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Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the National Bank of Canada First Quarter 2026 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Marianne Ratte. Please go ahead. Marianne Ratte: Welcome, everyone. We will begin the call with remarks from Laurent Ferreira, President and CEO; Marie Chantal Gingras, CFO; and Jean-Sebastien Grise, Chief Risk Officer. Our business heads are also present for the Q&A session, including Julie Levac, Personal Banking; Judith Menard, Commercial and Private Banking; Nancy Paquet, Wealth Management; Etienne Dubuc, Capital Markets and [indiscernible] International. Before we begin, please refer to Slide 2 of our presentation for forward-looking statements and non-GAAP measures. Management will refer to adjusted results unless otherwise noted. I will now pass the call to Laurent. Laurent Ferreira: Marianne, and thank you, everyone, for joining us. For the first quarter of 2026, we generated EPS of $3.25, representing an 11% year-over-year increase. Our results were driven by strong performance across our retail and business segments as well as cost and funding synergies related to the CWB transaction and share buybacks. We generated a return on equity of 16.6%, and our CET1 ratio is solid at 13.7%. This morning, we announced that we are upsizing our NCIB to repurchase up to 14.5 million shares from 8 million currently pending regulatory approval. To date, we have repurchased 6.4 million shares under our program. Earlier this month, we closed the syndicated loan transaction with Laurentian Bank. The retail SME portfolios are on track to close by late 2026, subject to regulatory approvals. Our capital deployment priorities are to drive organic business growth and operational efficiency and to grow dividends at sustainable levels. This will be complemented by share buybacks and depending on opportunities, selective tuck-in acquisitions in P&C and wealth. We want to operate with strong capital levels and continue to target a CET1 ratio converging towards 13% by the end of 2027. Turning to our economic outlook. The geopolitical and economic backdrop continues to weigh on the economy. We are far from our GDP potential. Trade tensions and uncertainty around CUSMA are affecting our country and business investment has slowed down. Our economy must take a different strategic direction and go through structural changes. We are encouraged by our government's actions and by momentum across the country to reestablish our economic sovereignty. We are particularly pleased to see concrete actions towards our reindustrialization, including Canada's initiative to welcome the Defense Security and Resilience Bank as well as the announcement of Canada's defense industrial strategy. Turning now to our business segments. With revenues of more than $1.5 billion and net income of $442 million, P&C Banking delivered strong performance in Q1. We executed on CWB's integration with a focus on client transition and are realizing on cost and funding synergies. And we have also made early gains on revenue synergies from capital market solutions. Our balance sheet is growing. Personal mortgages grew 3% sequentially, a strong start against a mid-single-digit growth target for 2026. Commercial loans grew 1% sequentially, and we still expect to start growing the CWB portfolio in the second half of the year. Net income in our Wealth Management segment increased 13% year-over-year to $274 million, supported by strong growth in fee-based and transaction revenues. Assets under administration grew 3% sequentially to reach close to $900 billion with resilient equity markets and strong net sales. Capital Markets generated net income of $443 million, up 6% year-over-year, driven by strong contributions from both our trading and nontrading businesses. In Global Markets, our strong performance in equities was supported by opportunities in securities finance and elevated issuances in structured products. We continue to see steady opportunities in our rates and credit business as expected. Meanwhile, corporate activity supported by strong equity and debt issuances and banking revenues in our CIB franchise. Credigy delivered net income of $47 million with average assets up 9% year-over-year and 1% sequentially as we continue to benefit from recurring flows from established partnerships. We remain highly disciplined in pursuing new deals given the prevailing competitive market dynamics and pricing conditions. At ABA Bank, net income increased 9% year-over-year, reflecting balance sheet growth and a build in performing PCLs. Revenues were up 13% over the same period with deposits and loan up 18% and 11%, respectively. I will now pass the call to Marie Chantal. Marie Gingras: Thank you, Laurent, and good morning, everyone. We delivered strong results in the first quarter. Revenues rose 21% year-over-year and PTPP grew 23%, driven by solid organic performance across all segments and by the CWB transaction. Operating leverage was positive at 2%, supporting through focused execution and synergy realization. Excluding CWB, revenues increased 11% year-over-year and PTPP rose 12%. Expenses were up 10.2%, driven mainly by higher variable compensation. Excluding variable compensation, expenses rose 8.6%, in part driven by salaries and benefits. Moving to Slide 9. Net interest income, excluding trading, grew 5% sequentially. Prepayment revenues of $12 million were generated in Credigy, contributing 1 basis point to the all-bank margin. The P&C segment benefited from strong balance sheet growth and margin expansion of 2 basis points sequentially, driven by higher margins on both loans and deposits. In Q1, we reclassified $30 million NII from trading to nontrading, which had no impact on the bank's total revenues. Excluding this, nontrading NII grew 4% sequentially, while the margin was up 2 basis points. Looking at next quarter, we expect the P&C NIM to remain relatively stable from Q1 levels. A better deposit margin is expected to be largely offset by balance sheet mix as loan growth continues to outpace deposit growth. Turning to Slide 10. We continue to grow both sides of the balance sheet. Loans rose 23% year-over-year or 9%, excluding CWB, reflecting contributions from all segments. Deposits increased $5 billion or 2% sequentially. Personal deposits grew $1.5 billion, mostly driven by Wealth Management and ABA. Now moving to capital on Slide 11. We ended the quarter with a CET1 ratio of 13.74%, supported by capital generation of 41 basis points. RWA growth consumed 14 basis points of capital. Business growth of approximately 26 basis points, partly offset by a reduction in credit risk RWA from refinements as well as a change in the CAR 2026 methodology for Market Risk. Share buybacks during the quarter reduced the CET1 ratio by 33 basis points. Since the launch of our current NCIB, we have repurchased 6.4 million shares, representing 80% of the current program. Now turning to Slide 12. We have realized $176 million of cost and funding synergies to date, exceeding our year 1 target of $135 million. We continue to build strong momentum on synergy realization and remain on track to deliver $270 million by the end of fiscal 2026. On revenue synergies, we are progressing as planned towards our $50 million target by year-end. We delivered a strong start to the year, supported by solid underlying performance across all business, ongoing cost execution and realization of CWB synergies, all while credit remained aligned with expectations. In addition, we accelerated share buybacks under our existing share repurchase program. Accordingly, EPS growth in 2026 is now expected to be at the top end of our 5% to 10% outlook. Reflecting these factors, we are raising our 2026 ROE target to around 16% from around 15% previously. On Slide 13, we outlined a path to our ROE objective of 17% plus in fiscal 2027. We forecast that organic earnings growth over 2026 will add approximately 110 basis points to ROE. We also assume incremental CWB revenue synergies will contribute 20 basis points in 2027. The previously announced EPS accretion of 1.5% to 2% from the Laurentian transaction will add approximately 30 basis points to ROE. Reaching a CET1 ratio of 13% by the end of fiscal 2027, helped by share buybacks accounts for approximately 40 basis points of the increase. Finally, ROE will be reduced by approximately 100 basis points, reflecting the capital required to support RWA growth. So together, these drivers are expected to deliver an ROE of 17% plus. With that, I will now turn the call over to Jean-Sebastien. Jean-Sebastien Grise: Good morning, everyone. Since our last call, Canadian economic growth has remained modest and the labor market continues to be soft. Headwinds persist, including trade tensions and uncertainty around CUSMA. However, a lower interest rate environment, diversification of trading partners and plans to fast track nation building projects should help support economic activity. In this complex environment, our resilient portfolio mix, disciplined risk management and prudent provisioning underpinned our strong credit performance. Now turning to the first quarter results on Slide 15. Total PCLs were $244 million or 32 basis points, down 1 basis point quarter-over-quarter. We added 3 basis points on performing provisions in Q1, primarily driven by portfolio growth, partially offset by more favorable macroeconomic scenarios. PCL on impaired loans were $215 million or 28 basis points, stable quarter-over-quarter and within our guidance of 25 to 35 basis points for the full year. At CWB, impaired PCLs were 33 basis points, down 36 basis points quarter-over-quarter. Personal Banking provisions were $3 million higher sequentially, mainly driven by consumer credit. Commercial Banking provisions were primarily driven by 3 files and were down $9 million quarter-over-quarter. Capital markets provision rose by $15 million, largely reflecting one previously impaired file in the mining sector. At Credigy, provisions increased by USD 6 million, in line with expectations, resulting from the normal seasoning of residential mortgages and consumer loans. At ABA, impaired provisions were down by USD 8 million sequentially to USD 17 million, in line with lower formations. Turning to Slide 16. Our total allowances for credit losses were $2.5 billion, representing 5.9x coverage of our net charge-off. Our performing allowances were $1.6 billion, demonstrating a strong performing ACL coverage ratio of 2.1x. We have been building allowances for the past 15 quarters and continue to be comfortable with our prudent and defensive provisioning levels. Turning to Slide 17. Our gross impaired loan ratio was 111 basis points, excluding USSF&I, GILs were 81 basis points and remained flat quarter-over-quarter. Net formations were down 8 basis points compared to last quarter, primarily driven by commercial and capital markets. In conclusion, we are pleased with the credit performance in the first quarter and continue to expect that impaired provisions will be within the 25 to 35 basis points range for the full year. While we remain cautious as we navigate ongoing uncertainty, our defensive qualities, resilient business mix and prudent allowances position us well for the rest of the year. And with that, I will now turn the call back to the operator for the Q&A. Operator: [Operator Instructions] Your first question comes from Matthew Lee with Canaccord Genuity. Matthew Lee: Maybe I want to start on the new segmented ROE breakdown you've provided. Canadian P&C looks a little bit lower than some of the peers at 13%. Can you maybe just talk about why that might be and what opportunities you have to get closer to industry levels? Laurent Ferreira: Matt, thank you very much for your question. This is Laurent. Look, it is subpar versus our peers, and we're aware of that, not surprised. But what I think we want to highlight here is there's going to be upside for us. We have started a strategic review of the sector. We plan to do this throughout the year, and we'll be able to provide you update maybe towards the end of the year. But at this point in time, I guess the message is there's upside in terms of our performance in P&C, ROE, but it is too early to provide you with the outcomes and the magnitude that we think we're going to be able to deliver. Matthew Lee: Okay. Got it. Yes. And then maybe on the new ROE guidance for 2026, I think the delta is probably about half of it to the buyback. But can you maybe talk about what's changed in the operations from the last 80 days or so that make you comfortable to change '26 and then '27? Marie Gingras: Matthew, it's Marie Chantal. I can follow up with your question. So thanks for that. There's a significant amount of information on that slide. So maybe let me break down the key components underlying our path to 17% plus ROE by 2027. And I'll start with 2026. So as you heard us say, we're increasing our target for 2026 from 15% previously to 16% -- approximately 16%. So we did have a very strong start to the year, and we are very pleased with the performance of the first quarter and encouraged also by the trajectory that we're seeing for the rest of the year. We've had solid underlying performance across all our businesses. We continue to execute with discipline the CWB synergies, credit remains within our guidance. And we, as you saw, continue to be very active on the NCIB program that we just increased. So those are the different drivers that brings us to the 16% for the end of fiscal 2026. When we move on to 2027, we do plan for organic earnings growth at the midpoint of our 5% to 10% growth in net income to common shareholders. This represents 110 basis points on the increase, and it factors in efficiency improvement at historical level. So anything above that would be upside. When we look at revenue synergies, we reflected in 2027 $90 million incremental revenues which is in line with the midpoint of our target. So again, anything above that would also be upside. Those revenue synergies when net of applicable expenses, PCL and taxes, they contribute for 20 basis points to our increase in 2027. Moving on with the Laurentian Bank transaction. So as disclosed last quarter, it's generating EPS accretion of about 1.5% to 2% in the first year, and that's equivalent to 30 basis points of ROE. And that's assuming that we close by the end of 2026, which is still our target. And then lastly, on capital, we continue to converge to a CET1 ratio of 13% by the end of 2027, and that would generate 40 basis points of ROE. And then the CET1 required to support our RWA growth net of benefit from the AIRB conversion is [ 100 ] basis points. So that brings us to our 17-plus ROE objective for 2027. So let me tell you now what it does not include. It does not include any credit improvement. And as Laurent said earlier, it does not include any potential upside in the P&C segment coming from our strategic plan. So those are the main drivers contributing to our 17% plus ROE for 2027. Operator: Your next question comes from the line of John Aiken with Jefferies. John Aiken: Apologies about that. Hopefully, a couple of quick questions on Credigy. In one of the prepared comments talked about the market and the pricing conditions. Can we expect then to see possibly lower volume growth because of that similar to what we saw Q4 over Q3? And then secondarily, it looks like there was wider net interest margins for Credigy in the quarter. Was there anything unusual that was driving that? Etienne Dubuc: John, thanks it's Etienne. So to maybe describe the quarter for Credigy and what the outlook looks like. So we had strong deal flow in Q1 with more than $700 billion (sic) [ $700 million ] deployed, and that led to a solid quarter-over-quarter growth in average assets, including the prepayment that we alluded to in the script. So specifically, we had a loan prepayment of close to $300 million, and that impacted sequential growth and that impacted margins. So if we look at the outlook because you're right. So we -- there's strong deal flow. There was a good momentum, but the current deal pipeline suggests deal activity could be a bit slower in Q2 2026. And that's really a function of the market still being very competitive and not meeting really our pricing thresholds right now in most cases. But for the full year, we expect growth to remain on our long-term target range of 5% to 10%, with margins expected to be fairly stable and to be -- and to continue to be really attractive and accretive for the bank. Operator: Your next question comes from the line of Sohrab Movahedi with BMO Capital Markets. Sohrab Movahedi: Thank you very much for the ROE waterfall. Etienne, pretax pre-provision in capital markets in '25 was a very strong, I think, $2.2 billion or thereabouts. Coming into this year, I think you were trying to guide us to $1.8 billion to $2 billion. Having the first quarter under your belt, is there any revisions or updates to the pretax pre-provision for capital markets for the full year? Etienne Dubuc: Sohrab, it's Etienne. Thanks for the question. So maybe I'll walk you through our thinking in terms of the outlook because, yes, quick answer is that we feel increasingly good about our Jan outlook that was calling for, like you said, a PTPP number in the $1.8 billion to $2 billion range. You still have macro uncertainty. You still have geopolitical uncertainty but we see client dialogue remaining active and a really good deal pipeline. There is pent-up demand. There's corporate balance sheets that are strong, and you have attractive funding conditions. Also, we feel the November 2025 federal budget priorities will catalyze M&A as companies reposition around these strategic areas. And on the market side, the investor interest remains high. Market-making activity in equities and rates continues to be robust. So this bodes well for the next few months in trading. So considering all that with this healthy momentum we see across the businesses, we feel good about our ability to hit the upper part of this range of $1.8 billion to $2 billion. Does that help? Sohrab Movahedi: Yes, it's very helpful and comprehensive. And then just one quick one for Jean-Sebastien. I mean, Jean-Sebastien, you've talked about the economic outlook and the sluggish kind of backdrop. Does the -- 2 questions. Do you still feel as skewed, I'll call it, when it comes to credit risk to Quebec post CWB acquisition? And do you still feel that, that Quebec skew is a relative positive for you as you look through the next 12, 18, 24 months? Jean-Sebastien Grise: Thank you for your question, Sohrab. So obviously, very pleased with the results that we've had in our first quarter, so lower part of our guidance. And when you look at our different types of portfolio, I think my answer will be a little bit different for all the different portfolios. Obviously, our retail portfolio and when you look specifically at our residential portfolio, we do see a difference in performance in terms of delinquency between Quebec and between the rest of Canada. So obviously, when you look at our book there, we're 52%, 53% Quebec, 27% insured. I think we're exactly where we're supposed to be. Then when you look at commercial, obviously, we bought a bank that has a commercial footprint, and we're comfortable with the performance. You saw this quarter also a vast improvement in terms of the PCL performance of CWB. It's a more lumpy portfolio because it's a portfolio that has more commercial side to it. But I would say there, we will follow the strategy we've been talking about before, which was we will grow in general commercial more than in real estate, and we're pleased with where we're going right now. Operator: Your next question comes from the line of Doug Young with Desjardins Capital Markets. Doug Young: Laurent, your prepared remarks, you talked about CWB revenue synergies, and I think you talked about early gains in capital markets and solutions and then starting to grow the CWB, I think, loan book in maybe the back half of this year. Just hoping you can flesh this out a little bit more? Laurent Ferreira: Judith, do you want to take that one? Judith Menard: Yes, I can take that one. Laurent Ferreira: Judith is going to take the question, Doug. Judith Menard: Thanks, Doug, for your question. So as expected, as Laurent said in his script, we're seeing revenue synergy mostly in noninterest income coming from capital markets. So mostly RMS M&A company, which is a group we formed 2 years ago, but they are active in the market right now. So we expect NII synergy to start materializing in the second half of 2026, and we're still on track to reach the target of $50 million for 2026. So our key levers include enhanced risk management solution, as I said, balance sheet expansion within existing and new client relationship, which we're seeing right now. We see some good wins around that, deployment of our cash management capabilities and leveraging CWB's equipment financing expertise for National Bank Alliance. So we just formed a group in Quebec to leverage CWB Equipment Finance, which is also a positive in our integration. Doug Young: Just a follow-up. I mean, relative to the targets that you set when you did the deal, we saw the expense side. But on the revenue side, in particular, how are you feeling about your ability to kind of get this? You were ahead of plan on the cost side. Are you ahead of plan in terms of where you thought you'd be on the revenue synergy side? Judith Menard: Yes, we're slightly ahead of plan for Q1, and I'm feeling very positive for our target, which is like the pipeline is good with CWB. This is -- we're still in the integration phase. And that's why we said that we're going to grow on the last 2 quarters. So conversion is finished. So this is a big milestone that we just achieved last weekend. So conversion is finished. We're still training people. There's a lot of things that we need to train people on processes, platforms, client value proposition as well. How do we -- you pitch National Bank when you're in CWB. So all of that is happening. So for me, I'm very positive, and there's very good momentum in the field right now. Doug Young: Okay. And then just second question, and I think I've got this right, but you can correct me if I've got it wrong, but it looked like there was a 10% quarter-over-quarter sequential increase in market risk RWA. What would have driven that? Etienne Dubuc: Doug, it's Etienne. So that market risk increase, I don't -- I cannot point you to a specific factor. What I'll say is that FRTB, because it does not take into account the different correlations and optionalities we have in terms of protection, especially on the downside, FRTB tends to move in ways that are less intuitive. We don't get the benefit of our diversification. So for example, we could have more downside protection, but run a slightly longer delta exposure, and that would show up as higher RWAs. So -- and it's also very point in time. So it tends to move. So that's really what I see in terms of explanation for that RWA. I don't think I would make -- I would conclude from that movement. Doug Young: Okay. So this is an unusual quarter. You wouldn't expect this level of expansion, I would assume, quarter in, quarter out. Etienne Dubuc: I'm sorry, I did not get your question. Doug Young: No, just like -- it sounds like this is an abnormal increase in market RWA. Is that what you're trying to say? Like there's... Etienne Dubuc: No, I don't think so. I think market RWA moves up and down in that kind of amplitude a lot. It's just that it's very difficult for me to point you to there was a -- it's because of volatilities or because of our different positioning, which is why it's very tough to conclude something really specific. Doug Young: Okay. Just one maybe last quick one. In your ROE waterfall, you talked about share buybacks. Can you quantify like what -- like I see the impact of buybacks, but like what level of buybacks are you assuming? I don't know if you can quantify it kind of... Marie Gingras: Yes. Doug, it's Marie Chantal. So what we've included in our buyback is for 2026, we're planning to execute on our NCIB program that we've just increased this morning, and that's up to September 2026. And then when you look at 2027, what we're expecting to do is really, as I explained earlier, is continue buybacks to converge towards a CET1 ratio of 13% by the end of 2027. So in line with what we had also shared last quarter. Operator: Your next question comes from the line of Paul Holden with CIBC. Paul Holden: First question is with respect to that ROE waterfall guide for 2027. Just want to understand the assumption behind no improvement in PCL. Is that just because you're baking in conservatism? Or are you suggesting that sort of the 25 to 35 basis points should be sort of the good run rate for National long term? Jean-Sebastien Grise: Paul, it's JS. I'll take this one. Obviously, we don't give guidance to 2027. We're keeping our guidance for 2026. We're very comfortable with 25 to 35 basis points. So I think your assumptions are correct. It's somewhere within the guidance that we have this year that we're applying for next year. Paul Holden: Okay. Because I thought I heard an earlier comment that there is no benefit in the ROE waterfall for 2027 from PCLs. So again, just trying to understand why that assumption would be made if it's conservatism or if you're suggesting something else. Marie Gingras: Paul, it's Marie Chantal. So just to make sure that I was clear earlier, there are no upside in 2027 included in our waterfall coming from credit improvement. So I guess that's what Jean-Sebastien was explaining that we're keeping our 25 to 35 basis point target similar for next year. Jean-Sebastien Grise: So you could see it's prudent. Paul Holden: Got it. Okay. Okay. Another question for you and maybe going back to one of the original questions on the ROE for Canadian P&C banking. When I think about the different levers, one of them clearly is net interest margins and particularly as it relates to low-cost funding. So on that point, when I look at the average deposit balances for personal, see it's declined the last couple of quarters, not by a large magnitude, but still sort of 2 quarters in a row, and that's typically where I tend to look for low-cost deposits. So one, can you kind of address what's driving that decline? It might just be term rolling off? And two, is it right to assume you'd obviously want that to go in the other direction? And if you can give any kind of sense on plans around that. I know Laurent said it's early, but love to hear any thoughts on planned deposit growth. Unknown Executive: This is Julie. I will start by giving you the personal deposit view, and then I'll pass it along to Judith and Nancy to provide a holistic view. So on the personal deposit side, we're down about 1% Q-over-Q, and that movement is largely explained by the CWB portfolio. As expected, we saw higher attrition in the CWB deposit book, which was built really around higher rate offerings and therefore, attracts a more noncore monoproduct customer segment. Some runoff is natural, and we -- and it's fully consistent with our expectations at the time of the acquisition. From an NBC point of view, when you look at deposit and mutual funds together, total client assets continue to grow, which is also a good measure of franchise momentum. With rates expected to remain low, deposit growth will stay neutral. Judith? Judith Menard: Yes. So on the commercial banking side, so deposit growth was strong in Q1, and it made a clear acceleration versus 2025. So I'm very pleased about that. Growth was broad-based across all segments, supported not only by the government and public sector, but also by a stronger contribution from general commercial, confirming solid and sustainable funding momentum. This is something that we wanted to see, and we're starting seeing. So again, I'm really pleased about that. So Nancy, you want to complement on the Wealth? Nancy Paquet: Yes. So for Wealth Management, demand deposit growth is consistent with what we see when client base and adviser base expand. More client relationship typically means more operating and investment cash balances, obviously. So the relation of demand deposit to AUA in each business is more stable. So as our AUA grows, our demand deposit grows as well. So we're very happy with the trend that we see and positive. Paul Holden: Okay. Just one follow-up on that. I don't think you break down deposit margins versus loan margins or if you do correct me. But how -- just on the deposit margin, like should we view even though the personal deposits declined, it sounds like it's high cost. Like was that positive for deposit margins? Is that how we should read that? Marie Gingras: So Paul, it's Marie Chantal here. So on -- when you look at the P&C NIM for the quarter, we saw a strong balance sheet growth with higher margin on both loans and deposits. So yes, in the quarter, it's something that we've seen. Operator: Your next question comes from the line of Mike Rizvanovic with Scotiabank. Mehmed Rizvanovic: First one for Marie Chantal. I just want to go back to the $270 million. Given that, that guidance was provided a while ago, obviously, you're more in the thick of things in terms of getting to where you want to be. And you're obviously ahead of schedule on that. So I'm wondering, is this a function of maybe that $270 million was potentially a bit conservative or you've just gotten there quicker. You've been able to execute quicker on getting those cost and funding synergies. I think a lot of investors have the same question that I have. And just in terms of -- I'm not trying to pin you on new guidance, but how should we look at the $270 million? Is there a possibility that it could be beyond that beyond 2026? Marie Gingras: So thanks, Mike, for the question. So you're right, we are executing more rapidly than what we had expected. And we continue to track ahead of plan in terms of execution that supports our confidence that the full target will be achieved as expected before the end of fiscal 2026. As Judith was saying, we just finalized our fourth and final client migration last weekend. So we are now very confident in achieving that target in 2026. Mehmed Rizvanovic: So no color on potentially going beyond that at this point. Too early maybe? Marie Gingras: No, no, not at this point. We're -- as I said, we just finalized the last conversion, and then we'll see what this brings next. Mehmed Rizvanovic: Okay. Fair enough. And then maybe just one for Julie. Just on the mortgage growth in the quarter, I think 3% sequentially. That's actually a very impressive number just in the context of what's happening in the housing market. And I'm just wondering, is this largely the Quebec-focused dynamic? Just Quebec is -- it just happens to be a much better market for growth these days? Or is it more so that you're doing something to win market share and just doing something better than your competitors currently? Unknown Executive: So thank you for the question. Obviously, we're doing something better. We delivered 11% year-over-year portfolio growth, which is impressive, driven by market conditions being more favorable. We delivered growth while improving our margins. Thus the business generates strong NII. As always, we maintain a disciplined and stable pricing strategy that supports sustainable penetration. And specifically in Quebec, our market share continues to expand, supported by strong brand positioning and deep long-standing real estate relationship. Mehmed Rizvanovic: Okay. And just one really quick follow-up on that. So what about the Optimum portfolio that was acquired? I'm wondering if that book is growing as well. I'm guessing that's embedded in the overall resi mortgage balance. I don't recall the size of Optimum, I think $3 billion purchase, but is that being expanded as well? Marie Gingras: So currently -- thank you for the question. Currently, the Optimum has around 4% part of our -- the real estate book for -- on the personal side. We demonstrate through Optimum strong performance, and it's at the core of our diversified strategy. Short to midterm, it's disciplined growth. So our main objective remains quality over volume. Mehmed Rizvanovic: Okay. So part of that growth is inclusive of Optimum balances as well, correct? Marie Gingras: Yes. Operator: Your next question comes from the line of Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess just a follow-up question, one on the ROEs. I guess one more question on the ROEs. But when we think about the capital markets, the Slide 23, one, do you see the mid-20% ROE as a sustainable ROE actually? This is the other side of the P&C business where you see upside. When we think about the capital markets business and the mid-20% ROE, is that sustainable? Could that get better, worse? Like how should we think about it? And second, I think, Etienne, you talked about FRTB impact on RWA as we think about the Fed maybe putting out a new Basel end game proposals in the U.S., is there any discussion with the OSFI around FRTB rules or any discussions around whether that could get revisited in Canada? Unknown Executive: Yes. Thanks for the question, Ebrahim. So I'll start with the ROE and give you some color because, yes, mid-20% is obviously a very good number. We want to keep it in the 20%. And the way that we think about it, I think the biggest driver is our business mix. We want to continue to focus on scaled businesses in global markets where we generate strong returns through the cycle, including in a more volatile period. And when you get volatile markets, activity usually increases, spread widens, dislocations create opportunities, and those are environments where these franchises can be very resilient. And also, part of how we think about it is how we've been disciplined about where we deploy capital. We stay nimble and allocate capital dynamically based on client demand and based on risk-adjusted returns rather than trying to do everything. And I think that discipline matters a lot, and we'll continue to do that. There's also an efficiency part. We've maintained a strong focus on cost discipline as we've scaled the franchise. And we've continued to invest in technology, particularly in our trading and issuance businesses. And on the corporate and investment banking side, there's upside there because we've made focused investments over several years that are paying off. We strengthened connectivity with the markets teams. We've increased our share of wallet, share of leads, and we've been very intentional about prioritizing sectors where we see long-term strategic importance and where we can build real franchise strength. So it's a consistent strategy. Ideally, we want to maintain it where it is now. I think that trading will not always be that good, but there's upside on the corporate and investment banking side. So we'll continue to stay focused on scaled, high-return activities and maintain cost control and invest in the right client franchises. I think for your second question, Laurent has more discussions with us than I have. So I think he could give you color on the FRTB. Laurent Ferreira: So Ebrahim, thank you for your question. And you're right on point. I think I talked a bit about FRTB before and that it has certain volatility and it doesn't capture all the risk the way I think we should capture it. With our peers, we have brought it up to OSFI as something that one we think does not capture the risk. So that's one with U.S. banks or European banks, which are not subject to FRTB at this point in time. So we have a healthy discussion with our regulators about FRTB. Ebrahim Poonawala: Got it. That sounds healthy. And I guess maybe following up on a question I think Paul Holden was trying to ask was, as we think about -- I get that you don't expect PCLs to decline next year versus this year. But maybe there is a mark-to-market as you think about the Canadian economy and your loan book, do you expect PCLs or impaired PCLs to improve as the year moves and as we think about just fundamental credit quality? Or is it still too uncertain, too soon to tell? Unknown Executive: I think it's the latter. But when you look, we're starting at a very strong position, right? So we're starting at 28 basis points, so strong credit quarter. We're also very pleased with the lower level of formations, but it's an environment to stay humble. We're still in the credit cycle. We're still seeing recuperation rates in non-retail and the big one is CUSMA. So as long as CUSMA is still in flux, there's still some risks. And it's very aligned to what I said about our 2025, where we could see swings between quarters, 10 basis points between ups and downs, but we are maintaining our 25 to 35 basis points guidance for the year. Operator: Your next question comes from the line of Mario Mendonca with TD Securities. Mario Mendonca: First a question on the advisory business, the underwriting advisory. It would appear that you've reached an entirely new level. The last 3 quarters, the underwriting advisory revenue is up something like, what is it, 50% to 90% relative to comparable quarters. I figured to some extent, this is what the market has given you, but it seems like there's more going on here. Can you talk about what National has done specifically, either it's bankers, geographies, products, something new you've done over the last 3 quarters that's driving this? Etienne Dubuc: Thanks for the question, Mario. It's Etienne. It's true that in C&IB, you saw broad-based strength across the franchise, and that led to, well, more than 30% increase of revenues from last year. I think where we saw much higher activity year-over-year is in deal flow and advisory mandates across equity capital markets and M&A. These were really slow last year, if you remember, at this time of year, and it's gotten really active this year. And that's across multiple sectors. It's not just metals and mining as some people think it's been very diversified. And we think really that M&A backdrop remains constructive. We've had our best M&A year ever last year, and that fueled activity across the broader franchise. And I think -- and that's also including ancillary activity like risk management solutions. So that's also very encouraging. We've advised on several mandates, including both public and private companies across infrastructure, power energy, mining, industrials. We also continue to see activity building with private companies. That's something we're working on. And with the ongoing integration of CWB, I think that positions us to further deepen our penetration in Western Canada. And in debt capital market, it's been really consistent. The growth has continued as clients took advantage throughout the quarter of very open and attractive funding markets. So yes, the franchise has evolved. As I was saying in my answer to Ebrahim, we've really increased the number of leads, the number of share of wallets. We've made -- continue to make some investments on that side. And I think this partly explains why we've had a bit of a higher tick in the expenses this quarter. I think we continue to build to accompany the growth, especially in Canada. Mario Mendonca: So it sounds like your answer is both. Like the market has been super helpful, but you've made a bunch of investments in this business as well. Those are both. Etienne Dubuc: Yes, I think that's accurate, Mario. Yes. Mario Mendonca: All right. Now going to this ROE disclosure, it raises more questions, frankly, than it answers because the segment ROE domestic is, what, 600, 700, 800 basis points lower than most of the other banks and your capital markets ROE is probably 600 or 700 basis points higher than the other banks. When you present disclosure like this, do you put any effort or thought into whether your capital allocation is different or the same as your peers? Like how can we be comfortable or maybe the answer is we shouldn't be. How can we be comfortable that these ROE calculations are even comparable to the other because they're so wildly different? Laurent Ferreira: So maybe I'll take this one, Mario. I think the scale has something to do with it in terms of our performance in P&C. We knew that for a long time. But we approach this as an opportunity. Part of the reason why we disclosed ROE per segment is because we believe that we could improve it significantly over time. And that's something that we started working on. Julie has been with the bank for a very long time and has started in her role and is looking at that specifically right now. So they are comparable. I mean all banks are different. And I think it is something that we are going to focus on over the next several years. And we do believe that we are going to be able to deliver more. Again, early days, we're starting a strategic review of our segment. And we'll -- as always, we're going to provide updates on potential outcomes and upside. Mario Mendonca: So just to be clear, you're suggesting that the 12.7% ROE in P&C Banking at National is comparable to the 20% plus from some of the larger banks and that scale accounts for that difference? Because you don't really see it in the -- well, that's not fair. You do see it in the efficiency ratio. So perhaps that's the answer. It's the efficiency ratio of 51% versus some of these larger ones around 40% to 45% -- that's the point. Jean-Sebastien Grise: You got it. Operator: Your next question comes from the line of Darko Mihelic with RBC Capital Markets. Darko Mihelic: Maybe before I hit my question, just on that point, I mean, it looks like you're using an 11.5% ratio to allocate capital. So presumably, as you get benefits from CWB on AIRB, that would flow through as well. Would that be fair? Marie Gingras: Yes. That's correct, Darko. We are using 11.5% for the capital allocation on the ROE segment that we've started to disclose this quarter. Darko Mihelic: Okay. And then just maybe just my question really is just for modeling purposes, I just want to sort of visit the other segment. I mean there was help from treasury, some gains in there. How should I think about that help in the quarter and a modest loss? And what should I think about it going forward? Marie Gingras: So thanks, Darko, for the question. So I'll answer the best I can do for your modeling. So on the revenue side, we've experienced 2 things this quarter for the other segment. So larger investment gains that we realized compared to prior periods. And we've seen the overall level of performance from treasury also improving. On the expense side, we expect lower levels in 2026, mainly from variable compensation, which was elevated in 2025. And remember, last quarter, we've given a guidance of a PTPP loss for the other segments ranging between $225 million to $275 million. We're pointing now more towards $225 million. Darko Mihelic: Okay. Okay. That's helpful. And just with regard to treasury activities, what is it that's helping you there? And how should we think about that for the rest of the year? Marie Gingras: Well, as you know, in your other segment, our banking book interest rate risk is centralized into our treasury group. So you can see some variation from quarter-to-quarter in the performance. So volatility is expected, and we're comfortable with what we're seeing so far. Operator: Your next question comes from the line of Jill Shea with UBS. Jill Glaser Shea: I just wanted to follow up once more on the ROE waterfall. Just in terms of the RWA growth piece that's impacting the ROE by 100 basis points. Can you just talk about the pace of organic growth embedded in there? Does that embed an acceleration in loan growth relative to what you're pacing currently? Realizing that, that number is actually net of the AIRB conversion benefit. So just trying to think through the balance sheet growth component versus the benefit from AIRB that's embedded in that number? That would be helpful. Marie Gingras: Thanks, Jill. It's Matt Chantal. So yes, on the RWA growth, we're expecting 100 basis points there. When you look at our RWA consumption, historically, we've been disclosing approximately 30 basis points on average every quarter. So I guess that assumption would be the right one to think. As we're moving with the synergy revenue on the conversion of CWB, Judith was sharing that we're expecting high single digit in terms of loan growth. Etienne was talking about a good pipeline as well on the corporate side. On the mortgage side, we expect the portfolio to grow in the mid-single-digit range. So those are some of the assumptions that you can continue to use for understanding our ROE target for 2027. Operator: We have no further questions at this time. I will now turn the conference back over to Laurent Ferreira for closing comments. Laurent Ferreira: Thank you, operator, and everyone on the call. Our Q1 performance was strong, and I'm very happy with our execution, and you should expect us to continue to focus on delivering sustainable earnings growth and a premium ROE. On that, thank you. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to Element Fleet Management's Fourth Quarter and Full Year 2025 Financial and Operating Results Conference Call. [Operator Instructions] You are reminded that this call is being recorded. [Operator Instructions] Element wishes to caution listeners that today's information contains forward-looking statements, and the assumptions on which they are based and the material risks and uncertainties that could cause them to differ are outlined in the company's year-end and most recent MD&A and AIF. Although management believes that the expectations expressed in the statements are reasonable, actual results could differ materially. The company also reminds listeners that today's call references certain non-GAAP and supplemental financial features. Management measures performance on a reported and adjusted basis and considers both to be useful in providing readers with a better understanding of how it assesses results. A reconciliation of these non-GAAP financial measures to add -- to IFRS, pardon me, measures can be found in the company's most recent MD&A. I am now pleased to turn the floor over to Laura Dottori-Attanasio, Chief Executive Officer. Welcome, and please go ahead. Laura Dottori-Attanasio: Good morning, and thank you for joining us. The fourth quarter marked a year of record performance for Element, highlighting the disciplined execution that we applied in support of our long-term strategy. In 2025, we advanced our key focus areas, continued to invest in our capabilities and delivered strong financial results. Our efforts translated into record net revenue and double-digit growth in both adjusted earnings and free cash flow per share. Adjusted return on equity was 17.9%, reflecting the strength of our capital-light model. In recognition of our cash generation and confidence in our outlook, we increased our annual common dividend by 15% to $0.60 a share. Importantly, we achieved these results while successfully navigating a complex operating environment earlier in the year. This performance underscores the resilience of our business model, the dedication of our team and the growing relevance of our solutions-led tech-enabled platform. Throughout the year, we saw strong client engagement and building commercial momentum. In 2025, we welcomed 156 new clients. We continued to convert self-managed fleets and expanded relationships with existing clients through more than 1,000 share of wallet expansions. Our Strategic Advisory Services team identified over $1.6 billion in cost savings opportunities across our clients' fleets, and approximately half of those opportunities have already been actioned, a testament to the tangible value that we provide. At the same time, we've been strengthening the foundation of our business. The investments we've made over the past 2 years are translating into measurable outcomes. Our Dublin leasing initiative continues to perform as expected, and we are firmly on track to achieve our previously communicated run rate targets of $30 million to $45 million in revenue and $22 million to $37 million in adjusted operating income by 2028 with a targeted 2.5-year payback. Electrification is another area where we made meaningful progress in 2025. We increased electric vehicles under management by 36% year-over-year to approximately 129,000 vehicles. Our charging platform is now live in the U.S. and Canada, and we plan to expand globally in 2026 through new partnerships across our markets. Alongside improvements in our core business, we continue to broaden our offering beyond traditional fleet management and accelerate our entry into mobility. Since launching Element Mobility, we have developed a clear go-to-market approach centered on connected mobility, including telematics, road optimization and adjacent solutions. The integration of Autofleet has been central to our progress. By bringing development in-house, we are lowering structural costs and increasing our agility, accelerating product cycles, shortening time to market and responding faster to clients. We expect this to be a sustained competitive advantage. We launched our Element ONE app for drivers in March, and feedback has been very positive as our adoption continues to grow quickly, and we expect a broader rollout throughout 2026. Our digital ordering platform remains on track with the initial MVP targeted for release in the first half of 2026. In December, we completed the acquisition of Car IQ, adding embedded vehicle-initiated payment capabilities that enhance fleet operations and data connectivity. Together with Autofleet and our partnerships with industry leaders such as Samsara and Motus that we announced earlier in 2025, Car IQ meaningfully advances our digital strategy and our mobility platform. Collectively, these actions improve how we operate, enhance the client experience and support scalable growth. Looking ahead, the steps we've taken in 2025 position us well to capitalize on future opportunities. We closed the year having made strong progress on our digitization agenda, deepen client relationships and broadened our capabilities. The investments we've undertaken have resulted in a stronger operating model and position Element for sustainable growth in the years ahead. And with that, I'll turn it over to Heath to cover the financials and take us through our 2026 guidance. Heath Valkenburg: Thank you, Laura, and good morning, everyone. Our results this quarter and throughout 2025 reflect the continued disciplined execution of our strategy. We delivered strong performance across key metrics including record levels of net revenue, adjusted operating income and margins and adjusted EPS and free cash flow per share. These measures all finished the year within or above our 2025 guidance ranges. I'll begin with a review of our full year performance on an adjusted basis and then discuss some of the nonrecurring items that impacted our results in Q4. In 2025, net revenue was $1.2 billion, an increase of 9% year-over-year, reflecting strength across all of our revenue streams. Services revenue totaled $623 million, up 5% from last year, primarily driven by increased penetration and utilization across our client base. While VUM increased 3% during the year, the revenue impact builds over time as onboarding and implementation progress. We expect this will support continued service revenue growth in the coming quarters. Net financing revenue was $498 million, up 11% year-over-year, driven by ongoing efficiencies from our leasing and funding initiatives, higher gain on sale in Mexico and growth in net earning assets. This resulted in the core NFR yield of 4.73%, an expansion of 35 basis points versus 2024. Syndication revenue for the year was $64 million, up 50% from last year despite a reduction of $1.1 billion in assets syndicated. This was largely driven by favorable mix, the reinstatement of bonus depreciation and continued demand for our syndication product. Full year originations were $6.5 billion, down 4% year-over-year and below guidance, as previously communicated. This primarily reflects seasonal softness in client ordering during the summer months, combined with later year model availability that pushed deliveries into future periods. Importantly, underlying demand remains strong. Order volumes reached record levels of $2 billion in the fourth quarter and $6.2 billion for the year, providing good visibility into originations for the first half of 2026. As mentioned, our reported fourth quarter results were impacted by several nonrecurring items, the majority of which were noncash in nature. Most significant items included a $130 million deferred tax asset adjustment related to updated jurisdictional profit expectations, a $52 million write-off of our legacy ordering platform resulting from the continued transition to the Autofleet technology platform and $9 million of restructuring and acquisition-related costs related to the Car IQ transaction, which closed on December 31. We do not believe these items are indicative of our underlying operating performance, and therefore, have been excluded from our adjusted results. On an adjusted basis, operating expenses totaled $520 million, up 7% year-over-year, reflecting continued investment in digitization, scalability and product expansion. A combination of solid revenue growth and disciplined expense management generated positive operating leverage of 2.1% and resulted in adjusted operating margin of 56.2%, an expansion of 90 basis points year-over-year. Our performance translated into strong bottom line results with adjusted earnings per share of $1.24, an increase of 13% year-over-year, and adjusted return on equity of 17.9%, up 190 basis points from 16% in 2024. Briefly, on the fourth quarter, our adjusted EPS of $0.33 was up a strong 24% year-over-year, underpinned by record quarterly revenue of $313 million. Top-line growth of 16% reflected contributions from all revenue components, including service revenue, which rose 4% quarter-over-quarter to reach a record level of $163 million. Operating leverage in Q4 was a robust 7.3%, and we generated adjusted return on equity of 18.5%. Turning to capital allocation. We repurchased 5.4 million common shares in 2025 at an average price of $32.10 per share. In total, we returned $269 million to shareholders through dividends and share repurchases. This represented 43% of our adjusted free cash flow and was supported by strong cash generation with adjusted free cash flow per share increasing 15% year-over-year to $1.57. Capital expenditures remained well contained totaling $71 million in 2025. In addition, we continue to manage leverage within our target range, ending the year with a debt-to-capital ratio of 76.9%. As Laura mentioned, we have enacted a 15% increase in our common dividend to $0.60 per share annually and have remained active on share repurchases thus far in 2026. I will now turn to the year ahead and our 2026 financial guidance. We expect 2026 will be another year of solid financial performance with Element, highlighted by revenue growth in the range of 8% to 10% and the combination of positive operating leverage and share repurchases driving strong growth rates in adjusted EPS and free cash flow per share. Specifically, we expect to deliver net revenue of $1.28 billion to $1.305 billion, adjusted operating income in the range of $720 million to $745 million, adjusted operating margin in the range of 56.3% to 57.3%, adjusted EPS between $1.40 and $1.45, adjusted free cash flow per share of $1.67 to $1.72 and originations between $6.5 billion and $6.9 billion. These ranges provided prior to any material foreign exchange fluctuations or adverse impacts related to changes in global trade agreements or broader political uncertainty. In conclusion, 2025 was another year of solid performance across the Element business. We entered 2026 with strong momentum and a resilient financial position giving us confidence in our ability to continue executing our strategic priorities and delivering value for our clients and shareholders. Thank you. Operator, we are now ready to take questions. Operator: [Operator Instructions] We'll take our first question today from the line of Vasu Govil at KBW. Vasundhara Govil: I guess, Laura, I first wanted to ask about the Car IQ acquisition. I know you mentioned briefly in your prepared comments, but if you could elaborate a little bit on how you think about strategic benefits of owning that asset and bringing some of the payment functionality in-house? And I know it's early days, but sort of any color on how you think about the contribution that this business could have over time on revenue and margins? And if anything is baked into the '26 outlook? Laura Dottori-Attanasio: Yes, absolutely, Vasu. Thanks for the question. So super excited about the Car IQ acquisition that closed in December 2025. So Car IQ has this in-vehicle payment solution that effectively enables vehicles to act as payment nodes to help our clients reduce fraud, modernize their billing, and it can really deliver, I'm going to say, scalable solutions to our clients. So it's exciting for us in that it's going to enable us to embed payments into our digital ecosystem. It's going to allow us to transform what I'd say is a relatively outdated process into a really strategic one with better margins for us. And it's going to allow us to capture more spend. And for our clients, it does many things, including removing the need for physical cards, embedding payments directly into the vehicles in their telematics environment. So it's going to be -- well, today, it can be used for fuel, tolls, violation and parking, and it has some really interesting future use cases that we're super excited about. Our plans to integrate it into our Element ONE, our client portal and to our driver app. We're super excited. I would tell you this is -- for the years that I've been here, this is the first time we have had a lot of reverse inquiries from prospects and clients that want to access this capability. And so exciting when we did our due diligence, Car IQ had one case we saw with a client where they could cut their fuel spend by almost 14% just by eliminating card misuse. So we think this has a great capability for our clients. We did a few proof of concepts ourselves. And with one of the clients we did this with, it provided such great results that our client told us they didn't want to come off the platform and want to continue to use this. So we're feeling really optimistic and positive about what this can do, not just for us but for our clients. And so from a financial impact perspective, I'd say a little dilutive in this year given that this is the year that we need to do implementation and conversion. We do expect it's going to have a meaningful impact for our clients, as I talked about, so to really help them reduce their total cost of operation. For us, it will be over time that we'd expect it to drive more profitability. So we are projecting some, I'm going to say, modest accretion that should come in 2027, and that would be on both an adjusted operating income and free cash flow basis. Vasundhara Govil: Great. That's great color. And then maybe just my second one is on the services -- servicing income growth. That's obviously lagged a little bit. I know I caught your comments about the VUM growth and that should help us in '26. But maybe if you could talk a little bit more about what sort of fell short of expectations this year? And then, as we think to '26, what kind of growth should we be modeling for that piece of the business? Heath Valkenburg: Yes. Vasu, I'll take that one. So from a service revenue perspective, in 2025, we delivered $623 million. Excluding FX and the onetime items we have announced, it's approximately 7% growth year-over-year. And Q4 reached a record level of $163 million. What we did see in the first half of the year with the macroeconomic environment, including tariff uncertainty and trade-related concerns, is we did see a slower growth rate in the first half of the year of VUM growth and that did moderate sort of the full year service revenue expansion. Obviously, in the second half of the year, VUM growth resumed 6% -- 3% growth rather in the last 6 months, which gives us good momentum going into 2026. What we do see though is typically the incremental contribution of the VUM growth does build over time. So as we cross-sell additional products, as utilization on the vehicles increases over time. And also, many of the vehicles on board, especially in Q4, only contribute partial revenue for that period. So we expect over the medium term services will continue to remain the strongest part of our growth driver. And we're certainly focused on accelerating VUM, expanding our product penetration as well as continuing to enhance our product set, and Laura took us through the most recent acquisition in Car IQ. Operator: Our next question today will come from the line of John Aiken at Jefferies. John Aiken: Heath, just a couple of questions that followed from the guidance that you provided, which is not an argument. Thank you very much for that. But when we take a look at the anticipated originations, obviously, below the levels of the guidance that you had last year. What's impeding the outlook for originations? And then, what impact should we expect that to have under vehicles under management growth? Heath Valkenburg: John, so maybe I'll touch on originations for 2025 more broadly, and then, we can talk about sort of impact to '26. So 2025, we delivered $6.5 billion in originations, and that was slightly down year-over-year and $200 million below our guidance range. It is important to contextualize this against 2024, which benefit from supply chain normalization and the backlog conversion that did elevate origination volumes. What we also saw in Q4 was we had really strong demand. So we had $2 billion of orders in Q4. We did see a modest extension in the order to delivery cycle times for vehicles that required upfit. And that pushed some of those Q4 orders into 2026, but gives us a good starting point for 2026. So in terms of our guidance, we're guiding $6.5 billion to $6.9 billion. That implies 7% growth at the upper end of that range. And to answer your question on impact in revenue, originations is an important metric, but it can fluctuate based on client behavior. And it should be viewed alongside other metrics, so VUM growth, net earning assets, yield, and the latter 2 are primarily the drivers of net financing revenue. And again, in 2025, we saw a really strong improvement across both of those metrics. NEA was up 3%. Our average yield was up 35 basis points, and that ultimately drove record net financing revenue of $498 million. John Aiken: And then, in terms of the guidance, the free cash flow per share growth implied is a little bit lower than what you're forecasting for the EPS growth. Should we assume that we're looking at higher sustaining capital investments like we saw in the fourth quarter throughout 2026? Heath Valkenburg: Yes. Maybe I'll take the sustained capital fourth quarter question first, and then, come back to the sort of the free cash flow growth. So Q4 was elevated. There's some timing in there. We continue to target approximately $80 million of spend across both sustaining and growth CapEx and nothing has changed from that perspective. In 2025, we actually saw slightly lower spend, where we spent $71 million in CapEx across the 2, which is one of the reasons that impacted the free cash flow. So when we think about free cash flow relative to EPS, it's really mechanical. So nothing has changed in terms of our ability to generate cash from the business, and it is timing. So free cash flow actually outperformed EPS in 2025 and was really, really strong. And we just see that sort of flipping around in 2026. Operator: We will hear next from the line of Stephen Boland at Raymond James. Stephen Boland: I hate asking accounting questions, but Heath, I'm going to, can you explain what updated jurisdictional probability outlook of what that actually means on that charge? Heath Valkenburg: Yes. No problem, Steve. I love accounting questions. So maybe I'll just give a bit of more color into sort of the key one-off items. So the first one, deferred tax asset, we recorded $130 million partial derecognition of a historical deferred tax asset. I want to stress that this does not reflect any deterioration in the operating performance of any of our geographies, and all of our regions continue to perform strongly. So the change really relates to some internal intercompany funding structure changes, as we look to optimize how we sort of fund the business internally. And ultimately, from a funding perspective, this gives us increased flexibility to raise more local funding, particularly in areas like Mexico, where we're seeing strong growth. So it's important to note, it has no impact on our effective tax rate or cash tax rate. It's a noncash accounting adjustment, and it does not impact sort of global profitability, or importantly, impact our ability to utilize those tax losses in the future. Stephen Boland: Okay. So this is really the jurisdictional is Mexico, that's kind of where it's focused? Heath Valkenburg: Some of the focus is Mexico, but it's a realignment of our internal funding structures and intercompany funding structures globally. Stephen Boland: I'm not sure who this question can go to. But I guess when we were -- a bunch of us were in Mexico, I don't know, 18 months, 2 years ago, there was a program that was talking about a global review of services, pricing, and there was going to be a net benefit that was talked about. I won't say the number, but I'm just wondering, has that global review been completed? And is that kind of baked into some of the results in '25, I don't think -- certainly, I hadn't asked this question. But -- and is that -- I guess, is that review completed at this point? Heath Valkenburg: Yes. So the pricing and go-to-market strategy is something we continue to refine, not only for Mexico, but all locations across the globe. We set up the leasing business and have seen some strong output as we continue to mature that leasing business and the learnings that we have do get applied to Mexico. So yes, we continue to refine our strategy from that perspective across all locations. Stephen Boland: Okay. I'll sneak one more in here. Just, Laura, you talked about the -- I'm probably a broken record here, the partnership with Samsara, you mentioned in your opening remarks. Can you just provide an update what that partnership is starting to look like? What services or cross-services that you're looking to add, referrals, et cetera? And would it be helpful, please? Laura Dottori-Attanasio: Yes. Sure, Steve. I guess what we talked about these partnerships with Motus that do reimbursements for vehicle expenses for individuals, and then, Samsara, who have telematics camera productivity offering. And all of that was done really to add, I'm going to say, additional services for our clients. We wanted to work with some of the best in the industry, and that's what we're doing. And it's going pretty well. Again, early days, but everything has been quite, I'm going to say, positive in line with what we expected. With both Samsara and Motus, we've already activated units and clients that have come through the referral program. And so, all looking good. Worth a reminder, we had said that in 2026 that we were expecting those partnerships to give us about mid-single-digit revenue. And so we're on track for that. Operator: Our next question today will come from Tom MacKinnon at BMO Capital. Tom MacKinnon: Two questions. First, just with respect to share buybacks, certainly more of an elevated pace year-to-date. You got the preferreds out of the way, converts out of the way. How should we be thinking about share buybacks? Should we sort of extrapolate a little bit about the accelerated pace you've had, and you do have a 10% NCIB that was launched mid-November 2025? And I have a follow-up. Heath Valkenburg: Yes, so in 2025, we paid out 43% of our free cash flow in dividends and share repurchases, so $150 million and $120 million. For 2026, as Laura announced, we have increased -- a 15% increase in the dividend to $0.60 per share, which is approximately 28% of our trailing 12-month free cash flow. In the first 2 months of this year, we've already repurchased $34 million of shares. And so we do expect to continue to be active in share repurchases for the 2026 year. Tom MacKinnon: Okay. And maybe you can talk a little bit about expansion in the services update on insurance services, and how should we be thinking about service attachment rates going forward? Laura Dottori-Attanasio: Thanks, Tom. I'm -- I'll start off just maybe talking about insurance, and then, I'll let Heath take that broader question, services in general. So you'll recall, and we talked about this, we launched our insurance offering in January of 2025 under the banner of Element Risk Solutions, and we did that in partnership with Hub. So our plan was to combine insurance coverage placement. We're going to do that with claims management and safety services and do it in a modernized way. As I believe I shared, we did miss the mark on this one in that we had some gaps in our product offering, some gaps in our go-to-market approach. And I guess I'd also say from a lessons learned perspective, we underestimated the complexity of standing up our insurance offering inside of our fleet ecosystem. So while we still believe there is a worthwhile opportunity for us in insurance, we remain committed to doing it. We have put it on the back burner given some of the things we talked about like our Car IQ acquisition that have some real benefits to us in the short term. So on insurance, we're making some organizational changes. We're working with Hub, and we're looking at how we refine our approach and fill some of those gaps before we come back to market with the relaunch, but we are still selling the product. It's just not, I'm going to say, exciting enough to deliver what our expectations were when we first talked about this ideation. And maybe with that, I'll hand it over to Heath to talk about the broader services offering. Heath Valkenburg: Yes, absolutely. So we expect the VUM attachment rates to continue to migrate higher. It's important to note, though, that new clients that you onboard sometimes have a dilutive impact to that migration. And we saw that in Q4, where the new VUM we brought on had a lower attachment rate of 2.2 services per unit. Obviously, the Car IQ VUM came on, had 1 services per unit. So those items do dilute the broad portfolio. But we expect over time for that VUM per unit to migrate over -- up over time, which -- so increased VUM, increased product penetration, and services per VUM will continue to drive higher service revenue over time. And then, maybe just to circle back on your previous question on the share buybacks, so we -- just to close that out, we generally target sort of a 1% to 2% of shares outstanding. I think we were 1.3% for 2025 and expect to sort of be at the higher range for 2026. Operator: [Operator Instructions] Moving forward, we'll hear from Munish Garg at CIBC. Munish Garg: Just one question for me. So on the off-balance sheet structures, I was wondering if you could provide an update on the progress on the new off-balance sheet structures that you have been working on similar to the Blackstone that was announced last year? Heath Valkenburg: Yes, absolutely. So during the quarter, we did incur some one-time costs to enhance and expand our funding structure. So we do already have a strong and diversified funding platform, but this initiative is designed to provide additional flexibility, as we grow the business while optimizing for yield and overall returns. So during the quarter, we made meaningful progress. However, we're not yet in a position to formally announce the associated transaction. Operator: Our next question this morning will come from Graham Ryding at TD Securities. Graham Ryding: Laura, this is probably for you. Just interested about the autonomous vehicle sort of area. It seems like it's developing quickly. Is this a fleet management opportunity for you? And how much of an area of focus is this for you relative to everything else you've got going on? Laura Dottori-Attanasio: Yes. Graham, thanks for that question. Super important, which, in large part, we started doing all the digitization, automation, acquisition of Autofleet, all of that to ensure that we remain in the connected vehicle. So I'd tell you today, autonomous vehicles represents a great opportunity for our company. We're starting to see some of them going from, I'm going to say, pilots -- piloting to commercialization. And we know that in doing so, they're going to have to scale through fleet ownership. So all of that's going to require funding, branding, maintenance oversight, safety reporting, real-time monitoring, scheduling, you name it. Those are all the things that we offer today and that we'll be able to offer to autonomous vehicles. So I would say with everything we've been doing, we are incredibly well positioned to support autonomous vehicles. And I believe we'll be able to win in the space just given the operational expertise that we have, so a positive. Graham Ryding: Okay. Perfect. Maybe on more of a sort of competitive macro question, just GenAI and the related competition, it seems to be sort of weighing on the markets and concerns in a lot of sectors. Can you talk about the durability of your business, where you could see some competition from AI-related competition? Or where do you see the business being more durable and positioned well? Laura Dottori-Attanasio: Absolutely. Look, I think our stock did get caught up in all of that, and AI does have the potential to pretty much upend absolutely everyone's business models. That said, for us, I think AI is going to have a meaningful benefit for us, not just from an internal efficiency perspective, but also from a client experience perspective. So again, we're super excited about the opportunity that that's going to present. And I talked a bit about it, but we started a couple of years ago to digitize, to automate, and that's where we put all of our pretty much capital allocation. So it's been to transition this, I'm going to say, leadership position that we've had in fleet management to intelligent mobility that we talked about, so we could really transform, what I'd say, has been historically somewhat of an antiquated industry into intelligent mobility. So with Autofleet in 2024, not only did we pick up, again, a phenomenal team of experts, but we picked up a great platform that we're building elements off of. And that platform, and this is important, and we never really talked about it a lot when we announced the acquisition, but it did come with AI already embedded in it. And it has, I'm going to say, an AI tool in it called Nova, one that can simulate whether it's supply-demand patterns and things in route optimization, improved fleet deployment, reduce downtime, et cetera. Nova was actually the first AI-powered large language model that was designed specifically for fleet management. And it's so good that it actually won an AutoTech AI Innovation of the Year award back in 2024 at, I think it was, the AutoTech Breakthrough Awards. So we are in a really good place with some of the actions that we've taken over the years. And I'd just say for Element more broadly, we also went out and got AI licenses for our team members, did all the training. We had all of our functions come up with use cases that could help increase client experience and take out costs. And so now in 2026, I'd say we're moving from that broader experimentation we did in 2025 to a lot more implementation in 2026, that's going to allow us to reduce manual processes and just move even faster in terms of automating how we do things. And I won't bore you with -- I find them exciting, but with the different use cases we have and the things we can do, I'd just say that pretty much every part of our business, when we look at it, AI can help us improve and do a lot better. And that's why we see it as a positive. And then, when you look at our broader business, and we talk a lot over the years about how resilient we are, we benefit from and -- we don't talk about it perhaps as much, but we've got some of the things that will allow us to continue to win. We've got scale with 1.5 million vehicles. We've got solid funding capabilities that can support all of our leasing, and again, leasing requires people, requires specialization and a balance sheet. And that's almost half of our business. And again, we've got our strong OEM relationships, where we get preferred vehicle pricing, allocation for our clients and an incredibly large network of service providers that also help drive savings for our clients. So all that to say, I think we're really well positioned from a resiliency perspective and that AI, as it goes, is just really going to help further enhance our value proposition for our clients. So again, feeling very excited about this one. And looking forward to, as we go in 2026, delivering on more capability through our Element ONE platform. Operator: [Operator Instructions] We'll move forward to the line of Bart Dziarski at RBC Capital Markets. Bart Dziarski: I wanted to ask around Element Mobility and the Autofleet. In your prepared remarks, Laura, you talked about lower structural costs and increased agility. And just hoping you can maybe help us out with some quantification or numbers around those 2 benefits? Laura Dottori-Attanasio: Yes. Happy to talk about both. And I'll ask Heath maybe to clean up my answer because I might not give you the answer that you're looking for, but from an Autofleet perspective, and I know this isn't what you're looking for, but from a payback period, from where I stand, this paid back in spades already like almost from the first month. So -- for Autofleet, very specifically, the company as a stand-alone, its ARR was up, I think, almost 50% over last year. So that's a positive. But more importantly, it's really everything it's been doing for Element or what we're calling Element Mobility. It's allowed us to bring in, and I had some of that in my prepared remarks, but bringing in all of our development in-house or a lot of it, I should say, we're just much more agile, and we can bring products to market sooner, so just shorter time to market. So I really see that as a sustained competitive advantage for us and that it's got just intrinsic value that is hard to quantify, although Heath is doing a pretty good job of that, where we're looking at the amount of cost avoidance we have, savings and reduced cycle times and whatnot. And that's what allowed us to create this Element Mobility that we talked about. And so it's really an umbrella, or if I could call it, a division that's meant to drive innovation across our fleet landscape. And so sitting under this, I can call it an umbrella, we have things we've talked about, our innovation lab, that's going to be focused on next wave technologies. So that will include some of the things we talked about earlier, whether it's autonomous vehicles, AI, we'd also look at robotics. So all the things that are really going to dynamically transform, I'd say, how businesses manage their fleets. And so that would sit there, would have our intelligent routing, ride-hailing, telematics, in-vehicle payments, et cetera. And so in setting that up for sort of what comes next, we think that will allow us to lead on, I'm going to say, transformation without losing focus on execution and the day-to-day stuff that we have that we do so well when it comes to leasing and different services that we provide. And so, for mobility, there is no real number as we sort of put things under this umbrella. And we're going to take 2026 to think through what that looks like. And I know I've over-talked, but I'll hand it over to Heath to see if he has what you're looking for, which are numbers. Heath Valkenburg: Bart, I'd probably break it down into 2 components. So the first one would be from a CapEx perspective and the spend that we had to incur to deliver some of our key projects that Autofleet have delivered. We saw a meaningful reduction in the cost of those. So a number of those projects we had scoped up with external parties prior to the transaction with Autofleet taking them on, we saw upwards of a 60% cost reduction. And that was partly -- or one of the reasons why we saw reduced CapEx spend of $71 million for the year relative to the $80 million target. So that is one benefit. The other benefit is on the operating expense side of the equation. You do see in the investor presentation, we break out the $9 million of efficiencies achieved during the year. What I would say is that most of our spend is really focused on digitization, product expansion and focused on growth, but that does have an added benefit on automating some internal processes and those sorts of things that do have an OpEx benefit as well. And I think you saw that in 2025, where our expense rate normalized from what was a double-digit expense growth rate in prior years to 7% in 2025. So looking forward, we expect our expenses will continue to grow as we do invest in the business, so new products, new capabilities, digitization, but we expect those efficiencies will continue to drive positive operating leverage. Bart Dziarski: Awesome. That's very helpful color. And then one thing that jumped out this quarter was we saw continued VUM acceleration despite originations declining. And so I think there is an underlying trend there where maybe you're not as reliant incrementally on originations needing to drive VUM growth. And if that's the case, where are you seeing some other benefits or wins, if you will, on the VUM side? Heath Valkenburg: Yes. So it's a great question. The VUM and the originations don't necessarily move in unison. We can grow VUM by bringing on service only VUM, and we can also have origination growth without actually driving VUM growth, where it's just clients returning an old vehicle and taking out a new vehicle at a higher cap cost. So they are somewhat decoupled. But over time, we expect growth in both originations and VUM. And as I sort of spoke on the top, we did see a slow start to the year on the VUM growth with macroeconomic environment. But pleasingly, we saw a strong increase in the back half of the year. And with things like Laura has spoken about, so Autofleet, Motus, Samsara, Car IQ, we expect that those things will also help us drive VUM growth and service revenue growth into the future. Operator: Our next question will come from Jaeme Gloyn at National Bank Capital Markets. Jaeme Gloyn: Just wanted to maybe dig in on the syndication a little bit, another quarter of greater than 3% yields. Is that something we should kind of expect here going forward? Or are there some other factors that's driving that for the past couple of quarters? And then, in terms of the volumes, thinking back to 2024, it was well over $3 billion. But outside of that, kind of in that $2.5 billion range. So just kind of want to get a sense as to how that -- you should expect that to flow from originations through to either average earning assets or syndications? Heath Valkenburg: Yes. Jaeme, so I'd kick it off by saying syndications, first and foremost, is a balance sheet management tool, so we ended the year at a debt-to-capital ratio of 67.9%, which is at -- 76.9%, I should say, which is in our target range of 73% to 77% and well below our debt covenant, which is 80%. In terms of the volume in 2025, we were deliberate in pacing syndications as we deferred transactions while we waited for the reinstatement of bonus depreciation. Since that's come in, we've seen sequential increases in volumes in both Q3 and then in Q4 again. What we also did in 2025 is we've really prioritized client level funding optimization, which, coupled with bonus depreciation has seen really strong results in syndication yields. Having said that, client mix does contribute to the strong yields. And we expect from an ongoing run rate perspective, it'd probably be more in line with the full-year average as opposed to what we saw in Q3 and Q4. Jaeme Gloyn: Okay. Great. And then, as we think about the Autofleet, I guess, penetrating more of the Element business, there is an ordering platform shuffling this quarter. What other -- are there other aspects of the business here that are right for that Autofleet to overtake? And, yes, I guess, maybe a little bit of color on some of those potential items that we could see down the road. Laura Dottori-Attanasio: Well, maybe, Jaeme, I'll kick it off and hand over again to Heath just for some numbers and to talk about the write-off, but with Autofleet, as I mentioned, we bought not just -- and we have great people there with their innovation, but the platform that we're looking to put all of our capabilities on to just given what a great platform that it is. And so, as time goes, that is the expectation that we will be on one platform, and it's all going to sit on Autofleet as the direction that we're headed on. And so for maybe this piece, Heath, if you want to talk just a bit about what we've done. Heath Valkenburg: Yes. So when we announced the Autofleet acquisition, part of the rationale was no doubt to enhance -- to acquire an enhanced tech platform, which would drive sort of client experience and those sorts of things, which Laura has touched on. So the announcement today really to move away from our legacy ordering platform really just reflects the efforts of the Autofleet team and the continued adoption of their technology. So we took a one-off write-down of a historical amount, $52 million noncash impairment, as we really move to a new technology that will drive meaningful improvements in the client experience and our business. And that's a one-off item that we don't expect to happen in the future. Jaeme Gloyn: Yes. I guess, what I'm getting at is like -- this is the ordering platform today, is there -- what -- is the entire Element business now on the new Autofleet ordering platform is -- maybe if I kind of extrapolate a little bit, like is there a mobile app where something similar, we see everybody move over to that new mobile app, something along those lines? Is there any additional color you can kind of dig into on that or am I just getting a little ahead of myself? Laura Dottori-Attanasio: No, it's great. Look, I want everything for yesterday also. But we're moving everything onto this new platform. And so parts of ordering are going there. We do have other platforms. So we've written this one off. There are smaller other things. So I don't want to say never from other write-downs perspective, although we wouldn't expect anything like this, I'm going to say, size into the short term in the future. But yes, everything would move on to this platform eventually, and so, we would have our Element ONE client portal, and there is an Element ONE driver app, and the 2 speak to one another. And so the -- both the portal and the app, and as you know, our app is out there, our portal will be releasing soon, has taken some time because we do have some existing technology that's out there, and we wanted to ensure we were very thoughtful about how we were coming up with the new platform. So essentially, all the change we've done have sat on both, I want to say, old and new platform, and that is to ensure integrity of data and information that we have so that when the new platform, if you will, is being utilized that no information, no data integrity is compromised, et cetera. And so that's why this has taken us longer. But I think that's your question, directionally, yes, everything is going to sit in this one place. Operator: [Operator Instructions] We'll hear from Stephen Boland at Raymond James. Stephen Boland: Sorry, I'll be quick here. Just in terms of the Car IQ, you mentioned that there has been some test cases with existing clients. Is the plan to just introduce this to new clients or start rolling out to the existing client base as well? Sorry, I just want to clarify that. Laura Dottori-Attanasio: Yes. Stephen, our plan is to offer it to our existing clients and to our new clients. So we're going to be looking at both. We -- well, I would say, we could do a forced conversion. That's not how we operate. Our plan is to offer it to our client base, and we will allow our clients to determine what they would prefer, if you will, to use. And so when I think of our partner there, Wex, we have had a long-standing and a really successful partnership with him. What we're doing here is, I'm going to say, we're really focusing just on making sure our clients are in the -- if I could say, in the right solution for them. And so I think of it kind of as, forgive us, a grocery store, where you think that you've got both trusted brands and your own high-quality store brand. And so that's sort of what our approach is going to be. And so we're really going to be providing our clients with choice and putting them in what we believe is the best offering. And as you know, all clients are different. And so, for some, it will be one option; for others, it will be a different one. But I'd just say that our priority is just going to be to ensure that we put our clients in the best offering for them. Operator: Ladies and gentlemen, that was our final question from our audience. This concludes the question-and-answer session. I am pleased to turn the conference back over to Laura Dottori-Attanasio for any closing or additional remarks. Laura Dottori-Attanasio: Great. Thank you, operator, and thank you all for joining us today and for your continued interest in Element. I do want to thank our investors and our analysts for their ongoing support and engagement and want to really thank our team members for their dedication because our achievements wouldn't be possible without their focus and commitment. So thank you, and we look forward to speaking with you again on our next quarterly call in May. Operator: Ladies and gentlemen, this does bring to a close today's conference. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, and welcome to the Cargojet Year-End Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to David Tomljenovic, Vice President, Investor Relations. Please go ahead. David Tomljenovic: Good morning, everyone, and thank you for joining us on this call today. With me on the call today are Ajay Virmani, Executive Chairman; Pauline Dhillon, Chief Executive Officer; Aaron McKay, Chief Financial Officer; Sanjeev Maini, Vice President, Finance; and Remi Tremblay, General Counsel and Corporate Secretary. After opening remarks about the quarter, we will open the call for questions. I would like to point out that certain statements made on this call, such as those relating to our forecasted revenues, costs and strategic plans are forward-looking within the meaning of applicable securities laws. This call also includes references to non-GAAP measures such as adjusted EBITDA, adjusted earnings per share and return on invested capital. Please refer to our most recent press release and MD&A for important assumptions and cautionary statements relating to our forward-looking information and for reconciliation of non-GAAP measures to GAAP income. I will now turn the call over to Ajay. Ajay Virmani: Good morning, everyone, and thank you for joining us this morning. Before we begin the detailed review of the quarter, I'd like to offer a few broader remarks. Cargojet operates at the intersection of global trade, capital discipline and time-critical logistics; in stable environments that create opportunities; in volatile environment that demands clarity, discipline and execution. What defines this company is not the cycle. It is how we manage through it. As previously announced, we transitioned to a single CEO structure as part of our long planned succession framework. I'm pleased that this is our first quarterly call with Pauline Dhillon as Chief Executive Officer. This next phase of Cargojet's evolution is centered on sharpened accountability and disciplined execution. The Board has been very clear in its mandate to Pauline and her management team. Our priorities are extremely straightforward: deliver profitable growth with strong returns on invested capital; maintain operational excellence and industry-leading reliability delivered safely; exercise rigorous cost control and discipline while maximizing utilization of our fleet and infrastructure; and last of all, continue investing in our people and leadership depth to ensure sustainable and long-term performance. Strong financial outcomes are only possible with a strong culture and an engaged workforce. That remains a core competitive advantage for Cargojet. These principles guide our capital allocation, our operating discipline and our long-term value creation. Pauline and her team are fully focused on delivering against these objectives. Before I turn the call over, I'd like to express my sincere appreciation. On behalf of the Board of Directors, I want to thank more than 2,000 Cargojet employees for their professionalism, resilience and commitment to excellence. I want to thank them for coming through one of the roughest winters that I have seen in the last 30 years and maintaining our on-time performance. To our customers, thank you for your continued trust. We'll continue to earn your business every day. And to our shareholders, thank you for your confidence and long-term support. We remain totally committed to disciplined execution, financial strength and sustainable value creation. With that, I want to thank everyone and turn the call over to Pauline. Pauline Dhillon: Good morning. Thank you, Ajay, for your kind words and continuous support. Before we discuss the details of our fourth quarter and full year results, I would like to echo Ajay's comments to start by thanking the entire team at Cargojet for their incredible effort and dedication over the past year. The strength and resilience of our business comes from our team who show up every day and every night to deliver world-class service for our customers. As Ajay mentioned, that was never more true than during peak 2025. Despite the extreme conditions across the nation, our teams delivered exceptional on-time performance at 99%. On behalf of myself and the entire executive, we want to thank every single member of the Cargojet team. During our Q3 call, we noted persistently high levels of uncertainty throughout global shipping lanes due to volatile tariffs and geopolitical conditions. We anticipate that global uncertainty will persist, and we will continue to limit our visibility for the foreseeable future. As a result, we intend to continue with our disciplined approach to aligning our fleet, our operations and cost to current market conditions to ensure we protect our margins and profitability while delivering industry-leading on-time performance to our diverse customer base across 3 business lines. Cargojet experienced some event-driven activity in the fourth quarter that impacted our results. The grounding of MD-11 cargo freighters left their operators with reduced capacity and an uncertain outlook for the MD-11's return to service. Some of our long-term partners have been impacted by the grounding and asked Cargojet to support their needs in the fourth quarter. We continue to support those partners into the first quarter and will continue to do so for as long as they require. We are thinking of our fourth quarter of 2025 as the tale of 2 cities that exist within our business. While the domestic network remained robust, long-haul transatlantic and transpacific lanes continue to be impacted by geopolitical uncertainty. According to recently released data from China customs, 2025 experienced the first decline in e-commerce volumes since 2022. China to U.S. e-commerce volumes fell by 50% in the third month in a row, including December and were down 28% for all of 2025. While global uncertainty persists, we believe that Q4 2025 should represent the trough for our ACMI customers. While it is early, we are cautiously optimistic that ACMI conditions will show signs of improvement towards the end of 2026 if global political, tariff and economic conditions improve. While global conditions remain challenging, our core domestic overnight business experienced a strong seasonal peak period. During our Q3 call, we were cautious about the resilience of the Canadian economy and consumer demand. Despite challenges from inflation and job uncertainty, Canadian consumers were active during the holiday season. As well, our domestic business continued to benefit from the ongoing adoption of e-commerce across the Canadian retail sector. Increasingly, retailers are choosing e-commerce channels to optimize inventories and to best satisfy customer needs. The speed of delivery is critical to ensuring ongoing customer satisfaction in an increasingly e-commerce-driven retail environment. We expect this transition in buying behavior to provide an ongoing tailwind for our business. Our focused efforts on developing new charter opportunities have resulted in the commencement of new charter services that align with our current North to South Americas flying. As well, we will deploy our assets to increasingly align with opportunities best suited to the composition of our fleet on lanes that are less impacted by political and trade-related tensions while we wait for broader shipping conditions to improve. During Q4 2025, we commenced service between North, Central and South America for a new scheduled charter partner. This charter operates 5 days per week with destinations in the Caribbean as well as Central and South America. This charter business is well suited to our fleet and aligns well with the activities across other lines of our business. In Q4, we also announced a new weekend service to Liege, utilizing capacity within our fleet. This service reestablished a scheduled connection between Europe and Canada with the goal of building up this lane over time. During Q4, the service captured strong seasonal demand in Europe for premium Canadian seafood and other Canadian goods, while our general sales agent in Europe delivered consistent volumes on the westbound sector. In many cases, the westbound volumes feeds into our domestic overnight market. Our Liege service has continued into the first quarter, and we will keep it going as long as it represents the best use of fleet capacity. We continue to explore opportunities in a similar manner as we have with Liege. Our goal is to develop new profitable reoccurring revenue opportunities that utilize existing fleet capacity while also enhancing the value of our core domestic overnight network to other parts of the world. We are seeing changing global trade patterns impacting our China charter business with transpacific exports from China beginning to fall for the first time since 2022, according to our previously noted report. In the fourth quarter of 2025, ongoing political and tariff challenges kept our frequencies relatively flat sequentially compared to the back half of 2024. When we announced our agreement with our Chinese partner, we noted that total revenue for the agreement was expected to be approximately $160 million. With the early success and extra flying we completed in late 2024 and early 2025, we have approached that total deal value in early 2026. Given current conditions, we have mutually agreed with our partner to suspend ongoing service early in 2026. Our relationship remains strong, and we look forward to future business together when geopolitical and trade uncertainty allow. We expect that the new arrangements I noted earlier with both existing and new partners will more than replace expected minimum revenue in 2026 from our previous Chinese flying, while keeping our aircraft closer to home and operating missions best suited to their most efficient use. As we look forward to 2026, our core focus on customer obsession will be demonstrated through our continued best-in-class on-time performance. We are always -- we are aware that we are operating in an unstable global trade environment and believe our disciplined approach to service delivery, cost management and capital deployment will set us up for success regardless of challenging operating conditions. We've proven our ability to be nimble to find and execute on new opportunities and to take advantage of changing markets to deliver value to our customers and our shareholders. Despite the ongoing uncertainty that exists within global trade lanes, we will continue to look for and sign new opportunities for growth while remain focused on disciplined and profitable execution across all of our business lines. I'm going to pass the call over now to Aaron for his comments on our financial performance. Aaron McKay: Thank you, Pauline. As Pauline noted, despite a challenging operating environment, Cargojet's disciplined approach to customer service, cost management and capital deployment as well as our ability to be nimble and take advantage of new opportunities allowed us to deliver strong Q4 results that we are proud of. That happens because of the experience and dedication of the Cargojet team, and I'd like to echo Pauline's thanks to the entire team for all the hard work through the fourth quarter. As Pauline discussed, global trade uncertainty remains high, which means our forward visibility remains lower than we would like. Despite these challenging conditions, our disciplined execution and expense controls resulted in another quarter of strong adjusted EBITDA and adjusted EBITDA margins, which came in at $95 million and 33.4%, respectively, despite a small year-over-year decline in total revenues of 2.9%. Revenues from the domestic overnight business were $120.2 million, an increase of $17.4 million or almost 17% from the same period last year, which led to a full year increase of almost 14%. This growth resulted from continued e-commerce penetration across Canada as consumer demand remained robust through Q4 and the holiday season. Looking forward, given broad geopolitical and trade uncertainty, we remain cautiously optimistic about continuing Canadian consumer demand and the continuation of e-commerce penetration we've seen, which may be offset by broader economic challenges. Disruptions in transatlantic and transpacific trade routes continued in Q4 2025, which drove a continuing year-over-year decline in our ACMI revenue, in line with the declines we saw in the third quarter. Despite the lower activity, our ACMI partnerships remained strong and generated $64.6 million of revenue, a decline of $18.9 million from Q4 2024. As in the third quarter of 2025, in Q4, our ACMI flying consisted of shorter stage length north-south routes compared to those flown in the same period of 2024 when activity levels were higher than baseline economics of our long-term ACMI agreements. The lower block hours, which result from the shorter stage lengths were the primary driver of the year-over-year decline. Current activity levels are aligned with those baseline economics, supporting revenue stability and certainty moving forward. We remain as the top service provider to key customers because of our relentless focus on maintaining our industry-leading on-time performance and customer service. The charter business in Q4 2025 was also impacted by global political and tariff conditions, particularly on transpacific trade routes. Our total charter revenue was $58.2 million, down from $64.4 million in Q4 2024. The year-over-year decline was primarily driven by muted incremental peak season flying in Q4 2025 for our Asian charter partner because of ongoing uncertainty and unfavorable tariff and trade conditions. This was partially offset by increased seasonal peak flying for some of our long-term customers. We expect to continue to support our customers through what has begun as an event-driven charter opportunity. Currently, it's difficult to predict whether these represent longer-term economic opportunities. We continue to believe that discipline in cost management and capital deployment is the correct approach to running the business through the current period of volatility. Our ongoing cost control initiatives allowed us to maintain EBITDA margins in the low to mid-30% range in the fourth quarter. The diversity of our revenue streams, our high level of customer service and existing flexibility in our fleet position us to capture new opportunities that develop in the market while longer-term global and political conditions normalize over time. Turning to our fleet and CapEx. During the quarter, we completed the divestiture of our last Pratt & Whitney-powered aircraft. The 767 fleet is now standardized around the use of GE-based engines, which allows us to optimize our spare engine pool, spare parts inventory and ongoing maintenance activities. At the end of Q4 2025, our operational fleet was 41 aircraft. CapEx for Q4 2025 was $45.6 million, which consisted of $37.5 million of maintenance CapEx and $8.1 million of growth CapEx. This compares to Q4 2024 CapEx of $136.9 million, which included $92.7 million of maintenance CapEx and $44.2 million of growth CapEx. We believe our current fleet of aircraft offers the operational capacity to accommodate our current customer commitments with enough available capacity to capture near-term growth opportunities. In the first quarter, we expect some delivery payments for aircraft to be more than fully offset by the proceeds we received for the sale of 2 aircraft in the back half of 2025. Outside of that, we intend to tightly control growth CapEx through 2026 and any such spending will be tied to new long-term committed revenue agreements. Prudent and disciplined capital allocation remains a key priority for Cargojet. Maintaining a net debt to adjusted EBITDA below 2.5 turns over the long term, supporting the investment-grade credit rating we achieved in the second quarter of the year is a key objective for us. The current operating environment as well as the timing of certain transactions means that the ratio remains slightly elevated at the end of 2025. Although pro forma for the receipt of proceeds received in early 2026 for the aircraft sold in 2025, our net leverage ratio was 2.8x. We remain dedicated to that goal and we'll balance that objective with returns to shareholders through continued dividend growth and the opportunistic use of our normal course issuer bid. With that, I'll hand the call back to Pauline. Pauline Dhillon: Thank you, Aaron. Our position as the #1 air cargo carrier in Canada is the result of decades of discipline and execution that provides us with the experience to consistently meet our customers' high expectations for on-time performance regardless of the operating environment. 2025 again demonstrated the resiliency and the flexibility of our business to deliver through all market conditions. That resiliency comes directly from our unique culture and the efforts of our almost 2,000 Cargojet team members. I want to close today by again saying how proud we are of the entire Cargojet team for their continued dedication to the success of our business, resilience and discipline they demonstrate in their work every day. While the economic environment remains uncertain, we are confident that all those qualities will continue to drive the success of our business in the long run. We thank our customers for their continued belief in us. And to our shareholders, we remain committed to creating value. And with that, we will open the call for questions. Operator: [Operator Instructions] With that, your first question comes from Kevin Chiang with CIBC. Kevin Chiang: Maybe just a clarification question first on the update you provided on the Great Vision HK contract. It sounds like you're confident in being able to replace that revenue. Do you have that revenue in hand already? Or is it optimism around when you look into the pipeline that you'll be able to replace that as we get through this year? Pauline Dhillon: Yes. Let me start by addressing the China question, Kevin. That contractual revenue was net in early 2026. This is a rapidly changing trade lane. As I stated in my prepared notes, I highlighted the decrease in the traffic primarily as a result of global uncertainty and tariffs. We, as a company, continue to look for opportunities. We look at trade flows, trade lanes constantly changing. We have seen a decrease in the China to North America markets, but an increase from China to Europe. We are also seeing an increase from Canada to Latin America and Canada to South America. As I stated in my remarks, we mutually suspended the China route, and we continue -- we'll continue to revisit that with them as there's more stability in the global markets. In the interim, we have found opportunities in North America for better utilization of our aircraft, better rotation, better revenue, better margins and better shareholder value. Kevin Chiang: That's helpful. And then, Aaron, maybe this is for you. Strong sequential revenue improvement into the fourth quarter and peak season, tough weather conditions as well. But if I look at your OpEx less fuel and depreciation, I'll call it, your controllable costs, on a per block hour basis, they were flat to modestly down. Just wondering how we should think about your cost control initiatives as we go into 2026 here? Like are we starting to see maybe some of that cost momentum you highlighted last year? Or is there anything you'd call out in Q4 that might be anomalous that we shouldn't just straight line into 2026 here? Aaron McKay: No, I think generally, what you're seeing is the outcomes of those cost control initiatives. And we're continuing to look at new opportunities. I mean one thing I'll call out, and this is not onetime, this is something that we'll keep going is if you look at crew costs within direct costs, you can see the impact of the work we did even late 2024 into 2025 of hiring and training the crew pool to the right levels for the business. So overtime costs are down quite a bit. That continues into 2026. Now obviously, we have the [indiscernible] in 2026 that will drive changes there. But it's a long-winded way of saying, I think what you're seeing is the outcomes of our cost control initiatives, and we expect those to be long-term savings. Kevin Chiang: Okay. That's helpful. And maybe just a quick accounting or modeling question. It looks like you had a reevaluation of your depreciation. Is the number we saw in Q4, is that kind of the right run rate to move forward with? And then just working capital was a pretty decent drag in Q4 and for the year. Does that reverse in '26? Or is there anything we should be thinking about from a working capital perspective? Aaron McKay: Yes. On the first part of that, I think you're correct. I used the Q4 depreciation number. On the second part, I think there were a few items right at the end of the year that probably contributed to things like AR being a little elevated and created some of that working capital drag. So I think there'll probably be at least a modest reversal of that. Operator: And your next question comes from the line of Konark Gupta with Scotiabank. Konark Gupta: On good performance in Q4. Just maybe a clarification on the MD-11s. Did you quantify the revenue benefit you saw in Q4 or what you expect in Q1? And then did it only impact the domestic line of business? Or did it also show up in the charters? Aaron McKay: It all showed up in the charters. Pauline Dhillon: In the charters. Konark Gupta: Okay. And then what sort of magnitude would you say that, that had? Because, I mean, just if we kind of straight line the revenue for that line of business, should that be sustaining into the second half as well? Probably not. Ajay Virmani: Konark, I'll take that. We have a quarterly commitment from -- of that opportunity. It's a quarter-to-quarter, but we expect it to be lasting at least till quarter 3 or quarter 4 of next year because quarter 4 becomes the peak where everything is required, but we expect -- we haven't seen anything from FAA or Boeing or anything when the MD-11s are going back or even if they are going back to service. So there is going to be a 54 aircraft capacity lag in the global cargo world. And I think that depending on the hours we fly, it's quite a fluid situation. But let's put it this way that it makes up more than what we had in China and some of the other charters. It's the utilization of the assets within our own network that produces that revenue. And we're pretty hopeful that this is going to be a consistent revenue for this quarter and a couple of other quarters. Konark Gupta: Okay. That's great color. And on the China contract, so thanks for the details there. But just wondering, with the early termination, and I believe the contract would have been due in May 2027, was there any penalty on either side or any kind of termination fee or compensation from the customer? Pauline Dhillon: No, Konark, nothing such. Ajay Virmani: As a matter of fact, it was a mutual suspension of the contract, while the Chinese look at their -- not only their shipping, but their incentives from the governments for exports. So that's under review. And we had better opportunities keeping our, as Pauline said, aircraft closer to our home for maintenance, for pilots and all that stuff. So it was a very good opportunity for us to deploy the aircraft in this part of the world. And for them, it was also to review how they stand with the Chinese government and also with the U.S. government on tariffs. So it was kind of a mutual suspension for the time being. And it could start any time depending on when U.S. and China could end up in a deal. They will eventually. And I think it has a lot more potential in the future years. So it's all amicable and very -- as a matter of fact, the Chinese customer is also a big domestic customer of ours. Konark Gupta: Right. Okay. And last one for me before I turn over. Capacity, I think you guys mentioned that you don't need to necessarily invest in growth CapEx, and it will be very contained going forward until you see any opportunities. But what kind of capacity or excess capacity you might have in the system today? I mean, I think with the China contract suspension and then some replacement contracts you talked about, would you still have excess capacity? Or would you need to get a couple of more aircraft if you get new contracts? Ajay Virmani: My answer to that is, Konark, this team has always found capacity because the team we have in our scheduling and operations working with maintenance when the aircraft are needed. The excess capacity for charters, we have never said no, we find a way to get it done, and we will. On a paper, you might see that, okay, we are 97% utilized on the aircraft. But we always find ways to locate the aircraft, downgauge the aircraft, upgauge the aircraft according to the demand and find that excess capacity for charters. The idea is that we never say no. Pauline Dhillon: Yes, Konark, just to echo what Ajay is saying, we always are looking for opportunities. We have an exceptional skilled set of individuals who explore every single charter opportunity that comes in. Bringing the aircraft back all into North America certainly helps us with our fleet utilization. So we're constantly looking for growth, constantly looking for opportunities, and we believe that we have the right fleet to continue with our current customer needs and our projected customer needs. Operator: And your next question comes from Walter Spracklin with RBC. Walter Spracklin: I know there's a lot of focus here on China and MD-11s, but your core business, the domestic overnight, that was up 17% in the quarter. This is during a freight recession. Just curious, can you -- I know e-commerce continues to do well. Was that the main driver? And is that going to -- is there anything onetime in that fourth quarter? Or do we see that kind of growth continuing into 2026 here? Pauline Dhillon: Yes. Walter, great call out. Yes, you're absolutely right. We did see growth in the fourth quarter. I think e-commerce is the factor that we've seen this growth, especially over the entire year. We remain cautiously optimistic about 2026, and we continue to see e-commerce on the rise in Canada. As we've stated in previous calls, Canada has certainly been behind the rest of the globe in e-commerce activity. The new generation that's out there probably doesn't know how to shop in retailers, they're online. So we continue to be hopeful to see that continued growth in Q1. Again, we were a bit surprised ourselves that the domestic growth was so significant over the year. We remain committed to hopefully seeing single-digit growth in Q1, but it's going to be, I guess, on purchasing powers and what the consumer market does. Walter Spracklin: Okay. That's great. And just in terms of modeling, Aaron, maintenance CapEx for 2026, I know growth you said would be offset by some sales. So is it going to be entirely maintenance CapEx? And do you have a range for us for '26 in maintenance CapEx? Aaron McKay: Yes. Our expectation is that the 2026 CapEx will be largely maintenance CapEx. I think we've said in the past that we're seeing the maintenance CapEx come back down towards what we think of a long-term mean. So somewhere, I think, in the range of between $190 million and $210 million is a good number for 2026. Walter Spracklin: Okay. And then finally, capital -- yes, capital deployment, where do you focus free cash flow for '26? Is it bringing leverage? Is it keeping your leverage in that range you were focused on? I know you did a 10% dividend increase. Is there any room left for buyback? What are you thinking on capital deployment? Aaron McKay: Yes. I think we've said over the long term, we want to keep that net leverage ratio below 2.5 turns. We obviously want to balance that with returns of capital to shareholders. So like you said, we saw the 10% dividend increase we just announced, and we'll obviously continue to think about opportunistic use of the NCIB. The leverage target, again, is where we'd like to get back to over the long term. Operator: And your next question comes from the line of Benoit Poirier with Desjardins Capital Markets. Benoit Poirier: Congrats for the strong finish into the Q4. When we look in terms of adjusted EBITDA margin, you finished the year close to 33%, strong execution from a margin standpoint. You mentioned, obviously, a favorable environment with the MD-11 and also some rotation into more profitable lane. What about the -- whether the tighter capacity with the MD-11 helped in terms of pricing? And if you could maybe provide some thoughts about how we should be thinking in 2025, that would be great. Ajay Virmani: Well, it's Ajay. The pricing on the MD-11s, we obviously can't divulge into customer individual pricing. But let's say -- let's put it this way, that we do -- this is an opportunity which came out of a very unfortunate incident. We cannot see -- we do -- our style of business is that we do not -- this is from our existing customers. We do not look this -- take this opportunity as taking advantage of gouging the customers. All I can say to you is the pricing is extremely fair, competitive. And also, we were not the only game in town, like they had 10 carriers to select from, and we were one of the top 3 carriers they selected. So we have to be competitive, but they're also aware of that this is something they need on top of their. So it produces better-than-average margins, and we will continue to build that relationship with that customer. Benoit Poirier: That's very good color, Ajay. And could you maybe provide an update on the pilot agreement that is up for renewal this year? Ajay Virmani: Yes. We are in the middle of negotiations. We have a very cordial and excellent relationship with the pilot group and their leadership. We have been on the table for 3 to 4 months. We are making steady progress. The contract is due till June. Both parties have a willingness to get the deal done prior to that period. And so far, we have not seen any sort of road blockers on that. I think that everybody realizes -- both parties realizes the realities, which are the uncertain climate, some competitiveness of wages on the other side, we recognize that. But also, we are also focused on -- besides financial gains, the company is also focused on productivity improvements, which the other side we're also aware of. So our target is to get a balanced deal done by the end of June. That's our target. And we have enough dates in the calendar, and we've had enough meetings and everything so far is very, very cordial and there's a willingness to do a win-win deal. Pauline Dhillon: Yes. And just to echo Ajay's comments, Benoit, our pilots do understand our business, and they understand that providing our customers with the service levels that they've become accustomed to is paramount, not just for the organization, but for them as the pilot group. So we're very optimistic, as Ajay stated. Benoit Poirier: Okay. That's perfect. And maybe just a quick one for Aaron. You mentioned that maintenance CapEx should be at around a range of $190 million to $210 million. What about the proceeds from the disposal we should expect this year? Aaron McKay: Yes. So that's a great point, Benoit. Just to clarify, that number that I gave is a gross number. That's before netting off any proceeds of disposal. So we have mentioned previously that there is a little bit of gross growth CapEx in Q1 as we make some delivery payments for aircraft. So that will be more than offset by the proceeds from the aircraft that we sold last year. And then we'll continue to explore opportunistically sale-leaseback transactions like we looked at in Q3 of last year. So I think there is good potential to have a significantly smaller net number on CapEx. Operator: And your next question comes from Tim James with TD Cowen. Tim James: Congratulations on a good quarter to end the year. Yes. Just wondering, returning to the domestic revenue, just a great number to see there, e-commerce B2B. Is there anything in terms of particular lanes within Canada or regions? Or I know you don't get into customers, but customer types. So just -- I'm still amazed at how strong that was. But I'm just wondering if there's any sort of particular pockets in there that you would call out as driving that number. Pauline Dhillon: No, Tim, it's just e-commerce. We're seeing an uptick in e-commerce. We saw probably more activity on the domestic overnight as we indicated in Q4, but it's primarily driven by e-commerce and consumer spend. Aaron McKay: The only other thing I might add, Tim, is we've been seeing some of the same news reports I think everyone else has about the changing stocking patterns at retailers in 2025. So it's really -- it's difficult for us to see exactly what's happening with the freight on the planes. But I think we did see a little bit of a pattern where some of that stocking was pulled forward at the start of the year into Q1, Q2. And then there was a little bit of a hesitation of stocking in Q3, and then we saw that pick back up for the holiday season. Tim James: Okay. Okay. That's helpful. And then just turning to the lease service. It sounds like good volumes on the westbound. Anything you're seeing right now in that service that would suggest that it won't be sustainable or anything in particular that suggests it definitely is a feasible long-term service? I'm just trying to understand kind of the outlook and where the bias is at this point, if the current sort of revenue and economics of that, if they continue, you keep it in place? Or does something need to change to justify continuing with the service? Pauline Dhillon: Yes. Good question. Good call out there, Tim. Yes, that was a research and development kind of a lane for us. It was something that we wanted to reenter Europe with -- on what trade lane we were going to go into, what airport. And Liege is very similar to Hamilton. It's the hub of cargo for Europe. It's proven to us that there is a lot of potential there. We ran it through Q4. Q1 still is looking very optimistic. It's a lane we're certainly going to watch. But at this time, we have no concerns or no hesitation to continue operating into Liege. Operator: And your next question comes from the line of Chris Murray with ATB Securities. Chris Murray: So maybe turning back to the charter. This is maybe more of a conceptual question. If I look back over the last few years, Charter was always one of those kind of lumpier businesses, ad hoc contract here, contract there. But if I'm listening to you, it almost feels like you're trying to build a much more sustainable charter business, be it -- you talked about the North-South planes, the MD-11 contracts, which you could conceivably see those turning into an ACMI or something like that, [ Liege ]. You talked about other perhaps lanes that you could open. Is this a conscious effort on your part to try to build this business to be more consistent or more stable? And should we start thinking about this as less of an ad hoc charter and more of just a scheduled operation but more internationally focused? Pauline Dhillon: Yes. Yes. Thanks, Chris. Good question. We're always looking for opportunities. I think we spoke about this at your conference. Cargojet is always looking for growth. We always look towards building our brand. One of the things that we had decided in 2026 was our domestic footprint is very strong here in Canada that our growth will come from global expansion. So we're constantly looking at new trade routes, new ACMI, new charter. And I think one of the reasons that we started Liege was for this reason, and it's proven to be a successful R&D project for us. And as we enter 2026, we're going to continue to look for opportunities always on the domestic and continual growth opportunities in North America, South America and Europe. That's going to be our primary focus as we enter the year. Operator: Okay. Along those lines, any -- like I guess if you're going to stay in those geographies, so there's no thought of like either looking at a connection to Asia or other parts of the world there? Pauline Dhillon: No, we will continue to look at all opportunities, but we want to make sure that with the fleet size that we have, with the utilization of the fleet that we have, that we integrate that fleet and those opportunities to marry one another. Chris Murray: Okay. That sounds good. And then, Aaron, maybe just to go back on the CapEx and the sale-leaseback question. So maybe I'm a bit confused. So the $190 million to $210 million numbers, that's gross CapEx and then we should expect that sale-leasebacks will reduce that number overall. Is that the right way to think about it? Aaron McKay: Yes. That's gross maintenance CapEx to be 100% clear. There will be a little bit of gross growth CapEx as well in Q1, but that will be more than offset by the proceeds that are coming in, in Q1 for the aircraft that we sold in 2025. And then yes, any sale-leasebacks that we look at will further net down the total CapEx. Chris Murray: Okay. So maybe a different way to ask a question. Like if we were to think about all the moving parts here, independent of other like unplanned sale-leasebacks, what's the net number going to look like roughly? Aaron McKay: Independent of other sale-leasebacks, I'm just doing the math in my head, somewhere in the [ $160 million to $170 million range ], I think. Operator, I think that will be our last question for today. Operator: I would like to hand it back to Pauline Dhillon for closing remarks. Pauline Dhillon: Thank you, everyone, for joining us today. We appreciate you taking the time. We will move on to the one-on-ones that have been scheduled. Anyone else that wants to reach out, please reach out to David to set up any additional questions that you may have. Wishing everyone a wonderful day ahead. Thank you. Operator: Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Denise Reyes: Good morning, everyone, and welcome to Nemak's Fourth Quarter 2025 Earnings Webcast. I am Denise Reyes, Nemak's Investor Relations Officer, and I am pleased to host today's call along with Armando Tamez, Nemak's CEO; and Alberto Sada, CFO, who are here this morning to discuss the company's business performance and answer any questions that you may have. As a reminder, today's event is being recorded and will be available on the company's Investor Relations website. Armando Tamez, our CEO, will lead off today's call by providing an overview of business and financial highlights for 2025 and the company's outlook for 2026. Alberto Sada, our CFO, will then discuss our financial results in more detail. Afterwards, we will open for a Q&A session, which participants may join live or submit written questions using the Q&A function. Before we get started, let me remind you that information discussed on today's call may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions you not to place undue reliance on these forward-looking statements. Nemak undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise. I will now turn the call over to Armando Tamez. Armando Tamez Martínez: Thank you, Denise. Hello, everyone, and welcome to Nemak's Fourth Quarter 2025 Earnings Webcast. I will begin with an overview of our 2025 results and strategy execution before moving on to our 2026 guidance. Throughout 2025, Nemak remained focused on strategic and financial objectives, demonstrating resilience amid an increasingly complex trade environment. Supported by a solid commercial position, the company successfully navigated shifting external conditions while continuing to advance financial priorities. Given the slower pace of electrification, Nemak leveraged opportunities in the ICE powertrain segment while also maintaining a steady progress in the e-mobility, structure and chassis application segment, ensuring a balanced and adaptable market position. Full year EBITDA was within our guidance range at $591 million, reflecting the company's continued focus on operational discipline and profitability. The top line remained stable at $4.9 billion, supported by resilient customer demand despite the changes in the global trade landscape. Continued efforts to enhance operational efficiency contribute to generating positive cash flow and reducing our debt by $130 million year-over-year. A key highlight of 2025 was the announcement of the agreement to acquire Georg Fischer Casting Solutions. This acquisition is a milestone and represents a significant step forward in strengthening Nemak's long-term strategic position. The business brings highly complementary capabilities in lightweighting, enhances our skills in high-pressure die casting and expands our offering of complex aluminum and magnesium components for the e-mobility structure and chassis application segment. In addition, the acquisition broadens our global footprint and customer reach, particularly by providing meaningful access to leading Chinese manufacturers. Building on this strategic step, in February 2026, the acquisition received full regulatory approval and closed successfully. I would like to extend a warm welcome to all GF Casting Solutions employees joining Nemak. We're excited to bring together two highly talented and complementary teams. With the transaction now completed, we are fully focused on executing a disciplined integration plan, which is essential to realizing the full value of this acquisition. Effective integration will allow us to align operational processes, capture cost synergies, accelerate technology sharing and ensure continuity and service excellence for our global customers. By combining the strengths of the two organizations, we are positioned to unlock meaningful operational, commercial and innovation opportunities in the years ahead. Another important remark for the year is the successful ramp-up of production at our new facility in the Czech Republic, dedicated to e-mobility components. This plant incorporates advanced joining and assembly technologies and is now manufacturing highly complex engineering components that support our customers' electrification programs. This achievement underscores our ability to adapt to evolving market needs, strengthen our global footprint and expand our advanced manufacturing capabilities. In 2025, we secured $440 million in annual revenue from awarded business across our global operations, of which 85% corresponded to ICE powertrain programs and 15% to e-mobility, Structure & Chassis applications. The significant amount of ICE business awarded underscores the extended life cycle of this segment while still capturing opportunities in e-mobility and Structure & Chassis components. Importantly, most of these programs will utilize existing assets, reinforcing our disciplined approach to capital allocation and helping drive a meaningful reduction in CapEx. In parallel, we are pursuing a robust pipeline of approximately $1.9 billion in new business, positioning ourselves to capture future growth opportunities across our key segments. We remain firmly committed to delivering competitive and cost-effective solutions to our customers, reinforcing our focus on operational excellence and long-term value creation. Moving on to innovation. Throughout the year, we continued to build on our technological capabilities, advancing key initiatives to enhance process efficiency and expand our technical toolkit. Across our operations, we made meaningful progress in improving the high-pressure die casting process, implementing efficiency and cost optimization measures and scaling these improvements across additional facilities to broaden their impact. We also enhanced our real-time job floor information system, adding an AI-powered layer designed to transform complex operation data into actionable insights. This reflects our ongoing commitment to leverage advanced technologies to strengthen process control and improve our competitive position. Moving on to sustainability. I am pleased to share that Nemak achieved an A- rating from the Carbon Disclosure Project for the second consecutive year, once again, placing us within the leadership band, which is the highest tier of CDP's scoring system. This recognition reflects the company's strong environmental governance, our comprehensive science-based actions to reduce emissions and our commitment to transparent climate disclosure. We are proud to see our efforts consistently recognized at this level. Once again, we pledge our long-term dedication to responsible operations and climate stewardship. In addition to progress on climate initiatives, Nemak was again recognized for its commitment to people and workplace excellence, earning top employer certification in Brazil, Germany, Mexico, Poland and the United States. Notably, Nemak ranked in the top 5 certified companies in Brazil. This distinction reflects the strength of our people-focused practices, including talent development, organizational culture and employee well-being. Achievements such as these underscore the importance we place on creating an environment in which our teams can grow, innovate and contribute to long-term value creation. We recognize the key role our employees play in advancing the company's strategy. And despite our high marks, we continually seek to improve. This concludes my initial remarks. Thank you for your attention. I will now hand the call over to Alberto. Alberto Sada Medina: Thank you, Armando, and good morning, everyone. I will begin with an overview of Nemak's business performance for the full year and fourth quarter of 2025, followed by a summary of industry developments and financial results. During 2025, we continue to prioritize free cash flow generation through sustainable margin improvements and disciplined capital allocation. On the results front, both the fourth quarter and the full year 2025 had a high comparison base versus the same periods of last year due to customers' onetime compensation. During the year, we saw stable industry performance across our main markets as global light vehicle sales increased 3% to 91.7 million vehicles, while light vehicle production increased 4% to 92.9 million units. From a regional perspective, during the fourth quarter, the seasonally adjusted annual rate for light vehicle sales in the U.S. was 15.7 million units, 5% lower than last year, mainly due to the rollback of the EV tax credits. For the full year 2025, this metric increased 2% to 16.4 million units as consumers continued showing resilience amidst affordability concerns, partially offset by OEM incentives. Light vehicle production in North America during the fourth quarter decreased 2% year-over-year to 3.6 million units amid cautious production schedules and certain supply chain disruptions with inventories stable at 46 days of sales. For the full year 2025, production was 15.2 million units, 1% below the 15.5 million units in 2024 due to the same factors. In Europe, light vehicle seasonally adjusted annualized sales increased 7% in the fourth quarter to 17.4 million units due mainly to increased imports and higher sales of entry-level vehicles, supported by stable macroeconomic conditions. For the full year, light vehicle sales were 16.4 million units, up 2% year-over-year, driven by similar dynamics. During the fourth quarter, light vehicle production in the region decreased 2% year-over-year to 3.8 million units, due mainly to reduced export demand as well as supply chain constraints, particularly microchip shortages. For the full year 2025, light vehicle production totaled 15.4 million units, 2% lower than last year due to the same factors. In China, the seasonally adjusted annual rate of light vehicle sales declined 4% year-over-year in the fourth quarter to 27.2 million units, due mainly to the expiration of local government incentives. For the full year, light vehicle sales in China were 27.1 million units, 6% up compared to the previous year. This is attributed to intense competition among local OEMs and government trading incentives as well as export activity. In terms of light vehicle production, China posted 1% and 10% year-over-year increases for the fourth quarter and full year 2025, respectively, amounting to 9.6 million and 32.7 million units, driven by domestic and export demand. In Brazil, the seasonally adjusted annual rate of light vehicle sales for the fourth quarter and full year 2025 was 2.9 million and 2.6 million units, respectively, reflecting a steady growth in the quarter and a 3% year-over-year increase for 2025 on resilient consumer behavior. South America's light vehicle production experienced a 4% decrease year-over-year in the fourth quarter of '25, amounting to 0.8 million units due to calendar effects. On a full year basis, light vehicle production in the region increased 2% year-over-year to 3.0 million units due mainly to stable local demand and higher exports. Turning to our financials. Volume increased 2% and decreased 3% compared to the fourth quarter and full year 2024, totaling 9.2 million and 38.4 million equivalent units, respectively. This was due mainly to customer inventory management strategies due to geopolitical pressures and the declining e-mobility adoption rates among our customers during the year. Despite this, full year volume exceeded the high end of our guidance of 37 million units. Revenue in the fourth quarter of 2025 totaled $1.2 billion, 1% higher than during the same period of 2024 due to higher volume and higher aluminum prices. For the full year, revenue was $4.9 billion, stable year-over-year. Lower volume was partially offset by higher aluminum prices, the carryover effect from repricing achieved in previous years as well as favorable effect from the euro appreciation. During 2025, we continue to navigate alongside our customers, the transition between ICE and electric powertrains, relying in our talent, footprint and technology, which enable us to deliver solutions independently of the propulsion system of the vehicle. Our electric mobility, structure and chassis applications segment accounted for 9% of our total revenue, highlighting our ability to adapt across different electrification scenarios. EBITDA for the fourth quarter and full year 2025 decreased 25% and 7% year-over-year, totaling $117 million and $591 million, respectively. This reduction was related to extraordinary launching expenses and currency effects in North America in addition to high comparison effect from commercial negotiations recorded in the fourth quarter of 2024. In turn, EBITDA per equivalent unit for the fourth quarter and full year were $12.8 and $15.4, respectively, down 26% and 4% year-over-year, respectively. During the fourth quarter, we recorded impairments and reorganization expenses for $85 million related to footprint optimization initiatives. This included the write-off of assets in our facilities in Monclova, Mexico and most in the Czech Republic, where we are ramping down and ceasing operations and we relocate production to nearby facilities, respectively. This amount compares against $83 million in 2024. All this said, during the fourth quarter, the company recorded a $56 million operating loss compared to $39 million loss in the same period of last year related to the aforementioned impairments and reorganization expenses. For the full year, operating income was $97 million, which compares to $145 million in 2024 due to the same factors. During the quarter, Nemak reported a net loss of $100 million compared to a $51 million loss in the same period of the previous year. Net result for the year was a $116 million loss compared to a $25 million profit in 2024, mainly due to the combination of the aforementioned impairments and foreign exchange losses mainly related to the effect on our liabilities of the appreciation of the euro against the dollar. Excluding these noncash effects of impairments and foreign exchange losses, the net result for the full year would have been a $75 million profit. Turning to our financial position. Our net debt at the end of the quarter was $1.4 billion, a sequential improvement of $190 million and 9% lower year-over-year. Cash flow generation during the quarter was strong, driven by extraordinary favorable seasonal net working capital dynamics. Our cash balance as of the end of December was $516 million. Our net debt-to-EBITDA ratio was 2.4x, stable versus 2.4x in the previous year. In turn, the interest coverage ratio improved to 5.5x from 4.9x at the end of the same period of last year. Capital expenditures in the fourth quarter and full year 2025 were $99 million and $306 million, respectively, a 9% and 21% reduction compared to the same period of 2024. We remain committed to streamlining our capital investments. Moving to our regional results during the quarter. In North America, revenues declined 1% year-over-year to $653 million due to high comparison base associated with onetime commercial negotiations in the fourth quarter of '24. EBITDA was $43 million compared to $121 million in the same quarter of last year. The year-over-year reduction reflects extraordinary operating expenses of approximately $30 million in the fourth quarter of 2025, primarily related to production ramp-ups and the appreciation of the Mexican peso, combined with the high comparison base from onetime commercial negotiations recorded in the fourth quarter of 2024. In Europe, revenue increased 5% year-over-year to $410 million despite lower volume due to the translation effect of the appreciation of the euro. In turn, EBITDA in this region was $55 million compared to $19 million in the prior year, reflecting improved operating efficiencies and a favorable currency translation effect. Revenue in the rest of the world was $160 million, up 2% compared to the fourth quarter of '24, due mainly to favorable volume and product mix. EBITDA in this region increased to $20 million, benefiting from the same factors. Related to capital allocation, during 2025, we repurchased around 68 million shares. And by the end of December of 2025, the shares held in treasury represents approximately 6.8% of our total outstanding shares. We will propose the cancellation of these shares in an extraordinary shareholders' meeting, whose date we will announce in due time. As a reminder, our Annual General Meeting will take place on Wednesday, March 4. We kindly invite you as shareholders and to ensure your shares are represented. For any questions or inquiries, please contact our Investor Relations department. As recently announced, we successfully closed the acquisition of Georg Fischer Casting Solutions automotive business for an enterprise value of $336 million on a cash-free and debt-free basis. The upfront closing payment amounted to $216 million funded with existing cash. This reflects the agreed base purchase price, the inclusion of $113 million of cash at closing and customary adjustments, including the assumption of $44 million of financial liabilities. The remaining consideration consists of holdbacks and a portion of vendor financing to be paid over a 5-year term. We are very pleased with the successful completion of this transaction, which strengthens our strategic positioning, expands our technological capabilities and enhances our overall business profile. We will start consolidating Georg Fischer Casting Solutions operations effective February 1, 2026. As our product portfolio has significantly evolved over the years from primarily cylinder heads in the 1990s to a broader range of products, including engine blocks, transmission components, structural parts, battery housing assemblies and now even additional materials such as magnesium and other alloys through the integration of Georg Fischer Casting Solutions, the relevance and comparability of our historical equivalent volume metric has diminished. Given the increasing diversity of products and materials, calculating a meaningful head equivalent measure has become less representative of our business. Accordingly, starting this year, we will discontinue reporting equivalent volume and instead provide further visibility into our revenue by segment. Our financial guidance will focus on revenue, EBITDA and capital expenditures, which we believe better reflect the performance and strategic direction of the company. In summary, during 2025, we continued executing our disciplined financial agenda, reducing net debt, streamlining capital investments and strengthening free cash flow generation. With the integration of Georg Fischer Casting Solutions, we are reinforcing our competitive position and advancing our ability to create sustainable long-term value for our stakeholders. This concludes my remarks. I will now turn the call over to Armando. Armando Tamez Martínez: Thank you, Alberto. I will now provide an update on our outlook for this year. We expect to see a resilient industry environment with stable volumes across our main regions. Trade dynamics will continue to play a relevant role throughout the year; however, we are well prepared to face these developments as we will continue to rely on our solid commercial foundation, prudent financial decisions and close communication and collaboration with our long-standing customers. Effective consolidation of GF Casting Solutions began in February, and it is incorporated accordingly in our full year guidance. This integration strengthens our portfolio and further positions us to meet customer needs across regions. Nemak will maintain a selective and strategically focused investment approach, consistent with our capital allocation priorities. In parallel, the incorporation of GF Casting Solutions will require additional capital to advance the completion of a new manufacturing facility in the United States. Given these considerations, I would like to announce our guidance range for 2026. Revenue in the range of $5.3 billion to $5.5 billion, EBITDA in the range of $630 million to $650 million and CapEx ranging from $385 million to $395 million. As we close, I would like to briefly address the leadership transition announced earlier this year. After 42 years at Nemak, including 13 years serving as CEO, I will be concluding my tenure in this role by the end of March. This planned succession reflects our commitment to long-term value creation and strategic execution, and I am confident that Nemak is well positioned for the road ahead. The Board has appointed Herve Boyer as CEO effective April 1, 2026. Herve brings extensive global experience in the automotive industry, and I am certain he will provide strong leadership as Nemak enters its next chapter. I want to express my appreciation to our entire team, customers, suppliers, shareholders, financial analysts and all the stakeholders for the trust and partnership throughout my tenure. It has been a privilege to work together to advance Nemak's strategic priorities and strengthen our position in the industry. My passion for the automotive industry remains strong, and I look forward to watching Nemak thrive. With that, we conclude our presentation and would now like to turn the call over to Denise to open the Q&A session. Denise Reyes: Thank you, Armando. We are now ready to move on to the Q&A portion of the event. [Operator Instructions] The first question is from Alfonso Salazar from Scotiabank. Alfonso Salazar: Armando, first of all, congratulations for all these years in Nemak. We will be missed without any question, but a great job in very challenging times that have apparently will continue. The first question that I have, I have 7 questions. I will not use my time with that many. I will have only a few. The first one is, if I understand correctly, you mentioned that you will not report volumes anymore. So this is something that -- is this correct? Because definitely, we need to have a metric on volume going forward to understand what's going on in the company. So I just want to clarify that point. The second is if you can provide some color on what happened with the working capital in 2025 was very strong. So I just want to understand what drove that. Apparently, part of that was working capital. And what is your expectations for the first half of the year, maybe? And finally, any comment on the [ USMCA ] renegotiation outlook? This is very important, as you know, in July, we have to come up to see if there is any conclusion of this process. It's going to start. But what is your view on how this could drive the North American business unit of Nemak if there is no -- especially if there is no agreement. And with that, I will stop for now my questions. Armando Tamez Martínez: Thank you, Alfonso, for your kind words. Related to volumes, one of the things, and this has to do a lot with the recent acquisition of GF Casting Solutions. As we have mentioned before, the company -- the acquired company is producing a lot of different components that are, for instance, even in different materials, including aluminum, magnesium and iron. And it was very, very difficult to homologate to the current, let's say, parts that we are making. So for that reason, we are deciding to only report volumes -- I'm sorry, revenues, EBITDA and CapEx going forward. We tried several exercises, but it was almost impossible to really homologate what we are doing today. Alberto Sada Medina: Yes. And Alfonso, this is Alberto. Related to your second question on working capital, certainly, we had a very favorable closing of the year on the working capital accounts. And as you know, I mean, as a company, we always are looking for ways how to optimize our cash needs. In this particular end of the quarter, we had extraordinary benefits on the working capital side that would revert most likely on the first quarter. So around the entire, let's say, turnaround of working capital, which normally on a seasonal basis is lower in the end of the year, about $60 million would be most likely reversed on the first quarter of 2026. So it's -- part of it is temporary and other part is part of our push towards improving improvements in working capital. And then related to your third question on USMCA, we'll have to see how everything evolves. I think it's also important to highlight that our products are all compliant. Everything that we do in Mexico that gets exported to the U.S. either directly or indirectly is fully compliant with USMCA rules. So I mean, so long as everything stays the same, we shouldn't see any impact in the development of our business in North America. Yes, we're close to the administration to make sure that everything is correctly incorporated into the negotiations. Alfonso Salazar: That's very clear. But yes, the volume thing, we need to talk later about it because we really need to have some metric to work with. Alberto Sada Medina: For sure, Alfonso, but as Armando highlighted, it becomes very difficult to give a head equivalent measure. In the past, one or two products was fine, but now with multiple products with multiple value adds the weight relationship doesn't have any more a correlation with the revenue. But we'll give a little bit more color on different segments on the revenue side. So I hope that, that can help better on your models going forward. Denise Reyes: The next question is Jonathan Koutras from JPMorgan. Jonathan Koutras: I also have three questions on my side. So please bear with me. The first one of the $85 million in charges in the quarter, right, if you could walk us through how much of this is recurring and if you expect these markdowns to continue in the coming quarters or years. This has been impacting results in the last 3 years or so, as you know. So just wanted to understand where we are in this process of reassessing assets. And the second question, on gross margins. Fourth quarter is historically softer given seasonality and there was no commercial negotiations or tailwinds in this quarter. So should we assume the last two quarters of gross margin at around 9% is somewhat the new normal for Nemak post these one-offs? Or do you see recovering back to the 11% level in the next quarters or so? And if that is the case, how come? And the third one -- last one as well on CapEx full year came in slightly above the guidance range. So if you could shed some light on this as well, please? Alberto Sada Medina: Yes. Thanks, Jonathan, for the questions. Related to the first one on the impairments and extraordinary charges that we registered this year, these are fully aligned with the need to realign and reallocate capacity where we have -- volumes where we have capacity. So based on that, we had to take certain footprint decisions to optimize our operation. And therefore, we had to write off a few of those capital assets on our books. We do that all the time. We had a similar figure last year where we had to write off certain of our EV assets. In this case, there was other ones. And yes, going forward, as of now, I mean, we see smaller figures, but we will have obviously to assess how everything develops. And yes, based on how some of the volumes move on, we will see if there is a need to do something else on the right side or not. But for now, I think most of it was done for now. Related to your second question on margins, yes, as you correctly point out, last year, particularly in the fourth quarter, it was heavily influenced by one-offs commercial claims that we closed with certain customers. So meaning 2024. In 2025, there was less activity on that front as of the closing. So at the end, the EBITDA margins that we're expecting should fall between the 12% range going forward on average based on revenue. And that essentially takes care, yes, all the combined effects that we see going forward. On one side, we saw that there were extraordinary expenses this last quarter related to special costs that we had in our operations in North America. But also there are things that may have both positive and negative effects related to how the evolution of the exchange rate happens as well as on the mix effects. So I think on an EBITDA basis, around between 11.5% to 12.5% would be what we would expect for the year. And last on the CapEx guidance. On the CapEx side, it is certainly calendarization effect. It's hard really to put it down to the last million. I think at the end, we closed pretty much within the guidance, plus/minus a few millions. So if we are a little bit higher, a little bit lower, most of it has to do with calendarization of the CapEx. Denise Reyes: We will proceed with the next question from Andres Cardona from Citi. Andres Cardona: Regarding the EBITDA CapEx, could you give us a sense of how much of the EBITDA is coming from the recently closed acquisition, so we can have also a picture of the legacy business. Alberto Sada Medina: So your question, Andres, is on the CapEx for guidance? Andres Cardona: No, EBITDA, the EBITDA, like how much of the EBITDA is coming from the new business and how much is coming from the legacy business? Alberto Sada Medina: Well, yes, I mean, we will certainly give you a little bit more color around how everything evolves in 2026. As indicated, it's both the EBITDA from Nemak and 11 months of Georg Fischer. So at this point, we're not breaking down the EBITDA on, let's say, on the both effects. We'll certainly be sharing a little bit more color about that on a regional basis as we move along the year. But you can easily make probably a little bit of calculations based on what we performed last year, perhaps a little bit less of associated claims and then everything on top of the number that we're giving is associated with Georg Fischer. Denise Reyes: The next question is from Alejandro Azar from GBM. Alejandro Azar Wabi: Alberto, Armando, before my questions, just to add my congratulations to Armando on an outstanding 42-year run at the company, wishing you the best in your next ventures, Armando. Now switching to my questions, and I have 3. The first is a follow-up on working capital, Alberto. How much of the benefit is structural and sustainable versus timing related and potentially reversing in 2026? That would be the first one. The second one is on GF Casting Solutions integration. If in your guidance, you are accounting for synergies you already noticed. And if not, if you can share with us the top 2, 3 levers that we should see? And how should we expect synergies to show up in EBITDA maybe in 2026 or perhaps 2027? And my last one is on AI and automation. If you can share a bit more color on where are you most advanced on these topics across your footprint? And if you are seeing meaningful productivity or cost benefits yet? Any examples would be really helpful, guys. Alberto Sada Medina: I'll take the first question, Alex, related to working capital. As we have seen in previous years, there is seasonality on how working capital moves up and down. And what we see normally at the end of the year is the reflection of, let's say, reduced activity at our customer plants as they stop for holidays and they do scheduled maintenance and the like. So a portion of that seasonality picks up again in the first quarter. So we will see a reversal as we have seen in previous years. And on top of that, we will see about $60 million of additional, let's say, of those extraordinary elements that we saw in December reversing most likely in the first quarter. So on a, let's say, seasonal basis, we see a recovery of working capital. And then part of that -- or let's say, on top of that, we will see a little bit of the one-offs that we saw in December coming back. Alejandro Azar Wabi: So for the full 2026, you expect to require additional amounts of working capital? Alberto Sada Medina: For the full ' 26, at least the $60 million that we saw on an extraordinary basis, unless there is any extraordinary happening at the end of -- or, let's say, during the year, we will see, yes, at least $60 million, let's say, benefit that we saw this year. Armando Tamez Martínez: Yes. Thank you, Alex, for your nice words. I appreciate it. Related to the GF integration and synergies, this is a very important point for us, Alex. We retained a firm that has been helping us in the past, in the major acquisitions that we have made to really focus in a very dedicated team and plan to get the best integration possible. We are true believers that integration of acquired companies is key. We already, for instance, contracted this or hired this external adviser with a lot of experience not only in the industry, but also with Nemak. And we already started actually since last year, to plan ahead what were the main, for instance, potential synergies. We visited all the GF Casting Solutions plants that they have in Europe as well as in China and the facility that is under construction and planning to be launched this summer in the U.S. And certainly, that has a cost, but also we are expecting in the midterm to reach synergies in the range of about $30 million to $40 million. We are fully committed. The company is fully committed to achieve those synergies. Of course, it will take some time. The main drivers for those synergies are related to sharing best practice and improving productivity, also best practices and sharing on the commercial front, how we can, for instance, get better pricing with some customers as well as better contracts as well as CapEx avoidance, which I think is very important in this industry, especially to, again, better use existing capacity. So those are some of the areas, Alex, that we are targeting. Of course, there will be some additional synergies. And if we find any redundancies, certainly, we would try to become leaner. So you will see, again, in the midterm, or expected, for instance, synergies, as I indicated, in the range of $30 million to $40 million that will be added value, in addition to getting, for instance, a relationship with very important Chinese OEMs and improving also our market position. So those are -- related to your last question in the AI, and this is an area that Nemak has devoted a lot of technical resources, and we're making very good inroads and very solid progress in terms of using, for instance, AI. We have invested heavily over the last probably 14 years in our company in installing a monitoring system in which we have a real-time data that it is available. We can, for instance, get every single facility, every single product line with real-time information of the products that we're making. That has been helping us a lot because we have a lot of different parameters that we need to control. And certainly, that has helped us in terms of getting better, for instance, quality, getting better productivity and so on. And with the help of the artificial intelligence, now what we are doing is in some of the plants, we are using these techniques and facilities to help us predict potential issues that we may have in the operations. And that has been already deployed in some of our facilities in Europe as well as North America. And certainly, we are planning to install similar approach in our facilities in China as well as the new facilities that we are acquiring from Georg Fischer. So those are some of the areas that we are taking advantage. This is on the operational side. In addition to that, of course, on the administrative side, we are using AI to help us again get some of the operations that we are normally doing in a much faster way. And certainly, that is helping us to reduce cost and optimize resources. Alejandro Azar Wabi: If I may go back, Armando, the $30 million to $40 million in synergies, do you think it's better to think that as free cash flow given you talked about CapEx? Armando Tamez Martínez: I think it's a combination of both CapEx avoidance as well as, for instance, also improving our productivity, improving our cost position, improve our commercial front. So it will be a combination of both increasing EBITDA in the midterm as well as reducing CapEx. Denise Reyes: Thank you, Alex, and thank you, Armando. We will move on to the written questions. We have one question from [ Pablo Dominguez from ION Group. ] The question reads, how -- does the 2026 CapEx guidance include the upfront payment of the GF acquisition? Also, does it include the additional CapEx needed for GF U.S. plant under construction? And if not, how much CapEx will the plant require during 2026? Alberto Sada Medina: Yes. The CapEx guidance for 2026, it's only associated with the capital expenditures of both the Nemak legacy business and Georg Fischer. So it includes the investments that Georg Fischer has for the new -- or let's say, the old Georg Fischer has for the new facility in the U.S. in Augusta. And the payment for the acquisition is not included in the CapEx guidance. Denise Reyes: Thank you, Alberto. We received another live question from [ Isaac Gonzalez from GBM. ] Unknown Analyst: I have a last question. I'd like to ask you by taking out volumes on the revenue, are you willing to open by segment or by EV/SC and ICE? Is it possible? Alberto Sada Medina: Yes, [ Isaac, ] thanks for the question. And as I highlighted before, I think in order for everyone to get a little bit more granularity on how the business develops, we'll share the revenue on a per segment basis. So I think that will help see how the business is evolving. With the cooperation of Georg Fischer, that segment grows significantly. So you'll start seeing some of the -- yes, how the revenue develops both on the legacy as well as on the new segments. Denise Reyes: The next question is from Alfonso Salazar from Scotiabank. Alfonso Salazar: Yes. Just a follow-up. Well, one, this is more than a question, a request. Years ago, Nemak had a very interesting guidance on how the breakdown of future sales between legacy business ICE and EV markets will unfold over time. It was very helpful. I mean it was very important for us to understand. In the end, the situation -- the market situation was very different to what you were expecting, what we all were expecting. But it would be a great way to understand, especially with the integration of GF Casting to see or to have some sense on where is Nemak going from here and what are your expectations regarding future growth, both in the legacy and new business lines. So that is more than a question -- a request that would be very interesting to see. The second -- the question is only regarding dividends. We see buybacks, but any comments on when dividends would be back? Armando Tamez Martínez: Thanks for the question, Alfonso. I think in the past, certainly, we were informing on a quarterly basis, for instance, how our EV and structural, components portfolio was growing. I think we will need to recalculate based on certain volume reductions that we have seen in different regions of the world. As I indicated, we are seeing a significant higher appetite in the industry overall for ICEs. So I think we will need to recalculate and also add I think 80% of revenues that are coming with the acquisition of GF are for the new products or the EV and structural components. So only 20% is in the powertrain. So I think the team, certainly, we will be able to recalculate and provide certain guidance on the two main components that the company is making. So certainly, we will share that. Alfonso Salazar: That will be fantastic, really helpful. And any comment on the dividend? Armando Tamez Martínez: Yes. I think the company certainly before the pandemic was giving a substantial amount of money in terms of dividends. Now I think the entire Board and the management team have been a little bit more prudent in terms of, again, first, looking how we can reduce our leverage. And then, of course, once the company is in a more reasonable leverage, which is below 2x net debt divided by EBITDA, I think the company will be in a position. And certainly, in our projections, we are looking that the company will be able to generate enough free cash flow to reduce our debt as well as pay dividends, but not this year. Denise Reyes: The next question is from [ Hinden Barredo ] from PGIM Group. Unknown Analyst: Just two quick ones for me. Can you remind us what the -- how much the closing payment is for the GF acquisition? And also, are you planning on issuing possibly new debt for the new manufacturing plant? Or are you just thinking about generating that with internal cash flows? Alberto Sada Medina: Yes, just to remind us, it was highlighted before, the payment that we did for Georg Fischer was $216 million, a little bit higher than what we had said before because we acquired the company with cash on their balance sheet and acquired a little bit of loans that they had on their balance sheet. And then on your second question, can you just repeat that, please? Unknown Analyst: And the second question is for the new manufacturing plant in the U.S., are you planning on maybe issuing new debt for that? Or are you just going to fund that with internal cash... Alberto Sada Medina: Yes. No, good question. With the CapEx that we have on our guidance, we should be able to cover that with our own cash and generation of the company. So no, we will not issue any substantial debt other than just maybe some liability management here and there. Denise Reyes: We will move on to another written question that we have from [indiscernible]. Hello, everyone. What is the expected free cash flow in 2026? And with a market value of less than $600 million, are you expecting to ramp up on buybacks? Alberto Sada Medina: Yes. Well, thanks for the question, Diego. We don't give any guidance on the free cash flow for the year. We expect it obviously to be positive. And for that reason, we'll continue with our share buyback in the same way that we did in 2025. We'll present that on our next general assembly for approval, but it will be consistent with what we have done in the past. Denise Reyes: Thank you, Alberto. There are no further questions at this time. And with that, we conclude today's event. I would just like to take this opportunity to thank everyone for participating. Please feel free to contact us if you have any follow-up questions or comments. This does conclude today's earnings webcast. Have a good day.
Carina Chow: Good afternoon. This is Carina, Head of Corporate Communications and Sustainability at Champion REIT. Welcome to the Champion REIT 2025 Annual Results and Analyst Briefing. Today, our CEO, Ms. Christina Hau; and our Investment and Investor Relations Director, Ms. Amy Luk, will present our 2025 annual results. And after the presentation, there will be a Q&A section. So without further ado, please, Christina. Shun Hau: Thank you, Carina. Hello, everyone. [Foreign Language]. This year, 2026 is the 20th anniversary of Champion REIT. We are the second largest REIT in Hong Kong by market cap at this moment. And over the past 2 decades, we have been adhering to proactive asset management strategy on enhancing asset quality and delivering long-term value for our stakeholders. The property portfolio has grown by an acquisition of Langham Place Office and Mall, unification of ownership of Three Garden Road and the first overseas acquisition in London. And on sustainability, our Three Garden Road has attained the first Quadruple Platinum Existing Building in Hong Kong in 2024, and we will continue our commitment to ESG going forward. So let's look at the 2025 result highlights. The overall market sentiment in Hong Kong has improved, supported by stronger stock market, tourism rebound and interest rate drop, which restore business confidence. The robust capital market is driving solid office demand. Site inspection for Three Garden Road increased by 61% in the second half of the year compared with last year. On retail side, our proactive tenant management is paying off. The sales of our new tenants across different categories in 2025 record a remarkable increase of 80% compared with previous operators. IP-driven pop-up stores tied to major marketing campaigns delivered triple-digit sales growth. That's 8 -- generating 8-digit sales and 7-digit extra income. And on financial management, we continue to adopt a prudent approach and successfully secured a HKD 1.5 billion of banking facilities for refinancing the bank loan due in 2026 ahead of maturity and lower average HIBOR in 2025 has resulted in meaningful interest savings. So I now pass to Amy to walk through the overall financials. Amy Ka Ping Luk: Thank you, Christina. Let's look at the 2025 full year results highlights. While we saw signs of market recovery and stabilization, the overall operating environment remained challenging, given abundant oversupply in the market and also change in consumer behavior. Under this market backdrop, occupancy of our portfolios remained stable and resilient and lower interest expense partially offset the impact of negative rental reversion. For the full year of 2025, total rental income dropped by 9% year-on-year to HKD 1,988 million and net property income dropped by 11% to HKD 1,613 million. Distributable income dropped by 10% to HKD 859 million. And then our distribution per unit dropped by 11% to HKD 0.1263. And looking at our balance sheet, looking at the debt profile, our gearing ratio maintained at a healthy level of 25.4% at the end of 2025. And for the debt refinancing completed in last year, we brought in new lenders into a syndicated loan, and we also secured a new bilateral facility with an existing lender. For debt maturing this year with outstanding balance of HKD 2,285 million as at the 30th December 2025, we took a proactive approach and secured HKD 1.5 billion of bank loan facilities for refinancing ahead of maturity. And we are now in active discussion with lenders for the remaining portion and got positive feedback from our lenders. The lower average HIBOR in 2025 brought 60 basis points drop in average effective interest rate to 3.8% comparing with 4.4% in 2024. This brought a meaningful interest savings, driving down cash finance costs by 13.5% to HKD 557 million. We also obtained inaugural A rating from Japan rating agencies, JCR and R&I last year, affirming our stable capital structure. And turning into valuation, our portfolio value stood at HKD 56.2 billion with unchanged cap rate at the end of last year. The per square foot valuation of Three Garden Road was less than HKD 20,000 per square foot, which is undemanding comparing with the notable transactions of central office. I'll now hand over to Christina to walk through the property portfolios. Shun Hau: Thanks, Amy. And let's begin with Three Garden Road. The improving financial market sentiment has driven up demand for central office, and we observed increasing leasing inquiries from third quarter last year, while second half site inspection increased to -- increased by 61% year-on-year. And we have secured new tenants from the asset management and family office sectors last year. Currently, 67% of Three Garden Road tenant is banking and asset management related. And we adopt a proactive approach in lease renewals and over 75% of leasing expiring in 2026 has been successfully renewed, which enhanced income visibility and occupancy maintained at stable level at 81.6% in the market with abundant supply. The lease maturity profile is now well spread after all these actions in the next years after renewal with our anchor tenants last year. So at Three Garden Road, we are doing more than just providing office space. We are building a vibrant community and ecosystem. Our year-round calendar of festive and wellness event attracted over 6,700 person times. For Langham Place office, the property remains a preferred location for health care, beauty and wellness operators, while lifestyle and wellness tenants accounted for 68% of area as at 31st December 2025. And last year, we have introduced over 10 new wellness tenants as well as other sales services tenants to enhance tenant diversity. And occupancy remained stable at 86.9% as at 31st December 2025. And we continue to solidify our position as a premier wellness hub across 6 dimensions, namely physical, emotional, intellectual, spiritual, social and financial well-being. Our 6D Wellness channel have accumulated 4.6 million views since launch and a social wellness hall at 49th floor of the property held a series of wellness events such as social, sound healing, therapy dog yoga, dance work shop, which were well received by participants. And we also partnered with the Hong Kong Retail Management Association, HKRMA, to introduce the first quality service charter in Hong Kong for beauty and wellness operators with over 90% tenants -- related tenant participate. This sets a new benchmark for service excellence across beauty, health, medical and lifestyle categories. For Langham Place Mall, we continue to reinforce the positioning of the mall as a retail transactor with agile leasing and marketing strategies as the mall celebrated its 20th anniversary last year. Our proactive tenant management captured market trends and brought in up and coming new tenants, including popular IP brands, which resulted in double-digit sales growth in lifestyle segment. Occupancy of the mall maintained at a high level of 99.3%, while rental income was affected by replacement of anchor tenant occupying 13.8 percentage by lettable area, also some softening in tenant sales in particular category. So we adopt stay local trend global strategy by integrating local cultural elements with global retail trends. Last year, we introduced over 30 new tenants, including first in Hong Kong, Chiikawa Ramen Buta, and various tenants across different segments as shown in the slide. The new tenant generated sales of 80% higher than the previous tenant, demonstrating the positive result of tenant mix refinement. Throughout the year, Langham Place Mall delivered a strong and diverse event calendar. We begin with collaboration featuring local artists in emerging brands, followed by a series of fashion-driven activities designed to reinforce the mall's positioning as the leading retail trendsetter. And we also deepened engagement through partnership with global IPs, including Squid Game, Star Wars, Baby Oysters, Chiikawa, Kuromi and finished the year with the debut Noodoll in Hong Kong in the Merry PotatoMAS event. IP collaboration and emotion-driven experiences are popular across different generations. To capture this trend, we partnered with a range of global IPs to deliver differentiated and engaging experience in Langham Place Mall. This brought in pop-up store sales of marketing -- major marketing events recording triple-digit growth last year. Our regular festive season promotion events also continue to strengthen the engagement of our loyalty club members. During the year, our member base grew by 27% year-on-year and member spending increased by 11% year-on-year. So now I will pass to Amy to talk about the sustainability. Amy Ka Ping Luk: Thank you, Christina. On sustainability, we continue to work closely with our tenants and business partners to drive measurable impact across our portfolio. Leveraging on artificial intelligence, we optimized the utilization of chiller plant at Three Garden Road, which resulted in 6.1% reduction in energy usage. Last year, our ESG Gala, the theme innovation, inspiration and integration gathered over 1,000 industry leaders and change makers. Also, our tenant engagement program, EcoChampion Pledge, delivered positive results with 80% of participating tenants formalized their energy targets and action plans. On social aspect, we continue to partner with community organizations to deliver meaningful social impact. Among these efforts on social and community, our ethical consumption pop-up store at Langham Place Mall, which promoted cautious consumptions engaged nearly 20,000 visitors. While we continue our support for the government Strive and Rise program for the third consecutive year, our Christmas celebration event, which connected the community in our Three Garden Road generated 9.7% in social value for each HKD 1 sponsorship. Our sustainability efforts continue to gain prestigious recognition. In 2025, we were honored to receive the GRESB 5-star rating for the third consecutive year, and we are also pleased to be awarded AA+ in the Hong Kong Sustainability Benchmark Index. These achievements reaffirm our commitment to deliver high standards in sustainability. I'll now pass back the time to Christina to talk about the outlook. Shun Hau: Thanks, Amy. Looking ahead, we will continue to adopt proactive strategy to optimize performance across our portfolio. For office, we aim to solidify Three Garden Road's position as a top wealth management destination. Currently, we will diversify tenancy at Langham Place Office to build on its wellness hub foundation, ensuring resilience amid ongoing supply pressure in the office market. For retail, the average daily inbound of Mainland and overseas tourists increased by 11% and 16%, respectively, in 2025, despite the outbound Hong Kong residents remain. The growth in tourist arrival should provide support to the Hong Kong retail market. And we will reinforce the stay local trend global strategy for Langham Place Mall and continue to capture evolving customer trends to refine our tenant mix. At the same time, we will enhance our retail payment offerings to mitigate rising headwinds from online retail. For liability management, we will explore opportunities to broaden our lender base and maintain a balanced portion of fixed rate debt. And finally, we'll further strengthen our role as a super connector and super value adder to create value through deeper collaboration with tenant partners and stakeholders across our ecosystem. And this is the end of our presentation. Thank you. Carina Chow: So let's come with the Q&A section. So please feel free to raise your hand and state your name and company. Xinyuan Li: So this is Cindy from Citi. Three questions from me, please. The first one is on your 20th anniversary. I'm wondering if you would consider returning to 100% distribution to celebrate that. Second question is on the office enquiries. So obviously, the 60% increase in inflection is very encouraging. I'm just wondering if that would translate into, say, better expectation on occupancy and rents into 2026. What's the current spot rate and what's the expectation for 2026? The third question is actually related to the budget speech today that government mentioned to facilitate brief restructuring or privatization. How is your reading into this? And do you expect Champion REIT to benefit from such in any aspect? Shun Hau: Thank you, Cindy Li. So back to your first question about the 100% distribution. Currently, we maintain the 90%, I think, is quite prudent and suitable because we retain some of the surplus to upgrade our premises by putting up CapEx work to improve the quality, the hardware of our building. So that, of course, is subject to the Board's decision, but we did think this is -- at this level is appropriate. And for the office inspection, yes, it is encouraging. The inspection growth by 61% and it, in fact, did translate into more leases or new leases in 2025, in fact. So we hope to see the momentum continue, and with the momentum of the stock market and financial market and financial performance, wealth management in Hong Kong, we do see the increase in demand, then it will induce expansion needs and also new office setup needs in Hong Kong that require a prime Central location as the office premises. So the current spot rent for Three Garden Road is mid-60s to 70. So yes, regarding the reprivatization is also -- at this moment, we have not touched a point on this issue yet. And yes... Wai Ming Liu: This is Raymond Liu from HSBC. I've got 3 questions. So the first question is about the Three Garden Road. Can management elaborate the change in the passing rent of the project on the office side over the past 12 months? Should we expect similar changes to take place in 2026? This is the first question. And the second question is about the rental reversion. Just wanted to have more idea on this one. Because management commented over 75% of 2026 expiries were concluded. So can management share with us a little bit more color about the rental level that you signed year-to-date compared to the latest passing rent? So the last big question is about the Langham Place Mall. So can management share with us the tenant sales performance year-to-date, seems that the footfall has been very good based on our on the ground observation. Shun Hau: So the change in passing rent in 2025, in fact, is dragged down by the renewal of an anchor tenant, okay, which is around mid-teens of our occupied area. And the rent reversion, we do see there's narrow -- the gap has been narrowed, and we foresee that the rent reversion gap will be continued to remain a narrower situation. So the sales of the Langham Place Mall, when we look into the Hong Kong retail sales, yes, in fact, the last year's 1% growth of total retail sales was mainly driven by the double-digit increase in online sales. So that imposed some impact on the offline sales, which, in effect, has decreased by 0.1%. And within that, in fact, the electronics and also the watches, jewelry, especially the gold price had risen a lot in 2025, right. That the gold rush did impose a huge increase in the sales of the jewelry shops. So -- but however, in Langham Place, we don't have this jewelry shops in our portfolio. So we are not able to capture that same amount of sales increase in our Langham Place Mall. And we have 5% decrease in sales, mainly driven by the high base in 2020 high base back in 2024 on the beauty segment. Mark Leung: This is Mark Leung. I got about 2 questions is regarding on the office. First of all, we saw that the vacant space is roughly less than 10% for Three Garden Road and around maybe 13% for Langham Office. Could you elaborate whether these 4 vacant space are interconnected? What I mean it is a 12, 13, 14 or it's really spread around. I think that's the first question. And then the second question is, have we -- if it is more like a connected big space, have we seen any interest from an anchor tenant? Do you see possibility for anchor tenant take any large space from these vacant 2 buildings in the next 12 months? Shun Hau: I think for our Three Garden Road, some are whole floor, but they are not connected, okay? So for Langham Place, also it's the same situation. Some are scattered. Some -- we have some whole floors vacated by some anchor tenants, okay? But do we think -- do we foresee their needs? Yes. We do, for example, some tenants that require larger in area, new tenants, we have been actively in discussion, but still not yet anything we have -- we can disclose now, yes. Amy Ka Ping Luk: And in fact, last year, we got existing tenant at Three Garden Road taking more space from the financial sector. Shun Hau: Yes. So they expanded a whole floor to set up their private bank section. Percy Leung: This is Percy from DBS. I have 3 questions. First of all is regarding your strategy at Three Garden Road. I understand that inquiries have improved significantly recently. Just wondering what is your leasing strategy going forward? Would you be more -- continue to be more flexible in terms of the rents in order to secure higher occupancy, which will you prioritize more? And also what is the expiring rent for 2026? Secondly, in terms of the Langham Place Office for 2026, could you give us more color regarding the expiry profile? And what's the current renewal process for that chunk? And thirdly, I got a question regarding the Langham Place Mall. I understand that our rental income actually dropped quite a bit, mainly due to the major cinema operator lease renewal as well as, I guess, lower turnover rent. However, when we take a look in terms of the passing rent per square foot is actually higher compared to December 2024. Just want to check what's the strategy... Shun Hau: So for Three Garden Road, I think to maintain higher occupancy is also our top priority because we want to mitigate the expenses of the net property expenses. That means the building management fees, et cetera. So our priority remains the same. We provided flexible leasing terms and also tailor-made solutions. And also we -- last year, we have built manufactured units that were quickly leasing out to cope with the market needs and to cope with those commercial related, family office-related tenants demand. So we continue to do that. So also, we will look into our hardware provisions as well in order to -- for us -- we have kickstarted the toilet renovation in 2022, and we'll complete it in 2027. But we are undergoing a total review and study of our hardware in Three Garden Road, whether there is room for upgrading and improvement to uptick our competitiveness. So that's our strategy. And expiry in 2026 of Three Garden Road is around 80s. So -- and also for Langham Place Office, the renewal is not as -- the early renewal situation is not happening in Langham Place Office because they are operators, they are really using the premises for doing business. So they are like retailers, they would wait and see how their business going. The macro -- they are very sensitive to the macroeconomics and how their business is doing. So they tend to confirm the renewal at closer to their renewal date or the lease expiry date. And that's the usual pattern we saw in the Langham Place Office. And actually, the passing rent as at -- on the retail side, the passing rent as at 31st December of 2025 is higher because of the base rent and the turnover rent at that date, in fact, is doing better than 2024. So that's the reason. Carina Chow: So if there's no further questions, so we could conclude the briefing section today. Thank you for joining us. Amy Ka Ping Luk: Thank you. Shun Hau: Thank you.
Operator: Good day, and welcome to the Acadia Healthcare's Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Patrick Feeley, Senior Vice President, Head of Investor Relations. Please go ahead, sir. Patrick Feeley: Thank you, and good morning. This morning, we issued a press release announcing our fourth quarter 2025 financial results. This press release can be found in the Investor Relations section of the acadiahealthcare.com website. Here with me today to discuss the results are Debbie Osteen, Chief Executive Officer; and Todd Young, Chief Financial Officer. To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP in the press release that is posted on our website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Acadia's expected quarterly and annual financial performance for 2026 and beyond. These statements may be affected by the important factors, among others, set forth in Acadia's filings with the Securities and Exchange Commission and in the company's fourth quarter news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. At this time, I would like to turn the conference call over to Debbie. Debra Osteen: Good morning, everyone, and thank you for joining us. I'm pleased to be with you today on my first earnings call since returning as CEO. I want to begin by recognizing our clinicians and employees across the country. The work you do every day makes a meaningful difference for patients, families and communities, and I am grateful for your dedication. I also want to thank our leadership team, partners and Board for their support during this transition. Our mission remains unchanged, and my focus is on stability, execution and clear communication. Since returning, I've spent time assessing the current operations at Acadia. I know this industry. I know many of our teams and I understand what drives quality and performance in behavioral health care. My approach is grounded in focus and accountability. I am committed to supporting our teams in the field to drive strong fundamentals and consistent execution across the organization. With that context, I want to briefly reflect on the leadership transition and how I'm approaching this role. My intention is to bring steady leadership, reinforce operational discipline and help position the company for success in both the near term and the long term. I have great confidence in our teams and in the long-term direction of the company. And I am fully committed to supporting Acadia through this next phase of improvement. Let me now outline the most important priorities that are guiding our work. The first area of focus is the quality of management at all levels. I believe that performance in our business starts with having the right people in the right positions, both at corporate and in the field. I'm reviewing leadership depth and the layers of operational supervision with the goal of ensuring our teams in the field are supported. We are returning to fundamentals. This includes a tighter operating focus and faster escalation when issues arise. Many operational misses result from miss details rather than flawed strategy. The need for behavioral health services remains strong. Our focus is on ensuring we consistently meet that need. We will continue to maintain strong relationships with our partners, align staffing and provider coverage with patient needs and remove internal barriers that slow problem solving. Our priorities translate directly into what we need to achieve at the facility level. Some of our newer facilities have not ramped as quickly as expected. There is no single cause. We are evaluating each facility individually and we will be building a clear, standardized approach to our new hospital openings. We are focused on the 2026 openings and have adjusted our planning process to ensure successful execution. Alongside this work, we continued to expand our presence through joint ventures with leading health systems. In 2025, we opened new joint venture facilities with Henry Ford in Michigan, Geisinger in Pennsylvania, Ascension in Texas, ECU Health in North Carolina, and Fairview in Minnesota. Each partnership is tailored to the needs of the local system and community. And we work closely with our partners to ensure alignment of mission, priorities and values. We are excited about these opportunities to better serve the needs of the local community and advance our position as a leading provider of behavioral health services. As I look across the business, I am encouraged by the significant opportunity. The company has added more than 2,500 beds over the past 3 years and is on track to add an additional 400 to 600 beds in 2026. After a period of record expansion, the priority now is to shift our focus toward operational excellence and execution. The environment is not without challenges, but there is a large opportunity to unlock the EBITDA and free cash flow potential within our existing facilities. Relative to the start-up losses included in our 2025 results, the incremental EBITDA opportunity represented by the new facilities opened from 2023 through 2026 exceeds $200 million. Given my history in this industry and with Acadia, I am confident that we are well positioned to deliver on this opportunity. Our operational and clinical priorities also guide how we deploy capital. We intend to allocate capital with discipline. Each project must stand on its own merits, supported by clear market fundamentals and patient needs. In parallel, we are evaluating our service lines in a comprehensive manner, always with a focus on long-term value creation. At the same time, quality and patient safety are the foundation of everything we do. That's what drives our mission and our results. We keep it simple. We measure what matters. We look at it every day and we act fast when something doesn't look right. Our quality dashboard gives leaders real-time visibility into more than 50 measures so we can spot issues early and share what's working across our facilities. And building on the data that was shared last quarter, we're expanding outcomes tracking across more programs in 2026, so we can be more transparent about patient progress over time. The early results are encouraging, and we've began to share them on our website. The industry is also operating in a more active survey environment, and I'm pleased with how our teams have performed, including strong accreditation survey results. Surveyors are spending more time on units, talking with patients and directly observing care and we welcome that accountability. At the same time, we're moving faster on prevention. Because of the investments we've made in technology, we are able to identify patterns that may signal safety risk earlier, so we can intervene sooner and prevent harm. Finally, regarding regulatory matters, we are cooperating fully. I will not comment on timing. My focus is on the recruitment and retention of highly qualified leadership and staff that deliver high-quality care to our patients. These are factors we control, and they are critical to reducing risk and maintaining consistency across the business. As we look ahead, the operational priorities we have in place provide us with a solid foundation. We are aligning our teams, sharpening our focus and reinforcing the execution discipline to support more consistent results. With that, I will turn it over to Todd to review the financial details and our expectations for the year. Todd Young: Thanks, Debbie, and good morning, everyone. Turning to our fourth quarter results. We reported revenue of $821.5 million, representing a 6.1% increase over the fourth quarter of last year. Adjusted EBITDA for the quarter was $99.8 million. Fourth quarter results included a $52.7 million adjustment to the company's reserve for professional and general liability, in line with the updated guidance that was provided on December 2, 2025. For the full year 2025, we generated revenue of $3.31 billion, an increase of 5% over the prior year and slightly above the upper end of our guidance range of $3.28 billion to $3.3 billion, a reflection of improved volume. Adjusted EBITDA was $608.9 million, near the upper end of our guidance range of $601 million to $611 million. In the fourth quarter, same-facility revenue grew 4.4% year-over-year, driven by a 1.3% increase in revenue per patient day and a 3.1% increase in patient days, an improvement over recent quarters. Included in fourth quarter results was $12.8 million in start-up losses related to newly opened facilities compared to $11.2 million in the fourth quarter of 2024 and $3.6 million in net operating costs associated with closed facilities. On a same-facility basis, adjusted EBITDA was $152 million in the fourth quarter. We invested $93 million in CapEx in Q4 and a total of $572 million for the full year of 2025, nearly $50 million favorable to our prior guidance. Costs related to managing the government investigation were $12 million in the fourth quarter, down 69% sequentially. From a balance sheet perspective, we remain in a solid financial position. As of December 31, 2025, we had $133.2 million in cash and cash equivalents and approximately $595 million available under our $1 billion revolving credit facility. Our net leverage ratio stood at approximately 4x adjusted EBITDA. Moving to development activity. During the fourth quarter, we added 181 beds, including 144 beds from opening of a new joint venture facility in North Carolina. For the full year 2025, we added 1,089 beds, exceeding the high end of our guidance range. This includes 778 beds from opening 6 new facilities. As previously discussed, over the course of 2025, we made the decision to close 5 facilities, including 4 specialty facilities and 1 acute care hospital. These closed facilities totaled 382 beds. Looking forward to 2026, we expect to add between 400 and 600 new beds, primarily through the opening of new facilities nearing completion. This includes 3 facilities with joint venture partners, including new hospitals with Tufts Medicine, Methodist Health and Orlando Health. During the fourth quarter, we also opened a new de novo in our CTC line of business, bringing the total to 15 new CTCs added to the full year 2025. De novos in our CTC line of business continue to be capital-efficient way to expand our footprint into new markets that are underserved. Turning to our 2026 outlook. We expect full year 2026 revenue to be between $3.37 billion and $3.45 billion and adjusted EBITDA of $575 million to $610 million. We expect adjusted EPS of $1.30 to $1.55. Full year guidance includes the following assumptions: we anticipate full year same-facility volume growth between 0% and 1%. This growth is driven by the incremental contribution from ramping beds, including approximately 630 beds that will be added to the same-store bucket in Q1. That is partially offset by an approximate 350 basis point headwind to the same facility growth from changes in the New York Medicaid program, which I will discuss further in a moment. Moving to pricing. For the full year, we expect a 2% to 3% increase in same-facility revenue per patient day. This includes a decrease in Medicaid supplemental payment revenue for the full year 2026. As a reminder, our fiscal year 2025 results included a nonrecurring $34 million revenue benefit from Tennessee's supplemental payment program, which was recorded in the second quarter of 2025. We also expect to recognize $11 million of out-of-period supplemental payments in the first quarter of 2026. Guidance does not include any programs that have not yet been approved. We estimate certain programs currently awaiting regulatory approval, represent at least a $22 million EBITDA benefit if approved this year. Start-up losses are expected in the range of $47 million to $53 million compared to $56 million in the prior year. Guidance assumes start-up losses will be weighted or towards the early part of the year with approximately 60% coming in the first half of the year. 2025 consolidated results include approximately $40 million of revenue from closed facilities. The closure of those facilities is expected to create an approximate $9 million tailwind to 2026 adjusted EBITDA. As we previewed in January, the State of New York has decided that it will no longer allow Medicaid patients to receive care in out-of-state facilities. We continue to estimate a $25 million to $30 million annual EBITDA impact. As a result of this change, we are consolidating our footprint in that market and have closed 2 leased specialty facilities. We are actively working to backfill the remaining occupancy in the market. For 2026, PLGL expense is expected to range between $100 million and $110 million, in line with our prior guidance. We anticipate generating positive free cash flow this year as we expect to see CapEx decline to a range of $255 million to $280 million. Moving to our outlook for the first quarter of 2026. Revenue is expected to fall between $820 million and $830 million. Adjusted EBITDA is expected to be between $130 million and $137 million. This outlook reflects the following assumptions: start-up losses of approximately $14 million, the recognition of $11 million in supplemental payments related to the prior year and the impact from severe weather of approximately $3.7 million. I will now turn the call back over to Debbie for closing remarks. Debra Osteen: Thank you. As I look across the business, I am encouraged by the strength of demand and the need for our services as well as the significant opportunity across all of Acadia's service lines. Over the last several years, we have expanded our footprint to over 12,500 beds, taking care of 84,000 patients per day. The focus now is on delivering quality care for patients and consistent operational performance. We have the right mission, the right markets and the right foundation to deliver improved results. This work will take discipline and consistency. We remain focused on providing care with the highest standards for our patients and the communities we serve. We are fortunate to have an experienced and dedicated team who provide quality patient care for those seeking treatment for mental health and substance use issues. I am confident in the value we can unlock through focused execution. With that, we are ready to take your questions. Operator: [Operator Instructions] And the first question will come from A.J. Rice with UBS. Albert Rice: Welcome back to Debbie. First, I just wanted to ask, I know last year, the company had embarked upon a -- I think, what was described as a value creation review with some outside advisers. That wasn't mentioned in the prepared remarks. I wondered, can you just update us on the status of that? Is that still ongoing? Or now that you're back, has that been put on hold? Debra Osteen: Thank you, A.J., for welcoming me back. It's not on hold. I think that what we are focused on right now is really what's in front of us, which is 2026 and making sure that we perform and that we're able to address some of the issues from last year in 2025. We're always looking for opportunities to create value. So that's really an ongoing process. We didn't mention it, but it's important that we look at short-term and long-term value. And so that's continuing. We are -- as I mentioned in the remarks, we are looking at our service lines to make sure they're aligned that they will create the value that our shareholders expect. So I think there's more to come there. There is a real focus right now, though, on immediate progress. And then, as I said, looking at the long-term value as well. Albert Rice: Okay. Great. And let me -- for my follow-up. Just as you've had a chance, I know it's still early in your assessment of things. But I think we've always thought about this industry, at least in recent years, in a normal environment can generate low to mid-single-digit organic volume growth, low to mid-single-digit pricing gains. And then with the de novos to have some opportunity for margin improvement over time. Is there anything you're seeing? I know there's noise in what's been happening in the last 18 months. But as you come out the other end of this and this year is probably getting back to normalcy year, is there any reason to think that, that growth algorithm is different as you reassess the landscape? Debra Osteen: No, I don't think it's different, A.J. I do think the demand continues to be very strong. And I certainly don't see anything that would impact that either short term or long term. Todd Young: A.J., overall, we feel good about where it is and how we're playing out this year. A lot of noise in the numbers over the last couple of years that we think as we get stable here and add to our beds with less closures, we should get back to more of a normal course on the growth side. Operator: Next question will come from Whit Mayo with Leerink. Benjamin Mayo: Obviously, there's a lot of embedded earnings inside the organization from all this development activity. I think you framed it as $200 million of incremental EBITDA, Debbie. What's the time frame that you think you could realize those earnings? Is it 2 years, 3 years, 5 years? Just how do we think about the pace of that? Todd Young: Yes, Whit, it's Todd. I think we have not defined the pace of it. But clearly, we think it's inside 5 years. We're going to keep doing this based off increasing occupancy. We've added a number of beds since 2023, and we'll add an additional 400 to 600 beds this year. As we look at that on a facility-by-facility basis and looking at it based off occupancy rates, that's how we've calculated out that performance improvement and do think it's inside 5 years. We're not committing, is it 3 years? Is it 4 years? But certainly, it's in this 5-year window as we drive occupancy at all of these new facilities we've brought online. Debra Osteen: And I'll just add with -- we built these beds because there was a market need. And we entered into the joint venture partnerships because of the market need. And in many cases, they had beds that were folded into our operations. So we're going to move with a sense of urgency here. We want to eliminate the barriers and really start to see our investment be realized. And as you said, there's a lot of opportunity embedded there. And I know the team is committed to move quickly and to work in collaboration with not just our partners, but in the markets where we put beds in as de novo as well as expansions. Benjamin Mayo: Okay. Maybe just my follow-up, Debbie, I'd just be curious on any of the obvious areas that you see for improvement, whether it's change in the divisional or reporting structure, maybe just more specific details around what you're doing to address. I think you said like removing internal barriers to slow problem solving. Todd Young: Operator, next question. Operator: The next question will come from Brian Tanquilut with Jefferies. Brian Tanquilut: Debbie, nice to hear back from you here. I guess I was thinking question-wise, as we think through the challenges that the company faced, especially towards the last year at the end of the previous regime, one of the things that got called out was the pressure from managed Medicaid on average length of stay, where approvals on approved days for patients, especially in acute were being pressured. So I'm just curious, how do you foresee pushing against that pressure from managed Medicaid to sort of maintain stability in that length of stay metric? Debra Osteen: I've been in the business a long time, as everyone knows. And I think there's always going to be a natural push and pull in the reimbursement environment, not just with managed Medicaid. I don't think it's a new development. I think that some states and payers are more challenging than others. But -- and we address those situations individually. We really have a very stable length of stay. It's obviously on a same-store basis, we're going to see that, I think, stay stable. However, there is an impact this year on length of stay with respect to the New York Medicaid, which I think everyone is very well aware of. Those patients tended to stay longer. So you'll see an impact on that. But just generally, we consistently advocate for patients when there are concerns about getting authorizations or medical necessity. And we really try and work with our payers. We want to make sure the patients are in the right setting. But overall, I think that we have very strong relationships. And I think this is just part of the behavioral health business, and I don't see a big change there or see -- we're not anticipating a change this year. We're both doing what we need to do. Ours is to advocate for the patient. And they have their concerns, but we really want to work in collaboration with them. Brian Tanquilut: I appreciate that. And then maybe my follow-up, Debbie, as I think through just the bed adds that Todd laid out for us earlier, I mean, obviously, very exciting. But as we think about, again, the previous regime, there were offsets to the bed adds with bed closures. So just philosophically, as you look through the portfolio today, how are you thinking about the opportunity to grow net beds or kind of like maintaining or maybe even avoiding bed closures at this point? Debra Osteen: Well, we -- I think as I was here at prior time, we always looked at our portfolio to evaluate what makes sense. But in my mind, that accelerated pace that you've seen over the last couple of years in closures is behind us. And I think that we would only consider closing beds if there's no clear path to viability. And our focus right now is really on operating and improving the existing portfolio. So we're not talking about closures at this point and don't anticipate being in that situation. Todd Young: Yes. The only caveat on that is we did close 2 leased facilities in Pennsylvania as a result of New York's decision driving more efficiency by consolidating in bigger locations. And because the leases were up, it just made logical time to close. But otherwise, very aligned with Debbie. The opportunity in front of us is to treat the demand that's out there and look forward to operating all of our facilities. Operator: Next question will come from Pito Chickering with Deutsche Bank. Pito Chickering: Welcome back, Debbie. Talked a little about this, but can you give us more details on exactly how you plan to rebuild trust with the referral sources and how you'll change how Acadia operates at the facility level in order to rebuild that trust? Debra Osteen: Well, I think we have good referral relationships, Pito. I do think that it has to be consistent, and it's got to be a focus every day to make sure that we are delivering the high-quality care that our referral sources expect. And I think that we are doing that. As far as some of the issues in the last year in particular, with just beds ramping, I don't think it was really related to a disconnect with our referral sources, but there were other issues involved around getting these hospitals open. But I feel good about our relationships. And we have -- as you know, a team of people that really want to connect with them and they do that every day to make sure that we understand what they need in services, but then also that they're satisfied and the patient is getting what they need. Our outcome data, I think, is going to be very helpful with referral relations because it is -- we are in a very good place with those outcomes. So it's our job to show our referral sources what we can do and that builds trust. And it's a track record of really treating their patients with the excellent care they expect and then also being able to demonstrate that through outcome data. Pito Chickering: Okay. Then for the follow-up here, what is sort of your goal on the first 90 to 180 days? Is at the facility level going into each hospital individually? Is it at the divisional level? And as you think about the current utilization of dashboard systems and processes, kind of where do you want to focus on most in the next 90 to 180 days? Debra Osteen: Well, my priorities are improving our volume, which we just talked about with particular focus on the same-store growth, but also on the 1,200 beds that we've added over the past 2 years. And I think that when I think about the team, I want to make sure that we have the right people, and I mentioned that in the remarks. I think that's key. I do think that we need to improve our operational discipline. We do have a lot of visibility now, and I've been very impressed, certainly with the quality dashboards. But there -- we also have benchmarking around some of the other areas with respect to the financial key factors that our facilities need to use to operate. So what I'm really trying to convey to the team and they're embracing this is use the data, use it for problem solving, but make decisions and take action. So if we see something that is not in line we need to act. And I think that started day 1 here as I rejoined the team. Operator: The next question will come from John Ransom with Raymond James. John Ransom: Welcome back. I'll add my salutation as well. Thinking about the long-term CapEx, how should we think about the cadence of that beyond 2026? And then what's the -- are we going to commit to maybe a moratorium on building new hospitals and focus on bed adds? Or what's the capital discipline to look like from here? Todd Young: John, we appreciate that question. I think you see a significant reduction in CapEx in 2026, which is going to lead back to free cash flow growth. We will continue to evaluate opportunities in markets that have high demand and meet our threshold for bed adds, understanding that the cost of construction has increased a lot over the last few years. So that bar has changed versus where it was 3 years ago. With that lens, we'll also look for continued expansion opportunities within existing facilities and the possibility that M&A may be a better option than building depending on what that cost multiple is. But fundamentally, right now, we're focused on delivering in '26, ramping the new facilities we put in the ground and then being very disciplined on CapEx in the years after that as we get back to generating free cash and really showing off the cash-generating power the underlying business has now that we have these beds available and as we fill them. Debra Osteen: And I'll just add to that, John. We really are focusing on the improved performance at our existing facilities. In terms of at least how I look at capital, it has to stand on its own merits, which I mentioned. But we always have said, and I think it's still accurate that bed expansions to existing facilities,are the best use of our capital. You have the demand there and you already have built in the overhead and other elements. So we're going to be very careful this year about what we do with capital. And Todd mentioned M&A, that's -- we're looking at that really not as a short term unless there's just some great opportunity there. But we're looking really more focused on what we're going to do with the beds that we've added and what we're going to do with the beds that we plan to add this year. John Ransom: Okay. And my follow-up is med mal. I know it's a lagging indicator, but that's -- the industry has been in a long -- in a cycle where they're chasing experience with increased reserves. So where do you think we are in that? Is there any leading indicators to suggest maybe that's going to crest at some point in the foreseeable future? Todd Young: It's a fair question, John. Obviously, the PLGL expense was a significant headwind to 2025. We've continued to analyze our claims coming in, and they are consistent with where we were in December relative to that expectation, which is why we held guidance for 2026. As we look out, we're making a lot of investments at the facilities and really focused on the training. It's our people that make the difference. And we think they will continue to provide really quality care. And that will be the driver, understanding that this is part of our industry and we're never going to get incidents to 0. But certainly, our goal is to continue to provide quality care and reduce the opportunities for more lawsuits in the future. Operator: The next question will come from Ryan Langston with TD Cowen. Ryan Langston: DSO was up, I think, 6 days year-over-year. Was there a particular payer, maybe group of payers driving this? And is this related to the higher denials rates you've talked about recently? Or just, I guess, anything else to call out there would be helpful. Todd Young: Yes, Ryan. It's a good call. We did see some slower payments on a couple of things. A couple of these were nuanced. There were 2 states that had different programs that needed to get finalized, including the supplementals we saw here in Q1 of this year that meant we had to wait for the payments on previous services until those came in. So those monies have started to come in such that I wouldn't be concerned about the DSO. But we did see denials in line with what we expected for Q4, but cash collection is certainly a focus of the team and do expect it will be better in 2026. Ryan Langston: Great. And then just following up. Debbie, welcome back. On the New York and Pennsylvania issue, I guess, are there any other sort of geographies in the portfolio that you could maybe potentially see a similar dynamic where one state limits sort of out of state care to another? Debra Osteen: I think New York is an outlier. I do think that we have opportunity there to diversify our payer mix. So we were very dependent, as you can see from the impact of it on New York Medicaid in a few of our facilities up in Pennsylvania. But I don't see that as -- it would not be a risk that I would list. I think that states oftentimes don't have the resources available to adequately treat the needs of the patients. So they do send out of state. In this case, there was a policy in place, and they made a decision to enforce that. We're advocating because we don't believe there are sufficient resources in New York, understanding that we had to recognize the impact of this. But we're also working very diligently to really find new payer sources. And we're starting to see some early results from that. And we'll continue to do that to ensure that the hospitals that we had there continue to be viable, but with a different payer mix. Operator: The Next question will come from Andrew Mok with Barclays. Thomas Walsh: This is Thomas Walsh on for Andrew. The core EBITDA growth in the bridge seems to outpace the underlying components of rate and volume. Can you help us understand what else is contributing to the 6% to 7% core growth potentially on the cost side? Todd Young: Certainly, Thomas. The big driver of the core growth is the ramping facilities opened in '23 to '25. So you're getting an occupancy benefit and just getting the greater leverage in the EBITDA than what you would have at facilities that are already at a high occupancy level. And so that's a big driver of the core growth in the bridge and why we're very confident that the initiatives we're putting in place in these facilities and as they get longer tenured in the markets are getting that traction and driving the growth. Thomas Walsh: Great. And following up, could you help us understand how you're preparing for the changes in California's staffing requirements expected to phase in midyear? And what's embedded in guidance for this? Todd Young: Sure. Now as everyone is aware, California has some new guidelines regarding nursing staffing ratios. The team was working very diligently to be ready for this for January 31. It's been pushed back to June 1. We expected to have about a $4 million EBITDA impact that's embedded in our guidance. Overall, it's really not about us needing more people because we were very well staffed to take care of patients across California, but rather, we now need a higher level of nurse in many cases, which is just an incrementally higher cost to us versus a full FTE, it's at the margin. So that's our expectation for the impact in 2026. Debra Osteen: And I'll just add that we're obviously not the only company that's being impacted in California. And we're working very closely with the California Hospital Association, their position, and we certainly agree that if a new regulatory requirement comes in, that there should be an offset in funding for that. I don't want to say that, that's been set, but I do know that there are discussions with the state about putting in new regulatory requirements and the practice and what we believe to be their responsibility to fund that regulation. Operator: The next question will come from Ben Hendrix with RBC. Benjamin Hendrix: Welcome back, Debbie. I wanted to talk a little bit about the ramp of new facilities, and I appreciate that you're in the process of assessing those on a facility-by-facility basis. But it does sound like some of the top line outperformance versus the high end of guidance for 4Q was driven by that new capacity. I'm just wondering if there's any early observations on the puts and takes of the ramp pacing? Are there some new projects that are gaining better traction than others? Any high-level thoughts on what might be working, what might be lagging in those new projects in a high level? Debra Osteen: Well, as we think about the 2025 issues around the ramp of our new facilities, we have identified common themes. And it's really in getting the facilities open. And there's a lot of detail that go into getting our new hospitals open. We have construction, we have to hire staff. But I think what we have seen as probably a common theme is that we need licensure obviously, and then we need billing tie-in to be able to build for the patients within the facility. When we get that, it's not a matter of need. It's not a matter of patient demand. It's really more through these processes that we have to work through in each state, and they vary with respect to licensure. And then also, as I mentioned, just being able to bill for the patients that are coming to us. So we have a plan around that because I think that we recognize that we can work earlier on some of the areas, and we plan to do that. But as our hospitals open, we are pretty confident that we're going to see those patients come in. And again, back to what I said earlier, there was a need in the market. And we just need to make sure we get our hospitals open as we expect. And not all of them were opened on the time line that I think the team thought was going to happen. So we're going to do -- we're changing our processes for this year, and I'm hopeful that we'll see a difference in the ramp and the issues that we saw in 2025. Benjamin Hendrix: Great. And I wanted a quick follow-up on the Pennsylvania facilities. You mentioned that some of the -- you consolidated those and maybe repositioning those for a change in payer mix and maybe repositioning towards in-state volume. What is the kind of the timing of a shift like that, given the magnitude of this headwind? And then could these be slated for a potential exit or strategic review in the near future? Todd Young: Ben, great question. I think overall, we have closed the 2 facilities that I mentioned to consolidate from essentially 8 facilities that were impacted by this down to 6. We've opened up 1 new state, New Jersey that we're excited to start trying to source patients from -- for these facilities as well as in the Pennsylvania market. And so we've given the $25 million to $30 million EBITDA impact for '26. That is our expectation. At the same time, we're very much looking to change that mix and deliver better results than that over the course of the year as we find new referral sources and look for ways to fill up these really good facilities that take care of our patients extremely well. Operator: The next question will come from Matthew Gillmor with KeyBanc. Matthew Gillmor: Let me echo that, welcome back to Debbie. Maybe following up on the operational discipline discussion. Debbie, you had mentioned a comment about looking at operational layers. I was hoping you could just help us sort of unpack that and sort of understand maybe how the team is organized today and what changes you're contemplating and how that might benefit the organization? Debra Osteen: Yes. I mean we are taking a look not only at the corporate structure, but also the leadership structure that supports those in the field. And over my years in behavioral health and being in a public company, I have a strong belief that whatever we do here at corporate has to support what happens in the field. And that, that principle is -- really should guide what everyone does here in this office. So I have started in the process of looking at scope of each of our leaders, how the geography is set up and also just what their experience level is and do they have the right experience. And we have some new leaders, and we have those that really have been here. And I've seen a lot of familiar faces as I've rejoined. But my focus is on what do we absolutely need and what do we need to support the growth because we've had a lot of that. And what does that look like from a corporate point of view as well as a field point of view. And I think that it will be an ongoing process, but we've already started to make some changes, which I won't go into detail on this call. But I do think that the team is eager to make sure that we are rightsized, both here at corporate and in the field. So that's going to be a continuing process over the next few months. Matthew Gillmor: Understood. And then on the fourth quarter volume performance, particularly on patient days, it seems like that came in a little bit better than recent trends and the length of stay improved a little bit and that then drove the upside to revenue or was at least part of it. I was curious how the volumes performed relative to your expectations? And were there any areas of sort of notable strength to call out in terms of the fourth quarter volumes? Todd Young: No. We're very pleased with the team's delivery in Q4, as you noted, slightly better than expectations. And that was really pretty broad-based with strength in both acute and specialty. Operator: The next question will come from Ann Hynes with Mizuho Securities. Ann Hynes: Welcome back, Debbie. I want to focus my question on cash flow and leverage. So you said earlier on the call that it could take 5 years to unlock the EBITDA. And I'm assuming that's the same timetable for cash flow. I guess that would be my first question. But my real question is, I know you don't want to discuss the outstanding lawsuits. But how do you think about leverage with the potential upcoming settlements with the timing of unlocking the EBITDA and cash flow? Do you have any maybe short-term, intermediate and long-term leverage goals that you could share with us? Todd Young: Thanks, Ann, for your question. As I said, it's certainly inside 5 years to unlock that $200 million opportunity. We're looking to be cash flow positive this year. And so we've brought down the CapEx significantly. We expect our legal costs to be -- and transactional costs to be lower than last year. And as I said, expect for some working capital improvements as well. All of that should lead to a positive on reducing debt. As we think about our outstanding legal challenges and the like, we are taking that into account as we look at leverage over both the short and the near term. But fundamentally, we do expect to grow EBITDA and to improve free cash flow in '26 and in '27 and '28. All of which then drives improvement in leverage, understanding that there may be some additional cash required to pay for a settlement or otherwise that can exist. But fundamentally, we do think our leverage will stay in a reasonable range, maybe not as low as it has been in the last few years because of these draws on cash, but not in a way that will create any risk to the enterprise. Ann Hynes: Great. And the de novos that are not performing to your expectations, what's the drag on EBITDA in 2026? And do you expect that to continue like have these start-up losses in 2027 and 2028? Todd Young: No, we expect start-up losses to improve. We're improving modestly in 2026 versus 2025. And as I mentioned earlier, a big part of our core growth is the ramping of facilities opened in '23 to '25, and that continued ramping of these facilities will be the driver of improved EBITDA and cash flow performance in the next few years. So we would expect in '27 given we don't have substantial beds or new facilities opening that those start-up losses would decline more than they are here in '26 versus '25. Operator: The next question will come from Jason Cassorla with Guggenheim. Jason Cassorla: Welcome back, Debbie. I wanted to hit on 2026 volume quickly. You've got flat to up 1% total same facility, 350 basis point impact from the New York Medicaid dynamic. You've got facility closures and you've got over 600 beds coming into the same facility stat. I guess could you help maybe bifurcate what the volume growth expectation would be on like a non-Pennsylvania, non-new bed same-facility basis? I'm just kind of like relative to like the over like the 2% to 3% longer term. Just curious on what you're seeing on that front would be helpful. Todd Young: Sure, Jason. And as you just rattled off there, we've got a lot of moving pieces that does make this a more complicated baseline than normal. As we called out, we think underlying core growth is in the 1% to 2% range, and then we're going to get a 1% to 2% benefit from our ramping facilities on the '23 to '25 basis. And so again, that ramping facility is going to be a big driver going forward. We've added a lot of new beds to our facilities and to new facilities and JVs over the last couple of years. But again, this drag on the 3.5% roughly from New York Medicaid is the big negative this year that we don't expect will repeat in future years, and then we'll get back to this growth as we ramp our facilities and exit the start-up losses and really drive that EBITDA growth from just getting a higher utilization of the fixed costs of each of the new facilities. Jason Cassorla: Great. Very helpful. And maybe just as a follow-up, I just wanted to ask quickly on the first quarter '26 guidance. If you net out the $11 million of out-of-period DPP benefit that you're expecting to book, it looks like first quarter EBITDA is down about high single digits. '26 guidance, if you net the out-of-periods, it's pretty flat on a dollar basis. Maybe it's the run rate PLGL, maybe it's the maturation of new beds, start-up cost timing and seasonality. But is there anything to call out in the first quarter '26 specifically that might be impacting the guide? Or is it just conservatism given some of the moving pieces? Todd Young: No, a very fair question. I think we do have a weather impact here in Q1 that the big storm that really knocked out the team here in Nashville. We had a lot of folks without power for a week. That hit a lot of our facilities because it just hit so many states and so we called out about a $3.7 million headwind there. We do expect that the facilities ramping will create a greater EBITDA benefit in the back half of the year than in the first half of the year. So that also is different than the Q1 run rate would suggest. And then finally, we expect supplementals from just the normal course of already approved programs also has a bigger second half benefit than it does first half. So those are the number of pieces that allows for us to feel good about the acceleration in the EBITDA run rate relative to Q1. Operator: The next question will come from Joanna Gajuk with Bank of America. Joanna Gajuk: Debbie, great to have you back for sure. So you mentioned in your prepared remarks also a review of service lines. So can you give us a little bit more color on kind of what metrics you're looking at to kind of make these decisions and maybe early indications which of these service lines you were referring to, were thinking they might require divestiture? Debra Osteen: Thank you for welcoming me back. I really wasn't trying to infer that we're going to be taking any action on any of our service lines. What I meant by those remarks is we are wanting to make sure that all of our service lines are performing at the highest level that they can. And I think that certainly, most of the new beds that we've added have been in the acute area. So we're looking at that as a separate focus. But with regarding CTC, we really feel like that's a very important and strategic part of the company. It actually has some very attractive characteristics. When you think about it, it's low capital intensity, it's low labor intensity and we really have just very, very strong predictable demand. So when I reference looking at all of our service lines, what I'm looking at is just where are they performing now, how can we improve that performance? And do we have the right leadership and the right teams in place to see that happen. Joanna Gajuk: If I may, a follow-up on the commentary around new hospital ramp-up. It sounds like it could be construction delays or just approvals. But you also mentioned staff. So can you kind of maybe double down on that topic in terms of are there any markets with some shortages or just issues around staffing? And in particular, also as it relates to some other questions about management or other referral sources, are there any trust issues maybe with local health care workers that it's creating issues staffing new beds? Debra Osteen: No. Staffing, we always have staffing as a focus to make sure that we have -- especially with the new hospital, as you can imagine. But no, it's not about trust of our referral sources. The ramping issues that happened in 2025 really have to do with getting all of the regulatory approvals in place to open. And then as I said earlier, to build for those services, I think we entered into these relationships with our partners because they were very strong in their market. We've learned that we need to leverage that strength even more than we have in the past and do it earlier. But there -- we're focused on really collaborating and meeting their needs and making sure their patients can access the new facility. So I wouldn't see it as a staffing issue that's been a barrier really or a lack of trust by referral sources. I've met with several of our partners since I've come back, and they're very excited about being able to meet the mental health needs, but do it with us and the strength that we bring. So that, I think, is in a very good position. And I don't think that we have issues going forward. Really, as we think even about the new facilities ramping, we've got some really strong partners that will be opening facilities with this year. Operator: Next question will come from Sarah James with Cantor Fitzgerald. Sarah James: Debbie, it's great to have you back. I'm wondering, does your expansion of the quality dashboards include new investments in recognizing and responding to patterns in clinical outcome measures like readmissions or relapse rates? And could those metrics factor into payer negotiations or claims approval rates? Debra Osteen: Well, the 50 measures that we are looking at, some of them have to do with on the unit and how our clinicians are performing. Certainly, the performance and the -- of our patients and how they improve within our facilities, I do think can be a key part of our discussions with the payers. We're aligned in that. They would like to see these patients improve as we would as well. So we are using those -- that data. I think we can do it even more than we have because now we have some published information that we can -- and we're putting it on our website, as I mentioned. So it's very clear that our patients are coming in and they are improving from admission to discharge. So we do plan to use that more to demonstrate the difference that we make as they consider what they intend to reimburse us and we want alignment with that. And the dashboards give a lot of visibility and it's visibility that is immediate so that you can look at a particular hospital and a particular measure and know for that day what is happening, which I think is a great tool. Sarah James: Great. And just one follow-up on the referral channels. Can you provide us with a framework of what the referral channel mix looks like now? How that's different from 2 years ago? And as you're making these investments on building relationships, where that mix could go in the next few years? Debra Osteen: Yes. As I've come back, I don't see a big difference in the referral patterns. They do differ by service line. As you know, Sarah, just from following us, I think that we still get business from the emergency rooms who are in need of placing patients and might be boarded there for a period of time. We also have many professional referral relationships with those out not only practicing in psychiatry, but also other physicians. In each state, it's going to differ as to who is sending patients. But I don't really see a big shift there. I think that it's the same group of individuals that are referring. But our job, and I think we're very focused on this is making sure we're connecting with them and that we are being proactive with them to talk about what we can offer to their patients as well as the outcome measures, which we've talked about. Operator: This will conclude our question-and-answer session as well as our conference call for today. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Loblaw Companies Limited 2025 Fourth Quarter and Full Year Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, February 25, 2026. I would now like to turn the conference over to Roy MacDonald, Vice President, Investor Relations. Please go ahead. Roy MacDonald: Thank you very much, and good morning, everybody. Welcome to the Loblaw Companies Limited Fourth Quarter and Full Year 2025 Results Conference Call. As usual, I'm joined here this morning by Per Bank, our President and Chief Executive Officer; and by Richard Dufresne, our Chief Financial Officer. So before we begin today, I'll remind you that today's discussions will include forward-looking statements, which may include, but are not limited to, statements with respect to Loblaw's anticipated future results. These statements are based on assumptions and reflect management's current expectations. As such, are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. And these risks and uncertainties are discussed in the company's financial materials filed with the Canadian securities regulators. Any forward-looking statements speak only of the date they are made. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than what's required by law. Also, certain GAAP -- non-GAAP financial measures may be discussed or referred to today. So please refer to our annual report and the other materials filed with the Canadian securities regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure. And I will add that following the announcement of the sale of our PC Financial business to EQ Bank and that ongoing partnership, our PC Financial results are presented under discontinuing ops. It's important to note that we are not getting out of the financial services. As such, unless otherwise indicated today, our remarks will focus on the comparable adjusted consolidated results, excluding the impact of the extra week this quarter. And with that, I will hand the call over to Richard. Richard Dufresne: Thank you, Roy, and good morning, everyone. I'm pleased to report on another quarter of consistent financial and operational performance, reflecting our ongoing focus on retail excellence and our commitment to deliver value, quality, service and convenience to Canadians. As Roy mentioned, with the announced sale of PC Financial to EQB, the results of the bank are now presented in discontinued operations. It's important to highlight that we're not getting out of financial services by virtue of our interest in EQB, so we will continue to focus on our consolidated results. When the transaction closes, the current discontinued operations business will be replaced by Loblaw's proportional ownership share of EQB profits. In the fourth quarter, on a 12-week basis, revenue growth was 3.5%, reaching $15.5 billion. Our top line growth was supported by the opening of 30 stores in the final quarter of the year. In the year, we added 1.5% square footage to our food retail stores and 2.1% to our drug retail portfolio. This growth was primarily focused on adding Hard Discount stores and pharmacies to underserved communities. Adjusted EBITDA increased by 4.8% to $1.8 billion and margin improved by 10 basis points to 11.5%. Adjusted diluted net earnings per share grew by 10.9%. On a reported basis, revenue grew 11% and adjusted EPS was $0.67, up 22% in the quarter. In Food Retail, we once again delivered traffic and basket growth, resulting in tonnage market share gains. Absolute sales outpaced same-store sales by 160 basis points at 3.1%, reflecting our new store growth. Absolute sales also outpaced our internal inflation, which reflects our market share gains. Our food same-store sales grew 1.5%. It's worth indicating that we are lapping a strong Q4 last year when we increased promotional activity. As we progress through Q4 2025, our same-store sales growth accelerated, and this has continued in the first quarter of 2026. We continue to see positive momentum across key categories in the right-hand side of our stores with continued accretive growth in toy, apparel and home and entertainment. That said, with continued pressure in liquor, tobacco and HABA categories, right-hand side resulted in 20 basis points of pressure on food same-store sales. Our internal CPI-like food inflation metric was significantly lower than Canada's grocery CPI of 4.4%, and that gap widened over the final 2 months of the quarter. So customers are seeking value and are finding it in our stores. This reflects our effort to push back on unjustified cost increases from suppliers and the effectiveness of our loyalty and promotional offers. As consumers continue to focus on value, our Hard Discount banners remain a key driver of absolute sales growth. We opened 15 new Hard Discount stores in the quarter, bringing our total opened in the year to 48. These stores are meeting expectations and will start rolling into comparable sales throughout 2026. In fact, 20 of the new Hard Discount stores opened in 2024 are already in our comps and are averaging healthy double-digit same-store sales. We're also pleased with the momentum and performance of our conventional stores. In the quarter, this growth was led by our Fortinos and YIG banners. Across conventional, multicultural, natural value and prepared foods continue to be growing categories. In drug retail, absolute sales increased 4.4%, while same-store sales grew 3.9%. Pharmacy and health care services grew same-store sales by 5.6%, driven by broad strength in prescription and new health care services. Our specialty prescription growth continued to lead our pharmacy performance. Patients continue to respond positively to the convenience and expanded level of primary care we offer to our more than 1,800 pharmacies across the country. I'm happy to confirm that we've achieved our target of opening 250 in-store clinics this year, improving access to health care services for Canadians in underserved communities. Our front store same-store sales continued to improve, growing 2.2%, reflecting the ongoing strength of our beauty category. We saw an increase in our OTC sales as Canada was hit hard by the cold and flu season with influenza cases reaching a 3-year high. Flu season peaked in December, a shift from last year when it peaked in our first quarter. We continue to be pleased with YIG's underlying strength and profitability in our front store business. Online sales continue to demonstrate strong growth, reaching over $4.5 billion last year. In the fourth quarter, our digital sales increased by 19.6%, highest growth in the year. Delivery continues to be led -- to lead that growth, particularly in discount. In November, we launched another third-party delivery partnership across our grocery banners and early results are very positive. Our retail gross margin improved by 10 basis points to 31%, driven by improvements in shrink and drug, while food trading margins remained stable. Our retail SG&A rate was flat with operating leverage from higher sales, offsetting incremental costs related to the opening of new stores and the ramping up of our automated distribution facilities. I'm very pleased with our ability to maintain a flat rate despite the additional costs associated with this growth. Retail adjusted EBITDA grew 4.6% and retail EBITDA margin increased by 10 basis points to 10.9%. The ramp-up of our first automated distribution center in East Gwillimbury continues to progress well. Both cost and productivity improvements came in better than planned. This allowed us to roll out our ambient sections 2 months ahead of schedule. We are pleased with our progress and expect to be fully ramped up later this year. Construction on our second automated DC in South Caledon is progressing very well. The project remains on plan with automation installation beginning by the end of this year. PC Financial's revenue increased 3.1%, driven by higher insurance commission income and higher interest income. The bank's adjusted net earnings increased by $12 million or 36%. This was primarily driven by higher revenue and the favorable impact from lower expected credit loss provisions. The previously announced sale of PC Financial to EQ Bank will streamline the company's operation. We expect the transaction to close later this year. Free cash flow from the retail segment was $1.9 billion for the year. And in the quarter, we repurchased $592 million worth of common share for a full year total of $1.9 billion. Our balance sheet remains strong, and we continue to improve our key return metrics. Our return on equity sits at 26.3% and our return on capital at 12.4%. On a full year basis, our consolidated revenue grew 4.4% to $63.7 billion, net earnings of $2.8 billion and EPS grew 10.7%. Including the impact of the 53rd week, EPS grew an incremental 2.9% to 13.6%. Turning to 2026, we have a solid plan in place, allowing us to continue delivering consistent financial and operating performance while advancing our growth initiatives. New store investments will be similar to last year with an increase in Shoppers Drug Mart stores. We plan to grow our grocery square footage in line with 2025. However, our drug footprint is expected to increase by 3%. In 2026, we expect the timing of the closing of the sale of PC Financial and the lapping of the 53rd week to impact the company's financial results. Excluding these impacts, we expect our retail business to grow earnings faster than sales and adjusted earnings per share growth in the high single digits. We plan to invest approximately $2.4 billion in capital expenditures. Again, we plan to return most of our free cash flow to shareholders through dividends and share buybacks. We're more than halfway through the first quarter, and same-store sales are showing continued momentum. Looking ahead, our focus on retail excellence and on the execution of our strategic initiatives will allow us to keep on delivering value to our customers and performance to our shareholders. While early, 2026 is off to a good start, I will now turn the call over to Per. Per Bank: Many thanks, Richard, and good morning, everyone. I'm very pleased to share our solid fourth quarter results, which caps a very successful year for Loblaw. We delivered revenue growth of 3.5%, reflecting both the success of our strategic investments in new stores and strong operating performance. This top line growth enabled us to deliver the 10.9% adjusted EPS growth in the quarter. We accomplished this earnings growth while increasing our spending to support the opening and ramp-up of our two 1 million square foot DCs and our new stores, including the successful opening of our second T&T store in the United States. This past year has truly showcased that we have the right strategy, we are executing well, and everything is grounded on an unwavering focus on our customers. More than ever, we have seen Canadian prioritize value. We know that affordability is so important for many households, and that's why we are expanding our Hard Discount network. We opened 48 new No Frills and Maxi stores this year. These new locations were strategically placed in underserved communities. This year, we also invested to expand our e-commerce service for our Hard Discount customers and are very pleased to see our digital penetration rate doubled in these banners compared to last year. This highlights the vital role that our Maxi and No Frills stores play in helping families stretch their budgets without compromising on quality, selection or convenience. Our commercial banners, including the high-performance Fortinos and T&T stores continue to attract and delight shoppers. Fortinos, which focus on fresh, local and premium offerings remained a community favorite, while T&T Supermarket continued its impressive growth trajectory. We saw really strong performance in areas of strategic focus, including our multicultural assortment and our right-hand side refresh. We have now updated 34 stores and are seeing high single-digit sales growth in these stores led by apparel, cosmetic and toys. I'm actually especially excited by how well our toys category performed with sales increasing almost 50% in Q4. Beyond value, we recognize our customers' desire for choice, quality and a superior shopping experience, including a strong preference for supporting local manufacturers. I'm proud to share that in '25, we added 267 new Canadian supply to our network, reinforcing our commitment to Canadian businesses. When Canadian businesses grow, communities grow, when local producers win, we all win, and we're actually just getting started. In Drug, we continued our trajectory through quarter 4 as we delivered our fourth consecutive quarter of positive sales growth momentum in front store. This reflects continued strength in Beauty and strength in our HABA OTC and baby categories. We're also seeing early shoots from our initiatives to bring more value and sales productivity to front store. In Pharmacy and Healthcare Services, we continue to deliver solid performance led by growth in the specialty drug category. In line with our commitment to being where Canadians need us the most, we are actively building new pharmacies and clinics to provide essential health care services, especially in underserved communities. Q4 was very busy as we opened a record of 15 new pharmacies in the quarter, bringing our total to 27 for the year. Our pharmacies and health care professionals play an increasingly important role in the health and well-being of Canadians, and we are committed to supporting them with the tools and resources they need to provide exceptional care, making it easier for Canadians to manage their health closer to home. For Loblaw, investing to be at the forefront of innovation has always been key to building customer loyalty. To support growth and enhance our customer experience, we made record investments in the future this past year. These strategic capital deployments were focused on strengthening our foundation and expanding our reach across key growth areas. We significantly grew our store network with investment specifically directed towards new discount stores, additional pharmacies and the continued expansion of T&T. These investments are not just about stores, they're also about strengthening the backbone of our operations and investing in innovation to serve our stores and customers more effectively. I previously highlighted the significant success of our [indiscernible] program. Building on these achievements, we remain deeply committed to continuous product innovation. This year, our investment in this crucial area have successfully brought more than 250 new products to Canadian households under our private label brands like the President's Choice, no name and Farmer's Market. These exciting new additions have not only enhanced our offering, but have also generated nearly $400 million in sales. Beyond our core retail operations, we also strategically grew our alternative businesses, including retail media, our logistics as a service offering and significantly enhanced our health care services through clinics, and the expansion of our Lifemark business. We have talked about media and logistics in the past, but I would like to spend just a moment on Lifemark. With over 4 million customers visits each year, Lifemark offers a range of rehabilitation services through 320 locations across the country. Lifemark is another small, but quickly growing business that we expect will deliver $100 million in EBITDA this year. Technology too, plays a crucial role in our differentiation. We are not simply adopting AI, we are building an AI-enabled organization. We are experimenting with intent and discipline, focusing on practical use cases that create real value for customers. Our recent partnership with OpenAI and Google were first in Canadian retail and great examples of embedding AI into the tools Canadians already use every day while also building purpose-built application where it makes sense. We also continue to deploy AI inside our organization, optimizing operations, improving forecasting and assortment decisions, simplifying workflows for colleagues and enhancing the shopping experience. None of these achievements would be possible without the incredible dedication of our 220,000 colleagues. The uniqueness and strength of our culture is a cornerstone to everything we have accomplished. To each and every one of you, in stores, distribution centers, pharmacies, clinics, offices, I extend my sincerest gratitude. Your hard work, commitment and passion for serving our customers are incredibly important to our success. As we look to the future, we remain optimistic and determined. The foundational investment we made, coupled with our resilient business model, unwavering focus on the customers and being where Canadians need us the most, positioning us exceptionally well for sustained growth and continuous market leadership. We will continue to innovate, adapt and evolve to meet the changing needs of Canadians, whether that's through expanding our value offering, supporting local suppliers or bringing essential health care closer to home. Our commitment to delivering unparalleled value, quality and convenience remains steadfast, as does our dedication to our communities and helping Canadians live life well. With that, I will now open the floor for questions. Many thanks. Roy MacDonald: Thank you, Per. Operator, if you'd please introduce the Q&A process. Operator: [Operator Instructions] Your first question comes from Mark Carden with UBS. Mark Carden: So to start, I just wanted to see how the consumer is faring overall. Are you guys seeing any shifts in spending patterns, any incremental trade down occurring? And then has anything changed in the competitive landscape in your core markets? Per Bank: Thank you, Mark. And I would overall say that customers are behaving a lot like they have done in the past. So not that much has changed. I would say, though, that the discount strategy for us is working very well. Promo penetration still stays high. And private label in the quarter 4 is outperforming national brands. And we are seeing some category trade downs. I just looked at an example the other day where an impulse category like berries, the organic berries is down double digit, where the conventional berries would be up. So more of the same. Maybe one flavor more if I look at the discount. So our discount, which I mentioned in my script, the penetration in e-commerce and discount has doubled. So we are seeing more customers now that they have more access to our discount e-commerce, they're choosing that. But within the stores, it stayed the same. So the gap between conventional and discount, I would say, staying the same. So still value-conscious customers, but more of the same. Mark Carden: That's great. And then as a follow-up, you guys noted that retail same-store sales steadily improved throughout the quarter. How did the cadence play out month-to-month? I know there's some promo compares in there. And how have you trended thus far in 1Q? Richard Dufresne: Yes. As I mentioned in my remarks, in 2024 in Q4, we were a little bit more aggressive than we were this year. And so that affected especially the first month of Q4. And so as we started to lap that month, we saw a sequential improvement in same-store sales. And we're actually seeing further improvement as we begin 2026. So definitely, we feel good about our same-store sales performance. Operator: Your next question comes from the line of Irene Nattel with RBC Capital Markets. Irene Nattel: Just continuing with consumer behavior, how should we be thinking about the cadence of same-store sales and margin evolution as we move through 2026 and we normalize for some of the headwinds, notably at Shoppers and perhaps see some of the headwinds from the right-hand side starting or continuing to diminish? Richard Dufresne: So what I'd say, Irene, if you -- our outlook, the way we see it, like big picture is you're going to see above normal top line growth, as we've talked about because of new stores. So you're going to see that. You're going to see stability in gross margin, stability in the G&A rate, maybe a little bit of increase in gross margin rate as the year progresses as we continue to find more shrink benefits in Shoppers. And that, together with all of the other efforts should allow us to be delivering our high single-digit EPS growth. Per Bank: Yes. And I would say that we are confident in our comp sales and our total sales. Our new stores are working really well for us, and that's both our Shoppers and our Hard Discount. And when we look at the second year comp, we are seeing some really, really good numbers, actually better than we expected. So again, we feel confident about our strategy. But whether comp sales will be a little bit up one quarter and down another quarter, I don't think it's that key to our overall performance. So we will keep our guidance no matter whether it fluctuates a little bit because, of course, it can and have done, but we stay very confident in our sales projection. Irene Nattel: And just as a follow-up to that, how would you describe the spending in some of the more discretionary categories at Shoppers? I mean, Per, you made the comment just a second ago about organic versus regular berries, which is interesting. What are you seeing at Shoppers in front store... Per Bank: We're seeing that prestige continues to -- prestige beauty continues to be up. So that's good. But when that is said, there's not a lot of difference in Shoppers. Maybe I think in the beginning of the year, we are seeing that GLP-1 has increased a little bit in sales because prices are coming down, which is really good for customers because now more customers have access to that drug. And of course, we all know that it goes generic in the second half. So hopefully, more to come. We just don't know precisely when that's going to happen. And then, of course, spending, if you look at a big picture, it is also depending on inflation. And I'm just looking at an interesting store map here that we got some information from Nielsen on inflation. So it differs from area to area because when we look at produce inflation, it's flat to 1% only for quarter 4, where dry grocery is up by 4%, impacted by, in our opinion, the unjustified price increases by the big CPGs. And then meat, of course, because of commodity increase in general is up by 7%, where frozen is at 2%. So I thought that will be interesting. And, of course, also impacting customers. But what customers they do, they actually mitigate that inflation by shopping differently. Operator: Your next question comes from Chris Li with Desjardins. Christopher Li: Just at a high level, Richard, as you look at your EPS outlook for this year, are there certain areas where there might be some conservatism being embedded? And vice versa, what areas do you see having a higher variability or risk? Richard Dufresne: For us, when we look at the 2026 plan, it looks a lot like the 2025 plan. So it's pretty -- if you look by quarter, it should be pretty similar all quarters and not much volatility amongst quarters. That's how we're seeing it for now. There's going to be all the noise regarding when the PC Financial deal closes for sure. And -- but we'll deal with that when we know when that happens. But other than that, like it's going to look a lot like '25. Per Bank: One detail to add to that would be that this is the second year where we're opening around 70 stores. Last year, it was 77. This year, we project around 70. So while we are ramping up, of course, it costs us a little bit more also because the new stores, they don't really in food and drugs for that example, don't get profit before like between year 3 and 5. So we will have incurred a little bit more cost in the beginning, and we're seeing that this year as well. But the 76 stores from last year, they're now in the base. Richard Dufresne: Yes. So tailwind we talked about last year are more or less the same, like new stores and T&T U.S. So that's -- those are the tailwinds in our plan, and we've accounted for them. Per Bank: On sales. Richard Dufresne: Yes. Christopher Li: And my follow-up is just on -- with CapEx going up a little bit this year and it looks -- doesn't look like there's any sort of funding from asset sale to partially fund the CapEx like previous years. Do you expect to maintain a similar pace of share buybacks this year versus previous years? Richard Dufresne: Yes. We've actually were saying it would be around $1.8 billion for '25. We did $1.9 billion. And so we have -- we plan to do about $1.9 billion in '26. Operator: Your next question comes from the line of Vishal Shreedhar with National Bank. Vishal Shreedhar: Just a quick clarification. When you talked about the same-store improving through the quarter, was that a comment specifically to food? Or was that also related to Shoppers? Richard Dufresne: It was food. Per Bank: And it was basically because we lapped in the beginning in our P11, we lapped a very high promotional period last year that we, for many obvious reasons, didn't want to repeat. Vishal Shreedhar: And with respect to Shoppers, the comment regarding the change in timing of the flu season, the implication is that it could be softer in Q1 for Shoppers on same-store? Richard Dufresne: It could have a bit of an impact. We'll see as the quarter progresses. But definitely, last year, P1 in cough and cold was very strong. And this year, it finished in December. But the business continues to be strong. Vishal Shreedhar: Richard, obviously, 2025 has a high number of investments in terms of dollars flowing through the P&L and Loblaw continues to hit its framework. I was wondering if you can give us some context on a dollar value of the cost, if not a dollar value, just some qualitative commentary on the costs related to the new stores, the DC, the T&T ramp-up and how these all might impact and the degree to which you have to implement offsetting plans in order to grow. Richard Dufresne: No, I won't give you numbers, but like we expect that '26 will be the worst year from a drag on T&T U.S. So i.e., the drag will be more in '26 than it was in '25. Having said that, the ramp-up cost of East Gwillimbury is going to be less. We think Q1, maybe a little bit of Q2 of ramping up costs and then we will be done. So all in all, the drag should be a little bit less than it was last year. Having said all that, we've accounted for that when we did our planning for '26. I don't know if that's helpful. Operator: Your next question comes from the line of Mark Petrie with CIBC. Mark Petrie: You guys both touched on it in your script, but I wanted to ask more about Prepared Foods. It seems notable that the 2 best-performing full-service banners are leaders in that area. Could you just talk about where Prepared Foods ranks in your list of priorities? Obviously, some nice tailwinds in your favor as consumers look for value in food, but still want convenience and accessibility. Per Bank: That's a really good point, and that's something that we are doubling down on at the moment, and it was accretive to our comp sales in quarter 4. And when I look at the beginning in this quarter, it's also accretive to our overall business. So customers, they are looking for meal solutions more and more. I don't know whether it's because they eat less out for others to judge. But we are seeing that it's really helpful for us. And we are planning some good stuff that you will all see in our stores this quarter. I remember that we have some one-pan meals supporting customers who want a single-serve meal or for smaller household, I think that's important that we support singles and smaller households even more. And then we have the Korean Fried Chicken and Bao Kit program. That's innovation in the Korean kitchen to create more convenience and excitement in our stores. And then the last example I can remember, we have Halal Chicken now expanded to all our stores across the market. So meaningful, and I'm curious to see how that develops over the next year. Mark Petrie: Yes. Okay. I also wanted to just ask about Shoppers at a very high level. I know it's early in Gregers tenure as leader there, but curious to hear any comments on his initial take on the business and opportunities that he sees and focus areas. Per Bank: Yes. I think there's not a lot of news since we spoke last time, but it's still an opportunity about online. Our penetration for online shoppers is very low. So I'm sure over the next years, we'll be able to do better there. And then Gregers, he comes with a wealth of experience within beauty. So that will also add to the experience for our customers in Shoppers. But it's not something you will see because it takes time before you look at the assortment, before you go to change the stores, but we aim to have a few stores with a new layout being ready within this first year, but it's 3 weeks in. So I'm only quoting what we have discussed so far. But we are really positive on Gregers and his start in Shoppers and what he brings to the table. Operator: Your next question comes from the line of Michael Van Aelst with TD Cowen. Michael Van Aelst: You've been talking about AI and specifically agentic AI more in recent quarters. Can you get into a little more specifics in terms of discussing the most rewarding applications of agentic AI to date and how it's helping you either drive your sales higher or lower costs and things like that? Per Bank: Yes. So big credit to our digital team who have made 2 collaborations, both with OpenAI, which is the Food part and then with Google, which is more the Health and Beauty and in apparel. So on the OpenAI, remember, if you go in and search and try it out, write at PCX and then you can state what you want and what you're looking for because then with one click, you'll be taken through and you will be watching going from app to app and from product to product. So it's more seamless for customers and actually very convenient for customers to use that. And when we look at it, there's like millions of Canadians who are searching more and more for meat solutions and products on OpenAI. First of all, for us, it's important to be first as I'm aware of that we at Loblaw, we were first when we started the e-commerce and food. And that we are still benefiting from today because we have a significant higher market share on food e-commerce than we have in the past. So that's good for us, good for customers. So being first is meaningful. I don't think it will be something that we can read in the numbers in the next quarter or 2. But over time, I think that's important. So that's one part. That's what's great for customers, and that's how we help customers. Another thing is our internal use of AI, which I think is going to be more and more important as we go forward. It's how do we make it better for our colleagues to serve and doing the right thing for customers. We have a tool called Robin internally, where I think I mentioned that on some of our previous earnings call that where the district manager, the store managers have access to data, they can search and they can make things right in stores faster than we have ever done before. So all in all, I think it's going to be meaningful over time. It's not something you will see in the next quarter. We are first in Canada with a lot of it, and we will continue to drive that agenda very hard. Michael Van Aelst: And then just a separate question. Can you explain how the tax holiday impact or how the tax impact -- holiday is having an impact on same-store sales in the food side? Richard Dufresne: Like it's hard to measure with precision. But obviously, like the price of certain items went down, okay? And then now when they record the price this year, it's much higher. And so that's how it's affects CPI. So I suspect that unlike other retailers, the number of categories that were taxing them for us were not as significant. So that's why probably there's a big gap between our internal inflation measure and the CPI food that's measured by StatCan. Because as we said in our remarks, the gap has expanded significantly over the last 2 months, and our internal inflation is not materially higher than what it was like a few months ago. Operator: Your next question comes from the line of Etienne Ricard with BMO Capital Markets. Etienne Ricard: So to follow up on the transaction with EQB, I recognize it's still early in the process. How meaningful is the potential for additional PC Optimum Point issuances? Because the way I see it, it depends on offering a wider range of payment services to the EQ Bank customers or maybe also having a broader banking service to the PC Financial customers. So what gives you the confidence that these customers would be willing to own more than one product in the new entity? Richard Dufresne: I think, Etienne, you're right, but that's more in the long term. Like the key driver for us is more credit cards. Like we are not bankers, we're grocers. And so the way we've been managing the bank has been very conservative. Like a normal banking institution will be a little bit more liberal in its issuance of cards and EQ Bank was quite confident that they could be issuing more credit cards than we did historically. So -- and we know that customers who have the PC Mastercard are better customers from a customer long-term value perspective. So for us, that's what's most strategic. And we have a number in mind that they think that they can increase the number of annual cards with, and that's going to be the biggest driver. So more cards, more points, more loyalty. And over time, yes, you will see expansion in other products. But like initially, expect to see more credit cards, and that's what's going to drive the sales conversion in Loblaw. Etienne Ricard: And I appreciate the willingness to simplify the financial reporting at Loblaw. Now if we look past closing for this deal, should we expect long term the ownership in the EQB shares to remain at the Loblaw level? Or could you still have a say in the program without directly owning within Loblaw? Richard Dufresne: There's no plan to do anything for the moment, yes. We're very -- we haven't even closed the deal yet. And -- but suffice to say, there is -- there needs to be the building a very strong and tight relationship between EQ Bank and our loyalty program. And so that's going to be the first task at hand. And so that's what we'll be focused on for the short to medium term. Operator: Your next question comes from the line of John Zamparo with Scotiabank. John Zamparo: I wanted to ask about the real estate picture. I guess, first, a clarification on the planned openings for '26, are we right to assume that's going to skew a bit more towards the smaller format? But then the broader question is when we're seeing grocers increasingly taking up expectations for square footage growth, are you seeing any change in the quality of locations you're finding or the attractiveness of the lease terms? Per Bank: First of all, in 2026, we opened a little bit more conventional, and I think we're opening one of our bigger superstores as well. But looking at the discount stores, it's a good mix of normal size 32,000 square feet or down to 15,000 square feet, down to 10,000 square feet. I would say that in some of the underserved areas, we are doing more of the smaller stores. And if you look at the mix, we open a little bit less discount, a little bit more Shoppers this year. And it's just basically a coincident. And going forward, we are looking to do about the same number. And I said, it's quite easy to find good sites in Canada. And there's many, many underserved areas around the country where customers they want discount. Richard Dufresne: The only thing I'd add is our pipeline for '27 is already pretty much full on both food and drug. So we still see a lot of runway for opportunities to build stores. John Zamparo: And then my follow-up is on the PC Express OpenAI announcement. I wonder if taking a step back, is there anything you can say about the state of profitability of Loblaw's e-commerce operations now to help us better understand the bottom line impact of the overall greater shift to e-com, not necessarily the OpenAI announcement, but the broader shift e-comm. Per Bank: Yes. No, it's a good question because when we go back a few years, it was diluting. Now it's not diluting anymore. So it's a good support both to customers who want more of it, but also to our profitability. So it's actually okay for us now. It's not diluting. Richard Dufresne: And the key driver for it is us using third parties to do delivery. And so that is dramatically altering the financial equation to our favor. So that's why we like it. Per Bank: And also because we don't have any fulfillment centers around the country, we pick in store. So not only is it helping our efficiency, it's also helping the waste and food waste that we have in stores because customers who buy online, they buy more deep into the range. So it's helping the overall store productivity when we see more online sales, and that's not something that you normally think of. Operator: Your next question comes from Chris Li with Desjardins. Christopher Li: Just maybe a couple of questions on Pharmacy. First, is there any update on the genericization of GLP-1 drugs? Is the expectation that it's going to be around the summer? Per Bank: It has moved a few times. So we're actually not certain. Our best guess now would be around August. That's August, September, that's our best estimate right now when it will go generic because they still need those approval, and it's hard to say when they will get them. Christopher Li: And then my second question is just around the Pharmacy Clinics. How is the performance so far? And I noticed the pace of the new openings is slowing a little bit this year. Is that because you're taking a more measured approach to the rollout to see sort of how the regulatory landscape evolves? Or are you starting to reach a bit of a saturation point in terms of the number of clinics? Per Bank: I'm glad that you asked that question because there's a good sound reason for why we slowed down because we heard up to do it in the provinces where we had expanded Care scope, so -- which was Alberta and Nova Scotia. So there we are -- we've done. And then we're basically waiting for the other provinces to come up so where we can prescribe for more, then there we also meet the clinics. So we are not in urgent need in the other provinces. When that sets, all our new stores are built with clinics, and we are good in the provinces where we are. So you will see more of it. The performance we are seeing is following the plans that we had. So we're really pleased with the performance. There's just no urgent need to hurry up. And since we have a very healthy nice different divisions who are competing for the CapEx, then we allocate the CapEx elsewhere because CapEx is -- we are fighting for that, which is good because they're all giving us a very good return. Operator: [Operator Instructions] your next question comes from Mark Petrie with CIBC. Mark Petrie: I just wanted to ask about T&T and the growth plans there, both for Canada and the U.S. I guess, specific in the U.S., 2 stores you've called out performing very well. How aggressively can you pursue that opportunity? Richard Dufresne: So there's been no change in plans since we last saw you. So we have 11 stores approved. There's a few more that are -- that we're looking at. But for 2026, there are 3 U.S. stores planned to open, 3 in Canada. I hope we opened all the 3 because the last one is scheduled to open like mid-December. So that could slip. But if it doesn't slip, like there's going to be 3, one in San Jose, one in San Francisco and one in L.A., and the last one is the one in L.A. Operator: And with no further questions in queue, I would like to turn the conference back over to Roy for closing remarks. Roy MacDonald: Great. Thanks, everybody, for your time this morning. You know where to find me if you have any follow-up questions. And put a circle on your calendar for Wednesday, May 6, when we will be releasing our Q1 results. Have a great day, everybody, and thank you again. Operator: This concludes today's conference call. You may now disconnect.
Adrian Hallmark: Good morning, everyone, and thank you for joining us today for Aston Martin's 2025 full year results. It's a pleasure to be here alongside Doug Lafferty, CFO. And before Doug takes you through the financial performance in detail, I'm going to provide a summary of our key achievements and areas of strategic focus during 2025, followed by a review of the work we have done on the future product lineup. As we've outlined throughout the year, we have navigated a highly challenging trading environment, an unprecedented backdrop of geopolitical uncertainties and macroeconomic pressures, including heightened tariffs in the U.S. and China weighed on our performance and ability to execute our plans effectively. Despite this, we have delivered some critical milestones. None more so than the commencement of Valhalla deliveries in quarter 4 last year, our first mid-engine plug-in hybrid vehicle supercar. Alongside this, we've expanded our thrilling core lineup with high-performance derivatives such as the Vantage S and the DBX S, voted the Super SUV of the Year by Top Gear Magazine and the Vanquish Volante with the Vanquish also being recognized as Car of the Year by Robb Report just last month. Whilst maintaining a disciplined approach to balancing production with demand throughout the year, with retails outpacing wholesales, we also took the necessary proactive actions to invest in quality, lower our operational costs, and find ongoing capital expenditure efficiencies. Along with other transformation initiatives, these actions have benefited our performance in 2025, but very importantly, will support enhanced delivery over the coming years. Finally, we took action during the year to strengthen our balance sheet. Proceeds from the sale of shares in the Aston Martin Aramco Formula One Team, investment from Lawrence Stroll and his Yew Tree Consortium, and improved cash collections in quarter four 2025, resulted in a year-end total liquidity of GBP 250 million. Further enhanced by the proposed sale of Aston Martin naming rights to AMR GP for a consideration of GBP 50 million in this quarter, 2026. Taking all of this together and looking ahead, I remain confident that our strategy and upcoming products will position us strongly for future success. In the full year 2026, we expect to deliver a material improvement in our financial performance and continue to delivering year-on-year improvements over the short to midterm, with a focus on margin improvement and cash flow generation. Let's begin with a review of what's at the beating heart of Aston Martin and core to our DNA. That's our range of exquisitely designed and handcrafted vehicles. Today, we have the most thrilling and diverse lineup of models in our 113-year history. As we said at the start of 2025, our focus was on continuing to refresh and expand the core model range. Aston Martin has a long-standing tradition of applying the S suffix to special high-performance derivatives of core models, which we've continued with the introduction with the Vantage S, the DBX S, and most recently, the DB12 S. We now have convertible models available for all of our core range of sports cars. We celebrated the 60th anniversary of the iconic Volante name with the release of limited-edition Q by Aston Martin DB12 and Vanquish models. As I previously mentioned, the awards and recognition for these vehicles were a consistent theme throughout the year and have continued into 2026. As a result of the extensive range of new core models, the order book for these vehicles extends for up to 5 months for the core, and the average selling price has increased by more than 5% to GBP 185,000. A trend we expect to see continue into 2026, with more Aston Martin versions to come as we keep the core range fresh for our future and current customers. Now, undoubtedly, the most anticipated highlight of the year was the start of production and deliveries of Valhalla in Q4 2025. Valhalla has been a monumental project for Aston Martin, with the first 152 units produced and wholesaled in 2025. A further circa 500 units will be delivered in 2026. The current order bank takes us through to the fourth quarter of this year. Uniquely designed from the ground up at our Gaydon headquarters in the U.K., this supercar with hypercar performance is our first mid-engine plug-in hybrid. It's an important component of our future plans. The financial benefits have already been evidenced in our quarter four, 2025 performance. Reception from customers and the media to driving the prototype has been overwhelmingly positive. Following extensive global driving events during the second half of 2025, we have much more to come in 2026, beginning with over 50 global journalists joining us in Spain next week to drive the first full production versions of the car. Expect to see the reviews of this by the end of March. With our product portfolio now well-established, let's turn our focus to the current market environment and how we are refining strategy, transformation program, and our future product plans to best position Aston Martin for success and solid financial performance in the future. During my first full year as CEO in 2025, the global luxury automotive market faced one of its most turbulent years in recent times. Consumer demand has been impacted negatively by escalating geopolitical uncertainties and macroeconomic challenges, the most notable being the introduction of tariffs in the U.S. and in China. We were forced to navigate an unpredictable policy landscape and manage supply chain issues that ultimately impacted our volumes, our efficiency, and our margins. We have taken, and will continue to take, proactive steps to strengthen our overall position by maintaining a disciplined approach to balancing production and demand. This has been key to this year's performance and how we've planned for 2026. It includes establishing a more balanced production cadence through each quarter, while building on the success of our initial Valhalla deliveries. We passed through a second 3% price increase in the U.S. from the 1st of October to offset more of the impact we've been absorbing due to the tariff increases announced earlier this year. We continued to engage with the U.K. government regarding the first-come, first-served U.S. quota mechanism, with volumes allocated on a quarterly basis. This system creates uncertainty for our planning and forecasting. Where possible, we will try to optimize production schedules to reduce this risk associated with the quota mechanism and prioritize working capital management. As we said at the half-year results, we provided support for our dealers in China with the intention of positioning us strongly to enter 2026 from a low stock perspective. We continue to build more robust relationships and management across our supply chain, including proactively mitigating risks with some of our partners. We're taking immediate and ongoing action to reduce our cost base in order to deliver operational leverage. Simultaneously, we reviewed our future cycle plan to ensure we meet the needs of our customers as regulators and priorities shift. This resulted in a CapEx reduction of about GBP 300 million over the coming five years. 12 months ago, I communicated a strategy that built on the foundations laid by the industrial-scale turnaround undertaken by Lawrence Stroll and the team since 2020. This strategy seeks to turn this high-potential business into a high-performing one. Underpinning this strategy are our unique strengths, namely our iconic global brand, our uncompromising customer focus, the relentless pursuit of innovation and technical advancement, and the license to operate in the high-performance sector through our F1 association, which feeds into the exclusive, limited edition, high-margin specials. Finally, and most importantly, our highly skilled and capable and loyal workforce. Building on these unique strengths, we took proactive steps and advanced our transformation program in 2025, anchored around our six strategic focus areas. As we look ahead, we will continue to operate with a laser focus on these six areas, because they are the way to achieve our high performance and create value for our stakeholders and shareholders. Many of the achievements this year I've already referenced, I'd like to call out just a few more over the coming moments. As we seek to drive market demand, we've recently established a private office, which ensures our top 500 clients are assigned a primary Aston Martin contact, supported by head office VIP specialists with a dedicated 2026 events plan. This will be further supported by the opening of the Q London flagship in Berkeley Square later this year, adding to the ultra-luxury flagship store at New York and at the Peninsula in Tokyo. In terms of product creation, we were the first global automotive manufacturer to integrate Apple CarPlay Ultra into all of our models. Additionally, we're expanding our range of personalization, options, and bespoke Q offerings, giving our customers even more choice when it comes to curating their unique Aston Martin. Culture and change management is critical at a time when we are right-sizing the business to align with our future plans. To demonstrate that we're making changes throughout the organization, my executive committee a year ago, comprised of 11 members, and we will be nearly half that size by the end of this quarter in 2026. Our focus on quality has seen us make additional investments, which are delivering ongoing benefits. The Valhalla program has established a new benchmark for Aston for product launches, and our customer satisfaction scores have rocketed compared with the previous year across all new models. Whilst we are instilling a disciplined approach across our operations, it's important that we don't ignore other key factors, like the health and safety of our colleagues. This is of paramount importance, and I'm pleased to report that our reduced accident frequency rate in 2025 is another step change. Finally, cost optimization. As you know, this has been a constant theme throughout the 2025 period and will continue to be so in 2026. One of the benefits of having a more disciplined approach to our operations with a smoother production cadence is that we can deliver greater efficiency. As such, I expect us to drive operating leverage in 2026 that will support our improved financial performance and profitable growth. As we look ahead to the future, the key to success of this business will be the next generation of vehicles that we develop. We announced in October that a review was underway of our future product cycle plan, with the dual aim of optimizing capital investment whilst continuing to deliver innovative products that meet customer demands and regulatory requirements. We now have a clear roadmap that will ensure our product proposition builds on the strong foundations we have established over the past five years. For the remainder of this decade, we will initially focus on extending existing core model lines before the next full refresh commences. This is a capital-efficient approach and the best utilization of funds, whilst being able to offer new and exhilarating products that meet our customers' needs and beat the competition. The derivative approach of the past year is a great example of what to expect over the next three years. We will gradually start shifting from pure combustion engine powertrains to incorporating electrical assistance. That doesn't mean full electric, yet. That strategy will continue to be reviewed and subject to further communications. We don't believe our customers want that technology right now. We won't be pushed down that path by regulation either, due to the changes that have occurred. What it does mean is hybrid technology, alongside ever more efficient and compliant combustion engines, will be the core part of our business going forward. This will be complemented by our continued specials program, a fundamental part of our future financial and competitive success. As we look further into the following decade, that s when we plan to incrementally add all-electric drivetrains that will incorporate the latest innovative battery technology at a time when customer demand has likely shifted to be more closely aligned with regulatory requirements. I'm really excited by what we have to offer in the years to come. At the appropriate time, we'll provide more color on our thrilling and innovative future product lineup, which puts customers' requirements at the heart of everything that we do. For now, thank you, and I would like to hand over to Doug, who will take you through the financial detail. Douglas Lafferty: Thank you, Adrian. Good morning, all. Before we move into the Q&A, I'll take you through our financial performance for 2025, and our guidance for 2026 and onwards. Overall, our full year 2025 performance reflects, as we guided, fewer specials deliveries and the disciplined approach we took to operations as we navigated the heightened challenges and uncertainty in the global macroeconomic and geopolitical environments, particularly in relation to tariffs and the quota mechanism in the U.S. Looking at the detail on the slide, wholesale volumes were down 10% at 5,448. Retail volumes outpaced wholesales as we continued to maintain a disciplined approach to managing the balance between production and demand. As expected, Q4 was the strongest period in 2025, benefiting from our planned expansion of the core derivatives and the first 152 deliveries of Valhalla, supporting marginally positive free cash flow in the quarter. In terms of revenue, at GBP 1.26 billion, this reflected a 21% reduction compared to the prior year, largely as a result of the core volume decline and the guided fewer specials deliveries compared to 2024. Core ASP increased by 5% to GBP 185,000, benefiting from our expanded range of derivatives, while total ASP was broadly flat due to the mix of specials. Demand for unique product personalization continued to drive strong contribution to core revenue of 18%, broadly in line with the prior year period. As a result of the lower specials volumes, dealer support to reduce aged stock, increased warranty costs and other investments made in enhancing product quality, as well as the impact of tariffs in the US and China, adjusted EBIT decreased to a negative GBP 189 million, with depreciation amortization decreasing by 16% to GBP 297 million, also primarily driven by fewer specials. The split of our wholesales for 2025 is shown on the left-hand side of the slide. Core volumes for sport, GT, and SUV were down in line with the overall trend, whilst fewer specials were due to the timing of the Valhalla deliveries commencing only in Q4. As expected, Q4 wholesales increased sequentially, up 47% on the previous quarter, benefiting from both the expanded range of core models, including the DBX S, Vantage S, and Volante 60th Anniversary Limited editions, as well as initial Valhalla deliveries. As Adrian has mentioned, we expect to continue to realize the benefits of our full range of new core derivatives through 2026. On the right-hand side of the slide, total ASP decreased by 15%, again, reflecting the fewer specials deliveries and the mix compared to the prior year, while core ASP, as I've already mentioned, increased by 5%. On a constant currency basis, I would expect to see a similar improvement in core ASP in 2026, whilst total ASP will benefit from around 500 Valhallas we expect to deliver, as well as the Valkyrie LM editions. Overall, volumes remained similarly balanced across all regions in 2025, with the Americas and EMEA, excluding the U.K., collectively representing 63% of wholesales. This was despite the ongoing challenges related to the U.S. tariff implementation. In addition to the reasons previously outlined, the timing of various model transitions and deliveries across the regions impacted volumes compared to the prior year. The movements in volumes across EMEA and APAC were weaker due to market conditions and destocking activities. Despite tariff-related volatility in the U.S., volumes there and in the U.K. remained reasonably robust relative to overall group performance. While China is a market with long-term growth potential, demand there remained extremely subdued, in line with other luxury automotive peers, due to weak macroeconomic environment and changes to luxury car tariff effective from July 2025. We continued to support our China dealer network through 2025 to help position them well to benefit from our next generation core model range when the market conditions improve. As we turn to the next slide, the impact of fewer specials deliveries is reflected in the decline in gross margin year-over-year. The impact of core wholesales, despite a slight improvement in the mix from the next generation of derivatives, was also diluted to gross margin as a result of the previously communicated additional warranty costs, increased dealer support, and other investments made in product quality, which amounted to an increase on the prior year of around GBP 65 million. Additionally, gross margin was impacted by the U.S. tariff increases. Q4 2025 gross margin improved sequentially to 31% from 29%, supported by core volumes and specials, whilst ongoing warranty costs and dealer support to reduce aged stock still impacted the period. I'll come on to guidance shortly. We expect a material improvement in financial performance in 2026, including gross margin, benefiting from our ongoing transformation program and continued disciplined approach to operations, new core derivatives, and the enhanced contribution from Valhalla. We remain steadfast in targeting a minimum 40% gross margin for all of our new vehicles. Adjusted EBIT decreased year-on-year to a negative GBP 189 million, primarily reflecting the gross profit movement and foreign exchange, which were partially offset by a 16% decrease in both adjusted operating expenses, excluding D&A and adjusted D&A. The decrease in adjusted operating expenses aligns with our focus on optimizing the cost base as part of our ongoing transformation program, and to drive operating leverage through disciplined cost management from 2026 onwards. It also includes the previously announced GBP 11 million benefit from the revaluation uplift of the secondary warrant options associated with the disposal of the group's AMR GP investment. As shown on the right-hand side of the slide, net adjusted financing costs decreased to GBP 109 million from GBP 173 million, primarily due to a GBP 71 million year-on-year gain of non-cash US dollar debt revaluations, resulting from a weaker US dollar. Turning to free cash flow, the year-on-year outflow increased by GBP 18 million to GBP 410 million. This reflects both the decrease in cash inflow from operating activities and increased net cash interest paid of GBP 143 million, partially offset by the GBP 60 million reduction in capital expenditure. As expected, working capital improved year-on-year to an inflow of GBP 6 million, compared to the GBP 118 million outflow seen in 2024. The key drivers here being the deposit inflow relating to Valhalla, with deposits held increasing by GBP 3 million, compared with GBP 187 million outflow in the prior year period, in addition to a GBP 2 million increase in receivables, compared to a GBP 107 million decrease in 2024, following improved cash collections at the year end. Capital expenditure of GBP 341 million was below the comparative period, in line with the group's revised guidance, reflecting the initial benefits from the immediate actions announced by the group at Q3 2025, to reduce both cost and CapEx. As Adrian has mentioned, we have completed a review of the group's future product cycle plan, resulting in the five-year CapEx plan reducing from around GBP 2 billion to around GBP 1.7 billion. This is through a continued focus on utilizing existing platform architecture for internal combustion engine vehicles, in line with regulatory trends and customer demand. To finish with cash and debt, we ended the year with total liquidity of GBP 250 million, flat on Q3, given the strong performance in Q4 2025, and improved cash collections at the year end. Total liquidity reflects the GBP 410 million free cash outflow in the year, partially offset by the around GBP 106 million inflow of net proceeds following the completed sale of the AMR GP's shares, and the GBP 52.5 million investment from the Yew Tree Consortium. This has been further enhanced following our recent announcement of the proposed sale of the Aston Martin naming rights to AMR GP for a consideration of GBP 50 million. Net debt increased to GBP 1.38 billion, reflecting a decrease in the cash balance and increased drawing on the RCF. Combined with the decline in EBITDA year-on-year, this resulted in an adjusted net leverage ratio of 12.8 times. As we prepare to deliver the material improvement in 2026, and through disciplined strategic delivery and profitable growth in the future, we expect this ratio to materially improve over the coming years. Finally, and looking ahead, as Adrian has outlined, we expect to deliver a materially improved financial performance in 2026. As the indicative EBIT walk on the right-hand slide highlights, key to this improvement is our enhanced product mix, including the 500 Valhalla deliveries that we expect, and benefits from the ongoing transformation program and a disciplined approach to operations. We continue to acknowledge that the global macroeconomic and geopolitical environment impacting the wider automotive industry remains challenging. This includes the U.S. tariff and quota mechanism uncertainty, which Adrian has already mentioned. Taking this into consideration, we still expect to continue delivering year-on-year improved financial performance over the short to midterm, with a focus on margin expansion and cash flow generation, benefiting from the ongoing transformation program initiatives and an enhanced product mix from the future portfolio of both core and special models. You can see the group's detailed 2026 guidance on the left-hand side of the slide. What I would highlight is that we have planned carefully for 2026 to align production with retail demand and expect a much smoother delivery cadence from the second quarter onwards. This will support more efficient delivery of our plan, which, in addition to the ongoing benefits from our transformation program, will generate operating leverage. We expect the adjusted EBIT margin to materially improve towards breakeven. Free cash outflow is similarly expected to improve, and following the majority of the cash outflow occurring in Q1 2026, we expect a cumulative year-on-year improvement from Q2 onwards. As you would expect, we remain laser focused on cash optimization and liquidity management. Thank you. I'll now hand back over to the operator to open for the Q&A.[ id="-1" name="Operator" /> Our first question comes from Henning Cosman of Barclays. Henning Cosman: I have a few, but maybe start with three and get back in the queue afterwards. Maybe I can ask on inventory first. Perhaps for Adrian, if you could please comment on where the channel inventory stands now. I think you spoke to China and low stock at year-end in China specifically. If you could help us understand when you think wholesale and retail can start converging because you've reached a normalized stock level. In the context of that, the costs that you've had for support, mainly dealer support, in 2025, do you think they will be fully non-repeating in 2026? That is the first question. Second question, perhaps on free cash flow and liquidity, maybe more for Doug. I don't know, Doug, if you're prepared to comment on a target liquidity level by year-end 2026, or alternatively, on a ballpark free cash flow corridor that you have in mind. Could you confirm perhaps whether GBP 50 million to GBP 100 million negative free cash flow corridor is that a realistic ballpark? And do I understand you correctly, therefore, a substantially neutral free cash flow development starting with the second quarter of 2026? Finally, on free cash flow, would you entertain that you are targeting a positive free cash flow for 2027? Maybe just finally on volumes, back to maybe Adrian. Adrian, is there an updated volume target at all, perhaps for the core volume range? You re obviously guiding to sort of flattish volumes with higher specials, implying declining core volumes in 2026. Do you have an updated mid-term volume target in mind? What would be the key building blocks to get you there in terms of the things you can control outside of improvements in the macro? Adrian Hallmark: Okay. Thanks, Henning. I'll do both the kind of demand questions first, then we'll finish with Doug on free cash flow. I think as far as inventory is concerned, we are -- we hoped to have got the inventory fully balanced by the end of last year, as you know, there were a few disruptions during the year that knocked us off track. I won't go through those. We ended up where we did. We've been, again, quite ruthless in the first quarter and in the first half of this year, replanning. We are destocking further in quarter one. Most of the destocking that we need to do for the year will be done in quarter one, it's already fully on track, both from the January performance and what we're seeing in February. What does that mean? We've talked in the past about getting all models and all markets in balance. The aged stock profile is now radically improved compared with the beginning of 25 and even the end of 2025. By the end of Q1, we'll be into tens of units around the world, less than one per dealer, that is what we would define as aged, and that is more than six months since it was passed to sales. That includes shipping times as well, don't forget. It's not that they're really old, we just like to keep stock as fresh as possible. The aged stock profile is massively improved. The total stock by the end of March, in the major markets, will be balanced. From Q2, we should see retails matching wholesales. There's still a bit of overhang in China. The aged stock is now -- is fully under control, the total stock, almost under control, and that will be end of April, approximately, by the time we get corrected in China, too. Overall, in the next one to two months, we'll be in a really good position. In terms of ongoing cost, it's -- there \'s no question that the quarter four last year, to accelerate the sale of those older cars in all markets, we did double down. That cost will not be recurring. We'll revert back to normal levels of support on lease programs, et cetera, after the first quarter of this year. We are in that cleansing phase of the stock, and as we get into the second quarter and the second half of the year, we'll start to see that normalize. As far as volume is concerned, yeah, absolutely, as per the previous guidance, we don't see a path to 8,000 to 10,000 units a year. We -- sorry, in the near term. We've reset our expectations and then rightsized the business to meet that new business model structure. I won't give specific numbers, but the core models are selling 5,500, 6,000 a year, even in the current market conditions, with different levels of BM effort. We see that is a conservative and achievable level that we can continue with. The specials, depends on which year you look at, we should be in the 250 to 500 range with Valhalla, and then with other specials coming in over the next 3 years. One thing I would say is that the derivative strategy, and there's other questions being raised about that, so I'll answer some of them preemptively. The derivative strategy is all about an opportunity to relaunch each nameplate every year, to improve the product offer and quality and optionality each year, and to destock the previous models and continually shift the mix of cars so that we support residual values. The good news is that the order cover for those S derivatives is much, much higher than the residual stock, which shows that it's worked, and the dealers are positive about them. That's part of the strategy for derivatives. 5,500, 6,000 is the core business that we expect in the midterm, and the specials on top, with a significantly improved revenue per car and margin. With the cost structure measures that we've taken, the SG&A improvements that we've planned, we can see a way to that cash flow inflection and to profitable operations in the midterm. Douglas Lafferty: Okay, nice segue. Morning, everyone. Morning, Henning, and thanks for sticking with us through the technical challenges this morning. Henning, I guess probably somewhat unsurprisingly, I'm not going to put a number on the free cash outflow that we expect in 2025, but obviously, we have stated that we expect -- sorry, 2026, we do expect a material improvement versus last year. I think linked very closely to what Adrian has just been describing in terms of the flow for the year, we've said that we're going to see the majority of the burn or the outflow in the first quarter of this year, and then a stabilizing through Q2 to the end of the year, in sync with that stabilization and transformation in the operation. I fully expect us to have momentum as we exit 2026 into 2027. As we've also said today, from a short to midterm perspective, we do retain that focus on cash optimization, profitable growth, and the objective of getting the business into a form which generates its own cash as soon as possible. Sorry, I can't put any numbers on it or specific timing on it, but the sentiment and the message is still very much there, and the focus is on delivering exactly what I've just said. Henning Cosman: Especially the granularity on the remaining stock is very helpful. [ id="-1" name="Operator" /> And the next question comes from Christian Frenes from Goldman Sachs. Christian Frenes: Yes, I'll just kick off with deleveraging and free cash flow. You've talked about a material improvement in 2026 free cash flow. I think the CapEx is clear. You've also made comments on the top line. But in terms of the P&L improvement, can you comment a little bit on some of the key buckets that could drive the material free cash flow improvement? So for example, I think savings are talked about the nonrepeat of GBP 65 million is talked about. You alluded -- you commented just now on the dealer support. But if you could just walk us through some of those buckets and the cadence of that, including net working capital impact. And also if we should include any more assumptions on nonorganic deleveraging aside from the disposal of the Nemi rights? Maybe that's question number one. And then I'll ask question number two. Douglas Lafferty: Okay. There's a lot of questions in question number 1, Christian, but, good morning. Let me have a crack at that. Yeah, look, I think the margin build, in 2026, we tried to illustrate, I think, in the final slide of the deck. Obviously, that is going to be largely underpinned by the fact that we have, you know, a strong sort of specials volume returning back to the mix in 2026. With the 500 Valhallas versus the number of specials that we delivered last year, and obviously that comes with accretive margin, and that will flow through. Specials is a big chunk of that. Within core, you're right, we expect a stronger performance from the core perspective as well, because we don't expect to see a repeat of the full GBP 65 million of headwind that we suffered in 2025 on the things that we've already talked about, being the dealer support, obviously the investment that we've made in quality and the warranty costs. We'd expect, you know, to continue to invest in the quality of the products, of course, but not to the extent that we did it to last year, with things such as, you know, the big upgrade on thousands of cars on the software earlier in the year. Indeed, we'd expect some of those quality improvements to mean that the warranty costs start to come back down and normalize. We will be sort of lapping, those as we go through the year. With regards to working capital, I think, relatively stable throughout the course of the year. We're definitely not going to see some of those big swings that we've seen in the last couple of years when it comes to deposit, outflow. We think that'll be much more, sort of normalized and neutral during the course of this year. Then look, as regards to, the F1 IP deal, we're delighted to get that done. I think, you know, it's a good deal for us and a good deal for them. So GBP 50 million to sort of bolster liquidity to a certain extent as we go through the course of this year, but no further plans to announce at this point. Christian Frenes: And just to clarify on your response there. So we should expect the full GBP 65 million incremental savings next year. And should we add savings of GBP 40 million, I think, there on top of that? Douglas Lafferty: Well, we've guided to SG&A will be below GBP 300 million. That's how we guided SG&A this year. Don't forget that last year's SG&A benefited from an GBP 11 million uplift in the revaluation of the AMR warrants, which obviously won't repeat this year. So there's a couple of headwinds in SG&A, but we expect to remain below GBP 300 million. And on the GBP 65 million, as I said, we don't expect all of that to recur. In fact, I would expect the majority of it not to. But as Adrian said, we will still have a little bit of additional dealer support in Q1 before that sort of normalizes and there'll be ongoing incremental improvements in quality, but nothing like the extent to which we saw in 2025. Christian Frenes: Okay, that is clear. Thank you. My second question is just on the Valhalla average selling price. If you could just comment on your expectations for that going forward. Should it be the same as we saw in Q4, or any change? Also specifically with respect to the U.S. market, where you talked about an October price increase. I'm just curious also how that applies to the Valhalla. Also, associated with this, the Valkyrie Le Mans edition in Q4, could you just comment on how many units you actually shipped in Q4 and what the implication for 2026 is? Adrian Hallmark: First of all, on Valhalla pricing or Valhalla ASP, I think first of all, the retail base price of the car, we have listed from 1st of April in 2026. That will come into effect on the 1st of April '26 for orders thereafter. What we've seen on option uptake and specification of the first cars that have been delivered and are in the pipeline, is a significant uplift versus the base price. We expect the ASP to continue similar to quarter four as we get through this year. We've seen no fall off in the average value per car. That price increase should give us a little bit of a lift in the second half of the year or last quarter, because that is when it would be effective. You can assume pretty much consistent with what you've seen on Q4, with a slight upside. In terms of overall pricing -- sorry, in terms of the Le Mans cars, we delivered two cars physically. The rest of those cars will be delivered this year. [ id="-1" name="Operator" /> The next question comes from Michael Tyndall from HSBC. Michael Tyndall: A couple of questions, if I may. One for Doug. Doug, Q1, you've been pretty clear about what's going to happen on cash flow. You've got the GBP 50 million in from the F1 naming rights. That puts you, I guess, at about GBP 300 million gross cash. Where are we -- I mean, without asking you for a number on Q1, but I mean, will you stay within that comfortable GBP 200 million to GBP 300 million range that you've spoken to before? I'll come back with the second one. Douglas Lafferty: Okay. All right. Yes. Look, again, I'm not going to get into the specifics. I think we've been pretty clear on how we expect the shape of the year to be from a free cash flow perspective. For Q1, it's the majority of the burn. I'd like to think that we stay close to the range that we've talked about previously. So Q1 this year, we would expect to be an improvement on Q1 last year, but still the majority of the burn for this year. Michael Tyndall: Okay. And then the second question for Adrian. Just with regards to cyclicality, which I guess at least from where we sit, but I would imagine from where you sit, has been one of the burdens of the business, the cyclicality, which we are trying to kind of move out. I just -- I wonder a bit about why we've released all the specials broadly at the same time. Does that not exacerbate cyclicality? Is there a way that we can sort of start to space these things out? And is that in the plan? Adrian Hallmark: Okay. Thank you, Michael. It's a dilemma, isn't it? Because we wanted to get the specials in because we want to support the life cycle volumes. And yes, there is always a trade-off to make. I don't think that the specials -- sorry, the derivatives, will increase the cyclicality. Why is that the case? They're designed to do the exact opposite. If you just think about DBX, I'll give you one simple example. What we've now done is evacuated the production pipeline of pretty much all non-S derivatives of DBX S, DBX. Which means if you want a non-S version, you buy a stock car. If you want an S version, you'll wait three to six to nine months before you get one, depends on which market you re in. What that does is pre-loads a pipeline with sold orders and encourages the sale of the cars that are in stock or a deposit for a future car. Because we're doing them all at the same time, but they're all different, there's very few customers, I can't think of one that would come in and want a DBX, a DB12, and a Vantage all at the same time. They will be looking for one of those cars. They have the choice of a stock car, which is an older model, or a fresh car, which is a new model with a different price value proposition and a very different product proposition. We actually see it as a way of bolstering the future order cover and giving the customers a clear choice. When we get through the DBX S, for example, we'll be introducing another derivative for early next year. Again, we'll back off the S production in the plan, ramp up that new derivative, and people can still order an S, but it will be to order. We get back to that order bank situation. The whole idea of this, again, is to smooth out the actual order profile and to give the customer a clear choice. We know it works from other brands; we just haven t done it before. We are now. Michael Tyndall: Got it. Got it. One last one, if I can, just for Doug. It's around the agreement with Lucid. You talk in this statement around a GBP 73 million cash liability, which is due in 2026 or later. I'm just curious to know what determines whether it happens in 2026 or later. The comments you made, Adrian, about the future for electric, you know, and this minimum spend of GBP 177 million, how does that work if electric is getting pushed to the right? Is that commitment still there, or is it negotiable? Douglas Lafferty: Hi, Mike again. Yes, so let me take both of those in one sort of answer. You know, we made the initial payments to Lucid back in 2023 when we signed the agreement, I think obviously an awful lot has changed since 2023 with regards to, you know, the way the market sees the evolution to BEV and our transition. We've talked quite openly about the delays as we've gone through the last couple of years that we're expecting. We're in discussions with Lucid over, you know, the timing of those payments relative to when we now expect to start production. That is both with regards to the initial access fee payments and also the commitments on the volumes. It's all a discussion to when are we actually going to start production on a BEV. [ id="-1" name="Operator" /> The next question comes from Horst Schneider from Bank of America. Horst Schneider: Not many are left. The first one that I have is more on the details regarding the model mix in FY '25, but also in Q4 on the Range cars. Maybe you can provide more granularity on the split within sport cars, city cars. Here, the split between Vantage, DB12, and Vanquish. Regarding the outlook on model mix on the Range models in 2026, where do you expect overall, you expect these flat unit sales, flat wholesale, but within that and the Range models, where you expect the movements, what is going up, what is going down? In that context as well, you talked about this 5 months visibility order book. What is the order intake by models that you are seeing? Is there any highlight you would point out? The last one is, if you could give any insight into your residual value development, because I think that is a key metric, and we hardly have good insight into that. Any insight into that would be appreciated. Adrian Hallmark: Okay. Thanks, Horst. I'll start with -- going in reverse if I may, I'll start with residual values. I think the key message, as most of you will be aware, is that if we -- when we get supply and demand in balance, and when we get the derivatives launched and the pull from the market for those derivatives, our residuals will improve further. We've already done a lot of work in 2025 on residual values. I'll give you some examples. If you go back a year and a half, we were 5-10 points below the competition, as I say, a three-year period on leasing in the major markets on RVs. We're now much, much closer. I'll give you an example of Vantage without going through every single model in every market. Specifically Vantage, Vanquish as well, are incredible in terms of the way that they've been set. We are absolutely on par with the strategic competition. The key to supporting residuals is making sure that we don't oversupply. Whilst we've had excess stocks, oversupply is inevitable. As we get through quarter 2 and quarter 3 this year, I already mentioned earlier, this will balance out. Together with those strong, third-party residuals offered on core models, we're heading in the right direction. I still think it's going to take another 3 to 9 months to properly stabilize all of the above, but we're good on track. Vanquish and Vantage are already strong. DBX -- sorry, DB12, just behind them. It's DBX where we need to do the work. In the meantime, we subvent, marginally, those cars to make sure that they're competitive on the leasing rate. In terms of model-by-model description of order bank, we won't do that. To give you an indication, the S models are well over 50% order cover. The rest of it, we've got about a five-month order bank on average, but the Ss are way stronger than the non-Ss. Valhalla, of course, is about nine months. If I look across the spectrum, it is improving. As we balance supply and demand, it will naturally improve even further. That s all the foundation for residual value improvements as we move forward. Douglas Lafferty: Try and pick it up a little bit without going into, you know, vast details. Just try and give you a couple of soundbites. If I look at last year, you know, it was relatively stable from a mixed point of view through the year. For that, Q4 was a little heavier on DBX, on the SUV, because of the launch of the S. Obviously Q4 benefited, obviously, from the strong mix of specials with 152 Valhalla deliveries. As we, as we go into this year, I mean, there's not really too much to highlight. It's relatively smooth, I would say. Q1, probably a little bit light on the SUV mix. We've said today that we expect up to 100 of the Valhallas to be delivered in Q1, so they'll be sort of reweighted Q2 to Q4, a little heavier. Other than that, it's just the ebbs and flows of when the derivative launches come, so nothing particularly special to remark on. Horst Schneider: Okay. But in summary, I think the DBX is most critical model, right? So that's maybe where some weakness is. I think it's just the segment, the market, right? It's not the product. Adrian Hallmark: Yes. I think -- well, if you look at the results of all the road tests that have been done on DBX S, it's incredible. I mean, a car that s been in the market a couple of years with some really solid technical improvements to create S, and some visual ones, has beaten Urus and Purosangue repeatedly now in different markets in road tests. The product substance and performance is tremendous. There is a sectoral issue. I mean, you'll probably know, most brands are seeing a shift in 2025 and 2026 compared with, say, '23 or early '24. The market has definitely changed. That said, if you look at the outlook, the macroeconomic rather than the geopolitical, the outlook going forward is, say, mildly positive. It depends which market you look at. We don't expect a deterioration. We expect stability or slight improvements in conditions as we get through the year. We're well placed with those derivatives to take full advantage of any upside that occurs. [ id="-1" name="Operator" /> The next question comes from Philippe Houchois from Jefferies. Philippe Houchois: I've got 2 questions. The first one may be for Doug. is on the 40% gross margin. You reiterated it in your speech, that clears one hurdle. I'm trying to understand, with 29%, if I give you the benefit of the warranty span, we get to 35%, who is above 40%? It almost looks like from the outside that Valhalla could be diluted. Could you confirm that Valhalla gross margin is above group average, or is it below? If it is below, what gets it above? What are the hurdles to really get to 40%? The initial guidance was that it's going to be, you know, valid for all the vehicles range as well as specials. If you can help me navigate that'll be very helpful. Douglas Lafferty: Well, I can certainly confirm that Valhalla is accretive to the overall group margin, you know, significantly above the 40%. As I said earlier, the 40% remains the target on all new vehicles we're bringing to the market. I think, you know, we'll see an improvement in the margin for some of the reasons that we outlined earlier in terms of lapping some of the costs and investments that we made during the course of last year, and also as we continue to stabilize the operations. You know, we can see the path to the high thirties for this year, which is still the plan. The target still remains to get every car at 40% or above as we move forward. Obviously, complemented by both the Valhalla being materially above that sort of margin level, but also, you know, a continuation, and I think this is an important point, a continuation of other special models that we will bring to the market that are out there today unannounced, that I think is important from a financial point of view, that you understand that program will continue. Cars like, you know, the Valour and the Valiant and the DBR22 that we've done in the past will continue as part of our cycle plan in the future. And obviously be accretive to margin on the go forward. Philippe Houchois: Yes. And we can assume those are effectively the most accretive because they leverage a Range car into a special. Is that a fair assumption? Douglas Lafferty: I think we've talked about that in the past where we've looked at, yes, like the Valiant and the Valour, certainly in the era of the Valkyrie, those costs were materially more accretive to margin than the Valkyrie, yes. Philippe Houchois: Right. And can I get another question on -- I'm a bit confused right now between what we hear from you today. And by the way, a good presentation. I think you've reassured us in many ways. But then I guess stuff from the press, which is not part of your communication. We hear about 20% staff reduction, GBP 40 million savings. I don't see that in the release. Are you validating those numbers we get separately from you? Or what's going on? Where is the mismatch between what you're telling us and what the press is basically talking about right now? Adrian Hallmark: Yes, I'll jump in. Adrian here. We have talked about that openly. That's not speculation. It's actually in the release. So the part of the SG&A push that we can't solve our right sizing or resolve our right-sizing needs purely through headcount, but it is an important part of the overall picture. We have said that we will -- there's already a process underway. We're in consultation. We will reduce the total people costs by circa 20%. It doesn't necessarily mean a direct 20% reduction in absolute headcount numbers, because of the mix of people, and we also account in that headcount cost for some contract and kind of contracted services resource. That is in the plan. It is part of that SG&A restructuring approach. It's not the biggest lever, but it's an important one in order to get us lean and effective for the future. Douglas Lafferty: Let me just specifically pointing to where it is in the release on Page 4 paragraph. So it's all in there, and I guess just an indication of how other people pick up the news and what's important to them in terms of the story. [ id="-1" name="Operator" /> The next question comes from Nikolai Kemp from Deutsche Bank. Nicolai Kempf: Well done on the 152 Valhallas delivered in Q4. And that's also my first question. The 500 you target this year, is that production driven? Or do you have clients backing all these 500 units? And my second one, just to get some color on the cash out in Q1. Do you have any magnitude how big that could be? Adrian Hallmark: I'll start with Valhalla. We have -- first of all, we have a good order bank for Valhalla, which takes us through almost to the end of this year for delivery. We still have some to sell, but it's quite low numbers. So the build rate and the shipment rate in the next 6 to 8 months is more related to production capacity. This is a very complex car. It was a ground-up development, and we plan for certain capacities in our supply base, which are very difficult to increase. So we're pretty much fixed at the rate that we're currently at, plus or minus a car a week, something of that order of magnitude. So no major opportunity to do it quicker. We could always go slower, but no opportunity to go quicker. So that's the situation with Valhalla. Douglas Lafferty: Yes. And then on the second one, I think, referenced earlier. So obviously, we've been quite clear that Q1 is going to be the biggest outflow. I don't expect it to be worse than the first quarter of... [ id="-1" name="Operator" /> This concludes today's Q&A session. So I'll hand the call back to Adrian and Doug for any closing comments. Adrian Hallmark: I'd just like to thank again, everybody, for participating in the call today and apologize profusely for the technical issues that we had at the beginning. It may be bad for you, but we had to listen to ourselves twice, which was a great start to a Wednesday morning. So thanks for your time, everybody. Douglas Lafferty: Thanks, everybody. Speak soon. [ id="-1" name="Operator" /> This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
Jean Poitou: Good morning, and welcome. Thank you for joining us for this presentation of the 2025 annual results. I have been the new CEO since last September. My name is Jean-Laurent Poitou. I met some of you already. So not just the 2025 annual results, but also in line with what we announced on 22 January when we presented our Horizon strategy for the next few years. We'll tell you about the outlook. I will not reiterate what was said then, but we are -- we'll be looking at the implications of Horizons for 2026. I have next to me Olivier Champourlier, our CFO, who will give you details about the numbers. So the key figures for 2025. EUR 2.525 billion in revenue. That's an organic growth of 0.6%. Now that's less than the ambition that we have for future years. Nonetheless, the profitability is in line with what we announced for 2025 since we have 12.8% in operating margin before accounting for the dilutive effects of operations conducted in 2025, particularly the acquisition of the BVA Family and infas. Now then growth is less than hoped for. However, with a tight budget policy in the 50 operations, we were able to observe the necessary discipline to stay in line with our expectations for future years. So a few words about what we announced back in September and now the numbers as they have come out in the press release. In the EMEA region, that's about half of our revenue, organic growth stood at 2%. Now it was 5.5% in 2025 compared to 2024. So there's a continuing momentum on the EMEA region. Now if you look at the various businesses or the various markets or the audiences for the private sector, consumers, customers, patients, physicians. We find that organic growth stands at 2.1%. And so we emphasize this because on the citizens part, then there is Ipsos' activity with the public sector decision-makers, and that has a significant weight on growth. Our business there in the private sector has pursued this momentum with a 2% growth. And so in those areas where the automated services are most used by customers, we still enjoy good growth, including in those areas where services are automated, and that is particularly visible for the Ipsos digital platform. That's a platform that enables our customers either directly or with the help of our teams to conduct their surveys using that platform with the questionnaires, enabling them to have access to our human response through our panels and having an automatic rendition of the results on the platform, organic growth 27%, about 30% since the beginning. And since this is an automated platform that generates profitability twice as high as the group's average, and that is very promising indeed because in a world where technology, automation, artificial intelligence make it possible to conduct a significant amount of research using these solutions such as Ipsos Digital. This is very promising indeed, even if we can still do better. And then, of course, we're returning to significant acquisitions, the BVA Family and infas, so we are in France, or businesses in Italy -- so that business is growing. And also PRS IN VIVO, you may remember, this is assessing packaging. With PRS IN VIVO, we have a significant presence in a number of big markets, including the United States. And so infas, which enables us to have a reinforced presence in Germany and the public sector. Now the public sector, public affairs, now this weighs heavily on growth, several hundred million, but this is negative growth this year, minus 8%. So we're talking about EUR 30 million decline compared to last year, nonetheless. Public affairs is a major strategic asset for Ipsos. We reaffirmed this at Capital Markets Day for a simple reason. With our better understanding of citizens, we have items of background that produce and justify our -- well, not just the recommendations, the insights in line with responses we get from respondents as consumers, our patients, but also taking on board their own background, their opinions. And that, of course, enhances the quality of our surveys. But then this is a resilient business, and that's, of course, the unfortunate side of the -- well, the cyclical dimension of public affairs. This was hit, as you can well imagine, by complex and challenging political situations in our big markets in the U.S., in France, but also in Australia, New Zealand, India. And of course, budget situations and the shutdown in the U.S. certainly didn't help. So significant ups and downs. But in some cases, this business can be countercyclical. And that is, of course, one of the reasons why we keep the business. And then we didn't make the most of that growth potential. Our presence in many countries, a global presence really when you've conducted surveys on major public policies, transportation, health or whatnot, we can inform decision-makers in other countries. And so we can leverage that. Our presence in public affairs in many countries should enable us to relaunch that business. And of course, I didn't want to spend the whole time discussing public affairs. But even though the performance in -- was a bit disappointing. But without further ado, I'll give the floor to Olivier Champourlier, our CFO, who will give you details about the figures for 2025. Olivier. Olivier Champourlier: Good morning, ladies and gentlemen. So as Jean-Laurent pointed out, total revenue for the year 2025 stood at EUR 2.525 billion. Total growth, 3.4%. You have organic growth, 0.6%, scope effects 5.8%, and that is essentially related to the acquisitions, the BVA Family and infas, but also negative currency effects of minus 3%. And that, of course, weighed down on revenue. And that is a consequence of euro's performance vis-a-vis the U.S. dollar and other currencies. Looking at regions, EMEA growth stood at 12%. This is significant growth with a positive impact from acquisitions because the main acquisitions from the previous year, infas and BVA were in Europe, infas in Germany, BVA Family in France, Italy and Britain. Within the EMEA region, organic growth stood at 2%. And that, of course, is a good performance after -- well, in 2025, the growth stood at 5.5%. So within that region, there are several movements. Continental Europe enjoyed a significant growth, upwards of 2% in Germany, in Spain stood at 6%, Belgium 3%. And Eastern Europe, upwards of 10% and driven -- that was driven by Turkey. Same region, you have the Middle East, and this is enjoying dynamic growth, 8%. Nonetheless, it should be pointed out that you have one country with negative growth, and that's France. France suffered a 3% decline. That was mostly due to lower orders from the public sector if you -- and that is, of course, related to fiscal conditions, political uncertainty. But without that, had it not been for that, then we would have had some growth in France. Americas, 0.3% total growth, minus 3.4%. The difference between the 2 is negative FX with the depreciation of the U.S. dollar vis-a-vis the euro. So you have Latin America with sustained growth plus 5%. North America, by contrast, had a slight decline, minus 0.14%. That business in the U.S. was penalized because there was less public affairs business. And as Jean-Laurent pointed out, the shutdown in the U.S. and fiscal budget restrictions had a negative impact and the revenue was down 15% in the U.S. but restated for that, in North America, growth would have been 2%. Some businesses are resilient in the service lines, and that's consumer goods -- on the consumers market. That did well last year. Finally, you have Asia Pacific. You have 2 subregions there. China, of course, is the largest country, the biggest country in that region, and their growth was stable last year. And that in itself is pretty satisfactory in what is actual a challenging and indeed shrinking market. And for the rest of the region, growth was negative, minus 4%. That's Asia Pacific, not including Mainland China, minus 4%, and that was impacted by less business in public affairs in Australia and New Zealand, but also India. There was, of course, a host of elections in 2024. Now if you look at revenue by audience, we have service lines for consumers and clients and employees with a similar growth, 2.1%. That includes mostly understanding the markets and brands, the significance of the advertising market and what are known as mystery customers. Citizens, that includes public affairs then and what we call corporate and corporate reputation, and that had negative growth -- organic growth, minus 8%. The main markets were the U.S. and France that suffered, as Jean-Laurent indicated in an uncertain political environment, the shutdown in the U.S. and fiscal restrictions in a number of states. But a source of satisfaction is the business on doctors and patients that had positive organic growth, 2.4% compared with minus 3% last year. And so we have resumed growth there. That's mostly to do with innovation in oncology, rare diseases and studies on GLP, which concerns the treatment of type 2 diabetes and obesity. That these were growth factors for us. Business on the digital platform also enjoyed significant growth, 27%, but that platform enables us to deliver studies -- service for consumers, and that is the first line on this table. Restating for services to citizens, so the minus 8%. On the private sector, growth was 2.1% and you have to emphasize this, our business with private players remains very satisfactory indeed. Now looking at the income statement, revenue enjoyed 3.4% growth. Gross margin was up 2% so not quite as fast as the growth of revenue. The ratio stood at 68.7%, down 90 basis points compared to last year. Now how do you account for that? There are 2 effects. You have scope effects, and that is the acquisition of BVA and infas. And so this had an impact gross margin to the tune of 60 basis points. Infas is a public affairs business and so not using online platforms. And so the margin there is lower than the group's average. And so that was to be expected. And so no surprises there. At constant scope, we have a decline of 30 basis points decline in gross margin. That's because we have a high cost of data collection. That trend is only temporary. And for the year 2026, we expect -- in fact, we expect that margin rate to improve in line with previous years. Below that, you have the wage bill and SG&A. These were up -- well, because of the acquisitions mostly, but restating for that, that is acquisitions. The wage bill remained stable. So we were able to adjust our cost structure to the scope of our business. And regarding SG&A, that remained stable as well. There are 2 factors there. We kept investing in technology and information technology. So that's a significant increase, but then we were able to offset that with the savings on other items, SG&A items, mostly on offices on rents. There, the tax -- income tax rate was 25% in line with the rate for 2024. The operating ratio is 12.8% compared to 13.1%. It's on a constant ratio -- constant scope, it was 12.3%. So that is because of the acquisitions, but this is in a situation we are trying to keep costs under control. Net profit attributable to the group stood at EUR 240 million. You have -- the earnings per share adjusted is EUR 5.5 per share then. Regarding cash flow, gross operating cash flow stood at EUR 410 million compared to EUR 430 million last year, and that is, of course, in line with the lower operating margin. Regarding change in WCR, that was negative to the tune of about EUR 30 million, and that is for 2 reasons, higher business because the business grew 3.2% in Q4 2024. And also, we had provisions for the bonuses for variable compensation, and that was down compared to last year, and that is the disbursement that will occur in H2 2026. The intangible assets, and that's the CapEx standing at EUR 78 million, up EUR 78 million -- sorry, EUR 78 million, up EUR 9 million compared to 2024. And that is in line with what we told the market. We keep investing in strategic solutions, platforms, panels and generative AI, sorry. Free cash flow stood at EUR 181 million to be compared with an average of about EUR 200 million. So free cash flow is more or less in line, at least close to the average performance of the last 4 years. If you look at below that line on free cash flow, you have acquisitions and financial investments for the year, EUR 178 million, and that is, of course, the acquisitions, the BVA Family and infas again. We bought back some shares to deliver free shares to our employees to the tune of EUR 14 million. Then there was dividends paid about EUR 80 million. And regarding financing operations, there's an increase in that, about EUR 100 million. And that's -- you have 2 operations there. We issued a bond of EUR 400 million in January 2025. And in June of the same year, we paid back the previous bond, EUR 300 million. So the net effect is EUR 100 million. And then finally, let me conclude with the financial position, the group's financial position. It's an outstanding situation. The balance sheet is sound. Net debt stand at EUR 219 million compared to EUR 57 million last year, but that's because of the acquisitions. The debt-to-EBITDA ratio remains sound at 0.5x EBITDA so above -- way above last year, but that's because of the acquisitions. But regarding gross debt, it stands at EUR 525 million because of the refinancing of the bond, we don't have any short-term deadline. The next one is 2030. And we have undrawn credit lines above EUR 400 million. And so we have, of course, plenty of cash available. Thank you for your attention. And now I'll give the floor back to Jean-Laurent, who will give you a more detailed analysis of our business. Jean Poitou: Thank you, Olivier. So we've discussed 2025. 22nd of January, we discussed the future 2 time Horizons, '26, '28 and the longer out to 2030. We're going to briefly return to that to focus on what it entails both in terms of intervention and actions on our activity in terms of numbers for the current year. Our priority is a return to organic growth by continuing to maintain current margin levels and our prime obsession is that of stronger organic growth than the 0.6% that we've just mentioned. We're in a dynamic industry. So we're continuing to see our clients and the example of our change in our activity, excluding public affairs, continues to demonstrate that in 2025, our clients require ever more capacity to predict, to compare information from several source to inform their decisions, investment -- new products, advertising, new packaging, new points of sale, either physical or digital. So we're in a market that will continue to drive our growth. And for that, we've taken 6 strategic choices that I'll return to briefly. It was a subject of a longer intervention, January 22 that I'll recall here. Firstly, we've decided to retain all the activities that we can cross all our 70 activities and 16 service lines, giving us a clear understanding of the people that we pull and then we provide data on the basis of the surveys to our clients. Secondly, our global footprint because it allows us to take global mandates from key accounts for Ipsos, but also allows us in each and every market to have the insights of that market to know how we pull people in villages, in towns in Peru, how we pull people online in the United States. They're very specific to each market. So our global footprint guarantees the quality of our access to respondents and also the ability to deploy solutions globally. Third, conviction, third belief, we must move ever fast in supplying answers to our clients at a time where we can with a well-crafted prompt, have a first version of a storyboard or an image for an ad campaign. It's -- there's obviously no question of waiting for weeks to know what will be the impact, the possible score of a particular storyboard or image. Fourth convention to do that, we must leverage technology and AI. Ipsos started years back to invest in contemporaneous tech and AI, but it must transform the way we work to achieve this priority of speed. I mentioned respondents and how our local as well as our global criteria was a criteria for access. Human respondents are the basis on which we can then recalibrate synthetic data, human respondent through the millions of people we can pull each and every day of quality and relevance for our clients will obviously continue to improve to invest in our panels to continue to bring in-house our ability to pull people on a regular basis and therefore, grow our proprietary panels. Sixthly, our activity remains centered on data information to our clients, but we must improve our position on value-added services, predictively analyze data, integrate data from varying sources that our clients can get either from social media, their own tools, CRM or surveys we supply them or surveys supplied by other marketplace. So these strict 6 strategic choices are key. But what's important is execution. In 2026, the first thing is to implement in terms of technical solutions of the systems and operating models that we're currently developing to have globally managed services that are managed consistently with the same methods, the same price ranges, the same technology, the same way of processing and retrieving the information wherever we operate. Identification, we have 6 heads of 6 globally managed services, 6 out of 70 is a small proportion, might you say, but in fact, that's several hundred million euros. These are well-established services where these GMS heads throughout the world will be responsible for driving growth and profitability of those services with local teams, not a matter of doing it fully centralized way, consistent with our approach, combining global presence and local relevance with the tools and we invest, and that's where we focus our investment on new tech AI-based solutions so as to recover it to the full DRI that only a uniform approach allies. We invest in the same platform across the board and develop it and deploy it consistently. We managed and leverage the ROI, making the first 6 of these GMSs globally managed services. First 6, once we have an operating model combining centralized management of the service and local rollout, we'll continue. It's but a beginning, we'll have others over and above the 70s. We'll extend it to other products that can be deployed across the world with a more centralized model. Secondly, we must continue to accelerate the rollout of digital and the use of -- by our clients, EUR 140 million, a platform that has a profitability higher than double that of Ipsos growing 40%, but we must do far more. When we look at our regions, the use of Ipsos digital is broadly dissimilar. So we're going to strengthen usage where we consider. We're not maximizing market opportunities with the platform. We'll continue to enrich the solutions based on this platform, allow us to treat specific services, focus groups, quality, brand insights and surveys, a set of solutions simpler and easier, essentials on the digital platform, allowing our clients to access services that they wouldn't be able to access without. And lastly, we'll open Ipsos Digital to new audiences. Concretely today, a client who conducts a survey with our help or directly on Ipsos Digital has access to our panel. We'll be able to connect other sets of respondents, the data of our clients, respondents who are not just consumers, but business leaders to supply trends on B2B or doctors and patients. So we'll open this up through the APIs. Access to panels other than those currently available today on Ipsos Digital, we believe that the accelerating growth of Ipsos Digital is a priority within our reach this year. Thirdly, around commercial efficiency. Today, we have a growth that is lower than that we're seeking. Obviously, we're going to go all out on empowering all leaders, the business leaders of the main countries of the business lines in our major markets so that each can have 1, 2, 3 clients with costed explicit targets to which is linked their annual performance. We're going to increase empowerment on commercial efficiency. And then there are a number of large contracts, more efficient platforms, greater in-housing, we must be even more competitive on these major contracts. We're also going flat out on what we have to retain that in terms of renewals to leverage the contracts that we don't currently own. So commercial activity on those major contracts. And then with the economic equation of having a local development team for the smaller accounts, we will bolster our activity, continuing to conquer new logos with business development teams where that is justified. So with that, we should rely on our heightened commercial efficiency to drive organic growth. But none of that is possible without the strengthening, as I mentioned, of our tech capabilities and to leverage opportunities open to us with AI. So we strengthened our management team with the appointment of Nathan Brumby as Chief Platforms and Technology Officer of Ipsos in charge of all our tech developments and solutions of data processing and AI with 2 simple priorities. On the one hand, continue to ensure that all tools where we've already invested major differentiating factor for Ipsos some more widely used where they can be. It's not the case currently today. And secondly, by investing in solutions, which for the service lines are AI-based solutions to reach our speed target to automate far more than is the case today. Our production chains speed because we said that tech should allow us on our production chain to accelerate and ensure, as we said at the CMD, responses provided real time for others, less than 48 hours. It's an upheaval. It's a radical shift in the way we work and the tools that we use. Obviously, it's not going to have at the drop of a hat. This is going to be -- it started in 2026. It won't add in '26. It needs to be broken down service focus where the speed factor is key for our clients, where our automation capacity must be leveraged rapidly. And so we've broken down and separated this speed requirement over several years by leveraging our platforms, reinventing our production chain with agents that can automate tasks done by our teams and by rethinking the way we work around many of our major services. For that, of course, we're capitalizing on the strengths that remain, our people, clients and innovation. I've been in professional services for some 10 years. We have teams that measure the employee engagement rate, do that for the clients, sometimes for us. 76% engagement rate is far higher than the average engagement rate that we're seeing at 72%. That's a benchmark. We have people who have a passion for what they do. They're committed. And then we have loyal clients over all clients spending at least EUR 1 billion so that we supply insight data production services. There's one in 100 who leaves us every year. So we have a churn rate of our client base that's very low. Lastly, innovation. [ GRIT ], an organization that looks at the various market player point named Ipsos, the most innovative company in the sector. We see this importance of innovation at this turning point of market surveys. It's absolutely critical to have this competitive edge brought to us by innovation on playing to these strengths, we're reaffirming our ambition to make Ipsos the world leader on actionable insights in which our clients take major decisions, product innovation, advertising, commercial rollout with a high impact and AI-based. What does that lead to in terms of the number? These are the targets in our CMD average growth '26 to '28 between 3% to 4%, accelerating in the out years, '29 to '30 to exceed 5%, operating margin of 13.5% in 2028 that must exceed 14% in the following period. Free cash flow cumulative over those -- over the order of EUR 1.4 billion, coupled with our low leverage that Olivier mentioned, our capacity to mobilize debt. If we need to invest primarily on acquisitions, many on solutions and tech accelerators, but also on our panels and acquisitions closer to Ipsos, EUR 1.2 billion that we plan to mobilize over 5 years. In 2026, our organic growth outlook is in the range of 2% to 3%. So we're embarking on this trajectory that will lead us to an average organic growth between 2% and 3% over the next 3 years. Operating margin of the order of that achieved in 2025. Turning now to the other commitment made at the CMD, an increased return to shareholder of 40% to 50% shareholder return of adjusted diluted EPS. This return will comprise 2 parts: one, an increase of our dividend per share, EPS adjusted diluted at EUR 2. But in addition, we consider that we have the ability without changing the trajectory that I've just mentioned, investing in acquisitions and in our tech and panel to have a share buyback program cancellation, which will be submitted to the AGM in May of EUR 100 million in 2026. So those are the main outlook points that I wish to share with you before opening up for Q&A with 2 items on our agenda, 16th April for the Q1 results and May 20 for our Annual Shareholders' Meeting. Thank you for your attention. We'll now take your questions. Operator: Question number one. Emmanuel. Emmanuel Matot: Good morning, gentlemen. My name is Emmanuel Matot of ODDO BHF. I have several questions. Regarding your target for organic growth for 2026, we note a significant acceleration to 3% compared to 0.6% in 2025. Do you believe that this will be for all audiences, all types of audiences? Or are you looking mostly at the Citizens business, which should go back to normal, having suffered an 8% decline in 2025. So are we looking at a year where -- with a sort of steady growth from H1 to H2? Or do you expect H2 to be significantly higher than H1? That's regarding the momentum on revenue. Second question about moving parts and the operating margin expected in 2026. Are you looking at something stable at 12.3%? I expect that is to do with organic growth in revenue, this gross margin where you want an improvement in margin and yet the data collection cost went up in H2 2025. And so was that only temporary? And then I imagine that the acquisitions -- well, they are useful, but they themselves should improve their own performances. And then I was a bit surprised by this share buyback program, EUR 100 million. It's about 7% for the shareholder. What prompted that decision? Unknown Executive: Well, we'll take the question about organic growth. And where is this to occur mostly? Well, we have a strategic plan where we propose to invest in what are known as Globally Managed Services. And so these are businesses to do with the first line of business, namely consumers. And so we expect growth there to accelerate because we've been investing in GMS specifically on that line -- on that business line. On public affairs, we were at minus 8% in 2025, and we certainly hope -- expect the situation to improve. Having said that, that was low ebb at minus 8%. So we are looking at a resumption of growth, at least a better performance in public affairs and stepping up business in the other business lines. Regarding the operating margin, we said it would be higher, well, equivalent to that of 2025. And so 2025, we published a margin of 12.3%. So it should stand at about that. There, again, various factors involved. There were acquisitions and they had dilutive effects in 2025, but the dilutive effects should peter out in 2026 and indeed -- and they should dwindle away in 2027. But we will keep investing. So there will be capital expenditure there. That's, of course, regarding technology acquisitions. And then there will be -- we expect some productivity gains because we will be managing our panels and other instruments to make our tools more productive. Regarding gross margin, historically, well, gross margin has grown over time. This year, of course, it was down because of acquisitions, but there are 2 types of acquisitions. You had infas. Infas is mostly a public affairs business, and there's not much to be gained from synergies. But the BVA Family is a more traditional line of business covering all areas. And so there, we do expect synergies. Indeed, with the BVA Family, we started merging our teams, and we are proposing new solutions and the teams from BVA are joining our organization there. And so we expect gross margin and operating margin in these businesses to be in line with the profitability of the rest of the group by 2027. Regarding the share buyback program, well, if you look at the present share price, this was a good opportunity. But also, we believe that the share price does not reflect the actual value of the company in terms of growth, profitability, the debt ratio and all these factors are not fully reflected in the share price. And indeed, we -- even though organic growth was slightly less than our expectations, we still have a good performance. And so when the share price is low, this is a good time to buy back a significant amount of shares to be canceled. And indeed, that will be proposed to the AGM later this year. On revenue seasonality, what are the expectations for 2026? Well, look, we are engaging in an in-depth transformation of our business, new tools, new ways of working, commercial effectiveness and such like. So we are looking at a 3-year horizon. We cannot break down this. We cannot look at this on a quarterly basis. Unknown Analyst: My name is [indiscernible]. I had 2 questions, a technical question first on digital data, digital twins, new players that are banking on the fact that the digital twins may well replace panelists in the long run. Do you -- are you using that at all? I mean that's the question. And then in view of productivity gains, thanks to AI, Ipsos Digital is growing pretty fast. Why aren't you banking on much higher growth in margin? I mean, you could be more ambitious than that surely. Unknown Executive: Regarding virtual data, we don't want to get into the detail of that, but we have 2 strong beliefs. Number one, of course, AI in general, makes it possible to generate virtual twins or equivalents of individual data collected from actual respondents. So if you have a digital twin of the population, say, patients of that category, all you need to do is ask the question and you get the right answer and you don't need to go out and actually send questions to real people with phone calls or surveys and such like. But that's the theory. Well, one thing, though, is these things are changing slowly but surely. But of course, the actual people change as well. We need to recalibrate things. Some responses will need to be adjusted. And well, you have audiences that are more difficult to access. So we can use virtual twins instead, but we have to control for all that. But at the end of the day, we want precise information because if you launch a new product and the virtual respondent is left behind actual development, well, then our customers is spending money in the wrong place. So we can do this, but we have to rely on actual respondents. We have academic partnerships who are working on that, but cautiously. Regarding the impact on profitability, if you look at 2026, we will be rolling out some of the solutions we have been investing in, but we will need to keep investing to grow these solutions with -- to have differentiated solutions using AI with a broader and broader spectrum of services. So profitability is because, of course, some services such as Ipsos Digital are automated, so profitability increases, but we still need to invest in panels and in other technical solutions. So we are looking at growing margin, and we expect it to grow all the way to 2030. Nonetheless, we have to remain at the forefront of innovation. Eric Blain: Eric Blain from Finance Connect. About the profit margin, you say that the platform has generated 30% growth. What's the revenue of the platform? EUR 640 million. And so with a good profit margin. So that certainly drives the group's margin up, doesn't it? You said that there was dilution effects that these should be -- that would be petering out next year. And so the gross margin at the end should improve, but capital expenditure is remaining stable. So surely, given that, you should do better than last year, not the same as last year. And the second question about EUR 100 million worth of share buyback. Why is this? And if the price -- the share price goes down in spite of that buyback program, will you delist it? And if you look at the profit margin by geographical area, very much like the previous presentations where you had some granularity on margin by territory. Could we have some color on that? Unknown Executive: Well, on question number one, the operating margin in 2026. And that is a bit like the previous question. You have to keep in mind that we are looking here at a trend over 3 years. We have a strategic plan, and we are looking at operating margin of about 13.5% by 2028 and 14% for the years after that. So as early as this year, we have been -- there will be capital expenditure with new solutions, and we do expect this to bring fruition later on. Right now, we are rolling out the plan. Some tools are available. Others will arrive in H2, but we have to be realistic here. These new assets will bear fruition later on, maybe by 2027. So for the time being, we simply would like to confirm that, well, we're pretty confident, at least we expect to keep operating margin the same level as 2025. On the matter of profitability because you are referring to capital expenditure, that increased significantly in 2025 compared to 2024, 18%, up EUR 80 million. So we're looking at growth through innovation here. And so we need to keep investing. That, of course, does eat away at the profit margin. If we look at the payout policy, we are -- well, we repeat what we said, we're looking at anywhere between 40% and 50% of net adjusted income paid back to shareholders through dividends, of course. Having said that, we have no further comments on future buyback programs in the following years and depends on a number of factors. I mean, we do not propose to delist the company. We do propose to remain autonomous and independent. And if you look at a breakdown by geographical area, normally, we do not communicate on that. Eric Blain: But maybe you could at least tell us about numbers in the U.S. or specifically. Maybe you can... Unknown Executive: Well, the U.S. market has higher margins than other territories. But the low dollar is a dilutive factor. Yes, there was an effect on currency effect. You didn't mention. No, we didn't mention it because it's not significant. Operator: [indiscernible] Unknown Analyst: Congratulations for this. A question on the major tech players such as Meta, Google, Alphabet. You mentioned in the past that you were going to generate significant revenue with those key accounts and to be added in your services. Is that still the case today? Could you detail better for us what you're doing for the major U.S. tech clients? Unknown Executive: Yes. Well, coming from a world where I had a lot of dealings with the major tech players, the fact that they're amongst our largest key accounts. This is something that interested me keenly, and it ties in with the question about synthetic data to a certain extent. One of the added values we're bringing is our detailed knowledge over and above the mere processing and presentation of data, the lessons learned and access to real respondents because these tech players have access to the people who access their platform. So each has primarily access to the people who access their platform. We have access to everyone, those who access their platforms and the others. So when it's a matter of pulling their reputation on the market to have access to specific audience segments, well, they rely on our capability. And that's our fifth strategic conviction. It's a major differentiating factor in this important world through its economic and social importance of the major tech that we're very relevant for them. Operator: Questions on the line? The first question comes from Berenberg. Over to you. Unknown Analyst: Jean-Laurent, Olivier, just a few questions from my side. Firstly, could you give us some insights on what you're seeing in terms of activity? Are you seeing a slight improvement over Q4 '25? And secondly, what's the percentage of the utilization of your own panels? And what percentage you're targeting by 2028? And recently, in your presentation, you mentioned GMS. You plan to extend GMS to several service lines. What is the time horizon for that unfolding? And how much might GMS is represented in 2028? Jean Poitou: Well, we're not -- well, we'll be presenting the Q1 figures on April 16, as indicated on the slide. So we have no comment at this stage on the activity for Q1. But on the panel percentage, well, we're not going to disclose on the percentage utilization of our panels, but we have an internalization issue. The proportion of our own panels in the activity will increase by '28 to answer your question, this internalization, in-housing an important effort for us. And then after extension of GMS today, 6 services, which we're investing in specific platforms where we're changing the operating model to manage them globally, we are going to land this model in 2026, continue to extend them in the second half of '26, early part of '27, depending on the speed of change. I haven't modelized in '28 what the percentage will be. But what is clear is that we're going to go for a few hundred million to a growing share that will probably top at that horizon half our revenue. Operator: We have another question on the line. From UBS. Hai Huynh: Hai from UBS. The first one is just a little bit beyond '26, right? Because you guide for 2% to 3% for '26, but the average for '26 and '28 is 3% to 4%. Now Ipsos Digital is already growing 27% this year. So can you help us bridge towards that gap to 3% to 4%? Are you expecting Ipsos Digital to grow even further than the 27% rate? Or where do you see the acceleration to get -- to bridge that gap? That's my first question. And the second question is just how should we think about the pricing and margin dynamics for GMS versus your traditional ad hoc research? And then the third question is on the free cash flow. So you delivered EUR 181 million this year. And in your CMD, you're expecting EUR 1.4 billion to basically fund your acquisitions and your strategy over the next 5 years. So could you help us also explain on where do you expect free cash flow to ramp up? Is that going to be back-end weighted? Jean Poitou: So on Ipsos Digital, indeed, however, remarkable this growth of 30% is it's EUR 140 million. If I just look at the dissimilarity, heterogeneity of usage, and we can beef up the portfolio based on digital solutions. Ipsos Digital will be far higher growth. It's a major focus areas for speed and for obvious economic reasons. On the growth profile and profitability of GMS, that drive innovation through new products, new solutions, new products of our clients based around creativity or the ad segment and behavior analysis. These are sectors that are both today in the portfolio, a few hundred million euros of those 3 broad categories of services that we manage globally, growth and profitability above the Ipsos average. Lastly, on FCF for the next 5 years, yes, we announced an FCF over the next 5 years of EUR 1.4 billion when comparing to what we achieved in '25. You'll see that there's an acceleration pathway versus 2025 to reach that EUR 1.4 billion over the 5-year period. I think that's about it in terms of questions. It remains for me to thank you, and see you on April 16 for the Q1 results. Thank you. Have a great day.
Operator: Greetings, and welcome to the Gladstone Land Corporation Year-End and Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone, President and Chief Executive Officer. Thank you. You may begin. David Gladstone: Well, thank you for that nice introduction. And this is David Gladstone, and welcome to the quarterly conference call for Gladstone Land. Thank you all for calling in today. We appreciate you take time out of your day to listen to our presentation. Hopefully, we give you some indication of where we're going. Now, we'll hear from Catherine Gerkis, our Director of Investor Relations, to provide a brief disclosure regarding certain regulatory matters concerning this call and this report. Catherine, go to it. Catherine Gerkis: Good morning. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstoneland.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-K and earnings press release, both issued yesterday for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. We are also on X @GladstoneComps as well as Facebook and LinkedIn. Keyword for both is the Gladstone Companies. Today, we'll discuss FFO, which is funds from operations, a non-GAAP accounting term defined as net income, excluding gains or losses from the sale of real estate and any impairment losses on the property plus depreciation and amortization of real estate assets. We may also discuss core FFO, which we generally define as FFO adjusted for certain nonrecurring revenues and expenses and adjusted FFO, which further adjusts core FFO for certain noncash items, such as converting GAAP rents to normalized cash rents. We believe these metrics can be a better indication of our operating results and allow better comparability of our period-over-period performance. Now I'll turn it back over to David Gladstone. David Gladstone: Thank you, Catherine. Folks, we sold a few more farms during the fourth quarter, which brought us to 6 property sales for the year totaling $95 million in proceeds, and we recognized an aggregate gain from these sales of about $21 million. So your company is in good shape today. After these sales, we still own nearly 99,000 acres across 144 farms, so about 56,000 acre-feet. In case you forgot, I'll translate that to 18 billion gallons of water that we've got stored in aquifers, and so we're in good shape for that part of our work. Our farms are in 14 different states and our water assets are all in California. And right now, there's plenty of water in California. So we're all in good shape from that perspective. Regarding the two sales we completed during the quarter, one was a small blueberry farm down in North Carolina. The tenant had fallen behind in his rents, and it was a tough property for us to get to new tenants. So while we took a small loss in the sale, we thought it best just to get rid of that farm since it was out of the normal territory that we're in. The other sale was a really nice farm in Colorado, where the lease was set to expire at the end of the year, and we were likely facing a downward rent bump and reset. So we took the opportunity to sell the property for more than we had in it originally and paid. So it was decided to go ahead and take the gain and move from that area of farms. We may consider selling some additional farms. In fact, we've got several that we're talking to buyers over the next few quarters and this part of ongoing portfolio review. If we're able to complete some of those, we'd like to use most of the proceeds to pay down debt and also to buy back some of that more expensive preferred stock that we have and trigger a gain there. But we're still evaluating the opportunities. And at this point, we're hopeful of a good transaction that will come and show how good we are in buying and holding these properties. On the acquisition side, financing costs, which seem to be slowly moving closer to where we like them to be, but we're not quite there yet. We're hoping interest rates will continue to move in the right direction. That is down. So we can get back to growing the portfolio as we've been out of the business for quite a while. We've got a lot of land that we own, but it'd be nice to pick up some now because prices seem to be moving in the right direction. We're still taking a disciplined approach to any new investments. Interest rates and our overall cost of capital remain elevated and the capital rates on most row crop farmland is still too low to make it economically work for us today if we have to use a lot of debt to buy it. On the leasing side, first, we've talked about on prior calls due to the market conditions affecting certain permanent crops, particularly nuts and wine grapes, we adjusted the lease structure on a handful of properties to help our growers reduce their fixed costs. And as a result of doing that reduction, in essence, we're taking a larger percentage of the gross crop sales instead of fixed rent payment. We also decided to direct operation of two properties ourselves with the help of third-party operators. We believe a lot of the farms in the United States are just set up like that. So people bring in farming expertise as we are. And well, I'll let Bill and Lewis, the two next speakers talk about that. But overall, we had a successful harvest, particularly with almonds and pistachios. We're still expecting significant amounts of revenue from the 2025 pistachio harvest to come during 2026. So they're not in there yet. But we won't know the exact amount until the processes of those nuts have their finalized, their settlement with us. I wanted to remind everyone about this modified structure that we're using because we're simple approach to most of these farms for 2026 crop year is going to be exactly the same as we used last year. And I think it's also important to again highlight the role of crop insurance. In these cases, one of the reasons we feel so confident in taking this approach, which is a little bit like gambling on these special farms is their strong history of high production. And since insurance coverage is largely based on historical yields, we're able to secure relatively high levels of insurance. So to give you an example of this, if one of our crops was that's insured is wiped out by some strange disease or whatever, the insurance allows us to recover the amount of capital that we put into these farms. And that's nice to know that the downside is covered. Our goal is still to eventually transition these leases back to more traditional structure with fixed base rents. But our ability to do so will depend on many factors actually, external factors such as crop productions, crop prices, interest rates, input cost of growing the nuts or whatever strawberries and water availability. We've kind of got the last one covered to some degree, water availability, as you probably read in the newspapers and reports. Water is plentiful in California and the amount of snow in the mountains, which will melt during the summer and run off is pretty good shape. In other leasing activity, we executed 5 renewals during the quarter. We saw a modest increase of about 7% on two of these row crops as a renewal. For three permanent crops, we reduced the fixed base rent in exchange for additional crop share component, which is what we've done a lot of time. We should have roughly flat compared to those of prior leases on those farms. Looking ahead, we have 5 leases scheduled to expire over the next 6 months. In total, this represents about 3.6% of our total 2025 lease revenue. We're currently in discussions with existing tenants and prospective new tenants about leasing each of these farms. So I'm pretty optimistic about getting those rented. And now I'll take a quick update of some of the ongoing tenancy matters that we're working through. We currently have 9 farms that are wholly or partially vacant, and we're growing crops on some of these. Encompassing 4 of the farms we've been direct operators under management agreements with unrelated third-party growers. We also recognize revenue on a cash basis for leases with 3 tenants who collectively lease about 5 of our farms. That should be okay. We are actively working towards solution for each of these situations. We think we are close to having a resolution in place for a few of these farms soon. And hopefully, we can get some of them off of this list over the next few months. I'm going to stop here. We've got Bill Reiman on the call, and Bill is the man who really understands us since he's been working in the farming area for most of his career. So Bill, take it away. William Reiman: Thank you, David, and good morning to everybody. Yes, much of our current management focus right now is on the properties that are being operated under these modified lease agreements or farmed directly utilizing third-party farm operators. We've completed harvest for 2025, and we're pleased to report that the overall yield objectives that we had in our budgets, we exceeded all of that. And so really good results there. We're renewing some of these modified lease arrangements, particularly on 5 of the 8 farms. 2 of the remaining 3 are redevelopment projects and the last one, our wine grade vineyard in Napa is now leased to a local grower. So we're happy to have that done. The 5 farms that we ended up, that we're renewing agreements on were really our top performers from this group last year. So we're expecting another really strong year of results. The winter, David touched on a little bit about some recent weather. The winter for us has been about average for precipitation with a couple of our wettest months left to come. Recently, we've had some major storms that really boosted the snowpack levels. So there's significant optimism that the surface water allocations for 2026 will be very strong. Those reservoirs, both state and federal water projects are above historical averages. So for the short term, there's plenty of supply. Chilling hours, we're projecting a low to medium level of chilling hours this winter in California. It means we should meet all chill requirements in all of our permanent crop locations. So that's very good news. Almond bloom, as of today, we're probably 2/3 complete. The bloom's has been a bit uneven. There's been reports of flash bloom in many locations around the valley, Central Valley. And also with the cold and rainy weather, the bee activity hasn't -- it's been somewhat limited in quite a few areas. This could possibly cause almond yields to be lower across the state. Pistachios, wine grapes, of course, are still in dormancy. So they've actually reaped the benefit of some of this colder wet weather and haven't had the bloom exposed yet. Markets, tariff drama, trade tensions still exist as we all read the headlines. However, crop markets seem to have settled in and accepted this uncertainty to a large degree. Nut crop markets continue to show notable resilience and strength, particularly for pistachios. The important story lately is the fact that the supply chain seems to be pretty light. There's minimal product in both almond and pistachio buyer side supply chains, which we think has provided upward pressure on pricing. As a result, our base guaranteed price for the current crop remains consistent with 2024, and we believe there's a strong likelihood that the final price for 2025 crop will actually be higher than our final 2024 pricing. One of our processors, in fact, recently announced an extra $0.50 per pound bonus to be paid with our scheduled April crop payment for pistachios for the 2025 crop, that's really good news. This momentum could also result in a higher base price for the 2026 crop when that gets announced in July of this year. So things are looking up in pistachios. Almond prices dipped in January, but since then, they've rebounded quite a bit and climbing again as we move through boom season. I don't expect these prices to vary too much as there's strong demand and confidence in the market. There will be some slight bouncing around as projections for the 2026 crop start to come out and we get to this point in bloom and everybody has an opinion on what the crop is going to do. So we will definitely see that reflected in the market. But it is -- the market is, in general, severely underbought and the supply chain is light. So those are things and growers are reluctant to sell right now. So those are all things that continue to put upward pressure on almond prices. Wine grape market continues to underperform, but we're beginning to see some varietals, particularly some white grape varieties that are showing up short in supply. At the moment, this isn't causing any increase in prices or really provide any incentive for wineries to contract for supply, but it is the very first encouraging sign that we've seen in a couple of years. Vineyard removals are continuing at a rapid pace in California and really around the world. So we're hopeful that this pullback in supply will soon bring the market back into balance, likely flipping it the opposite way and will be underproduced. And then the weakening dollars as long as the dollar continues to weaken, that works in our favor, making our products more attractive to international buyers. Circling back to water, we're experiencing, like I mentioned, we're experiencing a normal to potentially wet year as far as precipitation is concerned. So it's really good news in that we're continuing to experience an extended wet period. 4 out of the last 5 years or 5 out of the last 6 years have been average or wet. Full reservoirs, good rainfall, snowpack. They are all key factors for the water market to be full of water for sale at prices that are attractive for our water banking activities. So we've been working hard to identify the best water deals for our properties and looking for infrastructure improvements that will yield us the best return on those capital expenditures. Our goal, as always, remains to further strengthen the overall water security of the entire portfolio through long-term and short-term strategic water purchases. We're looking to continue investing in water delivery storage infrastructure, pipelines, water banks and then identifying opportunities to create synergies across the farm assets. Now I'll turn it over to our CFO, Lewis Parrish. Lewis Parrish: Thanks, Bill, and good morning, everyone. I'll start with a brief update on our recent financing activity. During the quarter, we repaid a $4 million note that was secured by a property that we also sold during the period. And subsequent to year-end, we redeemed our Series D term preferred stock to avoid a step-up in the coupon from 5% to 8% -- that redemption was funded through a combination of common stock issued under our ATM program and a draw on our line of credit. Since the beginning of the fourth quarter, we raised about $50 million of common stock through our ATM program with the majority of those proceeds used to fund that redemption. Turning to our operating results. For the fourth quarter, we recorded net income of about $4.2 million and a net loss to common shareholders of $1.8 million or $0.05 per share. For the year, we recorded net income of $13.5 million and a net loss to common shareholders of $10.5 million or $0.29 per share. Adjusted FFO for the fourth quarter was $14.4 million or $0.38 per share compared to $3.4 million or $0.09 per share in the same quarter last year. And for the year, AFFO was $14.4 million or $0.39 per share compared to $16 million or $0.47 per share last year. The decreases in AFFO were primarily driven by the recent changes to lease structures on certain farms, timing differences in revenue recognition related to crop sales in certain direct operated farms, lost revenue from farm sales over the past year and ongoing tenancy issues that have led to vacancies resulting in both lower revenues and higher costs. Year-over-year, fixed base cash rents decreased by about $1.9 million for the quarter and by about $19.8 million for the full year. This is primarily driven by the reasons just mentioned, but mainly the lease modifications on certain properties where we reduced or eliminated fixed base rents or in some cases, provided cash lease incentives in exchange for significantly increasing the crop share components. Partially offsetting that and largely for the same reason, participation rents increased by about $9.3 million on a quarterly basis and by $10.6 million for the full year. This increase was further driven by stronger pistachio pricing compared to last year. Net profit from crop sales in our direct operated farms was about $2.6 million for 2025, which is our first harvest year. However, the full impact of this 2025 harvest is not yet reflected in our financial results. While we did expense a full year of growing costs, we have not yet recognized a full year of revenues, particularly on the pistachios. As David mentioned, the final marketing bonus payment for the 2025 pistachio crop will be recognized later in 2026, thus creating a timing difference compared to 2024 when this property was fully leased. In addition, we recorded about $4.4 million of termination-related revenue in 2025, including $2 million in the fourth quarter compared to 0 last year. On the expense side, our recurring cash operating expenses increased for both comparable periods. Total related party fees fell by about $200,000 for the year, and that's primarily due to a lower base management fee resulting from recent farm sales, but was offset by a higher administration fee during the fourth quarter. Property operating expenses increased for both periods and is mainly driven by the cost of supplemental water we were required to provide on one of our properties pursuant to the lease as well as higher insurance costs and property taxes incurred on one of our direct operated properties. G&A expenses declined in both periods, primarily due to lower professional fees incurred during the current year. And one note on cash flows. Cash flows from operations declined largely due to timing differences between leasing versus operating farms, which is particularly true in the first year of operations. Again, for our direct operated farms, almost all the cash for growing costs went out during 2025, while most of the cash proceeds will be received in 2026. In addition, regarding the increased participation rents from the lease modifications, a significant portion of the cash payments was received in early 2026, creating another year-over-year timing difference in operating cash flows. Turning to liquidity. We have about $85 million in immediately available capital and over $185 million of unpledged properties that can be used as additional collateral. We are in discussions with a couple of lenders to add certain of these properties to either existing or new facilities. Currently, about 98% of our borrowings are at fixed rates with a weighted average interest rate of 3.39% locked in for another 2.7 years. This has helped shield us from the interest rate volatility we've seen over the past few years. Looking ahead, we have about $17 million of scheduled principal amortization payments due over the next 12 months. We don't have any loans maturing over the next year, but we do have about $160 million of loans with fixed rate terms that are scheduled to reset over the next 12 months, though the loans themselves are not maturing. This includes $135 million of loans under the MetLife facility that are scheduled to reprice in January of 2027. And finally, regarding our common distributions, in January, we declared a monthly dividend of $0.0467 per share for the first quarter of 2026. At our current stock price of $11.51, this represents a 4.9% annualized yield, which is above the REIT sector average. With that, I'll turn it back over to David. David Gladstone: Thank you, Lewis. Good report. Nice to know that we're in a strong capital position. We are staying active in the market, so we're ready to go if a good acquisition opportunity comes along. But as mentioned earlier, we're still being cautious on the acquisition front because our cost of capital remains very high. Overall demand for prime farmland growing berries and vegetables remains stable across most of our regions, partially -- particularly along the coast. We also started seeing some signs of improvements in pricing and broader economics around those crops. So we are hopeful that the worst may be behind us, but it's still too early to say whether we are fully in the clear or not. Overall, in the long run, we expect inflation, particularly in the food sector to continue to move higher, and we're expecting the values of underlying farmland to increase over time as a result. We do expect this to especially be true with healthy foods such as fresh fruits and vegetables and nuts like we grow for people, and we are a big producer these days. So now I'll open it up to some questions from those who are listening in. Operator, would you come on, please, and show them how they can ask some questions. Operator: [Operator Instructions] Our first question comes from the line of Craig Kucera with Lucid Capital Markets. Craig Kucera: I wanted to revisit your commentary regarding the 5 repositioned farms. So basically, are you saying that they're under similar leases where there won't be any base rents and you'll have a portion of higher participation rent expected in '26 and then will some of that dribble into 2027 as we saw this past year? Or how should we think about that? Lewis Parrish: Yes, that's exactly correct. Well, it's the same structure that -- I mean that they'll be either with no base rent or possibly with a lease incentive, but it will be the same structure as we had in 2025. With the '25 crop, we had a good amount of the revenue recorded in '25 and then a portion carryover in '26, and we'll have the same thing. But 2026, we'll be able to benefit from the carryover from the '25 crop plus the initial payment from the 2026 crop. William Reiman: And to add to that, it won't dribble into '27. It will be just like most of it. For most of '26 crops, revenue will come in '27. So it's -- it won't be a little bit. It will be just like this year. Craig Kucera: Okay. And what was -- I think at the time that you restructured those leases, you thought that I want to say maybe 75% would come through in fourth quarter of '25. When you kind of step back, and I know you've still got some marketing with the pistachios. But as you think about that, what was sort of -- what would you say the percentage was that was recognized here in fourth quarter '25 and kind of what you expect in '26? Lewis Parrish: It's really on a farm-by-farm basis. I think for the pistachio farms, it probably will be close between the 65% to 75% in the first year, but that is us estimating what the marketing bonus is going to be. It could turn out to be higher than that. And if that's the case, then it would push a higher percentage in the following year. Almonds, a bit of a different story because some of our properties were in, and Bill can expand on this more, but we're in what's called a call pool where we decide when to sell the crops -- and for those -- for example, we have one property for the '25 crop where we haven't pulled the trigger yet because we're seeing prices trend in the positive direction and we want to wait and take advantage of that pricing. So for pistachios, I think the percentage will generally hold true, assuming that bonus payment stays where it's been, but -- and I'll let Bill talk on this, too, but we are seeing signs of that possibly being higher. So again, that would push the percentage higher in the subsequent year. Bill, anything you want to add to that? William Reiman: Yes. I mean that's correct. Certainly, on pistachios, we feel the likelihood of increased bonus payments, that's increasing every day. So we feel pretty strong about that. And Lewis mentioned the almonds on the call pool, one particular farm, we decided to make the call of when we'll sell, and we're kind of holding out for some higher almond prices. But in that particular farm, we did get crop insurance payout. So we're already in positive territory as far as whether we made money or lost money on that farm. But we still have the crop -- a small amount of crop to sell, and we're just holding out for higher prices. Craig Kucera: Got it. And just one more on this topic. I guess, are you saying then that you would probably recognize more sort of variable payments throughout the year than you typically would because you have more control over when and at what price you sell the crop? Or should we think about this that this will mostly be recognized in the fourth quarter as far as what was earned in 2025? Lewis Parrish: I think we'll have a little bit more in the first half of the year than we typically do. Just as Bill mentioned, that we do have one pistachio processor who announced they will pay a portion of that marketing bonus early in April. So we will probably be able to pull some of that into Q1. But other than situations like that or maybe further adjustments to almond pricing, we would probably see the most bulk of it coming in Q3 and especially Q4 again. William Reiman: The other impact if the pistachio market continues its current trend and our guaranteed base price goes up, that will increase the amount that we are able to claim in within this calendar year. But we won't know that until probably the end of -- usually end of July. Craig Kucera: Okay. Changing gears, Lou, what are your expectations for interest paid for this year in the first quarter? Lewis Parrish: I'd expect it to be anywhere from 10% to 15% less than what we recognized in 2025, and that's assuming the percentage of interest that gets paid, that gets refunded is the same, but reflecting just the loan balance decrease over the past year as we've paid off some loans. Craig Kucera: Okay. I see you raised $33 million in ATM this quarter. Was the remainder of the Series D funded with cash on the balance sheet or the line of credit? Lewis Parrish: Line of credit. We currently have about $10 million outstanding on the line of credit, and that's currently at a 5.69% variable rate. Craig Kucera: Got it. Okay. Just one more for me. I know one of your competitors have been generating significantly higher returns through lending to farmers and is seeing decent demand there. Given the somewhat tougher farming economy, is that something you guys are looking at a little harder? I believe you capped that type of activity to 5% of assets, but would just like to get your read on that situation. Lewis Parrish: We've had discussions about getting a loan program started up, but we haven't pulled the trigger yet. It's something that we may continue to discuss. But at this point, we don't have any plans to -- any solid plans to put that program in action yet. William Reiman: I'll add to that. I was just going to say, I would say long term, that's something we're really keeping an eye on. But I think just current economic conditions, we've been really -- we've looked at some loan deals, but with current economic conditions, it's just something we just haven't -- we haven't felt that the risk return profile was really right for us at this time, but it's something that we continue to look at, continue to get inquiries and probably long term is something we want to, we'll eventually make some moves on. David Gladstone: Other questions? Operator: Our next question comes from the line of John Massocca with B. Riley Securities. John Massocca: So maybe kind of sticking with the variable rent questions from earlier. With the current season that just closed on pistachios, do you have kind of brackets as to what you think the amount remaining to be collected is just given you have some color into the bonus payments. I was kind of curious if there was a range for what more to expect in '26 you were seeing out there. Lewis Parrish: Well, as far as our direct operated farms go, we do have -- we are expecting about hopefully, at least $3 million to come in. Now it's certainly not guaranteed, but if we are to use prior year bonus payment as an estimate as a proxy for this year, and all indications are pointing to the fact that the marketing bonus amount should be at least equal to last year. So if that does hold true, then that would result in about $3 million more coming in during 2026. Of course, that could change, but signs today are pointing positive for that outcome. John Massocca: Okay. And then maybe as I think about your like kind of truly vacant assets, not the ones that you're operating yourself, what are kind of brackets around the value of those 5 properties? And would you -- I guess, how expeditiously could you sell those if you wanted to? Lewis Parrish: So the ninth -- I don't have the exact book value or fair value, but if I had to ballpark a figure, I'd say maybe $50 million. However, the largest of those properties, 3 of those vacant properties, we are close to putting together agreements that would get those back into an income-producing position. Again, nothing is finalized or fully guaranteed at this point, but we are hoping that those -- the 3 largest of those farms will come off the list, hopefully, within the first half of this calendar year. William Reiman: And those 3 largest -- one reason that they're vacant and timing is a big factor, right? We lost, the tenant left and trees needed to be removed. But because they were so big, it takes a while to get that done. So a lot of that, the big portion for those being vacant right now is because we've had to clean the farms, so we have to pull the trees out and they're so big, it takes time. But yes, we are -- as Lewis said, we're really close to getting those back into revenue production. John Massocca: Okay. As a reminder, what is the crop type on those farms? Lewis Parrish: They were almonds. William Reiman: Those 3 biggest were almonds. Yes. John Massocca: Switching gears a little bit. As I think about the Series D repayment having been completed, how are you thinking about ATM usage going forward? I mean was the ATM, particularly ATM quarter-to-date really tied to that repayment? Or are you looking to kind of delever on a more kind of organic basis? Lewis Parrish: A lot of the ATM usage was for that redemption specifically. But now that that's out of the way, we would like to focus more on the other preferred securities. So if we continue -- right now, we can sell ATM at 5%, we could buy back preferred at 7.5%. If we're able to get a 2.5 point spread on transactions like that, then that's something that we would look on favorably and hopefully be able to implement. John Massocca: Okay. And then lastly, on the water, how are you looking at kind of your own water kind of holdings, acquiring further water holdings, just giving, now since I've got a couple of pretty strong seasons in terms of precipitation out West, but just kind of curious if that's impacting your strategy there at all. William Reiman: Yes. I mean it's super positive, right? So when there's plentiful supply, the price comes down. And we -- our driver on buying water is all about the cost, right? And so what we buy it for what it cost to move it and what it costs to hang on to that and hold it for use during reuse in the future in the next drought. And so as these prices come down, I mean, in fact, this week, there's some what we call Article 21 water release being released next week, and that is like prices $50 to $80 an acre-foot. So this is -- these are the opportunities that we jump on, and we try to grab as much of that as we can for the future. So it's all cost driven for us because that's your future water cost for some crop down the road. And the lower we can get that, the better we are. David Gladstone: We have any more questions? Operator: And there are no further questions. And therefore, I'll hand it back over to you. David Gladstone: Well, thank you very much, all of you for listening to this and a little bit disappointed that we're not getting enough questions. We hope you'll mark them down during the year and ask us when it comes up in March or April, whenever we're talking to you again. But thank you all for calling in, and that's the end of this session. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you, and have a great day.
Peter Podesser: Good morning, ladies and gentlemen. Thank you very much to all of you for taking the time here for the first time in this calendar year to join us for our presentation for the preliminary numbers and at the same time, also the publication and the presentation of the guidance and outlook for 2026. Together with my colleague, Daniel, we will present you the key elements of the preliminary unaudited numbers so far and naturally also look forward to our question-and-answer session after this. Let me start off with, let's say, a critical and quick look back. I think we are looking back at 2025 as a year definitely of challenges, but also a year of consolidation. And at the same time also, I think we have made good use of this period here for a further strategic alignment and focusing ahead of starting era of growth again. Back to growth, I think, is also what we see here with our last quarter of the year 2025, the fourth quarter with about EUR 40 million of revenue, also recording the strongest quarter during this year, also with decent profitability. At the end of the day, if we look at the growth drivers here in the closeout of the year, we are looking again at our industrial fuel cell business here with, let's say, the known end markets. And we are also looking at the European power management Besides, let's say, consolidation, I think it was a clear focus and we, let's say, allocated the right resources to further implement the long-term strategy during 2025, looking at 2 elements from today's point of view. The one is really expanding our international footprint, further the international presence, the customer proximity. But then at the same time, I think, again, investing into our competitive advantage, our competitive strength through technological leadership through new attractive products introduced into the market. Let me look into the international element first, expanding our footprint by establishing a more significant site in Orem Salt Lake City, establishing and preparing also for the local production in the U.S., again, driven by the need for customer proximity, the expectations of our U.S. customer base, but at the same time, actually also shielding us relatively well then against, I'd say, tariff and other trade hurdle implications over time with the local supply chain to be built up. Looking at, let's say, the assets that we, some time ago, also purchased here in Denmark in the hydrogen fuel cell business, I think we have turned this into an operating and profitable hydrogen fuel cell business with a customer base in critical infrastructure from telecom to data network operators. Well, and the third one, yes, the planned strategic investment here into our partner in Singapore, where we expect to close, let's say, in the near future, creating a regional hub for the further expansion in Asia, but also giving us and allowing us access to a fast-growing security as a service business here with government customers. On the technology end, I think apart from, let's say, the existing product suite, I think especially in Defense and Security, we have 2 new offerings that are already contributing that already have contributed to the business here in the low single-digit million format. The one maybe new for some of you, a defense power supply platform developed together with a French OEM here out of our power management business in Denmark for laser application portable and land or vehicle-based lasers, one of the key applications drone defense. We are showing this since yesterday as one of the news here also at the [ membrane ] tech in Nuremberg and have quite some positive feedback also from, let's say, not just the existing users, the existing customers, but also from potential new OEMs. The second one in Canada, we have invested a good 2 years of collaboration here with a customer developing what we call the EFOY ProShelter, an Arctic power and energy solution shelter-based for extreme climate and temperature exposure below minus 40 degrees C with extremely long autonomy between 12 and 36 months of autonomy. The first systems are already deployed in the northern part of Canada, the northern border also of Canada. Totally, we expect here from both product lines, a scaling effect already, let's say, in the running year with the existing customers, but definitely also new customers. And if we look into the Arctic energy supply, naturally, there are other regions in the world where we see already explicit demand. There is, with all of this, a structural shift in our business towards defense as well as the public and civilian security applications. If we look at all of this in 2025, this all added up to almost 50% of the total group revenue. With existing products scaling, but also new products now contributing to further growth, we see significant momentum in this field of the business naturally also against the known geopolitical situation. As per today, we are, I'd say, unfortunately seeing the fourth year of war ongoing here in the Ukraine. What do we expect here? Significant preparation for OEM programs in the defense sector, mostly auxiliary power systems either for vehicle or dismounted applications. But we are also looking at, let's say, the general hybrid energy solutions as a need for resilient and dependable power. So it's at the end, a combination of our fuel cells with batteries and wherever possible also with solar capabilities. We also expect a regional growth in this sector. And I think important also for all of us who have -- for all of you who have witnessed with us also these delays in programs in India. In the last recent discussions over the last couple of weeks here in India, we see a, let's say, a resumption of some of those programs happening also near time at least during the course of the year. The expectation here for this part of the business to increase to approximately 15% to 20% of the revenue seems realistic. But then also if we add the civilian security part, all the Security as a Service business, I think we also see 60% as a mark to be reached within this year of the total group's revenue as realistic sales, good products and solutions with attractive margins, and Daniel will go into this in a second. Apart from this, we also expect our industrial business to contribute and deliver, I'd say, organic growth here across the fuel cell as well as the power management business. We also look at the order intake there, we also see a return to growth with the fourth quarter recording about EUR 40 million of order intake, which was the highest intake of all quarters of last year. And we've seen also a dynamic development in the recent, I'd say, 2 months or also first part or the first part of 2026, we see several major projects out for decision within the foreseeable future. And based on all of this, we expect a very strong first half of 2026 in terms of overall visibility. If we now look into the sales and earnings of 2025 in a more concrete way, yes, we are seeing sales of EUR 143.3 million at almost the same level of 2024, 1% down. This is slightly below the lower end of the target corridor we had published also by November. I think also a conscious decision from our side not to overstretch, let's say, revenues and push projects here in the last weeks of the year simply at the cost of impacted margins. We also see this in the profitability of the fourth quarter and that we also -- we see the overall factors leading to this EUR 143 million not reaching the original plan for last year. If we look at the major deviations, I mentioned it already, we had to digest delays in defense projects in India impacting our Asian business. The overall uncertainty, also macroeconomic uncertainty, also delaying decision-making processes hurt us in the new business development in the U.S. Finally, I think we delivered still an organic growth of around 20%, which per se is nothing bad, but still behind the historical growth numbers in the U.S., but also below, I'd say, our own expectations as well. And the third element, currencies, functional currencies going against the euro here had also an impact metric on our euro-based group's revenue. With this, I think I would hand over to Daniel to lead you through the earnings part of the preliminary numbers. Daniel Saxena: Good morning everybody. Thank you for joining the call. So neither wanting to repeat the last quarter's discussions or preempting that we will have. I think the major drivers when it comes to earnings this year were characterized by high losses from exchange rate translation and high cost for the implementation of our ERP system at the group level as well as investment in IT security. So I think this is the overall topic that we've discussed in the last quarters. And I think this is also the topic that we're looking at the fourth quarter with some slight changes and what seems to be a light at the end of the tunnel. You've seen our EBITDA, adjusted EBITDA, which is EUR 16.7 million, translating into a margin of 11.6% and our adjusted EBIT, which amounts to EUR 8.9 million, translating into a margin of 6.2%. So both of these key financial indicators are slightly above the higher end of our latest forecast, which we published in November. One of the reasons for the better performance in the first quarter than we anticipated. I think one of the reasons is the product mix in the first quarter, which was quite favorable. The second one is a good price implementation that we have, especially in SFC Netherlands as well as SFC Canada, but also SFC Germany. We had some, to a small extent, onetime effects, all of this leading to a higher -- slightly higher gross margin than we anticipated in the worst case in our last forecast in November. Also, what we saw in the first quarter is that for the first time in 2025, we had a balanced result from exchange rate losses, i.e., the losses were very, very low in the fourth quarter, which also helped. So there was not a significant negative impact from other operating expenses. And all over, keeping costs at a decent level also helped in generating the slightly above EBITDA and EBIT. We see that the margins are that is not a big surprise, below what we have seen in 2024. We're looking, as I mentioned before, at an EBITDA margin of 11.6%, still a double-digit one, but apparently away from the 15.2% that we saw in 2024 and also slightly lower of what we anticipated for the given reasons that we have discussed in the first 9 months of the last year. I think to make a summary and we'll discuss the results much more in detail once we publish our final numbers, it is a, I would say necessarily super happy result for 2024 -- 2025 apologies. we've seen in the fourth quarter some factors really driving our profits up again and most of it being apparently the gross margin, which goes straight into the EBITDA margin. So very short and sweet from me this time, I'll pass it back to Peter. Peter Podesser: So also from my side. Now looking into, I think, the guidance and the outlook for the year. We, I think, can give a confident outlook based on facts for 2026 after, I'd say, the challenges I think we have to address last year, as mentioned just before. At the end, we see still a consistent increase of energy demand for dependable, resilient and sustainable energy, decentralized applications driving, let's say, our customers' needs -- at the same time, I mentioned this before, we have the structural shift in our business to the defense, public and civilian security business with the existing customers, existing products, but also new and scaling applications and some significant decisions still pending in this area. And regionally, we expect larger impetus coming from the European and Asian, especially Southeast Asia, but also a rebound in India, bringing a significant growth impulse. We are not neglecting the risk. I think we are still operating under a challenging overall macroeconomic environment. Geopolitics strikes to a certain extent, actually our customers' needs. We still see tariff risks and trade policy and trade hurdles being a factor to be, let's say, also assessed. But at the same time, we have, I think, also experienced a certain shielding in some of our core businesses and by localizing, especially in the U.S. and having already localized in India, we also see a shielding out of this. So overall, we expect a healthy growth. The corridor, we see, let's say, between EUR 150 million and EUR 160 million of revenue for 2026 with the Clean Energy segment growing slightly faster as also historically seen. And at the same time, we also see an overproportional impact on margins and improvement of margins. Daniel has mentioned also the effects already in Q4. We are consistently also expecting a proper implementation here, but also an operational leverage for growth. At the same time, we are not neglecting the risk here of precious metal prices developments and also currency risk. But the range we are seeing as a target range is an EBITDA adjusted between EUR 20 million and EUR 24 million for 2026. And on the EBIT adjusted level here on group's results, we expect the range between EUR 11 million and EUR 15 million as the realistic end rate from today's point of view. So after a year of consolidation, you see us here with, I would say, a sensible planning, a realistic view for risks and opportunities. But at the same time, we see ourselves back at the growth trajectory needed and doable. And I think we are also, let's say, as mentioned, seeing a number of initiatives that are, let's say, that have been worked on for quite some time also during the last year coming to a decision-making stage. So with this, I would like to conclude here and hand back to Moritz to open the floor for the Q&A session. Thank you very much. Operator: [Operator Instructions] And the first question comes from Karsten Von Blumenthal from First Berlin Equity Research. Karsten Von Blumenthal: Happy to hear that especially regarding margins, EBITDA margins, EBIT margin, you are back on track. It's better than I expected in Q4, and Daniel mentioned the reasons for this. My first question is regarding the U.S. business. Peter, you said that overall in 2025, you grew roughly 20%. As far as I remember, in the first 9 months, the U.S. growth was roughly 29%. So this is an indication that Q4 in the U.S. was relatively subdued. Is that right? Peter Podesser: Karsten, Peter here. I think what we see here is some shifts between quarters. I think it is not something that we see a slowdown here. I think what we see in the what we saw in the third quarter was, let's say, the softest demand in the fourth quarter coming back again and also, let's say, a much broader customer base. Well, getting in starting the year with a significant dependence from our largest customer. I think we now have started to, let's say, see the distribution of the customer base becoming broader and broader. So at the end, what you also see naturally, if we look at the 20% growth, and this might be also some differential here, we'll look into this offline. This is naturally after currency effects, we are seeing, let's say, 19% to 20% growth. Karsten Von Blumenthal: All right. That helps. And happy to hear that your customer base has broadened. Could you give us a bit more details regarding the state-of-the-art of your U.S. production site. So what has happened in the last few months? Where are you exactly? Could you shed some light on that? Peter Podesser: Yes. We have, let's say, continued with the hiring, the training of people. We had them over here. We had them in Romania. The classical preparation work. All systems are in place. ERP system is up and running. And pilot production can, let's say, start any day at this point in time, I think we feel well prepared here for delivering, and this will be a major shift products for the U.S. now out of our Orem facility as of this quarter. Karsten Von Blumenthal: Perfect. In this quarter, I'm happy to hear that. I remember that last time we talked about your relatively high working capital. That is nothing we have now discussed with the preliminaries, but have you perhaps a qualitative update on your working capital? Were you able to improve your position there? Daniel Saxena: Karsten, so we've not been able to improve our position significantly in the fourth quarter. So overall, I think from our call, which we had in November, working capital is still at a decent high level. Most of the components, if you look at the inventory, there's nothing in there. I mentioned already in November. A lot of stuff that we have in anticipation of an increased business, which we've seen in the fourth quarter. But also with a strong quarter in the fourth quarter, you know that accounts receivables tend to increase as of the 31st of December. So the message is the 2 drivers, inventory and accounts receivables are still expected to be at a rather relatively high level, but we expect that now as the business increases and goes up again that at least inventory will go back to these levels. Accounts receivable will remain what it is with the growing business. Karsten Von Blumenthal: That means we should rather look into, well, H1 figures to see you coming back to the levels you had, say, at the beginning of 2025? Daniel Saxena: I think H1 is the right period to look at. Remember, some of the components, especially platinum has increased in pricing significantly. So that also has an impact on the working capital, i.e., the inventory, not saying that it is driving the inventory. We are managing inventory, but we still want to make sure that we have sufficient components in -- on our stock. And the second driver as a general driver of increased inventory is, of course, as we open up new manufacturing sites inventory will go up if we -- as we start ramping up certain sites, inventory will go up because in the beginning, and that's very similar to what we've seen in the last years with India and with the U.K. you have a higher level of -- or double level of inventory in the German as well as in the new manufacturing. Karsten Von Blumenthal: All right. Thanks for that update regarding working capital. Perhaps one question to your surprisingly for me, surprisingly high EBITDA guidance for 2026 and the margin. So I assume better product mix and the costs, the one-off costs in 2025 will not -- will no longer burden you in 2026, say IT cost, ERP software, security, all this seems to be through. And yes, you go back to a decent margin level in 2026. Is that right? Daniel Saxena: In part, it is right. But if you look at the expenses in a different way, when it comes to the gross margin range, we will see a bit of a wider than normal range with the gross margin development, which could be gross margin remaining stable to gross margin improvement. I think what we're dealing with, and I mentioned that about when I discuss the inventories, of course, you've seen that platinum prices have increased significantly in the last 6 months. So that has a result on our bill of material. We, of course, intend to pass on those costs to customers. Let's see how the platinum prices will develop that will have -- and let's see how we can pass on to our customers that will have an impact on the rate of the gross margin. You've seen the whole custom discussion having reopened just in the recent days also remains a factor that could have an impact on the gross margin one or the other way. And still exchange rates tend to be volatile also impact on the gross margin. So when it comes to the cost basis and the margin, the EBITDA and EBIT margin, gross margin has a direct impact and the range of the gross margin is a little bit wider. When it comes to sales and marketing, I think we'll see a slight increase of those expenses, nothing significant, mostly driven by the regional expansion and new markets. So where we would expect lower expenses in 2026 is the R&D expenses is R&D expenses expensed over the P&L, the R&D spending, which is the expenses plus what we capitalize will increase or we expect it to increase slightly. But what we also expect this year again is that the capitalization rate as we're doing new products and investing in new products will be higher than what we've seen in 2025, which will then lead to a lower portion of our R&D expenses hitting the P&L. G&A, we will still see high investments in the IT and ERP. So I would not say that those costs will go significantly below what we've seen in 2025. The probably remain at a very similar level over the entire year. What we do not expect or it's very difficult to forecast. I think this is one of the drivers in the margin is, remember, we have losses from exchange rate conversion reaching almost EUR 4 million. Of course, in our forecast, we do not consider losses at this high level, which has a huge impact on the EBITDA. Apparently, if the U.S. dollar and the Canadian dollar and the Indian rupee start depreciating at the same speed or the same amount as we've seen in 2025, that would have a negative impact on our EBITDA and our EBIT. For the time being and also based access to that we have. We don't see it in this amount. But again, that remains a risk. Does it help? Operator: Then the next question comes from Usama Tariq from ODDO BHF. Usama Tariq: Congratulations on the great results. I have a set of questions, 2 to be precise. Firstly, on the FX going forward. So there was a lot of expectations for negative FX impact this year. And of course, that has been realized. But going into 2025, could you -- you already indicated that the higher adjusted EBITDA guidance will somehow be affected from a relatively better FX. Are you going to actively get involved in hedging FX in 2026? And my second question would be a little bit more general in nature. That will be -- I see a lot of fuel cell peers in the last 6 months have had a really good run, Bloom Energy and [ SLS ]. They are primarily focusing the data center market. I understand that the power generation for the units for SFC is not as strong as required for data center, but is that also a market you are looking at? Or is that just totally not something that you target? Daniel Saxena: Nice having you on the call. When it comes to FX, what I mentioned just to Karsten is that, of course, we are more conservative with our FX assumption for 2026, still based on what we see or what we saw as a consensus in the market from FX research. So a little bit difficult to really say we're going to end up within a year, but we would expect a slight stabilization. We don't see any gains from FX development. When it comes to hedging, so of course, we're looking here and there into some hedging of FX may enter into some hedging. I cannot exactly tell you yet because hedging has become very expensive. And then if you look at it, it has 2 impacts, right? So of course, the hedging will if FX decreases or depreciated, improve your EBITDA, but it will decrease your cash flow. Hedging those positions have become very expensive given the volatility of the exchange rate and also the exchange rate that we are dealing -- so you will see on the one hand side, and you know this much better than I do, a positive effect on the EBITDA and a negative effect on the cash flow. That's why if you look at the cash flow also in the 9-month cash flow, we don't see a huge impact from the FX expenses because most of them are noncash long-term intercompany financing. So let me look at it really on a basis what the cost of hedging is and what the benefit of it means actually also in terms of what is the cash impact and the cash impact will not be low. Remember also, we're looking at IFRS 18 being introduced mandatory from 2027 so they're going into details from 2027 with the IFRS, you'll see the presentation of AX results differently from what we see it right now, but I'll comment on that a little bit later. Peter Podesser: And then I come back to the data center question. Well, just recently, we had a very, very -- and I personally also was there with the team, a very interesting meeting with the largest data center provider in the UAE -- when the CEO there showed me the 32 diesel gensets here in the backyard as the backup power, it was obvious they are looking for a more sustainable solution there just replacing the conventional backup power. We are looking at data center projects also in India as India wants to become a hub here also on a global scale. It's one of the initiatives. But I would be really negatively surprised if we could not secure our first project, although recognizing that there are power levels for the, let's say, largest sized data centers that are beyond also fuel cell capabilities even of other players. I think there is a good starting point here at midsized data centers, and we are working as we speak on... Usama Tariq: Very grateful. So if I understand correctly, please correct me if I'm wrong, data center as a general opportunity is for you and you are actively working in that. And you wouldn't be surprised if you get some order in 2026 this year from the data center end market. Peter Podesser: Well, we are making all efforts and focusing naturally on the higher power range on our hydrogen-based product range here on this as one of the upcoming markets. And I can confirm what you reiterated. Operator: Then the next question comes from Robert-Jan van der Horst from Berenberg. Robert-Jan van der Horst: So I have 2 questions. The first one is, could you just give me maybe a quick update on what you -- or maybe just a little bit more color on what you expect from the Indian defense program. When I understood correctly, it was in part delayed and in part, funds were repurposed for drones. So do you expect it to come back significantly this year? Will it stretch out more? Or will the volume overall decline? Just an idea where we are at now. The other question is regarding the one-offs for the IT and ERP projects. Could you give me a rough estimate how high the effect was in 2025? So that would be my 2 questions. Peter Podesser: This is Peter. Talking about the Indian defense programs, as I said, we just recently returned from India having a yearly kickoff there and also the review of the forecast, we are expecting, let's say, some of those programs now again resuming and restarting. And I think we also got a good data point in the discussion with also a major defense player there in India in the defense vehicle business. They had to suffer from the same fact that funds were repurposed and literally was said basically, well, for 9 months, we didn't get an order and now it starts again. So I think we were not the only one suffering from it, which for us also was a validating point to say to clearly state, yes, the business is intact. The business case is intact that the moment the programs resume, I think we will see a rebound here. Also in conjunction with this, we did a very conservative planning, call it, a sensible planning in our Indian defense business. And I think we have all the reasons to believe that we will, I'd say, have a good chance to come in above the current planning. Daniel Saxena: So when it comes to European IT and one-offs in 2025, I'd say that we're probably looking at anything between EUR 2.6 million and EUR 3 million one-off -- that does not reflect the entire investment that we had in IT and ERP system. So a certain portion of that will be recurring, especially stuff like licenses, like maintenance, which will be higher going forward on a recurring level. I think one-off really mostly in consulting, mostly in implementation of software components is, like I said, anything around 2.5 million to 3 million. Operator: Then the next question comes from Michael Kuhn from Deutsche Bank. Michael Kuhn: I'll start with, let's say, the visibility. You mentioned good visibility, especially into the first half. Should we make out of that, that, let's say, the guidance as we look at it today is front-end loaded? And also in that context on backlog conversion, I think backlog around 80% at year-end. How quickly will that translate into sales? And let's say, what major projects you're working on where you would foresee entering it into the backlog over, let's say, the next 6 months with the realization of the project in the same year? Peter Podesser: Michael Well, I think if we look at the planning as we have it right now, I think we see as, again, repeating myself as sensible and I think realistic, also taking a learning also of the experience of last year. And then if you look into the order intake over the last couple of quarters, yes, you see a consistent increase here over the last 4 quarters here, culminating in Q4 with over EUR 40 million, but still my, let's say, the backlog alone, I think, is not that decisive part. As you rightly said, it's about the conversion. We have also significant parts of the business, especially on the clean energy fuel cell side, industrial fuel cell business where you usually have, let's say, an in-quarter conversion. And therefore, I think it's always a combination also as you rightly concluded, it's the backlog, but it's also the project pipeline. And as mentioned before, we are seeing some significant decisions here being worked on to be expected and painting really for the foreseeable future, talking about, in some cases, weeks, some cases, maybe, let's say, something in the next quarter. On the defense side, it's about, let's say, OEM decisions, but also regional programs. the rebound also we discussed it in the Indian programs. their fiscal year starts on 1st of April. So that's something expected, let's say, for the second half of the year and the summer. But then also on the civilian part of the business, and as I said, it's a combination. It's, again, a solid and robust growth in the civilian part of the business, but it's, let's say, a more dynamic view and a more dynamic situation in defense and public security. And if you give us a couple of weeks and we watch out for, let's say, we together watch out for what we can, let's say, execute here, I think we get, let's say, even more visibility beyond, let's say, the first half of the year. Michael Kuhn: Understood. Then on the U.S., with the production about to ramp and first product to be delivered soon, will that do you think influence the behavior of your U.S. customers by, let's say, removing tariff uncertainties and delivering a U.S.-built product. So should we expect a, let's say, more dynamic buying behavior in the U.S.? Peter Podesser: Well, I think definitely, it is going -- it has an impact because it's one of the concerns voiced to us by customers at the end, having a key component coming, let's say, from Europe, be it from Germany or Romania as we have it right now is seen widely as a risk per se in the supply chain. We are removing this. And naturally, they can also, let's say, reduce, let's say, their cycle times, be it an advantage for us or not. But at the end, for the customer, it's a good thing. We are able to, let's say, satisfy their demands also on shorter notice without, let's say, longer planning, including logistics times. So overall, definitely, does it eliminate all impact of uncertainty looking at the last couple of days, I do not think we can take this general conclusion here. But long term, it's the right path. They want us to be there. They want it made in the U.S., and I think that's what we have to deliver apart from not ignoring, but apart from, let's say, the uncertainties out of the trade policy of this administration. Michael Kuhn: Yes. No, fair point. One more on business mix. You mentioned 15% to 20% defense. And then did I get that rightly, another 60% on top from security/surveillance? Peter Podesser: No, this is, let's say, additive. So the 60% is including also the military part of the business. Michael Kuhn: Okay. Understood. And then last question on this product you mentioned being deployed in Canada with the very long working times and temperature resistance. Is that also something thinkable for, let's say, Eastern European or Scandinavian border protection, where there's a lot of talk going on, obviously. And could that be a, let's say, significant use case going forward? Peter Podesser: That is definitely our expectation here. As I said, we have a clear path of scaling here with our existing customer. And that's, let's say, at the end of the day, a NATO force, and we have naturally made use also of the presence of many of our customers and decision-makers here during the Munich Security Conference to get this out and show it as a solution here for all the other NATO and non-NATO forces. So it is -- what is the application? It is uninterrupted dependable power here with -- with low to no temperature and noise signature. And at the end, it's for sensing surveillance and data transmission and operating periods between 12 and 36 months in really remote locations. Right now, yes, along, let's say, a new marine let's say, logistics course in the northern part here of the Arctic based out of Canada, but naturally there are, let's say, all other locations also suitable and Scandinavia and, let's say, Northern European and Northeastern European locations, too. So scaling this year with the existing program, but deployment in other regions is exactly the plan. Operator: Then the next question comes from Malte Schaumann from Warburg Research. Malte Schaumann: First question is a follow-up on the defense part. Could you remind me what the defense revenue share was in 2025? Peter Podesser: Around 10% due to the drop also in India and expectation this year is there's a healthy chance to at least double this. But the part is at the 15%. Malte Schaumann: Okay. And what do you expect to be the main drivers beside the recovery expected to happen in India? So can you provide maybe some more color on what are the major building blocks for the increase? Peter Podesser: Absolutely. Yes, we are expecting some, let's say, OEM decisions, but we are also expecting some, let's say, decisions out of regions where we have had, let's say, a lot of business development and a lot of project-based business, new projects are up for decision. So it's OEM and regional expansion. And we have developed those 2 new products there. We talked about Canada a minute ago, but also on our power supply offering. We have this product out there in a fast scaling laser platform, portable land-based vehicle-based main application drone defense, and it is, let's say, the scaling with this OEM. By the way, we have approximately, let's say, 400 of those units already out there in the field. And naturally also other OEM users here in terms of laser technology on the defense side. So it's a combination. It's not the one big project that makes it all. So we also think this is, let's say, taking risk out. And as I said, in India, I think as of April, we expect, let's say, to come back to, let's say, a growth curve. Malte Schaumann: Okay. Good. Defense alone, the growth you expect in defense alone is broadly covering the full revenue range you expect for 2026, which would then imply you expect basically no growth in all the other areas. So maybe you can add some more what do you think about that thought? Do you see any opportunities in security applications, industrial applications, et cetera. So with a strong growth in defense, so then the guidance does not look very ambitious regarding all the other businesses. Peter Podesser: I think naturally, there is also an element of learning in there out of last year's experience where at the end, let's say, an add up of multifactors led us to miss the original and I would say, justified ambitious plan. I think we have, let's say, taken as I think as a reaction to this, a more conservative, but still, let's say, ambitious growth plan, not neglecting that still, let's say, risks are out there. We know how fast delays in defense projects occur. And half a year, let's say, goes by without the decision is not something unheard of. So at the end, I think the truth is somewhere in between. We see still, let's say, the organic growth in the industrial business, fuel cells and power supplies intact. We had an impact in Canada on the power business last year with a single project being, let's say, not decided. But overall, also there, we saw, let's say, a very stable environment with, let's say, which is also the underlying assumption here. But yes, if everything adds up in a positive way, we will be all happy to look at this and think about, let's say, the guidance again. Malte Schaumann: Yes. Good. Then on the gross margin again, you mentioned several factors, Daniel. But if I got you right in the end, you expect flat to slightly -- potentially slightly increasing gross margin. Is that right? Daniel Saxena: Yes. Looking at from comparison to 2025, which is right now still the gross margin, but it's not bad. I would expect a flattish gross margin on the lower end, but I will still look on the upper end gross margin which increases. As always, remember that the rough guidance we're giving is gross margin can go up on an annual basis, anything between 1 and 1.5 percentage points. So we will not see any jumps on the upper side, which is beyond that. Operator: Then we have one follow-up question from Usama Tariq from ODDO BHF. Usama Tariq: Just one follow-up question for 2026. How do you see the balance sheet going into 2026? Do you still expect it to be net cash? Do you think you will take some debt financing? Any pointers there would be really nice. Daniel Saxena: So when it comes to the balance sheet, yes, I would see still net cash. I would still see us to be cash generating. doesn't need super complicated math. If you look at the 9 months, if you see the results of the fourth quarter from a purely operating cash flow, we are positive on operating cash flow. The key liquidity driver of consumption is really working capital. So that's where the cash is getting consumed. If you look at CapEx, we do not expect any huge CapEx programs in 2026, similar as we've seen it in 2025. So to get to the point is, yes, still net cash positive. when it comes to leverage and financing. Let us see, we do have certain credit lines in place and see how we can draw them down given the current liquidity that we have, we may not use that excessively. And then, of course, we still have the variable. We are still looking and that is not a surprise at potential acquisition and/or investments into strategic partners. As always, those processes are something where you can say could happen, could not happen. There's a lot of variables out there. But of course, we're confident we would not go into the exercise we believe that there would be a positive result or outcome of such a transaction. And depending on where and how we do a transaction, we could look into leveraging the purchase price of such a transaction. Usama Tariq: And if I may just add on it on the acquisition part, what geography would you be targeting? Would you still be looking towards an aggregator? Or is it still -- or something on the technology side? Is there something in the pipeline? Or do you really are just looking currently? Any pointers there would be great. Daniel Saxena: Well, it hasn't really changed the strategic focus of what we have done in the past and we've been looking for. First of all, yes, it's a regional expansion and getting deeper into certain region markets. Of course, North America remains on our radar screen. Let's see how the overall environment develops. Of course, Southeast Asia remains on our radar screen. The same thing here, regional penetration getting quicker into the market and/or into certain sectors. We're also looking or maybe looking at some opportunities in Europe. And then from a technology point of view, also, yes, we are looking at potential higher power opportunities on the technology side where the technology complements our and PE portfolio. There are assets out there, which we would consider to be attractive. So yes, we are looking, but we're looking purposefully. And when we're looking, we are also engaging into discussion being understood that we invest prudently and looking at opportunities very cautiously. But yes, the opportunities are out there, discussions and you see that if you look at our transaction expenses that -- which are good level of the transaction expenses is a good level indicator of the level of engagement. Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Dr. Peter Podesser for any closing remarks. Peter Podesser: Well, yes, again, thanks, everybody, for your time, your interest. As always, I'd say, Susan, Daniel, myself, we are available for any direct interaction and follow-up. Yes, you see us here, I'd say, confident for 2026, optimistic based on facts. But at the same time, I think you also see us inspired and motivated with the dynamic environment, by the dynamic environment we are experiencing here in the first part of this year. And we will be happy to report on further milestones as soon as we have them. Thank you very much.
Erik Lapinski: All right. Hi, everyone, and thank you for joining Axon's executive team today. We may notice we have a longer call schedule this afternoon. We're going to report our fourth quarter and full year results as we normally do, and then we'll transition into a short presentation where we'll introduce you to our new 2028 financial targets and share more about our vision. Our remarks today are meant to build upon our most recent shareholder letter and investor materials, which you can find on our investor website at investor.axon.com. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our expectations as of today and are not guarantees for future performance. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially as discussed in our SEC filings. We will also discuss certain non-GAAP financial measures. Descriptions and reconciliations to GAAP are included in our shareholder letter and available on our investor website. Now as always, before we begin, we have a quick video to get us started. Let's pull it up. [Presentation] Patrick Smith: All right. Thank you, Erik, and thank you, everyone, for joining us today. We completed another incredible year at Axon. I'm humbled by what our team has accomplished. It goes beyond products and financial performance, it's about our mission and the work we're doing to accomplish even more in the years to come. As Erik mentioned, we're going to do things a little different today. After you hear from Josh and Brittany, I'll come back to tie it together with how we see Axon evolving and why I believe there is no better position to be in than the one we are in right now. Josh you're up. Joshua Isner: Thanks a lot, Rick, and good afternoon, everybody. I'm very proud of our team. They earned this result and they deserve the credit. They are this good. It's a privilege to work with such talented people who are passionate about serving our customers and pursuing our mission. And in 2025, their hard work yielded a number of exciting outcomes worth highlighting. First, when it comes to our key indicators on our scoreboard, there is no metric more important than bookings. You may recall that over the past few quarters, we laid out an ambitious plan to drive record bookings, I'm proud to say the team left no doubt. 2025 full year bookings surpassed $7 billion and were up more than 40% from last year. That's on the back of Q4 bookings up more than 50%, representing a major acceleration relative to 2 straight years of bookings growth in the high 20% range. To me, this is the beginning of a trend. We just booked almost as much business in the quarter as we did in the full year just 2 years ago, and we see no sign of that slowing down. Generally, we are big on singling out specific teams because, frankly, so many of them at Axon are operating at a world-class level right now. But given the Q4 results, I want to call out a few standout performances. First, our U.S. state and local team led by Jessica Duncan. This is our best team at the company and possibly the best team in the entire industry. In 2025, they delivered not 1, but three 9-figure deals. A few years ago, that didn't even seem possible. This demonstrates the tremendous reception that our new products are receiving. Speaking of new products. A second highlight was that new product bookings, which include AI and Fusus totaled over $1 billion for the year and were nearly triple 2024 as a result. For 2 years, we have recognized that for software companies to win in the age of AI, they must convert their existing customer base to AI users before someone else does. And I believe Axon is doing that better than any company in public safety. To that end, in our first full year of selling the AI Era plan, it accounted for approximately $750 million worth of bookings or about 10% of the overall bookings total. We are positioned to be a winner in this AI-driven environment, and we intend to lap the field. Along those lines, we see a lot of runway across our new product portfolio. ALPR and Vehicle Intelligence is another one that has barely scratched the surface. Our pipeline is sitting in the 9 figures for that new product set and we expect that to continue to grow. These are exactly the signs we need to see to know we are on the right track, and it's why we keep building more. The industry-wide scrutiny on data privacy and license plate readers is real, and we believe it's a tailwind for Axon. Our early and sustained investment in privacy by design and ethical governance has positioned us well. We're hearing directly from customers, some of whom came to us from other vendors that our track record on privacy and ethics was a deciding factor in their decision. Customers aren't just buying hardware and software, they're buying confidence that will help them deploy technology responsibly. That's a durable competitive advantage. Next up, we have new and emerging markets. Bookings in this category, which include everything outside U.S. state and local law enforcement, surpassed $2 billion on the back of record results in international corrections and justice. A huge shout out to our international team specifically, who crossed $1 billion in annual bookings for the first time and delivered 2 of our largest deals in Q4 both of which were large European cloud deployments, coupled with Connected Devices. We're seeing this type of progress across multiple regions as our land and expand strategy continues to gain momentum. Additionally, it's impossible to talk about explosive growth at Axon without mentioning our corrections team. A few years ago, it would have sounded crazy for me to predict this, but the largest single customer booking in Axon company history was delivered by our corrections team. And what's really important about that is what's included, TASER 10, Body 4, real-time capabilities, AI and more, showing we have product market fit across the platform. Corrections has become one of our many verticals to prove it could punch well above its weight. While 2025 was a great year, and we're thrilled with such a strong result, we stopped celebrating this at about 12:10 Pacific Time on January 6. That was 10 minutes into our 2026 company kickoff event. This is a team that is on to the next play. We are 15% of the way through 2026 already. And as we assess what's ahead, I have never been more excited to kick off a new campaign. We have opportunity in front of us everywhere. Of course, 2026 starts with selling new products to our existing U.S. state local customer base. At this point, hopefully, if there is no more confusion we are accelerating in this market and delighting customers along the way. As we sell new products to existing customers, we also sell existing products to new customers and several of those new customer markets represent exciting days ahead. Enterprise is a big one. The market is enormous and what we're good at translates perfectly. While 2025 is about putting the right team in place to start scaling fast, we also solidified our second high-volume U.S. enterprise customer. What's particularly exciting is that they will be fielding the recently announced Axon Body Mini, which is getting rave reviews in beta and will launch later this spring. On top of the Mini, expanded capabilities in Fusus, new AI offerings, counter drone technology and Axon Lightpost and Outpost will contribute to stronger and stronger product market fit in the enterprise space. U.S. Federal is also showing promising signs. There is a major opportunity across federal law enforcement for a number of our core products as well as counter UAS technology. As I look ahead, our patience and persistence in this customer set is paying off. Some of our largest opportunities in front of us for 2026 could come from federal customers, and we're excited to help. Our confidence is also bolstered by the arrival of our new federal leader, Claudia Davidson, who is well respected in the federal space and is off to a great start. Rick will talk more about this but as we enter the new year, we believe Axon is positioned very well. At our core, we sell integrated hardware and software solutions that help collect and leverage the power of data for our customers that have highly complex regulatory and liability requirements where technology has lagged for decades. That's a unique combination that lends itself to swift adoption of AI capabilities as our $750 million of bookings in this category demonstrates. So the takeaway is simple. We're seeing broad-based demand and we're seeing it at increasing scale in a lot of places. This is a defensible, rapidly expanding business built on a foundation of customer trust and we can't wait to put up another record year. Over to you, Brittany. Brittany Bagley: Thank you, Josh. I echo Rick and Josh's comments when I say that I am truly thankful for our team and impressed with everything they were able to accomplish over the past year. First, I'll walk through our fourth quarter performance, and then we'll move to guidance, our new 2028 targets and how we think about the future. Q4 was another very strong quarter across the Board. Revenue grew 39% year-over-year to $797 million, our eighth quarter and fourth year in a row growing above 30%. Our growth is supported across our product lines. Software and Services grew 40% year-over-year to $343 million. Expansion within existing customers and growth with new customers both drive this segment. We see strong demand with new products, including Fusus, AI, VR and counter drone, each contributing to our software growth alongside our digital evidence management platform. Net revenue retention expanded to 125% in the quarter and demonstrates the adoption of our new products by our existing customers. ARR grew 35% year-over-year to over $1.3 billion. We're also gaining new customers in diversified end markets, as Josh called out, including strong wins in corrections and International this quarter. Connected Devices was up 38% year-over-year with revenue of $454 million. TASER revenue of $264 million grew 32%. Personal Sensors revenue of $109 million grew 28% and Platform Solutions revenue of $81 million grew 81% in the quarter. TASER 10, Body 4, counter drone equipment and VR training solutions were all drivers. Adjusted gross margin came in at 61.1%, down sequentially due to the impact of tariffs and increased mix from Platform Solutions, partially offset by continued strong growth in high-margin Software and Services. We expect to see quarter-to-quarter volatility from product mix. But over time, we will see the benefits of our software mix flow through to gross margins. Adjusted operating expenses of $1.1 billion increased $245 million sequentially and decreased as a percentage of revenue from 39.2% to 38.2% year-over-year. Increased operating expenses were driven by continued investment in R&D and our go-to-market functions as we scale the business to support future growth. This was partially offset by leverage on our G&A functions as we work to scale efficiently. Adjusted EBITDA grew 46% year-over-year to $206 million and adjusted EBITDA margin of 25.9% outperformed our expectations on higher revenue than forecasted and operating leverage. Operating cash flow of $217 million and free cash flow conversion on an adjusted EBITDA decreased year-over-year due to investments in inventory and the timing of collections, which we expect to catch up on in the coming quarters. We continue to target free cash flow conversion on adjusted EBITDA of 60% and expect 2025 to represent a low point as we get back closer to that 60% level in 2026. On our balance sheet, we leveraged our financing during the year to update our capital structure and completed the redemption of our outstanding convertible notes, limiting dilution while ensuring we have capital available to support our growth strategy. We closed the acquisition of Prepared in Q4 and closed our acquisition of Carbyne this month. Now turning to guidance. Our strong 2025 bookings, scaled manufacturing capacity, continued investment in new products and a growing bookings backlog supports our expectations for another year of robust growth. Our forecast for 2026 is revenue growth in the range of 27% to 30% year-over-year, which is the strongest outlook we have had heading into the year. We see robust growth and are maintaining our adjusted EBITDA margin of 25.5% for the year. This expectation includes the impact from our increased investment in several product and market areas as well as impacts from global tariffs, inflationary componentry costs, including memory and acquisitions, which are still scaling. Obviously, there was big news on tariffs last week. Right now, for us, very little has changed going forward given the implementation of the new 15% global tariff, and that is what we have baked in. We're not assuming anything on refunds until the process is clearer. In addition to our full year guidance, I'd like to provide some commentary on seasonality. Q4 is usually our strongest quarter for bookings, which we absolutely saw. Q1 is a period where we build pipeline for the year, resulting in our slowest quarter for new bookings. We also paid bonuses and commissions in Q1, resulting in a quarter that typically has lower free cash flow conversion than our average. We expect both dynamics again as we head into Q1. We do expect year-over-year revenue growth to be consistent with our overall guide for the year in Q1, and we expect to ramp into our average adjusted EBITDA margins as we scale revenue through the year, which may result in lower adjusted EBITDA margins than our annual target in Q1. Now that's the recap of our quarter and results for the year. As Rick mentioned, we are doing things a little differently today, and we've prepared a brief presentation to walk through our new 2028 target model and the long-term strategy behind it. Let's pull up the presentation. Thank you. Our agenda is a brief overview of our financials and targets from me, and then I'll pass it over to Rick to cover our longer-term product vision. As I look back on the last 5 years, I am impressed by the transformation the company has gone through, more than tripling revenue over 5 years with a 33% CAGR over the past 3 years. Scaling new hardware products and managing through ongoing supply chain disruptions and tariffs with stable gross margins, generating strong operating leverage as we expanded adjusted EBITDA over 500 basis points over 3 years to 25.5% and delivering over $700 million of EBITDA in 2025. Our products have expanded significantly, including TASER 10, Axon Body 4, our VR training portfolio, Fleet 3, Air and AI with software at 43% of our business. We've seen traction in markets like enterprise and corrections, each producing some of our largest bookings, and we've had our best year ever in international. As I look forward, we are going to keep that momentum, more than doubling revenue, expanding gross margins over time and delivering adjusted EBITDA expansion of almost 250 basis points as we continue to innovate, add problems, solve problems for our customers, add products, solve problems and gain traction in new markets. We've also continued to mature as a company with a strong balance sheet, clean capital structure and a track record of strong M&A with disruptive companies that complement our organic R&D efforts. Let's look a little closer at 2025 and some of the metrics underlying our business that highlight the quality of what we're delivering and underpin the future. First, we did $7.4 billion in annual bookings. That acceleration, growing bookings at 46%, along with our 125% net revenue retention is a great sign that our products are resonating with our customers. Today, only about 30% of our customers are on premium versions of our subscription plans, and that includes prior premium plans from several years ago, which actually look more like our entry-level plans today. We think that means we have meaningful room to drive adoption of the new products we continue to deliver. Our current officer-based subscription plans can deliver ARPU of nearly $600. And when we add in other products such as Fleet, Fusus, Dedrone and ALPR, that ARPU can get much larger. That's relative to our subscription plan 5 years ago where our most premium offering was under $250. Those new product offerings, which did over $2 billion in bookings are a major driver of future growth. International did over $1 billion of bookings. There is no one product alone that drives our success, but the portfolio delivers value across our customer base. Our success is driven by being customer-obsessed, innovative, embracing new technologies like AI and having the data and experience to make it work. We've always been careful with our customers' data, but we're seeing increasing value in how we can use it to deliver powerful AI solutions, all while respecting privacy. Within our software business, more than 40% of our software growth was driven by products outside our core DEMS business in 2025. In our hardware business, Platform Solutions drove more than 30% of our growth, also largely driven by newer products. For our 2028 targets, our 2028 revenue target is approximately $6 billion. This more than doubles our revenue today. Along with this growth, we are targeting a 28% adjusted EBITDA margin in 2028. This implies approximately 250 basis points of margin expansion over the next few years, balancing profitability with continuing to invest as a disruptive innovator and reaccelerating margin expansion after this year. As I mentioned before on free cash flow, we expect average annual conversion of approximately 60% over the longer term and expect to get back close to that level next year. We believe 2025 conversion will be a low point as we look ahead and maintain our conversion target of approximately 60%. We have a compensation plan that is highly performance-based, attracts and retains the best talent and met our goal of less than 3% annual dilution from stock-based compensation. We are now dropping that to less than 2.5% on a go-forward basis. No material M&A is contemplated in the forecast, but we expect to continue our strategy of tuck-in deals to expand our ecosystem and bring the best talent to Axon going forward. We will also continue to mature our business, our operations and our best practices while staying true to our culture and what makes Axon special. Another way we benchmark this model is through the lens of the Rule of 40. Over the last several years, we've consistently operated around 50% or higher with the most recent years among our strongest and well above 55%. Our target model implies we can continue to operate at these levels as we grow and expand margins, maintaining 55% or better. Let's go through what we need to do to get there, deliver for our customers, solve real problems and innovate. A core element of our strategy will continue to be reinvestment in the business. We are funding new product development organically that has been and will remain a primary driver of our growth and our investment. New organic products have included our TASER devices, body cameras, in-car cameras, VR training solutions, vehicle intelligence, evidence management and our suite of AI products. Our ability to fund organic investment positions us as an innovator, disruptor and category leader. We are not simply entering existing markets. We are creating them or taking a new approach. It is a testament to Rick's visionary leadership and ensures we are not the disrupted but the disruptor. That's why investing is critical. We won't get complacent. These investments are in both hardware and software as the deep integration is a strong advantage for us. The dynamics of our software business today with the nascent adoption of AI and strong trends in our other core software products means we expect software growth to be faster than hardware, but both are critical and valuable. You are seeing us drive upsell and adoption in our existing markets. We continue to have a lot of opportunity in state and local, and it delivered amazing results again this year. We also have tremendous opportunities outside domestic state and local in federal, corrections, retail, health care and other enterprise customers. This isn't hypothetical. We've demonstrated this with strong customer wins in each of these markets. We're investing behind them thoughtfully, and we will execute on and grow those opportunities as we drive longer-term results. We're incredibly excited about what we're going to deliver over the next 3 years in the business, but we always take a long-term mindset. So let me turn it over to Rick to talk through our product vision. Patrick Smith: Awesome. Thank you, Brittany. It excites me that our team is thinking longer term, and I believe that will be a competitive advantage for many years to come. 5 years ahead -- 3 years ahead is no time at all and even in the history of TASER and Axon, but with the technology advancing faster than ever, I have no doubt the world will look unrecognizable in just a few more short years in a good way. Now before I talk about where we're going, I want to ground us in where we are today and what anchors us to do so much of what we do. Let me start with our Moonshot. A few years ago, we introduced a Moonshot to cut gun-related deaths between police and the public in the United States in half by 2033. We do a lot of things at Axon. But when you step back and you think about impact, I believe it all harmonizes under this goal and our mission to protect life. I'm also excited to share and look, this is still preliminary as data is still coming in from last year, but 2025 appears to be the first year where the number of gun-related deaths between police and the public actually went down substantially in the U.S. It's too early to claim Axon had a direct causal impact, but I'm encouraged to see the trend is turning the right direction for the first time. We do have numerous anecdotes of specific instances where the capabilities of TASER 10 saved the life in situations where previously people would have been shot and killed. See this video I'm going to show you now from our hometown here in Scottsdale, Arizona, where a woman called 911, she wanted to be shot and killed, she wanted to commit what's called suicide by cop. [Presentation] Patrick Smith: Alright. As you can see there, there was another officer with a lethal weapon. I talked to some of the [indiscernible] day and they said she very likely [indiscernible]. Go and advance to the next slide, please. I also want to share that we've had customers now coming back and telling us they are seeing a result. We are in major county sheriff's office. That means they're one of the largest in the U.S. tell us that they had a 42% reduction in deputy involved shootings, and they believe that TASER 10 was a major contributing factor, along with de-escalation training, much of which happened in our VR system. So in addition to that quote, I just want to talk about like where this translates into our mission. Our mission translates into the products we build and the scale that we're now operating at. TASER is becoming synonymous with de-escalation and saving lives more than ever before and in more places. Today, we estimate a TASER cartridge is fired in the field approximately every 30 seconds in the U.S. In just the time I was speaking, another TASER cartridge has been fired. Every time a TASER device is used successfully, it has the potential to save life, and that's what grounds us in how we think about this product line. Training is also a critical element. We can build the greatest device ever created, but if people aren't trained to use it effectively, it doesn't deliver its true value. That's why we invested in building a suite of virtual reality training solutions over the last 5 years. We took a risk. VR training was not common or widely adopted when we started. And as Brittany mentioned, we leaned in to be the innovators and disruptors here. And today, we see that was definitely the right direction. Last year, customers completed nearly 0.5 million VR training sessions, and that number continues to grow. VR training is nearly sold 1:1 with TASER 10 deployments, and it can do much more than trained users on our devices. This year, we are infusing our VI platform with AI-powered features that will transform how police are trained in the decade ahead. Because we lean in and make bold bets before it's safe to do so, we garner significant first-mover advantages. And now we have what we believe is the most widely deployed VR training platform in the U.S. public safety sector and are well positioned to layer in AI capabilities just as we are across our massive sensor and software network. Another part of our strategy has been transparency and better decision-making in the moment. That led us to body cameras nearly 15 years ago. And today, our cameras are the standard in public safety. We have stored and enabled recordings of more than 60 million hours of body-worn camera footage on our latest two generation of cameras, Body 3 and Body 4 in just the last year, and we're helping customers use that body camera footage to drive more efficient workflows, provide transparency and support faster and more effective justice. Beyond body cameras, our real-time efforts expanded into fixed cameras, vehicle intelligence and real-time operations. Through Fusus, we now power more than 1 million monthly live streams with more than 300,000 community cameras connected. That's powerful connectivity and insights unavailable anywhere else. And finally, we're leading and supporting and driving toward the future in the AI era. We already have more than 500 public safety -- I'm sorry, public safety agencies live with Axon Assistant, generating more than 200,000 monthly messages. We were the first to introduce a suite of industry-leading AI tools for our customers, and we're not just enabling the ability to query. We're pioneering the ideas and the ways they will use AI and its features to do their jobs more safely and more effectively. We're just getting started with what that assistant can do. And you'll continue to see us push the envelope well ahead of the pack. I know that sounds like a lot already. But in my view, you haven't seen anything yet. It's about to get a lot more exciting, and it's going to happen faster than ever before. Let me summarize it in a succinct vision. This is how I think about Axon developing. Axon can be the provider of the world's largest global sensor network, fully connected and supercharged by AI. We will power the most intelligent connected safety devices globally. We will connect those sensor devices across the full life cycle of how they're used, and we'll build AI into every workflow safely, securely and reliably. Let's go to the next slide. And now let's dive into what that means in more detail. Building the leading global sensor network means more than just our body cameras used by law enforcement. We believe our devices can be the primary connected AI-powered assistant across many different use cases and industries. We're a leader in AI-powered wearables. Workers for the government, retailers, utility companies, health care providers and in many more places today taking massive amounts of data into their brains. And they process that data manually and they carry out the task they've been asked to do and then they spend hours typing it into systems. Our sensors will become their partners. Their virtual eyes, ears, mouths bring that real-world data into a digital backbone where it can be analyzed, utilized and relayed. Because we have the proven track record of ingesting and managing some of the most sensitive data on earth, enterprise customers of many varieties now see us as the safest choice to help them use sensors and AI to securely capture multimedia information and transform it into useful knowledge and work product. Today, we connect body cameras, in-car cameras, TASER devices, fixed cameras, drones and robotics. We've been the industry leader in introducing customers to these sensor product solutions, and we've built them in close partnership to understand or to ensure that we understand how they can be used to help. So I want to take a moment to step back and speak to something I believe is fundamental to Axon's long-term value creation. We build for durability, not for the metric of the moment. A decade ago, when our SaaS business was gaining momentum, there was real pressure to shed hardware and chase software margins. I disagreed. My conviction was and remains that the most important customer problems require integrated solutions, not point products. That decision looks prescient today. As AI increasingly commoditizes software development, the companies with defensible positions are those that own the full stack, including hardware, and we do. What we've built is an interconnected ecosystem of hardware, software and cloud services embedded in a heavily regulated industry through long-term government contracts. That's not just a business model. It's an ecosystem that grows even more valuable, the deeper our customers go into it. And rather than being a target for disruption, we are the disruptor. The current environment is accelerating our growth as customers consolidate around platforms that they trust to scale with them. The ability to capture data at the point of action and integrate it seamlessly across complex, regulated ecosystems is a rare capability and one that we believe will define the next generation of public safety technology. What you see in our sensor and product portfolio today is compelling. What it becomes over the next few years is what truly excites me. Our sensor network is most valuable, not as a system of record, but as a system of action. The ability to surface and connect data in real time across active incident and task workflows is what separates a truly integrated platform from a collection of devices. Post-incident analysis has its place, but real-time intelligence is where outcomes change. That is the capability we're building toward and one where we believe very few organizations in the world are positioned to deliver. What makes this even more powerful is, of course, AI, not bolted on after the fact, but embedded natively within the workflow and accessible directly through each device. This is the difference between technology that assists and technology that transforms. We are giving our customers genuine superpowers, the ability to do things that simply were not possible before. And we believe that potential has only begun to be realized. For most of my career, people thought we were crazy. But now the breadth of what Axon has built and the vision that connects it, it was not obvious to the outside world for a long time. And there were moments it was easier to just keep our heads down and build. But things have changed. The vision that has driven every product decision, every acquisition and every bet is now coming into focus for the broader market. People are starting to see what we have always envisioned. Let me give you a few examples of why I believe that. So here's one to make the vision tangible. A 911 call comes in and it's answered instantly. If it's not a true emergency, it's handled automatically by AI, freeing human capacity for the moments that matter most. If it is an emergency, the full weight of the Axon ecosystem activates in seconds. The call is transcribed and translated from just about any language in real time, breaking down language barriers that have historically cost critical minutes. Location confirmed, context captured, crime center notified, live video from city cameras, public sources, from the 911 caller's phone and vehicle intelligence all flowing in real time. A drone already airborne and gathering awareness before the first responder has left the station. By the time the boots hit the ground, the situation is already understood. And in a growing number of cases, the drone does not just inform the response, it is the response where it holds the situation safely, creating the time and visibility needed for a better outcome. This is the power of sensors connected and supercharged with AI. Next, emergency response is just one dimension of what this ecosystem makes possible. Consider the challenge of connecting physical infrastructure and protecting it against a new class of threat. Drones are the physical equivalent of a cyberattack. They're low cost, widely available and capable of causing outsized disruption and harm in the wrong hands. A single consumer drone can shut down an airport, compromise a stadium or create chaos at a public event. The question is no longer whether this threat is real. It is whether you are ready for it. At a major venue, an unauthorized drone enters restricted airspace. Our integrated sensor network flags it immediately, location of the aircraft, flight path and origin point of the operator are identified in seconds. Security engages on the ground. Law enforcement has the same real-time picture. The operator standing in a nearby parking lot realizes the response is already underway, and this disruption ends before it escalates and the event continues. But detection is only half the equation. Knowing a threat exists means nothing if you cannot neutralize it. Our DeDrone Defender uses the same sensor network that identified the threat to aim a sophisticated jamming system directly at the drone, delivering precise electromagnetic interference on the exact frequency it is using to communicate, not a broad blanket, a surgical one, a surgical response. Today, active drone mitigation is reserved for federal agencies, but the threat has democratized faster than the law has adapted. And many times, we will build ahead of the law and be involved in helping to change the law. So we're active at all levels of government. And what once only mattered at a presidential inauguration now matters at your county fair or your Friday night football game, drones are a threat everywhere. And we're not building for today's threats in today's regulatory environment alone. We're building for tomorrow's. When the law catches up, and we believe it will, Axon will already be there. This is the same connected AI-powered ecosystem applied to a different threat, and it works exactly the same way. Now let's take this ecosystem in a completely different direction. A retail associate faces difficult situations regularly. Before they ever encounter one, they've already been trained for it through our immersive AI-driven MetaCoach, scenarios designed to build the confidence and judgment to stay safe, deescalate and prevent situations from spiraling. It's AI-centric, and it can be delivered on any screen conveniently and effectively. When an incident does occur, they're ready, camera activated, panic feature engaged. Their security team is live within seconds, communicating directly through the device and pulling additional camera angles to guide the response in real time. The incident is automatically summarized and transmitted as an emergency to the local appropriate police department. The closest officer with retail crime training is dispatched. They arrive, deescalate and documentation begins immediately. That is where most systems stop. Ours does not. The post-incident reporting system cross-references the individual against prior incidents, aggregates the supporting evidence and delivers a complete prosecution-ready summary directly to the prosecutor's office. Justice is served, and that associate comes back to work the next day, not rattled but confident, knowing they have the training, the tools and an entire ecosystem behind them. This is end-to-end community safety, not a product, not a platform. It's really a promise. Sensors deployed citywide by governments, businesses and private citizens, unified in a privacy-preserving way into a system that detects threats, accelerates response and drives outcomes that matter. Every stakeholder is connected, every incident better handled than the one before. The goal was never just faster response times or better documentation. It was a community that works together, feels safer together, is more connected and trusts one another more because of it. That's what we're building. And again, we're just getting started. So what excites me most is this. We're not building for just one use case. We're building for many of them. Corrections, retail, health care, federal, the courtroom, the back office, every environment where safety, documentation and accountability matter is an environment where Axon belongs. A correctional officer with the tools to deescalate before conflict starts, a retail manager with real-time visibility into store operations; an ER nurse whose documentation burden drops so she can focus on the patient in front of her, a federal agent with the same integrated platform as the local officer on the be; a prosecutor who walks into court with a clear evidence-based picture of exactly what happened. The platform is the same. The impact scales to every corner of public safety and now beyond. That is the opportunity in front of us. So let me be direct with you. We are at a moment unlike anything I've seen in 30 years of building this company. AI is not an incremental shift. It is not a bubble. It is not overblown. It is a fundamental disruption. It is a force, and it will break companies that are not ready for it. I've watched tech cycles come and go. This one is different. The speed is different, the stakes are different, and it's what we've been building for, for the past decade or more. And I've never been more confident in Axon's position. We're not a simple all software company waiting to be undercut by a cheaper model or a faster startup. We're an integrated ecosystem of hardware, software and real-world data embedded in regulated environments, trusted by the customers who depend on us most. And that trust is not a marketing line. It is the result of 30 years of showing up, delivering and earning the right to be a partner rather than a vendor. Here's how I see the opportunity. If we deploy AI more aggressively and more thoughtfully than anyone else in this space, while honoring the responsibility that comes with operating in the environments we operate in, we will create value that our customers simply cannot replicate, cannot replace and most importantly, they will not want to because they trust us. They will reward that with deeper partnerships, larger opportunities and bigger problems for us to go solve together. None of this gives us permission to relax. Complacency is fatal. In a world moving as fast, yesterday's success is not a foundation. It is a liability if you let it make you comfortable. As Josh says, we got to focus on the next play. We had a great year, but Axon is not about getting comfortable. We're leaning in harder than we ever have. We will take bold risks. We will invest aggressively. We will reimagine everything AI can touch in what we do, and we will do it without losing sight of the mission that has always driven us. Axon has never been built on smooth sailing. We've been built on reinvention, on finding a way through when others said there was none. That is not just our history, it's our competitive advantage. And right now, it has never been more relevant. So let me leave you with this. What I've described today is not a vision deck. It's not a road map for the next few years. It's happening now, and it's arriving faster than any of us anticipated. The pace of what our teams are building, the creativity I see accelerating across this company, the acceleration they are delivering against their original road maps, this is the Axon I've always believed in. And right now, we are hitting -- we are firing on every cylinder. We're living through a pivotal chapter, not just for Axon, not just for public safety, but for humanity, the moment where human and machine intelligence begin working together to solve problems that once felt permanent. It's not hyperbole. It's what I see when I walk halls to this company every day. I've been doing this for over 30 years. I've never been more energized than I am right now. We're pushing the arc of history away from violence toward a world where killing is no longer necessary or acceptable. That mission hasn't changed. Our ability to deliver on it has grown and it has never been greater. Now what matters is execution. And by that measure, we've never been stronger. Let's roll. Erik Lapinski: Thanks, Rick, everyone. So we'll spend the next half of the call today taking everyone's questions. Up first, we have Mike Ng at Goldman Sachs. Michael Ng: Historically, you've given us a sense of what bookings growth could look like on an absolute basis or relative to revenue growth. I was just wondering if you could talk about what you're expecting around bookings growth and discuss the demand environment in 2026? And then relatedly, are you expecting to see any meaningful product or customer vertical inflections over the next 3 years embedded in the guidance? Joshua Isner: Yes. Thanks a lot, Michael. I'd say at this point in time, we probably want to stay away from any bookings guidance. But I would say qualitatively, as we get toward the later part of the year and I start to have more visibility just like in the past years, I can certainly give more information then. But from a demand perspective, never been more confident across the Board. Like we knew our core was rolling, and we're excited about that. But seeing these new products layer on and just the stand-alone demand for them in some cases and the kind of bundled demand in conjunction with some of our other products, it's just -- it's coming together really nicely. And I think it's very, very possible that all 4 of our core markets are in a place to have banner years this year. And it's going to take a lot of execution and a lot of focus, a lot of discipline, but I'll bet on our team. Michael Ng: Great. And just as my follow-up, just on the strategy to become the #1 global sensor network, it seems like Axon 911, building on prepared and Carbyne should be really foundational to that. Could you talk a little bit about the differentiation that you guys have relative to the incumbents? What does the go-to-market look like to address this wider group of constituents that you may have done a little bit less with in the past, like Fire and EMS? Joshua Isner: Sure. Jeff, why don't you cover the product and then -- or Rick cover the product, I'd be happy to cover the go-to-market motion. Patrick Smith: I'm going to give Jeff a little chance to speak here, and then maybe I'll top up after. Jeffrey Kunins: Yes, sure. Thanks for the question. Michael, I think like we talked about before, the combination of sort of two steps. One is within 911 and then 911, how it connects to the rest of the ecosystem and everything Rick just talked about. So within 911, the combination of Prepared and Carbyne and why we were so excited to bring both of them into the Axon fold is because it's breadth and depth. And so what Prepared does is it is this AI-powered modern overlay that instantly adds value with almost 0 deployment complexity that can be done in extremely short order to any PSAP anywhere instantly turbocharging their ability to have a faster and more efficient workforce and to feed real-time data about incidents into a real-time crime center like Fusus and the like, and I'll come back to that in a moment. So it is not competitive with the legacy systems. It is an add-on and an instant overlay that's extremely efficient and effective. And then Carbyne comes right around behind that and says as an agency is ready whenever they're ready and many and many and more of them are getting ready sooner to say, we want to modernize our overall call handling infrastructure and have top to bottom the absolute best full stack for powering 911, Carbyne has already proven and continues to prove that pound for pound, they can outperform on every metric that matters those incumbent systems. And so the combination of those 2, we think, sets us up very, very well, both right now and in the years to come. And then both of those connect to the ecosystem in a very advantaged way in the vignettes that Rick already shared. So the ability to as seamlessly as possible, take that signal from 911, flow it right into the RTCC with Fusus, flow it right into DFR with Skydio and more, and then all the way connected from there to all of our other sensors and signals, including the ones that are being worn by officers. And so again, agencies will pick individually which pieces they want the most, but the complete combination is really unmatched and unbeatable. Joshua Isner: Thanks a lot, Jeff. And from a go-to-market perspective, Michael, you're right to identify the fact that while there's overlap in the real-time crime center, the PSAPs are an extension of our customer base. I think Prepared's brand -- and look, the Carbyne acquisition closed just very recently. So most of my comments will be more geared toward Prepared as we've made a little more headway given that the acquisition was last year. These folks are very well ingrained in this customer set, and they're very well liked and respected. And I'd say any acquisition we do ever starts with the quality of the team, like it doesn't really matter to us who's ahead and who's behind. In this case, we believe Prepared is ahead and Carbyne is ahead in next-gen call handling, but these teams are very, very talented. So not only are we placing a bet on this technology, we're placing a bet on the leaders here. And specifically, Michael Chime, CEO of Prepared, this guy is going to win in 911. We're betting on him. We're arming him with what he needs, coupled with the mirror at Carbyne, we think we're going to be a very, very, very competitive group into the future, and we're excited about that. Patrick Smith: One thing I want to just pile on with one other thing. If you look at -- there's sort of 2 general acquisition strategies, I'd say, in our industry. There's buy the mature cash cow industry leader and you sort of do that sort of a roll-up, which is not what we do, or you look at who are the disruptors that bring a fresh tech stack, Fusus, Dedrone, Prepared, Carbyne. These are all category upstarts that have a fresh technology stack that we can bring and integrate with what we're doing. The alternative is you buy a ton of tech debt. And so just because you've got a bunch of sort of legacy businesses under one brand doesn't mean that the systems play well together. And especially if we don't get the cultural elements right, driving change in large organizations is ever harder. So I want to thank Jeff, in particular, and Josh, I mean, I drive these guys nuts. They're trying to run a large business. And I'm always coming in like, hey, we got to push over here. We got to be changing. And I'm really proud. I mean, Jeff has shown me just great examples. I think our team is adopting AI internally at a speed that I'm just really proud of. And it's not easy. There's also -- frankly, at times, there's pressure to, hey, should we be more focused, stay in one market, stay in one product segment. But you look at the breadth of all the different things we're doing across that portfolio and now in so many different markets, -- and the benefit of that is when the ground is shifting beneath our feet, we're not just relying -- I would not want to be a software-only company right now. I think this whole SaaS box looks has got some real risk to it. But when you combine like doing integrated hardware and software and all the data handling and network effects of sharing across all these different users and now in each new market we go into, I just met with a huge company in the medical response space. The ability we can give them to directly communicate and share data with other first responders without going -- having to rely on a radio right out of the 1970s, we think sets us up to continue to really build this ecosystem for the future and disrupt many of the category incumbents. Erik Lapinski: Up next, we have Will Power at Baird. William Power: Okay. Great. Well, really strong results. Congratulations to the whole team. And Rick, probably most importantly, great to hear some of the early green shoots. It seems like you're seeing out of the moonshot land. So best of luck on that, obviously moving forward. Look, as I look at the future contract bookings, that provides really strong visibility seemingly for 2026. So I guess I want to focus on '27 and '28 and maybe better understand the confidence and visibility to sustain similar growth rates. Anything you can share on contribution from existing products versus new products? Any particular standouts there? And then I have a quick follow-up. Joshua Isner: Sure. I mean I think, Will, in general, I think we're still growing into these new offerings, the AI Era Plan, the new version of OSP that launched this year. There's just more and more products. We have essentially more arrows in our quiver to keep selling and all of the buying signals are there. And frankly, we see a multitude of ways to get to that CAGR. I mean, we have, like I said, 4 markets that are all really showing signs of growth and a bunch of new products that we're really excited to see the adoption of. Maybe I'll call out one, which is Dedrone. That one, I think, has the potential to be really exciting, both because in state and local, we have the opportunity to really make an impact there with it, but it's really opening doors into both federal and international and often like the land and expand might not always be TASER into something else anymore. It might be Dedrone into something else. And we're just seeing that play out so beautifully across both federal and international. It gives us a lot of confidence in the out years. And so certainly, everything we're looking at in terms of indicators suggest that the next 3 years is going to be really exciting here. Brittany Bagley: Yes. The only thing I would add for everyone is I don't think you need to assume anything differently than what we have just delivered in this last year, right? There's no major change that you have to forecast or underwrite for 2028. All of the product lines are growing. We're seeing traction in all the markets. You can just continue to roll that forward. William Power: Okay. I just -- that's all very helpful. Just maybe to follow up on some of the AI commentary. Great to see the bookings strength there. It'd be great to get any kind of perspective on kind of what any year. I mean, I think last year was kind of the first big year for bookings, right, given when it was rolled out. Is that something that could double this year? I mean what's kind of the -- what does the pipeline look like? And what is the product road map there? Anything you can share on that front? Joshua Isner: Well, I take a lot of craft at Axon for sports analogies. So you're not helping me out here. But I would say we're in the very early innings, like bottom of the first, top of the second, we're talking about here. We've got a lot of pipeline ahead of us in AI, and we've got the opportunity to continue deploying more and more AI products every year into this plan. And as such, the value will continue to increase in it and certainly attract more and more customers along the way. So this is one where this is like we're -- game just started, National Anthem is over and teams are running out on the field here. Erik Lapinski: Up next we have Jonathan Ho at William Blair. Jonathan Ho: Let me echo the congratulations as well on the strong quarter. Can you -- I also appreciate sort of the additional detail on your AI moats. And so I wanted to start there and maybe dig in a little bit more. Can you help us understand some of the domain knowledge and data moats that you have in the AI world? And maybe how does that relationship -- the vision for working with some of the frontier models, how does that look like now and in the future? Patrick Smith: I was going to see if Jeff wanted to take that one. Jeffrey Kunins: Maybe I'll start and then, Rick, you can chime on. So I think, first, I think that the grounding, and you've heard us talk about this before and goes with what Josh was saying, too, is that I think differentiation and success here in AI at its core in a world where everybody has access to the same commodity but very powerful frontier models is really, one, having the right physical sockets, and that's why hardware plays such a big role, right? So if you think about something like even translation that we came out with last year that is having such a big hit, the raw technology of translation comes with the core models. That's not where our -- either our innovation or our differentiation or our moat is. The key is that we are marrying that up with a clear and present, very real specific need for our customers all day, every day in their real job, and we are embedding it ergonomically and physically into the device that a very, very, very large number of the people in this category are already wearing every day. And that's why -- and like if you think about an officer carrying a phone and trying to pull out the phone and launch an app and this and that and the other or add some other piece of equipment that they're not used to or have -- all of those things are radically simplified when we simply can build in that functionality into an experience and a physical artifact that we already have that socket for. The second, as you said, is ultimately about the data. And as you know, we simultaneously have, I think, the highest bar of anyone out there in our own or even other segments about thinking ethically and responsibly about how we use any kind of data and certainly customer data in the right ways. But ultimately, even with the highest possible bar of dedication to responsible innovation, our responsibility and our ability, given that massive -- you talked about the millions of hours of video and everything else is for us to use the state-of-the-art as it keeps evolving with what the models can do to get differentiated results out of the same models that everybody else can use by leveraging in a responsible way, the unique customer data that we are the custodians of. Joshua Isner: Maybe I'll just add one really, really simple add-on to that, which is like our CEO is in the top 0.0001% of AI users globally. So you can imagine what that means for everyone else at the company when that's Rick, right? And so I think I'm particularly proud of the push we've gotten from Rick, but also Jeff equally leading the charge on this and really establishing our identity as an AI company in public safety. Patrick Smith: The only thing I would add on to the tail end of that is also the fact that we are managing these business process flows of this critical information because of the whole Evidence.com ecosystem, right? The evidence comes in, we store it, we move it around workflows that have traditionally been manual. The opportunity for us to automate more and more of that with AI is just like we're in this incredible position to automate away just a ton of work for our customers. And then it goes to the prosecutor, it goes to the defense attorney. And now we're now selling premium products there years ago. And we -- I think we still do have a free version of Evidence.com for prosecutors to be able to just receive evidence, but they're now buying premium versions because, boy, they sure love that evidence to come in and get processed for all the things they've got to do with it, make sure we're helping track discovery requests and helping them find where the needles in the haystack, the things they need to look at, most importantly, when they get 100 hours of video in a case. So I think the -- it really is that we've got sort of the manual version of these workflows with this highly secure data, and it's shame on us if we can't be the ones who really delight our customers by bringing AI in to solve more and more problems for them on their existing workflows and then doing new things that they never thought possible. Jeffrey Kunins: Sockets, workflows and real jobs to be done. So many companies out there that are trying to work their way through this situation, they are trying to sort of, as Rick said before, kind of do AI for AI's sake or paint it on as an afterthought. Foundationally, we are always grounded in actually solving the real everyday workflows for our customers, and we have the benefit of having these incredibly sticky all day, everyday workflows and physical sockets that they are already depending on us for, and they are the perfect conduits to insert AI done right to help accelerate what they're trying to get done. Jonathan Ho: Excellent. It looks like you're a clear beneficiary of this AI trend. One thing I wanted to also better understand is with the enterprise opportunity, you've now called out sort of multiple large contracts. It seems like we're just at the beginning here as well. What maybe has to happen from a go-to-market perspective to achieve that vision? What do you have to do to build out a channel and to sell this even more into newer enterprises? Joshua Isner: Sure thing. I think, look, while it's a different market, I think we've seen this play out before. Some of us were here in 2009, 2010, 2011 when we were building the Video business in public safety, and we understand what it takes to like get momentum out of the gate to make your first customer successful to parlay that into customers 2, 3 and -- and the reality is it's like -- it's an exponential curve. It's not linear. Like we go from 1 to 4 to 12 customers and each of those kind of is the next like stone across the creep that we have to cross, and it's going to take a little time. But for me, the most important thing out of the gate is not how many enterprise customers we sign up in short order. It's how many enterprise customers we make successful and delighted with the products early on. And then the rest has a way of figuring itself out. And so for us, it's much more about getting the right team, focusing on the right early customers, focusing on the right channel partners in certain markets like private security. And so that's just a process that's playing out. But every year, we see a few more indicators that this is something that's truly turning into a valuable business. And while we've got some work to do, for sure, like my opinion is, as long as we keep things simple and put one in front of -- put one foot in front of the other, we're going to end up in a very exciting place in the enterprise business. Erik Lapinski: Thanks, Jonathan. Up next, we have Andrew Sherman at TD Cowen. Andrew Sherman: Congrats on the quarter. Josh, TASER saw a huge acceleration to 32% growth. Congrats on hitting $1 billion run rate there and also the decline in the officer-related debts. Talk about any specific drivers in the quarter that helped that? Where do you stand from a capacity standpoint? And is the Apollo cartridge still slated for this year? Joshua Isner: So I'll let Rick weigh in on the Apollo DART project. In terms of TASER demand, I think it's a matter of just execution. I think one thing people have got to realize a little bit about bookings, and I think Q3 and Q4 were a good example of this is the bigger the deals get like sometimes Q3 like last year will be a decent quarter, but not a double over the last year, but then we come back in Q4 with a couple of these large, large deals that we thought had a chance to close in Q3 and they closed in Q4. So with 9-figure deals and these bigger and bigger deals, there's just a little more variability quarter-to-quarter. And I think that's more of what happened. I think it was -- the demand was there, and we are very confident in it. It's just some of those large deals pushed from Q3 to Q4, and the team did a good job getting them soon up before the end of the year. But we certainly feel like TASER demand is very strong. And it's exciting to see, obviously, the progress on the moonshot and to hear the testimonials from customers saying in or coming in. We're only talking about a low thousands number. So when you hear an agency say, "Hey, there were 5 or 7 of these that would have resulted in a shooting, that's like a statistically significant amount that we're starting to see in terms of saves instead of shootings in public safety. And so we're really encouraged to see the trend line. And again, a lot of work to do, but feeling like we're on the right track. Rick, did you want to cover the Apollo DART? Patrick Smith: Yes. Apollo is testing extremely well, better than we even expected in laboratory testing, meaning the percentage of time we can get through heavy clothing being very high and the percentage of time we get an over penetration is very low. So that's great. It's going to be going shortly up to the Arctic circle for some field testing. We've made heavy investments in the automation. It is not an easy product to make. If you look at the videos, it kind of looks like this pretty cool object. The thing is a flying hypodermic needle that we have like cut with incredible precision to create these cascading crumple zones so we can use the physics and fluid dynamics of skin function to create a chain reaction that makes this thing stop cutting through materials and penetrating. So I think it's a really big technological breakthrough. And I would say it's probably not going to be a meaningful contributor to revenue this year, but it will start to be in real customers' hands for the next cold season is the goal. Andrew Sherman: That's great. One more quick one for you, Josh. Europe, obviously had a huge year. Great to hear the 2 big deals in Q4. How is the pipeline for this year tracking? How do you keep up that momentum? What's driving that? Joshua Isner: Sure thing. It's a story of -- we had 2 huge deals at the end of the year that certainly helped the result, coupled with a lot of medium-sized deals. And I think that's kind of the thing. Like as it's growing, we saw this in state and local, we feel good about the foundational level, but for things to really grow fast, we've got to have more and more big deals. And so we've got a bunch of big deal hunters over there in Europe now, and they're bringing back more and more opportunity every quarter. And while the timing is going to vary a little quarter-to-quarter, we feel like we've got a few really, really exciting opportunities in international this year, and the team is going to focus on closing them. Erik Lapinski: Thanks, Andrew. Up next, we have Mike Latimore at Northland. Mike Latimore: So I think you've mentioned that within the longer-term guidance, maybe software grows a little faster than hardware. I guess is there any thought that maybe the software growth rate actually improves or accelerates a little bit given some of the AI applications that are going in there? Brittany Bagley: I mean I think we're obviously really excited with the performance we saw, but our hardware business is also doing great. So I mean, I think they're both performing so well. It's hard to really call which will be a bigger contributor. I think you've seen in the last couple of years, though, that software has been slightly outpacing hardware growth, and that's a tailwind for us from a gross margin standpoint. Joshua Isner: We do have monetary dynamics there with like how much software historically we've booked, when you just layer on the AI Era Plan on top of that, now there's just so many more dollars available in software and AI relative to hardware. So certainly, we're excited about that and seeing more and more software start to pile up here. Patrick Smith: We do have some more hardware magic up our sleeve over the next couple of years here. So I do want to give a shout out to Brittany as well. She had her work cut out working with me on the long-term plan because one of the things I worry about is that if we underinvest in continuing to build out the hardware elements of the ecosystem, which are going to -- they're not going to be as high margin, at least initially, especially as the software, but I think it's important to the health of the business. And Brittany and her team really did a nice job really rigorously modeling this out to show me we have plenty of room to be able to hit all the investments we want to invest in and continue to deliver growing profitability to our shareholders. Mike Latimore: Great. And then just a second question for me. It seems like you've won some good international cloud deals lately. Do you see sort of an acceleration there? Is that kind of loosening up where the dam sort of broken and now international cloud is going to -- they're more comfortable with that model? Joshua Isner: Yes, for sure, for sure. And we think AI is the thing that takes that opportunity to the next level as well. Now it's like if you want to deploy things on-premise, you're essentially signing up for 0 AI tools into the future, which I think is becoming pretty clearly not a winning formula. And so I think that is a nice push to the cloud for some governments that have been slow to adopt it. And we're here certainly waiting for that moment with a lot to offer, not only in cloud, but also in AI. Erik Lapinski: Up next, we have David Paige at RBC, and welcome to the calls with us. David Paige Papadogonas: Erik. Nice to be here. Congrats on the great results, team. I had a question -- maybe jumping back to what Jonathan Ho had asked, in terms of driving growth in the enterprise market and the go-to-market, I guess if I think about like U.S. public safety, police station, like the Chief of Police would then call like the neighboring chief of police and say, "Oh, hey, I have this great Axon product. Why don't you look at it, look how beneficial it is." But like a big box retailer wouldn't exactly call their biggest competitor and say, "Hey, I have this great camera that's reducing theft and all the benefits that it has." So I was just curious, maybe you could flesh out just how you're going after new business there. Patrick Smith: Yes. Let me take on that one to start because I would actually tell you, they do colleagues, the security departments are mostly former law enforcement. And they're under a lot of pressure, and they don't view that as a competitive advantage in any way. It that's an area like we partner with Auror, which is one of our investment companies out of New Zealand that basically runs a case management software similar to Evidence.com for retailers. And they share wildly with each other because they want to track -- they're all being hit with these organized retail crime organizations. And so there is actually much more collaboration than I was expecting. I expected a more competitive dynamic, and there certainly is on the retail side, but I'm not seeing anybody viewing this as an area of competitive advantage. They're quite collaborative. And then similarly, on the medical side, I was just with a major medical provider. And it was interesting there, there's a fair amount of mission-driven stuff, too. This company, in particular, operates a ton of ambulances and vehicles and EMS services. But there day-to-day, they're pretty geographically segmented, and they're constantly deploying ambulances that calls that may come into a competitor or they'll have a call that comes in that they'll end up shunting over to a competitor. And I think in those cases, I've not seen in those industries that a negative competitive dynamic. In fact, there's a lot of the same collaboration. Joshua Isner: Yes. I'd just add, it's incumbent upon us to build the business case also for every customer. Ultimately, I think you're right, in general, like there's an element of competition, at least a little more so than in public safety. But ultimately, all of these decision-makers understand what an ROI looks like and that our products drive that ROI and solve real problems for them. So our lead gen efforts and our -- how we show up for new prospects matters probably a little more here than in public safety. But at the same time, I think the market is so much bigger as well that I don't think the opportunity slows down as a result of that nuance. Erik Lapinski: Up next, we have Jordan Lyonnais at Bank of America. Jordan Lyonnais: Rick, you touched on it a little bit in the Go Boldly podcast where things had gone where you expected. So when we look out to 2028, having this joint sensor just under the Axon tool belt, what do you worry about could go wrong? Patrick Smith: I think for us, a misstep around sort of privacy and data handling. We are seeing that those are concerns right now out in the public. I think that would be one where we could make a mistake that would have outsized negative consequences. I think also if we -- our customers are going to expect that we continue to deliver more and more value. I mean they're all hearing the same things we all are that you can do more with less cost in terms of developing technology. And so I think it's incumbent on us to make sure we're still earning our way up the value chain the way we always have. It something I'm particularly proud of, like when Josh talks about where we were 5 years ago with a much lower peak price point, it was, I think, like in the $200 range. We haven't just like raised prices to get there. We've launched a ton of new products that didn't exist. And I think that we've got to just continue to deliver there. And Jeff and his team are pretty busy making sure that I think expectations for what we deliver in the AI Era Plan are going to continue to grow, and we've got to hit it. Erik Lapinski: Thanks, Jordan. Up next, we have Keith Housum at Northcoast. Keith Housum: Just unpacking the enterprise opportunity a little bit more. Perhaps you guys can provide a little bit of color about, one, I guess, which verticals are you having the initial success in? And perhaps any color you can give on the second large customer that you guys have in terms of which vertical they buy in? And then finally, I guess, as you guys are going after the enterprise market, are you leading with Fusus? Are you leading with the Mini or what's kind of like the lead product there? And are people signing up for a multipack or are they going with one product and the goal is to land and expand? Joshua Isner: Yes. Thanks, Keith, and good to see you. I would say, look, like our salespeople, we're like as allergic as to the like show up and throw up mindset as you possibly could be. Like we want our salespeople showing up and asking a million questions to identify the opportunity and then figure out what product is going to solve the problem. And so I think there's moments where ABW Mini leads or Axon Body Mini leads to more conversations around software and AI. I think there's moments where Fusus is really the exciting part. I think there's moments where Outpost and Lightpost or DFR or counter drone are the exciting first opportunities. And I think that's -- it's similar to international. It's like the beauty of it is -- you just got to get in with one product and then everything works so synergistically, we'll bet on ourselves and our ability to sell more over time. And so I think now more than ever, it varies. Like for a little while, it was a Body cam and then you go to the next step. Now it can be a number of different first products. Keith Housum: Great. Great. Any color on the large customer that you guys announced in your second one in enterprise? Joshua Isner: Yes. So I appreciate you asking, Keith. Personally, I'm not sure that we're going to be announcing logos from us on enterprise deals. I'm not sure that it serves us. And I think we'll see. I think some of these will just come out in the press or hopefully, some of you guys are walking into these major businesses over time and you see our products just being used in the wild. But I think we're trying to do the calculus of like is it worth starting to identify these by name for competitive reasons or not. And so that -- hence our trepidation on that. Erik Lapinski: Thanks, Keith. Up next, we have Meta Marshall at Morgan Stanley. Meta Marshall: Congrats. I guess just maybe first question on the 911 market. Just is that a different buyer kind of within the organization? Or just how much can you use kind of cross-selling and leveraging the relationships you already have within kind of some of the state and local environments? And then maybe just a second quick question for Brittany. You mentioned the 30% on the premium OSP plan. Understanding that continues to kind of get enhanced over time. But do you see any major changes to that percentage kind of driving some of your expectations for 2028? Joshua Isner: Brittany, do you want to start with the second one first? Brittany Bagley: Yes, sure. I mean, look, the interesting thing about that is the premium plan goes up every year. So each year, we start with a new premium plan. I do think that over time, we will continue to roll more of our customers on to our most premium plans. That's a little bit of what you're seeing underlining the 125% NRR number. So I think you can continue to see it moving up over time. I also think, though, that we continue to add amazing new products, and that takes that premium plan price point up. So it's not like I see us getting saturated on how many people are on the premium plan in the next few years. Joshua Isner: And Meta, great question on the buyer persona and 911. I don't think it's cut and dry with like one buyer. Sometimes the RTCC really has a lot of say over that, the real-time crime center. Sometimes the police department or county operates their own 911 center and there, again, it's a very tight decision loop. Sometimes a PSAP supports 5, 10, 20-plus different accounts. And there, that's probably the case where we get the lease network effects from our existing customer base, but there's still some. And I think Prepared and Carbyne over the past several years have really built up their own brands and relationships in those spaces. So I think we view this as an opportunity to bring more potential buyers into our universe, not necessarily like an uphill battle to go meet a bunch of new buyers for the first time. Erik Lapinski: Thank you, Meta. Up next, we have George Notter at Wolfe. George Notter: All right. I think I heard you say earlier in the call that you have 500 agencies deploying Axon Assistant. I think Axon Assistant is an element of the AI Eras Plan. I guess I'm inferring that you have 500 AI Eras customers at this point, and that translates into $750 million in bookings. Is that the right math exercise? Am I looking at that correctly? Joshua Isner: Not quite, George, because you could buy some of these as a stand-alone as well. And so it's not one for one, any customer who adopts a Draft One or an Axon Assistant is automatically an AI Era customer. But directionally, that's kind of the right line of thinking that a number of those deals will be on the AI Era Plan and translate into a certain number of bookings. And we're -- you know what the pricing is, we publish it. It's not a secret. It's just a matter of covering the market. Brittany Bagley: I think also, George, what we were calling out is that's one of our very newest features inside the AI Era Plan. And so not every customer turns on a new feature immediately. So we're sharing that because it's a really nice indicator that customers are excited for it and they're starting to adopt it, but it does not tie exactly back to how many customers are on our AI Era Plan. George Notter: Got it. Okay. I guess where I was going with this is I'm trying to understand sort of the penetration rate you've got at this point on AI Eras. And I guess if I think about 15,000 law enforcement agencies in the U.S., roughly just the U.S., and I kind of use that 500 number as a proxy for your penetration. Like am I in the right ballpark in terms of where you are in penetration rate? Brittany Bagley: I would go back and I would look at what we charge on a per officer per month basis for that, consider that inside of the $750 million of bookings that we shared, and then you can tie that sort of back to the officer count. Erik Lapinski: Up next, we have Jim Fish at Piper Sandler. James Fish: Look, going back on TASER, TASER noticeably reaccelerated, and we've been hearing customers that had been on TASER 7 were sort of being told end of support on that as they come up for renewal, not a forced refresh by any means across the base, but encouraging them to move to TASER 10. So I guess how much refresh of TASER 7 to 10 could we see this year? Or what percentage of the base is still actually on some of the legacy offerings that we can actually have a bit of an upgrade cycle on top of the fact that if I look back 5 years ago, your incremental bookings really improved versus this time last year. So should we be expecting a larger portion of your growth this year actually coming just from contract renewals? Joshua Isner: So Jim, great question. I don't think it's the case. We view it as failure when a customer buys TASER 10 and then their upgrade is a TASER 10 5 years from now. So we're really focused on trying to get the new version of the TASER out to market as fast as we can. I would say TASER 7, there's -- we would never not support the product. Part of our -- actually, part of our inventory strategy is like, hey, we launch a TASER. We know it ships for 15 or 20 years before it's discontinued. And that kind of is the hedge on being more aggressive with holding more inventory upfront. So we'll continue to support TASER 7. There's plenty of customers on it and using it. Of course, we view those as the population. We've got to go earn the right to upgrade, and we believe we will. But high level, I think you should think of the TASER business this year as plenty of demand and orders to support the revenue guidance. So certainly, we don't see anything different than that. Brittany Bagley: Yes. I would maybe just add, I mean, that's all spot on. I mean, including the fact that like we still have customers we're selling X2, too. So yes, TASER 10 is doing incredibly well, but that's driven a lot more by the efficacy of the product than it is us not supporting it. But I think the thing I wouldn't miss is as we have big corrections deals and we have big international deals, you're seeing new customers come in, right? So there's always this conversation around TASER of like what is the upgrade cycle. That still exists. Customers do 5- to 10-year contracts. We upgrade TASER every 5 years. But don't forget the piece in the TASER business as new customers are coming in and actually adopting TASER. Erik Lapinski: We'll go to Tim Long at Barclays next. Timothy Long: Just 2 quick ones, if I could. First, obviously, a lot of success in these other markets outside of state and local. So just curious, anything jump out that's different there relative to deals that are in more of the core, things like win rate, deal sizes, bundles, anything like that, that you can point to directionally on those? And then second, I did want to follow up on the hardware comments on T10 and AB4 both seem to have a ton of incremental utility compared to prior products. So Rick, I think you talked about some magic in hardware, but -- just curious, as you've taken such big leaps on this last set of some of the core products, does it get more and more difficult over time to innovate further and take bigger steps compared to what was just accomplished with the really successful ones? Patrick Smith: No, I actually can see, I think our next generations of hardware are all going to be pretty compelling. We've got at least one new category in the pipeline as well. But I'm knee-deep in the next-generation TASER, knee-deep with Rubén Caballero, who Jeff hired on his team, who's leading our sensors space. His last gig -- well, I don't know if it's his last gig, but he worked for Steve Jobs directly as a hardware lead on the iPhone. So bringing him in, a lot of new creative energy looking at our personal sensor space. So I think we still have a lot of room to innovate. Jeff, how would you answer it? Jeffrey Kunins: No, I think that's spot on. I was just -- I was half jokingly saying we have at least 2 whole new categories in the pipeline. But I thought that was good. And I think to the -- everything we said on the call, it all just keep coming back to, I think, where we continue to differentiate on being the world's best combination in this area of hardware and software working together and on having a full spectrum portfolio of products that we grow both organically and through bringing on early-stage disruptive winning teams and product lines and bringing them into the fold in a way that is just as natural as if they were organically built, which is a completely different approach to just sort of GE style stacking together a bunch of independent separate nonintegrated companies. Brittany Bagley: I don't think we're anywhere close to running out of ideas and things to be innovative on, not on the product team, but neither Rick nor Jeff nor their teams are slowing down in any way. Joshua Isner: And Tim, on your first question on the different market dynamics depending on which buyer we're talking about. Ultimately, state and local is a market that values premium products even if they carry premium prices. The only buyers that are buying anything else are doing that on price. They're willing to take a more primitive product at a lower price that is not full featured. And that's happening very, very rarely in state and local, and I believe that will continue to happen very, very rarely. Internationally, we've said for years, hey, if you're a customer that wants on-prem with primitive tools and you want to pay a very inexpensive price for that, we're probably not the vendor for you. And there is some of that internationally. But the good news is more and more, we're seeing customers that value the premium workflows and products and tools between hardware and software, and those are becoming Axon customers. And so I think it just comes down to the intersection of price and quality and the buyers that really value price above all, they'll generally buy something else. But the good news for us is there are fewer and fewer of those buyers in public safety. Erik Lapinski: Thanks, Tim. Up next, we have Joe Cardoso at JPMorgan. Joseph Cardoso: Maybe just one for me, just to be respectful of time here. When we think about the AI Era Plan traction today, just curious if you could touch on now that it's been in the market for a while or at least a year plus, if you could touch on customer behavior around adoption of the plan and whether you're seeing any interesting trends. And like maybe specifically, curious if adoption is being more done in isolation, meaning like you're just seeing folks go out and basically purchase the AI Era Plan or if you're seeing customers expand spend in other areas of the portfolio at the same time? Just trying to get a sense if you're seeing any pull-in as you're kind of going out to customers and pitching kind of the new plan there. Joshua Isner: Yes. Thanks a lot, Joe. And I think, look, oftentimes, OSP and the AI Era Plan at this point are bought in tandem with each other, and that often includes a newer version of OSP with more new products in it. So I think it's fair to say that it's not in isolation that customers are buying the AI Era Plan, they're buying it along with other capabilities. And I think, look, we've got our customer success team, their sole measure of success day-to-day is adoption of new products. And so that's really what they're focused on. When we sell AI Era Plan, getting customers comfortable with using it is -- it takes a little bit of work, and that's what our customer success team does day in and day out, and they're very, very good at it. I'm particularly excited. I think as we ideate and talk about new AI products that are going to go into that plan, I think this is going to be an exciting year for that, and we're going to start unlocking some new capabilities in that plan for customers over the coming months. And going into next year, I think there'll be a lot to talk about in terms of new capabilities in that plan. So certainly very bullish on what the future of AI adoption looks like amongst our customers. Erik Lapinski: Thanks, Joe. We'll squeeze one more in here. I know we're running up a little over on time. But -- so Trevor Walsh at Citizens. Joshua Isner: Erik, let's get through them all. I mean all these -- everybody waited 1.5 hours here might as well let them ask the questions. Trevor Walsh: All right. Cool. I like it, Josh. Rick, maybe for you just on the commentary you made around drone legislation. You sounded like you were -- there was a little bit left to be desired about what's kind of currently out there. But as we kind of read through the most recently passed National Defense Act, there was a pretty robust language in there about letting -- moving from federal agency overview to giving state and local powers around both kind of drone tracking, taking down or mitigation of threat type drones. So I guess what do you think is lacking there still? Or what still needs to be done for you in that regard? Patrick Smith: Well, I just think it's a continued evolution. Like I know there's some special accommodations being made for the World Cup for those cities. And then there's some more broad-based stuff. But I've been walking all the Congress. We got a bill to create a new less lethal category that would exempt the T10 from the Firearms Act. And then I understand why people say it will take an act of Congress with something that's going to be pretty hard to do. But we're just -- we're continuing to engage there. So to be honest, I haven't checked in on the latest status of the -- where each type of regulation is on this. But I think just directionally, today, state and local really can't mitigate drones directly. I think in a few years, they'll all get that capability. And we may see it go to a fair number of private security type folks, too, like sporting stadiums and people are running critical infrastructure. So the main point is it's narrowly allowed capability today, but we're building the center network to be able to expand and be able to do mitigation work as well. And we just think that that's going to grow as the regulations loosen up. Joshua Isner: And I'd also say, like to the administration's credit, they've been very open to modernizing policy around drones and counter drones, which we view as very helpful, like the engagement and conversations have generally given us a lot of confidence that the government is going to adapt with the technology. Erik Lapinski: We've got Josh Reilly at Needham. Joshua Reilly: All right. Just 2 quick items for me. On the international business outside the Commonwealth countries, would you kind of characterize that 2025 was that an inflection point in terms of that becoming a much bigger contributor to international? And then secondarily, on Carbyne and Prepared impact to the guidance, I got a number of e-mails into the quarter asking about the impact there on revenue and EBITDA. I know it's relatively immaterial, but any comment there? Brittany Bagley: I can take one... Joshua Isner: I'll let Brittany with the second one, yes. Brittany Bagley: I'll start with the second one. On Carbyne, there's literally 0 impact because Carbyne wasn't even closed until this month. And to your point on Prepared, it was only partway through the quarter. It was really an immaterial impact. So we're very excited for both businesses, but you can expect to see those really start to impact going forward. Joshua Isner: And Josh, what was the first question again? I think it was international related, but sorry. Joshua Reilly: Yes. Is there an inflection point in the international business that could be a good bode well for this year? Joshua Isner: Look, it's only an inflection point if we follow it up with an even better year, right? And so we'll see at the end of the year if it was or it wasn't, it certainly feels that way, but it's not going to feel that way if we don't show up and do our jobs well and continue to bring on more and more international customers. So that will be the focal point. We feel like we have some wind at our back, and now we got to capitalize on it. Erik Lapinski: All right. And our final question will come from Jeremy Hamblin at Craig-Hallum. Jeremy Hamblin: And I'll add my congratulations. I'm going to ask a high-level question. So I think what's interesting, if we go back 3 years ago when you unveiled the FY '25 plan, at that point in time, you were assuming a 20% sales CAGR. And with each successive year, you've actually raised your expectations on your sales growth, your revenue growth for the year on your initial guidance here in February, including this year where it's 27% to 30%. I want to just understand in terms of the visibility, like clearly, which must be significantly higher and how you feel about that today than you did about the business 3 years ago. What's providing that type of confidence? Is it that you just have a lot more shots on goal and a lot more ways that you can win? And obviously, the business has tacked on a lot of different areas, whether it's Axon 911, whether it's Dedrone, et cetera. But just can you provide a little more insight? You guys are typically pretty conservative. I don't know how many quarters in a row of beat and raises in the 20s, I think. But I just wanted to get some insight. Joshua Isner: Yes. Jeremy, it's a great question, and I appreciate it. I think some of what you said certainly factors into it, but the biggest thing is the bookings growth rate, right? Like when we issued that guidance a few years ago, we were seeing bookings in that range as well in terms of year-over-year growth. Now all of a sudden, they're accelerating each year into a high point last year, and hopefully, we'll be able to trump that this year. But when you look at that type of growth and you factor in what like all those guaranteed dollars already mean for us as they come in, certainly, it gives us more confidence that revenue will continue to be exciting in its growth rate. And at the end of the day, even 5-year normalized bookings were accelerating nicely year-over-year. And so again, even when you zero in, it gives us more and more confidence that these bookings are going to continue to translate into growing revenue. And so that's probably the #1 consideration. Certainly, we see the pipeline and some of these larger deals take longer to close. And so we're talking about deals now that are going to hit next year in some of these markets. And so I think it's a combination of a few things. But ultimately, one of the things we think we do very, very well early every year is establish what the floor looks like. And then as things start to become more and more true throughout the year, we can update that guidance as we go. So that's a little bit of commentary about how we look at the growth rate. Brittany Bagley: I would echo that. I would -- Jeremy, just mechanically, if you look at it, we've got our future contracted bookings, and we talk about how 20% to 25% of that will convert in the following year. So if you think about how we did guidance, last year based on our future contracted bookings number. We're actually taking a very, very similar approach to our future contracted bookings number this year and how much we think bakes into it. We just have a bigger future contracted bookings number. So you have more that is naturally carrying over into the next year. And then the delta between that future contracted bookings number and our guidance is based on the pipeline and what we think we can go get. And there, to your point, we just continue to see these underlying metrics like our NRR and the potential ARPU and what customers can do because we have so many more products and so many more markets, you can imagine that, that gives us comfort in hitting that relatively larger number with our pipeline each year. And you can actually roll that all the way forward to 2028 and sort of keep a consistent math philosophy. Erik Lapinski: Thank you. We'll kick it to Rick to close this out. Patrick Smith: All right. Hell of a year, as Josh would say, next play. Again, just really pumped to be part of this team, getting to work on these problems and have supportive shareholders, especially as we enter this does feel like this year is different. Just the world is changing really fast. And for years, I keep putting up pictures of Charles Darwin quote that it's the adaptable that survive. And I think that's really the incumbent. Can we be as adaptable as the company we are today as we were when we were smaller. And only time will answer that, but we're sure focused on it. So thanks, everybody. Stay safe, and we'll see you maybe at Axon Week, where we may have a few announcements. Joshua Isner: Thanks, everyone. Erik Lapinski: Thank you.
Operator: Greetings, and welcome to the Interparfums Fourth Quarter 2025 Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Devin Sullivan, Managing Director of the Equity Group. Thank you. You may begin. Devin Sullivan: Thank you, and good morning, everyone. Thank you for joining us today. Joining us on the call this morning will be Chairman and Chief Executive Officer, Jean Madar; and Chief Financial Officer, Michel Atwood. As a reminder, this conference call may contain forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from projected results. These factors may be found in the company's filings with the Securities and Exchange Commission under the headings Forward-Looking Statements and Risk Factors. Forward-looking statements speak only as of the date on which they are made, and Interparfums undertakes no obligation to update the information discussed. Interparfums' consolidated results include two business segments, European Based Operations through Interparfums SA the company's 72% owned French subsidiary and United States Based Operations. It is now my pleasure to turn the call over to Jean Madar. Jean, please go ahead. Jean Madar: Thank you, Davin. Good morning, everyone, and thank you for joining us on today's call. 2025 was a record year for Interparfums with sales rising to $1.49 billion, including fourth quarter sales of $386 million representing our best-ever fourth quarter performance. We saw the industry, including ourselves, return to a more historically normalized level of growth. And while new and ongoing challenges such as tariffs and exchange rate pressures have influenced the environment, we have been able to manage through them with disciplined operational execution. Fragrance remains a resilient category and is widely considered an everyday essential luxury that delivers an irreplaceable experience of self-expression and daily indulgence. In 2025, we energized our portfolio through the launch of several blockbuster fragrances and new line extensions across our brands, including the introduction of Solferino, our first proprietary ultra-luxury offering and strengthened our marketing efforts with impactful advertising and promotional support. Our diverse portfolio of fragrances attracted consumers throughout the year with impressive annual performances by several of our top brands as well as brands newer to our portfolio such as Lacoste and Roberto Cavalli. We generated growth in the majority of our markets, made meaningful progress to improve efficiencies and optimized our supply chain to mitigate cost pressure and support long-term growth and continue to deepen our sales reach on increasingly meaningful platforms such as digital and travel. We delivered a high level of client service, maintained a strong financial position and continued to skillfully navigate lingering macroeconomic headwinds in certain key markets, mainly caused by the effect of tariffs and trade destocking and, of course, geopolitical conflicts. Innovation will continue to define our success, including the rollout of brands recently signed or acquired, namely Longchamp, Off-White and Goutal as well as the 15-year extension of our GUESS license and our strengthening partnership with Authentic Brands Group and their exciting brand portfolio. We will touch on that shortly. I'm very proud of our team for their hard work and dedication. This record results and continuing operational progress reflect their shared commitment to our pursuit of excellence. Now on to a discussion of our results and operating activities. As we noted on last quarter's call, we expected that fourth quarter sales will be supported by new rollouts late in the third quarter and the robust holiday sales season and that is exactly what happened. Consolidated 2025 fourth quarter sales rose 7% on a reported basis and 3% on an organic basis, driven by higher sales for both U.S. and European Based Operations. Sales by our U.S. operations increased 4% in the fourth quarter of 2025, driven by performance from our two largest U.S.-based brands, GUESS and Donna Karan/DKNY and even greater growth from Cavalli and MCM. Excluding the phaseout of Dunhill fragrance that was completed in August 2024, full year '25 for U.S. operations, sales declined 3%. Fragrance sales of GUESS and Donna Karan returned to growth in the fourth quarter with increases of 7% and 8%, respectively. GUESS continues to benefit from the ongoing success of the Iconic and Seductive franchise as well as the Q3 introduction of GUESS La Mia Bella Vita. Donna Karan growth was mainly driven by the Cashmere Mist and DKNY Be Delicious franchises. For the full year, GUESS sales were flat and the Donna Karan/DKNY, decline of 4% was mostly due to unfavorable growth comparisons related to the timing of 2024 product launches. In just the second full year under our management, Cavalli fragrance sales rose 33% in both the fourth quarter and full year, a testament to our ability to elevate a brand's profile creatively and strategically. The exclusive May-August introduction of Roberto Cavalli Serpentine at Dubai Duty Free was highly successful and has helped drive significant brand market share growth in the region. We have expanded the distribution of Serpentine globally through multiple retail channels where it is enjoying ongoing success. Additional 2025 Roberto Cavalli rollout included the Gold Collection extension, the Paradiso extension, the Paradiso Rosa and the striking three-scents Marbleous [ sub ] collection and the dual gender Just Cavalli Give Me Magic fragrance duo. In 2026, we plan to keep this momentum going with additional extension that reflects and reinforce the brand's established allure. MCM fragrance sales rose 40% in the fourth quarter and 17% for the full year, driven by continued performance of a new six-scent MCM collection launched in early 2025. In 2026, we expect to debut new extension to expand the brand. We are excited to be at Milan Design Week this April, where we will have an MCM-centric display, highlighting the newest fragrance that we launched in early 2026. Despite a challenging year where the brand declined 9%, and despite the launch of Fiamma, fragrance sales at Ferragamo held steady in the fourth quarter, supported by the third quarter launch of Sublime Leather. We remain confident in the brand's potential heading into 2026, where we plan to roll out new extensions across pillars. Sales from our European Based Operations increased by 9% in the fourth quarter, driven equally by a 4% rise in organic growth and a 4% positive effect of foreign exchange. Coach, Lacoste and Montblanc led the way in the fourth quarter. For the year, sales increased 7% on a reported basis and 4% organically. While channel performance was mixed among regions, sell-through has been strong thus far in 2026. Jimmy Choo, our largest brand, continued its momentum and delivered another year of sales growth. The success of the Jimmy Choo I Want Choo women's franchise has continued to strengthen since its launch in 2021. Particularly in the United States, the launch of I Want Choo With Love, combined with the strong performance of the Jimmy Choo Man franchise helped drive 6% growth of Jimmy Choo fragrance in 2025. We have two new extensions in the works for 2026, and we'll be using the year to prepare for a new women's franchise in 2027. Coach fragrance sales increased 5% in the fourth quarter and 15% for the full year, reflecting strength across essentially all of the men's and women's line reinforcing its timeless, multi-generational appeal as a mainstay of casual elegance. We benefited from the launches of Coach for Men and Coach Gold in the first half of the year. We have had a wonderful relationship with the Coach brand since 2016, and we are incredibly happy to extend our agreement for an additional 5 years through 2031. We expect to introduce new extensions for the men's and women's line in '26. And similar to Jimmy Choo, we will be using the year to prepare a new women's franchise in 2027. In much of the same way that we rejuvenated Roberto Cavalli, our success with the Lacoste brand was certainly a positive highlight in 2025. In just the second full year under our management, Lacoste fragrance sales grew 23% in the fourth quarter leading to 28% increase in the full year, reaching $108 million, exceeding our initial expectation of $100 million. The Lacoste license took effect in January '24, and we immediately go to work, crafting and implementing strategy, and then curating and introducing a collection of fragrances for men and women that key into the timeless elegance of a brand. In 2025, we enriched the original line with a new men's fragrance called Original Parfum and the line's first women fragrance, Original Femme. We also introduced a new L.12.12. dual gender duo, Silver Rose and Silver Grey. In 2026, we will further expand the Lacoste fragrance lines with additional extension, leveraging the solid foundation we have built in our first 2 years overseeing the brand. Montblanc sales rose 22% in the fourth quarter, reflecting the success of Montblanc Explorer Extreme in the second half of 2025 and the strength of the original Montblanc Legend line. This strong fourth quarter performance in combination with favorable foreign exchange helped to offset the sales softness we experienced in the first part of 2025 resulting in full year 2025 sales that were broadly in line with '24. We plan to launch two new little extension in '26 and are preparing for a big launch of a new men's franchise in 2027. The men's fragrance market remains underdeveloped in general, presenting a substantial opportunity for us to continue offering meaningful innovation and expand our reach across our entire portfolio for years to come. We remain optimistic about the future potential of Solferino, our first ultra-luxury direct-to-consumer offering that includes a collection of 10 unique premium scents designed to cater to the growing niche high-end luxury market. Our flagship store in Paris and dedicated e-commerce platform are attracting encouraging levels of consumer traffic. Solferino reached 40 doors worldwide by the end of 2025, and we are on track to expand this artisanal fragrance house to an additional 50 in the first half of 2026 with a long-term goal of up to 500 doors at the end of 2030. We are excited that Solferino has entered the U.S. with the launch of Bloomingdale's online store and in 7 store locations with additional store rollout to come this fall. We have always taken a strategic approach to portfolio expansion, adding brands that strengthen our global reach and long-term growth profile. This year, we advanced that strategy with new partnership that further enhance our competitive position. In January, we announced separate exclusive long-term worldwide fragrance license agreement with David Beckham and Nautica, along with a 15-year extension of our license agreement with GUESS that maintains the relationship through 2048. These distinctive brands reflects our approach to an increasingly global and diverse fragrance market, identify iconic category leaders and apply our proven operational expertise to build a sustainable franchise. Our opportunity pipeline is expanding as our ability to elevate and in some cases, revive brands is becoming increasingly recognized in the market. I want to thank Authentic Brands Group, ABG, the company who co-owned and manage both the David Beckham and Nautica brands, we look forward to a continuing mutually beneficial relationship. While brick-and-mortar remains competitive, e-commerce is running strong, and we are benefiting from our expanded presence at Amazon and early foray into TikTok Shop among others. This platform significantly enhanced our global visibility, deliver rich consumer insights and enable us to introduce smaller-sized products that serves as an affordable entry point into prestige and luxury, supporting both recruitment and premiumization efforts. Amazon remains one of our largest and fastest-growing channel, generating rising consumer engagement and premiumization. We are very encouraged by our early success on TikTok Shop, most notably, select products within our Donna Karan/DKNY brands. We are continuing to explore ways to leverage the increasingly significant sales potential of this platform, which has firmly established itself as a top 10 beauty retailer in the U.S. as well as the fastest growing. The travel retail market continued to perform well with sales growing by 6% in 2025 and representing today approximately 7% of our total net sales, consistent with prior years. Brands, including Cavalli, Lacoste and Coach performed well throughout the year. Our strong appeal among traveling consumers illustrated by the success of Cavalli Serpentine in Dubai is helping us secure additional shelf space and broaden our SKU footprint across duty-free locations. We anticipate steady growth in our travel retail business going forward. With respect to operational improvements, we've made some good progress against our stated goals in the areas of tariff mitigation, inventory management and operating efficiencies. For example, our transition to 100% third-party providers for packing, shipping, warehousing and order fulfillment should be completed by the end of March of this year. We are also making progress in shifting our manufacturing closer to the point of sales with a focus on changes that provide a measurable impact. For example, as of December 31, 2025, we moved production for three GUESS lines, Italy, and have since diverted all components shipment from China to Europe instead of the U.S. This one change, which represented approximately 15% of our U.S. manufacturing, produced tariff savings of $3.5 million. Retailers maintained a cautious stance on inventory levels throughout 2025, carefully managing their positions amid a dynamic demand environment. However, we began to see meaningful relief in Q4 2025 as ordering patterns, stabilized and inventories declined. Encouragingly, that momentum has carried into 2026 with healthy ordering patterns since the beginning of the year. The tariff situation has become increasingly dynamic given last week's Supreme Court ruling and the aftermath. While it is too early, way too early to determine the long-term future of tariffs, we continue to focus on controlling what we can control in our own operations and have seen encouraging results. At present, we estimate that tariff costs will remain a headwind in 2026. We will continue to implement strategies and cost savings to blunt this anticipated impact. These actions will be enhanced by the select pricing actions we took during the second half of 2025 that averaged approximately 2% across our brands, primarily focused on prestige and luxury and the U.S. market. Our pricing adjustments remained more modest than the prestige fragrance industry average as of late 2025. We do not plan to implement any further pricing actions beyond what we initiated last year unless a significant change in the market occurs. Our creative innovation, the continued resilience of the fragrance market and the breadth of our brand portfolio position us to deliver long-term growth. We expect a continuing period of transition in 2026 leading to a more stable market conditions as we prepare for what we expect will be a more favorable operating environment in 2027 and beyond. As such, we have maintained a quite conservative posture with respect to our guidance, but we will revisit it as the year evolves. Over our 30-plus year history, we have earned a global reputation for excellence and where there is opportunity, we will be there to capitalize on it. I'm also pleased to share that I will be speaking at the Women's Wear Daily's CEO Summit in Palm Beach this May, representing our company on an exciting industry stage. With that, I will now turn it over to Michel Atwood for a review of our financial results. Michel? Michel Atwood: Thank you, Jean, and good morning, everyone. I will begin by discussing the consolidated results before breaking them down into our two operating segments, European and United States Based Operations. As reported, we delivered net sales growth of 7% to $386 million during the fourth quarter, leading to a record $1.49 billion in sales for the full year in 2025. Foreign exchange movements positively impacted our top line, contributing 3% to growth in the fourth quarter and 2% for the full year. However, as outlined in recent quarters, the stronger euro has also driven higher costs across the rest of our P&L as well as on our balance sheet. Organic sales, excluding FX and the completed phaseout of Dunhill and initial Solferino sales in late 2025 rose 3% in the fourth quarter and 2% for the full year, respectively. Gross margin contracted 20 basis points to 63.6% in 2025, and this was primarily driven by the higher costs due to tariffs. Tariff resulted in about $12.8 million in higher costs in 2025 or 0.9% of sales. We have been able to partially mitigate these impacts through favorable segment and brand mix which each contributed to 20 basis points of margin expansion as well as pricing and leaving us with a gross margin erosion of only 0.3%, considering the situation and the tariffs. We expect tariffs will continue to represent a significant headwind in 2026 as we annualize these tariffs for the full year. We continue to actively work on cost saving programs and tariff mitigation strategies to help limit these impacts. We estimate that these programs in combination with the full year impacts of the price increases we took in August 2025 will enable us to maintain our gross margins flat in 2026. Moving to SG&A. SG&A expenses as a percentage of net sales were relatively flat in the fourth quarter at 54.3% compared to 53.4% in the prior-year period. For the full year, SG&A increased 80 basis points to 45.5% of net sales from 44.7% last year, and this was driven by higher A&P spending as well as an unfavorable segment mix. A&P investments rose 10% and 5% for the fourth quarter and full year periods as we continue to invest ahead of our growth and in line with our expected sell-out trends. Royalty expenses, which are included in SG&A, averaged approximately 8% in 2025, in line with our 5-year run rate. Overall, consolidated operating income and margin declined for both the quarter and the full year as compared to the prior-year periods, due primarily to the combination of lower gross margin and higher A&P. Fourth quarter operating income was $28 million for the quarter, resulting in an operating margin of 7.1% as compared to $36 million and 10% operating margin in the prior-year period. Full year operating income declined by 2% to $270 million, resulting in an operating margin of 18.2% or 80 basis points decline from the prior year for the reasons laid out before, just above. Below the operating line, we reported a gain of $1 million in other income and expense compared to a loss of $6.4 million in 2024. The year-over-year change primarily reflects the following factors: first, we realized a onetime gain of $7.6 million related to a debt extinguishment during the fourth quarter. The second factor was a $1.2 million increase in interest income to $5.8 million during 2025 compared to $4.6 million in 2024 as our cash position improved. Third was a reduction in interest expenses on borrowings of $0.7 million. These gains were partially offset by a loss on foreign currency of $3.7 million compared to a gain of $500,000 in 2024. The significant swings in the euro-dollar exchange rate throughout the year helped our top line but have led to larger-than-usual FX losses throughout our P&L. Our consolidated effective tax rate for the year was 23.3%, down 90 basis points from 24.2% in 2024 as we benefited from a onetime favorable net tax gain of $2 million in '25, following a positive outcome from prior-year tax assessments. These factors, combined with our disciplined execution and cost management enabled us to deliver net income growth despite the challenging operating environment. Fourth quarter net income was $28 million or $0.88 per diluted share, a 16% increase from prior-year period. For the year, net income reached a record $168 million with a diluted EPS reaching $5.24, also a 2% increase compared to 2024. Now moving to our other -- moving to our two business segments. I'll start with European Based Operations. We delivered solid net sales growth in both the fourth quarter and full year of 2025. Fourth quarter sales increased 9%, driven by 4% organic growth and 4% favorable FX impact. For the full year, reported sales rose 7%, including a 4% organic growth and 2% favorable FX impact. Gross margin for the full year was 66.1% and as compared to 67% in 2024. The bulk of the 90 basis points erosion in gross margin was driven by tariffs, which represented $8.6 million in 2025. While SG&A expenses increased 7% to $474 million, SG&A as a percentage of net sales remained relatively flat at 46.7% compared to 46.3% in 2024. The increase in SG&A was primarily driven by a 9% rise in A&P expenses the totaled $219 million for the year, representing 22% of net sales compared to 21% last year. Overall, net income attributable to European operations rose 2% to $144 million, but as a percentage of sales declined 60 basis points to 14.2%. Now turning to our United States Based Operations. In the fourth quarter, we achieved a 4% net sales growth on a reported basis and 2% organic growth, aided by a 2% favorable FX impact. Excluding the phaseout of Dunhill fragrances that was completed in August 2024, full year '25, operating sales declined 3%. Gross margin expanded by 40 basis points to 58.3% for the full year, driven by favorable brand mix driven by the 2024 Dunhill discontinuation, channel mix and pricing actions, which more than offset the negative 0.9% impact of tariffs. SG&A expenses decreased 2% for the full year. However, SG&A as a percentage of net sales rose to 42% from 40.5%, and this was largely driven by our lower net sales with the discontinuation of Dunhill. Additionally, in 2025, we kept our A&P investments steady at 16% of net sales compared to 2024 and made the choice not to reduce other areas of SG&A in light of new licenses, which will be joining our portfolio in future years. Overall, the full year net income attributable to U.S.-based operations was essentially flat at $69 million, representing a 14.3% of net sales compared to 13.3% in '24, so improving margins. At December 2024 (sic) [ 2025 ], our balance sheet remains strong, was $295 million in cash, cash equivalents and short-term investments and working capital of close to $700 million. Accounts receivable was up 17% compared to 2024 on a reported basis. However, the balance is reasonable and based on 2025 record sales levels and higher FX impacts of the euro-dollar. While days sales outstanding was 73 days, up from 66 days in 2024, driven by changes in channel mix and FX, we are still seeing strong collection activity and do not anticipate any issues with collections of accounts receivable. Despite FX headwinds, inventory levels were down 6% at year-end compared to 2024, and inventory days on hand decreased to 244 days compared to 259 days in 2024, marking our lowest level since 2022. These decreases are a direct result of our effort to manage down inventory levels. We have also preserved a favorable inventory profile with a higher mix of finished goods relative to components. These improvements position us well to continue to drive further inventory efficiencies, and we will continue to optimize our inventory levels going forward. By effectively managing our working capital in line with sales, full year operating cash flow increased to $215 million, up $27 million from prior-year period, and representing 103% net income compared to $188 million or 92% of net income in 2024. We also took advantage of our stronger cash position and the lower stock price levels in the back half of '25 to continue to share -- our share repurchase program. In 2025, we purchased $14 million in shares, and we'll continue to evaluate additional share repurchases if the stock price remains below what we believe is the intrinsic value. In the same vein, we are pleased to be able to maintain our annual dividend of $3.20 per share. Now moving to guidance. As shared in our earnings release published yesterday evening, we are maintaining the outlook we provided in November. We expect sales to remain steady at approximately $1.48 billion and diluted earnings per share of $4.85. A decline from 2025 that is referenced above, included a onetime gain recognized in 2025, impacts from tariffs and significant investments we are making to develop our newest brands and support our broader portfolio for 2027. We continue to anticipate a return to significantly stronger growth in 2027, driven by enhanced innovation across all of our key brands, including the development, distribution of our newest brands. While we are seeing moderating demand in some international markets, our core fundamentals remain solid. We continue to advance a strong innovation pipeline supported by a long-standing relationship with global distributors and retailers. Combined with a stable and resilient consumer base, these trends reinforce our confidence in delivering consistent performance and long-term value. Before we begin the Q&A section of the call, I want to note that we are anticipating filing our Form 10-K early next week. All audit and reporting procedures are continuing to progress. With that, I'll open up for questions. Operator: [Operator Instructions] And your first question comes from Sydney Wagner with Jefferies. Sydney Wagner: So in terms of revisiting your guidance later in the year, what are some specific metrics that you'll be looking for or do you need to see to give you confidence to update the guide? And then just curious, like is the category or your own pipeline or innovation uptake more of the swing factor in that? And then my other question, just on promotions. Some peers have called out some pressure there. Can you share a little bit more about what you've seen? Jean Madar: Michel, do you want to start on guidance? Michel Atwood: Yes. Sydney, look, I mean, we're just starting the year. We had a really strong Q4, but we're waiting to see really what happens. The environment remains very, very volatile. We are seeing a slowdown in market growth. The market growth in the fourth quarter for the markets that we're tracking was up 2%, and it's definitely starting to slow down. For the year, we're at about 3%. So definitely a slowdown in the market. The destocking situation was a lot better in the fourth quarter. We shipped better than expected, and we saw some restocking. At the same time, we believe that structurally, destocking will continue to be a factor as retailers and distributors normalize their inventory levels. It's just a normal part of the cycle. And so we're waiting to really see how all of that kind of plays out. In terms of our innovation pipeline, I mean, we have a very, very strong innovation pipeline for 2027. But for 2026, our strategy is really more of a flankering strategy. So we're waiting to see also how that basically holds up and how that's basically being received in the market before we feel comfortable updating our guidance. I don't know, if you want to add anything... Jean Madar: Yes. Thank you, Sydney, for the question. Regarding the guidance, as you know, this company has always been conservative. And we spent a good amount of time reevaluating the guidance, and we have decided to keep it, not to change it because even though we had a quite good January and February, and I think we're going to -- we're anticipating a strong first quarter, the visibility is not great. So we are cautiously optimistic. And instead of retouching the guidance many times, I prefer to wait a little bit more. So it's not a sign that things are not going well. It's just we continue in our approach of being prudent. So that's regarding the guidance. The promotion, Michel, do you want to answer on the promotion? Michel Atwood: Yes. I mean we've -- as you know, we -- pretty much the whole industry in the U.S. took pricing related to tariffs. Those price increases largely went through. But we did see an uptick in promotions in the fourth quarter, a little bit more discounting than usual. I think this is normal. In this category, as you know, we don't typically do a lot of discounting. We typically offer the consumer value in the form of gift sets and GWPs. But I would say there was a little bit more of these friends and family discounts than we have seen normally in the fourth quarter. Jean Madar: But nothing out of the ordinary. Michel Atwood: Yes. Nothing significant, but maybe a slight uptick. but nothing significant and nothing of any large magnitude. Operator: Your next question comes from Aron Adamski with Goldman Sachs. Aron Adamski: I have two. First, on the portfolio. After signing of the two new brands that you recently announced, do you have any further capacity to secure additional licenses? And in that context, would you prefer to add brands more in the mass end of the fragrance industry or build up the prestige presence further? And then my second question is on the flanker pipeline that you have mentioned for this year. Can you please give us a sense of your expectations of which brands do you expect to gain market share in 2026? And conversely, which parts of the portfolio are you relatively more cautious about at this stage in the year? Jean Madar: Okay, Aron. Let me try on the first one. Do we have a capacity to take more after the signing of these two new brands, which are David Beckham and Nautica. Before I answer the question, let's take 2 minutes to analyze what we think we can do with these two brands. David Beckham is an icon. David Beckham has a huge name recognition. And we think that in this lifestyle world, we can do well. This is not the first transfer of license that we'll do from Coty. We've done it with GUESS, we've done it with Lacoste, we've done it with Cavalli, all went well. I think that these two new brands are a good addition to the portfolio. Let's not forget that the portfolio of [ Interparfums ] is very diversified. We go from very high end, Van Cleef, Graff, Boucheron to a very lifestyle. So we think that this addition and what it brings to us and what we can bring to them is a great fit. So this being said, do we still have capacity after these two brands? And the answer is yes, absolutely. We have the structure, we have the human structure and also the process and the desire to grow the portfolio. So we can take more. And we are working on more and without any guarantees that we will be able to make announcement. We are working on very important brands. So for us, the evolution of the portfolio is a natural thing to do. We will edit some smaller brands. We will add newer and more important brands. We have the capacity. We have the distribution also. Let's not forget that we are present in 110 countries -- 120 countries through -- either directly or through our distributors. And there is an appetite for newness. So this is for the portfolio and the new brands. Michel, do you want to answer on the flankers? Michel Atwood: Yes. Maybe I'll just -- maybe just build a little bit on what you said. I think coming back to our design and our structure, I mean, the fact that we operate with two segments gives us a lot more capacity to manage bigger -- to manage more brands. We also have our hub in Italy, which is run by U.S. operations. So that gives us a third hub. And it gives us the opportunity also to put the right brands in the right places where they will get more -- where they will have access to people that will have more affinity with the brand. So for example, we will be managing the David Beckham brand out of Italy, whereas we'll be managing the Nautica brand out of the U.S. and obviously, the Longchamp brand out of France. So again, that's part of this. Now I think the other thing is we believe there are many brands out there that are underserved and that could benefit from our expertise, as Jean pointed out. We spend a lot of time looking for new opportunities, and we will continue to do so. The timing, obviously, between the moment when we have conversations and we get brands can take time because, as you know, licenses have an expiration date. And if you look at what we've announced recently, even if we have announced the licenses, we don't get them immediately. So that's always a factor and that continues to play in that fact... Jean Madar: Michel, you're breaking up. Michel Atwood: Yes. Can you hear me? Jean Madar: Yes. Michel Atwood: Yes. Okay. And then on the flankers, look, our flankers are really designed to hold share, not necessarily to build share, but they are necessary to drive healthy top and bottom line growth. When a flank -- when a line starts to basically get a little bit more worn out, that is when we go out and design basically new blockbusters. And we have a significant pipeline of new blockbusters in 2027 across all of our key brands, whether it's Jimmy Choo, Coach, Montblanc, Lacoste, GUESS. So we have a significant amount on top of the new launches that will be coming. So really, for next year, what we believe is we still have brands like GUESS, Lacoste and Cavalli will outperform. And Montblanc, Jimmy Choo and Coach, I think, will be more moderate growth, but we'll continue to do well, we believe, with our existing flanker strategy. Jean? Jean Madar: Yes, I agree. We are really looking at 2027 as a very special year because the five biggest brands in the portfolio will have five very important launches for blockbuster. It's quite unusual for us. It happens once every, I don't know, every 10 years. So we are gearing up for that. But we'll have a reasonable growth in 2026 with our strategy of flankers. Operator: And your next question comes from Susan Anderson with Canaccord Genuity. Susan Anderson: I guess maybe just to follow up on the gross margin. I think you guys were originally expecting maybe a little bit less deleverage in the fourth quarter. Maybe if you could just talk about what happened there versus your expectations? And then also looking to this year, how should we think about the cadence of the gross margin? Should we expect it to be, I guess, down in the first half as we still have the tariff impacts and then potentially up in the back to get to that flat for the year? Jean Madar: This is a perfect question for Michel. Michel, go ahead. Michel Atwood: Thank you, Jean. Susan, yes, look, I mean, the gross margin in quarter 4 looks pretty -- erosion looks pretty scary. I think when you see the 300 bps. And it's a combination of a lot of puts and calls that all basically went in the opposite direction, right? So sometimes these things tend to neutralize themselves. But in this particular case, basically, they were all unfavorable. So really, if you really look at what happened, first of all, you have the tariff impact, which hit us fully. We -- there's always a ramp-up with a FIFO and as we buy inventory, it kind of makes its way through. It made its way fully into the fourth quarter, and that basically represented about 2 points for the quarter. The other thing that we talked about is foreign exchange. So foreign exchange helped us on the top line, but really hurt us significantly because a lot of the products that we sell are actually made in Europe. And so what the cost based in euros were -- while our sales were basically in USD. So that represented -- and just for perspective, the euro was at $1.07 last year and it was at $1.16 this year. So that represented about 50% of our sales are denominated in dollars. So that also had a significant impact. And the last piece is it's a little technical, but it's channel mix. As you know, some of our businesses with direct to retailers with higher gross margin, but also higher A&P, and some of our businesses with distributors with lower gross margins and lower A&P. And in the fourth quarter, we had significantly more of our business was through the distributors rather than direct to retail. It was about 68% mix of business versus 63%. So it's a combination of all those factors. And it's true that it looks a little bit scary. But overall, going back to next year, we feel that we have good mitigation strategy in place that will enable us to kind of get to roughly a flat gross margin. And yes, we should see some hurts in the first and second quarter, and we should see improvements in the third and fourth quarter as we lap our tariff impacts in the back half of the year and our cost savings and cost savings and efficiency programs actually start to kick in. Operator: [Operator Instructions] Your next question comes from Hamed Khorsand with BWS Financial. Hamed Khorsand: Just want to ask you, you've talked a lot about the top 5 today. Is there anything in your other brands that could be a breakout situation for you to get into the top 5? Or you're not expecting that this year? Jean Madar: This year, breaking to top 5, I don't think so. Michel? Michel Atwood: No. I mean, Hamed, look, I mean, I think our top -- our largest brands are really -- basically are really our engines of growth. And they're diverse, I mean, in the various categories, price points, gender, I think those are really where we're going to get the growth going forward. And I think effectively, the tail end of the portfolio will either be stable with brands like Lanvin and Rochas or will probably continue to decline. And then those will eventually bleed out and probably be opportunities for us to consider exits, as Jean talked about cleaning up our portfolio. Jean Madar: I don't think that -- the top 5 are brands that are anywhere above or around the $200 million. The second tier is really below that. So there is quite a difference between the first tier and the second tier. But we will add with new license that we are taking. I think that Longchamp has a great potential. We think that Nautica has a great potential. They come also. So let's not forget, if we take Lacoste, we took Lacoste, we doubled the sales in less than 3 years. We took Cavalli. We increased the sales 50% in 2 years. So we know how to -- what to do with new brands. And I think that there is a lot of potential for the new brand in the portfolio. Hamed Khorsand: Got it. And Michel, on the working capital end, there was a considerable amount of free cash flow generation in Q4. I think that's very seasonal. But is there potential for more here as you try to wind down some of the inventory? Or is that more just a function of how the industry is right now with the destocking? Michel Atwood: Yes. Well, look, I mean, one of the upsides of sales starting to normalize is you kind of -- you're not investing as much in working capital, right? So definitely, the sales normalization has helped us basically deliver working capital improvements, but we've also done a lot of good work in terms of managing down those inventories. And I think we're going to continue to see that, and we're going to continue to see strong operating cash flow productivity going forward. Operator: And your next question comes from Aron Adamski with Goldman Sachs. Aron Adamski: I wanted to quickly ask on the trends that you're seeing across your key regions, so by geography so far in 2026. Where are you seeing the strongest, whether it's your own -- the demand for your own brands or for the category as a whole so far in 2026? And conversely, in which geographies have you seen maybe a relatively slower start to the year than you expected? Jean Madar: So I'm going to try, but Michel follow this very carefully. What I see is the U.S. is doing well. In a very quick, short word, the U.S. is doing well. Southern Europe is doing fine. Northern Europe is more difficult. Eastern Europe is okay. This is for the U.S. and Europe. Asia for us, China continues to be slow, nothing new. Australia is showing some strong signs of growth. We traveled a lot in the first 2 months of the year to make sure that the Christmas went well. What I see is, in general, the level of inventory in stores or at distributors is not high, which is a good sign. Sell-through was good. Nobody is holding too much. The level of reorders is quite strong. So we're not really worried. Michel, I'm sure you can add more... Michel Atwood: Yes. I would just build on that, Jean, say -- LatAm obviously continues to do very, very well. I think our brand portfolio is really resonating well with the consumers. And then in Asia, while we had a little bit slower sales, we fixed our distribution in India and Korea, and I think we'll expect to see some good bounce back in 2026 behind that intervention on top of what effectively you just said for Australia. Operator: And there are no further questions at this time. So I'll hand the floor back to Michel Atwood for closing remarks. Michel Atwood: All right. Well, thank you again for joining our call today. Before I end the call, I'd like to express my sincere appreciation once again to our teams for their tremendous effort throughout 2025. Our achievements are a direct reflection of our people, their dedication, creativity and the unique contributions they bring every day and particularly the agility that we've had to deal with this year with all of the moving pieces that we all are aware of. If you have any additional questions, please contact Devin Sullivan from the Equity Group, our Investor Relations representative. And thank you, and have a great day. Jean Madar: Thank you. Thank you. Operator: Thank you. This concludes today's conference.
Peter Podesser: Good morning, ladies and gentlemen. Thank you very much to all of you for taking the time here for the first time in this calendar year to join us for our presentation for the preliminary numbers and at the same time, also the publication and the presentation of the guidance and outlook for 2026. Together with my colleague, Daniel, we will present you the key elements of the preliminary unaudited numbers so far and naturally also look forward to our question-and-answer session after this. Let me start off with, let's say, a critical and quick look back. I think we are looking back at 2025 as a year definitely of challenges, but also a year of consolidation. And at the same time also, I think we have made good use of this period here for a further strategic alignment and focusing ahead of starting era of growth again. Back to growth, I think, is also what we see here with our last quarter of the year 2025, the fourth quarter with about EUR 40 million of revenue, also recording the strongest quarter during this year, also with decent profitability. At the end of the day, if we look at the growth drivers here in the closeout of the year, we are looking again at our industrial fuel cell business here with, let's say, the known end markets. And we are also looking at the European power management Besides, let's say, consolidation, I think it was a clear focus and we, let's say, allocated the right resources to further implement the long-term strategy during 2025, looking at 2 elements from today's point of view. The one is really expanding our international footprint, further the international presence, the customer proximity. But then at the same time, I think, again, investing into our competitive advantage, our competitive strength through technological leadership through new attractive products introduced into the market. Let me look into the international element first, expanding our footprint by establishing a more significant site in Orem Salt Lake City, establishing and preparing also for the local production in the U.S., again, driven by the need for customer proximity, the expectations of our U.S. customer base, but at the same time, actually also shielding us relatively well then against, I'd say, tariff and other trade hurdle implications over time with the local supply chain to be built up. Looking at, let's say, the assets that we, some time ago, also purchased here in Denmark in the hydrogen fuel cell business, I think we have turned this into an operating and profitable hydrogen fuel cell business with a customer base in critical infrastructure from telecom to data network operators. Well, and the third one, yes, the planned strategic investment here into our partner in Singapore, where we expect to close, let's say, in the near future, creating a regional hub for the further expansion in Asia, but also giving us and allowing us access to a fast-growing security as a service business here with government customers. On the technology end, I think apart from, let's say, the existing product suite, I think especially in Defense and Security, we have 2 new offerings that are already contributing that already have contributed to the business here in the low single-digit million format. The one maybe new for some of you, a defense power supply platform developed together with a French OEM here out of our power management business in Denmark for laser application portable and land or vehicle-based lasers, one of the key applications drone defense. We are showing this since yesterday as one of the news here also at the [ membrane ] tech in Nuremberg and have quite some positive feedback also from, let's say, not just the existing users, the existing customers, but also from potential new OEMs. The second one in Canada, we have invested a good 2 years of collaboration here with a customer developing what we call the EFOY ProShelter, an Arctic power and energy solution shelter-based for extreme climate and temperature exposure below minus 40 degrees C with extremely long autonomy between 12 and 36 months of autonomy. The first systems are already deployed in the northern part of Canada, the northern border also of Canada. Totally, we expect here from both product lines, a scaling effect already, let's say, in the running year with the existing customers, but definitely also new customers. And if we look into the Arctic energy supply, naturally, there are other regions in the world where we see already explicit demand. There is, with all of this, a structural shift in our business towards defense as well as the public and civilian security applications. If we look at all of this in 2025, this all added up to almost 50% of the total group revenue. With existing products scaling, but also new products now contributing to further growth, we see significant momentum in this field of the business naturally also against the known geopolitical situation. As per today, we are, I'd say, unfortunately seeing the fourth year of war ongoing here in the Ukraine. What do we expect here? Significant preparation for OEM programs in the defense sector, mostly auxiliary power systems either for vehicle or dismounted applications. But we are also looking at, let's say, the general hybrid energy solutions as a need for resilient and dependable power. So it's at the end, a combination of our fuel cells with batteries and wherever possible also with solar capabilities. We also expect a regional growth in this sector. And I think important also for all of us who have -- for all of you who have witnessed with us also these delays in programs in India. In the last recent discussions over the last couple of weeks here in India, we see a, let's say, a resumption of some of those programs happening also near time at least during the course of the year. The expectation here for this part of the business to increase to approximately 15% to 20% of the revenue seems realistic. But then also if we add the civilian security part, all the Security as a Service business, I think we also see 60% as a mark to be reached within this year of the total group's revenue as realistic sales, good products and solutions with attractive margins, and Daniel will go into this in a second. Apart from this, we also expect our industrial business to contribute and deliver, I'd say, organic growth here across the fuel cell as well as the power management business. We also look at the order intake there, we also see a return to growth with the fourth quarter recording about EUR 40 million of order intake, which was the highest intake of all quarters of last year. And we've seen also a dynamic development in the recent, I'd say, 2 months or also first part or the first part of 2026, we see several major projects out for decision within the foreseeable future. And based on all of this, we expect a very strong first half of 2026 in terms of overall visibility. If we now look into the sales and earnings of 2025 in a more concrete way, yes, we are seeing sales of EUR 143.3 million at almost the same level of 2024, 1% down. This is slightly below the lower end of the target corridor we had published also by November. I think also a conscious decision from our side not to overstretch, let's say, revenues and push projects here in the last weeks of the year simply at the cost of impacted margins. We also see this in the profitability of the fourth quarter and that we also -- we see the overall factors leading to this EUR 143 million not reaching the original plan for last year. If we look at the major deviations, I mentioned it already, we had to digest delays in defense projects in India impacting our Asian business. The overall uncertainty, also macroeconomic uncertainty, also delaying decision-making processes hurt us in the new business development in the U.S. Finally, I think we delivered still an organic growth of around 20%, which per se is nothing bad, but still behind the historical growth numbers in the U.S., but also below, I'd say, our own expectations as well. And the third element, currencies, functional currencies going against the euro here had also an impact metric on our euro-based group's revenue. With this, I think I would hand over to Daniel to lead you through the earnings part of the preliminary numbers. Daniel Saxena: Good morning everybody. Thank you for joining the call. So neither wanting to repeat the last quarter's discussions or preempting that we will have. I think the major drivers when it comes to earnings this year were characterized by high losses from exchange rate translation and high cost for the implementation of our ERP system at the group level as well as investment in IT security. So I think this is the overall topic that we've discussed in the last quarters. And I think this is also the topic that we're looking at the fourth quarter with some slight changes and what seems to be a light at the end of the tunnel. You've seen our EBITDA, adjusted EBITDA, which is EUR 16.7 million, translating into a margin of 11.6% and our adjusted EBIT, which amounts to EUR 8.9 million, translating into a margin of 6.2%. So both of these key financial indicators are slightly above the higher end of our latest forecast, which we published in November. One of the reasons for the better performance in the first quarter than we anticipated. I think one of the reasons is the product mix in the first quarter, which was quite favorable. The second one is a good price implementation that we have, especially in SFC Netherlands as well as SFC Canada, but also SFC Germany. We had some, to a small extent, onetime effects, all of this leading to a higher -- slightly higher gross margin than we anticipated in the worst case in our last forecast in November. Also, what we saw in the first quarter is that for the first time in 2025, we had a balanced result from exchange rate losses, i.e., the losses were very, very low in the fourth quarter, which also helped. So there was not a significant negative impact from other operating expenses. And all over, keeping costs at a decent level also helped in generating the slightly above EBITDA and EBIT. We see that the margins are that is not a big surprise, below what we have seen in 2024. We're looking, as I mentioned before, at an EBITDA margin of 11.6%, still a double-digit one, but apparently away from the 15.2% that we saw in 2024 and also slightly lower of what we anticipated for the given reasons that we have discussed in the first 9 months of the last year. I think to make a summary and we'll discuss the results much more in detail once we publish our final numbers, it is a, I would say necessarily super happy result for 2024 -- 2025 apologies. we've seen in the fourth quarter some factors really driving our profits up again and most of it being apparently the gross margin, which goes straight into the EBITDA margin. So very short and sweet from me this time, I'll pass it back to Peter. Peter Podesser: So also from my side. Now looking into, I think, the guidance and the outlook for the year. We, I think, can give a confident outlook based on facts for 2026 after, I'd say, the challenges I think we have to address last year, as mentioned just before. At the end, we see still a consistent increase of energy demand for dependable, resilient and sustainable energy, decentralized applications driving, let's say, our customers' needs -- at the same time, I mentioned this before, we have the structural shift in our business to the defense, public and civilian security business with the existing customers, existing products, but also new and scaling applications and some significant decisions still pending in this area. And regionally, we expect larger impetus coming from the European and Asian, especially Southeast Asia, but also a rebound in India, bringing a significant growth impulse. We are not neglecting the risk. I think we are still operating under a challenging overall macroeconomic environment. Geopolitics strikes to a certain extent, actually our customers' needs. We still see tariff risks and trade policy and trade hurdles being a factor to be, let's say, also assessed. But at the same time, we have, I think, also experienced a certain shielding in some of our core businesses and by localizing, especially in the U.S. and having already localized in India, we also see a shielding out of this. So overall, we expect a healthy growth. The corridor, we see, let's say, between EUR 150 million and EUR 160 million of revenue for 2026 with the Clean Energy segment growing slightly faster as also historically seen. And at the same time, we also see an overproportional impact on margins and improvement of margins. Daniel has mentioned also the effects already in Q4. We are consistently also expecting a proper implementation here, but also an operational leverage for growth. At the same time, we are not neglecting the risk here of precious metal prices developments and also currency risk. But the range we are seeing as a target range is an EBITDA adjusted between EUR 20 million and EUR 24 million for 2026. And on the EBIT adjusted level here on group's results, we expect the range between EUR 11 million and EUR 15 million as the realistic end rate from today's point of view. So after a year of consolidation, you see us here with, I would say, a sensible planning, a realistic view for risks and opportunities. But at the same time, we see ourselves back at the growth trajectory needed and doable. And I think we are also, let's say, as mentioned, seeing a number of initiatives that are, let's say, that have been worked on for quite some time also during the last year coming to a decision-making stage. So with this, I would like to conclude here and hand back to Moritz to open the floor for the Q&A session. Thank you very much. Operator: [Operator Instructions] And the first question comes from Karsten Von Blumenthal from First Berlin Equity Research. Karsten Von Blumenthal: Happy to hear that especially regarding margins, EBITDA margins, EBIT margin, you are back on track. It's better than I expected in Q4, and Daniel mentioned the reasons for this. My first question is regarding the U.S. business. Peter, you said that overall in 2025, you grew roughly 20%. As far as I remember, in the first 9 months, the U.S. growth was roughly 29%. So this is an indication that Q4 in the U.S. was relatively subdued. Is that right? Peter Podesser: Karsten, Peter here. I think what we see here is some shifts between quarters. I think it is not something that we see a slowdown here. I think what we see in the what we saw in the third quarter was, let's say, the softest demand in the fourth quarter coming back again and also, let's say, a much broader customer base. Well, getting in starting the year with a significant dependence from our largest customer. I think we now have started to, let's say, see the distribution of the customer base becoming broader and broader. So at the end, what you also see naturally, if we look at the 20% growth, and this might be also some differential here, we'll look into this offline. This is naturally after currency effects, we are seeing, let's say, 19% to 20% growth. Karsten Von Blumenthal: All right. That helps. And happy to hear that your customer base has broadened. Could you give us a bit more details regarding the state-of-the-art of your U.S. production site. So what has happened in the last few months? Where are you exactly? Could you shed some light on that? Peter Podesser: Yes. We have, let's say, continued with the hiring, the training of people. We had them over here. We had them in Romania. The classical preparation work. All systems are in place. ERP system is up and running. And pilot production can, let's say, start any day at this point in time, I think we feel well prepared here for delivering, and this will be a major shift products for the U.S. now out of our Orem facility as of this quarter. Karsten Von Blumenthal: Perfect. In this quarter, I'm happy to hear that. I remember that last time we talked about your relatively high working capital. That is nothing we have now discussed with the preliminaries, but have you perhaps a qualitative update on your working capital? Were you able to improve your position there? Daniel Saxena: Karsten, so we've not been able to improve our position significantly in the fourth quarter. So overall, I think from our call, which we had in November, working capital is still at a decent high level. Most of the components, if you look at the inventory, there's nothing in there. I mentioned already in November. A lot of stuff that we have in anticipation of an increased business, which we've seen in the fourth quarter. But also with a strong quarter in the fourth quarter, you know that accounts receivables tend to increase as of the 31st of December. So the message is the 2 drivers, inventory and accounts receivables are still expected to be at a rather relatively high level, but we expect that now as the business increases and goes up again that at least inventory will go back to these levels. Accounts receivable will remain what it is with the growing business. Karsten Von Blumenthal: That means we should rather look into, well, H1 figures to see you coming back to the levels you had, say, at the beginning of 2025? Daniel Saxena: I think H1 is the right period to look at. Remember, some of the components, especially platinum has increased in pricing significantly. So that also has an impact on the working capital, i.e., the inventory, not saying that it is driving the inventory. We are managing inventory, but we still want to make sure that we have sufficient components in -- on our stock. And the second driver as a general driver of increased inventory is, of course, as we open up new manufacturing sites inventory will go up if we -- as we start ramping up certain sites, inventory will go up because in the beginning, and that's very similar to what we've seen in the last years with India and with the U.K. you have a higher level of -- or double level of inventory in the German as well as in the new manufacturing. Karsten Von Blumenthal: All right. Thanks for that update regarding working capital. Perhaps one question to your surprisingly for me, surprisingly high EBITDA guidance for 2026 and the margin. So I assume better product mix and the costs, the one-off costs in 2025 will not -- will no longer burden you in 2026, say IT cost, ERP software, security, all this seems to be through. And yes, you go back to a decent margin level in 2026. Is that right? Daniel Saxena: In part, it is right. But if you look at the expenses in a different way, when it comes to the gross margin range, we will see a bit of a wider than normal range with the gross margin development, which could be gross margin remaining stable to gross margin improvement. I think what we're dealing with, and I mentioned that about when I discuss the inventories, of course, you've seen that platinum prices have increased significantly in the last 6 months. So that has a result on our bill of material. We, of course, intend to pass on those costs to customers. Let's see how the platinum prices will develop that will have -- and let's see how we can pass on to our customers that will have an impact on the rate of the gross margin. You've seen the whole custom discussion having reopened just in the recent days also remains a factor that could have an impact on the gross margin one or the other way. And still exchange rates tend to be volatile also impact on the gross margin. So when it comes to the cost basis and the margin, the EBITDA and EBIT margin, gross margin has a direct impact and the range of the gross margin is a little bit wider. When it comes to sales and marketing, I think we'll see a slight increase of those expenses, nothing significant, mostly driven by the regional expansion and new markets. So where we would expect lower expenses in 2026 is the R&D expenses is R&D expenses expensed over the P&L, the R&D spending, which is the expenses plus what we capitalize will increase or we expect it to increase slightly. But what we also expect this year again is that the capitalization rate as we're doing new products and investing in new products will be higher than what we've seen in 2025, which will then lead to a lower portion of our R&D expenses hitting the P&L. G&A, we will still see high investments in the IT and ERP. So I would not say that those costs will go significantly below what we've seen in 2025. The probably remain at a very similar level over the entire year. What we do not expect or it's very difficult to forecast. I think this is one of the drivers in the margin is, remember, we have losses from exchange rate conversion reaching almost EUR 4 million. Of course, in our forecast, we do not consider losses at this high level, which has a huge impact on the EBITDA. Apparently, if the U.S. dollar and the Canadian dollar and the Indian rupee start depreciating at the same speed or the same amount as we've seen in 2025, that would have a negative impact on our EBITDA and our EBIT. For the time being and also based access to that we have. We don't see it in this amount. But again, that remains a risk. Does it help? Operator: Then the next question comes from Usama Tariq from ODDO BHF. Usama Tariq: Congratulations on the great results. I have a set of questions, 2 to be precise. Firstly, on the FX going forward. So there was a lot of expectations for negative FX impact this year. And of course, that has been realized. But going into 2025, could you -- you already indicated that the higher adjusted EBITDA guidance will somehow be affected from a relatively better FX. Are you going to actively get involved in hedging FX in 2026? And my second question would be a little bit more general in nature. That will be -- I see a lot of fuel cell peers in the last 6 months have had a really good run, Bloom Energy and [ SLS ]. They are primarily focusing the data center market. I understand that the power generation for the units for SFC is not as strong as required for data center, but is that also a market you are looking at? Or is that just totally not something that you target? Daniel Saxena: Nice having you on the call. When it comes to FX, what I mentioned just to Karsten is that, of course, we are more conservative with our FX assumption for 2026, still based on what we see or what we saw as a consensus in the market from FX research. So a little bit difficult to really say we're going to end up within a year, but we would expect a slight stabilization. We don't see any gains from FX development. When it comes to hedging, so of course, we're looking here and there into some hedging of FX may enter into some hedging. I cannot exactly tell you yet because hedging has become very expensive. And then if you look at it, it has 2 impacts, right? So of course, the hedging will if FX decreases or depreciated, improve your EBITDA, but it will decrease your cash flow. Hedging those positions have become very expensive given the volatility of the exchange rate and also the exchange rate that we are dealing -- so you will see on the one hand side, and you know this much better than I do, a positive effect on the EBITDA and a negative effect on the cash flow. That's why if you look at the cash flow also in the 9-month cash flow, we don't see a huge impact from the FX expenses because most of them are noncash long-term intercompany financing. So let me look at it really on a basis what the cost of hedging is and what the benefit of it means actually also in terms of what is the cash impact and the cash impact will not be low. Remember also, we're looking at IFRS 18 being introduced mandatory from 2027 so they're going into details from 2027 with the IFRS, you'll see the presentation of AX results differently from what we see it right now, but I'll comment on that a little bit later. Peter Podesser: And then I come back to the data center question. Well, just recently, we had a very, very -- and I personally also was there with the team, a very interesting meeting with the largest data center provider in the UAE -- when the CEO there showed me the 32 diesel gensets here in the backyard as the backup power, it was obvious they are looking for a more sustainable solution there just replacing the conventional backup power. We are looking at data center projects also in India as India wants to become a hub here also on a global scale. It's one of the initiatives. But I would be really negatively surprised if we could not secure our first project, although recognizing that there are power levels for the, let's say, largest sized data centers that are beyond also fuel cell capabilities even of other players. I think there is a good starting point here at midsized data centers, and we are working as we speak on... Usama Tariq: Very grateful. So if I understand correctly, please correct me if I'm wrong, data center as a general opportunity is for you and you are actively working in that. And you wouldn't be surprised if you get some order in 2026 this year from the data center end market. Peter Podesser: Well, we are making all efforts and focusing naturally on the higher power range on our hydrogen-based product range here on this as one of the upcoming markets. And I can confirm what you reiterated. Operator: Then the next question comes from Robert-Jan van der Horst from Berenberg. Robert-Jan van der Horst: So I have 2 questions. The first one is, could you just give me maybe a quick update on what you -- or maybe just a little bit more color on what you expect from the Indian defense program. When I understood correctly, it was in part delayed and in part, funds were repurposed for drones. So do you expect it to come back significantly this year? Will it stretch out more? Or will the volume overall decline? Just an idea where we are at now. The other question is regarding the one-offs for the IT and ERP projects. Could you give me a rough estimate how high the effect was in 2025? So that would be my 2 questions. Peter Podesser: This is Peter. Talking about the Indian defense programs, as I said, we just recently returned from India having a yearly kickoff there and also the review of the forecast, we are expecting, let's say, some of those programs now again resuming and restarting. And I think we also got a good data point in the discussion with also a major defense player there in India in the defense vehicle business. They had to suffer from the same fact that funds were repurposed and literally was said basically, well, for 9 months, we didn't get an order and now it starts again. So I think we were not the only one suffering from it, which for us also was a validating point to say to clearly state, yes, the business is intact. The business case is intact that the moment the programs resume, I think we will see a rebound here. Also in conjunction with this, we did a very conservative planning, call it, a sensible planning in our Indian defense business. And I think we have all the reasons to believe that we will, I'd say, have a good chance to come in above the current planning. Daniel Saxena: So when it comes to European IT and one-offs in 2025, I'd say that we're probably looking at anything between EUR 2.6 million and EUR 3 million one-off -- that does not reflect the entire investment that we had in IT and ERP system. So a certain portion of that will be recurring, especially stuff like licenses, like maintenance, which will be higher going forward on a recurring level. I think one-off really mostly in consulting, mostly in implementation of software components is, like I said, anything around 2.5 million to 3 million. Operator: Then the next question comes from Michael Kuhn from Deutsche Bank. Michael Kuhn: I'll start with, let's say, the visibility. You mentioned good visibility, especially into the first half. Should we make out of that, that, let's say, the guidance as we look at it today is front-end loaded? And also in that context on backlog conversion, I think backlog around 80% at year-end. How quickly will that translate into sales? And let's say, what major projects you're working on where you would foresee entering it into the backlog over, let's say, the next 6 months with the realization of the project in the same year? Peter Podesser: Michael Well, I think if we look at the planning as we have it right now, I think we see as, again, repeating myself as sensible and I think realistic, also taking a learning also of the experience of last year. And then if you look into the order intake over the last couple of quarters, yes, you see a consistent increase here over the last 4 quarters here, culminating in Q4 with over EUR 40 million, but still my, let's say, the backlog alone, I think, is not that decisive part. As you rightly said, it's about the conversion. We have also significant parts of the business, especially on the clean energy fuel cell side, industrial fuel cell business where you usually have, let's say, an in-quarter conversion. And therefore, I think it's always a combination also as you rightly concluded, it's the backlog, but it's also the project pipeline. And as mentioned before, we are seeing some significant decisions here being worked on to be expected and painting really for the foreseeable future, talking about, in some cases, weeks, some cases, maybe, let's say, something in the next quarter. On the defense side, it's about, let's say, OEM decisions, but also regional programs. the rebound also we discussed it in the Indian programs. their fiscal year starts on 1st of April. So that's something expected, let's say, for the second half of the year and the summer. But then also on the civilian part of the business, and as I said, it's a combination. It's, again, a solid and robust growth in the civilian part of the business, but it's, let's say, a more dynamic view and a more dynamic situation in defense and public security. And if you give us a couple of weeks and we watch out for, let's say, we together watch out for what we can, let's say, execute here, I think we get, let's say, even more visibility beyond, let's say, the first half of the year. Michael Kuhn: Understood. Then on the U.S., with the production about to ramp and first product to be delivered soon, will that do you think influence the behavior of your U.S. customers by, let's say, removing tariff uncertainties and delivering a U.S.-built product. So should we expect a, let's say, more dynamic buying behavior in the U.S.? Peter Podesser: Well, I think definitely, it is going -- it has an impact because it's one of the concerns voiced to us by customers at the end, having a key component coming, let's say, from Europe, be it from Germany or Romania as we have it right now is seen widely as a risk per se in the supply chain. We are removing this. And naturally, they can also, let's say, reduce, let's say, their cycle times, be it an advantage for us or not. But at the end, for the customer, it's a good thing. We are able to, let's say, satisfy their demands also on shorter notice without, let's say, longer planning, including logistics times. So overall, definitely, does it eliminate all impact of uncertainty looking at the last couple of days, I do not think we can take this general conclusion here. But long term, it's the right path. They want us to be there. They want it made in the U.S., and I think that's what we have to deliver apart from not ignoring, but apart from, let's say, the uncertainties out of the trade policy of this administration. Michael Kuhn: Yes. No, fair point. One more on business mix. You mentioned 15% to 20% defense. And then did I get that rightly, another 60% on top from security/surveillance? Peter Podesser: No, this is, let's say, additive. So the 60% is including also the military part of the business. Michael Kuhn: Okay. Understood. And then last question on this product you mentioned being deployed in Canada with the very long working times and temperature resistance. Is that also something thinkable for, let's say, Eastern European or Scandinavian border protection, where there's a lot of talk going on, obviously. And could that be a, let's say, significant use case going forward? Peter Podesser: That is definitely our expectation here. As I said, we have a clear path of scaling here with our existing customer. And that's, let's say, at the end of the day, a NATO force, and we have naturally made use also of the presence of many of our customers and decision-makers here during the Munich Security Conference to get this out and show it as a solution here for all the other NATO and non-NATO forces. So it is -- what is the application? It is uninterrupted dependable power here with -- with low to no temperature and noise signature. And at the end, it's for sensing surveillance and data transmission and operating periods between 12 and 36 months in really remote locations. Right now, yes, along, let's say, a new marine let's say, logistics course in the northern part here of the Arctic based out of Canada, but naturally there are, let's say, all other locations also suitable and Scandinavia and, let's say, Northern European and Northeastern European locations, too. So scaling this year with the existing program, but deployment in other regions is exactly the plan. Operator: Then the next question comes from Malte Schaumann from Warburg Research. Malte Schaumann: First question is a follow-up on the defense part. Could you remind me what the defense revenue share was in 2025? Peter Podesser: Around 10% due to the drop also in India and expectation this year is there's a healthy chance to at least double this. But the part is at the 15%. Malte Schaumann: Okay. And what do you expect to be the main drivers beside the recovery expected to happen in India? So can you provide maybe some more color on what are the major building blocks for the increase? Peter Podesser: Absolutely. Yes, we are expecting some, let's say, OEM decisions, but we are also expecting some, let's say, decisions out of regions where we have had, let's say, a lot of business development and a lot of project-based business, new projects are up for decision. So it's OEM and regional expansion. And we have developed those 2 new products there. We talked about Canada a minute ago, but also on our power supply offering. We have this product out there in a fast scaling laser platform, portable land-based vehicle-based main application drone defense, and it is, let's say, the scaling with this OEM. By the way, we have approximately, let's say, 400 of those units already out there in the field. And naturally also other OEM users here in terms of laser technology on the defense side. So it's a combination. It's not the one big project that makes it all. So we also think this is, let's say, taking risk out. And as I said, in India, I think as of April, we expect, let's say, to come back to, let's say, a growth curve. Malte Schaumann: Okay. Good. Defense alone, the growth you expect in defense alone is broadly covering the full revenue range you expect for 2026, which would then imply you expect basically no growth in all the other areas. So maybe you can add some more what do you think about that thought? Do you see any opportunities in security applications, industrial applications, et cetera. So with a strong growth in defense, so then the guidance does not look very ambitious regarding all the other businesses. Peter Podesser: I think naturally, there is also an element of learning in there out of last year's experience where at the end, let's say, an add up of multifactors led us to miss the original and I would say, justified ambitious plan. I think we have, let's say, taken as I think as a reaction to this, a more conservative, but still, let's say, ambitious growth plan, not neglecting that still, let's say, risks are out there. We know how fast delays in defense projects occur. And half a year, let's say, goes by without the decision is not something unheard of. So at the end, I think the truth is somewhere in between. We see still, let's say, the organic growth in the industrial business, fuel cells and power supplies intact. We had an impact in Canada on the power business last year with a single project being, let's say, not decided. But overall, also there, we saw, let's say, a very stable environment with, let's say, which is also the underlying assumption here. But yes, if everything adds up in a positive way, we will be all happy to look at this and think about, let's say, the guidance again. Malte Schaumann: Yes. Good. Then on the gross margin again, you mentioned several factors, Daniel. But if I got you right in the end, you expect flat to slightly -- potentially slightly increasing gross margin. Is that right? Daniel Saxena: Yes. Looking at from comparison to 2025, which is right now still the gross margin, but it's not bad. I would expect a flattish gross margin on the lower end, but I will still look on the upper end gross margin which increases. As always, remember that the rough guidance we're giving is gross margin can go up on an annual basis, anything between 1 and 1.5 percentage points. So we will not see any jumps on the upper side, which is beyond that. Operator: Then we have one follow-up question from Usama Tariq from ODDO BHF. Usama Tariq: Just one follow-up question for 2026. How do you see the balance sheet going into 2026? Do you still expect it to be net cash? Do you think you will take some debt financing? Any pointers there would be really nice. Daniel Saxena: So when it comes to the balance sheet, yes, I would see still net cash. I would still see us to be cash generating. doesn't need super complicated math. If you look at the 9 months, if you see the results of the fourth quarter from a purely operating cash flow, we are positive on operating cash flow. The key liquidity driver of consumption is really working capital. So that's where the cash is getting consumed. If you look at CapEx, we do not expect any huge CapEx programs in 2026, similar as we've seen it in 2025. So to get to the point is, yes, still net cash positive. when it comes to leverage and financing. Let us see, we do have certain credit lines in place and see how we can draw them down given the current liquidity that we have, we may not use that excessively. And then, of course, we still have the variable. We are still looking and that is not a surprise at potential acquisition and/or investments into strategic partners. As always, those processes are something where you can say could happen, could not happen. There's a lot of variables out there. But of course, we're confident we would not go into the exercise we believe that there would be a positive result or outcome of such a transaction. And depending on where and how we do a transaction, we could look into leveraging the purchase price of such a transaction. Usama Tariq: And if I may just add on it on the acquisition part, what geography would you be targeting? Would you still be looking towards an aggregator? Or is it still -- or something on the technology side? Is there something in the pipeline? Or do you really are just looking currently? Any pointers there would be great. Daniel Saxena: Well, it hasn't really changed the strategic focus of what we have done in the past and we've been looking for. First of all, yes, it's a regional expansion and getting deeper into certain region markets. Of course, North America remains on our radar screen. Let's see how the overall environment develops. Of course, Southeast Asia remains on our radar screen. The same thing here, regional penetration getting quicker into the market and/or into certain sectors. We're also looking or maybe looking at some opportunities in Europe. And then from a technology point of view, also, yes, we are looking at potential higher power opportunities on the technology side where the technology complements our and PE portfolio. There are assets out there, which we would consider to be attractive. So yes, we are looking, but we're looking purposefully. And when we're looking, we are also engaging into discussion being understood that we invest prudently and looking at opportunities very cautiously. But yes, the opportunities are out there, discussions and you see that if you look at our transaction expenses that -- which are good level of the transaction expenses is a good level indicator of the level of engagement. Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Dr. Peter Podesser for any closing remarks. Peter Podesser: Well, yes, again, thanks, everybody, for your time, your interest. As always, I'd say, Susan, Daniel, myself, we are available for any direct interaction and follow-up. Yes, you see us here, I'd say, confident for 2026, optimistic based on facts. But at the same time, I think you also see us inspired and motivated with the dynamic environment, by the dynamic environment we are experiencing here in the first part of this year. And we will be happy to report on further milestones as soon as we have them. Thank you very much.
Véronique Bédague-Hamilius: [Foreign Language] [Interpreted] is in line with our WCR and co-development projects, and this reflects operations that are going to be launched at commitment margins and the current market conditions. Our backlog has no longer fallen since the 30th of September. We're being more selective about our operations, and this means that we're replenishing the backlog with quality operations that are robust. Our operating cash flow is positive, EUR 107 million. It should be noted that even without opportunistic decisions, our operating cash flow would still be positive, plus EUR 54 million for the year 2025. I'd also like to remind you that all of our bond maturities in 2025 have been repaid via proceeds from disposals made in 2024, and our liquidity is EUR 588 million. That's very good, which means that we can meet our medium-term maturities, and we can redeploy with selective and profitable operations. The second message is that we have organized a pickup of COP that's now positive at EUR 25 million as compared to losses of EUR 118 million in 2024. So this is an improvement of plus EUR 140 million over that period. The units that have been launched during the crisis that had to be recalibrated, restructured in 2024 are gradually being phased out. They represented 70% of revenue in 2025, and it will be more balanced in 2026. So those bad years are being absorbed. All of the operations being launched today are at the level of our commitment margins. That's an average of 7%, reflecting our product mix. As you know, we have orchestrated a major drive to reduce costs. These are operational and production costs. In 2024, we launched a major savings plan, EUR 100 million by the end of 2026. So we have already achieved EUR 92 million. Nexity is now at the same size as it was 10 years ago, and the market is comparable to that of 2025. So our structure is fully in keeping with market size today, meaning that we can capture the very best business in terms of margins. There are a number of upsides. In particular, we are rolling out a major performance plan to reduce the production costs of our housing units, and this will gradually have a positive impact as we move into new operations. And more broadly, the production costs of housing units on the market is higher than our potential clients' purchasing power. So we need to constantly challenge our cost structure, and we will continue to do this in 2026. 2025 saw a major increase in profitability of services. Our third message is that we've consolidated our leadership role. We recorded 12,000 reservations, residential reservations over the years. So this confirms our leadership position. Our market share is 13%, up 10 basis points. And this means that we are really a leader for buyers, home buyers, which is a very good market. Our commercial performance is better than the market for all of the segments for the second quarter in a row, and Jean-Claude will come back to this in more detail. New Nexity is completely operational. It's organized in a territorial multiproduct and refocused way, focused around the planning, developer and operator model. The business is much simplified and organized around skills that are integrated into our operations. All the assets that don't come under this scope have had tough decisions taken on them. This new organization means that there will be a new generation of leaders essential for Nexity of the future in the Executive Committee. This is key success and confirms that this organization and this momentum are relevant. In Nantes, for instance, we have a major urban renewal project on a former administrative site on the island in Nantes. And this is mixed development project, 28,000 square meters, derisked financial structure. In Tours, we're developing a whole neighborhood, St. Paul with three buildings, including a 14-story tower and student residence. This will bring in more than EUR 100 million of revenue and EUR 8 million of margin. And for the medium-term perspective, the pipeline currently represents five years of business activity with high-quality potential, 42,000 housing units that have had sales purchase offers for them, 3.5 years, and this potential will be maintained. So by the end of 2025, Nexity is a derisked company ready to move into the new real estate market cycle that's opening up. And I'd like to talk to you about how I see this market. It's true that the real estate cycle is still somber, but there are a number of encouraging signals, which would seem to indicate we're on the dawn of an about turn. Political consensus has changed a lot over the course of the last year. Measures to encourage housing, particularly with new status for private landlords reflects this consensus at national level. The new housing law was difficult to get voted, but it was voted, and there is this new consensus. And then there are municipal elections coming up at the moment. And in Nexity, we're looking at this very closely and housing is a key issue in all large towns. These elections means that we'll be able to have a new development momentum with the new teams in place for whom housing is inevitably very important. So Nexity is the leader. It's agile to respond to this new demand. Regarding bulk sales, we've worked on an offering, which takes on board the changing market and demand for smaller housing units with a focus on climate adaptation. Nexity is a historical recognized partners with more than 100 social housing operators, both regionally and nationally. The second key market is that of homebuyers. We're very careful about the equation of location, price, product and quality to the highest standards. In 2026, we will be supporting the new measures of loan rent, which will bring the personal contribution to -- down from EUR 600 to a more acceptable level between EUR 150 and EUR 500. We draw on historical expertise for these products, these investment products and whatever the status, we are going to have to make sure that buy-to-let investment be at the core because it means that People can use bank borrowing to buy a long-term asset, which will bring new value for them and help to create value in the future. And I will hand over to Jean-Claude. Jean-Claude Bassien Capsa: [Interpreted] Good evening, everybody. I'd like to talk about the business activity in 2025. The slide you see here shows the indicators of business activity. I will go through this in some detail. So commercial offer is well suited to the market. It's high quality, and this is key for derisking Nexity. Particularly, we don't have any completed unit stock, and this shows that we've managed the portfolio in a cautious and effective way. 90% of the units that are available are positioned in areas where there's high demand. These are the A, Abis, and B1 areas. This is up 15% points rather compared to 2022 and 17% for those where demand is higher. This reflects good alignment and concentration of demand on the market. Regarding reservations, we have more than 12,000 that were recorded over the year. Nexity is outperforming the market on all market areas in the second quarter in the row. And our market share is slightly up 13%. The volumes are down 10%, but the national market, as Veronique said, is well down 11%. But as far as we're concerned, we notice continuous improvement quarter-by-quarter. Regarding retail sales, two factors. First of all, private investors are not as present because the Pinel scheme was wound up at the end of 2024, but strong momentum for home buyers, up 19% on 2025 with 2,600 units reserved. Regarding bulk sales, as expected, we're seeing that there's been a good pickup in H2 and particularly Q4 with 3,800 units. That's 15% of the bulk sales for the year as a whole in the last quarter. And this confirms the message that we reiterate over and over. There is a seasonal trend for bulk sales, and this shows that. Bulk represented 7,450 units for Nexity. Now if we now focus on the sustained momentum of home buyers, it's up 19% over the year, 2,600 reservations. That's significant in volume. We're back to the precrisis level. Good momentum for commercial units with 100 commercial projects launched for retail sales since the beginning of the year, very targeted and attractive operations. And finally, we are present in areas where there's high demand and low offer, which are eligible to VAT at 5.5% and our capacity to have offerings with good attractive solutions for zero loan schemes, zero-rate loan scheme. And this is all part of our Loan = Rent scheme approach as well. So 14,000 building permits were obtained in 2025. Now looking at the commercial mix, two points. continued good momentum for homebuyers, 21% for reservations, the total. That's up 5 basis points in 2024, and of course, bulk sales, which are more than 60% of the total. Looking at service properties, student hospitals and co-working spaces displayed solid indicators for or Studea, the momentum is driven on the one hand by the growth of the fleet with the opening of four new student residences over the year with service properties of over 17,000 units in 54 cities and record occupancy at 98%. For co-working activities, we continue to see very high occupancies compared to the market at 83% with constant emphasis on improving profitability as opposed to chasing after volume. And finally, on distribution activities, which we recall were very much oriented investor-driven until 2024. reservations are up plus 9% in a private investor market that is down without the P&L, reflecting the agility and the ability of our teams to reposition themselves on other products for distribution. Finally, looking at the pipeline at the end of 2025, this represents five years of business in hand, quality potential of 42,000 housing units that are signed for, namely 3.5 years of revenue, 83% of the potential is in high demand areas, Abis, A and B1. This potential is committed through our commitment committees commensurate with our target of 7%. The backlog accounts for 1.5 years of business in hand. It is stable compared to Q3 and secured to the tune of 48%. We continue to seek selective replenishment of the backlog in order to go towards the margin rate target of 7%. I'll now hand over to Pierre Henry, who will give you the details of our financial performance. Pierre Pouchelon: [Interpreted] Thank you very much, Jean-Claude. Good evening, everyone. First slide here goes over our main -- our key figures that I will go through one by one in the presentation. Let's start off with revenue. New Nexity revenue stands at EUR 2.7 billion, EUR 2.8 billion for the group revenue, down 14% on a like-for-like basis, impacted as expected by the decline in revenue of service -- commercial property of 87%, namely due to the delivery of the major projects in 2024, for example, La Garenne and Colombes. Residential housing accounts for 83% of revenue of the group, down slightly by 5% due to the decline of business since 2022. On service, services, the revenue of service properties is up 9%, mainly due to the pickup of the fleet and very strong occupancy. Distribution until 2024 involved distribution mainly of P&L investment products and had to be repositioned on smaller investments such as student residences in 2025. Now looking at the operating income for the year. what you see here is the return to operating profitability of New Nexity. This is a key point. First of all, the most important thing is for the core activity of the group, restructuring of the margin in residential properties with the launching of new transactions in 2024, which are consistent with target margins and take into account the cost of the works and the production costs in the market in 2025. The second driver is the improvement of the profitability of services with a 13% margin on service properties and a return to equilibrium in the distribution business. The current operating income for New Nexity comes out at EUR 25 million, an improvement of EUR 143 million versus 2024, of which EUR 120 million on the planning and development model that we explained earlier. Current operating income for service properties is up plus EUR 15 million at EUR 38 million, driven mainly by service properties with a margin of close to 13%, which is due to the high level performance on Studea, very high occupancy and a decline in cost distribution is back to breakeven. Net income for 2025 includes a nonrecurring negative result of minus EUR 128 million, reflecting the bookkeeping of the determined action taken over the financial year, seeking to deleverage the balance sheet. Breaks down into three main categories: nonrecurring costs due to the finalization of the disposal plan over the management business and the opportunistic approach, mainly on commercial property in an office -- commercial property market that has significantly declined, in particular, in the Paris region. Cost due to -- arising from the discontinuing of transactions, which were our own decision. Finally, reorganization, and we are looking at deleveraging the group by -- in 2025. WCR came out at EUR 606 million at end 2025, down by almost 30%, minus EUR 226 million on end 2024. The WCR of the Planning act and -- the Residential Planning and Development act business is up EUR 161 million due to the continued cost cutting, greater selectivity in purchasing of land, optimization of the time lines between acquiring land and the first funding commitments. And the decline of EUR 17 million internationally is due to the delivery of the [ Plana resi ] project in Italy. Now on the net debt stood at EUR 278 million before accounting for the increased stake in Angelotti. So meaning down EUR 52 million. This accounts for a decline of 16% on 2024. Net financial debt stood at EUR 328 million, well below guidance, which stood at a maximum of EUR 380 million. As said before, continued deleveraging has been enabled through positive cash flow with a return to profitability continued optimization of the WCR and our investment, our disposals mainly on commercial properties and proper control over our financial costs. The structure of financial debt reflects, first and foremost, gross debt of EUR 914 million, down 17% over one year by EUR 182 million, down 40% over two years. And this has a favorable impact on the cost of debt, which comes out at 2.8%, down 40 basis points. We talked about the debt ratio that came out at 4.9x, ahead of the trajectory of the covenant. Liquidity after redemptions of EUR 321 million in bond maturities in the first half came out at EUR 588 million. And on the right-hand side of the chart, we have the average maturity of our long-term debt. We have given you on this slide, the trajectory of the banking covenant in order to give you a full visibility on our progress on the debt ratio end of 2025. I'll hand over to Veronique. Véronique Bédague-Hamilius: [Interpreted] Thank you very much. To conclude, 2025 was a year of continued deleveraging and of recovery in our operating profitability. As a systemic actor and market leader, we have taken stock of market developments, not only from a cyclical standpoint, but also structural. And we have not waited for the cyclical recovery, but we have launched a deep restructuring of the group. The balance sheet is now in a clearly deleverage financial situation. And management has also prepared and organized the group for structural adjustments in the market, and we are now able to capture all profitable growth opportunities. Through this financial -- this financially more healthy situation and our capacity to exploit a return to growth, we are now at a time where the potential for value creation for Nexity shareholders seems significant, and the group's management is extremely committed to this value creation process. The trajectory of our financial leverage remains a priority. We have proved this in 2025 by getting below a leverage ratio of 5x, well ahead of covenants, and we will continue this in 2026 with the goal being as soon as possible and no later than '27 to achieve a leverage ratio below 3.5x. We will, therefore, continue our financial discipline on net debt, in particular, combined with the gradual increase in EBITDA, notwithstanding a top line momentum, which will still remain under some constraints in 2026. And finally, to conclude, I'd like to share with you our guidance points. We are aiming for improved operating profitability with a return on capital of New Nexity up as well as continued decline in the leverage ratio back to less than 3.5x at latest 2027. Before answering your questions, I would like on a more personal note to thank Jean-Claude, who has been with me for the past seven years and who has decided, as you've seen in our press release, to resign with effect from the next General Meeting. Jean-Claude will continue to accompany me in the transition until then. Jean-Claude has done a remarkable job in implementing the transformation of the group. He has supervised our financial trajectory and has contributed to preparing us for the new real estate cycle. The [ co-MACs ] and myself would like to say how grateful we are to him and to emphasize that he has made a decisive contribution to building the New Nexity. I'm ready to answer. We're ready to answer your question. Unknown Analyst: [Interpreted] Good evening. Congratulations for the current operating income result. That's EUR 160 million up compared to last year despite the decline in sales. I've got three questions, if I may. The first question is, could you go back and explain how you deal -- dealt with the difficult years, the stocks from the difficult years. And what's going to be the share of bulk sales in 2026? The second question relates to the noncurrent income. Pierre Henry, you've explained this a little bit, but I'd like to have more information on this. And then the status of private landlord. If we look at this in some detail, it only really pay off for about 20% of households, but not for the others. Do you think that this will really help to support the real estate development market in France? Pierre Pouchelon: [Interpreted] I think it's by him who's asking the questions if we didn't hear you announce your name, but I think I recognize you. Regarding the previous years where we had to restructure, we did that in 2024. We had to adjust to the previous cycle to sales prices at the moment. These were operations that were launched before 2024. And those years still represent about 70% of margin and revenue. It will be more balanced in 2026. That's the percentage to completion method that we're using. The ones that have been started up, that's buying the divisions, negotiating or starting the building. So all of this is contributing increasingly to the margins in 2024, 2025 and 2026 and will account for the majority in 2027 when we will have cleared finally, the previous cycle. Regarding bulk sales in 2026, we always said that we have a medium-term vision. We don't think that the mix is going to be that different from the previous two years. So as Jean-Claude showed you, about 60% of our sales bulk, and 40% retail. The noncurrent income, there are a number of categories here. First of all, you've got the capital losses. We've wrapped up some management activities. So now we're focusing on operational and distribution. We don't have management anymore. We've got a small subsidiary of property management, but that was -- disposal took place in 2025. So that's been wound up. And then we've got balance sheet risks. So we have disposed of some operations that were underway. We got offers for those. This is mainly commercial business. And in some cases, we've discontinued operations. That was our decision. Our idea was to have a mix of bulk and retail, but the social housing operators backed out, and we didn't want to move more towards the retail market because it's a very tight market at the moment. set for homebuyers. And then there's a reorganization costs. And this relates in 2025, mainly to the winding up of transformation of Nexity with an approach of really having a mapping of the geography, identifying target markets, and we had to take tough decisions about whether to keep our brands, the Edouard Denis brand, for instance, in some geographies, we decided to discontinue that in some areas and move everything to Nexity. These decisions were taken with a special agreement where we had to redundancy agreement for 120 employees. Véronique Bédague-Hamilius: [Interpreted] Regarding the private landlord status, so this is something that one could discuss at great length as compared to the P&L scheme. I think that it does have some potential. You can make more savings, the higher your marginal tax rate, obviously. But it's still got a lot of potential for many households because it generates a real incentive. We can see our clients are showing interest. Real estate investment is not just driven by tax incentives, although that's significant in the decision, but deciding to invest in property is also to generate some income. And when people retire, they often think of doing that. It's the only way to set up capital by borrowing, and it's also something you can pass on to your children. And it's a kind of life insurance policy. If something happens to you, well, you've invested in real estate, in property, and that is then handed on to your children, grandchildren. I don't think it's going to have the same impact as the P&L scheme, but it will have a significant impact. And that will begin to pan out around June and July because the banks who are the main sources that distribute to this will have to get themselves organized. But don't underestimate the value of this scheme. Jean-Claude Bassien Capsa: [Interpreted] I see a written question from [ Cristian Rastasanu ], which relates to the reservation trajectory. And it mentions the fact that at the beginning of 2024, our objective was 14,000 units, and now it's 12,000 units. Do we have additional adaptation measures planned for Nexity given that trajectory and also the whole issue of the momentum on the market, which we mentioned at the beginning of these presentations. Going back to the past, don't forget where we've come from. In March 2024, most people on the market thought that we were coming up for a rebound. And everybody on the market got repositioned with that in mind. But actually, macroeconomic events had -- and political events, you're right, had a major impact on that trajectory. We bore the brunt of that as did everybody else on the market. But we did have a cost reduction drive and we stepped it up. And as Pierre Henry has just said, we put in place a streamlining drive for our brands, and this led to a reduction in our business scope, particularly for Ecuador. Regarding the outlook, I think we need to be perfectly clear on this. Veronique has made it clear at the beginning. There are some encouraging signs, but these don't show that the market is growing yet. What we see is that there's growing awareness at a political level that housing is a major issue. And this is across the board. And this has given rise to concrete results at a political level, which will bear fruit, but that will take time. And that's the first point. And the second point is that I think you can all see that the municipal elections in France which will take place in March are driven to a very large extent by concerns about housing, and this is bound to have an impact post elections with the new teams in place. Is our size in line with these developments? Pierre Henry said, we're back to the size we had 10 years ago in terms of headcount and units. All of this is more or less in keeping with the situation 10 years ago. So we are in line with the new market situation. As Veronique said, we undertake to take all necessary measures to be able to have complete control of our cost trajectory. We need to do that. We have to be -- have that discipline because the market is that households do not have sufficient purchasing power to buy housing or to rent housing. And so we're going to have to face cost reductions. Pierre Pouchelon: [Interpreted] We have further questions. Maybe I'll try and answer those. We have one here about the minus EUR 130 million for service properties. On the opportunistic decisions on the equity method, we have one project impairment under the 2025 consolidated financial statements because we -- on commercial property projects, we do not want to have WCR at risk, and we have a partner here, and we have aligned on that, and we have reflected this in our 2025 financial statements and this will be disposed of in 2026. On the trend in reservations, but as Jean-Claude has recalled, and I think for the first quarter means nothing for a developer. This has to be emphasized. And regarding retail sales is stable on last year. For bulk sales, it's too early to make a forecast because, as you know, there are very strong seasonal effects, and we will look at this again in April when we release our results, but we're in line with what we did in 2025 at this point. And on clarification of guidance, well, clearly, we're looking at an improvement in improved profitability, improved margins, in particular in residential property because that's where the margins have to improve. Revenue will decline in 2026 because this is a mechanical effect due to the decline in reservations. And the turning point will probably be in 2027. So this guidance means that we are focusing on improved operating profitability, in particular for our core businesses and the development margin and together with a decline in the debt ratio to get to the 3.5x debt ratio as soon as possible, and we are on a positive trend there. Next question from Christophe Chaput from ODDO. you may go ahead. Christophe Chaput: [Interpreted] I hope you can hear me well. First of all, I'd like to go return to the disposal of assets in Slide 25. you were talking about EUR 54 million. Just to be clear, the sound is very poor as the interpreter. Looking at operating cash flow, EUR 107 million. This includes the minus EUR 54 million further to the disposal. And we see this in the WCR in -- on Page 26. Well, in the EUR 107 million without including the EUR 54 million arising from the disposal at the end of the year. So put otherwise, as Veronique said, restating the investments, the cash flow stands at EUR 57 million. That's right. Okay. Looking at the guidance, you have been speaking in 2026, the decline in the debt ratio. But what about the debt level? Is this going to continue declining the actual mass of the debt load? Pierre Pouchelon: [Interpreted] Well, Christophe, at present, what we're talking about, and this is the message from this release, is that we feel that we deleverage the balance sheet and deleverage Nexity. As you -- so our track record over the past two years means that we are going to be using -- having very strict discipline on net debt, but that's no longer the main topic. What we're looking now is the improved return on capital, improved EBITDA. And over the past two years, we have significantly deleveraged the WCR in residential property and we are now achieving satisfactory WCR and cash flow generation. Nexity now means involved EBITDA and improved EBITDA means improved profitability in residential properties. So we're focused on that. This means ironed financial discipline. And the key point now is generating cash flow and improving operating profitability in our core business, namely in development and planning. Christophe Chaput: [Interpreted] And on improved profitability, the sound is very poor, as the interpret. Cost savings, when can we expect a return to the 7% operating margin? Pierre Pouchelon: [Interpreted] Well, in 2027, 2028, are very much dependent on our capacity to roll out these new transactions in 2026. And the local election are going to be very important for us because we have many projects where we are going to be aggressive, but we're going to be even more aggressive at 23rd of March of this year. Christophe Chaput: [Interpreted] And just an update perhaps on the Carrefour transaction, if I may ask you about that. Pierre Pouchelon: [Interpreted] The Carrefour transaction, we're still looking at three planning permission requests, which we haven't had yet. This -- we still have to wait until after the council elections and 10 planning positions to be submitted in 2026. So significant step-up on all of this after the local elections and Carrefour is very much part of that focus post local elections. And in the forecast for Nexity, both in potential and in backlog, I must clarify that there is nothing at present regarding Carrefour, just to be very clear on that. Since there's no land permit granted, this has no impact on the backlog, and it should be the same in 2026. Véronique Bédague-Hamilius: [Interpreted] There are no further questions. Apparently not. If not, then thank you all very much indeed, and have a good evening. Goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2025 Matador Resources Company Earnings Conference Call. My name is Marvin, and I'll be serving as the operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay reprices, and a replay will be available on the company's website for 1 year as discussed in the company's in press release issued yesterday. I'll now turn the call over to Mr. Mac Schmitz, Senior Vice President, Investor Relations for Matador. Mr. Schmitz, you may begin. Mac Schmitz: Thank you, Marvin, and good morning, everyone, and thank you for joining us for Matador's fourth quarter and full year 2025 earnings conference call. Some of the presenters this morning will reference certain non-GAAP financial measures usually -- regularly used by Matador Resources in measuring the company's financial performance. Reconciliations of such non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP are contained at the end of the company's earnings press release. As a reminder, certain statements included in this morning's presentation may be forward-looking and reflect the company's current expectations or forecasts of future events based on the information that is now available. Actual results and future events could differ materially from those anticipated in such statements. Additional information concerning factors that could cause actual results to differ materially is contained in the company's earnings release and its most recent annual report on Form 10-K and any subsequent quarterly reports on Form 10-Q. In addition to our earnings press release yesterday, I would like to remind everyone that you can find a slide presentation in connection with our fourth quarter and full year 2025 earnings release under the Investor Relations tab on our corporate website. And with that, I would now turn the call over to Joe Foran, our Founder, Chairman and CEO. Joe? Joseph Wm. Foran: Thank you, Mac, and thanks to everybody who's listened and has taken the opportunity to anticipate in this conference call. The first thing I do really encourage you to look over the slides, particularly if you don't have time to read the whole press release that we had. There've been a lot of thought put into those slides to try to make important points that I believe are essential to the Matador story. Second, if you also do not feel you've been given an adequate opportunity to ask questions, we want to invite each of you to come visit us at our offices, where we will make sure that you're giving all the time that you want to ask your questions and get your answers. And in particular, we would invite if you do come, we will make sure that you get to have lunch with the executive team or most of the executive team that's in town, or if you'd rather -- we will arrange for you to meet or have breakfast or launch with a lot of our young leaders and get to know the people who are coming up and being pillars of support and activity and are just doing a wonderful job, great job in directing our various activities. And of course, they're, relative -- have some years of experience, but they're the ones who are actually on the job and the first level of supervision and executive action, which none of the seniors will be in there to give you that opportunity to get some very frank responses. And that invitation goes and just work through Mac to setup such a meeting. Then what I wish to emphasize today in this conversation is the quality inventory that we procured over time, particularly in the Delaware, where I've been -- I started Matador over 40 years ago, 43 to be exact, and that's where we started out in the Delaware. So we've got reflect -- over 40 years of experience and still think it's the best rock in the country. And we like the position that we built. It's now over 200,000 acres. And if you're going to -- my experience, having started the company is when you're in what you feel is the best rock. It's a lot easier to build than trying together some of these outlying area. So feel free to ask whatever tough questions you want on the inventory, I think our position stands out against anybody acre for acre. Second, is I hope you'll note the strong balance sheet that we have and that this past quarter, we increased production. Most importantly, we increased reserves by 9% as measured by the Netherlands and Sul. So we have a -- we increased production and reduced debt. And we had strong cash flow throughout even though prices went up and down throughout the last 90-day period. We believe this inventory balance sheet, the strong cash flow, all lead to growth optionality. And with San Mateo, we now have flow assurance outside the basin. Hugh Brinson has been a change maker for us, and we're excited to work with Energy Transfer on that opportunity. And with that, we'll take the questions. Mac? Mac Schmitz: So great. Thanks. Marvin, we're ready for Q&A. Operator: [Operator Instructions] First question comes from the line of Lauren [indiscernible], Bank of America. Noah Hungness: This is Noah here. So you guys increased sort of net undrilled lateral footage by 2% this year. I guess -- what was this delineation or a result of your brick-by-brick land strategy? And where these locations -- where were these location adds? And you also had some pretty significant inventory adds in the Avalon, third Bone Spring Carbonate and Wolfcamp D. Are you seeing something that you like from those formations? Joseph Wm. Foran: First, I'd just say. It was a lot more than 1 question. So which one of those do you want Tom to answer? Noah Hungness: Really just if you could, on the inventory adds, if you're seeing anything you like on the Avalon Third Bone Spring or Wolfcamp D? W. Elsener: Sure, Noah. This is Tom Elsener, EVP for Reserve Engineering. Definitely appreciate your question, and it's something we're very, very proud to answer. I would say the production out of the Avalon in particular, has been very strong. I think we highlighted a particular well in our kind of Southern Ranger area to a bit [ Gavilon, ] a very strong upper Avalon well that has been a very, very high performer. I think it's getting close to made over 400,000 BOE, very high oil cuts. It's something that we have a lot of running room in that part of the basin for. It's something that we've expanded our inventory in over the years. So it's something we see as it's been a big part of our campaign out in the Delaware Basin. The other zones, various adds all throughout the position is what I would say. I'm proud that you noted the increase in footage. Our teams have been very busy doing trades, extended laterals, and we're very proud to see the 6% increase in our average lateral length in our inventory from 2024 to 2025. We've noted that we've been doing some 3.4 mile on laterals, particularly on our Ameritiv acreage that have helped us to dramatically increase our [indiscernible] length. And I think that, that's something that I would tip my hat to Chris Calvert and all the operations teams for pushing our lateral lengths out to these types of distances and doing it very, very well. I think our teams have been able to improve the quality of our inventory through good geoscience support from Andrew Parker, identifying -- you mentioned the third month in carbonate was a zone that we had not originally included in our inventory several years ago, and it's one that we've drilled very successfully kind of all throughout our Delaware Basin position. Our teams had started with that target down in our Wolf area many years ago and then further north into some of our properties over in Ranger and then over across into Rustler Breaks, and it's been one has been a great add to our position. Operator: Our next question comes from the line of Neal Dingmann of William Blair. Neal Dingmann: I'll make sure to keep the one question. I don't want to get in trouble. Joseph Wm. Foran: Neal, the other thing is what maybe some of the others on the deal, you know the way to our office. And you've been here a number of times asking these questions, and we've always appreciated. It's been a very useful dialogue and the guys like [indiscernible] me come and ask you various questions. And so they're hoping you'll come back. Neal Dingmann: That you all have been very generous with the time, Joe. I definitely look forward to getting back there soon. Joe, my question to you, Brian. It's really just on the '26 plan, it seems you continue now to target free cash flow over production growth. You look this year, great plan out there for 3% oil growth with 11% reduced capital spend. This is -- I compare this to prior years, where maybe you were targeting higher production growth. So my question is, you all now believe, I know you talked about value creation being sort of the key driver out there. You believe the key to the value creation is just this capital and operational efficiency, or what do you all look at as the key for this value creation? Joseph Wm. Foran: Well, it's a good question, and it's a fair question. The way we do things, as you know, we like to collaborate with each other and several of us kind of lean one way and others lean another way on what's important. And then when we roll that all together, it comes out that I think it depends on the time, and what the nation's economy is to in political situation is which one you lean perhaps [indiscernible], what interest rates are. And so there's a lot of factors that go into it, as you would guess, just like what what sector of the economy would you invest in. It varies from year-to-year and time to time. But our first -- we began with first saying is look for the good acreage because if you have the good acreage, banks generally have a good outcome. And it's hard to turn bad acreage into profitable or highly profitable wells. So beginning with is this a well that's in the right areas and the zone that's been properly tested or is this an exploration in fact well. The other thing is, I lean more towards the long-term reserve growth because when you proved up the reserves, then it becomes optional when do you want to complete wells in those zones and and bring to the market, the -- and you want to do it in a deliberate style because as you drill these wells, the more you drill them, the better your per lateral foot or foot each rate is because you just are drilling them faster, you learned to adapt some ways of increasing your booties and reducing your costs. So last call we had, we were beaten up because we had grown our production, but we had also grown our CapEx and that CapEx was -- we took criticism for that. This quarter, we showed what we could do the capital efficiencies that reduced CapEx spending by 11%. And we were able to recover essentially the same amount of production. But to us, most important because of the fluctuation in prices we increased our overall reserves by 9%. That's not our numbers, but that's Netherland and Sul's numbers. And so we thought that was a good outcome in total for the 90-day period that we increased production a little bit, 1%, but we reduced cost by 11% for the same amount, roughly the same amount of lateral footage and our overall reserves went up by 9%. So we thought that's good, but you all be the judge of it and the market will be the judge of that. But we're pretty excited that we have those numbers headed in that way. Production is up, cost down. And that we proved up some new zones and that we're very excited about. And so with fewer rigs, and I'll let Chris take over from here, he feels what was most important accomplishments for the quarter. Christopher Calvert: Hi, Neal, Chris Calvert, Chief Operating Officer. Great question. When we look at value creation, specifically long-term value creation, I think the fundamentals of your question really you kind of build the foundation of what we think that value creation is. It's profitability profitability focus, not necessarily production focused. When we look at that, then we try to figure out the ways to optimize the levers that build that strategy. And so with -- on the revenue side, you look at the value of Hugh Brinton as that comes online towards the back end of this year to help improve gas realizations that we spoke to, the production impacts of that in the first quarter. You look at the CapEx spend, the 11% reduction, the $130 million in CapEx savings forecasted for 2026. I'd refer you to Slide 6 to look at our year-over-year improvements in well costs. And really, even more specifically, I would focus you to Slide 19, which I think tells a better story that shows that we're able to achieve these well cost reductions while delivering stronger well results. And so when we can go out and deliver 10% improvements from an EUR perspective and do it at a lower investment cost, I think being able to optimize those levers just continue to improve the fundamentals of that long-term value creation. And so I think it's a great question, something we are hyper focused on the CapEx component of our 2026 plan is something that we are extremely thoughtful to that is going to be underpinned by efficiencies, vendor relationships in these volatile times, and we'll look forward to deliver that plan. Operator: Our next question comes from the line of Tim Rezvan of KeyBanc Capital Markets. Timothy Rezvan: One question. Joe and Brian, we couldn't help but notice the second priority for 2026 in your earnings release was midstream value realization. We also saw your report aggregate San Mateo and Matador Midstream EBITDA guidance for the year. So as we think about the time line, knowing this is a high priority, it seems like a drop in Matador assets into San Mateo seems to be a precursor to anything. So is that something you could do now? Do you need to let the dust settle on the 5-point continuation vehicle first? Can you just kind of walk through the theoretical steps we could be looking at this year? Joseph Wm. Foran: That's a good one question. Let me try to answer, I was trying to make notes as you were asking that. But no, the limitation of the one question is we're not limiting our time with you all after these one questions you've gone through, if you still got them stay on the line. We'll stay here as long as you want to ask them, and we invite you to come and see us. Now an answer to your question that you're talking about is that we look -- approach this on a very holistic approach. And it's not me sitting in a room and telling everybody else what to do. We gather in here in this room, the same room, we thought [indiscernible], and we cashed out different. People have different views. But when we get through, we all feel like we've hashed out a good plan. And we try to be nimble enough that as the economic climate changes, we'll change with it. And so it's been that kind of a 90-day period in the past, where you had to move cautiously or I felt my 40 years experience out here is be cautious because cautiously, you have a president saying he wants $50 oil, that isn't going to work long term for the industry, needs to go more higher. You've got a world situation where you got the prospect of war in the rand, you've got Europe that we're having difficulties on both sides. I don't like some of the things we're doing. And I don't know who's right or wrong, but I hope they get resolved. There has been a good ally for us. And then in our own country, you have this relations with Mexico, Venezuela, all those different countries that -- so you have the world view, you got to take into account. And so the -- we hedged our bet. We're 50% hedged on oil to protect the balance sheet, no matter which way we -- which direction we ultimately had, but we've taken those precautions. We we've got great vendors. Patterson is always helpful to us on timing of rigs and quality of rigs. So it's a complex, multifaceted, and we get the various department heads in here, and we hash it out, making sure we're taking all this into account. Five Point has been very good to work with. And that simply is a situation that they have an exit period in their fund, and they've got a continuation fund working so that they can work out long term. And that's headed, that's making steady progress, and we expect it to be resolved in the near term. We don't have control over that, but Five Point's been a good partner, and they've done what they've said they would do. And so we're watching that. You got activities, oil is important to the state in Mexico. So you're going to deal with government agencies like the Bureau of Land Management and like the state land office on these matters, and what are their plans, so incorporating that and then we really like our bank group, and they've been very supportive, and we have an RBL. That, of course, has increased over time as we've proved up more reserves, which is something we take in into account and all night in the most recent redetermination by our bank group was that they came back and increased our borrowing base and all 19 were unanimous in their support and even raise the amount that they have been offering on the midstream system. So we thought that was a when the whole way through. Other suppliers, B&L [ Pitco, ] has been very supportive through time, and we'd like to confirm what direction pipe prices are because when you're drilling these longer laterals, you want to be sure you have the best quality pipe at the best prices. So give credit to all of them at Halliburton on our frac designs and execution. So I would say you're not going to make a decision in an afternoon but you're going to gather get everybody's proposals in there, massage them together and go from there. And so it's something that these long relationships that we have with these vendors really pays off because you just -- you really make that time together and planning this that much more efficient. And we think that planning has played a big role in the reduction in our CapEx as well as the efficiency gains and like the timing and the timing that we have in drilling these wells, we're just drilling them faster than we have in the past because everybody knows what they're supposed to do, and they -- people come up with ways to expedite the operation and the drilling plans. Chris, did I leave something out there? Christopher Calvert: No. I think Joe hit on a lot. And I think to the question, Tim, the relationships we have on the E&P upstream side that Joe has mentioned, I've been long-standing and part of the success story of the operational excellence of Matador. And I think to the story with Five Point and the continuation vehicle, I think what we're excited about is the structuring a deal that allows them to be part of the future growth of the entity. Now as the drop-down conversation moves forward, I think that's something that from the E&P side, we have referenced these 3.4 mile laterals. We've referenced the productivity of the Ameredev acreage that is now in our asset base. And so I think that is an exciting story from both the E&P side and the wholly owned Matador -- excuse me, Metador midstream side, the gathering side. And so I think that the cadence of any sort of drop down, I think that's something that we will continue to work on. But we're excited about the continuation vehicle simply because it's another sign of support from Five Point, and they've been supportive of everything from plant expansions to interconnects between Marlin and Black River. This is just another sign that they want to be a part of the growth story that is San Mateo. Joseph Wm. Foran: Chris, I think that's excellent. But I just want to add on to that, that we've gotten a number of questions recently about our artificial intelligence participation. And what we found most effective is to work together with our vendors, and where we can use artificial intelligence between us, most often, they have the program. They're ahead of us, maybe more often, and -- but work together, so it's a win-win situation. And -- so we're taking baby steps, but we are taking it in the deliberate fashion with our partners, some of whom have more experience in this area, and we feel like it's other win-win where we all are gaining from the collaboration. Operator: Our next question comes from the line of Zach Parham of JPMorgan. Zachary Parham: Can you talk about how you're thinking about using the buyback going forward? It was relatively limited over the last couple of quarters. I know you didn't plan to be formulaic with the boast, but just any chance on how you plan to allocate free cash flow to buybacks in the future? Robert Macalik: Hi, Zach, this is Rob Macalik, CFO. Definitely on the shareholder return, we're proud of the cash we've returned in the form of both the dividend and the share buyback. We've raised the dividend 6 times in the last 4 years and are really proud of the 3% yield that we have on that dividend today. We just instituted the share buyback in 2025, and we think it's a really nice extra tool that we have at our discretion. As you can see through the management and employee share purchases, including the guys in the field, we as a management team feel like the stock is undervalued. And so we've been trying to be prudent with our capital, but we do think that the share buyback is a nice tool that we have, that we can continue to use opportunistically and feel like between the dividend and the share buyback are really good shareholder return tools to use. And so I think you'll consider -- continue to see us use that in a very conservative way, but use it when there's a dislocation between our stock price and what the rest of the market is doing. Operator: Our next question comes from the line of Derek Whitfield of Texas Capital. Derrick Whitfield: Wanted to focus on surfactants with my question. Could you perhaps elaborate on the enhanced performance you're seeing in your well results, the degree at which you could expand the program in 2026, and how much of this is baked into your guidance? Christopher Calvert: Great question. This is Chris Calvert again. So I'll start with the back part we have not made any sort of uplift into our 2026 production guidance plan. So I'll put that out right now. As far as quantifying the successful results, we were excited about the pilot test we did in 2025. We have long used surfactants throughout completions. This is something that, as the technology advances, as we continue to delineate from a subsurface perspective in the parts of the basin that we feel could be more benefited from advanced surfactants. That was kind of the basis of our pilot test in 2025. So we're excited about the early results. As we look into 2026. Once again, no sort of uplift is baked into the production. However, I think it's a little early to speak to the enhancements or uplift other than the fact that we have noticed that it is formation specific, certain formations respond a little better, but I think that could delineate and differentiated as we move into 2026 as we test in different parts of the basin. So stay tuned. We're excited about the '26 plan. Once again, the capital is projected into the budget, but not production. Operator: Our next question comes from the line of John Abbott of Wolfe Research. John Abbott: My question is really on the Woodford. What is the strategy there? Is your position primarily held by production you're drilling your first well in the first half of this year. You have additional pipeline capacity by the end of this year. Is there further derisking in 2027? How are you thinking about that play? Christopher Calvert: Yes, John, this is Chris. I can take it again and probably pass it to Tom. We're excited about the Woodford. Obviously, our geoscience team has long looked at deeper parts of the basin. We're excited about we've delineated and have producing wells out of 23 discrete horizons in the basin. The Woodford would be additive to that. And so we have a geoscience team who's long looked at deeper parts of the basin. And I think if you've looked at public data about some of these well results in and around the ZIP Codes in which are being reported. You'll see that there is a nice overlap to what we think is the fairway of this basin that is existing to current Matador acreage on the map. And so we look at this as as additive, and I can kick it to Tom. W. Elsener: John, I appreciate your question on the Woodford. This is our -- this will be our first one in the Woodford. And so I would say our primary objective is to learn as much as we can about the Woodford and all the other zones immediately adjacent to it. We'll be drilling a pilot hole and running logs. And I know Andrew Parker can speak more to some of those things. But we do have a had a nice position over there on the eastern side of the basin where others have had some success further over into Texas in the Woodford. Clearly, we're very excited about it. And so it's something that is -- would be purely incremental to our current inventory. We have not yet awarded any inventory whatsoever to the Woodford. So it'd be a great win for Ameredev. But I'll pass it over to Andrew Parker to speak more. Andrew Parker: Yes. Thanks, John. Just to add on to Chris and Tom here. We've had our eye on this. We're really excited about the results in Texas, and we really like our rock in New Mexico. We think we have a lot of running room here. Again, it's very early, but we're excited to share more about the test later in the year. But the Woodford -- it's an important part of the petroleum system in the Delaware Basin, which -- this just adds to our confidence of being in the best basin here and our confidence in our inventory across the basin as well. So we're really excited about it. Operator: Our next question comes from the line of Scott Hanold of RBC Capital Markets. Scott Hanold: Can you -- Matador basically built itself on the brick fabric M&A as well as organic growth. And moving forward, it looks like, I think for the industry, the growth rate is obviously coming down as well as Matador. But as you -- what do you see in terms of the way to add values for Matador going forward? And do you see a lot of M&A opportunities left to continue to consolidate? Van Singleton: Hi, Scott, this is Van Singleton, co-President. Thanks for your question. I think you can see from last year that our brick-by-break approach was effective as it has been for some time and 175,000 acres without doing a major transaction that was 690-or-so individual transactions. I think you can count to see us be vigilant to protect the balance sheet, but always look for good opportunities in the future. We try to keep a pipeline of deals coming in, but they need to be the right deals in the right neighborhoods. So many of these are end units we have or adjacent to units that we have to form these longer laterals, and we're excited to see there's still opportunities out there, and we'll continue to make trades that are good for both sides. Again, just like doing the deals with [ EnCap, ] they've been good partners to work with. And we look forward to other deals like that coming up. And if some bigger deals do come up, we'll give them full evaluation and due consideration. But we need to stick to our strategy of protecting the balance sheet and putting ourselves in a position for future growth. Brian, do you want to add to that? Bryan Erman: Yes. Hi, Scott, this is Bryan Erman, Co-President, Chief Legal Officer and Head of M&A. Just to pile on to what Van said. I think we have shown that we can grow in different ways. We did the Ameredev and advanced deals in previous years. And then as Van said, we did 17,500 net acres and essentially replaced our inventory that we drilled last year through smaller deals. And so I think that's a differentiator for us that we can grow through the bigger deals, and we do think there will be some out there in the future to look at, but we -- in the years that those aren't there, we can grow through the brick-by-brick approach, and we really do feel like that's a differentiator for Metador. Joseph Wm. Foran: Scott, this is Joe. And let's put a little bit of this in perspective. I started, as you know, with $270,000 in 1983. And today, we've got over $10 billion in assets. So throughout that 40-year period, the same question has been asked and asked again, do you think you can grow anymore? Has there been so much consolidation that there are not opportunities out there. We've always been able to find opportunities, and I don't really see it much different, and that we think is -- we aim for being better, not just bigger. And in a lot of these situations by going after these areas like Woodford and they fit us very well. I'm not sure it fits a major. They need to be down there where they've got hundreds of thousands of acres and these are smaller, but they've still fit us, and we consolidated that way. And Van and others have an active trading circle where we give up here in their area, and they give back. So those arrangements are working. And as far as the profitability goes, I think we've proven over 40 years that we've managed our money well to reinvest in the right areas. And even at old Matador, we were investing in the right areas there in developing trades. So we've been active in each of these extensions, and we've had merger opportunities, many merger opportunities. But so far, we found -- this worked best to be as we are. We're a little unique in a lot of areas. And one thing is the collaboration with each other in the company as well as with our outside relationships, and a good example of this is working with plans as we have. And we've done some -- they might us [indiscernible] some very good ways to add to production and make sure we're in the right areas and right equipment, what's on pipe, and what's still on trucking. And there's another example is that -- so [indiscernible] about who's the next merger or anything. We try to work on the efficiencies and thinks it worked out pretty well that in 43 years, we moved from one rig and part of the time and having 300,000 new assets, which at the time, caused a lot of money, but not so much today when we're drilling 3,000 feet or more and gain efficiencies there. So the business has changed, but the basics about building relationship, being in the absolute best area you can afford and working trades to consolidate things and looking for the new technology, all that that's same the same thing in sports is that it's not how big your school is, but it's often about how good your people are. I mean you look at University of Indiana hadn't had a winning season or championship since 1800s, the late 1800s, but then they win the National Championship because they got better people. And it's not that we can drive people into coming, but we do have a dedicated group of professionals who try to get better every day. And you've been to our offices often, and Scott wouldn't you agree, it's a very motivated group here that works well together and has kind of a unique culture to it. But I ask that question of you if you respond. Operator: And our next question comes from the line of Paul Diamond of Citi. Paul Diamond: Just wanted to touch on D&C in '26 for a moment. You guys guided towards a midpoint of $7.95, talked a bit about cycle times, better land as development. Just wanted to get if you could parse that a little bit on how those improvements are kind of broken out amongst those groups or any other levers? Christopher Calvert: Yes. This is Chris Calvert. You kind of tailed off on the back end of the question, but I'll repeat it a little bit and then whatever I missed. So you said a little bit more commentary surrounding increased lateral lengths, reduced cycle times that led to the reduction in our D&T cost per foot to $7.95. And so I think, Paul, the first thing I would point to is, when we look at this improvement in D&C cost per foot, it is largely efficiency driven. As we look to -- we've talked a lot about these -- this well batch that sits on our Metador acreage, it's 3.4 mile laterals. We expect to turn in line in the first part of this year. That is contributory to the 10% increase in lateral lengths. And so I think when we speak to the ability to do more with less. And I think that is a standard story that is somewhat spread across the industry being able to drill the same lateral footage or accomplish the same with fewer rig counts. Stories like increased lateral length helped contribute to that. And so when we look at improvements in completion efficiencies, we were kind of the -- one of the first to do [ Simo and Trimofrac ] in the Delaware Basin. It has stayed a large part of our completion story. We've seen completion efficiency improvements of 20% year-over-year as far as completed lateral footage per day, all of which contributes to lowering your D&C cost per foot. And so when we think about cycle time improvements, that it really underpins the ability to turn in line the same net lateral footage in 2026 versus 2025. Do it with $130 million D&C capital savings year-over-year. And then also still be able to deliver moderate production growth in the form of 2% or 3% oil -- organic oil volumes. And so I think the underpinning story to the $7.95 number is largely efficiency driven, focused on, like I said, longer laterals and reduce cycle times. Operator: And our last question comes from the line of Philip Jungwirth of BMO. Phillip Jungwirth: Was hoping you could talk about the better wells for less money slide. And just what I was really interested in is, first, the forecasting of EURs and the bottom-up build here and then just second, the footnote around excluding wells drilled by Metador or Advance and whether this has been a drag on historical EURs and if Matador designed wells are demonstrating improvement across this acreage. W. Elsener: Philip, it's Tom Elsener, EVP for Reservoir Engineering. I'll take the first part of that one. What we're really proud of is the continued improvement in our well productivity over these years and really highlighted by our own operations and showing that how we've been able to improve our [ ViO ] per foot of lateral year-over-year. It's something we're really proud of. It's not something that just comes very easily. It comes from a combination of improved targeting, improved spacing, improved completions, many of the different operational improvements that Chris has been lining out, but also from our geoscience teams finding better places to buy acreage, better places to land the wells. Combined with the approximately 25% improvement in cost per foot over these years, there are some very big improvements to the rates of returns to the quality of the inventory. And we're certainly very proud of the Emeritus acreage and the advanced acreage. And those have been great acquisitions for us. As has been mentioned on the deal front. We've been very successful with big deals in the smaller brick-by-brick transaction. So Matador has improved its portfolio over the years through the wide range of different techniques. Joseph Wm. Foran: If I tag on to your note, Cal, it's just that, as an example of this, of these efficiencies, it isn't just it makes the well better, but it's generated additional cash flow that we've been able to pay down our debt. And last year, for example, we paid it down by $200 million. So we were getting our leverage ratio down there to about 1, which gives you more options having that kind of balance sheet strength. And so we tie those together in our discussions that I mentioned when we collaborate what does this mean. Operator: Ladies and gentlemen. This ends the Q&A portion of this morning's conference call. I'd like to turn the call over to management for any closing remarks. Joseph Wm. Foran: Well, I'd just like to say if anybody else on the call doesn't feel that they got your questions answered, please give a call in to Mac, and we'll arrange a separate conference call. But we want to make ourselves available to you because we think there's a lot of good progress is being made, and we're very excited about some of these new areas that we're developing. It's just hard to always fit it in a 90-day period. But as this year goes along, I think you're going to see why we are as optimistic about the year as we have been, and hope that oil prices will stabilize and that some of the disruptions will be settled over time. And the economy will remain strong. But I give much credit to this team has continued to grow and work that much better together and reiterate our invitation become seeing and meet the people in person that that have a direct effect on the value of the company and then meet some of the younger people because I think they have done a very impressive job. With that, I want to be sure and give a shout out to Glenn Stetson, Glenn, and then called on the say much, but he's watched over both the production and the midstream and kept both of them running even in bad weather and other times. And so Glenn, if you want to say anything, please do so now. And if you want me to ask you a question first to give you a structure to do that. But you're watching over those two very important areas have got work together, the production and the midstream. Glenn Stetson: Yes. Thank you, Joe. This is Glenn Gtetson, EVP of Production, I think Tom and Chris both gave examples of of things that we're doing on the efficiency side. I would like to provide an example of where both Matador, San Mateo, and on the completion side, the production side and the midstream companies that work together to achieve some of those efficiencies and one of them is on the produced water side using hydraulic -- using produced water for hydraulic fracturing operations. In 2025, 72% of the water that we used was was produced water, and that has the benefit of both reducing our CapEx per foot, but also reducing our lease operating expenses, and we couldn't achieve those results without the help of San Mateo and Matador's midstream -- wholly owned midstream properties or assets. And so I just wanted that just another area of where we are working together to help on all fronts. Joseph Wm. Foran: And trying to help the flow assurance, the importance of flow assurance into perspective, is if you're going to -- as I often heard, some of you've heard me say, if you're going to be a cotton farmer in Dawson County, Texas, you better own -- also try to own part of the cotton chain because you got to genuine cotton before it hits the market. And it's the same thing. After we produce the gas, it's got to be collective midstream entity and then take in the market. So we started in on that view when we went public, when first Matador public back in 2012 that it was important over the long run that have an interest in the midstream to be sure you have flow assurance. And that's delivered a lot of benefit to us through time. Now we're not cotton farmers, but I believe it's an apt analogy. Mac Schmitz: Marvin, with that, that concludes our closing remarks. Thank you. Operator: Ladies and gentlemen, thank you for participating today. This concludes today's program.
Operator: Good morning, everyone, and thank you for waiting. Welcome to GPA's fourth quarter -- to announce the results of the fourth quarter of 2025 of GPA. [Operator Instructions] This conference call is being recorded and will be available at the company's Investor Relations website, where the complete earnings release is available. [Operator Instructions] The information on this presentation and any statements made during this conference call regarding GPA's business prospects, projections and operational and financial goals constitute beliefs and assumptions of GPA's management and are based on information currently available. Forward-looking statements are not guarantee of performance. They involve risks, uncertainties and assumptions because they refer to future events, and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operating factors could affect GPA's future performance and lead to results that are materially different from those expressed in such forward-looking statements. Today with us, we have GPA's CEO, Alexandre Santoro, and GPO's IRO, Rodrigo Manso. Now I'll give the floor to Alexandre Santoro to start the presentation. Alexandre Santoro: Good morning, everyone. Thank you so much for attending the announcement of the results of the fourth quarter and full year of 2025 for GPA. I took over the leadership of the company with enthusiasm due to the relevance and strength of the company's history, but also fully aware of the responsibility of the market. I arrived here less than 2 months ago, and from day one, I have been very close to the operation, deepening the understanding of the business and interacting directly with team, suppliers, customers, creditors and shareholders. GPA holds relevant assets, consolidated brands and a loyal customer base, supported by a team of more than 37,000 employees, the basis of our business. We have a strategic position in Brazilian food retail and competitive attributes that are significant. More than 60% of our revenue is concentrated in the premium segment. We have more than 5 million active customers in our loyalty program, and we recorded a gross margin of 27.6% in 2025, the highest in the segment. This margin shows the strength of our position. Still we have -- we see room for evolution and to increase the profitability of our brands. There are clear opportunities to improve efficiencies, assortment, loss reduction, overall to improve the operational execution. Part of this potential lies on the fundamental equation of our business. Our expense structure proportion is still very high and offers significant room for additional gains in efficiency that are significant as we adjust processes and adapt costs to the operational reality of the company. Our work here is focused on 3 very clear fronts: generating operating cash, financial discipline and improving the customer experience. As of the end of last year, the company announced an efficiency plan to improve efficiency. And as we have deepened the analysis in recent weeks, we have identified several additional opportunities both in SG&A as in CapEx. And in this manner, we are going to expand even further the scope of the initiatives already announced. We also have reinforced internal governance and expense discipline by creating a specific committee for the approval and prioritization of expenses and investments. We are reviewing all of the company's expenses, all relevant expenses of our day-to-day operations, such as service provision, technology, rental, sometimes canceling contracts that make no sense, reducing, changing their scope to make them more adherent to the reality of our businesses. We also reinforce our focus on profitability, both to generate margin both in brick-and-mortar stores and e-commerce, prioritizing growth that is healthy with good margins. This is one of the reasons that the whole company decided to discontinue a program such as the Allies program that brought sales, but the bottom line did not provide any good results and it was operating at a loss, and we are not interested in that. That agenda has been conducted with discipline and responsibility, preserving the experience of our customers and maintaining a constructive relationship with our suppliers, who are fundamental partners for deploying our value proposition. Financially speaking, as it has been broadly announced, we have significant upcoming maturities along the next few months and we are addressing this issue as a priority. This action is in progress. And in November, we announced we are going to defer a significant portion of our debt. This is not something that started when I took office. It's something that had started before. We were directly monitoring it, of course, always in compliance with good governance processes. Now on the next slide, we are going to talk specifically about the results of the fourth quarter. Now looking at the highlights, the fourth quarter showed an improvement in many relevant operating indicators. We recorded an adjusted EBITDA margin of 10%, a significant reduction in net loss with consistent progress in operating cash generation. So this is related to the business seasonality that helped us. We grew 2.7% in same-store sales, advancing in all formats despite the challenging macroeconomic environment. Pao de Acucar grew 1.8% in same-store sales with a market share gain in the premium segment. Now Extra Market advanced 4%, reflecting the maturity of the activities implemented. The Proximity format also showed relevant growth in total sales. And in Digital, we reached almost BRL 700 million in sales, up 6.7% over 4Q '24. The focus here, as I said before, remains on improving the profitability. These results reflect the first impacts of our efficiency agenda that we started to implement. This is the beginning. There is still a significant way for us to improve our operational and financial aspects. Now I would like to give the floor to Rodrigo Manso, my partner and IRO, that is now going to give you more details about our operations. Rodrigo Manso: Good morning, Santoro. Good morning to everyone. On Slide 5, we highlight the evolution of gross profit and adjusted EBITDA. We continue to make consistent progress in gradual improvement on profitability. Gross margin reached a 27.7%, 50 bps year-over-year. And this movement continues to be supported by greater efficiency and assertiveness of our commercial strategy by the improvement of store operations, highlighting, for example, retail loss and out-of-stock loss and by the evolution of Retail Media, which shows higher margins. Nominal SG&A decreased by 2.5% and now amounts 18.3% of net revenues. This is an important highlight, especially in view of the inflation pressures faced over the last 12 months. The result highlights our ability to capture efficiencies in this line and reflects the initiatives implemented over the last year. Within the context of operating costs and expenses, it's worth mentioning that we are executing an efficiency plan for 2026. It includes reduction of at least BRL 415 million in our operating costs and expenses. The plan is at an advanced stage of mapping and execution, already capturing benefits since the first quarter '26, which reinforces our confidence in the continuity and profitability improvement. In addition, we continue to evaluate additional efficiency opportunities with the potential for incremental captures throughout the process. As a result, the adjusted EBITDA margin reached 10%, an expansion of 40 bps. This consistent performance reinforced the robustness of our operation and gives us the necessary flexibility to calibrate when necessary the promotional levers, balancing profitability and competitiveness. The next slide, Slide 6, I would like to present the details on the net loss from continuing activity amounting to BRL 523 million in the quarter. As shown in the chart, most of the loss is related to a nonrecurring effect with no impact on cash, referring to the net effect of the impairment accounted for the sales of GPA stake in FIC, our financial service partnership with Itau. The impairment amount was BRL 527 million due to the difference between the sale value and book value. In addition, we recognized deferred tax assets related to this transaction in the income tax and social contribution line amounting to BRL 179 million. Excluding these nonrecurring effects, continued net loss for the quarter would be BRL 175 million. On Slide 7, we present the cash flow from the managerial perspective of the past 12 months, a period in which we generated BRL 699 million in operating free cash flow after CapEx. It represents a result 2.6x higher than what was accounted during the previous period. This performance reflects a combination of 3 main factors: improvement of pre-IFRS 16 adjusted EBITDA, which reached BRL 848 million or BRL 36 million growth; efficiency in working capital management, especially in suppliers; and variation of assets and liabilities and the reduction in CapEx. In working capital from goods, we achieved generation of BRL 230 million in the period as a result of an improvement of 6 days in the working capital cycle compared to the previous period. This result is mainly due to one-off negotiations with suppliers, in addition to efficient management of in-store inventories. In CapEx line, we invested BRL 612 million in the past 12 months. It's already possible to see a turning point, reduction of BRL 62 million in the accumulated amount. It all began in the fourth quarter '25 with the review of the company's investment plan and is expected to intensify throughout 2026. Let me take a step back and provide more details about CapEx within our efficiency plan. We have defined a budget of BRL 300 million to BRL 350 million to this line with reduction in investments in expansion, renovation and technology, preserving the investments necessary to sustain the operation and initiatives directly related to customer experience. Moving on to other operating expenses. We continue to observe a reduction compared to the previous year. This line totaled BRL 549 million in the period, down BRL 153 million. Out of the total, BRL 151 million refer to recurring effects and BRL 398 million correspond to extraordinary items, mainly related to tax agreements, labor lawsuits and restructuring. Finally, the net financial income totaled BRL 920 million, an increase of BRL 325 million over the same period last year. This variation reflects the concentration of surety bond renewals linked to tax issues in addition to new issuance, also the increase in Selic interest rate, which impacts the cost of debt, and the reduction in average cash in the period of the last 12 months. Next, on Slide 8, I present the details of our financial leverage. As we've shown on the previous chart, net debt increased by BRL 686 million in '25, also impacted by extraordinary effects already mentioned in the other operating expenses and the net financial cost lines. As a result, pre-IFRS 16 financial leverage ended the quarter at 2.4x compared to 1.6x in the same period last year. It should be noted that in 2026, we'll continue to employ initiatives that can contribute positively to the company, together with the operational improvements already mentioned throughout the presentation. Among these events, I highlight the sale of FIC already announced, which should generate amount of approximately BRL 260 million after the closing of the transaction. In addition, we have been negotiating a new contract for the operation of financial services at GPA branches. It is going to generate short-term additional value and recurring revenue with higher potential than the structure we used to have. I now hand it back to Santoro, who will make his final remarks. Alexandre Santoro: Thank you, Rodrigo. Before we open for questions and answers, I would like to emphasize some important topics. So despite I've been leading this company, running the company for less than 2 months, it's absolutely clear to me how important the time is. This is a moment of change, and more than that, it's a moment of transformation. GPA has gone through many changes over the last few years, different priorities, different guidelines, but the fact is that we need a structural and cultural change here. A company with the operations, brand and market positioning that GPA has cannot spend for many years without generating cash, whether it is because of inherited partners, investment decisions that are disconnected from the company's operational reality or a mismatch between the businesses and the reality. So what we have here, there is a mismatch, and it's not related to the size and reality of the company. There are many different fronts that needs to be addressed herein, and this is the time for us to solve the problems. And this is my homework. This is my mission. This is what I have to do that is supported by a very representative Board of Directors that are holding more than 70% of the company's capital aligned with priorities with the need to solve the structural problems of the company and also bringing stability and focus for us to move forward. And I say they are fully aware of the structural liabilities that we have. We have the tax liability, labor liabilities. And everything is being addressed in a very responsible way. And as I said in the first part of my address, we have longer -- debt profile is part of our mission. We are fully aware of how important it is for us to continue working on that to have conversations with our creditors within the formal limits of governance of our company. To reinforce this, my term in office is to address the structural issues of the company with discipline and responsibility, aligning operation, profitability and cash generation. I am fully aware of the challenges lying ahead of me and -- but I trust our strategies, the strength of our brands, the strength of our team and the support of our partners and suppliers. We are going to move forward consistently. In this manner, I give the floor back to our operator for us to start our questions-and-answer session. Operator: [Operator Instructions] So let's move to our first question, comes from Lucca Biasi, an analyst of UBS. Lucca Biasi: I have 2. The first one is about suppliers. So what was the driver for the increase in suppliers? And how sustainable is that looking into the future? How do you expect it to behave in the future? And my second question is, in the release, you say that you performed well for both brands, both Pao de Acucar and Extra. Do you think this is related to the use of GLP-1? And how do you see the use or the impact of GLP-1 in your basket? Rodrigo Manso: About suppliers, if you look at the increase in suppliers, it's very much in line with what we had last year, a revenue that is also very similar in the movements, especially discontinuing allies. So this average term for suppliers comes from specific negotiations related to Q4. So the expectation of the company for Q1 also looking into the company's history is to have times that are more in line with Q1 or Q2. So in Q1, you are expecting a more significant effect in terms of consumption of cash in the line of suppliers with the payment of a significant part of seasonality at the end of the year. So this is related to specific negotiations that take place at the end of the year. And your second question about GLP-1, well, I'm going to address part of it, which is the variation in revenue and what we saw in perishables. Yes, it is clear that there is both in Pao de Acucar and Extra, reminding that Pao de Acucar has a concentration of 50% of the revenues in suppliers -- considering the scenario that we have been mentioning since last year with a slowdown in demand in the overall market, we see that the categories related to perishables had a performance that was superior to Q3. It's an improvement. So we can clearly see that in our numbers. As to GLP-1, and I will give the floor to Santoro, it's important to emphasize that we have a platform that is much focused on health and well-being. But the trend with the new medication -- and this has been something that has been going on, is that people want to buy healthier products. And undoubtedly, once they walk in Pao de Acucar, even Extra, we can clearly see that we have a positioning and a value proposition that is focused on the public that seeks well-being and wellness and health. So the GLP might expedite or increase it over in the short term. Alexandre Santoro: I would like -- I don't have much to add, but just going into a little bit more detail, we really see a change in some categories that have some connection with the GLP issue or the pursuit for a diet with fewer carbs and more protein, so slightly more premium customers. There are some trends that we've been seeing, that we've been monitoring. And as Rodrigo said, I think that we are well positioned to accommodate this kind of change. And 50% of our sales, as they said, in Pao de Acucar is related to perishables. Operator: The next question comes from Dann Eiger, an analyst with XP. Danniela Eiger: I have 2 questions. First, the efficiency plan, which is already in place in the first quarter '26. Tell us more about how we can think about how fast you are going to capture new efficiencies. Are they quick things, adjustments of headcount, maybe termination of some contracts? Or should we expect something more long term? This would be good if we could have some more clarity about that. Secondly, concerning the situation of liquidity, Santoro, you made it very clear that this is your main priority, and in your release, you also listed a number of initiatives to deal with it. I would like to know how much is really in your hands. What do we see in terms of appetite of measures, in terms of renegotiation? Just for us to understand how this is going to evolve. In terms of tax liabilities, you used to be very active in renegotiating them in the past. But do you think this is going to be put aside because of limited liquidity and the fact that you have more urgent matters to address? Alexandre Santoro: Well, first of all, efficiency plan. This is a combination of actions, and I'm going to give you some examples. A number of things that have already been executed and we are capturing the benefits, such as adjustment of infrastructure. Some decisions that are made in terms of CapEx, we are not going to expand that. This is a decision that has been made. And quarter-over-quarter, you are going to see that compared to last year -- last year, it was BRL 700 million. This year, it's probably going to be half of it. So these are decisions that have been made already. As I said in my speech, there is core responsibility. In other words, CapEx is not going to be 0 for obvious reasons. Our priority is to maintain a positive client experience. It's a CapEx to support our businesses. We are going to maintain that. But if it's innovation, technology projects or further expansion, we have agreed that we are not going to make these investments. Within expense control, we are also making some decisions towards that, because historically we have spent a lot on lawyers' fees, consulting services. And these are contracts that are being optimized. We've made this decision, and we are going to start seeing results in the very short term. One more example. We had a number of retail assets that we didn't -- were not using it. They were closed down. So we have already negotiated some of those shop floors that are no longer in our mix. So things that we've already started doing since the end of last year, and now we are speeding up our implementations. Some others will require renegotiation of contracts, different contract scope, for example, especially if it's something which is not aligned with the company new perspective. There are a number of examples, contracts that involve service provision mainly. Now concerning liquidity, we have a number of debt maturities. They are all known. Nothing has changed. We are not higher or we are not more or less in debt. It has all been expected to be paid. We have successfully renegotiated one debt. And we are right in the middle of this process, very active in negotiations, showing our partners and creditors what our implementation plan is, showing them numbers and what it will mean for 2026. Ultimately, we are a company that generates cash from an operational perspective and we expect to improve margins, reduce SG&A and ultimately impacting the bottom line. But at the same time, it's a company that has a tax liability. We're still discussing it. But it's difficult to predict when it's going to be over. We also have labor debts, which are equally relevant, and debts which are part of the equation. We've been conducting a number of negotiations, and I would say this is a very important moment to all of us. And the company, the Board and the creditors are discussing all the different situations. And together, we are going to get to positive results. Now concerning taxes, our strategy has not changed. We are still very active, looking for opportunities and agreements that we may make. This is something very relevant to the company, which concerns liquidity, of course. I told you a little bit about the cash use and the financial income. We need a number of surety bonds because some of the discussions that are at the court levels. So we are still focusing on that, providing the necessary collaterals. And we are going to update the market as we evolve in our initiatives. Operator: The next question comes from Eric Huang with Santander. Eric Huang: I have 2 questions. First, considering the stores, you've closed down some stores. Do you think it's going to be optimized further? And what can we expect for 2026? Secondly, concerning your expense reduction plan, what would be nonrecurring elements resulting from these adjustments? And how this is going to interact with the line of other recurring expenses? Trying really to anticipate what we can expect for it in 2026. Alexandre Santoro: Let me start addressing the issue of stores. In retail, we are constantly revisiting and analyzing the performance of stores. The last thing we want to do is close down a store, of course. It's usually the last resort. There are a number of actions that can be taken before it. And we are really focusing on it and emphasizing all concepts of the business. I have no guidance that I would be able to share with you concerning what would be done towards that line. But quite to the contrary, we are emphasizing operational elements. I can give you an example, which is also part of our efficiency plan. We have it rolling around in place. So we are revisiting the assortment of Proximity stores, for example. Proximity store have a higher logistic cost than larger stores because there is a smaller inventory area, you need constant replenishment in fractions. In some stores, we are running a test, reducing the assortment, the number of items being sold in these Proximity stores, which would have an impact on logistics and operations, consequently, profitability. And it improves the performance of that kind of store. Now talking about timing, which was the previous question as well. There are some things which are to the point. Some other things are more -- they involve logistics, structure, some, let's say, slower processes. But about closing down stores, we don't anticipate to have any significant reduction of our stores. And what we are going to do is try to have stores performing as best as they can, always trying to avoid closing down stores. Rodrigo Manso: Now Eric, speaking about the efficiency plan and the effects -- nonrecurring effects that we expect, our plan has more than 10 initiatives in place. So contract renegotiation, revisiting our organizational structure. And we've also been considering nonrecurring effects, which are going to impact the results throughout 2026. But at the same time, we've also talked about the effect that non -- the other -- the line of others, nonrecurring effects have from extraordinary payments. We've paid some tax credits or we purchased some precatory notes. Things are going to be reduced throughout the year of 2026. I wouldn't be able really to tell you exactly how much it would be, but we believe it will be absorbed by the lines of others because of the reduction of other items which were extraordinary events in the previous year. Operator: Our next question comes from Nicolas Larrain from JPMorgan. Nicolas Larrain: I have 2 questions. One is related to the stores. You had mentioned that GPA is on a waiting atmosphere in some regions. In some stores, you need to wait, whether they make sense or if we are going to sell. I would like to understand your mindset. So are you thinking that there are some branches that you could sell? And the second question is more related to sales. January according to the industry is slightly better than Q4. How are you seeing the performance of stores in the first 2 months of the year? Alexandre Santoro: So a great question that you have asked. In the first 2 months -- this is one of the fronts, one of the things that we've been looking at this issue that you have just mentioned. There is a clarity of what we should prioritize in terms of our investments and efforts that should be more concentrated in Sao Paulo, Rio and DF, which are 3 regions that are our top priorities. We're going to focus our team, attention, resources and to improve stores and everything. So I would tell you that this thing of reassessing is something that is very significant that is going on right now, and we have been analyzing and talking about that internally with our teams, first of all, to understand and to have an accurate diagnosis. And we are going to try and find opportunities that seem to make sense to us. And the other question about sales. Well, what we've been seeing and what you said about the overall market and other players whose sales have improved in the beginning of the year, we are seeing the same trend. I think that we have managed -- considering our value proposition and the concentration of more than 60% of our revenues in the premium segment, we have been able to stand out, even though in the first quarter of 2025 -- when we look at the market, our growth is always above. So we are going to move on that are significant and important processes along this year. We are actively working on our brands. And along '25, we had an improvement of Extra with a growth that stood out with 4% in same-store sales. So in addition to Pao de Acucar, there was a growth. And our Proximity brands have same-store sales growth. Despite the scenario in Q4, we saw a slight growth in same-store sales. We are working on that intensely and we can see that we have some resilience and a differentiated value proposition, and we want to capture gains that are above the overall market. Operator: Our next questions come from Alexandre Namioka from JPMorgan -- or rather Morgan Stanley. Alexandre Namioka: Just a follow-up on Eric's question. You had said that closing a store is the last thing you do, it's the last resort. Before getting to that point, you implement many initiatives to try and improve the performance of those units. Could you try us -- try to explain to us and to quantify how many units in your current complex that are underperforming? Alexandre Santoro: I would say to you that about 20%, 25% of our stores have a performance that are below what we wish or what we see as their potential. So of course, we have a much deeper analysis. And the first thing that I can tell you is something along those lines. So when you look at the entire portfolio as a whole, so this percentage is slightly higher in Proximity, smaller in Pao de Acucar and slightly smaller in Extra. I think that this analysis to be thorough. It involves staffing. So number one, it starts with sales. So if you can have a better operation, you unlock leverage that you know in this business is really huge. So we start the day with 0 revenue. And expenses, I know what it is. So any leverage with sales changes very rapidly the reality of a given unit. So this first understanding. And of course, there is the operation itself of structure, rental. Sometimes the rental is disproportional. And this involves an attempt of renegotiating the contracts. And if you fail to do that, sometimes we decide to close a unit. So -- but the first number on the top of my head that I would tell you, that 25% of our units, we are focusing very much on improving their performance. Operator: The next question comes from Gustavo Fratini with Bank of America. Gustavo Fratini: I have 2 questions from our side. What is the B2B profitability? I would like to understand how much it has helped you gain in gross margin, which was very significant. You've also said that you had 1/3 of the surety warrant bonds related with contingency. How much do you expect to renew in 2026? And what is going to -- how it's going to impact your financial costs? Alexandre Santoro: The first point about B2B. We have actively adjusted our business, and that has been so since 2024. In 2024, we started a process of profitability with the segment called Aliados Allied, something that had been in the area for a while. It delivered a very small margin, however. And in 2024, we wanted to improve profitability aligned with the other areas of the company. Throughout '24 and '25, there were a number of macro elements that had a negative impact on the total equation. But throughout '24, as we realized that we could not operate within the expected profitability level, we started focusing on it, which has led to our discontinuity. It's a contribution margin. I would say that the profitability was close to 0, very low profitability. It got somewhat better in one or other quarter, but it was not consistent and it was too volatile. No value proposition for GPA. We were simply placing orders, something that wouldn't impact margins really differently from all other business lines we operate on. Now going to your second question. Throughout 2025, there was a significant concentration of renewal of insurance policies. The financial impact of this line will be much smaller in '26 than in '25. These are 5-year contracts on average and the financial impact happens in the first year, the unsure payment. The impact on cash flow was quite relevant throughout 2025 because of the renewals, the concentration of renewals of these insurance policies. What we anticipate for 2026 in the specific breakdown of insurance is to have an improvement. We are also working on different initiatives. We've been trying to swap collaterals and guarantees and reduce our financial costs. This is also being done with all the ongoing suits. Unfortunately, I cannot give you any precise figures, but the trend that we anticipate is to have a reduction on this line, because of the high concentration of renewals we had last year, something which is not going to happen in '26 and '27 and as a result of our active work of reducing financial costs by making swaps and replacements. Operator: We thank you all for joining us. And with that, we are going to wrap up our investors meeting. Well, our Investor Relations office will be glad to entertain any questions you might have. Thank you very much. Have a good... [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Adrian Hallmark: Good morning, everyone, and thank you for joining us today for Aston Martin's 2025 full year results. It's a pleasure to be here alongside Doug Lafferty, CFO. And before Doug takes you through the financial performance in detail, I'm going to provide a summary of our key achievements and areas of strategic focus during 2025, followed by a review of the work we have done on the future product lineup. As we've outlined throughout the year, we have navigated a highly challenging trading environment, an unprecedented backdrop of geopolitical uncertainties and macroeconomic pressures, including heightened tariffs in the U.S. and China weighed on our performance and ability to execute our plans effectively. Despite this, we have delivered some critical milestones. None more so than the commencement of Valhalla deliveries in quarter 4 last year, our first mid-engine plug-in hybrid vehicle supercar. Alongside this, we've expanded our thrilling core lineup with high-performance derivatives such as the Vantage S and the DBX S, voted the Super SUV of the Year by Top Gear Magazine and the Vanquish Volante with the Vanquish also being recognized as Car of the Year by Robb Report just last month. Whilst maintaining a disciplined approach to balancing production with demand throughout the year, with retails outpacing wholesales, we also took the necessary proactive actions to invest in quality, lower our operational costs, and find ongoing capital expenditure efficiencies. Along with other transformation initiatives, these actions have benefited our performance in 2025, but very importantly, will support enhanced delivery over the coming years. Finally, we took action during the year to strengthen our balance sheet. Proceeds from the sale of shares in the Aston Martin Aramco Formula One Team, investment from Lawrence Stroll and his Yew Tree Consortium, and improved cash collections in quarter four 2025, resulted in a year-end total liquidity of GBP 250 million. Further enhanced by the proposed sale of Aston Martin naming rights to AMR GP for a consideration of GBP 50 million in this quarter, 2026. Taking all of this together and looking ahead, I remain confident that our strategy and upcoming products will position us strongly for future success. In the full year 2026, we expect to deliver a material improvement in our financial performance and continue to delivering year-on-year improvements over the short to midterm, with a focus on margin improvement and cash flow generation. Let's begin with a review of what's at the beating heart of Aston Martin and core to our DNA. That's our range of exquisitely designed and handcrafted vehicles. Today, we have the most thrilling and diverse lineup of models in our 113-year history. As we said at the start of 2025, our focus was on continuing to refresh and expand the core model range. Aston Martin has a long-standing tradition of applying the S suffix to special high-performance derivatives of core models, which we've continued with the introduction with the Vantage S, the DBX S, and most recently, the DB12 S. We now have convertible models available for all of our core range of sports cars. We celebrated the 60th anniversary of the iconic Volante name with the release of limited-edition Q by Aston Martin DB12 and Vanquish models. As I previously mentioned, the awards and recognition for these vehicles were a consistent theme throughout the year and have continued into 2026. As a result of the extensive range of new core models, the order book for these vehicles extends for up to 5 months for the core, and the average selling price has increased by more than 5% to GBP 185,000. A trend we expect to see continue into 2026, with more Aston Martin versions to come as we keep the core range fresh for our future and current customers. Now, undoubtedly, the most anticipated highlight of the year was the start of production and deliveries of Valhalla in Q4 2025. Valhalla has been a monumental project for Aston Martin, with the first 152 units produced and wholesaled in 2025. A further circa 500 units will be delivered in 2026. The current order bank takes us through to the fourth quarter of this year. Uniquely designed from the ground up at our Gaydon headquarters in the U.K., this supercar with hypercar performance is our first mid-engine plug-in hybrid. It's an important component of our future plans. The financial benefits have already been evidenced in our quarter four, 2025 performance. Reception from customers and the media to driving the prototype has been overwhelmingly positive. Following extensive global driving events during the second half of 2025, we have much more to come in 2026, beginning with over 50 global journalists joining us in Spain next week to drive the first full production versions of the car. Expect to see the reviews of this by the end of March. With our product portfolio now well-established, let's turn our focus to the current market environment and how we are refining strategy, transformation program, and our future product plans to best position Aston Martin for success and solid financial performance in the future. During my first full year as CEO in 2025, the global luxury automotive market faced one of its most turbulent years in recent times. Consumer demand has been impacted negatively by escalating geopolitical uncertainties and macroeconomic challenges, the most notable being the introduction of tariffs in the U.S. and in China. We were forced to navigate an unpredictable policy landscape and manage supply chain issues that ultimately impacted our volumes, our efficiency, and our margins. We have taken, and will continue to take, proactive steps to strengthen our overall position by maintaining a disciplined approach to balancing production and demand. This has been key to this year's performance and how we've planned for 2026. It includes establishing a more balanced production cadence through each quarter, while building on the success of our initial Valhalla deliveries. We passed through a second 3% price increase in the U.S. from the 1st of October to offset more of the impact we've been absorbing due to the tariff increases announced earlier this year. We continued to engage with the U.K. government regarding the first-come, first-served U.S. quota mechanism, with volumes allocated on a quarterly basis. This system creates uncertainty for our planning and forecasting. Where possible, we will try to optimize production schedules to reduce this risk associated with the quota mechanism and prioritize working capital management. As we said at the half-year results, we provided support for our dealers in China with the intention of positioning us strongly to enter 2026 from a low stock perspective. We continue to build more robust relationships and management across our supply chain, including proactively mitigating risks with some of our partners. We're taking immediate and ongoing action to reduce our cost base in order to deliver operational leverage. Simultaneously, we reviewed our future cycle plan to ensure we meet the needs of our customers as regulators and priorities shift. This resulted in a CapEx reduction of about GBP 300 million over the coming five years. 12 months ago, I communicated a strategy that built on the foundations laid by the industrial-scale turnaround undertaken by Lawrence Stroll and the team since 2020. This strategy seeks to turn this high-potential business into a high-performing one. Underpinning this strategy are our unique strengths, namely our iconic global brand, our uncompromising customer focus, the relentless pursuit of innovation and technical advancement, and the license to operate in the high-performance sector through our F1 association, which feeds into the exclusive, limited edition, high-margin specials. Finally, and most importantly, our highly skilled and capable and loyal workforce. Building on these unique strengths, we took proactive steps and advanced our transformation program in 2025, anchored around our six strategic focus areas. As we look ahead, we will continue to operate with a laser focus on these six areas, because they are the way to achieve our high performance and create value for our stakeholders and shareholders. Many of the achievements this year I've already referenced, I'd like to call out just a few more over the coming moments. As we seek to drive market demand, we've recently established a private office, which ensures our top 500 clients are assigned a primary Aston Martin contact, supported by head office VIP specialists with a dedicated 2026 events plan. This will be further supported by the opening of the Q London flagship in Berkeley Square later this year, adding to the ultra-luxury flagship store at New York and at the Peninsula in Tokyo. In terms of product creation, we were the first global automotive manufacturer to integrate Apple CarPlay Ultra into all of our models. Additionally, we're expanding our range of personalization, options, and bespoke Q offerings, giving our customers even more choice when it comes to curating their unique Aston Martin. Culture and change management is critical at a time when we are right-sizing the business to align with our future plans. To demonstrate that we're making changes throughout the organization, my executive committee a year ago, comprised of 11 members, and we will be nearly half that size by the end of this quarter in 2026. Our focus on quality has seen us make additional investments, which are delivering ongoing benefits. The Valhalla program has established a new benchmark for Aston for product launches, and our customer satisfaction scores have rocketed compared with the previous year across all new models. Whilst we are instilling a disciplined approach across our operations, it's important that we don't ignore other key factors, like the health and safety of our colleagues. This is of paramount importance, and I'm pleased to report that our reduced accident frequency rate in 2025 is another step change. Finally, cost optimization. As you know, this has been a constant theme throughout the 2025 period and will continue to be so in 2026. One of the benefits of having a more disciplined approach to our operations with a smoother production cadence is that we can deliver greater efficiency. As such, I expect us to drive operating leverage in 2026 that will support our improved financial performance and profitable growth. As we look ahead to the future, the key to success of this business will be the next generation of vehicles that we develop. We announced in October that a review was underway of our future product cycle plan, with the dual aim of optimizing capital investment whilst continuing to deliver innovative products that meet customer demands and regulatory requirements. We now have a clear roadmap that will ensure our product proposition builds on the strong foundations we have established over the past five years. For the remainder of this decade, we will initially focus on extending existing core model lines before the next full refresh commences. This is a capital-efficient approach and the best utilization of funds, whilst being able to offer new and exhilarating products that meet our customers' needs and beat the competition. The derivative approach of the past year is a great example of what to expect over the next three years. We will gradually start shifting from pure combustion engine powertrains to incorporating electrical assistance. That doesn't mean full electric, yet. That strategy will continue to be reviewed and subject to further communications. We don't believe our customers want that technology right now. We won't be pushed down that path by regulation either, due to the changes that have occurred. What it does mean is hybrid technology, alongside ever more efficient and compliant combustion engines, will be the core part of our business going forward. This will be complemented by our continued specials program, a fundamental part of our future financial and competitive success. As we look further into the following decade, that s when we plan to incrementally add all-electric drivetrains that will incorporate the latest innovative battery technology at a time when customer demand has likely shifted to be more closely aligned with regulatory requirements. I'm really excited by what we have to offer in the years to come. At the appropriate time, we'll provide more color on our thrilling and innovative future product lineup, which puts customers' requirements at the heart of everything that we do. For now, thank you, and I would like to hand over to Doug, who will take you through the financial detail. Douglas Lafferty: Thank you, Adrian. Good morning, all. Before we move into the Q&A, I'll take you through our financial performance for 2025, and our guidance for 2026 and onwards. Overall, our full year 2025 performance reflects, as we guided, fewer specials deliveries and the disciplined approach we took to operations as we navigated the heightened challenges and uncertainty in the global macroeconomic and geopolitical environments, particularly in relation to tariffs and the quota mechanism in the U.S. Looking at the detail on the slide, wholesale volumes were down 10% at 5,448. Retail volumes outpaced wholesales as we continued to maintain a disciplined approach to managing the balance between production and demand. As expected, Q4 was the strongest period in 2025, benefiting from our planned expansion of the core derivatives and the first 152 deliveries of Valhalla, supporting marginally positive free cash flow in the quarter. In terms of revenue, at GBP 1.26 billion, this reflected a 21% reduction compared to the prior year, largely as a result of the core volume decline and the guided fewer specials deliveries compared to 2024. Core ASP increased by 5% to GBP 185,000, benefiting from our expanded range of derivatives, while total ASP was broadly flat due to the mix of specials. Demand for unique product personalization continued to drive strong contribution to core revenue of 18%, broadly in line with the prior year period. As a result of the lower specials volumes, dealer support to reduce aged stock, increased warranty costs and other investments made in enhancing product quality, as well as the impact of tariffs in the US and China, adjusted EBIT decreased to a negative GBP 189 million, with depreciation amortization decreasing by 16% to GBP 297 million, also primarily driven by fewer specials. The split of our wholesales for 2025 is shown on the left-hand side of the slide. Core volumes for sport, GT, and SUV were down in line with the overall trend, whilst fewer specials were due to the timing of the Valhalla deliveries commencing only in Q4. As expected, Q4 wholesales increased sequentially, up 47% on the previous quarter, benefiting from both the expanded range of core models, including the DBX S, Vantage S, and Volante 60th Anniversary Limited editions, as well as initial Valhalla deliveries. As Adrian has mentioned, we expect to continue to realize the benefits of our full range of new core derivatives through 2026. On the right-hand side of the slide, total ASP decreased by 15%, again, reflecting the fewer specials deliveries and the mix compared to the prior year, while core ASP, as I've already mentioned, increased by 5%. On a constant currency basis, I would expect to see a similar improvement in core ASP in 2026, whilst total ASP will benefit from around 500 Valhallas we expect to deliver, as well as the Valkyrie LM editions. Overall, volumes remained similarly balanced across all regions in 2025, with the Americas and EMEA, excluding the U.K., collectively representing 63% of wholesales. This was despite the ongoing challenges related to the U.S. tariff implementation. In addition to the reasons previously outlined, the timing of various model transitions and deliveries across the regions impacted volumes compared to the prior year. The movements in volumes across EMEA and APAC were weaker due to market conditions and destocking activities. Despite tariff-related volatility in the U.S., volumes there and in the U.K. remained reasonably robust relative to overall group performance. While China is a market with long-term growth potential, demand there remained extremely subdued, in line with other luxury automotive peers, due to weak macroeconomic environment and changes to luxury car tariff effective from July 2025. We continued to support our China dealer network through 2025 to help position them well to benefit from our next generation core model range when the market conditions improve. As we turn to the next slide, the impact of fewer specials deliveries is reflected in the decline in gross margin year-over-year. The impact of core wholesales, despite a slight improvement in the mix from the next generation of derivatives, was also diluted to gross margin as a result of the previously communicated additional warranty costs, increased dealer support, and other investments made in product quality, which amounted to an increase on the prior year of around GBP 65 million. Additionally, gross margin was impacted by the U.S. tariff increases. Q4 2025 gross margin improved sequentially to 31% from 29%, supported by core volumes and specials, whilst ongoing warranty costs and dealer support to reduce aged stock still impacted the period. I'll come on to guidance shortly. We expect a material improvement in financial performance in 2026, including gross margin, benefiting from our ongoing transformation program and continued disciplined approach to operations, new core derivatives, and the enhanced contribution from Valhalla. We remain steadfast in targeting a minimum 40% gross margin for all of our new vehicles. Adjusted EBIT decreased year-on-year to a negative GBP 189 million, primarily reflecting the gross profit movement and foreign exchange, which were partially offset by a 16% decrease in both adjusted operating expenses, excluding D&A and adjusted D&A. The decrease in adjusted operating expenses aligns with our focus on optimizing the cost base as part of our ongoing transformation program, and to drive operating leverage through disciplined cost management from 2026 onwards. It also includes the previously announced GBP 11 million benefit from the revaluation uplift of the secondary warrant options associated with the disposal of the group's AMR GP investment. As shown on the right-hand side of the slide, net adjusted financing costs decreased to GBP 109 million from GBP 173 million, primarily due to a GBP 71 million year-on-year gain of non-cash US dollar debt revaluations, resulting from a weaker US dollar. Turning to free cash flow, the year-on-year outflow increased by GBP 18 million to GBP 410 million. This reflects both the decrease in cash inflow from operating activities and increased net cash interest paid of GBP 143 million, partially offset by the GBP 60 million reduction in capital expenditure. As expected, working capital improved year-on-year to an inflow of GBP 6 million, compared to the GBP 118 million outflow seen in 2024. The key drivers here being the deposit inflow relating to Valhalla, with deposits held increasing by GBP 3 million, compared with GBP 187 million outflow in the prior year period, in addition to a GBP 2 million increase in receivables, compared to a GBP 107 million decrease in 2024, following improved cash collections at the year end. Capital expenditure of GBP 341 million was below the comparative period, in line with the group's revised guidance, reflecting the initial benefits from the immediate actions announced by the group at Q3 2025, to reduce both cost and CapEx. As Adrian has mentioned, we have completed a review of the group's future product cycle plan, resulting in the five-year CapEx plan reducing from around GBP 2 billion to around GBP 1.7 billion. This is through a continued focus on utilizing existing platform architecture for internal combustion engine vehicles, in line with regulatory trends and customer demand. To finish with cash and debt, we ended the year with total liquidity of GBP 250 million, flat on Q3, given the strong performance in Q4 2025, and improved cash collections at the year end. Total liquidity reflects the GBP 410 million free cash outflow in the year, partially offset by the around GBP 106 million inflow of net proceeds following the completed sale of the AMR GP's shares, and the GBP 52.5 million investment from the Yew Tree Consortium. This has been further enhanced following our recent announcement of the proposed sale of the Aston Martin naming rights to AMR GP for a consideration of GBP 50 million. Net debt increased to GBP 1.38 billion, reflecting a decrease in the cash balance and increased drawing on the RCF. Combined with the decline in EBITDA year-on-year, this resulted in an adjusted net leverage ratio of 12.8 times. As we prepare to deliver the material improvement in 2026, and through disciplined strategic delivery and profitable growth in the future, we expect this ratio to materially improve over the coming years. Finally, and looking ahead, as Adrian has outlined, we expect to deliver a materially improved financial performance in 2026. As the indicative EBIT walk on the right-hand slide highlights, key to this improvement is our enhanced product mix, including the 500 Valhalla deliveries that we expect, and benefits from the ongoing transformation program and a disciplined approach to operations. We continue to acknowledge that the global macroeconomic and geopolitical environment impacting the wider automotive industry remains challenging. This includes the U.S. tariff and quota mechanism uncertainty, which Adrian has already mentioned. Taking this into consideration, we still expect to continue delivering year-on-year improved financial performance over the short to midterm, with a focus on margin expansion and cash flow generation, benefiting from the ongoing transformation program initiatives and an enhanced product mix from the future portfolio of both core and special models. You can see the group's detailed 2026 guidance on the left-hand side of the slide. What I would highlight is that we have planned carefully for 2026 to align production with retail demand and expect a much smoother delivery cadence from the second quarter onwards. This will support more efficient delivery of our plan, which, in addition to the ongoing benefits from our transformation program, will generate operating leverage. We expect the adjusted EBIT margin to materially improve towards breakeven. Free cash outflow is similarly expected to improve, and following the majority of the cash outflow occurring in Q1 2026, we expect a cumulative year-on-year improvement from Q2 onwards. As you would expect, we remain laser focused on cash optimization and liquidity management. Thank you. I'll now hand back over to the operator to open for the Q&A.[ id="-1" name="Operator" /> Our first question comes from Henning Cosman of Barclays. Henning Cosman: I have a few, but maybe start with three and get back in the queue afterwards. Maybe I can ask on inventory first. Perhaps for Adrian, if you could please comment on where the channel inventory stands now. I think you spoke to China and low stock at year-end in China specifically. If you could help us understand when you think wholesale and retail can start converging because you've reached a normalized stock level. In the context of that, the costs that you've had for support, mainly dealer support, in 2025, do you think they will be fully non-repeating in 2026? That is the first question. Second question, perhaps on free cash flow and liquidity, maybe more for Doug. I don't know, Doug, if you're prepared to comment on a target liquidity level by year-end 2026, or alternatively, on a ballpark free cash flow corridor that you have in mind. Could you confirm perhaps whether GBP 50 million to GBP 100 million negative free cash flow corridor is that a realistic ballpark? And do I understand you correctly, therefore, a substantially neutral free cash flow development starting with the second quarter of 2026? Finally, on free cash flow, would you entertain that you are targeting a positive free cash flow for 2027? Maybe just finally on volumes, back to maybe Adrian. Adrian, is there an updated volume target at all, perhaps for the core volume range? You re obviously guiding to sort of flattish volumes with higher specials, implying declining core volumes in 2026. Do you have an updated mid-term volume target in mind? What would be the key building blocks to get you there in terms of the things you can control outside of improvements in the macro? Adrian Hallmark: Okay. Thanks, Henning. I'll do both the kind of demand questions first, then we'll finish with Doug on free cash flow. I think as far as inventory is concerned, we are -- we hoped to have got the inventory fully balanced by the end of last year, as you know, there were a few disruptions during the year that knocked us off track. I won't go through those. We ended up where we did. We've been, again, quite ruthless in the first quarter and in the first half of this year, replanning. We are destocking further in quarter one. Most of the destocking that we need to do for the year will be done in quarter one, it's already fully on track, both from the January performance and what we're seeing in February. What does that mean? We've talked in the past about getting all models and all markets in balance. The aged stock profile is now radically improved compared with the beginning of 25 and even the end of 2025. By the end of Q1, we'll be into tens of units around the world, less than one per dealer, that is what we would define as aged, and that is more than six months since it was passed to sales. That includes shipping times as well, don't forget. It's not that they're really old, we just like to keep stock as fresh as possible. The aged stock profile is massively improved. The total stock by the end of March, in the major markets, will be balanced. From Q2, we should see retails matching wholesales. There's still a bit of overhang in China. The aged stock is now -- is fully under control, the total stock, almost under control, and that will be end of April, approximately, by the time we get corrected in China, too. Overall, in the next one to two months, we'll be in a really good position. In terms of ongoing cost, it's -- there \'s no question that the quarter four last year, to accelerate the sale of those older cars in all markets, we did double down. That cost will not be recurring. We'll revert back to normal levels of support on lease programs, et cetera, after the first quarter of this year. We are in that cleansing phase of the stock, and as we get into the second quarter and the second half of the year, we'll start to see that normalize. As far as volume is concerned, yeah, absolutely, as per the previous guidance, we don't see a path to 8,000 to 10,000 units a year. We -- sorry, in the near term. We've reset our expectations and then rightsized the business to meet that new business model structure. I won't give specific numbers, but the core models are selling 5,500, 6,000 a year, even in the current market conditions, with different levels of BM effort. We see that is a conservative and achievable level that we can continue with. The specials, depends on which year you look at, we should be in the 250 to 500 range with Valhalla, and then with other specials coming in over the next 3 years. One thing I would say is that the derivative strategy, and there's other questions being raised about that, so I'll answer some of them preemptively. The derivative strategy is all about an opportunity to relaunch each nameplate every year, to improve the product offer and quality and optionality each year, and to destock the previous models and continually shift the mix of cars so that we support residual values. The good news is that the order cover for those S derivatives is much, much higher than the residual stock, which shows that it's worked, and the dealers are positive about them. That's part of the strategy for derivatives. 5,500, 6,000 is the core business that we expect in the midterm, and the specials on top, with a significantly improved revenue per car and margin. With the cost structure measures that we've taken, the SG&A improvements that we've planned, we can see a way to that cash flow inflection and to profitable operations in the midterm. Douglas Lafferty: Okay, nice segue. Morning, everyone. Morning, Henning, and thanks for sticking with us through the technical challenges this morning. Henning, I guess probably somewhat unsurprisingly, I'm not going to put a number on the free cash outflow that we expect in 2025, but obviously, we have stated that we expect -- sorry, 2026, we do expect a material improvement versus last year. I think linked very closely to what Adrian has just been describing in terms of the flow for the year, we've said that we're going to see the majority of the burn or the outflow in the first quarter of this year, and then a stabilizing through Q2 to the end of the year, in sync with that stabilization and transformation in the operation. I fully expect us to have momentum as we exit 2026 into 2027. As we've also said today, from a short to midterm perspective, we do retain that focus on cash optimization, profitable growth, and the objective of getting the business into a form which generates its own cash as soon as possible. Sorry, I can't put any numbers on it or specific timing on it, but the sentiment and the message is still very much there, and the focus is on delivering exactly what I've just said. Henning Cosman: Especially the granularity on the remaining stock is very helpful. [ id="-1" name="Operator" /> And the next question comes from Christian Frenes from Goldman Sachs. Christian Frenes: Yes, I'll just kick off with deleveraging and free cash flow. You've talked about a material improvement in 2026 free cash flow. I think the CapEx is clear. You've also made comments on the top line. But in terms of the P&L improvement, can you comment a little bit on some of the key buckets that could drive the material free cash flow improvement? So for example, I think savings are talked about the nonrepeat of GBP 65 million is talked about. You alluded -- you commented just now on the dealer support. But if you could just walk us through some of those buckets and the cadence of that, including net working capital impact. And also if we should include any more assumptions on nonorganic deleveraging aside from the disposal of the Nemi rights? Maybe that's question number one. And then I'll ask question number two. Douglas Lafferty: Okay. There's a lot of questions in question number 1, Christian, but, good morning. Let me have a crack at that. Yeah, look, I think the margin build, in 2026, we tried to illustrate, I think, in the final slide of the deck. Obviously, that is going to be largely underpinned by the fact that we have, you know, a strong sort of specials volume returning back to the mix in 2026. With the 500 Valhallas versus the number of specials that we delivered last year, and obviously that comes with accretive margin, and that will flow through. Specials is a big chunk of that. Within core, you're right, we expect a stronger performance from the core perspective as well, because we don't expect to see a repeat of the full GBP 65 million of headwind that we suffered in 2025 on the things that we've already talked about, being the dealer support, obviously the investment that we've made in quality and the warranty costs. We'd expect, you know, to continue to invest in the quality of the products, of course, but not to the extent that we did it to last year, with things such as, you know, the big upgrade on thousands of cars on the software earlier in the year. Indeed, we'd expect some of those quality improvements to mean that the warranty costs start to come back down and normalize. We will be sort of lapping, those as we go through the year. With regards to working capital, I think, relatively stable throughout the course of the year. We're definitely not going to see some of those big swings that we've seen in the last couple of years when it comes to deposit, outflow. We think that'll be much more, sort of normalized and neutral during the course of this year. Then look, as regards to, the F1 IP deal, we're delighted to get that done. I think, you know, it's a good deal for us and a good deal for them. So GBP 50 million to sort of bolster liquidity to a certain extent as we go through the course of this year, but no further plans to announce at this point. Christian Frenes: And just to clarify on your response there. So we should expect the full GBP 65 million incremental savings next year. And should we add savings of GBP 40 million, I think, there on top of that? Douglas Lafferty: Well, we've guided to SG&A will be below GBP 300 million. That's how we guided SG&A this year. Don't forget that last year's SG&A benefited from an GBP 11 million uplift in the revaluation of the AMR warrants, which obviously won't repeat this year. So there's a couple of headwinds in SG&A, but we expect to remain below GBP 300 million. And on the GBP 65 million, as I said, we don't expect all of that to recur. In fact, I would expect the majority of it not to. But as Adrian said, we will still have a little bit of additional dealer support in Q1 before that sort of normalizes and there'll be ongoing incremental improvements in quality, but nothing like the extent to which we saw in 2025. Christian Frenes: Okay, that is clear. Thank you. My second question is just on the Valhalla average selling price. If you could just comment on your expectations for that going forward. Should it be the same as we saw in Q4, or any change? Also specifically with respect to the U.S. market, where you talked about an October price increase. I'm just curious also how that applies to the Valhalla. Also, associated with this, the Valkyrie Le Mans edition in Q4, could you just comment on how many units you actually shipped in Q4 and what the implication for 2026 is? Adrian Hallmark: First of all, on Valhalla pricing or Valhalla ASP, I think first of all, the retail base price of the car, we have listed from 1st of April in 2026. That will come into effect on the 1st of April '26 for orders thereafter. What we've seen on option uptake and specification of the first cars that have been delivered and are in the pipeline, is a significant uplift versus the base price. We expect the ASP to continue similar to quarter four as we get through this year. We've seen no fall off in the average value per car. That price increase should give us a little bit of a lift in the second half of the year or last quarter, because that is when it would be effective. You can assume pretty much consistent with what you've seen on Q4, with a slight upside. In terms of overall pricing -- sorry, in terms of the Le Mans cars, we delivered two cars physically. The rest of those cars will be delivered this year. [ id="-1" name="Operator" /> The next question comes from Michael Tyndall from HSBC. Michael Tyndall: A couple of questions, if I may. One for Doug. Doug, Q1, you've been pretty clear about what's going to happen on cash flow. You've got the GBP 50 million in from the F1 naming rights. That puts you, I guess, at about GBP 300 million gross cash. Where are we -- I mean, without asking you for a number on Q1, but I mean, will you stay within that comfortable GBP 200 million to GBP 300 million range that you've spoken to before? I'll come back with the second one. Douglas Lafferty: Okay. All right. Yes. Look, again, I'm not going to get into the specifics. I think we've been pretty clear on how we expect the shape of the year to be from a free cash flow perspective. For Q1, it's the majority of the burn. I'd like to think that we stay close to the range that we've talked about previously. So Q1 this year, we would expect to be an improvement on Q1 last year, but still the majority of the burn for this year. Michael Tyndall: Okay. And then the second question for Adrian. Just with regards to cyclicality, which I guess at least from where we sit, but I would imagine from where you sit, has been one of the burdens of the business, the cyclicality, which we are trying to kind of move out. I just -- I wonder a bit about why we've released all the specials broadly at the same time. Does that not exacerbate cyclicality? Is there a way that we can sort of start to space these things out? And is that in the plan? Adrian Hallmark: Okay. Thank you, Michael. It's a dilemma, isn't it? Because we wanted to get the specials in because we want to support the life cycle volumes. And yes, there is always a trade-off to make. I don't think that the specials -- sorry, the derivatives, will increase the cyclicality. Why is that the case? They're designed to do the exact opposite. If you just think about DBX, I'll give you one simple example. What we've now done is evacuated the production pipeline of pretty much all non-S derivatives of DBX S, DBX. Which means if you want a non-S version, you buy a stock car. If you want an S version, you'll wait three to six to nine months before you get one, depends on which market you re in. What that does is pre-loads a pipeline with sold orders and encourages the sale of the cars that are in stock or a deposit for a future car. Because we're doing them all at the same time, but they're all different, there's very few customers, I can't think of one that would come in and want a DBX, a DB12, and a Vantage all at the same time. They will be looking for one of those cars. They have the choice of a stock car, which is an older model, or a fresh car, which is a new model with a different price value proposition and a very different product proposition. We actually see it as a way of bolstering the future order cover and giving the customers a clear choice. When we get through the DBX S, for example, we'll be introducing another derivative for early next year. Again, we'll back off the S production in the plan, ramp up that new derivative, and people can still order an S, but it will be to order. We get back to that order bank situation. The whole idea of this, again, is to smooth out the actual order profile and to give the customer a clear choice. We know it works from other brands; we just haven t done it before. We are now. Michael Tyndall: Got it. Got it. One last one, if I can, just for Doug. It's around the agreement with Lucid. You talk in this statement around a GBP 73 million cash liability, which is due in 2026 or later. I'm just curious to know what determines whether it happens in 2026 or later. The comments you made, Adrian, about the future for electric, you know, and this minimum spend of GBP 177 million, how does that work if electric is getting pushed to the right? Is that commitment still there, or is it negotiable? Douglas Lafferty: Hi, Mike again. Yes, so let me take both of those in one sort of answer. You know, we made the initial payments to Lucid back in 2023 when we signed the agreement, I think obviously an awful lot has changed since 2023 with regards to, you know, the way the market sees the evolution to BEV and our transition. We've talked quite openly about the delays as we've gone through the last couple of years that we're expecting. We're in discussions with Lucid over, you know, the timing of those payments relative to when we now expect to start production. That is both with regards to the initial access fee payments and also the commitments on the volumes. It's all a discussion to when are we actually going to start production on a BEV. [ id="-1" name="Operator" /> The next question comes from Horst Schneider from Bank of America. Horst Schneider: Not many are left. The first one that I have is more on the details regarding the model mix in FY '25, but also in Q4 on the Range cars. Maybe you can provide more granularity on the split within sport cars, city cars. Here, the split between Vantage, DB12, and Vanquish. Regarding the outlook on model mix on the Range models in 2026, where do you expect overall, you expect these flat unit sales, flat wholesale, but within that and the Range models, where you expect the movements, what is going up, what is going down? In that context as well, you talked about this 5 months visibility order book. What is the order intake by models that you are seeing? Is there any highlight you would point out? The last one is, if you could give any insight into your residual value development, because I think that is a key metric, and we hardly have good insight into that. Any insight into that would be appreciated. Adrian Hallmark: Okay. Thanks, Horst. I'll start with -- going in reverse if I may, I'll start with residual values. I think the key message, as most of you will be aware, is that if we -- when we get supply and demand in balance, and when we get the derivatives launched and the pull from the market for those derivatives, our residuals will improve further. We've already done a lot of work in 2025 on residual values. I'll give you some examples. If you go back a year and a half, we were 5-10 points below the competition, as I say, a three-year period on leasing in the major markets on RVs. We're now much, much closer. I'll give you an example of Vantage without going through every single model in every market. Specifically Vantage, Vanquish as well, are incredible in terms of the way that they've been set. We are absolutely on par with the strategic competition. The key to supporting residuals is making sure that we don't oversupply. Whilst we've had excess stocks, oversupply is inevitable. As we get through quarter 2 and quarter 3 this year, I already mentioned earlier, this will balance out. Together with those strong, third-party residuals offered on core models, we're heading in the right direction. I still think it's going to take another 3 to 9 months to properly stabilize all of the above, but we're good on track. Vanquish and Vantage are already strong. DBX -- sorry, DB12, just behind them. It's DBX where we need to do the work. In the meantime, we subvent, marginally, those cars to make sure that they're competitive on the leasing rate. In terms of model-by-model description of order bank, we won't do that. To give you an indication, the S models are well over 50% order cover. The rest of it, we've got about a five-month order bank on average, but the Ss are way stronger than the non-Ss. Valhalla, of course, is about nine months. If I look across the spectrum, it is improving. As we balance supply and demand, it will naturally improve even further. That s all the foundation for residual value improvements as we move forward. Douglas Lafferty: Try and pick it up a little bit without going into, you know, vast details. Just try and give you a couple of soundbites. If I look at last year, you know, it was relatively stable from a mixed point of view through the year. For that, Q4 was a little heavier on DBX, on the SUV, because of the launch of the S. Obviously Q4 benefited, obviously, from the strong mix of specials with 152 Valhalla deliveries. As we, as we go into this year, I mean, there's not really too much to highlight. It's relatively smooth, I would say. Q1, probably a little bit light on the SUV mix. We've said today that we expect up to 100 of the Valhallas to be delivered in Q1, so they'll be sort of reweighted Q2 to Q4, a little heavier. Other than that, it's just the ebbs and flows of when the derivative launches come, so nothing particularly special to remark on. Horst Schneider: Okay. But in summary, I think the DBX is most critical model, right? So that's maybe where some weakness is. I think it's just the segment, the market, right? It's not the product. Adrian Hallmark: Yes. I think -- well, if you look at the results of all the road tests that have been done on DBX S, it's incredible. I mean, a car that s been in the market a couple of years with some really solid technical improvements to create S, and some visual ones, has beaten Urus and Purosangue repeatedly now in different markets in road tests. The product substance and performance is tremendous. There is a sectoral issue. I mean, you'll probably know, most brands are seeing a shift in 2025 and 2026 compared with, say, '23 or early '24. The market has definitely changed. That said, if you look at the outlook, the macroeconomic rather than the geopolitical, the outlook going forward is, say, mildly positive. It depends which market you look at. We don't expect a deterioration. We expect stability or slight improvements in conditions as we get through the year. We're well placed with those derivatives to take full advantage of any upside that occurs. [ id="-1" name="Operator" /> The next question comes from Philippe Houchois from Jefferies. Philippe Houchois: I've got 2 questions. The first one may be for Doug. is on the 40% gross margin. You reiterated it in your speech, that clears one hurdle. I'm trying to understand, with 29%, if I give you the benefit of the warranty span, we get to 35%, who is above 40%? It almost looks like from the outside that Valhalla could be diluted. Could you confirm that Valhalla gross margin is above group average, or is it below? If it is below, what gets it above? What are the hurdles to really get to 40%? The initial guidance was that it's going to be, you know, valid for all the vehicles range as well as specials. If you can help me navigate that'll be very helpful. Douglas Lafferty: Well, I can certainly confirm that Valhalla is accretive to the overall group margin, you know, significantly above the 40%. As I said earlier, the 40% remains the target on all new vehicles we're bringing to the market. I think, you know, we'll see an improvement in the margin for some of the reasons that we outlined earlier in terms of lapping some of the costs and investments that we made during the course of last year, and also as we continue to stabilize the operations. You know, we can see the path to the high thirties for this year, which is still the plan. The target still remains to get every car at 40% or above as we move forward. Obviously, complemented by both the Valhalla being materially above that sort of margin level, but also, you know, a continuation, and I think this is an important point, a continuation of other special models that we will bring to the market that are out there today unannounced, that I think is important from a financial point of view, that you understand that program will continue. Cars like, you know, the Valour and the Valiant and the DBR22 that we've done in the past will continue as part of our cycle plan in the future. And obviously be accretive to margin on the go forward. Philippe Houchois: Yes. And we can assume those are effectively the most accretive because they leverage a Range car into a special. Is that a fair assumption? Douglas Lafferty: I think we've talked about that in the past where we've looked at, yes, like the Valiant and the Valour, certainly in the era of the Valkyrie, those costs were materially more accretive to margin than the Valkyrie, yes. Philippe Houchois: Right. And can I get another question on -- I'm a bit confused right now between what we hear from you today. And by the way, a good presentation. I think you've reassured us in many ways. But then I guess stuff from the press, which is not part of your communication. We hear about 20% staff reduction, GBP 40 million savings. I don't see that in the release. Are you validating those numbers we get separately from you? Or what's going on? Where is the mismatch between what you're telling us and what the press is basically talking about right now? Adrian Hallmark: Yes, I'll jump in. Adrian here. We have talked about that openly. That's not speculation. It's actually in the release. So the part of the SG&A push that we can't solve our right sizing or resolve our right-sizing needs purely through headcount, but it is an important part of the overall picture. We have said that we will -- there's already a process underway. We're in consultation. We will reduce the total people costs by circa 20%. It doesn't necessarily mean a direct 20% reduction in absolute headcount numbers, because of the mix of people, and we also account in that headcount cost for some contract and kind of contracted services resource. That is in the plan. It is part of that SG&A restructuring approach. It's not the biggest lever, but it's an important one in order to get us lean and effective for the future. Douglas Lafferty: Let me just specifically pointing to where it is in the release on Page 4 paragraph. So it's all in there, and I guess just an indication of how other people pick up the news and what's important to them in terms of the story. [ id="-1" name="Operator" /> The next question comes from Nikolai Kemp from Deutsche Bank. Nicolai Kempf: Well done on the 152 Valhallas delivered in Q4. And that's also my first question. The 500 you target this year, is that production driven? Or do you have clients backing all these 500 units? And my second one, just to get some color on the cash out in Q1. Do you have any magnitude how big that could be? Adrian Hallmark: I'll start with Valhalla. We have -- first of all, we have a good order bank for Valhalla, which takes us through almost to the end of this year for delivery. We still have some to sell, but it's quite low numbers. So the build rate and the shipment rate in the next 6 to 8 months is more related to production capacity. This is a very complex car. It was a ground-up development, and we plan for certain capacities in our supply base, which are very difficult to increase. So we're pretty much fixed at the rate that we're currently at, plus or minus a car a week, something of that order of magnitude. So no major opportunity to do it quicker. We could always go slower, but no opportunity to go quicker. So that's the situation with Valhalla. Douglas Lafferty: Yes. And then on the second one, I think, referenced earlier. So obviously, we've been quite clear that Q1 is going to be the biggest outflow. I don't expect it to be worse than the first quarter of... [ id="-1" name="Operator" /> This concludes today's Q&A session. So I'll hand the call back to Adrian and Doug for any closing comments. Adrian Hallmark: I'd just like to thank again, everybody, for participating in the call today and apologize profusely for the technical issues that we had at the beginning. It may be bad for you, but we had to listen to ourselves twice, which was a great start to a Wednesday morning. So thanks for your time, everybody. Douglas Lafferty: Thanks, everybody. Speak soon. [ id="-1" name="Operator" /> This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
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