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Operator: Good morning, and welcome to the Icahn Enterprises L.P. Fourth Quarter 2025 Earnings Call with Andrew Teno, President and Chief Executive Officer; Ted Papapostolou, Chief Financial Officer; and Robert Flint, Chief Accounting Officer. I would now like to hand the call over to Robert Flint, who will read the opening statement. Robert Flint: Thank you, operator. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements we make in this presentation, including statements regarding our future performance and plans for our businesses and potential acquisitions. Forward-looking statements may be identified by words such as expects, anticipates, intends, plans, believes, seeks, estimates, will, or words of similar meaning and include, but are not limited to, statements about the expected future business and financial performance of Icahn Enterprises L.P. and its subsidiaries. Actual events, results, and outcomes may differ materially from our expectations due to a variety of known and unknown risks, uncertainties, and other factors that are discussed in our filings with the Securities and Exchange Commission, including economic, competitive, legal, and other factors. Accordingly, there is no assurance that our expectations will be realized. We assume no obligation to update or revise any forward-looking statements should circumstances change, except as otherwise required by law. This presentation also includes certain non-GAAP financial measures, including adjusted EBITDA. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures can be found on the back of this presentation. We also present indicative net asset value. Indicative net asset value includes, among other things, changes in the fair value of certain subsidiaries, which are not included in our GAAP earnings. All net income and EBITDA amounts we will discuss are attributable to Icahn Enterprises L.P. unless otherwise specified. I will now turn it over to Andrew Teno, our Chief Executive Officer. Andrew Teno: Thank you, Rob, and good morning to everyone on today's call. Fourth quarter NAV decreased by $654,000,000 compared to the third quarter. The excellent performance in our funds, up approximately 11% for the quarter, was offset by share price declines in CVI. Regarding CVI, we do not believe there are any material changes to CVI's outlook. Rather, we remain optimistic on the medium-term refining outlook. The two positive factors are: one, limited capacity expansions globally; and two, multiple new pipeline projects that will move Mid-Con and Gulf Coast barrels to the West Coast, which should help improve regional profitability for CVI. On a company-specific level, CVI is focused on improving its capture rates, which should drive improved profitability even if industry crack spreads remain constant. Now turning to the funds. In the fourth quarter, we were up approximately 11% including refining hedges and up approximately 9% excluding refining hedges. The big contributors for the quarter were EchoStar, the refining hedges, and Sentry. Our lone big detractor was Caesars. For the year, we are about flat including refining hedges and up 7% excluding refining hedges. In terms of our top positions, AEP is an electric utility that is benefiting from the AI infrastructure buildout and a new world-class management team. During their third quarter call, AEP disclosed a new $72,000,000,000 CapEx plan that would drive its asset base to grow at a 10% CAGR and its earnings per share to grow at a 9% CAGR through 2030. Already, after only a few months, the company is seeing opportunities to add an additional $5,000,000,000 to $8,000,000,000 of projects that would further grow its asset base and earnings per share. Southwest Gas is a gas utility that we exited subsequent to the quarter. I am proud of the work that we did in collaboration with the Board and management team. The company is in a much better position today than when we first invested given the Great Basin Pipeline Expansion Project, path to improve return on equity, and best-in-class balance sheet. Turning to EchoStar. The company sold additional spectrum to SpaceX in exchange for additional SpaceX common equity, further demonstrating the value of EchoStar's spectrum portfolio. We believe meaningful upside remains and that the IPO of SpaceX could serve as a meaningful positive catalyst. Sentry, a utility infrastructure services firm, is firing on all cylinders, reporting base revenue and EBITDA growth of 25–28% in Q3. The combination of the organic growth and a recent equity offering has led to leverage declining to mid 2x EBITDA, giving the company significant financial flexibility, further enabling it to continue capturing the tremendous growth in energy infrastructure investment. IFF is a high-quality consumer staple company where the refreshed management team continues to impress. IFF announced a formal sale process for its food ingredients business and gave 2026 guidance for mid-single-digit comparable EBITDA growth as portfolio optimization and investment in product innovation drive volume growth and performance. One name that fell off the top five list is Caesars, where the stock has underperformed our expectations. We continue to believe that Caesars is undervalued given the significant owned real estate portfolio and the growing digital business powered by iCasino. Using consensus estimates, Caesars trades at approximately a 20% free cash flow yield, which is expected to be used to repurchase shares and pay down debt. If I step back and speak a bit more broadly, we are taking a slightly more cautious view of the market. With all the wild swings in sectors that are deemed at risk of AI, we are happy to be in defensive names that should benefit from the AI buildout with a significant war chest to take advantage of opportunities as they arise. As of year-end, we had approximately $750,000,000 in cash at the funds. More recently, our cash balance at the funds has increased and is greater than $1.2 billion. Subsequent to the quarter end, we have taken steps to reduce our IEP corporate debt balance, and we called in the remaining balance of the 2026 maturities. Lastly, the Board declared an unchanged distribution at $0.50 per depositary unit. I will now pass it to Ted to talk about our controlled businesses. Ted Papapostolou: Thank you, Andrew. Energy segment's adjusted EBITDA was $51,000,000 for Q4 2025 compared to $99,000,000 in Q4 2024. The fertilizer business was negatively impacted by low utilization caused by the turnaround at the Coffeyville fertilizer facility and a three-week downtime event caused by the facility's third-party air separation plant. During December, CVI completed the reversion of the RDU at the Wynnewood refinery back to hydrocarbon processing. And now turning to our automotive segment. Q4 2025 automotive service revenues decreased by $1,000,000 compared to the prior year quarter. Same-store sales paint a better picture, having increased by 5% as compared to the prior year quarter. We are pleased with this positive revenue trajectory, but there is still a lot more work to be done. We continue to focus our efforts on product, pricing, labor, and distribution strategy. Now turning to our other operating segments. Real Estate's Q4 2025 adjusted EBITDA increased by $6,000,000 compared to the prior year quarter. The increase is primarily driven by income from the assets that were transferred from the auto segment, of which $9,000,000 is intercompany income from the auto segment and $3,000,000 from third-party tenants. Food Packaging's adjusted EBITDA decreased by $8,000,000 for Q4 2025 as compared to the prior year quarter. The decrease is primarily due to lower volume, higher manufacturing inefficiencies, and disruptive headwinds from the restructuring plan. During Q4, we made a change to the CEO position and brought back Tom Davis, who was the CEO of this case previously and has a successful track record with the company. With his knowledge of the industry and the business, we feel he is the right person to lead this case through this transformative period. Home Fashion's adjusted EBITDA decreased by $5,000,000 when compared to the prior year quarter, primarily due to softening demand in our U.S. retail and hospitality business. The tariff uncertainty has created opportunity for the company as new business has entered into the bidding pipeline, and we are hopeful this will have a positive impact for the segment in 2026. Pharma's adjusted EBITDA decreased by $4,000,000 when compared to the prior year quarter, primarily due to reduced sales resulting from the generic competition in the anti-obesity market. The TRANSCEND trial preparation for our PAH drug is on schedule, and the first patient will be dosed in the next 60 to 90 days. The physician community is excited by the potential for disease-modifying designation. And now turning to our liquidity. We maintain liquidity at the holding company and at our operating subsidiaries to take advantage of attractive opportunities. As of quarter end, the holding company had cash and investment in the funds of $3,500,000,000, and our subsidiaries had cash and revolver availability of $913,000,000. We continue to focus on building asset value and maintaining liquidity to enable us to capitalize on opportunities within and outside our existing operating segments. Thank you. Operator, can you please open up the call for questions? Thank you so much. Operator: And as a reminder, to ask a question, press *11 on your telephone and wait for your name to be announced. To remove yourself, press 11 again. Again, that is *11 if you have a question. All right. Thank you so much. This concludes our Q&A. I will pass it back to Andrew Teno for final comments. Andrew Teno: Right. Well, thank you, everyone, for joining today's call, and we will speak to you next quarter. Operator: Thank you. And this concludes our conference. Thank you for participating, and you may now disconnect.
Operator: Greetings, and welcome to Centuri Holdings, Inc.'s fourth quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nate Tetlow, Vice President, Investor Relations. Please, you may begin. Nate Tetlow: Thank you, Angeline, and hello, everyone. This morning, we issued and posted to Centuri Holdings, Inc.’s website our year-end 2025 earnings press release and investor presentation. Please note that on today’s call, we will address certain factors that may impact this year’s earnings and provide some longer-term guidance. Some of the information that will be discussed today contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are as of today’s date and based on management’s assumptions and are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions and regulatory approvals. A cautionary note, as well as a note regarding non-GAAP measures, is included in today’s press release and the investor presentation and in our filings with the Securities and Exchange Commission, which we encourage you to review. Also provided are reconciliations of our non-GAAP measures to related GAAP measures. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements, and we assume no obligation to update any such statement, except as required by law. Today’s call is also being webcast live and will be available for replay in the Investor Relations section of our website shortly after the completion of this call. On today’s call, we have Christian Brown, President and Chief Executive Officer, and Greg Izenstark, Chief Financial Officer. I will now turn the call over to Christian. Christian Brown: Thank you, Nate. Hello to all, and thank you for joining our call today. In 2025, we delivered $3.0 billion of revenue, a record for Centuri Holdings, Inc. We improved our base profitability and produced adjusted net income of $39 million, which was a 49% increase over the prior year. Christian Brown: As a reminder, when speaking of base revenue and base gross profit, we are referring to the measures that exclude the impact of storm restoration services. We believe that base results provide our stakeholders with information that is helpful in evaluating fundamental business performance and provide relevant period-over-period comparisons. In 2025, base revenue increased by 18% and our base gross profit increased by 35% year over year. This exceeded expectations and reflects the strength of our company, the dedication of our teams across the U.S. and Canada, and their unwavering commitment to safety, productivity, and delivering exceptional customer service. I will start with a commercial update. Coming into 2025, we set a goal to achieve a 1.1x book-to-bill ratio. We did not just exceed our goal; we shifted it, delivering a 1.5x book-to-bill for the year. In total, our bookings surpassed $4.5 billion. The mix of bookings included 34% bid work, 21% of new or expanded scope of work on our MSAs, and 45% MSA renewals. Our strong emphasis on business growth was evident with more than half of the bookings representing true incremental, accretive work to our business. We maintained our 100% MSA renewal rate and are actively working to secure new customers and add new work scopes and geographies with existing customers. In 2025, we added new MSAs across Texas, Oklahoma, Arizona, Georgia, Indiana, Wisconsin, and several other states. On the new bid work, we secured over 600 awards with an average size of $2.4 million. A few notable bid awards included a significant natural gas pipe replacement project, major substation upgrade work to strengthen grid reliability and increase capacity, a mechanical vapor recompression system for an ethanol plant, construction of a renewable natural gas facility, several projects to rebuild and construct utility-scale transmission lines, several data center awards with varying scopes of work, and additional scopes of work that include substations, transmission work, heat pump installation, compressor work, HVAC removals and installs, plus many others. We anticipate continued strong bookings due to the multiyear tailwinds within our end markets and our $13.0 billion opportunity pipeline. Christian Brown: Our renewal success and our consistent win rates support our desire for growth. Through February 2026, we have booked approximately $1.1 billion, which includes approximately $800 million of MSA renewals, nearly $150 million of new MSAs, and more than $150 million of bid work. So we are off to a very good start in 2026. For the year, we are targeting a book-to-bill ratio of 1.1x to 1.2x. Christian Brown: Our opportunity set includes about 580 bid opportunities, which collectively amount to $6.7 billion, or just over half of our current opportunity pipeline. At year-end, we had $2.8 billion of near-term opportunities, which are active proposals with award decisions expected by the end of the second quarter. These include about two-thirds of new bid work and one-third MSAs, with over 75% within our electrical segments and the remainder in gas. If we consider our year-to-date bookings, remaining active proposals, and prospects submitted in the new year, the current near-term opportunity sits around $1.3 billion. On data centers, we are actively executing several scopes of work at several data center sites. In our opportunity pipeline, we have more than 20 opportunities with an aggregate value of approximately $1.4 billion. We also have dozens of prospects that are not yet included in our planned pipeline figures because they are early in the evaluation process. We believe the total value of these prospects could reach as high as $2.0 billion. Data center opportunities offer a variety of work scopes for Centuri Holdings, Inc., including power delivery services like simple-cycle turbines, substations, compressors, or metering stations, plus core electric work like switchgear, transformers, UPS units, and generators. On the mechanical side, we handle chiller and HVAC system installs. Additionally, we will bid on traditional infrastructure work like gas, sewer, and water lines, plus telecom and fiber conduit. Now moving over to the backlog. At year-end, our backlog is approximately $5.9 billion, an increase of $2.2 billion, or 59%, from last year. This year-end backlog is forecast to provide over 85% of our 2026 base revenue guidance. Christian Brown: More details on bookings, backlog, and the opportunity pipeline are on slides eight and nine in the investor presentation we have posted. Now moving to margins. In 2025, we reported a base gross margin of 8%, an increase of approximately 100 basis points over 2024. We have several initiatives underway focused on further margin improvement. First, we have initiated a plan to address the first-quarter seasonality in our gas business. The focus is expanding the volume of work in warmer geographies and securing more indoor work. Our goal is to fully address the seasonality over three years, with 2026 year one. Halfway through this current quarter, we are on track to deliver year-over-year improvement, a good first step towards our three-year goal. Second, we are working to improve fleet efficiency through enhanced supplier pricing, improved utilization rates, and optimized allocation across our business units. Through these efforts, we are aiming for at least 20% improvement in the efficiency of our fleet. Third, we are driving improved crew efficiency in our nonunion electric segment, which has delivered significant growth over the last 12 months. As crews gain experience and jobs mature, we expect improved productivity. Base margins in this segment were up in the fourth quarter, and we expect to see more progress throughout 2026. Finally, given the growing number of bid opportunities and our current win rates, we expect our average weighted bid margin to expand over the very near term. Higher bid margins are the first part of the equation, and we will continue to drive operational execution to capture this favorable market dynamic and drive further margin growth. Beyond the commercial and financial success, 2025 also included several important milestones. In September, we became fully separated from our former parent after completing four successful follow-on offerings. In November, we closed the acquisition of Connect Atlantic Utility Services, giving us a Canadian electric service platform, which we can grow and expand our customer relationships. We also made significant strides reducing our leverage, ending the year with net debt to adjusted EBITDA of 2.5x. We are not only driving significant growth in our business, we are doing so on the foundation of a stronger balance sheet and our ownership base. We are extremely well positioned to execute in 2026 and look forward to delivering for our shareholders. I will now turn the call over to Greg to discuss the results. Greg Izenstark: Thank you, Christian, and thank you, everyone, for joining us today. Greg Izenstark: I will start with the fourth quarter, which included another company record for revenue and overall strong financial results. Revenues totaled $859 million, a 20% increase from the same quarter last year. Base revenue was $855 million, which was 28% higher than the fourth quarter 2024. Gross profit for the quarter was $80 million, compared to $71 million last year, and the gross profit margin was 9.4%. Base gross profit was $80 million, which was a 50% increase year over year. Net income attributable to common stock in the quarter was $30 million, or $0.32 per share, compared to $10 million, or $0.12 per share, last year. Fourth quarter net income was impacted by a $23.7 million income tax benefit related to deferred tax asset allocations from our former parent. Adjusted net income in the fourth quarter was $16 million, or $0.17 per share, compared to $18 million, or $0.21 per share, in the same quarter last year. Adjusted EBITDA for the quarter was $78 million, compared to $71 million last year. Our cash flow from operations was $84 million and free cash flow for the quarter was $106 million. The remainder of my comments will focus on full-year results. Greg Izenstark: Revenues totaled $3.0 billion, a record for Centuri Holdings, Inc., and a 13% increase from 2024. Greg Izenstark: Gross profit was $247 million, compared to $221 million last year, and gross profit margin was 8.3% in 2025. Base revenue was $2.9 billion, or 18% higher year over year. Base gross profit was $234 million, up 35% compared to 2024. Base gross profit margin was 8% in 2025, compared to 6.9% last year. Net income attributable to common stock in 2025 was $23 million, or $0.25 per share, compared to a loss of $7 million, or a loss of $0.08 per share, in 2024. Adjusted net income in 2025 was $39 million, or $0.43 per share, compared to $26 million, or $0.32 per share, in 2024. And finally, adjusted EBITDA for the year was $249 million, compared to $238 million last year. Now to our segments. Greg Izenstark: U.S. Gas revenue was $1.3 billion, an increase of 5% compared to 2024. Greg Izenstark: This reflects solid growth in MSA volumes and bid projects, demonstrating the underlying strength of our customer relationships and market position. Gross profit margin was 5.4% in 2025, consistent with prior year. We continue to focus on expanding MSA work and the seasonality initiative that Christian mentioned earlier. Canadian operations revenue was $247 million, up 25% over 2024. Operational performance in this segment remains strong against the solid demand backdrop. Gross profit margin was 18.6%, compared to 15.9% in the previous year. Union Electric base revenue was $800 million, an increase of 21% year over year, and base gross profit margin was 8.7% for the year, an increase of 110 basis points over the prior year. Growth has been fueled by robust activity and projects serving industrial end-user segments, substation infrastructure, and data center-related work. Our nonunion electric segment had base revenue in 2025 of $569 million, an increase of 51% over 2024. This growth reflects the significant expansion in MSA activity. Base gross profit margin was 8.5%, compared to 5.9% in the prior year. As Christian mentioned, in 2026 we are focused on performance management and improving crew efficiency. Now turning to fleet investments and CapEx. Greg Izenstark: In 2025, we began shifting away from the historic practice of purchasing all fleet equipment to a balanced approach that targets 50/50 buy versus lease. The new funding mix drives better free cash flow generation and more balance sheet flexibility. In 2025, we invested a total of $135 million in fleet assets and funded the investments through $55 million of operating leases, $38 million of sale-leasebacks, and $42 million of net CapEx. For 2026, we forecast fleet investments of $150 million to $180 million, with funding expected to be approximately 50/50 buy versus lease. Moving to the balance sheet. Greg Izenstark: In November, we executed an underwritten equity offering and concurrent private placement, raising net proceeds of approximately $251 million. We used $58 million of proceeds to fund the Connect acquisition, with the remainder used for net debt reduction. We ended the year with a net debt to adjusted EBITDA ratio of 2.5x, down from 3.6x at year-end 2024. In 2026, we plan to further delever and forecast net debt to adjusted EBITDA of around 2.0x by year-end. Last month, we repriced our Term Loan B, securing a 25 basis point rate reduction. Based on our current debt level and lower interest rates, we expect 2026 interest expense to be about 30% lower than it was in 2025. Finally, turning to our outlook. Greg Izenstark: Today, we initiated full-year 2026 financial guidance. As we have talked about, base revenue and base gross profit exclude impacts from storm restoration services. For 2026, we expect base revenue of $3.15 billion to $3.45 billion and base gross profit of $255 million to $285 million. Revenue, adjusted EBITDA, and adjusted net income are measures that include storm restoration services. Guidance to these measures includes storm restoration services using a three-year average of $88 million in revenue and $28 million in gross profit. For 2026, we expect revenue of $3.24 billion to $3.54 billion, adjusted EBITDA of $280 million to $310 million, adjusted net income of $55 million to $75 million, and lastly, net CapEx is expected to be between $75 million and $90 million. I will now turn it back to Christian to wrap up our prepared remarks. Christian? Christian Brown: Thank you, Greg. Christian Brown: 2025 was a pivotal year for Centuri Holdings, Inc. We demonstrated our ability to identify opportunities, to secure substantial bookings, to expand our footprint and capabilities, to deliver earnings growth, to grow base margins, and to strengthen the balance sheet. The hard work of 2025 has positioned Centuri Holdings, Inc. for continued success going into 2026. The market backdrop remains very strong across multiple years, with our end markets showing no sign of slowing. Centuri Holdings, Inc. offers top-tier growth while maintaining the low-risk profile you expect from us. Our growth has come and will continue to come by focusing on our core capabilities, delivering for our customers, and staying disciplined to who we are. We have a diverse, high-quality, large utility base across gas and electric, union and nonunion, and supported by a high percentage of long-term MSA contracts. In 2025, 78% of our revenue was generated under MSA contracts, and our year-end backlog included 82% MSA work. While we absolutely expect bid work revenue to grow at a faster rate than MSA revenue over the next few years, it is important to note that the scope of work under bid projects is consistent with the services that we deliver under MSAs. It is the same capabilities, only executed under a different type of agreement. Our bid work portfolio is also well diversified, with 285 different projects and an average remaining project value of $3.8 million. For further context, the largest 25 bid projects in the pipeline are expected to contribute about 15% of our total 2026 base revenue. We believe Centuri Holdings, Inc. represents a compelling investment opportunity carrying high growth in strong end markets with a notably low-risk profile, with further potential to drive margin expansion and capital efficiency through solid execution. Christian Brown: In closing, I want to commend our workforce who are executing day in and day out. Your dedication to operational excellence, to safety, and customer service is what earns our reputation as a leading provider of high-quality infrastructure services. I thank you all. We appreciate everybody’s time and interest today. I will hand to the operator so we can start Q&A. Thank you. Operator: In a moment, we will open the call to questions. If you would like to ask a question, you may press number 2. If you would like to remove your question from the queue, for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Kindly limit your participation to one question and one follow-up only. One moment, please, while we poll for questions. The first question comes from Sangita Jain with KeyBanc Capital Markets. Please go ahead. Sangita Jain: Good morning, Christian, Greg. Thank you for taking my questions. For the first question, I want to find out—you are including a three-year average storm revenue in your guidance. How much of that was already realized in the January storm? Christian Brown: Good morning. We did, when you refer to adjusted EBITDA and total revenue, include some level of storm. The storm impact thus far this year has been pretty minor. It is largely in line with what we did last year, so nothing unexpected or significant. Sangita Jain: Oh, you mean in the January winter storm? That was what I was referring to? Christian Brown: Yeah. And I would say that the deployment activity we have done thus far is largely in line with last year. Nothing of a significant nature. Last year had been a quiet year, Sangita. Sangita Jain: Okay. Got it. Thank you. And then on the guidance, if I look at the core guidance, if I exclude storms for a minute, then the gross margin seems to be lower versus this year. Am I reading too much into that? Is there a mix impact that I am misinterpreting? Can you help me understand? Greg Izenstark: No. The gross profit margin would be largely in line with this year, up a little bit on an annualized basis. Sangita Jain: Got it. Thank you. Operator: Thank you. The next question comes from Justin Hauke with Robert W. Baird. Please go ahead. Justin Hauke: Oh, great. First of all, thanks for all the color on the awards and the new disclosure. It is helpful for understanding things, so thank you for that. I wanted to follow up on the margin expectations and the guidance. Maybe you could talk a little bit about the seasonality. I know one of the things you talked about as an initiative is reducing that seasonality for the gas segment. I think you said you were expecting margins to be up year over year in 1Q, but I am just curious how much of a gap you are narrowing. I mean, last year there was a little bit of a loss. Are we more likely to breakeven this year? Or what is the expectation for how to think about the seasonality as we go through the year? Christian Brown: So, Justin, I will answer the question and then pass over to Greg for any additional commentary. We are striving to be predictable and consistent and then build continual improvement, and that should be reflected in everything that you have seen of us over the last few weeks and few months. So, when it comes to margins, it is like our confidence level. We feel very good about being able to deliver it. It reflects the current backlog. It does not assume that we have got lots of things to do to get to that margin. So there is an element of conservatism, just to be consistent, that we have in our margins. Then I will go specifically to the initiatives to improve margin. Where is the margin improvement going to come from? The seasonality, which you just mentioned, on the gas business, and where are we at? It is only one month in, but we see many positive signs in our ability to find work, to win work in the gas business, and push that through to the revenue and the income line, to the P&L. It is only January numbers. We are really just getting to February numbers now, but I think we are going to make a big dent in that three-year program to actually make the seasonality in the gas business not exist across the four quarters. I cannot give you much more than that at the moment for obvious reasons, but we are pleased as we close out the January results, and we are pleased with the volume of work that we are tracking. Then the bid work, which drives the margins upwards, we are very selective now in opportunities and the margin that those opportunities can deliver to us, and that is institutionalized across all of our individual businesses that tender work every day, and, as you see in the slides, we have got very good backlog, very good coverage to deliver our budget as well as the guidance this year. There is an opportunity, therefore, with any additional awards to drive margin improvement. It will take a little bit longer. And then the third thing is the efficiency throughout fleet and the indirect costs associated with it. We have mobilized the resources we need. Our priority was to get the funding of our fleet aligned with better industry practices so that we can generate more free cash flow to invest in the business. So we have done that last year, and that has followed through into 2026. And the focus of the team now is to actually figure out better ways to get more return on the existing asset fleet we have got across all of the businesses operated under Centuri Holdings, Inc. I guess the last comment, we did allude to it in the comments, is on the nonunion electric side. We had a massive growth year over year with pretty much a negligible amount of storms. There was a massive mobilization in the second quarter. In the third quarter, we saw, as we signaled to everybody, an improvement in margin. Those margins continued into Q4. The workforce now is really stable and functioning very efficiently, and I suspect we will see further improvement across the nonunion electric as we close out the first quarter and the way through 2026. Justin Hauke: Okay. Thank you. My second question before I turn it over would be on the awards front. Data centers are something, obviously, you guys highlighted as newer or tangential to what you were doing. Last quarter, you won $140 million in 2025. You talked about this pipeline, $1.4 billion. I think that is actually up a little bit for the data center versus what you called out last quarter, and I know that you had a fair amount of work that was currently out for bid at the time, and I am just curious on the status of the win rates and how those have come in 4Q and year to date, and the expectation for that pipeline, when those awards will come in over the next couple of quarters. Christian Brown: Just to answer your question, I do not typically look at the win rates just on a quarterly basis. It is more of a trend, and our win rates actually have continued to go up all the way through to where we sit today going into February. So if you go back to the 13 months that we have been really driving performance throughout the sales pipeline, we have seen an improvement. I think the win rates—we are happy where they are. Specifically to data centers, your observations are quite right. I think I have spoken about $2.0 billion of opportunity that we could see, of which we are very disciplined on what we will assume in our forecast and what we really put capital behind to go win and resources to go win, because you can chase a lot of work that actually does not conclude with an award that can pay the bills. So the overall focus on data centers remains very much targeted on those customers that we know have capital, that we know are going to award contracts, and that can deliver our returns and our margins. The wins in data centers so far this year are a little slower than expected, but we have a number—getting into commercial sensitivities—awards that are in our near-term pipeline of about $1.5 billion to $1.6 billion that we are negotiating or tendering now. Thank you. Operator: The next question comes from Joseph O'Dea with Wells Fargo. Please go ahead. Joseph O'Dea: Hi. Good morning. In the release, you talk about how the organization has proven its ability to identify and secure growth opportunities over the course of 2025 and certainly see it in terms of the backlog growth. But can you just outline—this happened pretty quickly—can you outline some of the key changes that were implemented in the business in 2025 to drive this, and how you think about the room and opportunity to further advance those in 2026? Any specific initiatives underway? Christian Brown: Joe, thank you for your question. I will take you all back to the beginning of 2025, and I talked about the block and tackling that was needed in the business. The block and tackling was we needed to get a very effective sales pipeline to predict in a more thoughtful way what work was in the pipeline, what was not in the pipeline, and where we need to find more work so that we could drive growth into the business. So the interaction around all of the opcos on a consistent basis, the pipeline, the institutional sales pipeline across the company is now part of what we do day to day without any hesitation. We speak about that daily, weekly, and monthly. That will continue, and that has driven the predictability in our revenue growth. It has driven the predictability on margins, and it has driven the predictability on what we speak about in forecasting as a business. The second thing we implemented was the business cadence on a weekly and monthly basis—really tight block-and-tackling oversight—and that has allowed us to not only drive accountability, it has also allowed us to identify opportunities to do better and create more returns. So those have been the two operational things which will continue into perpetuity with tweaks along the way. The third thing was capital efficiency. We were funding our fleet with all balance sheet cash year over year. We were cash negative, probably for our prior years. As you have seen from this year’s results, we have managed to fund growth in the fleet using leasing while still being able to improve margins in the base business. So those three block-and-tackling items have just become institutionalized in the last 12 months and will continue to drive growth. Now looking forward, if you look at slide nine in the deck, we have given more color around backlog and pending awards. You can see the shift in the amount of work we have got coming into the fiscal 2026 year, and that has continued to grow. You can add the blocks up. We were over $3.0 billion going into 2026, $2.0 billion of backlog going into 2025, and we are now higher. Our drive now is to capture these market tailwinds in our pipeline to build up more backlog to not only do more this year, but build a bigger backlog going into 2027. So the block and tackling is fundamental to being a predictable service provider, which is our desire and our commitment, and then using the pipeline to continue driving growth across all our opportunities and all of our businesses such that we have a greater backlog going into 2027, and we have committed to double-digit growth year over year, and we still stand by that. We believe the pipeline affords that opportunity without relying upon things we cannot control, like storms, and we will continue to drive the businesses to at least meet that obligation. Joseph O'Dea: That is great color. And maybe sticking with that last point, when you talk about 2025 backlog and the bookings you have had to date this year representing 85% of the 2026 base revenue, you think about how the organization is sized today relative to that 2026 base revenue. What kind of investments are you making, and if the demand backdrop supports something better than the base revenue guide, are you sized for that today, or what kind of additional investments will be required? Christian Brown: I think we have got—if you look at slide nine again and refer back to it, we are not sized to capacity. We have got more capacity that we build, we find, we add to the organization every day of every week. What probably goes unsaid is the work our resourcing teams across the nation do every year. We added over 12%—in fact, it is nearly 15%—headcount in the last 13 months, and our desire is to continue to hire at that rate or better. That is apprentices, that is veterans coming into our veterans program, it is resourcing from parts of the country where we can see people coming out of other adjacent industries, it is cross-training and cross-developing. So in terms of capacity, we will commit in our guidance a conservative level of performance that we know we can meet based upon the backlog we have, the resources we can see and have, and things we can control. We are constantly seeking to add capacity so that we can drive better margins and more volume through the business. So there is upward potential there as our teams continue to build capacity, mainly on the people side. I am less worried about fleet. We can add fleet as much as we need, and we can fund it efficiently, while still being able to generate positive cash flow. But on the people side, it is our focus, and we are doing a number of things, some of which I alluded to on the last call, to operate as one Centuri Holdings, Inc. and not as individual opcos, meaning that we can have a more longer-range plan, a more wholesome one-company approach to resourcing across the entire continent. We think we can, therefore, do better in terms of hiring more than 12% to 15% more headcount per year. Joseph O'Dea: Helpful detail. Christian Brown: Thank you. Operator: The next question comes from Manish Samaya with Cantor. Please go ahead. Manish Samaya: Good morning, Christian, Greg, Nate, thank you for getting me in the queue. Greg, I had a question for you on guidance. I just want to be very, very clear on this, that I understand this right. On the base guidance that you have given, the midpoint of the gross margin is 8.2%. And I guess including the storm, you have an EBITDA range, and I was hoping maybe if you can help us with apples-to-apples comparisons and maybe just tell us what that gross margin would be with storms, just like the way you showed it for the base guidance. Just to help us out, please. Greg Izenstark: Yeah. So we said in our earnings release that the gross profit we are assuming is about $28 million on storm revenue of about $88 million. So when you factor that in, on our midpoint, you would get something higher than 8.2%. I do not have that number handy—but at the midpoint, it is about 8.8%, so just shy of that. Manish Samaya: Okay. That is super helpful. That is the number I was guesstimating. I just wanted to confirm that. I appreciate that. The other question, maybe for Christian, is obviously we talked about this huge opportunity—I think $13 billion of opportunities is a fairly big number—through the end of the second quarter. I think $2 billion plus, closer to $3 billion. I know, Christian, you do not talk about win rates, but how should we think about what is baked into the full-year guidance when you look at these opportunities, when you look at this funnel? Thank you so much. Christian Brown: Manish, I could be probably a little bit more direct. If you look at slide nine—we told you within the slide the amount of backlog we have—and then there is a component in addition to that in the histogram of anticipated MSA renewals in 2026. If you add the three blocks up, that takes you to—we do not put the exact scale on it—but it takes you to about $3.2 billion of backlog for this year across the three categories, and that is exactly where we sit today. So how do we do more than the $3.2 billion of backlog? That secured backlog is very predictable. We have got a good handle on that forecast, so I would argue that is as certain and secure as any backlog could ever be. So where is the upside potential? The upside potential is going to come from winning new bids, and we have added within that histogram the work that we have currently bid in addition to awards expected in the first quarter. What is not in there are other opportunities that will pull up through the pipeline and into the bidding during the course of the remaining 10 months of this year. Manish Samaya: Okay. Thank you. Thank you. That is super helpful. Christian, thank you. Operator: Thank you. The next question comes from Sherif Al Sabahi with Bank of—please go ahead. Sherif Al Sabahi: Hi. Good morning. I just wanted to turn to free cash flow for a moment. I understand your attempt to be more capital efficient with your fleet, but what parts of working capital are limiting cash-from-operations flow-through currently? How do you plan to improve them? And then where do you think cash from ops can go in 2026 as a percent of sales? Greg Izenstark: Good morning. So from a free cash flow perspective, we have done a number of things to improve in 2025, from the fleet efficiency to the refinancing of the debt. We are still hyper-focused as a team on reducing our DSO and working with our customers to bill our revenue quicker and get collected quicker. And so that is the primary focus of 2026. From a free cash flow perspective, beyond the capital efficiency work that we have already discussed, we think we can make some pretty meaningful progress and improvement on that front. From a conversion perspective, we look at it on a free cash flow conversion of adjusted EBITDA. And we look at where our peers are, and we think on a longer-term basis, 50% conversion is where we can target. Thank you. Operator: The next question comes from Avi Haraldlowitz with UBS. Please go ahead. Avi Haraldlowitz: Hey. Good morning. Thank you. So I saw that you highlighted a fiber project for a data center in the slides. Can you remind us what the base of communications is for your business and what type of growth you are expecting to see from communications this year? Christian Brown: Avi, thank you for the question. I think we have tried to demonstrate in the illustrated diagrams in the deck and maybe some of the talking points that we are not actually bidding very much standalone fiber telecom work. There is a little bit actually north of the border in Canada, but what we are finding is that, as part of the data center scopes of work, customers are rolling in a number of discipline types of work, including fiber, gas connections, electrical connections, and all of the other scopes where you see them. We are not building out a telecom business within Centuri Holdings, Inc. at all. It is mainly complementary to what we already do for those customers. Avi Haraldlowitz: Okay. Understood. Appreciate that. And then, as we think about the bid work awards that you are thinking of for this year, would you expect it to have a similar revenue-burn phasing as the bid work that you were awarded last year, or could we see that timing differ materially this year? Christian Brown: It is a very good question. I think you will see—it will be exactly the same profile or very similar. Why is that? The average contract size is not changing. The size of the pipeline is mainly remaining very solid. Our teams are very much focused on booking through the four quarters and taking away booking seasonality. So I think the profile will look very similar to last year. I do not see any of the underlying inputs that will change it materially at all. You have got a couple of differences—the MSAs are slightly different, but not the bid work. I think we closed out the year with 30% of the bid work going to the revenue line. If you go back and look at the third quarter numbers—so really nine months of the year—it was a higher number. So clearly, we are booking work earlier in the year. We have to look at it. The big contracts we are booking in the fourth quarter typically are really for 2026, or the following year, which is why the percentage went down from 45% to 30%. Avi Haraldlowitz: Right. Okay. Makes sense. Christian Brown: Thank you. Operator: The next question comes from Chris Ellinghaus with Siebert Williams Shank. Please go ahead. Chris Ellinghaus: Hey. Good morning, guys. Christian Brown: Morning, Chris. Chris Ellinghaus: Christian, when you talk about reducing the Q1 seasonality, are you trying to get smoother across the year? And in general, is the goal to make Q1 look a lot more like a traditional Q2? Christian Brown: The answer to the question, Chris, is yes. Our desire is to deliver 7%+ gross profit margin in our gas business for four quarters of the year. We are currently doing it in three quarters. And that is the driver. We absolutely have had some successes on the bookings. You have seen them. We have announced them. We just need to do more. You cannot do it all in the six to seven months that we have been working at it. So the desire is, as you state, to get rid of seasonality across our gas business and deliver 7%+ gross profit each quarter for four quarters of the year. And that is the commitment. Chris Ellinghaus: Gotcha. What are you guys seeing—you did the acquisition towards the end of the year—what are you seeing in general in M&A, and what sort of aspirations for tuck-ins do you have at this point? Christian Brown: Again, I will be pretty consistent with what you have heard from me in the past. I think we really like our platform, where we are. We have got good scale. We have got good ability to grow organically. So we are not short of scale in the business. Tuck-in acquisitions, to which you refer, again, I will be consistent. I think we have got some white space in the Midwest. I think we could do with more capability there, and that lends itself to a possible acquisition. And I think on the electrical transmission and, to a lesser degree, the distribution, I think we do need a little bit more of a geographic presence in that end market. So that lends itself to some tuck-in acquisitions. So our focus would be on finding acquisitions that could fit into those two needs that support the business. Chris Ellinghaus: Okay. Great. Vis-à-vis the data center potential, what is in your pipeline? Have you got much visibility into timing, and do you expect to have some more tangible bookings throughout 2026? Christian Brown: Yeah. Chris, I will tell you—and I need to be a bit crisper in my commentary—we are very disciplined on what we put into our sales pipeline that forms the basis of our forecasting, and when it comes to data centers, we are hyper-disciplined because there are so many opportunities around that really do not have funding—just developers who are trying to create an option that may never lead to anything. So when I talk about data centers and the discipline, the only thing that goes into the pipeline that we follow are those data centers where we have got dialogue engaged with the developer or with the end user who has capital and is going to deploy capital, and it is a real project. And where we cannot get that confidence does not mean to say we walk away from it. It just remains as a lead within our sales pipeline with no value against it. So there are two numbers I have given out—three numbers, actually. There is about $2.0 billion that we see in the pipeline where we feel there is a high probability that that will get funded and there will be real projects which will allow us to generate revenue and good, solid, high profits from it. Of the $2.0 billion, $1.3 billion is real today where we have got comfort that the client has funding, all the permits are in place, and it is a real contract. We are tendering that $1.3 billion as we speak. We would expect our first share of bookings from that $1.3 billion in the first six months of the year. Chris Ellinghaus: Okay. That helps a lot. Lastly, in the guidance for potential storm work, that is kind of the historical norm. But you scaled the nonunion side significantly. So should there be a really good storm season in some year, is the way to think about it that the potential for storm revenues has increased proportionately with your capacity, or are you just going to try to stay within some kind of range? Christian Brown: Go back to principles of how we are explaining our business and how we are driving our business. We cannot control the weather, but we can control our base business—the work we do for our customers 365 days a year. The nonunion business has increased by over 50% year over year. The majority of those resources, almost all year, work on doing the day-to-day work for our customers. The fact that we have increased that headcount in the nonunion business doing the day-to-day services on-system for our T&D customers—if there is a weather event, that gives us more upside potential for the business to generate higher margins and higher revenue from storm. Yes. Chris Ellinghaus: Okay. That definitely is clear. Alright. I appreciate it. Thanks for the details, guys. Christian Brown: Thank you, Chris. Operator: Thank you. We have reached the end of the question-and-answer session. I will now turn the call over to Nate Tetlow for closing remarks. Please go ahead. Nate Tetlow: Thank you all for joining us today and for your interest in Centuri Holdings, Inc. Please feel free to reach out to me with any follow-up questions. This concludes today’s call. Operator: Ladies and gentlemen, this is now the operator. Today’s conference is concluded. You may now disconnect the call. Thank you.
Operator: Good day, everyone. And welcome to EOG Resources, Inc. Fourth Quarter and Full Year 2025 Earnings Results Conference Call. As a reminder, this call is being recorded. For opening remarks and introductions, I will turn the call over to EOG Resources, Inc. Vice President of Investor Relations, Mr. Pearce Hammond. Please go ahead, sir. Pearce Hammond: Good morning, and thank you for joining us for the EOG Resources, Inc. Fourth Quarter 2025 Earnings Conference Call. I'm Pearce Hammond, Vice President, Investor Relations. An updated investor presentation has been posted to the Investor Relations section of our website, and we will reference certain slides during today's discussion. A replay of this call will be available on our website beginning later today. As a reminder, this conference call includes forward-looking statements. Factors that could cause our actual results to differ materially from those in our forward-looking statements have been outlined in the earnings release and EOG Resources, Inc.'s SEC filings. This conference call may also contain certain historical and forward-looking non-GAAP financial measures. Definitions and reconciliation schedules for these non-GAAP measures and related discussion can be found on the Investor Relations section of EOG Resources, Inc.'s website. In addition, any reserve estimates on this conference call may include estimated potential reserves as well as estimated resource potential not necessarily calculated in accordance with the SEC's reserve reporting guidelines. Participating on the call this morning are Ezra Y. Yacob, Chairman and Chief Executive Officer; Jeffrey R. Leitzell, Chief Operating Officer; Ann D. Janssen, Chief Financial Officer; and Keith P. Trasko, Senior Vice President, Exploration and Production. Here is Ezra. Ezra Y. Yacob: Thanks, Pearce. Good morning and thank you for joining us. 2025 was a remarkable year for EOG Resources, Inc. Overall, our year was characterized by disciplined capital allocation, strong execution across our operations, and robust free cash flow generation. We did not just meet the targets set forth in our operational and capital plan, we exceeded them while expanding our business both domestically and internationally, laying a foundation for the future. We surpassed our original oil and total volume targets while delivering in-line capital expenditures. We continued driving down well costs through sustainable operating efficiency gains, and our differentiated marketing strategy delivered peer-leading U.S. price realizations. Combined with lower cash operating costs, we helped strengthen margins. Beyond extending our track record for excellent operational execution, 2025 was transformational. We completed the strategic Encino acquisition, entered exciting international exploration opportunities in the UAE and Bahrain, and brought online the Janus gas processing plant in the Delaware Basin. We also continued leading on sustainability, publishing new emissions targets after achieving our prior targets ahead of schedule. Each of these developments fundamentally improves our business and better positions EOG Resources, Inc. going forward as being among the highest return and lowest cost producers with strong environmental performance. Operational excellence in 2025 drove outstanding financial results and top-tier cash returns to shareholders. We generated $4.7 billion in free cash flow and returned 100% to shareholders through our regular dividend, which increased by 8%, and $2.5 billion in share repurchases. To put our 2025 financial performance in a broader perspective, EOG Resources, Inc. has generated annual free cash flow every year since 2016. We have never cut nor suspended our dividend in 28 years. Further, over the past three years, we have generated $15 billion in free cash flow and returned $14 billion to shareholders, generating an average 24% return on capital employed. We have done this all while maintaining a pristine balance sheet. This is not luck, it is the result of consistent execution of our resilient business model, and represents a fundamental differentiator versus peers. And we expect more of the same in 2026. Modest oil production growth as we maintain capital discipline, further integration and optimization of the Encino acquisition, and continued natural gas growth into emerging North American demand. Looking ahead, we have a disciplined plan for 2026. Our strategy prioritizes activity in the Delaware Basin, the Utica, and the Eagle Ford, while increasing activity in Dorado alongside continued international investment. Our Utica asset provides a compelling opportunity for value creation as we continue to identify additional upside from the Encino acquisition as well as advancing our technical understanding of the play. And in the Delaware Basin, after adjusting our development strategy in 2025, we expect consistent well performance year over year. At guidance midpoints, our 2026 plan is expected to generate approximately $4.5 billion in free cash flow using strip pricing, delivering growth, exploration, a competitive regular dividend, and excess cash returns. Our breakeven price to cover the 2026 capital program and regular dividend is $50 WTI. Overall, the 2026 capital program balances both short and long-term free cash flow generation while supporting future growth and maintaining our pristine balance sheet. Our 2026 plan is contemplated in our updated three-year scenario. The scenario reflects modest oil production growth aligned with current macro expectations. It maintains our current cost structure despite our persistent track record of driving costs lower through efficiency gains. Finally, the scenario is underpinned by our deep inventory of high-return assets across our multi-basin portfolio. Using WTI price ranges of $55 to $70 per barrel from 2026 through 2028, the updated three-year scenario delivers 5% cash flow and greater than 6% free cash flow compound annual growth rates, generating cumulative free cash flow of $10 billion to $18 billion and earning robust double-digit returns on capital employed. This updated three-year scenario demonstrates how EOG Resources, Inc.'s relentless focus on returns, our diverse multi-basin portfolio, and industry-leading exploration capabilities provide clear visibility to sustain high returns and durable free cash flow generation for years to come. Overall, the three-year scenario delivers approximately 20% higher free cash flow in 2026 through 2028 than the actual results for the prior three-year period assuming the same price deck. On commodity fundamentals, we expect total crude and product inventories to continue building over the next few quarters. However, increasing global demand, geopolitical factors, and stockpiling of petroleum reserves are providing price support. Beyond near-term dynamics, we remain constructive on medium to long-term oil prices being driven by steady demand growth and the need for additional supply. Importantly, global spare capacity is declining, which should provide an oil price floor while geopolitical events will continue to drive upside price volatility. On natural gas, our outlook remains positive. U.S. natural gas enjoys two structural bullish drivers: record LNG feed gas demand and growing electricity demand. We expect U.S. gas demand to grow at a 3% to 5% compound annual growth rate through the end of this decade. We are investing in building a premier gas business, positioning EOG Resources, Inc. to deliver supply into these expanding markets. We believe our premium gas business is an underappreciated asset, providing exposure to growing demand and with access to premium markets from geographically diverse sources. EOG Resources, Inc.'s value proposition is clear. We are guided by our strategic priorities: capital discipline, operational excellence, sustainability, and culture. Our 2025 results demonstrate consistent execution across our premier multi-basin portfolio, while our cash return performance reflects our unwavering commitment to disciplined value creation through the cycles. EOG Resources, Inc. is better positioned than ever to execute on our value proposition and create shareholder value. Now here is Ann with a detailed review of our financial performance. Ann D. Janssen: Thank you, Ezra. EOG Resources, Inc.'s financial strategy remains steadfast: invest capital in a disciplined manner, pay a sustainable and growing regular dividend, return significant cash to shareholders, and maintain a pristine balance sheet. The fourth quarter 2025 exemplifies this strategy in action. We generated adjusted earnings per share of $2.27 and adjusted cash flow from operations per share of $4.86, building free cash flow of nearly $1 billion. For 2025, EOG Resources, Inc. reported adjusted net income of $5.5 billion, or $10.16 per share, and free cash flow of $4.7 billion. For 2025, we delivered a 19% return on capital employed, maintaining our peer-leading ROCE. We continue to deliver on our commitment to return cash to shareholders. During the fourth quarter, we returned $1.2 billion to shareholders, $550 million through our robust regular dividend and $675 million in share repurchases. For the full year, we paid $2.2 billion in regular dividends, or $3.95 per share, representing an 8% increase over 2024, and we repurchased $2.5 billion in shares. Our 2025 cash return was 8.2% of our market cap, which led our peers. With $3.3 billion remaining under our current share repurchase authorization, we have ample flexibility for additional opportunistic buybacks. In today's dynamic energy environment, share repurchases are especially compelling. We expect to remain active on share buybacks, continuing to enhance returns through the cycles. Our peer-leading balance sheet provides an outstanding competitive advantage. We ended 2025 with $3.4 billion in cash and $7.9 billion in long-term debt. Combined with our undrawn $3.0 billion revolver, total liquidity stands at approximately $6.4 billion. Our leverage target of total debt at less than one time EBITDA at bottom cycle prices remains among the most stringent in the energy sector, providing both downside protection and the flexibility to invest strategically through cycles. Finally, we increased proved reserves by 16% to 5.5 billion barrels of oil equivalent, continuing our long track record of reserve growth. Net proved reserve additions from all sources, excluding price revisions, replaced 254% of 2025 total production. Turning to 2026, we expect capital spending of $6.5 billion at the midpoint of guidance. At current strip prices and using guidance midpoints, this plan generates $4.5 billion in free cash flow. In the current environment, we anticipate returning 90% to 100% of annual free cash flow to shareholders, consistent with recent years. In summary, EOG Resources, Inc. delivered another outstanding year. We strengthened our portfolio, maintained a pristine balance sheet, and positioned the company for sustainable value creation through commodity cycles. With that, I will turn it over to Jeff for our operating results. Jeffrey R. Leitzell: Thanks, Ann. I want to start by recognizing the exceptional dedication of the entire EOG Resources, Inc. team. Consistent, safe, and outstanding execution is what converts operational strength into shareholder value, and 2025 demonstrated that. Our teams met or exceeded expectations on nearly every operational metric. Production volumes outperformed guidance, driven largely by stronger performance in our foundational plays, while our disciplined capital investment remained in line with expectations, delivering strong free cash flow. Let me highlight several accomplishments throughout 2025 that have helped position EOG Resources, Inc. for long-term success. First, we made significant strides in lateral length optimization. Longer laterals mean fewer vertical wellbores to drill and more productive time both on surface and downhole, reducing surface footprint and improving capital efficiency. In addition, EOG Resources, Inc.'s internal drilling motor acts as a force multiplier on these longer laterals, improving downhole drilling performance and giving us the confidence to continue extending laterals across our portfolio. We are focused on drilling 2- to 3-mile laterals in the Delaware Basin and 3- to 4-mile laterals in the Utica and Eagle Ford plays. Second, extended laterals and sustainable efficiency improvements led to well cost reductions of 7% in 2025. Our focus on sustainable efficiency gains for drilling and completion operations creates meaningful value because they compound over time, leading to significant cost savings through the development of an asset. And third, cash operating costs came in under target, led by a meaningful reduction in LOE due in part to our proprietary production optimizers program, which leverages machine learning to optimize base production, delivering better run time and lower cost across the portfolio. Looking ahead, 2026 is positioned to be an outstanding year for EOG Resources, Inc. as we build on the strong momentum established in 2025. Given the macro environment, we are keeping oil production flat with fourth quarter 2025 levels, which results in annual oil production growth of 5% and total production growth of 13%. We can deliver this disciplined plan for a capital budget of $6.5 billion. Throughout the year, we plan to complete 585 net wells across our multi-basin portfolio of high-return inventory, with the majority of the capital being allocated to our foundational assets: the Delaware Basin, Utica, Eagle Ford, and our newest foundational asset, Dorado. We will also continue investment across our international portfolio. Capital cadence and activity should be relatively consistent through the year, with a roughly even capital split between the first and second half and activity averaging approximately 24 rigs and 10 completion crews. Looking at the service cost environment, despite lower industry activity in 2025, we are seeing a relatively stable market for high-spec equipment with minimal cost reduction. Support services have shown some softening and we will continue monitoring the market for savings opportunities through 2026. We have locked in approximately 45% of our total well costs this year, giving us flexibility to capture any additional market softening. For 2026, we are targeting a low single-digit reduction in well costs driven by sustainable efficiency gains. In the Delaware, our team has consistently delivered innovations, including our EOG motor program, Super Zipper operations, high-intensity completions, and production optimizers. From 2023 to 2025, we increased lateral lengths by nearly 30% while reducing well cost by approximately 20%. We have also strategically invested in infrastructure, including facilities, gathering systems, water transfer stations, and the Janus gas processing plant, all of which deliver lower operating costs that complement our well cost reductions. Over the past few years, we have fundamentally improved the cost structure of our Delaware Basin assets. Because of this, our development program now includes additional zones that previously did not meet our stringent return hurdles. While per-well productivity declined last year as we targeted these incremental opportunities, our economics did not. Our 2025 Delaware program continues to deliver over 100% direct after-tax returns at $55 WTI while improving capital efficiency by 4%. For 2026, we expect consistent year-over-year well productivity and strong economic performance while averaging 13 rigs and four completion crews in the Delaware. In the Utica, the Encino integration is ahead of schedule, has exceeded expectations, and remains a significant focus for 2026. We achieved our $150 million synergy target ahead of our original one-year timeline from close, and we continue capturing additional synergy opportunities. We have achieved several operational wins with the Encino asset since closing the acquisition in August. We have increased the drilled feet per day by over 35%. EOG Resources, Inc.'s scale and purchasing power has reduced casing cost over 30%. We have increased the completed feet per day over 10%, and our team has reduced on-site facility costs by 20%. These achievements have helped us to reduce our well cost below $600 a foot by year-end 2025. In addition, we are planning to have in-basin self-sourced sand in Ohio by the end of the year, which should further reduce completion costs. For 2026, we expect to run three rigs and three completion crews, completing 85 net wells. Our foundational Utica asset is positioned for continued improvement as we build upon the significant cost reductions achieved over the past few years. In the Eagle Ford, efficiency gains continue to improve economics. From 2023 to 2025, we increased drilled feet per day by 5% while boosting completed lateral feet per day by 30%, driving a 15% reduction in well cost. Last year, we extended lateral lengths, highlighted by the record 24,000-foot lateral on the Whistler E5H. For 2026, we expect to run four rigs and one completion crew, completing 115 net wells, continuing to leverage technology and efficiency gains. Turning to Dorado, we have made outstanding progress over the past few years and now have transitioned this world-class gas asset to our newest foundational asset. To be a foundational asset, the play must meet or exceed our high return hurdle, have significant running room, have a consistent level of activity which supports a full-time completions crew, and generate free cash flow. Dorado will meet these criteria this year and will stand beside our other foundational assets, the Delaware Basin, Utica, and Eagle Ford. In 2025, we met our exit gross production target of 750 million cubic feet per day and are targeting an exit rate of 1 Bcf per day gross production in 2026. We significantly lowered well cost to approximately $750 per foot through operational efficiencies. From 2023 to 2025, we increased drilled feet per day by 30% and completed lateral feet per day by 20%. With a low breakeven price of $1.40 per Mcf, Dorado is exceptionally well positioned to serve our growing LNG gas supply contracts and Gulf Coast gas demand. We will run two rigs there this year and one completion crew which will complete 40 net wells. Our Gulf States exploration programs are moving forward, and the teams are making exciting progress. We commenced operations in Bahrain and the UAE in 2025 and will continue to test and delineate these plays throughout 2026. We anticipate having initial well results in the second quarter of this year. These opportunities leverage our technical expertise and extensive data set from thousands of unconventional wells across diverse plays, prime examples of EOG Resources, Inc.'s commitment to organically expanding inventory through exploration. In closing, our 2025 performance demonstrates the strength of our multi-basin portfolio and operational excellence. As we execute our 2026 program, we are confident in our ability to deliver consistent results, maintain capital discipline, and generate strong returns for shareholders across all commodity price environments. With that, I will turn it back to Ezra. Ezra Y. Yacob: Thanks, Jeff. As we close, I want to highlight why EOG Resources, Inc. represents a compelling investment opportunity and how we are positioned to deliver sustained shareholder value. First, our asset base differentiates EOG Resources, Inc. versus peers. With approximately 12 billion barrels of equivalent of high-return, long-duration resources, we have diversified exposure across North American liquids, North American natural gas, and international conventional and unconventionals. This creates multiple pathways for value creation as each of these markets grows over the medium and long term. Second, our unconventional and exploration capabilities are a long-time hallmark of EOG Resources, Inc. This core competency does not just unlock significant upside in our current inventory, it allows us to build future inventory in a low-cost, high-return manner. Third, we are a low-cost, efficient operator with deep technical expertise. Our relentless focus on innovation in drilling and completion techniques continues to drive our cost structure lower. This reflects our decentralized model that effectively creates a portfolio of pure-play companies that can leverage knowledge and expertise across the entire company. Fourth, our disciplined capital allocation framework drives superior financial performance, generates robust free cash flow, and delivers peer-leading returns on capital employed. Finally, we remain committed to returning cash to shareholders through our regular dividend and opportunistic share buybacks, and our peer-leading balance sheet provides both protection and opportunity. We have the financial capacity and flexibility to invest opportunistically through any cycle. Thank you for your continued interest in EOG Resources, Inc. We will now open for questions. Operator: Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, if you are using a speakerphone, please make sure your mute function is off. You are allowed one question and one follow-up. We will take as many questions as time permits. Our first question today is from Neil Singhvi Mehta with Goldman Sachs. Please go ahead. Neil Singhvi Mehta: Good morning, Ezra and team. Thanks for taking the time. Ezra, I want to start off on the composition of the wells this year and the activity. And year over year, there is a slowdown in the Delaware. I think you are going from 390 to closer to 300 in terms of wells that you are going to attack. And it looks like you are picking up in the Utica. Could you just talk a little bit about the composition? How do you think about the optimal level of activity in the Permian in particular, and the composition of activity over the course of the year? Ezra Y. Yacob: Yes, Neil, this is Ezra. Good morning. It is a great question. This year, the plan really takes a step towards optimizing investment across our high-return foundational plays. As you recall, we are really seeing pretty similar returns across all of our foundational plays now. Specific to the Delaware Basin, the activity level really optimizes utilization of existing infrastructure across our acreage position, and that really helps support better capital efficiency. We expect consistent Delaware Basin performance going forward. As Jeff talked about, our strategic shift in development strategy in 2025 has been an outgrowth of our dramatic cost savings the last few years combined with investment in that infrastructure to help lower operating costs. The cost savings have allowed us to capture some of these additional landing zones that exceed our economic hurdle rates, so we are now actively co-developing many of these targets. Some of the targets have lower productivity per foot, some have different GORs, but each, as Jeff highlighted, is delivering the high returns that our shareholders have come to expect. And we expect the consistent well results you have seen quarter over quarter throughout 2025 to really continue through 2026 and really through the entire three-year scenario that highlights the strong returns and increasing free cash flow going forward. So, at this year's activity levels in the Delaware Basin, we expect to deliver relatively flat production to Q4 2025 similar to the company level, maybe I think it is 3,000 to 5,000 barrels a day less due to really outperformance in the fourth quarter there in 2025 by the Delaware Basin asset. And really, I think the big takeaway is that at this level of activity in the Delaware Basin, we are confident we can maintain similar returns and free cash flows longer than 10 years. And it really comes back to the deep inventory of high-return assets we have across multiple basins, Neil. Neil Singhvi Mehta: Yes, and appreciate that. Maybe that is a good follow-up where you can address the Delaware question. It is something we get a lot from investors who look at some of the well results and are concerned that there is degradation in terms of quality of inventory and those well results, and I think you guys have a perspective on that. How do you address that case that has been out there? Jeffrey R. Leitzell: Yes, Neil, this is Jeff. Really, like we have talked about in the past, I will give you a little bit of details. It just has to do with all the progression we have made there. As we have said, there is not just one variable that goes into economics. It is not just production. Ultimately, you have to focus on rolling everything up to make sure you are maximizing returns, and that is what we are doing. So in the Delaware, just taking a look over the last three years, we have extended our laterals 30%. We have lowered the cost there by 20%, which has ultimately improved the capital efficiency by 4%. So when you take all that and you roll it up, our cost right now is at or below $725 a foot. And because of this, we have talked about being able to unlock those additional targets up through the strat column, and they meet our return hurdles now at bottom cycle pricing and deliver payouts much less than 12 months at current pricing. The other thing it also does is it really improves the overall recovery per acre and it maximizes the NPV per acre across the asset, which is really what we are looking for. And so, by design, we are obviously seeing a little bit lower productivity on those targets but not lower economics. They are matching any other target that we have, and they actually meet that hurdle. And now that we have fully implemented that new development approach, as Ezra said, we are not seeing any major changes in productivity. It should be relatively consistent moving forward from here. So, we are extremely excited about how the Delaware program has progressed and how our team has unlocked all this additional value there through the cost reductions. As Ezra said, we have set it up for an extremely successful year and many years to come. So thanks. Operator: The next question is from Stephen I. Richardson with Evercore. Please go ahead. Stephen I. Richardson: Hi, morning. Thanks for the time. I appreciate the update on Dorado and appreciate that the team has worked so hard to move it towards foundational. I was wondering if we could just talk about how you thought about increasing activity there versus some of your oilier basins. I appreciate the $1.40 breakeven, but just how do you think about the gas macro and how this play kind of fits into that? And I was wondering, as a follow-on to that, if you could kind of address how your LNG take contracts are going to change in 2026 and 2027? Ezra Y. Yacob: Yes, Steve. Good morning. This is Ezra. Listen, I appreciate the question about Dorado. As we have highlighted on Slide 18, we have had a fantastic couple of years. We have dropped our well cost down to $750 per foot, drilled feet per day by 30%, completed feet per day by 20%, and so it has really dropped our breakeven down to about $1.40 per Mcf, and that includes F&D, LOE, GP&T, G&A, and production tax. So, we are still highly confident that Dorado is the lowest cost gas supply in the U.S. with exceptional geographic location with its proximity to the Gulf Coast and premium markets. I think Jeff has talked about that we exited 2025 at about 750 million cubic feet per day, and we plan to exit 2026 at about 1 Bcf a day gross. Our cultural and measured pace of investment, Steve, continues along our approach to each of our plays. We are investing in it with two things. One, to make sure we do not outrun our pace of learnings so we can continue to drive down the costs. But the second thing is, associated with any of our plays, but especially here in Dorado being a gas play, we really are growing into not only the emerging North American natural gas demand that we see, but really some of the contracts that we have. As you brought up with our LNG, now we can supply many of our contracts from multiple basins. Specifically, as of Q1, we have actually increased our exposure to LNG by 140 MMBtu per day. So that is on top of the preexisting 140 MMBtu per day that is linked to JKM or Henry Hub. We also have another 300,000 MMBtu per day that has already been going to LNG that is linked to the Henry Hub. And so that leaves us one additional tranche of 140 MMBtu per day that we anticipate coming on later this year and will be linked again to JKM or Henry Hub. As we move into 2027, we have an additional contract, as you know, that is linked to Brent or U.S. Gulf Coast gas for a total of 180 MMBtu per day. Again, when we think about the first part of your question, Steve, how does Dorado compete for capital versus the liquids plays? That is one of the strengths of being a multi-basin company and having dedicated North American liquids plays and dedicated North American natural gas plays. We do not really see them competing against each other. They are really able to service different parts of the market. And what we see overall in the U.S. natural gas demand, much of it is coming from these longer-cycle projects. Certainly, there is an increase in U.S. electricity demand. When we think about data centers behind the meter or LNG, oftentimes when you sit across the table negotiating with the other stakeholders, they are really looking for the confidence in 10-, 15-, 20-year, multi-decade type of contracts. And that is really the strength of having a dedicated North American natural gas play as opposed to associated gas. Stephen I. Richardson: Really helpful. Great progress there and congrats to the team in Corpus. I was wondering, just a follow-up. The second year in a row that you have run more than 100% of free cash in terms of the buyback, or sorry, in terms of cash returns to shareholders. Can you maybe just talk about that? The target is unchanged, but you have had a, you know, we would probably say a pretty squishy commodity price environment, but you have been able to do that and bolt on a pretty significant acquisition. So how do you think about that going forward? Is this just best use of cash as cash comes in? And, you know, just remind us, you know, how does your view of value of the stock or relative performance, or how do you kind of all think about that buyback lever, which seems like you really like at the current time? Ann D. Janssen: Hi, Steve. Good morning. This is Ann. To address the free cash flow, of course, we are looking at the best ways to create value for the shareholders, and our pristine balance sheet places us in an excellent position to reward shareholders with robust returns of free cash flow. We have demonstrated, as you said, a commitment to return significant cash to our shareholders. We do expect this to continue as we really do not see a need to build cash on the balance sheet. The current environment, as you noted, is dynamic and could provide the opportunity to return cash at similar levels as we have over the past few years. We start our cash return anchored by our sustainable, growing regular dividend, then we will supplement that by share repurchases and/or special dividends. And recently, we have had a focus on the opportunistic buybacks as a primary mode of additional cash return. In the current environment, we are very comfortable returning that 90% to 100% of annual free cash flow that I outlined, and that is similar to what we have done over the past few years. Our focus just continues to invest our dollars to create long-term value for our shareholders. Operator: Next question is from Doug Leggate with Wolfe Research. Please go ahead. Doug Leggate: Good morning, everybody. Ezra, I think you may have partially answered this, but this is the first time you have given the new free cash flow visibility post Encino. Obviously, you have got a $6.5 billion capital budget. There is a lot in there that is not maintenance capital, but you have also, you know, put a $50 breakeven on this. Where I am going with this is, if I heard you right, did you say that on a sustaining basis, do you think you can hold your free cash flow flat for 10 years or sustainable for 10 years? I do not want to put words in your mouth, but if I take the $6 billion high end at $70 oil, that gets you to about two-thirds of your market cap, in other words, it is not enough. So can you just clarify what you were meaning there? And I have got a follow-up, please. Ezra Y. Yacob: Yes, Doug. This is Ezra. Good morning. Yes, my comments earlier were specific to the Delaware Basin. I am sorry, I think that is where the disconnect is. The Delaware Basin. That is correct. Yes, and so really what we have seen with the three-year plan, the three-year scenario quite frankly, is that, you know, the high-level takeaway, like I said, is comparing the past three years with the forward-looking three years at a similar price deck, we have actually increased the free cash flow potential there by 20%. And even with low single-digit oil growth and modeling a mid single-digit kind of total production growth, we are seeing 6%+ compound annual growth rate of that free cash flow year over year. Doug Leggate: So just my follow-up, I mean, just a clarification. So when you look at your sustaining capital, what do you think that level is for the post Encino portfolio and what do you believe the duration of that is post the three years? I mean, are we talking about 20 years of inventory? 20 years of sustainable free cash flow? How do you define it? And I will leave it there. Thanks. Ezra Y. Yacob: Yes, so there are kind of two different questions in there. Maybe I will address the first one as far as the inventory life, and I will let Jeff maybe follow up with the details on our maintenance capital number post Encino. So, Doug, when we think about the resource potential, the deep inventory of high-return assets that we have captured that I talked about, Slide 8 in our inventory in our deck is probably one of the best ways to look at it. And we presented that 12 billion barrels in a way that it is two different things on that slide. You can think of it as kind of a good old-fashioned R over P, which that 12 billion barrels, to your point, speaks to close to 20 years worth of production. And then you can also see on that, and you are welcome to apply any type of risk to that as you deem necessary, but the other thing you will notice on that slide is the returns as a proxy to free cash flow. And you can see that 12 billion barrels essentially generates greater than 55% return at $45 and $2.50, greater than 100% rate of return at $55 and $3 gas. And so what I would point out is as we develop a program every single year, it is not that we are force-ranking our rates of return inventory and drilling the highest 400 or 500 wells first. There is always a mix in there, which is why we present our inventory as kind of a kitchen sink effect on that rate of return, because at different times you are obviously drilling in different parts of the basins, you are trying to maximize infrastructure, you are trying to limit your indirects, so that is really the best way to look at it. I would say that we have great confidence being able to deliver similar free cash flow, similar returns at the company level, for many, many years to come based on that deep inventory of 12 billion barrels of equivalents. And then, Jeff, with the maintenance capital maybe? Jeffrey R. Leitzell: Good morning, Doug. Yes, this is Jeff. Yes, you are correct. It has been a handful of years since we have updated that maintenance capital. And with it updated, its current range right now is from $4.8 billion to $5.4 billion, so midpoint around $5.1 billion. And really what this range represents is the capital required to hold production flat for a period of three years, and it also assumes our current well costs right now. And that is consistent with our updated three-year scenario. The other thing I would say is the big changes that have really happened since the last update, as you hit on, obviously, the Encino acquisition we built into that. There is the increase in production of the base business since the time of the previous disclosure. And also there is the impact of the improvement across our portfolio since the time of the previous disclosure. And then lastly, I would just note that this maintenance capital really reflects a modest improvement in our base decline, which is now below 30% for oil and below 20% for BOE. Operator: The next question is from Scott Michael Hanold with RBC Capital. Please go ahead. Scott Michael Hanold: Yes, thanks. I was wondering if we could go back to Permian productivity. It seems like it has been a bit of a headwind for EOG Resources, Inc. share price, and I appreciate the context you guys have provided on those, we will call it, secondary zones. It is something, you know, other peers are talking more about that and surfactants and other things. And, you know, I am not, I do not want to lead your answer, but do you think some of the relative performance that people are being concerned about is because you all have been able to move faster to these secondary zones than peers? And if you could give us a sense of, on some of the primary kind of activity that you have done, is the productivity over the last few years fairly static? Ezra Y. Yacob: Yes, Scott. This is Ezra. Thanks for the question. Yes, over the primary targets, I would say we are seeing relatively consistent performance there. Of course, it is difficult to compare because even if you think about, say, an Upper Wolfcamp or a Wolfcamp A, you end up having multiple landing zones in there. So do not forget, we are a pretty technical bunch here, and so we look at the permeability, is it a little bit siltier, is it more of a mud rock, and those are the types of things that with just a little bit of savings on your cost side, all of a sudden, those targets really become more economic than what you had previously counted them on. So what I would say is, like for like, we are seeing pretty consistent well results in there. As far as pushback, I think from the peers, you know, I do not want to speak to the peers. What I would say, what I think is going on with us, is that we made this shift. I think we figured that we had pretty well highlighted this and externally talked about adding nine additional landing zones over the last few years. But in hindsight, Scott, I think we probably could have done a better job highlighting our change in development strategy heading into 2025, again, off of the really extreme cost reductions that we saw coming off of the relative highs there in 2023. Scott Michael Hanold: Appreciate the context. And, you know, as my follow-up, you know, if we can move to natural gas, and you all have increased exposure to pricing on the water with some of your LNG contracts. Could you give a sense of other things that you all may be working on or considering, supply decrements, industrial users, or power data center users? Ezra Y. Yacob: Yes, Scott. This is Ezra again. It is a good question. We have spent time looking at really how data center development may progress and what role EOG Resources, Inc. might play in it. I think there are a couple of different ways where we can benefit today and potentially benefit in the future. The diverse marketing strategy gives us exposure to regional pricing uplift associated with increased electrical demand in areas of data center development. Obviously, we have seen U.S. electricity demand grow last year just shy of about 2%. Electricity prices obviously grew more than that, about 6.5%. I think going forward, U.S. electricity demand overall is forecast to grow between 1% and 3% compound annual growth rates. So obviously, we can benefit from our diverse exposure across our basins from there. A good example also is the capacity that we capture along our Transco pipeline to deliver gas into that Southeast market, which is a big power pool demand center. But really, another way we think that EOG Resources, Inc. might be able to benefit much more directly, and we have had negotiations along this path, is if we begin seeing development of data centers closer to power generation or closer to natural gas fields. We see both, especially South Texas and Ohio, as having great potential to play a larger role in data center buildout. Obviously, the position that we have in Dorado and the Utica would benefit from that regional demand. I think when you think about South Texas, especially Dorado, there is open space, there is water, you are far enough inland from any storm threats, there is a phenomenal amount of gas there, and there is also a good amount of fiber already in the ground. And right now, I would say it is still surprisingly early on with a lot of the data center conversations. You see a lot of the construction is somewhat delayed or getting pushed out to the right a little bit as people, again, I think, really try to wrap their minds around a multi-decade contract. But that is where we think we have got a competitive advantage with Dorado, that we have got the gas supply, low-cost gas supply, to stand up and support one of those longer-term projects. Operator: The next question is Derrick Whitfield with Texas Capital. Please go ahead. Derrick Whitfield: Good morning, guys, and thanks for your time. Regarding your three-year outlook, I wanted to focus on the role international could play over that period and beyond that period. While onshore will undoubtedly carry the load in your financial performance, should we think about the increasing role international could play as we exit the three-year period? Ezra Y. Yacob: Yes, Derrick. I appreciate the question on the three-year scenario. The scenario does include capital for the Gulf States exploration and development. Beyond the capital that is really tied to the 2026 plan, we are basically forecasting a slight increase in the activity in the Gulf States. The associated production assumption is really minor. And we are doing that in the three-year scenario because those plays are still in the exploration phase right now. We do assume success and declaration of commerciality, but in the time frame of the three-year scenario, I would say that the specifics to the international assets are relatively minor. Now, with regards to Trinidad, we have got a bit more line of sight. Those are slightly longer-cycle projects, and we continue to have a pretty robust program there in Trinidad ongoing. Derrick Whitfield: Great. And then with regard to UAE and what you know about the subsurface today, how does that compare versus some of the premium U.S. unconventional oil basins? And how should we think about your delineation plans for that area in 2026? Keith P. Trasko: Good morning. This is Keith. Both in UAE and Bahrain, activity this year, we are going to continue our drilling program to evaluate those exploration concessions. We are expecting activity to be higher in the UAE than Bahrain just due to the relative size of the concessions. We are still in the early phases of that, so our plan for 2026 is a little bit dynamic. As Jeff mentioned, we expect to have production results in both countries in the second quarter of this year. So in Bahrain, we drilled our first few wells and we have started completing them. And in the UAE, we drilled the first couple of wells, those went very smoothly, and we plan to begin completing them here shortly. So we are very excited about the opportunity that we see in both countries. Both areas have positive production results from prior horizontals. As far as delineation in 2026, we are just really working to refine our subsurface understanding, to build off of ADNOC and BAPCO's progress and positive momentum on cost reductions, and help bring even more of the latest unconventional technology to the region. We think that there is a lot of technology and similarities between many of our domestic plays that we could borrow and apply to either country. Operator: The next question is from Charles Meade with Johnson Rice. Please go ahead. Charles Meade: Yes. Good morning to the whole EOG Resources, Inc. team there. Jeff and Keith, maybe I will just pick up on that thread and ask about in UAE and Bahrain, less about the well results, but how you guys are going to communicate there. And, you know, I think that at least in the Lower 48, the EOG Resources, Inc. MO is kind of, you know, to quietly try something in a play, and then based on success or failure, either quietly exit or quietly build a position. But that does not really, you know, it does not seem to be an option to just, you know, quietly exit in Bahrain and in UAE. And also at the same time, there are not the same competitive considerations there given the nature of these concessions. So can you, not looking to commit you to anything, but can you give a broad outline of how you guys plan to share results and what the consequent decisions to either ramp activity or curtail it would be? Ezra Y. Yacob: Yes, Charles. This is Ezra. I will take a shot at that question. So it has been something that we have had to get used to, kind of our international strategy. And we saw this, the best thing to do I think maybe is to take a look back at what we did in Oman. Again, it is a little bit different from our domestic exploration portfolios or projects where we can usually be a little bit stealthy and keep things quiet until we get material results or a material position in a play and can really start to discuss it. Typically, these days, internationally, when you sign an agreement, there happens to be a press release and things like that. So the first step is making sure that the agreement is something that checks the boxes for us for international, so that we have captured a sizable position, we have captured access to premium markets, of course, and we have been able to negotiate a contract to align the stakeholders and partner with folks that we think will be able to, if we have success, really have success and really have captured something that is going to be exceptionally competitive and additive to the corporate portfolio. Now, again, in Oman, you are right. There is no state data, there is no public reporting. I thought we were fairly transparent with the results that we had in Oman. When we exited, we did not try to, you know, sneak out the back door. We just made it known to everybody that we had drilled the wells. As you recall, we made kind of an undeveloped discovery there, a natural gas discovery. We were really focused on oil because of the lack of infrastructure in the area. And so we did end up exiting. Bahrain and UAE, to be perfectly honest, will be, you know, very, very similar to that. Both of these international opportunities, we are currently in an exploration phase. That lasts a certain amount of time, and then there will come a point where after we satisfy the terms of the exploration phase, there will be a decision on whether or not we go forward, casually called a declaration of commerciality, and that would then assign some sort of longer-term production license. And you can assume that that would obviously be something public. That being said, at this point in the game, we feel very confident in all the plays. We are very excited about the size of the prize that we have in both the UAE with our unconventional oil play and the unconventional gas play in Bahrain. Bahrain is onshore, so you can imagine it is a little bit, as Keith said, a little bit smaller in scope. But it is a gas play in a region where we see tremendous future gas demand. And so that probably is an area where we continue to look for the right partners. While we are very happy with what we have captured in the region, we would be interested in continuing to look for adding a potential additional gas project in the region under the right terms and with the right partners. Operator: The next question is from Phillip J. Jungwirth with BMO. Please go ahead. Phillip J. Jungwirth: Yes, thanks. Coming back to the multiyear scenario, recognizing it is not guidance, but the low single-digit oil growth is maybe a bit surprising since organic volumes have been flattish here since Liberation Day, and that is continuing into 2026. So could you help us understand how you would resume oil production growth? Which assets drive that? And just one of the qualifications in here is that it assumes current cost structure. So just wondering when you look back at 2023 through 2025 actuals, how much you actually outperformed here? And could you see similar runway over the next three years? Ezra Y. Yacob: Phillip, this is Ezra. That is a great question. So using current cost is just for line of sight. I do think with our consistent track record of lowering costs, that is the best data point that we have. But if you want to build in a little bit of conservatism, I could understand. What I would point out is that we have made tremendous strides over the past three years in the Delaware Basin. Part of that was with our sustainable operational efficiency gains. Some of that too, though, was in 2023, which was relatively kind of a high industry high watermark for costs across the industry. And then we made tremendous progress lowering well costs across our two emerging assets as well. And as you know, early in these assets, early in the play development, you have the opportunity to make greater strides there. As far as returning to low single-digit oil growth, outside of the Liberation Day announcements that caused, you know, really a little bit of concern on really the line of sight on what may happen with demand coupled with spare capacity reentering the market, we see that as a bit of an overhang for maybe the next couple of quarters. Certainly, there is a lot of commentary that the oil glut has been pushed to the right. We are seeing that as well. What we are also seeing is that when you look at total product, inventories have raised right to roughly in line with the five-year average. There is some additional spare capacity that is scheduled to come back to the market. That being said, we continue to see global demand growing, relatively strong and consistent at roughly that 1.0 to 1.2 million barrels per day, roughly maybe right at 1%, a little bit less than 1% compound annual growth rate. That is really what gives us confidence. Now, where that growth would come from in forecasting growth of low single-digit oil? In the three-year scenario, it contemplates a lot of growth out of the Utica, as a matter of fact. But quite frankly, we can grow from multiple basins if we needed to, if we wanted to. Really, the growth at the company level will be determined by optimizing across each of those basins the level of activity, the marketing agreements, where we have infrastructure, and things of that nature. Phillip J. Jungwirth: Great. And then you beat the $150 million Encino synergies ahead of schedule. I think you gave yourselves a year here. So could you just talk to the drivers, positive surprises now that you have operated the asset for six months? And I assume you are not done here in terms of driving improvement. You mentioned in-basin sand. Anything else you are working on to enhance returns? And if you could also just touch on marketing initiatives here to improve netbacks? Jeffrey R. Leitzell: Yes, Phillip, this is Jeff. Yes, as we have touched on in our opening remarks, obviously, we are extremely happy with how it has progressed with the synergies there. And you have heard kind of how much success we have had across the operational side with just drilling, completions, with our procurement side. Extremely happy, and we have driven that cost down to $600 a foot. In very short order, we really have only been developing there a handful of years. As I kind of look forward, I think there is a handful of things that we can really lean on. Full rollout of the EOG Resources, Inc. support services. I mean, you kind of touched on it there. Once we implement self-sourced local sand, that is going to be a big initiative to really drive down costs. Also tying together a lot of our water and infrastructure and maximizing reuse in the area, that is going to be a pretty big driver that we can use our technology from around the rest of the portfolio. Also, it will take a little while, we are in process, but implementing additional automation across all of the acquired operations. We will be able to remotely manage and monitor wells and really take advantage of our 24-hour control room that monitors everything up there. And what that will do is really improve a lot of our efficiencies and reduce man-hour times. And then lastly, as you talked about, continuing to focus really on utilizing the scale now of the asset to reduce the GP&T and work on the differentials. I think the big ways we are going to do that, as I stated, is first and foremost, we like to control in-field infrastructure and gathering. So we are going to focus on building that out, which should help bring our differentials down. And then, on the marketing agreements, obviously, just with the scale there, we have great relationships with the marketers. We are in contact with them regularly and continuing to look for options to be able to either extend out agreements and optimize those agreements to be able to lower the fees just because we have so much more volume and scale up there. So I really think, you know, we are just kind of the tip of the iceberg. We have got a lot of upside in the play. We have still got upside in synergies. Our team continues to uncover, you know, opportunities every single week. Operator: The next question is from Matthew Portillo with TPH. Please go ahead. Matthew Portillo: Good morning all. Just a quick follow-up question on the Permian. Great to see in the remarks that you are expecting stable productivity trends for the basin this year and also to hold production flat in 2026 on an exit-to-exit standpoint. I was just curious if you could maybe help us out a little bit on that last point for the outlook. Looking into 2025, I think you completed about 390 wells in the basin and drove about 10,000 barrels a day of growth. And obviously, you have highlighted a big drop in the well count this year down to about 300 wells. So I think the maybe missing piece around this might be the lateral length progression. So I was curious if you might be able to help us out on that front. Jeffrey R. Leitzell: Yes, Matthew. This is Jeff. We have made great progress across our whole portfolio from a lateral length aspect, not just even in the Permian. So last year alone we increased our lateral length by 18% across the portfolio. And it really was driven by, as you are talking about, the momentum that we had with three-mile laterals there in the Delaware Basin. So we had a substantial increase there and focused on that. We extended our laterals in the Eagle Ford where, in certain areas that were stranded, we were able to drill numerous four-plus-mile laterals with, obviously, the record lateral that we had there on that Whistler E5H. Then the same thing in the Utica. We have got a three-plus-mile full program basically there across the board that is really helping push. If you look at the Delaware Basin, it is basically fairly flat from 2025 to 2026. And the reason for that is just the huge jump that we had last year. But obviously, that has to do with a lot of our footprint and the leasehold that we have out there. But our team is always going to look for opportunities to go ahead and continue to make trades, bolt on additional acreage, and extend those laterals wherever we can, because I think we have proven with our drilling technology, with the EOG Resources, Inc. motor program, and our approach, that we are able to drill those longer laterals with great success. Matthew Portillo: Great. And then maybe just a follow-up on Dorado. Looking at the state data, I saw a really nice improvement in the productivity trends per foot in 2025. I was just curious if you might be able to comment on this improvement and what might be driving that. And then maybe a bigger picture question. With your exit rate approaching a Bcf a day of gross production in 2026, I know you have talked about compression potentially taking the Verde pipeline to 1.5 Bcf of egress. But I am curious if there is a need down the road for potentially more pipeline capacity just given the economics of the assets and the improving productivity trends we are seeing out of the basin in aggregate? Jeffrey R. Leitzell: Yes. Thanks for the question. We have been extremely excited with how Dorado has evolved down there and really it is kind of across the board from both drilling and completions and production, being able to increase the well performance there. So like everywhere else, we looked at our wellbore construction. We make sure that we are maximizing our high-intensity fracs and creating as much hydraulically created surface area downhole as possible with those things. And as stated, we are seeing about a 13% year-over-year increase, and that is a sustainable increase on a per-foot basis. So it is really a recovery increase, not just a lateral length increase. So extremely excited about that. We are continuing to work it. And then on the second part of your question, yes, we have the EOG Resources, Inc. Verde Pipeline in service. As you talked about, it provides 1 Bcf of transport over to Agua Dulce, and it is expandable up to about 1.5 to 1.75 Bcf with very minimal investment in booster compression. And, you know, that provides us an uplift that is very attractive of about $0.50 to $0.60 per Mcf, and that is just due to the lower GP&T and obviously the higher netbacks that we have there. And with that, that will be able to, along with our other third parties, we will not need any other egress out of there. We have got plenty of egress with that pipe right there. And as I said, we do not just necessarily transport all down that pipe. We do have other third parties that we can actually market to in that area. So we feel really comfortable for the long term there in Dorado with our takeaway. Operator: This concludes our question and answer session. I would like to turn the conference back over to Ezra Y. Yacob for any closing remarks. Ezra Y. Yacob: Yes, I would just like to say we appreciate everyone's time today. And thank you to our shareholders for your support and special thanks to our employees for delivering another exceptional quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Integrity Insurance Group, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. As a reminder, this call is being recorded. Before we begin, please note that today's remarks may contain forward-looking statements, including comments about the company's outlook, strategy, plans, and expected performance. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially. A full discussion of the risk factors can be found in the company's SEC filings under its most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q. Management undertakes no obligation to update any forward-looking statements. Furthermore, today's remarks may contain non-GAAP financial measures. A reconciliation of non-GAAP financial measures to their most comparable GAAP measures is included in the company's quarterly press release and can be found on its website at www.aii.com. Reference to American Integrity or the company refers to American Integrity Insurance Group, Inc. With that, I will turn the call over to American Integrity Insurance Group, Inc.'s founder and Chief Executive Officer, Robert Ritchie. Please go ahead. Robert Ritchie: Thank you, and good morning, everyone. This is an extraordinary moment in American Integrity Insurance Group, Inc.'s journey, and I am honored to share it with you today. This past year has been a defining chapter in our company's history. In May, we completed our very successful initial public offering, raising gross proceeds of $100 million. This was a milestone that not only strengthened our balance sheet, but it also affirmed a message that American Integrity Insurance Group, Inc. is a company built for scale, resilience, and durable value creation. Importantly, our IPO was not a destination; it was a catalyst. It was a launching point, and today, we are operating from the stronger foundation it created as we diversify our products, as we expand into new markets, and as we serve even more communities. Our robust quarterly and full-year results are a testament to the strength of our underwriting discipline, the depth of our agent relationships, the trust of our policyholders, the confidence of our employees, and the improving health of the Florida marketplace. I would like to highlight several key achievements from 2025. First, we grew gross premiums earned by nearly 30% year-over-year to $885 million. We delivered adjusted net income available to common shareholders of $103 million, or $5.97 per diluted share, compared to $37.9 million, or $2.94 per diluted share, in the prior year. We achieved a combined ratio record of 63.7%. This is a more than 17-point improvement from 80.9% that we achieved in 2024. We recorded a 42.1% adjusted return on equity, and this is up from 26.8% in 2024, and we increased our customer count 19% from 356,000 to nearly 422,000 customers. Like many other leading carriers in Florida, our financial results benefited from well-underwritten, profitable takeouts from Citizens in late 2024 and early 2025. As expected, the phase of large, profitable Citizens takeouts is complete. Importantly, our growth engine today is organic and voluntary, supported by deep agent relationships and disciplined underwriting. Our results are underpinned by strong organic voluntary growth. Our voluntary customer count increased 16% to 327,000 policies during 2025, based upon a total production of 104,000 new voluntary policies written during the year. In our home state of Florida, which represents 97% of our current in-force premium, we ended the year as the sixth-largest writer based upon policy count, having written the third-most policies after excluding national carriers and Citizens. This voluntary growth positions us among the fastest-growing competitors in our entire peer group. Our ongoing policy growth is a direct result of our deep relationships with our agent partners that have been cultivated for over two decades, and we believe it positions us for sustained success as we execute our growth initiatives, including our recent reentry into the Tri-County region of Florida, our expansion into the middle-aged home market, our newly launched commercial residential product, and our recent entry into North Carolina. We believe we are positioned for diversified, profitable growth for years to come, which will create substantial value for our stockholders. Importantly, we remain disciplined, and we pursue responsible growth as we strive to maintain a strong balance sheet purposefully built to weather cycles and support our insureds, our distribution partners, our employees, and our shareholders. With that exciting news, I am pleased to announce that our board of directors has declared a special cash dividend to our stockholders of $1.02 per share, which aggregates to $20 million. American Integrity Insurance Group, Inc. has a long history of returning capital to stockholders following periods of exceptional performance while retaining sufficient capital to pursue our growth opportunities. With that, I will turn the call over to Jon Ritchie to discuss operational execution and, more deeply, our growth initiatives. Jon? Jon Ritchie: Bob, I will focus on how we believe our disciplined execution this quarter positions us for sustainable growth into 2026. Starting with our results, we continue to grow in our core Florida market. In the fourth quarter, we wrote 26,025 new policies in the voluntary market, bringing our full-year total to over 104,000, representing a 17% increase over full-year 2024. Combined with improving retention levels reaching 82.7% this quarter, our voluntary policies in force have increased 16% over the past year to 332,780 policies. We also assumed almost 8,000 Citizens residential takeout policies in the fourth quarter, representing $24.2 million of assumed unearned premium, as compared to approximately 68,200 policies in 2024. Our Citizens takeouts decreased as fewer policies met our underwriting and target profitability standards. Importantly, we expected this, and our voluntary policy growth remains the driver of our policy growth given the many strategic initiatives we have implemented over the last year. Starting with the Tri-County region of Florida, we reentered this market in 2025 and have been building momentum through the fourth quarter and into the new year. At year-end 2025, we had 29,226 policies in force in the Tri-County region, representing 7% of our book, which we believe is well below our potential market share for an area representing about 28% of Florida's households. While most of this business in the Tri-County region has come from the Citizens takeouts over the last year, we are pleased with the early results we are seeing in our voluntary policy writing in this area. We believe our growth in the Tri-County region will continue through 2026 and represents a multiyear opportunity. Another growth avenue is our renewed focus on middle-aged homes, which represents another large market opportunity. In fact, middle-aged homes represented 76% of our HO-3 policies in force as of 2016, prior to the litigation crisis that gripped Florida the last decade, and which declined to 26% of our policies in force as of 2025 as we managed the risk profile of our business. Given the legislative reforms that were passed in 2022, this market has become attractive once again, and we have reoriented our sales and production efforts to ramp up our writings. Importantly, we have completed our extensive underwriting efforts to refine and price our go-to-market and are pleased with the early acceleration we are seeing in our production numbers. We launched our commercial residential product in October 2025, which is designed to deliver comprehensive and reliable protection for Florida's condominium, townhouse, and residential homeowners associations. In 2025, we assumed 149 commercial residential policies from Citizens, representing $5.9 million of assumed unearned premium, and began writing commercial residential policies in the voluntary market. Likewise, we are pleased with the early results, which are consistent with our desire to leverage early insights to refine the product and scale responsibly. We also continue to have success growing our writings in Georgia and South Carolina, largely through our Florida homebuilder agent relationships, and have begun writing policies in North Carolina, though Florida will remain our core market for years to come. At year-end 2025, our out-of-state policies had more than doubled to 26,732 policies in force. Finally, from a growth perspective, I am pleased to report that we reduced our non-cat quota share from a 40% cession rate to 25% and renewed the treaty with significantly improved pricing. We expect that this will drive additional revenue and reduce the cost of our quota share by approximately 50% during 2026. In 2025, we ceded $248 million of earned premium and generated $276 million of revenue. With the newly lowered cession rate, we would have ceded $155 million of earned premium and generated revenue of $369 million. We believe these changes will have a positive impact on net income in 2026. The underlying, or non-cat, loss environment and our results continue to be favorable. For every dollar of gross premiums we earn, we paid out $0.17 in non-cat losses in 2025, consistent with 2024, a strong ratio representative of our underwriting focus and higher market share of newer homes. We introduced this metric in our earnings release and Annual Report on Form 10-K to reduce the noise that is inherent in the net loss ratio due to large changes in the quota share and excess-of-loss cat expenses, which we believe helps investors better understand our trends. We would expect this number to increase modestly as we increase the proportion of policies in our book in Tri-County and for homes with middle-aged roofs. Benjamin Lurie: This has also been a favorable year for catastrophe losses, given that we did not experience catastrophe loss for the first time in many years. That is certainly welcome news for Florida, our policyholders, and our stockholders. Importantly, the combination of the catastrophe loss-free year in Florida and increased capital availability in the global reinsurance market means expectations for favorable pricing for our reinsurance renewal are high. Many market commentators estimate that, depending on region, risk-adjusted rate decreases will range from 10% to 20% for 2026 renewals. With that, let me turn the call over to Benjamin Lurie to walk through the financials. Thanks, Jon. Now that we have covered the annual results fairly comprehensively, I will walk us through the fourth quarter of 2025, where our results continue to demonstrate the strength of our distribution network driving organic growth, prudent underwriting, a favorable loss environment, and an increasingly attractive reinsurance pricing environment, which resulted in net income available to common shareholders for the fourth quarter of $20.9 million, or $1.07 per diluted share, and adjusted net income was $21.8 million, or $1.11 per diluted share. Our return on equity was 25.6% compared to 21.2% for the fourth quarter of 2024. Adjusted return on equity was 26.7% compared to 21.2% in the fourth quarter of 2024. During the quarter, we wrote 87,000 new and renewal policies in the voluntary market, an increase of 17% compared to the fourth quarter of 2024. As Jon indicated, we are pleased with the early results from our various growth initiatives. Gross premiums written in the fourth quarter of 2025 decreased by $31.2 million to $206.4 million from $237.6 million in the fourth quarter of 2024. The decrease in gross premiums written was primarily due to our assumption of more policies from Citizens during 2024 as compared to 2025. Gross premiums written from the voluntary market in the fourth quarter of 2025 increased by $15.5 million to $137.9 million from $122.4 million in the fourth quarter of 2024. Gross premiums earned in the fourth quarter of 2025 increased by $29.3 million to $229.1 million from $199.8 million in the fourth quarter of 2024. The increase in gross premiums earned was driven primarily by new and renewal policies written through the voluntary market and from our strategic participation in the Citizens takeout program. Ceded premiums earned in the fourth quarter of 2025 increased by $31.7 million to $169.8 million compared to $138.1 million in the fourth quarter of 2024 due to the increase in gross premiums earned and the placement of our 2025–2026 catastrophe excess-of-loss reinsurance program effective 06/01/2025. The company purchased more reinsurance coverage compared to prior years, reflecting an increased in-force premium and total insured value. Net premiums earned in the fourth quarter of 2025 decreased by $2.4 million to $59.4 million from $61.8 million in the fourth quarter of 2024. The decrease in net premiums earned was driven primarily by the 2024 quarter, which created temporary catastrophe reinsurance windfall savings that bolstered net premiums earned in that quarter. Net investment income in the fourth quarter of 2025 increased $2.1 million to $5.9 million compared to $3.8 million in the fourth quarter of 2024, which was primarily driven by an increase in invested assets resulting from increased premiums in force and the proceeds from our IPO. Turning to underwriting performance, losses and loss adjustment expenses for the fourth quarter of 2025 decreased $6.5 million to $26.3 million compared to $32.8 million for the fourth quarter of 2024, primarily driven by the lack of catastrophe losses from current-year events during the period. The loss ratio was 42.6% for the fourth quarter of 2025 compared to 51.6% for the fourth quarter of 2024. Again, we believe the gross underlying non-cat loss and LAE ratio to also be useful to investors, as it shows our underwriting performance before the impact of reinsurance. This number remains consistent, increasing from 16.5% in fourth quarter 2024 to 17.1% in fourth quarter 2025. Favorable development of $3 million for the quarter resulted in favorable development for the year of $1.8 million. Policy acquisition expenses for the fourth quarter of 2025 decreased 51% to $5.8 million compared to $11.8 million for the fourth quarter of 2024, and general and administrative costs for the fourth quarter of 2025 decreased 43.2% to $6.7 million compared to $11.7 million in the fourth quarter of 2024, both driven by an increase in non-catastrophe ceding commissions. As a result, the expense ratio was 20.2% for the fourth quarter of 2025 compared to 37.1% for the fourth quarter of 2024. The combined ratio was 62.8% for the fourth quarter of 2025 compared to 88.7% in the fourth quarter of 2024. Income tax expense was $8.4 million and $2.3 million for the fourth quarter of 2025 and fourth quarter of 2024, respectively. The increase from the fourth quarter of this year versus last year is primarily due to a change in tax status of American Integrity Insurance Group, Inc., coinciding with our IPO. Shareholders' equity increased to $337 million at year end, reflecting strong earnings generation and the capital raised in our IPO. Our balance sheet remains well positioned to support continued profitable growth. Benjamin Lurie: Overall, 2025 was an exciting year of execution and transformation for American Integrity Insurance Group, Inc. We strengthened the balance sheet through our IPO, continued to grow our voluntary network, and delivered outstanding earnings. With that, I will turn the call back over to the operator to open the line for questions. Operator: Thank you. If you would like to ask a question, please press 1 on your telephone keypad. If you would like to withdraw your question, simply press 1 again. Please ensure that your phone is not on mute when called on. Thank you. Your first question comes from Charles Peters with Raymond James. Your line is open. Charles Peters: Well, good morning, everyone. First off, great. I think I am going to start with just the competitive environment as we think about 2026. A couple of your peers have reported already, and the common theme seems to be emerging that the market is—there is a lot more competition for both new business and renewal business than there was maybe a year or two ago. So maybe you could update us on how you see competition across the different cohorts, the new homes, the slightly older homes, and then the commercial space, please. Robert Ritchie: Good morning, Charles, Bob. Good hearing your voice. So when you see that and hear and read that there are 17 new competitors, that is not entirely the story. There are only about seven new capital groups, others that form reciprocals, sister companies, etcetera. Of the seven, there is only one very large one. The other six or so are very responsible and responsive niche players, and they have continued to take out some takeout business and are beginning to write voluntary. Here is where I do not agree with certain statements that might be made by others, and I do not say it to be brash. It took 20 years, but we are in a leadership position in various distribution channels. Let us start with the IA Florida preferred agents, and it took us 20 years to get there. Preferred agents are giving us top-door business and are awarding us opportunities. Now we have to earn these every day, but I can tell you over the series of time here—and we cannot really talk about this quarter—but I want to let you know that we are approaching record numbers of new business days on a continual basis, on our terms, in our pricing. This is a position where it allows us to, as an example, write in South Florida now, middle-aged homes. We continue to dominate the new builder segment. We continue to write three out of every 10 new homes being built in Florida. This is a combination, Charles, of, of course, the independent agents, but it is especially the builder agents like Westwood and others. Furthermore, we are doing business with virtually every national carrier except for State Farm on our terms. That is providing us opportunities. Finally, we have relationships with mortgage companies, other finance companies, online approaches. You put all that together, it is a very, very strong loaf of bread called new business. That is why we are competing and writing record new business on our terms. I welcome every competitor. We need more, not less. There are 8 million homes in Florida and 130,000 new homes being built each year. I am bullish about our growth opportunities at American Integrity Insurance Group, Inc. Charles Peters: Excellent. Thanks for that color. Thank you. The other question I have is just—and it is coming from some of the investors—is with the change in the quota share for 2026, maybe you could spend a second and walk us through how the expense ratio, both the general and admin and the policy acquisition lines, might change because of the change in the quota share. That would be helpful. Thank you. Benjamin Lurie: Absolutely. Thank you, Charles. So because of the quota share program, we get ceding commissions that do net against those two expense line items. So even though our underlying expenses will stay pretty much constant, you will see a net increase in those two line items. However, that increase is going to be more than offset by a decrease in ceded premiums we are paying to our quota share partners. The net result of that is going to be slightly higher expenses versus 2025 on a net basis, but also significantly higher net revenues and revenues. That is what we expect will drive even additional profitability going into this year. Charles Peters: Got it. Thanks for the answers. Operator: Your next question comes from Jon Paul Newsome with Piper Sandler. Your line is open. Jon Paul Newsome: Hi. I was hoping you could give us a little bit more thoughts on capital management and how you prioritize where you are going to put the capital in light of this cession, too. Usually, when we see special dividends, that means that there is some sort of signaling that there is not a place to put that capital. Anyway, prioritization as well as your thoughts on—that is the signal we should be thinking about in terms of special dividends. Benjamin Lurie: Jon Paul, thank you so much for that question. It is a great question and one that we are eager to answer. So when we did the IPO in May, it was in anticipation of having significant growth opportunities across all the areas that you have heard about on this call—Tri-County, middle-aged homes, commercial product—and we are more excited than ever about those growth avenues. That said, during our initial conversations, we have always said that to the extent we have windfall earnings, for example in this year because of no cat storms, that we would always be looking for opportunities to return excess capital to investors. So the fact that we had no cats this year gave us the surplus, and we have a 20-year history of returning money to the investors whenever we can. That said, the remaining IPO proceeds are still to fund all these growth initiatives that we are so excited about in 2026. Jon Paul Newsome: How do you look at the trade-off versus special dividend versus buybacks? Benjamin Lurie: Another great question and something that we have thought a lot about and a question we have taken very seriously. We did a secondary in the last quarter, and the reason we did that was the same reason we did the IPO. We wanted to get our stock in the hands of new public shareholders that understand our business, that are excited the way we are about our future growth prospects, and provide the float and the daily volumes necessary to create liquidity and make our stock attractive to investors. So because that was a decision point, we did not want to take float out of the market today. We are trying to get the stock in the hands of as many new investors that will hear our story that we are excited to tell. That continues to be our plan going forward, and we believe as we continue to execute on our business plan and deliver positive returns that folks will increasingly be excited about becoming investors in our stock. Jon Paul Newsome: Thank you. Appreciate the help, as always. Operator: The next question comes from Thomas Mcjoynt-Griffith with KBW. Your line is open. Thomas Mcjoynt-Griffith: Hey, good morning, guys. My first question is asking about the trajectory of the average sort of premium per policy going forward. There is obviously a confluence of inputs from what is happening with primary pricing in homeowners versus your business mix changing by adding Tri-County and middle-aged homes, and then there are also the commercial policies, which are much higher premiums. So as you take all of those together, where do you see your average premium per policy going? Jon Ritchie: Hey, Thomas, it is Jon. Certainly, the mix of business that we are writing—and you hit the nail on the head—middle-aged homes and Tri-County in particular will elevate the average premium of the overall portfolio as we continue to write a large number of new policies in that space, and we are expecting that there is upward trajectory of the average premium of the total portfolio, especially for the voluntary book. In conjunction with that, certainly, there is pressure downward on the primary pricing due to the trends that we have seen in the non-cat losses, particularly over the last several years. As we have mentioned in, I believe, the last call, the current average rate decrease for the portfolio for the 2025 annual rate filings is roughly 5%. We will continue to monitor that and file accordingly. Lastly, you hit on commercial policies we are starting to write. That will take time to grow. We are being very prudent and thoughtful as we enter that space, but we are seeing some early success. So, long answer to your question, but overall, we are seeing the trend of average premium going up over the next 12 months. Thomas Mcjoynt-Griffith: Got it. And to follow up on that 5% figure that you just referenced for the average rate decrease, is that referring to your portfolio specifically? As you look out across Florida homeowners, across competitors, do you have a view on what competitors are doing with that number? Jon Ritchie: Yes, so that was for American Integrity Insurance Group, Inc.'s portfolio, that 5% reference, and we do monitor rate filings both through the OIR and then also what we hear in the field from our sales department. Certainly, that range of rate decrease is pretty consistent with what we are seeing in the marketplace. Certainly, we do know that we have an incredibly responsible regulator with Mike Jaworski at the Office of Insurance Regulation, and that certainly is beneficial, and he is being prudent as rate filings are coming through. We are not seeing anyone out there buying market share at this point in the cycle. It is also worth noting, Thomas, with that rate decrease, we still have our inflation factor that is on the renewal book that partially offsets that rate decrease. Certainly, that in conjunction with everything else that I mentioned previously gives us the conviction knowing that the average premium is heading upward at this point. Thomas Mcjoynt-Griffith: Thanks. Then switching over to the reinsurance side, it seems like it is an advantageous time to be a buyer of reinsurance. You have options coming up at the 6/1 renewal to either take savings, to buy more reinsurance up in the tower, press lower attachment points. How do you weigh the pros and cons of those different decisions as you approach this upcoming reinsurance renewal? Jon Ritchie: Yes. Certainly, the reinsurance market is advantageous for buyers this cycle. Capacity is abundant. Pricing is going down on a risk-adjusted basis. We have seen early signs of this as we are in the ILS market, issuing our cat bonds that are closing this week. In the traditional market, early conversations that we have had with our trading partners in Bermuda and London are very favorable. In terms of our buying habits, they will be consistent with prior year, certainly from a vertical perspective of limit, but also horizontal. We will have third and fourth event cover to cover the 2026 storm season on both a frequency and severity basis. It is our intent, as we continue to place our reinsurance cover for the 2026 renewal cycle, that retentions will be consistent with the prior treaty year. Thomas Mcjoynt-Griffith: Thank you. Operator: Your next question is a follow-up from Charles Peters with Raymond James. Your line is open. Charles Peters: Hey. Thanks for letting me come back with a couple of follow-up questions. First of all, it sounded like poor Jon Paul was about choking on something, so I hope he is okay. I wanted to get back to this reinsurance comment. One of the things that we have to be mindful of is that the third and fourth quarter is hurricane season, and you said in your comments about the changing reinsurance conditions that the retentions, the third and fourth events—I am just trying to map out what you think the retention might be for your first event and second event this year. Obviously, knowing that there is still some uncertainty about your placements, but how are you thinking about that? Jon Ritchie: Yes. So we are finalizing structure as we go to market to place our cover for this year. On a first-event basis, the retention will be consistent with the 2025–2026 treaty year. We are looking at options on second event, and then certainly on a third and fourth event basis, we have been able to get additional cover for those events, and particularly some cascading features in the ILS market have returned. We are able to attach lower for those tranches of cover that we are placing. We are finalizing our thoughts on third and fourth event, but retention is something that is incredibly important to us to keep that as low as possible. Robert Ritchie: Especially post-first event. So we are being thoughtful, creative, and these cat bonds and their flexibility and pricing are creating, I think, some really good opportunities this year for us. So stay tuned. I think you will, as a group of analysts and shareholders, like the outcome. Charles Peters: Yeah, and I think you mentioned in your answer that the 2004 season hurricane season is sort of a benchmark of trying to structure your reinsurance. Is that correct? Jon Ritchie: It is. It has always been my mantra, and I am very grateful except for a year or two during the worst of this crisis. 2004—four majors hitting a single state in a single year—had not happened for a century before 2004. So it has always been our testament and our risk management approach to be protected in the event of a multiplicity of major hurricanes again. Charles Peters: Excellent. That is good color. The other comment that was made during the comments was you talked about the non-cat loss ratio of $0.17, I think, of gross. I do not—it is non-cat or AOP—I am not sure what the right acronym is. But 17% seems low, and maybe that is just a reflection that your business was skewed towards new homes. I would think that the market is maybe twice that, but maybe you could give us some perspective on the comment that you said that you expect that to go up. Jon Ritchie: Yes, certainly. We are very proud of that 17% gross loss ratio for the book, and that is consistent with the prior year. It is a combination of the mix of business, the quality of re-underwriting of the portfolio that we have done in recent years, and then certainly the legislative reform benefiting us and the entire marketplace. However, it is our belief that the 17% gross loss ratio certainly will begin to increase modestly a point or two as we continue to write in Tri-County and we write middle-aged homes. However, the premium we are collecting for that type of business is appropriate and offsets that, and we are happy with the direction where the loss ratio is going. Robert Ritchie: Then also, Charles, as you know, the loss ratio is an important number both for comparison and for analysis of the company's performance. It is all about frequency and severity. So as the top line with modest rate decreases happens, then it is mathematics, and of course that ratio becomes a point or two higher. I am pleased to tell you—very pleased to tell you—a couple of things. Number one, the frequency has normalized to a market performing more normally post-reform. That is remarkable. For us, our frequency is a bit lower, we feel, than competitors because of the robust new business, new construction. On the severity side, inflation is not zero, so we will see some uptick occasionally on the severity side. Net-net, it is about pure premium divided into the gross premium, and you had a comment. Benjamin Lurie: Charles, just real quick on the math side of it, just to make sure that we are being clear and consistent. We are introducing the gross underlying ratio to take away the effects of reinsurance—both quota share and cat reinsurance. Typically, when you talk about net underlying loss ratio, you are talking about after your cat reinsurance load, which can be 40% to 50% of every dollar. That would bring you to underlying ratios along the lines of what you are talking about. We just think it is important to show our losses without the effect of reinsurance because, as we have talked about, changing our quota share arrangements will have impacts on these numbers. We want to be very transparent with our investors and the community as far as what our actual loss experiences are. Charles Peters: Thank you. I guess the one final question I will have—and just to give you an opportunity to remind everyone, myself included—is you know, you have grown the book substantially over the last year, and I am just curious about your process about managing risk aggregation and concentration as you expand into these other areas of the market, and how you think about those types of concerns considering what your objectives are on a long-term basis. Jon Ritchie: Yes, that is a great question. Charles, thank you for that. Certainly, the growth initiatives in Florida where we are targeting in Tri-County and then also middle-aged homes complement the portfolio geographically and take some pressure off some peak zones for the company within the state, particularly Southwest Florida, which we are very happy with our market share there. But writing in Tri-County and middle-aged homes coming disproportionately from Central Florida is a region where we had to non-renew a healthy amount of business during the litigation crisis that we faced over the last 10 years. So the strategy that we are deploying offsets the concern that you are raising in terms of disproportionate concentration of risk, and we are really pleased with our new business writings where they are coming geographically within Florida. Charles Peters: Thanks. Thanks for letting me ask additional questions. Robert Ritchie: Thanks. Operator: This concludes the question-and-answer session. I will turn the call to Robert Ritchie for closing remarks. Robert Ritchie: Thank you, and thanks for joining us on our call this morning. I am very proud of our results. I am incredibly proud of our employees because, over this past year, we have created remarkable success and the new chapter ahead of us is even more exciting. I want to thank everyone for their hard work and for all that everybody does each and every day to make us more successful. As we look at the year ahead, I have three things to close with. Number one, we are operating from a position of strength. We surpassed our objectives for 2025 and continue to responsibly return excess capital to our investors, and so, fueled by our IPO proceeds, as Benjamin mentioned, we have the capital to grow organically, sustainably, and in the right markets. Number two, momentum is on our side. You heard me talk about record growth—responsible, profitable record growth. Momentum is our friend, and we are seeing early successes in exploiting various growth opportunities. Finally, number three, we have the people. Some of them are listening today. I am grateful for every one of you. In excess of 310 dedicated employees and a leadership team that has been with us for at least five years and running—some 10, 12, 15 years. We are aligned, and we are pulling in the same direction. We built a strong culture, and I am very proud of it, that has positioned us for success through market cycles. So in conclusion, we remain focused on the drivers we control—underwriting quality, expense discipline, and thoughtful yet aggressive growth. Now is our time to grow. We believe our performance remains durable and repeatable. We are not just growing; we are building something enduring. I want to thank you for your time today. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Everus Construction Group, Inc. fourth quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. We kindly ask that you please limit your questions to one and reenter the queue for any additional follow-ups. I would now like to turn the conference over to Paul Bartolai. Please go ahead. Thank you. Good morning, everyone. Paul Bartolai: And welcome to Everus Construction Group, Inc.'s fourth quarter 2025 results conference call. Leading the call today are CEO, Jeff Thiede, and CFO, Maximillian J. Marcy. We issued a news release yesterday detailing our fourth quarter and full year 2025 operational and financial results. This release and the accompanying presentation materials are available on our website at investors.everus.com. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements, which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results could differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the risk factors section of our latest filings with the SEC. Additionally, please note that you can find reconciliations of historical non-GAAP financial measures in the news release issued yesterday and in the appendix of today's presentation. Today's call will begin with prepared remarks from Jeff, who will provide a review of our recent business performance and an update on the progress against our strategic priorities, followed by Max, who will provide a more detailed financial update before wrapping up with guidance. At the conclusion of these prepared remarks, we will open the line for your questions. With that, I will turn the call over to Jeff. Thank you, Paul, and good morning to everyone joining us on the call today. We are very excited to talk to you today about our record full-year results in our first year as a stand-alone public company. It has been a transformational year for Everus Construction Group, Inc., which is a direct reflection of our highly skilled and dedicated team members across the organization. Through disciplined focus on our forever strategy, we established our structure as an independent public company, generated tremendous financial results, and positioned Everus Construction Group, Inc. for continued success in the years ahead. I am so proud of everything we accomplished during the year, and I am even more excited about our future opportunities. During our call today, I will provide a brief overview of our results, highlight some of our key accomplishments towards our strategic initiatives, and detail some of our key priorities for this year before I turn it over to Max for his financial review. Turning to our quarterly highlights, beginning with slide four. Much like 2025, I am pleased to report that we delivered another quarter of exceptional financial performance reflecting the robust opportunities across our end markets and our outstanding execution capabilities. We delivered fourth quarter revenues in excess of $1,000,000,000 for the first time in our history, up 33% from the prior year period, driven by growth across both our E&M and T&D segments. Our strong revenue growth was complemented by another quarter of strong execution, as fourth quarter EBITDA increased 45% from the prior year period and our EBITDA margin was up 70 basis points. Our ability to execute complex projects safely, on time, and on budget is critical to our clients and is a driving factor in helping us build the deep relationships that are key to our long-term growth strategy. Looking at the full year, our revenues increased 32%, primarily from the continued momentum in our E&M business. While our E&M segment was the key driver in 2025, we remain optimistic about the growth outlook for our T&D business with our recent backlog momentum and favorable industry trends. Due to our strong execution throughout 2025, our full-year EBITDA was $320,000,000, up 52% compared to 2024 after adjusting for incremental stand-alone operating costs. Our strong performance is a direct reflection of the continued focus on our strategic priorities by all our employees across 15 operating companies around the country. Our backlog at the end of 2025 was $3,200,000,000, up 16% from the same period last year with strong growth across both T&D and E&M. While we are benefiting from favorable end market trends, our backlog growth also reflects our strong execution, our deep client relationships, and the value our employees bring to our customers, the key pillars of our forever strategy. Our healthy backlog gives us confidence in our growth outlook for 2026. Importantly, we continue to see a robust project pipeline across diverse markets, including data center, hospitality, semiconductor, transmission, and undergrounding. While we will certainly remain disciplined in our approach to project selection, ensuring we choose projects with the right risk-reward, we expect the favorable market trends and our strong competitive positioning to allow for continued backlog growth. As I reflect on 2025, we have made tremendous progress against our strategic priorities, which enabled us to generate record financial results and, importantly, has positioned us for continued success in the years to come. I would like to take this opportunity to highlight some of our key accomplishments during the year and provide an update on some of our strategic priorities as we look ahead. As I already mentioned, the foundation of our operational framework is our forever strategic priorities. You can see on slide six that our forever priorities are focused on attracting, retaining, and training our most critical asset, our employees; creating value for our customers and shareholders; delivering safe and high-quality execution; and maintaining and growing our customer relationships. Our forever strategic priorities are the basis for everything we do and are designed to deliver value creation through sustained profitable growth, operational excellence, and disciplined capital allocation. Our value creation framework is highlighted on slide seven in today's presentation. We clearly generated strong growth during 2025, with full-year revenues increasing 32% compared to 2024 results. Our strong growth reflects our expertise, discipline, and long track record of success in critical markets that provide data center, hospitality, and undergrounding work. These are markets where we have developed project management expertise, skills, and relationships over the course of decades. An important aspect of our growth strategy is to expand geographically through satellite projects, which was how we entered the Southwest. More recently, as discussed on our last earnings call, we entered a new geography in support of a large semiconductor company. The initial large project is helping us scale up to this new location, which we expect will allow us to follow our previous blueprint to make this a permanent new geography for Everus Construction Group, Inc. Of course, our organic growth initiatives are contingent on our ability to attract and retain skilled labor to execute our projects. We have a long track record of effectively scaling our business, having tripled our workforce over the past 13 years. We ended 2025 with 9,400 employees, up from 8,700 at 2024. Through our strategic focus on attracting, developing, training, and retaining employees, we continue to efficiently grow our workforce by leveraging our union partnerships, our industry relationships, and internal initiatives. While we remain committed to our organic growth strategy, an important part of our growth playbook going forward will be strategic acquisitions. We have strengthened our corporate development team and have a broad and deep pipeline of potential deals we are evaluating. We look forward to updating you on our progress. As a reminder, our acquisition strategy is focused on finding accretive transactions that expand our geographic footprint, diversify our business, or deepen our market presence. We are well below our leverage targets, have ample capacity under our credit facility, and cash on hand, giving us significant financial flexibility to execute our growth initiatives. Now turning to operational excellence. 2025 was certainly a year of strong execution, with our full-year EBITDA margin up 40 basis points as reported and up 110 basis points when adjusting for incremental stand-alone operating costs. Our strong execution is thanks to our people and our strict adherence to our Everus operational playbook, which focuses on project selection, bidding discipline, safety, training, and sharing of lessons learned. We continually look for opportunities to drive execution upside on every project and experienced exceptionally strong execution in 2025. Another important area of focus for us is our prefabrication and modular construction strategy. As we discussed earlier in 2025, we are consolidating and expanding our prefab and modular construction across the country. Notable investments have been made in the Pacific Northwest and Southwest and our latest expansion in Kansas City, which is now operational. We constantly evaluate and expand our capabilities where possible. Prefab and modularization helps improve safety, increases labor efficiency, lowers cost, improves project timelines, and makes project outcomes more predictable. This allows us to enhance margins, increase savings for our customers, and strengthen relationships. And finally, we have maintained our focus on disciplined capital allocation. Our priorities are investments in organic growth, acquisitions, and maintaining financial flexibility. As Max will discuss, we increased our capital spending in 2025 to support our growth initiatives and remain committed to our long-term expectations of investing 2% to 2.5% of our revenues. We have not yet completed an acquisition. Our strong balance sheet positions us to execute on growth strategies. We do not currently have any return of capital programs in place, which reflects our optimism in our growth opportunities and our belief that this is the best use of capital at this time. Our management team, together with our board, will continue to evaluate the highest and best uses of capital over time consistent with our ongoing focus on driving stockholder value. And finally, slide eight details our long-term financial expectations. We outperformed these targets in 2025, which again reflects strong market trends, execution upside, and our focus on our forever strategic priorities. We entered 2026 with strong momentum and remain committed to delivering on these long-term targets to provide value to our stockholders. With that, I will turn it over to Max. Thank you, Jeff. Good morning, everyone. I will provide additional details on the quarter, give an update on our liquidity and balance sheet, and wrap up with our guidance. Beginning on slide 10 of the presentation, revenues for the fourth quarter were $1,010,000,000, an increase of 33% compared to the same period last year. Maximillian J. Marcy: The increase was driven by growth in both our E&M and T&D segments. Total EBITDA was $84,800,000 during the fourth quarter, an increase of 45% from the same period in 2024, driven by solid revenue growth and continued strong project execution. We ended the year with incremental stand-alone operating costs in line with our expectations, with full-year annualized cost of $28,000,000. As a result, our fourth quarter EBITDA margin was 8.4%, up 70 basis points from 7.7% in the prior year period. As for our full-year 2025 results, total revenues increased 31.5% to $3,750,000,000, driven by 44% growth in our E&M revenues. Our full-year EBITDA increased 37.7% to $319,800,000 due to our revenue growth and strong project execution, partially offset by the full-year impact of incremental stand-alone operating costs. At December 31, total record backlog was $3,230,000,000, up 16% from 12/31/2024, even while we delivered record revenue during the fourth quarter. Our T&D backlog was up 41% compared to 2024 due to increases in the utility end market, specifically undergrounding and transmission work, while our E&M backlog was up 13% reflecting growth in data center, hospitality, and high-tech. We remain encouraged by the favorable trends in several of our key end markets, and we remain confident in our ability to generate continued backlog growth. Now, turning to our segment results. Let us first look at E&M where our fourth quarter revenues increased 44% to $791,600,000. The increase was primarily driven by growth in our commercial and renewables markets, with continued strength in our data center submarket a key driver. Our E&M EBITDA was $67,100,000 in the fourth quarter, an increase of 57% compared to fourth quarter 2024. The increase was driven by our strong revenue growth and higher gross margin due to project timing and efficient project execution, partially offset by higher SG&A expense. As a result, our E&M segment EBITDA margin was 8.5%, up 70 basis points compared to 7.8% in 2024. Our fourth quarter T&D revenues were $227,700,000, up 6.8% from fourth quarter 2024, driven by growth in both our transportation and utility segment end markets. We remain encouraged by the broader demand trends in our T&D business, and continue to see growth opportunities. T&D segment EBITDA was essentially flat at $30,500,000 in the fourth quarter, as higher revenues were offset by project mix and higher SG&A expenses. As a result, T&D segment EBITDA margin was 13.4% during the fourth quarter compared to 14.3% in the same period in 2024. Turning to our balance sheet and liquidity. As of December 31, we had $152,700,000 of unrestricted cash and cash equivalents, $285,000,000 of gross debt, and $222,800,000 available under the credit facility. Net leverage, defined as net debt to trailing twelve-month EBITDA, was approximately 0.4 times. Operating cash flows were $150,800,000 for the full year 2025 compared to $163,400,000 in 2024, as changes in working capital to support our revenue growth offset our increased operating results. CapEx was $66,800,000 for 2025, up from $43,800,000 in 2024, consistent with our strategy to increase investments that support our organic growth strategy. The increase in CapEx during the year included purchase of the new Kansas City prefab facility, which we discussed in the first quarter, as well as additional vehicle and equipment purchases in T&D to support growth. We generated free cash flow of $100,000,000 for 2025, down from $128,800,000 in 2024, reflecting our increased investments in working capital and CapEx in support of growth. Now wrapping up with guidance. We were very pleased with our strong 2025 results. Based on the attractive demand drivers in our business and our elevated backlog position entering 2026, we expect the momentum to continue this year. As a result of these factors, we are providing initial 2026 guidance as follows: We are forecasting revenues in the range of $4.1 to $4.2 billion and EBITDA in the range of $320,000,000 to $335,000,000. At the midpoint of our range, our revenue and EBITDA forecast represent growth of 11% and 5%, respectively. Our revenue guidance range is above our long-term target of 5% to 7%, reflecting our strong backlog position and the favorable outlook in several of our key markets, including data center, hospitality, semiconductor, transmission, and underground. Our EBITDA guidance is slightly below our long-term model, reflecting a difficult comparison given the extremely strong project execution we delivered during 2025. However, we think it is worth noting that the midpoint of our EBITDA guidance range reflects growth of 25% on a two-year CAGR basis after adjusting for incremental stand-alone operating costs. Additionally, our 2026 guidance assumes an EBITDA margin of just under 8% at the midpoint of the range, higher than our historical core margin in the mid-7% range, reflecting incremental scale benefits as we grow consistent with our long-term strategy, as well as good visibility into continued execution upside. Overall, we are very proud of our strong performance during 2025, and we remain extremely excited by the continued momentum in our business. Our backlog remains at elevated levels, which provides a high degree of visibility into revenue expectations for 2026, and we feel confident in our ability to deliver on our long-term financial targets. That completes our prepared remarks. Operator, we are now ready for the question and answer portion of our call. Operator: We will now begin the question and answer session. To ask a question, press star then 1 on your telephone keypad. We ask that you please limit your questions to one and reenter the queue for any additional questions you may have. Our first question will come from the line of Ian Alton Zaffino with Oppenheimer. Great. Really good quarter. Ian Alton Zaffino: Question would be on the guidance and the margins. Was there anything in particular this year where you had extremely, you know, great execution that you do not expect to repeat into next year? You know, are you seeing anything different, or are you just being naturally conservative? Thanks. Jeff Thiede: Yeah. Thanks, Ian, for the question. We had exceptional margin upside in 2025, and those were diversified contributions from a number of projects. And the four most notable ones are from four different markets, data center, institutional, transportation, industrial. So, yes, data centers are a big part of our business, and we continue to be anticipatory and looking at other markets to achieve meaningful contributions from those multiple markets. We are going through all of our planning to set the guidance to look at our margins where we are forecasting in 2026. You go back to 2024, and that is a reflection of our ability to execute better. So we have very strong focus on operational excellence, and that is reflected in our results, and we are confident in our ability to be able to hit the 8%, 7.98% in 2026. Ian Alton Zaffino: Okay. Thanks. And then if I was just to address the elephant in the room here, leverage is very, very low. How are you thinking about this? You know, because we talked about M&A. It does not seem like anything is large on the horizon. So how are you thinking about kind of what the optimal leverage is for this company and how you think about it. And then, not to add another question in there, is on cash flow side, I know there is some working capital this year. How do we think about free cash flow conversion going forward? So I am just thinking about how you are going to be levered, call it, in 12 months from now. Thanks. Jeff Thiede: Having a strong balance sheet is very important to us, and not only to support our organic growth, as you have seen our CapEx numbers increase for our operating companies and organic growth, it also positions us for strategic M&A. We are actively looking for opportunities for M&A, and, you know, we see the range of multiples from other public announced deals, which is not a surprise to us. It does fit our expectations. We are looking for the right company at the right price, in targeted markets for both E&M and T&D businesses. And as far as our M&A pipeline, it is much broader and deeper, and our balance sheet is going to support M&A in the future. Maximillian J. Marcy: Yeah. Ian, this is Max. So, you know, the question part of that question was what is the right leverage, right? And I do not think we have changed our tune, right? I think 1.5 to 2.0 times net leverage is still the right long-term leverage level for this company. But we want to make sure we are smart in investing the capital at the right time in the right place. We do not just want to spend your money. We want to invest at the right time, the right place. So when and if we get a deal, that will happen. And I still think 1.5 to 2.0 times is the right place. The second part of your question was about free cash flow conversion. And obviously, we had some pretty significant revenue growth this year, and to support that, we had some increases in some of our working capital. I think they are pretty much in line on a percentage basis with where we have been historically. So with revenue growing next year, I think there will be less of an investment in some of that working capital needs, so we should continue to have good free cash flow conversion, albeit with the step-up in CapEx that we have expected. So on a net basis, where we delivered this year is probably pretty consistent with where we are going to be in the next year. Ian Alton Zaffino: Perfect. Thank you again. I will take one again. Operator: Our next question will come from the line of Brent Edward Thielman with D.A. Davidson. Please go ahead. Brent Edward Thielman: Hey. Thanks. Great quarter as well. Jeff, I mean, you are sitting at record backlog entering 2026. I am wondering if we should think there continue to build any capacity constraints for you just in terms of your ability, the book of business for execution this year? And maybe if you could just talk about the lead times on that backlog relative to recent history. Are you booking into 2027 at this point? Maybe just some color there. Jeff Thiede: Yes. Thank you, Brent. Our record backlog really provides us clear line of sight for 2026, and some of those projects go into 2027. And you look at where those backlog contributions are coming from sequentially, it is not just data centers. It is largely data centers, but it is also hospitality and high-tech and substation transmission as well. So the diversification story does ring true when it comes to the contributions from our backlog. As far as project scheduling and ramping, we pay very close attention to that to see when the backlog gets converted. What we are continuing to see over the last many years is about 80% of our backlog burns off in 12 months. So clear line of sight in 2026 could give us some momentum into 2027, and it is coming from multiple markets where we pursue work. Maximillian J. Marcy: Yeah. So, Brent, you asked about constraints, right? I mean, I think the reality is we have done a good job of being able to add skilled labor to complete the projects that we have in backlog, and I think we are confident that we have the available labor to complete the numbers that we are giving you in guidance today, and I think we feel pretty good about that. Jeff Thiede: And, Brent, just a point I add to what Max said is, you know, we increased our employee count by 8.5%, and I always believe that we are going to be able to plan and bring in the resources to be able to support our financial goals. Constraints on labor are real for our whole industry, but it has been an area that we excel in because we treat our people with respect. We are doing much more outreach over the last three to four years than we ever have, and we are bringing in good quality people not just from our field professionals, craft, but also our support staff and our management and our leadership as well. Brent Edward Thielman: If I could just follow on that, Jeff or Max, I mean, if you potentially pick up more work here in the next few quarters, should we think that is more of a 2027 event, or do you look at the sort of initial guidance range for revenue as reflective of what you have in the book of business today? Maximillian J. Marcy: Yeah. I think it is reflective of the book of business. I mean, some of the backlog does extend into 2027, right? I mean, with 80% burn, naturally, you have some that carries over. If you just do the math on that 80% burn, that implies we still need to pick up a good amount of book-and-burn work for this year. So that is already implied within our guidance. And then we will continue booking backlog the remainder of the year that should start building up that pipeline nicely into 2027. Brent Edward Thielman: Okay. Great. Thanks, guys. Operator: Our next question comes from the line of Brian Daniel Brophy with Stifel. Please go ahead. Brian Daniel Brophy: Yeah. Thanks. Good morning, everybody. I guess you mentioned some of these satellite expansions in your opening comments. How are you thinking about additional opportunities there in 2026, and are there any geographies in particular that kind of jump out to you in terms of opportunities to expand into? Jeff Thiede: Yes. For the question. We have a good playbook on how to do satellite operations, and we have to be very selective when we do that. We always want to make sure that we can have good contract negotiations, want to be able to make sure we bring good core people, and then we also assess the market locally. As we build up into the one area I have mentioned earlier in previous quarters last year, we are building some momentum in a new market, and we are following the management and key field supervisors, and we are starting to see some positive impacts into our financials. Did not see a lot of it in 2025, but we plan on having contribution from that new satellite operation for us in 2026. Maximillian J. Marcy: Yeah. And then just to add on to that, you know, Brian, I mean, you know, obviously, you look at where our footprint is, there are opportunities across the country, particularly as you kind of get down to the South and Southeast. I am not saying that is where we are headed, but those are opportunities if we find the right work and the right set of jobs to expand on there. Brian Daniel Brophy: That is helpful. And then just big picture, kind of large transmission projects. You know, we have seen an acceleration there. You guys have participated in some in the past, maybe a little bit less so recently. But just curious how you guys are thinking about pursuing some of these opportunities that are coming. Jeff Thiede: Yes. We are pursuing large transmission projects, and we are very selective on the type of transmission and distribution projects that we pursue. We have a successful track record on large transmission. And, of course, it all comes down to resource availability, timing, and terms and conditions that are going to factor into our disciplined approach on project selection. But T&D is a really important part of our business. Our margins are really strong. We are proud of our leadership and our field professionals that help contribute to our success in T&D. So we will continue to assess those opportunities, be selective, and ensure good project execution. Brian Daniel Brophy: Thanks. And then just one last one for me. Obviously, this looks like it is going to be another heavier investment year, which, as you guys alluded to, you have talked about needing to invest in prefab and fleet. But I guess as we kind of move forward, to what extent do you guys have visibility on how many additional years of heavier investment do we need from this point? Thanks. Jeff Thiede: Yeah. We look at our three-year strategic planning process with our operating companies, of course, and Everus corporate. We are always looking for means and methods to expand prefab. That is one area, in addition to equipment, in addition to M&A. How do we deploy that capital responsibly? If you look at our success with prefab and modular construction, it has helped us get work. It has helped us contribute to our safety goals, which we had record safety results in 2025, and also production. And when our customers see how we prefab, it puts us in a really good position to secure the work and then execute it successfully. Maximillian J. Marcy: And then, Brian, I mean, this is our normal right now, right? So I think this is how we are planning, to invest this 2% to 2.5% of revenue in CapEx to continue to support what we feel is a good growth environment across the business. Brian Daniel Brophy: Thanks. I will pass it on. Appreciate it. Operator: Our next question will come from the line of Joseph Osha with Guggenheim. Please go ahead. Joseph Osha: Good morning. My compliments. It is always nice to have a stock go up 20% after you announce. A couple of questions. You alluded to craft labor availability. I am wondering if you could comment on labor cost. We hear a lot about that and whether you are having reasonable success wrapping higher labor costs, if they do exist, into pricing for your jobs? Thanks. Jeff Thiede: Labor is crucial for our success, and many of our operating company presidents have experience coming from the field. As leaders of our operating companies, they have experience in contract negotiations. Many of them sit on labor management committees to negotiate contract terms and conditions, so we have clear line of sight on what those potential increases are. So whether it is a cost-plus job or a fixed-price job, we are forecasting those costs into the pricing for those opportunities, and we do not see that as any risk at all as far as any sort of price increases for labor. Joseph Osha: Okay. Thank you. Moving on, you know, obviously, you are underleveraged, which is a good place to be. Kind of two questions there. First, in general, we hear that deals are generally still getting done below 10x. Wondering if you could comment on that and whether there is a red line there for you. And then I am also curious as you think about it, you know, is the bias towards perhaps trying to do one or two larger transactions or maybe, you know, a larger number of, you know, onesies, twosies. Jeff Thiede: We are looking for both. Our prefer is to have an independent stand-alone company to bring into Everus Construction Group, Inc., and our strategic priorities for M&A are to provide or to add a company that provides the same or similar type of services to what we provide today, such as electric, gas communications, underground, and, of course, electrical, HVAC, plumbing, fire protection. Those are the type of companies we are looking for, and what is high on the list is geographic expansion to locations that strategically fit our growth goals. The companies that, of course, have high integrity and are awarded work due to best value, not just price. Price is always important, but also have a commitment to safety and operational excellence and their respect within their communities. Those are the list of items that we consider. There is more I can add to that, but those are the high-level strategic priorities when it comes to M&A. Maximillian J. Marcy: Yeah. And obviously, Joe, this is Max. I mean, you know, as our leverage continues to tick down, I mean, it just continues to broaden and deepen that funnel that Jeff talked about earlier and creates different opportunities. But I think we really want to make sure we are looking at the right deal, looking at the right leverage targets, and looking at the right opportunity for us and for our shareholders. Joseph Osha: Can I get you guys to comment on my multiple question there? Is the market generally around kind of 9x, 10x? That is what I am hearing. Maximillian J. Marcy: I mean, that is what we have seen deals transact for in this space. Right, around those multiples. That is correct. Joseph Osha: Okay. And then I am sorry. One more, and I should know this. My apologies. On the T&D side, would we see you guys potentially try and go after any 765 business, or is it going to be perhaps slightly smaller? Wondering if you can comment there. Jeff Thiede: On large transmission, as I mentioned earlier, we are very selective. And, you know, there are hundreds of miles of type of transmission projects that are available. There is also some interconnect, so we look at where our sweet spot is and the availability of those resources and timing. Meanwhile, we really like our MSA work, and we do not want to abandon our customers, and if you take on one of those very, very large projects, you are bringing a lot of new people into the organization. So as I mentioned, we grew our employment by 8.5%, so when we get a big job, we bring new people in the organization. We are very thorough on orientation and who we bring into the company. So those very, very large transmission jobs are not anything we cannot do, but when you look at the available resources and the current work that we have in our backlog, we take all that into account when we pursue selected projects. Joseph Osha: That is it. Thank you very much for the answers. And, again, congratulations on the outcome today. Operator: And our next question will come from the line of Manish Somaya with Cantor. Jeff, Max, Paul, many, many congratulations on the quarter and obviously also the outlook. Just a couple of questions for me. Maybe this is for Jeff, maybe for Max, but when I think about the E&M and T&D segments, how should I think about margins through a cycle? Maximillian J. Marcy: Yeah. So, you know, I think it is maybe a little bit less about margin through a cycle and more just about us making sure that we continue to grow, do what we can to thin out our fixed cost base, and continue to deliver. So, again, if you think about the way our contracts are, Manish, when you have half your contracts kind of cost-plus, the other half fixed, I mean, I do not think margins really necessarily contract on the cost-plus through a cycle because you are still doing the work. So I do not think it is necessarily a cycle for us. It is more just about how much leverage we can put on our fixed cost base. Jeff Thiede: And if I could add to that, we are very deliberate on the type of work we pursue. About half of our work is cost-plus, and we like that. Those are typically very large, very complex projects, which puts us in position for some fixed-price work as those buildings get completed. We pursue the service work or some of the other smaller projects to keep us in connection with those customers. If you look at our T&D segment, 55% to 60% is MSA work. We like the stability there. We also like the margin uplift opportunities on fixed-price. So we look at this regularly and strategically align our resources and our pursuits towards those goals. Chris Ellinghaus: Okay. That is super helpful. And then you guys mentioned data center and semiconductor exposure is increasing. Can you give us a sense as to what is the composition of those two things in the backlog? Jeff Thiede: We really do not go to that level of detail in our backlog and breaking it down, but I will tell you they have increased, as I mentioned earlier, and they are not the only ones that have increased on our sequential backlog Q4, Q3. Data centers, hospitality, and high-tech in addition to our transportation, substation, and transmission. Maximillian J. Marcy: Yeah. And just to reiterate, data center is the large market of our 2026 backlog, and semiconductor is growing. Chris Ellinghaus: Okay. And then just finally, you talked about target leverage of 1.5, two times. Obviously, you are significantly underlevered. So how should we kind of think of you getting to that threshold? Is it a combination of a lot of tuck-ins, or is it going to be like a blockbuster transaction based on where multiples are? And then related to that, how should we think about free cash flow in 2026? Thank you so much. Maximillian J. Marcy: Yeah. So I think the reality is it has to be the right deal. I mean, I do not think we are targeting multiples or one. I think when we find the right transaction, so long as it fits within our stated leverage targets, I think that would be the right deal. It could be multiple. It could be a larger one. But we are also looking at our risk profile and management's time and our ability to do deals. So it could be across the board, right? But I think we are committed to finding good transactions and investing. In terms of free cash flow, Manish, I kind of addressed it a little bit earlier on the call. But, again, there is probably more of a usage of cash in working capital in 2025 given the really strong revenue growth. We have natural increases in some of our receivables. With the good growth we see next year, it is not as high as 2025. That number should not be as much of a use of cash. Operator: Yep. This concludes our question and answer. I will now hand the call back over to Jeff for any closing comments. Jeff Thiede: Thank you, operator. Thank you all again for joining us today. We are very excited about the opportunities ahead for Everus Construction Group, Inc. and are confident that we have the right strategy in place and the right team to execute on our plan. We will be attending several upcoming investor events, including the Jefferies Energy Conference in New York. If we are not able to connect during the next few months, we look forward to speaking with you on our next quarterly earnings call. Thank you for your time and interest in Everus Construction Group, Inc. This concludes today's call. Operator: This does conclude today's call. Thank you all for joining, and you may now disconnect.
Operator: Good day, and welcome to the Newmark Group, Inc. 4Q 2025 public financial results call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jason McGruder, Head of Investor Relations. Please go ahead, sir. Jason McGruder: Thank you, Operator, and good morning, everyone. Newmark Group, Inc. issued its fourth quarter and full year 2025 financial results press release this morning. Unless otherwise stated, the results provided on today's call compare the three months ended 12/31/2025 with the year-earlier period. Except as otherwise specified, we will be referring to our results only on a non-GAAP basis, including the terms adjusted earnings and adjusted EBITDA. Unless otherwise stated, any figures discussed today with respect to cash flow from operations refer to our net cash provided by operating activities excluding the impact of GSE/FHA loan origination and sales. We may also use the term “cash generated by the business,” which is the same operating cash flow measure before the impact of cash used for employee loans. Please refer to today's press release, supplemental tables, and the quarterly results presentation on our website for complete, updated definitions of any non-GAAP terms, reconciliations of these items to the corresponding GAAP results, and how, when, and why management uses them. For additional information on our cash flow measures as well as relevant industry or economic statistics, please see our materials. The outlook discussed today excludes the potential impact of any acquisitions that close in 2026 and assumes no meaningful changes in Newmark Group, Inc.’s stock price compared with the close. Our expectations are subject to change based on various macroeconomic, social, political, and other factors. None of our targets or goals beyond 2026 should be considered formal guidance. Also, I remind you that information on this call contains forward-looking statements, including, without limitation, statements concerning our economic outlook and business. Such statements are subject to risks and uncertainties, which could cause our actual results to differ from expectations. Except as required by law, we undertake no obligation to update any forward-looking statements. For a complete discussion of the risks and other factors that may impact these forward-looking statements, see our SEC filings, including but not limited to, the risk factors and disclosures regarding forward-looking information in our most recent SEC filings, which are incorporated by reference. I will now turn the call over to our host and Chief Executive Officer, Barry M. Gosin. Barry M. Gosin: Good morning, and thank you for joining us. Newmark Group, Inc.’s strong momentum continued in the fourth quarter, as we improved total revenues and adjusted EPS by 15% and 24%, respectively. The investments Newmark Group, Inc. has made in talent and our platform drove double-digit top-line improvement across every major business line, resulting in record total revenues for both the quarter and year. This included our best-ever quarter and year in our recurring revenue and leasing businesses. We increased leasing by 17% in 2025 to outpace the growth of our public competitors and resulted in our first-ever billion-dollar-plus year for the service line. Our leasing success is a result of the investments we have made in areas including industrial, retail, and data centers, which augment our already strong office platform. We expect to generate further growth from normalizing return-to-office trends, repositioning existing product, and limited new construction supporting property fundamentals. The ecosystem around artificial intelligence, digital infrastructure, cloud computing, and elevated investments in energy and manufacturing are creating enormous leasing opportunities for Newmark Group, Inc. and our clients, and our nimble approach has allowed us to get in front of these trends early. We improved our full-year management and servicing revenues by 12% to a new high of over $1.24 billion. We continue to use our deep owner and occupier client relationships to drive growth across these recurring revenue businesses. Newmark Group, Inc. remains on pace to achieve its goal of over $2.0 billion in management and servicing revenues by 2029. In capital markets, Newmark Group, Inc. gained market share in investment sales for the quarter. Our volumes were up 50% compared with 21% industry growth in the U.S. and 15% in Europe. For the full year, our investment sales volumes were up 56% compared with 20% for overall U.S. volumes and 12% for Europe. While Newmark Group, Inc.’s quarterly debt volumes were up 12% compared with 36% for overall U.S. originations, we gained share for the full year. Newmark Group, Inc.’s 2025 origination volumes were up 67% while U.S. industry originations were up 43%. As we continue our international expansion, we expect to grow our market share globally across nearly all our business lines over the next several years. Our strong results validate our strategy of investing in the industry's best talent, leveraging our client relationships to drive recurring revenue growth, and our ongoing global expansion. With respect to how artificial intelligence might impact Newmark Group, Inc., AI-led demand has helped fuel our strong results in areas including office leasing, particularly in New York and San Francisco, as well as data centers, capital markets, and our valuation business. We believe that there is significant white space and enormous opportunity across our service lines with respect to digital infrastructure. We continue to empower our extraordinary talent with world-class research, data analytics, and technology, accelerated by AI, which we expect to continue to produce efficiency and margin enhancement to our business. Newmark Group, Inc., and our other large competitors possess incredible amounts of proprietary data which we can leverage to the benefit of our professionals and clients. In short, we expect AI to provide an additional tailwind for our future results. Given the success of our strategy and the favorable macroeconomic backdrop for commercial real estate, we expect to achieve double-digit top and bottom line growth for the third consecutive year in 2026 while generating our best-ever total revenues, adjusted EPS, and adjusted EBITDA. With that, I am happy to turn the call over to Michael J. Rispoli. Michael J. Rispoli: Thank you, Barry, and good morning. I am happy to report that for the sixth consecutive quarter, Newmark Group, Inc. produced double-digit revenue and earnings growth. Total revenues were up 15.3% to an all-time best of just over $1.0 billion compared with $872.7 million. We increased management services, servicing, and other by 13%, leading to the company's best-ever quarter for these recurring businesses. This was led by strong organic growth from valuation and advisory and property management, as well as contributions from two recent acquisitions. In addition, our high-margin servicing and asset management portfolio surpassed $200 billion for the first time and ended the year with a balance of $211.2 billion. Related fees grew by 10.9% when excluding the impact of lower interest rates on escrow earnings. Leasing was up 13.6%, resulting in a record quarter for this service line. This was led by strong activity in New York and Texas and across retail, office, and industrial. Capital markets increased by 19.2%, reflecting significant activity across office and retail as well as multifamily, which was led by strong gains in senior housing. Turning to expenses, total expenses were up by 15.7%. This reflected commission and pass-through expense growth generally in line with revenue improvement, with the majority of the remaining increase attributed to our global growth initiative as we continue to accelerate our investments in future revenue and earnings. Excluding our 2025 investments in growth, expenses increased by approximately 6%. With respect to taxes, the company's tax rate for adjusted earnings was 8.8% in the quarter and 11.4% for the year. The lower tax rate was driven by our favorable corporate structure, where an approximately 21% increase in our average closing stock price in 2025 resulted in higher tax deductions from grants of exchangeability to unitholders and additional deductions related to the conversion of units into common shares. These also reduced cash paid for tax in 2025, contributing to our strong operating cash flows. Moving to earnings, we increased adjusted EPS by 23.6% to $0.68 compared with $0.55. This was $0.04 above the midpoint of our previous guidance, with $0.10 on better performance and the remainder due to a lower tax rate. Adjusted EBITDA was $214.0 million, up 17% versus $182.9 million. Our adjusted EBITDA margin on total revenues improved by 32 basis points in the quarter and 81 basis points for the full year. Excluding the impact of our 2025 investments in growth, Newmark Group, Inc.’s full-year margins would have expanded by approximately 130 basis points. With respect to share count, our fully diluted weighted average share count was up 0.5% to 254.3 million. On 02/18/2026, the company's Board of Directors increased our share repurchase authorization to $400 million. Turning to the balance sheet, we ended 2025 with $229.1 million of cash and cash equivalents, $671.7 million of total corporate debt, essentially unchanged compared with a year earlier, and improved our net leverage to 0.8x. The balance sheet changes from year-end 2024 reflected record cash generated by the business of $518.4 million. This was offset by $220.2 million of cash used mainly to hire revenue-generating professionals, $127.1 million of share repurchases, $53.4 million of net cash payments for acquisitions, and normal movements in working capital. Our adjusted free cash flow was up 38.4% for the year to $268.9 million. With a healthy balance sheet, strong cash generation, and growing earnings, Newmark Group, Inc. is well positioned to continue investing for growth and to return capital to shareholders. Moving to guidance, our outlook for full year 2026 compared with 2025 is as follows: We expect total revenues between $3.7 billion and $3.8 billion, an increase of 13.8% at the midpoint. We expect capital markets to increase faster than the midpoint, management and servicing growth to be roughly in line with the midpoint, and leasing improvement to be below the midpoint. We anticipate adjusted EBITDA in the range of $635 million to $675 million, an increase of 13% to 20%. We expect our adjusted earnings tax rate to be between 13% and 15% versus 11.4%, and we anticipate adjusted EPS between $1.82 and $1.92, up 12% to 19%. With that, I would now like to open the call for questions. Operator: Star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will take our first question from Alexander David Goldfarb with Piper Sandler. Alexander David Goldfarb: Hey, good morning. Morning down there. So two questions. Barry, first, just the big elephant, AI. In a realistic way, can you just tell us what your view is from the clients that you deal with, whether it is renters or occupiers, how they are thinking about AI vis-à-vis their office needs, employment, staffing? We hear all these different stories and just want to hear exactly what the latest thinking is from the office users. Barry M. Gosin: I think it is very early to have the full story. I mean, the last two months, AI has really revolutionized itself, but we are still seeing increased activity and increased return to the office. You could possibly look at it that people who are working from home are more at risk than people that come into the office, but nobody knows that at this moment. I see AI as an accelerant. For us, I believe this is really a gift. Having AI as an enabler for the great talent that we have to do more and to expand more, to give them the tools and the data to improve their business and accelerate the opportunities that they will see is really well suited for a company of our size. It actually gives us a moment in time to catch up. We all have a certain amount of proprietary data, and we have been very diligently collecting data over a long period of time. We have an incredible amount of proprietary data. So in terms of margin enhancement, there are certainly opportunities. We are excited about the new business opportunities and the ability to create more agents and human beings; if you have the best human beings, they are going to be the producers of the content and the utilization of that kind of AI. It is really an incredible moment. We are excited about it. Alexander David Goldfarb: But, Barry, what you are saying is from office-using jobs, you are not seeing any of your clients talk about reducing? Barry M. Gosin: We are not. I mean, certainly in the primary markets, we do not expect to see that, but time will ultimately tell. Alexander David Goldfarb: And then the second question is on your debt book. Capital markets, 2021 was a monstrous year for multifamily, both in aggressive underwriting and low debt costs, and obviously, that stuff is coming due. Do you expect a surge of refinancing and restructuring over the next 12 to 18 months? Or is your view that while there technically should be a surge of maturities, this stuff takes time to work out, and therefore it is not like we are going to see a sudden ramp in all these loans coming due; they will be processed over time? Just trying to gauge what the opportunity is and what that means for you guys as the market addresses the 2021 multifamily debt maturities? Barry M. Gosin: In general, there is $2.0 trillion of debt coming due over the next three years, about $600 billion a year, and the market titrates between sales and debt. Every time you look at a capital event, you decide: Should I finance more? Should I finance less? Should I raise equity? We think that it is right for the market to take action. People have been sitting on portfolios for way longer than they would have liked, and there is a certain amount of fatigue, which I have said once before—I think I said last quarter. We are seeing the investors want to unleash the opportunity and the capital to go play in the new market at new levels with new opportunities where they could capture promotes. There is a lot of activity, and a lot of that is going to be in debt. So I think that there will be a lot of maturities we will be involved in. Thank you. Operator: We will go next to Jade Rahmani with KBW. Jade Rahmani: Thank you very much. There is a robust debate going on about the commercial real estate services business and essentially the risk of the data that they control becoming public. We know from experience that there is a lot of property-level cash flow data that building owners, lenders, servicers, and brokers keep closely held. I am wondering what you see as the risks of that property-level data becoming truly public, and do you see that risk as greater in the low to middle market, more commodity-type assets or elsewhere in the market? Barry M. Gosin: Certainly, some data is confidential, and owners are going to protect their data. We are seeing every vendor and every person in the business now asking to be able to use data, so we are very aware of that. But we have collected an enormous amount of proprietary data over years, recognizing some of the data we have is confidential, some we could use as derived data, and it drives opportunities for us to do evaluations on a broader scale, and some of it we will not be able to use. We have no shortage of opportunities to use our data to create value for our client. Jade Rahmani: Putting that in context of your leading capital markets team and some of the institutional teams you have acquired, do you see that this proprietary data, in combination with AI, advances those star-quality-type teams, or do you think that the younger teams will have a better chance to compete within a company like Newmark Group, Inc.? Barry M. Gosin: I think you basically hit the nail on the head. The reality is both. The older teams have the credibility of the book that they have been selling and the reputation and the gratitude created over selling product for many, many years. The young people on their teams, the talent on their teams, will use AI to increase margin and increase opportunity. If it takes less time to do certain things and you can put your best people in front of clients and spend more time with their clients, you are going to do more business. We think our whole strategy of hiring the best talent and doing more with less plays into the world that we are living in right now, and we think that is an accelerant for us. Jade Rahmani: Thank you very much. Operator: We will move to our next question from Julien Blouin with Goldman Sachs. Julien Blouin: Thank you for taking my question. Maybe to ask the AI question slightly differently. When I think of Newmark Group, Inc.’s capital markets brokerage business, I think of a platform that operates at the highest tier of transaction size and complexity with the most sophisticated counterparties in the industry. As we think about the disruptive risk of AI, do you believe there is more of a risk to peers or players that are more middle-market focused? Barry M. Gosin: Without question, the smaller deals that could be perceived to be more commoditized would be more at risk. But just the same, it is still about contacts with clients. It is still about marketing opportunities, and it is about having a certain amount of time to find those opportunities and then market those opportunities. I think what is going to happen is the process by which those buildings will be marketed—you will be able to create an offering memorandum and do e-blasts, qualify through a list of qualified buyers, and automate CAs and those kinds of things—will just accelerate the opportunities. I think you will see more business, the same business, done with fewer people, and again, we think that is a good thing for us. Julien Blouin: Thank you. That is really helpful. Moving over to capital allocation, you have been very active in making investments in growth and to expand your platform internationally. Does the recent increase in the share repurchase authorization signal that maybe you will be shifting some of your capital allocation towards being more aggressive on share repurchases given where the stock trades today? Michael J. Rispoli: I think the second part is certainly true—where the stock is today, we will be more aggressive buying back the shares given the outlook and earnings for next year. But we have very low leverage on the balance sheet. We were generating record cash flow in 2025. We will continue to generate a lot of cash flow from the business. We have more room to borrow debt and lever up the balance sheet. So I do not think it is going to slow down in any way our ability to invest. Barry M. Gosin: We have also been very active. We launched Europe 36 months ago. We have 1,200 people in Europe. When we enter a new market, the new market gets excited, because what we bring to the table is a much more talent-friendly, enabling platform. We have done better than we had originally anticipated, and we have opened up Spain and Italy, and we have done a great deal in Germany, the U.K., and France. We are doing it in the Middle East, and we are doing it in Singapore. We are hiring people, and they want to come work for us. As long as the right people want to come to the platform, we are going to continue to hire the right people. It is a really good way to build a platform. In some cases, although the accounting is a little bit different, when you are hiring brokers and it takes time to ramp up, you have the better shot at getting the plums as opposed to the pits—sometimes when you buy a company with a lot of people. Julien Blouin: Thank you for the insights. Alright. Thanks, team. Operator: We will go next to Mitchell Bradley Germain with Citizens Bank. Mitchell Bradley Germain: Thanks for taking my question. Barry, just want to follow up on that comment you said about some of the hiring outside the U.S., and I am curious—you have previously talked about the lag time as many of those producers are sitting on a garden leave. Where are you in terms of productivity with regards to some of that hiring? Are you around 50%, or is that even less in terms of how many are actually up and running and performing for you? Michael J. Rispoli: Mitch, it is Mike. I would say it depends on the country because we started different countries at different times. France started probably two years ago—that should be fully ramped up this year in 2026. Germany, we are still ramping, so it probably comes online at full speed in 2027. Italy, we just started, so that will take a year to a year and a half. It really is market dependent, but we are seeing after 12 to 18 months the producers we hired really starting to produce on our platform. Barry M. Gosin: That is good news. France, even though we started two years ago and we had garden leaves, we are probably a year and a few months in operation. We are breakeven in the first year. That is astounding. We had anticipated that it would take us three years to go cash-flow positive; we have done it in a year and three to four months. The U.K.—we came out of the gate, we did not miss a beat. We built a good business in the U.K. The same in Germany—we have an incredible list of talented people that have come on board after our initial hiring of a very senior broker from another firm. We are getting the calls. People are calling; they want to join. They like what we are doing and how we are doing it, and there is an element of the strategy of more with less—enabling and empowering talent to do more and not necessarily be crowded—that incidentally will work in the AI environment. Mitchell Bradley Germain: Great. That is helpful. In the last quarter, you guys provided some perspective on the RealFoundations transaction. I am curious about the Altus deal and how it fits into the puzzle here. Michael J. Rispoli: We had an opportunity to buy a valuation firm in Canada. Canada is a market that we think is a good opportunity for us to grow. We have some brokers up there. We think this can help us recruit more and better talent and continue to grow the business up in Canada. It was part of a software-focused firm, so I think we will be able to really improve the business and show them some love on our platform, and I think they are going to do great for us. Barry M. Gosin: Right out of the gate, we took the original leader of the company who wanted to join, who left to pursue other avenues but came back. When you think about our appraisal as prototypical of how we have built this company, we hired one person in appraisal. We now have a business approaching $200 million in appraisals with a profitable margin, and all over the world we are building out the appraisal platform. Many of these institutions give global and regional mandates, so having that platform is a great opportunity for us. As we build out the global platform, which we think is somewhere between 18 and 24 months, we will have our ducks in a row, be in all the markets that we need to be in, and in any opportunity where we get an RFP to pitch that business, the gap between us and winning the business will be diminished precipitously. We expect that organic growth as a result of winning business without cost is going to be an avenue of white space where we will achieve great growth. Mitchell Bradley Germain: Congrats. Thanks. Operator: We will move to our next question from Brendan Lynch with Barclays. Brendan Lynch: Great. Thanks for taking my question. Barry, I appreciate all your comments on AI, and not to belabor the point, but it is the theme of the day. It is probably going much beyond office as well. Looking at your industrial and retail leasing businesses, maybe you could talk about some of the top priorities or concerns that you are discussing with clients as they are considering leasing new space. In this AI backdrop, I would imagine there are a lot of elements that Newmark Group, Inc. is helping them navigate regarding power and robotics and flexibility and fulfillment, etc. Any commentary there would be helpful. Thank you. Barry M. Gosin: We have a fairly robust data center business. We are well versed in the issues of power, GPUs, the kinds of things that are necessary, and the locational issues with opening data centers. We can advise our clients on how and where to take data centers. We have been doing that for conventional data center business for 20 years—advising people on where, when, and how, and what the criteria for opening data centers are. It is interesting to see the whole data center business for AI that will be aggregated into six or seven major AI companies and how that will impact the world. Our clients—we have always looked at power as an important feature in any of our financial institution lease negotiations. Now it is just a more important point. Brendan Lynch: Okay. Thank you. Maybe another high-level question. Can you discuss the competitive landscape for talent now and how it has evolved throughout the cycle versus previous cycles and how the recruiting process has changed? Barry M. Gosin: In capital markets, we generally have, whatever the vertical is in the geography, usually one team, because if you have more than one team, it becomes like a mosh pit and it is competitive. We think we have now, in many of the markets, actually accomplished our objectives. There are places where we have white space. In leasing, we have plenty of room to grow in certain areas, and we continue to offer an opportunity for a broker who might be at a firm that is really crowded with internal competition and coverage to come on board and not have as much, and that fits in with our model. We would rather see higher revenue per capita and higher revenue per employee and provide the infrastructure and the research and the data to help them do more business. That is our goal. We are not having a problem recruiting. Brendan Lynch: Great. Thank you. Operator: Once again, ladies and gentlemen, we will move now to Jade Rahmani with KBW. Jade Rahmani: Thank you very much. Just on the revenue growth outlook, 12% to 15%, could you provide any comments as to your expectations on leasing—whether that should be above or below that—management services, and capital markets? Thanks so much. Michael J. Rispoli: Sure. As I said in my prepared remarks, Jade, I think we will be above the midpoint in capital markets. The debt market is expected to grow 20% plus next year and sales double digits, so we will perform really well there and continue to take market share. On the management and servicing business, we expect to be roughly in line with the midpoint of the guide. In the leasing business, a little bit below the midpoint of the guide. Thanks very much.
Operator: Good day, and welcome to the MGP Ingredients, Inc. Fourth Quarter 2025 Financial Results Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Amit Sharma, Vice President of Investor Relations. Please go ahead, sir. Amit Sharma: Thank you. Good morning, and welcome to MGP Ingredients, Inc.'s fourth quarter earnings conference call. I am Amit Sharma, Vice President of Investor Relations, and this morning, I am joined on the call by Julie Francis, our Chief Executive Officer, and Brandon M. Gall, Chief Financial Officer. We will begin the call with management's prepared remarks and then open to questions. Before we begin, this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to a number of factors, including the risk factors described in the company's reports filed with the SEC. The company assumes no obligations to update any forward-looking statements made during the call, except as required by law. Additionally, this call will contain references to certain non-GAAP measures we believe are useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measures is included in today's earnings release, which was issued this morning before the markets opened and is available on our website at mgpingredients.com. At this time, I would like to turn the call over to Julie for her opening remarks. Julie Francis: Thank you, Amit. Good morning, everyone. As we close out 2025, I want to start with a clear message. We are doing what we said we would do. We made progress on each of the five initiatives, and we finished the year above the top end of our guidance. The operating backdrop remains challenging for the spirits industry and we recognize that 2026 is likely to be another down year for the industry and our company. That said, we are increasingly optimistic about MGP Ingredients, Inc.'s future. Our confidence is grounded in three things: First, our ability to deliver sustained growth off of our 2026 guidance expectations, which has been accelerated by our proactive self-help action. Second, our newfound strategic clarity prioritizing our right to win, which we believe will also position us for solid and sustainable growth. And third, our financial strength, which in this environment is a competitive advantage of increasing magnitude. As I mentioned on our last call, we undertook an exhaustive review of our businesses to create a clear strategic roadmap for the next phase of our growth. This was a well-defined process grounded in an objective, data-driven assessment. We have since shifted from broad strategic discussions to a clear enterprise roadmap, including an organizational structure aligned to the strategic priorities of our business, to further enhance our right to win. Strategy and structure are critical, but having the right talent and processes to execute with discipline is what we believe will lead to our ultimate success and sustainable growth. To that end, we recently announced organizational changes across our senior leadership teams. These were difficult decisions, but aligned with our strategic roadmap and positioned the company for long-term success. On our last call, I shared the hiring of our new Chief Marketing Officer and Senior Vice President of Operations. Since then, we have also added a Senior Vice President of Strategy and Insights. Each of these leaders brings to MGP Ingredients, Inc. track records of success and global best practices. In the coming quarters, they will be at the tip of the spear of building out best-in-class processes that are designed to enable disciplined execution and long-term success. Let me now provide a brief overview of our fourth quarter and full-year results before outlining key elements of our strategic roadmap and the progress we are making against our key initiatives in each business. Our fourth quarter and full-year 2025 results came in ahead of our expectations as the teams continue to act with diligence and focus. For the fourth quarter, consolidated sales declined 23% compared to a year ago, as double-digit sales growth in our Premium Plus portfolio was more than offset by the expected declines in the rest of our business. Adjusted EBITDA declined to $26 million while adjusted basic earnings per share reached $0.63. For the full year, we delivered consolidated sales, adjusted EBITDA, and adjusted basic EPS of $536 million, $116 million, and $2.85, respectively. Despite lower earnings, operating cash flows for the year increased by 19% to $122 million. Brandon will provide more detail on our financial results and 2026 guidance, but let me touch on the overall environment and our key initiatives that will shape our results over the next year. At the broader level, the spirits industry has historically shown great resilience across economic cycles and periods of consumer behavioral changes. While we are confident about the long-term outlook for the industry, we expect near-term category trends to remain below historical levels. Consumer sentiment and spending remain under pressure, with competition from spending from online gambling, gaming, and from cannabis-infused beverages, as well as an increased focus on health and well-being impacting consumer behavior. While we expect the near term to remain challenging, we are starting to see some encouraging signs, including a more balanced public conversation around alcohol and its role in social settings and in overall well-being. The recently released U.S. Dietary Guidelines place greater emphasis on moderation and individual occasions for alcohol consumption rather than the no-safe-level guidance of the past. As we know, across generations, cultures, and geographies, shared moments and occasions of celebration have included a drink among families and friends. In addition, a recent study from the American Heart Association concluded that low levels of alcohol consumption may not increase cardiovascular risk. The shift in overall tone is constructive and reinforces our long-term confidence in the category, but these developments are not expected to drive an immediate inflection in industry trends, and our 2026 outlook does not assume a return to historical growth rates for the overall industry. Shifting to our Branded Spirits segment, we believe this segment will continue to be our primary growth engine and the foundation of our long-term value creation strategy. In 2025, we executed well against our initiative to concentrate on more attractive growth opportunities. Our Nielsen-reported sales growth for the 52-weeks period ending December 27 came largely in line with the category, while our Premium Plus sales growth outperformed the overall category by 900 basis points during that same time period. As we look ahead, our focus here is clear. Win in the Premium Plus category with Penelope Bourbon, strengthen our focus brands, increase penetration in national accounts, and strengthen our digital marketing capabilities. Penelope is a key driver within this strategy. While Premium Plus American whiskey Nielsen-reported dollar sales declined 3.5% during the 52-week period ending December 27, Penelope's reported dollar sales increased by 80%, making it the second-fastest growing brand during this time period among the top 30 Premium Plus American whiskey brands. This growth was fueled by innovation and distribution gains, with Penelope Wheated and Penelope Ready-to-Pour Cocktail being two of our biggest new product launches in 2025. These products were very well received and helped deliver a 100% growth in points of distribution and a 12% increase in velocity. Our focus is on sustaining this ongoing momentum while strengthening our core by making incremental, targeted investments designed to drive brand awareness, improving in-store execution, and filling distribution gaps. Beyond Penelope, we have a portfolio of high-quality brands, evidenced by Yellowstone and Lux Row's inclusion in Whiskey Advocate’s prestigious Top 20 Whiskeys of 2025. We are the only company to have two brands in this year's Top 20 list. This external validation reinforces the strength across our portfolio and highlights the unrealized potential of a focused portfolio. To achieve this potential, we have established a comprehensive cross-functional portfolio management review process, which will take a deeper look at the long tail of our Branded Spirits portfolio, reduce complexity, and rationalize SKUs and brands. As a first step, we are targeting a rationalization of 20% of the portfolio's tail brands. We believe this new rigorous portfolio review process will help us make even clearer decisions about where we invest and where we protect to better position our brands across targeted consumer segments, channels, price points, and consumption occasions. Another key priority for the Branded Spirits segment is to increase our penetration in national accounts across both retail and on-premise accounts. We believe that having a greater presence with these customers not only creates additional distribution opportunities, but also drives greater scale, visibility, and recognition of our brands. Our continued commitment to invest behind our most attractive growth opportunities underpins these initiatives. We ended the year with Branded Spirits A&P spend at 12.5% of segment sales and expect it to increase modestly in 2026 to roughly 13.5%. We are also prioritizing investing in digital media, analytics, and tools designed to drive awareness and consideration for our key brands, to bring greater discipline in how we track and improve brand health, and allow us to connect more precisely with consumers around specific consumption occasions and social moments. Our Distilling Solutions segment saw sales and profitability reset in 2025 as many large customers paused purchases in an effort to balance their whiskey inventories and manage working capital. Full-year 2025 sales and gross margin declined significantly from 2024 but came in modestly ahead of our expectations, as our initiatives to strengthen our partnership with key customers led to improved visibility and alignment. We continue to stay close to these customers and expect to gain greater clarity on their brown good needs for 2026 and beyond towards the end of the second quarter. Overall domestic whiskey production continues to decline sharply, and we continue to see media reports about closed or idle distilleries. According to the latest available TTP data through October 2025, domestic whiskey production was down 26%, 29%, and 27% for the trailing twelve-, six-, and three-month periods. In this environment, we are focused on creating a differentiated value proposition to better position MGP Ingredients, Inc. as a long-term strategic partner for both large and small customers. That means broadening our premium white good offerings to complement our brown goods portfolio, rebuilding our aged whiskey pipeline, and attracting and retaining a wider pool of customers by offering greater value-added services. Our increasing focus on premium white goods is designed to leverage the scale, heritage, and quality of our Indiana distillery to produce premium gin and GNS spirits that are customized for our customers. This would allow us to move beyond commoditized offerings to not just generate more attractive economics and better asset utilization, but also serve as a bridge to longer-term, deeper relationships with strategic customers. With respect to our aged whiskey strategy, producing and storing various vintages and mash bills is critical, and after taking a pause in 2025, we are committed to prudently building our aged whiskey offering. MGP Ingredients, Inc. is one of the few distillers with the technical depth and operational expertise to consistently produce high-quality whiskey at the precise specifications of our customers, and that capability continues to differentiate us. Our focus is on broadening our customer base, better leveraging the depth of our aging whiskey inventories, and capturing a greater share of aging whiskey sales. We also see meaningful opportunities to expand aged whiskey sales to both domestic and international private label whiskey customers, an area that has historically been underpenetrated for our brown goods business. While the industry-wide aged whiskey dynamic is unlikely to improve meaningfully in the near term, the strategic repositioning of our Distilling Solutions business and the actions initiated by our team give us confidence that our Distilling Solutions segment sales and profitability will approach trough levels in 2026. Turning to our Ingredient Solutions business, as expected, the outage of a key piece of equipment that impacted Q3 results remained a sales and profit headwind in the fourth quarter. The equipment came back online in November as planned. As I look ahead, I continue to draw confidence as our Ingredient Solutions business continues to enjoy consumer-driven tailwinds. Commercially, we continue to focus on driving growth through our three core platforms: specialty fiber with Fibersym, specialty protein with Arise, and extrusion protein through ProTerra. Each of these platforms serve large and growing end markets. Consumer demand for high-protein and high-fiber products remains strong, and we are leveraging our R&D and innovation capabilities to make MGP Ingredients, Inc. an even more integral part of our key customers' supply chains. In our textured protein business, the continued commercialization of a large multinational customer is a clear example of our ability to build strategic, growing, and sustainable relationships with leading food companies. With the commercial demand side of Ingredient Solutions on solid footing, our focus remains squarely on the supply side and returning to operational excellence. To that end, we are adding people, increasing capital investment, and implementing new processes to return operational execution back to historical levels. As a result, we are seeing early signs in more consistent throughput that these efforts are paying off in the form of reduced unplanned outages. This improved reliability gives us confidence to deliver strong double-digit growth in segment sales and improved gross margins in 2026. As I have spent more time focusing on this business, it has become clear that waste treatment and disposal is more complex and more costly than initially expected. The commercialization of the biofuel plant, along with our other waste stream handling initiatives, is helping to reduce these costs, but a portion of these costs will persist in the near to medium term and is reflected in our full-year guidance. Managing high disposal costs remains a key priority. We are evaluating additional measures and continue to expect to remove these costs over the long term. Finally, I want to highlight the progress we are making on our enterprise-wide productivity agenda, which was one of our five key initiatives in 2025. We are proud of our teams for delivering against all of our 2025 initiatives, and more importantly, productivity is becoming embedded in how we operate at MGP Ingredients, Inc. We are reinforcing an ownership cost mindset by incorporating productivity and cost discipline into our operating routines, performance management, and compensation metrics. Productivity and the cost management focus is becoming a part of our regular management routines, helping us uncover and track opportunities to eliminate waste and operate more efficiently and effectively across the organization. As we look ahead, we are encouraged by the progress we are making. Across all three businesses, our strategy is grounded in focus, execution, and discipline, and we are actively evaluating all available levers to operate more efficiently. I am committed to addressing our challenges directly, focusing on disciplined execution and accountability, while positioning MGP Ingredients, Inc. to emerge better aligned, more resilient, and well positioned for long-term value creation. With that, let me hand it over to Brandon for a more detailed review of our financial results and 2026 guidance. Brandon M. Gall: Thank you, Julie. For 2025, consolidated sales decreased 23% compared to the year-ago period to $138 million. Branded Spirits segment sales declined by 1% in the fourth quarter and 3% for the full year. Our Premium Plus sales posted its strongest quarterly sales growth of the year with a 10% increase, driven primarily by Penelope Bourbon's continued momentum. Our mid and value price brands collectively declined by 11% for the quarter, slightly better than the 13% decline for the full year. Distilling Solutions sales declined 47%, including a 53% decline in our brown goods sales. Full-year segment sales declined 45% and gross profit declined 52%. Each of these came in ahead of our initial outlook, underscoring the improved visibility in our brown goods business. Ingredient Solutions sales declined by 10% for the fourth quarter and 7% for the full year. The equipment outage and higher waste stream disposal costs that Julie mentioned earlier were the key drivers of lower segment sales and profits. On the other hand, fourth quarter extrusion protein sales reached a new high. We continue to increase sales volume to new customers and expand our extrusion platform beyond wheat. Consolidated gross profit declined 35% to $48 million during the quarter, primarily due to lower gross profits in the Distilling Solutions and Ingredient Solutions operating segments. Consolidated gross margin declined by 630 basis points to 34.9% in the fourth quarter, while full-year gross margin decreased 350 basis points to 37.2%. Fourth quarter SG&A expenses increased by 5%. On an adjusted basis, SG&A increased by 18% as the reinstatement of performance incentives more than offset our cost savings initiatives. Excluding these incentives, adjusted SG&A declined by 5% for the quarter and 4% for the full year. Advertising and promotion expenses declined 11% in the fourth quarter and 23% for the full year as we realigned our spending behind our most attractive growth opportunities. For the full year, our Branded Spirits A&P was approximately 12.5% of Branded Spirits segment sales. Adjusted EBITDA decreased 51% to $26 million for the fourth quarter and decreased 41% to $116 million for the full year. Net income for the quarter declined to a loss of $135 million primarily due to a discrete non-cash adjustment of $153 million to lower the carrying amount of goodwill and certain indefinite-lived intangible assets in the Branded Spirits segment. On an adjusted basis, net income decreased 60% to $14 million. Basic earnings per common share decreased to a loss of $6.22 per share, while adjusted basic EPS decreased 60% to $0.63 per share. Despite lower earnings, our cash flow from operations increased 19% to $122 million for the full year as we continue to prioritize strong cash generation by managing our working capital, including barrel inventory put-away reduced from $33 million in 2024 to $19 million in 2025. Full-year capital expenditures of $32 million were down more than 50% from the year-ago level as we continue to optimize capital expenditures in the current environment. Turning to our 2026 outlook, we expect the operating environment to remain challenging, and we are planning accordingly. Our outlook assumes continued pressure in certain categories, lower contracting activity levels in Distilling Solutions, and improving execution in Ingredient Solutions as our operational initiatives take hold. Specifically for 2026, we expect net sales in the $480 million to $500 million range, adjusted EBITDA in the $90 million to $98 million range, adjusted basic earnings per share in the $1.50 to $1.80 range with average shares outstanding of approximately 21.4 million shares, and a full-year tax rate of approximately 27%. Our first quarter tax rate is expected to be approximately 75% due to the vesting impact of share-based awards granted during periods of higher share prices. Full-year CapEx is expected to be approximately $20 million. We expect first quarter adjusted EBITDA to represent approximately 15% of our full-year target and to be the lowest quarter of the year. 2026 Branded Spirits sales are expected to be down mid-single digits compared to 2025 as our continued momentum and growth in the Premium Plus category is expected to be offset by lower sales of our mid- and value-priced brands as well as lower private label sales. We expect Branded Spirits segment gross margin to improve modestly in 2026. Given the ongoing brown goods environment, we expect 2026 to be another down year for our Distilling Solutions segment with sales down 35% and gross profit down 40% compared to 2025. We expect performance for both metrics to be down relatively more in the first half of the year than the second half when compared to the prior year as we cycle against completion of certain large contracts during 2025. However, as Julie outlined earlier, we believe that our proactive actions are helping us stabilize this business and position it for growth from the 2026 levels. We also believe our Ingredient Solutions business is poised to recover after a tough 2025. Given sustained commercial tailwinds and expected operational improvements, we expect segment sales in the $140 million to $150 million range and gross margin in the mid- to high-teens in 2026. As Julie stated, we expect first half gross margins to improve from 2025 to the low teens and improve again in the second half of 2026 as our operational efforts set in. We expect Branded Spirits A&P to be approximately 13.5% of segment sales and total company SG&A to be approximately 18% of total company sales, both of which are up versus prior year primarily due to our lower sales outlook. Maintaining a flexible balance sheet remains a priority. As we look ahead to 2026, we expect to pay $111 million in the second quarter as an earn-out payment related to our Penelope acquisition. We also expect to refinance $201 million of convertible notes in the fourth quarter. Given the Penelope earn-out payment, our net debt leverage is expected to peak and be approximately 3.75 times in 2026. We remain committed to reducing costs, prioritizing cash generation, managing working capital, and being deliberate about our capital allocation. We expect that these actions will allow us to delever over time following the Penelope payment. To that end, we expect 2026 CapEx to be approximately $20 million and net whiskey put-away in the $13 million to $18 million range, which represents a second consecutive year of meaningful capital optimization and stewardship. We expect full-year interest expense to be approximately $12 million and for it to increase sequentially during 2026 due to the Penelope payment and the convertible note refinancing. The Penelope earn-out payment will reduce our 2026 operating cash flow by nearly $50 million. Excluding the impact of this payment, we expect 2026 cash flows from operations in the range of $40 million to $45 million and free cash flow in the $20 million to $25 million range. To close, I want to echo Julie's comments. 2025 was a year of progress, discipline, and important foundational work, and we believe that the actions we are taking position MGP Ingredients, Inc. to emerge stronger, more focused, and more resilient over time. With that, I turn the call back over to Julie. Julie Francis: Thank you, Brandon. Before we wrap up, I want to thank the entire MGP Ingredients, Inc. team for all their hard work, persistence, and focus in a dynamic environment. This past year was not without its challenges. The operating environment remains difficult, and we are clear-eyed that 2026 will likely be another down year of sales and earnings. At the same time, 2025 was a year of important progress for MGP Ingredients, Inc. We delivered results in line with, and in several areas ahead of, expectations while beginning the hard work we feel is required to reposition the company for the future. I have shared that since joining in the third quarter, I have made it my priority to look within, to fully understand what makes this company unique and what actions we need to take. In doing so, I have traveled to all of our facilities, many numerous times. I have spoken with customers and suppliers of all sizes, engaged in exhaustive business unit function reviews, and hosted more than 60 one-on-ones with employees. These insights were used to formulate our strategy, design an effective organizational structure, bring in the right talent to drive impact, make prioritization decisions, and implement processes designed to enable sustainable results and growth. The success we aim to achieve will not come overnight, nor will it be without tough decisions. But the progress we have made over the last six months has been made with expeditious prudence. We believe it has positioned us to deliver sustained growth off of our 2026 guidance expectations, to sharpen our strategic focus and strengthen execution across the organization, and to utilize our financial strength to position us for long-term and sustainable growth. While I am pleased with the progress we are making, what gives me the greatest confidence is the alignment I see across our teams. There is a growing clarity around where we can win, greater accountability for results, and a shared commitment to doing what we said we would do. We will now open for questions. Operator, please open the lines for questions. Amit Sharma: Thank you. We will now begin the question and answer session. Operator: The first question will come from Sean McGowan with ROTH Capital Partners. Please go ahead. Sean McGowan: Thank you. First question is a general one. What are you seeing and what do you expect regarding pricing in the industry? Are you able to hold the prices that you have taken? And then a more technical question: does your credit facility allow, or is there any limitation on how you can use the credit facility regarding the Penelope payment? Thank you. Julie Francis: Good morning, Sean. It is Julie. How are you doing? I appreciate your question. On pricing, broadly speaking, I would say pricing is rational. You certainly have pockets across states and in a couple of different categories. Affordability is an issue, so our price-package architecture we have sharpened up. In particular, we are launching smaller sizes—50 mLs and 375 mLs—to have a more affordable price point out there. Broadly speaking, in Branded, I would say it is very rational. In Distilling, obviously, we have an oversupply situation, so while pricing is certainly impacted, we have the tools that we need, and we understand where we want to be on some of the barrel pricing, and we have been moderately pleased with our ability to work with our customers. Our partnership approach is working. We have not lost any customers to date, and so the ability to have those conversations and understand their intent really helps us in that matter. Now I will turn it over to Brandon for your second question. Brandon M. Gall: Yes, Sean. As far as the credit facility as it relates to the Penelope earn-out, no limitations. As you recall, we upsized and extended the facility in the first part of last year. Our bank group views this payment as a positive thing. They are excited for Penelope. They view this as all good news, and we are very, very fortunate to have such a supportive bank group that we do have. We also have the ability to exercise our acquisition holiday in Q2 if needed, which actually gives us even more covenant headroom on that side of things should we desire to do that. So no limitations. Sean McGowan: Great. Thank you. Thanks. Operator: The next question will come from Seamus Cassidy with TD Cowen. Please go ahead. Seamus Cassidy: Hi, this is Seamus Cassidy on for Robin. Thanks for the question. First, I am curious if your expectations for a down year for the industry take into account the slightly positive year-to-date trends we are seeing in scanner data. And then on brown goods, can you speak to your visibility, sort of on 2026 being the trough? I.e., are new distillate contracts largely locked in? And then, sort of on that point, you spoke to a pivot back to aged whiskey sales. This has historically been more choppy and difficult to predict demand for, so I am hoping you can talk us through that dynamic. Julie Francis: Yes, thanks so much. I appreciate the question. I would say, going back to Branded Spirits, our 2026 guidance does reflect both our Premium Plus momentum and then the mid-to-value expectations across the portfolio. We feel we have good visibility in what we are seeing, and we are pretty encouraged by some of the commercialization strategy planning and execution that we have newly introduced. We see that coming into play, but you would expect Penelope to continue to drive our Premium Plus brands. In addition, our other three focuses have some refinements in how we are looking at the mid-to-value price tier. We do think that there are a few key brands where we can really dial in some of our pricing, some of our architecture on offerings and sizes to really address that. But I would say, broadly speaking, our 2026 guidance reflects the industry and where we have visibility. And then switching to your Distilling question, from a guidance there, certainly most of our, I would say, under contract for a majority of our aged and distillate customers for the year. So we have good visibility in 2026. Our brown goods guide reflects similar spot ages to 2025 at current market pricing. The partnership approach is working, and so we have expanded with some of our larger customers into the premium white goods. So our guidance reflects premium white goods up double digits, and we really like this. Number one, it is sticky, right? We are deepening our relationship with some key customers. And two, it is a great mechanism to reduce costs of raw goods. And then our warehouse services continue to play an important role. Our customers are tight on working capital, and we can provide them this service, and it is also fairly strong cash flow generation. So that is a balanced approach, good visibility, but certainly I think our guidance reflects appropriately the oversupplied environment that we are seeing. Seamus Cassidy: Understood. Thanks. Amit Sharma: Thanks, Seamus. Operator: The next question will come from Marc J. Torrente with Wells Fargo. Please go ahead. Marc J. Torrente: Hey, good morning and thank you for the questions. I guess just building off the last one, any more visibility that you could provide into the guidance building blocks for Distilling? Just specifically, what is embedded from fully committed orders that you proactively worked with customers on? How much potential spot business is assumed? And then just any other color you can give on cadence through the year? Brandon M. Gall: Yes, thanks for the question, Marc. For our brown goods business, let us start with aged. Aged was obviously ahead of our expectations last year, albeit they did start from an expectation standpoint at a pretty low point. So what we are guiding for this year is the same spot volume sales that we were able to do last year. We feel that level is appropriate in this environment given the success we were able to have last year. There are more aged sales above that, and that is really due to the team’s successful efforts in commercializing some private label large customers internationally and domestically, and so those aged sales are under contract. So that is factored into our guide. And then, as it relates to our new distillate, substantially all of that is under contract. So we feel that we are exercising the same discipline and visibility that we were able to exercise throughout the course of last year. As it relates to Ingredient Solutions, moving on there, as we said in our opening comments, 2025 was a tough year, and we learned quite a bit, and we are doing the right things. We are putting the right efforts against it. You will see sequential improvement as the year goes on. That is going to be seen in double-digit growth in sales as well as pretty substantial improvement in gross profit. So we are excited about what is to come this year with Ingredients. And Julie already spoke quite a bit to Branded Spirits, but those are our building blocks. As far as quarterly cadence goes, Q1 will likely be the low point for the year, which is pretty typical. Brown goods customers tend to take a little bit of a pause during the quarter, and Branded Spirits is historically softer coming out of the holidays, but we do expect to perform against all these expectations as well as contracts as the year goes on. Marc J. Torrente: Okay. I appreciate that. And then on Branded, you spoke to the rationalization of tail brands. Maybe talk about the ability to reallocate resources behind your premium brands, where this can take Premium Plus as a percentage of the portfolio in the near term, and how to think about margin potential and, I guess, balance of the portfolio going forward? Thanks. Julie Francis: Thanks for that question. We did a pretty intense portfolio review process of all of our brands. We are starting this year again. We have a roadmap, so this strategic roadmap starts in 2026. As shared on the call, that 20% of the tail brands—and it is important to note they are tail brands—so availability and presence out in the marketplace is different across different states. These first 20% are not our high-visibility, high-volume ones, but certainly they take away focus. They take warehouse space, they take up raw ingredients, they take up production line availability, etc. So we are going to start there. It is not going to reduce any scale with distributors or anything like that because, again, broadly speaking, we have our lineup in Premium Plus, so I will not say there is a change to Premium Plus lineup of our core four focuses. I attribute our commercial execution and planning that we are really ramping up in that area not directly to portfolio review, but really linked to having a new leader in marketing. We have dialed-in commercial strategies, dialed-in execution plans, and then tools and enablement at a distributor level to ensure that we are delivering the key value drivers we expect, and most importantly, what that look of success is that we expect in the different channels and the different customers. That is really what is going to drive some nice movement, we believe, with our Premium Plus and our distributors. But we do think portfolio management and rationalization plays an important role. As we get past this first 20%, you would expect towards the end of the year and into 2027 for us to focus on the next 20%, which we do feel is out there for rationalization. Marc J. Torrente: Great. Thank you. Amit Sharma: Thanks, Marc. Operator: The next question will come from Mitchell Brad Pinheiro with Sturdivant & Co. Please go ahead. Mitchell Brad Pinheiro: Yes, hey. Good morning. So most of my questions have been asked. I did want to follow up on the Distilling Solutions business, where we are looking for a trough year here this year, and you talked about some of the reasons why you have some confidence there. What would cause you to miss that trough-year expectation? Brandon M. Gall: I will start on that. What gives us the confidence are all the actions that we are taking, which we went into in a lot of detail in our opening remarks. Our connection and continued connection with our customers, especially those large customers that are pausing on brown goods buying. We are talking to them about other projects, whether it is ways to innovate with the barrels they currently have in their warehouses, or whether it is to do some of these really interesting premium white goods services and products that we have talked to. So just that connectivity definitely gives us a lot of confidence. But, as time goes on, they are going to have to come back to the table, and we have to continue to be good partners in the interim. We have shared that we hope to have more visibility by the midpoint of this year. Ultimately, we are going to do what is right for them and what is best for them, and what gives us a lot of the confidence is just the levels we are at today, Mitch. The level of brown goods sales that we are forecasting and guiding to—a lot of the risk has been removed from that standpoint. Not to say that there is not ever risk out there, but we feel like a lot of that has been alleviated from our outlook. Mitchell Brad Pinheiro: Okay. And then when you look at the most recent sort of industry inventory data—it is over, like, thirteen years of inventory right now, and typically, back in the 2022–2023 range, it was down around nine or ten years. That delta of four years, some of it obviously has to do with consumer preferences for more aged product. But I am wondering, how does that compare to your inventory levels? Are you out there that long with your barrel distillate, or is your barrel distillate closer to your near-term demand needs? So I guess what I am trying to say is, had you overproduced on your barrel distillate, or do you feel that your performance is in a better shape than the industry? Brandon M. Gall: I do not think anyone has gotten it exactly right over these last five years, ourselves included. But what we do feel, Mitch, is that we have taken actions very quickly. Industry numbers are down over the last twelve months anywhere between 25–30%. If you look at just our sales in Distilling Solutions and equate that loosely to production, we are down much more than that, and then we are also guiding this year for Distilling Solutions sales to be down another roughly 35%. So we have definitely taken our production down, but we are still putting away anywhere from $13 million to $20 million in both years for our future because both our brands and having a full aged portfolio offering are critical strategies of ours, and we are committed to those. But we do think we are doing the right things. We have also been able to do so in a very cost-effective manner. Our cost structure overall for brown goods is in a really, really great spot, due to the team’s ability to reduce costs, largely fixed costs, out of the operations, but also our ability to do unique things that our competitors cannot do, like offer premium white goods that can absorb a lot of the cost structure that otherwise would not be there. Julie Francis: The only thing I would add to that, Mitch—I think Brandon did a great job summarizing—is that volume and pricing is reflected in our guide. In the toughest of environments, we are still guiding to mid-30s, and as Brandon said, reducing our operating cost, the team has done a great job. We have cash-generating warehouse services, aged whiskey sales inventory. We have expanded into aged whiskey with private label contracts, and we are pleased that a couple of them—these take a long time to get through the process—but by the end of first half, we should have some sales for a couple of them. And we are entering into premium white goods, both services and saleable products. So again, tough environment. We are pleased with some of the progress, but certainly I think our actions are very appropriate, and we are pleased where some of the TTP data has come in. Mitchell Brad Pinheiro: Okay. Thanks. That is helpful color. One last question is, curious if you mentioned it before; I apologize, but I am curious where your marketing focus is on your Branded Spirits—what particular brands, what you intend to do, if you can talk about that. Julie Francis: Sure, Mitch. I would love to give you a little color. First, Premium Plus will be our primary growth engine. We are fairly pleased with our Penelope results. It continues to have a mass consumer appeal. Innovation has been robust. We would have another strong year as well in 2026, so you can certainly expect us to have that focus. We are going to have even more digital dollars on Premium Plus led by Penelope. Our A&P in 2025 was about 12.5% of sales. We are modestly going to take that up in 2026, but most importantly, we are going to shift to digital media. We are increasing over 200%. We are also taking a streamlined approach to our agencies—better brand briefs, better dialed-in RFPs. We think one to two points of shifting A&P to actual media or in-store dollars. From a commercial support perspective, we did shift from 55% brand building to 45% commercial support for 2025. We think this is appropriate given the current environment to bring those pull-throughs. So it will be mainly focused on Premium Plus—El Mayor, Yellowstone, Rebel, and also, obviously, Penelope. We have a great NASCAR activation program for the races this year with our number 8 Kyle Busch car. We are looking forward to that, but that is where we will be spending our dollars. Mitchell Brad Pinheiro: Great. Thank you very much. Thanks. Operator: The next question will come from Ben Klieve with Benchmark/StoneX. Please go ahead. Ben Klieve: Thanks for taking my questions. First question on the expectation of rationalizations in the Branded Spirits segment. I am wondering, Julie, if you can first of all characterize the degree to which those rationalizations are proactively built into your 2026 guidance that you laid out, or if there is going to be potential downside to the Branded Spirits outlook when those rationalizations come. And then second, the degree to which you think those are going to be monetizable versus just written off. Julie Francis: Good question. Number one, broadly speaking, they are not going to be an impact on our 2026 guidance; that is reflected in that. So the 20%—again, it is important I use the word it is our long tail—and by that, it is probably our heritage Luxco brands that are in value space in some categories and segments and states that are unique. So it should be no impact on 2026 guidance, and it is accounted for. Moving forward, we do have our next wave of that, and certainly, as you optimize SKUs, there are a few different things we can do. We think there is a handful of them that we will divest, and we think recovering at least our packaging and inventory cost is the minimal amount that we will get for those. We are also going to be prudent, efficient, and effective on how we draw those down—whether it is a write-off or there are several different places and/or states that we could go to that it may make sense. Those will come forward as they are expected in 2026. As we move forward to our next 20%, that is when we will move into some other stronger volume plays that we think streamlining them does provide us with the ability to replace some of these SKUs and their shelf presence with some higher-velocity SKUs. So that is our roadmap for portfolio management, and it is in progress, it is accounted for, and most importantly, it is not an episodic event. Ben Klieve: And then my follow-up question, moving to the Ingredients segment. Great to see your encouraging outlook for that business in 2026. I am wondering if you can break down or quantify the impact of mechanical challenges and the elevated cost of the waste stream within 2025. I am wondering how much of a profit headwind those two buckets were. And then second, if you can characterize the degree to which those headwinds are going to persist in 2026. Especially in the waste stream, I thought that was going to be effectively zero with the emergence of the biofuel facility, but clearly those are going to persist a bit. So help me understand those dynamics. Julie Francis: I am going to take your questions together, and then Brandon can clean up any of the impacts that you seek. Let us talk Ingredient Solutions. First and foremost, there are significant consumer tailwinds—high fiber, high protein are on point right now—and our ability to have co-creation events with large customers. Many of these products are well known and very strong, and so our ability to partner with them on these, and we have consistent demand. We have been able to now, most importantly since late November, get out the production pounds and have had stronger operational reliability than we had in the last four months. You are going to see segment sales up well north of double digits in 2026. That being said, the effluent part—and yes, I think I was transparent in our remarks—has been a little bit more complex. It has been more costly. That plant was stood up sometime in 2025. There are multiple waste streams, one of which this biofuel cannot digest, and so we do have to send that out to a municipality. That municipality was offline since early December. We expect them to go back online sometime in 2026, so that certainly will help mitigate some costs. We have work underway—and this work is months, not weeks—on how to eliminate that final waste stream, or food stream, that we cannot mitigate right now. I will tell you, we are very bullish from the commercial side of the business. We have very good operational reliability. We are getting out the pounds, and the effluent certainly is the last kind of stool on this leg that we have to get better at. I would expect sequential improvement across gross margins and that waste stream across each quarter, and the back half of the year. In 2027, we do expect this to be in the 20s gross margin. It will take us to that time to get there, but we think those are comfortable ranges that we can get to. Brandon? Brandon M. Gall: Well said. It really depends on the month and the quarter, but largely speaking, if you just look at Q4 in terms of what was the driver to the profitability headwinds in this segment, year over year, the segment was down $5.7 million in gross profit. A little more than half of that was due to that key equipment outage, and the other half or less was due to the effluent and disposals. As we get into Q1 of this year, that effluent disposal is expected to be more of the cost driver and headwind because, as Julie said, a lot of the front-end throughput and reliability issues are being resolved. If you look at it in three areas, the demand side is still intact and very constructive, the throughput and reliability is improving every day, which is really allowing us now to circle around the last item, which is the effluent, and that is what we are going to do. Ben Klieve: Got it. Very helpful. Thank you both for taking my questions. I will get back in the queue. Amit Sharma: Great. Thanks, Ben. Operator: This concludes our question and answer session. I would like to turn the conference back over to Julie Francis for any closing remarks. Julie Francis: Thank you. In closing, thank you for your time and engagement with MGP Ingredients, Inc. We look forward to talking again soon and after our next quarterly announcement. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. Welcome to the Archrock Fourth Quarter and Full Year 2025 Conference Call. Your host for today's call is Megan Repine, Vice President of Investor Relations at Archrock. I will now turn the call over to Ms. Repine. You may begin. Megan Repine: Thank you, Bella. Hello, everyone, and thanks for joining us on today's call. With me today are Brad Childers, President and Chief Executive Officer of Archrock; and Doug Aron, Chief Financial Officer of Archrock. Yesterday, Archrock released its financial and operating results for the fourth quarter and full year 2025 as well as annual guidance for 2026. If you have not received a copy, you can find the information on the company's website at www.archrock.com. During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 based on our current beliefs and expectations as well as assumptions made by and information currently available to Archrock's management team. Although management believes that expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. In addition, our discussion today will reference certain non-GAAP financial measures, including adjusted EBITDA, adjusted EPS and cash available for dividend. For reconciliations of these non-GAAP financial measures to our GAAP financial results, please see yesterday's press release and our Form 8-K furnished to the SEC. I will now turn the call over to Brad to discuss Archrock's fourth quarter and full year results and to provide an update of our business. D. Childers: Thank you, Megan, and good morning, everyone. 2025 was an incredible year for Archrock, one that leveraged a multiyear transformation of the business and demonstrated the strength, durability and scalability of our strategy against what continues to be a robust outlook for our business. Before I review our fourth quarter and 2025 performance, I want to thank our employees across the organization for their tireless focus on safety, customer service and execution. This was another extremely busy year, and our team delivered. The results we're reporting today simply do not happen without the commitment and excellence of Archrock's amazing team. We achieved much across the business in 2025. Compared to 2024, we increased adjusted EPS by 68% and adjusted EBITDA by 51%. Importantly, with strong Q4 results, we delivered adjusted EBITDA above the midpoint of guidance after raising our outlook twice during the year. Building on the progress we've made in pricing, efficiency and cost discipline, our contract operations and aftermarket Services segments delivered outstanding adjusted gross margins. Contract operations achieved 70% plus adjusted gross margins for the fifth consecutive quarter, underscoring excellent execution in a tight market. We continue to enhance and standardize our fleet through disciplined portfolio actions, completing our second accretive acquisition in 18 months while executing asset sales of 325,000 horsepower for $192 million, which we redeployed into high-return new build investments. Taken together, these actions drove 8% operating horsepower growth compared to 2024. Our high-quality fleet has maintained full utilization of 95% or higher for the last 11 quarters, underscoring the strength of demand for our equipment, our services and the reliability of our operations. We translated this performance into meaningful value for shareholders, returning $212 million through dividends and share repurchases during 2025, up over 70% year-over-year. We also concurrently drove our year-end leverage ratio to 2.7x, demonstrating our cash-generating capacity. Overall, 2025 was a year of exceptional earnings growth, balance sheet strengthening and capital returns, providing a strong foundation as we enter 2026. As we look ahead to 2026, our strategy is grounded in the role natural gas continues to play as a critical component of the global energy mix. Our strategic focus for 2026 centers on 3 priorities. First, capturing opportunities to invest in our natural gas levered transformed energy infrastructure and compression platform by helping our customers move more gas to market more efficiently, safely and with lower environmental impact. We continue to allocate capital toward large horsepower and electric motor drive compression, where we see durable demand, strong returns and clear benefits for both our customers and our shareholders. Second, maximizing the reliability of our service for our customers. Reliability remains our central value proposition. We're continuing to standardize our field operating model and further enhance adoption of the technology we've implemented across the business. We're deploying advanced digital tools, analytics and machine learning to improve service quality, streamline workflows for our customers, optimize maintenance execution and expand our remote monitoring capabilities. These initiatives are designed to increase equipment reliability and safety, reduce unplanned downtime and drive higher fleet utilization and operating efficiency. Third, maintaining disciplined returns-based capital allocation and prudent financial management. As we reach a higher level of sustained free cash flow generation, our priorities remain balanced and consistent, investing in high-return growth opportunities we see in this durable growth cycle and returning capital to shareholders while also maintaining a strong balance sheet. This approach has strengthened our portfolio, improved our financial flexibility and positioned us to continue delivering superior returns on capital. Importantly, while performance over the last few years, including 2025, has validated the strength of the strategy I just outlined, we believe there is meaningful earnings growth still to be captured as we grow our business and realize the benefits of fleet mix, utilization durability, a more automated platform and disciplined capital allocation, which continue to compound over time. Natural gas production continues to increase steadily, and we expect production to reach record levels for the sixth consecutive year in 2026. In the near term, U.S. natural gas volumes are expected to increase incrementally in 2026. Importantly, for Archrock, our exposure is weighted toward faster-growing gas basins, particularly the Permian, where gas volumes are expected to grow at mid-single-digit rates. In the Permian, oil production is expected to remain relatively flat, while associated gas volumes continue to increase, supporting sustained demand for compression. This growth is being complemented by meaningful additions to takeaway capacity totaling 4.6 billion cubic feet per day, particularly in the second half of the year, which should improve basin economics and support continued producer activity. At the same time, U.S. LNG exports are expected to continue to grow in 2026 with a 2 Bcf a day of additional FID project export capacity coming online. LNG remains a key driver of incremental natural gas demand and reinforces the need for investment across natural gas production, transportation and compression infrastructure. LNG projects that have already reached final investment decision represent 14 Bcf a day of additional export capacity expected to come online through 2030 with further projects possible beyond that. These developments support sustained demand and a long runway for natural gas infrastructure investment and growth. In parallel, AI-driven power demand is moving from long-term forecasts into the early stages of infrastructure development, creating another source of incremental demand for natural gas-fired power generation over time. These dynamics support what we believe is a durable multiyear earnings growth opportunity for Archrock. We have a substantial backlog for 2026, which is 85% contracted, and we've already booked units for 2027 delivery. Now moving to our segments. Contract operations delivered outstanding performance, supported by excellent execution and continued high demand for our compression fleet. Our fleet remained fully utilized during the quarter, exiting at 95.5%. Maintaining utilization above 95% for 11 consecutive quarters is unprecedented for our business and reflects continued growth in natural gas demand, the high quality of our fleet and strong operational execution. Stop activity remains at historically low levels, and our equipment is staying on location longer. Based on 2025 data, the average time an Archrock compressor remains on location is now 73 months or more than 6 years. That's up 61% since 2021. When isolating large horsepower compression, time on location extends even further relative to the blended fleet average. Average time on location is 97 months or more than 8 years for units with 1,500 horsepower or more, reflecting their use in midstream applications. As we continue to invest in this highly profitable and sticky segment of the market, we expect time on location to extend further over time. At quarter end, we had 4.6 million operating horsepower. Sequentially, operating horsepower declined by approximately 80,000 as new build deliveries during the quarter were more than offset by the sale of approximately 123,000 horsepower, including 84,000 active horsepower, which we completed at year-end. For the year, compression asset sales totaled 325,000 horsepower, including 175,000 active horsepower, generating $192 million in cash proceeds and net gains on asset sales of $47 million while reducing estimated 2026 adjusted EBITDA by about $18 million. Monthly revenue per horsepower moved higher on a sequential and year-over-year basis. In 2026, we expect to benefit from a full year's impact of rate increases from 2025, and we also expect additional price increases in 2026, though at more modest levels. We achieved a quarterly adjusted gross margin percentage of 78%. Strong pricing and solid cost management drove underlying operating profitability to 71.5% in the quarter, up from 70% in the third quarter of 2025, excluding the impact of prior period cash tax settlements and credits in both periods. Results reflect lower make-ready and lube oil costs and efforts to mitigate inflation in labor and parts through ongoing cost management. Fourth quarter 2025 adjusted gross margin further benefited from $23 million in prior period cash tax settlements and credits, which is the driver of the gross margin percentage increase from the 71.5% level to the reported 78% level. Moving to our Aftermarket Services segment. Performance remains solid despite the typical seasonal slowdown in the fourth quarter. Aftermarket services continued to deliver consistent margin performance with adjusted gross margin percentage remaining firmly above 20% and well above historical levels despite normal fluctuations in activity. This reflects our continued focus on higher quality, higher-margin work, disciplined cost management and reliable execution. Turning to capital allocation. Our framework remains disciplined and returns focused with growth investments and shareholder returns as our top priorities supported by a strong and resilient balance sheet. First, on growth investment. We previously stated that we expected 2026 growth CapEx would be a minimum of $250 million. And last night, we refined our guidance to between $250 million and $275 million. This level of CapEx reflects continued strong demand as well as a deliberate and disciplined approach. It also represents a similar level compared to the previous 2 years, especially when factoring in the 2025 growth capital expenditures included acquired new horsepower investment backlog from both the TOPS and the NGCS transactions. At this level of growth capital, we expect to generate substantial free cash flows, both before and after dividends, supporting our strategy of increasing returns to shareholders over time. Most recently, our confidence in the outlook for the business and our financial position supported an increase in the fourth quarter dividend to $0.22 per share. This was up approximately 5% compared to the prior quarter and up 16% year-over-year as we focus on maintaining a well-covered dividend that grows along with the profitability increases in our underlying business. This dividend increase still provides flexibility for additional shareholder returns. This includes $117.7 million of remaining authorization under our share repurchase program as of year-end, which we expect to continue to use as a tool for value creation for our shareholders. Our strategy has been to buy back shares on a regular basis while being more active during periods of market dislocation from the strong fundamentals we see ahead. We've returned over $92 million to stockholders since program inception at an average price of $22.72, including $70 million during 2025 compared to $13 million in 2024. From a balance sheet perspective, we exited the year below our long-term leverage target range of 3 to 3.5x, and we currently expect to operate below 3x in the near term. We're comfortable operating at these levels, which reflect the strength and durability of our cash flows and provide significant flexibility to pursue future organic and inorganic growth opportunities while continuing to return capital to shareholders. In summary, Archrock is delivering standout performance, driven by consistent operational execution and the successful advancement of our strategic initiatives. As we look ahead, we believe we have additional opportunities to continue monetizing our transformed platform with earnings growth driven by disciplined execution and capital allocation and further supported by durable market tailwinds across the natural gas infrastructure. With that, I'll turn the call over to Doug to walk through our fourth quarter and full year financial performance and provide additional detail on our 2026 outlook. Douglas Aron: Thank you, Brad, and good morning, everyone. Let's look at a summary of our fourth quarter and full year results and then cover our financial outlook for 2026. As we review the quarter, it is important to note that results included a few discrete items, which I will walk through briefly. We've also provided supplemental slides on our website with additional details, which bridge the results we reported last night to both 2025 guidance as well as our 2026 expectations. Net income for the fourth quarter of 2025 was $117 million and adjusted EBITDA was $269 million, bringing net income for the full year 2025 to $322 million and adjusted EBITDA to $901 million. Underlying business performance exceeded expectations in the fourth quarter, and fourth quarter results further benefited from a $23 million cash net benefit to contract operations cost of sales related to prior period sales and use tax audit settlements and credits as well as a $32 million of net gains from the sale of compression and other assets, which occurred at the end of the year. These 2 items were not included in the 2025 annual guidance we provided on our third quarter call. And excluding them, we would have delivered full year 2025 adjusted EBITDA of $846 million, above the midpoint of our most recent guidance range of $835 million to $850 million. Turning to our business segments. Contract operations revenue came in at $327 million in the fourth quarter of 2025, consistent with the third quarter of 2025. Average operating horsepower was down slightly from the third quarter of '25, primarily due to asset sales and pricing ticked up incrementally. We expanded our adjusted gross margin percentage to approximately 78%. Underlying operating gross profitability was 71.5% in the quarter, up from 70% in the third quarter of '25, excluding the impact of out-of-period cash tax settlements and credits in both periods. Results further benefited from $23 million in prior period cash tax settlements and credits, which, as noted earlier, was the driver of the gross margin percentage increase from the 71.5% level to the reported 78% level. In our Aftermarket Services segment, we reported fourth quarter 2025 revenue of $50 million, down compared to the third quarter, but higher compared to the $40 million a year ago. The sequential decline reflects typical seasonal softness. Fourth quarter AMS adjusted gross margin percentage was 24% compared to the third quarter and prior year period of 23%. We exited the year with total debt of $2.4 billion and strong available liquidity of $579 million. Long-term debt was down $149 million in the quarter compared to the third quarter of 2025, reflecting strong operating cash flow and further support from asset sales. We have taken meaningful steps to extend our maturity profile and further derisk our sector-leading balance sheet. First, we redeemed $300 million of our outstanding 2027 notes at par in November. Second, in January of this year, we closed an upsized $800 million 8-year bond issuance priced at 6%. We believe this represented the lowest rate ever achieved in the compression sector and one of the tightest yields in energy high-yield deal history. Pro forma for the offering, our liquidity was over $1.3 billion. With this issuance, we have effectively prefunded the redemption of our 2028 notes, which are callable at par in April of 2026. This provides additional flexibility as our nearest bond maturity would move to 2032 following the call of our 2028 notes. Our leverage ratio at year-end was 2.7x calculated as year-end 2025 total debt divided by our trailing 12-month EBITDA. This was down compared to 3.3 in the fourth quarter -- 3.3x in the fourth quarter of '24. As Brad mentioned, we currently expect to operate below 3x in the near term, which provides significant flexibility to pursue additional growth opportunities while continuing to return capital to shareholders. The strong financial flexibility I just described continued to support increased capital returns to our shareholders. We recently declared an increased fourth quarter dividend of $0.22 per share or $0.88 on an annualized basis. This is up 5% from the third quarter dividend level and 16% versus the year ago period. Cash available for dividend for the fourth quarter of 2025 totaled $189 million, leading to an impressive quarterly dividend coverage on the increased dividend of 4.9x. We introduced our full year 2026 guidance with yesterday's earnings release. As I walk through guidance, I want to again point you to the supplemental slides on our website, which bridge 2025 performance to our '26 adjusted EBITDA outlook and help isolate items impacting year-over-year comparability. We announced 2026 adjusted EBITDA guidance of $865 million to $915 million or $890 million at the midpoint. In contract operations, this outlook reflects continued strength with growth in horsepower, revenue and profitability. In aftermarket services, we expect performance to remain near historical peak levels, second only to 2025, which benefited from a small number of onetime items. This robust level of performance is supported by sustained service activity and the durability of the margin improvements achieved over the past several years. The bridge highlights several items that create noise in our year-over-year comparisons, most notably asset sales and tax-related items, which together have a $98 million impact when comparing 2025 to 2026 adjusted EBITDA. First, tax-related items. 2025 adjusted EBITDA included a $33 million benefit from sales and use tax audit settlements and credits. Second, asset sales. The year-over-year comparison from '25 to '26 is impacted by both the $47 million adjusted EBITDA gains recognized in 2025 and the reduction of associated EBITDA in '26, which we estimate would have totaled approximately $18 million. Of this $18 million, $12 million related to the horsepower sold late in the year and announced alongside our earnings and thus, are not yet factored into analysts forward estimates. Now turning to capital. On a full year basis, we expect total 2026 capital expenditures to be approximately $400 million to $445 million. Of that, we expect growth CapEx to total between $250 million and $275 million to support investment in the new build horsepower and repackage CapEx to meet continued customer demand. Maintenance CapEx is forecasted to be approximately $125 million to $135 million, up compared to 2025 due to increased planned overhaul activity. We also anticipate approximately $25 million to $35 million in other CapEx, primarily for new vehicles. Total capital expenditures are expected to be funded by operations with the potential for more modest additional support from nonstrategic asset sale proceeds as we continue to high-grade our fleet. Before we open the line for questions, I'll close by reinforcing that Archrock enters 2026 with strong momentum and a very solid financial foundation. The performance we delivered in 2025 reflects the durability of our business model, disciplined capital allocation and the strength of demand for our compression services. Looking ahead, our outlook is supported by a consistent growth capital profile, expanding free cash flow and a continued focus on execution. As Brad outlined, our priorities remain clear: investing in high-return growth opportunities and returning capital to shareholders. As we execute on those priorities, leverage will continue to move lower naturally, and we are comfortable operating below the midpoint of our target range as an outcome of strong performance, not as a change in our strategy. We believe this framework positions Archrock well to support growth, maintain a resilient balance sheet and continue creating long-term value through cycles. With that, Bella, we are now happy to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Doug Irwin with Citi. Douglas Irwin: Just wanted to start with the growth CapEx guidance here. Just wondering if you could talk about how much organic horsepower you see that translating to being added this year? And then maybe if you could just help fine-tune just the cadence of fleet additions throughout the year. D. Childers: Yes. Doug, thanks for the question. We -- the CapEx should translate into about 170,000 horsepower that we expect to take delivery of in 2026. And as far as the impact through the year, while it's generally ratable over the 4 quarters throughout the year, we are somewhat front-end loaded and expect about 60% of that horsepower to start up in the first half of the year, which is beneficial and just shows the strength of continuing demand that we see in the market and that we are receiving from our customer base. Douglas Irwin: Got it. That's helpful. And as a follow-up, maybe just around lead times. We've heard some peers talk about lead times getting longer here to start the year. Could you maybe just talk about what you're seeing today and then how that maybe impacts the way you're thinking about both build costs moving forward and kind of the balance of your pricing power and where you might see gross margin trending in a tighter environment over the next few years? D. Childers: Lead times have definitely extended. Right now, the long lead time item, the gating item for gas drive equipment is Caterpillar. And for the large horsepower equipment that is the bulk of what we are investing in, it's out to 110 to 120 weeks. For larger horsepower, it's not even further. So lead times have definitely extended as the market is in full pressure and demand for natural gas infrastructure, including compression, which we're very happy and excited to be a part of. As far as the impact on us, fortunately, looking at 2026, we are booked to meet our customers' needs for the year. We are -- that horsepower is 85% committed to go to work. So we have only a little bit left in the year that would be available for new bookings. And we've already started booking horsepower into 2027. And we expect that we will fully be able to meet our customers' needs for growth through that period of time. So while the supply chain is definitely extended right now, showing the high demand in the market, we believe we will have access to the equipment to meet our customers' needs in 2026, 2027. It's way too early to talk about any years beyond that. As far as the impact on pricing, it's an interesting market right now. There's a slight pause in some oil activity, and that's moderated, I think, some of the immediate pressures for the overall industry and for our segment. And so while we expect to see price increases on our installed base in 2026 at a more modest level, as I think I mentioned in my prepared remarks, we do see price increasing in the year. On the current market, it's at a more moderate level for sure, just because we've all caught up with inflation and the current demand in the market is basically well priced. And as you can see, we and we think the industry is operating at a high level of profitability. Operator: Your next question comes from the line of Jim Rollyson with Raymond James. James Rollyson: Brad, following up on your comments on lead times. One would think as far out as they've stretched to for someone like Caterpillar that usually more material price increases on their front come down the road. I'm curious your thoughts there just because as you talk about more moderate price increases from your end in '26, if they obviously hike prices for future deliveries into '27 and beyond, presumably, that affords you the ability to catch up with that to maintain your returns. So I'm just curious your thoughts on that. D. Childers: First, we have not seen any significant change or received any significant change in Caterpillar's overall pricing strategy impacting us. Second, we have also not really seen a tremendous change in the pricing from our packagers for the total compression package that's been passed on to us. But the good news is that when we do see that, we will have the full flexibility to price that into our forward pricing with our customer base. One of the main impacts, most interesting impacts of this period we've gone through where over the last 5 years or so, we've had significant inflation impacting our fleet is it has certainly made the existing equipment we've invested in over the prior period -- over the prior years, a lot more valuable. And a lot of the returns that we can generate in our business are from the value we get from those prior investments the pricing power we receive in the current market because of the high demand for compression. And so that value creation that we come from the installed base way outweighs what's going to happen from an inflationary perspective coming through the system from Caterpillar or from the packagers in the near term, all of which we can price in and pass on. James Rollyson: That was exactly why I asked the question. Appreciate that answer. And then following up, I can't recall a time when you've been in quite this position from a leverage and free cash flow generation perspective even after dividends. And as you kind of look forward over the next 2, 3, 4, 5 years, obviously, the gas backdrop is such that you've got a nice runway of annual organic growth there, but your cash flow is going to be far exceeding your ability to spend it, it seems like in this. I'm just curious, as you think about this, you run out somewhat a run out of obvious M&A candidates in your main fairway. Do you return more to shareholders? Do you look at -- you've had a couple -- at least one of your peers enter into another business line as a means to deploy incremental capital. Just how do you think through that because you're in a very enviable position, and I'm just kind of curious how you guys think about that outlook? D. Childers: I think you could have asked a bigger question, but I'm not sure how. There's a lot to unpack there. I'm going to try to pick a couple of points to make. The first is that we have had worse problems in the past than having to figure out what to do with a lot of free excess cash flow for the benefit of our investors. So we're excited about the position we're in. We think that it demonstrates the strength of this segment. It demonstrates the strength of the natural gas infrastructure sector overall, which is going to continue to grow, and it generates a lot of cash as we're seeing right now. And right now, it's generating on a sustained basis. A lot of this is the benefit of the capital discipline that we've had in the overall energy sector, we've had in the midstream sector, we've had in the compression space, particularly. And as long as that holds, that level of discipline is going to continue to be rewarded by generating great cash returns for our investors. So we're excited to maintain that. To the M&A question you posed, look, we've demonstrated both the desire and ability to grow organically as well as inorganically. And we've digested in just 18 months, 2 very nice acquisitions with great equipment and great teams and a great customer base to expand our business. And we were able to do that on an accretive basis and pass that accretion on very promptly to our investors through dividend increases. We will continue to be looking for those opportunities. And to the contrary to maybe what you were thinking, we think that there are more compression companies in the space today that will be available for us to look at and will want to think about changing their platform and/or with ownership that we want to monetize in the coming years. So we do see that as a continuing opportunity. And if we can find assets that align with our desire for large equipment, electric motor drive equipment that are well maintained, we will be in the game and competing hard for those assets. And then I'll close with the last thought, which is that we did note that one of our competitors has entered into the power market. And I'd say a few things about that. The first is that there are some synergies when you think about the supply chains, the equipment, the maintenance practices and the fleet management practices, clearly, there is some overlap and some synergies on how to do this. Second, on how to do that segment. Second, what we've noticed is that we believe the returns are largely comparable to what we can achieve in the compression space. And so there's a lot of, I think, industrial logic to the expansion there. On the other hand, we haven't seen asset packages that have come to market that offer the same level of infrastructure, long-term application investment that we're looking for, whether it's in compression, which is we're looking for there or in power, we want to see those longer-term applications and infrastructure position. But when we see those asset packages, we will be working those hard as well. Operator: Your next question comes from the line of Nate Pendleton with Taxis Capital. Nate Pendleton: Congrats on the strong quarter. Can you provide some detail on the units sold and perhaps some insight into how your team decides what assets are noncore to the go-forward business? D. Childers: Yes. A couple of thoughts. First, having a disciplined program that both invests in our fleet as well as dispose of assets that we no longer want to operate in the fleet is a core competency in our business. And so when you look at the level of asset sales that we've had over the prior 5 years, we've been averaging something like 270,000 horsepower per year over that 5 years. So the level of activity that we had in 2025 is not much larger than just the run rate we've had in the kind of nip and tuck of disciplined asset management practices for our fleet. The only -- the other thing I'd say is that we did have one sale that was totally nonstrategic around high-pressure gas lift units. And there was another business, the buyer was very much in that business. And so that just made great strategic sense for both companies. That made the number -- that was a contributor to the size of the number in 2025. And we had one customer that wanted to purchase some horsepower. They acquired operations in an acquisition. And as part of that acquisition, it came with horsepower from us. And that's a customer that likes to own their horsepower as opposed to outsource as much of the horsepower. And so they were aligned with -- they wanted to buy that horsepower for that reason. And for us, when we looked at that horsepower, it was an average age of 17 years and was in the perfect condition to maximize our overall cash generation of that horsepower by selling it. So when we look at the fleet overall, we're always looking to improve the standardization, the quality of our fleet. We are happy to engage with customers that want to buy horsepower and sell, especially when it's horsepower that has already earned a great return and served us well over time. Nate Pendleton: Got it. And then as my follow-up, Brad, in your prepared remarks, you mentioned continued opportunities that you see in electric motor drive compression. Can you provide more detail on how you see the adoption of the electric compression trending as you look at your 2026 and early '27 order book? D. Childers: Sure. We still see demand for electric motor drive. It's definitely competing. Our customers are now facing more competition for power, and that is a gating item for electric motor drive. So in the past, we've had electric motor drive, I think, in 2025 was as much as 30% of the equipment that we had on order. We are seeing that moderate to more in the 20% to 30% range, but it's lumpy and it's inconsistent. It really varies not just with power being a gating item, but also with the prioritization of the customer and how well they can get equipment and how well that fits into their overall long-term strategic focus. But on the good news front, we still see nice demand for electric motor drives. We're very proud to be the leader in the industry in that segment, and we expect to see good growth for electric motor drives ahead still. Operator: Your next question comes from the line of Eli Jossen with JPMorgan. Elias Jossen: You talked a bit about extended supply chain lead times and tightness there. But maybe just thinking about the growth CapEx figure, if you guys are able to make opportunistic procurement of horsepower or you see kind of swelling demand from your customers, could we see upside to the growth CapEx figure? And what kind of visibility do you have there given strong customer demand? D. Childers: In a word, yes, but it's going to be tough because shop space is pretty full for 2026. So getting more through the system is going to be a challenge. That said, there are avenues to do so. And if we see the opportunity and the need with our customer base, we will be ambitious in capturing that. Elias Jossen: Great. And then maybe just thinking about basin focus. I know the business has increasingly shifted to being liquids-rich Permian basin Eagle Ford. Are you guys kind of still pressing ahead there? Have you looked at expanding within other basins? Or what's the overall geographic strategy? D. Childers: Yes, we have looked at -- fortunately, we have what is the most diversified footprint in the industry. We operate in every natural gas producing basin, every producing basin in the U.S., and we have an excellent footprint throughout all of them. But everything compels with the CapEx vacuum cleaner that is the Permian Basin today for the industry. And so like with others, our focus is on ensuring that we grow where our customers want us to grow, where they're putting their CapEx and their growth and that -- the Permian Basin remains in the lead. With that, though, looking back on 2025, we had net horsepower growth in a total of 6 basins, one of which was the Permian. So we've seen net growth in other plays, including in dry gas plays, which are seeing a little bit more energy and reactivation right now given the gas price trade-off with the oil price. So it's been a focus of ours to remain prudently diversified as well as we can and at the same time, not miss the incredible opportunity for the most efficient oil production in the country, which is coming in the Permian. Operator: Your next question comes from the line of Selman Akyol with Stifel. Selman Akyol: Nice quarter, nice outlook. Two quick ones for me. So in your opening comments, you talked about 11.25 of running at higher utilization, 95%. And then you went on to talk about how your equipment is staying on location longer, especially as you skew towards the higher horsepower. So the question directly is this, '26 probably is another lock for the 95% sounds like '27 is as well. So how far, how long do you see that extending at that high utilization rate? D. Childers: Selman, we appreciate that you think we could possibly answer that question. That's nice for you to suggest. -- number one, no one knows, and we don't either. But what we see right now with the level of demand for natural gas to feed the LNG beast ahead, which I described in our comments, and we include our best market take in our deck all the time. What we see for power demand in the U.S. for data centers, what we see for pipeline exports to Mexico is that this is a very durable cycle. And it's hard to see what is going to change that within the next 5-plus years. So we expect that our business has just a tremendous growth opportunity. to expand our infrastructure footprint with our customers for an extended period of time. But we're not smart enough to call when the cycle turns, sorry. Selman Akyol: Okay. Appreciate all that. And then just kind of going back to the consolidation, when you talked about it, you sort of referenced other companies, but is there anything out there from potentially buying packages from your customers? D. Childers: Reflecting on the acquisitions we've done, we've actually had success doing that. Going back pretty far back. There was a time when we acquired what was primarily the compression operations of Chesapeake, which we completed in 2 separate transactions. When we acquired the Elite assets back in 2018, that was primarily the asset packages that we were supporting and organized by affiliates of Hillcorp, but it was run in a separate company and the primary customers in that were both Hillcorp and Marathon as we discussed at the time. So we've seen success in acquiring packages that were organized for sale in that way. That said, in other instances, we've seen this to be a very hard area to get a lot of traction between the operating teams and the financial teams within our customer base. And so while we've had success in the past and we have those discussions ongoing with our customers, -- it hasn't fit the mold of a high volume of steady transactions that would be a purchase leaseback machine. So while there are opportunities out there, we think they're going to be structured more like traditional M&A. Operator: Your next question comes from the line of Steve Ferazani with Sidoti. Steve Ferazani: I was pleasantly surprised by the SG&A guide given the growth in the fleet, given the growth in cash flow, you certainly could be looser on spending, but it looks like you're even getting tighter. And obviously, we're seeing that in your margin guidance on the contract operations where it looks like you're more than offsetting any kind of inflationary pressures. Can you talk a little bit about your actions there and what you're trying to do in a growth market containing those costs? D. Childers: On the SG&A front, first and then on OpEx -- the nice thing about this business and our platform is our SG&A is very scalable. We can add quite a bit to our operational activities without expanding our SG&A proportionately. So what you're really seeing is the benefit of the full year acquisition benefits coming from the NGCS transaction and the expansion of our organic horsepower, and we just -- we have a great SG&A platform that can grow our activity without growing our SG&A investments. So it's just a very scalable position to be in. We expect to benefit from that in the future. And that's why you're seeing -- when you think about SG&A as a percent of revenue, you're seeing that continue to come down nicely. On the OpEx side, I'm going to point out a few things that are really long-term focused from a strategic perspective, and we're seeing the benefits now and so are our customers. Over the last several years, we focused hard on our fleet mix, expanding into large horsepower, expanding into electric motor drive. These are the 2 most profitable segments of the market. And by shifting that mix, if you look over a long period of time, you're going to see that our OpEx per horsepower costs have remained super flat for a long time, notwithstanding inflation because we've been fighting off inflation and some of these pressures by engaging in these strategies of adopting a different fleet mix focused on large engines and motor drive. Second, we've been adding technology to our platform. And so we've invested hard into digitization, automation and just great telemetry into our system, and that's driving a lot of savings in activity, a lot of efficiency and optimization into our activities in the field. So those are the big threads that we're reaping the benefits from. And candidly, so are our customers because we've been able to actually manage the concurrent improvement of customer service, maximizing uptime for our customers and at the same time, managing our costs, which we get to pass some of that on to them in the form of very competitive rates. So those are the biggest drivers that I can think of on how we're attacking costs even in this market. Douglas Aron: Yes. I would maybe just make one more point on SG&A, which is that, look, '25 levels were elevated just a little bit, candidly, in recognition of the incredible performance delivered by both the management team and also all of the operating team. And so you saw our short-term incentive and longer-term incentives flow through a bit into that, something that we're glad to share up and down throughout the entire company. But with stronger performance comes stronger expectations in '26. So that level for guidance was reset to more of a target level. I think Brad otherwise summed that up well. Steve Ferazani: That's really helpful. I always try to get a question in about aftermarket, Brad, the guidance there, look, I know '25, you benefited from equipment sales and you pointed out how that can affect margins. I'm just curious about the growth opportunities given that U.S. compression third parties is growing as well. At any point, do you become waiver constrained to meet third-party service demand? Or can you continue to grow that business? D. Childers: I actually really appreciate getting a question on AMS because it has been a standout performer for us for a couple of years now. And that team has just done an excellent job in improving the profitability of the business. But one of the strategies to improve the profitability of the business is to be more selective on the jobs that we take and the customers that we work with. So I do think that the growth in that business has -- we've demonstrated that it's constrained. And I also think that access to labor is going to further be a constraint in that business as it is in contract operations. But what we're really seeking is to have the right business. We're trying to make sure that it's as profitable as it can be as value adding to our customers as it can be, and we will grow it prudently. But given the nature of it, I do not expect it to grow in leaps and bounds. I expect we're still going to see sharper levels of growth in the infrastructure side of the business in contract operations. Operator: Question comes from the line of Elvira Scotto with RBC Capital Markets. Elvira Scotto: So just a couple of follow-up questions for me. The first one, you talked about your investments in technology over the years, telemetry, big data, et cetera. Can you talk about how much more margin improvement or uptime or what you can drive over time? What inning are we in, if you will? And are there other AI initiatives you can undertake to drive incremental margin improvement or uptime for your customers? Any additional color there? D. Childers: Yes. Thank you. the overall strategy around our technology investments really had 3 goals as our top line priorities. Number one, we've got to continue to drive improvement to the uptime, our customers' experience to service quality, and that's all of the above from a communication perspective, speed of response perspective as well as run time. We want those priorities to come through to our customers. Number two, the market has labor challenges. And so ensuring our labor, our mechanics have the access to the best tools, the best information, best communication to make their lives better and to make their work more easier to perform is the second priority around that initiative. And third would be that if we succeed in both of those, we knew we would drive improvements to profitability. So with that lens on how we think about technology, we do believe there is still more to come, especially in driving improvement to the service quality that our customers get to experience, just enhancing the customer experience. We are deploying AI in a couple of ways throughout our business, both to make sure our mechanics have the best information at their fingertips and candidly at their laptop and on their iPhone as they can. So the speed of how they can ask questions and receive information is something we're working on quite a bit. Second, we can also make our machines smarter and tell us more. And so getting great the data machine to have great analytics capability and using AI to sort through the noise to identify the most actionable items coming from the alarm system within all of the telemetry and all the sensors we have on the equipment is something we're absolutely working on. And last, there's more ahead of that. We believe that there's also additional sensor technologies, vibration technologies and acoustic technologies that can utilize AI on the equipment, and we're working hard to figure out how to bring those to market. So that's what we are working on. We are really pleased with the progress we've made to date, the improvement it's had to our operations. But I can't even call the inning in this because I think technology is a continuous improvement exercise, and we are going to focus on driving continuous improvement in the operations that we have at the company. Elvira Scotto: Great. That's very helpful. And then just my quick follow-up. Are you seeing any change in your customers' desire to in-source compression more or outsource compression more? Any change to that dynamic? D. Childers: We have not seen a change or shift in the dynamic of in-sourcing and outsourcing. We believe that the customers' primary decision-making around what they're going to do with their compression is driven by their own capital availability, capital allocation and a buy-lease analysis of how long they think they can earn a return on that asset. And all of those factors still favor significant outsourcing, we believe, in the market today. When you think about where we're at, where our large horsepower stays on location on average about 8 years, -- if that is a unit that the customer was considering to purchase and they only had 8 years of use for it, it doesn't make a lot of sense for them to make a 30-year investment for 8 years. So we still think that the overall buy lease analysis is informed by how long the customer expects to be able to utilize that equipment. And what we see in the outsourced industry is that we can amortize our 30-year investment over a broader geography over a broader customer base. And so we have -- that's the driver of our value proposition, and we haven't seen a change in that. Operator: Your last question comes from the line of Nick Ami, I'm sorry, with Evercore... Nicholas Amicucci: Just one quick one from me and actually a follow-up and just a clarification on another one. But just given kind of the significant kind of sentiment shift that we've seen from the hyperscalers and just in the AI complex to more of a behind-the-meter solution, just specifically in West Texas, I mean, we had a couple of companies yesterday kind of call out the Permian as kind of an area of ripe for opportunity just given the lack of regulatory constraint. Just wanted to see like has that kind of come to fruition? Have you guys been seeing that level of demand on your end? Have you seen that kind of true inflection of demand yet? Or is there kind of inevitably more to come on that? D. Childers: If I'm understanding the question fully, what we're seeing is that -- let me just ask for a clarification. that a question for the demand for power, provision for power or translating into compression? Could you clarify for us, please? Nicholas Amicucci: Translating into compression, just given that the vast majority of all of these -- all of this demand, right, is going to be powered by -- through natural gas through natural gas generation. So just kind of reading the tea leaves, it would kind of imply that we'd have some significant demand in that area. D. Childers: Yes. Thank you. That's really helpful. What we are seeing just overall is the demand for in-basin gas supply is something we're seeing an increase in. And I think a lot of it is driven by more in-basin use of natural gas rather than needing to find a long-haul pipeline to get it out to support other markets. So yes, we are seeing that translate in demand. But it's translating into more -- to be direct, more future demand than it is immediate current demand. Nicholas Amicucci: Got it. Perfect. And then just kind of touching quickly on the aftermarket, the AMS segment again. So I understand that it's probably -- you guys are taking more of a prudent approach. But just given that we are seeing kind of the units, the assets run harder for longer and kind of the constraints within the supply chain, is there a meaningful kind of price opportunity that could be there, especially given that you guys are taking more of a prudent and deliberate approach like unit economics? Just trying to figure that out from a margin perspective. D. Childers: We're really happy actually with the returns we're achieving right now and the 24% gross margin for the prior quarter is something that we're pretty excited about. That said, we do see opportunities that we're not going to go into detail on for other reasons, you can imagine, to continue to improve both the stability, quality and earnings in that business. But what I'd say is that if you think about a business that has very low barriers to entry and a ton of competition, that would -- the aftermarket services might be in the dictionary under that heading. And so finding the right strategy to execute both with excellence with the right customer base and on the right jobs becomes -- remains a priority for us in operating that business. Operator: There are no more questions. And now I'd like to turn the call back over to Mr. Childers for final remarks. D. Childers: Great. Thank you all for joining us today and for your continued interest in Archrock. By nearly every measure, 2025 was a standout year for the company, and we're encouraged by how 2026 is shaping up as we benefit from strong U.S. gas production trends and the result -- and the returns from our continued investment in a first-class compression platform. We appreciate your support and look forward to updating you on our progress next quarter. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Everyone, have a great day.
Operator: And welcome to the Euroseas Ltd. Conference Call on the Fourth Quarter 2025 Financial Results. We have with us Mr. Aristides Pittas, Chairman and Chief Executive Officer, and Mr. Anastasios Aslidis, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. Please press star one on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today. Please be reminded that the company announced their results with a press release that has been publicly distributed. Before passing the floor over to Mr. Pittas, I would like to remind everyone that in today's presentation and conference call, Euroseas Ltd. will be making forward-looking statements. These statements are within the meaning of the federal securities laws. Matters discussed may be forward-looking statements, which are based on current management expectations that involve risks and uncertainties and may result in such expectations not being realized. I kindly draw your attention to Slide number two of the webcast presentation, which has the full forward-looking statement, and the same statement was included in the press release. Please take a moment to go through the whole statement and read it. And now I would like to pass the floor over to Mr. Pittas. Please go ahead, sir. Aristides Pittas: Good morning, ladies and gentlemen, and thank you all for joining us today for our scheduled conference call. Together with me is Anastasios Aslidis, our Chief Financial Officer. The purpose of today's call is to discuss our financial results for the three- and twelve-month periods ended 12/31/2025. Please turn to Slide three of the presentation for our core financial highlights. For 2025, we reported total net revenues of $57,400,000 and a net income of $40,500,000, or $5.79 per diluted share. Adjusted net income for the quarter was $1,300,000, or $4.48 per diluted share. Adjusted EBITDA for the period was $40,700,000. Please refer to the press release for the reconciliation of our net income and adjusted EBITDA. Anastasios Aslidis will go over our financial highlights in more detail later on in the presentation. As part of the company's common stock dividend plan, we are pleased to announce that the Board of Directors increased the quarterly dividend by 7% to $0.75 per share for 2025. This represents an annualized dividend per share of $3.00, resulting in an annualized dividend yield of about 5% based on our current share price. Additionally, since the launch of our 20,000,000 share repurchase program in May 2022, we have repurchased 480,000 shares of common stock in the open market, representing about 6.8% of our outstanding shares, for an aggregate price of approximately $11,400,000. Following two one-year extensions, the program was renewed for the first time in May 2025. We intend to continue executing our repurchase program in a disciplined manner, deploying capital when appropriate to support and enhance long-term shareholder value. Please turn to Slide four for an overview of our recent developments where we highlight key progress across vessel sales and business partnering activity and operational performance. As previously announced, we successfully completed the sale and delivery of motor vessel Marcus V to her new unaffiliated owners. This transaction generated a gain on sale of $9,200,000. On the chartering front, we secured multiyear employment for several vessels, further strengthening our revenue stability. Motor vessel Gragos, Terrapate, and Lawniverse were all fixed for about three years at an attractive daily rate of $30,000 per day. In addition, motor vessel Lean Expenses were fixed for a minimum of 22 months and a maximum of 24 months at a daily rate of $21,500 per day. We had no idle or commercial off-hire days for the period. Now please turn to Slide five. Our owned fleet currently consists of 21 vessels with a total carrying capacity of 1,000 TEUs and an average age of 13.1 years. This includes six intermediate vessels with a combined carrying capacity of 25,500 TEUs and an average age of 18.2 years, and 15 feeder vessels with a combined carrying capacity of about 45,000 TEUs and an average age of 9.4 years. In addition, we have four intermediate vessels under construction, each with a capacity of 4,484 TEUs. Two of these are expected to be delivered in 2027 and the remaining two in 2028, adding a further 18,000 TEUs of capacity to our fleet. On a fully delivered basis, our fleet will grow to 25 vessels with a carrying capacity of approximately 80,000 TEUs. Operator: Ladies and gentlemen, please stand by. Your conference will resume. You are now connected. You are now connected. Aristides Pittas: Sorry for the interruption. We had the line break down. I hope you can hear me. I will continue. I just described the 4,484 TEU vessels that we expect to take delivery in 2027 and 2028. So now please turn to Slide six for a further update on our fleet employment. We continue to benefit from a high level of forward coverage. Looking ahead, we have secured a high degree of revenue visibility in the several years. For 2026, 87% of our available voyage days have been fixed at an average daily rate of approximately $30,700 per day. In 2027, our coverage stands at about 71% with an average rate of around $31,900 per day, whilst for 2028, we already have 41% of our days secured at an average rate of around $32,400 per day. This forward coverage, achieved through our disciplined chartering strategy, allows us to balance market exposure with earnings stability across different phases of the cycle. It provides meaningful cash flow visibility and positions us to sustain profitability over the next several years, even in the event of a sudden market correction. Moving on to Slide eight, let's review the key market developments during 2025. One-year time charter rates remain firm at historically elevated levels, supported in the near term by a substantial portion of the fleet being fixed forward. This forward coverage has helped sustain charter rate resilience even though the freight market softened amid increased vessel supply and seasonally weaker demand. The Shanghai Containerized Freight Index recovered by approximately 13% from near two-year lows recorded in late September. On a quarter-on-quarter basis, average rates across the major container segments were largely unchanged and continue to hover around similar high levels. Secondhand asset prices remained stable in 2025 compared to the previous quarter. This resilience was supported by limited vessel availability and continued competition among buyers seeking to expand their fleets amid ongoing trade disruptions. Meanwhile, the newbuilding price index declined modestly, easing by 1.5% quarter over quarter. After an extended period of strong growth, container newbuilding prices softened in the fourth quarter compared to the third. As yards are mostly full till 2028 and consequently, ordering activity has slowed. However, prices remain high by historical standards. Idle fleet capacity has trended steadily downward and is now approaching negligible levels. Recycling activity remained muted in 2025, with just 11 vessels being scrapped during the year. Scrap prices have recently softened to around $435 per lightweight ton in Bangladesh. Overall, the global fleet expanded by approximately 7% in 2025. Please turn to Slide nine for our broader market overview focusing on the development of six- to twelve-month time charter rates over the past ten years. As illustrated on the slide, charter rates across all major container segments remain meaningfully above the respective ten-year historical averages and median levels. While rates have moderated from the extraordinary peaks of 2021 and 2022, they continue to reflect a structurally stronger earnings environment than the long-term norm. This is particularly evident in the feeder and intermediate segments where demand remained solid. These vessel classes continue to play a critical role in maintaining network flexibility and supporting regional and intra-regional trade flows, especially amid ongoing geopolitical uncertainties and supply chain realignments. Moreover, limited vessel availability at the moment combined with sustained demand continue to support the elevated time charter rates. Please turn to Slide 10. According to the IMF 2026 World Economic Outlook Update, the global economy is projected to maintain a resilient expansion, with GDP growth now forecast at 3.3% in 2026 and 3.2% in 2027, reflecting a slight upward revision to the outlook relative to last October's projections. Inflation pressures are expected to ease further with headline inflation declining from an estimated 4.1% in 2025 to 3.8% in 2026 and 3.4% in 2027, supporting a gradual return to target price stability. Despite a relatively stable medium-term outlook, there are still meaningful downside risks, though. These include the possibility that expectations around technology-driven growth prove too optimistic as well, of course, as the risk of escalating geopolitical tensions. Ongoing trade frictions and broader geopolitical fragmentation continue to create uncertainty for the global economy. The recent events in Venezuela, Greenland, and the Middle East are a reminder that external risks remain always present. That said, some trade pressures could possibly ease in 2026, which could help reduce the drag from the tariffs on overall growth. In the United States, growth is projected to remain broadly steady with GDP growth expanding by about 2.4% in 2026 and 2% in 2027, although business and consumer sentiment appears subdued and inflation is expected to ease towards target only gradually. Among emerging markets and developing economies, India is forecast to remain one of the fastest-growing major economies, with GDP growth projected at about 6.4% for both 2026 and 2027, which is underpinned by robust domestic demand and investment momentum. The E7 M5 region is projected to also maintain solid growth with expansion of 4.2% in 2026 and 4.4% in 2027, supported by strong domestic investment and technology exports even amid global trade uncertainties and tariff pressures. Finally, China's growth trajectory is expected to moderate more, with GDP forecast at 4.5% in 2026, down from 5% in 2025 and easing further to 4% in 2027. The slowdown reflects pressure from weaker external demand, subdued manufacturing investment, and ongoing challenges in the property sector. While segments of the economy, particularly exports and AI-related investment, continue to grow at a healthy pace, broader domestic demand remains soft, pointing to an increasingly K-shaped recovery. On the containerized trade, according to Clarksons’ latest estimates, containership trade growth is projected to soften, with TEU-mile demand expected to decline by approximately 1% in 2026 and 5.5% in 2027. This decline is solely due to the expectation that trading through the Suez will normalize during these two years. Some of this artificial uplift in TEU-mile demand is expected to unwind beginning in 2026, with a more pronounced impact anticipated in 2027. At the same time, the substantial newbuilding ordered during the pandemic period is scheduled for delivery over the coming years. This influx of tonnage is likely to outpace underlying demand growth at certain points in the cycle, particularly if geopolitical disruptions ease more rapidly than expected and vessels are able to return to more efficient routes. Turning on to Slide 11, you can see the total fleet age profile and containership outlook. The top left chart shows that the total containership fleet remains relatively young, with the majority of vessels under 15 years of age and only about 13% of the fleet over 20 years old. This, however, changes drastically if you look in the feeder and intermediate segments in isolation, which we will go over in the next few slides. Staying on this slide for a moment, the top right chart illustrates scheduled new deliveries as a percentage of the existing fleet at approximately 5% for 2026, 8.5% for 2027, and 17.6% for 2028 onwards. Although actual fleet growth is expected to be somewhat lower due to slippage and future demolition activity. The bottom chart shows that the order book has increased to close to 35% of the fleet as of February 2026. Let's turn to Slide 12 where we highlight the fleet age profile and order book specifically in the 1,000 to 3,000 TEU range, which represents our feeder fleet. As of February 2026, the orderbook for vessels below 3,000 TEU stands at a relatively modest 10% of the fleet. At the same time, roughly 28% of the fleet is over 20 years old. This dynamic points to a clear imbalance between limited newbuilding activity on one side and an aging fleet on the other. As environmental regulations tighten and compliance costs increase, a meaningful portion of these older vessels are likely to be scrapped. According to Clarksons, deliveries in this size range remain limited, with newbuilding additions projected at only 2.4% of the fleet in 2026, followed by 3.9% in 2027, and 3.8% in 2028 and beyond. Let's move to Slide 14 now to see the supply outlook for the 3,000 to 8,000 TEU segment representing the intermediate containership segment. As of February 2026, the orderbook here stands at 17% of the fleet, a modest level compared to the largest main classes. Meanwhile, the age profile of this segment is also notably advanced, with almost 29% of vessels being over 20 years old, and another 37% between 15 and 19 years. With a limited newbuilding pipeline, net fleet growth in this segment is expected to remain contained over the next few years. Moving on to Slide 14. This chart places those dynamics in a broader context across the entire containership sector. What becomes very clear is how sharply the orderbook is concentrated in the larger vessel classes. Neo-Panamax and post-Panamax units show orderbooks of 40% to nearly 80% of the existing fleets, in line with the significant capacity being added to the mainlane trades. By contrast, the feeder and intermediate segments show significantly smaller orderbooks ranging from just 4% to 18% depending on size, despite a meaningful share of these fleets—between 20% and almost 40%—already being more than 20 years old. This widening gap between newbuilding activity in the large vessel segments and the more limited replacement in smaller sizes highlights why our core segments remain structurally well-positioned with minimal risks of oversupply. Now please turn to Slide 15 for a synopsis of our outlook on the container sector. Trends remain multifaceted. While time charter rates remain strong, weaker freight rates, firm fleet growth, macroeconomic uncertainty, and the possibility of vessels being rerouted again via the Red Sea point to the potential for a softer market environment ahead. Overall, time charter rates remain at historic highs. Looking into 2026, the container sector is expected to deliver one of the lowest orderbooks in recent years, with only 5% expected to be delivered versus 8.5% expected to be delivered in 2027 and over 17% in 2028 and beyond. However, any return to normality in routes could release effective capacity back into the market, potentially putting pressure on rates and prompting further network adjustments. Looking further ahead to 2027, when containership deliveries are set to accelerate, we could experience additional softening in container shipping markets. While capacity management and higher demolition activity may help mitigate part of this pressure, the sector still faces the potential for a more challenging supply-demand balance. The energy transition continues to pick up speed in the container subsector. Alternative fuels are clearly on the horizon, but the shift is not happening overnight. Technical challenges, economic hurdles, and delays in finalizing the IMO net-zero framework mean the journey to zero emissions will be gradual. Still, the momentum is undeniable, and the industry is steadily charting a course towards an even cleaner future. Let's turn to Slide 16. The left-hand graph shows the cycle of the one-year time charter rate for 5,000 TEU containerships over the past ten years. As of 02/20/2026, the one-year time charter rate stands at $36,000 per day, well above both the ten-year historical average and median levels. This firm rate environment is mirrored in asset values as well. Newbuilding vessels are now valued at approximately $43,000,000 compared to a ten-year median of $35,000,000 and an average of roughly $36,000,000. Likewise, ten-year-old secondhand vessels are currently valued at $37,500,000, significantly higher than the ten-year historical median of $15,000,000 and historical average of about $21,000,000. The continued firmness in charter rates and asset values highlights the underlying resilience of the containership market and reflects the robust long-term fundamentals that continue to underpin demand for these vessels. Our financial strength allows us to act strategically as attractive investments emerge in both the secondhand and newbuilding segments. Supported by our strong liquidity profile and revenue visibility, we believe we are well positioned to further enhance shareholder returns. Our investors can rely on us continuing to offer a meaningful dividend, as our recent 7% increase demonstrates, whilst retaining excess earnings for further optimized growth. And with that, I will pass the floor to our CFO, Anastasios Aslidis, to go over our financial highlights in more detail. Thank you very much, Aristides. Good morning from me as well, ladies and gentlemen. Anastasios Aslidis: Over the next few slides, I will give you the usual overview of our financial highlights for the fourth quarter and full year of 2025, and compare them to the same periods of the year before, 2024. For that, let's turn to Slide 18. For 2025, the company reported total net revenues of $57,400,000, representing a 7.7% increase over total net revenues of $53,300,000 during 2024. The increase is mainly due to the result of the higher charter rates earned in 2025 compared to the corresponding period the previous year, partly offset by the decreased average number of vessels that we operated in 2025. Consequently, including the $9,200,000 gain on the sale of our vessel MV Marcos V during the fourth quarter, we reported a net income for the period of BRL 40.5 million as compared to a net income of $24,400,000 for 2024. Total interest and other financing costs for 2025 amounted to $3,400,000 compared to $4,100,000 for the fourth quarter of the previous year, before accounting for €600,000 of imputed interest income related to the self-financing of the pre-delivery payments for one of our newbuildings at the time, which was capitalized. This decrease is mainly due to the decreased benchmark interest rates of our bank loans in the current period, 2025, partly offset by the slightly higher amount of debt we carried. During both periods, we reported interest income of about $800,000. Adjusted EBITDA for 2025 increased to $40,700,000 compared to $32,800,000 for the corresponding period of 2024, a 24% increase primarily due to the higher revenues we collected. Basic and diluted earnings per share for 2025 were $5.92 and $5.79 respectively, calculated approximately on about 7,000,000 basic and diluted weighted average number of shares outstanding compared to basic and diluted earnings per share of $3.51 and $3.49 respectively for 2024. Excluding the gain on the sale of vessel and the unrealized income or loss on derivatives, the adjusted earnings per share for 2025 would have been $4.50 basic and $4.48 diluted—one of our highest quarters—compared to adjusted earnings per share of $3.35 basic and $2.33 diluted for the same period of 2024, during which we also had to adjust our results for the contribution of the fair value of below-market charter rate contracts and the related depreciation. Let's now look at the numbers for the full year 2025 and compare them to the full year of 2024. For the full year of 2025, the company reported total net revenues of $227,900,000, representing a 7% increase over total net revenues of $212,900,000 during the full year of 2024, and that is again mainly the result of the higher number of vessels we owned and operated and the higher average time charter equivalent rates we earned during 2025. We reported a net income for the year of 2025 of BRL 137,000,000 compared to a net income of $112,800,000 during 2024. Total interest and other finance costs for the twelve months of 2025 amounted to $15,100,000, again not including $100,000 of imputed interest income, compared to interest and other financing costs of $13,800,000 during 2024, not including, again, $4,200,000 of credit interest income in relation to our newbuilding program. This increase is mainly due to the increased amount of debt in the current period compared to the same period of 2024. Adjusted EBITDA for the twelve months of 2025 increased to $155,900,000 compared to $135,800,000 during 2024, a 15% increase again, primarily the result of the higher revenues we collected. For the full year of 2025, we recorded a $19,400,000 gain on sale of vessels: a $10,000,000 gain on the sale of motor vessel Diamandis earlier in the year, and a $9,200,000 gain on the sale of motor vessel Marcus V, compared to a $5,700,000 gain on the sale of motor vessel Lia Mastoria we recorded during 2024. Basic and diluted earnings per share for 2025 were $19.73 and $19.72 respectively, calculated on about 6,900,000 basic and diluted weighted average number of shares outstanding compared to basic and diluted earnings per share of $16.25 and $16.20 during 2024. Again, excluding the gain on sale of vessels, the unrealized income or loss on derivatives, the contribution of the fair value of below-market time charter contracts and related depreciation for the relevant periods, the adjusted earnings per share for the twelve months ended 12/31/2025 would have been $16.75 basic and $16.74 diluted compared to $14.92 basic and $14.97 diluted for 2024. Now, let's turn to Slide 19 which highlights our fleet performance. As usual, we report our utilization rate there, and our utilization figures are near 100% across all periods, so I will not get into describing in detail the individual utilization rates. On average, 21.22 vessels were owned and operated during 2025, earning another time charter equivalent rate of $30,268 per day compared to 23 vessels during 2024 earning on average $26,479 per day. Our total daily operating expenses, including management fees and G&A expenses but excluding drydocking costs, were $8,284 per day during 2025, compared to $7,728 per vessel per day for the same period in 2024. If we move further down in this table, we can see the cash flow breakeven levels, which take into account the above expenses and, in addition, interest and debt burden expenses and loan repayments without accounting for balloon payments. For 2025, our daily cash flow breakeven level on that basis was $13,009 per vessel per day compared to $13,936 per vessel per day for 2024. Finally, below the breakeven line, you can see the dividend we distributed expressed in dollars per vessel per day, and that amounts to a little more than $2,000—$2,509—for 2025, where the debt was increased, and $2,035 for 2024. Let me quickly review the annual figures on the right part of this slide. Again, for the full year of 2025 and 2024, the utilization rates were near 100%. So let me jump and say that on average, 22.2 vessels were owned and operated during 2025, earning on average $29,107 per day compared to 21.7 vessels in 2024 earning on average $28,054 per day. Total operating expenses for the full year, including management fees and G&A expenses but again without drydocking costs, were $7,600 in 2025 compared to $7,526 in 2024. The gross margin breakeven level for the full year ended up being $13,100 in 2025 compared to $14,794 for 2024, and again, in the last line, we can see the dividend we paid expressed in dollars per vessel per day, and that amounted to $2,335 in 2025 versus $2,131 in 2024. Let's now turn to Slide 20. And in this slide, we want to provide a better perspective of the depth of our contract coverage, especially in light of the recent charters that we concluded and I think are mentioned earlier in the presentation. The table shown presents the development of our fleet ownership days over the period of the next three years and an estimated breakdown of how many days are available for hire and how many days are already contracted. It incorporates assumptions about delivering days for the vessels under construction, scrapping days for older ships, technical drydocking and timing, timing and duration, utilization assumption going forward, and estimates for contracted days and average contracted rate. Please note that the data presented in this table represents our internal estimates provided for indicative purposes and used for modeling future time charter equivalent revenues, and actual results may differ. Nevertheless, we believe this provides useful visibility into our forward revenue and earnings profile. Our contract coverage currently stands at approximately 87% for 2026, 71% for 2027, and about 41% for 2028, as Aristides mentioned earlier. Average contracted rates are approximately $30,700, $31,890, and $32,400 per day for the respective years. We hope this framework will assist investors and analysts in evaluating earnings potential forward by making their own assumptions for the uncontracted days of the fleet and coming to an estimate of our revenues and future profitability. Let's now turn to Slide 21 to review our debt profile. As of 12/31/2025, our total outstanding bank debt stood at about $218,400,000 at an average interest rate margin of about 2%. We assume a three-year SOFR rate of 3.7%, the total cost of our debt stands at about 5.7%, which is well within the prevailing rates for our segment and peers. Turning to our debt amortization profile, in 2026, scheduled repayments amount to approximately $19,500,000. In 2027, our total debt service—debt repayments—increases to about $36,800,000, consisting of $16,800,000 of regular repayments and a €20,000,000 balloon payment. Repayments moderate to approximately $12,000,000 in 2028 with no balloon maturities during that year. Looking further ahead, 2029–2030 includes total repayments of $33,800,000, again comprising $7,400,000 of scheduled repayments and a $26,400,000 balloon repayment. In the past, we were able to refinance balloon repayments routinely if we chose to do so; this remains our expectation for the upcoming balloon payments over the next five years shown in this chart. If we choose to refinance them, we expect to be able to do so relatively straightforwardly. Please also note that this table shown here does not include debt that we expect to draw to finance the construction of our four newbuildings, which we estimate to be in the range of $140,000,000 to $150,000,000 for the four vessels. Overall, our debt maturity profile remains well staggered with no significant near-term refinancing pressure. At the bottom of this slide, we show our customer breakeven estimate for the next twelve months broken down by its key components. On this basis, our total cash flow breakeven level for the next twelve months stands at approximately $12,200 per vessel per day, a level well below the contracted and prevailing earnings of our fleet. Given the average earnings of our fleet for 2026 stand above $30,000 per vessel per day, one can appreciate the cash flow generation that our vessels provide. To sum up my remarks, let's move to Slide 22 to review some highlights from our balance sheet. As of the end of last year, cash and other current assets totaled €188,700,000. We have already made about $35,900,000 advances for our newbuilding vessels. The book value of our fleet stood at $465,000,000, bringing the total book value for our assets to about $700,000,000. On the liability side, as I mentioned in the previous slide, we had debt amounting to $218,600,000 and other liabilities amounting to about $18,200,000, resulting in shareholders' book equity of roughly $463,000,000. However, the market value of our fleet is significantly higher than the respective book value. According to our last estimates, our fleet is valued at approximately $664,000,000, which translates into a net value for our company of about $660,000,000 or around $93.70 per share. With our last closing price in the recent trading range of $62.40 per share, our stock trades at almost a 33% discount to its charter-adjusted net asset value. That highlights the appreciation potential that our stock has given the discount and the depth of our contracted revenues. And with that, let me pass the floor back to Aristides to continue the call. Aristides Pittas: Thank you, Anastasios. Let me now open up the floor for any questions you may have. Thank you. Operator: We will now be conducting a question-and-answer session. Our first question comes from the line of Mark Reichman with Noble Capital Markets. Please proceed with your question. Mark Reichman: Thank you. Well, I know you have got some of those balloon payments coming up, but I was just wondering, given your strong liquidity and contract backlog, how are you prioritizing between the dividends, share repurchases, secondhand acquisitions, and potential newbuild orders? Basically your capital allocation priorities. Aristides Pittas: We will continue giving a strong dividend to our shareholders. We will continue looking at opportunities to grow the company accretively. We do not see such opportunities in the secondhand market, so we are more focused on the newbuilding market. We will keep very moderate leverage, and we will capitalize whenever there is an investment opportunity to do. I think that is the strategy in one minute. Mark Reichman: On the last call, you had mentioned that containership orders had accelerated as charters had committed to take new ships on charter for longer periods even with deliveries well into the future. And I think you had mentioned that with that new supply, you thought the rates for older vessels could experience pressure beyond 2026 unless demand accelerates. So it just seems like the containership market is kind of transitioning towards those newer vessels. But it sounds like you kind of expect scrapping to accelerate meaningfully over the next two to three years. And to what extent do you think that could offset the new deliveries? Aristides Pittas: Scrapping will not happen unless we see charter rates falling, right? Because now even very old vessels continue to get employment at very decent rates. So, as soon as the market drops though, I would expect a significant increase in the number of ships that go to the scrapyard. Because indeed the average age of the fleet has grown dramatically. So, first step that will happen is the market will drop at some point, perhaps because the world finds some equilibrium and we start trading through the Suez and do not have such disruptions. That will mean there will be too many ships around, that will mean the market will fall. Charter rates will drop. Vessels will be scrapped, older vessels will be scrapped. And then we will be buying more secondhand vessels at significantly lower prices. The newbuilding market has grown sufficiently, as we discussed, but now one can expect to take a newbuilding delivery in 2029 onwards. So this makes quite a lot of people reluctant to place orders when they are going to receive the vessels three, four years down the line. Mark Reichman: And then just—I ask this question generally every conference call—could you just provide some visibility on the off-hire or drydocking days in 2026? Maybe even 2027. Anastasios Aslidis: I will be happy to provide that. I mean, as I said on top of my—the drydocking strategy for the next—it is very, very limited. It is very, very limited for this year. So we have gone through most of the, as Aristides said, imminent drydockings. Aristides Pittas: We have two, I think, this year. Anastasios Aslidis: Yes. And whatever the expenses are pretty minimal for the next twelve months. So you can tell from the chart on Slide 21 that the actual component is very small per day, so that is reflective, I guess, for the— Mark Reichman: Okay. Well, thank you very much. I really appreciate it. It is very helpful. Aristides Pittas: Thank you, Mark. Thank you. Operator: Our next question comes from the line of Tate Sullivan with Maxim. Please proceed with your question. Tate Sullivan: Thank you. I mean, arguably, I think asset values and the long-term contracted value for the sector has gone up, and M&A probably lifting higher. But separately, on the other side, I see operating expenses per day of $7,000 roughly in the fourth quarter, up about 5% year over year. Based on your exposure in the sector, can you talk—as the market is pricing higher for crew costs, supplies—what do you see across your business? Anastasios Aslidis: A big part of those, Tate, is the dollar-euro exchange rate that was the most opposite for us during the fourth quarter, during the latter part of 2025. A portion of our operating expenses are in euros—the management fee and some other expenses. So that is part of it. Tate Sullivan: Are you seeing any higher salary costs, salaries—yes, crew salaries—and probably not to that 5% increase amount. Or is that not— Anastasios Aslidis: No. Increases are below 5%, both on crew costs and G&A. It is the euro-dollar thing that has increased a little bit spare parts, management fee costs, things like that affected by the euro-dollar. Also, please note that on the quarter, at least, where we operated two vessels less in the fourth quarter of this year, the G&A component is divided by a smaller number of ships, and so that is why you see probably a little bit bigger jump on a per-day basis on a per-vessel basis. Tate Sullivan: Okay. And while I have you two, I mean, dividend policy—impressive streak of dividend increases. How do you and your Board evaluate the dividend? I mean, how do you compare what you see from other containership companies? Are you looking at 20%, 30% payout ratio or depending on the year, please? Aristides Pittas: We do not have a steady payout ratio that some other companies have. But we do have a strategy of providing a very decent dividend to our shareholders. I think our current dividend yield of around 5% is about the lowest level we will have it at. So, if need, we might pay out more out of our—we pay out of our earnings in dividends so that we continue to pay a very decent dividend. Tate Sullivan: Thank you. Aristides Pittas: You are welcome, Tate. Thanks. Operator: Our next question comes from the line of Poe Fratt with Alliance Global Partners. Please proceed with your question. Poe Fratt: Yes. Hello. You have covered a lot of ground, and you always do a comprehensive overview of the industry. Aristides, if you could just highlight what the near-term prospects are for some of your upcoming open days. Specifically, looking at the older assets, the Corfu, the—I never can pronounce this correctly, but the—can you please name of my godmother. I know, and I always apologize for pronouncing her name incorrectly. I just cannot get it. But if you could just talk about the prospects there and then at what point do you consider scrapping those older assets— Aristides Pittas: I can tell you, Poe, that on all our modeling, we had been assuming up to very recently that the vessels will be scrapped. But the market has proven too strong for this to happen. So, we will pass the special surveys and charter them out for minimum one, hopefully two years. We are discussing with potential charterers, but I cannot make any further comment at this point. Poe Fratt: Okay. The implication is that rates are high enough to keep those in the fleet active until maybe the 2027 timeframe, maybe 2028. Aristides Pittas: So yes, I would say, Poe, that, you know, they are going to pass this special survey now. So they will potentially have another three years of life if they pass the special survey. We will be able to trade them for another three years before we need another extensive survey. And that is probably the time that they will be scrapped. Poe Fratt: Okay. And with extensive forward cover, as Anastasios says, it makes it simpler for us to model out the cash flows and how your financial position is going to look. And even with newbuild costs of $140,000,000 to $150,000,000, I think over the next two years, I have you in a net cash position assuming that you do not need to finance those newbuild payments. You have bought stock back fairly—not as sizable as maybe you would have hoped just given the potential volume constraints. You have increased the dividend. Even with a higher dividend, you are still in net cash position. At what point—and you are talking about newbuilds potentially, but newbuilds would be 2029, 2030 delivery at this point in time. So are you thinking at all about a special dividend to distribute some of the cash to shareholders? I mean, at least in my model, you are overcapitalized when I look out into 2027 and even 2028. Is a special dividend something you might consider— Aristides Pittas: You are correct, I think, in your calculations. We are not really considering a special dividend at this stage. So probably, we are hopeful that we will be able to find use for the extra capital that we currently have—better use than returning it to shareholders. But we will continue providing a very decent dividend to our shareholders. Poe Fratt: Yes. And implied in that, Aristides, I had you increase the dividend at the middle of the year, not at the beginning of the year. Is the potential cadence of dividend increases going to be a little quicker because of how much cash you have on the balance sheet and how much cash you could— Aristides Pittas: That is very probable, but I really cannot comment on how we will decide. But the dividend will be—addition. Hopefully, our share price will appreciate, and then we will feel that we need to always have a minimum dividend and therefore increase the dividend as well. Operator: Okay, great. Thank you. Anastasios Aslidis: Thanks. Operator: Our next question comes from the line of Climent Molins with Value Investor's Edge. Please proceed with your question. Climent Molins: Hi, good afternoon. Thank you for taking my questions. Most has already been covered, but I wanted to follow up on Tate’s question on the cost side. Is your OpEx guidance for 2026 based on the current euro and USD rate? Anastasios Aslidis: What is the guidance for—what is, what we assume for the dollar-euro exchange rate? Climent Molins: Exactly. Because your guidance aims lower than Q4 OpEx, and it was—what were the key drivers behind that? Anastasios Aslidis: I think there is—basically, every year, we are making a budget for expected OpEx for the following year, which reflects potentially expenses required for certain ships during the period, and an assumption for the dollar-euro exchange rate. So I think we expect the dollar-euro exchange rates to remain in the high teens, 1.15 to 1.20 range. And typically, we budget—we are finalizing the budgets for this year now, but we, as a base, we assume a 3% overall increase for our OpEx expenses. I do not know whether that is exactly what you asked— Climent Molins: Yes. I was asking your assumption on the euro-USD exchange rate because you mentioned that as the driver behind the cost increase? Anastasios Aslidis: Yes. I mean, it is in the high teens, 1.15 to 1.20. Aristides Pittas: If you—but for 2025, we started off with 1.05. We ended at 1.18. So that was—and our costs are maybe, I would say, about 25% overall euro-related. Climent Molins: That is helpful. Aristides Pittas: That is— Anastasios Aslidis: Okay. Operator: Our next question is a follow-up question from Mark Reichman with Noble Capital Markets. Please proceed with your question. Mark Reichman: I just wanted to follow up on Poe’s question. You have got the four intermediate vessels to be delivered in 2027 and 2028. But when you look at your feeder vessels, I mean, you have got a few that are aging. So is now the time to start ordering some feeder vessels? I mean, there is the lead time, if you are telling us that Everdiqui and Corfu probably have about three years left? Aristides Pittas: Of course, but we are looking into that possibility. Nothing to report yet. Thank you, guys. Operator: We have reached the end of the question-and-answer session. Mr. Pittas, I would like to turn the floor back to you for closing comments. Aristides Pittas: Thank you all for attending our conference call today, and we will be back in three months, starting with similar kind of results. Thank you. Thanks, everybody. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to the Chatham Lodging Trust Fourth Quarter 2025 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. I would now like to turn the conference call over to Chris Daly, Owner of Daly Gray Inc. Please go ahead. Chris Daly: Thank you, Jenny. Good morning, everyone, and welcome to the Chatham Lodging Trust Fourth Quarter 2025 Results Conference Call. Please note that many of our comments today are considered forward-looking statements as defined by federal securities law. These statements are subject to risks and uncertainties, both known and unknown, as described in our most recent Form 10-Ks and other SEC filings. All information in this call is as of 02/25/2026, unless otherwise noted, and the company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations. You can find copies of our SEC filings and earnings release, which contain reconciliations to non-GAAP financial measures referenced on this call, on our website at chathamlodgingtrust.com. Now, to provide you with some insights into Chatham Lodging Trust’s 2025 fourth quarter results, chairman, president, and chief executive officer allow me to introduce Jeffrey H. Fisher, Dennis M. Craven, executive vice president and chief operating officer, and Jeremy Bruce Wegner, senior vice president and chief financial officer. Let me turn the session over to Jeffrey H. Fisher. Jeff? Jeffrey H. Fisher: Thank you very much, and I certainly appreciate everyone joining us here for our call today. Before talking about the fourth quarter specifically and our outlook for this year, I would like to spend just a few minutes highlighting some noteworthy as we look back at the last year. Operationally, it was a really good year for us to despite the extreme volatility that adversely impacted the industry and our top line. On the top line, for the fourth consecutive year, though, our RevPAR performance beat the industry, and we continued pushing our other operating profits, other department operating profits higher as well. Despite essentially flat RevPAR, and for this, we were really we were able to limit our GOP margin decline to only 20 basis points by staying laser focused on our staffing levels and improving productivity. Our labor and benefits costs actually declined slightly in 2026, offsetting wage increases of almost 4% in the year. And most importantly, for the first time since the pandemic, we generated the highest operating margins in the industry, reclaiming our top spot among the rankings that we held for an entire decade from 2010 to 2019. Looking ahead to this year, our hotel wages are reassessed in July each year and our wage increase for the 2025 is up only 2% versus the first half of the year, which means wage pressures are moderating throughout 2026. Strategically, we sold four of our older lower RevPAR hotels proceeds to reduce debt at an approximate cap rate of 6% and used those and to acquire shares under the repurchase plan we initiated in 2025. Since announcing the plan, we have repurchased approximately 1,800,000 shares, or approximately 4% of our outstanding shares, at an average price of $6.87 per share, for a total repurchase of almost $13,000,000, or just over half of our $25,000,000 plan. At our average acquisition price, those shares were acquired at an approximate 9.5% cap rate based on our 2026 corporate NOI guidance. And might be the only lodging REIT with an average repurchase price below current trading levels since peers initiated their repurchase plans. Using average multiples for the last 25 years, these repurchases certainly are going to be accretive. On the corporate side, we added 10 rooms to our portfolio by converting excess meeting space and other available spaces, which will deliver the best returns for those spaces in the hotels. We continue to participate in the GRESB Sustainability Benchmark and ranked 29th out of 95 listed companies. We completed the largest and most attractive financing in Chatham Lodging Trust’s history, with total capacity of $5,000,000,000 while reducing our overall borrowing costs, and we used proceeds from the sale of assets and free cash flow to reduce our net debt by $70,000,000 and further reduce our leverage ratio to a mere 20%. By the way, that leverage compares to almost 35% in 2019. All of these accomplishments allowed us to increase returns to our shareholders, and we were able to increase our common dividend by 28% in 2025. Including our repurchase plan and both common and preferred dividends, we returned approximately $35,000,000 to our shareholders. It was truly a great job by our teams at Island Hospitality and Chatham Lodging Trust staying in constant communication and on the same page delivering solid results throughout a very volatile year. As we move forward, we are confident in the industry long term. The supply-demand equation should benefit existing owners as construction costs remain quite high, and development is only justified in certain markets, GDP growth is healthy and should accelerate if even a portion of the trillions of dollars of announced investments in technology and reshoring of manufacturing come to fruition in the United States. Existing hotel owners should benefit via stronger RevPAR growth in the years ahead. We obviously need to be able to push those incremental revenue dollars down to GOP, and really, for the first time in almost a decade, wage pressures are mitigating to the lower single-digit range, which is vital given that labor costs are our largest expense. As we sit here today, we are in a great position to deliver earnings growth and shareholder returns in multiple ways. First, we will continue to repurchase shares and intend to utilize most, if not all, of our $25,000,000 plan this year. Second, operationally, we are positioned to outperform the industry on both top and bottom line. There was a lot of noise in 2025 that impacted RevPAR in some of our key markets, so, hopefully, things calm down this year. And if they do, our operating model is best at driving profits higher as we have demonstrated over and over again. Third, we will continue to opportunistically sell older non assets with the goal of reinvesting those proceeds into share repurchases or hotel investments. And on that front, we were disappointed not to make any external acquisitions in 2025, but sometimes the best deals are the ones that you do not do, and we never had enough conviction on any deals and chose to remain patient. With significant financial flexibility, we are confident that we can make some acquisitions in 2026 as financing costs have lessened and seller pricing expectations have adjusted somewhat from where we were a year ago. The markets, of course, will have to make sense for us. And we are looking for some continued diversification both in markets and demand generators. And of course, yields have to approximate the implied yield on buying our own stock. We want to invest in markets that are going to benefit from increased business investments which is generally the Central and Southeastern US. Lastly, we do expect to commence our Portland, Maine hotel development in the coming months with opening before the 2028 summer. As I stated earlier in my comments, hotel development really only makes sense in certain markets. And Downtown Portland happens to be one of them, especially considering we have no cost basis in the land. Our focus is on increasing shareholder returns and, in addition to the share repurchase program, we believe our initiatives should enable us to return even more money to our shareholders via further increased dividends this year. Before Dennis gets into the fourth quarter details, I do want to spend a few minutes talking about our largest market, Silicon Valley, its performance in 2025, and our outlook beyond. Silicon Valley is our largest market, and RevPAR grew only 1% in 2026. But it was a tale of two halves, as RevPAR was up 5% in the first half of the year and then we were off 4% in the third quarter and less than 1% in the fourth. Our Mountain View Residence Inn was under renovation for the last two months of 2025 and will remain under renovation through March. Also, if you recall from our third quarter call, we lost some business related to pricing strategies around a single corporate client at our two Sunnyvale hotels. Third quarter RevPAR was down 9% in the third quarter, and we did a great job replacing that business, or some of it, in the fourth, with RevPAR only down 1%. We will continue to feel some impacts in the first quarter of this year as to that account. But as the year progresses, our comps will get better, and we will benefit from World Cup schedule, and that sets up very well for our two Sunnyvale hotels. And of course, we remain very constructive on the Valley, and Mountain View, particularly, of course, is anchored by Google, Waymo, LinkedIn, Intuit, and several other firms that certainly provide a good steady source of demand for that hotel. Sunnyvale is quickly rebounding from the post-pandemic slumber. Sunnyvale's office market is rebounding faster than any other Silicon Valley market, and had 1,400,000 square feet of positive absorption last year. In 2025, Apple increased its square footage by over a million feet, and LinkedIn added to its campuses, and Applied Intuition, which is a $15,000,000,000 software company for self-driving cars, moved into Sunnyvale. And, of course, our largest client, Applied Materials, is building a $4,000,000,000 chip facility that is only a block or two away from our two Sunnyvale hotels. So we certainly look forward to continued better times over the next few years in the Valley. With that, I would like to turn it over to Dennis. Dennis M. Craven: Good morning, everyone. Some additional RevPAR information. Occupancy at our four Silicon Valley hotels was 72%, and ADR was up 2.5% in the quarter, despite that shift in business that Jeff talked about in Sunnyvale from the third and fourth quarters. Our six predominantly leisure hotels, which account for approximately 20% of our EBITDA, produced RevPAR growth of 50 basis points in the quarter. And the shutdown’s impact on our three DC-area hotels accounted for about 60% of our quarterly RevPAR decline. Some more color on our larger markets: California, which is home to two more of our top eight markets in addition to Silicon Valley, Los Angeles and San Diego. San Diego RevPAR declined 8% in 2025 as the market retracted from an all-time best convention calendar in 2024. Additionally, demand slipped due to the opening of the nearby Gaylord, as well as the shutdown of the border, which reduced our government business at our hotel. The 2026 convention calendar sets up similarly to 2025 with 43 conventions in 2026 versus 46 in 2025. In LA, RevPAR at our three hotels is up 4% in 2025 due in part to the significant fire-related business we received, especially at our Woodland Hills Home2, which benefited basically from January through the early parts of May. Now, obviously, in the LA area for the balance of the year, it was generally softer of 2025 due to the general unrest in the LA area. Hopefully, that also settles down in 2026, and similar to Sunnyvale, we should benefit from World Cup demand given the proximity of our Marina del Rey and Anaheim hotels to the stadium in LA. In other large markets, our Coastal Northeast hotels have better 2026 comps due to renovation impacts in 2025, and our DC-area hotels have much easier comps after January due to all the shutdown-related businesses or pauses in 2025. Our Bellevue Residence Inn also should continue to benefit from increasing corporate demand. In Texas, all three markets have felt the impact of convention demand fall off, with Dallas and Austin's convention centers under renovation and expansion, while San Antonio just did not have a great convention calendar in 2025. Dallas will have tough convention comps through the first quarter, but we will see demand from the World Cup in the second and third quarters, as Dallas not only hosts nine games, which is the most of any city, but the nearby Kay Bailey Convention Center will host up to 5,000 media professionals as it is serving as the International Broadcast Center for the World Cup Research Center. And then, in a very encouraging development for our two Austin hotels at The Domain, a planned $3,000,000,000 MD Anderson Hospital in recent that was previously expected to be built downtown is now expected to be built at The Domain with groundbreaking starting in 2026. Outside of our top markets, at our Home2 in Phoenix, as a reminder, it opened in 2024, and we acquired the hotel in May 2024. RevPAR was up approximately 17% in the quarter as we continue to gain market share as we have been able to partner with the nearby baseball stadium, the arena, and the convention center to participate in business blocks that were, you know, generally reserved far in advance of the stay dates. Charleston and Savannah continue to grow due to rising corporate demand in South Carolina, and in Savannah, coming out of a really great renovation, it has really done well with getting additional corporate demand and leisure demand to the hotel. Our top five RevPAR hotels in the quarter were our Residence Inn White Plains with RevPAR of $200, our Residence Inn Fort Lauderdale at $186, and Residence Inn New Rochelle, New York at $185, followed by our Residence Inn Anaheim, our Hampton Inn Portland with RevPAR of $166. For 2025, our top RevPAR hotels were the Hampton Inn Portland, with RevPAR over $200, and, of course, that is great news for our pending development, followed by our Hilton Garden Inn Marina del Rey, Residence Inn White Plains, Fort Lauderdale, and San Diego Gaslamp, all five with RevPAR over $185. As Jeff remarked in his opening comments, we were pleased with our ability to mitigate our margin loss throughout 2025. During the fourth quarter, our GOP margins only declined 30 basis points despite RevPAR declining almost 2%. We were able to hold the year-over-year increase in labor and benefit cost to just under 2% in the quarter, which was the primary driver behind limiting the decline in that department’s profit to only 1%. Most other operating line items were relatively stable year over year, with non-departmental expenses flat at approximately $21,000,000, and the only other major item to note was guest acquisition-related commission cost were down a couple hundred thousand dollars and aided our margins by approximately 20 bps. Our hotel EBITDA margins benefited from some one-time property tax refunds, and then they actually grew 70 basis points in the quarter. Property insurance was down 3% in the quarter, and great news on our renewal is that those premiums are projected to decline a further 15% on a same-store basis in 2026. For the year, our GOP margin decline was limited to a mere 40 basis points. Labor and benefits only increased 1.2% on a per-occupied-room basis for the quarter and actually declined slightly from last year to 2025. For the 33 comparable hotels, our headcount decreased 13% from a year ago. For the quarter, our top five producers of GOP were all Residence Inns. In fact, the top seven were all Residence Inns, but leading the way was Residence Inn Gaslamp with $1,600,000, followed by our Residence Inn Anaheim, both Sunnyvales, and White Plains. For the year, our Gaslamp Residence Inn led the way followed by our Residence Inn Sunnyvale number two, Sunnyvale number two, and Bellevue hotels. And then rounding out the top five were our Embassy Suites Springfield, despite all of the government shutdown impacts and threats, and lastly, our other Sunnyvale hotel. So just to point out, despite a volatile last two quarters in Sunnyvale, the fact that both of those hotels, as well as our Bellevue Residence Inn, were in our top five of GOP producers in the year is pretty encouraging from a corporate demand standpoint. On the CapEx front, we spent approximately $4,000,000 in the quarter, and during the quarter, we had commenced renovations at our Residence Inn in Austin and Mountain View, California, and those will be wrapping up as Jeff talked about shortly. Our CapEx budget for 2026 is approximately $26,000,000, basically the same as 2025, and includes three renovations at a cost of approximately $717,000,000. The three hotels scheduled for renovation in 2026 are our Gaslamp Residence Inn, our Hyatt Place Pittsburgh, and our Homewood Suites Farmington, all three scheduled to commence in the fourth quarter. Lastly, when you look at our guidance, I wanted to note the projected performance of our top markets. Silicon Valley RevPAR is projected up 3% to 5% in 2026 with increasing business travel demand as well as a favorable World Cup schedule, as nearby Levi's Stadium is hosting six games. Los Angeles is down 1% to 3%, again primarily due to the tough comps caused by the LA wildfire demand in our hotels in 2025. Our Coastal Northeast portfolio is projected to be between flat to up 2%, with our Greater New York hotels essentially projected to finish flat for 2026. In DC, we are projected up 2% to 4% as we lap overall the shutdown effects. San Diego is projected to be down slightly, again due to the decline in conventions from 46 to 43. And Dallas is projected to be down mid-single digits due to the lost business related to convention center expansion and renovation that is ongoing. And lastly, of our top markets, Bellevue is expected to grow mid to upper single digits as it laps over renovation comps, but also increased business travel demand and a little bit of World Cup as well. Jeremy? Jeremy Bruce Wegner: Thanks, Dennis. Good morning, everyone. Our Q4 2025 hotel EBITDA was $22,400,000, adjusted EBITDA was $20,200,000, and adjusted FFO was $0.21 per share. We were able to generate a GOP margin of 40.2% and hotel EBITDA margin of 33.2% in Q4. GOP margins for the quarter were only down 30 basis points from Q4 2024, despite the 1.8% RevPAR decline in the quarter due to outstanding expense control and stabilizing inflationary increases, and hotel EBITDA margins increased by 70 basis points due to $550,000 of property tax refunds in the quarter. In late December, Chatham Lodging Trust closed the sale of the Homewood Billerica for $17,400,000, and over the course of 2025, Chatham Lodging Trust completed four asset sales for a total of $71,400,000. These asset sales, together with the successful refinancing and upsizing of Chatham Lodging Trust’s revolving credit facility and term loan in late September, have helped Chatham Lodging Trust achieve its lowest ever leverage level and highest ever level of liquidity. Chatham Lodging Trust’s strong balance sheet puts the company in an excellent position to continue actively repurchasing shares and to grow opportunistically through accretive acquisitions. Turning to our 2026 guidance, we expect RevPAR of minus 0.5% to plus 1.5%, adjusted EBITDA of $84,000,000 to $89,000,000, and adjusted FFO per share of $1.04 to $1.14 for the full year. This guidance reflects our decision to exclude noncash stock-based compensation expense from our adjusted FFO effective 01/01/2026, so that our presentation is comparable to how the majority of lodging REIT peers report this measure. Our guidance reflects the sales of the Homewood Billerica, Homewood Brentwood, Courtyard Houston, Hampton Houston, Homewood Billerica, which closed in 2025 and collectively contributed $2,100,000 to Chatham Lodging Trust’s 2025 EBITDA. You should also note that Chatham Lodging Trust’s 2025 EBITDA and FFO included approximately $2,600,000, or $0.05 per share, of one-time benefits from property tax refunds, workers' compensation refunds, and payroll tax refunds, which are not expected to repeat in 2026. Reflecting the asset sales completed in 2025, our 2025 RevPAR would have been $130 in Q1, $156 in Q2, $154 in Q3, $131 in Q4, and $142 for the full year. In 2025, our RevPAR increased 4.4% in Q1 before declining 0.4% in Q2, 0.9% in Q3, and 1.8% in Q4, so year-over-year comparisons will generally be challenging in Q1 2026 before getting easier over the rest of the year. We generally expect that Chatham Lodging Trust’s Q1 2026 RevPAR will be low single digits and then be positive for the rest of the year. Also note that our capital structure includes $200,000,000 of floating-rate debt, and our guidance assumes that SOFR will decline based on the current forward curve, which reflects the assumption of rate cuts in 2026. So our guidance assumes quarterly interest expense will decline over the course of 2026. While our guidance does not reflect any share repurchases or acquisitions, our plan is to continue repurchasing shares and, over time, to reinvest asset sale proceeds into accretive acquisitions. This concludes my portion of the call. Operator, please open the line for questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question is from Gaurav Mehta from Alliance Global Partners. Your line is now open. Gaurav Mehta: Yes, thank you. Good morning. Wanted to ask you on some other dispositions that you have made in 2025. As you look into your portfolio, do you think there is room to start any more assets in 2026? Dennis M. Craven: Hey, Gaurav. This is Dennis. Nice to talk to you. Listen, I think, you know, we probably have one or two more that we will opportunistically look at selling. But, you know, I think certainly the half a dozen hotels we have sold over the last 18 months or so kind of, you know, did a good bit of trimming. So we will always look to do a couple here and there, but with the purpose of certainly reinvesting those dollars. Gaurav Mehta: Okay. And maybe on the, I guess, acquisition side, I think in the prepared remarks, you said maybe there is some improvement in the pricing. And just wondering if you could maybe provide some more color on, I guess, deploying some of the disposition proceeds from last year and maybe taking leverage up back to historical levels? Jeffrey H. Fisher: Yeah, this is Jeff. We are certainly comfortable since we have been at this for a long time with leverage levels, you know, that we have had from 2010, for example, to 2020. So, yes, we are, you know, we have been digging in here and doubling down on our efforts. I think generally what we are seeing in the market since RevPAR has flattened out, and this always seems to be the case, sellers seem to get a little bit more realistic about, you know, what their hotel may or may not really be worth, and have a little more incentive, I think, to transact if they have got, you know, flat RevPAR and, you know, an EBITDA going down a little bit, such as, you know, occurred during 2025 and, you know, the prospect by most companies in the category that we like, you know, as you know, is kind of a flattish RevPAR outlook. Again, we think for us and maybe for others, that is a very conservative outlook, but we are going to take advantage of that outlook by owners as well and try to make a few deals. Gaurav Mehta: Alright, great. Thanks for those details. Maybe on, I guess, the expense and margin side, where do you expect to see some pressures in 2026? I think on the rate side, it seems like it is coming down to mid-single digits, maybe outside of wages, other expense line items. Dennis M. Craven: Yeah, I mean, listen, I think especially early in 2026, utilities have a little bit of pressure on them just because of the cold storms that have hit, whether it was the Central and Southeast last month and now, or earlier this month, but also now you have the Northeast. So I think you are probably all of will have a little bit of utility pressures here in the first quarter. But really outside of that, Gaurav, I mean, I think it is really how much you can control the labor on an inflation, you know, wage increase basis. So really, everything else is fairly stable from an operating expense standpoint. Gaurav Mehta: Alright. Thank you. That is all I had. Dennis M. Craven: Thank you. Operator: Thank you. Your next question is from Ari Klein from BMO Capital Markets. Your line is now open. Ari Klein: Thanks and good morning. Maybe just following up on the expense side. You have had a lot of success there and you have, you know, generated some real productivity improvements. Just curious how much room you think is left on that front, you know, and the ability to kind of, you know, keep a lid on cost just from those productivity improvements. Dennis M. Craven: Hey, Ari. I mean, listen, I think we would certainly love to say there is always more. But, you know, I think as I talked about in my prepared remarks, our headcount is down about 13% year over year. Both Chatham Lodging Trust and Island are spending a lot of time literally adjusting models every day based on, you know, trends, and it was very volatile in 2025. So I think, you know, given the fact that we are hopeful that, you know, as Jeff talked about with wage increases kind of averaging right at 2% from the first half of the year to the last half of 2025, you know, that we have not seen anything that has changed that over the first almost two months of 2026. So, you know, for us, it is all about controlling wages and headcount. And, you know, we are going to continue to do that throughout the year. And hopefully, helps, you know, us do a little bit better down the road. Jeffrey H. Fisher: Yeah. I mean, the focus there is not trying to continue to find cuts that probably do not exist, but it is to flow, you know, if it is a nominal RevPAR increase, it is to flow that money to the GOP and to the bottom line. And I think we have proven, you know, that Island has been pretty successful in doing that. So really, that is for this year. If we get some upside, we want to see that flowing right to the bottom line, you know, to enhance those returns for everybody. Ari Klein: Thanks. Appreciate that color. And then maybe just a couple of quicker ones. You gave a lot of detail on your market level expectations for 2026. Curious just, you know, overall, the impact from the World Cup and your expectations around that, given that you do have a number of markets that seem well positioned there? And then just on the Portland, Maine development, just the cost associated with that, and I do not believe that is included with CapEx. Just wanted to confirm that. Dennis M. Craven: Yep. Yeah, so I will start with Portland. The cost is not included in our CapEx number. We will come out with official guidance on that probably at our next earnings call, Ari, with respect to dollars and especially the timing of the flow of those dollars over the project to make sure everybody at least has it modeled correctly. And then with respect to the World Cup, I mean, listen, I think we have, you know, certainly you look at it by market, we are going to be fairly conservative at the outset. And just to give you a specific example, you know, the International Broadcast Center at the Kay Bailey Convention Center in Dallas, you know, just within the last few months, we had a smaller group that basically canceled for the hotel. I think you probably, you know, you hear that, you know, in some locations there is, you know, concerns about demand and tickets and who is coming in and everything like that. So, you know, yes, it is going to be very good for the markets in general, but at least where we sit here today, we are going to be, you know, we are still going to be a little bit conservative about how that ultimately translates because there is still, you know, some uncertainty over demand related to events in certain cities, whether that is, you know, LA, Seattle, and even in Dallas. Operator: Alright. Thank you. Thank you. Thank you. You once again please press 1 should you wish to ask a question. And your next question is from Tyler Batory from Oppenheimer. Your line is now open. Tyler Batory: Just want to expand on the RevPAR guide a little bit, and you gave some details on and whatnot. But just really trying to get a good sense on the cadence that we should expect for the year. I think you said down single digits in Q1 and then up the rest of the year. I mean, how much of that is just the comps? You know, maybe, you know, remind us, you know, some company-specific building blocks this year that are contributing to the growth in the last three quarters of the year compared with the first quarter? Okay, great. From a revenue management perspective, how are you thinking about the mix of occupancy ADR in 2026? And how is that influencing your margin expectations for the year? So, switching gears to capital allocation. You have been pretty active repurchasing shares. Assume you still view the stock as undervalued given where shares are today. How aggressively do you expect to deploy the rest of that authorization? And just help us think about your balancing potential buybacks with what you might do in terms of acquisitions. Dennis M. Craven: Yeah. I mean, I think, you know, basically, if you look at first quarter this year, tough comps due to one inauguration last year and the wildfires. And then for the last three quarters of the year, you know, you are kind of looking at a zero to two-ish, one-and-a-half-ish RevPAR growth for the balance of the last three quarters. A lot of that is due to the effects of, you know, whether that was in DC with the three hotels with all shutdowns, you had a lot of uncertainty and unrest in LA that really pulled back some demand that, you know, I think should aid us this year. We have a couple of, like, one-time events. Obviously, Pittsburgh is hosting the NFL Draft in the second quarter right outside the doors of our hotel, so that is going to be a plus in the second quarter. And I think from a, you know, a summer perspective, if you look at it, we are trading off a Ryder Cup out on Long Island with a US, I believe it is US Open at Shinnecock. So that really should not affect much. But I think in general, you know, across some of our larger markets where, you know, there was some should be some easier comps the last three quarters of the year. Dennis M. Craven: Yeah. I mean, I think, you know, I think generally speaking, it is mostly ADR growth for 2026. Think it might be just a—yeah, it is really all—yeah. Yeah. It is basically kind of flattish occupancy, so strictly ADR. Dennis M. Craven: Yeah. I think, Tyler, I will start. I mean, I think with respect to the repurchase plan, you know, we intend to utilize most, if not all, of it in 2025. If you look at kind of the portfolio and the free cash flow from 2025 and 2026, after CapEx and after dividends, you know, it is essentially, we are using all of that over the last, you know, between those two years to utilize the entire repurchase, which we think is just a, you know, it is how it should be done. Right? You are generating excess cash flow after dividends, and we believe we are undervalued there, and we are going to buy it back. So, and I think, listen, from an external perspective, buying hotels, you know, as we have thought, we have not really done. The last hotel we bought was Phoenix in May 2024, so it has been almost two years. We have been very, you know, just patient and understanding not only from the financing and what Jeremy did with the balance sheet over the last couple years. That was a lot of work. But we are in a great position from a debt perspective to hopefully do some deals, and of course, it has got to be at a cap rate that makes money, especially in, you know, makes sense in light of where we are trading. But, you know, that is why we have been pretty patient. So we are hopeful to be able to execute on that a bit more here in 2026. Tyler Batory: Okay. That is all for me. Thank you for the detail. Dennis M. Craven: Thank you, Tyler. Operator: Thank you. There are no further questions at this time. Please proceed. Jeffrey H. Fisher: Well, I think we can wrap it up by saying thank you all for being on the call and being attentive. Good questions. As I said, hopefully, this guidance is conservative. And we do have the benefit of some, you know, as Dennis explained, some positive attributes for this year on the top line that should come to fruition and flow that to the bottom line as the focus. So we will look forward to talking to you for the next quarter. Thanks. Operator: Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the BlueLinx Holdings Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. And today's call is being recorded. We will begin with opening remarks and introductions. At this time, I would like to turn the conference over to your host, Investor Relations Officer, Thomas C. Morabito. Please go ahead. Thomas C. Morabito: Thank you, Operator, and welcome to the BlueLinx Holdings Inc. Fourth Quarter and Full Year 2025 Earnings Call. Joining me on today's call is Shyam K. Reddy, our Chief Executive Officer, and Christopher Kelly Wall, our Chief Financial Officer and Treasurer. At the end of today's prepared remarks, we will take questions. Our fourth quarter and full year news release and Form 10-Ks were filed yesterday after the close of the market along with our webcast presentation and these items are available in the Investors section of our website, bluelinxco.com. We encourage you to follow along with the detailed information on the slides during our webcast. Today's discussion contains forward-looking statements. Actual results may differ significantly from those forward-looking statements due to various risks and uncertainties, including the risks described in our most recent SEC filings. Today's presentation includes certain non-GAAP and adjusted financial measures that we believe provide helpful context for investors evaluating our business. Reconciliations to the closest GAAP financial measure can be found in the appendix of our presentation. I will now turn it over to Shyam. Thanks, Tom, and good morning, everyone. 2025 embodied grit and determination. Our fourth quarter and full year results demonstrated our ability to grow the business in the face of another year of challenging market headwinds and competitive pricing conditions. Our relentless focus on the company's profitable sales growth strategy targeting both single and multifamily end markets with different disruptive product and service expansion initiatives led to flat net sales and higher volumes at solid margins in 2025 when compared to 2024. Our strategy is working, as it enables us to successfully navigate a market that saw 2025 single family housing starts down 7% year over year. In essence, our disciplined execution of the strategy led to share gains across multiple product lines and customer channels. In terms of M&A, our acquisition of the Distero Lumber Company is going well and performing as expected, which I will speak to in a moment. I would like to offer a few highlights from 2025. We delivered solid full year results thanks to the team's commitment to our product and channel strategies and our business excellence initiatives. As a result, we competed effectively in challenging end markets to win business and achieve solid gross margins of 18% in specialty products and 9.2% in structural products for the year. Our operating cash flow highlights the effectiveness of our disciplined approach to managing inventory in a challenging market environment. Our results reflect the effective commercial and inventory management capabilities we have as demonstrated by our successful efforts to address the inventory build ahead of a normal spring-summer selling season that never emerged. As market conditions improve, those capabilities are expected to translate into materially stronger cash flow. Our fourth quarter results were also solid for the same reasons, though we did have an extra week in the quarter that increased top line, volumes, and SG&A. Revenues rose slightly year over year driven by higher volumes and the addition of the Distero specialty product sales in our financial results, which helped offset continued pricing pressure in structural products that lasted through the end of the year. Specialty and structural gross margins were 18.1% and 10%, respectively, reflecting the strength of our customer value proposition and effective inventory management. Our product strategy remains designed to grow our five key higher margin specialty product categories: engineered wood, siding, millwork, industrial, and outdoor living products. Though our efforts are now more deliberately aligned with the channel growth strategy to yield greater success. Despite market softness, and multifamily sales that generate incremental structural product sales, the specialty products growth strategy led to approximately 70% of net sales and over 80% of gross profit for both the fourth quarter and full year 2025. While our product mix shift objectives remain on track, we are emphasizing strategic channel growth when assessing new product launches and managing working capital, which we believe gives us a competitive advantage. We continue to grow our multifamily channel, fine-tune our builder pull-through efforts with key customers, and expand our national accounts business to more effectively drive sales across key product categories. Our focus on strategic value-added services that align with specific customer needs is also differentiating us in the market, thereby enabling us to gain share and grow in challenging market conditions. We expect the multifamily end market to deliver strong long-term growth as multifamily housing stock is more affordable, which is why we remain committed to investing time, energy, and resources into this channel to augment our institutional sales efforts that ultimately support single family housing starts and repair and remodel activity. Recent year-over-year housing data has reinforced the strategic merits of investing in our multifamily channel, which grew volumes 19% for BlueLinx Holdings Inc. in 2025. From a strategic perspective, it, along with our builder pull-through efforts, provided effective pathways for converting customers to key brands, including Oncenter EWP, Allura fiber cement siding, and GP gypsum products. Naturally, this makes us an even more valuable growth partner to our suppliers, providing opportunities for geographic and product expansion with key partners. On the other hand, multifamily sales have longer inventory cycles and lower gross margins due to sales in a competitive pricing environment. From a vision and long-term competitive perspective, we made significant progress in 2025 on our digital transformation journey to become the provider of choice for both suppliers and customers. These transformational investments are designed to rapidly grow our business at scale with both customers and suppliers by providing an exceptional experience that is highly efficient and effective. These investments will also enable us to drive operational excellence via productivity and efficiency improvements that enhance our gross margins and our EBITDA margins. Phase one was completed in a timely manner and under budget. It included enhancements to our master data management platform and a new Oracle Transportation Management system. Although we successfully launched e-commerce pilots, we decided to place greater emphasis going forward on assisting several of our largest customers with optimizing their more advanced digital marketing platforms, thereby aligning our e-commerce strategy with our channel growth strategy. We currently view AI and current technological advancements as being the broad-based e-commerce solution going forward, rather than traditional e-commerce platforms, though our thinking may change as the fast paced tech environment evolves. As we mentioned last quarter, we are especially excited about advancing our AI initiatives that enable productivity improvements and align with our sales growth strategy and that support our business excellence initiatives. What began as a pilot with a small group in the company has expanded to give most salaried associates the ability to build agentic agents to streamline their work. We have also launched AI agents that help with modeling and data analytics, just to name a couple. We are even developing AI applications that support our core business such as value-add services, inventory management, commercial initiatives, and training. We expect subsequent digital investment phases to further strengthen our commercial, operational, and functional capabilities. Modernizing the business with new technology will set us apart from the competition and accelerate profitable sales growth and operational excellence. From an M&A perspective, we are pleased with the progress we have made with the purchase of Distero, a longtime Portland-based specialty distributor of premium high-margin specialty wood products used in custom homes, decks, and upscale multifamily projects. This acquisition advances our key strategies: increasing our specialty product sales, growing multifamily sales, and strengthening our Western U.S. presence. We believe Distero will be able to grow faster than it otherwise could by leveraging our national distribution network and strong customer relationships. Although it is early, we are pleased with Distero's results and the execution of our integration plan. Our financial position remains strong. We had liquidity of $726 million at the end of the year, including $386 million of cash and cash equivalents. This financial strength gives us the flexibility to reinvest in business initiatives that allow us to increase sales, improve productivity, expand our geographic reach, and provide better service to our customers and suppliers, all while providing us with the foundation to continue weathering soft market conditions. We were also able to opportunistically return capital to shareholders by completing $38 million in share repurchases in 2025. Now for a few more highlights in our full year results, we generated 2025 net sales of $3 billion and $83 million in adjusted EBITDA, for a 2.8% adjusted EBITDA margin. Adjusted net income was $7.8 million or $0.97 per diluted share. We were less profitable in 2025 compared to 2024 due to challenging market conditions and the SG&A impact of investments made to drive our commercial and digital transformation strategies. However, we are pleased that our strategic sales and product expansion efforts led to flat sales and higher volumes at solid margins. Specifically, we experienced 19% volume growth in multifamily, and 17% volume growth with some of our national accounts. Our builder pull-through programs executed in partnership with strategic customers led to key channel and specialty product growth. Our differentiated value proposition led to geographic and product expansion with key suppliers with meaningful year-over-year growth across multiple product lines that align with our channel growth strategy. For example, our EWP sales were roughly flat and our EWP volumes grew by more than 7% on a year-over-year basis despite significant headwinds affecting housing starts. We also delivered solid gross margin performance, despite difficult market conditions and a competitive pricing environment, with specialty products at 18% and structural products at 9.2%. Our relentless focus on the product and channel strategy fueled by our operational and business excellence initiatives such as effective pricing, strong value-add services, exceptional customer service, product expansion gains, and disciplined inventory management helped drive these results. Though the year demanded, our associates remained focused on the profitable sales growth strategy, customer service, and supplier expansion efforts, we did not lose sight of other important strategic levers to drive financial performance and shore up our financial position. For example, we purchased Distero, refinanced our ABL, and executed on certain cost-out and capital improvement initiatives. Now let's turn to our perspective on the broader housing and building product market. The housing market remains soft, pressuring the building materials and distribution sector. Affordability challenges, low housing turnover, and other factors continue to weigh on both housing and repair and remodel activity. We continue to view these pressures as temporary, especially given the persistent housing shortage and potential government policies that could unlock the housing recovery. Long-term fundamentals remain strong for both new construction and repair and remodel work for the foreseeable future, providing a durable value proposition for BlueLinx Holdings Inc. shareholders. Despite lower housing starts and tepid repair and remodel activity in 2025, our product and channel strategies drove share gains, supported by product expansion, builder pull-through, and value-add service initiatives, multifamily efforts, and national accounts attention. Our focus on the company's largest accounts enabled growth, despite low housing turnover and high interest rates. We believe that today's strategy and investments will accelerate momentum across all customer segments when the market improves. Regardless of the near-term market backdrop, we will continue executing our profitable sales growth strategy to gain share at scale today while continuing to make key investments in the business that will position us well for long-term sustainable profitable growth. Lastly, we are also monitoring the various proposals that the administration is exploring to help boost the housing market. While details are still being ironed out, we are optimistic that these proposals could kick-start the housing recovery. In summary, we delivered on our strategic priorities in 2025, as demonstrated by our specialty product expansion results, multifamily channel growth, key national accounts growth, margin performance, digital transformation, the Distero purchase, and our capital allocation initiatives. As a result, we delivered solid results for both the fourth quarter and full year 2025. We believe in our strategy and will continue to execute on it through the current cycle, which will position us for better-than-market growth when the housing recovery begins. I would like to wrap up by thanking all of our associates for their grit, resilience, and dedication during a difficult housing market. Your commitment to our customers, suppliers, and each other continues to drive more profitable specialty and structural product growth across our customer channels in challenging times while positioning us for long-term success. I will now turn the call over to Christopher Kelly Wall, who will provide more details on our financial results and our capital structure. Thanks, Shyam, and good morning, everyone. Let's first go through the consolidated highlights for the quarter. Christopher Kelly Wall: Before we get started, I would like to remind everyone that the fourth quarter of 2025 had 14 weeks versus our usual 13 weeks. As a result, our fiscal year also had 53 weeks versus the typical 52 weeks. Overall, both specialty products and structural products delivered solid volumes and gross margins within a challenging macro environment. Net sales for the fourth quarter of 2025 were $716 million, up slightly year over year. Total gross profit was $113 million and gross margin was 15.7%, down slightly from 15.9% in the prior-year period. SG&A was $102 million, up $10 million from last year's fourth quarter. This increase was mainly due to higher personnel expense, the addition of Distero, the extra week in the fourth quarter, and increased sales and logistics expenses driven by our strategic channel growth, including multifamily. Given the difficult demand environment, we remain focused on rigorous expense management and on identifying opportunities to further improve operational efficiency. Net loss for the quarter was $8.6 million, or $1.08 per share, primarily due to higher net interest expense, higher depreciation and amortization, and M&A-related expenses. Adjusted net loss was $3.7 million, or $0.47 per share. And we had an income tax benefit of 28% of the pretax loss. Adjusted EBITDA for the quarter was $13.9 million. Turning now to fourth quarter results for Specialty Products, fourth quarter net sales for Specialty Products were $505 million, up over 4% year over year. This increase was driven by higher volumes in nearly all product categories and modest price increases in millwork and siding, as well as the addition of Distero, partially offset by volume declines in millwork. Gross profit for specialty product sales was $92 million, up 3% year over year. Specialty gross margin was 18.1%, down slightly from last year's 18.4% primarily due to price deflation in certain product categories, partially offset by the acquisition of the higher-margin Distero business. Sequentially, Specialty gross margin increased 150 basis points from Q3 2025. Based on the first seven weeks of Q1 2026, we expect specialty product gross margin to be in the range of 17% to 18%, with daily sales volumes lower than the Q4 2025 and higher than the Q1 2025, which was heavily impacted by severe weather. Now moving on to Structural Products. Net sales were $211 million for Structural Products in the fourth quarter, down 7% compared to the prior-year period. This decrease was primarily due to lower pricing for both lumber and panels when compared to last year, offsetting the higher volumes we drove in those categories during the quarter. Gross profit from Structural Products was $21 million, a decrease of 14% year over year, and structural gross margin was 10%, down from 10.8% in the same period last year. In the fourth quarter of 2025, average lumber prices were about $378 per thousand board feet, and panel prices were about $438 per thousand square feet, a 12% decrease and a 20% decrease respectively compared to the average in the fourth quarter of last year. Sequentially, structural gross margin increased 70 basis points from Q3. And comparing the fourth quarter of 2025 to the third quarter of 2025, lumber prices were down nearly 8% sequentially and panel prices were down about 1%. Based on the first seven weeks of the current first quarter, we expect Q1 gross margin for Structural Products to be in the range of 9% to 10%, with daily sales volumes down versus the fourth quarter of 2025 and up compared to the first quarter of 2025, once again due to the severe weather experienced last year. For the full year, net sales were $3 billion in 2025, flat compared to 2024, largely due to volume growth in several categories and the Distero acquisition, offset by lower price deflation in both specialty and structural products. Specialty sales were up slightly in 2025 due to higher volumes and the Distero acquisition, partially offset by price deflation in several categories such as EWP and millwork. Structural product sales were down slightly as, similar to specialty, higher volumes were offset by price deflation. Total gross profit was $452 million for the full year and gross margin was 15.3%, 130 basis points lower than the prior-year period. SG&A in 2025 was $381 million, up 4% versus the prior-year period due to the acquisition of Distero, the extra week in fiscal 2025, increased sales and logistics expenses driven by our strategic channel growth, as well as investments we have made in headcount and technology to drive our strategy and long-term earnings growth initiatives. For 2026, we expect our SG&A expense to increase slightly as a percentage of sales due to the addition of Distero, an increase in strategic sales headcount and additional material handlers to deliver on expected volume growth, and overall inflation in wages and other expenses such as fuel and health care costs. Net income was $219,000 for the full year, and diluted EPS was $0.02 per share. Adjusted net income was $7.8 million and adjusted diluted EPS was $0.97 per share. The full year tax rate was not meaningful given the level of our pretax income, and for the full year 2026, we anticipate our tax rate to be approximately 25% of pretax net earnings before $3 million to $4 million of permanent nondeductible items impacting the tax rate. And for the full year, adjusted EBITDA was $83 million. Turning now to our balance sheet. Our liquidity remains very strong. At the end of the quarter, cash and cash equivalents were $386 million, a decrease of $44 million from Q3 largely due to the Distero acquisition, which, as a reminder, was purchased with cash. When considering our cash on hand and undrawn revolver capacity of $340 million, available liquidity was approximately $726 million at the end of the quarter. Total debt, excluding our real property financing leases, was $381 million and net debt was a negative $5 million. Our net leverage ratio, given our positive net cash position, was a negative 0.1 times adjusted EBITDA, and we have no material outstanding debt maturities until 2029. Additionally, given the strength of our balance sheet and continued strong liquidity, we remain well positioned to support our strategic initiatives. These strategic initiatives include continued growth with our largest customers, and in the multifamily channel, with this focus also benefiting our smaller customers, demand pull-through efforts to drive strategic product sales that benefit our customers, continued specialty product expansion with key suppliers, our digital transformation efforts, and other organic and inorganic growth initiatives. Now moving on to working capital and free cash flow. During the fourth quarter, we generated operating cash flow of $62 million and free cash flow of $56 million primarily due to effective working capital management, particularly as it relates to driving our inventory levels lower to be in line with the current demand environment, partially offset by the cash impact of lower earnings in the quarter. For the full year 2025, during the quarter, we incurred $5.4 million of CapEx, generated operating cash flow of $60 million and free cash flow of $33 million. Turning now to capital allocation, primarily related to our digital investments, normal replacement of aging components within our fleet, and the typical maintenance and investment in our branches. For 2026, we plan to manage our CapEx in a manner that reflects current market conditions and allows us to maintain a strong balance sheet. Our remaining capital investments will focus on facility improvements, further replacement of trucks and trailers, and the technology improvements previously discussed. Also, we did not repurchase any shares during the fourth quarter. For the full year 2025, we repurchased shares totaling $38 million. At year end, we had $58.7 million remaining under our previous share repurchase authorizations. Our guiding principles for capital allocation remain consistent with prior quarters. We intend to maintain a strong balance sheet which enables us to invest in our business through economic cycles, expand our geographic footprint, and pursue a disciplined inorganic growth strategy as demonstrated by our acquisition of Distero, and opportunistically return capital to shareholders through share repurchases. We also plan to maintain a long-term net leverage ratio of two times or less. Overall, we are pleased with our solid fourth quarter and full year 2025 results, particularly in light of current market conditions. Operator, we will now take questions. Operator: Thank you. If you would like to ask a question, please press star followed by the number one on your telephone keypad. Once again, to ask a question, please press star followed by the number one. Our first question comes from Jeffrey Patrick Stevenson from Loop Capital Markets. Please go ahead. Your line is open. Jeffrey Patrick Stevenson: Hi. Thanks for taking my questions today. You know, first up, you know, specialty products gross margin reported a nice sequential improvement during the fourth quarter and returned to your previously discussed normalized 18% to 19% range. And I wondered if you could provide more color on what were the primary drivers of the sequential improvement you saw in segment margins during the quarter? Christopher Kelly Wall: Yeah. Hi, Jeff. It is Kelly. So I think part of the improvement, if you recall, we talked last quarter, we had some one-time rebate-related true-ups with one of our vendors and that represented about half of the increase. It is really been normalizing for what we would expect in a typical quarter, and, you know, I guess the rest here is just continuing to maintain, you know, discipline, right, as we continue to price into what continues to be a challenging market. And what I would say is that as we move into 2026, right, we would, you know, kind of similar to the trend that we have seen in the back half of 2025 with the kind of a normalization or flattening, if you will, of the decline that we have seen over the last two or three years in that specialty product margin, we are expecting in 2026 to be relatively flat to the margins that we experienced in the fourth quarter. Shyam K. Reddy: And just to add, Jeff, you know, obviously, with soft market conditions, it is a competitive pricing environment. But given our go-to-market strategy with respect to product and channel, we are really leveraging our value-add services on top of key investments we have made to support those channels to really maintain our pricing at acceptable levels that correspond to the value we are providing, whether it be on project management, takeoff services, certain CapEx investments we are making to drive various product-related value-add services, and so on. So we are really proud of what we have been able to do over the last year in an incredibly challenging housing environment with respect to not only volume growth, but maintaining those margins you were asking about. Jeffrey Patrick Stevenson: No. That is great color, and I appreciate all the detail. And, you know, maybe kind of following up on, you know, specialty product pricing, in addition to some of the initiatives you have done internally, you know, we have heard from, you know, one of your competitors that, you know, EWP price has largely stabilized and, you know, we are likely at the bottom as far as sequential declines go unless the builders' spring selling season comes in worse than anticipated. And, you know, wondered if you would, you know, agree with that from what you are seeing in your business and, you know, maybe, you know, could talk about a broader, you know, pricing outlook in the segment as we move into the '26. Shyam K. Reddy: Yeah. I would say based on, you know, our conversations, well, between looking at macro-level data and conversations with customers, suppliers, and other stakeholders, we absolutely agree with that. We do think it has stabilized. But coming back to our value proposition in the market, there are various, you know, creative programs that we have developed on top of channel focus with multifamily, for example, that puts us in a more competitive position as it relates to driving, for example, EWP volumes while maintaining solid margins and being above the fray when it comes to an incredibly competitive pricing environment due to market conditions. But to your question, yes. We agree with that statement. Jeffrey Patrick Stevenson: Got it. Got it. Understood. And then, you know, lastly, you know, just, you know, appreciate the update on kind of where things stand with your technology investments. And, you know, wondered if you could provide, you know, additional thoughts on, you know, why you pivoted away from, you know, you know, an internal e-commerce, you know, platform, and now that, you know, there is more AI opportunities. And then, you know, moving forward, you know, you talked about, you know, a larger phase two, you know, with things like, you know, warehouse management system. Is that still in the cards over the coming years, Shyam? Shyam K. Reddy: Yeah. So to take your first question on e-commerce, I am sure you are in the same boat as us where you cannot pick up a paper every day or listen to something on the news where AI is rapidly changing the tech environment. So, for example, it is not out of the realm of possibility that people will be able to execute on e-commerce orders via ChatGPT or Claude or Perplex or one of these other AI platforms, or X off OpenClaw, which is all the big rage over the last couple weeks. You know, you have got vibe coding that is taking place as well where people can very quickly spin up new applications in order to drive sales internally as opposed to relying on third-party platforms. All of that is to say that I think it would be foolhardy to spend millions of dollars investing in an e-commerce platform that is based on traditional notions that could be obsolete before we even got through phase one of it. So the idea is to take a step back and invest on the digital e-commerce side in a way that aligns with our channel strategy and where we are driving sales. So with our biggest accounts, being more aligned with them to drive accelerated sales off their platforms and to really accelerate growth from a digital commerce standpoint that way, while continuing to evaluate the landscape and figure out ways to jump in as quickly as possible as the tech landscape changes. As it relates to WMS, we absolutely believe in WMS. In fact, we have a very successful pilot that has shown, you know, promising results. And so the idea would be to invest in a very responsible way over the coming, you know, twelve to twenty-four months, you know, in other facilities beyond what we already have. So, you know, we have bin locations and a variety of other things that support operational excellence and, you know, in a $3 billion top-line distribution business, we have that. The idea is to take it to the next level. And the recent pilot showed that it makes great sense to do so. So that is the plan over the next twelve to twenty-four months to make those targeted investments where it makes the most sense. The good thing is we are now further along in what that solution looks like than we were, call it, two years ago. Jeffrey Patrick Stevenson: Great. Thank you. Thomas C. Morabito: Yeah. Operator: As a reminder, to ask a question, please press star followed by the number one on your telephone key. Next question comes from John McGlade from The Benchmark Company. Please go ahead. Your line is open. John McGlade: Hey, guys. This is John on for Reuben. Just congratulations on the quarter. Shyam K. Reddy: Thanks, John. Thank you. John McGlade: So I just wanted to ask kind of two and a half questions here. First one, just curious with with kind of how the market landscape has been over the past few quarters and how it looks like it is going to head into this year. Could you maybe give us some additional color on how your customer conversations have shifted? Maybe they are viewing the value of your services differently in the way that they are operating day to day. Shyam K. Reddy: Sure, John. Good morning. Yeah. I would be happy to do that. So if I think about the market landscape over the last few quarters, it is not lost on me that beyond just housing starts, whether it be total housing starts or even single family housing starts, that beyond that, if you look at housing expenditures as a percent of overall GDP and where that sits, there have been sequential quarterly declines over the last year. And then if you look at housing burden, the cost of housing burden over the last four quarters, that has continued to go up. And then if you look at personal consumption expenditures, those are also, as it relates to repair and remodel and some other key indicators with housing, those are also very much down. So all of that is to say besides what everybody talks about, there are additional macro statistics that suggest an incredibly weak housing market. All of that said, the fact is we have grown share and we have maintained top line year over year at solid margins because of the investments we have made to drive value-add services. Whether that be, you know, on the multifamily side, the channel focus as it relates to multifamily and certain key customers, we are able to drive greater conversions into our product lines, namely with EWP, for example, or on the siding front. With multifamily, we have converted off, you know, one of the more popular, one of another competitive suppliers out there that we do not carry in the GP DENS product. So the fact is that we have taken our strategy and we have gone out to the marketplace with our customer base and our supplier base to show them that even in soft market conditions, we can actually grow their business. And we have done that, and we have proven it. And as a result, our customers and our suppliers are absolutely seeing the value of two-step distribution as it relates to BlueLinx Holdings Inc. and what we can do to help them grow their business. So on the customer front, it is helping them help their customers grow their business, especially in these tough times. And then for our suppliers, it is really a commercialization play. We are absolutely helping them commercialize their product not only with traditional customers, but also via the multifamily channel and growing their business at a time when they may not have thought it was going to be more difficult. So that value-add opportunity that we provide those two constituent groups is very strong for us, as our results have demonstrated in 2025. And, also, I would add one additional thing to that, which is if you look at the fourth quarter in particular, a number of our customers, if not all of our customers, were very focused on managing inventory levels as tight as they could. In that environment, that is good for two-step, right? Because, you know, we sit here ready to kind of fill their orders, right, that they may not be able to fill efficiently out of the inventory stock that they are currently carrying. Part of the margin increase that we saw on the structural side in the fourth quarter was due to that, right? We had a relatively flat pricing market in terms of input costs, but with our customers at lower inventory levels, they were utilizing two-step more than they did last year. And that is where we saw our volumes increase. We saw a similar thing across key specialty product categories as well. Shyam K. Reddy: Yeah. And just to add on that, absolutely. And so whether it is a destocking or whether it is tough market conditions, two-step can benefit just by buying—we will put aside—just in soft market conditions, customers will buy less more often, right? That is one of the opportunities for two-step distribution. I would say though that if you look at us relative to what may take place at other companies, our ability to meet that less-more-often desire on the part of customers while maintaining optimal inventory levels through our own working capital management capabilities, which I continue to feel are second to none, I think it is a pretty noteworthy competitive advantage we have because we were able to meet our customers' expectations, manage our inventory levels accordingly, end the year with a strong cash balance, especially compared year over year in light of a soft selling year, and yet maintain good margins. Right? We did not have to—because we are able to match up or marry up the inventory levels with the customer demand, while selling the value-add and other services we provide, we were able to maintain those solid margins, optimal inventory levels that did not compromise our ability to grow volumes as demonstrated by the results and, of course, maintain pricing at appropriate levels to ensure year-over-year flat sales in an otherwise tough market. John McGlade: Okay. That is fantastic. I really appreciate the deep dive there. Just one other thing, and I know it has been a focus, and I know last quarter you guys shared just really kind of the exceptional level of service you have been providing in the multifamily sector. It sounds to me like you really may have shifted there before others decided that was going to be more of a priority this year for the end markets. Obviously, those projects have a longer timeline than single family. I was hoping you might be able to give us a rough estimate on when you kind of expect to see that increased activity, increased interest starting to flow through. We have heard from others that it is more of a late Q3, Q4 event for them. Shyam K. Reddy: Sorry. You are talking about multifamily? John McGlade: Yes. Shyam K. Reddy: Yeah. So, yeah. Yeah. So let me just be clear, John, given the affordability crisis in housing, and if you look at housing as a percentage of GDP and where it has been going over the last couple years, especially over the last four quarters, it is clear that multifamily is going to be, in my view, the solve to bending the cost curve as it relates to housing pricing, especially given the demand or the need to put people in homes over the next ten years. So whether it is good or bad, our strategy is designed to take more and more multifamily share and to grow our multifamily business. So it is kind of all over the map. If you look at the forecasting, it changes from month to month and quarter to quarter. When people were running away from multifamily, we were running into the fire because we strongly believe that if you build more faster, against the backdrop of the current regulatory environment, you could help bend the cost curve and get more people into homes. And so we have designed our product strategy and our go-to-market strategy as it relates, from a channel perspective, to take advantage of the multifamily housing starts that are out there, number one. Number two, if you look at kind of the way the financing market works and the instruments that people typically use in order to finance multifamily housing, the rate environment is favorable as it relates to that from a short-term standpoint given the recent rate cuts because their instruments are based on short-term rates by and large. By the way, that is similar with some aspects of our industrial business and the OEM market, like manufactured housing. That is also supportive of kind of where you see that rate environment relative to where long-term rates may be. So the long-winded answer to that question is, I do see multifamily continuing to improve over time, mainly because there is an absolute need for multifamily housing in the context of an affordable housing crisis, number one. Number two, between the rate environment and our channel and product strategy, I am absolutely convinced that we will continue to grow multifamily share over the coming years because we have built capabilities to support that share growth, which came to fruition in 2025 with 19% volume growth year over year. John McGlade: Okay. And I guess I might have thrown you off a little bit there on the initial question. But maybe if I could pin you down and just try and get an idea of, like you said, you guys are running into the fire when everyone else was running out. I guess, how much of a head start do you think that that might have given you? Shyam K. Reddy: I think it has given us a huge head start because if you look at it—okay. So two things. Number one, in order to grow that channel, it truly does take endurance, stamina, and investments in key services that you might not otherwise find elsewhere. So, for example, we have invested in enhanced capabilities when it comes to takeoff services, which is something that historically two-step distribution has not had. And we have those capabilities around takeoff services that allow us to respond to—basically look at plans and be able to drive our product sales through those multifamily projects in a way that we could not have otherwise done a few years ago, number one. So that is just one example. The other is project management services and the working capital management associated with supporting multifamily projects where you have to keep—we have got some—we have ways of making the sales but then managing the inventory through our warehouses with reload services and other working capital management levers that support those multifamily projects in a way that is good for our business. That is not necessarily easy to do overnight, okay? So we have got that, and that supports the project management piece. We have also invested CapEx into specialized equipment that allows us to deliver to multifamily job sites, for example, in urban environments at two in the morning. Right? That was a nuanced approach to our CapEx strategy that aligned with the channel strategy that gave us a head start. And then last but not least, I would suggest that the personnel investments we have made between what we have at a corporate level combined with field resources to drive business development in the multifamily channel distinguishes us from maybe others in the space. And those BD resources, those resources out in the field combined with the scalable capabilities that we are offering from an enterprise-wide basis, allows us to bring our customers into the mix and have channel partners get more closely aligned with those end developers, and ultimately provide us a means by which we can convert jobs into our product offerings, whether it be siding, for example, or EWP, or GP DENS, and so on. So we have a head start because we have invested CapEx and OpEx to drive it, and then there are these value-add services that others do not necessarily have that are enabling, or giving us a competitive advantage, I think. So I do believe we are ahead of the game. John McGlade: Alright. Thank you so much for the color. I took up so much time. I will pass it on now. Shyam K. Reddy: Alright. Thanks, John. Operator: Our next question comes from Aditya Madan from D.A. Davidson. Please go ahead. Aditya Madan: Hi. It is Adi on for Kurt today. Thank you for taking my question and for all the details so far. A lot of my questions have been answered. But a couple of them are around the incremental cost maybe from the AI focus versus the traditional e-commerce platform. What do those incremental costs even look like and is there any rough timeline you have in mind for rolling it out? Shyam K. Reddy: Okay. So Adi, I really appreciate the question. But I think if I gave you a timeline, it would be obsolete a week from now. So I honestly do not know. I will say that the incremental costs are also unknown. But suffice it to say that they would be, in the scheme of things, kind of immaterial relative to traditional costs that would go into a regular e-commerce platform. You know, with AI, as we have all seen, there are virtually zero barriers to entry for all, at least for now. I mean, who knows what it is going to be when the investments catch up down the road that others are making, not us. Aditya Madan: So I— Shyam K. Reddy: You know, as it relates to e-commerce, I do not know, quite frankly. But I do know that the future looks bright. Just if you look at some of the recent announcements with some of the big Fortune 50 companies and their partnerships with some of the most prominent AI platforms, I mean, there is a world where people will just go into a ChatGPT or, you know, Claude and direct it to buy something off one of their, you know, rewards accounts, whether it be a Walmart Plus or, you know, Amazon or something else. And people may never even go to the traditional e-commerce platforms anymore, which is why I do not know what the future looks like. Shyam K. Reddy: As it relates to our AI investments that we have made to drive—which, incidentally, are aligned with our commercial strategy as well as just productivity improvements or giving our employees what I very affectionately describe as an Ironman suit—have really enabled our folks to just be more productive. Do we have any measures on it? Absolutely not. It is too early to know. But as it relates to AI applications, we are— Thomas C. Morabito: We are—you know, we as I said in my remarks— Shyam K. Reddy: We have developed AI tools for people to assist with modeling. So, for example, you know, in the traditional way, someone would normally have to call an associate, one of their teammates in FP&A, to help them with the model. Now there is an actual AI application or AI agent they can use to build a model before they even have the conversation with our FP&A team, which is exciting. You know, from a benefits perspective, we have benefits chatbots that our teammates are able to use in order to answer standard benefits questions or get their arms around something before they might have a call with a benefits specialist. And then, of course, on sales, for instance, you can use our AI agents to help you build sales plans, sales execution plans, especially given the data, the access to data that folks have through our BI intelligence platforms via Microsoft. So all of that is to say there really is not any incremental cost as it relates to our employees using the AI platforms that are part of our Microsoft suite of products. But, you know, as the future continues to develop, I do not know what that is going to be. I mean, there is clear cost associated with software engineering and building connections into the systems that we are still trying to figure out, but for now, we are just focused on making sure that our data architecture is— Aditya Madan: Got it. So it is mainly been, like, an internal focus, yeah, and not external client-facing just yet? Shyam K. Reddy: Is well designed to be able to take advantage of that next frontier of technology. Well, I would not say—so our tools, our folks can use the tools to make them better client-facing teammates. As it relates to someone from the outside accessing an AI agent, for example, to place an order, that does not exist yet, you know? But those are absolutely the kinds of things that we think about. You know, for example, just to give you an example, let's say someone sends in an email— Aditya Madan: Asking for a quote. Shyam K. Reddy: And we set up an inbox to take those quotes, there is a not-too-distant future state where a fax and email message could get routed into an AI agent that takes that information, links with our ERP, i.e., Agility, and then puts forth a quote, generates a quote that one of our sales associates can review and then execute on, right? Whether it is picking up the phone and calling or using the agents and then respond accordingly at scale so that we can process more, faster. Those are absolutely the kinds of ideas that we are exploring. But nothing in action yet. Let us just put it that way. Aditya Madan: Got it. Yeah. That makes sense. And maybe when you are looking at M&A pipeline right now, how are you thinking about growing the acquisition to fill in the white space on the West Coast, specifically maybe to complement Distero versus buybacks? Shyam K. Reddy: Yeah. It is absolutely an important piece of our strategy. So as we think about our M&A strategy, it is two-pronged, and that is grow our specialty product mix, which Distero absolutely did, and, secondly, you know, support geographic expansion. Distero actually accomplished both, more so on the front end with respect to specialty distribution, and then as it related to geographic expansion, it just further strengthened our Pacific West Coast presence. But those are absolutely two prongs. We have got, you know, a pipeline of potential targets that we are regularly evaluating. You know, we use shows like IBS and one-on-ones over the course of the year to continue nurturing those relationships so that we can be opportunistic when the time comes. Aditya Madan: Awesome. Thank you for taking my question. For all the detail. Good luck here in the first quarter. Shyam K. Reddy: Thanks. Thanks, Adi. Operator: And we have no further questions. I would like to turn the call back over to Thomas C. Morabito for closing remarks. Thomas C. Morabito: Thanks, Julian. Thank you again for joining us today, and we look forward to speaking with you in May as we share our first quarter 2026 results. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Fourth quarter 2025 earnings conference call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question-and-answer session. Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Andrew Tutt, SVP, Investor Relations and Capital Markets. Thanks, Mariana. Andrew Tutt: Hello, and thank you for joining ExlService Holdings, Inc.'s fourth quarter and full year 2025 financial results conference call. My name is Andrew Tutt, and I am the new SVP of Investor Relations and Capital Markets for ExlService Holdings, Inc. On the call with me today are Rohit Kapoor, Chairman and Chief Executive Officer, and Vivek Jettley, President and Head of Insurance, Healthcare and Life Sciences. Maurizio Nicolelli, Chief Financial Officer, will not be on today's call as he is tending to a family matter. We hope you have had an opportunity to review the fourth quarter earnings press release we issued yesterday afternoon. We have also posted a slide deck and investor fact sheet on our Investor Relations website. As a reminder, some of the matters we will discuss this morning are forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, general economic conditions, those factors set forth in yesterday's press release, and those discussed in the company's periodic reports and other documents filed with the SEC from time to time. ExlService Holdings, Inc. assumes no obligation to update the information presented on this conference call today. During our call, we may reference certain non-GAAP financial measures we believe provide useful information for investors. Reconciliations of these measures to GAAP can be found in our press release, slide deck, and investor fact sheet. With that, I will turn the call over to Rohit. Rohit Kapoor: Thank you, Andrew, and good morning, everyone. Welcome to ExlService Holdings, Inc.'s fourth quarter and full year 2025 earnings call. I am pleased to be with you this morning to share our financial results. We delivered another strong quarter, exceeding expectations for both revenue and EPS for Q4 and the full year. This reflects sustained double-digit growth momentum and strong execution of our data and AI strategy. For the full year 2025, revenue increased 14% to nearly $2,100,000,000 and adjusted EPS grew 18% year over year to $1.95 per share. These results reflect strong market demand for our data and AI services and solutions and reinforce client confidence in ExlService Holdings, Inc. as the partner of choice to embed AI directly into mission-critical workflows. In the fourth quarter, revenue reached $543,000,000, representing 13% year-over-year organic growth. Our dollar volume of wins in the quarter was more than double that of any other quarter in 2025. While Q4 is seasonally strong from a client activity perspective, we saw accelerated decision-making to advance transformation initiatives planned for 2026. Increasingly, clients are selecting ExlService Holdings, Inc. as an outcome-focused partner that can modernize data foundations and operationalize AI end to end at scale. Our revenue is split across two categories: data and AI led, and digital operations. Our data and AI led revenue includes data analytics, AI solutions and services, and it also includes data and AI led operations. In the quarter, our data and AI led revenue grew 21% year over year and now represents 57% of total revenue. Digital operations represents 43% of our business, and grew 4% year over year. As previously shared, our digital operations revenue excludes data and AI led operations revenue. In order to provide greater transparency, we have enhanced our investor fact sheet with a total operations view. The total operations revenue includes data and AI led operations and digital operations revenue. In Q4, total operations grew 11% year over year and 14% for the full year. Our deep domain expertise and proven ability to embed AI in the workflow continues to be a strategic advantage as clients modernize operations using an integrated approach to data, AI, and human-in-the-loop solutions. I will now walk through our fourth quarter performance across each of our four operating segments along with key wins. First, Insurance. The Insurance segment grew 7% year over year and 3% sequentially. Insurance is our largest vertical, representing a third of our revenue, and we see good momentum in the growth rate going forward. Insurance carriers are accelerating adoption of AI-powered solutions to drive growth, optimize costs, and improve customer experience. A notable Q4 win was with a large North American insurance carrier that selected ExlService Holdings, Inc. as its enterprise transformation data and AI partner. As part of this multi-year initiative, we will deploy agentic AI directly into operational workflows, build a comprehensive data strategy powered by exldata.ai, and deliver end-to-end customer experience transformation. Second, Healthcare and Life Sciences. This segment represented approximately a quarter of Q4 revenue and was once again our fastest growing segment with 26% year-over-year growth. This growth was broad based and was driven by strong demand for data and AI solutions, continued growth in payment services, data analytics, and expanded digital operations across both new and existing clients. Our solutions are well positioned to help healthcare organizations manage rising costs, navigate regulatory complexity, and improve outcomes. One of our largest wins in Q4 was with a top five healthcare payer. This client has been with ExlService Holdings, Inc. for many years, already embracing our technology platform and AI-powered payment integrity analytics. In a significant expansion of that relationship, the client selected ExlService Holdings, Inc.'s AI-powered payment integrity solution to reengineer its clinical auditing processes to improve yield, productivity, and operational alignment. Third, our Banking, Capital Markets and Diversified Industries segment grew 11% year over year, representing nearly a quarter of Q4 revenue. Clients in this segment are turning to ExlService Holdings, Inc. to deliver measurable business outcomes by applying data and AI across the value chain in areas such as credit risk, fraud, collections, and customer experience. In Q4, we renewed and expanded our multi-year engagement with a leading financial services company with an expanded scope of AI services that spans risk strategy, regulatory modeling, forecasting, collections, and fraud. In addition, ExlService Holdings, Inc. will design and deliver the company's first-ever governance framework for generative AI models, setting a new benchmark for responsible AI adoption within a global financial institution. And fourth, our International Growth Market segment grew 8% year over year in Q4, representing 17% of our total revenue. International markets are an important driver of our long-term growth and global expansion strategy. During the quarter, we won several new deals across insurance, banking and capital markets, and energy in this segment. Next, I would like to highlight the market opportunity we see in AI and our strategy for growth. Enterprises are under intense pressure to extract real value from AI and are challenged to successfully apply it across the enterprise. The gap between AI's technical promise and real-world impact is significant. This gap is where ExlService Holdings, Inc. stands out. Through our mastery of domain processes, understanding of complex regulatory environments, and expertise in data and AI, we are seen as a trusted partner that orchestrates enterprise workflows and makes AI real. Let me share how we are executing on this strategy across three areas. First, deepening our data, AI and services capabilities. Second, expanding our partner ecosystem, and third, developing AI talent at scale. 2025 was a milestone year advancing our data and AI capabilities. We drove rapid innovation with new agentic industry solutions, embedded AI directly into our core platforms, and grew our AI services capabilities. Launched in Q4, exldata.ai, our agentic data solutions suite, is resonating very strongly in the market. Clients recognize that an AI-led enterprise starts with getting the data foundation right. We help clients move from data to context to AI by governing and managing enterprise data, capturing business context, and then activating AI use cases on top of that foundation. One recent exldata.ai win was with a leading consumer lending fintech where ExlService Holdings, Inc. modernized the full technology stack from legacy on-prem systems to a cloud-native platform and operationalized the new solution in just four months. Another win was with a large healthcare payer where exldata.ai is being used to create a centralized, governed contract repository spanning structured and unstructured data. This enables stronger alignment between contract terms and claims adjudication, reducing manual effort, minimizing payment discrepancies, and improving speed and accuracy. Importantly, this is broadly applicable well beyond healthcare, anywhere where contracts and policies drive downstream operational decisions, from supplier and pricing agreements to customer and partner terms. In addition to building innovative new data and AI solutions like exldata.ai, we continue embedding AI into our core platforms. In Q4, we introduced a new set of AI agents on our industry-leading life and annuities platform, enabling insurers to automate complex tasks such as product setup, correspondence, and data mapping, and launch innovative new products in weeks instead of months. Finally, we are seeing accelerating demand for AI services. This represents a large addressable market and an important growth engine for ExlService Holdings, Inc. AI integration is a fundamentally new technology challenge, particularly for complex, data-intensive industries. Our data and analytics capabilities and our investments in AI give us clear advantage for winning AI services contracts. We support clients across the full AI lifecycle from AI strategy and adoption to models orchestration and making data AI ready. Our partner ecosystem is a critical enabler of scale. In 2025, we accelerated co-innovation with AWS, Databricks, Google, Microsoft, NVIDIA, and Genesys. This included partnering with NVIDIA on its new AI blueprint for fraud detection, integrating our AI capabilities for CX into Genesys, and completing the migration of our life and annuities platform to AWS. Co-selling momentum has increased with 16 ExlService Holdings, Inc. solutions now on marketplaces with AWS, Microsoft, Databricks, and Genesys. For example, we collaborated with AWS to deploy agentic AI for Sonos' IT service management workflows, aiming to create a new benchmark for efficiency, operational intelligence, and risk mitigation. These efforts earned industry recognition, including becoming a globally managed Google Cloud strategic services partner and being named AWS's 2025 AIML Market Disruptor of the Year. Finally, our growth strategy is powered by our talent. We are building an AI-native workforce with deep expertise across engineering, generative AI, and 10 new U.S. patents awarded over the past twelve months. Innovation is central to the ExlService Holdings, Inc. culture. We continue to invest in training, certifications, and tools such as our AI playground, enabling colleagues to explore, experiment, and build with agentic technologies. Our second annual Idea Tank competition generated more than 11,000 employee-submitted ideas, a seven-fold increase from last year. From these, 200 ideas were shortlisted for dual development on our sandbox, with winning ideas receiving development resources to launch new capabilities. In summary, while AI is reshaping the services industry, we view it as a clear opportunity for ExlService Holdings, Inc. Our integrated approach to AI is creating better business outcomes and growth for our clients, thereby resulting in new revenue streams for ExlService Holdings, Inc. AI is driving revenue expansion for our clients and has become a growth engine for EXA. ExlService Holdings, Inc. enters 2026 with strong momentum and clear strategic focus. Our data and AI pivot is well underway, representing 57% of our revenue. Demand for our data and AI led services and solutions remains robust, and we continue to strengthen our competitive position through investments in capabilities, partnerships, and talent. Our client base is diverse, our pipeline is strong, and we have high renewal rates. More than 75% of our revenue is recurring or annuity-like. This provides revenue stability and predictability. We have excellent visibility into 2026. Turning to our outlook for 2026, we expect revenue to be in the range of $2,275,000,000 to $2,315,000,000, representing 9% to 11% in constant currency organic growth. Adjusted diluted EPS is expected to be in the range of $2.14 to $2.19, representing a 10% to 12% increase over 2025. I want to thank our clients for their trust, our partners for their collaboration, our employees for their continued innovation and commitment, and our shareholders for their ongoing support of ExlService Holdings, Inc.'s vision. Lastly, I would like to call your attention to two upcoming events. We look forward to hosting our annual AI in Action virtual event on March 11, followed by our investor strategy update on May 13, in New York. With that, I will turn it over to Vivek, who is stepping in for Maurizio. Vivek Jettley: Thank you, Rohit. And thank you everyone for joining us this morning. I will provide insights into our financial performance for the fourth quarter and for the full year 2025, followed by our outlook for 2026. We continued our growth momentum in the fourth quarter, with revenue of $542,600,000, up 12.7% year over year on a reported and 12.6% on an organic constant currency basis. This increase was driven by double-digit growth in our data and AI led services, which grew 20.7% year over year on a constant currency basis. Our adjusted EPS was $0.50, a year-over-year increase of 15%. All revenue growth percentages mentioned hereafter are on a constant currency basis. Now turning to the fourth quarter revenue by segments. The Insurance segment grew 7.2% year over year and 2.9% sequentially, with revenue of $185,800,000. This growth was primarily driven by expansion in existing client relationships. The Insurance vertical, which includes revenue from International Growth Markets, grew 6.7% year over year, with revenue of $215,200,000. The Healthcare and Life Sciences segment reported revenue of $142,200,000, representing growth of 26.2% year over year and 5.1% sequentially. The year-over-year growth was broad based, driven by higher volumes in our Payment Services business and expansion in existing client relationships. The Healthcare and Life Sciences vertical, including revenue from International Growth Markets, grew 26.1% year over year, with revenue of $142,500,000. In the Banking, Capital Markets, and Diversified Industries segment, we reported revenue of $122,600,000, representing growth of 10.8% year over year and sequentially 1.3%. This growth was driven by the expansion of existing client relationships primarily in Banking and Capital Markets, and new client wins. The Banking, Capital Markets, and Diversified Industries vertical, including revenue from International Growth Markets, grew 10.6% year over year, with revenue of $185,000,000. In the International Growth Markets segment, we generated revenue of $92,000,000, up 8.1% year over year. This growth was primarily driven by higher volumes with existing clients in Banking and Capital Markets and new client wins. SG&A expenses as a percentage of revenue increased by 130 basis points year over year to 21.2%, driven by investments in sales and marketing. As expected, our adjusted operating margin for the quarter was 18.8%. This was flat year over year. Our adjusted EPS for the quarter was $0.50, up 15% year over year on a reported basis. Turning to our full-year performance. Our revenue for the period was $2,090,000,000, up 13.6% year over year on a reported and constant currency basis. This increase was driven by double-digit growth in our data and AI led, which grew 18% year over year on a constant currency basis. The adjusted operating margin for the period was 19.5%, up 10 basis points year over year. Our effective tax rate for the year was 21.6%, down 70 basis points year over year, driven by higher profitability in lower tax jurisdictions. Our adjusted EPS for the year was $1.95, up 18% year over year. Our balance sheet remains strong. Our cash, including short- and long-term investments as of December 31, was $331,000,000, and our revolver debt was $299,000,000 for a net cash position of $32,000,000. We generated cash flow from operations of $31,000,000 in 2025, up 30.6% year over year. This improvement was primarily driven by higher profitability and better working capital management. During the year, we spent $53,000,000 on capital expenditures, and repurchased approximately 7,500,000 shares at an average cost of $42.30 per share, for a total of $317,000,000. Now turning to our outlook for 2026. Supported by strong momentum, our current visibility, and a robust pipeline, we expect 2026 revenue to be in the range of $2,275,000,000 to $2,315,000,000. This represents a year-over-year growth of 9% to 11% on a reported and constant currency basis. In November, the Government of India consolidated existing legislations into a unified framework referred to as the New Labor Code. However, the changes did not have a material impact on the income statement for the quarter. They resulted in a one-time increase of $10,300,000 in our defined benefit liability in the balance sheet, with a corresponding increase in accumulated other comprehensive income. We expect a prospective increase in employee costs for the year, resulting in an approximately $0.02 to $0.03 dilution to adjusted EPS, which is incorporated in our guidance. We expect a foreign exchange gain of approximately $2,000,000, net interest expense of approximately $1,000,000, and our full-year effective tax rate to be in the range of 21% to 22%. We expect capital expenditures to be in the range of $50,000,000 to $55,000,000. Our Board of Directors authorized a $500,000,000 common stock repurchase program effective February 28, 2026, for a two-year period. This is in line with our capital allocation strategy. This new authorization of $500,000,000 represents confidence in our ability to continue our growth trajectory and generate significant free cash flow. We anticipate our adjusted EPS to be in the range of $2.14 to $2.19, representing year-over-year growth of 10% to 12%. This includes a 100-basis-point impact due to the implementation of the Indian Labor Code. To conclude, we delivered industry-leading financial performance in 2025, demonstrating our strong competitive position in embedding AI across client businesses. Our leading indicators remain positive, and our robust pipeline visibility positions us for a strong start to 2026. With that, Rohit and I would be happy to take your questions. Operator: Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. As a reminder, we are allowing analysts one question and one related follow-up today. We will wait one moment to allow the queue to form. Our first question comes from Puneet Jain at JPMorgan. Your line is open. You may unmute and ask your question. Puneet Jain: Yeah. Hi. Thanks for taking my question. So I wanted to ask about all the recent news flow around agentic solutions. Like, Rohit, you also talked about how you are seeing the accelerated decision-making at your clients. Could that accelerated decision-making be a result of all that news flow which might be causing more urgency on clients to act and to move forward with AI? Or if not that, what would you attribute that accelerated decision-making to? Rohit Kapoor: Sure, Puneet. So we saw accelerated decision-making in the fourth quarter. And frankly, the client conversations in 2026 continue to be very active. I think what we are seeing is a greater propensity from enterprise clients to adopt and leverage AI. And I think that fits in really well with ExlService Holdings, Inc.'s capabilities and our engagements with our clients. As you know, in 2025, most of the engagements ended up being proof of concepts, and there was not really an enterprise and a scaled-up adoption of AI. That seems to be changing at this point of time. There is also a change in terms of shifting the focus from a cost takeout to growth. And I think using AI for growth allows companies to be a lot more competitive and to be able to build up their businesses. So frankly, from our perspective, the environment has become a lot more active, and it allows us to engage with our clients even more strategically to help them in these implementations and to help them in the adoption of AI. Puneet Jain: Got it. Got it. No, that is very helpful. And thanks for sharing disclosures around data and AI led within operations. Could you share, when a traditional operations management client decides to implement AI in their processes, what happens to the overall revenue, including the typical range of efficiency gains that you pass on to the client, and incremental work that might come your way in form of maybe data services, or managing additional workflows, or servicing more processes to that client? What happens when an operations management client decides to implement AI with ExlService Holdings, Inc.? To revenue. Rohit Kapoor: Sure. So, first of all, we have now disclosed our total operations revenue and shared with you the growth of total operations that we are seeing quarter on quarter with our clients, and we think that growth is very positive and very supportive of the total company's growth rate. There are a few points that I would like to highlight for you and everybody else around operations management. Number one, the penetration rate of outsourcing of operations management by clients in general continues to remain low at about 15% to 20%. So what that means is that there is a lot more that clients can outsource, and particularly with the engagement of AI and technology coming in, a number of more complex processes and more intertwined processes can now be outsourced, and that creates a huge amount of opportunity for us. The second part of this is that as AI and intelligence is being put into the operations, what clients are looking for is a trusted AI-enabled operator of their business. And ExlService Holdings, Inc. is uniquely positioned to serve as a trusted AI operator for our clients and therefore, their confidence in entrusting us with more work is being reflected in our revenues and in our financial statement. The AI certainly is able to provide productivity benefits associated with the use of that technology in operations, and the question really is, can a partner make that productivity benefit real for the clients and result in tangible business outcomes being delivered to the client and get them the ROI. ExlService Holdings, Inc. has been in the fortunate position of actually executing to that and making good on that promise, which clients themselves on their own struggle, and other providers have struggled as well. We understand the domain. We understand the data. We have expertise in applying AI into the workflow. And therefore, our ability to deliver value to the customer and real tangible outcomes is what is creating ExlService Holdings, Inc. to be able to grow at a much more differentiated pace than all of our other peers and competition. I hope that helps you. Puneet Jain: Yes, it does. Thank you. And I totally appreciate that the AI within operations is growing at 40% to 50%, much faster than the overall industry and ExlService Holdings, Inc. overall. So appreciate it. Thank you. Andrew Tutt: Thanks, Puneet. Our next question comes from Bryan Bergin at TD Cowen. Please go ahead with your question. Bryan Bergin: Hi, guys. Good morning. Thank you. I wanted to ask on the 2026 growth guides, and really I am just trying to reconcile 2026 versus what you did in 2025. You know, you are obviously bringing more AI IP to the market. I hear strength of the AI-related services and the strong pipeline. You guys are growing well ahead of comps. But you are guiding annual growth two points lower than you initially did last year. I am trying to reconcile that. What would you say is the biggest difference now versus one year ago? Is it parts of the client budgets or programs that are just seeing some more pronounced pause or pressure because of the AI initiatives? Is it potentially factoring some added uncertainty in the forecast? Just help us reconcile that, please. Rohit Kapoor: Sure, Bryan. Let me clarify for you. In 2025, when we gave guidance, that included inorganic growth. We had done an acquisition for ITI Group, and our guidance included inorganic growth. From our perspective, the guidance that we are giving you today for 2026 is exactly the same as the guidance that we gave to you in 2025 on an organic constant currency basis. Now, in terms of our visibility and our backlog associated with this, the visibility is about the same as what we had last year. The backlog is actually a little bit stronger. What I will tell you is a difference for 2026 revenue guidance is we are exiting 2025 very strong, and you can see that being reflected in a slight uptick in our growth rate. We have also shared with you that we had client wins in Q4 which are more than twice the pace at which we signed up clients in all of 2025. So, frankly, our expectation is that we are going to have a much stronger start to the year in 2026 than we had in 2025. And so we feel very good about our guidance. And we feel very good about the visibility associated with our guidance. Bryan Bergin: Okay. That is good to hear. If we go a layer deeper here, can you give us a sense on how you are thinking about data and AI led growth potential versus digital ops, and any important considerations as you move through the year, a standpoint of growth as you go through the quarters? Thank you. Rohit Kapoor: Yes, absolutely. You know, as you know, our data and AI led business is 57% of our portfolio, and it is likely to grow much faster than the corporate average. Our digital operations business continues to grow, and we continue to see demand for that from our clients. It is going to grow at a pace which is lower than the corporate average. And, you know, I think the portfolio mix that we have is actually really, really foundationally strong because it allows us to be able to learn from the operations business, build new AI services and solutions for our clients, and be able to accelerate the growth rate of our data and AI led business. We are seeing a tremendous amount of strength on data management, we are seeing a tremendous amount of strength on AI services, we are seeing our analytics business be the leading edge to get converted into AI services. So frankly, the engagement with clients is very, very good. And we are very actively engaged in conversations with them as to how they can deploy AI. Andrew Tutt: Thanks, Bryan. Operator, next question. Operator: Our next question comes from David Grossman at Stifel Europe. Please go ahead with your question. David Michael Grossman: Thank you. Good morning. So, Rohit, I think you already gave some pretty good color on visibility and growth in 2026. I am just curious, how should we think about the cadence of growth over the course of the year? Do you expect it to be relatively even throughout the four quarters, or are there some things that we should be attentive to that may skew one quarter over another? Rohit Kapoor: Sure, David. So at this point of time, clearly, the visibility into 2026 is much better than the, you know, 2026, just because of the timing perspective. And what we have already shared is that we are going to be starting out strong. You can see what our growth rate was in 2025. We think 2025 is going to be a good growth rate for us. So, frankly, with the current guidance, the way it kind of sets up, we are going to start off strong, and we are going to wait and see how the visibility develops in the second half of the year. And based on that, we will update our guidance accordingly. David Michael Grossman: Got it. And you mentioned some of the things that differentiate you versus some of the IT services companies, as well as other peers in the space and why you are growing faster. I am just curious. You mentioned that you had a large win with an existing client, one of the top five payers in the U.S. for payment integrity during the quarter. So if I got that right, payment integrity is actually one of the areas that people thought would be most vulnerable to some of the innovations coming with AI. So can you just give us any insight into that process, what they were thinking, why they re-upped with you and expanded scope given some of the newer technologies that are out there? Vivek Jettley: Thanks, David. This is Vivek. I will take that question. So as you can see, Healthcare was a very strong growth driver for us all the way through 2025 and including in the fourth quarter. And now what distinguishes Healthcare for us is that we are seeing broad-based growth in Healthcare across our multiple offerings. So if I were to call it out, there are really three pillars for growth in Healthcare right now, one of which is our AI led operations, the other is the work that we do in AI services and analytics, and the third one is payment integrity. Now we have got good visibility for all three, and we expect to see growth for all three as we go through the year. Your point about the cost pressures for payers and what does that mean for payers actually points to a tailwind for payment integrity. Because what happens is right now as the payers start facing more costs on their medical loss ratios as well as on their admin costs, they are going to be forced to become more efficient and manage those costs in a better way, and ExlService Holdings, Inc.'s payment integrity offerings is one of those things that they will turn to in order to optimize that. Our win in Q4 is actually an illustration of that because it is someone who is looking to say, look, I want to use the AI, bring it into what I am doing with my payments and try and optimize my overall cost base. And we see that trend continuing. David Michael Grossman: Right. I guess the question, Vivek, is, is there any consideration at the payers, who have got fairly substantial IT budgets and operations, to try to start doing this themselves, given the availability of some of the newer technology? And if not, are there subjugating items to them doing that? Vivek Jettley: So we are not seeing any of those trends right now. In fact, what we are seeing is that the payers are actively talking to us, and to other partners, in terms of looking at what is it that they need to do to refine their algorithms and what is it that they need to do to create more saves. So we are not seeing any initiatives at this point in trying to take it in house. Rohit Kapoor: So David, let me just add to Vivek's comment on that. Clients at this point of time are concerned with business outcomes. And if you can drive superior business outcomes than what they can get with other providers, or by their own internal teams, they are going to allocate the business to that provider that is delivering better business outcomes. You can see in the same example that we have quoted, this was a client that has capability, of course, of doing this work in house. They have been working with us for several years, but based on our capability which is demonstrated and proven, they decided to award us the single largest win for us and give us even more business because they want to get the better business outcome. And that is what is going to be, I think, quite different in this AI world where business outcomes will matter a lot more than a promise or any other statement, because everybody will be making statements and claims. It is which entity can actually deliver that business outcome, and that is what we are seeing is reflecting in our growth rate being much higher than others. David Michael Grossman: Great. Thank you very much. Rohit Kapoor: Thanks, David. Our next question comes from Eleanor Dyke at William Blair. Please go ahead with your question. Eleanor Dyke: Hi. Thank you. This is Ellie Dyke on for Margaret Nolan. I wanted to ask about the win in the fourth quarter with the large North American insurance carrier. Can you talk about the nuances of that process? Like, was it competitively bid? Was it new or existing? And what were the pricing dynamics there? Just wondering if you had any takeaways from the process about pricing or revenue cannibalization or accretion? Vivek Jettley: Sure. First of all, this was a brand new customer for us. This was a new client that we acquired. So there is no existing revenue and therefore no cannibalization. But what really stood out for us in this deal was that the client actually is engaging with us on a complete enterprise transformation. The work that we are taking on is a data and AI led transformation of their overall data infrastructure. We are using exldata.ai for that, and then using our AI capabilities and accelerate.ai capabilities to go in, transform what they are doing with their CX, transform what they are doing with their back office, and transform what they are doing in terms of the overall end-to-end process that they are running. The deal really stands out for us because what they have done is chosen us as the enterprise AI partner that is going to come in, do all of the transformation, and then pick up the operations and operate it in an AI plus a human manner, bringing in our outsourced capabilities. It is a really interesting deal for us. The other part of your question was in terms of pricing. And in this deal, what really stands out for me is the fact that ExlService Holdings, Inc. is able to start charging for our IP. So we built in a component here which is an explicit pricing for the capabilities that we are bringing in and deploying, and that is over and above what we have got in terms of time and material. And I imagine you are going to start seeing more deals of this type going forward. Eleanor Dyke: Thank you. And then also, I was wondering, are you seeing a shift in client priorities between cost takeout mandates versus long-term digital transformation, including AI? And how can you pivot to capture either? Vivek Jettley: So I think AI right now actually works across the spectrum. Right? So you could actually walk into every functional group within a client and they are looking at saying, how can I deploy AI in a better way and bring that into my business? And what is it that I can do right now with agentic AI? So it is across the board. It is on the revenue line. It is on customer management. It is on cost. It is on audit and controls, what have you. So from our perspective, we have the capabilities right now within our verticals of talking to CXOs across those different areas and bringing to them the right AI-led value propositions. And that is, I think, what you are seeing a little bit in terms of the pipeline and in terms of the wins that we talked about. It is that value proposition kind of resonating in the marketplace. Eleanor Dyke: Great. Thank you. Andrew Tutt: Thanks, Ellie. Our next question comes from Robbie Bamberger with Baird. Please go ahead with your question. Robbie Bamberger: Yeah. Thanks for taking my question. So just thinking about types of employees being hired, how should we think about which employees are being hired? Are they higher revenue per employee AI-trained? And then maybe also the expected cadence of employee growth through 2026. Any color on that revenue per employee through the year as well? Rohit Kapoor: Sure. I think the first point I would like to make is that our employee headcount growth rate is much lower than the growth rate of our revenue, and we think that trend will continue. So we will see a differential between our revenue growth rate and our employee headcount growth rate. Second, in terms of the skill sets, our goal is to make sure that every single employee of ExlService Holdings, Inc. can be provided the opportunity to get trained, certified, and practically apply AI as confidently and as comfortably as one needs to be in this new age of AI. So that is something which we are investing a huge amount of effort and resources to be able to train and skill our employees to be proficient with AI and work with AI as an AI-enabled operator, as well as create new solutions leveraging AI. Lastly, we are hiring, of course, a lot of people, particularly around data management, around working with AI services, and creating a lot more of engineering talent that can deploy AI solutions in the enterprise. I will tell you this, that our data and AI led business today is constrained for growth due to talent. And that is something which we are working very actively on to make sure that we have adequate talent resources to be able to leverage the full potential of the data and AI piece. Andrew Tutt: Awesome. Just to add to Rohit's comments, I will just substantiate that with the data. So it is part of our fact sheet, but the headcount growth for the full year in 2025 was less than 10%. It was 9.8%. And you see that the revenue growth that we delivered against that was closer to 14%. So that is where we are creating that leverage in terms of revenue per headcount. Robbie Bamberger: Yep. Super helpful. And just in terms of guidance, just wondering what operating and gross margins you have embedded in 2026 guidance? And maybe the cadence through the year as well and how that Indian labor code impacts margins throughout the year as well. Vivek Jettley: Sure. I mean, you had already heard from Maurizio about our viewpoint in terms of how to manage adjusted operating margin going forward. Our adjusted operating margin for Q4 was 18.8%, which was flat to what we were in 2024. This is something that we had already talked to you about, and this was because of investments in the front-end sales and support and in solutions and services. For the full year, our adjusted operating margin actually went up to 19.5%. Our expectation is that we are going to keep it flat for next year, and which includes the impact of what is going on with the new labor codes in India. So the number would have gone up were it not for the new labor code. But net of that, we are going to keep it flat. Robbie Bamberger: Helpful. Thank you. Operator: Our last question comes from Vincent at Barrington Research Associates. Please go ahead with your question. Vincent Colicchio: Hello. I am sorry. Can you hear me now? Rohit Kapoor: Yes. Vincent Colicchio: Hey, Rohit. I am interested in an update on the competitive landscape on the AI side. Are you seeing any new competitors? And if so, is there any impact on your win rates? Rohit Kapoor: Yes, Vincent. We are seeing new competitors come in. And that is something which we have been seeing for a while now. So it is no longer just the traditional services companies that we compete with. We are seeing some of the hyperscalers get in here. We are seeing some of the technology providers getting into the space. And there certainly are a number of other consulting firms who are trying to go into this space. So the set of competition has certainly changed, and it has changed for a while. Our advantage really is the fact that we have this integrated approach to helping our clients embed and use AI across the enterprise in a very disciplined way that delivers much better business outcomes. So our knowledge and domain expertise about the industry and our clients' business, our mastery of data and applying AI and ML techniques to the adoption of AI, and our understanding of the workflow, these all make it very, very easy for clients to adopt AI. Then finally, keep in mind that a large percentage of our client portfolio is in regulated industries. And our knowledge and understanding of regulations and the ability to keep our clients fully compliant with regulatory requirements, that is a big standout, and that is why they trust us for being that AI-enabled operator and the AI implementation partner for them. And so we stand out, though others are certainly coming into the space. And they are certainly coming at it from a standpoint of either having the technology or having the foundational model and trying to leverage that capability and bringing it to enterprise. Vincent Colicchio: And could you update us on your acquisition priorities? Rohit Kapoor: Sure. So one of the good things about ExlService Holdings, Inc. is that we have got a very strong balance sheet. And we have got a tremendous amount of capital available to do acquisitions. And at this point of time, some of the valuations and some of the assets are becoming quite attractive. And therefore, for us to be active in the M&A space, that is something that you should expect. The prioritization for us is going to be to continue to further our strategy around helping clients with AI. And so what that means is investing in capabilities around data, and making data ready for AI. What that means is having the engineering skill sets to apply AI to enterprise workflows. What that means is for us to be acquiring new capabilities that we can take to our clients. And then finally, geographic diversification. So those are some of the areas that are important priorities for us from an M&A perspective. And in this environment, I think the targets are becoming a lot more accessible, approachable, and hopefully affordable. So that is something which we are hoping that we can take advantage of. Vincent Colicchio: Thank you, Rohit. Operator: We have no further questions at this time. This concludes our call. Thank you, and have a good day.
Operator: Good day, and thank you for standing by. Welcome to Avista Corporation Q4 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Stacey Walters, Investor Relations Manager. Please go ahead. Good morning. Stacey Walters: Thank you for joining us for Avista Corporation's fourth quarter 2025 earnings conference call. Our earnings and 2025 Form 10-Ks were released pre-market this morning. You can find both documents on our website along with the presentation that accompanies our remarks this morning. Joining me today are Avista Corporation President and CEO Heather Rosentrater and Senior Vice President, CFO, Treasurer, and Regulatory Affairs Officer, Kevin Christie. We will be making forward-looking statements during this call. These involve assumptions, risks, and uncertainties, which are subject to change. Various factors could cause actual results to differ materially from what we discuss in today's call. Please refer to our Form 10-Ks for 2025 for a full discussion of these risk factors, which is available on our website. On this call, we will also discuss non-GAAP utility earnings. Our fourth quarter earnings presentation is posted on our website and includes definitions and reconciliations for all non-GAAP disclosures, including non-GAAP utility earnings. Our non-GAAP utility earnings are comprised of results from our Avista Utilities and AEL&P segments. The unrealized gains and losses that have historically made up the majority of our nonregulated other business earnings can be significant, but they are difficult to predict and outside management's control. The shift to discussion of non-GAAP utility results and earnings guidance reflects management's focus on the core utility business. Let me begin with a recap of the financial results presented in today's press release. Our 2025 consolidated earnings were $2.38 per diluted share compared to $2.29 in 2024. Our 2025 non-GAAP utility earnings were $2.55 per diluted share compared to $2.38 per diluted share in 2024. For the fourth quarter of 2025, our consolidated earnings were $0.87 per diluted share compared to $0.84 per diluted share for the fourth quarter of 2024. Our non-GAAP utility earnings were $0.88 per diluted share for the fourth quarter of 2025 compared to $0.89 per diluted share for the fourth quarter of 2024. I will now turn the call over to Heather. Heather Rosentrater: Thank you, Stacey. And as I reflect on my first year as CEO of Avista Corporation, I am struck by how it combined opportunities for growth and investment with an unprecedented level of uncertainty. Yet, just as we have for the last 136 years, our teams leaned in and sustained their focus on executing our strategies. Before I get into the details, I want to start with how we are thinking about this last quarter. While our results were impacted by a few specific items, our sustained focus led to progress on key priorities. That includes progress on our request for proposal, or RFP; continued discussions with potential large load customers; and steady regulatory activity. All of this supports the strength of our utility over the long term. We remain committed to delivering safe, reliable energy to the communities we serve and creating value for our shareholders. As we close out 2025, Avista Utilities' results were impacted by both the one-time adjustment of Colstrip-related investments, which on its own decreased our earnings per share by $0.07, and other timing-related items. Even with those headwinds, we were able to land within the original utility guidance range. And excluding those factors, utility results would have been above the midpoint of our 2025 utilities earnings guidance. With 2025 concluded, we are excited to look ahead to 2026. Last month, we filed a four-year rate plan with the Washington Utilities and Transportation Commission. This filing reflects how we are thinking about supporting safe and reliable service over the long term. Among other considerations, our proposal addresses rising costs related to grid modernization, clean energy compliance, purchased power, hydropower infrastructure investments, and emerging risks such as wildfires and extreme weather. By filing a four-year case rather than a two-year case, we aim to reduce the frequency of regulatory proceedings, provide greater stability in our cost recovery and shareholder returns, and provide more transparency and predictability for our customers. Last month, we announced the projects we selected from our RFP process. The first selection is an upgrade to existing natural gas turbines which will add 14 megawatts of capacity without increasing carbon emissions. Second, we selected a 100-megawatt battery energy storage system to be located in Eastern Washington and to be built and transferred to Avista Corporation under a build-transfer agreement. Finally, we selected a 200-megawatt power purchase agreement for wind from Montana and approximately 40 megawatts of demand response programs across our service territory. These projects will bring valuable, resilient energy solutions to our portfolio. Since we first reported on our queue of interest from potential new large load customers last year, we have continued to work through conversations with these potential customers. And I am happy to announce that we have a significant deposit from a data center developer intending to locate in our service territory in Washington. The initial load is expected to be 125 megawatts, quickly ramping up to a maximum of 500 megawatts. We expect the initial load to come online by 2030. We will keep you updated as we make progress. As expected, as we have worked with customers in our queue to evaluate their projects, we are narrowing in on the most feasible opportunities. At present, including the customer just mentioned, approximately 1,700 megawatts remain in our queue of potential large load customers. We continue to receive inbound interest and we expect to begin curated recruiting to attract additional interest that could align with specific geographic and electric infrastructure areas of the system that are best suited for large load interconnections. We know affordability is critically important. And as we look to add new large load in our service territory, it is our expectation that agreements we reach both with our current negotiations and future prospective customers would make a significant contribution to customer affordability. We have also made significant strides in expanding our energy assistance programs for our customers in need. These programs help make energy bills more affordable for those that most need the support. Recent enhancements to our best-in-class programs have expanded our reach for energy assistance to as much as four times as many customers in need in the last two years. These programs are fundamental to how we think about serving our communities now and into the future. The opportunities that were a highlight of 2025 continue into 2026. The Washington Commission has encouraged Avista Corporation to explore early acquisition of resources to capitalize on tax credit opportunities. We are still evaluating several other RFP bid projects, exploring the acquisition or long-term contracting of these projects to take advantage of tax credits, serve large loads, and enhance flexibility until Avista Corporation has a need for serving more load. Beyond generation, additional transmission is needed to move energy from generation resources to load centers. The North Plains Connector is one such project that supports this need. And we have significant additional opportunities closer to home that would improve regional grid reliability and resilience as customer demand evolves. Finally, earlier this month, the Board of Directors raised the dividend for our shareholders to $1.97 per share. Our dividend is an important component of shareholder return. And for 24 consecutive years, the Board of Directors has raised the dividend for our shareholders, resulting in compound annual growth of more than 5% over that time period. We remain committed to the importance of returns for our shareholders and to the financial strength of our company. We are now targeting a competitive payout range of 60% to 70% which is in line with our peers. And for the last few years, we have been a bit above our target payout range, which was 65% to 75% during that period. As a result, we expect that our dividend growth rate will be less than the growth in our earnings per share until we reach our target payout range. And now, I will hand the call to Kevin for additional discussion of earnings. Kevin Christie: Thank you, Heather, and good morning, everyone. In each of the last four quarters, I have shared with you how strong our utility performance is and how our utility earnings form the foundation of our business and future plans. And that is still true today. We are focused on delivering results at our utility. Of course, we are disappointed by the order we received late in December from the Washington Commission requiring us to adjust recovery of needed investments at Colstrip. Were it not for the impact of that order, Avista Utilities would have reported earnings above the midpoint of our 2025 earnings guidance for the segment. I want to emphasize that our utility earnings in 2025 reflect the strength of our operational execution and the continued diligence in the cost management that we have reported in each of our 2025 earnings calls, alongside constructive regulatory outcomes, with the exception of the Colstrip order in December. We have had a quiet fourth quarter in our nonregulated business results, and it appears that valuations have steadied from earlier in 2025. Alongside our other initiatives, regulatory outcomes are key to our success. As Heather mentioned, in January, we filed a four-year rate plan with the Washington Commission. The single largest driver of our requested rate increase in rate year one is power supply cost. Setting an appropriate baseline for power supply cost is pivotal to the success of our rate plan. We believe the workshops undertaken with the parties after our last rate case provided an understanding of the shifts in our regional power markets. We will continue to work through the regulatory process beginning with the initial settlement conference set for May 22 and the evidentiary hearings in September. We continue to invest in our utility and infrastructure to support customer growth and maintain safe and reliable service. Capital expenditures at Avista Utilities were $553,000,000 in 2025 and are expected to be $585,000,000 in 2026. From 2026 through 2030, we expect capital expenditures of $3,400,000,000, a base capital compound growth rate of 5%. This reflects the addition of $164,000,000 to our capital plan associated with the self-build natural gas combustion turbine upgrades and build-transfer battery energy storage system selected from our 2025 RFP. We continue to estimate a potential capital investment of up to $350,000,000 associated with integrating a new large customer that would be incremental to the $3,400,000,000 five-year expenditure plan. Integrating that investment in our five-year projection would result in a compound capital growth rate of 12%. Our base capital plan does not include incremental transmission projects like regional grid expansion, or additional generation pulled forward from our 2025 RFP. In 2025, we issued $120,000,000 of long-term debt and $78,000,000 of common stock. For 2026, we are updating our funding plans and now expect to issue approximately $230,000,000 of long-term debt and up to $90,000,000 of common stock, compared to $120,000,000 of debt and $80,000,000 of common stock disclosed in Q3. This increase reflects higher capital expenditures in 2025 as well as additional debt to support liquidity, given the recovery timing of deferrals while maintaining a prudent capital structure. We are initiating non-GAAP utility earnings guidance with a range of $2.52 to $2.72 per diluted share for 2026. As Stacey mentioned, utility earnings include earnings from our Avista Utilities and AEL&P segments, with no other adjustments. The closest GAAP measure is consolidated earnings, and since we are removing the impact of our nonregulated businesses, we are required to refer to utility earnings as a non-GAAP measure. Last year, we set guidance for these other businesses at zero, and indicated that we expected variability in results due to ongoing costs, dilution, and periodic valuation updates. As a management team, we cannot control public policy and the valuation losses we experienced in 2025 were the direct result of shifts in public policy and sentiment due to the administration change. By discussing our non-GAAP utility earnings, and giving you guidance that is focused where we as a management team are focused, we are striving to limit the noise in our results and communicate with you about where we are headed as a business. In 2024, a large industrial customer in our service territory contracted with us for electric service. This customer owns transmission rights and has access to procure their own energy. They sought relief in a period of high market power prices through service with us. As market prices have since declined, they notified us earlier this year of their intent to return to procuring their power independently in the power market sooner in 2026 than what we had expected. Our 2026 non-GAAP utility earnings guidance reflects a one-time decrease of $0.12 as a result of this departure. Our guidance includes an expected negative impact from the energy recovery mechanism of $0.10 at the midpoint in the 90% customer, 10% company sharing band. While our current hydro forecast shows normal levels of generation for the year, even if we were above or below normal, there would be no material change to our position in the ER. Over the long term, we expect that our earnings will grow 4% to 6% from the midpoint of our 2025 consolidated earnings guidance. We are raising our long-term expected return on equity at Avista Utilities to approximately 9% excluding any impact from the ER. This reflects expected structural lag of 60 basis points. Now we will be happy to take your questions. Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press *11 on your telephone, wait for your name to be announced. To withdraw your question, please press *11 again. Our first question comes from the line of Shar Pourreza of Wells Fargo Securities. Your line is now open. Whitney Wutalama: Hi. Good morning. This is Whitney Wutalama on for Shar. So, just to take a step back and think about the financing, there are just multiple moving pieces in 2026, from the customer departure to the headwind variability, and obviously, the Washington rate case. How are you sequencing financing decisions? What would cause you to pull forward or push out equity issuance? How much flexibility do you have to bridge with debt or hybrids without pressuring the credit profile? Heather Rosentrater: Hi, Whitney. Kevin Christie: Hi, Whitney. Kevin Christie: Well, for the guidance that we have expressed here for 2026, we have incorporated the base plan that we have described. So that includes the capital investment. And to the extent that we had additional capital investment opportunities, we would need to reassess how much debt and equity we would issue. We issue our equity through a periodic offering program, and so you would see steady progress throughout the year towards that $90,000,000, again barring some kind of additional investment opportunity, which would be a positive thing if we had that opportunity. Kevin Christie: As far as using other mechanisms, again, we would likely stick with our periodic offering program unless we had a much more significant investment opportunity, and then we would have to reassess whether we would visit other mechanisms or vehicles. Whitney Wutalama: Got it. Okay. Understood. And then just following up on the incremental CapEx, I think it is $250,000,000 to integrate a new large load customer. So what is the internal go-or-no-go threshold before you commit to that type of incremental build? How do you ensure existing customers are insulated if the large load does not fully materialize? Kevin Christie: I would start by saying that the next step now that we have a significant deposit on board from that potential customer is moving towards an MOU. And we would expect to move towards that MOU in the next 90 or so days. And as we work forward there, we would likely have ongoing conversations with the customer. And again, I want to emphasize a point: to the extent that we are able to add this customer, they would make a significant contribution back to the system and our existing customers such that it would help with affordability. And we would ensure that those same customers would not be negatively impacted to the extent that the customer were to start conversations with us, maybe even go to construction, and then walk away. We would have in place, in addition to the deposit, collateral and security to protect our business and our customers. Significant amounts such that we would expect no impact if they were to walk away. Now that is not the intent. We would expect them to go forward and contribute revenue to the system on an ongoing basis for many years into the future. Whitney Wutalama: Well said. Thank you. Kevin Christie: Thank you. Operator: Our next question comes from the line of Julien Dumoulin-Smith of Jefferies. Hi. Good morning. It is Brian Russo on for Julien. Brian Russo: Good morning. Hey, just to follow up on the financing plan for the potential $350,000,000 upside CapEx. Should we kind of generally model that as a 50-50 debt and equity? And would you possibly consider hybrids? Kevin Christie: Yeah. To be clear, we would expect that spending to start maybe in earnest to the extent that we are able to proceed sometime later this year, but really in 2027–2028 and into 2029. And we would expect a 50-50 capital structure or funding approach with incremental capital beyond what we have described here. And to your question around hybrids, we would consider that option if we were able to move forward with that much additional capital beyond the base plan. Brian Russo: Okay. And would you also consider monetizing the other businesses, which according to the 10-K, have an equity interest value of $148,000,000 as of December 2025? I am wondering because of, you know, your shift in reporting, it just seems that there is a much bigger focus on the utility. And are any of those investments considered noncore, so to speak? Kevin Christie: Yeah. I appreciate you noticing all of that, Brian, and that is exactly the intent here. We would look to monetize some of our nonregulated investments to the extent that there is an opportunity to do so with a material gain, and if that were to take place, that would help offset equity, meaning that we would issue less equity on a go-forward basis. That would be the likely plan. Brian Russo: Okay. Great. And one more question. Just to be clear, the 4% to 6% long-term EPS CAGR correlates to the 5% rate base CAGR. Therefore, this 12% hypothetical rate base CAGR would, in theory, be accretive to the 4% to 6%. Correct? Kevin Christie: Yeah. Let me walk you through that. So the way I think about it is the 5% CAGR on our capital investment plan over the next five years, you will notice from the graphic that we were displaying that we have an increase in the middle due to the RFP. And so to call it 5%, I would say that is a bit conservative. We have a significant increase from, you know, year one through three when we execute on the investments related to the RFP in 2028. And then in the back end, we would expect to have additional investment opportunities, hopefully the large load and more, and then that would pull us up to the 12% rate base CAGR. If we had that opportunity and all those investments came to fruition, that would help pull us up to the top end of the 4% to 6% range. I do not have exact figures, and we do not know yet all the investment opportunities that we might have in subsequent quarters, whether we could get above the 6%, but we would talk to you about that in subsequent quarters. Brian Russo: Okay. Great. Thank you very much. Operator: Thank you. Thank you, Brian. As a reminder, to ask a question, you will need to press *11 on your telephone and wait for your name to be announced. Our next question comes from the line of Chris Hark of Mizuho. Your line is now open. Chris Hark: Hi. Good morning, everybody. How are you? Heather Rosentrater: Good. Good morning, Chris. Chris Hark: I just have a follow-up question on the CAGR there. Just given the low result in 2025, do you still expect to be in a 4% to 6% range? And then what kind of ROE are you using to get to the midpoint of 2026 guidance? Kevin Christie: Yeah. We certainly believe that we can get to our 4% to 6% growth. 2025 was our baseline, and although we fell short there, over the next three, four, or five years, we would expect to be in that 4% to 6% range. So that is the plan, and we think we can get there. What was your second question, Chris? Chris Hark: And then the ROE that you are using to get to 2026 guidance. Kevin Christie: Assumed ROE? Well, again, we have expressed here that we expect to be at, on a long-run basis, 9%, which is an increase from 8.8%, and that incorporates the ER—or does not include the ER, I should say. So in 2026, as we have described to you here, we are going to have pressure on that 9% due to the fact that we are likely to be, as we have said here, $0.10 or so negative. And then we continue to have structural lag around 60 basis points. We also lost that large customer which has an impact. So overall, we would expect to be in the low to mid 8s in 2026 from a utility ROE. Chris Hark: Okay. Thank you. Super helpful. And then just one last thing. Just looking for some clarity on the rate base CAGR. Have you included that upside CapEx in the CAGR at all? Kevin Christie: The upside CapEx is not included. We are using the incremental $350,000,000 related to a potential large load for how it could help from an overall investment opportunity. And to the extent that we are able to pull forward additional items or investments from the RFP, and we have the opportunity to invest in additional transmission, that would all be incremental to that base. Chris Hark: Okay. Thank you. That is it for me. Have a good one, guys. Kevin Christie: Great. Thanks, Chris. Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back to Stacey Walters for closing remarks. Stacey Walters: Thank you all for joining us today and for your interest in Avista Corporation. Have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin and I will be your conference operator today. At this time, I would like to welcome everyone to the Circle Internet Group's Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to John Andrews, Vice President of Capital Markets and Investor Relations. Please go ahead. John Andrews: Thank you, operator, and good morning. I'd like to welcome you to Circle's Fourth Quarter and Full Year 2025 Earnings Conference Call. I'm joined by Jeremy Allaire, our Co-Founder, Chief Executive Officer and Chairman; and Jeremy Fox-Geen, our Chief Financial Officer. Earlier this morning, we posted our earnings press release and earnings presentation on the Circle Investor Relations website, investor.circle.com. A transcript of this call will be posted on that website once available. I do need to remind everyone that our earnings press release presentation and this call contain statements that are forward looking. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Information concerning risks, uncertainties and other factors that could cause these results to differ is included in our SEC filings. We will also disclose non-GAAP financial measures on this call today. Definitions of those non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures can be found in the earnings release and earnings presentation, which are posted on Circle's Investor Relations website at investor.circle.com. Non-GAAP financial measures should be considered in addition to, not as a substitute for GAAP measures. Now I'd like to turn the call over to Jeremy Allaire. Jeremy? Jeremy Allaire: Thank you, John, and good morning, everyone. I want to start this morning talking a little bit about what I'm seeing in terms of this extraordinary transformation that's underway. I'm speaking not just about the changes we're seeing from blockchains and stablecoins, but the broader backdrop of technology acceleration, software-powered technology acceleration and artificial intelligence. I believe we are in the earliest stages of a very deep and very fundamental transformation of the way the global economic system functions and works. Not only will our global economic system become more internet native, but it's also going to become dramatically more automated. We are entering a world where, in my view, likely tens or hundreds of billions of AI agents will interact and perform economic functions over the Internet. If we look at the past decades, we've seen this progression and this progression has been accelerating. This progression has been one where we build more and more software native infrastructure, more and more data and transactions on the Internet. The progression from the Internet of information into an Internet of software distribution, interactive media and commerce, all made possible to the adoption of web, cloud and mobile platforms has created extraordinary value over time. Beginning around 2013, we began to see another transition this time into the value era of the Internet where early blockchain platforms emerged. Later, through the innovation of fiat backed stablecoins, we saw the birth of a transformative Internet-native money layer. Now as we've achieved regulatory clarity, and as the technology has matured, we're now seeing these developments directly colliding with another major platform shift, which is the adoption of AI platforms. This value era, this combination of economic operating systems and an Internet native money layer with artificial intelligence, agentic economic activity and automation, seems likely to drive the greatest acceleration of economic activity we've ever seen in human history, and we're really just at the beginning. Our aim at Circle has always been to build a new Internet financial system to build the software infrastructure that powers it, and we're more excited than ever to have that opportunity today. Let's talk about our key highlights in Q4. Our stablecoin network continued to grow. We saw USDC end the year around $75 billion in circulation, up 72% year-on-year despite some of the declines that we saw in Q4 due to the crypto market correction. We also saw tremendous ongoing growth in the amount of transactions happening on our network with onchain USDC volume hitting nearly $12 trillion, representing 247% year-on-year growth. This continues to reflect the growing velocity and utility of digital dollars on the Internet. Q4 delivered very strong financial results. We realized $770 million in total revenue and reserve income in the quarter, up 77% year-on-year. Adjusted EBITDA for the quarter was $167 million, up 412% year-on-year, with an adjusted EBITDA margin of 54%. Overall, for the quarter, we had very strong yearly growth across the board. Importantly, our platform continues to expand. We launched the Testnet of Arc, our Layer 1 blockchain network, and we're on track to launch Mainnet this year. Circle Payments Network continues to see very strong volume growth and participant expansion as we continue to see traction in real-world payments and cross-border settlements. We're also adding new products. We introduced StableFX in beta, our new onchain FX app and xReserve, which supports continued expansion of USDC across a wide range of blockchain ecosystems. And we now support USDC on over 30 different blockchain networks with interoperability being a key piece of Circle's platform strategy. Mainstream adoption continues to deepen across a broad range of leading enterprises and institutions. Intuit and Circle are partnering for Intuit to bring low-cost programmable money through Circle's technology to its millions of consumers and businesses. Visa continues to expand its integration of Circle stablecoins, announcing the launch of USDC settlement that permits U.S. Visa card issuers and acquirers to settle outside of normal banking hours using USDC. And earlier this month, Circle and Polymarket, the largest prediction market in the world, announced a formal partnership where Polymarket will continue to advance its use of USDC as the core collateral and settlement asset for their markets, demonstrating our very strong position as the leading regulated stablecoin network. Now these are just the tip of the iceberg. Major enterprises and financial institutions continue to integrate and support USDC in their businesses. We saw firms as diverse as Cash App, Gusto, Deal, interactive brokers, JPMorgan and Mastercard launched products and offerings that took advantage of USDC. Right now, we are seeing more activity from start-ups, enterprises and financial firms than we've ever seen in our history. The stablecoin market continues to grow strongly, and our position in that market continues to strengthen as well. CFX stablecoins grew $85 billion in the year, with 46% year-on-year growth. Within that market, our competitive position remains strong, and we continue to maintain a significant share. Importantly, it's a market that, despite the efforts of many other firms to enter and compete is really a market of 2 major issuers. And this reflects the very durable network effects that we maintain that are significant barriers to entry and adoption. Looking at growth in actual transaction volumes, Circle's share of transaction volume grew from 39% in the third quarter to nearly 50% in the fourth quarter. This is based on Visa's published analysis, which works to eliminate internal transactions, exchange wallet rebalancing and bots to really capture the volume that better reflects real economic activity. You can also note that while there have been a number of other stablecoins entering the market over the past year, their usage in real transactions is effectively 0. As noted in my introductory comments, Circle's network grew strongly with 3.5x year-on-year growth in onchain transaction volume and notably, CCTP, a critical infrastructure for interoperable usage of USDC, grew 3.7x year-over-year to over $41 billion of volume in the fourth quarter. I know that competition is a major topic for many. So I want to talk again about the durable network effects that Circle maintains. Foundationally, Circle's competitive position has been built on trust, as an audited public company with a deep commitment to compliance, as a firm regulated across jurisdictions around the world and with the highest levels of transparency possible. We enjoy the trust of major financial institutions, payments companies, enterprises, developers and end users around the world. And that trust shows up in our fundamental liquidity with $75 billion of USDC in circulation an unmatched liquidity infrastructure that in Q4 supported $163 billion of minting and redemption volume. That minting and redemption, that promise to create and redeem a digital dollar one for one at scale and through banking systems around the world is completely unmatched by any other player in the market. In Q4 '25, we saw distribution and network usage grow as noted, to nearly $12 trillion of onchain transaction volume, continued growth in meaningful wallets using USDC and our product platform continuing to expand. The breadth of infrastructure we provide, the breadth of liquidity services that we provide and with new applications like CPN and StableFX, our whole product platform is not something others in our market are able to replicate. And crucially, acting as a market-neutral infrastructure, not competing with our customers and our partners and building widely accessible and usable technology across as many platforms as possible have been keys to our competitive success as well. Moving on to our platform expansion. Circle's platform has really evolved from being a stable coin network to being a comprehensive platform and infrastructure partner for on chain finance, spanning our 3 platform pillars. Arc and our developer infrastructure, which includes the tools, the operating systems and the onchain protocols and infrastructure to enable the Internet financial system to flourish. Our digital assets and services which includes USDC and EURC, the world's leading regulated digital dollar and digital euro, tokenized funds such as USYC and liquidity services such as Circle Mint and xReserve that ensure liquid and available stablecoins around the world. And our apps. CPN is a rapidly growing application service from Circle for payments. And in beta now, StableFX, an application service for FX. We continue to invest in our platform and our infrastructure to expand what we can provide to companies around the world. With Arc and our developer infrastructure, we're seeing very strong progress. Our Testnet launched in Q4 with over 100 companies in banking, capital markets, digital assets, technology, commerce and payments. All leading brands actively testing, evaluating and working with us to bring this into commercial production. We've had near 100% uptime since the launch of our Testnet with an average of 0.5 second for transaction settlement finality, over 166 million total transactions and we're now averaging around 2.3 million daily transactions in our testing environment. We're on track to launch Mainnet in 2026, and we're thrilled with the progress we're making. More exciting things to come in terms of technology, partnerships and our ultimate Mainnet launch. I also want to touch a little bit more on CCTP. Obviously, we have had very strong year-on-year growth, very strong growth in the number of transactions that are happening over this network. But I want to call your attention to the market share for CCTP. You can see here that for USDC, CCTP is nearly all of the traffic that flows from moving USDC across blockchains, but we also reached more than 50% of all bridge volume. Not just of USDC, but of all assets across chains that we track. And in fact, in January, that volume reached 62%. And CCTP is becoming a critical infrastructure for how value moves on the Internet, and we're excited with our advancements in CCTP and the advancements in our interoperability infrastructure through our acquisition of Interop Labs. Through these advancements, we're building new capabilities that are really aimed at helping asset issuers of all types, whether you're issuing tokenized stocks, tokenized funds, tokenized bank deposits and new stablecoins to be able to take advantage of this tremendous interoperability infrastructure, to enable your assets to travel on these highways that Circle has built to move value on the Internet more seamlessly. We view interoperability infrastructure as a huge opportunity for us. And we also saw a strong growth in Circle other digital assets. In the fourth quarter, EURC reached EUR 310 million, representing 3.8x year-on-year growth and has already grown 25% since quarter end to EUR 389 million as of February 20. This reflects the growing demand for regulated euro-denominated stable coins and EURC remains the largest euro stablecoin. USYC, our tokenized Money Market Fund has also grown strongly since Q3. We acquired USYC in January of last year. We integrated it into Circle and we developed a new product and distribution strategy around it, focused on tokenized collateral on digital asset exchanges. With the relaunch of USYC, we've seen accelerating growth driven by demand for USYC as collateral on leading exchanges like finance and others. USYC assets ended the year at approximately $1.5 billion and have continued to grow to now over $1.7 billion in assets since quarter end. In our apps pillar, Circle Payments Network continues to scale. We have 55 financial institutions enrolled, that's up from 29 in the third quarter. We have 74 financial institutions that are currently in eligibility reviews, and we continue to maintain a strong pipeline with interest from hundreds of banks, payment firms and others all around the world. We've continued to expand the markets where CPN is available with live flows now in 14 markets across the Americas, EMEA and APAC. And importantly, CPN volumes continue to ramp, with annualized volume based on a trailing 30-day period as of February 20, reaching $5.7 billion. That's growing approximately 68% from our third quarter earnings update. We are aggressively investing in product development for CPN and have a strong pipeline of upcoming country launches and anticipate adding 11 new markets in the coming months. We also launched StableFX in production beta. This extends our application layer by combining institutional-grade FX execution with onchain atomic settlement, enabling 24/7 cattle efficient currency conversion and simplified risk management. We have stablecoin issuers for many jurisdictions participating in this, and we are excited to bring this application online alongside Arc, which will benefit the entire digital asset ecosystem and provide key infrastructure as we continue to scale CPN as well. I want to talk specifically about AI at Circle. We are seeing an explosion of developer activity around AI and it's becoming an important driver for Circle's platform, and we believe an important and potentially significant driver for USDC adoption. We have a number of initiatives here. As many of you may have seen, when OpenClaw, the new open-source autonomous agent system came out. We quickly responded and ran an agent-only hackathon, where agents competed with each other to build innovative applications with USDC, and agents themselves voted on the winners, and we saw incredible engagement on this. We're also building systems to better support Agentic payments. In fact, we just went into Testnet release of a new capability with Circle Gateway that allows for agents to autonomously and programmatically automate cross chain USDC transactions with a transaction cost of [ $0.00001 ]. This is live on our test net, and we're thrilled with what this is going to enable in terms of genic payments and monetization models on the Internet. We believe that no other payment system in the world can do this. We're also investing in helping developers who are building AI agents and are using AI for their own development to build faster and smarter with Circle products. We're bringing our capabilities as an infrastructure provider in skills libraries and providing servers that allow developer tools and AI agents to directly use Circle products, and we're seeing great uptake on this. Now inside Circle, AI is also becoming foundational infrastructure across all of our functions. We began our work with AI like many companies over the last 2 years, and our investments there are accelerating. We are making core AI infrastructure and automation a critical component that's embedded into all of our operations, agenetic infrastructure, specialized tooling and specific AI playbooks. We're building the governance that will allow all of our employees to self-serve, develop, deploy and use AI agents across their functions. And we're deepening AI integration across every aspect of our product development, design, engineering and deployment life cycle and seeing very strong results. Our product velocity is accelerating and I anticipate that to continue alongside the exponential improvements we're seeing from AI coding agents. Now my own belief is that AI platforms, AI agents and blockchain-based economic operating systems will support trustworthy, automated, transparent and hyper-efficient infrastructures that are going to be the underpinnings of the future of the global economic system. And I believe that this is going to be one of the most accelerated periods of technology transformation in the history of the world, and it really is just thrilling to be here building core infrastructure that can help to underpin this new economic system. I've never been more excited about Circle's market position, platform stack and our growth opportunities. With that, let me turn it over to Jeremy Fox-Geen, our CFO, to take you through the financial results. Jeremy Fox-Geen: Thank you, Jeremy, and good morning, everyone. I'm pleased to report we delivered strong financial results in the fourth quarter and full fiscal year, closing out an exceptional year of growth and momentum for Circle. I'll start by reviewing the quarter and then provide our forward guidance. USDC in circulation was $75.3 billion at year-end, up 72% year-on-year and notably grew faster than the overall CFX stablecoin market. USDC held within Circle's platform infrastructure or on-platform USDC, grew 5.6x year-on-year to $12.5 billion at year-end, representing 17% of total circulation. The reserve return rate was 3.81% for the fourth quarter, down 68 basis points year-on-year, reflecting the decline in SOFR during this period. Total revenue and reserve income increased 77% year-on-year to $770 million for the quarter as growth in average USDC in circulation and other revenue was partially offset by the lower reserve return rate. Total distribution transaction and other costs increased 52% year-on-year to $461 million. I do want to remind you that distribution costs in the fourth quarter of 2024 included the previously disclosed onetime payments of $60 million to a large distribution partner. Revenue less distribution cost margin was 40.1% in the fourth quarter with a modest quarter-on-quarter increase of 0.6 percentage points, primarily reflecting the impact from growth in other revenue. Other revenue increased to $37 million in the fourth quarter. Subscription and services revenue was $24.7 million in the fourth quarter, primarily from revenue associated with our blockchain network partnerships. Transaction revenue was $12.2 million, primarily from blockchain rewards revenue, where our revenues from running a super valid data on the Canton Network increased substantially as Canton Coin began trading during the quarter. Total revenue and reserve income less distribution transaction and other costs grew 136% year-over-year to $309 million in the fourth quarter. Adjusted operating expenses grew 32% year-on-year to $144 million for the quarter as we continue to invest in growing our platform and distribution at this pivotal time for our industry. Adjusted operating expenses include payroll taxes, including payroll taxes related to stock-based compensation, which were $8.4 million in the fourth quarter while we had no such expense in the prior year period. Beginning in the first quarter of 2026, we have amended the definition of adjusted operating expenses. First, to exclude stock-based compensation, payroll tax expense, we aligned with our treatment of stock-based compensation expense. And second, to exclude certain onetime legal expenses, acquisition-related costs and were relevant restructuring expenses all of which totaled $2.9 million in the fourth quarter as they reflect the same adjustments as in our adjusted EBITDA measure. Based on this amended definition, adjusted operating expenses would have been $133 million in the fourth quarter and would have grown 28% year-on-year on a comparable basis. Adjusted EBITDA grew 412% year-on-year to $167 million, reflecting the operating leverage inherent in our model. The prior year adjusted EBITDA included the onetime distribution payment that I previously mentioned. Adjusted EBITDA margin was 54% in the fourth quarter. I want to take a moment to briefly recap our FY '25 guidance and results. First, our guidance philosophy. We are building our business for long-term success. And moreover, several of our most impactful performance drivers are visible to the market in real time. As such, we do not give detailed quarterly or full financial guidance, we guide only on certain metrics to help our investors better understand our expected performance trajectory. We will update this guidance when we expect our performance to materially deviate from guidance. USDC in circulation at year-end grew 72% year-on-year. FY '25 other revenue of $110 million exceeded our guidance of $90 million to $100 million. Fourth quarter results came in better than expected, largely driven by a $7 million benefit as Canton Coin began trading. FY '25 RLDC margin of 39.4% exceeded our guidance of approximately 38%. Fourth quarter margin came in better than expected, driven by the combination of other revenue outperformance as well as a sustained reserve margin. FY '25 adjusted operating expenses of $508 million was in line with guidance. Let me conclude with comments on our guidance for FY 2026. We do not give guidance on USDC circulation or growth. We are at the beginning of meaningful shifts in the global markets for money, and we expect both long-term growth and quarter-on-quarter variability. As previously noted, we would anticipate USDC to grow at a 40% CAGR over a multiyear through cycle. We anticipate FY '26 of the revenue to be between $150 million and $170 million. We anticipate the FY '26 RLDC margin to be between 38% and 40%. We anticipate the FY '26 adjusted operating expenses to be between $570 million and $585 million, reflecting growing investments in building our platform capabilities and global partnerships. As noted before, beginning in the first quarter of 2026, adjusted operating expenses will exclude payroll tax expense related to stock-based compensation, which totaled $20.6 million in FY '25, as well as certain onetime legal expenses, acquisition-related costs and where relevant restructuring expenses, all of which totaled $10 million in FY '25. Our 2026 guided range reflects this definitional change as does the FY '25 comparable figure on this slide of $478 million. Overall, we have delivered a strong close to a critical year for Circle with meaningful growth and strong profitability. We are only just beginning to attack the opportunity before us, and we remain excited about our future. I want to thank the team here at Circle for your continued hard work to thank our investors and analysts for your support and engagement. With that, operator, we can now start the Q&A portion of the call. Operator: [Operator Instructions] Your first question comes from the line of Devin Ryan of Citizens Bank. Devin Ryan: I want to start on kind of this agentic evolution. I think it's a compelling case. And just want to get a sense of how you think from a timing perspective this plays out? And does it start with trading liquidity and then progressing to payments and borrowing and lending or how do you see that? And then how do you make sure that USDC is in the middle of that? And can Arc perform relative to other Layer 1s technically to support this? Jeremy Allaire: Thank you. It's a great question, and it's something that we are spending a lot of time on. When we designed Arc and announced and rolled out the Testnet. We talked specifically about this agentic economic activity as a fundamental design center for how we saw autonomous software autonomous agents and others conducting economic activity on the Internet. And it kind of speaks to the bigger backdrop of the early vision of the company, which is programmable money and what that allows and machine intermediated money and what that allows. And we're really seeing this convergence happen as we speak. And so we started our journey, not just in the design of Arc, but with USDC, by making sure that we're participating in all of the key standards for agenetic payments and value movement helping contribute to what's called the x402 standard, the Agentic payment standard from Google. We're part of the AI agent consortium. So we've been engaged and involved. But something happened really a month ago, which is these -- this turning point with Claude, ClaudeCode, what's now called OpenClaw. And we really saw this kind of incredible leap in the ability for the average person, but also sophisticated developers to spin up agents to do an incredibly wide array of tests. And obviously, we're all seeing that out in the market. And what's been interesting to see is that there's been this direct and immediate pickup where AI agents are realizing and the developers of those AI agents are realizing that agent to agent transactions need a reliable, low-cost trusted medium of exchange. And so virtually all of the AI payments infrastructure that we're seeing, the agent type activity is happening with blockchains. It's happening with USDC. So that's been very, very encouraging, and we're doubling down on that in a pretty significant way. Now I think to other parts of your question, what's the ramp on this? I mean I think this is one of the great known unknowns or however you might want to put it, which is -- what is the -- are we having a kind of take off moment? The Collison Brothers yesterday talked about, Q1 '26 might be the takeoff moment for the singularity, we may look back at that. And I think the technology shifts that we've been experiencing are indicative of a kind of takeoff. And that leads to the uses, which is AI agents consuming work from other AI agents, the kind of collaboration amongst AI agents, AI agents distributing out work to humans, humans consuming from AI agents. All of these are happening. We've seen AI agent marketplaces launched just in the past weeks where AI agents can employ human workers to conduct tasks and be compensated in USDC, as the medium of exchange. We're seeing AI job boards where AIs can hire each other and use USDC as the way to make those payments. So this is happening very organically. And I think from our perspective, as businesses and start-ups build products around agentic economic activity, the natural place that they're going to do that is with stablecoins and on blockchains, which leads to part of your other question, which is really around Arc. Arc is purpose built for this moment. Arc is built with a validation and consensus model that can support scale. ARC is built with an economic model where we can drive the cost of transactions in high-performance kind of channels down to [ $0.00001 ]. And in fact, we just went in Testnet last week with a feature that is designed for autonomous agents called Circle Gateway, which is a feature that would allow autonomous agents to hold a balance and spend not just on Arc, but on other networks and have a transaction cost of [ $0.00001 ] and get that value moved in less than a second to all these other apps and services that are out on these networks. So we're building the primitives, we're building it at the operating system level, the infrastructure level, we're building the tooling. And we're really engaged in actually marketing to agents that are autonomously out there and want to build. So a lot more to come from us here, and we're really pleased. And I think we -- again, -- we talk about money velocity and how effectively networks and infrastructure like what we've built will lead to higher and higher amounts of money velocity. And my own view, which is in my opening comments as well is in a world of tens or even hundreds of billions of AI agents, the velocity of money is just going to be multiple orders of magnitude higher than it is today in the existing economic system. And so we're building a new economic infrastructure. We're building a new Internet financial system. And I think we're very optimistic that Circle can play a really key role in this convergence between AI and stablecoins and blockchains. Devin Ryan: Yes. Jeremy. A great response, and we'll be fascinating to follow this evolution. Maybe just a faster follow-up, but on just Arc token, any update on kind of the considerations there, how that's evolving? And then any sense of timing of when you might make a decision on whether you would launch a token for Arc? Jeremy Allaire: Yes. A couple of things I can say. I think we're continuing to explore the Arc token. It's, I think, a very good exploration. We're getting a very good understanding of how a token can play a key role in providing stakeholder incentives, governance, security, utility and other things on the Arc network. And so that exploration continues. We aren't communicating about any specific time line or other because we're still in that exploration. But as noted, we're making tremendous progress with Arc and we're making very strong progress towards Arc Mainnet, and we're very excited that come into play, and we expect to see some amazing companies participating in running the Arc infrastructure, deploying apps on the infrastructure and also providing foundational infrastructure to asset issuers and AI agents, a wide array of use cases on it. So we're pleased with the progress. And of course, as we have more to say about that, we'll share that publicly. Operator: Your next question comes from the line of Joseph Vafi of Canaccord Genuity. Joseph Vafi: Great progress. Just -- maybe we'll just regulatory backdrop a little bit, Jeremy and Jeremy. GENIUS has been in place now for a couple of quarters. Just wondering what kind of tangible signs of progress you've seen directly from GENIUS? And then the follow-up would be on CLARITY, where we sit now, your views on it. Clearly, the stablecoins are kind of in the middle of the compromise and discussion there. So your comments and thoughts there. Jeremy Allaire: Sure. So first on GENIUS, GENIUS has absolutely continued to be a tailwind for our business. And I think the sector as a whole. It has created this legal foundation for major institutions to come into this market. We've seen follow-on guidance from the likes of the SEC and the CFTC as they're clarifying how effectively what would be GENIUS compliant stablecoins can be used as collateral on CFTC markets, the recent SEC guidance in terms of the kind of haircut treatment on stablecoins for broker-dealers, which is a big breakthrough in terms of how stablecoins can be used in capital markets. And I would just say, broadly, banks, payments companies, tech firms, large enterprises around the world are leaning in and wanting to weave stablecoins into the product strategies. And so it's also spilling over into international markets where international regulators are also saying, okay, well, we now need to kind of acknowledge genius compliant stable coins as the sort of good, stablecoins that could be allowed in their markets, and that's really strong from our perspective. So we think it's been very positive and will continue to be positive as it goes effective and as some of these OCC licenses start to come through as well, which will impact large issuers like Circle. On CLARITY, I mean CLARITY is very close to the finish line right now. I know we're very close to the issues. There's a lot that's been reported. I think the most recent reporting seems accurate, which is that the crypto industry and the banking industry are working day over day, week over week at a staff level and with the White House to come up with some compromise language around the different kinds of rewards that people can get for holding stablecoins or using stablecoins and how they use them. And my sense is that everybody wants to figure this out. There's a lot in this for banks, capital markets, asset managers, the crypto industry as well. And so right now, I'm cautiously optimistic about it, but obviously, DC is DC and all the dynamics of the spring and everything else. It's not my job to handicap, there are probably analysts at some of your firms that can do that better. But we're cautiously optimistic, and we do think that with CLARITY Act, if it does come to pass on a bipartisan basis, is another significant unlock for building in this space. And we'll certainly talk about that in the future, but we think it's a very, very significant unlock for the development of this market and the use of blockchains in a far broader range of applications as well. Operator: Your next question comes from the line of John Todaro of Needham. John Todaro: I guess just going back to Arc and then maybe CCTP in there as well. It seems like the evolution of these could long term become kind of asset agnostic or could be just a broad asset tokenization platform for issuance of equity, some of these other assets. I guess just, Jeremy, what are your thoughts on kind of that evolution in the long term, if we could just grow a little bit more into the long-term vision park? Jeremy Allaire: Yes, absolutely. So the conceptual model for Arc for us is this is an economic operating system. It is a distributed economic operating system. That distributed economic operating system is going to be operated by a collection of known leading financial infrastructure companies, including Circle that will run the infrastructure to support the compute, the transactions, and the like and the data on these networks. And it's designed for prudentially sound financial activity and economic activity. We think that's necessary to build the real world economy on the Internet. Within that, though, we want to make sure that as a safe and sound and secure foundation that it has several things that are important to financial system actors. We want to make sure that it has the single best, most capital efficient liquidity for digital dollars in the world. And so marrying what we do with USDC to what we're able to do with the technology and arc, we believe we can create the most capital efficient and fast digital dollar kind of liquidity model in the world. The second, which is related to another part of it is we really think about Arc as a liquidity and distribution hub for other asset issuers. And so we're building technology and this technology builds on the incredible distribution we've already created with CCTP. We're building technology that would allow an asset issuer, whether it's a tokenized equity, a tokenized fund, a tokenized bank deposit, other stablecoin issuers and any kind of asset that can be imagined that can be tokenized to be able to be issued on Arc and then be able to turn on liquidity and distribution on other blockchain networks. So if I'm issuing a tokenized stock, and I want that tokenized stock to be able to run on Robinhood's L2 and on coin basis, onchain exchange and on some other tokenized environment that supports these assets. The people who are issuing assets really need to know that they can do it in a safe way, in a liquid way and have that kind of distribution and -- so we've built the highways. CCTP in January was over 60% of all traffic moving across these different networks. And with the new technologies that we're bringing into Arc around this, we believe that we can light up those highways for any asset issuer. And so again, back to the vision side, big picture, this is a general-purpose OS for economic activity on the Internet. As we come into the market in this environment where we have demands from people who want to build very, very cost-efficient, capital-efficient AI transactions, we have demand from people who want to build tokenization applications and get liquidity and distribution for those. We think Arc and our interoperability infrastructure will be very, very well suited for that environment. John Todaro: That's great. That's very helpful. And then I guess just as a follow-up, going back to the Agentic AI comments, I would agree with you. Just with the ways of the crypto equities have been trading and then just the crypto token market in general, is agenetic AI and payments and all that within those ecosystems? Do you see the excitement kind of extending beyond stablecoins in Arc? Could this be a general tailwind for the sector? Jeremy Allaire: I mean I think this is one of the most exciting -- obviously, I'm biased, but I think this is one of the most exciting kind of points of convergence out there. If I'm a developer building AI agents, and I want to build AI agents that can enter into contracts with other agents that can enter into contracts with humans that might have disputes that need proof of data or things that happen that need to execute those contracts and move money if I'm thinking about building an organization that is mostly consists of some humans and some AI agents, and I want to build the underlying governance mechanisms or how that's going to work, blockchain infrastructure is going to be how that happens. We need cryptographic proof. It's the only thing that will allow us to trust the activity and the data and the transactions of these agents. And so we're seeing that in our developer activity. We're seeing that in the Arc developer engagement where start-up founders who are coming in from the AI space are realizing like this is kind of a back plane that is really, really helpful. And if you go back and think about other big platform shift, there was sort of -- sometimes there's the sort of 2 sides of the coin and you had the rise of mobile, which was obviously the surface area for creating applications and that corresponded to the rise in cloud platforms, which could actually be the back end and scale the back end for mobile. And so they work kind of hand-in-hand. And so I very much believe starting now, really starting now in 2026 that AI platforms and these blockchain operating system platforms will be kind of hand in glove for people who want to build for this new AI-driven economic system. John Todaro: Congrats on a strong quarter, guys. Operator: Your next question comes from the line of Pete Christiansen of Citi. Peter Christiansen: Impressive and rapid progress on a number of fronts here. And the competitive mode looks stronger than ever. Jeremy, I was wondering if you could provide some underlying color on CPN onboarding and flows, perhaps initial use cases and some stickiness, growth per FI partner that sort of thing? And then as a follow-up regarding the conversation on [ Jeto ] commerce, which looks incredibly compelling, how should investors think about this opportunity transforming Circle's operating/financial model? Jeremy Allaire: Sure. So on CPN, as you saw from the results, we are seeing very steady and very strong growth in the kind of key things that we're focused on now, which is when we launch this last June, it was at sort of state 0 with no financial institutions or just a couple and the technology is just getting off the ground. We have been progressing through product iterations and then commercial iterations, as noted, we now have 55 financial institutions on the network. That's up sequentially considerably the number of financial institutions wanting to add to the network continues to grow and be robust. And then the flows, which I can characterize a little bit more about. The flows have grown as well. So from a standing start to an annualized TPV of about $5.7 billion as of last Friday, up I think, 68% since the last time we talked to you guys, we're very pleased with what we're seeing there. We are -- a couple of things I'd say is there are more and more larger types of firms that are -- can support larger flows that we're very focused on coming on to the network, and that's a key goal. From a product perspective, we want to increase the velocity of everything that happens, the velocity of how these members can join and implement and operationalize for a lot of financial institutions, they've never dealt with blockchains. They've never dealt with stablecoins. And so kind of streamlining how they can do that. and then making sure that the highest demand corridors have good redundancies, have good players in those. But what we're seeing in terms of use cases is this is very much B2B cross-border merchant settlement as major drivers. And we're seeing that in the markets that you would not be surprised to see businesses that are exporters out of Asia and importers in both other emerging markets and developed markets, we're seeing some application flows that are very clearly -- can be south to south and north to south remittance applications. So we're seeing the use cases we want to see. There's certainly a lot more to come there. And we're, again, very pleased with the success. I made the comment on the earnings call that we've got a lot of product investments here. We have ambitious goals here in terms of what this can scale to be. And ultimately, obviously, as this starts to get to more meaningful scale, we can start to monetize this, and our partners are already starting to monetize this. So that's a bit on CPN. And then on Agentic and kind of the impact for us. We think about this in a few ways. I think one is just as a major new demand driver for the utility of our stablecoin network. So AI agents as consumers of this as essentially end customers in a sense that are driving stablecoin transaction volume, driving balances of stablecoins, driving stablecoins out into more use cases and businesses that are not crypto-native but are kind of interacting with this new agentic economy. I think it's a way for us to kind of accelerate into other types of software-based institutions that see that they need to have their products be consumable by AI agents and maybe with different pricing and economics and where, again, the standards that we're building around Agentic payments could play a role. But also this can drive fundamentally traffic on Arc and growth on Arc. And over time, as we've noted, we believe that Arc can create new kind of transaction-based revenue streams. And so the velocity of that, the scale of that is, again, early, but we think could be very significant over time. And those are a few of the things. And I think we'll have more to say about this, obviously, as it progresses. But what we've seen literally just over the last 3 to 4 weeks has been really eye-opening, and we've been happy that we've had product and technology ready to go for -- and we have been working on some of the standards in this space now for some time and are ready to go for this kind of lift off moment that seems to be happening. Operator: Your next question comes from the line of Dan Dolev with Mizuho. Dan Dolev: Team Circle, Jeremy, great results here. Really nice to see that. Congrats. I wanted to ask you about the opportunity specifically in prediction markets and your partnership with Polymarket? Just in general, like why is USDC so critical to this very fast-growing segment? And what should we expect in the coming quarters and years from that very interesting partnership? Jeremy Allaire: It's a great question, Dan. I mean I think when we think about the adoption of our stablecoin network and our broader infrastructure, we're always kind of asked like, well, what are the killer apps and we have lots of different killer apps that are emerging. We see cross-border payments is one of those. Obviously, historically, crypto trading, we're seeing Agentic emerging, tokenization and so on. But prediction markets is absolutely one of those. We've been very fortunate that we made a big bet in the kind of on chain ecosystem early on. And so USDC is sort of systemic and critical to a lot of onchain applications that were built over the past 3, 4, 5 years, and Polymarket is one of those. And so with Poly market, we've been able to work closely with them to kind of advance how they use our technology to improve the experience for their customers, improve what they can offer to their users, make it a more seamless experience. But what something like USDC does and our infrastructure does for a prediction market like Polymarket is people want to be able to move quickly. The sort of essence of markets in general, but prediction markets, in particular, these are information markets and people want to be able to move quickly. And so stablecoins give end users and people who want to participate in these markets, the ability to basically provide collateral and settlement at the speed of the Internet and do that from lots of different wallets, from lots of different markets all around the world. So it opens up global access in a more seamless way and it gives a firm like Polymarket, a good infrastructure to kind of store that and surface that to users. Now USDC is now offered as a way to fund your [ cashy ] accounts. USDC underpins coin-based prediction markets. You can use USDC to get funds on [ crack ] and Robinhood. And obviously, they're offering prediction market. So there's more to see here. And we want to work with the leading players and make sure that the best digital dollars, whether for settlement or for collateral, are used in all the places and having the world's leading player kind of adopt this and build on this with us, we think, is a very positive win. And obviously, everyone has been tracking the growth and success of Polymarket, which has been pretty astounding and obviously, still early days in these markets. very impressive. Operator: Your next question comes from the line of Ken Worthington of JPMorgan. Kenneth Worthington: USDC on Circle platform rose to 17% in 4Q. As we think about 2026 and the new initiatives you have underway, what is a reasonable range of outcomes in terms of where that mix can go for Circle and what relationships or initiatives are likely to be the biggest drivers of incremental on-platform USDC, say, over the next 12 to 24 months? Jeremy Allaire: Thanks, Ken. We're very pleased with the 5x growth year-over-year in that a couple of things. I think the first is we are continuing to build infrastructure products that are valuable for kind of holding and using USDC, and we're doing that across our wallets products. We're doing that across products like Circle Gateway. We're doing that in Circle Mint and in many places that we interface with customers, developers and people building on us. And the fundamental premise here is that more and more major institutions, whether those are financial institutions or others are going to want to build on our infrastructure. And Arc, for example, is a driver because Arc is our infrastructure, and it will be wired really well into mint and wallets and gateway and these other infrastructures. And so these can all work together to drive more applications, more money flow and more money stock to use Circle technologies and that contributes to what can be on top from USDC. And so in many respects, it's just continuing to build these institutional partnerships with this wide diversity of companies that will continue to help us grow that. I would say that's sort of the high level on that. We're not guiding, obviously, anything on that. But I think you've seen the direction of travel. We continue to focus on building great infrastructure people want to build on. And one other note is we have received conditional approval for Circles National Trust Bank, First National Digital Currency Bank. That is obviously something that is important to USDC and USDC reserves and ultimately, how we work at the OCC under the GENIUS Act. It's also something that can strengthen the custody infrastructure that we provide to market participants. And so you can expect us to pursue that. And I think as we build that as a kind of fiduciary and security and operational apparatus that has some of the protections that come with the trust bank that we think that is additive to our on-platform capabilities as we go out into future quarters. Jeremy Fox-Geen: Yes. And I'd just add on to that, Jeremy talked about the expansion of our platform infrastructure and the products that we have that make it more attractive for all leading enterprises to build upon Circle's platform and technology. But I'd also add all of the rest of the infrastructure that we built that underpins what we do is part of that our broad-based global banking and liquidity infrastructure is unmatched in the stablecoin space. The broad network of users and developers and other enterprises building on USDC only makes it more attractive to any one additional major enterprise to choose to use USDC. And of course, we're positioned as new core market infrastructure. We're not competing with any of the enterprises and the developers who build on our infrastructure for their customers. Operator: Your next question comes from the line of Jeff Cantwell of Seaport Research. Jeffrey Cantwell: I'll ask both the [indiscernible] and upfront. I was wondering, first, if you can give us the building blocks for your other revenue guidance of $150 million to $170 million for this year. What is causing the step up? You mind just breaking that out for us versus 2025. And then again on Arc, just to kind of get a little more comfortable with the strategy and the rollout as you're getting closer to the Mainnet launch. Do you mind giving us maybe at a high level what the rollout plan is post go into Mainnet? And I guess I'm just curious, do you foresee a world where elements of Arc and elements of CPN mesh together to deliver more value for clients and your customers? Jeremy Allaire: Yes. Thank you. Maybe I'll take the second question and then Jeremy Fox-Geen can take the first question. So on Arc Mainnet, a few things. The first is we're making great progress. And as noted, the technology infrastructure through Testnet has been strong. The usage has been strong. The growth in transactions and activity and developer activity, we're very pleased with. When we think about that transition from Testnet to Mainnet, there's a couple of key things that we're looking at. So one is there are technologies that we still want to make sure are available to all of the users of Arc network before we go to Mainnet, and I alluded to some exciting technologies. So these relate to things that are valuable to institutions doing tokenization and are valuable to AI agents doing activity on these networks. So we've got some technology delivery. But importantly, we've said publicly that the first phase of Arc Mainnet is going to be what's called a proof of authority validation. And that's really bringing on that first wave of strategic partners that are going to be working with us to run the Arc network infrastructure. And we want to make sure that we have world-class financial infrastructure companies who are running the infrastructure with us. And so if you're a developer or you're an institution or you're an end user, you will understand that Arc network is run by some of the leading financial infrastructure companies of the world, which can -- which is really, really key to not just trust and reliability, but ultimately to governance and how we think about this going forward. So that's a key piece. The second is we are working closely with the entire digital asset ecosystem across enterprise tools, custody, wallets, exchanges, everything that's out there to make sure that everyone is ready for that day 1. And so we want to give everyone time to get all of their infrastructure ready. And that includes deep integration across Circle's existing product stack, so that, for example, on day 1, when we go Mainnet, USDC liquidity, for example, is the best in the world is the most capital efficient in the world and becomes an attractive way for value flowing on the Internet to kind of come through Arc. So there's work there. There's work with mainstream companies who are in that Testnet group that we announced who are looking to commit to launch products on Arc and making sure we have the right mix of use cases across capital markets, payments, FX, agentic and the like. And so that's a key thing in getting those already. And then to your last part of your question, Arc is going to be a key infrastructure for CPN. Arc will provide a very strong infrastructure for speed, reliability, prudential safety and soundness, efficiency. It simplifies flows because people only need to hold a stablecoin in order to use it, but it also has all the interoperability features built in. So Arc has best-in-class interoperability. And so if an endpoint on CPN needs to interact with a wallet that is on a different network, Arc actually gives those members on CPN, the ability to really easily get conversion into those other networks. And so Arc becomes a back plan for CPN and relatedly, StableFX, which is a key application that runs natively on Arc will also become the FX back plan to support Arc transactions. So a transaction between euro and a dollar or euro and a peso or dirham and a peso, you pick what it is, we're bringing other stable coins onto Arc, and we're bringing other stable coins and market makers onto StableFX, and that's going to allow us to provide real-time atomically swapped liquidity across currencies would shift speeds that conversion and settlement and settle them an assurances reduces the amount of capital people have to tie up and the like. And so ARC, StableFX, CPN and Circle Mint kind of working together are going to support, I think, key things as we go into Arc Mainnet. Jeremy Fox-Geen: And Jeff, I'll take the second -- the first part of that question. So the other revenue, that was $36.8 million in the quarter, and that was roughly $25 million from subscription and services revenue and $12 million from transaction revenue. Within those categories, within subscription and services revenue, the largest part of the revenue we own within that is revenues from our blockchain network partnerships, which have both upfront and recurring elements. We've talked about how the upfront depending upon the number of integrations and the number of partnerships we strike can be a little bit lumpy quarter-on-quarter and how the underlying recurring are building up over time as we bring more and more of those online and we execute against that pipeline, which is strong. Also within that our asset management fees on the USYC tokenized money market fund, which is relatively small today, but obviously have potential going forward. Within transaction revenues, there's -- as I think we said before, there's a number of different pieces in that. There's fees from value-added products like fast redemption for USDC for CCTP fast transfer. That's where you'll see fees over time from the Circle payments network. In addition, we also run validate our infrastructure, and we mentioned that in my opening remarks is that this quarter, in particular, because of the trading -- the listing of Canton Coin and the share price movement, we recognized unusually high revenue in this quarter, particularly for that. Now we're not guiding on those building blocks. All of these monetizing products and services only started in the monetizable form in really the fourth quarter of 2024 and the first quarter of 2025 and onwards. So it's very, very early days for these products. But given that, collectively, this revenue line is only 8 year old, we're very pleased with where we ended up with $110 million for the year. Operator: Your next question comes from the line of Ken Suchoski of Autonomous Research. Kenneth Suchoski: Circle has seen some nice leverage on distribution costs. I wanted to focus there. I mean the coin agreement is what it is, but wanted to get your latest thinking on what's happening outside of coin base in terms of distribution costs and how those conversations are going? Because those non coin-based distribution costs have been pretty stable like the last couple of quarters. So just any update there would be great. Jeremy Allaire: Yes. I can take part of that, and if Jeremy wants to add anything, he can as well. I think we are in a really strong position because USDC has the strength of its network effects, which is that if you're building a product or service, and you want to have a compliant liquid available, interoperable digital dollar, USDC is the top choice. And so what we see is just many, many products being built and launched that use USDC and connect to our stablecoin network and drive demand and drive liquidity and that's valuable for those products. Those products are tapping into essentially this globally available, nearly free dollar payment system. And so as that happens organically, that's kind of the organic developer-driven, institutionally-driven flywheels. That drives growth in USDC, and in those institutions, we don't need to go and do incentive deals or other things with. And so we're -- I think as we've said, we're disciplined about where we think it makes sense to have an incentive relationship where it makes sense, where we can see that the partner can actually drive growth and can drive meaningful growth. So we look at those as factors like where is the growth? Where is the meaningful growth? And I think that contributes to the kind of strength of the fundamental kind of unit economics that we've been able to maintain here. And that's sort of the big picture. Jeremy may have other comments to add? Jeremy Fox-Geen: Yes. I'd add a couple of things to that important strategic narrative, which is -- and we've said this, I think, before on these calls, which is growth in USDC distribution partners, some of which is incentivized. Also leads to a growth in the strength of the underlying network effects around USDC, which I spoke about the elements of that earlier in this call, right? And that makes it more attractive for other market participants to independently build and use USDC and provide USDC-based products and services to their customers. The underlying point of that, which is any distribution relationship we have also strengthens USDC that is not subject to any distribution relationship or indeed any incentive partnership. And that's a fundamental networks have network effects, strength to RLDC margin and our underlying economics. Operator: Your next question comes from the line of James Faucette of Morgan Stanley. James Faucette: I want to go back to the comments you made about the AI hackathon and the like. How do you think about the to-do-list for Circle to become integral to a lot of those evolving payment networks and that kind of thing, especially when obviously, there are other players or solutions like either Crypton more generally, just wondering kind of what the pluses and minuses are and how you establish a position in agentic world? Jeremy Allaire: Sure. Thank you for the question. I think a couple of things I'd note. The first is that Circle has invested heavily over the past 4 to 5 years to make sure that our stablecoin network and essentially, the pipes that support the distribution, liquidity and settlement of USDC are available on as many blockchain network platforms as possible. We're on over 30 blockchain networks. And that's key because developers who are building applications are going to build applications where their agents might anchor on Ethereum. As you know, they might anchor on Solana. They might anchor on Arc, they might anchor on a new chain that hasn't even come out. There's exciting new blockchains that are coming out. And I think we all believe that if you think about blockchain networks, these economic operating systems, like we're in the early innings of these scaling out and scaling out to the kind of velocity of transactions that AI is going to demand. And so one is we run across these networks today. And in fact, we've co-authored and participated in almost all of the key agentic payment standards. And the agentic payment standards like x402 and [ EURC 80004 ], it's a little jargon for those that aren't aware, but basically, these are sort of agent-related standards are almost all -- I think I saw a statistic and I may be wrong about this, but essentially 99% of Agentic payments that have been measured over this recent period have been in USDC. So we have a first-mover advantage by being on all of these networks by being involved in the standards by being deployed in these ways. We also make sure that all of our own APIs, all of our own protocols are surfaced directly as skills libraries to the agentic coding systems. And as MCP servers so that AI developer tools can like seamlessly integrate to this. And so those are all things that we started making investments in some time ago that are paying off now as we get to this kind of lift off moment. So we feel good about those pieces. And I think now -- I think a lot of companies are really realizing like, let's say, you're a SaaS company, and you realize, well, maybe we're not going to sell end user seats, but we're going to sell access to our capabilities as an API to AI agents, a lot of companies are trying to figure out, well, how do you market to swarms of AIs running around and are there marketplaces where AI can find things they can use. And so the sort of distribution in the AI agent world is like a new thing. And we chose, as you noted, right, right after [indiscernible] launched, we saw an opportunity to allow AI agents to compete in a hackathon amongst themselves to vote on things, and that was the first of its kind. And I think was a powerful marketing activity where that collection of AI agents are now well educated about USDC. And so there's more things like that, that you'll expect to see us do over time. And -- but at a technology level, just kind of coming back is we believe that Arc has an infrastructure, both because of the USDC centric capability, the capital efficiency, the interoperability and the kind of cost efficiency of transactions is going to be a very attractive high throughput infrastructure, and we're going to be leaning into that. Operator: There are no further questions at this time. And with that, I will now turn the call over to John Andrews for closing comments. Please go ahead. John Andrews: Yes. Great. Kelvin, thank you so much. And for those who couldn't get through on the Q&A line, we'll happily follow up with you over the course of the day. Again, we'd like to thank you for your attention and participation this morning and look forward to connecting you soon. Jeremy Allaire: Thanks, everyone. Jeremy Fox-Geen: Thank you. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Greetings, and welcome to the Starwood Property Trust, Inc. Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. It is now my pleasure to introduce your host, Zachary H. Tanenbaum, Director of Investor Relations. Thank you. You may begin. Zachary H. Tanenbaum: Thank you, Operator. Good morning, and welcome to Starwood Property Trust, Inc.'s earnings call. This morning, we filed our 10-Ks and issued a press release with a presentation of our results, which are available on our website and have been filed with the SEC. Before the call begins, I would like to remind everyone that certain statements made in the course of this call are forward-looking statements, which do not guarantee future events or performance. Please refer to our 10-Ks and press release for cautionary factors related to these statements. Additionally, certain non-GAAP financial measures will be discussed on this call. For a reconciliation of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP, please refer to our press release filed this morning. Joining me on the call today are Barry Stuart Sternlicht, the Company's Chairman and Chief Executive Officer; Jeffrey F. DiModica, the Company's President; and Rina Paniry, the Company's Chief Financial Officer. With that, I will now turn the call over to Rina. Rina Paniry: Thank you, Zach, and good morning, everyone. Today, we reported distributable earnings of $160 million, or $0.42 per share, for the fourth quarter. While our reported results reflect the timing of capital deployment and balance sheet optimization initiatives, our underlying earnings power continues to build. Importantly, we exited 2025 with enhanced liquidity and embedded earnings from this year's investments and unfunded commitments, all of which will increasingly contribute in 2026, with our dividend coverage expected to improve steadily throughout the year. Our quarterly results were impacted by temporary timing issues, adjusted for which DE would have been $0.49. The first is our newest net lease cylinder, which on a run-rate basis would have contributed $0.06 of incremental DE to the quarter, but instead contributed $0.03. We anticipated this dilution at acquisition knowing that we would have near-term carry from capital raised and there would be a timing gap while we ramped acquisitions and optimized the platform's capital structure. As Jeff will discuss further, we have made progress toward these initiatives and expect to see reduced dilution going forward. As a reminder, the weighted average lease term of this portfolio is 17.3 years with occupancy of 100% and 2.3% annual rent escalations. The second timing issue was higher-than-normal cash balances, which led to $0.04 of reduced earnings. We completed three securitizations in the quarter, one in each of commercial lending, infrastructure lending, and net lease, that combined created incremental proceeds of $290 million. We also continued to shift secured debt to unsecured debt, issuing $1.1 billion of high yield in the quarter and executed a takeout refinancing on part of our affordable multifamily portfolio, which generated cash of $240 million in late September and October. All of this cash will ultimately be a source of incremental DE as it gets deployed into new investments across our diversified cylinders. Stepping back to the full year, we reported DE of $616 million, or $1.69 per share. As we continued the theme of proactive capital repositioning, we had temporary reductions to earnings of $0.14 this year resulting from our $4.4 billion of equity, unsecured debt, and term loan issuances, along with our new $2.2 billion net lease acquisition. DE adjusted for these timing issues and the $0.12 realized loss we recorded upon sale of a foreclosed asset earlier this year was $1.95 versus our full-year dividend of $1.92. Given our enhanced earnings power as a result of this year's strategic transactions, and as we continue on our path to resolving our nonaccrual and REO assets, we see a clear line of sight to earnings that cover our dividend, a dividend that we have never cut. Our diversified lines of business continue to perform at scale, allowing us to deploy $12.7 billion in 2025, our second-largest investing year to date. This included $6.4 billion in commercial lending, a record $2.6 billion in infrastructure lending, and $2.4 billion in net lease. $2.5 billion of our deployment was in the fourth quarter, bringing total undepreciated assets to a record $30.7 billion at year end. As a testament to our continued diversification, commercial lending now makes up just 54% of our asset base. I will now take you through our individual segment results, beginning with commercial and residential lending, which contributed DE of $176 million to the quarter, or $0.46 per share. In commercial lending, we originated $1.7 billion of loans, of which we funded $1.2 billion, along with $223 million of preexisting loan commitments. After factoring in repayments of $670 million, we grew the funded loan portfolio by $823 million in the quarter to $16.6 billion, our second-highest level since inception. In addition, we have $1.9 billion of unfunded commitments, which will generate future earnings as these loans fund. We also completed our fourth actively managed CLO for $1.1 billion with a weighted average coupon of SOFR + 1.65%. On the topic of credit quality, our portfolio ended the year with a weighted average risk rating of 3.0, consistent with last quarter. We have $680 million of reserves—$480 million in CECL and $200 million of REO impairment. Together, these translate to $1.84 per share of book value, which is already reflected in today's undepreciated book value of $19.25. This quarter, we classified a $91 million, 5-rated first mortgage loan on a multifamily property in Phoenix as credit deteriorated. The loan already maintained an adequate general reserve, but based on a recent appraisal, we reclassified $20 million of our reserve from general to specific. Jeff will go into more detail on our credit migration and asset management initiatives. Turning to residential lending, our on-balance-sheet loan portfolio ended the year at $2.3 billion, consistent with last quarter, as $58 million of repayments were largely offset by $31 million of positive mark-to-market adjustments resulting from slightly tighter credit spreads. Our retained RMBS portfolio remained relatively steady at $405 million. Next is infrastructure lending. This segment contributed DE of $27 million, or $0.07 per share, to the quarter. Our strong investing pace continued with $386 million of new loan commitments in the quarter and a record $2.6 billion in the year. Repayments totaled $568 million during the quarter and $2.0 billion for the year, with the loan portfolio increasing $300 million this year to $2.9 billion. We also completed our sixth actively managed CLO for $500 million and priced our seventh for $600 million at record low spreads over SOFR of 1.72% and 1.68%, respectively. Nonrecourse, non-mark-to-market CLO financing now funds 75% of our infrastructure debt. In our property segment, we recognized $49 million of DE, or $0.13 per share, in the quarter. In our Woodstar fund, comprising our affordable multifamily portfolio, we recorded a net unrealized fair value increase of $17 million in the quarter for GAAP purposes. The value was determined by an independent appraisal, which we are required to obtain annually. Also during the quarter, we sold a 264-unit multifamily portfolio for a net DE gain of $24 million. The $56 million sales price was in line with our GAAP fair value. And finally, we completed the second part of our takeout refinancing that I discussed earlier. The independent appraisal, third-party sale at our carrying value, and takeout refinancings collectively provide market confirmation of our valuation. Also in this segment is our new net lease platform, which reported its first full quarter of DE totaling $12 million. We acquired 16 properties for $182 million during the quarter, bringing post-acquisition purchases to $221 million, in line with our underwriting but with the timing back-ended to the last month of the quarter. On the capital markets front, we completed our first ABS transaction since acquisition with $391 million of financing at a weighted average fixed rate of 5.26%, a record tight spread for this platform. Given the back-end acquisition timing and mid-quarter execution of accretive ABS financing, our reported DE understates the earnings power embedded in this platform. Concluding my business segment discussion is our investing and servicing segment. Collectively, the cylinders in this segment contributed DE of $46 million, or $0.12 per share, to the quarter. Our conduit, Starwood Mortgage Capital, completed three securitizations totaling $276 million at profit margins that were at or above historic levels. This brings our year-to-date total to 16 securitizations for $1.2 billion. In our special servicer, our active servicing portfolio rose to $11 billion with $1 billion of new transfers in. Our named servicing portfolio ended the year at $98 billion. As a result of near-record maturity defaults in CMBS, servicing fees increased to $38 million this quarter, bringing year-to-date fees to $107 million. This is up 47% from last year and the highest level they have been since 2017. We have always told you that our servicer is a positive-carry credit hedge that earns more money in times of real estate distress, and that hedge is once again proving itself this quarter. Our CMBS portfolio grew by $82 million during the quarter, primarily driven by new purchases of $101 million, offset by cash collections of $17 million. As a result of the maturity defaults noted above, we also recognized net DE impairments of $13 million. And lastly, on this segment's property portfolio, we sold a mixed-use property and retail center for a total of $36 million, resulting in a net GAAP gain of $10 million and a net DE gain of $3 million. Turning to liquidity and capitalization, we had our most active capital markets year in our history. We executed a record $4.4 billion of corporate debt and equity transactions, including $1.6 billion in unsecured notes, $1.6 billion in term loan repricings, a $700 million Term Loan B, and a $534 million equity raise that was accretive to GAAP book value. We continued our focus on conservative leverage, ending the year with a debt to undepreciated equity ratio of 2.4x, more than a full turn lower than our closest peer. With this year's continued shift away from repo, our unsecured debt now represents 18% of our total debt, up from 16% a year ago, and our off-balance-sheet debt stands at 22% of our debt, up from 17% a year ago. Our current liquidity is $1.4 billion, with availability across our financing lines of $11.9 billion. This, along with our ability to consistently access the unsecured and structured credit markets at attractive spreads and across multiple asset classes, reflects the strength of our platform and provides significant flexibility as we enter 2026. With that, I will turn the call over to Jeff. Jeffrey F. DiModica: Thanks, Rina. As we enter 2026, our priorities are clear: resolve legacy credit, maintain a conservative balance sheet, and selectively grow our highest returning businesses to restore full earnings power. We exited 2025 with continued stabilization in credit markets and improving transaction activity. Activity is still below peak levels but trending positively as liquidity returns and rates move lower, supporting originations, refinancings, and more constructive resolution outcomes. Real estate as an asset class has taken longer to normalize than many other parts of the economy, and performance remains uneven across sectors and geographies. We do not expect the volatility in corporate credit markets to have a large impact on CRE fundamentals, which have largely insulated and outperformed in the lower-rate environment. We built Starwood Property Trust, Inc. to operate through cycles, and this year reflected that. In 2025, we raised and repriced a record $4.4 billion of capital in corporate debt with our debt issued at the tightest spreads in our 16-year history, strengthening liquidity, preserving flexibility to deploy capital accretively while maintaining low leverage, and significantly extending corporate debt maturities. We continued to diversify our business in 2025, with the acquisition of our net lease business, which added over $2 billion of long-term accretive assets with 2.3% annual rent bumps that will add incremental future distributable earnings for years to come. Cap rates have come down since we closed, as have financing costs, which increases the value of the existing portfolio we purchased as we have optimized their financing structure, adding to the long-term tailwinds of the business. As Rina mentioned, we closed one securitization in Q4 and another after quarter end, both at a lower cost of funds than we underwrote, and we are in the process of significantly improving our bank line financing spreads. We continued to increase our pace of investing across businesses in 2025, investing $12.7 billion, including $2.5 billion in the fourth quarter alone. This was our second-largest investing year in our 16-year history, and notably, our global team achieved that volume in an environment where overall transaction and origination volumes remained well below historical averages. We anticipate another robust origination year in 2026, which will produce additional earnings along with the funding of the $1.9 billion of unfunded commitments Rina mentioned. In commercial lending, we originated $1.7 billion in the fourth quarter and $6.4 billion for the full year. Our portfolio is expected to grow to a record $17 billion in the first quarter, and we expect to continue this momentum in 2026. U.S. office loans represent only 8% of our diversified asset base, the lowest percentage in our history and well below that of our peers. We have done this by repositioning our loan book to more stable assets like multifamily and industrial, which accounted for 72% of 2025 originations. I will start my discussion on credit and asset management with some positive outcomes, starting with multifamily loans to undercapitalized borrowers who are unable to continue to fund through resolution. We have executed multiple sales of multifamily REO at our original basis and have more slated for sale at or near our original basis. We have intentionally avoided forced liquidation and, in doing so, have protected shareholder value—taking over management, executing unfinished business plans, increasing occupancy and property values. We are seeing tangible improvement across portions of our office portfolio, highlighted by approximately 800,000 square feet of leasing finalized during the fourth quarter, the highest quarterly leasing volume of the year. This total includes a 200,000-square-foot lease at a Brooklyn property that was previously risk-rated 5. That 630,000-square-foot asset was vacant coming out of COVID, and with the pending execution of a third substantial lease, will be 100% leased to three strong credits on a 32-year weighted average lease term with average annual rent escalations of 2.2%. This is a great outcome for shareholders, again reflecting our patience, active engagement, and improved leasing momentum. Sales activity has also improved, allowing $200 million of office loans to repay at par in 2025. Year to date in 2026, an additional $200 million of loans originated as office have sold or are in the process of closing, including $115 million related to a formerly risk-rated 5 asset also in Brooklyn. Patience has paid off for us in the past when managing foreclosed assets, and we present-value and probability-weight potential REO outcomes individually as we decide whether to liquidate or hold and reposition assets, bringing the full strength of the Starwood platform to bear on these situations. We ended the year with approximately $1 billion of commercial loans on nonaccrual and $624 million of foreclosures. That exposure is concentrated in a small number of assets, and each of those is in an active execution phase with defined business plans being managed by our in-house management team at Starwood. Turning to rating migrations, we had three assets migrate to 5 in the quarter. The first is a $108 million studio production asset in New York that we co-originated pari passu with two large U.S. banks and own 32% of the first mortgage. Utilization declined materially following the writers' and actors' strike. The sponsor has invested substantial equity since origination, but the property has not yet stabilized as originally underwritten. Second is the $269 million asset outside the Midtown Tunnel in New York. We increased the risk rating this quarter due to the sponsor's unwillingness to contribute additional capital. We have increased our involvement and are executing a revised plan with the sponsor, who is currently negotiating lease proposals representing a substantial portion of the vacant space. This newly constructed, well-located asset is positioned for potential near-term stabilization. We also downgraded a $33 million multifamily asset outside Dallas. We anticipate assuming ownership via foreclosure in the near term. Upon transition, we intend to implement a focused value-add plan, as we have successfully done on similar multifamily projects. Our basis is below replacement cost, and our captive asset management team expects to be able to execute on a value-add business plan in the coming quarters. We also downgraded one loan to a 4 rating—a $90 million mixed-use portfolio in Ireland that we restructured to extend term and provide flexibility while assets are sold down. While asset sales have taken longer than originally contemplated, transactions completed to date have been in line with underwriting, and our base case continues to support full repayment over time. These are active asset management situations with defined action plans, and while resolution timing may vary, we are highly focused on resolving nonearning assets. Redeployment of this capital will be a tailwind to earnings as we achieve resolution. Our energy infrastructure lending platform had its largest origination year ever in 2025, investing $2.6 billion across the segment. The portfolio now totals almost $3 billion and remains diversified across power and midstream assets and has one of the highest ROEs in our portfolio. These are senior secured, asset-backed investments supported by durable cash flows and long-term demand drivers in energy and power markets. Loan-to-values continue to fall in this segment as loan performance remains strong, power needs and capacity auction prices continue to increase, and returns remain attractive. Finally, with the pricing of our seventh CLO, 75% of our SIFT loans now benefit from term, non-mark-to-market financing, reducing funding volatility. Turning to our new net lease business, Fundamental Income, Rina mentioned our integration is on plan, and we currently have a large pipeline and expect to increase volumes over the course of this year, which, along with 2.3% annual rent escalations, will increase returns in this cylinder each quarter and year. Rina told you we completed our first ABS financing in Q4, and subsequent to quarter end, we executed our second securitization for $466 million, again at tighter-than-underwritten spreads, which will allow us to continue to accretively invest in this cylinder at today's cap rates. We view the net lease business, along with our other owned real estate, as adding duration and contractual cash flow to the platform, and over time we expect it to become a more meaningful contributor to run-rate earnings. We are a hybrid company with approximately $7.5 billion of owned real estate, or 24% of our balance sheet. We are different than other mortgage REITs in our peer group. In a period where our stock has significantly underperformed, the stocks of equity REITs and triple-net lease REITs have significantly outperformed STWD and other mortgage REITs, with the largest underperformance coming in the last few months. It is important to remember that we are no longer simply a mortgage REIT. We operate a diversified real estate finance platform with true scale, operating businesses, and a strong, well-capitalized balance sheet, with access to capital at the lowest spreads in our history. The diversity and stability across our portfolio continues to uniquely insulate us through periods of sector instability. Our leverage is significantly lower than our peer group at just 2.4 turns today. While we could enhance near-term earnings by increasing leverage, we have deliberately chosen not to do so, instead prioritizing a strong, durable balance sheet to support our generational vehicle. Insider ownership further reinforces that alignment, standing at approximately 6%, or $380 million today—greater than the insider ownership of all our peers combined. We continue to look internally for ways to improve how we operate. We are investing in tools and technology to streamline underwriting, asset management, and reporting processes, and we expect to increasingly leverage data analytics and AI-driven tools as part of that effort. The foundation is in place for STWD 2.0 to come out of this cycle successfully as the only CRE mortgage REIT that never cut its dividend. Looking ahead to 2026 and beyond, resolving our nonaccrual and REO, and increasing originations pace and volume, allow us to earn more than the $1.95 we earned this year excluding the temporary items that Rina noted. With that, I will turn the call to Barry. Barry Stuart Sternlicht: Thank you, Zach, Rina, and Jeff, and good morning, everyone. I am going to use a slightly different tack as I talk about our earnings and what is going on in our industry and the greater real estate markets this quarter. I think you can see that 2025 was a transition year for Starwood Property Trust, Inc. I am going to elaborate on them, take some comments out of the earnings release and talk about some of the points I made in it. The really good news is we built an incredible machine here. We have all the pieces in place to outperform for our shareholders in the long run, and some of our core businesses had exceptional years with a growing loan book, which has reached record highs, as well as the continued great performance of our multifamily book. Jeff mentioned that 24% or 25% of our assets are in real estate. Our affordable housing book is in some of the best markets in the United States—Orlando and Tampa—where rents remain roughly 40%–50% below market rates, and we are exceptionally full and have great pricing power. You can see that with the increase in value of the portfolio just in the quarter that Rina talked about. But in addition to our originations, which were strong throughout the year, our infrastructure lending business—heritage GE Capital, GE itself, I guess—had a great year. The conduit team had the second-best year in their history. It is rated one of the best conduits in the country. Our special servicing arm, formerly LNR, had a great year also, counterbalancing some of the weakness in some of the property lending earnings, and continues to be the number one or two special servicer in the country, with an ever-growing book of named servicing and active servicing in its belly. And those businesses delivered excellent results for the year, and even our residential lending businesses, which have been somewhat dormant, gained in value over the year as spreads and rates declined. Those are all really good news. So I tasked Rina with telling me, like, why are we not performing at the levels we have in the past with such good news in the portfolio? And what we saw are three real reasons for that. One, the lack of prepayment penalties that have always been part of our business, but as our borrowers stretched maturities and were not prepaying them, that disappeared. Equally important was we have taken into our earnings noncash losses, and they are used differently by some of our peers, but if you actually include them—because they are noncash—we would have covered our dividend. That also included in that statement the drag of having excess cash. We used to run this enterprise at 2.4x to 2.5x leverage. Beginning of the year, we started at 2.1x leverage, which is a turn to a turn and a half inside many of our peers, and it is really the nature of the composition of our business lines. And then with the Fundamental Investment we made in the third quarter of the year, we actually— that business, because of its stability and the duration of the cash flows, we leverage 3:1. That dragged our overall leverage levels back to 2.4x at the end of the year. But the bulk of our business, ex the Fundamental business, triple net lease business, still remains historically underlevered, and we have a lot of cash trapped in the business. We estimate the cash drag at something like $0.07 for the year. If you add them combined, it is almost $0.20 of earnings. I think it is $0.12, $0.07, and something else—Rina can give you specifics—and that will reliably cover our dividend. And then we look at our nonaccrual book, which many look at as a problem—and we kind of do—but we also look at it as an opportunity. It is future earnings power for us. When we have first mortgages, like Jeff said, along with two money center banks, it is inconceivable that the property is not valuable. It is just probably a borrower issue. In many cases, we find our borrowers are underwater. They do not want to put the money in for TIs. They do not want to put their money into repositioning or even fit out a space for a tenant. So we have to take it back. It takes a lot of time, and once we have control, we can re-tenant it, reposition it, and, in fact, then sell it. So we have chosen long vol. We have chosen the way to approach our company because we own roughly $400 million of stock along with our shareholders, as if your capital was our own, and we have chosen to do what is best for ourselves over the long run. A prime example would be an office building that was bought by a household-named firm for $400 million. Our loan was $200 million. We took it back. We could sell it, but it is an office building. We are converting it to a rental building. That is underway. It is going to be a great building in the center of Washington, D.C., and we are confident that we will return our investment—close to it—and maybe make some money, depending on how well we do with our renovation. But that is far more attractive to us than just dumping it and then moving on. So you are going to see these assets—because we are real estate players at heart—you are going to see us take back assets, reposition them, and then sell them, and Jeff mentioned in prior years we have made substantial earnings doing that. We did not intend to be loan-to-own. Let us not kid ourselves. But what has happened in the marketplace with the massive increase in rates and then the slowdown of the recovery of rents as the market had opened overbuilt, we know that going forward these assets will produce earnings for us in the future, albeit not at the pace that I might have hoped, but real estate is not really that kind of business, and we are very confident in the future earnings power of our business. I think especially next year as we continue to roll out capital we have committed but have not funded—loans we have made this year, which Jeff mentioned, almost $1.9 billion—our triple net lease business, which was dilutive—I think it was $0.06 in the year—should turn accretive next year, and we love that business. Fifteen-year-plus leases, never a default—ever. We actually underwrote it with defaults, but we have never had a default, and they are just getting to scale now with our capital. We have also found that with our expertise in capital markets, we have materially improved their financings, and so our ROEs are rising rapidly. We just have a lot of overhead for the last three or four years. I mean, real estate was not going anywhere. Rates were rising. Everything was outperforming. But I think it is safe to say, as we look forward, that we have tailwinds now. The decrease in supply in the multifamily market—dropping 60%, 70%—eventually we will see record absorptions of apartments. In the last year in the United States, record absorptions. So with supply down and people still being unable to buy homes, we expect the multifamily markets to turn around, and that will help our borrowers, and that will lower LTVs. And right now, where we get an asset back, we are kind of not sure we should sell it or fix it up and then sell it later. But we also think the second big tailwind is interest rates. They are going lower. The pace of which nobody quite can figure out—whether AI, how deflationary it is, how fast it will happen, will it be deflationary—but interest rates will be lower. The economy is bifurcated. I know the administration does not like to talk about a K-shaped economy, but you see it. You see it in the hotel industry. The only sector of the market that was up last year was luxury. Every other sector—upscale, upper-upscale, midscale, lower-scale economy—everything was down. And also, costs to build, replacement costs, have continued to stay high, and while they may have dropped a little bit, the cost of building a home still remains well above our basis in almost any of the assets in our book. So new supply will be hindered until rents begin to rise again. I guess the negative and the thing that gets us concerned, of course, is AI—what it will mean for wealth and potentially unemployment. I think this will be a little bit what the market is wrestling with right now. We are all watching it, deciding what we think. I think there is one other positive I should mention, which is as rates fall, our transaction volumes will pick up, and that will give us more opportunities to refinance other people and other deals or make new loans and new deals. And I think real estate, as it usually is, is usually a safe haven during times of tumult in the marketplace. So overall, I think we had a solid year, and we positioned ourselves really well for the future for the next couple of years. We are excited with our team. I also think we are going to make a strong effort to reduce our costs and use AI to do what we do, like everyone else, with higher productivity and less cost embedded in the structure. And that is unique to us. We have very large businesses tucked into our mortgage book that all of which are supported by the REIT, and we hope we can make our people more productive and do so in an efficient manner, and we are very excited about taking on those challenges. So with that, I want to thank the team, and thank you for your support, and we will take your questions. Operator: We will now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Donald James Fandetti with Wells Fargo. Please proceed with your question. Donald James Fandetti: Hi. Good morning. It seems like you are increasing the CRE loan portfolio again in Q1. Can you talk about the pace throughout 2026 and also the return profile of these originations versus historical? Jeffrey F. DiModica: Thanks, Don. Good morning, by the way. I think I mentioned in my script that we expect the loan portfolio on the CRE side to go over $17 billion in the first quarter. That would be the first time we have been growing the loan book for every quarter since COVID, every quarter in COVID, every quarter since we started. I think we have made commercial real estate loans, so it is nothing new. We are obviously sitting on a little bit more liquidity after all of the cash-out refinancings and raises that we were able to do last year, so our pace has increased as we try to deploy that. Rina spoke a little bit about drag last year. I think we did $6.5 billion or so of CRE lending. We expect to do at least that this year. My gut is that you are going to have more maturities this year. You have people who have executed their business plans on post-COVID or post-rate-rise loans. You have a number of loans from before that period that simply need to move out of the pipe, and we also have lower rates, which will create more transaction volume. In 2021, you had high $600 billion of transactions in the market. You will have two-thirds of that this year. So as transactions move up, as rates move down, as maturities come, we expect more opportunities. We borrow inside most of our peer group. Our last term loan was at 1.75% over, I believe, on a new issue, which was incredible, and then the high yield markets were somewhere around 200 over. No one in our space—well, one person in our space can borrow there—but the rest cannot. I think we have a cost of funds advantage. Also, being the biggest, we have bigger relationships with the banks who we will tend to repo with. They pick up a cross from us. The cross is worth more with us than it is with anyone else because our lines are bigger and we have relationships. So I think it looks like a very good year for originations. Last year was our second biggest. I would hope that we would be able to beat that number this year. We have $2 billion closed or in closing in the quarter. So we are still pedal down. We know we have to originate more loans and thoughtfully work out of the REOs and nonaccruals to get back to the run rate that we keep talking about by late '26, where we are covering the dividend. Donald James Fandetti: Got it. And I guess, what is your expectation for credit migration near term? It sounds like you are playing the long game, which we appreciate. But I guess that also means that we will continue to see these sort of one-off type migrations. Jeffrey F. DiModica: Yeah. Barry, I will let you go after it. Maybe I will start. You know, on migration, there are people who sell things right away, and that is a business plan. There are people like us who will work on them. We do not have a business plan for what we do with a credit and putting it through a Python. We look at every one of them individually, try to present value what we think the value of getting the amount of cash we would get back in a distressed-ish sale today without working on the asset, then what is the present value of the cash we get back over the time that we would do it, and then against that we make assumptions of where we think the property could end up—positives, negatives. We look at our liquidity, our cost of capital, et cetera, and we look at what information can Starwood, the manager, bring to bear to make the asset better. We have a great history of making assets better than the next buyer. The next buyer is going to be a 20% return private equity guy who is going to buy from us at a 10% to 12% cost of capital, and then he is going to back up his bid a little bit because of the things that he does not know. We know the asset. We have a lower cost of capital. We can borrow against the assets significantly cheaper than corporate debt than he can. That all goes into our individual business plans as we look at each individual asset without having a business plan that we are a forced seller of assets. And when we look at those, we make the decision as a management team across our capital and our property trust to either stay in and ride it, which we have done successfully—Barry gave you an example of another one that we are redeveloping we expect to have successfully done. I gave you examples of a number of them. I think we resolved $300 million last year in actual resolutions—not foreclosures. We do not call foreclosures resolutions; some people do. We had $130 million more fall out, so it would have been $430 million. We hope to resolve—we have a sheet and we look quarterly at what we expect to resolve. Our goal is to resolve most of a billion dollars this year, and if we execute on that, great, and if we do not, it is going to be because we looked at the present value of the cash flows and the cash flow we get from that day, and we are going to make the best decision for shareholders on each bespoke asset. So we do not really have a plan. U.S. credit migration—you know, I think we have our arms around where we think the potential problems are. If you look at that, property types are going to make a difference. The market it is in is going to make a difference. Tenant movements are going to make a difference. It is all very bespoke, but we feel like we really have our arms around where the potential problems are going to be. Donald James Fandetti: Got it. Thank you. Barry Stuart Sternlicht: Should I add a few things? Can you hear me okay? Jeffrey F. DiModica: Yep. Go ahead, Barry. Go ahead, Barry. Yeah. Barry Stuart Sternlicht: I mean, just given all the plan, we have a bunch of individual assets. And it has been remarkable, the amount of money we had at one asset that the cap stack was $1 billion, we are below these $400 million, and the borrower lost. When they walk, you know, they really have not—obviously, tenants want to lease and know the building is in trouble. They are not going to go in the building. It is the one that says the TI. Jeffrey F. DiModica: The borrower has absolutely zero incentive to do anything. Barry Stuart Sternlicht: So in multiple cases in our pipe, we expect to have been—and, like, we are not supposed to be leasing our buildings for us. And if we are going to put the ads right here for the TI, we want to get the asset back. There is no reason to exercise their position. So, you know, we kind of—once you play hardball, we play fair ball, and we try to work with our borrowers if we can. I think the multi business is particularly interesting. I mean, it is one of these businesses you could all remember upon the go, we started iStar—what was Tallstar Financial—it changes into iStar, and wound up taking back a whole bunch of stuff in TFC, and turned themselves into a quasi equity REIT and made a fortune. Obviously, the best thing we can do in our loan is get our money back. Jeffrey F. DiModica: That is primarily our business, certainly—it is half our business—and we are happy to play in that ballgame. We are talking about real estate, but you know, long term, you make more money on the assets, and since we are comfortable on a great asset, although we are looking at what we can recycle once we stabilize the assets. And I would say, like, for the most part, it is mostly good news to get the assets back and find that there is great demand for it, and we expect to be able to move these properties. But I do not get to do this on a quarterly basis. Our clients do not march towards quarter-ends, and our borrowers do not give up the keys always willingly. In many cases, they do and work collaboratively, but in the exception they might move slower. I think people are surprised—I think in the real estate world today—borrowers are surprised with the slow pace of recovery of the multifamily market. And while you have some positives in closed lines and maybe some of the first cities that saw no supply, you have not seen the green shoots compared to the press reports of every public company, maybe save one. Remember, the growth rate of the Sunbelt markets is not great. The rental growth is not great. We are getting positives from renewals and negative from leases, pretty much across the board—maybe you are plus one or minus one or plus two—and I see that it is not robust, and expenses continue to march higher. So you have stressed P&Ls. I do not think—when we look at our attachment points where we are alone as opposed to, like, build-it or bought-it—in many cases, their loans are traditional, and that is something out of repositioning multi. I am kind of happy to get it back. We are able to move them. We probably have a dozen assets we have in our pipeline and are here today. But, you know, I have mixed emotions. If you really like the market, the Sunbelt may be overbuilt, but it is where all the jobs are. It is where all the companies are being. We are looking at our headquarters. It is where the factories are being built, and it is where the cost of living is generally less. It is where there are right-to-work states. They are attractive states and attractive markets, further reshoring of investment and nationalization of the country. So you know, when you know there is a new factory going up in a year and a half—let us say the year and a half to build the market—do you want to sell the multi now? Or do you want to be the guy—Jeff said—an opportunity fund is going to buy the asset, and we are not—it is funded to what we do in another part of our world. I always tell Jeff and Dennis, if you are changing—he is like, we will buy it. We do not do that, but we would. In this case, we already own it. So we will just keep it in the REIT. If we want to keep it, we will just hold it. So, you know, I think it is sloppy for you because we are a unicorn in our space. And if we really thought, you know, we had an issue, we—you know, we are not worried. It has been a bit—when you take out the noncash losses, take out some of the cash drag that we know we put into place, and we are pretty confident in the math. We will reach scale and leverage with our interface, and so once it reaches critical mass, it all—so we do not have a body or a dollar to go over that. So it becomes pretty positive and reliable and recurring and stable, which is exactly the metrics that we used to go public in 2009. Consistent level. We have had some potholes, but we are on the same field. To have this kind of destruction in our markets, including the pandemic and the office markets, it is inevitable. So I am fairly proud to see us this way. We are negotiating. I know it keeps my job on some of these audio assets, and we are looking at whether we should turn accruals back on in some asset cases, you know, because its performance has improved. So it is a mishmash. It is unfortunately a little hard to say. Thanks. Operator: Thank you. As a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the queue. Our next question comes from the line of Gabe Foggy with Raymond James. Please proceed with your question. Gabe Foggy: Hey, good morning all. Thanks for taking the questions. I wanted to talk about the residential portfolio and then the infra book. So on resi, Jeff, is there a point where, I do not know, in the market where rates get to a certain level where you guys look holistically and say that maybe you can sell the portfolio to kind of unearth the capital that sits under that to go make more infra or CRE loans? And then, Barry, on the infra side, Barry and Jeff, just remind us, what is the total opportunity set for the infra lending business? Who are your true competitors and how big can that book get over time? Jeffrey F. DiModica: Thanks. Thanks, Gabe. Hey, Barry, again, I will start unless you want to start. But on your first question on resi, resi performance has been great. I think we had a markdown in our GAAP book value of $247 million back in '22 when the rate change happened. We are significantly below that today. I think it is $100 million and after hedge maybe a little bit higher than that, but we have got back a significant portion of that by holding on—the same strategy that we have used. And also the thing that would surprise you is because we have a lot of legacy RMBS in bonds that we have, I think our ROE on our resi portfolio—this is hard for you to see because you see loans marked at $96 or $97 that we paid $101 or $102 for—I think our run-rate ROE is around 11% today across the entire resi business. So, to your point, things that will make it get better: spread tightening or lower rates. Spread tightening has come our way. Securitization spreads have tightened 25 basis points since January 1 alone. We are at the tightest securitization spreads since 2022. Securitization issuance, I think, is $10 billion year to date versus $5.3 billion at this time last year. Insurance cares about these assets. They get great insurance treatment, and that—along with the street conduits and others—there is a great bid for the types of assets that we have historically liked. That has allowed us to mark them up. That has allowed us to reduce that GAAP book value loss significantly. From here, we cannot count on spreads being significantly tighter from here. They probably can tighten a bit, but they have made their move. So to get back from the $96 or $97 or $98 price to par or $101 or $102, rates are going to be the other piece. You mentioned that. Lower rates help us because it increases CPRs. We were running at 5% or 6% CPR in our non-QM the last couple of years. We are up to 8% or 9% CPR today. We get more back at par when that happens. That is good. I think in-house, although we never make bets on rates, we believe rates are probably headed lower. It certainly feels like the AI-driven productivity will match that of previous productivity gains that we have seen and drive rates lower. We do not make any real bets based on that. But if I am betting on that, and betting on rates going lower, that will certainly help that book. As you know, we hedge that book, and so always moving our hedge around a little bit. The only way we probably get back to getting that full write-down back is by reducing that hedge a bit and being correct on rates going lower—not something we historically do—and I think we will wait and see. You create a distributable earnings loss when you take that GAAP book value hit into earnings. We like the assets. They are returning 11%, so I do not think we are going to rush to sell. Barry, unless you have anything on rates, I would then wait to infra and ask Sean Murdock in the room. Barry, do you have anything you want to add on residential? Barry Stuart Sternlicht: Not really. I mean, we want to go back and forth adding value in there. We are going back into the business. So this is a business we have a team in place for following them. We are capable. We just have to make the numbers work. So if we can, we would go back, and then we can have that as well. One of the reasons you have to diversify business models is when some are not available, you have plenty to put in other verticals. I want to introduction to Sean because you precisely went into that business and to have another material lending for it also. Sean, all yours. Jeffrey F. DiModica: Yeah. Well, before we go, I will say we looked at, I think, 21 different resi originators last year. We have talked about getting back into resi originations. The combination of rate being a little bit low and spreads being a little bit tight make it a little bit hard to jump in today, but we are always looking. I cannot imagine we do not get back in the origination game on the resi side in the near future. We are just waiting for the right opportunity. On the infrastructure side, you asked about the potential size of the market, so I am going to turn it to Sean Murdock, who has done a great job of doing sole origination to kind of get off treadmill of what that market is. Sean runs that business for us. Sean Murdock: Sure. I mean, I think the best way to contextualize the opportunity is to just talk about energy consumption in the United States. A couple of great points: consumption over the next five years is supposed to grow at sort of a 5% annual CAGR. Another good statistic to look at is the LNG export boom we have had in the U.S. We are exporting roughly 50 Bcf a day of gas to consumers around the world. That is supposed to double over the next five years. So we feel like there is a big tailwind to growth, both from the obvious AI data center value chain as well as LNG exports and other new initiatives that create a bigger market for us in which to prosecute opportunity. You asked about our competitors. I think it is similar to Dennis’s business in CRE lending. We have commercial banks that still make loans in our space. We also compete with alternative debt funds. There are just maybe not as many as either, given ESG constraints around some participants in the market. The third issuer of infra CLOs did their first deal at the end of last year concurrent with our seventh deal—Barings Asset Management. So competition is growing a little bit, but I think the tailwinds on demand for energy are significant and inform a much larger opportunity set for us over time. Gabe Foggy: Thank you, guys. That is helpful. Jeffrey F. DiModica: Thanks, Gabe. Operator: Again, as a reminder, pressing star 1 on your telephone keypad will join you into the queue so you can ask your question. Our next question comes from the line of Jade Joseph Rahmani with KBW. Please proceed with your question. Jade Joseph Rahmani: Thank you very much. Just at a high level, follow-up to Don’s initial question. Do you think credit is getting better or worse? You know, it does seem to have deteriorated in the quarter. However, these could have been primarily problems you already knew about. And the new problems seem to be not in the office—I think that everyone has pored over the office exposure quite thoroughly—but in multifamily, where, as Barry noted, rents remain soft, and also industrial. So could you just comment on your overall view on credit trends? Jeffrey F. DiModica: Barry, I will go first and you can go after. You know, we had—hope you heard in the beginning of my discussion—we had a lot of leasing last year across a lot of assets that we may not have thought we would have. There are always some idiosyncratic things that might happen in the portfolio. As you mentioned, a couple of industrials—one of them that we moved to 5 that we are leasing on, but we felt it was right to move to 5 because the sponsor stepped away. One was a studio deal—not something that was really in our office purview. So I think where it comes from here, as we have seen green shoots—and I mentioned a number of green shoots—and the REO sales at our basis in multi. As I look at our multi book, even if you have a 4-cap asset from 2021 that you wrote a loan on expecting a 5% and a 5% debt yield, if you only achieved a 4.75% or 5% debt yield, you are not losing much money on those. They are very close, and it is just a matter of which side of par you are on. So I think the multi losses across most of our books should be paper unless someone made a really big mistake. Rates will help bail that out. If you end up with a 3% area SOFR—which is what the market is saying today—those losses should be completely immaterial for just about everybody. If forward SOFR backs up to 4%, then there might be a slightly different discussion. But you nailed it on a few bespoke industrial assets—whether it is the market or tenant or other reasons—that is where we are seeing a couple of things pop up. But I would say overall, the positives are better than the negatives. And when I say positives are better than the negatives, to your question, to me that means the credit cycle has turned a bit. Barry, do you have something to add to that? Barry Stuart Sternlicht: No. Real estate is going to catch a bid. I mentioned that whenever the equity markets rock or shake, people come back to the property sector—the largest asset class in the world. We are operating in Europe, the U.S., Australia, and in general, markets are better. We are all confused, I think, would be the rule. I do. It is sad and terrifying. It is—you know, it is how many of you talk about the world in this AI convulsing—all the question marks and the fear and the anxiety. And yet, you know, if you see the markets clear, they are behaving pretty well. And you can see the office market—even despite McDonald’s—has been pretty strong. Housing remains very strong. The West Coast continues to perform pretty well. You know, I mean—and I think the political class and political interactions is something to watch. You know, I think we have to be careful about both the union cost in assets we went against and also cities like close-in near the city. Property taxes, 95%. I mean, that takes the value of an office down materially, if we can actually do it. So we are blessed with not that big of a portfolio of stuff in the city, and we have avoided most of those loans, but that is going to be an earthquake. If he passes that and then sends it through—and then you will see—the interesting thing is sometimes the tenant will pick up the real estate taxes, and if you do not, you do. What you do on the rent roll of the other tenants. So let us see. I do not know. But it is really just kind of uncertainty. It is a strange world. In general, we are definitely not selling. I think what you are seeing—we see it in our special servicer—because some borrowers are just giving up. I mean, they planned for things to get better. They were sailing after '25. '25 has passed. You know, the insurance fell, but the line did not go up. And what is ours—they kept rates up. Immigration—we did not have many people leaving, like, this last year. Growth was actually negative growth in U.S. population for the first time in—I think—ever. I think, like, fifty years later than ever—so we might have to check that one. But, I mean, that has definitely affected apartment markets. You know, with those things out—so deportation to the lack of not only people immigrating voluntarily, but we used to get a million skilled immigrants a year. And the U.S., just as you see in the national travel, is not the most hospitable place at the moment to— for the better people’s assumptions. And so, you know, they are not traveling here, and then their work—when people leave the country—that actually has been almost broken. I think some of the weakness in GDP is the fact that we have no contribution from immigration. So we want—I think most of us want to shovel toward lowering the amount of illegal immigrants—to shutter completely—but legal immigrants, I think, going to this would be very much favorable, and we need to get our act together and let people in the country. It will be good for the economy and for real estate markets. Jade Joseph Rahmani: Thank you very much. Just on the earnings path to covering the dividend, over what time frame is reasonable to expect? Is it your expectation that by the fourth quarter of this year, DE will be in line to potentially greater than the dividend? And are there any outsized gains you are expecting in 2026? Jeffrey F. DiModica: Barry, you want to start? Barry Stuart Sternlicht: Oh, sorry. Sorry. I am on an airplane while I do this call. Sorry. I muted it. I think you will see us get a little better before. We have a lot of things. It is hard to say because there are some things we are considering. I mentioned turning on nonaccrual loans that we are still evaluating. And we have some really good things in the pipe, but we have to get them done. So I would say that, again, if you take out the noncash loss of the fee—it is accounted for different, you know, some of it five years—but we have the earnings power. We can have it anytime we want it. We can sell assets with our multifamily book. There are 56 of them, Jeff. Jeffrey F. DiModica: Yep. Good evening, Jeff. No. I know. I am—we, you know, we are just trying to—we are, like I said, we are playing long ball. And the asset is great and contributing meaningfully and should have virtually no real serious competition. I have to say, if you do not know how hard it is to build affordable housing in this country, it is ridiculous. And we are in the business. I sort of entered it in the equity side. And with all the—what I will call—the drifters along the way that you pay off: the consult, the branch you need, and the not-for-profit you have to get involved, it costs almost twice as much now to build an affordable building as a market-rate building. So the way to do this is not the current structure. You basically should build a market-rate apartment and then just donate it to a not-for-profit, and we would have more affordable housing. It was an eye-opening experience for me. And it takes, you know, 14 different grants of 13 different associations, and you have to do the tax credit equity. It is quite a weird business. And it does not really work very well. They need to do something about this, but they should trash the whole structure and try something else. Because we need affordable housing in all these markets, and we have it done. It is the patience done. So it is—you know, Miami, where I live—it is the most unaffordable city in the United States. Half the population makes less than $50,000 a year. Occupancy in affordable housing is 99.5%. And do not remember—affordable housing rents are not going to go down. They come up or down. So what we are finding, though, is that the calculation of the rent growth is strong, but our ability to pass it on gets a little tough sometimes because, you know, you feel bad—the people have nowhere to go. So it is a very odd corner of the world in real estate that—well, I think with the Mason’s large affordable housing owned—I think it is 62,000 units across our portfolio. So it is a fascinating business. And we look at markets where rents approach market rents, which is, like, Austin is an excess. You cannot raise your own, but you can just move out. But in Orlando and Tampa, where the REIT owns its properties, we are, as I mentioned, 30% below market rent. So we are pretty protected and have runway, and they are also high-cost cities by the federal government. So we always wind up—what is the role of the ones that—I think what is the number, you know, that rolled over from 2025 into 2026, that we could not take last year? Rina Paniry: Yeah. It is about 9%, Barry, that is carryover. Barry Stuart Sternlicht: I mean, 9%. Right. So we were allowed to take, like, eight or nine in seven individual markets, and then the rest of it—calculation. Orlando, I think last year, was 15% rent growth they gave us. They would not let us pass it on, but we paid five or six points in the notes here. So it is, as I said, a gift that keeps on giving. And when we bought those—you know, I think you know me—I said I want to buy things in a REIT that we will never have to sell and that I want my kids’ estates to have and their grandkids and their kids. And that is that book. It is shameful to sell it, but it does have—we have no equity in the portfolio. We have refinanced all of our equity. Rina Paniry: Yes. We just got $2.3 billion out. Barry Stuart Sternlicht: Thank you. And we have a $2 billion gain—something like that. So that is even more on that. Rina Paniry: One and a half there. Barry Stuart Sternlicht: Yeah. Okay. Well, there we go. Okay. Thanks, Barry. Jeffrey F. DiModica: Yeah. So, Jade, I think the earnings trend is improving. I think Barry just said our Woodstar $1.5 billion of gains give us unique staying power, and we will continue to work the year to maximize shareholder value. To Barry’s other point—and I made it in my opening remarks, but I do not want it to be lost on people—the equity REITs are doing really well. Owning real estate, long-term assets, like Barry said, has been a pretty good trade. For whatever reason, our stock is not trading very well, but we are 24% owned real estate with long duration and large gains. Barry Stuart Sternlicht: Can I—Jeff, can I go ahead and interrupt? This is something we did not say, and I think we should say. You know, our triple net lease business in the market would be valued at, I think Jeff said, a 6%–6.5% dividend yield. That is the comp, so you take the high end. There are some trading even higher than that. So if it gets to scale and we are not getting the performance of our stock and it continues to just be a junk credit, we will spin it out. Because, you know, we have a big gain in that business, and we will have a big gain in the business. And it is obvious to us that a 6% dividend stream trading, and a 10.8% dividend stock is ridiculous. So we are not idiots. But we will grow the book, and then we will spin it and create—like we did long ago when we spun out our residential housing business and started Waypoint—we will do the same thing. I mean, we have to get recognized for the value of the portfolio and the stability of the income stream. And, you know, our credit markets actually appreciate it. I mean, we have the tightest spreads in our sector. But the equity markets do not. So I think it is confusion over some of the different accounting methods between the different firms in our space. And also I think, you know, some do not have diversification. They do not have the kind of company we put together, by purpose. We continue to look at other things, too. We just lost a very large deal—well, maybe we lost it. We are hoping to get it back—but there are other things that we have up our sleeve which could deploy capital really rapidly and get us the earnings power we need faster. So that is why it is hard to answer that question that was asked earlier. Jeffrey F. DiModica: Thank you, Operator. Are there any more in the queue? Operator: There are no further questions at this time. Jeffrey F. DiModica: Thank you, Barry. Any other questions? Barry Stuart Sternlicht: Thank you. No. Thanks, everyone, and we will be with you next quarter. Operator: Thank you. And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.
Operator: Greetings, and welcome to the Federal Signal Corporation fourth quarter earnings call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce Felix M. Boeschen, Vice President of Corporate Strategy and Investor Relations. Please go ahead. Felix M. Boeschen: Good morning, and welcome to Federal Signal Corporation's fourth quarter 2025 conference call. I am Felix M. Boeschen, the company's Vice President of Corporate Strategy and Investor Relations. Also with me on the call today are Jennifer L. Sherman, our President and Chief Executive Officer, and Ian A. Hudson, our Chief Financial Officer. We will refer to some presentation slides today as well as to the earnings release, which we issued this morning. The slides can be followed online by going to our website, investors.federalsignal.com, clicking on the investor call icon, and signing in to the webcast. We have also posted the slide presentation and the earnings release under the Investor tab on our website. Before I turn the call over to Ian, I would like to remind you some of our comments made today may contain forward-looking statements that are subject to the safe harbor language found in today's news release and in Federal Signal Corporation's filings with the Securities and Exchange Commission. These documents are available on our website. Our presentation also contains some measures that are not in accordance with U.S. generally accepted accounting principles. In our earnings release and filings, we reconcile these non-GAAP measures to GAAP measures. In addition, we will file our Form 10-K later today. Ian will start today with more detail on our fourth quarter and full year financial results. Jennifer will then provide her perspective on our performance, current market conditions, our multiyear growth initiatives, and go over our outlook for 2026 before we open the line for any questions. With that, I would now like to turn the call over to Ian. Ian A. Hudson: Thank you, Felix. Our financial results for the fourth quarter and full year of 2025 are provided in today's earnings report. Before I talk about the fourth quarter, let me highlight some of our full year consolidated results for 2025. Net sales for the year were $2,180,000,000, a record high for the company and an increase of $319,000,000, or 17%, compared to last year. Organic net sales growth for the year was $205,000,000, or 11%. Operating income for the year was $340,900,000, an increase of $59,500,000, or 21%, from last year. Net income for the year was $246,600,000, an increase of $30,300,000, or 14%, from last year. Adjusted EBITDA for the year was $438,900,000, up $88,300,000, or 25%, compared to last year. That translates to a margin of 20.1% this year, up 130 basis points from last year. GAAP diluted EPS for the year equated to $4.10 per share, up $0.51 per share, or 15%, from last year. On an adjusted basis, we reported record full year earnings of $4.23 per share, up $0.89 per share, or 27% from last year. Orders for the year were $2,220,000,000, an increase of $374,000,000, or 20%, from last year. Backlog at the end of the year was $1,040,000,000, an increase of $45,000,000, or 5%, from last year. For the rest of my comments, I will focus mostly on comparisons of 2025 to 2024. Consolidated net sales for the quarter were $597,000,000, an increase of 27% compared to last year. Organic net sales growth for the quarter was $85,000,000, or 18%. Consolidated operating income in Q4 this year was $83,500,000, up $13,400,000, or 19%, compared to last year. Net income for the quarter was $60,800,000, an increase of $10,800,000, or 22%, from last year. Consolidated adjusted EBITDA for the quarter was $119,400,000, up $30,100,000, or 34%, compared to last year. That translates to a margin of 20%, an increase of 110 basis points from last year. GAAP diluted EPS for the quarter was $0.99 per share, up $0.18 per share, or 22%, from last year. On an adjusted basis, EPS for Q4 this year was $1.10 per share, an increase of $0.29 per share, or 36%, compared to last year. Orders for the quarter were $647,000,000, up $201,000,000, or 45%, from last year. Orders in Q4 this year included $132,000,000 of acquired backlog. In terms of our fourth quarter group results, ESG's net sales were $504,000,000, an increase of $108,000,000, or 27%, compared to last year. ESG's adjusted EBITDA for the quarter was $109,000,000, up $26,100,000, or 31%, compared to last year. That translates to an adjusted EBITDA margin of 21.6% in Q4 this year, up 70 basis points from Q4 last year. ESG reported total orders of $566,000,000 in Q4 this year, an increase of $201,000,000, or 55%, from last year. SSG's fourth quarter sales were $93,000,000, up $17,000,000, or 23%, compared to last year. SSG's adjusted EBITDA for the quarter was $23,400,000, up $7,000,000, or 43%, from last year. SSG's adjusted EBITDA margin for the quarter was 25.2%, up 360 basis points from last year. SSG's orders for the quarter were generally in line with last year at approximately $82,000,000. Corporate operating expenses in Q4 this year were $26,500,000, compared to $10,500,000 last year, with the increase primarily due to a $13,000,000 increase in acquisition and integration-related expenses. Turning now to the consolidated statement of operations, the increase in net sales was largely driven by a $36,700,000 improvement in gross profit. Consolidated gross margin for the quarter was 28.4%, up 30 basis points compared to last year. As a percentage of net sales, our selling, engineering, general, and administrative expenses for the quarter were down 110 basis points from Q4 last year. During the fourth quarter of this year, we recognized $13,300,000 of acquisition-related expenses, up from $300,000 in Q4 last year. The increase included an aggregate expense of $6,800,000 to increase the fair value of contingent consideration associated with the acquisitions of Hog and Standard, as well as expenses incurred in connection with the acquisition of New Way. Other items affecting the quarterly results included a $1,300,000 increase in amortization expense, a $1,700,000 increase in interest expense, a $200,000 reduction in other expense, and the nonrecurrence of a $3,800,000 pretax non-cash pension settlement charge recognized in the prior-year quarter. Income tax expense for the quarter was $17,800,000, an increase of $4,900,000 from last year, with the year-over-year change largely due to higher pretax income levels and the recognition of fewer discrete tax benefits in the current-year quarter compared to the prior year. Our GAAP effective tax rate for full year 2025 was 24%, including discrete tax benefits. For 2026, we currently expect a tax rate of approximately 25%, excluding any discrete tax benefits. On an overall GAAP basis, we therefore earned $0.99 per diluted share in Q4 this year, compared with $0.81 per share in Q4 last year. To facilitate comparison of GAAP earnings per share for unusual items recorded in the current or prior periods, in the current-year quarter, we made adjustments to GAAP earnings per share to exclude acquisition and integration-related expenses, debt settlement charges, and purchase accounting expense effects. In the prior-year quarter, we also excluded the pension settlement charge that I just noted. On this basis, our adjusted earnings in Q4 this year were $1.16 per share, compared with $0.87 per share in Q4 last year. Looking now at cash flow, we generated $97,000,000 of cash from operations during the quarter, an increase of $7,000,000, or 7%, from Q4 last year. That brings our full year operating cash generation to $255,000,000, an increase of $23,000,000, or 10%, compared to last year. Early in the fourth quarter, we executed a new five-year credit facility, replacing the $800,000,000 credit facility that was previously in place. During the fourth quarter, we completed the acquisition of New Way for an initial payment of approximately $413,000,000, and in early January, we completed the acquisition of MEGA for an initial payment of approximately $45,000,000. Our current net debt leverage ratio remains at a comfortable level even after factoring in recent acquisitions. We ended the quarter with $501,000,000 of net debt and availability under our credit facility of $925,000,000. With the increased borrowing capacity under our new credit facility and our improved cash generation, we have significant flexibility to invest in organic growth initiatives, pursue additional strategic acquisitions like MEGA, pay down debt, and return cash to stockholders through dividends and opportunistic share repurchases. On that note, we paid dividends of $8,500,000 during the quarter, reflecting a dividend of $0.14 per share. That concludes my comments, and I would now like to turn the call over to Jennifer. Jennifer L. Sherman: Thank you, Ian. We are proud of our record-setting fourth quarter performance, which included new quarterly records across net sales, adjusted EPS, and adjusted EBITDA, thanks to the outstanding results from both of our operating groups. Within our Environmental Solutions Group, we delivered 27% year-over-year net sales growth, a 31% increase in adjusted EBITDA, and a 70 basis point improvement in adjusted EBITDA margin. Contributions from acquisitions, higher production levels, and continued price realization were all meaningful year-over-year contributors. Given continued strong order levels and an extensive pipeline of internal market share expansion initiatives, we remain focused on building more trucks across our family of specialty vehicle businesses and reducing lead times for sewer cleaners and four-wheel sweepers. These efforts to increase throughput across our manufacturing sites contributed to double-digit percent increases in net sales across several ESG product verticals, including sewer cleaners, safe-digging trucks, street sweepers, metal extraction support equipment, and road marking and line removal trucks. From a capacity perspective, the combination of large-scale capacity expansions that we completed between 2019 and 2022, good access to labor, and continued investments in several productivity-enhancing projects position us well to profitably absorb more volume into our existing footprint. As in recent years, we expect approximately half of our annual CapEx expenditures in 2026 focused on various growth initiatives, with the other half focused on maintenance investments. Shifting to aftermarkets, where demand remains strong, aided by contributions from acquisitions. For the quarter, aftermarket revenue increased 20% year over year, primarily driven by higher demand for aftermarket parts, increased service activity, and rental income growth. We are identifying new attractive aftermarket parts growth opportunities across the enterprise and are highly energized by the long-term prospects of our internal build-more-parts initiative, whereby we are vertically integrating certain parts production. Over a multiyear timeline, this initiative will allow our teams to drive increased recurring parts revenue streams while expanding margins. Additionally, our aftermarket teams are working diligently to integrate our most recent acquisitions. Shifting to our Safety and Security Systems Group, the team delivered another excellent quarter with 23% top-line growth, a 43% increase in adjusted EBITDA, and a 360 basis point improvement in adjusted EBITDA margin. This improvement was primarily driven by a combination of volume increases for public safety equipment in the U.S. and in Europe, proactive price-cost management, and realization of certain cost savings. Our SSG teams are laser-focused on new product development initiatives while surgically targeting underserved customer cohorts and regions, a strategy that is yielding share gains. Additionally, we expect the recent addition of a fourth printed circuit board manufacturing line at our University Park facility to drive additional efficiency improvements in 2026. Lastly, we had another strong year of cash, with $255,000,000 of cash generated from operations. For the full year, our cash conversion was 103%, slightly ahead of our annual target of 100%. Before I shift to current market conditions, I would like to spend a moment to update you on our refuse truck distribution strategy in Canada now that we have completed the acquisition of New Way. As many of you know, we have extensive internal experience in the refuse market, as we have been distributing third-party refuse trucks through our Joe Johnson Equipment sales channel for more than 20 years, primarily in Canada. This existing internal refuse service infrastructure and sales expertise was an important synergy consideration as part of the New Way transaction. Prior to the acquisition, New Way had not penetrated the Canadian market at scale, creating unique market share growth opportunities for us starting in 2026. As such, beginning in 2025, we stopped taking orders for third-party refuse trucks and instead began selling New Way through our Joe Johnson Equipment network in Canada. Given these dynamics, we have provided additional disclosures in this morning's earnings presentation outlining our historical third-party refuse orders and sales levels to facilitate more appropriate comparisons. We will continue to provide this reconciliation as we move through 2026. From a financial perspective, we expect to deliver the remaining $80,000,000 of third-party refuse backlog over the next four quarters and eventually wind that backlog down to zero. As we wind down the sale of these lower-margin third-party refuse trucks and increase New Way sales in Canada, we expect to realize margin tailwinds in 2027 and 2028. Shifting to current market conditions, on an underlying basis, excluding the impact of acquired backlog and third-party refuse orders, Q4 orders increased $64,000,000, or 14%, year over year, with improved demand across both our publicly funded and industrial product lines. Within product lines, we experienced particular strength in sewer cleaners, safe-digging, and vacuum trucks, fueled by continued demand for infrastructure and water projects in North America and rising safe-digging adoption within the U.S. Similarly, we are seeing especially constructive demand environments for our metal extraction support equipment and road marking and line removal products. Lastly, I wanted to provide some context around our backlog, which stood at $1,040,000,000 at the end of the fourth quarter, up approximately 5% year over year. When I first became CEO, I put in place a multiyear growth strategy aimed at building a best-in-class specialty vehicle and industrial equipment growth company while decreasing the cyclicality of our earnings stream. As we have executed this strategy both organically and through M&A, the composition of our product portfolio has changed over time. Consequently, our business has become less backlog-intensive compared to historical periods. In fact, many of our least cyclical and fastest-growing product lines, such as aftermarket parts, are not really backlog-relevant at all. To illustrate this impact, in 2025, net sales of our backlog-intensive products—which include vacuum trucks, street sweepers, metal extraction support equipment, refuse trucks, and road marking and line removal trucks—comprised approximately 45% of our sales compared to more than 50% in 2015. While we internally continue to view backlog as an important metric and our current backlog provides excellent visibility for certain product lines throughout the next six to twelve months, the overall importance of backlog relative to enterprise-wide forward sales has decreased over time as we have decreased the cyclicality of the business. As a reminder, consistent with our long-term growth strategy, through cycles, we target annual low double-digit top-line growth split roughly evenly between inorganic and organic growth. Looking ahead to 2026, we are laser-focused on driving three critical multiyear growth initiatives forward that will benefit the company for years to come: first, the successful integration of our recently acquired businesses; second, new product development; and third, continuing to strengthen the power of our platform. Let me share a couple of highlights. First, our teams are moving full steam ahead with the integration of New Way. As a reminder, we remain committed to achieving our targeted $15,000,000 to $20,000,000 in annual synergies by 2028, with approximately half of those synergies tied to cost savings and the other half tied to various sales synergies, including the increased penetration of the Canadian market, dealer development, aftermarket parts optimization, sales channel alignment, and new product development. Consistent with the outlook we provided in our September acquisition announcement call, we are expecting the acquisition of New Way to be approximately adjusted EPS neutral in 2026, inclusive of a preliminary estimate of intangible asset amortization expense. Second, we were pleased to close the acquisition of MEGA Equipment last month. MEGA is a manufacturer of parts and equipment for the metal extraction support equipment sector. We have been following them for a number of years, having identified the company as a highly complementary asset to our Ground Force and TowHaul businesses. We believe MEGA can accelerate several of our strategic growth initiatives within this space. As an example, MEGA will substantially increase our reach into certain underpenetrated geographic regions such as South America. As we optimize our combined sales channel between Ground Force, TowHaul, and MEGA, we see important cross-selling opportunities, similar to the playbook we have been deploying since 2022. We also see incremental opportunities to accelerate MEGA's aftermarket parts business, which has historically represented about 25% of MEGA's net sales, and we have identified several operational benefits, including production savings and freight cost opportunities. From a financial perspective, MEGA generated approximately $40,000,000 in net sales over the last twelve months, and we expect the acquisition to be modestly accretive to cash flow and EPS in 2026. Third, we continue to invest in our internal centers of excellence to widen our competitive advantage within the niche markets that we operate. In 2026, we see specific opportunities to drive several sales, new product development, and dealer optimization initiatives forward across our vacuum trucks, street sweepers, multipurpose maintenance vehicle, refuse collection, road marking, and safety and security systems verticals. As part of this strategy, we acquired certain assets and territory rights in Texas in the fourth quarter, which we think will allow us to increase market share for several key product lines. Turning now to our outlook. With the ongoing execution against our strategic initiatives and the current demand backdrop, we are confident that we will have another record year in 2026. For the full year, we are anticipating net sales of between $2,550,000,000 and $2,650,000,000 and adjusted EPS between $4.50 and $4.80 per share, notwithstanding an aggregate $0.16 per share headwind from higher acquisition-related intangible asset amortization expense and the normalization of our tax rate. At the midpoint, this outlook would represent another year of double-digit growth and the highest adjusted EPS level in the company's history. In line with our typical seasonal patterns, we expect Q1 net sales and earnings to be lower than subsequent quarters due to less aftermarket revenue capture. Lastly, we expect CapEx to be between $45,000,000 and $55,000,000 for the year, which includes productivity-enhancing projects. In closing, I want to express my profound thanks to all of our employees, suppliers, dealer partners, customers, and stakeholders for a tremendous 2025. With that, we are ready to open the lines for questions. Operator? Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. Our first question is from Timothy W. Thein with Raymond James. Timothy W. Thein: Hi, good morning. Can you hear me okay? Jennifer L. Sherman: Yes. Good morning, Tim. Timothy W. Thein: First question, just on the call at the midpoint of $2.6 billion in revenues. Apologize if I missed this. Is there a way to parse out—I am not sure if you updated what you are expecting in terms of New Way and MEGA and other acquisition impacts. Just trying to parse out organic versus relative to that $2.6 billion number? Ian A. Hudson: Yes, sure, Tim. I will take this. So, if you think of the guide—the revenue guide—obviously, in the aggregate, 17% to 22% year-over-year growth, that is about 5% to 9% as organic, and the rest would be contributions from New Way and MEGA. So that is how it breaks down. And then the midpoint—that is squarely in line with what we have delivered really since 2015. Our organic growth has been a CAGR of about 7%, so that is squarely in line with the guide. Timothy W. Thein: Yep. Okay. Excellent. And then just on the order trends—and I am sure you have far from perfect visibility as to every order placed and what the motivation is behind it—but I am just curious, maybe what feedback, if any, you hear from dealers in terms of or maybe how you are seeing that order board fill out, meaning are there any signs of maybe customers wanting to get ahead of a prebuy, meaning more of those orders may be coming later in the year, or just curious as to what, if any, impact you think that is having in terms of order activity. Thank you. Jennifer L. Sherman: Yes, I will start with the prebuy discussion. There has been a lot of discussion around this. We have not baked any meaningful prebuy into our guidance. We are going to continue to monitor it, and we will be prepared to respond to it. The other thing I would add there is publicly funded customers do not materially engage in prebuying, so with respect to that part of the business, we do not think it would be a significant driver. Where we would see traction would be on those non-publicly funded customers. Timothy W. Thein: Understood. Thank you. Operator: Our next question is from Steve Barger with KeyBanc Capital Markets. Steve Barger: Hey, good morning. Thanks. Jennifer L. Sherman: Morning, Steve. Steve Barger: For the 5% to 9% organic for the consolidated guide, is that similar—got it. And thanks for the reminder on how the mix of backlog-dependent business is changing. So maybe a two-parter. First, is it safe to say that you expect book-to-bill above one for the business units that still depend on backlog for forward visibility? Ian A. Hudson: So, a couple of comments there. As we previously talked about, our lead times are still extended for sewer cleaners and four-wheel street sweepers. So we have been focused on build more trucks. I am pleased to report that we made some really good progress during Q4. If you look at unit production combined at both Elgin and Vactor, it was up versus 2024, and up 13% for the full year. So we were pleased with that progress. For those particular businesses, we are very focused on getting those lead times in that six- to eight-month range. We provided some additional information in the slides today regarding the impact of the $80,000,000 third-party refuse trucks. We will not be taking orders for third-party refuse trucks in 2026, and we will be delivering those throughout the year. So we tried to separate that out for everybody so they understand the impact that will have. We will be taking orders for New Way, but it will take us some time to build up to those particular rates over a multiyear period. So, outside of those particular things, we would expect over a twelve-month period that book-to-bill would be around 1.0, a little bit better. But we wanted to call out those two particular issues as we move forward. Steve Barger: Yes, that is great detail. Thank you. And then the second part, just a clarification. Do you book-and-ship orders within any given quarter—does book-and-ship business, I should say, in a given quarter get reported in orders? And how do we think about rental and used equipment, and how that flows through, just for clarification? Ian A. Hudson: Yes, the short answer, Steve, is yes. They do get reported in both orders and sales within the quarter. And we typically do not have much backlog for rentals, if any, because typically you will receive the request to rent and fulfill it quickly, so that is probably an in-and-out within the quarter. So not a whole lot of backlog in the rental business. Steve Barger: Yes, but rental would still show in orders, or is that just kind of a— Ian A. Hudson: Correct. Steve Barger: Okay. Got it. Yes. Thank you. Operator: Our next question is from Ross Sparenblek with William Blair. Jennifer L. Sherman: Good morning, Ross. Ross Sparenblek: Nice quarter here. Maybe just starting with a housekeeping item. Can you help parse out the $132,000,000 inorganic contribution to orders in the quarter? I understand some is backlog; some is going to be incremental orders that were secured once you owned the asset. Ian A. Hudson: Yes, Ross. That is just the backlog that we acquired on the date of the acquisition. Ross Sparenblek: Okay. Can you give us a sense of what the inorganic order flow looked like to try to parse out the organic orders for the year? Ian A. Hudson: Yes. I mean, the difference was not really material from what we have reported. If you strip out the acquired backlog, that delta was not material. Ross Sparenblek: Okay. I mean, how should I think about that, though, since you guys did start stocking inventory in Canada for New Way, and presumably the rest of the United States? Ian A. Hudson: We did not do anything meaningful in the one month that we owned them. Ross Sparenblek: Okay. Well, just based on early discussions, do you get the sense that you are going to have a strong adoption rate with existing dealers that might be selling other third-party refuse trucks? Ian A. Hudson: You know, right now, New Way has a number of strong dealers, and we are working with them. And the JJE sales arm—we have hired a number of people. We are leveraging the existing infrastructure that is in place. We are training them on the New Way equipment. So they are still in early stages. We are excited about some of the opportunities that are out there. And then in certain areas, we plan on strengthening that dealer network through either the JJE team or other additions to the network. Ross Sparenblek: Okay. So, I mean, probably first quarter, though? Like, timeline on when we should start seeing a more meaningful contribution? It just seems a little odd that you would let the LaBrie phase out. I guess you do have a backlog there. We should not expect until the end of the year for the overlap of replacing LaBrie with New Way inventory. Correct? Ian A. Hudson: Yes, we are taking orders since closing, and New Way has a number of strong dealers in place. There are a number of opportunities, and we are continuing to take orders. And our view on New Way's contribution to the 2026 earnings has not changed. Including the amortization, we expect it to be neutral. Ross Sparenblek: Okay. Alright. Well, thanks again, guys. I will hop back in queue. Ian A. Hudson: Thank you. Operator: Our next question is from Walter Scott Liptak with Seaport. Walter Scott Liptak: Hi. Thanks. Good morning. So I want to ask—I did not catch it—Jennifer, in your remarks. You talked about the first quarter. I wonder if you could talk a little bit about what you are expecting seasonally and from production schedules so we can get our modeling right? Ian A. Hudson: Sure. We expect, in terms of earnings, the cadence to be similar to the past in terms of 19% to 20%. With respect to orders, there could be—this year, obviously, New Way in part of first quarter, Hog, and MEGA will be new—so there could be some change to the seasonality of orders. But in general, what I said in my prepared remarks is we would expect the cadence of earnings to be similar to the past. Walter Scott Liptak: Okay. Great. And I wanted to ask you about New Way and just the cost synergies now that you have had a chance to do a full financial review and look at the operations. Are you going to be able to do more with the cost synergies? And I wonder about 80/20—if that is something that you give them time to integrate first and then start 80/20, or do you start doing that right away with the New Way business strategies? Ian A. Hudson: Yes. So, we identified the $15,000,000 to $20,000,000 by 2028. That is about half cost and half revenue synergies. We have various teams that have been in place since we announced the acquisition in September that are working on those cost synergies and revenue synergies. 80/20 and operational optimization is absolutely a critical synergy. We have transferred one of our best 80/20 people. Our facility—the general manager of that facility—is now working directly with the New Way team on 80/20 opportunities. Walter Scott Liptak: Okay. Great. Thanks for that. And just the last one for me, I was curious about the University Park—the fourth PCB line that went in. You guys have been really successful with vertically integrating, and I wonder if this one is for demand that you already have, or is this room to grow? Why did you have to add a fourth PCB line? Ian A. Hudson: There are a couple drivers. First of all, the team did a super job, and we installed that line—we are actually a little bit ahead of schedule—in Q4. We look at it as driving a couple things: continued growth, it really accelerates new product development, and it allows us to attract customer needs, particularly within both our police and our signaling businesses. So, the short answer is accelerating new product development—the team is a star in that particular area—and, number two, it facilitates additional growth opportunities. Walter Scott Liptak: Okay. Great. Okay. Thank you. Ian A. Hudson: Thank you. Operator: Our next question is from Michael Shlisky with D.A. Davidson. Jennifer L. Sherman: Good morning, Mike. Michael Shlisky: Good morning. Thanks for taking my questions. Wanted to start off asking about MEGA and about New Way. Can you share first how 2025 fared within their own four walls as far as organic growth in those businesses? Were those both growth businesses in 2025? And do you expect them, organically, to be for themselves growth businesses in 2026? Ian A. Hudson: Yes. I think with respect to MEGA, we are obviously very excited about the combination of MEGA with the Ground Force and TowHaul businesses. In Jennifer's remarks, she commented on how MEGA brings some things to the table that we did not necessarily have before in terms of geographic expansion. So MEGA has had some nice organic growth in 2025. We are expecting that to continue as we go into 2026. They had revenues of about $40,000,000 in 2025, and as we go into 2026, we are expecting that to grow a little bit. As it relates to New Way, they were in the middle of a sale process during 2025, so we did not necessarily have audited financials, but the last audited financials that we had, they did $36,000,000 of EBITDA and about $250,000,000 of sales in 2024. As we talked about in September, we are expecting them to be slightly lower in 2026 just because there is some normalization of trends within that industry. So that is what we have implied in our guide for 2026. Michael Shlisky: Got it. Thank you so much. And then your comment earlier about expanding a little bit into South America was also very interesting. Was that just a comment about Ground Force and TowHaul, or are there other lines of business that you think could actually work as well in South America? Just any comments on local sourcing, whether you have to have engine changeover to make that happen. Because there are often some rules around locally sourced content when you try to get into South America. Ian A. Hudson: Yes. So my comments were focused on MEGA and TowHaul/Ground Force. We have partners that we work with in South America. MEGA has a very strong brand, and they manufacture tanks and water trucks on locally sourced chassis where needed. With respect to the chassis for TowHaul, we export, and for other Ground Force and TowHaul products, given the strong brand recognition of MEGA, the teams are excited about the synergies for both those other products. Michael Shlisky: Great. Just one last one for me. You had a busy 2025 for M&A. Just a sense as to the pipeline you think for 2026 and what areas you are looking to grow through inorganic means ahead here? Ian A. Hudson: Yes. Our pipeline continues to be full. We are very focused on identifying companies, purchasing, integrating, delevering, and then repeating. With that being said, different teams work on different opportunities. We have mentioned previously that our SSG team is looking at a number of opportunities right now. We would expect that to continue. There are some other opportunities we are looking at with respect to specialty vehicles that involve different teams than the refuse team or the mineral extraction team. M&A over the long run will continue to play a critical part in our growth, but we will meter according to bandwidth. Michael Shlisky: Okay. Outstanding. I will pass it along. Thank you. Operator: Our next question is from Christopher Paul Moore with CJS. Christopher Paul Moore: Good morning. Great quarter as always. You guys were obviously ahead of the curve early in COVID, expanding capacity, and certainly it depends on mix. But just trying to get a sense of roughly how much annual revenue Federal Signal Corporation can currently handle with the existing infrastructure. Ian A. Hudson: Yes. So we are currently running at about 70%. I would highlight that we added some additional capacity with New Way and MEGA, particularly New Way. We are excited about that capacity with some organic growth initiatives that we are incubating right now that we expect will have multiyear benefits into 2027 and 2028. I will say what I say all the time: we are continuously tweaking our capacity at various facilities, where we might do something that is less than $5,000,000 type expansion. The teams have done a super job in terms of 80/20, which—one of the many benefits of 80/20—is freeing up additional capacity. We have been able to add some additional capacity. We are leveraging some of the opportunities in New Way. I can give a great example in our dump truck body business. We had excess capacity in Pennsylvania. We are now producing dump trucks in a particular facility there. I think we are in pretty good shape right now as we sit here to support our growth initiatives going forward. Christopher Paul Moore: Got it. Helpful. Maybe just one on New Way. So you have talked about the New Way acquisition being neutral to EPS in 2026, potentially adding, I do not know, $0.40 to $0.45 EPS in 2028. I am assuming, based on prior conversations and prior comments, that that would be pretty back-end loaded for 2028. Is that the way we should be looking at that and also the margin progression from EBITDA margins from 14% to 15% to the 20% range? Ian A. Hudson: Yes. I think we talked about the $15,000,000 to $20,000,000 of synergies by 2028, kind of evenly split between cost and revenue synergies. We would expect those cost synergies to be more evenly split as we move through the three-year period, with the revenue synergies to be more back-end loaded. They take some time. If you think about that particular team, a good example is we are very focused on new product development. We have a number of products in the works, and it will take some time to get traction, for example, on those particular initiatives. Christopher Paul Moore: Got it. That makes sense. And just any thoughts on the current tariff discussions? Ian A. Hudson: Yes. I think that we are fortunate because, as we talked about last year, we are in country for country, so they had a nominal impact. USMCA is important to us, particularly given the importance of our Canadian businesses. But we are not baking any meaningful impact into the guidance that we provided earlier today. Christopher Paul Moore: Fair enough. I will leave it there. Thanks, guys. Jennifer L. Sherman: Thank you, Chris. Operator: Our next question is from Gregory John Burns with Sidoti & Company. Jennifer L. Sherman: Good morning, Greg. Gregory John Burns: Good morning. The adjusted pro forma order number of $64,000,000—how much of that is organic, and what is the contribution from acquisitions in that adjusted number? Ian A. Hudson: Yes. I mean, I think what we have done, Greg, is we have stripped out the acquired backlog at the time of the acquisition. So that is the 14% year-over-year growth from Q4. The vast majority of that is organic. Gregory John Burns: Okay. Perfect. And then in your municipal, publicly funded markets, I know there was a lot of federal money coming post-pandemic into that market. I assume a lot of that has been allocated and spent. So is there any concern that we might see a slowdown in those end markets? Ian A. Hudson: Yes. I will start with—as we have talked about before—we did not see any meaningful contributions in 2024 or in 2025 from those pandemic programs. Infrastructure projects are still ongoing. We expect those to be ongoing for several years. Again, within that publicly funded revenue bucket, water taxes are an important part of that. That is our largest single product line, which supports purchases of sewer cleaners and other types of municipal vacuum trucks. We find that to be a growing revenue stream. Our general municipal exposure would really be around street sweepers, some of our multipurpose tractors, a small portion of our public safety systems, and then a portion of refuse. As we talked about in the prepared remarks, we saw strong orders in Q4 for sewer cleaners and street sweepers. Again, we feel we have baked this into our outlook, and it is really, frankly, the diversification within that publicly funded revenue stream that is important to look at with respect to the order trends. Gregory John Burns: Okay. Thank you. Operator: Thank you. There are no further questions at this time. I would like to turn the floor back over to Jennifer L. Sherman for any closing remarks. Jennifer L. Sherman: Thank you. Again, we would like to express our thanks to our shareholders, customers, employees, distributors, and dealers for their continued support. Thank you for joining us today, and we will talk to you next quarter. Operator: This concludes today's conference. We thank you for your participation. You may disconnect your lines.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Adecco Group Q4 and Full Year 2025 Results. [Operator Instructions] I would now like to turn the call over to Benita Barretto, Head of Investor Relations. Please go ahead. Benita Barretto: Good morning. Thank you for joining our conference call today. I'm Benita Barretto, the group's Head of Investor Relations. And with me are the Adecco Group's CEO, Denis Machuel; and CFO, Valentina Ficaio. Before we begin, please take note of the disclaimer on Slide 2. Today's presentation will reference both GAAP and non-GAAP financial results and operating metrics. This conference call will include forward-looking statements, which are based on current assumptions and, as always, present opportunities as well as risks and uncertainties. With that, I will now hand over to Denis. Denis Machuel: Thank you, Benita, and a warm welcome to all of you who joined the call today. And let me open with the full year highlights on Slide 4. The group has consistently delivered on its ambitions and targets in 2025. In terms of market share, the group gained 245 basis points relative to key competitors with ongoing positive momentum. On a full year basis, the group's revenues were up 1.3% year-on-year, gross profit was stable, and the group delivered an industry-leading 19.2% gross margin, evidence of the benefits of its diversification strategy. The group has managed costs and capacity with discipline. G&A overheads were further reduced by EUR 23 million, bringing our total net savings to nearly EUR 200 million when compared to 2022's baseline. And productivity increased 3% year-on-year. In turn, the group generated EUR 693 million of EBITA and stayed within the EBITA margin corridor on a full year basis at 3%. Cash generation was strong with 102% cash conversion ratio, operating cash flow of EUR 613 million and free cash flow of EUR 483 million. Importantly, the group improved its leverage ratio, ending the year at 2.4x net debt-to-EBITDA, down 0.2x year-on-year and down 0.6x sequentially. Let's turn now to Slide 5. And on the left side, we highlight our consistent outperformance relative to key competitors across the past 3 years. And the chart on the right side shows volumes steadily improved throughout the year with flexible placement and outsourcing volumes in the Adecco GBU rebounding from decline to growth. Management's focus on customer satisfaction, digital innovation and recruiter productivity, integral to our strategy, is driving strong top line and volume momentum ahead of market trends. Let's move to Slide 6, where we set out the progress we are making with the run-and-change agenda, strengthening execution muscle across operations day by day, while investing in digital solutions and new services to drive future growth. There are many points on this slide, so let me highlight only a few. Beginning with the Strengthen Run priorities. The group has made significant progress in 2025. The Adecco North American turnaround gained traction. Full year revenues were up 12% and the EBITA margin expanded 230 basis points year-on-year. In line with the group's digital strategy, Adecco further expanded its Talent Supply Chain approach to 144 large clients, adding 42 in Q4 alone. By centralizing, automating and digitizing processes effectively, the Talent Supply Chain delivered a meaningful 550 basis points year-on-year improvement in fill rates. In Akkodis, restructuring in Germany has locked in EUR 58 million run rate savings. And LHH's Career Transition business continued to successfully expand in the SME segment, increasing the number of companies served by 17%. The group's Change agenda also progressed. Adecco now has 6 recruiter agents live within the Talent Supply Chain structure in the U.K. and in France. The U.K. agents have achieved approximately 15% time savings in recruiting processes, and this is an encouraging start. And we will roll out agents across key markets in 2026 to scale these benefits. And while there is further work to be done in Akkodis Consulting, France's value creation plan improved performance with the unit growing ahead of market and achieved a 7% margin run rate, up 160 basis points year-on-year. And in LHH, targeted investments in Ezra digital coaching platform drove 42% revenue growth and a record pipeline at year-end. Moving to Slide 7. On this slide, we detail the firm progress made in the turnaround of Akkodis Germany. Management took decisive restructuring action in 2025, achieving EUR 58 million in annual cost savings on a run rate basis by year-end. This included reducing the cost of sales by EUR 43 million and SG&A expenses by EUR 15 million, with EUR 8 million saved through real estate consolidation across 26 locations. Last wave of rightsizing effort is in flight, lowering headcount by approximately 600 in total. In addition, select noncore assets were exited, eliminating approximately EUR 3 million of negative EBITA. The program incurred onetime charges of EUR 46 million in 2025 but has already delivered around EUR 15 million of in-year P&L benefit. As a result, Akkodis Germany achieved a healthy 5.4% EBITA margin run rate at year-end. The group expects incremental savings to crystallize in the P&L during 2026, in particular during H1. With the organization being rightsized, management's focus in 2026 will shift to rebuilding the top line, supported by encouraging new client wins across sectors such as aerospace, defense and life sciences. In short, the group has made strong progress in stabilizing Akkodis Germany, positioning it for sustainable profitable growth going forward. Slide 8 sets out the Board of Directors' dividend proposal. We are retaining our attractive shareholder remuneration with a dividend of CHF 1 per share for fiscal year 2025. This represents a 46% payout ratio, in line with our established dividend policy of paying out 40% to 50% of adjusted earnings per share. Shareholders will have the option to receive the dividend either in cash or in newly issued shares. With this proposal, the group provides attractive returns to shareholders, including the option for qualifying shareholders to participate in the group's future growth in a tax-efficient way. The optional scrip dividend aligns with and supports the group's capital allocation priorities, which remain unchanged. It allows shareholders to increase their investment in the Adecco Group while enabling the company to retain cash for growth and prioritize deleveraging. Now let me hand over to Valentina for the Q4 results. Valentina Ficaio: Thank you, Denis, and a warm welcome from my side. Let's begin with Slide 10 and an overview of the group's strong Q4 results. The group delivered further significant market share gains, leading key competitors by 395 basis points. Revenues reached EUR 6 billion, rising 3.9%, our best quarterly performance this year. Gross profit grew 4% to EUR 1.1 billion with a healthy 19.1% margin, stable on an organic basis. Our disciplined execution drove good operating leverage. We were pleased to see a strong productivity improvement of 11% and to deliver a strong drop down ratio of over 80%. In turn, the group's EBITA was EUR 225 million, up 20%, with a 3.8% margin, up 60 basis points. Let's now discuss the GBU developments, beginning with Adecco on Slide 11. Adecco delivered a strong performance with revenues at EUR 4.8 billion, up 4.9% and improved sequentially. Flexible placement revenues increased by 4%. Outsourcing was very strong, up 14%, and MSP was up 6%. Permanent placement, however, was 6% lower. Adecco's healthy gross margin was driven by firm pricing, client mix and lower permanent placement volumes, and productivity improved 6%. The EBITA margin improved 40 basis points to 4%, mainly reflecting higher volumes and strong operating leverage, supported by G&A savings and agile capacity management. Adecco's drop down ratio this quarter was robust at over 50%. Let's now move to Adecco at the segment level on Slide 12. In Adecco France, revenues were 2% lower, stable sequentially and ahead of the market. Logistics continued to weigh, while autos and manufacturing were strong. The EBITA margin of 4.4%, up 10 basis points, mainly reflects client mix and benefit from SG&A savings plans. Revenues in Adecco EMEA, excluding France, were up 4% and sequentially improved. Most territories achieved good growth and outperformed competitors. Looking at the larger markets. Revenues were up 3% in Italy with solid activity in logistics, financial services and consumer goods. Revenues in Iberia were up 7%. Food and beverage, autos and financial services were strong. In the U.K. and Ireland, revenues declined 1%, a good result in a challenging market. The result was weighed by lower logistics and public sector demand despite strength in IT tech and financial services. Revenues in Germany and Austria were up 2%, well ahead of competitors, with strength in autos, consumer goods and defense. The segment's EBITA margin of 3.9% was 50 basis points higher, mainly reflecting strong operating leverage and good cost mitigation. Turning now to Slide 13. Adecco Americas delivered 21% revenue growth. North America revenues increased 23%, well ahead of the market, mainly due to strong activity from large clients. In sector terms, consumer goods, food and beverage and autos were notably strong. Latin America revenues were up 19%, led by Colombia, Peru and Brazil. By sector, logistics, financial and professional services and retail were strong. The Americas EBITA margin of 3.3% expanded 150 basis points, reflecting client mix and strong operating leverage from higher volumes. Adecco APAC remained strong with revenues up 7%. Revenues rose 6% in Japan, 14% in Asia and 7% in India. Australia and New Zealand returned to growth with revenues up 2%. APAC's EBITA margin of 4.3% mainly reflects the timing of income from FESCO. Let's now focus on Slide 14 and Akkodis' strengthened performance. Akkodis' revenue were 1% lower and sequentially improved. Consulting & Solutions revenue were up 2%, marking a return to growth for this service line. In EMEA, revenues were flat. Germany was 7% lower, driven by autos headwinds. However, revenues in France were up 3% and ahead of the market in aerospace and defense and autos. And the U.K. and Italy performed notably well. North American revenues were up 3%, ahead of market, supported by further modest improvement in tech staffing demand. And Consulting & Solutions grew 46%. Revenues in APAC were 4% lower. Japan's result was heavily influenced by trading day differences. On an adjusted basis, revenues were up 5%. Revenues in Australia were 10% lower in a tough market. Akkodis' EBITA margin of 7% was 90 basis points higher, mainly reflecting benefit from the turnaround in Germany. Let's move to Slide 15. LHH has executed well and delivered highly profitable growth. LHH's revenues were up 2%. In Professional Recruitment Solutions, revenues were 3% lower, taking share in a subdued market. Recruitment Solutions gross profit was flat with the U.S. 3% lower and Rest of World up 4%. Permanent Placement was up 4% and productivity was 8% higher. Career Transition was robust with revenues up 1%. U.S. revenues were 2% lower on a high comparison, while the U.K. and Switzerland were strong, and the pipeline remains healthy. Revenues in Coaching & Skilling rose 27%. Ezra's revenues were very strong, rising 68% while General Assembly's B2B business grew 31%. LHH's EBITA margin was 9.7%, up 510 basis points. The year-on-year development is flatted by the absence of charges recorded in Q4 '24 related to the wind down of General Assembly's B2C activities. On an underlying basis, the margin expanded 230 basis points, reflecting positive mix and volumes and strong operating leverage with productivity up 12%. Let's now turn to Slide 16. Gross margin was healthy at 19.1%, stable year-on-year on an organic basis. The group's gross margin was driven by negative FX impact of 10 basis points; 20 basis points negative impact coming from flexible placement, mainly reflecting client and country mix; 10 basis points negative impact from permanent placement, reflecting lower activity in Adecco; and a 30 basis points positive impact in Outsourcing, Consulting & Other Services, mainly driven by Akkodis Germany. Let's now look at Slide 17 and the group's EBITA bridge. At 3.8%, the EBITA margin excluding one-offs was strong, rising 60 basis points year-on-year. The result was driven by a 10 basis points negative impact from FX, a 30 basis points favorable impact from Akkodis Germany and, furthermore, excluding Akkodis Germany, a stable gross profit contribution at healthy levels, an encouraging 50 basis points positive impact from operating leverage, including G&A savings as well as strong productivity improvement, and a 10 basis points negative impact from the timing of FESCO income. Among key metrics, SG&A expenses excluding one-offs as a percentage of revenues was 15.4%, down 70 basis points, while G&A costs were just 3% of revenues. Productivity, measured as direct contribution per selling FTE, rose 11%. Moving to Slide 18 and the group's cash flow and financing structure. The last 12-month cash conversion ratio was strong at 102%. Full year operating free cash flow was EUR 613 million. Free cash flow was EUR 483 million. Both outcomes are strong given the group's continuous improvement in revenues. In Q4, operating cash flow was EUR 476 million, a modest EUR 15 million decrease from the prior year period. This outcome reflects strong collections and favorable timing of payables, partly mitigated by working capital absorption for growth. We have maintained discipline regarding payment terms and are very pleased to report that the group's DSO improved 0.4 days to 51.8 days, remaining best-in-class. Capital expenditure was EUR 50 million, and free cash flow was EUR 426 million, a modest EUR 20 million decrease from the prior year period. The group also strengthened its balance sheet. Gross debts were reduced by EUR 280 million in 2025, supported by the repayment of CHF 225 million senior bond in Q4. At the end of Q4, net debt was EUR 2.29 billion, EUR 186 million lower. Leverage ratio improved to 2.4x, down 0.2x year-on-year and down 0.6x sequentially. The group is firmly committed to bringing the net debt-to-EBITDA ratio to 1.5x or below by the end of 2027, absent any major macroeconomic or geopolitical disruption. On Slide 19, we provide our near-term outlook. The group has seen continued positive momentum in volumes this quarter to date. For Q1, the group expects gross margin and SG&A expenses, excluding one-offs, to be broadly stable sequentially. As a reminder, the prior year period benefited from the timing of FESCO income. We are rigorously executing the group's strategy and run-and-change priorities, focusing on market share gains while managing costs and capacity with discipline to drive profitable growth. And with that, I hand back to Denis. Denis Machuel: Thank you, Valentina. And let me conclude with Slide 20 and key takeaways. We launched the agility advantage value creation path and run-and-change agenda at our November Capital Markets Day. We are successfully executing against group strategy and driving momentum. During 2025, the group delivered on its full year margin commitment, captured market share and return to revenue growth. And we are encouraged to see continued positive momentum in volumes to date this quarter. Moreover, as we successfully advanced our strategic priorities, the group's financials are improving, underpinning an improvement in the year-end net debt-to-EBITDA ratio, which was down 0.2x year-on-year and 0.6x sequentially. We remain firmly committed to achieving a net debt-to-EBITDA ratio at or below 1.5x by year-end 2027. With this said, thank you for your attention, and let's open the lines for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Andy Grobler with BNP Paribas. Andrew Grobler: Just a couple from me, if I may. Firstly, just on free cash. It was very strong in Q4 led by payables. Could you just talk through what you did to drive that and whether any of that is going to reverse into early 2026? And then secondly, just a slightly broader one around client behavior. Are you seeing any change in client behavior in terms of their desire for flexibility, in terms of the interactions they're having with you? Or do they remain broadly pretty cautious in those end markets? Denis Machuel: Thank you, Andy. And Valentina is going to answer the first part, and I'm going to answer your second question. Valentina Ficaio: Andy, on free cash flow, it was a very strong performance. You've seen that we landed on EUR 483 million and the conversion ratio was very strong, above 100%. And it's particularly strong, this performance, if we consider that we've done it on the back of a year and, most importantly, a Q4 where we were growing. And you know that our business absorbs working capital when we grow at this level. If I try to unpack a bit what are the most important components, fundamentally, it all goes down to very strong working capital management. We've been very diligent on collections. And you've seen how our DSO continues to be very strong. We are down year-on-year. It's not easy to keep going down on year-on-year in this market. So we're very pleased with that. And in terms of AP, yes, we did have some favorable timing on payments, but we've also done quite a lot of job in terms of carving out overbalancing, negotiating payment terms. And you really start to see how the impact of that comes through also in our AP management. So overall, we are very pleased and we continue to be laser-focused on working capital. When you think about 2026, I would -- I really think about free cash flow generation this year to -- the behavior to be similar. Just as a reminder, seasonally, our H1 is an outflow versus an H2 that is an inflow. So that's the way that I would model it. But again, laser focused on working capital because that's the key of our strong free cash flow performance this quarter. Denis Machuel: And as far as what our clients are telling us, we see pretty good momentum, particularly on flex. I must say, Adecco is firing on almost all cylinders. We have soft results in France and the U.K., but apart from that -- even though in France, we are ahead of the market. But apart from that, we're really, really strong. And we see momentum, we see demand for flexible workers across the board, across geographies. It's says something also a little bit about, of course, the uncertainty that we live in. But the economy is pretty good. So there's demand. There's work to be done. And we are surfing on that. We're surfing on that through, of course, our sales dynamism we serve because we have very strong delivery engine. And that makes me very confident. There's one sign, which is interesting, is we see a little bit of a pickup in permanent recruitment in LHH. It's 4%. It's not big yet and we start from your volumes, but it's a little bit positive. But overall, I'm very, very optimistic on the momentum that we have. We have a great momentum as well in outsourcing, you've seen double-digit growth. I think the market is there to support our development. Andrew Grobler: Can I just ask one quick follow-up? Just on LHH and in RS in particular. You noted that perm was growing, but gross profit was down in that segment. So that suggests that your kind of gross margin in your contract temp businesses is lower. Could you just talk through what's going on in that segment, please? Denis Machuel: Well, actually, you've got to look at LHH as in 2 dimensions. There is perm and flex on one side and there is the U.S. and outside of the U.S. In the U.S., we are minus 3%. In the rest of the world, we are plus 4% overall. So that says something about the geographic differences. But overall, I mean, let's be clear. We are -- the whole industry is operating at pretty low historical level. But we are -- what we do is we are outperforming the market, which matters to me. Valentina Ficaio: And I would also add that as you look overall at the performance, you see also how LHH has really worked on productivity to offset also some of these elements. And LHH productivity was up 12% in Q4 and their sales FTE was down 4%. So you see how they are acting also on what Denis just mentioned. Operator: Your next question comes from the line of James Rowland Clark with Barclays. James Clark: My first is just on the answer you just gave about good momentum. Just to be clear, I understand you've taken a lot of market share in the last few quarters. Is that momentum comment about you specifically taking share? Or do you think that's more market-based? If you could help sort of parse those two elements, that would be great. Secondly, on EBIT margins in 2026, I think consensus has got 30 to 40 bps of margin growth. Are you comfortable with that? And could you help us bridge that improvement across organic gross margin, which looks to be under pressure going into this year but also then offset by SG&A? So I'd love just to get your sense on the moving parts to achieve that margin, if you're comfortable with it. And then finally, on leverage, you're guiding to down to 2.5x by the end of '27. So you've got to lose 0.5x a year between now and then. Do you see that as a linear progression or faster in '26 and '27 or vice versa? And if so, why? Denis Machuel: Thank you, James. And I'm sure Valentina will be super happy to take the EBITA and leverage questions, and I'm going to talk about the momentum. Two things here. As much as I believe that the way we operate, the way we've put in place a very strong sales dynamic, which is -- which we adjust as per market conditions, as per the industry we are facing, et cetera, as per the geographies, and we have also put a very strong delivery engine that helps us gain share from our own merits and that makes me very confident for the future, I also believe that it's overall the market conditions that are also improving. And we have been through some difficult quarters in, I would say, end of 2024 and beginning of 2025. And we see an overall better traction on the markets. And on that, we are well positioned because we've done all the hard work to strengthen the muscle in sales, strengthen the muscle in delivery. So it's -- I would say it's a bit of both that help us grow as we do. Vale, now on EBITA? Valentina Ficaio: And I'll build on the comments that Denis just mentioned about momentum just to give you some more flavor on guidance for Q1 EBITA. So I think that what you mentioned, James, is reasonable. And the way that I think about our Q1 EBITA is the continued positive volumes behavior gives us confidence in terms of revenue outlook. And gross margin is broadly stable sequentially. If you think also about the comparison year-on-year is we have a 20 basis point headwind coming from FX. You may remember that last year in Q1 '25, this represented a tailwind. So that gives you a flavor why also year-on-year Q1 gross margin is actually broadly stable. And in terms of SG&A, our normal seasonality from Q4 to Q1 usually see SG&A going up by EUR 10 million, EUR 15 million. So the fact that we're guiding for broadly stable tells you about the cost discipline that we continue to enforce. And you saw that we've mentioned the FESCO income because we assume FESCO to continue to contribute positively on a full year basis. But the timing last year, it can vary. And last year, it happened in Q1. On a full year EBITA, we don't guide overall, but I think this gives you a bit the moving pieces that you need to model in terms of getting there, and the assumption that you mentioned are quite reasonable. Moving to leverage. I think it's -- the free cash flow generation, the performance that we had -- the trajectory of the performance that we had throughout 2025 delivered good delevering, 0.2 year-on-year and sequentially, 0.6. The path to 1.5 is clear. We don't guide specifically on '26 and '27. But clearly, the levers that we have in our hands, and we are already pulling are modest growth. You've seen how growth has dropped through in operating leverage over the past quarters. We expect that to continue throughout the next quarters. And then we have additional benefits coming from Akkodis Germany, but also other elements like the turnaround in North America, like the improvement in France that will continue to help us get there, as we've shown you in the last -- in recent quarters. Operator: Your next question comes from Suhasini Varanasi with Goldman Sachs. Suhasini Varanasi: Just one question for me, please. I just wanted to clarify the exit rate and momentum that you saw year-to-date because I think your slide on -- Slide 5 seems to suggest at least on the GBU, Adecco GBU front, the momentum is continuing to improve in year-to-date. Just at that GBU level and at the group level, can you please clarify how the exit rate has looked compared to the 3.94% growth that you reported last quarter? Valentina Ficaio: Suhasini, I'll take this one. Just to give you a sense, the exit rate was very much aligned with the quarter leverage, so at group level. So I hope that's helpful to give you a sense. Operator: Your next question comes from the line of Simon LeChipre with Jefferies. Simon LeChipre: First question. Looking at your Q4 results and if we exclude Akkodis, so gross margin was down 30 bps on an organic basis and SG&A was probably flat organically. And in prior quarters, it seems you were able to offset the gross margin pressure through cost savings. So does that mean it is no longer the case? And I mean, how should we think about the future quarters in terms of the relation between margin performance and SG&A? Secondly, in terms of your Q1 gross margin guidance, so stable sequentially. So I would assume the seasonal effect from Q4 to Q1 is negative. It seems you're also talking about like FX negative impact being a bit stronger. So how would you offset these 2 factors to get to a stable gross margin sequentially? And last thing on AI. We see more and more evidences of how AI can make the business more efficient. So I would assume this suggests some deflationary effect on top line. So how do you think about the net bottom line impact in the future? Like do you think your SG&A would continue to reduce? And would that be enough to offset this potential deflationary trend on the top line? Denis Machuel: I'll take the AI piece and Valentina will be very happy to take the gross margin question and the FX. Valentina Ficaio: So starting with your 2 questions on gross margin, Simon. I think when you think about the performance that we had in Q4 at 19.1%, it's a very healthy level. It's industry-leading. And it reflects a number of components. It's not just Akkodis, right? There's firm pricing and client mix, and there's GBUs mix that contribute positively to the gross margin buildup. Yes, Akkodis Germany is a component of it, but it's not the only one. And then there's clear added value in the gross margin that comes from the service lines that have higher gross margin profile, like outsourcing, like Ezra. You've heard us mentioning a number of service lines that have grown double digit in Q4, and will continue to do that. So there are a number of levers that we can continue to work on, Akkodis Germany is one of them, to work on our gross margin and keep it at this stable levels. When you look at -- and by the way, permanent placement continues to be subdued clearly. When permanent placement picks up, it is a further lever that we can capture because we will capture permanent placement growth when it comes, and that's another further lever we can pull. When you think about Q1, let me just take a moment to walk you through the elements. You've called out FX. It's correct. As I was mentioning before, actually it was a tailwind in Q1 last year. So you do have a 20 basis points gap when you look at it from a Q-on-Q perspective. And then we again have several pieces because there's modest impact coming from perm and flex, but there's also a modest positive impact coming from the other service lines. So that is why we continue to say it's really broadly stable even on a year-on-year basis. Because if you take out the FX, we are continuing to see how the benefits of the other service lines of Akkodis that we are implementing is affecting the modest client mix that we have in flex and perm. Simon LeChipre: Sorry, may I have just a quick follow-up on GM and also on SG&A. So it was minus 1% organically year-on-year in Q4, so I think mainly driven by Akkodis. So does that mean like the Adecco GBU, as you know, is now trending kind of flattish year-on-year? Valentina Ficaio: No. We continue to see the same performance. We call out Akkodis when we mentioned that because we want to call out the nice progress that we've done in the restructuring and the fact that most of it, it is coming through SG&A but it's broad-based. And you've seen it also in our productivity numbers. They're up in all of the GBUs, not just in Akkodis. And in our G&A over sales, that is just 3%, and that is not just Akkodis. It's broad-based. Denis Machuel: Let me take now the AI impact. And I think there is a top line impact, positive impact and also an impact in productivity that's going to help our profitability overall. On the top line, I believe that AI is really an opportunity for us. Remind you, we are in a fragmented market. So the more optimized we are in how we deliver our service through AI, the better we can gain share. And I'll give you two examples. We've embedded generative AI into our Career Studio in LHH. And when people use Career Studio with AI powered, they find a job 32 days earlier than the ones who don't. This is creating value for our clients. This has helped us penetrate bigger, faster our clients. So this has a positive impact on the top line. If I look at the way we deliver with our AI agents in the U.K. on our recruitment, we have fill rates that have improved 550 basis points, okay? So this is an impact. We have improved our time to submit by 24% quarter-on-quarter. This helps us be more efficient, deliver more. So -- but a positive impact on the top line. In doing so, we have operating leverage, as Valentina was saying. And in terms of how we optimize our cost, of course, we will progressively embed AI into our processes. We embed AI in our middle and back office, and this is going to create also efficiencies. So I believe that AI will have a positive impact both on the way we capture market share and in the way we improve our profitability. Operator: Your next question comes from the line of Remi Grenu with Morgan Stanley. Remi Grenu: Denis, Valentina, just one question remaining on my side. Focusing a little bit on North America and the very high growth there. I mean, the acceleration came in Q1 and Q2 last year, if I remember correctly. So can you help us unpack a little bit the performance there, if it's been driven by a few contracts and if we then should expect some kind of annualization of these benefits in Q1 and Q2 this year? Just trying to understand a little bit from the 20% organic growth you're currently growing out in that country, what we should expect in terms of potential normalization over the next few quarters? Denis Machuel: Yes. Thank you, Remi. Yes, if I go back to history, Q1, we were minus 1% year-on-year. Q2, we are plus 10%. Q3, we are plus 21%. And Q4, we are plus 23%. So of course, this is -- we're very pleased. This shows that all the efforts that we've put in the turnaround plan in the U.S. is delivering. We have productivity improve by 10% and we have a very strong dynamic on the large accounts. We also are positive in the SMEs, but that's the point where we need to focus our efforts because the growth in our large accounts is a bit higher than the growth on small and medium companies. So to your point, yes, I mean, we -- let's be clear, we started from a low base, okay? So we are -- I mean, this double-digit growth rates are encouraging. But as we anniversary some of the wins of the large clients, we will go more towards more market trends to sort of a bit of a normalization. Still our focus and our efforts will be to gain share, to be ahead of the market. And I'm quite positive that we can achieve that, but probably not to the extent that we've had this year. We have good traction in customer goods, in retail, in autos, in food and beverages. So I mean, there's traction in the market. The economy in the U.S. is still pretty good. So we will serve on that. We are much stronger than we were 2 years ago. And yes, you can expect growth, probably not with such a differential with the market. Remi Grenu: Understood. And just maybe building up a little bit on the question from Simon on the operating cost guidance for Q1. I mean, I'm a little bit surprised by the comment on stability. So can you help us a little bit quantify the building blocks to get there? I mean, discussing with some of your competitors, it feels like that they are forecasting some wage inflation around 2% or a little bit more than that. The higher volume of activity, the 4% organic growth and positive momentum probably would mean under a normal cycle that you need to invest a little bit more in resources. So yes, so can you help us a little bit on that stability of operating costs? And I'm just trying to understand as well if to what extent you think that stability comments and these cost efficiencies are already driven by AI initiatives, or if it's just about Adecco removing some of the inefficiencies in the cost base that you had there and had to address? Denis Machuel: Let me start by a little bit of how we strategize that growth. And you heard me say in the past that what we try is to be very, very granular in the way we inject the resources that are linked to the dynamic of the market. And if I talk markets, it's by country. It's even by region in a country. It's by industry in a particular region, a particular country. So really adjust with the -- through this empowerment that we've put in place years ago, that's what we -- we let people adjust very precisely to the market conditions. Yes, we will need to invest in some places, but we are also cautious in some others. And that's how we operate. And definitely, we will -- we have improved our cost inefficiencies. We've really readjusted our SPs. We have adjusted our G&A. So I think we are continuously optimizing the resources, and I think AI will nicely help us on that. Now on the building blocks for Q1. Valentina Ficaio: And just to give additional color, Remi. On the operating cost sequentially stable. It's all about cost discipline, right? The continuous focus on productivity and G&A gets us there. If you look for a second at Q4, I think it's also very helpful to see how we have performed. Productivity was up broad-based, plus 11 at group level. But if you look at each GBU, Adecco was plus 6, LHH was up 12 and Akkodis, even with Germany soft, capped 90% utilization rate approximately. So -- but if you look at our employee -- group employees, they are actually slightly down. So that tells you how we are combining very well growth with good cost discipline and good productivity. And that gives you a sense of why we guide for this to continue to be stable as we continue building on these 2 clear levers that has been key to the operating leverage that you've seen in our results. Denis Machuel: And just to complement on AI. Yes, we see a 30 bps improvement when we serve the clients by -- through AI initiatives. But it's not at the scale that I want to see. We said that we would cover 60% of our revenues by agentic AI over time by the end of 2026. I mean, it's progressing. We yet have to fully scale. So more to come. We'll keep you updated on the progress. I remain prudent in the impact of AI because there is no magic in AI. It's hard work. You need to scale it. I think we have all the levers and the foundations, but let's see how it goes. But the trend is positive. Remi Grenu: Okay. And the last question is on the SME, which you referred to, Denis, I think, in one of your previous answers, saying that you need to address this segment better. Is the issue market related? Is just the momentum between the 2 markets, if you see separate them between SME and large enterprise, is still very, I mean, diverging a lot in terms of volume of activity? Or is there any initiative at Adecco's level which you need to implement to be better at serving this cohort of client? Because it has implication, obviously, for gross margin and profitability, I guess. Denis Machuel: Yes. Well, actually, we've really doubled down in the past couple of years in how we serve the large clients and enhance Talent Supply Chain and enhance all that. We still have a pretty good dynamic in SMEs. But this is a place where we accelerate our efforts because we know, to your point, that it's very accretive to our margin. So I think we are in a good place in how we roll out all our technology into our Talent Supply Chain, and we are also rolling out progressively the technology through our branches. I believe that the strength of branch network is that proximity, that deep understanding of the local ecosystems. And that's one of the top priorities for 2026 is to inject as much energy and technology into the SME segment as we have done in the large accounts. Operator: Your next question comes from the line of Simon Van Oppen with Kepler Cheuvreux. Simon Van Oppen: I have a question on margins. We see margins in all divisions strengthening in Q4, most significantly in Akkodis and LHH, especially on an underlying basis. Can you unpack a little bit the main drivers for the strengthening of your margins by division? And what do you expect in terms of margin for each division in 2026? And in extension to that, should we expect more one-offs in 2026? And if so, roughly by how much by division? Denis Machuel: Valentina? Valentina Ficaio: Thank you, Simon. So let me explain a bit around each GBU and how they evolved in terms of margin, and then we can also quickly touch on formal one-offs guidance. I think what is the common denominator among the 3 GBUs improvement is volumes up, operating leverage drop through. That is clearly -- and if I take for a moment Akkodis out, it's a clear denominator, right? And then if I take one GBU apart, you have Adecco that grew materially, right? You've seen how in Q4, it's up almost 5% with pockets that are even double digits. And clearly, the Adecco story is a story around strong operating leverage but also diversification with service lines like outsourcing that grew double digits, to give you a sense. And it always comes on the back of good cost discipline, healthy operating leverage and the improvement in margins. In LHH, you've seen us mention that there's an element of the improvement year-on-year that is because we had headwinds last year. So it is a 500 basis point improvement, but in fact, underlying is half of it, 250, which is still a very significant improvement. And it's mainly coming from CT continuing to performing very well, but also the contribution of other lines like Ezra and like the B2B business in GA that have grown double digits, and they come with very healthy high gross margins. And then finally in Akkodis, clearly, the main driver of the improvement in performance is Akkodis Germany and the fact that we are progressing well in the turnaround. In terms of one-off costs, the guidance that we're giving you is down from EUR 60 million this year to EUR 40 million next year. The EUR 60 million clearly this year is mainly coming from the Akkodis Germany turnaround. And so we're basically guiding next year to be lower in one-offs, mainly because Akkodis Germany is basically completed. Operator: Your next question comes from the line of Gian-Marco Werro with ZKB. Gian Werro: Two questions from my side. The first one is on the gross profit margin in flexible placement. I would appreciate if you can dive there a little bit deeper into this development of 20 basis point decline year-over-year. Can you maybe elaborate, please, on the gross margin dynamics in the temporary staffing, especially in your key markets like France, Germany and also the U.S., please, just to grab a little bit there the dynamics, how is it evolving, still increasing, stable or declining? And then second question is on AI also. Denis, I appreciate your optimistic tone about the opportunities lying here. But very frankly speaking, don't you also see also, of course, some headwinds here of jobs that become redundant, like many operations of warehouses, IT, white collar back-office work that, in my view, is certainly also affecting your top line negatively. I would appreciate if you can just talk briefly about the dynamics that you observe in the industry. Denis Machuel: So I'm going to start by answering your questions on AI, Gian-Marco, and then Valentina will talk about the gross margin. Fundamentally, we don't see any impact of AI at this stage. We know that as all technology evolutions that are happening, some jobs are going to be impacted, some destroyed, but so many are going to be created. That's what history tells us, okay? And for the moment, if you look at the numbers coming from Career Transition, okay, which is the world leader in outplacement, 1.4% of the people are telling us that they've been laid off due to AI. That's it, okay? And 12% say, yes, there was a bit of AI coming in. So to date, there's no massive impact, no impact of AI. And let's be clear, and I'm not the only one to say that, a lot of companies are doing layoff plans pretending that is coming from AI because it makes them look good, okay? But fundamentally, this is not the case, okay? So now nobody knows within 3 or 5 years what's the relationship between the jobs destroyed and the jobs created, okay? If you look back 10 years ago, nobody was talking about cloud architects, nobody was talking about content moderation. And these jobs have been created because of the digital world, et cetera. So this is going to come as well with AI, okay? So I believe that because of this, I'd say, massive reshuffling of the labor market, this is a massive opportunity for us to upskill, reskill, move people around, accompanying people in their agility. That's what we are here for. And AI is not new. It has been now around for more than a couple of years. And look at our numbers, okay? So we are trending nicely in this world of AI. We are reshaping the future of work in this AI era, And we are well placed to accompany our clients on their agility that is necessary with AI. So that makes me very confident. Now on the gross margin. Valentina Ficaio: So the year-on-year development you were asking about, Gian-Marco on flex. First of all, it's a modest impact. Overall, the flex gross margin remains quite healthy. We are happy with pricing. It stays firm. We have a positive spread bill-to-pay rate. And so the modest impact that you see is fundamentally client and country mix. And just to build on the question that you were asking about, what about countries, France, U.S.? It is really all about how do we grow, right? So sometimes in some countries, but also in some industry, we may see one client segment growing faster than the other. It's the case right now, as Denis was mentioning, in France and North America. But what is really important is that, as that happens, we also operate on cost base, right? Because these are also clients that come with a lower cost to serve. So the most important thing when we think about margin, yes, it's the gross margin, but it's also the mix that we have between SMEs and large and the drop-through on the overall margin. Gian Werro: Okay. But no specific comments you want to make here on the 3 countries I mentioned, about the development of the gross margin? If it's stable or you mentioned that most probably... Denis Machuel: The trends in these 3 countries are aligned with the overall trend of the GBUs, yes. Operator: Your next question comes from the line of Karine Elias with Barclays. Karine Elias: I just had a quick one on the hybrid. I believe on your third quarter conference call, you mentioned your intention to refinance at the time the hybrid. Just wondering whether that's still the case. Valentina Ficaio: Thank you, Karine. Yes, so the refinancing, you're correct. We are refinancing the hybrid. We are in progress of doing that. We are constantly in the market to understand when is the right moment to execute. But you should expect that to be happening. Operator: Your next question comes from the line of Andy Grobler with BNP Paribas. Andrew Grobler: Just one follow-up, if I may. Just on the dividend. You moved to the option of the scrip. What drove that decision? And to what extent is that part of the plan for getting to 1.5x leverage by the end of next year? Denis Machuel: Thanks, Andy. So let me put the overall perspective. The group has a very clear framework on capital allocation and a clear dividend policy. Every year, of course, depending upon the results, the annual performance, the Board evaluates all options within that framework and within dividend policy to provide what the Board believes as the best outcome for shareholders. And this year, the decision has been made to propose the choice between the payment in shares or payment in cash, which we believe is the right balance between our deleveraging priority on one side and also retaining cash for growth. So we also felt that this is an optionality that is financially attractive for our shareholders, for qualifying shareholders on the tax side. So I think it's a pretty good decision for shareholders. Now on the... Valentina Ficaio: On the leverage. Denis Machuel: The leverage, yes. Valentina Ficaio: As Denis mentioned, the scrip is an option, completely independent from the path that we've discussed to reach our 1.5. That path is based on performance, growth, operating leverage, the turnarounds that we're doing. The scrip is an option and it's independent from that. Operator: I will now turn the call back over to Denis Machuel, CEO, for closing remarks. Denis Machuel: Thank you very much, everyone. We really appreciate your presence today. So just to wrap up, I think our 2025 results make me very confident for the future. I must tell you that our teams are energized and they are focused on delivering performance. So yes, we still have a lot to do. But the momentum that we've created and which continues at the beginning of 2026, as we said, puts us in a very good place, in a very good place to deliver profitable growth moving forward and to delever. With that, thanks a lot for having been with us today, and speak to you next time. Have a great day. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Welcome to the HSBC Holdings plc Investor and Analyst Presentation for the 2025 annual results. We will begin in 2 minutes. [Operator Instructions] Please note that it will not be possible to ask a question if you are joining via the webcast link on the HSBC website. Ladies and gentlemen, welcome to HSBC Holdings plc's 2025 annual results webinar for investors and analysts. For your information, today's webinar is being recorded. At this time, I will hand the call over to Georges Elhedery, Group CEO. Georges Elhedery: Welcome, everyone. Thank you for joining us. As we celebrate the year of the horse, [Foreign Language]. Our 2025 full year performance was strong. It was a year in which we performed, transformed, invested for growth. I will discuss our strong strategic progress today. First, the strong momentum in our 2025 performance. Second, the execution of our 3 strategic priorities where we are progressing at pace and with discipline. And third, the new growth and return targets we are setting out today for 2026, '27 and '28. So first, the full year earnings. My comments will exclude notable items and the comparisons will be year-on-year on a constant currency basis. In 2025, there were $6.7 billion of notable items. You are already aware of these from prior quarters. They are set out on appendix Slide 36. So first, we delivered strong earnings. Group revenues grew 5%. Profit before tax rose 7%, reaching a record $36.6 billion. Return on tangible equity was 17.2%. And we delivered 3% cost growth on a target basis in 2025, in line with our cost target. Second, we delivered strong growth. Our deposit balances grew 5% with deposit growth in each of our 4 businesses. Our deposit base is a core strength. It contributes the lion's share of our banking NII. We also grew fee and outcome. In Transaction Banking, it grew by 4%. Elevated market activity demonstrating the power of our deep international network, which gives access to 86% of world trade flows, alongside our product and service expertise. In Wealth, it grew by 24%, reflecting our leadership position in the world's fastest-growing wealth markets and continued investment in our products and proposition. And we are investing for strategic long-term growth. We completed the $13.7 billion privatization of Hang Seng Bank. This brings together to 255 years of history and heritage, combining global reach and local depth. It reflects our confidence and conviction in Hong Kong's future growth. And third, we delivered strong returns to our shareholders. We announced a full year ordinary dividend per share of $0.75, up 14% on 2024. Let's turn straight to the progress we are making on strategy execution. In October 2024, I set out a clear agenda to unlock HSBC's full potential. To do so, we now run the bank on 4 core complementary businesses, 2 home market businesses, U.K. and Hong Kong, and 2 international network businesses, Corporate and Institutional Banking and International Wealth and Premier Banking. Each business is growing. Each is generating above mid-teens return on tangible equity and each is building on a strong foundation for future growth. We are focused on 3 clear priorities, and we are moving at pace with each one, be simple and agile; two, drive customer centricity and three, deliver focused sustainable growth. Now let's look at each priority in turn and our progress. First, simple and agile. The first step in unlocking HSBC's full potential is reengineering to reduce complexity and cost. Structure and strategy are now aligned. Accountability is sharpened and roles deduplicated. In 2025, we reduced net managing director positions by circa 15%. We are taking $1.5 billion of annualized simplification saves straight to the bottom line with immaterial revenue impact. We expect to have taken action to deliver these saves by the first half of 2026, 6 months ahead of plan. We are also making positive progress with the reallocation of circa $1.5 billion from nonstrategic or low-returning businesses. The medium-term intent being to reallocate these costs to areas of competitive strength and generate accretive returns. In 2025, we announced 11 business or market exits. Completed and announced exits account for $0.7 billion in annualized cost savings with around $1 billion of associated revenue $0.6 billion remains an active execution, including those under strategic review. Then following the privatization of Hang Seng Bank, we are increasing reallocation costs to $1.8 billion, reflecting an additional $0.3 billion of reported basis cost synergies across HSBC and Hang Seng Bank. We will direct this $0.3 billion to growth opportunities in Hong Kong. We are also streamlining and upgrading our operating model by simplifying the bank at scale and retiring nonstrategic applications. And we are reengineering whilst focusing on resilience and risk management. Next, priority number two, drive customer centricity. Our 4 businesses are built on customer trust. Our investments to improve customer proposition and experience are yielding results. Net Promoter Scores have improved or remained top ranked in our home markets. In Hong Kong, we added 1.1 million new to bank customers. Taking the total number of customers to more than 7 million. Our U.K. business lending -- our U.K. business banking lending grew 13% year-on-year, excluding COVID loan runoff. In CIB, corporate surveys have positioned us as a market leader in trade, in payments and in foreign exchange. In IWPB, we attracted net new invested assets of $80 billion. Next, priority #3, investing to deliver focused, sustainable growth. Our Hong Kong home market is a dynamic economy, a top 3 global financial center and a thriving trade gateway. It is the super connector between Mainland China and the world. And it is set to become the world's leading cross-border wealth hub by 2029. The privatization of Hang Seng Bank enables us to scale capabilities and drive growth across both banks for all customers. We have the ambition, and we have comprehensive plans to deliver $0.9 billion of benefits through reported synergies and unlock of opportunities by 2028. It is an investment for growth. And if we move beyond Hong Kong and look at HSBC's other core strength, we are in Asia, Middle East powerhouse. Asia and the Middle East are increasingly central to global trade and capital flows. Global trade is being rewarded. Asia's growth is increasingly powered by intra-Asia demand. Asia is buying Asia. The Middle East is scaling as a global capital trade and investment hub. Its integration with Asia is accelerating. The Asia-Middle East corridor is becoming a defining access of global growth. Wealth creation across Asia and the Middle East is also structurally strong. That is why we are investing to consolidate our powerhouse position and capture these growth opportunities. We are also investing to connect the world, scaling our capabilities, building new capabilities and supporting customers secure commercial advantage from real-time services. Our customers are making real-time 24/7 payments across 35 markets. They're also using frictionless tokenized deposits and payments in 4 markets, including the U.K. with more to follow. And we are pioneering the future of finance. Last month, the U.K. Treasury selected HSBC's distributed ledger technology as its preferred platform for its U.K. Digital Gilt pilot. Next, our people and technology. We see innovation and culture that's core to our competitiveness, and we are investing in both. We are scaling AI adoption first, to empower our colleagues second for end-to-end process engineering and third, to enhance customer experience. Our customer relationships are built on trust. AI strengthens how we act on that trust, personalizing service at scale. The strong culture turns a clear strategy into results, and we are investing to nurture a high-performance culture. All our senior leaders and the broader managing director cohort have attended our new group-wide leadership training. Finally, let's turn to our new targets for 2026, '27 and '28. 2025 has been a year in which we have performed, transformed and invested for growth. This gives us the confidence to set out new growth targets. We will target revenues growing year-on-year every year, rising to 5% in 2028, excluding notable items. We will target return on tangible equity of 17% or better in each year from 2026 to 2028, excluding notable items and a dividend payout ratio of 50% for each year, excluding material notable items. To conclude, we are creating a simple, agile, growing bank built to generate high returns. We are executing our strategy with discipline and precision. We are delivering growth, we are investing for growth and we are confident we can navigate uncertainty from a position of strength. That is why we are confident in setting these new targets and in our ability to continue delivering for our shareholders. Let me now hand over to Pam. Thank you. Manveen Kaur: Thank you, Georges. Thank you, everyone, for joining. We have had another strong quarter, which reflects the positive progress we are making towards creating a simple, more agile growing HSBC. We are investing for growth. Throughout this presentation, I will exclude notable items and focus on the fourth quarter numbers compared to the same period last year on a constant currency basis. Let's turn straight to the highlights. In the fourth quarter, revenues grew 6% and to $17.7 billion. This was driven by broad-based growth in banking NII and fee and other income. Profit before tax was $8.6 billion, up 17%. Our customer deposit balances stand at $1.8 trillion, an increase of $78 billion when we include held-for-sale balances. Full year return on tangible equity was 17.2%, achieving our mid-teens or better target. In 2025, we maintained tight cost discipline, managing target basis cost growth to 3%, in line with our cost growth target. Turning to capital and distributions. Our CET1 capital ratio was 14.9%, up 40 basis points in the quarter, reflecting our organic capitalization and expectation not to initiate any further buybacks for up to 3 quarters following October's announcement of our intention to privatize Hang Seng Bank. As Georges said, this strong performance allows us to announce ordinary dividends for the year of $0.75 per share, an increase of $0.04 on the prior year. Turning to our business segment performance. We grew full year revenue by 5% to $71 billion. Each of our 4 businesses grew revenues. Each grew deposits, deepening customer relationships. Each returned a mid-teens or better return on tangible equity, excluding notable items. We are pleased to be making such positive progress firm-wide. Moving next to our privatization of Hang Seng Bank. On 9th October, we announced our intention to privatize Hang Seng Bank. We are pleased to have completed on 26th January, sooner than our initial expectation of the first half of 2026. This slide explains the financial rationale. Let's walk through it, starting with a $13.7 billion purchase price. The removal of the $3.8 billion minority capital inefficiency takes you to the $9.9 billion of common equity Tier 1 consumption. The removal of the capital inefficiency is around 1/4 of the purchase price. The $9.9 billion CET1 consumption is equivalent to buying back 4% of group shares at the point of announcement. Next, we show the $0.8 billion minority interest in the P&L and the $0.5 billion of pretax synergies from the privatization. Together, the minority interest and the synergies contribute more than 4% to our profit, beating the buyback threshold. On top of this, we see potential, further revenue and cost upside of $0.4 billion enabled by the privatization. Then on the right of the slide, we see good growth in Hong Kong in the years ahead. Having 2 fully owned banks positions us well to capture this growth. As we said in October, we are acquiring a business with structurally high pre-impairment margins. And while we are not calling the credit cycle, we believe it is a cycle. Let's now turn to banking NII. Our full year banking NII was $44.1 billion. In the fourth quarter, banking NII of $11.7 billion grew $0.7 billion. $0.4 billion of this growth was in Hong Kong, including the recovery of HIBOR during the quarter. Banking NII in the fourth quarter included a positive benefit of around $100 million for items that we do not expect to repeat. We expect full year 2026 banking NII of at least $45 billion with the impact of expected lower rates more than offset by deposit growth and the tailwind from our structural hedge. Next, to wholesale transaction banking. This year has really validated the strength of our franchise in a range of economic market and tariff situations. We have deepened customer relationships, and our global network has helped our customers navigate volatility and uncertainty. In the quarter, security services grew fee and other income 6%, reflecting higher market valuations and new mandates. Payments grew 3%, driven by new mandates and payment volumes. In particular, international payments. Foreign exchange increased by 1%, reflecting strong client flows and higher levels of volatility. This was a good performance given the strong prior year comparison. Trade was down 5% in the quarter, but it was stable over the full year. I would note the first half was particularly strong, given advanced ordering as we supported clients to navigate a fast-changing landscape. We continue to see growth in volumes, and strong client engagement. Let's now turn to Wealth, including the new disclosures we are setting out today. We are very pleased with the 20% year-on-year fee and other income growth to $2.1 billion. And we are very encouraged that this was driven by all 4 income areas, which shows the sharpening of our strategy is working. Asset Management grew 14% and Private Banking grew 8%. Investment Distribution also performed well, up 14%, reflecting strength in our customer franchise in Hong Kong. Our Insurance CSM balance was $14.6 billion, up 21% versus the prior year. We continue to attract net new invested assets with $7 billion in the fourth quarter. Today, we are giving you new disclosures, which you will see through on this slide. These better show the strength of our relationship with our customers, including both their deposits and invested assets. We are focused on capturing the full wealth opportunity, and we will now report Wealth balances and net new money. I appreciate that the Wealth balance figure is similar to the invested assets. But I would highlight two changes to note. You will see these set out on Appendix Slides 31, 32 and 33. We have added $608 billion of Premier and Private Bank deposits to the invested assets. That is offset by taking out $580 billion of asset management, third-party distribution assets. This is a good business, but it does not reflect our wealth customers. Adjusting our disclosure in this way also means our Wealth business is more easily comparable to the broader peer group. These new disclosures will replace the existing ones from the first quarter of 2026. We saw net new money in the quarter of $26 billion, of which $19 billion was in Asia. And Wealth is not just a Hong Kong story. It runs across our Asia and Middle East franchise with double-digit invested asset growth in Singapore, Mainland China, India and the UAE. Next to credit. Our ECL charge this quarter was $0.9 billion. There was no material impact from Hong Kong commercial real estate in the quarter. On Slide 29, you will see we have updated the commercial real estate disclosures. Movements in the fourth quarter were in line with our expectations. of a full year 2026 ECL guidance is around 40 basis points. This is at the higher end of our typical range, reflecting the economic outlook and remaining pressures in parts of retail and office commercial real estate in Hong Kong. Let's now turn to costs. We delivered 3% target basis cost growth in the full year, hitting our cost goals while making the space to invest in the bank was a key theme of 2025. It will be again in 2026. We have taken actions to realize $1.2 billion of annualized simplification savings with immaterial revenue impact. This is ahead of our original time line of $1 billion by the year-end 2025. On a realized basis, we have taken $0.6 billion of the simplication saves into the full year 2025 P&L. Together with ongoing discipline, this allows us to guide for 1% cost growth on a target basis for 2026 while reinvesting in the business. Next, to customer deposits and loans. We had another strong quarter with deposit growth of $50 billion. We saw good growth in each of our 4 businesses. Loans increased by $5 billion. The U.K. was again the standout with another quarter of growth in mortgages and commercial lending. Our U.K. business is well positioned to support growth in the U.K. economy. We are particularly pleased with the momentum in our commercial loan book where we see significant potential, particularly in infrastructure, innovation, social housing and mid-market direct lending. Now turning to capital. Our CET1 ratio is up strongly to 14.9%, primarily reflecting good organic capital generation. Although after the balance sheet date, I draw your attention to the impact of the Hang Seng Bank privatization which is 110 basis points in addition to the 10 basis points already incurred in the fourth quarter. We have set this out in the appendix Slide 27. As a reminder, we said when announcing the offer on 9th October that we expected to suspend buybacks for up to the next 3 quarters. That is, of course, dependent on underlying capital generation. With strong profitability and current modest loan growth we remain highly capital generative. A decision on future share buybacks will be taken quarterly, subject to a non-buyback considerations. Let's next turn to the full year defaults. Excluding notable items, and at constant currency, revenues grew 5% to $71 billion. Profit before tax was $36.6 billion, up 7% year-on-year to a record high. Return on tangible equity was 17.2%, achieving our mid-teens or better target. Our strong performance allows us to announce ordinary dividends for the year of $0.75 per share or $12.9 billion. Let's briefly return to the new targets Georges set out earlier before I close on guidance. We made clear and positive progress in 2025. That is why we are now raising our ambition to target 17% return on tangible equity or better, excluding notable items in each year from 2026 to 2028. We will also target year-on-year revenue growth in each year over the period, rising to 5% in 2028 compared to 2027, excluding notable items. And as you would expect, we maintain our discipline of a 50% dividend payout ratio, excluding material notable items and related impacts. Finally, to guidance. This slide gives you our guidance mainly for 2026. We saw revenue momentum continue in January, including in Wealth. On the slide, you see banking NII of at least $45 billion. Our revenue ambitions for our Wealth business are contained within our revenue target. We have, therefore, removed grow fee and other income at a double-digit percentage CAGR from our guidance. We see an ECL charge of around 40 basis points, broadly stable on 2025. We expect to constrain cost growth to 1% on a target basis. This benefits from our organizational simplification and allows us to continue to invest in the business. There is no change to our CET1 target range of 14% to 14.5%. In 2026, we will deliver the $1.5 billion of savings from the reorganization. We are well on track with the $1.5 billion of reallocation costs which will be redirected towards priority growth areas. We are now adding the expected $0.3 billion of Hang Seng Bank cost synergies to the original $1.5 billion of reallocation costs, taking this to circa $1.8 billion. On Hang Seng Bank specifically, we see $0.5 billion of revenue and cost synergies to be achieved by year-end 2028 as well as an additional $0.4 billion of potential further upside enabled by the privatization. To achieve this $0.9 billion, we will incur a restructuring charge of $0.6 billion from the Hang Seng privatization which will be a material notable item. To close, as I said to you last year, I am fully focused on discipline, performance and delivery. Discipline means prioritizing with precision, maintaining strong cost control and ensuring investment rigor for growth. Performance means gearing our financial strategy towards achieving our new returns target. Delivery means ensuring we remain agile and resilient, enhance operating leverage and are always well positioned to support our customers. This is exactly how we will continue to run the bank. With that, we are happy to take your questions. Alastair? Alastair Ryan: Thank you, Georges. We'll take any questions from the room here in Hong Kong first. If I can ask you to introduce you to your company, and there's been the hard part, constrain yourself to two questions each, please. That goes for people on Zoom as well as people in the room. Anyone would like to ask a first question here? Yes, we'll take a question from Nick. Nicholas Lord: It's Nick Lord from Morgan Stanley. I'll put it in one question in two parts, if that's okay. I'm just interested in your revenue target by 2028 of achieving 5% revenue growth. And I just wonder if you could talk about some of the components of how you would get there. Presumably, Wealth is part of that. And so maybe you could talk about the Wealth trajectory and how sustainable that is. Presumably, at some stage, we're going to see sort of a kick in of sort of the development of markets in Asia, and that market's business can grow more. So I wonder if you could talk a little bit about how you want to grow that markets business in Asia. Georges Elhedery: Thank you, Nick, for the question. I'm going to share some high-level comments as we are looking at the growth opportunities, and Pam can take you through the various components. The first thing is we have delivered growth in 2025. And we have delivered growth, as we mentioned, across all our businesses and all our key metrics, including deposits, loans, including fee income and Transaction Banking and Wealth and this is reflected in our revenues growing at 5%, 2025. The second item to call out is if you look at our footprint. We're actually basically aligned to the strong structural growth opportunities. Hong Kong, we've called it out, and we are basically consolidating our leadership position to capture these growth opportunities with the privatization of Hang Seng among other. Asia and Middle East, structural growth opportunities in Wealth, but also Asia and Middle East hitting record volumes and shipments for trade, Asia is buying Asia and we are -- our footprint allows us to capture these growth opportunities. The U.K., we've seen the strongest loan growth in 2025, and we have indicators to believe that there is a possibility for this trend to carry on. This is the strongest loan growth we've seen in the U.K. for many years, but it's also the strongest store growth we've seen across all our businesses that we have seen in the U.K. And then the last thing I would put, we are investing for all these growth opportunities. We're putting now investment from within our cost base. We're putting investment from the additional costs we are taking in 2026. And we will be putting even further investments from the reallocation of the $1.8 billion as we free up these costs back into those core areas where we can grow. And this is what's giving us this confidence to give you the growth targets of revenue growing year-on-year every year rising to 5% in 2028. Pam? Manveen Kaur: Thanks, Georges. So firstly, in 2026, we expect broad-based growth in revenue across all our businesses, but just unbundling a little. In banking NII, as we have said, we expect a low single-digit growth fundamentally driven through deposits. Yes, there are pockets of growth in loans, but so far, we've just seen in the U.K. market. Overall, we expect that growth in Wealth and Transaction Banking and our fee-generating businesses will continue to be very positive. As we go beyond '26, we do expect balance sheet growth should again in Asia and other markets, not just in the U.K. Of course, we are seeing growth in the U.S. already, but we are not a big player in the U.S. market, domestic growth. And we are continuing to invest in our fee businesses and our investment plans are multiyear plans. So it's not just for growth for 1 year. It's a very strong building block for growth through the period we have called out and beyond. Particularly in markets like Hong Kong, in the U.K. and other key markets for us in Asia and the Middle East. Alastair Ryan: Thank you, Nick. Thank you. Any further questions in Hong Kong. We'll go straight to Zoom. The first question on the Zoom then, please, is with Joe Dickerson at Jefferies. Actually I've announced yourself, Joe. Joseph Dickerson: Good set of results, guys. Just a quick question on the costs. If you look at the 2026 number that you've given the kind of 1% growth. I know you've got your recycling how do you think about when you peel that back and what's the metabolic rate of growth in costs, particularly coming from investments because you clearly have some global peers who have accelerated their investments around AI. So I was just curious how you think about that. And then secondly, a nitpicky question, but what rate of HIBOR have you assumed in the banking NII guide of greater than $45 billion? Georges Elhedery: Okay. Thank you very much, Joe, for your questions. On let me make some high-level considerations how we look at costs, and I'll ask Pam to comment then on cost and then on hypo rates. And I shared a bit earlier, but I want to emphasize, first, within our workspace, there's a proportion set aside for investments for change the bank, investments, digital capabilities, additional people, hires, relationship managers, wealth advisory, et cetera, of course, generative AI efficiencies. That's within our cost base. Second, the fact that we're adding costs adjusted for these savings, half of that additional cost will go towards payroll inflation, but the other half will go towards additional investments. And then third, the recycling of those $1.8 billion, which is commensurate to about 5%, 6% of our cost base will go back into those areas of investment for growth. So we believe we have ample capacity to invest and deliver the growth that we are setting ourselves, setting targets to deliver against. Then the next thing I would say about cost is that it's important, Joe, to -- we are committed to cost discipline, we are confident in our ability to deliver cost discipline. And as you've seen for our 2025 results, we have met our cost target. So I think that's an important guide also as you look at our cost guidance for 2026. Pam? Manveen Kaur: Thank you, Georges. So firstly, I would note that we are ahead on our simplification saves because the plan and the actions we have taken have come through sooner than what we had originally outlined. This gives us incremental saves of $700 million in full year '26. So that has been a consideration in the overall 1% cost growth envelope. And as Georges said, as we have divestments happening, we are continuously redeploying those -- reallocating those costs to our priority growth areas. What's really important for us is that our investment rigor is focused on our strategic priorities. That's what we've done in 2025. That's what we will do going forward. And these are committed plans, which are multiyear plans. They don't go back and forth every year. So that's all part of the overall cost envelope guidance we have given for this year. And again, we're only giving guidance for this year only, but we expect to maintain a cost rigor on a continuous basis. In terms of assumptions, we have used the end January forward rate curve for our banking NII guidance for all major currencies. So in terms of HIBOR just to note a couple of points. Our HIBOR volatility that we saw in Q2 and Q3 when HIBOR is at 1% has an impact of about $100 million on banking NII. The moment HIBOR sort of stabilizes as it did in Q4 and indeed this year, although it has fluctuated a little bit around the 2.5% mark, that is captured in our guidance. And we look at a few plausible downside scenarios as well before we give a full guidance. Alastair Ryan: Thank you. Our next question on the Zoom is from Ben Toms at RBC. Benjamin Toms: Firstly, on your RoTE guidance of greater than 17%. I'm just looking for some commentary about how sustainable you feel that guidance is beyond the announced planning horizon. So how much do you feel this guidance isn't all weather guidance post all the investments that you've been making into the business? And then secondly, on the Hang Seng synergies on Slide 13, can you mind just talking a little bit around why you've adopted 2 buckets that you've labeled synergies and upside. Is the upside bucket basically where there's a lower degree of certainty over the synergies? So what type of synergies fall into each bucket would be useful. And presumably, there's no incremental restructuring costs associated with the upside bucket on top of the $0.6 billion. Georges Elhedery: Thank you very much, Ben. On the Hang Seng guidance, what I will share is we do have the management ambition, and we do have comprehensive sets of plans to achieve the full $0.9 billion upside with the restructuring costs that we've called out. I'll let Pam give you the details. On the RoTE guidance, we are not guiding beyond our horizon, but you should always assume that we are ambitious. Pam? Manveen Kaur: Thank you, Georges. And just to say on our RoTE guidance, we continue to see a positive momentum in our businesses. And as we said earlier, we are investing for growth. But of course, the targets are only for 3 years. So in terms of the Hang Seng synergies, you're quite right, the $500 million is what I would call the reported synergies following accounting rules. The $400 million synergies are depending to some extent of markets and customer behavior. So there is some degree of uncertainty, and they don't strictly fall between what is considered to be accounting reported synergies. So that's the reason why they're too separate. Both these synergies, the plan to get that $900 million benefit is by the end of '28. And the restructuring cost of $600 million covers the benefits across both buckets. And now beyond that, we actually believe, as it says on the slide that at some stage, the credit cycle will be normalized. So there will be some benefit coming from there. There will be more growth in lending as well as overall Hong Kong growth, which we will continue to be very well positioned for because of the redeployment of the cost allocation that we have, there will be a fair chunk that obviously goes into Hong Kong, which is a core market on our strategy. Alastair Ryan: Yes, we have a question in the room next, Melissa. Sorry, you're allowed to introduce yourself fully. Melissa Kuang: I'm Melissa from Goldman Sachs. Just two questions. In terms of the strategy that you have, the rising to 5% revenue growth. Just wanted to see if you can give about CAGR growth instead. So we can understand the pathway there. In terms of that, I suppose, will it be coming largely from the nonbanking NII portion? Or will it be from the banking and NII? So that's my first question. On the second question, perhaps on the restructuring cost at HSP of $0.6 billion. Can you just give a little flavor about what is it that we are doing in terms of the restructuring that we need such a cost focusing on in terms of delivery and then how we will see the revenue synergies. And in terms of the revenue synergies can it be as quick as next year? Or will it be more heavy into 2028 as per your 3-year guidance rising to 5%? Georges Elhedery: Thank you very much, Melissa, and Pam can address both questions. Manveen Kaur: Thank you, Georges. So firstly, we've said that revenue growth is positive each year, but it's also progressive and reaching out to 5% by '27 to '28. In terms of the underlying building blocks we said to you that in 2026, where we have given the guidance on banking NII, it's a low single digit. So therefore, similar to the prior year, we will see more positive growth momentum on the fee-generating businesses. And beyond 2026, Banking NII, of course, we look and see where the guidance is, where it is, where the rates are and what's the timing of the rate cuts as we go into '26, but we are continuing to invest in our fee-generating businesses so we see that momentum in those businesses, including Wealth, which really underpins this revenue growth and wholesale transaction banking to continue. And I'm hoping that at some stage, we'll see a little bit more of growth on the balance sheet in terms of lending beyond U.K. that we have already seen. Now in terms of the restructuring costs. There are a couple of elements that drive it. One is there's some organizational alignment. So there will be some roles, which will evolve and teams that will be realigned, but a large chunk of this is really in terms of technology. So the investment in technology so that we can better harmonize our technology and better get results from the technology investment we have across both the Green and the Red brand. And this is really quite critical for us in order to achieve the overall ambition of the $900 million because it's the $900 million ambition just to reiterate, it's not just a cost story. It's a revenue and a cost story, and this is an investment for growth, and that's how we look at it. And we plan to spend restructuring costs of $600 million across the 3 years. And of course, this will be spread through these 3 years, we are not saying any more. In terms of revenue synergies, we strongly believe that by the privatization of Hang Seng Bank, our ability to be able to provide a broader product proposition into the Green band is highly enhanced. So we'll have better Wealth products for our retail customers. We have capital markets and broader wholesale transaction banking products for the wholesale customers, but more importantly, we will be able to have access for the same international network that we have for the Red brand also within the Green brand. And last but not least, we will have more balance sheet flexibility in terms of how we leverage our treasury capabilities, but also in terms of upstreaming and downstream capital, and this will all be done over the next 3 years. Alastair Ryan: Thank you. We'll go back to the Zoom. The next question will be from Aman Rakkar at Barclays. Aman Rakkar: I had two questions, please. So one is around capital. It looks like a decent chance that you'll be within your target CET1 range in Q1 based on historical and perhaps projected capital generation kind of estimates. Obviously, it raises the prospect as to whether you might be able to reintroduce buyback earlier than planned. I don't know if you're able to kind of comment on whether that's a realistic or plausible scenario. But I guess more specifically, just interested in the capital allocation thought process from here? Clearly, your stock is trading at a level now where the return on investment around buyback might be beaten by alternative uses of uses of capital. Obviously, you did it with Hang Seng, but should we be thinking about inorganic growth as well as the compelling organic growth within your footprint? And then I just wanted to ask around banking NII, please. Clearly, that kind of Q4 jumping off point is flattered by $100 million. I don't know if there's anything else that you direct us to kind of strip out of that number in terms of deposit catch-up or the impact of HIBOR. And I was particularly interested in what your deposit growth assumption is that sits behind the guidance you've given '26, please, because I think that could be a sensitivity around the ultimate outturn of banking NII in '26. Georges Elhedery: Thank you, Aman. Pam is best placed to answer both, but I want to share a few thoughts about our philosophy on capital. First, we remain capital-generative as you've seen from our targets, but also as we've experienced over the first 1.5 months in the year in 2026. So we're very pleased to see that our capital generation is strong. But our first priority is now restoring the CET1 ratio following the privatization of Hang Seng, which we estimated to take us 3 quarters. But of course, we do that assessment quarter-by-quarter. But I don't want to point out to the increased dividend we are paying this year, $0.75, $0.45 on the fourth quarter, which is on a full year basis, 14% higher than last year. So we are distributing through dividends. What I wanted to share about the discipline how we use capital, we've shared it in February 2025 Aman, we've set ourselves 4 key criteria. They are a high bar, and we strictly adhere to them in the way we look at inorganic opportunities. In so far, that these 4 criteria are met like in the case of Hang Seng privatization, then we will consider inorganic. But if one of these criteria is defeated, then our preference will be to utilize or return any excess capital back to our shareholders in the form of share buyback. Pam? Manveen Kaur: Thank you, Georges, and thank you, Aman, for your questions. So firstly, as Georges said, we continue to remain highly capital generative. We've had a good start to the year, as I called out earlier in my remarks. But as you know, we look at our share buyback decisions on a quarterly basis, and that will be a quarterly process. The starting point is clearly our target operating range, which we are working hard so that we can replenish capital that has been deployed in the Hang Seng Bank privatization. That's the first priority, as Georges said, and that CET1 operating range remains 14% to 14.5%. That's the one which underpins all the targets and guidance we have given today. Just to clarify, in terms of our priorities from there on, of course, the priorities are 50% is the dividend payout ratio, which we have again reaffirmed. We would like to see balance sheet growth, and we want to invest for growth. That's if we can have growth at the right return levels. Our distribution priorities hence have not changed, and share buyback remains for us a useful tool to deploy surplus capital irrespective of where the share price is. So I think that's an important consideration for us going forward. Next question. On banking NII, you're right, there was a $100 million non-repeat items. So if you take that out for modeling purposes, you come to $11.6 billion. There are no other one-offs. There was a higher HIBOR quarter-on-quarter, and HIBOR also stabilized. And that's why, as you remember, third quarter when we gave a more cautious outlook because we don't know where HIBOR would be. But having seen HIBOR stabilize, it gave us the upbeat on our banking NII results. We also saw low betas on saving accounts in Hong Kong. And very importantly, we saw strong deposit growth, and we do expect this strong deposit growth to continue to be a key driver in 2026 along with the tailwinds of the structural hedge similar to last year and redeployment at higher rates. The only thing to bear in mind is that for this year, clearly, in Q1, given that there will be 2 days less there will be a headwind of $300 million in Q1. We have assumed, obviously, the rate changes, both that we've seen to date as well as projected for the year. But a lot depends on, as you can imagine, the timing of those rate changes, particularly in the U.S. dollar and sterling. Alastair Ryan: So we'll take the next question back on Zoom, Amit Goel at Mediobanca. Amit Goel: So two for me. The first one, just coming back on the upgraded RoTE targets. the 17% plus. I just want to check in terms of how you're thinking about that on a kind of year-on-year-on-year basis for '27 and '28. I mean are you thinking that RoTE kind of continues to improve? Or are you thinking more 17% is kind of a very acceptable and a good level and so any additional upside you would look to reinvest? And within that, I kind of note that on the LTIP, you've kind of brought up the lower end of the kind of the boundary performance to, I think, to 16.5% from 14%, but the 18% of the top end hasn't changed. So I appreciate that's done by the compensation committee. But I'm just kind of curious how you're thinking about what appropriate or sustainable level of return is. And then secondly, again, just coming back, maybe more clarification on the Hang Seng Bank kind of benefit and restructuring charge. So I mean, I guess, I was curious, really, for a bit more detail on the $0.4 billion of additional benefit, I guess, from an accounting standpoint, can't be treated as a synergy what exactly that is? And within the restructuring charge, I think previously you said that there's actually going to be more of a less staff, natural -- there will be more natural attrition and redeployment. So there'd be very limited kind of day kind of costs. So I'm just curious what you're spending that money on? Georges Elhedery: Perfect. Thank you, Amit, very much for your two questions. Pam can address them, but just to talk about LTIP briefly. This is indeed the remuneration committee consideration. It reflects the performance that we will achieve in '26, '27, '28, which aligns to the guidance we're giving you. So there isn't more we can say at this stage. Apart from that, it is more ambitious and reflects our ambition to the business. Manveen Kaur: Thank you, Jordan. Thank you for your question. So firstly, yes, we have ambitions and our target is 17% plus each year. We are not giving a trajectory, whether it's the same or progressive but of course, we continue to grow our business and invest in it diligently, but the target is just 17% plus each year. In terms of our -- the Hang Seng, firstly to call out, these are both benefits we are getting from a cost perspective but also a revenue perspective. So classically, what you would see in terms of cost synergies and all the restructuring is actually severance costs, that is not the case here. Because there is so much focus on revenue as well, a lot of the restructuring will be in terms of investment from a technology perspective. The cost synergies themselves, of course, there will be some realignment and evolution of roles and individual areas. It's not something which is going to lead to severance or staff reductions. There could be some rule changes, clearly. There will be some scale in product manufacturing and there'll be some technology harmonization. Now when we think in terms of the 2 bits with the $500 million, the $400 million and why it so, clearly, from a cost synergies perspective, it's easier to call out. Revenue synergies, there are greater haircuts, but we do have very detailed comprehensive plans on how we are going to drive these revenue synergies. And those plans underpin the $400 million even though they were a haircut in the $500 million and just in total, to reiterate because there are lots of numbers going around. I appreciate that. Think of it as a $900 million benefit in those 2 buckets with different degrees of accounting rules and different probability of expectations and then an overall restructuring cost of $600 million to achieve that total. Georges Elhedery: And Amit, we are a net investor in people in Hong Kong. We are also investing in technology in Hong Kong to capture all these growth opportunities we have been talking about. Therefore, we do not expect, anticipate or plan any program of redundancies. We do, though, expect that some roles may need to evolve, and we are basically committing to training, reskilling to make sure that our own colleagues have these growth opportunities, career opportunities to be able to capture these roles in which we will be investing over the duration of our program of 3 years. Manveen Kaur: That's a meaningful number that we have already included in that $600 million restructuring costs for training and reskilling of our colleagues as their roles change and evolve. Alastair Ryan: Thank you. Will stay on the Zoom with Kian Abouhossein from JPMorgan. Kian? Kian Abouhossein: First of all, Georges, congratulations. I have to say you really driving the bank to a better process and discipline. We haven't seen in HSBC before, if I may say so. To the questions, tech stack, can you go a little bit more into detail? You gave a number in 2022 that you're spending about 20% on IT as a percentage of expenses. Wondering if we should think about similar ballpark. Within that, can you go a little bit under the hood and discuss where are you on cloud transmission are you done? Where are we on platforms? Are you done? Or what platforms still have to be produced new or integrated data management? So I really want to understand a little bit what you're doing on the tech side. And then CRE, this is still an area where I'm a little bit uncomfortable. Stage 3, CRE China 18% coverage, 16% on Hong Kong -- 14% sorry, on Hong Kong, stage 3. Can you talk a little bit where you want to drive that to? And clearly, I heard Pam's remarks about provisions and CRE was mentioned. Georges Elhedery: Perfect. Thank you, Kian, for your two questions and for your feedback. I'm going to take your tech question. Pam will cover the Hong Kong CRE. And I think it's a very important question. Thank you for asking it. We're indeed driving both performance and transformation with discipline, with precision, and we are doing it at pace. And we're very glad to see that the results of both performing, growing and transforming is delivering at pace, as you've seen in our 2024 numbers. So in terms of tech, you could broadly assume that 20% is the cost that we are spending on technology. But the way we're talking technology now is, number one, we are thinking about all those legacy or nonstrategic applications, which are consumers of run-the-bank costs, consumers of maintenance costs, patching costs, license fees that we are going to very proactively demise at scale. And we're very pleased to be able to say that we've demised more than 1,100 applications this year -- well, in 2025, this is more than 1/3 of the about 3,000 applications that we have deemed nonstrategic and looking to demise. Just to give you a perspective, we run about 10,000 applications, 9,000 actually, of which 3,000 are flagged to demise over the horizon between now and 2028, and we're moving at pace for that. Now that demise will allow us to free up investment capacity to put it in new technology and new capabilities in tech space. Cloud transformation, I think we are quite mature on cloud. I think we've moved from a cloud-first strategy where we moved many of our applications to cloud to now a more mature and therefore, more sophisticated approach to cloud by looking at optimization of hosting of applications. And therefore, we would look at any new applications or our existing stack, where it is better at. If it is on cloud where the majority is, then it will be on cloud, and then we will look at portability capabilities and resilience capabilities. And if it is on-premise, then or in the private cloud, then we will look at that. So I think we have matured our cloud approach, and we're already in a place where we want to be, but of course, we'll continuously evolve it. If you ask me where is the biggest investment going into the new technology today, it is definitely going into generative AI. I want to just take a minute to explain how we're thinking about generative AI because that's quite important. We're looking at generative AI in 3 work streams. They're on the Slide 8 of the pack. The first work stream is we're making generative AI available to all our colleagues in time, 85% mostly now enabled to make sure that we are helping our colleagues upgrade themselves and become future-ready. The first thinking is how can we bring our whole colleague population with us in becoming future-ready, generative AI enabled. They will have generative AI tools that they can use. They will have coding assistance or vibe coding assistance for those among our engineers, 31,000 already enabled, and we are seeing immediate productivity gains. We're seeing 60% speeding up in our unit testing. We're seeing 5x faster patching of code, patching of vulnerabilities and code, thanks to all these capabilities. This is our first mission. All our colleagues to benefit, to be trained, to be upskilled, to become future-ready, better version of themselves, more productive, better outcome for our customers. The second work stream in generative AI is fundamental reengineering of our processes end-to-end. 50 of those processes are already under review. Some of them have already delivered and finished, such as onboarding and KYC, but all sorts of processes, including fraud detection and prevention, credit applications, capital allocations and what have you data -- visas and what have you to allow generative AI to help us redesign the process in a much simpler way and also allow gen AI to be integrated in the process to process data in a much more efficient way. The result of which is a more productive bank, more efficient bank and a safer bank with stronger controls, and more importantly, a very simple bank that will be able to ultimately deliver to our customers closer to near real time or real time at the highest possible standard that's available for us. And that is an ongoing journey. The third work stream we're taking in generative AI is how we enhance customer experience at the customer touch points. So this is our relationship managers, wealth advisers, contact center operators. As they engage with customers, generative AI tools already rolled out, as you can see on the slide, will allow them to personalize at scale, to tailor-make, to customize at scale at the highest possible standards for our customers close to real time in a way that can allow us to deliver our capabilities to customers in a much more seamless, faster, better way. Customer experience will be materially enhanced. Now today, we will have operators using this generative AI at the service of our customers, but you can envisage that in a few years' time, we could possibly put these generative AI tools straight for utilization by our customers. Those are the 3 work streams. What I want to say though is that we're doing this with safety and security at the forefront. We're doing this in a way that we can review, monitor and audit everything we're doing in the space as a critical standard, and we're doing this in a way to keep control, resilience and human accountability always there because we are a regulated industry and our customers' trust is the most important asset, and we will do everything to make sure customers trust is always protected and nurtured. Thank you for that question. I'll hand over to Pam on Hong Kong. Manveen Kaur: Thank you, Kian. So just looking overall in our guidance, around 40 basis points guidance for 2026 considers all our portfolios. And of course, Hong Kong commercial real estate as well as the very small residual amount of China commercial real estate, and we look at a range of plausible downside scenarios before we give you this guidance. So just unbundling a bit. The China commercial real estate portfolio has really come down. It's now less than $1.5 billion, and our ECLs this year for this was below $200 million. So in that context, the names that have left that portfolio that's left, we feel much better about it compared to where the other portfolio was when we first started with it. Now when you think in terms of Hong Kong commercial real estate, firstly, I'm going to give you a bit of an update on the 3 segments within this Hong Kong commercial real estate portfolio and then how we look at the names, particularly the credit impaired names. Now the first one, we've been calling it for a year, and now I'm very pleased to say that the residential component of Hong Kong commercial real estate is near normalized. And I say that because whether I look at in terms of price increases, HPI has been up 5% year-on-year in 2025. But more importantly, we've seen a 10% growth and also sales volume. Rentals have already stabilized both in terms of the rental demand as well as the rental pricing. Now when we look at retail and the office space, of course, there are pockets of distress in it. But just as a broader context, we saw retail sales also in Hong Kong in May turn into positive. And they are now up year-on-year at 6.6%. But of course, this alone is not going to solve the problems of the retail sector because peoples retail shopping patterns have changed. They don't necessarily need to go to shops on malls, et cetera. Having said that, as there is more consumption in Hong Kong, we are seeing this shift from shopping places being changed into more food and beverage and so on, but there will be pockets of stress in it, and that will be coming from mainly oversupply at this point of time. Now office is the sector we are watching very carefully, because recently, we have seen both in terms of rental demand and in transactions for the best properties with the best spec in central in the best areas, there are some green shoots. But the downside is, at this point of time, vacancy rates starts are still around 17%. So that's what we will be managing through and following up very, very carefully. Having said that, in Hong Kong, we are not a distressed seller. It's a market we are deeply embedded in. We really understand well. But we are very resilient in terms of how we do our valuations. So we go and look at valuations, including distressed valuations. And we look at with our collateral position, and we stay well collateralized. And we've been following through this very closely over the last couple of years. The one metric, which I personally follow, though my job has changed now, is what happens to credit impaired names. And the exposure that you need to focus on is credit impaired names, which have an LTV over 70%. Now this number has grown and it now stands at $1.9 billion. But the ECLs against it have also grown, and they have grown to around $900 million. And if you go back quarter-on-quarter, that differential between the ECL number and the exposure sits around $1 billion number. So that's where you think your risk is. And of course, you have to see if some of the substandard names don't fall down and so on. So overall, I would say, given what we are seeing and particularly to notice that in this quarter, we had a stage 3 against one name, but the macro environment in Hong Kong was positive. And as a consequence, through IFRS 9 calculation, those 2 almost offset each other. So in that broader picture, we feel very comfortable with the 40 basis point guidance. Alastair Ryan: We will take Rob Noble at Deutsche Numis next. Robert Noble: Just on net -- sorry, noninterest income in 2026, what are the negatives in noninterest income for next year? So if you were to grow the same level, which was, I think, the low teens in 2025, you would blow through 5% revenue growth in '26, let alone in 2028. So why aren't you -- why are we much more positive on revenues than you're kind of sat now? And then secondly, just on Hang Seng, what's the difference in the local capital requirements in Hong Kong and the U.K.? Does the transaction change anything in terms of minimum group regulatory requirements and how we manage capital through the group? Georges Elhedery: Okay. Rob, thank you very much. Let me address your first question, and Pam may add to it and address definitely the Hang Seng capital question. So the 90% or more of our noninterest income, and therefore, our fee or other income is driven by transaction banking and Wealth. So looking at the dynamic in these 2 will give you a good perspective of how our non-NII is evolving. Transaction banking, we've reported full year growth of 4% year-on-year. We are seeing continued momentum in this space. We are a leader in practically all the aspects of transaction banking that we prosecute with our clients. We've been voted by 30,000 of businesses as the leader in payments, both in products, services and technology. We've been 9 years consecutively a leader in trade. We've been voted by corporates using foreign exchange as the leader in servicing them with foreign exchange. We continue investing in this space. We continue expecting resilience in this space, in particular in trade. And I can talk more to trade if desired. As you look at Wealth, Wealth remain unequivocally one of the strongest growth opportunities, in particular, one, given our footprint, where we are focusing on Asia and the Middle East and the underlying growth in Asia and the Middle East of Wealth is very strong and our ability to capture more market share is very strong. We're already a leader in Wealth in Asia, if you look at Wealth balances. And that's an area where we can benefit from this underlying structural growth opportunity. And second, Wealth because we are also accelerating our investments in this space. You've seen we've launched 26 or 27 wealth centers in 2025, taking the total to 64. We're hiring relationship managers, wealth advisers. We're empowering ourselves with generative AI wealth capabilities. We're building technology. We're creating a comprehensive set of products, and we continue investing in this space. So we do believe they remain -- Wealth remains a very strong growth opportunity, albeit we have dropped the guidance on that. And the idea is to give you an overall revenue guidance, which is better encompassing the overall opportunities and probably more relevant for your forecasting. Pam? Manveen Kaur: Thank you, Georges. So firstly, the only comment I'll make on Wealth is, as Georges said, we are very comfortable in our broad-based product proposition. But the only thing we need to remember is that this year, with how the markets have performed, therefore, on some of the Wealth that is generated through transactional kind of activity, we just have to see how that progresses in next year. We're not going to make a call out on how volatile or otherwise markets are going to be in 2026. So if there's anything that's what would have been a good consideration because we have to look at plausible downsides clearly in giving our guidance as opposed to just a base case or an optimistic case. So that's all I would say on that. Now from a Hang Seng capital perspective, we have already got the $3.8 billion benefit, which comes from the disallowed minority capital, which we don't need to have an impact on our CET1 anywhere. So that's a positive straight on. But generally, in a broader picture, across all our subsidiaries, which are 100% owned, we do have more flexibility in terms of how we move our capital, whether it's upstreaming or downstreaming, obviously, subject to what we consider the mark-to-market outlook is, where our portfolio is and subject to sort of regulatory discussions. So all in all, it does give us a better ability to move capital around the group and be more efficient in the deployment of capital. Alastair Ryan: The next question we will take again from the Zoom is [ Chen Li ] at China Securities. Unknown Analyst: I have a question about preservation of Hang Seng Bank. Could you provide further information about the growth opportunities? I want to know that in which aspects of the Wealth Management business will have more -- stronger synergies with Hang Seng Bank? And what are other outlooks for the Wealth balances and the Wealth Management margins? Georges Elhedery: Okay. Chen, thank you very much. I'll hand over to Pam, but remember what we said at the announcement on the 9th of October of our intent to privatize Hang Seng is these are commitments we are holding. Hang Seng Bank will retain its own authorized institution and governance. It will retain its own brand in Hong Kong, of course, as a major community bank and the largest local bank. It will retain an independent customer proposition that will compete in the market for all customers. It will retain its branch network. And that proposition will remain intact with a distinctive cultural strength and customer proposition, customer experience strength that Hang Seng has been known for, for practically a century in Hong Kong. What we are driving through these privatizations is better efficiencies in cross-selling or better efficiencies in aligning back office or manufacturing capabilities that are not related to the customer proposition. Pam? Manveen Kaur: Thank you, Georges. So firstly, as Georges has said, that the positioning of Hang Seng Bank as an iconic community bank in Hong Kong stays. What we will endeavor to do is that post the privatization, we don't have that arm's length relationship restriction that prevents us to do more in terms of product proposition offerings and cross referral to our customers and also in terms of the investment dollars that we spend, we can't spend them if it's on the same product, on the same customer journeys seamlessly across both the Red brand and the Green brand. So that gives us a very good position that as these 2 stand-alone brands, our ability to lean into the growth in Hong Kong and the macro opportunities, including cross-border will be available to the broadest customer base while maintaining that community element of service for those customers. So that's how we are looking at it. And we will look at, obviously, Wealth products as well as pricing margins so that we can really make them more easily available for our customers. Georges Elhedery: Chen, we are the market. We are the market leader in Hong Kong, undisputed. We are consolidating and cementing this leadership. Hang Seng Bank privatization will allow us to consolidate that leadership even further in all sorts of a broad range of products and services. And we have a leadership position in capturing these growth opportunities that Pam was talking about in Hong Kong as a super connector between the Mainland and the world, as poised to become the leading cross-border wealth hub on the planet before the end of the decade. And it's really a privilege to be in the position we are in to be able to capture this with the full HSBC and Hang Seng propositions. Thank you, Chen. Alastair Ryan: So I will take the next question from Ed Firth at KBW. Edward Hugo Firth: I just had two questions. One, just talking about the HIBOR benefit in Q4 for your net interest income. I think one of your peers talked about it as a temporary benefit. And I guess I'm not close enough to the franchises and how you price, et cetera, domestically. But I guess, do you know -- is there anything peculiar about you or some of the peers about the way you repriced CASA accounts or something in Q4, which would mean that yours should be sustained, but somebody else's might be temporary. So I guess that's the first question. And then the second question is, I guess, it's slightly an extension of Rob's question. I'm not quite sure what is so specific about 2028 that means you can get 5% revenue growth there, but I assume you don't feel you can before then. And I know that at the moment, in '26, we've got some headwinds from interest rates, but you've also got a very strong tailwinds around things like Wealth Management, Pam highlighted that. And '27, I guess, should be a reasonably normal year. So I'm just wondering, is there something that I need to think about that you can see that is happening from '28 and beyond that will make your revenue growth better that we're not seeing today? Georges Elhedery: Okay. Thank you very much, Ed, for your two questions. Pam, do you want to address that? Manveen Kaur: Yes. So let me just unbundle the situation with regard to HIBOR. So in the fourth quarter, HIBOR stabilized. And we had called out in the prior quarters that in 20 -- and I'll come to Q1 in a second. That in Q2 and Q3, HIBOR was very volatile. And we were looking at the comparison for a HIBOR close to a 1% where it has an impact of about $100 million in terms of banking NII on a monthly basis and then stabilizing to something which is in the 2% mark. We look at HIBOR on a 1-month HIBOR basis. We feel very comfortable as long as HIBOR is around 2.25%, 2.5% and so on. I fully recognize that in -- and I don't know what other peers would say, like what tenor of HIBOR rate is most relevant for them. I'm just telling you from our perspective. Now in Q1, HIBOR has fallen, but we have to see the context. There's been a range of IPOs that normally happens. When there's that demand for HIBOR fluctuation, but it has fluctuated within a narrow range. So the impact isn't there. Also, last year, in Q4, there was a benefit of lower betas. So when HIBOR went up, the same impact wasn't there on the savings rates. Of course, we'll have to look at betas, how they evolve. And then we have a very strong deposit franchise. And I think that's a differentiator in terms of the CASA level that we have, in terms of our accounts. And therefore, we have a good positioning where that deposit base helps us on the banking NII more than most of our peers. Obviously, in terms of both banking NII this year and also our ambition, it's the rate headwinds. And as I said earlier, it's the timing of the rate headwinds. If they're delayed, of course, it becomes less of a headwind. If they are earlier, then there is more sensitivity to it. So I would say from a Wealth business, as I also alluded to earlier, yes, the growth is very strong whether its asset management, Wealth products, insurance, it's broad-based growth. But last year, there was a great advantage or a tailwind coming from markets, which gave us a lot of uplift on the transactional-based fee income. We can't assume that for this year. Of course, if markets stay well and that happens, then that's a positive tailwind. So that's how I would look at it. Georges Elhedery: Yes. And I would look at '28, not specifically as the year '28, but as what would we believe our long-term structural opportunity to grow. It's our guidance for '28, but we've delivered 5% revenue growth in '25. We've delivered 4% in '24. So it's just the footprint we are in and the capabilities for us to capture the growth is there. Manveen Kaur: And we like to be cautious to we have to consider downside scenarios as well. We don't always take the best case. That's all I would add. Alastair Ryan: Many thanks. We have probably time for a couple more questions. We'll take Alastair Warr at Autonomous next. Alastair Warr: Two questions. Back to Hang Seng Bank, I'm afraid. You touched on potential upside from asset quality improving. I just wondered if that's something you're thinking about in terms of maybe more active steps? Or is this just about being patient with the property cycle? And then just on the Wealth side for a second question. It looks like there's a bit of a slowdown in the new account opening in the fourth quarter if you've got 1.1 million for the year and you were running at about 300,000 a quarter. Is that just seasonal or anything changing there that we should be aware of? Georges Elhedery: Thank you, Alastair. Pam, you can. Manveen Kaur: So just in terms of the asset quality, the comment I made was that if you look at Hang Seng's pre-impairment margins, they've been very strong. If you look at what Hang Seng's ECL charges have been prior to '22 versus in '24, '25 and even the run rate for the first half of the year and then what's consolidated for the full year, that's what I meant by the overall improvement, and that would be both for Hang Seng Bank as it would be for HSBC Red brand, and that's the only way to look at it. In terms of our own policies or processes and how we manage exposures, both for the Red brand and Green brand, they are highly aligned, how the rigor we follow through them, I don't expect any of that to give us either a tailwind or a headwind. So in terms of the new-to-bank customers, yes, it was 1.1 million, just to clarify for the Red brand. And the fourth quarter also had a good number. We believe that this new-to-bank customers is a huge growth opportunity for us. However, we are trying to be now a little bit more selective on the acquisition because we have now had a 3-year trend on how the acquisition has happened in between the lower end of the customer base and the more premier. We have added a fee for the new-to-bank customers who have a balance less than HKD 10,000. And because of that, we expect that there would be slightly slower acquisition in 2026. But the focus on our affluent customers is going to continue. The focus of the improvement in our overall income, whether it's through deposits, Wealth products, insurance is very healthy coming from these new-to-bank customers. So we don't see any change. We just don't want people to say that every month is going to be like 100,000 number because it's like almost like a ticker number because that's what the trend was. There will be fluctuations and changes month-to-month and quarter-to-quarter, but nothing material to call out as such. Alastair Ryan: We'll take Kendra Yan at CICC. Jiahui Yan: My question is kind of related to micro side. As the newly nominated U.S. Federal Reserve Chair has proposed interest rate cuts and balance sheet reduction. Could you please share your macro assumption behind the future 3 years guidance? And are there any risks that we need to pay attention to? Georges Elhedery: Yes. Thank you, Kendra. We can do that, Pam? Manveen Kaur: Yes. So just as I said earlier, Kendra, when we look at our guidance, we look at plausible downside scenarios. That include interest rate cuts, both quantum as well as duration. This time around, as we said, the starting point for the guidance for this year was the January year-end cuts, but we also stress test our portfolios on a regular basis for a range of scenarios. And we consider those and the impact on ECLs also on a weighted average basis when we look at our overall portfolios. We have looked at the -- some of the macro I would say, recent news, whether it's to do with private credit or otherwise because as I said earlier, we look at second and third order risks that may come from some sort of a macro event or issue, even though our own underwriting practices are very stringent and very rigorous in this respect. What I will say is that despite the evolving scenarios that you are facing on tariffs and trade, our business has been really quite resilient. And that has -- overall, it is up 2% year-on-year in 2025. In a complex market as this landscape evolves, our relationships and engagement with clients gets even stronger. We have taken market share in corridors through -- in Hong Kong, U.K., Asia overall as supply chains are moving and corridors are shifting. So I would say, overall, if I think in a macro sense, there are headwinds and tailwinds as well as for the world at large, but also for HSBC. We look at specific idiosyncratic factors that could impact us, any risk concentrations we may have in our home markets, and that's all part of our guidance. And that's why I said to you earlier or to the earlier question that when we give our guidance and our targets, we like to be rightfully conservative. But the most important thing is through this period, we have made an assumption that we will continue to invest for growth. We have the right strategy. We have the right priorities. We have the focus to retain and win market share and we will continue to do that with the basic underlying principle that Georges called out earlier, we are here to serve our customers, and it's the strength of our relationship with our customers that gives us the confidence for our guidance and targets. Alastair Ryan: Yes. Thank you, Georges. So we'll just take a final question today from Katherine Lei at JPMorgan. Katherine Lei: Okay. My question is still on revenue side, right? I think the 5% revenue growth in 2028 and then the above 17% RoTE guidance, I think there's 2 key drivers. One will be on NII and then the other will be on Wealth. But my question is that on NII, what is -- like what gives HSBC the confidence that on the sustainability of the deposit growth? Because one trend we noted is that, say, for example, in China, with RMB appreciation and also China start to taxing its citizen globally, will that actually slow down, say, for example, Chinese nationals coming to Hong Kong to open new accounts and then the money flow movement? So can we be more a bit specific on what are the key drivers and then the key path on the deposit growth? This is number one. Number two, I think is still on -- number two is on Wealth and on that trend, right? So what do you think that will have an impact on our Wealth as well? Georges Elhedery: Okay. Thank you very much, Katherine. Let me address them in reverse order. I'll speak a little bit about Wealth, and I'll share some thoughts about deposits and Pam can give you additional granularity to address your question. Wealth remains structurally a very important growth opportunity for HSBC, as we said specifically that we are aligning our Wealth footprint, Asia and Middle East to where the Wealth is growing fastest in the world in Asia and the Middle East. Also our ability to capture wealth all the way from the premier customer base, which is the affluent middle class all the way to the high net worth means we have a better catchment of all these opportunities. We're also present in a number of onshore markets such as China onshore. We are the leading international wealth manager in China, Mainland China onshore, which is not dependent to flows outside China, for instance. We're investing in India. We, of course, have big wealth hubs in places such as Hong Kong, of course, Singapore, the UAE and a number of other markets. The challenges possibly to anticipate is there is a turnaround or a change in the overall outlook of investment because inevitably, wealth will depend on the underlying performance of the invested markets. And if there is -- today, there is a strong resilience in these markets, which is what we -- our customers are also looking at. But that is, of course, always a risk that we need to be watchful of. We're also investing to gain share. We're investing to diversify the product offering and to diversify the wrapper offering all the way from insurance to asset management to other forms of brokerage, et cetera. So that we are able to meet the varying wealth customers' needs in how they look at their investment requirements. Finally, we're also investing in generational wealth, specifically supporting transfer to the youth or the next generation or transfer between wealth centers in a way our footprint allows us to do that is competitively very strong compared to a number of our peers who are offering wealth from very, very few number of hubs, okay? That's the wealth. Now with regards to deposits, Pam will give you a better answer in the details you're asking for, but let me tell you one thing about deposit. It is the foundational product on which our customers' trust is expressed with HSBC, and this is how we look at it. Customers trust us with their deposits. That's the starting point of any possible service and proposition in transaction banking, payment, financing and otherwise. So we cherish this asset class. We have always cherished it, through thick and through thin, in good rates and bad rates, and we will always focus on what it takes to make sure our customers trust us, the financial strength, the level of service so that we earn their trust with their deposits. When you look at our deposit base, it has grown in every business. It has grown, and we are highly surplus liquidity in every currency, every major currency, in every major geography. So there is a deep rooted across our 4 businesses and across all the geographies where we operate. a deep-rooted trust, which we nurture to support customers giving us their deposits and using us as their deposit bank by preference or by excellence that can support, if you want, our outlook on our deposit growth. Pam? Manveen Kaur: Thank you, Georges. And Katherine, a really good question to close on. We have seen deposit growth, as you've seen in our new disclosures on Wealth across the spectrum of our customer base, premier, private bank, retail in every market, in every jurisdiction, even when there isn't a home market, and that really underpins the growth that we are seeing in our banking NII. We have taken very conservative trajectory on loan growth. I'm hopeful at some stage, loan growth will also pick up, which will then also support the banking NII if from an interest rate perspective, the timing of the interest rate becomes a headwind in one of those plausible downside scenarios. We have a structural hedge, which is continuing to be a tailwind given all the work we did a few years ago. We will also continue to build on the structural hedge, even though the largest increases we have done are -- have been behind us now. So if I look at all of these things in the round, and I look at the momentum of the business that we have seen in the first sort of 7 weeks of this year, that gives us confidence for our banking NII guidance for 2026. If you underpin that just based on the fourth quarter, obviously, it will give you a number of [ $46 billion ]. But we are not calling that out because we are very cognizant of the headwinds on interest rates. And you're right, the interest rates in the U.S. is down 50 basis points, U.K., 25 basis points just year-to-date with further 2 to 3 rate cuts to happen. So with that, I think in the round, we feel very confident that the banking NII, which is, again, the trust of our customers and what we are doing everything to preserve that trust and to build on those relationships, because I'll just end with one thing. We are fundamentally a relationship bank. We have a full-service suite of products we offer to our customers. So for our guidance, for our targets, we look at that full range. We are not a product proposition-based bank, in which case, some of the comments you made will obviously be a bigger headwind. Georges Elhedery: Perfect. Thank you, Pam, and thank you, Katherine, for your last question. Thank you, everyone, for joining us. We are pleased to report strong revenues, strong profit, strong returns and strong distribution to our shareholders. We are confident we can navigate the challenges ahead of us from a position of strength, and this has allowed us to put ambitious targets about our revenue growing every year for '26, '27, '28 rising to 5% in '28 as well as our return on tangible equity delivering 17% or better every year over that period with a 50% dividend payout ratio, all excluding notable item. Thank you very much for joining us this morning or this afternoon, and I hope you have a good day. Manveen Kaur: Thank you. Operator: Thank you, ladies and gentlemen, for joining today's webinar. You may now disconnect.
Operator: Welcome to the HSBC Holdings plc Investor and Analyst Presentation for the 2025 annual results. We will begin in 2 minutes. [Operator Instructions] Please note that it will not be possible to ask a question if you are joining via the webcast link on the HSBC website. Ladies and gentlemen, welcome to HSBC Holdings plc's 2025 annual results webinar for investors and analysts. For your information, today's webinar is being recorded. At this time, I will hand the call over to Georges Elhedery, Group CEO. Georges Elhedery: Welcome, everyone. Thank you for joining us. As we celebrate the year of the horse, [Foreign Language]. Our 2025 full year performance was strong. It was a year in which we performed, transformed, invested for growth. I will discuss our strong strategic progress today. First, the strong momentum in our 2025 performance. Second, the execution of our 3 strategic priorities where we are progressing at pace and with discipline. And third, the new growth and return targets we are setting out today for 2026, '27 and '28. So first, the full year earnings. My comments will exclude notable items and the comparisons will be year-on-year on a constant currency basis. In 2025, there were $6.7 billion of notable items. You are already aware of these from prior quarters. They are set out on appendix Slide 36. So first, we delivered strong earnings. Group revenues grew 5%. Profit before tax rose 7%, reaching a record $36.6 billion. Return on tangible equity was 17.2%. And we delivered 3% cost growth on a target basis in 2025, in line with our cost target. Second, we delivered strong growth. Our deposit balances grew 5% with deposit growth in each of our 4 businesses. Our deposit base is a core strength. It contributes the lion's share of our banking NII. We also grew fee and outcome. In Transaction Banking, it grew by 4%. Elevated market activity demonstrating the power of our deep international network, which gives access to 86% of world trade flows, alongside our product and service expertise. In Wealth, it grew by 24%, reflecting our leadership position in the world's fastest-growing wealth markets and continued investment in our products and proposition. And we are investing for strategic long-term growth. We completed the $13.7 billion privatization of Hang Seng Bank. This brings together to 255 years of history and heritage, combining global reach and local depth. It reflects our confidence and conviction in Hong Kong's future growth. And third, we delivered strong returns to our shareholders. We announced a full year ordinary dividend per share of $0.75, up 14% on 2024. Let's turn straight to the progress we are making on strategy execution. In October 2024, I set out a clear agenda to unlock HSBC's full potential. To do so, we now run the bank on 4 core complementary businesses, 2 home market businesses, U.K. and Hong Kong, and 2 international network businesses, Corporate and Institutional Banking and International Wealth and Premier Banking. Each business is growing. Each is generating above mid-teens return on tangible equity and each is building on a strong foundation for future growth. We are focused on 3 clear priorities, and we are moving at pace with each one, be simple and agile; two, drive customer centricity and three, deliver focused sustainable growth. Now let's look at each priority in turn and our progress. First, simple and agile. The first step in unlocking HSBC's full potential is reengineering to reduce complexity and cost. Structure and strategy are now aligned. Accountability is sharpened and roles deduplicated. In 2025, we reduced net managing director positions by circa 15%. We are taking $1.5 billion of annualized simplification saves straight to the bottom line with immaterial revenue impact. We expect to have taken action to deliver these saves by the first half of 2026, 6 months ahead of plan. We are also making positive progress with the reallocation of circa $1.5 billion from nonstrategic or low-returning businesses. The medium-term intent being to reallocate these costs to areas of competitive strength and generate accretive returns. In 2025, we announced 11 business or market exits. Completed and announced exits account for $0.7 billion in annualized cost savings with around $1 billion of associated revenue $0.6 billion remains an active execution, including those under strategic review. Then following the privatization of Hang Seng Bank, we are increasing reallocation costs to $1.8 billion, reflecting an additional $0.3 billion of reported basis cost synergies across HSBC and Hang Seng Bank. We will direct this $0.3 billion to growth opportunities in Hong Kong. We are also streamlining and upgrading our operating model by simplifying the bank at scale and retiring nonstrategic applications. And we are reengineering whilst focusing on resilience and risk management. Next, priority number two, drive customer centricity. Our 4 businesses are built on customer trust. Our investments to improve customer proposition and experience are yielding results. Net Promoter Scores have improved or remained top ranked in our home markets. In Hong Kong, we added 1.1 million new to bank customers. Taking the total number of customers to more than 7 million. Our U.K. business lending -- our U.K. business banking lending grew 13% year-on-year, excluding COVID loan runoff. In CIB, corporate surveys have positioned us as a market leader in trade, in payments and in foreign exchange. In IWPB, we attracted net new invested assets of $80 billion. Next, priority #3, investing to deliver focused, sustainable growth. Our Hong Kong home market is a dynamic economy, a top 3 global financial center and a thriving trade gateway. It is the super connector between Mainland China and the world. And it is set to become the world's leading cross-border wealth hub by 2029. The privatization of Hang Seng Bank enables us to scale capabilities and drive growth across both banks for all customers. We have the ambition, and we have comprehensive plans to deliver $0.9 billion of benefits through reported synergies and unlock of opportunities by 2028. It is an investment for growth. And if we move beyond Hong Kong and look at HSBC's other core strength, we are in Asia, Middle East powerhouse. Asia and the Middle East are increasingly central to global trade and capital flows. Global trade is being rewarded. Asia's growth is increasingly powered by intra-Asia demand. Asia is buying Asia. The Middle East is scaling as a global capital trade and investment hub. Its integration with Asia is accelerating. The Asia-Middle East corridor is becoming a defining access of global growth. Wealth creation across Asia and the Middle East is also structurally strong. That is why we are investing to consolidate our powerhouse position and capture these growth opportunities. We are also investing to connect the world, scaling our capabilities, building new capabilities and supporting customers secure commercial advantage from real-time services. Our customers are making real-time 24/7 payments across 35 markets. They're also using frictionless tokenized deposits and payments in 4 markets, including the U.K. with more to follow. And we are pioneering the future of finance. Last month, the U.K. Treasury selected HSBC's distributed ledger technology as its preferred platform for its U.K. Digital Gilt pilot. Next, our people and technology. We see innovation and culture that's core to our competitiveness, and we are investing in both. We are scaling AI adoption first, to empower our colleagues second for end-to-end process engineering and third, to enhance customer experience. Our customer relationships are built on trust. AI strengthens how we act on that trust, personalizing service at scale. The strong culture turns a clear strategy into results, and we are investing to nurture a high-performance culture. All our senior leaders and the broader managing director cohort have attended our new group-wide leadership training. Finally, let's turn to our new targets for 2026, '27 and '28. 2025 has been a year in which we have performed, transformed and invested for growth. This gives us the confidence to set out new growth targets. We will target revenues growing year-on-year every year, rising to 5% in 2028, excluding notable items. We will target return on tangible equity of 17% or better in each year from 2026 to 2028, excluding notable items and a dividend payout ratio of 50% for each year, excluding material notable items. To conclude, we are creating a simple, agile, growing bank built to generate high returns. We are executing our strategy with discipline and precision. We are delivering growth, we are investing for growth and we are confident we can navigate uncertainty from a position of strength. That is why we are confident in setting these new targets and in our ability to continue delivering for our shareholders. Let me now hand over to Pam. Thank you. Manveen Kaur: Thank you, Georges. Thank you, everyone, for joining. We have had another strong quarter, which reflects the positive progress we are making towards creating a simple, more agile growing HSBC. We are investing for growth. Throughout this presentation, I will exclude notable items and focus on the fourth quarter numbers compared to the same period last year on a constant currency basis. Let's turn straight to the highlights. In the fourth quarter, revenues grew 6% and to $17.7 billion. This was driven by broad-based growth in banking NII and fee and other income. Profit before tax was $8.6 billion, up 17%. Our customer deposit balances stand at $1.8 trillion, an increase of $78 billion when we include held-for-sale balances. Full year return on tangible equity was 17.2%, achieving our mid-teens or better target. In 2025, we maintained tight cost discipline, managing target basis cost growth to 3%, in line with our cost growth target. Turning to capital and distributions. Our CET1 capital ratio was 14.9%, up 40 basis points in the quarter, reflecting our organic capitalization and expectation not to initiate any further buybacks for up to 3 quarters following October's announcement of our intention to privatize Hang Seng Bank. As Georges said, this strong performance allows us to announce ordinary dividends for the year of $0.75 per share, an increase of $0.04 on the prior year. Turning to our business segment performance. We grew full year revenue by 5% to $71 billion. Each of our 4 businesses grew revenues. Each grew deposits, deepening customer relationships. Each returned a mid-teens or better return on tangible equity, excluding notable items. We are pleased to be making such positive progress firm-wide. Moving next to our privatization of Hang Seng Bank. On 9th October, we announced our intention to privatize Hang Seng Bank. We are pleased to have completed on 26th January, sooner than our initial expectation of the first half of 2026. This slide explains the financial rationale. Let's walk through it, starting with a $13.7 billion purchase price. The removal of the $3.8 billion minority capital inefficiency takes you to the $9.9 billion of common equity Tier 1 consumption. The removal of the capital inefficiency is around 1/4 of the purchase price. The $9.9 billion CET1 consumption is equivalent to buying back 4% of group shares at the point of announcement. Next, we show the $0.8 billion minority interest in the P&L and the $0.5 billion of pretax synergies from the privatization. Together, the minority interest and the synergies contribute more than 4% to our profit, beating the buyback threshold. On top of this, we see potential, further revenue and cost upside of $0.4 billion enabled by the privatization. Then on the right of the slide, we see good growth in Hong Kong in the years ahead. Having 2 fully owned banks positions us well to capture this growth. As we said in October, we are acquiring a business with structurally high pre-impairment margins. And while we are not calling the credit cycle, we believe it is a cycle. Let's now turn to banking NII. Our full year banking NII was $44.1 billion. In the fourth quarter, banking NII of $11.7 billion grew $0.7 billion. $0.4 billion of this growth was in Hong Kong, including the recovery of HIBOR during the quarter. Banking NII in the fourth quarter included a positive benefit of around $100 million for items that we do not expect to repeat. We expect full year 2026 banking NII of at least $45 billion with the impact of expected lower rates more than offset by deposit growth and the tailwind from our structural hedge. Next, to wholesale transaction banking. This year has really validated the strength of our franchise in a range of economic market and tariff situations. We have deepened customer relationships, and our global network has helped our customers navigate volatility and uncertainty. In the quarter, security services grew fee and other income 6%, reflecting higher market valuations and new mandates. Payments grew 3%, driven by new mandates and payment volumes. In particular, international payments. Foreign exchange increased by 1%, reflecting strong client flows and higher levels of volatility. This was a good performance given the strong prior year comparison. Trade was down 5% in the quarter, but it was stable over the full year. I would note the first half was particularly strong, given advanced ordering as we supported clients to navigate a fast-changing landscape. We continue to see growth in volumes, and strong client engagement. Let's now turn to Wealth, including the new disclosures we are setting out today. We are very pleased with the 20% year-on-year fee and other income growth to $2.1 billion. And we are very encouraged that this was driven by all 4 income areas, which shows the sharpening of our strategy is working. Asset Management grew 14% and Private Banking grew 8%. Investment Distribution also performed well, up 14%, reflecting strength in our customer franchise in Hong Kong. Our Insurance CSM balance was $14.6 billion, up 21% versus the prior year. We continue to attract net new invested assets with $7 billion in the fourth quarter. Today, we are giving you new disclosures, which you will see through on this slide. These better show the strength of our relationship with our customers, including both their deposits and invested assets. We are focused on capturing the full wealth opportunity, and we will now report Wealth balances and net new money. I appreciate that the Wealth balance figure is similar to the invested assets. But I would highlight two changes to note. You will see these set out on Appendix Slides 31, 32 and 33. We have added $608 billion of Premier and Private Bank deposits to the invested assets. That is offset by taking out $580 billion of asset management, third-party distribution assets. This is a good business, but it does not reflect our wealth customers. Adjusting our disclosure in this way also means our Wealth business is more easily comparable to the broader peer group. These new disclosures will replace the existing ones from the first quarter of 2026. We saw net new money in the quarter of $26 billion, of which $19 billion was in Asia. And Wealth is not just a Hong Kong story. It runs across our Asia and Middle East franchise with double-digit invested asset growth in Singapore, Mainland China, India and the UAE. Next to credit. Our ECL charge this quarter was $0.9 billion. There was no material impact from Hong Kong commercial real estate in the quarter. On Slide 29, you will see we have updated the commercial real estate disclosures. Movements in the fourth quarter were in line with our expectations. of a full year 2026 ECL guidance is around 40 basis points. This is at the higher end of our typical range, reflecting the economic outlook and remaining pressures in parts of retail and office commercial real estate in Hong Kong. Let's now turn to costs. We delivered 3% target basis cost growth in the full year, hitting our cost goals while making the space to invest in the bank was a key theme of 2025. It will be again in 2026. We have taken actions to realize $1.2 billion of annualized simplification savings with immaterial revenue impact. This is ahead of our original time line of $1 billion by the year-end 2025. On a realized basis, we have taken $0.6 billion of the simplication saves into the full year 2025 P&L. Together with ongoing discipline, this allows us to guide for 1% cost growth on a target basis for 2026 while reinvesting in the business. Next, to customer deposits and loans. We had another strong quarter with deposit growth of $50 billion. We saw good growth in each of our 4 businesses. Loans increased by $5 billion. The U.K. was again the standout with another quarter of growth in mortgages and commercial lending. Our U.K. business is well positioned to support growth in the U.K. economy. We are particularly pleased with the momentum in our commercial loan book where we see significant potential, particularly in infrastructure, innovation, social housing and mid-market direct lending. Now turning to capital. Our CET1 ratio is up strongly to 14.9%, primarily reflecting good organic capital generation. Although after the balance sheet date, I draw your attention to the impact of the Hang Seng Bank privatization which is 110 basis points in addition to the 10 basis points already incurred in the fourth quarter. We have set this out in the appendix Slide 27. As a reminder, we said when announcing the offer on 9th October that we expected to suspend buybacks for up to the next 3 quarters. That is, of course, dependent on underlying capital generation. With strong profitability and current modest loan growth we remain highly capital generative. A decision on future share buybacks will be taken quarterly, subject to a non-buyback considerations. Let's next turn to the full year defaults. Excluding notable items, and at constant currency, revenues grew 5% to $71 billion. Profit before tax was $36.6 billion, up 7% year-on-year to a record high. Return on tangible equity was 17.2%, achieving our mid-teens or better target. Our strong performance allows us to announce ordinary dividends for the year of $0.75 per share or $12.9 billion. Let's briefly return to the new targets Georges set out earlier before I close on guidance. We made clear and positive progress in 2025. That is why we are now raising our ambition to target 17% return on tangible equity or better, excluding notable items in each year from 2026 to 2028. We will also target year-on-year revenue growth in each year over the period, rising to 5% in 2028 compared to 2027, excluding notable items. And as you would expect, we maintain our discipline of a 50% dividend payout ratio, excluding material notable items and related impacts. Finally, to guidance. This slide gives you our guidance mainly for 2026. We saw revenue momentum continue in January, including in Wealth. On the slide, you see banking NII of at least $45 billion. Our revenue ambitions for our Wealth business are contained within our revenue target. We have, therefore, removed grow fee and other income at a double-digit percentage CAGR from our guidance. We see an ECL charge of around 40 basis points, broadly stable on 2025. We expect to constrain cost growth to 1% on a target basis. This benefits from our organizational simplification and allows us to continue to invest in the business. There is no change to our CET1 target range of 14% to 14.5%. In 2026, we will deliver the $1.5 billion of savings from the reorganization. We are well on track with the $1.5 billion of reallocation costs which will be redirected towards priority growth areas. We are now adding the expected $0.3 billion of Hang Seng Bank cost synergies to the original $1.5 billion of reallocation costs, taking this to circa $1.8 billion. On Hang Seng Bank specifically, we see $0.5 billion of revenue and cost synergies to be achieved by year-end 2028 as well as an additional $0.4 billion of potential further upside enabled by the privatization. To achieve this $0.9 billion, we will incur a restructuring charge of $0.6 billion from the Hang Seng privatization which will be a material notable item. To close, as I said to you last year, I am fully focused on discipline, performance and delivery. Discipline means prioritizing with precision, maintaining strong cost control and ensuring investment rigor for growth. Performance means gearing our financial strategy towards achieving our new returns target. Delivery means ensuring we remain agile and resilient, enhance operating leverage and are always well positioned to support our customers. This is exactly how we will continue to run the bank. With that, we are happy to take your questions. Alastair? Alastair Ryan: Thank you, Georges. We'll take any questions from the room here in Hong Kong first. If I can ask you to introduce you to your company, and there's been the hard part, constrain yourself to two questions each, please. That goes for people on Zoom as well as people in the room. Anyone would like to ask a first question here? Yes, we'll take a question from Nick. Nicholas Lord: It's Nick Lord from Morgan Stanley. I'll put it in one question in two parts, if that's okay. I'm just interested in your revenue target by 2028 of achieving 5% revenue growth. And I just wonder if you could talk about some of the components of how you would get there. Presumably, Wealth is part of that. And so maybe you could talk about the Wealth trajectory and how sustainable that is. Presumably, at some stage, we're going to see sort of a kick in of sort of the development of markets in Asia, and that market's business can grow more. So I wonder if you could talk a little bit about how you want to grow that markets business in Asia. Georges Elhedery: Thank you, Nick, for the question. I'm going to share some high-level comments as we are looking at the growth opportunities, and Pam can take you through the various components. The first thing is we have delivered growth in 2025. And we have delivered growth, as we mentioned, across all our businesses and all our key metrics, including deposits, loans, including fee income and Transaction Banking and Wealth and this is reflected in our revenues growing at 5%, 2025. The second item to call out is if you look at our footprint. We're actually basically aligned to the strong structural growth opportunities. Hong Kong, we've called it out, and we are basically consolidating our leadership position to capture these growth opportunities with the privatization of Hang Seng among other. Asia and Middle East, structural growth opportunities in Wealth, but also Asia and Middle East hitting record volumes and shipments for trade, Asia is buying Asia and we are -- our footprint allows us to capture these growth opportunities. The U.K., we've seen the strongest loan growth in 2025, and we have indicators to believe that there is a possibility for this trend to carry on. This is the strongest loan growth we've seen in the U.K. for many years, but it's also the strongest store growth we've seen across all our businesses that we have seen in the U.K. And then the last thing I would put, we are investing for all these growth opportunities. We're putting now investment from within our cost base. We're putting investment from the additional costs we are taking in 2026. And we will be putting even further investments from the reallocation of the $1.8 billion as we free up these costs back into those core areas where we can grow. And this is what's giving us this confidence to give you the growth targets of revenue growing year-on-year every year rising to 5% in 2028. Pam? Manveen Kaur: Thanks, Georges. So firstly, in 2026, we expect broad-based growth in revenue across all our businesses, but just unbundling a little. In banking NII, as we have said, we expect a low single-digit growth fundamentally driven through deposits. Yes, there are pockets of growth in loans, but so far, we've just seen in the U.K. market. Overall, we expect that growth in Wealth and Transaction Banking and our fee-generating businesses will continue to be very positive. As we go beyond '26, we do expect balance sheet growth should again in Asia and other markets, not just in the U.K. Of course, we are seeing growth in the U.S. already, but we are not a big player in the U.S. market, domestic growth. And we are continuing to invest in our fee businesses and our investment plans are multiyear plans. So it's not just for growth for 1 year. It's a very strong building block for growth through the period we have called out and beyond. Particularly in markets like Hong Kong, in the U.K. and other key markets for us in Asia and the Middle East. Alastair Ryan: Thank you, Nick. Thank you. Any further questions in Hong Kong. We'll go straight to Zoom. The first question on the Zoom then, please, is with Joe Dickerson at Jefferies. Actually I've announced yourself, Joe. Joseph Dickerson: Good set of results, guys. Just a quick question on the costs. If you look at the 2026 number that you've given the kind of 1% growth. I know you've got your recycling how do you think about when you peel that back and what's the metabolic rate of growth in costs, particularly coming from investments because you clearly have some global peers who have accelerated their investments around AI. So I was just curious how you think about that. And then secondly, a nitpicky question, but what rate of HIBOR have you assumed in the banking NII guide of greater than $45 billion? Georges Elhedery: Okay. Thank you very much, Joe, for your questions. On let me make some high-level considerations how we look at costs, and I'll ask Pam to comment then on cost and then on hypo rates. And I shared a bit earlier, but I want to emphasize, first, within our workspace, there's a proportion set aside for investments for change the bank, investments, digital capabilities, additional people, hires, relationship managers, wealth advisory, et cetera, of course, generative AI efficiencies. That's within our cost base. Second, the fact that we're adding costs adjusted for these savings, half of that additional cost will go towards payroll inflation, but the other half will go towards additional investments. And then third, the recycling of those $1.8 billion, which is commensurate to about 5%, 6% of our cost base will go back into those areas of investment for growth. So we believe we have ample capacity to invest and deliver the growth that we are setting ourselves, setting targets to deliver against. Then the next thing I would say about cost is that it's important, Joe, to -- we are committed to cost discipline, we are confident in our ability to deliver cost discipline. And as you've seen for our 2025 results, we have met our cost target. So I think that's an important guide also as you look at our cost guidance for 2026. Pam? Manveen Kaur: Thank you, Georges. So firstly, I would note that we are ahead on our simplification saves because the plan and the actions we have taken have come through sooner than what we had originally outlined. This gives us incremental saves of $700 million in full year '26. So that has been a consideration in the overall 1% cost growth envelope. And as Georges said, as we have divestments happening, we are continuously redeploying those -- reallocating those costs to our priority growth areas. What's really important for us is that our investment rigor is focused on our strategic priorities. That's what we've done in 2025. That's what we will do going forward. And these are committed plans, which are multiyear plans. They don't go back and forth every year. So that's all part of the overall cost envelope guidance we have given for this year. And again, we're only giving guidance for this year only, but we expect to maintain a cost rigor on a continuous basis. In terms of assumptions, we have used the end January forward rate curve for our banking NII guidance for all major currencies. So in terms of HIBOR just to note a couple of points. Our HIBOR volatility that we saw in Q2 and Q3 when HIBOR is at 1% has an impact of about $100 million on banking NII. The moment HIBOR sort of stabilizes as it did in Q4 and indeed this year, although it has fluctuated a little bit around the 2.5% mark, that is captured in our guidance. And we look at a few plausible downside scenarios as well before we give a full guidance. Alastair Ryan: Thank you. Our next question on the Zoom is from Ben Toms at RBC. Benjamin Toms: Firstly, on your RoTE guidance of greater than 17%. I'm just looking for some commentary about how sustainable you feel that guidance is beyond the announced planning horizon. So how much do you feel this guidance isn't all weather guidance post all the investments that you've been making into the business? And then secondly, on the Hang Seng synergies on Slide 13, can you mind just talking a little bit around why you've adopted 2 buckets that you've labeled synergies and upside. Is the upside bucket basically where there's a lower degree of certainty over the synergies? So what type of synergies fall into each bucket would be useful. And presumably, there's no incremental restructuring costs associated with the upside bucket on top of the $0.6 billion. Georges Elhedery: Thank you very much, Ben. On the Hang Seng guidance, what I will share is we do have the management ambition, and we do have comprehensive sets of plans to achieve the full $0.9 billion upside with the restructuring costs that we've called out. I'll let Pam give you the details. On the RoTE guidance, we are not guiding beyond our horizon, but you should always assume that we are ambitious. Pam? Manveen Kaur: Thank you, Georges. And just to say on our RoTE guidance, we continue to see a positive momentum in our businesses. And as we said earlier, we are investing for growth. But of course, the targets are only for 3 years. So in terms of the Hang Seng synergies, you're quite right, the $500 million is what I would call the reported synergies following accounting rules. The $400 million synergies are depending to some extent of markets and customer behavior. So there is some degree of uncertainty, and they don't strictly fall between what is considered to be accounting reported synergies. So that's the reason why they're too separate. Both these synergies, the plan to get that $900 million benefit is by the end of '28. And the restructuring cost of $600 million covers the benefits across both buckets. And now beyond that, we actually believe, as it says on the slide that at some stage, the credit cycle will be normalized. So there will be some benefit coming from there. There will be more growth in lending as well as overall Hong Kong growth, which we will continue to be very well positioned for because of the redeployment of the cost allocation that we have, there will be a fair chunk that obviously goes into Hong Kong, which is a core market on our strategy. Alastair Ryan: Yes, we have a question in the room next, Melissa. Sorry, you're allowed to introduce yourself fully. Melissa Kuang: I'm Melissa from Goldman Sachs. Just two questions. In terms of the strategy that you have, the rising to 5% revenue growth. Just wanted to see if you can give about CAGR growth instead. So we can understand the pathway there. In terms of that, I suppose, will it be coming largely from the nonbanking NII portion? Or will it be from the banking and NII? So that's my first question. On the second question, perhaps on the restructuring cost at HSP of $0.6 billion. Can you just give a little flavor about what is it that we are doing in terms of the restructuring that we need such a cost focusing on in terms of delivery and then how we will see the revenue synergies. And in terms of the revenue synergies can it be as quick as next year? Or will it be more heavy into 2028 as per your 3-year guidance rising to 5%? Georges Elhedery: Thank you very much, Melissa, and Pam can address both questions. Manveen Kaur: Thank you, Georges. So firstly, we've said that revenue growth is positive each year, but it's also progressive and reaching out to 5% by '27 to '28. In terms of the underlying building blocks we said to you that in 2026, where we have given the guidance on banking NII, it's a low single digit. So therefore, similar to the prior year, we will see more positive growth momentum on the fee-generating businesses. And beyond 2026, Banking NII, of course, we look and see where the guidance is, where it is, where the rates are and what's the timing of the rate cuts as we go into '26, but we are continuing to invest in our fee-generating businesses so we see that momentum in those businesses, including Wealth, which really underpins this revenue growth and wholesale transaction banking to continue. And I'm hoping that at some stage, we'll see a little bit more of growth on the balance sheet in terms of lending beyond U.K. that we have already seen. Now in terms of the restructuring costs. There are a couple of elements that drive it. One is there's some organizational alignment. So there will be some roles, which will evolve and teams that will be realigned, but a large chunk of this is really in terms of technology. So the investment in technology so that we can better harmonize our technology and better get results from the technology investment we have across both the Green and the Red brand. And this is really quite critical for us in order to achieve the overall ambition of the $900 million because it's the $900 million ambition just to reiterate, it's not just a cost story. It's a revenue and a cost story, and this is an investment for growth, and that's how we look at it. And we plan to spend restructuring costs of $600 million across the 3 years. And of course, this will be spread through these 3 years, we are not saying any more. In terms of revenue synergies, we strongly believe that by the privatization of Hang Seng Bank, our ability to be able to provide a broader product proposition into the Green band is highly enhanced. So we'll have better Wealth products for our retail customers. We have capital markets and broader wholesale transaction banking products for the wholesale customers, but more importantly, we will be able to have access for the same international network that we have for the Red brand also within the Green brand. And last but not least, we will have more balance sheet flexibility in terms of how we leverage our treasury capabilities, but also in terms of upstreaming and downstream capital, and this will all be done over the next 3 years. Alastair Ryan: Thank you. We'll go back to the Zoom. The next question will be from Aman Rakkar at Barclays. Aman Rakkar: I had two questions, please. So one is around capital. It looks like a decent chance that you'll be within your target CET1 range in Q1 based on historical and perhaps projected capital generation kind of estimates. Obviously, it raises the prospect as to whether you might be able to reintroduce buyback earlier than planned. I don't know if you're able to kind of comment on whether that's a realistic or plausible scenario. But I guess more specifically, just interested in the capital allocation thought process from here? Clearly, your stock is trading at a level now where the return on investment around buyback might be beaten by alternative uses of uses of capital. Obviously, you did it with Hang Seng, but should we be thinking about inorganic growth as well as the compelling organic growth within your footprint? And then I just wanted to ask around banking NII, please. Clearly, that kind of Q4 jumping off point is flattered by $100 million. I don't know if there's anything else that you direct us to kind of strip out of that number in terms of deposit catch-up or the impact of HIBOR. And I was particularly interested in what your deposit growth assumption is that sits behind the guidance you've given '26, please, because I think that could be a sensitivity around the ultimate outturn of banking NII in '26. Georges Elhedery: Thank you, Aman. Pam is best placed to answer both, but I want to share a few thoughts about our philosophy on capital. First, we remain capital-generative as you've seen from our targets, but also as we've experienced over the first 1.5 months in the year in 2026. So we're very pleased to see that our capital generation is strong. But our first priority is now restoring the CET1 ratio following the privatization of Hang Seng, which we estimated to take us 3 quarters. But of course, we do that assessment quarter-by-quarter. But I don't want to point out to the increased dividend we are paying this year, $0.75, $0.45 on the fourth quarter, which is on a full year basis, 14% higher than last year. So we are distributing through dividends. What I wanted to share about the discipline how we use capital, we've shared it in February 2025 Aman, we've set ourselves 4 key criteria. They are a high bar, and we strictly adhere to them in the way we look at inorganic opportunities. In so far, that these 4 criteria are met like in the case of Hang Seng privatization, then we will consider inorganic. But if one of these criteria is defeated, then our preference will be to utilize or return any excess capital back to our shareholders in the form of share buyback. Pam? Manveen Kaur: Thank you, Georges, and thank you, Aman, for your questions. So firstly, as Georges said, we continue to remain highly capital generative. We've had a good start to the year, as I called out earlier in my remarks. But as you know, we look at our share buyback decisions on a quarterly basis, and that will be a quarterly process. The starting point is clearly our target operating range, which we are working hard so that we can replenish capital that has been deployed in the Hang Seng Bank privatization. That's the first priority, as Georges said, and that CET1 operating range remains 14% to 14.5%. That's the one which underpins all the targets and guidance we have given today. Just to clarify, in terms of our priorities from there on, of course, the priorities are 50% is the dividend payout ratio, which we have again reaffirmed. We would like to see balance sheet growth, and we want to invest for growth. That's if we can have growth at the right return levels. Our distribution priorities hence have not changed, and share buyback remains for us a useful tool to deploy surplus capital irrespective of where the share price is. So I think that's an important consideration for us going forward. Next question. On banking NII, you're right, there was a $100 million non-repeat items. So if you take that out for modeling purposes, you come to $11.6 billion. There are no other one-offs. There was a higher HIBOR quarter-on-quarter, and HIBOR also stabilized. And that's why, as you remember, third quarter when we gave a more cautious outlook because we don't know where HIBOR would be. But having seen HIBOR stabilize, it gave us the upbeat on our banking NII results. We also saw low betas on saving accounts in Hong Kong. And very importantly, we saw strong deposit growth, and we do expect this strong deposit growth to continue to be a key driver in 2026 along with the tailwinds of the structural hedge similar to last year and redeployment at higher rates. The only thing to bear in mind is that for this year, clearly, in Q1, given that there will be 2 days less there will be a headwind of $300 million in Q1. We have assumed, obviously, the rate changes, both that we've seen to date as well as projected for the year. But a lot depends on, as you can imagine, the timing of those rate changes, particularly in the U.S. dollar and sterling. Alastair Ryan: So we'll take the next question back on Zoom, Amit Goel at Mediobanca. Amit Goel: So two for me. The first one, just coming back on the upgraded RoTE targets. the 17% plus. I just want to check in terms of how you're thinking about that on a kind of year-on-year-on-year basis for '27 and '28. I mean are you thinking that RoTE kind of continues to improve? Or are you thinking more 17% is kind of a very acceptable and a good level and so any additional upside you would look to reinvest? And within that, I kind of note that on the LTIP, you've kind of brought up the lower end of the kind of the boundary performance to, I think, to 16.5% from 14%, but the 18% of the top end hasn't changed. So I appreciate that's done by the compensation committee. But I'm just kind of curious how you're thinking about what appropriate or sustainable level of return is. And then secondly, again, just coming back, maybe more clarification on the Hang Seng Bank kind of benefit and restructuring charge. So I mean, I guess, I was curious, really, for a bit more detail on the $0.4 billion of additional benefit, I guess, from an accounting standpoint, can't be treated as a synergy what exactly that is? And within the restructuring charge, I think previously you said that there's actually going to be more of a less staff, natural -- there will be more natural attrition and redeployment. So there'd be very limited kind of day kind of costs. So I'm just curious what you're spending that money on? Georges Elhedery: Perfect. Thank you, Amit, very much for your two questions. Pam can address them, but just to talk about LTIP briefly. This is indeed the remuneration committee consideration. It reflects the performance that we will achieve in '26, '27, '28, which aligns to the guidance we're giving you. So there isn't more we can say at this stage. Apart from that, it is more ambitious and reflects our ambition to the business. Manveen Kaur: Thank you, Jordan. Thank you for your question. So firstly, yes, we have ambitions and our target is 17% plus each year. We are not giving a trajectory, whether it's the same or progressive but of course, we continue to grow our business and invest in it diligently, but the target is just 17% plus each year. In terms of our -- the Hang Seng, firstly to call out, these are both benefits we are getting from a cost perspective but also a revenue perspective. So classically, what you would see in terms of cost synergies and all the restructuring is actually severance costs, that is not the case here. Because there is so much focus on revenue as well, a lot of the restructuring will be in terms of investment from a technology perspective. The cost synergies themselves, of course, there will be some realignment and evolution of roles and individual areas. It's not something which is going to lead to severance or staff reductions. There could be some rule changes, clearly. There will be some scale in product manufacturing and there'll be some technology harmonization. Now when we think in terms of the 2 bits with the $500 million, the $400 million and why it so, clearly, from a cost synergies perspective, it's easier to call out. Revenue synergies, there are greater haircuts, but we do have very detailed comprehensive plans on how we are going to drive these revenue synergies. And those plans underpin the $400 million even though they were a haircut in the $500 million and just in total, to reiterate because there are lots of numbers going around. I appreciate that. Think of it as a $900 million benefit in those 2 buckets with different degrees of accounting rules and different probability of expectations and then an overall restructuring cost of $600 million to achieve that total. Georges Elhedery: And Amit, we are a net investor in people in Hong Kong. We are also investing in technology in Hong Kong to capture all these growth opportunities we have been talking about. Therefore, we do not expect, anticipate or plan any program of redundancies. We do, though, expect that some roles may need to evolve, and we are basically committing to training, reskilling to make sure that our own colleagues have these growth opportunities, career opportunities to be able to capture these roles in which we will be investing over the duration of our program of 3 years. Manveen Kaur: That's a meaningful number that we have already included in that $600 million restructuring costs for training and reskilling of our colleagues as their roles change and evolve. Alastair Ryan: Thank you. Will stay on the Zoom with Kian Abouhossein from JPMorgan. Kian? Kian Abouhossein: First of all, Georges, congratulations. I have to say you really driving the bank to a better process and discipline. We haven't seen in HSBC before, if I may say so. To the questions, tech stack, can you go a little bit more into detail? You gave a number in 2022 that you're spending about 20% on IT as a percentage of expenses. Wondering if we should think about similar ballpark. Within that, can you go a little bit under the hood and discuss where are you on cloud transmission are you done? Where are we on platforms? Are you done? Or what platforms still have to be produced new or integrated data management? So I really want to understand a little bit what you're doing on the tech side. And then CRE, this is still an area where I'm a little bit uncomfortable. Stage 3, CRE China 18% coverage, 16% on Hong Kong -- 14% sorry, on Hong Kong, stage 3. Can you talk a little bit where you want to drive that to? And clearly, I heard Pam's remarks about provisions and CRE was mentioned. Georges Elhedery: Perfect. Thank you, Kian, for your two questions and for your feedback. I'm going to take your tech question. Pam will cover the Hong Kong CRE. And I think it's a very important question. Thank you for asking it. We're indeed driving both performance and transformation with discipline, with precision, and we are doing it at pace. And we're very glad to see that the results of both performing, growing and transforming is delivering at pace, as you've seen in our 2024 numbers. So in terms of tech, you could broadly assume that 20% is the cost that we are spending on technology. But the way we're talking technology now is, number one, we are thinking about all those legacy or nonstrategic applications, which are consumers of run-the-bank costs, consumers of maintenance costs, patching costs, license fees that we are going to very proactively demise at scale. And we're very pleased to be able to say that we've demised more than 1,100 applications this year -- well, in 2025, this is more than 1/3 of the about 3,000 applications that we have deemed nonstrategic and looking to demise. Just to give you a perspective, we run about 10,000 applications, 9,000 actually, of which 3,000 are flagged to demise over the horizon between now and 2028, and we're moving at pace for that. Now that demise will allow us to free up investment capacity to put it in new technology and new capabilities in tech space. Cloud transformation, I think we are quite mature on cloud. I think we've moved from a cloud-first strategy where we moved many of our applications to cloud to now a more mature and therefore, more sophisticated approach to cloud by looking at optimization of hosting of applications. And therefore, we would look at any new applications or our existing stack, where it is better at. If it is on cloud where the majority is, then it will be on cloud, and then we will look at portability capabilities and resilience capabilities. And if it is on-premise, then or in the private cloud, then we will look at that. So I think we have matured our cloud approach, and we're already in a place where we want to be, but of course, we'll continuously evolve it. If you ask me where is the biggest investment going into the new technology today, it is definitely going into generative AI. I want to just take a minute to explain how we're thinking about generative AI because that's quite important. We're looking at generative AI in 3 work streams. They're on the Slide 8 of the pack. The first work stream is we're making generative AI available to all our colleagues in time, 85% mostly now enabled to make sure that we are helping our colleagues upgrade themselves and become future-ready. The first thinking is how can we bring our whole colleague population with us in becoming future-ready, generative AI enabled. They will have generative AI tools that they can use. They will have coding assistance or vibe coding assistance for those among our engineers, 31,000 already enabled, and we are seeing immediate productivity gains. We're seeing 60% speeding up in our unit testing. We're seeing 5x faster patching of code, patching of vulnerabilities and code, thanks to all these capabilities. This is our first mission. All our colleagues to benefit, to be trained, to be upskilled, to become future-ready, better version of themselves, more productive, better outcome for our customers. The second work stream in generative AI is fundamental reengineering of our processes end-to-end. 50 of those processes are already under review. Some of them have already delivered and finished, such as onboarding and KYC, but all sorts of processes, including fraud detection and prevention, credit applications, capital allocations and what have you data -- visas and what have you to allow generative AI to help us redesign the process in a much simpler way and also allow gen AI to be integrated in the process to process data in a much more efficient way. The result of which is a more productive bank, more efficient bank and a safer bank with stronger controls, and more importantly, a very simple bank that will be able to ultimately deliver to our customers closer to near real time or real time at the highest possible standard that's available for us. And that is an ongoing journey. The third work stream we're taking in generative AI is how we enhance customer experience at the customer touch points. So this is our relationship managers, wealth advisers, contact center operators. As they engage with customers, generative AI tools already rolled out, as you can see on the slide, will allow them to personalize at scale, to tailor-make, to customize at scale at the highest possible standards for our customers close to real time in a way that can allow us to deliver our capabilities to customers in a much more seamless, faster, better way. Customer experience will be materially enhanced. Now today, we will have operators using this generative AI at the service of our customers, but you can envisage that in a few years' time, we could possibly put these generative AI tools straight for utilization by our customers. Those are the 3 work streams. What I want to say though is that we're doing this with safety and security at the forefront. We're doing this in a way that we can review, monitor and audit everything we're doing in the space as a critical standard, and we're doing this in a way to keep control, resilience and human accountability always there because we are a regulated industry and our customers' trust is the most important asset, and we will do everything to make sure customers trust is always protected and nurtured. Thank you for that question. I'll hand over to Pam on Hong Kong. Manveen Kaur: Thank you, Kian. So just looking overall in our guidance, around 40 basis points guidance for 2026 considers all our portfolios. And of course, Hong Kong commercial real estate as well as the very small residual amount of China commercial real estate, and we look at a range of plausible downside scenarios before we give you this guidance. So just unbundling a bit. The China commercial real estate portfolio has really come down. It's now less than $1.5 billion, and our ECLs this year for this was below $200 million. So in that context, the names that have left that portfolio that's left, we feel much better about it compared to where the other portfolio was when we first started with it. Now when you think in terms of Hong Kong commercial real estate, firstly, I'm going to give you a bit of an update on the 3 segments within this Hong Kong commercial real estate portfolio and then how we look at the names, particularly the credit impaired names. Now the first one, we've been calling it for a year, and now I'm very pleased to say that the residential component of Hong Kong commercial real estate is near normalized. And I say that because whether I look at in terms of price increases, HPI has been up 5% year-on-year in 2025. But more importantly, we've seen a 10% growth and also sales volume. Rentals have already stabilized both in terms of the rental demand as well as the rental pricing. Now when we look at retail and the office space, of course, there are pockets of distress in it. But just as a broader context, we saw retail sales also in Hong Kong in May turn into positive. And they are now up year-on-year at 6.6%. But of course, this alone is not going to solve the problems of the retail sector because peoples retail shopping patterns have changed. They don't necessarily need to go to shops on malls, et cetera. Having said that, as there is more consumption in Hong Kong, we are seeing this shift from shopping places being changed into more food and beverage and so on, but there will be pockets of stress in it, and that will be coming from mainly oversupply at this point of time. Now office is the sector we are watching very carefully, because recently, we have seen both in terms of rental demand and in transactions for the best properties with the best spec in central in the best areas, there are some green shoots. But the downside is, at this point of time, vacancy rates starts are still around 17%. So that's what we will be managing through and following up very, very carefully. Having said that, in Hong Kong, we are not a distressed seller. It's a market we are deeply embedded in. We really understand well. But we are very resilient in terms of how we do our valuations. So we go and look at valuations, including distressed valuations. And we look at with our collateral position, and we stay well collateralized. And we've been following through this very closely over the last couple of years. The one metric, which I personally follow, though my job has changed now, is what happens to credit impaired names. And the exposure that you need to focus on is credit impaired names, which have an LTV over 70%. Now this number has grown and it now stands at $1.9 billion. But the ECLs against it have also grown, and they have grown to around $900 million. And if you go back quarter-on-quarter, that differential between the ECL number and the exposure sits around $1 billion number. So that's where you think your risk is. And of course, you have to see if some of the substandard names don't fall down and so on. So overall, I would say, given what we are seeing and particularly to notice that in this quarter, we had a stage 3 against one name, but the macro environment in Hong Kong was positive. And as a consequence, through IFRS 9 calculation, those 2 almost offset each other. So in that broader picture, we feel very comfortable with the 40 basis point guidance. Alastair Ryan: We will take Rob Noble at Deutsche Numis next. Robert Noble: Just on net -- sorry, noninterest income in 2026, what are the negatives in noninterest income for next year? So if you were to grow the same level, which was, I think, the low teens in 2025, you would blow through 5% revenue growth in '26, let alone in 2028. So why aren't you -- why are we much more positive on revenues than you're kind of sat now? And then secondly, just on Hang Seng, what's the difference in the local capital requirements in Hong Kong and the U.K.? Does the transaction change anything in terms of minimum group regulatory requirements and how we manage capital through the group? Georges Elhedery: Okay. Rob, thank you very much. Let me address your first question, and Pam may add to it and address definitely the Hang Seng capital question. So the 90% or more of our noninterest income, and therefore, our fee or other income is driven by transaction banking and Wealth. So looking at the dynamic in these 2 will give you a good perspective of how our non-NII is evolving. Transaction banking, we've reported full year growth of 4% year-on-year. We are seeing continued momentum in this space. We are a leader in practically all the aspects of transaction banking that we prosecute with our clients. We've been voted by 30,000 of businesses as the leader in payments, both in products, services and technology. We've been 9 years consecutively a leader in trade. We've been voted by corporates using foreign exchange as the leader in servicing them with foreign exchange. We continue investing in this space. We continue expecting resilience in this space, in particular in trade. And I can talk more to trade if desired. As you look at Wealth, Wealth remain unequivocally one of the strongest growth opportunities, in particular, one, given our footprint, where we are focusing on Asia and the Middle East and the underlying growth in Asia and the Middle East of Wealth is very strong and our ability to capture more market share is very strong. We're already a leader in Wealth in Asia, if you look at Wealth balances. And that's an area where we can benefit from this underlying structural growth opportunity. And second, Wealth because we are also accelerating our investments in this space. You've seen we've launched 26 or 27 wealth centers in 2025, taking the total to 64. We're hiring relationship managers, wealth advisers. We're empowering ourselves with generative AI wealth capabilities. We're building technology. We're creating a comprehensive set of products, and we continue investing in this space. So we do believe they remain -- Wealth remains a very strong growth opportunity, albeit we have dropped the guidance on that. And the idea is to give you an overall revenue guidance, which is better encompassing the overall opportunities and probably more relevant for your forecasting. Pam? Manveen Kaur: Thank you, Georges. So firstly, the only comment I'll make on Wealth is, as Georges said, we are very comfortable in our broad-based product proposition. But the only thing we need to remember is that this year, with how the markets have performed, therefore, on some of the Wealth that is generated through transactional kind of activity, we just have to see how that progresses in next year. We're not going to make a call out on how volatile or otherwise markets are going to be in 2026. So if there's anything that's what would have been a good consideration because we have to look at plausible downsides clearly in giving our guidance as opposed to just a base case or an optimistic case. So that's all I would say on that. Now from a Hang Seng capital perspective, we have already got the $3.8 billion benefit, which comes from the disallowed minority capital, which we don't need to have an impact on our CET1 anywhere. So that's a positive straight on. But generally, in a broader picture, across all our subsidiaries, which are 100% owned, we do have more flexibility in terms of how we move our capital, whether it's upstreaming or downstreaming, obviously, subject to what we consider the mark-to-market outlook is, where our portfolio is and subject to sort of regulatory discussions. So all in all, it does give us a better ability to move capital around the group and be more efficient in the deployment of capital. Alastair Ryan: The next question we will take again from the Zoom is [ Chen Li ] at China Securities. Unknown Analyst: I have a question about preservation of Hang Seng Bank. Could you provide further information about the growth opportunities? I want to know that in which aspects of the Wealth Management business will have more -- stronger synergies with Hang Seng Bank? And what are other outlooks for the Wealth balances and the Wealth Management margins? Georges Elhedery: Okay. Chen, thank you very much. I'll hand over to Pam, but remember what we said at the announcement on the 9th of October of our intent to privatize Hang Seng is these are commitments we are holding. Hang Seng Bank will retain its own authorized institution and governance. It will retain its own brand in Hong Kong, of course, as a major community bank and the largest local bank. It will retain an independent customer proposition that will compete in the market for all customers. It will retain its branch network. And that proposition will remain intact with a distinctive cultural strength and customer proposition, customer experience strength that Hang Seng has been known for, for practically a century in Hong Kong. What we are driving through these privatizations is better efficiencies in cross-selling or better efficiencies in aligning back office or manufacturing capabilities that are not related to the customer proposition. Pam? Manveen Kaur: Thank you, Georges. So firstly, as Georges has said, that the positioning of Hang Seng Bank as an iconic community bank in Hong Kong stays. What we will endeavor to do is that post the privatization, we don't have that arm's length relationship restriction that prevents us to do more in terms of product proposition offerings and cross referral to our customers and also in terms of the investment dollars that we spend, we can't spend them if it's on the same product, on the same customer journeys seamlessly across both the Red brand and the Green brand. So that gives us a very good position that as these 2 stand-alone brands, our ability to lean into the growth in Hong Kong and the macro opportunities, including cross-border will be available to the broadest customer base while maintaining that community element of service for those customers. So that's how we are looking at it. And we will look at, obviously, Wealth products as well as pricing margins so that we can really make them more easily available for our customers. Georges Elhedery: Chen, we are the market. We are the market leader in Hong Kong, undisputed. We are consolidating and cementing this leadership. Hang Seng Bank privatization will allow us to consolidate that leadership even further in all sorts of a broad range of products and services. And we have a leadership position in capturing these growth opportunities that Pam was talking about in Hong Kong as a super connector between the Mainland and the world, as poised to become the leading cross-border wealth hub on the planet before the end of the decade. And it's really a privilege to be in the position we are in to be able to capture this with the full HSBC and Hang Seng propositions. Thank you, Chen. Alastair Ryan: So I will take the next question from Ed Firth at KBW. Edward Hugo Firth: I just had two questions. One, just talking about the HIBOR benefit in Q4 for your net interest income. I think one of your peers talked about it as a temporary benefit. And I guess I'm not close enough to the franchises and how you price, et cetera, domestically. But I guess, do you know -- is there anything peculiar about you or some of the peers about the way you repriced CASA accounts or something in Q4, which would mean that yours should be sustained, but somebody else's might be temporary. So I guess that's the first question. And then the second question is, I guess, it's slightly an extension of Rob's question. I'm not quite sure what is so specific about 2028 that means you can get 5% revenue growth there, but I assume you don't feel you can before then. And I know that at the moment, in '26, we've got some headwinds from interest rates, but you've also got a very strong tailwinds around things like Wealth Management, Pam highlighted that. And '27, I guess, should be a reasonably normal year. So I'm just wondering, is there something that I need to think about that you can see that is happening from '28 and beyond that will make your revenue growth better that we're not seeing today? Georges Elhedery: Okay. Thank you very much, Ed, for your two questions. Pam, do you want to address that? Manveen Kaur: Yes. So let me just unbundle the situation with regard to HIBOR. So in the fourth quarter, HIBOR stabilized. And we had called out in the prior quarters that in 20 -- and I'll come to Q1 in a second. That in Q2 and Q3, HIBOR was very volatile. And we were looking at the comparison for a HIBOR close to a 1% where it has an impact of about $100 million in terms of banking NII on a monthly basis and then stabilizing to something which is in the 2% mark. We look at HIBOR on a 1-month HIBOR basis. We feel very comfortable as long as HIBOR is around 2.25%, 2.5% and so on. I fully recognize that in -- and I don't know what other peers would say, like what tenor of HIBOR rate is most relevant for them. I'm just telling you from our perspective. Now in Q1, HIBOR has fallen, but we have to see the context. There's been a range of IPOs that normally happens. When there's that demand for HIBOR fluctuation, but it has fluctuated within a narrow range. So the impact isn't there. Also, last year, in Q4, there was a benefit of lower betas. So when HIBOR went up, the same impact wasn't there on the savings rates. Of course, we'll have to look at betas, how they evolve. And then we have a very strong deposit franchise. And I think that's a differentiator in terms of the CASA level that we have, in terms of our accounts. And therefore, we have a good positioning where that deposit base helps us on the banking NII more than most of our peers. Obviously, in terms of both banking NII this year and also our ambition, it's the rate headwinds. And as I said earlier, it's the timing of the rate headwinds. If they're delayed, of course, it becomes less of a headwind. If they are earlier, then there is more sensitivity to it. So I would say from a Wealth business, as I also alluded to earlier, yes, the growth is very strong whether its asset management, Wealth products, insurance, it's broad-based growth. But last year, there was a great advantage or a tailwind coming from markets, which gave us a lot of uplift on the transactional-based fee income. We can't assume that for this year. Of course, if markets stay well and that happens, then that's a positive tailwind. So that's how I would look at it. Georges Elhedery: Yes. And I would look at '28, not specifically as the year '28, but as what would we believe our long-term structural opportunity to grow. It's our guidance for '28, but we've delivered 5% revenue growth in '25. We've delivered 4% in '24. So it's just the footprint we are in and the capabilities for us to capture the growth is there. Manveen Kaur: And we like to be cautious to we have to consider downside scenarios as well. We don't always take the best case. That's all I would add. Alastair Ryan: Many thanks. We have probably time for a couple more questions. We'll take Alastair Warr at Autonomous next. Alastair Warr: Two questions. Back to Hang Seng Bank, I'm afraid. You touched on potential upside from asset quality improving. I just wondered if that's something you're thinking about in terms of maybe more active steps? Or is this just about being patient with the property cycle? And then just on the Wealth side for a second question. It looks like there's a bit of a slowdown in the new account opening in the fourth quarter if you've got 1.1 million for the year and you were running at about 300,000 a quarter. Is that just seasonal or anything changing there that we should be aware of? Georges Elhedery: Thank you, Alastair. Pam, you can. Manveen Kaur: So just in terms of the asset quality, the comment I made was that if you look at Hang Seng's pre-impairment margins, they've been very strong. If you look at what Hang Seng's ECL charges have been prior to '22 versus in '24, '25 and even the run rate for the first half of the year and then what's consolidated for the full year, that's what I meant by the overall improvement, and that would be both for Hang Seng Bank as it would be for HSBC Red brand, and that's the only way to look at it. In terms of our own policies or processes and how we manage exposures, both for the Red brand and Green brand, they are highly aligned, how the rigor we follow through them, I don't expect any of that to give us either a tailwind or a headwind. So in terms of the new-to-bank customers, yes, it was 1.1 million, just to clarify for the Red brand. And the fourth quarter also had a good number. We believe that this new-to-bank customers is a huge growth opportunity for us. However, we are trying to be now a little bit more selective on the acquisition because we have now had a 3-year trend on how the acquisition has happened in between the lower end of the customer base and the more premier. We have added a fee for the new-to-bank customers who have a balance less than HKD 10,000. And because of that, we expect that there would be slightly slower acquisition in 2026. But the focus on our affluent customers is going to continue. The focus of the improvement in our overall income, whether it's through deposits, Wealth products, insurance is very healthy coming from these new-to-bank customers. So we don't see any change. We just don't want people to say that every month is going to be like 100,000 number because it's like almost like a ticker number because that's what the trend was. There will be fluctuations and changes month-to-month and quarter-to-quarter, but nothing material to call out as such. Alastair Ryan: We'll take Kendra Yan at CICC. Jiahui Yan: My question is kind of related to micro side. As the newly nominated U.S. Federal Reserve Chair has proposed interest rate cuts and balance sheet reduction. Could you please share your macro assumption behind the future 3 years guidance? And are there any risks that we need to pay attention to? Georges Elhedery: Yes. Thank you, Kendra. We can do that, Pam? Manveen Kaur: Yes. So just as I said earlier, Kendra, when we look at our guidance, we look at plausible downside scenarios. That include interest rate cuts, both quantum as well as duration. This time around, as we said, the starting point for the guidance for this year was the January year-end cuts, but we also stress test our portfolios on a regular basis for a range of scenarios. And we consider those and the impact on ECLs also on a weighted average basis when we look at our overall portfolios. We have looked at the -- some of the macro I would say, recent news, whether it's to do with private credit or otherwise because as I said earlier, we look at second and third order risks that may come from some sort of a macro event or issue, even though our own underwriting practices are very stringent and very rigorous in this respect. What I will say is that despite the evolving scenarios that you are facing on tariffs and trade, our business has been really quite resilient. And that has -- overall, it is up 2% year-on-year in 2025. In a complex market as this landscape evolves, our relationships and engagement with clients gets even stronger. We have taken market share in corridors through -- in Hong Kong, U.K., Asia overall as supply chains are moving and corridors are shifting. So I would say, overall, if I think in a macro sense, there are headwinds and tailwinds as well as for the world at large, but also for HSBC. We look at specific idiosyncratic factors that could impact us, any risk concentrations we may have in our home markets, and that's all part of our guidance. And that's why I said to you earlier or to the earlier question that when we give our guidance and our targets, we like to be rightfully conservative. But the most important thing is through this period, we have made an assumption that we will continue to invest for growth. We have the right strategy. We have the right priorities. We have the focus to retain and win market share and we will continue to do that with the basic underlying principle that Georges called out earlier, we are here to serve our customers, and it's the strength of our relationship with our customers that gives us the confidence for our guidance and targets. Alastair Ryan: Yes. Thank you, Georges. So we'll just take a final question today from Katherine Lei at JPMorgan. Katherine Lei: Okay. My question is still on revenue side, right? I think the 5% revenue growth in 2028 and then the above 17% RoTE guidance, I think there's 2 key drivers. One will be on NII and then the other will be on Wealth. But my question is that on NII, what is -- like what gives HSBC the confidence that on the sustainability of the deposit growth? Because one trend we noted is that, say, for example, in China, with RMB appreciation and also China start to taxing its citizen globally, will that actually slow down, say, for example, Chinese nationals coming to Hong Kong to open new accounts and then the money flow movement? So can we be more a bit specific on what are the key drivers and then the key path on the deposit growth? This is number one. Number two, I think is still on -- number two is on Wealth and on that trend, right? So what do you think that will have an impact on our Wealth as well? Georges Elhedery: Okay. Thank you very much, Katherine. Let me address them in reverse order. I'll speak a little bit about Wealth, and I'll share some thoughts about deposits and Pam can give you additional granularity to address your question. Wealth remains structurally a very important growth opportunity for HSBC, as we said specifically that we are aligning our Wealth footprint, Asia and Middle East to where the Wealth is growing fastest in the world in Asia and the Middle East. Also our ability to capture wealth all the way from the premier customer base, which is the affluent middle class all the way to the high net worth means we have a better catchment of all these opportunities. We're also present in a number of onshore markets such as China onshore. We are the leading international wealth manager in China, Mainland China onshore, which is not dependent to flows outside China, for instance. We're investing in India. We, of course, have big wealth hubs in places such as Hong Kong, of course, Singapore, the UAE and a number of other markets. The challenges possibly to anticipate is there is a turnaround or a change in the overall outlook of investment because inevitably, wealth will depend on the underlying performance of the invested markets. And if there is -- today, there is a strong resilience in these markets, which is what we -- our customers are also looking at. But that is, of course, always a risk that we need to be watchful of. We're also investing to gain share. We're investing to diversify the product offering and to diversify the wrapper offering all the way from insurance to asset management to other forms of brokerage, et cetera. So that we are able to meet the varying wealth customers' needs in how they look at their investment requirements. Finally, we're also investing in generational wealth, specifically supporting transfer to the youth or the next generation or transfer between wealth centers in a way our footprint allows us to do that is competitively very strong compared to a number of our peers who are offering wealth from very, very few number of hubs, okay? That's the wealth. Now with regards to deposits, Pam will give you a better answer in the details you're asking for, but let me tell you one thing about deposit. It is the foundational product on which our customers' trust is expressed with HSBC, and this is how we look at it. Customers trust us with their deposits. That's the starting point of any possible service and proposition in transaction banking, payment, financing and otherwise. So we cherish this asset class. We have always cherished it, through thick and through thin, in good rates and bad rates, and we will always focus on what it takes to make sure our customers trust us, the financial strength, the level of service so that we earn their trust with their deposits. When you look at our deposit base, it has grown in every business. It has grown, and we are highly surplus liquidity in every currency, every major currency, in every major geography. So there is a deep rooted across our 4 businesses and across all the geographies where we operate. a deep-rooted trust, which we nurture to support customers giving us their deposits and using us as their deposit bank by preference or by excellence that can support, if you want, our outlook on our deposit growth. Pam? Manveen Kaur: Thank you, Georges. And Katherine, a really good question to close on. We have seen deposit growth, as you've seen in our new disclosures on Wealth across the spectrum of our customer base, premier, private bank, retail in every market, in every jurisdiction, even when there isn't a home market, and that really underpins the growth that we are seeing in our banking NII. We have taken very conservative trajectory on loan growth. I'm hopeful at some stage, loan growth will also pick up, which will then also support the banking NII if from an interest rate perspective, the timing of the interest rate becomes a headwind in one of those plausible downside scenarios. We have a structural hedge, which is continuing to be a tailwind given all the work we did a few years ago. We will also continue to build on the structural hedge, even though the largest increases we have done are -- have been behind us now. So if I look at all of these things in the round, and I look at the momentum of the business that we have seen in the first sort of 7 weeks of this year, that gives us confidence for our banking NII guidance for 2026. If you underpin that just based on the fourth quarter, obviously, it will give you a number of [ $46 billion ]. But we are not calling that out because we are very cognizant of the headwinds on interest rates. And you're right, the interest rates in the U.S. is down 50 basis points, U.K., 25 basis points just year-to-date with further 2 to 3 rate cuts to happen. So with that, I think in the round, we feel very confident that the banking NII, which is, again, the trust of our customers and what we are doing everything to preserve that trust and to build on those relationships, because I'll just end with one thing. We are fundamentally a relationship bank. We have a full-service suite of products we offer to our customers. So for our guidance, for our targets, we look at that full range. We are not a product proposition-based bank, in which case, some of the comments you made will obviously be a bigger headwind. Georges Elhedery: Perfect. Thank you, Pam, and thank you, Katherine, for your last question. Thank you, everyone, for joining us. We are pleased to report strong revenues, strong profit, strong returns and strong distribution to our shareholders. We are confident we can navigate the challenges ahead of us from a position of strength, and this has allowed us to put ambitious targets about our revenue growing every year for '26, '27, '28 rising to 5% in '28 as well as our return on tangible equity delivering 17% or better every year over that period with a 50% dividend payout ratio, all excluding notable item. Thank you very much for joining us this morning or this afternoon, and I hope you have a good day. Manveen Kaur: Thank you. Operator: Thank you, ladies and gentlemen, for joining today's webinar. You may now disconnect.
Leroy Mnguni: Good morning, ladies and gentlemen. I'm Leroy Mnguni, Head of Investor Relations for Volterra Platinum. Thank you for taking the time to join us for our 2025 final results, both in person and online. Let me start by welcoming our Board members who are here with us in the room today as well as our executive leadership team. From a housekeeping perspective, we do not have any fire drill planned for today. Therefore, if you hear an alarm, we request that you exit the venue safely through the doors at the back. For those of you that are near the front, please note that there are exits on either side of the venue on the lower level as well. Our fire marshals and security officials will be stationed outside the venue and will escort us to a designated assembly point. To draw your attention to the cautionary statement, I would encourage you to read it carefully in your own time. Now for the agenda for today. Craig Miller, our CEO, will take you through a brief overview of the significant milestones achieved during 2025, followed by a review of our operational and market performance. Sayurie Naidoo, our CFO, will then take you through the financial results. Finally, Craig will wrap up the presentation. As usual, we've allocated time for Q&A at the end of the presentation. I'll now hand over to Craig. Craig Miller: So thank you, Leroy. Good morning, everybody. And once again, thank you for joining us. I'd like to begin by reflecting on safety. So tragically, we lost 2 of our colleagues in work-related fatalities during 2025. Mr. Felix Kore at Unki Mine on the 20th of April and Mr. William Nkenke at Amandelbult's Dishaba mine on the 22nd of July. We extend our sincerest condolences to their families, friends and colleagues. The lessons learned from these tragic incidents are being implemented across our organization. And while we mourn these losses, we also recognize that we've made good progress on safety overall, and we've achieved a number of milestones at our operations, including 14 years without of fatality at Mototolo, 13 years at Mogalakwena and 9 years at Amandelbult's Dishaba mine. We've also improved our total recordable injury frequency rate by 11% to the lowest level in our history, placing us in the leading quartile amongst our peers. Safety remains our highest priority with our unwavering focus on achieving zero harm. Our teams are committed to proactively preventing injuries, and we will not compromise on safety under any circumstances. We're also fully dedicated to delivering on the commitments that we have made. And with that in mind, I'm delighted to say that 2025 was an exceptional year for Valterra Platinum despite navigating a challenging external environment. Some of the progress highlighted here reflects discipline in action from strengthening our operational excellence to executing consistently across all of our strategic priorities. Most significantly, we launched as an independent company, having successfully completed the demerger from Anglo American plc as well as our secondary listing on the London Stock Exchange. Subsequently, Anglo American plc sold their remaining minority interest, fully completing their divestment from Volterra Platinum. Our simplified organization structure has been well embedded with a reconstituted executive committee focused on the delivery of the strategy with clearly understood accountability lines. We've reinforced our operational capabilities through the recruitment of critical skills and services, and we will have exited all of the transitional arrangements with Anglo American by the end of 2026. Our reconstituted Board comprising of 11 nonexecutive directors and 2 executive directors brings the required diversity of experience and expertise. Our relentless pursuit of operational excellence has delivered a really good performance, having exceeded our production guidance despite the weather-related impacts experienced in the first half of the year. Financially, we exceeded our targeted cost savings in 2025, which has brought our total cost and capital savings delivered over the last 24 months to ZAR 18 billion. I'm particularly pleased with this result given the macroeconomic factors impacting our cost base. Our entire organization is focused on maintaining this cost and capital discipline, notwithstanding the higher commodity price environment. And as we've previously said, each of our assets plays a well-defined role in the portfolio, and I'm glad to report that they have all contributed to the progress during 2025. Our extensive endowment of mineral resources provides an exciting growth prospects for Valterra Platinum, and I'll take you through the progress that we've made developing these projects, particularly Sandsloot and Der Brochen in just a few slides. We continue to actively seek opportunities with industry players to drive demand to ensure the long-term success of our industry. Over the past year, we've maintained our focus on enhancing PGM usage in mobility, jewelry and investment. And on the industrial front, the recently announced partnership with Johnson Matthey and Sibanye-Stillwater is evidence of our commitment to working with industry players to grow industrial demand. And we would certainly welcome other producer peers to join us in this venture and of course, not to preclude us from working with other fabricators in other areas. And finally, the recognition of Mogalakwena by the initiative for Responsible Mining Assurance with a 50 accreditation means all of our mining operations are now accredited. This is a rare global feat that sets us apart in the mining industry and reaffirms our commitment to embed sustainability into absolutely everything that we do. So now let's dive into the detail of our performance. I am encouraged to see the delivery of our strategy has led to an improvement in our underlying performance. While we've obviously benefited from the increase in the PGM basket price, the drivers of which I'll walk through a little bit later, the 68% increase in EBITDA is substantially supported by our internal actions as well as that macroeconomic price environment. And consistent with our commitment to drive down our all-in sustaining costs in real terms, we've consistently driven down that all-in sustaining cost and have maintained this at below $1,000 per 3E ounce. Our balance sheet has strengthened materially over the second half from a ZAR 4.5 billion net debt position at the end of June to an ZAR 11.5 billion net cash position at the end of the year, reflecting the outstanding free cash flow generation. This has allowed us to pay a special dividend on top of our base dividend, bringing the total dividends for the year to approximately ZAR 12 billion. It's certainly not just our shareholders who are benefiting from the additional value that we are creating. As you can see, Valterra Platinum continues to be a significant contributor to both our local communities and the broader South African economy through the combination of local procurement, capital investment, social investment and of course, salaries, wages, taxes and royalties. All in all, we've contributed more than ZAR 83 billion to our stakeholders. Valterra Platinum is truly playing its part in sharing value to better our world. So turning to a bit more detail on our operational performance. We outperformed on operational delivery this year due predominantly to the improved performance in the second half of 2025 when our operations demonstrated far greater stability and efficiency underpinned by our focus on safe and responsible mining. A record number of tonnes were milled at Mogalakwena, which helped to more than offset the weather-related decline at Amandelbult, resulting in total tonnes milled increasing 1% year-on-year. Amandelbult's strong second half performance, aided by the faster-than-anticipated ramp-up to steady-state volumes exceeded guidance with total production at 484,000 ounces. Our mass pull improved by 9% compared to 2024, underpinned by notable improvements at Mogalakwena as well as Amandelbult. Overall, our refined production, which was supplemented by inventory optimization, exceeded our 3.4 million ounce guidance. Sales volumes included refined margin -- refined inventory destocking totaling close to 3.5 million ounces. So delving now into the performance of some of our assets. Mogalakwena's pit optimization efforts led to a clear improvement in its operational performance. Our strip ratio has declined 22% to 4.5x. This means that we mined 15% more volumes despite an 8% reduction in total tonnes mined. The efficiency improvements have allowed us some flexibility in the selection of ore grades. So in line with our value over volume strategy, we've been able to process some of the lower-grade stockpiles while still reducing unit costs. This has resulted in the lower head grade, which was offset by higher tonnes milled, delivering similar ounces to what we achieved in the prior year. I'd like to take a brief moment to really emphasize that these developments provide a significant value-enhancing opportunity for Mogalakwena. We can mine fewer tonnes and supplement the expert ore with surface level lower-grade ore stockpiles, resulting in lower operating cash costs, while our volumes are maintained within our guided range. But most importantly, we can keep this Tier 1 asset anchored in the bottom quartile of the cost curve. Other operational excellence initiatives at Mogalakwena have resulted in notable improvements in both mining and in concentrating activities. We've seen a 9% advance in drilling efficiencies and a 15% improvement in redrills, while our load and haul efficiencies have improved 24% and 18% year-on-year, respectively. These positive developments have started to materialize in lower operating costs and together with the benefits of higher co-product revenues has resulted in an 8% reduction in our all-in sustaining cost to $835 per 3E ounce. And so no doubt, you're all keen for an update on the Sandsloot underground, not only because it's genuinely exciting, but because it has the potential to truly move the needle. Here's a reminder of why this project has the potential to be a significant strategic catalyst for Valterra Platinum. Our declines begin at the base of the Sandsloot open pit, providing close access to the reef. This substantially reduces project lead time and lowers capital intensity compared to other projects in the industry. Unlike other Bushveld complex reefs, its height is between 40 and 120 meters with a 45-degree dip on average, characteristics well suited for bulk underground mechanized mining. At 4 to 6 grams per tonne, the reef is materially richer than other mechanized mines in the PGM industry. Growth uplift is driven by higher grades rather than increasing volumes, enabling us to leverage the existing concentrator and tailings facilities. This approach will save us billions in upfront CapEx and costs. And this year, we plan to commence trial mining, which will provide critical inputs to our comprehensive feasibility study. The conclusion of the prefeasibility study has reinforced our confidence in the 10% to 50% uplift in Mogalakwena PGM volumes and a 10% to 20% reduction in costs that we've previously communicated, numbers that we believe will truly move that needle. With the scale of the opportunity in mind, over the past year, we've made great progress in bringing this closer to reality. The team has completed a further 30 kilometers of exploration drilling, which has informed the total upgrade of 13 million ounces to measured and indicated mineral resources, which is available for future ore reserve conversion. The underground development has advanced a further 3.2 kilometers, while the team also successfully completed the pass for the ventilation shaft 1. Trial processing of the bulk ore stockpile is underway, which has accumulated to approximately 80,000 tonnes by year-end. And we've invested about ZAR 1.4 billion in CapEx to advance the project, while over the medium term, our CapEx guidance remains unchanged. I really hope that you're as excited about this as we are given the potential of this opportunity for Valterra. So moving on to Amandelbult. I am incredibly proud of how our teams responded to the flooding. Not only did their decisive actions ensure safe and responsible evacuation of all of our employees, they also accelerated the dewatering well ahead of plan and enabled a faster-than-expected ramp-up to normalized production. So a huge thank you to everyone that was involved. And as I've mentioned, this has enabled Amandelbult to exceed its revised guidance in the second half of the year with the second half performance outperforming that of what we achieved in 2024 despite Tumela mine only reaching steady state by September. This performance highlights the strong operating potential of this asset with our 2026 guidance indicating an approximately 25% recovery. Despite the severe flooding impacts, Amandelbult delivered positive free cash flow, further supported by the insurance proceeds. The resilience of the quality of this ore body with its favorable prill split and rich chrome products driving the highest basket price in the PGM sector at around $3,000 per 3E ounce at current spot levels. So moving on to Mototolo. The Der Brochen project development has progressed well through 2025 with all development ends successfully intersecting the reef having navigated the [indiscernible] zone. Total develop more than doubled, reinforcing the long-term optionality and sustainability of the operation. We also achieved a 9% increase in immediately available ore reserves, enhancing near-term operational flexibility. At Mototolo, our operational excellence initiatives delivered a 12% productivity uplift. Despite the dilution from the development tonnes, production remained consistent with that of the prior year. So looking ahead, the ramp-up of the new, more efficient Der Brochen mine with the continued improvement in chrome recoveries and further optimization of the 3 declines are expected to drive Mototolo's cost further down the cost curve. Our processing operations have also seen improvements beginning with our upstream performance. We achieved a 1% to 2% improvement in concentrator recoveries at both Amandelbult and Mototolo, aligned with our strategic objective to enhance recoveries and improve margins. At Mototolo, recoveries -- sorry, beg your pardon, at Mogalakwena, recoveries remained flat, a notable achievement given the 13% reduction in our mass pull. Amandelbult's 7% reduction in mass pull also contributed to the reduction across the business. And I have already mentioned Mogalakwena's record milled tonnes were supported by the ongoing improvements in plant availability and proactive investment into reliability. And so now for the much anticipated update on the Jameson Cells. Sorry, that was like really dramatic, I'll take a sip. We have optimized the plant to further deliver improvements following the first half commissioning. And we are expecting additional improvements at the Mogalakwena concentrators on top of the 13% I've just mentioned as optimization continues and the plant's annualized impact is realized. We're also really encouraged by the almost 1 percentage point improvement in the adjusted North concentrator recoveries since the commissioning. And while the recovery uplift was not the primary objective of the introduction of the Jameson Cells, the team is optimistic that further improvements may follow. So to put that impact into perspective, volumes at the Mogalakwena North concentrator declined 14%, while concentrate grade increased 16%. Importantly, there are many wider benefits to the mass pull reduction. In 2025, we saw a 21% reduction in trucks transporting concentrates, a 4% decrease in smelter electricity consumption and a corresponding 5% reduction in CO2 emissions, delivering an estimated cost saving of about ZAR 123 million with additional savings expected in 2026, commensurate with further improvements in mass pull. So now turning to our markets. There were several positive developments in the PGM markets during 2025. While we've all seen the overall increase in the basket price, it's important to note that there were multiple factors that contributed to the increases with a few dominant drivers standing out. Firstly, the year began with moderate price gains owing to a weaker U.S. dollar. Prices accelerated as the market tightened over concerns about tariffs and weaker mine supply. And although primary supply normalized in the second quarter, stronger price gains followed from May onwards with a large price differential with gold prompting strong Chinese buying. This was then accentuated in June and July by renewed tariff concerns, prompting further sizable U.S. imports. The second half of the year benefited from strong investor purchasing, driven by the debasement trades and the launch of the Guangzhou Futures Exchange. Specific factors also contributed, such as a robust hard disk purchasing in ruthenium and the recovery of rhodium demand, particularly in the fiberglass applications. And while price movements were dynamic, they were firmly underpinned by market fundamentals; tightening supply, stronger-than-expected demand as automotive sales prospects improved and inventories that proved less abundant or more tightly held than many had anticipated. The second half of 2025 was an exceptional period for PGM prices. The full basket price ended the year 86% higher than at the start of 2025. All metals contributed to this increase with platinum, palladium and rhodium being the largest contributors. There are 2 potential bullish drivers already making an impact. You may remember that we called these out specifically at our Capital Markets Day last year. Firstly, BEV penetration forecasts have been revised downwards, particularly in Europe and the U.S.A., markets where vehicles are heavily loaded with PGMs. Political developments in both regions have further supported the internal combustion engine vehicle demand. Meanwhile, the price of platinum rose considerably, but it is still trading at a substantial discount to gold. This has enabled platinum jewelry to gain market share in several key geographies and heightened interest in substituting PGMs for gold in various industrial applications. Our total supply and demand outlook for PGM markets points to continued tightness in the medium term. We expect global car sales to continue growing alongside an expanding world economy. Downward revisions to BEV growth in key markets are also supportive. Mine supply is expected to decline over the medium to long term, though at a slower pace than previously anticipated due to higher prices. Elevated prices will also encourage recycling volumes, but still face headwinds. And importantly, even at current price levels, new mine projects are unlikely to come online soon nor will vehicles be scrapped any earlier. Structural constraints to materially higher supply, therefore, remain. Our outlook is broadly consistent with prior expectations. And in 2026, we anticipate a sizable deficit in platinum, while palladium's anticipated surplus again fails to materialize. Beyond that, platinum should remain well supported, while palladium and rhodium will shift more to balance, but at an uncertain pace. These balances exclude investor demand, which enjoyed strong tailwinds in 2026. PGMs are increasingly recognized not only as critical minerals, but a safe haven assets, reinforcing their strategic appeal. I'll now hand you over to Sayurie to take you through the financials. Sayurie Naidoo: Thank you, Craig, and good morning, everyone. I am pleased to be reporting a strong set of financial results for 2025. Despite the demerger activities and headwinds faced during the year, our performance underscores the robustness of our business and the strength of our operating model in driving long-term value creation. To summarize our performance, revenue increased 7% year-on-year to ZAR 116 billion, driven by the uplift in the PGM basket price. This was partially offset by lower sales volumes, reflecting reduced M&C production, mainly from Amandelbult and the prior year's larger release of built-up work-in-progress inventories. Our disciplined cost management approach delivered a further ZAR 5 billion of operational and corporate savings, more than offsetting inflationary pressures. As a result, EBITDA increased 68%. And on the back of this, the company generated sustaining free cash flow of ZAR 20 billion. This meant we ended the year with a strong net cash position of ZAR 11.5 billion, boosted by a stronger second half. In line with our disciplined and balanced capital allocation framework, the Board has declared all net cash as a final dividend, equating to ZAR 43 per share. The company delivered a solid EBITDA performance despite the operational challenges in the first half of the year. EBITDA was supported by a 26% stronger PGM dollar price of $1,852 per ounce, partially offset by the strengthening of the rand. Input cost inflation of 5.4% reduced earnings by ZAR 2.8 billion, while royalty expenses reduced earnings by a further ZAR 1.1 billion, in line with higher revenue. Our success in delivering on our cost-out initiatives made a significant contribution to the uplift in earnings. As you are aware, earnings were also affected by the one-off demerger-related expenses, which have been largely completed and the impact of the Amandelbult flooding event, although insurance proceeds mitigated the majority of that impact. Mining operations contributed ZAR 29 billion to EBITDA at a mining margin of 38%, while POC and toll contracts contributed ZAR 9 billion at a margin of 21%. Since launching our operational excellence drive, we have delivered a decisive reset of our controllable cost base, which is down 18% since 2023. The ZAR 5 billion saved in 2025 was achieved across several areas, including consumables optimization of ZAR 2.2 billion, ZAR 1.4 billion from labor and contractors, reflecting the flow-through benefits of the operational restructuring undertaken in 2024 and a further ZAR 1.4 billion as a result of the simplified operating model post the demerger and other corporate cost reductions. As a result of our cost-out program, we achieved a cash operating unit cost of ZAR 19,488 per PGM ounce, in line with our revised guidance. Guidance for 2026 is ZAR 19,000 to ZAR 20,000 per PGM ounce, reflecting a partial inflation offset from ongoing cost-saving initiatives and increased production from Amandelbult. We are also targeting a further ZAR 1 billion to ZAR 1.5 billion in cost savings for 2027 as a result of the demerger with some of these benefits expected to materialize in 2026. Full year capital expenditure amounted to ZAR 17 billion, at the lower end of our guidance. Sustaining capital expenditure was ZAR 12.5 billion with a primary focus on asset maintenance, furnace rebuilds and mining equipment replacement. Sustaining capital also includes capitalized waste stripping, which declined ZAR 1 billion from 2024 due to lower waste tonnes mined, consistent with our value over volume strategy. Discretionary capital of ZAR 4.5 billion was directed to Sandsloot underground development and drilling as well as surface infrastructure and development at Der Brochen. We also commenced work on the repurposing of the Mortimer smelter. As we move into 2026, total capital expenditure is expected to remain broadly in line with 2025 at ZAR 17 billion to ZAR 18 billion. This is ZAR 1 billion to ZAR 2 billion lower than our previous guidance of ZAR 19 billion, again, reiterating our continued commitment to cost and capital efficiency. Of this, ZAR 12.5 billion will be incurred in sustaining capital to maintain asset integrity and ZAR 4.5 billion to ZAR 5 billion on discretionary capital. Turning to the impact of our cost and capital efficiency on all-in sustaining cost, which was $987 per 3E ounce, below guidance and flat year-on-year. Notably, this represents a 13% decrease from 2023, underscoring our cost control. I would like to highlight that going forward, we have revised our calculation methodology for all-in sustaining cost to include life extension capital to align with our updated capital definitions. On this basis, the all-in sustaining cost for 2025 was $1,039 per 3E ounce. Looking at the cost curve on the right-hand side of the slide, all of our own mine assets are firmly in the first half of the cost curve. Amandelbult's strong co-product credits, together with the benefits of the insurance proceeds have contributed to its positioning in the second quarter despite the impacts of the flooding. Our 2026 all-in sustaining cost guidance is around $1,050 per 3E ounce, assuming an exchange rate of ZAR 17 to the dollar. The company closed the year with a robust balance sheet, ending in a net cash position of ZAR 11.5 billion. Since 30th June 2025, the company generated cash from operations of ZAR 28 billion. And of the total ZAR 17 billion capital expenditure, ZAR 9 billion was incurred in the second half of the year, alongside the payment of the interim dividend. I have already talked to the one-off cash impacts relating to the demerger, which had an impact of ZAR 2.9 billion in the second half. We also received ZAR 2.5 billion in insurance proceeds. The flood claim is now in its final stages, having reached the end of the indemnity period, and we anticipate receiving the final payment during the first half of 2026. Liquidity headroom at the end of the period was ZAR 43 billion. Our banking group remains broad and strong, comprising both local and international institutions with committed facilities in both rand and the U.S. dollar. 2025 marked a major milestone for our stand-alone journey as we secured our inaugural global credit rating from S&P, achieving investment-grade status. In addition, we established a domestic medium-term note program, enabling us to issue listed debt in the South African bond market. This will provide an opportunity to diversify our debt funding sources and potentially lower our cost of borrowing. And in line with our capital allocation framework, the Board has declared a final dividend of ZAR 11.5 billion or ZAR 43 per share, comprising a base dividend of ZAR 23 per share or ZAR 6.2 billion, in line with our policy of 40% payout of headline earnings and a special dividend of ZAR 20 per share or ZAR 5.3 billion. This brings our total 2025 dividend to ZAR 12 billion or ZAR 45 per share. This marks our 17th consecutive dividend since reinstatement in 2017, affirming our commitment to industry-leading and consistent shareholder returns. I will now hand you back to Craig to wrap up. Craig Miller: Thanks very much, Sayurie. And to conclude, so our strategy remains clear and disciplined, maintain capital efficiency, drive cost reduction and maximize cash generation to enhance shareholder returns. Over the last number of years, we have invested consistently to maintain both asset integrity and reliability, which will enable us to sustain and grow our own mine production, improving margins. And as a result of the new ways of working and our discipline in terms of capital efficiency, we expect medium-term capital, as Sayurie has said, to stabilize at between ZAR 17 billion and ZAR 18 billion, inclusive of growth investments. This does position us distinctly from our peers who are raising CapEx guidance to arrest declining production profiles. With a stable capital base, our leverage to free cash flow at spot prices is significantly enhanced. So to illustrate, had current spot prices prevailed throughout 2025, free cash flow would have been about 240% higher. We have consistently demonstrated the delivery of our strategy and disciplined capital framework, returning excess cash to shareholders through dividends. The track record speaks for itself. Over the past 5 years, we have returned almost twice as much in dividends as our peer group combined. And so that you are left in no doubt, we offer a distinct investment proposition. Our substantial resource endowment provides exceptional longevity across our Tier 1 operations. With a high-quality, reliable and efficient processing infrastructure, our ability to create value throughout the value chain sets us apart within the sector. Our strategy is clear. Our experienced leadership team is well positioned to continue optimizing the business, unlocking value and delivering strong operational outcomes. And we remain firmly committed to disciplined cost and capital management to safeguard the integrity and sustainability of our assets while executing our growth agenda effectively. And with a robust balance sheet and strong cash flow generation, we're well placed to sustain those industry-leading returns to shareholders. I think it's fair to say that Valterra Platinum has certainly demonstrated in its first year of independence that we are a company that delivers. In 2025, we delivered on all our strategic priorities. We reinforced our skills and technical capabilities across the business and executed operational excellence activities with discipline and set the company up to accelerate those growth projects. I'am truly excited about the momentum that we have brought into 2026 and our unwavering focus on value creation for all of our stakeholders. That concludes our presentation. So thank you once again for joining us. I hand you back to Leroy to facilitate the questions and answers. Leroy Mnguni: Thank you, Craig. I think we'll start in the room. There are a couple of revolving mics. The first hand was Chris. If you could please introduce yourself before you ask your question as well, please. Christopher Nicholson: It's Chris Nicholson from RMB Morgan Stanley. I've got a couple of questions around volumes, and I think Mogalakwena in particular. I noticed that you trimmed your production guidance for your own mines for 2027. Could you just chat to what's driven that trim? Second question might be linked to that. At your Capital Markets Day last year, you were talking about grades at Mogalakwena from the open pit getting back to 3 grams a tonne, supporting 1 million ounce profile. We're still a little bit below that. Is it still your expectation that you get back to 3 grams a tonne? And then final one, also probably linked to that. I see you put a comment there on the lease on the Baobab plant expiring at the end of '25. I think we did know about that. So it's not a surprise. But I just wondered at these prices and just with the profitability of Mogalakwena, whether it made sense to try and extend that in any way, even if you had to put more CapEx into the tailings dam or incentivize Sibanye to do so. Craig Miller: Thanks, Chris. I'll answer some of the questions, and I'll ask perhaps Willie and Agit also just to comment on and reemphasize that value over volume strategy that we have in Mogalakwena and then also Agit, if we can just talk through the Baobab and the improvements that we've seen through North concentrator, improved recoveries and why we've sort of -- well, we've ended the Baobab contract. I think certainly, as we've said around our M&C volumes for next year between 3 million, 3.4 million ounces and into 2027, slightly lower. And that is on the back of us maintaining Mogalakwena's production at between 900,000 and 1 million ounces. And that's really our focus. And I've touched on that value over volume strategy, and I think Willie can articulate that in more detail. But that's what we fundamentally believe is the right sort of approach for us because it really drives that all-in sustaining cost. And we need to maintain that throughout the journey of Mogalakwena, sort of certainly in the lower half of the cost curve. And that's what really enables us to be able to do that. We've also maintained our production at Amandelbult at that sort of 580, 650 sort of mark. And that's what we'll sort of maintain. That continues to keep the longevity of Amandelbult intact, particularly from a Tumela and Dishaba perspective. And that's really what those sort of the 2 sort of revisions are there. But you'll see that we've guided now. We've moved away from guiding around the grade. So we've given you guidance around the actual production profile. And so that then enables us to be able to manage just how we extract the value through processing some of those lower-grade ore stockpiles, reducing the amount of volume that we actually mine, particularly at Mogalakwena and therefore, continue to drive its all-in sustaining cost to where we fundamentally believe it should be for this Tier 1 asset. So Willie, I don't know if you want to add anything in terms of the sort of the approach in terms of how we think through the grade. Kimi has got your mic ready. Willie Theron: Good morning, everybody, and thanks for the question, Chris. I think I'm not going to belabor the point on the all-in sustaining cost that Craig has already spelled out. I think a big component, if you look at Mogalakwena in particular, is the low-grade ore stockpile. It's sitting roughly on 5 million tonnes. That is a key deliverable aspect that we have stripped in essence, waste, where we stockpiled the low-grade ore. And our approach in terms of this value over volume is to, over time, for the next few years, and [indiscernible] made the percentage right about 35% to use that as part of the blend into the concentrators. But even at about 35% on average that we use it as a blend into the concentrators, we maintain a 5 million tonne stockpile on the low-grade ore. And this is why this value over volume and driving the all-in sustaining cost to maintain that position. And also from what I've spoken now, that's only from an open pit point of view. That is not taking into consideration anything that we do at Sandsloot. So the 900,000 to 1 million that Craig is referring to is open pit and with a 35% on low-grade ore stockpile as part of the blend and maintaining that at about 5 million tonnes. It's significant differentiator in terms of that ore body. Craig Miller: Thanks, Willie. Agit, do you want to just comment on Baobab and just how we're thinking North and South. Agit Singh: Yes. Thanks for the question, Chris. So obviously, we did consider Baobab with regards to the future of Mogalakwena with regards to milling. But first of all, Baobab was not the cheapest concentrator in our portfolio. And North concentrator and South concentrator has got a significant amount of effort over the last couple of maybe 1 to 1.5 years. And that effort has come through significantly around the way we operate the plant from a throughput point of view. So the more throughput we can get through North or South, the better it is for us from a unit cost point of view. It links back directly to what Willie and Craig has been speaking about with regards to the blending strategy and keeping the ounce profile. So we're very confident that with the North and South concentrator and the work that we've done with regards to the feed that we're putting into North and South, the work that we're going to be doing at the South concentrator around the refurbishment, the work we've already done at the North concentrator with regards to the Jameson cells and optimizing that flotation circuit that we will be able to deliver what we need to deliver with regards to the blending strategy that we have coming through from Willie and the team. So it's a very well-integrated thought process that we've taken from mining all the way down through the concentrators. Leroy Mnguni: I think the next hand was Gerhard and Arnold. Gerhard Engelbrecht: Gerhard Engelbrecht from Absa. Maybe just two questions is, how do you think about your debt levels at this point in the cycle? So do you have a targeted debt range or debt-to-equity or net debt-to-EBITDA? Or how can we think about debt going forward and how you then utilize cash? And then maybe if you can just remind us of the insurance payment, the quantum of that, that you expect in this half. Sayurie Naidoo: So we've guided in terms of our net debt-to-EBITDA at about 1x -- less than 1x through the cycle. However, at current prices, as we've declared our dividend of ZAR 11.5 billion, that gets us to a cash-neutral balance sheet. And we believe that, that is actually the prudent approach, which will actually strengthen our balance sheet and ensure that we can even sustain it in a lower price environment. Craig Miller: And then the insurance. Sayurie Naidoo: On the insurance proceeds, as we said, we've received ZAR 2.5 billion so far. However, we are still in discussions in terms of what the total quantum of that insurance proceeds will be, but we expect to receive that in the first half of the year. Arnold Van Graan: It's Arnold Van Graan from Nedbank. Two questions for Sayurie. The one is on your cost savings. I mean that's a phenomenal number, saving ZAR 5 billion and then ZAR 1.5 billion going forward. So I guess my question is, where is that coming from? And how sustainable is it? I know we've talked about this before, but I guess my question or concern is that some of this comes back into the system over time. So that's the one question. Second question relates to Unki. It looks like there's a bit of a cash lockup there currently. It doesn't matter now given where prices are. But yes, just give us a sense of how you're addressing that and how you see that playing out? That's it for me. Sayurie Naidoo: Sure. So just in terms of our cost savings, so it's really in 3 broad categories. So the first one, if I look at the total ZAR 12 billion, about ZAR 5 billion of that is from supply chain and procurement benefits. So we've reviewed all our supply chain contracts over the last 2 years, we've been able to get lower pricing. A lot of this is from prior to COVID or during COVID, where we had escalated pricing in some of the consumables, we were able to reduce a lot of that. So these are sustainable pricing. Obviously, they would increase with inflation going forward. But from an operating perspective, that's where we found a lot of the efficiencies. The labor and contractor reductions. So we undertook a restructuring in 2024. So that was about 2,700 people at Amandelbult. So that is a sustainable reduction in labor. We've also reviewed all our contracting companies, and we took out about 450 contracting companies. So that's sustainable reductions. We also did some review of our corporate costs. And as I said earlier, there were some demerger-related cost savings that we were able to realize as well. But a lot of the savings that we've also achieved is as a result of the operational excellence work that we've done. So the mass pull benefit that Agit has been working on in processing, the pit optimization at Mogalakwena, all of that has been sustainable cost reductions. So mass pull, for example, a ZAR 250 million annualized cost benefit that we'll realize from that. The pit optimization, we've been able to bring down waste stripping costs by about ZAR 1 billion so far and another ZAR 1 billion going forward. And then the demerger-related costs, the ZAR 1 billion to ZAR 1.5 billion that we expect to come, that is really from the simplified operating model as a stand-alone company, simplification of some of the systems that we've got, our IT systems, for example, moving to an outsourcing arrangement for some of our shared services. So that's where we're seeing some of the reductions that we expect to realize in the next 2 years. So really sustainable cost savings. Going forward, as we've guided, you expect -- we will continue to look for initiatives to offset inflation, again, mass pull, renewables that will come through from the Envusa project this year. So that will offset about -- that will give us about a 10% reduction on the current Eskom tariffs that we're getting. So there will be continued cost optimization initiatives to ensure that we maintain that cost discipline as a business. So as you see, our cost is relatively flat over the next year. And then in terms of the Unki, so we do have -- so as part of operating in Zimbabwe, our export proceeds is a retention mechanism. So 30% of our export proceeds are retained in local currency. In the last year, we haven't been able to access some of that. So it's about $100 million that hasn't been able to be accessed by us. However, and you'll see that we've obviously recognized a provision on that. But we have been engaging with the Reserve Bank as well as the Ministry of Finance, and we are receiving some funds in 2026 so far, and we do expect to receive that over the next couple of months. Leroy Mnguni: There's a question from David. Unknown Analyst: David [indiscernible] from Phoenix research. I would just like to, first of all, congratulate the technical and the mining people. First of all, congratulations on getting Amandelbult up and running so quickly. Very impressive, very impressive. And secondly, also, congratulations on the Jameson Cells. When I saw that number of 40% reduction in mass pull, that's quite amazing. So if I may lead my first question on that one is, is that in any way transferable to the other concentrators? I mean, obviously, I know that the metal mix is very different, but is that at all transferable? And then just a very general question. On the Merensky Reef, are there any plans to mine more Merensky Reef at all? I mean, it's now UG2. I'm talking about the East and West Limb, are there any plans to mine Merensky projects? Craig Miller: Thanks, David. Thanks very much for the question. I'm going to try my best to answer them, and that will be my team members giving me a report card in terms of whether I've been paying attention. So in respect of the Jameson Cells, so clearly, they've been really successful at Mogalakwena, at the North concentrator. Agit referenced the refurbishment of South. And so we will look to see whether we can install the Jameson Cells at the South concentrated Mogalakwena. So that process is underway, and we're evaluating it. I think it's less impactful at Amandelbult, particularly just given the scale of Amandelbult and the installed capacity. But our real primary focus is really then driving that efficiency at Mogalakwena. That looks to be our biggest opportunity at the moment. Did I get that right? Good. And then on Merensky, I think our primary focus is really around continuing on the UG2 routes. There's not a great deal of Merensky that we have immediately available, just given sort of what we've mined out at Amandelbult and in particular focus for us at Der Brochen and Mototolo on the Eastern Limb. Those are sort of -- our key focus will be around the UG2. Leroy Mnguni: We've got Steve in the back. Steven Friedman: It's Steve Friedman from UBS. Firstly, congrats on the strong results. Maybe just a follow-up on the capital allocation framework question and more regarding the prepayment, specifically around the remaining duration. I know this is something that's been extended previously. But if you could sort of give us some indication on that. And understanding this is a volume-based contract. So very much that value will be linked to PGM prices and FX, if you could give us some sort of sensitivity on what that means in the current environment? Sayurie Naidoo: Sure. So our customer prepayment at this point, it's about ZAR 12.8 billion. You're correct, it is linked to price and FX. So it's probably increased about ZAR 1 billion since 2024 as a result of that and volumes were relatively stable on that. In terms of the renegotiation, so it comes to an end in 2027. However, we are in negotiations with the customer, and we don't have any reason to believe that we won't be able to extend the customer prepayment. It may be on different volumes and different period, but it's still something that we firmly include in our working capital numbers. Leroy Mnguni: I see no further hands in the room. Can we please go to the conference call and see if there are any questions there? Operator: We have a question from Adrian Hammond of SBG Securities. Adrian Hammond: Yes, well cone on solid results and outlook, Craig, your payout was significantly higher, I think, than the market expected. So give us some guidance on how we should expect future payout of dividends. I noticed 70% is what you used to pay in the last bull market. And is this something we should be expecting going forward? For Sayurie, you've been quite explicit on the cost savings for another ZAR 1 billion to ZAR 1.5 billion over the next 2 years. But I do note you're certainly seeing more benefits from the Jameson Cells. And should there be other benefits as well that perhaps your ZAR 1 billion, ZAR 1.5 billion is still a conservative number. And I just want to clarify when you mentioned earlier that the Mogalakwena pit optimization on waste stripping was banked at ZAR 1 billion, but a further ZAR 1 billion going forward. Just correct me if I'm wrong, if that's further ZAR 1 billion is in your current guidance. And then Hilton, perhaps premature to ask that your customer prepayment with Toyota is still being negotiated. But do you foresee additional volume offtake in that agreement going forward? And perhaps you just give us an update on customer flows and orders for PGM autocat businesses and as well as the minor metals. Craig Miller: Thanks, Adrian, for the questions. So I'll take the easy one. So I think, Adrian, as we've indicated, just once again, quality of the assets that we have, our focus around operational delivery, investing in the assets that we have and really maintaining that asset integrity and reliability really sets us up well. And as a consequence of that, that enables us to be really deliberate and focused around how we return value to shareholders. And so in line with that discipline and our capital allocation, any excess cash that we generate, we would look to return that to shareholders. And so as Sayurie said, we've done it for 17 consecutive periods where we've paid a dividend and we've paid specials. And I think you can expect a continuation of that discipline for periods to come. And so we'll wait to see what happens in July when we report the half year results. Sayurie Naidoo: Adrian, on the waste stripping, yes, that's already in our guidance in the ZAR 17 billion to ZAR 18 billion in the medium term. And then just in terms of cost savings, so the ZAR 1 billion to ZAR 1.5 billion, that's coming from corporate cost reduction. And as we've mentioned, there will be continued benefits from operational excellence. So your mass pull initiatives, the renewables. We're looking at some low-cost country sourcing, so alternative sources of some consumables from a supply chain perspective. So all of that will partially offset inflation. So input cost inflation, about 6% we're forecasting for 2026, but we expect that our costs should be below the 6%. So yes, there will be some more operational initiatives that will offset inflation. Hilton Ingram: Yes, Adrian, on the prepayment, as Sayurie indicated earlier, right, in the middle of negotiations. So we're going to be as quiet on the subject as we can be, but we expect to see volumes at least in line with what you'd expect given the pressures in the automotive industry and increases in recycling. But we'll work hard at that. And so more news to follow later. In terms of -- what are we seeing in terms of customer flows? You've seen the duty announcements out of the U.S. That means there's some rebalancing of portfolios going on in amongst customers. And so we're seeing changes in geographic flows as a result of that and inquiries that you'd expect us to be seeing in line with those geographic flows. But we expect that to balance themselves out around the globe and not have a material impact on supply-demand balances. And then minor PGM demand, we've seen healthy demand for contracts in that space, and we're still seeing good flows. Leroy Mnguni: Any further questions on the call? Operator: We have a question from Nkateko Mathonsi of Investec Bank. Nkateko Mathonsi: Well done from my side on a very good set of numbers, especially I concur with Adrian, especially on the dividend, that was a surprise versus what the market was expecting. Another congratulations on inventory optimization that has allowed you to continue liquidating inventory from your processes. I mean, my first question is how much room do you still have to squeeze the pipeline going forward? At this point in time, it looks like it is creating [indiscernible] in the processing infrastructure, but that has been very positive for at least the past 2 years. I just want to know how should we think about it going forward? And then my second question is on Sandsloot and the prefeasibility study. Is there any indicated CapEx that we should work on as far as Sandsloot is concerned from that prefeasibility study? And then also on the better terms on the extension of the tolling contract by 5 years. Are you able to give us a bit of an indication as to the increment on that contract and how we should look at it going forward? Craig Miller: Thanks, Nkateko. Thanks very much. At least you like the dividend. So let me start on the inventories. I couldn't agree with you more that the processing team seems to find additional ounces. But I really do think that we've really optimized the pipeline now, and that's really sort of come through in terms of the optimization and the higher refined ounces that we achieved in 2025. We have indicated previously that we do have some inventory that is sitting in what we term wax. So that's material that has -- that you'll know better than me, comes out of the converter plant and that we haven't been able to treat to date. And as a consequence of that, we are repurposing Mortimer to be able to treat that material in addition to be able to just processing normal ongoing concentrate. So we do have some inventory and you'll see that come through in our 2027 number. So if you -- to Chris' earlier point, you've seen that slight reduction in our M&C volumes. But actually, our refined volumes in 2027 are maintained at 3 million to 3.4 million ounces. And so you see that liquidation coming through there as a result of Mortimer. So that's really where that will come through. But I think more broader in terms of do we have [indiscernible] and all the rest of it of inventory. We haven't found it, but we'll certainly keep looking. But genuinely, I think, we've optimized as much as we can at the moment. In terms of the feasibility study for Sandsloot, that continues, and that's underway. And so our capital guidance for the expenditure around that to ramp up Sandsloot to around about that 2 million, 2.5 million tonnes is maintained at that sort of ZAR 1.5 billion to ZAR 2.5 billion. Just remember, there might be some years that we'll spend slightly more because we need to build workshops, we need to purchase some equipment or something. But that broad range of between ZAR 1.5 billion and ZAR 2.5 billion is maintained from what we shared with you back in the middle of last year. And on the tolling contract, yes, we have extended the tolling contract with Sibanye. So that would have come to a conclusion at the end of 2026. We have extended that by another 5 years. Both parties have the opportunity to end that after 3 years. And I think to use Richard's words, I think it's on materially better terms than what they're currently paying at the moment. Leroy Mnguni: Operator. Are there any further questions? Operator: We have a question from Benjamin Davis of RBC Capital Markets. Benjamin Davis: Great set of results. Just a couple of questions from me. One on the CapEx guidance, very much going against the grain in terms of going down. I was just wondering if you could give any kind of what drove that delta from ZAR 19 billion to the ZAR 17 billion, ZAR 18 billion? And also given the price environment, is there any upside risk to that number in terms of kind of additional projects that are under evaluation, smaller projects? And then second question, just wondering if there is any evolution in the thinking around Modikwa? Craig Miller: Thanks, Ben. Do you want to do CapEx? Sayurie Naidoo: Yes, sure. So our previous CapEx guidance was around ZAR 19 billion. But there's a few aspects. So the one is once we concluded the feasibility study -- the prefeasibility on Mogalakwena underground, we were able to just redefine that CapEx. So that's where we got to the ZAR 1.5 billion to ZAR 2.5 billion. Due to the value over volume strategy, our waste stripping, as I mentioned, that's been reduced. So you see lower tonnes -- waste tonnes mined. As a result of that, you have lower HME replacement capital as well that will be required. So that's the other area. There's been some further optimization, for example, on the Mortimer repurposing project that has done more optimization as well at Amandelbult and Unki in terms of some of the capital spend there. The other area that's also benefited us is as a stand-alone company, how we actually execute on our projects. So we've been able to build in quite a bit of efficiencies there just in terms of using internal teams as opposed to third parties, just in terms of scoping and defining our scopes and being quite focused around that. So that's also been able to contribute towards that reduction, and that's how we were able to achieve the lower end of our guidance this year as well. Craig Miller: So yes, we agree, Ben, that's certainly sort of countercyclical, as I pointed out in terms of what we're seeing elsewhere. But yes, I think we will certainly maintain that cost and that capital guidance and it's important that we maintain that through the cycle. So very much focused around making sure that we operate within that envelope. I think specifically as it relates to Modikwa, to your question, I think one of Sayurie's slides actually illustrated just in terms of where our all-in sustaining cost was and where we're all positioned on the cost curve. The one outlier in the second half of the cost curve is Modikwa. And so we're not particularly happy, and I know our partners are not in terms of the performance of Modikwa and just how that sort of -- where it sits on the cost curve. And so therefore, we need to continue to evaluate how we improve its performance, how we rethink through what the operating structure is there, and we'll continue to evaluate our options, specifically as it regards to Modikwa in the coming months. Operator: We have a question from Ian Rossouw of Barclays. Ian Rossouw: Two questions. Just first one on the Sandsloot project. If you do go ahead and approve the project in 2027, how can we expect the CapEx to change in '28, I guess, versus current guidance? And then just wanted to talk about the working capital just in the second half, I guess there was still some build in inventories if you strip out the prepayment and obviously, the receivables sort of based on prices. But how should we think about the working capital this year outside of probably the inflows you'll see from the prepayment due to higher prices? Craig Miller: Okay. Do you want to do working capital and then... Sayurie Naidoo: Yes. So in terms of working capital, so the customer prepayment, as I did indicate, that is influenced by price and FX. So as prices increase, you will see an increase in the customer prepayment. On the other one that's influenced by price and FX is your purchase of concentrate. So that's your inventory as well as your creditor. So those should offset each other because -- so from a price impact, so that should be relatively flat. So it's really just your customer prepayment where you'll see an increase in working capital. Craig Miller: And then just on Sandsloot. I think from our perspective, so the investment is taken -- the decision to invest in Sandsloot is taken in the first half of next year. Our expectation is that you'll continue to see that ZAR 1.5 billion to ZAR 2.5 billion expenditure sort of take place for us to ramp up to that sort of 2 million, 2.5 million tonnes. So that's what you can expect to sort of see in terms of annual CapEx associated with the Sandsloot development. Clearly, obviously, as I said, you might see 1 year a little bit higher than that ZAR 2.5 billion because we've got to spend on the workshops and all the rest of it. But I think importantly, as we then start to position that, whatever that capital profile looks for Sandsloot is then -- you could see then a reduction in our waste stripping capital and some of the capital associated with the open pit at Mogalakwena. So that's where the real benefit starts to play itself out. So you process this higher-grade ore, and then we're able to reduce the amount of material that we have to move in the open pit. And so you'll see that benefit coming through as part of the decision to invest in Sandsloot. But that ZAR 1.5 billion to ZAR 2.5 billion, if you take that, you model that, that will be great. Please just make sure that you model that 10% to 20% uplift in production as well. Ian Rossouw: Okay. That's great. And maybe just coming back. So any shift in inventories expected this year? Or is that broadly stable now just on working capital? Craig Miller: Yes. No, I think your inventories, we've sweated that drag. So yes, I think your inventories are more or less sort of back to normal levels. Leroy Mnguni: Any further questions? Operator: We have no further questions. Leroy Mnguni: Right. There's a few questions that have come through online. Rene from NOA Capital says ZAR 11.5 billion net cash. I really believe you would do it a year ago. So thank you, Rene. He's got a question for Hilton. He's asking, what is your pick for the best performing PGM in 2026? And then sorry, Hilton, while you answer that, we've had a couple of questions on recycling. If you could please elaborate on some of the headwinds to a recovery in recycling, what are some of our expectations are in an increase in recycled supply given the higher PGM prices as well, please? Hilton Ingram: Thanks, Rene. I think the right answer to your question is it starts with an R as in Rene. Yes. So I'm going to go with it starts with an R. And then on recycling, we all know that recycling rates are driven by scrappage rates of vehicles. We know that vehicle prices are high. We know that cars are lasting longer than people would expect. We know that there's sort of technological or technology uncertainty in terms of do I replace my car with another ICE vehicle? Do I replace it with a PHV? Do I replace it with ICE? Or do I just hang on to what I have. So those are all playing out through the market, right? And yes, the value of an auto catalyst is up. It's not up to the same extent as it was in 2022. And the value of the auto catalyst isn't a player in people's decisions to recycle cars. So we think scrappage rates are unaffected by the value of the catalyst. What is affected by the value of the catalyst is the pull-through of inventory, right? So if people had scrapped cars, cars were sitting in the junkyard and they hadn't taken the catalyst off straight away. Now you're incentivized to go and get that catalyst off the cars and pull that inventory through. And as a result of that, we do have recycling numbers up last year and likely up this year. But there will be payback for that over time with reduced growth rates in recycling. So hopefully, that answers both of those questions, Leroy. Leroy Mnguni: Thank you. There is -- we've had a similar question, but I think it's worth asking this again just to emphasize the point. So it says the Board has paid out 71% of headline earnings in 2025, well above the 40% policy. How should investors think about the balance between sustaining market-leading dividends and funding growth projects like Sandsloot underground ahead of the H1 2027 investment decision? Sayurie Naidoo: Sure. So I mean, as Craig said, I'll reiterate it. So there's been no change to our dividend policy. That's still at 40% of headline earnings. However, as part of our capital allocation framework, if we've got excess cash after we've actually invested in sustaining CapEx after we've paid our base dividend, after we've invested in the Mogalakwena underground and all our discretionary projects, whatever cash is there, we'll look to return to shareholders. So there's been no change to the policy. But we'll balance growth and we'll balance returns to shareholders. Craig Miller: But I think it's important that we also just emphasize that the CapEx that we have that we've given that ZAR 17 billion to ZAR 18 billion, that includes the ZAR 1.5 billion to ZAR 2.5 billion for Mogalakwena for the underground, yes. So that is our capital envelope. Leroy Mnguni: Thanks, Craig. And then I just got to filter through all the requests for trucking contracts, even though we're reducing the amount of trucks on. We've got a question from Shashi from Citibank. How much is the benefit of mass pull reduction on FY '26 operating cost guidance? Can we expect a further benefit into 2027 as well? Sayurie Naidoo: Yes. So on an annualized basis, it's about ZAR 250 million. Leroy Mnguni: Thank you. I think a lot of other questions are just repetitions of what we've already had. So maybe do one last call in the room. Anything on the conference call? Operator: No questions from the conference call. Leroy Mnguni: Over to you, my leader. Craig Miller: Is it me again? So once again, thank you very much for joining us today. Really, I think it's fair to say that we've really had a really transformative year in 2025 on a number of fronts. And we have a great deal of excitement and opportunity within our business in terms of continuing to really be that leading PGMs producer. And so the important thing for us is as we execute on what we need to do, that we do maintain that cost and that capital discipline. And that's exactly what my team and I are focused around. So if I can also just express my sincere thanks not only to the Board for helping us navigate what was 2025, but also to the executive team in terms of how they've showed up and really helped make a change to our business, but most importantly, to the whole team of Valterra Platinum for their enormous efforts and diligence last year and really turning last year into a really successful year and onwards and upwards from here. Thank you.