carlos, is that correct? Carlos Macau: That's correct. It was a small quantity of A shares, and they wanted to feel like owners. It was their request. Eric Mendelson: They -- yes. And look, sometimes we do this because people are very happy to own the HEICO stock. The request was for A shares. So that is why we granted the A shares, and that was the concept there. But we're very excited about that acquisition. Sheila Kahyaoglu: Okay. Got it. No, it certainly seems like the right end market to be in. And then maybe, Victor, one for you. As we think about ETG profitability going forward, I know it ebbs and flows. Is there any way you could bridge us on the margins in the quarter and like how to look forward? Victor Mendelson: Look, we continue to expect 22% to 24% GAAP margins in the business, which is 26% to 28% over the course of the year. So you're going to have quarters that are above and below that amount, which is, again, historically the case. I mean there's nothing new to this. I try to remind people this as often as possible that there will be variability in the margins and the growth rate of the ETG. There's nothing that's changed. There's nothing that's fundamentally changed in the business. Thank you, Sheila. Eric Mendelson: And by the way, Sheila, just to expand on what I said about Ethos, the sellers recognized that this market was really a tremendously growing market. And for them to part with one of the foremost repair and overhaul shops focusing on industrial gas turbines and aeroderivative gas turbines, they really wanted to be compensated. And the request for HEICO A shares was in order to help reward them. We're very excited. Everybody is very knowledgeable about what's going on in the power generation space. And Ethos has incredible capabilities in developing and executing on parts repairs, component repairs and the access to that market. They've got 3 different facilities, in Connecticut, South Carolina and Aberdeen, Scotland. So they've got great access to the market, great people, great technology. And by putting it with HEICO, I think that it's going to provide HEICO with the ability to access what is, as you know, a tremendously growing market. So the A shares were just a component, if you will, a sweetener because if they're going to part with what we think is an incredible asset, they wanted something additional. And we were able -- the other thing which is important, it's very easy to buy companies, but to buy companies at prices where it's accretive is using cash is extremely difficult. And we were able to get this deal done at a reasonable price and the A shares were part of that enticement. Operator: And we'll take our next question from Scott Deuschle with Deutsche Bank. Scott Deuschle: Victor, there's some elevated inflation right now in certain parts of the microelectronics supply chain, particularly for memory. So I was wondering if you could speak to what ETG is seeing there and if you expect to see any margin pressure there either now or in the future? Victor Mendelson: Thank you, Scott. It's a good question. We're definitely experiencing that elevated inflation rate in some of the components. We typically are able to pass those on to our customers. I think they accept that. They understand that. But there is a lag effect, and that does take some time. You've got to work off the POs and items that are in the backlog. It is what I would consider a headwind, but more in the noise level and not particularly notable. And by the way, it varies business by business. But overall, on a consolidated basis, more in the noise level. Scott Deuschle: Okay. Are you generally able to get all the product that you need? Like is supply chain itself a limiter? Or is it just a cost issue? Victor Mendelson: I would say it's essentially normal, what it's been outside of that supply chain crunch, which is to say that there's always something. There's always a hot list item that's late and kind of holding things up somewhere in the system. And -- but for the most part, everything is running normal. So it's kind of like airline schedules on a typical day. There are a certain number of delays, and that's kind of how it's running now. Scott Deuschle: Okay. And then for Eric, do you see any opportunity for AI to help accelerate any of the maybe reverse engineering analysis for PMA and the speed at which new products can be brought to market? Or alternatively, do you think AI could help yourself for your airline customers better query parts catalogs and identify new maybe previously unexplored PMA opportunities? Just trying to better understand how HEICO can use AI to sustain or even accelerate growth. Eric Mendelson: Yes. That question has a lot of insight. And I think the answer is definitely with regard to both developing new parts, streamlining processes. I was just up at one of our subsidiaries last week, and they showed me there was a certain process in our quality acceptance area where we had multiple documents and multiple forms had to be filled out, and they were able through AI to come up with a revised process, which is significantly more efficient than what we were doing before. So we're already using it in the operations at HEICO. As far as the engineering, I think there is a lot of opportunity there, and it is as well being used over in the engineering process. And I agree with you for customers to be able to figure out what they need to buy and look at the HEICO performance rate, our quality rate, our quality rating, how happy everybody is with us. I think that it will be a continued tailwind for HEICO. I mean there's no reason why customers aren't buying more of our product line. And I think AI will accelerate our growth. Operator: And we'll take our next question from Ron Epstein with Bank of America. Ronald Epstein: Just as a follow-on here. If you look at some of the evolving contract structures that are going on with some of the big defense primes in particular, the 7-year framework agreements, so far, we've seen a handful of Lockheed, a bigger handful with RTX -- what kind of impact do you expect that to have on you guys, if at all, where potentially you could get visibility on contracts out maybe 7 years? And how does that impact your business? And how are you thinking about it? Victor Mendelson: Yes, Ron, good question. We think it's a net positive. We have a number of companies that supply on a lot of those programs. So it's something that gives us nice visibility into the future, helps us plan better. And on capacity, we've got really good capacity availability. It's usually a question of hiring people and bringing more people in and figuring a way to do that in different shifts. So overall, I think that's a net positive for us. Eric Mendelson: And also just to add to that, in the Flight Support Group Specialty Products division, we think that, that's going to have a very good impact because we've got -- we produce a lot of these different components and having the advanced visibility into what's coming down the road is going to be extremely helpful. And that's been a good tailwind for that business as well with record backlogs for missile defense products. Ronald Epstein: Got it. Got it. Got it. And then we've talked about some supply chain stuff. I mean, have you had any impact from critical minerals or magnets or whatever else and how you've been managing that in places where you do? Victor Mendelson: Yes, it's very, very minimal. It has not been a significant issue for us. And so far, we do not expect that it will become one. And in fact, there could be opportunities for us as a result of that when some of the new supply comes online in the U.S. vis-a-vis acquisitions and things of that nature, but that's further down the road. Ronald Epstein: Got it. Got it. And then maybe one more, if I can, to both of you guys. What are you seeing broadly in the acquisition market around valuation and so on and so forth? I mean as you both know, no doubt, the sector has gotten pretty hot. And how is that impacting how you're looking at valuations and how you can do M&A going forward where it is accretive in the framework of time that you guys like? Victor Mendelson: Yes. So Ron, it's definitely pushed multiples up over a long period of time. It isn't anything new, maybe a little bit more than historically. For us, certainly, that's why we're working so hard to make sure that we do as well as we've done in the past. And one of the important factors with us, I think, is the seller. And is the seller someone who's looking for something unique, particularly a good home for the business, someone who's going to retain the legacy and the operations in a similar capacity as operated in the past. And that gives us a really big advantage we've discovered historically. It doesn't mean we're going to buy everything we want, but it means there's a very nice pipeline. We have to count on a little more future growth, I think, and believe in the growth stories a little more than we used to. And so we're spending more time doing that to ensure that we think we're going to get the growth out of the businesses that's estimated. Eric Mendelson: And then also just to add to that for a moment, Ron, as we mentioned, our acquisition teams are busier than ever. Their pipelines are full. I would expect additional acquisition activity this year. I think our shareholders, my guess is they're going to be very happy about what we're doing. And the other key thing is that, as Victor said, by differentiating ourselves and providing the best home for the seller, that has tremendous value. It's very easy to go out and pay high prices and win an acquisition. It's another thing to make it work financially. And HEICO has very rigorous cash flow requirements. And we model each deal on its own, where it's got to support its own debt service, its own working capital needs, et cetera. And that's how we've been able to compound. You don't compound by going out and paying crazy prices for something. You compound by buying something that can stand on its own and is very reasonable. And when you look at the -- some of the prices of switching topics for a moment of some of what I believe are the defense tech businesses, I think they're extremely exaggerated. And we look for businesses that generate cash now and in the future and paying extremely high multiples for something that really doesn't generate cash is just not what HEICO is about and not what we plan on doing. Operator: And we'll take our next question from Scott Mikus with Melius Research. Scott Mikus: I was curious, do you have a sense of how inventory levels are at your airline customers? Because you mentioned that you didn't want to stuff inventory into the channel. And then I was also curious, within your distribution businesses, have there been any noticeable changes over the past several quarters in how fast they are moving inventory as the pace picked up as airlines prep for the summer travel season? Eric Mendelson: Yes. The -- I would say the inventory levels are very consistent to what we've seen in the past. There are certain parts which they can be overstocked on, other parts where they're understocked on. But in general, there hasn't been a big change. As far as our distribution businesses, we've done extremely well. They are extremely busy, supporting the demands of the aftermarket. And -- but I really sort of see it very much as business as usual and not much of a change for HEICO there. Scott Mikus: Okay. And then thinking back a year ago, a lot of us were asking about DOGE and how that could benefit your business. We're now 1 year into the current administration. So have you started to see the Pentagon get the ball rolling on acquiring more alternative parts to both reduce maintenance costs and improve readiness rates for military aircraft. Are they at least doing it on the derivatives like the P-8s and KC-46s? Eric Mendelson: We've seen some movement there, yes. We always said that this would be a medium-term project. It's very hard to get things fully moving at the speed that we would like. But we are seeing good progress there, and we do anticipate further progress to come. So we feel very good. You look at the President's defense budget and something's got to be a bill payer for these tremendous increases. And this is very logical. And I think what the Secretary of War is doing makes a lot of sense, and they just can't keep on paying these high prices. So I'm still very optimistic in that regard. Operator: And we'll take our next question from John Godyn with Citi. John Godyn: Eric, I wanted to follow up on the energy business and Ethos and what you're doing there. You offered a number of data points and breadcrumbs. We see different companies across A&D attacking this in different ways. I just wanted to talk about it big picture, but the types of questions on my mind are, did you kind of go down this path based on reverse inquiries from customers? What types of components do you expect to supply? Is it based on your existing SKUs? Or do you think that you're going to develop new SKUs? There are so many questions here. I can't go through all of them, but I just wanted to give you a chance to kind of talk through this a bit more. Eric Mendelson: Sure. Thank you. And I think that's a great area, which frankly, hasn't been focused on by a lot of people. We thought that this would be a great market. If you look -- we've been working on Ethos now for approximately a year. So we started that project a year ago. And we saw what was going on in the industrial gas turbine space and to a lesser extent, the aeroderivative. And we thought that this would be a very strong area. So we went out very aggressively to work with the seller and come up with a deal that made sense. I think we also developed a very good relationship with the operating folks at the businesses, and we were definitely their preferred buyer. As far as the aeroderivative connection, I mean, that makes a lot of sense. Everybody is very familiar with what HEICO does and really what we can bring to some of the aeroderivative parts should customers want that as well on the industrial gas turbine parts. Both on the IGT and the aerooderivative, Ethos has very strong OEM relationships. And they have -- they're approved by various OEMs to support those products, and they've been doing so for a very long time. So we are going to continue to support those channels and not offer an alternative if there is an OEM relationship there. Where there aren't OEM relationships, we'll try to form them with different companies. And if not, we think that there is very good opportunity to continue penetrating the markets there. There's just a huge demand. I mean you see what's going on with all the power companies. And Ethos has an extremely wide array of products that it services. It does blades, veins, all sorts of various static parts, rotating parts, components. And we think that their technology lines up perfectly with ours, and we are super excited to have made this acquisition, and we think that it's going to be extremely successful and a great entree for HEICO. If HEICO were to try to enter the industrial gas turbine or the aeroderivative market on its own, it would be extremely difficult. We didn't have much of a relationship with those customers. And here, Ethos has been an incredible supplier for decades with these companies. Actually, Ethos, the genesis of it is it used to be the Wood Group Aero accessories and components group. So they have decades of working with the energy companies and the turbine suppliers. So we think we've got a great platform to leverage and move forward. John Godyn: And this is such a big market. I'm just kind of -- this is a very big picture question, but do you see this as something that could become so large for HEICO over -- in the fullness of time that as symbolically, we might even have an IGT segment, a third segment for the first time or something like that? Could it be that big? Eric Mendelson: That would be very aspirational. So I don't want to get over my skis here and promise that, but we do have very high expectations for the business. It really -- I would say it's in early innings right now. The company has got great capability, great people, 3 locations. And I hope what you're saying is correct, and I'm sure that our team members at Ethos and at Wencor are listening to this call, and they are inspired by your question and outlook for it. Operator: And we'll take our next question from Matthew Akers with BNP Paribas. Matthew Akers: Most of mine have been asked already, but I wanted to just touch on the balance sheet and just how you feel 1.8x leverage, obviously, has come down quite a bit since went. I think historically, you've been a little bit lower. So just how you feel -- are you comfortable at this level? Would you prefer to be lower? It sounds like there's a lot of potential M&A deals in the pipeline. So just kind of how you're thinking about the balance sheet here. Carlos Macau: I'm happy to take that question. Our leverage right now is under 2x. So I'm very comfortable at this leverage point. And I expect that what we've done in the past will continue in the future. We'll continue to use a line of credit as a primary vehicle for funding acquisitions, which then affords us the opportunity to quickly pay that down and reload for the next deals. And so we'll still use that type of a structure. Right now, our permanent debt or the bonds that we have are running less than 1 turn of EBITDA. So I think our capital structure is quite flexible, and we're not capital constrained. So from a balance sheet perspective, we could go higher on leverage. I think if we did that, it would be very opportunistic and there would have to be a pathway to generate significant cash to bring us back down in the 2x, 2.5x leverage ratio. I mean I would think that, that's something that's doable for us. I don't think HEICO is going to be a 7x levered business. That's not in the cards for us. But I'm not going to rule out for an incredibly good acquisition. If we went to that level and had a pathway to get back down into the 2s over a reasonable period of time, we would certainly consider that and execute on if it was good for our shareholders. Matthew Akers: That's helpful. Yes. And then I guess just one on ETG. I guess, was the government shutdown at all related to any of the mix impact that you guys discussed in the quarter? Or is that not the driver? Victor Mendelson: That wasn't the driver. It did have some impact a little bit, stuff shifting out. And so we'll pick up the benefit of that later on in the year, but I wouldn't call it a material impact. Operator: We'll take our next question from Gavin Parsons with UBS. Max Miller: You have Max Miller on for Gavin. It's pretty clear that a lot of the tightness in the aftermarket and some of the OEM pricing you're seeing actually increases the value proposition of a HEICO alternative. If we hypothetically flip that script, what are the implications for HEICO in a world where maybe some new aircraft come online, some of the older platforms come out of the fleet and aftermarket or at least the fleet age begins to normalize a little bit. Does that change the math for PMA utilization and where you see HEICO thriving? Eric Mendelson: We don't think so. I mean our business is always impacted by, first and foremost, the growth in fleet hours or available seat miles. And then it is the subcomponents of that are you look at the age of the aircraft. I mean, you've got this 20-something thousand aircraft fleet, which is aging 1 year per year. And the OEMs do a really good job of making sure that they escalate prices very aggressively to make up for any of that -- to take advantage of that. And then when you look at the fleet retirement, that typically hasn't been a big part of the equation. But it is something that we continue to look at. There are also -- I think there's a very big opportunity for all of these new aircraft that have been delivered roughly over the last 10 years, the price of the spares on those aircraft is significantly higher than on the spares on the aircraft that they replace. So if you look at line for line, the same line LRU on an older aircraft versus a newer aircraft, the newer ones are significantly more expensive. So all of this is to say, I think -- I agree with you. I think our value proposition increases substantially. And I think that we're going to be in a very good place. We're already taking advantage of the opportunity in a lot of these markets, and I think that will continue. Operator: And we'll take our next question from Michael Ciarmoli with Truist. Michael Ciarmoli: Maybe quickly, Eric, just to go back to John's energy line of questioning, and I don't know if this is a quick one or a conversation for a bigger conversation for another time. But the CFM56 and its potential use in the power generation market, you've obviously got a lot of content on some of those legacy platforms. Should we expect that assuming it gains traction in the energy marketplace, can that be a significant tailwind in terms of those platforms generating a materially more amount of parts, thinking that they've got life after or additional life besides kind of in the traditional aircraft market? Eric Mendelson: Yes. I think definitely. When you look at the aeroderivative market, there is tremendous life in repurposing those engines. There are many companies doing that, whether it's on some of the old CF6s or the CFM56s. But the use of the HEICO parts in those repairs and overhauls is, I expect going to be substantial. So I think that there is a very good tailwind for us there. Operator: And we'll take our next question from Jonathan Siegmann with Stifel. Jonathan Siegmann: Congratulations on the quarter. Just one for Carlos. Just looking back at space organic growth in ETG in the Q last year, it was exceptional, $13.5 million year-over-year. So you're going to give us how much it was down this quarter. Can you -- in this Q, can you preview what that decline is? Carlos Macau: The decline was -- yes, I can give you some color on that. So the decline in space organically was in the high single digits for the quarter compared to Q1 of '25. And as Victor mentioned earlier, Jonathan, it's not a result of order volume kicking down or backlog not being there. It's really just a function of shipments, always is with space. And so I wouldn't read too much into that to be candid with you. I think you'll see some of that recover in the subsequent quarters as we catch those shipments going forward. Jonathan Siegmann: I think that shows it has to do with that great strong comp last year. And the other question I've heard folks ask us is you have exceptional positioning with the legacy space and defense hardware providers. How is your penetration with new customers in this area? Are you guys able to maintain positions at these new people in space and defense? Victor Mendelson: Thank you, John. It's a good question. The answer to that is yes. We picked up a number of new space and defense tech customers along the way. And so far, we're holding on to them. The way we generally look at it is that we are going to supply the customer base. They need our parts, our products regardless of who they are. And for the most part, that seems to be holding true. Thanks for the question. Operator: And we'll take our next question from Tony Bancroft with Gabelli Funds. George Bancroft: Great job. Mine obviously is revolving around the defense budget. You saw the proposed potentially a $1.5 trillion budget. Even if that doesn't come to fruition over a number of years, is still -- it's a big number just directionally. How do you see that impacting your business? Maybe just broad strokes on that? And then obviously, all the announcements earlier this year from the Department of War on the programs, drone dominance, arsenal freedom, you name it. How -- what have you been told that you've spoken to the Department of War and just maybe an overall view on those dynamics? Victor Mendelson: Well, first, Tony, thank you very much for joining us and for your comments and we very much appreciate them. In terms of the outlook for us, the impact on us, first question that you asked, the impact on us of the increased defense budgets and some of these orders that definitely is beneficial. I mean, obviously, the devil will be in the details ultimately where that falls over the years. But from what we see and have heard, and we talked a little bit earlier about some of these multiyear buys that the government is doing on programs we're on both sides of the business. This applies to both the Electronic Technologies and Flight Support groups. There's definitely an impact and a benefit. And maybe we're even seeing some of that in our backlogs now, and that's a good thing. And in terms of the Golden Dome possibilities, it's not that completely defined publicly. But from what we know and what we see, it consists of a lot of existing programs, particularly obviously, missile defense programs. And again, we're on both sides of the business, Flight Support and Electronic Technologies. We're on a lot of those programs. And there appear to be some newer tracking and reconnaissance parts of that system. And we are -- from what we're told, some of the things we're selling on, I can't go on obviously, specifics, but we're told that they are for Golden Dome. There's no Golden Dome department. You don't get a letter head that says Golden Dome is officially Golden Dome. There was this list of companies they put out as primary vendors. But remember, we're down a layer in the supplier base. And then, of course, as I answered earlier, I mentioned the defense tech guys are participating there, it appears in a variety of ways, and we're picking that up as well. So overall, both are positives for us, and we feel good about them, again, both sides of the business. Operator: And we'll take our next question from Louis Raffetto with Wolfe Research. Louis Raffetto: Maybe one for Carlos. Just the stock comp expense was pretty high in the quarter. I know it was sort of called out in the press release as well. Just curious, does that level continue throughout the year? Or does it step down? Or does it ramp up? Carlos Macau: It's a good question, Louis. The -- if you recall -- you may remember last year, we talked a little bit about the performance feature that were attached to our options in '25. And what winds up happening is when -- normally, our options historically have always just been time-based. The vest over 5 years. Now we added a performance feature last year for growth in the business. And what winds up happening is the amortization of that expense actually accelerates as a result of that. It's part of the accounting rules that drive us crazy sometimes. But nonetheless, -- so what will happen is we'll probably catch a little bit more of that elevated expense in the front half of this year, and then it will taper off towards the end of the year. And in fact, as we get into the following fiscal year, it should taper down probably on par or lower than what it had been historically because we would have amortized a lot of those 25 grants in fiscal '26. Louis Raffetto: I appreciate it, Carlos. Yes. I know how much you love all the accounting on that. Carlos Macau: Yes, right. Louis Raffetto: Maybe one for Victor and Eric, just kind of, again, big picture here. Obviously, you guys have grown a ton over your 36 years. You're kind of in the $5 billion neighborhood. So just how do you guys think about the scale of the business, the sheer number of underlying businesses that are operating? And at some point, do you see some other potential portfolio action as making sense? Victor Mendelson: Yes. Listen, we've been able to adjust and grow with the business and morph, if you will, the organization as we've gone. There was a point in time where everything reported either to Eric or to me, this is Victor speaking, reported to one of us. And over time, we've gone to more of a bit of a working supervisor model, if you will, really extraordinary and talented people who show an ability to handle multiple companies at one time and acquisitions as well, multisite situations, for example, and they are leading groups, and we've been breaking this down into groups of both sides of the business, and that's going to continue. And the acquisition, you probably noticed the acquisitions we've made have generally been into those groups or into or under reporting to another subsidiary. So we want to keep that talent doing it that way. And we think that's very scalable. Operator: And at this time, I will turn the conference back to the management team for any additional or closing remarks. Eric Mendelson: Thank you very much, everyone, for participating in our call and for those who asked questions. We are always available, it's Eric, Victor or Carlos for any of your additional questions that you may want to ask offline. And we look forward to speaking with you again on our second quarter fiscal '26 conference call at the end of May. So thank you very much, and this concludes our call. Operator: Thank you. And this does conclude today's call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Neinor Homes Full Year 2025 Results Presentation. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, José Cravo. Please go ahead. Jose Cravo: Hi. Good morning, everyone. My name is José Cravo, and I'm the Head of Investor Relations at Neinor Homes. Today, we are going to go over results for the fiscal year 2025. And as usual, we are here with Borja Garcia-Egotxeaga, our CEO; Jordi Argemí, our Deputy CEO and CFO. We will start the presentation with the key highlights in Section 1. Then on Section 2, we will provide an update on the closing of the AEDAS transaction. On Section 3, we will review financial results. And on Section 4, we'll finish with key takeaways. After the presentation, there will be a Q&A session to answer any questions you may have. Now I hand over the presentation to our CEO, Borja Garcia-Egotxeaga. Borja Garcia-Egotxeaga Vergara: Thank you, Jose. Good morning, and thanks, everyone, for joining. Let me be very clear about the most important message we want to convey during this presentation. We are executing today, and we are accelerating tomorrow. That is the story. Let's break it down. First, results. Full year 2025 is the seventh year in a row that we delivered on our operational and financial targets, 7 years, not 1 or 2, 7. In a fragmented market through cycles and through volatility, we have consistently done what we said that we would do. That is the value created by this management team. It's discipline, it's execution and focus. Second, AEDAS. In less than 8 months, we have secured full control, doubled the scale of the platform. This is not incremental. This is transformational. With AEDAS, we created the national champion in a highly fragmented market. We moved from being a strong operator to being the clear consolidation leader. Third, the market. The macro is strong. GDP in Spain is growing fast. Employment is solid. Population is increasing and household leverage remains low. At the same time, supply is structurally tight. And when supply is scarce, price move up. But -- and this is important, affordability for our clients remains healthy. We operate in a market where demand fundamentals are real and sustainable, not speculative. That is what we call HALO, Heavy Assets, Low Obsolescence in a structurally scarce environment. That combination creates resilience and long-term value. And fourth, Grow. We are very well positioned. We have a scale. We have the best land, we have visibility, and we have a proven capital allocation framework. We will continue to grow, but we'll do so the same way we have delivered 7 consecutive years of results with discipline, with focus, and with equity-efficient execution. So again, we are executing today. We are very focused in AEDAS integration, and we are accelerating tomorrow. Now let's move to Slide #5, and let's see the numbers. We have closed the year with a land bank of almost 38,000 units. Around 25,000 of those are currently under production and more than 12,000 are in work-in-progress or already finished. That is production capacity. That's multi-year visibility. Our order book stands at record levels of nearly 9,000 units, representing more than EUR 3 billion of future revenues. And during the year, we have delivered close to 3,000 homes to our clients. On the right side of the slide, you have the financials. Jordi will go through them in detail later, but let me highlight 3 points. First, we reached the high end of our guidance. Second, operating margins remained solid with 27% gross margins. Third, at the bottom line, net income came in 7% above guidance, excluding AEDAS. On the balance sheet, leverage increased versus last year as expected, but it remains fully aligned with our strategy and supported by a strong cash flow visibility. Finally, shareholder value creation has been strong with 25% growth in NAV per share plus dividends distributed. So when we say we are executing today, this is exactly what we mean. Please follow me to the next slide to see how the platform has transformed in just 3 years. Now let's zoom out. The Spanish residential market is highly fragmented. Even the largest players have a very small market share. Neinor's platform today is 2, 3 or 4x larger than most of our peers. And in a fragmented market, a scale wins. Look at the evolution since 2023. Our order book is up by almost 7x. Our units under construction tripled. Our active portfolio is up by 4x, and our total land bank has more than doubled. This is not incremental growth. That is a structural expansion. But let me be clear, this is not growth for the sake of growth. It's rooted in a disciplined strategy. It's grounded on our equity-efficient model, and it is designed to create value for our shareholders. Yes, the scale is important, but quality is even more. Please, let's go to next slide. Now let's turn to the quality because scale with the quality doesn't create value. More than 80% of our GAV is concentrated in 8 regions. These are the areas with the strongest economic growth, the strongest demographics and the tightest supply in Spain. This quality land bank is worth more than EUR 10 billion in future revenues. And more important, it was acquired through a disciplined investment strategy. This provides meaningful downside protection and a clear upside in the current market environment. It is important to highlight also the segment in which we operate. We focus on the mid- to mid-high segment, selling homes at EUR 300,000 to EUR 400,000, more than 90% to Spaniards who are buying a residence where they will live. Around 30% of our clients buy with cash, while those that use leverage do so conservatively with an average loan-to-value of 65%. As a result, our buyers enjoy structurally strong affordability metrics with house-price-to-income 40% below the national average. Moreover, in recent years, when house prices started to accelerate due to the structural imbalance of demand and supply, affordability for Neinor clients remains at the same levels or even is improving a little bit. This combination of premium locations, disciplined land acquisition and resilient demand positioning underpins the quality of our earnings profile. Please follow me to next slide so that we can explain why Spain continues to be one of the safest residential markets worldwide, which further strengthens our current setup. For many years, we have been saying that Spain is one of the safest residential markets worldwide. And we say so for a structural reasons. It is true that most residential markets in developed countries are undersupplied. Spain is not unique in that sense. Their real difference lies on the demand side and in the financing structure. The Spanish economy is performing well. Employment is growing. Population is increasing. But more important, the Spanish housing market is much less leveraged than the others. In Spain, typical loan-to-value ratios are around 70% to 80%. While in many other countries, it is normal for buyers to get 90% of the purchase price. Moreover, the cost of financing is also very different. In Spain, our clients are signing long-term fixed mortgages close to 2%, while in other markets, mortgage rates can easily be double that level. So lower leverage and lower financing costs make the Spanish market more resilient to shocks. So when we think about the housing cycle and evolution of house prices, the key variable is not only supply, it is affordability under stress. In markets with high leverage and higher mortgage rates, affordability can deteriorate quite quickly when interest rates move. In Spain, the impact is much more limited. Buyers use 20% to 30% less leverage when buying. They lock in long-term fixed rates 30 years versus mixed rate to more short term in U.K., for instance. And household balance sheets are stronger than in previous cycles. That is why we believe Spain is structurally more resilient. And that is why we believe this market can sustain moderate price growth without undermining affordability, especially in our segment. Now let me step back and explain why we believe Spain offers structural growth opportunities beyond the economic cycles. Over the last years, Spain has accumulated a housing production deficit of more than 800,000 units. To put that into perspective, this deficit is equivalent to roughly 8 years of current annual housing production. As you can see on the chart, household formation is exceeding year-by-year housing production, especially after '21. The gap keeps increasing, and it is expected to do so in the following years. This tells us something fundamental. Spain simply doesn't build enough homes to meet underlying demographic demand. And as population growth accelerates and household formation continues, this deficit does not correct itself. That's why we believe Spain residential is supported by structural fundamentals, not just macro momentum. For a scaled industrial platform like ours in a quality land bank and embedded execution, this creates a long runway for disciplined growth and value creation. And now let me pass the word to Jordi to see a little bit more of AEDAS transaction and financials. Jordi Argemí García: Thank you, Borja. Let's go through the key milestones of the AEDAS transaction, which we have successfully executed in just 8 months. In December, we acquired almost 80% of AEDAS by purchasing the stake from Castlelake. At the end of January, the CNMV authorized the mandatory tender offer and confirmed the price as equitable. Shortly after, we reorganized the Board of Directors, securing full operational control of the company. And since then, we have already implemented decisive actions. First, we have restructured the corporate debt using the Bolus facility. Second, we signed a management agreement so that we are in charge of the key strategic decisions and have full control of cash management. And third, we canceled AEDAS shareholder remuneration policy to fully align capital allocation with Neinor strategy. As you know, the acceptance period of the mandatory tender offer will finish tomorrow, and the final results will be published next week. Regardless of the final percentage that we will own, the strategic objective of this transaction has already been achieved. We have control, integration is well advanced and synergies are underway. With that said, let's move to Section #3 to review the 2025 financial results. On the left-hand side of the Slide 13, you see 3 columns. First, our original guidance for the year. Second, the reported results, excluding AEDAS, which are fully comparable to our guidance. And third, the actual results, including the impact of AEDAS from the 22nd December onwards. Let's start with deliveries. We neutralized around 1,900 units, out of which 1,565 units correspond to build-to-sell projects with an average selling price of EUR 421,000 and 352 units correspond to build-to-rent projects. As anticipated during the year, the higher average selling price reflects the delivery of Santa Clara development, where units are sold above EUR 1 million each. In addition, the build-to-rent projects divested were for an amount of EUR 70 million. And remember that these are recorded directly as margin in the P&L due to the applicable accounting standards. As you can see, revenues from the asset management business are amounting around EUR 20 million, while construction and other revenues contributed approximately EUR 30 million. In total, revenues reached close to EUR 700 million. And this is basically the higher end of our EUR 600 million to EUR 700 million guidance range. In terms of profitability, gross margin stood at 27%, also above our 24%, 25% objective. EBITDA reached EUR 110 million, also at the high end of guidance. And at the bottom line, net income came in at EUR 70 million, representing a 7% beat versus guidance of EUR 65 million. Regarding leverage, we closed the year with an LTV of 16%, which is below our target of 23% and this already includes the dividend distribution executed earlier this month of EUR 92 million. So overall, solid operational execution and cash flow generation from the underlying business. Now looking at the third column, which includes the impact of the transaction, you can see that AEDAS contributed 26 units at an average selling price of EUR 412,000. Basically, it adds EUR 12 million of revenues and bringing group revenues to EUR 709 million. At EBITDA level, the impact is minimal, around negative EUR 1 million, mainly due to the structural costs and the margins for finished products, which are lower. The most relevant impact is at net income level, I would say, due to the purchase price allocation accounting with a positive contribution net of transaction costs and net of one-offs of EUR 52 million. That implies that the net income increases from EUR 70 million Neinor stand-alone to EUR 122 million at a consolidated basis. Note that this is a non-cash item that was triggered by the badwill arising from the M&A transaction. This extraordinary profit represents an anticipation of the EUR 450 million target net income we announced in June of last year. And if you look at the net debt, it increases to EUR 1.1 billion. This basically implies a loan-to-value of 36%, which again is slightly below to our 37.5%, 40% target, including guidance. So with that said, let's move to the Slide #14. Let' s zoom out for a moment and go back to basics. We operate a highly industrialized and scalable platform in a fragmented market. Our business consists of buying raw land and transform the plots into new homes for our clients. And as you can see, over the last 9 years, we have perfected this model, delivering more than 16,000 homes across Spain. Financially, this translates into more than EUR 5 billion of revenues, industry-leading gross margins of 28%, more than EUR 900 million of EBITDA and more than EUR 600 million of net income. And that profitability has not remained in our balance sheet. It has been returned to shareholders through dividends and share buybacks. If we focus on our strategic plan, we have distributed EUR 450 million with a further EUR 400 million forecasted for the upcoming 2 years. In practical terms, these companies will return approximately 80% of its market cap as of March 2023 to shareholders in only 5 years. And we have done this while doubling the size of the company. Originally, the plan contemplated to reduce the size of the company by 30%, but instead, we are doubling earnings per share. So we have demonstrated that we are disciplined and be sure we will continue being. And now I hand over the presentation back to Borja for the key takeaways. Borja Garcia-Egotxeaga Vergara: Thank you, Jordi. So let me close by summarizing the investment case in 4 clear points. First, our positioning. We operate in heavy tangible assets, land and housing. These are real assets with very low obsolescence risk. In a world increasingly exposed to technological disruption, our business is structurally protected. People will always need homes and the real raw material is the land, not the metaverse. Second, our asset base. We control the largest and highest quality land bank in Spain. Fully permitted land in prime regions is scarce. Scarcity protects value and scarcity embeds margins. When you own the right land in the right locations with permits in place, you control both timing and profitability. This is a structural competitive advantage. Third, the market environment. As we have seen, Spain is structurally undersupplied. At the same time, the housing market is under leveraged with conservative mortgage structures and resilient affordability. That combination makes the Spanish residential market one of the safest globally. And importantly, this structural imbalance does not disappear if GDP moderates. Supply constraints are long term. Demand fundamentals are demographic. This is not a short-cycle story. And fourth, growth. We will continue to grow, but with discipline. Every investment must be equity efficient. Every transaction must be value accretive. Scale is important, but discipline is what creates value. That is why we believe Neinor is positioned not just for this cycle, but for the long term. Thank you very much. Jose Cravo: Operator, we can now start the Q&A session. Operator: [Operator Instructions] We will take our first question. And the question comes from the line from Ignacio Domínguez from JB Capital. Ignacio DomÃnguez Ruiz: I have a question on outlook for the next few years. What gross development margins do you expect to deliver on a consolidated basis, particularly as the combined Neinor, AEDAS platform stabilizes? Jordi Argemí García: Everything regarding the business plan and the future, we prefer to wait because, as you know, we are in the middle of the Mandatory Tender Offer. So results should come -- will come next week. And after it, we try or our intention is to present the business plan and all the guidance at the AGM that will be in April. So a few weeks from that. We don't expect any changes to what we presented in the tender offer in all the guidance for the JVs. But in any case, it's better to wait for the final result of the tender offer to answer. Operator: We will take our next question. The question comes from the line of Fernando Abril-Martorell from Alantra. Fernando Abril-Martorell: I have 3 questions, please. First, on execution. So what is your target for new housing starts in your fully owned portfolio in 2026? And also would like to -- if possible, if you can elaborate a little bit on the constraints you may be facing in launching new developments and whether you see any change in the stance from public authorities regarding permits and approvals. Second, on land purchases. I don't know, you've raised -- you've done another capital increase aiming for new growth opportunities. So I don't know if you can comment a little bit more on this. And if you have any -- I don't know if you have any land acquisition target for this year as well. And third, maybe you will not answer much on this based on what Jordi just said. But if we assume that you paid the remaining EUR 150 million dividends this year, I don't know if you can comment on your year-end net debt target or loan-to-value based on this assumption. Borja Garcia-Egotxeaga Vergara: I will start with the first question that was regarding -- I understood about what we are going to launch in this year for the year '26 which target. As we said during the tender offer, the new size of the company of the whole group between Neinor and AEDAS will lead us into a situation where we will be delivering between 5,000 to 6,000 units per year. So right now, we are just closing, as Jordi was saying, the business plan. And therefore, all the portfolio is being adapted into that metrics that I'm telling you. So more or less, you can consider that during the year, we should launch enough to recover in year '28, '29 those 5,000 to 6,000 units. Regarding the situation with the politics and the permissions, well, you know that in Spain, the situation with the house crisis is getting louder year-by-year. And this is making most of the regions we are seeing in all the regions, in fact, where we are working, how the rules are changing. Basically, what all the regions are trying to do is to do it easier to get the licenses to short times and to try to increase the supply. All of this is good for our business. So we are happy with the situation in terms of the action of the politicians that we have been asking for, for so long. Regarding your second question, the land purchase, I give the word to Mario. Mario Lapiedra Vivanco: Okay. Well, as mentioned, we are closing the investment strategy. And in the coming weeks, we will provide further details. But as of today, we can say that we have a good pipeline of above EUR 500 million in the different living verticals, both in build-to-sell in Senior, in Flex and in strategic land. We will keep discipline. So we know that today, we are the rock stars of the sector, but our main mantra is to keep the discipline that has allowed us in the last years to invest more than EUR 3 billion, but providing IRRs of above 20%. So that's a bit of what we can say today. Jordi Argemí García: I take the last one, the net debt target. As I said before, Fernando, we prefer not to close down mandatory tender offer, and we will come back in a few weeks to explain the business plan in details. In any case, as I was saying before, whatever comes will be aligned with what we presented in June. And remember that the debt target there was 20% to 30% Neinor HoldCo Level on a consolidated basis should be around 40%. Then it will go down because we will deleverage AEDAS. Fernando Abril-Martorell: Okay. Just a quick follow-up on the politics. Are you willing to play via affordable housing or not it's not a priority for the moment? Borja Garcia-Egotxeaga Vergara: Well, Fernando, regarding the affordability houses, we must say that right now, more or less every year, we are delivering around 200 houses of protection. We are delivering, for instance, last year, we did 500 units that we deliver what we call affordable housing that at the end is houses that instead of EUR 300,000 to EUR 400,000 case, as I have said in the presentation, cost between EUR 225,000 to EUR 275,000 and we deliver this type of houses, for instance, near Madrid in the places where we can get to buy land at cheap price. Regarding affordable housing in the rental segment, we have an active program now with Llei de l'Habitatge de Catalunya that we are building for them 4,700 units. We keep looking the different opportunities that we are seeing with Plan Vive Madrid and others in Valencia or in Navarra. Basically, we need to be very sure before we enter into these operations that we have a clear exit when we get in and that the rentability -- the profitability of the transaction is enough for that exit. So being a priority to contribute in the affordable housing solution in Spain, we are also very close to the design of these programs in order to try to make them, I think, more profit -- a little bit more profitable and it's something that, for sure, Neinor will play an important role in the following years. Today, it's not in our business plan, but it's something that we work with. Operator: [Operator Instructions] We will take our next question, and the question comes from the line of Manuel Martin from ODDO BHF. Manuel Martin: Gentlemen, just one follow-up question and then 2 other questions from my side, please. The potential 5,000 to 6,000 units deliveries per annum, more or less. Just to make sure, this is build-to-sell and from your own portfolio as far as I understood. Borja Garcia-Egotxeaga Vergara: Yes. Basically, right now, we are delivering more than just small amounts of affordable housing that are more for the rental segment that both Neinor and AEDAS we are doing, but not too many units. Most of it is build-to-sell product. build-to-rent, private build-to-rent, we are not launching many, many developments because there was a loss of interest in the markets. Manuel Martin: The 2 other questions, one general question. I don't know if you can answer that before your AGM comes. In terms of future growth, would it be able for you to indicate whether you would like to grow through JVs or through other acquisitions in the future? Do you have a preference there, which you can share? Or is it a bit too early? Mario Lapiedra Vivanco: I'll take this one, Manuel. Mario here. Well, we are monitoring always the full on balance investment and the JV co-investment vehicles. We have a queue of investors in our offices. That's the reality because there are less players and the appetite has increased in the last months. So we are selecting very well, which deals we do directly and which ones we prefer to do on that vehicles. So we have flexibility in the budget depending on the best option for our shareholders. Manuel Martin: I see. Okay. And third and last question, actually, maybe a bit technical and for curiosity, the Purchase Price Allocation gain you had for 2025, the EUR 50 million to EUR 60 million roughly. Can you give us an insight how you arrived to that amount? Why is it EUR 50 million? Why not EUR 150 million, just for curiosity? Jordi Argemí García: It's a good curiosity. The only thing that this is -- for us, this is not good because as I said before, this is a non-cash item. We -- this implant anticipate part of the future revenue, accounting revenue that we set in the guidance. So for us, the preference was to be at 0 being honest. But this is impossible because accounting rules do not allow that. So what we have done is working with the auditor to try to minimize as much as possible this level or this amount. It comes from the difference between the valuation from third party, in this case, Savills, non-CBRE and the purchase price finally paid, but also we have included additional structural costs because obviously, one thing is the asset value. Other thing is a corporate company, a corporate that needs to deliver those units. And obviously, we have some structure. So it's a combination. But again, our preference was to be at 0 being honest. Operator: There seems to be no further phone questions, if you wish to proceed with any webcast questions. Jose Cravo: Thank you. So we'll go with the webcast now. We have here only one question. It's with regard to the results of the tender offer, the mandatory tender offer that will come out next week. If we can give some details on what is the strategy if we don't reach the squeeze out. Jordi Argemí García: Okay. I take it. I mean, let's see what happens next week. If we get the squeeze out, fantastic. If we don't get the squeeze out as you are questioning, for us, it's also fantastic. I mean, for us, the deal is completed already independently on the percentage that we finally own by next week. We control the company. We control all the policies that's what matters to us. So once the mandatory tender offer is finished and imagining a scenario in which we don't get the squeeze-out -- our focus day after will be the activity of the company. We will not be there trying to buy again those minority shareholders that want to keep and be in the company, fantastic, we welcome them. But our priority will be completely on activity. That's the reality. Also, that means that the dividend we canceled because we prefer to use the cash to deleverage the company. So dividend distribution is not something relevant today at AEDAS level. This doesn't mean that in Neinor Homes, we will have capacity to reach the guidance we set, and we don't need actually the cash coming from AEDAS to accomplish with these targets for the next 2 years. Remember that AEDAS has around EUR 300 million of corporate debt; that is the bond plus the commercial paper. As I was saying, that's our priority for the coming 1 year or even 2 years. So whoever is there because we don't reach the squeeze-out, should be a medium- to long-term investor together with us. And one last comment from my side is that in a delisting tender offer, normally, the company, the buyer needs to allow during 1 month potential purchases if minority shareholders want to sell 1 month later, the tender offer. In this case, it's not a delisting. So Neinor is not obliged to continue buying once the mandatory tender offer is fully completed. Jose Cravo: Thank you, Jordi. We have no further questions on the webcast. So that concludes the conference call. Thanks, everyone, for joining. Jordi Argemí García: Thank you. Borja Garcia-Egotxeaga Vergara: Thank you. Mario Lapiedra Vivanco: Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning. We welcome you to EDP's 2025 Final Year Results Presentation Conference Call. [Operator Instructions] I'll now hand the conference over to Mr. Miguel Viana, Head of IR and ESG. Please go ahead. Miguel Viana: Good morning. Thanks for attending EDP's 2025 Results Conference Call. We have today with us our CEO, Miguel Stilwell de Andrade; and our CFO, Rui Teixeira, which will present you the main highlights of our strategic execution and 2025 financial performance. We'll then move to the Q&A session, in which we'll be taking your questions, starting with written questions, you can insert from now onwards at our webcast platform and then by phone. I'll give now the floor to our CEO, Miguel Stilwell de Andrade. Miguel de Andrade: Thank you, Miguel. Good morning, everyone, and welcome to the 2025 results conference call. Just before presenting our results yesterday, I just wanted to address the extreme weather events that impact Portugal. And as you know, Portugal was hit by a series of devastating storms starting at the end of January and then well into February to a certain point, had winds over 200 kilometers an hour, which really caused unprecedented physical damage to infrastructure in the country, including our own network infrastructure and also customers. I think the first thing to say is that we immediately responded with a very coordinated large-scale support from all the internal and external teams. I mean we had people coming in from Spain, Brazil, France and Ireland, and I just wanted to thank also all those teams. The networks and the hydropower teams worked around the clock to limit the damage caused by the storm and to restore power to our consumers. Naturally, the first thing is our thoughts are with the people and the communities affected. We understand the damage that this has caused, the frustration from people that had no power over those weeks. And from the beginning, our first priority was to reestablish power in the quickest, safest and the most effective way possible. We have now recovered 100% of the customers, only a very few specific situations outstanding that will be resolved very shortly. But I think the worst is definitely over. I also wanted to extend a really sincere word of appreciation for the absolutely extraordinary professionalism and dedication demonstrated by the teams, both internal and external across all the country. I mean the response from grid repair to the hydro power management, the community support, emergency logistics. I mean, it was absolutely exemplary. And I think it really showed the best of EDP in terms of the commitment to stand with our customers and with the communities that we serve, especially in the moments where they need us most. So I will come back to this later in the presentation just to talk a little bit about the impact on us in more detail. But I would move now into the bulk of the presentation. And on to Slide 3, which essentially shows an overview of our results for 2025. And I'd start off by saying EDP had a very strong set of results for 2025. The recurring EBITDA reached EUR 5 billion, so outperformed the EUR 4.9 billion guidance. It's mostly on the back of a better-than-expected fourth quarter in the integrated segment in Iberia from above-average hydro resources in the fourth quarter. If we compare that with 2024, EBITDA was up 1% year-on-year. So it reflected a rebound in EDPR's performance, which as you know, had record capacity additions towards the end of last year. Recurring net profit came in at EUR 1.3 billion, so also above the guidance, although it's down 8% versus 2024, and that's mostly explained by higher financial expenses. Net debt ended the year very well. So at EUR 15.4 billion, better than the EUR 16 billion guidance, and that led us to have a great FFO over net debt of 21% compared with the 19% guidance. So the upside versus guidance at all levels allowed us to then increase the shareholder return. So we're proposing a dividend of EUR 0.205 per share. So that's a small increase, which will be paid this year already in 2026, obviously subject to the General Shareholders Meeting approval. If we move forward into the next slide to talk a little bit more detail about the FlexGen and customers. So here, we see a structural uplift in the value flexibility. And I really wanted to highlight, if you see here on the left-hand side, there's a chart from the International Energy Agency recently that shows the capture rates in Spain by technology. And it shows how the market is increasingly rewarding assets that can respond to price volatility and the system needs. And you can see natural gas capture prices obviously rising in 2024 and '25. Hydro with reservoir also trending upwards and more intermittent and less flexible technologies, particularly solar, you see obviously a decline in capture rates in 2025. The takeaway here is that flexibility is being structurally priced in and that we expect that to remain a long-term feature of the market. And you can see that in the figures for EDP for 2025. The hydro net generation was almost 10 terawatt hours. It's down 2% year-on-year, but still a very strong year for them. Hydro premium versus baseload increased to 21%, so reinforcing the value of the flexible output. And on pumped hydro, the pumping volumes increased to 2.3 terawatt hours on the year, so up 24% year-on-year, with the pumping spread versus baseload reaching 75%. If you look at the right-hand side of the slide, and we give there an update on the reservoir levels in 2026. So given the heavy rainfall, reservoir levels are at historically all-time highs. They've reached around 96% in February 2026, up from roughly 76% in January. And that's consistent also with the hydro production index in Portugal, which has doubled its historical average year-to-date. So obviously, that's following the heavy storms, which I just talked about in Portugal in January and February. One important thing to note is that the market consequence of these extreme weather conditions is that we also had abnormally depressed pool prices, which together with higher ancillary services costs in February. It's shown by the Portuguese pool prices going from around EUR 71 per megawatt hour in January to roughly EUR 8 per megawatt hour until mid-February. So more depressed pool prices in February and higher ancillary service costs. If we move forward to the next slide and just in a little bit more detail on the storms here in Portugal in the first half of 1st February essentially. First, as I mentioned, just highlighting the efforts made by the team. So a huge effort done to restore power and to make sure that the dams and that the flooding was limited. The storms impacted around 6,000 kilometers of grid, damaged around 5,800 towers. We had more than 2,000 people mobilized on the ground, around 2,400 people. And as I said, we were able to restore 100% of the customers already by this week. On hydro, we continuously monitor the rainfall. And I think here it was great to see using advanced hydrological model, so we were able to proactively sort of anticipate what was coming down the road and to be able to also anticipate some of the discharges and coordinate that with the environmental authorities. So I think there was a meaningful role in flood control. Then on the practical side with customers and communities, we have put in place schemes to ensure that payments and invoicing support for the customers impacted as well as the assistance with the solar DG reinstallations. On a more social level, we also delivered over 90 tons of essential materials, including fans, roofing tiles, parklands basically to help people protect their homes. And we also helped people in more isolated areas get access to communications, including Starlink devices and power banks. In terms of financial impact, we're expecting that this will result in around EUR 80 million in CapEx with infrastructure to rebuild, will be partially supported by insurance. We're still evaluating additional cost and impact, and we'll update that in the first quarter results, but clearly shows increasing vulnerability that climate change is causing and the importance above all of resilient flexible systems and long-term investment in networks. And that takes me to the next slide, where I wanted to just stress that already before these events as of last year, we're already significantly ramped up the investment to respond to the growing needs of the system. The electrification, the renewables integration, the grid resilience, gross investments for the period '26 to 2030 will reach EUR 4.1 billion compared to the EUR 2.6 billion in the '21 to '25 period. So that's a 58% increase overall in Iberia, slightly more in Portugal than in Spain, although both geographies are contributing significantly to Portugal around 66%, so almost 70% increase. The big part of this is strengthening grid resilience. We're assuming around -- or more than EUR 500 million for grid resilience to ensure that the network is prepared for higher loads, more distributed generation and greater system complexity. And fortunately, this greater investment is underpinned by much stronger regulatory visibility, as we showed here on the right-hand side. So as you know, the new regulatory framework sets up the 6.7% nominal pretax return for this period until 2029 in Portugal. And in Spain, the framework establishes a 6.58% return for the period out to 2031. So importantly, both framings closed as of the end of last year, giving us clarity and stability for the upcoming investment cycle. I think it's also important to note that in Portugal, the 2026 state budget clarifies and -- the conditions under which new investments in the networks are exempted from the extraordinary tax. So that supports really this incremental investment that we're doing in the networks. Still on networks. If we move forward to the next slide, you can see that the new regulatory terms and approval plans will allow an EBITDA growth in Iberia for networks. So it grows to around over EUR 1 billion over this period. We have to consider that in this period in Portugal, there are legacy revenues that end in 2026 worth around EUR 40 million, removing that means that we'd have a normalized 2025 EBITDA of around EUR 0.89 billion and that then reaches the EUR 1.05 billion in 2028. So that's an 18% EBITDA growth for '25 to '28 with -- updated already with the new terms. So this isn't just a one-off to 2028. This then continues to grow beyond 2028, and that's supported by the approved returns and also the investment plans that we discussed on the previous slide. So all of this gives us confidence in the continued momentum well beyond 2028 to 2030 and beyond that. If we move on to the next slide and just talking quickly about Iberia. I think what I'd say here is that Iberia is entering a period of much stronger electricity demand growth, driven by electrification. On the left, you can see the power demand growth in 2025 versus '24. Portugal leads at 3.6%, Spain at 2.8%, which means Iberia clearly outperforming several of the European markets. And it's not just a 1-year effect. I mean obviously, we're seeing strong momentum into 2026. So just in January, the demand was 7.9% in Portugal and 4.8% in Spain already adjusted for temperature. And going forward, we see our estimated 2% CAGR in the Iberian electricity demand over the period leading up to 2030. So demand growth should be supported overall, not just by the economy is doing well, but by more than 18 gigawatts of data center projects pipeline that have been announced or that are publicly available. I'd have to highlight here that EDP is obviously engaging with a lot of these projects, 2 of the more advanced ones that's certainly here in Portugal are the Merlin Data Center, North of Lisbon at 180 megawatt. We had an MOU signed with them back in July of 2025. And also the Start Campus project in Sines with an MOU that we signed yesterday. And the Sines project, as you know, is expected to reach 1.2 gigawatt over the next couple of years. And I can detail a little bit more what that means in the Q&A if you think that's appropriate. If we move forward to still to talking about Iberia. And this is a slide, which I think is also extremely important because it's not just about demand growth. It's also that Iberia combines this demand growth with structurally affordable power prices. And that's supported by improving system fundamentals. And that's really an important advantage for customers, for electrification, for the broader competitiveness of the economy. So when there's so much talk in Europe and elsewhere about affordability and about competitiveness, Iberia has a really distinctive advantage in Europe, and I think we will benefit from that sort of on the electrification front. On the left-hand side, you can see the evolution of the B2C electricity prices. And the key takeaway is that Portugal and Spain fit among the most affordable markets in Europe, around 17% below the European average. Going forward, at the European level, Northern Europe faces higher expected network investments that typically puts upward pressure and then user prices over time. But by contrast, in Portugal and Spain, we have several structural elements that we think will support the affordability. One is that the historical electricity system that is expected to be fully paid by 2028. That means that there will be significant cost reductions in the tariff structure going forward. Second, there's a gradual phase out of legacy support schemes like the Feed in Tariffs in Portugal and the Recore scheme in Spain that also reduces access tariff costs. And so in Portugal, specifically, the regulator has simulated annualized reductions in the B2C reference end user tariffs from 2026 to 2030. So that helps create room to accommodate new system needs like ancillary services, capacity mechanisms, additional investments in networks without compromising competitiveness. So I think it's -- we are able to get the best of both worlds, which is more investment, more ancillary services, more capacity mechanisms to make sure that we have a stronger, more resilient system and still have sort of annualized reductions in the end user tariffs. Moving on to EDPR. Again, you have more detail on that yesterday. So just a quick note here. We are seeing really strong execution momentum and better visibility on the business and plan delivery. Over the last 6 months, EDPR secured 1.3 gigawatts of capacity. And on the left-hand side, you can see the main projects secured during this period. It's a combination of PPAs with utilities, global tech companies. We also have Build and Transfer agreements in the U.S. So it's really a diversified set of offtakers and structures. And across the '26 to '28 period, we already have 2.8 gigawatts secured, and we expect to continue on securing more projects over the coming weeks and months. If we break it down year-by-year, 2026 is already 100% secured. So almost all of that under construction, a couple of projects coming under -- into construction in the very short term. So that gives us very good confidence on the 2026. '27 is already 65% secured and 2028 is at 10% secured. So that gives us roughly already 55% secured for '26 to '28. As I say, we have good visibility on additional projects that are coming down the pipeline to help us meet the rest of this project. And with that, I'd stop here, I pass it over to Rui to go through the '25 results in more detail, and I'll come back for closing remarks. Thank you. Rui Manuel Rodrigues Teixeira: Thank you, Miguel, and good morning to all. So let me start with the EDP's results. Recurring EBITDA reached EUR 5.03 billion in 2025. It's up 1%, but if we exclude asset rotation gains and FX, the underlying growth was 7% year-on-year driven by strong EDPR performance in resilient network space. So looking at the recurring figures by segment, Renewables, Clients and Energy management increased by EUR 65 million year-on-year, reaching EUR 3.4 billion and all represent 69% of group EBITDA. Within this segment, the Hydro Clients and Energy Management declined EUR 216 million year-on-year, mainly reflecting the normalization of gas sourcing conditions in Iberia versus the external environment that we have in 2024. This was more than offset by strong EDPR performance up to EUR 190 million year-on-year, reflecting 2024 record additions translating into higher generation. On the network side, recurring EBITDA stood at EUR 1.54 billion, now representing 31% of group EBITDA. While EBITDA decreased EUR 68 million year-on-year, this is mainly explained by Brazil FX impact and the assets of capital gains, again, excluding FX and asset rotation, the underlying networks EBITDA increased 3%, supported by a positive performance in Iberia, both from a regulatory framework and reinforce operating discipline. So finally, recurring OpEx decreased 2% year-on-year or 5% in real terms, reinforcing also the operational discipline, which I will detail in the next slide. So if you look to the OpEx, this slide highlights an important enabler of our EBITDA performance, which is sustained cost discipline. Recurring OpEx decreased EUR 1.88 billion, trending down year-by-year, a total reduction of around EUR 160 million in '25 versus '23. Over the last 12 months, inflation was around 3%, and yet we still delivered a 2% nominal reduction in recurring OpEx. Excluding FX, OpEx is slightly below, which means that we are effectively absorbing inflation through efficiency and productivity gains. This is translating into improved efficiency ratios. OpEx as a share of gross profit improved from 28% in '23, down to 26% in '25. Key drivers for these, EDPR is delivering efficient growth. We're reducing adjusted OpEx per megawatt by 12% year-on-year to EUR 40,000 per megawatt, this while scaling capacity, a leaner more focused workforce aligned with the company's growth priorities, digital and AI-driven initiatives to improve O&M efficiency, decision-making, customer experience. So I think the message is very clear. We are growing and investing while structurally improving the cost base. And obviously, this supports cash generation as we deliver the plan. So now let me move to FlexGen and Clients segment. EBITDA for '25 stood at EUR 1.46 million. This is down 13% year-on-year, and this reflects the normalization versus an extraordinary 2024, but also flexibility revenues structurally increasing. In Iberia, 2024, as you know, was impacted by extraordinary gas sourcing costs. 2025 baseload hedging price normalized from EUR 90 per megawatt hour to EUR 70 per megawatt hour. However, this was partially offset by stronger flexible generation revenues. Pumping generation increasing by 24%, pumping spreads reaching 75% over baseload prices. Hydro premium improving to 21% and CCGT generation increasing by approximately 3 terawatt hours, reflecting the system operator needs. In Brazil, EBITDA declined from EUR 184 million to EUR 156 million, mainly due to ForEx impact. So overall, while the headline EBITDA reflects normalization, the structural uplift in flexibility was very solid with EUR 0.3 billion contribution to overall group. So now we move to Slide 15, turning to EDPR, which we also commented on yesterday's call, recurring underlying EBITDA ex ForEx grew by 27% year-on-year. This growth, very robust growth reflect a significant step-up in the generation following the record capacity additions in '24, offsetting worse renewable sources and also normalization of selling prices primarily in Europe. Overall, EDPR continues to deliver strong operational momentum and translate to capacity growth into earnings growth. Now looking at the Networks EBITDA on Slide 16. Recurring EBITDA reached EUR 1.54 billion in 2025, representing a 4% decrease year-on-year, but this is primarily explained by devaluation of the Brazilian real. The absence of asset rotation gains in Brazil, which amounted to EUR 71 million in '24, combination of deconsolidation of transmission assets, the decrease on the distribution company's residual value update and transmission inflation update. But this is compensated overall by improving operating performance. Again, excluding FX and asset rotation, underlying EBITDA increased 3%. It has an important contribution of EUR 56 million in EBITDA from Iberia, the following inflation update in Portugal and RAB growth overall. So all in all, the network segment is showing a resilient operational performance with a very supportive regulatory farmwork as Miguel just described going into the future. On financial costs, following slide. Net financial costs increased from EUR 865 million to EUR 989 million. There are 2 mains drivers to this. The first one is that net interest costs, which add about EUR 54 million. They reflect higher average debt and a higher cost of debt in Brazilian reals, where the average cost rose from 11.7% to 14.1%, reflecting the macro conditions in the country. Excluding Brazil, the average cost of debt reduced to 3.3%. Second, lower capitalizations and other effects contributing with an addition EUR 69 million. This is largely explained by the EUR 1.2 billion reduction in work in progress as projects enter the operation, and therefore, reducing capitalizing interest. If you look to the right-hand side, average nominal debt by currency remains broadly stable year-on-year. The portfolio continues to be predominantly euro-denominated with 64%, followed by U.S. dollar, 16%; and Brazilian real at 15%. Finally, in terms of recent financing activity, we issued a 6-year senior bond EUR 650 million in January with a 3.25% coupon. So this confirms the competitive access of EDP to funding in the debt markets. Now let's move to the cash flow on the following slide. Organic cash flow reached EUR 3.3 billion, up EUR 0.5 billion year-on-year, driven by EBITDA improvement in working capital management. Net interest paid amounts to EUR 0.8 billion, partially offsetting the operating improvement. And on investments, gross investments totaled EUR 3.9 billion, mainly EUR 2.4 EDPR and EUR 1.1 billion in Electricity Networks, plus EUR 0.4 billion in FlexGen and Clients. These gross investments were funded through EUR 1.6 billion of asset rotation and EUR 0.8 billion of Tax Equity proceeds. There are also EUR 0.5 billion of other impacts, mainly related with payments to fixed asset suppliers. So as a result, a total of EUR 1.7 billion of net cash investments, of which close to 50% in electricity networks and around 40% in EDPR. Now on Slide 19, net debt stood at EUR 15.4 billion, down from EUR 15.6 billion at the end of 2024 and outperforming EUR 16 billion guidance that we gave to the market. The key drivers for the change in net debt includes EUR 3.3 billion of organic cash flow. Obviously, the EUR 0.8 billion of dividend annual payment and the EUR 100 million share buyback throughout '25. The EUR 1.7 billion of net cash investments that I just explained, also EUR 0.8 billion of regulatory receivables and about EUR 0.3 billion from FX and other, mostly related to U.S. denominated debt. So as a result of cash flow management, balance sheet discipline and obviously, very strong operational cash flow, we do have solid credit metrics with 20.9% FFO net debt and 3.3x net debt EBITDA. Now on the net profit. Net profit reached EUR 1.28 billion. That's a reduction of 8% year-on-year. And this is mostly reflected or driven by the higher EBITDA, EUR 74 million, higher D&A and provisions, increasing EUR 60 million year-on-year, reflecting the investment path, higher net financial costs due to higher cost of debt and lower capitalizations, slightly higher income taxes and noncontrolling interests. Excluding asset rotation gains and the ForEx, the underlying net profit increased 3%, confirming a very solid operational performance, as we just described. Reported terms, net profit reached EUR 1.15 billion, including the negative impact of EUR 130 million, mostly related with some nonrecurring items in EDPR. Year-on-year reported net profit, therefore, increased 44% also driven by EDPR performance rebound compared to a negative 2024. This improvement in net profit supports our proposal to increase the dividend to EUR 0.205 per share, up 2.5% versus the guidance to be paid in 2026, obviously subject to the approval at the shareholders' meeting. And now let me just address a topic, which I think is relevant regarding the net income sensitivity to power prices versus what we presented at the CMD. So on this slide our -- just again to remind everybody. So our exposure to energy market is well diversified. And as you know, we have a very active energy management. The portfolio is predominantly long-term contracted. This provides strong cash flow visibility and obviously reduces short-term impact from price volatility. In Iberia and Brazil, we have a structural short position in generation, which hedged through our supply business, so partially offsetting wholesale price movements. At the CMD, we disclosed that the simultaneous 5 years per megawatt hour movement in all markets, would imply approximately EUR 60 million impact on 2028 net income. Since then, Iberia 2028 forwards have declined around EUR 10 per mega hour. But on the other hand, U.S. and Brazil forward curves are moving upwards. So this portfolio diversification plus an active energy management have actually reduced the sensitivity. So today, the same 5 years per megawatt hour movement across all markets in the same direction would imply approximately EUR 45 million impact on net income 2028 again versus the EUR 60 million that we presented at the CMD, so a reduction on the sensitivity. The merchant exposure split is about 65% Europe, 20% Brazil and 15% North America. So with this, I would hand over to Miguel for final remarks. Thank you. Miguel de Andrade: Thank you, Rui. As you say, I think to push on the sensitivity to power price is an important point to note because I know there are questions on that. Anyway, if we move forward to the final slide, just before we open it up for Q&A. So summarizing the 2025 results and how we're seeing 2026 and beyond. First in relation to '25, I think it's undeniable that it was very strong execution and delivery of what we had promised. Across the group, we delivered ahead of guidance, and we're seeing a clear structural change in FlexGen and Clients with the value flexibility coming through very strongly. At the same time, EDPR also improved its performance, has its continued focus on A-rated markets. It's got better visibility on the business plan execution. In networks, we have significantly improved visibility with the regulatory periods closed in Portugal and Spain, and we also advanced in Brazil with the extension of the concessions. And importantly, all of this was delivered with financial discipline and increased efficiency in Sweden. Spoke about, particularly on the cost side, but also on the debt side, supporting the maintenance of sound credit ratios. Second, looking at the 2026 guidance. We expect to recurring EBITDA of around EUR 4.9 billion to EUR 5 billion, and this is supported by the balanced contribution across the portfolio. We have the networks around EUR 1.5 billion to EUR 1.6 billion. And EBITDA at around EUR 2.1 billion as mentioned yesterday. FlexGen and Clients is around EUR 1.3 billion to EUR 1.4 billion, and we reaffirm our recurring net profit of EUR 1.2 billion to EUR 1.3 billion. On the 2028 targets. And over the course of the next couple of years, we continue to expect around EUR 12 billion of gross investments. And I say this will be funded with discipline and supported by around EUR 6 billion of asset rotations and disposals. We'll keep our balance sheet targets unchanged. So we're targeting FFO over net debt of around 22%. And in terms of earnings delivery, we remain committed to the EUR 5.2 billion of recurring EBITDA and the EUR 1.3 billion of recurring net profit by 2028. So overall, this is consistent. We executed strongly in 2025. We have very clear visibility for '26, and we are reiterating our 2028 guidance. With that, happy to turn it over to Q&A and back to you, Miguel. Thanks. Miguel Viana: We will begin by addressing the questions submitted in writing. After that, we will move on to the live questions by phone. [Operator Instructions] So we'll start with the written questions. And we have for first question from analyst at RBC and the other analysts GB Capital, Deutsche Bank, CaixaBank regarding the guidance for 2026 that we provide. So we are guiding stable EBITDA versus what we present at CMD, while at EDPR, there was a slight revision. So if we can explain this in detail, this better guidance. Miguel de Andrade: Sure. So as I mentioned, I think 2026 we're very comfortable with it. I mean a couple of points that have improved since the Capital Markets Day last November. The regulated rate of return for the distribution in Portugal was better than the initial proposal. So that was an upside. The callback was suspended as of December. And previously, we're assuming that we will have that over the next couple of years. So that's also positive. January and February saw obviously very strong hydro inflows. And I showed you the numbers in terms of how the reservoirs are, they're sort of all-time highs. So full capacity there. So good visibility also in the next couple of months in terms of hydro. On slightly negative low wholesale prices in February and higher than normal ancillary services in terms of supply, also some transmission grid restrictions due to the storms, still be fixed. So that's on the negative side. But we are expecting these to decline over the next couple of months and also the wholesale prices in Iberia to normalize again, also over the next couple of months. On ForEx and FX, we have a slightly lower dollar versus the euro, as we commented yesterday on the EDPR level. But on the other hand, we're seeing a positive rebound of the Brazilian real. So we're now seeing BRL 6 per euro versus our business plan assumptions of BRL 6.6 per euro for 2026. So quite a few positives, a couple of negatives, but all in, quite frankly, we feel very confident with the 2026 guidance. Miguel Viana: Yes. We have then a second question about net debt. So what contributed to the positive deviation of our net debt figure in 2025, so the EUR 15.4 billion versus the EUR 16 billion guidance that we have provided. And also a question around update for net debt expected evolution over 2026. Rui Manuel Rodrigues Teixeira: Thank you, Miguel. So first of all, Q4 was very good in terms of operational call, strong contribution from the integrated segment in Iberia. So that's the first one. Obviously, there is some impact from working capital that we will see then reverting in the -- now in 2026. So what I would say is that, first of all, 2026 we are looking at around EUR 16 billion of net debt towards the year-end. Typically, as you know, we have, during the first half rise in net debt coming either from this working capital. Also, bear in mind that we have the Greek transaction, but also dividend payments in the second quarter. And then as we start having the -- also the cash in from asset rotation tax equity proceeds towards the end of the year, it tends to go down again. So that's why we are looking at around EUR 16 billion by the 2026. Miguel Viana: We have then a question around the news of yesterday regarding memorandum of understanding with Start Campus. What does it mean for EDP and this engagement? So questions from Alex from Bank of America, Fernando, CRBC. Miguel de Andrade: So it's an interesting step. I think it's one of many we've been taking. It's -- essentially the MOU just an interest of both parties to explore the synergies between their activities. I mean, obviously, we as experts on the energy side and them on the infrastructure side. I'd say there's actually 3 parts to the MOU. I think the first is for EDP to be considered the strategic energy partner to the Start Campus projects, whether it's through power supply as is or through additionality of projects, sort of the Start Campus infrastructure to be built out. The second is just synergy between the data campus center or project and the infrastructure that we already manage, for example, in the Sines power plant. So for example, like on the water side in terms of cooling. And the third is really potential collaboration for other data centers in Portugal that campus might want to develop, leveraging on EDP's assets and capabilities of land and generation assets that we own in Portugal and so explore potential collaborations. I think above all, it's opening up the possibility for creating additional value from our existing assets and operations as well as getting additional visibility on future demand volumes, which could support the development of a sizable pipeline of renewable energy projects as we've discussed in the past. So overall, it's just, I think, a step, one of many that we expect to take in this area. Miguel Viana: Then also a question from Pedro Alves, Caixa Bank regarding the effective tax rate evolution. So from the 28% in 2025 and also explaining where do we see -- so explaining the 28% and how we see the evolution for '26. Rui Manuel Rodrigues Teixeira: So 2025, 28% tax rate was primarily driven by the fact that we had lower asset rotation gains and some costs that are not deductible -- tax deductible and that was basically impacted the rate. But if you think about 2026, you could consider as sort of low 20s. And this is because we expect again to increase the capital, the asset rotation gains from the transactions and also the declining tax rate in Portugal, which as you know will be dropping by 1 percentage point every year until 2028. So '26 around the low 20s. Miguel Viana: We have then a question from Pedro from CaixaBank regarding, if we can explain a little bit better the inflation update in terms of real, in terms of the impact in our EBITDA in Brazilian networks in 2025? And how do we see it evolving for '26, '28? Miguel de Andrade: So in '25, we had the extension of the concession in Espirito Santo for another 30 years. And we expect to have that extension as well for Sao Paulo and that's been sort of approved by the regulator. We're just pending the final signature in the next couple of weeks. So there's a positive impact from the inflation update of this residual value, which existed in '25, which becomes immaterial from 2026 onwards. To be specific, in '25 in the Electricity Networks in Brazil, we had around EUR 70 million of EBITDA from inflation updates in both the distribution companies and the transmission companies. And we had around EUR 20 million from EBITDA from the 2 transmission lines that we then sold in the fourth quarter of 2025. So the impact of this inflation update in the networks has declined in 2025 already versus '24, but in '23 -- in '26, it will be immaterial. I think it's important to note the following. We are under discussion with ANEEL and which is the regulator in Brazil. We and the other distributors, but we are more advanced in this process because we're the first ones to have our concessions renewed, but to change the recognition of investments in the company's asset base. As I mentioned, I think, at the Capital Markets Day, and I'll just reiterate, they're currently only recognized every 5 years with tariff provisions. So there's still no conclusion, but we see a positive sign that at least the regulator is willing to consider this and that would allow us to have this intra-cycle recognition of investments rather than having to wait for the end of the regulatory period. So that's work in progress. We're certainly very committed to it, and we think others will be as well as soon as they start seeing our concessions being renewed as well. Miguel Viana: We have a question from Jorge Alonso from Bernstein. Also, regarding the current power price environment, how confident are we to maintain our 2028 guidance. And regarding the assumptions that we provided at CMD and the current forwards as we see the guidance for '28? Rui Manuel Rodrigues Teixeira: So as I also briefly explained with that slide on sensitivity, I mean, effectively, we do have, as you know, short positions in both -- structurally short positions in generation in both Iberia and Brazil. This we hedge primarily through our clients' business, but we also have a very active energy management. And then on the rest of the other markets, as you know, we have from an EDPR standpoint, 85% is actually long-term contracted. On this, basically, what we have done since the CMD is obviously to increase the hedging. So we have been working actively on the hedging on the energy management. So for 2026, 85% of the volumes are hedged at a price which is north of EUR 64 per megawatt hour. For '27, '28, we have about 50% of baseload volumes hedged above the current forward prices. So obviously, this gives us stability and predictability versus the changes in the forward curves. But also on the other markets, U.S., the exposure is mostly concentrated in PJM and MISO. We have -- we are seeing forward prices going up by around $5 per megawatt hour. Also in Brazil, where we have lower exposure, but still relevant, the PLD has been rising significantly since the CMD. So that's why, all in all, again, this portfolio diversification, the very active energy management is giving us confidence towards the 2028 guidance. So more importantly, as I said, we actually reduced the portfolio exposure to these price movements. So at the CMD in November, we were estimating around EUR 60 million. And now we are looking at a substantially lower number. Miguel Viana: We have now question Manuel Palomo, BNP. What is your take about increasing concerns about affordability and the approval of the energy decree to reduce price by the Italian government and if we could expect any contagion effect? Miguel de Andrade: Well, I think this is an important point just to take a step back. I think we are all focused on competitiveness of the economy. And what's good for the overall economy is good for the companies. As I mentioned, most of our exposure is in Iberia, and we specifically put up a slide, which shows that in Iberia, Portugal and Spain, we already have some of the lowest prices in Europe. And they are expected to even trend lower as some of the existing costs in the system come to an end, like the tariff deficit payments, which are being amortized and like the feed-in tariffs, for example. So the trend is -- it's already much lower than the rest of Europe and trending lower. So the affordability and competitiveness, I think, in Iberia is actually a positive. And it means they can take additional investment, they can take sort of some of the ancillary services without impacting the affordability. On the Italian case, I think it still has to go through the, let's say, finally prolongated, and I'm sure you have a lot of discussion at the European level. Conceptually, sort of understands, but disagree with what it's doing. There's been a lot of discussion already 2 years ago about market design, about how to make things -- make the wholesale market work differently. And ultimately, it always comes back to the marginal pricing system is the system that works best. CO2 has to be internalized and that continues to be a key priority for Europe. And so this is something to watch, but we don't expect it to have any material impact in Iberia. Miguel Viana: So we move now to the questions on the phone, and we start for the first question that comes from the line of Fernando from Royal Bank of Canada. Fernando, please go ahead. Fernando Garcia: I'm curious because I am seeing a significant increase in CCGT's output in Portugal and this despite the strong hydro and wind output so far in the year, particularly in February. So my question here is this is explained by the elimination of the Portuguese clawback? And if this could be a potential upside to your estimated positive impact, I think you mentioned EUR 25 million for 2026. Miguel de Andrade: Excellent. So you're right, CCGT output has increased. It's more related to -- so the ancillary services means the system operators wanted to keep these working sort of as backup as the system. So it's already this trend, as you know, following the blackout of last year. It then started to decrease. Now it's increased significantly because of some specific issues here in Portugal relating to all the storms that happened and sort of the disruption to the network. I wouldn't say it's an upside, probably it's a downside in the sense that higher ancillary costs would have a knock-on impact if they're not passed on to the suppliers. So it's something to watch. We expect this to normalize over the next couple of weeks, but it's basically the CCGTs working over time basically over the month of February. Miguel Viana: And we have a final question from the line of Alberto Gandolfi from Goldman Sachs. Alberto, please go ahead. Alberto Gandolfi: So my first question is, I wanted to ask you about Brazil. Is it a region where you think you might be growing exposure? There are potentially assets for sale. You're happy with the status quo? Or is it something that given the better returns in Portugal and the clarity in Spanish networks, you might think about deemphasizing a little bit. The second question is a clarification on Slide 21. Am I right in saying that the EUR 45 million impact on net income is therefore adjusted for 50% hedging. So in other words, without hedging, do we just double the EUR 45 million? Or is it -- so can you maybe help us on that a little bit? And last one, on this data center opportunity, it seems you're very active in this booming Portuguese market. Can I ask you if you are planning to build potentially incremental capacity if you were to sign a PPA there? Or would it be from existing? And would it be done at EDP or EDPR level if it were to happen? Miguel de Andrade: So good questions. I think in relation to Brazil, listen, we have a long track record in Brazil over 30 years. I think we have a great business there. We continue to look at opportunities for growth there to the extent that it makes sense within the overall Brazilian exposure that cap that we've always talked about. Obviously, we continue to see how best to allocate capital. And so we've sold assets in Brazil in the past. I mean, even recently, we did the asset rotation of the transmission lines. We sold the hydro. So we will continue to adjust and fine-tune our exposure to Brazil and obviously, reallocate capital to where we think is best at any particular time, whether it's Europe or the U.S. at the moment. But I'd say that we like having this diversification of geographies because it does allow us to allocate capital quite well, depending on the different cycles in the different geographies. On the third question, and then I'll let take the second question. On the third question, so essentially, what we're seeing is that there's a certain amount of power that can probably be supplied just as is because there's sufficient reserve margin in the system to be able to supply these data centers without necessarily having to go and build new power plants. And so that's a positive, I think, for the system. We just need to make sure the networks are there, but that's essentially the key issue because as long as there's reserve margin, you can feed it. If the demand then starts getting above a certain level and if you start having to Start Campus and Merlin and others, then yes, then we need to think about incremental capacity of different technologies. And then depending on what that incremental technology is, if it's renewables, it will definitely be done through EDP Renewables, which as you know has the exclusivity for renewable development, well, certainly in Nigeria, but elsewhere in the world as well. If it's, for example, if it was to be like a thermal technology, then obviously it would be, for example, with EDP or if it was hydro, for example, would be through EDP. But -- so there's a certain amount that can be done with existing capacity -- supplied with existing capacity and then above that level, then you start getting into having to build incremental capacity, and we're obviously looking at that and thinking about when that would come down the pipeline. But it will depend on also how the demand is evolving. Rui Manuel Rodrigues Teixeira: Alberto, so on the second one, I mean, this is also the result of different diversification effects. So looking at the portfolio as a whole, through the different trends, again, the active management that we run on every single market. This is how we are bringing down the sensitivity from the EUR 60 million to the EUR 45 million. And again, just bearing in mind, this is -- if all the markets would move in the same direction to preserve the plan. So no, you cannot sort of double the sensitivity if the hedging was coming down to 0. It's a bit more complex than that. Miguel Viana: So I'll pass now back to our CFO for final remarks. Miguel de Andrade: So final remarks. I just reiterate, again, 2025 was a great year for EDP. I think we delivered and delivered solidly on all of the different metrics, whether it was on EBITDA, net income, net debt, the credit ratios, improving the dividend. So a really solid, solid year for '25. And I think we come into 2026 also on a good footing with record high hydro levels and reserves with improved regulation, improved perspectives in both Spain and the other geographies we're in like the U.S. So really, I think we are very confident also on the guidance for 2026. And I think that's one of the messages that I really wanted to reiterate. And going forward, we continue to see great projects coming down the pipeline, certainly on the EDPR side, which makes us feel confident in relation to 2028. I mean, obviously, we'll go on monitoring this issues around the power prices. But as Rui has mentioned, we are relatively protected in relation to that. And we think that is a discussion that will play out over the next couple of months in Europe. But at the end of the day, we're all aligned that competitiveness is important, but it's also important to keep the stability of the rules and make sure that there's space to invest or for investors to the capital allocation and feel safe about their investments, whether it's on the network side or on the generation side. So listen, good '25, good prospects for 2026 and reiterating the guidance with confidence and looking forward also to the next couple of years, reiterating also our 2028 guidance. With that, thank you very much. Look forward to seeing you soon and keep in touch.