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Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Orthofix Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Julie Dewey. Julie Dewey: Thank you, operator, and good morning, everyone. Welcome to Orthofix' Fourth Quarter 2025 Earnings Call. I'm Julie Dewey, Orthofix' Chief IR and Communications Officer. Joining me today are President and Chief Executive Officer, Massimo Calafiore; and Chief Financial Officer, Julie Andrews. Today's press release and supplemental presentation are available on the Events and Presentations page in the Investors section of Orthofix.com and a replay of this call will be posted shortly after we conclude. Before we begin, please note that our remarks include forward-looking statements. These statements involve risks and uncertainties, and actual results may differ materially. All statements other than those of historical facts are forward-looking statements, we do not undertake any obligation to revise or update such forward-looking statements. Factors that could cause actual results to differ materially are discussed in our most recent filings with the SEC and may be included in our future filings with the SEC. We'll also reference various non-GAAP financial measures. Reconciliations to U.S. GAAP and additional details are in our press release and supplemental materials. Unless otherwise stated, net sales growth rates are on a pro forma constant currency basis and exclude the discontinued M6 artificial disc product lines, and all results of operations will be on a non-GAAP as adjusted basis. Here's today's agenda. Massimo will start with business performance and operational highlights. Julie Andrews will follow with our financial results and our 2026 outlook, then we'll open the call for Q&A. With that, I'll turn the call over to Massimo. Massimo Calafiore: Thank you, Julie, and good morning, everyone. I appreciate you joining us today. The fourth quarter capped a year of meaningful operational progress for Orthofix. We delivered strong consistent performance in Bone Growth Therapies and U.S. Limb Reconstruction. And the work we did to finalize our Spine commercial channel supported double-digit net sales growth in our global Spine Fixation business. This momentum contributed to our eighth consecutive quarter of adjusted EBITDA growth and a standout quarter of free cash flow generation. Collectively, this result show the positive impact of our focused commercial initiatives and margin enhancement efforts providing a solid foundation as we enter 2026. Further demonstrating our progress, let me highlight several key accomplishments. Global Spine Fixation Q4 net sales grew 10% for the year and in Q4. In U.S., Spine Fixation net sales grew 6% for the year and 5% for the quarter. While distributor transition implemented earlier in 2025 created some temporary pressure during the quarter, performance improved meaningfully as we exited Q4. With this transition now largely behind us, variable access to important IDN accounts and a strengthened highly aligned distributor network in place, we believe the business is set up well for 2026. Building on that momentum, our Spine commercial channel optimization efforts continued to strengthen sales productivity. In Q4, our top 30 U.S. distributor partners grew net sales 25% year-over-year and 27% on a trailing 12-month basis. A clear validation of our focused channel strategy. Turning to enabling technologies, 7D FLASH navigation continue to be a powerful differentiator across our surgical ecosystem. Voyager earnout placement grew 30% in 2025. And our earnout customers are collectively exceeding their purchase commitments by more than 50%, demonstrating strong utilization and engagement. Looking ahead, One of the most exciting milestone for 2026 will be the full market release of our VIRATA Spinal Fixation System in the second half of the year. VIRATA is purpose-built for the $2 billion U.S. pedicle screw market, pairing a proprietary screw design with intuitive instrumentation that integrates seamlessly with the 7D navigation platform. We believe VIRATA will enhance surgical efficiency, strengthen surgeon confidence and serve as a multiyear growth catalyst for our U.S. Spine business in 2026, 2027 and beyond. Shifting gears, we have rebranded our Orthopedics business as a Limb Reconstruction to reflect our strategic focus on four high-value clinical categories. Limb preservations, limb lengthening, complex fracture management and extremity deformity correction. Together, this represents an estimated $2.6 billion market opportunity, and we believe Orthofix is well positioned given our comprehensive portfolio of internal and external fixation solution. From our perspective, a few companies are prioritizing this market which give us an opportunity to elevate the care pathway in a category with meaningful long-term growth potential. In 2025, we sharpened our focus on high return opportunities in this business by streamlining our product portfolio, strengthening organizational alignment and refining our commercial strategy. These actions drove sustained momentum. U.S. Limb Reconstruction grew 8% in Q4 and 16% for the full year. This performance was driven by the successful global launch of TrueLok Elevate, FITBONE bone transport and FITBONE trochanteric lengthening nails, each expanding our addressable market enhancing our product mix and fortifying our leadership position as we had in 2026. Turning to Bone Growth Therapies, the BGT business remained a consistent performer, delivering accelerating momentum throughout the year, a strong sequential fourth quarter growth that benefited from procedural cross-selling. Fourth quarter growth reached 7%, more than double the market rate driven by increased utilization and higher prescribing velocity across both Spine fusion and fracture management. With its consistent performance and healthy margin, BGT continues to be an important contributor to our overall progress. As we enter 2026, our priorities are clear: sharpen commercial execution, drive deeper market penetration adoption of our 7D navigation system, improved gross margin through targeted operational initiatives and maintain targeted capital allocation with a continued focus on adjusted EBITDA expansion and free cash flow generation. With full year contribution from TrueLok Elevate and FITBONE, the planned second half of full commercial launch of VIRATA, ongoing benefits from our optimization of our Spine commercial channel and renewed focus on advancing our Biologics portfolio and sustained momentum across Limb Reconstruction and BGT business, we believe the company is well positioned to deliver durable top line growth, expanding margins and strong free cash flow in 2026. Today, we also announced that we are recalibrating the time line for our 3-year financial targets to fully capture the anticipated benefit of our Spine commercial channel optimization. Over the past year, the decision to optimize our Spine commercial channel has proven to be the right one. Strengthening our foundation and driving measurable improvement in execution and distributor productivity. At the same time, the scope and rigor of this transformation required us to implement these changes with deliberate care to increase the likelihood of long-term success. As a result, while the underlying fundamentals of our strategy remain strong, the timing of certain growth benefit has shifted, and we are extending our long-range plan time line by 1 year to fully capture the expected operational and commercial leverage created by this channel enhancement. This adjustment reflects our commitment to disciplined execution should position us to deliver sustainable above-market growth and margin expansion as this initiative mature. In closing, 2025 was a year defined by strengthened commercial capabilities, disciplined execution and meaningful new product launches from our innovation pipeline. We delivered another year of significant adjusted EBITDA gains and positive free cash flow generation, excluding the impact from M6. As we move into 2026, we are carrying that momentum forward with disciplined commercial execution and targeted capital deployment. While our work is not yet complete, and certain benefits from our Spine initiatives are expected to continue to build over time. We are increasingly confident in our ability to execute. We believe the traction behind our strategy and the strength of our innovation engine position us well as we advance towards our long-term financial goals and create sustainable value for our shareholders. Thank you for your continued support. I'll now turn the call over to Julie Andrews. Julie Andrews: Thank you, Massimo, and good morning, everyone. Before we dive into the numbers, a quick reminder. All net sales growth rates referenced today are pro forma, constant currency, excluding M6 disc, discontinuation impacts. I encourage you to review the reconciliations in our press release and the supplemental materials posted on our website, which include pro forma results through Q4 to support your modeling. Total global net sales in Q4 reached $218.6 million, a 3% increase supported by strong performances in our Bone Growth Therapies and U.S. Limb Reconstruction segments. Global spinal implants, biologics and enabling technologies delivered $112.3 million in net sales for Q4. Our performance was supported by targeted distributor transitions in key geographies, partially offset by softness in biologics and our strategic shift from 7D capital sales to the voyager earnout program. As a reminder, we are still annualizing the impact of the previously disclosed price decrease at a major account, which continues to affect year-over-year comparisons. Bone Growth Therapies, or BGT net sales were $68.3 million, up 7%, significantly outperforming the market. We expect BGT growth to remain above market rates of 2% to 3%, driven by new surgeon additions and competitive conversions, especially in the fracture channel. Global Limb Reconstruction sales were $38 million in the fourth quarter, driven by 8% U.S. growth. This performance reflects our sharpened focus on the [ core ] Limb Reconstruction pillars and the deliberate deemphasis of products that are not aligned with the strategy. We expect to return to double-digit growth in the second half of 2026 as these portfolio and commercial refinements continue to take hold. Moving down the P&L. Pro forma non-GAAP adjusted gross margin was 71.4%, reflecting the impact of the M6 discontinuation and productivity improvements partially offset by unfavorable geography mix due to increased net sales in international Spinal Implants, Biologics and Enabling Technologies. As Massimo noted, this marks our eighth consecutive quarter of EBITDA margin expansion and an outstanding quarter of robust free cash flow generation, underscoring the scalability of our model and operational discipline. Fourth quarter pro forma non-GAAP adjusted EBITDA was $29.2 million or 13.4% of net sales with year-over-year margin expansion of approximately 230 basis points. We delivered exceptionally strong free cash flow of $16.8 million in Q4, a clear demonstration of the strength and scalability of our business model. For the full year, free cash flow when excluding restructuring charges, tied to the M6 discontinuation was $3.1 million. Notably, reported free cash flow was nearly breakeven for 2025, a significant achievement that underscores a meaningful financial progress we made throughout the year. We ended the quarter with $85.1 million in total cash, including restricted cash, which provides us with the flexibility to continue investing in innovation and supporting the long-term growth of the business. Moving on to 2026 full year guidance. We expect full year net sales of $850 million to $860 million with a midpoint of $855 million. These expected net sales represent implied pro forma constant currency year-over-year growth of approximately 5.5% at the midpoint of the range. These projections are based on current foreign currency exchange rates and do not account for any further changes to exchange rates for the remainder of the year. We expect full year non-GAAP adjusted EBITDA of $95 million to $98 million, and we expect to generate positive free cash flow for the full year, excluding the impact of any potential legal settlements. While we are not providing quarterly guidance, I do want to provide you with some directional comments on the expected cadence of our business to assist you in modeling our quarterly performance. We expect normalized procedure volume and seasonality throughout 2026 with a more meaningful contribution from newly launched products as the year progresses. Net sales growth is anticipated to be approximately 5% in the first half of the year and about 6% in the second half of the year. As a reminder, Q1 includes one less selling day than last year, while Q2 includes one additional selling day, each representing roughly a 1.6% impact on quarterly growth rates. In addition, we previously indicated that CMS would begin the team pilot program at some hospitals in January 2026 that covers a few episode of care categories, including BGT. Although we expect the annual impact from this program to be immaterial, it will have a onetime impact on our quarterly growth rate in Q1 of approximately 1%. Now for some specifics on the individual line items on the P&L for 2026. We expect adjusted gross margin for the full year to be approximately 72.5% as we continue to focus on productivity improvements within our manufacturing and distribution operations. We expect operating expenses as a percent of net sales to be approximately flat to 2025 as we normalize for lower variable and incentive compensation and increased depreciation and stock-based compensation. To assist you with modeling EBITDA, we expect adjusted depreciation and amortization expense for the full year 2026 to be in the range of approximately $38 million to $39 million. Stock-based compensation expense is expected to be approximately $31 million for the year. Now let's touch briefly on the items below the operating income line. Our expectation for interest and other expenses is approximately $6 million per quarter. We expect adjusted EBITDA margin enhancements of 70 basis points to be weighted more towards the back half of the year due to the timing of revenue and R&D investments. This margin enhancement is driven by productivity improvements and SG&A leverage and is partially offset by increased variable and incentive compensation as well as investment in innovation and clinical evidence. As a reminder, Q1 historically carries heavier expense loads due to industry conferences and resets of payroll taxes and annual benefits such as 401(k) matching. Additionally, due to the phasing of R&D projects, the previously mentioned CMS team pilot program and certain onetime expenses, we do not anticipate EBITDA leverage in Q1 of this year versus Q1 of 2025. With regard to free cash flow, please keep in mind that while we expect to generate positive free cash flow for the full year 2026, excluding the impact of any potential legal settlements, we do not expect to generate positive free cash flow in every quarter. To provide additional color, we expect $45 million to $50 million in capital expenditures this year. As a reminder, Q1 in particular, has historically been the lowest cash flow quarter due to the payment of the prior year's annual bonuses and Q4 commissions, among other items. With our full year outlook in place, I'd like to spend a moment on our long-range plan. As Massimo mentioned, we're updating our 3-year financial targets to better reflect the timing of revenue and margin benefits from our Spine commercial channel optimization. By extending the time line to 2028, our long-range plan now better matches the pace of progress we're seeing and the ramp-up in commercial leverage we expect to deliver. We think this provides a clearer view of our anticipated growth trajectory and the solid financial foundation expected to support our strategy. Our refreshed 2026 to 2028 targets include 6.5% to 7.5%, net sales CAGR from 2026 through 2028, mid-teens non-GAAP adjusted EBITDA as a percent of net sales for the full year 2028 and positive free cash flow generation from 2026 through 2028, excluding the impact of any potential legal settlements. We believe these targets build on our positive momentum and position the company for sustained profitable growth, underpinned by a stronger financial profile and a clear path to long-term value creation. In closing, we expect 2026 to be a year defined by consistent execution and disciplined financial management. With the strengthened commercial foundation, a differentiated innovation pipeline and clear visibility into margin expansion and positive free cash flow generation, we believe Orthofix is well positioned for profitable growth. We remain grounded in operational rigor, disciplined capital deployment and prioritizing high-value opportunities across our Spine, BGT and Limb Reconstruction portfolios with the objective of creating sustainable long-term shareholder value. Now let me turn it back to Massimo for closing remarks. Massimo? Massimo Calafiore: Thank you, Julie. I am very pleased with the progress we made in 2025. We successfully executed several high-impact initiatives from optimizing our Spine distributor network to restructuring the Biologics commercial channel and launching multiple new products. We believe these actions strengthen our commercial platform and have set us up for accelerated growth in the year ahead. We also fortified our financial foundations delivering significant adjusted EBITDA gains and generating near breakeven free cash flow. We have entered 2026 with optimism and real momentum. Our new U.S. Spine distributors are fully onboarded and already contributing to our growth. As the year gets underway, we are seeing clear signs of progress with encouraging traction across key procedural segments and in our priority geographies. And here is an important milestone. As Q4 2025, more than 75% of our U.S. net sales were driven by our top 30 distributor partners. High-performance teams with the scale, focus and commitment to grow with us. To put that in perspective, at the start of 2024, this group drove less than half of our net sales, representing an increase of 55% in their shares of our total revenue. This strategically aligned commercial channel is elevating productivity, sharpening execution, and we believe is the means for enabling more consistent and predictable sales performance, a stickier surgeon relationship as we move through 2026. Our innovation pipeline has never been stronger as we anticipate a variety of meaningful product launches and product enhancements that extend across every major segment of our business. In fact, we expect to introduce over a dozen value-creating products over the next 18 months to drive sustained momentum. These include the full market launch of the VIRATA open system and the alpha launch of the VIRATA MIS system in the second half 2026. Next-generation automation enhancement for key Limb Reconstruction systems like TrueLok Elevate and FITBONE. Technology enabled advancements within our BGT portfolio designed to focus strengthen surgery engagement and patient adherence and additional platform extensions and enabling technology upgrades that enhance efficiency and reinforce our competitive position. And we believe we have the right team in place, aligned, disciplined and focused on our priorities to drive profitable growth. Finally, we believe our financial foundation is strong we're optimistic about the opportunities ahead, and we believe we are making the right investments to elevate our execution and create durable long-term value for our shareholders. Before we move to Q&A, I want to express my sincere gratitude to the entire Orthofix teams and our commercial partner. Your commitment to supporting surgeon and patient is what fuels our progress and defines who we are. We are excited about where we are headed. And together, we are continuing to build Orthofix into the unrivaled partner in med tech delivering exceptional experiences and life-changing solutions. With that, let's go ahead and open the call for your questions. Operator: [Operator Instructions] And your first question comes from the line of Matthew Blackman with TD Cowen. Mathew Blackman: Maybe I'm going to start with just a clarification question for Julie. Just that on the CMS impact you're going to see in BGT, just clarify, the 1 point headwind you called out, is that isolated to the BGT franchise? And is that in the first quarter? Or is that a full year impact and total top line? Just want to make sure I capture the impact that you hold out there. And then I've got 1 follow-up. Julie Andrews: Okay. Matt, good to talk to you again. Yes, so the CMS change that we talked about, it's an immaterial impact for the year overall, but we'll have about a 1% impact in the quarter specific to BGT revenue only. Mathew Blackman: Okay. Appreciate that. And then my follow-up question, it's on the LRP. Maybe if you could just take a step back and reflect a bit more on what is essentially taking just a year longer to manifest in the business relative to the original LRP. It sounds like from your comments, Massimo, that the channel optimization initiative just took a little bit longer to execute. I just want to make sure there's nothing else going on. And then, Julie, on your end, beyond the top line, what do you need to execute on most critically for the margin and cash generation profile to continue to improve? Massimo Calafiore: Thank you, Matt. Look, this just reflects all the work that we did in the last couple of years. our goal was to create a company with stronger foundation and much more focus on how we go to market. So we made the right decision to be very aggressive to pursue our distributor transition. Right now, as you heard, 75% of our U.S.A. net sales now are coming from our top 30 distributor in Spine. And this is going to give us a much stronger predictability about how we go to market. But -- and also is going to give us the network that we need in order to start to deliver the very meaningful innovation that is going to come in the next 18 months. As you heard, we are very excited about the VIRATA launch. We are very excited about the over a dozen of products that are going to come across all of the business units to support the growth that you want to see in our organization. And in order to materialize that, we needed to have a strong foundation. So I think that we are taking the right decision in order to create the long-term value. Julie Andrews: Thanks, Matt. And to the rest of your question on just the mid -- getting to mid-teens EBITDA and positive free cash flow. So we are still working on our gross margin expansion plan, 300 basis points improvement from 71% to 74%. Our guide this year on gross margin, 72.5% put this right in line to achieve that by 2028. Specifically, we're working on productivity improvements across our manufacturing and distribution operations to achieve that as well as then as we look at our whole P&L, fixed cost leverage, moderating the expense growth on SG&A while we continue to invest in innovation in the commercial channel. And to lead that, we have some automation enhancements that we're driving now to drive back office efficiency that we're working on. And all of these things together, as we continue to focus then on our working capital management improved asset utilization will generate positive free cash flow. Operator: Your next question comes from the line of Tom Stephan with Stifel. Thomas Stephan: I'll start with the 2026 revenue guide. Maybe for you, Julie. Can you flesh out the 3 main line items a bit quantitatively mentioned above market growth for BGT, any finer points numerically for the 2026 revenue guide would be helpful. And qualitative commentary would be great as well. Julie Andrews: Yes. So I think we continue to expect above-market growth for BGT, like you mentioned, again, above-market growth for our Limb Reconstruction business. the commentary that we made was that the second half will see the U.S. return to double-digit growth in the U.S. Limb Reconstruction business. And then we expect another year of similar performance to what we saw in U.S. Spine -- or Global Spine business. We finished, as a reminder, 2025 at 10% global growth in the Spine business. So those are the big pieces there with our revenue guidance. Massimo Calafiore: Yes. And from the qualitative perspective, Tom, we are very focused and clear on our ability and want to execute. We need to drive a deeper penetration of 7D maximizing the productivity of our U.S.A. Spine distribution network, keep evolving our biologic business our Limb Reconstruction business. So if you want to summarize what we expect -- what you're going to expect in 2026, a real focus on to commercialize the amazing new technologies that we're bringing to the market. So I'm very excited and positive about where we are starting the year. Thomas Stephan: Got it. That's great. And then my follow-up also sort of ask about the LRP, grew 4% pro forma this year, maybe closer to 4.5% constant currency in the back half on revenue guiding to 5% to 6% or so in 2026. Hopefully, I have all these numbers right. For the long-term targets, you still view 6.5% to 7.5% is the right long-term revenue CAGR even though it is pushed out a year. And Massimo, I know there's a lot of product launches on the come. The commercial optimization is ongoing, and you do expect to benefit from that. But maybe if you can take a bit of a step back and just talk about your level of confidence that 6.5% to 7.5% is the right target for top line growth for Orthofix? Massimo Calafiore: Yes. Thank you, Tom. We never -- we talked about it in the past. We knew we made a lot of meaningful investment on both on the commercial channel and innovation. So starting the second half of this year, you start to -- we are expecting to start to get the positive impact of the combination of the two. VIRATA launch is important for us is the last -- is one of the products that is going to propel this organization to the next level, focusing into Spine there is amazing technology coming into Limb Reconstruction between our FITBONE and our TrueLok product line that I'm very excited about. Biologic, a lot of enhancement around the 7D platform. We made a lot of investment while keep delivering EBITDA margin expansion and free cash flow. So I'm very proud about the discipline of this organization. So everything is going according to what we said all along. So very excited about where we are today, very excited at what the company was going to become tomorrow. Operator: Your next question comes from the line of Caitlin Roberts with Canaccord Genuity. Unknown Analyst: This is [ Nikhil ] on for Caitlin. First one from us. Could you provide some additional color on 7D placements in 2025 in the installed base? Julie Andrews: Yes. So we placed 30% -- we had a 30% increase in our placements in 2025. We don't give the numbers specifically for our installed base. But the other thing that we're really excited about is that collectively, we saw our earnout units exceed their purchase volume commitments by more than 50%, which again, we believe validates our strategy to move from capital sales to an earnout model. Unknown Analyst: That's helpful. And then just shifting maybe for a follow-up. You mentioned a renewed focus on advancing Biologics portfolio. Can you provide any more color on that? Maybe, if you could elaborate on what that means strategically and how we can think about its contribution over the next couple of years? Massimo Calafiore: Yes. Thank you for the question. So what we did, we made some internal shifting in terms of leadership. So we just give -- we wanted to give Biologics back a very clear and important central focus for who we are. And so we recognize there is a lot of work to do here, but I truly believe we have a strong biologic portfolio. So we saw some decline last year, primarily related to our distributor transition. But now we are very focused on scaling our commercial network and making sure that the execution is going to be there. So we already made the changes that we believe is going to optimize our sales channel, and we are expecting for our U.S.A. Biologic performance to get back to marketplace as we continue to focus on it. I'm very confident that we're going to see a lot of positive momentum on this portfolio this year. So work ahead, but very excited about the basis to where we are today. Operator: Your next question comes from the line of Mike Petusky with Barrington Research. Michael Petusky: So Julie, I may have missed this, but did you provide any commentary around tariff impact for this included in your guidance for '26 or also tariff impact that actually was in '25? Julie Andrews: Yes. So it's included in our guidance. We talked about it kind of mid-last year when it -- so we expect about $1 million to $2 million impact in 2026. Michael Petusky: Okay. And that's roughly where it came in, in '25? Julie Andrews: Little higher than that in '25 because it was more of -- it wasn't a full year impact. Michael Petusky: All right. And then just in terms of the -- you mentioned potential legal settlements and obviously, timing on that is difficult to predict. But have you guys -- and I suspect this is in the K, but have you guys reserved for a legal settlement at all? Julie Andrews: Yes. We did take an accrual in Q3 and you can refer to the K for more information about it. Michael Petusky: All right. And then just one last question. In terms of free cash flow, if I'm looking at my calculations, it looks like you guys improved free cash flow from '24 to '25 by maybe $7.5 million to $8 million. I was curious, I mean is that a decent guesstimate for the level of improvement you might see in '26 versus '25, an additional $7 million, $8 million, something like that? Julie Andrews: Yes. I mean, excluding legal settlements, that would probably be in the range to maybe slightly more than that. But the legal settlements will impact that number. Michael Petusky: And it sounds like you guys maybe expect legal settlements in this coming year? Julie Andrews: That is included in our guidance that the breakeven excepts excluding legal settlements, so the timing still be determined, but that's what we assume. Operator: There are no further questions at this time. I will now turn the call back over to Julie Dewey for closing remarks. Julie Dewey: Thank you for your questions and for joining us today. We appreciate your time and interest in Orthofix. If you need any additional information, please reach out. We look forward to updating you next quarter. This concludes today's call. Operator: Ladies and gentlemen, thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Hello, and welcome to Q4 2025 Albany International Corp. Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to our Director of Investor Relations, Karen Blomquist. Please go ahead. Karen Blomquist: Thank you, operator. Good morning, everyone. Welcome to Albany International's fourth quarter 2025 earnings conference call. As a reminder for those listening on the call, please refer to our press release issued this morning detailing our quarterly financial results. Contained in the text of the release is a notice regarding our forward-looking statements and the use of certain non-GAAP financial measures and their reconciliations to GAAP. For the purposes of this conference call, those same statements apply to our verbal remarks this morning. Additionally, our remarks today may reference our earnings presentation, which is available on the Investor Relations section of our website, albint.com. Today, we will make statements that are forward-looking and contain a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied. For a full discussion of these risks and uncertainties, please refer to our earnings release on February 24, 2026. Now, I will turn the call over to Gunnar Kleveland, our President and CEO, who will provide opening remarks. Gunnar Kleveland: Thank you, Karen. Good morning, and welcome, everyone. Thank you for joining our fourth quarter earnings call. Before turning to the business update, I want to thank the members of the Albany team who continue to inspire me with their energy and enthusiasm around innovation. This year, we introduced our internal innovation awards program, and in its inaugural year, we received 86 submissions from teams across the company. Awards span technical innovation, operational excellence, and customer service. The strong response reflects the innovative culture we have and continue to build at Albany. Innovation is central to our long-term growth strategy, and we're proud of this culture. I would like to congratulate all of our award winners and participants this year. That focus on innovation is directly connected to what makes Albany a differentiated company and underpins our long-term strategy. Albany is built around industrial weaving technology and material science that are deeply embedded in our customers' products. These capabilities have been developed over decades and are not easily replicated, forming the foundation of our two complementary businesses. Machine Clothing is the backbone of the company, providing stable global platform with strong margins and cash generation. Our products are mission-critical to customers' operations and enable improvements in productivity, efficiency, and sustainability. Engineered Composites built on the same core strengths and serves as our long-term growth engine. Through proprietary technologies and advanced materials, we support high-value applications across commercial, aerospace, defense, and emerging platforms, with meaningful opportunities for growth and margin expansion. These emerging markets focus on our 3D weaving, braiding, winding, and resin transfer molding in end markets that include engines, space, missiles, ceramic matrix composites, and titanium replacement. Together, these businesses create a balanced and resilient model that allows us to invest with discipline and adapt to changing market conditions. Over the past 12 months, we have sharpened our strategic focus on high-value applications where we hold clear competitive advantages while exiting non-core activities. As part of that effort, last quarter, we announced the initiation of a strategic review of our Amelia Earhart facility in Salt Lake City. Since then, we have made substantial progress evaluating a range of options for the site, and we have retained Guggenheim as an advisor to guide us through the process. Taken together, the impact of these actions became evident in the fourth quarter as we delivered our strongest financial performance of the year. We reported total consolidated sales of $321.2 million, up 12% year-over-year, driven by higher sales in our Engineered Composites business, partially offset by softer demand in Machine Clothing, particularly in China. Improved volume translated into stronger profitability with Adjusted EBITDA of $57.3 million, representing 17.8% of sales, compared to $50 million or 17.4% of sales in the year-ago period. Turning to our segments and beginning with Machine Clothing. Sales were down mid-single digits year-over-year, driven by lower volumes in China and were generally in line with our expectations. Demand conditions remain mixed across regions, with largely stable fourth quarter volume in North America, but some pressure to order rates following consolidation and mill closures. In Europe, overall volume was stable. In Asia, paper overcapacity continued to pressure our segment-level results, as we saw in the third quarter, primarily in China. While we did not see a further deceleration in the fourth quarter. By grade, tissue remains a bright spot globally. This is a market where we are an industry leader and will continue to invest. We also saw pockets of strength in packaging, particularly in Europe. Publication grades continued a secular decline as anticipated, while pulp and engineered fabrics were broadly stable. Operationally, in January, we experienced an equipment failure on one of our critical machines in North America facility, which will unfavorably impact our first quarter results that we'll detail in our guidance. Our team was able to bring the machine back online in February, and we expect to recover the lost production through higher output from the site as well as product manufactured at other North American sites. We already had plans to add equipment to permanently de-risk the facility, which is expected to be installed in late 2026. In Engineered Composites, we delivered a strong performance with sales of $143.7 million, compared to $98.8 million in the year ago period. Higher sales were driven by broad-based volume increases across multiple programs. In particular, the LEAP program, which is the backbone of commercial single-aisle fleets, continues to be a solid program for us, with projected double-digit growth over the next couple of years, based on OEM target production. We expect volume to continue to build as OEMs increase production rate. We also expect incremental contributions from Beta as they progress through the certification process. In defense markets, F-35 remained a strong and stable contributor, while missile programs continued to build volumes. Turning to capital allocation. We generated approximately $81 million of free cash flow in 2025, providing the flexibility to invest in the business, return capital to shareholders, and maintain a strong financial position. We continue to invest with discipline in areas that strengthen our long-term competitive position. During the year, we invested approximately $72 million in capital expenditures and $48 million in R&D, focused on innovation, advanced manufacturing capabilities, and operational efficiency across both segments. We also remain focused on returning capital to shareholders. Over the course of the year, we returned approximately $218 million through a combination of share repurchases and dividends, including the repurchase of roughly 10% of shares outstanding. This balanced approach allows us to invest for growth, maintain financial flexibility, and consistently create long-term value for shareholders. In 2025, we undertook a deliberate transition of the business with a clear focus on profitability, innovation, and long-term value creation. This marks an important transition for Albany. And as we enter 2026, we are focused on disciplined execution, continued innovation, and delivering sustainable value for our customers and shareholders. We also completed our corporate relocation to Portsmouth, New Hampshire, which positions us well to attract and retain talent across a broad and highly skilled corridor stretching from Boston to Portland. We're pleased with the team we have assembled and confident in their ability to lead the company into the next phase of growth. I would like to thank our employees for their dedication and commitment throughout the year, as well as our customers, partners, and shareholders for their continued support. With that, I'll turn the call over to Will to review the financial results in more detail. Willard Station: Thank you, Gunnar. Good morning, everyone. Before providing a financial review of the fourth quarter, I'd like to begin with a brief perspective on my first 6 months in the role. The strength of our culture and the depth of the team across the organization have been particularly evident. Further, we operate with world-class manufacturing capabilities, a strong track record of execution in highly demanding industries. These strengths form the foundation of our long-term success and value creation. Over the past six months, we have sharpened our strategy to focus more clearly on our core competitive advantages. That focus is guiding how we operate the business and how we allocate capital with a clear objective of investing where we can generate attractive returns and maximize long-term value for our shareholders. Operationally, the business performed well across both segments in the fourth quarter, and we followed through on the actions we outlined last quarter. As these actions take hold, we believe Albany will emerge as a stronger company with a more attractive operating profile and a clear platform to drive long-term growth, particularly in high-value and emerging applications. Before turning to the financials for the quarter, I want to note that all the results I will be discussing are non-GAAP, unless otherwise noted, and a full GAAP to non-GAAP reconciliation can be found in our press release issued this morning. Overall, we delivered our strongest financial performance of 2025 in the fourth quarter. Our reported fourth quarter revenue was $321.2 million, up 12% year-over-year, compared to $286.9 million in the same period last year. The increase was driven primarily by higher volumes in our Engineered Composites business as multiple programs continued to ramp. These increases were partially offset by lower volumes in Machine Clothing, primarily in China. Adjusted EBITDA for the fourth quarter was $57.3 million, compared to $50 million in the year ago period, reflecting an Adjusted EBITDA margin of 17.8%, up from 17.4% last year. The improvement was driven by higher sales and improved margin performance, primarily in Engineered Composites. Moving to our segments and starting with Machine Clothing. Segment revenue was $177.5 million, compared to $188.1 million in the prior year period. The year-over-year decline was driven by continued weakness in Asian markets, particularly China, as well as certain strategic business exits in Europe. Importantly, revenue was stable sequentially, reflecting quarter-over-quarter stability even in China. All other regions remained largely stable during the quarter. Adjusted EBITDA for Machine Clothing was $48.6 million, compared to $53.7 million in the prior year period, reflecting an Adjusted EBITDA margin of 27.4% compared to 28.5% last year. The decline was driven primarily by lower volumes in Asia and was partially offset by the benefit from efficiencies and integration initiatives. Turning to Engineered Composites segment, revenue was $143.7 million, compared to $98.8 million in the prior year period. The increase was driven by higher volumes across multiple ramping programs, as well as the absence of program adjustments that impacted the prior year. In the fourth quarter, we also benefited from higher-than-expected material receipts and factory outputs ahead of our plan, which we do not expect to recur in the first quarter. Adjusted EBITDA for the segment was $18.5 million, compared to $6 million last year. The year-over-year improvement reflects the higher revenue base and improved margin performance, primarily driven by program ramps and the absence of program-related impacts in the period. Moving down the income statement, gross profit for the quarter was $99.9 million, compared to $90.3 million in the same period last year, reflecting a gross margin of 31.1% compared to 31.5% in the prior year period. Gross margins declined modestly year-over-year, reflecting lower margins in Machine Clothing due to volume pressure, partially offset by higher margins in Engineered Composites, driven by improved mix and program execution. Operating income for the quarter was $29.9 million, compared to $24.3 million in the prior year period, representing an operating margin of 9.3% compared to 8.5% last year. The improvement was driven by higher gross profit and leverage on sales volume. Interest expense for the quarter was $5.9 million, compared to $3.9 million in the prior year period, reflecting higher borrowing costs. Other income and expense was a net expense of $900,000, compared to a net benefit of $4.2 million in the year-ago period as a result of foreign currency revaluation impact. In the fourth quarter, our effective tax rate was 39.3%, compared to 28% in the year-ago period. The increase in tax rate was due to expiration of a Foreign Tax Credit and a less favorable discrete tax adjustment compared to the fourth quarter of 2024. Turning to the cash flow and the balance sheet. We generated free cash flow of $51 million in the quarter, compared to $59.3 million in the same period last year. The year-over-year change mainly reflects higher capital spending this quarter, as well as working capital investments to support several ramping programs. We also continued to return capital to shareholders through both dividends and share repurchases. During the quarter, we repurchased $16.8 million of our common stock and declared a regular quarterly dividend of $0.28 per share. Capital expenditures totaled $22.7 million, up from $19.1 million in the fourth quarter of 2024, with a spending focus primarily on facility optimization and investments tied to key customer programs. R&D expense came in at $12.1 million, underscoring our ongoing commitment to innovation and to advancing proprietary technologies across both Machine Clothing and Engineered Composites. We ended the quarter with $112.4 million of cash and $456 million of total debt, resulting in net debt of roughly $343 million. Including availability under our revolver, we have over $456.4 million of available capital, which, combined with the strong cash generation of the business, provide ample flexibility and liquidity to support our ongoing investments while continuing to return cash to shareholders. Turning to our outlook, as we continue to progress through our strategic review, we will be providing guidance on a quarterly basis, along with qualitative commentary on the full year. Importantly, our quarterly guidance includes the revenues and associated margins of the Amelia Earhart facility, consistent with how we are currently operating the business. For the first quarter, we expect consolidated revenue to be in the range of $275 million to $285 million, with Adjusted EPS in the range of $0.50 to $0.60. We also expect our effective tax rate for the quarter to be approximately 27% and for the full year to be approximately 24.3%. We expect our first quarter results to be the lowest of the year as we absorb the costs associated with the downtime in our Machine Clothing facility that Gunnar detailed. The downtime will have a $0.10 to $0.15 impact on EPS in the first quarter. We expect to make up the lost volume over the balance of the year. In Engineered Composites, we anticipate a year-over-year growth on higher overall volume in the first quarter, but at a moderate pace compared to the fourth quarter, as the growth rate in the fourth quarter benefited from several discrete items that are not expected to recur. Looking to the full year, current visibility supports the following by segment. In Machine Clothing, we are seeing stable demand conditions in Europe and North America, with continued weakness in China. Volumes in China stabilized in the fourth quarter at a lower overall level. We currently expect this run rate to persist through 2026. Consistent with this demand profile, we expect margin levels to remain generally in line with what we saw in the second half of 2025, recognizing that visibility remains limited and market conditions in China continue to evolve. In Engineered Composites, we expect continued growth across key platforms, including LEAP, engine program, and missile applications. Based on the current program ramps, we anticipate strong segment-level growth in 2026, with normalized margin level compared to the prior year. Now, I would like to open the call up for questions. Operator? Operator: [Operator Instructions] And we will take our first question from Michael Ciarmoli from Truist Securities. Michael Ciarmoli: Maybe, Will, just on those last comments, you gave some sort of, I guess, directional color on 2026. It sounds like maybe this Machine Clothing, you've got the weakness that persists in Asia. Just to calibrate us, I mean, should we think about this run rate sort of holding through the year? I guess with AEC, the strong growth, you still have the Salt Lake City in there. Can you give us a sense of what the underlying for AEC revenues and margins look like? Willard Station: Sure. For Machine Clothing, we fully expect that we're going to recover from the equipment failure. The equipment has been restored. It's up and it's operating, and the team is closely monitoring it to make sure that we don't have any additional impacts. For Q1, there is the risk of the $0.10 to $0.15, which I outlined in the earnings report, but we're expecting to recover all of that by the end of the year. Things are starting to look stable, but we are cautious about how much of that we can recover in Q1. As we think about the AEC business, we had a strong quarter, which we're proud of. We expect that, you know, from an AEV standpoint, we've completely resolved the issues around CH-53K. We think we've covered that in the [indiscernible] loss that we took in Q3. And the team is continuing to operate at about a 10% overall margin, which we think we're going to continue to see for the remainder of 2026. The recovery is looking good within AEC, and we're expecting to continue those strong margins as we look forward for 2026. Gunnar Kleveland: I think, Michael, you know, yes. That site continues to grow because of the CH-53K and the Boeing program there. The growth that you're seeing in the rest of the business is primarily on our missile programs as well as the LEAP. And LEAP is growing significantly both this year and next year. Michael Ciarmoli: Okay. Yes, I wanted to come to LEAP. Can you give us any sense? I mean, we've got, I think, GE calling for 15% increase in deliveries. Are you aligned with production? Is there still some level of destock going on there or any color you could shed on LEAP? Willard Station: Yes. We're definitely aligned with production. If you look at, you know, year-over-year, I think our volume is up about 27% on that program, and our factory is fully operating and supporting the ramps that we're seeing with the OEM. We're completely aligned there. Michael Ciarmoli: Okay. Okay. Last one, just housekeeping, Will. The European exits, in Machine Clothing, how much of a drag was that on revenue or will it be on revenue? Willard Station: I think we spelled some of that out in Q3. I think some of it, as we mentioned in Q3, was intentional. We had some low-margin businesses that we exited out. Some of it was we were optimizing the network, so we're closing some of the facilities. All of that was part of the synergies with Heimbach, and so it was part of our synergies there, and we've executed very well to that plan so far. Operator: Our next question comes from the line of Ron Epstein from Bank of America. Ronald Epstein: Gunnar, you mentioned CMCs. What are you guys doing in CMCs? That's the first time at least I've heard you talk about it. What are you doing there? And where do you think that can go? Gunnar Kleveland: We have been investing in high-temperature composites using our proprietary 3D weaving and then carbonizing those near-net shape parts. We've been working with several OEMs. We are going to be announcing more about this, here in Rochester, we have now the full capability to make carbon-carbon and various ceramic matrix composites. I expect that to be a strong growth engine for us on R&D in the short term and as part of our production in the short to medium term, definitely in the longer term. Lots of investment there, anywhere from large acreage hypersonic missiles to nozzles and exhausts on traditional missiles. Lots of opportunity happening. Ronald Epstein: When you do like carbon-carbon near-net shape parts, does that mean that they just have to be machined less than like otherwise, it to just get a block of carbon-carbon? Gunnar Kleveland: That is exactly it. Because of our ability to weave a near-net shape, we can also carbonize and finalize a part that is near-net shape, which prevents the machining, to your point. And that is exactly it. We've worked with this. We have to set up a very large looms in our facility, and we're creating parts and working with customers on this. The benefit, of course, with our parts is that you do not have to machine away very expensive carbon. Ronald Epstein: Yes. Interesting. Yes, then if I can, maybe just one more. Is there anything else you can say or give us detail on the reorg and, or what's going on in Salt Lake, with that facility? Gunnar Kleveland: Yes. So first of all, we are operating the facility at the level that is expected from all of our customers. The site is performing well. We're tightly aligned with especially with Sikorsky, to make sure that we're delivering to them. We've started the process. As we have mentioned before, there's been a lot of interest in the site. Now I can share that it's both from private equity as well as strategics. It is clear that our capacity in autoclave at that site is very attractive. It is not where we want to grow, but it is attractive and we think we will be able to go through this process, you know. Well, the process will take what it takes. We're well on our way. We'll be announcing more throughout the spring. Operator: Our next question comes from the line of Steve Tusa from JPMorgan. Chigusa Katoku: This is Chigusa on for Steve. It's really nice to see a quarter with no charges, and it's good to hear that you think you completely resolved the CH-53K issues with the $147 recorded last quarter. I just wanted to better understand. How comfortable are you that going forward, we'll continue to see quarters like this, where you won't see any negative EAC charges? Gunnar Kleveland: It's a good point. We took a large charge, and we did that to de-risk the program. We're seeing the performance at the expectations that we set. We, as we talked about last quarterly call, we also removed one of the programs with Gulfstream from our portfolio. The remaining programs are performing very well. There are give-and-takes in EACs, as you know, we do not expect to have any large charges as we continue through the year. Chigusa Katoku: I think, so free of charges, your underlying margins for AEC is at 13% this quarter, is this a reasonable margin run rate for this business when thinking about 2026? Willard Station: I think so. I think that's right in the range, we have seen these last couple of quarters. We expect to be there until we complete the strategic review of Salt Lake. I think that's in line with what we're expecting to see. Chigusa Katoku: Okay, great. Just a quick follow-up on that. You mentioned that the Amelia Earhart Facility is about 10% margins, but is the CH-53K in particular, call it, about 20% of your AEC business, making losses in the rest of the AEC business in the mid-to-high teens range? Is that kind of the right way to think about it? Willard Station: Yes. Well, one thing I will correct, with the charge we took in Q3, we won't see CH-53K having losses going forward. We, we've covered that in Q3. As you think about the remaining parts of the business, you know, our goal is to get it to the mid to low teens. That's what we are aiming for, clearly, we have to resolve the strategic review and divest of the site before we can, we can get there. We have some work to do before we can make that happen, but you're thinking about it the right way. Operator: There are no more further questions. I will now turn the call back over to our President and CEO, Gunnar Kleveland, for closing remarks. Gunnar Kleveland: Thank you, Dustin, and thank you, everyone, for joining us on the call today. We appreciate your continued interest in Albany International. Thank you. Have a good day. Operator: The meeting has now concluded. Thank you all for joining. You may now disconnect.
Operator: Good morning, everyone. Joining me on today's call is Michael Dale, Axogen's Chief Executive Officer and Director; and Lindsey Hartley, Chief Financial Officer. Michael will discuss fourth quarter and full year 2025 financial results and corporate highlights. Lindsey will then provide details on financial performance, guidance and overall outlook for the year. This will be followed by a question-and-answer session. Today's call and presentation is being broadcast live via webcast, which is available on the Investors section of Axogen's website. Following the end of the live call, a replay will be available on the Investors section of the company's website at www.axogeninc.com. Before we begin, I'd like to remind you that during this conference call, management will be making forward-looking statements, which are statements that are not historical facts and are based on current expectations and assumptions regarding future conditions, events and results. Forward-looking statements include, among other things, statements regarding our financial guidance and outlook, clinical development activities and regulatory efforts, commercial growth initiatives, reimbursement and market access efforts, training and education initiatives, research and development activities and our overall business strategy and operating performance. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially including, without limitation of risks and uncertainties reflected in our filings with the Securities and Exchange Commission including our most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and other filings we make with the Securities and Exchange Commission. Forward-looking statements speak only as of the date made, and we may make -- we undertake no obligation to update any forward-looking statements, except as required by law. In addition, for a reconciliation of non-GAAP measures, please refer to today's press release for a presentation with highlights from today's call and the corporate presentation on the Investors section of the company's website. Now I'll turn the call over to Michael. Michael, please go ahead. Michael Dale: Thank you, operator, and welcome to everyone joining us this morning. Today, I'll walk through our fourth quarter and full year 2025 performance through the lens of the 6 priority areas of our strategic plan, highlighting how we executed against each in 2025 and how they frame our objectives for 2026. I'll then turn the call over to Lindsey to review the financials and outlook, after which we'll open the call for questions. 2025 was a year of significant achievement for Axogen, both financially and strategically and one that positions us well for durable growth in the years ahead. The first strategic plan priority I will speak about is our growth target of 15% to 20% and the related financial operating leverage we expected for the business. We delivered strong top and bottom line performance in 2025, consistent with the upper end of the growth trajectory outlined in our strategic plan. Our Q4 revenue was $59.9 million, up 21.3% year-over-year with double-digit growth across all 3 target markets. Our full year revenue increased 20.2% to $225.2 million. Our adjusted EBITDA grew 41% to $27.9 million, and we increased our cash position by $6 million while fully funding our strategic initiatives. This performance reflects expanding adoption of Axogen's nerve repair algorithm across traumatic iatrogenic and chronic peripheral nerve injuries with Avance Nerve Graft remaining our primary growth driver, often complemented by our broader portfolio of repair, protection, connection and termination solutions. Importantly, we have now reached a financial inflection point enabling greater concentration of our market development efforts while generating positive cash flow and improving profitability. Regarding capital structure and balance sheet strength, in January, we completed an upsized public offering raising $133.3 million in net proceeds. We used $69.7 million to fully retire our term loan facility, leaving us with a clean capital structure and significantly enhanced financial flexibility. Eliminating the interest and revenue participation obligations improves our earnings quality over time, while the remaining proceeds provide capacity to fund continued execution of our strategic plan. As a result, we entered 2026 well capitalized and positioned to deliver disciplined, profitable growth. The second strategic plan priority I will speak about is our market development progress for elective and planned procedures in extremities, oral maxillofacial and head and neck, breast and our prostate market development plans. Across our 3 core markets, momentum remains strong, as represented by continued double-digit growth in each market. In extremities, which continues to be our most mature market and where we are furthest along in achieving standard of care status supported by solid growth in both traumatic and chronic procedures. For Oral Maxillofacial and Head and Neck, we delivered high double-digit growth, driven by a surge in adoption of the Axogen algorithm and increasing recognition of nerve repairs impact on quality of life. Breast remains one of our fastest-growing opportunities with accelerating adoption of resensation techniques and increased implant-based reconstruction volumes. In Prostate, we made important foundational progress in 2025. More than 100 procedures were completed across 10 clinical sites, and in collaboration with our surgery partners, we established a standardized surgical technique. As we enter the second half of 2026, we expect to begin seeing meaningful clinical signals as nerve recovery data matures, an important step in what we believe is a highly underdeveloped and compelling market opportunity. The third strategic plan priority I will speak about is our commercial expansion progress in regards to infrastructure and sales force growth. In 2025, we significantly expanded our commercial organization across all markets. In Breast, we added 10 sales representatives and 2 regional directors ending the year with 21 sales representatives and 2 regional directors. In Extremities, we added 12 sales representatives in high-potential geographies, ending with 117 reps and 15 regional directors. In Oral Maxillofacial and Head and Neck, we ended the year with 3 field-based market development managers. And in Prostate development, we added 3 clinical development managers and one director. Early productivity trends are tracking well with our assumptions. Across markets, new hires typically reach independence and breakeven within 6 to 9 months, after which they become accretive. In 2026, we plan to continue this expansion. We will grow the Breast team to approximately 30 sales representatives. We will grow Extremities to approximately 130 representatives and we will continue to evaluate further commercial investment to support Prostate market development in the second half of the year. The fourth strategic plan priority I will speak about is our commercial excellence performance specific to our high potential accounts, productivity in general and education. Our high potential account strategy remains a cornerstone of our commercial model. In 2025, 61% of total revenue growth came from high potential accounts. Average high potential account productivity increased 21% and active surgeons in high-potential accounts increased by 131. We ended the year with 679 active high-potential accounts out of an approximately 780 universe. While slightly below certain internal targets, fundamentals across both high potential and non-high potential accounts remain strong with double-digit growth and improving productivity across the broader base. For 2026, our high potential objectives include 60% of revenue growth from high potential accounts and 18% productivity growth in these accounts and activation of at least 100 surgeons. Surgeon education continues to be one of Axogen's core competencies and a critical driver of algorithm adoption. In 2025, we exceeded training targets across all markets. And in 2026, we plan to further expand education programs across Breast, Extremities and Oral Maxillofacial, Head and Neck. In 2025, Extremities held 9 professional education programs and trained 170 surgeons. In Oral Maxillofacial and Head and Neck, we held 3 programs and trained 59 surgeons. In Breast, we held 5 professional education programs and trained 79 surgeon pairs. For 2026, our training objectives include holding and conducting 10 Extremities professional education programs and training 200 surgeons. In Oral Maxillofacial and Head and Neck, we will conduct 6 professional education programs and train 100 surgeons. And in Breast, we will conduct 5 professional education programs and train 75 surgeon pairs. The fifth strategic plan priority I will speak about is progress related to our standard of care objectives as related to evidence coverage in the FDA Biological License approval of Avance. In December, we achieved the most significant milestone in Axogen's history, which was the FDA approval of the biologics license application for events. Avance is now the first and only FDA-approved biologic therapeutic for treating peripheral nerve discontinuities with 12 years of market exclusivity. This establishes Avance as the standard of reference in nerve repair. We are acting on this milestone across 4 fronts: customer engagement to reinforce confidence in Avance's safety, efficacy and regulatory status; payer engagement to drive near universal U.S. coverage; clinical advancement by enabling prioritized studies under an approved regulatory framework; and lastly, manufacturing investments to support scalability and margin expansion by our ability now to manage our manufacturing operations under one quality system. In 2025, we also received strong validation of Avance from leading medical societies. The American Association of Hand Surgery and the American Society for Reconstructive Microsurgery issued position statements recognizing nerve allograft as a non-experimental medically necessary standard of care for peripheral nerve defects. Building on prior guidelines from the American Association of Oral Maxillofacial surgeons, together, these endorsements represent an important step toward broader recognition of allograft nerve repair as a standard of care and support our efforts to expand coverage and payment in the future. On reimbursement, approximately 19.8 million additional lives gained coverage in 2025, bringing commercial coverage above 65%. With Biologics License approval, we believe we are well positioned to address the remaining payer objections. Additionally, CMS implemented a new outpatient payment classification for nerve procedures in January, improving the economic profile for outpatient settings and potentially expanding site of care flexibility over time. The sixth and last strategic plan priority I will speak about is our innovation progress. Our R&D investments which are focused on improving benefit versus risk profiles for the treatment of nerve care are focused on 3 strategic priorities. Firstly, making nerve coaptation faster and easier and more consistent. Second is advancing solutions for non-transected and chronic nerve injuries through better protection. And thirdly, developing therapeutic reconstruction technologies to improve the fundamental ability for nerve regeneration. With the Biologics License approval in place, we are moving forward also with prioritized clinical studies, including in breast and mixed and motor nerve indications. We expect to provide more detailed updates on individual programs later this year. In each instance, these programs are progressing well and we plan to provide more detail on each of these programs in the second half of the year. In summary, 2025 was a year of execution and validation for Axogen. We delivered strong financial results, achieved a historic regulatory milestone and continued building momentum across our markets, all while executing against the 6 priorities of our strategic plan. I am proud of the Axogen team and confident in our ability to deliver disciplined growth consistent with our guidance and long-term strategy. I'll now turn the call over to Lindsey to review the quarter's financials and our outlook for 2026. Lindsey Hartley: Thanks, Mike. I'm pleased to report our 2025 financial results and provide 2026 guidance. We are excited about our results for the fourth quarter and the full year. Our focus on commercial execution and resource allocation have yielded top line growth and positive cash flows. For the fourth quarter, we reported strong growth with revenue of $59.9 million, reflecting 21.3% growth compared to the fourth quarter of 2024. For the full year, we reported revenue of $225.2 million, reflecting growth of 20.2% compared to 2024. As mentioned during our last earnings call, we estimated that our revenue was positively impacted by the discontinuation of the K stock sales program for Avance. We believe the pull-forward impact on our full year results to be minimal. Revenue growth continues to be fueled by strong sales of Avance and adoption of our comprehensive product algorithm across our target market with unit volume and mix serving as the primary driver of our revenue performance in addition to price. Our gross profit for the fourth quarter came in at $44.4 million, up from $37.6 million in the fourth quarter of 2024. This represents a gross margin of 74.1%, down from 76.1% in the same period last year. Gross profit for the full year came in at $167.4 million, up from $142 million in 2024. This represents a gross margin of 74.3%, 1.5 percentage points less than 75.8% in 2024. Gross profit was negatively impacted by $1.9 million or 3.3% for the fourth quarter and 0.9% for the full year from onetime costs related to the FDA BLA approval of Avance. 2/3 of these costs or $1.3 million were noncash and related to the vesting of certain stock-based compensation awards containing milestones tied to this event. Excluding these onetime costs, the year-over-year decreases of gross margin were primarily driven by approximately 2% higher product cost, offset by a reduction of inventory write-offs and reduced shipping costs on products sold. Product cost increased as a result of costs related to additional steps and tests required as we transition to and began processing Avance as a biologic. The reduction in inventory write-offs and shipping costs resulted from the discontinuation of the K stock sales program for Avance and process improvements implemented throughout the year. Operating expenses increased to $54.2 million in the fourth quarter, up from $35.6 million in the fourth quarter of 2024 and increased 18.3% as a percentage of revenue. Full year operating expenses increased to $175.2 million from $145.3 million in 2024 and increased 0.3% as a percentage of revenue. Included in operating expenses for the fourth quarter and full year was $7.2 million of noncash onetime stock-based compensation expense related to the vesting of equity awards tied to the FDA BLA approval of Avance. This expense is reflected across operating expense categories, including $700,000 in sales and marketing, $4.6 million in research and development and $1.9 million in general and administrative expenses. As a result, operating margin was negatively impacted by approximately 12.1% in the fourth quarter and 3.2% for the full year. Excluding this onetime cost, operating leverage improved by 3% as a result of top line growth and financial discipline year-over-year. Sales and marketing expenses as a percentage of total revenue increased nearly 5 percentage points to 45.4% in the fourth quarter compared to 40.6% in the fourth quarter of 2024. For the full year, sales and marketing expenses as a percentage of total revenue increased 1.5 percentage points to 43.4% from 41.9% in 2024. Research and development expenses increased 83.9% to $12.4 million in the fourth quarter compared to $6.7 million in the fourth quarter of 2024. And as a percentage, total revenue increased by approximately 7 percentage points to 20.7% from 13.6%. Full year research and development expenses increased 18.4% to $32.9 million from $27.8 million in 2024 and was flat at approximately 15% as a percentage of revenue. General and administrative expenses increased 64.6% to $14.6 million in the fourth quarter compared to $8.9 million in the fourth quarter of 2024. And as a percentage of total revenue increased 6.5 percentage points to 24.4% from 17.9%. Full year general and administrative expenses increased 14.2% to $44.6 million from $39 million in 2024 and as a percentage of revenue decreased 1 percentage point. Net loss for the fourth quarter was $13.2 million or $0.28 per share compared to net income of $500,000 or $0.01 per share in the fourth quarter of 2024. Full year net loss was $15.7 million or $0.34 per share compared to $10 million or $0.23 per share in 2024. Adjusted net income was $3.5 million or $0.07 per share for the fourth quarter of 2025 and 2024. Full year adjusted net income was $14.4 million or $0.29 per share compared to the $5.9 million or $0.13 per share in 2024. Adjusted EBITDA for the fourth quarter was $6.5 million compared to an adjusted EBITDA of $6.7 million in the same period last year. Fourth quarter adjusted EBITDA margin decreased 270 basis points to 10.9% from 13.6% in the same period last year. Full year adjusted EBITDA was $27.9 million, compared to an adjusted EBITDA of $19.8 million in 2024. Full year adjusted EBITDA margin improved 180 basis points to 12.4% from 10.6% in 2024, driven by revenue growth and increased operating leverage, excluding stock-based compensation expense. I am pleased to report for the full year, our balance of cash, cash equivalents, restricted cash and investments increased $6 million to $45.5 million from $39.5 million as of December 31, 2024, demonstrating our ability to be cash flow positive for the year. Now turning to our full year financial guidance for 2026. We expect full year 2026 revenue growth to be at least 18% or total revenue of at least $265.7 million. We anticipate full year 2026 gross margin to be in the range of 74% to 76%. This range is consistent with 2025 and considers anticipated product cost pressure as we begin selling Avance Biologic product in the second quarter of 2026. In 2027, we expect to begin seeing improvement to gross margin as a result of implementing continuous improvement programs this year and increasing economies of scale. We expect to be free cash flow positive for the full year 2026. Similar to prior years, we anticipate higher cash burn in the first quarter. In summary, we are pleased with our fourth quarter and full year performance and entered 2026 with strong momentum. Looking ahead, we will continue to prioritize initiatives that strengthen our financial foundation including targeted investments in innovation and commercial infrastructure. By maintaining a disciplined approach to expense management and leveraging economies of scale, we are confident in our ability to further enhance operating margins and deliver consistent profitability. With that, I will now open the line for questions. Operator? Operator: [Operator Instructions] Our first question today is coming from Michael Sarcone from Jefferies. Michael Sarcone: Just to start on the guidance for the year, at least 18%. You exited 2025 at 21%. And maybe you could argue that's even higher when you adjust for the K stock discontinuation. But just wanted to get your take on how conservative or achievable do you view the guidance and maybe talk about some of the key assumptions that you've got in there? Michael Dale: Thanks, Mike. We would characterize it as prudent. We're building off of a larger base. We believe that our commercial customer creation models are elastic, but they still need to be managed. And so each quarter is a new quarter, each year is a new year. And we feel very confident in the guidance of 18%. Obviously, we aspire to growing the business as fast as possible. But hopefully, that answers the question. It's a situation that we still believe that we need to prove out quarter-to-quarter because the management of those -- of the customer creation processes is one of diligence, and then we're expanding the footprint, and we still need to be careful about getting out ahead of ourselves. Michael Sarcone: Understood. That's helpful. And then maybe just -- you touched on the CMS reimbursement, a healthy increase in the outpatient setting. Can you maybe just help us think about how you're thinking about pricing in that context? And any help on -- can you give us a rough sense of the split of the business between inpatient versus outpatient procedures? Michael Dale: Why don't I ask my colleagues, Jens and Rick to weigh in on answering that question. Rick Ditto: Mike, thanks for the question. This is Rick. Just to start, we don't break out by care setting in terms of our revenue, but I do think this is a good derisking event. It's not a light switch. So it's not like all of a sudden, all these procedures are going to move to the outpatient setting. But I think it increases site of care flexibility over time, and it's something we'll continue to take a look at. One thing that's important to note is that facilities negotiate procedure payments with the commercial payers and that happens every 1 to 2 years. So CMS makes this decision and facilities will renegotiate their contracts accordingly. And so these things will just flow through the health care system over time, but it gives us a lot of belief in what we're doing. Jens, any color you want to add? Jens Schroeder Kemp: Yes. I would say it's definitely positive. The payments have increased, but the really important thing is coverage. And so as coverage expands, that also will give us more opportunities to expand the footprint into other care settings. But it's really -- there's 2 sides of the coin. You've got the payment, which is great, has been increased, but we're still working hard to expand coverage as well. Michael Dale: Mike, to give context of procedures that will likely move in the future where it's advantageous for the provider to do so are going to be more of the upper extremities, the hands and the arm and then follow-up outpatient procedure opportunities. The other major significant procedures, particularly head and neck and breast, those are unlikely to move into that kind of setting. So it's all good for nerve care in the future, but it will be one that takes time to socialize as each hospital understands their own situation and then decides whether or not to deploy more resources to the setting. Operator: Next question is coming from Larry Biegelsen with Wells Fargo. Gursimran Kaur: This is Simran, on for Larry. Maybe just to start out, Mike, since the BLA in December 2025, can you talk about the reaction to it so far from physicians in each segment of the market and payers as well? And then how are you thinking about major coverage wins in 2026 as you move towards full coverage from above 65% today? Michael Dale: Sure. The reception from the physician community is varied. So the product has been commercially available to the community for many years now. So for a lot of individuals, they more or less took for granted that this is the case and we're in many instances, only modestly aware of the work going on behind the scenes to move from a device classification to a biologic. So I think that context is important because it's an unusual circumstance. That said, what we have done is with the approval, it has allowed us to go back to the customers, the people we serve and to affirm with them their trust and confidence in Avance. So that is very positive. It gives us a chance to revisit the basic product characteristics of why it's a suitable solution for treating nerve discontinuities. So all very positive in that regard. And as you might appreciate, for those individuals who are sitting on the fence or who were not adopters, it's given us a new vehicle to go back and revisit the question with those individuals. So in all regards, it's very positive, but it's something that also is important to understand it has been a product that's already been available to the community for quite a while. Now as for payers, it's a vehicle that allows us to go back and revisit any of the payers whereby their -- one of their primary objections was that the device was experimental and has allowed us to make clear that, that is not the case. As to their response, it's a formal process. You make the submissions, you work through their various work streams that they require in order to even have a conversation. And then periodically, on an annual basis, they review that information that's new and then revisit their decisions. So there is not a schedule that we can point to that will guarantee us a feedback. But other than what we can say is that we hope and expect to see some sort of responses from these entities in 2026, but we have no prediction per se as to which one or exactly when they will respond. Gursimran Kaur: Okay. That's helpful. And maybe just to follow up -- yes, go ahead. Michael Dale: One thing I would like to add is that while we can't predict the timing, we have predicted the timing in the context of the strategic plan. So I do want to be clear about that. It is our expectation that between now and 2028, we will overcome the negative coverage decisions that presently exist. Gursimran Kaur: Got it. Sorry, just a follow-up. So maybe just switching gears towards your sales force kind of adds for the year. I think if I'm doing my math right, you added about 22 reps across the business in 2025 and you're guiding to at least 12 repetitions in 2026. Maybe help me understand why is that the right number, especially as you're starting to sort of reach critical mass in some of your segments like extremities. And how are you thinking about the productivity ramp of the sales force today versus the historical ramp? Michael Dale: Thanks for the question. I think maybe to start with the one comment you made that reaching critical mass. To put it in context, if you wanted to provide full coverage for extremities, you probably need somewhere between 400 to 600 sales representatives. So there's a very, very large provider universe in extremities. And so -- and point of fact, while 130 sounds like a lot, it does not provide full coverage of that particular patient presentation stream in terms of trauma and related injuries. So we're a long way from full coverage in extremities. With regards to breast, the same thing. So we are -- there's about 1,200 sites of service in breast. And to that end, the current organization, while growing rapidly and doing good work is a long way from full coverage. So that's why we have made the strategic decision. We're not going to try to do all of this in a single year, but we're going to grow into it through incremental additions throughout the year and in the succeeding years through 2028. Operator: Your next question is coming from Chris Pasquale from Nephron Research. Christopher Pasquale: Lindsey, I wanted to start with just the cadence of gross margin throughout the year. Could you just level set us on how we should think about it here? Is 2Q the low point and then you improve from there and sort of magnitudes of the high and the low for the year would be helpful? Lindsey Hartley: Yes. So as we progress through the year and we begin selling a new Biologics Avance product, it will carry a heavier cost. Now we will be selling both tissue and biologic products when we start selling Biologics. So we expect to see that pressure in Q2 and going into the remaining second half of the year. Christopher Pasquale: Okay. So it sounds like the pressure builds over time as that mix shifts and then we start to see improvement in '27. Is that fair? Lindsey Hartley: That's correct. Christopher Pasquale: Okay. Mike, and then you talked about how having the BLA out of the way now frees you up to focus on other clinical priorities, including breast, I would assume, at some point, prostate as well. Can you give us any sense about how you're thinking about what's ultimately going to be required to establish the level of clinical evidence you want in those indications? Are we talking about randomized trials? Or can you get what you need just from documenting sort of single-site registry style study in more detail? Michael Dale: Sure. It will be both. So in every instance, it does not need to be randomized, but it needs to fit the bill of what the FDA refers to -- and it's really not an FDA requirement, but needs to fit the clinical evidence expectations of what's considered adequate and controlled. And so there's a structural definition that accompanies that. So with regards to mixed and motor, that's going to be randomized clinical trials. With regards to breast, unlikely to be randomized. There's great resistance to that given the current belief that it's unethical to do such. But nonetheless, there's a desire for greater clarity in terms of patient fit and response rates. And so there will be adequate control studies that will run there. So those 2, for example, are already planned. Those will all initiate this year. And then we will consider doing additional studies. Prostate, as you raised, will be certainly a significant effort, but we are not in a position to describe what that study will be until really before the end of this year once we see the clinical signals back from 10 clinical sites that we initiated last year. So most important thing to understand is while evidence is significant in so far as individual single-center studies, in terms of randomized studies, to put it in context, RECON is the largest randomized clinical study ever done in nerve care. And while we're very proud of that, it also speaks to the fact that there does need to be more evidence, and so we look at this as an opportunity. Our customers are actually very excited because we provide for those individuals an opportunity, essentially a vehicle by which to engage in nerve care in a way that's very common, say, for example, cardiovascular or some other health care domains, but not historically the situation in nerve care. Operator: The next question is coming from Jayson Bedford from Raymond James. Jayson Bedford: Congrats on the progress. Just as it relates to the BLA, it doesn't look like it based on the physician training metrics you provided, but are you assuming any step-up in growth directly related to the BLA? Michael Dale: Not explicitly. It was always assumed as part of the strategic plan that we would achieve Biologics License approval. And so the growth is implicit in our guidance. It's characterized based upon that assumption. Jayson Bedford: Okay. And then just you mentioned the active 679 high potential accounts within a universe of, like you said, 780. So my question is, you see scenarios where there's -- the potential universe of high potential accounts grows beyond the 780? Jens Schroeder Kemp: Yes, definitely. As we increase our target indications and target procedures, that high potential algorithm will evolve. And so we do expect in the future that, that universe of high potential accounts will grow. Operator: Next question today is coming from Caitlin Roberts from Canaccord Genuity. Caitlin Cronin: Just starting off with guidance. If you could provide some more color on the cadence of revenues throughout the year? Michael Dale: From a calendarization standpoint, it should be very similar to what you've seen the last 2 years for Axogen. To generalize, first quarter is typically the most modest quarter for the business. And then the second and third quarter are stronger quarters based upon the dynamics that transpire across nerve care. So summertime is when you see a very significant trauma, people are out and active. And so that's a pronouncement. But it just basically builds throughout the year. And I would look to the last 24 months of history to give you a guide for the calendarization. Caitlin Cronin: Awesome. And then just for breast. I think you've talked in the past about addressing only a certain part of the market given the technique of the nerve size limitations. Are you working on expanding the technique to address further breast recon procedures? Michael Dale: We are. So we have ongoing R&D and regulatory work to understand what other permutations could be offered that includes greater nerve length, greater -- different morphology representations on the nerve, all things that could make it easier. There's nothing expected this year that would be available. But certainly, within the next 24 months, if we decide and determine that we can successfully develop such, we will be bringing those to the marketplace. Operator: Our next question today is coming from Mike Kratky from Leerink Partners. Michael Kratky: So maybe just to jump in on prostate. You highlighted some really exciting milestones, over 100 procedures and some of the clinical activity we should be expecting in the latter part of this year. But how should we think about the potential revenue contribution in the commercial side ahead of that progression throughout the year? And any color there would be helpful. Michael Dale: Sure. So we're trying to maintain discipline as we wait for the clinical signals from those 10 clinical sites. So prostate will not be a significant revenue contributor in 2026. Michael Kratky: Got it. Understood. And just to clarify there, is there any then contribution in the first half? Or is it really -- that will be kind of the gating factor for your ability to drive more commercial adoption there just as you get more of that clinical signal? Michael Dale: Nothing that we haven't already forecasted implicit in the guidance, which we just shared. So certainly, there's spend and there's things being planned for potential development. But that's all captured in the guidance at present. And it would be very unlikely -- it's very unlikely that we would depart from the current plan. It really boils down to what we've been describing is that we want to see the clinical signals from those 100 patients in the various procedures that we conducted. And again, on the presumption that those are positive, then we'll have a lot more to talk about. Michael Kratky: Okay. Yes, I appreciate the color there. And then maybe just one last one, but some helpful color on the BLA expenses that you outlined in the fourth quarter. I'm curious if there was any G&A impact there? And then any BLA expenses that we should be building in for 2026? Lindsey Hartley: Yes. As I mentioned on the call, there was the stock-based compensation expense directly tied to that event. In G&A, it was $1.9 million. Across all of OpEx, it was $7.2 million. Operator: Next question today is coming from Anthony Petrone from Mizuho Group. Anthony Petrone: Congratulations on a strong end to the year here. Maybe I'll start just on the BLA transition, just something we touched on, Mike, previously, just around inventory or distributor channel shifts as you move from the tissue-based product to Avance BLA in 2Q? And anything we should be aware of over the next couple of months. And quick follow-up here would be on hospital outpatient, that new rate plus 40%. How does that play specifically on the breast side? Like how many breast reconstructions have done outpatient, and is that a driver for that segment in 2026. If I can, I have one quick one on just patient economics after as well. Michael Dale: Sure. With regards to the transition from the tissue to the biologic, it will be invisible to the customer for the most part. There's no inventory obsolescence risk. So all the mechanics and logistics have been factored in and should be seamless at this point. So hopefully, that answers that question. With regards to the outpatient dynamics, despite the changes in reimbursement, as we presently understand the market opportunity in breast, it will not be a factor of any significance with regards to the outpatient setting. Most of those procedures will remain inpatient as we currently understand the situation. Anthony Petrone: Yes, a quick one would be just on patient economics. When you think of core extremity, oral maxillofacial, you're bringing in breast now and these 100 cases in prostate in 2027, presumably that will grow. When you think about revenue per patient between core extremity and oral, how does that stack up to breast and prostate? By our math, I think you used quite a bit more Avance graft in the latter 2 surgeries. Just trying to get an idea of how the different patient categories stack up from a revenue capture standpoint? Michael Dale: Sure. In general, from a pure product standpoint, breast because of the longer grafts, these are typically 1 to 2-millimeter diameter grafts, 7 millimeter in length and the number of those grafts that are used, those will -- those procedures will represent the highest average selling price. There are exceptions in extremities based upon the trauma or the situation where it could be similar. But on average, extremities will have a lower ASP point based upon the number of grafts and products utilized. Prostate, should we succeed there and move forward, we'll employ grafts that are typically 4 to 5 millimeters in diameter and about 50 millimeters in length. And so it will also have a relatively higher ASP, but breast will remain into the future, the highest ASP procedure. Operator: Our final question today is coming from Frank Takkinen from Lake Street Capital Markets. Frank Takkinen: I was curious if I could follow up on breast. I think you outlined 1,200 potential accounts to target in that area. If you think about the 30 rep headcount, how much of that market can you pursue with that size headcount? Michael Dale: Only a portion of it. And so as I've mentioned in the past, we don't have a firm number yet, but I think it should be expected that, that organization could as much as double between now and 2028 and '29 to ensure that we have full coverage based upon the number of accounts are representative to support the care pathway development. So we're still watching that and evolving that. Still a little too early to put a stake in the ground. But the bottom line is we currently have plans to continue to grow the breast organization for the next several years. Frank Takkinen: Got it. That's helpful. And then just as my last one. Curious if you could talk about any long-term gross margin targets once we get to a place where you're consistently manufacturing under the BLA and where that gross margin profile can go over a longer period of time? Michael Dale: Our plan is to address that explicitly in the second half of the year. By then, we will have instituted many of the capital infrastructure investments and have those in place. And that's what's allowing us to guide that we expect improvements in 2027. And I know everyone is anxious to know what are we looking at. But until we really get that work behind us, we think it's appropriate that we hold off in terms of that guide. For this year, it's very similar to what we explained last year, that 74% to 76% range, people should feel good about. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Dale for any further closing comments. Michael Dale: Thank you, operator. On behalf of the Axogen team, I want to thank everyone for their time and interest in our work to fulfill the promise and potential for all stakeholders in our business purpose to restore health and improve quality of life by making restoration of peripheral nerve function an expected standard of care. We look forward to updating you on our continued progress and our plans for the business on our earnings call next quarter. So thank you very much. Operator: That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, everyone, and welcome to today's AdaptHealth Fourth Quarter 2025 Earnings Release. Today's speakers will be Suzanne Foster, Chief Executive Officer of AdaptHealth; and Jason Clemens, Chief Financial Officer of AdaptHealth. Before we begin, I would like to remind everyone that statements included in this conference call and in the press release issued today may constitute forward-looking statements within the meaning of Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding financial results for 2025 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed at length in the company's annual and quarterly SEC filings. AdaptHealth Corp. has no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, the company will reference certain financial measures such as EBITDA, adjusted EBITDA, adjusted EBITDA margin and free cash flow, all of which are non-GAAP financial measures. You can find more information about these non-GAAP measures in presentation materials accompanying today's call, which are posted on the company's website. This morning's call is being recorded, and a replay of the call will be available later today. I am now pleased to introduce the Chief Executive Officer of AdaptHealth, Suzanne Foster. Suzanne Foster: Thank you. Good morning, everyone, and welcome to the call. The fourth quarter of 2025 capped a tremendous year of transition for us. Over the course of 2025, we implemented a new operating model that drove standardization and process maturity across our enterprise. We closed the largest capitated contract in the history of the industry, and we honed our portfolio by disposing of noncore assets, using those proceeds and our strong free cash flow to pay down debt and strengthen our balance sheet. . The work we completed last year not only positions us for accelerated growth and improved financial performance in 2026 and beyond, but is essential to achieving our aspiration to become the most trusted and reliable partner in home medical equipment and services. In the fourth quarter, we continued that momentum, with broad-based patient census growth and strong revenue performance, along with meaningful operational improvements and commercial progress. Let me walk you through the details. Starting with the financial results. Full year revenue of $3.245 billion and Q4 revenue of $846.3 million, both exceeded the midpoint of our guidance range. Organic revenue growth, which does not include changes in revenue from divestitures or acquisitions, was 1.7% for both the full year and Q4. Underlying this revenue performance, we set patient census records in sleep health, respiratory health and wellness at home and a retention record in diabetes health. In sleep health, new starts were up about 6% year-over-year and just a few hundred shy of the record set in Q1 2023 during the post-Philips recall demand snapback. Sleep health patient census grew 4% year-over-year and set another new record. In respiratory health, oxygen, and vent new starts were up about 4% and 5%, respectively, and patient census for both product lines hit new all-time records. Vents for the third consecutive quarter. In wellness at home, new starts for wheelchairs and beds were about 6% and 5% year-over-year, respectively, with patient census for both hitting all-time records. And in diabetes health, patient retention was better than we have ever experienced, driven by the decision we made last year to integrate diabetes resupply into our sleep resupply operations. Diabetes patient census was flat year-over-year as the improved retention rate offset slower new starts. Turning to profitability. Adjusted EBITDA was $616.7 million for the full year and $163.1 million for Q4. Both periods included a $14.5 million legal settlement and about $10 million of accelerated costs to bring our new capitated arrangement live in December, ahead of schedule and to ensure an on-time go-live for the next phase scheduled for Q1. Excluding these 2 items, adjusted EBITDA was in line with our full year 2025 guidance as we continue to demonstrate discipline on labor and operating expenses. The underlying earnings power of our business remains intact, and we are maintaining the 2026 guidance previewed on our Q3 earnings call. We continue to make progress on our balance sheet. During the quarter, we reduced our debt balance by another $25 million, bringing the year-to-date total to $250 million. And S&P and Moody's, both upgraded our credit ratings, reflecting our focus on debt reduction and our strong free cash flow, which was $219.4 million for the full year. Let me take you behind these financial results to the operational progress that is beginning to show up in our numbers. The patient census growth, I highlighted previously, reflects our continued focus on rapid service delivery and clinical outcomes that drive physician referrals and patient retention. Central to that focus is the standard operating model implemented in Q3, which realigned our organizational structure and standardized workflows across the company. As part of that transformation, we centralized order intake in sleep in Q3, and we extended that to vents in Q4. This change is contributing to improved setup times and order conversion rates. In sleep, referral to setup improved to 9 days, down from 10 days in Q3 and from 23 days a year ago. In respiratory, referral to setup improved by 3 days year-over-year for both oxygen and vents. We also operationalized new CMS documentation requirements for vents, requirements, we believe, could be challenging for smaller competitors and a tailwind for our vent share in 2026. We also continue to produce industry-leading clinical outcomes. For example, in sleep, adherence continues to be 10 percentage points above the industry top quartile. We are deploying technology to further enhance service delivery. And AI pilots for sleep order intake significantly reduced processing time and our conversational AI for PAP self-scheduling meaningfully reduced patient phone times. Given the success of both pilots, we plan to roll them out to additional regions in 2026. We are also advancing our digital patient engagement capabilities, with the self-scheduling feature we introduced in earlier 2025, helping to more than double myAPP users to over 327,000 at year-end. Another element of our operational transformation, the centralized patient services contact center introduced in Q3 proved critical to successfully onboarding the Mid-Atlantic cohort of patients for our new capitated contract, achieving 98% answer rates. That success is early proof of something that will matter enormously over the coming year, our ability to execute complex large-scale transitions. Our new capitated contract is a massive undertaking, the largest service transition in the HME industry's history. To put that in context, when fully operational, we'll be serving over 10 million patients nationwide with approximately 1,200 dedicated employees across 30 locations. We went live with the 3 Mid-Atlantic states in December, covering approximately 50,000 members. This was earlier than planned and the transition has been remarkably smooth, thanks to 7 months of preparation by our team and exceptional collaboration with both the incumbent provider and our customer. As I mentioned earlier, we have also been investing in the infrastructure and staffing required for the upcoming start dates. The preparation, collaboration and forward investment give us confidence in our ability to onboard the remaining patients on schedule in the first half of 2026, while maintaining continuity of care as they transition between providers. It also gives us confidence in our ability to deliver on the contract's performance requirements, metrics like speed to serve, responsiveness and patient satisfaction. We know we can meet these requirements because they essentially mirror what we've been delivering under the Humana capitated arrangement, which has demonstrated we can execute this model at scale. Turning to our commercial progress. We continue to strengthen our sales organization in the fourth quarter. We deepened sales leadership across the organization and standardized daily management routines, giving our teams aligned data, clear structure and shared accountability. These are the building blocks of sales force maturity. We continue to focus on building our capitated pipeline, several years of demonstrated performance under our Humana arrangement, combined with the scale of the contract we won last year, have established us as a proven partner for large capitated arrangements. We believe our operational capacity, technology infrastructure and focus on service excellence uniquely positions us to help payers and integrated delivery networks align incentives and keep patients healthy at the lowest sustainable cost. On the regulatory front, we received a favorable outcome from CMS on the upcoming round of competitive bidding, with our core sleep and respiratory products excluded from the next round, providing stability and clarity in our longer-term outlook. On the business development front, we closed the acquisition of a Hawaii-based HME provider, expanding our footprint to our 48th state. The deal provides the infrastructure needed to support our capitated contract in the state and establishes a beachhead for winning other business there. We also completed one divestiture in the fourth quarter, exiting a small remaining infusion asset in our Wellness at Home segment as part of our ongoing effort to sharpen our strategic focus and redeploy capital into our core businesses. Our acquisition pipeline remains active, and we continue to target home medical equipment providers that expand our footprint and increase patient access. In summary, as we enter 2026, we believe our house is in the best condition it has ever been. Our operational foundation is stronger. Our portfolio is more focused. Our balance sheet is healthier. Our patient census is growing, and our capitated contract is ramping. The work of 2025 was hard but necessary, and we are confident it has positioned us to deliver on our commitments to patients, partners and shareholders. We look forward to showing you what we can do. And with that, I'll pass the call over to Jason to review our financials. Jason Clemens: Thank you, Suzanne, and thanks to everyone for joining our call today. I'll cover our full year and fourth quarter 2025 results, then review our balance sheet and capital allocation before finishing with our 2026 guidance. For full year 2025, net revenue of $3.245 billion decreased 0.5% versus the prior year on a reported basis. Organic revenue growth was $56.9 million or 1.7% over the prior year. Full year revenue increased by $19.5 million because of acquisitions and decreased by $92.4 million because of dispositions. The dispositions were primarily attributable to the 3 businesses we sold within our Wellness at Home segment during 2025. For the fourth quarter, net revenue of $846.3 million decreased 1.2% versus the prior year quarter, but increased 1.7% on an organic basis, consistent with our full year rate and was impacted by the disposition actions noted a moment ago. Sleep health net revenue was $372.3 million, up 4.4% versus the prior year. New starts were approximately 130,600, up about 6% year-over-year and just a few hundred shy of the all-time record set in Q1 2023. Sleep health patient census grew 4% year-over-year to a new record of 1.73 million patients. Respiratory health net revenue was $178.2 million, up 7.8% versus the prior year. Oxygen new starts were up about 4% year-over-year and vent new starts were up about 5%. Oxygen patient census of approximately 335,000 patients set a new all-time record for the third consecutive quarter, and vent patient census also hit a new all-time record. Diabetes health net revenue was $158.5 million, down 7.4% from the prior year quarter. While new CGM starts remained soft, patient retention hit a new all-time record, the direct result of the changes we made to our resupply operations in late 2024. CGM patient census of approximately 153,000 patients was flat versus the prior year, but the shift in payer mix from commercial insurance to government payers resulted in lower CGM reimbursement per patient. Pumps and related supplies remained on track, growing patient starts and net revenue over the prior year. Overall, we are pleased with the continuing stabilization of the Diabetes Health segment. Wellness at home net revenue of $137.3 million declined by 16.1%, driven primarily by the disposition of certain noncore assets completed during 2025. New starts for wheelchairs and beds were up about 6% and 5% year-over-year, respectively, with patient census for both hitting new all-time records. Turning to profitability. Full year adjusted EBITDA was $616.7 million with an adjusted EBITDA margin of 19.0%. Fourth quarter adjusted EBITDA was $163.1 million with an adjusted EBITDA margin of 19.3%. As Suzanne noted, both periods were impacted by a $14.5 million legal settlement and over $10 million of accelerated expenses to onboard our new capitated contract faster than we originally anticipated, which together account for the variance to our guidance. Before leaving profitability, I want to note that our Q4 GAAP results include a noncash goodwill impairment charge of $128 million recognized as part of our annual goodwill impairment assessment and related to the estimated fair value of the Diabetes Health segment relative to its carrying value. This charge is excluded from adjusted EBITDA and has no impact on our cash flows or operations. Moving to cash flow. Fourth quarter cash flow from operations was $183.2 million. Capital expenditures were $103.9 million or 12.3% of revenue, reflecting continued investment in patient growth as well as forward investment to support the capitated contract ramp. Free cash flow was $79.3 million for the quarter. And for the full year, free cash flow was $219.4 million, meaningfully exceeding the top end of our guidance range. Turning to the balance sheet. We ended the year with $106.1 million in unrestricted cash. Working capital of $16.5 million was lower than normal due to the aforementioned legal settlement and infrastructure expenses. We continue to compress our cash conversion cycle over the course of 2025, and we ended the year at 40.8 days sales outstanding, the lowest since the Change Healthcare outage in 2024. Net debt stood at $1.694 billion at year-end with a net leverage ratio of 2.75x. This is up modestly from 2.68x at the end of Q3, reflecting the impact of the litigation settlement and pre-revenue contract costs on trailing adjusted EBITDA. We remain focused on our 2.5x net leverage target and continue to view debt reduction as among our highest capital allocation priorities as we believe a strong balance sheet is essential to unlocking and sustaining value for shareholders. We decreased interest expense by approximately $21 million versus the prior year, and the recent credit upgrades from both S&P and Moody's in the fourth quarter reflect the progress we've made as an organization. On capital allocation, our priorities remain investing to accelerate organic growth, debt reduction and selective tuck-in acquisitions that expand our geographic footprint and increase patient access. During 2025, we deployed $250 million to debt reduction and approximately $42 million to acquisitions, self-funded entirely through our free cash flow and disposition proceeds, recycling capital from noncore assets into businesses with stronger returns and better strategic fit. This disciplined approach to capital allocation is how we intend to drive improved return on invested capital in 2026 and beyond. Turning to guidance. We expect net revenue of $3.44 billion to $3.51 billion, adjusted EBITDA of $680 million to $730 million, free cash flow of $175 million to $225 million. Our underlying assumptions for revenue represents 6% to 8% growth over 2025. We anticipate that organic growth of 7.5% to 9.5% will be offset by about 1.5% compression, net from acquisition and disposition revenue from previously closed deals. We expect 5% to 6% growth over 2025 revenue resulting from a new capitated agreement, and we expect another 2.5% to 3.5% growth from the rest of the business. We believe sleep health and respiratory health will grow faster than that range, offset by generally flat expectations for diabetes health and wellness at home. For the first quarter of 2026, we expect revenue growth of 2% to 3% over the prior year quarter. Over the course of the year, we expect ramping capitated revenue to result in adding a few points of incremental year-over-year growth each quarter peaking at low double digits by Q4. Our 2026 midpoint for adjusted EBITDA translates to approximately 20.3% adjusted EBITDA margin, a full percentage point better than 2025. For the first quarter of 2026, we expect adjusted EBITDA margin of approximately 16%, as we expect to carry capitated infrastructure expenses in the first part of the quarter prior to revenues ramping in the back half. We expect improving margin throughout the year as the capitated revenue ramps, particularly in the back half. And similarly, we expect free cash flow to be negative $20 million to negative $40 million in the first quarter, with improvement throughout the year as the capitated revenue ramps and the associated infrastructure costs are absorbed. As usual, we expect to generate approximately 1/3 of our full year free cash flow in the first half of the year with the remainder coming in the back half. I have one last point regarding the infrastructure investments we are making to support our new capitated contract. As you'll note in our forthcoming 10-K subsequent to December 31, 2025, we acquired certain assets of a provider of home medical equipment for total consideration of $47.6 million. To support that acquisition and potential similar future acquisitions, we drew $100 million from our revolving credit facility. We believe that these equipment acquisitions will support smooth patient transitions, and we expect to pay down the revolver as free cash flow builds throughout the year. That brings me to the end of my remarks. Operator, will you please open up the call for questions? Operator: [Operator Instructions] We'll take our first question from Eric Coldwell with Baird. Eric Coldwell: I just wanted to hit on the legal settlement. I wanted to confirm if this is the civil debt collection class action from North Carolina that was initiated several years ago? And is the $14.5 million a final settlement or an estimate? Does it cover all similar or potential claims? In other words, can we expect that this is onetime and won't repeat? And then finally, obviously, these claims relate to activities that began many years ago under different leadership. But what steps has the company taken to prevent similar complaints or issues in the future? Suzanne Foster: Appreciate that, Eric. Yes, to all of your assumptions above, meaning that this was a claim that was brought against the company in 2022. And to your point, it deals with the technicality and debt collection practices. It does -- it is the final amount and settles all claims in that state. And since then or even right after that, those -- on the technicality, we do not or have fixed anything that would be perceived as a violation of that technicality. Not saying that we thought that we are in violation of it to begin with, However, anything that could be interpreted as such has been fixed. And we decided to settle this rather than pursue this litigation as a means to further derisk the business. We have so much to look forward to the next couple of years that we thought getting this legacy lawsuit behind us, made a lot more sense at this point. Jason Clemens: Eric, this is Jason. I might add that since 2022, there's been significant maturing in the overall control environment here at AdaptHealth, so much so that you'll note in the forthcoming 10-K this afternoon that you'll see for the first time, AdaptHealth has achieved an opinion from our auditor with a clean bill of health regarding our SOX environment. And so prior year material weaknesses, really at various points along the way have been remediated, which we're very happy about. Operator: We will move next with Kevin Caliendo with UBS. Kevin Caliendo: And Jason, thanks for the color on the cadence. I just want to make sure I understand fully how to think through the impact of the investment in 4Q and the guidance, like the margin cadence for fiscal '26. It sounds like it's going to be different than fiscal '25 a little bit, right? There's a mix of business in your onboarding. How should we think about it in the context of over the course of the year? I know you made comments around 1Q and free cash flow, but any more specifics there as we just think about modeling it to start? Jason Clemens: Sure. Yes, Kevin. So we started with the Q4 guidance of top line at 2% to 3% revenue growth, and adjusted EBITDA margin of approximately 16%. And so particularly as the new capitated arrangement starts ramping, we expect revenue as we get into the second quarter, to be up another 3% or so incremental from Q1. We expect Q3 to be up another 3% or so incremental in terms of growth against Q2. And then as we said in our prepared remarks, we expect in Q4 over the prior year to grow revenue in the low double digits. To go in line with that revenue growth, again, we're facing that pressure in the first quarter from carrying significant expenses on the P&L prior to really the substantial contract dates really starting here in the first quarter and on throughout the year. We expect margin to be at or near 20% as we get into that second quarter. And then we think we'll add about 1.5 points to that in each of the third and then incremental again into the fourth quarter. So again, full year, we think that revenue growth will be 7% at the mid. We think the full year adjusted EBITDA margin will be just over 20%, representing an incremental point over the prior year. Kevin Caliendo: And just a quick follow-up. You mentioned the 2 pilots for fiscal '26. Are they material in any way to your financial performance here? How should we think about that? Is there update that we get on these over the course of the year? Jason Clemens: Well, Kevin, I'd say that they're not yet material, certainly, in the Q4 that we just reported nor in the Q1 guidance, the formal guidance that we brought forth this morning. We do, however, believe that we will get operating leverage over the course of the year related to these technology investments, and that is embedded in the guidance that we brought forth. Operator: Our next question comes from Richard Close with Canaccord Genuity. Richard Close: I'm curious if you guys can talk about the pipeline of capitated agreements. Obviously, a strong start to this large contract and continued execution on the previous Humana. So maybe just a lay of the land on the opportunities that exist going forward on that front. Suzanne Foster: I'll start there. We are out there, obviously responding to some inbound and obviously some outbound requests to discuss how we operate that business, the value to both sides and the patient under these types of arrangements. As I've said before, we can service this business, whether it's fee-for-service or capitated. And I think there is some market interest in getting to a place where incentives are aligned. So there is many conversations going on that are proceeding for us, but these do take time. If you think about the contract we just won, that was over a year, call it, 2-year conversation. There's infrastructure and IT systems and things that have to happen, especially if it's a new capitated arrangement. So we're going to continue to push forward and have those conversations, but I do see that there is market appetite for these, call it, not for fee-for-service arrangements. Jason Clemens: Richard, the last thing I'd add there is that we view the capitated pipeline, much like we do our M&A pipeline is that we are continuing to pursue both, but we do not assume any impact inside of our guidance until or unless we close deals. Richard Close: Okay. That's helpful. And then maybe just really quickly on diabetes. I appreciate the success on the retention and consolidating that with the sleep. I'm just curious when you expect that from a new start perspective to, I guess, begin to show growth? Or what are your long-term thoughts on the growth of that segment? Suzanne Foster: Sure. I'll start there. Yes, thank you for calling out the hard work that our resupply Nashville team has done around really improving substantially how we service our resupply patients and the retention rates are proof of that. We knew going into the turnaround that we initiated, what, 18 months ago or in the fall of 2024 that our -- the confidence in the team down in Nashville would produce a sooner, better outlook for diabetes and that it takes time to build up the sales force, retrain them and to earn the trust back of the referring providers. And so that has been the work over the past year to the point that we have also started to see improvements there in pockets of the country. And we've also made the decision to grow our diabetes sales force to improve our CGM, particularly our CGM new starts in 2026, notwithstanding that we're holding the expectation too flat until that proves out. And then missed the last part of that question. Jason Clemens: Yes. I'd say, Richard, if we think about the components of the segments, in CGMs, we've got the resupply, as Suzanne referenced. We've got new start activity that we are making key investments in an attempt to jump start the start activity from our field force as well as our pharmacy operations. And so we feel pretty good about being able to achieve that as we get later in the year. And then finally, don't forget pumps. I mean, we had a good year with pump revenues. And in Q4, both new starts and net revenue for pumps was up low double digits. Operator: Our next question comes from Brian Tanquilut with Jefferies. Meghan Holtz: This is Meghan Holtz on for Brian Tanquilut. I just wanted to begin with, can you provide us any update on the infrastructure readiness for this new national health care system partnership this year? Are there any additional investments we need to be thinking about? Or are you in line with your initial outlook? Jason Clemens: Meghan, I would say that we are right down the fairway with our initial outlook. The investments that we made in Q4 and that we're carrying through Q1, they have shored up a February 1 start date on the West Coast that we are now taking care of a lot of patients from this new capitated arrangement. We do have subsequent start dates as we get into the back half of Q1 and on throughout the year. We've made key investments there. We talked about the Hawaii acquisition, which is a terrific business on its own, and it will be part of supporting Hawaiian operations for this contract as that start date occurs later in the year. And then finally, we referenced the $100 million draw on the revolver in reference to an acquisition that's already closed in support of that February start date, and we are pursuing similar acquisitions to support the rest of the West Coast operations. And so we're not we're not celebrating yet. I mean there's still a lot of work ahead. But overall, we're very pleased with getting the December and February start dates secured, and we feel good about the rest of the year. Meghan Holtz: Okay. And then as a quick follow-up, as we think about free cash flow guidance, CapEx stepped up, obviously, in regards to supporting this contract as well. As we exit Q4, is this the right run rate going forward? Jason Clemens: Yes, we do think that this is just about the right run rate as a percent of revenue. I mean, I would point out that through the disposition activity over the last, call it, 5 quarters or so, I mean we did take out about 5% of top line revenue. Now none of those businesses sold really had any CapEx at all. And so that alone add about 0.5 point to CapEx and which is why the run rate we're seeing here in Q4, we feel pretty comfortable with going forward. Operator: We will move next with Pito Chickering with Deutsche Bank. Kieran Ryan: This is Kieran Ryan on for Pito. Just wanted to check in on the sleep business first. Just see if there's anything that we should be aware of there on cadence year-over-year or year-over-year comps or if there's anything that you'd want to highlight around maybe from a price mix perspective? Or should we generally just expect revenues to be tracking with the strong new starts and census you're seeing? Jason Clemens: Kieran, it's Jason. I'm glad you're calling this out because there is some noise in the comparable in 2025. You might recall that we had discussed a change in the rental and sales mix within sleep last year related to the accounting of a component of the CPAPs. I mean in the first quarter last year, that was about $15 million, just a touch under. That cut in half approximately in the second quarter and again in the third and then started running out in the fourth quarter. And so that does set up an easier comparable in 2026 over 2025. Otherwise, our start growth, we've been very pleased with. We are nearing record start activity for sleep, and we're feeling very good about the sleep business for 2026. Kieran Ryan: And then just a follow-up once more on diabetes. Just kind of wanted to check in and see what you're seeing on the DME versus pharmacy side there. I know I think you've seen most of that shift already occur on the CGM side. So kind of just wondering if that's stable and then more so just what you're seeing in pumps as we see more pumps kind of moving into that channel? Jason Clemens: Sure, Kieran. So I'd say on the CGM side of things, we absolutely saw fewer payer policy changes or notifications as we're starting this year versus what we saw in 2025 or particularly in 2024. So that's a good thing for the business. And then on the pump side of things, we do have full capability within our pharmacy operations to distribute pumps through that channel as well as through the more traditional DME channel, which is part of why we're seeing very good pump growth here in the back half of '25, and we think that will continue in 2026. . Operator: We do have a follow-up from Eric Coldwell with Baird. Eric Coldwell: And I just wanted for posterity, I wanted to go back to the capitated contract onboarding expense in the fourth quarter of -- I think it was just over $10 million. Can you remind us how that compared to what was embedded in your guidance previously? Was there any delta on that number? And then I might have a quick follow-up. Jason Clemens: Sure, Eric. The delta was just a touch under $10 million at approximately $8 million. Now considering that we guided first week of November, I mean, we certainly had a sense that we were going to overrun and overspend on labor and vehicles and general OpEx within the quarter. However, we wanted to be cautious in communicating that without the corresponding revenue ramp that was going to come with it. So at the end of the day, I mean, we spent more than we communicated. However, the initial outlook we provided in '26 and the revenue that came with that, you'll note that we stepped up the contribution from this capitated arrangement pretty meaningfully. I mean back in November, we said that we believe it would be 3% to 5% growth to be attributed to that contract in 2026. And today, we stepped that up to 5% to 6% growth. So this was timing. Expense came bigger and faster than we said it would. However, the revenue is also coming bigger and faster than we said it would. So we feel pretty good about it. Eric Coldwell: And then on the Hawaii acquisition I may have missed this, but did you size the revenue contribution? I know you gave us a net impact of M&A and dispositions in the -- embedded in the outlook for growth. But did you size the Hawaii deal specifically? Jason Clemens: We didn't, but we're happy to, Eric. That Hawaii ideal, excluding any impact from the upcoming capitated arrangement, the run rate is about a little over $1 million a month. Now we netted that against what we project to be a third and final disposition in our home infusion assets. which was also just over 1 million a month. That deal closed on January 1. So subsequent to the end of the quarter, you'll see that in the filing. And so they really wash out, which is why we didn't mention it. Operator: [Operator Instructions] We show no further questions at this time. This will conclude our Q&A session as well as our conference call. Thank you all for your participation, and you may disconnect at any time.
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.
Operator: Thank you for standing by. Welcome to the Kiniksa Pharmaceuticals Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Jonathan Kirshenbaum, Investor Relations. Please go ahead, sir. Jonathan Kirshenbaum: Thank you, operator. Good morning, everyone, and thank you for joining Kiniksa's call to discuss our fourth quarter and full year 2025 financial results and recent portfolio execution. A press release highlighting these results can be found on our website under the Investors section. As for the agenda, our Chief Executive Officer, Sanj K. Patel, will start with an introduction. From there, Ross Moat, our Chief Operating Officer, will discuss our IL-1 inhibition franchise and provide an update on ARCALYST commercial execution. Then Kiniksa's Chief Financial Officer, Mark Ragosa, will review our fourth quarter and full year 2025 financial results. And finally, Sanj will share closing remarks and kick off the Q&A session, for which Dr. John Paolini, our Chief Medical Officer; and Eben Tessari, our Chief Strategy Officer, will also be on the line. Before getting started, please note that we will be making forward-looking statements today that are subject to risks and uncertainties that may cause actual results to differ materially from these statements. A review of such statements and risk factors can be found on this slide as well as under the caption Risk Factors contained in our SEC filings. These statements speak only as the date of this presentation, and we undertake no obligation to update such statements, except as required by law. With that, I'll turn it over to Sanj. Sanj Patel: Thanks, Jonathan, and good morning or good afternoon, everyone. I look forward today to reviewing Kiniksa's fourth quarter performance and key highlights across our portfolio over the past year. Diligent execution across our commercial and clinical organization throughout 2025 has put us in a strong position to further advance our business. ARCALYST revenue continues to grow, driven by the expanding adoption of IL-1 alpha and beta inhibition across the recurrent pericarditis population. Since the launch in 2021, we have delivered this transformative therapy to thousands of patients, enabling a fundamental shift in the treatment paradigm and driving sustained revenue growth. On a year-over-year basis, ARCALYST product revenue grew 65% to $202.1 million in the fourth quarter and 62% to $677.6 million for the full year 2025. Importantly, ARCALYST revenue growth has been profitable since the fourth quarter of 2021. This has allowed us to make strategic investments across sales and marketing with the aim of capturing additional long-term growth. Ross will cover this in a moment. Kiniksa's robust financial position gives us the ability to create additional value by investing in R&D and advancing internally discovered and developed assets such as KPL-387 and KPL-1161 as well as pursuing strategic business development. Focusing on clinical, this time last year, we announced our development program for KPL-387 in recurrent pericarditis with plans to initiate a Phase II, Phase III clinical trial in the middle of last year. That was achieved, and we are continuing to enroll and dose patients in the Phase II portion of that program, and we are on track for data in the second half of this year. Together with continuing ARCALYST growth, the development of KPL-387 positions Kiniksa to extend its leadership of the recurrent pericarditis market. In particular, we believe KPL-387 could address key patient needs and expand penetration into the addressable market by potentially enabling monthly dosing with an auto-injector. In addition to KPL-387, we also recently announced that we plan to be in the clinic with KPL-1161, which is our Fc-modified IL-1 alpha and beta inhibitor by the end of this year. As highlighted, we made important progress across our commercial and clinical portfolio in 2025, and we are working diligently, some would say like the clap to continue that strong trajectory in the year ahead. And with that, I'll turn it over to Ross to review our commercial execution. Ross Moat: As we shared earlier this year, Kiniksa's robust execution over the first 5 years of our commercialization has established the recurrent pericarditis market and put ARCALYST on a path to future blockbuster status. Our full year 2025 net revenue was $677.6 million, which is an increase of more than $260 million compared to 2024 and represents the highest year-on-year growth to date. The primary driver of this growth has been the expanding adoption of interleukin-1 alpha and beta inhibition with ARCALYST as a second-line treatment immediately after the failure of NSAIDs and colchicine. In 2026, we expect to continue expanding the utilization of ARCALYST in recurrent pericarditis and reiterate our previously announced full year net revenue guidance of between $900 million and $920 million. Historically, Q1 faces some seasonal headwinds in the specialty drug sector associated with payer plan changes and co-pay resets. And as a reminder, in Q1 of last year, we benefited from a onetime bolus of patients who transitioned to commercial therapy associated with the IRA and Medicare Part D changes. As you've heard from Sanj, our ARCALYST franchise is profitable, which over time has allowed us to invest in our commercial infrastructure and digital marketing efforts to maximize our opportunity in recurrent pericarditis by reaching additional health care professionals and patients. In 2026, our focus is to unlock the next phase of growth for ARCALYST by driving further physician awareness of the 2025 ACC concise clinical guidance, advancing our digital marketing initiatives to empower patients to discuss ARCALYST with their physician as well as utilizing AI and machine learning to efficiently and effectively target the right physicians at the right point in time and to explore ways to expand the impact of pericardial disease centers where the growth in ARCALYST prescriptions has outpaced growth at other sites. At the end of 2025, more than 4,150 prescribers had written a prescription for ARCALYST. Of those, around 29% or more than 1,200 prescribers have written ARCALYST for 2 or more recurrent pericarditis patients. This continued growth in both total and repeat prescribers illustrates how we are evolving the treatment paradigm in recurrent pericarditis by updating the approach for treating the disease with targeted interleukin-1 pathway inhibition. Additionally, we've built a strong foundation to our commercialization with the average total duration of therapy approaching 3 years, robust payer approval rates and strong patient adherence, all of which has created solid commercial fundamentals. With increasing penetration into the multiple recurrence target market and additional upside with ARCALYST being used earlier in the disease course, we continue to see meaningful opportunity ahead. The combination of an effective commercial engine with robust safety and efficacy data for ARCALYST means we are well positioned to continue expanding our reach into both the multiple recurrence and first recurrence populations. On the left-hand side of this slide, you can see that our penetration into the 2-plus recurrence target market has increased over time, most recently up to approximately 18% at the end of 2025 compared to around 15% in the middle of last year and 13% at the end of 2024. As we've previously stated, approximately 20% of ARCALYST prescriptions have been written for patients following their first recurrence, demonstrated increased use earlier in the disease course. Overall, we are seeing physicians more readily turn to targeted interleukin-1 alpha and beta inhibition with ARCALYST after the failure of NSAIDs and colchicine. In 2025, this evolution in treatment paradigm was ratified by the publication of the ACC concise clinical guidance, which now recommends interleukin-1 pathway inhibition as a second-line approach immediately following the failure of NSAIDs and colchicine in patients suffering from recurrent pericarditis. As you've heard, we are pleased with our solid execution and progress. But far more importantly, we are excited about the opportunity ahead to support significantly more recurrent pericarditis patients with ARCALYST. And with that, I'll turn the call over to Mark to review our financial results. Mark Ragosa: Thanks, Ross. In 2025, we advanced both our commercial business and our clinical portfolio while maintaining a strong balance sheet, positioning us to continue to help patients and grow in 2026 and beyond. This morning, I will walk through our fourth quarter and full year 2025 financial results. You can find our detailed financial information in today's press release. There are a few items of note. First, starting on the left-hand side of this slide with our income statement. As Sanj and Ross noted, broader adoption of IL-1 alpha and IL-1 beta inhibition as a second-line treatment drove strong ARCALYST product revenue growth in 2025. ARCALYST product revenue grew 65% year-over-year to $202.1 million in the fourth quarter and 62% to $677.6 million for the full year 2025. Second, operating expenses grew year-over-year in both the fourth quarter and the full year 2025, driven by higher cost of goods sold due to ARCALYST growth, increased collaboration expenses aligned with higher ARCALYST collaboration profit and additional SG&A expense with investment to further support ARCALYST commercialization. Third, net income was $14.2 million in the fourth quarter of 2025 compared to a net loss of $8.9 million in the fourth quarter of 2024. And net income was $59 million for the full year 2025 compared to a net loss of $43.2 million for the full year 2024. Fourth, the right-hand side of the slide provides the calculation for ARCALYST collaboration profit, which largely drives total collaboration expenses. On a year-over-year basis, ARCALYST collaboration profit grew faster than sales, up 83% to $140 million in the fourth quarter and up 96% to $459 million for the full year 2025. Lastly, regarding our balance sheet at the bottom of the slide, we ended 2025 with $414.1 million in cash, representing $170.4 million of net cash generation for the year, and we expect to remain cash flow positive on an annual basis under our current operating plan. With that, I'll turn the call back to Sanj for closing remarks. Sanj Patel: Thanks, Mark. As you've heard, Kiniksa continues to execute both commercially and clinically and is well positioned to build significant future value as we grow our IL-1 alpha and beta inhibition franchise. We've got a brilliant team that is dedicated to helping as many patients as possible with ARCALYST and to advancing the development of our clinical portfolio in order to bring additional therapies to patients suffering from debilitating diseases. With that, happy to turn it back to the operator for questions. Operator: [Operator Instructions] And our first question for today comes from the line of Nick Lorusso from TD Cowen. Nicholas Lorusso: So you guys have reported continuing increased penetration in the multiple recurrent setting. So I'm kind of wondering what do you think the peak penetration is for ARCALYST in this setting? And how could that evolve with the potential approval of KPL-387? Sanj Patel: Thanks, Nick. Maybe I'll start. This is Sanj Patel. I'm happy to pass over to the team or Ross, Nick for the comments. So at this point, we have not commented on the peak penetration. Suffice to say that as I think Ross mentioned, we do believe there's still an awful lot of growth that we can capture with ARCALYST. And obviously, a lot of the work that we're doing both through our sales force, through marketing, digital efforts are making a lot of inroads there. So we continue to crack on penetrating into that market. How far it will go, time will tell, but it really is an axis of how much work we put into it and how smart we work. Ross, any comments? Ross Moat: No, I think that's great. I mean maybe just to add that we feel like we're relatively nascent in the opportunity. We've got a huge opportunity left ahead. We announced we're around 18% penetrated into the target population of patients with 2 or more recurrences. That's a 14,000 population at the end of 2025. And that's without taking into account those patients that are earlier on in the disease on their first recurrence, which is a much larger group of patients, around 26,000 patients in any given year. So the opportunity is there for us to do much more, albeit that we're happy with where we are at this stage, but we're very excited about the future. Operator: Our next question comes from the line of Eva Fortea from Wells Fargo. Eva Fortea-Verdejo: Congrats on the quarter. A quick one from us. You've mentioned several times now that 20% of ARCALYST patients are in first recurrence versus 80% in 2 plus. And I guess my question is, is the pace of growth in these 2 different patient populations the same in terms of like ARCALYST? And does your market research suggest potential changes to the 20:80 ratio? Ross Moat: This is Ross. So I'll start to answer that. And John, if you've got anything to add, please feel free to do so. But you're right in stating that the percentage of patients that we have in the first recurrence has grown over time. It's around 20% of all ARCALYST prescriptions that seem to be in the first recurrence group at this stage. So we view that as a positive change as we've evolved the treatment paradigm and as physicians get more and more comfortable both with prescribing ARCALYST but also seeing the effect of having their patients on ARCALYST and what that does to them over the long term for dealing with this kind of multiyear chronic disease in most patients. That creates familiarity and confidence to go and prescribe earlier on in the disease and help more patients. So we think that's great. How that will evolve over time is to be seen. But we think it's kind of a positive stage for where we are right now. When we think about those patients in the first recurrence group, there are certainly patients there that are more high risk for longer duration of disease and suffering future recurrences, particularly those patients that have other risk factors or they're suffering from a significant effusion or even cardiac tamponade or constriction and that those patients could be helped within label for ARCALYST, which obviously covers recurrent pericarditis overall and is not -- is agnostic to the number of flares a patient has suffered. So the opportunity to help those patients as well and to avoid them going on and suffering future detrimental effects of this disease is very much there for the health care professionals to decide to prescribe within that population. So we're happy that more and more people so far seem to be doing that. Operator: And our next question comes from the line of Geoff Meacham from Citi. Geoffrey Meacham: Congrats on the quarter. Just have a couple. The first on the pipeline, so 387 or even 1161, what's the extent of FDA interactions of late? It does seem that the agency is maybe more open for novelty on design or maybe adding analytics just to speed up the development and maybe down the road, the review process. Just curious your thoughts on that and maybe how you could take advantage of that. And the second one, another one on first recurrence versus second or later. Are there differences in persistent rates between those 2 populations? I wasn't sure how any commercial metrics tease out between those 2 populations. Sanj Patel: Yes. Good to hear your voice, Jeff. Thank you for the question. Maybe I'll take a quick start and then John, pass over to you for the remainder of the interaction with the FDA and then Ross for you on the recurrences. So as always, we approach our development plans with absolute rigor no matter what we see in the agency. And I think a lot -- it's not lost on us that there have been some changes. But I think in the history of Kiniksa and even before, we've always took great pride in having a lot of thought, diligence, quality and putting really robust development packages together. That changes no matter what. But you're obviously right, we are quite excited about the new development of 387 and 1161, believe there's a lot of potential there. But I think no matter what John is about to say in terms of interactions with the FDA, we treat it the same, and we put together very robust development packages with well-thought out protocols. John? John Paolini: Thank you, Sanj. And thanks, Geoff, for your question. Yes. So we very much value our interactions with the FDA and have found them very productive. As I think we mentioned when we announced the program that we had with regard to KPL-387, that we have had interactions with the FDA that laid out the development program. It's important to note that we have already kind of laid out the entirety of the integrated development program, which includes not only the Phase II work that is ongoing, but also the subsequent Phase III trial that is planned as well as the long-term extensions. So that totality of the package has certainly been assembled. And the communications that we've had have affirmed, if you will, our belief that the Phase II trial would be sufficient and pivotal for registration in the U.S. Now that said, we are always looking for opportunities to move the program faster in order to develop what we believe will be potentially transformational and additional therapy for patients and an additional treatment option. So we'll, of course, be looking for ways to do that. With regard to 1161, of course, this program is still in its preclinical development activities. And so we'll have more to say about that as we progress. So thanks for the question. Ross Moat: Thanks, John. And Geoff, thank you for the questions. This is Ross. So to the part of your question around any difference in persistence rates between the 2 populations, we haven't seen anything meaningfully different between those 2 populations, whether it's those patients that have been suffering for 2 or more recurrences or on their first recurrence, but with additional risk factors signaling potentially longer disease duration, which is, I guess, as expected, we know that these groups of patients generally suffer from chronic multiyear disease. So we haven't seen any meaningful difference between those groups. And I think moreover, what we're seeing is that health care professionals have moved their mindsets in how to treat this disease, not only with the utilization of interleukin-1 alpha and beta inhibition opposed to reaching for steroids or other ways of trying to manage this disease, but also in their mindset shift around that this is actually a chronic multiyear disease in most patients and rather than treating for the short term, as used to be the case, particularly with the toxicity and the effects of trying to get patients off corticosteroids treating throughout the duration of the disease with interleukin-1 alpha and beta inhibition is really the goal for the management of these patients. So hopefully, that answers that part of your question as well. Thanks, Geoff. Operator: [Operator Instructions] Our next question comes from the line of Anupam Rama from JPMorgan. Unknown Analyst: This is Joyce on for Anupam. Maybe just a follow-up on the previous question. For KPL-387, once you've completed the dose focusing Phase II portion, how are you thinking about enrollment curve for the Phase III? And then are you seeing any differences in the types of patients you're enrolling relative to RHAPSODY now that ARCALYST is on the market? John Paolini: Thank you for those questions. They were quite excellent. So with regard to the latter portion of your question about the types of patients, what we've described in the study is bringing in patients with recurrent pericarditis. It's important to realize that this is a global study as well. So it's enrolling patients not only in the United States, but also globally. And at this point in time, ARCALYST is available in recurrent pericarditis only in the United States. And so it's a very robust study in terms of the types of populations that it's enrolling. And so the design is very straightforward in that regard. With regard to the transition to the Phase III study, so at this point, what we've guided to is that we would have data from the Phase II portion of the trial in the second half of 2026. And we've commented that we anticipate bringing this drug to patients in the 2028, 2029 time frame. So we have yet to provide guidance on the initiation of the Phase III study. And so in that sense, that will -- in clinicaltrials.gov is certainly a very reliable place to look for updates as well as any updates that we provide ourselves. Operator: And our next question comes from the line of Roger Song from Jefferies. Jiale Song: Congrats for the quarter. Also a question related to the 387. Just given the current Phase II/III and this Phase II transition from the standard of therapy, those study design and the planned studies, will this -- the label and then the potential reimbursement test will be similar to the ARCALYST when 387 launched? And then ultimately, when it's available, basically led the physician -- patient to choose between 387 versus ARCALYST? Is that the base case here? John Paolini: Thanks, Roger, for the question. Maybe I'll deal with the regulatory question and then hand it over to Ross in terms of market penetration. So yes -- so with regard to the regulatory program, so as you remember, the ARCALYST program, which was an sBLA at the time, with RHAPSODY, supported a label that was agnostic to a number of recurrences in prior therapy. So it simply states for the treatment of recurrent pericarditis and reduction in risk of recurrence. And so that is a very solid label, which gave us the foundations to grow and evolve the treatment paradigm. So the KPL-387 program, as you know, is designed in a very similar way in that except with the difference that it is a full BLA package, meaning that this is the first -- this would be the first labeled indication for KPL-387. And so in that sense, it carries with it a slightly larger base program in terms of some of the initial Phase I and Phase II work that's being done as well as the larger long-term extensions to provide the safety package. But importantly, the core of the study is the Phase III pivotal study, which, as you can see on clinicaltrials.gov, bears a remarkable resemblance to the RHAPSODY study design. And of course, we always bring forward new innovations. But the goal of the program is to support a similar type of indication statement, if you will, in terms of the population of being able to treat all patients with recurrent pericarditis regardless of prior line of therapy and number of recurrences as long as they have that -- meet that diagnosis of having recurrent pericarditis. So that's the regulatory framework. I'll now turn it over to Ross to talk about the practice environment. Ross Moat: And Roger, thank you for the question. So maybe just best to start off by saying we believe that ARCALYST has a substantial future left to help many, many more patients suffering from recurrent pericarditis. But also as we progress with KPL-387, this program is aimed to address key patient needs and to expand the market for interleukin-1 alpha and beta inhibition with a target product profile of being less frequent dosing and a streamlined preparation and in a patient-friendly administration format there being the potential to go into an auto-injector. So we believe that all those things could be important future treatment option choices for patients. And based on the market research that we have at this stage and what we've shared is that when you look at both patient and health care professional preferences, around 75% of all recurrent pericarditis patients that we shared the target product profile with for both KPL-387, but as well as current commercial and other investigational therapies in recurrent pericarditis, around 75% of those patients said that they would prefer the target product profile of KPL-387. And when you look on the health care professional side, greater than 90% of health care professionals say that they are highly likely to prescribe KPL-387 for new patients suffering from recurrent pericarditis. So we think that all bodes well for the future, but we continue to be highly focused on ARCALYST as well as the work that we do across our pipeline and portfolio. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Sanj Patel, CEO, for any further remarks. Sanj Patel: Thanks, operator, and I appreciate all the questions and all of you for joining the call today. Obviously, we look forward to providing additional updates in the future. I'm sure you can tell from today that we are very energized as we head into this year, and we are going for brilliance as always. So thank you very much for joining. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Hello, and thank you for standing by. Welcome to the Portillo's Fourth Quarter 2025 Conference Call and Webcast. I would now like to turn the call over to Chris Brandon, Vice President of Investor Relations at Portillo's to begin. Chris Brandon: Thanks, operator, and good morning, everyone. Welcome to the Portillo's Fourth Quarter and Full Year 2025 Earnings Call. With me today are Mike Miles, Chairman of the Board and Principal Executive Officer; and Michelle Hook, Chief Financial Officer. You can find our 10-K, earnings press release and supplemental presentation on investors.portillos.com. Any commentary made here about our future results and business conditions are forward-looking statements, which are based on management's current expectations and are not guarantees of future performance. We do not update these forward-looking statements unless required by law. Our 10-K identifies risk factors that may cause our actual results to vary materially from these forward-looking statements. Today's earnings call will make reference to non-GAAP financial measures, which are not an alternative to GAAP measures. Reconciliations of these non-GAAP measures to their most comparable GAAP counterparts are included in this morning's posted materials. Finally, after we deliver our prepared remarks, we will be happy to take questions from our covering sell-side analysts. And with that, I will turn the call over to Mike. Michael Miles: Thanks, Chris, and good morning. The fourth quarter reflected the strengths and challenges facing Portillo's in 2025. While our core markets continue to have outstanding AUVs and profitability, our Texas market expansion continued to be a headwind for our business. As we announced last fall, we have reset our development strategy, slowing new store openings and focusing on healthy unit economics. While it will take time for our new approach to bear fruit and a number of restaurants opening in 2026 reflect prior strategy, our entry into the Atlanta market in the fourth quarter confirms the potential in our future growth strategy. Our restaurant in Kennesaw opened in November and through its first 8 weeks, registered over $2 million in sales. Portillo's fans drove from all over Metro Atlanta, indeed from all over the Southeast to get a taste of their Portillo's favorites. In addition to the outstanding top line, Kennesaw is the latest example of our reduced cost restaurant of the Future 1.0 format, a 6,200 square foot building that is about 20% smaller than most of the restaurants opened over the prior 5 years. For our new philosophy of separating new unit openings with more time and distance, the next restaurant in Atlanta will not open until 2027 and will be about 50 miles from Kennesaw. We are gratified and frankly, not really surprised by the results at Kennesaw. Each time we have entered a new market over the last 10 years, we've seen a similar response with 7 of those restaurants also exceeding $2 million over their first 8 weeks. Our approach over the next several years will consist of more of these types of entries, tapping into the pent-up demand from Portillo's fans to support our first in-market openings, then letting awareness and demand build before opening subsequent restaurants. We will continue to iterate on our prototypes as we look to develop the best possible offering for customers and shareholders with 4-wall profit potential driving each decision. Our Perks program continues to show promise. We now have more than 2 million members enrolled and have seen strong results for promotions delivered through the program. We are just scratching the surface and have a lot of opportunity to more precisely target offers. I am confident that Perks will play a valuable role in driving traffic improvements in 2026. And while traffic and sales continue to be our primary focus, we also took steps to improve labor management and profitability of the lower-volume restaurants in Texas during the fourth quarter. I'm also pleased to report, as you likely saw in our announcement 2 weeks ago that Brett Patterson has joined Portillo's as our new Chief Executive Officer. Brett has had a stellar career in the restaurant industry, working his way up from the front lines. He has all the qualities that the Board was looking for to lead Portillo's next phase of growth, operations experience, a strategic mindset and a people-first leadership style. Most importantly, he's a great cultural fit with Portillo's. The Board and I look forward to working with Brett to provide our customers with the best restaurant experience, our people with a great place to work and our shareholders with a profitable growing business. Before I hand it to Michelle, I would like to take a moment here to personally thank the Board, our executive team and all of the people at Portillo's for their support and commitment over these last several months. My time as interim CEO has only strengthened my conviction that this brand has a very bright future. Michelle Hook: Thanks, Mike, and good morning, everyone. During the fourth quarter, revenues were $185.7 million, reflecting an increase of $1.1 million or 0.6% compared to last year. Our revenue growth in the quarter was driven by non-comp restaurants. Restaurants not in our comp base contributed $7.8 million of the total year-over-year increase in revenue during the quarter. Same-restaurant sales declined 3.3%, which decreased revenues approximately $5.4 million in the quarter. The same-restaurant sales decline was attributable to a 3.3% decrease in transactions. Average check in the quarter was flat due to an approximate 2.3% increase in net effective menu prices, offset by a 2.3% decrease in product mix. We did not take any additional pricing actions during the fourth quarter, and our net effective price increase was approximately 3.2% for the full year. We will continue to evaluate pricing options in 2026, but our focus will be on growth via transactions versus pricing. We do anticipate that perks and other offers will continue to pressure our pricing benefit. Moving on to our costs. Food, beverage and packaging costs as a percentage of revenues increased to 34.6% in the quarter from 34.1% in the prior year. This increase was primarily the result of a 4% increase in our commodity prices, partially offset by an increase in price. In the quarter, we experienced increases in several categories, including our primary proteins of beef and pork. As we stated in January, we are forecasting mid-single-digit commodity inflation with primary pressures coming from the beef category. Labor as a percentage of revenues increased to 26% in the quarter from 24.6% in the prior year. The increase was primarily due to lower transactions, incremental wage increases and deleverage from our newer restaurant openings, partially offset by labor efficiencies and an increase in price. Hourly labor rates were up 3% in 2025. In 2026, we are estimating labor inflation of 3% to 3.5%. Other operating expenses increased $0.4 million or 1.9% in the quarter compared to the prior year, which was primarily driven by the opening of new restaurants. As a percentage of revenues, other operating expenses increased to 12.2% from 12% in the prior year. Occupancy expenses increased $1.2 million or 13.6% in the quarter compared to the prior year, primarily driven by the opening of new restaurants. As a percentage of revenues, occupancy expenses increased 0.6% compared to the prior year. Restaurant level adjusted EBITDA decreased $4.7 million to $40.6 million in the quarter from $45.2 million in the prior year. Restaurant level adjusted EBITDA margins decreased approximately 270 basis points to 21.8% in the quarter versus 24.5% in the prior year. As Mike noted, our Texas market expansion created a headwind. We incurred losses during the year and the impact on consolidated restaurant level margins were 180 basis points in the fourth quarter and 170 basis points for the full fiscal year. We've taken targeted actions to improve performance in this market. And while we still have a long way to go, we delivered slightly positive results in the final period of the quarter. In 2026, we estimate our restaurant-level adjusted EBITDA margins to be in the range of 20.5% to 21%. This estimate is inclusive of continued headwinds in our Texas restaurants and $4.5 million of additional bonus expense, assuming targets are met. Our general and administrative expenses decreased by $0.9 million to $19.4 million or 10.5% of revenue in the quarter from $20.3 million or 11% of revenue in the prior year. This decrease was primarily driven by lower variable-based compensation, partially offset by dead site costs of $1.5 million related to our strategic development reset. These costs reflect our deliberate decision to move to a more measured pace of new restaurant growth, reemphasizing unit economics and return on investment. Dead site costs for the full year were $5.1 million. In 2026, we expect G&A expense to be $80 million to $82 million, which includes a $4.5 million headwind from bonus expense, assuming targets are met. Preopening expenses decreased by $0.6 million to $3.3 million in the fourth quarter of 2025 compared to $4 million, primarily reflecting a strategic reset of development activities and the deferral of planned openings into 2026. Adjusted EBITDA was $24.7 million in the quarter versus $25.2 million in the prior year, a decrease of 2.1%. For 2026, we anticipate adjusted EBITDA to be flat versus 2025. But I want to emphasize that our 2026 estimate includes an expected $9 million headwind from a fully earned bonus at both the restaurant level and support functions. Below the EBITDA line, interest expense was $5.7 million in the quarter, a decrease of $0.4 million from the prior year. This decrease was driven by a lower effective interest rate of 6.7% versus 7.5% for 2024. At the end of the quarter, we had $90 million drawn on our revolving credit facility. Our total net debt at the end of the quarter was $334 million. We have approximately $56 million of available capacity on the revolver. For 2026, we expect to open 8 new restaurants and anticipate total capital expenditures in the range of $55 million to $60 million, including investments in our existing restaurants, our commissaries and other corporate initiatives. Income tax benefit was $0.8 million in the quarter compared to expense of $1.9 million in the prior year. Our effective tax rate for the year was 12.4% versus 16.2% in 2024. This decrease was primarily driven by changes in Class A equity ownership, our valuation allowance and effective state tax rates. Cash from operations decreased by 26.7% year-over-year to $71.9 million year-to-date. We ended the quarter with $20 million in cash. In 2026, we expect to generate positive free cash flow and intend to use any excess cash to pay down our revolving credit facility. Also in 2026, we will focus on executing strategies that strengthen transaction growth across our restaurants while optimizing returns on our new restaurants. We will leverage our Perks platform along with other marketing efforts to drive trial and frequency. We will prioritize operational excellence and invest in our team members. These priorities support our commitment to positive free cash flow and delivering long-term value. Thanks for your time today. And operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Sara Senatore with Bank of America. Sara Senatore: Maybe I do have a question and a quick clarification. The question is on -- you mentioned the Kennesaw restaurant and opened impressive $2 million in sales, I think, through the first 8 weeks. That's, I think, kind of an annualized run rate of maybe close to $13 million, which isn't that different from, I think, some of what you've seen in some of your Texas stores, for example. So I guess, I know in one case, you have lowered the footprint, so it can accommodate lower AUVs. But as you think through the maturity curve next year, would you expect less of a falloff than perhaps you've seen just because to your point, you're not opening another Atlanta restaurant until 2027, it will be farther away? Or just that's been something that I think we've struggled to kind of forecast is year 2. So any thoughts you have on what that looks like? And then like I said, just a quick clarification, Michelle, one of your comments. Michael Miles: Sara, thanks for your question, and I think you answered it pretty well, too. Kennesaw yes, Kennesaw through its first 100 days did $3.8 million in sales. So we're pretty happy with it. But you're right, we don't expect it to be a $14 million restaurant. And it's kind of settling in around $200,000 a week right now. And over time, we'll probably level off somewhere below that. But that's -- I think the main difference is between that and what we saw in Dallas, for instance, is that we're not planning on opening a bunch of more restaurants in the immediate vicinity of Kennesaw. The Colony, which got a lot of attention on this call over the years, was surrounded by other restaurants within the first 3 years of it being open. We won't open our next restaurant in Atlanta until the spring of '27. And we have plans to separate the other restaurants that we open in Atlanta with a lot more time and distance than what you saw in Dallas. Sara Senatore: Okay. So kind of TBD on maybe what the curve looks like, but less cannibalization. And then just, Michelle, you mentioned that you had EBITDA, I guess, final period of the quarter, slightly positive results. I guess, was that margin expansion or EBITDA growth? Or maybe you could just clarify that comment that you made. Michelle Hook: Yes, Sara, no problem. So we saw both. We saw margin expansion when you compile all the Texas restaurants. And when you compile them all, we saw profitability amongst all the restaurants that we had. So it was both. And it primarily comes back to the work we're doing around labor and labor deployment within that market as we're adjusting to the lower volumes. Operator: Our next question comes from Gregory Francfort with Guggenheim Partners. Gregory Francfort: I have 2 questions. The first is just the new growth strategy. Can you just talk about what it means from a manager and employee hiring perspective? I guess, with things a little bit more spread out, do you pull from restaurants in other regions more? Does that have any impact on preopening or G&A? Just any thought on that would be great. Michael Miles: Yes, Greg, I think the price that we will pay for having more new markets with single stores in it for longer is around new openings, which will be a little less efficient. And it's also a little more difficult from a distribution and oversight standpoint. But those are probably tens of basis points in the scheme of things as opposed to having to deal with restaurants that are doing sub-$5 million AUVs for a period of time. So that's the trade-off that we're willing to make. We haven't fully quantified it yet, but it certainly is something that we'll have to work through. Gregory Francfort: Got it. And then just my second question is just maybe within the comps, anything stand out regionally or by income cohort as kind of places of strength or weakness? Michelle Hook: Yes, Greg, when you decompose the comp, it's pretty consistent when you look at Chicagoland versus the outer markets. I think I've mentioned we've seen a little bit more pressure recently in a market like Arizona, but we did open a restaurant there in 2025 that did have some cannibalization. So you do get some of that impact in that market in particular. But largely speaking, it's not something where we see a wide gap between Chicagoland versus our outer markets. Operator: Our next question comes from Brian Mullan with Piper Sandler. Brian Mullan: Just sticking with Chicagoland, can you give an assessment of the consumer value proposition or the value scores and what has happened with those versus maybe where those were historically and just talk about a path to recovery to where you want to be there for Portillo's. And I know some of it is dependent on the environment, which is tough, but I'm sure you don't want to wait around for the environment to get better. So just your perspective on that would be great. Michelle Hook: Yes, Brian, we've seen improvement in 2025 in our value perception scores. And when you look at some of the catalysts behind that, I think it goes back to when we launched our Perks program in March and the offers that we've run over the course of '25, one of the more aggressive ones being our May BOGO beef offer. We also ran a hotdog offer in July, and then we did a cheeseburger offer in September. So when you look at all of those combined and you look at the sort of peaks within the value scores, that's where you see that coming up as well. So we continue to see good movement on that. And that's based on and driven by things that we're being, in my opinion, front-footed on to make sure that we're giving that value to our guests, not just in the form of price points, but also operationally. And we've talked about Tony and the ops team's focus on hospitality and giving a good guest experience and focusing on accuracy, speed of service. We can bring them in with those offers, but I think the key is giving them a good experience to also their perception of value. So those are the things that we saw in '25, and we feel good about the upward movement in the perception scores. Michael Miles: And Greg, just to give you a little historical perspective on Chicago -- sorry, Brian, I went back at having been here 10 years ago and now coming back. I went back and looked at what the Chicago market looked like when Dick Portillo's sold the business back in 2014 and compared it to today. And back in 2014, there were 34 restaurants in the Chicago market for Portillo's. Since then and going into the end of '25, the number of restaurants have grown by 30% in Chicago. The revenue in Chicago has grown by 60% and the restaurant level margin in Chicago has grown by 80%. So it's a very healthy business here and continues to absolutely deliver for us. Brian Mullan: Okay. And then as a follow-up, I just want to come back to Texas. Maybe in the context of -- at ICR, you shared an Arizona example, it was very interesting. So you've acknowledged going too fast in Texas. You've got the stores open now. It sounds like you've just made some tweaks to labor. Maybe can you just talk about the order of priorities from here, how marketing can play a role and maybe what you can or can't take from Arizona just to make sure you grow Texas from here the way you want? Michael Miles: Yes, it's a great question. And for sure, building sales is the #1 job to getting the Texas market to where it ultimately needs to be. The labor efforts are the thing that we were able to execute on first. And we've got restaurants in Chicago that do $4 million and $5 million and have for a long time and make money. And I think we need to get that mentality into the market in Texas as well. But ultimately, it's about building sales. We're pulling a lot of short-term levers that are available, whether it's Perks offers or third-party affinity offers. We've had a bundled meal deal going there since the fourth quarter. And we've ultimately got to find a way to better explain Portillo's to consumers who aren't yet familiar with us. People who know Portillo's love it and people who don't know Portillo's have no idea what it is. And we're still trying to crack the code for how to market to the group of folks who haven't yet figured it out. And our new CMO, Denise Lauer, has got that on her priority list for 2026. Operator: Our next question comes from Andy Barish with Jefferies. Andrew Barish: I wanted to just double-click on kind of, I guess, Denise's priorities given there's different strategies in Chicagoland versus the outer markets. And then yes, on the perks as you approach the year, any kind of info you're willing to share on sort of frequency or usage patterns or anything like that. But yes, just some broader questions around kind of Denise's plans for '26. Michael Miles: Yes. Denise has got a lot on her plate, and she's about to have a new boss. So she's going to get some -- undoubtedly some additional direction there. I would say her priorities are to drive traffic, obviously, first and foremost, and the Perks program does feel like our near-in best weapon for doing that outside of, obviously, great operations, which has always been our #1 traffic driver. I don't -- we've shared some data on Perks in terms of the number of people in the program and the activation. We've got a couple of million people in the Perks program at this a little over that now at this point. And I think the engagement level has been terrific with the offers that we've made through Perks. But equally, I think Denise is focused on the Texas turnaround that we talked about just a moment ago and finding additional levers to pull to drive trial in Texas because we've seen in Phoenix for sure, and I think we're seeing in Texas that when we do get people in the door, our conversion to long-term customers is pretty high. Andrew Barish: Great. And do you expect at this point, kind of the marketing pulses in some of those outer markets that you've done over the past year or 2? Michelle Hook: So when we look at the marketing spend, Andy, I think that's one of the things that Denise has been determining. And there is a theory of pulsing and then versus always on-site marketing. And so I think in the newer markets, where we're at right now is we need to be always talking about the brand. And whether that's in the form of traditional advertising with, as Mike mentioned, we have a bundled meal right now, which is probably on more traditional advertising across all of our markets versus digital marketing and those things versus field marketing. And so regardless of what marketing tactic we use, we need to always be front and center and relevant, particularly in these newer markets. Dallas, Houston, where our awareness is fairly low. And so that's how we're thinking about it today versus, hey, we're going to pulse, come out, pulse back in a couple of quarters is we have to be front and center right now on a fairly regular basis. Operator: Our next question comes from Jim Salera with Stephens Inc. James Salera: Michelle, you had some commentary around favoring transaction growth versus leaning on price. Are you able to just give us some color on carryover pricing into '26, assuming no incremental price? Michelle Hook: Yes, absolutely, Jim. So the pricing actions that are going to start to roll off, we had 1.5 points roughly of pricing that rolled off in January of this year. We'll have another point that rolls off in April, so beginning of Q2. And then we'll have another, call it, 0.5 point or 70 basis points that rolls off in June. And so that's the pricing cadence that rolls off from 2025. But as I mentioned in the commentary, we are seeing impacts from Perks and other offers to that pricing through the discounts that we're offering through that platform. And so even when you look at the fourth quarter, Jim, you'll see that our pricing impact was 2.3%. It was 3.2% for the full year. So as we sit here in the first quarter, we're definitely sub-2% pricing. But depending on the offers that we run in Q1, that could go below even 1 point of pricing in the first quarter depending on those impacts. But that's the cadence that rolls off in 2025. James Salera: Great. And then as a follow-up, could you offer any thoughts on attachment and mix as it pertains particularly to some of the parts program? I know industry-wide, it sounds like kind of down low single-digit transactions. So maybe mix can be kind of a swing factor to the positive or the negative, depending on how things progress. Any commentary there would be helpful. Michelle Hook: Yes. And for the Perks offers that we've run, Jim, we're not seeing significant ticket degradation. When you look at our average ticket today, it's about $23.60 for the total company. And so as we run those offers, they haven't been again, significant degradation to the ticket. So we like what we're seeing with those that we're running, and we continue to measure those impacts, not just on that, but obviously, on the profitability in total for the offer. But that's generally what we've been seeing. Operator: Our next question comes from Sharon Zackfia with William Blair. Sharon Zackfia: Kind of going back to Perks and it being kind of more of a surprise and delight program, is there any thought of maybe needing to convert that to more of a typical points accrual program? Michael Miles: It's certainly a question that gets asked of us a lot and that we've asked ourselves. I think to this point, we're really pleased with the way the Perks program has performed so far. And so turning it into a punch card program with all of the attendant costs that go along with the rewards in that kind of a format is not something that we're planning on proceeding with right this instant. But obviously, it would always be an option. But I have to say that relative to -- you saw Subway the other day had to pull back on its 4 for 4 foot long thing. We're not looking to get into a situation where we're doing that kind of a punch card deal at this point. Michelle Hook: And Sharon, the one thing I'd add on that is -- the difference between -- and I know you understand this between us and others is we are an experiential brand. And part of this surprise and delight program is we can give experiences, whether it's tastings for new menu items, whether it's merchandise, we don't view it as, to Mike's point, a traditional punch card program where if you buy X, you're going to get X because the nature and the DNA of Portillo's is we are an experiential brand. So I think that goes with who we are and aligns with that thought process as well. Sharon Zackfia: Okay. And then on the restaurant level margin guidance, Michelle, does that actually assume you have no price in the back half of the year? And with that kind of mid-single-digit COGS inflation, is that more first half weighted because you'll lap from some of the beef inflation in the back half? Michelle Hook: No problem. So the margin does not assume 0 price. As we move towards the year, we do expect the mid-single-digit commodity inflation, but we don't expect that we're going to be able to pull the pricing lever, Sharon, to fully offset that. Having said that, though, we continue to do our pricing analytics to see where we have opportunities to take price. And we do expect that in the front half of the year, in particular, we are going to see heavier inflation. So the first 2 quarters of the year. Right now, we're projecting higher commodity inflation versus the back half of the year. But at the same time, we haven't made any decisions on pricing. And we need to be mindful of, again, growing the business through transactions versus price taking. But the guide assumes a little bit of price actions over the course of 2026. Operator: Our next question comes from Dennis Geiger with UBS. Dennis Geiger: First, I wanted to ask a little bit more on the operational side of things and maybe where you are with sort of drive-thru speed, overall ops and overall speed/customer experience, if there's any latest updates on that front? Michael Miles: Yes, sure. I think we're feeling good about where we are operationally. Staffing is terrific. Hourly turnover is down under 80% for the year. So a really great cultural story. GM turnover at sort of historic lows for us. And we want -- we had -- as a priority last year to get better in the drive-thru. And those of you who are old enough to remember Joe Pecsi's line about what happens to you at the drive-thru know it's hard to get both speed and accuracy better at the same time. We were able to do that last year with nearly 40-second improvement in our speed of service and a significant improvement in the accuracy measures as well. So I think that sets us up for a good year in '26. As I said earlier, marketing is important, but the most important driver for Portillo's of traffic and frequency is great operations and great experiences. Dennis Geiger: Terrific. And then sort of following up on that, just kind of looking at performance by channel or sort of anything to highlight around customer behavior changes, whether it's day part, day of the week, off-premise, on-premise delivery. Any call outs, observations on pattern behavior changes that you're seeing across channels and dayparts, et cetera? Michelle Hook: Yes, Dennis, I'll take that one. So we are seeing more of an uptick in our off-premise channels, particularly our pickup channel has been our fastest-growing channel in 2025, and our delivery channel did see some growth as well. And so that's where we've seen a little bit more of our growth coming from. And so we have to obviously make sure that those channels are equally as important to our guests and their satisfaction. And so that continues to remain a focus of ours because we know those channels are ones that continue to grow for us. Operator: Our next question comes from David Tarantino with Baird. David Tarantino: Michelle, I was hoping -- or I was going to ask a question about the guidance. And specifically, what type of comp framework are you assuming in the guidance outlook for EBITDA? And I guess the second part of the question is, how are you running in Q1 so far relative to that plan? Michelle Hook: Yes, David, we're not giving any top line guidance purposefully. And I think I mentioned this at ICR in terms of the visibility around that is not as clear to us in terms of not just where the macro is. Obviously, our new restaurants play a role in the non-comp performance. And so we're purposefully not guiding anything on the top line. We do feel we have more visibility to that middle of the P&L and feel comfortable with where we're sitting from an adjusted EBITDA guide standpoint and then all the categories that make that up in between. So that's why we're not guiding to the top line. In terms of Q1, we've had some puts and takes on weather that has been well documented and talked about, specifically in January. So those are known headwinds for everyone in the industry. But what I would say is weather aside, our sales fundamentals are solid and we feel good about them as we sit here today. David Tarantino: Great. And then I guess a follow-up to the guidance question. I guess, are there ways to deliver the EBITDA guidance with a wide range of revenue outcomes? I guess I'm not clear on that point, given the lack of guidance. There must be an underlying assumption on the revenue growth. I appreciate you not wanting to give it. But I guess the question is, do you have the ability to pull levers throughout the P&L to deliver it at a wide range of revenue outcomes? Michelle Hook: Yes. Absolutely, David. And so we talked about pricing. We don't want growth to come through pricing, but that is a lever. There's obviously cost headwinds that we're facing. So we have to think about that as a lever. We've talked about the Texas turnaround. We've talked about that we need to be able to grow the top line in those markets, in particular, that's a lever to continue to see growth in the top line. Now that's mostly going to come in the form of noncomp versus comp, but obviously still top line growth. And then continuing to talk to our guests in our core market as well is another opportunity. We've talked about the value perception scores going up, the use of perks as a lever. Other menu innovation items could be a lever. We've recently launched new sauces as part of our portfolio. So there are other things absolutely that we can do and levers we can pull to drive that top line up. Operator: Our next question comes from Brian Harbour with Morgan Stanley. Brian Harbour: Michelle, do you expect marketing spending up substantially this year within that guidance? Or is it largely similar? And I guess you kind of talk about more of an always-on approach. Is that -- how efficient is that right now? Or how do you think about the efficiency of that? Michelle Hook: Yes. Brian, we do expect to see a slight uptick in marketing spend this year, but nothing material. It's within the guide that you see specifically within the G&A guide is where you would see that incremental marketing spend. And so in terms of the approach of always on, as I mentioned, there's multiple approaches you can take whether it's traditional is going to be more expensive being on TV and doing commercials and things of that nature. And we frankly don't have a lot of scale in those markets to view that as an extremely efficient use of our advertising dollars. And so we have to make sure that we're investing in other areas, digital, social. I mentioned field marketing as well. So all those things are going to play a role in the "always-on approach" versus the prior approach of pulsing more involved traditional forms of marketing and advertising spend. Brian Harbour: Okay. Understood. And the mix component of same-store sales, can you -- I know that's been sort of a drag for a while, but how are you thinking about that as you go into this year? Michelle Hook: Yes. I think to your point, we've seen mix headwinds over the course of the past several years. Now we've seen that moderate. We even saw that for this year. Our mix was only down 1.2% for the full year, which I think was the lowest it's been in several years. And kiosks played a big role in that. And so it's helping to mitigate some of those natural headwinds that we see in mix, which is lower items per transaction and then trade downs. So those are the 2 things that are negatively impacting mix. And we are seeing that today. We see continued lower items per transaction, whether it's across all channels and then some trade downs going on. So we have to be able to mitigate against that. We continue to look at kiosks as how can we increase adoption there, how can we continue to lean into those digital channels, which we know comes with a higher ticket. So I continue to see that, Brian, to answer your question, as a headwind in 2026, but there are things that we need to do to continue to moderate those headwinds within mix, like I mentioned. Operator: We have reached the end of our question-and-answer session, which now concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to InfuSystem Holdings, Inc. Reports Fourth Quarter Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Glenn Axelrod with [ Bristol IR. ] Please go ahead. Unknown Attendee: Good morning, and thank you for joining us today to review InfuSystem Fourth Quarter 2025 Financial Results ended December 31, 2025. With us today on the call are Carrie Lachance, Chief Executive Officer; and Barry Steele, Chief Financial Officer. After the conclusion of today's prepared remarks, we will open the call for questions. Before we begin with prepared remarks, I would like to remind everyone certain statements made by the management team of InfuSystem during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under the Risk Factors in the documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31, 2024. Forward-looking statements speak only as of the date the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. InfuSystem does not undertake and specifically disclaims any obligation to update any forward-looking statements, except as required by law. Now I'd like to turn the call over to Carrie Lachance, Chief Executive Officer of InfuSystem. Carrie? Carrie Lachance: Thank you, Glenn, and good morning, everyone. Welcome to InfuSystem's Fourth Quarter Fiscal Year 2025 Earnings Call. Thank you all for joining us today. I will provide a fourth quarter overview, highlighting key initiatives, outlining our strategic priorities and providing our outlook for 2026. Then Barry will provide a detailed summary of our financial results. I will then come back for some closing comments before opening the line to questions. During the fourth quarter, we closed out the 2025 reporting period by delivering solid top line growth of 7% with full year adjusted EBITDA expanding 24% to $31.5 million and strong operating cash flow of $7.1 million. We further strengthened our balance sheet with net debt declining 30% year-over-year, while returning capital to our shareholders through our share repurchase program, retiring 137,000 shares in the fourth quarter and 1.3 million shares for the full year. We continue to make advances on key initiatives that are expected to help us accelerate our growth rate of net revenue, adjusted EBITDA and operating cash flows during 2026. We completed the migration of our Wound Care business to the new revenue cycle application that we obtained in conjunction with the acquisition of Apollo Medical during the second quarter of 2025. This includes advanced wound care, negative pressure wound therapy devices and our latest product category, pneumatic compression devices. This important initiative allows us to reduce processing costs and expand our volume capacity, thereby opening the door to increase revenue volume. This leaves our Oncology business, by far the largest in our Patient Services segment as the final therapy left to migrate. In addition, we obtained new accreditations for additional home healthcare DME products that we plan to add to our patient services product portfolio. We are currently working with the manufacturers of some of these products with the goal of repeating the speed and success of our latest PCD product launch. We feel positive on the current progress and look forward to providing more details on these products in the near future. We also restructured our field-based biomedical services team of technicians to better align with our reduced volume expectations for 2026 and to better position our capabilities to bring on smaller, more profitable client engagements. Finally, we made significant progress on our project to replace and upgrade our main information technology business application, which we plan to complete during the first quarter of 2026. At project completion, we will reduce the current spending rate for the project and begin focusing on capturing productivity improvements that the new application enables within several departments. As we announced during our review of the 2025 third quarter, we are focused on driving value creation through profitable growth, which led us to restructure our largest biomedical services contract. And consequently, we are starting 2026 at a reduced revenue volume by $7.1 million or 5.5% annually. This was a necessary change that will have an immediate favorable impact on our reporting earnings and cash flow since we expect an even larger reduction in our expenses. After adjusting for this decrease on a pro forma basis, we are expecting annual revenue growth in a range of 6% to 8%. Additionally, we anticipate that our adjusted EBITDA margin will continue in the mid- to low 20% range. This is inclusive of the impact of costs related to our ongoing information technology system upgrade, which are expected to decrease after the first quarter. We are excited about the opportunities ahead and look to update and refine our guidance as we move throughout the year. Now I'll turn it over to Barry for a detailed review of the fourth quarter financial results. Barry? Barry Steele: Thank you, Carrie, and thank you, everyone, on the call for joining us today. I'm going to give details for the current quarter's results, provide a few insights on the 2026 outlook, and I'll update you on our current financial position and how it changed during the quarter. Now let me start with our financial results for the period. During the fourth quarter of 2025, our net revenue totaled $36.2 million, representing a $2.4 million or 7% increase from the prior year fourth quarter. Both the Patient Services and the Device Solutions segments contributed to the improvement. Patient Services net revenue increased by $1.1 million or 5.4% and included increased patient treatment volumes in Oncology and Wound Care. Oncology net revenue increased by approximately $500,000 or 2.8% and wound care treatment volume revenue grew by nearly $900,000, which represented an increase of over 160%, driven largely by pneumatic compression devices, which launched in the previous quarter. Device Solutions net revenue increased by $1.3 million or 9.7%. This increase was primarily attributable to $1 million in higher sales of medical equipment and just over $600,000 in higher revenue volume in biomedical services revenue. The equipment sales included some rental buyouts from a large customer and the biomedical services increase came from a more diverse group of smaller customers. Partially offsetting these increases for Device Solutions was a $400,000 reduction in equipment rental revenue. Gross profit for the fourth quarter of 2025 was $20.4 million, which was a $2.2 million or 12% increase over the prior year fourth quarter. Our gross margin percentage at just over 56% increased by 2.6% from the prior year amount, demonstrating our focus on profitable growth. This increase was mainly driven by improved labor efficiency and pricing in biomedical services, improved revenue mix favoring higher-margin revenue such as oncology, lower procurement costs and lower pump maintenance and disposable expenses. Selling, general and administrative expenses for the fourth quarter of 2025 totaled $14 million and was $865,000 or 6.5% higher than the prior year fourth quarter amount. Part of this increase was attributable to $689,000 in expenses associated with our project to upgrade our main enterprise resources planning software, which was $196,000 higher than the spend for the prior year fourth quarter. This project is now in the final phase with a go-live launch expected during the current quarter, after which quarterly implementation costs are expected to decrease significantly. Other increases for the fourth quarter were related to additional headcount and revenue cycle and other personnel needed to support the higher revenue volume, offset partially by a lower accrual for short-term incentive compensation, portions of which were already capped and fully accrued due to performance metrics being already met at the end of the third quarter. Adjusted EBITDA during the 2025 fourth quarter was $8.8 million, which represented an increase of just over $1.3 million or 17% from the prior year fourth quarter adjusted EBITDA. This represented a 24.3% of net revenue for 2025, which was above the prior year rate of 22.2%. It also was an all-time record -- quarterly record. These amounts included the spending on the ERP project, which again is expected to start to decrease by the second quarter here in 2026. For the full year of 2025, adjusted EBITDA totaled $31.5 million, representing a margin of 21.9%, an increase of 3.1% from 18.8% in 2024. This reflects a significant year-over-year improvement of $6.2 million or 24.3% despite a $1.8 million increase in ERP project expenses. The improvements are another example showing that our focus on profitable revenue growth and operational efficiency is yielding meaningful results. Turning now to our outlook for 2026. As Carrie mentioned, we are forecasting an increase in our net revenues of 6.8% for 2026 on a pro forma basis after adjusting for the GE Healthcare contract restructuring. The low end of this range is achievable through initiatives we have put in place or have high visibility to such as new customers that have already started in our Oncology business, and new products such as PCDs that have already been launched. The high end of the range will be possible when we are successful launching just a few of the new opportunities we are currently focusing on but have not yet started. These included new customers and products whose impact for 2026 will depend on our success rate and launch timing. Now a few points on our financial position and capital reserves. For 2025, we generated operating cash flow totaling over $24.4 million. This amount was nearly $4 million or 19% higher than the amount realized during 2024. This increase was due to the higher adjusted EBITDA offset partially by a use of cash for working capital. Our net capital expenditures were $6.8 million in 2025, which represented a significant decrease from $13.2 million spent during 2024. This decrease was attributable to overall capital spending requirements being lower as compared to amounts in prior years as the sources of our revenue growth have been more weighted towards less capital-intensive revenue sources. We expect these lower requirements to continue in 2026. We remain well positioned to fund continued net revenue growth with the growing cash flow from operations backed by significant liquidity reserves available from our revolving line of credit and manageable leverage and debt service requirements. Our net debt decreased by $6.9 million during 2025. We were able to do this despite purchasing $9.9 million of our common stock during the year through our stock repurchase authorization. Our available liquidity continues to be strong and totaled nearly $58 million as of December 31, 2025. At that time, our ratio of net debt to adjusted EBITDA was a modest 0.52x. Our debt consists of $20 million in borrowings on our revolving line of credit with no term payment requirements. During the third quarter of 2025, we amended our credit agreement, extending the facility for 2 additional years. The facility now expires in July 2030. We continue to benefit from an outstanding interest rate swap, which fixes our interest rate on the $20 million of our outstanding borrowings at a below market rate of 3.8% until April of 2028. I will now turn the call back over to Carrie. Carrie Lachance: Thanks, Barry. As I reflect back on efforts made during fiscal year 2025, the updates that we've shared with you today and what we are currently focused on as we head into 2026, I hope that you will agree that we have been diligent in pursuing the strategic priorities we laid out for you during 2025. Those priorities are to execute with discipline, deliver profitable growth and drive long-term value creation for our shareholders. Operator, we are ready for the Q&A portion of the call. Operator: [Operator Instructions] The first question comes from Kyle Bauser with ROTH Capital Partners. Carrie Lachance: Maybe starting with the top line guidance, 6% to 8% for the year. Can you talk a little bit about how we should anticipate the growth rates within each segment, Patient Services and Device Solutions to trend? Would we anticipate a continuation of maybe higher percent growth in Device Solutions like you saw in Q4 versus Patient Services? Any color here would be appreciated. Barry Steele: Yes. I'll throw a couple of thoughts out there, Kyle. Definitely, the patient services is where we see our growth mainly coming from. Even Oncology, we see some success there but Wound Care is our main focus right now for driving further volume through the PCDs that we launched last year and other products we might bring online. That's not to say that we don't see growth in Device Solutions, we definitely do. We're going to give some revenue back because we restructured the GE contract but we see lots of opportunities for us to take that team and grow the base at much better returns for the company. Kyle Bauser: Got it. Appreciate that. And on the adjusted EBITDA margin guidance of mid- to low 20s, of course, it includes the planned reduction of the expenses from the ERP program. Any sense as to kind of the go-forward adjusted EBITDA rate for, call it, like Q2 through Q4, just since we'll be kind of working off of the new base of expenses after Q1? Barry Steele: Yes. Let me make a few high-level comments about our margins. There's definitely -- we've worked hard in this past year to bring our margins up from historical lower rates. And so we're going to be able to carry that forward for sure. So we're feeling very good about that. The restructuring in the biomed actually is helpful to our margins. And there's a couple of other things to mention is that we do see headwinds in margins that we're going to overcome things like our increases in our healthcare costs, other sort of inflationary impacts. We think those will be headwinds that we will overcome through the growth in new products. So we're not seeing a lot of additional increase in margins generally as we go forward but we feel like we're going to stay at this much higher level very strongly going forward. Okay, if that makes sense to you? Kyle Bauser: Yes. No, it does. I appreciate that. And then maybe just one more. On the revenue cycle application that has been successfully integrated. It sounds like that's been very helpful in driving reduction in lead times, et cetera. Wound Care delivered 160% revenue growth in the last quarter, albeit off of a lower base. Anything to call out here in Wound Care going forward and kind of how you anticipate the revenue cycle application to really help drive volume? Carrie Lachance: Yes, I'll take that, Barry. The revenue cycle system that we have implemented obviously took a little bit of time to get going. We've entered most of our business, all of the Wound Care business, PCD into that. We are looking forward to in probably the second half of the year, really starting our Oncology business into that as well but it does allow us to take on some more volume and ramp in a more productive way and manner, both from a PCD and then any new product that will be going through that system. So it's been helpful. Operator: Your next question comes from Anderson Schock with B. Riley. Anderson Schock: So the ERP is expected to go live this quarter. I guess what's the remaining spend to completion? And when should we expect to see the net maintenance cost savings to fully materialize? Barry Steele: Yes. So we'll see the number to be slightly higher in this coming quarter as we're in that final launch phase. A lot of activity is currently happening to get us ready, and we have extra help from our consultants on that as we bring actual real live transactions and convert over. So that will be a little bit higher in the first quarter but then it should taper down. It won't go to 0, though. As we look at the full benefit on a sort of annualized basis, if we compare the periods where we're doing the ERP to the future when we're not doing the actual implementation, it about $2 million savings annually. So that's the spend that should come out where we do have some ongoing spend, higher maintenance costs, if you will, for the new system. So the net difference between when we've been doing the implementation to the future is about $2 million in savings. What we expect sometime later in the year 2026 or beyond 2027 is to start seeing some benefits as the new application starts to -- we get good at it and we start to consolidate and see efficiencies for all the rest of the teams that are impacted by it. You may recall that we did the ERP because we -- our old system was going to go away. It was being discontinued by Microsoft. So we had to do it. But we do see that there will be a payback and improvement in overall efficiencies and productivity to pay for the system, the investment that we made. Anderson Schock: Okay. Got it. And then are there any other costs associated with the transition of the RCM platform from Apollo to expand it into the oncology business? Carrie Lachance: No, no, no additional costs. Again, that system is up and running. We're just -- we're defining those processes to get oncology over there. We use several systems today for the oncology work. So we're excited to get it moved into that new system but no additional cost. Anderson Schock: Yes. Okay. Got it. And then finally, do you have any updates on the ChemoMouthpiece billing code approval or timing there? Carrie Lachance: I do. Unfortunately, I don't have any updates, meaning it was approved or not approved. What I would say is that we're in touch with them very frequently. We have weekly calls regarding kind of the momentum that we see and the interest in the product. We are seeing devices that are shipped out on a weekly basis. They don't have any new information based on their December 17 meeting with CMS but they continue to be encouraged. And again, there's product interest, and we're looking forward to. They were looking forward to maybe a February information back with approval or whatnot but we haven't heard an update yet. Barry Steele: I would just like to add to that, Carrie, the ChemoMouthpiece piece, we kept that any revenue out of the low end of our guidance range. So it will be definitely -- we do believe that we'll see some revenue. It will be one of the things that will help us get higher in the guidance range. Operator: Your next question comes from Jim Sidoti with Sidoti & Company. James Sidoti: You mentioned that the expense reduction related to the renegotiated GE contract will be greater than the $7.1 million in revenue reduction. Where will that show up on the income statement? Will we see that mostly in the gross margin? Barry Steele: Yes, it's gross margin. It's -- we restructured the team, so we had to take some team members out of the program and things like we'd have to pay for the parts for repairs, at least not in the field. So there's a lot of costs that come out of the cost of sales line as we see the revenue come down. James Sidoti: All right. And in addition to -- I think you said expenses should come down about $2 million because of the change in -- or because of the ERP completion. You said on an annual basis, they should come down about $2 million. In 2025, you had some expenses related to the CEO transition. Those should go away as well in 2026, right? Barry Steele: That's correct. Yes. Those are added back for EBITDA, but obviously not added back for our operating income or net income. Correct. James Sidoti: Okay. And so your cash flow generation has been getting stronger over the past couple of quarters, and it seems like it's going to continue to improve. You've been paying down debt so far. Is that really the plan for cash? Or do you have any other options that you think you might use your cash for in 2026 and 2027? Barry Steele: Yes. I would say that our capital allocation priorities have not changed, right? And we have a share buyback program, which is opportunistic in nature. We want to buy back shares in periods where we have strong free cash flow or we see -- and when we see that the trading price is below what we view as intrinsic value. So that will continue. Obviously, the paying down debt is very flexible for us because we have a revolving facility, which means that we can borrow it right back, so we don't give up commitments. And then there's obviously we want to invest in the business, right? We see -- we want to be a top line grower. And M&A, we've done some M&A in the past and could be in the future. I don't care if you want to expand on that. But yes, we -- I think our sort of our priorities are about the same as they have been. Operator: Your next question comes from Matt Hewitt with Craig-Hallum. Tollef Kohrman: This is Tollef Kohrman on for Matt Hewitt. So kind of just general here, are there any other low-margin businesses you're considering exiting or just opportunities to drive more efficiency? Carrie Lachance: I don't think there's any other really low-margin areas that we're looking at today. We will continue to look at -- from a biomed perspective, if there's -- we have a much smaller team today from a nationwide aspect of the number of technicians. So we will try to keep it to a regional kind of the work that we're doing in the biomed space to a regional area unless we see good pricing that we can kind of afford to fly people all over the place. So I think otherwise, we don't have any low-margin areas that we're looking to kind of exit from. Operator: Your next question comes from Benjamin Haynor with Lake Street Capital Markets. Benjamin Haynor: First off for me, I know the subject has been already touched on a bit but I was just curious on the Wound Care cost efficiency and maybe how you see that tracking throughout the year. Carrie Lachance: I would say from the new system, it's allowing us to ramp, bring in volume. It's a much more efficient system. We're using multiple systems before. So it's allowing us to bring in more products. Again, we saw some really good benefit from -- with PCDs. We were able to ramp that relatively quickly. We expect that to continue to grow over the course of the year as well as adding new products. So... Barry Steele: Yes. I would add to that, Carrie, by just saying that the wound care hasn't been a lot of cost actually in our P&L. The cost that we see in order to grow it has been a barrier, and we've been able to move that barrier out of the way. So you won't see necessarily a decrease in our cost because we didn't go and incur them but now we'll be able to grow the wound care at a more efficient pace, if that makes sense. Benjamin Haynor: Okay. That's helpful. And then just lastly for me on the DME new products. Can you share what categories those are in at all? Or is that something we should be staying tuned for? Carrie Lachance: I would say from an accreditation standpoint, I'm happy to share we were accredited for a few new products. One is called the Defender Boot, one is called HidraWear in the ostomy category. So we got accredited for some of those codes. We see some interest in some of those products. We've been approached by some folks with some of those products. I would say as a whole, we -- I would typically not love to share. We want to prove out what we're doing before we set expectations on that. We really want to prove out that it's working for us. Reimbursement is working. So we are working with some companies here to take a look at this, see if it's going to be a good opportunity for us. And as we are successful in those areas, we'll continue to share more information. Benjamin Haynor: Congrats on the quarter and progress. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Carrie Lachance for any closing remarks. Carrie Lachance: Thank you, everyone, for joining today's call. We look forward to speaking with you again on our first quarter call, where we will provide an update on our results and progress. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Ziff Davis Fourth Quarter and Year-End 2025 Earnings Conference Call. My name is Tom, and I will be the operator assisting you today. [Operator Instructions] On this call will be Vivek Shah, CEO of Ziff Davis; and Bret Richter, Chief Financial Officer of Ziff Davis. I will now turn the call over to Bret Richter, Chief Financial Officer of Ziff Davis. Thank you. You may begin. Bret Richter: Thank you. Good morning, everyone, and welcome to the Ziff Davis Investor Conference Call for Q4 and fiscal year 2025. As the operator mentioned, I am Bret Richter, Chief Financial Officer of Ziff Davis, and I am joined by our Chief Executive Officer, Vivek Shah. A presentation is available for today's call. A copy of this presentation and our earnings release is available on our website, www.ziffdavis.com. You can also access the webcast from this site. When you launch the webcast, there is a button on the viewer on the right-hand side, which will allow you to expand the slides. After completing the presentation, we'll be conducting a Q&A. The operator will provide instructions regarding the procedures for asking questions. In addition, you can e-mail questions to investor@ziffdavis.com. Before we begin our prepared remarks, allow me to read the safe harbor language. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that could cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our SEC filings, including our 10-K filings, recent 10-Q filings, various proxy statements and 8-K filings as well as additional risks and uncertainties that we have included as part of the slide show for this webcast. We refer you to discussions in those documents regarding safe harbor language and forward-looking statements. In addition, following our business outlook slides are our supplemental materials, including reconciliation statements for non-GAAP measures to their nearest GAAP equivalent. Now let me turn the call over to Vivek for his remarks. Vivek Shah: Thank you, Bret, and good morning, everyone. For the full year 2025, Ziff Davis grew revenues 3.5%, adjusted EBITDA grew slightly, and the company generated almost $290 million in free cash flow. Given the headwinds that some of our businesses experienced, we're glad to have produced a year of growth, however, modest. We deployed $174 million, about 60% of our free cash flow in share repurchases throughout the year as we continue to view our own stock as a highly attractive investment. In the fourth quarter, we experienced a 1.5% drop in revenues and a 5% decline in adjusted EBITDA due to an 18% decline in our Tech & Shopping segment, offset by growth of over 6% in our 4 other segments. Tech & Shopping's revenues declined largely due to a drop in web search traffic, which had a meaningful impact on our affiliate commerce revenues. As a reminder, we earn affiliate commissions when a user clicks from one of our sites to a partner merchant site and makes a purchase. The highest quality referral traffic for an affiliate commerce business comes from search engines, which are generating lower referrals for us. We believe we can contain the damage through alternative sources of engagement over time as well as growing our video advertising and licensing businesses. In fact, the CNET Group saw video and social views grow 100% in Q4 and over 80% for full year 2025 to 1 billion views. Gaming & Entertainment revenues grew 1.5% in the fourth quarter, consistent with its full year growth rate. Humble Bundle Storefront had its best revenue quarter in 5 years. Humble Bundle achieved a huge milestone in Q4, celebrating its 15-year anniversary and over $275 million raised for charity to date. IGN Entertainment social growth and engagement continued in Q4 with Facebook views up 22% to 300 million and views on X up 19% to $45 million. IGN Store, which sells collectibles and gaming-related products, saw its total sales tripling. Between the store and Humble Bundle, our direct-to-consumer revenues reached almost $90 million in 2025. The Health & Wellness segment finished a year of record revenue and adjusted EBITDA with a strong Q4, growing year-over-year revenues 8.6%. Our AI-powered data activation tool, Halo, has now become a standard part of all of our pharma RFPs. Halo audience insights are used to inform campaign design to better engage target audiences, which leads to improved campaign performance. And it's all accomplished in a privacy safe way. Our Consumer Health business grew due to increased ad spend from core pharma clients, including new GLP-1 campaigns and growth in subscriptions for our Lose It! weight loss app. We believe that our Lose It! business is benefiting from the rapid market penetration of GLP-1 prescriptions as it's seen as an adjunct therapy to promote healthy eating. Our Professional business also had a strong quarter, driven by growth in the prime continuing medical education business. Connectivity also had a record fourth quarter with revenues up 11%. Speedtest, Downdetector and RootMetrics all experienced strong year-over-year growth in Q4, driven by new customers and increased service adoption by existing customers. Ekahau also produced solid year-over-year growth in Q4 with both enterprise and broadband service providers. Connectivity rolled out a major new product, Speedtest Pulse in the fourth quarter. Pulse is a handheld diagnostic device that empowers field technicians to instantly validate network installations and troubleshoot complex WiFi issues on the first visit, driving operational efficiency and reducing costs. This launch follows the introduction of Speedtest Certified, an independent network verification program that awards a globally recognized badge of excellence to commercial venues, allowing them to monetize their superior connectivity performance as a marketing asset to attract high-value guests and tenants. Both products are expected to contribute to meaningful growth in 2026. Cybersecurity & Martech revenues grew 2.7% in Q4. Growth was driven primarily by the cybersecurity vertical with strong organic performance from consumer VPN and cloud backup. Our momentum in cybersecurity reflects product enhancements, including the addition of threat protection and secure browsing to the IPVanish VPN and the launch of VIPRE integrated e-mail security, which is powered by an AI engine that detects threats such as e-mail compromise. Within the Martech vertical, we see opportunities to help brands profitably acquire and engage customers. Our e-mail business with its focus on first-party data and e-mail and SMS communication and Semantic Labs with its focus on efficient customer acquisition from paid traffic are both working to deliver on this value proposition. As we disclosed in our last earnings call, we have engaged outside advisers to assist us in assessing how certain potential transactions could unlock greater shareholder value. Our evaluation of potential strategic opportunities remains ongoing. As a result of that process, we have decided to defer issuing formal guidance at this time. But I do want to share some high-level thoughts about the outlook for our businesses in 2026. First and foremost, we are intently focused on delivering profitable growth and strong free cash flow generation in 2026, building on 2 consecutive years of great cash generation. While we expect Tech & Shopping revenues to continue the trend of double-digit revenue decline in the first half of 2026, we are forecasting improvements in the second half of the year via a combination of favorable year-over-year comps and benefits from increased off-platform engagement and growth in our licensing activities. For the year, we are expecting Tech & Shopping to be down mid-single digits in revenue. While we work to turn Tech & Shopping around, we're confident in our ability to continue to generate growth in our 4 other segments. In Gaming & Entertainment, Health & Wellness and Cybersecurity & Martech, we expect revenue growth of low to mid-single digits for full year 2026, and we anticipate continued double-digit revenue growth at Connectivity. Adjusted EBITDA margins for the Company should continue to hover around 34%. I know there's a great interest in updates regarding AI content licensing, and I wanted to share some observations. We are actively engaged in discussions with key players and the nature of these dialogues reinforces our confidence in the future revenue opportunities for content licensing. However, we are taking a deliberate principled approach to execution. The market is still defining the framework for appropriate compensation, specifically distinguishing between content used for model training versus content used for retrieval augmented generation or RAG. Our position is consistent. Both use cases require proper licensing. We will not enter into RAG-focused agreements that compromise our rights to fair compensation for foundational training. These are separate use cases with distinct value propositions, and our authoritative content must be valued accordingly in both contexts. We anticipate greater clarity on these fundamental licensing questions following the resolution of our ongoing litigation. Once established, we believe this clarity will unlock licensing opportunities and allow us to move forward with agreements that appropriately reflect the full value of our content across all AI applications. With that, let me hand the call back to Bret. Bret Richter: Thank you, Vivek. Let's discuss our financial results. Our earnings release reflects both our GAAP and adjusted financial results for Q4 and fiscal year 2025. My commentary will primarily relate to our Q4 2025 adjusted financial results and the comparison to prior periods. Let's turn to Slide 5 for the summary of our Q4 2025 financial results. Fourth quarter 2025 revenue was $406.7 million as compared with revenue of $412.8 million for the prior year period, a decline of 1.5%. Fourth quarter 2025 adjusted EBITDA was $163.2 million as compared with $171.8 million for the prior year period, reflecting a 5% decline. Our adjusted EBITDA margin for the quarter was 40.1%. We reported fourth quarter adjusted diluted EPS of $2.56. This figure reflects the impact of our active share repurchase program. Turning to Slide 6. Let's review our fiscal year 2025 results. Fiscal year 2025 total revenue increased 3.5% to $1,451.3 billion as compared with the prior year. Fiscal year 2025 adjusted EBITDA increased year-over-year to $495.1 million. Our adjusted EBITDA margin for fiscal year 2025 was 34.1%. Adjusted diluted EPS was $6.63, up slightly as compared with fiscal year 2024. During a number of our recent quarterly calls, we have discussed how our Games Publishing business has negatively impacted our recent financial results. This was true again in the fourth quarter of 2025 as Game Publishing contributed negative net revenue of $2.5 million. However, during the fourth quarter, we took action and sold our Game Publishing business in a transaction that allowed us to recognize a book and cash tax savings associated with the loss related to the sale of the business while maintaining the right to certain future payments tied to the performance of the assets under their new management. We did not attribute a value to these payments at closing. And as a result, we will recognize them as investment gains if and when we receive them in the future. Our exit from Games Publishing achieved multiple benefits, including the elimination of the distractions associated with this noncore business line, which has also caused significant volatility in the quarterly results of our Tech & Shopping segment. Please note that this exit has no impact on the Humble Bundle Storefront in our Gaming & Entertainment segment. Slide 7 reflects performance summaries for our 2 primary sources of revenue, advertising and performance marketing and subscription and licensing. Q4 2025 advertising and performance marketing revenue declined 4.4% as compared with the prior year period, while fiscal year 2025 advertising and performance marketing revenue increased 5.9% as compared with 2024. Q4 2025 subscription and licensing revenue increased 4% as compared with the prior year period and fiscal year 2025 subscription and licensing revenues increased 2.2% year-over-year. Q4 2025 other revenues declined by $600,000 year-over-year, and fiscal year 2025 other revenues declined by $9.2 million. These changes both primarily reflect the impact of the Games Publishing business. Slides 8 through 12 reflect the quarterly and full year financial results for each of our reportable segments, which Vivek has already discussed in some detail. I will note a few additional items. 3 of our 5 segments grew full year revenues in 2025 and 4 of our 5 segments grew revenues in the fourth quarter. The now exited Games Publishing business reduced Tech & Shopping segment revenues by $2.5 million in the fourth quarter and by $4.9 million in full year 2025. However, the 2025 year-over-year revenue decline associated with the Games Publishing business was approximately $14 million, reflecting an approximately 1% drag on consolidated revenue growth. This revenue decline also had a high negative flow-through impact to adjusted EBITDA. Please refer to Slide 13 to review our balance sheet. As of the end of 2025, we had $607 million of cash and cash equivalents and $93 million of long-term investments. We also have significant leverage capacity on both a gross and net leverage basis. At year-end, gross leverage was 1.8x trailing 12 months adjusted EBITDA, and our net leverage was 0.5x and 0.3x, including the value of our financial investments. During the fourth quarter, we bought back 1.75 million shares for $60.6 million. In fiscal year 2025, we deployed nearly $174 million to repurchase approximately 4.8 million shares. And during the course of 2025, we reduced the number of shares outstanding by more than 10%. Since January 1, 2026, we repurchased approximately 740,000 additional shares, and we believe that at the current valuation level of Ziff Davis' stock, share repurchases continue to offer an attractive use of our investable capital. Our recent share repurchase activity nearly exhausted our existing stock repurchase authorization. However, this week, our Board of Directors increased our stock repurchase authorization by 10 million shares, bringing the total amount currently available for repurchase to 10.7 million shares. This authorization is valid until February of 2036. Please note that given our current active review of potential value-creating opportunities, there may be periods of time when we are not able to repurchase shares under this authorization. During 2025, we closed a total of 7 acquisitions across our businesses, investing a total of $68.7 million net of cash received to support our M&A program. We anticipate we will continue to be an active and disciplined acquirer in 2026 as opportunities arise to add capabilities to our businesses in an accretive manner. Looking ahead to the balance of 2026, we are intently focused on delivering profitable growth, robust adjusted EBITDA margins and strong free cash flow generation. As Vivek discussed, due to our current review process, we are not providing formal full year 2026 guidance at the present time. However, I'd like to offer some insight related to our expectations for the first quarter of 2026. We expect first quarter 2026 consolidated year-over-year revenue growth to be relatively flat or slightly negative. as the continued headwinds in the affiliate commerce revenues in our Tech & Shopping division that Vivek noted earlier are expected to largely offset the growth in the balance of our businesses. Given seasonality, our Q1 adjusted EBITDA margins are typically lower than our fiscal year margins and Q1 2026 margins are expected to be about 3 points lower year-over-year, primarily reflecting an anticipated year-over-year decline in Tech & Shopping revenue, a lower margin revenue mix at Health & Wellness and the continued investment in growth at Connectivity. However, Q1 adjusted diluted EPS will benefit from year-over-year drop in our shares outstanding due to our active buyback program. Our supplemental materials include reconciliation statements for our non-GAAP measures to their nearest GAAP equivalents. Please see Slide 25, which includes a reconciliation of free cash flow to net cash provided by operating activities. Our businesses continue to produce robust free cash flow. 2025 free cash flow was $287.9 million, up $4.2 million as compared with 2024. Q4 2025 free cash flow of $157.8 million was up significantly from $131.1 million in Q4 2024. And fiscal year 2025 free cash flow reflects 58.1% of our 2025 fiscal year adjusted EBITDA of $495.1 million. Stepping back a bit, Ziff Davis has made considerable financial progress over the last few years despite a challenging operating environment. Since the end of 2022, the first full year after the Consensus spin-off, we have grown free cash flow by 25%, reduced our gross debt levels by nearly 14% and lowered our year-end shares outstanding by more than 18%. During this time, we also deployed more than $300 million for 13 acquisitions, adding capabilities across all of our operating segments. And as Vivek noted earlier, we are actively working to pursue opportunities that we believe offer strong prospects to realize additional shareholder value. Although there is no assurance of any future transactions, we continue to believe that our current trading levels do not fully appreciate the intrinsic value of our businesses. We will seek to provide timely updates as appropriate. With that, I will now ask the operator to rejoin us to host our Q&A. Operator: [Operator Instructions] And your first question this morning is coming from Rishi Jaluria from RBC. Rishi Jaluria: Maybe just one for me to keep it. But Vivek, I wanted to expand a little bit on some of the AI search tailwinds that you talked about on Tech & Shopping. Maybe can you expand a little bit in terms of how that's progressed? This is obviously a trend we've been discussing for a while. Some of the investments that you can make to maybe capitalize on the AI search opportunity and take that kind of segment back to a better growth trajectory. And then if we think about AI search throughout the rest of your businesses, are there other parts that have proven to maybe be a little bit more resilient, whether it's health care or gaming or whatever? Maybe any color you could give as it pertains to that would be helpful. Vivek Shah: Thanks, Rishi, for the question. And so yes, look, what I would say is generally speaking, a lot of traffic is fungible, meaning that lost search traffic can be and has been made up with other sources of engagement, apps, social traffic, video, programmatic traffic and e-mail. So the degree to which in any of our segments in the Gaming & Entertainment and Health & Wellness segments, in particular, we're able to offset search traffic declines. Where that has become really hard is within Tech & Shopping because the one type of traffic that really is hard to replace as high-intent consumers who arrive via search looking for a product or a service and then clicking through to make a purchase. That's the affiliate commerce and affiliate commission business. And so that particular traffic is harder to replace, though I'll talk about things that we're doing to offset. But that is harder to replace, and that is very much concentrated in our Tech & Shopping segment. In fact, just to dimensionalize it a little bit. So we did in 2025, roughly $90 million in affiliate commerce commissions related to organic traffic. That was down about $25 million year-over-year, and half of that $25 million was in Q4. So it gives you a sense of kind of the impact and what's going on within Tech & Shopping. From an offset point of view, and as I said, look, I think this is something that will start to materialize in the second half of this year, app traffic, browser extension traffic and then other forms of monetization outside of affiliate commerce around video, licensing, events and broader display. So a variety of things that mix. But the high level is where we're seeing search challenges show up, we're really seeing it within this Tech & Shopping segment. Operator: Your next question is coming from Ross Sandler from Barclays. Ross Sandler: Yes, that was really helpful on that $90 million. So that's about 25% of that segment's revenue in 2025. Can you just talk maybe about like the percent of traffic like and when we see -- it sounds like from your guidance, the kind of unwind of SEO traffic is peaking right now. And by the second half of '26, it should be less of a headwind. Is that the right way to think about it? And then the second question is just on the 300 bps of margin contraction in the first quarter. I guess just how do we think about in light of the declining kind of high-margin SEO-related traffic, how do we think about your ability to kind of contain the cost structure and these margins kind of moving forward? Vivek Shah: Yes. Thanks, Ross. I'll answer your first one and then ask Bret to share some comments on the second one. But -- so just taking a step back, Tech & Shopping, obviously, is the challenge, was the challenge in Q4, will continue to be the challenge in 2026. Don't want to lose sight of the fact that the other 4 segments grew nicely in Q4 of 2025, and we believe will continue to grow in 2026. Within Tech & Shopping, the affiliate commerce piece is one of what I would refer to as 3 challenges within the business and worth describing and talking about the other 2 for a moment. So remember, we have the B2B business that's inside of the Tech & Shopping segment. You'll recall that our strategy in 2025 was to intentionally contract revenue at a rate that would be less than the contraction of expenses. In other words, we would cut more expenses than revenues, and we did that. So in 2025, the B2B revenues were down $11 million year-over-year, but the EBITDA was up close to $6 million and positive. So that strategy of shrinking the footprint of that business, cutting out certain products and service lines has worked, but shows up as a revenue drag. I just want to point that piece out. The last one is the published -- the Game Publishing business that's still a residual business that stayed within Tech & Shopping, which Bret pointed out, we sold, we're out of. That was like a $14 million, $15 million -- $14 million year-over-year bad guy in 2025 as well. So those are just 2 things to just point out as we think about '26 versus '25 that as we lap these things are going to be beneficial. But then yes, look, I think the belief that the pain that we're seeing on the affiliate commerce side in Tech & Shopping will start to improve in the second half, both because of comps as well as other initiatives, again, video monetization, licensing, building out traffic in both the RetailMeNot app and browser extension. And that collection brings the overall challenge of Tech & Shopping to being sort of more of a -- from a full year point of view, kind of a low single-digit decliner, but still a decliner. Bret Richter: And Ross, I think on margins, I think what I'd say is almost widen the lens for a moment. If you look back over the last several years, despite various puts and takes in the business, we've been able to largely maintain margin. It's been a deliberate effort across the company, looking at the way we do business as business dynamics change. I think as Vivek pointed out, within Tech & Shopping, we've recently shown one, our ability to do that in B2B, which has been a consistent source of revenue pressure for the last several years and taking action to look at how we run the business and maintain margin and produce margin, taking some actions on some drags like Humble Games. And then in the first quarter, I think what we're largely looking at is just the flow-through impact of some of that revenue softness, coupled with a little bit of mix change in some of the other businesses. And then as we look at -- I'm sorry, as we look at the company overall for fiscal year '26, as Vivek noted, in our view, it's kind of a little bit of a first half, second half story. And overall, if we progress as sort of anticipated, we think we'll be in the range of delivering upon what we said. Operator: [Operator Instructions] And your next question is coming from Shyam Patil. Shyam Patil: I had one on Tech & Shopping and one on M&A. Just on Tech & Shopping, Vivek, I know you guys have talked about there being a lot of moving parts in that business for this year. But how do you think about kind of what's the right growth rate or growth range for that business going forward, not just in '26, but just from a high-level perspective, what kind of growth rate do you think that business should have margin profile as well? And then on M&A, where do you see opportunities this year for M&A? Just kind of curious which segments, which pockets? Vivek Shah: Yes. No, great question, Shyam. So I'll start on the long-term outlook on Tech & Shopping. And I don't believe it should be very different than our other Digital Media segments, principally Gaming & Entertainment and Health & Wellness. And so I think it should be a mid-single-digit grower. But again, I think we have to get through this phase where the search challenges within the affiliate commerce business that, by the way, was a business we created from scratch when we first bought the assets that make up a lot of this segment. And so look, we were very successful in creating a new form of monetization when we initially acquired a lot of the assets in this category. And I think we're very confident that we will find new forms of monetization within these brands. And by the way, when we talk about Tech & Shopping, we're talking about market-leading brands. CNET Group and RetailMeNot Group are leaders in their respective categories of Technology & Shopping. With respect to M&A, look, we believe that the market fear in digital media is actually presents us with a pretty unique opportunity to be an active buyer in this space. Look, the valuations are compelling. You see our own, and we're an at-scale diversified entity. You can imagine what businesses that don't have our scale of diversification, they ultimately trade for. And I think there's -- I think the fear is overly pronounced. And while there are certainly headwinds and we're experiencing those within our business, we've shown a fair amount of resilience in the face of these pressures and believe we've got a pretty good track record in business transformation and managing these really high-quality brands. And that's the key is going to -- our focus from an M&A point of view are really high-quality brands in high-value categories. So look, we've got the cash. We certainly have the free cash flow generation. And so we're going to continue to look for attractive opportunities. And so I think both things can be true, by the way, that we can be very focused on opportunities within the M&A landscape while we continue in the strategic review process to unlock value for shareholders. Operator: Your next question is coming from Danny Pfeiffer from JPMorgan. Daniel Pfeiffer: For the first, as you have discussions with outside advisers on the sale of businesses, can you provide any color on what divisions prospective buyers have been looking at the most? And then for the second, putting the AI headwinds aside, can you provide us with an update on the broader trends you're seeing in the ad market today? Vivek Shah: Yes. So listen, look, we wish we could share more. But look, as we said in our prepared remarks, it's an active process. We promise and we're going to provide updates as and when we're able to. But right now, that's all I can really say at this point. On your question about the ad market, and I often say, look, for us, at least the ad market is not 1 market, it's 3. And I would say that if you unpack each of those, so we take Gaming & Entertainment last year, roughly 5% ad revenue growth. I think that will be consistent going into 2026. Health & Wellness had a very strong double-digit advertising growth rate in 2025. I think that will moderate a bit, be more sort of mid-single-digit range. Remember, in 2025 for us, within the Health & Wellness business, we had some acquisitions that accelerated some of that revenue growth. So the organic, I think, is mid-single digits. So I think both Gaming & Entertainment and Health & Wellness, which is largely pharma, is good. And I think we're happy with where we are there. It's the Tech & Shopping experience, which, again, I would bifurcate kind of the affiliate commerce from the non-affiliate commerce. I think the non-affiliate commerce, we feel pretty good about. It's the -- and the non-B2B, I should point out. But it's the affiliate commerce piece that we're going to have to work through a couple of quarters of challenges before we get to kind of the other side of that. Operator: [Operator Instructions] Your next question is coming from Robert Coolbrith from Evercore ISI. Robert Coolbrith: Can you speak more directly to both the traffic and the value at risk in Health & Wellness from search in general as well as some -- there's some concerns, I think, in the market around AI-based competition on the clinician side. So if you can maybe talk a little bit about that as well. And then finally, just to go back to M&A as both a buyer and seller, just given the level of AI-related uncertainty as well as the embedded call option on AI licensing, do you see that sort of freezing up the market? Or are you and potential counterparties able to sort of see through that, work through that? Vivek Shah: Great questions, Rob. So with respect to the search dynamics within Health & Wellness, that's not an area that I'm really concerned. Much of the inventory within that segment is not search based. So we have our partnership, our hospital ad network, Mayo Clinic and Cleveland Clinic and hopefully soon adding some more to that network. We do these custom condition centers, which really don't rely on search engine traffic. We have our direct-to-provider business, which is largely e-mail and other forms of physician engagement. So with respect to H&W, Health & Wellness, I'm not concerned about whatever the search dynamics are. And so what I would say is that it's more of a pharma commercialization business where we work with pharma to commercialize their drugs and to drive patient adherence as well as helping influence doctors' understandings of the prescription opportunities that are available to them. I think with respect to your question on AI and M&A, look, I think that deals can be done, and I understand your point, which is some folks may be holding out just given that there could be a potential windfall on the AI licensing front and so may not be willing to transact right now. And I think it's a balance. Look, that's certainly a question that's out there that until we really understand what the revenue framework and potential is around licensed content for LLMs, you may have certain owners of content assets skittish about transacting. That's certainly out there. On the other hand, I think there are folks who just sit there and say, look, it's a difficult market, might be time for them to concede or to capitulate or they find it difficult to sort of bridge where they are to where they want to go, and that will be an opportunity for us. So look, I think it depends. I don't think there's one answer. That's certainly come up because people view it as "a free option" on AI licensing revenues in the future, but we'll see. And look, I think more broadly, I do think that there aren't as many buyers positioned the way we are positioned in terms of balance sheet capabilities, skill set, platforms and frankly, interest in these assets. Robert Coolbrith: Got it. And just if we could go back to the growing AI footprint or the footprint of AI tools on the clinician side. Are you seeing any impact there or no real impact? Vivek Shah: It's a good question. I mean I certainly believe that physicians like pretty much everyone else are using these AI tools in their day-to-day. And look, I think that obviously is something that will present, I imagine, marketing opportunities, et cetera. And so look, yes, look, I think that any and all tools that attract physician attention are valuable tools. And so we think we have valuable news, information, continuing medical education. The advantage of continuing medical education is providers need to get their CME credits. So we feel pretty good about a physician engagement platform that is tied to the need to get CME credits. Operator: And there are no further questions in queue at this time. I would now like to hand the call back to Bret Richter for any closing remarks. Bret Richter: Thanks, Tom, and thanks, everyone, for joining us today. We appreciate your ongoing investment and time, and we look forward to speaking with you in the next couple of months and in our upcoming Q1 earnings call. Operator: Thank you. This does conclude today's conference call. You can disconnect your phone lines at this time, and have a wonderful day. Thank you once again for your participation.
Operator: Greetings, and welcome to Haverty's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tiffany Hinkle, Assistant Vice President of Financial Reporting, Investor Relations. Thank you, you may begin. Tiffany Hinkle: Thank you, operator. Good morning, and thank you for joining our fourth quarter earnings call. I'm here today with our President and CEO, Steve Burdette; and Executive Vice President and CFO, Richard Hare. Before we begin, I'd like to remind everyone that today's conference call may contain forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those made or implied in such statements, which speak only as of the date they are made and which we undertake no obligation to publicly update or revise. Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the company's reports filed with the SEC. A replay of this call will be available on our Investor Relations website this afternoon. For commentary about our business, I will now turn the call over to Steve. Steven Burdette: Good morning, and thank you for joining our 2025 fourth quarter and 2025 year-end conference call. We are excited to report an increase in both written and delivered comp sales for Q4, marking our second consecutive quarter of positive comps. Our net sales for Q4 were $201.9 million, which was up 9.5% with comps up 8.2%. Total written sales were up 3.5% with comps up 3.2%. Gross margins for the quarter came in at 60.4% versus 61.9% last year. However, we did incur $3.9 million in LIFO charges during the quarter. Pretax income for the quarter was $10.8 million or 5.3% operating margin versus $9.6 million or 5.2% operating margin, resulting in a $0.51 a share versus $0.49 a share. For the calendar year 2025, our net sales came in at $759 million, which was up 5% with comps up 2.1%. Gross margins for the year were flat with last year coming in at 60.7%, including $4.6 million in LIFO charges. Pretax profits were $26.8 million or 3.5% operating margin versus $26.2 million or 3.6% operating margin, resulting in $1.19 a share, which was flat with last year. Richard will provide additional details regarding our SG&A expenses and LIFO impact in his discussion. During the quarter, we saw our written sales fall off as the quarter progressed. However, it was nice to see our after Thanksgiving sales up 6.2% with strong average ticket in design at approximately $8,500 and our overall average ticket at $4,400-plus. For Q4, our average ticket increased 10.9% to $3,759 with design average ticket growing 11.9% to $8,072. Our design business accounted for 33.3% of our sales, driven by our upholstery special order business up 14.8%. Traffic for the quarter followed our written sales trend during the quarter, ending with a decrease in the low single digits for the quarter overall. It is important to remember for comparison purposes that we had just experienced our first positive traffic increase in November and December of 2024 following the presidential election in several years. Conversion rates remained slightly down for the quarter. For the calendar year, our written business was up 2.8% with comps up 0.7%. Our average ticket came in at $3,530, up 4.7%, and our designer average ticket was $7,781, up 9.7%. Traffic was up in the mid-single digits with conversion rates continuing to show improvement. Our merchandising and supply chain teams continue to partner with our outstanding vendors to ensure that our products are flowing consistently to avoid any disruptions for our customers. Our merchandising team continues to challenge our assortment to make sure that we are testing new styles, new colors, new price points and new categories, which creates excitement for our teams and customers by helping to differentiate ourselves from our competition. From a category perspective, for the quarter, bedroom and upholstery were up mid-single digits, followed by occasional up low single digits; and dining, mattresses and decor coming in flat. Our inventories are in a great position as we continue to focus on having best sellers in stock for immediate gratification for our customers. At year-end, our inventories were up $12.7 million versus last year to $96.2 million. We do expect to see this drop over the next 6 months as we had to get in front of some of the most recent tariffs in Q4 with our inventory purchases and new product arrivals. We did get some good news late December when the administration delayed the additional 5% tariff on Section 232 upholstered wood furniture, leaving it at 25%. However, last Friday, we finally heard from the Supreme Court as they ruled that the IEEPA tariffs were illegal. As we heard over the weekend from the administration, and we verified this morning effective at 12:01 a.m. today, a 10% worldwide tariff has been issued through Section 122 of the 1974 Trade Act. This tariff to understanding will replace the IEEPA tariffs and the fentanyl tariffs and these Section 122 tariffs are not stackable on Section 232 tariffs or applicable under the current USMCA agreement; however, they are stackable with the Section 301 tariffs. Haverty's will be thoughtful and deliberate in our approach with the continuing tariff adjustments so that we have a minimal impact on our customers, team members and shareholders. Our marketing, creative and media plans continue to resonate with our customers through broadcast, connected TV and digital marketing channels. We saw web traffic and key site engagement increased double digits year-over-year, contributing to our in-store success, and our written e-commerce sales increased 12.3% for the quarter. We ran our second direct mail campaign in late October in preparation for the after Thanksgiving shopping period. It was a 16-page piece mailed to approximately 750,000 new customers that highlighted our product assortment and design capabilities. We refined our targeting models based on results from the first campaign and added pricing, which we believe helped contribute to an improved conversion rate. Our marketing dollars were down slightly for the quarter as a percent of net sales, as we were able to leverage the increase in sales. We continue to emphasize 60 months no interest for competitive reasons in our promotions, creating an increase in our credit costs for the quarter. However, these credit costs remained slightly down for the year. We ended the year at 129 stores, but already have plans for 5 new stores in 2026. Four of the stores have been announced in St. Louis, Nashville and 2 in Houston. We are excited to announce today that we will be entering Pennsylvania, which will be our 18th state. We will open in Q4 in North Pittsburgh across from the Ross township mall. We are currently in lease negotiations on several other locations that we hope to be able to announce by next quarter's call. The opening of 5 new stores in 2026, along with 4 planned remodels, a refresh of the mattress and design areas in our stores, of which approximately 35% will be done, will push our CapEx budget to around $33.5 million, which Richard will cover in more detail. After careful evaluation, we have decided to close our Alexandria, Louisiana, location in March. This decision to close was driven by significant demographic shifts in the market, stagnant housing growth and the need for a major remodel. We wanted to thank all our team members who have served the Alexandria customers and surrounding markets for over the 40-plus years. Our dedicated distribution, home delivery and customer service teams continue their wonderful work serving our customers across our 17, soon-to-be 18 states. All of our new store growth will be served by our current distribution network, requiring no new investments. The ability of the teams to adjust the business to the current demands is outstanding, allowing us to provide our customers with a memorable experience on each and every encounter. The industry continues to face ongoing challenges. But even with all the uncertainty, our optimism remains high as we rebounded in 2025, feeling like we hit an inflection point in Q3 with the momentum continuing into Q4. Our push in 2026 is to continue our focus on testing new ideas and processes along with continuing our organic store growth. Thank you to all our Haverty team members for your dedication to our customers and our company's success. Our people define us, and I am proud to be a part of this great team. I want to continue to repeat that our debt-free balance sheet, our Haverty-branded products, our operational consistency, our integrity, our consumer focus, our design services, our commitment to quality and our regret-free experience provides our customers with the comfort and confidence to know that furnishing their homes with Haverty's is a great long-term investment. I will now turn the call over to Richard. Richard Hare: Thank you, Steve, and good morning. In the fourth quarter of 2025, net sales were $201.9 million, a 9.5% increase over the prior year quarter. Comparable store sales were up 8.2% over the prior year period. Our gross profit margin decreased 150 basis points to 60.4% from 61.9%. Excluding the impact of the $3.9 million LIFO expense in the fourth quarter of '25 and the $925,000 LIFO pickup in the prior year quarter, our adjusted gross profit margin increased 100 basis points to 62.4% from 61.4%. Selling, general and administrative expenses increased $6.6 million or 6.3% to $112.5 million. As a percent of sales, these costs approximated 55.7% of sales, down from 57.4% in the prior year's quarter. We experienced increased selling, occupancy and administrative costs during the quarter. Other income expense in the fourth quarter of 2025 was $29,000, and interest income was approximately $1.2 million during the fourth quarter of 2025. Income before income taxes increased $1.2 million to $10.8 million. Our tax expense was $2.3 million for the fourth quarter of 2025, which resulted in annual effective tax rate of 26.5% for the year. Net income for the fourth quarter of 2025 was $8.5 million or $0.51 per diluted share on our common stock compared to net income of $8.2 million or $0.49 per share in the comparable quarter last year. Now turning to our balance sheet. At the end of the fourth quarter, our inventories were $96.2 million, which was up $12.7 million from December 31, 2024, and up $3.7 million versus Q3 of 2025. At the end of the fourth quarter, our customer deposits were $35.5 million, which was down $5.2 million from the December 31, 2024, balance and down $8.4 million from the Q3 2025 balance. We ended the quarter with $125.3 million of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of Q4 of 2025. Looking at some of our cash flow usage. Capital expenditures were $4.4 million for Q4 2025 and $19.7 million for the calendar year. We also paid out $5.3 million of regular dividends in the quarter and $20.8 million for the calendar year. We purchased $2.8 million of common stock during the quarter at an average price of $22.63. During the calendar year, we purchased a total of $4.8 million of common stock, representing 216,482 shares. On February 20, 2026, our Board of Directors approved an additional $15 million authorization for our share buyback program. We currently have approximately $18.3 million of existing authorization in our buyback program. Our earnings release lists out several additional forward-looking statements, including our future expectations of certain financial metrics. I will highlight a few, but please refer to our press release for additional commentary. On February 20, 2026, the Supreme Court invalidated certain tariffs imposed by the administration under the International Emergency Economic Protection Act during 2025. The administration announced its intentions to impose new tariffs under different regulations. Our 2026 guidance includes the impact of the new tariffs announced by the administration. We continue to monitor tariff developments and assess their potential impact on our business. We expect our gross margins for 2026 to be between 60.5% and 61%. We anticipate gross profit margins will be impacted by our current estimates of product freight and LIFO expenses. Our fixed and discretionary type SG&A expenses for 2026 are expected to be in the $307 million to $309 million range. The increases over 2025 are primarily related to store growth and modest inflation. The variable-type costs within SG&A for 2026 are expected to remain in the range of 18.6% to 18.8%. Our planned CapEx for 2026 is $33.5 million. Anticipated new or replacement stores, remodels and expansions account for $27.2 million. Investments in our distribution network are expected to be $3.2 million, and investments in our information technology are expected to be approximately $3.1 million. Our anticipated effective tax rate in 2026 is expected to be 26%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my commentary on the fourth quarter financial results. Operator, we would like to open up the call for any questions at this time. Operator: [Operator Instructions]. First question comes from Anthony Lebiedzinski with Sidoti & Company. Anthony Lebiedzinski: Certainly nice performance here in the fourth quarter. Can you first just start us off with just some further details about your same-store sales trends throughout the quarter? If you could just kind of walk us through October through December, provide some additional color on that? Richard Hare: Sure. So in terms of the trend for the business. In terms of written business, we were up high single digits in October. We were -- in November, we were middle single digits up. In November and December, we were down low single digits. In terms of deliveries, we were up 10% in October, mid-single digits in November and up almost 15% in December. Anthony Lebiedzinski: That's very helpful. Okay. And then -- so I guess the other thing is as we look at the guidance for variable SG&A expenses for '26, it implies essentially flattish percentage from '25. You've talked about some sales momentum here that you had. I know there was a deceleration in the last month of the quarter, but nevertheless, the second consecutive quarter of positive same-store sales. So maybe if you could just kind of walk us through the different puts and takes in terms of what's affecting the variable component of your SG&A outlook for '26? Richard Hare: Sure. Anthony, so we came in, I believe, at 18.9% for the fourth quarter. We felt good about our guidance for 2025 being between 18.6% and 18.8%. Looking at this year, we felt like we needed to keep it in line, even though we anticipate having some leverage, we do anticipate having basically higher pressure on the selling cost in 2026 with higher sales commissions, and we need to remain competitive, so there could be some additional third-party credit costs going to the next year. So we wanted to keep that basically flat as a percentage. And then you noticed on the gross profit margins, we increased those. We had some significant pressure this year, as we called out in the press release, related to LIFO. As prices stabilize in 2026, we don't anticipate having that level of pressure. So we felt some confidence with our gross profit margin guidance going up. And then just overall, with the nonvariable piece. I mentioned in my remarks, that was primarily store growth and inflation. So I think that if you take to the -- we ended at $298 million and the middle of the estimate is $308 million, it's about a $10 million spread. About 40% of that increase is going to be occupancy cost as we grow the business and the rest is around about a 2% modest inflation on wages and incentives. And we don't really anticipate a great deal more of advertising cost. I think most of the pressure on the nonvariable is in occupancy costs and then just overall inflation with wages and insurance, et cetera. Anthony Lebiedzinski: That's very helpful. Okay. And then so with the evolving tariff environment, how do you guys think about as far as any additional potential new pricing actions? Is there anything already in the works or are you going to be holding off for now? Just wondering if you could speak to that? Steven Burdette: Yes, Anthony, this is Steve. We're going to be very deliberate in that process. Obviously, our current inventories already have the tariffs baked in them. So we've got to work through those inventories as well before we get any impact of the new tariffs and if they're -- how sustainable are they, right? I mean, we've already -- it's 10% now, but obviously, over the weekend, we talked about it going -- administration, moving it to 15%. Is that going to happen? When that will happen? So at this point, there's not going to be any actions or reaction off of it. We're going to wait and see how it kind of plays out over the next few months and as we work this inventory through. Anthony Lebiedzinski: Got you. And my last question here. So as we look to update our quarterly models, is there anything that we should be aware of in terms of seasonality or timing of expenses or anything related to recent weather events that you guys need to call out? Just would love to hear your thoughts on that. Steven Burdette: I'll say it and Richard can jump in here. I would say no, Anthony. And as far as weather events, we always have snow and weather in January and February, so that's not something that's unusual. So I don't see anything that would be a call out. Operator: Your next question comes from Cristina Fernandez with Telsey Advisory Group. Cristina Fernandez: I wanted to follow up on the tariff question. If the tariff goes to 15% from 10%, does that change the gross margin guidance you gave in perhaps a little bit more color on the timing of the inventory you have today, the tariff rate that was in effect in the fourth quarter, how long will it take to work through that inventory? Are we mostly looking at the first half or a little bit longer? Steven Burdette: Yes. As far as the guidance, I don't see there being any changes. We've got that baked in as to where it is, whether it's 10% or 15%, Cristina, as far as going forward. And then as far as working through the inventory, I think it will take us the first half of the year. But we will be strategic about it and if there are things that we need to address to be competitive in certain price points, we will move on those. But again, we will move on those and still be able to maintain the guidance that we've given on the margins as far as going forward. But we feel like at this point, it will be -- the current inventory where we are, probably we'll work through the first half of the year, and then we'll bring in, obviously, the newer inventory, the newer cost. And again, this new tariff is only for 150 days, so it expires on July 24, and we know the administration is aggressively looking at other alternatives under Section 232, Section 301 and how they can get further increases in the tariffs. So time will tell. Cristina Fernandez: And then I wanted to ask about the trends in the quarter that you talked about, specifically the written order trends that they decelerated a bit. Do you feel it's more a function of the year-over-year comparisons? Or do you notice any change, I guess, on the underlying, I guess, consumer behavior as you look at your regions or traffic or kind of what consumers were looking for when they came into the stores? Steven Burdette: I don't think there's any specific, but I will tell you, I don't think the government shutdown helped us. Being shutdown for almost 45 days-or-so, that didn't set a good precedent as we move forward and kind of created some unknowns out there. But we talked about traffic. When we compare back to '24, Cristina, we were up double digits in traffic in November and December of '24. So we're not concerned about the traffic, and we were not overly concerned. We were excited about the average ticket that we were able to continue to drive up, and we were able to drive it through design. We're actually seeing an increase in design and the number of pieces per ticket. So that's encouraging as we go forward. So nothing that is -- would be a call out or alarming to us in the overall trend. And obviously, we're happy with the numbers overall. Cristina Fernandez: And then my last question is regarding the mattress, the bedding refresh program. I think you tested it at a couple of stores. So can you talk about the lessons you've gotten and the stores that you tested it? And I guess what's changing the most? Is it the presentation, the merchandising? Maybe a little more detail on what consumers will see as you go through that program. Steven Burdette: Yes, it will take us to get through all the stores into next year to complete. As I said, we're doing about 35% of the stores this year where we do the mattress and design centers. We have seen traction with our bedding, an improvement. And I think more of it is more about -- it's more informational. It's easier for the consumer to understand what they're looking at with each mattress set, and it's also easier for our sales consultants on the information needed to provide for that customer. So it's just a better presentation. I think it calls out the brands, puts it more in the consumer's face when they come into the store, makes them aware that we're in the business where before we were a little subdued in our presentation. So I think calling out the brands has certainly helped attract the consumer attention to that area. And I do think -- I think some of the recent reports showed the mattress business -- some of the people have reported already that the mattress business was down in the fourth quarter in the mid-single digits, if not higher, and we were flat. So we feel good about our traction that we're having and in especially the stores that have gotten the redone bedding departments. Cristina Fernandez: And the last question I had was on the marketing and advertising side. You made some investments and changes through 2025. I mean I think you said fourth quarter spending was down, so as we look at 2026, do you expect, I guess, marketing and advertising to be flat as a percentage of sales? Or how should we think about those -- that expense item and investments there? Steven Burdette: Yes. In '25, we increased our advertising. I think it's up about $4 million for the year. And that was because we cut it too much in '24. But we do feel like we're at that level. And in 2026, we anticipate our marketing spend to be flat with 2025. Operator: I would like to turn the floor over to Tiffany Hinkle for closing remarks. Tiffany Hinkle: Thank you for your participation in today's call. We look forward to speaking with you in the future when we release our first quarter results. Have a great day, everyone. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Apellis Pharmaceuticals Fourth Quarter and Full Year 2025 Earnings Conference Call. Please be advised that today's call is being recorded. I will now turn the call over to Eva Stroynowski, Head of Investor Relations. Please go ahead. Eva Stroynowski: Good morning, and thank you for joining us to discuss Apellis' Fourth Quarter and Full Year 2025 financial results. With me on the call are Co-Founder and Chief Executive Officer, Dr. Cedric Francois; Executive Vice President of Commercial, David Acheson; Chief Medical Officer, Dr. Caroline Baumal; and Chief Financial Officer, Tim Sullivan. Before we begin, let me point out that we will be making forward-looking statements that are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. Now I'll turn the call over to Cedric. Cedric Francois: Thank you, Eva, and thank you all for joining us this morning. Before turning to our fourth quarter results, I'd like to briefly reflect on the progress Apellis made over the course of 2025. It was a year of disciplined execution and foundation building for our company. We strengthened our commercial franchises, advanced key programs across our pipeline and continued to demonstrate the value of our differentiated C3 approach, all while maintaining a strong balance sheet and a clear focus on long-term value creation. These foundations position us well as we move ahead with clear priorities centered on execution, growth and unlocking the next set of value-creating inflection points for Apellis. At our core, Apellis is a company focused on complement biology, specifically targeting C3, the central hub of the complement cascade. By intervening at this central point where all complement pathways converge, we take a fundamentally different approach that enables comprehensive disease control at the root cause while preserving essential immune function. This strategy continues to differentiate us scientifically and commercially and positions us to address a broad range of serious complement-driven diseases. Our 2026 focus remains anchored in our 3 strategic pillars. First, strengthening SYFOVRE's leadership in geographic atrophy. Second, driving growth with EMPAVELI across rare kidney diseases. And third, advancing an innovative pipeline that underpins our next wave of growth. Starting with SYFOVRE. SYFOVRE continues to be a resilient and durable business. In 2025, we delivered steady growth in total injections, and we expect SYFOVRE to remain a stable and meaningful revenue stream through 2026. Last month, co-pay assistance programs at third-party organizations began reopening to new patients. While we do not have visibility into how activity may ramp over time, we are encouraged that patients may be able to gain access to treatment. Looking ahead, we are advancing key initiatives to lay the foundation for accelerated growth in 2027, including a best-in-class prefilled syringe, and OCT-F, our AI-enabled approach to visualize the functional benefits SYFOVRE can provide for patients. Together, these initiatives are designed to make treatment more tangible, improve workflow and support broader adoption over time. Turning now to our second pillar, EMPAVELI. EMPAVELI is our near-term growth engine, and its launch trajectory reinforces our confidence in its long-term value. Following FDA approval in July for patients with C3G and primary IC-MPGN, the launch has progressed fully in line with our internal expectations, reflecting strong execution and early market receptivity. After its first full quarter on the market, EMPAVELI achieved more than 5% market penetration, significantly outpacing other rare nephrology launches. We continue to receive outstanding feedback from the community, with growing appreciation of EMPAVELI's value proposition following the publication of our data in the New England Journal of Medicine. We believe EMPAVELI's strong efficacy and safety profile will continue to drive adoption, and that over time, it has the potential to be used by up to 50% of the estimated 5,000 U.S. patient population. Lastly, our third pillar, which is our innovative pipeline. In nephrology, we are building on the momentum of EMPAVELI and expanding the franchise into new indications with pivotal trials now underway in focal segmental glomerulosclerosis and delayed graft function. In geographic atrophy, we are further bolstering SYFOVRE's leadership through our next-generation strategy, combining SYFOVRE with APL-3007, designed to enhance efficacy, patient experience and further differentiate our offerings. We are also excited to advance APL-9099, our category-defining FcRn program. This first-in-class base editing approach has the potential to disrupt a multibillion-dollar market and enable a one-and-done treatment paradigm across multiple indications. These programs reflect the breadth, strategic depth and long-term ambition of our pipeline. With a strong balance sheet and a growing commercial revenue base, we are well positioned to self-fund our pipeline and drive long-term value through disciplined financial execution. And with that, I will now turn the call over to David for an update on our commercial performance. David Acheson: Thank you, Cedric, and good morning, everyone. I'll begin with SYFOVRE. As Cedric highlighted, 2025 reinforced that SYFOVRE is a resilient and durable business. While full year revenue was modestly down compared to 2024, largely due to elevated use of free goods, the underlying demand remains strong with total injections growing approximately 17% year-over-year. SYFOVRE continues to lead the GA market. Physicians and patients value its differentiated profile, including robust efficacy and the flexibility of dosing as few as 6 times per year. Payer coverage remains strong with preferred status across a broad range of plans. As the GA market continues to evolve, we see meaningful opportunity for SYFOVRE and are focused on 3 priorities to support continued expansion and long-term growth. First, sharpening our field engagement through physician segmentation, refined messaging and a greater emphasis on early career retina specialists. Second, reinforcing our data leadership in GA. SYFOVRE is supported by the most extensive clinical and real-world evidence base in the category, anchored by 5-year GALE data; and third, advancing innovation with a best-in-class prefilled syringe and OCT-F. Together, these initiatives are foundational to supporting broader growth in 2027 and beyond. Turning to EMPAVELI. We are very pleased with the progress in C3G and primary IC-MPGN launch with early uptake fully consistent with our expectations. Following its first full quarter post launch, EMPAVELI achieved more than 5% market penetration. This level of early adoption is particularly notable in nephrology, a specialty known for conservative prescribing behavior and high evidentiary thresholds. As of year-end 2025, we received 267 cumulative patient start forms, reflecting strong early demand and a growing patient pipeline. Demand is being driven by broad engagement across the nephrology community and supported by favorable payer access with 95% of published policies reimbursing to label or with minimal restrictions. Physicians consistently highlight EMPAVELI's compelling efficacy profile, along with the convenience and ease of use of its on-body auto-injector and twice weekly dosing. With its broad label, EMPAVELI is the only approved therapy for approximately 2/3 of patients with C3G and primary IC-MPGN in the U.S. As the launch has progressed, we have expanded meaningfully across prescriber community, increasing both the breadth and depth of engagement. Over time, physicians are gaining experience in treating additional patients, reflecting growing confidence as the launch matures. Importantly, this execution has translated into strong patient pipeline. Early identification and engagement efforts over the first 6 months have positioned us well for continued growth, and we remain focused on broadening and deepening that pipeline as the market develops. As we look ahead, our 2026 launch priorities are focused on 3 clear areas: first, strengthening the patient identification through targeted medical education to both improve diagnosis and drive urgency around earlier treatment. Second, expanding engagement with prescribing physicians. We began the launch with a disciplined focus on our top 20 accounts, which represent more than 30% of the overall market and have accounted for approximately 1/3 of patient start forms. We are now systematically broadening engagement across additional tiers through targeted field activity and peer-to-peer education. And third, deepening adoption across patient segments. We continue to see strong interest from pediatric and post-transplant patients with growing opportunity in the adult population as the treatment paradigm shifts and clinical practice continues to evolve. Overall, the launch is progressing very well. We entered 2026 with strong momentum, and we believe that strength will continue through the year with some quarter-to-quarter variability. We believe EMPAVELI is on a clear trajectory to blockbuster status and that it could ultimately be used by up to half of U.S. C3G and primary IC-MPGN patient population. With that, I'll turn the call over to Caroline. Caroline Baumal: Thanks, David. I'll begin with SYFOVRE. As the only approved therapy that targets C3, SYFOVRE addresses the central biology driving geographic atrophy, which continues to differentiate its clinical profile. In the fourth quarter, we announced new 5-year data from a post-hoc analysis of the GALE extension study, which showed that SYFOVRE delayed progression of geographic atrophy by approximately 1.5 years in patients with nonsubfoveal GA when compared to sham or projected sham. We look forward to presenting the full 5-year data set at the Macula Society later this week as one of our 8 oral presentations at the conference. Looking ahead, we are advancing 2 initiatives designed to support clinical decision-making and real-world use. First, our prefilled syringe intended to improve efficiency in retina practices. The clinical study is complete, and we are working toward a regulatory submission in the first half of this year. Second, we continue to make important progress with functional OCT, our AI-enabled approach to visualizing functional benefit in GA. We recently shared data at the Angiogenesis meeting earlier this month and plan to make the tool available for research use in retina practices in the second half of this year. In parallel, we continue to advance the Phase II study of SYFOVRE in combination with APL-3007 as a next-generation approach designed to more comprehensively block complement activity in the retina and choroid. We expect to share top line data in 2027. Now turning to EMPAVELI in C3G and primary IC-MPGN. Physician feedback and the recent New England Journal of Medicine publication continue to reinforce EMPAVELI's differentiated profile. As the only C3 targeting therapy, EMPAVELI has demonstrated the trifecta of efficacy outcomes with direct clearance of C3 deposits translating into reduced proteinuria and stabilization of kidney function. These data reinforce our confidence in EMPAVELI's mechanism and its potential to redefine treatments in complement-mediated kidney disease. We also recently initiated pivotal trials with EMPAVELI in FSGS and DGF, 2 additional high unmet need kidney indications. Both conditions are strongly linked to complement activation and currently have no FDA-approved therapies. Finally, I'll briefly touch on APL-9099, our FcRn program. This first-in-class base editing approach is designed to reduce IgG levels while preserving albumin, which we believe addresses important limitations of existing FcRn therapies. We expect to submit an IND in the second half of this year and look forward to sharing more details as the program progresses. With that, I'll now turn the call over to Tim. Timothy Sullivan: Thank you, Caroline. I'll now walk through our financial results. Additional details are included in this morning's press release. Total revenue for the fourth quarter and full year 2025 was $200 million and $1 billion, respectively. As a reminder, full year 2025 revenue includes the onetime $275 million upfront payment from the Sobi royalty repurchase agreement. We reported SYFOVRE net product revenue of $155 million for the fourth quarter and $587 million for the full year 2025. During the fourth quarter, we delivered approximately 102,000 SYFOVRE doses to physician offices, including approximately 89,000 commercial doses and 13,000 free goods doses. As previously discussed, reported revenue was meaningfully impacted due to elevated free goods utilization through 2025. Looking ahead, we remain committed to supporting patient access while recognizing that free goods utilization may evolve over time as third-party programs resume activity. Turning to gross to net. SYFOVRE adjustments in the fourth quarter trended just above the mid-20% range. In 2026, we expect gross to net to be in the high 20% range, reflecting the normal step-wise evolution of the buy-and-bill market. Importantly, based on our current pricing strategy, we expect net price to remain relatively stable through 2026, and we remain confident in our access position. As we exited 2025, we took a disciplined approach to inventory management, and we are comfortable with the current channel levels. We, therefore, expect a modest inventory reduction in the first quarter alongside typical seasonal dynamics, including Medicare reverifications. Overall, SYFOVRE remains a meaningful and durable foundation for Apellis. In 2026, we are focused on disciplined execution while advancing initiatives that position the business for renewed growth in 2027 and beyond. Moving to EMPAVELI. We reported U.S. net product revenue of $35 million for the fourth quarter and $102 million for the full year 2025. As David noted earlier, the launch continues to progress very well. And based on current trends, we believe EMPAVELI is on a clear path to blockbuster status. For operating expenses, we continue to maintain a highly disciplined approach to cost management. Operating expenses were $251 million in the fourth quarter compared with $239 million in the same period last year. For the full year 2025, operating expenses were in line with our expectations and consistent with 2024 levels. In 2026, we expect operating expenses to be modestly higher with incremental investment in the newly initiated pivotal trials for FSGS and DGF as well as certain milestone payments, largely offset by a decrease in SG&A, reflecting ongoing operating efficiency and resource optimization. We ended the year with $466 million in cash and cash equivalents, which we believe provides us with substantial flexibility and the resources to fund the business to profitability. As a reminder, Sobi recently received European Commission approval for Aspaveli in C3G and primary IC-MPGN, which triggered a $25 million milestone payment to Apellis during the first quarter of this year. We also remain focused on prudent capital structure management. We have approximately $94 million of convertible debt outstanding, which matures in September of this year, and we are actively evaluating a range of alternatives to address this obligation in a thoughtful and disciplined way. And with that, I will now turn the call back over to Cedric. Cedric Francois: Thank you, Tim. As we move through 2026, our priorities are clear. We are focused on disciplined execution across our commercial portfolio, advancing initiatives that support long-term growth and continuing to deliver meaningful impact for patients. EMPAVELI is gaining traction in C3G and primary IC-MPGN, while SYFOVRE provides a durable foundation as we position the franchise for its next phase of growth. Supported by a strong balance sheet and financial rigor, we are operating from a position of strength and remain confident in our ability to create durable value for patients and shareholders. And with that, I will now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Jon Miller of Evercore ISI. Jonathan Miller: On the progress throughout '25. I'd like to use my one question to ask about EMPAVELI launch as we get into '26. You mentioned opening to broaden the accounts there and improve patient identification, diagnosis and all of that. But I noticed that one of the things that you didn't mention when you were listing the indications where there was strong growth potential was IC-MPGN, where obviously you have a differentiated label, but historically, it's been a little bit more challenging to find those patients. Can you talk a little bit about the breakdown of different indications throughout 2026, where you think the low-hanging fruit is, where we can see real growth in the near term and what it will take to break open some of those indication subsets that are a little bit tougher to diagnose and get on treatment? Cedric Francois: Thank you so much, Jon, and great hearing you, and thank you, everyone, for joining. So EMPAVELI is on a clear path to blockbuster status. And as you correctly outlined, John, there's not just IC-MPGN, there's also the fact that in the VALO study, we studied EMPAVELI in the pediatric population as well as in a post-transplant setting as well. Now specifically as it relates to IC-MPGN, we believe that the epidemiology in total between the 2 indications is approximately 5,000 patients in the U.S., split more or less 50-50 between those 2 indications. While we're not providing exact breakdowns as to where in the population, things sit at the moment, it is worth noting that in the pediatric population, the IC-MPGN in the post-transplant segment, we see important pickup and differentiation. And that, of course, contributed to achieving more than 5% penetration after the first full quarter in Q4 and contributes to our confidence of reaching up to 50% of those 5,000 patients at peak. Jonathan Miller: But I guess if you're going to see 50% penetration at peak and IC-MPGN is 50% of the U.S. population, I guess I'm asking, are you going to see equivalent penetration across those different subpopulations, those different subindications by the end of the day? Or are there places that are going to remain more difficult to penetrate? Cedric Francois: It's a little early to say that exactly, I think, at this moment in time. It's also important to note that there's quite a bit of overlap between these 2 indications. There's not kind of a hard separation between them in the sense that you can have a patient with a biopsy one day that is more leaning towards C3G and on another biopsy can mean more towards IC-MPGN, which is why it is so important to have covered all phenotypes of the disease -- of these diseases in the clinical trials that we ran. So it's a little bit too early to provide more specifics on that. Operator: Our next question comes from the line of Anupam Rama of JPMorgan. Anupam Rama: For SYFOVRE, you've got the 5-year GALE data this Friday that you guys highlighted. What would you have us focus in on within these data? Cedric Francois: Thank you so much, Anupam. Well, the important benefits and the continued safety profile that SYFOVRE provides to patients with geographic atrophy, right? So it is by far the largest data set ever generated in geographic atrophy. And what we found through the course of following these patients for a full 5-year period is that patients who are on treatment for 5 years can save as much as 1.5 year of tissue. So as I think you can appreciate, that's an enormous benefit to 70- or 75-year-old individual who obviously, in the twilights of their lives depends so much on their vision. So we're incredibly proud and incredibly happy with the data that we have generated and look forward to presenting it on Friday. I don't know, Caroline, if you would like to add something. Caroline Baumal: Thank you, Cedric. I think what will be meaningful for retina physicians is that we have this extended trial with 5 years of data that we continue to show increasing effects over time and that retina tissue can be meaningfully saved. And these findings might lead to earlier treatment for patients with geographic atrophy. So we really look forward to presenting this data. Thank you. Operator: Our next question comes from the line of Tazeen Ahmad of Bank of America. Tazeen Ahmad: I maybe wanted to follow up on that 50% penetration for EMPAVELI. How long do you think it's going to take to reach that? I know that a big point of discussion among investors is like the ramp of your launch. Is it going to be more steady? Or could it accelerate and become more steep? So any thoughts you can provide on patient finding efforts and what you think realistically the time to onboard patients will take? That would be helpful. And then can you just talk about what the competitive dynamics are so far relative to how doctors are viewing EMPAVELI versus FABHALTA? What are the types of patients that they might still be waiting to see if EMPAVELI might be better than relative to FABHALTA? Cedric Francois: Thank you so much, Tazeen. Well, as it relates to the ramp, I think you correctly outlined that we should expect steady ramp and steady growth as is quite typical in rare diseases. And again, I think we have seen that happen in the past couple of months and expect that to continue to be the case. Competitively, as already outlined when Jon asked the question, there is kind of the clear differentiation that we have and kind of the unique positioning without competition right now in the pediatric segment as well as in IC-MPGN -- that is, of course, a huge advantage. Also in the pediatric population, I think the disease tends to progress more quickly. And what you see in the field based on what we have seen since the launch is that the appreciation for the efficacy and safety profile of the drug really stands out. Also in the post-transplant segment, of course, that is a very important place. Most -- majority of patients with these diseases will have a relapse because this is a genetic condition at the end of the day. Operator: Our next question comes from the line of Timur Ivannikov of Cantor. Timur Ivannikov: This is Timur on for Steve Seedhouse. For EMPAVELI launch, I think you mentioned strong momentum in C3G in 2026 with quarter-to-quarter variability. Could you talk about some of the variability factors? And do you expect to provide start forms again at some point or any other form of guidance? Cedric Francois: Thank you so much, Timur. I will hand that question over to David Acheson. David Acheson: Hope you're doing well. Thank you for the question. So on the variability, it's just -- it's ultra-rare disease. I think it's important to note that you'll see an influx of potential patients coming in on start forms. That does vary week over week, month over month. So I think it's just something that we need to pay attention to. But I feel very good about the momentum that we came into 2026 with -- from the launch last year on the strength of the product and the patients that we're getting on the brand, which is very positive. And can you repeat the second part of your question for me? Timur Ivannikov: Yes. I was just wondering about the start forms or any other type of guidance for the product? David Acheson: Yes. So moving forward, we continue to report on revenues for sure and start forms, but we're not going to give any additional guidance on start forms that we had in the third to fourth quarter. Operator: Our next question comes from the line of Yigal Nochomovitz of Citigroup. Yigal Nochomovitz: Could you talk a bit about the prefilled syringe? I just want to get a sense of how much it matters for the retina docs in terms of the practice flow and efficiency. And when you say renewed growth in 2027 for SYFOVRE is the driver behind the statement, the launch of the PFS. And then more specifically on the practice dynamics, since the space is very limited for the physicians, for the fridges to store the drug, is there an advantage to the PFS in terms of practice dynamics in storing the drug with that presentation? Cedric Francois: Thank you, Yigal. Those are excellent questions, and the PFS will make a huge difference for us. And we have, of course, our Chief Medical Officer with us here, Caroline, to speak a little bit more towards that. Caroline Baumal: Thank you. So the prefilled syringe is really a practice-enabling innovation, and this is going to offer convenience and efficiency to retina physicians. And from my experience as a clinician and also from being heavily involved in development of our prefilled syringe, this is going to support the ease of clinical use in patients with geographic atrophy. So we really think that this is going to be transformative for physicians and their patients. When it comes to specifics about the design, I think that retina physicians put their input heavily into how we design this, including the box, the complete package, and we'll be very, very pleased with how it fits into the refrigerators. We also have some other things that will be helping be transformative for SYFOVRE with renewed growth, and that's functional OCT, which was mentioned in the call. Operator: Our next question comes from the line of Salveen Richter of Goldman Sachs. Salveen Richter: I was wondering if you could provide any further color on the recent improvement in co-pay dynamics for SYFOVRE and how you think about the quarter-over-quarter cadence of sample use and kind of the sales trajectory as you input this into your trajectory? Cedric Francois: Thank you so much, Salveen. Tim, can you elaborate? Timothy Sullivan: Sure. So as you probably saw, Salveen, the Patient Assistance Organization is open for reimbursement for co-pay assistance with geographic atrophy patients. At this time, we don't really have any sense of what that means in terms of dynamics from a free goods perspective. As you'll recall, last year, we had 12% to 14% fluctuating on a quarterly basis. But really, what this represents is an important advance for the patients who have been unable to pay for their treatment in geographic atrophy. Operator: Our next question comes from the line of Colleen Kusy of Baird. Colleen Hanley: Congrats on all the progress. I realize for the nephrology Phase III studies are just recently coming up and running now, but any color you can provide on the expectations for enrollment there? Do any of these centers have preexisting experience with EMPAVELI? Just how that enrollment might pan out. Cedric Francois: Thank you so much, Colleen, for that question. So we're very excited about these 2 Phase III clinical trials in FSGS and DGF, where we think EMPAVELI's potential can make a huge difference as it did in C3G and IC-MPGN. It's a little bit early to give projections on what the enrollment will look like, but the excitement around kind of continuing the trajectory in the kidney is very strong. What really stood out from the VALIANT study is the exquisite target engagements and the control of the complement pathways that we see in the glomerulus, which we believe will translate in a similar efficacy profiles in these conditions. Operator: Our next question comes from the line of Phil Nadeau of TD Cowen. Philip Nadeau: We wanted to focus on SYFOVRE revenue trends for Q1 and 2026. Tim, putting your comments together, it sounds like you expect typical seasonal factors. For Q1 last year, sales were down $37 million quarter-over-quarter in Q1 '25 versus Q4 '24, although there was a big impact of free product in that downtick. So how will the seasonal factors in Q1 of '26 compare to Q1 of '25? And then more generally for 2026, it sounds like you guys are suggesting relatively stable revenue for SYFOVRE. So I want to make sure I understand that we should be modeling something, full year 2026 similar to full year 2025? Timothy Sullivan: Sure. So yes, I think the one thing to remember, there are a couple of seasonal dynamics in the first quarter, one of which we tried to manage a little bit. So as you'll recall, last year, we had a fourth quarter spike in revenue that was as a result of some inventory build across the channel. So that included at the physician offices as well as the distributor. We really did our best to manage that this year. So we think there may be a bit of a modest swing in the first quarter, but much more muted than last year. We also typically have some seasonal dynamics like weather and reverifications in the first quarter. So bearing that in mind, we think across the year, that's the main seasonal quarter for us. There is a little bit at the end in the fourth quarter. But as you rightly point out, we expect sort of a modest cadence to growth over the course of the year. Operator: Our next question comes from the line of Annabel Samimy of Stifel. Jayed Momin: This is Jayed on for Annabel. I just want to revisit the SYFOVRE doses delivered. It was flat quarter-over-quarter, I think you mentioned due to some seasonality. But there was an improved split favoring commercial doses. Agnostic of the pay -- the co-pay assistance funds coming back, do you expect that split to be more favorable towards commercial doses going forward in 2026? Timothy Sullivan: Sure. So thanks for the question. So what we really felt happened in the fourth quarter was a touch of seasonality. When you look at the amount of doses we had, it was 89,000, and sort of there are roughly 90 days in a quarter. We had a couple of a longer holiday stretch that may have impacted things. So it was really not a significant change from a commercial doses perspective in the context of that seasonality in our view. But from the free goods perspective, we saw a range of 12% to 14% over the course of 2025. That bounced around. And so this was, I think, pretty much in line with what we expected in the fourth quarter. As you may recall, sometime in the third quarter, the patient co-pay assistance organization was open for existing patients, and that may have led to a small downtick in the total free goods in the fourth quarter, but it's really hard to say. Operator: Our next question comes from the line of Ellie Merle of Barclays. Eliana Merle: Two for me. I guess, what are you looking to see in the Phase II data, SYFOVRE in combo with APL-3007 next year? And how you're thinking about what would be meaningful there? And then just a clarification on the C3G IC-MPGN comments. The 50% penetration that you mentioned, I'm sorry if I missed this. But I guess, is this the base case that you'll treat 50%? Or are you saying that half the population will become challenging to treat? Just trying to understand that 50% comment. Cedric Francois: Thank you, Ellie. Great hearing you. So the GALLOP study is a study we're really excited about. What we do there is a subcutaneous injection with an siRNA product against C3. And that lowers the systemic levels of C3 by approximately 90%. What that does is it translates to actually a lowering of the C3 levels in the eye as well. And it gives a stchiometric advantage to SYFOVRE to do its job. We believe that this study, if successful, will allow us to treat every 3 months instead of every 2 months, and to increase the efficacy, which is already important, of course, from SYFOVRE to numbers well above that. What well above that means, we will define at a later time point. But I think, again, kind of really, really exciting study for us, where I think we can again change the paradigm in geographic atrophy as we have done before. As it relates to the C3G and IC-MPGN population, so we said we believe that up to 50% of the epidemiology would be patients that could end up being treated with EMPAVELI. What I think is important in that context is, again, that we -- I think we're very good at having a conservative estimate of the epidemiology for C3G and IC-MPGN. It is noteworthy that our only competitor in this space has an epi that is meaningfully higher. And the fact that we have more than 5% penetration in the fourth quarter, which means that we had a very, very strong launch, among the strongest launches in rare diseases. And maybe a conservative epi on our side or a combination of both. So again, we feel very good with where EMPAVELI is headed with what we did in Q4 and the trend that we continue to see as this launch progresses. Operator: Our next question comes from the line of Lachlan Hanbury-Brown of William Blair. Lachlan Hanbury-Brown: I guess for EMPAVELI, you've previously talked about there being an initial bolus of patients and then it sort of settles down into more of a steady state, monthly or quarterly growth in new patients. I'm wondering, sort of where are you at that? Are you through that bolus and into the steady state now? Or are you still working through some of that initial bolus of patients that you're expecting? And maybe you reach steady state later this year? Cedric Francois: Yes. Thank you, Lachlan. I will hand that over to David Acheson to answer. David Acheson: Thanks for the question. So yes, like we talked about last year in the Q3 launch through Q4, that bolus of patients typically hits early in the launch and get on product shortly after the launch. And we saw that happen in the fourth quarter. So -- which was great to see. Now we're at that steady state place that we talked about in prepared remarks and what Cedric mentioned in the opening portion of some of the questions here. So I would be confident in the continued steadiness of what we're going to see moving forward. Operator: Our next question comes from the line of Judah Frommer of Morgan Stanley. Judah Frommer: Maybe just one on the commentary around the ability to fund yourselves through to profitability. Just curious how pipeline could impact the timing and trajectory of that, specifically maybe 9099 and 3007, what are the pushes and pulls there that could move that profitability closer or further out? Timothy Sullivan: Yes. Thank you, Judah. That's a great question. At least for the moment, we've incorporated all of that into our thinking when we talk about the fact that we may have a small increase in total operating expenses this year, as you'll see in 2024 and 2025, it was pretty flat overall. We have a -- may have a solid increase over the course of this year with the -- our FSGS study and our DGF study really ramping up and then some of these new programs that you mentioned like the Beam program coming online towards the end of the year in terms of potential larger cost structure. But ultimately, we've been pretty good about managing our operating expenses, and it really comes down to the revenue growth that will make that happen. We look at the world at least today from an operating expense and net revenue perspective. And if you look, taking -- adding back stock-based compensation, we've been pretty close to an operating adjusted EBITDA neutral level over the last year, and we expect that to come more into focus over the course of this year. Operator: Our next question comes from the line of Douglas Tsao of H.C. Wainwright. Douglas Tsao: Just on SYFOVRE, David, just a couple of questions. I think you indicated there was sort of an initiative to help patients sort of end up on the right plan which sort of improves their coverage of SYFOVRE. I'm just curious sort of as you come into the new year, if you've sort of seen meaningful progress on that. And then also, I'm just curious in terms of the free goods, are you seeing those patients sort of typically sort of get dosed with free goods and then they see that they can't get covered or can't get patient assistance and drop off? Or are you seeing sort of a persistence of it? I'm just sort of trying to understand that in terms of understanding sort of how patients are coming in and sort of identification for the market. Cedric Francois: Thank you, Doug. David will answer the question on SYFOVRE, and I will -- the first question, and I will then talk a little bit about the free goods. David Acheson: Doug, thanks for the question. So on the reverification piece and just kind of patients coming over on insurance plans and what we did last year. So we put a lot of effort in last year with our field reimbursement team to make sure that we can help offices get educated on which plans would be specific to patients that have a gap, right, where they couldn't get covered for a geographic atrophy treatment or specifically, SYFOVRE. So we did a lot of work on that. Our Apellis Assist, which is our hub, has also been integral and playing a part of making sure education to both the patients and the offices during the reverification period of their insurance, which happened in the fourth quarter coming into this year, helps them understand where they've got opportunities for benefit -- for treatment for benefit and payment. And all of that happened coming into this year. And I can tell you, the reverification process is winding down. It's been relatively smooth. I cannot tell you how many patients actually changed plans or moved over. But we did what we could to continue to educate so people had access to additional information. And I'll hand it back over to Cedric. Cedric Francois: Thank you, David. Well, as it relates to the free goods, I kind of want to highlight something that is really important, and that is that in 2025, we made a deep commitment as a company to support the retina practices to deal with, at the end of the day, a lot of patients being in a position where they could not afford the co-pay on their products and to make sure that these patients would not go without treatment, right? So that is our medical commitment to patients, and that is what we did throughout the year last year, but we will always continue to do when it is needed. So that is really important and will continue to be important for us. I think within the context of next year as well, I think it is hard to overstate how impactful the disruption was on the workflow in the retina practices when this occurs, right? So that is something that needs -- had to find a new place of settlement that was important. And during that period, there was inevitably kind of, I would say, a lowering of how many new patients would come on treatment with geographic atrophy because within these retina practices, that is easy to essentially punt, right? So that dynamic is also something that you should expect to see change over time. I think what is really important and gratifying to see right now is that within the retina world, we're starting to find a new cadence and a new place of stability after what was a very difficult year for these physicians and patients. Douglas Tsao: Great. And it's great to hear about the commitment to providing drug to patients. Operator: Our next question comes from the line of Derek Archila of Wells Fargo. Derek Archila: You made some comments on kind of the patient pipeline for EMPAVELI in C3G and IC-MPGN. And I guess, what level of visibility do you have there? Is it as granular as understanding where the patients are at certain sites, outreach of those patients? And then just a second question on PFS. Just kind of curious, is it more of expand the market? Or is it also share gains against the other competitor? Cedric Francois: Thank you so much, Derek. Well, first of all, as it relates to the pipeline, I think that is one of the most -- one of the more gratifying aspects of the launch that we have seen. First of all, of course, there was the epidemiology, which, as you all know, was difficult to estimate and feeling that we really kind of hit the bullseye in terms of estimating that and arguably conservatively estimating that. Then, of course, the very good -- one of the best rare disease launches that we are having in the kidney here with that penetration within the first full quarter. But then, as you mentioned, also the pipeline. So if you take the number of patients that we actually identified, which then flow into start forms and from start forms into being on treatment, that upstream pipeline today is larger than it was before the launch. In spite of course, many of these patients now having transitions to start forms and being on full treatment. So that tells us that, again, we got the epi rate. We continue to identify these patients and why we expect this launch to be one of steady growth. And then as it relates to your second question with the prefilled syringe, I think it will be a very important driver of share. We have plenty of examples from the wet AMD space with anti-VEGF products, where it has been proven over and again that having a prefilled syringe on the market makes a very important competitive advantage for a product. That is one that we are working towards. Of course, we expect our competitor at some point to come out with a prefilled syringe as well. But right now, we have a head start that we're very happy with and that will allow us to position ourselves well. As it relates to share, it will also make a difference. The fact that you fit better into the workflow of the retina practice makes it much easier for physicians to treat these patients. Makes it also much easier, quite frankly, for physicians to just try the products, right? I mean, it is not -- instead of taking something, having to draw it from vial in -- through a filter needle into a syringe, et cetera, you take it out of the fridge and you try it, right? So important differences, and I don't know, Caroline, if you want to elaborate on that, but we're very pleased with where we are. Caroline Baumal: Yes. This is a real innovation, and this will be highly meaningful to physicians to have this way to treat their patients efficiently. So I speak from my personal experience and what I've heard from colleagues that I think that this will help to expand the market for geographic atrophy. Cedric Francois: Thank you, Caroline. And worth noting is that the prefilled syringe that we have from a CMC perspective, from a quality, from -- is absolutely has been spectacular for us and outpaced our own high internal expectations. We're really happy not just with the pace at which we're bringing into the market, but also with the quality of the prefilled syringe. Operator: Our next question comes from the line of Ryan Deschner of Raymond James. Unknown Analyst: This is Anthony on for Ryan. So we wanted to ask, can you walk us through how retina specialists can potentially use OCT-F in their practices, how this could increase the size of the GA market? And then if you have like an approximate time line for when you anticipate having appreciable amounts of real-world OCT-F data for analysis? And if possible, I have a follow-up. Cedric Francois: Thank you so much, Anthony. Well, we're touching on Caroline's favorite subject here. So for those on the call not familiar with OCT-F, OCT-F is functional OCT, and it is a technology that we developed in collaboration with University of Bonn in Germany, where we used our -- what is the largest data set of microperimetry data ever generated in the retina, where we use that technology to essentially take an OCT and translate an OCT image into what a real functional mapping of the retinas. In other words, what is the retinal sensitivity in the patient across the retina. And what really stands out when you analyze patients with geographic atrophy over time is the impressive loss of retinal sensitivity that these patients experience. And from a timing perspective, what you should expect to see this year -- and it started at Angiogenesis 2 weeks ago -- is that we will redefine for retina specialists and for family members of patients, what it means to have this disease. And why is this so important? Because right now, a lot of people believe that geographic atrophy happens on the border of a lesion. And that is not the case. It is really a pan-retinal neurodegenerative condition, and we can now image that. And commensurate with that, of course, we can image and quantifiably visualize what the benefit is of being on treatment with SYFOVRE. In the first step this year, we will be focused on, again, as I mentioned, raising the awareness around how impactful geographic atrophy is on patients. And then it becomes our mission to make this available in the retina practice so that a physician in a one-on-one interaction with the patient can actually do that analysis, assess the patient and again, track what the benefit is of being on treatment with SYFOVRE to that patient. Caroline is in love with this technology, speaks about it at every retina conference. And maybe you want to add a couple of words? Caroline Baumal: Physicians are really excited for this technology finally to have a way to link structure to function. This was shown at our recent presentation at Angiogenesis, and I had multiple people reaching out to me after. But what I would say is that this will help with earlier diagnosis of GA. It will help position -- support the patient's journey. It will help physicians better understand this disease. And we expect this to support adoption of SYFOVRE, which is the currently approved agent with every other month dosing, support their use in patients and help keep patients on their treatment schedule with up to every other month by showing them and showing their family members how they're doing, we also hope that it helps highlight other diseases, including wet AMD and other things that we're evaluating as a research tool. Operator: Our next question comes from the line of Douglas MacPherson of Mizuho. Douglas Macpherson: I'm interested in the sort of competitive dynamics of the market. Firstly, are you seeing the complement inhibitor class to treat GA, seeing that hold steady or perhaps growing modestly? And then I think you're holding pretty solid at 60% market share. As far as new patient starts, what proportion are you seeing versus competitor? And have you seen any impact of the 5-year GALE update in November? You see any impact on that on new patient starts or on compliance? Cedric Francois: Thank you, Doug. Good hearing from you. So as a class, we believe that -- it's hard to believe that it's still the early days of what can be done for patients with geographic atrophy. And of course, with the differentiation of our product and the enormous amount of data that we've generated, including over, as you mentioned, the full 5-year period, we are really well positioned to continue to shine competitively. I will hand it over to David Acheson to talk a little bit more about market share. David Acheson: Yes. Thanks for the question. So you're correct. We're holding steady at 60% market share, which we're confident in. And we feel really good about where we're coming into 2026. I can tell you that we're really confident in the competitive strength that we have, including the GALE data that we just talked about and came out this week. I think it's important for us to note that nobody else has that data, and it's a big strength for us to have that kind of data with the patients that are in the long-term study. And our focus, quite frankly, is really being disciplined on execution and to continue to innovate with what we're doing with the brand and continue that leadership reinforcement moving forward within the space. So the market share is part of that, but certainly, driving innovation is a part that we'll continue to drive uptake, market growth and our share growth as well. Operator: Thank you. I would now like to turn the conference back to Cedric Francois for closing remarks. Sir? Cedric Francois: Thank you very much, and thank you all for your thoughtful questions. We look forward to updating you on our progress, and I believe that we're speaking with many of you later today as well. Thank you so much, and I hope you have a great rest of the day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to Atlas Energy Solutions, Inc. Fourth Quarter and Year-End 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kyle Turlington, VP, Investor Relations. Thank you. You may begin. Kyle Turlington: Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the Fourth Quarter of 2025. With us today are John Turner, President and CEO; Blake McCarthy, CFO; Tim Ondrak, President of Power; and Bud Brigham, Executive Chairman. John, Blake and Bud will be sharing their comments on the company's operational and financial performance for the fourth quarter of 2025, after which we will open the call for Q&A. Before we begin our prepared remarks, I would like to remind everyone that this call will include forward-looking statements as defined under the U.S. securities laws. Such statements are based on the current information and management's expectations as of this statement and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially. You can learn more about these risks in the annual report on Form 10-K we will file with the SEC on February 24, 2026, our quarterly reports on Form 10-Q and current reports on Form 8-K, and our other SEC filings. You should not place undue reliance on forward-looking statements, and we undertake no obligation to update these forward-looking statements. We will also make reference to certain non-GAAP financial measures such as adjusted EBITDA, adjusted free cash flow, and other operating metrics and statistics. You will find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I will turn the call over to John Turner. John Turner: Thank you, Kyle. For the fourth quarter, Atlas generated $36.7 million of adjusted EBITDA on $249 million of revenue, representing a 15% adjusted EBITDA margin. For the full year 2025, we delivered $221.7 million of adjusted EBITDA on $1.1 billion of revenue, achieving a 20% adjusted EBITDA margin. Our Q4 results exceeded our initial expectations. Volumes came in at 5.3 million tons, flat sequentially with the third quarter. The typical end of year seasonality was notably muted as customers took minimal downtime around the holidays. This was particularly encouraging following the steep decline in West Texas completion activity we experienced over the summer. It now appears that most operators have adjusted their activity levels to align with the $50 to $60 WTI strip and are comfortable maintaining operations at these levels. The quarter also marked the highest utilization we've seen to date on the Dune Express as Delaware Basin customers increasingly recognize the efficiency and reliability benefits of this system brings to their logistics supply chains. We view this as a strong indicator of the system's performance heading into 2026. In November, we announced the order of 240 megawatts of power generation equipment, accelerating our strategic evolution into a leading provider of behind-the-meter long-term power solutions across a broad range of domestic industries. We see the evolving power market over the next decade as a truly generational opportunity, and we're moving aggressively to capitalize on it. After years of relatively flat U.S. electricity consumption, the grid is now confronting surging demand, which hit record levels in 2025 and is projected to grow by as much as 25% by 2030, driven by the explosive expansion of data centers and the resurgence in domestic manufacturing. Utilities are struggling to keep pace amid infrastructure constraints and reliability challenges where rising residential electricity prices up 7.4% in 2025 alone are creating political and economic pressure for more affordable, dependable alternatives. This dynamic is pushing developers to secure dedicated behind-the-meter power assets to derisk their projects and meet time lines. For many of these companies, grid constraints represent a new and urgent challenge, compressing decision-making windows dramatically. Since the summer of 2024, Atlas has been positioning itself as the go-to solution in this space. The Moser acquisition completed this time last year provided a cash flow platform and critical engineering expertise that complements our strength in large-scale project execution. Over the past 9 months, we've been actively transitioning the business from a traditional short-term generator rental model to a power-as-a-service approach, selling electrons under longer-term arrangements. This shift has involved upgrading communication systems, refining our sales process and focusing our commercial efforts towards customers seeking dense long-term deployments. We're encouraged by the progress. We reached a tipping point in this transformation. Earlier this year, we successfully deployed our first microgrid with the Permian E&P customer, which has since been upsized. In the first quarter of 2026 alone, we anticipate deploying at least 30 megawatts under long-term microgrid multi-basin contracts with E&P and midstream customers. Based on our current pipeline, we are targeting more than 50% of our existing fleet under long-term contracts by year-end. January also marked the initial deployment of our patented hybrid battery solution, which integrates with generators as a grid-forming system, delivering meaningful improvements in cost and maintenance efficiency. The commercial potential for this technology extends far beyond the oilfield. While these advancements in our existing power business are promising, the larger behind-the-meter projects represents a true step change opportunity for Atlas. We have active commercial negotiations underway and expect to provide greater visibility on equipment placement and the resulting economic impact to Atlas in the near term. Our pipeline features a broad range of behind-the-meter power projects across multiple industries, including energy, data centers, manufacturing and others, with contract terms typically spanning 5 to 15 years, creating durable long-term cash flows. We have particular strength and see especially compelling risk-adjusted returns in projects in the 50 to 500-megawatt range where our modular platform enables efficient execution and high-density deployments. At the same time, our differentiated track record with large CapEx infrastructure projects such as our high-capacity plants and the Dune Express conveyor system, combined with our scalable design and growing expertise advantage us for the execution of even larger scale opportunities as customer demand intensifies. The opportunity set continues to expand rapidly with several prospects advancing from initial discussions to formal proposals and active negotiations. We are targeting more than 500 megawatts deployed across our fleet in 2027 with the potential for substantial additional growth beyond that as we secure larger scale projects and build on our initial orders. The ordered equipment is slated for delivery starting in the second half of 2026 with energization targeted to begin in Q1 2027. Each of these projects has the potential to meaningfully enhance Atlas' cash flow profile, and I am very excited to share more details with you as we close transactions. So stay tuned for the updates. I will now turn the call over to our CFO, Blake McCarthy, through our financials in more detail. Blake McCarthy: Thanks, John. The underlying performance in our sand and logistics business improved in the fourth quarter despite a continued challenging pricing environment. Plant operating expense per ton declined sequentially to $12.28 despite elevated costs in October related to the operational challenges in Q3 and higher maintenance spending during December. Our cost of production, although improved, remain elevated at our flagship Kermit complex due to current limitations on our dredge feed. This is expected to be alleviated with the deployment of our 2 new Twinkle dredges, which are scheduled for commissioning in the second quarter. The market backdrop for West Texas sand and logistics remains challenging with current pricing at the industry's marginal cost of production. Permian completion activity is expected to be down year-over-year, although it appears to have stabilized at Q4 levels for now. Despite the challenging market environment, Atlas' commercial team has positioned us well to grow volumes in 2026. Leaning on our cost-advantaged mines and logistics network, we were able to increase our share of current customer sand procurement spend while also adding some key new customers, relationships we expect to grow and scale over the course of 2026 and beyond. The current oil macro environment remains quite opaque. So we don't have significant visibility into all of our customers' full year plans, but our Q1 schedule is very busy with sales volume expected to be up approximately 10% sequentially and further growth expected in the second quarter. The winter storm at the end of January impacted everyone's operations in the Permian, and we lost approximately 4 days of production and deliveries. This temporary shutdown is expected to negatively impact Q1 EBITDA by approximately $6 million. However, I'm proud to say Atlas was the last sand provider delivering in the Delaware before we had to shut down due to ice. The fact that was made possible by the Dune Express, removing so much road mileage and the related risks. Speaking of the Dune Express, it continues to run extremely well. January 12 marked the 1-year anniversary of its first commercial delivery. And thanks to our partners, I'm proud to announce that we have eliminated more than 21 million miles of truck traffic in the Delaware Basin. We are very proud of the fact that the Dune Express is materially improving quality of life and safety for families and the broader community in the region. The Dune Express achieved record shipments in the fourth quarter of approximately 2.1 million tons, including a monthly shipment record in November of 760,000 tons. For the first quarter, we expect new customer wins and continued spot volumes to drive improvements in Dune Express volumes and believe we are positioned to deliver north of 10 million tons via the Dune Express this year. We are grateful to our customers for partnering with us to make the Permian Basin a safer place to live and work. All that said, the obvious question is, if the Dune Express is working so well, why were Q4 service margins so weak? While Q4 numbers were burdened by large load bonuses to ensure driver availability through the holidays, the real answer to that question is simply pricing. Logistics pricing in the Permian has fallen to completely unsustainable levels, well below those seen during COVID. To compete with the Dune Express, we have seen increasingly irrational behavior from some of our logistics competitors, which we believe sets both them and their customers up for eventual problems and disruptions. We believe several companies are currently delivering standard prices where they're effectively subsidizing their customers. Thus, the margin differential provided by the Dune Express is there. It's just partially insulating us from historically bad pricing. Encouragingly, we are seeing signs of this market beginning to break the other way. Third-party trucking rates are beginning to see upward momentum, echoing what we're seeing in the broader over-the-road market. That is typically the first sign that trucking companies are tired of subsidizing their customers, and as a result, margins have to come up. In November, Atlas introduced our first last mile storage pile system to the market. While other pile systems in the market essentially use mining equipment that has been reapplied for the oilfield, our system is built for purpose. Today, we have 6 systems in place to support our wet sand operations with testing underway for deploying the system in dry sand operations. These systems are key to continuing our further enabling of our customers' continuous pumping initiatives, which are driving record sand consumption per completion crew. While the market for sand and logistics in 2026 looks like it will remain challenging, we are looking to take advantage of the weaker market conditions to cement Atlas's position as the provider of choice. The pricing pendulum in our industry has swung too far for too long, and the pricing over vantage is certainly tight. We're hearing more anecdotes of competitors struggling to fill customer obligations. And I'll echo the comments from the large-cap oilfield services calls when I say that it's only going to take a very small increase in completions activity for pricing to move. This RFP season, we saw market share shift to the higher-quality suppliers with fewer volumes being spread amongst the lower-quality mines. The supply/demand for sand in the Permian is much tighter than the market realizes, especially for dry sand. On our last conference call, we set a cost savings target of $20 million in annualized savings. As it stands today, we have executed upon that target through a combination of the elimination of third-party last mile equipment, reductions in rental equipment, headcount optimization and procurement savings. Despite the early success of these efforts, we will continue to push for further cost optimization as we look to lower the fixed cost structure of our business across the organization. Moving to our financials. As John touched on earlier, Atlas recorded full year 2025 revenue of $1.1 billion. Total company adjusted EBITDA was $221.7 million or 20% of revenue. Deconstructing full year revenues, proppant sales totaled $478 million on volumes of 21.6 million tons, while logistics and power contributed $558.8 million and $58.5 million, respectively. Fourth quarter 2025 revenue of $249.4 million broke down to the following: Proppant sales totaled $105.2 million, Logistics contributed $126.1 million and power rentals added $18.1 million. Total proppant sales volume was slightly up sequentially to 5.3 million tons, while the logistics business delivered approximately 4.9 million tons. Our average sales price for the fourth quarter was approximately $19.85 per ton. For the first quarter, we expect volumes to be up approximately 10% sequentially with the average sales price of sand to be approximately $18 per ton. Q4 cost of sales, excluding DD&A, were $187.3 million, consisting of $60.6 million in plant operating costs, $115.2 million of service costs, $7 million in rental costs and $4.5 million in royalties. For the fourth quarter, our per ton plant operating costs were approximately $12.28, including royalties, down sequentially from the third quarter, but still elevated versus our normalized levels. Higher volumes and a reduction in extraneous costs at the plants for Q3 levels drove the lower plant operating costs. For the first quarter, we expect our OpEx per ton to be approximately in line with the levels in the fourth quarter, reflecting the impact of the severe weather in January. Over the course of 2026, we expect to see improvements in our realized variable costs as the new dredges are commissioned at our Kermit facility. Cash SG&A for the quarter was $22.6 million. SG&A, excluding litigation expenses, is expected to decline in the first quarter due to our previously announced cost-cutting initiatives. Adjusted free cash flow, which we define as adjusted EBITDA less maintenance CapEx, was $22.9 million or 9% of revenue. Growth CapEx equated to $5.1 million, the majority of which was tied to our Power segment and maintenance CapEx during the quarter was $14.4 million. The elevated maintenance CapEx spend was primarily tied to preparations related to the dredging and wet plant operations at Kermit ahead of the Twinkle dredge deliveries. We expect cash capital spending in 2026 to be approximately $55 million, down significantly year-over-year and heavily weighted to the first half. Maintenance CapEx of approximately $45 million is planned with approximately $10 million dedicated to growth, evenly split between sand and logistics and power. Additionally, we expect to make progress payments on the 240 megawatts of power assets we have on order as they begin to be delivered over the course of the second half of the year. These payments will be financed from our recently announced lease facility with Eldridge and are expected to total approximately $190 million over the course of the second half of the year. Net interest expense is expected to be approximately $16.5 million per quarter in the first and second quarters, rising to approximately $20.5 million in the third quarter and $22 million in the fourth quarter. As John also touched on in his remarks, our plants have begun the year quite busy with WTI prices hovering around $60, oil prices will dictate if we continue to keep this pace up. We have a clear line of sight on strong volumes for the first half of this year, but many of our customers are taking a wait-and-see approach with respect to their second half completion schedules. Our recent market share gains are a testament to Atlas' efforts to position ourselves as the reliable partner of choice to the best operators in the Permian Basin. For the first quarter, while volumes are expected to be up sequentially, the expected decline in sales price per ton, combined with the lost days of revenue due to the winter storm will be a headwind to margins. Additionally, our logistics business was burdened by load bonuses to ensure driver availability around the turn of the calendar, which will mute logistics margins improvement until later in the quarter. However, we are seeing a return to more normal cost structure as the quarter progresses, which combined with a growing delivery schedule, will yield an improved margin structure through the quarter. Additionally, the power business is expected to generate a greater contribution sequentially. Thus, we expect EBITDA to be approximately flat with Q4 levels with the company exiting the quarter at a higher run rate in March versus January. I will now hand the call over to our Executive Chairman, Bud Brigham, for some closing remarks before we turn the call over for some Q&A. Bud Brigham: Thanks, Blake. While we're navigating another cyclical trough in oil prices, the future for Atlas has never been brighter. Just as we were ideally positioned for the post-COVID Permian recovery, which substantially expanded our cash flows, we're primed for the inevitable rebound in oil and gas activity today. But in addition, as I stated on our last call, we're going hybrid. Today, Atlas is laying the groundwork for transformative long-term growth through behind-the-meter power contracts. These 5- to 15-year agreements are expected to deliver robust revenue visibility paired with predictable costs, including fixed and stable expenses for SG&A, maintenance and interest, complementing our powerful but more volatile oil and gas revenue streams. Our proven expertise in large-scale infrastructure, amplified by the Moser acquisition, uniquely equips us to power the surge in AI, robotics and manufacturing. We see these initial permanent power projects as a strategic springboard, drawing in more customers and building a portfolio of assets that generate steady recurring cash flows. As discussed by John, demand for behind-the-meter power is accelerating rapidly, fueled by rising costs and potential grid shortfalls that are pushing commercial, industrial and data center users towards swift commitments for bridge and permanent solutions. We're witnessing a seismic shift in power sourcing. To borrow from our partners at Bloom Energy, on-site power has evolved from a last resort to a business necessity. U.S. power demand is growing at its fastest rate in decades. Let me emphasize, the Atlas investment story is more exciting than ever. Chronic underinvestment in exploration spending, coupled with shale's maturation and steep decline rates, sets the stage for what I believe will be a prolonged up cycle. While most U.S. shale basins struggle with inventory depletion, the Permian, where Atlas leads in proppant production and logistics will be key to meeting rising oil demand. Even at today's cyclical lows in sand and logistics pricing, our low-cost model shines through, thanks to the Dune Express and efficient mining operations. When activity rebounds, and it's a question of when, not if, we anticipate stronger utilization, pricing and margins, sparking a sharp profitability upturn. By investing ahead of this oil up cycle, while we are also launching our high-potential power business, Atlas offers investors dual catalysts for substantial growth. I'm deeply grateful to our exceptional team, the true innovators fueling our advancements. Their dedication has me more optimistic than ever about Atlas' future. Thank you for joining our fourth quarter and year-end conference call. I'll now hand it over to the operator for Q&A. Operator: [Operator Instructions] Our first question is coming from Jim Rollyson of Raymond James. James Rollyson: John, you talked a bit about the power side. Obviously, a quarter ago, you ordered the 240 megawatts. I'm pretty sure you mentioned then you had line of sight on customer opportunities there. You've since secured financing, which I presume doesn't happen without similar line of sight. So maybe just an update on kind of what's taken a little while on getting that contracted? And do you have good line of sight on where that equipment is actually going at this point since we're less than a year out from its deployment? John Turner: Yes. Great question, Jim. Thanks for asking. Yes, we do have strong visibility into the customers that are expected to take a substantial majority of this equipment package, which is on track for delivery. I think deliveries, they began at the end of late 2026 -- these are high-quality creditworthy counterparties that are across diversified markets and have indicated meaningful follow-on requirements beyond their initial commitment, providing for clear pathways for additional equipment orders and sustained growth into the future. Our strategy still remains solely focused on behind-the-meter power solutions. And we're not pursuing grid interconnected or utility scale opportunities. Instead, we are delivering reliable on-site power directly to customers facing grid constraints. In many cases, these engagements begin with bridge power to address immediate needs, which generate significant near-term cash flow and accelerates our path to full development. These bridge arrangements quickly transition into long-term behind-the-meter agreements that we primarily are working on as customers recognize the prolonged grid time lines and value of our integrated approach. So yes, the answer to that is yes, we do have clear line of sight on who those customers are and expect to be reporting on that here shortly. James Rollyson: Appreciate that. And maybe as a follow-up, just kind of related here is I've watched this market evolve and different players kind of approach this in different ways, it seems like there's 2 strategies I've seen, one being guys that are just providing power equipment basically on a rental basis and then the second being guys that are providing the entire solution, all the balance of plant, et cetera. I'm kind of curious if you could elaborate on kind of which strategy fits yours and how you see the return opportunity there. Blake McCarthy: Yes, go ahead. I'm going to let Blake wants to answer that. And then we have Tim Ondrak, our leader of the Power business, who can obviously talk more intelligently about it as well. But it's a really good question, Jim. Like there's obviously the equipment, and that's what I think most people in the market have a much clear line of sight of it costs X and therefore, you rent for Y and you have return. But when you get into these behind-the-meter solutions, right, depending on to the function, like the function of the facility, there's different requirements for the balance of plant, different [ future model ] equipment that you need. And so that can change that dollar per megawatt provided, both on the front end and then therefore, what you have to charge. Our strategy has been like let's get in really early with some of these customers that we know they're making big investments in facilities and they're facing -- they've been -- the grid has indicated them like, hey, you're not getting on for what you require really get to understand what they're trying to accomplish within their activities and do a lot of front-end engineering to really meet their needs. And that can have a pretty broad range in terms of what -- like, one, what our facility costs and two, what we have to charge them because we're always going to be targeting a strong unlevered return on our capital deployed. And obviously, when it comes to return on equity, with the leverage you use on these, it gets pretty attractive. So thinking about like these first ones, there's going to be a pretty broad range, and that's why we're excited to share the economics on things. And we'll be very transparent about that as we consummate deals. John Turner: And I also think that it is the reason why it's taken a little longer to sign. Another comment on why it's taken us so long to sign these agreements is that these just aren't generator rental agreements. These are actually -- you have to go in and do planning, engineering. You have to do -- you have to line up all the equipment. You have to do -- there's a lot of different things that you have to do on that front. So I think that's why it's taking longer than [indiscernible]. Blake McCarthy: It also makes those facilities much stickier because it's fit for purpose. Tim Ondrak: Yes. And I think just to kind of close out, I think our strategy is bridge to permanent. And when we look at the thesis that really drives that, we view power as a structural need. And so depending on the utility region and where folks are building out their facilities, those delays can be 2028 all the way up to, I think we've heard 2034 from some people. And so when a customer looks at what their power need is, as they start their facilities, it can be substantially less than their growth intentions. And so the model that we have to execute on that is to provide mobile power generation into a permanent facility that meets that long-term need and gets the customer to a place where they don't need to worry about a utility time line and they can worry about operating their business. Operator: The next question is coming from Derek Podhaizer of Piper Sandler. Derek Podhaizer: I want to keep going on the economics question. So obviously, there are some numbers out there. We talk about plus or minus $300,000 per megawatt per year of EBITDA, kind of compare that to your current financing costs. Maybe just help us understand when you talk about the recips building the facility, the balance of plant included in there, how should we think about the economics and the earnings of these potential projects that you're working on? Just maybe a little bit of help around that as far as some of the numbers that we're hearing out in the market. John Turner: Yes, I'll start off and Blake can chime -- he can follow up. I mean economics, obviously, like we said earlier, depend on a number of factors. If you talk about balance of plant facility development, those are common and our turnkey behind-the-meter solutions. And then obviously, balance that with the initial contract term will be focused on longer-term contract structure for stability. Our goal is attractive internal rates of return, well above our cost of capital on the initial term with upside from extensions and expansions. Do you want to add to that? Blake McCarthy: Yes. Derek, kudos to you, I'm really glad you asked this question. So I think it's a great question because I know people want to have some type of metric to plug in their estimates. John's comment on IRR is probably the best way to back to order to that. So for these projects, we're targeting unlevered IRR in the high teens, which we find very attractive considering the contracted nature of these cash flows. So when you layer on any type of leverage on top of those cash flows, the returns on equity, as I mentioned, get very attractive. Thus, like from a long-term perspective, I think that people talk about that like $300 per megawatt. That's probably a good proxy for just equipment alone, but it's a little too simple when it comes to like you're actually doing these bespoke power facilities. So I think that using that IRR and we disclosed kind of the -- obviously, the magnitude of our facility has been disclosed. I think that's a good way to kind of back door into getting there. You should be able to use that and the cost of equipment, you get a decent proxy for cash flows that we expect off these projects. Derek Podhaizer: Got it. Okay. Great. That's super helpful. And then just my follow-up as far as a question around lead times for your additional equipment. You talked about going 400 to 500 megawatts of deployed capacity. Is this going to be a continuation of the 240 megawatts, those larger 4-megawatt recips that you recently ordered? And if so, how should we think about when you'd be able to get those deliveries and the lead times around that? And then really beyond the potential 500 megawatts, maybe line of sight on the future orders beyond the 500. John Turner: Yes. I mean thanks, Derek. I'll take that question if anybody -- Tim, if you want to chime in on this. I mean our relationships with the key OEMs and our differentiated track record of execution on large-scale infrastructure projects continue -- those continue to be major advantages, which enabled us to initially secure the 240 megawatts of the 4-megawatt reciprocating units that are going to be delivered for later in 2026. And also gave us -- also enable us to maintain a solid line of sight to additional equipment for high-quality opportunities and more than 2 gigawatt pipeline that we're talking about. These relationships are built on trust, scale and early positioning have given us access to redirected capacity from delayed projects elsewhere in the industry. So lead times for additional 4-megawatt recips are now extending into late 2027, which reflects the strong industry-wide demand for behind-the-meter generation equipment. That said, our recent $375 million lease facility provides flexible nondilutive support tailored to our needs to allow milestone payments during the packaging conversion into term finance upon delivery. That is -- this has been instrumental in funding our initial 240-megawatt commitment and positions us well for near-term deployments as we move towards our target of 500 megawatts by 2027. So with the majority of that under long-term contract. As far as beyond 2027, particularly as we pursue larger, denser behind-the-meter opportunities across diversified end markets, we anticipate needing additional financing to support further equipment orders. We've actively evaluated options that align our disciplined capital approach, leveraging our proven track record with financing strong cash flow generation from bridge to permanent transitions. I think that as far as additional equipment packages, I mean, yes, right now, the package that we've acquired is these 4-megawatt recips. I mean, there could be other potential opportunities out there, and I'll let Tim comment more on that. Tim Ondrak: Yes. So Derek, I think there's equipment available I think if you look at global capacity, a lot of it has been backlogged. I think there's been a lot of announcements publicly to kind of back into what may be left. So we really see 2 pools of equipment that come available. The first pool is where you have to be in the market, you have to be talking to people and orders cancel or portions of orders cancel or get delayed. And so there's equipment that comes to market. And I think there's a second where OEMs are doing the same thing that we're doing where they're outbuilding relationships with the groups that are putting these in place. And I think as John alluded to, we're in a strong position to take advantage of those relationships. You look at the folks that are on this team and the relationships that they bring and then you look at the reputation of Atlas in being able to manage and develop these substantial projects. And I think that gives confidence to OEMs that when they place assets with Atlas, it's going to be a good long-term relationship, and it's going to give all of us a good name. So I think that's what we're leaning into, and we've got line of sight into the equipment that we would use to take us to that 500 megawatts. Operator: Our next question is coming from Stephen Gengaro of Stifel. Stephen Gengaro: I guess staying on the power theme. One of the things we've sort of learned over the last couple of years was there's a skill set required to sort of deploy these assets at the site and operate them effectively and efficiently. Can you talk about sort of your internal expertise to execute these behind-the-meter projects? Blake McCarthy: Yes. I'll lead off on that and then again, defer to Tim, who's again, much more well spoken on this subject. But when you think about the history of Atlas, right, I mean we've got a lot of experience in building big complicated facilities, right? So we constructed the Kermit and the Monahans facilities from where there's just a bunch of dirt out there in West Texas to some of the more sophisticated sand manufacturing facilities in the industry. And then you got to remember that we're the guys that thought it was a good idea to build a 42-mile conveyor belt in the middle of the desert, which I think a lot of people roll their eyes at that concept and then lo and behold, here we are a year later, and it's -- that's moving. So I think that when we have these initial conversations, people are like, wow, these guys are good at building big complicated infrastructure projects from the ground up. And then you combine that with the electrical expertise that we brought in-house with the Moser acquisition. And then we haven't been sitting on our hands since we did that deal. We've been bringing in quite a bit of talent, really, really strong people in terms of adding to that roster. And when you combine those 2 things, it becomes really powerful. And then you -- as people learn about Atlas, and this thing has been -- this is a different customer set than we've ever dealt with, right? This isn't just the 25 E&Ps that we all know and love. It is -- this is across the broader economy. And so there's a lot of education about who is Atlas that we have to do with them. And once they start to see like who we are and what we've done, they get a lot of comfort around that. And then we bring in some of our electrical experts and they start to wow them with their knowledge. Those those commercial discussions progressed pretty quickly. I'll turn it over to Tim for actual specifics, though. Tim Ondrak: Yes. So I think Blake touched on a couple of things there. I think, first and foremost, when we acquired Moser, we got a team with a 50-year operating history. And so that was a great place to start from, from a talent perspective. We added to that team with some outside talent that have helped us substantially in the C&I and the larger megawatt deployments. And then from a long-term perspective, we've built an operating team with 20-plus years of experience in operating large engine systems. And so we really think combining all of those things, we're able to deliver the same level of execution that we've delivered in the sand and logistics space and brought that over to the power space. Stephen Gengaro: Okay. No, that's helpful. That's good color. The other question I had is, and you mentioned, I think, in response to a prior question, the sort of the delays in grid interconnection. And you also, I think, made a comment about you sort of think about this as a bridge to permanent power. But it feels to us like that bridge to permanent power is pretty long. And I was just curious what you're hearing on the utility interconnection side and kind of the queues for larger loads to be delivered and how that kind of impacts your planning and thought process? Tim Ondrak: Yes. So I think that's a big question. And I think that's a big question because when you look at the utility network in the United States, it is incredibly complicated, right? The rules change sometimes as you cross the street. And so when we're talking to folks about their projects, every one of them has a different story with similar themes. And the similar theme is that utilities aren't going to get there. And so they need to look at what they call a bridge solution, but I think when you really understand the challenges that the utilities face and you see projects from the utilities push in different districts, you understand that that's going to affect really the entire industry. And so what we're hearing from utilities, and I think I mentioned this earlier, it's anywhere from 2028 to 2034 for a load to interconnect, and that's kind of across the U.S. And there are some places where you can pull data points that say it's longer, it's shorter. But if you take that perspective, what we're really talking about is infrastructure. And so you can bridge that, and I think we've got a good solution to bridge that. We've got 200 megawatts plus of bridge equipment in what we acquired from Moser. But our -- again, our thesis is this is a long-term infrastructure play. And so that bridge system has some disadvantages. And the way you solve some of those disadvantages, whether they're fuel efficiency, footprint, whatever is you install a long-term system that is designed to sit in place and operate. We talk about 5- to 10-year contracts, 15-year contracts, but really, these are 30-year facilities that they need to be. And so we think that structural shift in this market is going to benefit those that take ownership of that and install their own systems today. And we think the broader grid really benefits from private capital installing broad infrastructure really across the entire United States. Blake McCarthy: Yes. I mean, Stephen, it's such a fluid space, too. Like I feel like every morning, there's 4 or 5 headlines around that interconnect to getting longer and pushing to the right. And I think we're all pretty big believers in that there's going to be more and more pressure on the utilities to probably stiff arm some of these interconnects, too, just because we think that affordability is going to become a bigger, bigger buzzword in the political landscape. And it's just -- it's probably in everybody's best interest for the private sector to solve this problem as opposed to leaning on the public utilities to get it done. John Turner: Yes. Even if they can get power from the grid, they can't get all of their power from the grid. So I mean, like Tim said, we're not only talking to end users, we're talking to the providers. And these are the -- this is what we're getting from the providers is that we may be able to provide some of the power, but we're not going to be able to provide all the power. And they're also being told that in order for us to provide you power, you need to show us that you can provide yourself -- supply yourself with a certain amount of power to get that additional power from the grid. So obviously, a lot going on, a lot changing here, but that's kind of where it is now. Tim Ondrak: Yes. And I think the one last point I'll make on that is we're out and we're talking to people every day and they're looking at big projects. And the 2 things that are most consistent are: one, the utility has moved the goal line on when they're actually going to show up; and two, that they're not going to meet the full request for power. Operator: The next question is coming from Doug Becker of Capital One. Doug Becker: I think the questions are really appropriately focused on power up to this point, but I did want to touch base on the sand and logistics business. First half volumes look very good. I appreciate the lack of visibility around the second half of the year, but any type of range you could provide for production growth for the full year to kind of give us some goalposts to think about? Blake McCarthy: Yes. I mean it's a good question. And sorry for being opaque, but right now -- and I appreciate part of our customers, too, is that the outlook is a little opaque. I think that if you rewind 3 months ago, it seemed like every macro note you're reading was point of oil being $45 to $50 at this point in the year. And here we are sitting at $66 WTI. Granted, there's a lot of geopolitical risk premium built into that, but I don't think any of us think we live in a world where there's not going to be geopolitical risk. So our commercial team did a great job of going out there, and we told them, hey, go get the volumes. And they went out there and they did that, and it sets us up for a very strong first half. That being said, there's -- a lot of our customers were -- they're like, hey, like we've got our schedule for first 6 months of the year. And we'd like to leave a little bit of optionality on what our plans -- our schedule looks like in the second half of the year. So I think a lot of that's dependent on the commodity tape. Right now, from where we sit, our expectations are for our overall volumes to be up year-over-year. That would imply -- and that gives us -- I appreciate that, that's a pretty big window in terms of second half volumes because we do expect to have pretty significant volumes in the first half of the year. That being said, like the pricing environment remains pretty challenging. So that's obviously a headwind. But we're -- so that has us focused on things we can control, which is driving down the variable cost of our production at the plants. We're pretty excited about the dredge commissionings that we've got coming up later this quarter and into Q2. That's going to drive some significant improvements in our Kermit facility. I think that really our objective on the sand and logistics side is to just really cement ourselves as the leading sand logistics provider in the Permian and position ourselves so that when the cycle does turn, hey, we're that sticky supplier of quality that, hey, nobody wants us not to be delivering sand onto their well site because we make it where their operations doesn't have to think about it. Doug Becker: That's fair. On the logistics side, highlighted the trucking challenges, but pointed out some upward momentum in trucking rates. Just any color on the margin outlook in logistics for this year after a pretty slow start on the margin front with the Dune Express. Blake McCarthy: Yes, that's a good question. And I tried to give a little transparency on that because I think it's a question we get a lot. We're positioned to move to improve off a low base we ended 2025 and started 2026 with. So during both late Q4 and early Q1, our logistics business was burdened by pretty heavy load bonuses that we offered to third-party carriers to ensure that we have the drivers available to meet customer needs during the holiday season and to ensure delivery when, quite frankly, the weather's pretty miserable, which certainly was in January. Additionally, as we mentioned in the prepared remarks, like I said, our sales team was -- they were really feeling their oats during the contracting season. So they've done a great job securing pretty attractive work in what is a really tough market. And that includes a good amount of work that's going to drive incremental Dune Express volumes, which is the biggest driver of creating more margin differential in a weak pricing environment. So from a numbers perspective, Doug, I think logistics margins in Q1 probably going to look pretty similar to Q4 with December of last year and January of this year representing low points. And then Q2 is currently like loose projections right now, but I've taken a nice step up into the double digits, maybe not quite mid-teens, but a nice step up and a huge relative gap to where the rest of the market is. Operator: The next question is coming from John Daniel of Daniel Energy Partners. John Daniel: First question is, can you speak to the actual number or the volume of power increase coming from the E&P operators for microgrids? And then have you tried or will you try to tie sand volumes to contracts for that power? Tim Ondrak: John, yes, so the volume of increase on microgrids coming from E&P, I think what we're seeing is a little bit basin dependent. But in probably our 2 of our 3 most active basins, I would say about half of the new requests coming in for well site generators are in some type of microgrid system. And that's typically tying anywhere -- the production from anywhere from 2 to maybe 4 pads together. But we expect that as the year progresses, we will allocate more and more units to those types of systems. As far as tying the sand volumes to the power, that's obviously a good idea. We like to be -- we want to be a broad provider of solutions for our customers as of now. A lot of the teams that deal with those are separate. You got completion teams that are working versus the production teams that they're mostly different in a lot of these organizations. But from a sales standpoint, we're always working to be a better solutions provider for our customers. So that -- I'm not going to count that out of the question. Operator: Our next question is coming from Eddie Kim of Barclays. Edward Kim: Just wanted to circle back to the volumes theme. You mentioned that you're adding -- sorry, you're in discussions on adding new customers this year and you're taking greater share of the wallet with your existing customers and it seems like you've been successful with that. Just to be clear, are those wins fully reflected in your first quarter volumes guidance? Or do those volumes really start to kick in later in the year? John Turner: I would say those wins are not necessarily reflective in our first quarter volumes. I mean first quarter volume is going to be depressed some because of the weather. But I would expect to see some of those impacts kicking in as we move. You're going to see some of it in the first quarter and then it's going to kick in second and third. Blake McCarthy: Yes. I mean like there's always a ramp in customer activity. January always starts a bit slow, and we have a steady ramp through the course of the quarter. And then that winter storm in January, obviously, it knocked out about 4.5 days of operations out there for everybody. And so not fully reflected in those volumes. We -- our expectation is for Q2 volumes to be a step-up from Q1. Edward Kim: Got it. And then just sticking on that theme, I mean, you mentioned strong volumes in the first half, but customers taking sort of a wait-and-see approach in the second half. I guess just based on your conversations, it seems like E&Ps might not really be buying this $65 WTI oil price right now. And are they, do you think, still operating as if we're in kind of the mid-50s environment? And I'm just curious what oil price do you think we'd have to get down to for them to consider a volumes reduction in the second half of the year? Blake McCarthy: Yes. I think that their budgets for this year are based around like $50 to $55 oil. And I think today's activity in West Texas is reflective of that commodity strip. And they're not going to deviate from their -- they've just set those CapEx budgets, and they're not going to deviate from that just on gyrations of the commodity price. But the longer the commodity price stays up and people get more comfortable with it, but I'm sure they're not complaining about the incremental cash flows they've got -- they're ripping off right now. John Turner: I mean, the whilst, the investment cycle -- I mean, the decision time line is pretty short. So they can wait longer with these shale wells to go out and make a decision. So I think like Blake said, they're comfortable where they are now. And if that continues, you'll probably see steady activity through the end of the year, but it just depends on where prices go. Operator: The next question is coming from Michael Scialla of Stephens. Michael Scialla: You mentioned the last mile storage system. I just wanted to ask about that, allows continuous pumping of wet sand. You said you're testing the dry sand solution. What needs to happen there for that to be successful? And what could the opportunity be for that system if it works? John Turner: Yes. So earlier this year or late last year, we launched a system that was designed for really well site increasing the amount of sand that's delivered to the well site, timeliness of that, that's going to increase the efficiencies to enable operators to pump downhole more sand. We've been seeing -- and we kicked this off on the wet sand side. We have all of those systems deployed right now. And we do have a number of our customers that are using them that want more. As far as the dry sand goes, there's still going to be some work that we're going to have to do on that front. And as far as timing goes, it's way to be seen, but there's some testing that we're working on, and we'll be able to comment more about that here later. But we do -- what we are seeing the results of that are promising. And I think some of the things -- some of the themes you're going to see going forward is continuous pumping. A lot of our customers are asking it and requiring it because and you're starting to see some significant results from our delivery of sand to the well site that enables things to things like the Dune Express and our wet sand offerings. And then this is just another step in that direction of helping our customers with their needs and providing them with solutions that work that enable them to accomplish their goals. Blake McCarthy: Yes. And then the continuous pumping thing is such an important trend in our space. Those are -- the completion crews we're providing sand to that are on continuous pumping operations, the amount of sand they pump monthly is multiples of what you'd see from a traditional zipper crew. But the big constraint, right, is it becomes well site footprint, things like boxes and silos, they are constraints, right? And so the pile system, like going to piles, obviously allows you to put more sand in one spot. But what we think our system does is it enables do piles, but to do it very efficiently and with clean sand and you combine that with the PropFlow technology. It is a key enabler of very, very efficient continuous pumping operations. And it's something that just continues to push that tailwind of the sand intensity of each individual completion crew, which we think long term is a -- when people stop planning budgets around $50 oil and maybe get a little bit more comfortable around something like $65 plus, see a little bit more incremental activity, we think the market tightens up pretty darn quick. Michael Scialla: Appreciate that detail. Also wanted to ask about your -- you mentioned your hybrid power system. I guess, what differentiates that? And what's the opportunity for those assets look like? Tim Ondrak: Yes. So the hybrid power system is it's essentially combines battery technology that we've developed in-house on the patents on, and that was funded through a DoD grant that the legacy Moser business obtained in 2018. And what that system essentially does is hybridizes with our existing generators. And it controls the operation of those generators so that they run at essentially a peak load and the battery then distributes power into that system, shuts the generator off. And so what it does is it lowers the run time on those generators, which extends our maintenance cycles from essentially once a month service to once every 45 days as much as once every 60 days. It lowers the fuel cost for our operators and it decreases the risk of a shutdown event on the customer's location, which those are not good for downhole pumps, which is primarily what we do in that business. And so we're pretty excited about the potential to deploy that at scale in the legacy Moser business. We think it's differentiated. We've proven it on multiple well sites. But I think when you apply that to the broader industry outside of oil and gas, it's got uses really across every industry where folks want more clean, reliable power and that battery system provides clean, reliable power that can integrate with whatever systems they're using, whether they're prime power systems or backup systems. Operator: Our final question today is coming from Jeff LeBlanc of TPH. Jeffrey LeBlanc: I wanted to see if you could provide some color on the expected cost savings over the second half of the year once the Twinkle dredges come online... John Turner: He wants to get at the cost savings that we're going to expect in the second half of the year once the dredges come on? Yes. And I'll let Blake cover that. Blake McCarthy: We haven't had a steady dredge feed at our primary Kermit facility for going on over a year now. And that facility is really designed to have a clean, steady dredge feed. And so what that's created is just different bottlenecks in the process that has elevated the OpEx per ton coming out of that facility versus -- I mean, when that facility is cooked, it is our lowest -- it's the lowest cost facility in the entire Permian Basin. So as those 2 dredges come on and I just highlight that these are -- these Twinkle dredges we've had. We've had a Twinkle dredge in the fleet got one in the fleet now, and that is the most consistent producer we've got. So we're very confident and we think they're the F-150 dredges. Getting those online will significantly enhance the quality of our dredge feed, which has just really positive knock-on effects to the entire process. It improves wet shed operations. It reduces stress on the dryers. It just makes the whole facility run more efficiently. If you think about that, our overall variable costs probably have been elevated by about $1 across the complex because of those dredge feed issues. And so that's over the course of the first half of the year, that will flow on. And there -- so it's -- again, it's a pretty big circular reference, though, in terms of the overall OpEx per ton just because so much of that is based on volume throughput, and that's dependent on customer activity in the second half. But if you were to just extrapolate first half activity in the second half, you'd see a pretty significant improvement in OpEx per ton as we work through the year. Operator: At this time, I'd like to turn the floor back over to Mr. Turner for closing comments. John Turner: Thank you, operator, and thank you all for joining us today and for all the great questions. We truly appreciate the time you've taken with us to our exceptional team. Thank you for all the hard work. To our customers, thank you for your partnership and trust and our investors. Thank you for your committed and continued support, belief in Atlas. We look forward and are excited about reporting our results going for 2026 and our first quarter results here in 2 or 3 months. Thanks, everyone, for joining, and that ends the call. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Good day, and thank you for standing by. Welcome to the Iovance Biotherapeutics Fourth quarter and Full Year 2025 Financial Results and Corporate Updates Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sara Pellegrino, Senior Vice President, Investor Relations and Corporate Communications at Iovance. Sara Pellegrino: Thank you, operator. Good morning, and welcome to the Iovance webcast to discuss our fourth quarter and full year 2025 financial results, business achievements and corporate updates. This morning, we issued a press release that is available on our corporate website at iovance.com. This conference call will include forward-looking statements regarding Iovance's goals, business focus, business plans and transactions, revenue, commercial activities, clinical trials and results, regulatory approvals and interactions, plans and strategies, research and preclinical activities, potential future applications of our technology, manufacturing capabilities, regulatory feedback and guidance, payer interactions, licenses and collaboration cash position and expense guidance and future updates. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected during today's call. We undertake no obligation to publicly update any forward-looking statements. I will now turn the call over to Dr. Fred Vogt, Interim CEO and President of Iovance. Frederick Vogt: Thank you, Sara. In 2025, Iovance delivered substantial revenue growth, achieved groundbreaking data milestones and strengthened our financial performance. Our fourth quarter and full year 2025 results underscore our focus on value creation for patients and shareholders. We drove Amtagvi adoption while streamlining costs and optimizing operations. Our operational strength resulted in a robust 30% revenue growth, driven by Amtagvi and our best ever 50% margin from cost of sales in the fourth quarter. For the full year, total revenue of about $264 million was well within our annual guidance range. Our cash runway bolstered by our ongoing cost savings initiatives now extends into the third quarter of 2027. Following our exceptional performance in 2025, we are well positioned in 2026 to surge toward a highly profitable and broad business in solid tumor cancer immunotherapy. We plan to execute across 3 core pillars: First, continue accelerating our U.S. commercial launch of Amtagvi in advanced melanoma; second, harness the power of our TIL pipeline to expand into new indications and next-generation products; and third, hone our operational excellence as our foundation for success. First and foremost, we are gaining positive uptake commercially with a significant potential for Amtagvi and Proleukin to reach $1 billion plus U.S. sales at peak. After a considerable increase in fourth quarter demand for Amtagvi, enrollment volumes in 2026 are accelerating within our broad and continuous expanding network of both academic and community authorized treatment centers, or ATCs. These ATCs are further reinforced by excitement surrounding the real-world experience and benefits of early treatment with Amtagvi. On top of increasing demand, we are benefiting from operational improvements throughout the entire Amtagvi treatment journey, from patient identification through manufacturing to infusion. On the heels of positive momentum in the fourth quarter, we expect remarkable revenue growth in 2026, driven by Amtagvi. In the very near future, we will provide revenue guidance with our growth projections. Our second color is the massive expansion potential for our TIL platform to positively impact patients into new indications. We are harnessing the overlap and scalability of our TIL platform, manufacturing leadership and commercial capabilities across solid tumors. Our lead indication for lifileucel is in previously treated nonsquamous non-small cell lung cancer. This blockbuster U.S. market is about 7x larger than our PQS sales opportunity in advanced melanoma. In our registrational patient population, lifileucel has demonstrated best-in-class clinical response rates and durability. This morning, we announced the FDA has granted fast-track designation that validates our clinical trial data and reaffirms the substantial unmet medical need for lifileucel in this indication. We are rapidly advancing towards a supplemental biologics license application with a potential accelerated approval and launch in the second half of 2027. This morning, I am also excited to introduce entirely new indications for lifileucel announced in a press release alongside positive early data. In previously treated patients with two aggressive difficult-to-treat advanced soft tissue sarcomas, lifileucel demonstrated an unprecedented 50% confirmed response rate. As Brian will highlight, lifileucel may offer the first durable immunotherapy option in this treatment setting. Current outcomes with standard of care are abysmal, with response rates below 5% and short median overall survival of only 9 to 10 months. Together, these sarcomas impact more than 8,000 patients in the U.S. and Europe annually, significantly increasing our market opportunity for lifileucel in the U.S. and beyond. We are working expeditiously to initiate and complete a single-arm registrational trial to launch in the sarcomas. Our robust pipeline is the backbone of immuno-oncology and multiple cell tumors today and in the future as we build upon our established global leadership and define next-generation approaches for TIL cell therapy. Our two clinical-stage genetically engineered TIL therapies have the potential to transform the treatment paradigm across a vast number of solid tumor cancers, where patients have few options. Our next-generation IL-2 product may facilitate more accessible TIL therapies, and we expect to provide many more updates on our pipeline in 2026. Finally, our third pillar is operational excellence as we increase revenue, optimize costs and drive efficiencies toward profitability. In the fourth quarter, we reported our best ever gross margin as Corleen will discuss. Additionally, our ongoing execution, discipline and focus on financial excellence will improve current and future gross margin and further extend our cash runway. Within our operational excellence pillar, as Igor will highlight, manufacturing success has improved across the board. By optimizing our processes, we have infused more patients while reducing dropouts to be more efficient ahead of future launches. Importantly, we own and control all manufacturing for Amtagvi within our U.S.-based Iovance Cell-Therapy Center, or ICTC, as well as critical components of our supply chain. We have never been in a stronger position to execute while scaling to new heights. In 2026, we are laser-focused on maximizing shareholder value, ending dilution and supercharging future profitability. I'll now turn the call over to Corleen Roche, our Chief Financial Officer, who will provide further updates on our fourth quarter and full year financials. Corleen Roche: Thanks, Fred, and good morning, everyone. Iovance finished 2025 with positive momentum as we reported approximately 30% revenue growth with 50% margin from cost of sales in the fourth quarter. Fourth quarter product revenue of $87 million demonstrated meaningful growth of approximately 30% from the prior quarter driven by Amtagvi. In our first full year of launch, total product revenue of $264 million increased by 61% over the prior year, driven by Amtagvi revenue growth of 112% year-over-year. That was well within our annual guidance range. We drove this impressive revenue growth in 2025 through ongoing market penetration and earlier treatment with Amtagvi for more patients and an expanding number of treatment centers. The impact of gross to net adjustments remains minimal at less than 2% overall in 2025. Fourth quarter gross margin from cost of sales increased to 50% from 43% in the third quarter. This margin improvement resulted from ongoing operational optimization and disciplined use of capital. The full internalization of manufacturing operations at ICTC also provides uninterrupted supply with agility for further efficiency. Today, we are capable of scale and expansion into new indications globally to bolster revenue without the need for significant capital expenses. Turning to our balance sheet. Our cash position was approximately $303 million at year-end, driven by our commitment to commercial and clinical execution, operational efficiency and financial discipline. We successfully extended our cash position to fund operations into the third quarter of 2027. In closing, our 2025 financial results reflect our commitment to flawless execution and commercial utilization, improved margin and extended cash runway that supports our path to profitability. I will now turn the call to Dan Kirby, our Chief Commercial Officer, to provide additional context. Daniel Kirby: Thank you, Corleen. Over the course of 2025, we made tremendous progress in 3 key areas towards our ultimate goal to establish Amtagvi as the preferred treatment option for all-eligible patients, who deserve a onetime cell therapy with curative intent. First, our ATC network is continuously expanding. In the fourth quarter, new community centers as well as high-volume academic centers contributed to our highest ever quarterly demand for Amtagvi, which drove our Q4 revenue. Second, penetrating the community market will unlock Amtagvi's tremendous potential as we expedite higher quality referrals to ATCs and begin to treat patients in the community setting. Recently launched campaigns focused on health care professionals and patients are having a positive impact. The community market will expand further and accelerate growth as we build awareness and access. Our third key focus area is to drive treatment and increase penetration earlier when patients benefit most from Amtagvi. Real-world data resonating with medical oncologists has shown unprecedented efficacy with more than 1 in 2 patients responding in the second-line setting, and 1 in 3 patients in later lines of therapy. Initiatives within academic ATCs are also generating positive results from earlier tissue procurement and earlier treatment for specific patient types. For example, ATCs are offering Amtagvi treatment before health status declines in patients with a BRAF mutation, who have no current or pending options beyond targeted therapy. On the heels of our substantial fourth quarter performance, positive trends and an increasing demand have persisted into the first quarter and support our confidence in remarkable growth for 2026. Globally, Amtagvi has the potential to reach more than 30,000 patients annually with previously treated advanced melanoma. We have made significant strides towards expansion, including Amtagvi approval in Canada, pending approvals in the United Kingdom, Australia and Switzerland and additional progress towards resubmitting a marketing authorization application to European Medicines Agency this year. Beyond melanoma, we are preparing for commercial launch in previously treated nonsquamous non-small cell lung cancer, the most common form of lung cancer. This blockbuster opportunity is approximately 7x larger than our current melanoma opportunity, with 50,000 addressable patients for peak sales of $10 billion in the U.S. alone. Our entire Amtagvi ATC network of U.S. academic and community practices can leverage their existing TIL infrastructure for rapid adoption in non-small cell lung cancer upon approval as well as future pipeline indications, such as sarcomas. After recently celebrating my 1-year anniversary at Iovance, I am proud of our accomplishments and inspired by our science and the patient stories that paint a bright future. I will now pass the call to Igor. Igor Bilinsky: Thank you, Dan. In the fourth quarter of 2025, we achieved both our largest manufacturing volume and highest commercial manufacturing success to date. Building upon this progress, all lifileucel manufacturing has transitioned to the ICTC, which is a significant milestone to optimize internal capacity utilization, improve operational excellence, reduce cost of sales and further improve gross margin. I'll also highlight that around year-end, we successfully completed routine annual maintenance at ICTC. During this time, we minimized the impact of manufacturing volume by leveraging our contract manufacturer and increasing internal capacity surrounding the maintenance window. Importantly, ICTC has transformed into a modular facility with capability to provide uninterrupted supply and fully support anticipated global demand today and scale up for the future even during future annual maintenance periods. I will now pass the call to Friedrich. Friedrich Graf Finckenstein: Thanks, Igor. Today, I'll focus on our 2 registrational programs. First, enrollment is accelerating across a broad and expanding global footprint on our Phase III TILVANCE-301 trial. We are investigating Amtagvi to support a potential U.S. full approval in the current labeled indication and accelerated and full approval in combination with pembrolizumab in frontline advanced melanoma. Shifting to our IOV-LUN-202 registrational trial, lifileucel has demonstrated a best-in-class clinical profile and recently received fast track designation from the USFDA. The objective response rate was 26%, disease control rate was 72% and median duration of response was not yet reached after more than 25 months of follow-up. We plan to present updated data at a medical meeting this year. Key opinion leaders are enthusiastic about these data, which resulted in a meaningful uptick in recent enrollment. We are excited to be on track to complete enrollment this year in support of a supplemental biologics license application. We are also pleased with the progress across the rest of our pipeline, which I am happy to discuss during the Q&A session. I now give the floor to Brian for the sarcoma update. Brian Gastman: Thank you, Friedrich. I am excited to share positive initial data from a pilot clinical trial in patients with previously treated advanced, undifferentiated pleomorphic sarcoma or dedifferentiated liposarcoma that have no approved immunotherapy options. Among 6 evaluable patients, the confirmed objective response rate was an unprecedented 50%. Responses were deep and improved over time, consistent with the durability for lifileucel in melanoma and non-small cell lung cancer. These high mortality, aggressive soft tissue sarcomas effect more than 3,000 patients in the United States and more than 5,000 in Europe, including more than 3,500 cases of advanced disease. These patients have poor prognosis and a very high unmet medical need. Grim outcomes with second-line standard of care include response rates below 5% and median overall survival of less than 1 year. In summary, these extraordinary results are what I hoped and believe I would see TIL therapy do in solid tumor cancers when I chose to leave academic medicine to join team Iovance. I'm heartened by this major opportunity for patients and the future of TIL therapy. We look forward to commencing and advancing a single-arm registrational trial as soon as possible. As part of this developmental program, we will also explore other subtypes of high-grade soft tissue sarcoma where patients have no approved effective therapies and urgently await better treatment options. I will now hand the call back to the operator to begin with the question-and-answer session. Operator: [Operator Instructions] Our first question comes from Andrew Tsai with Jefferies. Lin Tsai: Thanks for the update. Maybe for the TILVANCE update that you provided, it sounds like enrollment is picking up nicely. So is it possible that we could get first-line melanoma data with Amtagvi PD-1 combo data later this year? But regardless of timing, what kind of ORR and PFS do we want to see compared to PD-1 alone? Frederick Vogt: Maybe I can take the first part of that, Andrew, and then Friedrich can cover the rest of it. We do have an early interim read in this study, which is the benefit of some of the agreement we have with FDA on this, where we can read ORR as an interim partway through the study. It's in the near term that we'll be able to do that. We can't really commit to doing that in 2026 right now. It's such a large study, but we are very excited to be able to get that data read. And then, of course, if we read that data, it's a blinded study, we don't bind to do the analysis. And if we announce that, we're basically announcing that we're coming to a supplemental BLA at the same time. That's what we'll point out. Friedrich, do you want to talk about the ORR and PFS considerations on that trial, please? Sounds like Friedrich is muted. Friedrich Graf Finckenstein: I'm sorry about that. I needed to find my window here. Glad to do so. So I think the best idea around the benchmark for this is the pembrolizumab monotherapy data from the KEYNOTE-006 trial. Remember, the trial design of TILVANCE is a comparison of the combination of pembro plus TIL versus pembro monotherapy. The trial is designed with 2 dual primary endpoints with one of them being ORR and the other one being the PFS. So ORR giving us an opportunity for an early read. The benchmark in the KEYNOTE-006 trial for ORR was about in the mid-30s, probably the true real life ORR with the pembro monotherapy is probably more in the 30 and is slightly below percent range. Remember, we have very encouraging data on the efficacy of the combination from our COM-202 cohort IA, which showed response rates up into the 60% range. So that's what's giving us the confidence around a successful readout for the ORR endpoint. Operator: Our next question comes from Tyler Van Buren with TD Cowen. Tyler Van Buren: Can you please elaborate on the big quarter-over-quarter jump in Proleukin revenue and the anticipated split of Amtagvi to Proleukin revenue moving forward? And if the gross margin can continue to improve quarter-over-quarter despite Proleukin likely contributing to a smaller percentage of sales in subsequent quarters? Corleen Roche: Tyler, it's Corleen. First, you talked about Q4 split. We did have all 3 distributors ordering in Q4, and we also took [Technical Difficulty] so there's a little bit of buy in there, not crazy. We haven't guided, so I don't have a split for you going forward. What I can tell you on the margins is, yes, we expect further improvement. Daniel Kirby: And I'll just add on to that, Tyler. We did see all 3 wholesalers, as Corleen mentioned, order in Q4. We've already seen reordering happen in Q1. And moving forward, you should see again regular orders for Proleukin to go with Amtagvi sales. That's our major line of business there. Other two channels will come on this year as they did last year, but it mainly is driven by Amtagvi demand for Proleukin sales. Operator: Our next question comes from Yanan Zhu with Wells Fargo. Unknown Analyst: This is Kwan, on for Yanan. Can you share with us how the manufacturing success rate change over time? And what is the scrap cost for this quarter? Frederick Vogt: Can you clarify the last part of that question, what cost? Unknown Analyst: The scrap cost. Frederick Vogt: Scrap costs will be in our 10-K filing that will come out around 9:15. But it's consistent with prior quarters. Maybe I'll give some comments on manufacturing success, and Igor can jump in and help as well. I think we don't release actual percentages and stuff here. We don't think that's helpful to investors. It's improving. We're getting better at it. The margins reflect that. You can see the margins are growing. As Corleen mentioned, these margins are being driven, not just really being driven by Amtagvi performance. Proleukin there, it comes in and out. But we've had good margins for 2 quarters in a row now with Proleukin moving up and down. And we expect that to continue and manufacturing success is driving that improvement at the end of the day. Igor, do you want to make any comment specifically about what you said in the earlier part of the call. Igor Bilinsky: Yes, happy to. Thanks for the question, Yanan. So there are really two avenues for improving success rates. One is internal, where we continue implementing improvements in manufacturing and those are a lot that have been implemented and more are coming. And the other avenue is commercial and medical affairs teams working with ATCs and physicians to improve tumor procurement that also results in better product. So both of those have bear fruit so far, and we continue working on both fronts. Operator: Our next question comes from Salim Syed with Mizuho. Salim Syed: Maybe just one on guidance from us. So you didn't provide '26 guidance. Fred, you mentioned that you plan to provide it shortly. Just curious what was the logic not to provide it now? And when we do get it, can you just give us some context like, is it going to be total revenue product? Is it more like a mean or a conservative guidance? Just help us framework how we should be thinking about that? Frederick Vogt: Yes, right now, we're seeing remarkable growth in the Amtagvi business. We do need to be sure that our projections are well supported. So we're taking some time to do that. It's very early in the year right now, of course. But as I mentioned during the prepared remarks, we're going to be putting guidance out very, very soon. I think you'll see total product guidance. You'll see some guidance potentially on quarters. We'll have to see how our data is supported. One thing I do want to mention is when -- I know you asked about breaking out the products. For the full year of 2025, the revenue from Proleukin, the revenue from Amtagvi have now fallen right in the line with what we were saying a year ago. And that Proleukin generates about 17% of our revenue. If you recall, many, many calls we talked about the 16% number based on the ratio of the price. So we are seeing that long-term balance come into play. And as Dan mentioned, ordering patterns are stabilizing. And we expect normality on that through the year. So you may not see us particularly put a number on Proleukin for one quarter over another, but you can be confident in the long-term ratio of these things and use the numbers you have right now to help support that. Operator: Our next question comes from Reni Benjamin with Citizens. Reni Benjamin: Congrats on hitting the guidance. Maybe just a couple of questions. One, can you talk a little bit about the fourth quarter kind of acceleration? How much of that came from new community ATCs versus existing academic centers? And as we think about going into 2026, do we hope that the new community ATCs, that number will maybe double, does it triple? Can you give us a sense as to how this is going to grow potentially this year? And then I have a follow-up on the sarcoma data. Daniel Kirby: Reni, it's Dan. Thank you very much for the question. So for Q4, our base book of business is the academic ATCs, and we saw significant growth in that segment. We did see new community ATCs come on the line -- come online last year. They're coming online as well this year. We expect a learning curve as we saw with the initial academics coming online, so you'll see them slowly increase as the year goes forward. But for Q4, what we saw in the academic ATCs, which is carrying over to what we're seeing in Q1 is that there are certain patient types there that we're not making into Amtagvi treatment, that I mentioned during the script. We have earlier procurement strategies for patients such as BRAF mutated patients, which make up a significant number of those patients inside of the academic ATCs that we were not previously able to access, that our initiatives now are allowing us to access. So we expect growth to continue in the academic segment. And then the community ATCs are coming online now. They're having their process of testing a few patients out and we'll be ramping up as the year goes on. So we'll see more of them starting in the second quarter through the end of the year into '27. Right now, our base book of business is strong and growing with the academics. Reni Benjamin: Got it. And then just a follow-up regarding the sarcoma data. It's quite new and, as you mentioned, unprecedented. Can you -- it's in 6 evaluable patients, can you give us, a, sense as to when we might see the full data and at what medical conference? And then also, can you share with us maybe any details on the depth and durability of response, right, that you're seeing here for these patients? And I guess if you can just -- if I can squeeze one more in regarding the registrational study. How big do you think this study could be given this rare disease? Frederick Vogt: Reni, I'll take the first part of that, and then I'll ask Brian and Raj to answer the other part of it. We're excited to present this at a medical congress this year. We haven't identified that congress yet, but obviously, we really like the big ones, like ASCO and ESMO. We'll have to see how the timing goes, but the data is available right now. I do expect we'll be able to put together very quickly for a presentation. So stay tuned for that. It should be pretty exciting. Brian, do you want to take the second part? Brian Gastman: Yes. So in terms of depth and durability, I think it's important to note that, obviously, the trial has been running for years. Like all of our trials, our durability tends to be measured in a very long time frame. So I think it will be a while before we'll be able to tell you because of the power of having living therapy on board. In terms of though the depth, what's really exciting to see is these responses, similar to what we saw in lung and melanoma cancers, we can actually see them get stronger over time. Of course, sometimes it happens right away, but we've actually watched really excitingly, these scans get better and better and better. And so we still have patients that, if it was on a swimmers plot, we would see them swimming and on a spider plot, they'd still be dropping. And so we don't even know how good these patients will get. But I think for all of us, it was really remarkable when we saw how many responders we got and how they were deepening. So I think more to come there, but I think it gives us a lot of encouragement. Raj Puri: Marc will provide sample size for the... Marc Theoret: Yes. Thank you for the question. So based upon the prior approvals in various soft tissue sarcoma, subtypes recently by FDA, approval size for the various subtypes range between 30 patients and 60 patients, but predominantly in the 40-patient range. And based on the characteristics of this these 2 cell types that we are discussing today, we really expect very similar patient numbers for registration strategy. Operator: Our next question comes from Colleen Kusy with Baird. Nick Quartapella: This is Nick, on for Colleen. Just for a commentary on the recent enrollment trends for the non-small cell lung cancer study. And could you talk about just latest thoughts on path to full approval in non-small cell lung cancer? And then I have a follow-up question as well. Frederick Vogt: The fast track designation that we announced today, Nick, was obviously very helpful that provides us with a lot of benefits in working with FDA. As I mentioned in the prepared remarks today, we are planning on the same timing we mentioned before, with this potentially launching in 2027. This is pretty exciting to us. We're finishing the trial right now. And we're very confident that this product provides a great benefit for non-small-cell lung patients. Nick Quartapella: And then just a quick one on sarcoma. Just wondering if you're considering expanding into other subtypes of sarcoma outside of these initial two? Frederick Vogt: Yes. And we mentioned that in both the press release and in the prepared remarks, we are looking at additional subtypes. Maybe on one of the private calls, Brian can tell you more about it, but we are looking at additional -- besides UPS and DDLPS, there's a number of other sarcoma subtypes that are of interest and now we see strong activity for TIL in the space, and a lack of approved options, including approved checkpoint options for these patients, nor are there anybody interested apparently getting their checkpoints approved here or they lack the efficacy to do so? We're really going to look across the entire space and really try to tap into this area of unmet medical need. Operator: Our next question comes from David Dai with UBS. Xiaochuan Dai: Congrats on the progress. Just first on the Proleukin sales, we see a little uptick in the fourth quarter. I'm just curious how much is coming from restocking and how much is coming from real Amtagvi demand? And then moving forward with Proleukin, is it fair to assume that it will stabilize around that level with the majority of that contributing to real demand from Amtagvi demand? And then I have a follow-up question. Daniel Kirby: Sure, David. This is Dan. I'll take the question on Proleukin. We saw in Proleukin, as you recall, all throughout last year we had -- when first wholesaler came on in Q2, two were reordering in Q3, all three reordered in Q4. We started to see regular demand come in. We did do a price increase effective February 1. So there was a little bit of buy-in, but not much going into the end of the year with it. The primary driver for Proleukin in Q4 was Amtagvi demand. As we look at Q1, we already have the wholesalers reordering. Two have already placed orders. We're expecting the third to order soon. And then they will continue to move forward with Proleukin orders based on Amtagvi demand. That is our number one source of revenue. You are going to see this level out. And as we look at having Q1 price increases in the future, this will even out as you look at yearly forecast demand. Xiaochuan Dai: Got it. And then just a follow-up on Fred's earlier comment around Amtagvi being a $1 billion peak sales opportunity. Maybe just help us understand how you get there, especially, how should we think about contribution of melanoma and nonsquamous non-small cell lung cancer and also soft tissue sarcoma? Frederick Vogt: I think when I talk about that, David, I'm talking about continued growth in the Amtagvi melanoma in the U.S. franchise, and we're seeing that grow. So we're only in our first year launch here and we're at $264 million in revenue. And again, I know this is all this discussion about Proleukin versus Amtagvi, but Amtagvi is driving the whole thing. Yes, we do sell a small amount of Proleukin for other things, but the vast majority of these numbers are coming from Amtagvi. That's the point we're trying to make. We talk about $1 billion, we think that's the ultimate potential for this product in the U.S. and melanoma. On top of that, you've got non-small cell lung at 7x. On top of that, you've got sarcoma, on top of that you've frontline melanoma. So just bear that all in mind. Do you want to follow up, Dan? Daniel Kirby: Sure. So $1 billion in melanoma alone is completely achievable. If you look at where we are right now, we're a quarter away through that journey, and we are just loading up the community ATCs right now. If you look at cell therapy launches in the liquid tumor space, they did have the advantage of following an allo transplant treatment modality with hematology and oncology pathway. We're creating a pathway with the solid tumor medical oncologists. So we are standing that up now. And in the initial phase, we're doing over $0.25 billion with both products. And we see that escalating in the U.S. alone to over $1 billion. We talk about layering lung in, and I mentioned in the script, that is a $10 billion opportunity, a much larger market to go into. And sarcoma we do see as being equivalent to melanoma. So we do see tremendous potential to be well over $10 billion to $12 billion in the U.S. with Amtagvi. Operator: Our next question comes from Etzer Darout with Barclays. Etzer Darout: Just on gross margins. Wondered if you could comment at all on what may be the near-term impact on the ex U.S. commercial launches, Canada and others could have on gross margins, given the improvement that you've seen to date? Corleen Roche: Etzer, I think I just want to make sure I'm understanding. You're asking, what will be the ex U.S. launches, what impact will they have on margins? So all of our manufacturing operations today are in-house. So we're going to have economies of scale. I think that can only help margin, right, as we grow and add in additional volume from those launches. Daniel Kirby: I can add on to that, Corleen. As we look at it, manufacturing for ex U.S. launches will be out of our Philadelphia facility. So we do not plan on adding additional manufacturing facilities worldwide. We're already servicing those regions in our clinical trials, and we can service them commercially. So there no added expense there. Also, two, if you look at what's going on in the landscape, most favor nation, et cetera, we do not have an ex U.S. price negotiated yet. We're in the process of that as our approvals come. So we do not have a lower price outside the U.S. We are going to see how this situation evolves, but we are in a good position not to have that as we're going through our negotiations with the U.K., Canada, et cetera. Operator: And our final question comes from Asthika Goonewardene with Truist. Asthika Goonewardene: So when we start to think about your penetrating into the community in the U.S. and say you have ATCs there. Is there going to be a material difference in the timing it takes to get a community site up and running versus, let's say, what on average it takes you to get an academic center up and running, and how should we think about that? Is there a lot of diversity in the different community settings, maybe ones who already have some sort of a cell therapy program versus those who don't? And then I have two more follow-up questions. I'll ask one of them now. Can you comment on the Tandem data and the better ORR that was seen early this year when that was presented. Can you use this real-world data when your MSLs are talking to physicians? Daniel Kirby: Great questions. I'll start with the first one regarding the community uptake. One of the things that we do see with the community will be similar to what we saw in the academics and that is just the relationship with the surgeon, the medical oncologist and the cell therapy lab to get up and running for it. That should be a similar learning curve. We did have some academic sites in the clinical trial, so that was the initial wave with the Amtagvi launch. But we are seeing them come online. This is also balanced with the fact that they are closer to where these patients are being treated with frontline melanoma and subsequent therapies, so we can get them to treatment quicker. So the learning curve will go up. As you see with most ATCs, it is a financial reimbursement where they want to run 1 or 2 patients first, make sure the financial reimbursement is there with the payers. We have that established and tremendous coverage with Amtagvi and Proleukin throughout all the payers. So once they see the first two go through, they start to accelerate patients and treatment. So it should be similar to the academics when we look at getting them up and running. You can see the first couple are even on the website right now. In regard to the real-world evidence that was presented at the cell therapy meeting earlier this month, I will say that the MSLs already have that information reactively, and we are submitting that for publication as well to allow it to be more broadly distributed. I don't know if Brian has anything to add on to the real-world data. It is tremendous news about the earlier line treatments. Brian? Brian Gastman: Thank you, Dan. Well, first of all, we presented nationally or internationally at the Tandem meeting in Salt Lake City a couple of weeks ago. It got a lot of attention. I've heard personally people very excited but not just because the detail was out, but also it validated what many PIs, KOLs, physicians have been seeing in the clinic. And they need this data and actually help get their message out to their local physicians because the right time to treat the patient is as soon as possible. And you can see what happens, how great the responses are. They're better than we saw in our trial, they're the best in class, and this is the kind of results that we've been looking for. Asthika Goonewardene: And then lastly, just on the Proleukin reordering that happened in Q1. Just curious, you mentioned you had a February 1 price increase. Did any of the reordering happen after the February 1 price increase? Daniel Kirby: So they typically over before the price increase. Wholesalers operate on very low margins. So we did a 9% price increase on both products effective February 1 of this year. So they would do the buy-in for Proleukin in advance of that price increase. We did announce it to allow for payer case rates to adjust, which have happened because we're post price increase right now. So they were aware of the price increase pending and would buy accordingly. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Fred Vogt for closing remarks. Frederick Vogt: Thank you again for joining the Iovance Biotherapeutics Fourth Quarter and Full Year 2025 Conference Call. We plan to provide more detail on the U.S. launch growth when we introduce our full year revenue guidance in the near future. Please stay tuned to updates to 2026 on our commercial launch and pipeline as well as our cost optimization initiatives to drive towards profitability. We are motivated by the frequent stories for more and more patients who are benefiting from our TIL cell therapies. As always, we're thankful to our patients, health care professionals and advocacy communities as well as our partners. I would also like to thank our exceptional Iovance team in addition to our dedicated shareholders and covering analyst for their commitment to the mission to remain the global leader in innovating, developing and delivering current and future generations of TIL cell therapies for patients with cancer. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the Douglas Dynamics Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nathan Elwell, Vice President, Investor Relations. Please go ahead. Nathan Elwell: Thank you, Gary. Welcome, everyone, and thank you for joining us on today's call. Before we begin, I would like to remind you that some of the comments that will be made during this conference call including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in yesterday's press release and in our filings with the SEC. We also published a 1-page fact sheet on our IR website that summarizes our results for the quarter. Joining me on the call today is Mark Van Genderen, President and CEO; and Sarah Lauber, Executive Vice President and CFO. Mark will provide an overview of our performance then Sarah will review our financial results and outlook for 2026. After that, we'll open the call for questions. With that, I'll hand the call over to Mark. Please go ahead. Mark Van Genderen: Thanks, Nathan. And welcome, everyone, to our fourth quarter call. Given our core business, we'd be remiss not to recognize the magnitude of Winter Storm Hernando's impact on the East Coast right now. Our dealers, contractors and teams are doing everything they can to keep people safe during this historic winter event. Stepping back, as a company, we've experienced dramatic changes in operating conditions over the past several years. We've successfully navigated COVID, supply chain disruptions, tariffs and the tough but necessary business decisions necessitated by several consecutive seasons of low snowfall. While the journey has been demanding, our teams have continually risen to the challenge, and we are emerging stronger, more resilient and better prepared for what lies ahead. In 2025, we saw a significant increase in business activity across the company, and once again, it was the determination, strength and ingenuity of our people that allowed us to fully capitalize on these opportunities. Across every aspect of our operations, our people stepped up to the plate in 2025 and their commitment is clearly reflected in our results. So thank you to everyone at Douglas Dynamics. There are three main areas of focus Sarah and I would like to cover in this morning's call. First, an excellent fourth quarter topped off a fantastic 2025 with operational strength and robust financial performance in both the Work Truck Attachments and Work Truck Solutions segments. Second, with an above-average snowfall so far this winter, we expect to build off of 2025s momentum in 2026 with continued growth in both segments. Sarah will cover that outlook later in our call. And finally, and arguably most importantly, the strategic framework we introduced in 2025 and the actions we've taken to support that strategy have positioned us extremely well, not only going into 2026 but beyond to drive sustainable long-term value creation. So let's start with 2025 performance. We delivered strong financial results throughout the year with each quarter and in particular, the fourth quarter growing from the prior year. These year-over-year fourth quarter improvements were primarily driven by two things: the excellent performance at Solutions and the early onset of winter boosting demand at attachments. During 2025, we increased our guidance ranges twice and still managed to come in at the high end of this range. When you look back over the past few years, our earnings have grown from roughly $1 of adjusted EPS in 2023 to $1.47 in 2024 to $2.24 in 2025. That's a fantastic return to form. Okay. Let's discuss our fourth quarter and full year results in more detail, starting with Work Truck Attachments. Demand for the product lines, work truck attachments designs, builds and sells is primarily driven by snowfall. And as a refresher, the average life cycle of the equipment we produce is between 5 and 10 years. We know that there are tens, if not hundreds of thousands of our FISHER, WESTERN and SnowEx products in use on the roads today. Just as below average snowfall winters lead to an elongated life expectancy above-average snowfall winter drive increased usage and ultimately, demand. Of note, we measure this phenomenon over multiyear periods and develop forecast models, create production schedules and make investment decisions based on snowfall over time, not any one given year. This is also the reason that one strong winter can help to provide a multiyear tailwind. This winter snowfall came early with major November and December storms in the Midwest and significant persistent lake effect snow in the great Lakes region. And so far in 2026, several large snow and ice storms made their way across much of the country, including the Plains, Mid-Atlantic states and the Northeast including the historical storm that many of you just experienced. In fact, after several years of low snowfall, we're confident that the current snow season will end above the 10-year average. We want to thank our many dealers and contractors in these core markets for their tireless work to keep people safe during these storms. Our regular channel checks at the end of January confirmed that with increased year-over-year retail sales file and hopper inventories are below the 10-year averages. These weather conditions in the fourth quarter helped increase net sales and adjusted EBITDA, including record sales of parts and accessories. Now unlike sales of plows and hoppers, which are generally aligned with snowfall trends over multiple years, we see a high correlation and immediate impact between parts and accessories sales and current snowfall. On a full year basis, net sales and adjusted EBITDA improved by double digits. With the end of the 2025, '26 snow season coming into view, our teams have been working nonstop to meet demand driven by the recent major storms. In addition, we have already started planning and preparing for what we believe will be a solid preseason. Okay. Turning to Work Truck Solutions, which exceeded our expectations once again. In fact, it was a record quarter to finish a record year, which is also the fourth consecutive year of improvement. On a full year basis, not only did we deliver double-digit net sales growth and adjusted EBITDA growth, we saw record annual margins. Demand and backlog from municipal customers remain robust and we continue to work through the large multiyear contracts that we discussed last year. After 4 consecutive years of growth, the bar is set high. Given our excellent lead times and customer support, we are in a formidable position in the marketplace today. We continue to see strong demand from municipal customers. We are executing effectively and we maintain a near record backlog. All in all, we expect our municipal business will continue to grow, although not quite at the same pace we have experienced in the last 4 years. Commercial demand dynamics remain somewhat opaque, while the fleet business remains generally solid, we are seeing some minor softening of demand in the dealer business, which is difficult to predict. Dealers have inventory on the ground and smaller customers remain hesitant and price conscious. Our commercial teams remain diligently focused on optimizing this business. Overall, really a fantastic performance for the Solutions segment in 2025. All right. Now that I've covered our results, let me just take a step back for a moment and discuss strategy. Building upon our strong financial performance in 2025, and with a seasoned management team now in place, we have crafted a more defined strategic vision for the future. This manifested itself through the three strategic pillars that we've been talking about for the past couple of quarters, optimize, expand and activate. The first priority is to optimize our current operations. Now continuous improvement through our DDMS system is part of our DNA, and our optimized pillar has helped refocus our efforts across the organization. The creation of centers of excellence within the Attachments segment was a great example where production has moved from brand focused to a specific product-focused manufacturing approach at each facility. This has enabled greater specialization and brings the full breadth of our engineering, supply chain and manufacturing expertise to bear across our WESTERN, FISHER and SnowEx product lines while leveraging the unique strength of each location and workforce. The second pillar is expand pursuing organic geographic growth and new product offerings. For example, with lead times across the municipal sector top of mind, we are excited about the opening of Henderson's new Missouri upfit facility this summer. This expansion will allow us to better serve customers in surrounding markets and continue to deliver trucks on time, both of which will strengthen our competitive advantage. In addition, the attachments team launched the auto speed controller for hopper spreaders last year. This controller is linked directly to the truck's CPU and as a result, can automatically adjust the flow of de-icing material as the vehicle speed changes, improving efficiency, reducing waste and allowing for better monitoring and it's retrofittable to all hoppers we produced back to 2016. This product its capabilities and the fact that it can be fitted to every hopper that we've built and our dealers have sold over the past 10 years have all been received extremely well by our end user professionals. And finally, activate, which refers to last year's restart of our M&A efforts, which led to our first acquisition in 9 years. We welcome Venco Venturo to the Douglas Dynamics family in November. Adding this well-established and highly respected provider of truck-mounted cranes and dump hoist was a meaningful first step as we look to diversify and balance our portfolio over the long term. Our integration team has been working diligently to start realizing the benefits of this partnership and drive profitable growth. Venco is a great example of the types of high-quality brands and businesses that align with our long-term vision. Given the financial strength of Douglas Dynamics, combined with this clarifying strategic vision for the company, we will continue to pursue the right acquisitions in the Vehicle Attachments space. I'm really pleased to say that our mission, vision and strategic direction have all been well received internally and externally with substantial initiatives now underway across all three pillars we entered 2026 with a clear focus on sustainable, profitable growth. So in summary, 2025 was an important year for our company. And frankly, we're just getting started. Divisional plans aligned with the optimized expand and activate strategies are rapidly gaining traction and delivering results. We are confident in the strategic path ahead and we are focused on sustaining and expanding our recent success in 2026 and beyond. Personally, I'm looking forward to attending the NTEA Work Truck Show in Indianapolis in 2 weeks which is always a great opportunity to reconnect with our teams and meet with partners and customers. It's an exciting time in our industry with considerable opportunities ahead, and our teams are continually striving to get better every day. With that, I'd like to pass the call to Sarah. Sarah Lauber: Thanks, Mark. Before I begin, unless stated otherwise, all the comparisons I'll make today are between the fourth quarter or full year of 2025 and versus the same time period in 2024. Also, please remember that 2024 results included a onetime gain of $42.3 million from the sale-leaseback transaction completed in September of 2024. Overall, our financial results were excellent. We closed out the year strong I want to commend everyone at the company on their hard work this year that really paid off. Let me walk through the numbers for you, and I'll start with the quarter and then discuss the full year. On a consolidated basis, fourth quarter net sales increased approximately 29% to $184.5 million with growth in both segments. Gross profit grew approximately 35% to $48.1 million, with gross margin increasing 120 basis points to 26.1%. SG&A expenses increased approximately 29% to $27.3 million, primarily due to higher variable compensation on increased sales. Net income and diluted earnings per share both increased over 60% to $12.8 million and $0.54, respectively. Adjusted EBITDA increased approximately 37% to $25.8 million and margins increased 90 basis points to 14%. And adjusted earnings per share increased approximately 58% to $0.62. These tremendous improvements to finish the year were driven by improved weather trends that helped boost demand, coupled with positive execution at both of our segments. Turning to the full year. 2025 net sales grew approximately 15% to a record $656.1 million. Gross profit grew approximately 19% and to $175 million, with gross margin increasing 80 basis points to 26.6%. SG&A expenses increased just 4% to $94.9 million. Net income and diluted earnings per share were $46.9 million and $1.96, respectively. Adjusted EBITDA increased approximately 23% to $97.9 million and margins increased 90 basis points to 14.9%. Adjusted earnings per share increased approximately 52% to $2.24. The effective tax rate for 2025 was 23.8% and in line with 24% for 2024. As you can see, 2025 was a relatively straightforward year with fewer headwinds than we've seen in recent years. The generally favorable market conditions for both segments, coupled with a strong performance operationally, delivered strong year-over-year improvements. Okay. Let's look at the results for the two segments, and I will start with Work Truck Attachments. As Mark already mentioned, we are pleased to buck the trend of recent years with winter arriving early across a good portion of the Midwest and Northeast in the fourth quarter. The subsequent increase in demand caused fourth quarter net sales and adjusted EBITDA to both increase by more than 50% to $83.1 million and $13.9 million, respectively. Looking at 2025 overall, the impact of increased snowfall in core markets in both the first and fourth quarters drove higher volumes. Full year net sales increased approximately 16% to $295.7 million, and adjusted EBITDA also improved by 16% to $56.2 million. We experienced very healthy aftermarket demand. In the quarter and for the full year, we achieved record sales of parks and accessories. We saw a dramatic spike in demand during December as end users went to dealers looking to keep their plows in tip top shape. Equipment was being used, and this should help to chip away at the elongated replacement cycle we are experiencing. The outlook at attachments is more positive today than it has been in recent years. Next, I'll cover Work Truck Solutions. Our teams produced record results for both the quarter and the year despite facing tough comparisons to 2024. The team really ended the year on a high note. Well done to everyone at Work Truck Solutions for delivering record results once again. Fourth quarter net sales increased approximately 13% to $101.5 million. Adjusted EBITDA grew approximately 22% to $11.9 million. And adjusted EBITDA margins increased 80 basis points to a record 11.7%. Results were driven by ongoing strength of municipal demand plus efficient operations that meant more trucks were delivered. The fourth quarter results were really a continuation of the trends that we saw all year. For 2025, Net sales grew approximately 15% and adjusted EBITDA increased 35%, adjusted EBITDA margins grew substantially to a record 11.6%, a 170 basis point increase. As we have previously noted, 2025 net sales included approximately $18 million of incremental chassis sales related to several large municipal contracts. So 2025 was the fourth consecutive year of significant financial improvement for Solutions. The goal now is to maintain this margin performance in the near to medium term and to continue to focus on meaningful projects to optimize and expand in the years ahead. Okay. Turning to the balance sheet. Total liquidity at quarter end was $127.8 million, comprised of $8.3 million in cash and $119.5 million of borrowing capacity on the revolver, which is more than enough for our needs in the foreseeable future. We are just avidly proud of our cash generation for the year. Free cash flow increased 91% to $63.6 million, which was primarily driven by the increase in net income, somewhat offset by higher inventory levels and solutions. We also had a onetime benefit of approximately $7 million in lower cash taxes in 2025 due to the One Big Beautiful Bill Act. Inventory increased approximately 9% to $150 million. The great reduction in finished goods inventory in our snow and ice control equipment within Attachments, was more than offset by a combination of two items. First, the addition of inventory from Venco Venturo. And second, the logical and necessary increase in champion components in the Solutions segment to support the sales growth that we have experienced. Next, I'd like to talk a little bit about how we are thinking about capital allocation. When we look at our capital allocation priorities for 2026, they are not fundamentally different than the past. First, we are continuing to focus on returning cash to shareholders, predominantly through maintaining our strong dividend. To a lesser extent, we also have the flexibility for share repurchases with $38 million remaining on our buyback authority. Second, we want to support projects by investing in the business as part of the optimized and expand strategic pillars. Beyond that, we expect to continue to pursue strategic M&A opportunities as they arise as part of our Activate strategic pillar. Let me add some details to these points. On the dividend, we're maintaining the current quarterly cash dividend of $0.295 per share. For share repurchases, we would expect 2026 to be similar to that of 2025 with the opportunity to reassess as we go through the year. As far as investing in the business, Capital expenditures for 2025 increased to $11.1 million after restricted spending in 2024. While not strictly classified as CapEx, we also invested approximately $5 million in facility improvement projects as part of the 2024 sale-leaseback agreement. For 2025, even with those two combined components combined to $15.1 million, we remained well within our traditional range of 2% to 3% of net sales. With our plans for 2026 in place, we expect spending to increase year-over-year as we invest to grow, but we still expect to stay within that same 2% to 3% of net sales. Lastly, at year-end, our leverage ratio was 1.8x, which is well within our goal range of 1.5 to 3x. We are well positioned to consider small- to medium-sized acquisitions of complex attachments in the years ahead. Okay. Let's review our outlook. Over the past 2 years, we have delivered meaningful improvements on both the top and bottom line. The trends we have been discussing allow us to issue a strong outlook for 2026. As you saw in the release, we expect 2026 net sales to be between $710 million and $760 million. Adjusted EBITDA predicted to range from $100 million to $120 million. Adjusted earnings per share is expected to be in the range of $2.25 to $2.85. The effective tax rate is expected to be approximately 24% to 25%. As always, this assumes relatively stable economic and supply chain conditions, and we are assuming above-average snowfall in the first quarter and average snowfall in the fourth quarter, which should help address the elongated replacement cycle that we talked to earlier. Based on these assumptions and with our current level of visibility, we believe the business is well positioned to drive improvements with the midpoint of our ranges, projecting higher volumes across both segments, which would lead to double-digit top line growth for the company. I think you'll agree this is a strong outlook overall. It's the first time our net sales outlook has been above $700 million. The first time our adjusted EBITDA guidance started at $100 million and the first time our adjusted earnings per share range exceeds prior year results. In summary, it was a great end to a great year. In 2025, we outlined our strategy, executed our plans effectively. We're in a strong position entering 2026 to deliver yet another very solid year. With that, we'd like to open the call for questions. Operator: [Operator Instructions] The first question comes from Mike Shlisky with D.A. Davidson. Michael Shlisky: Just following your last comment there, Sarah. I just missed this. You said that you'll see growth in both segments -- can you maybe pinpoint for us which segment might have the better growth outlook for '26? And then secondly, from a margin perspective, which ones got the better opportunities for some additional margin leverage in 2026. Sarah Lauber: Sure, absolutely. So yes, you heard me on the call, talk about double-digit sales growth for Douglas as expected. Right now, the expectation and solutions is that we are at our target growth of mid- to high single digits for the year. And then the remaining growth is in attachments and that's a combination of our Venco acquisition plus higher than average snowfall expected in Q1. So we expect higher volumes than we had last year. On the margin question, I would say on solutions, and you heard in my script, I talked about maintaining the margin, but continuing to grow through our optimize and expand. We will be working hard on both of those. We optimize will certainly help to increase our margins, whereas the focus on growth this year is going to be more evident because we have the mid- to high single-digit level growth on a record year. On the margin on Attachments, I would say, right now, assuming those to be relatively flat. And again, there's upside as cloud volumes return to average. For us, it's going to be just very critical for us to see what occurs in the preseason period. Michael Shlisky: Got it. Got it. So as usual, will be better feel for it. in the springtime, it sounds like. Can you comment also about how it's been going so far with owning Venco Venturo or anything surprised you or look different than you expected? Mark Van Genderen: Yes, Mike, this is Mark. I'd be happy to take that one. Thanks for the question. So far, it's been going very well. I mean against the backdrop of the size of our company, as we've indicated, it's a relatively small acquisition, but we think there's possibilities, huge opportunities there over the next not few months or years, but over a long period of time. I can tell you from an integration standpoint, it's been going we had high expectations, and it's going better than expected. It's a great team, really committed, I think, really now proud to be part of Douglas Dynamics have a great reputation in the industry of being a company that takes care of employees and really puts people and culture first. So it's just been a really good dynamic so far. Now we're getting kind of past the initial what I'll call the honeymoon period and really focusing on, hey, what is the potential of this company now with strength and backing of Douglas Dynamics. Sarah Lauber: I would just add from a financial perspective, no surprises as we sit here today and the expectation that they would be earnings per share and free cash flow accretive, although smaller for us is still there for 2026. Michael Shlisky: Great. Maybe one last one for me, but all this recent snow, I got the window I can definitely see it's been a very heavy winter. In parts of the country, though, there were some large storms that don't always see a tonnage mill. I don't mean like a Houston and Dallas or even in the Southern Georgia area, but I mean like Virginia, are around the border or the edges of your typical most important core regions of the country. I'm curious whether those kind of borderline states and markets have any kind of unusual growth potential in 2026, if there's been some very elongated period of replacement in those areas. Mark Van Genderen: Yes, I would say if you look across pretty much all the areas where we sell cloud the major areas and kind of that Northeast corridor, Mid-Atlantic, Midwest, we've seen, as we mentioned, above average snowfalls. And in some cases, it's huge storms like what you're experiencing on the East Coast or just did. In other cases, even if it's 2 or 3 inches. We call those plowable events and 2 to 3 inches versus 8 or 9 basically going to have the same impact in terms of the plow needs to go out, folks need to go out. And then the other thing we've continued to see over the last several years is a lot more, I'd say, on average salt events. So events where trucks are going out and not just flowing but putting down salt and sand on the road using our hoppers. So overall, as I said, this is -- it's been a pretty good year so far. We still have I don't know, say, 6 to 8 weeks of winter left, knowing that sometimes storms in certain parts of the country can go into April. But so far, so good. And again, we feel like this will be an above-average winter compared to the last 10 for us. Operator: The next question is from Tim Wojs with Baird. Timothy Wojs: Nice to see the results here. So maybe could you put a little finer point on just kind of the parts and accessory performance in kind of the fourth quarter? And maybe how big P&A was for attachments for the year or maybe just the percentage of the business? Sarah Lauber: Yes. They operated for both the year and the quarter, call it, 14% to 15% of sales for Douglas. And the benefit for us in the fourth quarter is really driven by the high margins that parts and accessories bring along with it. Timothy Wojs: Okay. Is that why you're kind of assuming that margins and attachments would be kind of flattish next year, I guess, I would expect to see just given some of the cost takeout you guys have had and the volume growth you would expect that you would see margin leverage. Is there kind of a mix component with parts and accessories that kind of normalizes? Is that a headwind? Sarah Lauber: You answered your own question. Mark Van Genderen: Yes, you're spot on. When we looked at last year, and we always talk about things kind of assuming average snowfall, and then as a company, we've become, I think, really good at being able to adjust accordingly up or down. So last year in the fourth quarter with some of the early snowfalls in the Midwest, in particular, in some of the lake effect. That increase in P&A sales helped to drive that -- our overall EPS in the quarter and then for the year above what we expected, which is great. And as I mentioned in the call, there is a direct impact. If we see snow coming in and especially knowing the amount of product that we have out in the field, we're going to see an immediate impact, which we saw in the fourth quarter, which helped to drive that overall volume. It's hard to speculate how we seen more average snow volume in the fourth quarter, we most likely wouldn't have seen as high as P&A sales. results still would have been very good, but not as good as they are, which is also why when we look at the full year for 2026, with parts and accessories, we say, "Hey, you know what, we're going to take an average approach", which then leads and drives to where our guidance was. Sarah Lauber: And the cost takeout that you mentioned, those occurred in '24, and they were -- they're essentially already baked in through '25. So not a lot of incremental cost savings coming to us in '26. The real opportunity in attachments is as the equipment volumes return, which, again, is critical for us to see the preseason order patterns. Timothy Wojs: And is it too early to kind of understand what the preseason might look like? Is it just too early? Mark Van Genderen: Yes, it really is. I mean, anecdotally, we talked about the fact that we mentioned it here in the call that overall dealer inventories are lower than what we've seen in the last several years, which you might expect, just given the increased snowfall. Dealer sentiment right now is very positive, and we've seen an increase overall in retail sales, not just in parts and accessories, but for our major equipment, we'll know more in the next couple of months. Our sales teams are out talking with dealers on a regular basis, helping them get the flowers that they need right now in season. And then, yes, we'll really -- we'll have a lot more color as we always do in the second quarter conference call. Timothy Wojs: Okay. Great. And then just to put a finer point on Solutions. Are you basically saying that the margins here are kind of in that your kind of targeted range, call it, low teens, kind of low double-digits type range, and now you're really focused on driving EBIT growth as opposed to margin expansion? Just trying to kind of understand maybe what the long-term margin profile solutions really looks like. Sarah Lauber: Yes. The answer is yes. So our target was double digit to low teens. I'm not saying there's not opportunity to grow from the 11.6%. But our focus very much is on the top line growth which we do expect further top line growth after a year of having 15% top line growth. So that is more so our focus is the EBITDA dollar growth. Timothy Wojs: Okay. Got you. And then I'll sneak one last one in. Any comments you want to make on the first quarter? And the reason I ask is I know that's kind of been a wonky quarter historically. So just any sort of modeling items or anything like that you'd want to get out there. Sarah Lauber: No. I mean, in the first quarter, with attachments driving much of it is the lighter quarter. I mean, clearly, we haven't seen snow storms like this in a long time in the first quarter. So I don't expect really the quarterly cadence to change of the seasonality. The wildcard, I guess, will be what we see for parts and accessories. Operator: The next question is from Greg Burns with Sidoti & Company. Gregory Burns: When we look at the results for the Solutions segment, how it ended the year on such a strong note. I think earlier in the year, you were expecting maybe a little bit of moderation in the second half that didn't really seem to play out. It seems to almost like accelerate momentum into the end of the year. So can you just talk about why that was -- why the second half end up maybe stronger than you had thought earlier in the year? Sarah Lauber: Yes. I would put it entirely on the team's execution in completing trucks and getting them out the door. They have quite a backlog, and so they have the opportunity to certainly outperform. We didn't want to get ahead of ourselves. But I would say the team has really stepped up to the plate, and we were able to deliver on the backlog. And it has not really lowered the backlog dramatically because they're also winning new business. . Gregory Burns: Okay. And the Missouri facility wins that capacity coming online? Mark Van Genderen: We're targeting the second quarter. I think I said summer, early summer, I think, is what we're shooting for right now. And that is moving along nicely. Again, that's similar and consistent with what we've done with other properties. We won't own that, but it is a build-to-suit lease. So we're working with the company, and that's coming along very nicely, and we're excited about that. It will give us another maybe 8% to 10% volume increase for Henderson from an end truck from a completed truck standpoint in a targeted area for us that we've looked at and said, "Hey, we really want to make sure we're on the ground and providing great service to customers". Sarah Lauber: And that growth is an annual growth. Gregory Burns: Yes, great point. Yes. Okay. And then for the fourth quarter in the Attachments segment, margin was, I guess, flat year-over-year, but you mentioned obviously the strength in the parts and services and the beneficial margin impact of that. So why was the -- given the strong mix of parts and services, why was the margin flat this quarter? Sarah Lauber: That's a great question. I think some of it is the first part of Venco coming in. Some of it is variable compensation. I can't think of anything other top of mind. I think it's just the growth last year in the fourth quarter was a much lighter year, but fourth quarter typically is parts and accessories, not whole units. So I think when you look at the size that's different, but the mix is probably not dramatically different. Gregory Burns: Got it. Okay. And then when we're looking at the, I guess, the guide -- the initial guide for like flattish margin for next year, I know you mentioned mix of parts and services. But is there any of that like a cost avoidance that may be coming back online now that market demand is picking up. Like is there any element of that like you're kind of resetting the cost structure and then maybe you start to see improved leverage into '27. Sarah Lauber: Absolutely. So when I think about our businesses, I don't think the incremental volume or incremental margins, the opportunity has changed our solutions tend to be 15% to 20%, and our attachments is 25% to 30%. However, there's two caveats. One, we are layering in some investments for growth this year in our plan. So we have that in 2026. And then the other area is the fact that our volumes still are not at average volumes. And so that's probably the largest piece out there that changes the margin profile for attachments and for the company. Mark Van Genderen: I would add to that. You look back a couple of years ago and I think $10 million to $12 million that we took out of the business at that time. That's not something that we did it was necessary, but it wasn't something that we did lightly. That's not our MO as a company. And we're all very focused, I'd say, as a management team and as a leadership team, both at corporate and at the divisional levels. of making sure that as much of that as we can continue to keep flows through. We're not opening up the checkbook significantly even against the backdrop of a better than average snowfall year because we just want to make sure that we're being very prudent. Gregory Burns: Okay. I guess with that said, where what are normalized margins like normal volumes get back to kind of average historical levels. Where do you see the -- what is the margin profile of the Attachments segment? Sarah Lauber: Yes. So we ended the year for attachments at 19%. We get to the mid-20s with average volumes. Operator: [Operator Instructions] Showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Mark Van Genderen for any closing remarks. Thank you. Mark Van Genderen: We really appreciate your continued interest in Douglas Dynamics. And certainly, please reach out to Nathan, if you would like to talk to us in the coming weeks. Thanks, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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: Thank you for standing by, and welcome to the Black Stone Minerals Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Natalie Liddell, Vice President, Corporate Planning. You may begin. Natalie Liddell: Thank you. Good morning, everyone. Thank you for joining us for the Black Stone Minerals Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's call is being recorded and will be available on our website along with the earnings release, which was issued last night. Before we start, I'd like to advise you that we will be making forward-looking statements during this call about our plans, expectations and assumptions regarding our future performance. These statements involve risks that may cause our forward-looking -- our actual results to differ materially from the results expressed or implied in our forward-looking statements. For a discussion of these risks, you should refer to the cautionary information about forward-looking statements in our press release from yesterday and the Risk Factors section in our 2025 10-K. We may refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of those measures to the most directly comparable GAAP measure and other information about these non-GAAP metrics are described in our earnings press release from yesterday, which can be found on our website at www.blackstoneminerals.com. Joining me on the call from the company are Tom Carter, Executive Chairman; Taylor DeWalch, Co-CEO and President; Fowler Carter, Co-CEO and President; Steve Putman, Senior Vice President and General Counsel; Chris Bonner, Senior Vice President, Chief Financial Officer and Treasurer. I'll now turn the call over to Fowler. Fowler Carter: Thank you, Natalie. Good morning, everyone, and thank you for joining us on our fourth quarter earnings call. If you look at our earnings release from last night, you'll see that we had a great 2025 despite headwinds from production and oil prices. During the year, we achieved significant commercial milestones that will benefit our future production for years to come. We successfully signed development agreements with Revenant Energy and Caturus Energy. These deals place approximately 500,000 gross acres into development with minimum drilling commitments ramping up to 37 gross wells per year by 2031 from those programs and including Aethon, a total of 50 gross wells over the same period. Aethon also recently brought several new wells online in the Shelby Trough at about 25 to 30 MMcf a day with another 5 wells expected to come online in the first quarter. An additional 18 wells are expected to be drilled throughout 2026. Also in 2026, we expect that Revenant will spud more than its minimum 6-well commitment and Caturus plans to drill its initial wells, including a pilot well. We are also seeing increased activity from others in the Shelby Trough as the industry moves towards available inventory to meet the growing natural gas demand. In addition to these developments, we are building another new opportunity in our Haynesville expansion area that we believe will add significant inventory and scale to the current development. Based on existing subsurface analysis, we believe we can continue to expand the Shelby Trough and Haynesville Basin towards the Western Haynesville. With our continued focus of increasing production from existing assets and driving long-term value for our unitholders, we have also entered into an LOI with a reputable operator with experience in the Haynesville on a meaningful amount of acreage in the Gulf Coast region outside of our recent focus areas. Our acquisition program remains on track as well. Since launching the program in '23, we've invested about $240 million to add accretive mineral and royalty acreage across the Shelby Trough and Haynesville expansion area. We remain confident that the combination of these commercial initiatives will lead to significant growth and value for our unitholders. With that, I will hand the call over to Taylor. Taylor DeWalch: Thanks, Fowler. Good morning, everyone. Adding on to Fowler's commentary, we're excited about the increased activity and the ramp in production that we expect throughout 2026. We ended 2025 and begin 2026 at about [ 32,000 BOE ] per day, but we see that materially growing throughout 2026. So while production guidance is roughly flat year-over-year, we see solid growth from fourth quarter 2025 to fourth quarter 2026. Our fall investor presentation showed that 2026 is anticipated to be just the beginning of new activity in the Shelby Trough. We expect significant increases in natural gas production and distributions for BSM unitholders over the coming years. Because we have one substantial industry-leading inventory on our acreage in the Shelby Trough and Haynesville expansion and two, advantageous proximity to the Gulf Coast and key demand centers, we are optimistic about the long-term growth for our unitholders. The team has done a phenomenal job the last several years delineating and marketing the Haynesville expansion area and securing the development agreements. We are now preparing to manage the growth in activity through these development agreements with our operating partners. As noted in our release last night, we are strategically increasing G&A in 2026 to support this increase in activity. We remain focused on disciplined capital management and our comprehensive commercial strategy, including grassroots acquisitions, high interest development agreements, new development opportunities and proactive asset management across all basins. Those efforts support our goal of delivering near-term and long-term value for Black Stone's unitholders. With that, I'll handle the call over to Chris to walk through the financial details for the quarter and full year. Chris Bonner: Thanks, Taylor, and good morning, everyone. In the fourth quarter, mineral and royalty production was [ 30,900 ] BOE per day, a decrease of 11% from the prior quarter. Total production for the quarter was [ 32,100 ] BOE per day, and we completed the year at the high end of the updated guidance. As discussed in the release last night, our updated guidance last year reflected lower natural gas directed drilling activity and volume levels in the Shelby Trough over the last couple of years. We expect 2026 to be a turning point with new and increased development in the Shelby Trough and Haynesville expansion areas, along with high interest projects in the Permian Basin and ongoing development across our broader assets. We continue to monitor increasing activity levels in the Haynesville and commodity price dynamics as we look towards 2026 production and distribution. The partnership is also in the process of shooting two substantial 3D seismic surveys in the Shelby Trough and Haynesville expansion area, covering about 360,000 gross acres. While initiating and funding these surveys is not typical for Black Stone, we believe it allows us to control the timing, pace and focus of the data, highlighting our minerals and supporting their development under our contracted agreements. Most of the remaining costs for these surveys are expected to be incurred in 2026 with completion targeted for early 2027. They are subject to partial reimbursement with reported costs reflecting Black Stone's share while the partnership retains full ownership of the data. Over time, the proprietary nature of these surveys may provide opportunities to license the data to industry, potentially generating additional revenue. Together with these supplemental seismic purchases, these assets are expected to enhance subsurface evaluation, further unlock the value of our mineral and royalty acreage and accelerate development of that acreage. To better reflect how we view these investments, we've updated the presentation of adjusted EBITDA and distributable cash flow to exclude seismic acquisition costs. Turning to the quarter's financial results. Net income was $72.2 million for the fourth quarter with adjusted EBITDA of $76.7 million. 51% of oil and gas revenue in the quarter came from oil and condensate production. As previously announced, we declared a distribution of $0.30 per unit for the quarter or $1.20 on an annualized basis. Distributable cash flow for the quarter was $66.8 million, which represents 1.05x coverage for the period. As Fowler and Taylor mentioned earlier, the partnership's outlook remains strong, anchored by long-term contracted development in our high-interest Shelby Trough acreage as well as our core legacy assets across the U.S. With growing demand from LNG and electric power generation, the outlook for natural gas is increasingly constructive over the next decade. Our significant assets near Gulf Coast LNG facilities position Black Stone to benefit from the substantial call on gas supply, which we expect to increase over the coming years. In conclusion, we had a successful 2025 on many fronts, setting the partnership up for a great 2026 and beyond. We remain confident that our existing acreage positions across numerous basins, coupled with our commercial strategy and the expanded Shelby Trough will provide a strong foundation to deliver sustainable long-term value for unitholders. With that, I'd like to open up the call for questions. Operator: [Operator Instructions] Your first question today comes from the line of Derrick Whitfield from Texas Capital. Derrick Whitfield: Regarding guidance for the year, while I realize some of this is beyond your control, how should we think about the cadence of production from 4Q levels throughout 2026 based on the known developments? Taylor DeWalch: Yes, Derrick, this is Taylor, and I'll start out with that. I mean I think when we look back to 2025 kind of midyear and then along with kind of our investor presentation, we really pointed to where we thought production was headed based on the last couple of years kind of activity in the Shelby Trough and the decreased activity there. And so where we end 2025 is where we think we're going to start 2026, which is what we've kind of alluded to in the release last night and mentioned in our script this morning. And then I think that where that puts us for the full year is reflected kind of in the guidance. So again, we think we're going to be increasing materially throughout the course of 2026. And most of that is attributable to kind of new development agreements as well as Permian production and those high interest developments out West. Derrick Whitfield: And Taylor, would you expect it to kind of stall out at the kind of Q1 -- maybe Q4 level for Q1 and then kind of step up each quarter progressively? Or would there be more lumpiness than what I just suggested? Taylor DeWalch: No, I think that's right. You'll see it start to step up. We've -- as we've mentioned, we've got some wells coming on here in the beginning of the year, specifically related to Aethon and then we see activity increasing throughout the year. Derrick Whitfield: Great. And for my follow-up, in your commentary, you referenced efforts to build new opportunities to further expand your asset base and add new development agreements in both the Shelby Trough and Haynesville expansion area. I guess looking ahead, how would you characterize the pipeline of potential new development agreements? Are these conversations primarily with new operators in the basin or extensions with existing operators? And how should we think about the cadence and acreage scope of incremental agreements over the next 12 to 18 months? Fowler Carter: Derrick, I would tell you that we certainly don't discriminate against existing partners or newcomers. We welcome all parties. And while we enjoy the partnerships that are established, we are happy to continue to diversify our new developments with new partners or strengthen existing contracts with established partners. Operator: Your next question comes from the line of Tim Rezvan from KeyBanc Capital Markets. Timothy Rezvan: Changing gears to the Permian. We saw comments in the release about leasing outside of the Coterra development area. We also saw guidance for liquids down a bit in 2026 versus our expectations. So can you talk about kind of what you're pursuing in the Permian and kind of how -- just kind of the scale and the priority of that given everything that's going on in the Haynesville? Taylor DeWalch: Sure, Tim. This is Taylor, and I'll start there. I think we're excited to see activity in the Permian kind of in two different folds, if you will. We've got high interest activity from Coterra, and then we mentioned another large-scale kind of high interest development that's happening in the Southern Delaware. So that's a bit more proactive asset management, if you will, along with quite a bit of leasing throughout 2025 that we think points to increased activity across '26 and '27. I think if you look at the timing of some of this and when we see those volumes coming on, certainly, we'll see some of the Coterra wells continue to come on over the course of '26. Some of the other activity, I think, really is probably later on in '26 and more materially in 2027. So I think you'll start to see those volumes a little bit later on. But no, we're excited about what's going on. Certainly excited about some of the other folks in the industry and their excitement around the Barnett, which we've also seen leasing pick up. So I think there's a lot to be excited about in the Permian right now. Chris Bonner: Yes. The only thing I'd add there is -- so we know about these high interest developments that we can model. When we're looking at where pricing is right now in the Permian, we're being thoughtful on just the broader development there and not wanting to get ahead of ourselves when it comes to forecasting the broader Permian volumes. Timothy Rezvan: Okay. Okay. I appreciate the context. My next question, if we look at the Henry Hub strip this year, it's below $3.50 for a lot of the year into kind of the winter. And you've talked about sort of maybe a flattish start to the year growing. Do you feel comfortable you can fund your $0.30 distribution through distributable cash flow without sort of leaning on liquidity for the next -- I mean, 1Q will be a big aberration we know with $5 Henry Hub. But as we look to the summer, how confident are you that you can sort of fund that without leaning on liquidity? Taylor DeWalch: Yes. Good question. And maybe I'll start off and Chris, if you want to jump in. But I think it really just sort of following up on what Chris just said, we've taken a stance on being really thoughtful about where we see commodity prices and activity levels and where we think that we've got some pretty solid development that's going to happen, and we're confident in that development based on our agreements and our minimum commitments there. So along with the sort of ongoing activity and wells coming online. So I would say that we're confident that we can continue to fund the distribution and grow throughout the year based on those minimums. Chris Bonner: Yes. I would just concur with that assessment and then also note that we do have strong hedges in place for natural gas throughout the year. Timothy Rezvan: Okay. Okay. I just wanted to push on that. And if I could sneak one more in. I appreciate the prepared comments on the seismic, we saw that adjustment with your adjusted EBITDA in the fourth quarter. Should we assume that, that $30 million of exploration expense is all seismic? Is there a cadence to that? Is that a onetime expense? And do you expect to continue to kind of adjust that out for adjusted EBITDA? Chris Bonner: Yes, I can answer that. So it is expense throughout the year. We do expect more of it to hit when the shoot is actually taking place in the middle of the year. And it is the majority of the seismic that we forecasted. It's about 90-plus percent of the total. And we do expect the majority of the costs related to these two specific shoots to be completed in early '27, but primarily expensed in '26. And we don't anticipate additional significant seismic costs within this development area. Taylor DeWalch: Yes. I might just add on too and just take that question a little bit further, Tim. The seismic shoot is certainly something, I think, pretty unique for a company like us to do. But I think when you look back at the last couple of years, we have taken a stance of putting subsurface analysis and geology first, and we're pretty convicted in the Rock in the Shelby Trough and the Haynesville expansion. And I think these seismic shoots are just another data point for us to further that story and really build the foundation for our operators to come in and start to develop. And I think as Chris also mentioned in his prepared remarks, these are proprietary shoots. So we own them and look forward to, at some point, also potentially turning those licenses to industry and generating revenue off of them. So a couple of different ways we're thinking about the seismic. But excited to get those shot later this year and just keep on developing the Shelby Trough and the Haynesville expansion. Operator: And there being no further questions, I will now turn the call back over to Taylor DeWalch for some final closing comments. Taylor DeWalch: Thank you all for joining us this morning and look forward to speaking with you all again next quarter. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clarivate's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mark Donohue, Vice President, Investor Relations. Please go ahead. Mark Donohue: Thank you, and good morning, everyone. Thank you for joining us for the Clarivate's Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, this conference call is being recorded and webcast and is copyrighted property of Clarivate. Any rebroadcast of this information in whole or in part without prior written consent of Clarivate is prohibited, and the accompanying earnings call presentation is available on the Investor Relations section of the company's website. During our call, we may make certain forward-looking statements within the meaning of the applicable securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the business or developments in Clarivate's industry to differ materially from the anticipated results, performance achievements or developments expressed or implied by such forward-looking statements. Information about the factors that could cause actual results to differ materially from anticipated results or performance can be found in Clarivate's filings with the SEC and on the company's website. Our discussion will include non-GAAP measures or adjusted numbers. Clarivate believes non-GAAP results are useful in order to enhance understanding of our ongoing operating performance, but they are a supplement to and should not be considered in isolation from or as a substitute for GAAP financial measures. Reconciliations of these measures to GAAP measures are available in our earnings release and supplemental presentation on our website. With me today are Matti Shem Tov, Chief Executive Officer; and Jonathan Collins, Chief Financial Officer. After our prepared remarks, we'll open up the call to your questions. And with that, it's a pleasure to turn the call over to Matti. Matti Shem Tov: Good morning, everyone, and thank you for joining us today. We are at a positive inflection point in the Clarivate journey. In 2025, we delivered on our initial full year financial guide for the first time since 2019. The value creation plan is working as evidenced by our improved performance and forward outlook. We have accelerated organic ACV, organic recurring revenue and enhanced our free cash flow conversion. Looking ahead to 2026, our guidance calls for 10% free cash flow growth and continued improvement in our KPIs. With strong cash generation, stable revenue retention rates of 93% and a business that generates 97% of its revenue from proprietary solution enhanced by AI, we see tremendous opportunity in front of us. Last February, we announced a strategic review of our business portfolio, which involves evaluating multiple options. After an in-depth analysis, we have launched a process to sell our Life Sciences & Health business, which if the deal is concluded, could accelerate value creation for shareholders. We believe selling this segment will allow further emphasis on the A&G and IP market and strengthen our balance sheet through reduced leverage. We are currently engaged in active discussion with interested parties. There are no guarantees we will reach an agreement. We will update the market when appropriate. While we understand the market's concern around AI disruption for software and information services companies in general, we believe our business is highly proprietary with significant moats. A few weeks ago, we launched a webinar titled Clarivate Intelligence Amplified in the Age of AI. If you have not viewed it yet, I encourage you to do so. For us, AI is not a disruption to our business model. It is an amplifier of what already sets us apart. Today, 97% of Clarivate's revenue come from proprietary assets, including intelligence solutions, workflow software and tech-enabled services. This reflects decades of strategic investment in proprietary content, expert enrichment and curation and the development of software products embedded across customer workflows. This strong and proven foundation provide us with a significant advantage in the age of AI. Our customers operate in high-stake environments such as research, intellectual property and highly regulated life science industry when provenance, accuracy and trust are essential and nonnegotiable. Let me explain our AI strategy. We are leveraging AI to capitalize on our strengths. By combining our proprietary data and deep domain expertise with cutting-edge technology, we are delivering what we call intelligence amplified. This shows up in 3 ways. First, AI research assistants provide a conversational contextual search and discovery, a front door to our trusted intelligence, where customers can simply ask questions in natural language and get a precise answer backed by our proprietary data. Second, AI workflow agents are embedded directly into customer workflows, acting as digital analysts that enable execution at speed. Tasks that used to take hours or days can now happen in minutes. Imagine a patent analyst who has an AI agent that can monitor thousands of patents, identify relevant prior arts and flag potential conflict automatically. That is the power we deliver. And third, through AI ecosystem access, we are extending our gold standard intelligence across the broader AI ecosystem via secured integrations such as MCP servers. By expanding our reach beyond cloud boundaries, we are ensuring our assets remain available to users as they develop new ways of working. For example, we recently introduced Nexus, which exemplify our ecosystem access strategy. As students increasingly begin their research in general purpose AI tools, Nexus meets them where they are, embedding our gold standard curated content such as Web of Science directly into public chat tools. This is how we extend the value of our proprietary assets beyond our own platforms, turning AI adoption into a distribution opportunity rather than a displacement risk. We will continue to capitalize on the benefits of AI by enhancing and developing solutions that are trusted by more than 45,000 customers globally. We see this new technology as a legitimate accelerant to our organic growth. Now let's turn to 2025 results. I am proud of the results we delivered in 2025, which lay a strong foundation for 2026. We delivered nearly 2% organic ACV growth at the high end of the range. We also improved the mix of organic recurring revenue to 88%, clear evidence of continued progress towards a more predictable subscription-based model. We delivered more than $1 billion of adjusted EBITDA and $365 million free cash flow. As Jonathan will cover in more detail, we expect approximately 10% free cash flow growth in 2026. Our value creation plan has built strong momentum and better focus across the organization, which has improved our operational and financial performance. We optimized the business model, which has led to an improvement in our recurring revenue mix. We improved our sales execution and as a result, delivered nearly 2% organic ACV growth, representing approximately 90 basis point improvement year-over-year. We drove innovation forward by introducing 12 major products and AI-powered features, strengthening our unique position in the market. Our strategic review has led to the initiation of a process to sell our Life Science business. If successful, this will focus our organization and strengthen our balance sheet. Let me take you through each of our business segments where we have made meaningful improvements, starting with Academia & Government. This segment delivered solid performance in 2025, achieving 2% organic ACV growth despite funding headwinds in the U.S. academic market. On the innovation front, we launched 10 AI assistants and AI-native agentic solutions, and these are being used by over 4,000 institutions today. And here is the foundation that makes this all possible. 97% of our A&G revenue is generated from proprietary solutions. Last year, we successfully transitioned the business model away from transactional revenues. This increased our organic recurring revenue mix to 93% with mid-90s retention rates. Looking ahead, we expect organic growth acceleration as our AI innovation continues to materialize, supported by improving market dynamics. Now let's us talk about the Intellectual Property business. It is powered by the industry's largest agent network and a comprehensive portfolio of solutions covering the full IP life cycle. This includes patent and trademark created proprietary data, decision intelligence, tech-enabled services, IP management software and the largest annuity book in the market. This gives us scale, reach and a competitive advantage no one else can match with a new leadership team, including the President, CTO and the Head of Software and clearer priorities, we are confident in returning IP to growth. On the innovation side, we launched 5 GenAI and AI native products and enhancements last year. 2026 will bring additional AI product launches across the IP landscape. The changes we have implemented are starting to show up in the results. We delivered 270 basis points of year-over-year improvement in annuities revenue, reflecting stronger execution. The outlook for IP is increasingly positive. The fundamentals are there. The team is aligned and the AI-led innovation and products are resonating positively with our customers. Turning to Life Science & Health. Life Science & Health is anchored in expert curated highly enriched data, which is optimized for compliance critical workflows where accuracy, governance and trust are essential. We now have 11,000 global active users leveraging our AI research assistant and workflow agent. That is incredible adoption in a market where accuracy and trust are nonnegotiable. And we are not slowing down. We are due to release more than 10 additional AI solutions this year. We have reached a clear inflection point. Cortellis, DRG and [indiscernible], our 3 major product lines are now moving in the right direction with consistent quarterly ACV growth. Based on deals we closed last year and our current pipeline visibility, we expect a return to organic revenue growth in 2026. Now let's talk about where we are headed and why we are confident in the outlook. For 2026, we are guiding to 2% to 3% organic annual contract value growth. That is a meaningful acceleration from where we were just 2 years ago. On recurring organic revenue, we are targeting 1% to 2% growth for 2026, an improvement of almost 100 basis points compared to last year in the middle of the range. Finally, free cash flow is expected to grow to about $400 million, that is approximate 10% increase over last year. I am optimistic that we can achieve our target in 2026 because we have built the foundation. We have optimized the business model. We have strengthened sales execution. We are accelerating innovation, and we are rationalizing the portfolio. In closing, 2025 was a turning point for Clarivate. In 2026, we expect to continue to improve our key financial metrics. Under my leadership, we have built a more focused, accountable and performance-driven culture, and we will maximize shareholder value through portfolio simplification and disciplined capital allocation. I will now turn the call over to Jonathan for a review of our financial results and outlook. Jonathan Collins: Thank you, Matti. Slide 17 is an overview of our fourth quarter and full year financial results compared with the same periods from the prior year. Q4 revenue was $617 million, bringing the full year to $2.455 billion. The change in the quarter and the year was entirely inorganic as we disposed of and divested businesses over the last year. Fourth quarter net income was $3 million. The $195 million improvement over Q4 of the prior year and the full year improvement of $436 million was driven by the noncash impairment charges recorded in the prior year that did not recur in 2025 as well as lower income tax and interest expense. Adjusted diluted EPS, which excludes items like the impairment, was up $0.02 sequentially at $0.20. The change over last year was entirely inorganic. Operating cash flow was $160 million in the quarter. The $19 million improvement compared to last year is driven primarily by working capital and lower interest and taxes. Please turn with me now to Page 18 for a closer look at the drivers of the fourth quarter top and bottom line changes from the prior year. As expected, the changes over the prior year were driven by four primary factors. First, while organic subscription revenues continued to grow at 1% followed the continued acceleration in our ACV, total organic revenue declined by about 1% as the subs growth was offset by reoccurring in transactional. Fourth quarter operating expenses were higher as we continue to invest in innovation and incurred higher incentive compensation expense as we delivered our full year guidance, resulting in a $16 million profit decline. Second, during Q4, the businesses we are disposing decreased by $43 million over the prior year. But was largely offset by cost reductions in these businesses, yielding a net $10 million reduction in adjusted EBITDA. Third, as we have seen in the last couple of quarters, we experienced a modest inorganic impact from the ScholarOne divestiture. And fourth, the U.S. dollar remained relatively weaker against the basket of foreign currencies, which caused a foreign exchange tailwind on the top line that was partially offset by fewer transaction gains than the prior year, resulting in a small profit impact. We exited 2025 with a Q4 profit margin run rate of just over 41%, which was about 50 bps higher than the full year results. Please turn with me now to Page 19 to review how these same drivers impacted the top and bottom line changes on a full year basis compared to 2024. As Matti noted in his remarks, our full year revenue and profit results were above the high end of the original guidance ranges we provided a year ago. While recurring organic growth approached 1%, this was offset by organic transactional revenues, resulting in essentially flat organic revenue. Full year operating expenses were higher than the prior year as we continued to invest in growth and incurred higher incentive compensation expense as we delivered our full year guidance. The entire revenue change and the vast majority of the profit difference came from the combined impact of the disposals and divestitures, which lowered revenue by about $116 million and adjusted EBITDA by about $44 million compared to the prior year. Both the top and bottom lines benefited from foreign exchange translation as the U.S. dollar weakened compared to a basket of foreign currencies. Please turn with me now to Page 20 for a look at how the Q4 and full year adjusted EBITDA converted to free cash flow and how we allocated the capital. Free cash flow was $89 million in the fourth quarter, bringing the full year to $365 million towards the higher end of our guidance range, which is about 2% growth over the prior year as lower adjusted EBITDA and higher onetime costs were more than offset by lower working capital, capital spending, interest and taxes. We used the free cash flow we generated to buy back $225 million worth of stock, and we called $100 million of the bonds that were due later this year and then called the remaining $100 million in January of 2026. This balanced deployment of capital allowed us to maintain net leverage at approximately 4 turns while retiring $56 million or 7% of our outstanding shares. Please turn with me now to Page 21 for a look at our full year financial guidance ranges for this year. Beginning at the top of the page, we anticipate the acceleration of our organic annual contract value last year will continue in 2026, resulting in growth of between 2% and 3%, representing continued steady progress and an increase of about 0.75 percentage point at the midpoint of the range. We expect recurring organic growth of about 1.5% at the midpoint of our range, which is an improvement of nearly 1 percentage point over last year. Due entirely to the wind down of the businesses we are disposing, we expect revenue to decline by almost $100 million at the midpoint of the range to $2.36 billion and that our organic recurring revenue mix, which excludes the impact of the disposals, will improve to between 88% and 90%. Moving down the page, we expect adjusted EBITDA will grow modestly despite the lower revenue, increasing our profit margin to nearly 43% at the midpoint of the range. We anticipate diluted adjusted EPS will grow about 9% at the midpoint of the range to $0.75, largely due to the share repurchases we completed last year. Finally, free cash flow is expected to grow by about 10% to $400 million at the midpoint of the range. Please turn with me now to Page 22 for more details on the full year top and bottom line changes we are expecting compared to last year. We expect adjusted EBITDA margin will expand by about 200 basis points at the midpoint of the ranges, driven by a return to organic growth, continued aggressive cost management and completing the strategic disposals. We anticipate organic growth of about 1%, led by subscription revenue growth from continued ACV acceleration. We have plans in place to achieve cost efficiencies to fully offset inflation, resulting in a full flow-through of the approximately $25 million of revenue growth to profit. This will account for about 1/3 of the profit margin expansion. The strategic disposals are expected to lower revenue this year by approximately $130 million, and we are reducing operating expenses by more than $100 million, which yields a profit impact of about $25 million, delivering the remaining 2/3 of the profit margin expansion. As Matti highlighted, we are pursuing the sale of our LS&H segment. However, our financial guidance for this year assumes we will own this business for the entire year. And if agreement is reached, a revision to our guidance for this potential divestiture may come later in the year. We continue to anticipate a modest foreign exchange translation benefit to the top and bottom lines of $10 million and $5 million, respectively, as the U.S. dollar is expected to remain slightly weaker against other foreign currencies compared to last year. Please turn with me now to Page 23 to step through a high-level overview of the expected seasonality of our revenues and profits this year. Broadly speaking, we expect to make continued progress as we move through the year. However, it's worth highlighting some timing differences that will affect our trajectory. First, in our annual contract value, we often see timing differences with renewals in the first quarter. And as a result, we anticipate a slight sequential pullback in Q1, but steady acceleration through the balance of the year. Second, last year, we saw mid-single-digit organic growth in our reoccurring revenues in Q1 due largely to patent renewal accelerations in the U.S. that will not recur this year and will unwind in the first half. The combination of these two factors should result in recurring organic revenue growth that is essentially flat in Q1 and will result in a profit margin that's similar to Q1 of last year with the margin expansion occurring in the balance of the year. Finally, it's worth noting that our transactional books revenue will cease this summer, resulting in a sequential step down from the first to second half. But as I noted on the prior page, this disposal will expand our profit margin. Please turn with me now to Page 24 to step through our expected path to delivering approximately $400 million of free cash flow this year. At the midpoint of our range, we expect free cash flow will grow about $35 million or 10% over last year. Onetime costs are expected to abate primarily on lower restructuring costs. As noted a couple of pages ago, our guidance does not contemplate the sale of our LS&H segment. If we reach an agreement, this is an area we would update later this year. We expect cash interest to improve by about $20 million over the prior year as a result of the debt we prepaid last year and last month, additional debt we plan to prepay this year and some savings associated with the projected forward base rate curve. Cash taxes are expected to be $5 million to $10 million higher than last year due largely to new corporate tax in Jersey. We anticipate the change in working capital this year will be a use of approximately $20 million compared to last year's source of just over $10 million, primarily due to incentive compensation payments early this year. We're also expecting a $10 million benefit associated with lower impaired contractual costs. And while we remain committed to investing in product innovation, the strategic disposals and cost efficiencies will improve capital spending by another $15 million following last year's savings of more than $25 million. From a capital allocation perspective, we plan to lean more towards deleveraging this year and started last month by retiring the final $100 million of bonds that were due later this year. In closing on Page 25, I want to draw attention to the consistent free cash flow we have generated over the past 4 years. Last year's free cash flow of $365 million resulted in a 4-year cumulative average growth rate of 6% with expected accelerated growth this year of 10%. At the current stock price, our stock is yielding a free cash flow return of 30%. Over the past 4 years, we generated a combined $1.9 billion of free cash flow and asset sale proceeds, which we used to repay $1.2 billion of debt, lowering our net leverage by more than a turn and to repurchase about $700 million of stock, lowering our share count by 13%. And we expect to generate another $400 million this year and may generate proceeds from the potential sale of our LS&H business to further strengthen our balance sheet. We continue to believe executing the value creation plan will lead to healthy, sustainable organic revenue growth, further accelerating our free cash flow growth in the coming years, delivering meaningful value for shareholders moving forward. I want to thank everyone for listening in this morning. I'll now turn the call back over to the operator to take your questions. Operator: [Operator Instructions] Your first question comes from Toni Kaplan with Morgan Stanley. Toni Kaplan: I was hoping you could talk about your monetization model for your subscriptions and for the new AI products. I think historically, some of your subscriptions at least were based on seat licenses and which products were being used by clients as well. So is that still the model that is underlying the subscriptions? Or have you been changing that? And I guess, approximately what percentage of revenue is based on seat licenses? Matti Shem Tov: So, thank you, Toni. This is Matti. We continue to use AI to our advantage with protecting and growing the base of our subscription revenue. We have an upsell opportunities, upselling some of the AI innovation for existing products. And then we are constantly introducing new products. We are totally new revenues. In terms of the business model, we have quite a number of different products with different pricing models. We have rationalized some of our business model. For example, Web of Science, we have actually streamlined to be more and more subscription-based product as opposed to onetime. I'm not sure we can share the numbers. Maybe Jonathan can add to this in terms of the breakdown? Jonathan Collins: Yes. Thanks, Toni. More broadly, for example, within the A&G segment, as Matti highlighted, the pricing of the subscriptions is based on the size of the institution, so not necessarily the exact amount of students or researchers, but the size of the institution certainly affects that model. As we think about the adoption of AI, we believe that as we bring those features and capabilities into the products, whether it's the researcher assistants, the workflow agents or access to our content via the broader AI ecosystem, there's an opportunity to continue to harden the renewal rates, demonstrate more value and drive better pricing and offer new AI-type solutions such as the researcher intelligence that we just featured in that market. In our corporate markets and in the law firm markets, it's similar based on the size of the company and based on the size of the law firm is effectively how the pricing grid works for the subscription products. We expect that to continue based on the size of the institution will be broadly how we price the subscription products. Matti Shem Tov: But just for clarity, there are some products that are also based on the combination of the size of institution and also the actual FTE that actually -- the actual end user are actually using it just for clarity and full transparency here. I don't see this as a major concern at this point of time. I know where the question is coming from. We don't see this concern. We have quite a good -- if we look at our renewal rates, going up, usage is going up. If you look at -- maybe you can talk about -- slightly about where we are in -- do you want to talk about Q1? Jonathan Collins: Yes, we continue to -- early in Q1, we continue to see progress across our key metrics. And when we're out with our Q1 results in just a couple of months, we think we'll continue to demonstrate that we're on the right path. We continue to move in the right direction, and that's the best demonstration of the value we think we can capture the technology shift. Operator: Your next question comes from Scott Wurtzel with Wolfe Research. Scott Wurtzel: Just wondering if you can explain or give a little bit more detail on the 97% of revenue coming from proprietary data and specifically on how the tech-enabled and workflows kind of fits into that would be great. Matti Shem Tov: Basically, these are two questions. There is the AI question and there is the workflow question, which is kind of different for us. Just to remind ourselves, 97% of our business derived from proprietary data, about 60% is information services. We do have a component of about 20%, which come from enterprise software. I can address both of them. So let's talk about -- start with information services. Our data is originated in three sources: public, license and some which are exclusively and internally generated. The value we deliver is regardless of the source of the data. Almost entirely, the value lies with our creation enhancement, harmonizing and embedding the data with the right algorithm in the workflow ecosystem of the end customers. I want to give just two examples, some life example we will make it a bit clearer. Let's take, for an example, Web of Science in Academia & Government. The created harmonized data is then embedded directly into research and valuation, funding allocation, publishing decision and national science policy workflow. Transparency and auditability are very, very essential. This is why Web of Science underpins decisions such as where researchers publish, how government allocate funding and how universities assess performance. General purpose AI tool, which lacks the provenance of government and governance cannot substitute this high-stake workflow. Let me give you another example. When pharmaceutical companies use general purpose LLM to ask about drug safety profile, it returns publicly available information that is useful, but incomplete and potentially outdated. When the customers use Clarivate's Cortellis platform, they access 3 million safety and toxicity alerts that have been expertly created linked across Cortellis data sets and continuously updated by our in-house scientists. This is not just better data. It is a different category of intelligence that directly impact billion-dollar decision in the drug and medical device development. At the high level, it's positioned us very, very well, 97%, and this is why we are continuing to see an improvement in our renewal rate of 93%. I can also go and talk about the workflow element of the business. It's 20% of our business. Just remind ourselves, the IPMS business, the IP business is driven also by strong recurring and growing IPMS software business. Within IP, we have also a major component of software within A&G and the Alma product, the Polaris product. And I can speak here from a vast experience. I've been in the enterprise software space for almost 30 years. We hear out the issue of like AI sweating us by commoditizing the coding. But I do believe that we are in the best position here. It's not for AI to develop code. I understand. We actually use it ourselves, accelerating our development process. But we have some inherent competitive advantage as an enterprise software vendor, including the commercial channels that we have developed and supported over years. The switching and implementation dynamics, the workflow integration. And I think the most important one is security and governance. That is why we believe the 93% of our business is proprietary, and we will continue to demonstrate this in quarters to come. Thank you for the question. Operator: Your next question is from George Tong with Goldman Sachs. Keen Fai Tong: What were the key considerations that led you to initiate a sale process for your Life Sciences & Healthcare business? Why did you deem LS&H as nonstrategic and A&G and IP as... Matti Shem Tov: So first, as we -- as I mentioned when I joined the company, I think the first earnings call was late 2024, our ultimate goal is to create shareholder value. We have initiated the value creation plan with four pillars. The fourth pillar was the strategic alternative one. We -- I think we've demonstrated the success of the value creation plan. We've gone from 80% recurring to 88% execution of the sales execution. We see a tremendous momentum on the AI innovation. We do believe there is also shareholder value to -- shareholder value that we can create through the strategic alternative side. We've run a process. We looked at our different alternatives, and we have concluded that Life Science segment is the one that we will -- that's the one that we have the opportunity to increase to sell, and then we will increase our focus and operational execution across A&G and IP segment to further strengthen our balance sheet. It makes sense for us to keep IP and A&G together because we benefit tremendously from the shared content assets, technology platform, commercial channel scales and strengthen our innovation. If any time in the future, we feel better off separating them, we will definitely keep you informed. Operator: Your next question is from Manav Patnaik with Barclays. Manav Patnaik: I just want to follow up on that last comment, Matti, in terms of the -- I guess, the strategic synergies between IP and Academia & Government, I guess, could you just elaborate on what you said towards the end there? Like how do those two segments potentially work with each other? Matti Shem Tov: I think it makes sense to keep IP and A&G together because we benefit from shared content. We are some -- there is some content flowing between the two different segments. We're using technology platform. We see -- I mentioned already on the call that IPMS is software. Alma is software. We do have agentic capabilities that we are currently building in Alma. We're definitely going to take advantage of the advanced stage on the expertise around Alma and Polaris, and we are working together. We have a new -- I mentioned we have a new head of -- as new CTO and a new Head of Software in IPMS. So first a collaboration between the software expertise that lies within A&G and the IPMS software arm of IP, which running behind the scenes is a major, major part of the business. So far, we haven't seen much of a collaboration between the two, definitely an opportunity. There are commercial channels. We have some customers that buy both from IP and -- buy from both IP and from Academia. In last year, we've seen some major universities tech transfer accounts. I can't mention the names, but we're actually taking over the annuity business. So we expanded the market and sold the annuity service to some of the top universities in the U.S.A. definitely innovation. We see the academic AI capabilities of A&G definitely going to help accelerate AI innovation even further. There are some common projects that we run on cost cut out that is in a collaboration with the three segments going through some further opportunities. So there's a lot of opportunities. And at the same time, we can run the companies as we can run the three segments independently. We are currently and we will continue to take the benefits of being together but we will maintain the strategic flexibility to operate separately in the future just to create more value for shareholders. Operator: Your next question is from Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: Can you talk a little bit about the IP segment and what it will take to really return that business from -- to organic revenue growth from the declines? And what's going on behind the scenes that's going to make that happen? And what's a realistic time frame for investors to expect that to happen? That's probably the biggest value driver from an operational standpoint for your company. Matti Shem Tov: Yes. So let me start and then Jonathan can join later. So first of all, let's just remind ourselves, we are the biggest player in IP. We have the greatest assets. We have -- we are in a unique position, and I mentioned this on the call, we have the largest annuity book. We have IPMS technology behind the scene, and we keep winning new more and more IPMS customer. We have the patent search and we have the trademark services. Yes, there are some -- in the recent years, we've noticed some weaknesses. I think we are -- but we are coming from this from a position -- from a very strong position. It's almost $800 million business. We have vast majority -- we have an amazing customer base, and we have some tremendous assets I think with Maroun joining with the new CTO, the new Head of Software, we're just going to need -- we need to be much more focused on innovation, execution, subscription, reoccurring. And I have -- very confident. I believe we can turn this company, this IP segment around. And we're starting to see the initiation of this turnaround. We've grown in 2025, 200 basis points year-over-year improvement in the annuity books. We've done different surveys about the annuity book, the worldwide annuity book, the overall pattern is growing. We will take -- we'll definitely take our share back. And we have outlook of IP is increasingly positive. The fundamentals are there. The team is very aligned. And I think I'm very optimistic about this IP turnaround. It will take time. It's not going to be done overnight. Anything, Jonathan? Jonathan Collins: Yes Shlomo, two things I'd emphasize that Matti touched on. The first is the commercialization and adoption of new product innovation is definitely going to be a driver for the intelligence offerings within IP. So we launched the new Derwent Patent search last year, went live early in the market. Derwent Patent monitor came to market using agentic AI capabilities to look for potential infringements and help companies in the process of protecting their IP. So the adoption of those tools and driving growth in the patent intelligence. We're really excited. Matti touched on it earlier in the script about the new RiskMark product on the trademark side, which leverages AI capabilities and native AI development to help companies protect their brands and their trademarks as well, too. So certainly, product innovation is a big piece, as he said. And I think the second piece is the continued market recovery. So as Matti touched on, this is a business -- the annuity business that 2024 declined by a few percent. It returned to about flat last year. And the leading indicators there, as we've said before, are growth in the overall patent in force around the world. And we've seen a couple of years in a row where that has returned to a more healthy growth level. There's usually a 2- to 3-year lag on that before it really starts to affect the annuity business, but we feel good about the market recovery in global IP. And we touched on last year that the AI boom, we think, is also going to continue to drive more new patent filings around the globe and be a healthy wind in our sales for that business. So it's definitely a combination of the things that we control and the market recovery. Operator: Your next question comes from Ashish Sabadra with RBC. Ashish Sabadra: Solid free cash flow generation in the quarter and the guidance also reflects on robust free cash flow generation. My question was more focused on capital allocation priorities. You talked about leaning more towards deleveraging, but at the same time, talked about stock trading at 30% free cash flow. So I just wanted to better understand the rationale for deleveraging over buyback this year. And just if you could provide us incremental color on when is the debt due? My understanding is it's not due till 2028. So any color on those capital allocation priorities? Jonathan Collins: You got it, Ashish. This is Jonathan. Yes, I'll just touch on that second point. You're right. We have a patient capital structure. We don't have any maturities for the next couple of years. But our current judgment is that just based on the overall market environment, we will best serve all of our investors by focusing on deleveraging this year. So we noted in the materials that we've done a balance over the course of the last 4 years. Most of it's been deleveraging, but we've also lowered the share count in the business by 13%. And we do think that the stock is yielding a very attractive free cash flow return. But on balance, we think leaning more towards repaying debt over the next 2026 time frame makes the most sense. So we'll continue to look at conditions in the market, but our judgment right now is leaning towards deleveraging is the best way to create value. Operator: Your final question comes from Andrew Nicholas with William Blair. Andrew Nicholas: I just wanted to ask about price realization. Can you speak a little bit to the composition of both ACV and recurring revenue growth in '25? How much of that came from price and what your expectation is in terms of price realization going forward? Jonathan Collins: Yes. Thank you for the question, Andrew. It's Jonathan. Just a couple of points here. The headline is our price realization has been pretty consistent over the last couple of years. Where we are seeing improvements in our ACV and in our recurring organic growth is really from volume. So we're seeing improvements in our renewal rate. We're seeing acceleration of new subscription sales. That's what's driving the improvement there. We continue to see opportunities to monetize investments that we make into the product through the price increases, but we do expect that it's that volume component of our subscription and reoccurring organic growth that's really going to help us to continue to accelerate through this year, monetizing the investments that we've made into the products with fewer cancellations and downgrade, more new subscription sales, and we think that's really what's going to help propel us to an improved outcome in 2026. Operator: There are no further questions at this time. I'll now turn the call back over for closing remarks. Jonathan Collins: Yes. Thank you, everyone, for listening in this morning. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect.
Operator: Greetings, and welcome to the Apple Hospitality REIT, Inc. Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Kelly Clarke. Thank you. You may begin. Kelly Clarke: Thank you, and good morning. Welcome to Apple Hospitality REIT, Inc.’s Fourth Quarter and Full Year 2025 Earnings Call. Today’s call will be based on the earnings release and Form 10-Ks, which we distributed and filed yesterday afternoon. Before we begin, please note that today’s call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions, and as a result, are subject to numerous risks, uncertainties, and the outcome of future events that could cause actual results, performance, or achievements to materially differ from those expressed, projected, or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including our 2025 Annual Report on Form 10-K, and speak only as of today. The Company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday’s earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the Company, please visit applehospitalityreit.com. This morning, Justin G. Knight, our Chief Executive Officer, and Elizabeth S. Perkins, our Chief Financial Officer, will provide an overview of our results for the fourth quarter and full year 2025 and an operational outlook for 2026. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to Justin. Justin G. Knight: Good morning, and thank you for joining us today for our fourth quarter and full year 2025 earnings call. Against the challenging backdrop in 2025, our corporate management and hotel teams skillfully executed against strategic initiatives to maximize operating performance, manage expenses, capitalize on dislocations in the stock market, optimize our existing portfolio, enhance our growth profile, and position the Company to maximize shareholder value through outperformance in the years ahead. Our portfolio of efficient, high quality hotels is broadly diversified across 84 markets, with exposure to a variety of demand generators. During the year, leisure travel remained strong across our hotel portfolio while policy uncertainty and a pullback in government travel impacted midweek demand, temporarily disrupting the steady improvement in midweek occupancy that characterized much of 2024. Our asset management and hotel teams adjusted strategy to optimize the mix of business at our hotels as demand trends shifted, in many cases layering on additional group business to bolster market share and strengthen overall performance. Portfolio performance. Through the successful navigation of changes in government dependent demand, combined with continued strength in leisure travel, we achieved comparable hotels RevPAR of $118 for the full year 2025, down 1.6% to the prior year. Based on preliminary results, comparable hotels RevPAR declined by approximately 1.5% in January 2026 as compared to January 2025, primarily as a result of challenging comps related to wildfire recovery related business, which benefited a number of our California hotels last year, and the presidential inauguration, which benefited our hotels in the Washington, D.C. area. Winter storms also weighed on January and early February results but occupancies have improved meaningfully with recent weeks showing significant year-over-year growth. Together with our management teams, we remain focused on ensuring that we are growing market share and prudently managing expenses to maximize the profitability of our hotels. Variable expense growth for our portfolio has moderated, with higher growth in fixed costs during 2025 largely coming as a result of challenging year-over-year comparisons. We achieved comparable hotels EBITDA of $99,000,000 for the quarter and $474,000,000 for the year, resulting in an industry leading comparable hotels EBITDA margin of 31.1% for the quarter and 34.3% for the year. In January, we successfully completed the transition of our 13 Marriott-managed hotels to franchise, consolidating management with third-party management companies, who were in most instances already operating hotels for us in market, in order to realize incremental operational synergies. We are confident these transitions, together with the select number of additional market level management consolidations, will further drive operating performance at our hotels. In the case of the Marriott-managed assets, the transition away from brand management will also provide us with additional flexibility and increase the marketability of the hotels in the future, as we consider select dispositions. The Marriott transitions aligned with Marriott’s publicly stated goal to drive incremental efficiencies in their own business and we appreciate their willingness to work with us in pursuit of a mutually beneficial outcome. Our disciplined approach to capital allocation has been a hallmark of our strategy throughout our history, balancing both near and long term allocation decisions to capitalize on existing opportunities while securing the long term relevance, stability, and performance of our portfolio and maximizing value for our shareholders. While our long-term goal is to grow our portfolio, our stock has traded at an implied discount to values we can achieve in private transactions for much of the past year. We prudently capitalized on the disconnect by selectively selling assets and redeploying proceeds into the purchase of our own stock, preserving our balance sheet to safeguard against potential macroeconomic volatility, and to protect our ability to act quickly on future accretive acquisitions opportunities. During the year, we sold seven hotels for a combined gross sales price of approximately $73,000,000 and repurchased 4,600,000 common shares for a total of approximately $58,000,000. Shares repurchased during 2025 were priced at around a 2.4 turn spread to dispositions completed during the year, and around a 6.5 turn EBITDA multiple spread after taking into consideration brand mandated capital investments. Our team has done a tremendous job pursuing opportunistic asset sales that further optimize our portfolio concentration, help to manage portfolio CapEx needs, and free capital for accretive redeployment at a meaningful spread. Pricing for the individual hotels varies. However, as a group, the seven hotels we sold in 2025 traded at a 6.5% blended cap rate, or a 12.4x EBITDA multiple before CapEx and a 4.9% cap rate, or 16.5x EBITDA multiple after taking into consideration the estimated $24,000,000 in anticipated capital improvements. We were able to use 1031 exchanges to reinvest gains on hotel sales, redeploying proceeds into the acquisition of the Homewood Suites Tampa Brandon, which sits adjacent to our Embassy Suites in market, and the Motto by Hilton Nashville Downtown, which we acquired in late December upon completion of construction. Recent acquisitions have performed well despite headwinds in several markets. The Embassy in Madison, Wisconsin saw meaningful year-over-year improvement as the hotel completed its first full year of operations. And the AC Hotel in Washington, D.C., which was also purchased in 2024, produced full year RevPAR of $205 and a 43% house profit margin despite the meaningful pullback in government travel and a weaker convention calendar. Four of the six hotels we purchased in 2023 achieved yields in excess of 10% last year, including our SpringHill Suites in Las Vegas, despite meaningful declines in the performance of that market due to lower inbound foreign travel and a weaker convention calendar. The Nashville Motto is ramping nicely, and we continue to have forward commitments for two future hotel development projects, which are currently in early stages, including a dual brand AC and Residence Inn located adjacent to our SpringHill Suites in Las Vegas and an AC in Anchorage, Alaska. The AC in Anchorage has broken ground and is expected to be delivered in late 2027. Construction has not yet begun on the two Vegas hotels, though current expectations are for the AC and Residence Inn to be completed sometime in 2028. We do not currently have any pending acquisitions slated for 2026. Through all phases of the economic cycle, we seek to create value for our shareholders by driving incremental earnings per share through accretive transactions that enhance the quality and competitiveness of our existing portfolio and ensure that we are well positioned for future outperformance. We will continue to adjust tactical capital allocation strategy to account for changing market conditions and to act on opportunities at optimal times in the cycle to maximize total returns for our shareholders. In the near term, we anticipate that we will continue to pursue select asset dispositions where we can redeploy proceeds at a multiple spread, while at the same time managing future CapEx needs, and fine tuning the distribution of our portfolio to increase exposure to potentially higher growth markets. Disciplined reinvestment in our portfolio is another key component of our strategy and ensures that our hotels maintain competitive positioning within their respective markets and present guests with a value proposition that enables our hotels to drive incremental rate. Our historical annual CapEx spend has been between 5–6% of total revenue, which is a significant differentiator for us relative to our full service peers. Combined with higher margin, the lower CapEx obligation enables us to produce meaningfully more free cash from operations which we then use to fund shareholder distributions and strategic investments. Our experienced capital investments team leverages our scale ownership to reduce costs, maximize the value of reinvested dollars, and minimize revenue displacement by optimally scheduling projects during periods of seasonally lower demand. For the year ended December 31, capital expenditures totaled approximately $88,000,000. For 2026, we expect to reinvest. Hotel will happen as it reaches the end of its current franchise term, with the determination to change brands informed by competitive supply dynamics within the market and brand incentives. The hotel will continue to operate as a Residence Inn through the renovation returns for our investors. During the fourth quarter, we paid distributions totaling approximately $57,000,000, or $0.24 per common share, and for the full year, we paid distributions totaling approximately $240,000,000, or $1.01 per share. Based on Friday’s closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 7.8%. Together with our Board of Directors, we will continue to monitor our distribution rates and timing relative to the performance of our hotels and other potential uses of capital. Historically, low supply growth continues to materially reduce the overall risk profile of our portfolio, limiting potential downside and enhancing potential upside as lodging demand strengthens. At year end, nearly 59% of our hotels did not have any new upper upscale, upscale, or upper midscale product under construction within a five mile radius. Throughout our 26-year history in the lodging industry, we have refined our strategy, intentionally choosing to invest in high quality hotels that appeal to a broad set of business and leisure customers, diversifying our portfolio across markets and demand generators, maintaining a strong and flexible balance sheet with low leverage, strategically reinvesting in our hotels, and closely aligning our efforts with the associates and management teams who operate our hotels. In 2025, we skillfully executed strategic initiatives to further maximize operating performance, capitalize on dislocations in the stock market, optimize our existing portfolio, enhance our growth profile, and position the Company for outperformance in the years ahead. Travel demand for our portfolio has remained resilient, further reinforcing the merits of our underlying strategy. Our guidance for 2026 calls for comparable hotels RevPAR to be flat at the midpoint, which generally aligns with STR forecast for our chain scales. We believe that this represents a measured base case scenario for our portfolio, with early summer potentially benefiting from incremental leisure travel related to the FIFA World Cup 2026, and easier comparisons to periods adversely impacted by cuts in government spending, tariff announcements, and the government shutdown in late 2025. We acknowledge that this guidance could ultimately prove conservative. With January and February being seasonally lower occupancy months, it is early in the year for us to identify with conviction trends for either business or leisure travel. And as we saw last year, the possibility of policy related demand disruption is real. We are, however, optimistic about the setup for the year and feel we are well positioned regardless of how things play out in the broader economy. We remain confident in the long-term outlook for the hospitality industry, the strength of our portfolio specifically, and our ability to drive profitability and maximize long-term value for our shareholders. It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter and outlook for the remainder of the year. Thank you, Justin, and good morning. Elizabeth S. Perkins: While the travel industry faced several macroeconomic headwinds in 2025, we are generally pleased with the performance and resilience of our portfolio. Comparable hotels total revenue was $319,000,000 for the quarter, and $1,400,000,000 for the full year 2025, down approximately 2.1% to the same periods of 2024. Comparable hotels adjusted hotel EBITDA was approximately $99,000,000 for the quarter, and $474,000,000 for the year, down approximately 8.6% as compared to the same periods of 2024. Fourth quarter comparable hotels’ RevPAR was $107, down 2.6%. ADR was $152, down 90 basis points, and occupancy was 70%, down 1.7% as compared to the fourth quarter 2024. For the year ended 12/31/2025, comparable hotels’ RevPAR was $118, down 1.6%. ADR was $159, down only 10 basis points, and occupancy was 74%, down 1.6% to 2024. Our portfolio continues to outperform the industry, where STR reports RevPAR of $100 and average occupancy of 62% for 2025, highlighting the relative strength of our portfolio demand despite year-over-year disruption. Our teams have done a tremendous job adjusting to reoptimize the mix of business at our hotels where there were meaningful shifts in government and other demand segments, as well as maximizing revenue around special events to strengthen market share and performance for our overall portfolio. Market performance varied significantly during the quarter, with a mix of strong RevPAR gains in several markets and ongoing headwinds impacting others due to demand shifts and challenging year-over-year comparisons. Our team remains focused on hotel and market specific strategies as well as operational execution to maximize performance. Top RevPAR performing hotels during the quarter as compared to the same period last year included our Embassy Suites in Anchorage, Alaska, which was up almost 42%, our Homewood Suites in Tukwila, Washington, which was up 33%, our Courtyard in Franklin, Tennessee, which was up almost 22%, and our Residence Inn in Renton, Washington, which was up over 21% as the hotel lapsed Boeing strikes in 2024. Other top performers included our Manassas Residence Inn, St. Louis Hampton Inn, and Nashville Airport TownePlace Suites. Hotels with significant year-over-year RevPAR declines for the quarter included our San Bernardino Residence Inn, our Arlington Hampton Inn & Suites, our Panama City TownePlace Suites, our Huntsville Hampton Inn & Suites, and our Orlando SpringHill and Fairfield Inn & Suites, which benefited from Hurricane Milton business during 2024. Based on preliminary results for the month of January 2026, comparable hotel RevPAR declined by approximately 1.5% as compared to January 2025. Impacted by travel disruption related to winter weather, challenging comps related to wildfire recovery related business, and the presidential inauguration last year, as well as ramp from our Nashville Motto, which opened at the December. Performance has improved in February, bringing comparable RevPAR growth slightly positive year to date. Turning back to the fourth quarter, weekday occupancy was down 140 basis points and weekend occupancy was down only 50 basis points as compared to the same period last year. Encouragingly, occupancy growth turned positive in December, with weekday occupancy up 10 basis points after being down around 2% in October and November, and weekend occupancy was up 90 after being down around 1% in October and November. ADR declines were more pronounced on weekdays, down 1% for the quarter while weekend ADR was essentially flat. As previously mentioned, following a pullback in October and November due to travel disruption related to the government shutdown, we began to see improvement in December. Highlighting same store room night channel mix for the quarter, brand.com bookings were flat year over year at 40%, OTA bookings were up 110 basis points to 14%, property direct was up 70 basis points at 25%, and GDS bookings were down 80 basis points to 16%. Looking at fourth quarter same store segmentation, BAR was around flat at 33% of our occupancy mix, other discounts grew 30 basis points to 31% of mix, corporate and local negotiated declined 150 basis points to 16% of our mix, and government declined 100 basis points to 4% of our mix. Group business mix improved 130 basis points to 15%. Our fourth quarter channel mix and segmentation trends highlight the relative strength of our leisure consumer, the pullback in government and other business transient as a result of the government shutdown, and our team’s ability to reoptimize and grow property direct and group business where available. We continued to see growth in other revenues, which were up 5% on a comparable basis during the quarter and up 6% year to date, driven primarily by parking revenue and cancellation fees. Turning to expenses. Comparable hotels total hotel expenses increased by only 1% in the fourth quarter and 1.9% for the year as compared to the same periods of last year, or 2.5% and 3.3% on a CPOR basis. On a same store basis, total hotel expenses increased by only 1% for both the fourth quarter and full year. Total payroll per occupied room for our same store hotels was $43 for the quarter, up 3.5% to the fourth quarter 2024, and $41 for the full year, up 3% versus full year 2024. Our managers continue to achieve reductions in contract labor, which decreased during the quarter to 7% of total same store wages, down 120 basis points or 14% versus the same period in 2024. Comparable hotels variable hotel expenses increased only 0.5% in the fourth quarter, or 1.9% on a per occupied room basis. Cost control efforts amid occupancy softness kept expense growth muted, with only 80 basis points of comparable operating expense growth, 30 basis points of hotel administrative expense, and flat sales and marketing expenses. Comparable utilities and repair and maintenance expense grew slightly higher at 2% and fixed expenses remained an expected headwind at 7% growth. Our comparable hotels adjusted hotel EBITDA margin was strong at 31.1% for the fourth quarter and 34.3% for the year, down 210 basis points and 190 basis points as compared to the same periods of 2024. Adjusted EBITDAre was approximately $93,000,000 for the quarter, and $444,000,000 for the full year, down approximately 3.6% and 5.1% as compared to the same periods of 2024. MFFO for the quarter was approximately $73,000,000 or $0.31 per share, down 3.1% on a per share basis as compared to the fourth quarter 2024. For the full year 2025, MFFO was approximately $361,000,000 or $1.52 per share, down 5.6% on a per share basis as compared to 2024. Looking at our balance sheet, as of 12/31/2025, we had approximately $1,500,000,000 of total outstanding debt, approximately 3.4 times our trailing twelve months EBITDA, with a weighted average interest rate of 4.7%. At quarter end, our weighted average debt maturities were approximately three years. We had cash on hand of approximately $9,000,000, availability under our revolving credit facility of $587,000,000, and approximately 64% of our total debt outstanding was fixed or hedged. The number of unencumbered hotels in our portfolio as of December 31 was 207. As previously disclosed, in July, we entered into a new $385,000,000 term loan with a maturity date of 07/31/2030, enabling us to stagger our maturities as we approach a recast of our main credit facility in the coming months. Turning to our outlook for 2026, provided in yesterday’s press release, for the full year, we expect net income to be between $133,000,000 and $160,000,000, comparable hotels RevPAR change to be between negative 1% and positive 1%, comparable hotels adjusted hotel EBITDA margin to be between 32.4–33.4%, and adjusted EBITDAre to be between $424,000,000 and $447,000,000. We have assumed, for purposes of guidance, that total hotel expenses will increase by approximately 3% at the midpoint, which is 2% on a CPOR basis. Effective 01/01/2026, the Company will begin excluding from the calculation of adjusted EBITDA and MFFO the expense recorded for share-based compensation, as it represents a noncash transaction, and the add back to net income is consistent with the calculation of adjusted EBITDA for the Company’s financial covenant ratios under its credit facilities and is consistent with the presentation of other public lodging REITs. As Justin mentioned earlier, this outlook aligns with STR forecast for our chain scales, and we believe represents a measured base case scenario for our portfolio, with early summer potentially benefiting from incremental leisure travel related to FIFA World Cup 2026 and easier comparisons to periods adversely by cuts in government spending, tariff announcements, and the government shutdown in late 2025, we acknowledge that this guidance could ultimately prove conservative. Our outlook is based on our current view, which is limited and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. Trends early in the year are always difficult to extrapolate, but we are encouraged by recent improvement in midweek occupancies and GDS bookings. While uncertainty remains elevated and the possibility of policy related demand disruption continues, including the ongoing partial government shutdown, we believe our experience, discipline, and agility will enable us to adapt dynamically to maximize profitability. We remain confident in our team’s ability to successfully navigate shifting market conditions. The strength of our differentiated portfolio has proven resilient across economic cycles, allowing us to preserve equity value in challenging environments and position ourselves to capitalize on emerging opportunities. While we have faced economic headwinds this year, favorable supply-demand dynamics persist. Our recent capital allocation decisions and portfolio adjustments have enhanced our portfolio positioning and performance, and our solid balance sheet continues to provide us with stability and meaningful flexibility to pursue accretive opportunities in the future. Importantly, we remain focused on the long term and committed to executing our strategy with discipline and patience, ensuring our portfolio is well positioned to deliver growth and value creation for shareholders over time. That concludes our prepared remarks, and we will now open the call for questions. Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. For participants using speaker equipment, it may be difficult to hear instructions; please ensure your handset is picked up. And again, that is star one if you would like to ask a question. Operator: And our first question will come from Jack Armstrong with Wells Fargo. Jack Armstrong: Hey, good morning. Thanks for taking the question. What would you say was the total drag on RevPAR in 2025 from Liberation Day and the government shutdown? And how much of that do you expect to come back as a benefit in 2026? Elizabeth S. Perkins: Good morning, Jack. It is a good question. I think, as we have progressed through the year, and reported on government being pulled back and related business, whether it be government adjacent that we can identify or general BT related to some uncertainty. You know, we have been clear it is hard to quantify completely. If you look at room nights for government on a same store basis, for the full year, they were down about 12%. And negotiated was down five to 6%. Which really that trend did not start until Doge and certainly ebbed and flowed throughout the year, ending the year down a little bit more with the government shutdown. So I would say, if you think about it from that perspective and you assume a good portion of that could come back, the total of those could be about a point in occupancy. But, you know, some of that from a 3% for the full year. Jack Armstrong: Yes. On a comparable basis at the midpoint, you are just under 3% for variable expenses, about 2.7%. And then fixed is just under 5%, so four and a half or so, for fixed expenses at the midpoint. Elizabeth S. Perkins: Okay. Great. Thank you. Operator: And our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Liz, just you discussed all the moving pieces related to the outlook this year from some of the policy related disruption that went on last year, as well as the event-driven demand coming this year. I am just wondering if the RevPAR growth guidance assumes any volatility. And if you could just kind of maybe provide some of the cadence of how you are thinking about the quarters or first half versus back half of this year? Thanks. Elizabeth S. Perkins: It is a good question. I think as we think about FIFA World Cup, to the extent we get benefit from that, that would occur probably mostly in late second quarter. You know, we provided in our prepared remarks as well as in the press release last night that, you know, not much of that, if any, is contemplated at the midpoint of our guidance range. You know, it is a little early to know how that might materialize, so we are optimistic about the potential. So if you think about cadence sort of outside of the guidance range, I would say the end of the second quarter is when we are anticipating for our hotels where we see the most benefit, way the matches are lining up. As we think about the midpoint of guidance, and what was assumed in guidance, you know, moving throughout the year, the cadence is fairly flat in the middle of the year, and then a slight decrease in the first quarter because of the California wildfire comp to last year where we experienced the most benefit. And certainly the weather that we have experienced so far year to date has had some impact too. And then the fourth quarter, certainly, we would have a little bit more of an increase due to the government shutdown last year. So highest growth in the fourth quarter, weakest quarter first quarter. Austin Wurschmidt: That is helpful. And then, you know, you did reference you were kind of forced to shift the business mix throughout the year given all the things we just discussed last year. How are you approaching this year with respect to business mix versus last year? And just the potential benefit that that could have on ADR from remixing that business you know, last year. Thank you. Elizabeth S. Perkins: We have actually been incredibly pleased with our team’s ability to bring group into the hotels at attractive rates. And I think as we move forward this year, we expect those efforts to continue. Direct sales to group within market. Ideally, we see improvement in government business, which helps to fill in the gaps, but certainly, benefiting from the efforts of our property level teams in going out and seeking business to replace that was no longer available during the government shutdown. So our expectation would be relative to years prior to last year, know, potentially slightly less government, slightly more group but we will see how the year plays out. I think what we have demonstrated is that we have a team at our hotels that has the ability to act on existing demand in market. And we have product that is versatile and appeals to a broad variety of potential customers. Thanks for the time. Austin Wurschmidt: Thanks, Austin. Operator: Moving on to Ari Klein with BMO Capital Markets. Ari Klein: Thanks, and good morning. Just going back to the RevPAR outlook, curious just at the high end of the range, that incorporating the fact that comps are getting easier and some of the event tailwinds that you talked about? And then 2025 was characterized more so by weaker occupancy than ADR growth. Is that your assumption for how 2026 will play out as well? Thanks. Elizabeth S. Perkins: It is a good question. Yes. I mean, I think at the midpoint of guidance, we assumed little impact or benefit from the special events that may happen this year or a return to some of the business we were missing. As you move higher up the range and hopefully beyond the range, it would anticipate some growth in occupancy as we lap those comps, more so than rate. Though, I think that some of the special events to the extent they materialize should provide some rate opportunity as well. Ari Klein: K. Thank you. And then, Justin, maybe talk a little bit about just what you are seeing as far as the transaction market is concerned? Are you more focused on dispositions at this juncture? Just any color there would be helpful. Thank you. Justin G. Knight: Yeah. Absolutely. Incredibly pleased with our team’s ability to execute last year, specifically on dispositions. I highlighted numbers during my prepared remarks, but their ability to execute at the multiples they were able to execute gave us a tremendous amount of flexibility to redeploy at spread multiples, which we think will meaningfully benefit us. I highlighted in my prepared remarks that at this point in time, we do not have any acquisitions under contract or currently contemplated for this year. A lot can change as we move through the year, and I think we have demonstrated an ability to be nimble and to adjust strategy based on existing opportunities. But today, the environment looks very similar to the environment that we experienced last year. And, I think in the near term, it is safe to assume that we will be focused on select dispositions where we have confidence we can redeploy proceeds into higher producing opportunities. And, I think, certainly, at current levels, we see our shares as being attractively priced. Ari Klein: Thank you. Operator: I am sorry. And moving on to Rich Hightower with Barclays. Rich Hightower: Hey. Good morning, guys. Thanks for taking the questions here. I think you mentioned in the prepared comments that occupancy for sort of midweek transient business got a little bit better in December. And maybe just if we could dig into your outlook specifically for that segment in 2026, better or worse? What trends are you seeing sort of within the core corporate transient group of customers. Elizabeth S. Perkins: Good morning, Rich. So I think we were encouraged, especially post government shutdown, that we saw a return to midweek occupancy in December with some slight growth midweek. I mean, it was a little better than flat. And I think as we crossed over into the New Year, we have had a noisy year-to-date run here with weather, especially. We have seen signs of, especially in February, signs of good midweek occupancy growth, so we are encouraged there. As we look at segmentation, we will have more data as we round out current months, and we will string together a trend. It is a little early because we have had some stops and starts with weather to get too excited about the clean week, thinking that there could be some pent-up demand. But what we are seeing is encouraging from a midweek occupancy perspective. We believe that that translates to business transient, or the cause of that is business transient, whether it comes through the negotiated segment or not. And one of the reasons that I highlighted in my prepared remarks, we are seeing an improvement in GDS bookings, which is business oriented. So some positive signs, but as we looked forward and as we contemplated guidance given the stops and starts and, I say every year, on this call at this time that it is just a really difficult time to extrapolate the full year and what we from a business transient standpoint. I think we are a little gun shy because we were seeing slow and steady business transient growth up until the announcement of Doge and those cuts, and that is really when that trend pulled back. Once we see that pick back up and continue, we will get optimistic. I think one of the things that is important is what Justin mentioned earlier, which is the broad diversification from a demand standpoint that our properties attract, and that the team has done a really good job finding additional business in market, and we will continue to do that whether it is midweek occupancy coming through transient and it is business oriented or whether it is group that we are able to put on the books at attractive rates and then drive incremental retail. So the team continues to be really focused. We do believe there is room to grow from a standpoint. It is the trend we are looking for. It is just a little too early to get excited about the recent things we have seen. But we are happy that, despite some of the weather, that people have gotten out, and we have seen some improvement here in February. Rich Hightower: Okay. That is helpful, Liz. And then, my second question, I guess, since we are putting a spotlight on it this quarter, we all noticed that share-based comp is gonna go up ‘26 versus ‘25. So maybe just help us understand the mechanical calculation of how that gets put together every year, if you do not mind. Elizabeth S. Perkins: Absolutely. So, the mechanics of how we are approaching our total G&A, which would be now corporate expense in the share-based compensation line items, combined is the same. We start the year at target compensation, and then we adjust throughout the year based on how we are performing in third-party estimates from a total return and relative return metric standpoint. And so we are recalibrating to target-based compensation at the beginning of the year like we do. Last year, we underperformed, and so G&A expense, including share-based compensation, was much lower than target. So that is the disconnect between last year and where we are guiding this year at the midpoint. Rich Hightower: I see. So that there is flexibility throughout the year depending on performance. Elizabeth S. Perkins: Yes. So that could change in other words? Okay. Got it. It will likely change. As we move through the year. Meaningfully. If you go back and look at the prior year, the delta is less significant. Rich Hightower: Got it. Thank you, guys. Operator: Michael Bellisario with Baird has our next question. Michael Bellisario: Thanks. Good morning, everyone. Elizabeth S. Perkins: Good morning, Mike. Michael Bellisario: I just wanna go back to guidance. Can you, just on the expense front here, can you help us bridge the changes in the same store comp pool? I think New York is having a big impact on the headline growth rate as I think that is a very low margin property. And then also, how was Nashville impacting growth rates and margins in ‘26? Any kind of clarification there as sort of, like, the true comp for comp number would be helpful. Elizabeth S. Perkins: Yes. Okay. So there is a lot of noise, especially since and thank you for highlighting. I did not include it in my prepared remarks, we are adding Hotel 57 back to the comparable set so that creates some noise. It is a lower margin asset, and so normalizing 2025 comparable for 57 would have a 40 basis point impact on 2025 margin. So that is one thing to note. When you look at same store total growth at the midpoint, that is actually 1.6%. The additional increase comes from adding Hotel 57 back in, and then, of course, we have Tampa that is off, not part of the same store set that we bought earlier last year. So that is impacting total growth rates, but same store is 1.6%, which is something we are proud of, especially given the top line at the midpoint. You know, we are getting some benefit from not having brand conferences in 2026, which we had in 2025. There also have been some fee reductions for the brands, and we will benefit from that. That is probably a net benefit of all three of those things combined $5,000,000. Michael Bellisario: Got it. That is helpful. And then similarly just on the manager changes, I know previously you sort of touched on qualitative expectations, but is there any lift explicitly included in your outlook now for 2026? Justin G. Knight: Not really at this point. And I think we continue to feel good about how the transitions will materialize, remembering that there are some incremental costs in the beginning of any manager transition. Our base case expectations are that we would be offsetting transition costs through more efficient operations as we move through the year, with the primary benefit of the transactions being realized in future years. I think that is, as is the remainder of our guidance, a reasonable base case or a measured base case. As we interact with management at those properties, their expectations for how they might perform are meaningfully higher. Michael Bellisario: Helpful. That is all for me. Thank you. Operator: And as a reminder, if you would like to ask a question, please press star one. And we will go next to Jay Kornreich with Cantor Fitzgerald. Jay Kornreich: Hi. Thanks. I just wanted to ask as we move closer to the World Cup, which is tough to pencil. How are you guys thinking about, I guess, just the potential upside to your portfolio either from people attending the games, maybe international travelers extending vacations between games? And what would you estimate as the booking window before the games actually begin? Justin G. Knight: A lot of good questions there. I want to clarify. We are incredibly excited about the potential for incremental business and incremental travel related to the World Cup. Our team, both at our corporate office and our management teams, are intently focused on working to ensure that we maximize the opportunity, which means layering the appropriate business into the hotels, taking group where appropriate and early bookings, and then blocking rooms to maximize rate as we get closer to the games. The booking window is still short, and so I think a significant part of the reason that, at the midpoint of guidance, we are not reflecting the optimism we have about the potential business is because from our perspective, it is too soon to tell. As we get closer and are in a better position with more business on the books, we will also be in a better position to quantify the actual impact. I think as we have had discussions with our property teams and as we have thought more broadly about how things might play out, we anticipate that this could be a meaningful driver of incremental business as we move through the year. We just are not yet, based on business that we have on the books, in a position to give you a really good estimate. Jay Kornreich: Okay. That is it for me. Thank you. Operator: Our next question comes from Kenneth G. Billingsley with Compass Point. Kenneth G. Billingsley: Good morning. Thanks for taking my questions here. Two of them here. Is that one on EBITDA growth? So you have expressed a lot of conservatism on the call with regard to growth expectations, revenue being below lower than expense growth guidance. How much is that conservatism impacting your EBITDA guidance, which is lower than last year? How much of it is your conservatism versus just the fewer hotels that are in the comps? Elizabeth S. Perkins: You know, a portion of it will be that we sold assets last year. Though, you know, we also were adding Zamato and Hotel 57 back into the pool of assets. So I think for the most part, it is revenue driven, and it is top line driven. But, certainly, there are some puts and takes with hotels sold and, again, the new property as well. Kenneth G. Billingsley: Okay. Thank you. And then on the Marriott franchise transition, I think it is 13 of them. You mentioned is how do you expect improved returns by doing that transition? Can you talk about where you see that opportunity? And then the other part is does it make them more marketable assets by having them under the franchise agreement? Justin G. Knight: So to answer the second part of your question first, it makes them infinitely more marketable. We have tremendous amount of flexibility to sell at this point those assets unencumbered by management, which meaningfully increases the potential buyer pool. And, even assuming operations remain constant in terms of net income produced by the assets, we see an ability to the extent we were to sell any of these assets to unlock significant value. Outside of that, I think there are two primary drivers of the that we anticipate for incremental profitability from these assets. The first is that we are, in most cases, consolidating management within markets with management companies that we already have operating in market, which we believe will drive cost savings both on the formerly Marriott-managed assets as well as our other assets in market as we share expenses and build presence with specific management companies in those markets. And then outside of that, Marriott from an efficiency standpoint, that has not been one of their strengths, especially as they work to deploy themselves against the types of assets that we own, and so we also anticipate meaningful reductions in overhead allocations to the properties, which will support a stronger bottom line. I think outside of that, we expect that our managers will bring increased focus and attention to the properties which has potential to drive incremental top line results, meaning stronger rate and occupancy of the hotels. But our primary underwriting was on the cost side and easily justified the transition just through anticipated cost savings. Kenneth G. Billingsley: K. Thank you. Operator: And moving on to Chris Darling with Green Street. Chris Darling: Thanks. Good morning. Justin, in the prepared remarks, I want to say you said that 59% of your hotels have no new construction within, I believe, five mile radius. I think back over the last couple of years, I think that number has sort of consistently gone higher, although sequentially it looks like it went lower this quarter. Wondering if you could dig in a little bit, anything idiosyncratic driving that change, and maybe just a broad overview of what you are seeing in the supply backdrop would be helpful. Justin G. Knight: Absolutely. So from a supply standpoint, we continue to feel incredibly good about the picture. And I have highlighted on past calls and continue to believe that it meaningfully changes the risk profile of our portfolio, reducing downside risk and improving upside potential as the demand picture improves. Some of the subtle adjustments are nuanced and driven by changes to our overall portfolio. So when you look at the assets that we have been selling and the types of markets that we have been selling out of, those are, in some instances, lower supply markets, and the net result has been shrinking the total number of assets, increasing our concentration in some individual markets. And so, on the margin, the difference that you are seeing between the number we reported last and the number now has as much to do with kind of subtle shifts in our portfolio as it does change in outlook or incremental supply. I think what we have historically been accustomed to in terms of supply growth in our markets is meaningfully greater exposure than we have now. And given the dynamics that continue to exist between construction costs and profitability, we see a meaningful impediment to increased supply growth for the foreseeable future. Chris Darling: Okay. That makes sense. Helpful to hear sort of the nuance there. As a follow-up, if we circle back to the capital allocation discussion, what is the level of appetite you are seeing among private buyers for portfolio deals these days? Or is it safe to say, you know, one-off deals still represent best execution? Justin G. Knight: You know, we, and I have commented in the past. Our team continues to probe the market with various size potential portfolio transactions. To date, we continue to see more attractive pricing for individual assets. I think that potentially shifts as we see industry numbers improve more universally. As investors in order for us to achieve portfolio premiums, generally speaking, investors need to see an industry level trend that would advantage them from buying in scale. And what we are finding more often is that we are able to maximize value by creating the story around an individual asset, for often, a local owner-operator that has ties to the individual market and ability to bring incremental efficiencies to the property. So I think based on our track record over a more extended period of time, I think we have demonstrated an ability to pivot as we see changes in the overall marketplace. For the near term, my expectations are that we will be likely transacting on individual assets, but we will continue to probe and look for other opportunities. Chris Darling: Alright. Understood. Appreciate the time. Operator: And this now concludes our question and answer session. I would like to turn the floor back over to Justin Knight for closing comments. Justin G. Knight: We appreciate you taking the time to join with us this morning and are excited about the year ahead of us. As always, I hope that as you are traveling, you will take the opportunity to stay with us at one of our hotels, and we look forward to providing you with updates as we continue through the year. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation Fourth Quarter and Full Year 2025 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, 02/24/2026. I would now like to turn the call over to today's host, Jeff Holy, Westlake's Vice President and Chief Accounting Officer. Sir, you may begin. Jeff Holy: Thank you, Amber. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our fourth quarter and full year results for 2025. I am joined today by Albert Chao, our Executive Chairman, Jean-Marc Gilson, our President and CEO, Mark Steven Bender, our Executive Vice President and Chief Financial Officer, and other members of our management team. During the call, we will refer to our two reporting segments: Housing and Infrastructure Products, which we refer to as HIP or Products, and Performance and Essential Materials, which we refer to as PEM, or Materials. Today's conference call will begin with Jean-Marc, who will open with a few comments regarding Westlake's performance. Mark Steven Bender will then discuss our financial and operating results, after which Jean-Marc will add a few concluding comments and we will open the call up to questions. During 2025, we wrote off inventory and accrued expenses totaling $495,000,000 related to the decision to shut one styrene and three core vinyl facilities in North America and our epoxy facility in Pernice, Netherlands in PEM. We also recognized $16,000,000 of accrued expenses within our HIP footprint optimization actions and the sale of a compounding business. We refer to these expense items, which in aggregate were $511,000,000, as the identified items in our earnings release and on this conference call. References to income from operations, EBITDA, net income, and earnings per share on this call exclude the financial impact of the identified items. As such, comments made on this call will be in regard to our underlying business results using non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to GAAP financial measures is provided in our earnings release, which is available in the Investor Relations section of our website. Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs, as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. These risks and uncertainties are discussed in Westlake's SEC filings. We encourage you to learn more about these factors by reviewing these SEC filings, which are also available on our Investor Relations website. This morning, Westlake issued a press release with details of our fourth quarter and full year results. This document is available in the press release section of our website at westlake.com. We have also included an earnings presentation, which can be found in the Investor Relations section on our website. A replay of today's call will be available beginning today, two hours following the conclusion of this call. This replay may be accessed via Westlake's website. Please note that information reported on this call speaks only as of today, 02/24/2026, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. Finally, I would advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our webpage at westlake.com. I will now turn the call over to Jean-Marc Gilson. Jean-Marc? Jean-Marc Gilson: Thank you, Jeff, and good morning, everyone. We appreciate you joining us to discuss our fourth quarter and full year 2025 results. Our fourth quarter EBITDA of $196,000,000 is net of $511,000,000 of identified items that reflect our announced plan to restructure the businesses and reset our cost position to address the persistent macroeconomic challenges and volatility in trade policies we are experiencing. Despite continued industry pressures, we have taken decisive action to strengthen our global manufacturing footprint and we will continue to deliver on our commercial commitments while executing our three pillar strategy which we expect to contribute $600,000,000 of growth earnings improvement in 2026 while maintaining a focus on our long-term strategy of value creation. Westlake's cost saving measures gained significant traction across every business in 2025, and we delivered over $170,000,000 of structural cost reductions. Looking at our fourth quarter results, HIP performed well while experiencing the typical seasonal decline in sales volume and earnings and the added impact of lower construction activity in the fourth quarter. The year-over-year decline in sales reflected lower new housing construction activity in North America, but that decline was partially offset by solid municipal pipe sales volumes as we benefit from the growth in infrastructure spending in cities across North America. Turning to PEM, the fourth quarter was a continuation of the trends that we witnessed throughout 2025, with results reflecting a decline in volume and price with margin compressions across our product portfolio as we serve the stable global industrial and manufacturing base. As we discussed in December, global overcapacity in certain products created downward pressure on the sales price for many of PEM's products, leading to a sharp decline in PEM's profitability compared to historical levels. These pricing pressures continued in the fourth quarter with a further 5% decline in PEM's average sales prices compared to the 2025. Our three pillar strategy, which I outlined in December, is expected to contribute a $600,000,000 improvement in earnings in 2026. Let me summarize each of these pillars as significant steps have already been taken to drive this earnings performance strategy forward. First, we have taken decisive actions to close higher cost PEM assets that largely sold products into low priced export markets. We closed an epoxy manufacturing site in Pernice, The Netherlands, a non-integrated PVC plant in China, three North American chlorovinyl assets, a styrene asset, and three HIP fabrication sites. These actions contributed to a 6% reduction in our headcount and an even more significant reduction in our contractor workforce in 2025. Having now shuttered all of these assets, we expect to see an improvement in earnings of $200,000,000 in 2026 from footprint optimization. Second, we have redoubled our efforts to address reliability in plant operation. Thus, we expect to deliver a $200,000,000 year-over-year EBITDA improvement from better plant reliability in 2026. Third, building on the successful structural cost reduction efforts achieved in 2025, we have implemented an additional structural company-wide cost reduction program that we expect will deliver $200,000,000 in 2026. These decisive steps and the commitment to deliver improved financial performance through these self-help actions will deliver better utilized assets and an improved cost structure to compete in a global marketplace. I would like now to turn our call over to Mark Steven Bender to provide more detail on our financial results for the fourth quarter and full year of 2025. But before I do that, I would like to make an additional comment. As you may have seen in the 8-K we issued yesterday, our colleague, and long serving Chief Financial Officer, Mark Steven Bender, has informed us that he plans to retire later this year once his replacement has been appointed and appropriate transition has occurred. We are tremendously grateful for the countless contribution that Steve has made to the company over the years. He joined Westlake in 2005, not long after the company's 2004 initial public offering, and he has been instrumental to the significant growth in the company that the company enjoyed since then. Steve will be with me on several more earnings calls in 2026 so this is not yet a goodbye. Nonetheless, we wanted to take this moment to express our gratitude to Steve. Now let's turn to the fourth quarter and full year 2025 financial results. Steve? Mark Steven Bender: Thank you, Jean-Marc, for those comments. Thank you very much, and good morning, everyone. As a reminder, my comments regarding income from operations, EBITDA, net income, and earnings per share all exclude the financial impact of the identified items. Westlake reported a net loss of $33,000,000 or a loss of $0.25 per share in the fourth quarter on sales of $2,500,000,000. The net loss in the fourth quarter of 2025 was $5,000,000 lower than the prior-year period, primarily due to lower average sales prices and lower sales volumes. For 2025, our utilization of the FIFO method of accounting resulted in an unfavorable pretax impact of $2,000,000 compared to what earnings would have been if we reported on the LIFO method. This is only an estimate and has not been audited. We delivered an additional $60,000,000 of cost reductions in the fourth quarter, thereby achieving the $170,000,000 of total cost reductions in 2025 and accomplishing our 2025 target of structural cost reductions. For the full year of 2025, we reported a net loss of $116,000,000 and EBITDA of $1,100,000,000. Compared to our 2024 results, 2025 sales of $11,200,000,000 declined 8%. The lower full year 2025 sales were the result of a 5% decline in sales volume, driven primarily by PVC resin and epoxy resin, and a 3% decline in average sales price driven primarily by pipe and fittings, and PVC resin. We are pleased with the stability and resiliency of the portfolio businesses that we've assembled. At the same time, as we discussed in December, our PEM segment was impacted by global overcapacity, particularly in polyethylene and the core vinyls chain, that drove lower average sales prices and margins. As Jean-Marc discussed, throughout 2025, we took the necessary actions to adjust to the changing global balance of supply and demand and to position our PEM segment for improved profitability in 2026 and beyond. Moving to the specifics of our segment performance, HIP sales in the fourth quarter declined 8% year over year driven by a decrease in sales volumes. The sales volume decline was mostly driven by PVC compounds and exterior building products, which were most exposed to lower residential construction activity and was only partially offset by the continued solid sales volume in pipe and fittings. HIP's EBITDA margin in the fourth quarter of 2025 was below the prior year period due to unfavorable changes in sales mix and some higher cost. Shifting focus to HIP's full year 2025 results, EBITDA of $839,000,000 and EBITDA margin of 20% were in line with our guidance and expectations. While HIP's 2025 sales and EBITDA were below the prior year, we are pleased with its ability to manage the slower new residential construction environment better than the overall industry due to its broad footprint and deep product offering that make it a supplier of choice for many large national homebuilders. HIP's resilient sales and EBITDA in 2025 were also supported by strong customer adoption of our innovative PVCO pipe as well as continued solid demand growth for municipal pipe in general. Moving to PEM segment, fourth quarter EBITDA of $45,000,000 decreased by $45,000,000 sequentially. The sequential decrease in EBITDA was the result of 5% lower average sales price driven primarily by polyethylene and PVC resin and a 2% lower sales volume due to seasonal customer inventory destocking, which was partially offset by a $27,000,000 benefit from annuitizing certain pension obligations among other small one-time items. PEM's fourth quarter EBITDA margin of 3% declined from 5% in the prior quarter, driven by lower average sales price and sequential lower planned utilization, which was partially offset by a $26,000,000 benefit from fewer turnarounds and unplanned outages. Shifting focus to PEM's full year 2025 results, EBITDA of $267,000,000 was lower than 2024 due to higher feedstock and energy cost, an elevated level of planned and unplanned outages, and lower global sales price. Weak global industrial manufacturing activity combined with overseas capacity additions created global overcapacity in certain materials in 2025. This global overcapacity drove lower average sales prices and margins in PEM, particularly for polyethylene and for alkali, and for vinyls. In response, we made the necessary decision in December to close three of our non-integrated and higher cost North American core vinyl assets that sold into low priced export markets. As we discussed in December, we expect these actions to provide an annual EBITDA benefit for PEM of approximately $100,000,000 starting in 2026 by reducing our exposure to the low priced export market. Turning to the balance sheet and cash flows, as of 12/31/2025, cash and securities were $2,900,000,000 and total debt was $5,600,000,000. Our balance sheet continues to be well positioned with a sixteen-year average debt maturity life. For 2025, net cash provided by operating activities was $225,000,000 while CapEx expenditures were $241,000,000. For the full year of 2025, we returned $335,000,000 to shareholders in the form of dividends and share repurchases. We continue to look for opportunities to strategically deploy our balance sheet in order to continue to create long-term value for our shareholders. Turning our attention to 2026, let me address some of your modeling questions and provide some guidance for the year ahead. Our three pillar strategy, which was outlined in December, is expected to contribute $600,000,000 of improvement in earnings in 2026. Through these self-help structural actions, we are better positioned to serve our valued customers and navigate the current macro environment. We have revamped our operating model and now have better utilized data and a lower cost structure to compete in the global marketplace with improved financial performance. Now turning to our guidance for HIP. Housing and industry consultants and a consensus of economists forecast housing starts to range between 1.3 and 1.4 million in 2026 and for home affordability based on lower interest rates to improve. Furthermore, we expect HIP to benefit in 2026 from the recent acquisition of ACI, with a now expanded compound product offering and strong customer relationships, the strong 2026 structural savings that we have initiated, and the benefits from plant optimization actions taken in 2025. Thus, based on our current view of demand and prices, we expect 2026 revenue in our HIP segment to be between $4,400,000,000 and $4,600,000,000 with an EBITDA margin of 19% to 21%. For 2026, we expect a $100,000,000 year-over-year reduction in our capital expenditures to approximately $900,000,000, similar to our depreciation run rate. For the full year of 2026, we expect our effective tax rate to be approximately 17%. We also expect cash interest expense to be approximately $215,000,000. Jean-Marc? Now I would like to turn the call over to Jean-Marc to provide the current outlook of our business. Jean-Marc Gilson: Thank you, Steve. 2026 represents an inflection point. Following the actions we have taken to optimize our manufacturing footprint, streamline our cost position, and operate our assets to serve our customers, we have positioned Westlake for a stronger, more resilient, and profitable future as we navigate the challenging macroenvironment with our three pillar action plan, together with our long-term strategy and our investment discipline. Turning to our outlook for demand, we expect a rebound from the seasonal lows of the fourth quarter. We are also seeing signs of improvement in global industrial and manufacturing activity to start the year. The January U.S. ISM reading of 53 was the first month in expansionary territory in a year, and the average thirty-year mortgage rate sits at 6.2% today, down from 7% a year ago, which improved the affordability of new houses. So overall, some signs of improvement in the market, which has us cautiously optimistic that we will see sales volume growth in each of our segments in 2026. Sustainability and environmental stewardship remain critical to our mission at Westlake. Having established a target to reduce our carbon emissions intensity by 20% by the year 2030, I am happy to report that in November, we released our 2024 sustainability report which showed that we achieved our emissions reduction goal six years early. Before I open the call to your questions, I want to close by highlighting Westlake's foundational strengths which continue to serve us well. These strengths include a diversified and complementary portfolio of businesses, our vertically integrated business model, our globally advantaged feedstock and energy position in the U.S., and our investment grade rated balance sheet with $2,900,000,000 of cash and securities. We have streamlined our operating model and have reset our cost structure. As we navigate the cycle in PEM, we have a more competitive business that is positioned to grow more efficiently with our customers. The expected steady improvement in housing construction will provide HIP the ability to continue to capitalize on its very broad and deep product offering to grow our business and to create value for our shareholders. We remain focused on execution, cost discipline, and value-driven growth. Thank you very much for listening to our earnings call. I will now turn the call over to Jeff. Operator: Thank you, Jean-Marc. Before we begin taking questions, I would like to remind listeners that our earnings presentation, which provides additional clarity into our results, is available on our website and a replay of this teleconference will be available two hours after the call has ended. We will provide that information again at the end of the call. Amber, we will now take questions. Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from David L. Begleiter of Deutsche Bank. Your line is open. David L. Begleiter: Thank you. Good morning. Jean-Marc and Steve, can you go back to the HIP business in Q4 and break down the beat versus what you announced back in mid-December of roughly $90,000,000? Thank you. Mark Steven Bender: Yes. So David, thank you very much for the question. And as you could see, when we compare the results in PEM quarter over quarter, we did identify specifically some annuitization of some pension benefits. You can see that we also shuttered some of these assets in the fourth quarter. And so the three core vinyl plants had actually been down during the entire fourth quarter. So the losses that we saw accruing during the period no longer were accruing. So when I think about this, we had a volume reduction of only about 2% and a price reduction really in PVC and in polyethylene. So the beat was really attributable to beginning to take the proactive steps in our three pillar initiative by removing the losses that we saw accruing from those sales in that low priced market and beginning to take some of those cost reduction initiatives at the tail end of 2025. David L. Begleiter: Very clear. And just on polyethylene February, what are your expectations around your announced price increases and potential realization? Thank you. Mark Steven Bender: Well, as we think about 2026, we have seen some improvement in demand and some improvement in price action. But remember, we had some adjustments at the end of the year of 2025. And so the announced increase in polyethylene price that we saw in January of about $0.05 really begins to offset some of the market adjustment at the end of last year. And we have made further announcements in price actions for February. We will see how February plays through, but we have another price announcement also on the table for February. David L. Begleiter: Thank you. Operator: Our next question comes from Patrick David Cunningham of Citi. Your line is open. Patrick David Cunningham: Hi. Good morning. I am curious on your outlook for chlorovinyls and PVC chain in 2026. It seems maybe cautiously optimistic with some demand pull through into the HIP business, but still dealing with some structural supply issues. So how would you frame the supply and demand outlook? And sort of direction for price and margin in 2026? Mark Steven Bender: Well, I think, Patrick, as you look at the price action that we have seen so far, it is indicative of some restocking that is going on. I would say that we remain cautiously optimistic. We have seen some price action. In PVC resin, we have seen some improvement in price. But we are still not fully recovered from the end of the year price adjustments that we saw in PVC. So we have seen announcements also in February, and we have also noticed that inventory is restocking by some of our customers. But I would say we are still very cautious in terms of how we look through the year because I do not have that longer-term availability of visibility. I can only see out several months. But I think the early signs that we see in pricing initiatives in PVC and in caustic signal that we see some improvement in restocking, but it is hard to know whether this will play through the entire quarter and for that matter the entire year. I would also note that with the actions that we have seen in terms of the export market, export market prices have started to trend higher. And I think that is attributable to some of the reduction of duty drawback that certain markets like China are providing. It is going into effect in April, but the actions taken already suggest that prices have moved up in export market pricing. Patrick David Cunningham: Understood. Very helpful. And then maybe just some clarification on the HIP guidance. I am assuming that includes three quarters of ACI with a slightly lower margin guide. Is the bulk of that coming from the dilutive margin impact there? Or are there any other mix impacts we should be monitoring? Mark Steven Bender: No. It is really not an impact of ACI, and we closed that in January. And so I do expect that it will be a contributor all year long. But I would say, Patrick, it is really looking at the numbers that we have guided to—1.3 to 1.4 million starts in 2026, similar to 2025—and just recognizing that as we work through the starts numbers this year that product mix can have an impact in the overall margin that we see in the HIP overall business, but we still remain cautiously optimistic about the contributions that HIP will make this year in 2026. Operator: Thank you. One moment for our next question. Our next question comes from Patrick Duffy Fischer of Goldman Sachs. Your line is open. Patrick Duffy Fischer: First question just on the $600,000,000 of cost help this year. How does that play through the year? If you could kind of walk quarter by quarter, how do we add up to that number for the year? Mark Steven Bender: Yeah. Good question, Duffy. And I would say that as we have taken the actions in 2025, some of these savings that we achieved in 2025 were attributable to the actions that we took in 2025 and those will continue to play through for the year through 2026. And so those actions that we have taken cover things such as logistics, procurement, a variety of other initiatives to really drive reductions in cost, which we think will be structural in nature. So we think that as we think about the ratable benefit that we expect to see, we do expect to see that ratable benefit of cost reductions to play through the year. Of course, we have shuttered those assets at the end of the year for that second pillar. And so certainly those operations are down, no longer exposing us as heavily to that low priced export market. So I do expect those also to be coming through the course of 2026. The third pillar is reliability. And, of course, we have to earn that each and every day. But we are very confident we have made significant investments in our plants, significant training of our people. 2024-2025 were years of very elevated levels of planned turnarounds. And therefore, associated with some of those planned turnarounds were the unplanned outages as we brought those plants up or attempted to. 2026 will be a year with far fewer planned turnarounds, so we do have a high expectation that we will be able to deliver on that third pillar of reliability. Patrick Duffy Fischer: Fair enough. And then at the midpoint of your HIP guidance, you are basically $60,000,000 better on EBITDA than you were last year. Again, does that portend for kind of each quarter? Are there still some quarters where you may be down year over year even if you hit the midpoint, or maybe first half, second half, just to kind of help us get the shape for the HIP earnings this year? Mark Steven Bender: Yes. And Duffy, good question. The fourth quarter and the first quarter of each year tend to be weaker quarters just seasonally. Those who are in the Midwest or Northeast have seen the heavy snowfall in the winter season play through. And so as we think about it, it slows down demand and the construction activities. The fourth quarter and the first quarter of each year tend to be a slower period of activity. But nevertheless, quarter two and quarter three tend to be much stronger. So that same cycle that we saw play through in 2025 should be similar in terms of the shape of the curve in 2026. So we do expect, again, a cautiously optimistic outlook for HIP and the guidance we have for starts is similar to those in 2025. Frank Joseph Mitsch: Perfect. Thank you, guys. Mark Steven Bender: You're welcome. Operator: Our next question comes from Joshua David Spector of UBS. Your line is open. Joshua David Spector: Yeah. Hi. Good morning. I wanted to just ask on HIP where you guys continue to talk about relatively strong growth in the infrastructure segment around pipe and fittings. But the infrastructure sub-segment sales are actually down more than the housing products segment, both year on year and sequentially. So does that mean that the composites business is down much more, or what am I missing between that more positive commentary and the segment results? Mark Steven Bender: Good question. And the answer is that a lot of that municipal pipe actually goes into neighborhoods and subdivisions, which actually are not in that subsegment. And so there are sales not only to cities and counties and states, but also into major developers who may be developing those neighborhoods and those subdivisions with infrastructure pipe and fittings. And so it is really a mix between those two subsegments within the HIP segment. We are seeing really continued strong growth in the volume in that side of the business. And so when I think of and speak to municipal pipe, it is not always necessarily in the infrastructure subsegment because some of that is in the housing subsegment related to nationwide builders who are building out infrastructure in their neighborhoods and subdivisions. Joshua David Spector: Okay. Thanks. That is helpful. And maybe actually a similar point to what Duffy was asking. If I look at the cost savings, is any of that being attributed to HIP? So if EBITDA is up $60,000,000 at the midpoint and you are doing an acquisition, is the organic up? Is there cost savings? Is there something else we are missing in the moving parts there? Mark Steven Bender: Yes. As we think about the pillar that we talked about of cost reduction, yes, the HIP side of the business does have a meaningful contribution in that cost savings initiative. And so as we look forward, they and all the other functions are also contributing. So there is a meaningful contribution in that pillar that HIP is making. So I do expect them to continue to make those contributions in 2026. Joshua David Spector: Okay. Thank you. Operator: Thank you. Our next question comes from Frank Joseph Mitsch of Fermium Research LLC. Your line is open. Frank Joseph Mitsch: Thank you, and let me echo Jean-Marc's appreciation for your job, Steve. It has been a pleasure working with you. Of course, we will work with you, I guess, on another one or two calls. Steve, in 2025, Westlake registered negative free cash flow. I was wondering what your expectations are in terms of free cash flow for 2026. Mark Steven Bender: Good question, Frank. And our objective really is to generate strong results to drive strong cash flows. But as you can see, a lot of the self-help that we have with these three pillars is really focused and the predominance really is on the PEM side of the business. And you can see that our capital expenditure plan for 2026 is also $100,000,000 lower than we had in 2025. So our real focus is to drive free cash flow for the entire business as we go forward. And so while we have no real visibility beyond the next several months, from our order book, I would say our real objective really is to drive real cost savings, improvement in reliability, and really make this business a cash flow positive generating business. But as you know, we do not give direct guidance on a lot of those metrics. But that is clearly our objective. Frank Joseph Mitsch: Okay. Terrific. And I was wondering if you guys could opine on the news the other day, you know, following the Supreme Court decision on tariffs, the administration on several items came out and said it was looking at putting emergency tariffs including plastic pipes. So I am curious if you could offer some comments there as to the necessity and what expectations you might have in terms of tariff benefits, etcetera? Mark Steven Bender: Yeah. Frank, good question again. And I would say that our materials are all subject to the USMCA rule guidelines. And so therefore the impact to tariffs has really been de minimis, really immaterial. Frank Joseph Mitsch: Okay. Great. But the fact that they called out plastic pipes among, I think, six or seven items, is there something going on there where the domestic plastic pipe industry needs tariff protection? Mark Steven Bender: Frank, I would say that what we have seen all throughout the course of 2025 and, frankly, in the previous administration is that the current administration has really used the USMCA treaty as a way to make sure that those items that were embodied in that treaty are not hit with additional tariffs. So that is our expectation. Frank Joseph Mitsch: Okay. Alright. Thank you so much. Mark Steven Bender: Thank you. Operator: Our next question is from John Roberts of Mizuho. Your line is open. John Roberts: Thanks, and thanks as well, Steve, and welcome Bob Patel to the board. OxyChem is a large competitor. Do you see any changes in how they compete after the change in ownership a couple months ago? Mark Steven Bender: We have not at this stage. John Roberts: Okay. And then your competitor cited weakness in domestic merchant chlorine. Did you see that weakness as well? And what is the near-term outlook for domestic merchant chlorine? Mark Steven Bender: Yeah. As you know, we are a much smaller producer of domestic chlorine now with some of the actions that we have taken in December. But as we think about it, our view is that the weakness in chlorine is really attributable to some of the weakness that we have seen in the vinyl side of the business. And, of course, in the first quarter and the fourth quarter of the year, we also have a reduction in demand for water treatment and some of the precursors going into refrigerants. And so all of those speak to kind of the lesser pull on chlorine, whether it is construction materials, water treatment, or precursors to refrigerants. And so it does not surprise that there is a slowdown in demand in fourth quarter and first quarter for those kind of materials. Operator: Thank you. Our next question comes from Jeffrey Zekauskas of JPMorgan. Jeffrey Zekauskas: Thanks very much. You talked about $600,000,000 in benefits from plant reliability, cost reduction, footprint changes, but I was wondering, what is the EBITDA base that these benefits should come from? So last year, your EBITDA was $1.14 billion. Should a rational agent add $600,000,000 to the $1.14 billion and get, I do not know, $1.74 billion? Or because business deteriorated through the course of 2025, the EBITDA base is lower that the $600,000,000 in costs should be added to. Could you give us an idea of how to put the two numbers together? Mark Steven Bender: Yeah. And so, Jeff, as you think about it, the actions that we have taken in December impacted four of the North American plants. And frankly, the full shuttering of the Pernice facility was not completed until really the very tail end of 2025. And so when you think about the contributions of that first pillar of site optimization, we really get that full benefit starting in 2026. In terms of the cost initiatives, yes, we achieved $170,000,000 of cost reductions that were structural in nature, but the guidance we have continued to provide for 2026 is an additional $200,000,000 on top of those achieved in 2025. And of course, the reliability issues, as I mentioned earlier, again, 2025 was an incredibly busy year of planned outages, a number of unplanned outages around those outages as well. And given that our plan for 2026 is far fewer planned turnaround activity or maintenance activities, I do expect that we will see those benefits accrue in this year as well. So back to your question, I think that you could think of a starting point when we took those actions at the plants as a way to build that math. Jeffrey Zekauskas: Okay. And when you think about your opportunities in PVC volume in 2026, do you think you will grow more in the export market or more in the domestic market? Do you think the growth rates will be comparable? How do you assess volume opportunities in PVC for 2026? Mark Steven Bender: And so, Jeff, when you think about the vinyl demand, it is really going into largely building products of one sort or the other, whether it is in pipe and fitting, siding, trim, and other applications. That is closer to 65% of your overall vinyl resin demand. And so as you could see, our outlook for HIP is reflective really of a year of construction activities similar to 2025. We have seen a really thin level of inventories being carried by our customers all throughout 2025 because prices continued to trend lower. And the restocking that we have seen in the first part of this year is reflective of some of the demand pull that we have seen in a rebuilding of those inventories and being able to nominate prices in vinyl. So as we look forward, we are again cautiously optimistic as we see the demand pull on PVC resin going into the construction materials and some of the other compounded materials that we sell through our compounds businesses. Jeffrey Zekauskas: Okay. Can you comment on the opportunities in PEM and PVC? Mark Steven Bender: Yeah. In PEM, again, we are selling a significant portion of our resin into our own HIP segment. And certainly, given our lower cost structure that we have achieved through these rationalization actions that we have taken in the plants and through our cost reductions, we think we have a much better cost structure and will certainly be looking to initiate sales initiatives with many of those customers going forward domestically. Given the fact that we pulled back from exports through those actions that we took in December, I do expect our exposure to export volumes will be greatly diminished. Jeffrey Zekauskas: Thank you very much. Operator: Our next question comes from Hassan Ijaz Ahmed of Alembic Global Advisors. Hassan Ijaz Ahmed: Good morning, Steve and team. Steve, I know a bit premature, but great working with you over the years, and wishing you all the best for your retirement. Mark Steven Bender: Thank you very much. Hassan Ijaz Ahmed: Now a quick question around HIP segment's EBITDA guidance, but just wanted to switch over to the sales guidance. I know you are talking about a return to sort of more normalized longer term sales growth in 2026, so 5% to 7%, even though, if I heard you correctly, you are assuming similar housing starts in 2026 to 2025. But, flipping through the presentation, it seems a chunk of that growth you are expecting is coming from the ACI acquisition as well as product innovations. So I am just trying to understand the significance of both those innovations as well as the ACI contribution to that growth. Mark Steven Bender: Yeah. I do expect that ACI will be a very nice contributor. It brings a broader portfolio offering rather than just adding to our existing PVC portfolio that we had; it brings an expanded portfolio in silicone and cross-linked polyethylene to be a nice contributor. But I would also say the innovations that we have seen in products such as our PVCO plant, which will be starting up at the end of this year, such as other product innovations in our Westlake Royal exterior businesses, we think will continue to be a nice driver in not only the revenue growth, but also margin growth. So this product innovation is certainly a huge element within the HIP side of the business and continues to have us be selected as supplier of choice by many of the nationwide builders. So that long-term guidance that you highlighted is very much as we see it still on track. Hassan Ijaz Ahmed: Understood. Very helpful. And as a follow-up, I know you guys have been busy sort of optimizing the footprint and the like. And obviously, $200,000,000 of incremental EBITDA coming from that. But if we step back a second and you guys take a look at the broader portfolio, I mean, obviously, you are getting deeper and deeper into building products. And, as you take a look at the ethylene/polyethylene side, it seems fairly oversupplied. If rationalization does not happen, it will remain that way for a while. So I am just trying to understand, from a portfolio perspective, do you still see a role for that part of the portfolio? Or would you potentially consider divesting that at some stage? Mark Steven Bender: Well, again, our focus is to really be focused on value creation. And so as I think about opportunity sets in both the PEM side and the HIP side, the answer is we will deploy capital where we see the strongest value creation. The fact that we have continued to underbuild in North America means that the opportunities to deploy capital on the HIP side of the business probably have the nearest-term return potential. But that does not mean that we would not invest in a valued opportunity on the PEM side of the business. It really is just where is the best investment opportunity for that dollar, be it in HIP or in PEM. Our focus remains very much value oriented and driving long-term value creation. And if that takes us into PEM or into HIP, and we see that opportunity, that is where the funds will be deployed. But given where we are in the various business cycles, I would say the predominance of the opportunities near-term would probably be in HIP. That does not mean there could not be some opportunities on the PEM side. In other words, we continue to watch both. Hassan Ijaz Ahmed: Very helpful. Thank you so much. Operator: Our next question comes from Aleksey V. Yefremov of KeyBanc Capital Markets. Your line is now open. Aleksey V. Yefremov: Thanks. Good morning, guys. This is Ryan on for Alexi. I just wanted to ask the first question. In the deck, you mentioned competitive market pressures in pipe and fitting. So I was just curious if maybe you could provide some more color there. And how much was pricing down for pipe and fittings versus the broader HIP segment with flat pricing year on year? Mark Steven Bender: Yes. As we think about the pipes and fittings business, it remains a very good business. But certainly with some of the slowdown in construction activity, we have continued to make inroads from a volume perspective but naturally, with some of the pressures on affordability and the slowdown in construction activity, there is going to have to be some pressure on pricing. But we do believe that we are at a point where our product innovation, and I have mentioned PVCO earlier, allows us to really continue to penetrate that market with innovative products, which bring really solid margins to the business. While there is always the ebb and flow in each region across the country in terms of volume and pricing, so it is hard to give you a direct pricing number because it varies by region across the country, I would say that the innovative products that we are bringing forth specifically in our pipes and fittings business continue to drive long-term good value there. And I just want to remind you that we are really the only player in the U.S. markets that provides both the integrated solution of fittings and pipes and I would add engineering. So we are able to sit down with a customer and we can engineer the project for you. We can deliver the pipe and deliver the fitting. So there is an integrated value of providing the service as well as the products to provide an integrated solution to a customer. And I would say that we continue to see real good innovation in that business and I expect to see future PVC continuing to be built and grow that market space. Aleksey V. Yefremov: Okay. I appreciate the comprehensive answer there, Steve. And just the last one for me, maybe can you just give us your thoughts on caustic soda? How do you feel about market balance and pricing over the next couple months? Mark Steven Bender: You know, caustic is a market where we have begun to see some price traction. We announced pricing initiatives of $75 a ton back in December and have had a second price initiative of $65 a ton that was announced just last month. And so we are seeing some ability to get traction on those price announcements. And so when you think of our two announcements that total $140 a ton, we do expect that we will achieve some of that. And that is really coming from some of the industrial and manufacturing demand that we saw at the very tail end of the year and early this year so far. Operator: Thank you. Our next question comes from Matthew DeYoe of Bank of America. Your line is now open. Matthew DeYoe: Thanks. Steve, I guess just to follow-up on that. You mentioned earlier you were seeing some signs of an industrial recovery. Is Westlake seeing something specifically in its order books? Or is this just the read on PMIs? Mark Steven Bender: Well, it is both. When you think about the PMI, it certainly is a positive signal. We would like to see more of those positive signals play through, but I would also say the volumes that we are seeing in some of the infrastructure business that we mentioned earlier continue to be constructive as we go forward. It is still early in the first quarter. As I mentioned, the first quarter is typically a slower demand period. So we want to take a look and see how the rest of the year plays through. So as I say, we are cautiously optimistic, but there is a constructive view here as we look forward into 2026. Matthew DeYoe: Okay. And just to kind of follow-up on Dave's question a bit. Maybe it is blunt, but the street was walked down in the fourth quarter on account of the unabsorbed fixed costs from the assets that were eventually closed. Clearly, we saw a lot of those charges hit GAAP income. So is the outperformance on an adjusted basis just saving money faster once the assets were closed? Or is it just some creative adjusting on the unabsorbed fixed costs? Mark Steven Bender: I will answer the first part of your question, and I would say what you are really seeing is the impact of taking the actions that we announced in December and really taking the steps to reduce our cost and shutter assets that were not creating real value. So that is really what you begin to see play through in fourth quarter. And as we think about our three pillared strategy, this is why we have the confidence that we can deliver on that three pillared strategy. Matthew DeYoe: Is it fair to say then that if you are seeing this faster in Q4 that the tailwind for 2026 is less than $600,000,000 all else equal because now you are going to be comping some savings in Q4? Mark Steven Bender: No. I think the guidance that we provided was to achieve that $600,000,000 in those three pillars throughout 2026. And so as you see that we took actions in 2025 related to cost and optimizing our footprint, I think we are still very comfortable that that $600,000,000 is going to get fully contributed over the course of the year. Operator: Our next question comes from Arun Viswanathan of RBC Capital Markets. Your line is now open. Arun Viswanathan: Great. Thanks for taking my question, and I will echo all the other comments. Steve, great work with you over the last several years. Good luck in your retirement, and we will be speaking again soon, obviously. But just wanted to follow-up on that same line of questioning here. So if we take your HIP guidance, that implies around $900,000,000 of EBITDA at the midpoint if you say 20% margins on $4,500,000,000 of sales, and then your PEM guidance can be interpreted to be the $267,000,000 that you did in 2025 plus maybe $600,000,000 of increase. So that would be $1,750,000,000 maybe at the midpoint. What would you call out as decrements to that or maybe other positive drivers? Are we missing anything else, or are those the most important components? Thanks. Mark Steven Bender: As Jean-Marc noted, the $600,000,000 is a gross number. So there will be some cost to achieve some of those initiatives that we have outlined here. But again, setting the market conditions aside because none of this is factoring in the market conditions—this is just really focused on the self-help initiatives of these three pillars. As we look forward into 2026, we will take the market conditions as they come, but we will be very focused on delivering these actions that we have outlined here in this three pillared strategy. There will be some cost to achieve that $600,000,000 savings in each one of those three pillars, but we think that we have got a good effort underway. We recognize for reliability, we have to earn that each and every day. But the actions to rationalize the footprint we have already taken, and initiatives to negotiate reduced costs, will continue throughout the rest of the year. As you would imagine, we are not just going to rest on those actions that we have taken in 2025. We will continue to look for other opportunities to reduce our costs throughout the rest of this year above and beyond those we have outlined already. Arun Viswanathan: Okay. Thanks. And understanding you just completed an acquisition here, what else needs to be done from your portfolio standpoint? Would you be looking to integrate further downstream in building products, continue to grow out that business, or do you feel like your position now is quite set? What else are you looking at from an M&A standpoint? Thanks. Mark Steven Bender: Starting with the HIP side of the business, improving the portfolio depth and breadth is certainly a focus that we always have. ACI is a good example of adding both the geographical position as well as product breadth. We think about the other components of our HIP business—adding further depth and breadth is certainly something that we have talked about, and I mentioned innovation is a huge piece of our focus. That can come from both organic or inorganic growth opportunities. On the PEM side, we continue to look for ways where we can improve our positioning. There are still opportunities to further integrate the business and improve the logistics related to those businesses that improve the overall profitability by cost reductions. So there are efforts both on the HIP side as well as on the PEM side to improve the integrated model that we have, integrated not only from a product set, but also from a managing cost perspective. It is really focused on both sides of the business to be able to integrate and run the business smoothly, effectively, and cost effectively. Arun Viswanathan: Great. Thanks a lot. I will turn it over. Operator: Our next question comes from Peter Osterland of Truist Securities. Your line is open. Peter Osterland: Hey. Good morning. Thanks for taking the questions. I just wanted to start by following up on the profitability improvement plan. From the actions you have already announced and that are embedded in that $600,000,000 of improvement this year, is there some amount that you would expect to be realized on a year-over-year basis in 2027? And could you size that? Mark Steven Bender: Yes. As you think about the initiatives that we have taken in 2025—$170,000,000—those were structural in nature. The 2026 target is an additional $200,000,000. So we do expect, since these are structural benefits, to continue to have that carry through into 2027. As I mentioned earlier, we are continuing to look for areas where we can continue to find ways to reduce our cost. These can be in the manufacturing area, support area, logistics, and procurement. As we think about those, we will continue to then enunciate those as we go forward over the course of 2026. But those changes that we have already announced are structural in nature, and I expect them to carry forward into future years. Peter Osterland: Okay. Great. And then, on cash flow, do you expect free cash flow to be positive in 2026? And what are some of the major drivers aside from earnings growth to be aware of? Could you highlight your working capital expectations or any nonrecurring cash costs associated with asset closures this year? Mark Steven Bender: Yes. As we think about 2026, working capital is always an issue that we need to keep our eye on. Some price initiatives can certainly have an impact on working capital. So as we think about the overall cash generation of the business, our CapEx program guidance for 2026 is $900,000,000. We will keep a close eye on working capital and CapEx because we clearly recognize that generating free cash flow is critically important to our stakeholders. That is always a strong objective as we go through any year, including this year. That will be our objective and a big focus. Operator: Our next question comes from Matthew Blair of TPH. Your line is now open. Matthew Blair: Hey, Steve. Congrats on your retirement. It has been great working with you over the years here. I want to circle back to your comments on the removal of the VAT rebate in China, which I think is scheduled for April 1. I think China's PVC exports are nearly 10% of the global PVC market, and if you think that PVC is roughly breakeven in China, the rebate is 13%, it seems like this could be a pretty meaningful impact on the market, meaningfully reduce export volumes coming out of China. Does that make sense to you too? Do you agree with that? And is there anything else that you would add there? Mark Steven Bender: Yeah. It is a good question. And I was just looking at some statistics this morning. China represents about 15% or so of global PVC capacity and somewhere similar in caustic capacity, but they are not exporting that much—not the 15% that I just mentioned. They are exporting much less than that as a percentage of their total domestic production. But the focus that they have initiated on removing, effective April 1, that VAT drawback or that duty drawback is about a 13% impact in overall pricing. We have actually seen the benefits of that announcement play through in export pricing already. It is targeted in PVC. And so we have already seen export prices in PVC begin to rise because of the expectation that that duty drawback will not be available to them going forward. So I think it is an indication by the authorities in China that they really need to find actions to rationalize some of those exports that are being disruptive to the market, both internationally and domestically. Matthew Blair: Great. Thank you. And then the incremental $200,000,000 of cost reductions in 2026, I just want to clarify. Does that all stem from the asset closures that you already did in 2025? Or will there be incremental cost reduction efforts as you progress through 2026? Mark Steven Bender: Yeah. These are incremental above and beyond the actions taken in December or earlier in the year in 2025. These include initiatives in the manufacturing arena, initiatives in logistics, procurement—domestically as well as internationally—that add up to well over 50% of the $200,000,000 that we have talked about in cost reduction initiatives. So these are not solely tied to those footprint optimization initiatives. Operator: Our next question comes from Vincent Stephen Andrews of Morgan Stanley. Your line is now open. Turner Hinrichs: Hi. Congrats, Steve. This is Turner on for Vincent. Since last year, consultants have been calling for pretty significant chlorine price declines this year, which I understand is driven largely by vinyls weakness. Has the situation evolved this year, perhaps due to the VAT export rebate elimination or perhaps something else on demand or orders? And could you provide color on how you see chlor-alkali and vinyls earnings trending this year? Mark Steven Bender: It is a good question. And I would say that, as I mentioned earlier, given the demand pull that we are seeing in PVC going into construction activity, we see a similar year in 2026 to 2025. So the construction activity we see as being similar. So the demand pull is there. I would say though that given the indications we have seen in industrial and manufacturing demand for caustic, we have actually seen those numbers tick up. And that tick up in demand has driven re-inventorying, and that re-inventorying position has caused us to recognize that pricing has just gotten too low in caustic soda. So as you could see, we have initiated two price initiatives: $75 a ton that we initiated in late December and then another in January of $65 a ton, a total of $140 a ton. We do think we will get some traction on that. On the chlorine front, again, we will have to see how the year plays through for vinyl demand. As we sit through fourth quarter and first quarter, as I mentioned earlier, the fourth quarter and first quarter tend to be weaker demand periods for chlorine, simply because of the slower construction season pulling less on chlorine, lesser demand in the precursors for refrigerants, and water treatment. So no surprise that we would see some slowdown in pricing and demand in chlorine. But a lot is uncertain as we look forward into the year. I do not have the visibility I wish I had for the midyear or tail end of 2026. Our visibility is more limited than that. I would say that as we look forward, we see bright spots in pricing in caustic and bright spots in pricing in PVC. I do not want to extrapolate that until we see more of how 2026 will play through. Turner Hinrichs: Thank you. That makes a lot of sense. Skipping over to the HIP segment, can you talk about some of the swing factors that could take us to the low end versus the high end of the 19% to 21% EBITDA margin guide? And any color on related drivers such as price, mix, or synergies? Mark Steven Bender: I would say it is really going to be a function primarily of mix. We have seen a lot of discussion on affordability over the course of the last several years. To address affordability and be the producer of choice by many of the nationwide homebuilders, we have a good-better-best range of products, and each one of those ranges has a different margin associated with them. It is important that nevertheless we are picked because of the quality and the ability to deliver those products. Having that range of products matters. Being able to have that volume is very important. But a big swing could be simply product mix over the course of the year. Operator: Our next question comes from Abigail Eberts of Wells Fargo. Looking at PEM, I am curious about your expectations for the cost side. If you look at what the consultants have, obviously, polyethylene pricing is looking to be higher on a more or less apples-to-apples basis in 2026. But on the flip side, integrated margins are looking like they might be down up to double digits. Is that around in line with what you are looking for? And also, for your February price increase, are you around $0.05 in line with your peers? Mark Steven Bender: Certainly, as you know well, we are also a buyer of ethylene, and that ethylene goes into our production of PVC. We have seen elevated pricing in ethylene. Ethane has been pretty volatile over the last several months—run up in natural gas, and ethane has followed the run up—and also some pullback in pricing, but ethylene has remained pretty elevated. From a pricing perspective in polyethylene, we did see a recognition of $0.05 in January. But remember in December, we also saw some price adjustments in the December reset. We do have an announced increase in February of $0.05. We will see how the marketplace does over the course of February and into March, but we have announced an additional increase in February. Operator: Our last question comes from Kevin William McCarthy of Vertical Research Partners. Your line is now open. Kevin William McCarthy: Yes. Thank you, and good morning. Steve, it has been a real pleasure over the last twenty one years. Wish you all the best. Most of my questions have been asked and answered, but maybe a couple to probe here. First, I wanted to ask you about asset utilization. If I look at slide four, your $200,000,000 of savings from footprint optimization, I think, was crafted before we saw the PMI and the incremental goodness in your order book. So I guess my question would be if I look at it on an apples-to-apples basis, do you think what you are seeing now would support a contention that you would see an uplift in utilization, let us say, in chlorovinyls and polyolefins, irrespective of your rationalizations, that could help earnings more than the $200,000,000 would suggest? Jean-Marc Gilson: Yes. Asset utilization has been a little bit uneven across the business last year. After the big turnaround in the ethylene/polyethylene chain, we saw really good performance in the second half of the year. With no turnaround in 2026 and maybe one in 2027 for LCC, we are expecting that our olefin business will continue to run at very high utilization rate. Last year, most of the issues were on the chlorovinyl side. Now the combination of better operating performance and the shutdown of assets, I think, will lead to a significant improvement in operating rates—rates that we think will be conducive, together with all the cost savings, to much better results in 2026. Kevin William McCarthy: Thank you, Jean-Marc. And then, Steve, maybe a small question for you on the tax line. I think you guided to a 17% rate for 2026, which was a little bit lower than we might have guessed. Has your tax rate come down on a structural basis? And if so, what is driving that? Mark Steven Bender: Yeah. Kevin, good question. And the answer is because of our operating performance in 2025, I have some net operating losses that I am able to utilize in 2026. So what you see in my effective tax rate of 17% is really overseas taxes—overseas international tax rates—and I am actually trying to utilize those NOLs generated in 2025 in 2026. Kevin William McCarthy: I see. Okay. Thank you so much. Operator: Thank you. At this time, the Q&A session has ended. I would like to turn it over to Jeff Holy for closing remarks. Jeff Holy: Thanks, everyone, for participating in today's call. We hope you will join us again for our next conference call to discuss our first quarter 2026 results. Operator: Thank you for your participation in today's Westlake Corporation Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, this call will be available for replay beginning two hours after the call has ended. The replay can be accessed via Westlake's website. Goodbye.
Operator: Hello and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Residential Trust, Inc. Q4 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. If you would like to ask a question during that time, simply press star and the number one on your telephone keypad. I would now like to turn the call over to Kristen Griffith, Investor Relations. Kristen, please go ahead. Thank you. Good day, everyone, and welcome to NexPoint Residential Trust, Inc. conference call to review the company's results for the fourth quarter ended 12/31/2025. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer; Matthew Ryan McGraner, Executive Vice President and Chief Investment Officer; and Bonner McDermett, Vice President, Asset and Investment Management. As a reminder, this call is being webcast through the company's website at nxrt.nexpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on management's current expectations, assumptions, and beliefs. Listeners should not place undue reliance on any forward-looking statements and are urged to review the company's most recent Annual Report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward-looking statements. The statements made during this conference call speak only as of today's date and, except as required by law, NexPoint Residential Trust, Inc. does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes an analysis of non-GAAP financial measures. For a more complete discussion of these non-GAAP financial measures, see the company's earnings release that was filed earlier today. I will now turn the call over to Paul Richards. Please go ahead, Paul. Paul Richards: Thanks, Kristen, and welcome everyone joining us this morning. We appreciate your time. I will kick off the call and cover our Q4 and full year results and highlights, update our NAV calculation, and then provide initial 2026 guidance. I will then turn it over to Matt to discuss specifics on the leasing environment and metrics driving our performance and guidance and details on the portfolio. Results for Q4 are as follows. Net loss for the fourth quarter was a loss of $10,300,000 or $0.41 per diluted share on total revenue of $62,100,000, as compared to a net loss of $26,900,000 or $1.06 per diluted share in the same period in 2024 on total revenue of $63,800,000. For the fourth quarter, NOI was $37,100,000 on 35 properties compared to $38,900,000 on 35 properties for 2024, a 4.7% decrease in NOI. For the fourth quarter, same store rental income decreased 2.8% and same store occupancy closed at 92.7%. This, coupled with an increase in same store expenses of 1.1%, led to a decrease in same store NOI of 4.8% as compared to Q4 2024. We reported Q4 Core FFO of $16,500,000 or $0.65 per diluted share compared to $0.68 per diluted share in Q4 2024. During 2025, NexPoint Residential Trust, Inc. repurchased 223,109 shares for a weighted average price of $34.29 per share, which is approximately a 29% discount to the midpoint of our Q4 2025 NAV, to be discussed here shortly. We continue to execute our value-add business plan by completing 380 full and partial renovations during the quarter and leased 275 renovated units, achieving an average monthly rent premium of $74 and a 22.2% ROI. Since inception, NexPoint Residential Trust, Inc. has completed the installation of 9,866 full and partial upgrades, 4,979 kitchen and laundry appliances, and 11,199 tech packages, resulting in $158, $50, and $43 average monthly rental increases per unit and 20.86%, 37.2%, and ROI, respectively. Results for the full year 2025 are as follows. Net loss for the year ended December 31 was $32,000,000 or a loss of $1.26 per diluted share, which included $95,800,000 of depreciation and amortization expense. This compared to net income of $1,100,000 or income of $0.04 per diluted share for full year 2024, which included a gain on sale of real estate of $54,200,000 and $97,800,000 of depreciation and amortization expense. As a quick reminder, the company sold our two remaining Houston assets as well as Radbourne Lake in Charlotte in 2024. For the year, NOI was $151,700,000 on 35 properties as compared to $157,000,000 on 35 properties for the same period in 2024, or a decrease of 3.4%. For the year, same store rental income decreased 1.3% and same store occupancy closed at 92.7%. This, coupled with a slight increase in same store expenses of 0.1%, led to a decrease in same store NOI of 1.6% as compared to the full year in 2024. We reported Core FFO in 2025 of $71,300,000 or $2.79 per diluted share compared to $2.79 per diluted share for 2024. Since inception of the business in 2015, NexPoint Residential Trust, Inc. has generated an 8.54% compounded annual growth rate in our Core FFO. Moving to the NAV per share. Based on our current estimate of cap rates in our markets, unchanged at 5.25% to 5.75%, and our 2026 NOI guidance, we are recording a NAV per share range as follows: $41.43 on the low end, $55.72 on the high end, with $48.57 at the midpoint. Next, our dividend update. For the fourth quarter, we paid a dividend of $0.53 per share on December 31. Since inception, we have increased our dividend 157.3%. For 2025, our dividend was 1.35 times covered by Core FFO with a payout ratio of 73.8% of Core FFO. Now our capital markets balance sheet leverage, and liquidity. On 07/11/2025, the company entered into a $200,000,000 revolving credit facility with JPMorgan Chase Bank and the lenders party thereto from time to time. The credit facility may be increased by up to an additional $200,000,000 if the lenders agree to increase their commitments. The new facility improves pricing by 15 basis points across all leverage tiers, to Term SOFR plus 150 to 225 basis points. The credit facility will mature on 07/30/2030 unless the company exercises its option to extend for a one-year term. NexPoint Residential Trust, Inc. has $13,700,000 of unrestricted cash and $108,000,000 of available undrawn capacity on our unsecured corporate credit facility, giving the company $121,700,000 of available liquidity as we head into 2026. We have no scheduled debt maturities until 2028. Over time, we will look to reduce leverage, credit facility leverage in particular, through a disposition and recycling of long-held, lower-growth assets where we have the ability to harvest gain and put capital back to work into more productive strategies and investments. As of 12/31/2025, we had total indebtedness of $1,600,000,000 at an adjusted weighted average interest rate of 3.28%. Interest rate swap agreements effectively fixed the interest rate on $900,000,000, or 62% of our $1,500,000,000 of floating rate mortgage debt outstanding. As we have done historically, we will continue to evaluate the credit markets for opportunities to hedge or restructure our debt to best position our assets and the portfolio for future growth while maintaining a highly liquid, low friction optionality afforded to us through the use of floating rate agency mortgage financing arrangements. Full year 2026 guidance. For 2026, we are issuing the guidance as follows. Rental income, on the low end, 0%, with a midpoint of 0.9%, and the high end of 1.9%. Total revenue, low end of 0.1%, with a midpoint of 1.1% and a high end of 2%. Total expenses, low end of 4.2%, midpoint 3.5%, high end 2.8%. Same store NOI, low end negative 2.5%, midpoint negative 0.5%, and the high end of 1.5%. Earnings per diluted share, low end, negative $1.54, midpoint, negative $1.40, and the high end negative $1.26. And lastly, Core FFO per diluted share: low end, $2.42; midpoint, $2.57; and at the high end, $2.71. Matt will go into detail on our same store operating assumptions with his prepared remarks, and the largest driver from our 2025 actuals to 2026 midpoint guidance is interest expense. And, again, Matt will provide details on our thoughts regarding upside on the operational front and our same store operating assumptions. And with that, I will turn it over to Matt for commentary on the portfolio. Thank you, Paul. Let me start by diving a bit deeper into our fourth quarter same store operational results. Same store average effective rents closed the year at $1,489 per unit per month, down 10 basis points year over year. Matthew Ryan McGraner: Six of our 10 same store markets generated positive year-over-year growth in effective rents with Tampa leading the way at 3.1%, followed by Las Vegas, South Florida, and Charlotte at 2.1%, 1.6%, and 1.3%, respectively. On the occupancy front, the same store portfolio closed the year at 92.7%, down 195 basis points year over year. South Florida took the pole position at 94.5% with Phoenix, Charlotte, then Raleigh rounding out the top four markets with at least 93% occupancy as of the year end. We saw noteworthy occupancy improvement in Phoenix in particular, building to 94.5% as the team maintained heavy focus on defense to combat the heavy delivery of new units over the past several quarters. Renewal conversions were 57.4% for the quarter and 54.25% for the full year, with 2026 retention starting off strong with January over 50% and February month-to-date at 51.6%. March is projected to finish around 56%. Revenue for the year in five of our 10 same store markets delivered positive revenue growth with South Florida, Atlanta, and Raleigh each growing at least 1%. Tampa and Charlotte rounded out the growth markets. Bad debt continued to trend down, finishing the year at 80 basis points of GPR, a 42% improvement year over year, demonstrating both the health of our tenant demographic as well as the efficacy of the centralized screening techniques we have employed to strengthen our portfolio post-COVID. Tampa, Raleigh, and Atlanta saw particular improvements to bad debt, with each reducing losses by more than half the prior year total. Concession utilization has increased from 38 basis points as a percentage of gross potential rent in 2024. Phoenix, Orlando, South Florida, and Atlanta each saw a need for increased concessions with 1.1%, 4.4%, 0.4%, and 0.36% increase in utilization, respectively. Overall, same store revenues were down 1% year over year, and turning to the expense side, with limited catalysts for revenue growth in 2025, the team paid particular attention to expense management and we are pleased to report a full year decline of 10 basis points to same store operating expenses. Advances in AI and our strategic focus on its development to streamline workflows across both our resident and property staff experience enabled us to achieve a 3.7% year-over-year decrease in total payroll costs and an 80 basis point decline in office operations expense. We see this trend continuing, and I will have more detail later on this in my prepared remarks. Thoughtful asset management, zero-based budgeting, and our sharp focus on turn cost management and material contract negotiation kept the lid on repair and maintenance expense inflation, growing by just 2.5% for the year. Other favorable results were realized through our real estate tax and insurance strategies, up 1.8% and down 12% for the year, respectively. Our full year same store NOI margin was a stable 60.8% while our year-over-year same store portfolio finished down 1.6%, as Paul mentioned. Notable same store NOI growth markets for the year were South Florida, Charlotte, and Nashville, at 1.4%, 1%, and 90 basis points, respectively. On 12/11/2025, NexPoint Residential Trust, Inc. purchased Sedona at Lone Mountain in Las Vegas, Nevada for $73,250,000. Management identified an opportunistic high-growth acquisition in a long-term market. The strategy involves deploying accretive value-add capital to normalize economic occupancy and expand operating margins through targeted demand generation, interior and amenity enhancements, lifestyle upgrades, and disciplined execution, ultimately driving asset appreciation and outsized returns. Recent large-scale developments have driven significant expansion, job growth, and residential revitalization in North Las Vegas, which is now the Las Vegas Valley's most prominent industrial market. Over 15,000,000 square feet of industrial space is currently under construction or planned, supporting the creation of 8,000 new jobs in the market. As a reminder, we intend to improve economic occupancy by approximately 900 basis points over four years while upgrading 182 units and installing smart home technology throughout the community, driving a 7.2% NOI CAGR through 2029. Now turning to 2026 guidance. As Paul said, we are guiding between a 2.5% decline and a 1.5% increase in same store NOI growth for 2026, with the midpoint projecting a 50 basis points reduction year over year. Our 2026 guidance includes the following assumptions. A 90 basis point rental income growth at the midpoint, forecasting 93.4% to 94.1% financial occupancy with peak occupancy modeled for Q3 with a more normal seasonal demand and performance expectation for the year. A negative 30 basis point earn-out from lease trade-outs and a gain-to-lease inversion in 2025. A positive 1.2% market rent growth in 2025 with roughly 40% realized this year predominantly in the second half of the year. A positive 40 basis point top line growth attributable to ROI CapEx spending, as detailed further hereafter. Economic occupancy at 91.8% at the midpoint, 30 basis points lower vacancy costs at the midpoint, 93.7% versus 93.4% for the prior year. We are stabilizing bad debt at approximately 80 basis points with a range of 70 basis points to 90 basis points, down more than 75% from peak pandemic era payment behavior. And then flattish concession utilization at 71 basis points to GPR, heavily weighted in the first half of the year. We are assuming 1.1% total revenue growth at the midpoint, driven by modest rental income growth expectations I just went over and mid-single-digit other income growth. Turning to expense guidance. We are assuming 6.4% controllable expense growth at the midpoint. 80% of this growth is attributable to bulk increase Wi-Fi contract costs that have a direct revenue offset. We are assuming down 1% R&M and turn cost growth, but turnover in interior R&M is expected to decrease $375,000 or 8.4% due to effective cost management and an increased volume of renovations in 2026. We are assuming 2% labor growth; the continuation of our rollout of AI technology and centralization of operations contribute to modest labor growth. We see optimism in outperforming our midpoint as we further implement agentic AI strategies and maintenance podding across our markets. We are assuming a 7.4% growth in advertising and marketing expense and just a 10 basis point growth in G&A expense. We are assuming total expense growth of 3.5% at the midpoint, a 4.5% increase in the utility expense line item, and a 2.1% insurance premium reduction, assuming a 0% to 10% renewal on April 1. For that, our team, including Paul here, were recently meeting with the markets in both London and New York and we are optimistic we will achieve another favorable outcome for the program with this 2026 renewal. On the real estate tax expense growth side, we are assuming a positive 4.4% growth. Real estate taxes make up 31% of the 3.5% total expense increase at the midpoint, and we are expecting the band of real estate taxes to increase from 2% to 8% across the portfolio. And, of course, we will protest and litigate outsized value assessments vigorously throughout the year. On the value-add side, we continue to be an internal growth business at our core. And to that end, our guidance includes the following assumptions regarding our value-add programs, which remain aligned with our historical 15% to 20% ROI targets. We expect to accelerate value-add CapEx deployment toward the back half of 2026 and into 2027 as our submarkets see net demand and occupancy pricing power improve for landlords. We are assuming approximately 300 full interior upgrades at an average cost of $16,500 per unit generating a $240 average monthly premium. We are assuming approximately 400 partial interior upgrades at an average cost of $3,500 per unit generating a $70 average monthly premium. These partial upgrades include varying bespoke additions such as new stainless steel appliances, hard surface countertops, updated tub enclosures, and private yards among other aspects. These partial bespoke rehab initiatives are strategically tailored by 1,500 bespoke upgrades across the portfolio with double-digit ROIs. Finally, we also plan to install 680 washer/dryer installs at an average cost of $1,200 per unit generating a $54 monthly average premium or 54% return on investment. Now turning to summarize our outlook for the 2026 year. Basically, we like what we own. We believe affordable residential assets in well-located suburbs in the top job growth and net migration markets in the country will outpace demand over the near term. Our markets are business friendly with the continued persistent tailwind of factors pointing towards Sun Belt growth. You name it, we have it: taxes, weather, business climate, jobs, investment in physical and digital infrastructure. Indeed, many signs for growth were already pointing to the Sun Belt, and we believe still are. And underpinning our guidance for the year is cautious optimism. We think the Sun Belt multifamily market is approaching its long-awaited inflection point. After absorbing the largest supply wave since the 1980s, with completions peaking at almost 700,000 units in 2024, a 54% increase from 2021 baseline completions, we are optimistic that new lease growth is set to turn positive across most Sun Belt markets by 2027. Reasons for our belief include persistent structural demand. The cost to own a home is three times more than to rent an apartment in our markets. A 60% decline in new market rate deliveries from the peak and construction starts running approximately 70% below their 2022 peak, locking in a multiyear supply trough. Weighing each NexPoint Residential Trust, Inc. market by unit exposure, the portfolio level jobs/new construction unit ratio bottomed at approximately 1.5 jobs to 1 unit of new delivery in mid-2025, and our entire portfolio is projected to cross back above the historically significant ratio of 4 jobs to 1 unit by 2027. However, the recovery is highly asymmetric. Roughly 35% of our portfolio—South Florida, Las Vegas, and Atlanta—is already at or approaching equilibrium, while 44%, including Phoenix and DFW, will not reach that threshold until 2026. But, for example, South Florida, or 21% of our NOI, has an adjusted BLS nonfarm payroll divided by the CoStar and Yardi delivery ratio of 7.5 jobs to 1 unit, well above the equilibrium. Atlanta, or 12.5% of NOI, just crossed back over 5 to 1. And given that supply is now relatively muted over the near term, the key variable is whether Sun Belt job growth and net migration can maintain its recent pace. If it can, the supply cliff now baked into every NexPoint Residential Trust, Inc. market's pipeline creates the conditions for sharp and synchronized recovery in 2026. Another reason for optimism is the demographic profile of our renter population. We do believe in AI, and it will have a near term chilling effect over entry-level white collar jobs. But today, the NexPoint Residential Trust, Inc. average renter is largely blue collar, 38 years old, with a household income of $90,000 per year. Not really the AI bull’s-eye. Furthermore, advances in health and wellness are adding longevity to the population, creating somewhat of a demographic backstop to demand. The 65+ population is 5% across NexPoint Residential Trust, Inc. markets, and Harvard JCHS projects the senior renter population to double from 5,800,000 households to 12,200,000 households by 2030. While obviously a senior housing tailwind, we are starting to see sizable signs of this trend in our own remotes. So in closing, even though the last few years have indeed been difficult, we are optimistic that new lease inflection will happen in the Sun Belt this year for the vast majority of our portfolio. In the meantime, we will continue to do all that we can to utilize technology, become more efficient, drive value-add programs, and ultimately drive value for our tenants and our shareholders. That is all I have for prepared remarks. Thanks to our teams here at NexPoint Residential Trust, Inc. and BH for continuing to execute. And with that, we will turn the call over to the operator for questions. Operator: At this time, if you would like to ask a question, press 1 on your telephone keypad. To withdraw your question, simply press 1 again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Omotayo Okusanya with Deutsche Bank. Please go ahead. Omotayo Okusanya: Yes. Good morning, everyone. First question around the refurbishment and remodeling. I think you mentioned that in 2026, you are going to do about 400 of those. And then you do, like, 600 washer/dryer installation. So that is, like, 1,000 altogether versus, I think, 2025 you did about 1,800 total volume. Just kind of curious why you kind of have the drop, especially as you are talking about they could still do another 1,500, you know, if market conditions allow? Matthew Ryan McGraner: Yes, sir. Hey. It is Matt. Good morning. Maybe I did not come across or you misheard the category. So the plan is to do 300 full upgrades across the portfolio, an additional 400 partials and then roughly—yeah. And so I think that was the delta, but we are ending up basically at the same place, about 1,700 units. And then as you know, if what we believe will happen happens, then we will be able to drive those incremental bespoke upgrades that I mentioned that can reach up to 1,500 additional units. Omotayo Okusanya: Okay. That is awesome. That is helpful. And then in regards to the interest rate swap, again, a few years ago, you guys kind of successfully negotiated some of these swaps and kind of came out ahead with some lower rates. Just kind of curious as you kind of think about 2026. How you kind of see that playing out this time around, especially when, again, you do kind of see, you know, rates have been coming down at least to start the year. Paul Richards: Yeah. Great question, Kyle. This is Paul. So, yeah, we look at 2026 and what the swap market is pricing, you know, the U.S. three-, five-, seven-year swap, and just taking in what we fully expect on the rate cut side. If you look at the current Fed dot plot, the dispersion is extremely interesting. You have a deeply divided committee with 175 basis points of actual spread with Mester at the bottom end at 2.125%, and you have a few multiple hawks that are, you know, pricing in zero rate cuts this year. You had three dissenters this past meeting. So it is a really deeply divided, you know, dot plot, which is, you know, affecting swap markets and not really pricing what we truly believe, you know, will be at the end of the year with rate cuts. So we are holding tight right now on putting and layering in additional swaps, but again, this can change in a moment's notice. So it is a constant daily recheck and refresh of those rates to see if they are, you know, hitting what we believe to be kind of two and a half to three rate cuts for the year. And, you know, I am a little more bullish too on that too. So it is just a constant refresh and remodel of our models and when we want to layer in additional swaps for the year to layer in behind the ones that are burning off here in Q3, Q4 this year. Omotayo Okusanya: Gotcha. Thank you. Operator: Your next question comes from the line of Buck Horne with Raymond James. Please go ahead. Buck Horne: Hey. Good morning, guys. Just wondering if you could give us any updates on either January and or February trends since quarter end in terms of new, renewal, blended lease rates, just occupancy? Any additional color on how early spring leasing has gone? Matthew Ryan McGraner: Yeah. Hey. Hey, Buck. Good morning. It is Matt. The January new leases were down 7%. Renewals were 1.6% for a blended minus 2.6% or 2.7% or $40 trade-out. February is better and getting better and firming. The new leases were down 5.7%, and renewals were a positive 1.7% for a blended negative 1.8%. And, again, we are seeing pretty positive trends on the renewal side too, on the trend. Buck Horne: Gotcha. Gotcha. Appreciate the color there. And then I think secondly, my other question was on CapEx and maybe potential CapEx spending for the upcoming year. Looks like the trend in both kind of the recurring and nonrecurring maintenance CapEx number is still trending above normal or above trend line, historically. How are you thinking about what were some of the key drivers for that this year? And then total CapEx spending for this coming year? Paul Richards: Yeah. On the maintenance side, I will kick that to Bonner. But some of the outside that we are doing are the, you know, the bulk Wi-Fi on the resident amenity side, which again has a direct offset. So that is kind of elevated the numbers. But, again, the net effect of that is minimal on the income statement. Do you have anything to add on the maintenance side? Bonner McDermett: Yeah. So our 2026 outlook—and relative to, you know, 2025—you see 2025 we had a little bit of a pickup in interior rehab spending. We had less of the exterior and common area this year post refinancing the portfolio. That $2,200,000 in 2024, there were some more major projects there. So outside the Sedona acquisition, there is about a million bucks of exterior work to do there. The capitalized rehab should be pretty stable year over year. And I think that same for the capitalized maintenance, the recurring and nonrecurring. You know, we are certainly looking to control those expenses, understand that is roughly $30,000,000 for the full year 2025. I think that we have seen some price easing, certainly being thoughtful about that as a team. And as Matt mentioned, we kind of have a strategic approach here where, you know, pricing power is going to dictate the volume of renovation output for the year. So if we can get healthy trade-outs that justify the spend, we will see a little bit higher spend, probably more in line with 2025. But if we are not getting to the, you know, the trade-out that we need, the ROI that we want, we may look to skinny that down a bit. Buck Horne: Gotcha. Alright. Thanks, guys. Good luck. Operator: Next question comes from the line of Michael Lewis with Truist Securities. Please go ahead. Michael Lewis: Great. Thank you. Maybe this question kind of logically follows after talking about CapEx. When we subtract CapEx from your AFFO calc, it looks like the dividend is not covered. I know you recently raised the dividend. This is always a tough—I realize it is a board decision. It is a hard question to answer. But as you look forward to 2026, I mean, do you think the dividend is covered by cash flow? And maybe just kind of remind us of what the dividend policy is. Paul Richards: Yes. The dividend is covered by cash flow, and its target ratio is 65% to 75% of Core FFO. Michael Lewis: Of AFFO. Okay. And then I wanted to ask, you know, you gave a lot of great data about supply and demand. Really detailed. The occupancy for 4Q was a little lower than we expected. I was wondering if it was lower than you expected and, you know, how you are kind of managing pricing versus occupancy, you know, right now where we are before we kind of get to that inflection whenever it comes. Matthew Ryan McGraner: Yeah. It is a great question, Michael. It is lower than we expected, but it was somewhat intentional. So, you know, concession utilization was increased over the fourth quarter and into January. It is abating somewhat in February. But we were reluctant to utilize, you know, more than a month of concessions, particularly when we, you know, believe pricing power will significantly increase over the year. And I also did not want to lock in a negative twelve-month, you know, earn-in and cannibalize what we believe is an inflection year. You know, we truly believe that on a deal-by-deal basis, largely for the vast majority of our portfolio. And, you know, not, you know, jumping up and down happy with 92.7%, but the good news is our first quarter guidance is at 93%. So, you know, I think we are on track to hit that. And, you know, hopefully, we will capture some of this inflection. Michael Lewis: Okay. Thank you. Paul Richards: You got it. Operator: Your next question comes from the line of Linda Tsai with Jefferies. Please go ahead. Linda Tsai: Hi, thanks for taking my question. In terms of your comments on the senior renter population doubling by 2030 and seeing sizable signs of this trend in your markets, can you delve into this comment more? And then would you start to amenitize properties any differently based on an aging population? Matthew Ryan McGraner: Yes. Again, great question. We are seeing it because our average age is picking up, and we are just getting, you know, anecdotally, from the sites, especially in, you know, the Sun Belt and particularly in Florida, for, you know, resident amenities that cater more to the senior housing population. It is something that we have, you know, I guess, taken notice of as, you know, Welltower and the others catch a really good bid and believe in this demographic backstop, as I mentioned in my prepared remarks. We do believe this trend. We think AI is going to grow GDP ultimately and have, you know, people when, you know, when they live longer and, you know, make more money, they want to invest in their health and entertainment. And so we are, you know, actively looking to resource our portfolio design to, you know, to cater to health and wellness and entertainment. And I think that those things will, you know, produce a wider demand funnel than what we have historically been used to and catering to blue collars. So there is no reason in our portfolio why we cannot attract, you know, in Richardson, Texas, a suburb, well-located suburb outside of Dallas, some empty nesters that want to, you know, be closer to their kids. They go to SMU for example. So I think that trend will continue, particularly in the Sun Belt, particularly in our markets, and just follow the same net migration trends as we have seen over the last five years. Linda Tsai: Are you seeing new renter income from the older population increasing? Matthew Ryan McGraner: Yes. Indeed. And that is adding to both our AEG and our average household, you know, demographics. When we started this company, you know, eleven, twelve years ago, you know, our average renter was, you know, 28 years old and, you know, made $60,000 a year. So we are increasingly catering, I think, to a purpose-driven renter. And,you know, it makes sense. You know, aging population, they want less yard. They want, you know, more amenities. They do not want to deal with, you know, maintenance themselves, and they want to travel. So, we like that trend. We are going to play into it, and I think we have the portfolio to take advantage of it. Linda Tsai: And then just one guidance question. It does not seem like your guidance incorporates buybacks. Are you still considering buybacks in 2026? Paul Richards: Yeah. We are. Matthew Ryan McGraner: We will always consider them. I think that, you know, the Sedona deal was important because we liked—yeah. We like the ability to take that cap rate from a 5.7 going into a 7.5, and that was, you know, one-off opportunity. And those opportunities we will always do. But in the meantime, you know, I think if we do, you know, sit stock price, you know, sub 30 and a 6.6 implied cap rate, you know, and we stay here for a while, I think you will see us buy back some stock. That being said, I really do believe that, you know, that this year is the year that, you know, we will inflect, and I think stock prices will follow that upwards in the second half of the year. Paul Richards: Thanks. Operator: That concludes our question and answer session. I will now turn the call back over to management team for closing remarks. Matthew Ryan McGraner: Thank you for all your time this morning. Appreciate everyone's, again, time and attention. I look forward to speaking to you next quarter. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.