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Operator: Hello, and welcome to the Innovative Industrial Properties, Inc. Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Eli Kanter, Director of Finance. You may begin. . Eli Kanter: Thank you for joining the call. Presenting today are Alan Gold, Executive Chairman; Paul Smithers, President and Chief Executive Officer; David Smith, Chief Financial Officer; and Ben Regin, Chief Investment Officer. Before we begin, I'd like to remind everyone that some of the statements made during today's conference call, including those regarding potential transactions under letters of intent are forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995 and subject to risks and uncertainties. Actual results may differ materially, and we refer you to our SEC filings, specifically our most recent report on Form 10-K for a full discussion of risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. We are not obligated to update or revise any forward-looking statements, whether due to new information, future events, or otherwise, except as required by law. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO, normalized FFO and AFFO. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in our earnings release issued yesterday as well as in our 8-K filed with the SEC. I'll now hand the call over to Alan? Alan Gold: Thanks, Eli, and good morning. Thank you for joining our call. 2025 was a year defined by disciplined execution, balance sheet strength and strategic repositioning for long-term growth. For the full year, our diversified platform of over $2.5 billion of gross assets generated approximately $200 million of cash flows from operations. In addition, since our inception in 2016, we have returned $1.1 billion to shareholders through dividends, reflecting the durability of our business model and our continued focus on sharing our cash flows with our shareholders. We invested capital in 2025 selectively and accretively, committing $275 million across our real estate portfolio and through our strategic investment in IQHQ, further strengthening and diversifying our platform. Operationally, we made meaningful progress across the portfolio. During the year, we executed new leases at 4 properties totaling approximately 339,000 square feet, reinforcing our belief in the quality of our assets and the ability of our team to drive performance within our portfolio. For the year, we generated total revenues of $266 million and AFFO of $205 million. We also strengthened our liquidity position for the year by raising $100 million under a new revolving credit facility in October and issuing approximately $25 million of preferred stock through our ATM. For 2026, we continue to access the capital markets opportunistically and have raised over $40 million of preferred stock at an attractive yield of just over 9.5%, surpassing the amount we raised in all of 2025. We exited the year with total liquidity exceeding $105 million, including cash and availability under our credit facilities. As we diversify our platform, we remain confident in the long-term fundamentals supporting the life science sector. Discussions at the recent JPMorgan Healthcare Conference continue to reinforce our conviction that the sector is exhibiting early signs of renewed momentum, including improving capital availability for well-capitalized life science companies, increased strategic activity among large pharmaceutical companies and continued innovation. Together, these trends are supporting sustained demand for specialized real estate within leading life science markets. Before I turn the call over to Paul, I'd like to briefly address the recent regulatory development impacting the cannabis industry. President Trump's executive order directing the rescheduling of cannabis to Schedule III represents a significant regulatory development for the industry. While the timing and ultimate implementation remains uncertain, we believe this development is directionally positive for the industry, our tenants and our shareholders. Our actions in 2025 reflect a meaningful step in our evolution and our return to growth. We believe the combination of a diversified portfolio across cannabis and life science, a strong balance sheet and an experienced management team positions us to continue strengthening our platform and delivering long-term value for our shareholders. Now with that, I'll turn the call over to Paul. Paul Smithers: Thanks, Alan. I'd like to begin by reinforcing the significance of the recent executive board directing the rescheduling of cannabis to Schedule III. While the timing and final implementation remain unclear, this represents one of the most substantial regulatory developments for the industry in many years. If enacted, rescheduling may eliminate the punitive impact of 280E for our tenants which we believe would meaningfully improve operator cash flows, strengthens credit profiles and support additional investments across the industry. In addition, the Executive Board highlighted concerns regarding the proliferation of hemp-derived THC products. Recent legislation closing certain loopholes under the 2018 Farm Bill is expected to restrict hemp-derived THC products beginning in November 2026, which should reduce unregulated products and support consumer safety across the U.S. At the state level, we are tracking several meaningful catalysts on the horizon, including the potential commencement of adult-use sales in Virginia and possible adult-use legalization in Pennsylvania and Florida. We own 16 properties totaling approximately 2.6 million square feet in those states accounting for approximately 26% of annualized base rent, and we believe our real estate and tenant base are well positioned to benefit as those markets transition to adult use. Regarding our current portfolio, as you recall, last March, we announced initiatives to replace nonperforming tenants and enhance the performance of our portfolio. Since then, receivership and legal proceedings have been ongoing for forefront Ventures, PharmaCann and Gold Flora where we have continued to actively pursue our legal rights and protect our interest under those leases. We have been actively engaged across these assets and are pleased with the significant progress that has been made. We have signed leases, LOIs and are in various stages of review for over 900,000 square feet of leasing activity related to those assets, which Ben will discuss in more detail. We believe we are at an inflection point in our efforts to bring resolution to the previously nonperforming assets in the portfolio and believe future quarters will reflect the realization of earnings upside from these actions. We are extremely proud of our team's execution and track record of retenanting our assets quickly and efficiently, maximizing value of our portfolio and driving long-term value for our shareholders. Lastly, we are also pleased to share a legal update. Last month, we received a judgment in our favor of $7 million for unpaid rent and damages due from Temescal Wellness, a former tenant at a property in Massachusetts. I'd like to now turn the call over to Ben to provide additional details on our leasing success and to discuss our other investment activities. Ben? Ben Regin: Thanks, Paul. To recap our year in 2025, we executed new leases totaling 339,000 square feet across properties located in California, Massachusetts and Michigan, opportunistically closed on 3 dispositions and closed on approximately $275 million in new investment activity, including one cannabis acquisition and our strategic investment in IQHQ, of which we have funded $150 million to date. . We've continued to build on this momentum heading into 2026. As Paul described, we've been very pleased with the activity we are seeing related to the Gold Flora and [ forefront ] receiverships as well as our legal pursuits related to PharmaCann. Gold Flora filed for voluntary receivership in March of 2025 and we have since made meaningful progress releasing our 3 properties. We executed a lease agreement with a new tenant for our 70,000 square foot Palm Springs asset during the fourth quarter, executed a lease agreement with a new tenant for our 204,000 square foot Desert Hot Springs asset last month, and we have received multiple offers for a 56,000 square foot Palm Springs asset. Overall, we are very pleased with the outcome of the receivership proceedings and the resolution achieved with respect to these properties. Regarding our 4 assets previously leased to Forefront, we have made significant progress on our re-tenanting initiatives for these assets. This quarter, we reached a tentative agreement with the tenant to lease our 114,000 square foot Washington property and expect lease execution and rent commencement in the near term. For our 250,000 square foot asset in Illinois, we have executed an LOI for the full building with a new operator, which is expected to go into effect at the closing of receivership proceedings anticipated in the coming quarters. For a 67,000 square-foot property in Georgetown, Massachusetts a stocking horse bidder has been selected by the receivership of state, and we have agreed to lease terms with this bidder. We also expect this new lease agreement to become effective upon the conclusion of the receivership process. For our 57,000 square foot property in Holliston, Massachusetts, we have received multiple offers to lease the building, which are currently under review. We look forward to continuing to move these transactions forward and bring resolution to these properties. Moving on to our properties leased to PharmaCann, we continue to be pleased with the progress we have made retenanting our 6 cultivation assets. In early 2025, we regained possession of our 205,000 square foot cultivation asset in Michigan and subsequently executed a lease with a new tenant in April. We also successfully regained possession of our 58,000 square foot cultivation asset in Massachusetts and executed a lease with a new tenant in November. In Illinois, as we reported last quarter, the judge ruled in our favor with respect to our 66,000 square foot cultivation property, and we successfully regained possession of the asset in late December subsequently signing an LOI with a new tenant for the property in January. Looking ahead, we expect to receive similar rulings from the courts in Pennsylvania, Ohio and New York and are encouraged by the inbound interest we have already received across these assets. Apart from these properties, we are also pleased to report that we signed an LOI in February with a new tenant for a 71,000 square foot vacancy in North Adams, Massachusetts. In parallel with our leasing initiatives, we have also pursued selective asset sales to opportunistically recycle capital. During 2025, we sold 3 assets located in California, Colorado and Michigan and also closed on the sale of a dispensary in Phoenix earlier this month. These dispositions reflect our ongoing efforts to opportunistically prune noncore assets from our portfolio, enhance overall portfolio quality and redeploy capital towards other investments. Regarding our strategic investment in IQHQ,to date, we have funded $150 million of our $270 million commitment with the additional $120 million expected to be funded over time. We are encouraged by this investment, and we believe the life science real estate market is continuing to stabilize following a prolonged period of elevated supply. The current construction pipeline of approximately 6 million square feet is at its lowest level since early 2019 and is down sharply from the 2023 peak of more than 37 million square feet. Signs of stabilization are beginning to emerge in key markets. Recent reports from Cushman & Wakefield and Colliers highlight improving fundamentals in select regions. In Boston, annual new demand totaled 2.1 million square feet, surpassing 2024 totals by approximately 72%. The San Francisco Peninsula recorded its first decline in vacancy in more than 2 years in Q4 2025. Continued growth among life science and AI tenants is expected to support sustained improvement in market conditions in 2026 as supply moderates and demand gradually improves. With that, I'll turn the call over to David. David Smith: Thank you, Ben. For the fourth quarter, total revenues were $66.7 million and AFFO totaled $53.3 million or $1.88 per share representing a 10% improvement compared to our third quarter 2025 AFFO of $1.71 per share. This quarter-over-quarter improvement was primarily driven by a $3.7 million or $0.13 per share of payments received for unpaid rent due during the Gold Flora receivership and a full quarter's benefit of earnings accretion from our initial investment in IQHQ. For the first quarter of 2026, as Ben detailed, we continue to pursue the recovery of unpaid rents for certain default tenants and so far have received an additional $3 million, $0.10 per share related to our Gold Flora and PharmaCann properties. On the capital markets front, we have raised over $145 million of attractively priced debt and preferred equity since October 2025. For preferred stock, during the fourth quarter of 2025, we issued approximately $5 million on our ATM and we have already issued over $40 million of preferred equity at an attractive yield of just over 9.5% early in the first quarter of 2026, reflecting continued strong investor demand for this perpetual security. We have now grown our Series A preferred stock to $95 million of par value outstanding through our ATM issuances. On the debt front, during the fourth quarter, we added a new $100 million revolving credit facility secured by our investment in IQHQ, which provides us with low cost, flexible capital at an attractive rate of 6.1% and further enhances our liquidity profile. When we announced our IQHQ transaction in August, we believe 1 benefit would be the potential to access lower cost capital, and we are pleased to see that come to fruition with the closing of this new credit facility. This continued access of capital strengthens our ability to fund growth opportunities while maintaining a conservative balance sheet. Our balance sheet remains strong, supported by over $2 billion of unencumbered real estate and a conservative capital structure with a debt service coverage ratio exceeding 10x and a net debt to adjusted EBITDA of 1.4x. We ended the quarter with over $107 million in total liquidity, including cash on hand and availability under our revolving credit facilities, which was further improved with our year-to-date preferred stock ATM issuances I mentioned earlier. As it relates to our bond maturity at the end of May, -- we are actively evaluating a range of alternatives to address the obligation, including potential refinancing and other capital sources. We believe our unencumbered asset base was over $2 million of real estate and our strong credit profile position us well as we pursue these alternatives. With that, we thank you for joining the call, and we'd like to open it up for questions. Operator, could you please open the call for questions? Operator: [Operator Instructions] Your first question comes from Tom Catherwood with BTIG. William Catherwood: Great to see the leasing progress in the fourth quarter and obviously, so far this year in 2026. In terms of this uplift, are cannabis operators looking to expand again? Or are they looking to move up the quality spectrum with new space? Or did you adjust your leasing strategy this past quarter? Or is there something else driving this increase in activity? Alan Gold: Well, so first of all, thanks for the question. I think that there's a lot of things going on here. One, we have an extremely experienced management team that's been involved with this industry for the last 8 plus almost 10 years. And they're executing on the business plan that we -- we've set out in -- at the end of 2024 and throughout 2025, and continue, and we believe we're going to continue to execute that business plan throughout 2026. This return to growth is -- comes from, as we described in our past quarters that we were seeing some green shoots in the industry. . And those green shoots have allowed, we believe, the operators in our -- the strong operators in our industry to take advantage of some of the weaker operators who haven't been able to navigate these difficult times in the industry as well. But we still believe that there are significant challenges in the cannabis industry, although we do see unique opportunities and working with some of the best growers that are in our portfolio and in the country, we believe that there are unique opportunities to take advantage of that -- of those. Ben, do you have anything or Paul, do you have anything else you want to add? Ben Regin: This is Ben. Yes, I would just add, I think the rescheduling news is certainly seen as a positive amongst the operators. We've seen a number of our top tenants successfully execute refinancings or new debt raises in the last handful of [indiscernible] Cresco among those. And I think they view these expansion opportunities is a relatively cost-effective way to move into what we believe are high-quality turnkey facilities, and we're really excited about the team's ability to convert that interest into the leasing activity that we've been talking about. William Catherwood: I appreciate all those answers. And Ben, maybe as a follow-up to that. We there's a difference sometimes between headlines and kind of what's actually happening on the ground. And when we think of U.S. cannabis, we hear the headlines of oversupply in Massachusetts and Michigan and California. You've had success re-leasing in those markets, and you've also had success in stronger markets like the recent leases and LOIs in Illinois. How does the approach differ, if at all, between those 2 markets? Or is the headlines -- are the headlines kind of overstated when it comes to the ability to re-lease in more competitive states? Ben Regin: I think that the headlines are just a very general high-level view of some of these markets. And I think when you really understand and using our experience over the last decade to really understand the nuances of each market they're finding the successful efficient operators in markets like California and Massachusetts and Michigan and identifying the groups that we believe in, that we think that can grow their business in a profitable way and bring them into our portfolio, we think makes a lot of sense. I think it's the same approach that we would take in any market. William Catherwood: Got it. I appreciate that, Ben. And last one for me, just wanted to clarify on the tenants that are in default. It sounds like kind of the outcomes are falling into 3 buckets. It's either the receivership is working through and the rents are going to commence again at the end of the receivership process you -- or the second bucket is you're getting space back and obviously, releasing that? And then the third bucket is some tenants continued to pay, though you're not necessarily recognizing that rent and continue to look to regain their facilities. Of those, who falls in the rent could commence near term at the end of receivership and who falls into the re-leasing and then still fighting to regain properties buckets? Alan Gold: Just -- I'll turn these questions over to both Paul and Dan. But just as a point of clarification, if we receive rent, we recognize rent. There is no and that's what we've done. So I think that third bucket of -- there are tenants that that are in default and the court has ordered them to pay rent or put rent in escrow and that -- and once that money is released, we recognize that rent. So let's just -- this is a point of clarification. But with that, Paul. Paul Smithers: It's Paul. So I would simplify it a little more. I really say 2 buckets. We look at the defaulting tenants that are in receivership and those that are currently in litigation. So we talked in detail about the receivership, Gold Flora and Forefront. I think we've had some great results in resolving those. And understanding that receivership, typically, there's administrative costs, and that's deferred rent that we're not getting currently, and we get that at the end of the receivership typically. . The other bucket is primarily ParmaCann that we are in the late stages of the litigation process with those cases. And we think we're going to have resolutions in the near future on those. So we look at it a little more simplistically, those and receivers and those are not. But either way, we're very pleased where we are today compared to where we were a year ago. And I think Ben and his team have done an outstanding job releasing those assets where a year ago, there was some question. I know people had, gee, these are tough markets. Are we going to have difficulty entering these leases, but we prove those people wrong and done a good job releasing those. Operator: Your next question comes from Aaron Grey with Alliance Global Partners. Unknown Analyst: This is John on for Aaron. So regarding the LOIs that have been signed or new term agreements you've come to with the 4Front assets, could you provide some color on the new rental rates and how that differs versus the rates paid by the respective tenant prior to default. Obviously, it probably varies by each property and state. But any detail on a broad haircut that might have needed to be applied would be helpful. Ben Regin: John, this is Ben. I think a couple of things there. Obviously, for some of these deals, these and others are still in negotiations for competitive reasons, we won't be disclosing the exact numbers deal by deal. I think broadly speaking, we have seen a variety. There's some unique circumstances where in certain assets historically, you could be around 50%, below 50% of contract, and we've had instances where you're pretty much right on top of the prior lease rates. It's a pretty wide range depending on each individual situation. Alan Gold: And I would also add that we've seen some very positive situations where CapEx has been significantly lower on re-leasing than anybody has anticipated. Is that right? Ben Regin: Yes, I think that's exactly right. And a great thing to keep in mind is we're typically square foot, $15 a square foot and below for these re-leasing activities. A lot of tenants that have come into our assets, if anything, have invested their own money to make additional improvements to our buildings. . So these rental rates come along with a minimal capital outlay on our end, which has been great to see. Alan Gold: And all those factors go into the rental rate that is finally negotiated. Unknown Analyst: Okay. Great. And second, regarding the dividend and earnings coverage going forward. On one end, you've had some more one-off payments from defaulted tenants, particularly in 4Q that aided the -- aided and bridging the dividend gap you also have the IQHQ interest income, which should continue to build along with new lease tenants from the previously defaulted. So on a normalized basis, do you feel in a better position to have the dividend fully covered in the near term or are incremental steps like getting more of the properties released needed? Alan Gold: Well, I think, first of all, the dividend -- our dividend policy is set by our Board, and they review what has occurred in the past. And projections going forward. But what we're seeing is this return to growth, and we're seeing strong strong re-leasing activity which is driving revenues. And we continue to see -- and we have the resolutions of some of these major lease litigations. And with those resolutions, and the activity, the leasing activity we're seeing, we feel we continuously feel positive about where we are with regards to our dividend. Operator: Your next question comes from Bill Kirk with ROTH Capital Partners. William Kirk: So following the executive order, what have you seen in regards to tenant health and maybe more importantly, like willingness to be prompt payers. I know we already talked a little bit about the 280E elimination and how that improves future health. But what about now before the rescheduling change? What are you seeing from tenant willingness and tenant health? Alan Gold: Well, I think our tenants are -- as we've reported, are paying their rents. So -- and they're paying them on time and per the leases. But I'll turn that back -- I'll turn the question over to Paul to talk about the rescheduling and how it's benefited the industry. Paul Smithers: Yes. I think, Bill, you follow it closely. The announcement 2 months ago by the President on the executive order was very significant. And that's created a lot of buzz, I think, and some positive feelings in the industry, especially with our larger MSOs that are looking to grow, looking to acquire leases in new states as evident by our re-leasing activity that we reported. So there is some question as to when and how the EO will be implemented, but it's going to get done. I think that is the feeling from the industry now. So despite the fact there is some uncertainty as to when there's -- we see a definite positive vibe just from the announcement of the executive order. Alan Gold: And that's one of the green shoots that we've seen. But the closing of the border, the tightening of wholesale pricing in some of the markets, all of those I think, go to helping the health of our tenants improve. . William Kirk: And what -- there is a possible or looming, I guess, intoxicating hemp ban in the U.S. in mid-November. A lot of that intoxicating hemp products compete against your tenants. Is that in the -- in your improved outlook for re-leasing or the way the tenants are feeling about their prospects, having a potential intoxicating hemp competitor go away this year? Alan Gold: It's an interesting comment. And I think that we're going to have to wait to see. We think that the strengthening of the market is a multifaceted situation. And every one of these small, incremental improvements help all our tenants. Operator: The next question comes from Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: Just a few questions. First, thank you for the increased the new table on the troubled tenants and how much they've paid over time. Hopefully, that can extend to the leases that have been resolved definitively versus in the works, it just helps with all the discussion. So a few questions here. First, just going to the opportunity set, you have that interesting table chart that shows the size of the cannabis industry, the lawful cannabis industry versus the various alcohol industries. And cannabis is pretty big, especially if you were to even include the illicit market. But just given how sizable it is, you guys talk more about going to life science. So is it -- as we think about the company over the next few years, even as more states contemplate legalizing and perhaps the cannabis is downgraded to Schedule III. Is it your view that the life science offers a better risk-adjusted return over the next several years even if cannabis is able to resolve its current issues and get back to more of a growth arena? Alan Gold: Well, I think that the diversification out of the -- into the life science industry is multifaceted also. And it's not only that -- I mean it's not only about the unique opportunity that we see -- that we saw in the life science industry, how that industry had perhaps hit rock bottom and that there were green shoots and the increasing opportunities and a way to use our cost of capital or take advantage of opportunities with our cost of capital. . So I think you have that as one of the reasons for diversification. But you also have the fact that by diversifying, we might open ourselves up to greater avenues of capital and giving us the opportunity to reduce our overall cost of capital with that diversification. And I think that we are executing on that and seeing some of the benefits of that as we move forward. Alexander Goldfarb: And then along those lines on HQ, I think last time you updated us on the leasing or the leasing. I think it was -- the portfolio was roughly 25% leased. Is there an update? Has that changed at all or is still about where it was? Alan Gold: They're a private organization. They haven't disclosed anything publicly yet, although we are seeing a significant increased leasing activity in the markets in general, specifically in the Boston markets, Boston and then the Bay Area. And it's -- historically, what we've seen when the industry recovers, when the life science real estate sector recovers, it recovers first in the Boston area and then the Bay Area, and then it moves to San Diego. And we -- and we're seeing that come to fruition now. Alexander Goldfarb: Okay. And then just the final question is, I noticed in the update in your K on litigation, the SEC is now entered the fray, but you guys don't have any legal reserve. Can you just comment on what we should expect for legal costs this year? I think it's averaged about $2 million over the past few years. And obviously, that's all encompassing. It's a variety of things you've clearly been pursuing various tenants who have been paying. But can you just sort of give us expectation for legal costs? And what causes a company to set aside a legal reserve versus right now you don't have one? David Smith: Yes, Alex, it's David. I mean on the legal reserve, we have not taken that. Our auditors have not required to do it either as was disclosed in the 10-K. And so we'll be working through that. There will be costs, but it's hard to estimate at this point. Paul Smithers: I would add. This is Paul, Alex, a lot of the legal costs have been related to the tenant defaults and our efforts to [ oust ] them from the properties and go along with the receivership. So there's significant costs there. We think will be resolved in the next couple of quarters. So there will be some savings there on the legal fund. Alexander Goldfarb: But what causes on the reserve? What causes the auditors to make a company, just generically a company to set aside a reserve versus no reserve. . David Smith: Yes. I just -- I would just point to the statement in the 10-K where it says neither probable, nor unlikely. And until it becomes one of those probable, that could require something. Operator: This concludes the question-and-answer session. I'll turn the call to Alan Gold for closing remarks. . Alan Gold: Thank you. And first and foremost, I'd like to -- I need to thank the team for their great execution and a strong work to get us to where we are today and how we believe we're prepared for future opportunities as time evolves. And we also like to thank the support of our stakeholders. And with that, we'll end the call. Thank you. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good afternoon. Thank you for standing by. Welcome to the Westlake Chemical Partners Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, February 24, 2026. I would now like to turn the call over to today's host, Jeff Holy, Westlake Chemical Partners' Vice President and Chief Accounting Officer. Sir, you may begin. Jeff Holy: Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Partners fourth quarter and full year 2025 conference call. I'm joined today by Albert Chao, our Executive Chairman; Kal Jaen-Marc Gilson, our President and CEO; and Steve Bender, our Executive Vice President and Chief Financial Officer; and other members of our management team. During this call, we refer to ourselves as Westlake Partners or the partnership. References to Westlake refer to our parent company, Westlake Corporation; and references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of Westlake and the partnership which owns certain olefins assets. Additionally, when we refer to distributable cash flow, we are referring to Westlake Chemical Partners' MLP distributable cash flow. Definitions of these terms are available on the Partnership's 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. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in our regulatory filings, which are also available on our Investor Relations website. This morning, Westlake Partners issued a press release with details of our fourth quarter and full year 2025 financial and operating results. This document is available in the Press Release section of our web page at wlkpartners.com. A replay of today's call will be available beginning two hours after the conclusion of this call. The replay can be accessed via the partnership's website. Please note that information reported on this call speaks only as of today, February 24, 2026, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an internet-webcast system that can be accessed on our web page at wlkpartners.com. Now I would like to turn the call over to Jean-Marc Gilson. Jean-Marc? Jean-Marc Gilson: Thank you, Jeff, and good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year 2025 results. In this morning's press release, we reported Westlake Partners full year 2025 net income of $49 million or $1.38 per unit. Consolidated net income including OpCo was $299 million for the full year 2025. Westlake Partners' financial results continue to demonstrate the stability generated from our fixed margin ethylene sales agreement for 95% of annual plant production each year, insulating us from market volatility and other production risk. This structure, combined with our investment-grade sponsor, Westlake, produces predictable earnings and stable cash flows. This was evident in 2025 as we delivered another year of solid results and sustained distributions to our unit holders. The stable fee-based cash flow generated by our fixed margin ethylene sales contract with Westlake forms the foundation for us to deliver long-term value to our holders. This quarter's distribution is the 46 consecutive quarterly distribution since our IPO in July of 2014 without any reductions. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter and full year. Steve? Steven Bender: Thank you, Jean-Marc, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners' fourth quarter 2025 net income of $15 million or $0.41 per unit, consolidated net income, including OpCo's earnings, was $84 million on consolidated net sales of $323 million. The partnership had distributable cash flow for the quarter of $19 million or $0.53 per unit. Fourth quarter 2025 net income for Westlake Partners of $15 million was in line with the fourth quarter of 2024 partnership net income. Distributable cash flow of $19 million for the fourth quarter of 2025 increased by $4 million compared to the fourth quarter of 2024 distributable cash flow of $15 million due primarily to lower maintenance capital expenditures due to the shift in the timing of these cash flows to earlier in the year. For the full year of 2025, net income of $49 million or $1.38 per unit decreased by $13 million compared to full year 2024 net income of $62 million. The decrease in net income attributable to the partnership was due to lower production and sales volumes as a result of the planned Petro 1 turnaround. Our full year 2025 MLP distributable cash flow of $53 million decreased by $14 million compared to MLP distributable cash flow of $67 million for the full year of 2024 due to lower net income. Our distribution coverage for the full year of 2025 was 0.8x. During 2025, OpCo successfully renewed its ethylene sales agreement with Westlake through 2027 with no changes to the contract terms or conditions. We believe that Westlake's decision to renew the ethylene sales agreement under the same terms that have been in place since its origination demonstrates the critical nature of OpCo's supply of ethylene to their operations and their commitment to support OpCo's continued safe, reliable operations through stable, predictable cash flows. Turning our attention to the balance sheet and cash flows. At the end of the fourth quarter, we had consolidated cash balance and cash investments with Westlake through our investment and management agreement totaling $68 million. Long-term debt at the end of the quarter was $400 million, of which $377 million was at the Partnership, and the remaining $23 million was at OpCo. In 2025, OpCo spent $79 million in capital expenditures. We maintained our strong leverage metrics with a consolidated leverage ratio below 1x. On January 27, 2026, we announced a quarterly distribution of $0.4714 per unit with respect to the fourth quarter of 2025. Since our IPO in 2014, the Partnership has made 46 consecutive quarterly distributions to our unitholders, and we've grown distributions 71% and since the partnership's original minimum quarterly distribution of $0.275 per unit. Partnership's fourth quarter distribution was paid on February 23, 2026 to unitholders of record February 6, 2026. The partner's predictable fee-based cash flow continues to provide beneficial -- benefits to today's economic environment and is differentiated by consistency of our earnings and cash flows. Looking back since our IPO in July of 2014, we have maintained a cumulative coverage ratio of approximately 1.1x, and with the partnership stability and cash flows, we are able to sustain our current distribution without the need to access the capital markets. For modeling purposes, we have no planned turnarounds in 2026. Now I'd like to turn the call back over to Jean-Marc to make some closing comments. Jean-Marc? Jean-Marc Gilson: Thank you, Steve. We are pleased with the partnership's financial and operational performance during the fourth quarter and the year as a whole. The stability of our business model and associated cash flows demonstrate the benefit that our ethylene sales agreement and its protective provisions provide the partnership to predictable, long-term earnings and cash flows. During 2025, we successfully completed the planned turnaround at our Pecan ethylene facility in Lake Charles, Louisiana. As expected, our coverage ratio for 2025 dipped below 1x as it typically does during years where we conduct a turnaround. As we look ahead, we expect the absence of any turnarounds in 2026 to result in solid production and sales volume growth that should drive a recovery in our distributable cash flow and coverage ratio back to historical levels. Turning to our capital structure. We maintain a strong balance sheet with conservative financial and leverage metrics. As we continue to navigate market conditions, we will evaluate opportunities via our four levers of growth in the future, including increases of our ownership interest of OpCo; acquisitions of other qualified income streams, organic growth opportunities such as expansions of our current ethylene facilities, and negotiation of a higher fixed margin in our ethylene sales agreement with Westlake. We remain focused on our ability to continue to provide long-term value and distributions to our unitholders. As always, we will continue to focus on safe operations, along with being good stewards of the environment where we work and live as part of our broader sustainability efforts. Thank you very much for listening to our fourth quarter and full year 2025 earnings call. Now I will turn the call back over to Jeff. Jeff Holy: Thank you, Jean-Marc. Before we begin taking questions, I'd like to remind you that a replay of this teleconference will be available 2 hours after the call has ended. We will provide instructions to access the replay at the end of this call. Jill, we'll now take questions. Operator: [Operator Instructions] First question comes from the line of James Altschul with Aviation Advisory Service. James Altschul: I got a couple of questions. First of all, looking at the balance sheet and the cash flow statement, radium, right, it appears that in the past year, you -- in order to pay the distribution, you drew down on the item receivable on the investment management agreement, Westlake. And it looks like you don't have too much in that category left. First of all, am I reading that right? And second, you did say in your remarks and in the release that you're expecting the distribution coverage ratio will improve in the new year -- in this year. But is that how you expect to be able to cover the distributions from operations, you won't have to draw down under the receivable anymore. [Audio gap] Steven Bender: Yes. And so the investment balance you see there at the beginning of the year of 2025 that was drawn down reflects the cost of the maintenance turnaround. Just to remind you that every month, we invoice Westlake Corporation for planned turnaround expenses and that cash is received and invested in that investment management account. Over the course of the year, we accumulate cash balances in that investment account and then we'll spend those funds to undertake a planned turnaround activity, which occur every 5 to 8 to 9 years, depending on the performance of that particular operating unit. Because that unit was down for maintenance over the course of a period of 2025, there is no production out of that unit. So therefore, it does have an impact in production and therefore, income generated as a result of that loss of production. But we have the ability to pull on our operating reserves and the operating reserves in the year 2025 were strong enough that we had strong enough balances in that operating reserve to continue to pay distributions. And so when you think about the operating surplus we had at the end of 2025, it was approximately $74 million. So that well covers any current or actually future expected annual distributions by the partnership. Because in our prepared remarks, we commented we have no planned turnaround in 2026. Therefore, we expect our coverage ratio to rise above 1.1x, which is our target ratio. And because it should rise with no planned turnarounds, it will continue to replenish the operating surplus and build cash in that investment account we also use to pay distributions to unitholders. So as we look forward, I do expect that operating surplus to build and that investment balance to also build. In a year when we undertake planned turnarounds, it is very typical that our cash balances will diminish because of the planned maintenance and also the payments of those distributions to unitholders. But given the many years going back to the IPO in 2014, we've seen this play through over many years, and we do expect those operating surplus balances to build as well as cash investments and that operating investment account to build. James Altschul: Well, that's an excellent answer. And if I may ask one more. In his prepared remarks, the CEO talked about various opportunities for expansion growth, such as increasing the percentage ownership of the OpCo organic growth. How would you anticipate financing any of these initiatives if you decide to pursue them? Steven Bender: Yes. Should we decide to undertake any of those growth opportunities, we would undertake what we'd characterize as a drop-down where a party would monetize a portion of OpCo interest and contribute that down, and we would finance that with external funding, whether it be debt or equity or some combination. That's how we've undertaken the multiple drop-downs in growth over the course of the years, which represents the ownership today that we've monetized out of OpCo. So should we take any of those actions, that's really how we would finance it through a combination of issuance of new units as well as potential leveraging the balance sheet. Operator: At this time, as I'm seeing no other questions in the queue. The Q&A session has ended. I will now turn the call back over to Jeff Holy. Jeff Holy: Thank you again for participating in today's call. We hope you'll join us for our next conference call to discuss our first quarter 2026 results. Operator: Thank you for participating in today's Westlake Chemical Partners fourth quarter and full year 2025 earnings conference call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended, and may be accessed until 11:59 p.m. Eastern Time on Tuesday, March 3, 2026. The replay can be accessed via the Partnership website. Goodbye.
Operator: Ladies and gentlemen, thank you for standing by. My name is [ Jereko ] and I'll be your conference operator today. At this time, I would like to welcome everyone to the Repligen Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Jacob Johnson, Vice President, Investor Relations. You may begin. Jacob Johnson: Thank you, operator, and welcome, everyone, to our 2025 fourth quarter report. On this call, we will cover business highlights and financial performance for the 3- and 12-month periods ended December 31st, 2025, and we'll provide financial guidance for the full year 2026. Joining us on the call today are Repligen's President and Chief Executive Officer, Olivier Loeillot; and our Chief Financial Officer, Jason Garland. As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risks related to our business is included in our quarterly reports on Form 10-Q, our annual report on Form 10-K and our current reports, including the Form 8-K that we are filing today and other filings that we make with the Securities and Exchange Commission. Today's comments reflect management's current views, which could change as a result of new information, future events or otherwise. The company does not oblige or commit itself to update forward-looking statements, except as required by law. During this call, we are providing non-GAAP financial results and guidance, unless otherwise noted. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to Repligen's website and on sec.gov. Adjusted non-GAAP figures in today's report include the following: non-COVID and organic revenue and/or revenue growth, cost of goods sold, gross profit and gross margin; operating expenses, including R&D and SG&A, income from operations and operating margin, tax rate on pretax income, net income, diluted earnings per share, EBITDA, adjusted EBITDA and adjusted EBITDA margin. These adjusted financial measures should not be viewed as an alternative to GAAP measures but are intended to best reflect the performance of our ongoing operations. With that, I'll turn the call over to Olivier. Olivier Loeillot: Thank you, Jacob. Good morning, everyone, and welcome to our 2025 fourth quarter call. We had a great finish to 2025 with $198 million of fourth quarter revenue, which translated to 14% organic growth in the quarter and $738 million of revenue for the full year. As a result, we exceeded the high end of our October guidance for both revenue and adjusted operating income. We were thrilled to return to robust growth in 2025 with 16% growth on both a reported and organic non-COVID basis and full year organic growth of 14% exceeded the high end of our initial 2025 guidance. Once again, the diversity of our portfolio was on display in the fourth quarter as Proteins and Process Analytics both grew over 30% with Chromatography not far behind with more than 25% growth. The same was true for the full year as Protein grew greater than 30%, while Analytics grew 37% on a reported basis or 21% excluding M&A. This highlights our team's strong execution on the growth opportunities that exist across our portfolio. Filtration grew high single digits for the quarter and the year. Consumables drove the growth in the quarter with over 20% growth. Capital equipment was essentially flat year-over-year due to a tough comparison, but up 10% versus the prior quarter as we saw capital equipment revenue grow sequentially throughout the year. Capital equipment benefited from downstream analytics demand. Outside of a couple of specific growth drivers, we saw relatively muted demand for equipment. In terms of end markets, biopharma led the way and revenue growth was strong across all geographies. While we are no longer providing detailed order commentary, the strong orders trend we saw throughout 2025 continued in the fourth quarter. In short, we had a great year with momentum across the portfolio, allowing us to significantly outpace market growth in 2025. As we turn the page to 2026, we're excited about the product portfolio we have, the team we've built and the strategy we're executing. We recently held our global commercial meeting and after spending time with the team, it's clear we've built a world-class organization and the team is highly energized. Our initial 2026 guidance calls for $810 million to $840 million of revenue or 9% to 13% organic revenue growth. This includes a 2-point headwind from a gene therapy platform. Jason will provide more details on our 2026 guidance, but I wanted to share a few high-level thoughts. There are a number of signs that macro backdrop is strengthening, including improved biotech funding, M&A activity and more positive pharma sentiment. After a recovery year in 2025, the current environment is more balanced, though it remains early for some of these tailwinds. As a result, we believe our guidance is prudent with the low end appropriately balancing some near-term uncertainty around FDA policy and biopharma strategic response to MFN, while the high end assumes we're able to convert certain funnel opportunities in 2026. Our team is focused on executing opportunities that will arise as the year plays out. At the midpoint, our guidance calls for 150 basis points of operating margin expansion in 2026. As we highlighted earlier this year, we are committed to margin expansion while balancing the investments required to support future growth. We expect operating leverage in 2026 with a growing contribution in coming years. Unpacking our performance by end market. Fourth quarter biopharma revenue grew over 20% year-over-year, driven by growth from both pharma and emerging biotech. Revenue from emerging biotech customers grew for the third quarter in a row. Activity from this customer base remains below historical levels, so we believe it's too soon to call this a trend. CDMO fourth quarter revenue grew low single digits year-over-year due to a tough comparison as we were lapping greater than 14% growth in the prior year. Notably, we saw strong growth from our Tier 2 CDMO customers. From a geographic point of view, we saw strength across all regions led by Europe. New modality revenues were consistent with our expectation for a muted back half. For the year, new modalities grew low single digits or high single digits when excluding the impact from a gene therapy customer. We saw strength in cell therapy, while mRNA demand was a headwind. Turning to strategy. In 2025, we delivered on all 5 strategic priorities we outlined at the beginning of the year. First, we accelerated growth with a transformed customer experience. As I mentioned earlier, we delivered 16% growth in 2025. This was driven by momentum across our portfolio, customer base and geographies and a testament to our commercial strategy. We continue to capitalize on our broad portfolio with our key accounts team, which is focused on approximately 20 large pharma and CDMO customers with the objective of further penetrating these accounts by increasing both the number of product lines they purchase and their overall volume. As we highlighted earlier this year, we are now selling 2.5x as many product lines to these customers versus 2019. In addition, our commercial team is incentivized to cross-sell our entire portfolio. We continue to see a long runway for key account penetration and cross-selling opportunities. In 2025, we made notable progress on our Asia Pacific strategy. We will continue to invest in 2026 given the growth opportunities in this region. Finally, we would highlight our investment in services, which was accretive to growth in 2025, and our guidance assumes it will be a gain in 2026. We have a high attachment rate for services in our analytics franchise and are working to replicate this success across the rest of our capital equipment portfolio. As Jason will discuss in more detail, in 2025, we balanced margin expansion with critical investments in the business. We expanded adjusted operating margin by 90 basis points to 13.8%. Excluding M&A and foreign currency, we expanded operating margin by 240 basis points. In 2025, we made important investments, including legal, finance and IT leadership, along with AI and infrastructure investments. These are critical to ensure we have a scalable foundation to support the growth we see in coming years. Third, we had an active year of new product launches in 2025 across our franchises. In analytics, we launched our SoloVPE PLUS, the next generation of our SoloVPE with increased accuracy and faster readout time. We saw traction with the SoloVPE PLUS in 2025 as we benefited from the first wave of upgrades. We believe this upgrade cycle represents a multiyear opportunity. In filtration, we launched our new ProConnex MixOne single-use mixer. We began demos in 2025 and expect to deliver our first placements in 2026. In proteins, we developed and launched a variety of new resins, including 3 new catalog resins in December for the new modality market. We also saw traction with custom resins developed for specific key accounts. In 2026, innovation remains a top priority. Fourth, we executed on our M&A road map. In March, we acquired 908 Devices' bioprocessing portfolio, which is now part of our recently rebranded PATsmart portfolio. In 2025, we cross-trained and merged our upstream and downstream analytics teams. This has resulted in a growing funnel of opportunities. We also made progress on our integration of Tantti. Finally, in July, we announced a strategic partnership with Novasign to develop and integrate their machine learning and modeling workflow into Repligen filtration systems. As part of the partnership, we also made an investment in Novasign to help scale and expand their operations. This furthered our digitization efforts and highlights that minority investments are another good investment avenue within our broader capital allocation strategy. In 2026, M&A remains our top priority for capital allocation and our acquisition criteria are unchanged. First, we are looking for differentiated technologies that address key customer pain points across the bioprocessing workflow and their pipeline of modalities. And second, it must make financial sense from a return and accretion perspective. We have an active pipeline and a healthy balance sheet. As a result, we aspire to add new capabilities to our portfolio in 2026. We remain focused on integrating 908, leveraging our high-performing analytics team. Finally, in 2025, we made considerable progress on our efforts to become more fit for growth and ensure we have the right foundation in place as we look to scale the business in coming years. We made critical leadership hires across the organization. In addition, we made significant investment in our business systems to ensure we have the right tools and processes to scale the business. This included initial AI investments across our legal and supply chain functions. Looking ahead, we will continue to deepen our bench and make system investments in IT modernization, financial planning and life cycle product management. Before I turn the call over to Jason, I'll provide some more detail on our franchise level performance. Starting with Filtration. As a reminder, this is our largest and most diverse franchise. Filtration revenue grew high single digits in the quarter, driven by Fluid Management and ATF consumables. For the year, Filtration revenues grew 8% or 11% non-COVID. This was a bit below our expectations due to the timing of Fluid Management revenue and the muted demand environment for downstream systems. We continue to work to optimize fluid management manufacturing and the margin of this product line. Fluid Management was still a strong contributor to growth in 2025, while ACA was also accretive to filtration growth after a remarkable year in 2024 when it was up more than 50%. Looking ahead, we see filtration returning to low double-digit growth in 2026 with strength across our broad portfolio, offset by the headwind from a gene therapy platform. Chromatography capped off a strong year with greater than 25% growth in the fourth quarter and 25% growth for the full year. OPUS large-scale columns was the main driver of growth for both the quarter and year as we won several new pharma customers. Given this momentum and recent new customer wins, we see double-digit growth in column revenue in 2026, offset by lower procured resin mix. This results in Chromatography revenues growing low double digit in 2026. Proteins were again the highlight of the quarter with greater than 30% growth and 31% growth for the year, coming in well ahead of our prior expectation for 15% to 20% growth. The growth in 2025 was broad-based across ligands, growth factors and custom resins. This was a very strong rebound as we have nearly recovered all of the 2024 revenue decline from the demand of 2 of our OEM businesses having reached de minimis levels. This is a testimony to the strategy we are implementing, leveraging both partnerships and prior acquisitions to create innovative solutions for customers. During the quarter, we launched 3 new AVIPure resins for the new modality market. With our DuloCore technology and Avitide expertise, we can quickly develop new products, helping address customer-specific pain points. In 2026, we see Proteins strength continuing with low double-digit growth as we expect to see the benefit from the seeds we've planted in recent years. Analytics closed a record year with 30% plus growth in the fourth quarter and 37% growth for the full year or 21% excluding the impact from the 908 bioprocessing acquisition. We had traction with our SoloVPE PLUS in 2025, and we believe this upgrade cycle will continue to play out over the next several years. Looking ahead, we see analytics growing greater than 20% in 2026 as we continue to see robust growth from our downstream analytics portfolio, including SoloVPE PLUS and growing contribution from our recently acquired upstream analytics portfolio. That concludes my commentary on our franchises. As we transition to 2026, our strategic priorities remain: number one, outpacing bioprocessing industry growth; number two, driving operating leverage on top of gross margin expansion; number three, continuing to innovate and launching new products; number four, integrating recent acquisitions and pursuing additional M&A; and finally, number five, becoming more fit for growth with a focus on IT modernization and strategic transformation initiatives. In closing, our fourth quarter capped off a great year where we delivered above-market growth and expanded margin while investing in our business and executed on all strategic priorities. In 2026 and beyond, our goal is to do the same. Now I'll turn the call over to Jason for the financial highlights. Jason Garland: Thank you, Olivier, and good morning, everyone. Today, we are reporting our financial results for the fourth quarter and full year 2025 and providing initial guidance for the full year 2026. Unless otherwise noted, all financial measures discussed reflect adjusted non-GAAP measures. As shared in the press release this morning, we exceeded guidance and delivered fourth quarter revenues of $198 million, a reported year-over-year increase of 18%. This is 14% organic growth, excluding the impact of acquisitions and foreign exchange. Acquisitions contributed approximately 1 point of the reported growth and foreign exchange contributed 2 points. For the full year, revenue grew 16% on both a reported and organic non-COVID basis and 14% organic. As Olivier offered details on our product franchise performance, I'll provide more color on our regional performance. Starting with quarterly revenue, North America represented approximately 47% of our total. EMEA represented 34% and Asia Pacific and the rest of the world represented approximately 19%. North America grew mid-teens driven by Proteins, ATF and Fluid Management. EMEA grew more than 20%, driven by Proteins, Chromatography and Analytics. Asia Pacific grew high teens, driven by Chromatography and Analytics. China grew for the second straight quarter, albeit off a low base. After declining in 2025, we are optimistic China will return to growth in 2026, supported by strong orders in the fourth quarter. For the year, North America and Europe both grew approximately 16% and Asia Pacific grew 19%. Transitioning to profit and margins. Fourth quarter adjusted gross profit was $104 million and adjusted gross margin was 52.4%. This was margin expansion of 170 basis points versus last year. The year-over-year increase was driven primarily by volume leverage and price, both offsetting inflation and slight headwinds from mix and tariffs. For the full year, gross margin was 52.6% with approximately 220 basis points of year-over-year increase. The year had similar drivers as the quarter's margin expansion with volume and price overcoming inflation and some tariff and mix headwinds. Continuing through the P&L, our adjusted income from operations was $30 million in the fourth quarter, up 19% year-over-year on a reported basis and up about 25%, excluding the impact from foreign currency and M&A. Further, OpEx was sequentially flat to the third quarter. This translated to an adjusted operating margin of 15% in the fourth quarter, which was an increase of 10 basis points year-over-year on a reported basis, but 140 basis points of margin expansion, excluding M&A and the impact of foreign currency. For the full year, our adjusted operating income from operations was $102 million, a strong 24% year-over-year reported increase or up 35% excluding the impact of M&A and foreign exchange. The growth was driven by a $68 million increase in gross profit, reduced by $49 million of increased OpEx. $19 million of this increase was related to M&A expenses and foreign exchange. Excluding these items, OpEx grew roughly 13% year-over-year with investments in our Fit for Growth journey. I'll also note that about 5 percentage points of the increase came from our annual merit and compensation inflation. 2025 adjusted operating margins were 13.8%, about 30 basis points better than our prior guidance and 90 basis points higher than last year, driven primarily by volume leverage and price, mostly offset by the dilution of our recent M&A investments. Excluding the impact from M&A and foreign exchange, we are very pleased with our operating margins expanding 240 basis points year-over-year. Our full year adjusted EBITDA margin was 19%, a year-over-year increase of 50 basis points on a reported basis, but up approximately 230 basis points, excluding the impact of M&A and foreign exchange. Continuing through the P&L, adjusted net income was $28 million, a $3 million year-over-year increase. Higher adjusted operating income was offset by $2 million of lower interest income on declining interest rates. Our fourth quarter adjusted effective tax rate was 20%, which was slightly better than our prior expectations due to tax planning actions in the quarter. Adjusted fully diluted earnings per share for the fourth quarter was $0.49 compared to $0.44 in the same period in 2024. And for the full year, we delivered $1.71 of adjusted fully diluted earnings per share, up 9% over last year and $0.03 better than the high end of our October guidance. Finally, our cash and marketable securities position at the end of the fourth quarter was $768 million, up $90 million sequentially from the third quarter. This was driven by $26 million of cash flow from operations, offset by $8 million of CapEx. For the full year, we generated $117 million of cash flow from operations. We remain focused on optimizing our working capital to drive improved cash flow conversion. To echo Olivier, we are very pleased with our execution in 2025 and the momentum we are seeing across the business, which allowed us to outperform the high end of our original organic growth expectations and to drive year-over-year margin expansion. Looking ahead to 2026, we will remain focused on executing on all strategic priorities, driving above-market revenue growth and balancing margin expansion with investments in the business. I'll now speak to adjusted financial guidance. This includes our current view on foreign currency outlook for which we are assuming euro to dollar foreign exchange in 2026 to be very similar to the latter half of 2025. As you may expect, we are continuing to evaluate the implications of the recent Supreme Court ruling on tariffs. That said, included in our guidance is the expectation that tariff surcharges and related costs will have a slightly higher impact on revenue and margin than we saw in 2025 as we incur a full year effect. We are guiding $810 million to $840 million of revenue or 10% to 14% reported growth and 9% to 13% on an organic basis. The difference of these growth rates is driven by just under 1 point of revenue growth from foreign exchange and de minimis impact from M&A. Regarding revenue growth by franchise, our overall reported growth guidance of 10% to 14% assumes the following: Filtration growth in the low double digits. And as a reminder, certain gene therapy platform creates a 3-point headwind for this franchise, both Chromatography and Proteins growth in the low double digits; and finally, Analytics growth greater than 20%. We expect adjusted gross margins to expand to 53.6% to 54.1% for the full year and up approximately 125 basis points year-over-year at the midpoint. This will be driven by volume leverage, pricing and productivity, and we expect a relatively neutral mix impact in 2026. Our guidance assumes several million dollars of tariff surcharges, which represents approximately 50 basis points of headwind, which, as I mentioned, we will continue to evaluate. We expect adjusted income from operations to be between $122 million to $130 million. This implies another year of 20% plus growth and delivers margin expansion of 150 basis points at the midpoint. As we have highlighted, we will continue to prioritize investments to support our Fit for Growth journey. These include IT modernization and capabilities, product Life Cycle Management, further commercial investments, including Asia and continued build-out of our leadership bench. Still, we expect operating leverage to accompany our gross margin expansion. Continuing through the P&L, we are assuming $18 million of adjusted other income, slightly lower than 2025 due to lower interest rates and a 22% to 23% adjusted effective tax rate. The increase over 2025 is driven by jurisdictional mix assumptions and the benefits we achieved in 2025 that will not repeat. That said, we will continue to execute our tax planning strategy and look for opportunities for improvement. Putting this all together, we expect adjusted fully diluted earnings per share to be between $1.93 and $2.01. This is up $0.22 to $0.30 versus 2025 or up 15% at the midpoint. To help you with your modeling, we expect normal seasonality with roughly 48% of revenue in the first half. This implies organic growth is slightly above the midpoint in the second half of the year and slightly below the midpoint in the first half due to more pronounced gene therapy headwind in that period. We expect Q1 revenue to only decline low single digits sequentially from the fourth quarter. This positions us well to deliver on our 2026 guidance. We expect modest sequential gross margin expansion in the first quarter. And as a reminder, the first quarter of 2025 represented our highest gross margin quarter last year. We expect gross margin expansion for the remainder of the year. We expect OpEx to step up sequentially in the first quarter due to annual compensation increases and Fit for Growth investments. We assume OpEx is flat to modestly higher sequentially through the year. Our balance sheet remains strong as we ended the fourth quarter with $768 million of cash and marketable securities, as mentioned earlier. We will remain prudent in our spending while maintaining flexible dry powder for potential acquisitions. We expect CapEx spend to be approximately 3% to 4% of our 2026 revenue. As we wrap, Olivier and I would like to thank our Repligen teammates for helping us deliver above-market growth in 2025. We continue to be excited about the opportunities in front of us, and we are focused on executing our strategic objectives yet again in 2026, most notably delivering above-market revenue growth and expanding margins. With that, I'll turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] Our first question comes from Matt Larew from William Blair. Matthew Larew: Jason, on the guide, you walked through some of the cadence dynamics in terms of the gene therapy headwind. But just in terms of framing the higher and lower end, I think Olivier had called out the policy environment in terms of maybe a low-end swing factor. So I would be curious what you're hearing from customers in terms of confidence there, maybe especially in light of recent tariff updates. And then the higher end of guidance, I think you called out some larger funnel opportunities. So would just be curious if those are similar to some of the larger land grab opportunities you've had in the past couple of years and sort of what the visibility as to timing for those might be. So just helping us think about the higher and lower end given the midpoint centers on that 11%, 12% that you had already framed. Jason Garland: Yes. And I'll start and Olivier will certainly jump in as well. I mean for some of those pieces, right, you brought up tariffs. Look, for us right now, tariffs is still a big open question. I think the good news for us is that when you look at where the administration is talking about alternatives to the current regime that it's going to be pretty much a push for us, maybe even slightly better. But again, for big context, keep in mind, tariff surcharges is far less than 1% of our total sales. So we don't feel like that creates a lot of noise. I think some of the other opportunities, again, for us on the onshoring, those tend to still be pushed out until 2027. And so we don't really see them as a big driver for this year. But I'll let Olivier talk to some more of the customer feedback. Olivier Loeillot: Yes. No, absolutely, Matt. I mean we have a very strong funnel of opportunity. And as you know, we're tracking that very specifically, particularly the funnel with high probability above 50%. This is at the highest level ever and significantly higher than a year ago. So we are very excited about it. Indeed, it's all about how do we manage to translate that high probability funnel into orders and sales this year. But overall, we are in very good shape here. Operator: Our next question comes from Dan Arias from Stifel. Daniel Arias: Jason, Olivier, you mentioned the commitment to op margin expansion this year. I'm curious just how as a priority that ranks relative to M&A you were 100 to 200 basis points above the range, excluding M&A in 2025, you were below, including M&A. It sounds like you're interested in what might be out there deal-wise. So I know it's never black and white, I do appreciate that. But if I were to just sort of ask it plainly, is delivering on 150 basis points of op margin expansion something that you intend to hit barring the unforeseen because you want to march back towards 20%? Or is it more like we intend to hit it unless we buy something that has us not hitting it because that's what's good for the business? Jason Garland: Look, I think to your point, it's never black and white, right? Every deal is going to have its strategic merits as well as the implications, both short term, right, and medium and long term on the financials. I mean we've acknowledged, right, the headwind that we've seen this year or rather '25 last year, but still stand by the firm's strategic benefit and the integration that we're having with both the 908 assets as well as Tantti. As we look into to go forward, we'll still look at other ways of capturing technology partnerships like the Novasign, right, minority interest. So that, again, eliminates that impact on margin. And then as we look for other deals, again, we will certainly be prioritizing those that have more immediate accretion to the financials. But again, I can't say that for a long-term strategic benefit that it might not still be worth a short-term dilution. So we're going to keep a well-balanced look in that. I'll end though that, that aside, margin expansion remains a top priority for us along with our above-market growth strategic imperative. And so those will be first in line. And you can see, I think we expanded margin. I think, again, you made the point, excluding M&A, 240 basis points year-over-year in '25 and teed up another good step-up of 150 basis points at midpoint. So we're delivering what we've set out to do. Operator: Our next question comes from Doug Schenkel from Wolfe Research. Douglas Schenkel: A follow-up to an earlier question on pacing. So the Sarepta headwind, as you know, annualizes midyear. ATF consumables ostensibly pick up steam as the year progresses. And there was a lot in the Q4 update and in your prepared remarks that demonstrates coming out of what has been a stronger-than-market period that momentum continues to build. With all that in mind, in spite of that, your comments on pacing suggests that you're assuming a normal first half versus second half revenue split. Why is that? Is this just prudence given continued market uncertainty? And by extension, are you assuming the market is not completely normalized this year? So meaning market normalization would actually be a source of upside to the guidance range? Olivier Loeillot: Olivier here. Yes, I think the last part, you summarized the situation very well. I mean that's why we have issued the guidance we have issued from 9% to 13% organic in 2026. There are stuff we control. There are stuff we don't control fully. And stuff we control the funnel. I mean we've got, as I just mentioned earlier, the highest funnel we've ever had. We've got great opportunities across our entire portfolio of products. Look at what happened in 2025, I mean, the 3 franchises that grew by far the highest are the one outside of filtration, which is a testimony we really have a fantastic broad portfolio of products. So this is we control. What we control less indeed is what can happen from a macro point of view. And if I start maybe with MFN, I mean, I think it's fair to assume some of these big pharma companies are digesting all of the deals that happened in quarter 4, and this might mean a little bit of delay on some specific CapEx spending decision that everybody is hoping to see coming earlier than later in the year. And then the second piece I would pick up as well is the FDA approval. I mean last year was okay. I mean there were 25 Monoclonal Antibody/Biosimilar approved similar to 2024. There were only 5 new modality approved versus 7 in 2024. So far this year, after almost 2 months, there have been very little FDA approval for biologics. So these are stuff we are watching. And depending how they play out one side or the other, this is where the guidance could move one direction or the other indeed. Jason Garland: The only thing I'd add, Doug, is just the guide or the -- I'll say, the direction that we shared on 1Q, but we still start off the year strong with it being down only, as we said, a couple of single-digit points sequentially from fourth quarter. So again, we still believe that we're starting off 1Q on the right foot. Operator: Our next question comes from Casey Woodring from JPMorgan. Casey Woodring: I have a couple of quick clarifications. So can you just clarify what 1Q organic growth is netting out to? I think I'm getting to somewhere around 10%. And then also, can you walk through the guidance range for the year? You guided to low double-digit growth in Chromatography, Proteins and Filtration, but the low end of the guide calls for 9%. So maybe just walk us through how to reconcile those numbers. And then just as a quick follow-up, kind of curious what is embedded for ATS within the low double-digit Filtration guide. You called out ATF consumables as strong in 4Q and the blockbuster has been in focus here. So just curious what's assumed there. Olivier Loeillot: Okay, Casey. So a few questions. So I'll start answering probably your first and your last question, and then I'll hand over to Jason for the middle one. So in terms of Q1, and Jason just mentioned it, we were really in good shape to deliver a very strong Q1. In fact, we expect Q1 to be sequentially only down by a couple of portion versus quarter 4 of 2025, which is a really great performance. I mean we've always talked about seasonality and typically quarter 1 is supposedly one of the weakest quarter in the year. We won't see a lot of it. So we're really in great shape to start the year. And then before again, I hand over to Jason on the middle question, in terms of ATS, I mean, you know like we had incredible growth in 2024. I mean ATF grew more than 50%. Last year, ATF was still accretive to filtration growth, which is absolutely a great performance. We are very excited about that business. As you know, we are getting design in multiple late-phase commercial drugs lately, and we still have very big hopes about the runway we have on that specific product line for the next several years here. Jason, do you want to add anything? Jason Garland: Yes. Just a quick clarification. So Casey, as we ran through the -- as I did in the prepared remarks to go through the franchises, I was discussing reported results, so not organic, not FX adjusted. Of course, the 9% to 13% is the organic view. On the reported basis, it's 10% to 14%. So that's just a quick answer. We don't have a great way to roll through all those pieces into the franchise. And so that's the difference. Operator: Our next question comes from Puneet Souda from Leerink Partners. Unknown Analyst: This is Philip on for Puneet. This is similar to several questions from earlier, but just you've previously directionally hinted at 11% to 12% growth for 2026. And I just want to make sure if there's anything you're seeing since then that may have changed that's softening your view. You referenced MFN and large pharma may delay CapEx decisions after digesting deals in 4Q. So is there anything there? Or alternatively, is the delta there with the 9% to 13% mostly prudent and you're more confident? And maybe if you could just walk us through any of the other puts and takes on organic growth for this year -- just like any levers on what may get you to the higher end versus the lower end? Olivier Loeillot: Philip, I'll just start by saying we had a really great year 2025. I mean we delivered above our initial organic growth guidance. So at this point, I mean, call it, mid of February, we think the 9% to 13% guidance is appropriate starting point for 2026. And as we mentioned a couple of times already, Q1 will really position us very well to deliver on that guidance. And then I just would like to say this is also very well aligned with the framework we shared with all of you previously. We always said we want to outpace market by at least 5%, but we do have this 200 basis points of headwind in 2026. So we think we are really well aligned with that framework we talked about earlier. We have a number of opportunities across our customer base, our product portfolio, and that is not all contemplated into this guidance for sure. But as I mentioned earlier, there are stuff we control, how do we translate that opportunity funnel into orders. There are stuff we control less, which is the macro environment. And yes, we just want to see how people are going to move forward with this MFN agreement and when are they going to pull the trigger on spending CapEx because we all see still slow CapEx spending at this stage, but also getting potentially more FDA approval as well to accelerate growth. So that is really the framework we are working on right now. Operator: Our next question comes from Justin Bowers from DB. Justin Bowers: I really appreciate you breaking out the organic versus inorganic margin performance for 2025. And just wanted to also clarify and understand some of the moving parts. It sounds like the 50 basis point headwind you called out, that's related to margins. That's sort of the clarification. And then 2 would be what are some of the other moving parts that we should consider as it relates to the organic margin expansion? Jason Garland: Yes sir. I think you're referencing the -- sorry, sorry. Justin Bowers: No, go ahead. I was just saying in 2026. Jason Garland: Yes, of course. Yes. So I think you're referencing the 50 basis points of headwind we called out for tariffs. So again, that's just the impact of a small amount of surcharges and then really passing those through as cost or, say, 0 margin. In addition to that, again, when you look at the year, again, we've talked about good gross margin expansion, driving volume leverage, price, productivity, of course, absorbing inflation and other pressures that we have. Mix is pretty nominal from an impact for the year. And then it's all about our OpEx management. And again, we've incorporated a continued investment in our Fit for Growth journey. And when you look at sort of the guide, we've talked about a step-up in OpEx in the first quarter, which really comes down to walking in at the beginning of the year and having some annual compensation increases as well as some investments that we had prioritized to push into the beginning of the year. And then that OpEx basically stays flattish to slightly increasing through the course of the quarters, and therefore, we're able to get more operating leverage. So again, we delivered 240 basis points of organic margin expansion in 2025 and believe we've got a good objective here for 2026 to again expand margin. Operator: Our next question comes from Dan Leonard from UBS. Daniel Leonard: I'd like to talk about the Analytics portfolio a little bit. I'm surprised by the 20% growth forecast for 2026 on a 37% comp. I understand that SoloVPE is a multiyear product cycle, but when do tough comps become a challenge? And how far along are you through that upgrade cycle? Olivier Loeillot: Dan, really good question. You're right, like delivering above 20% growth on a business that has been growing so much in '25, sounds like, wow, that's really impressive. I mean we're very confident about it for multiple reasons. And you mentioned one of them, which is the SoloVPE PLUS upgrade, where we are just at the beginning of the upgrade cycle. I mean we literally upgraded less than 100 units in the last 2 quarters of 2025. We've got 1,500 to 2,000 units installed base right now where we see potential to get upgraded. So it's going to be probably a 2- to 3-year upgrade cycle in front of us and until we launch the new version of Solo. So that's one of the big tailwind. Beyond that, as you know, we acquired 908 last year and beginning of March of 2025, and we merged the 2 sales organizations. And I have to say, I mean, the funnel improvement we've seen over the last 2 to 3 quarters has been absolutely phenomenal. And now for our sales team to have -- instead of having only 1 product to sell to have 5 and very soon 6 products because we're developing another one, we intend to launch towards the end of this year as well is also a great motivation factor, and we're getting a bigger seat at the table with this much broader portfolio of products we had. And then finally, I would just mention also the FlowVPX part of the offering, where, as you know, we had a lot of traction both at line, but in line as well, where about 25% of every system we've been selling for the last 1 year now does include the FlowVPX technology. So we've got really multiple angles. That's why we're so positive about it and considered about that potential growth in 2026. Operator: Our next question comes from Matt Hewitt from Craig-Hallum. Matthew Hewitt: Congratulations on a strong finish to the year. You talked about it a little bit. Obviously, new products have been a key driver for Repligen. And as you look at fiscal '26, do you have a pretty robust pipeline? And is that across the portfolio? Or are there specific segments in particular, where you look at opportunities to launch the new products, gain share, maybe expand the markets a little bit? Olivier Loeillot: Yes, great questions. I mean, as you know, innovation is really in our DNA. And is the first word I always mention about [ Repligen 3 ] innovation. So yes, you're right. I mean, we've been successful in the past. We've been successful in 2025. We will be successful in 2026 and beyond by the launch of innovative products. And we're working on several of them right now. I mean I start for once with Protein because as you've seen, we had incredible traction on Protein in 2025. And this is just the beginning of the journey. I mean we have now launched 4 catalog resins. We're intending to launch at least 3 or 4 extra catalog resins this year in 2026, meaning we're going to start to have a really sizable catalog of resin for our customers. We're mostly focusing on new modalities right now, but we're starting to look at other opportunities as well in more established drugs that might have been on the market for a long period of time because we see a lot of opportunities on that side as well. One thing I would add on Protein as well, we are working on multiple custom projects for specific big pharma customers as well, which we don't talk about because this one are exclusive, but this is another reason why this franchise has been doing so well in the last 12 months here. Beyond that, obviously, we've got multiple opportunities of innovation on the rest as well. On filtration, I would probably just mention one main one, which is, as you know, the potential combination of ATF with the Raman technology, the MAVERICK technology we acquired by 908 at the point where we've seen that technique is working very well. Now it's in the hands of our Product Management Team that will decide how and when to potentially launch that combination. We think that could be a big differentiator to add even more hurdle for potential competitors to ATS, but also to accelerate the growth of our PAT portfolio, the 908 portfolio. And then really, probably the last piece I would mention as well is we are looking at broadening that PAT portfolio significantly. And beyond 908, beyond the FlowVPX we have acquired the right from a company called Deli for Mid-IR technology several years ago. And thanks to the great technology team we have from 908, we are now at the point where we are already working on the beta version of this Mid-IR technology that could be a total game changer in the industry for both the last step USDF, but also for measuring Protein aggregation as a [indiscernible]. Customers who are testing it love it. And this launch, we expect to have towards the end of this year, beginning of 2027 will be another big game changer for the industry. So very excited across the board, plenty of stuff coming our way in 2026 here. Operator: Our next question comes from Brandon Couillard from Wells Fargo. Brandon Couillard: Olivier, I understand China is a pretty small region, but you've been more constructive on orders the last 2 quarters there. Any update on the incremental investment that's still needed to get the commercial organization where you'd like it to be? And if you can put some bars around the expected growth rate you see coming out of China in '26 and how that might compare to the broader bioprocess market in that region? Olivier Loeillot: Yes. So thanks for the question. Brandon, I mean, you're right. I mean, China has become pretty small for us. I mean last year was about 2% to 3% of our total revenue. We used -- it used to be about high single digit of our total business during COVID. So we are aiming to definitely grow that region faster than the rest. And the first signs are pretty positive. I mean you're right. I mean we now had 2 quarters in a row of top line growth in China. In fact, order in quarter 4 were really very strong. So we are very excited about that. And we are hopefully seeing China really going back to significant growth from this year onwards. I don't have a specific number to give you. I think I mentioned several times, I know that region very well, which is why we are very focused on adding the right amount of people. We opened a new office in quarter 3 here. We are ambitious down there. We are working on several partnerships with local companies across our entire portfolio, and we're definitely aiming to overpace our entire total growth in China and then really making sure this region become much bigger for us over the next 3 years than it is today. Operator: Our next question comes from Matt Stanton from Jefferies. Matthew Stanton: Olivier, maybe one for you. I think in the prepared remarks, you talked a bit about service. It was accretive to growth in '25, sound pretty good about it here again in '26. Obviously, strong on the analytics side, but maybe just talk about the service opportunity more broadly. Is that on new products? Can you go back to the installed base you have out there? And then maybe talk about -- is there any tweaks you've made to comp or how the commercial organization is incentivized to go out and capture that runway on the service side in front of you? Olivier Loeillot: Really interesting good question as well. I mean services represented approximately 6% of our total sales in 2025. If you just benchmark us versus the industry, we are about 4, 5 points below where others are. So we know we have a really great opportunity to grow on that side. And I'll give you just a very, very interesting checkpoint here. I mean our attachment rate for the analytical part of our portfolio is pretty high. I mean it's above 50%. You would say it's almost at benchmark our attachment rate for the larger scale equipment, those Rx downstream system, even our ATF system that's only significantly lower. So that's the area where we have specific area of focus right now. And you're absolutely right. It all starts with commercial team where you need to make sure those commercial teams are being incentivized to get more service contracts signed at the earlier point of contact. But we are also, at the same time, starting to look at our service business as a more independent P&L, and we're adding commercial resources that are specifically reporting to our service leader to make sure we can grow that business faster than it has in the past. So multiple stuff we are looking at. Our real ambition in a few years from now is that services would indeed be at benchmark, meaning about 10% of our total sales. Operator: Our next question comes from Brendan Smith from TD Cowen. Brendan Smith: I actually wanted to ask just a follow-up on your commentary, Olivier, on the MAVERICK integration with ATF and just if you guys see an opportunity to launch that this year. Kind of just curious how we should think about that in the context of the '26 guide? And maybe also if you expect that to kind of replace the legacy product altogether or if you plan to kind of offer it with and without the MAVERICK add-in moving forward? Olivier Loeillot: Yes, I'm not sure yet to be very open with you, Brendan. We are looking at different options here. Again, it's in the hand of our Product Management Team to assess when and how the launch could potentially make sense. I think in any case, that would be an option. I mean we are not going to force people to buy Raman technology on top of our ATF system and so on. That would be an option for our customers. Depending again on the traction we get and so on, we might make it more and more of, I would call it a fourth option, but maybe more, "Hey, you should really go for it versus, hey, are you aware about the fact that there is an option to track what's happening in your bioreactor via the ATF loop". I'll tell you more about that for sure in the next couple of quarters once we've made a further decision on how and when we would potentially launch that combined technology here. Operator: Our next question comes from Subbu Nambi from Guggenheim. Subhalaxmi Nambi: In your prepared remarks, you spoke about the muted downstream demand in second half. What drove that? And how is that shaping your 2026 guidance? And also, what are you assuming for capital equipment in 2026? Olivier Loeillot: I didn't get the first part of your question. What was about downstream? I didn't get it, Subu, sorry. Jason Garland: Were you asking about the demand for downstream systems? Subhalaxmi Nambi: Exactly. Yes, the muted demand for downstream systems. Olivier Loeillot: Yes. No, absolutely, Subu. So I mean, I think our direct competitors have mentioned several times that CapEx spending was pretty muted in 2025. We had an interesting year, as you know, where Q1 was really very weak on very high comp. But then Q2, Q3 were very strong. In Q4, even though sales were incrementally higher by 10% versus Q3, I mean, versus Q4 of 2024, the overall demand was kind of muted because we had pretty high comp. So if you look at the overall year, I mean, CapEx sales for us were more or less flat between 2025 and 2024. I think it's fair to say the market was down significantly. I mean, we've heard people saying maybe as much as high teens down between '24 and '25. We were flat, so which is better than others. But yes, it's absolutely fair to say if there is one area where we would like to see some real improvement and where we would like to start to see customers pulling the trigger on spending more money is definitely on CapEx equipment. So that's what we're expecting hopefully to see very soon and partly via some of these onshoring projects hopefully accelerating towards midyear with hopefully some grant coming towards the end of this year. Subhalaxmi Nambi: Perfect. And just to confirm, you're not assuming any massive growth in capital equipment. I know the answer, but just confirming. Jason Garland: Just to repeat, she is asking what is our expectation for capital equipment in 2026. Olivier Loeillot: So for 2026, we are still aiming for low double-digit growth Subu. So obviously, we're getting a lot of traction from our Analytics business, as you know, which is then fair to assume this is going to drive the majority of that low double-digit growth we expect in 2026. For the rest, which is more the downstream system, we were expecting probably somewhat flat sales in 2026. This could be a really nice upside again if we start to see a better macro on that side. Operator: That concludes the question-and-answer session. I would now like to return the call back over to Olivier Loeillot, CEO, for closing remarks. Thank you. Olivier Loeillot: Yes. Well, first of all, many thanks for joining our call today. I mean, as you heard us, we were really thrilled with our 2025 execution, and this has allowed us to deliver fantastic 2025 results. In 2026, we remain focused on executing on our strategy and as usual, delivering above-market growth. So thanks for your time, and talk to you very soon. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Whitecap Resources Q4 and 2025 Results and Reserves Conference Call. [Operator Instructions]. And I would like to turn it over to Whitecap's President and CEO, Mr. Grant Fagerheim. Please go ahead. Grant Fagerheim: Thanks, Sylvie, and good morning, everyone, and thank you for joining us here today. There are 5 members of our management team here with me today, our Senior Vice President and CFO, Thanh Kang; our Senior Vice President, Production and Operations, Joel Armstrong; our Senior Vice President, Business Development and Information Technology, Dave Mombourquette; our Vice President of Unconventional Division, Joey Wong; and our Vice President of the Conventional Division, Chris Bullin. Before we get started today, I would like to remind everybody that all statements made by the company during this call are subject to the same forward-looking disclaimer and advisory that we set forth in our news release issued yesterday afternoon. 2025 was another transformational year for Whitecap as we follow up to our 2022 transaction with XTO Canada. The combination with Veren was deliberate. We pursued it to increase scale, strengthen our asset base, add to our enviable inventory position and to structurally improve profitability. The strategy is already delivering measurable results. We exited the year with strong operational momentum. Fourth quarter production averaged over 379,000 BOE per day, exceeding expectations as a result of accelerated timing and asset level outperformance. Importantly, Q4 production per share was the highest quarterly result in our history, a clear reflection of our quality of the combined asset base and the strength of our technical teams and processes. For the year, we generated funds flow of $2.95 per share, one of the strongest on annual results in our history, despite operating in a lower commodity price environment. That speaks directly to the structural improvements achieved through scale synergy capture and disciplined execution. With capital expenditures in line with our $2 billion guidance, we generated approximately $900 million of free cash flow and returned $736 million to shareholders through dividend and $193 million through share repurchases. This balanced approach growing per share production while returning meaningful capital defines our total shareholder return framework. In 2025, we delivered a 15% total shareholder return at the high end of our 10% to 15% target range. The return was comprised of 6% production per share growth, a 7% dividend yield and 2% of share repurchases. Our objective is to consistently deliver superior long-term returns through measured capital deployment, operational discipline and structural margin improvement. From a reserves perspective, we now have 2.2 billion BOE of 2P reserves under management equating to a reserve life index of over 16 years with approximately 10,500 high-quality drilling locations in inventory that include optionality in light oil, liquids-rich and lean natural gas opportunities. With this, we have decades of development runway to continue driving increasing returns for our shareholders. I'll now pass it on to Thanh to further discuss our financial results. Thank you. Thanh Kang: Thanks, Grant. From a financial standpoint, 2025 clearly demonstrates the resilience and structural strength of our business. On a year-over-year basis, the commodity backdrop was weaker. WTI averaged just under USD 65 per barrel, down approximately 15% and AECO natural gas averaged under $1.70 per GJ. Despite that environment, we generated funds flow of $2.95 per share, the second highest annual result in our history. More importantly, our cash flow netback increased year-over-year expanding margins in a lower price environment reflects structural improvements rather than commodity tailwinds. There were 3 primary drivers: First, operating efficiencies. We accelerated the capture of synergies following the Veren combination. Field level optimization and economies of scale drove structural cost improvements with fourth quarter operating costs declining to $12.24 per BOE an 11% decrease from 2024. Second, corporate and financing efficiencies, while G&A on a per BOE basis remained relatively consistent, we reduced absolute G&A through the elimination... [Technical Difficulty] Joey Wong: New wells averaged roughly 10% above initial expectations in the area are supported by base optimization initiatives, including artificial lift refinements and operating parameter adjustments. Across our Montney assets, execution remains consistent, predictable and scalable. At Musreau, we recently brought a 6-well pad online, bringing production to approximately 17,000 to 18,000 BOEs per day at 70% liquids. The facility is currently constrained due to stronger-than-expected condensate performance. Planned gas lift enhancements in Q3 of this year are expected to increase capacity to the 20,000 BOE per day nameplate. Importantly, condensate performance at Musreau has translated into approximately 20% higher EORs than originally anticipated. And this is the result of our development design and production decisions made with this improvement in mind. In 2025, the asset generated over $100 million of operating free cash flow and is a good example of our repeatable development model, develop the resource, build infrastructure, optimize operations and transition the asset into a strong free cash flow generator. At Lator, we drilled a 3-well pad in the fourth quarter and have recently spud a 5-well pad. A total of 11 wells will be spud this year ahead of the Phase 1 facility start-up. Construction of the 35,000 to 40,000 BOE per day facility remains on schedule and on budget with commissioning targeted for the fourth quarter. At Kaybob in the Duvernay, we continue to drive efficiency gains as the asset progresses towards stabilized at capacity operations. Our wine rack development configuration is demonstrating improved reservoir access and reduced well interference. We have now brought 7 pads online using this configuration totaling 33 wells. Early pilot pads, some with approximately 18 months of production history, continue to affirm 10% to 20% improvements in well performance. We are applying this configuration to approximately half of our 2026 development program and believe it is applicable across roughly half of our undeveloped inventory. Additional upside may come from further expansion of this approach and selective down-spacing where conditions are favorable. With these improvements and continued base optimization, we now expect to reach debottleneck productive capacity of 115,000 to 120,000 BOEs per day in Kaybob by year-end of this year, well ahead of our prior expectation of the second half of 2027. This acceleration advances Kaybob into a stabilized free cash flow generating mode sooner than anticipated. At $60 to $70 WTI, we expect asset-level free cash flow of $650 million to $850 million at capacity, while requiring only 50% to 55% reinvestment to maintain these levels of production. Similar to Musreau, this transition from growth to stabilized mode reflects our broader development progression strategy, scale, optimize and harvest sustainable free cash flow. With that, I'll now turn it over to Chris to discuss our Conventional assets. Chris Bullin: Thanks, Joey. Our Conventional division delivered another strong year, averaging approximately 140,000 BOE per day in 2025. We invested $500 million and drilled 199 wells. The combination of stronger well performance and improved efficiencies drove approximately 3,000 BOE per day of production outperformance in the fourth quarter. We continue to view the Conventional division as a stabilizing and sustainable core cash flow engine. The division is approximately 80% liquids weighted, primarily light oil and underpinned by a sub-20% decline rate. That decline profile is supported by roughly 52,000 barrels per day of dedicated waterflood and EOR production. This platform provides durable free cash flow and meaningful torque to stronger oil prices. Saskatchewan was the primary driver of year-over-year growth as we solidified our position as the largest and most active oil producer in the province following the integration of the complementary Veren assets. In the Frobisher, 2025 results were exceptional. Average IP 180 production exceeded expectations by 41%. These results reflect longer laterals, enhanced reservoir contact and continued operational efficiencies that improve capital productivity. Since entering the play in 2021, we have organically added nearly 200 premium locations, extending our runway by approximately 4 years. Compared to our initial type curve assumptions at acquisition, capital efficiency has improved by 26% based on IP 365 performance. On a per well basis, that translates into materially higher net present value on approximately $1.6 million of capital per well. In the Bakken, we continue to enhance inventory through optimized lateral lengths and increased reservoir contact. Our first 3-mile 8 leg open-hole multilateral well achieved an IP(90) rate 38% above expectations, with a record 34,600 meters drilled. Based on these results, we are confidently incorporating extending extended reach open-hole multilateral drilling into our development program. With over 1,500 Bakken locations in inventory, we see substantial opportunity to further enhance well economics across this asset. In Alberta, we drilled 39 wells primarily focused on the Glauconite and Cardium. The Glauconite continues to demonstrate strong repeatable performance and has evolved into a scaled, liquid weighted cash flow driver. Since acquiring the asset in 2021, we have doubled production from approximately 13,000 BOE per day to roughly 27,000 BOE per day through improved well designs, longer laterals, infrastructure, debottlenecking and base optimization. With scale achieved, the Glauconite has transitioned into a stabilized development phase generating consistent and capital-efficient returns. In the Cardium, leveraging learnings from the Unconventional workflow, specifically on frac design, enhanced our performance in both West Pembina and Wapiti realizing improved capital efficiency by approximately 15% in 2025. As we move into 2026, our focus remains on incremental technical enhancements to continue to improve capital efficiency. Finally, our EOR portfolio remains a cornerstone of sustainability within the Conventional division with approximately 52,000 barrels per day of dedicated secondary and tertiary production, including our flagship waiver and CO2 flood, we generate strong, stable cash flow from long life, low decline assets. We continue to evaluate additional EOR opportunities across the portfolio, assessing both brownfield and greenfield projects to further enhance long-term recovery and capital efficiency. With that, I'll turn it back over to Grant for his closing remarks. Thanh Kang: It's Thanh here. So I'll just redo the financial section here due to the technical difficulties before passing it back to Grant. From a financial standpoint, 2025 clearly demonstrates the resilience and structural strength of our business. On a year-over-year basis, the commodity backdrop was weaker. WTI averaged just under USD 65 per barrel, down approximately 15% and AECO natural gas averaged under $1.70 per GJ. Despite that environment, we generated funds flow of $2.95 per share, the second highest annual result in our history. More importantly, our cash flow netback increased year-over-year, expanding margins in a lower price environment reflects structural improvements rather than commodity tailwinds. There were 3 primary drivers: First, operating efficiencies. We accelerated the capture of synergies following the Veren combination. Field level optimization and economies of scale drove structural cost improvements with fourth quarter operating costs declining to $12.24 per BOE, an 11% decrease from 2024. Second, corporate and financing efficiencies. While G&A on a per BOE basis remained relatively consistent, we reduced absolute G&A through the elimination of duplicative costs following the transaction. Our increased scale contributed to a credit rating upgrade to BBB flat, lowering our overall cost of debt and improving financial flexibility. In addition, the utilization of acquired noncapital losses materially reduced cash taxes and enhanced free cash flow. Third, product mix and realized pricing resilience. Over 60% of our production is liquids, predominantly light oil and condensate, narrow differentials and foreign exchange tailwinds helped to offset benchmark weakness. Turning to financial strength. Year-end net debt was $3.4 billion representing less than 1x annualized fourth quarter funds flow. We have $1.5 billion of available liquidity and remain well positioned to manage volatility. Approximately 25% of 2026 oil production is hedged a floor of just under CAD 85 per barrel and 29% of 2026 natural gas production is hedged at approximately $3.75 per GJ. On natural gas diversification, we are executing a deliberate strategy to reduce long-term AECO exposure. We announced a 10-year agreement with Centrica for 50,000 MMBtu per day indexed to European TTF pricing and a second 10-year agreement to deliver 35,000 MMBtu per day into Chicago at Henry Hub pricing. These agreements enhance price stability and increase exposure to global and U.S. markets. I'll now pass it off to Grant for his closing remarks. Grant Fagerheim: Thanks, Thanh, Chris and Joey for your comments. In closing, we believe we are still in the early stages of demonstrating the full capability of our asset base and the people we have within the organization. Operational momentum has carried into the first quarter of 2026, and our teams are executing at a high level across our portfolio. As a result, we are providing first quarter production guidance of 375,000 to 380,000 BOE per day, which is up from our internal forecast of 370,000 to 375,000 BOE per day at the time we released our budget. Our full year production guidance of 370,000 to 375,000 BOE per day on capital spending of $2 billion to $2.1 billion is unchanged at this time, but stay tuned as we advance through the remainder of the year. With scale achieved, structural profitability improved and a deep inventory of high-quality opportunities, we are confident in the path forward to deliver superior returns for current and future shareholders. Improving market access for Canadian energy remains an important theme for maximizing economic value and strengthening North American energy security. Condensate fundamentals remain supportive and expanding LNG and natural gas demand continue to provide long-term tailwinds. In closing, I want to reemphasize that our team remains focused on disciplined execution, efficiencies in capital spending and deliberate in creating superior long-term returns for our shareholders. With that, I will now turn the call back over to our operator, Sylvie, for any questions. Thank you. Operator: [Operator Instructions]. First will be Sam Burwell at Jefferies. George Burwell: Grant, I caught your stay tuned on the 2026 plan. So I guess with WTI strip up near USD 65 for the balance of '26, any appetite to possibly hedge more and/or deploy more CapEx maybe in Conventional oil or should we think about any benefit to cash flow really being banked for possible buybacks going forward? Grant Fagerheim: Yes. Thanks, Sam. Just your comments on what we do with the increased pricing at this particular time. You know the strategy that we've undertaken is that until we have it, we'll call it, in the bank, we don't make adjustments to our forecast. We are forecasting for the balance of this year, USD 65 WTI oil with a light oil differential at $4, $2 differential on condensate and CAD 0.74. And what we've done with our natural gas price, we dropped it back to $2 per GJ just with the -- what we consider to be the oversupply. So at this particular time, what we'll look to do as we advance through time here is the potential to increase our forecast with the same amount of capital if we can continue to deliver operationally as we have. Thanh Kang: Yes. And Sam, just on the hedging front there. I mean our strategy hasn't changed. We look to hedge 25% to 35% of our production here and feel very comfortable around our 2026 positions as I've talked about there. What we are doing, though, is we're laying on more positions in 2027, smaller incremental positions to get us to that 25% to 35% there. Since the curve is still a little bit backward dated, our preference today is using costless collars. So that's been a very consistent theme in terms of how we've executed on our hedging strategy. George Burwell: Okay. Understood. And then on the gas marketing side, I guess, any color you can share on the discount to TTF you'd be realizing on the Centrica deal? And then also on that, like how repeatable are the opportunities to achieve LNG linked pricing without necessarily like explicitly sending molecules to a facility, whether it's in Canada or whether it's down to the U.S. Gulf Coast? Thanh Kang: Yes. Thanks for that question, Sam. So the 2 contracts that we entered into are part of our price diversification strategy we're really taking a portfolio approach to mitigate the price volatility that we've seen in the AECO market there. Ultimately, what we're looking to do is move about 50% of our pricing outside of AECO. And with these 2 contracts here, we would be increasing our exposure outside of AECO in that 8% to 9% there. So the Centrica transaction, we basically get the TTF pricing less deductions. We deliver at AECO. And with the other third party there, the 35,000 MMBtu per day there the delivery is at Chicago. So we get NYMEX basically less tolls there. But we don't disclose any specific details to our contracts. Operator: Next question will be from Phillips Johnston at Capital One Securities. Phillips Johnston: I wanted to ask you about the current tax rate guidance for '26. Nice to see that you reduced it to 3% to 5% of funds flows from I guess, 5% to 8% previously. I realize Veren had some tax loss pools that might be playing a factor. But can you talk about what's driving that? And as we look out over the next 4 years or so, I assume that percentage will drift higher. But can you maybe talk about sort of the glide path there? Thanh Kang: Yes. It's Thanh here. So in terms of the tax pools at the end of the year, we had $9.3 billion of tax pools, of which approximately $500 million of that was noncapital losses. And so we were able to use -- when we did the Veren transaction, it came with about $1 billion of noncapital losses. So we used about half of that in 2025. And then the remaining $500 million, we expect to use that in 2026. So that's really what drove the lower tax rate there in that 3% to 5%. So pretty consistent, I would say, in 2026 compared to 2025. As we think about it going forward here, we'd expect it to be still pretty reasonable in that 5% to 8% on a go-forward basis past 2026. Phillips Johnston: Okay. Great. That sounds good. And then your proved developed producing F&D costs ticked up a little bit from around $15 a barrel back in '23 to around $17 a barrel in '25. That's obviously a low figure still. But can you maybe talk about the driver of the increase there? Is it perhaps related to sort of a mix shift within the portfolio rather than any sort of increase in D&C costs or decrease in underlying EORs? Or are there other factors at play? And then just maybe as a follow-up, how would you expect those costs to trend going forward? Joey Wong: Phillips, Joey Wong here. So yes, you're right that the $17 and change there is a reflection of the asset mix when you combine Veren and Whitecap. And the -- it actually does reflect on PDP as well as across the other 2 categories on the 1P and the 2P. A portion of the efficiency gains we've started to see in the operations whether that's on the reduction of cost, taking a portion of those on the book or on a portion of the increased performance on a per well basis where we did see some good technical revisions. To your question of what would the trajectory of that be? I guess it's embedded in the last response there is that we've taken a portion of it, and we would expect that with continued performance and outperformance that we can build upon that. Operator: [Operator Instructions]. Next, we will hear from Michael Spiker at HTM Research. Michael Spyker: I'm not sure if the cut out there was intentional, give everybody a few minutes to reflect on the pure unbridled execution that we're witnessing. But in my few minutes looking through the deck, I see you guys have 90,000 BOEs a day of asset potential in the near-term, productive capacity bucket. And you don't consume that until the early 2030Shelf Drillin. So you've got all these efficiencies that you're realizing and you can kind of move some of that infrastructure CapEx over to PGI potentially. Is there a possibility to -- when you have that money in the bank, you said to maybe keep growth capital flat and add more volume kind of thing if you keep delivering sequential capital efficiency improvements? Just kind of wondering, could we see a filling of this 90,000 BOEs a day of near-term capacity from the debottlenecking efforts, et cetera, pulled forward a little bit on the same capital budget kind of thing? Is that kind of a potential upside we can think about? Grant Fagerheim: Yes. Thanks, Michael. I mean, so the way we're thinking about this is, obviously, yes, we do have the capacity runway through to an incremental 90,000 BOE per day. A lot of this reflects back on what the commodity price environment is of the day. So from our perspective, we think that we can continue to focus on our efficiencies of our capital program. But growing into this, the opportunity base that we do have is truly going to be what's the reflection of commodity prices and the cash generation that's being delivered off of the assets we do have. So I appreciate you realizing that we do have a lot of runway in front of us at this particular time, but it is going to be dependent upon commodity prices as we advance forward. We think we've got a very sound base plan in place and then being able to continue to grow into the excess capacity that we do have available to us. Operator: Thank you. And at this time, gentlemen, we have no other questions registered. Please proceed. Grant Fagerheim: Okay. Thank you, Sylvie, and thanks to each of you on the line today for your patience and with the technology glitch we experienced earlier. I do want to once again thank our entire Whitecap office and field staff for your dedication and efforts in 2025 and continuing into 2026. We look forward to updating you as shareholders on our progress through 2026 and into the future. All the best to each of you signing off for now. Cheers. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect.
Operator: Good day, and welcome to the Addus HomeCare's Fourth Quarter and Year-End 2025 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead. Dru Anderson: Thank you. Good morning, and welcome to the Addus HomeCare Corporation Fourth Quarter and 2025 Earnings Conference Call. Today's call is being recorded. To the extent of any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing yesterday's news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2026 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus' filings with the Securities and Exchange Commission and in its fourth quarter 2025 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir. R. Allison: Thank you, Dru. Good morning, and welcome to our 2025 fourth quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Heather Dixon, our President and Chief Operating Officer. As we do on each of our quarterly earnings call, I'll begin with a few overall comments, and then Brian will discuss the fourth quarter results in more detail. Following our comments, the 3 of us would be happy to respond to any questions. As we announced yesterday afternoon, our total revenue for the fourth quarter of 2025 was $373.1 million an increase of 25.6% as compared to $297.1 million for the fourth quarter of 2024. This revenue growth resulted in adjusted earnings per share of $1.77 as compared to adjusted earnings per share for the fourth quarter of 2024 of $1.38 and an increase of 28.3%. Our adjusted EBITDA was $50.3 million compared to $37.8 million for the fourth quarter of 2024, an increase of 33.3%. For 2025, our total revenue was approximately $1.4 billion, which is an increase of 23.2% as compared to approximately $1.1 billion for 2024. This revenue growth resulted in adjusted earnings per share of $6.23 as compared to adjusted earnings per share for 2024 of $5.26, an increase of 18.4%. Our adjusted EBITDA for 2025 was $180 million as compared to $140.3 million for 2024 an increase of 28.3%. For the fourth quarter of 2025, cash flow from operations was $18.8 million as of December 31, 2025, and we had cash on hand of approximately $81.6 million. We ended the fourth quarter with bank debt of $124.3 million, leaving us with a net leverage of under 1x adjusted EBITDA, allowing us flexibility, we continue to evaluate and pursue acquisition opportunities that meet our ongoing strategy of creating geographic density and scale while focusing on the full continuum of home care. As we mentioned on our last earnings call, both the states of Texas and Illinois have recently increased our rates in personal care services. The Texas rate increase was effective on September 1, 2025. The Illinois rate increase went into effect on January 1, 2026, and will be reflected in our 2026 first quarter results. While there are potential future changes to Medicaid due to OB3, we believe that our value proposition for personal care services is recognized by the states where we operate. We believe that we can be a cost-effective partner to both our states and managed Medicaid payers as they look for potential savings as home-based care is substantially less costly than facility-based care. We will continue our legislative efforts in states where we operate to emphasize the benefits generated by their continuing support of these services. As we've stated before, we continue to believe that the 80/20 provision of the Medicaid access rule will be eliminated in the near future. While implementation is still several years away and has no current impact on our business or financial performance, we believe this outcome would be a significant and encouraging development for the industry and our company. During the fourth quarter of 2025, we continue to experience positive current trends in our Personal Care segment. While the holiday is typically slow our hiring, we are still able to achieve 101 hires per business day during the fourth quarter. As we began 2026, our hiring numbers for the first 2 weeks of January increased to 107 hires per business day. However, we saw a slight slowdown in hiring due to severe weather in certain of our markets over the last couple of weeks of January. We have seen hiring rebound in February as the winter storms have dissipated. As we have mentioned in the last few quarters, our clinical hiring remains consistent and has been mostly stable outside of a few more challenging urban markets. Now let me discuss our same-store revenue growth for the fourth quarter of 2025. As a reminder, these calculations exclude our Gentiva acquisition as they were not part of our business for the entire fourth quarter in 2024. For our Personal Care segment, our same-store revenue growth was 6.3% compared to the fourth quarter of 2024. During the fourth quarter of 2025, we saw personal care same-store hours increase by 2.4% compared to the same period in 2024, while our percentage of authorized hours served in the fourth quarter remained consistent with what we experienced in the third quarter of 2025. On a sequential basis, personal care same-store billable census was down slightly, although we continue to see census growth in the majority of our key states. This should positively impact our billable census during 2026. During the fourth quarter, our personal care same-store growth was more evenly divided between volume and rate as we have been expecting. Turning to our clinical operations. Our hospice same-store revenue increased 16% compared to the fourth quarter of 2024. Our average daily census increased to 3,885 for the fourth quarter, up from 3,472 for the same period last year, an increase of 11.9%. For the fourth quarter of 2025, our hospice median length of stay, inclusive of our Illinois JourneyCare operation was 25 days as compared to 22 days for the third quarter, again, including JourneyCare. We are very pleased by the continued growth in our Hospice segment over the past several quarters as a result of operational improvements. While our home health same-store revenue decreased 7.4% when compared to the same quarter of 2024, it is important to point out that over 25% of our hospice admissions in New Mexico and Tennessee are currently coming from our Addus HomeCare operations, which overlap in these 2 markets. We are pleased to see more patients receiving the benefit of the full continuum of post-acute care and anticipate seeing similar clinical collaboration and support develop in Illinois, where we also have both home health and hospice operations. Our development team continues to focus on both clinical and non-clinical acquisition opportunities, which would increase both density and geographic coverage. We will continue our disciplined approach to identify strategic personal care service transactions as well as to evaluate smaller clinical transactions. That said, while there is more optimism around home health care due to the final health rule for 2026 being more favorable than was originally proposed, questions remain about potential future rate increases and the uncertainty of the retrospective payment adjustments. Before I turn the call over to Brian, I want to thank the Addus team for the care they are providing our elderly and disabled consumers and patients. We all have come to understand that the overwhelming majority of this population refers to receive care at home, which remains one of the safest and most cost-effective places to receive this care. We believe the heightened awareness of the value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who work so incredibly hard providing outstanding care and support to our clients, patients and their families. With that, let me turn the call over to Brian. Brian Poff: Thank you, Dirk, and good morning to everyone. The fourth quarter of 2025 marked a strong finish to another year of growth and progress for Addus. Our results for the year reflect the continuing execution of our strategy, which allows us to both deliver consistent organic growth and realize the benefit of our recent acquisitions. Our results were highlighted by 25.6% top line revenue growth and a 33.3% increase in adjusted EBITDA compared with the fourth quarter last year. Our Personal Care Services segment was the primary driver of our business with a solid 6.3% organic revenue growth rate over the same period last year, above our normal expected range of 3% to 5%. Our results were supported by stable hiring trends and favorable rate support for personal care services in some of our larger markets, including a 9.9% rate increase in Texas that was effective September 1, 2025. The State of Illinois, which represents our largest personal care market, had previously approved a 3.9% increase that became effective January 1, 2026, and is expected to add approximately $17.5 million in annualized revenue for Addus with margins consistent in the low 20% range. Our Personal Care results include the Gentiva Personal Care operations, our largest acquisition to date, which we completed on December 2, 2024. The results also include Great Lakes Home Care acquired on March 1, 2025, Helping Hands Home Care Services acquired on August 1, 2025, and the personal care operations of Del Cielo Home Care acquired on October 1, 2025. Additionally, during the fourth quarter, we had a benefit of approximately $1.9 million related to accounts receivable settlements from our previously divested New York operations. This was reflected as a positive revenue adjustment and has been excluded from our adjusted results and same-store metrics. We continue to see solid performance in our hospice business, which accounted for 18.9% of our revenue for the fourth quarter. The operational improvements we have made over the past year resulted in solid 16% year-over-year organic revenue growth, supported by increases in admissions, average daily census and revenue per patient day. We also benefited from an approximate 3.1% increase in the 2026 Medicare hospice reimbursement rate that became effective October 1, 2025. Our Home Health services represent our smallest segment, accounting for 4.6% of fourth quarter revenue. We continue to look for ways to support and expand this service line, including via acquisitions as we believe there are synergy opportunities associated with offering all 3 levels of home-based care in the markets we serve. In addition to the consistent organic growth achieved in 2025, we have also benefited from our recent acquisitions. Last year was the first full year to include the acquired personal care operations of Gentiva, which we completed in December 2024, adding approximately $280 million in annualized revenues and significantly expanding our market coverage. In 2025, we completed 3 other acquisitions, the operations of Great Lakes Home Care in Michigan on March 1, Helping Hands Home Care Service in Pennsylvania on August 1 and the personal care operations of Del Cielo Home Care Services in Texas on October 1. We will continue to source and evaluate additional similar acquisitions that are strategic for Addus. Our primary focus will be on markets where we can leverage our strong personal care network as we believe having geographic coverage and density provides us with a competitive advantage. We will also look for opportunities to add clinical services in pursuit of our goal of offering the full continuum of home-based care in the markets we serve. With our size and expanding scale and the support of a strong balance sheet, we are well positioned to execute our acquisition strategy. As Dirk noted, total net service revenues for the fourth quarter were $373.1 million or $371.2 million, excluding the impact of the New York accounts receivable settlements. The revenue breakdown, excluding the New York impact is as follows: Personal Care revenues were $284.1 million or 76.5% of revenue. Hospice care revenues were $70 million or 18.9% of revenue and home health revenues were $17.1 million or 4.6% of revenue. Sequentially from the fourth quarter of 2025 revenue of $371.2 million, excluding the New York impact, we expect the first quarter of 2026 to benefit from the Illinois rate increase, offset by 2 fewer business days in personal care and some seasonal impact from the winter storms we experienced in certain markets. Other financial results for the fourth quarter of 2025 include the following: excluding the impact of the New York accounts receivable settlements, our gross margin percentage was 32.8% compared with 33.4% for the fourth quarter of 2024, primarily driven by a higher mix of personal care services from the Gentiva acquisition. As expected, we saw a positive impact sequentially from the third quarter of 2025 from the Medicare hospice rate increase and lower unemployment taxes. Looking ahead to the first quarter of 2026, we expect normal seasonality in our gross margin percentage with a negative impact from our annual merit increases and the normal annual reset of payroll taxes. Cumulatively, we expect these items to contribute a decline sequentially in gross margin percentage of approximately 120 basis points compared to the fourth quarter of 2025. G&A expense was 20.7% of revenue compared with 24% of revenue for the fourth quarter a year ago, primarily due to lower acquisition expenses as well as incremental leverage from our higher revenue base. Adjusted G&A expense for the fourth quarter was 19.1%, a decrease from 20.5% in the comparable prior year quarter and lower sequentially from 19.8% in the third quarter of 2025. The company's adjusted EBITDA increased 33.3% to $50.3 million compared with $37.8 million a year ago. Adjusted EBITDA margin was 13.6% compared with 12.9% for the fourth quarter of 2024 and higher sequentially from 12.5% in the third quarter of 2025. Adjusted net income per diluted share was $1.77 compared with $1.38 for the fourth quarter of 2024. The adjusted per share results for the fourth quarter of 2025 exclude the following: the impact of New York accounts receivable settlements of $0.07, acquisition expenses of $0.05 and non-cash stock-based compensation expense of $0.18. The adjusted per share results for the fourth quarter of 2024 exclude the following: gain on sale of assets related to the New York divestiture of $0.15, impact of lease impairment of $0.20, impact of the retroactive New York rate increase of $0.14, acquisition expenses of $0.29 and non-cash stock-based compensation expense of $0.11. Our tax rate for the fourth quarter of 2025 was 25.8%, within our expected range. For calendar 2026, we expect our tax rate to remain in the mid-20% range. DSO was 38.2 days at the end of the fourth quarter of 2025 compared with 35 days at the end of the third quarter of 2025. We have continued to experience consistent cash collections from the majority of our payers. Our DSO for the Illinois Department of Aging for the fourth quarter increased to 54.7 days compared with 32.5 days at the end of the third quarter of 2025 as we saw some expected timing differences in payment cycles. In the first quarter of 2026, we have seen our DSO in Illinois return to a level more consistent with what we experienced for the majority of 2025. Our net cash flow from operations was $18.8 million for the fourth quarter of 2025 and $111.5 million for 2025, with some negative working capital impact in the fourth quarter, primarily from the increase in Illinois DSO. During the fourth quarter of 2025, we did receive approximately $7.2 million in Phase 3 ARPA funding from New Mexico, with an additional $5.8 million received from the state in the first quarter of 2026 for a total of $13 million. We anticipate these to be the last scheduled disbursements from New Mexico, which will leave us with approximately $17.5 million in funds remaining to be utilized. As of December 31, 2025, the company had cash of $81.6 million with capacity and availability under our revolving credit facility of $650 million and $517.7 million, respectively. Total bank debt was $124.3 million at the end of the quarter, a reduction of $30 million from the end of the third quarter. During 2025, we were able to reduce our revolver balance by $98.7 million as we continue to experience consistent cash flow. We have a capital structure that supports our ability to continue to invest in our business and pursue our strategic growth initiatives, including acquisitions. Looking ahead, we will selectively pursue acquisitions in 2026 that complement our organic growth and align with our strategy. At the same time, we will maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio through ongoing debt reduction. This concludes our prepared comments this morning, and thank you for being with us. I'll now ask the operator to please open the line for your questions. Operator: [Operator Instructions] The first question today comes from Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: Just a quick question on the rate backdrop. I appreciate all your commentary about state receptivity to the PC setting amid the OBBBA headwinds. But outside of Texas and Illinois, can you give a little bit of context of how your rate conversations are going? I'm thinking particularly in states like New Mexico and Tennessee. Brian Poff: Ben, this is Brian. Yes, I think it's still a little early in the year, but some of the legislative sessions that have already started for states that have mid-year fiscals, we've gotten some information. I think probably the key one there being New Mexico, our understanding is there is what we estimate to be probably between a 4% and 5% rate increase has been passed through the legislature, was waiting for the governor's signature. We don't have any reason to believe that it won't be signed, but that we would anticipate that to benefit us in the back half of this year. So I think we had mentioned last year, New Mexico was a state that had considered one, kind of held PAT with OB3 and kind of some of the noise there, but we were hopeful that they would readdress that this year. So nice to see that it looks like that may actually come through. Outside of that, I think nothing else really to report on a lot of other states. I know in Illinois, Governor Pritzker has kind of put out his initial view on the budget, currently does not have a rate increase in there for us for next year, but would point out that's consistent with where he started last year, and we did get something toward the end, not to say that we will necessarily this year, but something that we'll continue to watch as the legislative session goes through their process. But that's probably the 2 that I would flag out for the moment. Operator: The next question comes from Brian Tanquilut with Jefferies. Brian Tanquilut: Congrats on the quarter and the year. Maybe, Brian, just to follow up on Ben's question on New Mexico. How do we think about the pass-through there in terms of margin flow-through? I know New Mexico, I think, if I'm not mistaken, is -- doesn't have a mandatory pass-through rule. So just curious how you're thinking about that. Brian Poff: Yes. There is a mandatory pass-through rule. It's not similar to like an Illinois or Texas where it's formulaic. So I think we're probably still in the early stages of making some decisions on what and where we'll pass through some of that to caregivers in the form of salaries and additional wages. So probably still early that our team is continuing to assess, but fair to say there will be some portion of that definitely will be passed through to caregivers. Brian Tanquilut: Okay. That makes sense. And then maybe as we talk about caregivers, just curious what you're seeing on the labor market. Obviously, things are different today versus a year ago. So just curious what recruiting looks like and retention for your caregivers. Heather Dixon: Brian, it's Heather. I'll take that question. Dirk mentioned that our hires per day for Q4 were right at 101. And that's typically what we would expect to see from Q3 to Q4 as we move and see the effects of seasonality because November, December, the holidays impact some of our hiring activities. Dirk mentioned also that in January, we had a strong start to the month as we would expect after we come back from that holiday period, but then some slower volumes for hiring towards the back half of the month when we saw some geographies that were impacted by the weather that passed through the country. But then so far in February, we are seeing strong hiring trends, and we would expect to finish the month in a really good position for hiring overall. We're not -- to your question about are we seeing any impacts or difficulties hiring, we are not seeing anything to point out. We continue to see stability. The numbers point to that, but also just in our hiring efforts in the markets. We always have small pockets here and there, usually in more densely populated urban areas, not all of them, but a couple of them. And those are usually related to specific jobs on the clinical side, but nothing really to call out. We're seeing consistency. We're seeing good progress on the hiring front there. Operator: The next question comes from A.J. Rice with UBS. Albert Rice: Just first of all, part of the long-term growth algorithm for Addus has been tuck-in deals. And we had a little bit of a slowdown in the back half of last year. I wonder if you could comment a little further on what you're seeing in the pipeline, prospects for transactions, tuck-ins or even bigger transactions, where you're seeing opportunities? Brian Poff: A.J., I think where we sit today kind of early this year, we've heard from a lot of folks that I think are optimistic there's going to be more opportunities this year. I think we've said before, we've heard that before as well. But I think where we sit today is probably looking at more things in our pipeline that are comparable to the deals that we closed last year. So probably more -- mostly in markets that we're in today, maybe some adjacencies to create density. I think our understanding is, and we've alluded to this, I think, on some prior calls, there are some potential larger personal care assets that we think will be coming to market and would be available. Right now, I think our estimate is those are probably midyear or towards the back half of the year based on the timing that we're hearing. So obviously, we'll be looking at those. But I think in the interim, we'll still continue to be focused on the type of deals that we did in 2025. We'd love to have a little more of a cadence on those. Our guys are out working really hard to try to find deals that make sense for us in the right spaces. But hopefully, we're able to be successful in that. Albert Rice: Okay. And then I just wanted to ask you about the adult home care business. Obviously, the industry was geared up that it might have to absorb a 6.5% hit. It ended up getting phased or rolled back significantly to 1.5%. I wonder -- that may be immaterial to you guys, but I wondered if that was a little bit of a tailwind you could look forward to in '26 that you geared up for a much more significant cut that didn't materialize. And then the other thing I wanted to ask you about with that was it does seem like some of the players in the space are seeing whatever CMS is trying to say in that final rule as incremental clarity that allows them to go out and start to look at acquisitions in that area. Obviously, we saw the Enhabit go-private transaction announced yesterday. I just wanted to put a finer point on it. Are you guys now open to being a little more actively there? It sounds like in your prepared remarks, you're still somewhat cautious. R. Allison: A.J., I appreciate the question. This is Dirk. Listen, we've always been a little bit cautious as we look at acquisitions out there. We want to make sure that they meet our strategy and that we do so thoughtfully as far as the valuation of what we're able to pay. That being said, look, we're encouraged by the final rule that came out. That's kind of interesting to say when it was still a rate reduction, but it was positive movement, and I think it was due to a lot of very strong work by both companies in the industry as they worked with the federal government to try to prove that there is real value to home health care services. And so we agree with that. We support that theory. We will continue to look at opportunities in home health. And if the larger transaction comes up that we think can make sense for us as far as valuation strategy where it fits geographically, we will certainly look at that. But again, there's still a couple of things out there we would like to see them finalize. And hopefully, maybe they'll give a little more clarity this coming year on some potential clawback. Operator: The next question comes from Andrew Mok with Barclays. Andrew Mok: Same-store billable census was down 1.1% year-over-year, and you mentioned that it was down slightly sequentially. But I think you also said that you're seeing growth in a majority of your key states. So can you help us understand that dynamic and provide more detail on the geographies and items that are weighing on the portfolio? Heather Dixon: Andrew, I'll take that question. Yes, I'll give some color on what we're seeing in terms of volume and census. We've mentioned that same-store hours increased 2.4% and were roughly in line with Q3 as well. And during 2025, we've mentioned before that we had a focus on serving to authorized hours as well as census. And we've seen some positive movement in terms of the service percentage year-over-year. Again, it was essentially flat on a sequential basis just as a result of normal seasonality that we would expect. But then as we think about census growth, we have seen some trajectory that we like that we're seeing. We've seen sequential census growth. We've been focused on that for 2025, and we have seen that each quarter during 2025 until a slight tick down in Q4, again, from the holidays as we would have expected. We're closing that census gap on a same-store basis. And as we move into the second half of 2026, I would expect that we would start to see positive year-over-year growth, particularly as we continue to consistently see admissions and starts of care outpacing discharges. Andrew Mok: Great. And just as a follow-up, there's been heightened attention recently on fraud, waste and abuse in the personal care space. Can you talk about how states are approaching this issue and what steps you're taking to ensure that you're aligned with the evolving policy and guidelines? R. Allison: Yes, Andrew, one of the things that we, as a management team, tried to do 10 years ago now, almost 11 years ago, when we came into Addus at that time, we wanted to really have a very strong compliance program. And so we spent a lot of dollars building this program up. We have a leader there who's very familiar with the various aspects that goes on in both the clinical side and the non-clinical side as it relates to various audits by the state and the federal government. So for us, when people talk about fraud and abuse, we understand that, that does occur in all levels of care in which we operate. I think the important thing for you to understand is we are -- we like the fact that there is a focus on fraud and abuse because we believe we spend extra dollars and extra time and make sure we're trying to comply with what is out there and not -- some of the smaller players may not have that ability to make those investments. So for us, as people look as states look at fraud and abuse, it may give us the opportunity to grow our business as maybe some of the smaller mom-and-pops realize that there are things they need to do that maybe they can't afford to do and they look and get out of the business. So for us, we're pleased with the focus on fraud and abuse, and we will continue internally to always focus on making sure that we're as compliant as we can be. Operator: The next question comes from Matthew Gillmor with KeyBanc. Matthew Gillmor: You all have done a good job driving penetration of authorized hours, particularly in Illinois you've rolled out the caregiver app. I was curious how the rollout has gone in New Mexico, just where that stands? And can you help us think through the sort of future opportunity in terms of driving greater penetration of authorized hours as you roll out to New Mexico and other states? Heather Dixon: Sure. Matthew, it's nice to hear from you. I'll address that. So you are correct that we are seeing some very nice momentum in terms of service percentage that I just talked about. We are seeing that momentum in Illinois specifically, where we've had the caregiver app rolled out for the entire year of 2025. We have seen that service percentage rate up in the upper 80th percentile consistently. And we believe that is in large amount due to the app that we rolled out. We've also seen utilization by the caregivers in that market of flex hours on a pretty steady basis, which is also very encouraging. As you mentioned, we did begin to roll that out in 2025 to New Mexico, and we're making steady progress there. We are also beginning to deploy in Texas here imminently in Q1, and we are aiming to have that complete in Texas by the end of Q2 or early into Q3. And we believe that our greater opportunity to capture some momentum will be in that Texas market just due to some of the market dynamics and how some of the EVV is submitted in Texas versus in others -- in New Mexico or in Illinois. So we are pleased with what we're seeing, and we are still carrying that momentum forward to continue to roll it out. Matthew Gillmor: That's great. And then as a follow-up, I was curious, this may be a Brian question. But as we think about Gentiva rolling into the same-store base, will that be sort of additive to the same-store growth? You [ reported ] Gentiva growing sort of in line to below sort of the corporate average? Just wanted to get a sense for how -- when Gentiva rolls into the same-store base that influence your same-store growth metric. Brian Poff: Yes, Matt, I think it's fair to say Gentiva probably is following a fairly similar path to the remainder of our business. So not probably expecting material uptick or downtick from putting Gentiva in that number. It should be fairly consistent in our view. Operator: The next question comes from Jared Haase with William Blair. Jared Haase: Maybe just to unpack the comments on the personal care labor side a little bit more. I'm curious how much of the strong hiring trends that you've experienced over the last couple of months would you attribute to, I guess, things Addus can control. So thinking, obviously, just having a good caregiver experience, maybe some improvement around the onboarding process to get caregivers matched up with patients efficiently as opposed to maybe just broader macro trends that might be bringing incremental caregivers into the market? Heather Dixon: Sure, I'll take that. It's definitely a mix of both. I think maybe starting in reverse order from a macro perspective, we're certainly seeing some trends that are working in our favor that are helping with our results from a hiring perspective. But from our perspective, we are absolutely focused on what we can control, and that includes sort of from beginning to end of the process with how we source and recruit caregivers all the way through to how we can ensure that they are getting a schedule and are ready to go very quickly after they have been through the hiring and training process to make sure that we capture that momentum. So all of the things in between as well. But I would say it's a mix of both of those things. Jared Haase: Okay. Great. That's really helpful. And then this is maybe for Brian, but I'm just curious, are there any guardrails or sort of puts and takes we should be thinking about relative to your opportunity to expand margins year-over-year in 2026 EBITDA margins, I'm thinking? Brian Poff: Yes. I mean I think our thesis has always been, as we continue to see consistent top line growth, we should get leverage, particularly on G&A. So with everything being said, looking at the landscape right now in '26, we would expect to see something similar occur this year. So we've finished last year in a pretty good spot. I think a couple of years ago where we had maybe some higher wage pressures coming out of COVID with some of the nursing shortages and the like. We haven't seen that in the last couple of years. Don't expect to see that this year. So I think that's reasonable to think just from an EBITDA perspective, top line growth should continue to drive some bottom line additional leverage for sure. Operator: The next question comes from Sean Dodge with BMO Capital Markets. Unknown Analyst: This is Thomas Keller on for Sean. I wanted to follow up on the caregiver app, and I might have just missed it, but are you able to more specifically quantify the volume lift that you've seen that you think is directly attributable to the app? Heather Dixon: So I'll point to sort of how we measure it internally. And it's -- I'll start by saying we can't directly attribute specific pieces of growth to the app. That's not something that's possible to track. But what we can see are a couple of different metrics, which are encouraging. The first is the number of caregivers that are utilizing the app. We see that has grown throughout the year in Illinois and has stabilized at a rate that, frankly, I think means most caregivers we've captured and they are using the app. The second metric would be the frequency of utilization of the app. So we can see if someone is using the app regularly versus if they just downloaded it once and haven't really been interacting with it, we're actually seeing increasing utilization as well. And then the final thing that I'll mention -- I mentioned briefly before is the utilization of flex hours. And effectively, that is where a caregiver can go into the app and they can see incremental hours that they can serve and capture those so that they can make sure they're serving their clients to the authorized level. And also for them, it's an opportunity to earn some more hours for the period. So we're tracking that as well, and we're seeing some nice movement and continued utilization at pretty strong rates there. And you see that coming through in the service percentage that we've been talking about. So hopefully, that helps you think or understand how we think about the benefits from that app. But again, it's not possible for us to give you a direct number because of the different moving pieces. Unknown Analyst: Yes. That's helpful. And then on the Homecare Homebase CMR transition in PCS, is there any update on the time line there? And how soon after the integration should that start to drive more clinical referrals and value-based opportunities? Brian Poff: Yes. I think where we are with Homecare Homebase, we've been obviously working with them for quite some time. We've got probably 30-plus of our locations are on the system today over a few different states as we move through just developing the software. I think we've got a schedule for a more enterprise-wide rollout. But as we've always talked in the past, we're going to take a very measured approach to that. So we'll be working on that over '26 and probably into the better part of '27 before we get all of our personal care business over onto that platform. So again, we'll be looking to market-to-market one at a time to make sure that goes very smoothly. But that's kind of the existing expectation on time line today. Operator: The next question comes from Ryan Langston with TD Cowen. Ryan Langston: Dirk, you mentioned you believe the 80/20 will ultimately be repealed. And I think you actually said specifically in the near future. Are you hearing anything specific from CMS or your lobbyists that give you the confidence they're going to ultimately repeal that rule? R. Allison: Well, Ryan, first understand that anything we hear is always subject to change, as you know. But yes, we've been hearing good things. Our team has been working with our lobbyists, working with CMS. We believe that they're in the process of looking at these rules and making some changes. We've had some indication that the timing will be sooner rather than later. But again, I want to caution, this is a rule that doesn't take effect for a number of years. So there's not that immediacy to it. However, from what we're hearing, it should be -- that rule should change, and we're hoping will change in the near future, which we believe will just send a signal to the industry and to various investors in the industry that, that is not an issue anybody has to worry about anymore. Operator: The next question comes from Clarke Murphy with Truist. Clarke Murphy: Just had a question on your payer mix in the quarter, specifically in personal care, shifting a little bit towards managed care. Just kind of wanted to get a sense for was that by design? Or is that kind of just happenstance? And anything that we should be thinking about as it relates to personal care payer mix would be helpful. Brian Poff: Clarke, that was just a direct result of the Del Cielo acquisition we did in Texas. Texas is a heavy managed Medicaid state. So that is what impacted the mix in the fourth quarter with that acquisition. Clarke Murphy: Okay. Great. And then just as my follow-up, can you give us an update on the home health and hospice bridging program that you guys have in place, kind of how much more wood there is to chop on that front? And if we could start to see a potential return to growth in 2026 on the restart side? Heather Dixon: Sure. Sure. Let me take those in a couple of pieces. So first, on the bridging program, we continue to have a heavy focus on that program because we do see the benefits. First, it's providing the right levels of care to our clients and our patients in sort of the setting and the utilization that they need, but also because it's a really good source for us to be able to serve patients when they are ready for hospice as opposed to home health. We have seen, as we've mentioned, some nice transitions and referrals coming from home health into hospice in the markets where we have density and where we have been really focused on this program for a bit of time. New Mexico specifically, we have density. We're co-located in most of our locations there between home health, hospice and PCS. And so we have really good opportunities, and we are -- it's just part of the program. And so we continue to see nice results, and we would expect for that to continue as we focus on it with our operations team and sales teams. Tennessee, we rolled that out in 2025 and began to do the same work there from a bridging perspective. That is a little bit of a newer program, but we're seeing nice returns on what we have been focused on and what we're implementing with the bridge program in Tennessee. So in order for us to continue to see that program flourish, we'll continue to drive it in the markets where we have density. And then as we have opportunities for growth in specific markets for home health and for hospice, I think that's going to become very useful for us to grow the programs. And then secondly, if I turn to the second part of your question about home health and how we are thinking about that, we're driving home health. We're making some changes to really focus on some of the basics. And a couple of things I would point out. The first is admissions growth. We did see admissions growth during the fourth quarter. It ticked up slightly from Q2 to Q3 to Q4 with a little bit of a higher tick up in Q4. So we are seeing admissions going in the right direction. And we have seen some positive momentum in some of our key markets where we have confidence that we will return to growth. And just maybe a couple of things to point out in terms of home health. We have -- just to show the focus that we have here. First, we've just hired a new market president to lead the home health business, which is something that we've not had before, but we're focused on the business, and we've hired someone with very specific industry experience to come in and really take the lead on that business so that we can focus on it. And then second, similarly, we are focused on bringing in the right sales leaders and sales team there from a home health perspective, and that will work in tandem with this new market president to lead from an operations side. So those 2 changes are things that we are very intentionally doing to focus on the home health business and capture the growth opportunities there for 2026 and beyond. And our goal and what we would expect is that we'll start to see some growth there towards the second half of 2026. Operator: The next question comes from John Ransom with Raymond James. John Ransom: Hard to just come up with a clever question, 54 minutes into a call. I just want to explain that. So my question is, a lot of companies are getting asked about technology, AI, et cetera. It wouldn't appear from the outside that there's a ton of opportunity there. I know you rolled out the caregiver app, but I'm thinking in terms of back office automation and AI. Is there a technology lever longer term that we're not thinking about that the company is working on? Brian Poff: Yes, John. I think in a couple of places, we see there's some opportunity, and we're working with our vendors to see if there are ways to see some AI implementation. But I think the 2 we would flag out, obviously, you referenced this back office rev cycle. There should be some opportunities there that we're looking at. I think the other large one for us is just, we think about scheduling and the logistics of our personal care business. Can we use some AI there to help automate some of those processes on the front end rather than having to have as many manual interventions. So I think those are probably the 2 big areas. But I would say we've got a an AI committee internally formed across multiple of our disciplines led by our CIO, that is looking at ways to implement AI in a way that would benefit and work well for the company, but all things that we're looking at. John Ransom: Okay. And then just kind of speaking of your rate negotiations, is it different when you're talking to a Medicaid payer versus directly to the state? Do the payers seem more rational? Or is it kind of the same conversation regardless of where it comes from? Brian Poff: It depends on the state. I think, as you know, most states, even if they have managed Medicaid, the payers really have no voice in that because it's a rate set by the state. They're acted more as a TPA. So there's not really a lot of opportunity to talk rates with them. I think the one difference we have is in New Mexico, we actually have the ability there to negotiate directly with the 3 large MCOs. I referenced earlier that the state increase will be kind of across the board to the MCOs and then we have the ability to go have conversations with the MCOs and get some leverage. But I think we've been very successful in New Mexico. I think we've done well. We're obviously the largest in the state, so have a pretty good leverage. And I think with all 3 lines of care, I think that's also a benefit for us, but really kind of isolated to that state and those conversations with payers on the personal care side today. Operator: The next question comes from Joanna Gajuk with Bank of America. Joanna Gajuk: And actually, I want to follow up on this last commentary around payers because we actually do hear so managed Medicaid plans calling out higher LTSS and that includes home care spending. It sounds like you have a good relationship in New Mexico, but any incremental changes you're seeing there from any of your payers at the state level? I'm thinking anything about denials or just delaying payments or anything else that maybe you're watching? Brian Poff: Not that we've seen, Joanna. I think in all the other states where they kind of are acting in that kind of TPA role, we haven't seen any changes in behavior, haven't seen any shifts in utilization or authorized hours. Those are all processes that the state usually has somebody independently go in and assess what the needs are in the patient's homes. So I haven't seen any change or pressure there. That would be something that the state would control, but not today. No changes that we've noticed. Joanna Gajuk: And as it relates also to payers, in the past, we talked about some opportunity there in managing the dual population because that's more underserved and high cost. So maybe give us an update where you stand there? Are you engaging any specific contracting that targets the dual population? And could this be an opportunity for you guys? Brian Poff: Yes. We've been doing some things what we call on the value-based side, where we are working with managed Medicaid, where they have some high-risk populations that they're responsible for. I think we've shown some fairly compelling results if you're leading with personal care and mitigation of some of the costs for those high-risk patients. So I think New Mexico, obviously, the market where we've been doing that the longest and have some pretty mature data. We've been implementing those as well in Illinois and have started in Tennessee, probably still a little earlier there, but I think early on seeing similar results. So probably isn't going to be something just from a contractor perspective that's going to turn into like a sizable revenue opportunity. But I think the information that we're gathering the data and the savings that we're showing when you lead with personal care, we think is fairly compelling and it should be helpful in conversations in the future. Joanna Gajuk: And last one, different topic. I don't know if I missed it, but did you guys talk about the winter storms in late January? Have you seen much of an impact on how I guess the rescheduling or catching up on that occurred in February. Brian Poff: Yes. With the storms in late January kind of coming through the Midwest, we probably saw a little bit of pressure. I think -- you think personal care, we tried to schedule as many visits as we could in advance. We all knew the storm was coming and tried to make up as many as we could on the other side, but a variable, you're probably going to miss a few visits just as a result. So again, nothing we think is material, but definitely did see a little bit of impact from those storms coming through in late January. Joanna Gajuk: And any observation in February after the storms? Brian Poff: Not that we've noticed. If you think about where most of that is hitting, we really don't have a lot of operations up in that part of the country. So nothing that we're seeing at the moment, no. Operator: The next question comes from Raj Kumar with Stephens. Raj Kumar: Maybe just kind of focusing on hospice length of stay. 4Q tends to be a seasonal high point, but it was a nice sequential bump. So I'm just kind of curious on what were kind of the underlying drivers, maybe kind of referral normalization or further play out of that? And then I guess maybe just any commentary around comfortability around kind of cap space on the hospice payment front as well. Heather Dixon: Sure. I'll take that, Raj. So we've mentioned before, and I'll just go into a little bit more detail that we are -- we've had a focus for 2025 on really diversifying and ensuring that we have the right mix of referral sources in each market. Each market is a little bit different. As you point out, we have differing lengths of stay depending on the patients that we have been caring for. And so we are very intentionally focusing on a market-by-market basis on the correct referral sources there. I think that's driving what we can see as some nice trends in the length of stay. It's driving nice trends in terms of the mix of patients and also admissions of new patients has grown very nicely throughout 2025 and that will also contribute to the mix that we're seeing. In terms of cap, we did see improvements in Q4 in the overall cap position. We actually had a little bit of a benefit, nothing material overall, but it was a material positive movement in terms of its relation to the total cap position that we had seen. And I think that's in large part to the efforts and the refocused efforts of the sales team in terms of diversifying that referral mix. Raj Kumar: Got it. And then maybe just one more kind of broader question around kind of labor environment and then potential tailwinds from Medicaid work requirements. And I guess just thinking about the Arkansas book and how that state has had Medicaid work requirements. Any way to kind of contextualize that kind of labor market in Arkansas in terms of, if there has been kind of any benefit -- significant benefit on the hiring and labor front from an statement of Medicaid work requirements as you think about other states start to implement that towards the back half of '26 and the implications around that? Heather Dixon: Sure. There's nothing I would point to specifically in relation to Arkansas. I know they've had those in place before, and that's been part of how they operate, but we haven't seen really anything to point out in terms of what our hiring prospects have looked like as a result of that. We actually see the opportunity, I think, as you were alluding to here for us in terms of the work requirements as being something that could benefit us as people are looking for work, they're looking for incremental work or even flexible or part-time work, we can help with that. And so we don't see it as something that we need to be cautious of. We see it as potentially an opportunity. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Dirk Allison for any closing remarks. R. Allison: Thank you, operator. I want to thank each of you today for taking the time to join us on our call, and I hope you have a great week. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Ms. Regina, and I will be your conference greeter today. At this time, I would like to welcome everyone to the Armstrong World Industries, Inc. Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Theresa Womble, Vice President, Investor Relations and Corporate Communications. Please go ahead. Theresa Womble: Thank you, Regina, and welcome, everyone, to our call this morning. Today, we have Vic Grizzle, our CEO; Chris Calzaretta, our CFO; along with Mark Hershey, our Chief Operating Officer, who will discuss Armstrong World Industries fourth quarter 2020 (sic) [ 2025 ] results and our outlook for 2026. We have provided a presentation to accompany these comments that is available on the Investor Relations section of the Armstrong World Industries website. Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of these measures with the most directly comparable GAAP measures is included in the earnings press release and in the appendix of the presentation issued this morning, both available on our Investor Relations website. During this call, we will be making forward-looking statements that represent the view we have of our financial and operational performance as of today's date, February 24, 2026. These statements involve risks and uncertainties, that may differ materially from those expected or implied. We provide a detailed discussion of the risks and uncertainties in our SEC filings, including our 10-K filed earlier this morning. We undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law. With that, I will now turn the call to Vic. Victor Grizzle: Thank you, Theresa. And, good morning, and thank you for joining our call today. As many of you know, this will be my last Armstrong's earnings call as CEO, as I'll be moving into the Executive Chairman position on April 1. And as previously announced, Mark Hershey, currently our Chief Operating Officer, will be taking the helm as President and CEO effective at that time. It has been both a privilege and an honor to have led this great company for the past 10 years. Throughout my 15 years here at Armstrong, Mark has served alongside me in various key leadership roles. His extensive experience and track record of delivering results, combined with his strong dedication to our values and our culture of operational excellence, make him both well-equipped, and ready to lead this organization. We will hear from Mark later in the call today to discuss our recent acquisition of Eventscape and some advancements in our new product innovations. So let me begin with our record-setting 2025 results. 2025 represented another year of strong execution and a full demonstration of our resilient business model that delivered profitable growth despite persistently challenging market conditions. It was our team's continued execution at the highest level across the enterprise that enabled us to deliver another record-setting double-digit growth year across all key metrics, again, even as market conditions remained unfavorable. At the total company level for the full year, our net sales increased 12% from the prior year, and our adjusted EBITDA grew 14% with our adjusted EBITDA margin expanding 70 basis points. As noted in our press release that we issued earlier, 2025 was our second consecutive year of double-digit growth, where the core values of Armstrong were on full display, such as strong Mineral Fiber average unit value growth, robust productivity across our operations and double-digit top line growth in our Architectural Specialties segment. Our 2025 results also marked the fifth consecutive year of net sales and earnings growth. And also notable, this is the third consecutive year we have reported year-over-year adjusted EBITDA margin expansion. These strong and consistent results reflect our team's ability to steadily execute across the enterprise in all parts of the cycle. So before getting to our quarterly results, I want to take a moment and recognize and express my gratitude to our team of nearly 4,000 employees. Their commitment and their passion for what we do, and dedication to serving our customers are not only impressive, but they're unique and a key driver of our continued success. So thank you to the entire Armstrong team. Now turning to our fourth quarter results. In the quarter, we finished with softer results than expected, even though we had solid AUV growth in Mineral Fiber with favorable like-for-like pricing, strong productivity, more than offsetting inflation and continued double-digit top line growth in Architectural Specialties. Softer results on the top line in Mineral Fiber mainly came from the impact of the extended government shutdown that disrupted maintenance and repair activity for government buildings across the U.S. In addition, we did not see the normal bounce back after reopening, which impacted Mineral Fiber volumes in notable areas like our Washington, D.C. territory, and with our MRO customers serving the repair and maintenance activity in government buildings. Softer-than-expected results in the quarter also occurred in the Architectural Specialties segment, primarily driven by key project delays. This created a cost imbalance in the quarter, temporarily compressing margins in the AS segment. Together, these drivers formed an air pocket of sorts for the total company results that we expect to work through in the coming quarters. As I mentioned in the quarter, average unit value, or AUV, in our Mineral Fiber segment increased 6% on strong like-for-like price performance and positive impact, positive product mix driven by our innovative products. Despite short-term pressures created by these temporary market events, Mineral Fiber EBITDA increased 15% to a record fourth quarter result and a record fourth quarter EBITDA margin of 42.1%. Architectural Specialties delivered 11% top line growth with solid inorganic and organic contributions despite the project delays. And importantly, order intake growth continued to be strong at double-digit levels year-over-year in the fourth quarter, sustaining our momentum heading into 2026. We continue to see strength in the transportation vertical for a broad portfolio of AS products, and we continue to win large airport projects with recent wins at LAX and Salt Lake City International Airport. We continue to expect the transportation vertical to provide a tailwind for several years to come. Both the Mineral Fiber and Architectural Specialties segments contributed to our record results in 2025, with our strong focus on operation -- operational execution being a key contributor to our sustained leadership position, and our growth initiatives providing above-market growth rates. Operational excellence enabled now by technology is critical both in terms of profitability as well as from the eyes of our customer in terms of quality and service. And this was an outstanding year in both areas, with our teams delivering a record high result for our perfect order measure. This measure I've described before, tracks our performance across multiple metrics that are critical for maintaining our best-in-class customer service levels, things like on-time delivery, product defects, billing accuracy. Executing at high levels across these areas not only drives customer satisfaction, but it also supports our pricing performance in competitive markets and reinforces the strength of our market position. After a few years of foundational investment in our growth initiatives, they continue to scale and are contributing to our business model and are creating value as a competitive differentiator for the company. On the digital front, the use of PROJECTWORKS, our automated design platform continues to grow and generate higher win rates on projects when the service was used, reinforcing its value again as a competitive differentiator. Kanopi also continued to perform well and contribute nicely to our growth in 2025, providing an easy way for otherwise underserved customers to access a broad range of products through a simple online selling platform. We are pleased to see record revenue and EBITDA results for Kanopi in 2025, with each quarter providing a positive EBITDA contribution. Now, in addition to these successful digital growth initiatives, with growing opportunities in data centers and energy-saving ceilings, total contributions from our growth initiatives are positioned to further accelerate in 2026 and beyond. And Mark is going to cover these two key growth opportunities here in a moment. All in all, these results together with our growth initiatives, were another demonstration of how our business model, and our strategy can deliver growth above the market and do so profitably through our pricing discipline, operational excellence and strong operating leverage. Now I'll turn the call over to Chris for more details on our financial results. Chris? Christopher Calzaretta: Thanks, Vic, and good morning to everyone on the call. As a reminder, throughout my remarks, I'll be referring to the slides available on our website. And please note that Slide 3 details our basis of presentation. On Slide 8, we begin with our Mineral Fiber segment results for the fourth quarter. Mineral Fiber sales grew 3% in the quarter, driven by AUV growth of 6%, partially offset by lower sales volumes. The increase in AUV was primarily driven by favorable like-for-like pricing, along with a positive contribution from mix. Volumes in the quarter were softer than we expected, primarily due to short-term headwinds from the indirect impacts of the federal government shutdown as well as softer home center demand. Mineral Fiber segment adjusted EBITDA grew by 15% in the quarter with adjusted EBITDA margin expanding 460 basis points to 42.1%, despite lower volumes. As Vic mentioned, Mineral Fiber's adjusted EBITDA margin of 42.1% in the quarter marked the best Q4 margin performance in the segment since 2016. Adjusted EBITDA margin expansion was primarily driven by the fall-through of AUV, which benefited from strong like-for-like price benefit and a favorable claims adjustment in the quarter, higher equity earnings from our WAVE joint venture, favorable SG&A expenses and lower input costs. From a full year perspective, Mineral Fiber adjusted EBITDA margin finished at a record-setting 43.5%, surpassing the high watermark of 2019. This level of financial performance underscores our Mineral Fiber value creation drivers including consistent AUV growth, annual productivity gains and positive contributions from our WAVE joint venture, along with our disciplined focus on cost control. On Slide 9, we discuss our Architectural Specialties or AS segment results. Double-digit sales growth of 11% in the quarter was driven primarily by contributions from our 2024 acquisitions of 3form and Zahner as well as organic growth. As a reminder, the fourth quarter compares to a very strong prior year period that delivered 15% sales growth, largely driven by several large transportation projects in the fourth quarter of 2024. Importantly, full year organic AS sales grew 9%, which was consistent with our expectations of high single-digit growth. AS segment adjusted EBITDA decreased 3% in the quarter with adjusted EBITDA margin negatively impacted by softer organic top line performance, resulting in less favorable operating leverage due to the timing of custom projects. Higher manufacturing costs were driven primarily by the recent acquisitions, and our organic business, which increased in part due to capacity investments in support of future growth, while higher SG&A expenses were primarily due to recent acquisitions. Partially offsetting these increases in costs was a benefit from higher sales volumes. For the full year 2025, adjusted EBITDA margin for the AS segment was approximately 18%, representing 50 basis points of margin expansion, but below our 19% margin guidance due to fourth quarter headwinds from project timing. Overall, we are pleased that on an organic basis, AS adjusted EBITDA margin was approximately 19%, and that in 2025, we delivered 2 quarters of AS organic adjusted EBITDA margin of 20% or greater. This performance demonstrates that the underlying AS business fundamentals are strong, and that we have the right building blocks in place to deliver at or above our 20% target level as project timing normalizes. We expect continued progress in profitability and margin improvement as we integrate our recent acquisitions, drive operational efficiencies and scale these businesses on the Armstrong platform. And we remain committed to delivering our targeted 20% adjusted EBITDA margin for the AS segment. On Slide 10, we highlight our fourth quarter consolidated company metrics. We delivered solid sales growth with double-digit adjusted EBITDA growth and total company adjusted EBITDA margin expanded 160 basis points. Excluding recent acquisitions, total company adjusted EBITDA margin expanded 230 basis points. Adjusted EBITDA growth in the quarter was primarily driven by the fall-through impact of strong AUV, positive WAVE equity earnings, lower input costs and benefits from manufacturing productivity. These impacts were partially offset by increased manufacturing costs within the AS segment. Turning to Page 11. Full year sales increased 12%, and full year adjusted EBITDA increased 14%, resulting in 70 basis points of margin expansion. We also saw double-digit growth in adjusted diluted net earnings per share, up 17%; and adjusted free cash flow up 16%. These robust results reflect the power of our financial performance drivers, incremental growth from AS acquisitions, market penetration in the AS segment and the benefits from our growth initiatives, consistent strong AUV performance, manufacturing productivity gains across our plant network and healthy WAVE equity earnings. These benefits more than offset increases in SG&A and manufacturing costs driven by our recent acquisitions as well as a modest increase in manufacturing costs in our organic AS business. Slide 12 shows our full year adjusted free cash flow performance versus the prior year. The 16% increase was primarily driven by higher cash earnings and an increase in dividends from our WAVE joint venture, partially offset by higher capital expenditures. The $26 million step-up in capital expenditures reflects our continued strategic priority of reinvesting back into the business. During the year, we deployed capital to further enhance manufacturing productivity across our plant network, expanded capabilities at one of our Mineral Fiber facilities to support the growth of our TEMPLOK energy saving ceiling offering and advanced several key IT and digital initiatives. Targeted investments like these reinforce our commitment to advancing our growth strategy while maintaining a disciplined capital allocation approach. The strong adjusted free cash flow profile of our business allows us to execute on all of our capital allocation priorities. And as a reminder, our first priority is to reinvest back into the business where we see the highest returns, such as the investments I just outlined. Our second capital allocation priority is to execute strategic acquisitions and partnerships to create shareholder value. In the fourth quarter of 2025, we acquired the issued and outstanding shares of Parallel Architectural Products, and just last week, we announced the acquisition of Eventscape. In 2025, Eventscape generated approximately $30 million in revenue, and we expect that this acquisition will be a positive contributor in 2026. Mark will be covering this in more detail in a moment. Our third capital allocation priority is returning cash to shareholders through dividends and share repurchases. In the fourth quarter, we paid $15 million of dividends to our shareholders, and we repurchased $50 million of shares, representing a meaningful step up from the pace of repurchases in the prior 3 quarters. As of December 31, 2025, we have $533 million remaining under the existing share repurchase authorization, which runs through the end of 2026. We entered 2026 with a strong balance sheet and ample available liquidity, and we remain committed to delivering on all of our capital allocation priorities. Slide 13 presents our guidance for 2026. With slightly improving market conditions, we expect Mineral Fiber volume flat to up 1% for the full year, including contributions from our growth initiatives. We also expect Mineral Fiber AUV growth above our historical average at approximately 6%. Additionally, we expect high single-digit AS organic growth reflecting continued traction as we penetrate a highly fragmented market. Inorganic contributions from Geometric will be incremental through the first 8 months of the year and results from both Parallel and Eventscape acquisitions will be incremental throughout the full year. We expect these acquisitions together to drive approximately half of the total AS segment sales growth. This results in total company net sales growth of 8% to 10%. Moving to adjusted EBITDA. We expect adjusted EBITDA growth of 8% to 12%, with adjusted EBITDA margin expansion in both segments for the full year. We expect Mineral Fiber AUV growth to be more than offset -- to more than offset input cost inflation. In addition, growth in the AS segment, the benefits from WAVE, and our continued focus on execution throughout the organization will contribute to earnings growth. While we expect SG&A to increase modestly as we continue to strategically invest in the business, we also expect SG&A as a percentage of net sales to improve as compared to 2025. For the full year, we expect adjusted diluted net earnings per share and adjusted free cash flow to grow at rates largely similar to adjusted EBITDA. Please note that additional assumptions are available in the appendix of this presentation. It's also worth noting that our first quarter is typically a seasonally impacted quarter with Q2 and Q3, representing our stronger sales quarters in Mineral Fiber due to favorable weather conditions and the typical timing of renovation and new construction activity. While we don't guide to individual quarters, we expect a more muted start to 2026, reflecting both seasonality and the choppiness we've seen in the broader market, coupled with significant weather -- winter weather events across multiple regions in the U.S. Accordingly, we anticipate Mineral Fiber volume in the first half of the year to be slightly softer than the back half as a result of these dynamics. In closing, despite challenging market conditions, we delivered record Mineral Fiber profitability, strong AS growth with continued progress on margins and robust adjusted free cash flow growth that enables us to continue to execute on all of our capital allocation priorities. As we enter 2026, our disciplined strategy for growth and proven value creation model position us well to deliver another year of profitable growth. And now I'll turn it over to Mark for further commentary. Mark? Mark Hershey: Thank you, Chris, and good morning, everyone. First, I'd like to start by expressing how honored and proud I am to have the opportunity to serve as the next CEO of Armstrong World Industries, particularly at this exciting time in our history. Armstrong has a rich legacy of innovation in ceilings and specialty walls, and that legacy remains fully intact today, and it provides an exceptional platform for continued success. I look forward with confidence to working alongside our executive leadership team, our dedicated employees, and our trusted partners as we together write the company's next chapter. Vic, you are leaving the business stronger and more resilient than it's ever been and perhaps most importantly, well positioned for continued growth. On behalf of the entire organization, thank you for your dedicated and outstanding service to our company and the strong foundation you will leave behind. As Vic and Chris have noted, 2025 represented another record year in a multiyear period of profitable growth. Those results were driven by our resilient business model, and our consistent focus on AUV growth, productivity, innovation and expansion of our Architectural Specialties business. Over the last decade through innovation and acquisitions, we've successfully expanded the company's reach beyond traditional Mineral Fiber ceilings to a broader set of solutions, including specialty ceilings and walls with a growing platform for design-centric solutions for more and more spaces within the built environment. And now we are expanding our solutions for energy-efficient buildings and for data centers, 2 of the most durable and accelerating growth markets in construction today. Throughout 2025, we continue to pursue and prioritize innovation aligned with both of those powerful macro trends. First, the increasing need to reduce energy consumption as power demand accelerates and power costs rise. And second, the rapid global build-out of data centers driven by cloud computing and AI. These are long-term structural shifts, and they are reshaping how buildings are designed and operated. And the fourth quarter of 2025 marked an important step in our commercialization of innovation in these 2 key areas. On the energy efficiency front, we introduced an upgraded TEMPLOK energy-saving ceiling solution within our Sustain portfolio. This new solution enhances passive heating and cooling performance, improves fire rating and thermal comfort and gives architects more design flexibility. As customers from owners to contractors to architects, better understand TEMPLOK's multiple value propositions and economic benefits supported by tax credit incentives and real-world validation through case studies, we are seeing interest and adoption grow. For example, we are currently shipping TEMPLOK for office renovation projects with 2 major financial services firms in New York City. And we were recently awarded TEMPLOK specifications for higher education projects on both the East and West Coast. We expect much more to come on this exciting opportunity as we develop the market for this multidimensional new ceiling solution. In data centers, the fastest-growing vertical in commercial construction, our opportunity extends beyond ceilings to engineered infrastructure. In Q4, we launched DATAZONE panels and DYNAMAX LT Structural Grid Solutions designed for mission-critical environments that require higher load capacity, better airflow management and faster installation. We also expanded into other high-performance environments with the launch of SKYLO, our integrated walkable ceiling system for clean rooms, advanced manufacturing and cold storage. Taken together, these innovations supported by our digital growth initiatives will enable us to drive volume growth ahead of the market and support our ability to continue to deliver AUV growth. In 2025, our growth initiatives contributed roughly 1 point of growth in a down market. In 2026, with contributions from data centers and energy savings, we expect our growth initiatives to contribute up to an additional 0.5 point of growth. In addition to innovation, our strategy also involves the expansion of our AS business through greater portfolio breadth and capabilities, where we have demonstrated success over the last decade through acquisitions that offer innovative capabilities and materials expertise. By adding these differentiated businesses to our sales and service platforms, we are driving accelerated growth and improving margin performance over time. Eventscape is another exciting example of this strategy and of how we are boosting our ability to partner with architects, designers and even building owners at the earliest stages of projects, when design intent and technical feasibility remain uncertain and still under development. Eventscape is unique within our Architectural Specialties acquisition because of their remarkable ability to design and fabricate with any material substrate, which is what we mean by material agnostic. And while their focus includes ceilings, walls and facades, it also includes distinctive and often iconic architectural features that differentiate the occupant experience in or around the space. Some great examples of this include special features in the new JPMorgan Chase Headquarters and in the recently completed Pittsburgh International Airport. Notably, these are projects where both Armstrong and Eventscape participated on different and complementary aspects of the overall work. In summary, we are extremely excited about the potential of our recent innovation activity, and our recent acquisitions to strengthen our company for consistent growth. Armstrong is now more uniquely positioned than ever to offer solutions for a wider array of applications in commercial buildings. I look forward to sharing more of our progress in these areas in the future. And with that, I'll turn the call back to Vic. Victor Grizzle: Thank you, Mark. And as you can hear from Mark's comments, we have a lot to be excited about here at Armstrong in 2026 and beyond. The recent acquisitions like Parallel and Eventscape expand our sales opportunities within commercial buildings and further strengthen our relationships with architects and designers. The innovation we've highlighted enables our competitiveness in 2 new growth areas of the market, data centers and energy savings, both of which contribute to consistent Mineral Fiber AUV growth, incremental volume growth ahead of the market. These are key building blocks for continued consistent profitable growth. Now looking ahead to our market outlook, we are encouraged with some improvement in visibility. However, high levels of uncertainty around policy around interest rates, potential geopolitical events still exist. In 2026, we expect underlying market conditions to be steady and slightly improved versus what we experienced in 2025. Within this outlook, we expect transportation to remain an area of growth, along with data centers and the gradual healing of the office vertical. As we experienced in 2025, we also expect to have near-term opportunities from new construction starts in the healthcare and education verticals from projects that were initiated in the past 24 to 30 months. Now while the office vertical does appear to have bottomed, and we see green shoots of opportunity emerging, we haven't yet seen a significant return of broad tenant improvement work at this point. It is worth noting that even as a full recovery in office has yet to materialize, we are seeing in the bid data, that project bids are at meaningfully higher values, meaning that building owners who are doing tenant improvements are investing more into office spaces to enhance their aesthetics, their functionality and their amenities. Now this is encouraging and represent a prime opportunity for Armstrong to leverage our broad portfolio of products, playing to our strength at the high end of the market. In closing, I want to thank our employees again for their dedication and solid execution that enabled us to deliver another year of record results in 2025 and really set us up for continued success in 2026. We have executed well on our strategy and enhanced our value-creating building blocks. With our growth initiatives that we've invested in through the pandemic, we are now delivering above market performance. And we have made several strategic acquisitions that have expanded our capabilities and our addressable market. Over the 10-year journey we've had at Armstrong, we have purposely built a highly focused Americas ceilings and Architectural Specialty company that delivers consistent, profitable growth. By separating from the flooring business, and divesting of our international operations, we have reduced complexity and focused our investments in North American market, which have strengthened our market position, made our business more resilient and improved our returns to shareholders. Our cash generation has nearly tripled. We have returned over $1.5 billion to shareholders. And through the execution of our strategy, we have significantly increased the value of the company. And today, I am more confident than ever that we are poised to continue on this path in years to come. And with that, we'll be happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Tomohiko Sano with JPMorgan. Tomohiko Sano: Vic, thank you for your leadership and congrats on your transition to Chairman. We look forward to continued execution under Mark's leadership. So my question is for the 6% AUV growth in 2026, what is the price and mix split? And how sustainable is the pricing power in the current competitive environment? And what the customer is saying about the price versus value delivered, please? Victor Grizzle: Yes. Our AUV performance was above historical levels, as you've noted at 6%, and normally, and if you look at this over a long period of time like the past 10 years, it ranges about 50-50 or averages about 50-50. In '25, we had a little bit more price than we did mix contribution based on inflationary pressures and that we were pricing into. So the mix was a little bit more biased toward like-for-like pricing than mix. Going forward, as Chris can outline, we're seeing -- we're anticipating some additional inflation in '26, and our expectation is with our normal cadence on pricing, we're going to continue to price ahead of that inflation and likely to end up with a more positive bias toward like-for-like pricing and mix in the year. That's kind of how we're thinking about it sitting here today. Tomohiko Sano: And my follow-up is that under Mark's leadership, how should we think about the strategic continuity and top priority over the next 12 months, and any key KPIs, please? Victor Grizzle: I'll let Mark take that. Mark Hershey: Yes, happy to take that. Thank you for the question. Obviously, Vic and I, and the leadership team have worked very closely together over the last 7 years or more in my different roles on strategy. So you should not expect a pivot in our strategic direction. I'll be focused on and continue to be focused on innovation, for sure, will be a priority. Our growth initiatives, the initiatives we've had in digital, initiatives I talked about today, so energy savings and data centers and some of the hallmarks of the business, productivity as well as inorganic growth, whether M&A or partnerships as well. So the same consistent areas of emphasis, the same consistent overall strategic objective, consistent profitable growth. Operator: Our next question comes from the line of Susan Maklari with Goldman Sachs. Susan Maklari: And let me add my congratulations to both Mark and Vic. Looking forward to working with Mark and Vic. Enjoy your new time. So my question is talking a bit about the operating environment. You did mention in your remarks, if you are seeing bids for office that are at least meaningfully higher in value, can you talk about how these products and the platforms that you've launched in the last couple of years are gaining momentum and how they're perhaps coming through even with some of the headwinds that it sounds like you're facing? Victor Grizzle: Yes. Let me start just with the actual starts of work in the marketplace is fairly flattish, and it kind of, I think, represents what we're feeling in the market overall. And when you look at the office vertical, in particular, yes, the value stands out, and it's well above inflationary numbers, right? You might look at value bidding numbers and say, yes, well, there's a lot of inflation in there. And there are inflation in these numbers, but they're well above inflationary levels. And of course, this also is consistent with what we're seeing in the marketplace and the specifications that we're working on, where they're using a lot more architectural specialty-type products in certain areas of the building to create these different fields and amenities to entice employees back to work and to keep them in the office. So we were anticipating this coming as more and more constraints are on availability of Class A office space and Class B spaces had to be upgraded to compete. We were anticipating this, but I'm calling this out because it's really notable in the bid data to see how the values are meaningfully higher than you would normally expect from inflationary pressures there. And of course, the answer -- just to add to that, I would just add that this is where having the breadth of product portfolio that we have, that includes Mineral Fiber where they need to use that, but now a whole host of a pallet of materials that we can allow architects to design with. It's really a one-stop shop advantage that we can bring for all different types of designs and all different types of spaces within these buildings. Now it happens to be more prevalent in office spaces, which is, again, a really good opportunity for us. Susan Maklari: Yes. Okay. And that kind of leads to my follow-up question, Vic, which is, can you talk about the integration of the deals that you have done in the last couple of years, where we are in that process? And in your remarks, you also mentioned investments in capacity to support future growth. And so how should we think of the integration and these investments that you're making and the potential for upside over time? Victor Grizzle: Yes. I think the way I think about the integration of these businesses is it's a continuum of work, and we take them step by step. And the objective here is to get them to take advantage of the large platform, Armstrong has to offer them. So mostly on the revenue-generating side, right, some of the biggest synergies we have with these acquisitions as we scale them in their first couple of years on the platform. They're in hundreds of more architects' offices and through our distribution network. So we try to do some of those steps initially as then we bring on more and more productivity and more and more of the operational sides of the business and eventually footprint optimization work. So we kind of think about this as a continuing ongoing work. Again, when you look at -- and I would just point you to the revenue generation in the Architectural Specialty business, with these companies that we're buying, they're certainly not growing at high single-digit levels. And it really comes down to -- we're scaling these through our integration work on the Armstrong platform very successfully. So I'm really pleased with those early stages of integration. And I would just say, as we go, we're going to continue to integrate these businesses on the operational side to drive more operating leverage from the revenue growth, but also more productivity in the plants. And that's how we get to the 20% goal that we put out there and how we're going to sustain that over time. Operator: Our next question comes from the line of Keith Hughes with Truist. Keith Hughes: Just a couple of detailed questions on '26. What kind of inflation expectation -- input inflation expectation do you have for Mineral Fiber for the year? Christopher Calzaretta: Yes. Keith, it's Chris. So for '26 overall inputs at the mid-single-digit inflation range versus prior year on a percentage basis. And just a reminder, our detail of that is about 35% of our COGS is raws, about 10% is freight, 10% energy and 10% labor. So if I break that mid-single-digit inflation down, freight is about flat year-over-year, and we're seeing low single-digit percent inflation in raws. That's really on some of our fiberglass paper and perlite inputs. And then energy inflation in that, call it, low double-digit 10% to 12% range, and that's really a split between electricity and nat gas, but a little bit of nat gas pressure here for 2026. So all up all-in mid-single inputs for '26. Keith Hughes: Okay. And the -- as you pointed out in the prepared comments, the AUV expectation is a little bit higher than you get, although you could actually, if we look at it over the last several years, it's been close to 6% in many years -- last couple of years. Can you just talk about what's going on in the business that you're just getting a higher number than we have historically? Christopher Calzaretta: Yes, I'd say in -- as Vic mentioned earlier about the like-for-like pricing and positive contributions for mix in that AUV, it really goes back to our innovation, and our service and our quality dimensions of the business. We continue to get and can see that more price than mix dynamic here, certainly with that inflationary backdrop that I mentioned, but also coupled with our investments back into the business to really drive that innovation part of the equation. So again, we feel good about that 6% for 2026. And if I look at it on a first half, back half kind of split dynamic, it's relatively even first half to be about the same as the back half. But again, as we think about the investments back into the business, that's a really big core value creation driver for us and one that we're very excited about in 2026 and beyond. Keith Hughes: Okay. And finally, my congratulations to you as well, Vic. It's been a tremendous run since you took over the company. So a job well done. Operator: Our next question will come from the line of Adam Baumgarten with Vertical Research Partners. Adam Baumgarten: Just starting on the Mineral Fiber EBITDA guide for '26. I know, it's fairly open-ended, above 35.5% or 43.5%, I should say, but that's despite 6% to 7% revenue growth. So is there anything offsetting that from a cost perspective? I know, you talked about AUV covering inflation, maybe getting some SG&A leverage. Is it just conservatism, just because it's a pretty solid top line, and it seems like price cost will be favorable? Christopher Calzaretta: Yes. No, Adam, it is a good question. No. I mean, I'd say, I'd point really back to the value creation drivers that we've been talking about solid AUV growth. What we haven't talked about is the manufacturing productivity that we get year in and year out. I mentioned in my prepared remarks kind of the overall investments back into the business on CapEx and a lot of what we see manifest themselves in that productivity is really investing back into that pipeline to continue to get those productivity gains. So no, I mean, overall, you hit on SG&A, and I talked about SG&A in terms of how we're thinking about getting that leverage, but we will be investing in SG&A for our growth initiatives in 2026, but are pleased with the fact that we're outlooking another year of overall EBITDA margin expansion given those solid value creation drivers that I mentioned. Adam Baumgarten: Okay. Got it. And then just on the government channel that was weak given the shutdown, and it seems a bit slower to come back. Are you seeing any positive signs there? And is any kind of recovery from that weakness late last year built into the outlook in '26? Victor Grizzle: Yes, this is Vic. Yes, we did see a bounce back in January. We certainly would have expected this in November and December, but with the holidays around that, it was -- it did not bounce back as robustly as we thought it would be. But we did see it in January, and we would expect a lot of this to be filtering back in over the next several months. The second part of your question is that we've already kind of factored this into our outlook for the year. Operator: Our next question will come from the line of Rafe Jadrosich with Bank of America. Shaun Calnan: This is actually Shaun Calnan on for Rafe. So first, the Architectural Specialties organic growth has slowed over the last two quarters, but you're expecting it to return to high single-digit growth in 2026. What are you seeing in the pipeline that gives you the confidence that, that growth picks up? And did you see any delays in projects in the second half that we are going to benefit 2026? Victor Grizzle: Yes, I'll take that. In the Architectural Specialties segment, we had a really strong back half of '24. So a little bit of that deceleration you're referencing, it's more of a base period comparison versus the actual run rate of the business. We've actually been generating a backflow -- a backlog growth with our order intake in double-digit levels. So it's this kind of where we are currently with our backlog and the way it's been growing throughout 2025. For '26 and actually beyond into '27 already, that gives us really, I think, the confidence that we need for returning to high single-digit levels of growth. And remember, there's some large projects in here, and they can ebb and flow quarter-to-quarter. Certainly, as we saw at the end of the year, they can actually move out of the year and impact on a quarterly basis. But as the year goes, I think we'll benefit from those, and those are factored into, again, factored into our guidance for 2026. I feel really good about where we are with our order rates and how we're winning in the marketplace with our breadth of portfolio in this space. Shaun Calnan: Okay. Great. And then it sounded like you're expecting Mineral Fiber volumes down in the first half, but up in the second half. Can you talk about what gives you the confidence that you'll see growth in the second half and if there's any specific verticals that you expect to outperform versus underperform? Christopher Calzaretta: Yes, I'll take the first part of that question, yes. So we expect growth for the year flat to up 1% with a stronger back half than front half of the year on the weather dynamics and the seasonality that I mentioned in my prepared remarks. So positive for the year, but a little bit stronger in the back half than the front half with, as you can imagine, given the weather -- winter weather impacts we've seen here in the first quarter, a more muted start in Q1. Vic, do you want to talk about the vertical component of that? Victor Grizzle: Vertical of office? Christopher Calzaretta: Yes. Victor Grizzle: Yes. The -- I think as we've talked about with the office vertical, we're not expecting an inflection where it just turns on, and then here we go. I think it's a very gradual, and it's going to be an uneven recovery across the U.S. So I think it's going to build, if we have some of this uncertainty continue to clear up as we go in through the year, it could build into the second half. I think the other thing, as Mark talked about, the excitement around data centers and energy savings, these are two new early-stage growth initiatives. Each quarter as we go, we should be continuing to build contributions from those initiatives that are additive to our base growth initiatives in digital. So a lot of those things kind of adding up that gives us the outlook of a stronger back half. Operator: Our next question comes from the line of John Lovallo with UBS. John Lovallo: The first one on Architectural Specialty organic EBITDA margins 18.7% for the year that was -- you talked about was slightly below that 20% outlook. But I'm curious if you could help us kind of bucket the drivers between the lower organic revenue, some of the project timing and maybe any other factors that played in there? Victor Grizzle: Yes, John, if you're asking about the project delays that impacted that cost imbalance, I can give a little more color there. But let me finish there, but start with, we continue to make good progress on our stated goal of getting this Architectural segment to 20%. Again, this is the fourth year in a row of margin expansion in that business on our way to '27. So I feel like we have the right levers. We know what the right building blocks are for us to deliver that. In fact, we had two quarters in '25, where we were north of 20%. So, again, I think we know what to do. We know how to get there. We really didn't have the operating leverage in the fourth quarter based on these project pushouts. We had the cost in place. There were 5 good-sized projects. And in fact, they were all delayed in December. And so normally, and we experienced project delays all the time in this Architectural Specialties segment, we've talked about this. Normally, they're picked up in the same reporting period. So in this case, they not only fell out of the quarter, they fell out of the year because they were in December. And they were primarily education and health care projects. And so because they were sizable, that just created this imbalance of cost, and therefore, the margin compression. This will work its way out. I think, again, we're back -- we know what the right levers, and the right building blocks are to deliver a 20% EBITDA segment in Architectural Specialties. Did that get to your question, John? John Lovallo: Yes. That's helpful. And then I guess just on the Mineral Fiber growth piece, the 0% to 1% this year. I mean, I know that the longer-term outlook is sort of 2% to 4%. Help us kind of think about the path towards that 2% to 4%, what do we need to see in terms of the market and just internal execution? And what, if any timing guidelines you guys have around that? Victor Grizzle: Yes, good question. I mean we're moving that direction, right? When you look at -- it's been a while since we've outlooked positive Mineral Fiber volume growth, right, in the year. So we're moving in that direction. Remember, the 2% to 4% had 2 components to it. It was a market recovery of 1 to 2 points of growth from the market recovery off of the -- getting us back to 2019 levels. And then there was 1 to 2 points of contribution from our growth initiatives. So as Mark outlined, we're moving in that direction of the 1 to 2 on our growth initiatives, which is what we can control and with a little bit of the healing going on that we're expecting in '26, and we'll see if that continues into '27 and '28. But that's how you get to that 2% to 4% range. I still believe that, that's a good midterm type outlook for Mineral Fiber volume growth. Operator: Our next question will come from the line of Garik Shmois with Loop Capital. Garik Shmois: On the data centers and energy saving projects, I wonder if you could speak to just how large your overall portfolio to these projects represent, just in the context of the 0.5 point of growth, you're expecting them to contribute this year? And then also, maybe can you speak to any mix impact these projects have on margins? Victor Grizzle: Mark, I'll take this and if you want to add any color. The -- let me just start with on the AUV side, these -- both of these initiatives are accretive to our AUV. So we really like selling more of these products in terms of that financial metric of growing our AUV. They're really consistent with the innovation that we're bringing to market is supportive of that continuation of that AUV growth. On the margin side and contribution of that, I think the data center tile in particular, is further down the road in terms of scaling in terms of the -- getting the operating leverage and the margins up. And energy savings is still in the early stages of getting really good operating leverage on the $10 million investment that we made down in one of our plants that we talked about in '25. So we do expect both of these to be consistent with our 60% incremental contribution to EBITDA as they grow over time. So again, I think these are really 2 high-value applications for us to continue to innovate and build out our portfolio on. I'm not sure I got all of your question, but Mark do you want to add anything to that? Mark Hershey: Yes, Vic. I mean, obviously, and I mentioned this in my remarks, the data center category is growing, and we've got an opportunity to penetrate that category further. Energy savings plays across all of our verticals, frankly. And early days, we've seen a high level of interest in office and education that plays really well across all our verticals. And there were both -- both of these initiatives are supported by macro trends. So we are on trend with our value propositions in both of these spaces and a lot of energy behind both of them. Garik Shmois: No. That's helpful. Follow-up question is just on the home center softness you saw in Q4. Was that destocking by chance or just the general sluggishness in that channel? Victor Grizzle: Yes, it's kind of more of the same of what we've seen quarter-to-quarter than moving some of their inventory levels around. So primarily destocking again in the fourth quarter. And again, this is a dynamic they can sell down from their inventories, and then build up back up very unevenly. So fourth quarter was more of the same. To a lesser degree, of course, than some of the other things we mentioned, though. Operator: Our next question comes from the line of Brian Biros with TRG. Brian Biros: Vic and Mark, congratulations on the new roles. On the Mineral Fiber volumes, can you maybe just compare today's level to like pre-COVID? Because while volumes have been down, you've been able to perform very well. So I think it's kind of important to understand what you've been able to do at this lower volume level and kind of how we keep that in mind for when and if volumes do return? Victor Grizzle: Yes, it's a good question. 2019 levels, we're still about 14% -- as we finished '25, we're still 14% below 2019 volume levels. So yes, I mean, getting back to one of the earlier questions on market contribution to that 2% to 4% volume range. We have quite a bit of ways to go to get back to 2019 levels. And we believe that as long as the market verticals heal back to where they were, and there's nothing structurally in their way to doing that, we should be able to get back to 2019 levels. So that really is a flywheel opportunity. When you look at the margins that we're back to now, we're back to 2019 margin levels without 14% of the volume. So yes, very good opportunity for the company in the future. Brian Biros: Yes. That's a good story at the margin level. And then maybe a follow-up on visibility last year kind of always as choppiness around repair and remodel side, maybe like 6 months plus out, and then that kind of seemed to come in slightly better than expected at the beginning of the year last year. So Vic, how do you view visibility now for 2026 in that lens? I think you touched on it a little bit in the prepared remarks, but maybe just compare and contrast the visibility today versus a year ago? Victor Grizzle: Yes. I mean we're pretty good at modeling what's going on. There's not a lot of visibility on the renovation, especially some of the lower-level renovation work that doesn't involve, say, an architect. We've talked about this in the past. We have the least amount of visibility in that part of the Mineral Fiber business kind of just shows up through distribution. So we have to model that based on what drives that by vertical. And what drives it in the office vertical is very different than it drives in the education. So how we do that is we do a lot of modeling and triangulation. And of course, our ear to the ground with our customers in the marketplace. Again, we're pretty good at it. We don't get it perfectly every quarter, but on a year-to-year basis, our models are pretty good. So that's kind of how we do it. I think going into '26 and beyond, we'll continue to use the technology, the AI modeling capabilities that we have now to just get better and better at that. Operator: Our next question will come from the line of Stephen Kim with Evercore ISI. Stephen Kim: Vic, yes, congratulations, really a job well done and Mark, looking forward to working with you. Mark, I wanted to clarify a couple of things you said, there was a lot of talk about with respect to innovation, which is obviously a good thing. PROJECTWORKS, Kanopi, Healthy Spaces, TEMPLOK, DYNAMEX, SKYLO, you talked about the data centers initiative and the energy savings initiative. So what I wanted to first do is just make sure I understood your terms because you said that the some component of these added 1% of growth in 2025 and you expect an additional 0.5 point in figure '26. So what exactly was the 1%? And what exactly is going to be the 0.5 point that you're talking about? And I guess, generally, why would there be a deceleration? I would actually think given the momentum that there would be, maybe an acceleration in the contribution. So if you could just clarify that for me, it would be great. Mark Hershey: Yes, very fair. Happy to clarify. There is an acceleration that is the point I'm trying to make. I was trying to highlight the addition and the emphasis on data centers and energy savings as an accelerant to the other pool of initiatives that you mentioned there. So our initiatives, in general, that we've talked about historically are driving that first point. And with the addition and the ramping of energy savings and data center focus, there's an incremental 0.5 point on that initiative progress. Stephen Kim: Okay. So does that mean that in 2026 relative to '25, that the contribution would be 50 basis points? Or are you saying it's 150 basis points? I'm just trying to make sure I'm understanding what you're trying to communicate. Mark Hershey: Yes, incremental year-on-year 150. Stephen Kim: Got you. okay. That clarifies it. I appreciate that. All right. Great. And then I guess, secondarily, you've talked in the past about PROJECTWORKS and Kanopi as being a real differentiator for your business. And I'm curious if you see AI, the emergence of artificial intelligence as the positive or negative for some of your initiatives, particularly, I guess, with Kanopi. In the sense that I would think that AI might enhance their functionality, but I could also theoretically see it leveling the playing field a bit for your competitors. So wondering if you could talk a little bit about what you see in terms of the impact of AI as a positive or a negative factor for those initiatives? Victor Grizzle: Will you take that? Mark Hershey: Yes, happy to take that. So I think on the whole, it's a positive. And in fact, some of our initiatives, broadly speaking, are embedding AI, and it's one of the most prominent places we've got AI utilization in the organization is to enable -- further enable our existing initiatives. And we feel good about that focus, in particular, with specification excellence. We've talked about in the past as really an amplifier to that initiative. And just as we will across the organization, I could see all of our initiatives benefiting from the use. But early days for some of the initiatives, but in particular, spec excellence is the one that I think really is accelerated by AI. Victor Grizzle: And, Stephen, you know that winning the specification is really, really an important part of our strategy, right? As you -- over the years, you've come to know that's a key part to our pricing model, and of course, our innovation. So the fact that we're using AI there to even strengthen that core strength of ours is pretty exciting. Operator: Our final question will come from the line of Phil Ng with Jefferies. Philip Ng: Vic, congrats, and thanks for the partnership. And Mark, looking forward to working with you. I guess, to kind of kick things off, Vic, you sound a little more upbeat on the outlook for Mineral Fiber, right? I mean you're calling for a flat to up, which is encouraging. But you also -- I think Chris highlighted it's going to be a softer first half. I don't know if you just trying to signal volume is going to be down in the first half. But you sound more upbeat but slower start to the year. Can you kind of help square that up? And perhaps where is that optimism coming from? Are you hearing from your customers that they're seeing a more robust backlog? What's driving some of that? Victor Grizzle: Yes. There's still a lot of cautious, I would say, optimism around that. But when you think about the last several years, and Phil, you've called this out a couple of this, we've been outlooking a potential recession in the back half. And so we've had several years of downturns expected in the back half. I think the improved visibility in '26 is, nobody is talking about that. In fact, I think they're talking about the economy actually strengthening and getting better. And that's always good for renovation work. When the overall economy is doing well, and the uncertainty gets less and less, we see a lot more renovation work. So that's part of the encouragement that we see is that, there is more visibility. Nobody is calling for a recession. Actually, I think people are out looking more positive economic activity, and that gives us against the market out. But I would say, Phil, the biggest driver to a little bit more upbeat here is the traction we're seeing in our growth initiatives. This is what we can control. This is what we have really good visibility on. We have our target list. We know our customer engagement on that. And as Mark highlighted, getting some acceleration in the contribution from our growth initiatives is also really what we're encouraged by, and it's generating a little bit more confidence to get to a positive volume growth, again, as I said earlier, in the first time in a long time. So what Chris is outlining is, I think, very typical in terms of a seasonal impact in the first half, and now we've had some weather events, and we've had time to digest some of that impact and include that in our guide and how we're sequencing at the guide, too. That's really, I think, what both Chris and I have added back and forth to make sure that that's helpful and clear for everybody. Christopher Calzaretta: And maybe just to add a little more context to the volume in the first half, Phil, positive, but a slower start to the year volume-wise in Q1. Philip Ng: Got it. Okay. That's helpful color. And then I guess a follow-up on the WAVE earnings outlook, you're calling for mid-single-digit growth, pretty healthy growth considering you're lapping a pretty tough comp in 2025, and it kind of implies that the earnings leverage in WAVE is perhaps even more robust than the overall Mineral Fiber segment. What are some of the building blocks for that momentum in WAVE? Christopher Calzaretta: Yes. So as you mentioned, WAVE equity earnings growth for the year is in that mid-single-digit range. But if I just take a step back, Phil, one of WAVE's value creation drivers is that price/cost algorithm to continue to drive that growth through innovation, quality, service, and it's really to drive that growth through disciplined pricing, and there's no change there to your question. That rate that we're talking about here in 2026 is reflective of some short-term operating leverage headwinds on some of the initiatives there in that business. So as those kind of scale that will improve kind of in the short term, and we'll get more traction. And I think overall, from a longer term -- mid- to longer-term perspective, we don't see any change in the equity earnings growth trajectory to get back to that high single-digit range in terms of equity earnings for the WAVE venture. Operator: And that concludes our question-and-answer session. I will now hand the call back over to Vic for any closing remarks. Victor Grizzle: Thank you. And I appreciate the comments on the call. I really appreciate that. Really thank you all for the coverage and the support of AWI over the last 10 years. And I really, again, want to thank our 4,000 employees for just an outstanding job in transforming the company over the last 10 years. It really, truly has been an honor for me and a privilege to serve as the CEO of Armstrong. And as I step aside, like I said earlier, I'm more confident than ever that the future is bright here at Armstrong. So again, thank you all, and good luck to Mark. Mark Hershey: Thanks, Vic. Operator: This will conclude our call today. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to NRG Energy, Inc. Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to your first speaker today, Brendan Mulhern, Head of Investor Relations. Please go ahead. Brendan Mulhern: Thank you. Good morning, and welcome to NRG Energy's Fourth Quarter and Full Year 2025 Earnings Call. This morning's call is being broadcast live over the phone and via webcast. The webcast presentation and earnings release can be located in the Investors section of our website at www.nrg.com under Presentations and Webcasts. Please note that today's discussion may contain forward-looking statements, which are based upon assumptions that we believe to be reasonable as of this date. Actual results may differ materially. We urge everyone to review the safe harbor in today's presentation as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation and earnings release. With that, I will now turn the call over to Larry Coben, NRG's Chair and Chief Executive Officer. Lawrence Coben: Thank you, Brendan, and good morning, everyone. I'm joined today by Bruce Chung, our CFO; and Rob Gaudette, our President. Other members of our management team are also on the line and available to answer questions. Let's begin with the key messages on Slide 4. We exceeded the midpoint of our raised 2025 guidance, marking the third consecutive year we increased our outlook and delivered above it. We introduced stand-alone 2026 guidance in November, updated it in February to reflect 11 months of LS Power ownership. And today, we are reaffirming those ranges. We successfully closed LS Power at the end of January. Integration is well underway and performance is already exceeding our underwriting assumptions. With LS Power now closed, we are rolling forward our long-term outlook. We continue to target at least 14% annual growth in adjusted earnings per share and free cash flow before growth per share, now measured from 2026 through 2030 rather than the previous through 2029. We are maintaining this more than 14% trajectory despite a much higher share price than assumed at the original announcement. This is achieved through higher earnings from both the LS Power portfolio and our legacy businesses. Finally, as demand accelerates across our markets, affordability and reliability will define long-term success. New large loads must bring their own power and contract for the generation that supports them. Flexible demand response must scale alongside that. Otherwise, prices will rise and volatility will increase. NRG is well positioned to do both and thus meet rising demand across our markets. Let's turn to Slide 5, our 2025 financial and business results. 2025 was a record year of performance at NRG. Full year adjusted EPS was $8.24 per share and adjusted EBITDA was $4.087 billion, both above the high end of our raised guidance. Free cash flow before growth totaled $2.210 billion or $11.63 per share, above the midpoint of our revised outlook. Turning to our 2025 scoreboard. We delivered against the priorities we outlined at the start of that year. We achieved top decile safety performance for the 10th consecutive year and delivered our 2025 target under our $750 million organic growth plan. We signed 445 megawatts of long-term data center PPAs at attractive margins. We secured Texas Energy Fund loans for 1.5 gigawatts of new capacity with all construction on budget and on schedule. We launched our Texas residential VPP and finished the year at nearly 10x our original objective. We also announced the LS Power transaction, which we'll cover in more detail on the next slide. In 2025, we returned $1.6 billion to shareholders through repurchases and dividends, while increasing the dividend by 8% for the sixth consecutive year. Our momentum has carried forward into 2026. During Winter Storm Fern, our Texas fleet achieved 97% in the money availability. Our assets were ready when the grid needed them. That performance reflects investments we have made in the plants in recent years and great work by our amazing people. Turning to Slide 6. Beyond 2025 performance, we strengthened our competitive position with the close of the LS Power portfolio. Our generation fleet has doubled to 25 gigawatts. We added 18 natural gas assets, primarily in PJM with additional positions in ERCOT, NYISO and ISO New England. The combined fleet is now more than 75% natural gas. Together with our existing generation and projects under development, we are naturally long against our residential load in our core markets. In PJM, several of the newly acquired peaking units provide a potential 1 gigawatt of upgrades through conversion to combined cycle configuration. That adds flexibility to support future large load demand. CPower, a preeminent company in the demand response space, strengthens our capabilities and expands our position in this sector with both commercial and industrial customers. This transaction was immediately accretive, supports our long-term leverage targets and strengthens our credit profile. Performance is already exceeding our underwriting assumptions, driven by stronger capacity and energy prices. In addition, 100% bonus depreciation enhances after-tax returns relative to our original modeling. We have expanded our earnings base and strengthened our competitive position as markets tighten. Turning to Slide 7. Let's discuss our near- and long-term outlook. Beginning with 2026, we are reaffirming the guidance ranges introduced in early February following the close of LS Power. Recall that the LS contribution reflects 11 months of ownership, not a full year. In 2026, we will deliver these results embedded in our outlook and integrate the LS Power portfolio. We are also targeting at least 1 gigawatt plus signed long-term data center power contract under our Bring Your Own Power approach. Turning to the longer-term framework. We are rolling forward our outlook and continue to target at least 14% annual growth in adjusted EPS through 2030. This extends the prior 5-year framework, which ended in 2029 and reflects our expanded earnings base. Consistent with our prior methodology, the outlook assumes flat power and capacity prices across the planning horizon. Detailed assumptions and Texas and PJM price sensitivities are included in the appendix. The plan also now incorporates all 3 Texas Energy Fund projects rather than one. The first remains on track for June 2026 completion and the additional 2 are expected online by mid-2028, and these represent incremental value relative to the prior outlook. The plan also reflects the portion of the 445 megawatts of previously announced signed data center contracts that are expected to be online during this period. I must emphasize that the outlook does not assume any additional data center contracts or higher power or capacity prices. Let me repeat that. The outlook does not assume any additional data center contracts or higher power or capacity prices. So beyond what is embedded in this plan, of course, we see significant opportunities to contract new large load natural gas generation under long-term agreements with high-quality counterparties. We have the ability today to support more than 6 gigs of long-term power agreements to serve large data center demand. At that level, it represents the potential to add more than $2.5 billion of recurring annual adjusted EBITDA on contracts of up to 20 years. These projects would provide stable contract-backed cash flows. Discussions are ongoing, so stay tuned. Turning to Slide 8. I want to discuss our approach to affordability, which has 2 primary components. First, bring your own power. New large loads should contract directly for the generation that supports them. Data centers must pay for their required capacity additions. Cost and volatility should not be shifted to existing customers. Second, demand response. Flexible demand is an essential complement to our approach. Demand response, including virtual power plants, provides dispatchable capacity when the system is tight. It lowers peak costs and strengthens reliability without adding structural cost to the system. We are executing on this model today. We have more than 6 gigs of natural gas generation capacity reserved for customer-backed large load projects, including 5.4 gigs through our GEV and Kiewit venture and 1 gig of upgrade potential within the recently acquired LS portfolio. We are also developing new generation through the Texas Energy Fund to support grid reliability. On the residential side, we are building a 1 gig virtual power plant in Texas and preparing to extend that model into PJM. On the commercial and industrial side, CPower now anchors one of the leading demand response platforms in the country. We built all of these platforms early in anticipation of where markets were heading and what politicians and customers are now saying. It is operating today. As demand expands, this model supports significant growth without compromising affordability or reliability. With that, let me turn it over to Bruce for the financial review. Bruce Chung: Thank you, Larry. Starting with Slide 10, I am pleased to share that NRG delivered exceptional full year financial results in 2025. We achieved earnings at or above the high end of our raised financial guidance ranges, including record level performance across several key metrics. Our 2025 adjusted EPS was $8.24 and adjusted EBITDA was $4.087 billion, representing an increase of 21% and 8%, respectively, over the prior year. We delivered $1.606 billion of adjusted net income and $2.21 billion of free cash flow before growth. Our robust financial performance in 2025 marks the third year in a row where excellent execution across our businesses continues to demonstrate the durability of our integrated platform. Moving on for a brief discussion of segment results. Our Texas segment delivered full year adjusted EBITDA of $1.877 billion, driven by margin expansion and excellent commercial optimization throughout the year as well as favorable weather that benefited our home energy volumes. The East segment contributed full year adjusted EBITDA of $981 million, reflecting a slight decline from the prior year, primarily driven by higher regional retail power supply and planned maintenance costs and the retirement of the Indian River facility. These impacts were partially offset by strong capacity revenues at our plants, winter weather driving natural gas margin expansion and continued commercial optimization in both power and gas. Our West and Other segment provided full year adjusted EBITDA of $137 million, a modest decline from the prior year, driven by the absence of earnings from the sale of our Airtron business in September 2024 and the lease expiration at the Cottonwood facility in May 2025. These were partially offset by higher retail power margins in the West. The Smart Home business generated full year adjusted EBITDA of $1.092 billion, driven by record new customer adds and impressive retention rates in addition to expanded net service margins. Free cash flow before growth for 2025 was $2.21 billion, exceeding 2024 results by $148 million or 7% year-over-year growth. This year-over-year increase is primarily driven by the strong adjusted EBITDA results, lower interest payments due to the Vivint ring-fence removal and receipt of the remaining insurance proceeds from our WA Parish Unit 8 claims. Turning to Slide 11. We are reaffirming the 2026 financial guidance announced earlier this month, which includes 11 months of earnings from our recently acquired generation assets and CPower. Midpoints for our reaffirmed guidance ranges are as follows: adjusted EBITDA is $5.575 billion, adjusted net income is $1.9 billion, adjusted EPS is $8.90 per share and free cash flow before growth is $3.05 billion. As you can see on the waterfall charts at the bottom portion of the slide, we have made moderate adjustments to the pro forma guidance previously shared on the third quarter call. The updated adjusted EBITDA and free cash flow before growth disclosures now capture improved pricing and capacity values in addition to a pre-closing adjustment for January 2026 financial performance for the LS Power assets. You can find more details on the energy and capacity price assumptions we use in the appendix of this presentation. Moving to Slide 12 for updates to our capital allocation for 2026. Starting at the left of the waterfall and moving right, our total cash for allocation has increased to $3.05 billion. This includes $2.1 billion from the legacy company free cash flow before growth midpoint, together with $950 million representing free cash flow before growth to be contributed by the recently acquired assets from LS Power prorated to 11 months. As part of our ongoing commitment to a strong balance sheet, we expect to execute approximately $1 billion toward debt payments throughout the year. As part of the integration for the acquired assets, we expect to spend $123 million of onetime costs to ensure that the assets are appropriately incorporated into our operating and commercial portfolio. We remain committed to our robust return of capital program and plan to return at least $1.4 billion of capital to shareholders in the form of share repurchases and common dividends. Finally, we are allocating the remaining capital to continued investments in our core portfolio with $310 million allocated toward growth initiatives. This primarily consists of spend for our new generation build in Texas, including Texas Energy fund proceeds and continued investment in our consumer platform. Turning to Slide 13. We are reaffirming our long-term adjusted EPS and FCFbG per share CAGR of 14% plus while also rolling forward the long-term outlook from 2029 to 2030. As described when we first disclosed the acquisition of assets from LS Power, we have a highly visible path to achieving more than 14% growth in our adjusted EPS and free cash flow before growth per share metrics over the next 5 years, underpinned by solid business expansion and disciplined capital allocation. Starting on the left side of the page with adjusted EPS. We moved from the original 2025 midpoint of $7.25 to our 2026 updated midpoint of $8.90. This step-up reflected strong underlying business performance, contributions from the LS Power portfolio and the ongoing benefit of our share repurchase program. Looking ahead, we are forecasting adjusted EPS of greater than $14 per share by 2030, underpinned by existing growth programs in our core business operations and our robust return of capital program. Shifting to the chart on the right, our free cash flow before growth is similarly increasing on a per share basis. Starting with the original 2025 guidance midpoint of $11.20, we have increased the midpoint to $14.50 for 2026. By 2030, we expect a further increase to greater than $22 per share, again, delivering compounded annual growth of more than 14%. The core drivers for this per share increase are similar to those for our EPS growth and reflect the strong cash generation capabilities of our platform and a disciplined capital allocation framework. It is worth highlighting that our long-term outlook holds energy and capacity prices flat through the period. Our energy price assumptions reflect market prices at the end of December 2025, and our PGM capacity price assumptions reflect pricing at the $325 per megawatt day cap for the next 2 capacity auctions to be held in June and December 2026. Most importantly, this long-term outlook does not include any upside from rising power prices, new data center deals or the 1 gigawatt CT to CCGT conversion opportunities we have with the acquired LS portfolio. We have provided more details on the assumptions in our long-term outlook in the appendix of the presentation. We have also provided updated power price sensitivity slides so that you can appropriately model the meaningful gearing our portfolio has to rising power prices. Wrapping up this slide, we believe our long-term outlook represents a derisked and outsized opportunity to enjoy above-market earnings and free cash flow per share growth while with meaningful upside levers. I look forward to updating you on our progress in achieving this long-term outlook on future earnings calls. Finally, on Slide 14, we are refreshing our view of long-term capital allocation. On the left side -- left-hand side of the slide, we have updated our 2026 to 2029 view of capital allocation so that you can have an apples-to-apples comparison. Our current forecast represents an impressive 55% increase in capital available for allocation and a 32% increase in share repurchases from our original guidance in 3Q '24. Furthermore, the current plan allocates 85% of cash available after debt reduction to return of capital compared to 80% in the original plan. Moving to the right side of the slide, we have rolled forward our plan to include 2030 cash available for allocation, bringing the total to $18.3 billion of total capital available through 2030. Including the additional year's earnings for 2030, we are increasing our return of capital program to a total of $13.2 billion, comprised of $11 billion in share repurchases and $2.2 billion of common dividends. This represents an increase of $5.3 billion and $800 million for share repurchases and dividends, respectively, relative to the original plan shown in the far left bar of the chart. Forecasted amounts for growth/unallocated capital for the period increased modestly by $400 million, with most of that increase in the unallocated bucket. The combination of an improved earnings profile and planned debt reduction of $2.9 billion over this 5-year period will ensure that we achieve our targeted credit metric of 3x net debt to EBITDA. Our long-term capital allocation strategy is consistent with our long-stated principles, which prioritize a strong balance sheet and robust return of capital. The significant free cash flow we generate over this period affords a meaningful amount of flexibility to put capital to work accretively. Share repurchases will always remain a strategic component of our annual capital allocation plan. While we've shown much of the capital over the period devoted to share repurchases, we recognize that there may be other very accretive uses of that capital beyond share purchases, particularly the development of power plants supporting data center contracts under contracts -- sorry, data centers under contracts of up to 20 years, and we will evaluate those opportunities with discipline. But rest assured that any and all of those situations will be measured against our stated hurdle rates of 12% to 15% pretax unlevered IRR and the implied return of buying back our stock. In closing, NRG delivered record financial and operational execution through 2025, reflecting the resilience of our platform and the continued momentum across our core businesses. As we look ahead, the 2026 outlook and capital allocation priorities I have outlined highlight the durability of our strategy and our commitment to disciplined growth, prudent liability management and long-term value creation. With the successful close of the assets acquired from LS Power, we have strengthened and expanded our portfolio. Integration is well underway and the addition of these assets into our combined portfolio positions us well for continued growth and execution of our strategic and capital allocation priorities. With that, I'll turn it back to you, Larry. Lawrence Coben: Thank you, Bruce. Let me close with our priorities for 2026. Demand is accelerating, led by data centers. Our priority is to serve that growth under a Bring Your Own Power framework, securing long-term power agreements that support the new generation required to meet it. We will complete T.H. Wharton. We will integrate LS Power. We will continue building our Virtual Power Plant platform. Execution and capital discipline remain our lodestar. We will deliver the financial results embedded in our guidance, return at least $1.4 billion to shareholders, grow the dividend consistent with our framework and maintain balance sheet strength. As I approach the conclusion of my time as CEO, I want to thank all of our 18,000 employees for their incredible work and commitment, our customers for their trust and our shareholders for their support. Over the past 27 months, the NRG team has reshaped the portfolio, strengthened the balance sheet and positioned NRG to compete and keep winning in a changing power market. We entered 2026 strong, disciplined and well prepared for this next phase of growth. I look forward to continuing as an adviser and long-term shareholder and to watching this incredible team build on the foundation in the years ahead. This is only the beginning and the best is yet to come. Thank you all for everything you have done. Operator, we're now ready to open the line for questions. Operator: [Operator Instructions] First question comes from the line of Shar Pourreza with Wells Fargo Securities. Shahriar Pourreza: All right. Larry, big congrats to you and Rob. So terrific transition and best of luck to both of you on your Phase 2. Maybe just starting off on the expectation -- I totally forgot Bruce. Is Bruce still there? The CEOs are doing such a good job. We forget the CFO sometimes. But Bruce, we still love you, I apologize. And congrats on that Phase 1. Maybe just starting off on the expectations now that the LS deal is closed. Larry, can you just expand on commercially contracting the combined portfolio comments you made? I mean, $2.5 billion in EBITDA is sizable. I just want to get a sense on timing and structure, including how we should think about which party would be taking on the gas risk in these deals or risk shared passed on to the counterparties? Just a little bit of a sense on the structures. Lawrence Coben: Yes. Look, so I think a little bit -- obviously, depending on the hyperscalers, but I think we're looking at blocks in excess of 1 gig. I think we're looking at contracts of minimum 10 and frequently 20 years with investment-rated entities that can actually support the kind of credit required to make this happen. We're looking at a significant fixed price component in that. And so I think you can start seeing these things come on. You can do the math. We've given you the margin. We've given you the capacity numbers, so you can kind of figure out when it comes. I think the first tower, assuming we get to the place we need to get, could be on by the end of late '29 and then ratably probably 1 gig a year, maybe more for each year after that. Shahriar Pourreza: Got it. Okay. And then just the fuel risk, Larry, this is a question we get from a lot of investors is who actually takes on the gas risk? Robert Gaudette: So it's Rob. The contract that we're working with and the structure that we're -- the hyperscalers seem to be okay with is a very heavy capacity payment like Larry talked about and then a variable component where it turns into basically a heat rate for the hyperscaler. They take the gas risk. If they want to offload the gas risk, I have a gas platform where I can help them do that. Shahriar Pourreza: Got it. Okay. Perfect. And then just in terms of PJM and the regulatory process, do you guys see FERC PJM directive opening opportunities for energy to bring new generation to that market? Would you focus on the 1 gigawatt of uprates that you noted in the slides? Or is there opportunity beyond that similar to what you're doing in Texas under the TEF? I guess how attractive is that reserve auction? Lawrence Coben: I mean, look, I think it's attractive, Shar, but I think our focus in PJM, at least initially will be the 1 gig of uprates. It's just faster and quicker to market and the demand is there for Texas. If somebody were to come to us and say that they wanted it in PJM, obviously, we have the flexibility to do that. But I think that we would focus in PJM on the 1 gig of uprates and probably the other 5.4 outside of PJM. Shahriar Pourreza: Got it. This is perfect. I appreciate it, guys. And Larry, big congrats. And Rob, just do me a favor as you take the spot, just make sure you continue to work Bruce really hard like Larry did. Operator: The next question comes from the line of Julien Dumoulin-Smith with Jefferies LLC. Julien Dumoulin-Smith: Larry, Rob, congratulations. And Bruce, I swear we will never forget you. But with that said, let me come back to a couple of things, right? So first off, on the capital allocation, the 14% here. Just to break that down a little bit further here, how much latitude do you have in that in as much as you're not reflecting, I don't believe, the CapEx for the data center. I mean, presumably, you could be forgoing buybacks in the near and medium-term sense to invest in a longer-term sense in presumably 2030 and beyond if you start to pivot into the data center. So maybe just talk about the latitude that exists within that commitment through 2030 against the buyback numbers and how you could see that shift as you allocate capital? Again, if I understand it right, the first data center here under your targets with GEV and Kiewit, it would be a 2029 in service anyway. So conceivably, you'd get some of those cash flows on a run rate basis in 2030. But again, obviously, as you continue to scale the strategy, you need to roll forward that target. So Rob, when are you doing an Analyst Day pro forma with all these data centers is really the other way to ask that. But I'll pass it to you guys. Bruce Chung: Julien, just on the buyback question. I mean, I think -- as we think about the variability in that buyback number, it's probably more on the back end as opposed to the front end. The $1 billion that we're sort of thinking about over the next couple of years is probably pretty set in stone, frankly, from our perspective. And we see ample opportunity to be able to fund these projects while still keeping at least $1 billion buyback program in place. So I don't think there's really any risk on that. And then it's really more about how do we think about the cash flows in the out years, particularly after we've delevered and how that can be redeployed in some of these very potentially lucrative projects. Julien Dumoulin-Smith: Any sense on returns, though? Maybe that's the other back-ended way to ask this is like how are you thinking about what the operate and/or new data center counterparty in Texas would look like here? Bruce Chung: Yes. Look, I mean, we've always been very consistent about and transparent about what our hurdle rate is. It's 12% to 15% pretax unlevered. And every project and every dollar devoted to a project is going to be held against that standard. Julien Dumoulin-Smith: Got it. Excellent. I appreciate it. And then just if I can keep going slightly further here. As you think about this rollout of VPP, I mean, just any -- when would you expand that? I mean it seems like you're doing very well against it. I mean I'm curious on how you would think about the economics contributing to the story here. Just in brief, I saw the targets in the longer term. Brad Bentley: Yes. This is Brad speaking. I've been really pleased with our results in Texas. So we continue to scale in Texas. And then we are looking to launch a VPP-like program in the East here early second quarter. That, coupled with our relationships with GoodLeap and Sunrun, we continue to scale batteries up. So we feel really good about what we've learned so far and well ahead of our targets, as Larry had mentioned, and pacing well against the 300-megawatt number we gave you for 2027. Julien Dumoulin-Smith: All right. Fair enough. Still, I'm asking when do we get a robust Analyst Day, but you don't necessarily need to commit today. All right. Lawrence Coben: More to come. Every day with us, Julien, is a robust day. Operator: The next question comes from the line of Nicholas Campanella with Barclays. Nicholas Campanella: Congrats to Larry and Rob here. Lawrence Coben: Before you ask your question, would you also congratulate Bruce, please? Bruce Chung: I'm feeling really hurt these days. Nicholas Campanella: And congrats to Bruce. Look, good questions so far. I just wanted to follow up on Shar's comments and just what's kind of underpinning the $2.5 billion. I think in prior decks, you had this target price for signings above 180 -- above $80 per megawatt hour. Just what are your updated thoughts on where that figure is now and what's really kind of underpinning the $2.5 billion here? Robert Gaudette: It's Rob. So the $80 -- we adjusted our targets from -- to an $80-plus kind of range. And as we've talked about and we've mentioned that if you're going to build 1.2 gigawatts of GEV turbines, that number is going to be on the high end. So as you're thinking about how you get in there, think north of the $90 to $95 range where we were back in our original guidance. It's on the top end. It's got to pay for the equipment. It's got to pay for our return, and we're not going to do a deal unless it does. Nicholas Campanella: That's helpful. And then maybe just understand the share repurchases, if they are going to be affected at all from new build. It sounds like it's more in the back end of the plan. But I guess you have a strategic advantage on cost and securing these turbines early. I assume they're going to be project financed. So just what would your kind of targeted equity contribution be? Would it be in the 20% to 30% range? And maybe that's just one way to understand how that could pressure the buybacks. Bruce Chung: Yes. Nick, from our perspective, project financing comes -- sometimes it can be great. Other times, it can be not so great. And I think in this particular instance, we really see value in simplicity. We see value in transparency. And so I don't think you should assume that project financing is the way that we would go. I think we would probably err on the side of corporate style balance sheet financing. And on that basis, that means you should be thinking about the capitalization for these projects consistent with what our corporate capitalization would be, which is like that 3x leverage level. Operator: The next question comes from the line of Michael Sullivan with Wolfe. Michael Sullivan: I was just hoping maybe we could refresh a little on what the key components of the organic growth beyond 2026. I know you've kind of laid that out in bits and pieces over the last year or so. But can you maybe just frame that up between like the test, the VPP, some of the other things? What are kind of the core drivers? And then how much of it is the buyback? I know that's become smaller as your stock has done well. Bruce Chung: So in terms of the components that are driving the underlying earnings growth for the business, Mike, it's -- first, it's the $750 million growth program that we had announced back in 2023. We are well on the path towards achieving that. We feel very confident that we're going to be able to get there. And if you recall, about half of that was from just regular way organic growth in the Smart Home business, underpinned by like 6% net subscriber growth. And as you saw, we delivered 9% this past year. So the team is executing very well in that regard. And the other half is really from related growth investments in both the C&I business and the retail energy business. So again, we feel very confident about that $750 million. The other levers that are embedded in the plan right now are all 3 test plants. Remember, in the past, we did not have all 3 test plants in the plan, but we now have those, the last of which comes online in 2028. And then finally, we have the 400 change of megawatts of the smaller data center deals that we had previously announced also embedded in the plan. If you think about what that means in terms of how that shapes our growth in that 14% plus, we talked about when we announced the LS transaction that it was about an 80-20 split of organic growth versus share repurchases driving that growth rate, and it's pretty much the same as we sit here today. Michael Sullivan: Okay. That's very helpful. I appreciate you laying that out, Bruce. And then just in terms of the upgrade opportunities at the LS assets in PJM, any sense of timing there just in terms of what you're going to do, particularly with the RBA going on in the background, but also the value of kind of speed and what you could do there? Just a sense of timing would be great. Robert Gaudette: Thanks, Sully, it's Rob. So we already have engineers at every plant running around and assessing not just the 1,000 megawatts of uprates that we mentioned when we did the transaction. We're obviously looking at that, but we're also running around, given the RBA and the need for additionality or bringing more power to the markets, we're running around to see if there's 25 or 50-megawatt clips that we can add on to the back of other assets. So we're out there looking. I expect to hear from us later when we actually have some math. But given the timing of the RBA and kind of how that plays out, we're working very hard to know what we can bring to serve that market and serve our customers. And data centers want to get built up there, too. So we'll be looking for opportunities to monetize that through hyperscalers. Operator: Next question comes from the line of Nick Amicucci with Evercore ISI. Nicholas Amicucci: Larry, Rob, you guys [indiscernible]. So I'll just keep it with Bruce. Bruce, congratulations on... Lawrence Coben: Thanks, Nick. You're now his new favorite. Nicholas Amicucci: Absolutely. I got all the time in the world for you. All right. Perfect. That's what I was going for. I got 3 quarters worth of questions I got to asked. So just kind of considering -- I mean, it's another kind of strong French strong guidance. You've now kind of beaten and raised 3 straight times. Just anything that we could kind of pinpoint like really what's gone well? What kind of exceeded the expectations just over the past -- the recent past? Bruce Chung: I mean with a slight amount of humility, Nick, I'll say it's just we have a great team, and we have great employees, and we just execute really well. I mean that's really what it boils down to is just execution, execution, execution. We took our lumps in years past. We learned a lot from those. We made a lot of significant operational changes. And that is really what's bearing fruit for us. I mean bear in mind, too, that when we budget and we put out guidance, we plan for weather normalized. And depending on what happens with weather, that can also influence the results. And for us, we've had situations where the weather has been favorable for us, and we've been able to take advantage of that. Lawrence Coben: Nick, I would only add to that, we've created a culture where our employees are always looking to improve, bringing improvements to the table and sharing them in ways probably we've never done before. We are really 1 NRG across all of our businesses and that kind of collaboration, just we keep finding new ways to do everything we do better and more profitably. Nicholas Amicucci: Great. That makes a ton of sense. And then I just wanted to kind of triangulate a little bit, too. So just with the VPP opportunity and now having kind of the RTC+B initiative in ERCOT in Texas kind of up and running now for about 2 to 3 months. I mean, is there incremental kind of upside for you guys in particularly just given the amount of data points, whether it be through Vivint or just incremental kind of touch points and able to arbitrage that. Is there kind of -- should we be viewing that as kind of an incremental type of opportunity for you guys? Lawrence Coben: Yes. I mean it's early days, but we look at this as an enormous opportunity and one that nobody is as well positioned to capture as we are. And when I said at the end of my remarks that the best is yet to come. That's one of the things I think is yet to come. But I think it's an extraordinary opportunity that we're just really beginning to quantify and understand. Operator: The next question comes from Bill Appicelli with UBS. William Appicelli: Congrats to everybody in the room. Just a question around how you guys are evaluating the creditworthiness of the counterparties on some of these data center deals. Are you guys exclusively targeting Tier 1 hyperscalers? Or how are you thinking about evaluating that risk? Robert Gaudette: Yes. We are -- in fact, I would say that we're targeting even inside of the universe of hyperscalers. We watch all the same credit reports you do. William Appicelli: Okay. And then I guess on the retail channel, you guys -- you've rolled in the 400 change of megawatts. I think you talked about maybe potentially an incremental 500 megawatts within that channel. Is that still an opportunity for you? Lawrence Coben: Yes. Look, I think we will still see some of those -- I hate to think of 445 megawatts as smaller transactions, but they're smaller than the other ones we've been discussing. And those are ones that won't be targeted to the folks we were just discussing. So yes, we still think that's a great channel that we'll continue to pursue, and you'll hear more about those going forward. But that's -- those are -- we're trying to distinguish for these purposes between the large gig plus hyperscaler deals and the smaller ones of the type that we've already -- we announced during the year. William Appicelli: Okay. And then just one last one. On the $2.2 billion of growth in unallocated through 2030, can you maybe just unpack a little bit of how much of that is actually unallocated? And so we could just maybe understand a little bit of -- on the back end of this plan, when you start to announce some of these contracts, how much of that is available to be allocated towards servicing the data center projects versus maybe having to pull in from some of the share repurchase bucket? Bruce Chung: I wouldn't necessarily -- I'd say if you think about the $2.2 billion, a good chunk of that is devoted to the growth plans that we have, the organic growth plans over the years. I wouldn't necessarily look at that bucket as a significant lever towards being able to contribute to the funding of these data center projects. At the end of the day, it's not like massive dollars that would be able to be redeployed anyway. So I don't think you should be thinking about it that way. Operator: The question comes from the line of Angie Storozynski with Seaport. Agnieszka Storozynski: So my main question is about your upcoming gas-fired new build. I think I'm still recovering from the PTSD associated with gas-fired new build from the early 2000s and the assumptions that were made back then. I mean, I understand that your contracts will be mainly driven by capacity payments, but I still have only about a 10- to 15-year contract for an asset that has a 40-year useful life. And I'm sure you run the same math that I did. It's not actually so obvious to see that double-digit return over the life of the assets, again, given the short duration of the contract. So how do you address this risk as you embark on the gas-fired new build? Lawrence Coben: I think there's a few things, Angie. One is length of contract. I think we're looking probably past 10. But if you're looking at the pricing that we're getting and the costs that we're paying, we are not going to do anything that doesn't meet our unlevered hurdle rate that we've announced full stop. I promise you that. And Rob promises to you that and Bruce promises you that. I'm going to promise for everybody else in the room. But I mean, Angie, I live through that same period that you did. We have 0 interest in being in the speculative new capacity build business, 0 interest. And so the math -- we work on the math all the time and people who want power at cost less than that, maybe they'll get it from somebody else, but they won't be getting it from us. Agnieszka Storozynski: Okay. And those prices that you guys quote for those future contracts, do they incorporate payments for the site? So for example, that $90 -- whatever, $95-plus number that Rob is referring to, does it incorporate a site lease? Or is there an incremental payment, for example, for the land itself on top of that? So is $95 just energy or capacity -- energy and capacity? Robert Gaudette: $95 is -- so Angie, it's Rob. $95 is a representation of the bottom end of what the total value looks like from a capacity and variable component. Remember, this is going to be very, very, very heavy capacity. So it doesn't really translate into a dollar per megawatt hour basis. For each of these transactions that we've looked at, the ones that are on our sites also involve a land transaction, which is not incorporated in the number, right? So the way to think about these is that we are going to get our return and our capital back inside of that 20-year contract as we -- that's how we structure it. That's how we think about it, and that's what we're requiring because we're one of the few people who've got 9 turbines that people can go put on the ground and put next their data center, provide affordability and stay out of regulatory hot water. Agnieszka Storozynski: Okay. Understood. And then just the last one, the $2.5 billion of an EBITDA upside that you're showing me, does that directly correspond with that 5.4 gigs in gas-fired new build plus the 1 gigawatt of uprates? Or is there something else included in that $2.5 billion of EBITDA? Lawrence Coben: No, it's exactly what you said, Angie. It's roughly 6 gigs. Operator: The next question comes from the line of Carly Davenport with Goldman Sachs. Carly Davenport: You highlighted in the slides several hundred megawatts of bridge power available beginning in 2028. Can you just talk a little bit about that opportunity in terms of maybe key suppliers, what technologies you're looking at and just how you view the duration of that opportunity? Robert Gaudette: Sure. So you know as well as I do that Bridge Power that works is a limited resource out there today. I'm not going to go through names, but I can tell you the technology that we look at as most successful is overengineered reciprocating engines. There's a lot of need for spinning steel on systems. And what Bridge Power does is gives an opportunity for a hyperscaler to scale up their capacity as the CCGT is being built so that they could get on the ground earlier. And I've mentioned before, but when you think of the hyperscalers that we speak to, their desire for Bridge Power ranges. Some people want it, some people don't. And it's all a matter of where they fit kind of in their data center build plan and how fast they need generation on the ground. So we have agreements with Bridge Power providers. So we have that limited resource that we can offer as part of a package to hyperscalers. And like I said, Carly, some of them -- some of our hyperscaler clients want it. Some of them are going down a path where their portfolio will just absorb the CCGTs when they come on. So it ranges, but it's a good piece of equipment to have to solve the solution for our customers. Carly Davenport: Got it. Okay. That's really helpful. And then I think you also noted a new battery storage contract in ERCOT. Just 1 gigawatt, I think, expected to be online at the end of this year. Can you maybe just talk a bit about that opportunity and how you could see the battery portion sort of scaling over time? Robert Gaudette: Sure. So it's a series of contracts that make up over 1 gig batteries in Texas, they're PPAs, right? So it's -- or tolls, sorry, so that we have them in our portfolio, we can use them in the portfolio and use it as part of how we serve our retail customers here in Texas. As we use those and as we operate them, that will help define what our strategy is over the long haul. Batteries provide short-term burst of power if you need it. It also provides ways for us to shift renewable power between hours. And so as the customer demand changes or it goes up, we'll look to scale that portfolio if it makes sense. Operator: The next question comes from the line of Andrew Weisel with Scotiabank. Andrew Weisel: I think I'll take a different approach. I'm going to say congrats to Brendan and the IR team. Congrats to everybody. Just a couple of follow-ups. You covered a lot of ground today, but one is you talked pretty positively about the outlook for ERCOT and opportunities for your gigawatts finding homes there. How are you thinking about the batching proposal? Do you worry that might slow things down? Or I think you've had some pretty positive comments there, but how do you see that impacting the pace of signing contracts in ERCOT? Robert Gaudette: I think the batching work that ERCOT is doing is perfect for the market. It is a great step forward to accelerate the process for people to get data centers and large loads interconnected to the grid. It's actually a very thoughtful approach, and we're very happy that the PUC and ERCOT are making it happen in that way. It makes a lot more sense than a serial process that just stacks up forever. This is a very good thing for us and all of our customers as well as those who want to serve them. Andrew Weisel: Accelerate, did you say? Robert Gaudette: I'm sorry? Andrew Weisel: Did you say... Robert Gaudette: Versus serial processes of do loops and like reevaluating every time somebody puts something in, yes, this will accelerate it versus that. Andrew Weisel: Okay. Great. And then one more. Just to be really explicit, the guidance, you talked about you're targeting 1 gigawatt of an announcement for 2026. Is your goal to announce the gigawatt, but the financial impact would be upside? Or does the guidance include that gigawatt but not incremental projects? I just want to specify that. Lawrence Coben: First of all, it's at least or a minimum of 1 gigawatt. I want to make that really clear. And that gigawatt or more than gigawatt is not included in the guidance or in the roll-forward outlook. Operator: The final question will come from the line of David Arcaro with Morgan Stanley. David Arcaro: Congratulations, Larry, Rob and Bruce. Let me see. Just one question for me. I was just wondering, in the PJM market, how has activity in PJM been impacted by the whole backstop auction process and the general policy uncertainty that we've had over the last several months. Has that changed the pace of conversations with data centers and contracting opportunities just given the policy that's in flux there? Lawrence Coben: There's a lot of conversations. I mean we've -- it's always -- as we've been talking about for a while, was going to be slower than Texas. It's still going to be slower than Texas. They're making progress going forward. But when you're looking at a 20-year investment, there's a lot to put in place anyway. So I think while we'd all like it to be somewhat faster, it's still progress is being made. It's just faster outside of PJM at this moment. Operator: This concludes the question-and-answer session. I would now like to turn it back to Larry Coben for closing remarks. Lawrence Coben: I want to thank you all again for all of your support. When I arrived, you came on these calls with an open mind and we're willing to kind of look at NRG freshly. We made you a lot of promises that we kept, and we really appreciate the challenges that you gave us, the feedback that you gave us and the support that you've given us over this last time. And I do mean it when I say the best is yet to come. So thank you all very, very much. Operator: Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ovintiv's 2025 Fourth Quarter and Year-End Results Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] Please be advised that this conference call may not be recorded or rebroadcast without the express consent of Ovintiv. I would now like to turn the conference call over to Jason Verhaest from Investor Relations. Please go ahead, Mr. Verhaest. Jason Verhaest: Thanks, Joanna, and welcome, everyone, to our Fourth Quarter and Year-End 2025 Conference Call. This call is being webcast, and the slides are available on our website at Ovintiv.com. Please take note of the advisory regarding forward-looking statements at the beginning of our slides and in the disclosed documents filed on EDGAR and SEDAR+. Following prepared remarks, we will be available to take your questions. I will now turn the call over to our President and CEO, Brendan McCracken. Brendan McCracken: Thanks, Jason. Good morning, everybody, and thank you for joining us. We are excited today to update the market on our latest results and the culmination of several years of strategic transformation at Ovintiv. With relentless focus and discipline, our team has remade our portfolio, reset our balance sheet, grown profitability and built one of the deepest inventory positions in our industry. We have done all that, while delivering superior returns on invested capital, both through the drill bit, but also through smart transactions. All along, we've been guided by a very simple formula, superior and durable returns will accrue to the company to build a deep inventory and the best resource creates a competitive execution advantage through its culture and expertise and has the discipline to allocate capital to the highest returns and get those returns on a full cycle basis all the way to the bottom line. Year-to-date, in 2026, we have closed the NuVista acquisition and reached an agreement to sell our Anadarko assets. This means our portfolio transformation is complete, and it leaves us with a very focused and high-quality portfolio in two of the best plays in North America, the Permian and the Montney. Proceeds from the Anadarko sale will go to the balance sheet, marking the achievement of our debt target and rightsizing our capital structure. The enhanced resilience of the business means that we can return more cash to shareholders and the new shareholder return framework that we unveiled today does just that. Several years ago, we made the strategic decision to focus our portfolio and build high-quality inventory depth in the Permian and the Montney. Approximately 80% of the remaining sub-$50 breakeven oil locations in North America are located in those two basins, bolstering our positions in these plays, where we have competitive advantage, means we can continue to deliver durable returns for many years to come. Since 2023, we've increased our Permian and Montney drilling inventory by more than 3,200 locations at an average cost of $1.4 million per net 10,000-foot locations, and we did it without diluting our shareholders or stressing our balance sheet. This inventory life expansion has been unmatched by our peers and leaves us with one of the most valuable inventory positions in the industry. Our sequencing between inventory additions and debt reduction was carefully managed. We recognize the importance of reducing debt and we balanced that objective with timely transactions that our team generated to put our shareholders into premium inventory for the right price. This greatly extended our premium inventory duration. We have now cleared both of these hurdles, and that represents a material derisking event for our shareholders. As North American shale continues to mature, a very clear competitive advantage is emerging for companies like ours, that have already set their inventory position up for success, have a clean balance sheet and can access premium price markets and have a demonstrated track record that translates to leading edge efficiency and returns. That combination of attributes is truly differentiated. Following the close of the Anadarko sale, which we expect will happen early in the second quarter, our net debt will be roughly $3.6 billion. This brings our leverage more in line with our peer group and opens the door for us to allocate a greater portion of our free cash flow to shareholder returns. The chart on the left of Slide 6 details the sources and uses of cash to get us to the $3.6 billion. If you'll recall, we funded the NuVista acquisition with a balanced mix of cash and equity. The cash component was largely funded by a term loan. With the proceeds from the Anadarko sale, we plan to first pay out the term loan and our 2028 notes and then allocate the rest to our credit facility and commercial paper balance. Our remaining long-term debt profile will have no maturities before 2030. We expect to realize $40 million of annualized interest savings from the repayment of the 2028 notes. This is in addition to the $25 million of annual savings we realized from paying out our 2026 notes earlier this year. We remain committed to our investment-grade credit rating, and we expect the Anadarko sale and subsequent deleveraging to be credit positive. With the Anadarko sales set to close in early Q2, we are in a position to increase our shareholder returns. We continue to believe that our equity is significantly undervalued and share buybacks continue to screen as an attractive return on investment. Our new framework will allow us to be more opportunistic in addressing this valuation discount. In 2026, under the revised framework, we will plan to return at least 75% of our free cash flows to shareholders. Longer term, we have set the expected range from 50% to 100%. This wider range has intended to allow flexibility to accommodate commodity price volatility and avoid pro-cyclical buybacks. To be clear, our 2026 buyback target will be based off our full year free cash flow as we plan to make up for the pause that we had initially planned for this first quarter. We plan to commence buybacks immediately. In conjunction with our new framework, our Board of Directors has authorized a share buyback program totaling $3 billion. I'll now turn the call over to Corey to discuss our year-end results and 2026 guidance. Corey Code: Thanks, Brendan. Our 2025 results demonstrate another year of execution excellence and strong financial performance. Our full year cash flow was $3.8 billion. We generated free cash flow of more than $1.6 billion of which over $600 million was returned directly to our shareholders. Our focus on capital efficiency enabled us to produce more with less capital. Our initial guidance for 2025 had us delivering total volumes of 605,000 BOE per day for $2.2 billion of capital. Throughout the course of the year, we lowered our capital by $50 million and produced an additional 10,000 BOE per day of total volumes. Importantly, we also continue to make progress on debt reduction, ending the year with less than $5.2 billion of net debt, a decrease of more than $240 million. Our solid execution in 2025 has set us up for continued success in 2026. Our strong operational performance during the fourth quarter delivered oil and condensate volumes averaging approximately 209,000 barrels per day at the high end of our guidance range and our capital investment of $465 million came in at the midpoint of our guidance. We also match or beat our per unit cost guide on every item, continuing to build on our track record as an industry-leading operator. Our fourth quarter cash flow per share at $3.81 beat consensus estimates by about 10% and our free cash flow totaled $508 million. All in all, we delivered another strong quarter, both operationally and financially, which allowed us to enter 2026 with significant momentum. Maximizing capital efficiency and free cash flow remains a primary focus for our teams this year. We're executing an oil-directed maintenance or stay-flat program with level-loaded activity in both the Permian and the Montney. The resulting oil and condensate run rates for each assets are roughly 120,000 barrels per day and about 85,000 barrels per day, respectively. Our 2026 program, including one quarter of Anadarko operations will deliver 209,000 barrels per day of oil and condensate over 2 Bcf a day of natural gas and total production volumes of 620,000 to 645,000 BOE per day or about $2.3 billion of capital investment. When compared to the preliminary 2026 production outlook of 715,000 BOE per day we provided in November, the sale of the Anadarko reduces volumes by about 70,000 BOEs per day and the timing of the NuVista acquisition closing reduced those volumes by about 10,000 BOEs per day. We expect to see margin improvements in 2026 driven by lower LOE, production and mineral taxes and interest expense. Our T&P costs will increase this year as a result of greater Montney weighting in our portfolio, additional Montney processing capacity and increased market access in both plays, which enhances our netbacks. In the first quarter, we expect production to average approximately 670,000 BOEs per day, including about 223,000 barrels per day of oil and condensate. This will be the high point for the year. This includes roughly 3,000 or 4,000 BOE per day of cold weather impacts that we experienced across the U.S. assets in January. Our capital spend will also be the highest in the first quarter at about $625 million, largely due to $50 million of capital allocated to the Anadarko and some drilling activity in the Montney that we inherited from NuVista. I'll now turn the call over to Greg who will speak to our operational highlights. Gregory Givens: Thanks, Corey. Let's dig into each of our two asset level development programs. Starting in the Permian, capital efficiency and free cash generation remain the top priorities as we work to drive efficiency in every aspect of our operations. Ovintiv is consistently one of the highest productivity, lowest cost operators in the basin. We recently received third-party recognition of our basin leadership from JPMorgan by being awarded the 2025 Order of Merit for Midland Basin performance. Ovintiv had the highest 3-month cumulative oil per foot again in 2025, and was the only operator who improved performance in each of the last 3 years. There are several factors that have contributed to our type curve improvement over that period of time. And one of the bigger factors has been our use of surfactants and our completion designs. We've been studying surfactants for a number of years, both in the lab and in the field, and we pumped them in about 300 Permian wells since 2019. Compared to a similar group of analog or non-surfactant test treated wells, we see a 9% improvement in oil productivity. We believe surfactants account for roughly half of the type curve improvement we've observed in our Permian assets since 2022. We tested different chemical formulas across our acreage, and although performance varies by zone and by county, there is meaningful oil recovery benefit from these low-cost additives, which are highly economic. We will continue to hone our approach and trial different products across the acreage, but we are very pleased with the results we've achieved so far. Our Permian team continues to set the efficient frontier when it comes to drilling and completions performance. We take great pride in our development approach and our ability to stack multiple innovations together to create industry-leading results. On completions, part of our success is from utilizing our real-time frac optimization. Every job we pumped is optimized in real time using proprietary algorithms, leveraging our vast private Permian data set. This also allows us to make real-time decisions, which improve well recovery and reduce costs, leading to better pad economics. We also made efficiency gains this year through use of continuous pumping. We pumped for 7 straight days on our first trial, leading to a 20% improvement in completed feet per day. Our full year average completed feet per day was about 4,250. This was more than 10% faster than our 2024 program average. On the drilling front, we have developed several in-house AI tools, which have allowed us to reduce cycle times, minimize failures and accelerate efficiency gains. Our 2025 drilling speed averaged more than 2,000 feet per day for the second consecutive year. Our Pacesetter well was over 3,000 feet per day, so we'll look to continue improving on what we believe are basin-leading results. These cycle time improvements are driving lower well costs. Our 2026 expected drilling and completion cost is among the best in the industry at less than $600 per foot, which is about $25 per foot lower than last year. The 136 net wells we brought online in the Permian in 2025 continue to meet or slightly exceed our 2025 type curve. This type curve was unchanged across the year, and it remains unchanged in 2026. This year, we plan to run a load-level program with 5 rigs in 1 to 2 frac crews, bring on about 130 net wells. We plan to hold oil and condensate production at roughly 120,000 barrels per day. While our Permian economics are driven by oil, it's important to note that we now have about 150 million cubic feet per day of firm transport leaving the basin for our Permian natural gas volumes. This means that roughly 55% of our 2026 gas production will be priced at the Gulf Coast instead of Waha. Last year, our unhedged Permian gas price realization averaged $1.55 per Mcf, about 179% of Waha. Moving north to the mine, we remain very pleased with the tremendous depth and quality we have added to our acreage in the heart of the Alberta oil window over the last year. We are very excited to have the NuVista assets in our portfolio, and we are already working to integrate them into our business as safely and efficiently as possible. As a reminder, we plan to deliver well cost savings of $1 million per well across the acquired assets through the application of our industry-leading approach to drilling, completion and production operations. We demonstrated our ability to capture similar cost synergies last year as we integrated the Paramount assets into our business. The swift achievement of those synergies is a real testament to the culture and capability of our Montney team. We couldn't be more pleased with how those assets have performed. We quickly achieved our well cost savings target of $1.5 million per well, took 14 days out of the drilling cycle time and successfully tested the upside potential of the asset with a higher density development. At our 15 of 16 pad, we added a third bench and increased density to 14 wells per section, and we're seeing initial productivity rates that are exceeding our expectations. These results have unlocked roughly 130 upside locations across our Montney acreage. This year, we plan to run 6 rigs and 1 to 2 frac spreads to bring on about 135 net turn-in lines. We plan to focus roughly 1/3 of our activity on the newly acquired NuVista acreage, 1/3 on the legacy Paramount lands and 1/3 will be split between our legacy Pipestone and Cutbank Ridge areas. Current production from the Montney is in line with our previously communicated run rate of about 85,000 barrels per day of oil and condensate. We are maintaining a repeatable type curve, and although individual wells in the play will display a range of oil mix, the aggregated program delivers very predictable results. Due to some planned plant turnarounds, Montney production in the second quarter is expected to be at the lower end of our full year guidance range of 83,000 to 87,000 barrels per day and 1.75 to 1.85 Bcf per day of natural gas. While we are working with our midstream providers to minimize the downtime as much as possible. In 2026, we expect our D&C cost to average less than $500 per foot. This is about $25 per foot less than our 2025 well cost. Part of the decrease year-over-year is thanks to faster cycle times as well as greater use of domestic sand in our 2026 completions. Roughly half of our 2026 Montney wells will be completed with locally sourced sand. Overall, the asset is performing very well in the low-cost, high-productivity nature of the wells has meant we've consistently been able to generate highly competitive economics from the play throughout the commodity price cycle. I'll now turn the call back to Brendan. Brendan McCracken: Thanks, Greg. Over the last few years, we've worked hard to high grade and focus our portfolio, build extensive inventory depth, drive profitability and reduce our leverage. Over that time, our team has delivered outstanding results. Those results demonstrate that our strategy is working and our execution excellence is translating into increased value for our shareholders. We've been very intentional about building a high-quality business. We've demonstrated along the way that we are disciplined stewards of our shareholders' capital. We will continue to be relentless about making our business more profitable and more valuable every day, but we've reached a new period of stability, and we are excited to unlock the full value of what we've built. This concludes our prepared remarks. Operator, we're now ready to turn the line back for questions. Operator: [Operator Instructions] First question comes from Arun Jayaram at JPMorgan. Arun Jayaram: I was wondering if you could maybe elaborate on the change to your shareholder returns program in '26, where you're increasing the mix to 75% from 50%. And thoughts, Brendan, how we should think about the mix of shareholder returns post-2026 relative to the 50% to 100% long-term range? Brendan McCracken: Yes. Thanks, Arun. Yes. So today, we see a lot of value in our equity. And when we close the Anadarko, we expect to be at about $3.6 billion of debt. And so that's really the reason for shifting to the upper end of the range this year. And then longer term, we've set a wider range. And really, the thinking here is we want this framework to be durable through the commodity price cycle. And in particular, we want to avoid setting up a procyclical framework, and what I mean by that is when commodity prices are high, you probably should expect us to be more towards the low end of that 50% to 100% range. And what that allows us to do is be banking that windfall, if you will, when commodity prices are well above mid-cycle be banking that windfall permanently into the capital structure. And then on the flip side, in periods of lower commodity prices below the mid-cycle level, that could push us to the higher end of the range where we're likely to see more value in the equity. So that's the only thinking behind the longer-term 50% to 100% range, and we'll have the ability to flex around that. But when we see value like we do in the equity today, then the upper end of the range is appealing. Arun Jayaram: Great. Brendan, my follow-up, we were very interested in the surfactants program, and perhaps we're surprised that you guys have been doing it for so long. So I was wondering if you could maybe unpack some of the details on the program. What looks to be driving some productivity gains versus control wells. And it looks like you're using surfactants more on the completion end or the front end of the well life cycle. Maybe talk about the cost benefit and wondering if you have tested surfactants in terms of moderating your base declines as a couple of your peers have highlighted thus far. Brendan McCracken: Yes. I love the question, Arun. Yes, there's a lot going on in the company today. So glad you dug in on that surfactant piece. I'll maybe just set up a couple of comments here and then take it over to Greg on the details, but this is just another example of the stacked innovation that we've been talking about. And really for a few years now, we've been emphasizing three key features in our completion design that we think are adding value, adding to our type curves. And we've been calling it fluid chemistry. We were kind of deliberately trying to keep it quiet on exactly what we were doing since we felt like we had kind of got out ahead of others in this space and that's what you're seeing us show off today with 300 results already. That's really helped push us to the top of the leaderboard on Permian productivity. So that's kind of a bit of the background, but I'll kick it to Greg here to talk about some of the specifics. Gregory Givens: Yes. Thanks, Brendan. And thanks Arun, for the question. And yes, you highlighted it correctly, we are focusing our surfactant program on the initial completions. This is something we've been working on for a number of years, and the team continues to make breakthroughs and build our confidence in this space. So maybe just a little bit about what we're doing. So these surfactants that we're pumping, there are liquid additives that we include in our frac fluid. They are designed to improve oil recoveries in the reservoir down hole. So once you pump them down hole, they change the surface tension of the fluids which allows more of the oil to be released from the rock, flow into the fracture and then out the wellbore increasing recovery, not just in the short, but in the longer term as we've demonstrated over the last several years. We've been working for a number of years on this, both in the lab and in the field. So we've done core testing in the labs as well as field trials to try to determine which surfactants work best in which zones. We've been working to optimize the concentrations that we pump. So the amount of surfactant per ratio of fluid, both to optimize the effectiveness, but also optimize the cost of these surfactants. And so far, we pumped, as we said in the prepared remarks, surfactants in around 300 wells generating that 9% uplift, but that's been a progression over time. So we started out in the early years with some field trials, gained confidence. And more recently, last year, we pumped surfactants and about 75% of the completions we've pumped in the Midland Basin and saw very good results with that. We would anticipate pumping a smaller amount this year in 2026. So we've been very pleased with the results on our completions. We've also tested it to some degree in producing wells. Haven't seen quite the effectiveness there. And so that is a very small part of the program. But the continue -- the team continues to experiment with this and will continue going forward. But we do believe it's a very effective way to improve recovery in the near and long term from these wells. And we think it's going to -- it has been and will continue to be a big reason for our outperformance in the Permian. Operator: The next question comes from Lloyd Byrne with Jefferies. Francis Lloyd Byrne: Congrats on the transformation. I know it's been a long process. Maybe I wanted to ask about the surfactants a little bit as well and maybe Greg can talk about -- a little bit about costs per well. And how are you seeing that go forward? I know you're just in the early stages, but if you have a 9% improvement. Are the costs going up as well? Brendan McCracken: Lloyed, yes, so this is an interesting question. So when we first started this work several years ago, there was some really expensive chemistry out there that was a real barrier to pumping it more broadly just because of the risk/reward feature and what our lab work has really let us do is trial hundreds and hundreds of different chemistries here, which allows us to then create substitutes that have now kind of almost completely displaced some of those original chemistries that were in the market several years ago. So Greg commented on one of the things we've been fine-tuning is the amount of surfactant that we've been pumping, but the other feature has been substituting cheaper and cheaper alternatives. So we've been a little reluctant to be specific about some of this here because we're trying to protect what we think is an advantage. But it's in the hundreds of thousands of dollars a well, is probably a good way to think about it. Francis Lloyd Byrne: Okay. And then just as a follow-up, you've kind of moved from 4 basins to 2 basins and just what kind of opportunity does that give you to cut costs maybe from an organizational structure as well? Gregory Givens: Yes. So really appreciate that, Lloyd. With this latest transaction, what we pointed to is $100 million of synergies, but we also pointed to several synergies that we didn't quantify at this time. And we think those are going to show up on the infrastructure side. We saw that with the Paramount integration. And really, now we're kind of stitching together our legacy infrastructure, the Paramount infrastructure and then now the NuVista infrastructure, all 3 of those overlap. And so there's going to be some of those synergies realized, and we look forward to updating the market on those as we get deeper into the year. And then there's going to be some organizational synergy here, too. Everyone on our team has done just a tremendous job working safely through a lot of change at our company and created a lot of shareholder value. And so I do want to recognize their effort and the results that they have delivered. And we've taken big steps to simplify the portfolio, and so we will be redesigning our organization to match that new portfolio. And we expect to have those changes completed shortly after the Anadarko divestiture, and we'll update the market on the impact of those once we get there. Operator: The next question comes from Neal Dingmann with William Blair. Neal Dingmann: Nice quarter. Brendan, my question is just on the Montney. I'm just wondering, looking at the activity, look like maybe, right, about 1/3 of activity coming from the NuVista 1/3, Paramount and the 1/3, the prior position. And I'm just wondering if so, do you anticipate sort of similar activity across the board like that and are those well results pretty similar across the board. Brendan McCracken: Yes, Neal, you got it, Neal. That's about the activity cadence going forward is going to be that 1/3, 1/3, 1/3. And and just a quick comment on the driver for that. That's really an outcome of our reoccupation strategy. And folks will remember that's the strategy we pursue both in the Permian and the Montney to maximize value from our acreage as we manage the interactions between cubes. So a lot has been made over the last several years about the inter-well effect of co-development or cube development, but there is also inter-cube effect as we drill a new cube beside an existing cube. And so that is a governing feature of our development programs. And so that in those small part drives that allocation of activity as we just continue to mow the yard across our acreage position in both the Montney and the Permian. So that's the big driver of that piece there. Neal Dingmann: That makes sense. And maybe just a second one on that same vein for you, either you or Greg, just maybe more in the Permian development. Can I assume that the development will continue to consist mostly exclusively of cube development. And if so, is well spacing staying relatively the same there? Or is there any changes? Gregory Givens: Yes. Thanks for the question, Neal. In the Permian, we continue to optimize and make small tweaks over time to our well spacing to account for the existing cubes or parent wells in an area, but overall, we're still using the same approach. We complete the entire cube at the same time, come back 18 months later and complete the offset cube, getting all of the zones at the same time at a fairly similar spacing. And that's allowing us to get very consistent results year-over-year. So we're not saving any lesser zones to come back later when they would be disadvantaged. We're getting the whole cube at the same time, and that's working quite well for us. So no major changes there. Operator: The next question comes from Neil Mehta with Goldman Sachs. Neil Mehta: Yes. Brendan, congratulations on, again, this transformation over the last 5 years and maybe that's kind of the key question for me, which is, have you gotten the portfolio to the optimal level where you -- I think when you took over, you were in 6 areas, now you're at 2. Are you in your sweet spot? Does that mean that there's a pause on M&A as you digest all this and the incremental dollar really is to the buyback, or is there another leg to the story that you're still exploring? Gregory Givens: Yes. Thanks, Neil. Yes, the portfolio transition here is complete. So we've clearly planted our flag in the Montney in the Permian, where we have competitive advantage and where we see the best resource. And we've built one of the longest duration inventory positions, while we did that. And so we really believe that stability has real value for our investors, and we look forward to continuing to unlock the full value from what we built. Neil Mehta: Okay. I appreciate that. And then just a follow-up is just on the shape of both production and CapEx through the year. I guess, Q1 is a little bit heavier, but I'm guessing that's part of that's just the pro forma portfolio. And then Q2, you've got a little bit more maintenance in Montney. So can you just talk about how you're thinking about the cadence for production, quarterly cadence of production and then capital through the year. Brendan McCracken: Yes. Great. You nailed it exactly, Neil. So the little bit higher capital in Q1 is absolutely just the Anadarko effect. And so once we close that, that will come out and we'll just run rate out and I think we've probably said transition or transformation, the highest word count of this call so far. But one of the other pieces that we've transformed is the low-level nature of our programs, and that has been over multiple years here to shift to a fully low-level program. And really, we've got that as a really key feature in 2026. So we really like how we've leveled out that and it just creates more predictable and stable business to operate within. Operator: Greg Pardy with RBC Capital Markets. Greg Pardy: I had really a couple of technical questions. I was curious, just first, how much of an opportunity is there with respect to this using in-basin sand? I caught some of Greg's comments or, Brendan, your comments. But I'm just wondering, has that been perhaps optimized in both the Montney and the Permian. Brendan McCracken: Yes. I love the question, Greg. Yes. So we're really excited about the in-basin sand results that we're already delivering in the Permian and really excited about the evolution that's going on in the Montney as we shift more and more to domestic and wet sand in the Montney 2. And this is another great example of stacked innovation, creating value for us. And and also a great example of knowledge transfer and value between the two pieces of our portfolio because this is obviously something that we led the charge on in the Permian and now are leading the charge on in Canada and in the Montney. So Maybe, Greg, if you want to give a few comments around the percentage of utilization and where we're headed there. Gregory Givens: Yes. Thanks, Brendan. Yes, Greg. So on the Permian side, we've been at local wet sand for a number of years and essentially 100% of our program is going to be local wet sand from mines there in the field. And so we're continuing to refine that process with our sand pile and our delivery systems, but that's a fairly mature program. The new news over the last year or so is moving some of that technology north of the border. As you know, historically, most operators will be taking Northern White Sand by rail from the U.S., up to Canada, and that just adds a whole lot of cost. And so we've been working with providers there to use more local domestic sand. The sources aren't quite as close to the field, but there are good sand sources. And this year, we're going to have roughly 50% of our sand pumped will be domestic sand. They're sourced in Canada. So you eliminate that rail charge, and you are able to lower cost dramatically. We've also begun testing wet sand in Canada, and it works quite well. This time of year, we joke, it's a little crunchier, but it still goes down hole just the same. And that is an evolving technology that we think we're going to be able to use more and more over time. So we should see some of the same efficiencies we saw in the Permian and some of the cost reduction, but a little more nascent in Canada than it is in the Permian, but still working quite well. Greg Pardy: Okay. And then I'll maybe just kind of staying with Montney now. When you kind of compare and contrast NuVista versus the Paramount acquisitions. Can you -- how do you look at perhaps the degree of low-hanging fruit cost synergies, efficiencies and things like that. I think, Brendan, in the past, you've mentioned NuVista was actually a pretty good operator. I'm just curious on the two. Brendan McCracken: Yes. I think -- I mean, I'll start with geography first and then just come on to -- Greg will have some comments on the integration. But the NuVista piece really fills in the jigsaw puzzle. And so with Paramount, we stepped further South than we had been with our legacy, not by a long ways, but -- and we were, I think, had the right amount of humility there to make sure when we integrated those assets that we didn't change something inadvertently and create risk in the integration. And so we stepped our way in a very thoughtful integration process through really a full year here. And one of the highlights in the deck today, again, there's a lot in there, but one of the highlights in there is pointing to the really strong results we're seeing from our first density pad, and we're excited about those. And then with -- in contrast, NuVista really filling in the jigsaw piece in between. We just have a lot more technical confidence and we're kind of integrating quite quickly there with that piece. But Greg, if you want to comment on some of the specifics about how it's going. Gregory Givens: Yes, for sure. Yes, I think Brendan set it up really well. It's going to be the same process on NuVista as it was on Paramount. It's just going to go a little faster. So because of our familiarity with the assets plus all of the learnings we had on the Paramount integration we're going to try to accelerate things a little, and we think that that's very doable. So the team is already hard at work, employing the same playbook that we've used on all the LAP transactions. We came in day one, took over the asset. We had a short safety orientation, and then got to work. So by that afternoon, we were operating the asset as Ovintiv. There's only been a few short weeks, but we've already connected all the producing wells to our operations control center so that we can optimize production and minimize downtime. We've linked the drilling rigs to our Drive Center, which is our optimization tool where we use AI to help optimized drilling performance, and that's going to allow us to deliver our synergies here very quickly. We've already incorporated the $1 million per well of savings the synergy savings, are what you're seeing as part of the guidance. We're going to be delivering that from day one. And so, so far, we've had really, really good results. The teams are integrating well. The new wells remain drilled as expected. As I mentioned earlier, production is already at 85,000 barrels a day, which is what we expected for the assets as they come together. So integration is going quite well. Just really, really pleased, and I think it will be very similar to the last time. It will just go a little faster and hopefully be even more effective. Brendan McCracken: Greg, that high density test results on Slide 14 there, which was the 14 wells per section that we talked about when we started out with the transition of the Paramount integration of the Paramount assets. And so that does move 130 wells out of upside into the premium bucket for us. So a really critical result. Operator: The next question comes from Josh Silverstein at UBS. Joshua Silverstein: From a balance sheet perspective, pro forma, you're now below that $4 billion long-term target that you've had for a while now. How should we think about the right levels of debt for you guys going forward? Should we think about it as kind of an absolute level or a net debt level to kind of think about free cash flow allocation? Brendan McCracken: Yes, Josh. So, yes. So we've reached that target. In fact, we're going to move past it here with the Anadarko proceeds. So really, we're not setting a new target here. If you remember, the $4 billion net target that we set was really a trigger for increased shareholder returns. And we spent obviously a lot of time and effort getting us to this spot. So that is now happening. That trigger is pulled and the catalyst to change those returns is going to be up and running right after we get off this call, I guess. And so we've had to balance that debt reduction as part of our capital allocation for a long time. We've now put ourselves into this resilient position. And at the same time, we put the inventory into a really strong and resilient position as well. So it just means we're in a place here now where we can focus on keeping the debt around this level and focus on allocating more to cash returns. So that's how we're thinking about the debt level go forward. Joshua Silverstein: Got it. And then from a Montney operating perspective, I know you guys on the Paramount transaction, were able to kind of optimize the infrastructure a bit more. Can you talk about what you might be able to do on the NuVista asset as well to kind of improve the overall productivity here and then maybe from a long-term planning perspective, is there anything you guys are thinking about from an infrastructure standpoint that you may need to invest in or want from a third-party build? Brendan McCracken: Yes, I'll turn it over to Greg here, but we are excited about taking these sort of three disparate systems that were previously all operated independently and being able to have one value-creating mindset over all three of them. But Greg, you can comment. Gregory Givens: Yes. Thanks for the question. And so in the short term, we're really focused on getting the well cost savings at the well level putting in our completion designs, our facilities designs. And that's going to take place over here like immediately over the coming months. Longer term though, we're really excited about the opportunity to optimize infrastructure. If you look at the map, it's just reeks of opportunity. When you look at how well the three positions come together, the gas plants, how close they are to each other, the number of midstream lines that are crossing the asset. So a little more work to do there. It's a little more time consuming to work with the midstreamers to make sure we're doing the most efficient operations there. But over time, that's something we're going to target to get our T&P down to get the gas molecules for the most efficient plant and to work through those things. So that's coming a little longer. But in the short term, we're really excited about the well cost savings. Longer term, we think the midstream, there's a lot of opportunity there, and that will be something we'll start working on here immediately. Operator: The next question comes from Doug Leggate with Wolfe Research. Douglas Leggate: Brendan, I wonder if I could ask you about asset duration, and how you define that. The portfolio repositioning is extraordinary as everybody has observed. But I'm trying to understand, when I asked this question to Diamondback this morning as well, is this idea between sustaining production or drilling depth versus sustaining free cash flow? How do you think about that in the portfolio? What are you trying to solve for? Brendan McCracken: Yes. I mean we haven't been exotic with our thinking there. We just run it off of what it takes to sustain the production. And in a lot of ways, what we've been talking about, Doug, is the ability to sustain the returns that we're generating today, while we do that production maintenance level and this, again, at the risk of being too pedantic with it. This is why the reoccupation strategy and how we've approached, both cube development, but also program design really derisks our inventory duration over time. And just as a refresher here, because we're designing our annual programs with that reoccupation in mind, so to come back sort of 12 -- sorry, 18 to 24 months after we've drilled the prior cubes because that's been the dominant feature of our program design, we essentially are sampling all of our remaining inventory with a full year development program, either in the Permian or the Montney. So what that means is we already know what the remaining duration inventory and how it's going to perform because we're drilling it today. We're not saving the worst locations for a decade from now. We're kind of drilling the full cubes and then reoccupying cubes as we go. So I believe that to be a big derisker. And one of the other things that's important on this front is if we were telling you that, that was what we were doing, and we were delivering mediocre results, I think that would be up for question, but we're delivering leading results while we're doing that. And I think that's the true differentiation. Douglas Leggate: I appreciate that answer. I know it's a bit nuanced more than anything else. But forgive me for my second one, but you're probably not going to talk about capital structure and all that stuff. But I want to ask you about your philosophical view as the CEO about your commitment to cash returns. Because if I play back to you what you just said today, you do not want to be guilty of pro-cyclical buybacks. But that's exactly what you're doing in 2026, if I may say so, meaning that your stock is up 25%. ExxonMobil's is up 22%. Oil is about 70% for reasons we all know are not necessarily fundamental. And this is the year you're going for a 75% of your free cash flow per share buyback. Why are you not choosing to be more discretionary in your timing? Brendan McCracken: Yes. I'm going to try and not be -- I guess, I mean, I'm still trying to be humble here, but 30% still doesn't get us to what we think is a reasonable valuation for the stock. So I'm not trying to say that, that's not great, and we're pleased, obviously, with the momentum, but we still see a lot of intrinsic value in the equity today. When we talk about trying to avoid being pro-cyclical, a lot of that is going to be tied, as you know, Doug, to the commodity environment. And today, we're not in a commodity environment that screams really high windfall situation, I think, we're still in a relatively modest commodity environment today. And so we do not see the risk of being at 75% as opposed risk today because of that intrinsic value gap, we still see any equity. Operator: The next question comes from Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: My question is on the 15, 16 pads. So maybe this is for Greg. Greg, wondering if you can talk about how you sequence the completions of the three zones and sharing the details on the frac job. That third zone has been an opportunity in the area. It sounds like you guys have cracked the code. And then where in the basin next do you plan to apply that design? And could the balance of the upside locations move into the derisked inventory count this year? Brendan McCracken: Yes, I will turn it to Greg. Thanks, Kalei. Gregory Givens: Sorry, I forgot to turn my mic on. Yes, Kalei, I appreciate the question. And we're really, really pleased with the results there on this 15 to 16 pad down in Karr. So what the team has done there, just as a reminder, when we acquired the asset, our base case was 12 wells a section. We said we had upside up to 16 wells. So this is the first pad that we really got to design and to end in the area. And so we kind of met in the middle with 14 wells per section spacing. So we added that third zone down in the Lower Montney or the [indiscernible] some call it. And also increased density in the upper part of the cube, pumped a fairly normal frac design for us, which might be a little more intensity than some of the peers are pumping in the area, but it's a fairly normal frac design. It was really the stacking and spacing that we leaned in on. And so far, we're really pleased. The pad has been online a little over 100 days. The lower zones actually exceeding expectations of what we were expecting. And then the upper zones are holding up very nicely despite the increased density. So our plans now are to move to other parts there of Karr and employ this density test -- sorry, density design now. And that's why we've talked about 130 of the, call it, roughly 600 upside locations between the two deals. This proves up 130 of those. So the next step will be to go to other parts of Karr in testing the third zone. And then we've still got work to do up in Wapiti and in other parts of the acreage. So we'll be systematic about this. One pad doesn't prove up all the upside, but we'll continue to execute with this design on our future pads and then maybe even lean in a little more, when we still have a little more upside potentially, up to 16 wells per section on a few of the pads. So really pleased. But I wanted to wait until we had a few months under our belt before we talked about this one. And right now, we're feeling really good about it. Kaleinoheaokealaula Akamine: Maybe staying with the Montney here. The second question is on the plant turnaround in 2Q. We understand that was elected by the midstream operator. How should we be thinking about the cadence of turnaround activity in the Montney? Is it annual? How much heads up does the operator typically give you that a turnaround is needed? And should we expect better performance from these plants and maybe that's in yield after this work has been completed. Gregory Givens: No, I appreciate the question, Kalei. This is fairly normal operations from the midstream processing plant, up in Canada. They're on schedules that every 2 to 3 years, you take down the plant for a few weeks to do inspections, routine maintenance, maybe upgrade a few of the vessels. So these are the kind of things that we're usually we know about well in advance. That's why we're talking to you now about something that's going to happen next quarter. What we're experiencing in this coming quarter as we just happen to have five of them, which are all lined up at the same time. And so normally, we don't really have to talk much about these because you may have 1 or 2 turnarounds going on at the same time and you can move volumes around. But when you end up having 5 at once all lining up at the same time, it just takes a little more coordination. So we're working with the midstreamers to try to minimize the amount of time that they're down, try to move volumes around them where we can. But right now, we do feel like there will be some impact. And that's why we're guiding to be at the lower end of that 83,000 to 87,000 barrels per day in the Montney. But this is something that I'd say it's fairly infrequent that they all line up in the same quarter. Usually, they're more spread out over time and they're more manageable. So I don't think this is a longer-term risk for us. This is just something the way the stars align. We wanted to let everyone know that this was coming and that we're planning for it. So that when we come back and report Q2 earnings, there's no surprises. So just trying to give you guys a heads up, but trust that we're working to try to minimize the impact as much as we can. Kaleinoheaokealaula Akamine: And Greg, just to follow up, coming out of maintenance, could there be any increase in the performance in those plants, maybe that's in yield after that work is done? Gregory Givens: That's going to vary by facility and exactly what kind of work they're doing. But usually, these are not upgrades that add capacity. These are more routine maintenance, think of changing the oil in your car, probably isn't going to run a whole lot better after you're done, but in some cases, we could see some minor improvement or flushed production. But for the most part, this is just routine maintenance routine work that they're doing. Operator: The next question comes from Betty Jiang at Barclays. Wei Jiang: Congrats again on the portfolio transformation and maybe into the buyback. My first question on the Permian. If you mind me digging into the numbers a bit, but your lateral length is higher year-on-year. And so on a total net total footage basis, it's almost up high single digits year-on-year, but holding production flat, even though type curve is unchanged, what we would typically expect some upside to that production. So could you just unpack the dynamic there? And if we hold up Permian production flat, where could the CapEx trend on a normalized basis going forward? Brendan McCracken: Yes, this is great, Betty. And I'll turn it to Greg. here. The headline here is we are being an efficiency gain on the well cost side. So we're 5% down on the well costs year-over-year and then holding the type curves flat. So what you'll see over time is that this is going to translate through into the total program, but there's some timing effects for 2025 -- 2026 that are kind of masking that a bit here, but Greg can cover that. Gregory Givens: Yes. So thanks for the question. And so as we've been talking about today, we really like to usually run our programs on a very level-loaded basis, at least that's been our goal. We've tried to complete our wells as soon as they are drilled. So we don't carry excessive DUCs. But as you might recall, last year, we had a number of extra DUCs coming into the year. So in the first quarter of '25, we employed a spot frac crew in the Permian and came in and finished out all of those DUCs, which it had a couple of impacts to our program. One, capital was actually artificially low last year because for all of those DUCs, the drilling capital was in the previous year, and the only -- we only saw the completion capital last year. And the other result was we actually saw a really nice production boost there in the first quarter. We brought on over 50 wells in the first quarter, which was about double our run rate for the other quarters in the year. So really positive for last year. Unfortunately, for the metrics, we don't have that same circumstance this year. But we do have a very level-loaded program that we feel very good about. It allows us to become more efficient and continue to execute very repeatedly when we do the same number of completions, same amount of capital, same production every quarter. And so you think about the building blocks of the guide, you've got a slightly lower cost per foot, same type curve. So really, the only difference is the timing. And so that's what you're seeing manifest as it rolls through the numbers. But over time, we feel like this is going to be a very efficient program that's going to continue to get better over time as we continue to drive down the costs and keep that type curve flat. Wei Jiang: My follow-up on the Montney surfactant use. I mean it seems a lot of operational efficiency tailwind in Montney, but specifically, are you testing the surfactants in Montney as well? Is there any read cross and viability there? Brendan McCracken: Yes. I think I'll say Greg up here, but what we found and understood really from the early days of this is every bench in each county are going to perform a little bit differently depending on the wettability and the fluids that we're trying to impact. And so -- and the Montney does have a wholly different down subsurface regime from temperature and pressure perspective. So it's going to have its own bespoke completion optimization. Some of that might be surfactant. Some of it is looking like other pieces that it can add to the performance that we're seeing there. So it will be a little bit different. We're quite a way further advanced on surfactants in the Permian with 300 wells pumped there. We've done no renew that many in Montney to this point, but really excited about completion design in the Montney generally. We'll see surfactants were going to go a little slower there just because of the temperature and pressure differences. But Greg, over to you. Gregory Givens: Yes. So yes, we're in our seventh year of surfactants in the Permian. And so we've learned a lot over that time. We've learned where they work best, what concentrations work best, as Brendan said earlier, which chemicals are most effective for the lowest cost. And so we've really advanced our learnings there. We're still in the early innings, up in the Montney. The team does a great job, though, of sharing learnings cross-border and cross assets. So we're absolutely looking at things up there, and we've done some of the rock work, and we've done a few trials so far. And so we're just -- I would position it more as we're just getting started up there, but the whole toolbox is available to us as we see that working as well as we see higher completion intensity, stacking and spacing optimizations, all the things that we do in the Permian, we do the same in the Montney. And so we'll share those learnings cross-border, but maybe just a little earlier stage in the Montney on surfactants. And it will be a slightly different setup just because of the pressure regime downhole and the rock fabric. It's just a different reservoir, but we'll work to see if we can make the same kind of improvements there that we've seen in the Permian. Operator: The next question comes from Phillip Jungwirth at BMO Capital Markets. Phillip Jungwirth: Just with some of the industry news today, can you talk about how you see the prospectivity for the Barnett, Woodford across your Midland acreage? And where that might be across North, South and any plans to test this? Brendan McCracken: Yes. I'll turn this to Greg. But really pleased with the job the team has done here to assemble a position in the Barnett. But Greg, over to you. Gregory Givens: Yes. So we've been very interested in the Barnett and have been watching it for some time. I do think this is one of those plays that we're wise to learn from our peers and see what -- the two things that are going on with the Barnett, it's a deeper zone. So it's got more pressure, and it looks like it's got good productivity, but it's also got higher costs. So we're watching as some of our peers are derisking the cost side as well as derisking the well performance. We do have a meaningful Barnett position. We've got Barnett rights on about half of our acreage position in the Permian, so around 100,000 acres. We'll look to test that this year with our first well. So we'll get some information of our own, but we're also going to watch and I think be prudent on how much we lean into the Barnett. It's a deeper horizon that's separate from our cube, so that resource is still going to be there later. It's not going to be impacted by the shallow production. So I think this is one where we have time to be a little more patient, but also have the ability to fast follower and go execute on that 100,000 acres if we choose to do so. Phillip Jungwirth: Okay. Great. And then can you talk about what you've seen with LNG Canada ramping up the second train starting up just as it relates to the AECO market and Ovintiv supplying that versus maybe incremental equity volumes for the partners. And more hypothetical, but -- would changes in ownership across the facility have any implications for Ovintiv or open up any strategic partnership or marketing opportunities? Brendan McCracken: Yes. So I think -- so we are pleased in recent weeks to see that facility ramp up to essentially full capacity, which is kind of really the first time since the start-up that it's been at that level. So it's been a slow grind upwards with a bit of ups and downs along the way, as I'm sure you followed. So I think our caution on AECO remains the total takeaway from LNG Canada, while it's great to see it in recent time, up to that level. It's still relatively small relative to the total productivity potential of the basin, and we've seen the sort of behind pipe volumes, if you will, able to fulfill that takeaway. So still cautious AECO, still strong believers in diversifying our Canadian gas portfolio into alternate markets, which is, I think, kind of part B of your question there. So yes, we continue to be interested in building out a diverse portfolio of markets for our downstream gas and further LNG exposure is going to probably be part of that over time. We've now added that to our portfolio, and we're excited to have those positions in place. But I would expect, over time, we will probably grow that exposure. Operator: The next question comes from Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: You guys have laid out a solid maintenance program with a big buyback for this year. But I wanted to revisit the growth question. You've talked about the potential to grow the Montney by 5% a year. And now that the portfolio transformation is about to be complete, debt is being reduced and you have oil in the mid-60s. How does that growth opportunity stack up in your capital allocation framework? And what could change that rank? Brendan McCracken: Yes. Appreciate it, Kevin. I think the two things that we've talked about with respect to growth are still very much in place. So the two dates, if you will, are -- do we see a fundamental call for incremental barrels or BTUs. And again, we don't see that today, the market's not begging for companies like ours to bring more volumes into the market. So that's kind of gate number one. And then gate number two is can we create more cash flow per share growth out of share buybacks or out of incremental rigs. And today, we see that equation tilted towards the buyback. So we get a better cash flow per share outcome across a range of commodity price assumptions going forward and share price assumptions going forward, we expect we get a better cash flow per share outcome out of buying the shares. So the combination of both of those two gates today are telling us to stay in maintenance mode. But I appreciate your question because it surfaces the other aspect of the portfolio transformation that's important here. So not only have we added tremendous inventory duration and focus the portfolio, we've also unlocked growth potential. And at some point in the future, those two dates will call for growth, and we've now created the capability to do that very efficiently at high return for our investors. Operator: The next question comes from Dennis Fong with CIBC World Markets. Dennis Fong: My first one relates towards inventory to some degree. It's clear that you've done a lot of work around the ground game to add low-cost, high-quality premium inventory. Can you kind of talk towards how that helps you kind of either gain comfort with existing depth as well as how that may influence allocating capital, both North and South of the border, which -- from what looks kind of like from a well count perspective or a TIL perspective, almost a balanced program North and South. Brendan McCracken: Yes. You got it, Dennis. So that ground game has been really effective for us. Obviously, a lot of focus on the larger transactions, but the ground game has been grinding away very efficiently. And you think about where we've arrived at here, we've put the transaction risk of having to build inventory duration behind us. And now we can rely on that ground game, which is very efficient, low-cost way to sustain our inventory duration. And it just is sort of funded within our framework, within the balance sheet that we've got today. So we can just sort of put that in and let it opportunistically pick away as we go along here and sustain the inventory depth that we've created. So we like that feature, and we're really proud of the team for how it's been able to do that over time. As far as the capital allocation between the assets today, we're really just holding both of those assets at that flat production level. And the outcome is, like you said, a relatively balanced TILs, North and South. But it's really more designed to hold the production flat. Dennis Fong: Shifting on to innovation. There's obviously a lot of questions today focused on obviously use of surfactant, and obviously, your teams have done a very good job in terms of applying leading-edge technology on improving operations. I'm just curious, has there been anything that you guys have learned potentially from the NuVista teams and operations that they were doing or techniques that they were running that you believe could be applicable to your existing Montney base and/or even the Permian. Brendan McCracken: Yes. No, we love that question, Dennis. And really, this is our -- one of our mantras here is the only infinite rate of return we can generate is by learning from somebody else's capital. And what better way to do that than in an integration where you have full transparency and data and everything, but I'll put that to Greg because there are several things that we've been excited about from the NuVista team. Gregory Givens: Yes. We were really pleased with the NuVista transaction. Not only did we get some great assets. We've also got a number of really quality individuals that came over with the transaction and brought over some really good ideas. So out in the field, I think they've done a really good job on some of their gas lift designs and how they've optimized their gas lift techniques in the field. So we're already working with them on how do we take some of those ideas and then using them more broadly across our portfolio, incorporating with our operations control center and really upping our game a little bit there on the gas lift, which will have some application in the Permian, but definitely will have application across the Montney. Another place that we've talked with them a lot about is on landing zones on the very precise, not which interval in the Montney, but to the meter, to the foot where you're going to land the wells and they've got some really good ideas that they've been able to execute on some different landing zones that have allowed them to drill wells a little faster than we have in some cases. So we're implementing that into our program, and we think that's going to help us even improve quicker in Canada than we have been so far. So our teams are doing a really good job, but we're always open to learning from others. We try to approach competitor intelligence or integrations with, what can you teach us? Not what can we tell you we know. And so far, we're learning some from them, and it's going really well. So we're really pleased with that. Operator: At this time, we have completed the question-and-answer session, and we'll turn the call back over to Mr. Verhaest. Jason Verhaest: Thanks, Joanna, and thank you, everyone, for joining us today. Our call is now complete. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Viper Energy Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chip Seale, Investor Relations Director. Please go ahead. Chip Seale: Thank you, Britney. Good morning, and welcome to Viper Energy's Fourth Quarter 2025 Conference Call. During our call today, we will reference an updated investor presentation, which can be found on Viper's website. Representing Viper today are Kaes Van't Hof, CEO; and Austen Gilfillian, President. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Kaes. Kaes Van't Hof: Thank you, Chip. Welcome, everyone, and thank you for listening to Viper's Fourth Quarter 2025 Conference Call. The fourth quarter capped a transformational year for Viper highlighted by more than $8 billion of mineral acquisitions and meaningful growth in both absolute and per share metrics. Year-over-year, we grew our Permian Basin acreage by nearly 2.5x and our oil production per share by 7%. Activity across our Permian acreage remains strong, supported by Diamondback and third-party operators focused on development of long lateral high-quality inventory. Looking ahead, we've initiated average daily production guidance for the full year 2026 that implies mid-single-digit organic production growth from our Q4 2025 exit rate. The Diamondback relationship continues to be strategic and meaningful to Viper's growth even after two significant acquisitions in 2025 and greater exposure to other leading operators in the Permian Basin. Beyond visible near-term growth, Viper is better positioned today than we ever have been in terms of the scale, longevity and overall quality of our asset base and future inventory. Another significant achievement was the work we did on our balance sheet. Following our non-Permian divestiture, we fully repaid our $500 million term loan and outstanding revolver balance resulting in pro forma net debt of roughly $1.6 billion, just over one turn of leverage. Now turning to return of capital. Our Board approved a 15% increase to our base dividend and a $1 billion increase to our share repurchase authorization reflecting confidence in our long-term cash-generating ability and disciplined capital allocation approach. This base dividend represents approximately 50% of estimated 2026 free cash flow at $50 WTI and is fully covered below $30 WTI. This increased base dividend provides an attractive yield while also allowing us continued financial flexibility to optimize capital allocation through additional returns via a combination of our variable dividend and opportunistic share repurchases. Given the strength of our balance sheet, we returned 90% of available cash during the fourth quarter. And now following the closing of our non-Permian divestiture, we are well positioned to increase our return of capital upwards of 100% of cash available for distribution. Importantly, we expect to execute on this comprehensive return of capital strategy while also continuing to deliver on differentiated growth in per share metrics. I'm pleased with our accomplishments in 2025 and the strong position Viper is in today, but there's still much to achieve. Looking ahead, Viper is well positioned to generate strong free cash flow deliver attractive shareholder returns and continue to pursue accretive Permian consolidation opportunities as they arise. Operator, please open the line for questions. Operator: At this time, we will conduct the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Neal Dingmann with William Blair. Neal Dingmann: Kaes, my first question for you, Austin, is just on the Barnett specifically, last night and this morning, [ FANG ] Barnett update really seem to be positive and certainly, I think, positive for Venom. I'm just wondering, could you give any color on how Venom's ownership translates across [ FANG's ] Barnett position? Kaes Van't Hof: Yes, Neal, I'll give you some of the high level. I mean, I think that's what we've continued to try to preach at Viper is the benefits of mineral ownership and you own from the surface of the earth to the center of the earth in perpetuity. And as operators try new things or try new zones or try new techniques, the benefit of that accrues to the mineral owner without the need to spend capital or take too much risk. So pretty exciting for Viper. We kind of kicked this off a couple of years ago in terms of leasing, but Austen is going to give some color on where we are today and what we're seeing. Austen Gilfillian: Yes. No, we're still early stages on the actual leasing program. So Diamondback directly and also in some of the JVs that they've done have been very active in taking new leases from Viper to give them the right to develop those deeper zones in the Midland Basin. Spanish Trail was a big chunk of that, that we leased with Diamondback back in 2023. But as we sit here today, I would say we still only lease about 10% to 15% of the acreage that would potentially be open in the Midland Basin. So that should be a tailwind to come both from a lease bonus perspective, but also new inventory locations that are going to come into play and kind of support the production profile over the years to come. Neal Dingmann: Great point, Austen. And then second question, just on return of capital. Specifically, now you've mentioned that you're positioned to return upwards to 100% of cash available from distribution in addition to the share growth. And I'm just wondering, it looks like last quarter, that 41% the cash available for distribution went to base dividend and then followed by what was a '27 buyback, '23 variable and 9% debt repayment. How -- will this stay in this range? Or a case, is this just largely share price dependent? Or I mean, I'm just thinking more on sort of broad terms and ranking. Should we -- will we see the base dividend still probably be the highest? Or how should we think about it? Kaes Van't Hof: Yes. I mean, listen, the Board decided to increase the base dividend by 15%. I think that's a meaningful number. I think it shows that we've done a good amount of accretive deals. Balance sheet is strong. That's always going to be the first call on capital. We've also said, hey, when we get to $1.5 billion or $1.6 billion of net debt, we're going to ramp the shareholder returns to almost 100%. And I think we're there. I think it all depends on the market and the stock price and where things are headed. Obviously, the decision to buyback shares is less obvious today than it was at $37 a share. But we think we recognize that we have done a lot of accretive buybacks at Viper. We'll probably be ready should any of our nontraditional holders like the private equity owners want to sell, we'll help them get out like we did in Q4, we bought back 1 million shares directly from one of the private equity holders. So I just think having that flexibility is key. But in general, I think shareholders still want a lot of cash back. And at these prices with commodity improving and the stock price improving, we probably lean more towards cash return outside of unique situations. Operator: Our next question comes from the line of Betty Jiang with Barclays. Wei Jiang: My question is on the third-party activity outlook that you're seeing there. I think given the rig count declines in the Permian, it's notable how resilient Diamondback's or Viper's third-party activity has been holding up fairly well in the last few quarters. Where are you seeing today in terms of your activity backlog? Are you seeing any slowdown at all? Or could this be another area that perhaps is enhancing the production growth that you might see this year? Kaes Van't Hof: Yes. Good question, Betty. We really haven't seen much of a slowdown at all across the third-party activity. We put some new disclosures in this quarter on Pages 14 and 15 of the deck that breaks down kind of some of the key third-party operators by both the Midland and Delaware Basin. And kind of as you look through that list, right, it's dominated by some of the larger players in the industry. So I think that's really helped. I think also it's just kind of supportive of the view that we've had of trying to acquire high-quality royalty interest. And as you look at the amount of activity that our acreage position has captured over the years, it's really been consistent in capturing pretty much 50% of everything that happens by third parties across the entire basin and then you get the kicker of the concentrated development by Diamondback as well. So we'll see what happens over the course of the year. Right now, the guidance only takes into account what we can see, meaning existing DUCs and permits. So if activity holds like it can today, that might help a bit on the production outlook. But overall, I would say the key takeaway is that third-party activity continues to be very strong. Austen Gilfillian: Yes. And Betty, we always put our operator hat on when we're buying minerals. So we always buy under well-capitalized operators on the third-party side in acreage that we covet. And that usually means that acreage that we covet gets developed first, which is why we've had such strong activity levels on the third-party side. Wei Jiang: Yes. No, that makes sense and can really see how resilient that activity are broadly is despite the basin overall levels. A follow-up on the lease bonus. And it's related to the Barnett for the deeper zones as well. Lease bonus have been coming in fairly strong in 2025 and got another decent quarter in 4Q. As the basin continue to chase deeper zones, how does that benefit you guys from the lease bonus income perspective? Kaes Van't Hof: Yes. I mean it's -- any kind of lease comes available, whether it be because of a vertical well doesn't hold down to these new emerging deep rights or an operator fails to fulfill some of the requirements in the lease, meaning drilling a well by a certain day or producing a certain amount of production, that lease would terminate and those rights revert back to us as the mineral owner and then we can go take a new lease and get that lease bonus and kind of set the clock again on the development requirements. We spent a lot of time and effort building teams and systems and processes here to manage all of those tens of thousands of leases and the production data associated with that, so we can really proactively manage that and have an active leasing program. I think you're seeing that benefit play out with the lease bonus that we achieved last year and really over the last couple of years. And I think that's going to be a continuing theme, both from a price perspective as well as just operators needing to meet continuous drilling requirements and overall, the rig count being lower, so that being harder for certain operators to fill. Operator: Our next question comes from the line of Neil Mehta with Goldman Sachs & Company. Neil Mehta: Kaes, what's the environment out there right now in terms of the bid ask for other royalty assets? Is there another Sitio waiting out there? Or a lot of the big prize has already been taken? Kaes Van't Hof: Yes. I mean it's a good question. Minerals are interesting. When commodity prices are lower, there's not really a need to sell unless there's some other use of proceeds that the seller has. So there hasn't been a ton of large deals for us to look at over the last six months or so. And I think generally, investors wanted a little bit of a break from deals at Viper, big deals in particular and proved that we could integrate Sitio and the drop-down, and we've done that. But I'd say we're ready to look at larger deals. They're just kind of hard to get done at these prices. And that kind of ties to the thesis around the Viper balance sheet and return of capital. We've kind of said, hey, listen, debt-to-EBITDA at Viper is very close to debt to free cash flow and $1.5 billion of debt, we're well protected at $50 oil. And also at $50 oil, we don't need a ton of cash for deals because it's harder to get them done. So that's kind of why we set that debt target. And as you think about going above that, as prices recover, I think the psyche for sellers changes, and we might be able to get some deals done. But from a size perspective, it's been hard to get really big deals done over the last few quarters. We've done a couple of small things that add up over time, but that's kind of how I see the market. Austen, do you want to add anything? Austen Gilfillian: No, I agree. The ground game, as we call it, is tough off here, but we have a team dedicated to that. And I think we have the relationships in the basin to get some some good value adds that help on the margin. I think the -- to Kaes' point, there are bigger strategic deals to be done when the time is right. We just haven't seen those over the last couple of quarters more so because of the commodity price environment. Neil Mehta: That's great. And then the follow-up is just geography. I mean it seems like the position is certainly more concentrated on the Midland side, and that's where you have the asset overlap with the parent. How does Delaware fit into the portfolio? Where specifically could you see yourselves leaning in from an activity perspective? And then I think I know the answer to this, but this is a Permian pure-play story, right? We wouldn't be surprised if you try to diversify outside of that. Kaes Van't Hof: Yes. It's definitely a Permian perfect story. I think the unique attributes of the Permian with the stacked pay and the emerging zones and kind of also some of the modern lease clauses, really benefits you more as a mineral owner, even more so than some of the obvious things that you would appreciate from the operated perspective. It's who we know, it's what we know, and I think most of the sizable deals here exists in the Permian, given the still very highly fragmented royalty ownership across Texas and New Mexico. For us, on the royalty side, I think we still see a lot of value in the Delaware Basin. It's a little bit of a different story given that you're not going to be able to rely on the Diamondback drill bit to drive that visible growth. But as we dig in, there's still some really high-quality unbilled locations there that exists under well-capitalized operators. And that's kind of how we view it, right? It's like what is the likelihood of that next inventory location getting developed. And for us, we get that confidence either via knowing Diamondback's development plan or by just looking at what the operator economics are. And I think a lot of that exists today, especially in the Northern Delaware. So we'll focus there where we can. But for us, rock is rock and value is value. So it will just kind of be depending on the assets that are available. Operator: Our next question comes from the line of Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: My first question is on the 2026 oil guide. It's quite wide. Wondering what that reflects. Is it visibility that you have on the activity? Or is it performance related as third in the basin are trying out new stuff? And if it's visibility related, is it fair to say that visibility is better near term and less so in the second half of the year? Austen Gilfillian: That's right, Kalei. Maybe on the second point. So on the third-party operated side, we have the same visibility that you do really being that it's limited to existing DUCs and permits. If you look at conversion rates and also the conversion time lines on wells that have been drilled currently, those typically get converted to production within about 5 to 6 months. So we feel very good about the first half of the year and what that growth outlook looks like. As we move to the second half of the year, it becomes a little bit more tricky calculus and having conversion rates and time lines on permits. So we've modeled the permits that we can see today. But as we progress through the year and potentially activity gets brought forward or new wells get permitted that are included in the guide, that could help move you up to the higher end of the range. And really, the wide guide right now is just that we can only guide to what we see today and a lot will happen that we don't know about today in the back half of the year. Kaleinoheaokealaula Akamine: My second question is on the gas contracts that were announced at Diamondback that are starting up later this year. To the extent that secures higher gas realizations, wondering if that also benefits Viper on the revenue side? . Kaes Van't Hof: Yes. We do everything essentially heads up between Viper and Diamondback. So any marketing contract benefit rolls through, it won't be for all of Viper's production, but for a good majority, the gas realization thesis works pretty well for Viper too, particularly now on the third-party side, a debottleneck Permian, given the Viper Delaware exposure could be a good positive rate of change story as well Kaleinoheaokealaula Akamine: I hope you guys don't mind me trying the third question, but I imagine that there's a portfolio of lower zone rights at Viper. Maybe not all of that is viewed as being competitive today, given where the activity on the Midland side of the basin has been, but the proportion that is competitive, should we assume that's already been transferred to Diamondback? . Kaes Van't Hof: Yes. Not all of it has been leased yet. There's still a lot of unleased deep rights that at Viper. And as we get closer to development at Diamondback, it's logical that Viper will be a first call. We got to do things on a market basis and a heads-up basis, but this relationship between parent and sub, mineral owner and operator, I think, is going to pay some long-term dividends with deeper zone development. I think the great example was we leased Spanish Trail, which is 100% of the minerals are owned by Viper, and that's what started this business 15 or 11 years ago going public. And a 10,000-acre block at 100% NRI is as good as it gets in the Permian Basin. Operator: Our next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: I wanted to start on the Barnett. Regarding the interval and the 200,000 net acres you referenced for Diamondback earlier today, how much coverage do you specifically have with Viper? And does Diamondback have any activity planned at Spanish Trail, the area you were just mentioning, which you guys have a very high NRI for. Kaes Van't Hof: Yes. So without getting into the specifics, I would say a lot of the work that Diamondback has done has kind of been with third parties. We had the big chunk kind of the 10,000 to 15,000 acre block in Spanish Trail, which is going to provide the great alignment between Diamondback and Viper. I think Diamondback had a little bit more flexibility to handle the leases with Viper as they come up and a bit more term on the development plan, where a lot of what they've done has kind of been more bigger strategic options. So I think you'll see the alignment continue to improve as we progress through the year. And then on Spanish Trail, I think if you listen to the Diamondback call, there's been some references to some offset test, but the first 2 wells that are going to be tested on Spanish Trail proper, those wells have been permitted and should have production kind of in the mid-part of this year. So very excited to see those results and see what that might mean for Diamondback to apply more of a full-scale development approach where Viper own 100% of minerals. Derrick Whitfield: Yes. No question, great development for Viper. And maybe just going back to some of your M&A comments earlier on the ground game. With the inclusion of the Sitio guys who had really focused on the ground game, I guess how would you characterize the growth you're seeing in organic additions throughout 2025 and kind of what you see ahead for you in 2026. Austen Gilfillian: Yes. I mean, listen, we're continuing to look at every deal that crosses our desk, right? We're in the flow. We know everybody. They're bringing the deals. I'd just say it's not that we're not getting anything done. It's just that from a materiality perspective, it takes a lot more effort on the ground game to equal something of the scale that we did last year. So don't count on the ground game. I think that's still going to be an important part of the story. It's just going to have to add up over time. And then you have the big deals really moving the needle from a size, scale and flow liquidity perspective. Operator: Our next question comes from the line of Paul Diamond with Citi. Paul Diamond: So one sticking on M&A. You guys have been kind of progressing towards that $1.5 billion net debt number, one turn leverage. I guess in the presence of potentially or potentially larger deals, how much are -- would increase sale? How much are you willing to flex that up? Kaes Van't Hof: Yes. I mean I think we probably feel like a little bit of 1.5 turns, a little bit above that as a stretch and then you pay it down, wouldn't hurt. I think we're very cognizant of maintaining and improving our ratings profile, getting to investment grade was a big deal for us last year, pretty unique access to capital at Viper versus peers in the space. So I wouldn't want to stretch the balance sheet. And I think our currency offers a very unique opportunity for sellers as well. We've done a few of these deals with OpCo units where taxes can be deferred and a lot of large mineral owners -- mineral owners have very little basis in their minerals and like that tax deferred status. So -- we stretched a little bit. I think half a turn of leverage is a big number now, which is a good thing. And any deal that we do is going to come with significant cash flow. So that's how I would frame it. Paul Diamond: Got it. Understood. And then just a housekeeping question on hedge plan. 2026 looks pretty well locked in. Is there any volatility level that would really move off these marks? Or are you guys comfortable with the current levels? Austen Gilfillian: We're comfortable with it. We've had this approach for a while now where we just try to protect against the extreme downside through deferred premium puts. So we've been able to take advantage of some of the volatility over the last couple of quarters and have a good position built through Q3, which especially given where the debt level is, I don't feel like we need to do much more there. As we continue to progress through time and if you see debt levels stay low like they are now, you can probably just see less protection, meaning either a lower percentage of our volumes hedged or potentially a lower strike price on the put and you can get them for a little bit cheaper. But in general, we just want to protect against the extreme downside, ensure that we can continue to pay out a lot of our capital and not have to panic if things go south quickly again and try to start working cash. So I think it's just a prudent approach that we've had that's worked well for us the last couple of years. Operator: Our next question comes from the line of Leo Mariani with ROTH Capital. Leo Mariani: I wanted to follow up on lease bonus income. Obviously, that popped a bit in 2025. I know it's difficult to kind of have any precision guide, but would it be fair to assume that maybe '26 is not dramatically different in terms of lease bonus income? Are we kind of in a bit of an upcycle versus kind of a handful of years ago? Obviously, there's some new zones that are coming to bear as you guys have described on both this and the fan call. Kaes Van't Hof: We'll see. I mean it's a little bit out of our control, given it's dependent on operators typically filling to meet certain lease provisions or lease requirements or alternatively having deep rights being open. I think we are seeing the deep right story play out on both the Midland and Delaware side for Viper in terms of the ground leasing that's happening. I think something also that's going to be interesting to happen, especially post Sitio as you move into 2027 and gas takeaway gets better, we'll be able to explore what new development areas might look a little bit better with higher gas realizations, and that could help as well. So maybe it's being optimistic, but I think we can have 2026 look similar to 2025. And really, it's going to be the benefit of having a much larger asset base today and a team fully dedicated to proactively managing the position. Austen Gilfillian: Yes. I mean that's the key. We're getting a lot better at proactively managing our position despite its size, and that's where some of the Sitio team members that are focused on automation, reviewing title, reviewing leases. This is where I think -- I think AI is going to be important for Viper. We don't have a ton of manpower to study 50,000 wellbores and 40,000 leases, but a machine can do it. And I think that's going to make our shareholders more money. Leo Mariani: All right. That's good color there. And I just wanted to ask on kind of oil cut. Your oil cut here was kind of mid-50s several quarters ago. It's kind of trending a little bit more towards low 50s. What do you attribute this to? Is this just more secondary zone development and of course, just wells get older, GOR sort of increases? Kaes Van't Hof: Yes. I mean I think if you think about Viper as a bond for the Permian Basin, it actually kind of gives you a good look into where GORs are headed throughout the basin. And -- last year, we added a lot of Delaware exposure through Sitio. So that's part of the equation. But I think outside of that, we've seen these gas systems and gas plants operate a lot more efficiently in both basins. So you've seen just the gas and the NGL beats be pretty dramatic across the board. And I think that's telling you something about the basin. It's not necessarily just secondary zones. I think it's all of the above. Operator: Our next question comes from the line of Tim Rezvan KeyBanc Capital Markets. Timothy Rezvan: I appreciate you let me on here. I want to kind of circle back on the repurchase comments. It sounds like, Kaes, from your comments that, that $1 billion authorization may be as much focused on liquidity for the unnatural holders as it is to open market repurchases today. So I'm just trying to kind of -- I know you can't show your cards too much, but shares are up 17% year-to-date. You're still well below where shares traded in '24 and '25 at a higher oil price. So just trying to kind of get your arms around the attractiveness of open market repurchases today. Kaes Van't Hof: Yes. I mean it's a good question, Tim. I mean it's a relative question, too, right? Obviously, open market repurchases were more obvious in Q4 than they are today. And so we're trying to walk this balancing act of how to return capital to shareholders. And with the balance sheet where it is, we do have more cash that can go to shareholders in the form of the distribution or repurchases. So I think you should expect us to continue to be flexible. I don't think we need to spend every dollar we make on repurchases at these levels, but it's still a part of the story. I just think the bigger slugs could come from unnatural holders that want to get out. And just having that ability to make sure the stock is not heavy and have the repurchase in place is -- I think is a good thing for Viper shareholders. So I'm talking on the buyback a little bit relative to Q4 because Q4 was a much different environment than where we are today. But who knows? I mean we could drop from here, and that's why the authorization is there to lean in. Timothy Rezvan: That's good context. I appreciate that. And then, Kaes, if I could quickly ask a macro question. We saw pretty strong third-party turn-in-lines in the fourth quarter relative to the full year run rate. I know some of that is probably due to the Sitio acquisitions. But it seems like industry-wide concerns on Permian oil rolling over, those concerns seem to be fading. So given the lens into aggregate activity that you have through Viper, do you expect Permian oil to grow this year? Kaes Van't Hof: Yes. I mean we've been very vocal on the Diamondback side about production and U.S. production. I think the Permian has always kind of been an outlier. I would say at these oil prices, I haven't heard about operators dropping a rig since kind of the first week of the year, we had the Venezuela noise. So I mean, since then, that's gone very quiet. I think overall, Permian probably grows here and some of the larger operators, the majors are continuing to grow. Some of the privates still have deals to do here and there. So in general, I think the Permian looks strong relative to the rest of North America and the conversations about reductions in activity have gone very quiet. Operator: I'm showing no further questions at this time. I would now like to turn it back to Kaes Van't Hof, CEO, for closing remarks. Kaes Van't Hof: Thanks, everybody, for taking the time to listen in today. If you have any questions, please reach out, and we'll talk soon. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, this conference is being recorded. Meny Grauman: Good morning, and welcome to Scotiabank's Q1 2026 Results Presentation. My name is Meny Grauman and I'm Head of Investor Relations. Presenting to you this morning are Scott Thomson, Scotiabank's President and Chief Executive Officer; Raj Viswanathan, our Chief Financial Officer; and Shannon McGinnis, our Chief Risk Officer. Following our comments, we'll be glad to take your questions. Also present to take questions are the following Scotiabank executives: Aris Bogdaneris from Canadian Banking; Jacqui Allard from Global Wealth Management; Francisco Aristeguieta from International Banking; and Travis Machen from Global Banking and Markets. Before we start and on behalf of those speaking today, I will refer you to Slide 2 of our presentation, which contains Scotiabank's caution regarding forward-looking statements. All the remarks today will be on an adjusted basis. With that, I will now turn the call over to Scott. L. Thomson: Thank you, Meny, and good morning, everyone. Building off a year of strong and consistent financial performance in 2025, we continued our momentum in Q1 as we executed on our strategic priorities despite what remains a challenging operating environment. This quarter, we delivered adjusted earnings of $2.7 billion or $2.05 per share. Earnings per share was up 16% year-over-year as strong revenue growth aided by constructive markets and good expense control offset the expected increase in our impaired PCL ratio that Shannon will discuss shortly. Our CET1 ratio was 13.3% even after repurchasing 4.9 million shares in the first quarter under our current NCIB. Our current -- our capital deployment priorities remain investing in organic growth opportunities, followed by share buybacks. Return on equity was 13%, up 120 basis points year-over-year, demonstrating our ability to deliver improved profitability over time. Our return on equity is tracking ahead of our Investor Day expectations, which gives us greater confidence in achieving our 14% plus medium-term target 1 year ahead of plan. Going forward, we expect to see return on equity expansion across each of our business units with the largest increase coming from Canadian Banking. Our key return on equity levers will be improved business mix in Canadian Banking, risk-adjusted margin expansion across Canadian and International Banking, the ongoing rollout of our global transaction banking capabilities and fee income growth and productivity enhancements across the enterprise. While we continue to focus on efficiency improvements, we are also making important technology investments that will help us redefine how Scotiabank serves clients, how our teams work and how we create long-term value, allowing us to compete and win in a rapidly changing landscape. AI is an important and growing part of our total technology spending. The investments we are making in AI include both technology and talent. And recently, we have made several strategic hires from other leading global banks. We are scaling AI to boost efficiency across the bank, including through Ask AI, a tool which allows employees to get instant access to policy and product guidance. In Q1 alone, we processed over 450,000 queries across the client experience center, the branch network and the client services and solution help desk, which represents over 60% of the queries in 2025. And in Tangerine, we recently completed an AML AI pilot that was supported by an external partner, which demonstrated positive results with a 37% reduction in existing alert volumes. We are now leveraging our internal AML AI subject matter expertise to design and implement a robust solution with improved precision and risk detection while minimizing false positives at a lower cost with faster time to market and no vendor dependency. We will continue to take a considered approach to our spending on AI to ensure that our investments are designed for long-term growth and sustainability. Turning to our operating segments. Fiscal 2026 stands as a pivotal year for our Canadian Banking unit, where we expect earnings to grow by double digits. Consistent with our outlook, this segment had a strong start to the year, driven by further sequential margin expansion, strong fee and commission growth of 8% year-over-year and positive operating leverage of 2.8%. Return on equity came in at 18.1%, up 140 basis points versus the same quarter last year. This quarter, we saw demand deposits grow by 5% year-over-year, while our retail mutual fund net sales doubled versus the same quarter last year and retail referrals to wealth were $2.4 billion, up 19% year-over-year. Term deposit balances declined given the low rate environment, but we've been able to keep over 90% of term maturities within the bank. These maturities are either moving to demand deposits, retail mutual funds or our wealth business through active referral from the Canadian Bank. Our Mortgage+ program continues to drive over 90% of all mortgage originations. Through this bundled offering, encompassing both lending products and deposits, we are winning new and deeper client relationships and unlocking significant value for our retail banking franchise. Last month, we were delighted to announce that Shell Canada has joined the Scene+ loyalty network as our new fuel partner. This will unlock new ways for members to save and earn rewards on everyday essentials like fuel, groceries, entertainment, banking and travel, creating more opportunities for Canadians to put rewards to work in places they shop every day. In Global Wealth Management, we are delivering strong underlying performance. Net sales for the quarter came in at $1.8 billion, marking our sixth consecutive quarter of positive net flows and return on equity came in at 17.9%, up 180 basis points year-over-year and up 300 basis points since Investor Day. In Canadian Wealth Management, we continue to see momentum in our private bank offering with strong year-over-year loan and deposit growth. We also continue to add advisors to our full-service ScotiaMcLeod brokerage unit, where we had another quarter of strong net sales. In our Global Asset Management business, we continue to see positive net sales, including ongoing strength in our branch channel. This quarter, we ranked third amongst our peers in long-term retail mutual fund sales, up from sixth in the same quarter last year, highlighting the opportunities we have to deepen penetration within our own network. And in our International Wealth business, earnings are up an impressive 18% year-over-year with 45% growth in Mexico, driven by higher mutual fund and brokerage fee revenue. Performance in our International Banking segment continues to be driven by solid execution, including strong expense management. Earnings were up 10% year-over-year and return on equity came in at 16%, in line with our medium-term target. We continue working towards building deeper and more profitable client relationships across the countries that we operate in. In retail banking, non-mortgage growth continues to outpace mortgage growth. And in non-retail, we expect earnings growth to accelerate as the year goes on and the region's economies get stronger. Finally, Global Banking and Markets delivered another strong quarter as we continue to benefit from constructive markets, but also from the productive investments we have made across the business, including our new U.S. transaction banking platform. This quarter, we also saw significant margin expansion, which is being driven by more disciplined pricing on both sides of the balance sheet. Our first quarter trading results were broad-based, but we saw particular strength in equities, including equity derivatives and another strong quarter from our peer-leading prime services business. Return on equity came in above 14% for the second quarter in a row. The U.S. continues to comprise about half of segment earnings, and we expect this share to increase over time as we continue to invest in our capabilities in that critical market. Our objective in the U.S. is to drive sustainable growth while reducing volatility and focusing on those businesses where we have the right to win. Finally, we were pleased to confirm our partnership with the Defence, Security and Resilience Bank. This is yet another way that we are furthering our commitment to providing the capital, expertise and strategic advice to strengthen Canada's most critical sectors. In closing, I am pleased that the earnings momentum that we built in fiscal 2025 has extended into the first quarter of 2026. Our results give me increased confidence in our ability to deliver on the full year outlook we provided you last quarter. I will now turn it to Raj for a more detailed financial review. Rajagopal Viswanathan: Thank you, Scott, and good morning, everyone. My comments will be on an adjusted basis that excludes the loss on the sale of Colombia and Central America operations and the usual amortization of acquisition-related intangibles. Starting on Slide 8 for a review of the first quarter results. The bank reported quarterly earnings of $2.7 billion and diluted earnings per share of $2.05. Return on equity was 13%, up 120 basis points year-over-year or 110 basis points, excluding divestitures, driven by strong revenue growth. My remarks that follow will address data in the last column of the slide that excludes the impact of divestitures. Revenue grew a strong 11% year-over-year. Net interest income grew 13% year-over-year as net interest margin grew 27 basis points from higher business line margins and lower funding costs. Noninterest income was up 10% year-over-year from higher wealth management and trading-related revenues and the positive impact of foreign currency translation. Expenses grew 7% year-over-year, mainly due to seasonally higher personnel costs, higher volume-driven compensation from higher revenue, and advertising and development costs to support business growth. The technology-related spend that includes personnel costs, amortization, professional fees and direct technology costs of approximately $1.3 billion was up $38 million year-over-year. The pretax pre-provision profit grew a strong 16% year-over-year that was partly offset by PCLs of $1.1 billion. The bank generated positive operating leverage of 4.2% and the productivity ratio improved year-over-year by 200 basis points to 52%. The bank's effective tax rate increased to 25.7% from 23.8%, primarily due to lower income in lower tax jurisdictions and higher withholding taxes paid during this quarter. Moving to Slide 9, capital. We generated capital from the Davivienda transaction of approximately 15 basis points. Internal capital generation was 7 basis points and gains from higher fair values of OCI securities contributed a further 4 basis points. Capital usage was mostly related to model and methodology updates of 16 basis points and a net 8 basis points related to share repurchases. The model and methodology changes include the impact of periodic update to our risk parameters and a clarification of capital methodology relating to certain exposures from the regulator. The total risk-weighted asset was $474 billion, up approximately $2 billion quarter-over-quarter, excluding the benefit from foreign currency translation. The increase in Credit Risk risk-weighted assets from portfolio growth, migration and model and methodology updates was offset by RWA reduction from the closure of the Davivienda transaction. The bank remains committed to maintaining strong capital ratios. Turning now to the business line results beginning on Slide 10. Canadian Banking reported earnings of $960 million, up 5% year-over-year. Pretax pre-provision earnings also grew 5%, reflecting good revenue growth and strong expense discipline. Loans grew 3% year-over-year with mortgages up 5%, while business and personal loans were each down a modest 1%. Deposits declined 2% year-over-year. Day-to-day savings deposits grew a strong 5% that was more than offset by a 10% decrease in personal term and a 2% decrease in nonpersonal deposits. Turning to the P&L. Net interest income grew 3% year-over-year from loan growth and margin expansion. Net interest margin expanded 2 basis points quarter-over-quarter across retail and commercial banking from improving deposit mix, i.e., less term and more day-to-day and savings deposits. Noninterest income was up 2% year-over-year, impacted by lower private equity gains this quarter. Fee and commission income grew 8% from higher mutual fund fees, strong FX fees and higher credit card revenues. The PCL ratio was 49 basis points, mostly from impaired. The expenses were flat year-over-year, benefiting from efficiency initiatives that were reinvested in the business to support growth. The business generated strong positive operating leverage of 2.8% and the return on equity improved to 18.1%. Turning now to Global Wealth Management on Slide 11. The earnings of $488 million were up 18% with strong double-digit growth in both Canadian and International Wealth Management. Spot AUM was up 10% year-over-year to $436 billion, and the AUA grew 8% over the same period to over $800 billion, driven by market appreciation and higher net sales. The revenues were up 14% from higher mutual fund fees, net interest income and brokerage revenues. The expenses were up 12% year-over-year, primarily from higher volume-related expenses that resulted in positive operating leverage of 1.9%. International Wealth Management generated earnings of $64 million, up 18% year-over-year, driven by growth in Mexico. The return on equity improved almost 200 basis points compared to last year to 17.9%. Turning to Slide 12. Global Banking and Markets delivered strong earnings of $545 million, up 5% year-over-year. Revenue increased 11% as Capital Markets revenues were up 19%, while Business Banking grew a modest 2%. Net interest income was up 25% year-over-year, primarily due to higher margin and robust capital markets activities. The noninterest income was up 7% year-over-year due to higher trading-related revenues from fixed income and equities and higher underwriting and advisory fees. The expenses were up 14% year-over-year, mainly due to higher performance and share-based compensation and technology costs. The business generated a strong return on equity of 14.3% this quarter. Moving to Slide 13 for a review of International Banking. My comments that follow are on a constant dollar basis and excluding the impact of divested operations. The segment delivered earnings of $717 million. That was up a strong 8% year-over-year and 11% quarter-over-quarter. Revenue was up 4% year-over-year with net interest income up 5% from lower funding costs, mainly in Mexico, while noninterest income was up 2%. The net interest margin remained stable at 454 basis points and expanded by 27 basis points year-over-year, mainly from lower funding costs due to decline in Central Bank rates. Deposits were up 4% year-over-year, while loans were down 1% year-over-year as non-retail loans declined $5 billion or 6%, while retail loans grew $3 billion or 5%. The provision for credit losses was $497 million and the PCL ratio was 131 basis points. The business generated strong operating leverage as expenses were up a modest 2% year-over-year from disciplined expense management. The effective tax rate increased to 23.5% from 21.8% in the prior quarter due to lower inflationary adjustments in Chile. The GBM business in International Banking generated strong earnings of $354 million. Turning to Slide 14. The Other segment reported an adjusted net loss of $41 million compared to $34 million in the prior quarter. I'll now turn the call over to Shannon to discuss risk. Shannon McGinnis: Thank you, Raj, and good morning, everyone. This quarter, impaired loan loss provisions remained elevated, in line with our expectations as we continue to operate in an environment of heightened macroeconomic uncertainty. Against this backdrop, all bank PCLs were approximately $1.2 billion. Performing PCLs were 3 basis points and impaired PCLs were 58 basis points, with 2 basis points of impaired PCLs related to the Central America and Colombia divestiture. Impaired PCLs increased quarter-over-quarter, driven primarily by elevated provisions in Canadian Banking Retail and GBM, offset by International Banking that was down $74 million, driven by the impact of divestitures. My remarks that follow will exclude the impact of divestitures. We increased allowances for credit losses by over $200 million quarter-over-quarter to approximately $7.2 billion. Performing allowances increased by $81 million, mainly due to credit migration and impaired allowances increased by $133 million, mainly in Canadian Retail and GBM. The bank's ACL ratio remained strong at 94 basis points, an increase of 2 basis points quarter-over-quarter. Turning to Slide 17. Gross impaired loans increased approximately $425 million quarter-over-quarter, excluding the impact of FX. This was driven by an increase of $200 million primarily from 3 accounts in GBM. The remaining relates to formations across products in Canadian retail, mostly in mortgages, where we have strong collateral coverage and do not expect to incur material losses. The GIL ratio increased 6 basis points to 95 basis points. Turning to Slide 18. All bank PCLs were approximately $1.2 billion this quarter. Excluding about $40 million recorded in the 1 month for the divested operations, PCLs were approximately $1.1 billion or 60 basis points. Impaired PCLs were 56 basis points, up 6 basis points quarter-over-quarter. Half of the increase was driven by 3 accounts in GBM with the balance driven by Canadian Retail. Looking at each business. In Canadian Banking, PCLs were $576 million or 49 basis points, up $81 million quarter-over-quarter. In retail, PCLs were $436 million, up $82 million quarter-over-quarter. Performing PCLs were $12 million, driven by deteriorating credit quality in unsecured lines and credit cards, partially offset by improving FLIs. Impaired PCLs were $424 million, up $91 million quarter-over-quarter, driven by increased net write-offs in unsecured lending, reflecting current unemployment trends. In our Canadian commercial portfolio, PCLs were $140 million, in line with Q4. Moving to International Banking. The PCL ratio was 131 basis points, down 1 basis point quarter-over-quarter. In International Retail, total PCLs were 218 basis points, down 3 basis points quarter-over-quarter, excluding FX. Performing retail PCLs were $38 million, driven by portfolio growth and continued credit quality deterioration, primarily in Chile consumer finance. Impaired PCLs were $375 million, down $11 million quarter-over-quarter, excluding FX, driven by continued weakness in Chile consumer finance, partially offset by improved performance in Peru and the Caribbean. In GBM, impaired PCLs were up $54 million this quarter relating to 3 accounts in the agriculture and wholesale and retail industries. While uncertainty continues across our markets, overall credit performance has remained in line with our expectations. To put this quarter's results in context, GBM contributed 3 basis points to the all bank impaired PCLs from 3 files. The portfolio trends remain stable and concentrated in investment-grade exposures underwritten to strong standards. Looking at each of our portfolios in Canadian Retail. While mortgage 90-plus day delinquency has increased quarter-over-quarter, this continues to be driven by the same trends we have been discussing, namely COVID era mortgages concentrated in Ontario and the GTA. However, impaired PCLs remain low despite elevated GILs, given the strong credit quality of the book and low average LTVs of approximately 55% in the uninsured portfolio. In auto, we continue to work through the COVID originated portfolio, which was driven by elevated exposure to used vehicles in our prime segment. We continue to monitor the portfolio closely with a strong focus on collections effectiveness and remain comfortable with how the portfolio is evolving. Turning to unsecured. We are seeing stress among single product, younger client cohorts. The portfolio continues to perform in line with expectations given how unemployment has trended for these segments. That said, despite some weakness, early-stage delinquency indicators in unsecured lending are showing signs of improvement as 30-plus day delinquency in both credit cards and UAC have shown sequential improvement. We also expect performance in unsecured will be further supported by ongoing collection initiatives with benefits expected towards the latter part of the year. From a macro perspective, the unemployment rate has improved in recent months and is expected to continue to trend down in coming quarters, but will take some time to impact portfolio behavior. In International Banking, while impaired PCLs remain elevated, the outlook is stable across our key markets. In Mexico, ongoing trade negotiations continue to weigh on sentiment. Macroeconomic indicators present a mixed outlook with improved GDP estimates offset by softer employment data. Chile's outlook remains stable, supported by strong commodity prices. However, sustained elevated unemployment and cumulative inflation effects continue to drive softness in our consumer finance portfolio. Similarly, in Peru, the GDP outlook remains stable, supported by the rise in commodity prices. However, uncertainty is likely to persist until a new administration is placed. Looking ahead, we expect the operating environment will continue to reflect ongoing challenges with impaired PCLs remaining elevated in the near term before gradually trending lower as the economic outlook improves as the year progresses. We remain comfortable with the adequacy of our allowances and the underlying quality of our portfolio. With that, I will turn it back to Meny for Q&A. Meny Grauman: Thanks, Shannon. Operator, we're ready for our first question. Operator: [Operator Instructions] Your first question comes from the line of Ebrahim Poonawala with Bank of America. Ebrahim Poonawala: I guess maybe just first, if we could spend some time on credit, looking at the impaired PCLs for the quarter, somewhat higher than we expected. Just maybe talk through when we think about the -- I think the guidance for impaired PCLs was high 40s to mid-50s. One, just as we think about the full year, does that still hold? Anything that's changed relative to sort of your view previously? And then maybe more fundamentally, are you seeing credit worsen or get better or be the same relative to whatever you expected a few months ago, both on the consumer and the commercial side? Shannon McGinnis: Thanks for the question. I think it might be helpful if I anchor back to the outlook that we provided in Q4 and the assumptions that informed that guidance. At the time, we were operating in a highly uncertain macro environment, which is why we communicated that impaired PCLs would remain elevated in the near term, followed by gradual improvement, and that framing continues to hold today. In terms of outlook, I do think it is important to put this quarter's results in context. For non-retail, we had signaled results tend to be lumpy in the space. And this quarter, GBM contributed 3 basis points to our all bank impaired PCLs. As I mentioned in my remarks, the impact was from 3 files. And overall, the portfolio trends remain stable, and we are not seeing any systemic or trade-related issues. As I look to Canadian Banking, what I would point to there is that early-stage delinquency indicators in unsecured are beginning to show some improvement despite what is still a challenging macro backdrop. I also mentioned collection initiatives. We are expecting to see those benefits in the latter part of the year. And then importantly, as we think about unemployment, it has improved, and we are expecting that to trend down in the coming quarters. But we know that this is going to take a little time to work through the portfolio. And then as I turn to International Banking, overall performance this quarter is consistent with our expectations. And when you take into account developments across both our retail and nonretail portfolios, the impaired outlook across the region is expected to remain elevated but stable. That reflects some of the uncertainty in the market. So when I take all of those components together, so the gradual improvement that we're seeing in unsecured, supported by what we are expecting from a macro, that's really driving our support of our guidance. Ebrahim Poonawala: So do you think these impaired PCLs could trend closer to 50 basis points or maybe even dip below 50 basis points as we think about the back half of the year, Shannon? Shannon McGinnis: Yes. I think, Ebrahim, I just would go back to the guidance. Like we do expect it to be elevated in the first half and then coming down in the latter half. In terms of how far that comes down in the latter half, some of that is going to be impacted by what happens in the macro. Ebrahim Poonawala: Got it. And I guess just one maybe for Scott or Raj, for you on Slide 5 on the ROE walk. I guess you all have made pretty significant progress over the last year or two in terms of improving the return profile. As we think about where could this go wrong? Like are you overearning in capital markets? Or could there be pressure on the net interest margin as we look out a year from now? Just maybe talk to us in terms of the downside risks to getting to this 14% plus and hopefully higher from there as we think about the next year or two? Rajagopal Viswanathan: Thanks, Ebrahim. It's Raj. So I'll try to address that question. Absolutely, the waterfall does have a lot of drivers as we have listed out on the right-hand side of it and risk-adjusted margin is a component of that. We are quite confident in that. The margin expansion that we saw this quarter across all the business lines and the bank as a whole, we expect it to continue throughout 2026 and beyond into 2027. The drivers for '26 and '27 will be different. '26 is going to be a lot about deposit margins. We're very focused on it, as you know, and you've seen the results this quarter. We think that will continue as we are thoughtful about how we source deposits and how we deploy them and how the business mix shift is going to happen, particularly in the Canadian banking space. So that's going to help with the margins. I don't have -- Shannon talked about 2026, the PCLs and so on. '27, we think will be definitely better than what we are experiencing in '26 if the latter half plays out to our expectation. So both are contributors. The risk to the downside will always be macro, Ebrahim. It's a little hard to predict 7 quarters ahead with that level of certainty. But what we can tell you is going from 13% to 14% is not a big stretch for this company because we are ahead of 13% to date because of all the efforts we've made, certainly helped by markets, like you mentioned, GBM or wealth. We think GBM will be building a franchise, which is going to be sustainably profitable. Would it be 14% next quarter and beyond? It could dip down a little bit. That's fine with us, but it's less than 20% of the bank. We know wealth margins -- sorry, wealth return on equity will continue to improve, no doubt. IB is already at 16% plus, and they're working continuously to see how we can be efficient. And the Canadian bank, our target is to get closer to 24% by 2028. We're at 18% with 140 basis points improvement already. We think that progress you will see quarter after quarter after quarter. And by the time we get to 2027, this should be in a good spot. So lots of confidence in saying we will get to 14% or beyond. What can derail other than macroeconomic, we don't see much at this time, and we're going to be very thoughtful about how we deploy capital, both from a credit perspective and how we'll continue to support it with the buyback program that you've seen us execute. Put all this together, greater confidence than what we might had a year back and certainly helped by the macro factors that has helped us along this way, and we think we are well prepared to deal with anything that comes across in the future. Operator: Your next question comes from the line of John Aiken with Jefferies. John Aiken: Thanks for the disclosures on the international ex, the divested operations. Francisco, was hoping to get a couple of comments from you. With the numbers that we saw in the first quarter, is this a good starting point for the international operations going forward? And what is your outlook, particularly for net interest margins and efficiency moving forward? Francisco Alberto Aristeguieta Silva: Well, thanks for the question. I apologize for my voice. I'm in the tail of a nasty cold. So I'll do my best to address the question. Number one, I think the quarter was a very strong quarter. It showed very strong resiliency across a complex footprint. When you look at the results on the revenue growth perspective and expense perspective show, number one, consistency of performance, alignment to our outlook and certainly, resiliency. Expenses are consistently performing better than expected. When you look at revenue growth in the key businesses, all performing better than expected in Q1, and particularly retail, which has been probably our most biggest effort in terms of getting back to where we believe that business should be performing. Q1 was a very strong quarter across the board. When you look at loan growth at 5%, third consecutive quarter, of non-mortgage growing at actually twice the pace of mortgage where you see expenses almost flat versus the prior quarter in spite of the revenue growth. And overall, PCL improvement on the back of significant effort on collection effectiveness across all markets. And when you strip out Cencosud in Chile, which is, as you know, a noncore business, we are encouraged with the performance of our PCLs, particularly related to the new vintages that are coming through the new strategy fully segmented across all markets. So when I look at Q1, although traditionally our strongest quarter in the year, the underlying performance, number one, is sustainable. But when I look at the rest of the year and where we need to be by 2028, there's significant upside to be had in retail as we pursue top line growth at a faster pace as we pivot to growth. In commercial, we're beginning to see growth for the first time in a number of quarters. That will pick up pace in the rest of the year. And GBM will continue to show performance very strong on the banking side as we saw in this quarter, but also on the capital markets side, where we have now deployed GBM in the Caribbean, whereas before we didn't have it. So I'm very optimistic about what's coming in the rest of the year, but we need to be mindful that we operate in emerging markets. Those emerging markets are not growing at full potential. Mexico, which is our core market. As you know, it accounts for 60% of our growth is going to be growing around 0.5% GDP this year. And the rest of the footprint is still going through an election cycle. So overall, the environment is one that continues to present the uncertainty, but we are very well positioned to capture our fair market share and continue to improve performance. I'm particularly proud of the ROE at 16%, which we committed to be there by 2028. Our ROA now at 2.25%. Again, all sustainable indicators on the back of the many decisions we've done over the last 9 quarters. So overall, I would say the rest of the year is one where we continue to try to drive that pivot to growth and consolidated top line growth that will drive the consistent performance you saw in Q1. John Aiken: Francisco, just as a follow-on, you mentioned Mexico, very strong performance, but driven by net margin expansion. How sustainable are the levels that you've been able to achieve at this stage? Francisco Alberto Aristeguieta Silva: Listen, we've done a significant amount of changes in the team in Mexico. I think we have now a very, very strong team that complements each other well, that understand the market extraordinarily well, very experienced leaders in each of the business segments. And that is resulting in shifts in strategy decisions, how we deploy the global strategy more effectively and how we capture our fair share. When you look at performance in Q1 on the back of all these changes, it's beginning to show the right trends across all business segments. And we believe that the rest of the year will be very much in line with that. When you look at the performance of our portfolio in new vintages, it's showing the right trends. Collections is showing a significant improvement over prior quarters. So I'm very confident that what we have in Mexico is a winning franchise with a winning team. Operator: Your next question comes from the line of Sohrab Movahedi with BMO. Sohrab Movahedi: Okay. Raj, I just wanted to clarify, going back to an earlier question on that Slide 5, with this 14% plus in 2027. Can you just talk a little bit about what sort of capital ratios you expect to be running at? And I know part of the waterfall does include buybacks. I was a little bit surprised that I didn't see you try and file for a renewal of the NCIB. So if you could just talk a little bit about the pace of buyback activity as well. Rajagopal Viswanathan: Sure. Happy to do that, Sohrab. Yes, I did not mention capital ratio. Capital ratio in this waterfall that we have talked about is going to be well above 13%. That's the assumption we have made. So call it in line with this quarter, 13.3%. We're not looking for a huge benefit coming from net capital ratio being lower. On your buyback question, the 15 to 20 basis points that we talk about here primarily reflects the bulk of the buybacks that we have already done, which is about 15.7 million shares as of this quarter. We will renew the NCIB is our expectation, but the NCIB is not due till May, Sohrab, because it goes from May to May for us. And you should expect us to continue to be active in the buyback program, both in the remainder of '26 and perhaps into 2027 as well. But the benefits that you see here are largely relating to the buybacks that have already happened. So there should be some potential upside depending on how we execute under the new program as well. Sohrab Movahedi: Okay. That's very helpful. And if I could just kind of get clarification on the 3 basis points of contribution from those 3, I think, you said files in GBM. When would they have been originated? What sort of -- and would they have been in support of which business? Specifically, would it have been part of your global corporate kind of finance type -- financing solutions, private credit stuff? Or -- can you just -- can you give us a little bit more about which region, what business and why it won't repeat? Shannon McGinnis: Yes. So maybe a few comments. And first, thanks for the question. So in terms of these files and their location within the portfolio, this is in our corporate banking portfolio and split between Canada and the U.S., so two-in-one, one in the other. And then to your question on originations, I'd have to confirm, but not new originations. These are files that we've had for several years. So I don't know if that helps clarify that question. But maybe, again, just to your point about how we don't think this will happen again. I do think it's important to reemphasize that this can be lumpy. When we look at non-retail provisions, they certainly can be lumpy. But when I take a step back and look at the portfolio, we continue to be anchored in investment grade. We're very comfortable with our underwriting standards. And so that is something that's very important as we look ahead and we look in terms of expectations. And then just back to your question again, just to confirm that this is not in the private credit space. Operator: Your next question comes from the line of Doug Young with Desjardins Capital Markets. Doug Young: Just a 2-part and they're probably related. But Shannon, when I look at International Banking, you did, I think it was a $53 million performing loan build. Just trying to understand what drove that? Was that migration? And then just tying that into Chile, when I look at the Chile results, it looked like PCLs were up materially. I think you did call out consumer finance was one of the drivers. Just hoping to get a little bit more color. Shannon McGinnis: Yes, absolutely. So to your question on Chile, that is primarily in our Chile Cencosud business or Chile Consumer Finance, which I know we've chatted about on prior calls. And then when we look at the performing build, it is a mix of migration within the portfolio, which we would expect, including some growth as well. Francisco Alberto Aristeguieta Silva: Let me add something here. Just a reminder, Cencosud is noncore and it's a business that is not part of our future. It's the last piece of our footprint that we are working to get our way out of it, and we are optimistic in that process. But when you look at the bank ex Cencosud, we are very much in line with our historical performance and very much in line with competitors. The overall outlook in Chile is one that's improving on the back of the last election. So we are overall optimistic in Chile. Doug Young: And then just maybe a follow-up, Shannon, what is the outlook for the Cencosud? Like I know it's not core, but it does still go through your results? Or should we expect further deterioration? And then Francisco, like I know this isn't core. Can you maybe give an update in terms of the plans of divesting or getting out of that partnership? Shannon McGinnis: Yes. So I'll start. So in terms of our expectations for IB and as per my prepared remarks, we are expecting them to be elevated but stable. And that is really recognizing as you go throughout the portfolio when you look at the macro and you look at the mix, that is our expectations as we go forward. As it relates to Chile consumer finance and as Francisco mentioned, this is a higher margin contributor to our portfolio, but it's certainly impacted by the macroeconomic environment in Chile. And so again, when we look out at the balance of the year, we are expected to see that elevation continue throughout. Francisco Alberto Aristeguieta Silva: Yes, good point, Shannon. Thank you. Two things. Back in October of last year, there was a change in regulation in Chile that basically identifies any collecting calls. So this type of segment is more prone to avoid those calls, challenging collections. We have overcome that limitation, and we're back on track. But again, we got to see performance consolidate in the coming quarters. As it relates to commenting on what we're going to do with Cencosud, we don't do that. What we can do is revert to what we've done, and we've been extraordinarily disciplined in how we manage noncore assets, and we've demonstrated with what we've done with Credit Scotia, what we've done with Colombia, Panama and Costa Rica. This is no exception. So we're very focused on delivering on our commitments. Operator: Your next question comes from the line of Gabriel Dechaine with National Bank Financial. Gabriel Dechaine: I just want to stick to the credit discussion here and then on the guidance, you did guide to high 40s, mid-50s this year, and you're saying it's going to be improving in the second half of the year. And you're saying it's elevated for a while and then you list a bunch of issues in the Canadian portfolio and then the international portfolio and then the -- some of the things that are going to move in the right direction. A lot of stuff to chew on there. So let's just simplify. When you look at your glide path or trajectory for impaired PCLs over the course of the year, is it higher now than what you were thinking a quarter ago? Because maybe some of this improvement stuff might be later in the year, but that's more of a calendar year thing than a fiscal year thing. So we might be talking about 2027 before these impaired losses start to decline. Shannon McGinnis: Yes. So first, Gabe, thanks for the question. So maybe, again, to go back to the outlook that we gave at the end of last year, a few things. First, we are where we expected to be, and then we had indicated elevated PCLs -- impaired PCLs in the first half of the year. And to your point, there are a lot of moving pieces here. That's just, I think, the nature of our portfolio. But as we walk through those pieces, and again, if I kind of anchor back to maybe some of the key points in my remarks, when we look at Canadian Banking, we are seeing early signs of improvement in our unsecured portfolio. So that is certainly a factor as we look forward. I talked about elevated but stable in IB. That is a factor of our outlook for the balance of this year. And then as I think about corporate and commercial, there can be lumpiness there. But again, we're quite comfortable with those portfolios and how they're performing. So if I look back to the information or what we were looking at when we gave our guidance, it still holds today. Now as I mentioned earlier, the macro is a factor in that guidance. And so we're still operating in a fairly uncertain environment. And so depending on how the macro plays out, in terms of the timing throughout the year, that could certainly have an impact, but we're still looking at the latter part of this year. Gabriel Dechaine: Okay. And just to be clear, unsecured in your [indiscernible] means includes autos, right? Shannon McGinnis: No, it's credit cards and ULOC. Gabriel Dechaine: Okay. Mexico, I know in the past, in the IB segment, whenever there's a hurricane or whatever, we start thinking about resorts exposure. Given recent events and very recent events in Mexico, like how big is your resorts exposure and tourism industry more broadly, I suppose? L. Thomson: This one I'll make a couple of comments on Mexico and then Francisco, maybe you add in. I mean, obviously, what's happened over the last couple of days came as a little bit of a surprise. But if you take a step back and think what President, Sheinbaum is doing, she's addressing the three areas that the U.S. has been concerned about immigration, Chinese investments and rule of law. And so now she's on the third last pillar of that. We've seen a much more stable environment this morning than we did yesterday. And in terms of our employees and our clients, everyone is safe and branches are actually open today. And so we don't see a huge impact or any impact as it relates to go forward from a financial performance perspective. Francisco Alberto Aristeguieta Silva: Let me add. Thank you, Scott. And again, apologies for my voice. On our strategy in Mexico, we are not actively participating in resource financing of any kind. Our exposure is related to working capital associated to merchant acquiring services and very significantly consolidated hotel operators. On the working capital side, we exited that business a long time ago, and we're very selective when we choose to do anything of this sort. And normally, it will be limited to an expansion of an existing profitable facility rather than in the greenfield project. So we're not concerned at all in specific exposures in Mexico. Now the impact of tourism on the overall GDP of the country is significant. And as we outlined, we did not expect this year for Mexico to have significant GDP growth. We're looking at 0.5 point. So it is not short-term good news, but I think it is a necessary set of actions that the government is implementing for the long-term benefit of the country. So want to go through some short-term volatility, but very much in line with what we want to see the country do in the long term, given our commitment to the country. Gabriel Dechaine: So no resort or resort operator exposure in Mexico? Francisco Alberto Aristeguieta Silva: No. Operator: Your next question comes from the line of Paul Holden with CIBC. Paul Holden: I want to talk about the deposit margin priority you brought up. So I know you've highlighted a change in funding mix over time, reducing wholesale, increasing the proportion of low-cost retail. I guess the question I want to -- and also growing the GTB business. Just I guess I want to ask like based on public disclosure, what would you encourage us like if you had to pick 2 or 3 metrics other than the NIM to sort of follow to show the improvement you're making in funding that should result in better NIM? Like what would you encourage to track? And how do those results look in Q1? Rajagopal Viswanathan: Sure, Paul. I'll start. Thanks for the question. I think deposits is an area of focus, right? I mentioned it in the previous answer, and it's something that you've heard from us repeatedly, and you're seeing the outcomes. Like you said, NIM is an outcome of the efforts that the businesses are doing to improve the deposit profile. What do we track? We track checking accounts, savings accounts in the Canadian bank like we do in international banking. We have a slightly different definition. We call it core deposits, which is another euphemism to say these are primary customers for us who we believe will be the most profitable and deposits are a big component of that. The second thing I would track is saying how we're growing our assets in line with our deposit growth. It's something we've been on for some time, and we are trying to improve and reduce our dependency on what we call wholesale funding. Now we have done better than what we thought at this time in our strategic plans. So that's helping because these deposits are very valuable to us apart from improving client primacy. The third thing you would see is business mix shift that should start happening both in International Banking as well as in the Canadian Bank as it relates to the asset side of the balance sheet. How can we improve our margins? And we think about risk-adjusted margins specifically, are we deploying our capital and our funding and our liquidity with the right clients. So we focus a lot on that. Another component always, whether it's GBM or the P&C businesses is pricing. Are we pricing for the risk that we are taking and how can we maximize the returns that we are deploying -- for the capital that we're deploying in these relationships. Lots of effort. If you spent a day with us in our office, you'll realize this is the conversations we have across the business line and across the risk functions as we talk about how can we continue to improve the risk profile of the company while continuing to improve the return profile as well. So easier to track many of these things. Now some of it will be better in one quarter compared to another quarter. That is just the nature of the business we are in. But I'd just point to the challenges that we had previously, which we're starting to improve on specifically in the Canadian Banking side, the level of savings and deposits growth attached to it at 5%. Term has been a bit of a drag, but the net of it, we're quite pleased with how disciplined we are on term deposits and how we are continuing to focus on what we believe are very valuable core deposits. That's what we track. L. Thomson: Raj, one of the things in the quarter, and it's not overly impactful for the enterprise, but it is impactful for GBM is just the margin that we [indiscernible] and maybe, Travis, just talk a little bit about how you're thinking about discipline as it relates to deposit pricing and then loan pricing as well and how that is contributing to margin expansion in your business? Travis MacHen: Thanks, Scott and Raj. I mean, listen, if you step back and look at the GBM business, effectively, what we're doing is managing our asset betas and our deposit betas. And we've seen rates come down, and we've had more luck on managing our deposit betas where we've been able to drop the deposit costs faster than the drop in asset yields, even though it's mostly a floating book. It's just incredibly -- incredible relentless focus on the deposit cost name by name and then making sure that we're fighting for basis points on the loan yield side, too. And then secondly, there's just a small component, but the SOFR moves at the end of the year is a nice impact to over Fed funds that you've seen. But overall, I think everything we do is, is really trying to focus on that total relationship, that loan and the deposit and trying to move away from loan only and try to get some deposit pricing concessions, if you will, as we look at that total relationship. Paul Holden: Second question related to, again, the ROE expansion team and the drivers there. One of the other key ones clearly is the efficiency ratio and again, something you've made good progress on to date. I guess the question people would ask on that one is given the tight expense control and given the evolving banking sector or evolving AI and technology investments more broadly, like how do we get comfort that you're making the right and appropriate level of investments for the future in the business at the same time as bringing down the total productivity ratio? L. Thomson: Yes, Paul, it's a great question. I mean one of the things that we've been really focused on is making sure we're running this business with discipline, which then allows us to take those savings and reinvest in areas of the business that are going to help us in the future. And so we look at technology as an example, where we've historically run a decentralized technology budget. Over the last 3 years, we've centralized that. We've been investing in getting our data to the cloud. We've been investing in getting our data to an optimized state so we can run AI at scale. We've been investing in getting the team in place with significant additions even in the last 2 months -- or sorry, 12 months where you've seen two prominent data and AI experts added to our field. And we've been proving out cases like the one I referenced on the call. And so as you think about data and AI, this is definitely extremely important for the success of this bank going forward. And we're managing a cost base that has lots of opportunities to efficient -- to be more efficient to allow us then to invest in some of these areas that are extremely important. And I think about the Canadian bank, as an example, we went through this significant restructuring. We've given guidance that you're going to see positive operating leverage, but we are going to reinvest the savings to take care of our retail clients back to the deposit conversation that Raj had. And so this is a balance between making sure that the historic business is more efficient, which allows us to take the capital and the expense and invest to prepare us for the future. And so that's how we think about it as a management team. Operator: Your next question comes from the line of Mario Mendonca with TD Securities. Mario Mendonca: Scott, a sort of broad question for you. I suppose if you want to sort of farm it off to the segments, it would make sense. But really, starting with you, looking at this bank over the last few years, you've been on this optimization, rationalization strategy for some time now. But we really haven't seen any growth emerge. Looking back, it's probably Q4 '23 since we saw any meaningful growth in loans, probably even going back a little further than that. So what's your overall impression on when Scotia can actually sort of start participating in growth again? And again, I'm not looking at anything special. I'm just saying something more in line with your peers in sort of mid-single-digit range. I'm pointing to loan growth now? L. Thomson: Yes. No, I've got it. So one, I do think we've been through a phase here where we've optimized and you look at the international bank is probably the perfect example of that, where we've taken out a significant amount of cost through the regional identification efforts, which have allowed us to get to the 16% ROE, and now we have this pivot to growth, which I think you'll see. But philosophically, I think loan growth is important, Mario, but it's important because it talks to additional clients and it talks to more market share. But if you think about what we've done here, we've actually grown 11% revenue without significant loan growth. And so this shift -- this philosophical shift that we're doing from volume to value is actually resulting in higher ROE, higher fee income, more capital-efficient business. Now as the economies improve, we are going to see higher loan growth. And as I think about the Aris' business, there's the business mix opportunity of lower mortgage growth, higher growth in some of these other areas like commercial mid-market, small business, et cetera. But that will be a combination of loans and a more holistic relationship with the client that involves cash management, involves deposits, involves ancillary revenue. And so I would hate for you to walk away saying that kind of loan growth is the definition of success here. It's ROE expansion, it's fee income and loan growth will come about because of that because we'll be dealing with more primary clients. And of course, we're a bank. We've got a big balance sheet. We'll want to provide that service to our banks, but only when it's a profitable primary client relationship. Mario Mendonca: Okay. Maybe, Shannon, a quick question for you. On a couple of occasions, you referred to early signs of improvement in the unsecured portfolio. Can you be more specific? What signs are you seeing that would cause you to say that? Shannon McGinnis: Thanks, Mario. Thanks for the question. So what we are seeing in both our credit card and our ULOC portfolio is improvement in the 30-plus day delinquency. And so that is sequential. We have seen a few months of that. So that's specifically what I'm pointing to there. Mario Mendonca: And do you know why that's -- what do you think that's causing that? Shannon McGinnis: I think there's a few things. I mean we certainly have seen employment start to trend down. And again, that can be a bit of a lagging impact. I spoke also to collections effectiveness that is a focus for us here. And so that could also be having an impact as well. Operator: Your next question comes from the line of Jill Shea with UBS. Jill Glaser Shea: I just wanted to touch on the GBM segment. Travis, you mentioned in a previous question around margin and pricing. But perhaps just drilling down on the margin. Obviously, it's been -- it was up substantially in the quarter. It's been on an upward path over the past year. Is there still more to do there in terms of the margin and funding costs? And then just tying that into durability of revenues in this segment. Obviously, we've had constructive markets, but with the margin up, can you just talk about the durability of the revenues in the segment? And then just how to think about the net income outlook for the segment over the course of the year. I think you guys had talked about more a normalized number of $475 million to $500 million, but clearly, you outperformed that in the quarter. So just trying to think through the net income trajectory for the year and how that ties into the revenue line? Travis MacHen: Perfect. Thanks, Jill. You gave a lot of questions in there. I'll try to unpack them. If I miss one, please let me know. But if you think about the margin, absolutely, we're quite proud of the 40 basis point plus expansion on the margin side. Again, we're not changing the risk profile of the book. You can see it in the data. Our investment grade is still predominantly investment grade. We're really attacking both sides of the balance sheet, both on the loans and the yields, as I mentioned before. We're having much more success on the deposit side, reducing our deposit costs, and you're seeing that coming through the yield. And I would say, this is in partnership with Francisco. The stuff we're building out in GTB is quite powerful. We're building a sales force. We're building better analytics and data. We're better understanding of our profitability by client, by relationship, by product. We've also been remixing the quality of our deposits. So we've been able to grow deposits, but embedded in that is also remixing of higher quality deposits, more operating deposits, a better sales force, a better go-to-market strategy with GTB and the corporate bankers, better cross-jurisdictional approach when you think about multinational, tremendous opportunities from clients going north to south. We bank a lot of Fortune 1000 companies with operations around the globe. And we are really tied together. Francisco and I are working incredibly closely together, making sure that we're attacking every single name and every single opportunity, and it's a huge strategic push of both of our businesses. And you're seeing that play out in the numbers. As far as margin expansion from here, I think there's still -- I think long term, there's tremendous opportunity. As we build out our operating and our payments capabilities, but there's a long sales cycle to that. There's a long ramp to that. Our clients are being informed. Our bankers are being trained. Our capabilities are improving every single day. We're investing in these capabilities jointly with Francisco and GTB and International Banking and our Canadian clientele. And I think you're going to see some output of that over the long term. But I don't think you're going to see the margin expand 40 basis points in the near term, again, until we build out these capabilities, but there is still room to grow on that. As far as I think your next question was on the earnings run rate. Listen, we had a great quarter. It's one of our better quarters we've had in a very, very long time, if you look at the data. We feel quite confident about the -- it's a very constructive market. It's very constructive volatility. What I mean by that is when you're seeing SOFR and Fed funds and some of the volatility, we're doing quite well on that in the trading business. But when I say constructive volatility, it's also been leading to a very active DCM and ECM and investment banking business. When that volatility starts to break a little bit, those more finicky businesses that are more market dependent tend to slow down. And so we hope that the volatility remains constructive throughout the year. And we're watching it very, very closely, and we're quite happy with it. I think our guidance still remains the same. We always have a little bit more volatility going into the year where we can capitalize on it, but we'll look and expect some normalization of that and probably back towards our run rate. And remember, in that run rate, our pretax pre-provision revenue is growing between 8% and 10%, depending on if you look on the quarterly or yearly basis. But then embedded that is significant investments into the new capabilities, new products, new services, new teams, cash management, better technology, better analytics and a better go-to-market strategy that we think will pay dividends over the long term. And we're quite disciplined in that approach, but we are trying to build more diversification so we can have that stable ROE over the long term. That's our goal. Operator: Your next question comes from the line of Darko Mihelic with RBC Capital Markets. Darko Mihelic: I'll try and be really quick here. I just wanted -- as I stare at the credit quality statistics and some of the forward-looking indicators, including 90-day past delinquency and listening to your remarks about mortgages, it sparked a reminder of me to think about this. You mentioned that this is really like COVID era vintages. Can you remind me what it is about that vintage that's causing the issue here? And the real question is, are you in a state where perhaps you might be helping customers out with deferrals or any other sort of mechanism to prevent outright impairments? Shannon McGinnis: Yes. So thanks, Darko, for the question. So in terms of that cohort or that era, I'd say recognizing what was happening at that time. So very high house prices, very low interest rates. And so when we look at that particular cohort, that is a group that we are seeing having some stress. And I would also say that, that is concentrated primarily in Ontario and the GTA, although I think it's also important to reinforce we have very low or very comfortable with the LTVs on that portfolio. In terms of your question on supporting our clients, we are clearly supporting where we can, recognizing there are limitations to what we can do. We need to make sure that we are meeting the expectations in terms of when we can provide support. So again, that is happening through our collections activities. So we call out those two items. I don't know if that answers your question. Darko Mihelic: Is it material? How much is it saving you in terms of impairments? Like if we thought about the number of mortgages or customers that might have the loan deferrals or any other mechanism that will [indiscernible]? Shannon McGinnis: No, it's not material, Darko. And again, that comes back to the very strict guidelines or requirements in terms of when you can provide those types of support to our clients. So I would not call it material. Darko Mihelic: And just one last quick question on that topic. Is it primarily a variable rate or fixed rate where you're seeing these issues? Shannon McGinnis: We're actually seeing it in both, I would say. Operator: Your next question comes from the line of Matthew Lee with Canaccord Genuity. Matthew Lee: Sorry to go back to Francisco with your cold. But given the strength of the outline -- initiatives you've outlined, I'm a bit surprised to see such a small contribution from this segment on the waterfall on Slide 5. If you were to isolate international, take out wealth and GBM, but just international by itself, would that ROE contribution be close to 20 or 30 basis points? Or is Q1 really a high watermark just because of how much you've achieved? Rajagopal Viswanathan: Matt, how would I start? It's Raj, and then Francisco can add if there's something specific to IB. So we lumped in three segments there, as you noted. It's got GBM, it's got Wealth and it's got International Banking. And if I split the three, wealth, we are very confident. That's actually the biggest contributor, we think that will continue to grow from the 17.9%, but it's about 15% to 20% of the bank. So you put that in perspective, we think it will help us. GBM, we are actually being cautious. You just heard Travis talk about how we'd like to continue to improve the returns. Now 14.1% is a great ROE for that business. We know there might be some moderation depending on how markets behave. So that's a bit of an offset if you look at it. International Banking being at 16% plus, they are well ahead of where we thought we'll be. Do we have greater confidence that this will be better than what we have factored into this number that we put on combining the three business lines? Absolutely. But International Banking, as you know, has got multiple countries. Francisco talked a little bit about the macro, particularly in Mexico. We want to be more confident about the Mexico GDP growth. And we think that, that could be a greater contributor. But I would say that at 16%, they're in a good spot. In a couple of years' time, they should improve, but I wouldn't put a lot of it in the numbers that we disclosed right now. So I'd probably leave it at that. Matthew Lee: Okay. And then maybe if I just sneak one last one in here. KeyBanc, you've had it for a couple of years now. The investment has done fairly well. I'm sure you've been learning a lot. Can you maybe just update us as to what the plan is for that asset going forward? It didn't sound like a U.S. retail bank for your North American corridor strategy. So just any update on that is great. L. Thomson: Sure. Thanks, Matt. So as you know, we have 14.9%, so $400 million of NIAEH per year, 15% to 20% return on capital. And so we are pleased with it, Jacqui sits on the board. I think we've got a lot of learnings from that. As I said last quarter, there's no plans to increase our absolute dollar investment into Key. I think our priority is organic growth here or share repurchases. That being said, as they execute on their $1.2 billion share repurchase, which we're very supportive of, we'll probably tick up a little bit in terms of ownership just because we won't bend into it. So same plan as we talked about last quarter. Operator: There are no further questions on the line. I would now like to turn the meeting over to Raj Viswanathan. Rajagopal Viswanathan: Thank you very much. Thanks all of you for participating in our call. And on behalf of the entire management team, I appreciate you all taking the time to talk to us. We look forward to speaking to you again at our Q2 call in May. Have a great day. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Geoffroy d'Oultremont: Good afternoon, everyone, and welcome to Solvay's Fourth Quarter and Full Year 2025 Earnings Call. I'm Geoffroy d'Oultremont, Head of Investor Relations. And with me today are our CEO, Philippe Kehren; and our CFO, Alexandre Blum. This call is being recorded and will be accessible for replay on the Investor Relations section of Solvay's website later today. I would like to remind you that the presentation includes forward-looking statements that are subject to risks and uncertainties. The slides shared today are also available on the website. We will first discuss our full year earnings and the outlook for 2026 and then take your questions. Philippe, over to you for the introduction. Philippe Kehren: Thank you, Geoffroy, and hello, everyone. In 2025, we delivered healthy margins and strong cash flow despite the challenging environment. In this context, we remain disciplined and act to secure our competitiveness, leveraging energy transition and footprint optimization. Our strategy has proven to work and we continue to focus on being a leading essential chemical company with safety and sustainability at the heart of it. Let me share more details on this, starting with safety. Safety remains our top priority and we continue working towards our zero-accident objective. In 2025, we launched a major safety culture transformation program designed to improve safety performance across all our sites. While the reportable injuries increased slightly compared to last year, the severity of the incidents decreased overall. This is a sign that our efforts are starting to pay off. We're not there yet, but we are fully committed to continuing our transformation in 2026. Let me now share with you our progress on sustainability, implementing our 4 generations road map across the business, moving to Slide #6. We've progressed well on our greenhouse gas emissions targets. Our CO2 emissions, Scope 1 and 2 have decreased by 29% compared to 2021 and that's already close to our 2030 target of minus 30%. The reduction was driven equally by decarbonization projects and also by lower activity levels. The largest structural contributors were the coal phaseout projects in our Soda Ash plants in the U.S. and in Germany, which were completed in 2024 and which delivered their full impact in 2025. The next steps will be the new cogeneration unit in Dombasle, France, which will substitute coal with refuse-derived fuel and which is expected to be operational later this year. The new cogeneration project in Torrelavega in Spain announced in 2025 is expected to be operational in 2027. One year ago, we also announced our new biodiversity commitment for the group. In 2025, we launched a pilot at our Dombasle site, testing the science-based framework provided by the IUCN, the International Union for the Conservation of Nature. This framework aims to develop a blueprint for effective biodiversity actions that can be replicated across global operations. At the end of 2025, already 16% of our lands are under conservation or restoration. We'll continue working closely with the IUCN and the next step will be a second pilot at our Rosignano site in Italy, where we will further apply and refine the methodology. We also moved forward on our better life KPIs. As mentioned earlier, safety improved slightly compared to last year and we are dedicated and focused on improving this even more. We've been steadily moving on our diversity target with 28.8% of women in mid and senior management. Lastly, on living wage, we're very proud to have achieved our target already 1 year in advance with 100% of our own workforce throughout the world receiving a decent living wage. Now turning to Slide #7. Before Alex takes you through the details of the results, let me leave you with 3 key messages for the year. First, in 2025, we continue to deliver healthy margins and strong cash. The transformation of the company is progressing well and the operational excellence savings associated with it are supporting our performance. In 2025, the overall environment remained very challenging and we had some transformation expenses generating cash outflows. These are expenses tied to the separation, including phasing out the transition service agreement and building a new simplified ERP as well as essential initiatives for the new Solvay, including the ongoing fluorine business restructuring. At the same time, we generated EUR 350 million of free cash flow, thanks to our disciplined cash allocation framework and decisive working capital management throughout the year. This is a real achievement in such a difficult year. 2026 will be another challenging year. On the top line, the demand environment is not yet showing any sign of recovery and the bottom line will be impacted by the transformation expenses. So in this context and this is my second key message, we continue taking actions to make sure we can emerge stronger. Strengthening our competitiveness is essential. One key lever is accelerating our energy transition with a particular focus on phasing out coal across our European operations. Our decarbonization road map is progressing well. But at the same time, we need to align the European climate policies, ETS and CBAM with industrial reality. We cannot force decarbonization decades ahead of the 2050 target without the right framework. Extending free quotas until 2050 is a technical necessity to fund the transformation of historical sites instead of shutting them down. We need the support of the authorities for a competitive energy access. This is critical if we want to maintain competitive supply chains in Europe. The other key lever is industrial footprint optimization to safeguard long-term competitiveness. We regularly assess each site to ensure we can remain competitive in the evolving environment. When this is no longer the case, we act decisively. This has led to the restructuring of our fluorine operations in Germany to the closure of our Salindres site in France in 2025 and earlier decisions to close our peroxides plant in Warrington in the U.K. and in Povoa in Portugal. Yesterday, we launched a consultation process to reduce our production capacity at the Torrelavega plant in Spain from 600,000 tonnes to 420,000 tonnes starting in Q3 2026. This measure allows us to define a very clear industrial road map for the site, which will focus on local soda ash customers and competitive and low-carbon high-grade bicarbonate. All these measures strengthen the overall performance and agility of our European manufacturing base. Together, our footprint optimization and energy transition initiatives enable us to maintain an asset base that is highly competitive in its markets. So in summary, one, we deliver; two, we act to protect and reinforce our competitiveness. Third key message is that we remain focused on the deployment of our essential chemistry strategy. We continue the long-term transformation, which is about simplification of our organization and digitalization of our plants. We are preparing the future and we invest where demand justifies it. In 2025, we inaugurated our new rare earth workshop in La Rochelle for permanent magnets. And we doubled the capacity of our electronic grade of hydrogen peroxide plant in China. In January 2026, we inaugurated our production line of BioSource silica in Livorno, Italy. It's the first of its kind in Europe. And we have more projects with a clear potential of additional developments in La Rochelle, for instance, where we will start separating heavy rare earths already this year. So you see we're very committed to our strategy. At the same time, we act when necessary to make sure we will emerge stronger. We carefully look at our portfolio and we assess if changes are needed, but we also continue to invest in selective areas where it makes sense to prepare for the future. All of this while being laser-focused on our financial policy, a stable growing dividend and an investment-grade rating. Now over to you for the financials, Alex. Alexandre Blum: Thank you, Philippe, and good morning, good afternoon, everyone. Moving to the financial with 2 key messages. First, on cash generation. In 2025, we were able to generate strong free cash flow by rapidly adapting to our environment. Second message is that our balance sheet is healthy and this fully support the execution of our strategy. Moving to Slide 11. As usual, I remind you that my comments are based on organic evolution, meaning at constant scope and currency, unless otherwise stated. Underlying net sales in 2025 reached EUR 4.3 billion, down 6% versus 2024. The decline was mostly driven by lower volumes, which were down 4% year-on-year, mainly in Soda Ash and Coatis business units. ForEx had a negative impact for the year from the strengthening of the euro against the U.S. dollar and the Brazilian reals. In Q4, volumes were also down, mainly driven by Coatis and the Soda Ash export market and with a slightly more pronounced seasonality in the silica business. However, volumes in bicarbonate, peroxide and special chem remained very resilient throughout the year. Let's now move to the EBITDA bridge on Slide 12, where you see that despite all the headwinds, we have retained a healthy EBITDA margin. Underlying EBITDA amounted to EUR 881 million in 2025, down 13% compared to 2024, but within our revised guidance range. The EBITDA margin remained strong, close to 21%. Volumes and mix were mostly down due to Soda Ash and the absence of a peroxide license, but this was partly compensated by the positive impact of the optimization of our portfolio of European CO2 credits. Net pricing decreased year-on-year, primarily driven by the seaborne Soda Ash market and Coatis. Margins in the other businesses remained extremely resilient. For fixed cost and other, we can highlight 3 main moving parts. In fixed cost, minus EUR 23 million of negative impact from the temporary stranded costs related to the split. And then we have 2 nonrepeat elements from 2024 offsetting each other. Last year, we had plus EUR 20 million linked to a one-off TSA reinvoice in fixed cost versus minus EUR 29 million from provision in order linked to our Dombasle Energy project. Moving now to look at our structural cost saving on Slide 13. As expected, our structural cost saving program continued to deliver significantly in 2025 when we have achieved EUR 101 million of gross structural savings, bringing the cumulative amount since the start of the program to EUR 211 million and so exceeding our 2025 target. We will continue to focus on what we can control and we expect cumulative savings to be around EUR 300 million by the end of 2026. I now move to the segment review, mainly focusing on Q4 development and starting with basic chemical on Slide 14. Sales in the Soda Ash and derivative business unit were lower for the quarter by 13% with Soda Ash volumes and pricing steady in the domestic market, but showing a continued sharp decline in the seaborne market. Bicarbonate volume and pricing, on the other hand, continued to be extremely resilient and are up year-on-year. In peroxide, our electronic grade for semiconductor industry continued to deliver double digit growth, supported by AI-related investment, while volumes remained broadly stable in the merchant market. Overall, the segment EBITDA was down by 20% in Q4, mostly due to the lower volumes, including the non-repeat of peroxide license and lower pricing in Soda Ash exports. The EBITDA margin reached 25.1%, slightly lower compared to Q4 2024. Moving now to Performance Chemicals on Slide 15. This segment has a certain degree of seasonality in Q4. Year-on-year, silica sales were impacted by slightly lower higher volumes, while the consumer and industrial good markets remained stable. Coatis continued to struggle with volumes and prices down in all end markets due to the difficult environment caused by U.S. tariff and we will see if the recent changes can help the local industry to recover. Special Chem, on the other hand, increased in Q4 with higher rare earth volume in electronics and medical applications, which offset slightly lower demand in autocatalysis and fluorine. Overall, the segment EBITDA was down 18%, while the EBITDA margin decreased to 14%. I will now cover the Corporate segment. In 2025, the Corporate segment result was impacted by EUR 23 million of temporary stranded costs due to the TSA exit. They will continue to impact our performance in 2026, while OpEx related to the ERP will impact both 2026 and 2027. As of 2028, our target operating model will be fully in place, generating a new wave of savings, allowing to reach a run rate below EUR 50 million for the Corporate segment. Overall, the full year 2025 EBITDA was minus EUR 40 million, including a positive impact of EUR 40 million from the CO2 emission rights optimization. Moving to Slide 17 to look at our free cash flow, which, as you know, is at the top of our priorities. We delivered a strong free cash flow of EUR 350 million despite a weaker EBITDA generation. First, we have limited our CapEx to a level below EUR 300 million as guided. The EUR 292 million includes around EUR 240 million of essential CapEx, of which EUR 26 million for energy transition project. The rest, roughly EUR 50 million was dedicated to targeted investment in new capacity, including the completion of our new Soda Ash capacity in Green River, the doubling of our eH2O2 capacity in China and the BioSource silica unit in Italy. So even in a difficult year, we continue to invest to make Solvay future proof. The other cash driver was working capital, whose positive contribution reflect a strong discipline, the low level of activity at year-end and the positive impact from the exit of TSA with Syensqo in our receivable. As expected, provision cash out were high at EUR 260 million for the year. They include approximately EUR 130 million of what you could call normalized cash out for the provision linked to pension, environmental liabilities and some restructuring. And on top, there was EUR 60 million related to Dombasle Energy project and EUR 70 million of additional restructuring and other expenses related to the transformation we have initiated since the spin-off. As indicated, financing costs were higher in 2025 as it was the first year of full interest payment for the bond issued in April 2024. Let's move to the Slide 18, where I guide you through the temporary cash impact on the free cash flow. Here, we have the main element behind the transformation expenses and how they will temporarily weigh on our cash generation. First, the stranded cost, which mainly impact 2025 and 2026. In 2025, we stopped rendering services to Syensqo, but it will take 1 to 2 years to adjust our support functions. Second, the cost related to the new ERP. With the split, it becomes a necessity to design and deploy IT system that are adapted to our new operating model. Third, the restructuring cash. They mainly relate to the exit of the TSA partially compensated by Syensqo and the restructuring of our fluorine business. They were the highest in 2025 and gradually decreased starting in 2026. To wrap up the 2025 financial, let me take a word on the debt on Slide 19. Underlying net debt was EUR 1.6 billion at the end of 2025, roughly stable compared to 2024. The leverage ratio remained healthy at 1.8x. Regarding provision, in December 2025, we took an important step to derisk our balance sheet. We did a lift out. This means that we transfer a portion of our U.S. pension plan to an insurance company, which is now solely responsible for managing the benefits and the underlying investments. The transaction resulted in a reduction of our liabilities of EUR 159 million and of our assets by EUR 155 million, hence generating a profit of approximately EUR 3 million in Q4. Based on the free cash flow generation and in line with the dividend policy of the company, the Board of Directors has decided to propose to the shareholders a total gross dividend of EUR 2.43 per share, which includes the interim dividend paid in January. Let me leave you with a final key message. Whatever the environment, our capital allocation framework drives all our decisions. Our essential CapEx are the priority. Then we have an equally important and clear dividend policy. And then we have options to prepare for the future growth of the company. The last bucket is more variable as it will be always sized based on merit and affordability. It will be mostly for organic investment and might be supported with inorganic opportunities if they become available, makes sense and meet our rigorous criteria. With that, Philippe, back to you for the outlook. Philippe Kehren: Thank you, Alex, and let's move indeed to the outlook now. So as I said at the beginning of this call, we know that 2026 will be another challenging year, but we are acting decisively to protect our competitiveness and to focus on our long-term transformation. We don't expect the situation in our Soda Ash or Coatis businesses to change rapidly. For Soda Ash, the overcapacity in China is a challenge for the Chinese and the Southeast Asian markets. And it also creates some pressure outside of the region, for example, on the exports from the U.S. As for Coatis, it continues to suffer from the situation generated by the introduction of the tariffs. Our other businesses are much more resilient, but we remain cautious as we currently have little visibility. So for 2026, we expect an underlying EBITDA between EUR 770 million and EUR 850 million. This already includes negative impact year-on-year of EUR 20 million from currencies, another EUR 40 million from the transformation expenses and a positive contribution similar to last year from the sale of EUA that we've done in January 2026. Free cash flow to Solvay shareholders from continuing operations will exceed EUR 200 million and that is after covering EUR 90 million of transformation expenses. We ask the teams to remain very disciplined with investments and we will limit again our CapEx to under EUR 300 million for the foreseeable future until the environment improves. Our strategy is solid and we are executing it in a disciplined way. We accelerate its deployment where it makes sense and we take actions to mitigate the environment in which we've been for the last 2 years. You can count on us to relentlessly keep our focus on costs and on cash. So this concludes our prepared remarks. Thank you for listening and we're happy to take your questions. Now back to you, Geoffroy. Geoffroy d'Oultremont: Thank you, Philippe and Alex. Gaia, you may now open the line for questions, please. Operator: [Operator Instructions] The first question is coming from Martin Roediger from Kepler Cheuvreux. Martin Roediger: First is on your EBITDA guidance. With a high comparison base in Q1 and also adverse FX effects in Q1 and partly in Q2, should we expect a different earnings trajectory in 2026 being more back-end loaded? And linked to the EBITDA guidance to say with that, just to clarify, you did not factor in your guidance any sale from licenses, i.e., in hydrogen peroxide, but you factor in another sale of CO2 emission rights. Is that correct? And then finally, sorry to come back to the Coatis business. Philippe, you said that the Coatis business will continue to suffer in 2026. Can you provide some background information? I heard that there are some hopes that the Brazilian government could interfere here and may support Brazilian players. Is that true? Philippe Kehren: Thank you, Martin, for your questions. And I will let -- I will start answering some of your questions and then let Alex complement. So in terms of phasing, I mean, difficult to say at this point. You know that the business is relatively nonseasonal. So I would say the base load performance of the business, you should not expect too much of a phasing. However, as we said, we sold -- because the market conditions were good, so we sold the CO2 quotas already. So you might expect a little bit of -- I mean, this impact in Q1. So it will be a little bit front-loaded, but we also have other elements in the course of the year. So for Coatis maybe and then I will let Alex complement on the other elements of the EBITDA. I mean, a lot of parts are moving to be clear. I mean, we just heard -- you heard the decision from the Supreme Court on the tariffs. And typically, Coatis and Brazil have been the area which have been the most impacted by the tariff because it has impacted very much our customers. And you remember that we have a 50% tariff on Brazilian export to the U.S. This could, of course, be a game changer if this value would change. On top of this, you're right, there are currently discussions with the Brazilian authorities to implement, first, a mechanism that would support the Brazilian chemical industry. And second, also some measures potentially being implemented to protect the Brazilian market from imports from China. So we're watching this very closely. We didn't put anything in our outlook regarding this. So it could be potentially an upside. But frankly speaking, for the time being, I think it's too early to say anything. Now Alex, if you want to say a few words on the EBITDA elements. Alexandre Blum: Yes, so as Philippe explained, EBITDA, take it roughly equally spread during the year. You may have small variation, but it's roughly equally spread. So your question is whether we have included license on the one side of CO2. If I take a step back, what just defined the range of EBITDA? Primarily, the range of EBITDA is driven by volumes. That's one of the main uncertainty of the year. We are quite clear on the short term, but I mean, we know the situation can change. The single uncertainty factor are the few business opportunities we are considering. And one of them, obviously, is licenses. We want to continue to do so, but we do it only if it's quality customers and if it generates some value. So it's part of the uncertainty factor. Third factor of uncertainty are more the margin, price of energy, the tariff impact, which is also an uncertainty factor. And CO2, yes, we have included only one sale. We knew from the data, we always monitor our exposure to CO2 in Europe to make sure we are well covered until 2030, early 2026, we saw that volumes in Soda Ash in the short term should not see a very different change. We saw favorable regulatory environment. We see things tends to improve, not deteriorate. And at the same time, the CO2 -- EUA prices at the beginning of the year in Europe are quite favorable. So we've decided to derisk this element. Operator: The next question is coming from Tom Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. The first question is just trying to understand the dynamics around these CO2 emissions rights sales. Hypothetically, if volumes were to recover to peak levels very quickly, again, let's call it, by the end of the year and you need to increase your utilization rate heavily in your European business, do you then have to go and buy these credits back from the market in order to produce those tonnes? And is your assumption that you'd be able to pass on that cost if required, because the European market suddenly became tight? I'm just trying to think about what the sacrifice is on recovery here that you're making as you shut down assets in Europe and then sell the associated CO2 rights. That's my first question. My second question, if I may, is just on the Soda Ash contract price that's embedded in your guide. I think CMA reported Europe down 3% year-over-year. Can you confirm that's your price, broadly speaking? And associated with that, was there a very -- what was the kind of -- what was the thought process behind that if you try to support price but cut volumes and therefore, you'd expect to take a disproportionate volume hit this year in Soda Ash because you've tried to protect price? Just trying to understand the dynamics that took place in that contract. Philippe Kehren: Yes. Thank you, Tom. So first, on EUAs, clearly, I mean, if ever the volumes would recover at some point later this year, we are -- we have enough quotas, right? I mean, so until 2030, we are covered. So there is no need to go back to the market at this point to hedge our CO2. And more broadly, you mentioned the capacity reduction and the fact that we would lose this capacity if ever the market would recover. Well, it's very simple. The capacity that we have typically in Spain here, it's a capacity that was used to export out of Europe to the seaborne market. We consider that this capacity is not sustainable, right? First, because we would have to invest massively to do the energy transition on this capacity and we would not be able to get the return on this investment on the seaborne market. And second, we have enough capacity in the U.S. to supply the seaborne market. So this is the right move to do for the long term, okay? So no regret. This is strategic and done on purpose. Now on Soda Ash, obviously, we will not comment on the detailed price movements linked to the negotiations. What we can say is that basically, Europe has been resilient. And there's a little bit of pressure on price, but which is very limited and we kept the volumes, so good resilience in Europe. The opposite on the seaborne and in particular in Southeast Asia, margins are at the trough with the overcapacity in China and the pressure put by this Chinese overcapacity. So here, we signed very short-term contracts because we don't want to commit at this level of price. And we even produce a bit less. This is, by the way, why we also have some EUAs to valorize in Europe because we're not producing at full speed in order to sell in this very depressed market. In the U.S., it's a little bit of a mix. In the U.S. -- sorry, in the U.S., it's strong pressure on export. And so this puts pressure on the U.S. production. So the situation is a little bit mixed in the U.S. But overall, I would say the domestic prices are relatively resilient. Operator: The next question is coming from Hannah Harms from BNP Paribas. Hannah Harms: I just wanted to clarify on your free cash flow guidance. So my understanding is obviously that includes this carbon credit sale. So what other levers do you have left if you're looking to cover the dividend for the year? And would you have an appetite to raise leverage? Philippe Kehren: Thank you, Hannah, for your question. I will let probably Alex complement my answer. So indeed, the free cash flow guidance includes the CO2 sales that we've done in Q1. And this -- with this into -- taken into account, our guidance is to generate at least EUR 200 million of free cash flow despite, as we said, the EUR 90 million of temporary transformation costs. So then what are the levers that we have? Maybe, Alex, you wanted to explain a little bit what we plan to do. Alexandre Blum: Yes. I think if you really try to compare 2025 to 2026, so EUA, it's quite comparable, okay? We had it last year. We had it this year, broadly same. CapEx, same financing, tax, assume that more or less is stable. The big difference is the fact that last year in 2025, we could activate working capital, we've optimized it and we ended with quite a low level of activity. That has generated EUR 170 million of working capital reduction while in 2026, we have assumed this to be broadly stable. That's the main source of variation. Then we have all these transformation expenses, which are broadly flat, slightly higher. On the other side, we have provision cash out and especially Dombasle Energy project were quite high in 2025, will be lower in 2026, but it's not the same magnitude as our working capital variation. Operator: The next question is coming from Geoff Haire from UBS. Geoffery Haire: A lot of my questions have been answered. I just have one left. Obviously, there's been speculation recently about changes to the European ETS scheme. If those changes that have been put in the press come to fruition, what does that mean for Solvay? Is that a positive or a negative? Philippe Kehren: Yes. Thank you, Geoff, for the question. No, it's positive, obviously, it's very positive. And I think it makes sense, right? Because it won't change anything until 2030. I mean, until 2030, except the fact that we know that now that the CBAM will not take place. So we are comforted in the strategy that we presented, which is to be covered until 2030. Now there were and there are still, to some extent, a little bit of uncertainties as to what will happen after 2030. We already cut our CO2 emissions by half since 2005 when the ETS was implemented. And our commitment is to reach minus 30% in '23 versus 2021. We will do it. No doubt about that. And then the other commitment is to do carbon neutral in 2050. So in 2050, not in 2030, not in 2039. And that's, by the way, in line with the target of the EU, which is to be carbon neutral by 2050. So what we're saying is that we need to align the ETS to the 2050 target. So instead of having cliffs or disruptions in 2030, in 2033, in 2039, whenever, we want to align the trajectory to 2050. So this is good news because it will allow us to do in a good condition to finalize the energy transition and move to carbon neutrality. Operator: The next question is coming from Katie Richards from Barclays. Katie Richards: Yes, I just had one follow-up on the ETS too. I mean, can you just clarify what you meant about with reference to CBAM there, the rules changing? And also just try to understand what exactly -- if you could have your dream scenario here would be the best case for Solvay. Would it be for pushing back the free allowance date later? Would you rather the ETS costs move to EUR 30 to EUR 40 like [ Micron ] is pushing for? What would be your dream scenario? And my second question would be on the energy costs. Could you please clarify the degree of the energy cost pass-through in the Soda Ash contracts and whether the current energy tailwinds would be retained in the unit margins or could decline further due to competitive pressure, please? Philippe Kehren: Okay. So my reference was to say there is an option to include Soda Ash and only Soda Ash in our portfolio into the CBAM. We know that this will not take place at least before 2030 and we are currently discussing and realizing that integrating Soda Ash to the CBAM would raise a lot of questions and concern. That's why, by the way, also the European Commission is starting to say we could envisage to continue to give free allowances, in particular for volumes that are exported because obviously, if you don't give free allowances to exports, you would put those volumes under tremendous uncompetitive pressure. Now we don't have dreams. We're talking about reasonable and efficient trajectories with the European Commission. And I would say that what would be the most efficient would be to have an extension of the ETS with a trajectory that would bring us to neutrality in 2050, right? So something that is much more realistic than what is envisaged today and something that will also be in line with the fact that today, there is no competitive low-carbon energy available in Europe. So you cannot ask the consumers like us to be carbon neutral if there is no carbon-neutral energy available on the market. So it's just to have a reasonable trajectory for the ETS going forward after 2030. And I think this is something that really is resonating more and more with the European policymakers. Now on your question, I guess it was on the energy clause that we have in the Soda Ash contracts. So those energy clauses still exist, right? Because we've been through a period where energy prices went up and peaked in extremely strong movements. And so we still have those protections, but they operate when really prices are extremely high. So in the current market situation, we don't expect those energy clauses to be operational and to have an impact to be activated. Operator: The next question is coming from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: Firstly, just wondering on Q1. I'm trying to think about the underlying earnings power of the company this year, given you have some temporary impact on EBITDA in the guidance. If you strip out the exceptional impact from the sale of CO2 credits, is the consensus for Q1 of around EUR 205 million a reasonable base level of earnings for this year's kind of run rate? Or is it fair to say it would likely be lower than that given that the Q4 was EUR 170 million and given that you've talked about not seeing too much seasonality in the business in the past? Philippe Kehren: Yes. Thank you, Tristan. Well, clearly, I mean, it's difficult to give any guidance, of course, for Q1. From a business perspective, I would say that we -- what we see in Q1 so far is very in line with what we observed in the second semester of last year. Q4 was softer, and that's known, right? We know that the end of the year is always softer in some of the businesses. We also had some accruals to take and so on. So Q4 was not representative, I think, of the business performance over the year. So that being said, what you can take into account is that we're -- we have a guidance of EUR 770 million -- between EUR 770 million and EUR 850 million. And that we suppose business-wise that there is no significant phasing over the year. Tristan Lamotte: Okay. Got it. And then secondly, sorry to come back on ETS, but I'm just wondering what the size of the risk is here in a kind of downside scenario. So I'm wondering in the absence of free allowances, is it fair to take your Scope 1 emissions, which I think were around about 6.8 million tonnes and multiply that out by the carbon price of EUR 70 to come to a theoretical cost that you would bear in the absence of free allowances? Just to understand the size of that risk without free allowances as it stands. Philippe Kehren: No, no. I mean, it's not at all this number. I mean, the number that you mentioned is the total emissions globally and a big part of those emissions are not part of ETS, right? You have emissions in the U.S., emissions in Brazil in a lot of areas. So it's not at all this number. And again, as we said, there is no scenario today, I think, where we would stop getting free allowances. I mean, there's no one in Europe today saying that we should stop giving free allowances. On the contrary, the momentum today and I'm much more positive today than I would have been probably a few months ago is to say we need to continue and even to protect even more the European industry because what will happen is that we will shut down our industry and we will import the carbon content from outside. So it wouldn't make any sense. Operator: The next question is coming from James Hooper from Bernstein. James Hooper: First question is around working capital. You did a great job on that in the fourth quarter. To what extent the -- can you just take us through how you managed to make such a big improvement? And then whether you'd expect -- how you'd expect to maintain working capital at that level? I mean, you mentioned in the SCF question that you're looking for working capital to be flat. And then the second question is about the footprint because obviously, you're working and you have yesterday's announcement. If we stay in the current macro picture, is there further restructuring to come here kind of after the plans that we've got in 2026? Is the footprint -- if you're starting Solvay again tomorrow, would the footprint look like it is? Philippe Kehren: I will let Alex answer the question on the working capital, but I will take the one on footprint. So first, I mean, there is no further announcement planned clearly for this year. We, of course, continuously optimize our industrial footprint. This is what we've done for 160-plus years. And we are operating on markets where all the players are doing that and are making sure that they always have on a given market, the best possible assets. So we will, of course, continue to do that, but we don't expect any big movement in terms of footprint. Now would we build the same footprint? Probably not. I mean, every year, we would build it in a different way, but we have, of course, a footprint that is good and that is sustainable and we're making sure that it's the best one in the long run as well. So no, that's why we have this very important discussion with the European Commission on the future of the ETS is to make sure that we have a footprint that will be able to operate in a fair competitive landscape, right? Alex, if you want to comment on the working capital? Alexandre Blum: Sure. So on working capital, as we said, it's the combination of an internal program and the demand trend, you may remember, end of Q4 last year, it was before the tariff, there was -- the demand was quite good until the end of the year while this year it was quite slow. We can see that in Solvay, but we could also see that in our customers and in our peers. So you have one driver which is different. But a large part of the improvement is a program we have on inventory, receivable, payable. As our products are quite bulky, it will be more on receivable and payable and we've looked at all the businesses, all the item and we've pushed it. What it means is that if you look our working capital on sales at the end of the year, we are in the 10-plus percent, which is among the best-in-class in the chemical space. It's possible to maintain this level with the current level of activity. If the activity picks up, we will have to -- it will be a good problem to have. We will have to rebuild a little bit of working capital just proportionally and maybe give a little bit more safety on different elements. But for the moment, as our guidance for 2026 assumes, it remains broadly flat. James Hooper: Can I ask a quick follow-up actually just on the market? Just China, have you seen any rationalization or any evidence of capacity changes or demand improvements there in Soda Ash? Philippe Kehren: Not yet. Not yet. We know this will happen, right? Because I don't see why in the long term, plants would run and burn cash every month. It doesn't make any sense. But at this point, we have not seen that happening yet. What we've seen linked to the [ MCL ] evolution, but on other -- in particular on other businesses is that China is now really looking very, very carefully at the new permits. So before getting a new permit for a new capacity, you need really to demonstrate that it makes sense and that it's not an overcapacity that we are going to generate. Alexandre Blum: Not specifically on Soda Ash. Philippe Kehren: Not specifically on Soda Ash, on other types of businesses. Operator: The next question is coming from Chetan Udeshi from JPMorgan. Chetan Udeshi: My first question is on rare earth. It seems things have gone quiet. Since some excitement at some point last year, nothing seems to have happened. Maybe it's a wrong impression, but I was just curious if you can update us on what's happening. Are you seeing more activity? Are you seeing more requests from European Union in terms of building the capacity because they have been talking about building the rare earths and other critical minerals value chain in Europe? And the second question was just around this EU ETS thing. Can you remind us how much of your allowances or how much of your emissions rather are covered by free allowances today in Europe? Is it 100% because you're clearly not producing at full run rate? Or in other words, how much are you buying from the market every year? What I'm trying to get to is if we have, let's say, 2% lower reduction of free allowances every year, is that meaningful for Solvay in terms of benefit? Or is that virtually no impact because you don't buy any of the free allowance -- sorry, any of the emissions from the market anyway? Philippe Kehren: Thank you, Chetan. So on rare earths -- well, Chetan, when things are quiet, it's not necessarily a bad news. So what I can say is that right now, we continue to have discussions with all the stakeholders, with the buyers because they are more and more interested, of course, to diversify their portfolio, their purchasing of those critical materials and also with the policymakers, both in Europe and in the U.S. And there are currently discussions on what would be the best mechanism in order to secure the volumes and the prices in the long term. And there are in particular discussions about floor prices, both in the U.S. and in Europe. So I hope things will move very, very quickly now. But I can tell you that it's a bit more silent, but it's quite active. On the ETS, no, we have a deficit very clearly. I mean, we are emitting more than the free allowances and that has been the case from the beginning from 2005 onwards. So what we do is we manage our emissions and we protect them with a portfolio of different instruments. So we have, of course, the level of production, which is a key parameter. We have our energy transition project road map. And so the more we secure and derisk those projects, the more clarity we have on our future emissions. We have the free allowances. We have some quotas that we have in inventory and that we purchased a long time ago. We started a long time ago. That's why the price today has nothing to do with the market price. We also have forward positions. So we have a portfolio of things. And we reassess this position continuously. And this is why sometimes we say we can sell some quotas that we have in inventory, or we can unwind some of our forward positions and so on and so forth. So we manage this very, very actively. So 2% is at the same time, not too much, but it is quite significant and it's an element that we take into account to make sure that we are covered. Now what is really important is what will -- what happens when we have disruptions. This is why the post-2030 discussions are important because we know exactly what will happen until 2030. The only uncertainty is, I would say, the level of production, our project in Dombasle, if it starts one or a few weeks later or a few weeks earlier, that can have a little bit of impact, okay? But everything is known until 2030. What is not known is what will happen afterwards. CBAM with or without free allowances, what will be the new benchmark. This is why the discussions with the EU policymakers is important. Operator: There are no more questions at this time. So I hand the conference back to Geoffroy for any closing remarks. Geoffroy d'Oultremont: Thank you, Gaia, and thank you, all, for your participation today. And if you have any further questions, please feel free to reach out to the Investor Relations team. We have a few events planned in March, roadshows and conferences. They are available on the financial calendar page on our website and we will publish our first quarter earnings on the 7th of May. Thank you very much. Philippe Kehren: Thank you. Operator: Thanks for participating to today's call. You may now disconnect.
Geoffroy d'Oultremont: Good afternoon, everyone, and welcome to Solvay's Fourth Quarter and Full Year 2025 Earnings Call. I'm Geoffroy d'Oultremont, Head of Investor Relations. And with me today are our CEO, Philippe Kehren; and our CFO, Alexandre Blum. This call is being recorded and will be accessible for replay on the Investor Relations section of Solvay's website later today. I would like to remind you that the presentation includes forward-looking statements that are subject to risks and uncertainties. The slides shared today are also available on the website. We will first discuss our full year earnings and the outlook for 2026 and then take your questions. Philippe, over to you for the introduction. Philippe Kehren: Thank you, Geoffroy, and hello, everyone. In 2025, we delivered healthy margins and strong cash flow despite the challenging environment. In this context, we remain disciplined and act to secure our competitiveness, leveraging energy transition and footprint optimization. Our strategy has proven to work and we continue to focus on being a leading essential chemical company with safety and sustainability at the heart of it. Let me share more details on this, starting with safety. Safety remains our top priority and we continue working towards our zero-accident objective. In 2025, we launched a major safety culture transformation program designed to improve safety performance across all our sites. While the reportable injuries increased slightly compared to last year, the severity of the incidents decreased overall. This is a sign that our efforts are starting to pay off. We're not there yet, but we are fully committed to continuing our transformation in 2026. Let me now share with you our progress on sustainability, implementing our 4 generations road map across the business, moving to Slide #6. We've progressed well on our greenhouse gas emissions targets. Our CO2 emissions, Scope 1 and 2 have decreased by 29% compared to 2021 and that's already close to our 2030 target of minus 30%. The reduction was driven equally by decarbonization projects and also by lower activity levels. The largest structural contributors were the coal phaseout projects in our Soda Ash plants in the U.S. and in Germany, which were completed in 2024 and which delivered their full impact in 2025. The next steps will be the new cogeneration unit in Dombasle, France, which will substitute coal with refuse-derived fuel and which is expected to be operational later this year. The new cogeneration project in Torrelavega in Spain announced in 2025 is expected to be operational in 2027. One year ago, we also announced our new biodiversity commitment for the group. In 2025, we launched a pilot at our Dombasle site, testing the science-based framework provided by the IUCN, the International Union for the Conservation of Nature. This framework aims to develop a blueprint for effective biodiversity actions that can be replicated across global operations. At the end of 2025, already 16% of our lands are under conservation or restoration. We'll continue working closely with the IUCN and the next step will be a second pilot at our Rosignano site in Italy, where we will further apply and refine the methodology. We also moved forward on our better life KPIs. As mentioned earlier, safety improved slightly compared to last year and we are dedicated and focused on improving this even more. We've been steadily moving on our diversity target with 28.8% of women in mid and senior management. Lastly, on living wage, we're very proud to have achieved our target already 1 year in advance with 100% of our own workforce throughout the world receiving a decent living wage. Now turning to Slide #7. Before Alex takes you through the details of the results, let me leave you with 3 key messages for the year. First, in 2025, we continue to deliver healthy margins and strong cash. The transformation of the company is progressing well and the operational excellence savings associated with it are supporting our performance. In 2025, the overall environment remained very challenging and we had some transformation expenses generating cash outflows. These are expenses tied to the separation, including phasing out the transition service agreement and building a new simplified ERP as well as essential initiatives for the new Solvay, including the ongoing fluorine business restructuring. At the same time, we generated EUR 350 million of free cash flow, thanks to our disciplined cash allocation framework and decisive working capital management throughout the year. This is a real achievement in such a difficult year. 2026 will be another challenging year. On the top line, the demand environment is not yet showing any sign of recovery and the bottom line will be impacted by the transformation expenses. So in this context and this is my second key message, we continue taking actions to make sure we can emerge stronger. Strengthening our competitiveness is essential. One key lever is accelerating our energy transition with a particular focus on phasing out coal across our European operations. Our decarbonization road map is progressing well. But at the same time, we need to align the European climate policies, ETS and CBAM with industrial reality. We cannot force decarbonization decades ahead of the 2050 target without the right framework. Extending free quotas until 2050 is a technical necessity to fund the transformation of historical sites instead of shutting them down. We need the support of the authorities for a competitive energy access. This is critical if we want to maintain competitive supply chains in Europe. The other key lever is industrial footprint optimization to safeguard long-term competitiveness. We regularly assess each site to ensure we can remain competitive in the evolving environment. When this is no longer the case, we act decisively. This has led to the restructuring of our fluorine operations in Germany to the closure of our Salindres site in France in 2025 and earlier decisions to close our peroxides plant in Warrington in the U.K. and in Povoa in Portugal. Yesterday, we launched a consultation process to reduce our production capacity at the Torrelavega plant in Spain from 600,000 tonnes to 420,000 tonnes starting in Q3 2026. This measure allows us to define a very clear industrial road map for the site, which will focus on local soda ash customers and competitive and low-carbon high-grade bicarbonate. All these measures strengthen the overall performance and agility of our European manufacturing base. Together, our footprint optimization and energy transition initiatives enable us to maintain an asset base that is highly competitive in its markets. So in summary, one, we deliver; two, we act to protect and reinforce our competitiveness. Third key message is that we remain focused on the deployment of our essential chemistry strategy. We continue the long-term transformation, which is about simplification of our organization and digitalization of our plants. We are preparing the future and we invest where demand justifies it. In 2025, we inaugurated our new rare earth workshop in La Rochelle for permanent magnets. And we doubled the capacity of our electronic grade of hydrogen peroxide plant in China. In January 2026, we inaugurated our production line of BioSource silica in Livorno, Italy. It's the first of its kind in Europe. And we have more projects with a clear potential of additional developments in La Rochelle, for instance, where we will start separating heavy rare earths already this year. So you see we're very committed to our strategy. At the same time, we act when necessary to make sure we will emerge stronger. We carefully look at our portfolio and we assess if changes are needed, but we also continue to invest in selective areas where it makes sense to prepare for the future. All of this while being laser-focused on our financial policy, a stable growing dividend and an investment-grade rating. Now over to you for the financials, Alex. Alexandre Blum: Thank you, Philippe, and good morning, good afternoon, everyone. Moving to the financial with 2 key messages. First, on cash generation. In 2025, we were able to generate strong free cash flow by rapidly adapting to our environment. Second message is that our balance sheet is healthy and this fully support the execution of our strategy. Moving to Slide 11. As usual, I remind you that my comments are based on organic evolution, meaning at constant scope and currency, unless otherwise stated. Underlying net sales in 2025 reached EUR 4.3 billion, down 6% versus 2024. The decline was mostly driven by lower volumes, which were down 4% year-on-year, mainly in Soda Ash and Coatis business units. ForEx had a negative impact for the year from the strengthening of the euro against the U.S. dollar and the Brazilian reals. In Q4, volumes were also down, mainly driven by Coatis and the Soda Ash export market and with a slightly more pronounced seasonality in the silica business. However, volumes in bicarbonate, peroxide and special chem remained very resilient throughout the year. Let's now move to the EBITDA bridge on Slide 12, where you see that despite all the headwinds, we have retained a healthy EBITDA margin. Underlying EBITDA amounted to EUR 881 million in 2025, down 13% compared to 2024, but within our revised guidance range. The EBITDA margin remained strong, close to 21%. Volumes and mix were mostly down due to Soda Ash and the absence of a peroxide license, but this was partly compensated by the positive impact of the optimization of our portfolio of European CO2 credits. Net pricing decreased year-on-year, primarily driven by the seaborne Soda Ash market and Coatis. Margins in the other businesses remained extremely resilient. For fixed cost and other, we can highlight 3 main moving parts. In fixed cost, minus EUR 23 million of negative impact from the temporary stranded costs related to the split. And then we have 2 nonrepeat elements from 2024 offsetting each other. Last year, we had plus EUR 20 million linked to a one-off TSA reinvoice in fixed cost versus minus EUR 29 million from provision in order linked to our Dombasle Energy project. Moving now to look at our structural cost saving on Slide 13. As expected, our structural cost saving program continued to deliver significantly in 2025 when we have achieved EUR 101 million of gross structural savings, bringing the cumulative amount since the start of the program to EUR 211 million and so exceeding our 2025 target. We will continue to focus on what we can control and we expect cumulative savings to be around EUR 300 million by the end of 2026. I now move to the segment review, mainly focusing on Q4 development and starting with basic chemical on Slide 14. Sales in the Soda Ash and derivative business unit were lower for the quarter by 13% with Soda Ash volumes and pricing steady in the domestic market, but showing a continued sharp decline in the seaborne market. Bicarbonate volume and pricing, on the other hand, continued to be extremely resilient and are up year-on-year. In peroxide, our electronic grade for semiconductor industry continued to deliver double digit growth, supported by AI-related investment, while volumes remained broadly stable in the merchant market. Overall, the segment EBITDA was down by 20% in Q4, mostly due to the lower volumes, including the non-repeat of peroxide license and lower pricing in Soda Ash exports. The EBITDA margin reached 25.1%, slightly lower compared to Q4 2024. Moving now to Performance Chemicals on Slide 15. This segment has a certain degree of seasonality in Q4. Year-on-year, silica sales were impacted by slightly lower higher volumes, while the consumer and industrial good markets remained stable. Coatis continued to struggle with volumes and prices down in all end markets due to the difficult environment caused by U.S. tariff and we will see if the recent changes can help the local industry to recover. Special Chem, on the other hand, increased in Q4 with higher rare earth volume in electronics and medical applications, which offset slightly lower demand in autocatalysis and fluorine. Overall, the segment EBITDA was down 18%, while the EBITDA margin decreased to 14%. I will now cover the Corporate segment. In 2025, the Corporate segment result was impacted by EUR 23 million of temporary stranded costs due to the TSA exit. They will continue to impact our performance in 2026, while OpEx related to the ERP will impact both 2026 and 2027. As of 2028, our target operating model will be fully in place, generating a new wave of savings, allowing to reach a run rate below EUR 50 million for the Corporate segment. Overall, the full year 2025 EBITDA was minus EUR 40 million, including a positive impact of EUR 40 million from the CO2 emission rights optimization. Moving to Slide 17 to look at our free cash flow, which, as you know, is at the top of our priorities. We delivered a strong free cash flow of EUR 350 million despite a weaker EBITDA generation. First, we have limited our CapEx to a level below EUR 300 million as guided. The EUR 292 million includes around EUR 240 million of essential CapEx, of which EUR 26 million for energy transition project. The rest, roughly EUR 50 million was dedicated to targeted investment in new capacity, including the completion of our new Soda Ash capacity in Green River, the doubling of our eH2O2 capacity in China and the BioSource silica unit in Italy. So even in a difficult year, we continue to invest to make Solvay future proof. The other cash driver was working capital, whose positive contribution reflect a strong discipline, the low level of activity at year-end and the positive impact from the exit of TSA with Syensqo in our receivable. As expected, provision cash out were high at EUR 260 million for the year. They include approximately EUR 130 million of what you could call normalized cash out for the provision linked to pension, environmental liabilities and some restructuring. And on top, there was EUR 60 million related to Dombasle Energy project and EUR 70 million of additional restructuring and other expenses related to the transformation we have initiated since the spin-off. As indicated, financing costs were higher in 2025 as it was the first year of full interest payment for the bond issued in April 2024. Let's move to the Slide 18, where I guide you through the temporary cash impact on the free cash flow. Here, we have the main element behind the transformation expenses and how they will temporarily weigh on our cash generation. First, the stranded cost, which mainly impact 2025 and 2026. In 2025, we stopped rendering services to Syensqo, but it will take 1 to 2 years to adjust our support functions. Second, the cost related to the new ERP. With the split, it becomes a necessity to design and deploy IT system that are adapted to our new operating model. Third, the restructuring cash. They mainly relate to the exit of the TSA partially compensated by Syensqo and the restructuring of our fluorine business. They were the highest in 2025 and gradually decreased starting in 2026. To wrap up the 2025 financial, let me take a word on the debt on Slide 19. Underlying net debt was EUR 1.6 billion at the end of 2025, roughly stable compared to 2024. The leverage ratio remained healthy at 1.8x. Regarding provision, in December 2025, we took an important step to derisk our balance sheet. We did a lift out. This means that we transfer a portion of our U.S. pension plan to an insurance company, which is now solely responsible for managing the benefits and the underlying investments. The transaction resulted in a reduction of our liabilities of EUR 159 million and of our assets by EUR 155 million, hence generating a profit of approximately EUR 3 million in Q4. Based on the free cash flow generation and in line with the dividend policy of the company, the Board of Directors has decided to propose to the shareholders a total gross dividend of EUR 2.43 per share, which includes the interim dividend paid in January. Let me leave you with a final key message. Whatever the environment, our capital allocation framework drives all our decisions. Our essential CapEx are the priority. Then we have an equally important and clear dividend policy. And then we have options to prepare for the future growth of the company. The last bucket is more variable as it will be always sized based on merit and affordability. It will be mostly for organic investment and might be supported with inorganic opportunities if they become available, makes sense and meet our rigorous criteria. With that, Philippe, back to you for the outlook. Philippe Kehren: Thank you, Alex, and let's move indeed to the outlook now. So as I said at the beginning of this call, we know that 2026 will be another challenging year, but we are acting decisively to protect our competitiveness and to focus on our long-term transformation. We don't expect the situation in our Soda Ash or Coatis businesses to change rapidly. For Soda Ash, the overcapacity in China is a challenge for the Chinese and the Southeast Asian markets. And it also creates some pressure outside of the region, for example, on the exports from the U.S. As for Coatis, it continues to suffer from the situation generated by the introduction of the tariffs. Our other businesses are much more resilient, but we remain cautious as we currently have little visibility. So for 2026, we expect an underlying EBITDA between EUR 770 million and EUR 850 million. This already includes negative impact year-on-year of EUR 20 million from currencies, another EUR 40 million from the transformation expenses and a positive contribution similar to last year from the sale of EUA that we've done in January 2026. Free cash flow to Solvay shareholders from continuing operations will exceed EUR 200 million and that is after covering EUR 90 million of transformation expenses. We ask the teams to remain very disciplined with investments and we will limit again our CapEx to under EUR 300 million for the foreseeable future until the environment improves. Our strategy is solid and we are executing it in a disciplined way. We accelerate its deployment where it makes sense and we take actions to mitigate the environment in which we've been for the last 2 years. You can count on us to relentlessly keep our focus on costs and on cash. So this concludes our prepared remarks. Thank you for listening and we're happy to take your questions. Now back to you, Geoffroy. Geoffroy d'Oultremont: Thank you, Philippe and Alex. Gaia, you may now open the line for questions, please. Operator: [Operator Instructions] The first question is coming from Martin Roediger from Kepler Cheuvreux. Martin Roediger: First is on your EBITDA guidance. With a high comparison base in Q1 and also adverse FX effects in Q1 and partly in Q2, should we expect a different earnings trajectory in 2026 being more back-end loaded? And linked to the EBITDA guidance to say with that, just to clarify, you did not factor in your guidance any sale from licenses, i.e., in hydrogen peroxide, but you factor in another sale of CO2 emission rights. Is that correct? And then finally, sorry to come back to the Coatis business. Philippe, you said that the Coatis business will continue to suffer in 2026. Can you provide some background information? I heard that there are some hopes that the Brazilian government could interfere here and may support Brazilian players. Is that true? Philippe Kehren: Thank you, Martin, for your questions. And I will let -- I will start answering some of your questions and then let Alex complement. So in terms of phasing, I mean, difficult to say at this point. You know that the business is relatively nonseasonal. So I would say the base load performance of the business, you should not expect too much of a phasing. However, as we said, we sold -- because the market conditions were good, so we sold the CO2 quotas already. So you might expect a little bit of -- I mean, this impact in Q1. So it will be a little bit front-loaded, but we also have other elements in the course of the year. So for Coatis maybe and then I will let Alex complement on the other elements of the EBITDA. I mean, a lot of parts are moving to be clear. I mean, we just heard -- you heard the decision from the Supreme Court on the tariffs. And typically, Coatis and Brazil have been the area which have been the most impacted by the tariff because it has impacted very much our customers. And you remember that we have a 50% tariff on Brazilian export to the U.S. This could, of course, be a game changer if this value would change. On top of this, you're right, there are currently discussions with the Brazilian authorities to implement, first, a mechanism that would support the Brazilian chemical industry. And second, also some measures potentially being implemented to protect the Brazilian market from imports from China. So we're watching this very closely. We didn't put anything in our outlook regarding this. So it could be potentially an upside. But frankly speaking, for the time being, I think it's too early to say anything. Now Alex, if you want to say a few words on the EBITDA elements. Alexandre Blum: Yes, so as Philippe explained, EBITDA, take it roughly equally spread during the year. You may have small variation, but it's roughly equally spread. So your question is whether we have included license on the one side of CO2. If I take a step back, what just defined the range of EBITDA? Primarily, the range of EBITDA is driven by volumes. That's one of the main uncertainty of the year. We are quite clear on the short term, but I mean, we know the situation can change. The single uncertainty factor are the few business opportunities we are considering. And one of them, obviously, is licenses. We want to continue to do so, but we do it only if it's quality customers and if it generates some value. So it's part of the uncertainty factor. Third factor of uncertainty are more the margin, price of energy, the tariff impact, which is also an uncertainty factor. And CO2, yes, we have included only one sale. We knew from the data, we always monitor our exposure to CO2 in Europe to make sure we are well covered until 2030, early 2026, we saw that volumes in Soda Ash in the short term should not see a very different change. We saw favorable regulatory environment. We see things tends to improve, not deteriorate. And at the same time, the CO2 -- EUA prices at the beginning of the year in Europe are quite favorable. So we've decided to derisk this element. Operator: The next question is coming from Tom Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. The first question is just trying to understand the dynamics around these CO2 emissions rights sales. Hypothetically, if volumes were to recover to peak levels very quickly, again, let's call it, by the end of the year and you need to increase your utilization rate heavily in your European business, do you then have to go and buy these credits back from the market in order to produce those tonnes? And is your assumption that you'd be able to pass on that cost if required, because the European market suddenly became tight? I'm just trying to think about what the sacrifice is on recovery here that you're making as you shut down assets in Europe and then sell the associated CO2 rights. That's my first question. My second question, if I may, is just on the Soda Ash contract price that's embedded in your guide. I think CMA reported Europe down 3% year-over-year. Can you confirm that's your price, broadly speaking? And associated with that, was there a very -- what was the kind of -- what was the thought process behind that if you try to support price but cut volumes and therefore, you'd expect to take a disproportionate volume hit this year in Soda Ash because you've tried to protect price? Just trying to understand the dynamics that took place in that contract. Philippe Kehren: Yes. Thank you, Tom. So first, on EUAs, clearly, I mean, if ever the volumes would recover at some point later this year, we are -- we have enough quotas, right? I mean, so until 2030, we are covered. So there is no need to go back to the market at this point to hedge our CO2. And more broadly, you mentioned the capacity reduction and the fact that we would lose this capacity if ever the market would recover. Well, it's very simple. The capacity that we have typically in Spain here, it's a capacity that was used to export out of Europe to the seaborne market. We consider that this capacity is not sustainable, right? First, because we would have to invest massively to do the energy transition on this capacity and we would not be able to get the return on this investment on the seaborne market. And second, we have enough capacity in the U.S. to supply the seaborne market. So this is the right move to do for the long term, okay? So no regret. This is strategic and done on purpose. Now on Soda Ash, obviously, we will not comment on the detailed price movements linked to the negotiations. What we can say is that basically, Europe has been resilient. And there's a little bit of pressure on price, but which is very limited and we kept the volumes, so good resilience in Europe. The opposite on the seaborne and in particular in Southeast Asia, margins are at the trough with the overcapacity in China and the pressure put by this Chinese overcapacity. So here, we signed very short-term contracts because we don't want to commit at this level of price. And we even produce a bit less. This is, by the way, why we also have some EUAs to valorize in Europe because we're not producing at full speed in order to sell in this very depressed market. In the U.S., it's a little bit of a mix. In the U.S. -- sorry, in the U.S., it's strong pressure on export. And so this puts pressure on the U.S. production. So the situation is a little bit mixed in the U.S. But overall, I would say the domestic prices are relatively resilient. Operator: The next question is coming from Hannah Harms from BNP Paribas. Hannah Harms: I just wanted to clarify on your free cash flow guidance. So my understanding is obviously that includes this carbon credit sale. So what other levers do you have left if you're looking to cover the dividend for the year? And would you have an appetite to raise leverage? Philippe Kehren: Thank you, Hannah, for your question. I will let probably Alex complement my answer. So indeed, the free cash flow guidance includes the CO2 sales that we've done in Q1. And this -- with this into -- taken into account, our guidance is to generate at least EUR 200 million of free cash flow despite, as we said, the EUR 90 million of temporary transformation costs. So then what are the levers that we have? Maybe, Alex, you wanted to explain a little bit what we plan to do. Alexandre Blum: Yes. I think if you really try to compare 2025 to 2026, so EUA, it's quite comparable, okay? We had it last year. We had it this year, broadly same. CapEx, same financing, tax, assume that more or less is stable. The big difference is the fact that last year in 2025, we could activate working capital, we've optimized it and we ended with quite a low level of activity. That has generated EUR 170 million of working capital reduction while in 2026, we have assumed this to be broadly stable. That's the main source of variation. Then we have all these transformation expenses, which are broadly flat, slightly higher. On the other side, we have provision cash out and especially Dombasle Energy project were quite high in 2025, will be lower in 2026, but it's not the same magnitude as our working capital variation. Operator: The next question is coming from Geoff Haire from UBS. Geoffery Haire: A lot of my questions have been answered. I just have one left. Obviously, there's been speculation recently about changes to the European ETS scheme. If those changes that have been put in the press come to fruition, what does that mean for Solvay? Is that a positive or a negative? Philippe Kehren: Yes. Thank you, Geoff, for the question. No, it's positive, obviously, it's very positive. And I think it makes sense, right? Because it won't change anything until 2030. I mean, until 2030, except the fact that we know that now that the CBAM will not take place. So we are comforted in the strategy that we presented, which is to be covered until 2030. Now there were and there are still, to some extent, a little bit of uncertainties as to what will happen after 2030. We already cut our CO2 emissions by half since 2005 when the ETS was implemented. And our commitment is to reach minus 30% in '23 versus 2021. We will do it. No doubt about that. And then the other commitment is to do carbon neutral in 2050. So in 2050, not in 2030, not in 2039. And that's, by the way, in line with the target of the EU, which is to be carbon neutral by 2050. So what we're saying is that we need to align the ETS to the 2050 target. So instead of having cliffs or disruptions in 2030, in 2033, in 2039, whenever, we want to align the trajectory to 2050. So this is good news because it will allow us to do in a good condition to finalize the energy transition and move to carbon neutrality. Operator: The next question is coming from Katie Richards from Barclays. Katie Richards: Yes, I just had one follow-up on the ETS too. I mean, can you just clarify what you meant about with reference to CBAM there, the rules changing? And also just try to understand what exactly -- if you could have your dream scenario here would be the best case for Solvay. Would it be for pushing back the free allowance date later? Would you rather the ETS costs move to EUR 30 to EUR 40 like [ Micron ] is pushing for? What would be your dream scenario? And my second question would be on the energy costs. Could you please clarify the degree of the energy cost pass-through in the Soda Ash contracts and whether the current energy tailwinds would be retained in the unit margins or could decline further due to competitive pressure, please? Philippe Kehren: Okay. So my reference was to say there is an option to include Soda Ash and only Soda Ash in our portfolio into the CBAM. We know that this will not take place at least before 2030 and we are currently discussing and realizing that integrating Soda Ash to the CBAM would raise a lot of questions and concern. That's why, by the way, also the European Commission is starting to say we could envisage to continue to give free allowances, in particular for volumes that are exported because obviously, if you don't give free allowances to exports, you would put those volumes under tremendous uncompetitive pressure. Now we don't have dreams. We're talking about reasonable and efficient trajectories with the European Commission. And I would say that what would be the most efficient would be to have an extension of the ETS with a trajectory that would bring us to neutrality in 2050, right? So something that is much more realistic than what is envisaged today and something that will also be in line with the fact that today, there is no competitive low-carbon energy available in Europe. So you cannot ask the consumers like us to be carbon neutral if there is no carbon-neutral energy available on the market. So it's just to have a reasonable trajectory for the ETS going forward after 2030. And I think this is something that really is resonating more and more with the European policymakers. Now on your question, I guess it was on the energy clause that we have in the Soda Ash contracts. So those energy clauses still exist, right? Because we've been through a period where energy prices went up and peaked in extremely strong movements. And so we still have those protections, but they operate when really prices are extremely high. So in the current market situation, we don't expect those energy clauses to be operational and to have an impact to be activated. Operator: The next question is coming from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: Firstly, just wondering on Q1. I'm trying to think about the underlying earnings power of the company this year, given you have some temporary impact on EBITDA in the guidance. If you strip out the exceptional impact from the sale of CO2 credits, is the consensus for Q1 of around EUR 205 million a reasonable base level of earnings for this year's kind of run rate? Or is it fair to say it would likely be lower than that given that the Q4 was EUR 170 million and given that you've talked about not seeing too much seasonality in the business in the past? Philippe Kehren: Yes. Thank you, Tristan. Well, clearly, I mean, it's difficult to give any guidance, of course, for Q1. From a business perspective, I would say that we -- what we see in Q1 so far is very in line with what we observed in the second semester of last year. Q4 was softer, and that's known, right? We know that the end of the year is always softer in some of the businesses. We also had some accruals to take and so on. So Q4 was not representative, I think, of the business performance over the year. So that being said, what you can take into account is that we're -- we have a guidance of EUR 770 million -- between EUR 770 million and EUR 850 million. And that we suppose business-wise that there is no significant phasing over the year. Tristan Lamotte: Okay. Got it. And then secondly, sorry to come back on ETS, but I'm just wondering what the size of the risk is here in a kind of downside scenario. So I'm wondering in the absence of free allowances, is it fair to take your Scope 1 emissions, which I think were around about 6.8 million tonnes and multiply that out by the carbon price of EUR 70 to come to a theoretical cost that you would bear in the absence of free allowances? Just to understand the size of that risk without free allowances as it stands. Philippe Kehren: No, no. I mean, it's not at all this number. I mean, the number that you mentioned is the total emissions globally and a big part of those emissions are not part of ETS, right? You have emissions in the U.S., emissions in Brazil in a lot of areas. So it's not at all this number. And again, as we said, there is no scenario today, I think, where we would stop getting free allowances. I mean, there's no one in Europe today saying that we should stop giving free allowances. On the contrary, the momentum today and I'm much more positive today than I would have been probably a few months ago is to say we need to continue and even to protect even more the European industry because what will happen is that we will shut down our industry and we will import the carbon content from outside. So it wouldn't make any sense. Operator: The next question is coming from James Hooper from Bernstein. James Hooper: First question is around working capital. You did a great job on that in the fourth quarter. To what extent the -- can you just take us through how you managed to make such a big improvement? And then whether you'd expect -- how you'd expect to maintain working capital at that level? I mean, you mentioned in the SCF question that you're looking for working capital to be flat. And then the second question is about the footprint because obviously, you're working and you have yesterday's announcement. If we stay in the current macro picture, is there further restructuring to come here kind of after the plans that we've got in 2026? Is the footprint -- if you're starting Solvay again tomorrow, would the footprint look like it is? Philippe Kehren: I will let Alex answer the question on the working capital, but I will take the one on footprint. So first, I mean, there is no further announcement planned clearly for this year. We, of course, continuously optimize our industrial footprint. This is what we've done for 160-plus years. And we are operating on markets where all the players are doing that and are making sure that they always have on a given market, the best possible assets. So we will, of course, continue to do that, but we don't expect any big movement in terms of footprint. Now would we build the same footprint? Probably not. I mean, every year, we would build it in a different way, but we have, of course, a footprint that is good and that is sustainable and we're making sure that it's the best one in the long run as well. So no, that's why we have this very important discussion with the European Commission on the future of the ETS is to make sure that we have a footprint that will be able to operate in a fair competitive landscape, right? Alex, if you want to comment on the working capital? Alexandre Blum: Sure. So on working capital, as we said, it's the combination of an internal program and the demand trend, you may remember, end of Q4 last year, it was before the tariff, there was -- the demand was quite good until the end of the year while this year it was quite slow. We can see that in Solvay, but we could also see that in our customers and in our peers. So you have one driver which is different. But a large part of the improvement is a program we have on inventory, receivable, payable. As our products are quite bulky, it will be more on receivable and payable and we've looked at all the businesses, all the item and we've pushed it. What it means is that if you look our working capital on sales at the end of the year, we are in the 10-plus percent, which is among the best-in-class in the chemical space. It's possible to maintain this level with the current level of activity. If the activity picks up, we will have to -- it will be a good problem to have. We will have to rebuild a little bit of working capital just proportionally and maybe give a little bit more safety on different elements. But for the moment, as our guidance for 2026 assumes, it remains broadly flat. James Hooper: Can I ask a quick follow-up actually just on the market? Just China, have you seen any rationalization or any evidence of capacity changes or demand improvements there in Soda Ash? Philippe Kehren: Not yet. Not yet. We know this will happen, right? Because I don't see why in the long term, plants would run and burn cash every month. It doesn't make any sense. But at this point, we have not seen that happening yet. What we've seen linked to the [ MCL ] evolution, but on other -- in particular on other businesses is that China is now really looking very, very carefully at the new permits. So before getting a new permit for a new capacity, you need really to demonstrate that it makes sense and that it's not an overcapacity that we are going to generate. Alexandre Blum: Not specifically on Soda Ash. Philippe Kehren: Not specifically on Soda Ash, on other types of businesses. Operator: The next question is coming from Chetan Udeshi from JPMorgan. Chetan Udeshi: My first question is on rare earth. It seems things have gone quiet. Since some excitement at some point last year, nothing seems to have happened. Maybe it's a wrong impression, but I was just curious if you can update us on what's happening. Are you seeing more activity? Are you seeing more requests from European Union in terms of building the capacity because they have been talking about building the rare earths and other critical minerals value chain in Europe? And the second question was just around this EU ETS thing. Can you remind us how much of your allowances or how much of your emissions rather are covered by free allowances today in Europe? Is it 100% because you're clearly not producing at full run rate? Or in other words, how much are you buying from the market every year? What I'm trying to get to is if we have, let's say, 2% lower reduction of free allowances every year, is that meaningful for Solvay in terms of benefit? Or is that virtually no impact because you don't buy any of the free allowance -- sorry, any of the emissions from the market anyway? Philippe Kehren: Thank you, Chetan. So on rare earths -- well, Chetan, when things are quiet, it's not necessarily a bad news. So what I can say is that right now, we continue to have discussions with all the stakeholders, with the buyers because they are more and more interested, of course, to diversify their portfolio, their purchasing of those critical materials and also with the policymakers, both in Europe and in the U.S. And there are currently discussions on what would be the best mechanism in order to secure the volumes and the prices in the long term. And there are in particular discussions about floor prices, both in the U.S. and in Europe. So I hope things will move very, very quickly now. But I can tell you that it's a bit more silent, but it's quite active. On the ETS, no, we have a deficit very clearly. I mean, we are emitting more than the free allowances and that has been the case from the beginning from 2005 onwards. So what we do is we manage our emissions and we protect them with a portfolio of different instruments. So we have, of course, the level of production, which is a key parameter. We have our energy transition project road map. And so the more we secure and derisk those projects, the more clarity we have on our future emissions. We have the free allowances. We have some quotas that we have in inventory and that we purchased a long time ago. We started a long time ago. That's why the price today has nothing to do with the market price. We also have forward positions. So we have a portfolio of things. And we reassess this position continuously. And this is why sometimes we say we can sell some quotas that we have in inventory, or we can unwind some of our forward positions and so on and so forth. So we manage this very, very actively. So 2% is at the same time, not too much, but it is quite significant and it's an element that we take into account to make sure that we are covered. Now what is really important is what will -- what happens when we have disruptions. This is why the post-2030 discussions are important because we know exactly what will happen until 2030. The only uncertainty is, I would say, the level of production, our project in Dombasle, if it starts one or a few weeks later or a few weeks earlier, that can have a little bit of impact, okay? But everything is known until 2030. What is not known is what will happen afterwards. CBAM with or without free allowances, what will be the new benchmark. This is why the discussions with the EU policymakers is important. Operator: There are no more questions at this time. So I hand the conference back to Geoffroy for any closing remarks. Geoffroy d'Oultremont: Thank you, Gaia, and thank you, all, for your participation today. And if you have any further questions, please feel free to reach out to the Investor Relations team. We have a few events planned in March, roadshows and conferences. They are available on the financial calendar page on our website and we will publish our first quarter earnings on the 7th of May. Thank you very much. Philippe Kehren: Thank you. Operator: Thanks for participating to today's call. You may now disconnect.
Operator: Ladies and gentlemen, good morning, and welcome to the Octave Specialty Group Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Karen Beyer, Head of Investor Relations. Please go ahead. Karen Beyer: Thank you. Good morning, and welcome to Octave Specialty Group's Fourth Quarter 2025 Call to discuss financial results. Speaking today will be Claude LeBlanc, President and CEO; and David Trick, Chief Financial Officer. They will discuss the financial results of our business and the current market environment. After prepared remarks, we will take your questions. For those of you following along on the webcast, during the prepared remarks, we will be highlighting some slides from the investor presentation, which can be located on our website. On our call today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under forward-looking statements in our earnings press release and in our most recent 10-K filed with the SEC. We do not undertake any obligation to update forward-looking statements. Also in our prepared remarks and responses to questions, we may mention some non-GAAP financial measures. Reconciliation to those non-GAAP measures are included in our recent earnings press release, operating supplement and other materials available in the Investors section on our website, octavegroup.com. Now I'd like to turn the call over to Mr. Claude LeBlanc. Claude LeBlanc: Thank you, Karen, and good morning, everyone. As we close out 2025, the fourth quarter marks the first full period in which Octave Specialty Group operated as a stand-alone specialty insurance platform, a milestone that reflects the culmination of a multiyear strategic transformation. Our insurance distribution platform, inclusive of Octave Partners and Octave Ventures is well established and uniquely positioned in the specialty program sector with aligned underwriting capacity, a scalable data and technology infrastructure and a clear path for sustained organic growth and meaningful margin expansion. Our model has allowed us to attract and partner with top underwriting talent, distribution partners and leading capital and capacity providers. The culture we have built is one of entrepreneurship, collaboration, specialization and partnership, supported by a centralized and scalable operating model. As we move forward in 2026 and beyond, we are starting from a position of strength. Despite an increasingly challenging market in 2025, Octave was able to grow its insurance distribution business revenue by 65% over 2024, fueled by 14% organic growth. This number excludes 8 months of Octave Ventures, formerly known as Beat, and does not include our recent acquisition, ArmadaCare. David will walk through the detailed financial results for the fourth quarter shortly. As we look ahead, our well-diversified, high-growth and rapidly scaling platform is supported by strong tailwinds, including the following: one, embedded growth. 9 of our total 22 MGAs were launched in 2024 and 2025. With over 40% of our total MGA portfolio in early growth stages and some already delivering strong top line and early bottom line growth, we believe this stable of MGAs will represent a significant portion of our future organic growth and earnings as they continue to scale over the next 2 to 4 years. Looking at Octave Ventures on a stand-alone basis, we saw organic revenue growth of approximately 18% in 2024, increasing to approximately 47% in 2025. The Ventures incubator platform has a strong pipeline of future MGA opportunities it's evaluating with particular focus on the U.S. E&S and SME segments. Two, geographic and product diversification. Our MGAs are geographically spread with 9 of our total MGAs based in London and Bermuda with the remaining 13 in the United States. This provides us with a competitive advantage, supporting growth and managing through market cycles. Our Lloyd's market MGAs tend to move to profitability faster than U.S. MGAs and also move faster through pricing cycles, which creates more frequent opportunities to deploy capital opportunistically. Our U.S. market MGAs by contrast offer greater rate stability and more predictable underwriting conditions, which supports consistent margin management. Our MGA portfolio is also diversified by line of business with approximately 28% in specialty A&H and the remaining 72% in several specialty P&C lines, split 30% casualty and 42% non-cat-exposed property. Outside of A&H, we cover approximately 9 segments of the P&C market. We believe the diversity of our platform is one of our core strengths and differentiators. Three, aligned and curated third-party capacity. In 2025, we continue to expand our aligned capacity through our Lloyd's syndicates as well as our rapidly broadening curated capital and capacity partners, which together with Everspan stands at over $2 billion entering 2026. And lastly, our minority interest buy-in. For certain MGAs, Octave has the ability to acquire material portions of minority interest over a predetermined schedule, which allows us to systematically expand earnings attributable to our shareholders aligned with the ongoing performance of the MGAs. This also represents a built-in source of earnings growth, which when combined with other growth drivers will enable us to rapidly scale both top and bottom line growth in the near to medium term. In total, when considering Octave's embedded growth, diversified product and geographic mix, access to align capacity and contractual rights to buy in minority interest, we believe we are well positioned for strong growth for years to come. I will now turn to our ArmadaCare acquisition. The acquisition of ArmadaCare in the fourth quarter fits our goal of increasing shareholder value and mark a defining step in our transformation. ArmadaCare enhances our product diversification, deepens our position in the specialty A&H market, adds meaningful scale and generates recurring revenue streams with attractive EBITDA margins of over 40% that are less correlated to the general P&C commercial cycle. It is precisely the kind of complementary durable business we want in our portfolio as we enter a softening P&C market cycle. While our fourth quarter results reflect only a 2-month contribution, the integration of ArmadaCare has progressed ahead of schedule, and the platform's early performance is exceeding our expectations. With the addition of ArmadaCare, we are actively progressing revenue synergies across broader accident and health MGAs. We expect A&H to account for roughly 1/4 of our distribution business in 2026 across 3 platforms and 7 lines of business. I'm also pleased with our fourth quarter launch of 1889 Specialty, a management liability and professional lines MGA focused on the SME financial institutions market, led by Blair Bartlett and backed by A+ rated capacity. This launch reflects our continued ability to identify top talent within the specialty market who have track records of delivering strong underwriting results and Octave Ventures ability to stand up businesses quickly. Over the past several years, we have purposely constructed a specialty platform designed to deliver innovative, differentiated solutions to brokers, agents and carriers across multiple specialty verticals. As our platform has grown, so has our operational sophistication. We are executing a focused initiative to unify our operating infrastructure onto a single integrated data and technology architecture, one that will further enhance scalability, improve data analytics and risk selection and accelerate our operational velocity, driving scale and revenue growth. Central to this effort is the integration of AI-driven tools across our MGA platform. These tools are designed to improve risk selection, elevate pricing sophistication and drive meaningful operational efficiency gains, ultimately translating into expanded margins. This is not future state thinking. It is already underway, and I will discuss one specific example in a moment. Turning to Everspan. We were happy with the steps we took to reposition the book in 2024. And after some reserve strengthening in the first 9 months of the year, we produced a loss ratio, including the impact of sliding scale of 62.9% in the fourth quarter 2025. We now believe Everspan is positioned for reasonable and controlled growth in 2026. Everspan's focus remains on the casualty markets, where we are continuing to see more pricing discipline than in the property markets. As for our 2026 outlook, we expect our EBITDA profile to follow a natural maturation curve. As our MGA scale and season, we expect contribution margins to improve and operating leverage to emerge with increasing clarity beginning in 2026 and accelerated beyond. We are already seeing signs of this in the first quarter. And while not yet complete, early Q1 results across most of our businesses are very encouraging and supportive of our guidance, which I will cover shortly. One notable example is our exchange platform, which is on track for record results in our ESL business following a couple of years of challenging results. One catalyst for this performance is the official launch of Hammurabi, our proprietary AI platform built specifically around the medical stop-loss business. Hammurabi replaces traditional labor-intensive processes with near-instant risk prediction and pricing accuracy, enabling our underwriters to move faster, price more precisely and scale more efficiently than ever before. We believe Hammurabi is a genuine competitive differentiator that has the potential to expand to other business lines over time, and we are just beginning to unlock this potential. We are also actively utilizing and developing data and AI tools across our platform, which we believe will help us to rapidly scale and differentiate our business model into the future. I will now turn the call over to David to review our fourth quarter results. David? David Trick: Thank you, Claude, and good morning, everyone. For the fourth quarter of 2025, Octave reported a net loss to shareholders of $30 million or $0.84 per share compared to a net loss from continuing operations to shareholders of $22 million or $0.56 per share in the fourth quarter of 2024. The higher loss in the fourth quarter of 2025 was driven by costs associated with the ArmadaCare acquisition, exit from the financial guarantee business and associated expense reduction initiatives and an impairment of a legacy strategy minority investment. Significantly lower interest expense and to a lesser degree, the benefit of 2 months of ArmadaCare results helped to partially offset these transitional and transactional expenses. Adjusted EBITDA from continuing operations to stockholders, which excludes these transactional and transitional expenses, increased to $1.4 million compared to $0.5 million in the fourth quarter of 2024. Adjusted EBITDA improved as a result of growth in the Insurance Distribution segment and lower adjusted corporate expenses, partially offset by lower results at Everspan in connection with the strategic repositioning of that business. Everspan is now positioned for controlled and profitable growth into 2026. Despite some of the market dynamics that Claude mentioned, Octave's Insurance Distribution segment grew premium production 9%, commission revenue 13% and generated organic revenue growth of just over 8%. These results are a testament to the platform we continue to build and set a foundation for our 2026 expectations, which Claude will review momentarily. Total revenues were up 5% to just under $47 million in fourth quarter 2025 versus fourth quarter 2024 and were impacted by lower profit commissions and FX gains, which collectively declined by about $4 million. The reduction in profit commissions was not a result of any systemic shift, and we believe our underwriting results remain in line with expectations. The Insurance Distribution segment net loss to shareholders improved to $1.4 million in the quarter compared to a net loss of $6 million in the prior year quarter, benefiting mostly from a significant reduction in interest expense and growth in the business, including 2 months contribution from ArmadaCare. Adjusted EBITDA to shareholders grew to just over $7 million compared to just over $5 million in the fourth quarter of 2024, a 33% increase. During the fourth quarter, our investment in start-up MGAs created a drag on total adjusted EBITDA of just under $3 million or approximately $1.5 million to shareholders. This investment is about 3/4 of the impact of last year's fourth quarter. Notably, we had 6 entities that produced a negative EBITDA in the fourth quarter of 2025. All but 2 of these are anticipated to be breakeven or be profitable by the fourth quarter of 2026. This dynamic is characteristic of a component of our underlying growth engine and our ability to expand EBITDA margins over time. Insurance Distribution adjusted EBITDA margin in the fourth quarter of '25 was 15%, up from 12% last year at this time, trending favorably towards our longer-term goal of mid-20s plus margins. On an operating basis, that is before the impact of NCI, Insurance Distribution reported over $10 million of adjusted EBITDA at a 22.6% margin compared to just under $10 million and a 22.3% margin in the fourth quarter of 2024. As noted previously, our margins can be expected to flex a bit period-to-period depending on the relative performance of each MGA compared to our ownership level, but will converge over time with margins on an operating basis as we buy in certain NCI. Everspan's gross premium written and net premium written and earned in the quarter were $80 million, $23 million and $18 million, respectively. Gross premiums written were up 34%, while net premiums written were up from last year's negative $3 million and net earned premium was basically flat year-over-year. Production and total revenues were heavily influenced by the repositioning of our portfolio, which began in late 2024. We now believe Everspan is positioned for controlled and profitable growth. Our net loss and LAE ratio was 61.8% in the fourth quarter of '25, up from 51.9% in the fourth quarter of 2024. However, losses were meaningfully impacted by sliding scale commissions, which we have used as an effective tool to help moderate loss results. Including the impact of sliding scale commissions, our effective loss and LAE ratio was 62.9% in the fourth quarter of '25 compared to 66.8% in the fourth quarter of '24, a decrease of nearly 4 full percentage points. Moreover, our active programs as opposed to those in runoff, were operating a combined loss ratio in the low 60s as of year-end. At 99.4%, our combined ratio fell to below 100% for the first time this year, and our expectations are that this will remain the case in 2026. Our G&A ratio was 11.7% in the fourth quarter of '25, higher than we want. But as noted before, our expectations are that our G&A ratio will recede as we approach scale, which we generally consider at about $500 million of gross written premiums, which we believe can be achieved in 2028. For the fourth quarter of 2025, Everspan's pretax income was $1.3 million and adjusted EBITDA was $1.5 million, down from $2.6 million and $2.7 million, respectively, in the fourth quarter of 2024. The decline was mostly related to the $1.8 million reduction in revenue related to the factors I noted earlier as well as an increase in G&A. Corporate G&A expenses were $25 million in the quarter compared to $14.6 million in the fourth quarter of 2024. On an adjusted basis, G&A expenses were $7.5 million compared to $8.8 million in the fourth quarter of 2024. The difference between reported expenses and adjusted expenses in the current quarter was attributable to acquisition and integration costs of about $7.8 million, impairment of a legacy minority investment of $3.1 million and restructuring and expense reduction initiatives of $7.6 million. We previously outlined certain select corporate expense reduction initiatives. These select initiatives are estimated to generate approximately $17 million of reported expense savings compared to where we were presale of our legacy financial guarantee business and have over a $10 million impact on adjusted corporate EBITDA when fully complete. I will now turn the call back to Claude. Claude LeBlanc: Thank you, David. As we look ahead, I believe we are uniquely positioned to grow both revenue and EBITDA as our newest MGAs build momentum and scale, our more established MGAs expand product lines, we continue to grow our distribution channels and all of our platforms work together to deliver synergies. The sum of these parts is expected to deliver improving margins and increasing operating leverage in 2026 and beyond. With that in mind, we are providing guidance regarding our expectations for 2026. For our Insurance Distribution segment, we are expecting organic revenue growth of at least 20% and adjusted EBITDA of approximately $40 million for the full year 2026. For our Specialty Insurance segment, which includes Everspan, we expect gross written premiums of around $410 million and adjusted EBITDA of approximately $7.5 million for the full year 2026. Corporate adjusted expenses are expected to be below $30 million for the year. And on a consolidated basis, we expect to generate adjusted net income of around $0.50 per share for 2026. We are proud of what we have built and excited about the opportunities that lie ahead of us to deliver meaningful value to our shareholders. We look forward to providing you updates on our progress in the coming quarters. Operator, please open the call for questions. Operator: [Operator Instructions] The first question is from Mark Hughes from Truist Securities. Mark Hughes: Claude, how do you see the -- you talked about a strong pipeline of de novo start-ups. What are you seeing for 2026? Claude LeBlanc: Thanks, Mark. Yes, we're seeing a number of opportunities that are both in the Lloyd's market, but I'd say primarily in the U.S. market where we're focused principally for our growth initiatives. And we're currently looking to continue to diversify and broaden our writings in other lines and other areas, and we're seeing lots of opportunity for that and we still have a lot of white space. So I think we can certainly fit in a number of other businesses. But I would say that we're probably targeting a lesser number certainly than the last 2 years, maybe 2 or 3, just given the significant number that we were able to launch in '24 and '25 and really focusing on their growth over the next 2 to 3 years. But we're looking for, I'll say, 2 to 4 per year, I think, is what we indicated previously, and that's probably our continued cadence that we're targeting. Mark Hughes: Very good. David, how do we think about the cash flow in 2026? And I'm thinking one thing in particular, the buy-in of noncontrolling interest, but how do you see cash from operations? And then any outlays, again, like the noncontrolling kind of netting out through the course of the year? David Trick: Sure. So overall, cash flow is continuing to improve in terms of distributions, if you will, up to the holding company and at the operating level as well. Our expectations based on our current view is, and I think we gave a similar amount in last quarter is that NCI buy-in this year will be less than $50 million. And so funding for that will come from cash and our expectations at this point is some marginal additional borrowing as well. Mark Hughes: Appreciate that. And then maybe a couple of specific items, equity-based comp and net investment income, again, for 2026, any early thoughts? David Trick: Net investment income, I would say, be relatively flat to marginally higher in 2026 and equity comp will be relative to 2025 would be down a few million dollars from the prior year. Mark Hughes: Very good. And then when you think about the earnings throughout the year, kind of seasonally, the $0.50, I think you've talked about the profitability of the new de novo start-up should be improving, hit breakeven or better by the fourth quarter. But when you take into account seasonality, any rough guidance on how the quarterly earnings spread should look? David Trick: Yes. I mean while it's continuing to shift based on, as you know, some of the new MGAs that come into play, which we would expect to improve throughout the year for those start-ups that are currently losing money. And like I mentioned in my comments, most of which will be profitable by the end of the year. So that's a favorable dynamic through the course of the year in terms of weighting earnings towards the back end. But nonetheless, our A&H businesses, in particular, as well as a number of other businesses are very heavily weighted towards the first quarter. So overall, our seasonality continues as it has in the past, while it's mutating a little bit, continues to be heavily weighted towards the first quarter and the fourth quarter. And in particular, for example, some of our A&H businesses, including ArmadaCare, they're weighted about 60% of their earnings and EBITDA is weighted towards the first quarter. So overall, we continue with our seasonality profile that's both first quarter and fourth quarter, but certainly starting to moderate modestly as the new businesses start to reach breakeven and move towards profitability. Mark Hughes: Then maybe one final question. How do you see the pricing environment in the kind of 3 main buckets: the accident and health, the casualty and non-cat property? Claude LeBlanc: Yes. So on the non-cat property side, I think fairly consistent with some of the market commentary. I think we're seeing probably 5% to 10% rate reductions on some of the programs. Others have been more stable in non-cat property. On the casualty side, we've seen some rate increases and some programs that have been more on the stable side. So really a blend, but the more challenging areas, certainly the excess casualty lines that really have seen double-digit rate increases. And as far as A&H goes, very strong organic growth. And I'd say that's probably on average when we look at the balance of our portfolio, probably double-digit organic growth in our 3 businesses. Mark Hughes: And is that double-digit pricing for... Claude LeBlanc: It's a combination. The pricing is probably close to double digit, a little higher, 10% to 12%. And the volume is -- revenue growth is also very significant because of new products and just other growth initiatives that are being put in place. Operator: This concludes the question-and-answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to The Home Depot Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabel Janci. Please go ahead. Isabel Janci: Thank you, Christine, and good morning, everyone. Welcome to Home Depot's Fourth Quarter and Fiscal Year 2025 Earnings Call. Joining us on our call today are Ted Decker, Chair, President and CEO; Ann-Marie Campbell, Senior Executive Vice President; Bill Bastek, Executive Vice President of Merchandising; and Richard McPhail, Executive Vice President and Chief Financial Officer. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors. [Operator Instructions] If we are unable to get to your question during the call, please call our Investor Relations department at (770) 384-2387. Before I turn the call over to Ted, let me remind you that today's press release and the presentations made by our executives include forward-looking statements under the federal securities laws, including as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the release in our most recent annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures, including, but not limited to, adjusted operating margin, adjusted diluted earnings per share and return on invested capital. For a reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website. Now let me turn the call over to Ted. Edward Decker: Thank you, Isabel, and good morning, everyone. Sales for fiscal 2025 were $164.7 billion, an increase of 3.2% from the same period last year. Comp sales increased 0.3% from the same period last year and comps in the U.S. increased 0.5%. Adjusted diluted earnings per share were $14.69 compared to $15.24 in the prior period. In the fourth quarter, comp sales increased 0.4% from last year and comp sales in the U.S. were up 0.3%. Adjusted diluted earnings per share were $2.72 compared to $3.13 in the prior year. In the quarter, our regional performance varied with our Northern and Western division posting positive comps. In local currency, Mexico reported positive comps and Canada reported negative comps. Our fourth quarter results were largely in line with our expectations, reflecting the lack of storm activity in the third quarter and ongoing consumer uncertainty and pressure on housing. Additionally, storm activity in January provided a sales benefit in the quarter. Adjusting for storms, underlying demand was relatively stable throughout the year. As you'll hear from Billy, we are growing market share by delivering the best value proposition in home improvement. As we shared with you at our Investor and Analyst Conference in December, we are uniquely positioned to grow share of wallet with all our customers. We are investing across the business to drive our core and culture, deliver a frictionless interconnected experience and win the Pro. As Ann will detail, our teams did an incredible job staying engaged, focusing on the customer and elevating the customer experience. In fact, our customers are telling us that our associates continue to deliver exceptional service. In addition, our merchants continue to offer tremendous value as evidenced by record-setting events in the quarter. We're also encouraged by the traction we see with the Pro. Pros who are utilizing our Pro ecosystem of capabilities are spending more with us, and we remain focused on enhancing our capabilities from sales support to project management to delivery, all to better support Pros throughout the life of their projects. This year, SRS grew organic sales by a low single-digit percentage and expanded market share despite pressured industry demand and lack of storms in the back half of the year. This is a testament to their strong value proposition, customer relationships and consistent execution. In addition to the GMS acquisition, they completed several tuck-in acquisitions and opened a number of greenfield locations across their verticals. Going forward, we will continue to support SRS' momentum, and we expect their organic sales to grow mid-single digits in fiscal 2026. Looking ahead to fiscal 2026, we expect total sales growth of approximately 2.5% to 4.5%, comparable sales growth of approximately flat to 2% and adjusted diluted earnings per share to grow approximately flat to 4%. We remain focused on delivering the best customer experience and value proposition in home improvement. We have a clear growth strategy, and we're investing in our stores, in our interconnected shopping experience and in the Pro to grow share in any market environment. I want to close by thanking our associates for their hard work and dedication to serving our customers in a dynamic year. With that, let me turn the call over to Ann. Ann-Marie Campbell: Thanks, Ted, and good morning, everyone. First, I want to thank our associates who did a great job serving our customers during the recent Winter Storm Fern that impacted many of our communities we serve, particularly in our Northern and Southern divisions. Our priority in situations like these is always the safety of our associates and customers. We activated our emergency response protocols, we're working with our vendors and merchant teams to deliver essential products to the appropriate stores. This ensured we remained in stock and ready to serve our communities before, during and after the storm. As always, I'm extremely proud of how our team showed up for each other and our customers, and that commitment continues to be a defining part of who we are as a company. As you heard from us in December, we are focused on the core and culture of our company. Our associates are the key to delivering an exceptional customer experience. Their passion, knowledge and expertise are critical to solving customers' problems and fulfilling their dreams. Over the last year, we have talked about how we have enabled tools and processes for our associates to better serve our customers. These changes not only increase associate engagement, but also enhances store performance by driving higher sales, productivity and efficiency in our operations. We are also improving the customer experience by transitioning tasking to our MET. Our MET team's core competency is servicing our bays and executing merchandising changes in our stores. By transitioning tasking to them, our Orange Apron associates have more time to engage with customers and drive sales. And while this transition is not complete, in our pilot stores, we have already seen a meaningful increase in labor productivity. Over the years, our business has evolved to meet the needs of our interconnected and Pro customers. As you know, over 50% of our online orders are fulfilled through our stores. Ensuring that our orders are picked, staged and delivered in a reliable and repeatable fashion is critical to providing a frictionless customer experience regardless of the type of fulfillment, whether picked up in store or delivered the same day to a home or job site. As a result, we have realigned certain positions in our stores to better drive the outcomes we desire. We now have an operations experience manager who is responsible for managing customer service more broadly, including driving uniform operational processes to enhance the interconnected and fulfillment experiences. And for Pros, our dedicated unified Pro team, including a Pro customer experience manager continues to elevate the Pro experience in our stores by assisting Pros and serving as a main point of contact, ensuring a superior and cohesive shopping and fulfillment experience for our customers inside and outside of our stores. As a result, we've seen increased engagement, higher Pro sales and continued growth in our Pro Xtra loyalty program. We're excited about all of the progress we have made in our stores this year. Our efforts are paying off. This year, our customer satisfaction score increased every quarter, and our tenure with hourly associates is the highest it's been since 2017. Our associates continue to go above and beyond to serve our customers despite a challenging environment, and I'd like to close by thanking them for all that they do. We are relentlessly focused on delivering the best customer experience in home improvement, and we know that our efforts are positioning us well to grow share in the market. With that, let me turn the call over to Billy. William Bastek: Thank you, Ann, and good morning, everyone. I want to start by also thanking all of our associates, supplier and supply chain partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, our performance during the fourth quarter was largely in line with expectations with underlying demand in the quarter similar to what we've seen throughout the year. Turning to our merchandising department comp performance for the fourth quarter. Eight of our 16 merchandising departments posted positive comps, including power, electrical, storage, indoor garden, hardware, plumbing, bath and kitchen. During the fourth quarter, our comp average ticket increased 2.4% and comp transactions decreased 1.6%. The growth in comp average ticket primarily reflects some price increases, a greater mix of higher ticket items and customers continuing to trade up for new and innovative products. Big ticket comp transactions or those over $1,000 were positive 1.3% compared to the fourth quarter of last year. We were pleased with the performance we saw in categories such as power, plumbing and electrical. However, larger discretionary projects remain under pressure. During the fourth quarter, Pro posted positive comps and outperformed DIY. We saw strength across Pro-heavy categories like gypsum, wire, concrete and plumbing. In DIY, we saw strength across our Gift Center events, hand tools, storage, portable power and hardscapes. Turning to total company online comp sales. Sales leveraging our digital platforms increased approximately 11% compared to the fourth quarter of last year. We're excited about the continued success we are seeing across our interconnected platforms. This quarter, we continued to enhance delivery reliability and communication with the rollout of real-time delivery tracking for big and bulky deliveries across all categories. This enhancement gives our customers greater visibility and certainty on the timing of their delivery. We know that as we remove friction from the experience, we see incremental customer engagement, leading to greater sales across all points of interaction. During the fourth quarter, we hosted our appliance, Gift Center and Black Friday events. We saw strong engagement across all of these events with our Gift Center and Black Friday events posting record sales years. We are looking forward to the year ahead, particularly with the spring selling season right around the corner, and we have a great lineup of innovative products that provide our customers with tremendous value from outdoor living products, including patio and grills to our lineup of outdoor power equipment, whether it's our RYOBI 40-volt lawn mower with a brushless motor and lithium-ion batteries, which deliver more power and longer run times or our Milwaukee 18-volt string trimmer kit designed to meet the needs of the landscape professional. And our spring Gift Center event continues to lean into cordless technology with a wide assortment of products from RYOBI, Milwaukee, Makita and DEWALT, many of which are exclusive to The Home Depot in the big box retail channel. We're also excited about our live goods program. Every year, our merchants partner with our national and regional growers to provide our customers with new and improved varieties to enhance the overall garden experience. Investing in our relationships with our growers allows us to continue to drive innovation and value to meet the needs of our customers and improves their shopping experience while building loyalty to The Home Depot. We remain focused on delivering the best brands, assortments and value to our customers. With that, I'd like to turn the call over to Richard. Richard McPhail: Thank you, Billy, and good morning, everyone. Before I comment on our results, I would like to remind everyone that fiscal 2025 consisted of 52 weeks, while fiscal 2024 consisted of 53 weeks. The extra week added approximately $2.5 billion in sales to the fourth quarter of fiscal 2024. When we report our comparable sales or comps, we report them on a 52-week to 52-week basis by comparing weeks 1 through 52 of fiscal 2025 with weeks 2 through 53 of fiscal 2024. In the fourth quarter of 2025, total sales were $38.2 billion, a decrease of $1.5 billion or approximately 3.8% from last year. During the fourth quarter, our total company comps were positive 0.4% with comps of negative 0.2% in November, positive 0.1% in December and positive 1.3% in January. Comps in the U.S. were positive 0.3% for the quarter, with comps of negative 0.3% in November, negative 0.2% in December and positive 1.4% in January. For the year, our sales totaled $164.7 billion, an increase of $5.2 billion or 3.2% versus fiscal 2024. For the year, total company comp sales increased 0.3% and U.S. comp sales increased 0.5%. In the fourth quarter, our gross margin was approximately 32.6%, a decrease of approximately 20 basis points from the fourth quarter last year primarily reflecting a change in mix as a result of the GMS acquisition, which was in line with our expectations. For the year, our gross margin was approximately 33.3%, a decrease of 10 basis points from last year, which was in line with our expectations. During the fourth quarter, operating expense as a percent of sales increased approximately 105 basis points to 22.6% compared to the fourth quarter of 2024. Our operating expense performance reflects natural deleverage from top line results as well as lapping the 53rd week. For the year, operating expenses were approximately 20.6% of sales, representing an increase of approximately 70 basis points from fiscal 2024. Our operating margin for the fourth quarter was 10.1% compared to 11.3% in the fourth quarter of 2024. Excluding intangible asset amortization in the quarter, our adjusted operating margin for the fourth quarter was 10.5% compared to 11.7% in the fourth quarter of 2024. Our operating margin for the year was 12.7% compared to 13.5% in 2024. Excluding intangible asset amortization, our adjusted operating margin for the year was 13.1% compared to 13.8% in 2024. Interest and other expense for the fourth quarter decreased by $57 million to $551 million. In the fourth quarter, our effective tax rate was 22% and for the year was 23.9%. Our diluted earnings per share for the fourth quarter were $2.58, a decrease of 14.6% compared to the fourth quarter of 2024. Diluted earnings per share for fiscal 2025 were $14.23, a decrease of 4.6% compared to fiscal 2024. Excluding intangible asset amortization, our adjusted diluted earnings per share for the fourth quarter were $2.72, a decrease of 13.1% compared to the fourth quarter of 2024. Adjusted diluted earnings per share for fiscal 2025 were $14.69, a decrease of 3.6% compared to fiscal 2024. Recall that fiscal 2024 included a 53rd week, which added approximately $0.30 to diluted earnings per share and adjusted diluted earnings per share for the fourth quarter and the year. During the year, we opened 12 new stores, bringing our store count to 2,359 at the end of fiscal 2025. At the end of the quarter, merchandise inventories were $25.8 billion, up approximately $2.4 billion versus last year, reflecting higher inventory costs and the acquisition of GMS. Inventory turns were 4.4x, down from 4.7x last year. Turning to capital allocation. During the fourth quarter, we invested approximately $1.1 billion back into our business in the form of capital expenditures. This brings total capital expenditures for fiscal 2025 to approximately $3.7 billion. And during the year, we paid approximately $9.2 billion in dividends to our shareholders. Today, we announced our Board of Directors increased our quarterly dividend by 1.3% to $2.33 per share, which equates to an annual dividend of $9.32 per share. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was approximately 25.7%, down from 31.3% in the fourth quarter of fiscal 2024. Now I will comment on our outlook for 2026. As we shared at our Investor and Analyst Conference in December, there are a number of dynamics we are observing that are pressuring housing and home improvement demand. The current mortgage rate environment and significant increase in home prices since 2019 have impacted housing affordability. Housing turnover has remained at historical lows since 2023, which has significantly reduced demand for projects and other purchases associated with buying and selling a home. Our customers also tell us they have concerns over general economic uncertainty, including inflation, growing job concerns and higher financing costs. As we look ahead to fiscal 2026, we anticipate these pressures will persist as we have not yet seen a catalyst for an inflection in housing activity. As a result, we affirm the preliminary fiscal 2026 guidance we provided at our investor conference. We expect to continue to grow our market share and for our comp sales to range between flat to 2% growth with total sales growth of between approximately 2.5% and 4.5%, reflecting the contribution of the GMS acquisition, new stores, branches and tuck-in acquisitions. For the year, we expect SRS to deliver mid-single-digit percent organic sales growth. We plan to open approximately 15 new stores and 40 to 50 new SRS locations. Our gross margin is expected to be approximately 33.1%. Further, we expect operating margin of approximately 12.4% to 12.6% and adjusted operating margin of approximately 12.8% to 13%. Our effective tax rate is targeted at approximately 24.3%. We expect net interest expense of approximately $2.3 billion. We expect our diluted earnings per share and adjusted diluted earnings per share to both increase approximately flat to 4% compared to fiscal 2025. We plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2026. We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience in home improvement. Thank you for your participation in today's call. And Christine, we are now ready for questions. Operator: [Operator Instructions] Our first question comes from the line of Steven Forbes with Guggenheim. Steven Forbes: Ted, I was down at IBS and I was talking to Chip down there about some of the digital planning tools and some of the initiatives you guys have to improve delivery. So I don't know if maybe you could just explore the topics on some of the initiatives you're trying to lean into here, digital planning tools being one of them. You mentioned product management. But what are some of the bigger initiatives that you guys are leaning into in 2026 to improve the overall value proposition for your Pro? Edward Decker: Sure. And Mike is here, and he can go into some more detail, but we know we talked about the capabilities we need to deliver for the Pro experience. We continue to mature our sales force, order management, as you say, our trade credit platform, delivery has gotten better and better. We've been looking for 2 Sigma on time and complete for our delivery to our Pros, and we achieved that this past year. And also now with the advent of AI tools, we're introducing a number of project management and list builders for our Pros, including things like an AI takeoff scheme, letting Pros build projects, just typing in the type of project they're working on in a pre-populated list of the project in the app for the Pros, so they don't have to go through and put the hundreds of items that pre-populates and then they can edit that list, they can save that, repeat it for future jobs. So there's a tremendous set of activities. Michael Rowe: Yes. I mean you captured a lot of it, Ted. Hence, the performance that we had in the fourth quarter, pleased overall with the investment in the capabilities, both when it comes to in-store investments as well as outside sales. We've improved in-store tools and processes that drive greater engagement with our Pros that have resulted in higher sales there, record levels of delivery reliability from our order management investments, and we're continuing to take that to another level with job site preferences that we're including in our order management tools as well as business hours of our customers. We've taken customer communications to a whole new level. We used to only be able to communicate to one person on the job. Now we can communicate to many, including the owner and those that are kind of on the job site when it comes to those deliveries. As Ted spoke to, our online B2B sales outpaced our overall online sales growth driven by the features that we've added, such as the projects tool where we're seeing tens of thousands of projects each week being started, and those result in higher conversion and greater engagement around transactions for complex sales. And we saw continued growth in our trade credit efforts, along with strong early days from our AI blueprint takeoffs. So with all of that in mind, just pleased with the continued momentum in Pro. Steven Forbes: I appreciate the color there. And maybe just a quick follow-up... Edward Decker: Jordan and Michael, you can hit the handheld delivery. Michael Rowe: Yes. One of the other capabilities that we've recently rolled out that allows our drivers to stay connected with our customers' needs is our delivery handheld device. This is a tool that we use to track the status of all of our deliveries and the progress that we're making as well as all of the other request that we get from our customers to make sure that we're fulfilling the exact needs of the service that they require on their particular job sites. Jordan Broggi: Yes. And then -- this is Jordan. As we said in our prepared remarks as well, as Billy called out, that also enables our live tracking on big and bulky, which customers have come to expect on small items, but to be able to track live of bulky delivery, whether that's a flatbed rolling down with lumber to a job site or an appliance showing up at the home, that's been a really big win for our customers, and they are loving that feature that we've rolled out, which was enabled by our new handheld. Steven Forbes: Appreciate all that. And just a quick follow-up, maybe for Richard. If you could maybe set the base for SRS sales in 2025 and then comment on how GMS performed in the fourth quarter relative to that $1.1 billion framework or guidance framework that you had? Richard McPhail: Sure. So look, we were really pleased, continue to be really pleased with SRS' performance. I think it's important to provide some context. So SRS was down low single-digit comps year-over-year for the fourth quarter. But if you look at the industry, in the fourth quarter, according to ARMA data, total industry shipments of shingle squares were down 28% year-over-year. That's the lowest industry volume since 2019. And so that fourth quarter literally pulled the whole year of 2025 shipments down to the lowest annual volume since 2019. So it was a remarkably bad quarter for the roofing industry. With that, SRS performed exceptionally and by all external measures, took share in the quarter. And with respect to GMS, we've owned them for 5 months of the year, and we're pleased with their performance. And very happy to welcome them to The Home Depot family. And I'll turn to Mike in a second just to talk about the power of SRS and GMS with Home Depot. But let's talk about SRS a bit more. So look, that lack of demand in the market did put significant pressure on the pricing environment for SRS in the fourth quarter. We expected that when we reset our guidance at the end of Q3, we knew that given the absence of storms in Q3, the industry was likely to see pricing performance. So they did invest in price to maintain share gains that will bleed over into our margin expectations for the first quarter. But as Ted said, we anticipate and expect them to grow organic sales mid-single digit for 2026 and are really excited about what we're seeing. And Steve, you'd mentioned the IBS, hopefully, that came to life. The ties between SRS and GMS and Home Depot. Mike, maybe you can just talk a little bit about how we're working together. Michael Rowe: Yes. I mean that's the opportunity for us to focus further on revenue synergies. We've had a number of examples where we've approached our customers in a combined fashion, but also a number of customers, frankly, asking for that from us. One particular example at the moment amongst many is the ability to turn a multifamily construction and property management company from a significant customer of one of our companies to be that way for all of Home Depot, HD Supply, SRS and GMS. And this, as our national account structure continues to grow take an opportunity to support our customers better. Beyond that, we're pleased also with what we're seeing in some pilot markets with Home Depot and SRS with our Pro Referral project on roofing leads. We've also done the mapping of our common customers for HD reps to be able to contact HD Supply reps to be able to contact SRS or GMS sales rep to have that common approach. So very much focused on driving these revenue synergies. Operator: Our next question comes from the line of Zach Fadem with Wells Fargo. Zachary Fadem: So as you look back through 2025, could you talk about the performance of markets like Florida and Texas that saw a more challenging housing turnover and home price appreciation environment compared to those markets with perhaps a more favorable or normalized outlook for turnover, and whether you saw any change or bifurcation between these two types of markets through the year into early '26? Edward Decker: Sure, Zach. I would say that first and perhaps most important throughout the year, we don't have perfect adjustments for storms and the like. But as best as we can adjust, our comp performance was relatively stable across the 4 quarters of the year, and something under 1% consistent underlying demand comp across the country. Now obviously, the geographies that we're lapping, the significant storms from last year and didn't have any storm activity. It was quite remarkable that 2025, really from hail to wind to hurricane, there were literally no storm activity in 2025. So those are the most pronounced geographies where you have tough comp compares of '25 over '24. We're also seeing geographies where you are starting to see some housing price declines and you're seeing some markets with lower turnover rates than others. And as we've always said, if you look over time, the highest correlation to home improvement activity is probably home prices and secondly, turnover. I think because we're sort of bouncing -- hopefully, we're bouncing along the bottom of turnover, and we're not seeing meaningful price declines. We haven't seen a lot of difference in regional geographical performance just based on price alone. We have some markets that you'd look at and say, yes, price is still going up. Sales are a little stronger. We look at other markets that price is more challenged and you can see a weaker comp. But then we have things in between. We have markets where prices are adjusting down but actually had quite strong comps. So we always talked about prices being certainly very important, but a lag, and I think the price declines that have happened are still within that window that we're not seeing statistical relevance. And on turnover, while there are some markets that have weaker turnover, we're at, what, 30-, 40-year lows across the country. So again, with everyone sort of bouncing along decade lows, we're not seeing a big differential. Zachary Fadem: Got it. And then thinking through some of the moving pieces for '26, I'm looking out the window, and I'm seeing 2 feet of snow on the ground from last night. We've got larger tax refunds coming, perhaps also a more manageable tariff environment. Could you talk through these dynamics, particularly as you think through first half versus second half within your flat to 2% comp outlook? Edward Decker: Sure. I'll do a higher level, and then Billy can talk a little more specifically about tariffs. I mean, we very purposely obviously have a range, and we maintain that range from December of flat to 2%. We think the overall market is likely down 1% to up 1%. So in each instance, we believe within our range that we would be outperforming the market. The things that could point to a little stronger market performance would be improved affordability, and that would be -- we have incomes rising. We have some nice improvement in mortgage rates. I think this morning, we came just under 6% on the 30-year. And in the longer -- medium, longer term, modest price adjustments after the 50% increase from the end of 2019 would be helpful from an affordability perspective. Tax stimulus, you mentioned, we're actually not counting on a lot of support from tax stimulus. We've seen very large ranges of what will show up in household pocket books. And we've seen as low as $70 billion and as high as $200 billion in terms of refunds and adjusted rates for 2026. If you take the midpoint of that, $135-odd billion, and you look at our share, Home Depot's share of PCE, which is about 60 basis points, you would get at the midpoint, maybe 0.5 point of comp support at that high level analysis of tax relief. But we're hearing that it's just as likely that, that's either going to be used for debt paydown for lower income deciles or saved by higher income deciles. So we're not planning on a lot. We're thrilled to get some tax stimulus benefit, but we're not planning on a lot of it. And then tariffs, I mean, this news is breaking by the moment. And Billy, why don't -- you and your team have been at it for almost a year now. William Bastek: Yes, Zach, thanks for the question. I just -- from a high level, just a reminder, we've talked about this in the past. But it's important to remember that more than 50% of our projects are sourced domestically and haven't been subject to tariffs. Obviously, the announcement on Friday and then the administration over the weekend, we're still analyzing the impacts of those decisions. I can tell you that we're going to continue to be the customers' advocate for value. I can't say enough about how pleased I am with the merchants, our finance teams, our supply chain and logistics folks are sourcing offices all over the world, have done an incredible job and spent the better part of almost a year now working through that. And just to give you some context, we're mostly done with tariff-related pricing actions as it relates to the impacts back to April. And to give some, again, context around that. If you think about -- our exposure was kind of mid-single digits. And then if you think of like SKU price, that's right about 3% just in terms of the impact. So we feel great about our position. Our teams, along with our merchants, our suppliers have done an incredible job continuing to advocate on low prices and being the customers' advocate there. So we look forward to spring, as I mentioned in my prepared remarks. And as I said, we're mostly done with the related pricing actions around what we've seen so far. Edward Decker: And Zach, what may drive us to the lower end of the range would be if the market is not performing as well. And the #1 driver of that would be continued consumer uncertainty. That's still the #1 reason. Our people are telling us, our customers are telling us that they're not investing certainly in large projects. And that has everything to do with consumer confidence and sentiment, jobs picture, overall price levels and affordability in the economy. Home prices, if we do start to see some wider spread home price decrease that may have a negative psychological impact, turnover stays low and that there's a little more price elasticity. As Billy said, while we have a modest year-over-year price outlook for the year, we could see higher responses of elasticity. So that could be on the macro why we would have a more challenged year as an industry. And then we have a little unique profile of the year by quarter going into '26, which Richard will take us through. Richard McPhail: Sure. Yes. So you mentioned the shape of the year, and we thought that it would be helpful to give a little more color than typical on the shape of the year. First, we expect our comps in the second half to be slightly higher than our comps in the first half. This is a reflection of compares to 2025 storm activity and the absence thereof. That is, in essence, what is shaping our comp expectation for the year. Second, we expect gross margin to be down by about 24 basis points year-over-year, reflecting the annualization of GMS. So recall that the pro forma impact of GMS to gross margin is about 40 basis points per year. And so that 24 basis points reflects about 7 non-comp months of ownership. This annualization means that we expect our first half gross margin to be down about 50 basis points versus last year, and our second half gross margin to be right around flat to last year. And so you're going to see the largest year-over-year impact to gross margin in the first quarter, and then that will gradually improve through the year. In addition, due to the timing of expense comparisons versus last year. And this is also driven by the addition of the GMS expense base compared to the first half of last year. So the addition of that expense base along with some other timing means that we expect operating expense as a percentage of sales to be at their highest level of the year in Q1. So as a result of all this, our expectations are that our year-over-year EPS performance will be mid-single-digit percentage negative in Q1, improving through the year, and this is solely due to acquisition, annualization and a few timing comparisons. Operator: Our next question comes from the line of Michael Lasser with UBS. Michael Lasser: You mentioned that SRS was a little bit more aggressive on the pricing side in the fourth quarter in order to maintain market share, and you expect some of that to persist in the first quarter. So do you think that's going to linger beyond the first quarter? And are you seeing signals of that behavior happening in anywhere beyond just the roofing category such that it could lead to more volatility in The Home Depot's gross margin rate over time? Edward Decker: Thanks, Michael. I don't think it would lead to significantly more volatility over time. I think with the dramatic fall in roofing shipments in 2024, again, as Richard said, down 28%. SRS just took an opportunity, which we fully supported to take share. And remember, not having storms in the back half of '24, stronger impact in the back half of '25, but some of that will bleed into Q1 as well. So we're not expecting a robust building materials environment in Q1, and we're happy to make the investments and take share. Richard McPhail: And that's all embedded in our guidance for the year. Michael Lasser: Okay. If you had perfect insight that housing turnover was going to remain muted through 2027, would that change any of your capital allocation priorities, especially now that The Home Depot has made a lot of foundational investments, both organically as well as through acquisitions. How are you going to approach balancing returning capital to shareholders with continuing to build out the capabilities that are necessary to capitalize on the Pro ecosystem that you've built? Edward Decker: Well, Michael, if turnover in starts and all housing activity is more or less flat through '26, then we'll have the absence of further declines. And in '25, as the market continued to drop off, we took share and we'd look to take share in '26 as well. At this point in the level of potential downs, we said minus 1, potentially to plus 1, that would not be a significant enough drop in the overall macro of our space to come off our investment profile. We're extremely happy with the strategy that we laid out in December that we are focused on our core and our culture, and we continue to invest in our stores, in the maintenance of the stores and in the shopping environment and also building new stores. Interconnected penetration continues to grow, delivery continues to grow. So we never come off all the investments we're making and the strong results on our interconnected portfolio. And Pros represents in any market environment, still that $200 billion of white space for us, that is the share we're capturing, and we would continue to invest in that to take share. Richard McPhail: And again, from a capital allocation perspective, our principles haven't changed. As Ted said, we reinvest in the business first. And look, we have a high bar for what we are willing to invest in. Every project has to provide an exceptional return on investment, and we feel like that is our profile. And after that, we return our capital to shareholders in the form of dividends. And once we return to an excess cash position, which we anticipate will be sometime in the first half of 2027, we would expect to return to share repurchases. Operator: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: I want to follow up on consumer health. Can you talk about if the consumer is behaving a little more value conscious? And then there's always this higher spending you're going to get from a turning home versus a non-turning home. Is there anything that you're seeing in that multiplier that's changing? Is the consumer not spending as much when they are turning a home over? William Bastek: Simeon, it's Billy. Thanks for the question. I'll take the first part just around what we're seeing from a customer standpoint. We haven't seen -- it's really been balanced throughout the entire year. Obviously, you have different points in time. I mentioned the record sales we had in our Black Friday events, in our Gift Center, so great interaction across our entire interconnected experience. We haven't seen a lot of trade down, but we've seen some, as we've talked about, countertops and things of those nature. We saw a little bit in our appliance business as well but haven't seen that more broadly, but just very consistent across every single quarter. Outside of the dynamics we've talked about, whether those are storms or other things, we continue to see strong customer engagement, don't really see a decline or trade down, if you will, from what customers are engaging in. And as I mentioned, we had a record Q4 across our events. So where we've continued to create great value for customers, we're seeing just great interaction across the board. Edward Decker: Yes. I think, Simeon, a dynamic we're seeing in others in our space who have reported on the supplier side and have said some similar things that with turnover down and people still wanting to move, they're not spending as much in their home if they anticipate moving in the next year or 2. So there's maybe a bit more repair than replace. And you've heard us talk before about the cumulative underspend in home improvement, which we use some third-party consulting folks who put that at $22 billion today that people have underspent in the aging home. So turnover obviously helps people fix things up before they sell, and the new owner modifies the house to how they want it, but it also has an impact to the people who think they're going to move and just waiting in more of a repair than a replacement cycle. I don't necessarily think that's going to get any worse, but we're certainly bouncing along with what we hope would be a bottom in things like turnover. Simeon Gutman: Okay. And just a follow-up to the earlier question on the Pro, when you bought SRS, we talked a lot about order management and trade credit as capabilities that needed to be implemented for The Home Depot. It sounds like the rollout of that is done, or is '26 continued rollout of those capabilities across the rest of the enterprise? It's not clear how much of that is in place versus how much of that needs to get done versus now you can execute and drive the business? Michael Rowe: Yes, it's Mike here. I mean I would say a good high percentage depending on the capability is done. On Pro trade credit, there's continued investments this year to bring it online, to bring it down to a store level throughout the year versus a bit more focused on our outside sales right now. So those capabilities will come out this year. On the pricing side, we are into a number of pilots right now that we're looking to expand later this year to bring it across the country. And from an order management standpoint, we're pleased with the improvements that we've seen in delivery, reliability year after year after year from John's team and beyond. But there are still opportunities for some order consolidation work to go on. And those will happen kind of throughout the year using our One Supply Chain system versus having to rely on our stores that we do in some cases when it comes to some of our non-stock deliveries out to our customers. And then further on the B2B side, the opportunity to invest there further in areas such as E-Procurement integration for spend management tools that a number of our customers use along with construction management software integration when it comes to job management software that customers use. So there is a continued healthy build-out in 2026 to be done, although a significant portion has been completed already. Edward Decker: But Simeon, on the vision of SRS and now GMS, ultimately cross-sell opportunity and further penetration with large remodelers and builders. We're super excited about that and starting to see some really nice wins in cross-selling, where either The Home Depot, the GMS or the SRS sales rep who have a line of business with a particular customer have done the introductions, and we're winning, frankly tens of thousands of incremental homes through a warm handoff with the other product categories that -- of the team that was introduced. And also on commercial roofing, SRS does some commercial roofing. So when you think of our stores and our warehouses and our larger suppliers and builders of those commercial properties are also happy to use SRS' commercial roofing capabilities. So the vision of being a point of contact for that Pro and cross-selling is really gaining momentum, which we're really, really happy about. Operator: Next question comes from the line of Steven Zaccone with Citi. Steven Zaccone: I wanted to follow up on the same-store sales outlook. First question just on how to think about ticket versus transactions within the outlook? Any cadence to be mindful of there? And then big ticket saw an inflection in '25. How do you see that performing in 2026? Just curious on the balance between replacement cycles and innovation versus large private project activity still being a drag. Richard McPhail: Great. So thank you for the question. As Billy said, for 2026, you're likely to see ticket reflect that 3 percentage point increase in retail as we end our -- or really are essentially done with our price actions. You'll see that on average through the year. It will be a little higher at the beginning of the year, a little lower at the end of the year than that 3%. And right now, our guidance assumes negative transactions offsetting that ticket. And Billy, maybe talk about big ticket. William Bastek: Yes. We were pleased with our big-ticket comp transactions, as I mentioned, transactions over $1,000, up 1.3% for the quarter, that's now multiple quarters where we've seen positive impact. The dynamic of that was a little bit different as Ted alluded to around kind of the maintenance and repair. So you think of plumbing and electrical and certainly our power business in the quarter, all drove significant gains as it relates to that performance. And that's a little bit of a change as we've seen in some of the areas around appliances where it's a little more duress related at this point in time. But a similar composition, as I mentioned for the last quarter, and we look to see a very similar performance in 2026. Steven Zaccone: Okay, great. Then the follow-up I had is just I'm also looking at 2 feet of snow out my window, as Zach mentioned. Should we expect any differences like first quarter comps versus second quarter? Just being mindful of the fact has snow caused any sort of disruption? And then also, where we've had this prolonged winter, can that sometimes lead to a later start to spring in certain markets? Edward Decker: All of the above, Steven. I would say, again, as Richard said, we're looking for back half comps to be stronger than the first half, and that's really more of a normalized -- we don't plan for storms, but in the normal case, there's storms in your base. The timing of spring, you're right, when you have a really rough winter in the north, you get a lot of landscape damage and roofing and gutters and all those things will be -- need to be repaired, and that will be helpful for Q1. But then if you, obviously, get a cold late spring, and then that pushes -- we've talked about the bathtub effect for years, and that pushes the core spring business into Q2 and don't have a crystal ball at this point on how spring is going to play out. But there will be -- there will definitely be some damage repair from all this ice and snow in the north. Operator: Our final question comes from the line of Zhihan Ma with Bernstein. Zhihan Ma: I'll ask my one and follow up in one go. So just one quick clarification on the big ticket side of things, can you talk about the big ticket discretionary projects? How sales trends are trending there? And are you seeing any improvement? And secondly, just quickly on inventory, up about 10% year-over-year. Can you talk about how much of that is driven by GMS versus the cost going up? Is there any underlying increase in the inventory buildup as well? Edward Decker: I'll take the big ticket question. That's really the telltale for us of when we think the demand profile is going to change for the upside. And we still have not seen that. That's -- you've heard us consistently now saying things are improving. Our comp clearly improved, a positive comp in 2025. But we have not seen the increase in big ticket. And that will be a telltale for a turn in the market. And then Richard, you can cover inventory. Richard McPhail: Sure. Inventory is more of a year-over-year dynamic rather than a sequential quarter dynamic. The increase in inventory year-over-year primarily reflects the addition of GMS' inventory onto our balance sheet. It also reflects higher cost of inventory, reflecting tariffs and then some year-over-year increase in inventory levels as we leaned into our accelerated delivery speed through the year. We think our in-stocks and our inventory position are in great shape, and we feel fantastic about how we're positioned for 2026. Operator: Ms. Janci, I'd like to turn the floor back over to you for closing comments. Isabel Janci: Thank you, Christine, and thank you, everybody, for joining us today. We look forward to speaking with you on our first quarter earnings call in May. Operator: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Mar Martinez: Hello. Good morning, and welcome, everyone, to this event where, as you can see from the agenda now on the screen, our CEO, Jose Bogas; and our CFO, Marco Palermo, will first comment on the results achieved in 2025, and then we will present the updated strategic plan for the next 3 years. After some closing remarks, we will open the Q&A session. Thank you. And now I would now -- sorry, like to turn to Mr. Bogas. Thank you. José Gálvez: Thank you, Mar. Good morning, and welcome to everybody, everyone. Let me start with the results achieved this year, which I'm sure speak for themselves. EBITDA reached EUR 5.8 billion, comfortably above the upper end of our guidance, while net ordinary income reached EUR 2.3 billion, exceeding target and representing an 18% increase year-on-year. Economic and financial performance was particularly strong underpinned by robust cash generation and disciplined execution. We remain fully engaged to our capital allocation strategy, successfully delivering on the main strategic priorities set last year as we will discuss later. This solid performance reflects our ability to deliver on our commitments and our continued focus on value creation for shareholders. Accordingly, we will propose a dividend of EUR 1.58 per share at the next Annual General Meeting, well above our target set and 20% higher year-on-year. On Slide #5, we would like to highlight the steady progress made in executing our capital allocation road map throughout 2025. Several transactions were successfully completed during the year, strengthening both our asset base and our commercial capabilities. In February 2025, we closed the acquisition of 600 megawatts of hydro assets, while in July, we completed the acquisition of the remaining stake in CETASA, fully consolidating its wind asset portfolio. Together with the entry of a partner into our solar asset portfolio, this transaction illustrates how we are reducing the risk profile of our generation asset. And finally, the alliance with MasOrange fully consolidated since February 9, 2026, enhanced our commercial offering through telecommunication solution, reinforcing our commercial strategy and strengthening customer loyalty. Slide #6 provides an overview of the progress made on capital allocation and the execution of our key industrial KPIs. Over the period, we invested EUR 3.2 billion, more than 50% above versus previous year's figure, 77% being allocated to grid and renewable assets. This strong effort led to an improvement in the interruption time index, while total losses remained broadly stable, largely impacted by non-manageable losses. In renewable, the integration of approximately 1.2 gigawatt of new capacity enabled us to reach 80% emission-free installed capacity. Finally, in the customer segment, we progressed on a strategic shift towards higher-value customers, reshaping our customer mix with a clear focus on long-term loyalty and value creation. This strong operating performance turns into outstanding value creation for our shareholders, and I am now on Slide #7. Nothing better illustrate the success of our long-term vision and the resilience of our business model and the consistent returns delivered to our shareholders. Over the 2014 to 2025 period, Endesa has clearly outperformed the main benchmark indexes, underscoring the strength and credibility of our value proposition. As mentioned earlier, we will propose a dividend of EUR 1.58 per share, excluding treasury stock outstanding as of 31st of December 2025, would imply a dividend yield of more than 5%. Finally, our EUR 2 billion share buyback program is currently around 30% executed as we remain fully committed to completing this within the planned time frame. In fact, a new tranche of EUR 0.5 billion has been approved and will be completed up to July 2026. And now I will hand over to Marco, who will go into the financial results in more detail. Marco Palermo: Thank you, Pepe, and good morning, everybody. This year's strong results were achieved in a market context characterized by demand growing for the second consecutive year, increasing 2.9% year-on-year and 2.0% on an adjusted basis. In Endesa distribution area, where adjusted demand is growing by 2.8%, consumption increased across all customer segments. This reflects not only Spain's economic recovery during the year, but also a rebound in industrial and services demand as part of a broader sector-wide increase in energy usage. This clearly marks a turning point in the trend. The sharp rise in connection requests seen in recent years is now starting to materialize, representing a unique opportunity to reindustrialize the economy and to electrify the demand. Turning now to the price scenario on Slide 10. Although the average pool price has remained broadly unchanged year-on-year, the intraday volatility has been extremely high, ranging from EUR 145 per megawatt hour in the mid-winter to 0 or even negative prices in spring, coinciding with the strong renewable resources and low demand. This level of volatility has become a structural feature of a system with very high renewable penetration. Spain continues to display some of the most competitive power prices in Europe. That said, it is important to note that the final energy prices were affected by post-blackout measures adopted by the TSO, which led to a significant increase in ancillary services costs. Let me now focus on the main drivers behind our financial performance. As mentioned earlier, EBITDA reached almost EUR 5.8 billion. I'm now on Slide 11, up 9% year-on-year. This strong performance was supported by, first, generation and supply EBITDA increased by 11%, driven by in conventional generation, a strong gas management margin, reflecting the positive impact of hedges executed in previous years, partially offset by lower opportunities on the short position. In renewables, EBITDA was slightly lower, reflecting lower volumes and prices, both in wind and solar, while the hydro margin increased driven by higher volumes and the shape effect. And supply delivered sound results across both businesses, gas and power, with power performing well despite higher ancillary services cost. Turning to Networks. EBITDA increased by EUR 0.1 billion primarily explained by previous year's resettlements. If we go to Page 12 now, all these dynamics are reflected in our integrated power and gas unitary margins. The free power margin stood at EUR 52 megawatt hour, representing a decrease of only 5% year-on-year despite the increase in ancillary services cost, which weighed on results. On the other hand, gas margin reached EUR 9 per megawatt hour, a strong improvement driven by the factors mentioned above. Moving now to Slide 13. Net ordinary income came in at EUR 2.3 billion, significantly above the upper end of the guidance, reflecting strong operational performance and improving the net ordinary income to EBITDA conversion ratio to 41%. D&A increased by 9%, mainly reflecting higher amortization linked to increased investment level. Financial results almost flat and the effective tax rate stood at around 23.5%, no longer affected by the temporary levy that impacted last year's results. Turning to the next slide, Page 14 now. We delivered strong cash generation with FFO reaching an outstanding EUR 4.1 billion and a cash conversion ratio of 70% FFO on EBITDA, already above the level targeted for 2027. On Slide 15 now, the sound cash flow generated by the operation more than covered total investments, including EUR 1 billion of inorganic investments. Over the period, net financial debt increased by EUR 0.8 billion, up to EUR 10.1 billion, reflecting dividend payments amounting to EUR 1.5 billion as well as the execution of the share buyback program that resulted in a cash outflow of around EUR 500 million. Gross financial debt remained almost flat with the average cost declining to 3.3%. And with this, I will now hand over to Pepe to present the strategic plan for the next 3 years. José Gálvez: Okay. Thank you, Marco. As we move from the review of our full year results to the outlook for the coming years, it is important to start by looking at the broader energy market context in which our strategic plan 2026 to 2028 will unfold. Spain still demonstrate a very high dependence on oil and gas, and this will not decline unless we accelerate the electrification of final demand. Electrification is not only essential to cut emission and reduce energy dependence, but also a key opportunity to reindustrialize the country, thanks to competitive renewable resources. In the medium term, electricity demand grows towards level close to the PNIEC for conventional uses, but renewable hydrogen demand is significantly delayed due to the systematic halt of projects. As a result, energy dependence will remain around 60% in 2030 and electrification near 31%, both below target. Demand growth by 2030 is driven by GDP-linked inertia, the electrification of industry, transport and buildings, although compensated by efficiency gains. Data centers will represent less than 5% of total demand. In the longer term, in order to meet the European Union's 2040 goals, conventional demand should grow by around 3% per year driving electrification to almost 50%. On top of that, hydrogen would add 120 terawatt hour of new demand. The development of this promising scenario necessarily requires significant investment in new infrastructure. The streamlining of project approval processes and above all, a stable regulatory and attractive framework. As shown on Slide 18, as of the 31st January 2026, the Spanish distribution network is close to its capacity limit with a saturation level of 88%. The situation is even more critical at Endesa, where around 94% of network nodes already saturated and unable to accommodate new demand. With this framework, we have been able to grant only 18% of total demand connection requests received. To provide some context for these figures, the 26 gigawatt connection request received along the year is well above peak demand of our entire national distribution network. Grid constraints are delaying or canceling investment. Grid saturation being a major barrier for economic growth, industrial electrification and the achievement of Spain's decarbonization target. In this context, boosting investment in distribution network is essential to ensure that the country does not miss a opportunity for sustainable economic growth. The ministry is fully aware of the severity of the situation and the forthcoming royal decree aimed at increasing investment limit is expected to provide additional headroom and improve the framework for accelerating the grid reinforce. Spain faces growing security of supply challenges. Wind and storage deployed capacity is significantly behind PNIEC targets, creating stress during period of low renewable output. Solar is expanding rapidly, potentially above the PNIEC, but without sufficient storage, it cannot replace firm dispatchable capacity. This leads to seasonal curtailments and winter deficits triggering the higher gas-fired generation. Nuclear plays a critical role in ensuring security of supply. We believe that extending plant lifetimes strengthens system stability by providing inertia and voltage control, reducing CO2 emission and lowering wholesale prices by at least EUR 10 per megawatt hour. With the removal of specific taxes, nuclear's full cost would fall below the cost of replacing its production with a mix of solar batteries and CCGTs, which would be roughly twice as high. To guarantee long-term reliability, Spain must secure firm capacity, accelerate storage, adapt the nuclear closure schedule to real PNIEC products and maintain combined cycles as essential backup for future renewables. Moving now to our 2026-2028 strategic plan. Let's now break down how this energy landscape shapes the key highlight of our strategy for the next year, and I am now on Slide #21. We now present a clear and balanced approach focused on growth, risk return discipline and financial strength. First, we will deploy EUR 10.6 billion investment plan over the period with more than 50% allocated to network, reinforcing our commitment to support electrification and reinforce grid resilience. The plan also includes selective investment in value-accretive renewable projects. Second, our resilient low-risk asset portfolio will deliver predictable growth, providing a strong visibility on future performance with around 85% of EBITDA regulated or contracted. Third, our financial strength enable us to deliver sustained profitable growth. EPS is set to grow at a steady 5% year-on-year on average, driven by higher investment business growth and the ongoing effort to improve productivity and efficiency. Turning now to Slide 22. Let me walk you through the investment profile of our new plan. We plan to invest EUR 10.6 billion, 10% more than the old plan with a clear strategic focus on networks and selective renewable projects, key enablers of the energy transition, which together will account for around 80% of the total. Investment in grid will increase by around 40%, reaching EUR 5.5 billion. This increase assumes the approval of the Royal Decree that would allow CapEx above the current regulatory cap as well as the full recognition of the investment deployed. This level of investment is essential to accommodate new demand connections, support electrification and reinforce network resilience. In renewables, the plan involves EUR 3 billion of investment focused on selective project positioned to capitalize on rising demand. And finally, in non-mainland, in addition to maintenance investment, only those related to the outcome of the capacity auction have been considered in order to extend the useful life of our power plants. And on Slide 25, focusing on grid investment. 52% of the investment in this plan will be deployed on networks. This plan marks a significant step forward in the share of investment contributing to RAB growth, plus 60% versus previous plan. Indeed, out of the EUR 5.5 billion CapEx, around 80% will flow into the RAB. As a result, our RAB will increase 13% by 2028. Worth highlight is that around 70% of the total CapEx plan or around EUR 900 million will be accounted as RAB and will contribute to EBITDA growth beyond 2028. Operational performance will continue to improve with lower TEP and reduced technical losses. Moving to Slide 26. During the time frame of the plan, we are allocating around EUR 3 billion of investment, 80% devoted to asset development, investment are 20% down compared to last year due to the more selective approach and to the fact that some specific projects have been rescheduled, extending the completion date. We are working to bring into operation 1.9 gigawatts of renewable capacity by 2028, mainly wind and batteries. This will allow us to achieve 25 terawatt hour output. Batteries and storage projects will play a key role, enable us to optimize production, stabilize renewable output, while ensuring power availability throughout the day. This project will deliver attractive returns with an IRR versus WACC spread to around 300 basis points with 21% of the CapEx contributing beyond 2028. Moving to next slide on Slide #27. I would like to comment on our site portfolio to develop a hybrid platform that offer optimal condition for data centers. This project combined existing grid connection rights, transfer land for fast deployment and the ability to provide full supply solution based on renewable and grid access. Within this plan, we are also progressing selectively on some singular projects such as Pego, which is scheduled to be in construction in 2027 and will incorporate 600 megawatts of new hybrid renewable capacity, wind, solar and batteries with an estimated investment of EUR 600 million. Its hybrid configuration enables an energy profile close to baseload, making it highly suitable for large-scale customers such as data centers. Endesa is well positioned to capture emerging business opportunities in the data center segment. When it comes to customer business drivers, I am on Slide #26. We will strengthen our position through loyalty, commercial alliance and better value management. On the one hand, we will expand our physical store networks, improving face-to-face services, especially relevant after the approval of the regulation restricting spam calls and phone contracting that will help to reduce fraud in the short term while improving more than 10% churn rate in the medium term. On the other hand, new alliances such as the consolidation of MasOrange from 2026 broadens our blended offer portfolio and reinforce loyalty programs. As a result of all these initiatives, our customer base is set to grow from 6.2 million to 6.7 million free power clients by 2028, while total our sales remain stable. Finally, it should be noted that the launch of an efficiency plan to improve our competitiveness in the current market environment. Looking at our second strategic highlight on Slide #27, one of the key assets we intend to foster is the high visibility and low risk of our earnings profile. Over the period, we expect to deliver around EUR 18 billion of cumulative EBITDA around EUR 85 million stemming from regulated or contracted activities, providing clear visibility on future delivery. Grid, we are almost fully regulated and a large part of our generation portfolio, including non-mainland generation and regulated renewables also benefit from remuneration schemes. Finally, a relevant share of electricity generation is already lacking through long-term contract and PPAs as well as by our fixed price customer portfolio, which benefits from a strong inertia, given us substantial visibility and predictability over a 3-year plan period. And now let me hand over to Marco, who will explain the main financial target of this new plan. Marco Palermo: Thank you, Pepe. I would like to introduce the third strategic highlight. We go now to Page 30, financial strength by showing a slide that clearly illustrates the resilience of our business. Our 2025 results already exceeded the target set under the previous 2025-2027 plan, highlighting the strength, the consistency and the quality of our performance. 2025 net ordinary income reached EUR 2.3 billion, 21% above the original guidance. Moreover, when compared with the former 2027 guidance in the old plan, it already represents an outperformance of approximately EUR 0.2 billion. Importantly, this strong performance is reflected by a sound 41% of EBITDA to net ordinary income conversion ratio. On Slide 31 now. Overall, these results reinforce our confidence in the business outlook, and they are a good starting point for the growth plan for the coming 3 years. EBITDA is expected to grow at a compound annual rate of around 4%, together with an improvement in cash conversion with the FFO to EBITDA ratio increasing to 78%. Net ordinary income is also expected to grow at a similar pace at approximately 4% per year, reaching a range of EUR 2.5 billion, EUR 2.6 billion by 2028. Profitability will remain stable with the net ordinary income to EBITDA ratio broadly maintained at around 40%. Turning to capital structure. Net debt is expected to increase to a range of EUR 14 million, EUR 15 billion by the end of the plan period. With this overview in mind, let me now take you through the evolution of our main business lines on Slide 32. EBITDA is expected to increase by around 10% over the plan, reaching a range of EUR 6.2 billion, EUR 6.5 billion by 2028. This growth is underpinned by three main drivers, which we will discuss in more detail in the following slides. First, an improvement in the distribution margin, supported by higher investment levels under the new regulatory framework. Second, the expansion of the generation and supply businesses. where the increase in the integrated power margin more than offset the expected normalization of the gas margin. And finally, a reduction in fixed cost driven by the rollout of a new productivity program supporting competitiveness in an increasingly challenging environment. We will now take a closer look at each of these drivers in the following slides. Let me now turn to Networks on Slide 33. Networks' EBITDA is expected to increase by a solid 10% over the plan period, reaching EUR 2.3 billion in 2028. This growth is primarily driven by the strong expansion of the regulated asset base, which is expected to increase by around EUR 1.5 billion over the plan period. Our second key driver is the entry into force of the new regulatory framework for the 2026-2031 period. Taken together, these factors will support an increase in regulated remuneration over the planned horizon. Turning now to Slide 34. Let me provide you with a more detailed view on the evolution of the free power and gas margin of the plan period. Starting with the power business. Sales to liberalized customers will remain broadly stable with an increase in free fixed price sales, representing around 80% of the total free sales. These volumes are increasingly covered by infra-marginal technologies due to the higher renewable output, leading to structurally lower sourcing cost. By 2028, the free power unitary margin will increase driven by, first, a strong improvement in the supply margin, mainly explained by the recovery of extraordinary ancillary service costs incurred after the 2025 blackout by the resilience of fixed price customer portfolio and by the reduction of sourcing costs. Second, positive generation margin on higher renewable volumes then more than compensate the impact of a lower price scenario. Finally, a slight improvement from the short position engagement. Moving to the gas business. Total sales will decline by around 33%, reflecting the expiry of the Qatar and the Nigeria gas contracts. Gas margin will normalize over the planned period, essentially due to retail gas margin remaining broadly stable. And in contrast, other gas margin normalizing from the exceptional high levels recorded in 2025. Turning now to Slide 35. Productivity has always been at the core of our strategy. But over the next 3 years, it will be even more critical to maintaining competitiveness in an increasingly challenging market environment. Over the planned period, fixed costs are expected to decline by 10%. This improvement is driven by a strict and well-defined efficiency program to be deployed throughout the period. A key enabler of this program is the broad deployment of digitalization and progressive implementation of AI-based solution across the company. These initiatives support more intelligent and real-time grid operations, higher efficiency and reliability in generation, more personalized customer interactions and productivity improvements across selected corporate and support functions. Together, they allow us to structurally improve our cost base while enhancing operational performance. Efficiency measures will be primarily concentrated in the liberalized businesses where there is greater flexibility to capture value. Actions include organizational streamlining, process reengineering, increase in-sourcing of critical activities and the recalibration of services provided by external suppliers. In summary, disciplined cost control, combined with AI-driven efficiencies enable us to protect margins, improve competitiveness and sustained performance over the long term. Turning to Slide 38 now -- sorry, 36 now. Looking at the net ordinary income, we expect a solid and sustained growth trajectory of the period with a compound average growth rate of approximately 4%, reaching a range of EUR 2.5 billion, EUR 2.6 billion by 2028. The EBITDA to net ordinary income ratio will remain around 40% throughout the plan. The updated plan represents a clear improvement in earnings per share growth. EPS is now projected to grow at around 5% per year on average, a meaningful acceleration compared with the previous plan where we envisaged up 3%. This acceleration is driven by a combination of higher underlying earnings and the positive impact of capital allocation actions, including the execution of the share buyback program which further enhances per share value for shareholders. On Slide 37 now, we will maintain a solid financial position, leveraging on strong cash generation and financial flexibility to fund growth while delivering sustainable shareholder remuneration. Over the course of the plan, net financial debt is expected to increase by approximately EUR 4 billion to EUR 5 billion. This evolution is fully explained by the balance between robust cash flow generation and a significant step-up in capital allocation. On the sources of funds, we will generate close to EUR 14 billion of funds from operation over the period. This reflects the strength and resilience of our underlying cash generation, supported by EBITDA growth and solid cash conversion with the FFO to EBITDA ratio expected to reach a sound 78%. The total cash outflows will amount to around EUR 18 billion. Cash investments are projected at approximately EUR 11 billion, and shareholder remuneration remains a key priority with dividend payments totaling around EUR 5 billion over the period complemented by EUR 1.5 billion related to the completion of the remaining share buyback program. Consequently, net debt-to-EBITDA is expected to move from the current level of around 1.8x, reaching 2.3x by the end of the plan period. And now I will hand over to Pepe for the closing remarks. José Gálvez: Thank you, Marco. On Slide #39, we are confident that our strategy will generate visible and predictable returns, which is why we are updating our dividend policy based on current net ordinary income targets and the expected execution of the share buyback program, dividend per share is projected to grow at an average rate of approximately 4% over the period. This increase takes as a starting point an extraordinary 2025 DPS of EUR 1.58 per share. For the planned period, we improved the dividend policy by guaranteeing a minimum payment of 70% on net ordinary income further reinforced by the implementation of the remaining share buyback program by December 2027. Overall, we believe this represents a clear, sustainable and accretive remuneration policy, providing a high degree of visibility to our shareholders. Turning to Slide #40. In summary, Endesa is well positioned to capture demand growth opportunities beyond the horizon of the plan. This is why it is important to extend our perspective to 2030 for the business most directly linked to the energy transition. New demand will naturally transform into additional generation needs and further network strengthening requirements that will also put upward pressure on energy prices. Starting with renewables, the completion of the CapEx currently under construction, together with the additional capacity required to serve incremental demand will allow installed capacity to reach around 15 gigawatts by 2030. At the same time, our regulated asset base is expected to continue expanding steadily in line with the significant investment needs required by the Spanish electricity system over the coming years. RAB is projected to grow to around EUR 15 billion by 2030, implying a compound average growth of approximately 5%. This evolution reinforces the visibility and stability of our earnings profile and underlines and there's a long-term commitment to supporting the country's electrification and decarbonization objectives. This turns directly into stronger financial performance. Earnings per share are expected to increase from EUR 2.3 per share in 2025 to a range of EUR 2.8 to EUR 3 per share by 2030, also implying an average yearly growth of around 5%. On Slide #41, despite the increase in leverage envisaged in the business plan, Endesa preserves substantial financial flexibility, our strong balance sheet provides capability to move closer to the sector average leverage of around 3x without comprising capital discipline. These additional resources could be selectively allocated across several strategic priorities, starting maximum value from the hybrid project hub capitalizing on growing demand assessing selected M&A opportunities fully aligned with our long-term strategic framework and a strict value criteria accelerating the deployment of storage, leveraging on the increasing need for system flexibility. All of these opportunities will support additional growth, reinforcing the upward trend in EPS. Moreover, the possibility of enhancing shareholder remuneration policy is an optionality. Turning to environmental sustainability on Slide 42. This slide outlines Endesa's clear and credible decarbonization pathway. By 2030, Endesa's emission trajectory is fully alone with a 1.5-degree pathway reinforcing the credibility of our long-term ambition. Looking further ahead, our objective is to reach close to zero emission by 2040. In the short term, our focus remains on reducing direct greenhouse gas emission in the mainland system. By 2028, this translate into a further step down in emission supported by the continued decarbonization of the generation mix and the increasing weight of low-carbon technologies. This decarbonization road map is underpinned by a balanced approach that combines environmental ambition with system reliability and social responsibility. To conclude this presentation, let me turn to Slide 43 and share a few closing remarks. Our growth ambition is firmly anchored in highly predictable low-risk activities with a clear focus on business and projects that offer long-term visibility, stable cash flows and resilient returns. Efficiency is a central pillar of our strategy and a key lever to enhance performance and competitiveness. At the same time, we benefit from a strong financial flexibility, which provide meaningful optionality for growth and value creation. And finally, all these strategic drivers converge on a single, clear objective, delivering solid and attractive remuneration for our shareholders. Ladies and gentlemen, this concludes our 2025 financial results and 2026 to '28 strategic update presentation. Thank you very much for your attention, and we are ready to take questions. Operator: [Operator Instructions] Mar Martinez: Okay. We start now with the questions from our analysts. And the first one is Peter Bisztyga from Bank of America. Peter Bisztyga: I guess kind of my main question is to try and understand what has really changed versus your prior plan that drives basically like 600 megawatts -- sorry, EUR 600 million EBITDA improvement in your new 2028 guidance versus your previous 2027 guidance. If I look at your bridge on networks, EBITDA there is only EUR 100 million higher than in your previous plan. I think you're targeting, I think, only 600 megawatts more power generating capacity than the previous plan. So there must be a like a huge increase in your customer profitability, so in your retail business. So can you kind of confirm that, that's really where the biggest delta here is versus your kind of previous expectations? It would be useful actually if you could give euro per megawatt hour guidance on your sort of free power margin, gas margin and retail margin in 2028. You used to give that -- don't seem to in this presentation deck. You also actually don't guide specifically to EBITDA in renewables and customers, and I'm just wondering why that is? And then, sorry, final part to that very long question is how much EBITDA benefit do you assume in 2028 from the capacity market and also from the Almaraz extension, please? Marco Palermo: Okay. So good morning, Peter. Let's go through the three questions basically. So 2028, let me help you to bridge it with 2025. Basically, you have on distribution, as you were correctly noticing, I mean, we adjusted the 2025 because there were EUR 100 million of extraordinary. So if you look at with the adjusted 2025, it's a 15% increase, if you look at with the unadjusted is 10%. But basically, there, there is an improvement of EUR 300 million. And it could be even more because if you look, it's not everything optimized. If you look at charts, for example, '23, you can see that the CapEx generating margin beyond the plan, we put it at 17%. So basically, there is another EUR 1 billion that is not in RAB at the end of the plan. So -- but because, of course, it takes time just to build all the networks. So there is a that could be even more eventually. That is on the distribution, so EUR 300 million on the distribution that if you count the result of 2025 is EUR 200 million. Then you have another part that is on the margin -- on the free power margin that is the recovery of the ancillary services that we suffer in 2025. I mean, we always said that it was north of EUR 200 million, so slightly more than EUR 200 million. And we plan in 3 years' time, just to have all the time just to recover that. Then you have another part that is related to the higher production of inframarginal. That is the combined of two. On one side, we are, of course, doing a lot of repowering both in hydro and wind. So this somehow boost also the production, but we are also building new capacity. And therefore, you have a positive effect because on one side, you have less lower prices. But on the other side, you had another 8 terawatt production. So that net-net will bring you approximately EUR 300 million. And then you have another EUR 200 million of savings on OpEx. This is on the positive side. On the negative side, we will adjust the high marginality that we have enjoyed in 2025 on the gas, and that adjustment would count probably around EUR 400 million. So net-in-net, that's where you find basically this EUR 600 million of difference. This is on question number one. On question number two, just going a bit quicker. The free power margin that we are envisaging for the 2028, it's between EUR 55 and EUR 60 per megawatt hour. That basically is like taking the reference of 2025, the EUR 52 that were impacted by the ancillary services cost and bringing back these services there. Of course, there is most -- is more complex because you have power prices lowering down, but also the sourcing cost is going down, and that's why you basically keep that marginality. And on capacity, I would tell you that probably that is an upside of our business plan because basically, there is not much of capacity there, because we do not have visibility yet on what will be the market there, and we do not have visibility yet or what will be the plans that will benefit and they will win the payers bid there. So I mean it's like we will basically see what will come out. Thank you. Mar Martinez: Next question comes from Pedro Alves from CaixaBank. Pedro Alves: Congrats for the results and the presentation of cost targets. The first question, please, would be on the sensitivity of your 2028 targets to pool prices in Iberia and the TTF price as well for your gas margins? Second question on data centers. You mentioned ongoing discussions with data centers. So the question is, if you think that you could realistically announce something this year. And the third question on the CapEx envelope of EUR 10.6 billion. If you can provide us how much is roughly growth versus maintenance the CapEx? Marco Palermo: Okay. So thank you, Pedro. So on question number one, sensitivity on power and gas. On the power side, I guess that is another -- probably another feature of this plan. In this plan, we are not incorporating a strong increase of demand. So what we are seeing, just to give you an idea, is for this year, 2026, an increase of 1.2%. That, frankly, is lower than last year. And then in the following years, we are approximately at 2.4%. So basically, I mean it's not because we believe that this will be the increase in the demand, but it's because we really don't know where to place the real ramp up. We feel that probably it is starting. Of course, when we started the plan, we had not this feeling. But I mean, there -- it depends on what will happen on the demand. So on the demand side, I feel that we were kind of conservative. On prices, as you have seen, I mean, we adopted the forward that were at that time. So basically, in 2027, going to EUR 58 megawatt hour. So I mean there, I guess that there is a kind of balance between the two. And on gas, I mean, reality on gas in our plan, all the profitability and all the marginality will basically come from the retail business at the end of the plan. So basically, we are assuming that on the -- as I said in the speech, then from the other gas, there is not coming much of marginality, frankly. Regard data centers. In data centers, are we planning to announce something soon? I guess that definitely, we are planning to do something in the course of the year, of this 2026. We have some of the developments that are more advanced. We decided just to put one of the references of something that is very well known, that is the Pego project in the presentation. And there, we signed agreement. The positive part I guess of the plan is that in the plan, there are basically, there is not the upside of the data center. Why do I say so? First of all, because, as I said, in the demand increase, we are not assuming the data centers really kicking in, first. Second, in the plan, we are not assuming any particular PPA basically and higher price PPA. And the third, we are not assuming any upside or any extra margin related to the sale of the land or the access to the grid connection. Why is it so? Because, I mean, we want to see exactly what are numbers that we will somehow see when we sign the agreements. And on the third question regarding how much is growth and how much is maintenance. I would say that basically, the maintenance CapEx is approximately 30% of the total, with the rest, of course, being incremental CapEx, growth CapEx. Thank you, Pedro. Mar Martinez: We have missed a last question from Pedro. If you allow me, the sensitivity to EUR 1 of increase of prices -- power prices, it translates to around EUR 20 million. Okay? Thank you, Pedro. Now we have Javier Garrido from JPMorgan. Javier Garrido: First question would be on the supply business. I was wondering whether you can be a bit more specific about the supply margin in '25. And particularly, you could also elaborate a bit more on how do you plan to take control of customer losses given that the pace of reduction has slowed down, but you are still losing customers. How do you plan to make that increase in customers even if we exclude the MasOrange acquisition? The second question would be on the dividend policy. You could clarify a bit more the dividend policy. Am I right in understanding that the new dividend policy is at least 70% payout ratio, so that it results in at least 4% DPS CAGR? Or is there any different interpretation? And the third question is on the cash conversion of EBITDA. It increases significantly from 70% to 78% through the plan? Would you mind to please elaborate on why that increase? What's exactly driving the improved cash conversion? Marco Palermo: Okay. Thank you, Javier. And sorry to Pedro before for losing the last part of your question. Javier, so basically on supply on 2025, as you have seen, the marginality, the free power margin was 52%, so lower than the previous year, and it was a mix effect. I mean, it was lower than in 2024, but not so much lower when compared to what has been the impact of the ancillary services. So somehow there, I guess, that in 2025, you can see the good performance of the business. You're right. I mean, we have suffered last year of many losses of clients. But again, I mean, there are kind of two markets, I would say, there. There is a market that is healthy. There is a long-term client that experience a normal churn rate and then there is another market that experiences a very high churn rate. And if you allow me, even a very high level of fraud. And that has been constantly rotating. So I mean, what we understood at a certain point was that we were basically losing money on them. Because we were putting money just to acquire them and putting money and putting more money and then losing those -- the permanence of those clients was very short. There was no time just to get back the investment. So I mean, it simply made no sense. So we prefer to go for something different. So we accepted losing part of the clients, and we went for the acquisition of MasOrange that was basically not because we acquired the clients, but because we were now able to serve bundled products. And apparently, it is working because, of course, in the -- at the end of last year, we were reducing a lot the losses. And I mean, we cannot comment on this year, but I guess the situation is somehow also the acquisition of MasOrange is proving that probably we have seen it correctly. When you go to the dividend policy, yes, you're right. It's the correct understanding. So basically, at least our payout will be 70% and at least the 70% converts in at least 4% of CAGR on the DPS. And then on the cash conversion, I guess that, of course, there is a kind of a challenging target that we are giving to us. But basically, we're doing a lot of jobs, a lot of job on every business just to improve the cash profile of each one of those. So we think that all these efforts that actually we started in the previous years can somehow come to give all the fruits at the end of our business plan. Thank you. Mar Martinez: Okay. Thank you, Javier. We move now to Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: I'll have three questions as well. Could you please elaborate on your churn rate assumption? And how much is it right now? And how sustainable are the current levels before the new entrants start to lose money? So can you maybe elaborate a bit on the dynamics that you embedded in the plan on this? Secondly, there is a very exhaustive slide on cost savings on the reduction in the fixed cost. I think you have four buckets, right, network automation to AI, labor. Would it be possible to tell us what the biggest buckets are one or two perhaps? How much of this is natural attrition, people that are retiring or being pre-retired? And then you hire someone coding on copilot or close that replaces five people. So how structural is this? Can we assume that this EUR 300 million reduction will carry on beyond '28 and for several years to come? And the third question. I mean, you still have ample balance sheet headroom. So if you were to think about how to utilize it in the medium term going to beyond '28? Is there any way you could rank in terms of priorities, either what you favor or what is possible? So would that be more organic growth in Power Grid? Would it external growth in clients or power gen? Would it be more share buyback? Marco Palermo: Thank you, Alberto. So regarding the first one on churn. I would say that there, the assumption of what we are experiencing right now, it's an elevated churn that is in the range of, I would say, 25%, 30%, okay? It's very high churn. And as I was saying, it's very somehow concentrating on some of the clients. Now are we seeing this somehow going to normal level during the plan? No. We are still assuming that at the end of the plan, the churn will remain very high, not at a normal rate. But yes, a bit decreasing. And we are assuming this because we think that at least the frauds and all the part of that is somehow impacting strongly on the churn should somehow be reduced. We recently approved Royal Decree on that, trying to get rid at least that part. And we really hope that, that will be somehow effective in reducing at least that. And on the other side, I mean, all the measures that we are somehow putting in the plan and that we are delivering, we started doing this last year in terms of, for example, physical point and that, of course, attract the clients and then they have a lower churn, but also all the changes that we made, the bundled products. I mean, there are many, many things because this is -- there is not something one specific stuff that stops the churns. So all this kind of stuff, we really think that will kick in. So again, very high churn in 2025. We still assume that at the end of the plan, we will be still high, but lower than this because of the reduction of the things that we are doing and also hopefully, the reduction in the fraud level. Regarding the second question, cost reduction, I mean, this is not making me very popular here. But I mean, here, there are many things. We started this -- first of all, is it structural? Of course, it is structural. We started this last year. Because it takes time just to have a structural contention of costs and productivity. And it's -- there are a lot of measures there. Some of those will reduce costs. Some others will improve the quality and not necessarily reducing cost, but -- so I mean there are a bundle of things. When it comes to whether this somehow touches also the personnel, I mean this is kind of still sensitive. What I can tell you is that this is not the first time whether we do this. I guess that is history. In history, this company has been used to make these structural changes. So for example, when the call was closed or when we decided to move to the cloud and blah, blah, blah. So I mean, in all these moments, the company has been capable of treating this properly and of course, doing it in the proper way with the support of all the employees. And on the third point regarding the ample balance sheet that we keep -- yes, it is true, we still keep it. We think it's actually a plus, it's a benefit. Why so? Because we think that there could be opportunity. The opportunity could come from the fact, for example, that if you look at the plan, there is, yes, an increase on the CapEx in distribution, but there is a decrease on the renewables that vis-a-vis the old plan that it's not something that explained it itself. But what we think is that we have a lot of things there ready to go. We need to assess exactly where the -- when the demand will start to kick in, just to somehow eventually go even more with investment there. And priorities, I guess that some of the things we can do ourselves. I guess that there could be things available in the near future. So I mean, of course, on all this, we do not comment. But in terms of our priority, I guess that it's very clear where we have been putting money along the last couple of years. So I mean, I will go to that. And will there be space eventually also for more shareholder remuneration or shareholder remuneration improvement? Of course. I mean, we will somehow balance. We have ample room there, and we will somehow balance. Mar Martinez: Thank you, Alberto. Next question is coming from Manuel Palomo from Exane BNP. Manuel Palomo: I've got three questions, if I may. The first one goes into one of the things that you've mentioned in order to achieve improvement in the integrated margin. First thing I'd like to know to get the confirmation that you assumed the extension of Almaraz 1 and 2. And in case there's no extension, what could be the impact in terms of terawatt hours? And if you are assuming in case that it gets extended, any additional CapEx related to it? The second one also related to the, well to the, production output is. What is the impact you're assuming from hydro normalization after an excellent '25? And it looks like still a very good '26? And lastly, on the generation output, why adding 1.5 gigawatts of wind and solar in Spain, given the level of curtailments that we are seeing? Do you really need it? Or would it be -- wouldn't it be enough just go into the wholesale market and purchasing the electricity? Second question is on the other side of the integrated margin is on clients. You are assuming 500,000 additional clients, if I'm correct. I understand that you have already purchased [ MasOrange ] plots, my question is, are you expecting to see a decline in the final achieved price to customers? And could you give us a reference? And lastly, it is about the regulated business. If I'm correct, you're roughly assuming EUR 1.8 billion per year CapEx. Is this granted? Or will you need any additional authorization from the Spanish government/regulator? Marco Palermo: Okay. So Manuel, let me go through, I guess, that let's see if I get all of those. First of all, on free power margin, actually, you were asking on Almaraz and someone else, I guess, that I forgot this before. On the Almaraz extension, yes, we are putting in as an assumption coherent with the request that we did to the nuclear authority that there will be an extension of Almaraz. Almaraz for us in the plan is basically one group in 2028 and means approximately 3-terawatt hour of increasing production. There, I would say that there are -- there is a positive that is that you have 3 terawatt hours more that you sell. But there is also a negative because, of course, the nuclear allowed the system just to keep a lower power price. So I mean that's why it is so important for Spain to keep it. Therefore, if you take it off, you have an effect on the prices there. So the mix of the two is positive for us because we are talking about the 3-terawatt hour but the combined effect is less than EUR 100 million. And on Hydro, yes, on hydro in what we are seeing, I mean, it's public dominance. I mean the hydro production in 2026, actually, apparently, it's better than in 2025. We had a very good start in 2025 than not a very good ending of the year in 2025. Apparently, it looks like it's better this year. On generation output, the combined, I mean, when you see solar, wind and so on, in reality, they are concrete projects, and those are related to, as I said, data centers. So it's -- can we buy this on the market? Yes, but those projects are the ones that have closer data center. So I mean, in that case, we would rather prefer the little more marginality if you build, if you develop the project and you serve the data centers instead of trying to buy energy on the market. On clients, I mean, the 500,000 more just basically, I mean, we are at the target right now. So if you look at from that perspective, with MasOrange, it means that we have to try to defend this until 2028. Do we see a decline in price? Of course. I mean, with the decline in price of the market, you -- it's lower, of course, that you see a decline in price on the customer, but you do also see a decline in the cost of sourcing. So that's why you maintain the marginality. It is true that then the prices on the market takes a bit of time just to reflect. So it is true that when the prices on the spot goes down, they do not immediately reflect on the B2C or on the SME, blah, blah, blah, but also the opposite is true. When they increase, they do not immediately reflect on the final market. And regarding the regulator, so regarding the level of investment, what is still missing is what the government announced that basically was a decree just to allow till 2030, an increase of the cap that currently is 0.13% of the internal product for up to 63%. So basically 60% more. So that is what has been announced by the government at the end of 2025, and we are expecting this decree to come. I hope that I got all your question. José Gálvez: Let me get some color about the nuclear and perhaps about the distribution. You should take -- why we have decided just to stand or to delay the close of Almaraz in our plan. First of all, you should take into account that the time table for closing nuclear plants was set in 1918. And since then, the context and priorities has changed substantially. The second thing is all countries are addressing extension and new power station even. But on top of that, for us, there are technical, environmental and economic reason for delaying its closer. Technical reason, let me say, on the one hand, it makes no sense for group belonging to the same plant closing in different years. That is, and you know that it was expected the close of Almaraz 1 in the year '27 and 2 in the year '28. The second thing is that the interim storage facility, the so-called ATI will not be completed until 2030 at the earliest and nuclear waste cannot be managed until then. So it can send just to delay a little. On the other hand, there is a significant delay in the deployment of storage and wind power also. The system requires synchronous generation to manage both frequency and voltage and the energy balance up to 2030 would be more balanced, if you want and secure and with less energy dependence if we continue with these power plants. With regard to the environmental reason, the closure of the nuclear power plants would not lead to a slower growth in renewables, but rather to an increase in combined cycle production and consequently in a mission. And the economic reason and Marco has said maintaining nuclear power generation, reduce the cost of the electricity market. So all in all, we have acted to the ministry just to delay the shutdown of Almaraz. And we are confident that it would be done. With regard to the networks, let me say that increasing investment in the Spanish network remains essential for the integration of renewable, for the electrification of demand and for ensuring system stability. As you know, the grid has virtually no remaining capacity to accommodate rising demand. And in any case, this increase in demand is going to be a very good team for the renewables, especially for the solar power plants. It would be a good thing for the economy of the country. So at the end, we have decided that it's going to be a good thing for all the government, for the country and for us. So that's the reason why we have decided. Let me say that we assume that the Spanish government has already anticipated, will rise the regulatory investment limit. The ministry projects a significant increase in investment in networks between 2026 and 2030, totaling 11.3% if I'm right, EUR 3.6 billion coming from transmission and EUR 7.7 billion from -- for distribution and exceptional, as Marco has said, a 62% increase in the investment limits in order to adapt them to the new context of the energy transmission. This EUR 7.7 billion increase in distribution investment limit is something around EUR 1.5 billion per year turns into a capital rising from the current EUR 2.1 billion to something around EUR 3.6 billion. So this could imply something around EUR 600 million in additional net investment for Endesa on top of the EUR 900 million that we had today. So based on this, we feel confident just to increase the investment in the network in Spain. Mar Martinez: Next analyst is Javier Suarez from Mediobanca. Javier Suarez Hernandez: Three questions on the context, the European context for electricity company. The first one is on the debate that maybe the Italian government and the German government have opened up on an effort to reduce overall electricity prices through the Eurozone. So I'm interested to see your view on the implication that this may have on the pricing setting dynamics through the Eurozone? And how do you think that debate is going to evolve? And in this context, you can share with us the assumption that you are embedding into your business plan regarding carbon prices to 2028. That would be the first question. The second one is on the data center discussion. So it's evident that there would be installation of new data centers to Europe and the Iberian Peninsula as well. So I wanted to ask you your view on the model that should be implemented to avoid unintended consequences, because obviously, there is going to be higher electricity demand, and that could impact overall electricity prices as well. So do you see that, that may impact the way data centers are going to be installed and what would be the way of isolating those unintended consequences? And the third question is on the slide when you are talking about a leverage evolution and financial flexibility. When you are referring to a scouting brownfield opportunities, if you can elaborate on those, how those opportunities should look like as you're referring to renewables energies on the Iberian Peninsula? Or are you referring to a broader set of opportunities? And also on the storage plan, how do you see installation of new storage impacting the dynamics for the Spanish electricity sector? José Gálvez: Okay. Thank you, Javier. I will try to give some color, and then Marco will go deeply on that. About the effort to reduce prices. Well, first of all, I would like to say that the energy transition at least, in my opinion, is entering a more mature challenging phase. Clean energy development continues, but delivering deeply decarbonized resilient energy system is far more complex than simply, I would like adding megawatt, renewable megawatt. Technology evolution when we see the technology evolution, Hydrogen is the most delayed driver of the PNIEC due to economic reasons, less than -- I think that in the PNIEC it was expected something around 50-terawatt hour in the year 2030. And I guess it's going to be less than 10-terawatt hour. Talking about the storage, PNIEC include plus 15 -- gigawatt of storage needed by 2030, up to 22.5 gigawatt, if I remember well. It is clear that we are going to be in a figure lower than 9-gigawatt instead of the 15 gigawatt expected. So that -- and why this? Many things is -- one of the thing is the delay in the development of these technologies. The other thing is the geopolitical tension and macroeconomic pressure, taking into account the COVID pandemic, the war in Ukraine and the delay is the, let's say, predictable trade tariff. So we are living in a market uncertainty, complexity and commodity price volatility. Energy demand was flat during the last year, but now we are expecting that outpaced improvement in energy efficiency. Also, there are movement in all the countries. So at the end, things could change. But in case of -- in the case of the carbon prices, I think the CO2 price should be and will be one of the main drivers of this transformation. So the focus for me is not going to be -- or not should be the reduction of the price of the CO2. It should be the electrification and the decarbonization. We should continue adding renewables. And we should -- we are obliged just to electrify the demand. So taking this into account, I think that it has no sense just to look for a reduction in the CO2 price. What I think is that the solution should be yes to subsidize some industries, perhaps the very high industry, very high consumption industries instead of that. I think that there is no sense to approve the one decree in Italy and also it's not going to be something general in the rest of Europe. What I think is that it's not going to be downward in our plan. Marco Palermo: Thank you, Javier. I mean, question number two related to data center. I mean, it's a very interesting question and will take us a very long time to debate on that. But the data centers consumption are consumption basically are baseload. So what we are seeing -- what we are proposing what we are seeing also on the data centers, developers and hyperscalers is they are conscious that from the fact that, of course, they will impact the demand. And therefore, we do see merit in trying to develop for them this integrated bundle of technologies in order to try to replicate a baseload and in order to have the data centers that is closed by to his own feeding, to his own supplier somehow. Then, of course, the grid would be a kind of back up for the peaks or for the moments where exactly this bundle of technologies, altogether, the wind, the solar and the battery are not able to provide the energy. But what we are seeing is that -- and we're seeing this in Aragon, I mean, this is starting. You are having the development of the data center, but in the close by, you're having also the development of renewables. And actually, the data centers, they are trying to develop close to big areas of development of renewables in order to have their suppliers in the close by. Of course, it's not perfect. It's not a perfect baseload. But for the time being, it's the best approximation of that. And on question number 3, regarding financial flexibility. I cannot be too specific because, of course, I mean, this -- I will be generic, because I don't want to screw conversation that we're having. But I would say that it's not a secret that we are interested in hydro. And when I'm in hydro, it's modulating hydro, but it's also storage hydro. Actually, in the plan, we have expansion of pumping in our plan. So we do not see the results in the plan. But yes, we do the CapEx in the plant. And we are looking for more. We are looking also at storage to develop our own storage or eventually, we could be interested in batteries for the time being. It's not of a secret that we are interested in wind. And I mean, I guess that, that in distribution, we are satisfied with all the investments that we have, but of course, I mean, it's also an area. So I would say that there is a big list of technologies and of areas where we could be interested. Again, yes, focused on the Iberia Peninsula. Mar Martinez: We move now to Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Congrats on an impressive plan and thanks for all the answers so far. You'll be glad to know I have one question, and that's just to clarify something on the buyback. So you mentioned the second tranche of EUR 500 million is 30% complete, if I heard you correctly. But I think you also said -- and is that going to be completed by mid-July? Or is that the third tranche? Effectively, can we just get a little bit of color on the sequencing of the buyback? So is the second tranche through to July, the third tranche in the second half of this year and then the fourth tranche will come in 2027? Or do I misunderstand this? Marco Palermo: So Rob, yes. First tranche was basically completed, almost completed. We bought, if I remember correctly, EUR 440 million out of the EUR 500 million and we are now canceling the shares. The second tranche that we launched another EUR 500 million should lapse by the 27th of February. And out of this, I mean, it's now ongoing. I guess that we bought approximately EUR 120 million probably at a price that was a bit higher than EUR 30 per share. But I mean, it's the one that, in any case, should elapse from the 27th -- of by the 27th of February. So the third tranche that we just announced will start -- will kick in from the 2nd of March until basically the end of June, and it's another EUR 500 million. And then with -- I guess that our idea is to continue with another tranche we have. At that point, we should have approximately another EUR 900 million to complete by 2027. And I mean, I guess, that we will continue also in the second part of 2026 with other tranche. I mean, that's like -- let's see, but it's our area. And we should be finished in any case by 2027. Mar Martinez: Thank you, Rob. Next question comes from Arturo Murua from Jefferies. Arturo Murua Daza: I just have one. Going back to the decree to increase the network investments. My understanding is that part of this increase will only be remunerated if the demand comes through after a few years. So if you could share a bit of more color how this will work? And how are you counting this in your numbers? Marco Palermo: Okay, Arturo. So basically, here, the point is that generally, what we try to do is to start an investment in the grid at the beginning of the year and to try to put in operation by the end of the year, so that we can get the RAB on that. Now sometimes there are -- particularly if you increase the pace of investments, there are investments that you start at a certain year and that not necessarily are put into operation at the end of the year. So there is a kind of ramp up. So in this ramp up when you have this ramp up, you have at the beginning the negative effect that you are investing and you are seeing -- you are always keeping the pace and you are seeing the remuneration from the next year. But of course, when you finish this ramp up, you have the benefit that you can still enjoying the ramp up even though you're not investing. Now we are in the first part. That is ramping up the investment and so not immediately seeing all the benefits. So that's why we wanted to highlight. Because in the plan, I would say that at the end of 2028, we are missing almost EUR 1 billion of RAB there that, of course, will come later but the plan in itself is not optimized. I mean, that's what it is. We cut at the plan at the end of 2028 and there were almost EUR 1 billion of investment that were done, but not yet in operations or not yet in RAB. So that, of course, you find out the next year. And that's why we wanted also to give you a flavor of what could be 2030 because this is something that is embedded in the plan in all the businesses. In distribution, you will see the benefit also in the year to come. And the same in the generation because also in the generation, we have some of the projects, I was mentioning, for example, the pumping, we were putting the money, and we were not seeing yet the EBITDA. So I mean, there are things that you only see later on. So that's why we wanted to give also a flavor of what could be the 2030 because the plan in itself is not optimized. We cut it at 2028, and that's it. Mar Martinez: Next question comes from Jorge Alonso from Bernstein. Jorge Alonso Suils: I have a couple of questions, please, and it's on the cost cutting and efficiency plan of this EUR 300 million. Could you give us some more color about in which areas can be allocated? So it will be more in distribution? Should we see that more in the whatever thermal generation just to understand, at the unit level, where can we see the impact of that efficiencies at EBITDA level? The other one is in distribution as well if you can quantify the expected incentives, the amount of incentives that you are expecting or considering in the calculation of the revenues or EBITDA in the plan? And as well, and I think that we already answered is that we see CapEx in 2028 in distribution of EUR 1.9 billion, but the legal cap will be the EUR 900-plus another EUR 600 million, so it's around EUR 1.5 billion. So if we should consider the normalized CapEx going forward between EUR 1.5 billion, EUR 1.6 billion or do you still see room because of the need of investing EUR 1.9 billion or EUR 2 billion annually beyond 2028? Marco Palermo: Thank you, Jorge. So on cost cutting, important question there because, of course, there are areas where we are not putting a particular focus. And those areas are mainly the one-off distribution because with the current scheme of how the regulator decided just to somehow squeeze the profitability of the efficiencies. I mean, there is not so much merit to whatever you do, actually, you're doing more for someone else. So I mean, on distribution is less of a focus and as well as on Nuc because it's another regulated staff and super sensitive. So all our effort is basically focused on, as you were correctly mentioning on generation. But I would say also supply that, of course, I mean, the market is changing a lot. We think that AI is -- will impact this a lot. And the things that we are doing and the restructuring that we are doing will impact it a lot. And as always, the structure and stuff that, of course, given what we are seeing could come as a revolution, it's an area that will be impacted. When we come to question #3 regarding the CapEx, yes, you're correct. I mean the EUR 1.9 billion. Is this over the limit? No, it's not over the limit. You have to remember that basically the limit applies to the 13% of the GDP, the 0.13% of the GDP, the GDP has been increasing. So of course, you have this limit that is increasing year-by-year. And on top of that, you put the expansion that is allowed until 2030. So our plan is designed not to overcome that limit in any of the year. Actually, we are every year, we are slightly below that. We cannot risk to go over that limit. And there was incentives. What was the question? Mar Martinez: [indiscernible] Marco Palermo: Yes. No. I mean on the incentives, Jorge, we will not give you numbers, but yes, there is, of course, an improvement. I mean, we also highlighted that basically offsets what you have been -- what we have been experiencing as a negative on the OpEx efficiencies. Mar Martinez: We have now Jenny Ping from Citi. Jenny Ping: A couple of questions from me, please. Firstly, just a clarification question on the power price sensitivity. You said EUR 1 per megawatt hour is EUR 20 million. Is that on EBITDA or net income? Secondly, in one of the notes in your slide around the net income growth of 4%. I think you explicitly say in the footnote that you've assumed a 71 million shares in terms of the net result of the buyback. If I take out what you've already bought back in 2025 implies a sub EUR 30 a share of price in terms of buybacks. So does that mean that you're expecting to limit your buyback, anything above a EUR 30 threshold? So that's the second question. And then thirdly, maybe I missed and apologies if I did. What are you -- where are you now on the Ireland generation investments where you've got to on that and the expectation of spending over the next 3 years, please? Marco Palermo: So power price, the EUR 20, it's for the EUR 1, it's on EBITDA level. On your assumption, I mean your deduction on the limit of our share buyback, I mean what I can tell you is that, we have been buying share last week. I mean, we just published. This is -- we can share it as a public information. We just shared it last night, it was published last night. The program has been buying last week for all the week. And I guess that the price of last week was around EUR 32 per share, I mean, something like that. So no. I mean, actually, the plan will buy at the price that is the price of the share on the market basically. And on the islands on the third question, regarding the islands there, we -- there has been the -- actually the final results of the tender. And we were assigned with some of those. Actually, we had an extension of life in some of the power plants. Some of this life extension were coming also from -- with the incremental CapEx. And I mean, that's what we are starting to work on for the near future. It is also worth noticing that there will be -- there has been also other players than being allocated new capacity in different islands, and we welcome that. And we think that -- I mean, that's what exactly what it is needed on the islands, and we welcome also the fact that we were not alone in defending the regulation there vis-a-vis the regulator. And in terms of investment, we are foreseeing approximately EUR 200 million, EUR 300 million along the plan. Mar Martinez: We have now Pablo Cuadrado from JB Capital. Pablo Cuadrado Tordera: Yes, quick questions for me. One will be on the tax rate that is assumed in the plan. I wonder -- I look at the full year results, and there was a decline of 3.5% on the tax rate year-on-year. Clearly, there were the removal of the tax impact and the revenue impact that it was before. But still, is the basically 2025 figure that 23.5%, the one that we should assume for the next few years? And second question will be on -- I saw that you provided the return, let's say, versus WACC that you get on the renewal segment at around 300 basis points, while the CapEx is going down in this new plan. I was wondering whether you can share which is the spread over WACC on the return that you are supposed to like on the network investments that they are clearly increasing in this plan. And final one is on the unitary generation supplier margin. Clearly, what you put on the slide in that you are expecting an increase and explained perfectly the reasons. But shall we assume given that there is no figure that basically the reference that you provided last year, is the EUR 57 per megawatt, if I'm not mistaken, still should be a valid reference going through 2028? Marco Palermo: Thank you, Pablo. So on tax rate, well, you should expect now that we do not have the extraordinary levy, you should expect as approximately south of 25% generally year-on-year. We generally can be lower because sometimes, I mean, we have also investments that are recognized as deduction, for example, in innovation and in this kind of things. So those when you have this kind of investment, then you tend to have a slightly lower tax rate. In terms of profitability actually from, expected profitability from our investment, yes, you're right, there are the 300 bps for what it is greenfield renewables. In the case of networks, we work with 200 basis points because, of course, the risk profile of those investments is lower, and therefore, it is okay with lower requirements in terms of bps. And in terms of prices, for 2028. I mean, of course, we didn't put the number there for a reason. But again, I guess that you're not far -- what I said is that we are in the range of EUR 55 to EUR 60. So with -- your EUR 57, you're not very far away from -- I mean, you're there basically. Mar Martinez: Good. This was the last question from the conference call. So thank you very much for attending this meeting. And as always, IR team will be available in case you need something else. Thank you very much. Have a nice day.
Operator: Ladies and gentlemen, good day, and welcome to the Leonardo DRS Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this event is being recorded. I would now like to turn the conference over to Steve Vather, Senior Vice President, Corporate Development and Investor Relations. Please go ahead. Stephen Vather: Good morning, and welcome, everyone. Thank you for joining today's quarterly earnings conference call. With me today are John Baylouny, our President and CEO; and Mike Dippold, our CFO. They will discuss our strategy, operational highlights, financial results and outlook. Today's call is being webcast on the Investor Relations section of the website, where you can also find the earnings release and supplemental presentation. Management may also make forward-looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. For a full discussion of these risk factors, please refer to our latest Form 10-K and our other SEC filings. We undertake no obligation other than as may be required by law to update any of the forward-looking statements made on this call. During this call, management will also discuss non-GAAP financial measures, which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures. You can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release. With that, I will turn the call over to John. John? John Baylouny: Thanks, Steve, and thank you all for joining us today to discuss our fourth quarter and full year 2025 results. I want to begin by thanking Bill Lynn for his leadership and commitment to DRS over the past 14 years as Chairman and CEO. The company is stronger because of his impact. We're grateful for his contributions. I am honored to step into the role of Chief Executive Officer and could not be more excited to lead the next chapter for DRS. I joined the company nearly 40 years ago as a staff engineer and over the course of my career, I've had the privilege of serving and operational leadership roles across each of our incredible businesses. That frontline perspective, combined with my experience over the past decade as Chief Technology Officer, and most recently, Chief Operating Officer, has given me a deep appreciation for our leading market positions, our balanced and diverse portfolio, a truly differentiated technologies and above our -- above all, our exceptionally talented people. As I look ahead, my priority as CEO are clear, build on our foundation of success we have a remarkable business with distinctive differentiation that is well positioned for long-term growth, accelerate our operating cadence. Our goal is to put innovation capabilities into the hands of our customers even faster without compromising the quality, reliability and affordability that they expect. This is precisely what the Department of War is asking as an industry. While we've already been operating at speed and investing in innovation for years, we are encouraged by this call to action and are accelerating even further. And three, continue to empower, invest in and reward our people. There is no question that our talented employees are the bedrock of our success. My formula is straightforward, maintain a sharp focus on meeting and exceeding customer needs and that will propel growth for the years to come. Turning to the macro environment. The operating backdrop remains dynamic. Global threats persist and the nature of warfare continues to evolve rapidly. Our customers require next-generation capabilities to maintain the decisive advantage over adversaries. And they need them delivered at speed, at scale and with uncompromising quality. Against that backdrop, our nation and our allies are investing in these capabilities as demonstrated by significant recent and projected increases in defense spending. We are encouraged by the enactment of the fiscal '26 Defense Appropriations early signals for fiscal '27 and supplemental funding, including in last summer's tax reconciliation package. In aggregate, these indicators support our confidence in sustained demand. Our relentless customer focus, disciplined investment and advanced capabilities and consistent execution has positioned us well for growth. The results of that strategy are demonstrated by the fourth consecutive year of a book-to-bill ratio of 1.2 or better. Equally important, customer demand is well balanced throughout our portfolio, validating the strength of our technology-led platform-agnostic approach. That consistent customer demand, combined with our strong financial position, has enabled significant multiyear increases in both research and development and capital investment. Let me frame the magnitude of investment growth. In 2025, we increased internal R&D investment by 40% and capital expenditures rose more than 60%. Our R&D investment is focused on expanding our footprint in high-growth markets, including airborne, missiles, space and unmanned markets while continuing to build share in our core ground enabled domains. Additionally, the emphasis of our R&D initiatives is on advancing platform AI and enabling platform autonomy, stronger security and modularity and extending our platform-agnostic capabilities to new missions and platforms. With respect to CapEx, our 2025 investments were focused on progressing our new naval power facility in Charleston, South Carolina along with targeted growth initiatives across the portfolio. In 2026, we expect CapEx to increase even further and trend toward approximately 5% of revenue. We are ramping operations in Charleston as well as expanding production capacity and modernizing facilities to deliver enhanced capability across the business. Key areas seeing upsized investment include our tactical radars, air defense products and advanced infrared sensing. Additionally, some of the increased CapEx supports dedicated germanium processing capacity with suppliers, an important part of ensuring stable supply going forward. In summary, we intend to maintain our approach of innovating, executing at speed and investing ahead of demand to support customers and drive long-term growth. Let me briefly highlight our full year 2025 financial performance. We delivered another year of record bookings, and that was accompanied by robust organic revenue growth of 13% marking back-to-back years of double-digit growth. Year-end backlog stood at $8.7 billion, providing clear visibility into 2026 growth. Full year adjusted EBITDA growth tracked closely with revenue. While margins were flat, performance was shaped by several factors. First, we intentionally increased our internal R&D investments substantially. Second, we managed supply chain complexity related to shortages of critical raw materials, most notably germanium. As we enter 2026, these constraints are contained with remediation measures firmly in place and being executed throughout this year with confidence. Through a combination of recycling initiatives, strategic allocations from customers, securing more reliable North American and European sources we have adequate coverage for our demand in the short, medium and long term. We've also entered into firm long-term supply agreements. And as I noted earlier, co-investing to secure dedicated refining capacity. While price volatility may persist in the near term, we will reprice contracts renewals on a rolling basis to reflect market conditions and incorporate contractual protections against future potential shocks. Third, as we close out the year, we have 2 unusual items with largely offsetting revenue and profit impacts. We entered into a 10-year $100 million license agreement with a leading quantum technology company, enabling them to leverage certain laser intellectual property for quantum computing applications. This license agreement monetizes an exciting and attractive commercial opportunity while allowing us to remain focused on capturing abundant growth in our core defense markets. We also executed a memorandum of understanding to jointly conclude of legacy foreign ground surveillance program initiated more than a decade ago. Technology evolution and obsolescence issues caused the program to be no longer viable for either party. As a result, we recognized a non-anticipated loss on the program. While disappointing, the circumstances surrounding this program were unusual and isolated within our portfolio. To be clear, we don't see any other program with similar characteristics that would be expected to drive comparable impacts. The conclusion of this legacy effort along with the IP license agreement clears the slate and allows us to focus on growth and execution across our core competencies. Finally, despite materially higher CapEx investment, we delivered 19% growth in full year free cash flow in 2025 driven by higher profitability and improved working capital efficiency. On balance, 2025 was a strong year, and we're focused on building on that momentum in 2026 and beyond. Turning to fourth quarter highlights. First, let me commend the team on a tremendous win in the space market. Space has been a multiyear growth initiative for DRS and I'm pleased that our persistence was validated with a landmark position on the SDA tracking layer Tranche 3 program. We're teamed with one of the prime awardees who will deliver a differentiated infrared sensing approach. This is an exciting opportunity, not only to showcase our innovation, but more importantly, to advance critical national defense capabilities against missile threats. Now that we've opened the door to this win, our focus shifts to execution excellence to deliver on our commitments. Strong performance will position us for additional SDA opportunities and for other customers, including the potential to leverage our expertise in space-based sensing for the Golden Dome initiative. Also in space, we successfully demonstrated secure data transport using a next-generation crypto multichannel software-defined radio. This innovative capability enables high-performance secure satellite communications across multiple frequencies and networks simultaneously and we look forward to delivering it to customers in the near term. In infrared sensing, we continue to grow in ground-based applications are seeing green shoots in adjacencies, particularly space and airborne, across both manned and unmanned platforms. Our high performance cooled infrared sensors are being leveraged on advanced airborne platforms. Our uncooled capabilities are being adopted on unmanned platforms as customers prioritize an assured electronic supply chain. Our advanced infrared gimbals are being used to designate and direct ammunitions to neutralize strong threats. We are engaged on multiple primes on several strategic missile programs to provide next-generation sensing capability and expand production capacity. We're also making capital investments to support this demand growth. We remain a market leader in Counter UAS and are closely partnered with customers to field effective solutions. We are committed to a platform and effective agnostic approach which is why we have demonstrated capabilities across multiple vehicle platforms, including the JLTV and unmanned ground vehicles. We're enhancing both kinetic and nonkinetic factors in our offerings, including cost-effective ammunitions and nonkinetic tools, such as electronic warfare and directed energy. Turning to tactical radars. We continue to see immense global demand driven by an imperative to field Counter UAS and air defense capabilities. Our radars are not only highly effective in tracking UAS threats, but also in supporting missile defense and active protection missions. We're also seeing increased demand in growing relevance and maritime-based Counter UAS applications alongside the continued momentum on ground-based platforms. More broadly, we're seeing increasing potential beyond tactical radars in the unmanned surface vessel market, opportunities to pull through in integrated sensing and computing offering across leading platform providers are becoming a growth vector while we're well positioned on the Navy -- as the Navy crystalizes its USV strategy and begins deploying funding in this area. Staying with Naval, our Columbia Class program continues to execute exceptionally well. We're delivering on time and with quality and our results reflect the financial benefits of that solid execution. As the Navy adjust surface combat and modernization strategy. We remained engaged at the center of propulsion architecture discussions across platforms. Our Electric Power and Propulsion solutions are modular and remain highly relevant to the power demands of next-generation platforms. Finally, I want to congratulate Sally Wallace on her new role as Chief Operating Officer. Sally is a strong leader a trusted partner and a more than 20-year DRS veteran with deep understanding with customers and a strong track record of delivering mission-critical technology. We've made a few other changes to the team. As a result, we have an exceptional team, and many of those changes reflect expanded responsibilities for long-standing leaders who have delivered strong results. I'm confident in each of them and will be successful in expanding roles. Mike, over to you to walk through the details of our financial performance and 2026 outlook. Michael Dippold: Thanks, John. I appreciate the team's steadfast focus in delivering another year of solid financial results, particularly in light of several unique factors we faced in 2025. I'll walk through fourth quarter and full year 2025 results by key metric and then discuss our 2026 outlook. Overall, our full year 2025 results exceeded our expectations. We executed at the high end of or above the guidance range provided on our last call. These results were delivered amid a prolonged government shutdown for most of the fourth quarter. Revenue in the fourth quarter was $1.1 billion, up 8% year-over-year. Robust demand for tactical radars, electric power and propulsion and advanced infrared sensing drove core growth. The quarter included a net benefit from the quantum laser IP license agreement partially offset by the conclusion of the legacy foreign ground surveillance program John discussed. For simplicity, I will refer to the net effect of these items as the net nonroutine impact. While the net impact is not significant at the consolidated level, it is more visible in the segment results for both the quarter and for the full year. Full year revenue was $3.6 billion, representing 13% organic growth versus 2024. This marks back-to-back years of teens revenue growth. Growth was broad-based across demand sensing, network computing, force protection and electric power and propulsion, and that was reflected in the segment trends. Our advanced sensing and computing segment delivered revenue growth 9% in Q4 and 11% for the full year. Our Integrated Mission Systems segment delivered year-over-year growth of 5% in Q4 and a healthy 15% for the full year on the back of robust performance in electric power and propulsion and counter UAS programs. Moving to adjusted EBITDA. Adjusted EBITDA was $158 million in the fourth quarter and $453 million for the full year, representing year-over-year growth of 7% and 13%, respectively. Margins were 14.9% in Q4 and 12.4% for the full year. Full year margin was flat as higher volume and improved profitability on the Columbia Class program were offset by higher R&D investment and less efficient program execution, driven by material cost growth. Increased R&D created a 70 basis point year-over-year headwind to margin. At the segment level, ASC adjusted EBITDA and margin were bolstered by the license -- the laser license agreement in both Q4 and the full year. Excluding this item, ASC adjusted EBITDA and margin would have declined primarily due to higher company-funded R&D and raw material cost headwinds primarily related to germanium. IMS adjusted EBITDA was negatively impacted by the legacy program conclusion in both Q4 and the full year. Excluding this item, IMS adjusted EBITDA and margin would have increased meaningfully, driven by operating leverage from growth and improved profitability on Columbia Class. Now to the bottom line metrics. Diluted EPS and adjusted diluted EPS increased 15% and 11% year-over-year in the fourth quarter, respectively. For the full year, diluted EPS and adjusted diluted EPS increased by 29% and 24%, respectively. In both periods, strong operating profitability, lower interest and other expense as well as a lower effective tax rate supported EPS performance. Moving to free cash flow. Fourth quarter free cash flow generation was robust and totaled $376 million, bringing our full year free cash flow to $227 million. Our strong cash generation in 2025 leads the balance sheet with net cash at year-end. Subsequent to year-end, we entered into a new $500 million revolving credit facility, providing lower interest costs and added borrowing flexibility. Turning to 2026 guidance. Robust customer demand and bookings over the past few years provide visibility into continued growth. We are initiating a revenue range of $3.85 billion to $3.95 billion, implying a 6% to 8% organic growth. Our backlog provides a clear path to executing within this range. Key factors influencing revenue include the pace of material receipts, labor execution and to a lesser extent, the timing of customer orders for book-to-bill revenue. For adjusted EBITDA, we expect $505 million to $525 million in 2026. The implied year-over-year margin improvement is 70 to 90 basis points, driven by improved profitability in Columbia Class, favorable program mix and operating leverage from growth. We plan to continue robust company-funded R&D investment at a comparable percentage of revenue to 2025, but we do not expect it to pressure margins to the same extent as last year. Amortization is expected to be flat in dollars and depreciation should increase modestly given recent CapEx. Together, they should approximate 3% of revenue. For adjusted diluted EPS, we are initiating a range of $1.20 to $1.26 per share. Our guidance assumes an 18.5% tax rate and a fully diluted share count of $269 million. We also expect free cash flow conversion of 80% of adjusted net earnings. As John mentioned, we are increasing projected CapEx meaningfully in 2026 as we complete the Charleston facility and make additional investments across the business to enhance capacity and capability. As a result, we expect CapEx to be just under 5% of revenue. Improved working capital efficiency is expected to partially offset the higher CapEx. Finally, we expect Q1 revenue to range in the low 800s with an adjusted EBITDA margin in the low 11% range. Revenue and adjusted EBITDA linearity is expected to be comparable to recent years. The second half of the year should contribute slightly more than half of revenue and more than half of adjusted EBITDA. We anticipate a similar quarterly trend in our free cash flow with modest linearity improvements as we continue to drive working capital efficiencies. Let me turn the call back over to John for closing remarks. John Baylouny: Thanks, Mike. I'm incredibly proud of the team's relentless focus and their immense contributions in support of our critical national security priorities. The results we delivered in 2025 and over the past few years reflect the strength of our portfolio and the soundness of our strategy. DRS is in an excellent position, and we're building on this strong foundation to drive another year of significant growth, while also nurturing long-term opportunities that will define the next chapter of the business. We are investing, innovating and executing at a time when our customers need these capabilities more than ever. As we look ahead, we remain focused on delivering these cutting-edge capabilities to the customers with speed, quality and scale, positioning us for continued growth. With that, we're ready to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Robert Stallard with Vertical Research. Robert Stallard: John, maybe just to kick things off. You mentioned at the start of your comments, the potential benefits from the reconciliation bill that was passed last year. We're starting to get some details on that. And I was wondering if you've seen anything there that suggests some upside for DRS? John Baylouny: Well, thanks, Rob. Yes, we are starting to see some of the money flowing now and we believe that we have alignment in some of the priority areas where some incremental funding could flow. Again, it's early days, though. I think we haven't seen the money get all the way to our customers yet, but there is certainly some alignment with where we're investing and where the money is going. Robert Stallard: Okay. And then as a follow-up, you highlighted that you've seen 4 years of at or above 1.2x book-to-bill. I was wondering, does this suggest there's going to be a step-up in your revenue growth in the years ahead? Or does this order intake just extend similar kind of growth further into the future? John Baylouny: Well, Rob, we're certainly optimistic on growth. But I want to acknowledge that we do have a diverse portfolio we are due to the fact that we're stepping up to a higher level in capabilities and solutions, we do have an elongated conversion cycle. It's certainly our goal to continue growing like we did in 2025, and we're optimistic. But you have to acknowledge there's other elements. Operator: Our next question comes from the line of Michael Ciarmoli with Truist. Michael Ciarmoli: Nice results. Just a follow-up on that last line on growth. I don't know, John or Mike, did you size the ground revenue program that's rolling off? Just trying to get a sense of -- you've got a big portfolio. Is anything specifically winding down or creating a headwind? I mean it just seems like the funding environment, the budget environment is getting better. I know you're lapping 2 years of low teens growth, but why should we think growth is really going to decelerate here? Michael Dippold: Yes, Mike, I'll take that. I think that ultimately, when you look at the portfolio as diverse as ours, it's always going to be elements that are growing at a different rate. So although we're aligned in a lot of the swim lanes that I think are going to get good allocated funding in terms of shipbuilding our recent winded space. There are pockets mainly in the network computing area that are growing at a little lesser rate. And that's what we're -- John was kind of commenting on there. Michael Ciarmoli: Okay. Okay. And then just one more on kind of cap structure, capital deployment. You're probably going to end the year here with a net cash position of -- in excess of $400 million, you just mentioned the new $500 million revolver. How should we think about putting that balance sheet to work? And is that the most optimal structure right now? John Baylouny: Well, thanks, Mike. Yes, certainly, our top priority has always been and will continue to be organic investments first. And you're seeing us invest in CapEx. You're seeing us invest in IRAD. We expect it to drive growth in the out years but organic first and then inorganic. And we're going to be kind of picky about what we look at in the M&A space. So -- but first organic, then inorganic. Operator: Our next question comes from the line of Seth Seifman with JPMorgan. Seth Seifman: Nice results. I wanted to start off asking about the profitability in IMS in the fourth quarter. If we add back the international program termination, it was a very healthy margin. Was there a catch-up on Colombia? Or should we think about the -- what should we think about what the fourth quarter margin implies for going forward in IMS. Michael Dippold: Yes. Thanks. Appreciate the question. We certainly saw a strong demand across the segment of IMS coming from our naval power business, bolt-on Colombia, but also on the surface ships also had an inflow of revenue on the counter UAS and efforts that we have there. So a lot of the margin was coming from the volume leverage that we saw. So we had a big growth in the quarter which materialized the margin. As you're aware, we've peer to expense G&A, we peer to expense the IRAD. So that operating leverage fall to the bottom. So that was a big element of it. The performance at Colombia certainly continues to be a tailwind, not a major catch-up but certainly a tailwind for the quarter. Seth Seifman: Okay. Okay. Excellent. And then maybe following up when we think about Charleston and the new capacity coming online there. It seems now that we might have some new ships a little bit faster than previously expected when you guys announced that in terms of a new frigate, and we'll see what happens, but maybe even a battleship. What are discussions like at this point about your ability to use that capacity on these new ship process? John Baylouny: Yes. Thanks for the question. Look, I think that we're seeing that space evolve, right? And we've said in the last call, we talked about the need for future combatants have to have greater -- to fight from greater distances. They need more power to meet that distance need and more powerful radars, more powerful electronic warfare or directed energy, et cetera. And to do that, they're going to need electric propulsion system that allows them to move energy from one part of the ship to another and make use of all of the energy on the ship. What we're looking at going forward here is -- and we're embedded in some of these discussions with the Navy is about building a capability for modularity. So whether they build a battleship or a destroyer a cruiser or a frigate or even, frankly, a medium-sized USV, they should be using the same architecture, that electric architecture, propulsion architecture that will allow for on -- what I've been calling out is common chassis, like you see in the automotive world where all the different size cars are built off the same kind of structure. And so if that's the case, and we head down that path, regardless of what the Navy ends up building, we'll be able to utilize that capacity down in Charleston for different size components. We've been investing in different size motors, different size drives, different size components for those ships that would be applicable to any size ship, whether it's a battleship all the way down to a medium-sized USV. So that's where we're headed. That's where we think that the Navy is going to head down that path. And again, that capacity that we built out down at Charleston will be the enabler for that capability. Operator: Our next question comes from the line of Austin Moeller with Canaccord. Austin Moeller: So just my first question here. Can you comment on the Tranche 3 tracking layer infrared payload award, what the contract value might look like and how this might grow as part of the Golden Dome now that over $13 billion was appropriated in the space force budget for '26. John Baylouny: We're not going to -- Austin, thanks for the question. We're not going to comment on the size of the award due to the fact that that's competitive. But we're really excited about this award. It's taken us some time incredible amount of innovation to find a different way to do this mission. Now that we've won that award, and we're squarely focused on executing the program and bringing that execution excellence to that team so that we can deliver on time. As we move forward to what other opportunities there might be in space, we look to help solve the bigger the bigger question of connecting for -- potentially for Golden Dome connecting the threat to the -- or the interceptor to the threat which is one of the reasons why we want to put the software-defined radio with the software-defined crypto into space that would allow us -- and we put some compute up there as well. So it would allow us to now connect and decrypt the data compute and then re-encrypt the data so that we can send it down to the interceptor so that the decisions, the yes/no decision happens on the ground, but the connectivity happens up at the edge in space. And so we're looking to solve the bigger problem the Golden Dome has, which is time. The intercept time has to happen, we believe, up in space that connectivity, otherwise, you're not going to make the time line. So what happens with the SDA tracking layer, portfolio? And how does dovetail into Golden Dome is still a question mark. The preliminary architecture is still being discussed and not completely public but we believe that all of the sensors that are up in space, all of the sensors on the ground to include over the horizon Radar will be part of the solution for Golden Dome. Austin Moeller: Okay. And based on the fiscal year '26, $27 billion shipbuilding budget, and what you're hearing from the Navy, do you expect a higher mix of like small or medium USVs in the force structure and would one design versus the other impact your ability to build an electric drive system or provide compute content or impact profitability on such a system? John Baylouny: It's a great question. I think you're going to see -- and it's an opinion. You're going to see a different ship classes being built. The battleship, whether they end up building a battleship or not, we'd love to see it or it becomes a destroyer or cruiser. But you're going to see a lot more as you kind of led here to smaller surface combatants, whether they're MUSVs or small USV or medium or small USVs, you're going to see a lot more quantity of those. We've been investing in capabilities for those small and medium USVs by putting mission equipment packages on them, putting them -- to see last year. We think there are missions out there for whether it's counter UAS or ISR or other missions for those small combatants. As far as the propulsion systems for those, we -- again, we've been investing in small, medium, large and extra large different components. We have some of our propulsion components on some of the USVs that are being tested now. And of course, Columbia Size motors would be applicable for some of the larger compaction. So we think we can address any number of different size ships and we do expect that the Navy will buy a whole portfolio of different capabilities. Operator: [Operator Instructions] Our next question comes from the line of Jon Tanwanteng with CJS Securities. Jonathan Tanwanteng: Congrats on a nice year. I was wondering if you could address the Quantum laser license that you signed. Can you go into a little bit more detail what that technology allows the customer to do, number one? And number two, are there more opportunities beyond that as quantum becomes the next tech over the horizon? John Baylouny: Yes, John, let me take that. Thanks for the question. Depending on the architecture of the quantum computing structure, some of them are -- some of them utilize lasers to excite the ions. And in this particular case, that's exactly what they're doing. They're using the quantum cascade laser technology that we make for military use to excite the ions for quantum use. To the question about are there other applications like this, we certainly look for noncore areas of the market to license our technology. We're not in the commercial space. We focus our attention on the military and defense space. And so when we see an application like this, and this is the second time we've seen it, and we'll look for others going forward. We like to license the technology out and allow the other companies to take advantage of the technology in the markets that we're not in. And so we'll continue to do that in the future. I can't say we have another one in the bag ready to go, but we'll continually look for them. Jonathan Tanwanteng: Okay. Great. A question about the CapEx. You mentioned that you're increasing for the year. What is the specific -- what are the specific programs that the increase is tied to? Is it production of components? Is it other stuff that's going on? Michael Dippold: Yes, Jon, I'll take that one for you. So thanks for the question. From a CapEx perspective, as John alluded to earlier, organic investment is where we're focused. And right now, from a CapEx perspective, that's about capacity. So we spoke about the naval elements that we're doing down in South Carolina, but also throughout the whole naval portfolio, we're looking to expand capacity and make sure that we're contributing to the more efficient shipbuilding aspirations of the department. So there's an element of CapEx going there. I would also say from a counter UAS and maybe more finite, the tactical radars the demand continues to be robust. I think we're continuing to see the performance of these radars, and that's requiring us to also increase capacity for that output. So those are the 2 primary areas that we're seeing. But the other things we're trying to do is also continue to have demo assets ready to meet the need of this kind of speed to market. So we want to have mission equipment packages to go on USVs that are ready to go. That's also an element of the CapEx, but mainly capacity, but also some demo assets for demonstration and speed to market. John Baylouny: Let me just add a little bit more to that in another area in the missile area, where as you look at, they come to realize that in the battlefields of the future, it's going to be dominated -- they're going to be dominated by autonomous platforms and weapons like load emissions and such. And sensing is a key part of every one of those platforms. And of course, we make exquisite infrared sensors and radars and other sensors as well. The demand signal for those low-cost highly attributable platforms is there. So we're investing some in capacity to expand those capabilities. And on the missile front, all the way from the very low end capabilities all the way to the very high-end capabilities are things that we're investing in and including capacity for those capabilities. Jonathan Tanwanteng: Understood. If I could sneak one more in there. How do we expect OpEx and R&D to grow maybe as a percent of revenue this year? Or do they stay roughly the same? Michael Dippold: Certainly, from an IRAD perspective, we expect to see that as a similar percentage of revenue. I think the margin impact that you saw as we ticked it up to that mid-3% of sales range was a onetime thing. I think we're going to be stabilized there that will contribute to our ability to expand margins. And then from a CapEx perspective, I would say that we're looking to pick that up and it will be somewhere in the neighborhood of 5% of sales. Jonathan Tanwanteng: Got it. I think I said OpEx, not CapEx. Michael Dippold: I'm sorry. Yes, I would expect from an OpEx perspective that you see a little bit more moderate of an increase. I think in 2025, we had a big jump that we saw, and I would not expect that to continue at that pace. Operator: Our next question comes from the line of Andre Madrid with BTIG. Andre Madrid: Looking at your prior 2026 target, I know you guys had outlined 14% EBITDA margin. That's obviously not going to be the case with what's implied right now. But when do you think that, that could feasibly be achieved down the road? And then I guess, too, as we just look at 2026 kind of being the endpoint of your targets from the last Investor Day, I mean what insight can you just provide at large about how the remainder of the decade might look like. Michael Dippold: Yes. So our intent is to provide multiyear targets probably in the first quarter of 2027, Andre. So we're not going to get out in front of that now, but I'll give you some directional points. The first is we think the business is structured to be in the mid-teens margins, right? So there is a continued path to grow the margins I think our guide showing that in the increase that we're expecting in '26. And I don't expect that to be any different as we look out into '27. So we should be able to get into the mid-teens comfortably there. And that's what I'd kind of give you that confidence there as we look out into the future. Andre Madrid: Got you. Got you. And then I guess as we look at book-to-bill, I mean, demand has just been so strong. I mean we've looked at 16 consecutive quarters either at or above onetime. I mean are you worried about this softening at any point? Or is there any particular area in which we might see a softening. John Baylouny: Well, Mike explained that we are looking at some of the areas that are not going to grow as fast as other areas. But we focus all of our attention on the portfolio to see where we can invest to increase the speed of growth. And so I wouldn't point out any one particular area of the business that we say is the demand is going to fall off. I just think it's a matter of how fast they grow. Operator: Our next question comes from the line of Ron Epstein with Bank of America. Ronald Epstein: So you've covered a lot of ground already, but maybe one area where we really haven't talked much is what are you seeing for the company in terms of opportunities in Europe, right? European defense spending should, I don't know, go to, I don't know, what, $850 billion by the end of the decade, maybe if everybody spends what they say they're going to do. That's a pretty big market. And then also, how has sort of the transatlantic tension impacted your business, be it that your primary shareholder is a European company? John Baylouny: Yes. Thanks, Rob. Let me take that. I think, first of all, you're right. There's certainly the macro environment today, the U.S. is looking for speed. Europe is looking to be self-reliant. And there's urgency on both sides. And that's a conducive environment. for partnership, frankly. You mentioned our parent. They're a key partner for us in driving that international growth capability. Given their footprint in Europe, and around the globe, we're looking to further leverage that position and accelerate and expand our growth, especially now that they have this Iveco defense and through their JV with Rheinmetall. Given the fact that they've got a strong portfolio, we're looking to utilize those technologies capabilities in the U.S. And of course, we'd have to Americanize the capability to apply to the U.S. market but -- and vice versa, right, moving in the other direction. The self-reliance in Europe often starts with licensing technology from the U.S., and we've got technology that we could do. So this is the right time for us to be having the discussion and your question is timely to be having the discussion about increased collaboration with Leonardo to address both the European markets and the urgency on the U.S. side. Ronald Epstein: Got it. Got it. Got it. And then maybe just a detail. Is the laser IP licensing a sign of just more expanded -- I mean, I guess this is sort of already asked, but more expanded work outside defense. John Baylouny: Yes. Look, I think that we want to stay focused. We want to stay focused on defense. We want to make sure that we play to our strengths and our capabilities. And so when we see a market like this, it's outside of our core capability and focus we tend to want to get it licensed out. We want -- will help, but we want to get it out of our portfolio and moving into another domain. This will keep us focused on the growth markets for defense, which is where we're -- which is our strength. Michael Dippold: Yes. And Rob, I'll just add one thing here. The laser IP that we're talking about has a lot of utility in nondefense outlets. So we've looked at this in the past, we have had some successes. We're going to continue to do so. But really, where John is going is that utility of that IP, just as broad-based applicability. And we're not going to be able to chase every one of those opportunities. So we're keeping focused on the defense space and get a look for these license opportunities as they emerge. Operator: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to John for closing remarks. John Baylouny: Thank you. I want to thank everyone for joining today's call. We're proud of our strong continued organic growth our expanding presence in the space market and our disciplined investment alignment with customer needs. We're excited about the opportunities ahead. Focus remains on driving profitable growth and delivering differentiated capabilities for our customers. If you have any further questions, Steve and the team will be available after today's call. We look forward to speaking to you again. Thanks, again, and have a great day. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Mar Martinez: Hello. Good morning, and welcome, everyone, to this event where, as you can see from the agenda now on the screen, our CEO, Jose Bogas; and our CFO, Marco Palermo, will first comment on the results achieved in 2025, and then we will present the updated strategic plan for the next 3 years. After some closing remarks, we will open the Q&A session. Thank you. And now I would now -- sorry, like to turn to Mr. Bogas. Thank you. José Gálvez: Thank you, Mar. Good morning, and welcome to everybody, everyone. Let me start with the results achieved this year, which I'm sure speak for themselves. EBITDA reached EUR 5.8 billion, comfortably above the upper end of our guidance, while net ordinary income reached EUR 2.3 billion, exceeding target and representing an 18% increase year-on-year. Economic and financial performance was particularly strong underpinned by robust cash generation and disciplined execution. We remain fully engaged to our capital allocation strategy, successfully delivering on the main strategic priorities set last year as we will discuss later. This solid performance reflects our ability to deliver on our commitments and our continued focus on value creation for shareholders. Accordingly, we will propose a dividend of EUR 1.58 per share at the next Annual General Meeting, well above our target set and 20% higher year-on-year. On Slide #5, we would like to highlight the steady progress made in executing our capital allocation road map throughout 2025. Several transactions were successfully completed during the year, strengthening both our asset base and our commercial capabilities. In February 2025, we closed the acquisition of 600 megawatts of hydro assets, while in July, we completed the acquisition of the remaining stake in CETASA, fully consolidating its wind asset portfolio. Together with the entry of a partner into our solar asset portfolio, this transaction illustrates how we are reducing the risk profile of our generation asset. And finally, the alliance with MasOrange fully consolidated since February 9, 2026, enhanced our commercial offering through telecommunication solution, reinforcing our commercial strategy and strengthening customer loyalty. Slide #6 provides an overview of the progress made on capital allocation and the execution of our key industrial KPIs. Over the period, we invested EUR 3.2 billion, more than 50% above versus previous year's figure, 77% being allocated to grid and renewable assets. This strong effort led to an improvement in the interruption time index, while total losses remained broadly stable, largely impacted by non-manageable losses. In renewable, the integration of approximately 1.2 gigawatt of new capacity enabled us to reach 80% emission-free installed capacity. Finally, in the customer segment, we progressed on a strategic shift towards higher-value customers, reshaping our customer mix with a clear focus on long-term loyalty and value creation. This strong operating performance turns into outstanding value creation for our shareholders, and I am now on Slide #7. Nothing better illustrate the success of our long-term vision and the resilience of our business model and the consistent returns delivered to our shareholders. Over the 2014 to 2025 period, Endesa has clearly outperformed the main benchmark indexes, underscoring the strength and credibility of our value proposition. As mentioned earlier, we will propose a dividend of EUR 1.58 per share, excluding treasury stock outstanding as of 31st of December 2025, would imply a dividend yield of more than 5%. Finally, our EUR 2 billion share buyback program is currently around 30% executed as we remain fully committed to completing this within the planned time frame. In fact, a new tranche of EUR 0.5 billion has been approved and will be completed up to July 2026. And now I will hand over to Marco, who will go into the financial results in more detail. Marco Palermo: Thank you, Pepe, and good morning, everybody. This year's strong results were achieved in a market context characterized by demand growing for the second consecutive year, increasing 2.9% year-on-year and 2.0% on an adjusted basis. In Endesa distribution area, where adjusted demand is growing by 2.8%, consumption increased across all customer segments. This reflects not only Spain's economic recovery during the year, but also a rebound in industrial and services demand as part of a broader sector-wide increase in energy usage. This clearly marks a turning point in the trend. The sharp rise in connection requests seen in recent years is now starting to materialize, representing a unique opportunity to reindustrialize the economy and to electrify the demand. Turning now to the price scenario on Slide 10. Although the average pool price has remained broadly unchanged year-on-year, the intraday volatility has been extremely high, ranging from EUR 145 per megawatt hour in the mid-winter to 0 or even negative prices in spring, coinciding with the strong renewable resources and low demand. This level of volatility has become a structural feature of a system with very high renewable penetration. Spain continues to display some of the most competitive power prices in Europe. That said, it is important to note that the final energy prices were affected by post-blackout measures adopted by the TSO, which led to a significant increase in ancillary services costs. Let me now focus on the main drivers behind our financial performance. As mentioned earlier, EBITDA reached almost EUR 5.8 billion. I'm now on Slide 11, up 9% year-on-year. This strong performance was supported by, first, generation and supply EBITDA increased by 11%, driven by in conventional generation, a strong gas management margin, reflecting the positive impact of hedges executed in previous years, partially offset by lower opportunities on the short position. In renewables, EBITDA was slightly lower, reflecting lower volumes and prices, both in wind and solar, while the hydro margin increased driven by higher volumes and the shape effect. And supply delivered sound results across both businesses, gas and power, with power performing well despite higher ancillary services cost. Turning to Networks. EBITDA increased by EUR 0.1 billion primarily explained by previous year's resettlements. If we go to Page 12 now, all these dynamics are reflected in our integrated power and gas unitary margins. The free power margin stood at EUR 52 megawatt hour, representing a decrease of only 5% year-on-year despite the increase in ancillary services cost, which weighed on results. On the other hand, gas margin reached EUR 9 per megawatt hour, a strong improvement driven by the factors mentioned above. Moving now to Slide 13. Net ordinary income came in at EUR 2.3 billion, significantly above the upper end of the guidance, reflecting strong operational performance and improving the net ordinary income to EBITDA conversion ratio to 41%. D&A increased by 9%, mainly reflecting higher amortization linked to increased investment level. Financial results almost flat and the effective tax rate stood at around 23.5%, no longer affected by the temporary levy that impacted last year's results. Turning to the next slide, Page 14 now. We delivered strong cash generation with FFO reaching an outstanding EUR 4.1 billion and a cash conversion ratio of 70% FFO on EBITDA, already above the level targeted for 2027. On Slide 15 now, the sound cash flow generated by the operation more than covered total investments, including EUR 1 billion of inorganic investments. Over the period, net financial debt increased by EUR 0.8 billion, up to EUR 10.1 billion, reflecting dividend payments amounting to EUR 1.5 billion as well as the execution of the share buyback program that resulted in a cash outflow of around EUR 500 million. Gross financial debt remained almost flat with the average cost declining to 3.3%. And with this, I will now hand over to Pepe to present the strategic plan for the next 3 years. José Gálvez: Okay. Thank you, Marco. As we move from the review of our full year results to the outlook for the coming years, it is important to start by looking at the broader energy market context in which our strategic plan 2026 to 2028 will unfold. Spain still demonstrate a very high dependence on oil and gas, and this will not decline unless we accelerate the electrification of final demand. Electrification is not only essential to cut emission and reduce energy dependence, but also a key opportunity to reindustrialize the country, thanks to competitive renewable resources. In the medium term, electricity demand grows towards level close to the PNIEC for conventional uses, but renewable hydrogen demand is significantly delayed due to the systematic halt of projects. As a result, energy dependence will remain around 60% in 2030 and electrification near 31%, both below target. Demand growth by 2030 is driven by GDP-linked inertia, the electrification of industry, transport and buildings, although compensated by efficiency gains. Data centers will represent less than 5% of total demand. In the longer term, in order to meet the European Union's 2040 goals, conventional demand should grow by around 3% per year driving electrification to almost 50%. On top of that, hydrogen would add 120 terawatt hour of new demand. The development of this promising scenario necessarily requires significant investment in new infrastructure. The streamlining of project approval processes and above all, a stable regulatory and attractive framework. As shown on Slide 18, as of the 31st January 2026, the Spanish distribution network is close to its capacity limit with a saturation level of 88%. The situation is even more critical at Endesa, where around 94% of network nodes already saturated and unable to accommodate new demand. With this framework, we have been able to grant only 18% of total demand connection requests received. To provide some context for these figures, the 26 gigawatt connection request received along the year is well above peak demand of our entire national distribution network. Grid constraints are delaying or canceling investment. Grid saturation being a major barrier for economic growth, industrial electrification and the achievement of Spain's decarbonization target. In this context, boosting investment in distribution network is essential to ensure that the country does not miss a opportunity for sustainable economic growth. The ministry is fully aware of the severity of the situation and the forthcoming royal decree aimed at increasing investment limit is expected to provide additional headroom and improve the framework for accelerating the grid reinforce. Spain faces growing security of supply challenges. Wind and storage deployed capacity is significantly behind PNIEC targets, creating stress during period of low renewable output. Solar is expanding rapidly, potentially above the PNIEC, but without sufficient storage, it cannot replace firm dispatchable capacity. This leads to seasonal curtailments and winter deficits triggering the higher gas-fired generation. Nuclear plays a critical role in ensuring security of supply. We believe that extending plant lifetimes strengthens system stability by providing inertia and voltage control, reducing CO2 emission and lowering wholesale prices by at least EUR 10 per megawatt hour. With the removal of specific taxes, nuclear's full cost would fall below the cost of replacing its production with a mix of solar batteries and CCGTs, which would be roughly twice as high. To guarantee long-term reliability, Spain must secure firm capacity, accelerate storage, adapt the nuclear closure schedule to real PNIEC products and maintain combined cycles as essential backup for future renewables. Moving now to our 2026-2028 strategic plan. Let's now break down how this energy landscape shapes the key highlight of our strategy for the next year, and I am now on Slide #21. We now present a clear and balanced approach focused on growth, risk return discipline and financial strength. First, we will deploy EUR 10.6 billion investment plan over the period with more than 50% allocated to network, reinforcing our commitment to support electrification and reinforce grid resilience. The plan also includes selective investment in value-accretive renewable projects. Second, our resilient low-risk asset portfolio will deliver predictable growth, providing a strong visibility on future performance with around 85% of EBITDA regulated or contracted. Third, our financial strength enable us to deliver sustained profitable growth. EPS is set to grow at a steady 5% year-on-year on average, driven by higher investment business growth and the ongoing effort to improve productivity and efficiency. Turning now to Slide 22. Let me walk you through the investment profile of our new plan. We plan to invest EUR 10.6 billion, 10% more than the old plan with a clear strategic focus on networks and selective renewable projects, key enablers of the energy transition, which together will account for around 80% of the total. Investment in grid will increase by around 40%, reaching EUR 5.5 billion. This increase assumes the approval of the Royal Decree that would allow CapEx above the current regulatory cap as well as the full recognition of the investment deployed. This level of investment is essential to accommodate new demand connections, support electrification and reinforce network resilience. In renewables, the plan involves EUR 3 billion of investment focused on selective project positioned to capitalize on rising demand. And finally, in non-mainland, in addition to maintenance investment, only those related to the outcome of the capacity auction have been considered in order to extend the useful life of our power plants. And on Slide 25, focusing on grid investment. 52% of the investment in this plan will be deployed on networks. This plan marks a significant step forward in the share of investment contributing to RAB growth, plus 60% versus previous plan. Indeed, out of the EUR 5.5 billion CapEx, around 80% will flow into the RAB. As a result, our RAB will increase 13% by 2028. Worth highlight is that around 70% of the total CapEx plan or around EUR 900 million will be accounted as RAB and will contribute to EBITDA growth beyond 2028. Operational performance will continue to improve with lower TEP and reduced technical losses. Moving to Slide 26. During the time frame of the plan, we are allocating around EUR 3 billion of investment, 80% devoted to asset development, investment are 20% down compared to last year due to the more selective approach and to the fact that some specific projects have been rescheduled, extending the completion date. We are working to bring into operation 1.9 gigawatts of renewable capacity by 2028, mainly wind and batteries. This will allow us to achieve 25 terawatt hour output. Batteries and storage projects will play a key role, enable us to optimize production, stabilize renewable output, while ensuring power availability throughout the day. This project will deliver attractive returns with an IRR versus WACC spread to around 300 basis points with 21% of the CapEx contributing beyond 2028. Moving to next slide on Slide #27. I would like to comment on our site portfolio to develop a hybrid platform that offer optimal condition for data centers. This project combined existing grid connection rights, transfer land for fast deployment and the ability to provide full supply solution based on renewable and grid access. Within this plan, we are also progressing selectively on some singular projects such as Pego, which is scheduled to be in construction in 2027 and will incorporate 600 megawatts of new hybrid renewable capacity, wind, solar and batteries with an estimated investment of EUR 600 million. Its hybrid configuration enables an energy profile close to baseload, making it highly suitable for large-scale customers such as data centers. Endesa is well positioned to capture emerging business opportunities in the data center segment. When it comes to customer business drivers, I am on Slide #26. We will strengthen our position through loyalty, commercial alliance and better value management. On the one hand, we will expand our physical store networks, improving face-to-face services, especially relevant after the approval of the regulation restricting spam calls and phone contracting that will help to reduce fraud in the short term while improving more than 10% churn rate in the medium term. On the other hand, new alliances such as the consolidation of MasOrange from 2026 broadens our blended offer portfolio and reinforce loyalty programs. As a result of all these initiatives, our customer base is set to grow from 6.2 million to 6.7 million free power clients by 2028, while total our sales remain stable. Finally, it should be noted that the launch of an efficiency plan to improve our competitiveness in the current market environment. Looking at our second strategic highlight on Slide #27, one of the key assets we intend to foster is the high visibility and low risk of our earnings profile. Over the period, we expect to deliver around EUR 18 billion of cumulative EBITDA around EUR 85 million stemming from regulated or contracted activities, providing clear visibility on future delivery. Grid, we are almost fully regulated and a large part of our generation portfolio, including non-mainland generation and regulated renewables also benefit from remuneration schemes. Finally, a relevant share of electricity generation is already lacking through long-term contract and PPAs as well as by our fixed price customer portfolio, which benefits from a strong inertia, given us substantial visibility and predictability over a 3-year plan period. And now let me hand over to Marco, who will explain the main financial target of this new plan. Marco Palermo: Thank you, Pepe. I would like to introduce the third strategic highlight. We go now to Page 30, financial strength by showing a slide that clearly illustrates the resilience of our business. Our 2025 results already exceeded the target set under the previous 2025-2027 plan, highlighting the strength, the consistency and the quality of our performance. 2025 net ordinary income reached EUR 2.3 billion, 21% above the original guidance. Moreover, when compared with the former 2027 guidance in the old plan, it already represents an outperformance of approximately EUR 0.2 billion. Importantly, this strong performance is reflected by a sound 41% of EBITDA to net ordinary income conversion ratio. On Slide 31 now. Overall, these results reinforce our confidence in the business outlook, and they are a good starting point for the growth plan for the coming 3 years. EBITDA is expected to grow at a compound annual rate of around 4%, together with an improvement in cash conversion with the FFO to EBITDA ratio increasing to 78%. Net ordinary income is also expected to grow at a similar pace at approximately 4% per year, reaching a range of EUR 2.5 billion, EUR 2.6 billion by 2028. Profitability will remain stable with the net ordinary income to EBITDA ratio broadly maintained at around 40%. Turning to capital structure. Net debt is expected to increase to a range of EUR 14 million, EUR 15 billion by the end of the plan period. With this overview in mind, let me now take you through the evolution of our main business lines on Slide 32. EBITDA is expected to increase by around 10% over the plan, reaching a range of EUR 6.2 billion, EUR 6.5 billion by 2028. This growth is underpinned by three main drivers, which we will discuss in more detail in the following slides. First, an improvement in the distribution margin, supported by higher investment levels under the new regulatory framework. Second, the expansion of the generation and supply businesses. where the increase in the integrated power margin more than offset the expected normalization of the gas margin. And finally, a reduction in fixed cost driven by the rollout of a new productivity program supporting competitiveness in an increasingly challenging environment. We will now take a closer look at each of these drivers in the following slides. Let me now turn to Networks on Slide 33. Networks' EBITDA is expected to increase by a solid 10% over the plan period, reaching EUR 2.3 billion in 2028. This growth is primarily driven by the strong expansion of the regulated asset base, which is expected to increase by around EUR 1.5 billion over the plan period. Our second key driver is the entry into force of the new regulatory framework for the 2026-2031 period. Taken together, these factors will support an increase in regulated remuneration over the planned horizon. Turning now to Slide 34. Let me provide you with a more detailed view on the evolution of the free power and gas margin of the plan period. Starting with the power business. Sales to liberalized customers will remain broadly stable with an increase in free fixed price sales, representing around 80% of the total free sales. These volumes are increasingly covered by infra-marginal technologies due to the higher renewable output, leading to structurally lower sourcing cost. By 2028, the free power unitary margin will increase driven by, first, a strong improvement in the supply margin, mainly explained by the recovery of extraordinary ancillary service costs incurred after the 2025 blackout by the resilience of fixed price customer portfolio and by the reduction of sourcing costs. Second, positive generation margin on higher renewable volumes then more than compensate the impact of a lower price scenario. Finally, a slight improvement from the short position engagement. Moving to the gas business. Total sales will decline by around 33%, reflecting the expiry of the Qatar and the Nigeria gas contracts. Gas margin will normalize over the planned period, essentially due to retail gas margin remaining broadly stable. And in contrast, other gas margin normalizing from the exceptional high levels recorded in 2025. Turning now to Slide 35. Productivity has always been at the core of our strategy. But over the next 3 years, it will be even more critical to maintaining competitiveness in an increasingly challenging market environment. Over the planned period, fixed costs are expected to decline by 10%. This improvement is driven by a strict and well-defined efficiency program to be deployed throughout the period. A key enabler of this program is the broad deployment of digitalization and progressive implementation of AI-based solution across the company. These initiatives support more intelligent and real-time grid operations, higher efficiency and reliability in generation, more personalized customer interactions and productivity improvements across selected corporate and support functions. Together, they allow us to structurally improve our cost base while enhancing operational performance. Efficiency measures will be primarily concentrated in the liberalized businesses where there is greater flexibility to capture value. Actions include organizational streamlining, process reengineering, increase in-sourcing of critical activities and the recalibration of services provided by external suppliers. In summary, disciplined cost control, combined with AI-driven efficiencies enable us to protect margins, improve competitiveness and sustained performance over the long term. Turning to Slide 38 now -- sorry, 36 now. Looking at the net ordinary income, we expect a solid and sustained growth trajectory of the period with a compound average growth rate of approximately 4%, reaching a range of EUR 2.5 billion, EUR 2.6 billion by 2028. The EBITDA to net ordinary income ratio will remain around 40% throughout the plan. The updated plan represents a clear improvement in earnings per share growth. EPS is now projected to grow at around 5% per year on average, a meaningful acceleration compared with the previous plan where we envisaged up 3%. This acceleration is driven by a combination of higher underlying earnings and the positive impact of capital allocation actions, including the execution of the share buyback program which further enhances per share value for shareholders. On Slide 37 now, we will maintain a solid financial position, leveraging on strong cash generation and financial flexibility to fund growth while delivering sustainable shareholder remuneration. Over the course of the plan, net financial debt is expected to increase by approximately EUR 4 billion to EUR 5 billion. This evolution is fully explained by the balance between robust cash flow generation and a significant step-up in capital allocation. On the sources of funds, we will generate close to EUR 14 billion of funds from operation over the period. This reflects the strength and resilience of our underlying cash generation, supported by EBITDA growth and solid cash conversion with the FFO to EBITDA ratio expected to reach a sound 78%. The total cash outflows will amount to around EUR 18 billion. Cash investments are projected at approximately EUR 11 billion, and shareholder remuneration remains a key priority with dividend payments totaling around EUR 5 billion over the period complemented by EUR 1.5 billion related to the completion of the remaining share buyback program. Consequently, net debt-to-EBITDA is expected to move from the current level of around 1.8x, reaching 2.3x by the end of the plan period. And now I will hand over to Pepe for the closing remarks. José Gálvez: Thank you, Marco. On Slide #39, we are confident that our strategy will generate visible and predictable returns, which is why we are updating our dividend policy based on current net ordinary income targets and the expected execution of the share buyback program, dividend per share is projected to grow at an average rate of approximately 4% over the period. This increase takes as a starting point an extraordinary 2025 DPS of EUR 1.58 per share. For the planned period, we improved the dividend policy by guaranteeing a minimum payment of 70% on net ordinary income further reinforced by the implementation of the remaining share buyback program by December 2027. Overall, we believe this represents a clear, sustainable and accretive remuneration policy, providing a high degree of visibility to our shareholders. Turning to Slide #40. In summary, Endesa is well positioned to capture demand growth opportunities beyond the horizon of the plan. This is why it is important to extend our perspective to 2030 for the business most directly linked to the energy transition. New demand will naturally transform into additional generation needs and further network strengthening requirements that will also put upward pressure on energy prices. Starting with renewables, the completion of the CapEx currently under construction, together with the additional capacity required to serve incremental demand will allow installed capacity to reach around 15 gigawatts by 2030. At the same time, our regulated asset base is expected to continue expanding steadily in line with the significant investment needs required by the Spanish electricity system over the coming years. RAB is projected to grow to around EUR 15 billion by 2030, implying a compound average growth of approximately 5%. This evolution reinforces the visibility and stability of our earnings profile and underlines and there's a long-term commitment to supporting the country's electrification and decarbonization objectives. This turns directly into stronger financial performance. Earnings per share are expected to increase from EUR 2.3 per share in 2025 to a range of EUR 2.8 to EUR 3 per share by 2030, also implying an average yearly growth of around 5%. On Slide #41, despite the increase in leverage envisaged in the business plan, Endesa preserves substantial financial flexibility, our strong balance sheet provides capability to move closer to the sector average leverage of around 3x without comprising capital discipline. These additional resources could be selectively allocated across several strategic priorities, starting maximum value from the hybrid project hub capitalizing on growing demand assessing selected M&A opportunities fully aligned with our long-term strategic framework and a strict value criteria accelerating the deployment of storage, leveraging on the increasing need for system flexibility. All of these opportunities will support additional growth, reinforcing the upward trend in EPS. Moreover, the possibility of enhancing shareholder remuneration policy is an optionality. Turning to environmental sustainability on Slide 42. This slide outlines Endesa's clear and credible decarbonization pathway. By 2030, Endesa's emission trajectory is fully alone with a 1.5-degree pathway reinforcing the credibility of our long-term ambition. Looking further ahead, our objective is to reach close to zero emission by 2040. In the short term, our focus remains on reducing direct greenhouse gas emission in the mainland system. By 2028, this translate into a further step down in emission supported by the continued decarbonization of the generation mix and the increasing weight of low-carbon technologies. This decarbonization road map is underpinned by a balanced approach that combines environmental ambition with system reliability and social responsibility. To conclude this presentation, let me turn to Slide 43 and share a few closing remarks. Our growth ambition is firmly anchored in highly predictable low-risk activities with a clear focus on business and projects that offer long-term visibility, stable cash flows and resilient returns. Efficiency is a central pillar of our strategy and a key lever to enhance performance and competitiveness. At the same time, we benefit from a strong financial flexibility, which provide meaningful optionality for growth and value creation. And finally, all these strategic drivers converge on a single, clear objective, delivering solid and attractive remuneration for our shareholders. Ladies and gentlemen, this concludes our 2025 financial results and 2026 to '28 strategic update presentation. Thank you very much for your attention, and we are ready to take questions. Operator: [Operator Instructions] Mar Martinez: Okay. We start now with the questions from our analysts. And the first one is Peter Bisztyga from Bank of America. Peter Bisztyga: I guess kind of my main question is to try and understand what has really changed versus your prior plan that drives basically like 600 megawatts -- sorry, EUR 600 million EBITDA improvement in your new 2028 guidance versus your previous 2027 guidance. If I look at your bridge on networks, EBITDA there is only EUR 100 million higher than in your previous plan. I think you're targeting, I think, only 600 megawatts more power generating capacity than the previous plan. So there must be a like a huge increase in your customer profitability, so in your retail business. So can you kind of confirm that, that's really where the biggest delta here is versus your kind of previous expectations? It would be useful actually if you could give euro per megawatt hour guidance on your sort of free power margin, gas margin and retail margin in 2028. You used to give that -- don't seem to in this presentation deck. You also actually don't guide specifically to EBITDA in renewables and customers, and I'm just wondering why that is? And then, sorry, final part to that very long question is how much EBITDA benefit do you assume in 2028 from the capacity market and also from the Almaraz extension, please? Marco Palermo: Okay. So good morning, Peter. Let's go through the three questions basically. So 2028, let me help you to bridge it with 2025. Basically, you have on distribution, as you were correctly noticing, I mean, we adjusted the 2025 because there were EUR 100 million of extraordinary. So if you look at with the adjusted 2025, it's a 15% increase, if you look at with the unadjusted is 10%. But basically, there, there is an improvement of EUR 300 million. And it could be even more because if you look, it's not everything optimized. If you look at charts, for example, '23, you can see that the CapEx generating margin beyond the plan, we put it at 17%. So basically, there is another EUR 1 billion that is not in RAB at the end of the plan. So -- but because, of course, it takes time just to build all the networks. So there is a that could be even more eventually. That is on the distribution, so EUR 300 million on the distribution that if you count the result of 2025 is EUR 200 million. Then you have another part that is on the margin -- on the free power margin that is the recovery of the ancillary services that we suffer in 2025. I mean, we always said that it was north of EUR 200 million, so slightly more than EUR 200 million. And we plan in 3 years' time, just to have all the time just to recover that. Then you have another part that is related to the higher production of inframarginal. That is the combined of two. On one side, we are, of course, doing a lot of repowering both in hydro and wind. So this somehow boost also the production, but we are also building new capacity. And therefore, you have a positive effect because on one side, you have less lower prices. But on the other side, you had another 8 terawatt production. So that net-net will bring you approximately EUR 300 million. And then you have another EUR 200 million of savings on OpEx. This is on the positive side. On the negative side, we will adjust the high marginality that we have enjoyed in 2025 on the gas, and that adjustment would count probably around EUR 400 million. So net-in-net, that's where you find basically this EUR 600 million of difference. This is on question number one. On question number two, just going a bit quicker. The free power margin that we are envisaging for the 2028, it's between EUR 55 and EUR 60 per megawatt hour. That basically is like taking the reference of 2025, the EUR 52 that were impacted by the ancillary services cost and bringing back these services there. Of course, there is most -- is more complex because you have power prices lowering down, but also the sourcing cost is going down, and that's why you basically keep that marginality. And on capacity, I would tell you that probably that is an upside of our business plan because basically, there is not much of capacity there, because we do not have visibility yet on what will be the market there, and we do not have visibility yet or what will be the plans that will benefit and they will win the payers bid there. So I mean it's like we will basically see what will come out. Thank you. Mar Martinez: Next question comes from Pedro Alves from CaixaBank. Pedro Alves: Congrats for the results and the presentation of cost targets. The first question, please, would be on the sensitivity of your 2028 targets to pool prices in Iberia and the TTF price as well for your gas margins? Second question on data centers. You mentioned ongoing discussions with data centers. So the question is, if you think that you could realistically announce something this year. And the third question on the CapEx envelope of EUR 10.6 billion. If you can provide us how much is roughly growth versus maintenance the CapEx? Marco Palermo: Okay. So thank you, Pedro. So on question number one, sensitivity on power and gas. On the power side, I guess that is another -- probably another feature of this plan. In this plan, we are not incorporating a strong increase of demand. So what we are seeing, just to give you an idea, is for this year, 2026, an increase of 1.2%. That, frankly, is lower than last year. And then in the following years, we are approximately at 2.4%. So basically, I mean it's not because we believe that this will be the increase in the demand, but it's because we really don't know where to place the real ramp up. We feel that probably it is starting. Of course, when we started the plan, we had not this feeling. But I mean, there -- it depends on what will happen on the demand. So on the demand side, I feel that we were kind of conservative. On prices, as you have seen, I mean, we adopted the forward that were at that time. So basically, in 2027, going to EUR 58 megawatt hour. So I mean there, I guess that there is a kind of balance between the two. And on gas, I mean, reality on gas in our plan, all the profitability and all the marginality will basically come from the retail business at the end of the plan. So basically, we are assuming that on the -- as I said in the speech, then from the other gas, there is not coming much of marginality, frankly. Regard data centers. In data centers, are we planning to announce something soon? I guess that definitely, we are planning to do something in the course of the year, of this 2026. We have some of the developments that are more advanced. We decided just to put one of the references of something that is very well known, that is the Pego project in the presentation. And there, we signed agreement. The positive part I guess of the plan is that in the plan, there are basically, there is not the upside of the data center. Why do I say so? First of all, because, as I said, in the demand increase, we are not assuming the data centers really kicking in, first. Second, in the plan, we are not assuming any particular PPA basically and higher price PPA. And the third, we are not assuming any upside or any extra margin related to the sale of the land or the access to the grid connection. Why is it so? Because, I mean, we want to see exactly what are numbers that we will somehow see when we sign the agreements. And on the third question regarding how much is growth and how much is maintenance. I would say that basically, the maintenance CapEx is approximately 30% of the total, with the rest, of course, being incremental CapEx, growth CapEx. Thank you, Pedro. Mar Martinez: We have missed a last question from Pedro. If you allow me, the sensitivity to EUR 1 of increase of prices -- power prices, it translates to around EUR 20 million. Okay? Thank you, Pedro. Now we have Javier Garrido from JPMorgan. Javier Garrido: First question would be on the supply business. I was wondering whether you can be a bit more specific about the supply margin in '25. And particularly, you could also elaborate a bit more on how do you plan to take control of customer losses given that the pace of reduction has slowed down, but you are still losing customers. How do you plan to make that increase in customers even if we exclude the MasOrange acquisition? The second question would be on the dividend policy. You could clarify a bit more the dividend policy. Am I right in understanding that the new dividend policy is at least 70% payout ratio, so that it results in at least 4% DPS CAGR? Or is there any different interpretation? And the third question is on the cash conversion of EBITDA. It increases significantly from 70% to 78% through the plan? Would you mind to please elaborate on why that increase? What's exactly driving the improved cash conversion? Marco Palermo: Okay. Thank you, Javier. And sorry to Pedro before for losing the last part of your question. Javier, so basically on supply on 2025, as you have seen, the marginality, the free power margin was 52%, so lower than the previous year, and it was a mix effect. I mean, it was lower than in 2024, but not so much lower when compared to what has been the impact of the ancillary services. So somehow there, I guess, that in 2025, you can see the good performance of the business. You're right. I mean, we have suffered last year of many losses of clients. But again, I mean, there are kind of two markets, I would say, there. There is a market that is healthy. There is a long-term client that experience a normal churn rate and then there is another market that experiences a very high churn rate. And if you allow me, even a very high level of fraud. And that has been constantly rotating. So I mean, what we understood at a certain point was that we were basically losing money on them. Because we were putting money just to acquire them and putting money and putting more money and then losing those -- the permanence of those clients was very short. There was no time just to get back the investment. So I mean, it simply made no sense. So we prefer to go for something different. So we accepted losing part of the clients, and we went for the acquisition of MasOrange that was basically not because we acquired the clients, but because we were now able to serve bundled products. And apparently, it is working because, of course, in the -- at the end of last year, we were reducing a lot the losses. And I mean, we cannot comment on this year, but I guess the situation is somehow also the acquisition of MasOrange is proving that probably we have seen it correctly. When you go to the dividend policy, yes, you're right. It's the correct understanding. So basically, at least our payout will be 70% and at least the 70% converts in at least 4% of CAGR on the DPS. And then on the cash conversion, I guess that, of course, there is a kind of a challenging target that we are giving to us. But basically, we're doing a lot of jobs, a lot of job on every business just to improve the cash profile of each one of those. So we think that all these efforts that actually we started in the previous years can somehow come to give all the fruits at the end of our business plan. Thank you. Mar Martinez: Okay. Thank you, Javier. We move now to Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: I'll have three questions as well. Could you please elaborate on your churn rate assumption? And how much is it right now? And how sustainable are the current levels before the new entrants start to lose money? So can you maybe elaborate a bit on the dynamics that you embedded in the plan on this? Secondly, there is a very exhaustive slide on cost savings on the reduction in the fixed cost. I think you have four buckets, right, network automation to AI, labor. Would it be possible to tell us what the biggest buckets are one or two perhaps? How much of this is natural attrition, people that are retiring or being pre-retired? And then you hire someone coding on copilot or close that replaces five people. So how structural is this? Can we assume that this EUR 300 million reduction will carry on beyond '28 and for several years to come? And the third question. I mean, you still have ample balance sheet headroom. So if you were to think about how to utilize it in the medium term going to beyond '28? Is there any way you could rank in terms of priorities, either what you favor or what is possible? So would that be more organic growth in Power Grid? Would it external growth in clients or power gen? Would it be more share buyback? Marco Palermo: Thank you, Alberto. So regarding the first one on churn. I would say that there, the assumption of what we are experiencing right now, it's an elevated churn that is in the range of, I would say, 25%, 30%, okay? It's very high churn. And as I was saying, it's very somehow concentrating on some of the clients. Now are we seeing this somehow going to normal level during the plan? No. We are still assuming that at the end of the plan, the churn will remain very high, not at a normal rate. But yes, a bit decreasing. And we are assuming this because we think that at least the frauds and all the part of that is somehow impacting strongly on the churn should somehow be reduced. We recently approved Royal Decree on that, trying to get rid at least that part. And we really hope that, that will be somehow effective in reducing at least that. And on the other side, I mean, all the measures that we are somehow putting in the plan and that we are delivering, we started doing this last year in terms of, for example, physical point and that, of course, attract the clients and then they have a lower churn, but also all the changes that we made, the bundled products. I mean, there are many, many things because this is -- there is not something one specific stuff that stops the churns. So all this kind of stuff, we really think that will kick in. So again, very high churn in 2025. We still assume that at the end of the plan, we will be still high, but lower than this because of the reduction of the things that we are doing and also hopefully, the reduction in the fraud level. Regarding the second question, cost reduction, I mean, this is not making me very popular here. But I mean, here, there are many things. We started this -- first of all, is it structural? Of course, it is structural. We started this last year. Because it takes time just to have a structural contention of costs and productivity. And it's -- there are a lot of measures there. Some of those will reduce costs. Some others will improve the quality and not necessarily reducing cost, but -- so I mean there are a bundle of things. When it comes to whether this somehow touches also the personnel, I mean this is kind of still sensitive. What I can tell you is that this is not the first time whether we do this. I guess that is history. In history, this company has been used to make these structural changes. So for example, when the call was closed or when we decided to move to the cloud and blah, blah, blah. So I mean, in all these moments, the company has been capable of treating this properly and of course, doing it in the proper way with the support of all the employees. And on the third point regarding the ample balance sheet that we keep -- yes, it is true, we still keep it. We think it's actually a plus, it's a benefit. Why so? Because we think that there could be opportunity. The opportunity could come from the fact, for example, that if you look at the plan, there is, yes, an increase on the CapEx in distribution, but there is a decrease on the renewables that vis-a-vis the old plan that it's not something that explained it itself. But what we think is that we have a lot of things there ready to go. We need to assess exactly where the -- when the demand will start to kick in, just to somehow eventually go even more with investment there. And priorities, I guess that some of the things we can do ourselves. I guess that there could be things available in the near future. So I mean, of course, on all this, we do not comment. But in terms of our priority, I guess that it's very clear where we have been putting money along the last couple of years. So I mean, I will go to that. And will there be space eventually also for more shareholder remuneration or shareholder remuneration improvement? Of course. I mean, we will somehow balance. We have ample room there, and we will somehow balance. Mar Martinez: Thank you, Alberto. Next question is coming from Manuel Palomo from Exane BNP. Manuel Palomo: I've got three questions, if I may. The first one goes into one of the things that you've mentioned in order to achieve improvement in the integrated margin. First thing I'd like to know to get the confirmation that you assumed the extension of Almaraz 1 and 2. And in case there's no extension, what could be the impact in terms of terawatt hours? And if you are assuming in case that it gets extended, any additional CapEx related to it? The second one also related to the, well to the, production output is. What is the impact you're assuming from hydro normalization after an excellent '25? And it looks like still a very good '26? And lastly, on the generation output, why adding 1.5 gigawatts of wind and solar in Spain, given the level of curtailments that we are seeing? Do you really need it? Or would it be -- wouldn't it be enough just go into the wholesale market and purchasing the electricity? Second question is on the other side of the integrated margin is on clients. You are assuming 500,000 additional clients, if I'm correct. I understand that you have already purchased [ MasOrange ] plots, my question is, are you expecting to see a decline in the final achieved price to customers? And could you give us a reference? And lastly, it is about the regulated business. If I'm correct, you're roughly assuming EUR 1.8 billion per year CapEx. Is this granted? Or will you need any additional authorization from the Spanish government/regulator? Marco Palermo: Okay. So Manuel, let me go through, I guess, that let's see if I get all of those. First of all, on free power margin, actually, you were asking on Almaraz and someone else, I guess, that I forgot this before. On the Almaraz extension, yes, we are putting in as an assumption coherent with the request that we did to the nuclear authority that there will be an extension of Almaraz. Almaraz for us in the plan is basically one group in 2028 and means approximately 3-terawatt hour of increasing production. There, I would say that there are -- there is a positive that is that you have 3 terawatt hours more that you sell. But there is also a negative because, of course, the nuclear allowed the system just to keep a lower power price. So I mean that's why it is so important for Spain to keep it. Therefore, if you take it off, you have an effect on the prices there. So the mix of the two is positive for us because we are talking about the 3-terawatt hour but the combined effect is less than EUR 100 million. And on Hydro, yes, on hydro in what we are seeing, I mean, it's public dominance. I mean the hydro production in 2026, actually, apparently, it's better than in 2025. We had a very good start in 2025 than not a very good ending of the year in 2025. Apparently, it looks like it's better this year. On generation output, the combined, I mean, when you see solar, wind and so on, in reality, they are concrete projects, and those are related to, as I said, data centers. So it's -- can we buy this on the market? Yes, but those projects are the ones that have closer data center. So I mean, in that case, we would rather prefer the little more marginality if you build, if you develop the project and you serve the data centers instead of trying to buy energy on the market. On clients, I mean, the 500,000 more just basically, I mean, we are at the target right now. So if you look at from that perspective, with MasOrange, it means that we have to try to defend this until 2028. Do we see a decline in price? Of course. I mean, with the decline in price of the market, you -- it's lower, of course, that you see a decline in price on the customer, but you do also see a decline in the cost of sourcing. So that's why you maintain the marginality. It is true that then the prices on the market takes a bit of time just to reflect. So it is true that when the prices on the spot goes down, they do not immediately reflect on the B2C or on the SME, blah, blah, blah, but also the opposite is true. When they increase, they do not immediately reflect on the final market. And regarding the regulator, so regarding the level of investment, what is still missing is what the government announced that basically was a decree just to allow till 2030, an increase of the cap that currently is 0.13% of the internal product for up to 63%. So basically 60% more. So that is what has been announced by the government at the end of 2025, and we are expecting this decree to come. I hope that I got all your question. José Gálvez: Let me get some color about the nuclear and perhaps about the distribution. You should take -- why we have decided just to stand or to delay the close of Almaraz in our plan. First of all, you should take into account that the time table for closing nuclear plants was set in 1918. And since then, the context and priorities has changed substantially. The second thing is all countries are addressing extension and new power station even. But on top of that, for us, there are technical, environmental and economic reason for delaying its closer. Technical reason, let me say, on the one hand, it makes no sense for group belonging to the same plant closing in different years. That is, and you know that it was expected the close of Almaraz 1 in the year '27 and 2 in the year '28. The second thing is that the interim storage facility, the so-called ATI will not be completed until 2030 at the earliest and nuclear waste cannot be managed until then. So it can send just to delay a little. On the other hand, there is a significant delay in the deployment of storage and wind power also. The system requires synchronous generation to manage both frequency and voltage and the energy balance up to 2030 would be more balanced, if you want and secure and with less energy dependence if we continue with these power plants. With regard to the environmental reason, the closure of the nuclear power plants would not lead to a slower growth in renewables, but rather to an increase in combined cycle production and consequently in a mission. And the economic reason and Marco has said maintaining nuclear power generation, reduce the cost of the electricity market. So all in all, we have acted to the ministry just to delay the shutdown of Almaraz. And we are confident that it would be done. With regard to the networks, let me say that increasing investment in the Spanish network remains essential for the integration of renewable, for the electrification of demand and for ensuring system stability. As you know, the grid has virtually no remaining capacity to accommodate rising demand. And in any case, this increase in demand is going to be a very good team for the renewables, especially for the solar power plants. It would be a good thing for the economy of the country. So at the end, we have decided that it's going to be a good thing for all the government, for the country and for us. So that's the reason why we have decided. Let me say that we assume that the Spanish government has already anticipated, will rise the regulatory investment limit. The ministry projects a significant increase in investment in networks between 2026 and 2030, totaling 11.3% if I'm right, EUR 3.6 billion coming from transmission and EUR 7.7 billion from -- for distribution and exceptional, as Marco has said, a 62% increase in the investment limits in order to adapt them to the new context of the energy transmission. This EUR 7.7 billion increase in distribution investment limit is something around EUR 1.5 billion per year turns into a capital rising from the current EUR 2.1 billion to something around EUR 3.6 billion. So this could imply something around EUR 600 million in additional net investment for Endesa on top of the EUR 900 million that we had today. So based on this, we feel confident just to increase the investment in the network in Spain. Mar Martinez: Next analyst is Javier Suarez from Mediobanca. Javier Suarez Hernandez: Three questions on the context, the European context for electricity company. The first one is on the debate that maybe the Italian government and the German government have opened up on an effort to reduce overall electricity prices through the Eurozone. So I'm interested to see your view on the implication that this may have on the pricing setting dynamics through the Eurozone? And how do you think that debate is going to evolve? And in this context, you can share with us the assumption that you are embedding into your business plan regarding carbon prices to 2028. That would be the first question. The second one is on the data center discussion. So it's evident that there would be installation of new data centers to Europe and the Iberian Peninsula as well. So I wanted to ask you your view on the model that should be implemented to avoid unintended consequences, because obviously, there is going to be higher electricity demand, and that could impact overall electricity prices as well. So do you see that, that may impact the way data centers are going to be installed and what would be the way of isolating those unintended consequences? And the third question is on the slide when you are talking about a leverage evolution and financial flexibility. When you are referring to a scouting brownfield opportunities, if you can elaborate on those, how those opportunities should look like as you're referring to renewables energies on the Iberian Peninsula? Or are you referring to a broader set of opportunities? And also on the storage plan, how do you see installation of new storage impacting the dynamics for the Spanish electricity sector? José Gálvez: Okay. Thank you, Javier. I will try to give some color, and then Marco will go deeply on that. About the effort to reduce prices. Well, first of all, I would like to say that the energy transition at least, in my opinion, is entering a more mature challenging phase. Clean energy development continues, but delivering deeply decarbonized resilient energy system is far more complex than simply, I would like adding megawatt, renewable megawatt. Technology evolution when we see the technology evolution, Hydrogen is the most delayed driver of the PNIEC due to economic reasons, less than -- I think that in the PNIEC it was expected something around 50-terawatt hour in the year 2030. And I guess it's going to be less than 10-terawatt hour. Talking about the storage, PNIEC include plus 15 -- gigawatt of storage needed by 2030, up to 22.5 gigawatt, if I remember well. It is clear that we are going to be in a figure lower than 9-gigawatt instead of the 15 gigawatt expected. So that -- and why this? Many things is -- one of the thing is the delay in the development of these technologies. The other thing is the geopolitical tension and macroeconomic pressure, taking into account the COVID pandemic, the war in Ukraine and the delay is the, let's say, predictable trade tariff. So we are living in a market uncertainty, complexity and commodity price volatility. Energy demand was flat during the last year, but now we are expecting that outpaced improvement in energy efficiency. Also, there are movement in all the countries. So at the end, things could change. But in case of -- in the case of the carbon prices, I think the CO2 price should be and will be one of the main drivers of this transformation. So the focus for me is not going to be -- or not should be the reduction of the price of the CO2. It should be the electrification and the decarbonization. We should continue adding renewables. And we should -- we are obliged just to electrify the demand. So taking this into account, I think that it has no sense just to look for a reduction in the CO2 price. What I think is that the solution should be yes to subsidize some industries, perhaps the very high industry, very high consumption industries instead of that. I think that there is no sense to approve the one decree in Italy and also it's not going to be something general in the rest of Europe. What I think is that it's not going to be downward in our plan. Marco Palermo: Thank you, Javier. I mean, question number two related to data center. I mean, it's a very interesting question and will take us a very long time to debate on that. But the data centers consumption are consumption basically are baseload. So what we are seeing -- what we are proposing what we are seeing also on the data centers, developers and hyperscalers is they are conscious that from the fact that, of course, they will impact the demand. And therefore, we do see merit in trying to develop for them this integrated bundle of technologies in order to try to replicate a baseload and in order to have the data centers that is closed by to his own feeding, to his own supplier somehow. Then, of course, the grid would be a kind of back up for the peaks or for the moments where exactly this bundle of technologies, altogether, the wind, the solar and the battery are not able to provide the energy. But what we are seeing is that -- and we're seeing this in Aragon, I mean, this is starting. You are having the development of the data center, but in the close by, you're having also the development of renewables. And actually, the data centers, they are trying to develop close to big areas of development of renewables in order to have their suppliers in the close by. Of course, it's not perfect. It's not a perfect baseload. But for the time being, it's the best approximation of that. And on question number 3, regarding financial flexibility. I cannot be too specific because, of course, I mean, this -- I will be generic, because I don't want to screw conversation that we're having. But I would say that it's not a secret that we are interested in hydro. And when I'm in hydro, it's modulating hydro, but it's also storage hydro. Actually, in the plan, we have expansion of pumping in our plan. So we do not see the results in the plan. But yes, we do the CapEx in the plant. And we are looking for more. We are looking also at storage to develop our own storage or eventually, we could be interested in batteries for the time being. It's not of a secret that we are interested in wind. And I mean, I guess that, that in distribution, we are satisfied with all the investments that we have, but of course, I mean, it's also an area. So I would say that there is a big list of technologies and of areas where we could be interested. Again, yes, focused on the Iberia Peninsula. Mar Martinez: We move now to Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Congrats on an impressive plan and thanks for all the answers so far. You'll be glad to know I have one question, and that's just to clarify something on the buyback. So you mentioned the second tranche of EUR 500 million is 30% complete, if I heard you correctly. But I think you also said -- and is that going to be completed by mid-July? Or is that the third tranche? Effectively, can we just get a little bit of color on the sequencing of the buyback? So is the second tranche through to July, the third tranche in the second half of this year and then the fourth tranche will come in 2027? Or do I misunderstand this? Marco Palermo: So Rob, yes. First tranche was basically completed, almost completed. We bought, if I remember correctly, EUR 440 million out of the EUR 500 million and we are now canceling the shares. The second tranche that we launched another EUR 500 million should lapse by the 27th of February. And out of this, I mean, it's now ongoing. I guess that we bought approximately EUR 120 million probably at a price that was a bit higher than EUR 30 per share. But I mean, it's the one that, in any case, should elapse from the 27th -- of by the 27th of February. So the third tranche that we just announced will start -- will kick in from the 2nd of March until basically the end of June, and it's another EUR 500 million. And then with -- I guess that our idea is to continue with another tranche we have. At that point, we should have approximately another EUR 900 million to complete by 2027. And I mean, I guess, that we will continue also in the second part of 2026 with other tranche. I mean, that's like -- let's see, but it's our area. And we should be finished in any case by 2027. Mar Martinez: Thank you, Rob. Next question comes from Arturo Murua from Jefferies. Arturo Murua Daza: I just have one. Going back to the decree to increase the network investments. My understanding is that part of this increase will only be remunerated if the demand comes through after a few years. So if you could share a bit of more color how this will work? And how are you counting this in your numbers? Marco Palermo: Okay, Arturo. So basically, here, the point is that generally, what we try to do is to start an investment in the grid at the beginning of the year and to try to put in operation by the end of the year, so that we can get the RAB on that. Now sometimes there are -- particularly if you increase the pace of investments, there are investments that you start at a certain year and that not necessarily are put into operation at the end of the year. So there is a kind of ramp up. So in this ramp up when you have this ramp up, you have at the beginning the negative effect that you are investing and you are seeing -- you are always keeping the pace and you are seeing the remuneration from the next year. But of course, when you finish this ramp up, you have the benefit that you can still enjoying the ramp up even though you're not investing. Now we are in the first part. That is ramping up the investment and so not immediately seeing all the benefits. So that's why we wanted to highlight. Because in the plan, I would say that at the end of 2028, we are missing almost EUR 1 billion of RAB there that, of course, will come later but the plan in itself is not optimized. I mean, that's what it is. We cut at the plan at the end of 2028 and there were almost EUR 1 billion of investment that were done, but not yet in operations or not yet in RAB. So that, of course, you find out the next year. And that's why we wanted also to give you a flavor of what could be 2030 because this is something that is embedded in the plan in all the businesses. In distribution, you will see the benefit also in the year to come. And the same in the generation because also in the generation, we have some of the projects, I was mentioning, for example, the pumping, we were putting the money, and we were not seeing yet the EBITDA. So I mean, there are things that you only see later on. So that's why we wanted to give also a flavor of what could be the 2030 because the plan in itself is not optimized. We cut it at 2028, and that's it. Mar Martinez: Next question comes from Jorge Alonso from Bernstein. Jorge Alonso Suils: I have a couple of questions, please, and it's on the cost cutting and efficiency plan of this EUR 300 million. Could you give us some more color about in which areas can be allocated? So it will be more in distribution? Should we see that more in the whatever thermal generation just to understand, at the unit level, where can we see the impact of that efficiencies at EBITDA level? The other one is in distribution as well if you can quantify the expected incentives, the amount of incentives that you are expecting or considering in the calculation of the revenues or EBITDA in the plan? And as well, and I think that we already answered is that we see CapEx in 2028 in distribution of EUR 1.9 billion, but the legal cap will be the EUR 900-plus another EUR 600 million, so it's around EUR 1.5 billion. So if we should consider the normalized CapEx going forward between EUR 1.5 billion, EUR 1.6 billion or do you still see room because of the need of investing EUR 1.9 billion or EUR 2 billion annually beyond 2028? Marco Palermo: Thank you, Jorge. So on cost cutting, important question there because, of course, there are areas where we are not putting a particular focus. And those areas are mainly the one-off distribution because with the current scheme of how the regulator decided just to somehow squeeze the profitability of the efficiencies. I mean, there is not so much merit to whatever you do, actually, you're doing more for someone else. So I mean, on distribution is less of a focus and as well as on Nuc because it's another regulated staff and super sensitive. So all our effort is basically focused on, as you were correctly mentioning on generation. But I would say also supply that, of course, I mean, the market is changing a lot. We think that AI is -- will impact this a lot. And the things that we are doing and the restructuring that we are doing will impact it a lot. And as always, the structure and stuff that, of course, given what we are seeing could come as a revolution, it's an area that will be impacted. When we come to question #3 regarding the CapEx, yes, you're correct. I mean the EUR 1.9 billion. Is this over the limit? No, it's not over the limit. You have to remember that basically the limit applies to the 13% of the GDP, the 0.13% of the GDP, the GDP has been increasing. So of course, you have this limit that is increasing year-by-year. And on top of that, you put the expansion that is allowed until 2030. So our plan is designed not to overcome that limit in any of the year. Actually, we are every year, we are slightly below that. We cannot risk to go over that limit. And there was incentives. What was the question? Mar Martinez: [indiscernible] Marco Palermo: Yes. No. I mean on the incentives, Jorge, we will not give you numbers, but yes, there is, of course, an improvement. I mean, we also highlighted that basically offsets what you have been -- what we have been experiencing as a negative on the OpEx efficiencies. Mar Martinez: We have now Jenny Ping from Citi. Jenny Ping: A couple of questions from me, please. Firstly, just a clarification question on the power price sensitivity. You said EUR 1 per megawatt hour is EUR 20 million. Is that on EBITDA or net income? Secondly, in one of the notes in your slide around the net income growth of 4%. I think you explicitly say in the footnote that you've assumed a 71 million shares in terms of the net result of the buyback. If I take out what you've already bought back in 2025 implies a sub EUR 30 a share of price in terms of buybacks. So does that mean that you're expecting to limit your buyback, anything above a EUR 30 threshold? So that's the second question. And then thirdly, maybe I missed and apologies if I did. What are you -- where are you now on the Ireland generation investments where you've got to on that and the expectation of spending over the next 3 years, please? Marco Palermo: So power price, the EUR 20, it's for the EUR 1, it's on EBITDA level. On your assumption, I mean your deduction on the limit of our share buyback, I mean what I can tell you is that, we have been buying share last week. I mean, we just published. This is -- we can share it as a public information. We just shared it last night, it was published last night. The program has been buying last week for all the week. And I guess that the price of last week was around EUR 32 per share, I mean, something like that. So no. I mean, actually, the plan will buy at the price that is the price of the share on the market basically. And on the islands on the third question, regarding the islands there, we -- there has been the -- actually the final results of the tender. And we were assigned with some of those. Actually, we had an extension of life in some of the power plants. Some of this life extension were coming also from -- with the incremental CapEx. And I mean, that's what we are starting to work on for the near future. It is also worth noticing that there will be -- there has been also other players than being allocated new capacity in different islands, and we welcome that. And we think that -- I mean, that's what exactly what it is needed on the islands, and we welcome also the fact that we were not alone in defending the regulation there vis-a-vis the regulator. And in terms of investment, we are foreseeing approximately EUR 200 million, EUR 300 million along the plan. Mar Martinez: We have now Pablo Cuadrado from JB Capital. Pablo Cuadrado Tordera: Yes, quick questions for me. One will be on the tax rate that is assumed in the plan. I wonder -- I look at the full year results, and there was a decline of 3.5% on the tax rate year-on-year. Clearly, there were the removal of the tax impact and the revenue impact that it was before. But still, is the basically 2025 figure that 23.5%, the one that we should assume for the next few years? And second question will be on -- I saw that you provided the return, let's say, versus WACC that you get on the renewal segment at around 300 basis points, while the CapEx is going down in this new plan. I was wondering whether you can share which is the spread over WACC on the return that you are supposed to like on the network investments that they are clearly increasing in this plan. And final one is on the unitary generation supplier margin. Clearly, what you put on the slide in that you are expecting an increase and explained perfectly the reasons. But shall we assume given that there is no figure that basically the reference that you provided last year, is the EUR 57 per megawatt, if I'm not mistaken, still should be a valid reference going through 2028? Marco Palermo: Thank you, Pablo. So on tax rate, well, you should expect now that we do not have the extraordinary levy, you should expect as approximately south of 25% generally year-on-year. We generally can be lower because sometimes, I mean, we have also investments that are recognized as deduction, for example, in innovation and in this kind of things. So those when you have this kind of investment, then you tend to have a slightly lower tax rate. In terms of profitability actually from, expected profitability from our investment, yes, you're right, there are the 300 bps for what it is greenfield renewables. In the case of networks, we work with 200 basis points because, of course, the risk profile of those investments is lower, and therefore, it is okay with lower requirements in terms of bps. And in terms of prices, for 2028. I mean, of course, we didn't put the number there for a reason. But again, I guess that you're not far -- what I said is that we are in the range of EUR 55 to EUR 60. So with -- your EUR 57, you're not very far away from -- I mean, you're there basically. Mar Martinez: Good. This was the last question from the conference call. So thank you very much for attending this meeting. And as always, IR team will be available in case you need something else. Thank you very much. Have a nice day.
Operator: Good day, and thank you for standing by. Welcome to the Galapagos Year-End 2025 Financial Results 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, Glenn Schulman, Head of Investor Relations. Please go ahead. Glenn Schulman: Good day, everyone. This is Glenn Schulman, Head of Investor Relations, and I'd like to thank you all for joining us today as we report Galapagos' full year 2025 financial results and fourth quarter business update. Last evening, we issued a press release outlining these results. This release, along with today's presentation, can be found on the Galapagos Investor website at www.glpg.com. Before we begin, I would like to remind everyone that we will be making forward-looking statements. These forward-looking statements include remarks concerning future developments of our company and our pipeline and possible changes in the industry and competitive environment. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from those indicated by these statements and are accurate only as of the date of this recording, February 24, 2026. Galapagos is not under any obligation to update statements regarding the future or to conform to these statements in relation to actual results unless required by law. You are cautioned not to place any undue reliance on these statements. Joining us on today's call from the executive team are Henry Gosebruch, Chief Executive Officer; Aaron Cox, Chief Financial Officer; Sooin Kwon, Chief Business Officer; and Dan Grossman, Chief Strategy Officer of the company, all of whom will be available during the Q&A session. With all that, let me now turn the call over to Henry Gosebruch, CEO of Galapagos. Henry? Henry Gosebruch: Thank you, Glenn, and thank you all for joining us today. Galapagos had a transformative 2025, focused on turning the page from cell therapy, implementing a new strategic direction and laying a strong foundation for long-term value creation. We are entering this new chapter with approximately EUR 3 billion in cash at year-end 2025 in a strong position to pursue transformative business development opportunities with significant strategic flexibility. The new team is in place to execute on the strategic vision. We have been very deliberate in assembling the right leadership team to execute the strategy, and I could not be more pleased with the level of talent we've been able to attract to Galapagos. We've assembled a management team with world-class business development expertise and a shared mission of leveraging our unique position to create significant shareholder value. Collectively, our team has executed hundreds of transactions in the life sciences sector and is working well together with the goal of creating value for our shareholders. We have also evolved our Board composition, welcoming 5 new directors who bring the deep transaction, capital allocation and operating experiences needed for this next phase of growth. Our objective is not incremental rebuilding, but a fundamental reshaping of the company around programs we believe are capable of delivering meaningful patient impact and sustainable shareholder returns. We are aggressively evaluating opportunities across our focus areas and maintaining a broad dialogue with companies and innovators globally. We are encouraged by the level of potential transactions we have in our deal pipeline and our opportunity to become a unique player in the biotech deal ecosystem and carve out niches where we can be competitively differentiated. At the same time, we are disciplined and selective. We will allocate our capital carefully and thoughtfully with clear financial metrics in mind. Our focus remains on clinically derisked opportunities in areas where we are able to bring unique insights that represent competitive advantage. Lastly, our collaboration with Gilead remains a key strategic advantage and potential competitive differentiation. We are working very closely with Gilead and continue to have active and constructive dialogue as we evaluate opportunities. Their global development and commercialization expertise, combined with our capital base, agility and deal-making skills creates a powerful platform as we shape this next phase of growth for Galapagos. Let me briefly provide an update on our legacy R&D asset, TYK2 or GLPG3667. In December, we announced top line Phase II results for GLPG3667 in patients with dermatomyositis and systemic lupus erythematosus or SLE. GLPG3667 met the primary endpoint in the dermatomyositis study, demonstrating a statistically significant clinical benefit and meaningful improvement on secondary measures of disease activity compared to placebo. We are currently evaluating all strategic options for this program, including pursuing potential partnerships with other i&i players to accelerate the development of GLPG3667. In conclusion, Galapagos is well positioned for the future. Our year-end cash position of approximately EUR 3 billion, our strong business development and capital allocation experience provides the strategic flexibility to pursue business development opportunities while maintaining a disciplined focus on value creation. With that overview, I would like to now turn the call over to Aaron Cox, our CFO, to review our full year 2025 financial results and 2026 guidance. Aaron? Aaron Cox: Thanks, Henry, and hello, everyone. In the press release issued last night, we detailed our full year 2025 results, provided an update on fourth quarter performance and shared our 2026 guidance. Total operating profit from continuing operations amounted to EUR 295.1 million in 2025 compared to an operating loss of EUR 188.3 million in 2024. This operating profit was primarily due to the release in revenue of the remaining deferred income balance of EUR 1,069 million associated with the exclusive access rights granted to Gilead under the OLCA. As a reminder, in conjunction with this transaction in 2019, Galapagos recognized a contract liability of approximately EUR 2.3 billion, which was to be recognized as revenue on a straight-line basis over the 10-year term of the agreement. Following the 2025 OLCA amendments, the intention to wind down and related events in 2025, as of December 31, it was assessed that there were no remaining obligations that would justify this specific contract liability to be maintained in our IFRS financial statements. We do not expect any cash tax impact in 2025 related to this recognition of revenue. Importantly, while the OLCA still remains in force, we expect that any future business development transaction will be completed under terms that would be different than the existing terms of the OLCA. Now turning to expenses. Operating expenses were negatively impacted for a total of EUR 399.8 million by the decision to wind down the cell therapy activities with an impact of EUR 275 million, consisting of an impairment of the cell therapy activities of EUR 228.1 million, severance costs of EUR 33.3 million, costs for early termination of collaborations of EUR 16.3 million, deal cost of EUR 10.1 million, EUR 1.5 million for additional accelerated noncash cost recognition for subscription right plans, and EUR 7.5 million of other costs, partly offset by a positive fair value adjustment of the contingent consideration payable of EUR 21.8 million. Additionally, the executed strategic reorganization related to the small molecules business announced in 2025 for EUR 124.8 million. Financial investments and cash and cash equivalents totaled EUR 2,998 million on December 31, 2025, as compared to EUR 3,317.8 million on December 31, 2024. Our cash and cash equivalents and current financial investments included EUR 2,159 million held in U.S. dollars versus EUR 726.9 million on December 31, 2024. These U.S. dollars were translated to euros at an exchange rate of 1.175. Since year-end, we have converted more euros to U.S. dollars and now hold approximately 72% of our cash in U.S. dollars and 28% in euros. We expect to continue increasing the portion of cash in U.S. dollars as the year progresses. Turning now to our guidance for 2026. As part of the transformation to the new Galapagos, we announced our intention to wind down our cell therapy activities last fall, and we are now executing on this process following the works council processes that were completed last month. Given the progress we've made on this execution, I can now share that we expect the cell therapy wind down to be substantially completed by the end of the third quarter of 2026. In connection with the wind down of the cell therapy activities, we expect an operating cash outflow of up to EUR 50 million in Q1 2026 as well as one-time restructuring cash impact of EUR 125 million to EUR 175 million in 2026. This reflects a EUR 25 million reduction compared to the prior guidance range of EUR 150 million to EUR 200 million. In addition, we anticipate cash costs of approximately EUR 35 million to EUR 40 million for the final implementation of the restructuring announced in January 2025. Costs related to the ongoing TYK2 program, including completion of the Phase II clinical trials in DM and SLE, as well as ongoing support to advance the program towards Phase III development are expected to be up to EUR 40 million in 2026. Away from the spend items, we continue to expect meaningful cash flow to come from interest income, royalties and tax credits. As a result, we expect to be cash flow neutral to positive by the end of 2026. We also anticipate we will have approximately EUR 2.775 billion to EUR [ 2.850 ] billion in cash, cash equivalents and financial investments at December 31, 2026, excluding any business development activities or currency fluctuations. Now let me turn it back to Henry to wrap up. Henry Gosebruch: Thanks, Aaron. In closing, 2026 will be a pivotal year for Galapagos as we focus on building long-term value through transformative business development, leveraging our strong balance sheet, our deal-making expertise and our unique collaboration with Gilead. Our shares remain at a significant discount to the cash figures, Aaron just reviewed. We will be focused on closing the gap through execution on our business development plan, thoughtful capital allocation and engagement with shareholders to rebuild trust and confidence. We are encouraged by the momentum we've built so far as we reshape Galapagos with a clear strategy in place. With a disciplined approach to capital allocation, we remain focused on pursuing the right opportunities to build a pipeline of novel therapeutics designed to deliver meaningful benefits for patients and a sustainable value for shareholders. We are still early in this new chapter of our company, but we are off to a strong start, and we are excited about the future ahead. So with that, thank you all for your attention, and we will now open it up for your questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Brian Abrahams from RBC Capital Markets. Brian Abrahams: Just as you continue to progress on business development, just kind of curious if anything has evolved in terms of what you might be looking for? And then is there any deadline or any sort of change that we might expect based on the Gilead agreement if you're not able to identify assets to bring in by a certain time point? Henry Gosebruch: Yes. Brian, it's Henry. I'll take those questions. So no, our strategy is really consistent with what we've been talking about since last fall in terms of focusing on derisked late-stage clinical assets, not exclusively, but primarily in the i&i and oncology space. And I'd say we continue to see a lot of good opportunity there. And as we said in the prepared remarks, we're focusing on opportunities where we think we can bring unique insight, unique competitive advantage. But I think there's, again, a lot of opportunity, and we're working through our deal funnel and remain confident that there's a lot of attractive opportunity for us. With respect to your second question, as we said previously, we're not going to set a deadline for a specific deal. Again, we'll remain patient, disciplined. Again, we do have some good activity going on, but it's more important to do the right deal than to do a deal by a certain period of time. The OLCA does expire. Now it doesn't expire for about 3 years and change. So ultimately, that is a deadline. But certainly, we're focused on getting an important transaction, transformative transaction done ahead of that ultimate expiration of OLCA. Brian Abrahams: Got it. And if something does not happen before then? Henry Gosebruch: Well, if something does not happen by then, despite working really hard on, trying to make it happen, then OLCA would expire, and we would go on without the OLCA in place. Operator: Our next question comes from the line of Phil Nadeau from TD Cowen. Philip Nadeau: Our question is on GLPG3667. In the past, you've suggested that the bar to moving that forward internally and investing in it further would be rather high. We're curious to get an update on your thoughts there. I know you said you're pursuing all possible avenues of moving that forward. But how does management weigh developing that internally and investing in it versus out-licensing? Henry Gosebruch: Yes, Phil, I would say those comments also stands. We have a high bar. Frankly, we have a high bar, not just for 3667, but for any asset, be it internal or external, we really look at it with the same unbiased lens. Now with respect to where we are, again, it's still early. We, as you know, get the topline data just before the holiday. Data is still coming in. So we don't have the full package in place. We are in the process of talking to partners. Again, given that we don't have the full infrastructure required to really take this into Phase III, it makes sense to see where some of the players are that, that have that. And maybe in working with a partner, we can do more, do it faster, do it more capital efficient and ultimately create more value. So we're focused on looking at that. We're focused on getting our arms around the data that's still trickling in. But again, the bar is exactly the same bar that we've always set for ourselves. Operator: [Operator Instructions] Our next question comes from the line of Sean McCutcheon from Raymond James. Sean McCutcheon: Can you speak to your current view on capital allocation, specifically as it relates to the pool of capital you aim to put forth for acquisitions for BD? And how much you need to reserve for operating expenses going forward and how the Gilead partnership informs deal sizing and optionality on that front? Henry Gosebruch: Yes, it's Henry. Thanks for the question. So look, at a high level, I mean, some of what I'm going to say is it's pretty obvious, but we have EUR 3 billion in capital. And as you point out, that capital needs to account both for any consideration to a partner or acquisition target and of course, our development expenses we would have in any transaction. Now when you say sort of how does the relationship with Gilead inform our capital allocation, as we said on calls previously, the dialogue with Gilead is quite strong. It's very, very constructive. They continue to indicate openness to contribute in both deal terms, meaning paying some of the upfront consideration as well as taking on some of the development spend operation. So ultimately, in working with Gilead, we can go beyond the EUR 3 billion we have. And I think that's one of the features we think is very attractive in working with Gilead. So as we think through it, we don't just think about our pool of capital. We also think about what in working with Gilead can we add to the pie and therefore, kind of go beyond what we could do on our own. I don't know if that's where you were going with your question or if you want to clarify maybe what I didn't answer. Sean McCutcheon: No, I think that covers it. Operator: There are no further questions at this time. So I'll hand the call back to Glenn for closing remarks. Glenn Schulman: Thanks, [ Mel ]. I think in the Q&A queue, we do have one more or a couple more coming in, if possible, it would be great to take. I think there's a question from KBC. Operator: Please go ahead Mathijs Geerts Danau from KBCS. Mathijs Geerts Danau: Mathijs coming for Jacob. I had a question on the lower cell therapy wind-down costs. Do you maybe expect that to lower further in the future? Or do you see any possibility in that? Henry Gosebruch: Yes, Mathijs, thanks. It's Henry. Thanks for getting the question, and I'll let Aaron answer that. Aaron Cox: Yes, thanks. We're not providing future guidance here, but we'll obviously update folks on how that cost envelope is progressing on future calls. But yes, we did lower the range from a previous range of EUR 150 million to EUR 200 million in terms of one-time restructuring costs. We lowered that range by EUR 25 million with this release. And as we continue to progress through the wind down, we'll provide updated costs on future calls. Operator: [Operator Instructions] Our next question comes from the line of Delphine Le Louet from Bernstein. Delphine Le Louet: I was wondering and coming back to the capital allocation and the decision you've been taking especially regarding the cash and the cash allocation, the move from euro to dollar, considering the fact that you didn't gain as much as financial income as last year. And so I was questioning about what was the rationale on the back of that? What was the exact timing for us to be clear? And shall we consider the breakup of, let's say, 2/3 U.S., 1/3 euro as being a picture for your next investment portfolio or for the picture we should have from your investment income in the near future? Aaron Cox: Yes. Thanks, Delphine. So mid last year, we started transitioning more euros to dollars, and that was primarily based on where we expected our BD activity to be driven and also where our cost base is starting to move towards, which is more U.S.-based. We provided a range on this call of EUR 2.775 billion to EUR [ 2.850 ] billion for the year. And as I mentioned before, we'll update that as we go through the year. In terms of continued transition to U.S. dollars, we did -- as you heard from my remarks, we do expect to transition more to U.S. dollars as the year progresses, but still keeping a portion in euros as we still have meaningful operating expenses in euro denomination over the year as we move through this wind down. We do see higher earnings rates in terms of what we're receiving on our U.S. dollars. As you look at rates across the environment, you could estimate euros earning around 2% and U.S. dollars earning around 4%. So while the exchange rate does move, we are seeing significant uptake in terms of the interest earned on the U.S. dollars versus euros. Delphine Le Louet: Can I ask another one? Or do you have to go back in the queue? Henry Gosebruch: Go ahead, Delphine. Go ahead. Delphine Le Louet: I was wondering if you have or if you can communicate any expectation regarding your -- the breakeven in terms of operating income. Henry Gosebruch: You cut out a little bit. You're asking about what regarding operating income? Delphine Le Louet: Yes. When do you expect to breakeven for the operating income? Aaron Cox: Yes. We've indicated we expect to be cash flow neutral to positive by year-end. Obviously, as we work through the wind down and associated costs, those costs are going to be chunky kind of throughout the year. So it's hard to predict exactly which quarter some of those costs are going to fall in, but we do expect to be cash flow neutral and positive by year-end. Operator: [Operator Instructions] Our next question comes from the line of Nora Lazar from [indiscernible]. There are no further questions at this time. So please go ahead, Glenn, for closing remarks. Glenn Schulman: Thanks, [ Mel ] and thanks, everyone, for taking the time to join us this morning on the call. Just a couple of upcoming activities on the Investor Relations front, the Galapagos team is going to be at the TD Cowen Conference next week up in Boston, attending the Jefferies by the Beach Conference in a couple of weeks, Kempen Conference coming up in April 15 and the Bank of America Conference in May. Those interested in meeting with the team, please feel free to reach out to your sales contact at those respective institutions to schedule a meeting. Lastly, I just want to mention that our annual report will be filed near the end of March, March 26. So there'll be additional information coming out then. And if you need anything in the meantime, don't hesitate to reach out to me. Thank you all for your attention today, and have a great week. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the FIS Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, George Mihalos, Head of Investor Relations. Georgios Mihalos: Good morning, everyone. Thank you for joining us today for the FIS Fourth Quarter 2025 Earnings Conference Call. This call is being webcasted. Today's news release, corresponding presentation and webcast are all available on our website at fisglobal.com. Joining me on the call this morning are CEO and President, Stephanie Ferris; and James Kehoe, our CFO. Stephanie will begin the call with a strategic and operational update, followed by James, who will review our financial results. Turning to Slide 3. Today's remarks will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to the safe harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings and adjusted net earnings per share. These are important financial performance measures for the company, but they are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. And with that, I'll turn it over to Stephanie. Stephanie Ferris: Good morning, and thank you, George. I'm excited to share our results today. But before I do, let me start off by saying how thankful and incredibly proud I am of the teams at FIS. The last 12 months has been full of change and complexity. But through it all, our team has stayed focused on our customers, on executing against our strategy and delivering on our expected outcomes. We didn't let the noise become a distraction, and that's exactly what you'll see here today. As we move into 2026, market transformation persists, and the technology changes continue to accelerate. But when I look at how the businesses are positioned, the innovation that we're bringing to market and the strength of our client relationships alongside their growing demand for technology, I've never been more confident in the growth prospect of the financial services industry or of FIS' ability to grow with it. I'm extremely excited by the opportunities that lie ahead of us. Now, let me walk you through why. We delivered very strong results in 2025. First, we met or exceeded our key financial commitments for the year, positioning us for an even stronger 2026. Second, we are executing on our strategy to transform and simplify our portfolio by fully divesting our merchant-focused business and acquiring the market leader in credit issuing, strengthening our position in the large financial institution space. And third, we are positioning our business to double our cash flow in 3 years to over $3 billion. Now, let's move to Slide 4. We delivered on the key strategic pillars we set out to achieve. Adjusted revenue grew 5.8%, exceeding our outlook. EBITDA came in at the high end of expectations. Adjusted EPS grew over 10% to $5.75, and we generated robust free cash flow, enabling us to return $1.3 billion to shareholders through buybacks. These results reflect a business delivering on the commitments we made when we began our transformation journey. But the story isn't just about strong execution. It's about what these results enable us to do at this moment when financial services is positioned to grow. Turning to Slide 5. We are witnessing a generational moment reshaping financial services, and FIS is in the best position to capitalize on it. Three powerful forces are converging simultaneously. First, the banking industry is experiencing exceptional strength. Banks have excess capital, stable credit and strong operating performance, emboldening them to pursue aggressive growth agendas. Second, banks are executing on those agendas now. We've seen approximately $50 billion in announced M&A in 2025, and analysts project financial services tech spending will increase roughly 30% by 2029. Third, emerging technology, particularly AI, is moving from experimental to mainstream at unprecedented speed. AI adoption is accelerating to 8x 2023 levels, and banks recognize AI isn't a future opportunity, it's a competitive imperative today. Here's what makes this moment so compelling for FIS. No technology provider is better positioned to capitalize on this convergence. We have 3 important advantages: proprietary data sets spanning the entire money life cycle; long-standing, deeply embedded relationships with institutions built on trust; and a highly specialized regulatory and compliance infrastructure that took decades to build and cannot be replicated quickly. We believe these advantages translate to a significant opportunity for FIS to deliver differentiated AI solutions, which challengers without comparable data, scale, operational integration, trust or relationship cannot replicate. I'm going to discuss more around our AI moat in a few slides. Moving to Slide 6. Unlike some peers, our focus isn't about serving the most banks. Our strategy is partnering with banks that are growing faster than the market, both organically and through consolidation. Our strategy is to grow side-by-side with them in areas where they're spending, payments, digital and lending. These LFIs represent a particularly attractive segment, accounting for a disproportionate percentage of industry revenue, account and payment transaction growth. Over the past 10 years, the number of LFIs has grown by 56%, and those banks continue to increase their spend on technology with tech spending increasing 11% of their revenue today. As a reminder, this is exactly where FIS shines, working with growing banks, looking to take advantage of technology to continue to grow their franchises. In 2025, bank M&A increased approximately 30% compared to the prior year with over 170 deals announced, including a number of mega deals, creating super regional banks with expanded geographic footprints. FIS was on the winning side of most transactions, including the ones listed on this slide. In fact, one large bank CEO called out FIS as the most scalable platform to help them consolidate acquisitions and grow their business. This is why our strategy is focused on helping these banks modernize and grow and why our investments and innovations are focused on the places where these banks are spending money. Now turning to Slide 7. Our Issuer Solutions acquisition positions FIS to lead across every major industry theme, shaping banking and payments today. Demonstrating the value of our combined data assets, we've already established a modern product roadmap announcing a new product on the first day after the close of our acquisition. This includes the industry's first AI transaction platform supporting Agentic Commerce, enabling AI agents to make, negotiate and pay for purchases using preapproved payment methods, keeping banks central to those flows. Additionally, total issuing solutions rolled out 12 new modernized offerings in 2025, including enhanced loyalty solutions and origination's preapproval and decisioning capabilities. Client validation is equally compelling. With this acquisition, we have expanded our relationship with 14 of the top 25 U.S. LFIs across our banking and capital markets businesses. Over the last 12 months, we have renewed or extended relationships accounting for approximately 30% of total issuing revenue and have no large renewals pending in 2026. That renewal momentum tells you something important. The largest, most sophisticated banks in the country are choosing to deepen their commitment to FIS. We're confident in achieving our revenue and expense synergy targets of $45 million and $125 million in 3 years, respectively, as we laid out in April of 2025. The integration is tracking well, and the combined platform positions us to meet evolving market needs from real-time payments and digital currency to AI-powered fraud and risk management. All of this gives us confidence in the value creation ahead. Turning to Slide 8. Now, let's talk a bit more about the value I just discussed. With the completion of this transaction, we exclusively serve the financial services industry and operate the most comprehensive data platform and financial technology. With over 1 billion accounts on file, driving approximately 73 billion transactions annually. We can now see money at rest in core banking deposits, money and motion across all payment rails and money at work in lending and investing. In a world where data is essential for AI-enabled insights, this integrated visibility is highly differentiating. Demonstrating the power of this combined data even before the transaction closed, we started working with a large regional bank to grow their credit card portfolio, combining core data from FIS and credit transaction data from total issuing solutions, together into a model, enabling the bank to increase their consumers' credit limit, ultimately resulting in higher consumer spend and transaction income to the bank. Our product set is wide and deep, creating valuable systems of record. And here's why that matters: a recent Forbes article explained that AI agents make systems of record more valuable because these core systems provide the accurate, authoritative data AI needs to function effectively. FIS operates mission-critical systems of record, defined by deep integration into regulated workflows, decades of accumulated proprietary data and enterprise-grade governance, security and auditability. These characteristics cannot be easily replicated by stand-alone AI tools or horizontal platforms. And financial institutions continue to prioritize reliability, accountability and compliance, areas where incumbency and trust matters most. That scale, that trust, that operational integration are durable differentiating advantages. Turning to Slide 9. Our commercial muscle is flexing across the entire enterprise. In Q4, we grew recurring ACV sales 20% year-over-year, clearly demonstrating enterprise-wide commercial excellence. I will detail these on the next slide. Another example of our strategy in action, our build by partner approach. It's driving innovation and accelerating new product development. Beyond our Agentic commerce solution I discussed earlier, we built and rolled out next-gen cloud-based solutions like Money Movement Hub with over 100 customers signed up since our launch in 2025. Other recent launches include SmartBasket, a real-time AI-powered solution that analyzes shopping behavior to automatically apply optimal payment methods, personalized rewards and targeted promotions at checkout. And our acquisition of Amount is offering clients a modern digital account opening solution that helps banks grow across deposits and lending. We've won 22 new deals since acquiring this capability late last year. More recently, our acquisition of [ DWA ] in Capital Markets puts us at the forefront of computational law and regulation. Leveraging [ DWA's ] AI capabilities, the acquisition strengthens our competitive position across the buy and sell-side compliance space, empowering our clients to make millions of accurate regulatory decisions across global jurisdictions. The common thread, modern, cloud-based and AI-enabled. No one else sees money across its entire life cycle, and that data advantage is now our strategic engine. We 4x'ed our investment in data and AI transformation, unifying our data stack, deploying agents that drive real client outcomes and building domain-specific AI capabilities. The result is differentiated value for clients on the things that matter most: fraud prevention, deposit and lending growth and operational efficiency. Our data moat gets stronger every day given our infrastructure powers critical and complex workflows for our clients at scale. AI is a strategic accelerant for FIS with adoption unfolding inside existing platforms, augmenting software to improve automation, decisioning and productivity rather than replacing core systems. This dynamic favors data-rich platform owners like FIS. Moving to Slide 10. We saw strong recurring ACV growth across all segments in Q4, with banking solutions up 13% and Capital Market Solutions up 34% year-over-year. Our high-growth solutions delivered very strong full year results. Digital Solutions grew recurring sales ACV 123%, payments grew 70% and lending grew 62%. These are leading indicators of where the enterprise is heading, as we drive improved product and revenue mix. This is our strategy in action, what we highlighted at Investor Day, driving significant increases in highly recurring revenue. And all of this is driving significantly improved and higher quality revenue and margin mix, as we head into 2026. Turning to Slide 11. So let me bring this together. We are executing our differentiated strategy from a position of strength. We delivered strong results in 2025, and our commercial and operational excellence momentum gives us confidence heading into 2026. Our innovation strategy is working. Our focus and targeted investments in high-growth vectors such as payments, digital and lending are resonating in the market with strong recurring ACV growth. And we continue to drive innovation across the enterprise, leveraging emerging technology, including AI to accelerate new product development. We are uniquely positioned for this moment. In a fast-growing financial services sector, we are in the right markets at the right time with the right solutions. We are at the center of an important inflection point in our industry, and we're uniquely positioned to capitalize on it. With that, let me turn it over to James to discuss our financial results and outlook in more detail. James Kehoe: Thank you, Stephanie, and good morning. As you just heard, we are entering 2026 with positive momentum, both operationally and strategically. We are seeing clear results across commercial excellence, operating efficiency and cash generation. Strategically, the acquisition of the total issuing solutions enhances our financial profile by reinforcing our durable recurring revenue growth and delivering strong free cash flow. All of this positions us to deliver strong growth across revenue, margins and free cash flow. Moving to our financial results on Slide 13. Fourth quarter revenue growth accelerated to 7.4%, led by strong recurring revenue growth and another quarter of outperformance from banking. EBITDA grew 7.3% in the quarter. As expected, we delivered good margin expansion across both operating segments. But the segment gains were offset by corporate expenses, where we were lapping an exceptionally low prior year period. Adjusted EPS increased 20% in the quarter, led by both EBITDA growth and below-the-line favorability. Full year revenue grew 5.8% to $10.7 billion, and EBITDA grew 4.7% with margins contracting 28 basis points, a rising contribution from cost saving programs almost entirely offset a 45 basis point dilutive impact from acquisitions and a 70 basis point headwind from declining TSA income. Absent these 2 factors, underlying margins would have increased by approximately 90 basis points. EPS increased 10.2% for the year, well within our midterm guide. Free cash flow was a strength for us, outpacing EPS growth and growing 19% to $1.6 billion. Capital expenditures came in at 9.3% of revenue, in line with our expectations, and cash conversion finished strongly and ahead of expectations at 88%. And we returned $2.1 billion to shareholders, exceeding our capital allocation commitments. And our Board of Directors recently increased the annual dividend by 10%, underscoring their confidence in the durability of our business. Turning now to our fourth quarter segment results on Slide 14. Adjusted revenue growth was 7.4% with recurring revenue growing faster at 7.8%. Once again, banking exceeded our expectations. Revenue growth was 8.3%, well above the high end of our implied outlook, led by recurring revenue growth of 8.8% with strength in digital and payments and higher output solutions than we anticipated. M&A contributed 130 basis points. And as a reminder, revenue growth also benefited from an easier year-on-year comparison of around 190 basis points. Nonrecurring revenue increased 28%, including a 16-point benefit from an easier prior year comp, and professional services declined 16%, as we continue to prioritize recurring revenue sales activity. Banking EBITDA margin expanded 132 basis points, including a rising contribution from cost management, favorable product mix and an easier comparison. Turning now to capital markets. Adjusted revenue growth of 5.6% came in largely in line with our expectations, with recurring revenue growth of 5.3%. Nonrecurring revenue increased 13.7%, reflecting strength in license sales, whereas professional services declined 6.9%, as we continue to focus on recurring sales. Capital Markets EBITDA margin expanded by more than 200 basis points, reflecting continued cost optimization, operating leverage and favorable revenue mix. Moving now to Slide 15 for a quick overview of our full year results. Full year revenue was consistent and resilient across both banking and capital markets. Banking adjusted revenue grew 5.6%, led by strong 6% growth in recurring revenue. Capital Markets posted adjusted revenue growth of 6.3%, including recurring revenue growth of 5.8%. Turning now to Slide 16 to discuss our expectations for 2026. The recently acquired Total Issuing Solutions business will be included in our Banking Solutions segment, and we have provided a full set of historical pro forma financials in the appendix. Additionally, we will be reporting 2 divisions within banking solutions, payments and banking. And we have included a summary of the platforms that make up each division on Slide 26. To further align our business with our strategic vision, we have also transitioned certain businesses across our operating segments or into the Corporate and Other segment. For example, we have moved our Automated Finance business from Banking to Capital Markets to better align with our office of the CFO strategy. Overall, these changes had an immaterial impact on our historical segment growth rates. Our 2026 outlook will be presented on an adjusted basis, which includes 8 days of Worldpay EMI plus Total Issuing Solutions from the date of acquisition. However, we are providing growth metrics on both an adjusted and pro forma basis. Please note, post the close of the acquisition, we have reclassified certain non-GAAP expenses to operational expenses and refined our revenue and EBITDA expectations to account for some minor perimeter changes. As compared to our original assumptions at the time of announcement, this will reduce pretax earnings by $40 million and adjusted EPS by $0.07, and this is accounted for in our 2026 outlook. We have provided a full reconciliation on Page 29. For the first time, we will be providing an outlook for free cash flow, reflecting cash flow from operations less capital expenditures and adjusted only for cash taxes on the Worldpay sale, which will be payable in 2026 and won't repeat in 2027 and beyond. With that, let's review our full year outlook on Slide 17. On an adjusted basis, revenue is projected to grow 30% to 31% with EBITDA growing 34% to 35%. EBITDA margins are projected to increase 155 to 175 basis points with 62 basis points coming from the addition of total issuing solutions to the pro forma base. On a pro forma basis, revenue is anticipated to grow 5.1% to 5.7%, compared to 4.5% to 5.5% at Investor Day. Pro forma EBITDA will grow faster than revenue with anticipated growth of 7.2% to 8.4%. As a result, we expect pro forma margins to expand by 95 to 110 basis points, as we ramp our cost efficiency programs, drive favorable revenue mix and deliver year 1 synergies. Adjusted EPS is projected to grow 8% to 10% to a range of $6.22 to $6.32, consistent with our prior commentary. The issuer transaction is slightly accretive in the first year. As a reminder, our outlook does not include share repurchases, as we temporarily paused buybacks to prioritize deleveraging post-deal close. A key thesis for the acquisition was generating significant and sustainable free cash flow growth, and we are confident in delivering on this commitment. For 2026, we anticipate free cash flow of over $2 billion, growing 27% to 33% year-on-year and growing more than 3x faster than EPS. As I mentioned earlier, this is an all-in number. The only item that is excluded is any cash taxes paid on the recent sale of Worldpay. On an adjusted basis, we continue to target cash conversion of 90% for the year. I'll now talk through our revenue growth projections on Slide 18. Banking adjusted revenue is projected to grow more than 40% with pro forma growth of 5% to 5.5%. This is the second year in a row that banking will exceed our Investor Day growth targets, demonstrating the successful pivot to accelerated growth. These projections include approximately 60 basis points of M&A contribution with pro forma organic growth of 4.4% to 4.9%, compared to 4.5% in 2025. For capital markets, we project revenue growth of 5.5% to 6.5%, including an M&A contribution of approximately 95 basis points. This outlook is slightly below our Investor Day target, reflecting a lower level of M&A activity and a decision to pivot our focus to higher-quality recurring revenue. As a reminder, our long-term capital market strategy is to gradually shift license sales to more predictable recurring revenue. In 2020, our recurring revenue was 68% of total revenue, expanding to over 71% in 2025, with a further increase expected this year. Specifically, in 2026, accelerating mid- to high-single-digit recurring revenue growth will be partly offset by slower growth in nonrecurring revenue, as we execute on this strategy. Turning now to EBITDA margins on Slide 19. The actions we took last year give us good line of sight into delivering significant margin expansion of 155 to 175 basis points or 95 to 110 basis points on a pro forma basis. These include accelerating cost actions, rising leverage from AI, our commercial focus on more profitable ACV and improving product mix and the strong margin profile of total issuing solutions and the related cost synergies. Let's go through the building blocks of our margin outlook. First, a strong margin profile of total issuing solutions add 62 basis points to our pro forma base. Next, there will be a reduction in TSA income from Worldpay, resulting in a margin headwind of approximately 40 basis points. And this is lower than the 70 basis points of headwind we encountered in 2025. The net cost reduction column includes inflation, investments and other cost increases. However, our cost-saving initiatives and synergies are offsetting these increases and driving 80 to 85 basis points of margin improvement on top. We have high conviction here. AI is a significant lever going forward, and we will capture integration synergies over the coming months and years. Importantly, we took a series of cost actions in 2025 and exiting the year that drive sizable savings in 2026. Overall, these projections include synergies of $30 million to $40 million or 20 to 30 basis points of margin enhancement. And finally, leverage and mix will add 55 to 65 basis points. Here, you can see the inherent operating leverage of the business and the flow-through of favorable product mix. Altogether, we have a high degree of visibility, 70% of the cost savings have already been actioned and a majority of the improved product mix was already sold in 2025. Now, let's turn to Slide 20 for an overview of free cash flow. In 2025, we drove a broad series of cash optimization initiatives and successfully accelerated growth to 19%, almost double the rate of earnings growth. Looking ahead, we are anticipating a further acceleration in cash flow. For 2026, we expect to drive free cash flow growth of 27% to 33%. Beyond 2026, we expect to continue growing cash flow well ahead of earnings, as we steadily improve capital efficiency and working capital ratios and reduce one-time integration and transformation costs. We are well positioned to double our free cash flow to over $3 billion by 2028, and this implies a compound annual growth rate of approximately 25%. This will allow us to meaningfully increase future capital returns to shareholders once we have reduced our debt leverage to our long-term target. Let's now discuss our first quarter outlook on Slide 21. Adjusted revenue will grow 29% to 30%, with pro forma growth of 5.5% to 6.2%, largely consistent with the full year outlook. We expect a strong start to the year across our banking business with revenue growth of 7% to 7.5% compared to full year growth of 5% to 5.5% growth. Capital Markets full year revenue is projected at 5.5% to 6.5%. But as expected, the first quarter will be a bit softer, entirely due to the tough comparison in the year ago quarter on nonrecurring license revenue. You will recall that Capital Markets other nonrecurring revenue posted very strong growth of 47%, and the exceptionally strong license renewals in the year ago quarter is negatively impacting Capital Markets by approximately 5 points. Excluding this, Capital Markets revenue growth would be in the 6% to 7% range. Adjusted EBITDA is projected to increase 33% to 35%, and margins will expand by 115 to 135 basis points, including a favorable mix impact from the total issuing transaction. Pro forma EBITDA will increase 7.1% to 8.4%, ahead of the pro forma revenue growth with pro forma margin expansion of 35 to 55 basis points. Core margin expansion is much stronger, expanding by more than 100 basis points if you adjust for the timing of the capital market of renewables. This is a solid start to the year, positioning us to deliver consistent margin expansion over the course of the year, in line with our full-year outlook. Adjusted EPS is expected to increase 4% to 7% to $1.26 to $1.30. In summary, we had a good finish to the year with particular strength in our Banking segment. We recently closed 2 transformative transactions, acquiring the Total Issuing Solutions business and monetizing our noncash-generating Worldpay stake, meaningfully improving the company's cash flow profile. We are projecting durable revenue growth combined with significant margin expansion. And lastly, we are targeting free cash flow of over $2 billion and are well on track to generating more than $3 billion of free cash flow in 2028. With that, operator, could you please open the line for questions? Operator: [Operator Instructions] Our first question comes from Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: I appreciate the question here. Just maybe for Stephanie. I appreciate your comments upfront. Forgive me for asking the first question on AI. But just -- I like what you said about the systems of record businesses, but can you give us a little bit more on how you think about the risk that AI could automate or replace some of the key functions that FIS currently provides to banks, just thinking about the surround products, core banking itself? I know that it's weathered the storm of past tech waves in the past, but just trying to understand if AI will be different in any way in your mind. Stephanie Ferris: Yes. Thanks, Tien-Tsin. No problem with the AI question. It wouldn't be earnings season this year, I think, without an AI question. So a couple of things. I would highlight 3 things: one, we do believe we have a durable advantage here, and I'll walk through why. We actually view AI as a strategic accelerant for our business, and we'll talk about where we're focused to use it as a strategic accelerant, which is in the places where we think AI can add a lot of value inside and around our system. So first, talking about FIS, we -- as you know, we operate mission-critical systems of record. These are -- these provide accurate authoritative data sources. They're not predictive in nature. They have to be audited. They have to be regulated. We think in this scenario, and this is broadly across FIS, those are the systems of record we operate if you think about all of our systems. And so we believe we have a durable advantage here because there's really 3 important advantages if you think about FIS. We have proprietary data sets with decades of accumulated data across the entire money life cycle. So you think about core banking, payments, lending, investing, these proprietary data sets are massive, and you need them to do AI -- to have AI capabilities built on top of them. Second, our core systems are deeply integrated into regulated workflows. These regulated workflows have to be auditable, and you have to create a significant amount of compliance and regulatory reports out of them. And then finally, enterprise-grade governance, security and auditability. So if you think about durable advantages around systems of record, those are how we see the biggest 3 important advantages. And I referenced in my prepared remarks the Forbes article that effectively said that AI agents make systems of record more valuable. So we really believe and see our technology and our data as a strategic advantage. Now, how do we think about AI as a strategic accelerant? And where do we think AI can enhance and/or disrupt our systems of record? So as we think about AI really being a strategic accelerant, our data moat is now our strategic advantage. And we talked about how big that is now across the entire money life cycle. Bringing the credit issuing business inside FIS, we now have and see over 1 billion accounts on file, 73 billion transactions. We go across core banking every single payment rail now with credit issuing. And so you think about the data that banks need or anybody needs to create AI capabilities, we have more than ever. And so we talked about we're 4x'ing our investment in data and AI, focusing on unifying our data stack. So we're spending a lot of money now as you think about enhancing those data capabilities, deploying agents inside our existing systems and on top and building domain-specific AI capabilities. So where do I -- where are we focused? And where do I think there's potential for enhancement or disruption? It's really where the predictive part of our systems are needed. So think about fraud prevention, how to predict the next best deposit and lending account. So we're focused on enhancing our capabilities using our dataset and putting AI in those. That's where the predictive TSYS is where we think the opportunity is. Being able to onboard clients more efficiently because you can get through KYC, KYB regulatory risk much more quickly with AI predictive capability. And then, broadly in the banks helping them with productivity initiatives taking down costs where they have people that use our core systems of record and workflows and help use AI to automate those processes. So that's where we see AI being enhancing, and we really think it's a strategic accelerant for us versus risk, but we have our eye on the whole market. Operator: Our next question comes from Ramsey El-Assal with Cantor Fitzgerald. Ramsey El-Assal: I wanted to ask about the pace of the shift in capital markets to higher-quality recurring revenue within the segment. How long do you expect this shift to have an impact on segment revenue growth? And how should we think about the steady state segment kind of growth profile after the shift is complete? Stephanie Ferris: Yes. Maybe I'll start in terms of how to think about that strategically and James can add on in terms of if he thinks I missed anything. If you look back, and I think we talked about this to 2020, the recurring revenue was 69% of Capital Markets revenue. We ended 2025 at 71%. The market is moving away from licenses, which is a good thing. And we are, at the same time, while the market is moving away from licenses, really focused on driving recurring, highly profitable product revenue. So we are leaning into that, as we think about continuing that journey, and I would expect to see a similar like an accelerating recurring increase, as you think about the total. I think we also said in our prepared remarks that we would expect recurring revenue in capital markets to be mid- to high-single digits in 2026. So you would expect us to continue to lean into recurring. It's a market condition. It's also a better outcome for FIS. It's how our customers want to buy, and it's a higher recurring revenue, higher margin business over time. I don't know, James, if there's anything you want to add? James Kehoe: No, nothing to add. It's just -- I think you'll see a similar trend over the coming years. So accelerating recurring growth and call it moderate to -- moderate growth on nonrecurring. Bear in mind, the nonrecurring is still growing in 2026. It's just growing at a much lower rate, and then, we're highly optimistic about the business and the accelerating trend on the recurring revenue. Operator: Our next question comes from Darrin Peller with Wolfe Research. Darrin Peller: Nice job on the quarter and the year. I just want to revisit a higher level question again and maybe a little bit away from AI and focusing on the issuer business. I guess, there's been more conversations over competitive dynamics with some of the big -- bigger networks getting into issuer processing and some of the -- just some ankle biters coming in, in terms of trying to disrupt the space. So maybe similar to the question on high level like AI, but maybe focused on issuer, what do you see in terms of the barriers there again to maintain your position, especially now that you've really just acquired into a big part of the credit side? And then, on a side note, just financially, what are you incorporating for the year in terms of issuer synergies? Is it too early to expect any in terms of embedded in the financial outlook? Or do you already see cross-sell opportunities embedded in the later part of this year? Stephanie Ferris: Thanks, Darrin. So yes, so great question, pulling back. So if you think about our acquisition of the Total Issuing business, we have now added to our product suite the marquee large-scale credit processing business globally. I think, when you think about that, there's 2 things in terms of how we compete there. One is the product capabilities that it brings into FIS, but also how we will be able to leverage our relationships that are very large with the existing FIS' around the world. So if you think about the product capabilities, and there's always new entrants that make us all better, I think we would say we have in North America, by far, the biggest product credit business. It's large. It's scaled. It has expertise that is decades long. I think we talked about, as a proof point, how valuable that is to our existing base considering that we renewed approximately 30% of the revenue in that base in 2025 and have no renewals in 2026. Just trying to express our customers' belief in the existing business. That being said, we obviously have modernization going on, and we can talk about that a bit later. When you think about the international business, and I think the global folks have probably talked about that, we have a product in prime, which is the industry leader. It's driving about $200 million of revenue. It's been growing at a 15% CAGR from 2016 to 2025. It competes globally, and it's very, very competitive against whatever new entrant is out there. So I think we think about product capabilities, whether it's in North America, as being large and scaled and best-in-class. Internationally, the same thing. So we do believe we have a very, very competitive product set, if you think about credit issuing on its own. Then, when you think about how do we leverage the FIS relationship, so when you think about some of the competitors you're thinking about that are bigger, you are leveraging, or would be leveraging, their broader relationships. We now have that advantage with the issuing business inside FIS, think about the size and scale we are now to the large financial institutions. We provide debit processing. We provide credit processing. We provide core banking. We provide lending. We provide trading and processing. So we have an ability with the credit issuing business to also lean into relationship size and scale that I think will make the total issuing business continue to be very competitive. And then I think finally, I'd say just the data advantage that I mentioned in the first question with respect to AI, do not underestimate how important data is to all of these financial institutions to pursue their own AI agendas. And I talked about this, and might have got lost in the prepared comments, the value of having a bank's core processing system as well as doing their credit issuing off of total issuing was so -- we've already started to have conversations. And we're in a POC with a large regional bank to bring that data together inside our systems, serve that up and help them build a model to make their credit card customers and -- enhance their credit line increases in a much more dynamic way than they've ever been able to do before. This is an example of where bringing the data together makes us even more valuable to our end customers. And we don't see any other competitor having that kind of capability across core debit, credit, et cetera, in the landscape. So try to view that as -- or give that as an example. And that -- and we started doing that. As soon as we announced, they reached out to us in terms of working together on that. So more to come on data products, as we think about enhancing our data capabilities. But that's probably what I'd say around credit issue. Operator: Our next question comes from Will Nance with Goldman Sachs. William Nance: I appreciate the disclosures on the makeup of the Banking business. I wanted to maybe zero in on just how you're thinking about the growth algorithm between these. I think -- with a lot of the payments-oriented assets going into this payments line, I think it's somewhat surprising to see that -- it seems like TSYS is only 40% less than half of the Payments business, so really kind of highlighting the diversity of the segment. Can you talk a little bit about how to think about growth drivers across of these? Obviously, TSYS was something like a mid-single-digit growth business. Should we be thinking about Banking as something in the kind of low-ish single digits with kind of like stronger, sustained growth across payments over time? Stephanie Ferris: Yes. Thanks, Will. I don't think we're ready to talk about segment -- subsegment growth rates. I think what we would say, and what we've shared is, I think you can think about the total issuing business growing consistent with what it grew in 2025, so about 4.5%. So think about that staying consistent in 2026, and legacy FIS business, obviously growing a bit faster than that to make the overall guide work. And so we're really excited and proud of the work we've done broadly across the FIS organic business and Banking and the acceleration you're seeing there in 2025 and it continuing into 2026. So I think, as you think about the TSYS, as we sit here today, that's the best we can probably provide to you. As we come into first quarter, we'll give you a little bit more color around subsegment growth rate. Operator: Our next question comes from Dan Dolev with Mizuho. Dan Dolev: Stephanie, great results, really, really nice. Just maybe a strategic question here on the portfolio. Obviously, you've got like a really good portfolio right now, and your shares are definitely trading below what they're worth. As you think about sort of your portfolio today in terms of the assets that you have, is everything from now on considered core? Is there anything you're thinking of in terms of what could be done to enhance buybacks, just to get the sense of how you're thinking about the portfolio? Stephanie Ferris: Yes. I think we're really happy with where the portfolio sits. Obviously, we've done 2 very strategic transactions to simplify the portfolio meaningfully, really focused on a single client base and financial services, our products make sense and go together. I think we will always be doing pruning of the portfolio. We've done that for years. And so you can see a bit of that, as we move things into Corporate and Other. But I wouldn't expect you to hear from us around large sales or anything like that. We feel -- we're really wrapped up, frankly, in integrating the TSYS business and making sure that we really focus on executing well on that and executing on the base business. I think -- I'm sorry, James commented in his prepared remarks that we're also focused on repaying our debt. That's our primary focus. That will be our focus. Until we get that done, you wouldn't expect to hear from us on buybacks. Operator: Our next question comes from Jason Kupferberg with Wells Fargo. Jason Kupferberg: I wanted to go a bit deeper into the Banking segment. Obviously, the organic outlook here, again, is outpacing your medium-term range from the Investor Day, I think, by maybe about 150 bps at the midpoint. So just wanted to get some more perspective on what's driving the above trend performance. You talked about it a little bit high level in the prepared remarks, but it seems like there's sustainability behind that. So if you can just unpack where you've seen particular success with some of your refreshed go-to-market motion over the last year or so? It seems like it's bearing fruit. So we'd love to just hear more on that. Stephanie Ferris: Yes. Thanks, Jason. Yes, look, we're really, really happy with our commercial excellence. I think I'd start there. We have been focused in driving commercially selling on the products that we think makes sense for FIS and where growth, frankly, is demanded from the end markets. So you saw us through 2025 continue to drive commercial excellence. We knew we had that in our back pockets with tailwinds, as we came out of 2024. We talked about that. We talked about both reenergizing the sales engine as well as having higher rates of renewal. So the combination of those has really been helpful in terms of driving and outperforming on the banking business, probably even faster than we expected. So it's fantastic. I would say with respect to where we're seeing demand, it is broad-based. We have demand across all of our products, in particular, obviously, core and our core capabilities, as we're -- we have left core modernization behind in terms of core consolidations. But probably more importantly, if you remember, when we talked at Investor Day, I talked about needing to be focused in selling in payments, digital and lending, and we continue to see demand there, and our products continue to have huge uptakes there in terms of what our customers are needing from us. We've also been able to supplement our organic products like Money Movement Hub, frankly, which has had huge demand with some of the acquired products like Amount, like I mentioned, that's really around digital capabilities. So we're seeing it's really broad-based. But what I think you should really take away is we have our commercial excellence back. We're operating with excellence there. Our products are really strong in the market with our buy-build partner strategy. And we're just really focused on continuing to drive that as we move into 2026 and feeling really good about where the Banking business is performing. Operator: Our next question comes from Timothy Chiodo with UBS. Timothy Chiodo: Great. First on the Worldpay revenue. So there's the Worldpay revenue that hits into the Banking segment. In 2023, I believe that was about $30 million. It was about $140 million in 2024, and it was expected originally to be sort of flat to down in 2025. I believe that it came in ahead of expectations for the full year for 2025. And I was hoping you could give us a little context on, one, what was that full year number for '25 and a little more context on what's in there. You've mentioned in the past that there's premium payback and maybe some other services that are being provided through Worldpay. And then lastly on this topic, just what revenue contribution is implied in 2026, meaning will it be a headwind, a tailwind or relatively neutral? Stephanie Ferris: Yes. Thanks, Tim. So if you recall, when we separated Worldpay from FIS, we talked about commercial revenues because we serve each other. And so some of the things or the things that are in there and that are driving growth are Worldpay's use of our loyalty and premium payback product, use of our network routing capabilities on NICE. These are really, really strong products that they use in cross-sell. So the continued growth of them is natural growth, just like they are now a completely separate customer. You continue to see strong demand, and you'll see strong demand because those are some of our best payment products. So I think that's really what's been driving them strong payment growth, like I said, broadly across the market. And then, it's -- they are obviously great products that we always have had, as we work together, and then, as we've now separated become natural third-party agreements. So I'm not sure that we're going to give a 2026 guide. I don't think that makes any sense anymore given that it's Global Payments. But I do think this is -- this ends up showing and expressing the value of the commercial agreements and really excited for Global to continue to consume these products. Operator: Our next question comes from Bryan Bergin with TD Cowen. Bryan Bergin: I want to dig in a bit on free cash flow and talk about the bridge to '28. So can you give us a sense what the largest sources of that projected expansion from the $2.1 billion base here in '26 to the $3 billion target that you have? What are the building blocks? And kind of where do you have most confidence versus where it may be more fluid? James Kehoe: Yes. I would take a couple of blocks here. One is on capital intensity. So last year, it was 9.3%. We're projecting 8.5% for this year. We think longer term, the natural trend level is around 8%. So that's 0.5 point from capital. Two is we're not at the end yet of our working capital optimization. I think we made great inroads in 2025. We have significant carryover benefits into '26. And there's probably still some optimization in 2027. The biggest one, however, is going to be the reduction in transformation and integration. It's kind of intuitive because in the 2026 year, there's about $200 million of cash costs relating to the integration of the credit issuer business. By the time we get to 2028, those costs will no longer be in the cash flow statement. Two is 2026 is a pretty high level for, call it, transformation expenses. And you've seen from our margins that we're driving core FIS margins substantially higher than what we said when we gave the midterm guide of 60 bps. It's closer to 80 bps on the base business. So we're getting good traction on cost reduction in '26. Those programs will decline as we get -- go closer to '28. So the biggest single driver, '28 versus '26, is actually lower one-time. So a significant reduction on the credit issuer integration and a significant reduction on FIS transformation. Operator: Our next question comes from Andrew Schmidt with KeyBanc Capital Markets. Andrew Schmidt: Stephanie, I totally agree with you on the generational moment at financial services, certainly an exciting time. Just 2 questions, if you don't mind, if I could squeeze in. Just one bank M&A, just can you talk about to what extent bank M&A is included in the outlook and then opportunities in subsequent years as more product is taken and customers grow. And then the second one, just on Agentic or GenAI solutions, maybe you can level set us. What are customers actually asking for? And maybe you could just talk about the opportunity for FIS to be a conduit versus other third parties coming in and providing different workflows? I think there's an opportunity to be a conduit versus the runaround that we currently hear out there as a narrative. But anything on those would be helpful. Stephanie Ferris: Yes. Thank you. Happy to. So on bank M&A, it is a generational moment, lots seen in 2025. I would expect us to see more in 2026. Given where we sit in the market, we view ourselves to be share gainers there. We won't win them all, obviously, but we've been on the winning side of most. In terms of the 2026 guide, we only guide the ones that we know. So to the extent there's another one in 2026, typically, what happens is we'll update our forecast. But usually, it -- although it's been going much quicker, usually, if we hear of something in 2026, it will close in 2027. But -- so we don't have anything baked in. So any of it would be upside or downside depending on where it goes. We do expect though to see more bank M&A broadly, and so, we'll stay tuned on that. In terms of Agentic, it's really interesting. So there's been a lot of talk about Agentic commerce. And when you hear about it, most is focused on how to make sure that merchants and acquirers and Visa/Mastercard can facilitate the Agentic capabilities. Where we're focused, because we're focused solely on financial institutions, has been ensuring that when the bank -- when we receive the Agentic transaction on behalf of a bank that we can identify it as an agent working on your behalf because there's 2 things. One, bank models are -- I want to make sure that we can authorize that Agentic commerce transaction for you and that we don't decline it because it's coming in at a weird time at night that you don't normally shop at, but maybe your agent does. So we're helping banks think about and making sure that we can provide the flag to say this is an Agentic commerce transaction, and you want to make sure that you authorize it. So that's point one for financial solutions -- for financial institutions. And then the second is really starting to work with financial institutions to help them think through Agentic fraud. So -- and this is very new and cutting edge, but at the same time, you want your car to be processed for your Agentic transaction. There are a lot of bad guys out there thinking about how to use agents to also transact on your card. And as you know, financial institutions have very sophisticated fraud models built that we either provide them data or we run the fraud models for them. And so we're spending a bunch of time working with our FIs to figure out how do we update those models for new ways of fraud using Agentic commerce. So for us, and this is where it's really good for us to be singularly focused on financial institutions, we're spending less time thinking about how to make sure a merchant can facilitate an Agentic transaction. We're leaving that to Visa, Mastercard and acquirers. We're working with Visa and Mastercard and other FIs to make sure that we can authorize the transaction, it doesn't get declined, and that we can make sure that our FIs can protect themselves against what is probably going to be more fraud used against them. So that's how we're thinking about Agentic. Operator: Our next question comes from Vasu Govil with KBW. Vasundhara Govil: Maybe Stephanie, another AI question for you. Just how much engagement are you seeing from bank clients today on deploying AI solutions? And if you could give us a sense of whether it's coming from the largest banks, the mid-sized banks? And how quickly do you think we will start to actually see traction and sort of flowing into the P&L? And if I could ask a quick one to James as well, just on the margin variability we saw in the quarter, I got the dilutive impacts from M&A and TSA headwinds. I'm just guessing like what surprised you in the quarter relative to expectations on that front, I guess. Stephanie Ferris: So what I would say, Vasu, is that I've never seen banks want to or start to adopt technology faster than they're adopting AI. They all see the potential advantage of using it. If you think about their cost structures, they have significant cost structures, whether you're big or small, decked against operational flows, in particular, like making sure that they stay compliant with regulatory KYC, KYB, et cetera, or deposit loan ops or places where they have a lot of people is where I see banks wanting to attack -- wanting to use AI to tackle taking out those costs and redeploying those cost savings into ways they can grow, think deposits, loans, et cetera. And so whether you're a small bank or you're a big bank, you're thinking a lot about it. Now, how you're deploying it is a little bit different depending on if you're small, medium or big. If you're large, then you are likely deploying AI yourself, but what you're coming to FIS to talk about is needing to get data from us in a real-time fashion as well as talking to us about, okay, you can now serve me up my core data, my credit data, my debit data in real-time capabilities. And we have a lot of banks that are very interested in consuming capabilities from us like that. So we're building those out. You would expect them to be building their own agents on top of that. We then also have regional or mid-sized banks where they're saying to us, look, we love -- we need all that data. We want you to help us build out our models and our modeling capabilities. Then, you have small banks who are saying, look, I really need you to help me and we are working with them to build out agents that are embedded inside the core and the transaction platforms so that they can reduce their operational costs in the back office. For the most part, banks are really using AI to take down their back office costs. And if you think about banks broadly, no matter how big or small you are, that's in compliance and regulatory areas, that's in where they have large amounts of people. And so that's where we're working with banks to really focus in terms of how to take down costs. The other place that they're spending a bunch of time on is in fraud because AI does help models become more predictive. Again, we provide a lot of data there and capabilities. And so with all the data we have -- now have with total issuing, our fraud models become even more valuable to them. So lots of conversations, varying levels of implementation levels. But I would say there's not a bank that I talk to that isn't talking about and exploring what AI can do for them. James Kehoe: And then, Vasu, you had a question on margins in the fourth quarter. Yes, I think you asked what surprised us. I guess, as we went into the quarter, we were pretty happy with the consumer demand. What we saw later in the quarter, we saw much higher levels of actually customer demand for output services and equipment. And then the second thing is currency rates went slightly negative at 35 bps. And this customer demand were on generally lower-margin products and that pulled down margins a little bit. That being said, I will go back to what you alluded to. We're exiting the year on a few -- on a full-year basis, take out TSA and M&A, the core margins were up about 90 basis points. And then, you look into 2026, and the pro forma margin growth is at 95, call it, 100 bps. And as I said earlier is, if you take out the benefit from synergies on credit issuer, the actual FIS margins for next year are projected at around 80 bps expansion, which is above what we were thinking on back at Investor Day of about 60 bps. So we're actually very, very bullish on the margin side. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Galapagos Year-End 2025 Financial Results 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, Glenn Schulman, Head of Investor Relations. Please go ahead. Glenn Schulman: Good day, everyone. This is Glenn Schulman, Head of Investor Relations, and I'd like to thank you all for joining us today as we report Galapagos' full year 2025 financial results and fourth quarter business update. Last evening, we issued a press release outlining these results. This release, along with today's presentation, can be found on the Galapagos Investor website at www.glpg.com. Before we begin, I would like to remind everyone that we will be making forward-looking statements. These forward-looking statements include remarks concerning future developments of our company and our pipeline and possible changes in the industry and competitive environment. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from those indicated by these statements and are accurate only as of the date of this recording, February 24, 2026. Galapagos is not under any obligation to update statements regarding the future or to conform to these statements in relation to actual results unless required by law. You are cautioned not to place any undue reliance on these statements. Joining us on today's call from the executive team are Henry Gosebruch, Chief Executive Officer; Aaron Cox, Chief Financial Officer; Sooin Kwon, Chief Business Officer; and Dan Grossman, Chief Strategy Officer of the company, all of whom will be available during the Q&A session. With all that, let me now turn the call over to Henry Gosebruch, CEO of Galapagos. Henry? Henry Gosebruch: Thank you, Glenn, and thank you all for joining us today. Galapagos had a transformative 2025, focused on turning the page from cell therapy, implementing a new strategic direction and laying a strong foundation for long-term value creation. We are entering this new chapter with approximately EUR 3 billion in cash at year-end 2025 in a strong position to pursue transformative business development opportunities with significant strategic flexibility. The new team is in place to execute on the strategic vision. We have been very deliberate in assembling the right leadership team to execute the strategy, and I could not be more pleased with the level of talent we've been able to attract to Galapagos. We've assembled a management team with world-class business development expertise and a shared mission of leveraging our unique position to create significant shareholder value. Collectively, our team has executed hundreds of transactions in the life sciences sector and is working well together with the goal of creating value for our shareholders. We have also evolved our Board composition, welcoming 5 new directors who bring the deep transaction, capital allocation and operating experiences needed for this next phase of growth. Our objective is not incremental rebuilding, but a fundamental reshaping of the company around programs we believe are capable of delivering meaningful patient impact and sustainable shareholder returns. We are aggressively evaluating opportunities across our focus areas and maintaining a broad dialogue with companies and innovators globally. We are encouraged by the level of potential transactions we have in our deal pipeline and our opportunity to become a unique player in the biotech deal ecosystem and carve out niches where we can be competitively differentiated. At the same time, we are disciplined and selective. We will allocate our capital carefully and thoughtfully with clear financial metrics in mind. Our focus remains on clinically derisked opportunities in areas where we are able to bring unique insights that represent competitive advantage. Lastly, our collaboration with Gilead remains a key strategic advantage and potential competitive differentiation. We are working very closely with Gilead and continue to have active and constructive dialogue as we evaluate opportunities. Their global development and commercialization expertise, combined with our capital base, agility and deal-making skills creates a powerful platform as we shape this next phase of growth for Galapagos. Let me briefly provide an update on our legacy R&D asset, TYK2 or GLPG3667. In December, we announced top line Phase II results for GLPG3667 in patients with dermatomyositis and systemic lupus erythematosus or SLE. GLPG3667 met the primary endpoint in the dermatomyositis study, demonstrating a statistically significant clinical benefit and meaningful improvement on secondary measures of disease activity compared to placebo. We are currently evaluating all strategic options for this program, including pursuing potential partnerships with other i&i players to accelerate the development of GLPG3667. In conclusion, Galapagos is well positioned for the future. Our year-end cash position of approximately EUR 3 billion, our strong business development and capital allocation experience provides the strategic flexibility to pursue business development opportunities while maintaining a disciplined focus on value creation. With that overview, I would like to now turn the call over to Aaron Cox, our CFO, to review our full year 2025 financial results and 2026 guidance. Aaron? Aaron Cox: Thanks, Henry, and hello, everyone. In the press release issued last night, we detailed our full year 2025 results, provided an update on fourth quarter performance and shared our 2026 guidance. Total operating profit from continuing operations amounted to EUR 295.1 million in 2025 compared to an operating loss of EUR 188.3 million in 2024. This operating profit was primarily due to the release in revenue of the remaining deferred income balance of EUR 1,069 million associated with the exclusive access rights granted to Gilead under the OLCA. As a reminder, in conjunction with this transaction in 2019, Galapagos recognized a contract liability of approximately EUR 2.3 billion, which was to be recognized as revenue on a straight-line basis over the 10-year term of the agreement. Following the 2025 OLCA amendments, the intention to wind down and related events in 2025, as of December 31, it was assessed that there were no remaining obligations that would justify this specific contract liability to be maintained in our IFRS financial statements. We do not expect any cash tax impact in 2025 related to this recognition of revenue. Importantly, while the OLCA still remains in force, we expect that any future business development transaction will be completed under terms that would be different than the existing terms of the OLCA. Now turning to expenses. Operating expenses were negatively impacted for a total of EUR 399.8 million by the decision to wind down the cell therapy activities with an impact of EUR 275 million, consisting of an impairment of the cell therapy activities of EUR 228.1 million, severance costs of EUR 33.3 million, costs for early termination of collaborations of EUR 16.3 million, deal cost of EUR 10.1 million, EUR 1.5 million for additional accelerated noncash cost recognition for subscription right plans, and EUR 7.5 million of other costs, partly offset by a positive fair value adjustment of the contingent consideration payable of EUR 21.8 million. Additionally, the executed strategic reorganization related to the small molecules business announced in 2025 for EUR 124.8 million. Financial investments and cash and cash equivalents totaled EUR 2,998 million on December 31, 2025, as compared to EUR 3,317.8 million on December 31, 2024. Our cash and cash equivalents and current financial investments included EUR 2,159 million held in U.S. dollars versus EUR 726.9 million on December 31, 2024. These U.S. dollars were translated to euros at an exchange rate of 1.175. Since year-end, we have converted more euros to U.S. dollars and now hold approximately 72% of our cash in U.S. dollars and 28% in euros. We expect to continue increasing the portion of cash in U.S. dollars as the year progresses. Turning now to our guidance for 2026. As part of the transformation to the new Galapagos, we announced our intention to wind down our cell therapy activities last fall, and we are now executing on this process following the works council processes that were completed last month. Given the progress we've made on this execution, I can now share that we expect the cell therapy wind down to be substantially completed by the end of the third quarter of 2026. In connection with the wind down of the cell therapy activities, we expect an operating cash outflow of up to EUR 50 million in Q1 2026 as well as one-time restructuring cash impact of EUR 125 million to EUR 175 million in 2026. This reflects a EUR 25 million reduction compared to the prior guidance range of EUR 150 million to EUR 200 million. In addition, we anticipate cash costs of approximately EUR 35 million to EUR 40 million for the final implementation of the restructuring announced in January 2025. Costs related to the ongoing TYK2 program, including completion of the Phase II clinical trials in DM and SLE, as well as ongoing support to advance the program towards Phase III development are expected to be up to EUR 40 million in 2026. Away from the spend items, we continue to expect meaningful cash flow to come from interest income, royalties and tax credits. As a result, we expect to be cash flow neutral to positive by the end of 2026. We also anticipate we will have approximately EUR 2.775 billion to EUR [ 2.850 ] billion in cash, cash equivalents and financial investments at December 31, 2026, excluding any business development activities or currency fluctuations. Now let me turn it back to Henry to wrap up. Henry Gosebruch: Thanks, Aaron. In closing, 2026 will be a pivotal year for Galapagos as we focus on building long-term value through transformative business development, leveraging our strong balance sheet, our deal-making expertise and our unique collaboration with Gilead. Our shares remain at a significant discount to the cash figures, Aaron just reviewed. We will be focused on closing the gap through execution on our business development plan, thoughtful capital allocation and engagement with shareholders to rebuild trust and confidence. We are encouraged by the momentum we've built so far as we reshape Galapagos with a clear strategy in place. With a disciplined approach to capital allocation, we remain focused on pursuing the right opportunities to build a pipeline of novel therapeutics designed to deliver meaningful benefits for patients and a sustainable value for shareholders. We are still early in this new chapter of our company, but we are off to a strong start, and we are excited about the future ahead. So with that, thank you all for your attention, and we will now open it up for your questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Brian Abrahams from RBC Capital Markets. Brian Abrahams: Just as you continue to progress on business development, just kind of curious if anything has evolved in terms of what you might be looking for? And then is there any deadline or any sort of change that we might expect based on the Gilead agreement if you're not able to identify assets to bring in by a certain time point? Henry Gosebruch: Yes. Brian, it's Henry. I'll take those questions. So no, our strategy is really consistent with what we've been talking about since last fall in terms of focusing on derisked late-stage clinical assets, not exclusively, but primarily in the i&i and oncology space. And I'd say we continue to see a lot of good opportunity there. And as we said in the prepared remarks, we're focusing on opportunities where we think we can bring unique insight, unique competitive advantage. But I think there's, again, a lot of opportunity, and we're working through our deal funnel and remain confident that there's a lot of attractive opportunity for us. With respect to your second question, as we said previously, we're not going to set a deadline for a specific deal. Again, we'll remain patient, disciplined. Again, we do have some good activity going on, but it's more important to do the right deal than to do a deal by a certain period of time. The OLCA does expire. Now it doesn't expire for about 3 years and change. So ultimately, that is a deadline. But certainly, we're focused on getting an important transaction, transformative transaction done ahead of that ultimate expiration of OLCA. Brian Abrahams: Got it. And if something does not happen before then? Henry Gosebruch: Well, if something does not happen by then, despite working really hard on, trying to make it happen, then OLCA would expire, and we would go on without the OLCA in place. Operator: Our next question comes from the line of Phil Nadeau from TD Cowen. Philip Nadeau: Our question is on GLPG3667. In the past, you've suggested that the bar to moving that forward internally and investing in it further would be rather high. We're curious to get an update on your thoughts there. I know you said you're pursuing all possible avenues of moving that forward. But how does management weigh developing that internally and investing in it versus out-licensing? Henry Gosebruch: Yes, Phil, I would say those comments also stands. We have a high bar. Frankly, we have a high bar, not just for 3667, but for any asset, be it internal or external, we really look at it with the same unbiased lens. Now with respect to where we are, again, it's still early. We, as you know, get the topline data just before the holiday. Data is still coming in. So we don't have the full package in place. We are in the process of talking to partners. Again, given that we don't have the full infrastructure required to really take this into Phase III, it makes sense to see where some of the players are that, that have that. And maybe in working with a partner, we can do more, do it faster, do it more capital efficient and ultimately create more value. So we're focused on looking at that. We're focused on getting our arms around the data that's still trickling in. But again, the bar is exactly the same bar that we've always set for ourselves. Operator: [Operator Instructions] Our next question comes from the line of Sean McCutcheon from Raymond James. Sean McCutcheon: Can you speak to your current view on capital allocation, specifically as it relates to the pool of capital you aim to put forth for acquisitions for BD? And how much you need to reserve for operating expenses going forward and how the Gilead partnership informs deal sizing and optionality on that front? Henry Gosebruch: Yes, it's Henry. Thanks for the question. So look, at a high level, I mean, some of what I'm going to say is it's pretty obvious, but we have EUR 3 billion in capital. And as you point out, that capital needs to account both for any consideration to a partner or acquisition target and of course, our development expenses we would have in any transaction. Now when you say sort of how does the relationship with Gilead inform our capital allocation, as we said on calls previously, the dialogue with Gilead is quite strong. It's very, very constructive. They continue to indicate openness to contribute in both deal terms, meaning paying some of the upfront consideration as well as taking on some of the development spend operation. So ultimately, in working with Gilead, we can go beyond the EUR 3 billion we have. And I think that's one of the features we think is very attractive in working with Gilead. So as we think through it, we don't just think about our pool of capital. We also think about what in working with Gilead can we add to the pie and therefore, kind of go beyond what we could do on our own. I don't know if that's where you were going with your question or if you want to clarify maybe what I didn't answer. Sean McCutcheon: No, I think that covers it. Operator: There are no further questions at this time. So I'll hand the call back to Glenn for closing remarks. Glenn Schulman: Thanks, [ Mel ]. I think in the Q&A queue, we do have one more or a couple more coming in, if possible, it would be great to take. I think there's a question from KBC. Operator: Please go ahead Mathijs Geerts Danau from KBCS. Mathijs Geerts Danau: Mathijs coming for Jacob. I had a question on the lower cell therapy wind-down costs. Do you maybe expect that to lower further in the future? Or do you see any possibility in that? Henry Gosebruch: Yes, Mathijs, thanks. It's Henry. Thanks for getting the question, and I'll let Aaron answer that. Aaron Cox: Yes, thanks. We're not providing future guidance here, but we'll obviously update folks on how that cost envelope is progressing on future calls. But yes, we did lower the range from a previous range of EUR 150 million to EUR 200 million in terms of one-time restructuring costs. We lowered that range by EUR 25 million with this release. And as we continue to progress through the wind down, we'll provide updated costs on future calls. Operator: [Operator Instructions] Our next question comes from the line of Delphine Le Louet from Bernstein. Delphine Le Louet: I was wondering and coming back to the capital allocation and the decision you've been taking especially regarding the cash and the cash allocation, the move from euro to dollar, considering the fact that you didn't gain as much as financial income as last year. And so I was questioning about what was the rationale on the back of that? What was the exact timing for us to be clear? And shall we consider the breakup of, let's say, 2/3 U.S., 1/3 euro as being a picture for your next investment portfolio or for the picture we should have from your investment income in the near future? Aaron Cox: Yes. Thanks, Delphine. So mid last year, we started transitioning more euros to dollars, and that was primarily based on where we expected our BD activity to be driven and also where our cost base is starting to move towards, which is more U.S.-based. We provided a range on this call of EUR 2.775 billion to EUR [ 2.850 ] billion for the year. And as I mentioned before, we'll update that as we go through the year. In terms of continued transition to U.S. dollars, we did -- as you heard from my remarks, we do expect to transition more to U.S. dollars as the year progresses, but still keeping a portion in euros as we still have meaningful operating expenses in euro denomination over the year as we move through this wind down. We do see higher earnings rates in terms of what we're receiving on our U.S. dollars. As you look at rates across the environment, you could estimate euros earning around 2% and U.S. dollars earning around 4%. So while the exchange rate does move, we are seeing significant uptake in terms of the interest earned on the U.S. dollars versus euros. Delphine Le Louet: Can I ask another one? Or do you have to go back in the queue? Henry Gosebruch: Go ahead, Delphine. Go ahead. Delphine Le Louet: I was wondering if you have or if you can communicate any expectation regarding your -- the breakeven in terms of operating income. Henry Gosebruch: You cut out a little bit. You're asking about what regarding operating income? Delphine Le Louet: Yes. When do you expect to breakeven for the operating income? Aaron Cox: Yes. We've indicated we expect to be cash flow neutral to positive by year-end. Obviously, as we work through the wind down and associated costs, those costs are going to be chunky kind of throughout the year. So it's hard to predict exactly which quarter some of those costs are going to fall in, but we do expect to be cash flow neutral and positive by year-end. Operator: [Operator Instructions] Our next question comes from the line of Nora Lazar from [indiscernible]. There are no further questions at this time. So please go ahead, Glenn, for closing remarks. Glenn Schulman: Thanks, [ Mel ] and thanks, everyone, for taking the time to join us this morning on the call. Just a couple of upcoming activities on the Investor Relations front, the Galapagos team is going to be at the TD Cowen Conference next week up in Boston, attending the Jefferies by the Beach Conference in a couple of weeks, Kempen Conference coming up in April 15 and the Bank of America Conference in May. Those interested in meeting with the team, please feel free to reach out to your sales contact at those respective institutions to schedule a meeting. Lastly, I just want to mention that our annual report will be filed near the end of March, March 26. So there'll be additional information coming out then. And if you need anything in the meantime, don't hesitate to reach out to me. Thank you all for your attention today, and have a great week. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.