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Operator: Ladies and gentlemen, thank you for standing by. Welcome to Elanco Animal Health Fourth Quarter 2025 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. If you would like to withdraw your question, press 1. Thank you. I would now like to hand the call over to Tiffany Kanaga, Vice President of Investor Relations. You may begin. Good morning. Tiffany Kanaga: Thank you for joining us for Elanco Animal Health's fourth quarter 2025 earnings call. I'm Tiffany Kanaga, Vice President of Investor Relations and ESG. Joining me on today's call are Jeffrey Simmons, our President and Chief Executive Officer, Robert M. VanHimbergen, our Chief Financial Officer, and Linda Bolduc from Investor Relations. The slides referenced during this call are available on the investor relations section of elanco.com. Today's discussion will include forward-looking statements. These statements are based on our current assumptions and expectations, and are subject to risks and uncertainties that could cause actual results to differ materially from our forecast. For more information, see the risk factors discussed in today's earnings press release, as well as in our latest Form 10-K and 10-Q filed with the SEC. We do not undertake any duty to update any forward-looking statement. Our remarks today will focus on our non-GAAP financial measures. Reconciliations of these non-GAAP measures are included in the appendix of today's slides and in the earnings press release. References to organic performance exclude the estimated impact of the Aqua business, which was divested 07/09/2024, and certain royalty and milestone rights that were sold to a third party in May 2025. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Jeffrey Simmons. Jeffrey N. Simmons: Thanks, Tiffany. Good morning, everyone. 2025 was the year of significant delivery for Elanco Animal Health Incorporated. Across all three of our priorities, growth, innovation, and cash. As highlighted on slide 4, Elanco delivered a strong fourth quarter, with 9% organic constant currency revenue growth. We outperformed the high end of guidance for revenue, adjusted EBITDA, and adjusted EPS. Growth was led by US farm animal up 17% and US pet health up 10%. This now marks 10 consecutive quarters of underlying total growth. Revenue from innovation exceeded expectations in 2025 at $892 million for the year, as the fourth quarter was our largest quarter for innovation to date. We are raising our 2026 outlook for innovation to $1,150 million reflecting contributions across a broad set of geographies, species, and products. Our continued focus on cash, combined with strong results, improved our net leverage ratio faster than plan, to 3.6 times at year end. We now expect to finish 2026 at 3.1 to 3.3 times. With our consistent execution, we are well positioned to introduce 2026 guidance in line with our longer term algorithm. We expect full-year organic constant currency revenue growth of 4% to 6%, adjusted EBITDA of $955 to $985 million, representing growth of 8% at the midpoint, and adjusted EPS of $1.00 to $1.06, representing growth of 10% at the midpoint. This guidance continues our prudent balanced approach in a dynamic macro environment. On slide 5, let me ground today's discussion in accountability and transparency by sharing a checklist for the year in review. Elanco delivered across our full set of 2025 commitments to our customers and our shareholders. We have entered our new era of growth with a record of consistent execution. Innovation revenue cleared a bar that was raised each quarter in 2025. We brought the entire Big Six across the finish line with Bifrenna’s December approval. This is a real testament to the optimized innovation engine that Ellen’s team has built over the past few years. Organic constant currency revenue growth reached 7% for the full year, with balanced contributions across species and geographies as well as between volume and price. 2025 revenue, adjusted EBITDA, and adjusted EPS all exceeded last February's expectations with steady outperformance throughout the year. And we delevered about a half a turn faster than expected while also refinancing our Term Loan B ahead of schedule. Team Elanco, I want to extend my gratitude for an incredible year. Your level of engagement and execution has never been higher, while your unwavering dedication to transforming animal care has truly shown. Looking more closely at the fourth quarter revenue performance on slide 6, we break down the 9% underlying organic constant currency revenue growth. This chart demonstrates strength across our global business, with all four quadrants growing nicely. US pet health had a robust quarter, up 10%. Credelio Quattro and ZENRELIA led solid growth in the vet clinic, and also drove broader portfolio benefits with positive trends for Galliprant. Dispensing trends were healthy across our OTC parasiticides. Retail likewise grew in Q4, including Seresto and the Advantage family. Importantly, our strong end of the year for US pet health led us to gain share in every major category for the full year 2025: prescription parasiticides, osteoarthritis pain, dermatology, and vaccines. Moving to international pet health, we achieved 8% organic constant currency revenue growth driven by ZENRELIA, Credelio, and AdTab. ZENRELIA is exceeding expectations in the $700 million plus international market, with double-digit share in several key markets, and strong early traction in Europe, the UK, and Australia. US farm animal delivered an excellent quarter, up 17% on top of 6% last year, building on our market leadership. Cattle led the way with strong growth for Experior and Pradalex, with positive contributions from poultry as well. And finally, international farm animal was up 4% in organic constant currency with growth coming from ruminants, swine, and poultry. Looking at slide 7. We delivered $892 million of innovation revenue in 2025, outperforming across a diverse basket led by Credelio Quattro, Experior, ZENRELIA, and AdTab. We are now committing to at least another $250 million of growth in 2026, to $1,150 million. This target is led by our Big Six gaining traction in the global marketplace with our no-regrets launch approach. We are driving sustainable growth as we expect the Big Six to double in revenue from 2025 to 2028, on top of a stabilizing base. And we've refilled the pipeline to deliver a consistent flow of high-impact innovation. Let's further discuss the progress of our Big Six major innovation products on slide 8. Starting with Credelio Quattro. This groundbreaking parasiticide, the first FDA-approved product with four active ingredients, is the fastest blockbuster in our history, and we believe has the potential to become our biggest product class ever. We see Quattro as best medicine with its four dimensions of differentiation, fueling a growth trajectory more like a first-to-market product. In the fourth quarter, Quattro continued to gain dollar share of US broad spectrum sales, was the only one to gain share in the quarter in vet clinics, demonstrating continued strong momentum almost a year after its launch. Credelio Quattro enters 2026 with the most momentum in the $1,400 million US broad spectrum parasiticide market. We have significant runway ahead, with approximately one-third of clinics penetrated today and plenty of room to grow share within those clinics. A good leading indicator is Kinetics Puppy Index, where Quattro ranked highest in Q4 versus other broad spectrum endectocides and grew versus Q3. Quattro is gaining share and also expanding what is the fastest growing animal health market today: the US broad spectrum endectocide market, up 30% year over year. We expect Quattro to lead that growth through its profitability for the clinic and its differentiated offering for the pet owner, aided by our DTC investments, expanded sales teams, and distribution partners. Importantly, Quattro has boosted our broader Elanco portfolio in clinics. Its momentum and portfolio benefits drove Elanco to be the only major animal health player to see share gains for the total parasiticide prescription portfolio in US vet clinics in 2025. Looking beyond the US, Quattro's global rollout begins now with approval in Australia last week. With this approval, we are kicking off our expansion into the $700 million international market, which is growing double digits. Next, we couldn't be more pleased with ZENRELIA's performance in the $2,000 million derm market. Every quarter, ZENRELIA's efficacy profile becomes more recognized, and its success is becoming more global. We have a special product in ZENRELIA. The ZENRELIA momentum is building. December was our best month yet. Importantly, we exited the month with double-digit share of the US JAK market. This strength is continuing into January. We are now in about half of the clinics in the US, and the reorder rate is over 80%. Trends accelerated after the label update in September, adding 2,500 new purchasers. We remain committed to making the US label consistent with the other 40 countries where it's already approved without restrictions. ZENRELIA's Q4 international results were exceptional. In our first cohort of launches—Brazil, Canada, and Japan—we've already achieved year three or year four analog share in just the first year. ZENRELIA's JAK market share in Brazil has reached 40%, and Japan is over 30%. The rapid success and overwhelmingly positive customer feedback are driven by ZENRELIA's strong efficacy, and support our long-term belief in the product with a clean label. We're also encouraged by the early traction in Europe, the UK, and Australia. ZENRELIA is outperforming the new competitive entrant in the key EU. Local sellout data confirms double-digit JAK market share in France, Italy, and Spain. We've already contracted with all major EU corporate accounts, helping to drive growth ahead of our expectations. We've also achieved more than 10% share in the UK. Our EU head-to-head study results are coming to life in the field, and we are the only player providing that competitive data. Again, efficacy is the differentiator across Europe and around the world, with over a million dogs treated with ZENRELIA globally. Its efficacy is resonating strongly with vets and pet owners alike. ZENRELIA works and it works really well. Moving now to Bifrenna, our second monoclonal antibody and our second derm product. We gained USDA approval on December 31, fulfilling our year-end commitment. We expect a launch in 2026 as we progress through the anticipated manufacturing ramp up. A phased launch is very typical for monoclonal antibody, or mAb, product as we scale our bioreactors. Our expanded facilities in Elwood, Kansas are ready. Our manufacturing plans are right on track, and we feel good about our overall mAb capabilities for Bifrenna and beyond. Bifrenna offers positive differentiation on convenience, value, and efficacy. It is recommended at a dosing interval of six to eight weeks post treatment versus four to eight weeks for the current market competitor. And when we showed a close proxy of the label to approximately 350 veterinarians, 83% responded they are likely to use Bifrenna, especially in seasonal cases. Finally, our OTC parasiticide AdTab has continued its robust growth trajectory with sales up more than 50%. AdTab is the fastest-growing brand in the $600 million OTC ecto market in Europe, achieving more than 50% oral OTC share to become number one in less than two years on the market. Moving to farm animal. Experior continues to grow nicely, up 35% in Q4 against a tougher compare. We are benefiting from the historically small US cattle herd size, while noting that heifer retention recently turned positive for the first time since January 2017. Experior crossed the $200 million mark in 2025, up nearly 80% for the full year, with significant runway still ahead for this blockbuster and its portfolio benefits. We see strong opportunity in an estimated potential market of over $350 million in the US and Canada through extending the days of use, continued adoption, and price, with geo expansion as another longer-term growth driver. Lastly, regarding Bovaer, we continue to see demand from CPG companies that support sustained interest and consistent count numbers, with farmer retention remaining over 90%. We will continue to invest in Bovaer to achieve its expected potential by enhancing the product's strategic optionality and demonstrating an increased value proposition for farmers and CPG companies. Long term, we continue to view Bovaer as a blockbuster, with near-term growth at a measured pace in a dynamic market backdrop. Moving to slide 9, we offer some recent highlights across the three parts of our IPP strategy, innovation, portfolio, and productivity. Ellen and her team have built a science-based engine and organizational capability to maximize throughput. With the Big Six now each approved in the US, without attrition, we are focused on the next wave with five to six blockbuster potential approvals expected through 2031. Elanco's R&D engine is humming, with depth and expertise and a laser focus on the next milestones, all with a vision of creating a consistent flow of high-impact innovation. At the same time, we are optimizing our diverse portfolio to drive near-term growth and to gain share. We experienced broad-based organic constant currency top-line growth in 2025 across our top five product franchises and in nine of our top 10 countries. And very importantly, our launch excellence is enabling share gains with accelerating pricing. As Robert will detail, we achieved 2% price growth in 2025, in line with our expectations, and we anticipate acceleration in 2026, including our largest increase in five years to US vet clinics. Our pricing strategy reflects our latest innovation and the value of our total portfolio to customers. We've also signed an agreement to acquire AHV International, a Dutch-based farm animal health innovator focused on a portfolio of products for cattle that improves animal health and optimizes efficiency while reducing the need for antibiotics. The deal accelerates Elanco's efforts to expand our leadership in the dairy industry, particularly in North America and Europe, growing both our share of voice and enhancing our portfolio with exciting solutions that support transition cow health, one of the greatest needs in the dairy industry. We are excited about the potential of this opportunity to bring needed solutions to producers and one of the fastest growing proteins, and we believe one of the greatest market opportunities in animal health. At the same time, we continue to rapidly pay down debt and strengthen our balance sheet. We improved our net leverage ratio by two turns in just two years, with the under three times landmark expected in 2027. And as Robert will also describe momentarily, our company-wide productivity initiative, Elanco Ascend, is off to a good start to drive meaningful efficiencies and margin enhancement starting in 2026. I will now turn the call over to Robert M. VanHimbergen for the financial results. Robert M. VanHimbergen: Thank you, Jeff, and good morning, everyone. I will focus my comments on our adjusted measures, so please refer to today's earnings press release for a detailed description of the year-over-year changes in our reported results. Starting on slide 11, we delivered $1,140 million of revenue in the fourth quarter, representing an increase of 12% on a reported basis. Organic constant currency growth was 9%, primarily driven by an increase in volume with price contributing. Slide 12 provides revenue by the four quadrants of our business. Globally, pet health revenue grew 9% in constant currency during the fourth quarter. US performance delivered 10% growth, driven by demand for our key innovation products, Credelio Quattro and ZENRELIA. Outside the US, the pet health business grew 8% in constant currency, led by ZENRELIA. On a global basis, our farm animal business achieved 10% organic constant currency growth. The US farm animal business grew 17% driven by the strength of Experior, Pradalex, and poultry vaccines. Outside the US, our farm animal business contributed 4% in organic constant currency, driven by broad geographic and species growth led by ruminants in Europe and Latin America, poultry in Europe and the US, and swine in the APAC region. Continuing down the income statement on slide 13, adjusted gross margin increased 30 basis points to 51.2%, primarily driven by price, increased sales volumes, and mix benefits, partially offset by the flow through of higher inventory costs. Year-over-year expansion was also impacted by the outperformance of our US farm animal business, which carries lower gross margins but more comparable EBITDA margins to the pet health business. Our operating expenses grew by 10% in constant currency. This planned increase supports our strategic investment in our global pet health product launches and our R&D pipeline development. As expected, interest expense totaled $47 million in the quarter, a 2% increase compared to the same period last year. As a reminder, we had the expiration of our favorable interest rate swap amortization benefit in 2025, which originated from a 2022 interest rate swap restructuring. On slide 14, we include a bridge for fourth quarter results compared to the prior year. Adjusted EBITDA was $189 million, an increase of $12 million or 7%. Adjusted EPS was $0.13 in the quarter, a 7% decrease year over year driven by an anticipated higher tax rate primarily due to timing of one-time benefits. On slide 15, we provide the full-year income statement highlights. We generated $4,715 million in reported revenue, representing 6% growth. Revenue breakdowns by key affiliates and products are available on slides 29 and 30. Continuing down the P&L, full-year adjusted gross margin of 54.9% was flat compared to 2024. The favorable impacts from price, increased sales volumes, and mix benefits were offset by inflationary pressures and higher manufacturing costs. These factors combined with an increased investment in our strategic growth initiatives resulted in adjusted EBITDA of $901 million for the full year. As shown on slide 16, full-year adjusted EPS came in at $0.94 compared to $0.91 in 2024. The effective tax rate for 2025 was 21.8%, a year-over-year increase of 370 basis points primarily due to the recognition of nonrecurring tax credits in 2024. On slide 17, we provide an update on our balance sheet. Cash generated from operations was $108 million in the quarter, compared to $177 million in the prior year. The year-over-year reduction reflects expected cash tax payments related to the 2024 Aqua divestiture, partially offset by continued momentum in working capital improvement. We ended the quarter with net debt of approximately $3,200 million and a net leverage ratio of 3.6 times. Looking ahead, we remain disciplined in our capital allocation strategy, prioritizing debt pay down alongside making high-value strategic investments, like AHV. The acquisition is not factored into our guidance. Given its size and additive bolt-on nature, and expected second quarter close, we anticipate AHV to provide a modest contribution to revenue and adjusted EBITDA in 2026, with greater benefit in 2027, and it will not impact our deleveraging timeline. We expect to reduce leverage to 3.1 to 3.3 times in 2026 regardless of AHV, and a long-term target range of 2.0 to 2.5 times with a path to sub three times leverage in 2027, as previously stated in our December Investor Day. Let's move to our guidance starting on slide 19. Our 2026 full-year outlook is consistent with the framework provided at Investor Day. We expect organic constant currency growth of 4% to 6% which translates to revenue between $4,950 and $5,020 million. This guidance incorporates an accelerating contribution from price versus 2025, reflecting the enhanced value that our latest innovation and our comprehensive portfolio bring to our customers. For adjusted EBITDA, we are forecasting $955 to $985 million, which represents 8% growth at the midpoint. We expect Elanco Ascend to enable adjusted EBITDA margin expansion, while at the same time, we will continue our strategic investment in the global launches of our innovation portfolio and advancement of our R&D pipeline. Gross margin is expected to be up approximately 40 basis points and OpEx up 7%. Finally, adjusted EPS is expected at $1.00 to $1.06, up 10% at the midpoint. Slide 31 in the appendix provides a number of additional assumptions to help support your modeling efforts. Our first quarter guidance, presented on slide 20, includes organic constant currency revenue growth of 4% to 6%, led by our farm animal business, and good growth anticipated in pet health, which translates to $1,280 to $1,305 million in revenue. Adjusted gross margin is expected to decline year over year with the timing of inflation and the flow through of higher inventory costs, particularly in the first half of the year. We are continuing to invest in our launches, with OpEx up 7% or 4% in constant currency. Adding it all up, we anticipate adjusted EBITDA of $290 to $310 million, representing 9% growth at the midpoint, and adjusted EPS of $0.33 to $0.36. Turning to slide 21. We summarize 2026 headwinds and tailwinds integrated into our guidance. Our outlook anticipates sustainable competitive revenue growth as our innovation portfolio scales globally, on top of a stabilizing base. This innovation, combined with strategic pricing, helps insulate us from broader macro pressures. In pet health, we expect to gain incremental share by leveraging our comprehensive portfolio and OTC retail leadership. We are now shipping product to three major new retailers. We also acknowledge that these tailwinds are balanced against competitive pressures, including generics within the market. On the farm animal side, despite tough US comparisons, we see a clear runway for growth driven by new cattle products, favorable producer economics, and accelerating animal protein consumption. We expect to further strengthen our leadership position in both ruminants and poultry. On the margin front, Elanco Ascend is our company-wide productivity program, focused on general and administrative cost savings as well as manufacturing efficiencies. I am pleased with the progress we have achieved so far in 2026. The recently communicated restructuring is on track to generate $25 million in savings this year. These savings are expected to directly contribute to our profitability, reflecting our commitment to operational efficiency and prudent cost management. Additionally, our teams are actively advancing key AI, operational, and procurement initiatives, which are expected to result in both P&L and cash flow benefits. Now, I'll hand it back to Jeff for closing comments. Jeffrey N. Simmons: Thanks, Bob. Before we move to Q&A, I want to reiterate my deep confidence in Elanco's trajectory. We are not just a company delivering results with significant momentum, we are also a dedicated team building a durable long-term foundation for the future of animal health. On slide 22, you will see that this is more than a story about Elanco's compelling growth proposition. It is about the accelerating opportunity across the broader animal health industry and our ability to lead it. It is about having the best of pharma with science-based innovation, disciplined regulation, and high barriers to entry. This, combined with strong customer relationships built on trusted brands, and a cash market that responds to growing value propositions from winning portfolios. It is about generational shifts in both pet health and farm animal, where pets and protein are increasingly central to culture, care, and global demand. And together, it is about the animal health industry at an inflection point, projected to add $20,000 million in value as we enter the next decade, with Elanco uniquely positioned to convert momentum across both pet and farm into sustainable consistent growth. Simply, we will grow from both expanded market share and a growing industry. Let's take a closer look in pet health on slide 23. We are seeing a fundamental shift in pet care as owners take a more active role, choosing not only what products to use, but how and where they access care. While vet visit volumes remain a metric to track, the more powerful shift is in the global consumer behavior where access, convenience, and willingness to spend are becoming more and more meaningful. Today, subscription sales account for 40% of pet care dollars, with omnichannel consumers spending 30% more annually than single-channel shoppers. The pet owner's behavior is changing. Our strategy is built around meeting the modern pet owners where, when, and how they choose to engage. This unique omnichannel approach is core to our pet health strategy and is driving our industry-leading growth. Over on the farm animal side, on slide 24, we are capitalizing on the accelerating global animal protein consumption, which is projected now to grow at 5% annually in the US alone. There are several key factors driving the real food movement, fueled by consumer focus on health and wellness. First, 70% of US consumers are actively increasing protein intake. Second, updated dietary guidelines now recommend nearly doubling current average protein use. Also, by 2035, 21% of Americans are projected to use GLP-1 therapies who will consume 40% to 50% more protein. And this trend is now globalizing. Increasing protein intake is a key also for muscle retention, with an aging population. The number of people 60 is expected to expand by more than 25% globally by 2030. And finally, taste still drives two-thirds of protein choices, making animal protein the most accessible, cost-effective preference. Strong demand for high-quality protein presents significant opportunities for Elanco and our customers both in the near and long term. To close, on slide 25, our strategic focus on growth, innovation, and cash is clearly paying off, demonstrated by our strong performance in 2025 and the robust outlook for 2026 and beyond. Elanco is a different company today: more agile, more innovative, more capable than ever before. We are building on our 70-year legacy of delivering for our customers, and we come into 2026 entering our new era of growth, well positioned to continue transforming animal care and to create long-term value for our shareholders. Thank you. With that, I am going to turn it over to Tiffany to moderate the Q&A. Tiffany Kanaga: Thanks, Jeff. We would like to take questions from as many callers as possible, so we ask that you limit yourself to one question and one follow-up. Operator, please provide the instructions for the Q&A session, then we will take the first caller. Operator: Thank you. We will now begin the question and answer session. Your first question today comes from the line of Jonathan David Block from Stifel. Your line is open. Jonathan David Block: Great. Thanks, guys. Good morning. Switching to ZENRELIA from the incumbent because you just really cannot get that level of share that quickly in this market dynamic without switchers. So maybe, Jeff, just to kick things off, can you elaborate on the ramping international ZENRELIA share gains? And then what that may mean for the US if the label is altered positively down the road? And then I will ask my follow-up. Thanks. Jeffrey N. Simmons: Yeah. Thank you, Jon. Thanks for opening with maybe one of the most exciting things in the quarter. ZENRELIA is all about efficacy. As I said in my comments, every quarter, Jon, ZENRELIA's efficacy is more and more recognized, and that is happening in the international market. So, I was in Japan three weeks ago. It is the buzz in the marketplace. We have exceeded 30% share there, acting very much like a differentiated best medicine product. Brazil is, you know, very mature market compared to what people think, and we are 40% share. So yes, I would tell you that efficacy and in derm, it is all about stopping the dog's itch. And we are seeing that really resonate. In Europe, even with the new competitive entrant, we continue to climb and be the leading market share gainer in Europe, as I noted in some of the major markets. And, again, it is coming back to clean labels, high efficacy profile, and we do see this product with, you know, greater expectations. And it has far exceeded our expectations in international. So more to come. And as I step back, I think to your linkage to the label, I think it is really important to understand that, hey. We now have a million dogs on. We have got, we picked up 2,500 new clinics in the US, we are nearly 50% in the US, a year and a half of usage, 40 countries with clean labels with good pharmacovigilance data, and we are the only company out there using head-to-head efficacy studies, which I think also is significant. So we are optimistic, and we could talk more about the label. We are optimistic that with our submission into the FDA that we look forward to hearing a good from the FDA soon. Robert M. VanHimbergen: Yeah. And, Jon, maybe just to add on. Our guidance assumes the label as is right now. Jonathan David Block: Okay. That is helpful, Bob. Thanks for that clarification. And, you know, maybe I will zoom out with the second question. You know, Jeff, you are the first industry leader to maybe be teed up for an earnings call post some of the news on the distributor side. So we would love your thoughts on the Covetrus and MWI merger and what that may mean for manufacturers, and, you know, more specifically, Elanco, as I believe you guys have a solid, broad relationship with Covetrus, but it is certainly, you know, a lot of share going into the hands of one. So any thoughts would be great. Jeffrey N. Simmons: Yeah. Thanks for the question. You know, I have to start with the 2025 momentum and 2026 early fast start. We have a great relationship with distributors. We are adding them a lot of value, and they are adding us a lot of value right now. The major distributors, you know, they are very good at launching new products. And we are the only one today. We have competitive advantage, I believe, strongly, and you probably picked this up at VMX Western last week. You know, there is a lot of momentum in those distributors with the Credelio Quattro, the ZENRELIA. We are the only company that really has our total comprehensive portfolio with them in a buy-sell agreement, where others have actually retracted. So we are focused right now on the current state. Of course, as the structure evolves, we will continue to focus on value and the value they can provide, and that is the lens that we are going to look through. But Bob and team, I think, have done an amazing job. And you step back and look at US pet health, we gained share in every category this year, from derm to para, to pain, vaccines. And I attribute some of that to the distributors. Jonathan David Block: Thanks, guys. Appreciate the time. Jeffrey N. Simmons: Thank you, Jon. Your next question comes from the line of Michael Leonidovich Ryskin from Bank of America. Your line is open. Michael Leonidovich Ryskin: Great. Thanks for taking the question, guys, and congrats on the results. I want to ask first on price. You guys called out accelerating price a number of times looking forward to 2026. I was wondering if you could quantify that a little bit more specifically. It is just more broadly. You know, in 2025, we would call it introductory pricing or sort of initial go-to-market pricing for some of your products. For 2026, is this just a matter of that being lifted and going more to a normal price? Are you taking price more aggressively? Maybe you could just comment on how much of that is coming from the Big Six or the new products versus the rest of the portfolio. Then I have got a follow-up. Thanks. Robert M. VanHimbergen: Hey. Sure, Michael. Good morning. Thanks for the question. So a couple points. One, I will point you to Investor Day, where we did highlight we expect mid-single digit growth, which does include price. As we think about 2026, we do expect price to accelerate from where we were in 2025. 2025, as a reminder, was at that 2%. And, really, that is reflecting the enhanced value that we are bringing with innovation and our comprehensive portfolio that we are bringing to customers. Jeff highlighted in his prepared remarks that, in our US pet health business here in the US, we took the highest price increase to vets in the last five years. So we will continue to price based on the value we are bringing to customers. The last thing I would highlight is you think about pricing in 2025, we had a lot of launches and those launches were not a contributor to price. We will start lapping those in 2026, and so the ZENRELIAs and Quattros will have a pricing component in it in this 2026 year compared to 2025. So I would walk away with expecting price to accelerate from where we were in the last 12 months. Michael Leonidovich Ryskin: Thanks. And, you had some really interesting comments when you were talking Quattro in terms of not just the strong results you have seen with that product itself, but sort of the uplift to the rest of the portfolio, the ability to use that to gain share for other products as you bring a more complete portfolio to your customers. Wondering how you think about that continuing 2026 as ZENRELIA ramps, as you have got Bifrenna coming on. Maybe kind of tying that back to Jon Block's earlier question on distributors. Is it enabling you to become a better competitor as you go in for the big contract renewals, either with distributors or individual vet clinics? Just talk about the broader uplift you are getting from those. Thanks. Jeffrey N. Simmons: Yeah. Thank you, Michael. Great question. Yeah. Quattro had a great quarter. Definitely acting like best medicine, only major animal health company gaining US Rx para share, which I think is a real representation. Our share continues to climb as we not only come through the fourth quarter, but even here in the beginning of the year. And we are still seeing more than 75% being new starts. But, you know, I would point to a couple things. Specific number, we have got, if you think about, we are near at a third of the clinics, so, you know, 10,000 plus clinics, and we have got 2,600 that have actually, by purchasing Quattro, are now adding on additional products. So we are seeing that additive portfolio effect, I think, is definitely obvious. And we are seeing that confidence with the Puppy Index as I mentioned, it is climbing. It is the highest of all the major products. And it grew from Q3, and we are in the number one position on that Puppy Index. So we see that. I would also point to corporates. As I mentioned, it is on the slide, but I did not get into it in my commentary. We actually saw corporates really move in on this portfolio effect. So 90% of our corporates, which grew significantly in number, all of them grew. Only 13% grew in 2024. And the European team has done a masterful job. We have got all the corporates on the ZENRELIA product as well. So we are seeing it with portfolio. We are seeing it with corporates. We are seeing the confidence from the corporates even in the Puppy Index. So, yes, we do expect this to be beneficial. And then when we come with two derm products, right now, then we can say, not only do we have as equal of a portfolio, we have got best medicine. We have got best medicine with ZENRELIA, Quattro, and we believe Bifrenna has got, again, differentiation. So I think you are on to a very important point. Michael Leonidovich Ryskin: Alright. Thanks. Appreciate it. Operator: Your next question comes from the line of Erin Wright from Morgan Stanley. Erin Wright: So can you speak to any stocking, destocking dynamics in the quarter or as we head into some of the seasonal purchasing from some of the distributors that typically happens in the first quarter? And, you know, one of your competitors, a very significant player in parasiticides historically, is further deemphasizing distribution in 2026. I guess, how much does that help your positioning in parasiticides, especially just continuing the conversion to combination parasiticides? Thanks. Jeffrey N. Simmons: Thanks, Erin. Yeah. And I know you have been engaged in some of the major shows. I will just take the second question first, and that is that we see our relationship as good as it has ever been with distribution. They are adding a lot of value. And all the way down to the field force. They are working very much in collaboration with the largest sales force we have ever had in US pet health ourselves. So our share of voice has never been stronger in Elanco, with our team and with distribution as well, and then the investment we are making in the media. Look. On stocking, it is real clear to us. No change. We have got distributors ordering multiple times per quarter. There is a strong dispensing, and you can see it. It is dispensing demand coming out of the clinics. Multiple orders going in. We do not see stocking having really any effect at all as we head into this spring. Erin Wright: And then can you give us an update on the timeline for the label update for ZENRELIA in the US? I think before, maybe at VMX, you mentioned five, six months from now we should hear on that front. Is that still the case? And then just where are you matching up—and I think you also alluded to this earlier—but where are you matching up to the existing competitor versus the new entrant in Europe specifically? So we do not have head-to-head data for new mAb, but where are you seeing the vets actually use the different JAKs in Europe? Thanks. Jeffrey N. Simmons: Yeah. Thank you. Look. First of all, on the label, I just want to say, you know, we are in a constructive dialogue with the FDA. They have made one adjustment to the labels. We mentioned we picked up 2,500 new users since then. I step back, Erin, as I just mentioned earlier, you have got a million dogs, year and a half of use, 40 countries with clean labels, strong pharmacovigilance data. We have submitted the PCR data before to get the first label change. And then this was a request from the CVM at the FDA on the booster data and the package that we submitted in the fall. We have not given a date, but we are confident with everything that I just mentioned that, you know, we believe with this data, it allows us to get a label that looks a lot more aligned with the other 40 countries, and we do look forward to an FDA response. We will update you when that happens. Look, I think that the story in Europe is, it actually probably has profiled ZENRELIA's efficacy in a more differentiated way than any market that we have been in. And, you know, not only the head-to-head study, but the head-to-head study is being seen by the KOLs in Europe in a very significant way. We are off to a much faster start than the other market entrant and double digit in the first, you know, months, is something that does not look like an analog of a second- or third-to-market product. So, where is it being used? I mean, it is being used in first line in a lot of these big countries like I mentioned, like France and Italy and Spain. And, you know, off to a good start. And look. It is a small world too. There is a lot of buzz from the Canada, Japan, and Brazil markets as well. So, more to come, we are coming into derm season, we get into that spring and summer, and that sets up well for ZENRELIA. Operator: Your next question comes from the line of Brandon Vazquez from William Blair. Brandon Vazquez: Congrats on a strong end of the year here. I wanted to start first on the guidance, maybe just push a little bit, just to understand if there is conservatism baked in here, if there is something we are missing because if I think of a price of two points in 2025, and a volume of five points, that gets you 7% growth in 2025. We are talking about meaningfully more price coming through in 2026, and do not think there is any reason that volume should meaningfully decelerate. So that algorithm already puts you above your initial 2026 guidance, the high end of that range. So again, like, question is, one, are we simply baking in some conservatism here? I want to make sure that we are not missing any big moving pieces that would meaningfully change that algorithm in 2026 guide. Robert M. VanHimbergen: Yeah. So thanks for the question, Brandon. Good morning. Hey. So listen. We feel great about the momentum that we have seen exiting 2025. And listen, our guidance is right in line with the framework we gave at Investor Day, so mid-single digit top-line growth, high single-digit EBITDA growth, and low double-digit EPS growth. And again, we are going to be focusing on deleveraging and getting to that low threes by the end of the year. But listen. We feel great about the basket of innovation. We feel great about Elanco Ascend coming in. But listen. We are also in an environment where we see higher than normal inflation. We are being responsive and cognizant of competitive response. And, you know, as we mentioned in Investor Day, we are going to take a wide range of potential headwinds and tailwinds and be transparent on that. But listen. We feel good about the 2026 guide we gave; it is also the long-term algorithm we gave as well. The last thing I would maybe just highlight, when you are looking at just growth trends, keep in mind, we are lapping some significant growth within that basket of innovation. Our basket of innovation grew $400 million in 2025, and we are growing that $250 million here with the recent uplift, that additional $50 million that Jeff highlighted. Brandon Vazquez: Okay. Great. And then one maybe follow-up is a little bit of a bigger picture question on the commercial side. I think in the past, we have talked about trying to more meaningfully get into the corporate accounts. You need a broader portfolio of innovation. You have had a lot of good products coming out. You have more coming. Where are you guys today? In terms of maybe what inning are you in in getting into those big corporate accounts to draw some of that big volume? If there are any kind of, like, portfolio gaps left that you need—think in the past, we have maybe talked about vaccines as being one of those areas. What is left that you may need to do for the corporates and what timelines to start making moving that forward a little more? Thanks, guys. Jeffrey N. Simmons: Yeah. Thank you, Brandon. So, yeah, a great finish to the year, our best corporate year in, I know, more than five years. We have got a dedicated team. We brought in some additional expertise from industry competitors, and it has been a very big focus point for Bob and the team and Chris. And, so a real credit to them. Probably some of the best metrics as we look at lead indicators. So we are seeing growth. We are in most all the clinics here in the US. Bifrenna will be a big addition because you start to now, hey, we have got everything that everyone else has, and we believe they are differentiated. When you look at a Bifrenna having efficacy, value, and convenience differentiation, it has lasted a minimum of six weeks. All of that is going to resonate really well. But I think our offering and our portfolio show that. And again, we see that in the results. Europe has been tremendous. I mean, to see, I am really surprised by how quickly we got ZENRELIA into all corporates already. So that has been beneficial. But, yeah, if I had to point to what is next, I think the international pet vaccines will be important. And that is going to take some time. We know that. Vaccines continue to be a focus point for us. But as a whole, look for corporates' impact to be a really nice growth driver for us in 2026. And it really comes from the teams working really hard on building best-in-industry teams. Your next question comes from the line of Daniel Clark from Leerink Partners. Your line is open. Daniel Clark: Great. Thanks so much. Good morning, everyone. Just wanted to, I guess, first start with Quattro. The further gains via the Kinetic Index that you saw in the quarter, was that sort of in line with your expectations from a couple of months ago? Or was incremental upside? Jeffrey N. Simmons: Well, I think it is as we said, to see the jump we had in third quarter and then exceeded again in the fourth quarter, and being a leader in the Puppy Index. I always have looked, with my many years in this industry, the Puppy Index is definitely where people are leaning in and saying, hey. This is the opportunity. And if I am going to put you on a product, I would like you to start on the best that is available today, and I think that is a real statement about Quattro. Four active ingredients, four dimensions of differentiation. We have added palatability, which has really come out as, we think, the fourth now dimension of differentiation. As I mentioned in my trends earlier, Daniel, I think the comment around 70% of new puppies are in international markets. Getting the Australia approval last week and starting the global approvals of Quattro will also be advantageous. So yeah, good trends and a nice opportunity here with Quattro. And, hey. This space grew 30% last year. Daniel Clark: Great. Thanks. Just a follow-up. I wanted to ask, you know, on your no-regrets policy and sort of leaning into launches that are going well. I mean, a lot of your launches are going well at this point. So as we think about the ongoing duration of investing against those, you know, how should we think about that kind of going forward here? Should we think continued launch support throughout 2026 and into 2027 to keep this momentum up? Or, like, what are the different puts and takes you are thinking about on that front? Robert M. VanHimbergen: Yeah, Daniel. Hey. So I would consider us applying the same no-regrets approach in 2026 that we had in 2025. And that is not only Bifrenna, but also the launches we had in 2025. Right? We are using data to determine, hey. Are we getting the ROI on those investments? And so you do see OpEx—we did guide 7% OpEx growth in 2026, and that is particularly associated with the no-regrets approach to launches as well as funding R&D for the longer-term benefit of the company. But, again, Elanco Ascend is extremely important. This is where Elanco Ascend is coming in and ensuring that we are operationally excellent across our entire P&L that allows us to get to that high single-digit EBITDA commitment we have made while also funding R&D as well as the no-regrets approach that we are taking with our products. Operator: Your next question comes from the line of Umer Raffat from Evercore ISI. Your line is open. Umer Raffat: Good morning, guys. Thanks for taking my question. I have two, if I may. Perhaps first, on gross margin, I thought I should dig into it a little more because if I step back and think about the $400 million plus in innovation growth in 2025, I would have thought there would be a gross margin expansion. And the fact that it was flat almost suggests that the underlying business outside innovation deteriorated in gross margin. How do you think about that, especially because your guidance for 2026 assumes about flattish on gross margin, best I can tell, even though the top line is akin to your first half 2025 annualized, and we know first half 2025 was almost 200 plus bps higher on gross margin. Robert M. VanHimbergen: Yeah. Umer, hey. Thanks for the question. So as we think about just Q4, I will pivot into 2026 as well. So in Q4, we did see 30 basis points of improvement in margins, and that was driven from price as well as sales volumes and mix benefits. But that is partially offset by inflationary that we are seeing as well as the flow through of higher cost of inventory that we have built up throughout the year. And so you will see that—saw some of that—come out in Q4, and you will see that come out in 2026. As I look at 2026, first off, we are going to make the right decisions for the long-term success of the business, but we do expect gross margin expansion of 40 basis points year over year. Price is going to be a component of that. And again, we expect that price to accelerate from 2025. The basket of innovation, as you have highlighted, we do expect that to grow $250 million. That does carry higher margins than our corporate average. And then Elanco Ascend, we are seeing good benefits coming through just the progress that the global team is making on that. Now the one thing—the one or two things—I would look at is, one, we do have inflation that is above historical levels. And two, as I mentioned, we have this higher cost inventory flushing through in the first half of the year. And so you will see our margins enhancing and accelerating throughout 2026. So the second half will be stronger than the first half. But long term, we feel confident in improving margins with the basket of innovation, the volume leverage, and then, again, Elanco Ascend proactively enhancing margins over the next three to five years. Umer Raffat: Got it. And then also on the innovation guidance of about $250 million plus growth in 2026, considering Credelio franchise alone grew almost $137 million in 2025. Is it reasonable to assume that half of 2026 growth is Credelio franchise alone? Jeffrey N. Simmons: I think you are definitely seeing that that was a major contributor, and I know some of the way you are thinking about Credelio Quattro. I would build on, Umer, and say, you know, we definitely are seeing that kind of a trajectory. We are not going to get into guiding by product, but no question, Quattro ends 2025 with more momentum than we expected. International ZENRELIA, and if we get this label change, there is a lot of opportunity here with ZENRELIA. And Bifrenna comes in differentiated. So all of that, I think we step back and say, hey. There is opportunity. I also think the competitive front has changed some. I do not think the long-acting injectable parasiticides are maybe what were anticipated a year ago. I think that is actually contributing to bigger growth in the broad spectrum endecto market, Umer. So I think the competitive set is different, and that is an advantage as well. So we like it. We are lapping $400 million, that we mentioned, but we do see really what is different about the Elanco story is we have got a basket of best medicine in major markets that are growing double digit. Thank you very much. Operator: Your next question comes from the line of Navann Ty Dietschi from BNP Paribas. Your line is open. Navann Ty Dietschi: Hi. Thanks for taking my question. Maybe first, if you could discuss your assumptions behind a stabilizing base business in 2026? And my second question is on the livestock business that also drove the Q4 beat. Can you discuss your outlook by species? And in particular, how long do you expect the favorable cattle producer economics to last? Thank you. Robert M. VanHimbergen: Yeah. So on the base business, Navann, really right in line with what we committed back at Investor Day. So we are seeing low single digit to high single digit trend. Really, since the last three quarters, we expect that as we move forward. It will pivot a bit quarter by quarter, but the basket of innovation is working and bringing in some of our base products. So, you know, we see this as a stable base as we look in 2026 as well as beyond that time frame. Jeffrey N. Simmons: And, Navann, just real quick. I mean, great protein markets, as I mentioned, I think you are seeing, you know, US projection 5%. These protein trends are real. Farm animal is going to be a big contributor, I think, to the animal health growth we see in the next decade. If I break it down, cattle and beef, you know, the low supply, high demand, profitable markets. There is starting to make that turn on the rebuilding of the herd, but it is going to take some time. But that is advantageous for our portfolio. And then I would just call out dairy. Dairy ended at 4.2% growth as an industry in Q4. We are excited about this AHV acquisition leaning in, going to expand our portfolio and our share of voice. Dairy is the protein to watch. And poultry has had three years at 3% growth, and they are projecting the same for the fourth year in a row. Operator: Your next question comes from the line of Chris Schott from JPMorgan. Your line is open. Chris Schott: Great. Thanks so much for the questions. I just want to come back to the derm market, maybe particularly on the international side. Just elaborate a little bit more on what you are seeing on market growth prior to your entry in the market. I am just trying to get my hands around are we seeing new competition accelerating the overall derm market beyond the share gains? Or is this really, again, more about share? So just any directional color there would be helpful. And then just my second question was on the 4% to 6% guide for 2026. Just, is that—should we think about that kind of evenly balanced between pet and farm, or is it skewed one way or the other? I am just trying to get any directional color there. Thank you. Jeffrey N. Simmons: Yeah. Chris, at a high level, yes. We saw coming into the—what we are seeing in Europe, where there is just a lot more promotion. The data for fourth quarter is not in yet, but double-digit growth, new starts continue to be anywhere in the, you know, 10% to 20%. So, and then you have got, you know, in the international markets, as I just mentioned, 70% of the new puppies, globally, are in international. So I see a lot of trends and all this increased noise about, hey, solutions to an itching dog. It is a great market backdrop, and it is great for us as well as we come with ZENRELIA globally. Robert M. VanHimbergen: Yeah. And then on your second one, Chris, you know, generally speaking, would assume it is balanced across the four quarters and generally balanced across pet and farm throughout 2026. And, you know, again, at Investor Day, we highlighted that farm business is generally mid-single digit growth, and then the pet is probably a mid-single digit plus. Operator: And we have reached the end of our question and answer session. I will now turn the call back over to Jeffrey Simmons for closing remarks. Jeffrey N. Simmons: Yeah. Thank you, everybody, for your interest in Elanco. Historical year in 2025, but I want everyone to be assured that at Elanco the engagement and the execution have never been higher in the company. We take a balanced and prudent and very disciplined approach serving our customers as we head into 2026, and we are excited to engage with you going forward. Our priorities remain the same, and that is growth, innovation, and cash, and we will be assured that the continued delivery is our top priority for you as shareholders. Thank you for your interest in Elanco and your investment in Elanco. Look forward to working with you throughout 2026. Have a great day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome to the Arvinas fourth quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. And if you would like to withdraw your question, press 1 again. Thank you. I will now turn the call over to Jeff Boyle, Head of Investor Relations. Jeff, you may begin. Good morning, everyone, and thank you for joining us. Jeff Boyle: Earlier today, we issued a press release with our fourth quarter and full year 2025 financial results, which is available in the Investor and Media section of our website at arvinas.com. Joining us on the call today, we have Randy Thiel, our President and CEO; Noah Berkowitz, our Chief Medical Officer; Angela Cacace, our Chief Scientific Officer; and Andrew Saik, our Chief Financial Officer. Before we begin, I will remind you that today's discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. These risks and uncertainties are outlined in today's press release and in the company's recent filings with the Securities and Exchange Commission, which I urge you to read. Our actual results may differ materially from what is discussed on today's call. A replay of this call as well as today's press release and an updated corporate deck will be available on the Investor and Media section of our website. I will now turn the call over to Randy Thiel. Randy? Randy Thiel: Thanks, Jeff. And thank you all for joining us today. It is an honor and a privilege to lead such a talented and committed team as Arvinas enters a period where we anticipate multiple value-driving milestones at the company. Addition to the team, we have a technology proven in the clinic. An exciting pipeline, and a strong balance sheet, allowing us to continue our work to make a meaningful impact for patients, their families, and our shareholders. 2025 saw meaningful progress across our pipeline and was a transformative year for the company. In addition to submitting our first New Drug Application, setting the stage for potentially the first ever FDA approval of a PROTAC degrader, we redefined our strategy to maximize the opportunities ahead in each of our core areas of focus. With four ongoing clinical trials across oncology and neurology, including our recently begun first-in-human trial of our polyQ AR degrader, ARV-027, we believe we have the potential to bring truly differentiated treatments to millions of underserved patients. We are entering a pivotal period at Arvinas. As we have been previewing for the past six months, 2026 will be defined by multiple data readouts and clinical advancements. We believe these milestones will validate our strategy of developing only treatments that are highly differentiated from other options. I will summarize clinical data expectations for the year and make a few comments on corporate strategy before turning the call over to the team to walk through recent accomplishments and our forward-looking plans in more detail. Beginning with our LRRK2 degrader, ARV-102, I am pleased to announce today that data from our Phase 1 clinical trial in patients with Parkinson's disease was accepted for an oral presentation at the Alzheimer's and Parkinson's Diseases Conference in March. We will assess the ability of ARV-102 to degrade LRRK2 in the CSF and see how it impacts important pathway biomarkers. Rather than inhibit LRRK2's kinase activity intermittently, ARV-102 degrades the entire LRRK2 protein. An important consideration when thinking about its potentially differentiated profile. Turning to ARV-806, our KRAS G12D PROTAC potently and selectively eliminates both the on and off forms of the protein. Based on faster-than-expected enrollment in this trial, by the 2026 we now expect to make our first data disclosure for the program, and we have already submitted data from that trial for presentation at a medical congress in the coming months. This will be an important look at why we believe ARV-806 has the potential to be a clearly differentiated treatment. So stay tuned for more on our disclosure plans. Next, our PROTAC BCL6 degrader, ARV-393, is continuing to progress well in our Phase 1 dose-escalation trial. And we intend to share data from this trial in the 2026. As announced on our last earnings call, we have already seen responses in early cohorts in patients with both B- and T-cell lymphomas, even at exposures below those predicted to be efficacious. We also observed robust BCL6 degradation and the safety profile of ARV-393 supports continued dose escalation. With respect to vepdegestrant, as you know, we are working with Pfizer to select a third party for its commercialization and potential further development. Our goal remains to make sure that if it is approved, vepdegestrant is launch-ready and available as a potentially best-in-class therapeutic option for patients with ER-positive, HER2-negative, advanced breast cancer in the second-line ESR1-mutant setting. Our discussions to date with potential partners have been productive, and we are working to have an agreement in place before the June 5 PDUFA date. Finally, before I turn the call over to the team, I would like to make two comments on corporate strategy. First, last year, we decided to refocus our resources on our Phase 1 clinical programs, which we now have four of. While we believe vepdegestrant has the potential to be a best-in-class therapy for patients, we think the best way for Arvinas to create shareholder value is to focus on ARV-102, ARV-806, ARV-393, and now ARV-027. Second, we recognize the bar is high for all of our programs. We will not settle for “as good as,” and we hope patients do not have to choose between efficacy, safety, and tolerability. We are determined to only develop treatments that are differentiated and will be highly disciplined in moving programs forward. We believe our pipeline is producing potentially transformative treatments for patients, and we look forward to sharing what we believe will be compelling data for each of these programs as we reach milestones in the future. With that, I will turn the call over to Noah. Noah? Thanks, Randy. And good morning, everyone. I will begin with ARV-102, our LRRK2 degrader. As background, ARV-102— Angela Cacace: Thanks, Noah, and good morning, everyone. I will start by sharing some additional details about ARV-027, our PROTAC degrader designed to target the polyglutamine-expanded androgen receptor, or polyQ AR, in skeletal muscle. We have deep expertise in developing AR degraders. Our first clinical candidate was an AR degrader, and ARV-766, which we out-licensed to Novartis in 2024, is progressing through multiple Phase 2 trials in hormone-sensitive and castrate-resistant prostate cancer. PolyQ AR is the root cause of disease in spinal and bulbar muscular atrophy, or SBMA, also known as Kennedy's disease. SBMA is a rare, genetically driven neuromuscular disease with no approved treatments available, and consequently significant unmet need. For background, SBMA is an X-linked disease caused by a CAG expansion in the AR gene resulting in polyQ AR accumulation. This toxic accumulation impairs contractility and causes atrophy and ultimately weakness and loss of endurance in muscle. The goal for developing a disease-modifying therapy in SBMA is reducing polyQ AR in muscle. We believe ARV-027 has the profile to become the first ever therapy for patients with SBMA that tackles the protein as the genetic root cause of the disease. ARV-027 is a PROTAC that drives degradation of polyQ AR in skeletal muscle. We presented the first ARV-027 preclinical data last year at the World Muscle Society Conference in October, and we will share data again at the Kennedy's Disease Association Conference later this week. These data show with oral ARV-027 induced degradation of muscle polyQ AR, which resulted in clear functional improvement and extended survival in a rapidly progressing SBMA mouse model. We recently initiated our Phase 1 trial of ARV-027 in healthy volunteers and are excited to be developing ARV-027 for thousands of patients with spinal and bulbar muscular atrophy, a disease with no approved disease-modifying therapies. Rounding out programs that we expect will enter the clinic this year, we have our first immuno-oncology-focused PROTAC degrader for solid tumors, ARV-6723, that targets HPK1. HPK1 acts as a central intracellular brake on the immune system, depressing T-cell receptor signaling and broadly dampening both innate and adaptive antitumor responses. Beyond its kinase activity, HPK1 also serves a scaffolding role that reinforces immune suppression, making it an attractive kinase for degradation rather than inhibition. Preclinically, ARV-6723 has shown deep and sustained HPK1 degradation, eliminating both kinase and scaffolding functions, an effect not achieved with kinase inhibition alone. As a single agent, ARV-6723 demonstrated meaningful and durable tumor growth control across multiple syngeneic models, including both high- and low-immunogenic tumors, and outperformed investigational HPK1 inhibitor and anti–PD-1 therapy in several settings. It also demonstrated strong activity in combination with anti–PD-1. Mechanistically, HPK1 degradation induces a distinct proinflammatory tumor microenvironment with increased activated T cells, NK cells, and monocytes. In addition, ARV-6723 was found to reduce immunosuppressive neutrophils while inducing broader proinflammatory pathway activation than inhibition alone. Last week at the AACR Immuno-Oncology Conference, we presented preclinical data demonstrating ARV-6723's robust single-agent activity and outperformance when compared to the clinical HPK1 inhibitor in efficacy studies with several mouse models representing hot and cold immunological settings and demonstrated efficacy in multiple models of anti–PD-1 resistance. Collectively, these data position ARV-6723 as a potentially differentiated oral immuno-oncology approach designed to drive deeper and more durable antitumor responses. ARV-6723 has potential to address significant unmet need across multiple settings where currently available immunotherapy drugs have failed. Pending regulatory feedback, we are planning to begin first-in-human studies for ARV-6723 later this year and based on preclinical findings, we believe ARV-6723 could change the treatment paradigm in the immuno-oncology treatment landscape. Finally, we are making strong progress in our oral pan-KRAS PROTAC program, a preclinical program that complements our clinical KRAS G12D degrader. Angela Cacace: —differentiates from all inhibitors in that our novel oral degrader is designed to target KRAS for elimination. Preclinically, we have demonstrated broad degradation across KRAS alterations, including wild-type amplified KRAS, with selectivity over RAS isoforms and activity in both on and off states. Compared to pan-RAS inhibitors, by degrading and removing the oncoprotein, we have observed stronger antiproliferative and apoptotic effects, greater tumor growth inhibition, and enhanced activity when combined with anti–PD-1 therapy, providing preclinical evidence for a differentiated profile. We will present preclinical data comparing our PROTAC pan-KRAS degrader with pan-RAS inhibitors at the AACR Special Conference on RAS in March, and we will also be presenting data highlighting efficacy in a KRAS syngeneic model and associated immune microenvironment changes at a scientific congress in the first half of this year. With that, I will turn the call over to Andrew to review our quarterly financial information. Jeff Boyle: Andrew? Andrew Saik: Thanks, Angela, and good morning, everyone. I am pleased to provide financial highlights for the fourth quarter and full year ended 12/31/2025. As a reminder, detailed financial results for the fourth quarter and year-end, including a reconciliation of GAAP to non-GAAP financial measures, are included in the press release we issued this morning. As we look forward to our anticipated data readouts later this year, we are in a strong financial position to maintain our guidance of cash into 2028. At the end of the fourth quarter, we had just over $85 million in cash, cash equivalents, and marketable securities on the balance sheet, compared with just over $1 billion at the end of 2024. We believe our strong balance sheet will enable us to advance our programs to meaningful data events, which will help us make important portfolio decisions in the coming months and years. Turning to the fourth quarter and full year 2025 financial highlights, during the quarter, we reported $9.5 million in revenue, compared to $59.2 million in revenue for the same period in 2024. The decrease was primarily due to a decrease of $40.3 million of revenue from the Novartis license agreement. We reported $262.6 million in revenue for the year, compared to $263.4 million for fiscal year 2024. General and administrative expenses were $23 million in the fourth quarter compared to $34.1 million for the same period in 2024. The decrease of $11.1 million was primarily due to a decrease in personnel and infrastructure-related costs of $4.4 million and a decrease in costs related to developing our commercial operations of $3.1 million. G&A expenses were $95.9 million for the year, compared to $165.4 million in the prior year. Fourth quarter non-GAAP G&A expenses were $15.3 million in 2025, compared to $23.7 million in 2024. Research and development expenses were $61.1 million in the fourth quarter compared to $83.3 million in the same period of 2024. The decrease of $22.2 million was primarily driven by a decrease in compensation and related personnel expenses of $14.1 million and a decrease in external expenses of $7.6 million. For the year ended 12/31/2025, R&D expenses were $285.2 million compared to $348.2 million for the prior year. Fourth quarter non-GAAP R&D expenses were $56.5 million in 2025 compared to $74 million in 2024. Total non-GAAP expenses for the fourth quarter and full year were $71.8 million and $323.4 million, respectively. Our reduced spend in Q4 is a direct result of our cost-cutting efforts in 2025, and we will continue to look for efficiencies in our operating model this year. As previously announced, in September, our board authorized the repurchase of up to $100 million of our outstanding common stock. As of year-end, we had bought back approximately 10 million shares at an average price per share of $9.09 for a total of $91.9 million, including commissions and excise tax. This program is now suspended, and we have no further plans to repurchase shares. Details of our stock repurchase program can be found in our 10-Ks, which will be issued later today. As I mentioned, we are maintaining our cash runway guidance into 2028, which allows us to reach important data readouts and continue prioritizing investments in programs that we believe are truly differentiated and that will provide patients with significant benefit. Let me now turn the call back to Randy for closing remarks. Randy? Jeff Boyle: Thanks, Andrew. I will summarize and then open the call for questions. Over 2026, we anticipate sharing new clinical data from our Phase 1 trials of ARV-102, ARV-806, and ARV-393. We expect that our polyQ AR degrader, which just entered human trials, will be joined in the clinic later this year by our HPK1 degrader. And we expect important new trials to begin for both ARV-102 and ARV-393. I believe we are entering a period of meaningful execution and value creation at Arvinas. Very few Phase 1 companies have such a strong pipeline and the potential to reach important milestones. And even fewer have a platform that has already announced positive Phase 3 clinical trial results. This is what makes me so enthusiastic about our upcoming opportunities to make a meaningful impact for patients and shareholders. With that, I will hand the call to Jeff to start Q&A. Jeff? Thanks, Randy. And as a reminder, we are always available to take questions offline if you cannot join the queue. But for now, I will ask the operator to open the line for Q&A. Operator? Unknown Analyst: Actually, this is Randy jumping back in with a quick change of plans. Jeff Boyle: Before we pass back to the operator and open Q&A, we need to do one more section. Especially with the storm coming the past couple of days, we prerecorded the prepared remarks. To ensure we would have no technical difficulties. Obviously, we did, and some of you noticed that Noah's section was almost entirely skipped. So we will have Noah read his section live now and then jump straight to Q&A after that. Noah. Noah Berkowitz: Thanks, Randy. Okay. So we will talk about some of our clinical-stage assets here. As background, ARV-102 is an oral PROTAC LRRK2 degrader intentionally designed to cross the blood-brain barrier and selectively degrade leucine rich repeat kinase 2, or LRRK2. LRRK2 is a multidomain protein with three key functions, of kinase, GTPase, and scaffolding activities. Together, LRRK2's activities regulate endolysosomal trafficking, and when activity is elevated, the lysosome becomes dysfunctional. This leads to obstructions when clearing the aggregated pathological proteins that would typically be degraded through the properly functioning lysosomal pathway. We believe that degrading LRRK2 has the potential to restore endolysosomal homeostasis and to provide therapeutic benefit in disorders characterized by lysosomal dysfunction. Two of those diseases are progressive supranuclear palsy, or PSP, and Parkinson's disease. Several competitors are pursuing LRRK2 as a target in these diseases. Our PROTAC approach is differentiated because we reduce LRRK2 protein while competitors only inhibit LRRK2 kinase function. By degrading the entire LRRK2 protein complex, we disrupt the key functions believed to be linked to neuroinflammation, and 102 offers the potential for deeper and more durable therapeutic benefit versus inhibitors. Our confidence in this program is bolstered by the data we have generated from our Phase 1 clinical trials in healthy volunteers and Parkinson's disease. As previously disclosed, ARV-102 has been well tolerated and demonstrated dose-dependent CSF exposure across both trials, indicating excellent brain penetration. We also reported that ARV-102 reduced LRRK2 in the CSF by more than 50% and reduced downstream proteins driven by LRRK2 variants that are elevated in the CSF of patients with Parkinson's disease and linked to lysosomal stress. Two such proteins, GPNMB and CD68, demonstrate clear and disease-relevant pathway engagement in the central nervous system, even in healthy volunteers where they would not have been expected to be elevated. Altogether, these data provide further evidence that total protein degradation of LRRK2 may have a best-in-class impact on underlying disease compared to inhibition. As Randy mentioned, we were accepted for oral presentation at AD/PD, where we will show pathway biomarker results in patients with Parkinson's disease. We look forward to updating you on these data. Let us turn now to the development plan for ARV-102. As we have previously shared, there is strong evidence that endolysosomal trafficking driven by increased LRRK2 is associated with the clinically meaningful progression, often within one year, of PSP, a progressively debilitating neurodegenerative disease that is typically fatal within five to seven years of diagnosis. We intend to initiate a Phase 1b trial in PSP in the first half of this year, with the potential to initiate a registrational trial in late 2026, pending health authority feedback. If successful, ARV-102 has the potential to become the first and only disease-modifying treatment for this rare, life-threatening neurological disorder that affects approximately 25,000 people every year in the U.S. We expect to provide additional updates on our clinical development plans in the coming months. We can now move to our KRAS G12D degrader, ARV-806, and I will say we completed dose escalation for once-weekly administration in our Phase 1 trial well ahead of plan. We believe that reflects strong clinical investigator interest and high demand for effective KRAS-targeted therapies. ARV-806 targets KRAS G12D for elimination. KRAS G12D is a well-known oncogenic driver associated with poor prognosis and resistance to standard treatments across major tumor types, including pancreatic, colorectal, and non-small cell lung cancer. Importantly, there are no approved targeted therapies on the market for tumors with KRAS G12D mutations. As a reminder, on our last call, we shared preclinical data presented at the Triple Meeting in October that highlighted the clear differentiation of ARV-806 from both KRAS inhibitors and degraders currently in the clinic. These preclinical data show ARV-806 to be more than 25-fold more potent in reducing cancer cell proliferation compared to clinical-stage KRAS G12D inhibitors, the leading clinical-stage—sorry, for seven days, after a single dose with efficacy responses across pancreatic, colorectal, and lung cancer models. We anticipate sharing initial Phase 1 clinical data in the coming months. There is a very high bar for differentiation, and we believe ARV-806 has the potential to transform the field by exceeding that bar. Let us shift to ARV-393, an oral, investigational novel degrader of BCL6 with the potential to become a chemo-free standard of care across non-Hodgkin's lymphoma indications. BCL6 has a rapid resynthesis rate and is known to be difficult to target by inhibitors. ARV-393's iterative, event-driven mechanism of action counters the rapid resynthesis rate of BCL6, resulting in potent, sustained degradation of the protein. As announced on our Q3 earnings call, we have already observed responses in both B- and T-cell lymphomas in the early cohorts of our ongoing Phase 1 monotherapy trial, even at exposures below those predicted to be efficacious. We also observed evidence of robust BCL6 degradation and the safety profile of ARV-393 supports continued dose escalation. In preclinical data presented last year, ARV-393 showed broad, synergistic antitumor activity combined with standard-of-care biologics and investigational small-molecule inhibitors. In December, we presented compelling preclinical data that support ARV-393 in combination with glofitamab, a CD20-directed bispecific antibody, as a chemotherapy-free combination approach in diffuse large B-cell lymphoma, or DLBCL. These data demonstrated tumor growth inhibition of 91% with ARV-393 plus glofitamab dosed sequentially, compared to 36% for glofitamab alone. Additionally, RNA sequencing and biomarker analysis suggested that ARV-393 enhances CD20 expression and genes that promote interferon signaling and antigen presentation but also downregulated proliferation-associated gene sets. Overall, these preclinical data suggest mechanistic synergies between BCL6 degradation with ARV-393 and T-cell engagement. We believe these results bring hope for DLBCL patients left with minimal treatment options when standard-of-care therapies fail. With our encouraging preclinical data in hand, we are on track to initiate our Phase 1 combination trial with glofitamab in the first half of this year. So now I will turn the call over to the operator for Q&A. Operator: Thank you, Noah. We will now begin the question and answer session. If you would like to ask a question at this time, simply press star followed by the number one on your telephone. And our first question comes from the line of Jonathan Miller with Evercore. Jonathan, please go ahead. Jonathan Miller: Hey, guys. Thanks so much for taking my question. And congrats on all the progress across multiple interesting-looking programs. One thing that I immediately react to in some of your prepared remarks is your assertion that you are only going to develop programs for which you are going to see differentiated activity. You know, multiple of these programs are in competitive areas as you are well aware. So I wanted to ask across the pipeline, at what point are you going to get the killer data that determines to you whether or not a program is differentiated? And, obviously, that is different for different programs, but could you just go through the pipeline and tell us what you think the key experiment is that will let you know if you have got truly differentiated or not? Randy Thiel: Yeah, Jonathan, thanks very much for the question. And just as we start the Q&A, I apologize again to all the folks on the call for the confusion there. I hope that was clear as we had to redo Noah's section. Jonathan, that is probably a question we could spend a lot of the day on, right? So to your point, for each program, it is going to be different. And certainly, as we think about a plan where we need to be clearly differentiated against competitors, which I think is actually pretty reasonable, it does not necessarily mean that when you first show data in a very early Phase 1 trial that it has to be, you know, beating a competitor that has expansion data, Phase 3 data, and so on. So I will pass to Noah here in a little bit to talk, you know, maybe program by program for some details that we expect to have this year. Probably the right place to focus. But as we look across—maybe I will highlight a couple of things. For LRRK2, for ARV-102, our LRRK2 degrader, the competition there is inhibitors. It will be really important to show that degradation leads to a different result than inhibition for a target that has not been proven to modify disease overall by drugs that the industry has produced. So that is the key risk. For ARV-806, for KRAS G12D, the target is much more validated, but the competitive space is much more intense in terms of other programs that have been out there ahead of it. For BCL6, similarly, it is a relatively new target, but there are competitors out there that have paved the way a little bit, showing that the target has now become somewhat validated. And maybe we will leave 27 to the side for the moment. But I think for each of those, the Phase 1 data will be of some interest, and as we move forward, we will have to compare over time. Noah, anything else you want to add, you know, maybe specifically some of the near-term data updates? Noah Berkowitz: Sure. Thanks, Randy. Yeah, let us take the example of ARV-102 for starters. So in that case, we have signaled pretty significant conviction. We have said we are starting a trial in PSP this year and, regulatory permitting, we may even be able to move towards a registration-quality trial, you know, before the end of the year. We recognize that there are properties of a LRRK2 inhibitor that can be exceeded with LRRK2 degraders. We have shown already in healthy volunteers that we have more than 50—we can achieve more than 50% LRRK2 degradation in the brain. That has been our target. We have been communicating that clearly. Because we know in general, if you want to just simplify in broader strokes, that patients with Parkinson's disease have twice to three times the level of LRRK2 protein expression in the brain compared to their age-matched controls. So our goal was to achieve that, something that cannot be touched by inhibitors. So that is why we have lots of conviction there, plus pathway data, more to come at AD/PD in April. Now if I shift for a moment to 806, it is a very competitive space. We know that there are many other G12D-targeting drugs ahead of us, mostly inhibitors and, let us say, one degrader. But fundamentally that really makes it easier for us because we know where the bar is. We know that—I am going to speak in broad terms. I am not setting the bogey here because this is an imprecise science. But we know that we have to be better than, let us say, 35% response rates in this space to be differentiated. So we are going to have to generate data that gives us confidence that we are better. We will signal as the year moves on about exactly what level of confidence we have, and as we can share data with folks. But that is clear from the numerous drugs that are in the clinic today, that we have to be better than the large majority of them, which, you know, would put us in that range. And then when it comes to 393, we are kind of at the front right now. There is a competitor that has shared data, and we do see that there is activity with their drug. But this is really early days. Like, we are months or maybe—you know, I do not want to give a specific time frame that we are behind. It is hard to know. But we are basically at the leading edge of this right now. So we are going to look at the data that is shared by our competitor, we will look at the data that we generate, we will share that, and we believe that for all three of these drugs, there will be data this year to demonstrate their differentiation that we should, you know, over the course of the year, be able to share with our investors. Operator: Thanks so much. And your next question comes from the line of Edward Tenthoff with Piper Sandler. Ted, please go ahead. Edward Tenthoff: Great. Thank you very much. Randy, congratulations. And the whole team, I really appreciate the energy you guys are bringing. It is really exciting to have this early-stage program advancing in so many really unique shots on goal here. I wanted to pick back up with what Noah was saying about 102. What really should we be expecting from that data at AD/PD? And would there be an incremental PSP update ahead of the registrational trial initiation? I love the speed with what you are moving here. But I want to understand sort of what the bar is to moving into registrational study. Thank you. Randy Thiel: Maybe I will take the second part of that and then pass back for the expectations at AD/PD. Ted, I think the answer to that is no. And just the reason is the timing that we laid out in the prepared remarks just now is that we are anticipating starting a Phase 1b in PSP sooner. And then as we have said, look, all things going our way and pending some further data from AD/PD and regulatory go-ahead, we would hope to start a registrational trial by the end of the year. So I think the data there in between of starting the PSP trial earlier and then getting to a second one later, I think would prevent that. But we think that the data that we will be showing at AD/PD, which are in Parkinson's patients, will be relevant for both moving forward in PD or PSP. Noah, back to you for the AD/PD view. Noah Berkowitz: Sure. So, look, we cannot prerelease results, but I can—we can—I guess I can frame it? We shared data months ago about—or that started last year and culminated in biomarker data some months ago in the healthy volunteer population. So now we will share data in the Parkinson's disease patient population that I think a discerning scientist would be looking for. Are—well, what happens in Parkinson's disease? Is the drug demonstrating continued safety, like was observed in healthy volunteers? Because now patients are older—25 years median age for healthy volunteers, much older for Parkinson's disease patients. There is much more elevated LRRK2 in the CSF at baseline. So it was something that was observed at low levels, now repeated at higher levels, because you have to overcome even more LRRK2 presence in the brain. Obviously, deep portions in the brain, is represented by the CSF levels. And then the biomarker story. Right? The biomarkers that were seen in healthy volunteers—is that like a once—a finding that cannot be replicated, or is it something where the pattern continues or it intensifies when you look at Parkinson's disease patients? That would be the kind of set of questions that I would look at, and we hope that we can answer those questions at the meeting. That is great. Really helpful, and I am looking forward to all the other data and updates in progress this year. Thanks. Operator: And our next question comes from the line of Tyler Van Buren with TD Cowen. Tyler, please go ahead. Frances (TD Cowen): Hi. This is Frances on for Tyler. Just one quick question on our end. Can you elaborate more on the pan-KRAS presentation at AACR and what we should expect to see from it? As well as what competitors you are using? Randy Thiel: Sure. Maybe I will pass to Angela in a moment to talk a bit about that. And as you pointed out, we have a pan-KRAS program that, as we talked about, is moving ahead preclinically behind the KRAS G12D degrader that will have data at some point this year. But Angela, a bit more on the AACR data for pan-RAS? Angela Cacace: Sure. Thank you for the question. We will be sharing data, comparing to the inhibitors. So, you know, our goal in the pan-KRAS story is, of course, to remove the oncoprotein. So we differentiate from the on and the off inhibitors in that we are removing the oncoprotein. First and foremost, what is observed as a regulatory mechanism when you treat with an inhibitor is compensatory upregulation of KRAS. So this is something that is seen with the ON inhibitors. And so we will share KRAS-amplified data, so we will be sharing how we compare to the KRAS ON inhibitor in that setting. And then we will also share some of the mutant data as well in terms of the activity that we see on the antitumor activity. So expect to see those data as well. I hope that helps. Thanks so much. And then we will also share some syngeneic model data in the presence of an intact immune system. So I think that is also important with respect to the pan-RAS inhibitors, with respect to our pan-KRAS molecule that is selective for KRAS versus pan-RAS. So we are not hitting NRAS and HRAS. Yep. That affects T-cell activity. Operator: And our next question comes from the line of Akash Tewari with Jefferies. Akash, please go ahead. Manoj (Jefferies): Hey. This is Manoj on for Akash. Thanks for taking our question. Just one on ARV-393. What are your early observations around the plasma exposure dynamics when ARV-393 is used in combo with glofitamab? Do you expect the need of any specific dose modifications on either 393 or glofitamab when used in combo in clinic? And, also, just one more. Do you see any increased interest for vepdegestrant after the recent Roche data, especially in the earlier settings? Thanks. Randy Thiel: You know, maybe I will try to rephrase. I think the first question around 393 was do we, in broad strokes, expect the need to do any dose modification for 393 with glofitamab? And maybe I will let Noah comment on that in a moment, as we have had some data there late last year. And maybe I can take the second one. Look, we think that the Roche data from late last year validate the hypothesis that an ER therapy will work where ER is driving disease, which is what we have always believed. And so really, no, I do not see a concern there. It certainly validates what we thought would be the case. And we hope that as we are out with our partners at Pfizer looking for a new partner to commercialize, and preferably continue to develop that, it gives somebody the enthusiasm to do that. So no, I do not see that as an issue. But, Noah, back to you on the march and potential for requiring dose modifications based on the data we have shown to date. Noah Berkowitz: We do not really anticipate that we will require dose modifications, although obviously, you know, in an abundance of caution, we will have some dose escalation to evaluate the combination. There is non-overlapping tox, which is to say that the principal tox for glofitamab is going to be things like CRS, and also, there may be some accumulated hematopoietic toxicity for patients from glofitamab. But we, on the other hand, are not really seeing toxicity in those categories at all. So, you know, we will be advancing it cautiously, but do not anticipate dose modifications. Yes. Thank you. Yeah. Operator: And your next question comes from the line of Yigal Nochomovitz with Citi. Yigal, please go ahead. Caroline (Citi): Hi. This is Caroline on for Yigal. Thanks for taking our question. Digging in more on LRRK2 and the biomarker data to be presented at AD/PD, can you tell us how this data will support the therapeutic hypothesis in PSP? And, relatedly, what percent of PSP patients have elevated LRRK2, and are the same biomarker pathways relevant as in Parkinson's? Got it. Thank you. And, separately, is there any update on selecting a third party for vepdegestrant? Randy Thiel: Thanks. Yeah, I am going to pass that one pretty quickly over to Angela. I had a few comments on the biomarkers, but Angela, please dig in. Angela Cacace: Sure. So in PSP, there have been some recent publications showing that you see the same pathways increased. So you see elevated endolysosomal pathway engagement uniformly in progressive supranuclear palsy, and LRRK2 elevation in that population. And so, you know, we expect within that population that we will see efficacy there. So within that population, when you subset that population and look specifically at LRRK2 elevation, you do see accelerated progression and clinically meaningful progression. If you do look specifically at the elevated population, you do see acceleration by a year and it is, you know, clinically meaningful, upwards around 20 to 30 points of the rating scale. So Ed Jabari and his colleagues at University College London have shown that. So those data point to within that genetically defined population that that is the case. So, you know, anytime you see an increase in elevated expression, you know, for a PROTAC, that is the place you want to go. So PSP is a place where we can prove a concept within a year. So we are encouraged by that and remain very committed to this therapeutic hypothesis in PSP. Randy Thiel: Not further than what we put in the remarks this morning. On track. We feel good about that process that we are pursuing alongside Pfizer, but all is on track and we hope to have a partner in place by the PDUFA date in early June. Operator: And your next question comes from the line of Derek Archila with Wells Fargo. Derek, please go ahead. Jacob (Wells Fargo): Good morning. This is Jacob on for Derek. Thanks for taking our question. Just one on LRRK2 from us. How should we be thinking about safety in the upcoming AD/PD readout? I know it is a relatively short study, but given the lung biology associated with LRRK2, do you think there is anything that would emerge we will be looking for at this time point to give you more confidence in a longer duration study? And on a related point, does dose selection read through directly from Parkinson's to PSP, you think? Randy Thiel: Yeah. That will certainly be an important part of the readout, although as you have talked about, it is still a relatively short duration. Noah, any other comments to make on safety? Noah Berkowitz: Sure. So, overall, with the Parkinson's disease patient study that we will be sharing, patients have had 28 days of treatment. We should keep it—so, you know, we are doing standard observations of patients to assure safety and assure that there are no findings. I am not going to provide the data here on the call, but that is something to look at at the meeting. I think it is important to recognize that there is an on-target activity that you have identified in the lung of patients that requires tracking, and that is why anyone in this space will do things like PFTs, pulmonary function tests, and they could be following that up with high-resolution CT scans of the lung if there is anything suspicious. And the goal will be to demonstrate in the end that you have the right benefit-risk for a drug, and we anticipate that that should be fine. I will point out that—it is so standard—that there is something called the LIGHT initiative, which is a recommendation from experts about anyone who is dealing with LRRK2-targeting agents should be thinking about pulmonary function monitoring. So it is something we have incorporated into our study, and we will provide updates at an appropriate time. Noah Berkowitz: So we think it is very related. Let us look at what both diseases share here. They both have a toxic gain-of-function mutation that is associated with the disease or disease severity. Right? And we understand how there is a pathway that is activated—for, you know, and this is the endolysosomal trafficking pathway of which LRRK2 plays a central role. So our goal, as was stated earlier, is to degrade LRRK2 to at least 50%. We know that that could be achieved in both of these diseases. You know, we have reason to believe that that can direct benefit. We have done, and we have shared earlier on different calls, or publications that we have, that we have been able to do seeding experiments in PSP, that show that LRRK2 degradation can interfere with the propagation of—or tau polymerization. And overall, we are going into this disease where no doubt LRRK2's central role—for tau is the pathological tau species that is almost pathognomonic for the disease, right? I mean, it is found in all patients with PSP on autopsy, and we know that we should be able to degrade this tau or and prevent its accumulation. Operator: And your next question comes from the line of Li Wang Watsek with Cantor. Li, please go ahead. Tanya Brondra (Cantor): Hey, this is Tanya Brondra on for Li. Thanks for taking our question. We were wondering if you could shed a little bit of light on the ARV-393 data that you are planning to share in the second half of this year. You have already said that there are early evidence of efficacy. What gives you confidence in your data and the molecule itself that it is, you know, worth pursuing and what kind of data, what type of end should we be expecting in your presentation? Randy Thiel: Yeah. I will let Noah comment, but you are right to rehighlight that late last year we said that even at doses that were below what we would have expected to prove some efficacious range of exposure, we did see some responses in patients with both B- or T-cell lymphomas. And had seen good degradation of BCL6. But for the data later in the year, Noah? Noah Berkowitz: I do not think that we could guide specifically to those findings other than to say that if you are in the business of drug development, and you have a new mechanism of action, and you see a drug that can achieve a complete metabolic response in patients that otherwise have a deadly disease, you remain very committed and enthusiastic about the future for that product. Operator: And your next question comes from the line of Srikripa Devarakonda with Truist Securities. Kripa, please go ahead. Anna (Truist): Hi. Good morning. This is Anna on for Kripa. Jumping to the polyQ AR degrader, just given that SBMA is kind of a progressive disease, and an untapped market, I know it is still an early program, but I was wondering if there is any—you can—any guidance you can give in terms of the strategy here. And if there is anything you will be testing soon that can kind of support any early signs of efficacy. And additionally, for 806, wondering if there is any early indications of any interest within pancreatic, colorectal, or lung cancer. Thank you. Randy Thiel: Okay. Yeah. We will do 027—let Noah and Angela—and then come back. Noah Berkowitz: Yes. I am going to start, like, almost at the end and then turn it back to Angela because it will have to do with clinical strategies. Which is to say it is really early, so I cannot answer the question in great detail there. But I will give you a range of possibilities. Right? We already know that patients with SBMA show a pattern of muscle atrophy and fat infiltration that can be picked up clearly with the right sequencing on MRI. So that is a setup for a surrogate marker for the disease. But surrogacy requires significant engagement with health authorities and a review of the data that is out there existing and possibly new, and negotiations. So we are at the very beginning of a process, but knowing that that is potentially something that we could look at in the future. Beyond that, we know that if you are not going to rely on surrogacy, you are going to look at things like a six-minute walk test or other functional measures of patients' strength and their ability to not deteriorate, right? Because ultimately, these patients become bedbound, they develop bulbar symptoms, it does happen over the course of many years, but it is progressive, and it is trackable. So that is the strategy. I think those are things we are looking at in that range. And I will turn it to Angela. Angela Cacace: Great. Sure. Okay. So, you know, preclinically, we have—degrading the root cause of spinal and bulbar muscular atrophy, which is the polyglutamine repeat–expanded androgen receptor in muscle is the goal of the program. And so we have been able to do that with 27. And in the preclinical models, we see very robust reduction in muscle and this leads to, you know, improvement in muscle atrophy. We see increased grip strength. We see improved endurance. And all of these things lead to improved muscle energetics, and we can measure these things in terms of muscle biopsy. Right? So the goal of the preclinical program and turning into a translational program is to measure the reductions that we see in our healthy volunteer, and then ultimately in the Phase 1 trial, is to include SBMA patients also and measure muscle biopsy for reduction of AR and then polyQ AR. And then, ultimately, as Noah was saying, relate that to measures of, you know, muscle atrophy, which can be then measured as muscle integrity measures, which are muscle MRI. So fat infiltration, muscle fat volume, things like muscle volume, etcetera. And then function. Randy Thiel: Then maybe I will rewind one more clip before we get back to the KRAS question. But just as a reminder for everybody, this is the third AR degrader we have put in clinic. So vepdegestrant was our first years ago, one of the first PROTACs we put into the clinic, which had some solid signals of efficacy and good tolerability early on. The next-generation AR degrader, ARV-766, which we out-licensed to Novartis about two years ago for upwards of a billion dollars in upfront and milestones. So I just wanted to make sure that is clear. AR is an area where we have deep expertise that we will take advantage of. Now back to your second question which was around KRAS—could you please remind me what the question was? I think it was about moving into PDAC, but what was the question, please? Tanya Brondra (Cantor): Yeah. Just any early indications within PDAC, colorectal, or lung. Randy Thiel: Any indications? Yeah. You mean in terms of development direction? Tanya Brondra (Cantor): Early indications of interest. Yeah. Noah Berkowitz: So clinical trial—I do not think we are going to share where the program is, but we—other than to say that it has moved faster than expected, which I think we just mentioned on the call. And beyond that, that we have already submitted for a conference. So we will see how this plays out. Randy Thiel: So lots of things—interest. Operator: Thank you so much. And your next question comes from the line of Jeet Mukherjee with BTIG. Jeet, please go ahead. Blake (BTIG): Hey. This is Blake on for Jeet. You started getting into this earlier, but how do you think about the pan-KRAS program coexisting with 806, and specifically, is pan-KRAS designed to cover other variants besides G12D, or could it, with a clean therapeutic window, eventually replace 806 entirely? Thank you. Randy Thiel: Yeah, it is a good question, right? So G12D very specifically targets G12D whereas the pan-KRAS is intended to target all the mutants for sure. In terms of how they can coexist, you know, maybe I will make a high-level comment and then pass to Noah. But in general, we have seen them as independent programs. Right? There is certainly argument to say that a specific G12D degrader could have a profile that better allows for combination with other therapies. That is theoretical for sure. A pan-KRAS degrader that had a great tolerability profile could be quite combinable as well. So we have seen them as independent programs. Noah, anything else you would like to add on how they could move forward? Noah Berkowitz: Yeah. I think that that is the key point. We have highlighted before that one of the key mechanisms that differentiates degraders from inhibitors is our ability to continue to degrade in the presence of amplification or overexpression. So that is something that—the 35%, 40% of pancreatic cancer patients have G12D. But that leaves the other 55% or 60% of patients that have other variants. Just in pancreatic cancer alone, there is a larger opportunity for a pan-KRAS than a G12D. Differentiation—you know, we like the idea potentially of using them together, and we like the idea of being able to really overcome resistance pathways. So that is it. And that same pattern, though to smaller percentages, is true in non-small cell lung cancer, in colorectal cancer, and in other—potentially in other GI tumors as well. Operator: And your next question comes from the line of Terence Flynn with Morgan Stanley. Terence, please go ahead. Terence Flynn: Great. Thanks for taking the question. Randy, you talked a lot about the opportunity set this year from a lot of the early-stage programs in terms of data. How are you thinking about potential partnerships for these programs? I know historically you have kept some, you have partnered others. So how are you thinking about partnering versus retaining rights on each of these? Thank you. Randy Thiel: Yeah, it is a great question, Terence. Thanks. And I think, you know, stepping up a little bit, right? What we have done here is we have got a platform and a team that has produced some really high-quality clinical candidates that we think could be differentiated. You know, we have got—we was about to say three in the clinic but as we announced this morning four now just very recently with 027 going in, and 6723 for HPK1 entering the clinic later in the year. So that is five. Right? That is a lot for a small biotech to take on. And so that is helping the strategy shift from talking about this fantastic platform that we have to adding on the need for each program to be, you know, independently valued and differentiated from its competition. And I think that as we move those programs forward this year and beyond—not necessarily this year, right, but going forward—we may reach places where we decide that it makes sense for us to resource programs and where it might make sense for others to. You alluded to our history. Right? We did a deal with Pfizer for vepdegestrant back in 2021. I mentioned the ARV-766 deal from Novartis in 2024. And so partnering certainly has been an important part of our strategy in the past and will be going forward in the future. You know, as far as program by program, you know, we try to make sure that pharma companies are apprised of our progress across the pipeline so that we know if and when it comes time for us to look for a partner, we know who that might be. So I will probably save any more specific comments for the future, but it is certainly on our mind to think about how we can best move forward each program. Operator: And your next question comes from the line of Paul Choi with Goldman Sachs. Paul, please go ahead. Daniel (Goldman Sachs): Hi, this is Daniel on for Paul. So two questions for us on the spinal bulbar muscular atrophy program. So could you guide us on what is the expected timeline for the next planned data cut and what type of data should we expect from the healthy volunteer study that could help de-risk the program, including could there be muscle biopsy for measuring intracellular AR concentrations? Thank you very much. Randy Thiel: Sure. Why do I not take the first one because it is easy and I will pass to the team for the second one. With respect to the timeline, we have said we just started in clinic just now. So a bit early to guide on when we will see our first data, so I would not expect that in the very near future. But as that study gets up and running, we will look to provide some guidance on that. We have spoken a bit about the data coming from 027, but—Noah, please jump in on what we associate from the healthy volunteers. Noah Berkowitz: Healthy volunteer study, but it has a component that we will follow up in the end with some SBMA patients. So think of it as your initial—establishing the dose range, right, in a dose-escalating single-ascending dose treatment of patients that drives then to multiple-ascending dose cohorts. We will be looking at PK. There is a PD component here that is very strong that we do not have in many other studies. The PD here is we are targeting AR degradation in muscle, and we can biopsy those muscles, and we will. And that will help us choose the right dose range to move forward into later trials. We are not guiding yet to—and by the way, so that is both for the healthy volunteers in the SAD and MAD, but then in, like, this confirmatory small cohort of SBMA patients at the end, we will also be doing those biopsies. We just are—I do not think we can guide right now to when we will have those results, but we will, since we just recently dosed our first patients, keep you updated. Operator: And your next question comes from the line of Michael Schmidt with Guggenheim Securities. Michael, please go ahead. Sarah (Guggenheim): Hey. This is Sarah on for Michael. Thanks so much for taking my question. I wanted to circle back to the pan-KRAS degrader. So you have spoken a lot about the preclinical data that you have seen, but wanted to ask when you might expect it to be IND-ready. And then as well, what your current view on the opportunity is in pan-KRAS, given that, I believe, we have recently seen, you know, first clinical data from another pan-KRAS agent. Thank you. Randy Thiel: Yeah, we have not talked yet about the exact timing for the clinic for pan-KRAS. So I will not give that guidance quite yet. But although, as you can see, we are continuing to put out data at multiple conferences there. So it is moving ahead well. In terms of the opportunity for pan-KRAS, you are right that there are other programs in this space for sure. Going back to the questions from—especially from Jonathan at the start, it is a place where we are certainly going to have to be differentiated. But we think that space is one where having multiple programs across G12D and pan will be helpful. Combinations with those and other agents will be important as we move forward. Anything else, Noah, that you would like to add? I think we have said what we can on the pan-KRAS opportunity for now. Got it. Thank you. Operator: And your next question comes from the line of Sudan Loganathan with Stephens Inc. Sudan, please go ahead. Sudan Loganathan: Hi. Thank you. First, wanted to say congrats to Randy for his continuing on Arvinas, but with this new role. Looking forward to working with you and the team as Arvinas kinda takes on this plethora of exciting new projects. My first question is, you know, as you move towards initiating the Phase 1b in PSP, what specific regulatory feedback are you seeking from the agency? Separately, is there any risk that regulatory feedback in PSP alters the development strategy or timeline for the PD program? And then finally, can you outline how you are thinking about the trial design evolution in both PSP and PD—endpoints, enrichment strategy, duration, and what constitutes registrational or credible data set in each indication. Randy Thiel: Right. Okay. Thanks for the multiple questions there, and thanks for the comments. Look, to get the Phase 1b started, it is your fairly typical moving it through the regulatory authorities. With our guidance of starting that in the first half of the year, you can presume we are moving forward there, and all is on track. With respect to, you know, data for PD versus PSP, Noah, I will ask you to comment there in terms of, you know, the development could affect each program. Noah Berkowitz: Right. So—in terms of the question was—there are two questions there, right? What is the—how can the regulatory feedback impact both programs? And then there were questions about enrichment strategy and things like that. So there is no—we are just outside of the U.S., filing the IND. Right? So even though we did all this work, we have not interacted with the FDA. And so there is an opportunity here, and I think it is more opportunity rather than risk, right, to speak to the FDA about these plans. So think of our IND as mapping out what we expect to do with our development, you know, with the first trial, and opening up this dialogue because the FDA knows a lot about PSP and PD, and we are hoping to get really good feedback. There are—the risk-benefit of drugs developed in PSP and Parkinson's disease are different. So we are going to start off with PSP. You know, the intent is to eventually have a conversation about Parkinson's disease also. I do not think that we are going to go into details on a call here about the Parkinson's development strategy, because we have only guided towards what we are doing in PSP today. But suffice it to say, once we clear these discussions with PSP, then the idea would be to start moving into conversation around Parkinson's disease. You raised the question about what could enrichment strategy look like. So in PSP, it is not going to be a biomarker or a biomarker enrichment, but there is going to be a patient focus. So we will be looking at patients that have PSPRS, you know, the more severe and symptomatic form, and aggressive form of the disease—I do not remember exactly, but I think they probably represent about 40% of patients with PSP. That would be our focus for enrollment in this study. And we are going to develop a strategy, and we will guide eventually towards how this gets expanded into the broader population or even if that is not necessary. In terms of Parkinson's disease, I think what folks can start anticipating is that we are doing a lot of work trying to understand what are the biomarkers that predict outcome in Parkinson's disease using existing sources that have had major investments and a lot of publications, such as the PPMI—so the Michael J. Fox Foundation–funded Parkinson's Progression Markers Initiative. And we are using that to help identify markers. Think of it—we can start now tying that in to the biomarker changes that we see in our healthy volunteer study and that we are seeing in our Parkinson's disease study. So we are at a unique competitive advantage, having the only degrader being developed in this space, and having already shared, at least in healthy volunteers, that we have biomarker movement that we could start correlating to prognosis in Parkinson's disease. And think of this as moving ahead into—you know, we will do that with our Parkinson's disease patients. And eventually this may lead to some patient selection strategies or analyses we can do in our studies. So cannot offer more guidance than that, but gives you a sense of where we could be headed. Operator: And our final question comes from the line of Tazeen Ahmad with Barclays. Esther, please go ahead. Luke (Barclays): Hi. This is Luke on for Esther. Thanks for taking my question. For 102 in PSP, since PSP, like, does not really have any disease-modifying therapies, everything just treats symptoms, what kind of clinical endpoints, even early ones, are you going to be looking for, and what are regulators looking for to really support that move into a registrational trial later this year? And for vepdegestrant, I guess, in trying to look at worst-case scenario, if you do not have a collaboration lined up by the PDUFA, do you have a backup commercial plan? Randy Thiel: Maybe I will take the second one on vepdegestrant and then pass back to Noah for PSP. Look, as I have said, we are moving ahead well on the partnership plans alongside our partners at Pfizer. And if that becomes an issue, certainly, we are well situated with Pfizer to address that question. As the process is moving along, it is less of a concern, but certainly something we have on the radar if needed. Noah, back to you on the PSP questions. Noah Berkowitz: Yeah. I think the gold standard in PSP where there have been attempts to develop symptom-modifying drugs but not necessarily disease-modifying drugs, is the PSP Rating Scale. So we would intend to use that in our regulatory—I am sorry, our, you know, submission-quality study down the road. It is obviously going to be used in the Phase 1b, which is not going to be powered to evaluate that fully, but look for—can identify trends between what is going on with biomarkers and that tool. And something else we include in all of our studies in these neurodegenerative diseases—we did it in our Parkinson's disease, and we will be doing similar type of work in the PSP studies, even the Phase 1b—is looking at things like eye movements or other type of, you know, indicators or surrogacy for function. Right? It is a rapidly evolving space where there are some markers—you know, markers of activity, of movement in the eyes, or of muscle movement—that may be predictive of clinical outcomes. These are not accepted as registration-quality tools yet. But they are things that we are incorporating into our studies because we think they could be very revealing. Operator: I think that concludes our question and answer session. I will now turn the call back over to Randy Thiel for closing remarks. Randy? Randy Thiel: Thank you very much, operator, and thanks to all on the call for all the good questions. I will close by just saying that now that we have positioned ourselves as a Phase 1 company, the priorities are clearly to move the trials along, produce some good data, and make decisions. Right? So as we do that over the coming months, we will look forward to keeping you all updated. Thank you all very much for joining the call. Operator: That concludes today's call. You may now disconnect.
Operator: Thank you for standing by, and welcome to the First Watch Restaurant Group, Inc. Fourth Quarter Earnings Conference Call occurring today, 02/24/2026 at 8:00 AM Eastern Time. Please note that all participants are currently in a listen-only mode. Following the presentation, the conference call will be open for questions, and instructions on how to ask a question will be given at that time. This call will be archived and available for replay at investors.firstwatch.com under the News and Events section. I would now like to turn the call over to Steven Marotta, Vice President of Investor Relations at First Watch Restaurant Group, Inc. to begin. Hello, everyone. Steven Marotta: I am joined by First Watch Restaurant Group, Inc.'s Chief Executive Officer and President, Christopher A. Tomasso, and Chief Financial Officer, Henry Melville Hope. This morning, First Watch Restaurant Group, Inc. issued its earnings release for the full year and 2025 on GlobeNewswire and filed its annual report on Form 10-K with the SEC. These documents can be found at investors.firstwatch.com. This conference call will include forward-looking statements that are subject to various risks and uncertainties that could cause the company's actual results to differ materially from these statements. Such statements include, without limitation, statements concerning the conditions of the company's industry, and its operations, performance, financial condition, outlook, growth plans and strategies, and future expenses. Any such statements should be considered in conjunction with the cautionary statements in the company's earnings release, and the risk factor disclosure in the company's filings with the SEC including our annual report on Form 10-K and quarterly reports on Form 10-Q. First Watch Restaurant Group, Inc. assumes no obligation to update these forward-looking statements whether as a result of new information, future developments, or otherwise, except as may be required by law. Lastly, management's remarks today will include reference to various non-GAAP measures, including restaurant-level operating profit, restaurant-level operating profit margin, adjusted EBITDA, and adjusted EBITDA margin. Investors should review the reconciliation of these non-GAAP measures to the comparable GAAP results contained in the company's earnings release filed this morning. Any reference to percentage growth when discussing the fourth quarter or full year performance is a comparison to 2024 and fiscal 2024, respectively, unless otherwise indicated. And with that, I will turn the call over to Christopher A. Tomasso. Thanks, Steve. Good morning, everyone. Thank you for joining us to discuss our 2025 results as well as our plans for 2026 and beyond. 2025 was noteworthy for First Watch Restaurant Group, Inc. and I am proud of our team's performance throughout the entire year. Our total revenue growth was more than 20% and same-restaurant sales grew by 3.6% with positive same-restaurant traffic. We also opened 64 new restaurants across the system. Our 2025 new restaurant class represents the most openings in our company's more than 40-year history and exemplifies the depth of our development pipeline and our ability to execute against our growth opportunity. As always, I want to thank our more than 17,000 employees nationwide without whom this would not be possible. I am particularly pleased with the results considering that, according to Black Box, industry traffic was negative and casual dining was only slightly positive as a result of macro environment pressure throughout the year. Despite the headwinds, our teams effectively executed on our growth strategies, and we excelled by focusing on controlling what we can control, and by playing the long game. For example, we successfully and patiently navigated through soaring commodity inflation early in the year. We were able to balance preserving the value proposition for our customers by carrying moderate pricing while still delivering restaurant-level operating profit margins of 18.5%, well within our targeted long-term range. To strengthen our performance in the third-party delivery channel, we enhanced our key partnerships with two primary goals in mind. First, to drive traffic in that channel, and second, to do so profitably. We achieved both. We also successfully launched our new digital marketing initiative to roughly one third of our comparable restaurant base, generating a positive return on our investments. The results were compelling in building brand awareness and driving traffic, and we are excited about rolling it out to a wider base of restaurants in 2026. Stepping even deeper into marketing and our focus on the customer, throughout 2025, we advanced our multiyear effort to enhance our paid marketing and customer analytics capabilities. Following disciplined testing in 2024, we deployed a more sophisticated marketing strategy across select geographies, and drove consistent increases in both aided and unaided awareness, and increased customer visits. These results have given us the confidence to expand the program further to the majority of the comp base in 2026, and we are excited to continue leveraging this evolving competency. Our marketing strategy is data and audience driven, with heightened personalization from what might not have been possible for us just a few years ago. We segment our markets using population data, market awareness, and competitive intensity. Our objective is to serve the right message to the right consumer at the right time, to nurture that relationship into a first-party connection and ultimately a restaurant visit. Tangible benefits have been realized from connected TV, online video, paid search, and programmatic digital that connects to households and transaction insights as well as our owned data. Along with our focus on staying top of mind is our obsession with delighting customers the moment they walk into our restaurants. This comes to life through our innovative seasonal menus, warm hospitality, and concerted effort to make days brighter. We are proud to see this focus pay off. And in 2025, our restaurants earned a range of awards and accolades that underscore the strength of our execution. We were pleased to be named to Yelp's Most Loved Brands, ranking number four among other highly distinguished and well-known consumer brands. This recognition validates that we have created a welcoming environment known for great food and great service. In the spirit of continuing to raise the bar, I am happy to announce that earlier this month, we rolled out a new core menu to all First Watch Restaurant Group, Inc. restaurants, the first significant redesign and reengineering of our menu in almost ten years. Our overarching objective with this redesign is to meaningfully elevate the experience for our teams and our customers. This effort again reflects the extensive feedback we have gathered over the past several years, reinforcing our commitment to continuous improvement and ensuring the long-term relevance of our brand. We added some of our most popular seasonal menu items to the core menu, including two dishes that feature a premium protein in the form of barbacoa. Steven Marotta: The barbacoa breakfast tacos, Christopher A. Tomasso: and my favorite, the barbacoa chilaquiles breakfast bowl. Other permanent additions include our best performing sweet item, strawberry tres leches French toast, and an additional shareable, the Holy Donuts. We know our customers will be excited by the return of these beloved items and will also appreciate the work we did to improve menu navigation and add common customer-requested add-ons. At the same time, we used this effort as an opportunity to address slow-moving items, eliminate single-use SKUs, and reduce complexity for our back-of-house teams. We are very optimistic about this initiative. In addition to improving our core menu, we also took the opportunity to elevate the design of our seasonal menu as well. With inspiration from our food ethos of “Follow the Sun,” we introduced more color, vibrancy, and thoughtful illustrations each season to better tell the story of our rotating menu and the innovative items that we introduced. Currently, we are featuring the chimichurri steak and egg hash, as well as the return of the bacon, egg, and cheddar sandwich, otherwise known as the BEC, served on thick artisan sourdough. Our new core and seasonal menu initiative is comprehensive and was vetted and tested for more than one year at a meaningful number of First Watch Restaurant Group, Inc. restaurants. One final marketing topic related to our delivery channel. As our industry has continued to rapidly evolve, we too have evolved. Christopher A. Tomasso: We are committed to meeting our customer where they are. Our delivery efforts in 2025 reflected that principle. And our digital marketing priorities illustrate our primary focus on the direct relationship with our customers. Our information indicates that the delivery occasion is largely incremental, but likely not always with a unique customer. Said differently, we believe consumers and our customers specifically seek a variety of occasions in their everyday lives, and by leaning into delivery, we are better positioned to stay top of mind for an eventual in-restaurant occasion. We continue to test and measure a variety of ways to grow our share of total occasions while driving positive margin dollars. Shifting to real estate development and growth. 2025 was yet another record-setting year, highlighted by our high number of openings and strong new restaurant performance. As a group, the 2025 restaurant class is exceeding our expectations, with first-year sales trends running 19% above their underwriting target. We also achieved the highest opening week sales on record at our Costner's Corner, Virginia restaurant, which generated more than $90,000 in first-week sales, reinforcing the strength of our model. In Boston, we followed our initial suburban entry with a high-profile flagship opening on Boylston Street in January, helping establish brand visibility in one of the most dynamic urban centers in the country. Our disciplined approach to market analytics and site selection allowed us to confidently enter five major markets in 2025: New England, Las Vegas, Salt Lake City, Boise, and Memphis, each of which represents a meaningful long-term growth opportunity for our brand. In fact, as a group, these markets as of today represent up to a 155-unit opportunity. Our class of 2026 restaurants are essentially scheduled and we are already deep into 2027 and 2028 site selection. We remain the fastest growing full-service restaurant brand in the United States and are exceptionally well positioned to build on our record performance. Our priorities for the year include deepening our presence in newly entered markets as we shift from market entry to market densification while continuing to strategically fill in core and emerging markets. We know and have demonstrated for many years that when we adhere to our disciplined, data-driven approach to site selection, we can meet and even exceed our investment return metrics. These plans, combined with the strength of our team and the proven effectiveness of our development strategies, give us confidence in our ability to continue to deliver sustainable, best-in-class growth as we march toward our target of 2,200 restaurants. Also, in 2025, we continued to make significant investments in our talent pipeline and leadership development, aligning with our strategic growth priorities. As I mentioned on last quarter's conference call, First Watch Restaurant Group, Inc. was named America's number one Most Loved Workplace by the Best Practice Institute for 2025, a recognition we also earned in 2024. And just last month, based solely on employee voting, we were named in Glassdoor's list of 25 Best Places to Work in Consumer Services in 2026. These accolades are welcome, but what matters most is that they represent direct employee feedback and experiences at First Watch Restaurant Group, Inc. Our general managers play a crucial role in our success. In 2025, we updated the GM job description to reflect a renewed focus on operational excellence and people development, providing robust tools, techniques, and best practices for managing employee development. This comprehensive approach ensures our restaurant-level leaders are empowered to nurture talent and maintain high standards throughout our operations. These initiatives, among others, further strengthen our organization as the results have made clear. Restaurant-level employee turnover declined in 2025 and we realized a 40% increase in applicant volume compared to the prior year. Looking ahead, industry data from Black Box continues to point to yet another challenging year, with their current outlook calling for a roughly 3% industry-wide same-restaurant traffic decline in 2026. Despite that backdrop, we remain confident that the initiatives we have put in place position First Watch Restaurant Group, Inc. to once again outperform the industry just as we did in 2025. We believe our disciplined execution and strategic investments will continue to drive market share gains in 2026. There is no one in our daypart with the combination of scale, operational acuity, proven growth, and total addressable market as First Watch Restaurant Group, Inc. In fact, with consideration to those attributes specifically, no one even comes close. We are the segment leader, and we will continue to increase our share. There is a lot to be excited about in 2026 and beyond, and we look forward to making days brighter for our employees and our customers every day. Christopher A. Tomasso: Now before I pass it over to Henry Melville Hope, I want to address the announcement we made this morning regarding Mel's decision to retire later this year. This transition to retirement is much deserved and will be well planned. Mel has been with First Watch Restaurant Group, Inc. since 2018 and was a critical part of our IPO in 2021. While he will certainly be missed, I am optimistic about our company's promising future and next steps related to his retirement, including an executive search that will start immediately. Mel will continue as CFO until we have a successor in place and onboarded. He also plans to stay on as an adviser into 2026 to ensure a completely seamless transition. Mel, I want to thank you for your dedicated service and partnership for all these years. We wish you and Trish nothing but the best in this next stage of life. And with that, I will pass it over to Henry Melville Hope. Thank you, Chris. That is very generous. I am proud and grateful to be a member of your team. And I am glad to play a role in facilitating a smooth transition. Let us return to the discussion of the company's performance. Total fourth quarter revenues were $316,400,000, an increase of 20.2% with positive same-restaurant sales growth of 3.1%. Our top line growth in the fourth quarter is attributed to positive same-restaurant sales growth and 179 non-comp restaurants, including the 78 company-owned new restaurant openings and the 19 franchise locations acquired since 2024. Same-restaurant traffic growth was negative 1.9%. Food and beverage expense was 22.9% of sales compared to 22.7%. As a percent of sales, costs benefited from carried pricing of around 5%, partially offset by commodity inflation of 1.1%. Excluding vendor contributions related to our 2024 leadership conference, which were reported in the prior year results, food and beverage expense, as a percent of sales for 2025, would have been lower versus 2024. Labor and other related expenses were 33.5% of sales in the fourth quarter, a 20 basis point improvement from 33.7% reported in 2024. Carried pricing offset the impact of 3.1% labor inflation in the fourth quarter while our labor efficiency was essentially flat compared to the fourth quarter last year. We realized restaurant-level operating profit margin of 19% in 2025, a 20 basis point improvement compared to 2024. Our income from operations margin was 2.9%. At $31,800,000, general and administrative expenses were 10.1% of fourth quarter revenue, which was a 160 basis point improvement versus the prior year. The favorability as a percent of total revenue was largely driven by the timing shift of our leadership conference and also benefited from levering certain home office expenses. Later on this call, I will share a bit of good news about our expanded equity compensation program. Adjusted EBITDA increased 38.7% to $33,700,000, a $9,400,000 increase versus the $24,300,000 reported last year. Adjusted EBITDA margin grew to 10.6% compared to 9.2% we realized in 2024. Our 2025 income tax benefit was $10,700,000 and includes a sizable non-cash benefit. Specifically, our year-end 2025 assessment of the future realization of the company's accumulating FICA tip credits was more favorable than in years prior. The recognition of our net deferred tax assets includes the effect of this year-end determination. Net income was $15,200,000 and net income margin was 4.8%. We opened 13 new system-wide restaurants during the fourth quarter, of which 12 are company-owned and one is franchise-owned. And we finished 2025 with 633 restaurants across 32 states. The net effect of acquisitions, which includes only the impact of purchases made within the last twelve months, increased fourth quarter revenue by about $9,000,000 and adjusted EBITDA by about $1.5 million, and full year by about $35,000,000 and $6,000,000, respectively. For further details on the fourth quarter, please review our supplemental materials deck on our Investor Relations website beneath the webcast link. Now I will provide our initial outlook for 2026. We are expecting same-restaurant sales growth to be between 1% and 3%. As a reminder, our pricing philosophy is such that we evaluate menu pricing at the beginning of the year and again around midyear with the objective of offsetting what we view as permanent inflationary pressures. We manage the business with a disciplined focus on sustaining same-restaurant sales growth while protecting the long-term health of the brand. Given our current outlook for commodity inflation and, importantly, in keeping with what we believe is in the best interest of our customers, we elected not to take any pricing at the outset of 2026. Therefore, our guidance includes carried pricing of around 4% in the first half of the year which blends to about 2% for the full year. We expect total revenue growth of 12% to 14% with around 100 basis points impact from acquisitions. We expect a total of 59 to 63 new system-wide restaurants including 53 to 55 company-owned restaurants and nine to 11 franchise-owned restaurants with three planned company-owned restaurant closures. Our company-owned new restaurant development pipeline is somewhat weighted to 2026, the fourth quarter in particular. We expect full-year commodity inflation of 1% to 3% driven by increases in coffee and bacon, partially offset by expected deflation in eggs and avocados. Restaurant-level labor cost inflation is expected to be in the range of 3% to 5%. Our adjusted EBITDA guidance range is $132,000,000 to $140,000,000 including the net impact from 19 restaurants we acquired in April which are expected to contribute about $2,000,000 to our adjusted EBITDA this year. We expect capital expenditures of $150,000,000 to $160,000,000. While we do not typically provide quarterly earnings guidance, we believe you may find a few considerations helpful to your models. We expect positive same-restaurant sales growth in each quarter of the year, including our third quarter when we will face our most robust comp comparison. Second, as it relates to the first quarter, we elected not to take price in January and experienced several weather-related disruptions during the month which reduced operating days in our comp base. And third, as noted on our last call, we held our leadership conference in January 2026 and accordingly expect G&A expense to be materially higher in the first quarter than any other quarter this year. Lastly, as was mentioned earlier, we strengthened the alignment of our operational senior leadership incentives with the interests of our shareholders by enhancing our equity-based compensation and expanding eligibility to include our divisional operators. These actions reinforce accountability across the organization and better position the company to attract and retain talented colleagues who drive results. The equity compensation program does not impact our adjusted EBITDA and the related accounting charges associated with the incremental non-cash awards will be recognized in G&A, which may limit our ability to leverage G&A this year. Four years after our IPO, I am proud of the results our company has delivered and we remain fully committed to driving similarly strong performance ahead. We have grown our system from 428 restaurants at the time of our IPO to 633 at the end of 2025 and nearly doubled adjusted EBITDA along the way. Compelling evidence that the growth strategy is working and that our execution remains both disciplined and consistent. These milestones reflect the strength of our model, the quality of our teams, and the momentum we have built. Our real estate and talent pipelines are the healthiest they have ever been, giving us confidence in our ability to achieve our growth objectives for both 2026 and beyond. And with that, operator, will you please open the line for questions? Operator: We will now be conducting a question and answer session. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. We ask that analysts limit themselves to one question and a follow-up so that others have the opportunity to do so as well. One moment, please, while we poll for questions. Our first question comes from James Ronald Salera with Stephens. Please proceed with your question. James Ronald Salera: Hey, Chris and Mel. Good morning. Thanks for taking our question. Christopher A. Tomasso: Mel, first of all, it has been great working with you. Congratulations on an incredibly successful career, and I wish you all the best, whatever comes up next for you. Henry Melville Hope: Thanks, Jim. James Ronald Salera: I wanted to maybe drill down a little bit on the commentary for FY 2026. I appreciate the commentary around pricing and how that should flow through the year. Can you just give us a sense for what you are underwriting for the industry for 2026 and kind of how your expectations layer on top of that? And maybe if you could also provide some color on the mix component of your tickets. Henry Melville Hope: When you say underwriting for the industry, I just think you asked me to speculate about the climate that we are going to be operating. Yeah. So I think that your guide kind of implies, you know, sort of down modest traffic for the industry, and you guys being, you know, in line to modestly better. Can you just, any details on that you could provide? Yeah. I think you know, Jim, I think there is reason to be cautious about the environment that we are operating in now. I think, historically, for our particular category and different cohorts of peer comparisons, against Black Box data, we seem to outperform that quarter over quarter. So, I do not expect that particular characteristic to come to an end, but I do think that the entire category has reason to be cautious here in February about what is going to ensue for the balance of the year. James Ronald Salera: And then mix as a component. I know you gave us some details on pricing, but just how should we think about mix progressing through the year? Would that be a relative headwind still or maybe some opportunity for that to turn positive? Henry Melville Hope: Yeah. In our guidance, we do not typically project where the different components would come out for the year. What you know, what we do with our same-restaurant sales is what we are guiding to is that 1% to 3% for the full year, and we will take a read on how we defend within that range as the year progresses. Christopher A. Tomasso: Jim, I can also give some insights there. I think we saw positive mix from our core menu test rollout. And so taking that to the entire system we believe we have some mix upside there, which was one of the consideration factors with not taking price in Q1 like we have in years past. And then on the Black Box, to be more specific, in my commentary, I talked about their current projection for the year is roughly a 3% industry-wide same-restaurant traffic decline. So as we have done in the past, we have outperformed the industry and that is kind of the position we are taking now. Mel is exactly right. There is a reason to be conservative based on what the industry-wide impact in Q4 specifically and even more specifically in December. But we have been able to outperform the overall industry, and there is no reason for us to believe that we will not do that again for 2026. Operator: Our next question comes from Jeffrey Bernstein with Barclays. Please proceed with your question. Jeffrey Bernstein: Great. Thank you very much. And I echo the congratulatory comments for Mel. Hope you get to enjoy retirement. Henry Melville Hope: Thanks, Jeff. Jeffrey Bernstein: Sure. My question is just on the 2026 unit growth looks like we are looking for maybe 9% to 10% net growth another long-term algo has been for many years kind of low double digits. I am just wondering you know, maybe how you think about the constraint to greater growth, whether it is real estate or people. It just seems like on an ever larger base, maybe before considering lowering the long-term guidance to maybe more of the high single digit range because the focus is really on getting the operations right. It is really not about the speed of openings considering you have so much runway ahead. So just wondering whether we should expect more tempered growth or whether there is some reason why 2026 might be a little bit more subdued? And then I had a follow-up. Christopher A. Tomasso: This is Chris. I think our long-term targets of around, you know, a low double-digit unit growth, we have exceeded that in the last couple of years. There will be ebbs and flows as it relates to that. The reality is the absolute number of restaurants continues to increase when you stick to that percentage. So we are always going to look at it in terms of what is best for the overall organization. The number one priority is the health and performance of the core system. And so as we continue to grow and that number continues to go up, we will monitor it and make sure that it is not putting any undue strain on the system. But I will say that, regardless of the actual number or the percent, we are delivering quality growth year after year. Our 2024 and 2025 NRO classes are delivering average weekly sales that are higher than their underwriting targets. And our comp base and the class of 2025 alone is 19% higher than their underwriting targets. So we are really focused on the quality growth and the number will ebb and flow, like I said, year to year. But I also think that is a good long-term target for us, and that is why we kind of restated that. Henry Melville Hope: This is a good time for me to just slip in here real quick that our earnings release was a little bit awkwardly worded about our new restaurant opening guidance, which was 59 to 63 net system-wide restaurants, and the net includes three restaurants that are company-owned that we expect to close this year. Jeffrey Bernstein: Understood. And my follow-up, Chris, in your prepared remarks, or I should say even in the press release, you talked importantly about the evolving digital marketing platform. I know it is more focused on direct marketing. But I just wondering if you could share maybe, since that seems like that is the biggest initiative for this year to drive comp, maybe greater learnings from the tests, the greatest opportunity this year, maybe the dollars spend, any kind of broad brush commentary you can share on the excitement around the evolution of that program? Thank you. Christopher A. Tomasso: Sure. Thanks, Jeff. I will let Matt talk about the specifics. But I just want to make it clear. I am excited about a number of levers we have this year. Marketing is certainly one of them. What we saw in the test was very, very encouraging to us, and we are excited to expand it to a majority of the system this year. I have to say I am just as excited about our new core menu rollout. When you think about the transformation of First Watch Restaurant Group, Inc. over the years and the acceleration of our growth, it came about ten years ago when we did a similar exercise. What we have seen in test there is also why I am encouraged about 2026. And, Matt, if you want to get some specifics on the marketing. Matt Eisenacher: Yeah. Sure. Hey, Jeff. It is Matt Eisenacher. So as Chris said, there is a variety of levers I echo his sentiment that we are really optimistic about the new core menu. Obviously, we are excited to be able to scale our marketing program from last year where we focused on particular geographies, and now we will be scaling that to the vast majority of our comp base. And it allows us to continue to use those things that worked last year and amplify those, starting to put more emphasis into video and driving awareness. Last year, we saw in those geographies an increase in both aided and unaided awareness. And so you have that and then the relaunch of all of our new digital platforms like our new app, you start to see how you can drive trial, then you have the analytics to be able to get more efficient with that media spend over the long term. So all of those things kind of play together. Operator: Our next question comes from Sara Senatore with Bank of America. Please proceed with your question. Sara Senatore: Thank you. Maybe just a couple of questions on the commentary about the comp expectations through the year. Not necessarily looking for kind of quarter-by-quarter guidance, but you mentioned that you expect comps to be positive in the first quarter even with the kind of weather, and I assume that is kind of calendar only as opposed to taking into consideration the current weather impact. But I just wanted to clarify as you think through the doors being closed, you know, presumably, traffic will be, you know, be ahead on which of five points of price. So, you know, I guess, is it safe to assume that it is sort of modestly positive? And then as you get through the year, you mentioned that the toughest compare in the third quarter, but I think your pricing implication was that price might be the low single digits in the second half of the year just given the average of around two. So, again, I wanted to understand kind of your confidence or how you are thinking about the drivers of traffic both with the headwind earlier in the year and then more difficult traffic compares at least in the third quarter. And then I do have one quick follow-up, please. Henry Melville Hope: So the full-year guidance at 1% to 3% already incorporates what we are seeing sort of in the current environment as you mentioned. We are deliberately guiding only to same-restaurant sales because we have different timing coming on board with regard to the new menu, with regard to rolling some fairly robust third-party delivery sales last year, and then just the general environment. So you know, a little bit harder for us to be confident in exactly what the cadence is going to be. But I do think that we are probably currently looking at, you know, maybe a more challenged quarter by weather than the rest of the year. And then we do have some, you know, it does get a little bit tougher in the third quarter. I will say that our year-to-date trends are improved versus December. And so, we believe we are on track to meet our annual same-restaurant sales guidance when you carry that forward. Sara Senatore: Okay. Thank you. So just sort of thinking about the cadence. I appreciate the color. And then just the follow-up was on the new, you know, the 2025, and I apologize if I have missed this somewhere. I know you mentioned you are 19% higher than underwriting targets. I know your sort of underwriting targets are, I think, the bar is a little bit lower than what we have been seeing in the past. So how do the AUVs compare, I guess, to previous cohorts to earlier years? Are you still seeing kind of increasing new unit volumes? And is that largely with kind of the size of the footprint or anything different there as you think about the returns on the new units? Christopher A. Tomasso: As you know, we have grown AUV significantly over the years. And just a reminder of our 2026 unit economics, you know, third-year sales expectations of $2,800,000. The 18% to 20% restaurant-level operating profit margins, you know, that we talk about, that penciling out to an 18% IRR and a 35% actualized cash-on-cash return. So yes, the AUVs continue to increase. So when we talk about you know, a class being higher than their underwriting targets, I cannot think of a year where that number has not been higher than the year before from an AUV and underwriting standpoint. So just healthy underlying growth for us on a new unit standpoint. As far as what is driving that, we have talked about the bigger footprints. We have not necessarily seen a correlation on size of the restaurant, per se, but we know that when we stick to our underwriting criteria, our site selection criteria, the data that we use, that it sets us up for success. And we have proven that year over year, and we feel that we will be able to do that in 2026 and and like I said on the call, or Mel said, we are well underway for 2027 and 2028. So if anything, growth is a strength for us, the unit growth and the performance. Again, it is quality growth. Operator: Our next question comes from Andrew Charles with TD Cowen. Please proceed with your question. Andrew Charles: Great. Thank you. And, Mel, best wishes for retirement. Hope the next chapter gives you more time for golf. Andrew Charles: Chris or Matt, on marketing, you guys talked about a positive return on spend. Can you help us understand what you are observing with the same-store sales outperformance at those one-third of stores that are utilizing marketing efforts versus the two-thirds that are not? And just really looking ahead, I think you said the vast majority of the comp base will benefit from marketing. How soon is that planned to scale? Is that more of a first half or a second half driver? Matt Eisenacher: Yeah. Sure. Happy to take those. So I think as we stated last year in those select geographies, we did see a several hundred basis point lift in traffic, pre/post test-control. And so we would be applying the same playbook and strategies to this year, with a couple optimizations. So it is not like we are deploying radically different strategies than we did last year. We are just scaling it to more restaurants. To your second question on the cadence of the spend, we actually just started moving into markets. Obviously, that takes time to build. And like last year, that will extend throughout the year. We do try to align that with our seasonality. So you can think about the spend following our seasonality. So, obviously, you probably have more in the back half of the year, and then would taper down as you go throughout the rest of the year. Andrew Charles: Okay. And then, Mel, if you could just help us understand the cadence of commodity and labor inflation as we think about 2026. I was thinking on the commodity side, theoretically, you should see more tame first half of the year just given what you are lapping over. On the labor side, you have the Florida minimum wage increase going on for September 30, but any help on the cadence there would be helpful. Henry Melville Hope: I think that we expect the inflation to be somewhat higher in the second half of the year, so quarters three and four, than we are experiencing right now and in the second quarter. Operator: Our next question comes from Jon Michael Tower with Citi. Please proceed with your question. Jon Michael Tower: Thanks, and Mel congrats. Maybe starting off, Chris, you had mentioned, obviously, the new menu, or the core menu improvements you are excited about. I think you had talked about even ten years ago or so, seeing some fairly strong growth post changes. So I am curious, from obviously hitting on things that consumers want more of, are there actual operational improvements as well? It sounds like you reduced some of the SKUs, but should we expect, you know, better speed of service, any other benefits that you could speak to from this core menu enhancement? Christopher A. Tomasso: Yeah. A lot of those efforts we talked about a lot in 2024 and 2025 with the back-of-house improvements, improving our throughput, especially during peak sales hours. The efforts around the menu will definitely deliver some efficiencies like I talked about. You know, removing some single use item SKUs. Bringing back some of these favorites and things that the teams have executed before as seasonal menu items. So there is a muscle memory there that will help them execute that. But, really, this is much more heavily weighted toward the consumer side and the appeal and bringing back some of these favorites. But it does it does have some back-of-house benefits like reducing prep time and things like that. But that was not the main focus. Jon Michael Tower: Got it. Makes sense. And maybe just kind of flipping to the backdrop, curious, in your guidance for the year, Mel, how you are thinking about tax refunds and how that might be impacting your business? Or asked differently, in the past when you have seen elevated tax refunds, how has the business responded? Henry Melville Hope: Yeah. That is interesting. Historically, we have believed that our typical customer does not react necessarily to tax refunds in terms of attendance in our restaurants. But we are certainly aware of it, and it is just going to be easier for us to read after it occurs. But our customer demographic tends to skew a little bit higher on the household income scale. And as a consequence, we have oftentimes been a little bit insulated from certain cost pressures in terms of going down, and when there is a windfall or tax refunds, we may not benefit quite as much as you see in quick service restaurants. Jon Michael Tower: Great. Thanks for taking the questions. Operator: Our next question comes from Andrew Marc Barish with Jefferies. Please proceed with your question. Andrew Marc Barish: Hey, guys, and congrats, Mel. Just trying to frame up how we should think about the delivery business within the context of your guidance? I know I have seen some free delivery offers and things like that. Can you maintain sales in 2026 versus the big growth that you saw in 2025? And one quick follow-up as well. Christopher A. Tomasso: Sure. Andy, this is Chris. Obviously, we have been really pleased with our progress in this channel over the past year. Our teams worked really hard to create a true partnership with those vendors that we work with. And so we are happy with the third party where it is and direct off-premise as a percentage of our overall mix. And, we are not specifically commenting on future traffic assumptions in that channel. But we also did not fund free delivery. I mean, it was a much deeper partnership on how we got together and aligned on goals. It really is about transactions for both of us and then margin for us. And we achieved both of those, and we will continue to work to build on that. Andrew Marc Barish: Gotcha. And then on the new unit growth, so just want to be clear. On the company-owned side, it will be 56 to 58 gross and then the three closures that had been primarily contemplated? Henry Melville Hope: That is right. Andrew Marc Barish: Okay. And is the kind of market densification, I guess, implying you are not going to go into five new major markets as you did in 2025. Is there a little bit of an NRO margin benefit that we should see? Or is it not as material just given the size of the company now? Christopher A. Tomasso: Are you talking about, when you say margin benefit, can you expand on that? Andrew Marc Barish: Yeah. Just densifying existing markets, which is obviously positive, and not going into, I am presuming, as many new markets, which is also obviously positive as it takes a little time to ramp margins in those newer markets. Christopher A. Tomasso: Yeah. If you will recall, we have very similar performance for our NROs across geographies. So that is not really a large consideration. Where that really shows up, though, Andy, is in pre-opening costs and training costs. If we do it in a core market, we can pull trainers and staff from around the region. Whereas if we are going remote like we did in Las Vegas or when we entered Boston or New England, the pre-opening costs are higher. But the margin performance is pretty similar across geographies and the maturity of the market. Henry Melville Hope: Hey. And, Andy, I think I misspoke in response to your question. The range of new company restaurants, which is what I think you were asking about, is net of the three closures that we expect to execute this year. So that range at 53 to 55 is the net range. So it considers the closings. Andrew Marc Barish: Okay. Thank you. Sorry about that. Operator: Our next question comes from Todd Morrison Brooks with Benchmark. Please proceed with your question. Todd Morrison Brooks: Hey, thanks. And, Mel, I add my congratulations on your upcoming retirement. Couple more follow-up type questions here, but wanted to dig in on the enhanced marketing efforts, and correct me if I am wrong, but my understanding of the focus in 2026 in the test kind of third of the base was finding breakfast daypart users that were not necessarily First Watch Restaurant Group, Inc. customers and stimulating them to try the brand. Was that the case for the entire year? And is there another lever that gets pulled as you broaden the program out where we actually use the enhanced marketing efforts into the existing First Watch Restaurant Group, Inc. customer base in an effort to drive additional frequency there as well? Matt Eisenacher: Yeah. Hey, Todd. It is Matt Eisenacher again. So it is a good question. What I was saying, we are really taking the playbook of what we saw work last year and applying that this year. The strategy would be the same as you stated where we are using information and customer data to target those that are already active in the breakfast daypart. We are still in the early stages of a marketing lever here at First Watch Restaurant Group, Inc., and so we see that as a responsible way to be efficient with our dollars. Now, again, if you look many years out, eventually, you can start to move outside and start to grow the overall occasion. But, as we all know, that could be a little bit more difficult. So we are, for this year. And, yes, to answer your question, that was the focus all of last year as well and will be this year as well. Todd Morrison Brooks: So, Matt, any pivot to some of the effort being against existing First Watch Restaurant Group, Inc. customers versus just overall category users, or does that measure of overall category users include your existing customer base? Matt Eisenacher: Yeah. So as we talked about before, we apply different strategies, channels, and creative if we have not seen you before or if you are part of our customer base. If we are trying to introduce the brand to you, we want to establish that we are a great place for everyday breakfast. As we start to get more information on you, we will start to pulse through our seasonal menu program, given that you know who we are. So we have a variety of segmentations and cohorts, and our first-party audience is part of that as well. Operator: Our next question comes from Brian Hugh Mullan with Piper Sandler. Please proceed with your question. Brian Hugh Mullan: Hi. Thanks. I would just like to echo, Mel, congrats on the retirement. Henry Melville Hope: Thank you. Brian Hugh Mullan: So question, no problem. Can you just comment on what you have seen lately across the dayparts, between weekday breakfast, weekday lunch, and the weekend business? Just curious if there are any notable differences or if they are more behaving similarly, and how you expect those to behave in 2026. Christopher A. Tomasso: So we talked about, I think, on the last call that we saw strength in the weekday breakfast segment, and we certainly saw that in Q4 and all of last year. And then in Q4, also, weekends also slightly outperformed. Sorry. Not just Q4, but also for 2025 as well. So whereas we saw some weakness, I think, back in 2024 in weekday breakfast, we recovered that in 2025. Specifically. Brian Hugh Mullan: Okay. Thanks. And then, follow-up, just menu innovation, just high level, the beverage offerings. Just wondering what the team is working on, if anything, and what the biggest opportunity is over the next few years. Christopher A. Tomasso: Yeah. The beverage category for us continues to be a big driver. We launched our fresh juice program, I think, almost ten years ago now, and it still continues to blow us away at the mix of those items. We have a new juice on every seasonal menu. And, thoughtfully, over the years, we have added a couple of those juices to the core menu. We have also innovated around cold, carbonated beverages, which is now a permanent part of our menu. And those do well. So absolutely looking at the beverage category as an opportunity, in addition to the alcohol platform that we rolled out a couple years ago. So we see opportunity there in our innovation pipeline. Operator: Our next question comes from Gregory Francfort with Guggenheim Partners. Please proceed with your question. Gregory Francfort: Hey, thanks for the question. I guess my first question is just on the pricing. I think you guys evaluate pricing twice during the year. And I am just wondering, as you looked at the guidance, what you embedded? I guess there is no incremental pricing in the first half, but do you embed an assumption for a pricing increase in the second half? Christopher A. Tomasso: So we talked about the carried pricing that will end up being 2% blended for the year. But honestly, for our same-restaurant sales guidance, the 1% to 3%, it is really based on a combination of a number of potential impacts this year that we may not have had in years past, and a number of levers that we have, whether it is the new core menu, the increased marketing activity, mix upside from our seasonal menus, and pricing is one of those levers as well. But we will look at that and see where we are midyear and make that decision. But I think, based on the consumer environment right now, and doing what is right for the customer, that is why we elected not to take any price at the beginning of this year. Henry Melville Hope: In other words, we will not make that call until the second quarter. Gregory Francfort: Oh, okay. Got it. And then just on your margin outlook, I think the implied assumption is maybe just a little bit under 19% for the year. What would it take, I guess, to get back towards the high end of the 18% to 20% long-term range that you guys have targeted? Maybe in 2027 or 2028? Henry Melville Hope: Thanks. There is a lot of influence on the overall margin based on the number of juvenile restaurants that we have in the mix. So our legacy cohort, the comp cohort, consistently delivers 200 or more basis points above the consolidated average. And then because we have such high-volume new restaurants that are getting to mature margins, they currently are on the road to that. They have an impact on the margin and it is outsized because their sales are so large. They tend to over-index on the average. So, really, probably the immediate driver to get margins, as you said, to the upper end of the range would be to accelerate the growth of the more juvenile restaurants in terms of their margin production during the year. And we see a lot of opportunity in that, but also there is sort of a natural curve when you have a new restaurant and have new crews, and you are operating in new areas. We press to get them to mature margins as swiftly as possible, but they also have a life cycle and we do not want to tarnish the customer experience by being too hasty. Christopher A. Tomasso: And, Greg, I think if you think about our philosophy of pricing to defend margins, if there ever was a year where that was challenged, it was last year, and we were able to deliver 19% margins in Q4, 18.5% for the year, right smack in the middle of that range. And so we have got some relief, hopefully, this year on the commodity side. But I think our ability to hit in that range and our history of doing that is well documented, and I think we will continue to be able to do that when we leverage our philosophy. Operator: As a reminder, if you would like to ask a question, please press 1 on your telephone keypad. Our next question comes from Brian Michael Vaccaro with Raymond James. Please proceed with your question. Brian Michael Vaccaro: Thanks. And, Mel, congrats on your retirement. I am still going to email you on egg inflation, so I hope that is okay. Henry Melville Hope: Good. I am here. Brian Michael Vaccaro: But just two quick ones for me. On the G&A side, you have leveraged that line, I think, about 60 bps in 2025. And you did mention the new executive comp plan as well. So could you just level set or give us a ballpark on your G&A in 2026 just to make sure we are all on the same page? Any guardrails you could provide there? Henry Melville Hope: So we do not guide to G&A, but I would say that we continue to expect to lever our cash-based G&A as we continue to grow, and the non-cash piece is what would be challenged in order for us to overcome the increase this year. But we will try and communicate that clearly as we publish our results going forward so that people understand how we are looking at that cash-based leverage. Brian Michael Vaccaro: Okay. Alright. Thank you. And on the commodity inflation outlook, the up 1% to 3% for the year, maybe just unpack that a little bit further, just kind of the puts and takes, what that might embed for eggs or other key commodities. And I guess the other question I had, as you lap, I think, around 8% in the first half, and obviously, you finished with close to 1%. But as you lap that 8%, are there any quarters that you would expect to see deflation on a year-over-year basis? Henry Melville Hope: Among some of our commodities, I do expect that we are going to see some deflation. We are deflating on avocados. But we have not seen a lot of relaxation in the inflation in terms of our coffee or our pork prices at this point. So we do have some favorability in a couple of big things. Still having to wait out what is happening with the market on a couple of others. Operator: We have now reached the end of our question and answer session, which concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to the Shoals Technologies Group, Inc. Fourth Quarter 2025 Earnings Conference Call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Matthew Tractenberg, Vice President of Finance and Investor Relations for Shoals Technologies Group, Inc. Thank you. You may begin. Thank you, Karina. Matthew Tractenberg: And thank you everyone for joining us today. Hosting the call with me is our CEO, Brandon Moss, and our CFO, Dominic Bardos. On this call, management will be making projections or other forward-looking statements based on current expectations and assumptions, are subject to risks and uncertainties, and should not be considered guarantees of performance or results. Actual results could differ materially. Those risks and uncertainties are listed for investors in our most recent SEC filings. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's fourth quarter press release for definitional information and reconciliations of historical non-GAAP measures to the nearest comparable GAAP financial measures. Please note that the slides you see here are available for download from the Investor Relations section of our website at investors.shoals.com. With that, let me turn the call over to Brandon. Thank you, Matt, and thanks to everyone joining us on the call. Brandon Moss: I will begin by sharing key results from the fourth quarter and our full year key wins and milestones. We will then discuss the current demand environment and review progress on our strategic growth initiatives. Dominic will dive deeper into the fourth quarter results and provide our first quarter and full year 2026 outlook. We will finish the call with questions from our analysts. Fourth quarter revenue was in line with our expectations, approximately $148 million, up 38.6% over the prior-year period. Our commercial team also drove significant growth in our book of business, adding approximately $175 million in new orders in the period. This resulted in a company record backlog and awarded orders, or BLAO, of approximately $748 million, an 18% year-over-year increase. We delivered a seasonally strong book-to-bill of 1.2 this quarter, which continues to support the growth we see in 2026. As of year end, approximately $603 million of our BLAO has shipment dates in the upcoming four quarters, or full year 2026. We are set up very well for another successful year of growth. Commercially, we are achieving our objectives of growth diversification. Profitability, however, was softer than anticipated in the fourth quarter. Our fourth quarter adjusted EBITDA of approximately $30 million grew by 15% year over year, representing 20.4% of revenue. This was largely driven by higher legal expenses, the ongoing impact of tariffs, product mix, and high labor and shipping costs in the period. As we discussed with you last year, we see very strong underlying demand drivers across the markets we serve. This, when paired with the incremental capacity we will have at our new facility, warrants a more flexible, agile approach to how we determine which projects and which customers to engage with. Opening the lens with which we look at the opportunity set to drive higher revenue in 2026 and beyond while remaining within a reasonable margin range will ultimately result in higher profit dollars and free cash flow, which will be reinvested back into the business. This approach removes self-imposed constraints, enabling us to make the right decisions for the long-term health of the business. Again, I am very proud of our performance in 2025. It was a busy but exciting year for us. After a challenging 2024, we came back strong and grew top-line revenue by 19%, exceeding our initial expectations and long-term range shared with you at our 2024 Investor Day. Our U.S. utility-scale solar business grew by almost 11% for the full year, accelerating in the back half of the year and growing 30% when compared to 2024. International revenue expanded from less than $1 million in 2024 to approximately $13 million in 2025. Our CC&I and OEM businesses exceeded expectations, and we have laid the foundation for our BESS business that is poised for rapid growth in 2026. Engaging with our customers, we introduced multiple new products in 2025, effectively expanding our addressable market and capturing additional share. We continue to diversify our customer list to include several new EPCs. For example, in 2023, we had three customers that accounted for less than $6 million of revenue. Today, those same customers account for almost $140 million of our BLAO. And we have made big meaningful operational changes as well, including our ongoing move into a consolidated state-of-the-art manufacturing facility. This will enable critical improvements to productivity and scalability as we continue to grow and diversify our business. Given the industry growth we see, it could not happen at a better time. During the year, we also completed remediation for all reported instances of the defective Prysmian wire. This effort was funded through our own cash flow and reinforced our commitment to customers that we stand behind our products and services. So in summary of the full year, we are pleased with our performance. We have come a long way in the last few years. Our strategy of protecting and growing our core business while diversifying our offering and exposure to end markets is yielding results. Our focus on improving our operating capabilities while maintaining the commercial momentum you have seen is how we intend on driving attractive returns for our shareholders. Turning to our various business lines, I would like to provide some context to our performance in the fourth quarter. The fourth quarter was another strong period of growth within our core utility-scale solar market. Our quote volume in the quarter exceeded $700 million of unique projects, adding to our strong pipeline. Note that these are projects that would generate revenue in 2027 and beyond, further supporting our long-term growth trajectory. And also related to the core U.S. utility-scale solar market, in early 2025, Shoals brought a second patent infringement case against Voltage before the U.S. International Trade Commission utilizing our new and expanded patent portfolio. While the legal process will likely continue for another quarter or two, we are very pleased that the court recently issued its initial determination in our favor. It is a great first step, and we will remain patient for the Commission's final ruling in early June. I am also encouraged by the progress we are making in international markets as evidenced by our increased quote activity and customer engagement. The products introduced in 2024 are generating interest with key decision makers, while our experience and reputation for quality is winning projects. We recognized approximately $13 million of revenue in 2025 from international projects and have a record $90 million of international BLAO, which will drive continued growth in 2026 and beyond. Our community, commercial, and industrial, or CC&I, business is performing well. We are engaged with large, well-respected electrical distributors that are driving meaningful quote volume increases. Our OEM business is tracking ahead of expectations, growing at 47% for the full year as our partner continues to see strong demand for their panels. We expect to continue in 2026 with another year of attractive growth. We began disclosing our BESS backlog and awarded orders last quarter, which at the Q3 stood at $18 million. That information was designed to provide a starting point that you can use to track our progress against a rapidly evolving market opportunity. I am excited to share with you that as of year end, we have $67 million in BLAO, a testament to the upfront engineering competencies and future manufacturing capabilities Shoals offers. We would expect more than half of this amount to be recognized as revenue in 2026. We continue to invest in scalable production capabilities for BESS. We expect our first new production line to be operational within the coming weeks. And I am pleased to announce a partnership with ON Energy, a leading developer of advanced power systems for grid-safe data centers. Together, we will address a fast-emerging constraint for AI-driven infrastructure: securing resilient backup power at scale, while enabling data centers to operate as grid-interactive and firming assets. Our partnership brings together two U.S. innovators with complementary strengths in power architecture and execution. ON Energy will pair its medium-voltage uninterrupted power supply systems with Shoals advanced DC recombiners to deliver a solution for AI data centers that accelerates deployment timelines, safeguards operational continuity, and future-proofs energy infrastructure. 2025 saw a return to growth at Shoals. Our markets have been resilient, and our competitive position continues to improve. We have entered new markets with new products, made meaningful progress on our legal actions, and began our move to our new consolidated facility. While the regulatory landscape has been distracting to many, we remain focused on executing our strategy. With that, I will now turn it over to Dominic, who will discuss our fourth quarter results in more detail and our outlook for the first quarter and full year 2026. Dom? Dominic Bardos: Thanks, Brandon, and greetings to everyone on the call. Turning to our fourth quarter financial results, revenue increased by 38.6% year over year to $140.3 million. The increase in revenue was primarily driven by higher domestic project volume from both new and existing customers. In addition, as Brandon mentioned earlier, our strategic growth channels of international, CC&I, and OEM contributed to year-over-year revenue growth in the quarter. Gross profit was $46.9 million compared to $40.2 million in the prior-year period, an increase of 16.7%. Our GAAP gross profit percentage was 31.6% compared to 37.6% in the prior-year period, and lower than we anticipated. We estimate that fourth quarter gross profit dollars were impacted by $2.1 million of incremental tariffs and logistics costs, $2.5 million of additional labor to support new products packaging and delivery requirements, and $0.5 million of additional plant overhead expenses, partially offset by higher volumes. These items negatively impacted our fourth quarter gross profit percentage by approximately 350 basis points versus our expectations. While you have heard us consistently communicate our long-term aspirational goal of 40-plus percent gross profit percentage, we were very clear in 2025 regarding our expectations of gross margin percentage to be in the mid to high thirties. In the long run, we continue to believe that a company like Shoals, who delivers highly customized and engineered-to-order solutions, deserves an attractive return profile. But we must also balance those aspirations with the real market opportunities we have in front of us today. Part of the transformation you see at Shoals includes a renewed focus on innovation, flexibility, productivity, and the maximization of cash flow. The top-line strength we drove in 2025 and to continue in 2026 is in part attributable to a larger opportunity funnel consisting of both traditional and newly introduced products, and a more flexible and customized approach to how we package and ship our solutions. Our strategy of driving incremental operating profit and finding balance between growing the business and driving profitability is one of the most important decisions we can make. And I believe we are doing the right thing. In the long run, the scale and leverage we will get on those incremental projects will allow us to continue to invest, diversify, and grow. The flexibility to make these important trade-offs to maximize profitable growth and ultimately create shareholder value cannot be done with a focus on a single profit percentage metric. For these reasons, for the foreseeable future, a gross margin percentage of low to mid thirties will provide us with the flexibility to win new customers, deliver new products, enter new markets, and continue the transformational journey we are on today. Moving on to selling, general, and administrative expenses. SG&A was $27.3 million, which is $5.8 million higher than the prior-year period, driven by increased legal expenses, partially offset by a reduction in stock-based compensation. Please note that in 2025, we spent a combined $30 million on legal professional services, an increase of 100% over the prior year. Recall that $18.3 million 2025 legal expense related to the case against Prysmian is identified and backed out of adjusted EBITDA. While these elevated legal costs impacted our results in 2025 and will continue in 2026, they will not occur in perpetuity, and we expect them to decline in 2027. Income from operations, or operating profit, was $17.4 million compared to $16.5 million during the prior-year period. Operating profit margin was 11.7% compared to 15.4% a year ago. Net income was $8.1 million compared to net income of $7.8 million during the prior-year period. Adjusted net income was $17.5 million compared to $14.1 million in the prior-year period. Adjusted EBITDA was $30.3 million compared to $26.4 million in the prior-year period, representing 14.7% growth. Adjusted EBITDA margin was 20.4% compared to 24.7% a year ago, driven primarily by lower gross margin flow through. Adjusted diluted earnings per share of $0.10 was 22% higher than the prior-year period. I now want to provide more color on what is driving the shift in profit percentages going forward so you can understand the gives and takes, what we can influence, and what are more macro in nature. Let us start with tariffs. While our intent was to broadly pass them on to our customers, in several cases, it does not appear to be possible at this time. We estimate tariffs had a $3.7 million impact to COGS in 2025, or an 80 basis point impact on consolidated full-year gross margin percentage, heavily weighted in the second half of the year. While this issue is uncertain and rapidly evolving, at this time, our guidance incorporates a similar tariff impact in 2026. We also began our move into our new consolidated factory in late 2025. While this is a huge undertaking, the full economic benefits will not be felt for some time. There are redundancies, additional training, setup, and processes that need to be redesigned and implemented. These initial inefficiencies are incorporated into our 2026 guidance and will be reversed over time as we increase throughput and drive lean process improvement through our manufacturing organization. This was the right strategic decision that will provide the capacity we will need for years to come. As we have stated in recent quarters, our plan is to be fully operational in the new facility by the middle of this year. You are likely familiar with the three legal actions currently in play at Shoals: litigation against Prysmian for defective wire, the related shareholder class action and derivative lawsuits, and the ITC case and subsequent district court case against Voltage. The cost for the defective wire case, both in terms of legal expenses and product replacement work we have done since 2023, is shown in our filings and adjusted out of our non-GAAP EBITDA results. However, the legal expense for the two remaining actions has not been called out specifically, and so investors may not appreciate the impact or timing of them. As a result of the expected elevated legal costs in 2026 related to these actions, we will provide investors with additional visibility. In 2026, we will also adjust EBITDA for the spend on the class action and derivative lawsuits. Our communicated strategy of defending share within our core markets and expanding our reach through new, innovative products that solve customer problems has yielded tangible results. It has enabled revenue growth of 19% in 2025, and an acceleration in 2026. While they have been well received by many new and existing customers, not all are accretive to gross margin percentage. Some expand our total addressable market, which opens opportunities by increasing the value to developers and EPCs. Evolving from offering a narrow product set to a diversified portfolio that resonates with a broader customer set will take time and patience, but it is the right thing to do for our customers and shareholders alike. Operationally, we consumed $4.1 million of cash in the fourth quarter, driven by higher accounts receivable and inventory balances at year end, and partially offset by higher accounts payable and higher deferred revenue. On a year-to-date basis, we have generated $17.1 million in operating cash flow. Free cash flow was negative $11.3 million in the fourth quarter, reflecting both the $7 million impact of remediation costs and elevated capital expenditures related to our new facility. These two items impacted free cash flow by a total of $14.2 million in the quarter. Our balance sheet remains high quality, and we ended the quarter with cash and equivalents of $7.3 million and net debt to adjusted EBITDA of 1.3 times. Our net debt was $129.4 million, a slight increase over the prior quarter. Backlog and awarded orders ended the fourth quarter at a record $747.6 million, a sequential increase of $26.7 million. Backlog constitutes $326.2 million of the total BLAO, providing us with confidence that the growth projections we have for the upcoming periods can be achieved. As of December 31, $603.4 million of our backlog and awarded orders have planned delivery dates in the coming four quarters, with the remaining $144.2 million beyond that. So turning now to the outlook. For the quarter ending 03/31/2026, the company expects revenue to be in the range of $125 million to $135 million, representing 62% year-over-year growth at the midpoint, and adjusted EBITDA to be in the range of $16 million to $21 million, representing 44% year-over-year growth at the midpoint. Turning to the full year. As we enter the year with $603 million of backlog and awarded orders currently expected to ship in 2026, we remain mindful of the elements beyond our direct control. Similar to last year, we estimate the volume of projects that might be delayed out of the year as well as the volume of projects that we can still add to the calendar year. For this year, we need to also incorporate our new BESS customers and product delivery schedules that are dependent upon totally different factors than our utility-scale solar projects. As a result, our expectations for revenue is a range slightly below the $603 million backlog and awarded orders on the books at year end. We believe this range to be reasonable and achievable. Therefore, for the full year 2026, we expect revenue between $560 million to $600 million, representing year-over-year growth of 22% at the midpoint, and adjusted EBITDA in the range of $110 million to $130 million, representing year-over-year growth of 21% at the midpoint. In addition, for the full year, we expect cash flow from operations in the range of $65 million to $85 million, capital expenditures in the range of $20 million to $30 million, and interest expense in the range of $8 million to $12 million. With that, I will turn it back over to Brandon for closing remarks. Brandon Moss: Thank you, Dominic. As we enter the new year, I reflect on where we have come from and look ahead to where we are going. The broader U.S. market appears to be extremely resilient. Our customers are busy moving projects forward, and we remain committed to meeting their needs. As we have discussed, the need for new energy supply is real. The massive investment cycle in AI and data centers combined with the continued industrialization and onshoring of manufacturing will drive load growth far in excess of what we have seen in recent decades. Solar is still best positioned to meet these rising energy needs today and through the balance of the decade. While industry growth forecasts vary greatly, in our view, sustained solar capacity additions are the most likely outcome. We are preparing Shoals to be agile in our production capabilities in a stable or growing demand environment. In 2026, Shoals celebrates its thirtieth year of doing business. It also marks five years since becoming a public company. Since our IPO, our annual revenue has more than doubled from $213 million to $475 million, generated more than $220 million of cash flow from operations that has been reinvested in the business, and we have maintained market leadership by a wide margin. We have built a company with a strong foundation on innovation and quality, and to fully achieve what we know we are capable of—transforming the company from a narrow product offering in a single market and geography to a more diverse and durable business—meaningful change will continue to occur. And today, we are in an exceptional position from both a commercial and operational perspective. The strategic plan we constructed and process improvements we have implemented have begun to yield tangible results. We have protected and grown our core markets. We have reignited the innovation engine. We are building new businesses in new markets that expand our total addressable market while aggressively diversifying our market and customer exposure. We have invested in the right physical assets, including automation and technology, that will drive productivity for years to come. And we have assembled an experienced team of business leaders that will enable us to continue the transformation of Shoals. These changes are both critical and deliberate and come at a time where the world is struggling to keep up with energy needs both here and abroad. The long-term secular tailwinds are intact and strengthening. We are very excited about the trajectory of our business and the markets we participate in. We want to thank our shareholders and customers for their continued trust and our employees for their hard work and dedication. Operator, we are now ready to take questions. Operator: Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Your line is open. Please go ahead. Brandon Moss: Hey. Can you guys hear me okay? Yes, sir. Sure can, Julien. Loud and clear. Hey. Top of the morning to you guys. Thanks, Brad. Julien Dumoulin-Smith: So just a couple questions here to hit it off. First off, just in terms of book and book and bill in the year, just when you think about setting that bench here for top-line revenue for 2026, how are you thinking about how much you could actually book in this new environment? You guys made some comments on that in the prepared remarks. And then related here, can you comment a little bit about seasonality? What else is going on when you think about this new, you know, this new set of that you are alluding to here? Just it seems like a very conservative benchmark given what you are coming into the year with and where you are setting your full-year revenue numbers at. And I have got a I will throw you a quick follow-up on that just in terms of BESS. What is the what is the right order rate when you think about the trajectory of continue to add backlog? Pretty impressive, you know, Q4 over Q3. Brandon Moss: Thanks, Julien. Great questions. I will start with the first. When we think about our book-and-turn business, historically, last year and even the prior year in 2024, I mean, it is reasonable to think that $50 million to $70 million in book-and-turn business is probably a pretty reasonable number to think about. And you know, what we have got to keep in mind this year is we are still in an environment where there is some level of uncertainty, but we did not see that level of uncertainty materialize in 2025 still exists in our current landscape. So we want to be prudent about our guidance. Additionally, as we have taken on new customers, you know, they have got different expectations, different project delivery schedules than we have experienced in the past. So we wanted to incorporate that in our guidance. And additionally, as we diversify our business into new products and markets, and you know, those products have yet to deliver yet, we want to make sure that we have given ourselves some room there as well in our guidance. So as it relates to the order book specifically to BESS, as we have mentioned in the past, the bookings for this particular business could be lumpy. They are large projects in nature. And we are very excited about the $67 million of backlog and awarded orders. We have effectively 4x-ed in our bookings number from last quarter. But we think that the bookings there could continue to be lumpy while revenue recognition, once we get going with our new production line here in the coming weeks, will probably be more stable. Julien Dumoulin-Smith: Got it. So this is really just what is it about the business backdrop that you would, if you could just elaborate quickly, that gives you that pause on right as the translation to revenue this year. Is there anything about the environment in particular you want to stress, or it is just truly the nature of new customers here? Brandon Moss: Yeah. I think it is just the nature of the new customers in our traditional solar business. We want to be mindful that they may have different project patterns than our historical customers and just give ourselves room, Julien, to make sure that that book-and-turn business either supersedes any project delays or potentially overcomes project delays. If the year materializes as planned and projects go off as scheduled, I would look for us to be, you know, at the upper end of our revenue range. Julien Dumoulin-Smith: Yeah. That is pretty good compared here. Excellent. Thank you. Thanks, guys. Yep. Matthew Tractenberg: Karina, next question, please. Operator: Your next question comes from the line of Philip Shen with Roth Capital Partners. Your line is open. Please go ahead. Philip Shen: Hey, guys. Thanks for taking my questions. Wanted to check in with you guys on the margin outlook. Dominic, you talked about this new range of low to mid thirties due to a number of reasons, new customers, and delivered new products, etcetera. And so I was wondering if you could give a little more color there. How long should we expect this level or this new range to be in place? So beyond 2026, do you think we should kind of think about this as the range also for 2027 and 2028? And then can you talk about pricing? And to what degree have you guys lowered pricing and is that a big driver of this new margin range? Dominic Bardos: Sure, Phil. So let me start with the 2026 outlook on margin, where we have set it at the low to mid thirties. I think it is very important for us to really focus on some of the more transitory things and then also what might take a little more time to evolve. As we said in the prepared remarks, we do include some tariff impact that is expected to be absorbed by Shoals. As we saw on Friday, this is a very fluid situation. But we do have inventory that has capitalized tariff expense that will still be with us for the first half of the year. Another thing that we have been talking about is the move into our new mega facility. We expect to be moved in in the first half, at the middle of this year. First half of the year, we are moving in. But in the meantime, we do have some inefficiencies created by still operating now in three facilities during this transitional period. So that is something that is certainly factored into our guide with the lower gross margin percentage. As we talk about gaining efficiencies over time, we absolutely will have cost-out initiatives and margin-improvement initiatives going into 2027 and beyond. But I do believe with our product mix, the third component, that we have talked about introductions of new products, capturing new share and new customers that do not use the BLA product system, and those have a margin percentage dilutive issue. An example being a long-tail BLA product as an example. And we have talked about the fact that product mix is important. So I would characterize this year's margin guide as one that should see the lowest margin percentage of the year in the first quarter, and then we will start to see gain back as we start getting some synergies and get costs out as we move into the new facility and we get the scale that we have been talking about to leverage those new fixed costs. So for the short term, I think this is the right margin percentage. And I expect that 2027's margin would be higher. But we are taking off the table any discussion of 40% return in the near term. I just want to be very clear about that. Philip Shen: Okay. Great. Thanks, Dominic. That is very helpful. And then shifting over to a comment I think you guys had in your Q1 guide. I think you guys talked about certain customers changing order patterns. Can you talk about what that is? And then also, what the seasonality or what the kind of cadence of revenue might look like by quarter for the year as well? Thanks. Brandon Moss: Yeah, Phil, I mean, just I guess first and foremost, we believe the market is very, very strong. Do not want this to get misinterpreted as we do not have confidence in the market. We certainly do. There are very strong near-term indicators, whether it is crew counts on the ground installing solar products, tracker installations, which we follow, are very strong. And as we all know, the long-term fundamentals for energy consumption is certainly there. And that is evidenced by a really strong quarter of quoting for us at $700 million. As you know probably as good as anybody, the fourth quarter is usually a softer month as it relates to quoting and installation, and we saw a very strong, you know, very strong quarter. I think as important as anything, we continue to believe there is a strong preference for our solutions that we are providing and executing in the field. And as we mentioned in the prepared remarks, our core business accelerated about 30% in the back half of last year, and that gives us a lot of confidence. We are optimistic about our sustained bookings growth. We have had great bookings growth all year. If you think about 2025 specifically, Q1 we did a 1.1 book-to-bill, Q2 we did a 1.2, we reached record revenue in Q3 and still did a 1.4 book-to-bill, and then we surpassed that revenue record in Q4 and still did a 1.2 book-to-bill. So similar to last year, we see probably, you know, the cadence of our revenue recognition as probably being somewhere in the neighborhood of 45% in the first half of the year, moving to 55% in the second half of the year. But, you know, we feel very, very good about our book of business right now. Matthew Tractenberg: Thank you, Phil. Appreciate it. Karina, next question, please. Operator: Your next question comes from the line of Brian K. Lee with Goldman Sachs. Your line is open. Please go ahead. Brian K. Lee: Hey, morning. Thanks for taking the questions. Maybe just focusing on the top-line guidance here for a moment. There is a lot of moving pieces here. I back out the kind of $35 million or six points of growth you are implying for BESS shipping in 2026. There is still a good 15% growth being implied for the core business. So can you kind of walk us through the pieces—kind of how much is coming from new markets like CC&I, and how much is international, and then how much of this is just pure market share gain in an environment where I do not think most people are expecting double-digit utility-scale volume growth in the U.S. in 2026? So you guys do seem to be out-punching your weight here a little. So if you could walk us through a couple of the pieces beyond the BESS that you already quantified. Brandon Moss: Yes, Brian. Great question. Great to hear from you. You know, maybe I would turn your attention back to a think about our Investor Day in 2024. We identified about 30% of the market that we did not think we were attacking. We were attacking at that point. We believe that we have addressed about two-thirds of that piece of the market. And I think that is really evidenced. We had three specific customers where we did, you know, less than $1 million with that now have about $140 million of our backlog and awarded orders. So again, as I mentioned to Phil's questions, we do think that there is a strong preference for our product, and do think we have the ability to continue to outpace the general market growth in the solar landscape. We have seen, specific to you know, the different business units, we grew our solar business about 11% last year. We did see a record year in our international business, driving, you know, three projects, up $13 million. And I think what is maybe even more exciting than that, we replaced that backlog and reached record backlog and awarded orders in the international space of about $90 million. Our C&I business continues to grow rapidly. The numbers are dotted. Quite frankly, it is a small piece of the business, but we continue to see really nice growth in our C&I business. In our OEM business last year, you know, which is our J-box business, grew 47%. I do not know that we would anticipate another 47% growth here, but we do expect that business to be very, very strong. So I guess net-net, when you look across all of our business units, outside of our battery energy storage business, all are performing quite well, and we expect continued growth in 2026. Brian K. Lee: Okay. And then maybe just a follow-up on the margin question. I might have missed the number, but Dominic, I think you mentioned something like three percentage points, maybe a little over three percentage points of tariff impact in 2025 and expecting a similar level in 2026. Obviously, that is fluid, but how much of the tariff impact is related to AD/CVD? And then if the recent sort of changes stay as advertised in the second half of the year, it sounds like you will be working through the inventory that has the higher costs and paid the tariffs. Do you get all of that back, or what is sort of the rough net math on kind of what margin recapture you could see if tariffs do relax here as we move through the year? Thanks guys. Dominic Bardos: Okay. Sure, Brian. So the tariff question is a bit complicated for us because there are instances where we very specifically are passing through tariff costs to customers. So any reduction in tariffs would also then reduce what we are passing through. It is just a pass-through impact. There are some components where we are structurally holding on to the tariff cost as part of our cost of goods sold. And for that piece, then we would have a benefit if the tariffs are reduced in the back half. For aluminum, we still have 232s. There are still some relatively high tariffs on aluminum. But we would get the benefit of a reduced reciprocal tariff environment there. So I do not want to get too wrapped up over the timing of when tariffs will play through. It is going to be something that as we get more information, as we get guidance, I will be able to share more information in the coming weeks and quarters. But I think right now, we do not know if we are going to get a windfall repayment of tariffs. That would clearly be a lift. I would not bet the bank on that one, but it is certainly an option for this year. Brandon, would you like— Brandon Moss: Yeah. Maybe just to provide some more color on tariffs. And as Dominic said, it is a fluid environment to say the least. AD/CVD tariffs no longer to be collected, I believe, as of today. There has been no decision on refunds, and I agree with Dominic that we have not baked refunds into our plan, and that is probably prudent not to do that. The new Section 122 tariffs are expected to begin being collected and are assessed at 15%. It is notable that those tariffs effectively are in addition to the 232 tariffs. So just so everybody understands, we would pay the 232 tariff on the metals content, aluminum specifically, and then the 122 tariffs would be assessed on top of the non-aluminum components. So, you know, while the change does not benefit our current inventory, as those tariffs have been capitalized, it does provide some positive opportunity for future imports, assuming there are no changes to what we know as of 07:43 Central Time today. So, you know, we are going to continue to be as nimble as we can in this tariff environment and focus on delivering as much value as we can to our customers. Matthew Tractenberg: Thanks, Brian. Karina, next question, please. Operator: Your next question comes from the line of Mark Strouse with JPMorgan. Mark Strouse: Yeah. Good morning. Thank you very much for taking our questions. I wanted to go back to the ON Energy partnership. Just to confirm, is there anything embedded in the guide from that partnership this year? Do you have firm orders yet? And just kind of a reasonable time frame of when you might expect to see orders and associated revenue. I know kind of the conversion of that backlog to revenue is a bit up in the air, but anything you can provide would be great. Thank you. Brandon Moss: Sure. Yeah, we have alluded to excitement over the course of the last year around this opportunity in the battery energy storage space. There is a portion of our backlog and awarded orders that is attributed to ON Energy. We are very excited about that potential partnership with them. I mean, they are a leader in building and operating hyperscale systems that, you know, specifically is serving the AI data center landscape and other mission-critical facilities. And I think what we offer in this space to them and other customers is scale and really bankability. We have built a production line that is positioned to drive, you know, ample capacity in the coming years, and we are very excited about that. As it relates to the order patterns, again, like other customers, it will continue to be lumpy. And like all of our customers, whether it be in the solar space or battery energy storage, we have got, you know, delivery schedules when we take the purchase orders, and we adhere to those delivery schedules. So once we get production started, again, as it relates to ON or other customers here in the coming weeks on our new line, you will see more consistent revenue recognition on into the year. Mark Strouse: Okay. Great. And then just, Dominic, a real quick follow-up. Just to clarify what you said earlier about still operating multiple buildings. When is that complete? When do you fully move into the new building? Dominic Bardos: Our current projections are for the end of quarter we are fully in this building operationally. We are manufacturing already in the building. We have all our BigLead assembly lines are all being produced here in our new 1500 Shoals Way facility. Right now on the floor, our harness lines are going in, but they are not operational yet. Our new BESS line is getting the final touches on for its grand opening here in the next few weeks. So by the middle of this year, we will be in. As we have talked about, we still have a redundant facility that would be rendered redundant this year in Plant 4. That lease does not expire until 2027. But we will start realizing operational savings and synergies in the back half of this year. Matthew Tractenberg: Thanks, Mark. Thank you. Karina? Operator: Your next question comes from the line of Praneeth Satish with Wells Fargo. Your line is open. Please go ahead. Praneeth Satish: Good morning. Thank you. Maybe switching gears a little bit here. So you have talked you are seeing good success on the BESS side. Maybe on the data center BLA product that you are working on, I guess, kind of moving from prototype, beta testing, and I think the latest is kind of waiting on UL certification. So, yeah, maybe just if we could get an update on that, are you still on track to potentially launch a commercial product this year? And then is the expectation to get some meaningful sales in 2027? And just any remaining technical or customer gating items to note? Brandon Moss: Yes. We still are on track with our data center product. Again, we have talked about revenue recognition coming probably more so in 2027 than 2026. Still getting very strong voice-of-customer feedback for that particular product, and working towards certification. So I would say the product is tracking quite well. But again, will not materially impact our financials in 2026. Praneeth Satish: Gotcha. And then I think you mentioned the new BESS production line is going to be online shortly. I guess when this is up and running, how much manufacturing headroom do you have today to kind of support growth beyond the $67 million of orders that you have booked already? Do you see the need for additional investments in the coming years on the BESS side, or this gets you set for the balance of the next few years? And then as a follow-up to that, can you help us understand whether you would need to spend incremental capital to support the data center BLA product as we get into 2027, and how we should think about CapEx in 2027 at a high level? Brandon Moss: Sure. As far as the BESS line goes, nothing would give me more pleasure than to invest more capital to build a second production line for that particular product. We probably do not need to do that in the near term. We have commented in the past that production line is capable of producing hundreds of millions of dollars of product, you know, and is set up for scale. We do have room, when you see our new facility, to put a second production line in effectively next to that line, you know, which can produce the same product or variation of a similar product. So we have contemplated that in the design of our new building. As it relates to the CapEx around the data center product, that product can be run—it effectively leverages our BLA patent portfolio. So you would think of the production setup as being similar to BLA. You know, as that product ramps, might we need to invest some capital to add additional BLA production lines? Potentially so. That is not an overly significant investment should we have to do that. So we are pretty comfortable with us being able to scale that business in the future. As it relates to overall capital spend, we look at our CapEx spending to decline somewhat this year. I think the midpoint of our CapEx guidance was about $25 million. We spent over $30 million last year. We are still, you know, putting the finishing touches on this particular plant. And as we have mentioned before, there is some additional investment in IT and systems architecture for 2026 and probably into 2027. But we will continue to normalize our CapEx spend in the coming years. Matthew Tractenberg: Thank you, Praneeth. Karina, next question, please. Operator: Your next question comes from the line of Colin Rusch with Oppenheimer. Your line is open. Please go ahead. Colin Rusch: Thanks so much, guys. You know, can you talk a little bit about Project Honey? Timing and design related to FEOC provisions? I know they are still a little bit fuzzy, but wanted to get a sense of any sort of product delays that you are seeing, given uncertainty around some of the supply sourcing that folks may be managing right now? Brandon Moss: Yes. Thanks, Colin. I would not say that we are seeing a tremendous amount of volatility in projects related to FEOC. There are some late point changes maybe in modules, which require us to do some redesigns and slow down releases of the projects to our manufacturing floor. That happens. I would not say it is overly predominant. As it relates to FEOC, specific to our product set, as you know, the FEOC guidance that came out was fairly limited and still is pointing everything back to the BESS content tables, which EBOS is not a part of at this point in time. And we continue to try to make it a part of those tables, but have not seen success in getting that completed at this point in time. So not a tremendous amount of volatility, Dave, related to FEOC. Colin Rusch: That is super helpful. And then just on the energy storage product, you know, as we start to see some evolution around some of the configurations, you know, and voltage considerations folks. I am curious about how quickly you guys can adjust to some of those adjustments and how much of that is built into this ON contract. You know, as you look at the evolution of the market, you know, moving towards 800 volt, it seems like there is going to be a significant number of new opportunities, and want to just get a sense of the dexterity of the product to meet some of those needs. Brandon Moss: Yeah. We, you know, we have standardized our recombiner line around specific amperages to handle, you know, the configurations that we see in the marketplace today. We have got a 1,200 amp recombiner product, 2,000 amp. That 4,000 amp recombiner is probably the preferred product in larger AI data centers. We 800 volts of power at 4,000 amps and are, you know, doing somewhere probably north of 3.3 megawatts. So I think we have got the right product at the right time for these particular, you know, solutions that are going into larger data centers. Matthew Tractenberg: Thank you, Colin. Karina? Operator: Your next question comes from the line of Chris Dendrinos with RBC Capital Markets. Your line is open. Please go ahead. Chris Dendrinos: Yeah. Thank you. I just wanted to ask about the backlog and the composition of it. I think you mentioned $67 million related to BESS, but you know, what is the composition of, you know, maybe the CC&I products and that long-tail BLA solution. I am just trying to get a sense for how much that is kind of evolved and changed over the past year or so. Thanks. Brandon Moss: Yeah. The CC&I product is really—that particular market you almost think of as book-and-turn. So very little of our backlog and awarded orders would be related to C&I business. It is, you know, it is a very small number. As it relates to long-tail BLA, probably more so than the CC&I business. I do not know an exact number. We would have to look at project to project, but the adoption of that particular product has been strong in the marketplace and is driving some of the new customers that we have got in our backlog and awarded orders that prefer that solution. I do not know the exact number of that off the top— Dominic Bardos: Yeah. I do not either. Of the $140 million of the customers—the new customer BLAO, I do not know how much that was long-tail, but I do know that some customers have a very strong preference for that solution to centralize their load-break disconnect. So we have not broken down our domestic utility-scale solar BLAO beyond that. Brandon Moss: But, you know, just to give some maybe additional context, a lot of focus on new products, whether it is long-tail BLA or harness, super jumper products, mini BLA. About 6% of our 2025 revenue was related to new products in the solar core business, not related to BESS. And we expect that number to continue to grow as we are partnering with our customers. Chris Dendrinos: Got it. Thank you. That is it for me. Matthew Tractenberg: Thanks, Chris. Karina, last question. Operator: Your last question comes from the line of David Arcaro with Morgan Stanley. Your line is open. Please go ahead. David Arcaro: Hey. Thank you so much. Good morning. You mentioned a couple of discrete margin factors as we look into 2026, but I was wondering if you could just maybe comment on the competitive environment and what you are seeing there more broadly. Is there kind of increased pressure from a pricing perspective or new entrants? Or are you seeing more products pop up in the market that you are competing against here? Brandon Moss: Dom, do you want to take the margin piece, then I will take the competitive ones? Dominic Bardos: Sure. So some of the margin items that we called out and are going to continue in our guide for this year are a little bit more transitory in nature. I think from a competitive pricing standpoint, we have already recognized revenue in 2025 to win new customers over. So the pricing incentives that we offered for folks to change to Shoals is not really considered an on-term item for us. That is pretty much behind us at this point. From a competitive product set standpoint, our BigLead Assembly product does face competition and has faced competition from Voltage. As you know about the findings from the administrative law judge, we have to be patient and work through that. And the IPC market, which, you know, other competitors have been competing with and will fight for scraps over that share of the business. We believe developers are more and more inclined to avoid IPCs. But that is still playing out in the marketplace. But I think from a margin standpoint and the pricing pressures, every job that we do is a negotiation. Every opportunity that we have to look at the competitive set and the quality of Shoals products, we will take advantage of that and emphasize our product quality and delivery. And then the last thing I would say on the margin side is, you know, as we build back some of the margins and have the opportunity to convert people to BigLead Assembly away from home-run solutions or other types of harness solutions, I think what that does for us is it gives us a chance to push people to a better value-driving product for themselves. Also gives us a better margin. But we need the flexibility in margins to do what we need to do to drive operating profit. And that is really where we are focusing, driving cash flow, taking business if we have capacity. Is there a reason I should not take a 30% margin job? Absolutely not. I should take it. It is the right thing for the shareholders. Brandon Moss: Yeah. I think it is just important to reiterate we still believe there is a strong preference for our solutions and our quality product, and that is evidenced in the increase in our book of business and our outgrowth of the overall solar market. I think the commercial team is performing quite well, and the new solutions that our product team is bringing to market are being adopted by our customers. So we are very confident in our book of business and continue to be confident to grow that book of business. Matthew Tractenberg: Great. Thank you, guys. To our audience, that is all the time that we have for questions today. I want to note that we have a very active IR calendar through March. Those events are listed on the Investor Relations section of our website. So if you are attending any conferences and you would like to meet with us, please let us know. If we can help you further, please reach out to investors@shoals.com with any questions. Thanks for joining us today. Have a great day, everyone. Operator: Thank you. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the DigitalOcean Holdings, Inc. Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. To withdraw your questions, simply press star one again. I would now like to turn the conference over to Melanie Strate, Head of Investor Relations. Please go ahead. Thank you, and good morning. Thank you all for joining us today to review DigitalOcean Holdings, Inc.'s fourth quarter and full year 2025 financial results and an investor update. Joining me on the call today are Padmanabhan Srinivasan, our Chief Executive Officer, and W. Matthew Steinfort, our Chief Financial Officer. Before we begin, let me remind you that certain statements made on the call today may be considered forward-looking statements, which reflect management's best judgment based on currently available information. Our actual results may differ materially from those projected in these forward-looking statements, including our financial outlook. I direct your attention to the risk factors contained in our filings with the SEC as well as those referenced in today's press release that is posted on our website. DigitalOcean Holdings, Inc. expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements made today. Additionally, non-GAAP financial measures will be discussed on this conference call, and reconciliations to the most directly comparable GAAP financial measures can be found in today's earnings press release as well as in our investor presentation that outlines the discussion on today's call. A webcast of today's call is also available in the IR section of our website. And with that, I will turn the call over to Padmanabhan Srinivasan. Padmanabhan Srinivasan: Thank you, Melanie. Good morning, everyone, and thank you for joining us. We had a fantastic quarter and a very strong finish to the year, and I am excited to share the details with all of you. We ended the year with 18% revenue growth in Q4, reaching $901,000,000 for the full year. We delivered $51,000,000 in incremental organic ARR, the highest in the company's history. Our million-dollar customers reached $133,000,000 in ARR, growing at 123% year over year. We maintain financial discipline and strong profitability with 42% adjusted EBITDA margins and 19% adjusted free cash flow margins for the year. There is a lot to be excited about, and given this momentum that we are seeing and the progress we are making against our long-term strategy, we wanted to provide a more comprehensive update today rather than wait for a separate investor day. Our prepared remarks will be slightly longer than usual. We will advance slides from our earnings presentation on the webcast as we go, and we will leave plenty of time for questions. AI is reshaping entire industries, and we are built for this shift. Software is being disrupted not by incremental AI features, but by a structural shift to agentic systems operating at scale. Cloud and AI-native disruptors are moving beyond AI experimentation at a breakneck speed. They are deploying agents that reason, act, retain memory, and run continuously. In this structural shift, we see a secular hyperscale-sized opportunity by serving AI and cloud-native companies driving this disruption. When markets are disrupted like this, there is typically a short window to take advantage of the opportunity, and let me tell you how we are seizing it. First, our top customers are now our growth engine. We have turned what was once viewed as a weakness into a competitive strength. Our top digital-native customers, or DNEs, which include cloud and AI-native companies, are now our fastest growing cohort, and, in fact, growing significantly faster than the market on DigitalOcean Holdings, Inc. In a nutshell, scaling our top customers was once a constraint. Today, it is our growth engine. Second, we are on the right side of software disruption driven by AI. Modern cloud and AI-native companies are going after large markets with this disruptive AI-centric software innovation. They are increasingly choosing DigitalOcean Holdings, Inc. as their natural platform to build and scale their authentic AI software. And when these companies disrupt and scale at unprecedented rates on our platform, we win. Third, we put the cloud in Neo Cloud. These AI natives need more than just GPU rentals or inference APIs. They need access to optimized AI models, both closed and open source, production-grade inferencing, and a full-stack cloud for their software. All working together at global scale. We deliver all of it in one integrated agentic inference cloud. And finally, we are building a durable and profitable growth engine. We are investing responsibly while driving balanced growth. Without chasing the GPU training arms race, we expect to deliver 21% revenue growth in 2026, reaching 25% plus growth by Q4 2026, and 30% growth in 2027. We are on a path to being a weighted rule of 50 next year, on the back of our existing committed data center capacity alone. Put simply, we are accelerating growth the DigitalOcean Holdings, Inc. way. In December, we crossed a major milestone, surpassing a billion-dollar revenue run rate. This is a remarkable achievement for a company that was founded through Techstars in 2012. This success is a testament to our passionate team and the vision of our original founders. I also extend my deepest gratitude to all our incredible customers who have supported us throughout this journey. But what matters more than this milestone is where we are going. We exited 2025 at 18% year-over-year growth and are on a path to deliver 21% growth in 2026 with an exit growth rate of 25% plus in 2026. We are picking up momentum, and we have outgrown the old narrative. Let me elaborate. Our top customers are now our growth engine. For our first decade, we built an iconic developer cloud. That foundation still matters, and we have over 4,000,000 active developers on our platform that absolutely love us. Over the last several quarters, we have deliberately shifted focus towards serving our top DNEs and eliminating any reason for them to leave DigitalOcean Holdings, Inc. at their scale. And that focus is working. In Q4, we delivered a record organic incremental ARR of $51,000,000 and $150,000,000 on a trailing twelve-month basis, both surpassing even our peak COVID-era quarters. This record trailing twelve-month incremental ARR was balanced across AI and cloud customers. ARR from DNEs reached $640,000,000 in Q4, which is now 62% of total ARR, growing 30% year over year. And our DNE NDR reached 102%, continuing to outperform developer NDR. And like I have been reporting for a while now, our largest customers in the DNE cohort are accelerating the fastest. Our $100,000 customers are growing at 58%, our $500,000 customers are growing at 97%, and our million-dollar customers who reached $133,000,000 in ARR are growing at 123% year over year, all well ahead of market growth rates. And NDR also increases meaningfully as these customers scale. Q4 NDR was 102% for our $100,000 customers, 106% for our $500,000 customers, and 115% for our million-dollar customers. For our $1,000,000 customers, churn has averaged 0% over the last twelve months, which clearly shows that our top customers are now scaling with us and becoming our growth engine. You should also effectively debunk any misconception that our most successful customers will outgrow our platform. Recapping this section, we are accelerating past the $1,000,000,000 revenue run rate milestone, and our top customers are driving this acceleration. We are no longer defined just by entry-level developers experimenting on our platform. We are defined by high-growth cloud and AI-native companies running production workloads, scaling revenue, and building their businesses on DigitalOcean Holdings, Inc. Said simply, scaling our top customers was once a constraint. Today, it is our growth engine. On to the next point. We are on the right side of software disruption. There is a structural shift happening in software, and DigitalOcean Holdings, Inc. is emerging as a preferred platform for cloud and AI-native companies that are driving this disruption. The last generation of software as a service, or SaaS, monetized per user, per seat. Value scaled with headcount. This next generation of AI-centric software monetizes per token or inference request. Value scales with intelligence delivered. As AI model capabilities accelerate, entire categories of horizontal and vertical software are being reinvented. Incumbents are reacting to transformational change by layering AI into their workflows, seeking to enhance their existing software. But AI-native companies are starting from first principles. For them, AI is not a feature. It is the very engine that defines their product. Every time they deliver value, inference runs, tokens are consumed, and intelligence is produced. DigitalOcean Holdings, Inc. is uniquely positioned to serve these disruptors, and that is evident in the traction we are getting from leading AI-native companies. We have signed and expanded production workloads with scaled cloud and AI-native companies like Character AI, Orca to, and Hippocratic AI. Companies with product-market fit, real revenue, and rapidly scaling demand. Our work with Character AI demonstrates this clearly. We delivered a 100% throughput increase and roughly 50% lower cost per token for Character AI on our production inference cloud powered by AMD Instinct GPUs at production scale. This is not a lab benchmark. This is on live traffic across tens of millions of customers. This demonstrates our ability to support production-scale inferencing for leading AI companies with our differentiated performance, cost efficiency, and integrated AI and cloud platform built for inference-first production workloads. Another AI native with a proven product-market fit is Hippocratic AI, who builds healthcare-focused conversational AI designed to support clinical workflows and patient engagement. Hippocratic AI selected DigitalOcean Holdings, Inc.'s agentic inference cloud to power HIPAA-compliant clinical AI workloads. This validates not just our performance, but our enterprise-grade security and compliance. For Hippocratic AI, we optimized their multimodal deployment on NVIDIA hardware, reinforcing the importance of vertical innovation from GPUs, networking, kernel optimization, cloud integration, and inference software. These AI natives also scale very differently. While traditional cloud customers may take years to reach $1,000,000 in ARR, AI natives can cross that threshold in months or even weeks. When inference is your product, demand compounds quickly. DigitalOcean Holdings, Inc. is purpose-built for these disruptors. As software becomes more intelligent and AI-centric, we are building the vertically integrated inferencing cloud designed to power the next generation of AI natives, putting us squarely on the right side of this AI-driven disruption. And our agentic inference cloud is catalyzing these disruptors. Next, let me explain how we are enabling this. We do this by putting the cloud in Neo Cloud. Over the last couple of years, a new category of Neo Clouds has emerged that is largely optimized for one thing: large-scale AI model training. Dense GPU farms, high-performance networking, frontier AI model training workloads. This is an important layer of the AI stack. But serving inferencing is different. As AI diffuses into every software company, workloads shift from training a handful of frontier models to running millions of real-world applications. And real-world AI-centric software needs more than GPU farms. They need compute, storage, databases, networking, observability, security, all working seamlessly together with predictable and transparent unit economics. Over the past four quarters, we have evolved our agentic inference cloud to meet that reality. We have combined specialized inference infrastructure with our full-stack cloud platform, purpose-built for production AI, while staying true to what defines DigitalOcean Holdings, Inc.: simplicity, open standards, enterprise-grade performance and SLAs, and predictable and transparent unit economics. A good recent example of this in action is OpenClaw, which recently took the world by storm by demonstrating the power of agentic software, giving us a glimpse into what the AI-centric software future will look like. OpenClaw is an open-source AI agent framework that allows developers to run real-world task-driven agents. When customers deploy OpenClaw on DigitalOcean Holdings, Inc., they need more than just GPUs. Because AI agents are stateful. They reason. They take action. They retain memory. They interact with third-party APIs. All this requires more than just a GPU farm. It takes a full cloud and AI stack working together side by side. Customers increasingly understand this. As inference is the heartbeat of modern AI natives, it is their primary operating cost, their performance lever, and their competitive moat. Their production traction scales directly with model quality, inference performance, and unit economics. As they grow, they do not build their products around a single closed-source model but rather orchestrate multiple models in real time, often leveraging open source and a mixture of expert approaches to optimize both accuracy and unit economics. Our platform delivers flexibility at every layer from serverless inference APIs to dedicated clusters and GPU droplets, allowing customers to precisely match performance and cost to their workload requirements. We pair that with performance open-source models, delivering high accuracy, strong throughput, low latency, and compelling unit economics. And this is not a stand-alone inference platform. It is deeply integrated with our full-stack cloud that we have hardened over the last dozen years so that customers can build, deploy, and scale their entire AI application in one integrated environment with enterprise SLAs. Our agent development platform takes them from experimentation to production with real-world AI agents. Underpinning all of this is a deep lineup of GPUs from NVIDIA and AMD, supported by a rapidly expanding global data center footprint built and operated with years of operational expertise supporting mission-critical workloads. This integrated platform and flexibility of choice is precisely what makes DigitalOcean Holdings, Inc. a natural platform for agentic software. Let me explain this again using OpenClaw as an example. Customers can build and deploy OpenClaw agents on DigitalOcean Holdings, Inc. in two distinct ways, depending on their need for control, scale, and operational complexity. The first path optimizes on simplicity and speed. Customers can launch a preconfigured one-click GPU droplet and have an OpenClaw agent running in minutes. This model gives full control over the environment, ideal for experimentation, customization, performance tuning, and teams that want direct access to the infrastructure layer. The second path optimizes for global scale. Customers can deploy OpenClaw on DigitalOcean Holdings, Inc.'s managed serverless platform where DigitalOcean Holdings, Inc. handles provisioning, scaling, security, container orchestration, and operational management. This approach is ideal for teams that are scaling a global application. Both approaches run on the same integrated cloud with access to managed databases for agentic memory, object storage for artifacts, virtual private cloud networking, observability, and GPU-backed inference. That is what vertical integration looks like in the inference economy. Not just providing bare metal GPUs, or even just generating inference tokens, but providing a secure, scalable, and manageable foundation for intelligent, stateful systems. Within days of launching OpenClaw, nearly 30,000 native DigitalOcean one-click OpenClaw droplets were created, and that was just the starting point. Thousands of other OpenClaw deployments were activated by customers, signaling the emergence of a new ecosystem almost overnight. The success of OpenClaw is an early view of how the AI market will continue to evolve and can serve as a blueprint for AI-native businesses on how a new generation of software will be built around autonomous agents that orchestrate complex multistep workflows across systems, continuously reason with data and context, and execute tasks end to end with minimal human involvement. As these AI-native companies move from proof of concept to production agents, the richness of the underlying platform, the security posture, manageability, scalability, and predictable unit economics become mission critical. And that is exactly where DigitalOcean Holdings, Inc. is fast emerging as the natural platform for building and scaling AI agentic software. The competitive landscape is crowded with companies speaking to their ability to address the inference market. But our differentiation from these competitors is very clear. Neo clouds rent out GPUs. Inference wrapper providers stop at inference APIs and model libraries. We continue to effectively compete with hyperscalers who bring scale but also come with complexity and cost structures that are aimed at traditional large enterprise companies. Each of these competitors address a component of the inference value chain. Real-world agentic software requires a tightly integrated environment where inference, orchestration, persistence, networking, and security are designed to work together with simplicity, global scale, enterprise SLAs, and predictable unit economics. That is where DigitalOcean Holdings, Inc. wins. This differentiation is clear to our customers, but it is also very clear in our financial profile. As a full-stack cloud provider that has operated mission-critical workloads for cloud and AI natives for over a decade, we look very different from a financial perspective than other players in the AI training market or components of the inference market. Where Neo Clouds have very high revenue concentration with just a few very large customers making up the vast majority of their revenue, DigitalOcean Holdings, Inc.'s top 25 customers represent only 10% of our revenue. While GPU rental providers own bare metal revenue and margins on their infrastructure, DigitalOcean Holdings, Inc. drives higher revenue and margin from our full-stack inference and cloud solution. And when a growing number of Neo Clouds are investing massive amounts of capital and burning near-term profits and cash for future returns, DigitalOcean Holdings, Inc. is already profitable and generating cash. Our traction with cloud and AI natives is no accident. It is the result of relentless focused investment and disciplined execution. We recently strengthened our executive team by adding Vinay Kumar as our Chief Product and Technology Officer. As a founding member of Oracle Cloud Infrastructure, or OCI, Vinay brings deep hyperscale expertise and leads our product, platform, infrastructure, and security teams. Having built a hyperscaler from the ground up at OCI, he looks forward to scaling up another one at DigitalOcean Holdings, Inc., one that is purpose-built to meet the complex needs of cloud and AI-native workloads globally. In the meantime, our R&D team has been very busy continuing to ship products and features that are helping our customers scale on our platform. On CoreCloud, we launched remote MCP support, embedding AI directly into the control plane, enabling secure zero-setup infrastructure management. On our AI platform, we introduced the agent development kit and enhanced agent evaluation tools to help customers move from experimentation to production with measurable performance and reliability. With GPU observability, managed NFS, and multi-node GPU support, we significantly expanded our ability to run large-scale mission-critical inference in production. This is what vertical integration looks like: infrastructure, inference, observability, agent tooling, all built to seamlessly work and scale together. And we are just getting started. We will share the next wave of innovation on our agentic inference cloud at our next Deploy conference in San Francisco on April 28, as we continue building the platform purpose-built for the inference economy. Our differentiation is durable and will continue to grow as the market shifts from training to inference. To give investors clearer visibility into this momentum, we are introducing a new metric: AI customer revenue. AI customer revenue includes all revenue from customers leveraging our AI products, including both inference and core cloud services, because AI natives do not just buy GPUs. They build, operate, and scale applications, which need a full-stack inference cloud. In fact, 70% of our AI customer ARR in Q4 2025 was already coming from inference services or general-purpose cloud products rather than from bare metal GPU rentals. And these customers are growing rapidly with Q4 AI customer ARR reaching $120,000,000, growing 150% year over year, now making up 12% of total ARR. In summary, we do not just rent GPUs. We run production AI. We are not a GPU landlord. We are an AI cloud platform. We deliver hyperscaler-grade infrastructure and reliability, purpose-built inference services co-located and integrated with a full-stack general-purpose cloud designed for the next generation of AI natives. Or put simply, DigitalOcean Holdings, Inc. puts the cloud in Neo Cloud. Now on to my final takeaway. We are building a durable and profitable growth engine. At our Investor Day last April, we laid out a plan to return the business to 18% to 20% growth by 2027. On our last earnings call, we pulled that growth projection forward by a full year, guiding that we would reach that 18% to 20% growth range in 2026. And just nine months after setting that original plan, we have already reached the bottom end of the target range at 18% growth in 2025, achieving it two full years ahead of our original target. And the momentum we are seeing gives us even greater confidence. We now expect to deliver 21% revenue growth for the full year 2026, with an exit growth rate of 25% plus by Q4 and reaching 30% growth in 2027. As we ramp into our committed 31 megawatts of incremental capacity this year, there will be measured near-term pressure on gross margin and adjusted EBITDA. But we remain confident in our 18% to 20% unlevered adjusted free cash flow margin guide for the year. The near-term pressure is just a physics problem, given the startup cost timing and revenue ramp characteristics of quickly adding new capacity. It is the natural result of pursuing high-return growth opportunities. But we remain disciplined operators. Demand continues to far outstrip supply, and we will take advantage of opportunities to further accelerate growth when they present themselves. We will do so responsibly, and we will continue to pursue investments with attractive returns, match investments with revenue timing, maintain a strong balance sheet, and allocate capital with rigor. Even as we accelerate, growth and discipline are not tradeoffs for us. They are both operating principles. With that, I will turn it over to W. Matthew Steinfort to walk through the quarter and the year in more detail and to provide additional color on our updated outlook. Matt, over to you. W. Matthew Steinfort: Thanks, Padmanabhan. Morning, everyone, and thanks for joining us today. As Padmanabhan just shared, we are a very different company today than we were just a few years ago. It is an exciting time at DigitalOcean Holdings, Inc. We are a rapidly growing and profitable company that is incredibly well positioned to take advantage of the hyperscale-sized inference market opportunity. This excitement is clearly evident in both our recent financial performance and in our higher near-term and long-term outlooks. Revenue growth has reaccelerated. We have reversed declines from our top customers, turning them into a key driver of our growth. We have scaled our AI customer ARR to $120,000,000, growing at 150% year over year. And we have done this profitably, growing adjusted EBITDA and adjusted free cash flow on both an absolute and a margin basis. While we are pleased with our progress over the past several years, it is our recent momentum that gives us the confidence to further increase our near-term and long-term outlooks. Fourth quarter revenue was $242,000,000, up 18% year over year, and we closed 2025 with full-year revenue of $901,000,000. We delivered sustained acceleration through 2025, driving a 500 basis point increase in Q4 growth from the same period just a year ago. We delivered the accelerated revenue growth with strong margins and growing profits even as we increased our investments. Fourth quarter gross profit was $102,000,000, up 13% year over year, with a gross margin of 59%. For the full year, gross profit was $540,000,000, up 16% year over year, with a gross margin of 60%. Adjusted EBITDA in the fourth quarter was $99,000,000, an adjusted EBITDA margin of 41%. Full-year adjusted EBITDA was $375,000,000, a 42% adjusted EBITDA margin. Trailing twelve-month adjusted free cash flow was $168,000,000 in Q4, or 19% of revenue. We maintained our attractive free cash flow margins in 2025, in part by expanding our financial toolkit to include equipment financing. This better aligns infrastructure investment timing with the revenue that it supports. We will continue to utilize a combination of upfront asset purchases and equipment leasing as we invest to fuel our growth. We continue to be disciplined financial stewards for our investors. We prudently use stock-based compensation to attract and retain our critical talent while repurchasing shares to mitigate dilution. SBC declined to 9% of revenue in 2025, down from 12% in the prior year. To put that number in context, we have a 33% margin if you subtract SBC from adjusted EBITDA. At 33% margin, we are just above the 80th percentile of a broad software comp set on an adjusted EBITDA less SBC, and we are well above the 13% median of that group. Non-GAAP weighted average shares outstanding increased slightly from 103,000,000 to 105,000,000 over the same period. To reduce dilution, we repurchased 2,400,000 shares in 2025 for $82,000,000, an average price of approximately $35. Note that we ended 2025 with our full $100,000,000 buyback authorization in place, and that authorization continues through 07/31/2027. While we continue to view share repurchases as an important long-term tool, our near-term capital allocation priorities are squarely focused on organic growth and balance sheet flexibility. GAAP diluted net income per share in the quarter was $0.24 and $2.52 for the full year, a 183% year-over-year increase. Non-GAAP diluted net income per share in the quarter was $0.44. For the full year, non-GAAP diluted net income per share was $2.12, a 10% year-over-year increase. As a quick reminder, recall that our 2025 net income per share metrics were impacted by the actions we took in 2025 to strengthen our balance sheet. In 2025, we proactively addressed the upcoming maturity of our 2026 convertible notes. We did this through a series of successful financing transactions that have given us significant balance sheet flexibility. These transactions included the establishment of an $800,000,000 bank facility, issuance of $625,000,000 of 2030 convertible notes, and the repurchase of the majority of our then outstanding 2026 convertible notes. Excluding the effects of these financing transactions, non-GAAP diluted net income per share would have been $2.29 for the year and $0.53 for the quarter. With our 2026 notes largely addressed, we ended the year with a strong balance sheet. We have sufficient liquidity and projected cash generation to address the remaining $312,000,000 balance of our outstanding 2026 convertible notes. Having drawn down the remaining $120,000,000 on our term loan A in February, we will repurchase or redeem the remaining 2026 notes for cash before or at the maturity in December 2026. Beyond this, we have no other material maturity until 2030, and we entered 2025 with approximately 3.2 times net leverage. Before I get into guidance, I want to highlight an action we are taking to further concentrate our investments on our key growth levers. We are sunsetting a small legacy dedicated bare metal CPU offering. We expect approximately $13,000,000 of ARR to roll off by the end of 2026. As this revenue is noncore, we have excluded this legacy product revenue from our customer-specific year-over-year growth metrics. Shifting back to guidance. We entered 2026 with tremendous momentum and confidence that is focused on material demand we are seeing for our agentic inference cloud. We also continue to improve visibility on our near-term revenue growth, as we increased RPO in Q4 to $134,000,000, up 121% sequentially, up close to 500% year over year. With this growing demand and visibility, we are again increasing our near-term growth outlook. For the first quarter of 2026, we expect revenue in the range of $249,000,000 to $250,000,000, which is approximately 18% to 19% year-over-year growth. We expect first quarter adjusted EBITDA margins in the range of 36% to 37% and expect non-GAAP diluted net income per share of $0.22 to $0.27 based on approximately 111,000,000 to 112,000,000 weighted average fully diluted shares outstanding. For the full year 2026, we expect revenue growth between 19% and 23%. This is 21% at the midpoint, beyond the 18% to 20% growth outlook that we shared just last quarter, and it is important to highlight that this would be 21% to 24% projected growth if we exclude the impact of our discontinued legacy bare metal CPU offer. We will deliver this accelerated growth while maintaining attractive margins. We project full-year 36% to 38% adjusted EBITDA margins, and 18% to 20% unlevered adjusted free cash flow margins, which is $207,000,000 at the midpoint. We expect non-GAAP diluted net income per share of $0.75 to $1.00 on 111,000,000 to 112,000,000 weighted average fully diluted shares outstanding. This growth outlook is based on the incremental data center and GPU capacity investments that we have already committed that will come online over the course of 2026. As we look at the quarterly progression within 2026, it is important to understand the timing of this incremental capacity and how that timing impacts our financials. We are bringing 31 megawatts of new data center capacity online in three new facilities in 2026. The smallest of our three new facilities will start ramping revenue in the second quarter. The remaining two start ramping revenue in the second half of 2026. Aligned with this capacity ramp, we expect second quarter revenue growth to remain around 18% to 19%, with revenue growth then ramping in Q3 before exiting the year at 25% plus in Q4. While there are always supply chain and implementation timing risks to manage, we believe our implementation timeline is realistic. Increased data center lease expense and equipment depreciation expense will both hit our financials several months before we generate our first revenue in these facilities. Given this lag between expenses and revenue, cost of goods sold from higher GPU-related depreciation and operating expenses from new data center operating leases will increase in the early part of the year as we ramp into the new capacity. These increased costs will cause the expected upfront drops in gross margin and net income that we have seen when we turned up previous data centers. The initial impact will just be larger as we are turning up more capacity at one time than we have done in the past. Near-term adjusted EBITDA margins will also be impacted somewhat from these dynamics, although the impact is less as adjusted EBITDA is only impacted by the higher data center operating leases. Net leverage is projected to be above four times in the short term, as we add finance lease obligations to fund our GPU and CPU investments, and this increases net debt several months ahead of revenue and adjusted EBITDA ramp. We anticipate returning below four times net leverage over the medium to long term as we increase utilization in these data centers and ramp revenue and adjusted EBITDA. We will achieve these growth targets by focusing on our two primary growth levers: scaling our top DNE customers and expanding our base of AI-native customers. We will focus our investments on meeting the needs of our top DNE customers so that they can continue to scale on DigitalOcean Holdings, Inc. as they grow their own business. We will continue to invest both in our differentiated agentic inference cloud and in the data center and GPU capacity required to support AI natives. While we are excited by our growth potential in 2026, we are just getting started. As we reach full utilization on our existing committed capacity, we expect to reach 30% revenue growth in 2027. We will drive this growth while delivering projected 20% plus unlevered adjusted free cash flow margins, which would make us a rule of 50 plus company in 2027. We will achieve this while making smart investments, earning attractive margins, and maintaining a healthy balance sheet. We have both the tools and the discipline in place to continue to take advantage of opportunities as they arise. We will continue to share details on our leading indicators and our progress as we execute. We are increasingly confident in our ability to build a durable and profitable growth engine. With that, I would like to turn it back over to Padmanabhan to close us out before we get to Q&A. Padmanabhan Srinivasan: Thank you, Matt. Before we move to Q&A, let me leave you with a few thoughts. We crossed a billion-dollar revenue run rate in December. But that milestone is not the headline. The headline is where we are heading. We are no longer a niche developer cloud. We are the platform that high-growth cloud and AI natives are increasingly choosing to run production AI workloads at scale. We are projecting to exit 2026 at 25% plus revenue growth with a clear path to 30% growth in 2027 with the existing committed data center capacity alone. Our top customers are accelerating and are growing significantly faster than the market on DigitalOcean Holdings, Inc. We have outgrown the old distillation narrative. Scaling our top customers was once a constraint. Today, it is our growth engine. Our million-dollar customers are at $133,000,000 ARR, growing at 123% year over year. The world of software is shifting from seats to tokens, from experimentation to production, from model training to inferencing at scale. And in that shift, the winners in inference will be more than just GPU landlords. They will be vertically integrated AI cloud platforms that deliver performance, great unit economics, and simplicity that embraces open source. Exactly what we have and what we continue to build. Our AI customer ARR reached $120,000,000 in Q4, growing 150% year over year, with 70% of that coming from inference and core cloud products, not from bare metal. And we are doing it without chasing the GPU training arms race, without sacrificing discipline, without compromising profitability. We are building something durable. AI is reshaping entire industries, and we are built for this shift. I am incredibly excited to be part of DigitalOcean Holdings, Inc. at this critical inflection point where a new era of software is being ushered in. I take incredible pride in building a platform that AI pioneers are increasingly leveraging to disrupt software. I thank all of you for your partnership and support, and I hope you will join us in San Francisco on April 28 to learn about our platform, our innovation, and our customers. With that, let us open it up for your questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. And if you would like to withdraw your questions, simply press star one again. We would like to ask everyone to limit themselves to one question and one follow-up only to accommodate all questions. Thank you. Our first question comes from the line of Raimo Lenschow with Barclays. Please go ahead. Raimo Lenschow: Perfect. Thank you. Congrats from me. That is amazing how our company is transforming right in front of my eyes. And, Padmanabhan, can we just talk a little bit about the customers that you are seeing? The talk in the market, a lot of that is just OpenAI and, Anthropic, maybe Google, and they are basically doing everything, nobody else really comes up. When you talk with, you know, looking at your customers, looking at the pipeline of customers out there, how do you see that inference market evolving in terms of how broad that will be? Is it just one topic doing everything, or what are you seeing out there in the field? And then I had one follow-up for Matt. Padmanabhan Srinivasan: Yeah. Raimo, thank you for the question. It is a very thoughtful way to get started. Of course, OpenAI, Gemini, and Anthropic get all the headlines in the mainstream news coverage. But as we talk to AI-native companies, and even examples that I was using in my script, and you will hear a lot more about this at our Deploy conference with very specific benchmarks and data. But what we are hearing from these AI-native companies is that while these closed-source models are really, really good, the open-source alternatives are extraordinarily important to manage the unit economics as these companies scale. Because the cost per token for the open-source models is about 90% cheaper, with very comparable accuracy as these open-source models mature. So we have many AI-native customers that are using, as I mentioned, a variety of open-source models at real time when they are doing inferencing. They want us to manage a multitude of open-source models and even route the request intelligently to these open-source models and, of course, use closed-source, expensive models on a case-by-case basis. It could be for certain prompts which are better served by these closed-source models and route everything else to these open-source models so that they can have a balanced unit economics. So it is by no means, and if you look at data from OpenRouter, 30% of the traffic already today is served by open source. That is without a lot of optimization. That is without companies like DigitalOcean Holdings, Inc. really stepping up and taking full ownership and guardianship of these open-source models. So we are doing a lot of work in this regard over the next couple of months, and you will see it in our Deploy conference. But this 30% is only going to grow. As these real-world AI-native workloads explode, we are going to see a lot of open-source adoption. Even in the OpenClaw deployments that we are seeing, there is a very healthy adoption of open-source models serving these OpenClaw agentic agent farms. So it is really interesting to see how this is evolving. And I want to say there is definitely a world beyond these closed-source models. The open-source ecosystem is thriving, and it is only going to grow in strength from here on. Raimo Lenschow: Yeah. Okay. Perfect. And then thank you for that, Padmanabhan. And, Matt, one question that comes up a lot at the moment is on the weighted rule of 50 numbers. If you look at your weighting, and then there are a lot of questions about the free cash flow margins that you think about in 2027. Can you maybe go a little bit deeper there? Because that comes up a lot here at the moment. W. Matthew Steinfort: Yeah. Thanks, Raimo. The weighted rule of 50 is pretty simple for us. We multiply revenue growth by 1.5 and add 0.5 times the free cash flow margin. And that is effectively saying that you are counting revenue growth three times as valuable as a point of free cash flow margin. But the important thing to note is while we talk about weighted rule of 50, if you look at the growth projections we provided, we are actually a regular weighted, or a regular, rule of 50 as well, with projected 30% revenue growth in 2027 with 20% unlevered free cash flow margins. So that is, I think, a very big testament to the growth opportunity that we have in front of us, but also the disciplined financial discipline that we have been employing. With the ability to accelerate revenue growth while still maintaining very attractive EBITDA margins and very attractive free cash flow margins is kind of part of the model, and it is the benefit of us not chasing the GPU training kind of an arms race. We believe that we will differentiate based on software and a differentiated platform, and we see a tremendous opportunity to drive really attractive margins as we expand and invest appropriately. Operator: Your next question comes from the line of William Kingsley Crane with Canaccord Genuity. William Kingsley Crane: Hi. Thanks for taking the question, and congrats to the whole team on results. I think you have done an excellent job with the investor update. I actually want to circle back to the Inference Cloud dynamic with open-source models. We have been looking at OpenRouter data as well. I mean, some of these models come and go pretty quickly. How many models can you cater to? How are you thinking about quickly providing support for those classes and models? Is there any operational tax to quickly provide support? And then just how to think about them driving growth both from a revenue and profit standpoint. Could there be more of a Jevons paradox dynamic there with the lower-cost models? Thanks. Padmanabhan Srinivasan: Yeah. Thank you, Kingsley. That is a good question. So you asked two different questions. One, from an operational overhead, in terms of day-zero support to these models. Obviously, we have been extending day-zero support for a vast majority of these open-source models as they come out. And there are a couple of things there. One is, obviously, there is a little bit of manual overhead in supporting these models. But a large portion of this test and readiness harness is automated, and it is only going to grow in automation, and you will see a lot more details around this at our Deploy conference. And the second part of your question was really around the Jevons paradox of as these open-source models proliferate, how should we think about the growth profile of not just our platform, but also these companies. I think it is only going to aid in the deployment of AI-native software in pretty much every segment of the market. And I think we should also not think about AI-native workloads as open source or closed source. What we are seeing is a mixture of both. For the same use case, for the same inference call even, some parts of the application stack, based on the prompts, we do intelligence routing. Right now, it is fairly manual, but we are working on different types of algorithms to route it in a much more intelligent and smart fashion. So you will see a universe going into the future where prompts are going to get routed to different models all working together at the same time, to deliver high throughput, low latency, acceptable accuracy, with great unit economics of token throughput. So this is coming. We are already seeing it from many of our AI-native workloads, and that is how I see the market evolve. As open-source models continue to catch up with these closed-source systems, the closed-source systems are really important to be on the bleeding edge of innovation, but a vast majority of these long-running, authentic software like OpenClaw can very materially run on these open-source systems. William Kingsley Crane: Thanks, Padmanabhan. And then for Matt, you know, obviously, $22,000,000 per ARR per megawatt is a clear differentiator. I am curious now that Atlanta is close to full utilization. Any insights you have on just what a fully utilized megawatt can look like in terms of a revenue efficiency standpoint for AI? Thanks. W. Matthew Steinfort: Yeah. That is a great question, Kingsley. If you look at the public data that is available for a Neo Cloud, which is more of a bare metal model, they show, like, $9,000,000 to $12,000,000 in ARR per megawatt. Clearly, we believe we can deliver more than that. If you look at the guidance that we have given, what you will see is that while it is $22,000,000 now, that is, again, with a small, less than 10% or right around 10% of our ARR in AI. So as we grow AI, it will come down. We will add incremental ARR per megawatt greater than what you are seeing from the Neo Clouds. But the drop from a bigger mix of AI, by the end of 2027, once we are fully ramped with the incremental 31, it will only drop by a couple million. It will be around $20,000,000. And so if you think of us as not having, okay, well, we have got AI investments, and we have got core cloud investments, but we have more of an overall AI cloud platform that has GPUs, it has got CPUs, it has got core compute and bandwidth, and all the capabilities that you need, we still expect to deliver materially higher ARR per megawatt than what you are seeing in the Neo Cloud space. So we feel really good about the returns that we are getting and the margin that we are able to drive. This is only going to increase. I mean, you saw the chart in the deck about how much of the AI customer revenue is coming from non-bare metal. That is 70%. That is only going to increase, and that smaller sliver of core cloud is only going to increase as customers become entrenched on our platform and they start putting in database and storage and some of the other higher-margin capabilities that are sticky. We are very excited about our ability to serve the kind of full addressable wallet of the AI natives. Operator: Our next question comes from the line of Joshua Phillip Baer with Morgan Stanley. Joshua Phillip Baer: Congrats on the strong results and impressive targets. Just wanted to clarify, the incremental 31 megawatts, that all comes online by the end of 2026, driving that 25% revenue growth, exiting the year, but then as utilization increases, the capacity is enough to reach the full 30% growth in 2027 revenue. W. Matthew Steinfort: That is absolutely right, Josh. You nailed it. We said in the call that the smallest of the three facilities, which is six megawatts, is going to start ramping revenue in the second quarter. But the other two start ramping in the second half. And just with what we believe is appropriate assumptions around the timing and the ramp of that, we will hit 25% in Q4 as an exit growth rate, 25% plus. And then if all we did was fill those up, we would hit 30% for the full year in 2027, and we feel very good about, again, the returns that we would generate there and the growth trajectory that we would be on at that point. Joshua Phillip Baer: Okay. That is helpful. And was just hoping you could sort of review some of what Vinay Kumar's top priorities are at this point. There have been so many positive changes from a product and innovation perspective over the last couple of years. What are his priorities? What changes should we expect going forward? Padmanabhan Srinivasan: Yeah. Thanks, Josh. As I was mentioning in my prepared remarks, given his background at Oracle Cloud, he has really hit the ground running. His top one or two priorities are going to be continuing to build out the inference cloud. You will see a lot of very detailed updates on April 28 at our Deploy conference on how the next generation of this inference cloud capabilities is going to look. The team is super heads down and busy working on it now. We also will continue to raise the bar on our core cloud capabilities because our cloud-native, digital-native enterprise companies are also scaling tremendously on our platform, and they require continuous innovation from our side on advanced things like different types of databases and different scalability aspects of our database-as-a-service and various parts of our core cloud infrastructure, like high-performance storage, network file systems. One of the things that Vinay is working on is delivering innovation in our core infrastructure that is applicable to both AI native and cloud native. There is a huge intersection. If you look at companies like the AI natives that we are rapidly scaling up on our platform, they require very similar things from, say, high-performance storage, as an example. I do not want to preannounce stuff that we are working on, which we will come out on April 28 with, but a lot of those things are very similar to what our cloud-native companies can also benefit from. So there is quite a robust lineup of capabilities that we are working on for both the inference cloud as well as some of the underlying infrastructure enhancements that will be applicable to digital-native enterprise companies. That is what he is focused on delivering. As I mentioned, given his background, he has almost hit the ground running in terms of ramping up the innovation on the core inference cloud. Operator: Our next question comes from the line of Wamsi Mohan with Bank of America. Please go ahead. Yes. Thank you so much, and great to see this growth acceleration here. Wamsi Mohan: Firstly, maybe, Padmanabhan, just visibility around the 30% growth. How should we think about that in terms of, I mean, historically, obviously, DigitalOcean Holdings, Inc. is a very different company today. But historically, you did not really have long-term contracts, long-term visibility. You are talking about very meaningful acceleration as you go to 30% plus. Maybe if you could dissect some of the underlying drivers of what you are looking at, which give you the confidence, and maybe just split that between infrastructure-as-a-service and platform-as-a-service. That would be maybe a different way to slice and give people a view over there, and I have a quick follow-up. Padmanabhan Srinivasan: Thank you, Wamsi. I think Matt broke down some of the physics of the acceleration. We have new capacity that is ramping up throughout this year and going into next year as well. So that gives us a lot of visibility. First of all, maybe I should take a step back and talk about the fact that the demand that we are seeing now is very, very robust, and it far exceeds the supply that we currently have from an infrastructure point of view. So we are being super responsible in ramping up our capacity. We are being super aggressive in the timelines. We are working very closely together with the data center providers and the OEMs to get this capacity online in the fastest possible speed-of-flight scenario as much as we can. Given the schedule that we are currently working on, we feel very confident that as we bring this capacity online, we have enough demand in the pipeline to be able to fill up this capacity with very responsible economics. That is what is giving us the confidence to provide the outlook of 25% plus exiting this year and 30% for next year. And, also, our RPO has been going up steadily, and that is one leading indicator. But, also, I should add the fact that inferencing is very different. These are real-world workloads. As opposed to training, where a company can just raise venture capital money and just commit to a two-year, three-year contract to burn dollars to build a frontier model, inferencing workloads are typically paid by end customers. For us, that is super exciting because we are typically working with post-product-market-fit companies that have real revenue, working with real consumers or business-to-business like Hippocratic AI. They are deploying in some of the world's largest healthcare providers. So we know that as their demand picks up, they are going to need more and more inference capabilities. Our confidence really stems from the visibility we are getting into our customers and the real-world inference demand. I feel if you look at it from a customer perspective or you look at it from capacity point of view, those are the data points that we use to triangulate our guidance for exiting this year and next year. Wamsi Mohan: Okay. Thanks, Padmanabhan. And then maybe one quick one for Matt. Can you just talk a little bit about the margin progression? I guess you mentioned some near-term margin compression given your capacity ramp. Should we expect that will persist through all of 2026 given the timing of the ramp, and then as you ramp into 2027, we should be back to 2025 levels? Thanks so much. W. Matthew Steinfort: Thanks, Wamsi. Yeah. There is certainly going to be some near-term pressure, as we said, on gross margin, for example. But the metrics that we think are the best indicators of profitability for us continue to be adjusted EBITDA margin and free cash flow margin, both on an unlevered basis and a levered basis. And if you look at the margin guidance that we provided for the full year 2026 and the ranges for 2027, you see exactly what you just described, which is we will have a little bit more pressure this year as we ramp, but then as we grow into that and the utilization increases, that catches back up and then you should see an upward trajectory on the margins. The mix of AI services versus the core cloud, that is certainly a longer duration impact because as we add more AI capabilities and more AI revenue, the AI margins are lower than the core cloud margins, so you will have a little bit of a mix impact in addition to the timing impact. But all of that nets out in the very, very strong adjusted EBITDA margins that we are projecting and the very strong adjusted free cash flow margins and unlevered adjusted free cash flow margin. Operator: Our next question comes from the line of Gabriela Borges with Goldman Sachs. Please go ahead. Gabriela Borges: Hey. Good morning. Congratulations to the DigitalOcean Holdings, Inc. team. Padmanabhan, I have a little bit of a long-term question for you. If I think about DigitalOcean Holdings, Inc.'s core value proposition, democratizing access to cloud, that has been true for many years now. My question for you is, what do you think is structurally different with the AI compute cycle that will allow DigitalOcean Holdings, Inc. to essentially capture and hold on to a higher share of wallet in AI inference compute relative to the cloud cycle? And the reason I am asking is because there are 32 companies that show up in this SemiAnalysis cost-to-max benchmarking report. We know that the market is early. We know that the AI inference cycle is early. How do you think about DigitalOcean Holdings, Inc.'s ability to durably capture higher share of wallet relative to the 31 of the competitors over the long term? Thank you. Padmanabhan Srinivasan: Thank you, Gabriela. I am sure if SemiAnalysis was around in 2011 or 2012 and cloud was taking off, there would have been 32 IaaS providers as well, and we went from that to a billion-dollar run rate in 12, 13 years. If I take a step back and think about how durable our mission is in the world of AI, I think I hit on a few different points. I fundamentally believe that inference workloads are also workloads or real-world applications as well. As the application scales, you need a variety of different things all working together. AI natives do not want to just use one provider for token generation, go to another provider for database, go to a third provider for their application experience, and go to a fourth provider for some of the other core storage and other artifacts. They want an integrated cloud that is co-located, and all of these primitives to work hand in hand together so that they can focus on building their business and not mess around with infrastructure. The other part that I feel very confident about is something that we are going to be talking about a lot in our Deploy conference on April 28, which is this emergence of a mixture of AI models that is required to run efficient unit economics in inferencing mode. The difference in the unit economics between closed-source models and open-source models is 90%. Open-source models are 90% more cost-effective compared to closed-source models, and open source already has 30% market share with just a handful of open-source models on the market. I feel this is only going to go from strength to strength, and that has been a big differentiator for DigitalOcean Holdings, Inc. throughout the years as well. We talk about 32 companies showing up in some of these market landscapes, but when OpenClaw became viral a couple of weeks ago or a month ago, we were one of the natural places where developers started deploying it. As I said, we have more than 30,000 of these agents running, and we barely did anything from a marketing point of view. In fact, we did no marketing. All we did is scramble our jets to make sure that developers have first-class experience deploying these agents on our platform, and we were such a natural choice for running these long-running, agentic software because they need a lot more than just access to GPUs or just access to inference tokens. I feel very good that our 70% of our AI customer revenue already is from non-bare metal, and that should give us a lot of confidence that our platform services, higher-margin services, are resonating with our customers. They are increasingly coming to us as they recognize that bare metal is not going to be sufficient for them. Gabriela Borges: Yeah. Really good color. Thank you. I will stay on this 70% non-bare metal data point, and I will ask the question to Matt. Payback period on GPUs. The last time we talked about this, I think you told us it was around three years, but that was before you all had focused on maximizing or improving the ARR per megawatt of capacity. So my question for you is how are payback periods on GPUs changing? Thank you. W. Matthew Steinfort: Well, that is a great question, Gabriela. One of the things that I want to make sure everybody understands is if you think about why did we lease gear, like, why are we doing equipment leasing, it is to address exactly this challenge. If you said, okay, well, you are going to spend hundreds of millions of dollars on GPUs, and you are going to have to wait three, four years to pay them back, that is a model. That is not the model that we are pursuing. Our model is leasing the gear, which means we are earning more ARR per megawatt for the associated GPU investment than what a Neo Cloud would earn, but we are also earning cash on that within months of actually deploying. As soon as we deploy that and we start earning revenue and it ramps, we are paying on a monthly basis for that gear over four or five years, and we are earning more than two times that in revenue. From a payback period, we still have the same kind of payback hurdles that we have had before. You would like to see three-year paybacks on most of your investments. You might be willing to extend that to win some early customers. But if you actually think about the mechanics, that is a little bit of an intellectual exercise because we are already paying our gear back within a month or two because we are earning more cash than we have spent on that gear. That is the reason you align your investment with revenue. Operator: Our next question comes from the line of Radi Sultan with UBS. Please go ahead. Radi Sultan: Yes. Awesome. Thanks for taking the questions. One for Padmanabhan, kind of on a similar line of questioning. Just sort of that longer term, the next several years. Padmanabhan Srinivasan: Yeah. Thank you. We look at many, many factors, but the dominant one is we look at our customer demand, look at what they are dealing with, how they are projecting their needs. That is a big input factor for us. The second one is we look at the footprint from the perspective of, for inferencing, obviously, we need to have a really good geographic spread. Co-locating, and for all of our new data centers, we have both core cloud as well as AI capacity all running on the same server stack. So that is an important aspect for us to have all of these things co-located. The third thing we always look at is how we are going to keep up with the generational leapfrogs of OEMs, including AMD and NVIDIA, and perhaps others in the future. These are all important factors that we take into account as we consider how our footprint is going to look over the next several years. We are always making this evaluation. We are looking at various options as we build out our long-term plan. As I said, the primary driver is always looking at our customer needs, customer demands, what kind of workloads are they ramping up. The demands for their application is a big driver for us. Those are some of the input factors that we use to plan our capacity. Radi Sultan: Got it. Just a quick follow-up for Matt. Does the 2027 EBITDA margin and free cash flow guidance contemplate any additional capacity investments next year? Or is that just reflective of the 31 megawatts you are bringing online this year? W. Matthew Steinfort: It is just reflective of the 31 megawatts that we are bringing on this year. Operator: Our next question comes from the line of James Edward Fish with Piper Sandler. James Edward Fish: Hey, guys. Maybe just following up on that. If AI is growing as fast as it is, and you guys are needing to bring on capacity now to meet all this demand, are you not going to need more capacity then? And, Matt, additionally, it looks like you are excluding finance leases in the free cash flow metric. Why treat it like this? As if it was not financed, you would still have CapEx. It does seem to imply, I am getting a lot of this question premarket here, it seems like you are implying about 10% reported free cash flow in 2027. So can you walk us through that? And I know this is a loaded question, but a lot of those that are providing leased servers are implementing memory cost increases. So I guess, how are you thinking about what commitments you actually have from them and potential pass-through of memory costs? W. Matthew Steinfort: Yeah. I will take that in reverse. We have seen increased component costs, the same as others in the industry, and that is all reflected in our guidance. It has not changed our return expectations or the economics that we would see. It just means that there is more cost associated with some of the servers that we are bringing on. But this is, I am glad that you brought this up, which is you have to think about our free cash flow in tiers. So you say, okay, well, you have got unlevered free cash flow, which, again, you should be using from a valuation standpoint, and that we are talking about being in the 18% to 20% range. When you add the interest expense, you get the levered free cash flow, which is what we have historically, that is our adjusted free cash flow margin, and you are only giving up a couple of percentage points there. That interest right now is half the TLA, and it is half equipment leasing. And then, as you point out, you have the principal payments that are more of a financing transaction. That is why they are not captured in either the adjusted free cash flow or unlevered free cash flow. But if you take those financing transactions, and if you are going to lump everything in it, and you say, okay, what about the mandatory prepayment of $25,000,000 a year on your term loan? Okay. We will throw that in there. If you take all of the cash payments, including the principal payments, including the prepayment of the term loan A, that is all financing stuff. So, again, you are mixing metaphors here. If you throw that all in, we are still generating cash. So you are saying, hey, well, it is 10. I am like, hey, it is 10. It is like we are generating cash while we are accelerating the growth of this business into the 30s. And on an unlevered free cash flow basis, it is 18% to 20%. So it is a testament to our ability to dramatically accelerate growth. We have taken growth from 11%, 12%, 13% to guiding to 30%, and we are generating incredibly strong unlevered free cash flow. We are generating very strong levered free cash flow. If you throw the kitchen sink in there and all the payments that we have to make, we are still generating cash. I mean, that is an incredibly strong position to be in, and we have a very flexible balance sheet. So we feel very good about the cash generation that we are setting out while we are delivering this growth. James Edward Fish: And, Padmanabhan, for you, on slide 20, I got asked a couple questions ago to a degree, but by 20, you point out that difference between you guys and Neo Cloud and inference wrappers, and maybe being humble about it, you point out that you are about 75% of the way in the first three categories. And so is this something that we should be expecting to hear about at the April event, or what do you guys need to do to get to that full 100% difference? Padmanabhan Srinivasan: Yeah. Fish, I do not know if I will ever call myself 100% in those things because that market is changing so fast. If we ask five of our customers today what they want versus what they thought they wanted three months ago, it is meaningfully different. Because as they are growing their customer base and deploying their solutions, new things come up all the time. The capability of AI models evolves all the time. This is going to be a moving target for the next couple of years. But the first part of your question, absolutely, that is where our R&D team is super heads down inventing new parts of the stack. You will hear a lot more about this on April 28. But I would say this is where I feel very confident that we already have a lead, and that lead is only going to grow over the next few quarters. Operator: Thanks, guys. Next question comes from the line of Thomas Blakey with Cantor Fitzgerald. Thomas Blakey: Guys, congratulations on a great quarter and a great outlook here. Maybe some follow-ups to my peers. Padmanabhan, you mentioned, I think it was to a previous question about demand outstripping supply and giving you great visibility that you have alluded to in this call. Not expecting you to give calendar 2028 commentary. If you wanted to look out two years on the April 25 call, that would be great. But in addition to that, I am interested in what you are seeing in a pricing dynamic. If demand is outstripping supply, you are lining up these new AI natives. Just maybe some commentary on pricing would be helpful from this cohort. Padmanabhan Srinivasan: Yeah. Thanks, Tom. I think we have already talked about what we are going to talk about for 2027. In terms of the demand, demand is clearly there, and we are moving as fast as we can to first deliver on these three data centers that Matt talked about. From a pricing point of view, we have competition from all kinds of different players. The pricing is holding, and in some cases, it has gone up. We are very, very attuned to what is going on in the market, and there is a lot of scarcity of supply across the board. We are also in a position where we work very closely with our customers to ensure that we are calibrating the price that we have, both on-demand as well as contractual prices, to keep pace with what the market dynamics are at this point. But I would say nothing has materially changed. The pricing is also a function of the generation of the GPUs that we are talking about. At the lowest level, if a customer wants access to GPUs, it is priced GPU dollars per hour, and at that layer, it really depends on the generation of the GPU, whether it is Blackwell or the Hopper series from NVIDIA or the 350, 355s from AMD or the 300 or 325. It really depends on the nature of the generation. There are also other dependencies like the cluster sizes, the cluster configuration, what kind of networking they want, and so forth. As you move up stack, if you look at my slide 19, and the one thing that I did not mention in slide 19 is that customers can enter our stack at pretty much any layer of the stack. The higher up you go in the stack, you are not pricing by dollars per GPU hour, but you are pricing per token. There we have a lot more degrees of freedom in terms of how we price versus competition, because there you are doing dollar per token, but also you have the flexibility of running it in different types of hardware. You can also change up the AI model that is servicing this token request. We have more degrees of freedom, and some customers need that flexibility, and they are willing to live with the higher orders of the stack rather than dictating which generation of hardware they want to run in. Thomas Blakey: That is super helpful, Padmanabhan. And just maybe an extension of that flexibility, it was impressive to hear about the zero churn in the large $1,000,000 plus cohort, 115% NRR. I would love to know what the overlap there is regarding the AI-native exposure. If you could maybe talk about just those customers and how much of that is from AI. And for Matt, relatedly, in your improving NDR, are we finally including AI and ML revenue there, and if not, when can we expect that? Thank you, guys. W. Matthew Steinfort: Yeah. Thanks, Tom. On a customer count basis, it is about half of the million-dollar customers are AI customers and half are core cloud or general-purpose cloud only. It is a little bit more on a revenue basis or an ARR basis, a little bit more AI, but not a lot. It is not too far off of 50/50. And as you saw in the materials, 48% of the trailing twelve-month incremental ARR is coming from those AI customers. So that is kind of how the split is. In terms of the NDR, no, it is not in there yet. The reason that we disclosed the AI customer revenue—and we will continue to disclose that as a metric and the growth rate—and also looking at the RPO, which is, again, a decent chunk of that, not all, but a decent chunk of that is also AI, is trying to give you better leading indicators of the performance of the AI customer base. The NDR, if you look at some of the charts that we showed with some of the bigger inferencing providers, they just got started on the platform in kind of the June, July time frame. There is a big difference in the size and caliber of the customers that we have been winning in the last six months—now seven, eight months, I guess—on the AI side. Those, we think, will have more of your traditional kind of NDR-like characteristics where they grow and expand on the platform using inferencing, which is more of a production workload, versus a lot of our earlier customers were smaller customers doing experimentation, doing projects, and they just do not look like—revenue was growing like crazy because we would be adding a ton of those customers—but if you looked at any of the individual customers, it was hard to see a pattern. NDR as a SaaS metric looks for patterns where you bring on a customer and you can expect them to do X, Y, Z over the next twelve months, and we just did not see that. There is a lot of noise in our AI customer revenue lumpiness early that we see changing. So we will continue to evaluate that every quarter, and at the appropriate time, we will contemplate rolling that in. But it is probably still twelve months away. Operator: The next question comes from the line of Patrick Walravens from Citi. Please go ahead. Patrick Walravens: Oh, great. Thank you. Congratulations on the quarter, and I have to say congratulations on the slide deck. It is fantastic, and I am sure all of your investors are going to appreciate it. So, Padmanabhan, I was looking back at my note from two years ago when you joined, and at the time, one of the things you said was that a durable competitive differentiator for us long term is going to be in the software layer. And you said you were focused on bringing simple, easy-to-use AI/ML capabilities on both hardware and software to developers. So what I am wondering is, as you look back, and you were growing 11% when you joined and decelerating, as you look back, which of the growth drivers that have caused you to accelerate—now we are talking about 30%—did you anticipate, and which were fortuitous is probably the wrong word, luck favors the prepared, but which were sort of unexpected? Padmanabhan Srinivasan: Yeah. Thank you, Patrick. I would say what was surprising to me—and maybe I will take some creative liberty in answering your question—what took a few quarters for us to get right was, as I mentioned several times during this call, we had a constraint in keeping up with customers that were scaling rapidly and scaling big on our platform when I joined. So it took us a few quarters to really understand, get to the bottom of their needs, and there was a lot of work that had to be done for us to get to the 0% churn that I was so proud to share with all of you this morning. That took a lot of engineering effort, and I am super proud of my team. It is a lot of very complex technology work all the way from advanced networking to fortifying our storage to inventing new things in our database offering, and so forth. That took a tremendous amount of heavy lifting, and that job is not done yet. We started with $100,000, then we focused on $500,000 customers. Now we are focused on million-dollar customers, and who knows? In the next couple of years, we will be talking about $5,000,000 and $10,000,000 customers. That bar-raising is an ongoing endeavor for us. On the more fun side of things is literally participating from the starting point with the AI-native ecosystem. We are learning as they are learning, and we are inventing alongside them. That is a great luxury to have because we feel like we can ride their growth curve, and as their needs increase and they are learning the right way to do this from a workload perspective, we are just trying to keep up pace, and they are super appreciative of us inventing on their behalf to make their life easier so that they can focus on their domain and invent new things for their customers. We will share a lot more of this on April 28, but that is how I would answer your question, Patrick. Patrick Walravens: That is great. Thanks, Padmanabhan. Operator: Next question comes from the line of Michael Joseph Cikos with Needham and Company. Please go ahead. Michael Joseph Cikos: Hey. Thanks for taking the questions here, guys, and congrats on the strong growth guardrails you are providing us. Matt, if I could just come back, and I know that the free cash flow topic has come up a couple of times here, but you can see as well as anybody just how sensitive the investors are in this market to the AI CapEx investments that are required or different financing vehicles that are out there. Just to be clear, when we look at the calendar 2026 versus the calendar 2027 guide, that unlevered adjusted free cash flow or adjusted free cash flow guide, the three-point delta is expected to widen to about 10 points in calendar 2027. If we take that one step further, and I know that your guidance for those guardrails for 2027 currently does not contemplate additional capacity coming online, but it seems fair that we should be assuming more capacity. If that is the case, would that delta between the unlevered and the levered free cash flow margin widen further from there? Is that fair? W. Matthew Steinfort: The way I think you have to think about it is, again, if you are looking at the levered free cash flow, it has got other stuff in it besides equipment leases. It has got TLA interest. It has got other things. If you look at, as Fish was saying, if you look at the other cash, there are mandatory prepayments of the term loan A. You have to be real careful about what you are using for what. If you said, hey, what is the steady-state cash flow generation capability of this business? Again, because we lease equipment, we do not have an upfront capital requirement that makes it super lumpy. We can make that smoother, and we can grow. However, when you are growing a business, even with that model, and you are adding data center capacity, you have a couple of months where you are actually taking data center lease expense and you have not generated any revenue. When you lease gear, unlike if you buy gear, you put it in your warehouse, you actually do not expense it until you deploy it. When you lease gear, you start that lease expense as soon as it ships. So you have front-loaded costs that do not catch up to the revenue right away. But because you did not have a big giant slug of capital, as soon as the revenue starts generating, you are immediately generating cash, and you are improving your margins with utilization. The steady state—if you said that is why we have been very crisp about what is included in the numbers—it is to give you a sense of what the margins look like on a steady-state basis. If we just continually assume, well, we are going to add incremental capacity, which I cannot tell you how much incremental capacity we are going to add because we have not contracted it, and we have not committed anything to incremental capacity. What we are showing is when we add 31 megawatts, as an example, you roll that forward a year, you have incredibly strong cash flow characteristics to that. There is going to be a short-term impact on gross margins and net income because of the timing thing I described, but that works itself through relatively quickly. You would expect that as we saw other opportunities to accelerate our business with similar economics that we would make similarly good decisions, and that engine will keep going. I view it in a very different way than what you are describing. I view it as, hey, if we are going to commit to more capacity, it is because we have more growth opportunities, and the returns are incredibly compelling. We are doing it in a way we match the revenue and the cost, and we are not going out beyond our skis and making massive commitments chasing the data center and GPU arms race. We are doing it methodically. We are doing it where we have an advantage, where we earn a good return, and we are able to do it while, again, taking 11%, 13% revenue growth to 30% while still maintaining really good margins. We are really excited about the potential we have and the economics that we are delivering. Michael Joseph Cikos: Thanks for that, Matt. Maybe for a quick follow-up here. Understood on the accelerating growth you guys are looking at throughout calendar 2026 just based on the megawatts coming online. One thing I wanted to ask, and I am sure that you guys have your own models as you are looking at the AI customers ramping. But to drive that 25%-ish growth exiting calendar 2026, can you provide any additional color for what you are assuming in terms of ARR directly from those AI customers? If I am thinking about the $120,000,000 that we see today exiting calendar 2025. W. Matthew Steinfort: The only thing I would say is what we said is that the AI customer ARR in Q4 was $120,000,000 growing 150%. We have more demand than we have supply. We are bringing on supply. You should expect that it does not slow down. Operator: Our next question comes from the line of Mark Zhang with Citi. Mark Zhang: Hey. Great. Thanks for taking my question. Just given the strong demand environment, should not we see more capacity commits coming, I guess, announced today? If that is not the case, then is there enough incremental capacity or megawatt capacity in your current footprint to support continued growth? Just any insights there will be appreciated. Thanks. W. Matthew Steinfort: Sure. So, Mark, as we said, there is enough capacity in committed capacity. There is enough growth potential in the committed capacity to get us to 30% growth in 2027. Clearly, we are very cognizant of the data center market and very active in terms of the evaluation of that. We have not made any commitments at this juncture to share with the market. If we get to a point where we make a commitment, we will certainly share that. At this point, again, we thought it was incredibly important for people to understand how to digest capacity as we bring it on, and that is why we have guided to what we have based solely on the 31 megawatts we have already committed. It gives you a good sense of how it ramps and what the economics are. Should we bring on incremental capacity, you will have a good model to add on to the growth ramps that we have already articulated. Mark Zhang: Okay. Great. And then maybe related to that, can there be a sense of utilization of your current estate? Maybe give a sense of the current capacity—or we know the current capacity—maybe any sense of the contracted capacity that you have on the books? Thanks. W. Matthew Steinfort: Yeah. From a contracted capacity standpoint, again, if you are talking about data centers, we have 31 megawatts that we are adding to our roughly, call it, 43 or 44, which will put us at just about 75 megawatts when we are done. The six megawatts—so we are sitting at, call it, 43, and we are adding six that will come online, start generating revenue in the second quarter. The balance of the incremental 31, which is about 25, will come on and start ramping revenue in the second half. We expect to reach whether we are at full utilization is a function of whether we decide to fill them all with GPUs right away or we do it over time because we like to stripe out the generations of GPUs. We do not like to go all in on one type of generation of GPUs, but we will be at a very healthy utilization at some point in 2027, which is enabling us to get to that 30% growth. Mark Zhang: Thank you. Operator: At this time, we have no further questions. That concludes our Q&A session and today's conference call. We would like to thank you for your participation. You may now disconnect your lines. Have a pleasant day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the American Tower Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, today's conference call is being recorded. [Operator Instructions] I would now like to turn the call over to your host, Spencer Kurn, SVP of Investor Relations. Please go ahead. Spencer Kurn: Thank you, and good morning. Welcome to our fourth quarter 2025 earnings call. I'm Spencer Kurn, Head of Investor Relations for American Tower. Joining me on the call today are Steven Vondran, our President and CEO; and Rod Smith, our Executive Vice President, CFO and Treasurer. Following our prepared remarks, we will open the call for your questions. Before we begin, I need to call your attention to our safe harbor statement. It says that some of our comments today may be forward-looking. As such, they are subject to risks and uncertainties described in American Tower SEC filings and results may differ materially. Additional information is available on our Investor Relations website. With that, I'll turn the call over to Steve. Steven Vondran: Thanks, Spencer. Good morning, everyone. Thanks for joining today's call. As you can see from our published results, we had a great year and an excellent fourth quarter. For the full year, we delivered attributable AFFO per share as adjusted growth of 8%, including over 13% growth in the fourth quarter. These results were underpinned by robust leasing demand across our tower and data center businesses and strong execution against our strategy. Over the past year, we've taken meaningful steps to improve our earnings quality and durability. We've steered capital toward developed markets, globalized and simplified our operations and brought leverage back down to our target range. These actions put us on strong footing to capitalize on future growth opportunities and deliver on our goal of industry-leading AFFO per share growth. Before turning the call over to Rod to review our detailed financial results and 2026 outlook, I'd like to spend a few minutes discussing our key priorities for 2026, as outlined on Slide 5 of our earnings presentation. First, driving durable revenue growth. The backbone of our revenue growth is mobile data consumption, which continues to grow rapidly alongside growth in mobile customers, 5G adoption and fixed wireless access. This secular demand growth is expected to require a doubling in wireless network capacity between now and 2030. On top of this, with trillions of dollars being deployed into AI, it's likely that new AI applications will propel mobile data consumption even higher and require greater bandwidth, lower latency and more uplink capacity than today's typical usage. In our largest tower market, the U.S., carriers are in the middle stages of the 5G cycle, where they broadly completed their initial 5G coverage-oriented activity and are shifting toward capacity-oriented activity. We anticipate carriers will densify their networks not only to meet the capacity demands of 5G, but also to plan ahead for the 6G cycle. We're excited about the 800 megahertz of higher frequency spectrum that's been earmarked for 6G and believe its deployment will drive significant activity on towers. As carriers invest in this capacity, we expect our U.S. portfolio to deliver durable long-term mid-single-digit organic growth. As you saw in our 8-K form from January, DISH has defaulted on its payment obligations. We continue to pursue legal action to recover the value of its remaining lease obligations. And while DISH's default negatively impacts our 2026 outlook, in the long run, we expect our business to benefit from a healthier, well-capitalized customer base that can invest more heavily in their mobile networks. Internationally, we see parallel trends of rising data consumption driving durable network investment. In our European market, 5G progress lagged slightly behind the U.S. and strong demand for new sites is prompting exciting levels of newbuild activity with top-tier carriers. In our emerging markets, 4G-related activity continues to dominate, but we see increasing levels of 5G rollouts in key metros with significant runway for growth. We continue to expect our international tower portfolio to deliver faster organic growth in the U.S. as our less mature portfolios lease up over time. In our data center business, strong demand for hybrid and multi-cloud deployments and positive pricing actions continue to yield impressive double-digit growth. Demand for AI-related use cases like inferencing and machine learning is driving an increasing portion of new leasing, and CoreSite's AI-ready platform is equipped to accommodate these higher-density, interconnection-heavy workloads within its existing cost structure. CoreSite is also benefiting from sustained migration of enterprise IT infrastructure from on-premises to interconnection-rich colocation facility. These powerful demand trends, combined with our unique interconnection-oriented infrastructure, continue to support CoreSite's achievement of mid-teens or higher stabilized yields on new data center deployments. Our second priority is operational efficiency. This has long been a key operating principle at American Tower. Over the past 3 years, we worked diligently to improve our cost structure by centrally aligning our regional groups, divesting noncore business units and automating leasing transactions. These initiatives have helped deliver over 300 basis points of cash EBITDA margin expansion across our global tower portfolio since 2022. And today, we have the highest like-for-like tower cash EBITDA margins amongst our peer group. The bulk of our recent cost efficiency efforts have focused on reducing SG&A, which for our tower business is best-in-class at approximately 4.5% of revenue. With the creation of our global COO position last year, we've undergone an extensive review of the direct costs within our tower business in an effort to bend our cost curve and grow direct expenses at a slower rate than revenue. We identified four key areas of expense savings across our global tower portfolio. First, managing land expense, which is our most significant direct cost, by expanding our highly successful U.S.-based land optimization program to other markets; second, implementing a global unified sourcing and supply chain to enable economies of scale, gain pricing advantages and improve inventory management; third, accelerating the adoption of our well-developed standard of care for U.S. assets across our global portfolio to improve repair and maintenance costs; and fourth, simplifying and standardizing internal technology platforms to optimize customer service and accelerate automation. We expect these new initiatives in conjunction with continued strong conversion rates to drive 200 to 300 basis points of tower cash EBITDA margin expansion over the next 5 years. On top of this, we're investing in AI to accelerate efficiency gains even further. While we're still in the early stages of AI adoption, we expect AI use cases to target process automation, predictive maintenance, power and utility management and workflow optimization. We look forward to updating you on our AI endeavors and accelerated efficiency targets in the future. Moving to our last priority for the year, capital allocation. We remain disciplined stewards of capital and strive to generate durable cash flow growth with high returns on invested capital. Now that we're back within our target leverage range, we have significant flexibility. After funding our dividend, we will opportunistically assess the best uses of our capital among internal CapEx, M&A, share repurchases and further delevering. This year, we plan to deploy the vast majority of growth CapEx to our developed tower markets and CoreSite, and we'll continue to manage our global portfolio in ways that accelerate growth and reduce volatility. Before turning the call over to Rod to discuss our 2025 results and 2026 outlook, I'd like to thank our incredible employees for delivering another excellent year. We've established a best-in-class platform for capitalizing on strong industry demand drivers, and I'm confident that we're well positioned to execute our 2026 priorities and drive accelerating durable growth in 2027 and beyond. Rod, over to you. Rodney Smith: Thanks, Steve, and thank you all for joining the call. I'll start by walking you through our 2025 highlights and then share our 2026 outlook. Slide 7 shows a snapshot of our full year highlights. Consolidated property revenue grew approximately 4% year-over-year and approximately 5% when excluding noncash straight line and FX impacts. Our growth was primarily driven by organic tenant billings growth of approximately 5% and complemented by data center revenue growth of approximately 14%. Adjusted EBITDA grew approximately 5% year-over-year and approximately 7% excluding noncash net straight line and FX impacts. Property revenue growth was magnified by record services contribution and disciplined cost management, resulting in 20 basis points of consolidated margin expansion. Attributable AFFO per share as adjusted grew approximately 8% year-over-year, firmly within our long-term range of mid- to high single digits. This growth was supported by strong conversion of adjusted EBITDA growth and management of below-the-line costs. Excluding refinancing headwinds of approximately 1% and normalized for FX impacts, AFFO per share as adjusted grew approximately 9% year-over-year, demonstrating the underlying strength of our business model. Finally, on the capital allocation front, we brought leverage back down into our target range of 3 to 5x, and we ended the year at 4.9x. Also in the fourth quarter, we repurchased approximately $365 million of American Tower common stock, our largest quarterly and annual buyback since 2017. We've continued to repurchase stock in 2026, buying back approximately $53 million year-to-date. Now let's turn to our full year 2026 outlook, starting with organic tenant billings growth on Slide 8. As Steve mentioned, DISH failed to meet its payment obligation and is in default. This did not impact our 2025 financials, and for the full year 2025, DISH represented approximately 2% of consolidated property revenue and approximately 4% of U.S. and Canada property revenue. In order to reset true run rate expectations for the U.S. and Canada, 100% of DISH's revenue was removed from organic growth beginning on January 1 and reflected in churn. Any payments collected from DISH subsequent to year-end 2025 will be reflected in other non-run rate revenue. For 2026, we expect consolidated organic tenant billings growth of approximately 1% or approximately 4% excluding DISH churn. In the U.S. and Canada, organic tenant billings growth is expected to be approximately 0.5% or approximately 4.5% when excluding DISH churn. This is comprised of colocation and amendment growth of approximately 2.5%, escalations of approximately 3%, DISH-related churn of approximately 4% and normal churn of approximately 1%. We remain constructive on growth for towers in the U.S., supported by a healthier, well-capitalized customer base. In Africa and APAC, organic tenant billings growth is expected to be approximately 8.5%. This is comprised of colocation and amendment growth of approximately 7%, representing a modest acceleration off of 2025 levels, CPI-linked escalations of approximately 4% and churn of approximately 2.5%. Churn is expected to be back half weighted, resulting in approximately 10% organic growth in the first half of the year and approximately 7% in the second half of the year. In Europe, organic tenant billings growth is expected to be approximately 4%. This is comprised of colocation and amendment growth of approximately 3%, consistent with 2025 levels, CPI-linked escalations of approximately 2% and churn of approximately 1%. In LatAm, organic tenant billings is expected to decline by approximately 3%. This includes steady colocation and amendment contributions of approximately 2%, CPI-linked escalations of approximately 4%, churn of approximately 8% and other run rate revenue headwinds of approximately 1%. As communicated over the last couple of years, we have expected low single-digit organic growth in LatAm through the end of 2027 due to elevated consolidation-related churn in Brazil and for organic growth to accelerate in 2028 once the churn passed. On average, our multiyear expectations remain consistent, though we now expect more acute churn in 2026 and the acceleration in organic growth to commence in 2027, 1 year earlier than previously expected. The higher churn in 2026 is driven by a combination of delayed churn initially expected in 2025 and accelerated churn initially expected in 2027. Overall, we are encouraged by the prospects of an earlier-than-expected market repair in Brazil and from the forthcoming acceleration of organic growth in 2027. As a reminder, we still have an ongoing arbitration with AT&T Mexico. We remain confident in our legal position and note that the outcome of the arbitration may impact organic growth. Turning to property revenue on Slide 9. We expect our outlook for approximately 1% organic tenant billings growth to be complemented by the selective construction of approximately 2,000 new tower sites at the midpoint of our outlook and approximately 13% growth in our U.S. data center business. Excluding noncash straight-line revenue and FX impacts, property revenue is expected to grow approximately 3%. Normalized for the impact of onetime DISH-related churn, our outlook for property revenue implies approximately 5% growth on a cash FX-neutral basis. The FX assumptions contemplated in our 2026 outlook, which reflect our standard methodology and are conservative relative to current spot rates, contribute approximately 1% of incremental growth. And noncash straight-line revenue represents an approximately 2% headwind to our GAAP outlook for property revenue. Moving to Slide 10. Adjusted EBITDA is expected to grow approximately 2% when excluding net straight line and FX impacts as growth in towers and data centers is partially offset by a decline in services. Normalized for the onetime impact of DISH-related churn, our outlook for cash adjusted EBITDA implies approximately 5% growth. Cash adjusted EBITDA margins are expected to be 66.8%, down a modest 20 basis points versus last year as steady margins in towers are offset by contributions from lower-margin data centers and services. In towers, due to a continuation of high conversion rates and cost savings initiatives, we expect cash margins to be flat year-over-year even while absorbing approximately 60 basis points of onetime pressure from DISH-related churn. In data centers, we expect cash margins to decline approximately 270 basis points year-over-year as onetime benefits from property tax adjustments and legal settlements in 2025 are not expected to reoccur in 2026. Normalized for these onetime items, we expect cash margins to hold steady as strong lease-up of existing facilities is offset by putting new capacity into service. In services, we expect healthy levels of carrier activity to drive our third highest services contribution in the history of the company. While this level of services contribution is robust relative to historical standards, following our record 2025 and taking into account an increasing contribution of lower-margin construction services, it weighs on consolidated growth and margins in 2026. Turning to AFFO on Slide 11. Our 2026 outlook assumes attributable AFFO per share growth of approximately 1% year-over-year. Normalized for the impact of onetime DISH-related churn and excluding the impact of FX and refinancing costs, our outlook for attributable AFFO per share growth implies approximately 5% growth. Bridging from our 2026 outlook for cash adjusted EBITDA, tailwinds from lower maintenance capital and share repurchases executed in the fourth quarter of 2025 and year-to-date in 2026 are partially offset by higher interest expense as debt is refinanced at higher rates, higher cash taxes and higher minority interest and distributions, consistent with our expectations. While our outlook for 2026 growth is negatively impacted by churn events in the U.S. and Latin America, we believe that we are well positioned to deliver our goal of industry-leading attributable AFFO per share growth and compelling total shareholder returns in subsequent years. On Slide 12, I'll review our capital allocation plans for 2026. We expect to grow our dividend approximately 5%, resulting in approximately $3.3 billion in distributions to our shareholders, subject to Board approval. Next, we're planning for $1.9 billion in capital deployments, of which $1.8 billion is discretionary in nature and includes the construction of 2,000 sites at the midpoint. Approximately 85% of our discretionary spend is directed towards our developed market platforms, including over $700 million in success-based investments in our data center portfolio to replenish elevated levels of capacity sold over the past several years, increased spend in the U.S. primarily toward land buyouts under our tower sites and continued acceleration in European new builds with over 700 new sites planned. Our plan also includes approximately $180 million in maintenance capital, a reduction of roughly $15 million due to an acceleration of maintenance capital projects into 2025, reducing 2026 anticipated spending. Moving to the right side of the slide, we remain disciplined as we utilize our balance sheet, which is well positioned for a variety of macroeconomic scenarios. And we are focused on allocating capital to optimize long-term shareholder value creation. As I mentioned, we repurchased approximately $365 million of American Tower stock in 2025, plus another approximately $53 million so far in 2026. We will continue to be opportunistic in utilizing the remaining approximately $1.6 billion that the Board has authorized for share repurchases. Turning to Slide 13 and, in summary, we are pleased with our 2025 results, which demonstrate the fundamental durability of our business model. Robust mobile data consumption growth and demand for our interconnection-rich data centers underpin a long runway of growth opportunities for American Tower. With our best-in-class portfolio of towers and data centers and strong balance sheet, we are well positioned to capture these growth opportunities and deliver on our goal of industry-leading attributable AFFO per share growth. And with that, operator, we can open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Batya Levi of UBS. Batya Levi: Great. On the domestic side, can you provide a bit more color on the pacing of activity that you're seeing from the carriers as we enter a lower contracted revenue cycle that you had under the holistic deals in the prior terms? And are you seeing a change in the amendment versus densification activity today? And maybe just to compare that 2.5% leasing growth guidance for '26, how does that compare to '25 if we exclude DISH? Steven Vondran: I'll start out with leasing trends, and then I'll let Rod talk about the numbers on it. So what we're seeing, Batya, is we're seeing the customers providing a steady level of activity, kind of broad-based across the entire ecosystem there. And we are seeing a higher incidence of new colocations coming in, but we still have a pretty healthy amendment pipeline as well. And this is what we would expect to see at this point in the cycle. Some of the carriers are broadly done with their initial 5G overlays. So there'll be some fill-in sites that happen there, but they're broadly done with their initial targets. One is still a little bit further behind on that. And so we are still seeing some amendment growth there. And when it comes to the densification, we're seeing both some amendments because they're adding more equipment to existing sites that they've already overlaid, but they're also adding new sites. So we are seeing a little bit of a shift in that. But we still would expect the majority of our new leasing to come from amendments this year, as we have historically. Rodney Smith: Batya, this is Rod. I'll take the other piece of your question relative to the colo and amendment contribution to organic tenant billings and how it relates to prior year. So if you look at our 2026 guide for organic tenant billings growth, it's about 0.5%. Within that, there is about 2.4% contribution coming from colocation and amendment revenue. Now that doesn't have any contribution from DISH at all in it. If you go back to the prior year, the 2025 numbers, we were at about 3.1%, 3.2%, which included some activity from DISH in terms of the contribution from colocation and amendment revenue. When you remove that contribution in the prior year number from DISH, you come right in at that 2.5% level. So we are seeing, as Steve outlined, very consistent activity levels in the U.S. marketplace ex DISH. And we're seeing about 2.5% contribution from colocation and amendment revenue in each of those years from the carriers in the U.S. ex DISH. The only other thing I would add to the pacing of the new business, as Steve said, it's pretty consistent. You will see a little bit higher number in the first half of the year and it drops down just slightly in the second half of the year. Steven Vondran: Yes. Thanks, Rod. Yes, I think you meant to say 2.5% contribution from new leases and amendments this year. Operator: Our next question comes from the line of Rick Prentiss of Raymond James & Associates. Ric Prentiss: Hope you're doing okay with the snowstorm. Can you hear me okay? Rodney Smith: Yes. We can, Rick. Ric Prentiss: Hope you're doing okay with the snowstorm. Obviously, crazy up there in the Northeast. I want to start on the DISH. Appreciate it's out of the guidance. We had taken it out of our numbers as well. Can you provide us the amount owed? Like Crown Castle mentioned that they're owed $3.5 billion when they terminated the agreement with DISH. Are you able to tell us how much is owned and that you're looking at trying to work out a payment from them? Steven Vondran: Yes. Thanks, Rick. Yes, I think the key takeaway that we want everybody to have about DISH from today's call is that we have derisked our business going forward by taking it out of the numbers. And we fully plan to fight in the litigation. We think our contract is enforceable. We're going to do everything we can to collect that. But that would all be incremental upside to the current guidance that we're giving out there. When it comes to the exposure on DISH, we've given you guys the numbers. We can kind of back into it, where it represents about 4% of our U.S. revenue. So that's approximately $200 million a year and we've disclosed that it goes through 2035 into 2036. So that gives you guys kind of the ballpark on that. We haven't put a specific number out there and don't plan to put a precise number on it, but that gives you guys kind of the ZIP code of where that exposure is or what the opportunity is actually now that it's out of the numbers. And so in terms of -- and I'll go and proactively address this for some of the other questions I know are coming. We don't plan to speculate on the litigation. It's public, and you guys can follow along as you go. This is going to take time to work out. And so we don't necessarily expect this to get resolved this year. We hope it does, but we don't necessarily expect it to. And so as we kind of go forward -- as we go forward in the year, we'll keep you updated on anything material that happens. But otherwise, we're just going to continue to fight this out in the courts and see where it goes. Ric Prentiss: Excellent. Along those lines, obviously, settlement or payments would be upside to the capital allocation. You mentioned opportunistic stock buybacks, also pursue M&A. How should we think about M&A out there, what you're seeing across the global landscape? And maybe address also kind of the disparity between public and private multiples. Steven Vondran: Yes. Thanks, Rick. We continue to evaluate everything that's out there. As you probably know, there's a lot of portfolios that are talked about right now. There's not a lot of active deals that we're seeing. But we are still seeing a disconnect between private and public multiples. And we think that, that reflects the attractiveness and the durability of revenue in the tower business. And so that's kept us on the sidelines for the past few years because there has been that delta there that's made it hard for us to participate. But just to reiterate to everyone, our capital allocation strategy is to focus on developed markets. And so you should not expect to see us participating in M&A in emerging markets. We'll continue to invest a small amount of capital there, opportunistically doing redevelopment to support our organic tenant billings growth there. And then we do have some build-to-suits that we're doing as part of multiyear commitments we entered into previously. But as we think about capital allocation going forward, it's really focused on developed markets, predominantly the U.S. And then if there's an opportunity in Europe or elsewhere that's developed, we'll certainly evaluate that. But we're not seeing a lot of deal flow out there that we find attractive today. And we hope that changes. We hope that there is an opportunity for us to scale in some of those markets. And if there is, we'll keep you guys apprised when it happens. Rodney Smith: Rick, I would just add a couple of quick things here. Once you had mentioned any possible future settlement from DISH could be a balance sheet item. I'll just highlight the fact that DISH is in default at the moment. They're not paying us. There is the potential for future collections that may come in. And if they do, it could be accounted for in other non-run rate revenue. So there could be some P&L impacts to the extent that there are future collections from DISH as we go forward. And the only other thing I'd highlight on capital allocation is we are now down below our 5%, within our 3 to 5x leverage target. As you've heard Steve and I talk about over the last several quarters, that brings us into financial flexibility. Just to remind you the bits and pieces here, Steve talked about this. We're a REIT. We provide the dividend. We think that's essential to our long-term TSR, total shareholder return. Then we have been consistently investing between $1.5 billion and $2 billion in CapEx. And we've been able to rotate that, as Steve said, into the areas where we see the best returns. Today, that's going into developed markets and it's increasing capital investments in CoreSite. And then we look at M&A and buyback, and we will make the decisions between those two pieces in terms of which one provides the best outlook for long-term total shareholder return. And of course, if paying down debt and building capacity for future deployments make sense, then we'll do that. So we have a lot of options available to us. We're willing to use them all. And we are now in a place where the balance sheet is very strong and we've regained full financial flexibility. Operator: Our next question comes from the line of Michael Rollins of Citi. Michael Rollins: So the margin guidance for cash margins to go up by 200 to 300 basis points by 2030, how much of that is just organic from the natural operating leverage in the business? And then how much is represented by the acceleration of the activities that you outlined earlier? Rodney Smith: Michael, this is Rod. Let me take that one. So as you highlight in our 2026 guide for cash EBITDA margins, we're guiding to about 66.8%. That is slightly down from the prior year, down about 20 basis points. Of course, within there, there is organic revenue growth as the benefits of cost management that I would remind you and other listeners that we, as a company, have been focused on cost management and efficiencies over the long term historically and certainly over the last several years, you've seen us talk about absolute reductions in SG&A year-over-year over the last few years. So this is not new to us in terms of focusing on cost. A couple of things that are offsetting those expansionary pieces that are driving the margin is it's offset by contributions -- higher contributions from our data center business which is lower margin as well as contributions from our services business that also has lower margin. And I would highlight that it's absorbing about 50 basis points of contraction because of the DISH churn. And within there, it has a step back in the CoreSite margins by about 270 basis points. A lot of that is a onetime nonrecurring benefit we got in property tax as we reversed a prior property tax accrual in 2025. That's not expected to be recurring again, of course, in 2026. With all of that said, I'm not going to go through and try to break out the bits and pieces of that margin expansion that we are expecting. We have increased margins about 300 basis points over the last several years. We expect to do that again going forward in the next several years going out to about 2030. And I'm not going to break it out in terms of which pieces are the organic growth pieces and which ones are the cost savings. And it really is a continuation of what we've been doing. We've been focused a lot on reducing and managing SG&A. We'll now pivot towards global operations and look to reduce and manage our direct expenses down. That will help contribute to that continued expansion. Michael Rollins: And just to confirm. Over the last several months, I think you and Steve have been talking about the incremental effort to drive efficiency, and we were going to get an update at some point. So does today's target for 2030 fully encapsulate the activities that you've been describing over the last several months just to continue to push those efficiencies forward? Steven Vondran: It encapsulates the things that I talked about in my script, where we talked about the four initiatives that we're taking on today. We do think that AI could offer some incremental upside to that, but it's too early to predict exactly what that's going to be. So when you think about what we're doing here, the direct costs typically rise with inflation. And so we thought the best way to explain a target to you guys was to do it in terms of margin. We could put out a number that's sort of a voided cost number that wouldn't mean anything to anybody. But we didn't think that was the right way to explain it. We thought it was really to focus on what's it going to be in the bottom line and what's something you could actually model out in terms of our expectation. And so when we looked at it, and we looked at what the growth would have been in terms of margins just from the operating leverage and where we were in terms of direct, we set a stretch target for ourselves. And we do think that, that 200 to 300 points of margin expansion represents some nice improvement over what it would otherwise be if we weren't able to recognize these cost savings. So that's the guidance you're going to get from us, is that margin expansion piece. If theres's a chance to do something else with AI, and we think there is, once we've been able to sort of figure out exactly what those numbers look like, we'll share it. But until then, focused on margin expansion. As Rod said, look at it on the tower side, not on the data center and services side. And we give you guys enough information in the supplemental to do that. And we'll continue to expand those margins and update you on that quarterly like we always have. Rodney Smith: And Michael, I would just add that, that margin expansion is off of a base that is already industry-leading. Operator: Our next question comes from the line of Nick Del Deo of MoffettNathanson. Nicholas Del Deo: First, I was hoping you could expand a bit on two of the tower revenue growth drivers you highlighted, fixed wireless and AI. So with fixed wireless, are you seeing the carriers invest behind it as the primary motivating factor for work on a site versus it piggybacking mobile-led deployments both in the U.S. and overseas? And what AI use cases do you see as most promising for driving wireless traffic growth? Steven Vondran: Sure. I'll take that one. When it comes to fixed wireless, the carriers are still using their existing installations to support that. So you wouldn't necessarily see a stand-alone deployment for fixed wireless. The way we think about it is overall mobile network traffic and mobile data demand. And when you look at the percentage of mobile data usage that's coming from fixed wireless, it's accelerating. We also look at our carrier customers and what they're saying publicly, and they're all raising their targets for fixed wireless subscribers. So what that tells us is that's driving demand on the network and that's underpinning growth in our sales, even though we can't necessarily pinpoint this amendment or this colocation to fixed wireless, we know it's kind of an overall driver. And when it comes to AI, we're in the early days of this. And most of the AI that we're all doing on our telephones is text or maybe a still photograph. That doesn't put a ton of stress on the networks. It's really video that puts the stress on the networks, and it's both video upstreaming and downstreaming. And that's what we think is going to drive a lot more activity over time. Some of the projections we've seen are showing that the upstreaming effects of AI could require a change in network architecture. Where most networks today have about 10% dedicated to upload and 90% to download, varies by customers, so some of them could be different, we think that in the future, AI could change that trajectory a bit so that you're seeing north of 20% in terms of uploading capacity. So again, it's early days. Too hard to predict exactly when it's going to happen or exactly what app is going to drive it. But it's really that video upstreaming, video manipulation as well as things like the Meta glasses that are live streaming kind of everything around you, those types of applications that we think are going to really result in some network traffic over time. Nicholas Del Deo: Okay, Steve. And can I ask one on CoreSite as well? I thought there were some local news reports that indicated that you recently bought land in the Bay Area and might be pursuing a new campus in the Dallas-Fort Worth area. Assuming those reports are accurate, kind of what's the time frame for the Bay Area land? And how many megawatts do you think it will be able to support? And maybe talk a little bit about the vision and rationale for de novo market entry in Dallas. Steven Vondran: Sure. So we're not ready to announce any new markets yet. We are selectively looking at opportunities in other key metros that would be complementary to our existing portfolio, and we have purchased the land in various areas as sort of an exploratory foray into those. And when we make a decision to break ground there, we'll tell you guys that we're doing it. The rationale is we're seeing incredible demand on our campuses. And this is our fourth consecutive year of record sales growth and this is the first year we've seen AI really manifest itself as a huge use case. So when you look at what's driving the success of CoreSite right now, we still have our kind of bread-and-butter customer, and that's the enterprises that are -- need to be in an interconnection-rich data center that's directly connected to multiple cloud on-ramps. That's our core customer. There's still a huge tail -- a long runway of demand from that customer. But we're also seeing AI workloads like inferencing and machine learning, things like that, and that's our fastest-growing new use case. So from our perspective, to maximize the value of CoreSite, which is what we should be doing, it's both investing in our current campuses and expanding those. And it's looking at what other markets our customers would like for us to be in to drive even more accelerant sales over time. From a timeline perspective, from the time we break ground until the time we open the facility, it depends on a couple of factors. Power availability is one of them, but also just the size of the facility zoning, et cetera. But you can expect it to be approximately 2 to 3 years from the time we break ground till the time that we can bring that capacity online and start realizing revenue from it. Operator: Our next question comes from the line of Jim Schneider of Goldman Sachs. James Schneider: I was wondering if you could maybe just elaborate on the cost reduction program. Maybe specifically talk about what -- it sounds like many of the actions you mentioned, Rod, would be things you would have done in normal course already. So I'm trying to understand, are you basically saying or is the message that you'll be able to sort of achieve this 50 basis points on average per year in spite of some of the cost headwinds and margin headwinds that you mentioned earlier? Or is there something sort of above and beyond that? And would you expect any nonlinearity in achievement of those? Rodney Smith: Yes. Thanks for the question, Jim. And I would highlight the fact that in the last several years, you've seen us really manage our SG&A and manage that down. Of course, we don't announce when we're reducing staff and those sorts of things, but some of that activity certainly happened over the last 3 years as we rationalized SG&A across the board. When I mentioned a continuation, it really is a continuation of the mindset around cost management and cost controls. The thing that is different going forward is that we have a different global structure. We have the addition of a Chief Operating Officer that is going to be bringing best practices around the globe in terms of the way we manage land expenses, the way we execute on supply chain and sourcing. We're going to be looking to expand the standard of care and the way we manage tower operations in the U.S. globally, which we expect really will drive efficiency and bend that curve down. And that will be a contributing factor to the margin expansion that we expect going out, out to 2030. James Schneider: And then as a follow-up, can you maybe comment on the Europe property growth expectations? 9% new site seems like a lot. I'm just kind of curious where that's coming from. And maybe talk about any kind of the flavor or underlying color on a country-by-country basis. Steven Vondran: Sure. I'll take that one. So we're seeing a lot of good opportunities in Europe right now, and we have a strong portfolio anchored by Telefonica that's largely insulated from some of the potential consolidation that's out there. So as we look at Europe, we're continuing to see a long runway of mid-single-digit organic growth that we expect to realize there. And as part of our acquisition but also as part of some of our other agreements out there, we have the opportunity to build new sites. So we're expecting to bring onboard a record number of new builds in Europe next year. And so that's underpinning a lot of that growth. And it's largely in the countries you'd expect it to be. Our two main markets are Germany and Spain there. So you're going to see a lot of towers there. We will bring some new towers online in France as well. And we'd like to bring more online in [ Italy ]. We like that country, and we just don't have as much presence there as we'd like to have. But what you're seeing there is a reflection of some really solid performance by our teams and earning the trust of our customers and then giving us more opportunities to build sites for them. And that's what's underpinning the growth there, along with good leasing expectations over time. I would note that Europe in general is behind in deploying 5G compared to what the U.S. is. And so I think that from that perspective, there's a lot more runway to continue to deploy 5G there as well. So we feel good about the market. We feel good about the investments there. And what you're seeing in that 9% is really us continuing to build new sites as well as realizing organic growth there as well. Operator: Our next question comes from the line of David Barden of New Street Research. David Barden: I guess regarding capital allocation, we talked a lot about returning capital and making new investments. But something we haven't talked about for a while, Steve, was kind of the pivot away from emerging markets. And I think the term of art is called capital recycling. And if you go to Slide 11 and you kind of look at that left-hand side, it looks like there's a lot of markets that are small enough to be distractions and that money could be put to a higher and better use. So if you could kind of talk to us a little bit about what the strategy there is at this stage, whether currencies and market valuations have perhaps stopped you from doing things or if things are on the burner. And then I guess my next question is a little offbeat. But for the last 5 years, if anyone asked, hey, how's satellite going to affect the terrestrial wireless business, you'd roll your eyes and you'd say, it's never going to have an impact. But now that you're starting to talk about 2030 margin expansion, 2030 6G is a driver and the reality that these LEO constellations are going to evolve over the next 5 years in material ways, how do you kind of get comfort right now looking into 2030 that this kind of evolution of connectivity, towers in the sky, so to speak, isn't an equivalently disruptive -- an equivalent to, say, the AI evolution, which you also expect to happen in the next 5 years? Steven Vondran: Yes. Well, let me take the emerging market question on that. And our goal is always to establish a real estate portfolio that's giving us industry-leading AFFO per share. And we made a pivot a couple of years ago to focus more of our development CapEx in the developed markets because we thought that was going to give us the best durable growth over time and because we had gotten a little ahead of ourselves in terms of emerging market exposure given some of the challenges that we saw there with India and other things. So we've already made a number of changes to our portfolio mix there. You referenced some of the smaller countries. And we'll always evaluate those countries to see what the best use of capital is on that, and you could see us do something there, but only if we think we're realizing the value of those that's accretive to our shareholders. So we're not going to do any fire sales. We're not going to eliminate something because of the distraction. What we've done to fix that is we've changed our operating model so that they're operating from regional hubs or through these kind of global organizations. So it's really not a distraction for us. So it's all about what value can we realize and does that make sense? And if it does, you might see us take action. Otherwise, we're going to harvest that cash flow and redeploy it into our capital priorities that we outlined there. So again, just when there's some -- when there's news there, we'll let you know. But until then, we're going to continue with those. When it comes to satellites, the reason that we made an investment in AST SpaceMobile was to get a Board seat so that we would have a front row seat to this technology as it unfolds. And we certainly continue to monitor that. We talk to the engineers in the space. We talk to the dreamers in the space and what they're trying to do. And that gives us a lot of confidence that satellites will be complementary to the terrestrial networks. 6G is likely to be designed with satellites being an integral part of an integrated network. But the simple physics of spectrum, the simple economics of having a constellation that has to consistently be replenished over time means that towers will always be the cheapest and best way of deploying the level of content, the volume of mobile data that consumers demand. So while we think the satellite business is a great business, it's going to be a good complement to the network and we certainly are excited about the developments we're seeing in that area, we see no risk at all to the tower business over the long term because, again, towers will always be a cheaper form of delivering a mass amount of data to the consumer. And the satellites just can't compete with that. Rodney Smith: David, I want to add a couple of just data points for you to think about to support Steve's discussion around us being an active portfolio manager. The evidence here is that we sold India and we took the proceeds from that sale. And we delevered and helped us get down below our 5x. You also saw us exit [Technical Difficulty] in different markets around the world. And again, we used those proceeds from those sales to delever the balance sheet and to help us regain that financial flexibility. And most recently, and we announced it in the prepared remarks and in the press release, we sold half of our stake in AST Mobile. Remember, it was just a modest investment. We really invested in to stay close to the satellite business and to learn about that business going forward. There's no secret, the stock has done well. The company has done well. And we looked at it as a good opportunity to recycle some of that capital. So we sold half the stake. We used that to actually buy back shares in the last quarter. And we maintained a Board seat on AST. So we still have the ability to continue to learn. Operator: Our next question comes from the line of Brandon Nispel of KeyBanc Capital Markets. Brandon Nispel: Can you guys hear me? Operator: Yes, we can hear you. Brandon Nispel: Great. So two questions. Obviously, the U.S. ex DISH is pretty steady. I guess if we could remove DISH from like the last 3 years, it still seems like colo and amendment activity is down. Is that right? And just to nitpick a little bit, why is the second half of the year lower than the first half? And how should we be thinking about that in terms of the exit rate? How should that inform our view in terms of 2027? And then separately, in Africa, one of your largest customers just announced their intent to acquire some towers for their own. Sort of how you're thinking about that in terms of your view when one of your largest customers now wants to own a captive tower portfolio? How does that impact your growth expectations for that market? Steven Vondran: Thanks. I'll take the Africa question first. We don't expect it to have any effect on our business there at all. We view that transaction is unrelated to the business we have there. If you look at the sales success that we had in 2025, we're doing very well in Africa in terms of our new business there. And our projections for 2026 are to have another good year of that. We don't think that the acquisition of the other tower company really has any bearing on that at all. As we've said previously, our goal is to reduce the incremental capital that we're putting into Africa over time. And that means that we're not going to be building as many new sites for the carrier customers there. And so I think that what you're seeing play out in the various changes that are happening in Africa are reflective of our customers there looking for other alternatives versus American Tower in terms of how they're going to build some of those sites in their network. So we feel good about that business. We think that we're going to continue to have a nice long runway of organic growth there. Rodney Smith: Brandon, I guess keeping with the theme here and working backwards, I'll answer your second question, which is the timing and the pacing of new business. So I referred to the fact that there will be a slightly higher number or contribution in the first half of the year and it ticks down really ever so slightly. It's simply just a function of the way that our holistic agreements work as well as the timing of activity that we expect to see. And there's nothing more to it than that. Your first question again is related to kind of going back over several years and the contribution and activity level that we've seen in the U.S. and how it relates to our organic growth. I'll point out a couple of things. A few years ago, you did see us achieve record levels of new business. And there were a couple of drivers to that. One is there was an initial phase, initial wave of 5G networks, carriers deploying and upgrading their network with C-band spectrum. That came with an initial spike in CapEx, where we saw the carrier CapEx in the U.S. come up over $40 billion. So there was a significant push to begin that 5G launch. And that's typically what we see in the industry when a new technology is deployed. After that initial wave, we do see a moderation of the CapEx in a more steadying, albeit a step-up in terms of CapEx. So we may not be seeing a repeat of the all-time high that we saw in the initial wave of 5G. But the steady state now, more in the mid-$30 billion range, is higher than the steady state that we saw in CapEx under the 4G cycle. So it moderates but there is a step-up that's consistent over time. And the other thing I would highlight is over the last several years, you saw contributions from DISH to new business and organic growth for the tower companies over the last several years. Going forward, that's no longer in the numbers. So that said, when you think about the state of the industry today and the 3 wireless carriers, they're well capitalized, healthy. And they are contributing a consistent level of activity in '26 that we saw in prior years, and we expect that to continue going forward. Operator: Our next question comes from the line of Brendan Lynch of Barclays. Brendan Lynch: Rod, maybe just to follow up on that commentary there. That was very helpful in kind of framing out the longer-term outlook. You previously guided to 5% organic growth through 2027. Obviously, with DISH not in the picture now, that is coming down a little bit. How should we think about that long-term growth going forward, we get back into about 4.5%, and that's what you're suggesting for this year? Should we anticipate that, that continues out into the future as well? Steven Vondran: I'll actually take that one. Back in early 2021 when we set out that expectation for U.S. and Canada organic growth of 5% or better between '23 and '27, that was based on the growth drivers that we saw at the time. And what we didn't have in our view shared then was DISH trying to sell its spectrum and exit the market effectively and also T-Mobile completing the transaction of U.S. Cellular. So those are things that have taken us off of that guide, as you know, this year in particular. However, everything else is kind of playing out the way that we expected it to. And if you look at the past several years, we achieved 5% up until last year when those transactions were announced. And so as we think about going forward, and we're not going to give '27 guidance here, but as we think about going forward, our long-term growth algorithm that we've laid out for you guys, we believe still holds true. And that is organic growth in our developed markets in the mid-single digits, a little bit higher in our emerging markets, higher contributions from CoreSite because we see double-digit growth in revenue in CoreSite. And we're going to have expanding margins because of our cost control. So as we think about that long-term growth algorithm that we laid out, we're still confident in our ability to deliver that even in the 3-carrier market. Brendan Lynch: Great. That's helpful. And maybe just one on the data center front. Can you describe to what extent you're seeing actual inferencing demand and specifically low latency inferencing demand at CoreSite? Steven Vondran: I can speak to inferencing demand. It's hard to say if it's low latency because the whole campus is low latency based on the way we've organized it. But what we've seen is an uptick in inferencing. It is one of our leading new use cases that's coming in. And quite frankly, we have more demand for it than we can meet with our supply. So we're able to curate our mix of inferencing partners there, and that's helping us keep the risk, the business model risk down because we're only choosing the best names in the space in terms of who can go in our facilities. We could do more if we had more space, quite frankly. There's a lot of demand out there for it. But because we're still curating our customer mix, we're still trying to make sure that we have that right balance of cloud, networks and enterprises, and I would throw inferencing in, is kind of the new fourth characteristic of it, but because we're still curating that mix, we're just not taking everything that comes in the door. Operator: Our final question comes from the line of Richard Choe of JPMorgan. Richard Choe: I wanted to ask a follow-up on the data centers. What kind of renewal pricing are you seeing and overall pricing for new business? And then back to the tower business, if you can give us a sense of what kind of pipeline of applications you are seeing? And has that shifted at all? And at some point, do you see it kind of inflecting higher? Steven Vondran: Sure. So I'll start with the data center question -- I'm sorry, pricing. So we're seeing generally higher pricing. Our mark-to-market continues to exceed what it's been over kind of historical norms on that. So that's a really good indication of that. And then the market level pricing does continue to rise because there is this imbalance between supply and demand. And so I don't have any specifics for you in terms of percentages there. We're not putting that kind of level of information out there. But overall, it's going up. And that's enabling us to continue to underwrite mid-teens or better returns on the new incremental capital that we're putting in. Because as we're creating that new space, even though you do have a little bit of cost pressure from inflation, tariffs, things like that, we're able to pass that through in the form of higher pricing to keep those stabilized returns kind of in that mid-teens range. So we feel very good about that over time. In terms of the application pipeline on towers, we are expecting slightly fewer number of total applications this year. But that's not reflective of anything other than a couple of the carriers are largely through their initial 5G overlays. And so a lot of that was kind of amendment business that was likely covered in a lot of our holistic agreements anyway. So there's no real readthrough on that in terms of customer demand or property revenue. And in terms of an inflection, what we're seeing as an inflection is a higher number of new colocations coming in which is very positive because those come in at higher revenue per transaction than the amendments do. But I would say, again, it's an overall consistent level of activity year-over-year, and it's consistent with what we expected to see at this point. And we expect it to be at that level or better in the future as they switch to densifying their networks. Operator: Thank you. This concludes the question-and-answer session. I'd like to thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Greetings. Welcome to Quaker Houghton's Fourth Quarter 2025 Results Conference Call. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to John Dalhoff, Investor Relations. Thank you, Mr. Dalhoff, you may begin. John Dalhoff: Thank you. Good morning, and welcome to Quaker Houghton's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining us on the call today are Joe Berquist, our President and Chief Executive Officer; Tom Coler, our Executive Vice President and Chief Financial Officer; and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, February 23, 2026. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and the discussion during this call may contain forward-looking statements, reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Joe. Joseph Berquist: Thank you, John, and good morning, everyone. I am pleased with our fourth quarter results, which resulted in our second consecutive quarter of year-over-year EBITDA improvement. Adjusted EBITDA was up 11% and adjusted earnings per share increased 24% compared to the prior year. Our results were driven by new business wins in all regions highlighted by strong organic volume growth in the Asia Pacific region, where our planned strategic efforts continue to deliver consistently strong results. For the full year, net sales in Asia Pacific grew 13% while organic volume grew 5% despite persistent soft market conditions, demonstrating how our go-to-market approach and expansion of capabilities in the region are driving growth. Market conditions in the Americas and EMEA remain soft as uncertainty from tariffs and extended customer outage in North America and seasonal impacts affected us in the fourth quarter. Despite the challenging environment, our total organic volume was down less than 1% versus the prior year, but would have been flat if not for some operational challenges that occurred in our U.S. plants in December. Net share gains of approximately 4% mitigated the soft market and collective headwinds we experienced in the quarter, and we achieved slight organic volume growth for the full year. Gross profit increased by 6% compared to the prior year quarter. Gross margin percentage was flat with some variation in regional mix. Our EMEA region gross margins improved by 280 basis points due to favorable price/mix and lower raw material costs. And Asia Pacific had margin growth on an organic basis. This favorability was offset by negative impacts from absorption along with higher maintenance, repairs and raw material disposal costs in North America. Sequentially, gross margins were down 150 basis points compared to the third quarter but our product margins remained steady globally. Raw material costs stabilized in the latter part of the year, and we were able to successfully implement targeted price increases in parts of Asia Pacific in the fourth quarter. The company generated $47 million in operating cash flow in the fourth quarter, down from $63 million in the prior year period due to higher restructuring costs and negative impacts to working capital. For the full year, we generated $136 million in operating cash flow compared to $205 million in 2024. In addition to higher year-over-year restructuring charges of $29 million, the company made temporary increases to inventory in its EMEA segment in the fourth quarter as we begin to execute network optimization actions in Europe. We recently announced the closure of our German manufacturing facility in Dortmund as part of a broader set of network initiatives. The volume from the Dortmund plant will be absorbed into existing excess capacity in our European network. We anticipate cost savings of approximately $2 million from this action in 2026 with annual ongoing cost savings of approximately $5 million beginning in 2027. The company also booked approximately $7 million of costs related to the assessment of multiple acquisition opportunities in the latter part of the year. We do not anticipate that the acquisition-related work will result in specific transactions at this time. Focusing on the quarter, our performance was in line with expectations despite a persistently challenging economic environment. Year-over-year organic volumes fell less than 1% but outpaced our major end markets, which declined by a low to mid-single-digit percentage. Persistent tariff uncertainty continues to disrupt global trade flows and negatively influence our customers' operations. Net share gains, disciplined cost measures and a positive contribution from recent acquisitions helped offset market weakness. Our acquisition of Dipsol completed in the second quarter, continues to perform as expected, contributing $21 million to net sales in the fourth quarter. Organic sales volumes in Asia Pacific grew 4% in the quarter. This was the 10th consecutive quarter of year-over-year volume growth in that region. Asia Pacific growth offset organic volume decline in EMEA and the Americas, which was driven by overall market softness and an extended customer outage in North America. Lingering demand from tariffs were compounded by weather -- lingering demand impacts from tariffs were compounded by weather-related operational challenges in December. We believe total company organic sales volumes would have been flat to the prior year in Q4 when adjusting for these factors. The company continues to execute cost savings initiatives which led to a 4% year-over-year decline in organic SG&A at constant currency. Total SG&A costs increased 4%, primarily due to the impact of acquisitions and foreign exchange. Our previously announced complexity and cost reduction plan generated approximately $25 million of run rate savings for the full year. We will continue to evaluate additional cost savings opportunities and execute in a prudent and disciplined manner towards continuously improving our EBITDA margins over the long term. We made progress reducing complexity and transforming our cost structure in 2025. But there is more work to be done. We have identified specific new initiatives that will streamline and harmonize our global business processes, enhance and further rationalize our global manufacturing network and finish integration of past acquisitions. These foundational steps are already enabling better efficiency and more effective cross-selling across the portfolio. As we continue to sharpen and refresh our core portfolio of products and services, we have also begun to consolidate and strengthen our product brands across the organization. Our balance sheet is strong, gives us flexibility to continue to evaluate acquisitions that could expand our offering, increase our total addressable market, enhance innovation, add new capabilities and provide access to new customers and geographies. We completed 3 acquisitions in 2025, adding approximately $95 million of annualized revenue. We will continue to evaluate strategic acquisitions in a disciplined manner as M&A remains a core tenet of our capital allocation strategy that prioritizes investments for growth. Quaker Houghton continues to demonstrate operating resilience. Since 2020, we have weathered the COVID-19 pandemic, a global supply chain crisis, uncertainty due to tariffs and ongoing geopolitical instability. Our markets have not returned to pre-COVID operating levels, yet we have delivered profitable growth and are well positioned to sustain that momentum. As our underlying markets stabilize and improve, we will accelerate future growth by unlocking the leverage and strength that is inherent in our company. The cost actions we have taken over the past few years have positioned the company to strategically invest in our global team of technical experts, driving innovation and new capabilities. Quaker Houghton is poised to build upon our well-known reputation of differentiated customer service as we continue to evolve into an even more responsive, nimble and efficient company. We are excited about the strong momentum we have created in Asia Pacific where our intentional focus on high-growth markets and key market segments is paying off. Notably, we are winning with new metalworking customers and growing our share in the electric vehicle OEM and component sector. We have taken steps to proportionately scale our organization to achieve sustainable growth in Asia Pacific and we'll open a new manufacturing facility in China later this year. Our investments in emerging markets like China, India, Asia and Africa demonstrates our commitment to serving customers locally while delivering the full capabilities we have built as a leading process fluid and service provider to industrial manufacturing companies in the world. I am optimistic as we head into 2026 and excited about our momentum. In the past year, we have made substantial progress strengthening and stabilizing our customer intimate sales and service capabilities. Our service-intensive approach is clearly working. Our sales growth was bolstered by innovative progress achieved in the development of our fluid intelligence capabilities. Food intelligence is an evolution and enhancement of Quaker Houghton's service offering, empowered by new and innovative measurement, automation and digital tools. Our Fluid Intelligence offering is amplifying the impact of our technical teams and enabling customers to gain insights to optimize how our fluids perform. Looking forward, our external markets are not expected to improve in the near future. We anticipate underlying markets to remain flat in 2026 and with the potential for some incremental growth in the second half of the year. We remain confident in our ability to deliver net share gains within our target range of 2% to 4% as we execute our sales pipeline, benefit from the wrap of new business wins gained in 2025 and gain the full year impact of acquisitions, primarily Dipsol in our results. Our visibility into the sales pipeline and our recent history give us confidence that we will continue to win new business at rates that exceed underlying market growth. Our business foundation remains strong as we move into 2026. We do not expect operational issues that occurred in the fourth quarter in North America to carry into the first quarter. Raw material costs are expected to remain steady in the first part of the year, and we anticipate gross margin percentage will be within our targeted range of 36% to 37% for the full year. We will deliver positive share gains and organic growth in all our segments in 2026. On the cost side, variable compensation and inflation will result in higher SG&A year-over-year. We plan to partially offset this by continuing to execute transformational initiatives and making improvements to our cost structure to support our long-term goal of sustaining EBITDA margins above 18%. This journey has begun already, and we expect modest investment and careful planning will be required to fully reach our profitability margin target in the next few years. We anticipate our third consecutive quarter of year-over-year EBITDA improvement in the first quarter of 2026, which will come from share gains, gross margin improvement and run rate impact of acquisitions. For the full year, we expect to improve top line performance, leading to year-over-year adjusted EBITDA growth. I am proud of what we have accomplished and grateful for the contributions of our approximately 4,700 global employees delivered to our customers and Quaker Houghton's many stakeholders. Our people remain our greatest asset, and their unwavering commitment to serving our customers continues to drive our success. Even in challenging economic times, we stay grounded in our core values, and demonstrate our dedication to the communities in which we operate, reflected in recognition we received being named one of America's most responsible companies in 2025. We will continue to move forward together and are committed to driving growth and long-term value for our customers and shareholders. With that, I would like to pass it to Tom to discuss the financials in more detail. Tom Coler: Thank you, Joe, and good morning, everyone. Fourth quarter net sales were $468 million, a 6% increase from the prior year. Organic volumes declined less than 1%, but were boosted by share gains across all regions. In the fourth quarter, total company share gains were approximately 4%. Acquisitions contributed an additional 6% to sales primarily related to Dipsol. Selling price and product mix were 1% lower than the prior year, consisting of impacts from both product, service and geographic mix as well as pricing, largely associated with indexes. Gross profit dollars increased year-over-year on a non-GAAP basis, while gross margin was 35.3% compared to 35.2% in the first quarter -- in the fourth quarter of 2024. Product margins in the fourth quarter remained healthy in all geographies and increased year-over-year in both EMEA and Asia Pacific. Q4 2025 gross margin was impacted by seasonality and unfavorable manufacturing absorption as well as higher maintenance, repairs and raw material disposal costs in North America. On a non-GAAP basis, SG&A increased approximately $4 million or 4% in the fourth quarter compared to the prior year, mainly due to acquisitions and the impact of foreign currency. Excluding these items, organic SG&A was approximately 4% lower in the fourth quarter and 2% lower for the full year in 2025 as we effectively executed on our cost savings and optimization plan. We delivered $72 million of adjusted EBITDA in the fourth quarter, an increase of 11% compared to the prior year. Adjusted EBITDA margin of 15.3%, improved 75 basis points year-over-year but was lower than the prior quarters due to adverse impacts on gross margin in North America in Q4 of 2025. Switching now to our segment results. We continue to see strong positive momentum in our Asia Pacific segment, which delivered its 10th consecutive quarter of organic volume growth and has now experienced organic net sales growth in 9 of the last 10 quarters. New business wins continue to be the primary catalyst for this growth. Asia Pacific sales in the fourth quarter increased 15% year-over-year as the impact of our acquisition of Dipsol complemented organic volume growth of 4%, partially offset by unfavorable price and mix. For the full year, sales increased 13% as the impact of our acquisition and a 5% increase in organic sales volume offset unfavorable price and mix. Segment earnings in Asia Pacific increased approximately $3 million or 11% in the fourth quarter compared to the prior year. This was driven by higher net sales, partially offset by lower operating margin due to unfavorable impacts from product mix and service revenue. Fourth quarter net sales in the EMEA segment increased 7% year-over-year despite continued market softness due to an increase in sales from our acquisitions, favorable selling price and product mix and favorable foreign currency impacts. These items were partially offset by a 2% decline in organic sales volumes, which outpaced underlying market declines due to net share gains. Segment earnings in EMEA increased approximately $3 million or 17% in the fourth quarter compared to the prior year. This was the result of higher net sales and improved operating margin due to favorable pricing and product mix and lower raw material costs. Fourth quarter net sales in the Americas segment were flat to the prior year as an increase in sales from acquisitions and favorable impact from foreign currency were offset by lower organic sales volumes. Net share gains in the region during the quarter were offset by overall market softness and specific factors, including the outage at a major North American metal producer, impacts from tariffs on demand and several operational disruptions that delayed shipments in Q4. Segment earnings in the Americas were flat in the fourth quarter compared to the prior year as slightly lower sales volumes were offset by higher operating margin. Turning to nonoperating costs. Our interest expense was $11 million in the fourth quarter, which was consistent with the prior quarter. Our cost of debt remained approximately 5% in the quarter. Our effective tax rate, excluding nonrecurring and noncore items, was approximately 25% in the fourth quarter of 2025 while our full year effective tax rate was in line with expectations at approximately 28%. The Q4 effective tax rate was lower than the full year rate due to the timing of certain tax incentives related to our operations in China. In the fourth quarter, our GAAP diluted earnings per share were $1.18, and our non-GAAP diluted earnings per share were $1.65, a 24% increase year-over-year. For the full year, we had a GAAP diluted loss per share of $0.14, which included an $89 million noncash goodwill impairment charge and $35 million of restructuring charges related to our cost savings program. Adjusting for these and other non-GAAP items, our full year non-GAAP diluted earnings per share were $7.02. Cash generated from operations was $47 million in the fourth quarter and $136 million for the full year compared to $205 million for the full year in 2024. The primary drivers of lower cash generation compared to the prior year are higher net outflows from restructuring activities and an increase in working capital. The working capital increase was due to higher inventories related to operational issues in North America and the closure of our manufacturing facility in Dortmund, Germany, along with the timing of supplier payments and accrued liabilities in Q4. Capital expenditures were approximately $22 million in the fourth quarter, consistent with the prior year and were $56 million for the full year. This represents an increase of approximately $14 million over the prior year, mainly due to the construction of our new facility in China, which is on track to begin operations in the second half of 2026. Capital expenditures are once again expected to be between 2.5% and 3.5% of sales in 2026. This includes continued investment in organic growth initiatives, along with the completion of our China production facility and moving our corporate headquarters and combining our R&D labs in a new location in the Philadelphia area. During the fourth quarter, we paid approximately $9 million in dividends and repurchased approximately $5 million of shares. For the full year, we returned $76 million to shareholders through $42 million of share repurchases and $34 million of dividend payments, which reflects our 16th consecutive year of increasing our annual dividend payout. Our balance sheet and liquidity remains strong, our net debt at year-end was $691 million, and we continued to lower our net leverage ratio following the Dipsol acquisition, steadily reducing it to 2.3x our trailing 12 months adjusted EBITDA at the end of the year. We had another strong year in 2025. Despite continuing macroeconomic and geopolitical challenges, we continue to gain share and slightly increase organic sales volumes while executing on our cost savings actions. The 3 acquisitions that we closed during the year complemented our business results and continue to perform in line with expectations. We remain disciplined with our capital allocation strategy, and we'll continue to return cash to shareholders and work towards reducing net leverage following last year's acquisitions. With that, I'll turn it back over to Joe. Joseph Berquist: Thank you, Tom. We made significant progress toward achieving our strategic objectives in 2025, and we look forward to growing revenues and adjusted EBITDA in 2026. With that, we'd be happy to take your questions. Operator: [Operator Instructions] Our first question is from Mike Harrison with Seaport Research Partners. Michael Harrison: Joe, you mentioned the weather-related operational issues that impacted Q4, and it sounds like they're now resolved. I'm curious, is there -- can you help quantify that for us? And I guess, looking out to Q1, I'm sure you guys have a bunch of snow right now in the Philadelphia area. And I'm just curious, is it possible that we have some additional weather-related impacts to keep in mind as we start thinking about what Q1 looks like? Joseph Berquist: Yes. Thanks, Mike. Yes, in the fourth quarter, I think, particularly in December, we had some usual things that you see in plants, frozen pipes, issues with trucks and the like, a boiler, not to get too specific, but that if you think about the impact of that, did set us back a couple of days, I guess, in the month. And as we said in the comments earlier, you think overall, the impact of that was somewhere around 1% on our volume, and we would have been essentially flat. That's really been resolved as we head into the first quarter. Now we had this big snow event yesterday. Most of that was on the East Coast. And thankfully, our manufacturing is really in the center of the country in Ohio and Michigan, Illinois for the most part. So there is a ripple effect with these things as trucks and raw materials move around the country and it impacts our customers as well as us. But I don't expect that to be anything real impactful at this point, Mike. Michael Harrison: All right. And then you mentioned that you, it sounds like during Q4, you were getting some pricing in Asia which is good because I know that price/mix number has been under some pressure. But I was curious if you could give us a sense of your expectations for pricing there and maybe also wrap in some commentary on what you're seeing in raw materials, I believe, some of these oleochemicals that have been pressuring your margins back kind of in the middle of the year seem to have started to come lower, but maybe just some thoughts on kind of price versus raw material cost dynamics into the next couple of quarters. Joseph Berquist: Sure, Mike. Yes, from a raw material standpoint, I mean, we're seeing things stabilize. Our outlook into Q1, Q2 at this point is relative stability. I think what you saw in the fourth quarter is timing of some of our contracts there. We had issues throughout the year last year in Asia Pacific particularly some of those issues just took a while to resolve because we had contracts and we had to negotiate new contracts in the fourth quarter and get some pricing. I am not really looking at pushing pricing right now. I think it's -- things have stabilized and overall should be a pretty flat market as far as that goes. Michael Harrison: All right. And then I guess just in terms of your outlook and expecting EBITDA growth in 2026, it looks like the sell-side consensus right now is looking for something close to 10% growth over 2025. And I'm just curious, is that what you're targeting internally? Or would you say that the market outlook at this point probably supports a lower growth rate than that 10% that's baked in the consensus? Joseph Berquist: Yes. I mean, we don't give specific guidance on that, but what I could tell you, Mike, is just kind of the algorithm that I think about the markets that we're in, are -- we're not expected to really grow. Like so underlying markets, I think, potentially could even be slightly down in the first half of the year, maybe slightly up in the second half of the year, but overall kind of flat. We have been very happy with how the share gain, the new business acquisition has gone over the past several quarters and feel pretty confident as we head into this year that we'll be able to continue that pace. We mentioned in the comments earlier, our target there is sort of 2% to 4% outgrowth of the market, and we've been on the higher end of that. and I would expect that to continue with the visibility that I have to the pipeline and how things are looking on that end. We made some acquisitions last year. Those really didn't come into play until the second quarter, so we will have an extra quarter of those in our numbers. And so call that a 1% to 2% kind of tailwind. We think there's perhaps some percent favorability overall with FX for the year, some puts and takes there, so some higher costs, but also some translation that helps us. I do expect our gross margins to be -- to recover to -- from the fourth quarter to be in that range of 36% to 37%. And then overall, I think we mentioned also there is a little bit of variable comp rebuild, a little bit of inflation. We have some -- Tom mentioned in his comments, the new Radnor facility or the new facility here in Philadelphia. So some depreciation and things like that coming online. But overall, really the algorithm that we're shooting for is a sort of mid-single-digit volume and revenue growth. If we could do a little bit better than that, great, and then get that leverage, as you said, to the high-single digits on EBITDA as we kind of scale everything into the business. Operator: Our next question is from Laurence Alexander with Jefferies. Laurence Alexander: Could you characterize the M&A pipeline? And I guess also, can you give us some sense of the regional mix in the pipeline? Joseph Berquist: Yes, Laurence. I think we mentioned earlier that we had -- we did have some activity in the fourth quarter. Really, it was related to kind of second half of the year, multiple opportunities that we looked at. Those were not really regional opportunities, I would call them multiregional or global opportunities. They were larger and as I also mentioned, we don't anticipate any of those to lead to a transaction, nothing is imminent. The overall pipeline itself remains healthy. I would say, Laurence, there's always a balance for us. We look at things in kind of 2 different angles, right, where we've had a good track record of doing these bolt-on type of transactions, things that add, help us grow our total addressable market, give us capabilities that we don't have, really expanding that wallet that we could sell to our customers transformational things. I think they come along few and far between. When they do come along, we like to participate. Our balance sheet is strong. We have the ability to do those types of things, but we're also going to be very disciplined and not do something that doesn't make sense for our shareholders. Laurence Alexander: And similarly just I guess on a regional basis, can you give a sense for -- are your share gains fairly evenly distributed? Or is it kind of more in one region? Is it tied to a particular customer end market mixes and customers with end markets or competitors of certain end market exposure? Just trying to get a sense for whether there's any kind of generational or limiting factor on the share gains that we should be aware of? Joseph Berquist: I mean I'd say the share gains themselves have been pretty broad based. It's been all 3 regions, so Americas, EMEA and Asia Pac. The basis of it, Asia Pac is definitely higher than EMEA and Americas, I mean, call it on almost a 2x basis higher in Asia Pac versus those other regions. Some of that is just what's happening there, right? You have a lot of growth in markets like India, China is not growing the way it used to in the past, but it's still growing, right? And relative to the Americas and EMEA, that means new lines coming on, even new customers that didn't exist, and we make it an intentional part of our strategy to be the incumbent when these new plants come online. So that really speaks to some of the reasons why we're seeing higher conversion rates in Asia Pac than the other parts of the world. But overall, it's all 3 regions. And I think the sales engine is working pretty well for us right now. Operator: Our next question is from David Begleiter with Deutsche Bank. David Begleiter: Joe, you mentioned you expect some markets to be maybe down slightly in the first half of the year. Which markets are those? Which markets could be up in the first half of the year? Joseph Berquist: Yes. I mean I think -- I would say the Americas and EMEA both were sluggish toward the end of the fourth quarter, and we've seen that carry into Q1. There may be some weather disruptions here in Q1 for Americas. I don't think that's going to be anything that's material. But we're just not seeing any kind of broad-based recovery in the manufacturing segment in Americas or EMEA right now. PMIs dipped below 50 and are hovering right around that number. So it's just there's not a lot happening, David, in those markets right now. And there's a normal seasonality that you have in Asia Pacific due to the Lunar holiday that happens in February. But on balance, I think when you put all that together, we think things are going to be relatively flat or if they are down, be very, very small incrementally down. The one area I would say is we have some specific customer issues in Americas that related to events that took place at their facilities last year. Those will probably carry into the second quarter as far as what we know right now. So that's an additional sort of headwind, I think, on Americas. But again, if I had to put a magnitude around it, I think it's very low-single-digit type of headwind. David Begleiter: Got it. And I was going to ask on that Americas volume being down 4%, can you parse out underlying growth -- underlying volumes in that business? And what that could be in Q1 and Q2 as well ex the customer outage? Joseph Berquist: Yes. Underlying growth for Americas, so the markets that we're in, the composite, I think we had it down about 1%. Metals market being up a couple of percent, but auto down. When we talk about the metals market, even though that metals market was up a couple of percent, there was the specific customer issue that then impacted us in North America. It's also a mix of the flat-rolled content versus construction, I-beams, rebar, we tend to participate a lot more on the flat-rolled side. So overall, down about 1% in the fourth quarter and a mix of different things there. The one other angle I would tell you, David, is just uncertainty around tariffs, I think, has impacted this USMCA region, Mexico, particularly with maybe a little bit lower demand down there just from the tariff impact. David Begleiter: And just to be clear, ex -- your Q1 -- our Q4 volumes in Americas would have been down roughly 1% ex the customer outage. Is that fair? Joseph Berquist: We think we have been flat, excluding the customer outage in North America. So there was organic share gain. Markets were down. We had organic share gains and then we had these operational issues as well as the specific customer outage. So all of that on balance, we think would have been flat. Operator: Our next question is from Jon Tanwanteng with CJS Securities. Jonathan Tanwanteng: I just wanted to clarify, you mentioned that you have these M&A expenses for diligence in several opportunities that aren't expected to close any or result in anything anytime soon. Does that mean you're still too early in the process? Or did they trip up in diligence for one reason or another? And what is the outlook for your M&A this year following that? Joseph Berquist: Yes, I wouldn't -- so I'm not going to say anything more specific on that, Jon, other than we don't anticipate any of those costs carrying into Q1. And there is no imminent transaction, nothing imminent unfortunately. Jonathan Tanwanteng: Okay. Fair enough. And then I might have missed it if you called it out specifically. I think you just talked about the customer plant fire. But I was wondering if you could quantify the gross profit or the EBITDA impact associated with that, the disposals and the weather in the quarter if you kind of have a normalized kind of earnings or profitability number. Joseph Berquist: I don't have that number. I think the impact on gross margin, I guess, or operating margin in the Americas was call it, a little over 1% on the gross margin percentage. The revenues, it's hard to quantify that, but it's less -- I'd say less than $10 million, somewhere between $5 million and $10 million in that range. Jonathan Tanwanteng: Okay. And that's for all 3 issues together? Joseph Berquist: Yes. Yes, Jon. Operator: Our next question is from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: So I guess I just wanted to understand the outlook for both Q1 and the full year. So I guess, for Q1, you mentioned for the first half, maybe you'd be flat to slightly down or you don't really see much change in the underlying markets? I guess you'll continue to see share gains and business wins in Asia Pacific, but would that be offset by weakness in the other regions or softness in the other regions? And then maybe could you see some improvement in growth in the second half. And so you would be up for the year? Or is the year-on-year growth mostly from the absence of maybe 5 to 10 one-timers? How should we think about the opportunity for growth in '26? Joseph Berquist: Yes. Thanks, Arun. No, I'd say overall, like all 3 of our segments, so all 3 regions, we expect to have positive share gains year-over-year, right? So it's not just Asia Pacific. Asia Pacific share gains are coming in at a higher rate maybe than those other 2 regions. But we do expect to perform in that 2% to 4% range. And we've been on a pretty good clip on the higher end of those ranges in the past several quarters. As you mentioned, not expecting much help from the markets, but if there was going to be underlying market growth that would happen in the second half as far as we could tell at this point in time. We do have the benefit now of full year run rate of these acquisitions that we made last year. So that's a 1% to 2% kind of tailwind there. And there's been business that we won last year, right, that sort of snowball effect as that rolls into the new year. So we're targeting to grow our business this year, have organic volume growth year-over-year, have revenue growth year-over-year and have EBITDA growth year-over-year in all 3 of our segments. And just other than that, just it's not coming from the market. It's really coming from our sales development in the pipeline and continuing to execute in that area. Tom Coler: Yes. And Arun, this is Tom. I would just add that remember, we acquired Dipsol, that deal closed in April last year. So we do have the benefit of 1 additional quarter of acquisition from Dipsol here in Q1 of 2026. Arun Viswanathan: Okay. And to clarify, what was the amount of nonrepeating items, I guess, in '25 that shouldn't be a drag for '26? Tom Coler: I don't think we specifically provided a number on that, Arun. I think what Joe had mentioned in his remarks is that our -- we believe our volume in Q4 would have been roughly flat had it not been for the weather-related items and the customer outage. Arun Viswanathan: Okay. And then could I just ask on margins as well? It looks like there were some -- again, maybe that was related to some of these extra costs. But I'm sure you're facing maybe some labor and benefits inflation, tariff uncertainty and so on. So from a margin perspective, I guess, would you still be on track at some point to get back to 18% EBITDA margins. I think you were down year-on-year in '25 versus '24, but do you expect margin growth in '26? And what would drive that? And do you need volume to, I guess, organic market-based volumes to improve in order to see that margin growth or other things that you can do to drive that? Tom Coler: Yes. Yes. Thanks, Arun. So what I would say specifically with respect to gross margin in Q4, I think what you mentioned is correct. There were some specific items that we had mentioned in our prepared remarks with respect to weather and some operational challenges that we had specifically in North America relative to production. I would say underlying that, our product margin remains healthy in all 3 regions. And so I would characterize some of the margin impact in Q4 of this year as operational in nature as we have transitioned even now through January here in 2026, we see that margin profile has recovered as some of those operational issues have been resolved. And then with respect to our longer-term goals around 18% EBITDA margin growth, I'll let Joe answer that. Joseph Berquist: Yes. I mean that's -- it's definitely still the target, Arun. We referenced the plant closure of Dortmund earlier. So that's something, as an example, we're looking at our network around the world. This is particularly in Europe, we have excess capacity, and we have too many nodes and that's an example of where on the manufacturing cost side, there's an opportunity for improvement. It's not just in North America. We think that will come in play in other regions as well. There's a line of sight to specific cost initiatives, mostly in these functional support areas. We're working on things like fixing our master data, streamlining our business processes, and integrating these businesses that we've acquired over the past few years. So there's still opportunities there, I think, to look at combining R&D operations, combining sales offices, looking at combining even the sales organization and getting some benefits there. So really, yes. I mean volume will help us get to 18%, but there's still some self-help, I think, in there that we think tangible actions that we could take that will make a meaningful movement in the next year or two. Operator: There are no further questions at this time. I would like to turn the call back over to Joe for closing remarks. Joseph Berquist: Okay. Thank you. Thanks, everyone, for joining our call today. We appreciate your continued interest in Quaker Houghton. I want to sincerely thank all of our colleagues around the world for their hard work in 2025 and their commitment to success in 2026. Please reach out to John, if you have any additional follow-up questions. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to Genworth Financial's Fourth Quarter 2025 Earnings Conference Call. My name is Lisa, and I'll be your coordinator today. [Operator Instructions]. As a reminder, the conference is being recorded for replay purposes. [Operator Instructions]. I would now like to turn the call over to Christine Jewell, Head of Investor Relations. Please go ahead. Christine Jewell: Thank you, and good morning. Welcome to Genworth's Fourth Quarter 2025 Earnings Call. The slide presentation that accompanies this call is available on the Investor Relations section of the Genworth's website investor.genworth.com. Our earnings release and financial supplement can also be found there, and we encourage you to review these materials. Speaking today will be Thomas McInerney, President and Chief Executive Officer; and Jerome Upton, Chief Financial Officer. Following our prepared remarks, we will open the call for questions. In addition to our speakers, Jamala Arland, President and CEO of our Closed Block Insurance business; Gregory Karawan, General Counsel; Kelly Saltzgaber, Chief Investment Officer; and Samir Shah, CEO of CareScout Services, will also be available to take your questions. During this morning's call, we may make various forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary notes regarding forward-looking statements in our earnings release and related presentation as well as the risk factors of our most recent annual report on Form 10-K as filed with the SEC. Today's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our investor materials, non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules. Additionally, references to statutory results are estimates due to the timing of the statutory filings. And now I'll turn the call over to our President and CEO, Tom McInerney. Thomas McInerney: Thank you, Christine. And thank you for taking the time to join our fourth quarter earnings call this morning. Genworth reported net income of $2 million with adjusted operating income of $8 million. This quarter's results were driven primarily by strong performance from Enact, which contributed $146 million to Genworth's adjusted operating income, partially offset by a loss of $114 million in our Closed Block, primarily from LTC. Our estimated pretax statutory income for our U.S. life insurance companies was approximately $71 million for the full year, including the net favorable impacts to annuities from equity market and interest rate movements. We will provide full statutory results in our annual filings later this month. Genworth ended the quarter with a healthy liquidity position, holding $234 million of cash and liquid assets. We also continue to advance our strategic priorities in 2025. First, we continue to create shareholder value through Enact's growing market value and capital returns. Our approximately 81% ownership stake in Enact remains a key source of cash to Genworth with $407 million received in 2025, fueling our share repurchases and investments in CareScout. Supported by these strong cash flows, we continue to execute our share repurchase strategy throughout the fourth quarter, making progress on our $350 million authorization announced in September. In 2025, we repurchased $245 million of shares. Since May 2022, we have repurchased approximately $828 million of stock as of February 20, reducing shares outstanding by about 24% from 511 million to 388 million. These share repurchases create meaningful long-term value for shareholders by deploying capital at prices we believe represent a discount to Genworth's intrinsic value. Turning to our second strategic priority. CareScout represents our long-term growth strategy and our vision for how aging care should work in the future. We are building an innovative consumer-focused platform that helps people understand, find and fund the quality long-term care they need while creating a capital-light, scalable, data-driven business for the future. CareScout is designed to engage families across the aging journey from navigating care decisions today to preparing for future needs. Our services business often begins with adult children helping their parents find care, many of whom will become the next generation of long-term care insurance customers. Our insurance products are being built with that in mind, combining financial protection with access to personalized services when customers and their family members need them the most. This integrated approach allows us to support families in moments of urgency while building long-term relationships and recurring revenue streams. Underpinning it all is continued investment in technology and AI. We are leveraging and plan to continue exploring additional capabilities for AI-enabled tools and automation to improve human-centered customer service at scale in order to strengthen underwriting risk management and enable more efficient capital deployment and product development and marketing. Together, these and other capabilities will position CareScout to lead in a large and growing addressable market and to redefine how long-term care is delivered over time. Let's begin with a closer look at CareScout services, where we made significant progress in 2025, maintaining a rapid pace of network expansion. The CareScout Quality Network now includes roughly 790 home care providers with more than 1,000 locations nationwide, covering 97% of the U.S. population aged 65 and older. Each provider in the network must meet CareScout's rigorous credentialing standards, ensuring quality and consistency for people who rely on our services. The team executed well in the fourth quarter, facilitating 925 matches between LTC policyholders and home care providers in our network. We ended the year with 3,255 matches nationwide, well above our original target of 2,500 and our updated estimate of 3,000 and representing a 3x increase versus 2024. In the fourth quarter, we closed the acquisition of Seniorly, a leading platform with a large network of senior living communities that helps families with care planning and placement. Integration is progressing well and is expanding our reach into the direct-to-consumer market. Seniorly's team has brought deep industry and consumer experience, accelerating our efforts to scale beyond Genworth's preexisting policyholder base and add senior living options to our network. Credentialing of major national senior living providers is underway and is expected to be complete by the end of 2026. In Care Plans, our fee-for-service offering that delivers personalized guidance, we continue to see momentum with consumers and B2B audiences. Notably, we now have the ability to deliver care plans both in person and virtually on a nationwide basis. Care plans are built on a proven and growing assessment capability, enabling faster and more consistent care recommendations at scale. We continue to expand partnerships with employee assistance programs and carriers with referral volumes exceeding our expectations in 2025. Assessment volumes continue to grow and are expected to scale over time, supported by strong operational execution and cost discipline. Care Plans and Assessments enable recurring fee-for-service revenue opportunities supported by increased capabilities due to expanded distribution across carrier, employer and EAP partnerships. In 2026, we will continue to expand the range of services CareScout offers and the number of customers we serve. As the CareScout Quality Network continues to expand and brand awareness grows, we will drive increased traction with consumers. We also expect more of Genworth's long-term care claimants to choose CQM providers, stretching policyholders' dollars further while generating claim savings for Genworth over time. Turning to the Insurance business. We successfully launched Care Assurance, CareScout's inaugural stand-alone LTC insurance product in the fourth quarter. Care Assurance is now live in 40 states with 4 more pending approval. The launch of Care Assurance reestablishes our presence in the long-term care insurance market and lays the foundation for disciplined, scalable growth. We are actively engaging with partners to broaden our distribution channels and plan to launch worksite and association group offerings later this year. Importantly, Care Assurance has been designed and priced for the long term, reflecting the evolution of the market and a more conservative and durable product structure aligned with today's LTC environment. Care Assurance will be differentiated through a variety of additional services, which create a holistic care experience for our customers and their families, such as access to the CQN, wellness support tools and care planning services. This is a unique offering in today's market, blending coverage and services in a way others don't. To support sales, we're actively educating and equipping distributors to position Care Assurance effectively with our clients. While we expect adoption to build gradually, we are confident this product will create significant value for consumers and distribution partners alike. From services to insurance, CareScout is building a human-centered tech-enabled platform to simplify and dignify the aging journey. Our approach combines AI and digital technology with a human touch and reflects our deep expertise in delivering high-quality, personalized support for long-term care decisions. As we expand into new care settings, products and customer segments, we'll continue to grow organically while evaluating select inorganic add-on opportunities like Seniorly. Turning to our third strategic priority. We continue to actively manage our self-sustaining customer-centric LTC, Life and Annuity legacy business. Notably, this business is now focused exclusively on serving existing policyholders with no new sales and is being managed as a closed block. Our priorities here are clear. We aim to deliver a high-quality policyholder experience, maintain capital discipline and ensure long-term sustainable risk management. We are also leveraging AI and digital technology to drive more efficient and lower cost processes around customer service and operating performance. Jerome will provide additional detail on the resegmentation of our Closed Block later in the call. Genworth secured $100 million of gross incremental LTC premium approvals in the fourth quarter and $209 million for the full year in 2025, with average premium increases of 35.6% and 38%, respectively. We are in the 13th year of our multiyear rate action plan, which has achieved $34.5 billion in net present value since 2012, driven primarily by benefit reductions and premium increases. The MYRAP continues to be our most effective lever for stabilizing our Closed Block business. Next, I'll provide a brief update on the AXA litigation. As shared on our second quarter earnings call, the U.K. High Court issued a favorable judgment in July. Santander was granted permission in October to appeal the claim on which AXA prevailed and AXA was recently granted permission to cross appeal with respect to one of the claims, which was denied. The hearing on the appeal has now been set for July 21 through 23 of this year, and we expect the Court of Appeal to reach a decision within approximately 3 to 6 months of the hearing. If the ruling is upheld, we expect our total recoveries to be approximately $750 million, subject to exchange rates at the time. We do not expect to pay taxes on this recovery and recoveries are not factored into our capital allocation plans, but if and when received, would be deployed in line with our priorities, investing in CareScout, returning capital to shareholders and reducing debt. Before I turn it over to Jerome, I'd like to briefly reflect on the broader LTC environment. Recent federal budget debates have underscored a growing bipartisan focus on health care affordability and the long-term sustainability of public programs like Medicaid, particularly as the U.S. population ages. The very high LTC-related costs continue to be a meaningful part of that conversation. As demand continues to rise much faster than available resources, families are being asked to navigate an increasingly complex care landscape for their loved ones. This dynamic reinforces our conviction that the future of LTC will require not only flexible insurance and financing options, but also greater transparency, coordination, accessibility and support services for policyholders and their families. We are designing CareScout to help aging Americans and their families understand, find and fund the long-term care they need. As the nearly 70 million baby boomers continue to age, CareScout will serve as a complete solution in a very fragmented market built for the realities of today and in the future. Now let me turn the call over to Jerome to walk you through our financials and business trends in more detail. Jerome Upton: Thank you, Tom, and good morning, everyone. I am pleased with our strong performance in 2025. We continue to advance our strategic priorities and further position the company for long-term success. Our disciplined capital allocation balanced returning capital to shareholders, reinvesting in opportunities that support long-term growth through CareScout and continuing to strengthen our financial flexibility. Enact delivered another quarter of strong performance, supported by a strong balance sheet and capital and liquidity positions with returns that enabled our own capital allocation priorities. At the same time, we continue to make meaningful progress advancing CareScout and enhance the self-sustainability of our Closed Block. I will begin this morning's discussion with our fourth quarter and full year financial results, followed by an update on our annual assumption reviews before covering our investment portfolio and an update on our holding company liquidity. Finally, I will share some guidance for 2026 before we open the call for Q&A. Before I cover the financial results in more detail, I would like to discuss the resegmentation we completed in the quarter to report our Long-Term Care, Life and Annuity businesses under a new Closed Block segment. With the launch of our new CareScout Care Assurance product, we formally ceased LTC sales in Genworth Life Insurance Company or GLIC. In recent years, there was very limited business being issued from GLIC. And now that new policies will be issued from CareScout, this new presentation better aligns with the way we run the business, including our continued commitment to manage these entities as a closed system. This is a presentation change only and does not change the economics of Long-Term Care, Life and Annuity products. We will continue to provide a breakdown of our results by product within the new Closed Block segment. Now turning to the financial results on Slide 9. Fourth quarter adjusted operating income was $8 million, driven by strong performance in Enact, offset by losses in our Closed Block and Corporate and Other. Enact delivered another strong performance in the quarter with adjusted operating income of $146 million to Genworth. The net reserve release of $60 million was higher than the prior quarter and prior year, reflecting continued strong cure performance. Our Closed Block reported an adjusted operating loss of $114 million. This was driven by LTC with an adjusted operating loss of $159 million as a result of a liability remeasurement loss related to the actual variances from expected experience or A/E as well as the net unfavorable impact of assumption updates. The unfavorable LTC A/E of $124 million pretax was driven primarily by higher claims and lower terminations in the capped cohorts. Life Insurance and Annuities reported adjusted operating income of $13 million and $32 million, respectively, both reflecting the favorable impacts of assumption updates. In Corporate and Other, we reported an adjusted operating loss of $24 million for the fourth quarter, reflecting continued investment in CareScout and ongoing holding company debt service, partially offset by favorable tax items. Turning to our full year results on Slide 10. Adjusted operating income for 2025 was $144 million, driven by Enact. 2025 was another year of strong execution and value creation at Enact with adjusted operating income to Genworth of $558 million. Genworth's share of Enact's book value, including AOCI, has increased to $4.4 billion at year-end 2025, up from $4.1 billion at year-end 2024. These results underscore Enact's continued contribution to Genworth's earnings and value. Our Closed Block segment reported an adjusted operating loss of $317 million in 2025. In LTC, the adjusted operating loss of $326 million was primarily driven by a remeasurement loss, including unfavorable A/E and cash flow assumption updates in the capped cohorts. In Life, the adjusted operating loss of $66 million for the year reflected continued block runoff, partially offset by a favorable impact from assumption updates. Annuities income of $75 million was driven by favorable assumption updates and spread income, though lower than the prior year as the block runs off. Since adopting LDTI, the Closed Block has experienced A/E losses driven by short-term experience relative to long-term assumptions. In 2025, these losses averaged $75 million per quarter, and we could continue to see losses at this level in 2026. However, results may vary with seasonal trends around the $75 million average as we typically experience net favorable impacts from higher mortality in the first quarter that trend worse through the remainder of the year. As a reminder, fluctuations in our U.S. GAAP financial results do not impact actual cash flows, long-term economics or the way we manage the Closed Block. Rounding out the full year performance, Corporate and Other reported a $97 million loss for the year, which was in line with the prior year, reflecting continued investments in CareScout and debt service expense, partially offset by favorable tax items in the current year. Now taking a closer look at Enact's performance underlying its strong financial results, beginning on Slide 11. New insurance written of $14 billion in the quarter increased versus the prior quarter and prior year. Primary insurance in-force grew slightly year-over-year to $273 billion, supported by both the growth in new insurance written and continued elevated persistency. Earned premiums in the quarter were $245 million, relatively flat to the prior quarter and prior year. As shown on Slide 12, Enact's net favorable $60 million pretax reserve release drove a loss ratio of 7%. Enact's estimated PMIERs sufficiency ratio remained strong at 162% or approximately $1.9 billion above requirements. While maintaining its strong balance sheet, Enact has continued to deliver significant capital returns to Genworth. We received $127 million from Enact in the fourth quarter. For the full year, Enact generated a total of $407 million in proceeds to Genworth, basically in line with our expectations for the year. Enact announced earlier this month that it received Board approval for a new share repurchase authorization of $500 million. Genworth will participate in the share repurchase program in order to maintain its overall ownership at approximately 81%. Enact ended the year with a strong balance sheet, well positioned for another successful year in 2026. Turning to a discussion of our Closed Block starting on Slide 13. We continue to proactively manage LTC risk and maintain and improve self-sustainability in the Closed Block through a comprehensive set of in-force management actions. Benefit reductions and premium rate increases continue to be our most effective tools for mitigating tail risk in LTC. As of the end of the fourth quarter, we have achieved approximately $34.5 billion of in-force rate actions on a net present value basis since 2012. This includes $1 billion related to rate increase approvals this year. These approvals were lower than in recent years, in line with our expectations following the large approvals we've secured previously. As part of this program, we offer a suite of options to help policyholders manage premium increases while maintaining meaningful coverage. These options enable us to reduce our exposure to certain higher cost features such as 5% compound benefit inflation options and large benefit pools. About 61% of our policyholders offered a benefit reduction have elected to take one, lowering our long-term risk. These initiatives have helped reduce our exposure to the riskiest LTC policy features. Notably, our exposure to the 5% compound benefit inflation option has decreased to less than 36%, down from 57% in 2014, and the percentage of our policies with lifetime benefits has decreased to 11%. Benefit reductions continue to provide risk resiliency beyond the point of election, helping to protect against potential assumption pressure in the future. The value recognized from benefit reductions already achieved increased by $2.3 billion in conjunction with our annual assumption updates this year and could continue to increase over time with any future changes to liability assumptions and as we approach peak claim years. Looking ahead, the remaining value we currently have left to achieve is approximately $5 billion. We will continue to work with state insurance regulators to maintain and strengthen our claims paying ability through premium rate increases while supporting customers with a wide range of benefit reduction options as demonstrated by our strong track record over the past 13 years. In addition to the rate increase program and other benefit reduction options, we're reducing risk in innovative ways through the CareScout Quality Network and our Live Well | Age Well intervention program. The CareScout Quality Network provides direct claim savings and mitigates inflation risk via provider discounts. We continue to expect to benefit from these savings of $1 billion to $1.5 billion on a net present value basis in our Closed Block. Our Live Well | Age Well program delivers value for policyholders while also driving claim savings over time by delaying the onset of a claim. We continue to see strong engagement from our policyholders participating in the program. Connecting with our policyholders on Live Well | Age Well is also an opportunity to refer them to the CareScout Quality Network, which can further reduce the risk in our closed LTC block. We remain confident in the value these initiatives are expected to deliver to our in-force management program over time, and we'll continue to monitor their progress as they mature before incorporating them into our assumptions. As we have said before, we are committed to managing GLIC and its subsidiaries as a closed system, leveraging their existing reserves and capital to cover future claims. We will not put capital into these companies. And given the long-tail nature of our LTC insurance policies with peak claim years still over a decade away, we also do not expect capital returns. Next, turning to Slide 14. We completed our annual assumption reviews for the Closed Block in the fourth quarter. We are pleased that assumptions held up in the aggregate, and we remain confident in our ability to manage these companies as a closed system. Overall, the updates resulted in a net unfavorable impact to the GAAP adjusted operating loss in the Closed Block segment of $6 million after tax. As part of this year's review, we updated the LTC healthy life and near-term cost of care inflation assumptions to better align with recent trends. These updates also recognized favorable claim termination experience and reflected continued favorable experience in the future rate increase and benefit reduction outlook. These changes resulted in a net unfavorable $47 million pretax impact to the adjusted operating loss. The favorable $15 million pretax impact to life insurance adjusted operating income was related to updates to reflect the recent interest rate environment. Annuity assumption changes resulted in a favorable $25 million pretax impact to adjusted operating income, primarily related to mortality. Impacts to statutory pretax income were primarily driven by favorable changes to the prescribed assumptions for certain universal life and term universal life products with secondary guarantees, including mortality improvement. This was partially offset by unfavorable impacts in LTC and annuities. Slide 15 shows the pretax statutory income for the U.S. life insurance companies of $3 million in the quarter, including the net favorable impact of assumption updates. On a full year basis, we had pretax income of $71 million, down from the prior year, where results included a $355 million benefit from LTC legal settlements, which were materially complete by the end of 2024. Though the total statutory earnings from in-force rate actions decreased as a result of the lower settlement benefits, we continue to see higher income from IFA premiums as we successfully execute and implement our rate increase program. GLIC's consolidated risk-based capital ratio was 300% at the end of 2025 with capital and surplus of $3.6 billion. This was down from 306% at the end of 2024, reflecting higher required capital as we continue to grow our limited partnership portfolio, partially offset by statutory earnings in the year. The cash flow testing margin in GLIC remain in the $0.5 billion to $1 billion range at the end of 2025. Our final statutory results will be available on our investor website with our annual filings at the end of this month. Turning to our investment results on Slide 16. Our portfolio continued to perform well in a dynamic market environment. We remain primarily allocated to investment-grade fixed maturities that support our long-duration liabilities. Reinvestment activity continued to benefit the portfolio with new money yields again exceeding those on sales and maturities. New investments made within our life insurance companies, including alternatives, achieved yields of approximately 6.5% for the quarter. Net investment income benefited from solid base portfolio performance, along with steady contributions from our alternative asset program. Primarily comprised of diversified private equity, our alternative assets generated approximately 9% returns for the year. We continue to monitor our commercial real estate exposure. The portfolio is concentrated in high-quality investment-grade assets with conservative office exposure and performance has remained stable. Looking ahead, our liability structure supports a stable liquidity profile, allowing us to invest for the long term, hold high-quality assets through cycles and grow alternatives prudently within regulatory limits. Next, turning to the holding company on Slide 17. We ended the year with $234 million in cash and liquid assets. When evaluating holding company liquidity for the purpose of capital allocation and calculating the buffer to our debt service target, we exclude approximately $127 million cash held for future obligations, including advanced cash payments from our subsidiaries. Moving to Slide 18. Our capital priorities remain unchanged. We will continue to invest in long-term growth through CareScout, return cash to shareholders through our share repurchase program when our share price trades below intrinsic value and opportunistically retire debt. We invested $85 million in the CareScout Insurance Company in 2025 to support regulatory requirements as we advanced our strategy to launch modern funding solutions for long-term care. Additionally, we invested approximately $50 million to fund working capital in CareScout services in 2025 as we scale the platform, expanded its customer base and positioned the business for sustainable long-term growth. We also invested $15 million through the purchase of Seniorly, and we are very pleased with the value of that investment and the progress of the integration. We continue to return significant capital to shareholders, repurchasing $245 million of shares in 2025, including $94 million in the fourth quarter at an average price of $8.66 per share. We also repurchased an additional $38 million through February 20, 2026. Finally, we also retired approximately $7 million of principal debt in 2025 for $6 million in cash, bringing our holding company debt down to $783 million. We maintain a disciplined capital structure with a cash interest coverage ratio on debt service of approximately 8x. Building on the strong execution of our strategy and disciplined capital deployment in 2025, I'll now turn to our outlook and walk through some guidance and how we'll continue this momentum into 2026. First, as indicated on this earnings call earlier this month, Enact expects to return approximately $500 million of capital to its shareholders in 2026. Based on our approximately 81% ownership position, we expect to receive around $405 million from Enact for the full year. Second, we continue to create value for our shareholders through our share repurchase program. For the full year of 2026, we expect to allocate between $175 million and $225 million to share repurchases. As we have said before, this range may vary depending on market conditions, business performance, holding company cash and our share price. Third, turning to CareScout. In the services business, building on the success of our match growth in 2025, we are targeting approximately 7,500 matches in 2026, including matches to providers in both the home care and assisted living space. In addition to matches, we are also sharing our first revenue outlook. For the full year 2026, we expect revenue of at least $25 million from the services business. This reflects growing external demand as well as the revenue contribution from our legacy insurance companies, which continue to play a meaningful role as we scale the platform. We plan to invest approximately $50 million to $55 million in CareScout services in '26 as we continue scaling the business and expanding its reach. These investments will support the continued build-out of our technology platform, the addition of new products and care settings and growth across both consumer and B2B channels. We are also deepening carrier partnerships and enhancing operational infrastructure to support higher volumes, recurring revenue and long-term scalability. Following our $85 million investment to launch CareScout Insurance in 2025, which funded regulatory capital and start-up costs, we expect our incremental investment in 2026 to be much lower. The level of investment will vary based on sales volume and mix, investment performance and operating expenses associated with scaling the business. We are pleased with the progress we've made in CareScout this year and our continued expected growth in 2026. As we have said previously, it will take time to scale these businesses and reach breakeven. In closing, we are delivering on our strategic priorities while proactively managing our liabilities and risk. As we look to the year ahead, our focus remains on driving durable growth through Enact and CareScout, which serve as the foundation of our long-term value creation strategy. Our 2025 achievements have improved Genworth's financial strength, evidenced by our ratings upgrade from Moody's and positioned us well for 2026. We have greater financial flexibility and continued confidence in our long-term strategy, including our investment in growth through CareScout, our commitment to return capital to shareholders through targeted share repurchases and opportunistic debt retirement. Now let's open up the line for questions. Operator: [Operator Instructions] I will turn the call back to Ms. Jewell to read questions received via e-mail. Christine Jewell: Thank you, Lisa. We received a question around the importance of offering both services and insurance under the CareScout umbrella and why it makes sense to invest in both at the same time. Tom, can you please provide some additional color around this one? Thomas McInerney: I think that's a very important question about CareScout's future growth. I'd start by saying the LTC market is fragmented. LTC care is very expensive and the annual cost of care inflation is significant and as shown in the CareScout cost of care survey that we've been doing for about 20 years, CareScout is the only LTC competitor that can deliver the full value chain in the LTC ecosystem. First, CareScout services is focused on delivering LTC care advice, providing assessments of LTC care needs, working with families to develop care plans and providing access to the extensive and cost-efficient CareScout Quality Network. CareScout services' target market is the 70 million baby boomers, 95% of whom never bought LTC insurance. CareScout services will help these baby boomers determine the care they need and help them find care providers and the 20% discounts from providers in the CareScout Quality Network will make the LTC care more affordable. For CareScout insurance, the very large population segments of the children and grandchildren of the baby boomers are about to find out how difficult it is to navigate the LTC ecosystem for their parents and grandparents as they're looking for care for them. And I think they'll be shocked at the very high cost of LTC care at $76,000 a year for home care and $125,000 in some markets for nursing home care. And we think the target market for CareScout insurance, the children and grandchildren of the baby boomers will rely on CareScout services to help their parents, and we believe they'll be interested in buying CareScout insurance and funding products to be better prepared for their own LTC care needs and the high cost when they reach their peak claim years when they're in their 80s. Samir, anything you want to add to that? Samir Shah: Tom, thank you for that holistic contextual answer. I agree. Look, we're in the middle of an aging crisis, which many 70-year-old-plus population are feeling. And as we talk to the generation that follows after them, they are watching their long-term needs play out in front of them. Our ability to support consumers through both aspects of this through the history we've had over the last 40 years of supporting aging consumers and playing claims gives us a unique perspective to how consumers age and help them across their family needs, helping aging parents and in-laws with our services offering and then creating a lineup of insurance products that help folks with funding needs and services needs as they age through the process. Christine Jewell: Great. Thank you, Tom and Samir, for that additional context. So Lisa, I'll turn the call back over to you, please, to take any live questions. Operator: [Operator Instructions] It appears that there are no questions at this time. Ladies and gentlemen, I will turn the call back over to Mr. McInerney for closing comments. Thomas McInerney: Thank you very much, Lisa. And in closing, I want to say we're pleased with the strong progress we've made across Genworth's 3 strategic priorities in 2025, supported primarily by Enact's performance and we're excited to continue executing on those priorities in 2026. We're confident in our ability to maintain this momentum and deliver on our objectives going forward. And I want to thank all of you who joined the call today and your investment and interest in Genworth, and we look forward to talking to you again next quarter. Operator: And ladies and gentlemen, this concludes Genworth Financial's Fourth Quarter Conference Call. Thank you for your participation. At this time, the call will end.
Operator: Good morning, and welcome to Sotera Health Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, Jason Peterson. Jason, please go ahead. Jason Peterson: Good morning, and thank you. Welcome to Sotera Health's Fourth Quarter and Full Year 2025 Earnings Call. Today's press release and supplemental slides are available on the Investors section of our website at soterahealth.com. This webcast is being recorded, and a replay will also be available on the Investors section of the Sotera Health website shortly after the call. Joining me today are Chairman and Chief Executive Officer, Michael Petras; and Chief Financial Officer, Jon Lyons. During the call today, some of our comments may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Sotera Health's SEC filings and the forward-looking statement slide at the beginning of the presentation for a description of these risks and uncertainties. The company assumes no obligation to update any such forward-looking statements. Please note that during the discussion today, the company will present both GAAP and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, tax rate applicable to net income, adjusted net income, adjusted EPS, adjusted free cash flow, net debt and net leverage ratio as well as constant currency comparisons. A reconciliation of GAAP to non-GAAP measures for all relevant periods may be found in the schedules attached to the company's press release and in the supplemental slides to this presentation. The operator will be assisting with the Q&A portion of the call today. Please limit yourself to one question and one follow-up. For further questions, feel free to reach out to the Investor Relations team. With that, I'll now turn the call over to Sotera Health Chairman and CEO, Michael Petras. Michael Petras: Good morning, and thank you for joining us. This morning, we announced another strong year of performance, extending our track record of year-over-year revenue growth to 20 consecutive years. In 2025, the total company revenue increased 5.7% to $1.164 billion or 5.2% growth on a constant currency basis versus 2024. Adjusted EBITDA increased 8.2% or 7.8% on a constant currency basis, with margins expanding to 51%, an increase of nearly 120 basis points. We also delivered adjusted free cash flow of over $200 million in 2025. Our results demonstrate strong execution, growing demand for our mission-critical services and disciplined financial management. The team's performance in 2025 positions us well for sustained growth ahead. We also had several notable achievements during the year. Our customer satisfaction exceeded 80%, underscoring our commitment to delivering excellent service. We advanced our portfolio across several key areas, including our commercial initiatives continue to build momentum with revenue from XBU customers expanding 9% year-over-year. Sterigenics delivered approximately 8% constant currency revenue growth versus 2024, driven by improved volume and mix. Significant progress was also made on the EO facility enhancements program as well as the construction of the new X-ray facility, which is planned to open in 2026. Nordion delivered a strong year, achieving approximately 9% constant currency revenue growth. Also in the fourth quarter, the team signed a cobalt development agreement with Westinghouse and PSEG, and they secured a 25-year Class 1B license renewal for our Ottawa facility, which is the longest ever issued by the Canadian Nuclear Safety Commission. Nelson Labs delivered core lab testing growth during the year. They expanded margins by 312 basis points and made progress on clean room investment. On the capital markets front, we reduced borrowing costs by 75 basis points on our $1.4 billion term loan and paid down $86 million of debt, resulting in $13 million of annual interest savings. We also upsized and extended our revolver, increasing liquidity by $175 million. Sotera Health's public float increased to 80% of our outstanding shares during 2025. We continue to strengthen our corporate governance with the appointment of a lead independent director. Also, as you may have seen, we welcomed Richard Kyle to the Board earlier this month. Rich's leadership experience as a public company CEO and his extensive experience in operations and governance, along with a strong financial acumen will serve as tremendous assets as we continue to grow. Finally, we remain actively engaged with our shareholders on many corporate responsibility initiatives. 2025 was a strong first step in executing the 2025 to 2027 long-range plan we presented at our November 2024 Investor Day, and we expect this year to represent another meaningful year of progress towards those goals. Earlier today, we issued our 2026 outlook. For the full year, we expect total revenue to increase to a range of $1.233 billion to $1.251 billion, representing constant currency growth of 5% to 6.5% versus 2025 and adjusted EBITDA to grow to a range of $632 million to $641 million or 5.5% to 7% constant currency growth. Before I hand it over to Jon, I'd like to highlight a management transition. As you may have seen in our press release this morning, effective April 1 of this year, Senior Vice President and General Counsel, Alex Dimitrief was transitioned to an outside adviser to the company. I would like to thank Alex for his leadership and service in the past 3 years, and we are grateful that he will continue to support the company going forward as an adviser. We are excited to announce that Erika Ostrowski, who has served for the last 2 years as the Vice President, Deputy General Counsel and Corporate Secretary under Alex's leadership, will be promoted to Senior Vice President and General Counsel for Sotera Health after demonstrating strong leadership, sound judgment and a deep understanding of our business. Erika is well positioned for continued success in her new role. Now Jon will take us through our fourth quarter and full year 2025 financials and our 2026 outlook in more depth. Jonathan Lyons: Thank you, Michael. I'll begin with our consolidated fourth quarter and full year 2025 results and close with additional detail on our 2026 outlook. For the quarter, total company revenues increased 4.6% to $303 million or 2.5% on a constant currency basis versus Q4 2024. The year-over-year comparison reflects the expected impact of Cobalt-60 harvest timing at Nordion. Adjusted EBITDA grew 2.7% to $157 million or 0.5% on a constant currency basis, while adjusted EBITDA margins were 51.8% for the quarter. Interest expense was $35 million in the quarter, a $6 million improvement versus Q4 2024. Net income was $35 million or $0.12 per diluted share. Adjusted EPS increased to $0.26, up $0.05 from the prior year, driven by a lower tax rate as well as strong operating performance and lower interest expense, partially offset by higher depreciation. Now let's take a closer look at our segment performances for the fourth quarter as compared to the same period last year. Sterigenics revenue improved 10.6% to $198 million or 8% on a constant currency basis. Growth was driven by 4.3% favorable pricing, 3.7% volume and mix as well as a 2.6% foreign currency benefit. Segment income increased 10.4% to $110 million or 7.8% on a constant currency basis, reflecting favorable pricing, volume mix and foreign currency, partially offset by inflation. As expected, Nordion's revenue decreased 12.3% to $50 million as the timing of Cobalt-60 harvest schedules drove unfavorable volume and mix of 15%, which was partially offset by 2.4% favorable pricing. Nordion segment income decreased by 18.9% to $29 million. Segment income margins decreased 466 basis points to 57.5%, primarily driven by the lower volumes and unfavorable product mix. Nelson Labs revenue increased 2.3% to $55 million, which was nearly flat on a constant currency basis. Favorable pricing of 3.2%, foreign exchange of 2.5% and core lab testing growth were partially offset by lower Expert Advisory Services revenue. Segment income rose 1.9% to $18 million, a decline of 1.2% on a constant currency basis. Growth was driven by favorable pricing, growth in core lab testing and foreign currency, partially offset by lower Expert Advisory Services revenue and higher costs. Now let's turn to the full year 2025 results as compared to the prior year on a consolidated basis. We delivered revenue growth of 5.7% to $1.164 billion or 5.2% on a constant currency basis. Adjusted EBITDA improved 8.2% to $593.8 million or 7.8% on a constant currency basis, resulting in adjusted EBITDA margins of 51%, an improvement of 118 basis points. Interest expense improved $9 million to $156 million, driven by lower interest rates, the favorable repricing of our term loan and $86 million of debt paydown. Reported net income for 2025 was $78 million or $0.27 per diluted shares. Adjusted EPS for the year was $0.86 per weighted average diluted share, an increase of $0.16 versus 2024, driven by operational growth, a lower tax rate and improved interest expense, partially offset by higher depreciation. I will now turn to the balance sheet, cash generation and capital deployment for the full year 2025. Adjusted free cash flow was $210 million, putting us well on track to achieve the 2025 through 2027 cumulative goal of $500 million to $600 million we set at our November 2024 Investor Day. Capital expenditures totaled $138 million in 2025. The company continues to maintain a strong liquidity position. As of December 31, 2025, we had approximately $940 million of available liquidity, including $345 million of unrestricted cash and nearly $600 million of capacity under our revolving credit facility. Net leverage improved to 3.2x at year-end from 3.7x in 2024 as we continue progressing toward our 2 to 3x long-term target. Turning to our 2026 outlook. For the full year, we expect total company revenue to grow to a range of $1.233 billion to $1.251 billion, representing 5% to 6.5% constant currency growth and an estimated 100 basis point foreign currency benefit as compared to 2025. We expect adjusted EBITDA to improve to a range of $632 million to $641 million representing 5.5% to 7% constant currency growth and an estimated 100 basis point impact from foreign currency. The foreign exchange benefit is expected to be weighted towards the first half of 2026 with the largest impact expected in the first quarter. Total company pricing is expected to be approximately the midpoint of our 3% to 4% long-term range. For 2026, we expect Sterigenics to deliver mid- to high single-digit constant currency revenue growth year-over-year with the first quarter anticipated to grow in the mid-single digits range. We expect the first quarter revenue to be the lightest of the year. We expect Nordion to grow constant currency revenue in the low to mid-single digits in 2026. Nordion's first half 2026 revenue is expected to represent approximately 40% to 45% of full year revenue with Q2 '26 revenue expected to be heavier than Q1 2026. For Nelson Labs, we expect full year 2026 constant currency revenue growth to be in the low single digits with Q1 growth expected to decline low to mid-single digits versus Q1 2025. Additionally, Q1 2026 revenue is expected to be the lightest quarter of the year. For 2026, we expect interest expense between $135 million to $145 million based on the current forward rate curve. We are projecting an effective tax rate applicable to adjusted net income in the range of 27% to 29%. Adjusted EPS is expected to be in the range of $0.93 to $1.01, driven by operational growth as well as improved interest expense. We expect depreciation to increase in 2026, consistent with the step-up we experienced in 2025. We expect a fully diluted share count in the range of 289 million to 291 million shares on a weighted average basis. Capital expenditures are expected to be in the range of $175 million to $225 million in 2026. We expect to make continued progress in reducing our net leverage ratio again in 2026. Finally, as usual, our guidance does not assume any M&A activity. I will now turn the call back over to Michael for closing remarks. Michael Petras: Thank you, Jon. As we move into 2026, we are encouraged by our momentum, strengthened balance sheet, and we are confident in our ability to drive long-term growth, strong cash flow and shareholder value. We are on track to meet the commitments we made in our November 2024 Investor Day, and I'm confident in our team's ability to execute and deliver for our customers and investors. We remain focused on executing on the priorities we've laid out previously, which are excellence in serving our customers with end-to-end solutions, winning in growth markets, driving operational excellence to enhance free cash flow and disciplined capital deployment. At this point, operator, let's open the call for questions and answers. Operator: [Operator Instructions] Our first question comes from Sean Dodge with BMO Capital Markets. Sean Dodge: Maybe just starting on the guidance and the EBITDA margins at the midpoint implies about 20 basis points of expansion. That's on top of a pretty significant improvement you've drove in 2025. What you're targeting this year, is that all just operating leverage? Or is there any other dynamics kind of happening there worth calling out? Are you taking costs out, adding costs in anywhere? Are there any unusual mix impacts or anything else like that? I guess it looks like Nelson will be a little bit of a kind of a slower grower, so you get a little bit of a mix benefit from that, but anything else worth highlighting? Jonathan Lyons: Sean, thanks for the question. No, you're spot on with the midpoint of the guide and what it implies. And no, it's nothing abnormal going on, just normal operating leverage and running the business. Sean Dodge: Okay. Great. And then on Sterigenics, you mentioned recently you had one or at least one client that had been in-sourcing sterilization that's now chosen to outsource to you all. Is there any more background you can share on in their decision? Was that all because of NESHAP? Or were there some other factors driving that decision to finally outsource? And then maybe anything on like the magnitude timing of that shift. And I know you're not building these in numbers, but are we starting to see kind of ice break now and the backdrop being set for more of these decisions to happen? Michael Petras: Yes. Sean, this is Michael. I would say we don't see -- I think your words were ice breaking or we're not seeing significant shifts in that arena at this point in time. The compliance period is out for 2 more years. The one customer you're referencing that we've talked about in the past, will start to bring some volume in late this year, and it will roll in through '27 and '28. There's lots of factors that go into the decisions. That's ultimately the customer's choice. I'm sure the requirements of the new regulations was a factor. I can't speak on behalf of the customer and all the details. And also, I've got to respect some confidentiality we have in place with them. But overall, we're progressing as we told you previously that, that customer will be transitioning over to us with their sterilization volume. Operator: Our next question comes from Patrick Donnelly with Citi. Patrick Donnelly: Michael, maybe one for you on Sterigenics. Can you just talk about how you're thinking about '26, both on the volume and pricing side? Would love just a little color on areas like bioprocessing, MedTech, how you're thinking about just those categories improving throughout '26 and what you're seeing on the demand front? Michael Petras: Yes. Thanks, Patrick. I would say we've given out a long-range guide for the company of 3% to 4% price. Sterigenics came in, in '25 on the high end of that range, which is what we call for. We'd expect the same thing to happen in 2026. Bioprocessing, we have a very small base, but we had significant growth that we experienced last year. We'd expect that to continue as we move into 2026. and MedTech volumes, we saw growth in volume and mix as the year progressed, and we expect that to continue into '26 as well. And we're seeing across multiple categories as we referenced on our last call, and I'd say we're seeing the consistency there as well. We've got -- and the only other thing I'd call out, Patrick, as I think about it is the commercial segment has been a little bit more challenging, some of the volumes there as we wrapped up '25 looking into '26. But overall, the core volumes, which are really the foundation for the business is MedTech, and those are in a pretty good spot. Patrick Donnelly: Okay. That's helpful. And then maybe just Nelson Labs, I know you guys have the EAS headwinds, those are going to ease. It sounds like 1Q maybe down a little bit. How do we think about the progression through the year there and as that headwind eases? And then maybe for Jon on the Nelson margins, I know that's a big driver for margin expansion. Is '26 getting back to that low to mid-30% -- just would love some color there. Jonathan Lyons: Yes. I'll start with the second part of your question there, Patrick, on the margin side. We see Nelson solidly staying in the low to mid-30s again this year. Q1 being the lightest quarter. I expect on the lower side of the margin rate. And then the first part of your question, could you repeat again, was about Nelson progression throughout the year on the revenue side? Patrick Donnelly: Yes. Yes. Just with the EAS headwinds, how you're thinking about it. Jonathan Lyons: Yes. I would say the biggest headwind we have, the expert advisory comp actually has a little bit trailing into Q1 comp challenge. So we should improve from here, and this should be the last quarter where we faced that kind of headwind. It's a lower headwind than it's been, but still meaningful to the quarter. Michael Petras: And remember, as Jon stated, first quarter is typically our softest quarter in that business. Every year, it's like that. So margins and volumes will be softer in the first quarter. Operator: Our next question comes from Luke Sergott with Barclays. Unknown Analyst: This is [ Salem ] on for Luke. Maybe just piggybacking off of Patrick's question on 1Q guide. Sterigenics ramping a little bit throughout the year. I think you talked a little bit about how volumes are kind of accelerating out of the year. But if you could just talk about any dynamics at play there with the slightly slower start to the year for Sterigenics? Michael Petras: Yes. Thanks, Sam. Sterigenics, like Nelson, typically, the first quarter is the softest quarter. We also -- kind of where we sit today, we're seeing a soft start to the year. Some of that's shutdown related, some of but also there is some weather impact that we felt as well. But we're guiding towards mid-single digits as we kind of look at the first quarter for Sterigenics. Unknown Analyst: Got it. That's helpful. And then if you could talk a little bit about the X-ray facility and when exactly it opens in '26, maybe any tailwinds associated with the facility opening? And maybe just talk about a little bit on the strategy behind opening the X-ray facility and how bringing in that capability helps to serve customers and create new opportunities. Michael Petras: Yes. Sam, we're a full supplier across sterilization and all the modalities. We made the strategic decision over 3 years ago when we go through a 3-year strat plan every year with our Board. And in the process of that, Mike and the team laid out a strategic plan to build some more X-ray capability beyond the capability we already have today. We expect that to open up in the second half of this year. We're in qualification with our customers, just like any other facility that will have a ramp period over time. There will be a little impact in 2026, and then we'll start to see that accelerate in '27 and '28 and beyond. But this was a long-term strategic investment. We got to co-locate with the gamma facilities. We're working with some customers on qualifications now. But again, it's more part of our longer strategic plan to make sure we have full service offering across all modalities. Operator: Our next question comes from Brett Fishbin with KeyBanc. Brett Fishbin: Just maybe moving past the segment conversation. I think at a high level, you noted that revenue from the cross-selling or XBU customer base was up 9% year-over-year in 2025. So I was curious if you could maybe dive in a little bit. I'm curious how big that group of customers is as a percentage of total? And then maybe any other color on what you think drove that excess 400 bps of growth within that cohort relative to total company? Michael Petras: Yes, Brett, we've got several activities going on in across BU. We've got several hundreds of customers that are doing business across both platforms. And then we also -- within that, we have strategic pilots of some key segments that we're really looking to accelerate on. So we've seen significant growth, as I said, the 9%. But even within those pilots, it's even greater than that. The team is doing a really good job in leveraging the value prop across Sotera Health and being able to bring the capabilities end-to-end. We continue to look at our customer satisfaction scores. Sterigenics overall, I think, first of all, in the company, they're over 80% overall. Sterigenics numbers were even significantly higher last year, and the XBU customers continue to be above that average. So we'll continue to look for opportunities to accelerate that. We've got a lot of commercial work going on with the teams, and we're hopeful to see even more rewards from that in 2026. Brett Fishbin: All right. Great. And then for a follow-up, maybe just thought I'd bring up capital allocation. I think the story continues to get better here and net debt and net leverage are continuing to gradually improve. So just wondering if there's any slight marginal change in how you're thinking about further activity here in terms of like organic investment and debt reduction versus the potential to see maybe a bolt-on acquisition this year? Michael Petras: Yes. Thanks, Brett. Our priorities are staying the same as what we told you before. Our first priority is to fund organic investments and making sure we get the appropriate returns on that. We committed to a free cash flow target for the '25 to '27 period. We're still committed to that today. And the guide that we gave you an outlook for CapEx for 2026 fits within that framework. So the business will continue to do well and generate cash flow and being prioritized as we've talked about in the past. Operator: Our next question comes from Max Smock with William Blair. Christine Rains: It's Christine Rains on for Max Smock. Just hoping to circle back to your 2 active Sterigenics growth projects. On the X-ray facility, in the past, you pointed to a roughly 40% customer utilization target before breaking ground. And it says the project did not meet the threshold, but obviously, it's strategically important. So curious how much below that 40% typical benchmark you're currently seeing? And if you're assuming any margin dilution for the segment in 2027 until utilization ramps? And then also if you can give us some color on the sterilization modality for the other facility build. Michael Petras: Okay. I'm sorry, you've got like 7 questions within that one. Let me try to break this down a couple of perspectives. Yes. That's okay. Let me just walk through it. We've stated in the past, we target 40% before we put shovels in the ground, 40% utilization. That's what we hope to have committed with our customers. This one is a little bit lighter than that one. We've also said we target 20% IRR on our investments. Obviously, if we're putting cobalt in existing facility or an EO chamber in existing facility that's above the 20%, greenfields are below that. This one will be below that, obviously, because it's a complete greenfield. Strategically, it's important to us because we think there are some segments of the market that would like X-ray, and we're bringing that service to them. We still think that the other modalities will be, by and large, the largest segments in modalities. We will see this ramping up in the second half of the year trying to go through all your questions. On Sterigenics margins, so Jon mentioned that we'll have slight margin improvements in 2026, and that will be driven predominantly by Sterigenics where we sit today. That encompasses some of the costs that will come in with low volumes on the X-ray facility, and we'll see that phenomenon continue as we look into '27 as well. So I think I've addressed all of them. I don't know if I missed anything else. Christine Rains: Yes. No, I think you got the majority of them. I was just wondering if you have any color on the sterilization modality for the other facility. I think your deck pointed to 2 growth projects in Sterigenics. Michael Petras: The second facility, no, we have not gone ahead in detail. We're working with our customers on that facility, and we have not gone ahead and publicly released what kind of facility or where that's going to be at this point in time. Operator: Our next question comes from Casey Woodring with JPMorgan. Casey Woodring: Great. Maybe the first one, just any changes on how you're thinking about the competitive positioning in Sterigenics in light of NESHAP. I know that, that was a focus coming out of the last Analyst Day just in terms of opportunity to gain share from smaller players. And then maybe same question on the Nelson side. Maybe just walk us through the latest and greatest on the current competitive landscape there. Michael Petras: Thanks, Casey. On the Sterigenics competitive scenario, I would say, as I mentioned earlier in my comments, NESHAP has got a 2-year extension period. So we're seeing discussions about in-sourcing and outsourcing slowing down. That doesn't mean customers aren't having discussions with us overall on what their strategic plans on their supply chain. Those have always been ongoing. But I don't think there's the urgency that people saw when the April 2026 deadline was in place that's now been extended. We continue to compete very well. Our customer satisfaction scores were up significantly last year versus the prior year. We'll see how '26's are when we do the surveys here coming out shortly. But overall, I think Sterigenics is well positioned. And it's the strength of the business model. It's the global platform, it's consistency in our quality systems. It's our ability for our customers to contract with us on a global basis and us being a full-service provider that helps take care of in all modalities in all geographies. So I would say Sterigenics continues to be very well positioned. On Nelson Labs, Nelson Labs is a very fragmented market overall. but that business is really good at service and quality and the reputation is what really matters [ Eric ] with science. And the team continues to do very well. We've got pockets in that business. As you know, the core lab testing has improved over the last year. The advisory business has been a little bit more choppy because of some of the remediation projects that have come and gone based on some of the FDA activity. But overall, we continue to accelerate in the marketplace. Our customer sat scores are good. Our NPS, we also do an NPS, Net Promoter Score, and that continues to perform very, very well. So I'd say we're very well situated, but it's a different dynamic, Casey, in that market. It's a more fragmented market on a global basis. But we do 800, 900 tests in that business across our facilities around the world. Casey Woodring: Got it. Understood. And then maybe just a quick follow-up. Any update in terms of the timing of when we could expect any updates on the litigation front? Michael Petras: No. I mean there's nothing material change on timing. I think when I look at it, there's no trial set for this year other than the public nuisance case in New Mexico in the July time period. But other than that, there isn't any material change in time lines. Operator: Our next question comes from Jason Bednar with Piper Sandler. Jason Bednar: Michael, I wanted to come back to one of the comments you made just on your responding to the first quarter Sterigenics guide. Just to unpack the comment, if you could, around the slower start to the year and the weather headwinds on Sterigenics. Were those comments connected? Or was that something where you're saying demand was a little bit slower to start the year and weather has been creating some challenges as well? And then for the weather comment in particular, just if you can quantify how large is that headwind? Is that something that you feel like you can overcome here within the first quarter? Or does it take a couple of quarters to overcome and catch up on those -- that impact of those headwinds? Michael Petras: Yes, Jason, I would say a couple of comments. My comments were focused around -- we have some shutdowns in the quarter and weather has had some impact that we felt. The guide that we gave today of mid-single digits is consistent with what we feel we can deliver and also the guide for the year, mid- to high single digits is we're confident in our ability to deliver that as well. So I would say that's how you should think about it. Jason Bednar: Okay. Fair enough. And then maybe longer term or medium term to long term, I wanted to ask in the context of future CapEx and free cash flow. You have a couple of capacity expansion plans underway. We've been talking about those here today. I guess do you still feel comfortable with those long-term targets? I think you do. I just you're reiterating them today. But just how do you think about those in the context of medium-term, long-term planning for additional capacity expansion? When do those additional capacity expansions or greenfield opportunities? When do those discussions happen? How are you planning for those today knowing you're looking out to '28, '29 and '30. Hopefully, that question makes sense. Michael Petras: I think I got it, Jason. So as I mentioned multiple times as well as this morning, we do a 3-year strat plan with our leadership team and the Board every August, and we kind of lay out the next 3 years of where we see the capital demands. And that really was the foundation of the Investor Day presentation we gave for the '25 to '27 time period. As we continue to roll forward and look at opportunities beyond that, we continue to make sure that we've got the facility capacity in place to deliver the long-term growth that we need. So we will continue to refresh that and provide updates where appropriate on future outlooks. But for the time periods that we've given guidance around '25 to '27, we feel confident in our ability to deliver the free cash flow that we've outlined in that time period. Operator: Our next question comes from Ryan Halsted with RBC Capital Markets. Ryan Halsted: Maybe just to ask a question on the Nordion segment. Can you maybe provide a little more color on some of the headwinds you saw in the quarter, certainly, especially given that you were going up against maybe some lighter comps. You obviously talked about the timing of the Cobalt-60 harvest schedule. Maybe just any color around what were the drivers there, including that timing impact? Michael Petras: Ryan, I would -- this is Michael. I would just say it was driven by harvest schedules, right? That's -- we called this, we expected it to be down. It's really -- it's not a demand problem. It's a supply timing situation. So remember how this works, you get cobalt out of nuclear reactors, the primary purpose in life is to generate electricity for consumers and businesses. So we work with utilities on when they're going to do a shutdown so we could harvest the cobalt out of the facilities, out of the reactors. And that -- so we have very good visibility. That will shift every now and then a couple of weeks or a month here and there, but we have good visibility. So we anticipated this. We projected that to the investment community to make sure they understood it. So we're not concerned at all about the fourth quarter from a volume perspective. We knew that, and we had good visibility. And that's why we also give you visibility on how we think of first half, second half, so you could start to circle in and hone in on how those harvests will work in the year to come, right? So there was no surprise about that. Overall, it came in as expected, -- it's actually slightly better even. Ryan Halsted: Got it. That's helpful. And then for my follow-up, just any updated views on the potential impact of onshoring by your customers, especially given the dynamic environment with tariffs and the government maybe proposing some regulations with incentives for manufacturers to try to bring more of that manufacturing onshore. Just curious your thoughts on impact to your business. Michael Petras: Yes. Great. So remember, the majority of our business is service business. We're not really impacted by tariffs. The one place where we have product is the cobalt product that's USMCA certified. So we don't have any tariffs. I just want to kind of level set that. Now talking about the bigger macro environment. We have not seen a significant movement of the onshoring. But if that were to happen and customers are having discussions with us, but we're not seeing a significant investment commitment at this point in time. But if it were to happen, we'd be very well situated because we have a very significant position in the marketplace here in the United States where we anticipate that onshoring, if it were to occur, would happen here. Operator: Our next question comes from David Windley with Jefferies. David Windley: Michael, I was wondering in regard to the guidance, where are your areas of higher or lower visibility or said differently, what could firm up as the year progresses that takes you to the higher end of the range? Michael Petras: David, it's pretty consistent year in and year out. I sound like a broken record, but it's volume. It's the volume and mix piece that would tend us towards the high end. And as you know, Nordion, we have probably the best visibility. Sterigenics, less so, we've got a quarter or so out. And then in Nelson Labs is more transactional in nature and some of those validation projects could take a little longer. So I'd say in that order, but the biggest thing that could drive us to the higher end of that would be volume and mix in Sterigenics and Nelson Labs. David Windley: And if I ask you to take that down a level, would you -- like between -- you commented on this a little earlier in the call, but like med device versus bioprocessing, your kind of end markets is one of those firming up or accelerating more than the other vis-a-vis visibility? Michael Petras: I got to think about that. We're seeing bioprocessing with nice growth, but we're in a pretty small share position. Maybe we pick -- our sales guys really think we picked up a little share. I'm not sure we have. But we're seeing nice growth overall in that area, but it's a small category. I'd say they're both in a pretty good spot right now, David, but just recognize bioprocessing is a much smaller base for us. Operator: Our next question comes from Michael Polark with Wolfe Research. Michael Polark: One of the things I heard on Sterigenics was the commercial segment volumes are challenged. Michael, can you unpack that? Remind us what product categories are commercial? Is this food and consumer products or something else? And what those challenges are, why you perceive them to be? Michael Petras: Yes. So Mike, yes, that's reflecting on the comment I made earlier. Commercial is exactly what you talked about. There's some electronics in there. There's some food in there. There's some spice in there. There's some other categories as well that it's just been a choppy market. Coming out of COVID, it really hasn't been very stable. It's been moving around quite a bit. We continue to see that going forward here, and we're planning around that. But I would say that would be -- again, it's a small portion of the total. I think it's less than 16%. I can't remember the exact numbers. It's a small portion of Sterigenics in context-wise. Michael Polark: Helpful. And just a follow-up to that and then one other topic, please. When you say challenged, like growing, but just loan growth or shrinking? Michael Petras: Combination. I'd say more probably shrinking than growing. I mean it's been choppy. Some customers have redesigned products and don't have the need. I think -- as I say this, I think I have one customer that had some packaging product for the food market and they've changed their designs coming out of COVID. But again, that's not impacting 2026. That's just -- I'm looking backwards when I make that comment. So it's just been -- that there's a churn in that customer base, and we're seeing it's just a little heavier than we've seen in the past, but it's been like this since 2020, 2021. Michael Polark: 5 Helpful. I appreciate that color. And then the other one, also Sterigenics, just as you reflect on calendar year '25 and the performance and the acceleration in volume growth, the topic of tariffs we've discussed on prior calls, do you believe the tariff landscape contributed to customers kind of building some inventory out of that as part of their mitigation plans? Any -- what's the latest perspective on whether that was good neutral last year? Michael Petras: Yes. We see -- we've stated a couple of times, we've not seen a material impact from the tariff side that we've been able to detect. I referenced in the second quarter, there was a bump up in some stat volume in a particular facility I was in and I said, hey, what happened here? And they said, all the customer is trying to get some stuff in before tariffs. But that's not -- that's a facility that's got 50 customers. This was a customer that I happened to notice when I was going through some analytics with the team out there. We're just not seeing material impact from that, Mike. I know people have asked us that question, and there's nothing consistently shown up from our customers. We're seeing nice consistent volumes on the Sterigenics side as we wrapped up 2025, which was good. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back to Michael for any further remarks. Michael Petras: Great. We thank you for your time this morning. Hopefully, you can see we had a nice finish to 2025. We're set up for a very strong 2026. And what I want you to take out of this is this business is built to perform. We've had 20 consecutive years of growth, strong cash flow generation, strong margins, sticky customer relationships. This business is built to run and perform. And what we're going to try doing is making sure you have transparency of what we expect out of the business, and we're just going to keep executing against it. So thank you for your time today, and I wish you all a good week. Bye-bye.
Dominik Prokop: Ladies and gentlemen, may I welcome everyone cordially. My name is Dominik Prokop. I represent the Investment (sic) [ Investor ] Relations department. This is a conference devoted to results of the fourth quarter as well as the whole of 2025. The first part of the meeting will be devoted to the results of the bank as well as the trends. And this will be headed by the President, Piotr Zabski, who will sum up the most important trends and will tell us about the results in the business area. We will have also Marcin Ciszewski, who will present the risk; and Zdzislaw Wojtera, our Deputy President, who will tell us about finance. After the presentations, we will then have a Q&A session. Before I hand over to President, Zabski, let me encourage all of you who are listening to us to ask questions already in the first part of the presentation, which will enable us to smoothly continue with the Q&A. That is all from me. I hand over to President, Zabski. Piotr Zabski: Ladies and gentlemen, good morning. May I welcome everyone cordially at the results publication. The Supervisory Board approved our financial statement yesterday. So we can tell you about what has happened in the fourth quarter of 2025, but also in the whole of 2025. So there will be a lot of figures devoted both to the fourth quarter and the whole of the year. It is a special moment for us because this is the first full year when we can present the results, which we had forecast and delivered, which you will see in a moment. But it's also a very good stage for our development, we are in the new headquarters of our bank. There was a move to the new headquarters in September, and this is the first conference in this new beautiful headquarters, Varso Tower. Moving on to the bank results. Let me point to some important aspects. In the fourth quarter, as far as revenues are concerned, we had a very good result, almost PLN 1.5 billion revenues, PLN 1.26 billion is in interest income, which is by 4% less year-on-year. But if we compare the quarters -- if you compare the quarters, but the commission income is very good, PLN 240 million, which is by 9% higher than the fourth quarter of the previous year. And so the revenues of the whole year reached PLN 6 billion for 2025, which was forecasted in our strategy. There was a great contribution in the new sales. The interest income is PLN 5.13 billion, 1% drop year-on-year. Obviously, there was a drop in interest rates, and that translates into this decreased results by the commission income for 2025 is by 4% higher and translates into PLN 900 million. Net profit in the fourth quarter is PLN 688 million by 12% higher than the previous quarter -- the previous year's quarter, so quarter-on-quarter, and PLN 2.35 billion (sic) [ PLN 2.37 billion ] net profit for 2025, which is a decrease by 3%, which we consider a good result considering the interest rate drops. This was delivered in very high ROE ratios, 21.7% in the fourth quarter and 19.6% for the whole of 2025. We forecast 18%, if you may remember. In the lower left-hand corner, a number of good details. We continue the drop trajectory in our cost of risk ratios and the drop in our NPL ratio. The cost of risk quarter-on-quarter is below 1 percentage point and 0.13 percentage points drop for 2025. So another good year when we improved the ratios there. And the NPL ratio today is a very important element of our dividend decision. That is 5.64%. Our promise and the strategy is, therefore, continued. We plan to go down below 5% of the NPL ratio. We will hear later about the significance of that particular drop. As far as customer relations are concerned, we keep growing. The relational customers are now 1.7 million. We kept selling more, but we had a considerable churn, which will later be commented upon. There were individual promotional activities finished and some of the customers moved to other banks. We put a lot of stress on relational customers, and we grew there by 107,000 customers. As for mobile app users, there was a considerable growth, the fastest growth in the sector, 17%. There was an improvement in our application where we were able to offer it as a product to the customers at a more professional level. The sales, which were considerable and improved our results, was PLN 8 billion in the fourth quarter '25, which was an increase of 12% year-on-year. In the whole of the 2025, there was a growth of 17%. Together with the leasing sales, it was about 20%, which is very good because our promise of growth is, therefore, materializing. What is also crucial is how to deal with the churn, but that is the task for this current year. There's been a growth in the deposit portfolio. We grew alongside the market at the level of about 7% year-on-year. The value of our portfolio at the end of the year was PLN 82.6 billion. What is worth noting is that it's been a very good quarter in early leasing, the fourth quarter. But the whole of the year was good as far as the leasing activity is concerned. For the business customer, the leasing product is our flagship product, especially for small- and medium-sized enterprises. PLN 7.2 billion is the portfolio, which is 9% growth year-on-year. In the fourth quarter, we had 14% growth year-on-year. We are not present in all the segments, mind you. So this is especially good in that context. Now a few bits of information which may be new to you. What is of paramount importance? We are now part of the top tier as far as financing, like I said, we are above PLN 100 billion, which is a growth of 9% of our assets year-on-year. The working loans translates into 5% growth and a 7% growth in deposits, which is PLN 82.6 billion. And as I already mentioned, PLN 1.1 billion in assets. As for our other figures, we show you in the first line, the fourth quarter compared to the fourth quarter of the previous year. Cost-to-income ratio around 38% annually and quarterly, the costs have grown. Zdzislaw will refer to that later. As for the NIM ratio in the fourth quarter, the lower interest rate translates into this result, but we have 5.38% level. And as for ROE, I already mentioned a very good result above our strategic forecast. As for cost of risk, not 0.29% and 0.49% for the whole of the year. So there's been an improvement in each of these indices. As for the capital, we are at the level where we can be confident in developing our scale and the NPL 5.64%. So our promise has been delivered. We want to be a dividend bank. We want to be able to pay even more than 50% of our income, but we would have to go below 5%. Marcin will tell you about that later. Now a few words about the customer side, 107,000 new customers, 240,000 mobile app. New users, about 5% of the mobile app users are banking with us. We are catching up on the slightly worse results in the previous stages in a very dynamic way. Now a few words about what is happening on the deposit side. This is top left-hand corner. The structure of our assets of retail customers is presented there. There's been a growth of 13% across the year in all the constituent parts of this portfolio, which makes us very happy. We're happy to see the investment funds grow because this is a considerable part of our commission revenue. And investments, as you can see, are also going up. On the right-hand side, you can see the gross loans to retail customers divided into the consumer loans and the real estate loans, both the guaranteed and non-guaranteed ones. In the fourth quarter, you can see that there was almost a parity as regards both the guaranteed and non-guaranteed loans with an increase on the side of the real estate loans, the longer tenor guaranteed loans, but with lower risk and greater markup. So we are slightly changing the product mix in our portfolio in the direction of the better products with lower levels of risk. At the bottom, you can see the loans which are shown in the dark red color in the top slide. There's been a growth of 14% in the non-mortgage loans to retail customers. That is the growth of sales, not of the portfolio. The both parts the cash loans and the consumer finance behave according to our forecast. What I would like to comment on is the right-hand side bottom corner, the growth in the mortgage loans, 36% growth of sales year-on-year. If you consider that 2024 saw 1/4, as far as I remember, of the sales on the BIK A2 if we decrease that, then the increase would be almost twofold. We increased the sales by 100%, and we keep growing it quarter-on-quarter. Our share is higher than it would seem from the analysis of our share in the whole of the loans balance in the sector. What I mentioned previously is the importance of the mobile customer. We have a new application, which is going very smoothly. It does not crash. There is easy access to all the features. There's been a great improvement there. The assessment of the customers is very positive, as you can see. So we are improving the -- as far as the application is concerned. As regards to the business customer, let me focus on this. Now in the top left-hand corner, you can see that there's been a drop by 5% in the portfolio size, but a few words of explanation are on order. In this particular portfolio, we have the micro segment and small, medium-sized and large companies. As for the micro sector, this will keep growing because we have the largest NPL ratio there, and we have to get rid of that portfolio, which we are doing step by step. So this part is decreasing definitely. And the difference as regards to the sales is about 32% drop year-on-year. At the same time, we keep improving in the segments where we are a good player, where we are confident and competent in the medium -- small and medium-sized enterprise. And there's been a growth of 32% there. So if you consider that we are getting rid of what's in the top right-hand corner of the nonworking, nonperforming portfolio. And if you put all these together, plus the new sales, which has grown by 40%, has not yet translated into the growth of the whole portfolio. So in the middle of that portfolio, there are all kinds of things happening, sometimes contradictory in different segments, different things are happening, but we hope that the trend will reverse and the small and medium-sized companies is not the segment where we will see the huge increases, which in previous stages saw an increased level of risk. So this time has passed. For our business customers, they've got deposits here, 3% increase year-on-year. We are especially happy about the fund of a new system that we have launched as far as IT is concerned, very much focused on our mobile app, has been taken advantage of vastly by our customers. So our customers do their banking online, in the digital channels, which is something that make us very content about. Now leasing is our response to the needs of micro customers, but also given the fact that the banking sector may also ensure funding to micro companies that have been there for less than 2 years. Leasing is a very nice response, 9% increase year-on-year. As far as the sales go, 13% in quarter 4 [indiscernible] and 14%. So this portfolio has increased by 9 percentage points. We do not play on all the segments. We only service most promising sector that is the light vehicles. Light vehicles is not our specialization. Machinery and heavy-duty vehicles is where we have most competence. This is where we keep growing, and this is our response, manifesting how we can secure it and grow in the business sector. So much for a very short commentary to rather general results of the bank. And now Marcin will tell you more about the risks. Marcin Ciszewski: Piotr, thank you very much indeed. I welcome you all. What is our capital standing of the bank? It is very safe and sound in T1 and TCR. The ratios are 17 -- 73 which makes us having a nice buffer regulatory minimums. And this gets translated in PLN -- into PLN 4.8 billion. And we are very consistent in our operations. We issue further installments of bonds. The year was closed at 21.43%, 257 bps higher compared to the regulatory minimum that is imposed on the Alior Bank Group. For the liquidity indicators, long-term and short-term liquidity ratios are equally safe and sound, exceeding regulatory minimums at a safe level, 245% and 49% for the other ratio. As Piotr has already told you, our assessment is this. We very much comply with the requirements that enable to have a distribution of 50% dividend, and we are awaiting other orders, no decisions have been taken as of now. To make a reference to what Piotr has said already, this slide stands to reflect the way we manage risk, both with regard to core as well as NPL ratio. CoR was standing at 0.49%. So this is yet another period, consecutive period we've been dropping this particular index. And please pay attention. This index is very much impacted by the sales of other portfolios like performing loans. This is one of the constituents that is taken advantage of as far as cleaning the portfolio is concerned. And we do clean it in terms of sales. And at the same time, we have managed to maintain our directional CoR that we have otherwise shaped the level, not exceeding 0.8%. And as I have already said, we are very much pursuing our strategy, our operations, which targets at nonperforming ratio at a level below 5% threshold. Our strategy says this particular ratio towards the end of the year will get below the 5% level. So we keep pursuing this path, and we will manage to decrease the set index below the level of 5% beyond by the end of this year. Gradual improvement of the quality of the loan portfolio, PLN 3.6 billion, that's the final value of the year as we discussed at our previous conference. Towards the end of quarter 3, we had one substantial default in our sector of business customers. But in spite of all that factor, there's been a further decrease of nonperforming loans. NPL ratio for retail customers. Well, it stand very confident level, especially when it comes to business customers are concerned, still, there is a lot of work to be done in the micro segment because that respective index is still 2 digit. On the right-hand side, top of the page, we can see what was happening in quarter 3 and 4. NPL sale affected significantly the level in quarter 3 and 4, respectively. You may want to see the level of CoR, which has been generated on our end without one-offs. That would be relevant to mention. And now Zdzislaw will hand -- will take the floor. Zdzislaw Wojtera: Thanks a lot. Now it is my time to discuss the financial results. Let us first look at our revenue side between 2024 and 2023, 1% drop, PLN 49 million. So we have managed to maneuver well in the environment of decreasing interest rates and significant costs very well indeed because the revenues are well comparable between 2024 as well as 2025. The commentary from [indiscernible] development of our business volumes made us capable of compensating the decrease of index rates by the growth of business. Let us now have a look at our growth. There is a drop of 3%, yet these quantities are where comparable between 2024 and 2025. So we must consider 3 factors, indeed, one of them being interest rate cuts. Secondly, BFG costs decreasing. And third, a one-off event that is tax asset. The impact of the revaluation of the net tax asset, I will discuss it further. Quarter 4 2024, 2025, if we put them all together in 2024, we accounted the cost from the whole 2024, whereas as regards to 2025, I will show it to you in the next slide, we cared that there is a linear growth materializing. So this basically explains the difference of 13% between quarter 4 2024 when compared to quarter 4 of 2025. Now let me discuss in detail our income statement. The first column that you see marked in yellow, these are quarterly results, which have already been well commented by Piotr. Now please bear in mind a stable interest result. There's been a stability because in quarter 3 already, we have reflected all the impact of the interest rate cuts to reserve positions that I would like to comment on. One concerning free of charge credit sanctions. So there has been a reserve in quarter 3. And the difference is the outcome of the change of the quantity of cases that come in and also our model approach is taken into consideration, but this isn't troubling by any means. Another position, EUR 50 million cost of risk of mortgages in foreign currencies that is in euro, [ EUR 50,151 ] million in the whole of 2025. So we are screening every senior for both these positions that is the sanctions and mortgages in foreign currencies to be manifesting a conservative stance so that the whole of the risk against -- reflected in the relevant manner. We had 110 more court cases. There's been a growth in this respect. This isn't significant. However, I wouldn't expect any increase in the current year. I suspect we should talk about the quantities that will be lower when compared to 2025 as regards to the reserve. Tax assets, that is income tax, there has been a substantial difference, especially if you pay attention to in quarters 3 and 4 here, there's been a plus paradoxically enough. But there's been a discussion on that by other colleagues of mine. So there's been the introduction of tax as of January this year. Therefore, we must do other estimates based on another interest rate PLN 9.5 million on the plus side that was accounted for in quarter 3. Yearly results are pretty solid on the interest rate side and loans side. Marcin was already speaking about that EUR 2.337 billion, a very solid closing of the year, including all the factors that Piotr was speaking at length about. Now let me move on to yet another look at our costs and interest costs. This comes as no surprise, especially if you consider the medium part of the graph. Our quarterly statements manifest a decrease of 10%, stemming from lower interest rates, 22% on the side of the interest costs. By and large, it gets reflected in our decrease of our margin, interest rate margin. It used to be 6%. Now it got lower to 5.38%. Please note the impact of the low interest rates. That is number one factor, but there is also another factor that is a change in structure of our statement, which is the product of us selling other products that is mortgages. If we get back in time mortgages, given interest rates reality, well, the margin was pretty high, but the mortgages are being sold more dynamically. They've got other profit characteristics and therefore, the margin has been a little bit more sluggish. So the margin is very impactful as regards to the margin that you will get to see in quarter 4 2025 on the one hand, but on the other hand, if you have a long-term perspective, we are building up a very stable portfolio of revenues in the longer time horizon for the bank. So the whole banking industry has been learning lessons around the ease of mortgages. This has been included in our contracts and all the clauses which are relevant. This is precisely how we wanted to mirror also the guidelines of the Polish Financial Supervision Authority. So our portfolio is this. It is looking into a longer time horizon. So my take is it is a very positive trend. The very interest rate profit, it has dropped by 2%. Also taking into consideration the credit [indiscernible] that happened in 2024 is by no way surprising because this is clearly our response to the result of interest rates given the dropping of the interest rates. Now about commission as you look at the first quarter and results concerning the first quarter. And there were questions about this would not be our case here and whether we will manage in the subsequent quarters. We said, yes, we will want to improve it. And here, you can see the result of our activities. If you take year-on-year results, you see that there has been an improvement by 9% in the commission income. And the source of that income is also important. It stems from the activity of retail customers and the activity of customers who use different products of Alior Bank, but also the brokerage commission, which stems from the activity of our customers, the development of our TFI participation in investment funds, the individual advisory services to customers. All this has translated into these improvements and these activities will certainly be continued. There's been stabilization of operating expenses in 2025. We are quite happy that we managed to optimize the operating costs of the bank. If we deduct the BFG costs and focus on the Alior Bank internal costs, the costs have grown by 5%, which is below what I had communicated a few quarters before. We talked about 6% to 7%, but we've managed to keep it at the level of 5%. So that's a very good result. Another important element, which I want to draw your attention to and which was also forecast by us, we wanted the growth to be foreseeable and comparable and we've delivered that aspect. If you look at the first quarter, we see a one-off BFG cost there. There was a one-off event which affected the raise. But other positions are quite well comparable, and we will keep maintaining the cost discipline so that they can be compared quarter-to-quarter. I am convinced that we'll be able to continue with that in 2026. And we want to have the rise of costs even below the 5%. The cost/income ratio is very good, 37.9%. And the quarterly ratio and 39% in the annual result. So that is also a good indicator for the development and for the cost structure of Alior Bank. And I hand over to Piotr. Piotr Zabski: Thank you, gentlemen. Just to sum it up, I would like to say that our business agenda, the one that we've addressed in our strategy is working according to our expectations. We announced 3 pillars in our strategy that we want to focus on. And they are connected strongly to the development of the bank. The first one is the growth of scale, entering the top tier, PLN 100 billion, a leader in consumer finance. We are definitely a leader there. No one is ahead of us as yet. We keep growing in relationship customers. That's our focus, 107,000 new customers. There's been a certain level of churn, which we are struggling with. But the rise in the transactional ROIs, a record growth in sales by 17%. If we divide the BFG, it's almost 20% of growth, especially driven by the consumer -- by the mortgage loans. Deposits are growing. So the scale is materializing and the figures speak for themselves. The second pillar is the high resilience. I want to focus on the change of structure of our balance sheet. We go toward long-term loans, which are guaranteed rather than the non-guaranteed at a lower margin level, but they bring a lot of stability to our portfolio. But we are not slowing down as far as consumer finances is concerned. We are a leader there. We are experiencing very good sales, high margins, low risk. As far as the business customer is concerned, we keep growing in the segments in which we are confident and competent as far as micro enterprises are concerned and where we are not able to finance the loans. We have a leasing offer, which is also growing in a very stable way. Coming back to the resilience, the commission result is very good. It keeps growing. There's also a growth in terms of income from investments, which is seen in the market in general after a certain period of stagnation. And we are also more resilient technologically. Our systems have considerably improved compared to the previous periods. The mobile app is very stable. The accessibility of the service remains at a very high level. And the third pillar that we mentioned in the strategy is the operational excellence. What I want to stress in this regard is that we are changing in terms of technologies. We are becoming an advanced business. We're introducing a new app, both on the retail and the business customer side. We are also developing the agile model, AI coded and the whole organization, all the employees of our headquarters are now able to work in the agile system, which we have scaled up this year, and we work in the system, which brings concrete results. A very strong cost discipline. After the BFG deduction, the 5% cost growth compared to the whole of the sector places us in a very good position. The costs are well managed by us in a foreseeable way even in the quarter-on-quarter results. We don't have the volatility, the ups and downs that we used to have. The risk and the figures that Marcin mentioned speak for themselves. All the graphs, the results show a very good trajectory. There are very good results. We improved the risk situation. We want to get below the 5% ratio in the NPL, which will allow us to pay out a 75% dividend. We improved the KNF ratios. We are waiting for the individual decision regarding the dividend for 2025. But that will take some more time. And all this has brought us to the results that we have, the revenue above PLN 6 billion, net profits PLN 2.5 billion, a very good indexes of cost to income and cost of risk and NPL 5.6%. That is all a very good result in the environment of low or definitely lower interest rates. They went down at a faster rate than we forecast. So it means that our business strategy is working, and I want to take this opportunity to thank all the employees for this excellent result. And thank you for the dedication, for the effort and for working together to develop the Alior value, which we have described to you. That is all as far as the formal side is concerned, and I believe we can now move on to the Q&A session. Dominik Prokop: Thank you very much. So we can now start with questions. The first question, what was the impact of the NPL sale on the fourth quarter 2025? Marcin Ciszewski: In the fourth quarter, we recognized a sale of the second important portfolio that was sold in the previous year. In the fourth quarter, the income from that sale was PLN 110 million. Dominik Prokop: Thank you. The next question to Marcin. What sensitivity to interest rate changes can be expected after 2025? What is the current SOT ratio and the NII sensitivity to a rate cut by 100 points? Marcin Ciszewski: Well, as you realize, when interest rates are going down, there is a greater pressure to manage that particular ratio. We assume in our plans that this particular ratio will be maintained at the regulatory level. At the end of the year, we assume that it will be at the level of 4.5% in T1. And as regards the sensitivity, which was mentioned in the question, 100 bps should have an impact of PLN 120 million. Dominik Prokop: Thank you very much. And the next question about the dynamics of the loan portfolio in 2026. What do you expect? And is there a possibility of an increase in the business sector? Piotr Zabski: Let me start with the retail customer. We expect a positive dynamic as concerns consumer loans. The increase that we forecast not necessarily in the installment loans because there's a trend that we need to grapple with. But as far as mortgage loans are concerned, there will be a definite increase. And as far as the corporate sector is concerned, we have sold more year-on-year, but we need to see what's happening within the corporate sector portfolio. I already mentioned that in the micro enterprises, we have a considerable debt to be paid off. In the small and medium-sized companies, we are growing. As far as the leasing sector is concerned, there's a considerable growth of 16% year-on-year. So in the corporate sector, yes, there will be growth, the growth in the sectors where we are a good player. We want to grow in the micro sector as well, but in a safe way so that we don't experience the kind of crisis that we have as regards to risk and the debt that we keep having paying off still today. The large deals that are more and more present in the Polish market, we will certainly see our presence. But considering our scale, this is not our core activity. Dominik Prokop: Thank you. The question about the free loan sanction. What trends can be expected in the SKD sector? Can we expect that the target reserve level will represent 100%? Piotr Zabski: Well, I think Zdzislaw would be able to comment on that. SKD is a problem of all the sectors, including us, of course. We recognize the dynamic and want to reflect it in our reserve structure. Will it be 100%? Well, I don't think that SKD goes the same way that the French -- the Swiss franc loans because the regulatory authorities have taken this seriously on board. And I believe that the new law, which is being worked on and the Office of Consumer Protection will not translate into a modus operandi for all kinds of cowboy companies, legal firms, which are really the real beneficiary for this solution. And as far as the reserves are concerned, we want to reflect them in our books. Zdzislaw Wojtera: Indeed, for the model, it is impacted by 2 factors that is the incoming clashes and the number of cases that will get lost. The majority of cases is where we are, on the winning side. So if we look from that perspective, we don't see the need to create any further reserves or increase that often in 2026. Our point of assumption is much is going to be determined by the European Court of Justice. So we believe the trends we have spotted already are rather positive, and they have only gotten confirmed in the court adjudications, that is the bank expecting more -- the sustaining trend in the currency portfolio. In 2025, we had a rather conservative stance, but we don't think, given the number of cases which are coming in and the recent trends that we would have to create at the same level of reserve. It'll be smaller compared to 2025 in the current year. Dominik Prokop: Another question on the value of NPL portfolio. How much of that are balance positions and nonbalance positions? Marcin Ciszewski: As I said beforehand, this is one of major components as far as the whole management of NPL goes. I do not have at hand, however, so -- such details. We do not disclose this kind of detail. Dominik Prokop: Another question. The churn of Alior Bank customers, is it in any way different to the market average? And if so, where does that difference stem from? And how is the bank planning to manage, to cope with the churn? Piotr Zabski: Our difference is by no means different to the market average. Our customers, by and large, are not only loyal to one bank only. Most of our customers, except for the youngest ones have accounts in other banks. So the churn stands where it does. It is by no means satisfactory to us. However, what I stressed was certain marketing campaigns that we launched in 2024. They have already been brought to a close, resulting in the outflux of customers. The activity as I said was already concluded. What we did in 2025 does not come with this particular risk. But the impact was eventually be seen in 2024. Dominik Prokop: Than you. We will ask another question on the value of the mortgage currency portfolio towards the end of 2024 and 2025, respectively. What are the statistics of the legal actions here? Zdzislaw Wojtera: Towards the end of 2024, we had PLN 39 million gross value of Swiss franc. Later, a year after, it was only 7 -- the account statement towards 2024 was equivalent to PLN 1.4 billion, whereas towards the end of 2024, it was equivalent to PLN 1.3 billion. Euro mortgages is about PLN 1 billion, 3% thereof is within a certain legal action. To estimate the reserve the way we described in the financial statement, our assumption was that the target here for legal disputes as concerns the euro mortgages will be equivalent to 9%. Dominik Prokop: Thank you very much for that. Another question on the expected dynamics of the result of interest rates from commissions as well as operating costs in the current year. Zdzislaw Wojtera: For the interest rate result, it is quite a challenge to face to make it stable at the level it used to be, we would need to employ a more holistic view on that. Our ambition is to shape the revenue stream in 2026 in a manner to enable us to have amounts that would be very much aligned with what we had in 2025. So we assume that the growth of the new business will be enough to compensate for the effect of cut interest rates. So that's our stance. This is our working strategy for 2026. For the costs, our ambition is to make them stay at where they were in 2025, well beyond the 5% level, including the [ BFG ] cost, and I assume that we'll manage to curb them below the 5% level. Dominik Prokop: Thank you very much. Another question. After a 4 percentage point growth of credit in 2025, can we expect a 30% increase in the strategy perspective? An increase of strategy in 2026, is it going to surpass what we saw in 2025? Piotr Zabski: Possibly, this 4 percentage point increase give us a straightforward answer. Nevertheless, this concerns the way we sell. Well, the sales have increased without [ BIK A2 ]. This accounted for 20%. BIK A2, 17%. What we grappled with was churn. Essentially, it was pretty unique. So the portfolio could stay on sales only. Now being mindful of the strategy for mortgage sales, well, they stand depending on segment between 12% or 10%, 15%, 16% in some areas, especially the ones that we feel particularly confident. So we intend to grow. Are we going to achieve a 30% increase? Well, we are firm believers, we will. Dominik Prokop: Another question. To what a degree the growth of our mortgage portfolio is the result of the refinancing of credits, and to what extent does it stem from new credit loans? Piotr Zabski: Most of the sales are made up by new loans, yet the market trend is this. The majority of increase of sales on the market in the whole banking sector is very much the outcome of refinancing. In our case, however, it is mostly determined by the new loans as such. Dominik Prokop: Another question, what is the expected dynamics of the number of employees in 2026, a further drop of 5% in the course of 2025? Piotr Zabski: Well, we don't have these figures at hand. Employment we retain. Well, it is managed on an everyday basis, and it largely depends on the solutions we adopt. Obviously, with a view of automation will adjust our processes, taking advantage of the benefits of artificial intelligence, which the odds are we might want to reduce the size of employment, which doesn't preclude new jobs from popping up somewhere else. So I want to give you any straightforward answer to that question because we are here in a very dynamic environment. Dominik Prokop: The question on the cost of investments that are forecast for 2026 when compared to the level of 2025. Piotr Zabski: If I remember correctly, on a year-on-year basis, we've been stable. We have capped the leveling target. However, principle is, we don't disclose this particular data. The technology, by and large, is the last resort where we wouldn't want to invest. The bank badly want improvements in spite of the fact it's 17 years old. Well, by mergers and acquisitions, some systems did 10 years ago. So the growth of technology, making it more sophisticated is a priority to us. Savings may be allocated somewhere else wherever we can, but we'll also invest. Dominik Prokop: We have exhausted the questions. Thank you very much to the Board for the presentation, for your questions, and we'll see each other on the occasion of another quarterly meeting. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, welcome to the conference call on the preliminary figures for full year 2025. I'm [ Sargen,] the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Mr. Thomas Jessulat, CEO. Please go ahead. Thomas Jessulat: Ladies and gentlemen, hello and good afternoon, and thanks for being available today. I welcome you to our conference call on the preliminary and unaudited figures of the fiscal year 2025. I'll start with some remarks on today's release. Afterwards, I will hand over to our CFO, Isabelle Damen, who will walk you through the financials down to the EBIT level. As usual, you will then have the opportunity to ask questions. Please note that the outlook as well as the financial details will be published together with the final and audited figures on March 26. The company closed the year in an environment still marked by considerable uncertainty and volatility. At the same time, the group continued to prepare for the next phase of its transformation reflected in high levels of investments to launch additional series projects in the field of cell contacting systems. Despite these upfront costs, the year-end performance was strong with operating free cash flow reaching 2% of sales. The ramp-up of battery component projects progressed further, driving significant sales growth in the E-Mobility business unit. In addition, the group successfully implemented its STREAMLINE program, achieving a sustainable reduction in personnel costs. Overall, the company mainly met or in some areas, even slightly exceeded its full year guidance targets. Let us have a quick look on the markets. Across major automotive regions, the powertrain mix shows clear structural differences. In North America, internal combustion engine vehicles continue to hold a dominant share supported by market preferences and comparatively slower electrification dynamics. Europe, by contrast, sees a higher share of all electric vehicles as well as hybrid vehicles. Within the second half of the decade, there will be a significant shift towards all electric. A lot of new programs of the established players are going to ramp up; however, long-term forecasts point to a decisive shift. By 2030, all major auto regions are expected to accelerate strongly towards fully electric vehicles. Projections indicate that Europe and China will experience some of the fastest growth in battery electric vehicles, while North America is also set for a substantial increase by the end of the decade. In summary, although today's powertrain landscape varies widely between regions, the trajectory towards fully electric mobility by 2030 is clear and consistent around the globe. Let us have a closer look at the pure electric mobility because this will be our core growth market with regard to cell contacting systems, or other components from our broad range of e-mobility solutions. Across all major automotive regions, including China, Europe and North America, the shift toward electric mobility is firmly underway with strong growth projected through 2030. When considering our large-scale projects, you will see that we are covering quite a good share of those vehicles, especially in Europe and also North America. China continues to lead the global transition to electric vehicles and shows a different market development with regard to the rising importance of pure local players. Overall, the market of all electric mobility is expanding across all major regions and significant growth is expected throughout the coming years. The shift towards e-mobility is well underway and continues to accelerate. Let me now hand over to our Group CFO, Ms. Isabelle Damen. Isabelle Damen: Thank you for handing over, Thomas. Let me first come to the preliminary and audited figures on Slide #5. Summing up, we have successfully concluded the 2025 financial year and laid the foundation for our future transformation. We have generated sales revenue of EUR 1.6 billion, which is a decrease to previous year's figure on a reported level. But there have been M&A effects from the divestment of our entities in Sevelen and [ Buford ] amounted to EUR 159 million. In addition, we have been faced with headwinds from the exchange rate of EUR 40.4 million. Excluding these effects, we achieved an organic sales of 2.1%, which slightly exceeded our guidance given in March '25. The group reported adjusted EBIT of EUR 88.6 million in the financial year under review, which corresponds to an adjusted EBIT margin of 5.4%. Therefore, the group achieved a level at the upper end of the guidance range, which was around 5%. If you take into account that the earnings of the E-Mobility business unit currently remain in negative territory with an adjusted EBIT of minus EUR 62 million, it shows that ElringKlinger's classical business generates reliable cash flows and creates sufficient financial room for strategic investments. All in all, adjusted EBIT margin is fully on track to continuously improve profitability of the group in the medium term. Regarding the other metrics, we've seen strong efforts in the fourth quarter. Due to an active working capital management, we achieved a level of EUR 285 million in the financial year 2025. At 17.4% of the group revenues, net working capital ratio was even lower than prior year's figure. The target set in March '25 to maintain a net working capital ratio of under 25% of group revenue was therefore clearly fulfilled. In line with the lower level of working capital and despite the high level of investments for the ramp-up of the large-scale e-mobility projects, we have generated an operating free cash flow of EUR 32.6 million in the financial year 2025. With the ratio representing 2% of sales, we have achieved our target range of 1% to 3% of group revenue. As a result, net financial debt was kept at a low level. It amounts to EUR 288 million. As a result, the net debt-to-EBITDA ratio stood at [ 2.0 ] and fulfilled the guidance given in March '25 when we had appointed to a figure of around 2. When adjusted EBITDA for the one-off effects from SHAPE30 and STREAMLINE measures, the adjusted net EBITDA ratio would even amount to 1.5 compared to 1.2 in the previous year. Let me briefly reconnect these results to our transformation strategy, SHAPE30. SHAPE30 outlines our road map for transforming the group in response to the profound changes shaping our industry. The strategy is focused on enhancing our profitability and strengthening cash flow performance. To ensure long-term success, we continuously monitor global market developments and align our product portfolio accordingly. This enables us to remain well positioned for the future and to act with maximum flexibility as market dynamics evolve. This includes terminating nonperforming products, divesting CapEx-intense business areas and consolidating our global footprint. In an effort to position the group effectively for the future, ElringKlinger implemented STREAMLINE, a global program to scale back staff costs in 2025. The measures on a STREAMLINE and SHAPE30 will translate into a significant reduction of the group's cost level. As planned, the initial benefits of these measures will be seen as early as the current financial year. The measures will take full effect from 2027 onwards. In parallel, we entered the next steps of transformation by ramping up several large-scale e-mobility orders. With the ramp-ups, we returned to a normalized CapEx spending after an intense investment cycle as main investments have been done. The full and audited figures for fiscal 2025 will be released on March 26 in the morning. A press conference is scheduled for the morning, followed by an analyst conference call in the afternoon. The then released figures will include the full set of financial statements and therefore, more details on the financial KPIs. Moreover, we will provide you with an outlook on the fiscal year 2026. The invitation for the calls will be sent out in due time. Ladies and gentlemen, thank you for your attention. And now Thomas and I are happy to answer your questions. Operator: [Operator Instructions] And we have the first question from Michael Punzet from DZ Bank. Michael Punzet: I have -- I will start with some questions with regard to the development in Europe with regard to the transformation to e-mobility. I think we have seen a lot of changes in the strategy of the big German and other OEMs as well as we have seen that the European Commission decided to soften the rule for 2035. And when I look to the presentation, I look at the slide on Page 3, your data you've shown there are based on the S&P Global Mobility outlook based on October 2025. Do you think this will have an impact on the strategy changes as well as the decision by the European Commission on your ongoing forecast for the e-mobility? And the second question is, will this have any impact on your planned breakeven for the business unit E-Mobility in 2027? Thomas Jessulat: Yes. Thank you for your initial questions, Mr. Punzet. I think when we look at the likely shift now after the change of the EU legislation, there is, I think, some change to be expected. It's not necessarily an adverse change to our strategy. That means that the strategy that ElringKlinger has is sound. The growth market within the auto business here, in particular, in Europe will be e-mobility with battery electric vehicles. I think that's not going to change. The quantities may change. And therefore, it may have an impact on our initial assumption that we will see a 50%, 50% share of non-ICE versus ICE in our portfolio in 2030. That may be impacted. But it's not meaning on the other side that we need to change our strategy because then it would be merely a change in quantities to the ElringKlinger product portfolio. Isabelle Damen: Yes. And towards your second question on the breakeven point. So we don't expect a huge impact because of the measures you mentioned on '26 and '27. And I think we discussed before, we expect in '27 to realize a breakeven point on e-mobility. Operator: There are no more questions at this time. I would now like to turn the conference back over to Thomas Jessulat for any closing remarks. We have a last minute question from Klaus Ringel from ODDO BHF. Klaus Ringel: I just want to -- really to ask for the special items in Q4 were a bit higher than I had expected. So can you give a bit insight what was the driver here? And let's say, if you have pulled forward some of the measures that you might have planned for '26 for later, which now gives you a clean sheet to start in 2026. Isabelle Damen: So thanks for your question. On your first question, the adjustments we've booked in the fourth quarter are partially related to STREAMLINE, our personnel cost reduction program. So there's about EUR 6 million we booked in the fourth quarter versus EUR 21.5 million for the full year. Furthermore, we booked some adjustments on the consolidation of our global footprint of EUR 9.2 million in the fourth quarter, about EUR 12 million in the year. And on nonperforming assets, there we booked about EUR 35 million for the year, of which EUR 19.4 million in Q4. So that's for the adjustments we booked in this quarter and for the year, and we did not really pull ahead anything of '26. So we still expect some effect in '26. The intention is in '27, we will no longer have any impact in adjustments for -- related to STREAMLINE or SHAPE30. Thomas Jessulat: Also in regard to the measures, we indicated that we were -- we wanted to have a EUR 50 million cost improvement in the group. When we head into 2026 now, I would say we're half through of it. There is -- as part of the STREAMLINE program, there is still, in particular, in Germany here, contracts that will run out at the end of Q1 so that the full impact, in particular in Germany on the STREAMLINE program will be measurable starting in Q2 2026, like Isabelle is saying. Most of the accounting items in terms of impairments and also changes to the footprint, most of the items were already carried out. We're not fully complete yet in that regard. But the expectation is that there is, from an accounting perspective, a little left that would be a difference between reported items and adjusted items. So that we expect more improvements to be seen in the course of 2026. And like Isabelle said, that we shoot for a clean 2027 with our activities. Operator: And we have a follow-up question from Michael Punzet from DZ Bank. Michael Punzet: Michael, again, I have several questions on the business unit E-Mobility. First, I would like to thank you very much for publishing the earnings figures for that business division. And I hope this was not a onetime effect, so that we will see that figure on a quarterly basis going forward. I have two questions with regard to the business unit. The first one is, can you give us any kind of guidance for the revenues you expect in 2027 to reach breakeven in that division? Thomas Jessulat: Yes. Let me ask -- or let me give you some information here on your first remark. I mean the transformation here is a key activity for us within our strategy SHAPE30. And we are dedicating significant resources, including CapEx into this process as we have done throughout the last couple of years. And we approach, as you say rightly, the revenue cycle now. And I think -- and we think that it's the right point here to share this information with shareholders of ElringKlinger to show the financial progress in this transformation here for ElringKlinger. This is a background for that. And yes, we'll continue to report on that because, again, it shows the progress that we make in regard to this transformation process. When we look at your second question here in terms of the top line, it's expected that through 2028, you would say roughly that we will double revenues here. And you have also to take into account that the loss situation here, part of it is one-off as part of this and part is part of start-up. So it's not a full amount that we have shown here in regard to recurring loss-making, but there's also part of it that is one-off amounts. And I think that's important to understand. So with the contribution margin that will come in through the doubling of sales, we think that we'll generate sufficient contribution margin in order to reach breakeven in the area of 2027, okay? Michael Punzet: Okay. That means doubling revenues compared to the figure for 2025? Thomas Jessulat: Yes. Michael Punzet: Okay. And second question on that business unit. Is it right to assume that the fuel cell technology business is fully included in that figure on a 100% basis in EKPO... Thomas Jessulat: Yes, that is included in there. But it's included here. Michael Punzet: So it's not adjusted for the minority stake. So that is included on a 100% basis? Thomas Jessulat: Yes, exactly because EKPO here is fully consolidated within our figures and therefore, is 100% considered. Operator: Ladies and gentlemen, that was the last question. I would now finally hand over the conference back to Thomas Jessulat for any closing remarks. Thomas Jessulat: Yes, ladies and gentlemen, together, my colleague, Isabelle Damen and I thank you for your attendance here during this call. On March 26, we will release our full and audited figures on the 2025 fiscal year and host a press conference as well as an investor conference call. We're looking forward to welcome you again and wish you a good rest of the week. Thank you very much. All the best.
Operator: Welcome to BONESUPPORT Year-End Report 2025 Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Torbjorn Skold; and CFO, Håkan Johansson. Please go ahead. Torbjorn Skold: Thank you, operator, and welcome, everyone, to BONESUPPORT's Q4 and Full Year 2025 Results Call. My name is Torbjorn Skold, I'm the CEO of BONESUPPORT; and with me here today is our CFO, Håkan Johansson. And together, we will use the next 25 minutes to guide you through the Q4 presentation and then open the line for questions. But before we start the presentation, I would like to draw your attention to the disclaimers covering any forward-looking statements that we will make today. So let's look at the financial and operational highlights from the quarter. Q4 was another strong quarter with solid execution across the business. Net sales came in at SEK 313 million, corresponding to a growth of 22% versus Q4 2024. Sales growth at constant exchange rates was 36%, showing that there was a continued strong currency impact on our figures for the quarter. Our adjusted operating results, excluding incentive program effects was SEK 81 million, corresponding to an adjusted operating margin of 26%. Reported operating result was SEK 82 million, and we saw solid cash generation with operating cash flows reaching SEK 54 million. We continue to see strong traction for CERAMENT G in the U.S., where both new accounts and increased use among current users contributed to the strong progress. CERAMENT G sales in the U.S. reached SEK 207 million for the quarter compared to SEK 154 million in the same period the year before. In Europe & Rest of the World, we saw strong momentum, which more than offset the negative effects of the German market reforms. During the quarter, we also advanced our regulatory pipeline. As communicated in early December, the FDA submission for CERAMENT V has now been transferred from the 510(k) pathway to the De Novo process. This change reflects the FDA's assessment that CERAMENT V may constitute an entirely new product category like CERAMENT G in 2022 and positions us for a stronger long-term market entry. In addition, we initiated the early-stage launch of CERAMENT BVF for spine in the U.S., an important step as we continue expanding our portfolio of indications and applications. I will come back to that later in my presentation. Now let's move to the sales development. This chart shows total last 12 months reported sales in Swedish krona by quarter since 2019 in stacked bars per region and product category. As you can see, the launch momentum for CERAMENT G in the U.S. is exceptionally strong. Given that we keep bringing new strong clinical studies and opening up new market segments and new indications, a product like CERAMENT G will remain in launch phase for many years to come. However, throughout 2025, we have seen strong influence from the U.S. dollar to Swedish krona depreciation. Last 12 months growth in Q4 of 31% in the graph corresponds to an even stronger 40% at constant exchange rates. So most of this quarter-over-quarter slowdown in last 12 months sales is due to a strong currency impact. U.S. CERAMENT BVF last 12 months was flat year-over-year in constant currency. In total, antibiotic eluting CERAMENT grew with 54% last 12 months in the quarter in constant currency. Next slide, please. In U.S., sales amounted to SEK 259 million, representing a growth of 40% at constant exchange rate. There was some general variability during the quarter due to the number of working days. At the same time, we continue to experience strong growth of CERAMENT G, driven by both increased access through new accounts and new surgeons as well as wider adoption among existing accounts and surgeons. In trauma, we see expanding access and adoption in Level 1 trauma centers, which is an important validation of CERAMENT G for treating complex infections and bone voids in the most demanding clinical environments. There are roughly 250 Level 1 trauma centers in the U.S. These are the very large and most important centers for advanced trauma treatments. And at the end of 2024, we had sold CERAMENT to 15 of these. At the end of 2025, we had sold to more than 140 Level 1 trauma centers. That said, actual use is evolving gradually as trauma surgeons carefully assess and evaluate new products before they become part of regular use. And remember that full healing and evaluation of a trauma patient can take more than 6 months. As part of our mission to modernize an outdated standard of care in the U.S., we have successfully opened one market segment after another. We started in foot and ankle, followed by trauma and now moving into revision arthroplasty. Interest continues to grow for CERAMENT G in revision arthroplasty and periprosthetic joint infections, 2 areas where the clinical needs remain substantial and where the evidence supporting our antibiotic eluting technology has resonated strongly with surgeons. We've built a solid foundation for our spine strategy over the past quarters by establishing distributor coverage and preparing for the market. In Q4, we initiated the early-stage launch of CERAMENT BVF in spinal procedures with distributors now actively engaging spine surgeons across both existing and new partnerships. As this is a new clinical segment for us, more clinical data is needed to support broader market penetration longer-term. Importantly, the performance of CERAMENT BVF in spine will help confirm the value proposition for the CERAMENT platform, which will pave the way for the future CERAMENT G launch. We have made strong progress in evaluating and preparing the regulatory pathway, and we'll share more on the path forward at our Capital Markets Day this spring. Now let's turn to Europe. Next slide, please. Sales in Europe & Rest of the World came in at SEK 54 million, representing 18% growth at constant exchange rates. Sales in Europe continued to be influenced by the same dynamics as observed in Q3, meaning that hospital reforms and surgical protocol programs in Germany were still impacting our sales. However, direct markets, excluding Germany, delivered at normal growth rates. And by the way, when we say normal growth rates, we mean normal for CERAMENT. The growth rates that we see outside Germany are 4x to 5x higher than growth rates for the market in general. Furthermore, hybrid markets in Southern Europe, Australia and Canada are performing strongly. We see positive traction from the investments made during the first half of 2025 reflected in improved sales performance. Now I'll leave a deep dive into the numbers to Håkan. Håkan Johansson: Thank you, Torbjorn. Net sales improved from SEK 257 million to SEK 312.5 million, equaling a growth of 22% reported sales growth or 36% in constant exchange rates. Torbjorn has already spoken about the solid performance in especially the U.S. and the major drivers behind the sales growth. But as the weak U.S. dollar somewhat hides a continued strong trajectory in the U.S., I would like to share the U.S. sales performance in U.S. dollars. CERAMENT G is the growth driver in the U.S. and this slide shows the quarterly CERAMENT G sales in the U.S. in U.S. dollars with continued solid performance quarter-to-quarter. The number of working days in each period impacts sales, especially in Q4, which is impacted by both Thanksgiving and the holiday season over Christmas and New Year's. Taking this into consideration, a strong net sales per working day is noted during the quarter when looking at the orange line in the presentation. The contribution from the U.S. segment improved by SEK 30 million and amounted to SEK 120.2 million. The improved contribution relates to increased sales after effect from increased costs. Selling and marketing expenses during the quarter amounted to SEK 128 million compared with SEK 108.8 million previous year, of which sales commissions to distributors and fees amounted to SEK 85 million compared with SEK 69.6 million in the same quarter last year. From the graph at the bottom of the screen, showing net sales as bars and gross margin as the orange marker, it can be noted that the gross margin remained stable and strong at around 95% with a minor decline in the period following a gradual impact from U.S. tariffs. In Europe & Rest of World, a contribution of SEK 11.9 million was reported to be compared with SEK 12.8 million previous year. Selling and marketing expenses increased by SEK 4.9 million, including SEK 3.6 million related to the previously communicated commercial investments in the so-called EUROW booster program. From the lower graph and orange marker, a minor drop in gross margin can be noted, mainly impacted by the market mix. Selling expenses, excluding sales commission and fees increased by SEK 8.6 million, mainly in staffing expenses, of which SEK 3.6 million relates to the so-called EUROW booster. The increase from Q3 this year relates to seasonality as Q4 is usually intense in terms of congresses and marketing activities. R&D remained focused on the execution of strategic initiatives such as the application studies in spine procedures and the market authorization submission for CERAMENT V in the U.S. The expense for the quarter includes submission fees and other additional expenses related to the change in regulatory pathway for CERAMENT V in the U.S. And finally, administrative expenses, excluding the effects from long-term incentive programs, reports a small increase for the period, of which SEK 2.8 million relates to the CEO succession. The reported operating result amounted to SEK 81.8 million despite unfavorable currency effects totaling SEK 2.9 million. I will come back to this on a later slide. The newly introduced tariffs in the United States had a gradual impact on costs in the quarter. The full effect of the current 50% tariff will equal a 0.8% impact on U.S. gross margins, which will come gradually with full effect late 2026. The difference between adjusted and reported operating result are costs regarding our long-term incentive programs amounting to a negative expense of SEK 0.5 million in the quarter compared with an expense of SEK 13.7 million previous year, as you can see from the previous slide. The reduced costs are due to the drop in share price. Operating cash flow remains solid with an increase in accounts receivables at the end of the year, mainly as customer payments seem to have been deferred to after the holidays. During the period, the Swedish krona has continued to strengthen against the U.S. dollar. Other operating income and expenses, therefore, contain foreign exchange gains and losses from the translation of the group's receivables and liabilities in foreign currency amounting to a negative SEK 2.9 million. The graph on this slide shows with gray bars how the relationship between the U.S. dollar closing rate and the Swedish krona has varied over time. This is read out on the right Y-axis. The blue dotted line readout on the left Y-axis shows adjusted operating result. The adjusted operating result, excluding translation exchange effects is the orange line and gives a more comparable view of the underlying trend in operating results. In the table below the graph, you can see the FX adjusted operating margin of close to 27% in the period compared with 22.6% in the same quarter last year. And with this, I hand back to you, Torbjorn. Torbjorn Skold: Thank you, Håkan. So to summarize Q4 2025, sales grew by 36% in constant currencies, reflecting steady and consistent progress. Adjusted operating margin reached 26%. Cash flow also remained robust, underscoring the strength and scalability of the business. I'm convinced that the most exciting part of our journey still lies ahead. And as I said, to provide a clearer view of what that journey will look like, we will host a Capital Markets Day in Stockholm on the 26th of May this year, which you are, of course, all welcome to join. Now happy to open up the line for questions. Operator: [Operator Instructions] The next question comes from Viktor Sundberg from Nordea. Viktor Sundberg: First one on CERAMENT G in the U.S. As you mentioned, year-over-year growth in the quarters are decreasing, but it's mostly FX related, as you mentioned. But when you say mostly, is it anything that indicates any, let's say, underlying headwind in the U.S. in 2025? And also what kind of underlying growth have you baked into your guidance for 2026? And how does that growth compare to 2025 growth in constant exchange rates? That's my first question. Håkan Johansson: Thank you, Viktor. And I think that the takeaway from the report is 2. One is, again, we see a continued strong trajectory with CERAMENT G in the U.S., especially when looking at sales in average per working day. Taking that in combination also what Torbjorn mentioned in terms of access to Level 1 trauma centers, et cetera. And of course, both these aspects are aspect that's been included in our estimates and our works out ahead of presenting the guidance for 2026. So we remain very optimistic on the continued opportunities for CERAMENT G in the U.S. Torbjorn Skold: Indeed. And I would like just to add to that. When we look at the performance in '25 and in Q4, we look at 2 important aspects of where the growth comes from in general and also particularly in CERAMENT G. And it relates to new accounts calling access as well as increasing the adoption within existing accounts. So both those 2 levers, independent on whether it's on surgeon level, account level, IDN level or GPO level, we measure that and track it. And what's important for us is to make sure that we have a healthy growth, not only in access and not only in adoption. We want to have it in both. And what we've seen throughout '25 as well as in quarter 4 is that we have a really healthy adoption and the growth rate on the total stems from both of those legs contributing almost to an equal size, which is very positive. And that goes generally as well as for CERAMENT G. On CERAMENT G, in particular, we've already talked about the Level 1 trauma center adoption rate. I mean, in '24, we sold to 15 of them. And in '25, we have sold to more than 140. And what we mean with sell is that we sell at least one product. So again, it's very, very early phase, but it's a really strong indication for us at least that we get access, we get interest among orthopedic surgeons, among the infectious disease doctors, and we have a really strong foundation to build on in trauma for many, many years to come. So that's on trauma. The next segment that we're just about -- or just started to scratch the surface on is revision arthroplasty. Early days, we have very convincing evidence, but it's a pilot study from Charité, indicating very strong results for CERAMENT G in a revision arthroplasty segment. So this also looks very promising for both the short, medium and long-term in the U.S. On top of those parts, meaning trauma and revision arthroplasty, we have foot and ankle, which we still see a lot of potential to continue to build on as we develop more application techniques, as we come out with more clinical studies. And then, of course, very exciting for us is when we get FDA approval for CERAMENT V. We transitioned from a 510(k) process to a De Novo process, which longer-term is actually very positive for us. And that, of course, adds to the total mix. We do not expect a lot of cannibalization on CERAMENT G from CERAMENT V. We believe that's going to be somewhat immaterial in the grander scheme of things. So I think that paints the picture of our outlook short, medium and long-term for CERAMENT G in the U.S. Viktor Sundberg: Okay. And maybe in Germany and the U.K. also that's been a bit of a drag on growth in '25. How much of this drag is baked into your guidance for 2026? And when do you expect this to turn around? And any sense of what the underlying demand is if funding issues would be a bit better in these countries? Håkan Johansson: So we communicated already when releasing Q3 that we do not expect somewhat of a swift call it, recovery in Germany. We think that Germany will remain somewhat sluggish throughout 2026. However, when it comes to U.K. and part of that we also saw in Q4 is that we expect the situation in the U.K. to normalize in the sense that surgeries where CERAMENT is used is coming back to normal levels. The surgical backlog in the U.K. is still a launch, which means that somewhat there will be also periods where we see a bit of 2 steps forward, 1 step back, et cetera. But again, we have seen gradual improvements, Q4 confirmed that, et cetera. So we remain optimistic when it comes to the U.K. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First, of course, everyone cares about the CERAMENT G U.S. number and what that was organically. If I pulled the data correct, it looked like it was up 55% organically and that we have a USD number that was 21.9% essentially. Could you give any more detail on that sort of number, if I'm correct in that assumption? Because that would imply like an FX rate of minus 21%. Håkan Johansson: Again, largely, the numbers could be recognized. We're not sharing the exact dollar numbers because we're reporting in Swedish krona. But as we shared in the presentation, you have both the absolute numbers in U.S. dollar sales and also the average sale per working day. And again, as communicated here, we see a continued very strong and solid trend. Erik Cassel: But the 55% organic, that seems reasonable to you, do you think? Håkan Johansson: Again, if you just look at it from Q3 to Q4 in U.S. dollars and not taking workdays in consideration, it is a small growth in Q4 to Q3. Erik Cassel: Okay. I'll leave it there. But can you maybe talk a bit on what sort of indications that happen to grow, say, faster than the overall CERAMENT G sales in the U.S. and which indications may be lagging that growth rate a bit, so we sort of can understand what's driving this going forward? Torbjorn Skold: Yes. So I think if we look at the U.S. and CERAMENT G sales only and then we look at the 3 segments that we are in today and actively sell into. Foot and ankle, of course, is the segment where we have been the longest period of time. That's where BONESUPPORT started really. But still both in absolute as well as in relative terms, an important contributor to the growth of CERAMENT G. But given the size of it and given that we've been there for a number of years, it's further on in its life cycle, so to say. Second is trauma. And here, of course, a relatively new segment. You saw the numbers in terms of access. So that's clearly a segment that will continue to drive growth rates both short and medium-term. So we're very bullish about trauma as well as we are on revision arthroplasty. So I think you can sort of relate how long we've been in the respective segments to how much relative growth rates we can expect from them. But having said that, all 3 segments are very important in absolute terms for us short and medium-term. And just to be totally transparent and perhaps obvious to several of you on the call, CERAMENT G for spine is not yet approved in the U.S. and will, therefore, not drive any growth in the short-term. But longer-term, we expect CERAMENT G once it's approved and launched in the U.S. for spine to be an important segment also in parallel to the 3 segments that we're already in. Erik Cassel: Okay. Should I read that as the osteomyelitis indication being a bit more matured, maybe not growing as much right now? Torbjorn Skold: I wouldn't read that into it. Osteomyelitis is actually an indication that can happen in foot and ankle. It can happen in trauma and also technically it can happen in -- also in revision arthroplasty. So I wouldn't draw that conclusion. Osteomyelitis is an underserved indication with a lot of unmet clinical need where CERAMENT G and V play an important role. So I would not draw that conclusion that we've reached a saturation or maturity on osteomyelitis in general. It's a very healthy and fast-growing segment for us. Erik Cassel: Okay. And then I just have a question on commission rates. They sort of hit a new low here in this quarter. Does that sort of imply that fewer and fewer distributors are hitting their sort of bonus quotas? And if that's the case, could you maybe share a bit on sort of what's required for them to get to that sort of, I guess, 35% commission rate. This was, I think, high and say normalized lower. What's the difference there and how much they need to sell and grow the accounts to get different bonus levels? Håkan Johansson: So a good question, Erik. So it sounds like an area for clarification because I guess the line is defined as commission and fees and involves everything from commission to the distributors, GPO fees, credit card charges for the customers paying by credit card, et cetera. And it's the combination of these that is down a few percentage points and so on. So it's small movements in percentage of sales. Commission remains relatively stable around 30%. The commission are somehow included certain incentives if the distributors are exceeding their so-called quotas substantially, but we see very little movement in the average commission rate to sales. So the reason why it's down a few percentage points more relates to the other aspects of fees. Torbjorn Skold: And to that, in terms of the distributor turnover, it's part of the beauty of the model that we have in BONESUPPORT in the U.S. is that we want distributors to be on the journey with us. We want them to share the same goals. So we actively add new distributors. And when we have distributors that are not performing in line with the targets and goals and principles that we set, we don't hesitate to phase them out. So turnover among distributors, we've always had. We will continue to have that. But as Håkan said, that is not one of the reasons why we see lower commission rates on the contrary. Erik Cassel: Okay. And just the last question. So far, I mean, we saw that sort of surgical volumes per day was up a bit in Q4. Can you say anything on the sort of pace that has been now through January and February, if we're seeing the daily averages being roughly the same, increasing, just so we can think about the Q1 number we could expect? Torbjorn Skold: Yes. No, thank you for the question. I mean we don't comment on Q1, as you know. But similar to -- we got a lot of questions on Q4 when we released Q3, I mean we feel confident in the journey that we're on. We feel confident in the guidance that we have said, indicating that we should grow in constant exchange rates at least 35%. And if we see any reason to change that, we will communicate it adequately and accordingly. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: I have a couple of questions as well. First one, what you shared there regarding Level 1 trauma centers, 140 versus 15 end of 2024. So just if you could share some color on how important this has been whilst establishing the sales guidance for '26. And of course, also interesting to hear some insights on adoption rates in sort of early Level 1 trauma centers as well? That's the first one. Torbjorn Skold: Sure. So starting with your first question around the guidance of 35 -- more than 35% growth in constant exchange rates. So first of all, we have also communicated that we expect CERAMENT V to be approved by the FDA around mid this year. Of course, if we get an earlier approval and we launch earlier than that, then of course, we will distance ourselves or we expect to distance ourselves more on the upside versus the 35%. But however, let's say that we get late approval or no approval, then we will, of course, be close to the 35%. I think that's important to just point out that, that's the role of CERAMENT V. Now when we did the guidance for '26, there's not only one factor, of course, that we take into account. We look at growth potential across the geographies. We look at the growth potential of the different segments, of course, trauma in the U.S. is an important segment for us and the data point that we have on the Level 1 trauma centers is an important data point as there are others as well, in foot and ankle, in revision arthroplasty in both U.S. as well as Europe & Rest of the World. What is very important for us, and we've said this before, and it's important to continue to say that, it's the balance between access and adoption that is very important. We don't want to just only grow by getting new accounts. We don't only want to grow by increasing the adoption in existing accounts. We want to have a healthy balance between the 2. So that's also a very important factor when we put the guidance together. Another also very important factor is when we simply again recalculate the penetration, meaning that the number of surgeries that we are in by geography, by market segment versus what we think is a realistic or a longer-term outlook. We still believe that we have a long runway to get to what we think are perfectly realistic penetration levels. So I think, Mattias, it's not just the trauma number, but it's an important factor as -- and combined with many other factors, as I just described. Mattias Vadsten: Good. And are you happy with what you see in terms of adoption in the Level 1 trauma centers that you won early days? Torbjorn Skold: Yes, very happy. Mattias Vadsten: Good. Then I just have a follow-up on the revision arthroplasty segment that you discussed here in the presentation, which was good. Your position here and maybe how much work is yet to be done for BONESUPPORT in terms of evidence and so forth to be able to have an ideal position, call it, for a more material contribution and better sales pitch around the segment? That's my next one. Torbjorn Skold: Yes. Very good. So it's early days for us in revision arthroplasty. We have a fantastic pilot study that came out of Charité as communicated last year. I mean the results from that couldn't have been better from a BONESUPPORT and CERAMENT point of view, showing excellent results. But again, it's a pilot study and the number of patients is limited. We're building on that study going forward. And I think this is an area where we, over several years, will need to do a lot more, which is perfectly natural, and that's part of the BONESUPPORT approach to penetrate a new market segment, meaning that we always lead with evidence. We know that our product is very innovative. It has unique capabilities in terms of its handling and in terms of how it elutes antibiotic. But we always lead with evidence. So a lot more work remains to be done in revision arthroplasty on the evidence side. So more specific evidence. And we're working on it. We've initiated new studies, and we will continue to initiate new studies in this field. However, orthopedic surgeons, in general, they understand the unmet clinical need in the space of revision arthroplasty, where typically you face 2 challenges. Number one, how do you heal the bone? How do you make sure that you grow bone in areas where you, for example, have bone voids as a result of explanting the implants in a revision situation. So having to deal with bone voids is normal, and it's standard for revision arthroplasty surgeon. We have a great solution for that with CERAMENT. Also, infections in revision arthroplasty is one of the key reasons why primary implants need to be revised because the patients have infections. So dealing with infections is also high on the agenda of the revision arthroplasty surgeons. And there with CERAMENT G and V in Europe and hopefully, when we get the approval for V in the U.S., we have a very, very intuitive solution that we already see now, surgeons are willing to try and test. Some of the surgeons actually already use it as part of their standard routine. Several surgeons want to wait until we have more evidence. But nothing is stopping us to enter this segment and penetrating this segment already now. But of course, we need more evidence. In addition to that, we believe very much in specialization of our sales channels, meaning that a revision arthroplasty surgeon is not the same guy that does trauma, who is not the same guy that does foot and ankle. So we need specialization in our go-to-market channels. So that's, of course, another aspect that we need to make sure that we get relevant sales channels, whether that's distributors as well as direct people to go deeper in the respective market segments. So I hope that answers your question. Mattias Vadsten: Absolutely. Good answer. And my last one is fairly quick. In terms of working days that you discussed here, how many fewer working days was it Q4 vis-a-vis Q3? Was it like 2 days or... Håkan Johansson: It was 3 days shorter, if I remember, 3 or 4 days, but my memory is not skewing me 3 days shorter. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: I have 3 or 4 questions. The first one on this sequential growth for CERAMENT G in the U.S. per surgery day seems much stronger in Q4 versus pretty weak third quarter. So could you explain, is there any particular reason for this or just natural swings between quarters? Håkan Johansson: Again, as much as we refer to underlying natural swings quarter-to-quarter in Q3, that explanation remains in Q4 because again, it's -- as with the forward-looking estimates, there are several parameters that is moving and so on. So I don't see any specifics, and I'm looking at Torbjorn, but I think that we share that view. Kristofer Liljeberg-Svensson: Okay. Good. And the better growth in Europe, would you say that's sustainable, just making sure that there is no positive one-off larger orders or anything this quarter, explaining the much better growth in Q4 versus what we have seen previously. Håkan Johansson: Again, what was positive to see, Kristofer was the improvement in the U.K. to see what's been in our analyzer to see that also realized. But at the same time, we're -- we remain modest. We have to remain modest because again, as I mentioned in the call, the surgical backlog remains long in the U.K. So there could be short periods of swings back to a slower momentum and then swing back again, et cetera. But again, I think it's -- we're remaining optimistic, good to see the improvements in Q4. When we look at the investment markets, I call it, we expect that momentum to continue when looking outside our direct markets and investments made in our so-called hybrid markets, Italy, Spain, Australia, South Africa, Canada, just to mention a few. And again, there, we start from quite a low penetration level, and there are so much market potential remaining in these markets. And we believe that the investments done is a good way to capture that potential. Kristofer Liljeberg-Svensson: Okay. Good. And then my third question, you mentioned the increased number of trauma centers that you are selling to, still early days, but have you reached good adoption already at some of those centers? Or is that also too early to see? Torbjorn Skold: No. I mean, clearly, in some of them, but still it's a very small number where we have reached a solid adoption level, but it's really early days. And if you -- again, the definition that we use here is that selling to meaning that we've sold minimum 1 packet of CERAMENT. Of course, some of them, early adopters that were early out, we have a good adoption level, but not even close to what we think is the potential. And most of these -- I mean, just do the math. Most of these trauma centers that we've sold to are still very, very early in their journey. So yes, we'll keep ourselves busy to increase the adoption in these Level 1 trauma centers in the U.S. Kristofer Liljeberg-Svensson: Okay. And then finally, just a clarification when it comes to guidance for 2026. So you have included, as it seems then, very little or no CERAMENT V sales in the guidance? Torbjorn Skold: Yes, that's correct. And that's to be prudent because we only know what we know. And although we have a great dialogue with FDA, you never know with FDA, and we follow their guidance similar to what we did now in Q4 in terms of transferring CERAMENT V from a 510(k) to a De Novo. We think that although unexpected to us, we think it was a very good decision longer-term for us. And it is important that we follow and deliver on what FDA wants us to. But of course, if we don't get CERAMENT V, we still believe that the 35% growth rate is definitely realistic, but it's going to be a lot easier to overdeliver if we get an early approval of CERAMENT V in the first half of this year. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: As a follow-up on the U.S. market penetration and adoption. I think to ask it in a different way. But I think in the past, you have shared with us a number of surgeons you have trained. And I believe maybe I'm mistaken here, but the last number I have in my head is 1,000 surgeons. I was wondering if you could update me on where you are today on that number. Torbjorn Skold: Yes. No, good question, Sten. Thank you very much. So first of all, to put your question into context, this relates to all the sort of relevant surgeons in the fields that we're in today, excluding spine. So that relates to foot and ankle, trauma and revision arthroplasty. The boring part of my answer is that, no, we're not going to provide an update to that number. We don't have that routine yet. But when we have that routine and when we have updated numbers that we are willing to disclose, we will, of course, do that. But having said that, we are not slowing down. We're putting our foot on the gas to accelerate, which I think we see from both the financial as well as the operational numbers, including that reference point around the major trauma centers because clearly, you don't really get access without training an orthopedic surgeon. Sten Gustafsson: I understand. And those Level 1 trauma centers, on average, do they have like 50 or 100 different surgeons? Or what's the size like? Torbjorn Skold: I mean, it, of course, varies depending -- I mean, in total, U.S. as per our segmentation, we have 250 Level 1 major trauma centers. If you're major trauma centers, you're not running around with only sort of 5 trauma surgeons. You're not the major trauma centers. But it can vary. And I don't want to put a number out there, but it could be anything from -- I would only be guessing, but there are several -- quite a number of trauma surgeons on these different centers. And our ambition in the first place is to focus on the market segments, of course, where we focus on, so foot and ankle and trauma and then focus on the most complex, difficult cases within trauma where we see that CERAMENT G adds the most clinical value. And then you typically start with 1, maybe 2 surgeons and 1 ID doc. You start there, only one indication or one type of case and then you expand from there. And that's a journey that honestly can take several years. And of course, we want to do it in the right way and make sure that we and our product adds value to not only the orthopedic surgeon, but also the hospitals and the health care system. Sten Gustafsson: Makes sense. My next question would be on BVF and spine in particular. And I noticed a nice uptick in the -- and change in growth trajectory for CERAMENT BVF in North America. And I was wondering how much of that is sort of quarterly variation? And how much is related to spine? Torbjorn Skold: Well, given the fact that we honestly launched -- we initiated the launch in December on spine BVF, and we try to keep it a very focused launch. In Q4, I wouldn't draw any conclusions that it is the spine launch in the U.S. with the CERAMENT BVF that sort of made that number look the way it looks. It's more normal variations. Sten Gustafsson: Okay. Excellent. My final question is India. What's the timeline looking like? And what type of potential are we -- or should we consider for India? Torbjorn Skold: Yes. No, India, I mean -- so of course, no sales in Q4 for India. When we look at India strategically long-term, it's an attractive market for a couple of reasons. The main reason is it's a lot of people in India. And second, there's a lot of people who are willing to pay for care in India. So the approach that we take is a very focused approach on private payers and the hospitals that serve this patient population. When we look at that patient population in terms of size, it's a sizable segment, very attractive longer-term. And what we see now in India is first early steps -- and longer-term, give it a couple of years, it could be an important contributor for us. But most importantly, it's another growth leg to have in Europe & Rest of the World because we say that a lot of times, even in Europe & Rest of the World, we're very, very early phase. I mean, we depend and have depended a lot on U.K. and Germany, and we've been painfully aware of that when we have had the market reforms in Germany. So adding India is an attractive segment. But again, as with all countries, it will take time. But if you count the total population and if you segment that population into how many of them do have private insurers and how many of them have access to certain private hospitals, we feel very confident about that number, and we expect sales to start in India already in the first half of 2025 -- 2026, sorry. Operator: The next question comes from Oscar Bergman from Redeye. Oscar Bergman: I just have 3 questions for you. The first one, I think, at U.S. ambassador sites for bone infection, could you give sort of a ballpark figure of what percentage of relevant procedures on Berlin-CERAMENT G today? I mean, have they -- or have you become the type of standard of care at some of the centers in the U.S. Torbjorn Skold: Great question. To answer that last part, I would dare to say, yes, but it's still only a relatively small number where we have genuinely become the standard of care. And of course, it goes to what's the definition of standard of care. Do you only look at one patient indication? Do you look at several, et cetera, et cetera. So I think we're getting traction. Clearly, one very important way to establish this for us is to look at our great collaboration with the Oxford Bone Infection Unit in the U.K., and we have a fantastic collaboration and partnership with them. And one of the best ways we can educate patients in the U.S. -- sorry, educate the surgeons in the U.S. is simply by sending them to Oxford and see how they work with it. And we see great results, including changing the standard of care, moving to more CERAMENT use in their daily practice. But I would say, yes, there are centers in the U.S. that have changed their standard of care, but it's still very early days. But I don't have any hard data to share. Oscar Bergman: Okay. And do you know those centers are typically university hospitals? Torbjorn Skold: Yes. I mean one of the key strategies in the U.S. that we have and had for several quarters and potentially years is that we target academic medical centers. And that is simply because that's where they are very evidence and research focused. So they actually pay a lot of attention to the evidence that we have. You know that one of the key pillars in our strategy is to invest in and promote and lead by evidence. So that sort of fits like a hand in the glove to that. Commercially, it's a really good way to sell and target academic medical centers because they train a lot of fellows that when they're done training and when they're done with their fellowships, they go to somewhere else. They could go to a different academic medical center or they could start their own practice or go somewhere else. So definitely, our product fits very well in academic medical centers simply because it's much higher evidence level on our product than what's currently on the market. Oscar Bergman: Okay. And India, it was very interesting to hear about. I assume that the regulatory processes there are piggybacking CE marks for CERAMENT G and BVF, right? Torbjorn Skold: Yes. I mean, of course, we use the clinical data, we'll use the material that we've produced for U.S. that we've used for Europe. India is a particular country and with a somewhat complicated process, but the team has done a fantastic job on that, and we're getting very close to starting the launch in India in the first half of 2026. Oscar Bergman: Okay. And are there any other markets that you aim to launch at in the near to medium-term? I think we spoke about Japan before, very high level, of course, but it would be interesting to hear about Japan. Torbjorn Skold: Yes. I mean, Japan is still on the list. It's a very attractive orthopedic market. Similar to India, somewhat complex regulatory pathway to enter in Japan, but we're actively working on it. We've said that before also. So there's no change in that strategy. And we're getting closer to launch. But from a timing-wise, India will happen before Japan. Oscar Bergman: Okay. And you also mentioned some safety inventory and the longer payment terms due to the holidays. Is it a fair assumption then to make that your free cash flow conversion should normalize already in Q1? Håkan Johansson: And again, I think that -- when you look at that, Oscar, it's key to see you have some accounts receivables, but you also have accounts receivables in combination with some of the so-called K sheets that is reported as accrued revenue. So part of the increase in accounts receivables in Q4 relates to a reduction in accrued revenue or open K sheets end of Q4 compared to Q3. And the rest is simply that payments has been deferred from December to after the holidays. So with that, yes, we can expect to see the situation stabilize and normalize going into Q1. But again, the balance sheet is measured on the clock on 1 day. So there will always be volatility in the balance sheet. But over time, cash flow never lies. Operator: The next question comes from Viktor Sundberg from Nordea. Viktor Sundberg: Just to follow-up on your progress in trauma. One of the worries in the market with regards to trauma in the U.S. has been that maybe surgeons do not always feel the acute need to prophylactically use infection prevention in the surgery risk with the products such as CERAMENT G that comes with a bit of a price premium to other products without infection prevention in contrast to osteomyelitis when the infection is already always present at the intervention. So can you just comment on that as you have met more surgeons day-to-day at these Level 1 centers and got their feedback if this is correct or not to look at adoption in trauma in that way? And maybe also quickly, the NTAP here, any more color on how the added NTAP for trauma and the dropped NTAP for osteomyelitis will impact U.S. sales when we have moved a bit into 2026 and you might have gotten a bit more data on this dynamic? Torbjorn Skold: Yes. So we'll start with the second question first for simplicity and then we'll comment on the first one. So in Q4, we did not see any material impact -- negative impact of the lost NTAP, that actually came into effect 1st of October. So we don't see that we lose volume due to that. Again, early days, but in Q4, we didn't have any signals on that. I think to your point on trauma surgeons prophylactically or not, I think we need to start even more basic in trauma, meaning that actually, when there is a very high risk of infection or actually that they have confirmed infection, that's where we start with in trauma. And I don't think that we have reached any maturity or saturation on that level. Once we've done that, then, of course, it comes to prophylactically. Prophylactically, of course, is always more challenging than the starting point. But once you get the starting point right, my experience is at least that once you get that right, you see -- you get the surgeons to understand and see the value that CERAMENT has, then moving into that prophylactic stage becomes more natural. And different surgeons, different clinics, different centers are in different parts of this journey. But I would argue that still prophylactically is further out, but we're making really good progress by starting with the basics and getting them to be aware and understand the role of CERAMENT G in these type of cases. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Torbjorn Skold: No. With that, thank you all for your interest, and we wish you all a great rest of the day. Thank you.
Operator: Ladies and gentlemen, welcome to the conference call on the preliminary figures for full year 2025. I'm [ Sargen,] the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Mr. Thomas Jessulat, CEO. Please go ahead. Thomas Jessulat: Ladies and gentlemen, hello and good afternoon, and thanks for being available today. I welcome you to our conference call on the preliminary and unaudited figures of the fiscal year 2025. I'll start with some remarks on today's release. Afterwards, I will hand over to our CFO, Isabelle Damen, who will walk you through the financials down to the EBIT level. As usual, you will then have the opportunity to ask questions. Please note that the outlook as well as the financial details will be published together with the final and audited figures on March 26. The company closed the year in an environment still marked by considerable uncertainty and volatility. At the same time, the group continued to prepare for the next phase of its transformation reflected in high levels of investments to launch additional series projects in the field of cell contacting systems. Despite these upfront costs, the year-end performance was strong with operating free cash flow reaching 2% of sales. The ramp-up of battery component projects progressed further, driving significant sales growth in the E-Mobility business unit. In addition, the group successfully implemented its STREAMLINE program, achieving a sustainable reduction in personnel costs. Overall, the company mainly met or in some areas, even slightly exceeded its full year guidance targets. Let us have a quick look on the markets. Across major automotive regions, the powertrain mix shows clear structural differences. In North America, internal combustion engine vehicles continue to hold a dominant share supported by market preferences and comparatively slower electrification dynamics. Europe, by contrast, sees a higher share of all electric vehicles as well as hybrid vehicles. Within the second half of the decade, there will be a significant shift towards all electric. A lot of new programs of the established players are going to ramp up; however, long-term forecasts point to a decisive shift. By 2030, all major auto regions are expected to accelerate strongly towards fully electric vehicles. Projections indicate that Europe and China will experience some of the fastest growth in battery electric vehicles, while North America is also set for a substantial increase by the end of the decade. In summary, although today's powertrain landscape varies widely between regions, the trajectory towards fully electric mobility by 2030 is clear and consistent around the globe. Let us have a closer look at the pure electric mobility because this will be our core growth market with regard to cell contacting systems, or other components from our broad range of e-mobility solutions. Across all major automotive regions, including China, Europe and North America, the shift toward electric mobility is firmly underway with strong growth projected through 2030. When considering our large-scale projects, you will see that we are covering quite a good share of those vehicles, especially in Europe and also North America. China continues to lead the global transition to electric vehicles and shows a different market development with regard to the rising importance of pure local players. Overall, the market of all electric mobility is expanding across all major regions and significant growth is expected throughout the coming years. The shift towards e-mobility is well underway and continues to accelerate. Let me now hand over to our Group CFO, Ms. Isabelle Damen. Isabelle Damen: Thank you for handing over, Thomas. Let me first come to the preliminary and audited figures on Slide #5. Summing up, we have successfully concluded the 2025 financial year and laid the foundation for our future transformation. We have generated sales revenue of EUR 1.6 billion, which is a decrease to previous year's figure on a reported level. But there have been M&A effects from the divestment of our entities in Sevelen and [ Buford ] amounted to EUR 159 million. In addition, we have been faced with headwinds from the exchange rate of EUR 40.4 million. Excluding these effects, we achieved an organic sales of 2.1%, which slightly exceeded our guidance given in March '25. The group reported adjusted EBIT of EUR 88.6 million in the financial year under review, which corresponds to an adjusted EBIT margin of 5.4%. Therefore, the group achieved a level at the upper end of the guidance range, which was around 5%. If you take into account that the earnings of the E-Mobility business unit currently remain in negative territory with an adjusted EBIT of minus EUR 62 million, it shows that ElringKlinger's classical business generates reliable cash flows and creates sufficient financial room for strategic investments. All in all, adjusted EBIT margin is fully on track to continuously improve profitability of the group in the medium term. Regarding the other metrics, we've seen strong efforts in the fourth quarter. Due to an active working capital management, we achieved a level of EUR 285 million in the financial year 2025. At 17.4% of the group revenues, net working capital ratio was even lower than prior year's figure. The target set in March '25 to maintain a net working capital ratio of under 25% of group revenue was therefore clearly fulfilled. In line with the lower level of working capital and despite the high level of investments for the ramp-up of the large-scale e-mobility projects, we have generated an operating free cash flow of EUR 32.6 million in the financial year 2025. With the ratio representing 2% of sales, we have achieved our target range of 1% to 3% of group revenue. As a result, net financial debt was kept at a low level. It amounts to EUR 288 million. As a result, the net debt-to-EBITDA ratio stood at [ 2.0 ] and fulfilled the guidance given in March '25 when we had appointed to a figure of around 2. When adjusted EBITDA for the one-off effects from SHAPE30 and STREAMLINE measures, the adjusted net EBITDA ratio would even amount to 1.5 compared to 1.2 in the previous year. Let me briefly reconnect these results to our transformation strategy, SHAPE30. SHAPE30 outlines our road map for transforming the group in response to the profound changes shaping our industry. The strategy is focused on enhancing our profitability and strengthening cash flow performance. To ensure long-term success, we continuously monitor global market developments and align our product portfolio accordingly. This enables us to remain well positioned for the future and to act with maximum flexibility as market dynamics evolve. This includes terminating nonperforming products, divesting CapEx-intense business areas and consolidating our global footprint. In an effort to position the group effectively for the future, ElringKlinger implemented STREAMLINE, a global program to scale back staff costs in 2025. The measures on a STREAMLINE and SHAPE30 will translate into a significant reduction of the group's cost level. As planned, the initial benefits of these measures will be seen as early as the current financial year. The measures will take full effect from 2027 onwards. In parallel, we entered the next steps of transformation by ramping up several large-scale e-mobility orders. With the ramp-ups, we returned to a normalized CapEx spending after an intense investment cycle as main investments have been done. The full and audited figures for fiscal 2025 will be released on March 26 in the morning. A press conference is scheduled for the morning, followed by an analyst conference call in the afternoon. The then released figures will include the full set of financial statements and therefore, more details on the financial KPIs. Moreover, we will provide you with an outlook on the fiscal year 2026. The invitation for the calls will be sent out in due time. Ladies and gentlemen, thank you for your attention. And now Thomas and I are happy to answer your questions. Operator: [Operator Instructions] And we have the first question from Michael Punzet from DZ Bank. Michael Punzet: I have -- I will start with some questions with regard to the development in Europe with regard to the transformation to e-mobility. I think we have seen a lot of changes in the strategy of the big German and other OEMs as well as we have seen that the European Commission decided to soften the rule for 2035. And when I look to the presentation, I look at the slide on Page 3, your data you've shown there are based on the S&P Global Mobility outlook based on October 2025. Do you think this will have an impact on the strategy changes as well as the decision by the European Commission on your ongoing forecast for the e-mobility? And the second question is, will this have any impact on your planned breakeven for the business unit E-Mobility in 2027? Thomas Jessulat: Yes. Thank you for your initial questions, Mr. Punzet. I think when we look at the likely shift now after the change of the EU legislation, there is, I think, some change to be expected. It's not necessarily an adverse change to our strategy. That means that the strategy that ElringKlinger has is sound. The growth market within the auto business here, in particular, in Europe will be e-mobility with battery electric vehicles. I think that's not going to change. The quantities may change. And therefore, it may have an impact on our initial assumption that we will see a 50%, 50% share of non-ICE versus ICE in our portfolio in 2030. That may be impacted. But it's not meaning on the other side that we need to change our strategy because then it would be merely a change in quantities to the ElringKlinger product portfolio. Isabelle Damen: Yes. And towards your second question on the breakeven point. So we don't expect a huge impact because of the measures you mentioned on '26 and '27. And I think we discussed before, we expect in '27 to realize a breakeven point on e-mobility. Operator: There are no more questions at this time. I would now like to turn the conference back over to Thomas Jessulat for any closing remarks. We have a last minute question from Klaus Ringel from ODDO BHF. Klaus Ringel: I just want to -- really to ask for the special items in Q4 were a bit higher than I had expected. So can you give a bit insight what was the driver here? And let's say, if you have pulled forward some of the measures that you might have planned for '26 for later, which now gives you a clean sheet to start in 2026. Isabelle Damen: So thanks for your question. On your first question, the adjustments we've booked in the fourth quarter are partially related to STREAMLINE, our personnel cost reduction program. So there's about EUR 6 million we booked in the fourth quarter versus EUR 21.5 million for the full year. Furthermore, we booked some adjustments on the consolidation of our global footprint of EUR 9.2 million in the fourth quarter, about EUR 12 million in the year. And on nonperforming assets, there we booked about EUR 35 million for the year, of which EUR 19.4 million in Q4. So that's for the adjustments we booked in this quarter and for the year, and we did not really pull ahead anything of '26. So we still expect some effect in '26. The intention is in '27, we will no longer have any impact in adjustments for -- related to STREAMLINE or SHAPE30. Thomas Jessulat: Also in regard to the measures, we indicated that we were -- we wanted to have a EUR 50 million cost improvement in the group. When we head into 2026 now, I would say we're half through of it. There is -- as part of the STREAMLINE program, there is still, in particular, in Germany here, contracts that will run out at the end of Q1 so that the full impact, in particular in Germany on the STREAMLINE program will be measurable starting in Q2 2026, like Isabelle is saying. Most of the accounting items in terms of impairments and also changes to the footprint, most of the items were already carried out. We're not fully complete yet in that regard. But the expectation is that there is, from an accounting perspective, a little left that would be a difference between reported items and adjusted items. So that we expect more improvements to be seen in the course of 2026. And like Isabelle said, that we shoot for a clean 2027 with our activities. Operator: And we have a follow-up question from Michael Punzet from DZ Bank. Michael Punzet: Michael, again, I have several questions on the business unit E-Mobility. First, I would like to thank you very much for publishing the earnings figures for that business division. And I hope this was not a onetime effect, so that we will see that figure on a quarterly basis going forward. I have two questions with regard to the business unit. The first one is, can you give us any kind of guidance for the revenues you expect in 2027 to reach breakeven in that division? Thomas Jessulat: Yes. Let me ask -- or let me give you some information here on your first remark. I mean the transformation here is a key activity for us within our strategy SHAPE30. And we are dedicating significant resources, including CapEx into this process as we have done throughout the last couple of years. And we approach, as you say rightly, the revenue cycle now. And I think -- and we think that it's the right point here to share this information with shareholders of ElringKlinger to show the financial progress in this transformation here for ElringKlinger. This is a background for that. And yes, we'll continue to report on that because, again, it shows the progress that we make in regard to this transformation process. When we look at your second question here in terms of the top line, it's expected that through 2028, you would say roughly that we will double revenues here. And you have also to take into account that the loss situation here, part of it is one-off as part of this and part is part of start-up. So it's not a full amount that we have shown here in regard to recurring loss-making, but there's also part of it that is one-off amounts. And I think that's important to understand. So with the contribution margin that will come in through the doubling of sales, we think that we'll generate sufficient contribution margin in order to reach breakeven in the area of 2027, okay? Michael Punzet: Okay. That means doubling revenues compared to the figure for 2025? Thomas Jessulat: Yes. Michael Punzet: Okay. And second question on that business unit. Is it right to assume that the fuel cell technology business is fully included in that figure on a 100% basis in EKPO... Thomas Jessulat: Yes, that is included in there. But it's included here. Michael Punzet: So it's not adjusted for the minority stake. So that is included on a 100% basis? Thomas Jessulat: Yes, exactly because EKPO here is fully consolidated within our figures and therefore, is 100% considered. Operator: Ladies and gentlemen, that was the last question. I would now finally hand over the conference back to Thomas Jessulat for any closing remarks. Thomas Jessulat: Yes, ladies and gentlemen, together, my colleague, Isabelle Damen and I thank you for your attendance here during this call. On March 26, we will release our full and audited figures on the 2025 fiscal year and host a press conference as well as an investor conference call. We're looking forward to welcome you again and wish you a good rest of the week. Thank you very much. All the best.
Operator: Welcome to BONESUPPORT Year-End Report 2025 Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Torbjorn Skold; and CFO, Håkan Johansson. Please go ahead. Torbjorn Skold: Thank you, operator, and welcome, everyone, to BONESUPPORT's Q4 and Full Year 2025 Results Call. My name is Torbjorn Skold, I'm the CEO of BONESUPPORT; and with me here today is our CFO, Håkan Johansson. And together, we will use the next 25 minutes to guide you through the Q4 presentation and then open the line for questions. But before we start the presentation, I would like to draw your attention to the disclaimers covering any forward-looking statements that we will make today. So let's look at the financial and operational highlights from the quarter. Q4 was another strong quarter with solid execution across the business. Net sales came in at SEK 313 million, corresponding to a growth of 22% versus Q4 2024. Sales growth at constant exchange rates was 36%, showing that there was a continued strong currency impact on our figures for the quarter. Our adjusted operating results, excluding incentive program effects was SEK 81 million, corresponding to an adjusted operating margin of 26%. Reported operating result was SEK 82 million, and we saw solid cash generation with operating cash flows reaching SEK 54 million. We continue to see strong traction for CERAMENT G in the U.S., where both new accounts and increased use among current users contributed to the strong progress. CERAMENT G sales in the U.S. reached SEK 207 million for the quarter compared to SEK 154 million in the same period the year before. In Europe & Rest of the World, we saw strong momentum, which more than offset the negative effects of the German market reforms. During the quarter, we also advanced our regulatory pipeline. As communicated in early December, the FDA submission for CERAMENT V has now been transferred from the 510(k) pathway to the De Novo process. This change reflects the FDA's assessment that CERAMENT V may constitute an entirely new product category like CERAMENT G in 2022 and positions us for a stronger long-term market entry. In addition, we initiated the early-stage launch of CERAMENT BVF for spine in the U.S., an important step as we continue expanding our portfolio of indications and applications. I will come back to that later in my presentation. Now let's move to the sales development. This chart shows total last 12 months reported sales in Swedish krona by quarter since 2019 in stacked bars per region and product category. As you can see, the launch momentum for CERAMENT G in the U.S. is exceptionally strong. Given that we keep bringing new strong clinical studies and opening up new market segments and new indications, a product like CERAMENT G will remain in launch phase for many years to come. However, throughout 2025, we have seen strong influence from the U.S. dollar to Swedish krona depreciation. Last 12 months growth in Q4 of 31% in the graph corresponds to an even stronger 40% at constant exchange rates. So most of this quarter-over-quarter slowdown in last 12 months sales is due to a strong currency impact. U.S. CERAMENT BVF last 12 months was flat year-over-year in constant currency. In total, antibiotic eluting CERAMENT grew with 54% last 12 months in the quarter in constant currency. Next slide, please. In U.S., sales amounted to SEK 259 million, representing a growth of 40% at constant exchange rate. There was some general variability during the quarter due to the number of working days. At the same time, we continue to experience strong growth of CERAMENT G, driven by both increased access through new accounts and new surgeons as well as wider adoption among existing accounts and surgeons. In trauma, we see expanding access and adoption in Level 1 trauma centers, which is an important validation of CERAMENT G for treating complex infections and bone voids in the most demanding clinical environments. There are roughly 250 Level 1 trauma centers in the U.S. These are the very large and most important centers for advanced trauma treatments. And at the end of 2024, we had sold CERAMENT to 15 of these. At the end of 2025, we had sold to more than 140 Level 1 trauma centers. That said, actual use is evolving gradually as trauma surgeons carefully assess and evaluate new products before they become part of regular use. And remember that full healing and evaluation of a trauma patient can take more than 6 months. As part of our mission to modernize an outdated standard of care in the U.S., we have successfully opened one market segment after another. We started in foot and ankle, followed by trauma and now moving into revision arthroplasty. Interest continues to grow for CERAMENT G in revision arthroplasty and periprosthetic joint infections, 2 areas where the clinical needs remain substantial and where the evidence supporting our antibiotic eluting technology has resonated strongly with surgeons. We've built a solid foundation for our spine strategy over the past quarters by establishing distributor coverage and preparing for the market. In Q4, we initiated the early-stage launch of CERAMENT BVF in spinal procedures with distributors now actively engaging spine surgeons across both existing and new partnerships. As this is a new clinical segment for us, more clinical data is needed to support broader market penetration longer-term. Importantly, the performance of CERAMENT BVF in spine will help confirm the value proposition for the CERAMENT platform, which will pave the way for the future CERAMENT G launch. We have made strong progress in evaluating and preparing the regulatory pathway, and we'll share more on the path forward at our Capital Markets Day this spring. Now let's turn to Europe. Next slide, please. Sales in Europe & Rest of the World came in at SEK 54 million, representing 18% growth at constant exchange rates. Sales in Europe continued to be influenced by the same dynamics as observed in Q3, meaning that hospital reforms and surgical protocol programs in Germany were still impacting our sales. However, direct markets, excluding Germany, delivered at normal growth rates. And by the way, when we say normal growth rates, we mean normal for CERAMENT. The growth rates that we see outside Germany are 4x to 5x higher than growth rates for the market in general. Furthermore, hybrid markets in Southern Europe, Australia and Canada are performing strongly. We see positive traction from the investments made during the first half of 2025 reflected in improved sales performance. Now I'll leave a deep dive into the numbers to Håkan. Håkan Johansson: Thank you, Torbjorn. Net sales improved from SEK 257 million to SEK 312.5 million, equaling a growth of 22% reported sales growth or 36% in constant exchange rates. Torbjorn has already spoken about the solid performance in especially the U.S. and the major drivers behind the sales growth. But as the weak U.S. dollar somewhat hides a continued strong trajectory in the U.S., I would like to share the U.S. sales performance in U.S. dollars. CERAMENT G is the growth driver in the U.S. and this slide shows the quarterly CERAMENT G sales in the U.S. in U.S. dollars with continued solid performance quarter-to-quarter. The number of working days in each period impacts sales, especially in Q4, which is impacted by both Thanksgiving and the holiday season over Christmas and New Year's. Taking this into consideration, a strong net sales per working day is noted during the quarter when looking at the orange line in the presentation. The contribution from the U.S. segment improved by SEK 30 million and amounted to SEK 120.2 million. The improved contribution relates to increased sales after effect from increased costs. Selling and marketing expenses during the quarter amounted to SEK 128 million compared with SEK 108.8 million previous year, of which sales commissions to distributors and fees amounted to SEK 85 million compared with SEK 69.6 million in the same quarter last year. From the graph at the bottom of the screen, showing net sales as bars and gross margin as the orange marker, it can be noted that the gross margin remained stable and strong at around 95% with a minor decline in the period following a gradual impact from U.S. tariffs. In Europe & Rest of World, a contribution of SEK 11.9 million was reported to be compared with SEK 12.8 million previous year. Selling and marketing expenses increased by SEK 4.9 million, including SEK 3.6 million related to the previously communicated commercial investments in the so-called EUROW booster program. From the lower graph and orange marker, a minor drop in gross margin can be noted, mainly impacted by the market mix. Selling expenses, excluding sales commission and fees increased by SEK 8.6 million, mainly in staffing expenses, of which SEK 3.6 million relates to the so-called EUROW booster. The increase from Q3 this year relates to seasonality as Q4 is usually intense in terms of congresses and marketing activities. R&D remained focused on the execution of strategic initiatives such as the application studies in spine procedures and the market authorization submission for CERAMENT V in the U.S. The expense for the quarter includes submission fees and other additional expenses related to the change in regulatory pathway for CERAMENT V in the U.S. And finally, administrative expenses, excluding the effects from long-term incentive programs, reports a small increase for the period, of which SEK 2.8 million relates to the CEO succession. The reported operating result amounted to SEK 81.8 million despite unfavorable currency effects totaling SEK 2.9 million. I will come back to this on a later slide. The newly introduced tariffs in the United States had a gradual impact on costs in the quarter. The full effect of the current 50% tariff will equal a 0.8% impact on U.S. gross margins, which will come gradually with full effect late 2026. The difference between adjusted and reported operating result are costs regarding our long-term incentive programs amounting to a negative expense of SEK 0.5 million in the quarter compared with an expense of SEK 13.7 million previous year, as you can see from the previous slide. The reduced costs are due to the drop in share price. Operating cash flow remains solid with an increase in accounts receivables at the end of the year, mainly as customer payments seem to have been deferred to after the holidays. During the period, the Swedish krona has continued to strengthen against the U.S. dollar. Other operating income and expenses, therefore, contain foreign exchange gains and losses from the translation of the group's receivables and liabilities in foreign currency amounting to a negative SEK 2.9 million. The graph on this slide shows with gray bars how the relationship between the U.S. dollar closing rate and the Swedish krona has varied over time. This is read out on the right Y-axis. The blue dotted line readout on the left Y-axis shows adjusted operating result. The adjusted operating result, excluding translation exchange effects is the orange line and gives a more comparable view of the underlying trend in operating results. In the table below the graph, you can see the FX adjusted operating margin of close to 27% in the period compared with 22.6% in the same quarter last year. And with this, I hand back to you, Torbjorn. Torbjorn Skold: Thank you, Håkan. So to summarize Q4 2025, sales grew by 36% in constant currencies, reflecting steady and consistent progress. Adjusted operating margin reached 26%. Cash flow also remained robust, underscoring the strength and scalability of the business. I'm convinced that the most exciting part of our journey still lies ahead. And as I said, to provide a clearer view of what that journey will look like, we will host a Capital Markets Day in Stockholm on the 26th of May this year, which you are, of course, all welcome to join. Now happy to open up the line for questions. Operator: [Operator Instructions] The next question comes from Viktor Sundberg from Nordea. Viktor Sundberg: First one on CERAMENT G in the U.S. As you mentioned, year-over-year growth in the quarters are decreasing, but it's mostly FX related, as you mentioned. But when you say mostly, is it anything that indicates any, let's say, underlying headwind in the U.S. in 2025? And also what kind of underlying growth have you baked into your guidance for 2026? And how does that growth compare to 2025 growth in constant exchange rates? That's my first question. Håkan Johansson: Thank you, Viktor. And I think that the takeaway from the report is 2. One is, again, we see a continued strong trajectory with CERAMENT G in the U.S., especially when looking at sales in average per working day. Taking that in combination also what Torbjorn mentioned in terms of access to Level 1 trauma centers, et cetera. And of course, both these aspects are aspect that's been included in our estimates and our works out ahead of presenting the guidance for 2026. So we remain very optimistic on the continued opportunities for CERAMENT G in the U.S. Torbjorn Skold: Indeed. And I would like just to add to that. When we look at the performance in '25 and in Q4, we look at 2 important aspects of where the growth comes from in general and also particularly in CERAMENT G. And it relates to new accounts calling access as well as increasing the adoption within existing accounts. So both those 2 levers, independent on whether it's on surgeon level, account level, IDN level or GPO level, we measure that and track it. And what's important for us is to make sure that we have a healthy growth, not only in access and not only in adoption. We want to have it in both. And what we've seen throughout '25 as well as in quarter 4 is that we have a really healthy adoption and the growth rate on the total stems from both of those legs contributing almost to an equal size, which is very positive. And that goes generally as well as for CERAMENT G. On CERAMENT G, in particular, we've already talked about the Level 1 trauma center adoption rate. I mean, in '24, we sold to 15 of them. And in '25, we have sold to more than 140. And what we mean with sell is that we sell at least one product. So again, it's very, very early phase, but it's a really strong indication for us at least that we get access, we get interest among orthopedic surgeons, among the infectious disease doctors, and we have a really strong foundation to build on in trauma for many, many years to come. So that's on trauma. The next segment that we're just about -- or just started to scratch the surface on is revision arthroplasty. Early days, we have very convincing evidence, but it's a pilot study from Charité, indicating very strong results for CERAMENT G in a revision arthroplasty segment. So this also looks very promising for both the short, medium and long-term in the U.S. On top of those parts, meaning trauma and revision arthroplasty, we have foot and ankle, which we still see a lot of potential to continue to build on as we develop more application techniques, as we come out with more clinical studies. And then, of course, very exciting for us is when we get FDA approval for CERAMENT V. We transitioned from a 510(k) process to a De Novo process, which longer-term is actually very positive for us. And that, of course, adds to the total mix. We do not expect a lot of cannibalization on CERAMENT G from CERAMENT V. We believe that's going to be somewhat immaterial in the grander scheme of things. So I think that paints the picture of our outlook short, medium and long-term for CERAMENT G in the U.S. Viktor Sundberg: Okay. And maybe in Germany and the U.K. also that's been a bit of a drag on growth in '25. How much of this drag is baked into your guidance for 2026? And when do you expect this to turn around? And any sense of what the underlying demand is if funding issues would be a bit better in these countries? Håkan Johansson: So we communicated already when releasing Q3 that we do not expect somewhat of a swift call it, recovery in Germany. We think that Germany will remain somewhat sluggish throughout 2026. However, when it comes to U.K. and part of that we also saw in Q4 is that we expect the situation in the U.K. to normalize in the sense that surgeries where CERAMENT is used is coming back to normal levels. The surgical backlog in the U.K. is still a launch, which means that somewhat there will be also periods where we see a bit of 2 steps forward, 1 step back, et cetera. But again, we have seen gradual improvements, Q4 confirmed that, et cetera. So we remain optimistic when it comes to the U.K. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First, of course, everyone cares about the CERAMENT G U.S. number and what that was organically. If I pulled the data correct, it looked like it was up 55% organically and that we have a USD number that was 21.9% essentially. Could you give any more detail on that sort of number, if I'm correct in that assumption? Because that would imply like an FX rate of minus 21%. Håkan Johansson: Again, largely, the numbers could be recognized. We're not sharing the exact dollar numbers because we're reporting in Swedish krona. But as we shared in the presentation, you have both the absolute numbers in U.S. dollar sales and also the average sale per working day. And again, as communicated here, we see a continued very strong and solid trend. Erik Cassel: But the 55% organic, that seems reasonable to you, do you think? Håkan Johansson: Again, if you just look at it from Q3 to Q4 in U.S. dollars and not taking workdays in consideration, it is a small growth in Q4 to Q3. Erik Cassel: Okay. I'll leave it there. But can you maybe talk a bit on what sort of indications that happen to grow, say, faster than the overall CERAMENT G sales in the U.S. and which indications may be lagging that growth rate a bit, so we sort of can understand what's driving this going forward? Torbjorn Skold: Yes. So I think if we look at the U.S. and CERAMENT G sales only and then we look at the 3 segments that we are in today and actively sell into. Foot and ankle, of course, is the segment where we have been the longest period of time. That's where BONESUPPORT started really. But still both in absolute as well as in relative terms, an important contributor to the growth of CERAMENT G. But given the size of it and given that we've been there for a number of years, it's further on in its life cycle, so to say. Second is trauma. And here, of course, a relatively new segment. You saw the numbers in terms of access. So that's clearly a segment that will continue to drive growth rates both short and medium-term. So we're very bullish about trauma as well as we are on revision arthroplasty. So I think you can sort of relate how long we've been in the respective segments to how much relative growth rates we can expect from them. But having said that, all 3 segments are very important in absolute terms for us short and medium-term. And just to be totally transparent and perhaps obvious to several of you on the call, CERAMENT G for spine is not yet approved in the U.S. and will, therefore, not drive any growth in the short-term. But longer-term, we expect CERAMENT G once it's approved and launched in the U.S. for spine to be an important segment also in parallel to the 3 segments that we're already in. Erik Cassel: Okay. Should I read that as the osteomyelitis indication being a bit more matured, maybe not growing as much right now? Torbjorn Skold: I wouldn't read that into it. Osteomyelitis is actually an indication that can happen in foot and ankle. It can happen in trauma and also technically it can happen in -- also in revision arthroplasty. So I wouldn't draw that conclusion. Osteomyelitis is an underserved indication with a lot of unmet clinical need where CERAMENT G and V play an important role. So I would not draw that conclusion that we've reached a saturation or maturity on osteomyelitis in general. It's a very healthy and fast-growing segment for us. Erik Cassel: Okay. And then I just have a question on commission rates. They sort of hit a new low here in this quarter. Does that sort of imply that fewer and fewer distributors are hitting their sort of bonus quotas? And if that's the case, could you maybe share a bit on sort of what's required for them to get to that sort of, I guess, 35% commission rate. This was, I think, high and say normalized lower. What's the difference there and how much they need to sell and grow the accounts to get different bonus levels? Håkan Johansson: So a good question, Erik. So it sounds like an area for clarification because I guess the line is defined as commission and fees and involves everything from commission to the distributors, GPO fees, credit card charges for the customers paying by credit card, et cetera. And it's the combination of these that is down a few percentage points and so on. So it's small movements in percentage of sales. Commission remains relatively stable around 30%. The commission are somehow included certain incentives if the distributors are exceeding their so-called quotas substantially, but we see very little movement in the average commission rate to sales. So the reason why it's down a few percentage points more relates to the other aspects of fees. Torbjorn Skold: And to that, in terms of the distributor turnover, it's part of the beauty of the model that we have in BONESUPPORT in the U.S. is that we want distributors to be on the journey with us. We want them to share the same goals. So we actively add new distributors. And when we have distributors that are not performing in line with the targets and goals and principles that we set, we don't hesitate to phase them out. So turnover among distributors, we've always had. We will continue to have that. But as Håkan said, that is not one of the reasons why we see lower commission rates on the contrary. Erik Cassel: Okay. And just the last question. So far, I mean, we saw that sort of surgical volumes per day was up a bit in Q4. Can you say anything on the sort of pace that has been now through January and February, if we're seeing the daily averages being roughly the same, increasing, just so we can think about the Q1 number we could expect? Torbjorn Skold: Yes. No, thank you for the question. I mean we don't comment on Q1, as you know. But similar to -- we got a lot of questions on Q4 when we released Q3, I mean we feel confident in the journey that we're on. We feel confident in the guidance that we have said, indicating that we should grow in constant exchange rates at least 35%. And if we see any reason to change that, we will communicate it adequately and accordingly. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: I have a couple of questions as well. First one, what you shared there regarding Level 1 trauma centers, 140 versus 15 end of 2024. So just if you could share some color on how important this has been whilst establishing the sales guidance for '26. And of course, also interesting to hear some insights on adoption rates in sort of early Level 1 trauma centers as well? That's the first one. Torbjorn Skold: Sure. So starting with your first question around the guidance of 35 -- more than 35% growth in constant exchange rates. So first of all, we have also communicated that we expect CERAMENT V to be approved by the FDA around mid this year. Of course, if we get an earlier approval and we launch earlier than that, then of course, we will distance ourselves or we expect to distance ourselves more on the upside versus the 35%. But however, let's say that we get late approval or no approval, then we will, of course, be close to the 35%. I think that's important to just point out that, that's the role of CERAMENT V. Now when we did the guidance for '26, there's not only one factor, of course, that we take into account. We look at growth potential across the geographies. We look at the growth potential of the different segments, of course, trauma in the U.S. is an important segment for us and the data point that we have on the Level 1 trauma centers is an important data point as there are others as well, in foot and ankle, in revision arthroplasty in both U.S. as well as Europe & Rest of the World. What is very important for us, and we've said this before, and it's important to continue to say that, it's the balance between access and adoption that is very important. We don't want to just only grow by getting new accounts. We don't only want to grow by increasing the adoption in existing accounts. We want to have a healthy balance between the 2. So that's also a very important factor when we put the guidance together. Another also very important factor is when we simply again recalculate the penetration, meaning that the number of surgeries that we are in by geography, by market segment versus what we think is a realistic or a longer-term outlook. We still believe that we have a long runway to get to what we think are perfectly realistic penetration levels. So I think, Mattias, it's not just the trauma number, but it's an important factor as -- and combined with many other factors, as I just described. Mattias Vadsten: Good. And are you happy with what you see in terms of adoption in the Level 1 trauma centers that you won early days? Torbjorn Skold: Yes, very happy. Mattias Vadsten: Good. Then I just have a follow-up on the revision arthroplasty segment that you discussed here in the presentation, which was good. Your position here and maybe how much work is yet to be done for BONESUPPORT in terms of evidence and so forth to be able to have an ideal position, call it, for a more material contribution and better sales pitch around the segment? That's my next one. Torbjorn Skold: Yes. Very good. So it's early days for us in revision arthroplasty. We have a fantastic pilot study that came out of Charité as communicated last year. I mean the results from that couldn't have been better from a BONESUPPORT and CERAMENT point of view, showing excellent results. But again, it's a pilot study and the number of patients is limited. We're building on that study going forward. And I think this is an area where we, over several years, will need to do a lot more, which is perfectly natural, and that's part of the BONESUPPORT approach to penetrate a new market segment, meaning that we always lead with evidence. We know that our product is very innovative. It has unique capabilities in terms of its handling and in terms of how it elutes antibiotic. But we always lead with evidence. So a lot more work remains to be done in revision arthroplasty on the evidence side. So more specific evidence. And we're working on it. We've initiated new studies, and we will continue to initiate new studies in this field. However, orthopedic surgeons, in general, they understand the unmet clinical need in the space of revision arthroplasty, where typically you face 2 challenges. Number one, how do you heal the bone? How do you make sure that you grow bone in areas where you, for example, have bone voids as a result of explanting the implants in a revision situation. So having to deal with bone voids is normal, and it's standard for revision arthroplasty surgeon. We have a great solution for that with CERAMENT. Also, infections in revision arthroplasty is one of the key reasons why primary implants need to be revised because the patients have infections. So dealing with infections is also high on the agenda of the revision arthroplasty surgeons. And there with CERAMENT G and V in Europe and hopefully, when we get the approval for V in the U.S., we have a very, very intuitive solution that we already see now, surgeons are willing to try and test. Some of the surgeons actually already use it as part of their standard routine. Several surgeons want to wait until we have more evidence. But nothing is stopping us to enter this segment and penetrating this segment already now. But of course, we need more evidence. In addition to that, we believe very much in specialization of our sales channels, meaning that a revision arthroplasty surgeon is not the same guy that does trauma, who is not the same guy that does foot and ankle. So we need specialization in our go-to-market channels. So that's, of course, another aspect that we need to make sure that we get relevant sales channels, whether that's distributors as well as direct people to go deeper in the respective market segments. So I hope that answers your question. Mattias Vadsten: Absolutely. Good answer. And my last one is fairly quick. In terms of working days that you discussed here, how many fewer working days was it Q4 vis-a-vis Q3? Was it like 2 days or... Håkan Johansson: It was 3 days shorter, if I remember, 3 or 4 days, but my memory is not skewing me 3 days shorter. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: I have 3 or 4 questions. The first one on this sequential growth for CERAMENT G in the U.S. per surgery day seems much stronger in Q4 versus pretty weak third quarter. So could you explain, is there any particular reason for this or just natural swings between quarters? Håkan Johansson: Again, as much as we refer to underlying natural swings quarter-to-quarter in Q3, that explanation remains in Q4 because again, it's -- as with the forward-looking estimates, there are several parameters that is moving and so on. So I don't see any specifics, and I'm looking at Torbjorn, but I think that we share that view. Kristofer Liljeberg-Svensson: Okay. Good. And the better growth in Europe, would you say that's sustainable, just making sure that there is no positive one-off larger orders or anything this quarter, explaining the much better growth in Q4 versus what we have seen previously. Håkan Johansson: Again, what was positive to see, Kristofer was the improvement in the U.K. to see what's been in our analyzer to see that also realized. But at the same time, we're -- we remain modest. We have to remain modest because again, as I mentioned in the call, the surgical backlog remains long in the U.K. So there could be short periods of swings back to a slower momentum and then swing back again, et cetera. But again, I think it's -- we're remaining optimistic, good to see the improvements in Q4. When we look at the investment markets, I call it, we expect that momentum to continue when looking outside our direct markets and investments made in our so-called hybrid markets, Italy, Spain, Australia, South Africa, Canada, just to mention a few. And again, there, we start from quite a low penetration level, and there are so much market potential remaining in these markets. And we believe that the investments done is a good way to capture that potential. Kristofer Liljeberg-Svensson: Okay. Good. And then my third question, you mentioned the increased number of trauma centers that you are selling to, still early days, but have you reached good adoption already at some of those centers? Or is that also too early to see? Torbjorn Skold: No. I mean, clearly, in some of them, but still it's a very small number where we have reached a solid adoption level, but it's really early days. And if you -- again, the definition that we use here is that selling to meaning that we've sold minimum 1 packet of CERAMENT. Of course, some of them, early adopters that were early out, we have a good adoption level, but not even close to what we think is the potential. And most of these -- I mean, just do the math. Most of these trauma centers that we've sold to are still very, very early in their journey. So yes, we'll keep ourselves busy to increase the adoption in these Level 1 trauma centers in the U.S. Kristofer Liljeberg-Svensson: Okay. And then finally, just a clarification when it comes to guidance for 2026. So you have included, as it seems then, very little or no CERAMENT V sales in the guidance? Torbjorn Skold: Yes, that's correct. And that's to be prudent because we only know what we know. And although we have a great dialogue with FDA, you never know with FDA, and we follow their guidance similar to what we did now in Q4 in terms of transferring CERAMENT V from a 510(k) to a De Novo. We think that although unexpected to us, we think it was a very good decision longer-term for us. And it is important that we follow and deliver on what FDA wants us to. But of course, if we don't get CERAMENT V, we still believe that the 35% growth rate is definitely realistic, but it's going to be a lot easier to overdeliver if we get an early approval of CERAMENT V in the first half of this year. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: As a follow-up on the U.S. market penetration and adoption. I think to ask it in a different way. But I think in the past, you have shared with us a number of surgeons you have trained. And I believe maybe I'm mistaken here, but the last number I have in my head is 1,000 surgeons. I was wondering if you could update me on where you are today on that number. Torbjorn Skold: Yes. No, good question, Sten. Thank you very much. So first of all, to put your question into context, this relates to all the sort of relevant surgeons in the fields that we're in today, excluding spine. So that relates to foot and ankle, trauma and revision arthroplasty. The boring part of my answer is that, no, we're not going to provide an update to that number. We don't have that routine yet. But when we have that routine and when we have updated numbers that we are willing to disclose, we will, of course, do that. But having said that, we are not slowing down. We're putting our foot on the gas to accelerate, which I think we see from both the financial as well as the operational numbers, including that reference point around the major trauma centers because clearly, you don't really get access without training an orthopedic surgeon. Sten Gustafsson: I understand. And those Level 1 trauma centers, on average, do they have like 50 or 100 different surgeons? Or what's the size like? Torbjorn Skold: I mean, it, of course, varies depending -- I mean, in total, U.S. as per our segmentation, we have 250 Level 1 major trauma centers. If you're major trauma centers, you're not running around with only sort of 5 trauma surgeons. You're not the major trauma centers. But it can vary. And I don't want to put a number out there, but it could be anything from -- I would only be guessing, but there are several -- quite a number of trauma surgeons on these different centers. And our ambition in the first place is to focus on the market segments, of course, where we focus on, so foot and ankle and trauma and then focus on the most complex, difficult cases within trauma where we see that CERAMENT G adds the most clinical value. And then you typically start with 1, maybe 2 surgeons and 1 ID doc. You start there, only one indication or one type of case and then you expand from there. And that's a journey that honestly can take several years. And of course, we want to do it in the right way and make sure that we and our product adds value to not only the orthopedic surgeon, but also the hospitals and the health care system. Sten Gustafsson: Makes sense. My next question would be on BVF and spine in particular. And I noticed a nice uptick in the -- and change in growth trajectory for CERAMENT BVF in North America. And I was wondering how much of that is sort of quarterly variation? And how much is related to spine? Torbjorn Skold: Well, given the fact that we honestly launched -- we initiated the launch in December on spine BVF, and we try to keep it a very focused launch. In Q4, I wouldn't draw any conclusions that it is the spine launch in the U.S. with the CERAMENT BVF that sort of made that number look the way it looks. It's more normal variations. Sten Gustafsson: Okay. Excellent. My final question is India. What's the timeline looking like? And what type of potential are we -- or should we consider for India? Torbjorn Skold: Yes. No, India, I mean -- so of course, no sales in Q4 for India. When we look at India strategically long-term, it's an attractive market for a couple of reasons. The main reason is it's a lot of people in India. And second, there's a lot of people who are willing to pay for care in India. So the approach that we take is a very focused approach on private payers and the hospitals that serve this patient population. When we look at that patient population in terms of size, it's a sizable segment, very attractive longer-term. And what we see now in India is first early steps -- and longer-term, give it a couple of years, it could be an important contributor for us. But most importantly, it's another growth leg to have in Europe & Rest of the World because we say that a lot of times, even in Europe & Rest of the World, we're very, very early phase. I mean, we depend and have depended a lot on U.K. and Germany, and we've been painfully aware of that when we have had the market reforms in Germany. So adding India is an attractive segment. But again, as with all countries, it will take time. But if you count the total population and if you segment that population into how many of them do have private insurers and how many of them have access to certain private hospitals, we feel very confident about that number, and we expect sales to start in India already in the first half of 2025 -- 2026, sorry. Operator: The next question comes from Oscar Bergman from Redeye. Oscar Bergman: I just have 3 questions for you. The first one, I think, at U.S. ambassador sites for bone infection, could you give sort of a ballpark figure of what percentage of relevant procedures on Berlin-CERAMENT G today? I mean, have they -- or have you become the type of standard of care at some of the centers in the U.S. Torbjorn Skold: Great question. To answer that last part, I would dare to say, yes, but it's still only a relatively small number where we have genuinely become the standard of care. And of course, it goes to what's the definition of standard of care. Do you only look at one patient indication? Do you look at several, et cetera, et cetera. So I think we're getting traction. Clearly, one very important way to establish this for us is to look at our great collaboration with the Oxford Bone Infection Unit in the U.K., and we have a fantastic collaboration and partnership with them. And one of the best ways we can educate patients in the U.S. -- sorry, educate the surgeons in the U.S. is simply by sending them to Oxford and see how they work with it. And we see great results, including changing the standard of care, moving to more CERAMENT use in their daily practice. But I would say, yes, there are centers in the U.S. that have changed their standard of care, but it's still very early days. But I don't have any hard data to share. Oscar Bergman: Okay. And do you know those centers are typically university hospitals? Torbjorn Skold: Yes. I mean one of the key strategies in the U.S. that we have and had for several quarters and potentially years is that we target academic medical centers. And that is simply because that's where they are very evidence and research focused. So they actually pay a lot of attention to the evidence that we have. You know that one of the key pillars in our strategy is to invest in and promote and lead by evidence. So that sort of fits like a hand in the glove to that. Commercially, it's a really good way to sell and target academic medical centers because they train a lot of fellows that when they're done training and when they're done with their fellowships, they go to somewhere else. They could go to a different academic medical center or they could start their own practice or go somewhere else. So definitely, our product fits very well in academic medical centers simply because it's much higher evidence level on our product than what's currently on the market. Oscar Bergman: Okay. And India, it was very interesting to hear about. I assume that the regulatory processes there are piggybacking CE marks for CERAMENT G and BVF, right? Torbjorn Skold: Yes. I mean, of course, we use the clinical data, we'll use the material that we've produced for U.S. that we've used for Europe. India is a particular country and with a somewhat complicated process, but the team has done a fantastic job on that, and we're getting very close to starting the launch in India in the first half of 2026. Oscar Bergman: Okay. And are there any other markets that you aim to launch at in the near to medium-term? I think we spoke about Japan before, very high level, of course, but it would be interesting to hear about Japan. Torbjorn Skold: Yes. I mean, Japan is still on the list. It's a very attractive orthopedic market. Similar to India, somewhat complex regulatory pathway to enter in Japan, but we're actively working on it. We've said that before also. So there's no change in that strategy. And we're getting closer to launch. But from a timing-wise, India will happen before Japan. Oscar Bergman: Okay. And you also mentioned some safety inventory and the longer payment terms due to the holidays. Is it a fair assumption then to make that your free cash flow conversion should normalize already in Q1? Håkan Johansson: And again, I think that -- when you look at that, Oscar, it's key to see you have some accounts receivables, but you also have accounts receivables in combination with some of the so-called K sheets that is reported as accrued revenue. So part of the increase in accounts receivables in Q4 relates to a reduction in accrued revenue or open K sheets end of Q4 compared to Q3. And the rest is simply that payments has been deferred from December to after the holidays. So with that, yes, we can expect to see the situation stabilize and normalize going into Q1. But again, the balance sheet is measured on the clock on 1 day. So there will always be volatility in the balance sheet. But over time, cash flow never lies. Operator: The next question comes from Viktor Sundberg from Nordea. Viktor Sundberg: Just to follow-up on your progress in trauma. One of the worries in the market with regards to trauma in the U.S. has been that maybe surgeons do not always feel the acute need to prophylactically use infection prevention in the surgery risk with the products such as CERAMENT G that comes with a bit of a price premium to other products without infection prevention in contrast to osteomyelitis when the infection is already always present at the intervention. So can you just comment on that as you have met more surgeons day-to-day at these Level 1 centers and got their feedback if this is correct or not to look at adoption in trauma in that way? And maybe also quickly, the NTAP here, any more color on how the added NTAP for trauma and the dropped NTAP for osteomyelitis will impact U.S. sales when we have moved a bit into 2026 and you might have gotten a bit more data on this dynamic? Torbjorn Skold: Yes. So we'll start with the second question first for simplicity and then we'll comment on the first one. So in Q4, we did not see any material impact -- negative impact of the lost NTAP, that actually came into effect 1st of October. So we don't see that we lose volume due to that. Again, early days, but in Q4, we didn't have any signals on that. I think to your point on trauma surgeons prophylactically or not, I think we need to start even more basic in trauma, meaning that actually, when there is a very high risk of infection or actually that they have confirmed infection, that's where we start with in trauma. And I don't think that we have reached any maturity or saturation on that level. Once we've done that, then, of course, it comes to prophylactically. Prophylactically, of course, is always more challenging than the starting point. But once you get the starting point right, my experience is at least that once you get that right, you see -- you get the surgeons to understand and see the value that CERAMENT has, then moving into that prophylactic stage becomes more natural. And different surgeons, different clinics, different centers are in different parts of this journey. But I would argue that still prophylactically is further out, but we're making really good progress by starting with the basics and getting them to be aware and understand the role of CERAMENT G in these type of cases. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Torbjorn Skold: No. With that, thank you all for your interest, and we wish you all a great rest of the day. Thank you.
Operator: Good day, everyone, and welcome to the Fibra Danhos Fourth Quarter 2025 Conference Call. [Operator Instructions] Please note, this call is being recorded, and I'll be standing by for assistance. Now it's my pleasure to turn the call over to your host, Rodrigo Martinez. Please go ahead, Rodrigo. Rodrigo Chavez: Thank you very much, Elvis. Hello, everyone. I am Rodrigo Martinez, and I run Investor Relations for the company. At this time, I'd like to welcome everyone to Fibra Danhos 2025 Fourth Quarter Conference Call. We issued our quarterly report yesterday. If you did not receive a copy, please do not hesitate and contact us. Please be aware that they are also available on our website and in Mexico Stock Exchange website. Before we begin the call today, I would like to remind you that forward-looking statements made during today's call do not account for future economic circumstances, industry conditions and company performance or financial results. These statements are subject to a number of risks and uncertainties. All figures included herein are prepared in accordance to IFRS standards and are stated in nominal Mexican pesos unless otherwise noted. Joining today from Fibra Danhos in Mexico City is Mr. Salvador Daniel, CEO of Fibra Danhos; Mr. Jorge Serrano, CFO of Fibra Danhos; and Mr. Elias Mizrahi. Now I will turn the call for Jorge Serrano for opening remarks and financial operating indicators. Jorge, please go ahead. Jorge Esponda: Thanks, Rodrigo. Good morning. Thanks for joining us today. Let me share some initial remarks on Fibra Danhos' fourth quarter. Despite a softer consumption environment, financial and operating results reflect steadiness on our operating portfolio, complemented by the recent contribution from industrial projects. Increased revenues were explained by higher fixed rent with sound occupation levels, overage and positive lease spreads that more than compensated the effect of the dollar depreciation on our office portfolio. Revenue was up 6.5% on the quarter and 11.8% on the year. NOI margin of 78% for the quarter and 78.5% for the year reflect expense control and operating efficiencies. Quarterly AFFO reached MXN 1.3 billion that accounted for MXN 0.80 per CBFI, and accumulated close to MXN 4.6 billion in the year or MXN 2.85 per CBFI. Distribution for the quarter was determined at the same level of MXN 0.45 per CBFI, which amounts to MXN 724 million and represents a payout ratio of 56%. Capital expenditures on new developments during 2025 were financed with nondistributed cash flow plus additional debt of MXN 1.5 billion. Balance sheet, however, remains strong with only 13.5% leverage. Our MXN 3 billion Cebures DANHOS 16 will reach maturity by midyear. We are analyzing the best alternatives in order to fulfill our commitment and optimize financial expense. Danhos maintains AAA local debt rating. New projects, Nizuc and Oaxaca, have gained momentum on its construction phase and report progress as scheduled. Industrial projects on development stage are making progress as well and expect to deliver quick and sound cash flow returns [ which is evidence for ] our execution capabilities, high-quality construction standards and have become a reference in the logistics corridor located in the north of Mexico City metropolitan area. Overall, GLA increased 15% year-over-year and reached 1.25 million square meters, with an overall portfolio occupancy of 91.5%. Retail occupancy reached 94.2%, office 77% and industrial 100%. Lease spread on 24,000 square meter renewal agreements was 3.9% during the quarter, which is in line or above inflation levels. Thanks, and we may now turn to the Q&A session. Operator: [Operator Instructions] And our first question today will come from Jorel Guilloty of Goldman Sachs. Wilfredo Jorel Guilloty: If I can actually focus on your retail portfolio. So one thing that we found interesting is that when we look at the rent growth year-on-year, we see that the fixed rent portion 4Q went up, but the overage went down. So I just want to understand a little bit more about that dynamic. And also we saw a couple of your malls, there are about 3 of them, that saw a decline year-on-year on overall rental revenues. So I just wanted to get a sense of what could have driven those down. Salvador Daniel Kabbaz Zaga: This is Salvador Daniel. I mean we've -- what we've always done and we always do is every time we have a chance to transform variable rent to fixed rent, we do that. So sometimes, you will see a decrease in the variable rent and an increase on the fixed rent because we've done that. And that's something we usually do on shopping malls. Although we have to recognize that we saw a little bit of a slowdown in the last couple of months in the consumption, although still remains strong. We did see a minimum decrease on it. And on the other 3 properties you have been talking about, Parque Esmeralda is not a shopping mall. It is an office building with 1 tenant, which had a discount for a 10-year lease that we signed last year. So that was very important for us. It is a pretty old building. We actually did some work on it and [ worn ] CapEx on it, and it's now fully leased for the next 10 years. Parque Alameda, we -- it's a very, very, very small shopping mall. Actually, we can barely call it a shopping mall. And we lose a tenant, we already lease that, and it's on its time to redoing the space. So probably in the next couple of months, we will see the income coming back. And the rest, I think it's operating in a great way. We feel very comfortable with them. Wilfredo Jorel Guilloty: A quick follow-up if I may. While we did see that dynamic on rents, we did see that parking revenues were actually quite strong year-on-year. So I just wanted to get your comment on that. What is driving that higher? Is it all coming through pricing? Is it expansion of parking spaces? Just want to get a sense of what drove the strong performance. Salvador Daniel Kabbaz Zaga: I mean we basically, every couple of years, we do the pricing on the parking spaces. That's something we did last year, and especially I think in the middle of the year. And we've seen also a little bit more people coming into the parking. We haven't expanded our parking spaces, but that's probably the natural thing about people coming back to -- by car to the shopping malls. Operator: Our next question comes from Felipe Barragan of JPMorgan. Felipe Barragan Sanchez: I'd like to discuss a little bit on the office side occupancy. I saw it grew quarter-over-quarter, mostly on the Urbitec office asset you have. So I just want to get a sense if this is just more property related or if you guys are seeing a pickup in the office segment overall. Any color on that would be appreciated. Salvador Daniel Kabbaz Zaga: I mean especially in Urbitec, we changed our mindset. We were trying to find just 1 tenant for the whole building; and we changed that and we basically took opportunity of a couple of people wanting to come into the building. And that's why you saw especially that building being leased. We actually done 3 floors of it. And that's why. But we've actually seen a little bit more movement in the office spaces with having more people asking about them and companies inquiring about prices and opportunities. So we've actually seen this past semester a little bit of movement in the office spaces. Operator: Our next question comes from Alan Macias of Bank of America. Alan Macias: Just a quick question on distribution per certificate. If you can share your thoughts on what we should be thinking about for this year, what level? And what level of loan-to-value should we be thinking for the end of the year? Salvador Daniel Kabbaz Zaga: I mean we've -- actually think we're going to leave the distribution at the same level where we've been doing it in the past. We have a lot of projects in development, which will need cash requirements, and we feel that the best way to achieve them is by putting some cash in it and having some debt on it. So we feel we're going to be loan-to-value below 15% by the end of the year, for sure. And with that and the cash flow we've been retaining, we're going to be able to achieve our goals in the new projects. Operator: [Operator Instructions] Rodrigo, we have no further questions at this time. I'll turn it back over to you for any closing comments. Rodrigo Chavez: Thank you very much, Elvis. Everyone, please let -- please know that we are always available for any further questions that you might have. And thank you very much. See you next quarter. Operator: That concludes our meeting today. You may now disconnect. Goodbye.
Operator: Good morning, and welcome to the Diversified Healthcare Trust Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the call over to Matt Murphy, Manager of Investor Relations. Please go ahead. Matt Murphy: Good morning. Joining me on today's call are Chris Bilotto, President and Chief Executive Officer; Matt Brown, Chief Financial Officer and Treasurer; and Anthony Paula, Vice President. Today's call includes a presentation by management, followed by a question-and-answer session with sell-side analysts. Please note that the recording and retransmission of today's conference call is strictly prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based upon DHC's beliefs and expectations as of today, Tuesday, February 24, 2026. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission, or SEC. In addition, this call may contain non-GAAP numbers, including normalized funds from operations or normalized FFO, net operating income or NOI and cash basis net operating income or cash basis NOI. A reconciliation of these non-GAAP measures to net income is available in our financial results package which can be found on our website at www.dhcreit.com. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements. And finally, we will be providing guidance on this call, including NOI. We are not providing a reconciliation of these non-GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all, such as gains and losses or impairment charges related to the disposition of real estate. With that, I would now like to turn the call over to Chris. Christopher Bilotto: Thank you, Matt, and thank you, everyone, for joining our call today. I want to start with a recap of a very busy and successful 2025 for DHC, in which we executed on the stated initiatives that we identified early in the year, and ended the year as the best-performing REIT in the U.S. as measured by both share price appreciation and total shareholder return. In 2025, we completed over $1.4 billion in capital markets activity, principally focused on financing, asset sales and the establishment of a $150 million undrawn credit facility. We also completed the wind down of AlerisLife, transitioning 116 communities, representing over 17,000 units to seven regionally focused operators and completed renovations at over 30 communities. These efforts, combined with the work of our dedicated asset management team, resulted in full year consolidated NOI growth of 31.3%, a reduction in our leverage of over three turns and no debt maturities until 2028. As one of the largest owners of senior housing properties in the country, we believe our recent accomplishments, combined with the investments we have made in the portfolio and the favorable industry outlook sets the stage for continued outsized growth in our SHOP portfolio as reflected in our 2026 guidance, which Matt will expand upon momentarily. Turning to the quarter. After the market closed yesterday, DHC reported strong fourth quarter results, particularly as it relates to our SHOP NOI, which improved 27.6% over last year to $38.3 million reflecting continued execution on our highlighted initiatives and further strengthening DHC's financial position. For the quarter, DHC delivered total revenue of $379.6 million adjusted EBITDAre of $72.4 million and normalized FFO of $21.8 million or $0.09 per share. Turning first to our senior housing portfolio. SHOP NOI for the full year came in at $139.3 million, which was towards the high end of our guidance. This was driven by same property occupancy that increased 90 basis points year-over-year to 82.4%, an average monthly rate that increased 5.8%. Same-property SHOP NOI margins continued to improve, up 230 basis points year-over-year. These results were achieved despite a somewhat noisy quarter reflecting the transition of 116 SHOP communities to 7 different operators that have proven track records and well-established regional footprints. With all the transitions completed during the quarter, we remain focused on executing property-specific business plans and targeted opportunities identified across the portfolio. We are intensely focused on executing and lockstep with our operators combining disciplined operational oversight with their deep regional expertise to deliver measurable gains in occupancy and portfolio NOI. We are focused on driving higher lead to move-in conversion through the rollout of advanced CRM platforms, tighter and more coordinated procurement programs, the introduction of differentiated care levels to capture unmet demand and dynamic pricing strategies that directly capitalize on market-specific conditions. Our early engagement with these operators, many of whom are industry leaders reinforces our confidence in achieving our 2026 outlook. In addition to the operational opportunities within SHOP, we also have a healthy pipeline of ROI projects that provide an additional driver of earnings upside over the next several years. This will come through the repositioning of underutilized areas within our communities, including former and now closed skilled nursing wings where we can deploy a modest amount of capital to renovate and reopen these areas with the appropriate acuity needs. This initiative has the potential to add approximately 500 SHOP units of the portfolio that could deliver an unlevered mid-teens ROI. We look forward to sharing more details on this opportunity in the coming quarters. Turning to our Medical Office and Life Science portfolio. During the fourth quarter, we completed approximately 81,000 square feet of leasing at weighted average rents that were 7.9% above prior rents for the same space with an average term of over 8 years. Consolidated occupancy increased 460 basis points sequentially to 91.2%, primarily driven by the sales of vacant or low occupancy properties and leasing completed during the quarter. Same-property cash basis NOI increased 3.8% year-over-year, with margins improving 100 basis points to 59.6%. Looking ahead, 10.1% of annualized revenue in our Medical Office and Life Science portfolio scheduled to expire through 2026, of which 241,000 square feet or approximately 3.9% of annualized revenue is expected to vacate. Our leasing pipeline remains active, totaling 1 million square feet and reflects average lease terms of 6.9 years and GAAP rent spreads averaging more than 10%. Turning to our capital markets and balance sheet initiatives. As it relates to our disposition and deleveraging initiatives, we sold 37 noncore properties in the fourth quarter for approximately $250 million bringing the full year disposition to 69 properties for approximately $605 million. These proceeds were used to fully repay our senior secured zero-coupon bonds due in 2026, and we now have no debt maturities until 2028. Our deleveraging efforts in 2025 reduced net debt to adjusted EBITDA from 11.2x at year-end 2024, to 8.1x at the end of 2025. As we have previously noted, our near-term goal is targeted leverage levels of 6.5x to 7.5x. As of February 20, we were under agreement to sell 13 properties for $23 million. Following the completion of the sale and excluding normalized course capital recycling opportunities that may arise, we are substantially done with our large-scale disposition program. With the asset sales that have been completed over the past 2 years, combined with the significant investments we have made upgrading our communities, we expect to see a continued decline in our CapEx spend, as Anthony will discuss in more detail. Moving forward, dispositions will be on a more opportunistic basis with proceeds used to either reduce leverage or to redeploy into accretive initiatives. To conclude, demand for our SHOP communities is robust, supported by a growing 80-plus population and the outlook of new supply expected to remain muted for several years. Despite the strong gains in our share price in 2025 and 2026 to date, we still see additional share price upside as we deliver materially improving SHOP NOI and benefit from lower interest costs and reduced CapEx spend. It is our focus to continue delivering on the momentum of the past 2 years and to further drive shareholder value for our investors. With that, I will now turn the call over to Anthony. Anthony Paula: Thank you, Chris, and good morning, everyone. During the fourth quarter, our same property cash basis NOI was $70.4 million, representing a 15.4% increase year-over-year and 12.4% increase sequentially. Our fourth quarter SHOP same-property results include continued positive momentum in pricing with average monthly rate increasing 580 basis points year-over-year and 120 basis points sequentially. Same-property occupancy increased 90 basis points year-over-year. These increases resulted in year-over-year same-property SHOP revenue growth of 5.6%. Year-over-year, our same-property SHOP NOI margin increased by 230 basis points to 13.3%, driven by our growth in revenue. As Matt will highlight shortly, we expect that continued increases in revenue and occupancy on the expense moderation result in strong NOI margin growth in 2026. Turning to G&A expense. The fourth quarter amount includes $5.7 million of business management incentive fee. For the full year, we recognized an incentive to RMR of $17.9 million. This incentive was driven apart by DHC's total shareholder return of nearly 113% during 2025. Excluding the impact of the incentive fee, G&A expense would have been $7.1 million for the quarter. During the quarter, we invested approximately $37 million of capital, including $20 million into our SHOP communities and $17 million into our Medical Office and Life Science portfolio. For the full year, our capital spend totaled $146 million, which is on the low end of our guidance. We continue to focus on disciplined capital spending as evidenced by a $45 million or 23% reduction when compared to 2024. For 2026, we expect our full year recurring capital expenditures to range from $100 million to $115 million, which represents an over 18% decrease at the midpoint when compared to recurring capital expenditures in 2025. Our 2026 CapEx guidance includes $80 million to $90 million in our SHOP segment, and $20 million to $25 million for our Medical Office and Life Science properties, it is important to note that our SHOP recurring capital guidance includes approximately $10 million of refresh ROI capital. Now I'll turn the call over to Matt. Matthew Brown: Thanks, Anthony, and good morning, everyone. We ended the quarter with approximately $255 million of liquidity, including $105 million of unrestricted cash and $150 million available under our undrawn revolving credit facility. Subsequent to quarter end, we received a $27.2 million cash distribution from AlerisLife in connection with the wind-down of its business. In December, we redeemed the remaining balance on our 2026 zero-coupon bonds, which resulted in 45 collateral properties being released that have a gross book value of approximately $850 million. Following this redemption, we have a well-laddered debt maturity schedule with no maturities until 2028, allowing us to focus on operations. Our weighted average cash interest rate as of December 31 was 5.7%. Our net debt to adjusted EBITDAre declined materially from 11.2x at the beginning of 2025 to 8.1x while adjusted EBITDAre to interest expense improved from 1.1x to 1.5x over the course of the year. And based on our guidance, we expect year-end 2026 to be at or above 2x. We remain focused on further reducing our leverage, primarily by growing SHOP NOI, as well as completing the sale of 13 SHOP communities expected to close in March for $23 million. These 13 SHOP communities lost $1.2 million in the fourth quarter and $3 million for the full year. Our full year adjusted EBITDAre of $284 million was on the high end of our guidance range. For 2025, SHOP NOI was $139.3 million, which was at the high end of our increased guidance provided on our Q2 earnings call. Medical Office and Life Science NOI was $108.1 million, just above the midpoint of our guidance, and our triple net lease senior living community and wellness center NOI was $31.1 million, which exceeded our guidance. Looking ahead to 2026, we are confident that strong improvements in our SHOP segment and reduced debt from the execution of our 2025 strategic initiatives will drive free cash flow growth at DHC. For the full year, we are expecting NOI as follows. $175 million to $185 million in our SHOP segment, $94 million to $98 million in our Medical Office and Life Science segment, and $28 million to $30 million from our triple net leased senior living communities and wellness centers. It is important to note that the decline in our Medical Office and Life Science segment NOI is largely driven by the sale of 31 properties that contributed $12.3 million of NOI in 2025. In addition, the site decline in our triple net lease portfolio NOI is largely driven by the February 2025 sale of 18 triple-net leased senior living communities that contributed $1.7 million of NOI in 2025. We expect our 2026 adjusted EBITDAre to be between $290 million and $305 million and normalized FFO of $0.52 to $0.58 per share. To support the guidance provided on this call, we have added a new guidance slide to our quarterly earnings presentation, which can be found on Page 6. That concludes our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] And the first question will come from Michael Carroll with RBC Capital Markets. Michael Carroll: Chris, how should we think about the go-forward strategy from here? Can you provide some color on the opportunities to reopen the wings that you talked about at existing communities? I mean, how many units could this add to the portfolio? And what could be the expected cost from that? And should we think about that as being the main strategy on the external investment side? Christopher Bilotto: Yes. I mean, look, the main strategy is the continued unlock value proposition which is growing performance through operations. I mean, despite what we believe to be a really strong outlook for 2026. I think, collectively speaking, we believe we're still trailing kind of the benchmark and occupancy even at kind of the guidance occupancy provided. We know just based on kind of margins and where the portfolio will end up for 2026 that there's outsized potential to grow margins. Again, these are all kind of more organically opportunities. And I just want to emphasize we're laser-focused on continuing to kind of push in that direction, which will provide a healthy runway for the next several years. Specific to your question, as we think about kind of those wings, there's probably, give or take, 15 locations that we've identified that we're bullish on. I think through those, we probably can get in the neighborhood of close to 500 units, and we talked about mid-teens ROI supporting those. And so that -- that is going to be a function of over a period of time. That's not going to all happen in 2026. And I think the last part to your question, more specifically, is -- the cost is going to vary, but I think if we use kind of $125 million to $175 million per unit, that's probably kind of a decent kind of runway to consider. Again, still premature, but just kind of a benchmark to consider. Michael Carroll: That's helpful. And will external investments still kind of be focused on these types of renovations? I mean, how are you thinking about the acquisition market? Is just the renovation still just have a better risk-adjusted return versus pursuing future acquisitions? Christopher Bilotto: Certainly, we'll have a better risk-adjusted return for a couple of reasons. As you think about these kind of closed wings, mostly it's going to be to support new acuity. So for example, if we have a community that offers IL and AL, this is an opportunity to introduce memory care. And that just kind of adds for kind of the continuation of care in the community. And again, that's going to also support other drivers through kind of shared cost benefits, pushing rates at IL and AL given that you kind of have kind of the full package to offer. So it's kind of a rising tide list all boat scenario when you're investing in these wings. Look, we don't want to rule out the idea of looking at the acquisitions market, but at the same time, just want to temper that's not where our focus is today. Certainly, downstream, if we continue to see progress with the growth that we've outlined in 2026, and we think about capital recycling, we're selling kind of the assets we've noted, that could be a way to kind of support dipping our toe into the acquisition market. But again, there's a lot of opportunity embedded in what we have. So that will be kind of a priority we'll continue to address in the next couple of quarters. Michael Carroll: Okay. And then on the operating side, I mean, is there anything that's specific that drove the 4Q margin improvement? I mean, how much of that was driven by the transition disruptions just kind of dissipating versus core operational gains? Matthew Brown: It was a combination. Obviously, we had some transition noise more material in the third quarter. But as these operators are now getting in and rightsizing their cost structures, we definitely saw a little bit of a benefit in Q4 and would expect to continue seeing that as we move into 2026. Michael Carroll: Was there any specific costs in 4Q related to transitions? Or are those -- like this right now is a pretty good run rate to think about? Matthew Brown: It was a pretty small impact in the fourth quarter, nothing really material. So it's a decent run rate. Michael Carroll: Okay. And then just last one for me. Can you talk a little bit about the January and February trends, I guess, specifically, was there any impact related to the flu season? And then, what was the average of rent escalators that you're able to pass through or your operators are able to pass through to specific customers? Can you provide any color on that? Christopher Bilotto: Sure. I think for the rate, again, these -- the rate growth is going to happen sporadically over the year. We do typically have an outsized push in the beginning of the year, and this is primarily on the legacy Aleris properties. And that kind of rate range is 4% to 6%, which is consistent kind of with how we're thinking about the guidance for the year. But regarding kind of any impact with the flu season, nothing outsized. I mean, certainly, it's something that we deal with and we manage through each year. But there's nothing outsized relative to the portfolio, specifically on any impact or negative impact, if you will, with an outsized flu season. And we don't have February results fully in tow, but January looked promising and again, is in line kind of what our expectations are for the year. The one thing I would really highlight, it's going to take a little bit of time for these operators to kind of continue working through the transition. I mean, we've just completed transition properties literally at year-end last year. And so while some were done, let's call it, in kind of October, September, October, a lot are more weighted towards the back end of the year. So we should continue to see incremental benefit as they kind of get in and continue to work through the transition and the integration of their business models. But again, for January specifically, it's in line with some of the kind of the opportunistic views that we saw at the beginning of this in our overall guidance. Operator: [Operator Instructions] The next question will come from John Massocca with B. Riley. John Massocca: Maybe given some of your comments on some of these new operators continuing to get up to speed. As we think about the cadence of some of the NOI growth implied in guidance over the coming quarter? Should it be kind of back half of the year weighted then? Or is that maybe overstating the impact of timing for some of those transitions? Christopher Bilotto: I mean, when you kind of bifurcate where the growth is coming, you've got kind of 1/3 of that through occupancy and that specifically will happen over the course of the year and through kind of the sales season, if you will, which is kind of backloaded Q2 and into Q3. So for that portion, yes, we would expect that to flow through as time progresses. When you think about kind of RevPOR and the growth there, that's going to be a function of the rate increase. Again, we'll get a big piece of that in the beginning of the year combined with levels of care, which will likely take a little bit more time as they get integrated. So from a top line, it's kind of the blend of those two. From an expense side, it's going to be a little bit of benefit out of the gate. One of the benefits of transitioning these communities as we're getting kind of the much more targeted local regional penetration of staffing and getting the benefit of that flow through. But there's still some work that the operators are going to do with respect to bringing in kind of the right team at the local level or continuing to work with them to execute on the state of business plan, and that piece can take a little bit of time. So I think that's a long-winded way of saying there is definitely opportunity on the front end. And again -- and then there's going to be continued, I would say, outsized incremental opportunity as we get into mid and late in the year. John Massocca: Okay. And then just to kind of confirm, the 300 basis points of kind of occupancy growth in the guidance, is that kind of compared to 4Q end occupancy? Or is that kind of on the average occupancy over the course of 2025? Christopher Bilotto: The latter. So it's comparing kind of full year average occupancy to, again, the guide of full year average occupancy. John Massocca: Okay. And then as I think about kind of 4Q results compared to 3Q, was there anything driving the kind of sequential decline in overall rental revenue, but specifically kind of the SHOP rental income and resident fees other than just the asset sales that occurred over the 2H '25? Matthew Brown: I would say a little bit on the asset sales, but I think if anything, it may have just been more tempered towards the actual operations being transferred and maybe a slight slowdown in pushing revenue and such is really the only real driver. But a lot of that noise is now behind us, and we start with a clean slate in 2026. John Massocca: Okay. And then probably do the math myself to a certain extent. But when you think about the rev -- revenue -- the rent per room, sorry, and the RevPOR growth implied in guidance, what are you looking at there in terms of margin expansion kind of being implied with that over the course of '26? Christopher Bilotto: Yes. I mean, ultimately, if you kind of do the math, the flow-through, we would expect close to a couple of hundred basis points of margin improvement on a same-store basis. John Massocca: Okay. And then maybe moving on from the SHOP side of the business. As I think about the MOB and Life Science assets that have leases expiring in 2026, how do those look today? What do you think the prospects of renewal or releasing are? And is there potential for kind of rent roll-ups? Or how are you viewing those assets? Christopher Bilotto: Yes. I mean for the known vacates in '26, there's two primary tenants, ones with -- and they're both full building users, one is with the building in Minnesota, which represents about 1.9% of annualized revenue and another building is in Fremont, California that represents about 1% of annualized revenue. I think the building in Minnesota, look, we've got some early indications of interest. That's going to go from a single-tenant building likely to a multi-tenant building. And so that will need to play out a little bit. We do have some runway before that tenant leaves midyear. So there's still time to evaluate kind of the ultimate strategy there. For the building in Fremont, that tenant doesn't expire until Q4 of 2026. And that's a really strong R&D market for life science. And so much more healthier outlook and interest on that building. So I would say, overall, I think there's some promising outlook to re-lease both buildings, but kind of more tilted towards Fremont kind of being kind of the better of the two opportunities. John Massocca: Okay. And then I know you said dispositions are likely to be kind of selective and opportunistic. Would that kind of imply that they might be weighted more towards the MOB Life Science side of the business, just given the management transitions going on in SHOP. And I guess, if so, what does that market kind of look like today? Christopher Bilotto: Yes. I mean, I think to be transparent, we don't have anything specifically teed up. But I think to the point that if we were to consider additional sales, there's slightly more opportunity on the MOB Life Science given that we've sold a lot of SHOP and kind of got rid of the low-hanging fruit, if you will, in 2025 on what we're closing in Q1. But look, I think, generally speaking, we've seen success in being able to sell assets. I mean, if we're selling assets, it's likely those that are occupancy challenge or in need of capital, which is consistent with what we've been selling. And so we've -- I guess, it's proven that there's a market for that, given all the transactions we did last year, which was a mix of both stabilized and nonstabilized assets. And it's just going to be -- that the value is going to be relative to the situation. So again, without having anything specifically identified, it's a little bit hard to kind of dial into a specific strategy outcome. But nonetheless, I think we feel good about being able to transact. Operator: Next question will come from Michael Diana with Maxim Group. Michael Diana: What implications, if any, does your significant momentum have on the dividend? Matthew Brown: So we are -- we just came off of a very active 2025 for 2026. Our major focus is going to be around operations with these transitions. Clearly, with our guidance, we're expecting growth in NOI, growth in normalized FFO and adjusted EBITDA. It's something that our Board will consider, but no immediate priorities on addressing the dividend right now. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Chris Bilotto, President and Chief Executive Officer, for any closing remarks. Christopher Bilotto: Yes. Thank you for joining the call today. Please contact our Investor Relations team if you're interested in scheduling a call with DHC or meeting with management at the upcoming Citi conference. Operator, that concludes our call. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the FIBRA Prologis Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Alexandra, Head of Investor Relations. You may begin. Alexandra Violante: Thank you, Colby, and good morning, everyone. Welcome to our fourth quarter and full year 2025 earnings conference call. Before we begin our prepared remarks, please note that all information disclosed during this call is proprietary and all rights are reserved. This material is provided for informational purposes only and is not a solicitation of an offer to buy or sell any securities. Forward-looking statements made during this call are based on information available as of today. Our actual results, performance, prospects or opportunities may differ materially from those expressed in or implied by the forward-looking statements. Additionally, during this call, we may refer to certain nonaccounting financial measures. The company does not assume any obligations to update or revise any of these forward-looking statements in the future, whether as a result of new information, future events or otherwise, except as required by law. As is our practice, we had prepared supplementary materials that we may reference during the call as well. If you have not already done so, I will encourage you to visit our website at fibraprologis.com and download this material. On today's call, we will hear from Hector Ibarzabal, our CEO, who will discuss our strategy and market conditions; and Roberto Girault, our CFO, who will review results and guidance. Also joining us today is Federico Cantu, our Head of Operations. With that, it's my pleasure to hand the call over to Hector. Hector Ibarzabal: Thank you, Violante, and good morning, everyone. 2025 marked the first complete year with Terrafina fully reflected in our numbers. And once again, we delivered excellent performance. This year, we successfully acquired more than 99% of Terrafina. And last week, we completed its delisting fully aligned with our original plan. We issued our first international bond, achieving the tightest spread ever for FIBRA, a strong validation of our credit quality and balance sheet strength. We delivered solid operational and financial results, maintaining high occupancy levels and capturing meaningful rent growth on rollover. Jorge will provide further details shortly. Last quarter, we noted that if tariff uncertainty continues, companies would still need to move forward to serve their end market. That is exactly what we are seeing. Customers are maintaining and, in some cases, expanding their operations with an important long-term conviction. This is reflected in the strong retention we had for the full year, a weighted average lease term of over 5 years and an expansion driven leasing activity in Guadalajara, Reynosa and Monterrey. Mexico City and Guadalajara remain our strongest markets, supported by domestic consumption. We saw particularly strong activity from 3PLs, electronics, retail and e-commerce customers. In the border markets and Monterrey, demand remains concentrated in logistics, electronics, furniture and home goods. From an industry standpoint, new leasing activity totaled 11.9 million square feet up from 10 million last quarter and above the 8.6 million of the last 12 months. Mexico City led with an outstanding 6.1 million square feet while the rest of our markets performed broadly in line with recent averages. Net absorption reached 8.3 million square feet, slightly above the $8.1 million recorded in the third quarter as Tijuana returned to positive absorption. New supply remained elevated at 11.8 million square feet, primarily driven by Monterrey. This led to vacancy across our markets increasing 80 basis points to 6%. Construction starts declined to 6.7 million square feet with virtually no new starts in the border markets. Developers appear to be adjusting appropriately to current supply conditions, which should help rebalance markets going forward. In terms of rents, manufacturing markets experienced modest declines, while consumption-driven markets continue to post high single-digit annualized rent growth reinforcing the strength of domestic demand fundamentals. The path ahead may include volatility, but we remain constructive on Mexico's long-term outlook. The country's and strategic role within North America supply chain, combined with the structural nearshoring trends and resilient domestic consumption continues to support demand for high-quality logistics real estate. We remain focused on disciplined execution, maintaining a strong balance sheet and driving sustainable rent revenue growth. With that, I'll hand it over to Jorge. Jorge Girault: Thank you, Hector, and good morning, everyone. Despite regional uncertainties in the context of the USMCA, we delivered a strong quarter and an outstanding year. We grew earnings, maintain high occupancy and further strengthened our balance sheet. In December, we reached 99.8% ownership of Terrafina. And last February 18, we received authorization to cancel its CBFIs. Terrafina is now fully integrated into FIBRA Prologis. This will enhance our scale, liquidity and efficiency, generating synergies that benefit -- that will benefit our holders. Moving to our financial results. FFO was $94 million in the quarter and $376 million for the year or $0.2339 per certificate, up 20% year-over-year. This reflects the Terrafina acquisition and our ability to capture rent to market. AFFO totaled $64.4 million for the quarter and $307 million for the year, up 36%, a record and clear evidence of the strength of our platform. Let me go to the operational fundamentals. We leased 2.2 million square feet during the quarter. Our occupancy average and period end was approximately 97%, in line with expectations. Net effective rent change on rollover was almost 65% in the quarter and 59% for the last 12 months. Same-store cash NOI grew -- growth was 9.4% and GAAP almost 14%. This is a result of capturing markets and market rents as lease roll over, supported by annual escalation and stronger peso. Turning to the balance sheet. We continue to operate with a conservative financial profile. For example, late in '25 and early this year, we issued two $500 million international bonds. Both transactions priced below Mexico sovereign and were significantly oversubscribed, which marks an important milestone. I'm proud and humbled by these results. Not many publicly traded companies in Mexico have achieved something of this nature, certainly not in the FIBRA sector. Proceeds were used to refinance short-term debt and repay Terrafina's bond resulting in a debt neutral transaction. As a consequence, we're maintaining a healthy loan-to-value, extended debt maturities and preserve strong credit metrics. With Terrafina full integrated, we now have greater financial flexibility and enhanced liquidity while remaining disciplined on leverage. Moving to 2025 taxable distribution. Taxable income increased materially during 2025 due to inflation and FX appreciation. As a result, we distributed more than twice our guided amount. The guided portion was paid in cash and the remainder in kind through CBFIs, fully complying with FIBRA requirements. Now let me move to guidance. Looking ahead and based on current visibility, we expect year-end occupancy between 96.5% and 98.5%. Same-store cash NOI growth between 9% and 13%, annual CapEx between 10% and 12% of NOI. G&A expense between $65 million and $70 million. Full year FFO per CBFI to be between $0.24 and $0.26. We are setting our guided distribution per CBFI at $0.17 which represents more than a 13% increase when compared to our 2025 dividend guidance. We expect $200 million to $500 million in acquisitions while maintaining balance sheet discipline. On the disposition front, we will continue to execute our strategy by exiting noncore markets on our own terms and at the right time. As a result, we will not provide guidance on disposition. I want to emphasize that our strategy remains clear. We are focused on delivering long-term value, executing with discipline and leveraging our position as Mexico's largest industrial FIBRA by market capitalization, supported by a strong balance sheet and world-class platform. I want to thank our teams on the ground and across Prologis for exceptional work on strengthening the balance sheet while maintaining operational excellence. I'll now pass it to Hector for closing remarks. Hector Ibarzabal: Before closing, I would like to address our previously announced management succession. As you know, in early January, we announced my retirement as CEO of FIBRA Prologis, effective June 30. Jorge, our current CFO, will assume the role of CEO. This succession plan has been thoughtfully developed over time, and I have full confidence in his leadership, strategic clarity and deep understanding of our business. Alexandra, currently our Head of Investor Relations, will step into the CFO role. She brings a strong financial expertise and capital markets experience, ensuring continuity and discipline in our financial management. This transition reflects the depth of our team and the strength of our organization. You should expect seamless execution and continuous focus on long-term value creation. Finally, I want to thank our team, our customers and our shareholders for their continued trust and partnership. It has been an honor to lead this company, and I remain fully confident in its future. Now let me open the floor for Q&A. Operator, please go ahead. Operator: [Operator Instructions] Your first question comes from Adrian Huerta with JPMorgan. Adrian Huerta: Hector, best wishes on whatever you do, and thank you very much for all these years -- in the future and congrats on the rest of the team. For Jorge and Alexandra. My question has to do with the maintenance cost. We saw a large increase in the quarter and overall in the year, they were significantly higher than what they were in 2024. Any color on this line and what we should expect going forward? Federico Cantú: Adrian, this is Federico Cantu. Thank you for your question. So if you look at the numbers, we had increases in operating and maintenance costs, primarily driven to -- by inflation and wage increases. We also had property taxes increase, which are noncontrollable. If you look at for the full year, we came out at 87%, and we expect going forward to be in terms of our NOI margin between mid-80s to upper 80s in terms of margin. Operator: Your next question comes from Pablo Ricalde with Itau. Pablo Ricalde Martinez: I have 1 question on the CapEx line. We saw -- I think this quarter. I did want to see how should we see that line going forward? I know there was an issue with the core assets and assets related to Terrafina, but I just want to understand further how should this line going forward. Federico Cantú: Okay. So thank you, Pablo, for your question. This is Federico. So we did have, towards the end of the year, a catch-up in the property improvement investments, plus we had higher TIs and leasing commissions, primarily driven by increased leasing activity in the second half of the year. However, I'd like to encourage you to look at the full year, the trailing fourth quarter average, which came out to 10.7%, which is in line with our expectations. Operator: Your next question comes from the line of Andre Zini with Citigroup. André Mazini: Yes. Congrats Jorge and Ale on the new roles and Hector, I know we have at least 1 more earnings call but really hope to keep interacting after that. So the question is on the geographical breakdown of the $200 million to $500 million acquisition guidance, if you could pretty much guide us to where you think you're going to be deploying this capital in terms of geography, maybe the recent events around Guadalajara and that region change anything? And is the breakdown in manufacturing in logistics. And in this point, given all the trade volatility, is it fair to say that you guys are more excited with logistics over manufacturing or not necessarily? Hector Ibarzabal: Thank you very much, Andre. Going forward, as you know, we have full visibility to -- about what PLD is developing. The most important market today, as I mentioned, in my opening remarks, is Mexico City, where, by the way, and it's not a coincidence, we have our largest exposure. So most of the opportunities are coming from Mexico City market, particularly in Toluca, where we are having a very successful development going on. Talking about the future, I'm very comfortable because the sentiment that we received from our customers in the border is not negative. Our customers keep on operating business as usual. There's very isolated cases of companies shutting down, but that's far away from being a trend. I would highlight that most of our customers are expecting positive news by the end of the second quarter on the USMCA renegotiation, but the leading companies are already commencing to start operations, understanding that uncertainty on this regard might be a constant going forward. So we are very positive about the fundamentals. The fundamentals is still very solid. And the conversations that we have with the authorities make us be optimistic as well on a final resolution. Guadalajara is a market that we like a lot. And it's a market where we are focusing potential future acquisitions. Federico Cantú: Just if I may add, to your question, Andre about manufacturing and logistics. So if you think about our business, roughly half of it is manufacturing, half is logistics. During last year, we had about 1/3 of our transactions for manufacturing and 2/3 logistics. And bear in mind that we design our buildings to be agnostic so we can have our users, our customers use them for logistics or manufacturing and so we like them both, and we feel very positive going forward on both sectors. Operator: Your next question comes from the line of David Soto with Scotiabank. David Soto Soto: Just a quick one regarding to your acquisition guidance. Should we expect a larger share of the transaction to come from third-party acquisitions? Or should we expect a higher portion from your parent company? Hector Ibarzabal: Thank you, David. We have much better visibility to what is happening on what PLD is developing and we know for sure what is going to be happening on that regard. On the third-party front, we are permanently looking for our potential opportunity that would help us to create value. When we buy from third parties, it's not the objective of trying to be bigger or trying to have a higher penetration. When we buy from third parties it is because we are positive that with that acquisition, we will be creating value. In other words, we buy high-quality real estate and such quality of real estate need to be at the right price in order to be something of our target investments. For us, it's always the most difficult part of our guidance, try to anticipate how many of these opportunities are going to be finalizing on FIBRA Prologis. But we are positive because we know for sure the different opportunities that will be out of the market and understanding the low cost of capital and the very precise view that we have on the potential behavior of our markets going forward, we feel positive that we will be able to land some of those opportunities with us. Operator: Your next question comes from the line of Jorel Guilloty with Goldman Sachs. Wilfredo Jorel Guilloty: So I wanted to focus on the acquisition and disposition guidance. So just to understand you have $200 million to $500 million in acquisition guidance, but you have 0 for disposition. So I was wondering, what makes 2026 more of an acquisition market year for you versus a selling market for you? Is it that there's more attractive acquisition pricing versus disposition? Is it due to, I guess, better visibility of what's coming to market from potential sellers versus the possibility of buyers. Just trying to understand why you have -- which is quite different from where we were, I guess, at the very beginning of last year, where we have an acquisition disposition guidance that was sort of balanced out. Hector Ibarzabal: Yes. Thank you, Jorel. And let me start by the disposition front. As I mentioned in my opening remarks, this is the full year where we have all the numbers in Terrafina incorporated in our P&L. I need to mention that it's not a surprise, but we are very pleased with the performance that such assets has -- they have had with us. The disposition portfolio that we have has importantly increased above 30% on all the renewals that we have had, and its vacancy has been above what we were expecting. We tried to launch the first dispo portfolio last year, and I think that we learn a lot from that process. Our dispo strategy is more regional and being a regional strategy, we need to do a better job on sizing such portfolios. In other words, we are positive about the quality of the properties that we are selling. Number two, we have no urgency to sell those properties because we know today better than ever the quality and the value that those properties have. This is why we are not guiding on dispositions. We will sell the properties at the right timing and in the right conditions. And in the meantime, it's going to be positive for a P&L to keep those assets on board. We are showing that we have good performance on operating those properties, and we will keep on doing them until we reach the right conditions in order to sell them. Talking about acquisitions, through PLD, we have full visibility on replacement costs as of today, and we have full visibility as well on market trend conditions. We have very strong information about the forecast that we do see on market threats. The combination of all these with a low cost of capital, allow us to be a very competitive buyer for the different opportunities that might arise in the market. We anticipate that there's going to be 3 or potentially 4 different sectors that are going to be getting maturity on this year and some of they have interesting properties that eventually we will be analyzing and if we reach the right price and the right conditions, we will be executing on them. Operator: Your next question comes from the line of [ Jorge Vargas ] with GBM. Unknown Analyst: Thank you for the call. You achieved nearly 40% rental spreads in the quarter, with vacancy trending upwards and rent growth moderating, what is a sustainable spread assumption for 2026 and 2027. Jorge Girault: Thank you, Jorge, this is Jorge Girault. Your question, if I heard it right, I have to do with late spreads for '26. That was your question. We don't guide on -- necessarily on rent spreads. What we tell you is where our mark-to-market is today. And you're right, in some market trends have come down, but we still have a nice spread in those mark-to-market spread. Overall, for the whole portfolio on a weighted average basis is around 40%, a little bit less than that, but we feel comfortable to capture that spread during 2026. What will be? It depends on the market, the tenor of the contract, et cetera. But the short answer to your question is we will have -- we do see a nice mark-to-market lease roll during 2026. Federico Cantú: And if I may add, just would like to highlight the remarkable job that our teams on the ground do every day and taking advantage of our location, the quality of our properties, the quality of our service as well and making sure that we're marking to market and then we're capturing the highest value -- providing the highest value for our customers. So that is something that we'll continue to do. And we expect, despite the challenges in some of our markets to be able to capture good leasing spreads. Operator: Your next question comes from the line of Alan Macias with Bank of America. Alan Macias: Congratulations for the new positions. Just on funding for acquisitions, what should we be thinking about what level adjusted FFO payout ratio? And what leverage target would you be willing to reach if you do not do any dispositions of assets during the year? Jorge Girault: This is Jorge. Look, what we have said in the past is our loan-to-value, our feeling, it would be 35%. Right now, we're in the mid 20. We have just above $1 billion of capacity on the line. We still have $1 billion. We will use the line for any acquisitions that may come during the year. And we have many levers to pull down the road. If we do some dispositions, obviously, we can use part of those proceeds to do these acquisitions. So there are many levers. I can tell you that the balance sheet has the liquidity and the strength today to take care of at least the guidance that we have in place. Operator: [Operator Instructions] And with no further questions in queue, I'd like to turn the conference back over to Hector Ibarzabal, CEO, for closing remarks. Hector Ibarzabal: Thank you very much, everyone, for your time devoted to our call this morning. I am very excited about what we have achieved so far, and I'm convinced that the best is yet to come. Our current foundation will bring amazing opportunities going forward. Rest assured that we will remain focused on creating value for our investors. Talk to you in the next opportunity. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Dominik Prokop: Ladies and gentlemen, may I welcome everyone cordially. My name is Dominik Prokop. I represent the Investment (sic) [ Investor ] Relations department. This is a conference devoted to results of the fourth quarter as well as the whole of 2025. The first part of the meeting will be devoted to the results of the bank as well as the trends. And this will be headed by the President, Piotr Zabski, who will sum up the most important trends and will tell us about the results in the business area. We will have also Marcin Ciszewski, who will present the risk; and Zdzislaw Wojtera, our Deputy President, who will tell us about finance. After the presentations, we will then have a Q&A session. Before I hand over to President, Zabski, let me encourage all of you who are listening to us to ask questions already in the first part of the presentation, which will enable us to smoothly continue with the Q&A. That is all from me. I hand over to President, Zabski. Piotr Zabski: Ladies and gentlemen, good morning. May I welcome everyone cordially at the results publication. The Supervisory Board approved our financial statement yesterday. So we can tell you about what has happened in the fourth quarter of 2025, but also in the whole of 2025. So there will be a lot of figures devoted both to the fourth quarter and the whole of the year. It is a special moment for us because this is the first full year when we can present the results, which we had forecast and delivered, which you will see in a moment. But it's also a very good stage for our development, we are in the new headquarters of our bank. There was a move to the new headquarters in September, and this is the first conference in this new beautiful headquarters, Varso Tower. Moving on to the bank results. Let me point to some important aspects. In the fourth quarter, as far as revenues are concerned, we had a very good result, almost PLN 1.5 billion revenues, PLN 1.26 billion is in interest income, which is by 4% less year-on-year. But if we compare the quarters -- if you compare the quarters, but the commission income is very good, PLN 240 million, which is by 9% higher than the fourth quarter of the previous year. And so the revenues of the whole year reached PLN 6 billion for 2025, which was forecasted in our strategy. There was a great contribution in the new sales. The interest income is PLN 5.13 billion, 1% drop year-on-year. Obviously, there was a drop in interest rates, and that translates into this decreased results by the commission income for 2025 is by 4% higher and translates into PLN 900 million. Net profit in the fourth quarter is PLN 688 million by 12% higher than the previous quarter -- the previous year's quarter, so quarter-on-quarter, and PLN 2.35 billion (sic) [ PLN 2.37 billion ] net profit for 2025, which is a decrease by 3%, which we consider a good result considering the interest rate drops. This was delivered in very high ROE ratios, 21.7% in the fourth quarter and 19.6% for the whole of 2025. We forecast 18%, if you may remember. In the lower left-hand corner, a number of good details. We continue the drop trajectory in our cost of risk ratios and the drop in our NPL ratio. The cost of risk quarter-on-quarter is below 1 percentage point and 0.13 percentage points drop for 2025. So another good year when we improved the ratios there. And the NPL ratio today is a very important element of our dividend decision. That is 5.64%. Our promise and the strategy is, therefore, continued. We plan to go down below 5% of the NPL ratio. We will hear later about the significance of that particular drop. As far as customer relations are concerned, we keep growing. The relational customers are now 1.7 million. We kept selling more, but we had a considerable churn, which will later be commented upon. There were individual promotional activities finished and some of the customers moved to other banks. We put a lot of stress on relational customers, and we grew there by 107,000 customers. As for mobile app users, there was a considerable growth, the fastest growth in the sector, 17%. There was an improvement in our application where we were able to offer it as a product to the customers at a more professional level. The sales, which were considerable and improved our results, was PLN 8 billion in the fourth quarter '25, which was an increase of 12% year-on-year. In the whole of the 2025, there was a growth of 17%. Together with the leasing sales, it was about 20%, which is very good because our promise of growth is, therefore, materializing. What is also crucial is how to deal with the churn, but that is the task for this current year. There's been a growth in the deposit portfolio. We grew alongside the market at the level of about 7% year-on-year. The value of our portfolio at the end of the year was PLN 82.6 billion. What is worth noting is that it's been a very good quarter in early leasing, the fourth quarter. But the whole of the year was good as far as the leasing activity is concerned. For the business customer, the leasing product is our flagship product, especially for small- and medium-sized enterprises. PLN 7.2 billion is the portfolio, which is 9% growth year-on-year. In the fourth quarter, we had 14% growth year-on-year. We are not present in all the segments, mind you. So this is especially good in that context. Now a few bits of information which may be new to you. What is of paramount importance? We are now part of the top tier as far as financing, like I said, we are above PLN 100 billion, which is a growth of 9% of our assets year-on-year. The working loans translates into 5% growth and a 7% growth in deposits, which is PLN 82.6 billion. And as I already mentioned, PLN 1.1 billion in assets. As for our other figures, we show you in the first line, the fourth quarter compared to the fourth quarter of the previous year. Cost-to-income ratio around 38% annually and quarterly, the costs have grown. Zdzislaw will refer to that later. As for the NIM ratio in the fourth quarter, the lower interest rate translates into this result, but we have 5.38% level. And as for ROE, I already mentioned a very good result above our strategic forecast. As for cost of risk, not 0.29% and 0.49% for the whole of the year. So there's been an improvement in each of these indices. As for the capital, we are at the level where we can be confident in developing our scale and the NPL 5.64%. So our promise has been delivered. We want to be a dividend bank. We want to be able to pay even more than 50% of our income, but we would have to go below 5%. Marcin will tell you about that later. Now a few words about the customer side, 107,000 new customers, 240,000 mobile app. New users, about 5% of the mobile app users are banking with us. We are catching up on the slightly worse results in the previous stages in a very dynamic way. Now a few words about what is happening on the deposit side. This is top left-hand corner. The structure of our assets of retail customers is presented there. There's been a growth of 13% across the year in all the constituent parts of this portfolio, which makes us very happy. We're happy to see the investment funds grow because this is a considerable part of our commission revenue. And investments, as you can see, are also going up. On the right-hand side, you can see the gross loans to retail customers divided into the consumer loans and the real estate loans, both the guaranteed and non-guaranteed ones. In the fourth quarter, you can see that there was almost a parity as regards both the guaranteed and non-guaranteed loans with an increase on the side of the real estate loans, the longer tenor guaranteed loans, but with lower risk and greater markup. So we are slightly changing the product mix in our portfolio in the direction of the better products with lower levels of risk. At the bottom, you can see the loans which are shown in the dark red color in the top slide. There's been a growth of 14% in the non-mortgage loans to retail customers. That is the growth of sales, not of the portfolio. The both parts the cash loans and the consumer finance behave according to our forecast. What I would like to comment on is the right-hand side bottom corner, the growth in the mortgage loans, 36% growth of sales year-on-year. If you consider that 2024 saw 1/4, as far as I remember, of the sales on the BIK A2 if we decrease that, then the increase would be almost twofold. We increased the sales by 100%, and we keep growing it quarter-on-quarter. Our share is higher than it would seem from the analysis of our share in the whole of the loans balance in the sector. What I mentioned previously is the importance of the mobile customer. We have a new application, which is going very smoothly. It does not crash. There is easy access to all the features. There's been a great improvement there. The assessment of the customers is very positive, as you can see. So we are improving the -- as far as the application is concerned. As regards to the business customer, let me focus on this. Now in the top left-hand corner, you can see that there's been a drop by 5% in the portfolio size, but a few words of explanation are on order. In this particular portfolio, we have the micro segment and small, medium-sized and large companies. As for the micro sector, this will keep growing because we have the largest NPL ratio there, and we have to get rid of that portfolio, which we are doing step by step. So this part is decreasing definitely. And the difference as regards to the sales is about 32% drop year-on-year. At the same time, we keep improving in the segments where we are a good player, where we are confident and competent in the medium -- small and medium-sized enterprise. And there's been a growth of 32% there. So if you consider that we are getting rid of what's in the top right-hand corner of the nonworking, nonperforming portfolio. And if you put all these together, plus the new sales, which has grown by 40%, has not yet translated into the growth of the whole portfolio. So in the middle of that portfolio, there are all kinds of things happening, sometimes contradictory in different segments, different things are happening, but we hope that the trend will reverse and the small and medium-sized companies is not the segment where we will see the huge increases, which in previous stages saw an increased level of risk. So this time has passed. For our business customers, they've got deposits here, 3% increase year-on-year. We are especially happy about the fund of a new system that we have launched as far as IT is concerned, very much focused on our mobile app, has been taken advantage of vastly by our customers. So our customers do their banking online, in the digital channels, which is something that make us very content about. Now leasing is our response to the needs of micro customers, but also given the fact that the banking sector may also ensure funding to micro companies that have been there for less than 2 years. Leasing is a very nice response, 9% increase year-on-year. As far as the sales go, 13% in quarter 4 [indiscernible] and 14%. So this portfolio has increased by 9 percentage points. We do not play on all the segments. We only service most promising sector that is the light vehicles. Light vehicles is not our specialization. Machinery and heavy-duty vehicles is where we have most competence. This is where we keep growing, and this is our response, manifesting how we can secure it and grow in the business sector. So much for a very short commentary to rather general results of the bank. And now Marcin will tell you more about the risks. Marcin Ciszewski: Piotr, thank you very much indeed. I welcome you all. What is our capital standing of the bank? It is very safe and sound in T1 and TCR. The ratios are 17 -- 73 which makes us having a nice buffer regulatory minimums. And this gets translated in PLN -- into PLN 4.8 billion. And we are very consistent in our operations. We issue further installments of bonds. The year was closed at 21.43%, 257 bps higher compared to the regulatory minimum that is imposed on the Alior Bank Group. For the liquidity indicators, long-term and short-term liquidity ratios are equally safe and sound, exceeding regulatory minimums at a safe level, 245% and 49% for the other ratio. As Piotr has already told you, our assessment is this. We very much comply with the requirements that enable to have a distribution of 50% dividend, and we are awaiting other orders, no decisions have been taken as of now. To make a reference to what Piotr has said already, this slide stands to reflect the way we manage risk, both with regard to core as well as NPL ratio. CoR was standing at 0.49%. So this is yet another period, consecutive period we've been dropping this particular index. And please pay attention. This index is very much impacted by the sales of other portfolios like performing loans. This is one of the constituents that is taken advantage of as far as cleaning the portfolio is concerned. And we do clean it in terms of sales. And at the same time, we have managed to maintain our directional CoR that we have otherwise shaped the level, not exceeding 0.8%. And as I have already said, we are very much pursuing our strategy, our operations, which targets at nonperforming ratio at a level below 5% threshold. Our strategy says this particular ratio towards the end of the year will get below the 5% level. So we keep pursuing this path, and we will manage to decrease the set index below the level of 5% beyond by the end of this year. Gradual improvement of the quality of the loan portfolio, PLN 3.6 billion, that's the final value of the year as we discussed at our previous conference. Towards the end of quarter 3, we had one substantial default in our sector of business customers. But in spite of all that factor, there's been a further decrease of nonperforming loans. NPL ratio for retail customers. Well, it stand very confident level, especially when it comes to business customers are concerned, still, there is a lot of work to be done in the micro segment because that respective index is still 2 digit. On the right-hand side, top of the page, we can see what was happening in quarter 3 and 4. NPL sale affected significantly the level in quarter 3 and 4, respectively. You may want to see the level of CoR, which has been generated on our end without one-offs. That would be relevant to mention. And now Zdzislaw will hand -- will take the floor. Zdzislaw Wojtera: Thanks a lot. Now it is my time to discuss the financial results. Let us first look at our revenue side between 2024 and 2023, 1% drop, PLN 49 million. So we have managed to maneuver well in the environment of decreasing interest rates and significant costs very well indeed because the revenues are well comparable between 2024 as well as 2025. The commentary from [indiscernible] development of our business volumes made us capable of compensating the decrease of index rates by the growth of business. Let us now have a look at our growth. There is a drop of 3%, yet these quantities are where comparable between 2024 and 2025. So we must consider 3 factors, indeed, one of them being interest rate cuts. Secondly, BFG costs decreasing. And third, a one-off event that is tax asset. The impact of the revaluation of the net tax asset, I will discuss it further. Quarter 4 2024, 2025, if we put them all together in 2024, we accounted the cost from the whole 2024, whereas as regards to 2025, I will show it to you in the next slide, we cared that there is a linear growth materializing. So this basically explains the difference of 13% between quarter 4 2024 when compared to quarter 4 of 2025. Now let me discuss in detail our income statement. The first column that you see marked in yellow, these are quarterly results, which have already been well commented by Piotr. Now please bear in mind a stable interest result. There's been a stability because in quarter 3 already, we have reflected all the impact of the interest rate cuts to reserve positions that I would like to comment on. One concerning free of charge credit sanctions. So there has been a reserve in quarter 3. And the difference is the outcome of the change of the quantity of cases that come in and also our model approach is taken into consideration, but this isn't troubling by any means. Another position, EUR 50 million cost of risk of mortgages in foreign currencies that is in euro, [ EUR 50,151 ] million in the whole of 2025. So we are screening every senior for both these positions that is the sanctions and mortgages in foreign currencies to be manifesting a conservative stance so that the whole of the risk against -- reflected in the relevant manner. We had 110 more court cases. There's been a growth in this respect. This isn't significant. However, I wouldn't expect any increase in the current year. I suspect we should talk about the quantities that will be lower when compared to 2025 as regards to the reserve. Tax assets, that is income tax, there has been a substantial difference, especially if you pay attention to in quarters 3 and 4 here, there's been a plus paradoxically enough. But there's been a discussion on that by other colleagues of mine. So there's been the introduction of tax as of January this year. Therefore, we must do other estimates based on another interest rate PLN 9.5 million on the plus side that was accounted for in quarter 3. Yearly results are pretty solid on the interest rate side and loans side. Marcin was already speaking about that EUR 2.337 billion, a very solid closing of the year, including all the factors that Piotr was speaking at length about. Now let me move on to yet another look at our costs and interest costs. This comes as no surprise, especially if you consider the medium part of the graph. Our quarterly statements manifest a decrease of 10%, stemming from lower interest rates, 22% on the side of the interest costs. By and large, it gets reflected in our decrease of our margin, interest rate margin. It used to be 6%. Now it got lower to 5.38%. Please note the impact of the low interest rates. That is number one factor, but there is also another factor that is a change in structure of our statement, which is the product of us selling other products that is mortgages. If we get back in time mortgages, given interest rates reality, well, the margin was pretty high, but the mortgages are being sold more dynamically. They've got other profit characteristics and therefore, the margin has been a little bit more sluggish. So the margin is very impactful as regards to the margin that you will get to see in quarter 4 2025 on the one hand, but on the other hand, if you have a long-term perspective, we are building up a very stable portfolio of revenues in the longer time horizon for the bank. So the whole banking industry has been learning lessons around the ease of mortgages. This has been included in our contracts and all the clauses which are relevant. This is precisely how we wanted to mirror also the guidelines of the Polish Financial Supervision Authority. So our portfolio is this. It is looking into a longer time horizon. So my take is it is a very positive trend. The very interest rate profit, it has dropped by 2%. Also taking into consideration the credit [indiscernible] that happened in 2024 is by no way surprising because this is clearly our response to the result of interest rates given the dropping of the interest rates. Now about commission as you look at the first quarter and results concerning the first quarter. And there were questions about this would not be our case here and whether we will manage in the subsequent quarters. We said, yes, we will want to improve it. And here, you can see the result of our activities. If you take year-on-year results, you see that there has been an improvement by 9% in the commission income. And the source of that income is also important. It stems from the activity of retail customers and the activity of customers who use different products of Alior Bank, but also the brokerage commission, which stems from the activity of our customers, the development of our TFI participation in investment funds, the individual advisory services to customers. All this has translated into these improvements and these activities will certainly be continued. There's been stabilization of operating expenses in 2025. We are quite happy that we managed to optimize the operating costs of the bank. If we deduct the BFG costs and focus on the Alior Bank internal costs, the costs have grown by 5%, which is below what I had communicated a few quarters before. We talked about 6% to 7%, but we've managed to keep it at the level of 5%. So that's a very good result. Another important element, which I want to draw your attention to and which was also forecast by us, we wanted the growth to be foreseeable and comparable and we've delivered that aspect. If you look at the first quarter, we see a one-off BFG cost there. There was a one-off event which affected the raise. But other positions are quite well comparable, and we will keep maintaining the cost discipline so that they can be compared quarter-to-quarter. I am convinced that we'll be able to continue with that in 2026. And we want to have the rise of costs even below the 5%. The cost/income ratio is very good, 37.9%. And the quarterly ratio and 39% in the annual result. So that is also a good indicator for the development and for the cost structure of Alior Bank. And I hand over to Piotr. Piotr Zabski: Thank you, gentlemen. Just to sum it up, I would like to say that our business agenda, the one that we've addressed in our strategy is working according to our expectations. We announced 3 pillars in our strategy that we want to focus on. And they are connected strongly to the development of the bank. The first one is the growth of scale, entering the top tier, PLN 100 billion, a leader in consumer finance. We are definitely a leader there. No one is ahead of us as yet. We keep growing in relationship customers. That's our focus, 107,000 new customers. There's been a certain level of churn, which we are struggling with. But the rise in the transactional ROIs, a record growth in sales by 17%. If we divide the BFG, it's almost 20% of growth, especially driven by the consumer -- by the mortgage loans. Deposits are growing. So the scale is materializing and the figures speak for themselves. The second pillar is the high resilience. I want to focus on the change of structure of our balance sheet. We go toward long-term loans, which are guaranteed rather than the non-guaranteed at a lower margin level, but they bring a lot of stability to our portfolio. But we are not slowing down as far as consumer finances is concerned. We are a leader there. We are experiencing very good sales, high margins, low risk. As far as the business customer is concerned, we keep growing in the segments in which we are confident and competent as far as micro enterprises are concerned and where we are not able to finance the loans. We have a leasing offer, which is also growing in a very stable way. Coming back to the resilience, the commission result is very good. It keeps growing. There's also a growth in terms of income from investments, which is seen in the market in general after a certain period of stagnation. And we are also more resilient technologically. Our systems have considerably improved compared to the previous periods. The mobile app is very stable. The accessibility of the service remains at a very high level. And the third pillar that we mentioned in the strategy is the operational excellence. What I want to stress in this regard is that we are changing in terms of technologies. We are becoming an advanced business. We're introducing a new app, both on the retail and the business customer side. We are also developing the agile model, AI coded and the whole organization, all the employees of our headquarters are now able to work in the agile system, which we have scaled up this year, and we work in the system, which brings concrete results. A very strong cost discipline. After the BFG deduction, the 5% cost growth compared to the whole of the sector places us in a very good position. The costs are well managed by us in a foreseeable way even in the quarter-on-quarter results. We don't have the volatility, the ups and downs that we used to have. The risk and the figures that Marcin mentioned speak for themselves. All the graphs, the results show a very good trajectory. There are very good results. We improved the risk situation. We want to get below the 5% ratio in the NPL, which will allow us to pay out a 75% dividend. We improved the KNF ratios. We are waiting for the individual decision regarding the dividend for 2025. But that will take some more time. And all this has brought us to the results that we have, the revenue above PLN 6 billion, net profits PLN 2.5 billion, a very good indexes of cost to income and cost of risk and NPL 5.6%. That is all a very good result in the environment of low or definitely lower interest rates. They went down at a faster rate than we forecast. So it means that our business strategy is working, and I want to take this opportunity to thank all the employees for this excellent result. And thank you for the dedication, for the effort and for working together to develop the Alior value, which we have described to you. That is all as far as the formal side is concerned, and I believe we can now move on to the Q&A session. Dominik Prokop: Thank you very much. So we can now start with questions. The first question, what was the impact of the NPL sale on the fourth quarter 2025? Marcin Ciszewski: In the fourth quarter, we recognized a sale of the second important portfolio that was sold in the previous year. In the fourth quarter, the income from that sale was PLN 110 million. Dominik Prokop: Thank you. The next question to Marcin. What sensitivity to interest rate changes can be expected after 2025? What is the current SOT ratio and the NII sensitivity to a rate cut by 100 points? Marcin Ciszewski: Well, as you realize, when interest rates are going down, there is a greater pressure to manage that particular ratio. We assume in our plans that this particular ratio will be maintained at the regulatory level. At the end of the year, we assume that it will be at the level of 4.5% in T1. And as regards the sensitivity, which was mentioned in the question, 100 bps should have an impact of PLN 120 million. Dominik Prokop: Thank you very much. And the next question about the dynamics of the loan portfolio in 2026. What do you expect? And is there a possibility of an increase in the business sector? Piotr Zabski: Let me start with the retail customer. We expect a positive dynamic as concerns consumer loans. The increase that we forecast not necessarily in the installment loans because there's a trend that we need to grapple with. But as far as mortgage loans are concerned, there will be a definite increase. And as far as the corporate sector is concerned, we have sold more year-on-year, but we need to see what's happening within the corporate sector portfolio. I already mentioned that in the micro enterprises, we have a considerable debt to be paid off. In the small and medium-sized companies, we are growing. As far as the leasing sector is concerned, there's a considerable growth of 16% year-on-year. So in the corporate sector, yes, there will be growth, the growth in the sectors where we are a good player. We want to grow in the micro sector as well, but in a safe way so that we don't experience the kind of crisis that we have as regards to risk and the debt that we keep having paying off still today. The large deals that are more and more present in the Polish market, we will certainly see our presence. But considering our scale, this is not our core activity. Dominik Prokop: Thank you. The question about the free loan sanction. What trends can be expected in the SKD sector? Can we expect that the target reserve level will represent 100%? Piotr Zabski: Well, I think Zdzislaw would be able to comment on that. SKD is a problem of all the sectors, including us, of course. We recognize the dynamic and want to reflect it in our reserve structure. Will it be 100%? Well, I don't think that SKD goes the same way that the French -- the Swiss franc loans because the regulatory authorities have taken this seriously on board. And I believe that the new law, which is being worked on and the Office of Consumer Protection will not translate into a modus operandi for all kinds of cowboy companies, legal firms, which are really the real beneficiary for this solution. And as far as the reserves are concerned, we want to reflect them in our books. Zdzislaw Wojtera: Indeed, for the model, it is impacted by 2 factors that is the incoming clashes and the number of cases that will get lost. The majority of cases is where we are, on the winning side. So if we look from that perspective, we don't see the need to create any further reserves or increase that often in 2026. Our point of assumption is much is going to be determined by the European Court of Justice. So we believe the trends we have spotted already are rather positive, and they have only gotten confirmed in the court adjudications, that is the bank expecting more -- the sustaining trend in the currency portfolio. In 2025, we had a rather conservative stance, but we don't think, given the number of cases which are coming in and the recent trends that we would have to create at the same level of reserve. It'll be smaller compared to 2025 in the current year. Dominik Prokop: Another question on the value of NPL portfolio. How much of that are balance positions and nonbalance positions? Marcin Ciszewski: As I said beforehand, this is one of major components as far as the whole management of NPL goes. I do not have at hand, however, so -- such details. We do not disclose this kind of detail. Dominik Prokop: Another question. The churn of Alior Bank customers, is it in any way different to the market average? And if so, where does that difference stem from? And how is the bank planning to manage, to cope with the churn? Piotr Zabski: Our difference is by no means different to the market average. Our customers, by and large, are not only loyal to one bank only. Most of our customers, except for the youngest ones have accounts in other banks. So the churn stands where it does. It is by no means satisfactory to us. However, what I stressed was certain marketing campaigns that we launched in 2024. They have already been brought to a close, resulting in the outflux of customers. The activity as I said was already concluded. What we did in 2025 does not come with this particular risk. But the impact was eventually be seen in 2024. Dominik Prokop: Than you. We will ask another question on the value of the mortgage currency portfolio towards the end of 2024 and 2025, respectively. What are the statistics of the legal actions here? Zdzislaw Wojtera: Towards the end of 2024, we had PLN 39 million gross value of Swiss franc. Later, a year after, it was only 7 -- the account statement towards 2024 was equivalent to PLN 1.4 billion, whereas towards the end of 2024, it was equivalent to PLN 1.3 billion. Euro mortgages is about PLN 1 billion, 3% thereof is within a certain legal action. To estimate the reserve the way we described in the financial statement, our assumption was that the target here for legal disputes as concerns the euro mortgages will be equivalent to 9%. Dominik Prokop: Thank you very much for that. Another question on the expected dynamics of the result of interest rates from commissions as well as operating costs in the current year. Zdzislaw Wojtera: For the interest rate result, it is quite a challenge to face to make it stable at the level it used to be, we would need to employ a more holistic view on that. Our ambition is to shape the revenue stream in 2026 in a manner to enable us to have amounts that would be very much aligned with what we had in 2025. So we assume that the growth of the new business will be enough to compensate for the effect of cut interest rates. So that's our stance. This is our working strategy for 2026. For the costs, our ambition is to make them stay at where they were in 2025, well beyond the 5% level, including the [ BFG ] cost, and I assume that we'll manage to curb them below the 5% level. Dominik Prokop: Thank you very much. Another question. After a 4 percentage point growth of credit in 2025, can we expect a 30% increase in the strategy perspective? An increase of strategy in 2026, is it going to surpass what we saw in 2025? Piotr Zabski: Possibly, this 4 percentage point increase give us a straightforward answer. Nevertheless, this concerns the way we sell. Well, the sales have increased without [ BIK A2 ]. This accounted for 20%. BIK A2, 17%. What we grappled with was churn. Essentially, it was pretty unique. So the portfolio could stay on sales only. Now being mindful of the strategy for mortgage sales, well, they stand depending on segment between 12% or 10%, 15%, 16% in some areas, especially the ones that we feel particularly confident. So we intend to grow. Are we going to achieve a 30% increase? Well, we are firm believers, we will. Dominik Prokop: Another question. To what a degree the growth of our mortgage portfolio is the result of the refinancing of credits, and to what extent does it stem from new credit loans? Piotr Zabski: Most of the sales are made up by new loans, yet the market trend is this. The majority of increase of sales on the market in the whole banking sector is very much the outcome of refinancing. In our case, however, it is mostly determined by the new loans as such. Dominik Prokop: Another question, what is the expected dynamics of the number of employees in 2026, a further drop of 5% in the course of 2025? Piotr Zabski: Well, we don't have these figures at hand. Employment we retain. Well, it is managed on an everyday basis, and it largely depends on the solutions we adopt. Obviously, with a view of automation will adjust our processes, taking advantage of the benefits of artificial intelligence, which the odds are we might want to reduce the size of employment, which doesn't preclude new jobs from popping up somewhere else. So I want to give you any straightforward answer to that question because we are here in a very dynamic environment. Dominik Prokop: The question on the cost of investments that are forecast for 2026 when compared to the level of 2025. Piotr Zabski: If I remember correctly, on a year-on-year basis, we've been stable. We have capped the leveling target. However, principle is, we don't disclose this particular data. The technology, by and large, is the last resort where we wouldn't want to invest. The bank badly want improvements in spite of the fact it's 17 years old. Well, by mergers and acquisitions, some systems did 10 years ago. So the growth of technology, making it more sophisticated is a priority to us. Savings may be allocated somewhere else wherever we can, but we'll also invest. Dominik Prokop: We have exhausted the questions. Thank you very much to the Board for the presentation, for your questions, and we'll see each other on the occasion of another quarterly meeting. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Hello, and welcome to Bowhead Specialty's Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. If you have any questions, please disconnect at this time. With that, I would like to turn the call over to Shirley Yap, Head of Investor Relations. Shirley, you may begin. Shek Yap: Thanks, Marianna. Good morning, and welcome to Bowhead's Fourth Quarter 2025 Earnings Conference Call. I'm Shirley Yap, Bowhead's Chief Accounting Officer and Head of Investor Relations. Joining me today are Stephen Sills, our Chief Executive Officer; Brad Mulcahey, our Chief Financial Officer; and Derek Broaddus, our Head of Casualty. As we introduced last quarter, we'll be inviting an additional member of our management team on our earnings calls to share insights from the area of expertise. Today, we are joined by Derek Broaddus, who heads our casualty team, Bowhead's largest division. Derek will walk us through Bowhead's casualty portfolio and offer his perspective on the casualty markets in which we operate. Turning to our performance. Earlier this morning, we released our financial results for the fourth quarter of 2025. You can find our earnings release in the Investor Relations section of our website. And later this evening, you will also be able to find our Form 10-K on our website. I'd like to remind everyone that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should not place undue reliance on any forward-looking statement. These statements are made only as of the date of this call and are based on management's current expectations and beliefs. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. You should review the risks and uncertainties fully described in our SEC filings. We expressly disclaim any duty to update any forward-looking statement, except as required by law. Additionally, we will be referencing certain non-GAAP financial measures on this call. Reconciliations of these non-GAAP financial measures to their respective most directly comparable GAAP measure can be found in the earnings release we issued this morning and in the Investor Relations section of our website. With that, it's my pleasure to turn the call over to Stephen Sills. Stephen Sills: Thank you, Shirley. Good morning, everyone, and thank you for taking the time to join us today. I'm very proud of Bowhead's accomplishment in 2025. We delivered disciplined premium growth of 24% for the year, surpassing our original expectation of 20%. We also had a meaningful improvement in our expense ratio coming in below 30% for the year and better than the low 30s range we expected at the start of 2025. Together, these achievements resulted in an over 30% growth in our adjusted net income for the year and adjusted return on equity of 13.6% and diluted adjusted earnings per share of $1.65. I'll begin with gross written premiums. Bowhead's GWP increased 21% in the fourth quarter to $224 million and 24% for the full year to approximately $863 million. We achieved disciplined premium growth from each of our divisions in the quarter and for the full year with casualty driving the increase. Given our emphasis on underwriting discipline and prioritizing profitability over volume, we're pleased to have delivered stronger-than-expected growth in the fourth quarter. In Casualty, GWP increased approximately 26% in the fourth quarter to $133 million and 28% for the full year to $551 million. The growth in both periods was primarily driven by our excess casualty portfolio. Our fourth quarter growth came in stronger than expected, driven by construction project risks that were quoted earlier in the year, but delayed due to macroeconomic factors we discussed in previous earnings calls. The green lighting of these projects added just under 30% to our fourth quarter casualty premiums. While we like the profitability of the construction project business and expect new construction projects to continue, the nonrecurring nature of this business may create lumpiness in our GWP. In our Professional Liability division, GWP increased approximately 4% in the fourth quarter to $48 million and 9% for the full year to $174 million. Our fourth quarter growth was primarily driven by our cyber liability portfolio, where we continue to target small and midsized accounts facilitated by our digital underwriting capabilities. Our full year growth was driven by commercial public D&O and miscellaneous errors and omissions. In our Healthcare Liability division, GWP increased approximately 8% in the fourth quarter to $34 million and 14% for the full year to $116 million. Our growth in both periods was driven by our health care management liability and senior care portfolios. Additionally, our hospitals portfolio, which represents the largest portion of the division's full year premiums at almost 30%, continued to grow while we reduced our total limits deployed. For Baleen, GWP increased 47% from Q3 to over $9.1 million. And we're proud of the fact that for the full year, Baleen generated over $21 million. The momentum we saw in the fourth quarter gives us confidence in Baleen's continued expansion and its anticipated contribution to our broader digital initiative. With a strong year behind us, I'm even more excited about Bowhead's future. As we've said before, Bowhead was built to deliver sustainable and profitable growth across market cycles, and we do that by delivering our products through 2 complementary underwriting models. Our first model is our craft underwriting model, the foundation of our company. It is led by experienced underwriters who specialize in complex nonstandard, high-severity risks and who deliver tailored solutions for our brokers and insurers. Our second model is our digital underwriting model, which represents the technology-enabled low-touch approach to our specialty flow business. This model began with the launch of Baleen in the second half of 2024, focusing on small, harder-to-place risks with restricted coverage. We then expanded this technology to handle the high volume of small and midsized submissions that were within our appetite, but historically, not cost effective for our craft underwriters to get to, a capability we call Express. Express automates the underwriting process that used to be repetitive and time-consuming, allowing our underwriters to make disciplined underwriting decisions within minutes. We first applied Express to our small and middle market cyber liability products in Q2, then broadened it to an E&O product in the second half of 2025. While our craft model delivered over 97% of our GWP in 2025, we've been able to achieve our sub-30 expense ratio even before the digital model is fully scaled. For example, in 2025, head count grew just under 19% from 249 people to 296, while GWP grew 24%. And in the fourth quarter alone, head count increased less than 3%, while GWP grew 21%. Together, Baleen and Express form our digital underwriting model, designed for speed, consistency and disciplined decision-making, all while preserving the underwriting culture that defines Bowhead. We look forward to introducing you to our Head of Digital on a future earnings call so you can hear directly from the team leader driving this effort. Turning to our premium outlook for 2026. We continue to expect profitable premium growth of around 20% for the full year. While we anticipate the growth coming from each of our divisions, we believe the main source of this growth will be driven by our Casualty division, followed by the growth stemming from our digital capabilities. With that, I'll turn the call over to Derek, who's been in the Casualty business over 30 years and won the Insurers 2025 E&S Underwriter of the Year Award. Derek, over to you. Derek Broaddus: Thank you for the introduction, Stephen, and good morning, everybody. Bowhead wrote its first casualty policy at the end of 2020. So we never wrote large limits for low premiums in the pre-2020 years. We were born in an uprate relatively low limit environment, which still largely exists today. When Bowhead began, the commercial casualty market had just emerged from a 15-year-plus soft market where pricing was suppressed and limits were abundant, all while social inflation was brewing in the background. We think that the payback equation between limit and price in that time was way off. And because of the tail, we still don't think the bill has totally come due for the industry's pre-2020 prior year adverse development. As a 30-year veteran of the industry, I'm happy to say that it has never been a better time to be a casualty underwriter. Our trading partners ask us what differentiates Bowhead's approach to casualty. Well, many of you have heard the insurance business is a people business. The best way to build a successful underwriting organization is to have the best underwriters in the business. Bowhead attracts top talent with our underwriting-first culture focusing on profitability over volume. Underwriters are also attracted to our straightforward distribution model, supporting and partnering with our trading partners. We are overwhelmingly surplus lines. We also are not distracted by fixing a book of business. We are laser-focused on managing and building our current portfolio. It's worth mentioning here that while we remain a predominantly remote organization, we are constantly on video talking about risks with what we call roundtables. Our underwriters are accessible anytime, anywhere. It is an advantage to be able to hire talent no matter where they sit. Another meaningful benefit to this structure is that it is easy to include less senior underwriters from around the country in complicated underwriting meetings that might have been near impossible in a traditional office setting. No one is above being questioned or challenged at Bowhead. In fact, it's encouraged. Additionally, Bowhead Casualty deliberately avoids classes that are well-known hotspots. Two examples are [ for-hire ] Commercial Auto. We don't write risks that are in the business of hauling people or things for others, and we have limited exposure to large national accounts. Our focus remains on profitable classes where we have expertise and experience. We manage limits carefully in today's market. Our average excess limit deployed is just over $5 million rather than the $25 million blocks that were common pre-2020. Large excess towers that once required only a few markets to complete now require many markets at better pricing. We also avoid low price per million, high excess placements that require the deployment of large limits and are more exposed to loss than ever before due to social inflation and nuclear verdicts. Bowhead's Casualty portfolio benefits from today's positive rate environment, lower required limit to participate on towers and the ability to exercise disciplined risk selection. We know that outsized awards and litigation funding are not going away. Social inflation is not a surprise to anyone anymore. Even with improved attachments, risk selection and rate still matter. In terms of our disciplined approach to underwriting, our focus is on deal fundamentals. We believe that walking away from deals that don't make sense is just as important, probably more important than any piece of new or renewal business. Some might say knowing when to walk away is the toughest but most valuable underwriting skill there is. From a market perspective, in excess, limit discipline largely remains. Many excess towers continue to see limit compression from incumbents. This creates new opportunities for underwriters like Bowhead. However, one moderating influence on rate is the movement of admitted markets into the E&S space as was typical in past insurance cycles. Also, nonrisk-bearing MGAs and broker sidecars are bringing more capacity into the U.S. casualty market. We agree with certain industry leaders when they say there is a fundamental misalignment of interest in some nonrisk-bearing underwriting facilities. Overall, we remain confident in our ability to grow profitably. We think the current market is competitive, but there is a relatively healthy balance of rate and limit management. Our brand in casualty continues to grow and strengthen. Submissions are growing faster than we can quote and investments in technology, our digital platform and talent will allow us to capture more opportunities that fit our appetite. With that, I'll pass the call over to Brad to discuss our financial results. Brad Mulcahey: Thanks, Derek. Bowhead had generated adjusted net income of $15.5 million or $0.47 per diluted share and adjusted return on average equity of 14.1% in the fourth quarter of 2025. For the full year, Bowhead's adjusted net income increased 30.2% to $55.6 million or $1.65 per diluted share, and adjusted return on average equity was 13.6%. Our strong results were driven by top and bottom line growth. Gross written premiums increased 21% to $224.1 million for the quarter and 24% for the full year to $862.8 million. Our growth story was consistent throughout the year. We achieved premium growth in each of our divisions, with Casualty continuing to be the largest driver and Baleen generating $21.4 million for the year. Due to the timing of our annual reserve review in Q4 each year, we consider our full year loss ratio a more meaningful metric. For the full year, our 2025 loss ratio of 66.7% increased 2.3 points compared to 64.4% in 2024. The current accident year loss ratio increased 1.8 points due in part to higher expected loss ratios and trends after the annual reserve review as well as mix changes in the portfolio. The prior accident year loss ratio was unchanged as a result of the annual reserve review, but increased 0.5 points due to audit premiums recorded in 2025 that related to prior accident years. As a reminder from previous earnings calls, the audit premium related reserves in the prior accident years is not based on actual losses settling for more than reserved and did not represent an increase in estimated reserves on unresolved claims. We're simply putting loss reserves into the appropriate accident year regardless of when the premiums are billed and earned. And remember, since we've only been in operations for 5 years and write long-tail lines, our actual loss experience is limited. Because of this, our annual reserve review is primarily based on inputs from industry data. Our initial expected loss ratios are derived from a combination of internal pricing data and external benchmarks, while development patterns are mostly based on external benchmark patterns. We attempt to align all industry benchmarks to the nuances of our portfolio, including not writing risks that are in the business of hauling people or things for others and our lack of large national account exposures in casualty. Additionally, the development patterns we use attempt to take into account our excess position in particular lines, which generally results in later development patterns than primary positions. The most recent annual reserve review in Q4 resulted in various adjustments that were smaller compared to our adjustments in Q4 2024. But most importantly, we had no prior accident year development in our aggregate net losses for 2025 as a result of this review. As you will see in our 10-K, we reallocated prior accident year reserves by division to align more closely with the actuarially derived projected loss ratios and development patterns. These reallocations were primarily in professional liability, where we reduced the '21 accident year while increasing the newer accident years and in health care, where we reduced the '23 accident year and increase the '22 and '24 accident years. These were offset by a decrease in casualty for the '22 accident year to align with updated projected loss ratios, all resulting in no prior year development on an aggregate net basis. More specifically, in Professional, the '21 accident year is performing well, resulting in a favorable $3.5 million reduction in IBNR. However, the limited experience in subsequent years, coupled with declining rates, warrants caution. The '22 accident year in particular, where our early experience is deviating from the industry development patterns was increased by $2.8 million at year-end. Similarly, in health care, the '23 accident year is performing well. But in the '22 year, our early experience is also deviating from the industry development patterns. This warranted a $2.2 million increase in the '22 accident at year-end, along with a $3.3 million increase in the '24 accident year out of an abundance of caution. These adjustments to the industry development patterns are another example of conservatism in our reserving. We're reserving as if the industry patterns are correct for now and therefore, reallocating reserves in select areas. Lastly, we increased some of the '25 accident year initial expected loss picks to align with actuarial estimates. In alignment with our conservative approach to reserving, we are carrying loss ratios in the '25 accident year above the industry estimates on a majority of our product groups. Overall, our actual experience of paid claims and reserves continues to be better than we actuarially expected. And at the end of the year, IBNR as a percentage of total reserves was 90%. Turning to our expense ratio. We consider our full year ratio a more meaningful metric to monitor the trending of our expense ratio due to the inherent volatility quarter-to-quarter. For the year, our 2025 expense ratio of 29.8% decreased 1.6 points compared to 31.4% in 2024. The reduction was driven by a 2.3 point decrease in our operating expense ratio, which was partially offset by a 1.1 point increase in our net acquisition ratio. The decrease in our operating expense ratio was due to the continued scaling of our business, scaling that is accelerated by the realization of various technology initiatives to improve efficiencies. The increase in our net acquisition ratio was driven by the increase in broker commissions due to mix changes in our portfolio and to a lesser extent, the increase in the ceding fee we paid to American Family. Overall, the effect of our loss ratio and expense ratio contributed to a combined ratio of 96.5% for the year. As a reminder, we don't write property and we don't write natural catastrophe-exposed risks. Turning to our investment portfolio. Pretax net investment income for the quarter increased approximately 36% to $16.6 million and 44% for the year to $57.8 million. The increase was primarily due to a larger investment portfolio resulting from increased free cash flow. At the end of the year, our investment portfolio had a book yield of 4.6% and a new money rate of 4.5%. The average credit quality of our investment portfolio remained at AA and our duration increased from 2.9 years in Q3 to 3 years at the year-end. Our effective tax rate for the year was 20.1%. As a note, our effective tax rate may vary due to items such as state taxes and stock-based compensation. Total equity was $449 million, giving us a diluted book value per share of $13.45 for the year, an increase of 22% from year-end 2024. Turning to our expectations for 2026. We continue to expect a GWP growth of around 20% for the year. As Stephen mentioned, the growth should come from all divisions but led by continued momentum in our Casualty division and growth driven by our digital underwriting capabilities. From a ceded perspective, although our main quota share and XOL treaties renew in May later this year, we've renewed our cyber quota share treaty effective January 1 of this year at 65%, up from 60% in 2025 and increased our ceding commissions. As a note, at each renewal, we consider various factors when determining our reinsurance coverage. While we may adjust our reinsurance program, including our retention to support capital needs, we expect our reinsurers to maintain a financial strength rating of A or better. Furthermore, we expect our 2026 loss ratio to be in the mid- to high 60s due to product mix and our reliance on industry loss trends. Additionally, we expect our expense ratio to be below 30% for the full year due to the continued scaling of our business, scaling that is accelerated by the realization of various technology initiatives to improve efficiencies. We expect our expense ratio in the first half of the year to be slightly higher than the second half due to payroll taxes. Therefore, we believe our combined ratio will be in the mid- to high 90s for the full year and return on equity to be in the mid-teens. Turning to our investment portfolio. We expect to extend our duration slightly from 3 to 4 years. This change is not because we're predicting interest rates to decrease, but to closer match the duration of our investments to the duration of our liabilities. And lastly, from a capital perspective, in November, we issued $150 million of 7.75% senior unsecured notes that are scheduled to mature on December 1, 2030. We expect the proceeds to be sufficient for our year-end 2026 regulatory capital requirements, but we'll continue to assess throughout the year. With that, we'll turn the call over for questions. Operator: [Operator Instructions] Our first question will come from Meyer Shields with KBW. Meyer Shields: Great. Thanks so much. Brad, I appreciate all the detail on the prior year reserve development. Can you walk us through what that implies for price adequacy for 2026 for professional financial lines -- I'm sorry, for professional health care? Brad Mulcahey: Meyer, thanks for the question. Yes, we detailed quite a bit on our prior accident year development, changes around in our IBNR in particular. We think we're priced well. We think pricing is coming in above trend. But we do have a couple of pockets that was just normal changes. I don't want to read too much into it. They were actually pretty small changes. So I don't think there's really a pricing impact from it. It's more just taking a conservative approach to the reserving and adjusting where it was warranted, nipping and tucking around the edges, if you will. Meyer Shields: Okay. No, that's helpful. And I guess a question on Baleen. When -- right now, obviously, it's a very, very small percentage. But when -- as it grows, should we think of it as having the same loss ratio characteristics as Casualty? Is it going to be more evenly distributed? That's the wrong way of phrasing it. But when you look at the different segments, you've got different loss ratio profiles there. And I'm wondering how we should think of a mature Baleen in that context? Stephen Sills: I think that -- this is Stephen. I think that the Baleen loss ratio will be superior to the general large casualty business. The -- I'm not as certain as when we get into the Express Casualty business, whether that will probably mirror more of what the larger casualty business is. But the Baleen business, based upon the restricted nature of the coverage, we think that, that will have a superior loss ratio. Meyer Shields: Okay. Fantastic. Operator: Your next question will come from Rowland Mayor at RBC Capital Markets. Rowland Mayor: I wanted to quickly ask on how you translate industry data into the loss ratio picks. I assume you're trying to be better than the industry and your business is much more niche, but how do you kind of get granular on that data and use it in your business? Brad Mulcahey: Yes, Rowland, this is Brad. Thanks for the question. We've been doing this for a couple of years now. Obviously, we don't have enough data on our own to set our picks and development patterns. But we do have a third-party actuary who has very detailed proprietary information that they give us. So this is not Schedule P industry data that we're using. This is something that we can slice and dice, as I mentioned, we don't really have a big Fortune 1000 exposure in casualty, for example. That's given everybody a lot of heartburn. So we're able to tailor these industry benchmarks to our portfolio to an extent. There's only so much you can do, obviously. So -- but we think that the proprietary information that we now have helps us. And looking backwards, it has been pretty accurate with foretelling what is happening in the casualty market and the other markets that we participate in. The development patterns are probably the one that we're starting to see our own data, but I don't know if we can say we have a trend in our data for that. So we are definitely using the industry development patterns. And I think that's adding a little bit more conservatism into our reserves as well. Does that help? Rowland Mayor: Yes. That's super helpful. And then I wanted to talk about the expense ratio target. You're now sub-30. I get there's going to be a step-up in acquisition costs from the deal in May and maybe some first half payroll taxes. But is there a place you're thinking about long term where you can get the expense ratio down to? Brad Mulcahey: Yes. I think we have headwinds with our ceding fee going to American Family, as you point out, but we got a lot of tailwinds in the technology initiatives that we've put in place. We saw halfway through last year, we're starting to see the benefits of those a lot faster than we had thought, surprisingly so. So we're still going to squeeze as much as we can out of this expense ratio. But it is sort of a last year, low 30s. We were happy being in the low 30s, but this is sort of a new paradigm now with some of the tools out there. So hard to say where it will come in, but I think we're comfortable low 30s, and we'll do our best to get it even lower than that. Operator: Your next question will come from Bob Huang with Morgan Stanley. Jian Huang: So my first question revolves around Casualty. I wanted just to follow up with something that you talked about a little earlier. As we -- I think previously, right, you've talked about the undisciplined nature of some of the underwriters, but also the risk of like these eye-watering verdicts from social inflation. As we go into 2026, like is there any sign that pricing environment and excess casualty maybe is beginning to plateau? Is the market significantly offering substantial growth in 2026 and beyond, just given where we are in the underwriting cycle for the casualty side? Derek Broaddus: Bob, this is Derek. I like directionally the limit discipline that we're seeing in the market. I think that's holding pretty well. I would say that there's a lumpy moderation going on. You're seeing some deals, in particular, that are still dealing with adverse development from prior. And then on other deals, you're seeing 5 years of compounded double-digit rate and great loss experience. So you're going to see a little bit of a mix of response from the market for those 2 different types of risks that are coming in. For the most part, though, as Brad said, I think directionally, we're seeing rate exceed loss trend. Jian Huang: Got it. Okay. No, that's very helpful. My second question is more of AI and automation. So when I look at Baleen on the automated underwriting side, is there a reason to believe that at some point in time, the technology on that side is advanced enough that you can essentially disintermediate brokers as in you're going directly to customers for that line of business or maybe even if that line of business gets bigger, like higher limits, can you skip the brokers and going directly to customers? Stephen Sills: In the type of business we do, I don't see that happening anytime soon. I mean, carriers for as long as I've been in the business, have talked about could brokers been disintermediated. At the end of the day, the type of specialty insurance we do is not homogenous. It's not like a family automobile policy or a homeowners policy. There's a lot of complexity to it that I think needs a lot of explaining. And I think the broker brings a lot to the table. And even further than that, the wholesalers play a large role because many of the retailers who are good producers of the business are not experts in the nuances, the ins and outs of some of the specialty insurance. So we don't see that going away anytime soon, number one. Number two, we think the biggest advantage at this time is the speed of being able to get to the business. I think we've mentioned before that close to -- in the casualty space, we don't even have the ability to get to 90% of our submissions that come in the door. It's just -- unless it's a premium that's maybe 50,000 or above, we don't have the resources to handle it. In the next several months, we're going to be getting -- we're going to be able to get our system online in Express where we'll start to be able to handle that business. So it's a matter of being a great underwriter assist in doing the business to help us grow profitably. But the idea of disintermediating is not on our radar. Operator: Your next question will come from Pablo Singzon with JPMorgan. Pablo Singzon: So first question for Brad. How much did mix contribute to the 1.8% [ attritional ] loss ratio uptick at '25? I think about '26, the reed loss pick should flow through at the same level. So if we use 66.7% in '25 as a base, how would you sort of frame the impact of any mix impacts in '26? Brad Mulcahey: Pablo, thanks for the question. I don't really have an answer for that yet. You're right, we will use our '25 loss picks as sort of the starting point for 2026. But that doesn't mean it's set in stone at that level. We'll review these every quarter. And if we need to make changes, we will based on rate or anything else we're seeing or the industry changing as well. I think there is a -- we're probably reaching like the upper limit of how much mix plays into it as you see the casualty portfolio is such a bigger portion of the overall premium. But even with that -- within Casualty, there's mix. So the primary casualty has a different loss pick from excess, for example. So there's mix within mix, if you will, and we just kind of have to see how that plays out. I wish I could give you a more precise number for next year, but that's the best I have. Pablo Singzon: Okay. And taking a step back, right, and I appreciate, Brad, you provided a lot of detail on the combined ratio. But I guess as I think about the overall number, it seems to me that all else equal, maybe the loss ratio should go up a bit, right, maybe for mix, acquisition expense will probably go up. And the question is, do you expect to fully offset those with a lower expense ratio? Or will it offset be only partial? And I know that's spitting hairs, but I guess just given where combined ratio is, even a 50 bps movement can be meaningful. So any perspective you can provide there? Brad Mulcahey: Sure. I guess -- and Stephen, feel free to jump in. But I think the way that we approach this is we will try to get as low of an expense ratio as we can regardless of where the loss ratio is going. And we will let the loss ratio do what it does based on how we feel comfortable with our reserves regardless of what the expense ratio is doing. So hopefully, those 2 come together, and there will be some offset if the loss ratio does trend up. We do have the benefit of older accident years that have lower loss picks. As those roll off, each year, you will see that impact the loss ratio. So I think that's why we're saying our target is the mid- to high 60s on the loss ratio. But I wouldn't read too much into that being a huge increase, but that's probably where I would stand on that. Stephen Sills: Well said. Operator: Your next question will come from Cave Montazeri with Deutsche Bank. Cave Montazeri: First question is on Baleen. It looks like growth is picking up nicely after what was arguably a slower-than-expected first half of the year. So I guess my question is, what's been working so well in the second half of 2025? And how should we think about growth in 2026 for Baleen specifically? Stephen Sills: Well, part of it has to do with acceptance that there are certain entrenched markets and with relatively small premiums of, say, $5,000, there is not a ready acceptance to market them. So there's a certain amount of hanging around the net, if you will, and continuing getting our message out to brokers of what we're offering, how our policy form compares, how our commission level compares our service level, all those things and ultimately getting the message through until people start to try us, and it becomes more and more accepted. And now as it starts to build, we've started to put more infrastructure behind it in terms of people -- more people going out and speaking to brokers about the business. And then success breeds success. They see that what we've done has -- it's been worth the effort to try us, and they're trying us more. And with adding more marketing people, we've been able to add more distribution points, and that's still building on itself. But also even beyond Baleen, and we tried to make this clear earlier, but even beyond Baleen, building on that technology is enabling us to do that smaller business, not the restricted type business of Baleen, but the smaller business that we call Express, which is going to be another real plus, I think, in '26. Does that help? Cave Montazeri: Second question -- my second question is for Brad. On the investment portfolio, it's good to hear that you can increase the duration from 3 to 4 years. With your new money yield being below the book yield, would you also consider maybe going up the risk curve? You have a very defensive portfolio right now. Brad Mulcahey: Yes. Thanks for the question, Cave. The answer is no on that one. When we discussed moving our duration up, we explicitly kind of agreed that we're not going to change the risk profile of the portfolio. We like the conservative position in it. Operator: Your last question will come from Cameron Bianchi with Piper Sandler. Cameron Bianchi: This is Cam on for Paul Newsome. Just one question for me. On the lower expense ratio guide for 2026, how much of that improvement would we say is attributable to scale versus mix? Brad Mulcahey: Yes. Good question. I think the -- our previous guidance of low 30s, that was scale. I think the new guidance of being below 30%, that's the impact of the technology. And it's not just technology in the digital platform as well. There's -- we're deploying technology on the craft business as well that's helping with efficiencies. Our claims team is getting more efficient. So we're really seeing that across both. So I'd say the difference between the low 30s and where we actually end up would be that the impact of the non-scaling of the business, if you will. Operator: That concludes the question-and-answer portion of today's call. I will now hand the call back to Stephen Sills, CEO, for closing remarks. Stephen Sills: Thank you. Bowhead delivered another strong quarter to end a great year. Before we go, I wanted to say thank you again to our colleagues and brokers for making 2025 such a successful year. Thank you, and we look forward to speaking to you along the way. Operator: Thank you for joining today's session. The call has now concluded.
Operator: Good morning, ladies and gentlemen, and welcome to Avanos Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on February 24, 2026. I would now like to turn the conference over to Jason Pickett, Vice President, Corporate Finance and Treasurer. Jason Pickett: Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to Avanos' 2025 Fourth Quarter and Full Year Earnings Conference Call. Presenting today will be Dave Pacitti, CEO; and Scott Galovan, Senior Vice President and CFO. Dave will review our fourth quarter and full year results and the current business environment. Scott will share additional details regarding these topics and provide our 2026 planning assumptions. We will finish the call with Q&A. A presentation for today's call is available on the Investors section of our website, avanos.com. As a reminder, our comments today contain forward-looking statements related to the company, our expected performance and current economic conditions, including risks relating to ongoing tariff negotiations and our industry. No assurance can be given as to future financial results. Actual results could differ materially from those in the forward-looking statements. For more information about forward-looking statements and the risk factors that could influence future results, please see today's press release and risk factors described in our filings with the SEC. Additionally, we will be referring to adjusted results and outlook. The press release has information on these adjustments and reconciliations to comparable GAAP financial measures. Now I'll turn the call over to Dave. David Pacitti: Thanks, Jason, and good morning, everyone. I'm pleased to report that we delivered solid fourth quarter and full year results driven by the excellent progress we made advancing our strategic priorities. Fueled by the strong execution of our commercial teams, we delivered full year net sales of $701 million, exceeding the range that we revised following Q3. Additionally, we finished at the high end of our earnings guidance range, which was also revised upwards following Q3 and generated $0.94 of adjusted diluted earnings per share during the year. While the impact of tariffs in 2025 obscured the profitability of the company, our team took steps to mitigate their impact, and we will see the benefits of those measures starting this year. Moreover, we are closely evaluating the potential impact of the recent Supreme Court rulings on tariffs and monitoring subsequent actions by the administration. Once there is more clarity on how that ruling may impact our financial outlook, we will pass that information along to the investment community in subsequent updates. In the meantime, and as you will hear on the call today, please note that our tariff mitigation initiatives are firmly on track. 2025 represents an important period in the continued evolution of Avanos. Over the past several years, we have taken deliberate steps to reshape the company into a more focused medical technology organization centered on categories where we have strong clinical value propositions and the ability to compete effectively. As you will hear today, those efforts combined with driving cost efficiencies have put Avanos in a better position to drive shareholder value going forward. Let's spend a few minutes reviewing key recent trends and developments in our business. Our Specialty Nutrition Systems portfolio delivered strong above-market full year results growing over 8% organically versus prior year, reaffirming our market-leading positions in long-term, short-term and neonatal enteral feeding. Demand for our long-term enteral feeding products remain strong, and our underlying growth continues to exceed market levels, both domestically as well as internationally, supported by our go-direct transition in the United Kingdom executed in the third quarter of 2025. Our short-term enteral feeding portfolio thrived this year, posting double-digit organic growth globally compared to full year 2024. These results were fueled by the continued expansion of our U.S. CORTRAK standard of care offering. Furthermore, adoption of CORGRIP 2 retention system launched in late 2024 and designed to reduce the risk of 2, migration and dislodgement has delivered higher-than-anticipated sales results and contributed to the momentum in short-term feeding. Finally, our neonatal solutions business delivered above-market full year performance. Now turning to our Pain Management and Recovery portfolio. Normalized organic sales for 2025 were up 2.3%. Excluding the impact of foreign exchange and our previously announced strategic decision to withdraw from certain low-growth, low-margin products. Our radiofrequency ablation or RFA business continues to deliver outstanding results, posting full year double-digit organic growth compared to 2024. We experienced sustained growth in our RFA generator capital sales this year, enabling us to capture higher procedural volumes and to expand the installed base of capital units that we expect will continue to contribute to above-market growth in this business. In particular, we are seeing strong growth within our ESENTEC and TRIDENT product lines. Additionally, we are encouraged by the progress of our COOLIEF offering internationally, leveraging reimbursement tailwinds in several geographies, including the United Kingdom and Japan. Our surgical pain business was down year-over-year. While the implementation of the reimbursement afforded by the NOPAIN Act is taking longer than anticipated, the value proposition of the NOPAIN Act is clear as it provides hospitals, ASCs and caregivers with improved options to administer non-opioid postsurgical pain relief. I would point out that we offer some of the few devices approved under this legislation. We're excited to support better patient care through our ON-Q and ambIT product line offerings and are encouraged by the growing number of claims submitted since the implementation of the NOPAIN Act. Finally, our GAME READY portfolio, while down year-over-year, posted similar revenue levels throughout 2025. We have enhanced our go-to-market model in GAME READY by transitioning the U.S. rental portion of the business to WRS Group and by realigning our selling efforts to focus more strategically on our core sports and rehab channels. Importantly, we expect this structure will enhance our profitability. Moving on, I would like to take a moment to remind you of our five strategic imperatives, which guide us in how we manage the business. They are as follows: to accelerate organic growth in our strategic business segments, manage and mitigate the impact of tariffs, realize operating efficiencies, improve or divest underperforming assets and acquire businesses that are synergistic with our portfolio with a particular emphasis on Specialty Nutrition Systems or SNS segment. Let's take a few minutes to address these imperatives in a bit more detail, starting with our financial performance. For the quarter, we achieved net sales of approximately $181 million. Adjusted for the effects of foreign exchange and the impact of our strategic decision to withdraw from revenue streams that did not meet our return criteria, organic sales for our strategic segments were up 3.4% compared to a year ago. Additionally, we generated $0.29 of adjusted diluted earnings per share and $28 million of adjusted EBITDA during the quarter, with adjusted gross margin of 53.4% and adjusted SG&A as a percentage of revenue of 39.1%. For the full year, adjusted organic sales for our strategic segments were up 6% compared to a year ago and provide good momentum heading into 2026. This growth reflects continued strength in Specialty Nutrition Systems and improving trend in Pain Management and Recovery. Adjusted EBITDA for the year was $87 million with adjusted gross margin of 54.6% and adjusted SG&A as a percentage of revenue of 42%. Moving to our second imperative. We are executing on a range of solutions to mitigate the impact of tariffs on our business and gross margin profile. These efforts include internal cost containment measures, pricing actions, extending previously issued temporary tariff exemptions for portions of our portfolio and lobbying efforts with AdvaMed and other third parties that have interactions with the administration. I am pleased to report that we are successfully executing on our China exit strategy, and we are very confident in our plan to have all syringe manufacturing operations and sourcing out of China by June of this year. Regarding our third imperative, the team is doing a great job driving operating efficiencies. We expect the initiatives put in place in late 2025 will drive ongoing cost improvements for the business in 2026 and beyond. Finally, with respect to our fourth and fifth imperatives during the year, we completed several important portfolio-shaping actions. We divested our hyaluronic acid business, exited the rental portion of our GAME READY business, acquired Nexus Medical into our neonatal portfolio and announced the exit of our IV therapy business, which is scheduled to be completed in the first quarter of 2026. The integration of Nexus is going very well. And our sales pipeline is robust, thanks to the effective execution of our commercial and supply chain teams. Our ability to leverage our sales teams in the NICU is working as planned, and we are continuing to look for growth-accretive transactions that can achieve similar results. With that, I'll turn the call over to Scott for a more detailed review of our financial results. Scott Galovan: Thanks, Dave. I'll spend the next few minutes discussing our full year's results at the segment level. In 2025, our Specialty Nutrition Systems segment grew over 8% organically, led by our short-term enteral feeding portfolio, which posted double-digit growth globally compared to full year 2024. Long-term feeding grew high single digits and was supported by continued strong execution and our U.K. Go-Direct. Finally, our Neonatal Solutions business delivered another above-market full-year performance, growing over 6% compared to the prior year. As we have previously signaled, we anticipated lower but still above-market growth for our NEOMED product line as we have entered the late stages of the ENFit adoption cycle in North America. Further, as Dave noted, the integration of Nexus has been very successful, and we are confident in the ability of our sales team to drive continued adoption and deliver double-digit organic growth in 2026. From a profitability standpoint, operating profit for our Specialty Nutrition Systems segment for the full year was 19%, down 100 basis points compared to a year ago as margin improvements from higher sales volume were offset by unfavorable tariff impacts. Now turning to our Pain Management and Recovery portfolio. Normalized organic sales for 2025 were up 2.3%, excluding the impact of foreign exchange and our previously announced strategic decision to withdraw from certain low-growth, low-margin products. Our radiofrequency ablation, or RFA, business continues to deliver outstanding results, posting full year double-digit organic growth compared to 2024. Our Surgical Pain business was down year-over-year as the potential impact from the NOPAIN Act is taking longer than anticipated. Finally, our GAME READY portfolio, while slightly down year-over-year, posted similar revenue levels throughout 2025. I'm pleased to report our operating profit for our Pain Management and Recovery segment was 4%, a 270-basis point improvement compared to a year ago, which demonstrates our recent top line and cost management execution that enabled us to expand segment profitability, notwithstanding unfavorable tariff costs. Finally, our hyaluronic acid injections and IV therapy product lines reported in Corporate and Other declined over 35% compared to prior year, primarily due to the divestiture of the HA business at the end of July. As previously shared, we will continue to manage the IV therapy product line for cash and anticipate fully exiting this product category in the first quarter of 2026. Moving to our financial position and liquidity. Our balance sheet remains strong and continues to provide us with strategic flexibility with $90 million of cash on hand and $100 million of debt outstanding as of December 31. We have maintained leverage levels meaningfully below 1 turn for several quarters and will continue to be good stewards of our balance sheet. As illustrated by our recent Nexus Medical acquisition, we can continue to maintain healthy liquidity levels and balance sheet strength while also deploying capital towards strategic acquisitions that can bring accretive revenue growth and operating margin accretion. Free cash flow for the quarter was $21 million. Cash generated from operations was partially offset by higher capital expenditures supporting our strategic supply chain initiatives, as highlighted earlier by Dave. For the full year, we generated $43 million of free cash flow, higher than anticipated, primarily due to timing of onetime cash charges related to our aforementioned cost transformation efforts and timing of tax payments. Now turning to our 2026 outlook. Our 2026 guidance reflects continued mid-single-digit organic sales growth in our strategic segments and operating margin improvement, notwithstanding the incremental unfavorable tariff expense we will incur during the year and its impact on gross margin. While we expect a pause in gross margin improvement this year due to tariffs, we expect favorable gross margin momentum beginning in the second half and continuing into 2027, given our progress on our tariff mitigation strategy. Accordingly, we expect net sales in the range of $700 million to $720 million, with our SNS segment growing mid- to high single digits organically and our PM&R segment growing low to mid-single digits organically. Additionally, revenue within Corporate and Other will be approximately $1 million as we fully exit the IV therapy business in Q1. Finally, we expect foreign exchange rates in 2026 to be near current levels. These top line results will support adjusted diluted earnings per share of $0.90 to $1.10. This guidance reflects full year tariff P&L costs of approximately $30 million, a $12 million increase from 2025, with the majority of this cost incurred by our neonatal products sourced from China. As a reminder, we remain very confident in our plan to be fully exited from China for our syringe portfolio by June. Additionally, we expect capital expenditures in the range of $25 million, approximately $7 million lower than 2025, but still slightly higher than our normalized CapEx needs to support our accelerated China exit plan that will result in neonatal syringe production in our manufacturing facility in Tijuana, Mexico and from our supply partners in Southeast Asia. Finally, we anticipate an annual effective tax rate of about 29%. In summary, we delivered results at the high end of our revised estimates in 2025. As we move into 2026, our resources and priorities remain focused on our strategic imperatives related to growth, cost discipline, portfolio management and capital deployment. I'll now turn the call back to Dave for his closing comments. David Pacitti: Thanks, Scott. Overall, I'm pleased with the team's performance in 2025 and sincerely thank everyone for their important contributions and dedication over the past year. We believe the best way to create value for Avanos, and its shareholders is the continued focus and execution on our strategic imperatives as that mindset led us to exit 2025 a more focused and cost-efficient organization. I am particularly pleased with our strong performance in SNS as we outpaced market growth, and we expect the trend to continue. We're also pleased with the early performance of our Nexus acquisition and continue to evaluate other attractive acquisition targets. Moreover, the team did a great job improving our long-term cost profile and executing on our tariff mitigation plan. As a result, we believe that we enter 2026 well positioned for continued growth and are confident about our future prospects. With that, I'll now ask the operator to open up the call to take your questions. Operator: [Operator Instructions] And your first question will be from Danny Stauder at Citizens JMP. Daniel Stauder: Yes. So first, just on tariffs. We appreciate all the commentary here, but I was hoping you can give us a little bit more color on what 2026 could look like. You mentioned the recent Supreme Court ruling, and it sounds like you are still on track with your previous plans. But are there any milestones that we should be looking for in terms of the transition of China, potential USMCA exemption or anything around the Nairobi protocol exemption? There's a lot in that, but I'm just really trying to frame what a best-case or less than best case scenario could look like for the year ahead. David Pacitti: Yes, thanks for the question. So in terms of impact for 2026, we're estimating that to be roughly $30 million of impact. Now remember, as we discussed in previous calls, that we've done this cost measures and take out cost. We've done several price increases as well. So actually, when you compare it year-over-year, we expect the impact to be very similar to what it was on the bottom line as it was to 2025. The big date is being out by June, which I think in the past, we've talked about, but we haven't had the high degree of confidence that we have now that we will -- that plan will be executed and will be out by June and deliver product from Mexico and our other site in Cambodia. Scott Galovan: Yes. Just to size it up a little bit more, Danny, on about 2/3 of that $30 million is China related. So there will be a good, nice impact when we fully exit China. That doesn't all go away because that does go to still some tariff countries. But that's a big piece of that $30 million is China. David Pacitti: And then, Danny, just on Nairobi, we did get Nairobi still in place for our long-term feeding tubes. So that's a tariff exemption. I'm not sure if that's a correct way to say it, but it is an exemption that we received for our long-term feeding tubes, which will be produced in Mexico. And then we have USMCA for about 60% to 70% of the products that we're making in Mexico. And as we move the syringes over, we'll have USMCA for them in Mexico as well, just to clarify your -- the other part of your question. Scott Galovan: I was going to say, as we shared in our prepared remarks, in terms of just as you think about phasing, we do expect in the second half, we'll see improved gross margin that will continue into '27 due to just the weight of the tariff impact in the first half. David Pacitti: And then I think lastly, the goalpost is moving a little bit with the latest news from the Supreme Court and the latest news from the administration. So we'll evaluate all that. But we feel good about the position we have in Mexico with USMCA for the majority of our products. Daniel Stauder: Great. I appreciate it. Then just next one on revenue guidance. Again, I appreciate all the color, especially on the segment's commentary. But just with some of the moving pieces such as the HA divestiture, the addition of Nexus and some of the other product rationalization, what's an organic normalized growth rate that we should be considering for the full year for the full company and then as well as on a segment basis, just to kind of get a high-level look at it. Scott Galovan: Yes. So it's around 5% for organic for -- at the consolidated level by segment, it's mid- to high single digits for SNS and a low to mid-single digits for PM&R on an organic basis. Daniel Stauder: Great. And I guess just shifting to operating leverage that had some great progress in the fourth quarter, and it seems like guidance implies that should continue. You've talked about some of the efforts in making the company more efficient, including the cost-saving initiatives that you announced last quarter. But could you give us just any more commentary on how confident you are in continuing to drive this in 2026, both on an R&D front as well as on the SG&A line? David Pacitti: Yes. Thanks, Danny. So we have a high degree of confidence with the new plans that we laid out from an R&D standpoint. Some of the -- as I mentioned, from an R&D standpoint, we'll do some projects internally, some that will be outsourced. And then, of course, we have the normal M&A activity that we've talked about in the past. So we have a high degree of confidence in that. We expect to launch a product here in the fourth quarter, a next-generation product of ours, and that plan looks good and in place. I think as it relates to -- we'll continue to run the business very efficiently, continue to manage costs. And of course, we're looking at everything. In terms of there's an underperforming business, we'll continue to evaluate that. And if it's underperforming, we'll either improve it or divest of it, as we've said in the past. Scott Galovan: Yes. And just from a cost perspective, even though we've changed our approach to R&D, you won't see a material difference in kind of percent of sales spend to R&D. We'll continue to spend. We'll just do more of that externally than we have historically. And on other spend, as you -- as our guidance implies, we'll show expansion -- earnings expansion greater than our rate of top line growth. And that's really -- we do have added the $12 million of additional tariff expense. We do have just other investments we'll make into the business, but those are largely offset or more than offset by sales volume as well as the benefits of some of the cost containment measures, we took in the fourth quarter. Daniel Stauder: Okay. Great. And I'll try to squeeze one more in here. But just on Specialty Nutrition, really nice quarter, especially considering the benefit you saw in 3Q from going direct in the U.K. And it looks like that segment was the majority of the beat to the top line versus what we had modeled. But could you talk just a little bit more about what's going well here? You pointed to a number of things, but is there anything more incremental on how Nexus is performing early days? Or what has surprised you thus far? And remind us what we should be looking for in 2026 in terms of product launches or any other drivers there? David Pacitti: Yes. First of all, demand remains very high for our SNS portfolio, and the team is doing a great job from an execution standpoint, which is great to see. We're very focused on penetrating the market further with CORTRAK and then if you look at our neonatal business, it continues to be very strong as well. Really across the board, it's been great performance, and the demand remains very strong. I think Nexus, I would say, is doing better than expected. We feel very good about the performance. It was a really nice tuck-in. It fits very well with our team is doing already with the existing sales channel we have. And we're really pleased with the results to date so far. I don't know, Scott, if you want to add. Scott Galovan: Yes, I would just say we shared last year that it would contribute $5 million of revenue, and we saw that, and we expect that business to be a double-digit grower in '26 and likely beyond that. So we're really pleased with the performance of Nexus. Operator: And at this time, gentlemen, we have no other questions registered. Please proceed. David Pacitti: Well, thank you for your continued interest in Avanos and the questions. As a reminder, we'll be participating in the Citizens Bank Investor Conference in March, and we'll also be hosting our Investor Day in New York on June 23. We look forward to seeing you there, and thanks again. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.