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Operator: Greetings, and welcome to the Select Water Solutions Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Garrett Williams, Vice President, Corporate Finance and Investor Relations. Garrett, please go ahead. Garrett Williams: Thank you, operator, and good morning, everyone. We appreciate you joining us for Select Water Solutions conference call and webcast to review our financial and operational results for the fourth quarter and full year of 2025. With me today are John Schmitz, our Founder, Chairman, President and Chief Executive Officer; Chris George, Executive Vice President and Chief Financial Officer; Michael Skarke, Executive Vice President and Chief Operating Officer; and Mike Lyons, Executive Vice President and Chief Strategy and Technology Officer. Before I turn the call over to John, I have a few housekeeping items to cover. A replay of today's call will be available by webcast and accessible from our website at selectwater.com. There will also be a recorded telephonic replay available until March 4, 2026. The access information for this replay was also included in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, February 18, 2026, and therefore, time-sensitive information may no longer be accurate as of the time of the replay listening or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of Select's management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listeners are encouraged to read our annual report on Form 10-K, our current reports on Form 8-K as well as our quarterly reports on Form 10-Q to understand these risks, uncertainties and contingencies. Please refer to our earnings announcement released yesterday for reconciliations of non-GAAP financial measures. Now I would like to turn the call over to John. John Schmitz: Thanks, Garrett. Good morning, and thank you for joining us. I am pleased to be discussing Select Water Solutions again with you today. 2025 was another record-setting year for Select, both operationally and financially. I'll start with some of our 2025 highlights and provide an update on our key strategic development efforts. Now I'll hand it off to Chris to speak to the fourth quarter and the financial outlook in more detail. In 2025, we improved our consolidated margins, streamlined our Water Services segment and drove significant market share gains in our Chemical Technologies segment. We made key investments in long-term diversification efforts across the municipal and industrial space and advanced our technology efforts in both beneficial reuse and mineral extraction. But importantly, we made great strides in our core water infrastructure growth strategy including the ongoing build-out of our premier Northern Delaware water infrastructure network. During 2025, we grew recycled produced water volumes by 18% resulting in more than 330 million barrels of recycled during the year. We also hit a significant milestone during the fourth quarter, achieving 1 billion barrels recycled since the beginning of 2021 which helped drive the water infrastructure revenue growth of more than 800% across that same 5-year period. During that time, we've seen Water Infrastructure grow from our smallest segment to now our largest segment by profitability. Importantly, we continue to add inventory and underwrite future infrastructure growth and in 2025, we executed multiple new MVCs and added nearly 1 million new dedicated acreage with an average contract term of 11 years. Accordingly, we are well on track towards growing our Water Infrastructure to our stated target of greater than 60% of our consolidated gross profit in the next 24 months supported by sizable additional year-over-year growth of 20% to 25% in 2026 as compared to '25. Our industry faces significant evolving produced water challenges, and these challenges are perhaps most keenly felt in the Northern Delaware Basin. We've made a strategic choice to focus in this basin, which contains some of the most productive geology and lowest breakevens in the industry but also produces the highest water cuts in a region with decreasing disposal availability and increasing regulatory scrutiny. In the Northern Delaware, our recycling first infrastructure network gathers hundreds of thousands of barrels per day with our facilities acting as distribution hubs that can balance water longs and shorts across a broad regional footprint through expansive dual aligned pipeline networks. Additionally, the network can be balanced as needed with our interconnected traditional disposal solutions are alternatively enable future beneficial reuse and out of basin disposal solutions. Our unique infrastructure model sets at Select to be the cost advantage provider versus other competitors in the industry creating significant economic value and cost savings for our customers while generating attractive long-term returns for Select. We also continue to partner with our customers to find the most economic and operationally efficient ways to enhance the utilization of their existing infrastructure. Notably, at times, this may result in our customers operationally transferring our direct conveyance of their existing water-related infrastructure assets to us. Select's ability to integrate these assets into our existing commercial network drives greater operational efficiencies, reduce cost and yields enhanced systems reliability. Throughout 2025, we have been conveyed multiple recycling, disposal and storage facilities from key partner customers. This continued in the fourth quarter as we reached an agreement with a top customer for the direct conveyance of 3 existing treated produced water storage facilities as well as a permit for additional disposal facilities in Eddy County, New Mexico. We have since drilled and completed this disposal facility with immediate plans to integrate it into our broader network. We believe this is a strong endorsement of our customers' trust in Select and the value-added solutions we are providing. When combined with an additional disposal acquisition we completed in the fourth quarter, we added 55,000 barrels per day of new disposal capacity in the Northern Delaware during the quarter. These new assets and contract awards, combined with the significant backlog of our ongoing construction projects will drive additional network capacity and geographic reach across the entirety of the Northern Delaware Basin, supporting the strong 20% to 25% growth outlook I mentioned for the Water Infrastructure segment in 2026. We are also finding new ways to leverage the produced water volumes within our existing infrastructure asset base to generate incremental cash flow and high margin royalty stream without requiring incremental capital investment. This includes recently announced strategic partnership for produced water lithium extraction in both the Haynesville and the Permian regions, which should begin contributing initial royalty revenues by early 2027 and growing from there. In summary, our Water Infrastructure growth strategy is working. I'm excited to see the continued growth from this segment in the years ahead. Now shifting briefly over to our other segments before I hand it over to Chris. Our Chemical Technologies segment proved adaptable during 2025, achieving tremendous growth and market share gains in spite of a softer activity environment. This included 19% year-over-year revenue growth and more importantly, 45% growth in gross profit before D&A. Our research and development efforts continue to drive new product enhancements and demand for advanced chemical technologies. Growing lateral lengths and increased focus on enhancing recovery rates for oil in place continue to drive demand from our highest quality friction reducers and our advanced surfactant product offering. I am very pleased with our recent market share gains and technology advancements and I am cautiously optimistic about the renewed focus from our customers on securing high-quality offerings that improve well performance. On the Water Services side, we were focused on streamlining this segment throughout the past year to simplify our service offerings and position us for the long-term operational efficiency and margin enhancement. Overall, our Water Services segment performed quite well against a challenging market environment in 2025, maintaining its market-leading positions across each of the segment's core service offerings. We continue to evaluate strategic alternatives for our Peak rentals business with a measured and disciplined approach to ensure an outcome that best serves each of Peak and select strategic focuses and growth initiatives while maximizing the value for Select shareholders. While we proceed with this process, Peak continues to garner increased traction in its power solutions offering while generating ample excess free cash to support Select's core Water Infrastructure growth strategy. To conclude, I believe that Select remains extremely well positioned to meaningfully grow our adjusted EBITDA in 2026 with a unique integration of high growth, Water Infrastructure solutions alongside steady market-leading Water Services and Chemical Technologies solutions. I'm excited for the year ahead and firmly believe our current strategy will continue to drive long-term value for Select shareholders. At this point, I'll hand it over to Chris to speak to our recent financial results and the 2026 outlook in a bit more detail. Chris? Chris George: Thank you, John, and good morning, everyone. As John mentioned, 2025 was an important year for Select across many financial and operational metrics. While 2025 brought a challenging macro environment overall, I believe the business performed quite well within those conditions, generating $1.4 billion of consolidated revenue with improved consolidated margins and a record $260 million of adjusted EBITDA. I'll start by covering a few high-level market perspectives before getting into the financial performance and outlook in more detail. Looking forward, we anticipate a commodity price environment in 2026, but is fairly steady overall. With oil largely expected to stay within the $55 to $65 price range we've seen during the second half of 2025 and so far, early in 2026. Near term, we do foresee potential upside to the natural gas market outlook and are well positioned to benefit from our market-leading positions in key gas basins if incremental opportunities arise. Generally, we believe this current commodity environment supports overall activity levels holding relatively steady to the second half of 2025. Now looking at our recent segment level performance and outlook in more detail. We saw meaningful annual growth in each of our Water Infrastructure and Chemical Technology segments across 2025 and more recently, we grew both revenue and gross profit across all 3 of our segments during the fourth quarter. In the fourth quarter of 2025, the Water Infrastructure segment increased gross profit before D&A by 5%, while improving margins to 54%. As we continue our New Mexico system expansion, we work closely with our customers to support their evolving development schedules alongside our planned construction time lines. During late Q4, certain top customers requested short-term schedule changes, resulting in modestly lighter than anticipated volume growth across our fixed infrastructure. However, given the breadth of Select's integrated service offerings, including our temporary water transfer capabilities, we were readily able to support these changing development needs during the quarter, allowing key customers to achieve their adjusted production objectives while maintaining our originally planned infrastructure build-out time lines. This resulted in a 77% sequential uplift in our water transfer revenues in New Mexico during Q4. Driving a sizable outperformance in the period for our Water Services segment, more than offsetting the expected seasonal impacts for that segment and driving 7% overall revenue growth for Water Services as compared to the prior guidance of modest sequential declines. With the continued infrastructure build-out in New Mexico and new facilities coming online, we expect a growing shift in volume activity onto our fixed infrastructure network in the coming months, which should drive high-margin sequential growth for the Water Infrastructure segment during the first quarter and further throughout 2026. Accordingly, we anticipate 7% to 10% growth in Water Infrastructure's revenue and gross profit before D&A during the first quarter of 2026 as compared to the fourth quarter of '25. With several projects planned to come online during the first 3 quarters of 2026, we anticipate a continued growth trajectory for Water Infrastructure over the course of the year. Altogether, we expect very meaningful 20% to 25% year-over-year growth for the segment, while maintaining strong, steady margins throughout the year, similar to the 54% gross margin before D&A we generated in Q4. As we continue to commercialize the new facilities over the course of the year, we also believe there remains capacity utilization enhancement that can drive further upside into 2027 alongside other new potential contract wins. For Water Services, gross margin before D&A improved during the fourth quarter by approximately 2 percentage points to 20%. And when combined with the aforementioned 7% revenue gains drove strong 16% growth in gross profit before D&A for the segment during Q4. Coming off a strong fourth quarter, we anticipate steady revenue in the first quarter for Water Services. While we anticipate revenues to be down year-over-year for the segment, recent divestments account for more than 80% of this decline and we expect to maintain relatively steady revenue consistent with the recent Q4 run rate and current Q1 outlook throughout the full year 2026. Supported by our recent rationalization and operational improvement efforts, we expect to see near-term margin improvement for the segment, with gross margin before D&A of 19% to 21% for both the first quarter and full year 2026. As John mentioned, the Chemical Technologies segment had a tremendous year in 2025 with annual revenue growth of 19% and 45% growth in gross profit before D&A relative to 2024. The segment finished the year strong with record quarterly revenue generation of $87 million during the fourth quarter, a 14% sequential increase. Gross profit before D&A grew further with 16% sequential gains resulting in 20% gross margins before D&A during Q4. On the back of recent gains, we expect this segment can produce similar annual revenue in '26 to that of the prior year with upside potential while gross margins before D&A should hold steady in the 19% to 20% range. Based on current customer activity outlook for the first quarter of 2026, we anticipate Q1 revenue to return to the high 70s up to the $80 million range with margins remaining in the 19% to 20% range. While SG&A increased modestly to $43 million during the fourth quarter of '25, we are targeting a 5% to 10% year-over-year reduction in SG&A and SG&A expected to reduce back below 11% of revenue for full year '26 and potentially as early as Q1 as we recognize the benefits of ongoing cost reduction and business optimization efforts. Altogether, we generated consolidated adjusted EBITDA of $64.2 million during the fourth quarter of '25, above the high end of our adjusted EBITDA guidance of $60 million to $64 million, driven by sequential revenue and gross profit gains across all segments during the fourth quarter. For the first quarter of 2026, we expect an increase in consolidated adjusted EBITDA to $65 million to $68 million primarily attributable to increased volumes on our Northern Delaware infrastructure network with a continued upward trajectory throughout the year, setting the stage for solid year-over-year adjusted EBITDA growth. Looking below the line, we anticipate cash tax payments in 2026 to be a relatively modest $5 million to $10 million, including state taxes, and our book tax expense percentage applied to pretax operating income to likely stay in the low 20% range. Driven by the continued capital investment in our infrastructure business, I expect depreciation, amortization and accretion will continue in the $46 million to $50 million range during the first quarter, while trending up into the low 50s over the course of 2026. Interest expense should remain in the $5 million to $7 million range per quarter. With fourth quarter net CapEx of $70 million, we finished the year at $279 million in net CapEx, just slightly above our previous guidance. The continued strong customer demand for recycling centric Water Infrastructure solutions led to significant capital investment throughout '25 with numerous facility expansions and pipeline projects that are currently underway. To fund our continued water infrastructure growth, we anticipate net capital expenditures of $175 million to $225 million in 2026, after considering an expected $10 million to $15 million of ongoing asset sales. This includes approximately $50 million to $60 million of maintenance spend weighted predominantly towards the Water Services segment, consistent with the prior year. We are entering 2026 and with several projects already under construction were contracted with construction commencing soon, which should result in a heavier CapEx weighting to the first half of 2026. While this 2026 capital program includes all existing contracted projects, we do have an additional backlog of future opportunities. We are in the middle of a unique build-out window, especially for our premier infrastructure position in the Northern Delaware, and we would be excited to convert some of these opportunities into future growth throughout 2026 and into 2027. The Water Infrastructure assets we placed in service have very low maintenance capital needs, which should result in very strong discretionary cash flow for Select over time. With an 11-year average contract tenor for our current projects, we expect to deliver highly accretive long-term revenue and cash flow benefits. While the build window and growth capital associated with the projects continues at pace in the short term, we would expect capital expenditures to come down in 2027 providing ample long-term free cash flow generation. Additionally, as we have discussed before, our Water Services and Chemical Technologies segment also each provides strong cash flow conversion given their low capital intensity. Converting approximately 70% or greater of their gross profit to cash flow, helping to support the near-term build-out of our footprint while maintaining a very disciplined balance sheet. While we are very focused on executing on near-term infrastructure investment and growth strategy, we believe we are positioning the business to deliver healthy and durable free cash flows over the long term that will provide us with good optionality for future capital allocation frameworks over time, including future growth investments, diversification opportunities or enhancements to our shareholder return program. To conclude, I am very excited about the year ahead. I believe we have a clear execution path to increase shareholder value with a growing long-term contract portfolio, supporting a multiyear growth trajectory and increase through cycle stability in addition to nascent long-term diversification potential across opportunities such as our Colorado municipal and industrial project, beneficial reuse and mineral extraction. With that, I'll hand it over to the operator for any questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Scott Gruber with Citigroup. Scott Gruber: You guys have a couple of larger expansions coming online in Northern Delaware this year. But you mentioned there are some additional opportunities in the Northern Delaware. So just curious, would the additional opportunities be kind of smaller bolt-ons to your system? Or would they require larger trunkline expansion? I'm just curious after kind of what's in the queue has become operational, kind of where do you stand in the maturation of that Northern Delaware system? Michael Skarke: Yes. Thanks for the question, Scott. This is Michael. We are seeing a lot more smaller opportunities than we saw last year, the year before as the system gets built out, and it's roughly half to be built out, but we're continuing to move forward. We're really able to find some small opportunities that leverage the entire system, and they create really attractive returns because you're leveraging the full system and adding acreage. So I'd say that we're seeing a lot more of those than we've seen in the last couple of years. There still are a couple of pieces that are chunkier out there that we're still chasing that as we expand into new territories, specifically in Eddy County that are becoming available. So I'm hopeful that we can deliver on some bigger projects. But really as kind of you look past that and kind of into the back half of '26 and beyond. I think it's going to -- you're going to see more and more of the smaller opportunities that are just highly accretive because you're leveraging the full system. Scott Gruber: And just thinking longer term, after the Northern Delaware is established and as you said, you'll keep tapping into those smaller opportunities. Is there an opportunity to kind of really expand the system, whether it's into the Southern Delaware, we hadn't further east at all or other basins. Kind of what's the next leg of growth for the infrastructure business longer term? How do you think about that? Unknown Executive: Yes. So you saw us announce something in Winkler County, which is really kind of the first time that we stepped below the Texas State line out of New Mexico inside the Delaware in a meaningful way. We will continue to expand within Lea and Eddy County. I go back to those 2 counties have the most economic inventory. They're underbuilt -- there's just a tremendous opportunity there. And I think what we're building in Lea and Eddy County is really truly differentiated. There's not another asset system like that in the Permian or outside the Permian and it's certainly where you want to be. Now having that said, that system can expand into the Central Basin platform, where you're seeing the development for the Barnett and the Woodford and that's kind of what we were looking at when we moved into the Winkler. So I think you'll see us continue to grow that system beyond just Lea and Eddy County and then possibly expand kind of some of the existing systems like what we have in [ Upton ] trying to kind of meet in the middle somewhere on the platform. Operator: The next question comes from the line of Bobby Brooks with Northland Capital Markets. Robert Brooks: So first, you guys have announced 2 different lithium extraction partnerships the past few months. And it seems like a really exciting way to add another incremental high-margin revenue stream to the business along with highlighting how your infrastructure can further deleveraged the uplift financials. With that in mind, I was just curious to hear what other opportunities might you be evaluating in the similar lane as lithium extraction or just other opportunities where you see things that could be kind of similar, high revenue, low cost uplift? Michael Skarke: Bobby, this is Mike. Thanks for the question. And yes, we're really happy with our progress over basically a year of really characterizing our asset base across all of our basins and a lot of engagement with technology partners. And I think you're seeing the results yield and some exciting announcements recently, but there's more to come there. The strategic decision we did make was to participate, spend our capital on building out Water Infrastructure, large volume available at a single point, water storage and in particular, as Michael was mentioning, that Northern New Mexico system, where we're treating water anyway, that is a very unique capability that we have, and it is a big OpEx reduction for these technology partners. So we're in a position where we can provide the water with already a big chunk of that cost done for them essentially. So we're looking across the available market, picking the best-of-breed operators. And this recycling first model has really put us in a pole position and a very attractive partner for these folks. So you will see more of these lithium deals. We have something in the New Mexico area that we haven't given details on but we will also, hopefully, in the first half of this year, we're expecting also some interesting news around iodine extraction. And even some of our partners are talking strontium magnesium. So we, again, we're always very thoughtful about bringing the right technology to the right water. And I think when you got that marriage right, you can make some of that really high-margin royalty revenue that you're referring to. Robert Brooks: Got it. Super helpful color. And then just was curious to hear a little bit more of an update on kind of how you guys are looking at the Peak rental business and kind of strategic moves there. It seems like nothing has happened yet, but just curious like kind of what outcomes do you guys see as most likely? And then could you also just remind us like what type of [ genset ] equipments are -- does Peak own? John Schmitz: Yes. This is John. Yes. So we continue to engage strategically around Peak rentals and making sure that both the outcome is very positive for Peak because of the uniqueness of their opportunity that they have as well as the outcome to Select and the capital that we're deploying in the Water Infrastructure are the various areas around these networks that have been described. But Peak was built around an accommodations business that supported accommodations around drilling rigs and frac equipment. And any time you do that, you support that accommodations with power generation, communications, security, water application of both sewage as well as fresh and to support that mechanism. So our power generation were diesel-powered distributed mobile generators, and they supported everything on the drilling side and everything on the completion side. What we have inside of Peak that we think is very special is about 350 MSAs with the people that are drilling wells and completing wells, we're now taking Peak into the production phase of the well, where they're lacking power and we have both the MSAs as well as the network and the knowledge base to distribute that power properly. We also have found a very unique opportunity and Peak has now harvested it and put it out and now demonstrating the value, but putting a battery pack between that distributed power, basically our diesel power units and then the use has really shown value, both in the economics of the usage of diesel or the economics of the cycle time of those generators or really the value of the electric current going into the use system. Especially if you can take it away from smaller generations where you're putting it into trader houses with air conditioning and computers and TVs and refrigerators and start taking it into artificial lift, compression, things of that nature. So artificial lift equipment is very sensitive in their prior needs and what they do. They're already a customer, they're already in the MSA, and we've now entered that market with what we've got. We've also started to expand the distributed power business from diesel-powered natural gas -- I mean, diesel power generation to natural gas power generation. It fits really well both in movement of water, compression and artificial lift. So it's just natural. But we're being very careful, and we want to make sure that we Protect peak because it's got a very good thesis in it. At the same time, we're looking for the right capital structure both for Peak as well as the right outcome for Select. Chris George: And maybe one thing to add to that, Bobby, is what we've seen with that business and the transition to the nat gas genset capabilities, primarily on a recent basis, but we've used that to support the build-out and the pace of our own Water Infrastructure development, particularly in New Mexico, where power is short and you're talking about 3- to 5-year build windows for full power build out. So we've had the need and the opportunity to build our own integrated power capabilities through that business to support the pace of our own growth and development. So we're going to be thoughtful and diligent around the approach on how we support our own internal needs to Select, to generate cash out of the peak business to support our growth and then find the right long-term opportunity set for it. Robert Brooks: That's terrific color. I really appreciate all that detail. And then just one last one for me is in the press release and your prepared remarks kind of hinted that you guys had multiple successful benefits of reuse pilots. And I was just hoping to get a little bit more color there. Where these pilots in collaboration with the E&P is testing their own internally developed technology or maybe there was internally developed technology by Select were all the pilots focused on Permian? Or were there pilots happening in other basins? And maybe what were some -- just generally, what were some key learnings from these pilots and ultimately, like what made them successful in your... Michael Skarke: Yes. Bobby, this is Mike again, a great question. And it's interesting because you're touching on another area where because of our recycling first and large-scale treatment capabilities, this is another area that benefits directly from that. So starting from treated produced water versus raw really gives you a leg up in this area. So we've, over the years and more recently have completed several pilots of increasing scale, everything from life film evaporation to multi-effect vacuum distillation, the membrane distillation, normal [ RO ] units. The fact is we touch a lot of different colors and types of water, and we always want to be able to bring the right technology, which, again, because we're multi-basin and we touch a lot of that water, we want to be ready. More recently, in conjunction with one of our premier operators, university in the [ Price Water Consortium ]. We did one of our larger scale projects where we were able to take treated produced water, treat it fully. And actually, we're land applying it as a part of a pilot with this university, and we are growing all sorts of native and other crop plants out nearby our treatment facility and also the water is going into a greenhouse for what we would consider to be one of the largest and more technically advanced plant growing tests. So we're proving up the water quality not only by just running the standard test, but we're also proving it by looking at biological growth and soil quality. So all of that is kind of our strategy, is our contribution to prove that this is a viable way to operate in the future. We're helping inform regulatory efforts with this data. And ultimately, I think the reason we're chasing this is push the industry, but also it's transformational. It's a critical long-term solution that we need to bring to life. And so our focus now is around the techno-economics of these different solutions. And ultimately, we need to make money on this. So we are going to look very carefully and build the systems that have the right capital return and investability. And really what we're trying to solve here ultimately is what we all know is a pinch point in industry, especially in the areas where we operate in New Mexico and around the Texas border, we have to find ways to dispose barrels. So I mean, really, what we're doing is defining the future of Select to be a pioneer in the space and to really continue to create for the next 5, 10, 20 years, the way that our system that we're investing in now can live on as that portfolio shifts to perhaps a more disposal-oriented solution. So I think what you'll see from us is over the next couple few years, we will begin to announce plans, and we will begin to brand commercial scale facilities online. Robert Brooks: Congrats on a good quarter. Operator: The next question comes from the line of Derrick Whitfield with Texas Capital. Unknown Analyst: Congrats on a strong quarter and update as well. Unknown Executive: Thank you, Derrick. Unknown Analyst: I wanted to start with the macro environment for Water Infrastructure. With all macro being a bit murky at present, a, how are you guys thinking about growth opportunities in the second half on the upstream side? And b, when do you see a potential inflection in capital for municipal growth opportunities? Chris George: Good questions, Derrick. So from a back half of the year kind of near-term macro outlook perspective, as we define from a capital program, we're going to be heavily weighted towards the first half of the year on the current capital outlay based on contracts in hand, but we do have some strong backlog opportunities and continued excitement around the ability to layer on some incremental capital opportunities beyond the current program, and we'll be excited to win some of those, as Michael outlined. . Looking at the back half of the year in '27, we do anticipate a maturation phase, as Michael outlined in New Mexico, and we do think that you're going to see a transition towards some of the incremental growth opportunities around the diversification set and some of the things that Mike mentioned around beneficial res as well. So we would anticipate that the larger kind of remaining committed portion of our municipal project up in Colorado sees its large investment cycle in 2027 to the extent that aligns with the time line of getting contracts in hand as we previously outlined. So we think that we'll start to see a maturity phase out of the New Mexico footprint over the course of '26 and into early '27, and there continues to be an exciting opportunity set. But we do think that you'll start to continue to see excess free cash flow generation and more capital allocation, discretionary choice availability for us. Unknown Analyst: Great. And for my follow-up, I wanted to focus on your prepared comments on the chemicals segment. We're hearing from the upstream sector, increasing levels of interest in integrating surfactants in both completion and workover activities. I guess, are you guys seeing that demand out in the field? And if you are, how much of that are you baking into your revenue guidance? Unknown Executive: We are seeing that demand out in the field. I mean we're seeing -- we're getting inbounds. We've seen the statements made by some of the largest operators around the benefits of surfactants. Thankfully, we have extensive experience appliance, surfactants, both in completions and [ EUR ] technology. Also surfactants are -- they're really customized. I mean they're highly specific to the rock which fits us well because our chemistry value prop is custom chemistry to enhance oil recovery. We saw a pickup in surfactants in Q4 and we think that will continue to benefit us in '26. There certainly is opportunity beyond kind of what we have in place. We're investing right now in our technical team and really making sure we understand what surfactant to chemical packages work well with which rock, which ones are fairly neutral and which ones are actually eroding the performance. And so as we couple that with our in-basin manufacturing and surfactants there in Midland, Texas, we think we're very well positioned to capitalize on what should be continued expansion of that chemical offering. Chris George: And one final point I might add is, as we continue to also see the growth and the demand of -- we're reusing produced water and treated produced water, it creates an even more complex set of circumstances for matching the right full suite of chemistry with the right outcome you're looking for. So as Michael talked about, those specialized and customized solutions based on the geology, having the overlap with our water recycling and treatment capabilities provides us a unique advantage to also look at that application of the advanced chemistry side as well. Operator: The next question comes from the line of Derek Podhaizer with Piper Sandler. Derek Podhaizer: I wanted to, I guess, stick on the Chemical Technology segment and maybe just -- can you talk to us a little bit about your market share here? I mean, the friction reducers and the surfactant sound pretty exciting from a growth angle perspective. Just looking at the model and you're at this $300 million run rate for top line revenue. Where could this potentially go? And then secondarily, do you have the capacity to grow revenue well beyond the $300 million? Or would we expect to see some capital meaning to start being fed into this to really start growing this more significantly as we get this uptake of friction reducers and particularly surfactants. Michael Skarke: Yes, Derek, just to kind of start we're very excited about the market share increase we've seen. We're excited about the prospect of surfactants given our history and our technology team. And again, we saw some of that in Q4, but the majority of Q4 was our friction reducers and the chemistry that we've been providing. We do really well when you need a stronger, more durable chemistry. So it's more -- you see more produced water. We have higher market share in produced water jobs than we have in [ Brian ] fresh water jobs. We have higher market share on longer laterals than we do on shorter laterals. We have higher market share on [ simul ] fracs than we do on simul fracs. We have higher market share on [ signals ] than we do on [ zippers ]. So the more complex the solution, that's really where we shine. So we think we're skating to where the puck is in terms of providing complex technical chemistry. And I think the team has done a really good job of coming up with solutions and that's why you've seen us grow market share really pretty ratably over 2025. Chris George: And to your point on capacity and capital needs, Derek, we do have, as Michael said, our in-basin manufacturing plant in Midland, we've got another sizable plant in East Texas. And as it currently sits today, we've got continued opportunity for expansion. The business generates great free cash flow out of its core profitability. And so to the extent there's opportunities to add efficiency or add new line scale. I mean, we can do that in a meaningful way out of the current plant footprint and do it in a manner that's going to continue to allow us to generate in excess of something like 70% of free cash flow on the profitability of the business. Derek Podhaizer: Got it. That's helpful. And then maybe kind of piggybacking off your last point there. I mean kind of I'm reading this correctly, that would get into more of a steady state as far as the capital needs for the overall business? I mean, how should we really start thinking about free cash flow generation maybe out of EBITDA, I mean, obviously, like we've ranged from negative to 25%, 30%. I mean what's the -- where do you see this going? Could we get kind of in that 40% range, 50% range? Just looking longer term as we recalibrate the CapEx here and you flip more to free cash flow generation for the overall business? Chris George: Certainly, a good question. We are in a pretty unique build-out phase for the business, particularly in that Mexico footprint. So this year, we do did guide to a lower capital program than we undertook in '25. But certainly, to the extent we can continue to build a backlog of opportunities beyond that, we're going to be excited to do that and look to capitalize on that in the next 12, 18 months. But looking out further, we think that the free cash flow generating capabilities of the business, Derek certainly could replicate something or beyond what you've outlined there. The core legacy services and chemicals businesses, as we've outlined before, generating strong free cash flow to fund our growth in excess of 70%. Infrastructure is largely consuming it's capital or it's cash flow today for capital growth, but it's even, I would say, more maintenance-light application of operations than the rest of the business. So as we get to a through-cycle maturity phase here over the next 24 months, it will be making further choices around incremental growth, diversification, acquisitions or shareholder return enhancement. So we're pretty excited about what that can look like over the next 24 months as we get into '27 and beyond. But the maintenance needs of the business at $50 million to $60 million today are very modest and will continue to be so. Operator: The next question comes from the line of Conor Jensen with Raymond James. Unknown Analyst: You noted a little project timing slippage in Water Infrastructure from the fourth quarter into '26. Just maybe a little color on what happened there and some puts and takes on how that could impact the 20% to 25% growth in 2026 on either side of the calendar there? Michael Skarke: Yes, thank you, Conor. So the project slippage, we just had some, I think, fairly minor delays when we're building something of this size and magnitude and it's all linear, a few things can set you back. This one specifically around right of way. We had some delays in getting some of the right of way that we needed, which pushed it back a little bit. But it's all things that we've secured now. We're moving forward. And I think we're in a good position to kind of execute across the front half of this year. Unknown Analyst: Got it. That makes sense. And then for Water Services, I was wondering if anything changed there to drive a little bit stronger outlook, a little bit stronger run rate than we thought previously. Is any of that water transfer outperformance expected to continue going forward? Chris George: Yes, good question. So as we outlined, we definitely saw some strong uplift in New Mexico in tandem with the build-out time lines we talked about on the Water Infrastructure side. We were able to supplement that with the temporary water logistics in the fourth quarter, which drove a 70-plus percent growth in that New Mexico last mile logistics business, which was a great outcome. We talked about previously some of the opportunity we had to integrate water transfer into our long-term infrastructure contracts with sizable dedications that incorporated that water transfer. So we continue to be excited about the opportunity to see further stability and growth out of that part of the business within services over time, particularly in the Delaware Basin region. So it was a great outcome for our ability to support our customers with changing schedules, both on their side and on our side in the fourth quarter. And as we continue to get the infrastructure up and running, we've got a good view into an ability to continue to see some stability and growth out of that segment or that region, and we think that will provide kind of a steady state for the business over time here. Obviously, we had the rationalization and the divestment activities in 2025 that were the right choices for the business. And so on the backside of that, the second half of '25, we think, provides a pretty good run rate for the business and you should see that through all the way for '26. Operator: The next question comes from the line of Jeff Robertson with Water Tower Research. Jeffrey Robertson: Michael or Chris, would you anticipate that any of the efforts to increase utilization in the Northern Delaware Basin could have a positive impact on Water Infrastructure margins in 2027 versus what you think in 2026? Chris George: Good question, Jeff. So obviously, every incremental barrel you can push through a piece of infrastructure is generally an accretive barrel. So we do think over time, as we grow the utilization, we bring on commercial volumes beyond our core anchor tenants on the new assets that we'll continue to see opportunity to enhance the margins over time. So I think that, that's something we'll continue to be focused on. There is some exposure on the commodity side of oil sales through the asset base across both the disposal and recycling footprint that we'll be cognizant of as we think through margin profile as well. But generally speaking, Jeff, you're right, there's definitely opportunity to continue to see the enhancement to the margin profile. We'll continue to be active and under taking new build-out and contract opportunities, and we'd be happy to underwrite those anywhere in that 50% to 60% margin profile as we've historically done. But we'll be focused on what that looks like to continue to improve. Jeffrey Robertson: With respect to your gas exposure, particularly in the Haynesville, would increased utilization have an impact on infrastructure margins that would be noticeable and/or Michael, what kind of opportunities are there to -- or need is there for Select to expand its footprint there? Michael Skarke: Yes. No, thanks for the question. We're seeing good strength in the natural gas basins I mean, we're very fortunate that we have the leading disposal position in both the Haynesville and in the [ Marcellus ]. And we're having conversations regularly with customers about expansion opportunities or contracts. And those were conversations that really weren't being had 12 or 18 months ago, and that's just as a result of the gas price and the activity there. So I do expect that we will -- we're going to continue evaluating solutions in both basins, and I think you'll see us make some expansions outside of the Permian in 2026. Now having that said, again, most of the opportunity is around the Permian and most of it's in Lea and Eddy County as we've mentioned. Chris George: And one maybe final point to add back to your first question as well, Jeff, as we think about the margin profile long term, as we outlined earlier and Mike talked through the continued ability to add on some of these incremental royalty streams to the business. We're talking low to no cost type of revenue dollars that are benefiting from the existing capital investments we've already made. So to the extent we start to see those projects come online in late '26, early '27 and ramp over time. Those will continue to provide meaningful margin accretion opportunity as well. Jeffrey Robertson: And lastly, Mike, with respect to some of the beneficial reuse pilots, is it fair to think that if you can tie benefits our reuse into your Northern Delaware system, for example, that, that would attract more customers to the system because it would enhance your Select's water balancing capabilities in that area? Michael Lyons: Yes, Jeff, absolutely. I think, in particular, in New Mexico, we need to continue to support the state and the legislation to get to a, I would say, environmentally responsible, but industrial-friendly outcome. So I think that will help as we think about either land application or water discharge. There are other technologies that we're evaluating as well that will get incremental disposal like nontraditional disposal, let's say, onto the system as well. And that's absolutely a part of what we consider to be the end-to-end full life cycle of the barrel solution. So -- and again, yes, you're right. It is part of something that we can offer because of the large infrastructure footprint that we already have, which includes treatment, which reduces cost and increases the viability techno economically of all these solutions. So we do believe we're in a very unique position to support our customers that way. Operator: The next question comes from the line of Sean Mitchell with Daniel Energy Partners. Unknown Analyst: You guys mentioned earlier in the Q&A, simul-frac I'm just curious if you guys have an estimate or any color around simul-frac growth today versus maybe 2 years ago? I mean, obviously, there's a lot more sand and water going down hole with this completion design. Where is that today relative to maybe where it was 3 years ago? And where do you think the industry is at large on simul frac? Are we 25% of the industry, 30% of the industry using it? And where can that go potentially? Do you have any comments around that, that would be helpful. John Schmitz: Yes. This is John. First of all, I think I'd start the answer by percentage-wise of where that is today and where it's going. We would say that it's definitely increasing. But the way that we see it and primarily water and chemistry is the intensity in the space, whether it's simul-frac or [ tribal ] frac or longer laterals or how much you can do in a 24-hour period, that intensity is real, and it also is very engineered. So what this company is seeing right now is the effects of all intensity, all complexity of multiple water sources in recycling application and delivering mechanisms for massive water throughout long periods because of movement into simul-frac for [indiscernible] frac or longer laterals or what it is. So probably can't answer your position as a percentage, but we'll tell you that this company sees a heavy-weighted engineered intensity. Operator: This concludes the question-and-answer session, and I'd like to turn the call back over to John Schmitz for closing remarks. John Schmitz: Yes. Thanks, everyone, for joining the call and for your interest in learning more about Select Water Solutions, and we look forward to speaking to you again next quarter. Thanks. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Leszek Iwaszko: Good morning. Thank you for standing by. Let me welcome you to Orange Polska conference call in which we will summarize our achievements in 2025. My name is Leszek Iwaszko, and I'm in charge of Investor Relations. The format of the call will be a presentation made by the management team, followed by a Q&A session. Speakers for today will be our CEO, Liudmila Climoc; and CFO, Jacek Kunicki. So I'm passing the floor to Liudmila to begin the presentation. Liudmila Climoc: Thank you. Thank you, Leszek. Good morning. Happy to welcome you at our conference summarizing last year results, and let's start. In March last year, we have presented to you our new 4-year strategy, Lead the Future. And today, I'm very pleased to say that 2025 was a strong start. We have progressed in all key pillars of our strategy and prepared a solid ground for next years. First on the line is our commercial performance that was excellent in both retail and wholesale. In retail, we uplifted both customer base and ARPO. In wholesale, we started to benefit from new important business development streams. And commercial growth is an essential pillar for value creation in our plan. Second, to mention is network. In order to win customers, we are committed to bringing first-class connectivity at home, at work, on the move. And in 2025, we significantly progressed in 5G coverage, already 85% of Polish population can enjoy 5G with better quality, higher speed, better latency. Orange Fiber is now reaching almost 10 million homes. It's 2/3 of households in Poland, and we have added 1 million last year. And the third important contributor to our results was transformation, transformation and efficiency. One of the main pillars of Lead the Future. We increased our efficiency by better cost and by better CapEx management, increasing profit margins and improving cash conversion as a result. We have initiated a new transformation program last year that brought the first results, but we expect more to come in next years. Lead the Future is focused at value creation for our shareholders. And in 2025, we clearly demonstrated it by growing our financials. I'm very proud that we delivered 47% in total shareholder return through growth of our share price and paid dividend. Speaking about the financials, let's have a look on how we have performed versus guidance. So here, you see the slide illustrating it. We did very well. Growth rates on revenue and EBITDAaL was overachieved. We promised the range of low single digits. In both cases, we achieved mid-single. We overachieved on revenues, thanks to positive dynamic in IT&IS and in wholesale, but the main engine of revenue growth is our core telco services with strong 6.5% growth. EBITDAaL benefited from strong profitability of core telco and wholesale, but also combined with cost efficiencies in. For eCapEx guidance, it is met at the low end of the range, despite lower-than-expected sales of real estate, we managed to -- we managed our investments very efficiently. As you see, our growth story is developing faster than originally expected. And let's see what were the main commercial performance drivers for this. So looking on the commercial parts, 2025 is very strong. We attracted new customers and simultaneously, we grew ARPO in all key services in a very balanced way. In convergence, both customer base and ARPO increased by a solid 4%. For fiber, customer base increased by 10% and ARPO by almost 5% and I'm very pleased with this performance in convergence and fiber as competition here continues to be the most intense. We estimate -- so that we further improved our market share in high-speed broadband. So Orange is the [ synonym ] of fiber. Mobile performance in 2025 was exemplary, almost 350,000 customers joined us with mobile postpaid offer. It's almost 4% growth. The highest number in a few years. And both segments were contributing consumer and business and also all brands were contributing to this performance. ARPO increased by less than 1%, and it is explained by a strong contribution of more than 5% growth of ARPO for main brand, which is diluted by an increasing share of the B brand in our total customer base. Pace of growth in all services is in line with what we said for us as an ambition in Lead the Future, and it is demonstrating that we have the right strategy and we are navigating well in the competitive environment in Poland. So to zoom on our commercial tools, let's move to the next slide. Our focus in Lead the Future is on building new relationships, reaching new families with our services and further using it as a pull for further growth with additional services and with conversions. In 2025, we achieved it by pursuing a bold marketing plan. We visibly improved our marketing communication, refreshing the main brand in order to reach younger segment, changed the visual identity of our prepaid products and our B brand, Nju also received a new format. We put together -- we put also higher focus on stand-alone offers. Our new multi-SIM family offer proved to be a very successful in second part of the year. We boosted content proposition for our fiber and TV offer, making it significantly more attractive. And these elements combined with AI-enabled tailored offers contributed to customer loyalty for the existing base and allowed us also to attract new customers. On the value side, we further pursued our more for more strategy. ARPO benefited from good demand for higher data plan in mobile and also higher speeds for fiber offer. Customers with higher speed options in fiber already account for almost half of our customer base. As a result, the number of Orange households where we are present with, our services was growing, reversing a multiyear trend. And this represents fundamental change for us that is also offering very promising prospects for future. This was about retail. Let's now look at wholesale on Slide 8. Last year was particularly strong for our wholesale line of business, both our own and also in our core -- FiberCo Swiatlowód Inwestycje. As you see on the slide, we have recorded a solid 13% of wholesale revenue growth, excluding legacy services, much better dynamic versus previous years. And I will mention 3 drivers that were contributing to it. First is a new fiber backhaul contract, which was bringing results in the last 4 months of 2025. In 2026, this year, it will help us to fill the gap left by national roaming contract that has expired in 2025. Second is the accelerated growth of revenues from access to our fiber network to other operators. And accordingly, growing monetization of our infrastructure. We reported an impressive 36% growth of wholesale customers on our network, a result of opening of our network for wholesale, which took place in the second part of 2024. And the third pillar driver is services, which we rendered to our FiberCo Swiatlowód Inwestycje, like lease of infrastructure delivery of services, network maintenance, they are growing in line with growing scale of FiberCo. Speaking about our 50% co-owned FiberCo. 2025 was a very important milestone here. It marked completion of the initial investment program, which was set in 2021, in line with our plan, FiberCo network reached 2.4 million households. In 2026, new program has started with fully secured financing, and we are very pleased with operational and with financial dynamics. Despite the fact that FiberCo is still at a very early stage of development, significantly investing into the network expansion. Swiatlowód Inwestycje EBITDA of last year exceeded PLN 140 million with a margin of 35%. We expect this to increase along the growing network acceleration. And obviously, we plan to strengthen it further by Nexera deal of course, subject to regulatory approval, which we are awaiting now. This acquisition is expected to be highly synergetic. Now switching to connectivity on Slide 9. In 2025, we reinforced our commitment to provide the fastest, the most reliable and trusted connectivity in Poland. And I want to start from mobile. We made big progress in 2025. Major projects of radio access modernization, which we have started several years ago is now almost finished. It is making our network more energy efficient and will enable usage of new spectrum for -- new spectrum bands for 5G. For 5G, it was the second year of rollout on C-band spectrum. We are covering now already 60% of population in Poland, meaning that we are very much advanced on the market. Rollout on 700 megahertz spectrum, aiming wide coverage has started just 6 months ago, and we are already at 64% population coverage. These both spectrum bands, we boosted 5G coverage to 85% by end of last year from below 40% a year ago. And we -- as well, we have completed the commissioning of obsolete 3G, allocating frequencies to 4G and enabling us to increase network capacity and improve the quality of services, which we are providing. In fiber, we are investing both in the reach and the coverage of the network, but also in service quality. Orange Fiber from a quality perspective was again validated by independent benchmarks where our fiber network is ranked again #1 in 2025. Fiber reach continues to grow fast. We have added another 1 million households to the coverage, reaching 10 million homes in total. It was mostly delivered by Swiatlowód Inwestycje and also by access to other third parties, FiberCo's networks. Our own build is targeting wide zones with projects supported by EU subsidies. Rollout as well accelerated in 2025, as we have invested almost PLN 90 million in this project, and it will be completed this year in 2026 with investment effort of over PLN 100 million -- PLN 120 million. Let's zoom now on transformation. With Lead the Future, we have initiated a new wave of transformation. You remember the ambition of our Transform and Innovate pillar to boost efficiency, which will be leading to improved profit margins. We will achieve it through automation, through process reengineering and opportunities which are arising from integrating AI in our operations. Firstly, in sales and customer care operations. Here, digital channels are progressing, and we see them being much more efficient and much better responding to customer expectations to be served online fast with seamless experience. And as a result, we are approaching 30% in share of digital sales with ambition to reach 35% by 2028. My Orange app is our key asset here contributing to this target. We are constantly improving it, adding new functionalities and using AI for personalization. In customer care, we are making another step change with AI agents. For instance, in 2025, we launched an agent, which helps our advisors to provide optimal remedy for technical problem solving. This reduced number of contacts and improving customer experience. We are working on more agentic solutions to be implemented in this year 2026 for better quality and better productivity. Secondly, in network operations, we improved cost efficiency last year, and we are aiming to do more. To reduce cost of service delivery and network maintenance, we use more remote tools, self-installation, boxless solutions for content and TV, and AI supported dispatching of technicians. We have started progressive decommissioning of legacy copper network targeting first areas with less customers, less usage and accordingly less profitable. And recent deregulation decision will allow us to do it at a much better speed. And finally, we are reducing costs across all our functions, making ourselves leaner and more agile. In recent months, we have made several organizational changes aiming to streamline our operations. And as a part of this process, we signed a new social plan with our social partner under which number of employees will be reduced by 12% over the next 2 years. And finally, I want to stop at the moment at our sustainability agenda and achievements. I'm convinced that growth and responsibility go together. And our actions bring a real difference and contribute to the development of Polish society and economy. And we are very proud of our progress in 2025. In today's fast-changing world, there is a growing need for education on responsible and safe use of technology. And here, we concentrate our energy, the number of beneficiaries of various digital programs was growing and exceeded 200,000 last year. And as well last year, our Orange Foundation has celebrated 20 years anniversary, a proof of our long-term commitment for society and for digital inclusion. On environmental area, in 2025, we significantly reduced CO2 emissions. Actually, we almost reached our goal, which we set for 2028. This was possible as all the electricity we consumed came from non-emission sources. And finally, in 2025, we reinforced our efforts in the area of circular economy, thanks to newly launched platform, we significantly improved the collection of used handsets. And also, we significantly increased the share of refurbished fixed devices that we distribute. It brings a positive impact on the environment, but also is improving our cost base. So this being said, I want to pass the floor to Jacek to give more deep dive on our financials. Jacek Kunicki: Thank you, Liudmila. Good morning, everyone. Let's start with the financial summary. Our financial results last year were strong and they came above expectations. We have increased both revenues and EBITDA by over 4% year-over-year and expanding operating activity is the main driver of our value creation. What is important is that this growth is built on a solid sustainable foundations. We've executed a disciplined investment plan, allocating capital to growth areas and decreasing CapEx intensity. We are confident to further optimize capital allocation going forward. As a result, we have converted the EBITDA growth to cash flows, reaching PLN 1 billion of organic cash flows in 2025. These achievements have also built solid foundations for further growth of shareholder value in the future. Let's now look at details of our performance, starting with revenues. Q4 revenues have increased by a strong 4.6% year-on-year. Please note that all key products have contributed to this achievement. Let me comment on two of them with the highest impact. First, core telecom services, which are key for our growth, value creation and margins. We're pleased with the sustainable strong performance stemming from a simultaneous growth of the number of customers in the key product areas and of their respective ARPOs. Core telecom revenues were up 5.5%, so at the high end of our midterm guidance. This was achieved versus a high comparable base of Q4 2024, when we implemented price increases for the customer base of prepaid. The second item is wholesale. It was an exceptional quarter for wholesale with 27% year-on-year revenue expansion. Q4 included the full impact of the fiber backhaul contract signed in the prior quarter in Q3. And also, it was the last quarter with revenues from national roaming. We expect to further grow the value of our wholesale business going forward. To sum up on the top line, first, we're happy with the pace of revenue growth and the key drivers of our margin. Second, revenue growth is supported by all major product lines. This includes IT&IS revenues, which have returned to a double-digit growth of sales in 2025, a dynamic that will continue this year. Let's now switch to profitability. We're pleased with a strong 6% growth of the EBITDA after lease in the fourth quarter. This was driven by a 5% increase of the direct margin. It reflected consistent margin expansion from core telco services coupled with them discussed significant contribution from wholesale. Indirect costs have increased year-over-year, but mostly because of a PLN 30 million impact coming from 2024 when we recorded a catch-up of the fiber rollout margin in the last quarter of 2024. This item apart indirect expenses grew by less than 1% year-over-year as cost pressures were contained by the savings program. Our cost transformation is accelerating. It delivered savings in workforce, network operations and G&A, and we plan to increase the savings run rate that will be visible in 2026. To recap on EBITDA. First, we delivered a strong 4% growth in the full year of 2025 with an acceleration in the second half of the year. Second, the growth is built on sustainable drivers as the increasing revenues and margins are converted to EBITDA via our high operating leverage. Let's now turn to net income on the next slide. We achieved PLN 760 million of net income last year. This included PLN 150 million provision for a 1,000 employee headcount restructuring to be done in 2026 and 2027. It is important to our transformation and it will increase our efficiency going forward. Excluding this provision, net income was on a comparable level to 2024. On the one hand, it was driven up by growing EBITDA, a factor that will consistently boost our net results going forward. On the other hand, it was brought down by 2 elements that we don't expect to repeat in the future. First, depreciation, which was driven up by purchase of the 5G license, changing asset mix and one-offs with opposite impacts in both 2024 and 2025. Here, we judge depreciation to have reached its peak in 2025. Second item is finance costs, which increased as a consequence of higher debt due to the purchase of the 5G license and higher interest on the PLN 1.2 billion refinancing, which we had made back in the middle of 2024. We expect significant growth of net income this year in 2026. As the EBITDA growth is its fundamental underlying driver while the negative impacts visible in 2025 are largely nonrecurrent. Let's now switch to capital expenses on the next page. Our economic CapEx amounted to PLN 1.8 billion. So it was at the very low end of our guidance. CapEx intensity measured as a percentage of revenues, has decreased to 13.8% in 2025, in line with our midterm ambitions. We allocated 40% of CapEx to fiber and mobile networks. In fixed, this included fiber rollout in white zones and connections dedicated to the B2B. In mobile, we have significantly progressed with 5G deployment as discussed by Liudmila a few minutes ago. Please note that this year, in 2026, we will finalize the EU subsidized fiber build, and we will reach the peak of the run rate of 5G rollout. This latter program should be nearly finished by the turn of 2028 and 2029 and both of these present us with an obvious opportunity to further decrease CapEx intensity after 2028. Let's now look at cash flow on page -- on the next slide. We generated PLN 1 billion of organic cash flows last year. This good result was achieved thanks to growing operating cash flows, and these were coming from the EBITDA, so a sustainable underlying positive driver. It was offset by less cash from the sale of real estate and 2025 was challenging in this area, and some key transactions were delayed through 2026. As a result, we expect higher inflows from this activity this year. Obviously, the free cash flow was influenced by the acquisition of the 5G license. But now we have the last of the new spectrum acquisitions for 5G behind us. So the cash flow prospects going forward are much more predictable. On the balance sheet side, the balance sheet remains very strong, and we have already secured the refinancing of the PLN 3.7 billion debt that is due next year. For the conclusion, I wanted to reflect on our value creation model shown on the next slide, which we have presented alongside with the Lead the Future strategy. Our 2025 achievements confirm that it is working well. It increased the key drivers of shareholder value creation and their underlying dynamics inspire confidence about the good prospects for the future. That is all from me, and I hand the floor back to Liudmila for the outlook and conclusions. Liudmila Climoc: Thank you, Jacek. So now coming to our priorities for 2026. We have 4 main areas and all 4 are rooted in our strategy in Lead the Future and it starts with profitable commercial growth. On consumer market, we aim to deliver a solid growth of core telco services, and we are going to achieve it through our balanced volume and value strategy in mobile, in fiber and in convergence. Secondly, we aim to achieve profitable growth in B2B. For small businesses, we will differentiate by complementing telco products with digital services, such as KlikAI web creator that we have just launched in subscription model. For large businesses, we bring new operating model that will group all our IT&IS competencies under one roof in order to unlock more potential. So commercial growth will be accompanied by high-intensity transformation to improve our profitability. As we discussed today, we have high ambitions in this area. Our commercial ambitions require a reliable and high-quality connectivity in order to answer to customer demand and accordingly investments in innovative solutions and tools that bring value for customers and for our operations. And this is the -- reflecting the way how we will prioritize on our investments, of course, keeping an eye on return. And now let's turn the page to see how this translates into financial targets for 2026. We aim to create significant value for shareholders this year. 47% in total shareholder return in 2025 is impressive, and we will make every fourth to sustain this positive momentum. We plan to grow revenues at low single-digit rate, noting that it is essential to maintain a solid dynamic of core telco. We expect another year of solid EBITDAaL growth in the range of 3% to 5%. It will be achieved through a combination of profitable commercial growth and cost transformation. Higher revenues and high EBITDA will be achieved with similar level of investments like in 2025, meaning a decrease in CapEx intensity obviously, roll out of 5G and completion of fiber project and white zones will be key for 2026. In line with the midterm objectives, we provide guidance for organic cash flow. It reflects our internal focus on these key return metrics. And we are very happy to achieve PLN 1 billion in organic cash flow in 2025, and we are aiming to generate at least PLN 1.1 billion in cash in 2026, a double-digit percentage growth as our objective speaks for itself. And looking at the midterm guidance on the next slide. As you have seen, 2025 results were good. And we also expect strong outputs in 2026. We are confident regarding our ability to reach this ambition. And as a consequence, we are more optimistic regarding the greater value in the future. And as such, we are upgrading our midterm guidance. For EBITDAaL, we are maintaining guidance of CAGR at low to mid-single digit. However, we clearly see that the current trends make high end of this range more probable. Regarding eCapEx, we are making our commitment more concrete. This -- we will spend PLN 1.8 billion per year. This means growth in revenues and EBITDA with a stable level of investments, so improving our CapEx efficiency. The combination of solid EBITDAaL growth and flat eCapEx enabled us to be more bullish regarding cash generation. We are now expect to generate at least PLN 1.4 billion of organic cash flow in 2028. This implies at least 40% growth versus 2025 level and a double-digit CAGR. This guidance clearly illustrate better prospects for future, for value creation, for our shareholders, dividend is also very important in this regard. So let's have a look on it on next slide. As presented today, we delivered our objectives for 2025, and we enjoy more optimistic future prospects. As a consequence, we recommend a cash dividend of PLN 0.61 per share from 2025 profits. This is a 15% increase versus last year. The level of PLN 0.61 per share now becomes a floor for the remaining years of Lead the Future plan. A year ago, you remember, we told you that we are working to create conditions to enable us to grow dividend, and we are very glad to be able to deliver on that, and we will continue with these efforts going forward. This concludes our presentation. And in just a moment, we will be ready to take your questions. Leszek Iwaszko: Yes. Please give us a moment. We will return for Q&A. Leszek Iwaszko: Welcome back. For Q&A session, we are joined by 4 more board members. Jolanta Dudek, Deputy CEO, in charge of Consumer Market; Bozena Lesniewska, Deputy CEO, in charge of Business Market; Witold Drozdz, in charge of Corporate Affairs; and Maciej Nowohonski, Board member in charge of wholesale market. [Operator Instructions] We have a first question coming from the line of Dominik Niszcz from Trigon. Dominik Niszcz: I have two questions, one on CapEx and the second on mobile B2B. So I would like to ask for a comment on CapEx in the context of rising prices of certain network components, you actually are not increasing your CapEx guidance in the long term, but lowering it from around 14% of revenues to at 13%. So should we understand that despite rising equipment prices, you believe there is no need for such high investment volumes as you previously assumed? And what is the price growth component in 2026? Jacek Kunicki: Thank you, Dominik. I would reiterate, yes, our CapEx guidance well, is an all-in guidance. It's not excluding any price increases or price decreases because you have some elements increasing in prices indeed and the memory chip crisis, it is resulting in some prices that might be temporarily or permanently increased. It also includes the fact that while eCapEx in '25, '24 was heavily supported by the sale of real estate, the proceeds from sale of real estate, this stream of both cash flows and CapEx support will inevitably be disappearing by the end of the plan. And it does involve a lot of effort on our side to make sure that we invest today in platforms and in systems that allow us to be more efficient tomorrow. This goes for IT expenses. And you will see by comparing the structure of our CapEx today to the structure of our assets or even to the structure of the CapEx 6 or 7 years ago that proportionately, we're investing more, and this is linked with IT transformation. It allows us to be more efficient on the side of the OpEx, but it also gives us future CapEx benefits as we will have less labor-intensive and also capital works. So yes, you will have both elements increasing our CapEx or pushing it upwards and the memory chip prices are a part of this. You will also have elements that will be relieving some of the pressure and giving us a potential to decrease CapEx. The fiber projects are near completion this year and starting from next year, this means roughly PLN 100 million less of CapEx dedicated to these type of programs. We will have the CapEx peak for the 5G rollout for 2 or 3 years and then CapEx for 5G rollout will be going down. The CapEx structure is obviously changing in according with the needs. But looking at the different projects that we have in the pipe, looking at the stage of advancement, looking at the fact that we have just finalized the renewal of the radio access network, we feel confident to be able to grow the EBITDA and revenues based on the same absolute level of CapEx. Dominik Niszcz: Okay. And second question, mobile B2C, what is the share of B2B segment in your stand-alone mobile revenues? And what is behind the current weakness in this market in your view? So is it more related to the condition and number of small businesses in Poland or rather to competitive pressure from other operators? Liudmila Climoc: Thank you for the question. I understand it's more for B2B. Yes. So from the perspective of last year, mobile was growing slightly less than in the previous year. As I will remind that in the previous year for a few years, consequently, we work on the price hikes and the growth of both ARPO and the overall revenue was for a few years at the level between 4% to 6%. Now we noticed the slowdown on the market. We are in the market. This growth, especially for the small companies is a little above the 1% for the overall '25, the situation differs segment by segment. In higher segments, we have the severe price fight between operators about the big customers, big deals. And here, we treated very selectively always having in mind that we create the value and the margin for the company and some deals are not tackled by us or even we are not going below the certain threshold that still allow us to generate the margin. So all in all, the difference between segments is very huge. We see the slowdown of the overall market according to the comparison of the results of the -- all operators, which we have till at the end of Q3 because the Q4 is not released yet fully, we see it was around the slowdown to around 1%, 1% a little plus, and we are accordingly in this market, keeping our very high market share above 32% since plenty of years. Leszek Iwaszko: Next question will be coming from the line of Marcin Nowak from IPOPEMA. Marcin Nowak: I have two questions. The first question would be about your optimism because it has been mentioned a few times during the presentation that your outlook is quite optimistic going forward. So my question is if still your guidance is more on the cautious side or more optimistic side going forward? And the second question is regarding the recent fine from the anti-monopoly office. Is it already fully covered in -- it was already fully covered in the second quarter under -- in an item below EBITDA or maybe there we should expect some more provisions related to that? Jacek Kunicki: Thank you, Marcin. Very relevant questions. I guess what we try to do is when we give a guidance, we try to give a range in which you would find the borders of our optimism or pessimism. And likewise, when we guide for EBITDA, it's 3% to 5%. So if we would be -- if we are on a cautious side, we will be closer to 3%. If we are on the optimistic side, we will be closer to 5%. I guess what -- and where we try to give you a little bit of flavor is we did not change the guidance for the midterm, and this is EBITDA -- low to mid-single-digit growth. But the optimism that we see right now, and it's not groundless, it's based on very solid trends in the B2C market is based on good positive business development in wholesale, and it's based on an accelerating pace of transformation that we're observing. That allowed us to, first, deliver the good results for '25, deliver a guidance, which is closer to mid than too low for the '26. And we do see that current trends would be with some degree of optimism point us towards the mid rather than low single-digit increase of EBITDA CAGR for the midterm. As for the cash flow, we did not change our stance. The cash flow guidance was and is at least -- it was at least PLN 1.2 billion. Now we expect to have at least PLN 1.4 billion. It means we will be working to try and make sure that we can deliver more cash, if possible. On the fine -- on the second question, Marcin, on the fine, we will not comment on an ongoing proceeding. So no comments regarding any items below EBITDA, no comments on the provision side, everything relating to risks, claims and litigations is appropriately described in the notes to the balance sheet, which you will find us publishing roughly mid-March. Leszek Iwaszko: Next question will be coming from the line of Ali Naqvi from HSBC. Ali Naqvi: You mentioned that you'll be seeing some reduction in capital intensity after your 2028, 2029 period. Could you give any kind of quantification of what that could go down to? And then your leverage is lower versus peers and the low end of the below market telcos. I appreciate you may be restricted in doing buybacks, but to keep the balance sheet more efficient, have you considered doing special cash returns, especially considering you're quite confident of the organic free cash flow you're going to generate to 2028? Jacek Kunicki: Okay. So on the capital intensity, First, we will be progressing with capital intensity reduction even before we are going to pass the peak of the 5G rollout. If you imagine us keeping CapEx at PLN 1.8 billion and growing the EBITDA by -- let's be optimistic, mid-single-digit CAGR, then it is clearly decreasing CapEx intensity. CapEx intensity means that CapEx as a percentage of revenues will be trending towards 13% by the end of the plan. And so that is step one. And then well, I think we will not guide for the CapEx in the period after the strategy. But clearly, the 5G rollout represents a few hundred million that we are spending each year. And this is something that will first decrease towards the end of the plan. And at some point in time, when we will have the 5G rollout completed. Of course, we will have other business priorities back then. But definitely, completing a rollout of 5G that is today consuming a few hundred million yearly, it does present us with an opportunity to decide do we increase investments in other areas that could be value accretive, productive? Or do we further decrease the CapEx going forward, knowing that already by that time, we will be trending towards 13% of revenues. So it's 2 phases, okay? One is relative to revenues to decrease CapEx by 2028. And then after we will have the 5G completed, we will have a decision to make, do we see other sources of good projects to invest this capital or do we further reduce capital intensity. On the shareholder remuneration, today, we are happy with a very strong balance sheet. I think it does give us ample balance sheet flexibility going forward. As far as shareholder remuneration is concerned, we haven't considered buybacks because of the limitations that you're aware of. And for the dividends, we have the policy that today's recommendation once voted by shareholders on the AGM will become the floor for the dividend going forward within the period of the strategy. And obviously, I will repeat the same message that I said 1 year ago. We will be working to create conditions that will enable us to be in a possibility to further increase shareholder remuneration in form of a dividend going forward. Leszek Iwaszko: Thank you. We do not have any more voice questions. So maybe I will read the instructions. [Operator Instructions] But there is one more question that came to us online. In the meantime, we have more voice questions, but we take those later. But the question on -- that came to us via text is, in the commentary through the Q4 results, the CEO pointed out that we are poised to generate substantial profits in the coming years from fiber backhaul business concluded in the second half of '25. Could you please say a few words about this agreement? Maciej Nowohonski: So good morning, everyone. Thank you very much for the question. And excuse me for my voice -- which definitely has seen better days, but this is in contrast to what we actually achieved on the wholesale line of business, the performance there is really satisfactory to us. I will not get down into the details of the commercial terms and conditions of the contracts that we are signing. But to give you color of what is happening on the holding market, I think, first of all, you are looking at the different markets in Europe and all across the globe, and you can compare or differentiate conditions on these markets, in Poland, particularly what strikes you probably is still the fragmentation of the market, and on this fragmented market, Orange Polska stands out in terms of the infrastructure. And we actually enjoying the basically, the success, which is purely generated from that, that we are strong in infrastructure, the market on which operators buy from other operators is large and is growing. The wholesale fiber, which normally, I would say, is connected with the wholesale activity is only a part of this market. And there is plenty of operators, which are actually interested to buy infrastructure and capacity for the transport network. And we basically respond to that constructing within the last 5 years, very strong activity and competence on that market. We are truly a partner to other operators on wholesale activity. And the result of that is visible in the contracts that we are winning on that front. So we will enjoy that particular contract for the coming years. Obviously, there is plenty of things to execute, but we are confident that we are able to do that with success. Leszek Iwaszko: Next voice question is coming from the line of Nora Nagy from Erste Group. Nora Nagy: Congratulations on the solid results. Two questions from my side, please. Firstly, on the tariff indexation, if you plan to implement it in 2026? And then if so, on which services? Jolanta Dudek: Hello, everyone. Thank you for these questions. In B2C, this year, we have implemented 2 price hikes for tariffs, first in Jan for mobile and in Feb for fixed broadband. In the meantime, we informed our customers about CPE clauses price hike for customers with indefinite contracts. So simple answer, we -- this year, we continue what has been done last year, and we have just implemented those 2 price hikes. Jacek Kunicki: And I think just to complement, I think on the price hikes that Jola mentioned were for the customer [ x ], so for the acquisitions and retentions, mobile and broadband. And the indexation obviously applies to the customer base that had eligible -- was eligible because they had the clauses in the contracts, and they were out of loyalty. Nora Nagy: Yes. And then secondly, how do you see the mobile phone services of Revolut in Poland? Shall we expect the company to focus more on the low-cost segment following the Revolut market entry? Jolanta Dudek: So as far as Revolut offer concerns, we expect that this offer will be dedicated mainly for the niche segments. And why, first of all, we do not see the impact on mobile number portability to Revolut. The second, this is the offer only limited to e-SIM. Third point, this offer has roaming packages on top and it's limited only to mobile, while home market is going to -- is focused on packages. So for the time being, we do not see the important impact on our base and on our market. Leszek Iwaszko: Another voice question is coming from line of Dawid Górzynski from PKO BP. Dawid Gorzynski: Actually, I have three questions. So maybe I will address them one by one. First one is on your assumptions behind over PLN 1.1 billion organic cash flow for this year. I wonder like what do you assume for the value of assets sold? And regarding cash CapEx, what maybe other differences between eCapEx and cash CapEx this year, if cash CapEx may be like higher than eCapEx because of some reasons. Jacek Kunicki: So for this -- thank you for your question. The PLN 1.1 billion organic cash flow. the base is what we achieved this year. The main growth driver is the growing EBITDA because we do expect to have 3% to 5% EBITDA growth, and we do expect for this EBITDA growth to convert to cash. We did not make bold, unorthodox assumptions on working capital. And we have assumed eCapEx to be flat at around PLN 1.8 billion. And eCapEx includes both the CapEx spending and also the inflows from sale of real estate. As I mentioned, last year, real estate sales were a bit below our expectations due to a challenging market and due to some key transactions being delayed even from late December. So on the one hand, the delay of the transactions gives us some boost and potential to do more this year from real estate sales than we did last year. But then on the other hand, it's not a recurring business. We really need to be prudent on our assumptions for real estate sales and for how much we are able to sell because this is a transaction by transaction and a buyer-by-buyer market. So I will go back. It's the EBITDA that is driving the better prospects for cash flow, not some wild assumptions on neither working cap nor on the real estate sales. We will obviously do our best to maximize real estate sales, minimize working cap. But the underlying driver is the EBITDA growth. Dawid Gorzynski: Second question on the Cybersecurity bill that is awaiting the sign from the President in Poland. Do you assume any impact of that bill on like potential requirement on replacing high-risk infrastructure? And perfectly, if you can quantify that impact for next year? Witold Drozdz: Obviously, we monitor closely this legislation. The deadline for signing is tomorrow. So we will see if it is signed or not. However, as it introduces some regulations that are that -- or will not introduce, but anyway, it refers to some fields of regulation that we are aware of, and it is also fully in line with the policy that we pursue for years, then we do not expect any substantial impact from the perspective of our business and results. Maybe Jacek... Leszek Iwaszko: Your third question, Dawid. Dawid Gorzynski: And yes, last question on Nexera deal and that chance or the requirement if -- do you think that the debt in Nexera will need to be repaid or it may be stood in the company? Jacek Kunicki: Thank you very much. So here, for Nexera, we are after having signed the SPA, we have not yet had the closing of this transaction. So obviously, this means that the process is really preliminary. Our intent is to keep the debt on the balance sheet of Nexera. We think that this asset will be performing much better than -- this transaction gives much better prospects for Nexera going forward. Orange Polska and APG are highly reputable buyers. We have substantial synergies of this transaction with Swiatlowód Inwestycje, we clearly have an intent to bring Nexera under the umbrella of Swiatlowód Inwestycje. So this also means that these better prospects mean better financial prospects for the company, and we will be discussing this with the financing banks. The intent clearly is to keep the debt and as much as we can of the debt on the balance sheet of Nexera. We are not in a position today to share with you exactly where we are in this process also because of an early stage. We are just after signing the SPA, we will be keeping you updated on what we have finally achieved. But definitely, the intent, the goal is to keep the debt on the balance sheet of Nexera. Leszek Iwaszko: We have one more text question. I will read it. It comes from Piotr Raciborski from Wood & Co. What impact of changes in working capital on organic cash flow? Do you expect in 2026, I guess you're -- unless you want to add the asset, but I think it was answered just a moment ago. Jacek Kunicki: Yes. I mean we will see how the business evolves. We will see how the inventory levels, the receivables will evolve over time. We will need to monitor this as we go forward. I would prefer not to disclose extremely specific assumptions, but it's -- the growth of the organic cash flow is not built on an assumption -- explicit assumption of a significant improvement or a significant decrease -- increase of working cap. It is based on the growth of EBITDA and the growth of EBITDA is coming from -- predominantly from core telecom services. So that does not imply huge requirements for working cap. And it's coming from cost transformation. And again, this is not something -- it's not sale of handsets in installments. It's not something that is requiring us to freeze up large amounts of working capital as a result of this. So this is what makes us confident going forward, is that the progression of cash flows is based on solid, sustainable, repetitive growth patterns coming from the core business. And this is what makes this growth very healthy. And this is why we think we can sustain it, not only for 2026, but we can sustain the good progress all the way up to 2028, hence, the improving prospects for the midterm guidance. Leszek Iwaszko: Thank you. We have no more questions. So thank you very much for listening, watching us, asking questions in case you wanted to meet us, please give us a note on that. Otherwise, we will come back in April with Q1 results. Thank you very much. Jacek Kunicki: Thank you very much. Liudmila Climoc: Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Rush Enterprises, Inc. reports fourth quarter and year-end earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will open up for questions. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11. Please be advised that today’s call is being recorded. I would now like to hand it over to your speaker today, W. Marvin Rush, CEO, President and Chairman of the Board. Please go ahead. W. Marvin Rush: Good morning, and welcome to Rush Enterprises, Inc.’s fourth quarter and full year 2025 earnings conference call. With me on the call today are Jason Wilder, Chief Operating Officer; Steven L. Keller, Chief Financial Officer; Jay Hazelwood, Vice President and Controller; and Michael Goldstone, Senior Vice President, General Counsel, and Corporate Secretary. Before we begin, Steve will provide some forward-looking statements disclaimer. Steven L. Keller: Certain statements we will make today are considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Because these statements include risks and uncertainties, our actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, those discussed in our Annual Report on Form 10-K for the year ended 12/31/2024, and in our other filings with the Securities and Exchange Commission. W. Marvin Rush: Thanks, Steve. As we reported in our earnings release for 2025, we generated revenues of $7.4 billion and net income of $263.8 million, or $3.27 per diluted share. In the 2025, revenues were $1.8 billion and net income was $64.3 million, or $0.81 per diluted share. I am also pleased to announce that our Board of Directors approved a cash dividend of $0.19 per share. 2025 was another challenging year for the commercial vehicle industry. Freight rates remained under pressure. Excess capacity continued to be a factor, and customers faced uncertainty around trade policy and emissions regulation. All these factors negatively impacted demand, particularly for new trucks in the over-the-road segment, and also created a more difficult aftermarket environment. Despite these conditions, I am proud of how our team performed. We remained disciplined, generated strong cash flow, managed expenses effectively, and continued investing in the long-term growth of our business. Toward the end of the fourth quarter, we began to see improvement in new Class 8 truck demand. Quoting activity and order intake both increased, and that momentum has carried into the first quarter. We believe a key driver of this improvement has been increased clarity, particularly around tariffs and the EPA’s anticipated confirmation of the 2027 NOx standard. With some of that uncertainty behind them, fleets are beginning to plan for future vehicle replacement cycles again. We also continued to expand our network in 2025. We acquired IC Bus dealerships in Ontario, Canada, with an area of responsibility that includes the provinces of Ontario, Quebec, New Brunswick, Nova Scotia, and Prince Edward Island. In addition, we added a full-service Peterbilt dealership in Tennessee with Trucks Plug Centers Nashville Central. These strategic additions strengthen our footprint and enhance our ability to support customers over the long term. During the year, aftermarket parts and service and collision center revenues totaled $2.5 billion, essentially flat compared to 2024, and our annual absorption ratio was 130.7% compared to 132.2% in 2024. In the fourth quarter, aftermarket revenues were $625.2 million, up from $606.3 million in 2024. Absorption was 129.3% compared to 133% in the prior-year period. While aftermarket conditions were challenging in 2025, we continued to see strength in key customer segments such as the public sector and medium-duty leasing. Our focus on operational efficiency, reducing dwell time, improving parts delivery, and strengthening service execution also supported our performance. Demand remained soft in January, but we are beginning to see signs of improvement. As fleet utilization increases and customers address deferred maintenance and aging equipment, we expect parts and service demand to strengthen. Looking at vehicle sales, we sold 12,432 new Class 8 trucks in 2025, representing 5.8% of the U.S. market. In Canada, we sold 338 new Class 8 trucks, representing 1.4% of the Canadian market. As I mentioned earlier, demand was soft for much of the year, particularly among over-the-road fleets. However, demand from our vocational and public sector customers remained relatively stable, helping offset some of the weakness in the over-the-road segment and highlighting the benefit of our diversified customer base. ACT is forecasting new U.S. Class 8 retail sales of 111,300 units in 2026. We believe the first quarter will represent the trough for Class 8 retail sales, and we are encouraged by recent improvement in order intake. Fleet ages remain elevated by historical standards, and we expect replacement demand to increase as the year progresses. With respect to medium-duty commercial vehicles, new U.S. Class 4 through 7 retail sales totaled 217,412 units in 2025, down 15.6% compared to 2024. Despite that decline, we sold 12,285 new Class 4 through 7 commercial vehicles in the U.S., down 8.5%, significantly outperforming the market and increasing our market share to 5.7%. In Canada, we sold 993 new Class 5 through 7 commercial vehicles, representing 6.3% of the Canadian market. We continue to be pleased with our medium-duty performance. We believe our diverse customer mix and Ready to Roll strategy continue to differentiate us from our competitors. ACT is forecasting U.S. Class 4 through 7 retail sales of 218,225 units in 2026, up slightly compared to 2025. While we remain cautious given weak order intake over the past several months and broader economic uncertainty, we are beginning to see improved quoting activity. We are well positioned to fulfill orders as customers move forward with purchasing decisions. We sold 6,977 used trucks in 2025, down 1.9% compared to 2024. As freight rates improve and prebuy activity builds ahead of future emissions regulations, we expect used truck demand to improve in 2026. Our leasing and rental business delivered another solid year. Leasing and rental revenues totaled $369.6 million in 2025, an increase of 4.1% compared to 2024. In the fourth quarter, lease and rental revenue increased 3.6% year over year. This business continues to benefit from the strength of our full-service leasing operations, supported by strong customer demand and a younger fleet. From a capital allocation perspective, we remain disciplined and continue to return capital to shareholders. During 2025, we repurchased $193.5 million of our common stock. We also announced a new stock repurchase program authorizing the company to repurchase up to $150 million of common stock through 12/31/2026. In addition, we returned $58 million to shareholders through our quarterly dividend program, a 5.6% increase compared to 2024. These actions reflect the strength of our balance sheet and our confidence in the long-term outlook for our business. Looking ahead to 2026, we expect market conditions to remain challenging in the first quarter, but we are optimistic about the remainder of the year. With fleet ages elevated and maintenance needs increasing, we expect both commercial vehicle sales and aftermarket conditions to improve as we move into the second quarter. While we cannot control the pace of the market recovery, we can control our execution. We believe we are well positioned to respond quickly and effectively to our customers’ needs as conditions improve. Historically, when the cycle turns, demand for both new commercial vehicles and aftermarket parts and service rebounds quickly, and we believe the strategic investments we have made over the past several years will help us serve customers better and gain market share. Finally, I want to thank our employees for their hard work and commitment through 2025. This was a very demanding year, and their focus and execution were critical to our performance. With that, we will open it up for questions. Operator: Thank you. And as a reminder, to ask a question, you need to press 11 on your telephone and wait for a name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Brady Lierz from Stephens. Your line is open. W. Marvin Rush: Hey, great. Thanks. Good morning, Rusty. Thanks for taking our questions. I want to maybe start, unsurprisingly, on Class 8. Brady Lierz: As you mentioned in your prepared remarks, we have seen an improvement in orders late in 2025 and here early in 2026. Can you just talk about what you are hearing from your customers? Are you expecting this to be a pretty meaningful prebuy here in 2026 ahead of the 2027 regulations? Just any clarity there would be helpful. Thank you. W. Marvin Rush: Be happy to. The answer would be cautiously, but maybe not even cautiously, but optimistic that yes, there will be a prebuy before we get into the 2027 emissions regulations. You know, based upon not just the regulations, right, but you can incorporate regulations all you want. I was around—well, you were probably still in high school back in 2010—when we went to SCR. We were supposed to have this big, you know, buy and buy. Obviously, it was the worst year in forty years. Right? We had a little economic problem going on, which—so what I am reflecting on is not just the fact that the 2027 emissions, but the fact that their business is improving. And I am not going to get ahead of myself and say it is, like, accelerating or ramping up rapidly, but it is improving, especially over the last ninety days. I do not have to tell you. You know, spot rates have been up. Five to six months ago, most people would have thought going into their contract rates were probably going to be flat. Now people are hoping to get contract rates up, you know, mid-singles. Right? That line between spot and contract has moved nicely with where spot was so much lower before. So, you know, your business has to be good. And I am not going to say it is great, but you at least need to be able to see forward. Right? And that is important. We had so much uncertainty last year with regulations, with EPA regulations, with tariffs, and everything else. So now you can focus on these regulations and do it while your business is, you know, gradually getting better. It may not be reflected in all the first quarter reports, but I think most customers feel that their business is improving. When you talk about—we are talking about over-the-road customers right now because that still is the biggest segment, even though we are more diversified than most folks when it comes to vocational and over the road. But we still need that over-the-road customer to be solid. Right? It is the biggest piece of what you do still. And so combining, you know, some—most—we do not have full clarity, but we know we are not changing it. We know it is going to be 35. The government—when I am talking about NOx and stuff—so we realize that is going to be there. You know, they have not clarified everything, but you pretty much know what the cost is. And, you know, when you are doing something like this, the cost is one thing. It is, you know, a little bit new aftertreatment systems, and I watched 2010 when every particulate filter was clogged up when we came out of SCR back in ’10. I am sure there are a lot of people that still remember that. You know, you can have issues when you come out. So I am just giving you background. So you combine the EPA issue, clarity on tariffs, which has given clarity to pricing throughout this year, which we did not have last year, and their business getting better. So I am optimistic. The issue will be this. The issue will be we are going to run out of time. So, you know, it is already—we are, what, eight days away, nine days—what is it? Ten days away, excuse me, from the end of this month. I apologize. And we will be into March already. So I do expect order intake to remain what we have seen over the last couple months in that range, if not maybe even a little more because I think people are lining up. So I do believe Class 8 order intake is going to continue solid. You have to remember, we had a five or six month run last year, a six month run that was close to being less than the last two months. Five months for sure were close to being less than the last two months. So, I mean, all that—I know it is a long-winded answer, but you folks are used to my long-winded answers. I try to give you a full perspective here. Yes, the emissions piece is there. Yes, that is important. But it is also important that people can at least see a little further in their business and have clarity, which we did not have. So the combination of the two—yeah, I think we are going to get—you know, and I think you may run into a problem with supply side, problem with tier-two and tier-three suppliers. We are not there yet by any stretch because there was a lot of backlog to fill up. But it will be interesting to see where we are sixty days from now. So, I mean, a lot of customers are realizing they better—I think some go—well, I know they are—that they better get it on board now and not wait till summer, or we may run out of—it is hard to ramp up for that shorter period of time. You know, OEMs will ramp up. There is only so much you can do when you do not have clarity past, you know, January 1, really. But I do not see—just going further—I do not see ’27 to be a huge drop off either because we are going to get started. It is going to be—we are going to get started light here in Q1. Okay? There is no question. Lighter than we were last year in Q1. So you start in a hole. So, you know, the year could be similar, maybe slightly up. It is going to be, you know, packed into the back three quarters of the year, should you say? Operator: I shut up. No. That is all very helpful Brady Lierz: color. If we could just talk about parts and service for a second. You know, typically, you see a pretty nice sequential step up in the first quarter compared to the fourth quarter. But has the severe winter weather we have seen this year impacted that at all? Just want to get any thoughts there. And then, you know, if you could just talk about some of your strategic initiatives in parts and service. You know, you have mentioned in the past growing the technician headcount. Just how are those initiatives progressing? W. Marvin Rush: Yeah. Well, I do not—I am not going to say, as I mentioned earlier, January was a tough month. When you ask about the freezes—well, we were shut down for about a week in the Dallas–Fort Worth area, and some other areas, we were—you know, down in the South, they do not know how to handle ice and snow. I can tell you it is not like—you know, it is funny that, you know, cold weather is good for your parts and service business, say, in Chicago. They are used to handling it. They have got snowplows. They do not have any snowplows in Dallas. Nothing iced over five days. Okay? We were almost shut. We really were. We were running skeleton crews. It was detrimental, let me tell you, to our southern stores in some areas. So that is why January was a real tough one. We are starting to see life, a little more life. You know, as I have said all my life, if I could just get rid of November through February—but I am from—you know, we are from the South. We were raised here. We are from Texas. And if I could just get rid of November through February, I would have, except for Christmas and Thanksgiving. But, you know, we are getting to the end of it, and, you know, we are starting to see, you know—it is typical seasonality, I would tell you. It was soft in January. It was soft in November and December, but that is seasonal. That is not something we do not deal with in the past. January was probably softer than it usually was because some of our bigger areas on the Peterbilt side were down, which are further south, got frozen up a little bit. And we do not operate—some of these places do not operate well in that. But I think it is just normal. We got hurt a little bit, but we should come out of it here as the sun comes out and heats up, as we get into March and April. I see no reason we will not, and we are seeing signs in February that things are better than what they were, which is just typical. From a strategic initiative, you know, our mobile service piece is something that we are really big on, and we continue. Last year was a big year for us from a mobile investment perspective. I can tell you we took on, like, $4 million more depreciation in mobile units last year than we had in 2024. So those are investments that we make where the payback comes back over the next five or six years as you ramp all that up. You would like to think it is all immediate, but it is not always all immediate. So we continue to ramp up that piece of our business. It is a larger piece of our business than it ever has been. It was running around 30%. Now it is running, like, mid-thirties or more of our overall business. So, going forward, we continue to believe that is going to be a big piece of what we do outside of our shops. I would say that is the most important. We did go backwards a little bit in technicians in the fourth quarter. But, you know, I think we were—you know, I am not sure exactly why. I am not going to say it was dramatic, so I am not going to make any big deal of it. But, you know, we are focused on continuing to get back to adding especially higher-level skilled technicians as best we can and are doing our best to train the young ones. You would be amazed that, you know, the turnover usually comes in those first-year, second-year folks. And we continue to have programs to work our way through that. But, yes, we will continue to try to grow technicians like we have in the past while we are still doing it profitably. You have to be careful when you are doing that because you have to be able to do it profitably, not just do it for the sake of doing it. You know, we have got some great programs from a delivery perspective. We are running pilot projects. I do not want to get into all that stuff. Some of that is what I consider proprietary. But you can rest assured we are not sitting on our hands. We never have and we never will. We will be out there running out front, hopefully. These are always getting chased, so you have to have something going on. Brady Lierz: Yep. Absolutely. Well, one final one for me, and then I will pass it along. You know, you have mentioned quite a few times just throughout this challenging freight market the last couple of years, one of your priorities has been controlling your expenses—controlling the controllable. You did a nice job of that in 2025, particularly in the fourth quarter. Can you just talk about how we should think about expenses in 2026 given both your focus on wanting to maintain that cost discipline, but also considering we are expecting the market to improve here in 2026. W. Marvin Rush: Right. Well, let me say this. If we get into really—well, I believe we are not there yet—if we can get a growth where we really feel some real growth, I am not ready to declare the claim. And I am talking parts and service growth, not truck sales. Remember, truck sales are—when you go, everybody goes SG&A, SG&A. Well, we run it different. S is attached to truck sales. G&A is attached to all the other expenses. Right? Because S is a variable commission piece driven by what truck sales are. So you sort of have to look at them in two separate buckets. Right? And that is how we do it. And, you know, I would hope that we can maintain our G&A at least close to flat. Okay? That is my plan here. Would be to do that. Now, Operator: half W. Marvin Rush: of the growth—if the parts and service business ramps up, we always talk about the fact that we will spend half of the gross profit growth. Now let me back up a second. Remember this about Q1. Do not comp Q1 to any other quarter. Q1 always jumps from Q4. Okay? You have got all your payroll taxes restarting, and the majority of our equity costs go out—half the equity costs in the company run in one quarter, and that would be in Q1. So if you look at our historical record, it will always show a jump from Q4 to Q1. So do not forget that. I would just compare it to last Q1 because that is always a jump that we have. That is what I would tell you to do, not compare it to Q4. You know, a lot of different things in Q1, like your payroll tax runs down as the year goes on, etcetera. And really, more than anything, the equity costs—the majority, not majority, but half the equity cost in the company—run in one quarter, and that would be in Q1. So, again, do not compare it to Q4; compare it to last year’s Q1. But we would hope to do a good job for now staying close to that number last year. But it is possible that it will ramp up some if our gross profits in parts and service start going up. We cannot just—you know, it takes people to do what we do. People turn wrenches. People drive and deliver parts. People do all these different things. And it is not like I am loaning money here. I am handling hard assets and stuff like that. But I would love to have that problem. So, hopefully, we will continue to see growth. And if we do not, I am planning on keeping it as flat as possible. If we stay flat in parts and service, I am planning on keeping as close as I can, with as little inflation as possible, to where we were. But we are hoping to have some growth. And, like I said, after getting out of January, seeing a little uptick here in February, which started up. But I am used to the seasonality of the business, whether I like it or not. And I just have to deal with it, and, hopefully, we will pop out in the spring like always. Brady Lierz: Very helpful. Thanks for all the color, as always, Rusty. I will go ahead and pass it along. W. Marvin Rush: You got it. No worries. My pleasure. Operator: Thank you. One moment for our next question. Our next question will come from the line of Avi Jaroslawicz from UBS. Line is open. Avi Jaroslawicz: Hey. Good morning, guys. W. Marvin Rush: Yeah. Good morning, sir. Avi Jaroslawicz: So, Rusty, as of where things are standing today—and Andrew Obin: kinda discussed it a little bit already, just there—but what are your expectations for price/cost in the aftermarket business? I think it was somewhat of a tailwind last year, just as you raised prices of inventory to match the cost increases you were seeing. But then there is a lag for when those hit COGS. So how should we be thinking of what—yeah. Should that be a headwind here in 2026? And if so, roughly, what are we talking about? W. Marvin Rush: Yeah. You could have a slight headwind as inflation—you know, with inflation slowing down. Okay? But I do not look at it as it would be monumental. There will still be inflation. It may not be quite as much. You know, inflation can be a tailwind to you when you are doing it if you can maintain. So I would tell you—what, a little bit of a headwind—but when you look at it as a percentage of the whole, it is something that, if you have a growing market, you could overcome without any—without question. So while we will have inflation, I do not expect the inflation from that perspective, from a parts perspective, to be as much as last year from what we are seeing from the suppliers and the OEMs right now. But it will be there. It just will not be quite as much. Hopefully, you know, what we are talking about is the market will get better and grow. You know, the overall market was flat—not just for us, for everybody—or even down. And for some people, whether it is independents or dealer-operated stuff, some of them were negative last year. So, you know, I am hoping that we get into a more—of, you know, as our customer base gets healthier, their spend will be more normalized. You know, you have to think about it like this, the way I look at it. These guys were over three years in a freight recession. And I have been around—I hate to say how long—but I am young. Young at heart. But I have seen a lot. You know, when it gets like that, people do not necessarily spend like they would if their business was normal, when they are in a recession. You saw companies lose money that never lost money. Well, guess what? When that is going on, you are going to put off spend. You are going to add—you know what I am doing? I am adding 5,000 miles to the oil change. You know what? I am not fixing that fender. You know what? I am not doing this. So the health of a customer is the most important thing out there. And, yes, we do a lot of vocational stuff. The over-the-road market is still the biggest piece. And this—even the small—I mean, we have been off double digits from our small customer for the last—each year for the last three years. So, you know, I—and you go, that is bad. Well, that may be bad, but right now, I am going to say, I look at it as a positive. I look at it—it cannot get much worse. Right? It is only one way to go, and that is up. So, you know, I hear you about the little bit of headwind, but I think the overall market, when I look at the possibilities, a healthier freight market is going to be way better than a little bit of headwind. And it is not overwhelming headwind either, by the way. But I still think there is going to be some inflation. There is no question. But other than that, we will be able to hold our earnings. You can see, I think we ran 37% blended parts and service in Q4, which is in line—looking back—with 37.2%, 37.6%, 35.8% actually, the last ’25. So my point being, 37% is solid. And I would hope we could maintain in that same range—blended parts and service margin—regardless of inflation. But, you know, the health of our customer base, especially the largest customer base, the over-the-road carrier—and once the big carrier gets healthy, guess what? The little carrier follows along. And that is where more of your retail parts and service comes from. Not more, but a chunk of it that has been super depressed. And so, to me, I am not trying to get—it is not there yet, but I have seen these cycles before, and I do not want to get too bullish or anything, but if things go according to historical, then I think we should be in fairly good shape to capitalize on that. Andrew Obin: That makes sense. Appreciate that. And then on the medium-duty side of the business, saw a pretty sharp drop off in sales there in Q4. Still better than the industry, but a sharper deceleration than the industry in the quarter. So, you know, how are you thinking about the shape of the medium-duty demand here in 2026? Do you think it is going to be fairly similar to what we see in heavy duty? Or W. Marvin Rush: I do not know. You know, I have some concerns around it, to be honest with you, but I have not seen the acceleration in it over the last sixty, ninety days that I have seen in the heavy-duty side. But a lot of times, you know, the medium-duty business is a lot of leasing and a lot of different customer base. Right? And tied more to the general economic activity of things going on locally in a lot of ways because it is more diversified-type products. Otherwise, leasing and box trucks and stuff—there are a lot of other medium-duty segments that we play into. So we are seeing more quoting activity right now. It has not come to fulfillment as much as the heavy has, but a lot of times, you know, it will be springtime. As we get around here going up with the NTEA and some things like—it is a big conference that comes up, the convention—things like that, where some of these things happen. So I am sure that it will line up historical. You know, I cannot sit here and tell you that we are going to sell lots and lots more. I would imagine we would be maybe based on ACT calling it pretty flat, to be honest with you. We would stay in line with the percentage of the market we are at now. But, you know, I cannot tell you I have booked it all already. That is for sure. But I can also tell you I am not afraid. We have got a pretty good salesforce out there. We represent many brands, Avi Jaroslawicz: and W. Marvin Rush: you know, we feel good. It will come. It just has not really yet for us, to be honest. But the quoting activity has picked up. You have to quote before you can order, and you have to get it ordered and get it built and get it delivered. So I am confident that we will execute in the lines of where we have historically, if not grow it. You know? I have got some stuff going on that I would like to see happen. It might allow us to even grow it, but I do not want to get out and put my skis on. Avi Jaroslawicz: Alright. Appreciate that color. And thanks for the time. W. Marvin Rush: I got you. My pleasure. Operator: Thank you. One moment for our next question. Our next question will come from the line of Andrew Obin from Bank of America. Your line is open. W. Marvin Rush: Russ, this is Steve. Good morning. Well, good morning, Andrew. Steven L. Keller: Just a question. Just going back to something you said. I think you guys were fairly Andrew Obin: skeptical, and there was a big industry debate about ACT orders last month and were they one-time in nature. It sounds like you are sort of warming up to the fact that, you know, orders could actually improve faster. Could you just unpack this for us? Just what are you seeing happening with industry orders over the three to six months? How that is going to play out? Thank you. W. Marvin Rush: Sure. I may be a little repetitive here, Andrew, but I thought I tried to answer. But we believe that, you know, once we got clarity—remember, it started on November 1. Let us get that right. When they changed the tariff rules, took effect November 1. Then we got some clarity a little later after that about, well, we are going to hold on and keep the 2027 rules in place from the emissions perspective, except for we are going to loosen up a few things here. We are going to—probably, and it has not come out yet—but the feds have said we are not going to keep all the warranties. Now, it has not been officially done, but they have communicated to customers and the like that we are going to cut the warranties back. Well, that was more than half the cost. We are going to be a little flexible on credits and how you do that. And I am not the technical expert. So you had all that go down. So that gave clarity. Right? So then customers started looking out next year. They knew they really wanted—they pulled back on purchases last year in the second half. And you cannot do that for too long, or you are going to—you have to bottle that up. Your maintenance is going to go through the roof. Age—your fleet age goes up on these big fleets. So people really started talking, I would tell you, in November. And, you know, in November, I do not remember what it was. It was 18,000–20,000 units. I cannot remember. But it was picking up, and we had a big December—38,000–40,000, I think—and then it was 30,000 last month. Well, at the same time, as I said earlier, people’s businesses—they started being able to see your tender acceptance rates came down from 98% acceptance to low 90s—even in the high 80s—which started to drive, you know, your spot market up. And it is not just weather that did it here recently. And people felt better about where they were at from, you know, in contracts going forward. There has been a little bit of tightening. Right? So that gives you—and people worry, is it sustainable? Right? The first thirty days. And now I am going out on a limb. Maybe I am going to be wrong. Maybe it is not sustained. I have a feeling that after three and a half years, it has got to be somewhat sustainable, if not gradual. Right? But sustainable, whether it is not some spike but a gradual sustainable improvement in their business. You tie that in with now you have got clarity. You know where it is going to be at the end of ’27. You may have slowed down on some purchases—some companies did—in ’25. Well, you know, that is why I think you are going to see some good order intake this month. Also, I am just guessing—it is a short month—but it will be solid. I do believe it. It is a short month because we know February, but I would expect it still to be solid, from people I have talked to. So, you know, I think what is going to happen is, as the backlogs fill—and I do not know for everybody because I have heard of one OEM that has shut down weeks here in the first quarter. Not anybody I am dealing with, I do not believe, but I have heard of one OEM that has, and I do not want to get into all that. But my point being, I know for people that I am dealing with, they are filling up. Not filling up, but you are getting orders. You are building a backlog. Most of them spread over time. So I just believe—I could be wrong—it is just my gut and maybe touch with the market, that yes, it will continue because people are feeling their business is not great, but they do not feel in the dumps. Sometimes when you have been living in the swamp—in the dumps—it does not have to get a whole lot better to make you feel better. And it has been three years of prolonged freight recession, but at least now you have to believe, you know—because remember, the first thing that happened is capacity is coming out. Everybody reads about non-CDL, or noncompliant drivers—there has been taken out here and there. And they have. But that is not an add-water-and-stir thing. But as that goes on, you take—you have less intake of trucks. Remember, we built a whole lot less trucks in the back half of ’25 than what we did in the first half. So you slow that spigot down. You start taking some of those noncompliant CDL drivers out, and you start squeezing the capacity piece. Then, all of a sudden, business starts getting a little better. Economically, it looks a little better. The ISM stuff looks better. I mean, there are a lot of things Andrew Obin: that W. Marvin Rush: tend to make me believe, along with emission regulations coming January ’27, we are going to have a pretty good last three quarters of the year. And I am not predicting doom and gloom after that, but it is a little far out for me to understand right now. I am just dealing with what I have got in the present over the rest of this year. We will talk about ’27 as we get halfway through or a little further through the year. But I feel good that it is sustainable and will lead to maybe even a better year. The problem is you start off—remember, the first quarter is going to be off. So you are starting in a hole to begin with. So you have to climb back out and then catch back up, which you should do for sure in the back half of the year—deliver more trucks than we did last year. For sure. Andrew Obin: Great. Rusty, and just a follow-up. I mean, it clearly seems that the improvement over the road is finally driving your optimism for the rest of 2026. You have alluded to other parts of the economy getting better. Can you just talk about off-highway, which has been such a moneymaker for you over the past year—sort of got you through the drought? But maybe, you know, if we could talk about, you know, sort of these corporate fleets, if we could talk about construction, if we can talk about waste. What are you seeing in those markets? Because those tend to be economically sensitive as well. But, as I said, it seems to us that your message is very clear on finally starting to see green shoots on over-the-road recovery. W. Marvin Rush: Yep. Very well put, Andrew. Yes. Seeing them on that side of the margin. Avi Jaroslawicz: Yes. W. Marvin Rush: You know, we love the diversity of our customer base. You know that. I would tell you the vocational pieces—I do not see the pickup that I see across, but I can see fairly flat to where we have been. Because we have been pretty solid in it. I have to be honest with you. So, as you said, it has helped us a whole lot over the last couple years. When there is an over-the-road freight recession, we have been really solid around that area. So I think that—let us say, I do not want to get into specifics. We might be a little softer in one segment, up a little in another segment. But when you look at vocational as a whole, I am going to say we are going to be probably flat with where we have been. I do not see any huge decrease or any—you know, we may—because some of them, we were still catching up from COVID the last couple of years, when you could not get trucks three years ago. So we have fulfilled maybe some of that or the pent-up demand. So now it is more like business as usual. But I do not see any big downtick. It is more back to business as usual. Some of the people we do business with were playing catch-up in ’24 and ’25 from not getting as much product in prior years, to be honest with you. So, you know, where they may be off a little, it is not off because they are off. It is off because they played a little catch-up, and we were able to capitalize on that. So when I look at those businesses, they are doing well, but they have caught back up to their normal replacement cycles. They got left out a little bit—some of those groups got left out back in ’22 and ’23—and then we picked them back up in ’24 and ’25. So just because someone may have bought 900 from me or something, and they are buying 750–800, that does not mean business is bad. It just means they have caught back up. Right? So you have to report. But I think, overall, we will be somewhat flat in the vocational pieces. Andrew Obin: Thank you, Rusty. It has been a while since you have been constructive about over the road. Good to hear. Thanks so much. W. Marvin Rush: Yeah. Well, it is nice to feel—even though it is the big piece, you know? But for us, vocational is big as well. So thank goodness. It is nice to feel that you have got an opportunity to maybe—you know, and I hope when I say over the road, I am hoping our small base comes back. I am a little Avi Jaroslawicz: a little W. Marvin Rush: optimistic there. I do not want to get overly anything. Wait till I talk to you in April, and I will have a whole lot better feel for what is going on—the sustainability of what we are seeing. And I am not trying to overwork it. But, like you said, it has been a while since we have been able to talk optimistically about the over-the-road business. And I am just looking forward—I think things are going to be better. So you add that with everything else we have got. In Q1, this is—we are just taking out—people get excited because they always say orders taken. Orders taken does not mean trucks delivered yet. We are the tail of the dog. A lot of times, we have to do a lot of upfitting and things like this to trucks when we get them. So that is why, when you hear me talk about, well, he took orders for us—well, that does not mean I am going to add water to the furnace and deliver them thirty days later. It could take three, four months to get them out there and get them delivered because of what has to be done, because we are the last guy that touches the end user. So, even though they are manufactured, we have upfitting places around the country where we make sure that we do all those things that customers need. A one-stop shop. That is where we like to be. Andrew Obin: Thank you. W. Marvin Rush: You bet. Operator: Thank you. And as a reminder, to ask a question at star 11, star 11. One moment for our next question. Our next question comes from the line of Cole Cousins from Wolfe Research. Your line is open. Andrew Obin: Hey, guys. Thanks for taking my questions. W. Marvin Rush: From a Class 8 Andrew Obin: pricing perspective, can you talk to what you are seeing across the market at this point? Are OEMs raising Andrew Obin: prices yet, or does it remain pretty competitive Andrew Obin: as OEMs look to protect or gain share, and maybe how do you see this progressing through the year with EPA ’27 on the horizon? W. Marvin Rush: Yeah. You probably did not do real well asking that question to the OEMs, did you? Okay. So you are asking me. You put me on the spot. I would tell you right now, we are still building backlogs. I would say, you know, there is no big discounting going on compared to where we were, but there are no huge raises now because that is one of the things. As we get later in the year, I would not be surprised to see—if supply and demand—if demand exceeds supply, you have been around long enough to know what that means. I will not even try to tell you. Everybody knows what that means. Okay? And so we are not there yet. Backlogs need to be built up. They have been drained down pretty good. People were building trucks in four weeks for you if you wanted it. So, you know, once backlogs get built up, we will let the OEMs decide, and we will be the poor guy in the middle trying to get deals done. But right now, I would say we are in the—OEMs are still in the process of getting their backlogs more healthy. So I am not going to say it is total cutthroat out there right now because it is not. But it is balanced at the moment. But if you start popping two or three more 35,000–40,000 months—which are not necessarily typical of these months coming up; in March and April, you are probably going to see demand obviously outpace supply, and I will let you take it from there. Andrew Obin: Okay. Yep. That makes a ton of sense. And just—I know we have asked a lot of questions about this—but to follow up on Brady and Andrew’s questions, maybe to put a finer point on it, how much of what you saw in December and January do you think was replacement CapEx versus growth CapEx versus some degree of prebuy activity? And if it was some degree of prebuy activity, can you maybe talk to the risk of potential order cancellations late in the year if things maybe are not as good as they seem and customers are trying to get in line ahead of EPA ’27 as backlogs start to build again? W. Marvin Rush: I feel very good about how solid what we took was. How about that? I see nobody out there trying to put placeholders. The business we took—it would take a recession or something for these folks not to take what they ordered. That is how solid I feel about it. It is not people putting placeholders. You have seen ramp-ups before where people put placeholders out there just so they can hold slots. That is not what is going on at the moment. I see none of that, to be honest with you. I see people being proactive, understanding what I just went through on the last question. They do not want to get caught in that demand-out-of-whack demand-supply piece. You know what that means. We already know what that means. So they are trying to be proactive, not just to the emissions, but also knowing that it is probably going to back up—whether you can get that second- or third-tier supplier. And that is what—I hate to say it, but you know what happens when demand outpaces supply—where price goes. Let us get real. So I think people are catching up. They probably did not purchase as much in the back half of last year because they did not. And, you know, the best way I can tell you is it is solid. I go back to—remember what I kept telling you—their business is better. I have said that three or four times also. It is not just emissions. Not just the emissions. You asked about price. I will answer it the same way. Their business is better. You have got emissions coming. You feel better. Like I said, you have been in the dumps so long—it is not a straight V, but it is a gradual climb up. You feel good about where you are at. You are trying to plan for your future. You know you are going to be in business for a long time, and you need to do the right thing. And you just put that together, and I think that is what you are going to see. That is what you are seeing, and I do not believe that activity level is going to Andrew Obin: to W. Marvin Rush: go away. It may not be 35,000–40,000 every month, but some people that are not participating are going to wake up here in sixty days if we have a couple, three more months of order intake like this and go, whoa. And that is what—you asked about price. That is when we are going to see how things move along then with that. So I would tell you that the folks that are on top of their game, feel well enough about what is going on, are doing the right things for their business plan and not waiting till the last minute to do that, knowing that there still is plenty of backlog out there still to be built. You better not wait till July would be my comment, or you might get caught, because ramping up production—I mean, Andrew Obin: these W. Marvin Rush: OEMs are having to make decisions right now, in the next thirty to sixty days, what they are going to do in the back half of the year. You have to remember that is more labor. That is more this. And it is the second- and third-tier supply chain that has been down in the last half of last year that you ask them to ramp up. They are going to go, well, how long for? And that is where you run into a problem. And that is what could happen. So, you know, if I am planning on being in business around a long time, and I am a smart player, then I am out working it right now. Okay? That is what I am doing. Because, you know, that could be an issue. It is not an issue now, but you better be looking out. You better not be living just in the moment. You better be looking out a little ways would be my comment to anybody. And I am not trying to play scare tactics. I am just telling you that you run into issues with that. And we will just—I think, if I am not mistaken, the engine’s build is the ’27 mark—not model year, but—one thing you have to remember: when you get towards the end of this year, it is about the engine. The engines all have to be built by the end of 2026 before you go into 2027. So it could be an interesting back half. Let us just say that. How about that? Andrew Obin: That makes—that is good color. I appreciate it, Rusty. And maybe if I could squeeze one last question in— W. Marvin Rush: Of course you can. You know I hate to talk. Andrew Obin: I heard you on the small accounts being down double digits for the past couple of years. It sounds like that has not really come back yet, but maybe there is some hope that it will through the year. But maybe can you talk to what you have seen from the national account level and, from a higher level, talk to some of the initiatives you guys are pursuing to grow national account mix going forward? W. Marvin Rush: Yeah. You bet we are. We always were. You know, national accounts—it is easier, more effective, and more controllable. It is hard to control what we call the unassigned accounts. That is still 30% of our business, roughly, and that is the little folks. Right? So we just want that to come back because that is going to be a higher margin. When you do national account business, understand they are national for a reason. They are not paying retail. So, while it can be a little hard on your margins, it is still more solid, sustainable, repetitive business, should I say. So you are looking for that foundation. The cream and the cherry on top comes when you get the small retail guy back in the game—the guy that is not listening to me on the phone right now. Those folks. They are still a part of what we do. But our national account business was up—not as much as we had been up, but it was up in some sides of the house—not so much in others—but overall, for last year. We will continue to focus on that. And we were up—not as much as we had. We were up by, like, overall blended, all OEMs were above 6%. So we will continue to grow that, understanding that you are blending revenue, you are blending margin, you are doing all that. We love that piece. We are going to continue to focus on that piece. It is the sustainable piece—more sustainable. It does not have the volatility of the small customer out there. So—but that is why I am hoping. But you have to get those guys—the national accounts—have to feel better, which they do. They will buy all the time. They just may not buy quite as much sometimes. We were up six years before—we were up double digits. Again, like I said, you are growing the revenue. Margin is not as high as the other. We work the blended margin. But I think everybody understands that. And we are fine with that. We will manage that piece. It is much more manageable for me than unassigned accounts because they are not assigned. You really do not know who they are. Small firms. But, hopefully, later this year, as the big guys get healthy, the little guys usually follow. But then they get growth. Then what happens is they get too good. They get too big, and we go back in the cycle again a couple years from now. So, right now, I would tell you, I am hoping that some capacity still comes out, which hits the small guy, but the ones left will be our healthier customers. And we will see some pickup in that later this year too. As rates go up, it helps everybody. Not just the big guy. It helps the little guy too. I know it is a long-winded answer there, but I hope I gave you some points there that you are going to grab hold of that make some sense to you. Brady Lierz: Yep. Okay. Yep. That is helpful. Good to hear from you guys. I will turn it back. Avi Jaroslawicz: Thank you. Operator: Thank you. I am not showing any further questions in the queue. I would now like to turn it back over to Rusty for any closing remarks. W. Marvin Rush: Hey. We appreciate everybody’s participation this morning. It is a short time before we talk again. We will talk in April. So, thank you. Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Greetings, and welcome to the Huntsman Corporation Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Ivan Marcuse, Vice President, Investor Relations and Corporate Development. Please go ahead, Ivan. Ivan Marcuse: Thank you, Kevin, and good morning, everyone. Welcome to Huntsman Corporation’s fourth quarter 2025 earnings call. Joining us on the call today are Peter R. Huntsman, Chairman, CEO and President, and Philip M. Lister, Executive Vice President and CFO. Yesterday, 02/17/2026, we released our earnings for the fourth quarter 2025 via press release and posted to our website, investors.huntsman.com. Also posted a set of slides and detailed commentary discussing the fourth quarter on our website. Peter R. Huntsman will provide some opening comments shortly, and we will then move into the question-and-answer session for the remainder of the call. During the call, let me remind you that we may make statements about our projections or expectations for the future. All such statements are forward-looking statements and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted net income and loss, and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release which has been posted to our website. I will now turn the call over to Peter R. Huntsman, our Chairman, CEO and President. Peter R. Huntsman: Ivan, thank you very much. As we review 2025 results, I think it is worth commenting on a bit on this past year and on our focus on 2026. I often end my prepared remarks with these words. We will continue to focus on what we can control and where we can create value. I do not say this to be repetitive, but rather emphasize where our focus needs to be. Our industry started this past year 2025 with optimism that North American housing was going to pick up. Chinese consumer confidence was going to recover and Europe would finally realize their follies and do something to reinvigorate their industrial competitiveness. Instead, shortly after our call, Liberation Day was announced and markets and consumer confidence was thrown into chaos. China repositioned and rechanneled their trade and stood toe to toe against the U.S. while their domestic market slowed. Europe policymakers focused on what was making them uncompetitive and decided to double down and lost a record amount of chemical production throughout the year. In North America, we saw U.S. housing and durable goods struggle to show any growth. Despite these hurdles, we continue to cut and restructure our cost basis, closing multiple facilities. We achieved growth in most of our tonnage that exceeded the general market while attempting to lead multiple price increases. And perhaps most importantly, we converted 45% of our EBITDA to free cash flow. A higher percentage than many in the industry. As we look out over 2026, we anticipate a gradual recovery in North American homebuilding and durable goods as well as an improvement in the Chinese domestic markets. We are seeing some very early signs of both improved volumes and pricing in Europe. It is too early to say these increases will fully materialize but we remain hopeful. While we do not control the outcome of these large macro changes, we will be more than ready to take advantage of any opportunities to expand margins and increase revenues should they come along and by focusing on those items we can control and conditions we can influence. On the strategic front, I believe that 2026 will continue to be another year of changing market dynamics. Even if we start to see a recovery, we will likely see further opportunities for mergers, joint ventures and industry consolidation. As always, we will be willing to engage with interested parties and push where there is an opportunity for value to be created. We will not be sitting on the sidelines waiting to see what comes along. Like 2025, we have set expectations internally to generate enough cash to cover our dividend. This requires more than just moving inventory about. And we will continue to be focused on further structural change in how and where we do business to accomplish this. With regards to pricing and growth, we will push to grow our assets at a better pace than the general industry and do this by winning business through new product development and innovation. Pushing to fill out capacities and upgrade materials through our MDI splitter in Geismar, capacity increases in high purity amines for the tech industry and catalysts, and expanding capabilities in material usage in aerospace, power and the fast evolving auto industry. We will also be selectively using AI tools if they make economic sense to further reduce our cost, simplify our processes and expand our R&D capabilities. In short, I hope that 2026 will be a year of recovery compared to 2025. The coming weeks should signal to what degree we will see demand returning to the North American construction industry and China’s moves following the Chinese New Year, the March National People’s Congress and President Trump’s visit to China in early April. The next several weeks should be anything but boring. With that, operator, we will open the call up for questions and comments. Certainly. We will now be conducting a question-and-answer session. First question is coming from David L. Begleiter from Deutsche Bank. Your line is now live. David L. Begleiter: Thank you. Good morning. Peter R. Huntsman: You mentioned some potential improvement you are seeing in Europe. Can you dive down into what is David L. Begleiter: driving that improvement? And how long and can that persist going forward in the year? Peter R. Huntsman: Yes, I think that as we look at Europe two things that we see. We see price increases that have been announced across the board. Well, most everyone have announced price increases, there might be one producer out there that is not. We are seeing a bit of a pickup in construction and as well as in auto. We also continue to see demand, not necessarily in polyurethanes, but in other divisions around the power segment, building out the infrastructure as well as aerospace. So I want to emphasize that at this very call last year, I think in my comments, I commented that everybody in North America had announced price increases as well. And all of those fell through shortly after the chaos that ensued after Liberation Day. So again, I am not trying to throw water on what we are seeing thus far into the quarter. But in Europe right now, I will take anything we can get and run with it. David L. Begleiter: Got it. And just in aerospace, how much did the business grow in 2025? And how much do you expect the business to grow in 2026? Thank you. Peter R. Huntsman: We expect the business to grow slightly better than the build rate. Again, I would just remind you, there is a difference between the delivery rate and the build rate. If you go to some of the airline aircraft manufacturers, you will see when you go to Toulouse or you go to Seattle, you will literally see scores of planes that are waiting FAA certification. So you can see where an Airbus or Boeing can show 15 deliveries, but a build rate that is much higher or much lower than that. Also, just as a reminder, we put a lot more product into wide bodies than we do narrow bodies. So when somebody says that they have got a record number of deliveries, or of production rates, we want to see more wide bodies. Just as a side note, the wide body production rate is still below this year is still below where it was in 2019. And that is not through lack of demand. There is still a backlog of years and years on wide body, pushing ten years on wide body planes. It is the capability that both producers seem to have lost during the COVID era. So as we see that recovery in wide bodies, we also have announced in previous calls the penetration of our products in internal applications around adhesives and internal components. So I say that we expect to grow better than the production rate, I say that meaning that we already have under contract a lot of the fuselage, the wings and so forth that we have had for some years. But we are picking up new business on a per-plane basis that will gradually be benefiting us throughout the year as well. So aerospace for us will continue to grow slightly better than the production rates of the wide body planes in both Airbus and Boeing. Thank you. Next question is coming Kevin William McCarthy from Vertical Research Partners. Your line is now live. Kevin William McCarthy: Yes, thank you and good morning. Can you refresh us on the amount of cost savings that you expect to flow through your financials in 2026? And where those might show up on a segment basis, please? Philip M. Lister: Yeah, Kevin. We targeted $100 million of cost savings Peter R. Huntsman: overall, which was headcount reductions of approximately 500, almost 10% of the workforce, and closure of Philip M. Lister: seven facilities. By the 2025, we had actually achieved Peter R. Huntsman: that annualized run rate of $100 million. The question is very specific to the in-year saving that we would expect in 2026. Philip M. Lister: That is about $45 million of in-year savings that we would expect to achieve excluding any impact from inflation. And you should get some additional savings to come through as well in 2027. Kevin William McCarthy: Okay. Very helpful. And then Peter, I wanted to follow up on a comment that you made in your opening remarks to the effect that we may see more in the way of mergers, JVs and industry consolidation this year. Were you referring to the industry in general? Or do you see opportunities for those sorts of strategic actions in the polyurethanes arena, for example? Peter R. Huntsman: I think both. I think that if you look in general is the most direct answer I can give. But I also have to look at where there is the most payoff. That is usually where you are seeing the largest number of divestitures, closures, possible joint ventures, and so forth. I think it is something like MDI where in the U.S., you have four manufacturers. I would imagine that the cost curve between those four manufacturers is pretty steady. And it would probably be pretty tough to see a merger take place of one of those four or two of those four manufacturers coming together. So U.S. might be a rather limited area in the area of MDI. Mike Harrison: I look at some place like Europe, I think the cost curve again, this is just my opinion, but the cost curve in Europe when you look at facilities, an MDI facility that would be in Antwerp or in Rotterdam, and you compare just the integration and the scale, then you take some facilities that are far smaller where they are taking raw materials, producing it in country A, moving it to country B where they are processing it into MDI, moving it to country C where they are splitting it. Again, you have a much greater cost curve in Europe. And I would assume that you have got leaders and laggards in Europe that you do not see in Asia, you do not see that in North America. That could easily precipitate possible closures. They could precipitate possible combination of assets taking place. And so I would say that it has to do with both the chaotic nature of the manufacturing footprint, costs and so forth that are associated with that. But at the same time, look, the number of chemical companies there are today that produce polyethylene, for example, in North America are fewer than there were fifteen years ago. Polypropylene, you look at the number of companies, look at the number of companies that are just our peers that are publicly traded. There is a general consolidation that is taking place, has been taking place. And I would assume that as you look and companies have cut the cost that they have cut, I imagine most companies have taken out all of the fat that exists and probably is now maybe even carving into muscle into certain areas. The next area that you are going to see for material cost savings is going to come about through possible mergers and so forth. So again, these are just my observations, but I continue to believe that there will be opportunities as there have been in ’25 and ’26. Now does that mean they make financial sense? You have seen some very large companies that have just shut down assets, some that have sold them off at a loss, others that have sold them for almost nothing. I think we are pretty public with our German maleic anhydride facility. We tried to sell it. We got to a point where we even tried to pay people to take it, and were unsuccessful in all of that. So we finally decided to shut it down. So every company is going to vary. And just because there is a deal out there does not mean that you have got to pursue it. But it does mean that there is, I believe, continues to be opportunity for churn. Kevin William McCarthy: Great. Thank you both. Peter R. Huntsman: Thank you. Next question is coming from Josh Spector from UBS. Your line is now live. Josh Spector: Yes. Hi, good morning. I wanted to ask about Philip M. Lister: your debt covenants that were updated a week ago and your outlook. I guess if I am doing some math right, need to be above six times net debt to EBITDA. Means your EBITDA in 1Q through 3Q needs to go from about $60,000,000 to $80,000,000 to $100. I guess one is that about right? Because I recall some of your prior agreements had some adjustments and maybe added some EBITDA temporarily. And two, just your level of confidence of achieving that step up if the industry does not improve. Philip M. Lister: Yes, Josh, it is Phil. So we posted our credit agreement on the new banking group on Friday. And if you want, you can look through all 160 pages, but I will give you the synopsis of that. Good banking group, pleased with the agreement overall. And you are right, the agreement has definitions of consolidated EBITDA which are different to the adjusted EBITDA that we state publicly. In addition to that, there are certain baskets as well. I am not concerned at all in 2026 about the leverage ratios. I think that adjusted EBITDA as we publicly quote would have to drop to something well below $100,000,000 on an LTM basis for us to even have a conversation about those leverage ratios. I am not concerned and I am pleased with the agreement that we put out on Friday. Josh Spector: Okay. So just there is then some sort of adder of a sizable amount, I guess, to bridge that gap, which I guess I should read that document to find more. Can you size it now? Or is it more complicated than that? Philip M. Lister: You have various definitions to size it, but you can see in the details, but you have got more than a couple of $100,000,000 there, and I am not concerned in the least about those add backs and help bridge the ratio. Kevin Estok: Great. Peter R. Huntsman: Thank you. Next is coming from Michael Joseph Harrison from Seaport Research Partners. Your line is now live. Mike Harrison: Hi, good morning. Peter, was hoping that you could talk in a little bit more detail about how you are thinking about MDI margins playing out over the quarter or two. It sounds like in polyurethanes, you are still expecting overall margins to kind of be under pressure. But I am curious Kevin William McCarthy: where you might be, maybe a little bit more optimistic Mike Harrison: Well, I think two things when you think about margins expansion. One is how much, what is the industry doing around volumes. And obviously, the more that you sell out of a fixed asset, the better your margins are going to be even if pricing does not change. And so typically going into the March, April, May timeframe, you are usually seeing demand picking up quite substantially. I do not see anything right now, at least, that is equivalent to the liberation day we saw a year ago that kind of threw people into Kevin Estok: chaos. Mike Harrison: Interest rates are steady, if not dropping a very small percentage. Homes are becoming more affordable as builders are building smaller homes, and simpler homes, if you will. And I remain optimistic having spoken to some of our customers and having spoken to some of the banks and lenders and so forth. In this area, that recovery in volume is going to be something that we should see increasing over the next few quarters here. I would also hope that pricing initiatives that have already been set, we sent out price increase notifications yesterday in our MDI business in North America, largely to offset rising benzene and natural gas costs. That obviously needs to happen just to offset the headwinds of natural gas and benzene as similar price increases have gone into effect in Europe to offset those costs, and hopefully gain some traction there. And China will probably have to wait till after the Chinese New Year. It started yesterday, goes into the early parts of March, before we see what is happening in China where we are seeing an RMB price today of around 14 for polymeric MDI. So I anticipate that we will see both an improvement in volume demand and in pricing. Kevin Estok: All right. And then Vincent Stephen Andrews: for my follow-up, I was hoping that you could maybe give us an update on the potential for share gains in spray foam insulation in North America. And kind of where do we stand in terms of rolling out that spray foam insulation product line in Europe and in Asia? Mike Harrison: Well, Europe and Asia we are going to continue to look at opportunities there as they come, and perhaps looking at third parties and so forth. Our main focus on building solutions is going to be North America. We continue to make steady progress in gaining market share. And at the same time, we are also doing that with increasing margins and lowering our own costs, consolidating our manufacturing footprint, and providing customers with new solutions and new products, innovation. So I think that our building solutions, urethane spray foam business today is probably in as good a shape as it has been the last three or four years. So I continue to be optimistic about the direction of that business. Peter R. Huntsman: Thank you. Next question today is coming from Patrick David Cunningham from Citibank. Your line is now live. Patrick David Cunningham: Hi, good morning. Thanks for taking my questions. Mike Harrison: Peter, you have taken a lot of steps to rightsize the cost structure Patrick David Cunningham: and footprint in Europe, particularly in polyurethanes. Do you still feel there is more to go from either you or the industry? And I know in the past, you have been skeptical about things like antidumping or energy policy reform in Europe. But have any of the more recent calls to action or radical policy reshift given you any more encouragement at this point? Mike Harrison: Yes. I remain hopeful that European policymakers will eventually do the right thing. As I had an opportunity a couple of quarters ago to meet with President Ursula von der Leyen, and I told her they need to do three things. They need to restart their nuclear, refocus on nuclear production. They need to move away from this crazy green new deal that has run them into the ground. And I apologize to her for using the f word, but they need to start fracking. And so she shook her head and yeah, we need to talk. The problem is there is just too much talk and there is too little action. But I continue to be optimistic that action will come about. I believe that in Europe, look, we have got two issues there and I have already touched on the first one, of what I consider to be a very wide structural issue with the industry of small facilities that I question just how competitive they are. Again, I do not run one of those, and so I do not know what goes on in those boardrooms and so forth. But there does seem to be more capacity than needed to satisfy the industry. There is a pretty disparate cost curve in Europe. And Europe continues to struggle with high energy costs. And so I think that there needs to continue to be a consolidation or refocus on those two things. As far as our cost structure in Europe, as I look at that cost savings of $100-plus million that Phil talked about earlier, most of those 500 reductions that we have seen in the company and the seven site closures, sadly, have taken place in Europe. And do we have more that we could be doing there? I really strain to see where there is large material change that can happen there by cost cutting further. I think that we want to position the business with the realization that Europe continues to be a $20 trillion economy. As much as we struggle in certain areas of polyurethanes, we continue to do very well in Europe in aerospace, and power, and coatings and certain adhesion formulations, and our thermoplastics polyurethanes and elastomers businesses. So not all is on fire in Europe. I just think Europe is capable of doing a lot more than what they are doing. And we hope that we are able to see recovery. I would remind you that it was just four years ago our most competitive MDI produced anywhere in the world was Europe. Europe was the most profitable end of our MDI business a couple of years ago. It can be great again. And I will spare Phil Lister saying, let us make Europe great again. But so we will go on to the next question here. Patrick David Cunningham: Understood. And then maybe just on Advanced Materials, it seems to have a lot going for it entering into 2026. You have new wins, strong aero, power businesses and maybe some stabilization on some of the core coatings and infrastructure. So how should we think about growth in 2026 and any sort of latent upside or operating leverage you may have for margins and what sort of right margin levels we should think about? Mike Harrison: I think that look. Advanced Materials is going to be stable before anything else. But where we need to see the growth taking place and margin improvement taking place is the segment of the industry where I believe we have the greatest opportunity for improvement. That is The Americas. Europe continues to be a strong segment for Advanced Materials. Asia continues to be a strong area. And The Americas will continue to see recovery as we see building recovers, we see the PMI continue to recover in The Americas. And I continue to be very optimistic about that trend. Peter R. Huntsman: Thank you. Next question today is coming from Michael Joseph Sison from Wells Fargo. Your line is now live. Michael Joseph Sison: Hey, good morning. Peter, can you talk a little bit about Kevin William McCarthy: the cost curve now? You sort of mentioned that Europe used to be Michael Joseph Sison: your highest or lowest cost or highest margin area. So Josh Spector: where are we now maybe industry-wise for the regions? And then Kevin William McCarthy: you know, at some point, if things do not improve in Europe, Josh Spector: I mean, what do you do with your assets there? Does it make Kevin William McCarthy: sense to just reduce exposure and sell out the U.S. or, you know, what are the options if Michael Joseph Sison: this downturn continues? Which I hope it does not. Well, Kevin Estok: yes, I hope it does not either. Europe has got too much potential. Mike Harrison: And I think that what we are seeing right now, our biggest headwinds where I look at our MDI production in Rotterdam versus Geismar versus Caojing. We have basically the same technology. We have the largest line in Caojing. We have the most lines in Geismar. We look at our cost for benzene in the three regions as basically flat. Our cost for chlorine and so forth is essentially flat. The big drivers is energy, is natural gas and energy costs. And so that is what fundamentally needs to change in Europe. And, unfortunately, today, I think that the seeds have been sown that I am not sure that there is going to be a fast change taking place. Now that is why we have made the funding that we have made in the last couple of years in Europe, which I think will address a lot of these issues going forward. The bottom line is that Europe, if demand is not going to improve, and if they are going to leave themselves open for cheaper product to come in from Asia and from the U.S. Eventually, European policymakers have got to determine if they want to protect homegrown industry in Europe. And two macro things need to—there needs to be less production in Europe and European policymakers need to decide if they want to stop cheaper products from coming into Europe. Patrick David Cunningham: Got it. And then just a quick follow-up on Josh Spector: sort of the industry consolidation potential. Kevin William McCarthy: If Huntsman Corporation ends up being a buyer, Josh Spector: of stuff, where do you want to focus those acquisitions? And then you know, what are the potentials for Huntsman Corporation to divest stuff if things are not going to improve longer term. Mike Harrison: Well, we are going to, in my opinion, we are going to have to do both. Because we do not have the ability today, we are not going to go out today with the balance sheet that we have today, stretch that balance sheet and put it in jeopardy. So that is why I say my comments. We have got to be creative. We have got to be smart. And you have got to look at things such as joint ventures or possible, you know, mergers and or some sort of consolidation play. And I think we can continue to expand and to grow the business without necessarily going out and taking on more debt. Now if we are able to sell something or monetize something, I think we have been very consistent over the last couple of years. Our primary focus is going to be to expand our applications and the footprint that we see in Advanced Materials. And we would like to invest in those type of applications. That is not necessarily that we are going to go out and we have to invest in epoxy. But when we look at areas like aerospace and adhesions, and we look at the power systems and so forth, even look at some of the automotive areas that polyurethane is participating in around battery potting and so forth. These are going to be the sort of applications and product innovation that is going to be rewarded over the next decade. So where would we be buying? Probably first off we need to find where there is best opportunity, but it would be in that area. But, again, I want to end this by where I started it, and that is we are not going to go out today and take the balance sheet we presently have. We are going to have to do some work before we go out and just start adding on more debt or see a material change in improvement in the industry. Peter R. Huntsman: Thank you. Our next question today is coming from Aleksey V. Yefremov from KeyBanc Capital Markets. Your line is now live. Joshua David Spector: Thanks and good morning. This is Ryan on for Aleksey. Peter, I want to go back to some earlier comments I kind of found quite interesting around affordability and maybe some improving conversations with customers. I was just wondering, are you maybe seeing improved Philip M. Lister: order patterns from customers kind of ahead of maybe upcoming construction season? Or is there something else on the radar? Just any additional color there would be much appreciated. Mike Harrison: I think that it is simply too early to say, and I am not trying to obfuscate. We had a very cold East Coast, everything east of the Rockies, in January, December. I think that if anything, we are probably going to see a little bit of a delayed, probably a couple of weeks. We typically start to see construction orders start coming in about February, about now, and start building up through the month of March. And so that by April, you are seeing the full impact of what I would call a construction season. That obviously can be delayed through weather. It can be delayed in Asia because of a later Chinese New Year, which is what we are seeing this year. So I think between later-than-usual Chinese New Year and a colder-than-usual winter months that we saw in North America. Now I did say earlier, we are seeing what I would consider to be green shoots, and I want to emphasize again, very early green shoots in Europe, about a little bit better demand and pricing traction than we have had the last couple of years. So that again, I will take anything I can get at this point. And we are going to nurture that and we are going to Kevin Estok: see Mike Harrison: make the most of that. Philip M. Lister: Right. Okay. That is helpful. And I was just curious. Can you—you guys made some comments in the prepared remarks just around kind of inventory levels in the U.S. But I was wondering if you can maybe comment on where you believe MDI inventories are in both Europe and Asia? Thank you. Mike Harrison: You are talking about our inventory levels or that of customers and the industry in general? Philip M. Lister: Just the industry in general. Mike Harrison: Yeah. I would say ours are very low. And again, I cannot speak for every customer that is out there, but just anecdotally, it feels like the supply chains between us and the consumer is quite low. And, you know, all companies right now in that supply chain are trying to control cash, trying to control inventories and working capital. Building suppliers, OSB producers, auto industries that are having to write off billions of dollars on EVs and so forth. They are all focused on cash right now and inventory control. So one of the unknowns that we may well see going into ’26 is—and I say this having lived through a bunch of other sudden rebounds in the industry—this industry typically does not recover over the course of four or five quarters. It usually gets to a point where people realize products are Kevin Estok: tight. Mike Harrison: All of a sudden, we cannot restock in time for a demand upswing. And all of a sudden, you find out there are shortages. And we look back in 2018. We look back—every couple of years, this seems to happen. I would not be surprised if that were to happen in ’26 in certain regions of the world. Peter R. Huntsman: Thank you. Next question today is coming from John Roberts from Mizuho Securities. Your line is now live. Mike Harrison: Thank you. Are you seeing any significant decline in price for merchant chlorine in the U.S.? One of the major U.S. suppliers talked about significant weakness in the merchant chlorine market. No. I think it has been pretty steady. I would love to see it collapse but it has been pretty steady. Peter R. Huntsman: Okay. And then sorry, I have forgotten that Europe was actually the most profitable MDI region for you. Kevin William McCarthy: I think that it was less disadvantaged a few years ago, but I never really thought it was advantaged. What was the source of the advantage Ivan Mathew Marcuse: that Europe had over the rest of the world? Mike Harrison: We had, again I am speaking for Huntsman Corporation. I am not speaking for our competitors. We had a lot of downstream business, more downstream business in Europe five, six years ago. That went into our elastomers business, TPU. Went into our system houses. We had more system houses there than we did any other place. And we also had lower chlorine and caustic prices and our auto business in Europe used to be one of the most profitable segments we had anywhere in the world. Today, that auto segment that is most profitable is in China. Again, I think we still have a very good auto segment in Europe and a very good one in the U.S. You know, we are seeing the same trends that a lot of other companies are seeing. Kevin Estok: Thank you. Peter R. Huntsman: Thank you. Next question is coming from Matthew Blair from TPH. Your line is now live. Mike Harrison: Great. Thank you and good morning. Could you talk about your expectations for global MDI capacity growth in 2026? And I think there are reports that one of your U.S. competitors is looking to add capacity this year. Philip M. Lister: I think that would raise global capacity by roughly 2%. Do you agree with that? Is that something you are seeing as well? Kevin William McCarthy: Do you expect any material increases in Asia MDI capacity Kevin Estok: this year? Thank you. Mike Harrison: Well, Asia—I will hit that first. Asia continues to be our most profitable MDI market and supposedly the one that is most oversupplied with MDI. There was a lot of talk earlier in 2025 that with the tariffs going up in the U.S. and a lot of that Asian material that was going into the U.S. had merely washed back into Europe and into China and flood those markets. We have not seen that take place. So as I look at capacity additions in China, I think that they may well be coming on, but I question how much impact they are going to have and we are not seeing that material necessarily leaving China any more than it has over the last couple of years. In the U.S., yes, I think we are seeing the impact of some of that incremental debottlenecking, some of that expansion that has been taking place over the last couple of years with one of our competitors here. I would remind you that typically companies go out about six to twelve months before capacity comes into the market and you start cutting deals, you start talking to people about pricing, and what you do not do is bring up a new line of 50,000 metric tons, for example, and all of a sudden tell your sales and marketing, we will go sell it now that we are producing it. And so the impact of that volume coming into the market which from what I have publicly read is sometime middle part of this year, I would say from a pricing point of view, from a supply point of view, is probably being felt in the fourth quarter of this last year and first quarter of this year. Having said that, we are talking about an expansion of about what—low to mid single digits—in North America of actual capacity that is coming in. So I am not sure that it is going to have a material adverse change to the market. Great. Thank you. And then is there any major turnaround activity we should be on the lookout for later in the year for Huntsman Corporation, like any sort of MDI downtime in Q2 or Q3 that we should be aware of? Philip M. Lister: No. Just our normal turnaround activity. We had the once-in-four-year major Rotterdam turnaround last year, but normal turnaround activity across all three regions. We do have to make sure that our plants remain reliable. So there will be periods of planned outages but nothing abnormal. Peter R. Huntsman: Thank you. Next question today is coming from Laurence Alexander from Jefferies. Your line is now live. Mike Harrison: Hi, this is Dan Rizzo on for Laurence. I have questions based upon something you mentioned before about kind of focusing on wide bodies within aerospace. I was wondering if getting to narrow bodies as a focus, how its done with the cycle is like, or if that is an opportunity in the coming year and years? Well, it will not be an opportunity until they start redesigning the 737 and the A320 Airbus. When I say redesigning, that would be a major, major overhaul by now making carbon fiber wings and fuselages and so forth. So I do not see that happening anytime in the foreseeable future. Again, I think you are going to see opportunities to have new adhesions and so forth applications going into the narrow body. And it is incrementally moving towards light weighting and so forth. So that is an area of focus that we continue to have as to how do we have greater penetration into the narrow bodies. But as far as all of a sudden they start making composite wings or fuselages, I would love to see it but that would be a major change to the design of the plane. Peter R. Huntsman: Thank you. Next question is coming from Frank Joseph Mitsch from EM Research. Your line is now live. Michael Joseph Sison: Good morning. Kevin William McCarthy: Peter, I never thought I would hear you say the word, let alone on a conference call. Mike Harrison: It was quite revealing to say it in Europe of all places too, where I think I may have been thrown in jail. Kevin William McCarthy: And for the record, if anybody dialed in late, he said fracking. So just to clarify that. Michael Joseph Sison: Hey. Speaking of clarifications, you know, let me come back to the consolidation question. Kevin William McCarthy: That was asked by a couple of other people. I mean earlier this earnings season we had Patrick David Cunningham: a company overtly Michael Joseph Sison: state that it was, you know, open for selling the company, and you obviously say, hey, look, we are willing to engage with interested party and create value where there is Kevin William McCarthy: an opportunity to do so. Is there any—should we be reading through the lines on Huntsman Corporation here in that regard? Or, you know, how would you address that? Mike Harrison: No, I would—look, the standard answer that we give on something like that is we do not comment on rumors or M&A activity. In this case, I would say that it is no. We are not in a sale process today or anything of that sort. I think that as we look at it, we just—we see and you hear a lot of companies that are talking about that they are studying the future of their division X or they are looking at consolidations or they are looking to shut down assets and so forth. And wherever you see chaos, you see—usually, you see opportunities. Kevin Estok: So Mike Harrison: I would not read more to it than that. Kevin Estok: Terrific. Thank you so much. Thank you. Next Peter R. Huntsman: question today is coming from Jeffrey John Zekauskas from JPMorgan. Your line is now live. Kevin William McCarthy: Thanks very much. In the first quarter, your Michael Joseph Sison: polyurethanes range first quarter of $25 to $40 million in EBITDA. And last year, you made $42. So is the reason why your urethanes EBITDA should be down is that prices are lower year over year, and I would expect that volumes would be higher. And why is the range so big? And, you know, what is the difference between the lower end of the range to the higher end of the range? Do you need to get prices up in the first quarter? What is the real dynamic there? Mike Harrison: Well, we do need to get prices up in the first quarter. We have got rising natural gas costs in the first quarter that right now, as I sit here, represent a $10 million headwind that we were not anticipating a couple of weeks ago in our polyurethanes business. So yeah, I do see some headwinds. I do see that coming down. I would remind you that as we look at the first quarter of last year’s $42, that was coming off of a fourth quarter—I do not want to get into too much detail here—that was coming off of a fourth quarter in 2024, $50, and leading to a $31 of this last year. So we were seeing a polyurethanes business last year that was in a nosedive, if I could put it mildly. And I look at polyurethanes this year, I certainly have more optimism in the market. We are starting it from a low basis obviously, in the fourth quarter going into the first quarter. I do hope that we are able to do better than that median range, and that adjustment, the range that we gave literally we argued about that just over the last couple of days internally because of the headwinds that we are seeing. And as we look at natural gas prices, this very week in Europe are starting to come down. Again, this is something that if we were to have this call two weeks from now, it could be maybe a few million dollars difference one way or the other. But I think directionally, we are seeing volumes coming up. We are pushing prices and I would say that the business is set certainly in a different direction in ’26 than it was in ’25. Kevin William McCarthy: Okay. And when you look at polyurethanes prices for Huntsman Corporation, did they sequentially move lower through the course of 2025? Kevin Estok: And then for Phil, Kevin William McCarthy: is your base case that working capital is a use in 2026? Mike Harrison: Yes, I will let Phil answer on the working capital. In 2025, yes, we did see pricing pressure on a downward basis in all three regions. Pricing actually came down in Europe and the U.S. about the same. Started higher in Americas. It is still higher in The Americas today, but both came down about the same amount throughout 2025. And Asia less so. Philip M. Lister: Yeah. From working capital. If we did not do anything, and you assume the economic conditions are better in 2026 than they were in ’25, therefore, you have got more revenues, more receivables. You would expect a use. We have a number of programs in each of the individual items of working capital—inventory, AR, AP—and I fully expect and target that our cash conversion cycle, which we reduced by 10% in 2025, will again be a reduction in 2026. And therefore, we would be targeting overall an inflow absent significant changes to the macroeconomic environment. Kevin Estok: Thank you. Next question is Peter R. Huntsman: coming from Hassan Ijaz Ahmed from Alembic Global. Your line is now live. Kevin Estok: Good morning, Peter. Peter, Kevin William McCarthy: quarters ago, I believe it was ’25, actually maybe it was Q2, you mentioned that sequentially in polyurethanes, Kevin Estok: you guys see 8% to 10% volume uptick. And you only saw a 3% volume uptick in Q2 last year. So, obviously, you know, Liberation Day, you know, tepid demand globally, presumably all those factors went into that. Hassan Ijaz Ahmed: But as you look at Q2 of this year, particularly keeping in mind some of the lean inventory comments you made, could we be gearing up for a pretty big sort of volume uptick within polyurethanes? Mike Harrison: It all depends on the macro issues around the construction season. And we will certainly know that by March. I would, in my opinion, it is mostly going to be around construction. And that will lead to construction demand, lead to increased—usually increased—durable goods in North America. And that is where we had our biggest miss this last year. So, again, and at the same time, remember, Hassan, we are also going to be pushing through price increases. And you have got to balance that very carefully as to how much do you want to increase prices and push for price increases and hold the line on pricing and how much do you want to go after volume. So it is a tough line to walk. Kevin Estok: And Mike Harrison: we will follow the macroeconomic indicators. Hassan Ijaz Ahmed: Very helpful. And as a follow-up, I mean, again, it seems that just from the sounds of it, you seem a little more comfortable about pricing as it pertains in polyurethanes as it pertains to North America, particularly keeping in mind this incremental capacity that is coming online. Is it fair to assume that we should see a healthy pricing trajectory in North America despite this capacity coming online, keeping in mind some of comments you made about how, you know, you sort of presell ahead of this capacity coming online. Mike Harrison: Yeah. Hassan, you have got to remember, I am my father’s son. I grew up in a household where polystyrene was considered to be the greatest petrochemical product ever produced. And so, yes, I am always going to be pushing for better prices. I am always going to be optimistic about demand and pricing and so forth. Take what I say with a grain of salt in those areas. I would say that it is simply too early to say in the North American market and largely to the Chinese market, which you well know that the pricing in China is usually going to be the two weeks or so after Chinese New Year is over, usually, you see quite a bit of volatility, hopefully, upward pressure on pricing there. North America, it is just too early to tell. Again, we have got pricing announcements that have gone out to our customers. And we are also seeing some pricing announcements and some small bits of traction in Europe on pricing as well. But I do not want to get the wagon ahead of the horses here and say that somehow I am announcing that we have been successful in getting prices through in Q1. We have made the announcements. They will likely see the impact in Q2, if anything. And we will continue to push for that. Peter R. Huntsman: Thank you. Our next question today is coming from Vincent Stephen Andrews from Morgan Stanley. Your line is now live. Michael Joseph Sison: Hi, good morning. This is Turner Enrichs on for Vincent. Kevin William McCarthy: What drove the less severe than expected seasonal drop in North American polyurethanes last quarter? Philip M. Lister: So polyurethanes overall in North America grew slightly, and that is really around some of the business wins that we have seen in the early part of the year. I do not think there was anything material that we saw in quarter four which was particularly different. What we saw in polyurethanes in Q4 was that the outage we would expect in Rotterdam to last a little bit longer actually was a little shorter and therefore that provided some upside overall. Michael Joseph Sison: In terms sequentially, you still saw seasonality in North America. What we said in the prepared remarks is December, we were maybe a little bit more aggressive in terms of how we thought it would have been a more of a seasonal decline versus last, but you still saw the normal seasonality. Thanks. Makes sense. Patrick David Cunningham: So as a follow-up, we are about a year into significant tariffs having been placed on U.S. MDI imports. And I have seen trade reports that indicate imports of Chinese-origin MDI Kevin William McCarthy: have dropped something like 80%. Could you speak to how you have seen tariffs play out in terms of Patrick David Cunningham: regional demand dynamics? Mike Harrison: Yes. We have seen those same numbers, public data on Asian imports. That does not mean that Asian players are not bringing product in from Europe, but that poses a number of questions in and of itself on the economics behind something like that. I am surprised this past year to see the amount of product that is coming in from Europe, particularly around smaller sites that I would not consider to be very competitive. But what do I know? If I mentioned earlier, again, this is just—I am not speaking on behalf of the company. It is my own thoughts. I mentioned earlier about a rebound that can suddenly happen. And as I look in the North American market, if you see a rebound in housing—and I am not talking about a historical recovery in housing—but if you see a usual, maybe a little bit better than usual, certainly better than last year, rebound in housing, with the constraints that have been put into place by tariffs and just by the macroeconomics—tariffs are not the only thing that discourage trade as well—I could see the scenario where you could see the U.S. running into supply issues before other areas of the world. Again, I want to be very clear. I am not saying that I am going to see a rebound here in Q2 or anything. I am just saying that as you look at that fundamental basis where the U.S. used to have a pretty healthy chunk of its production of supply side at least being satisfied by imports that have been cut off, U.S., in my opinion, U.S. will probably be the first to feel tightness should that occur. Peter R. Huntsman: Thank you. Our next question today is coming from Arun Shankar Viswanathan from RBC Capital Markets. Your line is now live. Hey, good morning. This is Adam on for Arun. Thanks for taking our Kevin Estok: question. Patrick David Cunningham: Maybe if we could zoom out a little bit, be a little hypothetical. So do you think mid-cycle earnings levels for Huntsman Corporation could be maybe through the end of decade because I think Michael Joseph Sison: your peak earnings was kind of in the $1,500,000,000 range, maybe mid-teens margins. This year Peter R. Huntsman: was 2.75%, closer to mid-single margins. Patrick David Cunningham: And assuming some of those normalized volumes you are talking about, Peter R. Huntsman: normalized cost inputs, do you think the business could get back to Patrick David Cunningham: an $800 or $900 million EBITDA range in that 10% margin? Or do you think some of this is structurally impaired from asset closures and Europe misbehaving? Mike Harrison: I think that we still have the production capabilities to generate those sort of EBITDA. A lot of that is going to be how does Europe land. And Europe for us used to be a third of our EBITDA, and you have got a third of our business today in polyurethanes that is struggling in comparison to the U.S. and Asia. If Europe gets back on its feet from an industrial point of view, and that does not mean that it becomes a global leader, but just kind of recovers back to where it was, yes, I would hope that we would be able to get back to those sort of numbers. We still have the same amount of tonnage of MDI that is being produced around the world. We have the same fundamental capacity to produce production in our amines and in our performance products and our advanced materials. We have taken out, obviously, a lot of costs, a lot of people. We have taken out some of the downstream system houses and so forth. But that has not necessarily eliminated our ability should we see an economic recovery in Europe and should we see the U.S. housing market go back to its normalized levels. Yeah, I would think that we have that opportunity. Patrick David Cunningham: Okay. That is great. And I know there have been several questions on the MDI pricing in Europe. Have you been able to quantify any of that? What are those price increases that you are aiming at? I know maybe not all of those will flow through. Just curious what you are going for. Mike Harrison: In Europe, I would—yeah. I think it is just too early to speculate as to what—we are in the process right now negotiating with a number of customers and so forth. I would very much like to see us at least offset our raw material increases that we are seeing. And that is going to be a tug of war through the first quarter. Peter R. Huntsman: Thank you. Next question is coming from Aaron Rosenthal from JPMorgan Chase. Your line is now live. Emily Fusco: Thank you for the time. This is Ellen for Aaron. Can you walk us through the moving pieces on the revolver quarter over quarter? Did you fund on the new RCF to repay outstanding? The outstanding amount at year end? And if so, what is the balance today? And do you have any plans to term out the balance via new debt? And finally, just curious if you would have any interest in tapping your equity to help shore up the balance sheet. Philip M. Lister: No on the final comment. New revolver, as I said, I think we are extremely pleased with the strength of the banking group. We have moved to an $800 million revolver. The way that I look at it overall is we have an $800 million revolver. We extended our maturity and also the capacity on our securitization program, which now adds up to approximately $300 million. And at year end, we had over $400 million of cash, so overall $1 billion, and we were borrowing approximately $500 million across our securitization program and our revolver. So that gives a net amount of approximately $1 billion moving forward. To your question around terming out any of the borrowing. Obviously, we have had that discussion as we have moved through the revolver process. I do not see that as necessary as we sit here today. We have managed to put in place an accordion to $400 million which we could tap into as a durable upcycle unfolds over the next eighteen to twenty-four months. And I take a look at the overall capital structure, which I think is pretty much aligned with the portfolio that we have. So I think we are comfortable with where we sit today, but we are always looking at our capital structure in light of the extended trough that has occurred in the chemical industry. Peter R. Huntsman: Thanks. Operator, why do not we take one more question? I think we are at the top Mike Harrison: of the hour. So we will take one more and then wrap it up. Peter R. Huntsman: Certainly. Our final question today is coming from Salvator Tiano from Bank of America. Your line is now live. Kevin Estok: Thank you very much. I just want to go back on the capacity additions in the U.S. that you were asked about before. Firstly, if I heard correctly, I think there was a mention that it is low to mid single digit capacity growth in North America. And I just wanted to check with your industry intelligence essentially what are you seeing in terms of the actual number because at least what we have seen from some trade publishers talks about more of a 20% or more increase in the one-point-something million ton market? And secondly, Peter, you mentioned that you saw most of the impact already in Q4. I am just trying to understand if I were to think like a buyer of MDI and inventories in the supply chain are very limited as you have said before. How would they be already benefiting from that capacity coming midyear if I cannot restock anymore and I have to wait? Would not theoretically that mean that all the pricing impact will only come when the new capacity comes online because there is no opportunity for a buyer to restock further? Mike Harrison: Well, okay. So I am not trying to avoid an answer to the—but you are asking me to kind of get into the mind of the person who is bringing on the capacity, which I have not the foggiest idea. Just because that capacity is coming on does not mean it is all going to come on in one day, and it is all going to flood the market in one day. Oftentimes, it takes quarters to be able to integrate and to be able to bring on capacity. And I know in our case, when we have brought on capacities in the past, it does take you up to a year to sell the product out. You are not going to want to bring on 100,000 tons of new product and somehow sabotage your existing 500,000 tons of product that you have got that you are already selling by cutting prices. How a certain competitor or producer will bring on capacity, when they bring it on, what impact they want to have on the market and so forth is all yet to be seen. And my comments were that earlier that I believe as we have seen in the past with this particular producer, product is bled into the market usually on an as-needed basis. They will obviously be expanding their footprint. But how they do it and how soon they choose to do it and what impact they choose to have on the market, that is kind of out of my—I just simply do not know. But again, it is very, very rare that you would all of a sudden see 100,000 tons start up on Wednesday and it floods into the market. Philip M. Lister: And you are going to be Mike Harrison: seeing that lower margins and lower price immediately. Peter R. Huntsman: Thank you. We have reached the end of our question-and-answer session. And that does conclude today’s teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.
Operator: Welcome to the Dream Impact Trust Fourth Quarter Conference Call for Wednesday, February 18, 2026. Please advise the participants are in listen only mode and the conference is being recorded. [Operator Instructions] During this call, management of Dream Impact Trust may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Trust's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in the Trust's filings with the securities regulators, including its final long-form prospectus. These filings are also available on Dream Impact Trust's website at www.dreamimpacttrust.ca. Your host for today will be Mr. Michael Cooper, Portfolio Manager. Mr. Cooper, please proceed. Michael Cooper: Thank you, operator. Good morning. I'm here with Derrick Lau, the CFO. We put out a press release on January 7 with a business update. And although we're quite busy in a lot of efforts, there hasn't been that much of an update since then. I guess the key thing is 49 Ontario, which we've talked about quite a bit, and I guess we talked about all of 2025. And by the end of the year or early into this year, we had accomplished everything we had set out for, including having a 20-year debt which really helps us manage through the cycles. And we got the development charge waiver, and we're really pleased to be one of the first of the groups that got development charge waivers to begin construction. And although there's a softening rental market between the HST savings, the development charge savings and what we're seeing in construction costs, which is a significant decrease. I think our overall cost will be down by more than rental rates are down. And what's nice about it is there's like -- right now, we're sort of at the fulcrum of declining population as people are leaving the country when their visas come up as well as the massive delivery of condos. So our hope is that while the savings are permanent, the rental rates will return to normal before the building is finished. The building, we had about $65 million of equity in the project. We sold 10% so we got $57 million. We got $5 million or $6 million on the first advance for prior costs, and we got a piece of land that we'll be selling. So there's a fair amount of equity there, especially when -- I mean, right now, there's about $4 a share equity in 49 Ontario. And as we complete it, I mean, we're getting about $1 a share out of that in terms of the sale plus cash we're getting back. But we think that by the time we've completed the building, which would be, let's say, 2030, -- it's about $120 million or $6 a share on its own. So we're very pleased that the work we're putting into 49 Ontario has come to fruition. And $6 a share is a lot of equity in one asset. And we've got other assets we're working on that we think will contribute as well. So I'll get into it in more detail, but we are seeing progress. There's some other areas that we thought might be done by now. It looks like it could take a couple of weeks more. But throughout the whole company, we've been dealing with that. We've been advancing projects. We've been very fortunate leasing up Maple House, which is stabilized at this point and Block 4, 7, Block 3, 4 -- Block 7 was finished and is almost fully leased. And Block 3, 4 we just started leasing at the beginning of the year, and it's quite encouraging what we're seeing. So there's a lot of good signs, and I think we just got to bring a lot of it together for people to see it. So Derrick, on that, do you want to give an update on the quarter and the year? Siu-Ming Lau: Thank you, Michael, and good morning. During 2025 and into early 2026, the Trust has made good progress on its 5-year strategic plan. Our plan is focused on progressing key development projects, reducing risk and enhancing liquidity. I will provide an update on these initiatives after going through our fourth quarter results. In Q4 2025, the Trust recognized a net loss of $23.5 million compared to an $8.3 million net loss in the prior year. There are several moving pieces that caused this change. These included fair value adjustments in each year, condo occupancies at Brightwater in the prior year quarter and a deferred tax recovery position. In addition, in Q4 2025, we recognized a loss related to the amendment of our convertible debentures. Partially offsetting these was NOI growth from our multifamily rental assets, including those that reached or are nearing stabilization. For the recurring income segment, same-property NOI for multifamily properties was $2.8 million compared to $2.5 million in the prior year. The increase in NOI was largely driven by improved occupancy across our assets in lease-up and higher rents from our turnover across our value-add portfolio. As at December 31, 2025, the portfolio had committed occupancy of 94%. The Trust continues to advance its near-term multifamily pipeline, which is expected to deliver nearly 1,500 units over the next 2 years. At Cherry House, Block 7 is over 94% leased and leasing for the remaining blocks commenced in January. For the Development segment, the Trust reported a net loss of $5.9 million, which is largely consistent with the prior year quarter. In 2025, Brightwater closings surpassed 500 units. During the quarter, closings commenced at the Mason, which comprises 158 units with proceeds used to repay approximately $15 million of construction debt. As noted in our January update, we commenced demolition at 49 Ontario in November and have since completed the sale of a 10% interest to our partner, CentreCourt, for $6.5 million. We also secured 20-year government financing and completed our first draw. Proceeds were used to repay the prior $80 million land loan and to recover certain predevelopment costs. As the sale into the new partnership occurred post year-end, 49 Ontario was temporarily classified as an asset held for sale as at December 31, 2025. We expect 49 Ontario to be included in equity account investments beginning in Q1 2026. We continue to make progress on our near- and medium-term debt maturities. During the quarter, we reduced our 2026 debt maturities by $56.5 million. This includes the convertible debenture extension, repayment of the Brightwater construction loan and the Stafford mortgage repayment. Since 2024, the Trust has reduced its land loan exposure by $95 million. We expect to further reduce our land loans by $56 million over the year, and we are working closely with our lenders and partners to address the remaining debt maturities for 2026. We remain focused on reducing risk and enhancing liquidity. In January 2026, we increased the capacity on the Dream loan to $50 million. As of February 17, the Trust has $24.8 million of cash and $29 million of availability under the Dream loan. The financing agreement demonstrates Dream's continued support of the Trust and provides it with increased flexibility as we work through our 5-year plan. I'll now turn the call back over to Michael. Michael Cooper: Thank you, Derrick. As I mentioned earlier, 49 Ontario is the largest asset and the most significant revenue generator for us over the next few years. Quayside is coming along. We expect to have news on it very soon, and we're working with CMHC. And hopefully, it's less than a year behind 49 Ontario. On our loans, Derrick and the team have done a great job renewing loans. At Forma West, we are just finalizing a deal to extend it further 3 years with some paydowns. And on Quayside and Victory Silos, we're making a lot of progress. So we're really appreciative working with the banks. Going from a point where lands were $250 a foot 3 years ago to it being very difficult to sell land because of the lack of demand for condos, it's been a massive change. But with our work with the federal and city -- federal government of the city, we've been able to create projects. CMHC came out last week and said that they expect that housing starts will decline across the country over the next 3 years. And in the Toronto area specifically, condo will be down to 20-year lows. I would also just say that there will be continued apartments, but they think apartment starts will decline as well because it's tough to get things done now, but we've been able to get a bunch done. And I think all of that will be good in that there's not a lot of new supply coming and the old supply is all landing. So I think over the next couple of years, we're looking at some pretty good times. Let's see. I think at this time, if there's anybody who has questions, we'd be happy to answer them. Operator: [Operator Instructions] Your first question comes from Sairam Srinivas with ATB Capital Markets. Sairam Srinivas: Just looking at the multifamily portfolio and more specifically in Ottawa, occupancy is down a bit quarter-over-quarter. Is that more of a function of the softer market there? Or is it more something specific to the lease-up in Aalto Suites? Michael Cooper: I think, firstly, our property in Ottawa, I don't believe it is down. I think that the 2 properties that are down are in Gatineau. And I think some of it is seasonal in that it's been a pretty brutal winter. And I think there's some things in the Gatineau market that are a little bit -- we're at the top end of that market. So I think it's been a bit slow. We're addressing that now. We expect it to be significantly higher in the summer. But we're very much aware that where we are now is not where we want to be on a stabilized basis, but I think this winter has been brutal. Sairam Srinivas: That's fair. It's been pretty chilly out here. And Derrick, maybe this is a question for you. Looking at debt maturities in '26, I mean you spoke about the land loans and that's probably a priority for you guys. But can you speak about the cadence of the other maturities that are there in the year and the nature of those maturities... Siu-Ming Lau: For sure, Sai. So for the ones that were maturing near the beginning, we pushed those out and we're addressing those. So we're actively working on about half of those right now, and the remainder or the bulk of it is near the year-end. So we have time to deal with, and we're working with our lenders, and we expect to be in good shape in addressing these maturities across the year. Operator: Your next question comes from Sam Damiani with TD Cowen. Sam Damiani: Just on the press release back in January, just wondering which did incorporate some planned disposition activity. Any updates on that front as we sit today? Michael Cooper: Well, I would think about that this morning. We were referring to dispositions between now and 2030. We actually have very few in our business plan for 2026, like we're not trying to sell everything. In 2026, we've got a couple of small ones, and I think those are going fine. There's one I think we might delay. What I would say is we've had a couple of things go the right way in terms of cash. And I would say like at all times, we're looking both at our liquidity and value. And if we've got the cash to delay a sale in the sort of softer markets now, we kind of -- for commercial, we'd rather lease it up. Apartments maybe have a little better tone. So I think it looks as if we're going to be in pretty good shape cash-wise this year. So we may defer one sale. So I think we're looking at maybe $16 million of sales. This year, we might have $5 million. But that -- I would say that's planned. There's a bit more to do next year. Sam Damiani: Okay. That's helpful. That clarifies it. And just on the leasing market on the residential side, has there been a change in a little bit of occupancy headwinds, I guess, in certain markets, but has there overall been like a further increase in the use of incentives to lease units over the last 3 months? Michael Cooper: Our incentives have been -- I think that in purpose-built rental, you're at the most expensive apartments in a market, and you've got to lease up a lot of units at once. So I mean, incentives are pretty normal. I think the -- I don't think they've changed for us. I would say when you take a look at Block 10, which isn't with ACLP financing, there's no affordable. It's about just over 200 units. It's leased up really well and surprises how well at least and at least at good rates. Maple House has been slow. I think we were a little slow to realize that the market wasn't listening to our pro forma. But the last quarter, we got it stabilized, and it's looking really good. And I mean, I think we've got it stabilized at a sufficient occupancy and revenue that we're in the process now of seeing that asset become -- the loan become nonrecourse. And that's a $357 million mortgage that should go nonrecourse in the next couple of months, and that's a huge accomplishment. So we mentioned earlier Gatineau, and that hasn't been as good as we thought. But for the most part, we're very pleased with how the leasing has been going in Toronto on the new builds. And there's been a lot of turnover on the value add, and we're sort of lagging occupancy, but we're picking up a lot on rents going. I think it's been a bit of a surprise for all landlords that there's probably double the turnover today as there was 3 years ago. So that's pretty good. So it's actually not bad in Toronto for the apartments. Sam Damiani: Okay. Last one for me. Just, Michael, in your comments, you mentioned an update on the debt on Forma West. I wonder if you could just expand on that a little bit. Michael Cooper: Yes, it's hard to because it's not quite done, but it's a 3-year extension with some paydowns, and we got 2 partners. So we dealt with it the way the consensus was, but I think it's worked out pretty good. And it was all budgeted. So it's fine to have the paydowns, but it's also good to have a 3-year debt, so it's going to come up in 2029. So I think when Derrick referred to reducing some of the loans, the land loans this year, some of it's paid down. Some of it is selling the assets or putting them into production. So -- it's all part of what our plan is. But every time we get a land loan extended, we're pleased. We're doing very well with Quayside, with Victory Silos. And I don't think there's much more on the land loans that we got to deal with we dealt with Zibi last year. So the debt has been pretty good, I'd say. Operator: Your next question comes from Roger Lafontaine with Nugget Capital Partners. Roger Lafontaine: Michael, and Derrick congrats on a very good quarter. I had one question about your transaction delay. You mentioned -- I know one of your peers said that the office market in downtown Toronto was improving, and he delayed an office sale to lease it up ahead of the sale. So I was wondering if you'd be able to touch base on whether you're seeing that with your properties or with Dream's properties about improved office transaction liquidity if that was one of the assets you might have been considering to dispose. And I was also wondering if you could perhaps mention if there was any kind of update on the Capital View Lands. I know there was some excitement last year about that and kind of the market went cold. So those are my 2 questions, and I'd appreciate any kind of feedback. Michael Cooper: The asset we're looking to defer is actually an apartment asset. And there's a couple of reasons on the -- there's a couple of technical aspects that we got to work on before we sell it. So that's the main driver. I think the pricing would have been pretty good. Your comments on office, I didn't know that somebody had decided not to market to lease it up. What we're seeing, and this is from a distance because we're sort of -- obviously, with Dream Office, we're pretty close to what's happening in the office market. But it seems that like a year ago, 2 years ago, 3 years ago, like George Brown College bought an office building from H&R, and we sold a building to the Ontario government, we sold another building to a health care group. So what you saw was you saw owners like investors in office buildings selling their assets to users. And that changed a lot in 2025. And what's important about that is when an investor is buying an office building, they're basically creating a model for -- that will represent what they think is going to happen in that building. And this is where it's been a really interesting thing this year. We're starting to see what assumptions people are making. So one of the things is it seems as if when you're selling an asset, there's a concurrence that 95% occupancy is reasonable. The leasing costs, they're using average leasing costs and buyers are under the assumption that leasing costs will improve over the next couple of years. They're using lower leasing costs than we would. So I think that's really good. The third point we're seeing is people want to have buildings that are mostly leased, like 90% or more. So if your building is 80% leased, it's going to get a big discount. But as you lease it to 90%, you start to get into what looks like to be really quite attractive pricing. So I think that the individual that decided not to sell a building, but lease it up some more is getting that information from how investors are valuing assets. And there's been a pretty significant amount of data on the assets. There's widely reported that Oxford wants to sell the Citibank building. We hear there's other buildings coming up for sale. We've also heard of some buildings that have been selling off market. So it looks like there's an investment market in office. And to bring it back to Impact Trust a bit more, there wasn't much of a market before in land. There's not too much of a market right now because most of people who like land already have a lot. But we're anticipating that we'll start to see land transactions follow office transactions, and we'll be able to get good feedback on value. So it is an interesting time. And despite the news, it looks like it's generally getting better. Did I answer both your questions? Roger Lafontaine: Yes. And for reference, the property I was referring to was on Front Street. It was an H&R property. They noted it on the Q4 call. So I thought perhaps that would be good for Dream Impact, which does have office still. So that sounds great. Operator: Your next question comes from Alexander Leon with Desjardins Capital Markets. Alex Leon: I wanted to start off with the land loans. I'm just wondering if you can give an estimate of the expected interest expense savings from the $56 million repayments. Michael Cooper: A good question. I think that -- two things have happened. Number one, the principal is going down; and number two, the interest rates have come down, too. So like the floater rate is 2.25%, we're probably in at 5%. We might have been paying more. And then on $50 million, that would be 2.5%. But on the other balance, it was probably 75 basis points on 100. So we're probably looking at $3.25 million a year. Alex Leon: Okay. That's great. I appreciate that. And then moving on to Cherry House. I know that you guys started leasing some of the remaining blocks early this year. I'm just wondering if you're planning on kind of reaching stabilization this year and transferring that over to the recurring income segment. Michael Cooper: I would expect -- I mean, that would be nice. I'd expect it would get to next year. I think it's about 850 units. So it's just a little bit better than Maple House, but we're pleased with the leasing, and we hope to break the back of it this year, but not finish it up until next year. Alex Leon: Okay. Got it. My next question is just on some of the condo occupancy income. I'm just wondering how much was recognized in 4Q related to the Mason and whether there is any more to recognize throughout the remainder of the year? Michael Cooper: No, there was none in Q4, and there won't be any for the remainder of the year. Alex Leon: Okay. And is that the same with kind of the other component, Brightwater? Michael Cooper: That's correct. Alex Leon: Okay. And then last one for me... Michael Cooper: Sorry, go ahead. Alex Leon: Sorry, the last one for me was just on -- there's some verbiage in the MD&A about some nonrecurring expenses in G&A and at the NOI line as well. I was wondering if you could give some color on that. Michael Cooper: Yes. So there was -- in the NOI line, there was some property tax accruals that occurred. It was about $600,000. So that was in there. If you want to look at the run rate for kind of NOI multifamily, you would probably add about $154,000. So I believe that was $2.8 million. So it's about $3 million run rate on there. Alex Leon: Okay. Awesome. And then was there something in G&A to bring it higher this quarter? Michael Cooper: There was a shared service recovery that was at year-end. So that was about $1 million. That was for kind of additional work that was performed on Ontario, getting that up and working with the government and all those things to get, sorry, to get that development going. So there's additional work on there. So that was about $1 million there. Operator: Your next question comes from Ian Gillespie, a private investor. Ian Gillespie: Two questions. One on 49 Ontario. Given that you've been undertaking the demolition and you must be now receiving firm bids on some of the construction. Can you quantify what sort of savings you're seeing on those bids relative to what you might have seen a few years ago? Michael Cooper: Yes, I'm glad you're asking compared to a few years ago because when I say that, what I mean is the market's changed. So I think, I know the answer, thinking about what's appropriate to say. We've done 10%. We've got about another 50% that we've got good indications, but we haven't signed them up. So before the end of the June, we're expecting to have 60% or 70% done. And we've got pretty good visibility. So I would say from like the worst days, it's more than 10% savings. And that goes a long way. Ian Gillespie: On that project, it would. Second question, with regard to the Dream loan, $29 million is still available. What is your forecast in terms of further draws on that loan, if any, over the course of this year based on the way you've modeled the year at this point? Michael Cooper: We budgeted that it will be used up this year. But literally, we have $5 million and $10 million swings all over the place. So far, the swings have been positive. And to a certain extent, we're saying like, hey, if we've got enough liquidity, maybe we won't sell that building and stuff like that because we can do better by waiting. So the expectation is that we will draw all $50 million in 2026. Ian Gillespie: And then if you need to go beyond that for any reason? Michael Cooper: Look, it's -- okay, let me take a second. I've never seen an environment as volatile as we're in with as many macro Canadian issues as well as geopolitical issues. So if you think about a bell curve, you got the 2 tails. Obviously, everybody is focused on, are we looking at events that could be at the really bad end in the tails, right? Like how bad can it get? But what we're seeing on the ground actually is we're generally in a recovery. I think in Canada, we're in recovery per capita income is increasing. I think we have like 1.5% growth in per capita income this year, which is pretty good. That's adjusted for inflation. So we look at it and say, the real likelihood is that things are going to continue to get better. And I think we're well positioned for that. There's a tremendous amount of value in this company. But we're also very thoughtful that with free trade, with the Canadian finances and some of the big ambitious stuff they have going on, hopefully, it will work. Maybe it doesn't. Will the projects that are being talked about ever happen, those kinds of things. So we have a backup plan if it doesn't go as well. It just depends how deep into the tail we get, meaning I think we have an expectation that we'll achieve the capital needed in 2027 from sales. But I think Dream is really quite excited about what's happening. And if everything else is fine, we'll probably look at expanding the loan if it's necessary. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Cooper for any closing remarks. Michael Cooper: Thank you, operator. I'd like to thank everybody for calling in. We appreciate the questions. Like everything, it seems really slow and then all of a sudden, a bunch of things happen. We've had a very busy first part to the year, and I think that the next 90 days is going to be busy, too. So we'll have a lot to update you on. So thanks for your continued support. We look forward to catching up, and please feel free to reach out to Derrick or me if you have further questions. Thank you. Operator: This brings to close today's conference call. You may now disconnect. Thank you for participating, and have a pleasant day.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Global Payments Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President, Investor Relations, Nate Rozof. Please go ahead. Nathan Rozof: Good morning. Welcome to Global Payments Fourth Quarter and Full Year 2025 Conference Call. Joining us today is our CEO, Cameron Bready; CFO, Josh Whipple; and COO, Bob Cortopassi. Some of the comments made during today's conference call will contain forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied and we caution you not to place undue reliance upon them. They speak only as of the date of this call, and we take no obligation to update them. In addition, we will be referring to several non-GAAP financial measures. For a full reconciliation of the non-GAAP financial measures to our most comparable GAAP measure, please see our press release furnished as an exhibit to our Form 8-K filed this morning and the supplemental material available on our Investor Relations website. Finally, I'd like to note that we developed a slide presentation to accompany our prepared remarks, which is also available on our Investor Relations website. and Cameron's comments will begin on Slide 4. With that, I'll turn the call over to our CEO, Cameron Bready. Cameron? Cameron Bready: Thanks, Nate. Good morning, and thank you for joining us today. As I'm sure you've seen by now, we successfully completed the acquisition of Worldpay in January, alongside the simultaneous divestiture of our Issuer Solutions business, marking an important milestone in the strategic transformation we've been executing over the past 18 months. I want to take a moment to extend my sincere appreciation and best wishes to our Issuer Solutions colleagues and to warmly welcome the talented team members of the Worldpay to the Global Payments family. Their expertise, passion and commitment have strengthened our organization from day 1. Our combination with Worldpay is not about creating a larger version of our 2 companies. It is about creating a better Global Payments, one with the enhanced scale capabilities and the focus necessary to compete and win as the worldwide partner of choice for commerce solutions. And we have greater conviction today than ever that this transaction will allow us to do just that. We have a lot to cover today, so let me briefly outline the agenda. I will begin with Global Payments standalone results for the fourth quarter and full year. Next, I will introduce the new Global Payments and highlight the key strategic initiatives we are focused on executing in 2026. I will then turn the call over to Josh to share more detail on our financial performance and outlook. We are very pleased with how we ended the year, delivering exactly as expected and fully aligned with the outlook we provided last February. For the fourth quarter, we reported 6% constant currency adjusted net revenue growth, excluding dispositions, 80 basis points of adjusted operating margin expansion and 12% adjusted EPS growth. Our Merchant Solutions business maintained strong momentum with adjusted net revenue growth accelerating to slightly above 6%. For the full year, we executed on all of our key objectives. We accelerated adjusted net revenue growth from 5% in the first half to 6% in the second expanded adjusted operating margins by 100 basis points, well ahead of our expectation of 50-plus basis points and delivered 11% adjusted EPS growth at the high end of our expectations. Importantly, we generated strong free cash flow in 2025 with over 100% adjusted free cash flow conversion. This provides us with the flexibility to return $1 billion to shareholders in 2025, while simultaneously reducing leverage in preparation for the closing of the Worldpay transaction. In addition, our portfolio divestitures have enabled us to return an incremental $1.2 billion to shareholders. Robust free cash flow generation and returning capital to shareholders remains central pillars of our investment thesis. With our major transactions now closed, we are resuming our share repurchase programs as we execute on our $7.5 billion capital return target for 2025 to 2027. At current valuation levels, we see buybacks as a highly compelling opportunity to drive shareholder value, given the clear dislocation between our share price and the fundamental performance and outlook for the business. To that end, our Board of Directors recently approved a $2.5 billion share repurchase authorization, and we are entering into an accelerated share repurchase agreement to immediately repurchase $550 million of our shares. We expect to return capital through a combination of open market purchases and accelerated share repurchases in addition to maintaining our stable dividend. Beyond our financial results, we also made substantial progress on our transformation program this year. We successfully transitioned from a holding company structure to a unified operating model globally, eliminating silos, increasing accountability and improving organizational performance, speed and efficiency. As part of this program, we continue to modernize and simplify our global technology stack, improving reliability, accelerating innovation cycles and enhancing ease of use and the overall experience for our merchants, partners and team members. Further, we are investing in the adoption of our new AI-enabled development tools and enhanced product operating model, allowing for increased productivity and quicker speed to market for new functionality. 2025 also marked the successful rollout of Genius, which is performing exceptionally well and remains in the early innings of what we see as a meaningful long-term growth opportunity. Finally, we continue to invest in our sales transformation. We have deployed a new technology platform with embedded AI capabilities to better manage lead flow and improve our performance. And we've already onboarded 200 of the 500 new sales professionals we announced on our third quarter call. As we enter 2026, we are well positioned to be the world's leading pure-play commerce solutions provider, and our North Star remains consistent, driving sustainable growth in M&A from an unrelented focus on our clients, leveraging our strategic advantages. Our advantage starts with our worldwide omnichannel reach, serving over 6 million merchant locations across online, in-store and in-app experiences in more than 175 countries. This breadth provides meaningful diversification and exposure to the full Global Payments TAM that is unmatched by any single competitor. Our advantage also extends from our go-to-market approach. We compete on product differentiation, service, reliability and fit to customer need, supported by a direct sales force of more than 5,500 professionals worldwide including approximately 1,500 experienced sellers from Worldpay. Alongside our direct channel, we operate a vibrant partner ecosystem with more than 1,700 financial institutions and thousands of software and platform partners, complemented by a robust dealer network that in solves Genius and supports customers end to end. For merchants preferring self-service, we offer that as well for streamlined install reporting upgrades and enhancements, all without human interaction. And with approximately $4 trillion in annual payments volume, our scale enables us to serve the largest global enterprises to small merchants alike and everything in between and to be highly price competitive, where we choose while still leading on capability and service. While these embedded advantages are significant, we are not standing still. We plan to invest approximately $1 billion annually in commerce technology to help our customers grow, expanding omnichannel offerings, advancing our AI-enabled product road map and accelerating innovation across Genius and our platforms. With our newly combined profile, we have taken the opportunity to evaluate the fundamental elements of our identity. Our aspiration is clear, to be the worldwide partner of choice for commerce solutions. And the value proposition that is reflected in our vision comes down to 2 simple things: igniting business growth in enriching lives around the world. We are not just a company that provides payments and software solutions. We are a company built to fuel the growth of businesses of all sizes with innovative payment and commerce solutions. And when we enable seamless, frictionless payments and delightful experiences we enrich people's lives through commerce. That brings us to our mission, which is to make every day commerce better. When our clients think about Global Payments, we want that statement to define who we are and the value we deliver. We will bring our aspiration vision and mission to life by leveraging our competitive advantages across 4 strategic pillars. First, our pure-play focus. Being exclusively focused on commerce solutions allows us to move faster, allocate resources with greater precision and amplify the impact of every dollar we invest to ensure that we have the best products and solutions in the markets in which we choose to compete. While some competitors are spread across a broad set of competing priorities, we are narrowing our focus, enabling us to execute more quickly and more effectively for our clients and partners. Second, our truly client-centric approach. This is a meaningful point of differentiation. Many competitors organize around their product lines, be it point-of-sale systems, payment gateways, embedded finance platforms, et cetera. Each team optimizes for their feature set. Then the client has to stitch together to make it work for their business. We organize around client segments. Our teams understand the full end-to-end requirements of large enterprises, SMBs and software platforms. And we build solutions that actually align with how they run their businesses. We provide dedicated relationship managers who architect the right combination of capabilities. We do not just simply sell what is on the shelf. This is a fundamental structural advantage, and we have the scale to deliver across every client segment we serve. Third, our enhanced capabilities and continued investment in innovation. From best-in-class enterprise payment tools to the feature-rich Genius platform, the breadth and depth of our capabilities are unmatched, and we will continue to invest to drive innovation and differentiation. Fourth, our global reach with local expertise. Our extensive geographic footprint enables us to help clients expand into new markets and unlock new sources of growth. And because we pair that reach with deep local knowledge, understanding domestic payment methods, customs and regulations we are uniquely equipped to help them succeed in every market they enter. These 4 pillars, pure-play focus, client centricity, innovation and global reach work together to multiply what's possible for our clients and partners. In 2026, we are focused on 4 initiatives to drive near- and long-term success for Global Payments, seamlessly integrating Worldpay, accelerating our go-to-market strategy and activities rapidly expanding Genius and boldly leveraging AI to create new revenue streams and drive productivity across the business. Beginning with Worldpay integration, our synergy initiatives are already well underway, and we remain confident in our ability to achieve $200 million in annualized revenue and $600 million in expense synergies over the next 3 years. Thanks to more than 8 months of preclosing preparation, we are already off to a great start with integration execution. Worldpay's U.S. direct sales force is already enabled to sell Genius. They have boarded their first cohort of new clients and the pipeline continues to build. This quick success demonstrates that Genius has a very short sales cycle and time to go live that is measured in days, not weeks. We are also progressing our next key priority to integrate Worldpay's e-commerce capabilities into our SMB offerings, an important driver of revenue synergies, and we're already having early success in the U.K. where we were able to quickly bring Worldpay's SMB e-com offerings to Global Payments sales channels. As we advance our integration program, we are taking a best of both approach across our teams, products and technologies. Further, we have made substantial progress with establishing our new leadership structure, having announced our new executive leadership team and all the senior leaders reporting to them. Consistent with our goal to unite is one global team. Our leadership team is now roughly evenly split between heritage Global Payments and Worldpay executives. And we are currently executing a comprehensive organizational design effort across the rest of the company, identifying top talent, eliminating duplication and maximizing efficiency as we bring the organizations together. Turning to our go-to-market strategy. We have organized our combined business around 3 channels: enterprise, integrated and platforms and SMB. Ultimately, these channels will enhance our value proposition and align with our unified client-focused operating model. Gabriel de Montessus, leads enterprise, which serves merchants with over $50 million in annual payments volume online and in-store. Gabriel joins us from Worldpay, where he's led this business for the past 5 years. Within Enterprise, we are uniquely positioned to continue winning share because of the breadth and depth of our capabilities. And with the combination, we can now unlock growth in markets where Global Payments has operated historically, but lacked the full suite of enterprise-grade solutions necessary to serve more sophisticated global clients. In addition to delivering highly reliable and scalable payment acceptance in this channel, we help our clients to generate incremental revenue by continuously bringing new innovative products to market that enhance authorization rates and avoid abandoned shopping carts. Recent innovations include our new 3DS Flex solution, which utilizes AI to achieve best-in-class authentication rates compared to peers, including over 7% higher authentication success rates in key markets like the U.K. and our revenue boost solution delivered more than $2 billion in measured approval rate uplift for merchants in 2025, igniting their growth. We simultaneously help our clients to save money by leveraging our scale, investments in data. For example, our Disputes Defender product uses AI to automate charge-back responses utilizing more than 500 data points. It protected over 40,000 merchants last year, increasing chargeback win rates by an average of 15%. Our dynamic routing solution also consistently delivered savings. In 2025, we optimized nearly 8 billion debit transactions, saving our customers over $200 million, an increase of more than 10% year-over-year. The strength of our competitive position led to several noticeable successes in 2025, including new wins with Domino's Canada and TaxSlayer. Key new e-commerce wins include Pfizer, global sports streaming network DAZN, European rideshare app, Bolt and a notable omnichannel cross-sell with Polish Airlines. The team also executed multiyear renewals with over 50 of our largest clients in 2025, representing over $1 trillion in annual payments volume, including numerous leading enterprises. Turning to integrated and platforms. Matt Downs leads this business serving ISVs, PayFac, platforms and marketplaces across more than 100 verticals. And Matt also joins us from Worldpay, where he led the Platforms business. Matt is a veteran of integrated payments businesses with deep knowledge and experience in the sector, including leadership roles in SaaS businesses. In this channel, we are uniquely positioned to support partners across the full operating model spectrum from traditional ISV referral and managed PayFac as a Service to full PayFac in every configuration in between. The combined business gives us purpose-built flexibility to match how each software platform partner wants to monetize payments and control the experience, whether they need low code referral simplicity, a curated a la carte stack or end-to-end PayFac capabilities. Critically, we can tail our operating models for the most sophisticated platforms and still deliver them at scale with attractive margins, leveraging our unified APIs, onboarding risk and managed services to keep partners agile as they grow. We've seen this come to life through recent wins with leading software providers, including ABC Fitness, LightSpeed and Vital Edge as well as recent multiyear renewal with one of our largest PayFac clients. And by combining with Worldpay, we will be able to further accelerate our global expansion of this channel. Lastly, our global SMB channel supports businesses with less than $50 million in annual payment volume and is led by David Rumph, a 14-year veteran of Global Payments. Our SMB business may stand to benefit most from our combination with Worldpay. Together, the breadth and depth of our distribution positions us very well competitively. We have the unique ability to sell new products and commerce solutions through direct and partner channels and markets around the world and we can cross-sell and upsell our innovative capabilities across our base of 6 million merchant locations. We also bring enterprise-grade capabilities to SMBs, such as our machine learning-based payments optimization tools, and integrating Worldpay's e-commerce capabilities will create a more powerful omnichannel solution. Our SMB team is executing with urgency, expanding distribution, rapidly enhancing Genius and making adoptions simpler and faster for customers. Turning to Genius. We continue to see substantial growth opportunities for this platform, and it remains a central pillar of our strategy. We have strong conviction in the product, and we'll continue to enhance its feature set to make it even better. In November, we hosted our first Genius users conference at Truist Park, a great stage to showcase the pace of innovation and hear directly from our clients. One highlight of the conference was the introduction of Genius Drive-thru, our multilane solution that pairs a seamless order flow with our patented camera vision system, so each vehicle is automatically matched to the right order. The outcome is simple, faster lines, fewer errors, happier guests. We also announced Uber Eats as our preferred delivery partner in the U.S. and Canada. Restaurants can self onboard in minutes, and orders updates and cancellations sync instantly between Uber Eats and Genius, reducing workload at the counter and allowing clients to unlock incremental demand faster. As we continue to invest in Genius, we are widening where Genius can win. We launched Genius for services and extended support into higher education and age-related verticals. Further, we expanded distribution to our wholesale channel, successfully piloted Genius in Germany and introduced mobile payment capabilities for on-the-go businesses in the U.K. And we unveiled the industry's first modular point-of-sale hardware that combines a contemporary aesthetic, which functionalities that most systems cannot match. By modular, we mean that each of the components is interchangeable, allowing our customers to configure the point of sale to meet their specific use case. The screen, stand, CPU and connection hub can be easily swapped out, which future-proofs the solution by allowing clients to upgrade individual components without needing to replace any of the rest of the device. Earlier, I described our vision to ignite business growth in enrich lives around the world. In Genius is doing exactly that for 7 Brew drive-through coffee, which is one of the fastest-growing coffee chains in the U.S. 7 Brew chose Genius to preserve what makes their brand special, personal, high energy service, while streamlining order flow and back of house operations. We implemented Genius at more than 500 locations in just 65 days, and they have kept growing at roughly 10 new rooftops a week, which underscores Genius' scalability. We also added Braum's Ice Cream with 320 locations in Love's Travel Stops. Further, SeaWorld deployed nearly 100 Genius kiosks across 5 theme parks and Diamond Baseball Holdings brought Genius into an additional 6 of its minor league stadium. Even with all this progress, we are not slowing down. We recently launched a comprehensive marketing campaign across 4 key U.S. markets, TV, radio, digital signage and more, to put Genius in front of more prospects more often. And for 2026, we plan to continue investing in feature functionality to meet the needs of several professional services verticals that will further expand distribution through Worldpay's channels including their 50 largest referral banks and more than 6,300 branches. Internationally, we will scale in Germany and expand into Ireland and the Czech Republic and we will roll out our new mobile form factor, including tap to pay on phone into additional markets worldwide. Finally, our fourth important initiative for 2026 is expanding our investment in AI and agentic commerce. AI is rapidly advancing and has become a foundational initiative permeating all aspects of our organization to both strengthen our top line and accelerate our efforts on cost efficiency. We are leveraging AI across 3 strategic paradigms, agentic commerce, AI embedded within our products to improve client outcomes and AI-enabled productivity and operational efficiency. First and foremost, agentic commerce is the next evolution of the retail experience, where AI can research, select and even complete transactions on behalf of consumers. With our leading scale and sophisticated e-commerce capabilities, we are differentiated by our ability to act as a universal connector across genic platforms and protocols for merchants of any size anywhere in the world, operating in any vertical. To position Global Payments at the center of the shift, we've been a founding member of every major protocol announced, including Google's Universal Commerce protocol and OpenAI agentic commerce protocol. In fact, we've just completed our implementation of the latter, so our merchants can accept payments originating from ChatGPT as well as Google's AI chat interfaces. We also launched our own model context protocol or MCP in November, which makes it easier for AI agents to initiate in query payments in automated operational workflows. Our stand-alone acquirer-agnostic token vault and credential management systems are world-class and a crucial capability for an agent world where tokens underpin secure handling of credentials between agents, merchants and other entities. We were also in partnership discussions with several leading ecosystem players to support our merchants with additional value-added services that become increasingly relevant in the world of AI-led commerce, including product lead optimization, know your agent functionality, agentic fraud prevention and disputes management and many others. As for embedding AI into our products and capabilities, we are already seeing results in our business. Across our global e-commerce business, we are using deep transaction insights and intelligent routing to help merchants capture more revenue with less friction. Our AI-powered authentication optimization service goes far beyond legacy rules-based systems by dynamically choosing the path with the highest probability of issuer approval or regulatory compliance. In 2025, it delivered a 4-point uplift in approval rates for pilot merchants by deciding when to invoke or bypass 3D Secure based on issuer behavior and risk signals. This is a great example of how our scale and data convert declines into approvals, reduce friction and protect revenue that otherwise would be lost at checkout. Within Genius, we are leveraging AI to solve real problems for small businesses. For example, we can automatically gather customer reviews from multiple social platforms and use generative AI to drive personalized on-brand responses on behalf of our merchants. And we are launching a natural language agent assistant within Genius that will provide insights to business owners. And lastly, we continue to embrace AI to drive productivity and operational efficiency throughout our business. Our engineering teams have adopted AI-assisted coding tools, which accelerates requirements gathering and development cycles by nearly 20%, while also improving code quality. Productivity and output quality have continued to increase as adoption has scaled. And as we integrate Worldpay, AI will play a central role in automating repeatable processes, driving greater efficiency and helping us capture the expense synergies we have outlined. By embedding AI into core operational workflows, everything for merchant onboarding and risk reviews to service ticket routing, settlement reconciliation and partner support we can dramatically reduce manual effort in cycle times, allowing teams to focus on higher-value work, improve accuracy and consistency across shared processes and enabling us to scale the combined organization far more efficiently. Likewise, we are leveraging AI to further accelerate our technology consolidation efforts across the combined enterprise. Enhanced data-driven visibility into our application and infrastructure landscape will help us rationalize platforms reduce redundancy, expedite migrations and facilitate the retirement of duplicative systems. These initiatives will allow us to continue to simplify our technology stack, improve capital efficiency and enable us to concentrate investment on the scalable future-ready platforms, strengthening our operational agility. Lastly, our scale gives us a distinct advantage as we deploy AI. Every year, we process trillions of dollars in payments volume and billions in individual transactions across geographies, channels and verticals. This breadth and diversity of data creates uniquely rich training environments for our AI models. Because we see such a wide cross-section of global commerce in real time, our models learn faster, generalize better and detect patterns and ways unique to our scale. That allows us to improve authorization rates, reduce fraud, enhance risk scoring and deliver more personalized insights for our customers. Importantly, we also do this with strict adherence to privacy, security and regulatory requirements. In short, the scale of our data does not make our AI better. It drives better results for our customers. With a clear focus on these 4 key initiatives, we are well positioned to deliver on our targeted outcomes and advance our priorities for 2026. Specifically, we expect to achieve the following this year. First, we will firmly establish the new Global Payments. We're building on work already in motion to fully leverage our new business profile, bringing together capability, systems and brands while executing disciplined integration plans to support future growth. To further accelerate this progress, we are advancing our technology and innovation strategy, including aligning orchestration capabilities to continue to deliver a modern experience and single integration point for clients as well as exposing the full breadth of our capabilities globally. Secondly, we will unite as one global team. Bringing together the full strength of our team members, talent and payments expertise is essential. When we operate as one team, we move faster and make better decisions and unlock the full potential of our combined organization. Third, we will deliver exceptional value and experiences for our clients and partners. This includes client-focused product innovation, expanding Genius across high-growth verticals and geographies, broadening our omnichannel capabilities globally and scaling our marketplace solution. We want Global Payments to be synonymous with exceptional value and experience. That is a key priority for 2026. Finally, these initiatives will drive sustainable growth and long-term value creation. We are a proven compounder. We grow through all phases of the economic cycle. In 2026, our priority is squarely on building durable top line performance by building strong sales momentum, expanding distribution for innovative commerce solutions and beginning to execute on our revenue synergy opportunities across every clients' segment. With that, I'll turn it over to Josh. Joshua Whipple: Thanks, Cameron. We're pleased with our financial performance in the fourth quarter and for the full year, which were consistent with our expectations. I'm particularly proud that we delivered these results while meaningfully progressing our transformation agenda, preparing the separation of our Issuer Solutions business and navigating a complex regulatory approval process and conducting extensive planning for the integration of Worldpay. As a reminder, the following figures reflect the last quarter of results for stand-alone Global Payments, which includes Issuer Solutions, and excludes Worldpay for the full quarter. Starting with the full year 2025, we delivered adjusted net revenue of $9.32 billion, an increase of 6% from the prior year on a constant currency basis, excluding dispositions. Adjusted operating margin for the full year improved 100 basis points to 44.2% or 80 basis points, excluding dispositions. The net result was adjusted earnings per share of $12.22, an increase of 12% compared to the full year 2024 or 11% on a constant currency basis. The top line accelerated in the second half as we expected. And in the fourth quarter, we delivered adjusted net revenue of $2.32 billion, an increase of 6% from the prior year period on a constant currency basis excluding dispositions. Adjusted operating margin for the fourth quarter increased 80 basis points to 44.7%. The net result was adjusted earnings per share of $3.18 and an increase of 12% compared to the prior year period or 11% on a constant currency basis. Our Merchant Solutions segment achieved adjusted net revenue of $1.78 billion for the fourth quarter reflecting growth of slightly over 6% on a constant currency basis, excluding dispositions, consistent with our expectation for modest acceleration from the third to the fourth quarter. We saw continued momentum across our POS and software business, which achieved high single-digit growth again in the fourth quarter, excluding dispositions. Genius continues to resonate in the market and its rapid adoption has been accelerated by our realigned go-to-market efforts. New POS locations in the fourth quarter were 25% higher than new locations in the prior year period and our enterprise restaurant rooftop count at year-end was more than 50% higher than the number at the end of 2024. Genius' payments attach rate in the enterprise segment nearly doubled in the fourth quarter, enhancing customer lifetime value and demonstrating the tangible financial benefits of our sales force transformation emphasizing cross-selling efforts. And in the retail vertical, new Genius rooftop boarded in Q4 were 40% higher than in the prior year period. Our Integrated Embedded business also grew in the high single digits in the fourth quarter and continues to win share. We continue to launch partnerships across the more than 100 verticals that we serve, including SiteView and Vision Care and Lawn Buddy in field services, among many others. At the end of the fourth quarter, our pipeline of signed partners yet to go live was 19% larger than it was at the end of 2024, which will support and drive revenue growth well into 2026 and 2027 as those partners are fully integrated and the relationships ramp up. Core payments showed continued strength and delivered mid-single-digit growth in the fourth quarter, benefiting from our unrivaled distribution channels around the world. In the U.S., new sales in the fourth quarter were 35% higher than in the prior year period, representing our strongest quarter in several years as we benefited from the onboarding of our new sales professionals and the enhanced effectiveness of our transformed go-to-market organization. Internationally, revenue in Central Europe grew in the mid-teens, and our business in Greece had one of the strongest quarters on record as we continue to benefit from strong secular trends in these markets. For the fourth quarter, Merchant Solutions delivered an adjusted operating margin of 49.2%, an increase of 120 basis points compared to the prior year period. This performance reflects the ongoing realization of benefits from our transformation as we continue to streamline our organization and see higher returns from our investments in our sales force. Turning to cash flow. We produced strong adjusted free cash flow for the fourth quarter of $891 million, resulting in a conversion rate of adjusted net income to adjusted free cash flow of over 100% for the full year 2025. We invested $168 million in capital expenditures during the fourth quarter and $618 million for the full year 2025, equating to roughly 7% of revenue as we continue to enhance our leading technology, products and infrastructure. This was slightly lower than our initial 2025 target as we intentionally moderated our CapEx spending while we were planning the Worldpay integration. Finally, for the full year, we repurchased 13.2 million shares for approximately $1.2 billion which represents more than 5% of our shares outstanding and includes repurchases using the proceeds from the sale of our payroll business. Our balance sheet remains very healthy. In the fourth quarter, we ended the quarter at 2.9x leverage. Shortly after the end of the fourth quarter, we closed the Worldpay and Issuer Solutions transactions. Our debt at the close of the transaction was approximately $22.3 billion, which includes the $6.2 billion of senior notes that were issued in November and incremental short-term borrowings. Post closing, more than 95% of our outstanding debt was fixed rate, and our weighted average cost of debt was approximately 3.95%. We're also pleased to report that our investment-grade credit ratings were affirmed by all 3 rating agencies in connection with the transactions. Following the close of the transactions, we continue to have ample liquidity with approximately $5 billion available in total across excess cash and capacity under our upsized revolving credit facility. Today, we're pleased to share our 2026 outlook for the new Global Payments, which represents our expected performance following the close of the sale of Issuer Solutions and the acquisition of Worldpay. We provided quarterly historical supplemental combined financial information in the appendix to aid your modeling. These present all prior periods for adjusted net revenue and operating income to include Worldpay and exclude Issuer Solutions. We've also incorporated the conforming adjustments by period to align historical results of Worldpay with Global Payments accounting policies. Consequently, our outlook for 2026 adjusted net revenue and adjusted operating margin is presented on a combined basis as if we owned Worldpay for the entire year. For 2026, we expect constant currency adjusted net revenue growth of approximately 5%, excluding dispositions. This outlook assumes a continuation of the trends we saw exiting Q4, namely resilient consumer spending growth and a generally stable macroeconomic backdrop. Our full year outlook further assumes that constant currency adjusted net revenue grew slightly below 5% in the first half of the year. We see opportunity for modest sequential acceleration over the course of the year, and we expect to exit the year with constant currency adjusted net revenue growth above 5%. Further, we anticipate reported adjusted net revenue will benefit from foreign currency exchange rates by a little less than 50 basis points for the full year 2026, which will primarily impact the first quarter. We expect adjusted operating margin expansion of approximately 150 basis points for the full year 2026, which includes realized cost synergies in 2026 as we begin executing on our integration initiatives. Moving to nonoperating items. We currently expect net interest expense to be approximately $850 million this year, and our adjusted effective tax rate to be approximately 15.5%, which reflects certain cash tax benefits from our acquisition of Worldpay. We also expect our capital expenditures to be approximately $1 billion in 2026, representing approximately 8% of adjusted net revenue, which is consistent with our prior outlook. And we anticipate a conversion rate of adjusted net income to adjusted free cash flow of greater than 90% in 2026. Regarding capital allocation, we expect to return more than $2 billion of our capital to our shareholders this year through share repurchases and dividends which includes the $550 million accelerated share repurchase plan Cameron mentioned earlier. Putting it all together, we expect adjusted earnings per share of $13.80 to $14 in 2026, which represents growth of approximately 13% to 15% over Global Payments 2025 earnings per share of $12.22 and we expect adjusted earnings per share growth to accelerate modestly in the second half of the year relative to the first half as we continue to see greater benefits from the integration and our ongoing transformation activities. Finally, we believe our 2026 outlook demonstrates the attractive financial profile of the combined company and provides us with ample free cash flow this year and beyond to further the capital allocation priorities that we've articulated over the past 18 months. As we look to deploy capital, we remain committed to maintaining our investment-grade credit ratings and plan to delever back to our 3x net leverage target by the end of 2027. Additionally, we will continue to invest for growth maintaining capital expenditures in the range of 7% to 8% of revenue, all of which will be focused on driving innovation as a pure-play merchant services business. And importantly, we'll harness the power of our free cash flow to return capital to our shareholders. This will include our current steady dividend and significant share buybacks targeting $7.5 billion over the 2025 to 2027 time period. In summary, we are pleased with the progress we've made in advancing our transformation agenda, completing 2 transformative transactions ahead of schedule and commencing the integration of Worldpay. We're proud of delivering Q4 and 2025 results that were in line with our expectations and we believe the business is very favorably positioned to execute our 2026 objectives and continue our ongoing return of capital to shareholders. And with that, I'll turn the call back over to Cameron. Cameron Bready: Thanks, Josh. I could not be more proud of our team's execution this year and excited for what we can accomplish going forward as we combine with Worldpay. The Worldpay acquisition represents a pivotal moment in our evolution. And as we integrate our businesses, our focus remains on driving consistent durable growth through an unwavering commitment to our clients and the strengths that are distinctive to Global Payments. Our new pure-play orientation allows us to move faster, deploy resources more effectively and serve clients in a truly client-centric way. And we will differentiate through feature-rich products, white glove service and support experiences that consistently exceed expectations. With unmatched payments experience in deep fluency across nearly every vertical and client type, we are uniquely positioned to deliver tailored technology solutions, not one size fits all approaches. And now with our expanded geographic footprint, we have an unparalleled global reach. We can ignite growth for our customers and partners by helping them expand into new markets around the world, supported by local expertise and deep relationships, from best-in-class enterprise payment tools to feature-rich platforms like Genius, Global Payments is at the forefront of modern commerce technology. And with $1 billion in annual investment, we are one of the few companies in the industry capable of innovating at this scale, anticipating our customer needs and delivering solutions before they even ask. Finally, we remain laser-focused on delivering shareholder value and maintaining a disciplined capital return framework. We are a proven compounded with substantial free cash flow generation. Based on our current share price, our capital return plans enable us to repurchase the equivalent of roughly 30% of our market cap over this year and next. Operator, would you please open the line for questions. Operator: Our first question comes from Dave Koning at Baird. David Koning: Great job. I guess, first of all, 5%-ish organic constant currency growth, that's great to hear. What's the split maybe between enterprise and SMB and then between Worldpay and Global? Or are all parts of the business growing about mid-single digits? Cameron Bready: Thanks for the comment. I'll ask Josh maybe to kind of walk through the guide and then give you a little more color on the expectation for 2026. Joshua Whipple: Yes. So thanks, Dave. It's Josh. Look, as I said in my prepared remarks, our guide for the full year is at that 5% constant currency ex disposition. And our merchant business, we exited the year a little bit over 6% organically. And Worldpay exited the year approximately 4%, which kind of gets you to the 5% for the full year. As it relates to kind of the first half versus second half, we've adjusted -- we've closed the transaction. We felt that it was prudent to guide the first half to modestly below 5% as we kind of line and bring those businesses together. And as we move through the year, we expect to see modest acceleration on the top line with top line growth in the back half of the year over 5%, and this is largely driven from the increasing benefits from our sales expansion as well as improving our sales effectiveness from the transformation and then the continued ramp of Genius. As it relates to the overall splits, as you think about the pro forma splits of the business, SMB is approximately 50% of the revenue composition and then as you think about platforms and enterprise and e-commerce, that represents the other 50% of the pro forma and they're probably equally split. So that's about 25% for each of those 2 businesses. Cameron Bready: And Dave, it's Cameron. Maybe I'll just add a couple of comments, if you don't mind. I think first and foremost, I think the outlook that we gave for the combination of the 2 businesses back in April remains our outlook over the medium term. in terms of where we see revenue growth for the business. I think as we thought about 2026, with the businesses coming together very early in the year, we wanted to take a fairly prudent approach to the outlook for 2026. So these are 2 large businesses. We're very focused, particularly in the first half of the year to make sure that we get off on the right foot together. We're focused on our integration activities and particularly around realigning our go-to-market channels, as I described in my comments around enterprise platform and integrated and SMB. And from our vantage point, we think this is the right approach to take for the guide for 2026. So I think it's worth noting that we closed the business about 6 months earlier than we originally anticipated. And obviously, that factors into I think, our outlook as well. But we're exiting the year, as Josh highlighted, above 5%. I think that gives us good momentum to kind of accelerate growth heading into 2027. And obviously, I think that puts us on track to get to kind of the medium-term outlook that we had for the combined business that we shared when we originally announced the transaction. Operator: Our next question will come from Darrin Peller at Wolfe. Darrin Peller: A nice job and congrats on closing the deal early. Could we touch on the, a, the trajectory of the synergies you're expecting as the year progresses? And then maybe a little bit more color on what you're incorporating into the guide around synergies again, just to remind us where you stand on that. And then I guess just -- I'll put it all together as one question. Just really understanding the cross-sell into the SMB business at Worldpay, utilizing what you're seeing with the success of Genius. I know that's been a business that has some real potential and so I'm curious to see what you're seeing given the -- it's been a couple of months since you closed and working towards the close for some time. Joshua Whipple: Darrin, it's Josh. I'll take the first part of the question on cost synergies. So as we discuss probably, we expect to realize $600 million in cost synergies over the course of the next 3 years as we integrate these 2 businesses. And look, in year 1, we expect to realize or 2026, we expect to realize $70 million to $80 million of cost synergies. And look, we spent a lot of time planning, obviously, over the last 6 months as we approach the closing date. We feel very, very good about that number. We have very, very detailed plans in place, and we've already started executing on that. So we expect to see kind of that $70 million to $80 million in cost synergies in 2026. Cameron Bready: Yes. And Darrin, it's Cameron. I'll take the second part of the question. Look, I think we have a lot of optimism around what we can do as a combined company, particularly in the SMB channel, as I mentioned in my prepared remarks, particularly around the ability to cross-sell our capabilities into the existing Worldpay base and also leveraging the Worldpay distribution platforms to get better penetration and saturation of our solutions into the market. As I noted, we've already enabled Worldpay to sell Genius through their channels, their direct channels here in the U.S. market, and they've already sold a number of solutions into the marketplace and have a nice growing pipeline of opportunities as well. We're also going to introduce Genius into Worldpay's FI platforms here in the U.S., as well as our wholesale channels as we look to expand the distribution through which we push Genius moving forward in time. So I see lots of opportunities to leverage kind of the existing Worldpay distribution channels. here in the U.S. market to bring more of our products, Genius and our other commerce enablement solutions to the market, as I said before, to get better adoption of those capabilities more broadly. And then, of course, in the U.K., where Worldpay has a large presence today. We also plan to bring Genius to the U.K. distribution platforms for Worldpay in the SMB channel and obviously look to cross-sell Genius into the existing sort of back book of customer base that exists with the Worldpay business in the U.K. as well. So the combination of our 2 SMB businesses gives us much better and diversification of distribution, more channels by which to bring Genius to market. And obviously, an embedded back book of customers a significantly large probably 5-plus million merchant base of customers. that have the potential to cross-sell commerce-enabled solutions and Genius into as we move forward. Operator: Our next question comes from Dan Dolev at Mizuho. Dan Dolev: Well, great results here. Congrats. I love seeing the stock going up, well deserved. Cameron, question for you. The stock is clearly very undervalued in our view, and you're firing in all cylinders, you're buying back a lot of stock, like very good. Maybe can you discuss what are the puts and takes of staying public here versus alternatives? Because I think the message to the market is that there's going to be a lot of really good things down the road, staying public. So maybe some views here would be great. Cameron Bready: Yes. First of all, Dan, thanks for the comments. And obviously, we agree with your conclusion as it relates to the valuation I think, look, first and foremost, we're focused on integrating Worldpay and unlocking the promise that we see in the combination, which we think obviously is immense. And we're also very focused on executing against our capital return plans. That said, as we continue to do that, we continue to assess all options to maximize value for shareholders. We think that's our responsibility and it's something that we take very, very seriously. What I would tell you is, look, if we get to a point after a period of time of integrating the businesses, producing results, returning capital, if the public markets continue to not fairly value the business, I think we owe it to ourselves to look at all alternatives and evaluate all alternatives. And what I would say around that is there's an enormous amount of private capital that's obviously on the sidelines, and then you're seeing bigger and bigger deals getting done. So it feels like a more feasible option now than it ever has been. But I think in the short term, we're focusing on delivering on the commitments we've made, executing well on the integration, and we'll continue our capital return plans, and we'll see where we are as time progresses. Operator: Our next question comes from Ramsey El-Assal at Cantor Fitzgerald. Ramsey El-Assal: I had a question about the expansion of your sales force and your plans to hire another 300 sales heads this year. What parts of the business will these sales additions be stacked against? Is it mostly SMB and Genius? Is it Worldpay offerings, cross-selling? I guess, where are you going to deploy these folks to make the biggest difference? Robert Cortopassi: Ramsey, it's Bob. Thanks for the question. Most of the expansion of the sales force heretofore has been focused on North America and specifically our sales of the combined Genius payments and value-added service offerings. I think that's the segment of the market that we still see opportunity to add incremental sales resources, particularly as you go up market from the very smallest of SMB into the upper end of SMB and beginning into the mid-market space. We continue to see that largely is driven by relationship sales activities. There's certainly merchants who are interested in self-service options, and we provide a full spectrum of digital sales and customer acquisition channels and tool sets to serve them. But the more complex sales do, in our view, require a the engagement of a relationship, consultative sort of sale. And so we're going to continue to stack resources against that as we see opportunities to expand and accelerate Genius adoption. Operator: Our next question comes from Adam Frisch at Evercore. Adam Frisch: On Genius, our check suggests that the SMB space is obviously still very competitive, but none of the major players are pricing irrationally in the market that would threaten current business models. My question is, would you agree with that? And then a quick tangential question. There's been some speculation around Toast renewing with you. Our checks pointed to a competitive deal, but you would retain them if you're able to provide any update on that, that would be great. Cameron Bready: Yes. Maybe I'll start. Thanks for the question, and I'll ask Bob to add a little bit more color as well. I'd say, look, from our vantage point, the market -- the competitive market around point of sale does remain very competitive. Obviously, there's a number of strong players in the space. We believe that we are one of them, and we are building momentum around everything that we're doing with Genius, and we feel very good about where we are I think, in the progress that we have made. I think as we look across the things that we're doing, we're growing well in the areas that we've already launched our capabilities. And I think that's evidenced by the commentary that Josh provided in his prepared remarks this morning in his script, we're also expanding into new markets and new geographies, new subverticals, new form factors, and as well new distribution channels, as I commented on earlier, all of that gives us, I think, enormous confidence we're going to continue to build momentum around Genius and continue to see very positive results and gain more share with Genius in the marketplace. I would say as it relates to the pricing environment, it remains fairly rational to your point. I don't think we're seeing a lot of irrational behavior from a pricing standpoint. It is very competitive. I think one of the things that we feel very good about is given the enormous scale that we bring to the business, particularly from a payment standpoint, we can be as price as competitive as anybody. But our goal remains to be with our distribution diversity the capabilities and feature richness of our solutions and obviously, the distinctive service experience that we think we can deliver to customers. As it relates to the second part of your question before I turn it over to Bob, maybe to provide a little more color around the POS market. We have renewed with Toast on a multiyear deal. So that is done, and we're proud to continue to support them from a payments perspective going forward. Robert Cortopassi: Yes. Adam, I think Cameron well covered the competitive environment. It still is a very competitive marketplace. We continue to feel very strong about our opportunities to win there. And I think we are demonstrating that with the share gains that we're executing on sequentially quarter-over-quarter since the Genius launch last year. The one data point I might offer around this is that particularly in our POS sales team, the signed annual revenue per deal is up nearly 50% on a year-over-year basis. So I think that speaks not only to sort of the constructive pricing environment that continues to represent value as we go to market, but also the value of the combined solution that we're driving today with Genius attaching sales, attaching value added services and delivering that to merchants of compelling value size and opportunity for the business. Cameron Bready: And if I could add maybe one more anecdotal data point. As we talk about sort of 200 sales reps that we've hired recently as we're building towards the 500 million, a number of them are actually point-of-sale sellers that have come from competitors in the marketplace. So I think that's a good sort of data point as it relates to their confidence in the product and capability that we're bringing to market and their ability to be effective sellers inside of our environment, given the tools that we've provided. Obviously, the lead flow that we're able to bring to them and, of course, the product and capability we're bringing to market. So we're proud that we've been able to do that and feel good about, again, how the product is positioned as a competitive matter going forward. Operator: Our next question will come from Tien-Tsin Huang at JPMorgan. Tien-Tsin Huang: Thanks for going over so much stuff here. It's great to consume. Just thinking about the revenue growth algorithm, maybe in a little bit more detail. Would you encourage us to focus on performance across the enterprise, integrated and the SMB channel? Is that the best place for us to study the business? And any big picture thoughts on growth contribution from, say, units, volume, net sales, pricing, that kind of thing or even Worldpay versus Global Payments. I know it's a lot to cover there. But just trying to get a better sense of the growth algorithm. Cameron Bready: Yes. Look, Tien-Tsin, it's a great question. I appreciate you asking some of this, we're going to be able to dig into a little bit deeper as we get to Q1. We get the channels completely realigned. We only closed a month ago, and we're obviously working through getting all the channels kind of aligned on a historical basis and a go-forward basis, et cetera. So we'll be able to give you a little more visibility around the business. We prepare for the Q1 call, particularly across the enterprise integrated platform and SMB channels. So more to come on that front. I would just say around the growth algorithm more broadly. Obviously, given the significant investments we've been making in commercial activities. Obviously, we expect that to be the primary driver of growth for the business going forward. We'll always continue to make sure that we're optimizing price and yield in our portfolio given the level of value in service and capability that we bring to the market. But we think we've done a pretty good job over the course of time of optimizing our pricing in the business. So our goal is really to lean more into the commercial capabilities of the business, given all of the investments that we've made through transformation, obviously, the increased capabilities that we have through the Worldpay acquisition to such that commercial activities and new revenue growth generated from our go-to-market activities will be the primary driver of growth in the business, coupled with the core same-store sales and just organic growth in the customer base that we have. So that's a good way to think to think about the growth algorithm more broadly kind of across the business. And as I said before, we'll give you a little more color around the individual channels as we get to the first quarter and leading up to our Q1 call. Operator: Our next question will come from Andrew Schmidt at KeyBanc. Andrew Schmidt: Cameron, Josh, Bob. Great to see the state results here. Congrats I want to just ask about the Worldpay growth expertise for this year into next. Maybe just talk about the sort of e-commerce SMB integrated payments breakout. So where the largest opportunities are there. It sounds like there might be a little bit of step up into next year to get to that sort of intermediate term growth rate. Obviously, a lot of opportunities with these organizations coming together, but a finer point there on the subsegments. And I understand this will be consolidated at some point. But any detail there, that would be helpful. Cameron Bready: I'll try to give you a little bit of color and as I said before, I think we'll be able to give more detail around the individual channels as we get to the first quarter. As we -- at the Worldpay business more broadly, we talked about sort of their normalized growth in 2025, which was essentially on top of what we underwrote as part of the transaction. So we feel good about the trajectory of growth in the business. As we talked about before, they're on their own sort of transformation journey, accelerating growth across the business, and we're continuing to see good progress within the world-based and stand-alone business. And now as we bring our 2 companies together, our goal is to continue that trajectory for the combined business to get to the medium-term outlook that I shared earlier, which remains our medium-term outlook for the business. Look at the -- in the Worldpay business, their enterprise e-comm capabilities are best-in-class and they're highly competitive, and we're seeing very attractive growth rates there in terms of both volume and revenue. They're more legacy, card-present, enterprise business. That's more of a GDP grower. So you blend those 2 together. And you have a healthy growing business. It's a good mix of very strong e-com growth and slightly lower kind of enterprise, more card-present oriented growth. The platform business, again, is a bit of a tale of two stories. The Payrix and managed PayFac solutions is growing very, very nicely. Obviously, as we've talked about in the past, Worldpay has a book of integrated referral partners that probably hasn't been nourished as well over time. So the overall channel is growing kind of around the average rate for the combined business that we've outlined for 2026, but it's a little bit of a tale of two stories in terms of the composition of that portfolio. And I think SMB is the area where Worldpay perhaps was more challenged kind of as it exited FIS. Obviously, the combination with Global Payments brings better product capability to those distribution channels. I think Worldpay has really good distribution in the SMB space. They just need better product in solutioning to serve SMB customers. And I think, obviously, Global Payments brings that in spades which gives us a lot of confidence as we put their SMB business together with ours, we're going to be able to drive attractive growth rates for that combined channel going forward as a combined company. So gives you a little bit of color as to how we think about the different elements of the Worldpay business, as we said before, their growth in 2025 was on top of what we underwrote as part of the deal. And we're continuing to see good activity and obviously, signs that they're on the right track in terms of continuing to accelerate as we move forward in time. And our goal, as I said before, is to build on that as we bring our 2 companies together here this year. Operator: Our next question will come from Dominic Ball at Redburn. Dominic Ball: Super interesting data point on the platform business there with Toast. Moving to the back book in Genius, you're being quite clear over the last sort of 9 to 12 months, you wish to sort of migrate merchants on to Genius from the back book. Initially, this was sought to be led from merchants or more merchant led. There's been a few instances we've seen here and there like mobile bites, where it seems to be more of a proactive migration. So can you clarify sort of the philosophy around from book versus back book migration how proactive do you intend to be? And then kind of a time line on this as well? Robert Cortopassi: Dominic, it's Bob. I think our strategy around it hasn't fundamentally changed. What you might be seeing are some differences in market dynamics amongst some of the legacy portfolio. So our focus is still on front book opportunities primarily and serving the back book migrations as and when clients are ready to make that move. We've instantiated no sort of formal deprecation program or wind-down strategy for the legacy platforms that are forcing people to make a choice to move. So what both our direct sellers as well as our dealer network are doing are responding to the demands of those clients. In some cases, people known about Genius for many months now. We've been talking about its launch since early last year. Momentum has been building and excitement has been building around the platform. And so we do have pent-up demand in the back book and both our direct sellers as well as our dealer network, as I mentioned, are serving those as and when they're ready to migrate. The great news, as we mentioned is that while Genius is an entirely new platform, it's built on top of technologies that we've been developing over the past 3 to 5 years or so. So it provides for a fairly streamlined conversion and upgrade experience for those clients looking to upgrade both software and hardware services to the newer Genius stack. So just to sum it all up, we're responding to our customers. We're there and ready when they're ready, but we're not putting again to anybody's head to force a migration. And we're still very excited about the front book opportunities that we continue to convert at a pretty steady and accelerating clip. Cameron Bready: Yes. And I would only add to that, and I think that's exactly my view as well. The only thing I would share is as we think about the back book, if a client wants to make a move or is looking to make a move more broadly, our goal is to make that as seamless and easy as possible. So if a client is willing to go through the process of making a change, it should be easier to move to Genius than any other third-party solution in the marketplace. And certainly, our goal is to make it as easy as possible creating as little disruption for that client as possible. So recognizing that someone making a decision to upgrade platforms are going to have to make some change. Our goal is to be able to minimize change and obviously, continue to build on the goodwill we have with that client and make it easy for them to move to Genius. So that's really our focus versus to Bob's point, a forced migration that puts clients in a position of having to make a change in some cases against their will. Operator: Our next question will come from James (Sic) [ Jeff ] Cantwell at Seaport. Jeffrey Cantwell: The one I have for you is about Genius. The question is, what does Genius offer right now in terms of value-added services? Does that have an app store for merchants yet? Some of your competitors, particularly in the SMB space have had success with that. Can you maybe talk to us about whether that is part of the thinking now and going forward? Robert Cortopassi: James (Sic) [ Jeff ], it's Bob. I'm going to address the question, but could you restate -- you broke up a little bit what functionality are you asking about specifically? Jeffrey Cantwell: Sure. Just maybe just go through what Genius offers right now in terms of value-added services and also if there's any plans for an app store for merchants, particularly with regards to SMBs. Robert Cortopassi: Got it. App Store. Thanks for clarifying. So in terms of value-added services, what I would say is that there's a suite of value-added services that comprise 2 big categories. One is things that are available to everyone who's using Genius or maybe more specifically or useful to everyone who's using Genius and those are things around tools like embedded finance, client loyalty, social reputation management, scheduling and bookings engine, those sort of things. Then there are specific value-added services or feature functionality that's specific to a vertical. So when we think about something like spa salon, where you've got scheduling and client communications and those sort of things built into the workflow or when you think about an enterprise restaurant where you might be looking at a drive-thru management and digital menu boards in kiosks and things of that nature or you look at a field services business where you've got mobile invoicing and text to pay links and a mobile operating form factor and a distribution management scheduling of service providers or deliveries or whatever the case might be. So there's a pretty broad stack of feature functionality by vertical and value-added services that span all of it. Specific to an app store, look, I think our approach to that is one of making available easily, the ability to integrate incremental value-added services and feature functionality to the core Genius platform. And that same ease of integrating is used and consumed by our own developers but also available to third parties to plug in other value-added services. The idea of trying to reinvent an app store and create and open marketplace of a variety of quality of solutions, a variety of quality of integrations and a variety of quality of support for those plug-ins or apps. Frankly, I haven't seen that work very well in the market today and providers who've taken that approach end up with a graveyard of hundreds of failed solutions that are poorly integrated and poorly supported. So we're much more interested in curating a holistic, high-quality experience, whether those value-added services come directly from Global Payments or in partnership with a third party. Operator: Our final question of today will come from Jason Kupferberg at Wells Fargo. Jason Kupferberg: Guys, I had 2 questions. I'll ask them upfront. First, just on the free cash flow. Are we reiterating the outyear targets? I think we had been talking about $4 billion in '27, $5 billion in '28, at least on an adjusted basis. So if we can cover that as well as what those numbers might look like on a GAAP basis, and then just any specific areas of conservatism you might point to in the initial top line outlook for '26? Joshua Whipple: Yes, Jason, it's Josh. Let me take the free cash flow question. So yes, we expect '27 to be over $4 billion in levered free cash flow and the $5 billion marker that you mentioned in 2028 from adjusted free cash flow perspective. And look, what I'd say from a GAAP perspective, as we move through the integration, and we expect our onetime cost to come down so that our GAAP free cash flow will go up. So again, that's something that we're very, very focused on across the transformation and the integration. So you should expect those onetime costs to come down and get free cash flow to go up. Cameron Bready: And Jason, it's Cameron. Maybe on the second part of your question. I would just reiterate maybe some of the comments I shared earlier, which is, look, as the businesses are coming together for the first time here early in 2026, I think we've taken a fairly prudent approach to the outlook for the year. As I said, we're very focused on making sure that we get started on the right foot with the 2 businesses. We are realigning go-to-market activities based on client channel versus product, which is how we were oriented previously at Global and we just want to make sure that, obviously, as we're doing that, that we're able to focus on integration when we're getting the businesses and aligning go-to-market activities in the right way, so we get ourselves off on the right foot. Our outlook over the medium term, I think, remains the same. And as Josh highlighted, we expect to be exiting the year at a rate above 5%, which I think sets us up well heading into '27 and '28 as we talked about earlier. Operator: This concludes today's Q&A back to management for any final remarks. Cameron Bready: Thank you very much for joining us this morning. We apologize for going a little bit long, but we had a lot of content that we wanted to share. We appreciate your support in Global Payments and look forward to speaking with you very, very soon. Have a good day, everyone.
Operator: Welcome to Devon Energy's Fourth Quarter 2025 Conference Call. [Operator Instructions] This call is being recorded. I'd now like to turn the call over to Mr. Chris Carr, Director of Investor Relations. You may begin. Christopher Carr: Good morning, and thank you for joining us on the call today. Last night, we issued Devon's Fourth Quarter and Year-end 2025 earnings release and presentation materials. Throughout the call today, we will make references to these materials to support prepared remarks. The release and slides can be found in the Investors section of the Devon website. Joining me on the call today are Clay Gaspar, President and Chief Executive Officer; Jeff Ritenour, our Chief Financial Officer; John Raines, SVP, Asset Management; Tom Hellman, SVP, E&P Operations; and Trey Lowe, SVP and Chief Technology Officer. As a reminder, this conference call will include forward-looking statements as defined under U.S. securities laws. These statements involve risks and uncertainties that may cause actual results to differ materially from our forecast. Please refer to the cautionary language and risk factors provided in our SEC filings and earnings materials. With that, I'll turn the call over to Clay. Clay Gaspar: Thank you, Chris. Good morning, everyone, and thanks for joining us. Today, we'll focus on Devon's strong fourth quarter and full year 2025 results. Before diving into those very impressive results, I also want to cover the highlights of our recently announced merger with Coterra Energy. I'm incredibly excited about this merger and what it means for our shareholders. The combination of these 2 outstanding companies creates a clear path to superior value creation that neither company could achieve independently. The merger unites complementary portfolios with substantial and overlapping positions across the best U.S. shale basins. At the heart of this combined portfolio is a world-class position in the Delaware Basin, which will generate more than half of our total production and cash flow, backed by a decade-plus of top-tier inventory. Beyond the Delaware, the geographic diversity and balanced commodity mix provides strength throughout the volatility of the commodity price cycle. The scale and operational overlap of our combined platform will unlock substantial value. By implementing best practices, optimizing our cost structure and maximizing our infrastructure utilization, we will capture significant synergies. In total, we expect to deliver $1 billion in annual pretax run rate synergies by year-end ' 27. To be clear, these synergy targets are incremental to our business optimization program and reflect true operational and efficiency gains. And importantly, if there are any net reduction in activity levels, these capital savings will be incremental to our announced $1 billion target. I want to emphasize that we have a strong record of delivering on these business optimization wins. Our proven framework and experience will be leveraged to identify, deliver and communicate these merger synergies. Another critical benefit to this transaction is the enhanced free cash flow generation from the pro forma company. With this uplift, we plan to accelerate capital returns to shareholders through higher dividends and expect a significant new share repurchase authorization to deliver cash returns consistent with best-in-class peers. Bottom line, this transformative merger checks all the boxes and positions us to be an industry leader that delivers differentiated value to investors. With that strategic perspective, let's now turn back to Devon's impressive fourth quarter and full year 2025 results, which demonstrate the strong operational and financial momentum that we're bringing to this combination. Let's turn to Slide 4 for a deeper look on how our disciplined execution delivered another quarter of exceptional results. As you can see displayed on the left, beating on production, operating cost and capital results in an impressive free cash flow for Q4. Our production optimization efforts drove oil above the top end of the guide, fueled by strong new well performance and outstanding base production management. Operating costs significantly improved from the start of the year, reflecting enhanced reliability and relentless operational efficiency. Capital spending finished 4% better than guidance as we continue to capture drilling and completion efficiencies through advanced technology and a culture of continuous improvement. Combined, these efforts translated into $700 million of free cash flow, positioning us to return substantial value to shareholders. I want to emphasize that these results are not just one-off isolated wins, they are direct outcomes of disciplined execution across our entire portfolio. This consistency is evident in our full year performance and reflects the effectiveness of both our strategy and our team. I also want to quickly highlight our impressive reserve performance for 2025. Our capital program achieved a reserve replacement rate of 193% of production at an F&D cost of just over $6 per BOE. While a single year of reserves booking should never be viewed as a sole measure of success, this result provides compelling evidence that the quality and sustainability of our advantaged multi-basin portfolio. Turning to Slide 5. You can see how our focus on operational excellence and disciplined execution culminated in outstanding full year 2025 results. Our track record speaks for itself. Quarter-after-quarter, we drove meaningful improvements to our outlook. Since our preliminary guidance, we delivered an incremental 9,000 barrels of oil per day while reducing capital spend by nearly $500 million. These results reflect a sustained commitment to margin enhancement, technology adoption and continuous improvement across our entire organization. The impact is clear. Capital efficiency improved by more than 15% from our preliminary 2025 outlook, enabling us to extract more value from every dollar invested. Turning to Slide 6. As we've shown many times in the past, our capital efficiency results rank consistently among the very best in the industry. On the left-hand side of the slide, our well productivity stands more than 20% above peer average. On the right side, Devon's capital efficiency outperforms industry by 13%. Together, leading well productivity and capital efficiency translate directly into the strong free cash flow generation that powers our cash return framework. Turning to Slide 7. Another critical driver of Devon's strong performance is our business optimization program. In less than a year, we have captured 85% of our $1 billion target, and we are firmly on track to achieve the remaining savings during 2026. As an aside, I think it's important to remind you that this goal is focused on sustainable free cash flow. The progress of this goal will manifest in multiples of this dollar amount to our enterprise value. This outlook of continued progress is supported by several key catalysts. The planned term loan repayment in the third quarter will deliver $50 million in annual interest savings. At the same time, we are accelerating the implementation of AI-enabled artificial lift optimization and advanced analytics well beyond the pilot programs that we've mentioned on prior calls. Additional benefits will come from operating cost improvements through condition-based maintenance and enhanced drilling and completion cycle times. Beyond these initiatives, we have more than 100 active work streams focused on driving sustained base production gains while reducing the capital required for our maintenance programs. Most importantly, this initiative has fundamentally transformed how we operate. Continuous improvement and the accountability are embedded into our culture, empowering our teams to deliver sustainable value well beyond the initial target. Business optimization is no longer a program with an end date, it has become core to how Devon operates every single day. Turning to Slide 8. As we discussed last quarter, parallel to driving incremental value out of the day-to-day business, we are also regularly evaluating opportunities to rationalize our portfolio to enhance shareholder value. Throughout 2025, we executed on strategic transitions -- transactions via midstream, marketing and leasing that collectively delivered over $1 billion of value uplift to our enterprise NAV. To be clear, these gains are in addition to the improvements from our business optimization initiative. New this quarter, I wanted to highlight our continued investment in Fervo Energy. We recently participated in their Series E funding round, bringing our investment to approximately 15% in this innovative geothermal energy company. Fervo is pioneering next-generation geothermal technology, and we see compelling strategic and financial opportunities in this partnership. It leverages our core skills of geoscience expertise, land leasing, horizontal drilling and completions and subsurface production and recovery skills while positioning Devon in a power-generating sector with significant growth potential. With that, I'll now hand the call over to Jeff. Jeffrey Ritenour: Thanks, Clay. Turning to Slide 9. Devon delivered another year of strong financial results. In 2025, we generated $3.1 billion in free cash flow, demonstrating the strength of our asset base and the effectiveness of our operational execution. This robust free cash flow enabled us to return $2.2 billion to shareholders through dividends, share buybacks and debt retirement. We remain committed to growing our fixed dividend through the cycle. In 2025, we increased our quarterly dividend by 9% to $0.24 per share. Following the expected close of the Devon and Coterra merger and pending Board approval, we plan to raise our fixed quarterly dividend by another 31%, reflecting our strong confidence in the combined company's ability to capture synergies and to deliver an enhanced cash return profile to shareholders. We're also focused on opportunistically reducing our share count and returning value through buybacks. Over the past year, we've reduced our shares outstanding by approximately 5% through disciplined repurchases. Following the merger close and with Board approval, we anticipate a new share repurchase authorization of more than $5 billion, providing significant capacity to deliver strong per share growth over the next several years. In addition to dividends and buybacks, we also possess an investment-grade balance sheet and excellent liquidity. We ended the year with $1.4 billion in cash and a net debt-to-EBITDA ratio of less than 1 turn. This financial strength provides flexibility to invest in high-returning opportunities while consistently returning significant capital to our shareholders. Lastly, I want to touch on our outlook. Looking specifically at the first quarter, we expect production to average around 830,000 BOE per day. This guidance reflects approximately 10,000 BOE per day of weather-related downtime in January. Even with this temporary disruption, our previously provided full year 2026 guidance remains unchanged. Upon the close of the merger, we plan to provide updated guidance for the combined entity. Before we open the call to questions, I want to note that today, we would like to focus the Q&A on Devon's stand-alone results and outlook. As you can appreciate, we are limited in what we can discuss regarding the pending merger at this time. We expect to file our S-4 registration statement in the coming weeks, which will provide additional details on the transaction. With that, operator, we'll take our first question. [Operator Instructions]. Operator: [Operator Instructions] Our first question comes from Neil Mehta with Goldman Sachs. Neil Mehta: I'll try to state on the stand-alone business here and just your perspective on the business optimization and where you are relative to the $1 billion of the pretax target. And what are the key milestones you're focused on the first half of 2026? Of the buckets, which is the one that you feel you're most focused on as a management team right now? Clay Gaspar: Yes. Thanks for the question, Neil. We're really excited about the progress. We launched this thing a year ago, and I can tell you it was a bit aspirational as we thought about how do we come up with all of these numbers. We knew that there was so much more potential to unlock. But we didn't have a line-by-line attribution to each individual piece. And I can tell you, it's been really exciting to see the organization just really unlock around this. As we've talked about before, it's been a very heavy leaning on technology. I think we're just scratching the surface on some of that real potential. But as we mentioned in the prepared remarks, 1 year in, we're now at 85%. We have clear line of sight to being able to achieve the full $1 billion. And I think importantly, as we think about the skill set and the culture around identification, tracking and communicating, I think that really translates into our next challenge going forward, which we're incredibly excited about. I might ask Trey just to give some additional thoughts as he's a little closer to this on a day-to-day basis. Robert Lowe: I appreciate the question, Neil. We -- Clay mentioned this in our opening comments that we now are up over 100 work streams that we're tracking related to business optimization. We have a ton of confidence in what we see coming forward. Over the last few quarters, we've talked a lot about what we're doing in the production space, specifically with trials around gas lift optimization and a few other topics. What I can confidently say and what we're really excited about at the team level is a lot of the investments we've made in artificial intelligence and in the platforms that we've built over the last year are really coming to fruition in the production space. We've seen those advantages already in the drilling results that we've had, but we're going to start to see over first quarter and second quarter a lot of the projects that we trialed in the second half of 2025 start to scale. And so as we scale these things, which all of these technologies are very scalable. We'll do that across the entire organization. We're going to see a lot of benefits flow through on the production side, ultimately resulting in kind of our ability to lower capital long term, and we'll see improvements on the LOE. Operator: Our next question comes from Neil Dingmann with William Blair. Neal Dingmann: My question is on the Delaware position, I guess, whether it's stand-alone or pro forma. I'm just wondering, with a larger upcoming position, I'm just wondering, is there plans to target even longer laterals and potentially upspace the wells to boost results? And then I'm just wondering, will you continue to be as active on the ground game there as you've been in recent months. Clay Gaspar: Yes. Thanks for the question, Neil. The Delaware Basin is just an incredible piece of business, stack of rocks and a great place to work. And so incredibly excited about our current position and the pro forma position as well. What I would tell you is the truism of the best place to find oil is where you found oil before continues to hold true. We think about additional landing zones. We think about innovative technology. We think about improving recovery. We think about flattening our base decline, lowering our downtime. All of these mechanisms that we are so excited about absolutely translate into this incredible position that we have in the Delaware Basin. As we go forward, you bet, we're going to be in a very strong financial position to be opportunistic as we have been. I think that continues in a position of strength, how we think about those opportunities, I think we'll be in a great position to maximize those opportunities. Thanks for the question. Operator: The next question comes from Doug Leggate with Wolfe Research. Doug Leggate: Clay, you're making it hard for us. We all want to ask questions about the merger and all that stuff, but we'll try and behave ourselves and not do that this morning. I do want to ask question about -- Yes. Well, I don't want to waste my question on something you're not going to answer, so I'm going to try something else. Exploration, Clay, you and I have talked about this before about the -- perhaps the loss of collective capability on some of your peers. We're seeing speculation or perhaps not so much speculation that you guys are now looking internationally. I wonder if you could just frame for us whether it's conventional or unconventional, domestic or international, what is the role of exploration in Devon? And if I may ask you to opine just on a broader issue, what does this say about the maturity of U.S. shale if indeed you are pursuing opportunities elsewhere? Clay Gaspar: Yes, that's a great question, Doug. I'm happy to talk about it. When I think about it, internally, we have some terminology we use around pillars. Pillar 1 is make Devon a better Devon. And that's clearly the focus around this business optimization, all of the work that we're doing with technology, leaning in efficiency that just translates into everything else that we do. And importantly, buys us the credibility to be able to consider things above and beyond just making Devon a better Devon. The pillar 2 is a little bit more organic in nature. And these are things that we mentioned Fervo on this call. We think about what the potential is from there. We've talked about exploration. We've clearly been interested in understanding the potential, not just here in the U.S. but around the globe. But I would tell you, those are long-dated investments, long-dated relationship builds, things that we need to evaluate over time. And as we know, the best time to evaluate those are when you're in an incredible position of strength. And so I think about our portfolio today, the free cash flow that we just displayed in full year '25 as I look forward to our capabilities kind of going forward, this is exactly the right time for us to really think about leveraging, not just our financial strength, but our operational strength. And so when I think about the skills that we have and really exporting that or at least leveraging that into other opportunities. These things can be multiple years in the making. What we want to make sure that we are in position is that, one, we really objectively understand the skills that we currently have, how we evolve those over time, where business opportunities are in adjacent businesses or businesses that look slightly different than what we do today, and then really hunt for those opportunities where those kind of that Venn diagram overlaps and be in a ready position to be able to capture those opportunities, albeit most of those will evolve over time, but be ready to capture those and be positioned for that opportunity when those do come up. What I would tell you is, please don't mistake any work that we're doing for next decade opportunities to conflate anything of a lack of confidence in the near term. The confidence in the near term is exactly why we need to be doing things to think about the next decade for Devon and well beyond the positions that we're in today. Again, from an opportunity, a position of strength, that's exactly what we're doing, continuing to refine the skills that we have, think about things creative and beyond our current footprint and then be ready for when those stars do align that we can jump right on them. Doug Leggate: Can you confirm the Kuwait interest, Clay? Clay Gaspar: Yes. What I would tell you is we have explored interest in a lot of places. That's a long, long way from putting material dollars to work. What I would tell you is to really understand the potential that we have. For example, the work that we're doing in resource plays domestically, clearly, there will be opportunities internationally. For us to understand and evaluate where that potentially could fit in our long-term horizons, we absolutely need to be engaged in those conversations, getting our name out there, participating in that so that we can understand the surface challenges, the kind of above-ground risks and how do we quantify that and put it in context to other opportunities that we have. So while I'll avoid commenting on any one particular deal because I think it's way too early for any of that, I can confirm that we are exploring a lot of different ideas and opportunities so that, one, we have a better kind of relative positioning and an understanding of what will absolutely fit us best for our longer-term horizons. Thanks for the question, Doug. Operator: The next question comes from Kelly Akamine with Bank of America. Kaleinoheaokealaula Akamine: My question is on cash OpEx. I'm noticing that LOE plus GP&T on the full year guide is lower than 1Q '26. Can you kind of talk about the cadence of the lower cost there and whether it's reflective of the GP&T optimization efforts on the NGL front? John Raines: Clay, this is John. You cut out a little bit, so jump in if I'm not answering your question. But just for the cadence on OpEx for the full year, we've continued to make consistent improvements in our workover optimization. We've consistently reduced our failure rates. That really contributed to a lot of the drop in LOE plus GP&T for the full year. Going into Q4, we actually saw some tailwinds on some recurring items. Trey mentioned and Clay mentioned in his comments, the condition-based maintenance approach. We're very early innings in that. We're starting to scale that. We started changing some of our maintenance approaches in the Delaware Basin, and we've already seen some costs come out of the system. And so that contributed to the Q4 number. From a power standpoint, we've also energized 2 microgrids in the Delaware Basin. With that, we're able to release a lot of site-specific generation. So just good blocking and tackling on the LOE front. About the time you cut out, I think you were talking about Q1, we do see an uptick there on LOE plus GP&T. Really, what's driving that is twofold. One, it's a little bit of a soft spot in our volumes for the year. As Jeff mentioned, we had the weather downtime that hit us in Q1. But then very specifically, we've got line of sight to just some higher workover activity in the Williston that was mainly weather-driven and then some workover activity in the Eagle Ford that was driven, or is driven by some well cleanouts. On the GP&T front, you did see the drop-off in Q4, and that is absolutely related to one of our new gathering and processing contracts going effective in the Delaware Basin. And so that's at a much lower rate, and you're seeing that contribute as well. Operator: The next question comes from John Freeman with Raymond James. John Freeman: Just following up on the last question on the OpEx side. It sounded like, Clay, maybe that when you talked about sort of the expanding of the automation of the artificial lift optimization, and I think you said it's sort of above and beyond what you all had contemplated previously. I'm just trying to get a sense, does that mean that there's potential that you all could ultimately exceed that kind of $1 billion target with just sort of whether it's that or some of the other catalysts that you all sort of outlined on Slide 7? I'm just trying to get a sense of what's left to be accomplished for the $1 billion and if there's potential upside based on some of this. Clay Gaspar: Yes, John, what I was really just trying to articulate and frame is that while we've achieved 85%, we have a great deal of confidence in being able to achieve the full $1 billion. More to come on that particular topic, but that will be something that will unfold in the coming quarters. Just again, reiterating, we haven't changed the $1 billion target. I think what has changed is just kind of our approach that this is kind of how we work going forward. And there's so many smaller wins that just don't make the headlines that I'm equally excited about. I see this kind of contagion around the organization in all parts of the company really contributing and thinking differently about how do they get their share of the contribution to this sustained free cash flow win. And to me, that's just a winning culture. So I really feel confident in the $1 billion, and I feel equally confident that there's more to come in regards to just the change in culture and innovativeness that we're leaning towards. Operator: The next question comes from Arun Jayaram with JPMorgan. Arun Jayaram: Clay, I was wondering if you could just maybe provide some insights around the 2026 program. You're spending or plan to spend about $3.5 billion upstream. How should we think about kind of capital allocation between regions outside of the Delaware? It looks like today, you're operating about half of your rigs in the Delaware. But how should we think about capital allocation between the Mid-Con, Williston Basin and Eagle Ford, PRB? Clay Gaspar: Yes. Arun, I would say, directionally, think of it pretty similar to how we have been allocating. Clearly, I don't want to get ahead of myself once we get the deal closed. That will be a first order of business. As I mentioned on the last call, really thinking about those opportunities around capital allocation and stepping up the value creation there. Arun Jayaram: Understood. And my follow-up is just you guys have had some really good opportunities in terms of portfolio management, thinking about Matterhorn and your investment in Waterbridge. Clay, I was wondering maybe you could elaborate on the ownership position in Fervo Energy. I think Fervo, we saw them at Baker Hughes' recent annual meeting, have some really unique technology in geotherm. But talk about the decision to invest in Fervo and value creation potential for Devon shareholders from that. Robert Lowe: Thanks for the question, Arun. This is Trey. I've been a part of the kind of Fervo investment decision since we started at Devon. And honestly, we originally got introduced to the team there through some of our technical contacts on the engineering and geoscience side. Fervo is a pioneer in the space with enhanced geothermal systems, and that basically means they're using horizontal drilling and multistage hydraulic fracturing to build out geothermal systems. And it looks a lot like what we have led the way on the subsurface interpretation and with how we've characterized, as an example, hydraulic fractures. And so we got to know them on a technical basis originally. Then we met the management team, got to know the founders really well and ultimately started to really see a lot of the things that we liked about what Vrbo was doing and wanted to support them and to better understand that geothermal business. That's led us over the last couple of years to where we are today, where we're now a 15% owner in the business and continue to be really enthusiastic about what they're doing. Operationally, they're having a lot of success. They continue to drive well costs down, and we've been supporting them with technical support throughout that process to help make their business better. Operator: The next question comes from Phillip Jungwirth with BMO. Phillip Jungwirth: I'll try not to ask this in relation to the merger, but Jeff will be heading up commercial, which has become an increasingly important role for large E&Ps. So the question is more just how do you see the commercial opportunity for Devon stand-alone? And where is the current focus now for the company? Clay Gaspar: Well, I think that does kind of venture into an area we probably don't want to spend too much time on, but I can reiterate what we said on the last call. Once we get the company combined, the management team, the new Board, I think it's going to be a really exciting platform to reevaluate, as I just mentioned, some things near term like capital allocation, but also thinking about asset rationalization, thinking about some of these long-term opportunities. Remember, we're going to have an incredible financial footprint, operational footprint, portfolio. And I think that just really opens up the door to a lot more possibilities. So without getting too far ahead of ourselves, I would just say that the financial footwork, financial foundation is there, and we feel really good about that positioning and really opening the doors to additional opportunities. Operator: The next question comes from Charles Meade with Johnson Rice. Charles Meade: I don't intend to make this a post-deal question, but I acknowledge it may be. But I wondered if you could talk about the dividend, how you chose that new level. It's a big bump. And what the thought process is there to arrive at 31.5% is the right number? Clay Gaspar: Yes. I think the -- it's a big bump from our side from the Coterra side. It's basically on par with what they have been doing. And so I think that was kind of the foundation. Now obviously, again, this is all presupposing a little bit on what the new pro forma Board will approve, but we've guided to is that $0.315, which again is a nice bump on our side. And then in combination, we also project that the Board will approve a very substantial share repurchase program. I think that gives us a lot of latitude in addition to being able to pay down some debt that's coming due, I think just gives us a great framework of opportunities to return this very significant free cash flow directly back to shareholders. Operator: The next question comes from Paul Cheng with Scotiabank. Paul Cheng: The fourth quarter Delaware result is really very impressive. I mean you have lesser number of TEU and then production is actually higher than expected. Just want to see that how repeatable or that there's some one-off item that we should be aware such as the timing of when the well come on stream? Anything that you can share on that? And also that the outperformance, how much is really coming from the new well and how much is on the base operation doing better? Clay Gaspar: Thanks for the question, Paul, because we did have an outstanding fourth quarter. That's on the back of quarter-after-quarter performance. There is a kind of an overall downdraft in cost structure. That's efficiency, that's technology, there's also an updraft in productivity. And so thinking about how do we get more out of these precious resources that we have in the portfolio today. And what you see in the fourth quarter is that really coming together. While quarter-to-quarter, it's always going to vary just a little bit. I mean you bring on these big pads, just a shift in a couple of weeks from beginning to a little bit later in the quarter can manifest in different kind of near-term ebbs and flows. I would look at the overall quarter-over-quarter progress. And I think that I feel very confident in extending well into '26 and beyond. I think that is what we're most excited about. This business optimization was really code for how do we all get really hungry and really creative on that incremental value opportunity. I might turn it to John and ask him his thoughts on the balance of new wells versus the base -- the incredible base work that we're doing as well. John Raines: Yes. Thanks, Clay. I mean, really, the story is twofold. I mean we did have some help from timing on the wedge. We had 3 incredible programs come on in the fourth quarter. The timing helped, but also the wells all outperformed our internal expectations there. The well mix for us, it changes quarter-to-quarter, but we had a pretty balanced well mix. These 3 programs, in particular, had a good balance of Wolfcamp B, Bone Spring, but also Wolfcamp A. So all of those things were contributing factors. But Clay is right, we would be remiss not to talk about the base. Throughout the course of 2025, we saw a lot of production optimization through various projects on the base. And all in all, for the full year, the base outperformed by about 5,000 barrels of oil a day. So when you think about that type of contribution on the base, it's almost 2% of the base. That's just a huge part of our business and an exceptional result and exceptional value to the company. Paul Cheng: John, what's the underlying base decline rate in the Delaware right now for you guys? Clay Gaspar: Paul, if you were asking about decline rates, right now, yes, our base decline rates right now in the mid 30% range. Paul Cheng: Is that changed from previously? Or that is still the same? I would imagine with your better base operation, your underlying decline rate should be lower or should be less. Clay Gaspar: Yes. I'd say we've had some tailwinds on the base. The decline rate itself hasn't changed dramatically year-over-year. Now granted, we're, call it, 1 year into a lot of these production optimization projects. What I would tell you is our downtime is significantly lower. Historically, that was in the 7% range. As we go into this year, we're looking at something inside of 5%. So that's really where you're seeing a lot of the base wins show up. Operator: The next question comes from Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: I wanted to stick on the Delaware productivity as it was very impressive in 4Q. Is there anything you can comment on the stand-alone 2026 program and how it compares to the 2025 program in terms of the zones you're targeting, the geography and the forecasted productivity? Clay Gaspar: Yes, great question. I'll hit on that at a high level. So just top line 2025 well productivity. 2026 is going to look very similar to that. We moved more wholesomely into the multi-zone co-development in 2025. We're firmly into that development methodology. So you'll see very consistent well productivity in 2026. When I think about the mix, the one thing I would ask folks to consider is I'm going to talk about the full year, but these things can vary pretty significantly quarter-to-quarter. But as I think about the program, about 90% of our activity is going to be weighted to New Mexico. When I break that down a little bit further kind of by area, we'll see a little bit of an uptick in Tod this year in the Delaware, it's about 30%. Cotton Draw is about 25%, Stateline is about 15%. And then the balance of that activity is really spread out across the remainder of the Delaware Basin. Zone mix is another thing. We've got a lot of diversity in the zones for 2026, just like we did in 2025. But just to break it down at a high level, we're about 40% Wolfcamp. We're about 45% Bone Spring and about 15% Avalon. So all those things very similar to 2025. And because of that, we're expecting pretty consistent year-over-year well productivity. Operator: Our final question today comes from Matthew Portillo with TPH. Matthew Portillo: I actually had a question on the Bakken. Looking at the state data, you already have an impressive mix of 3-mile laterals in the development program. As you continue to shift more capital to the Grayson acreage, I was just curious how that mix shift might change for 3- and 4-mile lateral development moving forward and what that might mean for the breakeven of the asset base? Clay Gaspar: Yes, Matt, great question. I mean when you look back at 2025, admittedly, our lateral lengths were a little bit probably shorter than what we wanted, just given the layout of some of the units that we had last year. So we averaged closer to about a 2-mile lateral in the Williston. As you fast forward into 2026, we're going to average something closer to a 3-mile lateral. But when you look at the breakout, we are starting to introduce 4-mile laterals into the equation. We're actually drilling our first 4-mile pad right now. So the teams have continued to optimize the program for longer lateral development. And of course, as you go longer, you're enhancing the economics of those programs and the breakevens are coming in pretty significantly. Christopher Carr: It looks like we've kind of exhausted the question list. Thanks for your interest today. And if you have further questions, please reach out to the Investor Relations team. Have a good day. Operator: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
Operator: Thank you for standing by. This is the conference operator. Welcome to the iA Financial Group Fourth Quarter 2025 Earnings Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Caroline Drouin, Head of Investor Relations with iA Financial Group. Please go ahead. Caroline Drouin: Thank you, and good morning, everyone. Welcome to iA's Fourth Quarter 2025 Earnings Call. This conference call is open to the financial community, the media and the public. And I remind you that the question period is reserved for financial analysts. So before we start, I draw your attention to the forward-looking statements information on Slide 2 as well as the non-IFRS and additional financial measures and information on Slide 3. Also, please note that a detailed discussion of the company's risks is provided in our 2025 MD&A available on SEDAR and on our website. And I will start by introducing everyone attending on behalf of iA. Denis Ricard, President and CEO; Eric Jobin, Chief Financial Officer and Chief Actuary; Alain Bergeron, Chief Financial Officer; Stephan Bourbonnais, responsible for our Wealth Management operations; Renee Laflamme, responsible for Individual Insurance, Savings and Retirement; Pierre Miron, Chief Growth Officer for our Canadian operations and responsible for iA Auto and Home; Sean O'Brien, Chief Growth Officer for our U.S. operations and now responsible for all of our Dealer Services Operations; and finally, Louis-Philippe Pouliot, in charge of Group Benefits and Retirement Solutions. So with that, I will now turn the call over to Denis Ricard. Denis Ricard: Good morning, everyone, and thank you for joining us. We are very pleased to be here to review our fourth quarter and also the full year results. I would qualify the results as a good quarter and closing an excellent year. And before getting into our fourth quarter performance, I'd like to take a moment to reflect on 2025. A remarkable year for iA, marked by strong execution across the organization. We met or exceeded all our key financial targets delivering a core ROE of 17.1% and 16% growth in core EPS, fully aligned with our midterm objectives. Our businesses in both Canada and in the U.S. continue to build strong momentum with solid sales across every segment and disciplined progress on our strategic priorities. This growth was supported by our robust capital position fueled by $665 million of organic capital generation in 2025. Throughout the year, we deployed capital with discipline, balancing strong return to shareholders with investments that support future growth. This included the acquisition of RF Capital, which is already accretive and strengthening our wealth platform. Thanks to the dedication of our teams and the consistency of our performance across the organization, we closed 2025 with excellent momentum and a solid foundation as we enter 2026. With that, let's turn to Slide 9 for an overview of the results. Our fourth quarter results reflect strong and profitable growth across all business segments, including record individual insurance sales and very strong individual net fund inflows. This momentum underscores our continued success in the mass market and the power of our distribution networks, which we continue to invest in to drive sustained growth. We delivered a solid finish to the year with core EPS of $3.10 and a trailing 12-month core ROE of 17.1%, which already meets our midterm target. These results underline the strength and resilience of our diversified business model and the momentum we carry throughout 2025. Business growth remains strong across the company. Net premiums and deposits reached $5.9 billion, up 4%, and total assets under management and administration exceeded $341 billion, a substantial 31% increase. This was driven by strong seg fund inflows, favorable market conditions and the addition assets from RF Capital. This performance highlights the continued expansion of our distribution network, the breadth of our product offering and the sustained demand across our target markets. Our capital position remained robust at year-end with a pro forma solvency ratio of 137%, this trend was underpinned by $170 million of organic capital generation in the quarter, a testament to our consistent value creation. As at December 31, our capital available for deployment was $1.4 billion on a pro forma basis. We deployed significant capital again this quarter, including the RF Capital acquisition and continued investments. At the same time, we continue returning capital to shareholders through regular dividends in our NCIB. This balanced approach to capital deployments remain a cornerstone of our strategy, enabling us to support strategic growth, return capital to shareholders and continue investing in digital and AI-enabled capabilities that enhance efficiency and our overall product and service offering. Finally, our book value per share increased to $79.24 up 8% year-over-year or more than 10% when excluding the impact of NCIB. In a year where book value growth across the industry was generally modest. Our performance reflects the consistency of our results and our disciplined approach to capital deployment. Turning to Slide 10. Our Insurance Canada segment delivered another strong quarter, with broad-based growth across all units. Starting with Individual Insurance business, sales reached a record high of $111 million this quarter, supported by the strength of our distribution networks, the effectiveness of our digital tools and high adviser engagement. We continue to rank #1 in Canada for the number of policies issued, a leadership position we're proud of. In Group Insurance, premiums and deposits rose by 2% year-over-year, supported by premium increases on renewals and good sales throughout the year. In the fourth quarter alone, sales were up 15% from last year. In Dealer Services, sales grew 4% to $183 million. Finally, iA Auto & Home delivered another good quarter with sales rising 9% to $146 million. This reflects both an increase in number of policies in force and the positive impact of recent pricing adjustments. Overall, our results in Insurance Canada demonstrate solid execution and ongoing momentum across the board. Turning to Slide 11 to comment on sales on Wealth Management. Business activity was very strong in this quarter in Q4, as evidenced by record individual gross sales of $3.1 billion. In seg funds, we continue to build on our leading market position. Gross sales reached nearly $2 billion, up 27% year-over-year, and net sales grew to almost $1.2 billion. This reflects the sustained appeal of our product lineup and the effectiveness of our distribution networks. In mutual funds, gross sales increased by 16% year-over-year to $694 million and net sales reached $13 million. This reflects favorable market conditions and improving industry-wide sales. Sales of other individual savings products totaled $429 million, essentially in line with last year. And in Group Savings and Retirement, total sales reached $851 million. While this is lower than last year, it is important to note that prior year sales included a nearly $1 billion insured annuities transaction. Assets under management and group savings were 11% higher than a year ago. Turning to Slide 12. Our U.S. operations performed very well again this quarter. In Individual Insurance, sales increased 18% year-over-year to USD 80 million. This strong result reflects ongoing momentum in both final expense and middle market segments with Vericity again contributing meaningfully this quarter. Taken together, this business is an important driver of our long-term growth ambitions in the U.S. market. Dealer Services delivered another strong quarter with sales rising 8% year-over-year to USD 295 million. Our strong distribution relationships and diversified offering continued to support growth. We are seeing good traction from our management actions particularly our focus on service quality and disciplined pricing. This positions the business well to continue generating sustainable growth and to further expand our presence in the U.S. market. With that, I will now hand it over to Eric, who will take you through our fourth quarter profitability and capital position. Eric Jobin: Thank you, Denis, and good morning, everyone. I'm pleased to walk you through our fourth quarter results, which we are very satisfied with, especially considering the normal seasonality and higher-than-expected expenses linked to the company's strong performance in 2025. Overall, our fourth quarter results continue to reflect the underlying strength of our business fundamentals. Turning to Slide 14 for a closer look at the performance by segment. In Insurance Canada, core earnings for the fourth quarter were $105 million compared to $116 million in the same period last year. As a reminder, last year results included elevated core insurance experience gain of $15 million, while Q4 2025 reflected core insurance experience loss of $4 million. This year-over-year variation is due to the normalization of the P&C insurance experience at iA Auto and Home as well as unfavorable morbidity experience in special market this quarter. Excluding this experience variance, underlying performance remains solid, higher core insurance service results were recorded, driven by individual insurance, employee plans and iA Auto and Home. Core noninsurance activities, which typically show slightly lower results due to seasonality in the first and fourth quarters were nevertheless higher year-over-year, supported by the good performance of dealer services. Core other expenses were slightly higher year-over-year as a result of normal business growth. Let's now move from Insurance Canada to Wealth Management. On Slide 15, core earnings in the Wealth Management segment were $127 million in the fourth quarter, up 13% year-over-year. This growth was primarily driven by higher combined risk adjustment release and CSM recognized for services provided, reflecting strong net segregated fund sales and positive financial market performance over the last 12 months. Core insurance experience gains of $2 million were also recorded due to favorable longevity experience. These positive factors were partly offset by higher impact of new insurance business and group savings and retirement. Core noninsurance activities were similar to the same quarter in 2024. The higher net revenue on assets and the strong contribution from RF Capital, which is already accretive and performing ahead of expectation were offset by lower net interest income and nonrecurring expenses and other distribution and advisory affiliates. Turning to Slide 16. Fourth quarter core earnings in our U.S. operations were $30 million, an increase of 15% compared to the same period last year. This result reflects higher combined risk adjustment release and CSM recognized for service providers supported by good business growth over the past 12 months. The segment also benefited from lower core other expenses, although slightly tempered by core insurance experience losses from unfavorable insurance lapses. Core noninsurance activities, which typically post lower results in the first and fourth quarters due to seasonality totaled $15 million essentially in line with last year. This includes results from dealer services and from eFinancial, the distribution -- the digital distribution entity of Vericity. In Dealer Services, the sales mix was more weighted towards insurance product for which earnings emerge gradually over time, while eFinancial performed as expected. Now turning to Slide 17 for the results of the Investment segment. Core earnings for the quarter were $91 million before taxes, financial charges and debentures dividend. Core earnings were driven by core net investment result of $127 million compared to $120 million in Q4 2024 and $132 million in the third quarter. This result was driven by strong expected investment earnings of $124 million and favorable credit experience of $3 million in the car loan portfolio at iA Auto Finance. The $5 million quarter-over-quarter decrease in expected investment earnings reflects the impact of the reduction in assets following the acquisition of RF Capital. The $3 million year-over-year decrease reflects the same impact partially offset by favorable impact of the interest rate variation, including the steepening of the yield curve. Moving to Slide 18 for the result of the corporate segment. Core other expenses totaled $87 million pretax in the fourth quarter. This includes $74 million of core other expenses, which is near the upper end of the quarterly target range of $68 million, plus or minus $5 million. It also includes a provision for variable compensation that was higher than expected by $13 million, highlighting the company's strong performance in 2025. For the full year 2025, core other expenses were in line with target, showing our disciplined approach to expense management and our continued focus on operational efficiency. Looking ahead, our quarterly target range for core other expenses has been updated from $68 million, plus or minus $5 million in 2025 to $70 million plus or minus $5 million for 2026, reflecting normal inflation while maintaining our strong commitment to operational efficiency. Please turn to Slide 19 to review our robust capital position and financial strength. As of December 31, 2025, our solvency ratio stood at 133% and 137% on a pro forma basis when taking into account the impact of the 2026 AMF revised CARLI Guideline that came into effect on January 1, 2026. The quarter-over-quarter variation reflects the impact of our strategic capital deployment activities, including the RF Capital acquisition, share buybacks and dividend payments to common shareholders. These were partly offset by strong organic capital generation, favorable macroeconomic variation and the positive impact of the updated capital requirements related to domestic infrastructure. In the fourth quarter alone, we generated $170 million in organic capital, bringing the total for the full year to $665 million, surpassing our 2025 target of at least $650 million. We closed 2025 with high-quality and flexible balance sheet 1.4 billion in capital available for deployment on a pro forma basis and a sustainability to generate capital organically. The strong financial position gives us the capacity to deploy capital strategically while preserving a prudent and resilient balance sheet. Please turn to Slide 20, which summarizes the year-end assumption review and management actions. The net economic impact was a positive $10 million. The review was positive across nearly all categories. These updates and management actions ensure we maintain an accurate representation of our underlying economics and appropriately position the company as we enter 2026. The total impact, which includes an immediate impact on earnings as well as an increase in both CSM and risk adjustment reflects a shift in the timing of profit recognition, which is positive for future periods. This concludes my remarks. Denis, I'll turn it back to you for the closing comments. Denis Ricard: Thank you, Eric. Now please turn to Slide 22. We are very pleased with our fourth quarter results, particularly considering normal seasonality and higher expenses tied to the company's strong performance in 2025. The quarter allowed us to close out a remarkable year, one in which we achieved all our key financial objectives. As we look ahead to 2026, we are in a very strong position to sustain our profitable growth trajectory. Our earnings momentum is well established, and we continue to see strong sales across all business segments. We also have a robust and flexible balance sheet and significant capital available for deployment, key ingredients to support growth, acquisition and expansion. With these trends, we are moving forward with confidence and discipline. Our strategic investments in digital capabilities are enhancing efficiency and supporting business growth and the recent acquisition of RF Capital, which is performing ahead of our initial expectations, further strengthens our wealth management platform. Our confidence in our earning power is reflected in our new core ROE target as we now expect to achieve a core ROE of at least 17% again in 2026, along with more than $700 million in organic capital generation. In short, everything is in place. We have the means, the strategy and the momentum to achieve our ambitions and meet our financial targets. Thank you. Operator, we are now ready to take questions. Operator: [Operator Instructions] The first question is from Gabriel Dechaine from National Bank Financial. Gabriel Dechaine: Quick question on lapse. We saw it in the -- your actuarial adjustments and then we saw it was tied to one specific product. Can you tell us which product that was? And if it's related to the small amount of lapse, negative lapse experience we saw in the U.S. this quarter? Eric Jobin: Yes, Gabriel, it's Eric. This -- the product that is in that is at play here is a term product in Insurance Canada. And this product has been sold for, I would say about 10 years now. And just before we started to sell it just before the pandemic. And the pandemic created a bit of noise and the results, and we wanted to take the time to appropriately understand what was going on before triggering reserve strengthening. So now we're confident with a couple of years out of the pandemic, we're now confident in the experience. And we had to increase the lapse. Just to be clear here, it's not a lab supported product. It's really a term product. So we had to increase the lapses at almost all duration, including the renewal. So that's what took place here. It's not connected with the U.S. Gabriel Dechaine: Okay. So you've had this issue for a while now, and you've observed it for I don't know what period of time, but sufficiently enough to have a firm handle on that particular problem. Is that what you're saying? Eric Jobin: Exactly. We had set up in the past temporary provision to face what we thought was temporary headwinds. And now that we see the fact that it's permanent and it's a different behavior than expected. We fixed it and put it behind us. Gabriel Dechaine: Got it. Your buyback program, will you tell me how that works? Is it on a program that -- or do you have discretion because we saw some acceleration over the course of, well, actually this quarter heading into results and seems to maybe have been -- could have been a better timed, I guess, is one way of putting it? Like what are your plans going forward, Denis? Denis Ricard: Yes, yes. Okay. Thank you. Thanks for the question. We've accelerated it recently, starting in November. I think you can see the number on a monthly basis. We are running at the pace of around 4% a year right now, and we might accelerate it. It's obviously dependent. It's the formula that we have, and it depends on the price and a couple of criteria but you might expect that it might increase a bit if the price as it is this morning continue. Gabriel Dechaine: Got it. And then last one on these expenses in corporate. So for the full year, these -- what do they call non -- whatever they call, the one that qualifies for that $68 million plus or minus $5 million. You say you hit that this year. But then we have Q2 and Q1, you had these variable compensation costs that created some deviation is more noticeable this quarter. But why shouldn't we consider those as part of the corporate expenses and take away a different conclusion? Eric Jobin: Yes, thanks for the question, Gabriel. In reality, what took place here is one part of the variable compensation. As we do the financial statement every quarter, we want the provision to be at the right level at quarter end, reflective of all variable compensation necessary. And in Q4, what took place is that one part of that variable compensation with the stock performance from September 30 to December 31, justified significant increase on top of some other multiplicative effect that came at play. So it's just a normal provisioning given what happened in Q4. Gabriel Dechaine: And just -- can I go in the other direction? Eric Jobin: Yes. Operator: The next question is from Paul Holden from CIBC. Paul Holden: First question, I guess, will be on RF Capital. Since we could see the results as a publicly traded company, we saw it was operating around breakeven, but you managed to squeeze out $8 million of net income this quarter. So I just want to understand that source of accretion. And then maybe also, you can remind us what can we expect from RF Capital through the course of 2026, both in terms of sort of integration targets and accretion? Denis Ricard: Well, I think, Eric, you will cover the first part, and then Stephan can go on the second part. Eric Jobin: Yes, sure, absolutely. In fact, Paul, what is at play here is -- and remember, in Q3, I said that we were moving ahead or moving forward the accretiveness expected on RF Capital for 1 year for two specific reasons, the good work around the retention of the advisers and the market performance as well. So those were the two explanations for moving ahead of schedule with that. And I said at the same time that don't expect it to be accretive in Q4. But the reality is that the stock market performance and retention effort even showed benefit right from the start in Q4. So those are still the same reason as for last quarter. And for the business, I would leave it to Stephan now. Stephan Bourbonnais: Yes. Thank you, Eric. I'd say when you look at it, the integration synergy plan is progressing really, really well. The -- I think what was kind of unexpected for us is that we were able to close sooner than expected on October 31, right? So that what gave us a real head start to our plan. We were able to create those road maps really, really early from the get-go and be able to deliver that in Q4 in November and December. So as you know, we're no longer operating as a public company, which helped us to save on board committee audit and external costs that we needed to deal with. In the same week of the announcement, we were able to move quickly to realign the leadership team structure at RF to make sure we'd be aligned on our growth strategy and our road map. We started harmonizing corporate function as well when you're thinking about HR, legal and IT and again, benefited from the synergies there. And we even started reviewing some of the contracts with vendors. I mean we are sharing the same vendors across multiple platforms, and we're now able to benefit from the scale there. So this is what I think you're seeing in the results, and this is what you're seeing in us being comfortable to say we move this to be accretive year 1 instead of year 2. And on -- I would say, on the forward-looking and what you could expect, Eric mentioned very strong retention. So it's -- we're in a better spot than we thought. We're creating good momentum with the team in terms of bringing them solution for their clients in terms of products, investment solution, the assistance of capital market. This has been very well received by the team. And what's been interesting to see is kind of the noise that we've created in the industry. So our story about being the #1 nonbank in Canada with over $200 billion is catching on and people are interested in learning about it. So we've seen Investia and iA Private Wealth benefit from that. Advisers retention has been stronger than we've seen in those channels as well because I think our advisers understand that we're committed to the business. But we're also seeing an increase in the recruiting pipeline for both dealers. I think we're going to be able to announce some significant adviser movement towards our organization in the next coming weeks. So overall, things are going very well, and we feel very good about the progress that we've seen so far. Paul Holden: That's good. So I think the point on the adviser retention is a really important one. I don't know if you're able to provide any data statistics in terms of where retention is versus what your expectation was? So we -- yes, go ahead, Eric. Eric Jobin: Yes, I was going to say, Paul, just a reminder, we did not disclose because those are kind of sensitive parameters in our acquisition models and so on. So we did not disclose the expected assumption, neither the actual outcome, but I will tell you that it's really, really good in terms of actual outcome compared to expectation, which was high, but it showed up very, very well. Paul Holden: Understood. Okay. Okay. I'll leave that there. And then second question I want to ask is on the ROE target. So the positive for me is you achieved the ROE target actually this year, so 2 years ahead of plan, which is obviously very positive. My question really then is like why not increase the ROE target? I get you pulled it from 27% to 26%, but you're already there. So why not increase the ROE target? Is that -- is it related to capital deployment and that you can't buy a business that's generating 17% ROE, I get that. So maybe that's a factor? Or is it new businesses coming on at roughly 17% ROE? I guess -- or maybe you're just being conservative because I just want to understand a little bit better, like why can't it expand from the 2025 result? Denis Ricard: Yes. The question is good. I mean why don't we increase it? I mean the question could be asked, why would we increase it? -- in a sense that 17% is already where we had made the guidance at the beginning of last year. We were able to deliver on it. And I mean, quicker. Now we're changing it. We're seeing this is like the run rate of our ROE. But don't forget the plus, okay? So we're working on the plus. And so for us, it's really a matter of being, I would say, conservative, prudent in our approach. We would rather underpromise, overdeliver. We always work to obviously improve the ROE. And you hit one important point also because if we are a growth company, okay? We want to grow the organization, and we're looking at acquisitions. And sometimes when you buy an acquisition in the first year, you might not get the ROE that is your target. So you also have to take that into consideration in your guidance. So I would say it's really about being prudent going forward here. Operator: [Operator Instructions] The next question is from Tom MacKinnon from BMO. Tom MacKinnon: I wonder if you could talk a little bit about your group experience in the quarter. I think it may have been hurt by some outsized claims. What's your strategy is with respect to renewal of that group and how we should be looking at group experience going forward? Denis Ricard: Yes. Again, in this case, I guess, Eric, you will go first and then Louis-Philippe. Eric Jobin: Yes, absolutely, Denis. In fact, what happened in the quarter, Tom, is that there was, the federal government took some measures in the past to limit the number of permits for foreign students coming to Canada. This is a group we have in terms of covering medical foreign students coming to Canada in special market -- in the special market division. And since the government limited the number of permits, we kind of got hit on both sides I referred to. The premium income did go lower than expected, and we were hit on the claims side as well. So unfortunately, it resulted in bad experience in Q4. And -- but at the same time, this group will renew, is expected to renew in -- during the course of 2026. I will leave Louis-Philippe to talk about the strategy going forward. But note that in the change of assumptions for this group, we took a reserve increase or reserve strengthening to put this phenomenon behind us in 2026 up to the point of renewal. So it's part of -- we saw the impact in 2025. You have it in the experience loss. We fixed the reserve to have it at the appropriate level at year-end. And now strategically speaking, Louis-Philippe will talk about what he's doing on the business side. Louis-Philippe Pouliot: Well, so I think the main takeaway here is we're looking at that business. And for a group of that size, there's a number of tools at our disposal. Eric touched on a few of them. It includes also working with our distribution partners, repricing those groups. So we have a number of those tools. And we've taken some of those actions already, and we have the ability to make the choices of not renewing the business even if we figure out that we can't get to where we want. So we feel pretty good. We don't have a headwind ahead of us in 2026 on that front. Tom MacKinnon: Is the coverage that you're strengthening the reserves for, is that like supplementary medical? What is it specific? It's not disability, is it? Maybe you can just describe what, where you're seeing these elevated claims. What kind? Eric Jobin: Yes, you're right, Tom. It's not -- it has nothing to do with disability. It's really supplemental coverage. So it covers medical drugs and therapists coverage. So it's all of those site benefits and group insurance. Tom MacKinnon: And when does this group renew? Eric Jobin: September. Tom MacKinnon: Okay. So you're still going to have them for a few more quarters, but you're comfortable that you've bumped up the reserves enough to cover the additional incidents. Is it more of an incidence issue? Is that what it is just more going on claim here? Eric Jobin: Well, I said, but I said that Tom, two things. It's an incident and severity. But at the same time, we had less new students that came to Canada to keep the volume of premium at the appropriate level. So it's a combination of the two. And you are absolutely right. The move we did on the reserve was really to strengthen the balance sheet so that we don't have expected loss ahead of us up to the point of renewal. Tom MacKinnon: Right. And would you be able to share with us that reserve build, what the dollar amount was after tax or pretax? Eric Jobin: Yes. We did not disclose it, Tom. But it's part, if you look at the change of assumption page on Page 20. It's part of the other segment on the P&L side. So you see that we have a $70 million charge on this P&L side, and it's part of that, but it's significant. You saw the magnitude of the loss in Q4. So it's significant. Tom MacKinnon: And it's -- is it a significant part of the $4 million insurance experience loss that you had in Canada in the quarter? Eric Jobin: Yes, absolutely. Because when you think about it, we refer to the fact that iA Home & Auto had a normalization of experience in the fourth quarter, but it didn't mean that iA Home & Auto had an experience loss. They were still positive, but it was reflective of a normal winter. So if you take that into account, the fact that we had favorable mortality, and you see that we end at minus $4 million, it means that the loss was significant. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Caroline Drouin for any closing remarks. Caroline, your line is open. Caroline Drouin: Thank you, everyone, for joining us today. All of our fourth quarter earnings release and slides for today's conference call are posted in the Investor Relations section of our website at ia.ca. A recording of this call will be available for one week starting this evening and the archived webcast will be available for 90 days, and a transcript will be available on our website in the next week. Our 2026 first quarter results are scheduled to be released after market close on Tuesday, May 5, 2026. Thank you again, and this does conclude our call. Operator: This brings a close to today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Greetings and welcome to the TrueBlue, Inc. Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time, I want to remind everyone that today's call and slide presentation contain forward-looking statements, all of which are subject to risks and uncertainties and management assumes no obligation to update or revise any forward-looking statements. These risks and uncertainties, some of which are described in today's press release and SEC filings, could cause actual results to differ materially from those in the forward-looking statements. Management uses non-GAAP measures when presenting financial results. You are encouraged to review the non-GAAP reconciliations in today's earnings release or at trueblue.com under the Investor Relations section for a complete understanding of these terms and their purpose. Any comparisons made today are based on a comparison to the same period in the prior year, unless otherwise stated. Lastly, a copy of the company's prepared remarks will be provided on TrueBlue, Inc.'s investor website at the conclusion of today's call, and a full transcript and audio replay will be available soon after the call. I will now turn the call over to Taryn R. Owen, President and Chief Executive Officer. Please go ahead. Taryn R. Owen: Thank you, Operator, and welcome, everyone, to today's call. I am joined by our Chief Financial Officer, Carl R. Schweihs. Before we discuss our fourth quarter results, I would like to take a step back and reflect on the year. During 2025, we executed on our strategic priorities with discipline and focus, forming a strong foundation to build upon as we advance towards sustainable, profitable growth. We restructured our business model to expand our sales capability, unlock additional growth opportunities, and improve profitability while tightly managing costs. For our on-demand staffing business, we executed a comprehensive reorganization of our operating model, transitioning to a more efficient, territory-based structure and investing in sales resources to expand our reach in key markets. This structure and increased sales capacity enable more targeted, localized sales strategies and deeper client engagement. As a result, our sales-enabled territories continue to deliver stronger sequential performance. We have also focused on strategic partnerships and cross-selling initiatives as we continue to prioritize our return to growth. We launched an enterprise-wide strategic partnership with a leading group purchasing organization, unlocking new client acquisition channels and fueling a growing pipeline of multi-brand opportunities across our portfolio. This partnership has led to approximately $15,000,000 of annualized new business wins and continues to build momentum as we expand the relationship into new sectors. We are also fostering stronger partnerships across our brand portfolio. Greater enterprise alignment and collaboration continue to create more cross-selling opportunities, allowing us to better serve client needs and accelerate growth with our full spectrum of specialized workforce solutions. For example, collaboration between our PeopleReady and PeopleManagement teams continues to deliver results, with our commercial driver business securing three additional new locations serving a leading energy solutions manufacturer. Market expansion was a significant performance contributor over the past year as we leveraged our strong market position and expertise to capture demand in attractive verticals with strong growth drivers. Our energy sector revenue grew 60% while our commercial driver business continued to outperform the broader market, delivering its second consecutive year of double-digit growth. Structural labor shortages and strong secular forces in the energy space signal further growth potential as we continue to capture market share with our skilled businesses both geographically as well as in adjacent subsectors such as the construction of energy storage facilities and data centers. Our RPO solutions continue to expand coverage in attractive verticals such as engineering and technology through higher skilled roles. We increased our professional hires this year, building momentum as we diversify our business mix to grow market share. Healthcare also remains a significant long-term market opportunity with strong secular growth drivers. We have made meaningful progress expanding our presence in the healthcare market with new business wins spanning across our brands, as well as the addition of healthcare staffing professionals to the TrueBlue, Inc. portfolio. Since joining TrueBlue, Inc., HSB has expanded into three new states, and we are committed to thoughtfully scaling this business to capture sustained demand. Leveraging our deep expertise, extensive reach, and sophisticated technology, we continue to strengthen our position in the U.S. healthcare market. A key factor in our ability to deliver a differentiated user experience while also driving operational efficiencies is our portfolio of proprietary technology platforms. We have made significant progress enhancing the capabilities of our digital ecosystem with advancements that include embedded AI-powered job matching, predictive analytics, and behavioral insights across the talent lifecycle. Recently, we launched an AI-enabled bill rate feature within our jobs app that provides personalized, data-driven bill rates in seconds, supporting businesses in making faster, more confident staffing decisions. Our technology is a key contributor in delivering smarter workforce solutions, creating greater value for the customers and talent we serve, supporting efficiency at scale. It enables us to reduce operating costs, extend our reach, and continue investing in strategic sales initiatives as we accelerate growth. We are confident our strategic plan to enhance our sales model, expand our share in attractive end markets, and accelerate efficiency with technology and operational excellence positions us well to capitalize on the growth opportunities ahead. Our continued actions to drive top-line growth and margin expansion underpin our overarching commitment to realize long-term sustainable value for our shareholders. Our ability to execute this strategy is strengthened by the experience and expertise of our Board and leadership team, who are committed to serving the best interests of all shareholders and positioning TrueBlue, Inc. for long-term success. Now let us review our fourth quarter performance. We delivered our second consecutive quarter of organic revenue growth, driven by continued success growing our skilled businesses and greater stability in general demand trends. While we further grow the top line, we remain committed to driving improved profitability, as evidenced by our continued cost discipline leading to reduced operating costs for the quarter. As our strategic focus drives improved results, we are well positioned to capitalize on the untapped potential of the staffing market and deliver greater shareholder value. I will now turn the call over to Carl R. Schweihs, who will share further details around our financial results and outlook. Carl R. Schweihs: Thank you, Taryn. Total revenue for the quarter was $418,000,000, up 8% and near the high end of our outlook range. Organic revenue increased 5%, with the acquired HSB business contributing three percentage points of growth. Robust results in skilled trades fueled organic growth, as overall market conditions showed ongoing signs of stabilization. Our skilled businesses continue to outperform the broader market, delivering double-digit growth for the third consecutive quarter, driven by our team's success in capturing rising demand in the energy vertical. Our other business lines are also showing improved trends and solid momentum going into 2026 as we maintain our strategic focus on accelerating growth. Gross margin was 21.5% for the quarter, down from 26.6% in the prior-year period, primarily due to less favorability in the prior-year workers’ compensation reserve adjustments and the changes in revenue mix. As you may recall, last year’s gross margin benefited from a significant reduction in workers’ compensation costs due to favorable development of prior-year reserves. As expected, that degree of favorability did not repeat this year. For the revenue mix impact, this stems from more favorable trends in our staffing businesses and outsized growth in PeopleReady renewable energy work. As a reminder, renewable energy work carries a lower gross margin than the general PeopleReady business due to pass-through travel costs involved. Outside of these costs, the underlying margin for renewable energy work is consistent with other large PeopleReady accounts. We successfully reduced SG&A by 11%, even while revenue grew 8% for the quarter. This improved leverage demonstrates our continued commitment to managing costs and delivering enhanced profitability. We have made significant progress creating greater flexibility to scale and driving efficiencies that position us well to deliver strong incremental margins as industry demand rebounds and we further advance our growth initiatives. We reported a net loss of $32,000,000 this quarter, which included a non-cash long-lived asset impairment charge of $18,000,000 associated with the sublease of our Chicago support office. As a reminder, this reduction in corporate office space unlocks over $30,000,000 of cash flow over the remaining ten years of the lease, providing greater flexibility as we target compelling growth opportunities. Our results also included a small amount of income tax expense primarily associated with our foreign operations and essentially zero income tax benefit on U.S. operations due to the valuation allowance in effect on our U.S. deferred tax assets. As a reminder, the impairment charge and valuation allowance have no impact on our operations or liquidity. Adjusted net loss was $8,000,000 while adjusted EBITDA was $2,000,000 for the quarter. Now let us turn to our segments. PeopleReady grew 11%, driven by continued outperformance in the energy sector. Revenue more than doubled in the energy vertical for the second consecutive quarter, as our strong market position and deep client relationships continue to drive success in this growing market. Our on-demand business is also showing improved trends, especially in our local business where we have invested in sales resources, signaling building momentum as we enter 2026. PeopleReady segment profit margin was down 370 basis points, mainly due to the favorable prior-year workers’ compensation reserve adjustments not repeating at the same level, as well as changes in business mix with outsized growth in renewable energy work as I mentioned earlier. PeopleManagement revenue declined 2% due to lower on-site volumes, primarily in the retail vertical and consistent with the macro conditions in that space. While client volumes declined for the quarter, our teams are building momentum with 13 new sites launched during the quarter and continued success in new wins, positioning the business well to drive revenue expansion in 2026. Our commercial driver business also continues to outperform, delivering its eighth consecutive quarter of growth as we leverage our strong client relationships and expertise to capture rising demand. PeopleManagement segment profit margin was up 50 basis points due to disciplined cost management actions to drive improved efficiencies and greater scalability. PeopleSolutions revenue grew 42%, with HSB performing in line with expectations and driving the year-over-year growth. On an organic basis, PeopleSolutions was flat to the prior year, as overall hiring volumes remained subdued. While clients continue to navigate budget restraints and evolving workforce needs, we are encouraged to see signs of stabilization with our new business wins and expansions. We continue to win and expand with new clients, especially with higher skilled roles and serving growing end markets with long-term secular tailwinds. PeopleSolutions segment profit margin was up 180 basis points, primarily driven by cost actions to deliver efficiencies and greater operating leverage. Now let us turn to the balance sheet. We finished the quarter with $25,000,000 in cash, $66,000,000 of debt, and $68,000,000 of borrowing availability, resulting in total liquidity of $92,000,000. During the quarter, we reduced our debt position by $2,000,000 while increasing working capital by $2,000,000 as we maintain our focus on delivering operational efficiency and enhanced financial flexibility. With the recent amendment to our credit facility effective January 30, we have increased our borrowing availability for the remainder of the agreement term by transitioning to an asset-backed structure. We remain committed to managing a strong liquidity position and foundation to ensure we are well positioned to capitalize as market demand rebounds. Looking ahead to 2026, we expect revenue growth of 3% to 9% year over year as we continue to build on the success we have achieved in recent quarters. This includes one percentage point of inorganic growth from HSB. I would also like to provide additional context around workers’ compensation reflected in our first quarter margin outlook. As we have discussed, prior-year periods benefited from outsized favorability in workers’ compensation reserve adjustments. These trends have since normalized, resulting in year-over-year margin compression for the fourth quarter and a similar headwind expected for 2026. This represents a return to a more normalized run rate, rather than a change in underlying trends. Given the expected revenue mix and the fact that the first quarter is seasonally our lowest revenue quarter, we expect a lower margin in the first quarter, but our lean cost structure will drive improved margins as we move through the year. Additional information on our outlook can be found in our earnings presentation shared on our website today. Before we open up the call for questions, I will turn it back over to Taryn for some closing remarks to the prepared section. Taryn R. Owen: Thank you, Carl. Before turning to Q&A, I want to touch briefly on the recently announced changes to our Board of Directors. Over the course of several months, TrueBlue, Inc. engaged with shareholders as part of a deliberate board refreshment process. In early 2026, we welcomed two highly qualified independent directors with deep operational and commercial experience and announced that two current directors would step down at or before our 2026 annual meeting. This refreshment strengthens and broadens the Board's capabilities while reinforcing our commitment to shareholder engagement and effective oversight. As you have heard from us today, we have a clear strategy to drive long-term sustainable value, and it is producing results. We have executed on this strategy with discipline and focus, strengthening our market position, diligently managing our cost structure, and building momentum to fuel future growth. In 2026, we are acutely focused on capturing market share as we further strengthen our sales reach and expand in growing markets, leveraging our efficient and scalable operating structure to deliver improved profitability. We are confident we have the right people, structure, and strategy to drive TrueBlue, Inc. forward, accelerating our growth, enhancing shareholder value, and advancing our mission to connect people and work. This concludes our prepared remarks. Operator, please open the call now for questions. Operator: Thank you. We will now open for questions. One moment while we poll for questions. Thank you. Our first question is from Marc Frye Riddick with Sidoti & Company. Carl R. Schweihs: Hi, good evening. Hey, Marc. Hi, Marc. Marc Frye Riddick: So I wanted to maybe start where you left off there with the margin discussion. Maybe you could talk a little bit about how, given the sort of the different rates that we are seeing of business recovery and client demand improvements, how that might impact the overall firm-wide margin trajectory as we sort of move forward through the year. And this is a—we are putting aside the prior-year workers’ comp part of the conversation, but maybe you could sort of talk about the margin trajectory going forward. Carl R. Schweihs: Yes. Thanks for the question, Marc. I will take that. We have done a really good job managing costs, in controlling what we can in this market. And we have mentioned this in the past, we feel like with the optimized fixed cost base that we have, we are poised for significant incremental margins and expanding our profitability as demand rebounds. Just historically, our incremental margins have been between 15% to 20% across the portfolio. But with the actions that we have made, we believe we will do a little bit north of that range, depending on, obviously, the segment in which it comes in. So, all told, if we are in that normalized industry growth rate, we would expect to expand our EBITDA margin percentage upon those sort of growth rates. Right now, our entire focus is really around controlling what we can control. Whether or not we see a faster recovery or slower recovery, we are going to continue to be driving growth and productivity and focused on driving increased profitability in the business. Marc Frye Riddick: Okay. Great. And then maybe you could sort of shift over to the energy activity and renewables in particular. With the top-line growth that you are seeing there, can you talk a little bit about the visibility and sustainability of that growth and activity? And then maybe you could talk a little bit about what you are seeing as far as new business wins and the current pipeline and maybe sort of the strategic approach that you are taking there to maintain growth going forward there? Taryn R. Owen: Thanks for the question, Marc. We are very encouraged by the momentum in our energy business, especially in renewables. Expanding in high-growth, underpenetrated markets is a key strategic priority for us across the brand portfolio, and energy is a great example of this. We are seeing strength across commercial solar and full-scale renewable projects, and we are also focused on expanding into nonrenewable energy sectors as well. As mentioned in our prepared remarks, our energy business more than doubled the second quarter in a row, really driven by our expertise and the strong client relationships that we have built with these clients over the past decade. In quarter four alone, we secured several multimillion-dollar project wins, and our pipeline remains very healthy, positioning us very well for continued growth in this space. Carl R. Schweihs: Yes, if I could just add a couple of points here. And Taryn mentioned that decade of experience here, so we feel good about what we have done. But it does expand just beyond the renewables. And energy as an end market for us reached 15% of our portfolio at 2025. It was 10% as of 2024. We do not think the energy usage here in the U.S. is going down anytime soon, so we feel good about that opportunity as we move forward. Marc Frye Riddick: Okay. Great. And then you made a commentary during your prepared remarks around the contributions with HSB and what you are seeing in healthcare-wise. Can you maybe talk a little bit about how you view that vertical and, as an offshoot, as far as potential cash usage, is there room for inorganic pursuits in that space or any that you see as attractive at this point? Carl R. Schweihs: Yes. Thanks for the question, Marc. Let me take that first one. So yes, in Q4, HSB delivered about $40,000,000 of inorganic growth, reflecting really our growing traction in that market and strength of our integration work. We remain confident in the strategic value of the acquisition and intend to continue our expansion in the high-growth end markets. This acquisition was accretive to us. It allows us to continue to capitalize on secular growth opportunities in the healthcare space and think that that is going to be a long-term driver for our business. As we just look back on the original strategy with our HSB acquisition, it was a regional West Coast-based firm that we had plans to expand into more states and more geographies. And as Taryn mentioned in prepared remarks, we added another state. So we are in our third new state since launch and feel good about this one continuing to be a good driver for us going forward. Taryn R. Owen: And, Marc, to answer your question regarding M&A, right now we are not prioritizing M&A, but instead focusing on managing the business to cash flow positive. We will continuously, of course, evaluate any opportunities to enhance shareholder value and position TrueBlue, Inc. for long-term success. Marc Frye Riddick: Great. Thank you very much. Carl R. Schweihs: Thanks, Marc. Operator: Our next question is from Mark Steven Marcon with Baird. Good afternoon, and thanks for taking my questions. Mark Steven Marcon: Just want to start with the energy business. So, Carl, you said it is 15% of the total portfolio at this point? Is that correct? Carl R. Schweihs: That is energy as an end market. So that is across all of our portfolios. It is 15% across PeopleSolutions, PeopleManagement, PeopleReady as well. Mark Steven Marcon: Got it. And what about just the renewable energy within— Carl R. Schweihs: Within PeopleReady? Yes. That is about a third of our business probably. Mark Steven Marcon: And just— Carl R. Schweihs: Trying to dig down into the gross margins. If we take a look at that— Mark Steven Marcon: That business, because you have got— Mark Steven Marcon: You know, some pass-through, how much of that business is pass-through? Carl R. Schweihs: Yes. No. Great question. It does— Carl R. Schweihs: Pass-through costs, and that is what we called out in the remarks as well. Mark, as you think about that significant growth, it resulted in about 200 bps of gross margin contraction. We have got those pass-through costs that go into that business. So our on-demand business obviously has a bit higher gross margin. But it is important to note that this is still a high EBITDA margin business for us. Mark Steven Marcon: And what percentage of the revenue from that is pass-through? What percentage of the revenue of that is pass— Taryn R. Owen: Through? Mark Steven Marcon: Yes. Is that the question? Taryn R. Owen: Yes. Carl R. Schweihs: I do not have the numbers in front of me, Mark, but it is about a third. And I would say the gross margins, you know— Mark Steven Marcon: Probably— Carl R. Schweihs: 60% of the rate of our on-demand business. Mark Steven Marcon: Okay. That is helpful. Great. And then can you talk just in PeopleReady—we are starting to hear and see some signs of economic recovery. If we strip out that renewable energy business, and maybe even stripping out the commercial driver business on the PeopleReady side, what are you seeing in terms of organic growth outside of those two spaces? Are you seeing any signs of improvement— Carl R. Schweihs: Yes. Thanks for the question, Mark. So, yes, PeopleReady did see improved trends with our weekly sequential revenue growth during the quarter. Now it was driven by the skilled businesses that we had talked about. Just to put this in perspective, we exited Q4 at a similar rate to Q3. So we were plus 16% in Q4, plus 18% in Q3. I will give a couple of other trends across the portfolio as well. Our PeopleManagement business, those monthly trends were largely in line with our quarterly results. And then as we move into January—I know this is to be one of the ones you are thinking about—it is strong results in January as well. They were offset by a little bit of weather impact that we saw across the country. The last thing that I would call out here too, Mark, is in our PeopleReady on-demand business, which is one of your questions, we did see stronger performance in our local business versus our national accounts, really driven by a lot of the sales investments that we have made there. And then from an end-market perspective, I would say the biggest improvements we saw across our portfolio were energy, hospitality, manufacturing. Mark Steven Marcon: And then just going back to the gross margins, what was the difference in terms of what changed the level of favorability in terms of the accrual reversals a year ago relative to this year? Carl R. Schweihs: No change in our expectations. So we guided to that as well. It had about a 290 basis points impact to Q4 results, Mark. But we called those out Q4 of 2024 as well. They were really our prior-year reserve credits that impacted it. So that is the impact. Mark Steven Marcon: I am just trying to get to what caused the change. In other words, are you starting to see a higher level of workers’ comp claims? Are the cost of the claims potentially changing at all? What is going on underneath the surface? Carl R. Schweihs: Great question. So, no. From a worker safety perspective, this is really important to our business. We continue to manage our safety and claims processes very, very closely. A lot of what we saw was some of the mix shift in business that we have through our energy business that we talked about, lower revenue models in our on-demand versus our renewables. But nothing changed to the underlying fundamentals. Once we work through Q1, which we guided to as well, this normalizes. Mark Steven Marcon: Okay. So it will normalize starting in Q2? Carl R. Schweihs: That is right. Mark Steven Marcon: Okay. Great. And then you mentioned the non-cash impairment charge of $18,000,000 with regards to the Chicago support center. How much is that going to save you in cash going forward? Carl R. Schweihs: $30,000,000 over the next ten years. Mark Steven Marcon: Is that $3,000,000 per year? Carl R. Schweihs: It will, with rent escalations, a little bit. So I would say between $3,000,000 and $5,000,000 through those terms. The other thing to call out here is ongoing SG&A savings, about $1,000,000 in 2026. We will have about $3,000,000 in 2027, and then following those cash savings that we talked about is $3,000,000 to $5,000,000 thereafter. Mark Steven Marcon: And then are you including a WOTC credit in your projections for 2026 or not? Carl R. Schweihs: We do. We have small WOTC credits included in there. Mark Steven Marcon: Why? It has not passed legislation yet. Carl R. Schweihs: Not in our guidance. We do not have anything in our guidance, Mark. Mark Steven Marcon: Okay. Great. Thanks. I will jump back in the queue. Taryn R. Owen: Thank you, Mark. Carl R. Schweihs: Thanks. Operator: Our next question is from Jessica Luce with Northcoast Research. Taryn R. Owen: Hi. Good evening. Jessica Luce: Hi, thank you for taking the question. I wanted to comment—I know that you mentioned that there are some stronger signs within the local business, and I am curious how you would characterize your conversations with customers today versus if you look back about six months ago? Taryn R. Owen: Yes, great question. Thank you. I would say, overall, our customer sentiment remains cautious due to ongoing uncertainties in the environment. With that said, we are encouraged to see the positive momentum in the business and signs of stabilization, particularly in our on-demand business with our second quarter of organic revenue growth here in Q4. We are seeing momentum and a return to growth among some clients and geographies, with our teams securing new wins and customer expansions—really all good signs that customers are beginning to experience positive momentum, tempered with some of that uncertainty we talked about. Jessica Luce: Okay. Perfect. Thank you so much for the clarity. And then just one brief follow-up. How would you describe the current pricing environment? Is there anything that stands out right now? Carl R. Schweihs: Yes. Thank you for the question. From a pricing standpoint, we continue to see some pricing pressure in the business. We had our pay rates up about 3.8% in the quarter while bill rates were up 2.5%. It led to about a 40 bps decline in our margin during the quarter. Really, pay rates were largely in line with where they were in Q3, Jessica, and increasingly driven by role-specific skills rather than general labor shortages. So while there is still some pricing pressure in the business that we would expect in this environment, we continue to be disciplined with pricing to ensure that we are not pricing ourselves out of the market, feeling good about being able to pass through our bill rate increases. Taryn R. Owen: Alright. Perfect. Thank you so much. Jessica Luce: Thank you. Operator: Thank you. There are no further questions at this time. I would like to hand the floor back over to management for any closing comments. Taryn R. Owen: Thank you, Operator, and thank you, everyone, for joining us today. I want to take this opportunity to thank the entire TrueBlue, Inc. team for their tremendous effort providing our customers and associates with exceptional service and for their commitment to advancing our mission to connect people and work. We look forward to speaking with you at upcoming investor events and on our next quarterly call. If you have any questions, please do not hesitate to reach out. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Hello everyone. Thank you for joining us and welcome to the Clearwater Paper Corporation fourth quarter and full year 2025 earnings conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I will now hand the call over to Sloan Bohlen, Investor Relations. Please go ahead. Thank you so much. Sloan Bohlen: Good afternoon, and thank you for joining Clearwater Paper Corporation’s fourth quarter and full year 2025 earnings conference call. Joining me on the call today are Arsen Kitch, President and Chief Executive Officer, and Sherri Baker, Senior Vice President and Chief Financial Officer. Financial results for 2025 were released shortly after today's market close. You will find a presentation of supplemental information, including a slide providing the company's current outlook, posted on the investor relations page of our website at clearwaterpaper.com. Additionally, we will be providing certain non-GAAP financial information in this afternoon's discussion. A reconciliation of the non-GAAP information to comparable GAAP information is in the press release and in the supplemental information provided on our website. Please note slide two of our supplemental information covering forward-looking statements. Rather than reading this slide, we will incorporate it by reference into our prepared remarks. With that, let me turn the call over to Arsen. Good afternoon, and thank you for joining us today. 2025 was a transformational year for Clearwater Paper Corporation. It was our first full year operating as a paperboard-focused business, and I am pleased with how well our team executed, even as we faced a challenging industry environment. Let me provide a brief recap of our 2025 performance. We successfully completed the integration of the Augusta Mill and the separation of our tissue business. Arsen Kitch: Both ahead of schedule. Net sales increased by 12% year over year, driven by a 14% increase in shipments, primarily from operating the Augusta Mill for a full year. Adjusted EBITDA was $107,000,000, an improvement of $71,000,000 versus the prior year, driven by exceptional cost control and execution. We completed all three major maintenance outages in 2025 on schedule, with total direct costs of $50,000,000, marking a significant improvement in execution and cost versus 2024. We delivered more than $50,000,000 in fixed cost reductions, including $16,000,000 in SG&A savings, which should improve our long-term earning potential as our industry recovers. SG&A declined to 6.5% of net sales, down from 8.4% in 2024, which we believe positions us as an industry leader on this metric. We repurchased $17,000,000 worth of shares during the year, with $79,000,000 remaining under our authorization. And importantly, we maintained a strong balance sheet, ending the year with more than $400,000,000 in liquidity. Looking ahead, we will continue to evaluate our options and alternatives to maintain financial flexibility and optimize capital allocation, including refinancing our 2020 notes, which go current in August 2027. Let me spend the next few minutes discussing current industry dynamics and the actions that we are taking to position us for return to cross-cycle margins and cash flows. Sherri will then review our financial results in more detail, including our first quarter outlook and key assumptions for 2026. I will then conclude with remarks on our shareholder value proposition. Let us start with our industry. Paperboard continues to face challenging supply and demand dynamics, particularly in SBS. We believe that there are three factors that are driving this imbalance. First, demand recovery for packaging has not materialized as expected. Industry shipments of SBS were largely flat year over year, based on the latest AF&PA data, and down in CRB and CUK. CPG and QSR volumes remain lackluster, pressured by inflation, economic uncertainty, and the likely impact of GLP-1 drugs on consumption. While demand for SBS is relatively flat, a competitor added more than 500,000 tons of new capacity in 2025, representing approximately a 10% increase in industry supply. As a result, industry operating rates decreased to the low 80% range by 2025, leading to pricing and margin pressure. At these margin levels, we do not believe that Clearwater Paper Corporation can produce the cash flows and returns that are necessary to reinvest in these types of capital-intensive assets in the long run. We also believe that these dynamics are beginning to impact other paperboard substrates, as there is meaningful overlap in end-use applications. Today, SBS is priced lower on a per ton basis than CUK, even though SBS has higher manufacturing costs and a superior print surface. SBS is also priced lower on a per square foot basis versus CRB, since a heavier-weight CRB is required to replicate performance characteristics of SBS. We are aware of CPG customers that are actively moving their business from CRB to SBS, a trend that we expect to continue at these price levels. Let me briefly discuss the most recent RISI reported price movements in SBS and the impact on our business. RISI reported a $100 per ton decrease in their SBS folding carton index during the fourth quarter. From our vantage point, this change did not accurately reflect industry pricing, as our price declined by an average of only $21 per ton from Q3 to Q4 and not $100 per ton. While we disagree with RISI's latest reported decrease, we are faced with a $50,000,000 price headwind as a result. After the Augusta acquisition, approximately 40% of our volume is now tied to the RISI folding carton index, while 10% is tied to the RISI cup index. In total, including the latest fourth quarter RISI index change, we are faced with an approximately $70,000,000 pricing headwind in 2026 versus 2025. While the most recent fourth quarter pricing movements were negative, RISI is projecting a recovery in both SBS operating rates and pricing in 2026. Sloan Bohlen: Specifically, Arsen Kitch: RISI is projecting operating rates to improve to 90%, with a price increase of $60 per ton in 2026 and a total of $130 per ton by 2027. If these projections were to hold, our margins would improve by more than 10% and get us back towards cross-cycle returns and cash flows. As I mentioned previously, this is a supply-driven downturn that is unsustainable. Specifically, we believe that supply now exceeds demand by about 400,000 to 500,000 tons, resulting in industry operating rates being around 10% below historical norms. We believe that this is a temporary condition and that a combination of three factors will drive an improvement in the supply and demand balance and get us back to cross-cycle margins and cash flow. First, SBS demand is forecasted to grow in 2026, and we should benefit from substitutions. Second, imports are forecasted to decrease by 8% in 2026, while exports increase by 5%. And third, RISI has forecasted a net capacity reduction of 180,000 tons in 2026. With all these changes, RISI is forecasting industry operating rates to approach 90% by year-end. We believe that these factors will accelerate an improvement in industry conditions going forward. While the industry environment remains challenging, we are focused on controlling the controllables and assessing our options. First, we continue to focus on running efficiently, reducing costs, and maintaining share with our long-standing strategic customers. Second, we recently announced a price increase to our customers of $60 per ton in our cup grades and $50 per ton for all other products. These increases are necessary to offset the cumulative impact of inflation over the last several years and to enable us to continue to invest in our assets. These increases impact approximately 50% of our volume that is not tied to the RISI price index. The remaining 50% of our volume will move as industry price is reflected in the RISI price index. Lastly, we plan to balance Clearwater Paper Corporation’s supply with demand in 2026, which may include extended curtailments on our assets and variabilizing our costs whenever possible. In addition, we will look at our manufacturing assets to determine what actions we can take to reduce our costs further, improve our margins and cash flow. Let me wrap up with a few comments on our strategic efforts to diversify our product portfolio. We believe that these efforts will deepen our relationships with our converters and allow us to sell incremental volume. We are preparing to launch VOLURA, a new lightweight paperboard product line in the second quarter. This brand incorporates mechanical pulp in the middle layer and is designed to compete with FBB, which represents approximately 10% of North American bleached paperboard demand. We have completed the engineering feasibility for a CUK investment at our Cypress Bend facility, with a cost now estimated at $60,000,000 with a 12 to 18 month execution timeline. We believe that annual CUK supply is roughly 2,000,000 tons in North America, of which 300,000 to 400,000 tons is currently sold to independent converters. With this investment, we believe that we can capture approximately 100,000 to 150,000 of these tons. The remaining 200,000 tons of capacity at Cypress Bend would provide flexibility to meet bleached paperboard demand or target additional unbleached products such as white top. We believe that this project offers an attractive return and enhances our ability to manage through market cycles. We have not made the final decision on this project at this point. In addition, we are continuing to evaluate external options to add CRB to our portfolio, further diversifying our end market exposure. With that, I will turn the call over to Sherri to walk through our fourth quarter and full year financial results along with our first quarter outlook and full year assumptions. Sherri Baker: Thank you, Arsen, and good afternoon, everyone. Let me start by sharing our results for the fourth quarter. Sherri Baker: Net income from continuing operations was $3,000,000, or $0.20 per diluted share, including $17,000,000 of insurance proceeds. Net sales were $386,000,000, flat versus 2024, as higher shipments were offset by lower pricing. Adjusted EBITDA from continuing operations was $20,000,000, above the midpoint of our guidance range of $13,000,000 to $23,000,000, driven by cost reduction efforts and $6,000,000 of insurance proceeds. We executed the Augusta maintenance outage successfully, $17,000,000 in total direct spending. SG&A remained below our targeted 6% to 7% range, reflecting our continued cost discipline. For the full year, net loss from continuing operations was $53,000,000, or $3.28 per diluted share, primarily driven by a non-cash goodwill impairment. Net sales were $1,600,000,000, up 12% versus 2024, with higher shipments from our Augusta acquisition as well as growth from our existing customers. Adjusted EBITDA from continuing operations was $107,000,000, up $71,000,000 year over year, driven by strong cost management leading to a $50,000,000 fixed cost reduction as well as higher volumes and lower input cost. Total major maintenance outage spending was $50,000,000, significantly lower than prior year due to improved planning and solid execution. Let me provide a few additional comments on the insurance recovery. As part of the Augusta acquisition, we obtained representation and warranty insurance with a coverage limit of $105,000,000. During integration, we identified matters inconsistent with representations made to us and notified the insurers accordingly. In Q4, we received an initial settlement payment of $23,000,000, of which $6,000,000 is related to operating costs incurred in 2025. We have approximately $75,000,000 remaining of our $105,000,000 coverage limit and continue to work through the claims process with our carriers. Let us now turn to our outlook for the first quarter. We expect adjusted EBITDA of approximately breakeven for the quarter. We experienced operational disruptions and higher cost due to severe weather at our Odessa and Cypress Bend facilities in January and February. Our team was able to safely navigate this event without any long-term impact to our assets, and we are now back to running normally. As a result of higher energy costs and impact on production, we incurred approximately $15,000,000 to $20,000,000 in incremental costs during the quarter. We expect flat to slightly lower paperboard shipments versus the fourth quarter. We expect $10,000,000 to $12,000,000 of lower pricing related to Q4 RISI movements, and $11,000,000 to $13,000,000 of lower maintenance expense versus Q4, as there are no major outages in the quarter. Turning now to our key assumptions for 2026, which include revenue of $1,400,000,000 to $1,500,000,000 with flat to modest shipment growth, approximately $70,000,000 in pricing headwind from 2025 carryover. Importantly, our assumptions do not include any impact from our recently announced price increase or the latest RISI forecast on pricing and operating rate improvements. We expect our net productivity to offset 2% to 3% input cost inflation. Capital expenditures will be in the $65,000,000 to $75,000,000 range. We expect approximately $20,000,000 of working capital improvement, and we are planning to maintain SG&A at 6% to 7% of net sales. With that, I will turn the call back over to Arsen for closing remarks. Arsen Kitch: Thanks, Sherri. To close, I want to emphasize that we operate high-quality assets, are executing well, and have long-standing strategic customer relationships. We took several difficult but significant actions in 2025, including reducing our overall workforce by more than 10%. This includes a reduction in our corporate SG&A headcount of around 40%. Our team is operating with a lean and disciplined mindset, intensely focused on results. We have a strong balance sheet with more than $400,000,000 of liquidity, which positions us to weather this supply-driven downturn. I remain confident that this cycle will turn and that we will return to cross-cycle EBITDA margins of 13% to 14% and generate more than $100,000,000 of annual free cash flow. That said, today's margins and cash flow levels are not tenable for us for an extended period. This is a capital-intensive industry, and adequate returns are required to reinvest in these types of assets over the long term. Simply put, current margins are not sustainable for us. We are taking action, starting with recent price increases, being prepared to take market-related downtime to address our operating rates, assessing our costs and assets, and continuing to evaluate alternative uses of our capacity, including a CUK conversion. Above all, we will continue to make disciplined decisions that drive long-term shareholder value, supporting our customers, employees, and communities. Thank you for your time today. Operator, please open the line for questions. Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Sloan Bohlen: Your first question comes from the line of Mike Roxland with Truist Securities. Operator: Your line is open. Please go ahead. Sloan Bohlen: Yeah. Thank you, Arsen and Sherri, for taking my questions. Arsen Kitch: Mike, welcome to the call. Sloan Bohlen: It is good to be here, and to the extent I could say in terms of trying to manage a very difficult environment, obviously there is a lot going on, a lot of moving pieces, and it is truly the efforts you are putting in terms of managing cost. You are seeing some of those benefits flow through, so good job in that regard. Also, I wanted to start on grade switching that you called out in your comments and in the slides, from CRB to SBS. You mentioned some of your customers are looking at that. Any color, or additional color, I should say, in terms of have you seen that in your own portfolio? To the extent you can, how many tons have actually pursued that? Are you seeing more and more customers line up, particularly given the fact that SBS is now cheaper than the other two? So just any type of grade substitution that you are seeing would be very helpful. Thank you. Arsen Kitch: Yep. Good question. Listen, we are in early days of this. We know customers are looking at this. They are facing a lot of cost pressure, just like everyone else. And right now, there is an arbitrage with SBS being priced lower than both CUK on a per ton basis and CRB on a per square foot basis. There is a lot of overlap in applications. Frankly, I think there are very few applications where you are not able to substitute. So I think we are in early days of this, but I know our customers are talking about it. We know competitors are talking about it. But I think we are still in early days of this. This is not something that happens overnight. Got it. Sloan Bohlen: Okay. And you mentioned that you expected, you cited RISI in terms of their forecast, the demand to improve. But what gives you confidence that demand will inflect this year? What are you hearing from your customers? Some of the comments at CAGNY were not so positive this week. General Mills just lowered their sales outlook for the year. So what gives you confidence that you are going to see this demand improvement? And if you do not see this demand improvement, how much additional capacity do you think has to come out of the market for things to balance accordingly? Arsen Kitch: Yep. A few questions in there. First and foremost, I think paperboard has been in this volume recession now for a couple years, and a lot of it is, frankly, inflation and CPG and QSR companies not promoting and not driving as much innovation as they have historically. Every single CPG and QSR company that you listen to is now talking about growth and foot traffic and volume growth and share, so we think that is a positive sign. Inflation is slowing. That is another positive sign. There is some possible substitution. That is a positive sign. Our customers are generally optimistic as we head into 2026. Now 2025, with call it zero shipping growth, and SBS was below our expectations, but SBS outperformed both CUK and CRB, and if you look at those shipments, they were down about 4% year over year. So right now, the forecast is call it maybe about a percent growth. We are seeing green shoots, but we need to see that translate into real volume. Sloan Bohlen: Got it. Well, that is where I will turn it over. Just you mentioned taking extended curtailments if the situation does not improve given the backdrop. Have you made any concrete decisions in terms of mills, where, when, how long? Just any color you can provide around maintenance or extended downtime. Thank you. Arsen Kitch: Yeah. It is a good question. We have not. We are obviously thinking about it. We think we will have a path forward by the end of Q2 and a strategy by the end of Q2. We have been balancing supply and demand over the last year or two, so that is not new news for us. But we have not spent much time trying to variabilize those costs. At this point, I think we need to look at it more in the longer run and see where we can actually take out costs as we think about these more extended curtailments. So more on this to come. Sloan Bohlen: Got it. Thank you very much. Operator: Your next question comes from Sean Steuart with TD Cowen. Your line is now open. You may go ahead. Sloan Bohlen: I want to follow up. Arsen Kitch: With the supply management piece of this, it sounds like you are biased towards taking rolling market-related downtime to supplement the maintenance schedule. It feels like the need here is more permanent or indefinite supply closures. It sounds like Smurfit WestRock has stepped up with something small. Any perspective on your portfolio machines that might make sense to curtail on a longer-term basis, and I guess just weighing the cost of permanent or indefinite closures versus this rolling downtime approach, which can be expensive. Any thoughts on that front? Yeah. Thanks, Sean. That is a great question. Listen, we have taken downtime over the last couple of years to balance our supply and demand. It was mostly inventory driven. We have also taken a lot of cost out of our system. But there is still a fundamental issue with underutilized capacity within the industry and within Clearwater Paper Corporation. I am not prepared to talk about any specific decisions that we are or are not going to make. We need to look at further cost reductions, and we need to look at our assets and see what makes sense for us in the long run. As I mentioned in my comments, at these margin levels and these pricing levels, we are simply not earning enough cash or margin to be able to reinvest in our assets in the long run. We have ample liquidity. We can weather the storm. The question just becomes what are the right decisions to make for the business. K. Got it. And on that liquidity position, it is healthy. I think the messaging last call was you would consider reengaging on buybacks when leverage ratios have come into at least closer to target ranges long term. Has that perspective changed at all? We have seen decent capitulation in your share price valuation on long-run metrics. Any perspective on appetite for buybacks into a much weaker share price of late? Sherri Baker: Yeah. Thanks for the question. So first and foremost, we continue to prioritize investing in our assets and a strong balance sheet. Those are our top priorities to maintain and preserve both long-term viability and success. We will look at strategic capital in support of our potential CUK investment as a good example of this. And then third, we would look at share repurchases as another lever when we have better line of sight to more positive free cash flows. Arsen Kitch: Okay. Thanks for that, Sherri. Sloan Bohlen: That is all I have for now. Thanks. Arsen Kitch: Thanks, Sean. Operator: Your next question comes from Amit Prasad with RBC Capital Markets. Your line is now open. Please go ahead. Arsen Kitch: Hey. It is Amit on for Matt. Just one quick Sloan Bohlen: question for me. Thinking about input costs throughout the year, Sean Steuart: is there any risk on the fiber cost side in Georgia and North Carolina with reduced pulpwood salvage harvest in there. Sherri Baker: No. We have not identified any risk. We feel that we are in good shape from that perspective. Arsen Kitch: I think if you look at inflation in general, we are expecting 2% to 3%. A lot of it is labor, some chemicals, maybe some wood, some transportation like rail. But I think we have enough productivity in the pipeline and carryover to be able to offset that, call it, $20,000,000 to $30,000,000 of inflation. Sean Steuart: Okay. Perfect. Thanks for the color. And then one kind of cleanup question. On the working capital improvements, how should we think about the cadence of that $20,000,000? Should that be kind of evenly split throughout the year, or any other help there would be appreciated? Sherri Baker: It will be heavily weighted towards the back half of the year. Sean Steuart: Okay. Perfect. Thank you so much. That is all I had. I will turn it over. Operator: Thank you. There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, and welcome to the SolarEdge conference call for the fourth quarter and year ended December 31, 2025. This call is being webcast live on the company's website at www.solaredge.com in the Investors section on the Events Calendar page. This call is the sole property and copyright of SolarEdge with all rights reserved, and any recording, reproduction or transmission of this call without the expressed written consent of SolarEdge is prohibited. You may listen to a webcast replay of this call by visiting the Event Calendar page of the SolarEdge Investor website. I would now like to turn the call over to J.B. Lowe, Head of Investor Relations for SolarEdge. Please go ahead. John Lowe: Good morning and thank you for joining us to discuss SolarEdge's operating results for the fourth quarter and year ended December 31, 2025, as well as the company's outlook for the first quarter of 2026. With me today are Shuki Nir, Chief Executive Officer; and Asaf Alperovitz, Chief Financial Officer. Shuki will begin with a brief review of the results for the fourth quarter ended December 31, 2025. Asaf will review the financial results for the fourth quarter, followed by the Company's outlook for the first quarter of 2026. We will then open the call for questions. Please note that this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statements contained in our earnings press release and our filings with the SEC for a more complete description of such risks and uncertainties. Please note, during this earnings call we may refer to certain Non-GAAP measures, which are not measures prepared in accordance with US GAAP. The Non-GAAP measures are being presented because we believe that they provide investors with a means of evaluating and understanding how the Company's management evaluates the Company's operating performance. Reconciliation of these measures can be found in our earnings press release and SEC filings. These Non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with US GAAP. Listeners who do not have a copy of the quarter and year ended December 31, 2025 press release may obtain a copy by visiting the Investor Relations section of the Company's website. With that, I will turn the call over to Shuki. Yehoshua Nir: Thank you, J.B. Good morning everyone and thank you for joining us today. A year ago, on my first earnings call as SolarEdge's CEO, I laid out the four key priorities that would drive our turnaround. Today, I would like to focus first on the meaningful progress we have made over the last year. And then on the transformation of SolarEdge that we see coming in 2026. First on the turnaround. We gained momentum last year, delivering strong year-over-year revenue growth and expanding our gross margins in each and every quarter. Our solid fourth quarter results continued this trend. Fourth quarter revenue was up 70% year-over-year without the benefit of any significant one-time pull forward of revenue, and outperformed the typical seasonal decline. We expanded margins for the fifth consecutive quarter, exceeding the top end of our margin guidance, and generated $43 million of free cash flow. This concludes a very successful year of stabilizing our financial situation. We grew revenue by 30% year over year, lifted gross margins from negative territory in 2024 to 23% in the last quarter of 2025. And generated $77 million in free cash flow for the year versus negative $421 million in 2024. In the US we increased our market share in all categories: residential, commercial and storage. And in Europe we gained share in C&I and stabilized our share position in the residential market. And we did so before rolling out our SolarEdge Nexis platform, a remarkable achievement and testament to the strength of our brand and execution of our team. We also introduced the Single SKU concept, which has received extremely positive feedback from our customers. We launched several new products including initial units of our Nexis platform. And we continued to ramp up our US manufacturing, serving domestic demand and exporting our first products late in the year. I am so proud of the progress we achieved last year, which was made possible by our relentless focus on operational excellence and a renewed commitment to delivering a best-in-class customer experience. But 2025 was just the first step in our turnaround journey. It was about defense, restoring discipline, generating strong free cash flow, rebuilding margins. 2026 is about shifting to offense while keeping this discipline intact. We will focus on moving towards profitable growth, gaining share, scaling Nexis, and investing in new high-growth adjacencies such as AI data center power. And I believe 2026 will be a transformational year for SolarEdge that will take the company to the next level. Starting with profitable growth. As you can see from the midpoint of our guidance, we expect Q1 to be another quarter of year-over-year revenue growth and margin expansion, and revenue will once again trend above typical seasonality. If these trends continue, we would be on target to achieve EBIT profitability later this year. We have focused on operational excellence in order to continuously improve our margins and enhance customer experience. For example, we will be selling our products in a more selected number of key markets where we 4 believe we can win and where winning will have a meaningful impact on our results. Such change allows us to roll out the single SKU concept globally, to consolidate warehouses, and to streamline our supply chain. The next area of transformation is market share gains. Starting with the U.S. residential market. The market is expected to change this year as 48E is the only available tax credit in residential solar. We have described how we believe this market evolution plays directly into our strengths as the leading provider to TPOs. We have deep relationships and integrated infrastructure with these customers. And we offer high quality products, designed to be domestic content and FEOC compliant, produce more energy, deliver better economics and provide faster paybacks for our customers. As such, we maintained our number one share position in U.S. residential in the third quarter of 2025, and aim to drive further share gains this year. Moving to the C&I market in the US. We are pressing our advantages here. Out of the three leading manufacturers in this market, we are the only ones whose products are designed to be both domestic content and FEOC compliant, which should provide a significant advantage to our customers. Consequently, in the third quarter of 2025 we achieved the number one share position across the entire U.S. C&I market, even when including ground mount. We believe that we can grow our share further due to the same dynamics. Let's talk about Europe. While the market remains slow, we expect '26 revenue to exceed '25 levels as we spent most of last year clearing channel inventory. This growth potential can be amplified by gaining further market share in 2026, and I believe we have several tailwinds in this market. First, U.S. made products with a lower cost structure that we have started exporting. Second, the introduction of the single SKU. And third, the Nexis rollout enhances our product offering, particularly in the 15 to 30-kilowatt segment, providing a full home backup solution for larger homes. Switching to batteries which impact market share in all regions and segments. Battery attach rates are expected to continue to rise worldwide, and our advantages are very applicable here. Our DC-coupled architecture delivers as much as 6% higher efficiency, which can result in up to 24 more days of energy per year than AC-coupled alternatives. This translates into meaningful savings for system owners and is a major reason we believe our products can continue to take share in the TPO-dominated U.S. market and around the world. In fact, we are already seeing market share gains in the U.S. where we became the #2 supplier for residential batteries in the third quarter of 2025. Our third area of transformation is product innovation and leadership. I am very pleased to say that we are on schedule for the launch of our Nexis platform, with an exciting launch event in Germany on March 19. Our first customers have told us that this is the best SolarEdge product ever. And yesterday my family became part of this group of satisfied customers when the full Nexis system was installed at our house. Nexis is lighter and takes up less wall space. The modularity and stackability of the system offer flexibility both during the sales process and during installation. Our installation and commissioning times are expected to come down, showing that the work we have put in to alleviate installer pain points is on the right track. In the U.S., Nexis batteries will come with an industry leading 185 amps LRA, which is needed for true full home backup. Our meter collar solution includes passive cooling which we think is going to improve reliability in the field. And serviceability itself is a major differentiator. Most issues can be solved by swapping necessary parts without having to remove and take apart entire units. The fourth element of the transformation is investing in AI data center power solutions. As you all know, power is the limiting factor for AI expansion. NVIDIA is guiding the industry to improve this through a transition to 800 volt DC architecture, an architecture that fits perfectly for the technical expertise SolarEdge has refined over the last two decades. We believe this represents a multi-billion dollar addressable opportunity over time. Since our last call we have made progress in our solid-state transformer platform as we pursue a unique system that converts 34.5 kilovolts directly into 800-volt DC with efficiency of over 99%. Our topology is purpose built for direct medium voltage input using a modular high frequency conversion architecture designed to increase efficiency at the data center, and reduce stages, losses, and footprint versus conventional alternatives. We have already engaged with potential customers and ecosystem partners. Based on the feedback and requirements from industry participants, we believe this gives us a structural advantage in efficiency, controllability, and power density. Potential partners also recognize our DC coupled architecture expertise and the system level value we bring. In addition, based on our large-scale power electronics manufacturing experience, we expect to have a clear path to scale production capacity as market demand develops. To summarize, in 2025 we set out to turn the SolarEdge business around, and to lay the foundations for profitable growth. I am very proud of the work we did and the progress we made. But that was last year. 2026 is about execution at scale. We are working towards profitable growth. Our aim is to gain market share globally. We will ship Nexis in high volume. And we will advance our opportunity in AI data center power solutions. We are moving forward with discipline, but with an offense mindset focused on winning in every segment we compete in. I cannot wait to share our progress with you in the coming quarters. With that I will turn it over to Asaf. Asaf Alperovitz: Thank you Shuki, and good morning everyone. Starting with our quarterly results. Non-GAAP revenues for the fourth quarter were $334 million, up 70% year-over-year, and slightly down quarter-over-quarter, outperforming the typical seasonal decline of 10% to 15%. This result does not include any significant one-time or pull forward of revenue from either safe harbor or 25D. Revenues from the U.S. this quarter amounted to $198 million, down 3% quarter-over-quarter, and representing 59% of our revenues. Revenues from Europe were $99 million, down 1% quarter-over-quarter, and representing 30% of our revenues. International Markets revenues were $37 million, up 2% quarter-over-quarter and representing 11% of our revenues. Non-GAAP gross margin this quarter was up significantly to 23.3% compared to 18.8% in Q3, just above the high end of our guidance. The higher gross margin is largely due to higher sales of U.S.-made products and lower seasonal warranty costs. We continue to take actions to streamline our operations and focus on our core businesses. Subsequent to year end, we sold the remainder of our E-Mobility business for a consideration of $12 million. This sale resulted in a GAAP net loss of approximately $8 million. Additionally, in Q4 we recorded a one-time, noncash finance expense of approximately $60 million, related to the closure of the Kokam battery manufacturing division. These actions are a continuation of the process that we began in late 2024 to optimize our portfolio, which included the sale of our tracker business and battery manufacturing facilities in South Korea. We believe these portfolio optimization actions are largely complete, and the expense reduction associated with these moves will allow us to invest and focus more strategically on our core products and businesses, and accelerate the development of our data center offering. Non-GAAP operating expenses for the third quarter were $88.7 million, up slightly from last quarter, and within our guidance range, despite headwinds from the continued strengthening of the New Israeli Shekel, net of hedging. Non-GAAP operating loss for Q4 was $11.0 million, compared to a Non-GAAP operating loss of $23.8 million in Q3, cutting our operating loss by more than half for the second straight quarter. This is a promising result and speaks to the progress we have made in executing on our turnaround plan, and is another step on our journey back to profitable growth. Our non-GAAP net loss was $8.2 million in Q4, compared to a non-GAAP net loss of $18.3 million in Q3, also a reduction of over 50%. Non-GAAP net loss per share was $0.14 in Q4, compared to $0.31 in Q3. The lower operating and net losses, the lowest in 5 consecutive quarters, are largely due to our higher gross profit and margin. Turning now to our balance sheet now. As of December 31, 2025, our cash and equivalent portfolio was approximately $581 million. Our cash and investments portfolio increased by approximately $34 million in Q4. This is the result of our strong positive free cash flow for the quarter of approximately $43 million, which was largely driven by working capital items and our continued CapEx discipline. Despite the volatile tariff environment, we managed to generate $77 million in free cash flow in 2025, a complete turnaround from the negative free cash flow of $421 million in 2024. For Q1, we expect to continue to deliver positive free cash flow, despite our planned investment in working capital to our anticipated support growth. This reflects solid underlying operating performance and continued discipline in managing expenses and capital investments. Turning to our working capital items. We remain hyper focused on improving our cash conversion cycle. Our inventory increased by $22 million as we had higher raw materials procurement to support the launch of our Nexis platform and due to higher battery demand. AR net, decreased this quarter to $267 million compared to $286 million last quarter, driven by our strong collection this quarter. A quick update on disclosures. As we mentioned last quarter, we have discontinued the megawatt shipped disclosure. We are now disclosing the number of inverters, optimizers and megawatt hours of batteries that we recognized as revenue on a quarterly basis. We are also now providing revenue by product type on a quarterly basis. You can find the current quarter data in our press release and supplemental tables, which also include historical quarterly data going back to Q1 2024. We believe that these new metrics will help analysts and investors better understand the underlying dynamics of our business. Turning now to our guidance for the first quarter of 2026. We are expecting revenues to be within the range of $290 million to $320 million, which at the midpoint reflects a better than normal seasonal trend for the first quarter. This range does not include any significant one-time pull forward of revenue. We expect non-GAAP gross margin to be within the range of 20% to 24%. We expect our non-GAAP operating expenses to be within the range of $88 million to $93 million. The quarter-over-quarter increase at the midpoint is largely due to the strengthening of the New Israeli Shekel against the U.S. dollar, net of hedging. I will now turn the call over to the operator to open it up for any questions. Operator? Operator: [Operator Instructions] And we will take our first question from Brian Lee with Goldman Sachs. Brian Lee: Kudos on the solid execution here. Maybe first question on the AI data center opportunity. I mean, it, it sounds like it's starting to crystallize a bit more, so appreciate the additional color this quarter. Can you give us a sense. I know it's not going to impact 2026, but it does sound like it'll be part of your 2027 business plan. What, what kind of needs to happen between now and then? Like, when do you have a product kind of in beta version? How long do you think the qualification cycle will be with, you know, potential customers? And then, I guess, how do you envision, you know, the actual manufacturing of the product? Is that something that you will take on? Is it [ SD Micro ], where you need to build a new factory? Just trying to understand the, maybe the logistics from here to when you fully commercialize the product and get into the market. Yehoshua Nir: Yes. Thank you, Brian. It's really exciting time for the data center opportunity that we have. As we said, we believe this is a multibillion-dollar opportunity for us. And as we shared with you before, NVIDIA is targeting the new generation of the GPUs that require the 800-volt DC architecture for 2027. So assuming there is no -- there are no delays in their roadmap, this is where the market is heading to have initial solution -- initial data centers that are designed to support 800-volt DC. As you know, some of the data centers are looking into hybrid solutions, which is basically taking the AC infrastructure, adding some additional components to it, called the sidecar, and that will give them an 800-volt DC with a lower risk for execution, if you will, but with much lower efficiency. When they look into the SST solution, then that should provide a much higher efficiency, and at the same time, it will require for us and for others to develop the technology, to go through what you refer to as pilot or POCs, or other ways for the data centers to feel comfortable around this solution in order to deploy it in mass. We have started engaging with the ecosystem players, with the different participants, whether it's the hyperscalers, whether it's the other power electronics providers and some other players in the market. The feedback that we've received so far about our technology, about the expertise that we bring to the table, some additional information that we actually bring to the table that some of them were not aware of. The feedback that we've received is that our solution seems to be very attractive for them. The ability to convert 34.5 kilovolts directly into 800-volt DC with efficiency of over 99% is very impressive. We've started the discussions. At this stage, the discussions are at a technical level. The technical teams are under NDA, obviously. They try to understand better how our technology is architectured, how we are implementing the different parts of the solution. And we believe that after that, we will start having discussions about initial real prototype testing. And as you said, we do not expect any revenue before 2027, and the industry is expecting the ramp up to actually start in 2028. That brings another point that many people don't think about, but our ability and our experience in mass production of gigawatt scale inverters or solutions is something that is going to be very important as these data center, AI data center builders and operators are going to consider with whom to partner. That will give us a clear path, we believe, to mass production. Brian Lee: Super helpful. I appreciate all the color. And then just to follow up on the, maybe the guidance in the safe harbor. I know it's not been your, usual policy to, to comment much on safe harbor, and you don't include it in the guidance. But maybe just a question on, you know, the, the sort of, market dynamics here as it relates to safe harbor. You know, you have no safe Harbor per your acknowledgment in Q4 revenues. You're not embedding anything in Q1. I know one of your peers, your major peer, has seen it for several quarters in a row and has also alluded to the fact that, you know, they're seeing it in Q1 and expect it into Q2 and maybe even into Q3. So, how much of this is maybe just a different go-to-market strategy? Or are they just being more aggressive than you? Is there a share shift amongst that part of the market that wants to safe harbor? Maybe speak to that. Or are you actually anticipating safe harbor to positively impact you in Q1 and beyond, but you're just not safe spacing it? Just maybe some thoughts around that and how you're different versus your peers. Yehoshua Nir: Yes. Again, thank you, thank you for bringing it up because there might be some confusion out there about what we're referring to when we say there is no significant pull forward of revenue, and we'd like to emphasize that. When Asaf and I, when we talk about guidance for the quarter or the results of the fourth quarter, we're saying that there was no significant revenue that was recognized, that is safe harbor. At the same time, we've done lots of safe harbor deals based on the physical work test. As we shared in previous calls, what happens over there is the structure of the transaction is such that because of the fact that it's a unique inventory item and there is no revenue recognition until the delivery of the product, and the customers have the ability to actually procure the product at the time that they need it, then we've not recognized revenue associated with that, but we have signed significant safe harbor deals associated with the physical work test. In addition to that, from time to time, we are having the 5% safe harbor deals, and in that case, we recognize them within the quarter. But if they don't fall to the definition of the safe harbor or the pull forward of revenue, then we don't count them towards that. Asaf Alperovitz: Maybe just to complement a couple of points. So, as it relates to the physical work test, for us, it results in a revenue recognition profile, but I would say is more similar to the normal cadence of the way we do business. Again, no forward, no pull forward. We note that no pull forward for Q4, no pull forward for Q1 in terms of guidance. And, an important benefit that we do get is it does provide us with a much better visibility, I would say, and we can entirely optimize the entire supply chain. And of course, from our customer perspective, it's a major benefit because they do not have to put a large upfront amount of the payment, and they can pay for the product as they pull them. I think it's beneficial to both ourselves and our customers. Operator: Our next question comes from Philip Shen with ROTH Capital Partners. Philip Shen: I know you haven't provided an outlook for Q2 and beyond, but was wondering if you could give us some color on how you would expect revenue to trend in Q2 and margins as well. Would you expect the kind of similar historical seasonality with revenues going higher in Q2 versus Q1? And if you can share what the magnitude, directionally, might be, that would be fantastic. Asaf Alperovitz: Thank you for the great question, and good morning. So in terms of, as you know, we do not guide past the next quarter. As you noted, there is of course a positive seasonality driver in Q2. Typically, it's around 15% and 20%. So we do expect it to be up, but we won't comment on beyond Q1. In terms of the overall drivers for the 2026 revenue, I think as Shuki noted in our prepared remarks, in the U.S., as we have said, we see continued shift towards the TPO this year. As you know, the people we work with, all the DPOs, we build designated the infrastructure with them, and we have a multi-year relationship with them, so we certainly see that as a positive. Our new Nexis platform is on track with our rollout plans, and it comes very, as you know, very highly competitive feature set. We do have a better cost structure implemented in these products. We do see in the U.S. significant C&I opportunities. We believe that we have a unique position as a domestic content and FEOC enabler to our customers, including enterprise customers. Now, moving to the E.U. continent. For the first half of 2025, last year, we, as you know, we saw significant inventory clearance in the channel. This will make year-over-year comps fairly achievable to exceed in the first half of this year of 2026. At the same time, the E.U. market remains sluggish and could even go down this year. So, I would say it will be an interplay between a weak market, a new product rollout, you know, market share expansion efforts. We're highly focused on that. As Shuki mentioned, I think we have multiple reasons to be optimistic, including, again, the Nexis, exporting from the U.S. with better cost structure that will enable and allow us to be even more competitive. We're penetrating new segments in Europe with our 20-kilowatt inverter and the single SKU rollout, of course. In terms of margins, so again, we're not guiding beyond the next margin. As it relates specifically for Q1 margin, as you can see in the mid-range of our guidance, it's slightly lower than Q4, mostly because of the lower revenue, because of the seasonality trend that we referred to. This will be partly mitigated or set off by higher sales of U.S. products and efficiencies that we start seeing from the implementation of our single SKU rollout. Talking about the longer horizon, I think you asked about that. So again, we don't give guidance, but there are certain levers that we discussed, which are very relevant now, even more. One would be the higher revenue, of course, Q2 and beyond. If you look at the natural seasonality trend, we expect to follow that. The continuous ramp up of the U.S. production. We are ramping up the U.S. production as we go, preparing for growth. I think I talked about the Nexis and the new products. In terms of the battery, in terms of the Nexis, we are shifting from NMC to LFP, so that's another major cost driver, saver. And of course, I think we talked a lot about the single SKU framework. That's gonna be also a gross margin supportive item for us. So on top of all of that, of course, you need to look at mix and things that we cannot relate to now. But overall, the trend is positive as we move forward. Philip Shen: I was wondering if you could talk through maybe your free cash flow expectations for 2026. The second part of my question is tied to the European market. Was wondering if you could help us understand, you know, give us a better understanding. I know you guys are very enthusiastic about the market out there. And it seems like from a competitive positioning standpoint with the Chinese removing the VAT rebates that might put your products in an even better position. So maybe walk us through kind of the competitive dynamics between the new Nexis platform relative to what's out there today, and then the massive focus on storage and your benefits there. Asaf Alperovitz: So thank you for the question. I'll start with the cash flow, and I'm sure Shuki will be excited to tell you about our actions and focus in the EU market. So, for 2025 Q4, we ended with $43 million, a very strong free cash flow quarter, with overall $77 million for the entire year. So again, we believe it's a pretty strong performance. And again, beyond Q1, we said that we would be free cash flow positive for Q1. We gave actual guidance to that. We're not gonna give anything beyond that. What I can say is that we're always focusing on you know, improving our cash conversion cycle, which would be supportive of our cash generation, of course. That said, in a growth environment where we're anticipating, we would invest in working capital. Considering our work towards improved margin profile, we believe this would be a prudent investment that we're making. Actually, you can look at what we've done in, again, 2025. We transitioned from a massively negative free cash flow position in 2024 to a strong $77 million in 2025, and we were positive in three out of four quarters during 2025. So overall, we're very focused on cash flow and working capital management. Q1 would be positive free cash flow, and beyond that, we'll just have to be a bit patient. Shuki, I'm sure you want to add. Yehoshua Nir: Yes. Thank you, Philip. About Europe, to your question, so yes, at this stage, it seems that -- and again, we're talking about different countries, different dynamics in each of the countries, but overall, the market remains somewhat slow. At the same time, we believe that we have a good opportunity in Europe to gain additional market share, both in the CNI and the resi market. And it starts with the fact that we've started exporting our products from U.S. manufacturing to Europe. These are newly built products designed by SolarEdge, manufactured in the U.S. with a very good cost structure that will allow us to compete, as you said, as you suggested, more aggressively in the market. The second piece is the rollout of Nexis, and as I mentioned, on March 19, we are having a launch event in Germany. We are expecting hundreds of installers to come over to experience firsthand the ease of installation, the speed of the commissioning process. And I couldn't avoid sharing the fact that they installed it in my house, you know, yesterday, and we are very happy with that. The Nexis platform brings -- and we discussed it in previous calls as well, it was designed from the bottom up as a system, so it's not like an inverter that somehow a battery is attached to it. We're actually looking at the entire system, the efficiency, both in the high kilowatts rating. As Asaf said, we're addressing now the 15 kW to 30 kW rating, which is a major segment in the DACH region. But at the same time, also many houses, when they go at night, they go to the battery, they actually consume less than 1 kW. And the efficiency over there is really, really important. Some competitors are boasting some high efficiency rating in the high kilowatts, but when you really test them in the low kilowatts, you get embarrassing results. We are very proud of the expertise that we have in DC architecture, and because of that, and the DC coupling between the inverter and the battery, we can actually have both high efficiency at the high kW rating, but also when the system goes to sub-1 kW, we demonstrate leading efficiency. I can go on and on about the advantages of Nexis, but we are very excited about it. We believe it will help us gain share. The last piece is the operational excellence. We talk about single SKU that really simplifies the work and the cash management and the inventory management and the reliability of the product for us and for our customers. We've also stopped selling our products in many different countries. We are focused on the countries where we can win, where we believe we can win, and where winning is going to make an impact on our, on our results. That allows us actually to, to focus on less countries, but with a much bigger force. On the CNI side, between our storage solution that is taking off and the inverters that we continue selling, we believe that we can gain share over there. So all in all, we are, optimistic about Europe in 2026. Operator: We will move next with David Arcaro with Morgan Stanley. David Arcaro: I was wondering if you could give an update on where channel inventory currently stands, maybe in the U.S. and Europe, how healthy the levels are right now? Asaf Alperovitz: Yes. Thank you, Dave. So as we discussed in past calls, most of our distributors in Europe have resumed normal levels of inventory, and that's the reason that we actually consumed some of our own inventory, and now we've started producing product for Europe in the U.S. So when they need additional product, and they do, they will start buying our newly produced products from the U.S. In the U.S. channel, overall, the channel has normal levels of inventories. Nothing major to report over there. David Arcaro: Got it. Okay. Great. And then, let's see, the megawatts battery storage were strong for this quarter. I was wondering if you could just touch on what you're seeing in terms of the market backdrop and demand for storage, maybe in the near term. You know, how is that trending kind of seasonally into 1Q, and as you look into the first half of the year into 2Q, the direction of that you're expecting for battery storage volumes? Yehoshua Nir: Yes. So, as we said, the need for storage is increasing globally and in both segments, both the residential and the CNI. So what you're seeing almost in every market and every segment is up and to the right when it refers to the attach rates. And as I mentioned earlier, we believe that we are offering a complete solution for our customers, and because of that, and where the market is trending, we expect to see storage becoming a bigger and bigger part of our sales. As I mentioned, with the Nexis, actually, this competitive advantage is significantly higher, and we do expect that to be some sort of a step function, if you will, in terms of the attractiveness of our storage and backup solution. In the CNI side, in Europe and in international markets, we continue to see that more and more customers understand or calculate the return on investment that they can have from adding storage to their solution and we see a major opportunity over there. Now I believe that later in the year we will start also addressing the installed base. We have, as you know, a very large installed base in many markets, and in the ones where it makes sense, we will find a way to actually leverage on that as well. Operator: Our next question comes from Dylan Nassano with Wolfe Research. Dylan Nassano: I just wanted to go back to the solid-state transformer, and maybe approach it from more of a technical perspective. Could you just kind of walk through what you see the relative advantages being, or even differences in application between your planned silicon carbide architecture and something that's like GaN-based, for example? Yehoshua Nir: So thank you, Dylan. This is an excellent question, and I believe that it's too early for us to actually comment on such a question. What we have said is actually we've looked into several potential partners when we develop the architecture that is going to be highly efficient in the conversion. And in a way, if you think about it, in solar, it's about cost is the main driver. While in the AI data center, the cost of our system is obviously important, but it's not the main driver, it's the performance that we can generate. And if we can increase the efficiency from 98% to 99%, it adds significant value. So, it's not like a cost game to the same level. Now, I'm not, you know, a PhD in engineering. I don't have a PhD in engineering, but to the best of my knowledge, GaN are less relevant in AI data center solutions. But let's leave it at that, because I may be wrong. Dylan Nassano: Okay. Fair enough. And then just for a quick follow-up. So your partner there, Infineon, they had some bullish comments on AI data center demand on their call, and they raised their CapEx outlook as a result of that. So just given your earlier comments, can you kind of frame up this ramping demand in terms of, like, incremental R&D spend or even CapEx? And then, sorry if I didn't catch this earlier, but have you decided where you intend to manufacture these, and is there any benefit to doing so in the U.S. versus overseas? Asaf Alperovitz: Yes. So I cannot obviously comment on what Infineon does or doesn't do. I'd like to emphasize two points here. One is we believe that this is a multibillion-dollar opportunity for us, the SST for AI data centers. At the same time, Infineon does support other companies that are larger than SolarEdge as well. So, you know, what they do with regard to CapEx or their comments about the market are not necessarily referring to what we are doing. And to your question about have we chosen where to manufacturing? Not yet. There are some considerations that are favoring the U.S., obviously, and we have the infrastructure that is required and the expertise and the partners that are needed in order to ramp up manufacturing in the U.S., quite quickly. Therefore, it's definitely a region or a location that we may favor. Yehoshua Nir: As it relates to incremental OpEx and CapEx, certainly we believe in the opportunity of the SST, and we plan to invest both CapEx and OpEx. Our investment is incorporated in our guidance for Q1. Beyond that, we will share with you our progress, of course. Operator: We will move next with Mark Strouse with JPMorgan. Mark W. Strouse: Shuki, I wanted to go back to the, the comments that you guys have been making for a while now about, kind of the, the U.S. C&I business and your favorable, competitive advantage with FEOC and domestic content. Just curious, with the initial guidelines that came out from Treasury last week, if you have any comment there, positive or negative, and, and kind of how you're thinking about the, the durability of that advantage over the next, you know, coming quarters or coming years? Asaf Alperovitz: Yes, thank you, Mark. And you're right, we're very optimistic about what we can offer to our customers on the C&I segment in the U.S., as our products have been designed to be both FEOC and domestic content compliant. The recent FEOC guidelines or rules with regard to the materials and the manufacturing are more specific, but at the same time, they've not really changed what we had assumed until now. So from that perspective, we are in compliance with the FEOC. We continue to believe that we're in compliance, our products are in compliance with the FEOC requirements. What remains open is about foreign entity, and on that front, SolarEdge has nothing to be concerned about. We are a U.S. company owned by U.S. shareholders, so we are not concerned about that part. So we continue to follow any development that may happen, but at this stage, the products that we currently have, you know, they were designed to comply with the current ruling and will continue doing so. Mark W. Strouse: Then just a real quick follow-up, if I can, Asaf. The Q1 guide, the 20% to 24% gross margin, I'm sorry if I missed it, but did you say kind of what the impact is on, or what the impact is from tariffs reflected in that? Yehoshua Nir: Actually, we did not quantify the tariff impact. At this point, we see tariffs as simply an additional cost of doing business in the U.S., along, of course, with the labor expenses, component costs, everything related to the U.S. manufacturing. As you know, we don't typically single out any specific cost type, unless they're temporary or one time, and we see tariffs no longer as such. So we'll just report our gross margin going forward. And one important point I wanna make is that, as we increase our exports from U.S.-produced product and sell to global business, which is, of course, a meaningful part of our business, as you know, we get back some of the tariffs through what is referred to a drawback mechanism, which will reduce the net impact to tariffs over time, certainly on a weighted average basis of our overall sales. And just to finalize and say that despite these tariff incremental costs, we can note that we still exceeded the high end of our gross margin guidance for Q4. We are only seeing, I would say, a slight dip at the midpoint in Q1, the 22% that you referred to, despite the decline in seasonality. So I hope I answered you fully. Operator: Thank you. We will move next with Chris Dendrinos with RBC Capital Markets. Christopher Dendrinos: I guess so maybe just to start here, to follow up on that, on that prior comment. As it relates to battery sourcing, and I think you mentioned you're going from NMC to LFP, do you have supply from, from outside of China? And just maybe speak to the security of that supply chain. Asaf Alperovitz: Thank you, Chris, for the question. And as we stated before, what our supply chain team has been doing for years, and definitely in this past year, they've been doing, is we constantly look at the combination of FEOC and domestic content compliance, cost, availability, and cost is inclusive of everything between tariffs and other parameters that impact it. And lastly, but first, is reliability of the product, which obviously we are trying not to compromise on them. So we are going to change from time to time. We have more than one source of battery cells as well as other components that we're using. So we look at that as optimizing the situation as it goes. Christopher Dendrinos: Got it. And then maybe just as a follow-up, as it relates to the Nexis platform, you know, how are you thinking about the kind of full-scale rollout here? And when should we expect the platform to be kind of fully scaled or fully rolled out across the globe? Asaf Alperovitz: Yes. That's an excellent question. So we are going to start in Europe with the DACH region and with the U.S., and then we are going to continue rolling out to different countries in Europe and then to Australia and some other markets. The ramp-up is going to take some time. We are going to start. As we said, we start initial quantity. We've started already initial quantities, but I would say that the high volume is going to start in the third quarter of the year, and we believe that we can finish the transition, you know, in Q1, maybe, of 2027, but that will be already the long sale, I would say. Most of the transition should happen in the second half of this year. Operator: Our next question comes from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Maybe just a quick few follow-up items. First, just in terms of the seasonality commentary from earlier, just to elaborate a little bit further, can you comment on the CNI trend? Is that part of the secular trend that you're seeing, kind of, that performance, and why you didn't want to comment too specifically about through the course of '26? What else is impacting the trends that you're observing, if you can elaborate a little bit more to the earlier question? And I've got a quick follow-up on -- well, I'll ask you the follow-up here as well. Just on 45X, how much of that credit are you expecting here, if you can elaborate just a little bit more on that front, in the quarter itself? When do you expect some of those deferred revenues to unwind? Yehoshua Nir: All right. So, thank you, Julien, and I'll start with the first question, and then Asaf will go to the 45X. So, for the seasonality trend, you know, and you know it as well as anyone, it's -- when we combine storage, resi, CNI, U.S. and Europe, to start talking about seasonality in specific and very precise numbers is kind of hard. When we say historical trends, we're referring to how the industry has trended over the last several years, which includes both CNI and resi. And for that, when we say that we expect Q2 to be higher than Q1, it's a combination of both. Asaf? Asaf Alperovitz: Thank you, Shuki. I think you asked about 45X, so, I think as you know, since the beginning of the year, we don't break our 45X in our press release. The reason we don't is it's an integral part of the U.S. manufacturing cost structure, and 45X is the single most attractive incentive, we believe in the world currently for manufacturing our products. This is why, as you are aware, we moved the shift at about 90% of our production capacity to the U.S. over the last couple of years. And generally, as a company, our strategy is to manufacture in the location that delivers the lowest net cost to us, including incentive, of course. And again, this is currently the U.S., and we expect it will continue to be as such, as long as the 45X is in place. So we're very focused in the U.S., certainly as long as the 45X is there. Operator: We will move next with Colin Rusch with Oppenheimer. Colin Rusch: You talked a lot about taking some market share here, and I'm just curious about your strategy around pricing and balancing margin within that strategy, and how aggressive you expect to be here over the course of 2026.. Yehoshua Nir: Thank you, Colin. We used to say it's the million-dollar question. It's probably the billion-dollar question, you know, how you optimize between margin and market share. We're definitely trying to optimize them both. There are certain things that we need to take into account when we think about pricing and gaining share. The first priority for us is to add value to our customers, whether it's through the product and the benefits that it brings, whether it's through our service, our reliability of the product, and the ease of doing business with us, and we are putting a lot of efforts improving all of these. That being said, we have competition, so while we can have a premium, we have to keep it in check with what we can do with what we can do. And then we are following the share gains as it pertains to the premium that we are charging in the market, and we believe that we are doing a good job so far. Both expanding our margins, increasing our share, and increasing our margins, actually, even. Colin Rusch: Excellent. And then, the follow-up is really around the solid-state transformer and the opportunity in data center and how you're, you know, tracking the competitive landscape. There's obviously a number of folks working on solutions here, and there's a lot of, you know, I guess, figuring out that's happening right now. I guess, how are you approaching benchmarking progress from some of the other folks working on this and keeping track of your own progress and some of the future-proofing that's going to be required to really stay competitive and durable as the equipment provider into that market over time? Yehoshua Nir: Yes. So obviously, we're not the only ones who identified the multi-billion-dollar opportunity that is out there, and there is a bunch of startup companies that are pursuing this opportunity, other companies that have been providers of power electronics to data centers and maybe some additional ones. We believe that what we bring to the table is similar to what we did in solar for the last 2 decades, expertise in what matters the most here, which is the DC architecture, the ability to have highest efficiency, the ability to actually manufacture at scale. We think that if we can bring a superior solution and then continue to innovate and to bring additional solutions to the market, we'll maintain the leadership, and we'll be able to get our fair share of this opportunity. It will require additional investment, additional focus, and luckily for us, it's actually right in our wheelhouse. It's exactly where we are really good. Our team is excellent in this area, and we plan on leveraging on that. Operator: We will move next with Corinne Blanchard with Deutsche Bank. Corinne Blanchard: Most of them have been answered, but maybe can you discuss whether you're considering changing pricing strategy in Europe or in the U.S., this year or, like, in 2027? And then maybe if you can talk as well a little bit about, like, you know, your exposure to the TPO market, and you have less exposure to the 25D. Just what are you seeing here in the TPO market and, you know, peer pressure trying to enter the market? Yehoshua Nir: Yes. So I, I've just covered the pricing in Europe and in the U.S. We are not going to change pricing strategy per se, but our intention is to continue pushing forward our advantages, to continue providing more and more value to our customers, and to have the applicable premium paid to us, and at the same time, look at how we can continue to gain share. And that is applicable in both markets. Even though the competitive landscape is slightly different, the strategy remains the same. The second question was about? Corinne Blanchard: Just how you see, like, the TPO market, and I know it has been already asked, but, like, are you seeing, like, an increased competition, like, of peers trying to enter the TPO market? And how do you, like, see the market evolving for this year and 2027? Yehoshua Nir: So obviously, with 48E remaining the only tax benefit in solar, the market is shifting towards the TPO. And as we said earlier, we feel that over the years, we've partnered with the TPOs. We are providing them with the value that they need, not only at the product level and the additional power that we generate and the best efficiency that we can have in both high kilowatt and low kilowatts, but actually in terms of integration of systems, knowing how to work with them and support them. So we feel that we are there for them, and we are happy that this part of the market is growing. Operator: We will move next with Vikram Bagri with Citi. Vikram Bagri: Shuki, you talked about single SKU, consolidating warehouses, streamlining operations, and a lot of, you know, initiatives you're taking to improve the profitability. Is there a way to quantify the impact of these initiatives on op costs as well as on OpEx? I'm trying to understand the building blocks of how you reach EBIT profitability by year-end 2026. How much of that is operating leverage from, you know, gaining market share, increasing revenues, versus, you know, 45X ramping up, versus, you know, cost saving? If you can quantify or sort of directionally guide us, you know, how these factors will contribute towards, you know, the EBIT profitability by then. And then I have a follow-up. Asaf Alperovitz: Sure. I think on the gross margin levers, I expanded in the last question talking about the main levers, of course, the high revenue, the ramp up U.S. production, introduction of the Nexis, the shift from NMC to LFP, and so on and so forth. I didn't touch about the OpEx much, so maybe it's an opportunity to talk about our OpEx drivers and cost reduction levers. So there are, of course, a couple of moving parts, I would say. As we noted in the prepared remarks, we continued in 2025, and throughout 2025, to optimize our product portfolio. We shut down our Kokam Energy Storage division, we divested our Tracker business, SolarGik, and we sold our e-Mobility operation that just after the year ended. All of these are positive contributors to our expenses, and will enable us to focus more on the core businesses and on the SST. But on the other hand, during 2026, as I said, we plan to increase our investment in OpEx and CapEx in the SST project. Another important factor, maybe the last one to relate to, is the strengthening of the Israeli new shekel, which has been a meaningful headwind for us over the course of the last 12 months. If I remember correctly, it's up to more than 14% over the course of the last 12 months. Yet, with this shekel trend, we've been hedging, of course, but at a less attractive rate. Still, putting all of these factors together, we feel very comfortable with our $88 million to $93 million guidance for Q1. Like I said, it's a pretty good run rate to assume. Of course, assuming current macro environment condition will persist, nobody knows that. So, again, we didn't give specific guidelines as to when we will reach profitability. We are highly focused on returning to profitable growth, sometime within 2026. Vikram Bagri: And then as a follow-up, Asaf, you mentioned investments in working capital this year. And you also mentioned in response to this question and previous questions, potential investments in solid-state transformer product as well. I wanted to ask the free cash flow question slightly differently. Do you expect positive free cash flow this year, or you know, there will be sort of free cash flow draw this year because of all the investments you're making? Asaf Alperovitz: Sure. So again, I think I answered this question before, but for Q1, we gave specific guidance as it relates to being free cash flow positive. Beyond that, we're not guiding. We'll have to wait for the next quarter. We are extremely focused, Shuki, myself, and the entire company, in managing our working capital. I think as the profile margin will improve, and we keep controlling, of course, the discipline around OpEx and CapEx, you will see that. In terms of CapEx, I do have to say that we do expect to have significantly higher CapEx next year. In 2025, if I remember correctly, it was in the neighborhood of $25 million. With the incremental investment associated with the SST, and to ramp up our production, I think we will see higher CapEx next year, in 2026. Operator: And at this time, we have reached our allotted time for questions. I will now turn the call back over to Shuki. Yehoshua Nir: Thank you. Thank you everyone for attending this call. As we said at the beginning, we are very excited about what we did in 2025, and now we are moving into offense. Our intention is to drive into profitable growth, to gain market share, to roll out Nexis, and we're very excited about the opportunity we have in the AI data center power solution. And we can't wait to update you as we make more progress. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Thank you for standing by. My name is Jordan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Jack in the Box Inc. First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Rachel Webb, Vice President of Investor Relations. Please go ahead. Rachel Webb: Thanks, operator, and good afternoon, everyone. We appreciate you joining today’s conference call highlighting results from our first quarter 2026. With me today are Chief Executive Officer, Lance Tucker; our Chief Financial Officer, Dawn Hooper; and our Chief Customer and Digital Officer, Ryan Ostrom. Following their prepared remarks, we will be happy to take questions from our covering sell-side analysts. Note that during both our discussion and Q&A, we may refer to non-GAAP items. Please refer to the non-GAAP reconciliations provided in the earnings release, which is available on our Investor Relations website at investors.jackinthebox.com. We will also be making forward-looking statements based on current information and judgments that reflect management’s outlook for the future. However, actual results may differ materially from these expectations because of business risks. We, therefore, consider the safe harbor statement in the earnings release and the cautionary statements in our most recent 10-K to be part of our discussion. Rachel Webb: Material risk factors, as well as information relating to company operations, are detailed in our most recent 10-K, 10-Q, and other public documents filed with the SEC and are available on our Investor Relations website. Additionally, on 01/21/2026, the company filed a definitive proxy statement and related materials with the SEC in connection with the 2026 Annual Meeting of Stockholders. Our directors and certain officers are participants in the solicitation of proxies in connection with the annual meeting. Stockholders are encouraged to read the proxy statement and related materials, as they contain important information, including the identity of the participants and their direct or indirect interests, by security holdings or otherwise. While we understand that there may be interest in our ongoing proxy contest, please note the purpose of today’s call is to discuss Jack in the Box Inc.’s first quarter earnings results, and we ask that you keep your questions focused on our financial performance. I will now turn the call over to our Chief Executive Officer, Lance Tucker. Thanks, Rachel, and I appreciate everyone joining us today. Lance Tucker: I want to begin by thanking our teams, our franchisees, and our shareholders. This past quarter has been one of hard work, dedication, and grit. It is a quarter critical to laying the foundation for 2026 and beyond. We remain focused on simplifying the business, and we have made visible progress since the last quarter. On this call, I will provide a brief update on our Jack on Track plans and how I am thinking about the remainder of 2026, and then I will turn it over to Dawn to walk through first quarter results. In December, we successfully closed on the sale of Del Taco; we then made a significant pay down on our debt. We are doing exactly what we committed to do—simplifying the business and bringing down debt levels—and I am really pleased with the progress to date. With the transaction complete, only minimal separation activities remain; the team is fully re-centered on strengthening the Jack in the Box Inc. brand and executing the remaining elements of our Jack on Track plan. As we entered 2026, Jack in the Box Inc. proudly marked its 75th anniversary, a milestone few brands reach. The response to our anniversary activations has been positive, reinforcing what we know to be true: Jack remains beloved by our customers. Guests are leaning into the nostalgia that defines our heritage while embracing the differentiation and innovation that continue to move the brand forward. 2026 is about laying the foundation for sustainable long-term growth, which requires doing a lot of hard work right now. We are confident that the actions we are taking will lead to a stronger, more stable platform from which to grow. We are beginning to see early results that reinforce that we are on the right path, but as a reminder, this is a multistep process, and the benefits of this work will take time to fully materialize. Turning now to first quarter results. Q1 results were choppy, but broadly in line with our expectations. As we discussed on the last call, we got off to a tough start to the quarter, and while we did experience some bright spots throughout the quarter, the end of the calendar year did not improve to the degree we were looking for. It really was not until January that we started experiencing consistent, meaningful improvements to performance and, importantly, improvement was on both a one- and a two-year basis. January featured the launch of our 75th anniversary marketing calendar, including a throwback combo, the Chicken Supreme Munchie Meal, coupled with a new fan favorite, Jibby, a backpack charm. Customers have been trying to collect all four Jibbies, and we have seen a great response, which drove an increase in sales of our Munchie Meals, which generate a higher average check. Customers are still careful about where they spend; we remain committed to a strategy grounded in driving value for guests while protecting profitability for ourselves and our franchisees. You will see us continue to feature price-pointed value promotions, but also drive our barbell strategy with add-ons and upsells through technology. To reiterate, Q1 was in line with our expectations, and we knew the year would get off to a slow start. But as the reaffirmation of our guidance reflects, we expect to see steady improvement on the top line as we move through 2026. This is really a year of getting back to our roots at Jack in the Box Inc. We have been very deliberate in how we spend our time and capital, focusing on the fundamentals we believe are essential to sustainably improving the business. These efforts will take time to become visible in our results, but they are critical to improving consistency, profitability, and long-term returns. I am more convinced than ever that we are moving in the right direction. To frame up some of the early progress we are making on Jack’s Way, which is designed to improve the guest experience, I am pleased with the progress the team has made in improving operations. Last quarter, we identified a gap in field support and restructured that team. Shannon has moved these changes decisively from design to execution, meaning we have a greatly increased presence in the restaurants to get more real-time support to our franchisees and team members as they ultimately work to delight the guest. Starting in Q1, the team aligned the training on our core Jack’s Way principles to further simplify the experience for our team members and reinforce the importance of fundamentals. For example, aligning with our Monster Munchies promotion, the team was focused on doubling down on joyful service, and we will continue to see the fundamentals reinforced across every marketing window. In Q1, we also enhanced our restaurant audit process to reinforce critical behaviors and standards to elevate the guest experience. We have additional high-touch training coming later this year, including in-restaurant workshops, and none of this would be successful without laying the foundation of a new field team to ensure it sticks. We are also making progress on enhancing our value proposition and menu strategy. As we continue to celebrate our 75th anniversary, you will see brand activations leaning into classic fan favorites, while we also launch new products designed to drive customer interest and trial, leveraging innovation that can only be found at Jack in the Box Inc. Just last week, we announced the return of one of our most popular products, the Hot Mess Burger. The limited-time offer is paired with another collectible, our antenna ball featuring the Meat Riot Jack head from one of our most memorable Jack commercials. We are also incorporating experiential marketing, with an anniversary tour that kicked off in Los Angeles and is landing in Austin for Jack’s actual anniversary later this month. We have continued to simplify marketing as well. We simplified our marketing calendar to have a more balanced and consistent focus between value and innovation, and we also reduced our media messages from three to two, which allows our teams to focus on stronger execution of fewer LTOs and drive media effectiveness. The final component of Jack’s Way is modernizing our restaurants. The key takeaway here is that we are focused on a highly cost-effective refresh that substantially improves the curb appeal of our restaurants. So far, the mini refreshes we have put in market have generated a modest but meaningful uplift, and we remain encouraged by the limited investment they require. Across roughly 20 restaurants in tests today, we are seeing low single-digit sales lift. We are now expanding these efforts in Southern California markets, which allows us to capture additional upside potential as we see higher clusters of refreshed restaurants. As you recall, last year we also modernized our technology within the restaurant, rolling out both new POS and back-of-house systems. We can now start leveraging these systems not only for cost efficiencies, but also better upsell capabilities, which we expect will improve both the top and bottom lines. Before I turn it over to Dawn, I want to reiterate just a few key points. First, we are doing exactly what we said we were going to do with regard to both the Jack on Track initiatives to strengthen our business model and also with our Jack’s Way programs to improve operating results. Both are yielding tangible results. Second, we are seeing early positive results from simplification efforts made across ops and marketing, allowing our teams to focus on what truly matters: driving trial and frequency and executing on a great customer experience. I am confident that these changes will drive improved same-store sales as we move through the balance of the year. And finally, I continue to be inspired by the efforts and resiliency of both our team and our franchisees and by the foundation we are building as we do the hard work to strengthen the business. These efforts are helping us to sharpen our discipline as a brand and position Jack in the Box Inc. to drive sustained profitability and long-term shareholder value as we move through 2026. I will now turn the call over to Dawn. Dawn Hooper: Thanks, Lance, and good afternoon, everyone. I will start by reviewing the details on our performance in the first quarter as well as provide an update on Jack on Track. Before I begin, I just wanted to remind everyone that the company completed the sale of Del Taco on 12/22/2025, and the results of Del Taco are excluded from continuing operations and associated results for these purposes. The first quarter same-store sales for Jack in the Box Inc. decreased 6.7%, comprised of franchise restaurant same-store sales decrease of 7% and a company-owned same-store sales decrease of 4.7%. This resulted from a decline in transactions and sales mix, partially offset by menu price increases. Jack’s restaurant-level margin percentage in the quarter decreased to 16.1%, down from 23.2%. Food and packaging costs as a percentage of sales were 29.7% for the quarter, increasing 380 basis points from the prior year. This was driven by commodity inflation of 7.1% in the quarter, the negative impact from rolling over a prior year beverage benefit, and a change in the mix of restaurants. Labor costs as a percentage of sales were 35.3%, increasing 200 basis points from the prior year. This increase was primarily related to a change in the mix of restaurants driven by our Chicago restaurants. We expected Chicago to have elevated labor in the quarter, and while the market did improve throughout the quarter, there is still work to be done. Shannon and team are working with urgency to address this market. Occupancy and other costs increased 120 basis points, driven by higher costs for utilities and other operating expenses. Franchise-level margin was $84.1 million, or 38.6% of franchise revenues, compared to $97.1 million, or 40.9%, a year ago. The decrease was mainly driven by lower sales driving lower rent and royalty revenue, and a decrease in the number of restaurants. Turning to restaurant count. There were six restaurant openings and 14 restaurant closures in the quarter. SG&A for the quarter was $37.0 million, or 10.6% of revenues, compared to $41.2 million, or 11.1%, a year ago. The decrease of $4.1 million was primarily due to the market fluctuations of our COLI policies and the current period income from our transition services agreement, partially offset by increases in information technology expenses and digital advertising costs. Excluding net COLI gains of $2.4 million as well as advertising costs, G&A was 2.5% of total systemwide sales for the quarter. Following the Del Taco sale, we are generating income associated with the transition services agreement, or TSA, and we received approximately $0.9 million in the first quarter. We expect our TSAs to largely be completed by the end of the second quarter. For the full year, we expect the income to be nominal, no more than around $2 million. This income is included in our reported G&A figures. Other operating expenses, net, were $8.1 million for the quarter, which include proxy contest fees and professional fees for a tax refund settlement, partially offset by gains on real estate sales. The effective tax rate for continuing operations for the quarter was 32.4% compared to 30% for the same quarter a year ago. The adjusted tax rate used to calculate the non-GAAP operating earnings per share this quarter was 31.2%. Earnings from continuing operations were $14.4 million for the quarter as compared to $31.0 million for the first quarter of the prior year. We reported GAAP diluted earnings per share from continuing operations for the first quarter of $0.75 compared to diluted net earnings per share from continuing operations of $1.61 in the same period of the prior year. Operating earnings per share, which includes adjustments for certain items, was $1.00 for the quarter versus $1.86 in the first quarter of the prior year. Consolidated adjusted EBITDA was $68.2 million, down from $88.8 million in the prior year due primarily to the impact from sales deleverage. Now for some specifics regarding Jack on Track. As a reminder, while Lance discussed elements of Jack’s Way, which focuses on operational and sales improvements, Jack on Track is meant to bolster the long-term financial performance of the company by strengthening the balance sheet and positioning the company for sustainable growth. I have already mentioned a few points in regards to our Jack on Track plan, but to put a finer point on it: First, we simplified the company by selling Del Taco and successfully closing on the transaction in December. Second, we are focusing on franchisee economics by closing underperforming restaurants. In the first quarter, franchisees closed 12 restaurants. Based on closures so far, we have generally seen a roughly 30% sales benefit to nearby restaurants. This element of Jack on Track is moving a little slower than we would have expected as franchisees are evaluating lease dynamics and sales transfer benefits on a case-by-case basis. Third, we are preserving our capital expenditures for technology and restaurant reimages. For the first quarter, our capital expenditures were $23.2 million, which primarily includes spending on restaurant information technology. Approximately $8 million reported in Q1 relates to prior year expenditures, primarily for our new Chicago restaurants, that were incurred in fiscal 2025 but paid in fiscal 2026. This is solely a timing impact and does not represent incremental fiscal year 2026 spend. Lastly and importantly, our focus on debt reduction. During the quarter, we made a partial prepayment of $105 million on our August 2026 tranche. Our total debt outstanding at quarter end was $1.6 billion, and our net debt to adjusted EBITDA leverage ratio was 6.5x. Please note that this figure now excludes any historical adjusted EBITDA impact for Del Taco. We remain committed to paying down an additional $200 million in debt over the course of our Jack on Track plan. As it pertains to real estate sales, we generated $10.9 million of proceeds in the first quarter, with associated gains of approximately $6.3 million. We expect to sell real estate with proceeds of $50 million to $60 million by the end of fiscal year 2026, with the expectation that these proceeds, along with cash on hand, would be applied to pay down debt. We are thoughtfully assessing refinancing options related to our upcoming tranches, taking into account market conditions, interest rates, and our long-term capital structure objectives. It is likely we will be in the market in the coming months. Lastly, as we mentioned in today’s release, we are reiterating our guidance from November 2025. In closing, this quarter reflects steady progress on Jack on Track as we continue to build a stronger foundation for sustainable, long-term growth. We look forward to keeping you updated on our progress throughout this fiscal year. Thanks again for your time this afternoon. Operator, please open the line for questions. Operator: As a reminder, if you would like to ask a question, press star followed by one on the telephone keypad. Your first question comes from the line of Alex Slagle from Jefferies. Your line is live. Hey. Thanks, and good afternoon. Guess I wanted to follow up on just some of the trends you are seeing. I mean, it sounds like the initial response to some of the 75th anniversary work has been good, and January trends were improved. And maybe you could elaborate on what you saw. I am not sure, like, how much there is weather that maybe came into an impact at all in your system in February, if that is something we should consider also. Lance Tucker: Sure. Hi, Alex. So, kind of to your point, once we hit the beginning of ’26, we did start to see some kind of meaningful improvements. Certainly, when we got off to the new window, that helped a lot. And as we got into Q2, because bear in mind, our quarter ended kind of mid-January, we are really seeing January as we got into Q2, kind of same-store sales play out the way we thought they would. We started second quarter really a couple hundred basis points better than we were in the first quarter, and that is before the weather impact. To your question about weather, we are actually over 400 basis points better when you factor in the winter storm, which on a full-quarter basis will have about a 60 or 70 basis point impact to the quarter. Since we are talking about, you know, roughly a month of impact, it is a couple hundred basis points just for the month. So when you factor out the weather, we are really low single digits right now, which we are pleased with. We are not quite where we want to be. But 200 negative—let me rephrase that. I think I misspoke there. We are not quite where we want to be, but we are certainly gaining on it, and we are getting really good initial response to our 75th anniversary marketing. Alex Slagle: Awesome. The Chicago performance and the efforts to recover from some of the labor and the inefficiencies there? What is the issue going on there? I guess, is it still a drag? I would have thought it was more about the openings and staffing up, and that would sort of be able to get out of that, you know, heading into the 2Q, I guess. Lance Tucker: We are still working on it, as you can see from the results. I think from a top-line standpoint, we are kind of performing reasonably well, particularly given that we have not yet turned on our 24-hour operations. We have not yet turned on digital. We do not have our full menu yet. So there is still a lot of upside on the top line. We have not turned those things on yet because we do still have some issues we are working through. And I think the easiest thing I can say about it is it is a tough labor market. We opened eight restaurants in a span of under three months, which for us and our corporate operations adds a lot. And we are just still dialing in the P&L there. So it is one of the big priorities we have right now. We are spending a lot of time up in Chicago to get that fixed. I think it will be fixed in the coming months, and then you will see us be able to turn on the sales side full steam. And I think you will see that market come around the way we expect to. Dawn Hooper: And the only thing I would add to that, Lance, is we did expect continued margin compression of Chicago in our guidance that we provided, specifically in Q1. Alex Slagle: Alright. Lance Tucker: Thanks. Operator: Your next question comes from the line of Jeffrey Bernstein from Barclays. Your line is live. Hi. Good afternoon. This is Pradek on for Jeff. Alex Slagle: Thanks for the question. Lance, I had a question on franchisee four-wall margins, which were presumably below the company margin at 16.1%. Given the ongoing disparity in comp performance beyond Jack on Track, is there anything in the short term that you can do to help franchisees navigate this difficult environment? Maybe on the commodity side to secure better prices or maybe rent relief? And I have one follow-up. Lance Tucker: So generally speaking, our franchisees have pretty good economics with AUVs still approaching $2 million. But you are right. We are seeing pressure on four-wall EBITDA right now between the sales conditions and then beef inflation in particular. So, at this point, no, we are not doing any kind of blanket assistance. But we are looking at what we need to do in those kind of one-off cases where we have a franchisee struggling. But generally, I mean, you can imagine right now, particularly with where beef is, the four-wall margins are not where they need to be, but we are doubling down, doing a lot on the profitability side. We just actually restructured our team to make sure we are more focused on profitability. We are doing things like rolling out a new soft drink dispenser. We are doing a number of things within the supply chain to try to cut costs. So, we are kind of putting a full-court press on all of our profitability. And then we are also making some revamps to our digital programs, including loyalty. We are going to add some profitability back in that channel as well. Jeffrey Bernstein: Got it. Thank you for that. And, Dawn, it was encouraging to see the company traffic trend improve modestly on a two-year basis. I believe you were at the mid-2% pricing range to close fiscal 2025, and you ended this quarter at 3%, it looks like, per the 10-Q. Just wanted to get your thoughts on how you think about the price-value equation in this environment while at the same time, you know, protecting your margin and unit economics. Thank you. Lance Tucker: This is Lance. I will start with that one, and Dawn can come on and jump in here as she needs to. We have been able to take a little more price on the company side. It is interesting. The franchisees have taken a little more price than we had historically, so our absolute prices are still lower. But throughout the quarter, we were able to take a little more price on the company side and still leave ourselves in a spot where we feel very comfortable with the value proposition we are giving to our guests. The other thing we did do during the quarter was take several of our bundles and made sure that we lowered prices—kind of in one of our chicken bundles, in one of our burger combos, in a combo. We also added ounces into the soft drink amounts. So we are doing a lot of things to try to make sure that we are showing that value to the customer, at the same time making sure that we are protecting profitability not only here on the corporate side, but ultimately to the franchisees as well. Jeffrey Bernstein: Thank you very much. Operator: Your next question comes from the line of Sarah Senatore from Bank of America. Your line is live. Alex Slagle: Thanks for the question. Isaiah on for Sarah. Just kind of touching on what you were just discussing. Anything specific as to why there was such a large gap in comp between the company restaurants and the franchise ones? Maybe anything related to operations, anything that you have there? Jeffrey Bernstein: Say, yeah— Lance Tucker: A couple things. One is we think a bit of price disparity, but I think probably the bigger factor is our company restaurants are pretty much 100% religious about opting into the offers that we do on the digital side. Franchisees tend to be a little more selective as to which actual promotions they are going to opt into. And so we have seen on the company side a lot more overall effectiveness on the digital side than we have with franchisees. And I think that is probably the biggest singular driver. Alex Slagle: Got it. Thanks. And then just kind of switching gears. Just thinking about how—if you can give us a little color on just how you guys have historically competed against larger competitors, just in periods of intense value competition. And when you are thinking about scale, do you guys think more about the importance of competing nationally, or do you view scale on a more local, you know, easier-to-compete kind of basis more? Lance Tucker: Let me start with that, and then I will ask Ryan to jump in and supplement me a little bit too. But I think, first of all, you know, we have always been smaller than some of these really big chains like a McDonald’s or Taco Bell, Burger King, whoever it may be. I think in order for us to be successful when they are out there heavy value, we have to have our own consistent value, and then we have to lean into what really differentiates Jack, which is innovation. We have a lot of innovation both within our LTOs, but also within our core menu. And so making sure we have our own consistent price, that that price is in a reasonable spot, and that we continue to bring innovative products you cannot get somewhere else is the biggest piece. Now I will turn it over to Ryan, let him supplement that. Ryan Ostrom: Yeah. We know to be relevant, we have to have that price-pointed value, which we have in every single window moving forward, which is something we did not have in ’25. So that really goes after our value guest, but it is about the distinctive and ownable value that we have out there. So when you think about Jack in the Box Inc., it is really about that abundance value. It is about the Munchie Meals. We saw a great response to our Jibby, so adding some gift-with-purchase on our abundant meals has done really well. On top of aggressive quick-hit value, I mean, we are an iconic brand that has tacos. And so our ability to pulse in some aggressive, disruptive price points on tacos—celebrating our 75th like we are once a month with $0.75 tacos. We have a $0.75 Jumbo Jack coming next week, or this Saturday. These types of offers that are ownable and distinctive to us really drive a quick impact to drive traffic to our brand. But we also have to look at value differently, and where we really need to compete is how do we improve value for the guest through quality. And so it is not all just about price points. It is about improving the quality of our goods. And we have already executed some of that in our latest window with improving our core grilled chicken. And our next step is looking across our core platform and improving across our items to make sure that value-for-the-money score that is really important to the guest matches up with the product they are getting. And so you will see a lot more quality improvements from our brand moving forward. Operator: Your next question comes from the line of Andrew Charles from TD Cowen. Your line is live. Jeffrey Bernstein: Great. Thanks. Alex Slagle: Dawn, you called out the 7% commodity inflation in the quarter. Can you just remind us what you are expecting for commodity inflation for the year? And really just how much of that 7% increase was in beef, as well as the forecast for that within the ’26 guidance? Dawn Hooper: Yeah. So, our guidance still stands. We had guided to mid single digits back in November. Beef is definitely the most impactful one—actually came in a little higher than we had anticipated. But you can look to see beef up double digits. And as the year continues, that impact will moderate. It was definitely the highest in Q1. Operator: Your next question comes from the line of Gregory Francfort from Guggenheim. Your line is live. Alex Slagle: Hey. Hey. Thanks for the question. My first one, just on weather—there was some maybe drag later in January, but you guys have a lot of stores on the West Coast. Are you guys able to identify if it may have helped late December and early January? Lance Tucker: We did not see any meaningful improvements or benefits, I would say, relative to weather. Certainly, everything we saw was more related—particularly with the big Texas footprint and where we are in the Midwest—to, it was called Fern, Winter Storm Fern. It impacted us by a couple hundred basis points, actually. Gregory Francfort: Got it. And then just maybe going back to kind of franchisee health and performance, how much is beef up now versus where it was a few years ago? And if that reverses, I guess, what could that do to franchisee cash flows? Do you expect that to happen over the next 12 to 18 months? Thanks. Lance Tucker: I think Dawn is going to look back and see if she can give a reasonable estimate as to what it has done for the last few years. I do not have that off the top of my head. Obviously, though, beef is trading very, very high relative to where it has been, and we would expect a fairly significant benefit if it were to go down. As Dawn said, we expect it to moderate some throughout ’26. But I think at least as far as the predictions I have seen, the next 12 to 18 months, would not expect it to become a tailwind. Gregory Francfort: Okay. Thanks for the perspective, Lance. Operator: Your next question comes from the line of Samantha Chang from Goldman Sachs. Your line is live. Dawn Hooper: Hi. This is Samantha on for Christine Cho. Thanks for taking my question. I wanted to ask about breakfast. I know many of your competitors have called out this daypart as an underperforming part of the day as it tends to be more economically sensitive. With some peers recently making breakfast optional for franchisees, could you share an update on how you are thinking about breakfast and how this daypart has performed at Jack relative to the rest of the day, particularly following the launch of your Much Better Deals lineup? Thanks. Lance Tucker: Sure. So breakfast for us has actually been pretty consistent. It has always been a big part of what we do at Jack. And, of course, we have breakfast all day, which I am sure you are aware. So from our perspective, as we look at this past quarter as an example, it was pretty consistent with all our other dayparts, with the exception of late night, which is where we really had some gains. So overall, we have not seen much change. We are aware that other competitors are giving some optionality to their franchisees as to whether or not they do breakfast, but we will have to wait and see if that impacts us. Ryan Ostrom: Yeah. With us, all-day breakfast is the core of our brand that has been around since this brand has been around. So it is something that we take really seriously in making sure that we continue to drive breakfast as an all-day solution to our guests. Operator: Your next question comes from the line of Karen Holthouse from Citi. Your line is live. Dawn Hooper: Hi. This is Karen, on for Jon Tower. Just going back to the remodel program, I do not know if you have shared or are willing to share your guardrails around what you are thinking in terms of your cost per unit. What are, like, the key elements you think are really, you know, driving that curbside appeal or change in curbside appeal? And how do franchisees plan on funding this? Do they think they can do it through existing cash flows? Is there appetite for financing it? Anything on that would be great. Lance Tucker: Sure, Karen. You know, as I know I have said a couple times here over the last few of these calls, our ultimate goal is to get a full-scale reimage program established and going kind of towards the end of the year. Really, what we are doing right now, though, is much more of what we are considering kind of a mini refresh, and the intent, honestly, is just to improve the curb appeal until we get to such point as we can do the full reimage program because, as you know, even if we kick that off within the next 12 months or so, it takes usually a number of years for those things to play out. So this is really more cosmetic is what I would tell you. It is paint. It is restriping and sealing the parking lot. It is cleaning up the landscaping. It is making sure the drive path looks good. And that can be done for a very, very low cost. You know, I am talking under $20,000, and franchisees tend to have a way of doing it more cheaply than we do. So for them, it is probably under $10,000. So this is the kind of thing that really is intended just to give us a better curb appeal, get us through to the point when we are ready to get the full-scale reimage program going, and do so at a tremendously economical price. Karen Holthouse: And then just a follow-up. When, you know, we get there, you know, end of this year, hopefully talking about, like, logging into a broader remodel program, is your expectation that, you know, there would be some incentives tied to doing that or any sort of financial support for franchisees? Lance Tucker: 100%. We—let me rephrase that. 100%, there will be assistance from corporate. Corporate will not pay for it 100%. I figured I better clean that up. But, anyway, yes, we would expect to make a meaningful contribution to whatever reimage program we would eventually roll out. The most recent one we did was in the 35% neighborhood, if I am not mistaken. And so I would think a little bit either side of that as we would be talking about. Karen Holthouse: Okay. Great. I will pass it on. Thank you. Operator: Your next question comes from the line of Jim Sanderson from Northcoast Research. Your line is live. Jim Sanderson: Hey. Thanks for the question. I wanted to find out a little bit more about Hispanic consumer demand. I think you had called that out in the past as something that was unusually difficult for Jack in the Box Inc. Has that improved over the past year and most recently? And is it improving at a much richer pace? Lance Tucker: What we have seen, let us say, over the last quarter, is not a whole lot of movement, frankly. We have seen, you know, both in the low-income consumer and the Hispanic consumer segments, we have seen maybe the slightest amount of change—meaning improvement—but not anything significant at this point. Jim Sanderson: Okay. So that is more or less trending with the sequential improvements you have observed across the board. Is that the right way to look at that? Jim Sanderson: Nothing then— Lance Tucker: It is kind of in that ballpark. Certainly, we are not seeing anything meaningful as far as improvement there yet. Jim Sanderson: Alright. And if I could follow up with a question on—you had mentioned some technology you were leveraging in store, and I was wondering, is that related to the new point-of-sale system, to the kiosks? Anything there to call out that might be beneficial, especially in the back half, to drive traffic or transactions? Lance Tucker: Jim, there are a couple things we have done, actually. So we completed the rollout of the POS system along—I think it was about August. And so as we continue to make retirements to that and learn it, I would expect to see some benefit there. But the other thing we did, and this is a real tribute to the ops team as well as our IT team led by Doug Cook, we did deploy new back of house, both on the labor management side and the inventory side. And that was completed in November of ’25. And so, again, it is kind of very early days. We are getting to know the systems. We are learning how to utilize them. But our focus for the balance of the year is really going to be how do we leverage those systems, now that we have made those investments, to get more efficiencies out of them both on the top line and the bottom line? Jim Sanderson: Alright. Thank you very much. Operator: Your next question comes from the line of Jake Bartlett from Truist Securities. Your line is live. Gregory Francfort: Thanks for taking the question. You know, mine was about your regional performance, and as we compare Jack in the Box Inc. to the larger peers, it might be, you know, unfair just given your exposure to certain markets. So I am wondering whether, you know, markets like California are particularly weighing the system down and maybe how you think you might compare to your peers within a big market like California. Lance Tucker: Sure. I will start with that, and then I will ask Ryan to jump in if there is anything he wants to add, or Rachel for that matter. But, you know, California has been difficult for, I believe, most brands, at least from the information that we have. So I do believe that is a little more of a headwind—not only on the sales front, but certainly on the profitability front with some of the labor pressures that you see in California. Now, as we look at first quarter in particular, I think the weather—obviously, the weather impact we have already talked about—was more of a Texas and Midwest phenomenon than it was in California. But just generally speaking, what we have seen in my time back here is that California has been challenging. And I think when you look at our over 40% of restaurants being based in California, we certainly have a little more of a headwind looking at an overall consolidated number than some of our competitors may. Operator: That concludes the question-and-answer session. I would now like to turn the call back over to Lance Tucker, CEO, for closing remarks. Lance Tucker: As always, I just want to say thanks to everybody for your time, and we will look forward to seeing you this time next quarter. Operator: That concludes today’s meeting. You may now disconnect.
Operator: Good afternoon. Operator: My name is Tamia, and I will be your conference operator today. At this time, I would like to welcome everyone to Nextdoor Holdings, Inc.'s fourth quarter and full year 2025 earnings conference. To prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. You would like to withdraw your question, please press the pound key. Thank you. You may now begin your conference. Thank you, operator. Nirav N. Tolia: I am Nirav Tolia, Nextdoor cofounder and CEO, and I would like to welcome everyone to our fourth quarter and full year 2025 earnings conference call and webcast. Joining me today is Indrajit Panambalam, our chief financial officer. I would like to extend a big welcome to Indrajit who joined us in December. We are thrilled to have him as part of the Nextdoor executive team. Now let us start today’s call with our standard disclaimers. During this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance, are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of the material risks and other important factors that could affect our results, please refer to our SEC filings available on the SEC’s website and in the investor relations section of our website, as well as the risks and other important factors discussed in today’s earnings release. Additionally, non-GAAP financial measures will be discussed on today’s conference call. A reconciliation of these measures to their most directly comparable GAAP financial measures can be found in the Q4 2025 Nextdoor investor update released today. Operator: Alright. Let us get started. Nirav N. Tolia: This quarter, we know we are speaking to a broader audience than usual, including many retail investors joining us for the very first time. I would like to start with absolute clarity about how we think about Nextdoor, how we have approached this turnaround, and why we remain confident in the long-term opportunity in front of us. Let us begin with our foundation. Nextdoor is not a traditional social app. It is a trust-based local network built on a verified address-based neighborhood graph that connects real people to real places. That graph grounded in identity and location is our core asset. It is what differentiates Nextdoor, and it becomes more valuable in a world where digital experiences are increasingly shaped by AI. The asset has always been unique, what has changed is how we are unlocking its value. Over the past two years, we have reworked the product experience to elevate the most relevant decision-oriented content. The recommendations, services, alerts, local news, and information that people rely on when something in their real world requires action. Unlike many social platforms, our value is not measured by passive scrolling. It shows up when intent is high and decisions are being made. Our strategy is to combine the strength of our trusted community with AI, to surface the right local information at the right moment, increasing utility for neighbors and economic value for both local businesses and Nextdoor. We have paired this strategy with disciplined execution and a clear founder’s mentality, one that prioritizes long-term network health over short-term optics, capital efficiency over growth at any cost, and durable unit economics over temporary wins. With that context, Q4 was an important quarter. It reflected progress not only in our product and operating performance, but in demonstrating that this strategy is gaining traction. Turning to performance, while we still have significant work ahead, Q4 was our strongest quarter ever in terms of financial metrics. Revenue grew 7% year over year, and we delivered positive adjusted EBITDA with continued margin expansion. That progress reflects improved execution, disciplined cost management, and strengthening performance across our monetization platform. Comparing full year results, we have repositioned the company from an adjusted EBITDA loss of over $70,000,000 two years ago to positive adjusted EBITDA in 2025. We expect 2026 will build on this momentum. And this is a result of structural changes in how we operate, not short-term optimization. On the user side, we continue to be focused on leading indicators. Platform WAU will not inflect overnight nor does it need to for this model to improve. What matters most at this stage is engagement quality and intent. Our net promoter score improved steadily throughout 2025, and we are seeing encouraging increases in engagement frequency. Neighbors are returning more often for high-value use cases, which reinforces the durability of the network. And on the advertiser side, continue to invest in our proprietary ad stack, are seeing measurable gains particularly in self-serve. Our AI-driven tools have reduced friction in campaign creation, improved reporting transparency, and strengthened optimization performance. Advertiser retention remains solid, outcomes are improving, and these gains are being driven by better ad performance, not by increasing ad load. Overall, I will reiterate that Q4 reinforced that the strategy outlined earlier is translating into real material progress. I will now turn the call over to Indrajit to review the quarter in greater detail and discuss our outlook. Indrajit Panambalam: Thanks, Nirav. And hello to everyone joining us today. I am excited to join Nextdoor at such an important time for the company. I have been impressed by the strength of the team, the opportunity ahead of us, and I look forward to partnering with my colleagues to drive sustainable growth and long-term shareholder value. Now let us jump into the results. Q4 platform weekly active users, or WAU, which measures users engaging directly on the Nextdoor app or website, was 21,000,000, a 3% sequential decline, roughly in line with our expectations. This reflects our ongoing effort to prioritize engagement quality over volume. Specifically, our users have told us to get smarter on notifications. So we are working on those improvements with the goal of maximizing long Indrajit Panambalam: term user value as notifications improve. As a result, we expect platform WAU will continue to fluctuate in the near term, which is an intentional trade-off as we focus on relevance, retention, and overall improved user experience. Now let us turn to revenue. Q4 revenue was $69,000,000, up 7% year over year. This was our highest ever quarterly revenue, reflecting continued strong self-serve advertiser demand, improved sales productivity, and better yields driven by product improvements. We saw year over year growth in both customer count and average customer spend, while ARPU increased 13% year over year, all without an increase in ad load. Advertisers benefited from higher click-through rates while we grew our active customer base and associated net new advertiser spend. In short, our ad stack investments are delivering measurable improvements. We are seeing positive effects in our self-serve platform, including incremental advertiser spend, improving advertiser mix and retention, and better operating efficiency from a more streamlined sales model. As we continue to roll out new ad formats and apply AI to optimization and creative workflows, our focus remains on steadily improving monetization and advertiser outcomes over time. Our self-serve platform lets businesses of any size quickly create and run their own ads on Nextdoor. By removing friction for advertisers, we have created an efficient path for businesses to leverage our neighborhood data and AI to reach verified household decision makers and measure results clearly. Our self-serve channel was again a core growth driver, and remains a key component of our monetization strategy. Q4 self-serve revenue grew 32% year over year, and comprised roughly 60% of total revenue. Now let us move to profitability. Q4 GAAP net loss was $4,000,000, or negative 6% margin, representing 13 points of year over year improvement. Q4 adjusted EBITDA was $8,000,000, an 11% margin, representing six points of year over year improvement driven by revenue scale and continued broad-based operating expense leverage. Like revenue, Q4 was the strongest adjusted EBITDA quarter in our history. Our strong Q4 results allowed us to achieve positive adjusted for the full year 2025, twelve months ahead of schedule, reflecting our continued focus on efficiency and productivity. Revenue per employee increased which is another good proof point 26% year over year in Q4. of our revenue growth and the operating leverage we drove through 2025. At quarter end, we had $405,000,000 in cash, cash equivalents, and marketable securities, and zero debt. In Q4, we repurchased 2,500,000 shares at an average price of $1.77. Looking ahead, we continue to prioritize operational investments that we feel will drive long-term value for the platform. Now let us turn to our financial outlook. We expect Q1 revenue of $57,000,000 to $59,000,000, representing 7% year over year growth at the midpoint of the range, and adjusted EBITDA of negative $6,000,000 to negative $4,000,000, representing negative 9% adjusted EBITDA margin at the midpoint. Here are some factors to consider related to our Q1 outlook. Nirav N. Tolia: First, Indrajit Panambalam: our Q1 guidance reflects normal revenue seasonality, where Q1 is typically our softest quarter of the year. Second, we remain focused on optimizing the core user experience and driving quality engagement. So we are intentionally limiting our new user acquisition efforts and do not plan to increase ad load in Q1 2026. Given the multi-quarter nature of our product initiatives, and their impact on usage patterns, believe quarterly guidance is the most appropriate way to communicate our near-term outlook. That said, we are encouraged by our operating progress in 2025. For full year 2026, we expect to see continued revenue growth. We also expect to see adjusted EBITDA margins in the mid-single digit range. With that, I will turn it back over to Nirav. Thank you, Indrajit. You made a strong impact in a short period of time. Nirav N. Tolia: The discipline, perspective, and cross-functional leadership you are bringing are raising the bar across the company, and I am excited about the role you will play in our next chapter. We are fortunate to have you on the team. Before we move to Q&A, I would like to wrap up our prepared remarks by specifically articulating our investment thesis, which rests on five pillars. Operator: First, Indrajit Panambalam: our core asset, Nirav N. Tolia: the neighborhood graph. Nextdoor is built on a verified address-based neighborhood graph covering 350,000 neighborhoods and more than 105,000,000 verified neighbors, roughly one in three U.S. households. Because identity and location are verified, neighbors come to Nextdoor for you utility, not passive scrolling. We have built a trust-based graph that is differentiated and difficult to replicate. Second, intent-driven engagement. Our platform centers on real-world decisions, finding a service, responding to an alert, getting a recommendation, the value of the network appears when intent is high. We are not optimizing for entertainment and scrolling. Are optimizing for relevance and action. Operator: Third, Nirav N. Tolia: multiple monetization pathways. High intent creates commercial opportunity. We see substantial room to close the gap between user intent and monetization through contextual native advertising and lead generation. All that connects local demand with local supply. Is particularly compelling with small and medium-sized businesses, a fragmented market with lower digital penetration and clear ROI expectations. Importantly, improving monetization does not require a step change in user growth. It simply requires better matching of intent and outcomes. Fourth, a validated business model. We are demonstrating that this model works. We are capturing a differentiated high-intent audience, we have multiple monetization formats, and advertiser retention and ROI are improving. Revenue per employee is expanding, and as Innerge had outlined, operating leverage is emerging in our financial results. These are early but concrete signs of validation. Operator: Fifth and finally, a founder’s mentality. Nirav N. Tolia: Turnarounds require a precise understanding of the core asset, and disciplined execution around it. A founder’s mentality brings both. This translates into an approach that prioritizes long-term thinking, disciplined capital allocation, and an uncompromising focus on network health. It means resisting short-term monetization tactics that erode trust. It means making decisions that strengthen the platform over years, not quarters. That founder’s mentality underpins how we are executing this turnaround, and how we are investing for durable growth. It also shapes how we approach AI, which we strongly believe will drive a material transformation not just for our company, for our entire industry. We are not pursuing AI as a feature cycle. We are applying it to a proprietary asset built over more than fifteen years, a verified address-based neighborhood graph that generates content and context that does not exist anywhere else. The value of AI here is not a generic capability. It is based on the uniqueness of our data and the community engine that produces it. By combining our hyper-local, real identity graph with AI, can enhance relevance, improve advertiser performance, increase efficiency, and most importantly, deepen our competitive moat. As such, AI does not compromise our thesis. It strengthens all parts of it. The opportunity in front of Nextdoor has not changed. Has changed is the rigor and discipline with which we are executing. When viewed through the right lens, one centered on trust, intent, and durable economics, Nextdoor represents a differentiated platform with a path to sustainable long-term growth that we believe remains underappreciated. And with that, happy to take your questions. But before we begin Q&A, let me briefly outline how we will structure it. We will start with questions from our covering analysts. After that, Indrajit will share some of the most common questions we received from individual investors over the past few weeks. We appreciate the engagement and look forward to the discussion. With that, operator, let us open the line for questions. Operator: Thank you. We will now begin the question and answer session. Operator: If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. The first question comes from Jamesmichael Sherman-Lewis with Citi. You may proceed. Nirav N. Tolia: Hey. Good afternoon, Nirav and Indrajit. Thank you for taking my questions. It is two here, if I may. First, encouraging to hear frequency and engagement quality are improvement improving. Can you add more color on the specific product changes that are resonating most of users? As we look at the new UI, recommendations and notification changes, etcetera? And are you seeing any delta in usage trends from existing versus newer user cohorts? And then I have a follow-up. Great. Well, James Michael, it is good to hear from you. And I will just give you the color on what we are seeing that working. I would say, in general, we are slowly but surely converting our product to something that feels much more utility centric and is driven by intent. And so the things that are driving deeper engagement are whether they are big things like a greater focus on recommendations and local news and other things that give you the information you need to make decisions, or whether they are smaller things that are at the ecosystem level like more relevant notifications, using AI to better personalize the feed, it is a series of different things that we need to do because the end of the day, the product experience is not just one feature. It is a set of lots of different features, and we have to make all of them better. And if we do, we start to see compounding. I think we are starting to see the very beginnings of that and we are excited about it. Were gonna ask me to follow-up question. Operator: Yeah. Nirav N. Tolia: Follow-up here. As we think about the advertiser base and self serve segment, could you revisit, you know, any budget trends by vertical or advertiser size? And and specifically, any update on spending patterns from larger advertisers? Thank you very much. Okay. Thanks for the question. You know, we did have the strongest revenue quarter in our history. And so I would say across the board, we saw strength from advertiser demand. And we continue to use AI to generate better outcomes for those advertisers. I will let Indrajit chime in a little bit on a few of the specifics, but I think it was really better demand and better performance across the board. Indrajit Panambalam: Thanks, Nir. Yeah. I would echo what you said. It was pretty broad based to what we saw in Q4, which is obviously very strong quarter for us. There were no particular verticals that stood out as significantly sort of outperforming the others. And as I mentioned in my remarks, we are seeing good trends on number of ad advertisers, net new ad revenue. So we feel like those are headed in the right direction. Excellent. Thank you, Moe. Operator: Thank you. Operator: As a quick reminder, if you would like to ask a question, please press 1 on your telephone keypad. Next comes from Jason Michael Kreyer with Craig-Hallum. You may proceed. Indrajit Panambalam: Thank you, guys. Appreciate it. Nirav N. Tolia: Wanna build on the last question. Any updates on building out a programmatic ad stack for for the large It has been kind of a year since we talked about, you know, more volatility in that category. I think last quarter, you kinda said, know, you were stabilizing things with SSPs and DSPs. So curious where that is at and if if you think that can drive more growth throughout 2026. Just as you get that stack fully implemented. Operator: Sure. So Nirav N. Tolia: you know, we need to continue investing in programmatic formats and the programmatic ad stack in general. Because that is what large advertisers are seeking. What you heard a year ago is that there were large advertisers who said that they would not consider us until we started to roll out those improvements to the platform, and we have done that. And so as we have done that, we have seen greater demand. As we continue to invest in that, we should see greater demand as well. But it is it is a it is a part of the whole. I would not call it out as a particular focus of ours. It is something that we need to do to be competitive. And so we will continue to do it. And we do expect demand to go up as a result, but it is not something that I would point to as some specific opportunity that we think outsized that we are going after aggressively. Operator: And, Neera, if I could just add, I think what we have seen over the last Indrajit Panambalam: twelve months since we first introduced programmatic is really strong in improving performance on our on our direct sales ourselves. We are seeing strong demand from advertisers there, which we are able to monetize quite well. So I think program programmatic has been a great supplement to that. But we are also encouraged by our own our own performance too. Nirav N. Tolia: Great update. Thank you. And then just maybe another one in terms of the evolution of recommendations. I know that you have kinda tweaked that kinda go to market or the rollout of of recommendations over the last couple of quarters. What what is in store for 2026? How broad is that rollout now, and how much does that change in the next few months? It is a great question. And I would say that in 2026, recommendations and in general making it possible to easily find the absolute best small businesses in your neighborhood, is a major priority for us. And so whether that means ensuring that when neighbors ask questions, they are answered more quickly, whether that means using the power of AI to summarize old conversations or new so that you can get multiple recommendations in one fell swoop. Operator: Or Nirav N. Tolia: if it means bringing those great SMBs on the platform so they can respond directly to neighbors so that it is a closed loop kind of experience, those are all things that we are focused on in 2026. We think this is one of the really unique advantages that Nextdoor has. We are a place where you come to get real recommendations from your neighbors. It is not bots that are creating the recommendations. It is not star ratings. It is neighbors that are willing to vouch for the small businesses that they believe in. And this is a value proposition that we need to get much better and much more forward in front of our consumers because there is nothing like it across the web. Wonderful. Cannot wait to see it. Thanks, guys. Operator: Thank you. The next question comes from Ryan James Powell with B. Riley Securities. You may proceed. Indrajit Panambalam: Great. Hi. Thank you for taking our question. This is Ryan Powell on for Naveen. So first, Ryan James Powell: we appreciate the color in the prepared remarks, but we are wondering a little more on much more work needs to be done on moderating the notifications and emails. And whether the current frequency is about what you expect long term? And then I have a follow-up. Nirav N. Tolia: Okay. Thank you for the question. I think that we will never stop working to make the notifications more relevant. The way that it goes with notifications is that the more relevant they are, the more you can send. The problem with sending irrelevant notifications is it may not show up in the near term, but in the long term, it does. Either through a lower NPS score or even worse when people unsubscribe. And so we have taken a very, very conservative view as it relates to notifications. We have made the difficult decision to focus on the long term, and as a result, we pulled back quite a bit, and, frankly, we will continue to do that if it is the right thing for neighbors. So as we build more relevant notifications, we can be more aggressive with them. And we will. I would say today, we still have a lot of work to do. And we are gonna be much more long-term minded versus feel like we need to pump out as many emails and mobile notifications as possible. Just so we can pump up the metrics. What is really important to us is ensuring that when someone receives a notification, they feel like it is relevant to them. And until we can do that with real regularity, we will continue to be conservative in how many we send out. Operator: Great. That makes sense. Thank you. Ryan James Powell: And then second on the phase launch, where are you currently in rollout? And how has it impacted the quality of content in neighborhoods that it is live. Nirav N. Tolia: Okay. It is a very good question. And faves, is part of that overall ecosystem of recommendations and small businesses. And in general, one of the things that we feel that Nextdoor should be truly great at which is helping you find the best service providers, the best businesses, the best places to spend your money in your neighborhood. I do not think that this year, we will think about this as some large rollout. We are gonna think about it as a series of improvements that are ongoing and iterative. And so at any moment, you may think that it is mildly improved. But if you look back at this over a year, I think you will see some major progress. So versus thinking about this as there was a launch, and then we have got a big release next quarter and then another release the quarter after that. We are thinking about this much more like traditional web development where we should have deadlines and milestones and releases every few weeks. And you should feel like the the product is getting gradually better and better and better and better. Ryan James Powell: Awesome. Thank you. Operator: Thank you. Operator: There are currently no other questions queued. So this is your final reminder that if you would like to ask a question, please press 1. With that being said, I will pass it back over to the team for a Q&A. With the analysts. Indrajit Panambalam: Great. Thank you, operator. As Nirav mentioned, we are pleased to now answer some of the most popular questions that investors have submitted to us in the last few weeks. So let me start with our first question, which is on AI. What has been the progress of implementing AI features into the app? What are the main bottlenecks to implementing more AI features? Nirav N. Tolia: Okay. So let me start by saying that we are of the mind that AI is as transformative as anything that is happened in our lifetimes in the technology industry. So we are true believers when it comes to the power and potential of AI. We think that it should ultimately shape us and has shaped us already in three different ways. It should make the company more efficient, it should make the consumer product better, and it should increase advertiser optimization and performance. We have done things in all three of those areas. And much like I described our faves rollout as not one big bang, but rolling thunder that is increasingly just something that is natural something that we look to as part of our normal cadence over time, that is the way that we will continue to implement AI solutions. We do not see AI as some vertical thing that we focus on that is outside of the main set of things that we are doing. We see AI as a powerful technology that needs to be the foundation of everything that we are doing. And so the real opportunity for us is to take our incredible community system, which is uniquely human, and it is verified, and you have actual neighbors that are creating content and combine that with AI, to create content that ends up being higher quality, more relevant, but still uniquely human. And that is a very unique opportunity that we think exists for Nextdoor. Ryan James Powell: Great. Indrajit Panambalam: Second question is on platform differentiation. How is Nextdoor truly different from other social media or home or home services apps on the Internet? Nirav N. Tolia: So I would go back to what I articulated with our investment thesis, and that is point number one. The core asset of Nextdoor is a neighborhood graph. It is a graph of people that have verified identity, and real location. That then enables a trust-based network that is very different than the other social networks. That is difference number one. Difference number two is many of the social platforms today engage in what I would describe as one-to-many communication. There is content on the social network, and then there are consumers of that content. Followers is typically what you call those those consumers. And you have one content creator that is communicating with lots of different followers. On Nextdoor, it is not one-to-many communication. It is many-to-many communication. It is more about community. You post on Nextdoor, and then what is really interesting is the responses that come to your post. And those responses are not just from one person. They are from a number of different people, and they are all your neighbors. And so it creates a completely different dynamic because it is not about the one big content creator, and then you are responding to that content creator but you are not talking to all the other people that are responding to the content creator. Nextdoor is a community centric social network. And increasingly, that is different than the other things that we see across the web. Operator: Great. Indrajit Panambalam: Okay. Third question is on vertical specific monetization. Question was, would you consider leaning more heavily into vertical specific use cases like home services and pet services? So Nextdoor has, from the very beginning, been a broad local social network, which means there are a variety of different use cases Nirav N. Tolia: that may span from simply getting to know your neighbors to understanding what to do this weekend in your neighborhood to asking for help to find a lost pet, to coming together in times of crisis, to, of course, finding recommendations for the best businesses in your neighborhood. Those are a series of very different things. And even within those verticals, like finding the best business in your neighborhood, there are lots of sub-verticals as well. So this is a big challenge for us. It is also an incredible opportunity. In the highest value verticals, and service providers is one of them, we should actually build more vertically specific features and functionality. Whether that ultimately looks in the app like a series of channels, whether there continues to be a single monotonic news feed that then actually branches out when you need it to, those are the things that we will experiment with. But, ultimately, we know that particularly for the highest intent, and the best monetization use cases, we do need to push deeper and build more vertically specific solutions. Indrajit Panambalam: Okay. Thanks, Nir. Alright. Now on to our last question, which is related to cash management. Couple folks several folks asked, what is your philosophy on the use of your cash? So why do not I take this one? First, as a reminder, we ended 2025 with slightly over $400,000,000 of cash and marketable securities and no debt, which we view as a major strategic asset of ours. Also, as you saw in our results, we reported positive EBITDA and positive cash flow from operating activities for full year 2025 which, we find very encouraging. And look. We do not assume that access to cap capital markets will always be readily available for companies of our size. So preserving liquidity gives us important operating and strategic flexibility. And for us, really, any use of cash, whether for organic investments, external opportunities, or capital return, it must all exceed our return of invest return on investment thresholds. So, really, if we look at it, you know, we continue to regularly evaluate all options for our cash. And we use those objectives, as we evaluate the opportunities before us. Nirav N. Tolia: Okay. With that, we are gonna wrap up this call. We really appreciate your interest in Nextdoor, and we look forward to continuing to communicate our progress on this turnaround. We are very optimistic about our future, but we know that there is a lot of hard work ahead. Stay tuned. Indrajit Panambalam: Thank you, operator. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect your line.
Alfonso Ianniello: Good morning, and welcome to Codan's H1 FY '26 Results Presentation. I'm Alf Ianniello, Managing Director and CEO. And joining me today is our CFO and Company Secretary, Michael Barton. As announced this morning, after more than 22 years with Codan, Michael has informed us of his decision to retire at the end of August following our FY '26 full year results. Over that time, Michael has played a pivotal role in shaping Codan's financial discipline, capital allocation framework and acquisition strategy. On behalf of the Board and the broader team, I'd like to sincerely thank him for his contribution. I'm also pleased to confirm that Kayi Li, currently our Deputy CFO, will succeed Michael as our Chief Financial Officer. With nearly 19 years at the business, including senior finance roles at Codan since 2013, Kayi has played an integral role in our financial strategy and operational execution. We are confident her experience will support a smooth and seamless transition. In addition, Daniel Widera, our General Counsel and Joint Company Secretary, will become Codan's sole Company Secretary upon Michael's retirement. Michael will remain with the business for a structured 12-month transition period from August to ensure continuity and stability. Before we begin, please take a moment to review our standard notice and disclaimer. Today, we'll begin with our H1 FY '26 performance highlights, followed by a detailed review of each of our segments being Communications and Metal Detection. We also highlight 2 products that contributed meaningfully during the half, demonstrating how our engineering investment is translating into commercial outcomes. We'll then revisit our strategy and near-term priorities before closing with our outlook for the remainder of FY '26. Following our remarks, we'll move on to a live Q&A session, which will be hosted by Sam Wells from NWR. While Michael and I are working through the slides, you are welcome to submit written questions at any time [Operator Instructions] For those newer to Codan, we're a global group of technology businesses focused on critical communications and detection. Our technologies are designed for mission-critical environments, keeping people connected, informed and safe in demanding and often remote conditions. We operate across defense, public safety, gold detection and recreational markets, supported by a global footprint and strong engineering capability. At our core, we focus on reliability, performance and long-term customer relationships, particularly in environments where failure is not an option. Our strategy to build a stronger Codan remains consistent and disciplined. It is underpinned by sustainable organic growth, targeted and accretive acquisitions and continued engineering investment and strong operational execution. Diversification remains a key strength with Minelab delivering a strong cyclical performance and Communications positioned for structural long-term expansion driven by defense and public safety demands. Over time, this approach is building a more resilient and diversified earnings base with improved visibility and quality. At a high level, our H1 results reflect consistent delivery against our strategic plan, underpinned by disciplined execution and favorable market conditions in several key regions. Communications delivered another period of consistent and high-quality growth, supported by strong defense demand and the integration of Kagwerks. Metal Detection delivered exceptional performance, particularly in Africa, where elevated gold prices supported demand. Importantly, this performance was achieved while continuing to invest in engineering, systems and people, ensuring that our growth remains sustainable and repeatable over the longer term. Turning to the numbers. Group revenue increased by 29% to $394 million, reflecting strong organic growth and a full first half contribution from Kagwerks. EBIT increased by 52% and NPAT increased by 55% to $71 million, demonstrating strong operating leverage across the group. This reflects both revenue growth and improved product mix, particularly within Minelab. The Board declared a fully franked interim dividend of $0.195 per share, up 56% on the prior corresponding period, consistent with our disciplined capital management approach. I will now hand over to Michael to step through the financial detail. Michael Barton: Thanks, Alf, and thanks for the kind words at the start of your presentation. Also, I'd just like to thank you for your support of the succession plan to Kayi and Daniel, much appreciated. And thank you for making the time under your leadership so enjoyable and so successful. On to the numbers. So as highlighted, group revenue increased 29% during the half and pleasingly, the growth came from both our Communications and Metal Detection businesses. Our gross margins increased 58% and all profitability metrics were increased. Operating expenses increased primarily due to a targeted investment in shared services, higher performance-linked expenses, which are reflective of our strong results, product launch costs and the integration of Kagwerks for the full period. Tax expense was slightly higher at 25% with more of our increased Metal Detection profits taxed here in Australia. NPAT margin improved to over 18%, reflecting improved profitability and operating leverage. We continue to actively manage our foreign exchange exposure through our hedging program with contracts in place to mitigate approximately half of the expected USD exposure in the second half. Overall, the financial result reflects both strong performance and continued investment in capability. We closed the half with net debt of $88 million, an increase of $10 million compared to June, largely reflecting working capital investment to support growth and our increased activity levels. Leverage remains conservative at 0.4x EBITDA. With an undrawn debt facility of $140 million as well as an additional $150 million accordion capacity, we retain significant financial flexibility to pursue inorganic growth opportunities. This slide illustrates the key drivers of our net debt movement during the half, including the investment in operating cash flow into working capital to drive growth, our dividend payments and continued investment in our engineering programs. Engineering investment during the half was $36 million, representing approximately 9% of Group revenue. This level of investment is consistent with our long-term approach and supports product development pipelines across both Communications and Metal Detection. In Communications, investment is focused on advanced tactical platforms, next-generation waveforms and public safety applications. In Minelab, investment continues to support our product refresh cycles and our technology leadership. This sustained commitment to innovation underpins our organic growth trajectory. And back to you, Alf, to take a closer look at our business units. Alfonso Ianniello: Thanks, Michael. We'll now move on to the business units. Communications revenue increased by 19% to $222 million. Segment profit increased 17% to $58 million, with margins broadly stable at 26% as we integrate Kagwerks and manage the challenging trading period in Zetron Americas. The orderbook increased by 19% to $294 million at the 31st of December, providing strong revenue visibility into H2 and beyond. We remain focused on progressing Communications margins towards our 30% target by FY '27 as integration benefits and scale efficiencies materialize. DTC delivered strong growth, supported by defense demand and increased adoption of our unmanned system solutions. Revenue from unmanned systems increased 68% to $73 million. Approximately half of this unmanned revenue during the period related to operational defense application in conflict zones with the balance being driven by adoption of our technologies across non-conflict defense and security programs in Asia, the U.S. and Europe. Importantly, growth rates across both conflict and non-conflict markets were broadly consistent, reinforcing the structural expansion of the unmanned systems market. Kagwerks contributed in-line with expectations and continues to integrate effectively, enhancing our position within U.S. military programs and strengthening our ecosystem offering. Our presence across the U.K., U.S. and Australia positions us well to capture long-term defense program across allied markets. The BluSDR contributed meaningfully during the half and represents a strong example of our engineering capability translating into commercial success. It is an ultra-lightweight, high-performance software-defined radio platform designed for long-range, secure connectivity across unmanned and mobile applications and has proven particularly well suited for drone-based deployments. Its technical characteristics, including high output power, mesh networking capability and low size, weight and power reinforces DTC's competitive positioning in mission-critical communications. Trading conditions for Zetron Americas were temporarily impacted by slower procurement cycles across the state and local agencies that we serve, which extended sales cycles and deferred order timing during the half. Early indications in the second half of the year are encouraging with trading conditions showing signs of improvement as funding approvals progress. Outside the Americas, EMEA and APAC markets delivered stable performance. We continue to invest in next-generation 911 capability and the SALUS platform to enhance recurring revenue streams and strengthen long-term customer retention. Minelab's first half results were exceptional, with revenue up 46% versus prior corresponding period to $168 million. Segment margin expanded to 45%, reflecting a higher mix of gold detector sales and improved operating leverage. Africa delivered exceptional performance, supported by elevated gold prices and strong demand across West Africa. Rest of the world delivered high teens growth, which is an excellent result, reflecting continued strength across key recreational markets. Rest of world performance was supported by product innovation, retail expansion and the ongoing development of our direct-to-consumer platforms. This performance highlights both cyclical tailwinds and structural improvements in the business model. During H1, we launched the Gold Monster 2000. It delivers enhanced sensitivity to ultrafine gold and improved depth and accuracy in mineralized ground, critical attributes in many of our core gold markets. Early customer feedback has been positive, supporting continued momentum as distribution scales up. Now I'd like to move on to the strategy update section of today's presentation. Our strategy remains anchored in 3 core pillars: first, investing in ourselves, strengthening systems, process, people and product innovation; secondly, strengthening our core businesses, which means expanding addressable markets, improving revenue quality and increasing reoccurring revenue components; and thirdly, disciplined capital allocation, where we pursue strategically aligned and accretive acquisitions that enhance capability, scale and market penetration. Together, these pillars support sustainable, diversified earnings growth. In DTC, we are expanding towards a full system solution provider model, continuing investment in the next generation of waveforms and ecosystem integrations. In Zetron, we are focused on increasing reoccurring service revenue and expanding support contracts and also advancing next-generation command and control platforms. And in Minelab, we continue product innovation, retail footprint expansion and channel development with another new detector scheduled for release shortly. These initiatives support both near-term performance and long-term structural improvement. Now turning to our summary and outlook on Slide 23. Tying today's presentation together, market conditions remain positive in both Communications and Metal Detection, reflecting the diversified nature of the Group's portfolio and the quality of our business. Codan's strategy is to continue to invest in engineering programs to maintain product and technology leadership and to underpin long-term growth. In Communications, elevated defense spending and ongoing geopolitical tensions globally continue to generate strong demand for our unmanned systems products. Communications is on track to deliver FY '26 revenue growth within a 15% to 20% target range, supported by strong underlying demand and the full year contribution from Kagwerks. Minelab revenue in the second half of FY '26 to date is tracking in line with the strong first half performance. Based on Minelab's current trading conditions, we expect the second half performance to be at least in line with the first half, supported by favorable gold market conditions and a full 6-month contribution from recent product releases. With balance sheet capacity and a disciplined approach to capital allocation, Codan remains well-positioned to continue investment in the business and pursue future acquisitions that fit our product and technology road maps, which enhance the quality, resilience and the diversification of our earnings. The company will continue to keep shareholders updated as FY '26 progresses. Back to you, Sam. Sam Wells: As a reminder, the audience may ask questions to the management team. [Operator Instructions] There are a few pre-submitted questions, so I'll kick off with those before getting to the analysts. Firstly, just on Communications margins. You've talked about the moderating pace of margin expansion within Communications. Can you elaborate on the path from current margins to the 30% target by the end of FY '26? Michael Barton: Yes. Thanks, Sam. Yes, remain -- we've been very consistent that we remain focused on margin expansion. We did improve organically in the half, which was good. And we've been really consistent also on our revenue expectations for Communications, the 15% to 20% range remains the focus. As we deliver that and we see further revenue growth to be within that range in the second half, we would expect to see more improvement at the margin line as well. Sam Wells: And on Zetron, can you elaborate on the early encouraging signs in trading conditions in the Americas business? And are there any meaningful near-term opportunities specifically in the U.S.? Michael Barton: Yes. I think we posted a really pleasing increase in our order book at the half. So quite -- I think we're up 16% versus June, 19% versus last December. So we do go into the second half of this year with a stronger order book than what we entered the first half. So that's pleasing and sets us up to be within that 15% to 20% range that I mentioned. And I think we're also seeing -- while not yet in the order book, we are seeing some increased activity in the pipeline also in the U.S. market, public safety market for us. Sam Wells: And on Minelab Africa, an exceptional set of numbers within the Minelab business. How should we think about the sustainability of this performance, particularly in the context of 45% segment profit? Alfonso Ianniello: I think when you're looking at Minelab, I don't want to make it just an African discussion. We had a rest of the world high teens growth rate, really reflecting great execution from the Minelab team at a distribution, e-com level and direct-to-customer approach and new releases of great product. And then when you look at Africa, obviously, the gold price has been a tailwind for Minelab and then our great products have been a tailwind for Minelab. So the 45% is an exceptional number in its own right, and we believe it's maintainable in the future. Sam Wells: And just moving to unmanned. You printed some extraordinary numbers within the unmanned business. Can you help us understand how sustainable these opportunities are, particularly within the defense landscape? Alfonso Ianniello: Yes, it's really interesting. If you wind back 12 months, 18 months throughout these calls, we've referred to an unmanned market growing at 30% per annum globally. This is just increasing. The environment and the ecosystems in defense are very different today than they were previously. Our solutions back right into those unmanned platforms. And our ability to perform in conflicted environments well has really created a halo effect into other markets, hence, highlighting the success of the BluSDR-90, which was really born over the last 18 months through very high exposure to very conflicted environments. So we think the unmanned space over time will continue to be a significant tailwind for Codan. Sam Wells: Got you. And just shifting to some of those non-conflict opportunities you referenced in the presentation. Can you just elaborate on those? And where are the bulk of the revenues coming from in terms of specific applications? Alfonso Ianniello: Yes. So I won't talk about the specific applications. I'll talk more about the market -- the geographic markets that we are looking at. So if you look at, we did call out, we've started to see some positive work in the U.S., positive work in APAC, positive work in Europe. So if they're not in a conflicted environment at the moment, they're probably preparing for pre-conflict, I would say. So -- and again, let's take a step back and just reflect on the technology that we put in market, and that technology fundamentally is selling itself in these other markets at the moment. Sam Wells: Great. We'll move across to some of the analysts. First question comes from Josh Kannourakis at Barrenjoey. Josh Kannourakis: First, congrats, Michael, and wishing you all the best on the transition of your new steps and congrats to Kayi as well on the step-change in role. Good to see. Just jumping on to the first question just around regional exposure. So you did mention a bit of a step-up in terms of activity in the U.S. I know there's a lot of hoops to jump through in terms of getting into those programs and historically comms being dominated by a couple of those big local players. Is that a new incremental thing? Can you just give us some more detail on how recent that is? And maybe just specifically around the U.S., what you think the opportunity is across the broader comms space? And then obviously, specifically, unmanned as well? Alfonso Ianniello: Yes. I think when we look at comms in the U.S., we probably look at the dismounted soldier solution within the Kagwerks acquisitions and the unmanned solution giving us some good dialogue with potential U.S. customers. So there's a lot of -- as always, with these platforms, they're not plug-and-play. They are plug significant testing and evaluation and then you get an order. So we are comfortable that we're having the right dialogue with the right organizations, either at a defense department level or Tier 1s into the defense department. So that is positive. The other areas that we're actually having positive traction is APAC, and I won't go into the specific countries, but also there's been an uptick in European defense spend, and there's been some sort of shadowing of that application of that funding into unmanned systems and the DTC product category itself. Josh Kannourakis: Got it. That's really helpful, Alf. And just in terms of -- so just to understand it within the U.S. specifically because I guess my understanding was more that a lot of your volumes and things historically have been outside of that region. So you're sort of from a military perspective, within the sort of evaluation phase at the moment for that. So that's probably in terms of potential upside, that's significant if you can get through that. And -- but then on the other side, you're seeing traction in some of the nonmilitary sort of settings also. Is that the way to sort of read it through? Alfonso Ianniello: Yes, that's right. If you look at what we've seen over the last couple of months, we've been heavily involved in the border with our communications. So that's with government departments, not defense related. We are also heavily working with other sort of peripheral government departments in the U.S. that require our solution that in some ways, isn't defense related, it's more public safety related in theory, keeping the American public safe. So yes, and that's a great thing with the product categories. We can actually put it into dismounted soldier solutions, unmanned solutions, public safety solutions. Josh Kannourakis: Great. And just in terms -- I know you don't want to go into specific countries for obvious regions, but there's been some very large funding packages allocated to areas like Taiwan and in that sort of region. There's also a lot more flagged in terms of progressive step-up. How early in the journey do you think you are? Are you sort of -- do you have the right connectivity in place to capture what will obviously be a significant step-up in this broader region? Alfonso Ianniello: I would suggest, as we've said in the U.S., we are all part of the right conversations happening in APAC and EMEA being Europe. So yes, we're definitely having the right discussions with the right levels of people. Josh Kannourakis: Awesome. Final one from me. Just on M&A. I mean, obviously, it's been a pretty tumultuous environment across the software space. Defense on the other side has obviously has been a lot more favorable in terms of all the trends you've talked about. Can you maybe just talk about when you're thinking about it now the lens, how you're sort of seeing that in terms of the opportunities within both maybe comms and -- within comms within the tactical side, but also Zetron, especially with some of the potential in software, the AI-related disruption as well. Alfonso Ianniello: Yes. I think when you look at Codan and you look at our comms, the good thing we make products with software on it. So the -- any AI application is just an enhancements to the product and the end user, and that's how we actually see that. But we have pipelines of M&A targets. As you clearly mentioned, in the defense world, it's pretty hot at the moment. Multiples are far higher than we've seen in the past. People on the line would clearly know that we are very prudent when it comes to acquisitions about multiple and accretion levels. So we've been involved in processes. Some have worked. And then as in the past and the ones that we've been unfortunate on has been really the fact that we didn't believe we could extract the right value for it. But the process continues. We've invested heavily in structure at Codan. So we've got the right people working on it. We're looking heavily on how to enhance our technology road maps and our market positioning. So it's definitely a space where you just need to continue to be active in and ensure that you buy well and you can extract value for the future. So that's where we're at, Josh. Sam Wells: Next question comes from Mitch Sonogan at Macquarie. Mitchell Sonogan: And yes, congratulations to you, Michael and also Kayi as well. Just echoing Josh's comments. Just the first one, just on the outlook for Metal Detection or Minelab second half revenue to be at least in line with the strong first half. Just trying to get a little bit more color on that because obviously, you had pretty strong sequential growth. You've got, as you said, good gold conditions in that market and also still benefiting from new product releases. So just trying to understand what sort of visibility you have at the moment, how we should think about the second half potential upside risks. Alfonso Ianniello: Yes. Well, it's interesting if we talk about Minelab, that's probably the first time we've actually ever given a forward-looking number in Minelab. So yes, we've had a strong first half, right? We've got a lot of tailwinds either from a gold perspective -- gold price perspective, new product introduction, great performance in recreational. We sit here today, and we never comment on seasonality in Africa because we don't know. So we're not going to be a fact-based about that. But we do sit here today that we're saying there's the same tailwinds that existed in H1 exist in H2. And so I guess that's what our commentary was about, so okay? Mitchell Sonogan: Yes. And just in terms of -- obviously, you called out Africa being quite strong. But do you mind just giving a bit more color on other regions where you might have seen some big outperformance and other areas that you are more positive on the next 6 to 12 months as well? Alfonso Ianniello: Yes. I think I'll call out Australia. I think our work we've done in Australia has been exceptional on repositioning the way we go to market, big tick, some great work in APAC, big tick, LatAm, big tick. And then you've got Africa and Europe. We have been consistent in our approach either at a recreational level with e-comm, the marketplaces, the distribution point increases and new product introductions. So when I look at Minelab, it's very hard to fault anything they're doing in any market at the moment. And the most important thing is I'm as excited as with the gold detection and the gold sales as I am with the rest of the world sales because that high teens growth in a fairly flat consumer market is fantastic. So it just shows that where we're spending our money away from product development, it's working. Sam Wells: Next question comes from Evan Karatzas at UBS. Evan Karatzas: Just can we dive into Zetron a bit here. One of your larger competitors, Motorola, I mean they've been delivering some pretty consistent strong growth over recent quarters to their command center business. Can you maybe just speak to why you think there's such a discrepancy there to what you've seen in the U.S.? And anything you can, I guess, elaborate on around that order book for Zetron explicitly and how that's changed relative to 6 months ago, how you entered the year as well? Alfonso Ianniello: Yes. Good question. I think when you look at Motorola in the command and control space and you look at us, I don't think we're comparing apples-to-apples consistently on product offering. There's probably a bit more rolled up in that space of Motorola. And secondly, they're a Tier 1, Tier 2 player. We're a Tier 3, Tier 4 player. The way the funding and the grants work for Tier 3, Tier 4 are slightly different than they are in Tier 1, Tier 2. So -- and I think we also need to analyze Zetron over the last 4 years of Codan ownership, it's been well above market growth rate. So it's been an amazing acquisition for Codan. And so looking forward, what are we seeing in January, Feb when you -- just going further to what Michael said, yes, orders are being unlocked, so that they're pushing into the order book. There's far more activity in the pipeline. So the activity levels have come up from H1. It's a financial year. I think let's have a chat at the end of H2 and where these orders have rolled through. And let's not get away from the fact that we have entered H2 with an order book that is higher than most times. So that's the marketplace that public safety, it is. Also, let's not -- also let's understand the fact that we've been doing well in APAC and EMEA as well from a Zetron perspective, so. Evan Karatzas: Yes. Okay. No, all fair points. And just sort of coming back around to the DTC, the tactical comms, just around those investments you've been making, especially for contested environment, some of those new product releases, have they now been released into market? And then you can talk to about how early take-up or reception has been? And then also how that helps when you spoke about from a strategic sense with that expansion into your other growth regions like North America, Europe, Asia as well? Alfonso Ianniello: Yes. From a product perspective, I think the DTC product category is quite set. The feature content involves from market feedback. And that's the sort of the strength that we've had. We've been able to feed back those technical requirements from the field back into our product really quickly, either enhancing current product or creating new product like the SDR-90. So at the moment, we're heavily focused on feature content for the SDR range. And also we're heavily focused on feature content for the Kagwerks range as well. So probably less form factor changes, but more on feature content for the environment that these products work in. Sam Wells: We might just move on to the next question, please, from Tom Tweedie at Moelis. Tom Tweedie: Just the first one on Kagwerks. Are you able to give us a sense of the revenue contribution for the half for that business? And also just the color on the pipeline for program of record RFPs? Michael Barton: Yes. If I'd just give you the revenue range when we acquired that business, I think we were expecting high $40s million revenues into the low 50s. And I think we've commented, Tom, that it's been -- it's met our expectations. So it's been in that range over its first, what, 13 months of ownership. And Alf, do you want to talk about pipeline? Alfonso Ianniello: Yes. So when you look at, we've been heavily invested in supplying the Nett Warrior program, doing some international BD on other Army opportunities that we're looking at. I think what I've seen, which is very pleasing for us from a Kagwerks perspective is there's an evolution of movement from the standard DOCK Lite product, which is the base version to the DOCK Ultra product, which is the version with the radio and the AI technology and the edge computing technology. So that's what we're seeing happening in the Nett Warrior program itself. So that is significantly positive for us. And then like everything, we'll just keep doing the BD efforts with the other defense opportunities in the U.S. and internationally. Tom Tweedie: Very helpful. Just on Minelab and that side of the business, you called out detector launches. In the release, you've also mentioned one new detector to launch shortly. Just stepping back, can you remind us what the expectations are in the pipeline there over, say, the next 12-18 months for further models to come to market? Alfonso Ianniello: Yes. So we've released already an upgraded recreational detector, a new countermine detector and obviously, the Gold Monster 2000, great launches, great tech, keep moving forward. We've got a high, high-end gold detector coming out in the next couple of weeks, which is the GPZ, GPX range updates first time in almost a decade. So it will be -- it's probably anxiously being awaited by the users globally. Post that, the Minelab team has a road map on enhancing detection out 12 to 18-24 months. So -- and that's across recreational and gold and countermine, which is really the key areas. So there's no shortage of ideas from our Minelab. They are very good at creating products that exceptionally -- work exceptionally well in market. So like we always say, our ability to move that IP from an idea to a product is really the Codan superpower. Tom Tweedie: Awesome. And then one final one. You made a comment earlier around the distribution for Gold Monster 2000 still expanding. Are you able to give us a sense of -- is that in terms of key markets that you've still yet to properly launch the detector in? Or is there still more distribution to go in the second half? Can you give us a sense of what that comment related to? Alfonso Ianniello: Yes. I think that comment relates to launching a product. When you launch a product, we launched at the back probably in middle of Q2. So you're just ramping up supply chains, you're ramping up product to get into market. So at the moment, we're just in the ramp-up stage of Gold Monster 2000. So the scale up is to -- you just scale up production over time and you get into the supply chain into your customer base as more markets. And that's what that comment is about. So we are well on the way now, and that will continue over the next 12 to 18 months, I would suggest. Sam Wells: Next live question comes from Cam Bell at Canaccord. Cameron Bell: Just a couple of quick questions. So the Metal Detection comments you gave in the second half, flat revenue. Is it fair to say that with flat revenue, we can expect similar margins in the second half? Michael Barton: I think, Sam (sic) [ Cam ], we used the words at least rather than flat. So yes, in terms of the commentary on H2. At these revenue levels, we think 45% contribution margin out of Minelab is outstanding. We don't -- at these revenue levels, that would remain our expectation. I think it's fair to say at this level of revenue and that level of profitability, we are looking to reinvest in that business to continue the revenue growth that we've seen. So 45%, if that's what the contribution margin is in H2, that would be a fantastic result. Cameron Bell: Yes. Okay. I might stick with just 2 quick ones for you, Michael, to continue off on those. You might not miss these style of questions in a few months' time. Last half, you had a bunch of M&A costs unallocated. Is it fair to say there were some of those semi potentially nonrecurring M&A costs in this half? Michael Barton: Yes, probably not to the same extent. But yes, we did have M&A activity and ongoing integration costs across the business. We don't really call them out as one-off, Cam, because the business continues to evolve, and we continue to invest in different areas of the business to improve what we do. So the costs we've incurred in the first half is a fair representation of that cost base going forward. Cameron Bell: Okay. Sure. And then just last one for me. Is 25% tax rate the new norm? Michael Barton: Yes. I think with this mix of product, then yes, we're going to be in the mid-20s, whether it's 24%, 25%. But yes, I think we're in that range. Our Minelab business performing at this level, highly profitable. All that IP is generated here in Australia. We pay all of our -- majority of our Minelab taxes here in Australia at $0.30. So that caused that rate just to go up a percentage point or 2. Cameron Bell: Okay. Great. And congratulations, Michael, on everything you've achieved over the last 22 years. Michael Barton: 22 years, yes. Thanks, Cam. Sam Wells: And maybe just one last question here from James Lennon at Petra. Can we expect Codan's typical seasonal movement in working capital to repeat in FY '26, i.e., a wind down of working capital as the financial year progresses? Michael Barton: Yes. Historically, that has been the case, Sam. Look, we have had an increase in working capital over the first half. A lot of that was just activity related and the timing of that activity. So -- and we've had a really strong start to the year, the second half, a really strong start from a cash collection point of view. So some of that has unwound to start the second half. So yes. Sam Wells: And just one final question. What is DTC and Zetron revenue for the half? And would you consider disclosing DTC and Zetron revenue going forward? Alfonso Ianniello: I think we get asked that question a lot. And I think when we did the full year presentation for '25, we started talking about public safety ecosystems, defense ecosystems, unmanned, how it all comes together. If you see here today as Codan compared to 4 years ago, our Comms divisions are converging with the products that we have and how they work in market, right? So I guess a short answer to that is that we probably won't because a lot of our thinking is around public safety, which is heavily linked to Zetron, but there is creeping in on DTC products for that as that ecosystem evolves and not dissimilar to the defense ecosystem where you have unmanned systems, you have dismounted soldier solutions and you've got our standard core products in HF. So I guess the answer is that I see more converging rather than diverging today than I did probably 4 years ago. Sam Wells: Okay. Great. Thank you. We're just going through the hour. So I think that's all the time we have for live Q&A. If there are any follow-ups or unanswered questions, please feel free to reach out to us directly. And maybe with that, I'll just pass it back to you, Alf and Michael, for any closing comments. Alfonso Ianniello: Yes. Thanks, Sam. First, I'd just like to thank everyone for joining us today and the continued support you have for Codan as an organization. I think today, it just continually demonstrates our consistent approach in running Codan, our consistent strategy, our investment in product development, our investment in people and processes. We've actually steered into very good markets through M&A. So we sit here today, highly confident in our strategy, highly confident on our skills and execution and delivery and above all, that consistent approach. So I'd just like to thank everybody and we'll provide updates as we see fit for the rest of H2. Sam Wells: Great. Thank you very much for joining today's Codan's First Half FY '26 Results Call. Enjoy the rest of your day. Thank you, and good-bye.
Operator: Good day, everyone. My name is Megan, and I will be your conference operator today. At this time, I would like to welcome you to the eBay Fourth Quarter 2025 Earnings Call. [Operator Instructions]. At this time, I would like to turn the call over to John Egbert, Vice President of Investor Relations. John Egbert: Good afternoon. Thank you all for joining us for eBay's Fourth Quarter 2025 Earnings Conference Call. Joining me today on the call are Jamie Iannone, our Chief Executive Officer; and Peggy Alford, our Chief Financial Officer. We're providing a slide presentation to accompany our commentary during the call which is available through the Investor Relations section of the eBay website at investors.ebayinc.com. Before we begin, I'll remind you that during this conference call, we may discuss certain non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in our accompanying slide presentation. Additionally, all growth rates noted in our prepared remarks will reflect organic FX-neutral year-over-year comparisons, and all earnings per share amounts reflect earnings per diluted share unless indicated otherwise. During this conference call, management will make forward-looking statements, including, without limitation, statements regarding our future performance and expected financial results. These forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from our forecast for a variety of reasons. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent periodic reports on Form 10-K, Form 10-Q and our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of February 18, 2026. We do not intend and undertake no duty to update this information. With that, I'll turn the call over to Jamie. Jamie Iannone: Thanks, John. Good afternoon, and thank you for joining us today. We finished 2025 with incredible momentum as we delivered Q4 results that meaningfully exceeded our expectations. Before I get into the details of the quarter, I'll start with some highlights for the full year. Gross merchandise volume grew by nearly 6% to approximately $80 billion globally in 2025, and while U.S. GMV grew by nearly 10%. Importantly, our growth was broad-based across all of our most established strategic priorities. First, focus category GMV growth accelerated over 12%. In addition, multiple years of investment in our consumer-to-consumer or C2C experience have reduced transactional friction and reinvigorated growth in this segment which makes up roughly 1/4 of our total GMV. Alongside these efforts, we've made significant investments in accelerating re-commerce on eBay, which we define as the sale of preowned and refurbished goods. We've invested in full funnel marketing to drive awareness and consideration of eBay for consumers shopping pre-loved. Innovations like magical listings have unlocked consumers closets, basements and garages to increase the supply of preowned goods on eBay. We have also introduced direct recommerce collaborations with iconic brands and strategically expanded inventory in key areas like certified recycled auto parts. This work has fueled the circular economy. And as a result, recommerce made up over 40% of GMV on the eBay platform in 2025. In aggregate, these strategic priorities, focus categories, C2C and recommerce comprised approximately 2/3 of our business in 2025 or more than $50 billion of unique GMV. This GMV grew by approximately 10% and accelerated throughout the course of the year, reinforcing the broad-based impact of our strategy on overall GMV growth. We saw equally compelling results on monetization front as we continue to scale our suite of eBay services. Revenue increased by nearly 7% to $11.1 billion, outpacing GMV by over 1 point, primarily driven by growth in advertising, which reached approximately $2 billion in annual revenue. We expanded our financial services footprint, driving incremental GMV through improved risk modeling and flexible payment options like Klarna, while working with partners to deploy working capital to trusted sellers. We also scaled managed shipping in the U.K. and accelerated our product road map for cross-border solutions to help our sellers navigate new tariffs and trade policy changes. Our top line outperformance throughout 2025 enabled us to accelerate investments in areas like eBay Live, vehicles and full funnel marketing to support key categories and geographies. We balance these investments in strategic growth vectors with operational discipline, which enabled us to grow non-GAAP operating income by roughly 7% to nearly $3.1 billion. Lastly, we created significant shareholder value by growing non-GAAP earnings per share by 13% to $5.52 while returning approximately $3 billion of capital to shareholders through repurchases and dividends. These results meaningfully outperformed our expectations entering the year, highlighting our ability to navigate a dynamic macro environment and an increasingly complex global trade landscape. We also shared some exciting news today alongside our fourth quarter results. EBay has entered into a definitive agreement to acquire Depop for approximately $1.2 billion in cash. This acquisition further strengthens our C2C value proposition, augmenting our organic momentum with a leading circular fashion marketplace that brings complementary strengths and demographic reach. I'll share more on this transaction shortly, and Peggy will discuss some of the financial details and forward-looking implications. But first, I'll discuss the key drivers of our strong Q4 performance. The collectibles category had another standout quarter and was the largest contributor to GMV growth in Q4, driven by continued strength in trading cards, growing contributions from our off-platform marketplaces, TCGplayer and Goldin and a notable acceleration in other subcategories like bullion and collectible coins amid unique demand for precious metals in recent months. Within trading cards, we continue to leverage AI to extend our industry-leading value proposition. In Q4, we launched early access to a new AI-powered card scanning experience powered by a set of proprietary models trained on over 40 million card samples. Now users can scan a single photo to instantly detect their exact card in parallel, while also servicing historical prices, PSA population data and other valuable insights. This eliminates time-consuming manual research and helps collectors decide when to buy, sell or grade valuable trading cards. Since we launched this beta feature in November, feedback has been overwhelmingly positive, and trading card enthusiasts have already scanned over 15 million cards to instantly identify and value their assets. We also continue to drive synergies with our off-platform collectibles marketplaces to better serve enthusiasts across every price point. In Q4, we launched a new search experience that services unique inventory from Goldin directly within eBay search results. This integration addresses an inventory gap for rare high ASP items, while giving Goldin sellers access to eBay's scaled global demand. In December, Season 3 of King of Collectibles: The Goldin Touch debuted on Netflix and ranked in the top 10 shows in 7 countries, including the U.S., U.K., Australia and Canada. This season featured Goldin's first on-the-ground collaboration with eBay in Japan, highlighting how our teams are working together to connect global Collectors with high-value inventory. Motors, Parts and Accessories, or P&A, also finished the year strong, contributing over 1 point of GMV growth for our overall marketplace in Q4. We are seeing a repair-over-replace trend among consumers maintaining aging vehicles. And with more than 800 million live P&A listings globally, our inventory depth uniquely positions us to meet this demand. In the U.S., we scaled our automated fitment capabilities, enhancing millions of domestic listings with billions of compatibility attributes in Q4. By leveraging our proprietary data to automatically populate these details on behalf of sellers, we are reducing friction while expanding the inventory backed by our guaranteed fit protection. Our easy and free returns program also continues to drive conversion lift while return rates remain stable, demonstrating that reduced friction builds confidence for auto enthusiasts. Fashion was also one of the leading contributors to growth in Q4, led by our luxury and pre-loved apparel-focused categories. Fashion overall generated well north of $10 billion in GMV globally in 2025. Similar to what we've done in collectibles, we've increasingly leveraged every aspect of our build-buy-partner strategy to improve our value proposition for fashion enthusiasts and accelerate GMV growth. On the build side, we've completely reimagined the selling experience through multiple iterations of our magical listing technology. We modernized the fashion shopping journey by expanding our AI-powered discovery platform from the U.K. into the U.S., Germany, Australia, Italy and France. We invested in technology and talent to broaden the Authenticity Guarantee program to cover more categories, brands and price points, including optional authentication to enhance trust for lower ASP goods, and eBay Live has been particularly impactful for fashion as the ability to story-tell and showcase inventory in real time enables sellers to build immediate trust with their community and ultimately drive greater sales velocity for the stores. Our work with key partners also contributed to notable improvement in consideration of eBay in fashion throughout the course of 2025. We partnerships with Love Island, Conde Nast and Vogue Vintage market helped elevate the perception of eBay as a trusted place to shop. Passionate eBay advocates like Chaperone and Emma Chamberlain, have raised awareness of eBay's fashion offering during some of the biggest cultural moments for enthusiasts like the Met Gala. Our collaboration with Marks & Spencer one of the U.K.'s most iconic retailers, enables consumers to drop off apparel at hundreds of store locations to be resold on eBay and our Certified by Brand and Pre-loved Partner programs have enabled many more of the world's leading brands and trusted resellers to increase the breadth and depth of fashion inventory on our marketplace. Our momentum in fashion has meaningfully benefited organic growth in our marketplace. With fashion serving as the second largest contributor to our U.S. GMV growth in Q4 with particular strength in C2C. We complemented this organic momentum with the recent acquisition of Tise, a leading C2C marketplace in Nordics, which further extends our value proposition globally. And now we're excited to further expand our total addressable market in C2C with the acquisition of Depop, which a natural strategic and cultural fit with our company, offering clear opportunities for synergies between our respective market places. Depop has established itself as a leading C2C marketplace that currently serves the base of approximately 7 million active buyers and 3 million active sellers with most of its audience under the age of 34. Depop facilitated approximately $1 billion in gross merchandise sales in 2025 and with nearly 60% year-over-year growth in the U.S. market. This acquisition is compelling on a number of fronts. Recommerce is one of the fastest-growing segments in global retail, led by Gen Z and millennial consumers who prioritize sustainability, individuality and value. These consumers are accelerating the shift towards circular fashion through social-driven shopping behaviors. Depop's mobile-first social forward experience has cultivated an extremely engaged user base that complements eBay's global scale. For instance, over 1/3 of Depop buyers listed 1 or more products on the marketplace in 2025. And this engagement fuels a sell-to-buy flywheel that drives sales velocity across a broad array of brands and price points. I'm confident this acquisition will drive meaningful benefits for users across both eBay and Depop. Depop seller and buyer communities will gain access to eBay's suite of value-added services, including financial services, shipping and cross-border trade solutions as well as trusted experiences like Authenticity Guarantee. Depop strengthens eBay's leadership in C2C, broadens our demographic reach and expand the presence in fashion and adjacent lifestyle categories. Similar to how we've demonstrated the power of cross-listing inventory with Goldin and collectibles, we see a clear opportunity to replicate that success with Depop, given its complementary range of brands and price points. Integrating Depop in the eBay's portfolio should further reinforce our customer proposition in a rapidly evolving recommerce environment and ultimately drive long-term value for shareholders. Another emerging growth vector we're excited about in 2026 is the momentum we're seeing in eBay Live. eBay Live is rapidly evolving into a multi-category shopping destination as we diversify our inventory and programming beyond collectibles. Fashion is becoming a more significant growth driver particularly in luxury watches. During the holiday season, we achieved a single day record for eBay Live GMV on Black Friday, including approximately $2 million of sales in a single event. In recent weeks, eBay Live GMV is tracking at an annualized run rate roughly 7x higher year-over-year, led by rapid growth in the U.S. market. In Q4, we expanded our global footprint by launching eBay Live in Germany and Australia, followed by recent additional launches in France, Italy and Canada in Q1. 2025 was also a watershed year for horizontal innovation, as our proprietary AI infrastructure enabled us to transition from generative AI pilots to scalable agentic experiences that actively do more of the hard work for our sellers and buyers. In Q4, we began rolling out the next generation of our magical listing experience, a true breakthrough that move beyond AI-assisted tools to a fully AI-native architecture. Unlike prior iterations where we integrated generative AI technology into legacy workflows, this new experience leverages AI agents from the start to autonomously build listings from images alone. Now any smartphone camera can act as an AI agent that guides you on which photos to take for your specific product to increase the likelihood of a sale. In the background, AI agents create the title, category and item specifics by leveraging advanced models and our product knowledge graph. AI also provides intelligent pricing recommendations based on real-time transaction data, helping sellers balance velocity and price realization to optimize their cash flow. The early results have been powerful. After making this the default listing experience for all new and reactivated listers on iOS and Android in the U.S., we have seen a more than 1/4 decrease in average listing time and greater than 50% increase in new listing creation rate, double-digit percentage increases in sold items and GMV per lister and customer satisfaction exceeding 95%. We are continuing to fine-tune the experience and are excited to bring this game-changing capability to more countries and seller cohorts over the coming months for unlocking our total addressable market in recommerce. For buyers, we are redefining discovery through a agentic search, which we started rolling out to a subset of our U.S. mobile traffic in December. This technology allows buyers to shop using natural language in a back and fourth dialogue, just like they would with a knowledgeable sales associate that understands their style, preferences and shopping history. As a result, new buyers are able to seamlessly filter results and more easily discover the amazing breadth and depth of inventory on eBay just like enthusiasts have been able to, do for many years. As this technology is built into the core search experience rather than off to the side, it's important that it's scalable. We've powered this experience using a set of lightweight proprietary models that leverage a query agent to classify intent, which enables us to effectively balance the trade-offs between latency, compute costs and query optimization quality. We plan to scale agentic search to more users throughout 2026, laying the groundwork for an even more personalized shopping journey for our customers. In October, we launched eBay International Shipping or EIS, in Canada, our third largest quarter for U.S. imports. This rollout brings the benefits of our U.S. program to Canadian sellers, including delivery duties paid functionality and the automated application of country of origin data. Our Canadian seller ramp has progressed ahead of schedule and we'll continue to expand seller and listing eligibility in 2026 as we refine our offering. In Q4, we also enabled business sellers in Germany to access SpeedPAK, our end-to-end cross-border shipping solution enabled through a joint venture, which was already offered in Greater China and Japan. SpeedPAK automates customs documentation and tariff calculations, simplifying compliance for small businesses that lack the resources to manage these changes independently. In Japan, where SpeedPAK has seen strong adoption, SpeedPak is now utilized for the majority of direct shipments to the U.S., ensuring a reliable transparent experience for buyers. Importantly, between EIS and SpeedPAK, we now have cross-border solutions in place for our largest corridors, importing goods to the U.S., and we'll continue to ramp shipping solutions to additional corridors throughout 2026. I'm also pleased to share that we closed out 2025 by exceeding our ambitious 5-year impact goals. From 2021 to 2025, we set out to drive $22 billion in positive economic impact from the sale of pre-loved and refurbished goods on our platform. Based on our outperformance in recommerce, we estimate we achieved a cumulative positive impact of close to $25 billion. We also helped prevent nearly 8.2 million metric tons of carbon emissions from entering the atmosphere above our target of 8 million. Lastly, we estimate over 360,000 metric tons of waste were diverted from landfills from recommerce on eBay, exceeding our target of 350,000. These results demonstrate how promoting the circular economy delivers tangible environmental benefits while creating meaningful economic value for our global community. In closing, 2025 was a milestone year for eBay. We accelerated GMV growth to nearly 6%, with 8% growth in the second half of the year. Roughly 2/3 of our GMV was driven by our most established strategic priorities: focus categories, C2C and recommerce. This GMV grew 10% in 2025 and exited the year growing even faster. I'm incredibly proud to see years of investment and execution reflected in the strength and momentum in our business. At the same time, I'm even more excited about the road map for 2026. In addition to scaling our established strategic priorities this year, we plan to accelerate emerging growth vectors like our secure, fully digital transaction solution for vehicles. which serves as a powerful multiplier for our broader eBay Motors offering. Each enthusiast vehicles sold on eBay unlocks further customer lifetime value, driving recurring demand for our P&A business as buyers return to maintain, modify or restore their newly purchased vehicle. We also have ambitious plans for eBay Live, which has evolved from a fast-growing U.S. pilot at the start of 2025, to a rapidly scaling commerce engine that's available in 7 countries today. By integrating live shopping directly into our core experience, we are building a new flywheel that allows enthusiasts to discover, interact and transact in real time across many of our strongest categories. Lastly, I've never been more optimistic about our AI road map as we start 2026, as we build upon the robust technical infrastructure and the foundry of proprietary models that we've developed over the past year. This foundation enables us to further raise the bar for innovation, unlock our decades of proprietary data and deliver hyperpersonalized agentic experiences that anticipate our customers' needs and drive tangible value for our business. I want to thank our employees for their incredible execution this year and our community of sellers and buyers for their continued partnership. With that, I'll turn the call over to Peggy to provide more details on our financial performance. Peggy, over to you. Peggy Alford: Thank you, Jamie. I'll start with our financial highlights for the fourth quarter. GMV grew over 8% to $21.2 billion. Revenue grew over 13% to $2.96 billion. Our non-GAAP operating income grew over 11% year-over-year to $775 million. Non-GAAP earnings per share grew nearly 13% year-over-year to $1.41 and we returned $756 million to shareholders through repurchases and cash dividends, demonstrating our continued commitment to capital returns. Now let's go deeper into the key drivers behind our strong Q4 performance. GMV grew over 8% to $21.2 billion on an organic FX-neutral basis. Foreign exchange provided a tailwind of approximately 150 basis points to spot GMV growth. Focus category GMV grew over 16% in Q4, outpacing the remainder of our marketplace by roughly 12 percentage points. Consistent with recent quarters, strength was broad-based across our business and was most pronounced in the areas where we have been actively investing. All focus categories contributed positively to GMV growth in the quarter, led by collectibles, P&A, luxury, refurbished apparel and sneakers. Within trading cards, while Pokemon decelerated as expected due to tougher year-over-year comparisons, GMV from the rest of collectible card games still posted strong growth and sports trading cards growth accelerated. Outside of focus categories, we also saw strong GMV growth in other collectibles like bullion, coins, action figures, comics and other toys. Looking at our business by geography. Our U.S. GMV growth was particularly strong, while our international performance was pressured by the relatively softer macro environment in Europe, and continued pressure on U.S. imports driven by recent trade policy changes. U.S. GMV grew nearly 19%, accelerating by nearly 6 points sequentially due to several factors. Our U.S. volume saw a disproportionate benefit from the strength in collectibles because of its higher mix in this category. Our U.S. business also benefited from strong growth in luxury and pre-loved apparel and an uptick in demand in certain electronics categories. Growing contributions from our emerging growth vectors, notably live and vehicles also benefited our U.S. growth as well as a favorable lower funnel marketing environment and continued strength from our Klarna partnership. International GMV declined nearly 1% on an organic FX-neutral basis with foreign exchange providing a tailwind of 290 basis points to spot GMV growth. International performance was impacted by challenging macroeconomic conditions in the U.K. and Germany and a deceleration in our cross-border volume growth due to U.S. trade policies, including the removal of de minimis exemption for all countries at the end of August. However, our focus categories continued to perform well internationally in Q4, reinforcing the resilience of our marketplace. Moving on to our buyer metrics. Our trailing 12-month active buyers totaled roughly 135 million in Q4. Excluding buyers from recently acquired Tise, active buyers were over 134 million up nearly 1% year-over-year organically. Enthusiast buyers were stable at roughly 16 million while spend per enthusiast buyer grew year-over-year to over $3,300 on a trailing 12-month basis. Our buyer metrics also reflected the divergence in our geographical performance. In the U.S., both active and enthusiast buyer growth accelerated in 2025, exiting the year at mid-single-digit growth. However, our enthusiast buyer count in international markets has been pressured by persistent macro headwinds as some buyers fell below the volume or frequency thresholds. Next, let's take a closer look at our income statement. We generated revenue of $2.96 billion in the fourth quarter, up over 13% on an organic FX-neutral basis with foreign exchange providing a tailwind of 160 basis points to spot growth. Our take rate was 14%, up 60 basis points year-over-year primarily due to the shipping, U.K. buyer protection fee, and advertising revenue growth. As a reminder, we eliminated final value fees for U.K. C2C sellers as a part of our C2C initiative in October of 2024, then progressively scaled our remonetization throughout 2025. By Q4, we had effectively completed our C2C remonetization efforts through our buyer protection fee and manage shipping mandate on eligible items. Trade policy changes and mix shifts in our business continue to apply some pressure on our take rate year-over-year. Last quarter, we noted returned and canceled orders had emerged as a headwind to our take rate in recent months. Encouragingly, we did see return in cancellation rates stabilize sequentially in Q4 as sellers and buyers adjusted to U.S. trade policies. Total advertising revenue was $544 million, representing GMV penetration of nearly 2.6%. Within the eBay platform, first-party ads grew over 17% to $517 million. Promoted listings comprised nearly 1.2 billion of the roughly 2.5 billion total listings on eBay while 4.8 million sellers adopted at least 1 promoted listing product during the quarter. We continue to deprecate legacy third-party display ads, which declined by 41% to $7 million. Off-platform advertising revenue was $21 million. Non-GAAP gross margin was 72.1% in Q4, declining by nearly 80 basis points year-over-year as tax-related tailwinds and cost of payment efficiencies were offset by managed shipping traffic acquisition costs related to promoted off-site ads and Authenticity Guarantee program costs. While these programs pressure gross margins as they scale, they provide meaningful strategic benefits to our marketplace by reducing transactional friction, driving sales velocity and enhancing trust. Our non-GAAP operating margin was 26.1% as marketing efficiencies were more than offset by product development expenses and transaction losses. The losses were primarily attributable to our recently launched shipping programs, which significantly improved the seller and buyer experience. Losses with these types of programs are typically higher initially and we expect them to decline over time as we gather data and optimize these programs. Overall, while we continue to reinvest a portion of our top line upside in strategic initiatives, we flowed through more incremental revenue to operating income in Q4 compared to the prior 2 quarters, resulting in 11% year-over-year operating income growth ahead of our guidance. Non-GAAP earnings per share was $1.41, up nearly 13% and GAAP earnings per share from continuing operations was $1.14. Moving on to our balance sheet and capital allocation. We generated free cash flow of $478 million in Q4 and ended the year with cash and fixed income investments of $4.8 billion and gross debt of $6.7 billion on our balance sheet. Our equity investments were valued at over $900 million. We repurchased $625 million of eBay shares in Q4 at an average price of nearly $86, and paid a quarterly cash dividend of $131 million in December or $0.29 per share. Before I discuss our outlook, I'd like to point out 2 accounting policy changes we are making, starting on January 1, 2026. First, we are adopting a new accounting standard for internal use software, and as a result, we will expense all product development costs starting this year, reducing the amount of capitalization. We are providing a recast of the 2024 and 2025 income statements in the appendix of our earnings presentation, which offers a comparable baseline to the financials we'll report starting with Q1. My upcoming comments on Q1 and 2026 growth rates are based on the recast financials. Second, since we first launched our U.K. managed shipping program over a year ago, we have expanded our partnerships with carriers and provided sellers with more choice and control over which shipping services buyers can select. Given the increased flexibility for sellers, we are switching our accounting treatment for this program from gross to net revenue recognition, which will modestly pressure our take rate in 2026. Now I'll share some thoughts on 2026 and starting with our outlook for the first quarter. We expect GMV between $21.5 billion and $21.9 billion for Q1, representing total FX-neutral growth between 10% and 12% year-over-year. Based on current exchange rates, we estimate FX would represent a roughly 450 basis point tailwind to spot GMV growth in Q1. Our guidance assumes continued strength from our strategic priorities, driven by focus categories, C2C and recommerce. Our year-over-year GMV growth is also expected to benefit from continued efficiency in lower funnel marketing and our corner partnership, which each emerged as more noticeable growth drivers in Q2 of last year. In addition, we do expect increased growth contributions from what we perceive as less durable growth drivers, including bullion and collectible coins. We forecast revenue to be between $3 million and $3.05 billion, implying total FX-neutral growth of 13% to 15% year-over-year. Based on current exchange rates, we estimate FX would represent roughly 310 basis points of tailwind to spot revenue growth. Our guidance implies a roughly 3-point delta between FX-neutral revenue and GMV growth year-over-year in Q1. Continued healthy growth in advertising is expected to be a contributor to this delta. A portion of this delta is also related to the lapping of our phased remonetization of U.K. C2C volume last year, but this component will no longer be a tailwind in Q2 as managed shipping revenue faces lapping pressure from the aforementioned accounting change. We expect non-GAAP operating income growth between 11% and 16% year-over-year in Q1, implying non-GAAP operating margin between 28.3% and 29.2%. Our strong operating income growth reflects disciplined reinvestments in strategic priorities and healthy flow-through to the bottom line. We forecast non-GAAP earnings per share between $1.53 and $1.59 in Q1, representing year-over-year growth between 12% and 16%. Our EPS guidance implies the net interest and other line item is roughly neutral in Q1 due to onetime items. Next, I'll share our preliminary views on the full year excluding the potential impact of the pending Depop acquisition, which I will outline separately. For 2026, we are planning our business around the assumption that year-over-year GMV growth is similar to 2025 on an FX-neutral basis, reflecting the continued momentum we're seeing from our established strategic priorities and increased contributions from emerging growth vectors this year. We expect this strong GMV growth despite the incremental impact of tariffs and other lapping considerations we identified last quarter. These impacts are not expected to be linear from quarter-to-quarter influencing year-over-year growth rates in 2026. However, on a 2-year stack basis, our commentary suggests GMV growth is relatively consistent between Q2 and Q4, implying strong underlying growth trends. We are planning for revenue growth to be in line to slightly ahead of GMV for the full year on an FX-neutral basis as healthy growth in advertising revenue is expected to be partially offset by mix shifts in our business, including higher growth contributions from live and vehicles. We believe these emerging growth vectors will contribute long-term top and bottom line growth and improve the health of our marketplace. We expect non-GAAP operating income growth between 8% and 10% year-over-year in 2026, as we balance reinvestments in our strategic priorities and emerging growth vectors with strong flow-through to the bottom line. Importantly, we will continue to be disciplined in our investments and drive operational efficiencies in our business whenever possible. We expect non-GAAP earnings growth to be relatively in line with non-GAAP operating income in 2026, due to below-the-line items that are expected to roughly offset the EPS accretion from our share repurchases. We anticipate our lower cash balance and higher interest expense would pressure the net interest and other line item year-over-year after Q1. Additionally, as we alluded to last quarter, we are increasing our non-GAAP tax rate assumption in 2026 to 17.5% to reflect the impact of global tax policies and our geographical business mix. Next, let me share a few thoughts on capital allocation. We forecast capital expenditures to be between 4% and 5% of revenue for the full year. As we outlined last quarter, we plan to target repurchases and cash dividends totaling between 90% to 100% of free cash flow in a normal year. For 2026, we are targeting roughly $2 billion of share repurchases, which is squarely within that range despite our planned acquisition of Depop, underscoring our ability to balance inorganic investments with strong capital returns to shareholders. In February, our Board authorized an incremental $2 billion under our stock repurchase plan in addition to our remaining authorization of roughly $800 million at the end of 2025. Our Board also declared a quarterly cash dividend of $0.31 per share for the first quarter to be paid in March, which is an increase of $0.02 from the quarterly dividends paid out in 2025. Now I would like to take a few minutes to walk through the financial implications of our pending acquisition of Depop. We have entered into a definitive agreement to acquire Depop from Etsy for approximately $1.2 billion in cash subject to certain purchase price adjustments. We currently expect this acquisition to close in Q2 of 2026, subject to the satisfaction of customary closing conditions and regulatory approvals. As Jamie noted, Depop is a great strategic fit and builds upon the significant organic momentum in our business, driven by years of investment in C2C and growing value proposition in fashion. Overall, Fashion is one of our largest categories, generating more than $10 billion in GMV for eBay annually. And in 2025, our U.S. market alone added over $500 million of incremental fashion GMV year-over-year, the majority of which came from C2C sellers. Our acquisition of Depop would add a business generating approximately $1 billion of annual gross merchandise sales, primarily in the U.S. market, where it grew by nearly 60% year-over-year in 2025. Upon completion of this transaction, we expect Depop would contribute 1 to 2 percentage points to total FX-neutral GMV growth year-over-year in 2026, assuming the deal closes as expected in Q2. Given the immense potential we see for this marketplace within eBay's portfolio, we plan to invest in Depop to support future growth and synergies between our respective marketplaces. Our current assumption is that the acquisition would represent a low single-digit headwind to the 8% to 10% operating income growth we forecast for the core eBay marketplace. This estimate reflects not only the current operating profile of Depop, but also integration costs and planned investments. We would also expect the acquisition to dilute our non-GAAP earnings per share growth by low single digits, with the EPS impact modestly higher than operating income dilution due to foregone interest income from the cash used for this transaction. Over the long term, we are highly confident this acquisition will be meaningfully accretive to operating income and EPS growth and drive significant value for shareholders. On a consolidated basis, including synergies, we expect the acquisition of Depop to become accretive to non-GAAP operating income in 2028. In closing, our Q4 results capped off a tremendous year for eBay. In 2025, we accelerated GMV growth to nearly 6%, increased non-GAAP operating income by roughly 7% year-over-year and grew non-GAAP earnings per share by nearly 13% year-over-year, marking our second consecutive year of double-digit earnings growth. We demonstrated our ability to accelerate growth invest in our strategic priorities and transform the eBay experience through AI, all while delivering strong bottom line results and healthy capital returns to shareholders. Despite a full year of impact from trade policy changes and the lapping considerations we've laid out, our outlook for 2026 implies another strong year of balanced top and bottom line growth with our investments supporting an exciting innovation road map for our customers. With that, Jamie and I will now take your questions. Operator: [Operator Instructions] Our first question will come from Nikhil Devnani with Bernstein Research. Nikhil Devnani: Jamie, it's pretty staggering to see numbers like 10% to 12% consolidated growth given where things were only a few quarters ago. I know you've acknowledged already some of the shorter-term benefits in a few categories. But when you look beyond that, it seems like there's been some sustained acceleration just generally for you in the U.S. So my core question here is, I guess, what's changed? Are you seeing -- have you seen step-ups in conversion rates? Have you seen influx of new customers to some of those other core categories? Like what's driven this improvement across the board in the domestic market? Jamie Iannone: Yes. Look, thanks for the question, Nikhil. What I feel great about regarding Q4 is the broad brand strength that we're seeing. The underlying health of the business is the strongest it's been since I've joined the company 6 years ago. And I think what you're seeing is that years of investment that we've made are paying off, and that's really evident across our strategic priorities. Focus categories, C2C and recommerce, each of these areas grew in the high single to low double digits in '25. And collectively, they drive a significant majority of our GMV. So we've been transparent and Peggy has talked about some of the unique tailwinds in recent periods. And we've been prudent about our go-forward assumption in those areas. But overall, I'd say we're really pleased with our performance in Q4, the broad-based nature of our growth and how that momentum is translating into early 2026. We had some specific commentary about bullion and collectible coin specific to Q1. But other than calling that out -- potentially less durable, we see that as less durable. Overall, we see the broad-based nature of our growth and that momentum really carrying through to 2026. Nikhil Devnani: And maybe a follow-on, sticking with GMV. For the guide for this year, how much contribution are you embedding from some of the newer emerging vectors like Caramel and eBay Live? Jamie Iannone: Yes. Look, we're excited by the new growth vectors in the business. But I would say the majority of what we're excited by is just the strength of the core business. When you look at our focus categories and the growth that we saw in Q4 and what we're seeing in Q1, that continues to perform -- those continue to perform really well. I'm excited by some of our newest categories that we have in -- or newest areas that we have with both eBay Live and with Vehicles. we're seeing a nice run rate in eBay Live, a 7x run rate for year-over-year. But I would say, in general, our strategic priorities around focus categories, C2C and recommerce are going to be consistent and strong drivers for us in 2026. Operator: Our next question will come from Colin Sebastian with Baird. Colin Sebastian: Great. Congratulations on the quarter and the year. I guess, first, on the International segment, I know the macro factors continue to weigh on growth, but also curious if you're seeing, Jamie, any changes in the competitive environment in key markets? And then likewise, are you seeing benefits from focus categories and AI tools or other platform initiatives as they do roll out in Europe? Jamie Iannone: Yes. Yes. Thanks for the question. Clearly, it's a dynamic macro environment and a clear divergence between the U.S. and our international markets in Q4. In the U.S., while we faced uncertainty relative to trade policy, consumer demand has been resilient, and we saw broad-based strength across categories in Q4. I would say in contrast, Europe has been more challenged as consumer confidence remains low and retail sales trends are subdued there. But what I would tell you is the focus category stuff that we've rolled out internationally has been performing well. The C2C initiatives that we've been driving continue to perform well in that market. We recently expanded eBay Live to a number of our other markets across Germany, France, Italy and Canada. And so overall, we feel like we're well positioned and the things that are working in the U.S. are working as well internationally. It's just a very different macro environment from what we're seeing in the U.S. Colin Sebastian: Got it. Okay. And then maybe my follow-up is on the agentic side. I know it's really early. But at a higher level, what sort of user behavior changes are you expecting as this rolls out on the buyer side? Does this impact your advertising business and also maybe the architecture for how you're building this out to connect with partners like OpenAI? Jamie Iannone: Yes. Look, we feel really well positioned to bring a differentiated experience to agentic commerce which makes us really confident we'll be a long-term beneficiary of this trend. The first thing I'd hit on is the experiences that we're building on eBay, leveraging this technology. Our next generation of magical listing is really a game changer. It's an AI-native solution that leverages our product knowledge graph that leverages 30 years of data and build this amazing experience where we essentially do everything for you in the background. I've been doing this for a long time in decades. And having a new product rollout with 95% customer satisfaction shows you the strength of what we're building using these tools. I would say the same thing with agentic search and what we're seeing as people pilot that and the ability to use natural language against our inventory. But the other thing I would tell you is that the other reason we feel well positioned is our inventory is really different from most marketplaces. Roughly 90% of our GMV is not new in season and 2/3 of that intersects with focus categories, recommerce or with C2C. So these are highly considered purchases of unique items, think used, refurbished, collectable or luxury items where conditions, scarcity and the human judgment matter. The last thing I'd say is that all the work that we've done in our experiences with trust, plays a huge differentiator for us and a real structural advantage. You think about seller feedback, Authenticity Guarantee and the post-transaction Protections that we provide, that's hard to replicate along with financial services and global shipping solutions really do kind of reduce the transactional friction for buyers and sellers. So all of these factors, I think, put us in an incredibly strong position to thrive in an agentic AI world. and I'm really excited by the investments that we're making and the customer responses to how we're using that technology on the eBay experience. Operator: Your next question will come from Ross Sandler with Barclays. Ross Sandler: Great. Hopefully, you can hear me. Jamie Iannone: Yes, we can hear you, Ross. Ross Sandler: Excellence. Okay. So just 2 questions. One on the full year '26 guide, you guys have talked about how we're going to lap some of these like nondurable things in the second half of '26. Could you just talk about how you're thinking about like the growth cadence throughout the year and some of the like durable versus nondurable as we get into the second half? And then on Depop, so those guys have done a great job in their U.S. side of the business. And I think the international has trailed the U.S. performance. So how is like combining eBay and Depop potentially going to advance the cause on like U.K. and Australia and frankly, just the overall fashion segment at eBay in general? Just curious to your comments on that. Jamie Iannone: Peggy will take the first one and I'll take the second. Peggy Alford: Sure. Thanks for your question, Ross. So we feel really good about the broad-based strength that we're seeing. As Jamie mentioned, they're really focused on our strategic priority areas, focus categories, C2C, recommerce. Our commentary reflects the continuation of the strength as well as we're really excited about the contribution that we're expecting from our emerging growth vectors like live and vehicles. In terms specifically on -- in terms of specifically on lapping, a couple of things to keep in mind. So we are expecting a deceleration in Pokemon growth in '26 just given the triple-digit growth that we saw in '25, although I will point out that we expect healthy overall growth in trading cards. We started seeing a little bit of the deceleration in Q4 of '25 and the comps get a bit tougher as we move throughout the year. Jamie mentioned bullion, we are expecting a significant amount of the acceleration that we saw from Q4 to Q1 was related to just the bulion and collectible uptick. And so we are planning for that to moderate during the year after Q1. We're lapping our U.S. Klarna partnership starting in Q2 of '26. And then we talked last year -- in '25 about our marketing efficiency gains in paid search, we'll be lapping those from a favorable competitive dynamic starting in Q2 of '26. So overall, I'd say we believe that the majority of the growth is durable and we remain very confident in the strength of our business. Just want to point out a few of those factors. Jamie Iannone: Yes. And then regarding your questions on Depop, Look, I'm really excited by the acquisition. I think it's really going to supercharge our C2C strategy in several ways, and it's building on strong growth that we're seeing today, particularly in the U.S. Our U.S. C2C business grew in the mid-teens year-over-year in 2025 with growth accelerating in '24. And our learnings across the globe have really helped drive that. We're also doing this acquisition from a real position of strength. We're seeing strong growth in Fashion, its an over $10 billion GMV category for us on eBay and we've been increasing our investments there. I've been talking about that over recent quarters. In 2025, U.S. fashion grew 10%, with even faster growth in C2C. So if you look at it, we added over $500 million of GMV in the U.S. in fashion alone. Depop as really prioritized the U.S. market in a world with limited investments. They've been really leaning in, and they've seen really great growth. They've seen 60% growth in the U.S. market, which is obviously great with the strength that we're seeing in the overall business. The last thing I'd say is that Depop brings a younger consumer base and they're amongst the fastest-growing demographic, especially in this sustainability, recommerce and fashion piece. And so we see it as a great strategic fit for eBay. It builds on the strong growth we're already seeing in C2C in fashion, and I'm excited about the strong growth potential for both marketplaces go forward. Operator: Your next question will come from Nathan Feather with Morgan Stanley. Nathaniel Feather: Congrats on the quarter. I guess, first, just to follow up on Depop a little bit. Interested to hear how do you think about the revenue synergies that are available through the Depop deal, and what is that opportunity to drive across the listing from both Depop to eBay and eBay to Depop? And then just a clarification, Peggy. You said that coins and bullion was the majority of the acceleration from 4Q to 1Q. So just to clarify, that means GMV is still accelerating even excluding the coins and bullion impact? Jamie Iannone: Yes. So let me talk first on what excites me about the Depop from that side and the integration. So first is, we'll keep Depop as a stand-alone brand experience, et cetera. It's resonating great with consumers. It's growing well as I talked about, et cetera. But we do see the opportunity to help support that growth and drive it even further, by bringing assets from eBay that we've developed over the last couple of years. So think about the Authenticity Guarantee work that we've done, the shipping and cross-border trade, payments and financial services in recent years, we've turned more of our back-end resources into services to really help grow not only core eBay Marketplace but other stand-alone platforms. And I'd probably draw a parallel here for you, Nathan, to what we've done in Collectibles. Years ago, we bought TCGplayer and Goldin Auctions, and you see us now integrating Goldin Auctions with a single sign-on experience. We've integrated Goldin Listings onto the platform. And I'm really glad we did those acquisitions because they're really helping accelerate the strategy of what we're doing in collectibles, and I'm similarly excited for that opportunity with what Depop has done with fashion of the ability to take the marketplace to the next level and drive synergies across a number of those areas. Peggy, do you want to take the second piece? Peggy Alford: Sure. Just a quick clarification. So as I mentioned, due to the increases in precious metals, we did see an acceleration in the demand for bulion and coins in Q4, and that continued into Q1. This -- what I meant to say was that, the bullions accounts for a significant portion of the sequential acceleration, not all of it. We continue to see broad-based strength going into Q1 and looking beyond some of the near-term unique dynamics that we called out, we feel very good about this broad-based and durable nature of the GMV growth that we're seeing. Operator: Your next question will come from Shweta Khajuria with Wolfe Research. Shweta Khajuria: Let me try 2, please. First is on earnings growth. So when we think about EPS growth, could you please talk about the puts and takes? So how would -- what would drive the potential upside and how you're thinking about buybacks? And then the second is a follow-up to a prior question on agentic commerce I guess, how do you think -- when we think about long term in terms of your position in agentic commerce, how do you see it evolve? And perhaps, is there -- what is your view on eBay's position in agentic commerce as it relates to shoppers perhaps potentially moving to these AI platforms. Is that a positive for you or negative? And are you compelled to partner with them? Jamie Iannone: Yes. Look, what you've seen from us with partnerships is we've always been open to making our unique inventory available on scaled third-party channels. We've done that with Google Shopping. We've done that with Facebook Marketplaces, which are 2 great examples. We're also thoughtful about where and how we do so, and we're taking the same approach here with agentic commerce. My first priority has been to build the agentic in-house capability. That's why I talked about agentic search. When I talked about the newest version of magical listing, and we've got an exciting road map coming up. But in regard with partnering with other platforms, we built a unified agentic commerce platform that enables us to plug into third-party agents and test different type of experiences to see what works best for our marketplace. For instance, we recently signed on to be an early participant in the OpenAI Ads Pilot Program to test that out. But when I take a step back, yes, we believe we're in a strong position to be a beneficiary of agentic commerce. And it's a lot because of what I talked about earlier. Our inventory is fundamentally different from most marketplaces. It's 90% non-new in season, and we've built a lot of trust and other things around it. When you think about our 70,000 -- sorry, our 16 million enthusiast buyers that we have on the platform that buy 70% of the they're really driving sales in this used, refurbished, collectible, luxury or more considered purchases. So we're going to be very thoughtful about how we do it, and I'm really proud of the technology that we've built to enable us to do so. And we'll continue to develop our platform to create more opportunities that promote discovery of our sellers' unique inventory while we continue to invest internally in loading the leading AI experiences for our enthusiast customers. Peggy Alford: In terms of your question on EPS and operating income growth, we are expecting strong non-GAAP operating income growth in Q1 and the full year, and we're expecting that the majority what's driving the EPS growth. In terms of our buyback policy and our capital allocation plan. It remains the same. We first -- our first priority is organic investment in the business because we believe that, that is ultimately what's going to drive EPS growth. When it comes to excess capital, we have a strong track record of returning cash to shareholders. In a normal year, we plan to target repurchases and dividends totaling between 90% and 100% of free cash flow. For 2026 specifically, we're targeting roughly $2 billion of share repurchase, which is within the range for a normal year, and that's despite our planned acquisition of Depop. This is reflecting our business performance. We have a healthy balance sheet and strong cash flow generation. And so we feel really good about this balance we've been able to achieve between investing in future growth and returning shareholder cash. Operator: Your next question will come from Tom Champion with Piper Sandler. Thomas Champion: Jamie, can you talk a little bit about eBay Live. Maybe give us the update there and your plans for this year? And curious what the long-term benefit is going to be there. Is that dollar volume of transactions? Is it a new customer demographic or is it engagement on the platform? Just curious any additional comments there. And maybe just relatedly, any update to the Facebook partnership? Jamie Iannone: Yes, Tom, thanks for the question. And it's really what's exciting about this opportunity, it's really all of the above on the things you mentioned. We see it as a really exciting opportunity, and I'm really encouraged by the traction we're seeing as we expanded into new markets and categories. It's really a natural extension of our marketplace, and it's already contributing to the double-digit growth that we're seeing in focus categories. And what we've been doing is investing and making Live more discoverable across the site, integrating into streams at relative points in the buyer journey. In Q4, we actually expanded Live into Australia and Germany, and we've since expanded it into France, Italy and Canada. We've been hosting high profile activations at the world's kind of biggest football game. We had Christian McCaffrey, Gronkowski, Jerry Rice raising awareness of what we're doing there. And to your question, we're seeing that it helps sellers because it builds this great new capability, right? You put it out there and you watch what sellers do with it, and it's pretty exciting, but it's also helping them grow their core business because they're building trust back in their core business with what they're doing with Live on the platform. It's helping us attract new buyers into the platform and drive more engagement out of our buyers because of the live streams and what we're seeing there, and that's why we've been scaling it up more geographically over time. I was excited to see that we did a single event. We did over $2 million of sales in a single live event that kind of shows you the scale of what's possible for our sellers to really drive GMV. And our scale, our global buyer base and our high bar for trust really differentiate eBay and live commerce. And while it's still early in our growth phase, we believe eBay Live can be a meaningful growth vector over time and an increasingly important part of how enthusiasts shop on our platform. To your question on the Facebook Marketplace, we continue to make progress on our partnership there. In Q1, we expanded our eBay inventory into Search, which is a new platform for us in the partnership or a new surface, if you will, that reflects higher intent user engagement earlier in the shopping journey. We're also expanding the volume and the categories of inventory shared on Facebook Marketplace, which benefits our existing presence in the marketplace feed. So we believe this partnership is great for the eBay seller community as we expose their listings to Facebook scaled audience, and it's great for Facebook Marketplace users as they discover our breadth and depth of unique trusted inventory. So I think both teams are encouraged by the continued progress and the learnings to date, including the new learnings that we're seeing with the new surface in search. Operator: Your final question will come from Michael Morton with MoffettNathanson. Michael Morton: My first one, I love the commentary on the trading card business, you've done some incredible things there. An investor question we frequently get is on the sustainability of that business. I know that there are some tough comps. But big picture, could you maybe talk about or quantify how you've grown the user base of people who sell trading cards on the website to help people appreciate that it's not just price appreciation. That would be my first question. And my second question, Jamie, I wanted to follow up on Colin's question a bit on Shweta's question. But on agentic and just trying to be really explicit on what we're looking for here, are you seeing any change in behavior from users who are sent from AI search platforms to eBay's website. You do have, exactly what you said, it's high consideration goods, are you seeing higher conversion rates when they come from these platforms because they're coming in with more intent? And does it change the amount of products they click on. Jamie Iannone: So what I would say first on the trading cards is, look, we continue to see a long runway for secular growth in trading cards, and we attribute much of the recent growth to the innovation that we are driving, which has fueled renewed excitement amongst hobbyists. If you look at the Q4 strength, Mike, it was really broad-based across sports, trading cards and collectible card games, Pokemon trains remained extremely strong despite GMV decelerating year-over-year due to tougher comps, but sports trading cards accelerated with the strong growth across the 3 major U.S. sports. And while emerging collectible card games, like there's this new one called One Piece, which is exciting now are starting to gain traction. To your question specifically though, encouragingly, we're seeing GMV growth driven by a balance of new buyers, sold items and ASP, and much of the ASP has been driven from a mix shift towards higher priced items. So stepping back, if you look at the innovation, whether it's live, the new AI card scanning thing that I talked about upfront, which we're seeing great momentum from consumers, we're really excited to see kind of the renewed energy based on the years of investment that we've had. And we believe most of the growth is broad-based and secular in nature. Our scale and our value proposition have really positioned us as a leader in this space. And I remain very optimistic about the multiyear growth opportunity ahead in collectibles. To your question on AI, I'd tell you right now that the traffic is very small. And it's not just for us, like in general, there's not a lot of traffic being driven. The traffic that is being driven is high intent. And so we are seeing kind of high conversion on that in terms of the traffic that's there. The other thing I would tell you is that what we're seeing in our own experiences on our platform with the agentic commerce -- or the agentic search that we're running there is that our enthusiast buyers, especially that are part of the pilot are really loving the ability to have this back and forth conversation. The ability to kind of refine and filter their items using agentic search and get to the things that they want, and it's really resonating on the platform. And then I would say the same thing about magical listing. I talked about the customer satisfaction of that being at 95%. But I think even more important, when you look at the stats of new listings that are coming on to the platform, it's achieving the goal that we've been working on for years now, which is the whole idea of having people say, well, if it's that easy to list it on eBay, let me start selling this, this and this. The average household has $4,000 of stuff that could be sold on the platform, and less than 20% of that is online. So we're really excited to bring that new capability and unlock all that inventory and really drive the significant TAM and recommerce. And we also think Depop is going to help us do that in a big way, too. So thanks for the questions. Operator: Thank you for joining. This concludes today's call. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Medical Developments International FY '26 Half Year Results. [Operator Instructions] I would now like to turn the conference over to Mr. Brent MacGregor, CEO. Please go ahead. Brent MacGregor: Thanks very much, and good morning, everybody. I want to welcome you to today's investor briefing for our FY '26 half year results. I am Brent MacGregor, I'm the CEO, and I'm joined today by Anita James, our Chief Financial Officer. So today, I'm going to share with you an overview of our results and the company's key achievements in the half year, and I'll take you through the drivers of our future growth. Anita will then speak to the financials in more detail, after which I'll give you some closing remarks. And of course, there'll be plenty of time for questions at the end of the presentation. So on that note, let's go to Slide 3. Thank you very much. So starting here, these are our key messages. So the results we have released today really illustrate the progress we are making on our strategy. Now having put the business on a sound financial footing in FY '25, our key priorities in FY '26 -- our key priority in FY '26 has been accelerating Penthrox's volume growth. And I'll come to that. So overall, our financial performance in the period was improved. Now if you take out foreign exchange movements, underlying earnings in our first half were stronger, and we're pleased to report positive operating cash flow for the period. It's a great result that reflects the margin improvements we've been implementing over the last 18 months and a stronger underlying performance for our Pain Management business. Now we progressed important initiatives that will support delivery of our future growth ambitions, and this includes progressing approvals for the pediatric label in Europe and some great initiatives related to data generation and real-world evidence to differentiate Penthrox from the standard of care. And our measure of progress is ultimately the demand for Penthrox. And on this, it has been encouraging to see volume growth in all of our regions. Now moving to Slide 4. Here we have our headline results for the period. So as you can see, group revenue was up 8%. Pain Management specifically delivered strong growth with revenues up 18%. Now with our Respiratory business, that's performed below expectation with revenues down 10%. And this has been driven mostly by soft demand in the U.S., where the market conditions have been particularly challenging. Now when you look at EBIT and NPAT, they were slightly down on the prior period. However, last year's results did benefit from significant unrealized foreign exchange gains. So if you exclude those FX movements, EBIT and NPAT were both improved by $0.5 million in the period. But a particular note is operating cash flow, which was improved by $1 million with positive cash flow delivered in the period. So moving now to Slide 5. These are our FY '26 priorities. You've seen these before. So as I mentioned already, our key priority in FY '26 and beyond is to accelerate volume growth for Penthrox while continuing to improve our margins. And on this slide, we want to share the key initiatives we're undertaking this year to support this long-term growth. So in our Pain Management segment, the growth will require us to continue driving behavioral change and to embed Penthrox as a standard of care, particularly in that hospital ED setting. Now we have several initiatives to drive an acceleration in Penthrox adoption. Now first, and you've heard it before, we will leverage the MAGPIE study data, that's the pediatric study that supports our partners in the launch of that pediatric label following all the approvals. Second, we'll generate real-world evidence that demonstrates the benefit of Penthrox from a patient and a health care provider experience perspective, but also from an efficiency perspective. And this growing bank of evidence will be critical to influencing behavioral change and product adoption. Third, we will expand commercial and medical investment overall to support these initiatives. Now enhancing our margins also remains a key priority, and I'll take you through some of the progress we have made in relation to these priorities in the coming slides. Now lastly here, our third priority is about growing share in the U.S. Spacer market. Now on this, we have clearly had some challenges, as I already mentioned. Now we expect the soft demand conditions experienced in our first half to persist in the near term. That evolving tariff regime in the U.S. also brings an added challenge, and we're going to have to, and we will continue to navigate the uncertain conditions with caution and with discipline, as we've been doing thus far. So let's move to Slide 6. And Slide 6 includes the progress we've been made -- we've made on several important initiatives that will support acceleration of Penthrox penetration in the future. Now firstly, once again, the MAGPIE study and the launch of a pediatric label in Europe. Now during this period, the first half of this fiscal year, the MAGPIE pediatric study was published. Now this is an important recognition of the outcomes of the study and of the application of Penthrox to children. It enhances the clinical evidence we already have and it supports pediatric positioning where approved. Now on the regulatory front, we are nearing the final steps in having Penthrox approved for use in children aged 6 years and over in Europe. As you'll recall, Penthrox currently approved for use in adults only, 18-plus. But just last week, we received a device approval, and we expect all final country-level approvals by August. We already have some country-level approvals. The August is -- the expectation is our largest market, the U.K. As I said, but for most countries, the launch plans are already well advanced and waiting for those final approvals to be in hand. Now the extension of the indication will broaden the addressable market for Penthrox, and it also addresses the barrier to entry in select ambulance trusts in the U.K. It is an important milestone that will underpin future growth for the product. Now the second area of focus for us has been on evidence generation. We spoke about this with the last raise that was in July of 2024. Improved data and real-world evidence supports differentiation of Penthrox versus the standard of care and will help drive clinical adoption. Now we have completed a health economic study that provided further evidence that Penthrox used in hospital emergency departments enables whole of department costs and operational savings. And we expect this study to be published by the end of FY '26. In addition to all of that, we're supporting several studies that will provide real-world evidence of the benefits of Penthrox in the emergency department setting. Now even though these studies are going to be generated in Australia, the outcomes of these studies will also support growth in other global markets and certainly with all of our partners around the world. Finally, we've also increased on-the-ground efforts of our medical and our commercial teams. This includes targeted medical and commercial initiatives to expand formulary access, to support protocol inclusion, and to strengthen clinical engagement across the hospital segment. Now as examples of this engagement, our team has represented the company and Penthrox at important scientific congresses, including the Australasian College of Emergency Medicine, the Council of Ambulance Authorities and the Australian College of Nurse Practitioners. Now speaking of nurse practitioners, a highlight in the period was the extension of Penthrox PBS prescriber bag eligibility to nurse practitioners in Australia. And this is going to enable an important health care professional group to have expanded access to the product. Now we recognize the changing long-held behaviors in favor of a well-regarded product like Penthrox takes time and a targeted effort, but I'm encouraged by the progress we're making. Now moving to Slide 7. A critical strategic pillar for us has been to establish a sustainable margin structure. Our target has been to achieve margins that fully reflect the value proposition of Penthrox in all markets and to operate with strong cost discipline. We made great strides in FY '25 and delivered materially improved margins and cost structures. Our work has continued on this front. In July of last year, we increased Penthrox pricing in Australia to customers that had not received a price increase in FY '25. This represented around 25% of our Australian volume. So all of our customers in Australia have moved to the new pricing, and this pricing is aligned with PBS pricing. And as a result of all of this, we should see a margin improvement of around $1 million in FY '26. Now in other markets, we will continue to implement pricing strategies that enable routine pass-through of inflationary movements as those opportunities arise. Now switching to Europe, we successfully transitioned supply in France and in Switzerland to partners. So we have Ethypharm in France and Labatec in Switzerland, and they've been making good early progress in growing Penthrox in those markets. Now while our margins in these countries are now lower, we have to share it with them, the transition is enabling us to reduce our cost to serve and is expected to accelerate product penetration over time. Our new partners bring greater market access and deeper customer relationships. And with stronger long-term volume outcomes now possible, we expect the financial impact of the operating model change to be positive over time. So okay, at this point, let me hand over to Anita, and she's going to walk you through our financial results for the first half in more detail. Anita? Anita James: Thank you, Brent, and good morning, everyone. Today's results reflect the good progress we are making in growing Penthrox and the financial discipline we continue to apply. Notwithstanding the challenges of our Respiratory segment in the half, our group results illustrate underlying improvement. At the top line, we delivered 8% growth. Pain Management was up 18%, mitigating the impact of lower revenues in the Respiratory segment, which was down 10%. EBITDA, EBIT and NPAT were slightly down on the prior year. But if we exclude the impact of foreign exchange movements, all were improved. Moving to Slide 10 and our Pain Management segment. Revenue for this segment was up 18% with higher volumes and improved pricing in Australia. In Europe, sales volumes were higher, driven by growth in underlying demand and inventory stocking of our new partner, Ethypharm. Underlying demand in Europe was up 10%, including growth in the U.K. and Ireland of 8%, growth in France of 10% and growth in the Nordic region of 16%. Average transfer prices in Europe were lower, as expected, following the transition to partner supply in France and Switzerland. Revenue for the region as a result was flat versus the prior year. In Australia, revenue was up 18%. Volume was stronger, up 9%, driven by growth in the Australian hospital segment of 26% and timing of sales into the Ambulance segment. Average selling prices in Australia were improved with the pass-through of the FY '25 PBS pricing to the remainder of the market. Revenue in our Rest of World markets was up strongly, driven by growth in underlying demand and the benefit of order timing. Overall, a very encouraging result. Our Respiratory segment on Slide 14 had a challenging half. Revenues in Australia and other markets outside the U.S. were generally in line with the prior year. However, demand in the U.S. was soft, delivering revenues here that were down 16%. Overall segment revenues were down 10%. We continue to watch this market closely and have been adjusting our costs and our stock levels to align with demand. Moving now to Slide 12 and the key changes to underlying EBIT in the half. It is encouraging to see the benefit of earnings to earnings of improved Penthrox volumes and pricing. Higher volumes in the Pain Management segment more than offset the impact of softer volumes in Respiratory with net earnings benefits in the period of $1 million. Higher average Penthrox pricing, mostly in Australia, delivered a $700,000 benefit to earnings. As expected, the transition to partner supply in France and Switzerland had a $600,000 impact to earnings. The earnings benefit of this transition will be realized in future periods as we reduce our cost to serve and our partners accelerate volume growth. Other changes, including higher spend on medical and commercial activities to progress strategy and inflationary impacts, reduced earnings by $500,000 and foreign exchange rate movements had a $1.1 million impact. Excluding exchange rate impacts in both periods, earnings were improved. Moving now to Slide 13 and cash flow. We have made material improvements to our cash flow over the last 18 months. And in the half, we were very pleased to report positive operating cash flows. Operating cash flow improved to $300,000, an improvement on the prior year of $1 million. Working capital management has been tight despite the challenges that uncertain demand in our U.S. respiratory business has created. CapEx was slightly lower and free cash flow was improved. Cash at the end of the period was $16.9 million with plenty of capacity to support our growth strategy. That concludes my comments on the financials. I will now hand over to Brent to close. Brent MacGregor: Thanks, Anita. So just moving to the final slide of our presentation. So in conclusion, we're encouraged by the momentum we've generated in the delivery of our strategy. In short, we've made good progress in our first half. Hopefully, we're able to demonstrate that in the slide deck. Penthrox volumes are stronger. Our financials are improved, and our balance sheet continues to remain strong. We're progressing several important initiatives that lay the foundation for stronger growth in future periods. So in terms of our second half, we expect to do a few things. We expect to finalize the approvals for the pediatric indication in Europe and to support that new label launch. More broadly, we'll continue to execute targeted medical and commercial initiatives to expand formulary access to support protocol inclusions and to strengthen that clinical engagement across the hospital segment. Now in terms of earnings, as mentioned, seasonally softer demand conditions in the Respiratory segment are expected to result in earnings that are lower in the second half of FY '26 compared to the first half. So that's our story overall for the first half. I want to thank you all for coming on the call today. And now let's open the floor for questions. Operator: [Operator Instructions] The first question that we have on the webcast, please comment on the early successes, including unit growth or otherwise from your partner in France? Brent MacGregor: Yes, we're encouraged. The French partner, Ethypharm, they did their training. They put their people into the field in September. So they were -- by September, October, the 16 people in the field were fully engaged. We've seen volume up versus the prior corresponding period by 10%. So we're encouraged by that, even though it's still early days. The medicines approval for the pediatric indication has been received by the French authorities already. So we're hopeful to see continuing growth through the second half of the year. But we're happy with the first half performance of Ethypharm. Operator: Our next question, what prepositioning sales is being done by your distributors to assist the introduction of Penthrox across ambulance services when pediatric use is approved? Brent MacGregor: I'm sorry, I couldn't quite capture all of that question. Could you Anita? Anita James: In pediatric use, what are our partners doing, Brent, in preparation for the pediatric launch? Brent MacGregor: Okay. All right. Sorry. Yes, we've had calls with -- our biggest partner is Galen. Galen is, as you may recall, is U.K., Ireland and the Nordic region. And so we had calls just in the last 2 weeks with them. They were sharing with us a whole range of activities on which they are ready to go, collateral involving their sales force, interactions they've already had with ambulance services. They've had them for some time. Now they need to be careful, of course, because you can't be speaking off label, what they can be doing. What they have been doing is informing the different ambulance trust -- I'm speaking of the U.K. now in particular -- informing the ambulance trust of the progress of the approvals. As I said, in the U.K., in particular, which is our second biggest market after the home market, it's going to take a few more months, as it always does with the regulator MHRA, but the device approval is in hand. We informed our partners of that yesterday. They have a whole range of activities planned. They have all the collateral ready, all the pieces ready to arm their sales force, and they've already trained their sales force. So they are just waiting now for the medicines approval. And in those countries that are waiting for the -- that have the medicines approval, they were waiting for the devices approval. There's a few additional administrative steps, but we're quite encouraged of all the content, all the training that's been done, all the preliminary interactions they've had -- our partners have had with key customers, again, speaking of the U.K. in particular, but also in the Nordic region. And we feel quite confident the start of pistol goes off and our partners are ready to promote that broadened label. I hope that answers the question. Operator: Our next question. We had strong Penthrox unit growth in ROW. The balance sheet suggests that there was no big jump trade receivable at December 31st. So can we assume that most of the cash had been received for the ROW shipments? Anita James: I'll take that, Brent. ROW, that is rest of world, that's our rest of world markets, a few moving parts there. And yes, I think it's reasonable to assume a good portion of that will have been received in the half. We also had timing with that order shipment to France in terms of inventory stocking for Ethypharm, that will have been paid in the half as well. But equally, there will have been some shipments that have probably gone in November and December that will probably receive cash flow in the second half. But certainly, there's been benefits of that rest of world invoicing in the first half. Operator: Our next question. Can you explain why gross margins are lower today than they were in 2015, given today's much higher volumes and the introduction of continuous flow manufacturing? Brent MacGregor: Lower than... Anita James: I'll take that Brent. Brent MacGregor: Yes, lower today than 2015. Go ahead. Anita James: Firstly, I'm not sure we necessarily report gross margins, and I'm not sure back in 2015 what those gross margins may have been. But I think fundamentally, the makeup of the business is quite different today than what it was in 2015. If you go back in time, the business had arrangements with partners where they would receive upfront milestones. They were accounted for through amortization in the P&L. So very difficult when you're looking at revenue there relative to the cost because a lot of those revenues effectively have no cost because they were amortization of something received in prior periods. The business is much bigger than it was today. Its portfolio is different in terms of the products that it has. We've exited the vet business. So it's very difficult to compare today to 2015, but certainly happy to take that question offline, and we can dig into that a little bit more in detail. Operator: Next question is for Anita. Just to be constant currency EBITDA is around $0.8 million versus $0.2 million on PCP. Is that the right math? Could you give us a thought on 2H FX impact? Anita James: Yes, that's about the right math. I think if you look at the specific unrealized -- without worrying about impacts across the P&L in terms of currency, the currency movements I referred to were specifically around the gains and losses reported in the P&L on our monetary items. And looking at that math, EBIT last year adjusted was around $0.5 million loss versus this year, which is breakeven. In terms of the second half, well, that's anyone's guess really, certainly, the Aussie dollar has strengthened versus where it was for the same period last year, really getting us back to similar positions of where we were before the end of the first half of last year. There's a lot going on in the world that probably will have an impact on that. In terms of our outlook, we're assuming that FX rates from here are stable and therefore, no material gains or losses generated from where we are effectively in December, January. Operator: The next question is for Brent. Can you please take us through the steps in the process between getting the approvals in August all the way until you get the device to the patient in those geographies with some indicative time lines? Brent MacGregor: Yes, sure. So, yes, it's a convoluted process. I realize it's the nature of a regulatory environment in health care, but I'll walk you through the -- from last August until where we are today. So last August, the reference body, which is the HPRA, which is in Ireland, it granted its approval. And what that did was it triggered all the other regulatory agencies in the markets where we are registered in Europe to begin doing its own review. And in some cases, those regulatory agencies conducted that review quickly. For example, ASMR in France, I think the medicines approval for them came nearly days after HPRA's approval. Other regulatory authorities, whether they be across the Nordic region, Switzerland, Ireland, well, HPRA approved as a reference and then approved as well for their own home market, Ireland. Those medicine approvals took a little bit longer. As we stand here today on the medicines front -- we'll talk about devices in a second. As we sit here today on the medicines front, the only 3 markets that remain to approve the enhanced label are the U.K., as I mentioned, our most important market, plus Czechia and Slovakia. Now on the devices front, because that required approval too by a notified body, in this case, the DQS, that process began late last year, and that's what's been just received. So that's been the rate-limiting step in those markets that already have granted a medicines approval. So in those markets -- and as I said, it's all the markets, except for U.K., Czechia and Slovakia. For those markets, we are now close to being done. So now in terms of what are the next steps from this point, the next steps from this point are -- for the regulatory agencies, for the summary of product characteristics which is required to be updated, that needs to be uploaded on to the website of regulatory authorities. That take -- these are administrative steps now. They will take whatever amount of time they take. You may ask, okay, what amount of time? Anywhere from a couple of days to 2 or 3 weeks. It's hard for us to know. But that's the step we're at right now with all the markets, except for U.K., Czech, Slovakia. And so to the question, where do we -- where does it go from there? Once those updates are done and the enhanced label is now official, that's where the teams that I mentioned, our partners' teams go out into the field, they go the day of, and they are in a position at that very moment to begin promoting Penthrox much more broadly than they had the day before. And so that is all to say that ideally, within a few short weeks from now, maybe even before the end of this month, but again, I'm speculating, within a few short weeks from now, those sales forces, those commercial and medical entities in the markets that have already approved the medicine, given the medicines approval, they'll be out there. And as I mentioned in answering the previous question, what we're encouraged by, the partners are all ready. All the work is done, all the approvals have been received, all the revised collateral has been prepared and they are ready to go. So what remains and why -- I'll give one last comment and answer the question. What remains and what you heard earlier in the slide deck, when -- I think I made a comment around by the end of August of this year, all the approvals should be in hand. That's for the most part speaking about the U.K., which is the biggest market. So it's not -- it's far from inconsequential. It's very consequential. But that's why I said August. But all these other approvals, all these other markets, those efforts should be commencing forth with -- within a couple of weeks right now. Operator: Next question. You've stated in the presentation that costs remain controlled. However, comparing the Q2 quarterlies this year and PCP, your product manufacturing and staff costs are increasing exponentially, with these costs significantly up over PCP. What steps are being undertaken moving forward to achieve best-in-class manufacturing, staff costs, so pricing is not the only lever available to you to achieve revenue growth? Anita James: Yes. Thanks. I'll answer this question initially, Brent. No, that's a great question and draws us to an important point that is really important to understand, is that the quarterlies and what is reported in the quarterlies is cash, is cash flow. And that will be impacted in any particular quarter by our investment in working capital. So what will come through in those quarterlies, in the manufacturing costs particularly, will be purchases for raw materials to supply our customers. There was a previous question earlier around rest of world markets and the timing of sales. Some of our customers might only buy from us once a year or once, twice a year. And so our working capital movements are actually a little lumpy as we prepare for getting product available for those customers and those shipments. And depending on the timing of that, that will move from quarter-to-quarter. So it is a little misleading to look at Q2, for example, of this year against Q2 of last year and use that as a guidepost to say things are either better or worse. Cash at the end of the day is king. And so looking at cash improving over time is absolutely the right measure to look at. And that's why we're particularly pleased about the results in the half with operating cash flow actually improved on last year. Probably a better thing to understand, I think the issue that you're getting at is, in fact, the earnings in the P&L in the half year accounts. And if you look at the half year accounts for something like employee costs as an example, it will be up, and it will be up mostly because of inflation and because we've put on 2 headcount specifically associated with our delivering strategy, particularly around commercial and medical activities. But we are being very controlled on headcount. We're being very controlled elsewhere in the organization, with a focus very much about progressing strategy. Ultimately, the greatest efficiencies we can get will come from improved volumes, and on that, when you look at employee costs, we're actually starting to see some of those efficiencies come through now. So effectively, we're manufacturing more volume. Our volumes are up, and the cost of the people involved in doing that manufacturing process, as an example, has been held strong. Sorry, just one other point to make on the manufacturing costs in the half, when you look at the P&L, they will be up because our volumes are up. And so you look, particularly in the Penthrox business, volumes are up quite strongly in most regions. And so our raw material costs as a result will be up. So absolutely, efficiency, reducing our cost and our unit cost is absolutely a focus. And whilst we can't see step change improvements this year, they are certainly there, and that certainly remains a key strategic focus for us. Operator: The next question, what do you believe is driving the disconnect in the market value of the company and the future strategy you have communicated given the share price is at best stagnant or in reality significant decline, whilst the ASX is at or near record highs? Brent MacGregor: Yes. It's a difficult one for us. It's one we grapple with even as -- our primary focus on the day-to-day is on our operations and growing our business, which we're doing. Yes, it's not lost on us that even our quarterly cash reports, which we believe are showing good progress towards the strategy that we're pursuing, is not translating into share price increase. So what we see is it goes up for a period of time and then absent anything in particular, it goes back down. I know that -- we understand that the market perhaps in the past couple of years had anticipated a higher growth rate than has been generated. We've learned a lot about the growth and the challenge of bringing a product that works so well, like Penthrox, into those segments. But we are we are very committed to the strategic approach that we're taking, and we're very pleased with the achievements we made on executing those strategies into the ED, continue to grow volumes, getting the pediatric indication, which was years in the making, and we're on the doorstep of doing it. We realize it hasn't shown through in our share price yet. We are hopeful that as we continue to communicate as we're doing today and the confidence we feel in what we're doing and in the organization that we've sized to the aspiration that we have, we're hopeful that the market will respond accordingly and in a positive way to this news and to the progress we're making. Operator: There are no further questions at this time. I'll now hand back to Mr. MacGregor for closing remarks. Brent MacGregor: Okay. First and foremost, thank you to all of you for coming on the call today, and thank you, in particular, for the questions that you asked. We're very open to hearing from you. And even if there's a question or questions you have for us after this call, we do hope you won't hesitate to send them through, and we promise we'll respond to them. On that note, I want to thank you again for being on the call. I hope the messaging we were trying to convey came through. And we're pleased with the performance of the first half and looking forward to continuing to drive our strategy forward in the second half and beyond. Thank you all. Have a good rest of the day. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome, everyone, to the Omnicom Fourth Quarter and Full Year 2025 Earnings Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Greg Lundberg, Senior Vice President, Investor Relations. Please go ahead. Gregory Lundberg: Thank you for joining our fourth quarter and full year 2025 earnings call. With me today are John Wren, Chairman and Chief Executive Officer; and Phil Angelastro, Executive Vice President and Chief Financial Officer. On our website, omc.com, you will find a press release and a presentation covering the information that we'll be reviewing today. An archived webcast will be available when today's call concludes. Before we start, I would like to remind everyone to read the forward-looking statements and non-GAAP financial and other information that we've included at the end of our investor presentation. Certain of the statements made today may constitute forward-looking statements. These represent our present expectations and relevant factors that could cause actual results to differ materially are listed in our earnings materials and in our SEC filings, including our 2025 Form 10-K, which will be filed shortly. During the course of today's call, we will also discuss certain non-GAAP measures. You can find the reconciliation of these to the nearest comparable GAAP measures in the presentation materials. We will begin the call with an overview of our business from John, then Phil will review our financial results. And after our prepared remarks, we will open the line for your questions. I will now hand the call over to John. John Wren: Thank you, Greg, and good afternoon, everyone. Thank you for joining us today. It's been 11 weeks since we closed the acquisition of Interpublic, creating the world's leading marketing and sales company, and I'm extremely encouraged by the momentum we've seen in such a short period of time. Today, I'll start with the progress we have made to position the new Omnicom for sustained growth, and Phil will then cover our fourth quarter and full year 2025 results. Throughout our year-long approval process, our integration teams created detailed road maps for how we would come together. That preparation allowed us to move more decisively and with strategic clarity on day 1. We announced our new Connected Capabilities organization and leadership team, bringing together the exceptional capabilities and talent to address our clients' growth priorities. We reinforced our enterprise-level client strategy through a newly formed Growth & Solutions team to drive new business and expanded our Client Success Leaders group to grow our services to existing clients. We formed a combined platform organization and launched the next generation of Omni, integrating Acxiom's Real ID, Flywheel's Commerce Cloud and Omni's proprietary data as well as strengthening our talent and industry leadership in data identity and AI. And we began integrating our operations across real estate, IT, shared services and procurement, among others, which will result in significant operational improvements and cost efficiencies. Following the acquisition's close, we began simplifying and realigning our portfolio to position Omnicom for stronger, sustainable growth and profitability. Our core focus is to deliver integrated services, connecting media, creative content, commerce, consulting, data and technology. These Connected Capabilities underpinned by Omni bring together high-growth strategic services that drive business outcomes for our clients. As part of our portfolio realignment, we've identified certain smaller markets as well as operations that are not strategic to our business that we plan to sell or exit. We will move from a majority to a minority-owned position in these smaller markets, which represent approximately $700 million in annual revenue. These markets remain important to many of our clients. And through continuous ownership in these agencies, we will provide the same level of service we have in the past. We identified nonstrategic or underperforming operations with approximately $2.5 billion in annual revenue that we plan to sell or exit. We've already sold or exited some of these businesses, representing annual revenue exceeding $800 million. We expect to execute the remaining sales and exits over the next 12 months. Our retained portfolio of businesses generated revenue of $23.1 billion for the 12 months ended September 30, 2025. This portfolio positions Omnicom to drive stronger growth and deliver measurable business outcomes for our clients. Our integration planning enabled us to identify significantly greater synergies than we had initially communicated at the announcement of the IPG acquisition. We now expect our annual run rate synergies to double from our initial estimate of $750 million to $1.5 billion over the next 30 months. We expect to achieve $900 million of these savings in 2026. The key areas for these synergies are as follows: $1 billion from reductions in labor costs through the elimination of duplicative corporate network and operational functions, streamlining our regional country and brand structure and optimizing utilization by shifting to more unified resourcing model, including accelerating outsourcing and offshoring. Additionally, across every area of our business, we are evaluating and deploying automation and AI to improve how we service our clients and run our operations. $240 million of synergies related to real estate consolidation, and $260 million of synergies from G&A, IT, procurement and other operational savings. Finally, as part of our capital allocation strategy, our Board of Directors authorized a $5 billion share repurchase program. And today, we are launching a $2.5 billion accelerated share repurchase program. Phil will provide more color on this ASR program during his remarks. We will also continue our historical use of cash for dividends and acquisitions. In December, we announced an increase to our quarterly dividends to $0.80 per share. Our investments will focus on strategic tuck-in acquisitions and organic growth initiatives to maintain our leading positions in media, content, commerce, consulting, data and AI. As we do this, our capital structure is strong and our liquidity and balance sheet positions us to maintain our investment-grade credit rating. Our efforts across these areas are enabling us to move forward as a company with a clear mission to help our clients drive enterprise growth in this new era of marketing defined by data-led AI transformation. More than ever, we're seeing brands ask for an enterprise-level partner that can orchestrate their marketing investments across platforms and optimize performance across the entire consumer journey from engagement to sales. The new Omnicom delivers a 5 competitive advantage directly aligned to what our clients are asking for. We have the world's largest media ecosystem with unparalleled market leverage and intelligence, the deepest bench of award-winning creative talent that fuses human imagination with machine computing to deliver superior personalized content at scale. Connected commerce that transforms every consumer touch point into a driver of measurable sales growth for our clients; an enterprise transformation consultancy that can reengineer clients' marketing operations for speed, intelligence and growth; and a gold standard data and identity solution that gives brands an unparalleled privacy-first understanding of their consumers. Together, these advantages provide a competitive edge across every dimension of modern marketing and sales and will deliver strategic solutions that address our clients' most important growth priorities. As a nod to our strategic advantages, just yesterday, Forrester named Omnicom a leader in their Commerce Services Wave evaluation. Omnicom showed a significant lead versus the competition, proving that our advantage in connected commerce is differentiated by spanning demand and loyalty across physical stores, online marketplaces and direct-to-consumer experiences. The evaluation noted that clients praised Omnicom's ability to operate as a single agency, providing them with access to a large pool of highly qualified talent. Our strategic advantages are translating into client wins, which is the ultimate validation of what we're building. We've secured new business and extended contracts with leading brands such as American Express, Bayer, BBVA, BNY, Clarins, Mercedes and NatWest. These client wins as well as the significant progress we've made as a new organization in a few short weeks are a direct result of our people's unwavering focus, commitment and exceptional work during this pivotal period. I'm extremely grateful to them for their efforts. Overall, I'm very pleased with how we've executed as the new Omnicom. This momentum positions us for strong growth in the years ahead. I look forward to sharing more about our organization strategy and financial performance at our Investor Day on Thursday, March 12. With that, I will turn it over to Phil to walk through our quarterly and year-end financial results. Phil? Philip Angelastro: Thanks, John. Before reviewing our financial results, please note that our fourth quarter and full year 2025 amounts include Interpublic results for only the month of December 2025. Since John already covered the first few slides, let's now look at an overview of our fourth quarter income statement on Slide 7. The IPG acquisition closed just before Thanksgiving on November 26, 2025. Upon closing, and as John referred to, we immediately began the implementation of our strategic plan. We have separated the impact of several parts of the plan on this slide. We recorded severance and repositioning costs of $1.1 billion related to severance, real estate impairment charges and contract exits. We recorded a loss on planned dispositions of $543 million related to businesses that we are in the process of disposing that were recorded at their net realizable value. And we recorded acquisition-related costs of $187 million related to transaction and integration costs. Note that this does not include any potential gains on the sale of certain businesses in this group because we are not permitted to record gains on Omnicom assets until the transactions are completed. Additionally, any expected gains on the sale of IPG assets were included in the fair value adjustment recorded on the balance sheet at the closing date. Excluding these amounts, adjusted operating income or EBIT in Q4 was $876 million and adjusted EBITA was $929 million and a 16.8% margin, an increase of 10 basis points compared to last year. Net interest expense in the fourth quarter of 2025 increased primarily due to the IPG acquisition and the related exchange of IPG debt into Omnicom debt. Interest income increased slightly in the quarter. The tax rate on our non-GAAP adjusted Q4 pretax income was 25.8%, flat with the prior year non-GAAP adjusted tax rate of 26%. Our effective income tax rate on the reported operating loss was 12.7% compared to a more typical reported tax rate of 26.4% in the prior year. The lower tax rate this quarter reflects the impacts of the lower tax benefit associated with the charges I just discussed relating to severance, repositioning, the planned dispositions and the IPG acquisition-related costs, some of which are not deductible in certain jurisdictions. For planning purposes, we expect a similar tax rate of 26% for 2026. Non-GAAP adjusted net income per diluted share of $2.59 was based on weighted average shares outstanding of 233.8 million, which were up from last year due to shares issued for the IPG acquisition. Note, the additional shares issued for the acquisition were outstanding for 1 month. We closed out the year with 313.1 million shares outstanding as of December 31, 2025. Let's now move to revenue. Given the size of the acquisition of IPG and the scale of the implementation of our integration strategy across service lines, geographies and our operating platforms as well as our plans to reposition the business through disposing of certain parts of our portfolio, we have not included our usual organic revenue growth metrics in our slide deck. Had we calculated organic growth consistent with our prior practice, excluding planned dispositions and assets held for sale, organic growth in Q4 2025 would have been approximately 4%. Slides 8 and 9 show the breakdown of our revenue by discipline and by major markets. The primary driver of year-on-year growth resulted from the addition of IPG effective December 1. Foreign exchange changes increased our revenue in the quarter by approximately 2% and a little less than 1% for the year. We expect FX will continue to be positive in 2026 and assuming recent FX rates stay the same, will benefit our reported revenue for the year in excess of 2%. Regarding revenue by discipline, the Media business performed very well in Q4 as did the Experiential business. On the negative side, during the year, our PR business, excluding the acquisition, experienced negative growth due to the challenging prior year comps from national elections in the U.S. Additionally, although small, our Branding and Execution & Support disciplines continue to be challenged in the current environment. As John mentioned, we have moved quickly to integrate the IPG businesses into our Connected Capability organization through geographic and brand alignments. Given the scale of these integrations as well as our strategy to reposition the portfolio, we do not plan to include our historical organic growth metric slide in our 2026 quarterly presentations. With regards to the planned dispositions, approximately 40% of revenue to be disposed of relates to the Execution & Support and Experiential disciplines, and 25% relates to the Advertising group, which is included in the Media & Advertising discipline. The balance of planned dispositions is spread across the rest of our disciplines. Regarding revenue by region, our businesses in the U.S. had strong growth, led by Media as did our European markets and our businesses in the Middle East. Our businesses in France, the Netherlands and China struggled in Q4, and the Latin America market was strong. Slide 10 is our revenue weighted by industry sector. Given these numbers only include 1 month of IPG and our portfolios are very similar, the comparisons to prior periods only show differences of a point or so in a few categories. Now please turn to Slide 11 for our year-to-date free cash flow summary. The increase relative to last year was driven by the improvement in Omnicom's business over the course of the year and the addition of IPG in December 2025. Our free cash flow definition excludes changes in operating capital. However, our use of operating capital improved throughout the year, and we were positive for the full year. You'll note in the reconciliation on Slide 18 that the change in operating capital was a positive of approximately $700 million, a significant improvement in the change in operating capital of over $900 million from 2024. Approximately $170 million of that improvement resulted from Omnicom's businesses, excluding IPG. The balance reflected the timing of the IPG closing and positive working capital growth from IPG's businesses in the month of December 2025. For the year ended 2025, our primary uses of free cash flow included $550 million of cash paid for dividends to common shareholders, and another $83 million for dividends to noncontrolling interest shareholders. Dividend payments decreased due to an increase in share repurchases during the quarter. This excludes our recent 15% increase in the quarterly dividend to $0.80 per share, which was declared prior to the closing of the acquisition. Capital expenditures were $150 million, roughly in line with last year. Total net acquisition and disposition payments were actually a source of cash of $914 million. This included $1.1 billion of net cash received from the IPG acquisition, which was partially offset by acquisition-related payments of approximately $186 million, including $117 million in payments for acquisitions of additional noncontrolling interests and payments of contingent purchase price obligations on acquisitions completed in prior periods. Finally, our share repurchase activity for the year was $708 million, excluding proceeds from stock plans of $27 million. As of Q3 2025, we had repurchased 312 million of shares. And during Q4, we repurchased 396 million. Slide 12 is a summary of our credit, liquidity and debt maturities. At the end of Q4 2025, the book value of our outstanding debt was $9.1 billion. Legacy Omnicom debt was flat with last year, but we assumed approximately $3 billion of IPG debt. As you are aware, our $1.4 billion April 2026 notes are now classified as current on our balance sheet, and we will be addressing that maturity in the near term. As John mentioned, our Board approved a $5 billion share repurchase program, including a $2.5 billion accelerated share repurchase plan, which we initiated earlier today. We also plan to repurchase an additional $500 million to $1 billion of shares during the balance of 2026 as part of the share authorization program. As a result, we estimate the reduction to our shares outstanding compared to the balance of shares outstanding at December 31, 2025, of 313.1 million shares will decline by approximately 9% to 11% by the end of 2026. With weighted average shares outstanding for the year estimated to be reduced by approximately 7% to 8%. Net interest expense is expected to increase by approximately $210 million in 2026 compared to 2025. The change is primarily driven by higher interest expense, including approximately $125 million from the addition of IPG's long-term debt, including $14 million of noncash interest expense resulting from the fair value adjustment to IPG's debt recorded as a result of the acquisition. We are also estimating an increase of approximately $50 million to $55 million, resulting from the refinancing of our $1.4 billion bond, which has a book effective interest rate of 4.07% and which is due in mid-April, and incremental commercial paper borrowings related to our share buyback program, including the ASR. Together, these items are estimated to increase interest expense by approximately $175 million to $180 million. In addition, interest income on net cash balances is expected to decrease by approximately $30 million, primarily due to lower forecasted short-term interest rates on invested cash. In total, these factors result in a projected increase in net interest expense of approximately $210 million in 2026 compared to Omnicom's prior year 2025 actual amount of $167 million. Please note that the total and net leverage ratios for 2025 reflect the full assumption of IPG's debt, but only 1 month of IPG's EBITA. This results in distorted leverage ratios for the period when calculated directly from our reported financials. However, at December 31, 2025, we were in compliance with the leverage ratio covenant in our credit facility, which makes pro forma adjustments for the acquisition. Comparable calculation of our total debt to pro forma adjusted EBITDA would result in a total leverage ratio of 2.4x for the full year ended December 31, 2025. Lastly, our cash equivalents and short-term investments at the end of the year were $6.9 billion, up $2.5 billion from last year, largely due to the IPG acquisition and the strong performance managing working capital and cash we just discussed. Our liquidity also includes an undrawn $3.5 billion revolving credit facility, which backstops our $3 billion U.S. commercial paper program. Before I hand this call over to Q&A, I would like to take a moment to address a framework for how we plan to forecast for 2026. In the appendix on Slides 22 to 24, we present combined Omnicom and Interpublic income statement data based on each company's reported results for the last 12-month period ended September 30, 2025. These are the last 4 quarters in which both of us operated independently. We also use this combined methodology when we announced the transaction in December 2024. For the LTM September 30, 2025 period, combined revenue was $26.3 billion and combined adjusted EBITA was $4.1 billion. These 2 numbers are very close to published analyst consensus estimates prior to the IPG closing for fiscal year 2025 on a combined basis. Because the combined presentation doesn't reflect our planned dispositions, we've used the estimated disposition revenue amounts on Slide 3 to adjust the combined base, which we plan to use for forecasting 2026. The adjusted total EBITA margin for the businesses we plan to dispose of was approximately 10%. Given the IPG acquisition recently closed, we have not yet completed our 2026 planning process. As a result, we will provide additional details on our expectations regarding revenue growth and EBITA growth for 2026 at our Investor Day on March 12. In closing, we've accomplished a lot in the past year to position Omnicom for sustained future growth. As John said, we have great momentum across the company, including revenue initiatives and cost efficiency initiatives, and we are deploying these benefits through the share buyback program announced today. We understand that there is a lot of material to digest. We look forward to updating you on these topics and some new ones at our Investor Day on March 12. I will now ask the operator to please open the lines up for questions and answers. Thank you. Operator: [Operator Instructions] We'll take our first question from Steven Cahall at Wells Fargo. Steven Cahall: So it sounds like you're going to talk more about organic growth at the Investor Day in a few weeks. But John, you just -- you've done a ton of work around the operations and bringing the Connected Capability together. I think a much bigger percentage of the business is now Media, and it sounds like it's performing well. So I was wondering if you could give us any sense of what your expectations are in organic growth for the retained business this year? Or if that's a little too specific, maybe you could at least give us a sense of how you would expect the Media business to perform this year, and how big within the overall business that one is? And then, Phil, thanks for the color on the margins of the businesses that you are divesting. Is the right way to think about margins for this year that we back out those 10% margins that are being disposed of and then we kind of layer on the synergy targets, net of cost to achieve that you've given, and that's kind of the math that we need to do to think about margins for the next few years? John Wren: Thanks for your question, Steve. We'll certainly give you more color on March 12 to the extent that we're done completing our review of the combined companies and the detailed plans. If I was guessing, which I probably shouldn't do, I would think Media going forward will be, I would say, in the mid 50% of our revenue, which is a change. It increases that segment of our organization. But that needs to be finalized, which we were doing in the coming weeks. Advertising will be, again, the same type of caution, but less than -- slightly less than 20% of our total revenue. But as I said, we're working through those areas as we speak. We did get some very early profit plans, but we haven't had the time to go through and interrogate them the way we generally can before we have this call. So that's what we'll be doing in the coming weeks as we prepare for that. Philip Angelastro: Just to clarify, Steve, the Media reference, I think, includes what we would consider Media and related or connected to media. So that percentage probably includes Precision as well as Commerce, which is in our Precision Marketing category. So it's the connected media component of the business. With respect to the second question on margins for '26, certainly, as I said in my prepared remarks, we'll have some more detail and color on our expectations for '26 at the Investor Day. But I think your assumption is certainly a good one to start with, and then we'll get an update at the meeting in March. Operator: We'll go next to David Karnovsky at JPMorgan. David Karnovsky: John, I know it's early in the integration, but can you speak a bit more to what the reception has been so far to the combined company offering, both from existing clients and recent RFPs? And then for Phil, you mentioned a 4% organic figure for the fourth quarter. Can you just clarify what this specifically refers to? And for the assets identified for sale, exit or moving to minority, is this all going to assets held for sale immediately? Or does it get spaced out? And then can you say anything about what the kind of organic growth for some of these agents or what these agencies were in aggregate for what's moving? John Wren: I'd say in all the major markets that we operate in, there's been a lot of enthusiasm on the part of the groups that we've combined and the -- just the attitude and the optimism that is shared all the way down through our employee base about what position Omnicom now is in, what capabilities we have when we join these 2 groups together, and the resources that we'll have to pivot and change as to where necessary and making the correct investments to keep us in a leadership position. So across the board, it's far better than I fully expected, because I always anticipate that there'll be some negativity, but we haven't seen any of that, any particular place in the group. I'll leave the second question to Phil. Philip Angelastro: Sure. So I'll start with the businesses that we've identified as disposals and assets held for sale. So as you referred to, a portion of that and as was referred to in the slide and in John's prepared remarks, a portion of that relates to us intending to move from a majority position to a minority position in certain smaller markets around the world. Those businesses are solid businesses. They service some of our important clients in certain of those markets. But we're really taking that action more for simplicity of the organization and managing the organization than underperformance or the businesses are not strategic to where we're headed in the future. We just don't need to be in all markets with subsidiaries that come with a lot of compliance requirements and other things. So the organization, as a result, will become much more efficient, and we'll still be able to provide the quality service that we need to for our important global clients that might have operations in those markets where we go from majority to minority. The rest of the businesses that we've targeted for disposals and/or sales essentially are made up of either nonstrategic businesses or underperforming businesses. And as John had referred to, we've completed about -- we've completed dispositions of about $800 million of revenue to date. And certainly, we're committed to completing those transactions during the next 12 months. And we've made some good headway recently an Experiential business within the IPG portfolio, Jack Morton, that sale closed this week. So we've got a good head start on moving forward with the plans as far as assets held for sale go. And we'll give a little more color and a little more update at the Investor Day. As far as organic goes, what we did and what I referred to in my prepared remarks was we did the calculation consistent with how we've always done it with one exception. We excluded the organic growth related to those companies that we intend to dispose of and sell. And as a result of doing that, the calculation yielded a growth rate in the quarter of 4%. I'd say, certainly, because those businesses are either the bulk of the businesses are either nonstrategic or underperforming, the organic growth rate related to those businesses is likely lower than what we achieved on the businesses that we intend to invest in going forward for the quarter. But the businesses that are -- where we see the most opportunity, the growth opportunity and the investment opportunities, that's what yielded the 4%. Operator: We'll move next to Thomas Yeh at Morgan Stanley. Thomas Yeh: Just that was very helpful on the 4% organic growth explanation. Just to put a finer point on that, that also excludes the incoming assets in terms of IPG? Or is it pro forma for both of them? And if you could just add some color on where you're seeing the areas contributing to that acceleration in growth beyond the upward bias that is being seen from the dispositions, that would be very helpful. Philip Angelastro: If you could just repeat the second part of that, Thomas, that would be helpful. Thomas Yeh: Yes. Just in terms of the sequential acceleration beyond what you mentioned as the benefit associated with stripping out the planned dispositions, maybe talking about just particularly areas of strength in terms of media and advertising, like maybe talking about specific segments and contribution. Philip Angelastro: You want to take that one? John Wren: Well, the 1 month that we owned IPG was included in the calculation. We weren't permitted because we didn't own them in September and October. Otherwise, we'd have 12 months of IPG numbers. So it was 12 months of Omnicom, 1 month of IPG. So that's in what became the calculation. The $2.5 billion in companies that we had -- that have annual revenue were a combination of both Omnicom companies, but they were primarily, believe it or not, in terms of the revenue size, Omnicom companies. And so the calculation basically excluded the pros and the cons, the pluses and the minuses from that group of companies. And it turned out there are many things which would have contributed to a higher organic growth calculation and a few that would have taken it in the other direction. But it was nothing material in the aggregate. I don't know if you want to add anything, Phil? Philip Angelastro: Yes. No, I think that's accurate. In terms of the other areas where we're focused and where we see the business headed, certainly, it's in the more strategic areas of Media, Precision Marketing, Commerce, data, and the holistic platform organization, we think there's an awful lot of opportunities for growth in those areas and certainly incorporating our content solution and creative solution into that is a critical part of that solution. So those are the areas that we're certainly most interested in investing in, in addition to that, certainly bringing together the Healthcare businesses of both portfolios, we think, is going to be a very powerful selling opportunity for us going forward and a growth opportunity for us going forward. John Wren: You shouldn't lose sight of the fact that we didn't do this merger. It was an acquisition, but we treat it as a merger, looking at the short term. We were not looking to shut them at all. We're looking at strengthening those areas we think are going to be important to clients well into the future and going to contribute to our income and revenue growth. And so it's all full steam ahead, but nothing was done because we were worried about the calculation of this month or that month in any manner, shape or form. Hello? Operator: Jason, please go ahead. You have your mic muted. Jason Bazinet: Okay. I just had one quick -- oh, I do? Can you hear me? Operator: Yes, we can hear you. John Wren: Yes, we can hear you, Jason. Jason Bazinet: Okay. Great. I just had one clarifying question on the margins on the disposed businesses. Is that on the $2.5 billion? Or is that on the $3.2 billion? John Wren: It's -- Phil can answer that. I can. It's more or less on the $2.5 billion, I think... Philip Angelastro: Yes. John Wren: And the remaining assets, the ones we're planning to go to minority on, we're still going to collect a very healthy dividend of being a minority owner of those companies. Philip Angelastro: I think -- Jason, that the margin is -- it's the weighted margin from the entire group. So the $3.2 billion. I think in terms of the pieces, the larger group is probably a little lower than that average margin of 10%, and the majority of the minority group is probably higher than the average of 10%. Operator: We'll go next to Nicolas Langlet at BNP Paribas. Nicolas Langlet: Two questions for me, please. First, on the Omni platform. So you unveiled the next generation of Omni platform earlier this year. Could you share, first, the key feedback you have received from clients so far? Second, how the platform distinguish itself compared to peers and walled garden solutions? And three, whatever the platform is now considered complete or if additional building blocks are still required? And secondly, on the margin trajectory. So regarding the cost synergies benefits you expect, do you plan to redeploy a portion of the $1.5 billion cost synergies into growth initiatives? Or we should assume the majority will flow directly through [ 2029 ]. John Wren: I'll ask Paolo to answer the first question, and then we'll tell you how we're going to reinvest. Paolo Yuvienco: Sure. Nicolas. So with respect to the platform, so far, all of our clients are very excited about the capabilities that is currently available and the new capabilities that we'll be launching, which will incorporate the capabilities across various platforms, including our legacy Omni platform, the legacy IPG Interact platform, Flywheel Commerce Cloud, which has already been part of the legacy Omnicom ecosystem. And then, of course, the really exciting part, which is all of this being underpinned by Acxiom and the Acxiom ID (sic) [ Real ID ]. So the response from existing clients and potential new clients has been overwhelming, to be honest. And everyone is very excited to get their hands on the platform when we formally launch it at the end of Q1. But all of the existing capabilities that the combination of those platforms have today have been driving outcomes for our clients on both sides of the IPG and Omnicom organizations. Philip Angelastro: So the second question regarding margin trajectory, I think certainly, there's going to -- we expect a substantial portion of the '26 benefit to flow through during the calendar year '26, and we'll provide some additional detail at the Investor Day. And when we look out to the total for the 3 years, the expectation of the $1.5 billion of synergies, we're confident that we'll achieve those synergies in terms of achieving the cost reductions associated with them over that period of time. But 3 years is a long time. I think that there's certainly a number of initiatives that we're going to continue to pursue both on the cost front and on the revenue synergy and revenue growth front, and we've been pursuing those and planning for those pre-deal and have accelerated that now that the deal is closed. So it's hard to say exactly how much of that will be reinvested in the business. But certainly, a lot may change over that 3-year period in terms of what's happening in the market, what's happening with technology, what's happening in the industry, what's happening with our clients and what are they most focused on in the future. But certainly, we're going to continue to invest in our platforms and our businesses, and we do expect a substantial portion of the '26 benefit to flow through. And we do also expect to take the cost out in those out years of '27 and '28. And we'll talk a little bit more about it at the March 12 meeting. Operator: We'll go next to Michael Nathanson at MoffettNathanson. Michael Nathanson: I guess I have two quick ones for you, Phil. One is the $3.2 billion of disposals, did I get that right that half of the revenues are legacy OMC and half is legacy IPG? Is that the right way to think about it? Or did I mishear that? Philip Angelastro: I think there's certainly a mix. It's both businesses in our portfolio and in IPG's portfolio. In terms of the size of the revenue, as I indicated, there's about 40% of the businesses relate to the Execution & Support category. That includes the one Experiential business that was in IPG's portfolio that we've sold. The rest of that component is Omnicom businesses. And then I mentioned the Advertising businesses that are in that group as well, about 25% of the number. That's probably distributed across both Omnicom and IPG. And the rest of the businesses, I think when you look at them, there's probably -- maybe it's an equal amount, IPG and an equal amount Omnicom. I think we weren't necessarily focused on whether they were Omnicom business or IPG businesses. We are focused on the strategy ultimately where we wanted to invest and what businesses were underperforming and needed to -- we needed to exit from the portfolio longer term. So I think that gives you a little bit of perspective in terms of the numbers and the split, but it certainly wasn't a focus of ours to determine we're going to exit businesses in the IPG portfolio that we inherited or we're going to focus on reshaping the Omnicom portfolio. It's a combined business. And certainly, we were focused more on the businesses that we're keeping and the investments we were going to make and how we were going to provide for strategic growth going forward. That was first and foremost. Michael Nathanson: Okay. And my second one is just a housekeeping one. I appreciate Chart #4 in the deck; you give us all the revenue and disposals. Could you try to help us just to give us a range of what the last 12 months would be if it ended 12/31/25. So $23.1 billion is where you ended September, but you -- knowing what you know, can you give us a sense of what the range would be what the base would look like exiting '25, so we can help model '26? Philip Angelastro: Yes. That approximates what the base would be if we had full year numbers for both IPG and Omnicom. And as I indicated in my prepared remarks, that actually -- it's actually pretty close both in terms of revenue and EBIT -- and EBITA when you look at the consensus analyst estimates for calendar year 2025. So even though there is no published set of numbers for Omnicom only for 2025 and IPG for only 2025, those LTM numbers are very close to what analyst estimates were and to what the numbers we believe would have been, except they just haven't been published that way. I think there'll be a pro forma done in accordance with the pro forma rules in the 10-K, but the pro forma rules are pretty specific in particular. And you need to show the -- or make an estimate of what the acquisition would have been or what the impact would have been on our numbers had the acquisition been completed as of January 1, '24. But any and all of those ways, the numbers aren't very different than the combined numbers we've included in the back of this deck. And for our own internal planning purposes and forecasting purposes, that's the baseline that we believe is the most appropriate to use, and that's ultimately how we're going to be looking at the business. Operator: And we'll take our next question from Tom Nollen (sic) [ Tim Nollen ] at SSR. Timothy Nollen: I'm interested in the new corporate operating structure. If you could give a bit more color, please, around the decision to create the new divisions that you announced back at the close of the deal. So consolidating some of the creative agencies, keeping and I think all the media agencies separate production unit, PR unit, et cetera. Just maybe a little discussion around why you organize things that way. And then the Connected Capability that you're talking about, maybe talk a bit, please, about what that encompasses. I get that it takes the Omni capabilities, feeds it through the media planning buying operations, but does that also go into all the other Omnicom divisions that you've now laid out? John Wren: Sure. The structure that we concluded on largely was reflective of Omnicom structure prior to the transaction. The media companies, and I don't -- maybe you need to clarify for me, whether you're talking about the crafts or are you talking about the number of brands that we wound up with? Philip Angelastro: Yes. Let me just try and clarify one thing for you, Steve (sic) [ Tim ], based on the terminology. So the Connected Capability reference is essentially in the -- by the way, I know they called you Tom (sic) [ Tim ], but sorry about that. I just didn't -- I didn't want to forget. But anyway, the Connected Capability reference is really what we used to refer to as our practice areas and networks. So the IPG businesses were brought in and integrated into our Omnicom existing structure, as John had said. The Connected Capability terminology is what was new. We introduced that in the press release upon the closing of the deal. So certainly, the Media business and businesses were integrated into Omnicom Media Group and Omnicom Media Group runs their operation as one global group with multiple brands. The brands still exist, but they run the operations as one combined coordinated, integrated operation. And we brought the IPG businesses into those connected capabilities across each of our major disciplines. So Media, Omnicom Advertising, Precision Marketing, PR, Healthcare, et cetera. I'm not sure if that clarifies the structure for you, but that is how we kind of looked at it. I don't know if you want to add to that, John. John Wren: No, that's largely correct. I mean -- you just using Media as an example, where there were 6 brands before the deal, there remain 6 brands. The operations and investments that we make and the type of deals we can accomplish on behalf of our clients, those are done as one group. And then culturally, as you go across the different groups or 6 brands, you'll find differences, which allow us to attract the best and brightest talent into the groups where they'll best fit and be in the best position to service our clients. So the other area where there's probably the largest amount of change was in the Media -- I mean, excuse me, in the Advertising business, where we went in with 5 global network brands, and we decided that we would be best served by going forward with 3 brands. And there's name changes and some other changes in terms of management, but anyone that was contributing revenue prior to the deal and still contributing revenue is still working for us -- that just their business card say something different. I don't know if that helps clarify or not? Timothy Nollen: That helps. Both the explanations you gave is great. Operator: And we'll move next to Craig Huber at Huber Research Partners. Craig Huber: I got a few questions. I'll just do one at a time to make it easier. I'm looking at your Slide 5 here, where you've talked about going from $750 million to $1.5 billion synergies over 30 months or so. The $1 billion number that are labor related, can you touch on with AI out there, is that capability partly allowing you to take out more heads than you originally were planning? Maybe you can also touch on, is any of this labor-related stuff, the $1 billion that you're taking out? Is it people that are of any significance, people are directly related to the revenues of your company? Or are they all back-office stuff? Because in the past, you've said it wasn't going to be related to revenue-generating folks. That's my first question. John Wren: Yes. Go ahead. Philip Angelastro: I think the bulk of the labor-related synergies really relates to a number of things. AI is not necessarily the primary driver of how we looked at this. There were certainly some duplication of roles when you bring together 2 public companies, first off, a number of corporate roles, both at Omnicom and IPG. Unfortunately, we had to make some difficult decisions because you couldn't keep 2 of everything. So there were certainly some headcount reductions related to that. There's also some regional organizations and corporate organizations within the practice areas of Connected Capabilities that were also duplicate roles, which were certainly part of it. Going into the deal, we expected there would be those areas to focus on. But really, we didn't have a lot of data to do the due diligence on. And as we planned for the transaction and executed post close, senior management of both IPG and Omnicom were involved in making the decisions, as John has referred to several times, the goal was to select the best player for the role, not necessarily to have a bias towards only selecting Omnicom folks, and we think we've been successful in achieving that. But there are a number of other areas where we expect the labor synergies to come from, which are areas around nearshoring, offshoring outsourcing in the areas of facility management, shared services, technology, et cetera. There are a lot of opportunities certainly for efficiencies that we expect to achieve. We've started on a number of these paths prior to the deal, but certainly, coming together with IPG, we're accelerating those efforts in all those areas. And we've accomplished quite a bit to date, and we expect to continue to make progress in those areas over '26 and beyond. Craig Huber: And my second question on AI, John. In the past, you've talked about if your clients end up being able to get services from you guys, but less time involved because you're using AI out there to save time and money. In the past, you thought that clients most likely would take those savings and plow it back into marketing through your company, so the net-net, you would not be a loser of your company with AI out there. Is that still your position? John Wren: Yes. My position evolves every day as generative AI is evolving constantly. The initial -- and I'll ask Paolo to comment on this as well. What we're seeing today are efforts that we're testing with our clients, we're starting to utilize with certain other clients that are creating tools for our people, which enhances their ability to do their job. That's one category of people. There are other categories where we believe there are technologies or we're investing in them, which will allow us to eliminate certain positions that are done kind of manually today, but can be done in an automated fashion with generative AI. And as we build out agentic capabilities and are able to connect the processes with how we interface with clients' agentic databases and everything, that will result in further savings. And those are all things we're exploring at the moment. Paolo is living this day-to-day, so I'll ask him to add to my comments and what he's saying. Paolo Yuvienco: Sure. Craig. So look, I know the narrative is always about how do we do the same with less. But the reality is, is that what AI and generative AI is allowing us to do is to do more than we've ever been able to do. And more importantly, it's allowing us to do things that we haven't been able to do in the past. So just to give you some specifics around this, historically, creative teams would typically put 2 to 3 different concepts in front of our clients for a specific campaign. The reason is because it takes time, and it takes a lot of effort to actually bring those concepts to life. Today, with the use of the tools that John is talking about with the agentic capabilities that we put in place, our teams can now test 20 concepts, can test 50 concepts. More importantly is that they can test them synthetically so that we can understand what the impact and value of that work could be, we can predict that before we even spend a single dollar on media. So we have a good sense and confidence level of what the outcome will be with the things that we're putting in front of consumers. So I think the ability to do more and the ability to do more with a higher degree of confidence is really what's driving kind of the whole generative AI institution around us. It's not necessarily about how do we reduce the number of people around this. It's really about increasing the impact and output that we're driving for our clients. John Wren: The other thing I'd add to that, Craig, is we're embracing this. every employee, every group within the company, we're not looking at this as a threat to our jobs, but embracing it as how we're going to be able to create a better product. Craig Huber: But John, is it too early to know if you do things more efficiently for the benefit of the client here, those dollar savings here, is your position still you think your clients will plow that money back into marketing, et cetera, services through your company, so you won't be a net loser. That's what I'm trying to get to here. John Wren: Yes. No, I can understand that is a conclusion where you can see that is happening. There will be other clients that we're able to negotiate with as to performance goals and the methodology in which our work gets judged and rewarded will change. And if our ideas generate lots of money, we'll be expecting to get paid for that as well. With all the hype and everything that's out there, and it will continue for a good long time. But you gave everybody in the world the same tools. What differentiates one group from another group. It's that intellectual creative capability and the ability to source on a global basis, those most likely to be influenced to buy your product, right? And what is going to be needed, what's going to motivate them to buy. We have all those tools, and we have them at such a scale that it's going to be very difficult for many competitors to catch up at this point for a good long while. So just think about it, everybody is doing your job and everybody you listen to on the phone call today and what's going to differentiate one of you from the next one of you. And that's why we're embracing it because we know how good we are, and we know how deep our capabilities and skills go. And that's why I think we'll be a winner in all of this. Operator: And that concludes today's question-and-answer session and today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to Zip Co Limited Half Year '26 Results. [Operator Instructions] I would now like to hand the conference over to Director of Investor Relations and Sustainability, Vivienne Lee. Please go ahead. Vivienne Lee: Good morning, and thank you for joining Zip's 2026 Half Year Results Briefing. To open, I'd like to begin by acknowledging the traditional owners of the land on which we meet today, the Gadigal of the Eora Nation and pay our respects to elders past and present. This conference call is also being webcast and will be available on Zip's website. I'm joined today by Zip's Group CEO and Managing Director, Cynthia Scott; Group CFO, Gordon Bell; and U.S. CEO, Joe Heck. We will start this call with some prepared remarks and then open up for Q&A. With that, I'll now hand over the call to Cynthia. Cynthia Scott: Thanks, Vivienne, and good morning, everyone. On behalf of the Zip team, we're pleased to be reporting another very strong set of results, delivering financial performance within each of our full year guidance ranges provided in August. For the half, we delivered record cash earnings of $124.3 million and significant operating margin expansion, underpinned by accelerated momentum across both markets. These results, together with 10 quarters of consistent group profitability, reinforce the strength of our platform and our ability to deliver long-term value creation. Zip today is a high-growth, efficient and sustainably profitable business with clear strategic differentiators. We operate a scaled 2-sided network with strong customer engagement, growing merchant penetration and increasingly diversified distribution networks. We take a customer-first approach to innovation with a proven track record as a responsible lender backed by more than 12 years' experience delivering flexible credit solutions to millions of customers. Our AI-powered decisioning capabilities built on significant sets of proprietary data, deliver responsible lending outcomes and exceptional experiences for our customers and merchants. This capability is a core competitive advantage and increasingly important as we continue to scale. Moving to the next slide. Our results demonstrate the power and momentum of our platform in action. Total transaction volume reached a record $8.4 billion, up 34% year-on-year, driven by 55 million transactions. Active customer numbers increased 4.1% to 6.6 million as we delivered on our strategy for customer growth while deepening customer engagement, demonstrating the demand for our products and the trust customers place in Zip. Merchant growth also accelerated, up more than 10% to over 90,000 merchants, supported by expanded channel partnerships, including Stripe. Turning to the next slide. We've continued to deliver top line growth while importantly, maintaining the strong unit economics and the operating leverage that we've developed. Gross profit increased 33.5%, reflecting lower funding costs and strong credit discipline. Net bad debts remained comfortably within management targets, while active customers grew by 10% in the U.S. A key highlight was record cash earnings of $124.3 million, up 86%, driven by significant operating margin expansion to 18.7%. As well as strong cash earnings in the first half, on a statutory basis, we also delivered net profit after tax of $52.4 million. Moving to Slide 8, which demonstrates we're now driving outstanding earnings growth in both markets. In the U.S., which represents around 80% of divisional earnings, cash EBITDA increased 70%, which is 1.5x the rate of revenue growth. In ANZ, cash earnings more than doubled as revenue in Australian receivables returned to growth and excess spread expanded 241 basis points, a material improvement. The performance across both regions reflects the strength and scalability of our model. Moving to Slide 9. We're executing with discipline against our FY '26 strategic priorities. Across both markets, we strengthened customer engagement, delivered record outcomes through the peak holiday period and signed large merchants in targeted verticals. We continue to innovate and expand our products, unlocking greater flexibility and value for our customers and merchants. Joe and I will cover these highlights in more detail in the regional updates. We've also continued to strengthen our platforms to support long-term scale. During the half, we completed the $100 million on-market share buyback, optimized and diversified our funding programs and strengthened our core systems and processes, including through scaling AI, which is firmly embedded in how we operate, how we build and how we differentiate. Turning to Slide 10. Our ESG focus remains aligned to long-term value creation. In the U.S., we partnered with Opportunity Knocks, a PBS television series supporting underestimated Americans through hands-on financial guidance, reflecting our commitment to financial inclusion. Across the group, 100% of our team have been equipped with secure enterprise versions of generative AI tools and training to support engagement and accelerate innovation. We also continue to invest in carbon offsetting projects with the aim to offset our greenhouse gas emissions. Turning to the next slide. Dual listing on the U.S. stock exchange continues to make strategic sense for Zip given the scale of our U.S. business and the material growth opportunity ahead of us in that market. As we announced late last year, we submitted a confidential draft registration statement to the U.S. Securities and Exchange Commission in November 2025. We'll continue to monitor market conditions, and we'll only undertake a dual listing when it's in the best interest of Zip shareholders. The potential dual listing still remains subject to a number of required processes, including regulatory and Zip Board approvals. So with that, I'll hand over to Joe to cover our U.S. performance in more detail. Joe Heck: Thanks, Cynthia. I'm now on Slide 13. The U.S. delivered another outstanding set of results for the half. We now have a larger and more efficient platform that drove record TTV and revenue while adding over 400,000 customers and over 2,300 merchants. With over $4 billion in TTV and $292 million in revenue for the half, growth accelerated to 44.2% and 46.4%, respectively, and we set a record day and month during the holiday period. Our results reflect deeper customer engagement with customers now transacting over 11x per annum, up 20% on year. We continue to innovate and evolve our offering to meet real customer needs, including making our Pay-in-2 solution available to all customers in February of 2026, providing greater flexibility and choice for smaller everyday purchases. We're piloting a my Bills feature in app to support customers with recurring payments. And we're progressing our Money Coach, our agentic guided cash flow management experience, which we piloted with U.S. zibsters. These initiatives will continue to be rolled out in the second half. Our platform is converting top line growth at a stronger operating margin, and we deliver credit outcomes within our target range and operating leverage at scale. Turning now to Slide 14. We have a compelling and exciting market opportunity in the U.S. where BNPL represents less than 2% of the $12.8 trillion total payments market and 6% of e-commerce, far below more established markets. Zip serves a unique customer, the everyday American, of which we estimate there to be over 100 million nationally. This group has been underestimated by traditional services -- financial services providers and are increasingly using short-term installment products such as Zip to smooth their everyday cash flow. Moving on to the next slide. Our product design and experiences are built to meet our customers needs and preferences, supporting increased usage of our products. Since FY '24, we've invested in personalization and enhanced customer experiences, which has delivered quarter-on-quarter growth of transactions and spend per customer. This represents annualized growth of 24% and 31%, respectively. Moving to the next slide. Slide 16 shows how we're able to leverage our experience with everyday Americans. As we underwrite more customers and transactions, we're able to rightsize spending power faster and accelerate customer engagement in newer cohorts. In fact, our most recent July 2025 customer cohort experienced a 21% increase in average spend over 6 months. The 18- and 24-month data points on the right demonstrate these trends continue over longer-term horizons. Turning to Slide 17. A key highlight for the half was the acceleration in active customer growth, up 10% year-on-year, which compared to growth of 6% at this time last year. Importantly, we continue to acquire customers efficiently, especially as our merchant network and channel partnerships grow, which increases awareness and adoption of our products. Our new brand campaign "in you we trust" reflects our belief that people deserve financial tools that work with them, not against them. Double-clicking into our experience with our customer base, we've decisioned and processed more than $23 billion in installments across 177 million transactions to date. Our proprietary credit models leverage 1.4 billion unique data points from over 13 million first-party customer records, delivering strong credit outcomes when compared to traditional approaches to underwriting. Turning to Slide 18. We've successfully expanded our channel partnerships, which is driving merchant growth, customer acquisition and increased customer engagement. We reached general availability in Stripe in August of 2025, meaning any of the millions of merchants on Stripe can enable Zip in less than 30 seconds on their dashboard. This enables us to scale efficiently, both distribution costs and shorter sales cycles through a one-to-many approach. While it's still early days, we've added over 1,400 Stripe merchants in the first half alone, noting we've only been live for 4.5 months. To increasingly meet our customers where they live, work and entertain, we've signed large enterprises such as JD Sports, Goat Group and also went live with Temu. We also launched a new customer activation initiatives, including collaborations with national brands like Major League Baseball. Our integration with Autofill on Google Chrome serves as a customer acquisition and engagement tool. Customers can now find Zip at checkout when using the Chrome browser and if approved through their acquisition flow, are prompted to save their Zip details in their browser, delivering a more seamless experience of repeat usage. Customer feedback to date has been positive with 86% of surveyed Zip customers expressing intent to use the feature again. On to Slide 19. We are constantly listening to our customers to understand how they want to pay and manage their everyday spend. Our TTV is increasingly derived from nondiscretionary categories with health, education, auto and transport, representing some of our fastest growing. Our Pay-in-2 product is another example of how we're empowering customers with alternatives to traditional high-interest credit products, enabling customers to split a purchase into 2 installments paid over 2 weeks. The product has been well received with future use centered on everyday needs like groceries and bills and 95% of surveyed pilot customers expressing intent to use Pay-in-2 again. Turning to the next slide. We've actively pursued and achieved very strong TTV and customer growth while managing losses comfortably within our 1.5 to 2.0 target range. Given the short duration of our product, we remain well placed to proactively manage our portfolio outcomes. We will continue to drive new customer growth initiatives, which position us well to deliver future profitable growth underpinned by our strong unit economics. Given recent performance in our portfolio, we are confident net bad debts will remain stable within the top half of our targeted range in the second half. Moving to the next slide. We have an efficient and capital-light business, which is driving significant operating margin expansion as our platform scales. This half, we've converted every incremental dollar of revenue into $0.34 of cash earnings. Turning to Slide 22. We are strategically set to deliver our next phase of growth by capitalizing on structural tailwinds with digital payments and BNPL adoption set to increase, growing our customer base and increasing Zip share of wallet, expanding our distribution and merchant network to enhance the efficiency of our growth engine and evolving our product set to meet more of our customers' cash flow management needs. Digging deeper into this on Slide 23. We see a tremendous opportunity to lean further into everyday nondiscretionary spend, given the mismatch between the income structures and the rising essential costs that everyday Americans are facing. While we are supporting customers today in the point-of-sale installment credit market, there are additional opportunities for us to meet even more of our customers cash flow needs. An example of this is my Bills, which I mentioned earlier and is due to roll out in the coming months. We will continue to explore other product adjacencies that resonate with our customers, complement our short duration portfolio and expand our revenue streams such as rent and earned wage access. We are excited and energized by what we can unlock for our customers, merchants and partners as we capture our growth potential and reshape how everyday Americans manage their cash flow. With that, I'll now hand back over to Cynthia. Cynthia Scott: Thanks, Joe. Turning now to Slide 25. The ANZ business delivered an excellent performance this half, achieving 138% increase in cash earnings. This was driven by a material improvement in excess spread and strong momentum in Zip Plus, which as of this month, is now being offered to new customers at higher limits of up to $20,000. We added several large enterprise merchants to the platform, including Didi, Australian Outdoor Living and White Fox Boutique and executed strategic integrations, including with Xero via Stripe and Mint Payments. Our customer value proposition has been enhanced through new Google Wallet features, which have been adopted by more than 170,000 customers. Our AI-powered chatbot Ziggy is providing increasingly personalized experiences and is now resolving 65% of interactions without human intervention. Turning to Slide 26. Excess spread expanded by 241 basis points, underpinning strong earnings growth. This reflects very strong outcomes on receivables financing over the last 2 years as well as net bad debts remaining at their lowest levels since FY '23. Arrears rates, a leading indicator of future bad debts, continues to perform well, down 21 basis points year-on-year. With portfolio yield remaining healthy, the business is well positioned to continue to deliver profitable growth. Moving to the next slide. Our comprehensive product suite provides flexibility and choice, driving strong customer engagement and satisfaction. Transactions and TTV per customer increased 23% and 20%, respectively. This performance was driven by enhancements to our app and in-store experience, along with new strategic go-to-market initiatives, as shown on the right-hand side of this slide. We achieved a record number of transactions and Zip Anywhere open loop spend during Black Friday, Cyber Monday. Consistent with our increasing frequency, we're seeing strong growth in everyday spend categories such as groceries, health care, education and utilities. We're also seeing higher spend across all age cohorts with the strongest growth amongst more mature customers, including in discretionary categories such as restaurants, travel and entertainment. Turning to Slide 28. We're very pleased with the momentum in ANZ and are investing in future growth. We've undertaken strategic go-to-market initiatives, including around peak trading events. We've also simplified and strengthened the resiliency of our core technology systems, including our credit decisioning platform, enhancing our speed to market. These investments support both top line growth and cost efficiency, positioning the business to deliver sustainable long-term value. I'll now hand over to Gordon to cover our financial performance. Gordon Bell: Thank you, Cynthia, and good morning, everyone. I'll start with Slide 30. Zip has had a very strong start to the year. We've achieved material new active customer growth in the U.S. and converted substantial top line revenue growth at an increased operating margin. Our financial results for the first half are all within the full year 2026 target ranges provided to the market in August 2025. A key highlight was our primary metric, the group's operating margin, which expanded 569 basis points to 18.7%. This has been a focus in the year-to-date, and we're really pleased with the outcome and the momentum. On a statutory or GAAP basis, our net profit after tax more than doubled to $52.4 million, an outstanding result. Moving to the income statement on Slide 31. Our focus on operating leverage, disciplined cost management and ongoing investment in our business drove the following outcomes: a 33.5% increase in cash gross profit to $314.3 million, an 85.6% increase in cash EBITDA to $124.3 million and a 127.6% increase in statutory net profit to $52.4 million. On an underlying basis, we delivered $54 million of improvement in net profit after tax with no one-off items recorded for the period. Further details are in the appendix to the presentation. Slide 32 covers our unit economics. The group had another fantastic half, growing TTV in both regions to a combined $8.4 billion or up 34.1%, while maintaining a strong cash net transaction margin of 3.8%. Interest expense as a percentage of TTV improved 38 basis points year-on-year to 1.3%, primarily driven by lower margins on over $2 billion of receivables refinanced in Australia over the past 18 months. Net bad debts were 1.7% of TTV, reflecting our targeted approach to balancing top line growth and losses. Turning to Slide 33, which covers the accounting provision for ECL or expected loss for the U.S. business. In alignment with International Financial Reporting Standards, we recognize expected credit losses for our customer receivables book. This is a noncash item in our P&L. For our short duration U.S. products, this provides a useful leading indicator of future portfolio performance and loss trajectory. Commensurate with our strong momentum through Q1 and Q2, we saw a nominal increase in our U.S. provision. This shift is a direct reflection of our strong volume growth and delivery of new active customer growth of circa 10% year-on-year, both in line with our U.S. strategy. The lower U.S. provision as a percentage of receivables at the end of the second quarter reflects both seasonality and continued proactive management of our short duration book to deliver profitable growth and to deliver actual losses within the management target ranges. Moving to operating efficiency on Slide 34. Our prioritization of cost discipline has supported material operating margin expansion of 569 basis points to 18.7%, whilst also growing group TTV and revenue north of 30%. This has been achieved while continuing to invest in attractive opportunities that support our growing businesses in both regions. The increased investment in people, processes and information technology was driven mainly by the U.S. to support additional scale. During the period, we invested in marketing to drive strategic growth by building brand and product awareness across both markets. Total marketing spend remained at approximately 0.4% of TTV. At the corporate level, costs increased in the first half due to spend on activities announced associated with our potential dual listing as well as innovation initiatives through our [indiscernible] lab to drive the next horizon of growth in our businesses. The next few slides, starting with Slide 35, cover the group's liquidity, funding and capital management. We have a very strong balance sheet with available cash and liquidity of $239 million at 31 December, materially up on the full year '25. This outcome reflects Zip's strong cash flow generation, driven by continued operating results. Cash inflows for the first half totaled $178.3 million, which accounted for CapEx, working capital and funding requirements. Nonoperating cash flows of $77.1 million included on-market capital management activities. Slide 36 outlines the financing facilities in place for Zip's receivables and the capacity for future growth. In Australia, we continue to benefit from constructive funding markets, a significant increase in investor interest and strong corporate performance. Our $400 million 2-year public ABS term deal priced at BBSW plus 1.37% in November 2025. Pricing was well inside levels achieved in previous public transactions. In early February 2026, we took the opportunity to further extend portfolio duration with an innovative $300 million 5-year public ABS term deal, which priced at BBSW plus 1.62%. This transaction was supported by domestic and global investors and highlights the significant investor appetite for Zip's longer duration issuance. In the U.S., we established a $283 million warehouse facility. The 2-year facility provides enhanced capacity for future growth, delivers a material improvement in funding costs and further diversifies our funding program. We continue to assess opportunities to optimize our U.S. funding portfolio with work well progressed to refinance our $300 million warehouse later in the second half of the year. Moving to Slide 37. This slide outlines our capital management framework, which establishes principles for the allocation of financial resources to maximize long-term shareholder returns. We executed 2 key initiatives during the half. Firstly, we completed our $100 million on-market share buyback program in December with 34.9 million shares repurchased at an average price of $2.86. Secondly, we acquired 5.9 million shares on market via our employee share trust to neutralize the impact of share-based incentive programs. Looking ahead, we will continue to focus on investing capital efficiently to drive long-term value guided through a lens on risk, expected return and strategic alignment. Slide 38 provides a snapshot of our key group performance metrics, demonstrating the outstanding results achieved this half. This financial information is further detailed in the appendix of the presentation as well as the Appendix 4D financial statements lodged with the ASX this morning. I'll now hand back to Cynthia to cover the group strategy and the FY '26 outlook. Cynthia Scott: Thanks, Gordon. I'm now on Slide 14. Our FY '26 strategic priorities remain unchanged. In the second half, we'll continue to enhance our customer and merchant value propositions, including scaling Pay-in-2 in the U.S. and unlocking greater spending for Zip Plus customers in Australia. We'll drive innovation across our portfolio -- excuse me, across our products, people and processes through leveraging our in-house capabilities and AI advantage. We're really excited to execute on future growth opportunities and to meet our customers' evolving cash flow management needs. In the U.S., as Joe outlined, this includes the rollout of My bills and our Agentic Experience Money Coach as well as continuing to assess new product adjacencies. In ANZ, we've advanced capital-light propositions through our Fearless Frontiers team led by Peter Gray and expect to have a new offering in market during the second half. As part of our announcements today, we've also shared my intention to relocate to the U.S. This move reflects our growing presence and significant growth opportunity in the U.S. market, our primary earnings driver. I look forward to deepening engagement with key U.S. stakeholders, including our customers, merchants, strategic partners and investors. Moving to our upgraded FY '26 outlook on Slide 41. Firstly, we reconfirm our guidance for revenue margin and cash NTM ranges. Following a strong performance in the first half, we've upgraded our operating margin expectation to be greater than 18% and for cash EBITDA as a percentage of TTV to now be above 1.4%. Taking into account these targets, we expect second half cash EBITDA to be broadly in line with the first half. In closing, the first half of FY '26 has been a period of accelerated momentum for Zip. We're confident in the continuation of our growth momentum, supported by our U.S. business delivering strong TTV growth of more than 40% across 4 consecutive quarters. Our ANZ business having successfully returned to growth, having the right strategic settings and scalable platforms in place to drive increased profitability and significant opportunities in both markets to unlock further value. On behalf of the group executive team, I'd like to thank our incredible Zipsters for their passion and focus and our shareholders for your ongoing support. That concludes our formal presentation, and we'll now open the call for Q&A. Operator: [Operator Instructions] And your first question comes from the line of Jonathon Higgins with Unified Capital Partners. Jonathon Higgins: Congratulations on the U.S. growth there and also good luck for your forthcoming move to the U.S. Cynthia. Just a couple from me today. Firstly, probably just on Pay-in-8, Pay-in-2 and some of the things that are occurring there. I think there's probably quite a few questions, I'd imagine coming through just on the bad and doubtful debt performance. You've guided for the second half there. Can you talk about some of the moving parts on that guide into the second half towards those sort of targeted levels, please? Cynthia Scott: Yes. Thanks, Jon. Look, I'll make some initial comments, and I will ask Joe to give a little bit more detail. So you're right, we launched Pay-in-2 -- sorry, excuse me, Pay-in-8 more than a year ago. So we've now had it in market, and we've now seasoned it. So we've been able to see what the performance of Pay-in-8 has been. And as you've noted, it's been really well received by customers and now represents about 20% of our portfolio. It does come with higher losses, as we've talked about, given the longer duration of the product and the larger AOV of the product. So we have indicated that in terms of portfolio construction, we are comfortable keeping Pay-in-8 no greater than 20% of the portfolio. Now that we've launched Pay-in-2, that obviously, the proportion of Pay-in-8, Pay-in-2 and Pay-in-4 in the portfolio will again change. I might ask Joe just to give you some color given that we've now got Pay-in-2 out in market, just to give you some perspectives on how we're thinking about portfolio construction and also the loss performance that we're seeing or what we're expecting going forward. Joe Heck: Yes. Thanks, Cynthia. I'll just reiterate a couple of things Cynthia just said is like as we now have a full year of Pay-in-8 under our belt, and it represents about 20% of the portfolio. It does run just to the longer duration risk. It does run a higher loss rate. But we've also put on significant new customer growth as well. And always the first transaction with new customers is always our risk is transaction. But I'll reiterate maybe the tightening of our range. We feel very comfortable we're going to stay under the 2% I'll go back to the chart on losses where even early-stage delinquency is down 10% quarter-over-quarter. And so feel good that the tightening of the range is really the maturity of the portfolio and feel like we're in a good spot there. And then to maybe go towards Pay-in-2, it's an exciting rollout that we see really strong early signs of success with, both from a customer uptake and credit performance standpoint. It's an even shorter duration product than we have. So I'll just reiterate again what we said on the call is the 1.75 to 2-point range is we feel very confident we will be under that 2% moving forward. Jonathon Higgins: Understand. I appreciate the context. Maybe just a couple more that are sort of around as well in terms of portfolio composition. So on your outlook, you've retained the 3.8% to 4.2% cash NTM margin guidance coming at 3.8%. I think second quarter is always a little bit lower because of revenue yield. This might also help a little bit with expectations in the future. But evidently, with U.S. losses probably moving a little bit higher as guided by you guys, but a little bit of a headwind on interest rates and the U.S.A. business is dominating growth, which has a lower blended NTM margin. In terms of on the revenue yield side of things with the new products in the U.S. portfolio, like would we expect potentially some reasonable sort of additive growth in revenue margins in the U.S. so that we can get up to that cash NTM guidance? I suppose asking in a roundabout way, obviously, losses are a little bit higher on the back of Pay-in-8, but do we get better margins out of them at the top line? Cynthia Scott: Yes, John, I'll throw to Gordon. I mean, as you've noted, there's actually a lot of moving parts. You're talking about the change in the portfolio construction. Obviously, losses on Pay in 2 are lower than on Pay-in-4 and Pay-in-8. Typically, it's a shorter duration product. So that will also have an impact over the second half and going forward. We would still indicate to you an overall portfolio revenue yield in the U.S. of 7% is the right number to think about. But Gordon, do you want to add anything in relation to cash MTM guidance? Gordon Bell: Yes. Thank you, John. I'll just run through the components because I think you're on the right direction there. So the bad debt is a portion of that. Joe has outlined where we're at and the range that we are targeting specifically for the second half to balance what we feel is growth and margin. So we're comfortable there. On the interest cost side, the other big component of cost of sales, we've got some really nice tailwinds from the refinancing of our facilities, both in Australia. And now we're starting to see the benefit of the refinancings coming through in the U.S. So you do have to take that into account with the bad debt sort of percentage going the other way, and hence, why we're comfortable with that range of 3.8% to 4.2%. And then what I would say is, and I think you called out in one of your notes, you've also got to take into account the weighting there, where the U.S. is a lower MTM business compared to the Australian business. And as the volumes grow there at a faster rate, that also has an impact, too. So those are all the component parts, but comfortable with that range for the full year. Jonathon Higgins: I might grab one last one, sorry, I'll give the call to everyone else. But -- in regards to the new product mix and the like, I mean, if I sort of think back 12 months ago, we didn't have a lot of new product iteration sort of in market. We're at the beginning of new active customer growth, and we've had some large partnerships come through. And like many of those things like Pay-in-2, you publicly said it's gone live this calendar year. Pay-in-8 has obviously gone out of the customer base. And then you've got things like the Stripe partnership. I mean, is there potential in the second half for a pickup in sort of group run rates or volume? Just interested in what you're seeing in the U.S. Cynthia Scott: Yes. Look, I'll ask Joe to add some comments. But you're right, John, there are a number of levers that give us the confidence to continue to guide that the U.S. will grow more than 40%. And it does include things like the Stripe partnership really beginning to hit momentum now with 1,400 new merchants. as Joe said, from possible millions of merchants on their platform as well as the penetration of Google Chrome improving as well as us signing our own large enterprise merchants. So there's a lot going on, on the enterprise merchant side, and we continue to acquire net new customers. But Joe, is there anything in addition to that, that you wanted to add? Joe Heck: No, I think you hit on the major points. I think the increased flexibility that we're seeing from ANZ and the increased efficiency we're seeing just in how the platform is built and how we operate it makes us feel very confident in the numbers we're guiding to. Operator: Your next question comes from the line of Tim Lawson with Macquarie. Tim Lawson: Just really interested in your expectations for sort of OpEx growth in the second half, given you've provided that sort of flat versus first half, second half cash EBITDA guidance, but obviously, there's momentum still through the top line. Cynthia Scott: Yes. Thanks, Tim. I might -- I'll ask Gordon to address it because again, there's a couple of different factors at play there in terms of the performance in OpEx that we saw in the first half versus the second half. Gordon Bell: Yes. Thanks, Tim. I would say that it's fairly balanced. What I would note is we did see some nice operating margin performance. If you have a look at the unit economics slide, from a slightly reduced cash OpEx spend in the first half. And that really comes down to not a -- I wouldn't say not a lack of investment, but it's opportunities for investment. So Joe and Surya take the opportunities in front of them and invest where they see they're going to get a return from that investment. In the second half, we've got plenty of things that are on the, what I call the long list for investment, and we'll appraise those as and when they come up. So it's all very much looking forward to investing in the second half to get there. I think the second point I'd make just overall is we did upgrade that operating margin metric. So we did have 16% to 19%, and we're now saying for the full year, we'll be above 18%. So that should give people comfort that we're still investing, but we're doing it in a disciplined manner. Tim Lawson: And just a clarification on Slide 20. Can you just -- it's obviously providing that range on the net bad debts to TTV is very clear. But can you just on that bullet point 3, you talked about Pay-in-4 losses remained stable over the half and then Pain volumes continue to season. It's just hard to sort of reconcile that comment with the numbers. So I just maybe you can unpack that comment a little bit, please. Gordon Bell: Yes, sure. Tim, it's Gordon. I think that if you recall at the first quarter, we talked about losses and forecasting, and it was becoming increasingly difficult because on a cohort basis, your pay-in-8 is twice the duration. So you're starting to mix 2 products at a time where one was growing part seasoning, whereas the others -- the other product pay-in-4 was pretty stable. So hence, why we've gone to more of an actual percentage of TTV, which is avoids that apples and oranges piece. So that's just sort of the composition piece. What I would say is the Pay-in-4 performance is as the wording suggests is very stable, very comfortable with the product. And we've been -- frankly, we've been calibrating Pay-in-8, Pay-in-4 and top line growth to make sure that we are hitting the overall economics we want. So it's stable, and we continue to calibrate on the margins to drive the outcomes we want. Tim Lawson: So effectively, what you're trying to tell us is that while there's a lot of growth, and that's obviously driving losses on new business, whether it be pay-in-4 or pay-in-8, and that's what's driving that into the target range, that 1.84 that overall, the performance is stable. So it's more a mix thing that's driving up that loss rate. Gordon Bell: Yes, that's spot on. And I think the only add to that, so what you said is right, the only add to that, Tim, is that if you recall, as we came into FY '26, we had a very conscious new customer acquisition strategy, which has allowed -- which Joe and the team have executed on superbly, and we've been growing new active customers at 10% year-on-year. So it's the new customer is probably the only add to what you stated. Operator: And your next question comes from the line of Phil Chippindale with Ord Minnett. Phillip Chippindale: Just firstly, on the second half guidance for cash EBITDA to be broadly in line with the first half. Clearly, FX translation is going to be a headwind here. Can you tell us what sort of FX number you've assumed? Or if I can ask it another way, if FX had been flat versus first half, what sort of difference would we be talking sort of half-on-half in dollar million terms? Gordon Bell: Let me run through how we've -- how we see the FX, and you can tell me if it covers your question. So first half '25 average FX rate was about $0.67. First half '26, the average was about $0.67. So similar like-for-like. So the first half, you didn't see a lot of impact on a half-on-half basis, Phil. Second half '25 average FX rate was again about $0.67. As we sit here today from January, the FX rate was about $0.70, and I think the forward points are about $0.70, $0.71 for June. So straight away, you've got that sort of $0.03 to $0.04 difference if things -- if the forecast from the big 4 banks is appropriate. So $0.03 to $0.04, I use the U.S. earnings from half 1, which was approximately USD 75 million, USD 76 million. If you do the sensitivity there, it's about $5 million on the numbers I've just given you. We do have some U.S. dollar calls in place. We put some hedging on in the first half, which will mitigate some of that currency risk. So I would say up to $5 million based on the numbers I've given you. And then you've obviously got to run your sensitivities for the currency moving more than that. Does that run through it for you? Phillip Chippindale: Yes, that's really useful. And then just as a follow-up, just in terms of seasonality, I think Jonathon covered it off earlier. Typically, you see better revenue margins, particularly in the March quarter. But just from an OpEx perspective, is there anything we should be taking into consideration here that sort of is a bit of a drag in the second half to sort of bring us back to that flat number? Gordon Bell: The main one will be, as we've been consistent in that we're not going to starve growing businesses. So the U.S. has especially got great opportunities to drive growth into '27 and '28. And there's a number of initiatives, which Joe and the team are looking at in our Q3 and Q4. Q4 is certainly a spend quarter with back-to-school, summer holidays, et cetera. So we are keeping -- certainly keeping the spend up to make sure that we can deliver in future years, probably the best way to describe it. Operator: And your next question comes from the line of Lucy Huang with UBS. Unknown Analyst: So I just have a question on TTV momentum coming into third quarter. I know you're quite confident on second half TTV growing 40% plus in the U.S. But I think some of your payment peers offshore have called that there's been a bit of pull forward of spend into Black Friday. So just trying to see whether you can give us some early trading trends as to whether you are seeing a bit of a slowdown in trading or whether that kind of mid-40s growth momentum is still continuing. Cynthia Scott: Yes. Thanks, Lucy. Look, we actually did put in the slides on the outlook slide, we have actually given an indication of January U.S. TTV performance. And the short answer to your question is no, momentum is still continuing. We're not seeing a slowdown or a pullback. Unknown Analyst: [Indiscernible]. I might have missed that. Cynthia Scott: It was just in addition to the slide. So -- but we are explicitly saying that the momentum that we've seen in U.S. TTV continues into January. Unknown Analyst: Yes. Understood. And then just a piece on customer growth. Like how are you thinking about the balance of driving new customers to the platform versus net bad debts? Because I think for us, customer numbers are a bit softer in the U.S. Like do you think there's scope to reaccelerate adds, but that may come at a compromise to bad debt? Like how do you think about that balance over the next couple of quarters? Cynthia Scott: Yes. Thanks, Lizzy. So look, it's the same dynamic as we've spoken about before. Driving net new customers is important. And I think 10% growth in new customers in the U.S., particularly driving those customers onto the platform ahead of our busy trading period of Black Friday, Cyber Monday was really important. So it's about driving net new customer growth, but also then once they're on the platform, engaging them. And that's why we've given you more detail around the cohort analysis of more recent customers and how they're accelerating that engagement faster than customers who've been on the platform for longer. And then yes, so having new customers on the platform will drive TTV, but we also need to balance new customers also typically bring slightly higher losses. And so the thing about the way that we manage customer growth is that we then season those customers quite quickly. And so it really is that balance. I might just see whether, Joe, is there anything else that you wanted to add in terms of customer growth and just what we're seeing in terms of where the demand is coming from perhaps? Joe Heck: Yes. I would just say probably referencing some of the merchant expansion and partnership expansion, but also probably a reminder of how we think about the customer. It's a pretty low and grow strategy. So as we gain experience with the customer, we rightsized their spending limits pretty aggressively. So this way, we limit exposure on that new customer growth. But ultimately, as you would see, particularly on Slide 17, this is a seasonal business. We grew customers for the first time in a while, H1 to H2 in '25. And that set us up for the seasonal back-to-school shopping. Again, we've had growth again in this season. So I would say we're actually very -- feeling very good about the 10% growth and nearly 400,000 customers. Operator: And your next question comes from the line of Siraj Ahmed with Citi. Siraj Ahmed: can you hear me okay? Cynthia Scott: We can, Siraj. Siraj Ahmed: Just a question on the U.S. MTM percentage, right? I understand there's quite a few moving parts, but 3.1% in the second quarter was a bit lower than we expected. Just trying to understand how we should think about this into second half within your guide and also more importantly, into FY '27 because I can see the net adds is increasing, but maybe revenue a little bit better. So just that will be quite helpful because I think the trajectory of 27% is what I'm thinking about. Gordon Bell: Yes. Siraj, it's Gordon. Look, we absolutely -- as part of the -- as part of the conscious active customer growth in Q1 and Q2, we've been, again, very conscious that, that does come with -- to Joe's point, with higher initial losses, and then we manage and season that throughout the portfolio. So we do accept the slightly lower U.S. cash NTM in the quarter to take that into account. And then we look to balance that and grow it as we go further. So in the second half, you can expect that number to go up. And then that will then contribute to our full year meeting our full year range. So it is a conscious acceptance, if you like, and we expect that number to go up as we go forward. Siraj Ahmed: So Gordon, just clarifying, so in the second half, even with the net bad debt's going up with reaching a slide, you still think [indiscernible]? Gordon Bell: Yes. You've got other tailwinds, though. You've got interest cost tailwinds, which contribute to that as well in the second half, Siraj. Siraj Ahmed: Yes. And then just -- I'm thinking at 27%, I know it's a bit early, but keeping 3.8% to 4.2% would be a bit tough given the U.S. is growing strongly, right? Is that fair? Gordon Bell: We'll talk about 27%, I think, at the end of the year is probably the best way to put it. Siraj Ahmed: Okay. And just one quick thing. In terms of keeping it at 20%, maybe one for Joe. Is that just -- is that a reflection of that maybe the economics is not as strong because the momentum in 4Q is quite strong and you're saying let's keep it in 4Q '25 was strong, right? And you said let's keep it at 20%. Just wondering, are you just managing for the losses being a bit higher, so let's keep it at 20%. Joe Heck: Yes, happy to jump in on that. Siraj, the 20%, I would say it's more of the shape of the portfolio than anything. We save Pay-in-8 for our best customers, and we continue to refine that model. And we're continuing to just optimize across now what it will be pay-in-2, Pay-in-4 and Pay-in-8. So it's just an ongoing management of the book more so that we're starting to see it level out now at that 20% threshold. Gordon Bell: Siraj, it's Gordon. The other thing on your question around NTM, which I remiss of me not to state is the other piece that we take into consideration is the gross profit and the dollar increase and the longer-term piece -- longer term there. So we do actively target customer growth and conversion. And then the gross profit per customer or in the longer term is beneficial to us. We obviously have to calibrate that with the initial losses as we've talked about. So it is a balancing game overall. And right now, cash gross profit growth being at 33.5% year-on-year is very healthy. So it is a balance in terms of short term versus medium term, and that's probably something we look to there on the GP percentage. Siraj Ahmed: So yes, so the TTV and the spend this half yes, strong... Operator: And your next question comes from the line of John Marrin with CLSA. John Marrin: Just wanted -- just a quick clarification because I think it's pretty important. I think, Gordon, you said that there's about $5 million of impact from FX on that recent swing on the AUD USD. And I guess some of that is including the hedge that you have in place. Is that -- did I hear that correctly? I mean, a pretty important point. Gordon Bell: No. Yes. I'll slightly amend that. So I think based on the numbers I gave you, so again, if you take the -- I've just used the average of the FX forecast to say they're forecasting $0.70, $0.71 at June. So again, you have to take a view on that. And I'm looking at it versus the average of this sort of the second half last year and saying that today's numbers would tell you there's about a $0.03 to $0.04 difference there. So on that, I'll just use the sensitivity of the cash EBITDA we live in the U.S. in the first half being roughly $75 million, and that gets you to a number of sort of $5 million to $6 million. We do have some hedges on. We bought some U.S. dollar calls in the first half. And so that gives us some protection. It's not going to change that number materially. But if the currency gets a lot worse, we'd obviously that protection would become more valuable to us. So I still think circa $5 million is probably the right way to look at it based on today's numbers. Again, you need to take your own assumption on FX forwards. But based on today's numbers, I think that's the best estimate. John Marrin: Okay. Yes. Look, it's going to be substantial, and I think we've got to bake that in. But -- okay. You also mentioned that your marketing performance in the first half was strong enough to help you think about being on your front foot in terms of growth investments in the back half. And I just want to pick at that a little bit. And maybe just focusing on marketing spend in the back half and kind of thinking about what that dollar impact might be from the national brand -- national advertising campaign that it seems you guys have rolled out and what other investments you're thinking about when you say that? Cynthia Scott: Yes. Thanks, John. Maybe I'll just start by just clarifying that, and then I'll throw it to Joe just to give you some specific examples about how we're thinking about marketing and spend in the second half. But the marketing spend, including the brand campaign, would still come in under that same bucket of no more than 0.5% of TTV. We obviously, in the first half delivered underneath that. I think it was 0.4% of TTV in the first half, and that would include the spend on the brand that we refresh and launched this week. Joe, did you want to add anything in terms of the second half? Joe Heck: Yes. We continue to expand our partnerships on the merchant side. But I'll reiterate what Cynthia just said. We're conservative on just brand spend in general. We look at the growing share of wallet that BNPL is taking within the U.S. It's a little bit under 2% of total and 6% of e-com. So there's significant headwinds in just customer adoption there. So I would say we're kind of taking a very pragmatic approach given the shape of the business. One exciting thing I think you'll see us push into is we have a new brand campaign that just launched, but that's to accompany kind of the nondiscretionary everyday spend associated with pay-in-2 and my bills as we push deeper into the engagement model of that nondiscretionary everyday American spend. So that's where our focus will continue to be. Operator: And our next question comes from the line of Ware Kuo with Bank of America. Ware Kuo: Just one question from me. So for the U.S., you guys talked to 7% revenue take rate at the portfolio level. But if I'm just looking at the Pay-in-8 product, the fees on the Pay-in-8 product looked higher than, let's say, Pay-in-4. So I would have thought the revenue take rate on Pay-in-8 would be let's significantly higher. And then maybe if you can talk to just the net transaction margins on Pay-in-8 overall, taking into account the revenue take rate and the losses versus the Pay-in-4 product. Gordon Bell: Thanks, it's Gordon. I'll -- Joe can talk about some specifics. But you're right. 7% is the blended take rate. There's sort of a few ups and downs in that depending on when customers repay and so forth. So hence, why we guide to that number. And then in terms of the U.S., I guess, on a go-forward basis, again, we still see that as the best forecast going forward. Joe and team will obviously toggle with Pay-in-2 and the schedule on that as we start to see momentum in that product, just like they did with Pay-in-8 to make sure that we're balancing sort of those losses versus take rate versus NTM. So it's not static is what I would say. It does develop as the product seasons. Joe, do you want to give a little bit more color on that? That's probably the best way I can describe it. Joe Heck: No, I think you did a good job. I think the net out is we use the portfolio to attract and retain and engage our customer base. So it's important to us to have the flexibility across the quick everyday spends like groceries, pay-in-2, pay-in-4 really help with that. Pay-in-8 is a valuable tool for us in the longer duration, larger purchases, but not getting so far out with this customer base. But it continues to be something we manage very, very actively availability of each product to make sure that we're optimizing the spend. And I'll maybe point back to our users are now up to 11x per year with Zip and we continue to push that forward and having diversity of product options for our consumer is really important. Ware Kuo: Got it. And if I can just ask a quick follow-up question. I'm not sure if you can disclose this, but just wanted to know about the loss rates, the relationship between the different duration products. So let's say, pay-in-8 versus pay-in-4, would the losses be because you're lending it for double the duration, would the losses be, let's say, double for pay-in-4 and then half for paying 2? Is that how we think about it from a modeling perspective? Cynthia Scott: Well, yes. So we don't disclose losses at a product level, but we have given you what the AOV is and what the duration is. And as a general comment, yes, you will have higher losses on a pay-in-8 and lower losses on a pay-in-2. But beyond that, no, we don't give product level loss disclosures. Gordon Bell: I think the other piece I'd just add, is that spot on with Cynthia's comment is we -- I talk quite often about calibration. And I do it because one of the conversations that I know Joe is having these daily with his lending team, and he and I talk about it every week. It's that calibration between losses, growth, new customers that we're constantly toggling. And with the Pay-in-8 product, we've just got 1 year under our belt of seasoning. So it's quite hard to sort of pick specifics there. It's kind of an always-on management technique, and it will be the same for Pay-in-2. So it would probably be a little irresponsible for us to try and give you more specifics than that, maybe in years' times when these products are far more mature, we can. But right now, it's part of our sort of ongoing calibration. And unfortunately, that is all the time we have for questions today. I'll hand now the conference back to Ms. Scott for closing remarks. Cynthia Scott: Thank you. Look, I just want to say thanks, everyone, for joining us and for all of your questions. I know there's probably a few more questions, and we are probably going to see most of you in meetings over the next couple of weeks. But in the interim, if there's any specific questions you have, please feel free to contact Vivienne in the first instance. Thank you.
Operator: Good afternoon, and welcome to the Edison International Fourth Quarter 2025 Financial Teleconference. My name is Michelle, and I will be your operator today. [Operator Instructions] Today's call is being recorded. I would now like to turn the call over to Mr. Sam Ramraj, Vice President of Investor Relations. Mr. Ramraj, you may begin your conference. Sam Ramraj: Thank you, Michelle, and welcome, everyone. Our speakers today are President and Chief Executive Officer, Pedro Pizarro; and Executive Vice President and Chief Financial Officer, Maria Rigatti. Also on the call are other members of the management team. Materials supporting today's call are available at www.edisoninvestor.com. These include our Form 10-K, prepared remarks from Pedro and Maria and the teleconference presentation. Tomorrow, we will distribute our regular business update presentation. During this call, we'll make forward-looking statements about the outlook for Edison International and its subsidiaries. Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings, please read these carefully. The presentation includes certain outlook assumptions as well as reconciliation of non-GAAP measures to the nearest GAAP measure. During the question-and-answer session, please limit yourself to one question and one follow-up. I will now turn the call over to Pedro. Pedro Pizarro: Well, thanks a lot, Sam, and good afternoon, everyone. Edison International's 2025 core earnings per share of $6.55 was above our guidance range, that extends our 2-decade track record of meeting or exceeding annual EPS guidance. Importantly, this also marks the successful delivery of the long-term core EPS growth target that we established in 2021. Our performance reflects disciplined execution across the enterprise and continued focus on cost management, operational performance and capital efficiency. Maria will provide more details in her remarks. Today, I'll focus on three themes: Our commitments to customers, communities and investors, our strength in regulatory visibility and our confidence in our multiyear plan. Starting with the first theme. We are committed to the customers and communities who count on safe, reliable and increasingly clean energy. Safety remains our top value. And SCE continues to carry out extensive work to strengthen the electric system and reduce wildfire risk. We are proud that in the Q4 2025 residential customer engagement survey by Escalent, SCE had the highest absolute brand trust score among the large California investor-owned Utilities. Customers and public trust remain the core of SCE's mission. The utility has now installed more than 7,000 miles of covered conductor in high fire risk areas, representing over 90% of its planned grid hardening effort. This work continues to play a critical role in reducing ignition risk and strengthening reliability for the communities we serve. SCE now has fast-curve settings on 93% of its distribution circuits in high fire risk areas, a prime example of how it is using technology to reduce risk by detecting and addressing faults even more quickly. All of this work demonstrates SCE's ongoing wildfire risk reduction leadership. This progress benefits not just the utility's own customers and communities who fund this critical work, but also many peers across the nation. Safety and affordability remain at the core of our commitment to customers. Earlier this year, SCE announced a 2.3% rate decrease for residential customers and a 5.3% decrease for small- and medium-sized business customers. This is starting from a place of having the lowest system average rate by a margin of 20% among California's major investor-owned utilities. SCE has invested more than $12 billion for customer safety and reliability over the last two years. Currently, a typical non-CARE residential customer pays about $188 per month, which is modestly higher than the $180 paid two years ago. This reflects the utility's disciplined cost management to support customer affordability. We will continue to work to keep rates affordable for customers. We are also committed to the investors whose capital makes it possible to build the infrastructure that is essential to deliver safe, reliable, affordable electricity. Our commitment begins with a regulatory framework that enables SCE to consistently earn its authorized returns, which supports a strong investment-grade balance sheet and lower financing costs for customers. Our capital contributors, including pension funds, mutual funds and insurers, depend on stable, transparent long-term performance. Credit rating agencies continue to evaluate California specific risk factors, underscoring the importance of maintaining a durable and predictable regulatory environment that provides confidence for long-term investment and protects customers from higher costs. To that end, we are actively engaging with policymakers and state leaders to reinforce the value of a stable framework and the SB 254 process will be a central venue in 2026 for strengthening the regulatory durability that supports both capital contributors and customers. SCE remains committed to resolving wildfire-related claims fairly prudently and responsibly. To date, more than 2,300 claims have been submitted under the wildfire recovery compensation program with associated payments underway. As always, we are guided by our commitment to transparency, accountability and customer trust. Building upon this, today, SCE announced enhancements to the program, providing stronger support for displaced renters and increasing coverage for legal expenses. Regarding the Eaton fire, as you see on Page 4, the investigations remain ongoing. To recap our prior statements, while SCE has not conclusively determined that its equipment caused the ignition of the Eaton fire, a viable explanation is that the energized idle SCE transmission facility in the preliminary area of origin was associated with the ignition of the fire, and SCE is not aware of evidence pointing to another possible source of ignition. Absent additional evidence, SCE believes that it is likely that its equipment could have been associated with the ignition of Eaton Fire. Given the complexities associated with estimating damages, we currently are unable to reasonably estimate a range of potential losses. Nonetheless, based on the information we have reviewed thus far, we remain confident that SCE will be able to make a good faith showing that its conduct with respect to its transmission facilities in the Eaton Canyon area was consistent with actions of a reasonable utility. The company continues to prioritize a recovery of impacted community members. Edison International is donating $2 million to the Pasadena Community Foundation to help meet the needs of community members in the Altadena area recovering from the Eaton fire. My second theme today is our strength in regulatory visibility given 2025 was a significant regulatory year for SCE, which you see on Page 5. With the GRC cost of capital proceeding, TKM and Woolsey settlement agreements and other wildfire proceedings concluded, SCE enters 2026 with substantially greater clarity into capital plans, revenue requirement and operational priorities, not only for the GRC period but into the next decade. Our team members across Edison International and SCE continue to demonstrate their ability to execute, through complexity, respond to the evolving conditions and stay focused on long-term goals. Turning to the legislative front. The upcoming session will be pivotal for shaping the next phase of California's energy and resiliency policy. A central focus this year is the SB 254 natural catastrophe resiliency study being authored by the California Earthquake Authority and subsequent legislation. Our focus remains on a whole-of-society solution to mitigate and respond to catastrophic wildfires that enhances public safety, improves affordability and supports predictable long-term investment in a clean, reliable energy system for California. In December, SCE and the other IOUs jointly submitted white papers along with dozens of other stakeholders, providing input into the CEA's process. We continue to be actively engaged with relevant stakeholders, the governor's office and legislative leaders about the potential for enhancements to the policy framework. Moving on to my third theme today. Our confidence in our multiyear financial outlook. We are introducing core EPS guidance for 2026 and 2027, reaffirming our 2028 outlook and extending our expected core EPS growth rate target through 2030. Maintaining the 2028 target while extending the horizon underscores the growing clarity and stability in our multiyear plan, supported by a constructive regulatory foundation and a robust pipeline of necessary investments of the utility. With an attractive dividend yield of approximately 5%, and a long-term core EPS growth target of 5% to 7%, EIX shares offer a compelling case for total shareholder returns of 10% to 12%. This combination of income and growth reflects the strength of our regulated business model and our commitment to delivering sustainable value for customers and capital providers. Let me close where I began with commitment. Our commitment to communities and customers and to the capital contributors whose support makes our work possible. Our commitment to strengthening the grid, enhancing safety, improving reliability and supporting affordability. Our commitment to clarity and transparency as we move into a period of greater regulatory stability and our commitment to deliver on the objectives we have shared with you today. We have the right strategy, the right plan and the right team in place, and we are confident in our ability to execute that plan for 2030. With that, Maria, let me turn it over to you. Maria Rigatti: Thanks, Pedro. In my comments today, I will discuss fourth quarter and full year financial results. Our focused areas for 2026, provide an update on our refreshed capital, rate base and EPS growth guidance and discuss other financial topics. For the fourth quarter, EIX reported core EPS of $1.86. Full year 2025 core EPS of $6.55 exceeded the high end of our EPS guidance range. Pages 6 and 7 provide the year-over-year variance analysis. I would like to note two items embedded in our results. First, fourth quarter core EPS includes $0.06 of costs attributed to the preferred stock tender offers and redemption at EIX and SCE completed in December. Second, we recorded a $0.46 true-up following the final decision in the Woolsey cost recovery proceeding. Excluding the Woolsey true-up, EIX's full year 2025 core EPS still exceeded the midpoint of our guidance. I will echo Pedro's comments that this marks the successful delivery of the long-term core EPS target we established for 2021 through 2025. Over that period, we successfully managed a number of unforeseen headwinds. Record inflation, the first rising interest rate environment in over 15 years, growing wildfire claims related debt, several changes to SCE's authorized cost of capital and additional cost pressures, yet we delivered on our commitment. Today, we are reaffirming our 2028 guidance and extending our 5% to 7% EPS growth target to 2030. You should share this leadership team's confidence that we will continue to deliver on these commitments and build on your trust. You can see on Page 8 that delivering strong financial results was just one accomplishment and another year of strong execution in 2025. Page 9 summarizes the key management focus areas for 2026. SCE continues to execute its wildfire mitigation plan and its focus on operational excellence to reduce costs for customers. Utility also plans to execute on its $7 billion capital plan for the year to meet customers' needs. As Pedro mentioned, the legislative process will be a major focus for the year. In the regulatory area, the utility will be driving toward a final decision on its NextGen ERP program and filing an application for its Advanced Metering Infrastructure or AMI 2.0 program. Both of these are large programs that provide significant long-term customer benefits. Lastly, we look forward to another year of delivering on our annual core EPS guidance and executing efficient financings across the enterprise. Let's turn to SCE's updated capital and rate base forecast shown on Pages 10 and 11. The extended capital plan of $38 billion to $41 billion from 2026 through 2030, continues the company's essential work in load growth-driven programs, infrastructure replacement and wildfire mitigation. Additionally, our updated forecast now includes nearly $1.5 billion of capital expenditures through 2030 from SCE's upcoming AMI 2.0 application. The total request will exceed $3 billion with spending expected to continue through 2033. We forecast a step up in our capital deployment opportunities to as high as $9 billion per year in the next GRC cycle. This is driven by the essential investments in the grid to meet customer needs and support California's clean energy objectives. The resulting projected rate base growth is approximately 7% from 2025 to 2030. Page 12 shows our 2026 and 2027 core EPS guidance. We have also provided modeling considerations on Page 15. Our core EPS guidance for 2026 is $5.90 to $6.20, and for 2027, it is $6.25 to $6.65. As you're aware, Edison's core EPS over the years has not been linear. Let me provide some additional insight into our outlook and trajectory towards achieving our longer-term targets. You will see that 2026 core EPS represents growth of about 3.5% at the midpoint compared to the $5.84 baseline. We have provided a bridge on Page 13 to help you understand the puts and takes. This muted growth is driven by three items, which amount to $0.25. First, SCE has fewer regulatory decisions in 2026 than last year. Therefore, the associated earnings contribution from recognizing prior year earnings is about $0.11 lower. Second, asset mix differences versus the original GRC forecast creates depreciation and property tax related variances of about $0.07. Third, financing-related variances, tax law changes and other items reduced core EPS by approximately $0.07. The drivers behind the $0.25 impact are baked into 2026 and thus are not expected to result in negative variances in later periods. Consequently, we expect EPS growth in 2027 to be at the high end of our 5% to 7% range. This is supported by SCE's 7% rate base growth, and we do not expect any large discrete variances from the rest of SCE's operations. Turning to Page 16. We are extending our 5% to 7% EPS growth target to 2030. We are also reaffirming our 2028 guidance and both of these are measured from the $5.84 baseline for 2025. On the financing front, I want to emphasize that we project no equity needs for the next five years through 2030. Our balance sheet remains strong, and we continue to finance the business efficiently within our 15% to 17% FFO to debt framework. Last month, the utility filed its Woolsey Securitization application with the CPUC. Once approved, the utility will securitize about $2 billion in costs associated with the approved Woolsey settlement agreement. SCE's proposed schedule would allow for this transaction to close in mid-2026. As we have shared before, proceeds from this transaction would be used to offset normal course debt issuances at SCE rather than paying down specific issuances. I will conclude by echoing Pedro's earlier comments about commitment and trust. Deploying capital for the resilience, reliability and readiness of the grid helps deliver on our commitments to customers and maintain their trust. We are committed to collaborating with stakeholders to advance a clear, durable and predictable framework. And to our capital contributors, you have seen us deliver consistently on our annual and long-term commitments to earn your trust. This leadership team remains committed and confident in continuing to do just that going forward. That concludes my remarks. Back to you, Sam. Sam Ramraj: Michelle, please open the call for questions. As a reminder, we request you to limit yourself to one question and one follow-up so everyone in line has the opportunity to ask questions. . Operator: [Operator Instructions] Our first caller is Nick Campanella with Barclays. Nicholas Campanella: So I guess just -- on the Eaton losses, I think you disclosed that you recorded about $1.1 billion of losses so far, just from the settlements under the wildfire recovery compensation program. And I guess just as you're continuing to get more visibility on the total liability, like when do you think you would potentially have the low end of losses for the total event? And what is kind of the complicating factor at this point? If you could kind of maybe expand on that at all? Pedro Pizarro: Yes. Thanks, Nick, for the question. I'll start on this one. Let me share some -- reinforce some numbers for perspective. I think I mentioned that we've had -- SCE has had over 2,300 claims submitted so far. There are 18,000 properties that are eligible for the program. You might have multiple claimants per property. For example, if you have a multiple tenant kind of property. So we could certainly see a few tens of thousands of claims ultimately, if everybody wants to participate through the program. And so in that context, 2,300 claim applications, and we're -- now I think I checked this morning, SCE has now crossed the 590 offer mark. That's a really good strong start. Those are good numbers for just three months into the program, but it's just a minuscule number compared to the potential pool here. And so in terms of when we would be able to estimate, we really don't have an estimate for that yet because it really depends on the pace of this. Maria Rigatti: And Nick, maybe just a clarification. You referenced $1 billion or so that we've recorded. That's a combination of what we paid under the WRCP program, which Pedro just described, that is a very minor part of the total. The rest of it is associated with subrogation claim settlements that the company has entered into. So it's both of those things. Pedro Pizarro: Yes. Thanks, really clarification, Maria. We've announced a couple of subrogation settlement so far. So that's what -- on the insurance side, the subrogation side, similarly, there's been two settlements at around an average of $0.55 in the dollar, but there's many more insurance companies in that. So we really can't estimate when we might have enough critical volume to be able to have even a low end of the [ estimated ] range with the confidence required by GAAP. Nicholas Campanella: Okay. And then just maybe expanding on the comments about the 5% to 7% and being at the high end '27. I know your rate base growth is 7%, and you're not issuing any equity, which is great, but I assume you do have some financing drag. Just what are kind of the consideration the nonlinearity to think about for '28 and '29? Do you kind of plan to be at the high end in those years in the 5% to 7% range? Or are there just further considerations there? Maria Rigatti: Thanks, Nick. So you can see sort of like through the '28 period, again, 2026, some muted growth due to variances that are now in the year and will not create variances on a go-forward basis, which then does mean that we're at the high end of the range for the next couple of years. We don't really see any large discrete activities that are driving things in one direction and the other over the course of the years, it's really rate base growth. . Obviously, we still continue to see things like AFUDC come through. We're going to continue to manage the business across all the different elements and areas, similar to what we've done in the past. Then as you get out to '29 and '30, again, right back down to rate base growth. I mean, that is really the driver here, and you can see the potential step-up in '29 and '30 as we file for a new General Rate Case decision. That will be filed actually in May of 2027. So we're closing in on that now. Operator: And the next question comes from Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just on some of the updates on the capital plan through 2030. On the AMI 2.0 application, just once you file that what do you anticipate to be the timing on clarity of approvals? And then just how does that interplay with the timing of the capital dollars that are embedded in the plan through 2030? Maria Rigatti: Sure. So we'll be filing later next few months likely. And we'll ask for a typical schedule, which would get us a decision hopefully in about 18 months or so. The capital that's embedded in the forecast right now, the total request will be in the neighborhood of $3 billion. About $1.5 billion is in the period that we have portrayed here through 2030 with another $1.5 billion that would get spent post that by and large through 2033. So that's sort of the pace of what we're anticipating. Carly Davenport: Great. Okay. That's super helpful. And then maybe just on the SB 254 processes getting closer to the April 1 CEA report deadline. Any updates that you'd call out in terms of thematics that are coming out of the updates we've gotten so far? And just how you feel we're progressing into that deadline and what that could mean for timing of getting some clarity on legislation? Pedro Pizarro: Yes. Thanks, Carly. I'd say the process is certainly underway. It's good to see robust participation from so many stakeholders across the economy. The legislature set this up, they set it up to be truly across economy sort of exercise. And so that engagement is important. It's been important to see the approach that the CEA is taking in marshaling the process, making sure that there's good participation, good engagement, good transparency into the various positions that different parties are bringing in. It is certainly in the process. So really not able to comment on specific solutions or potential solutions yet. But seeing the recognition that this is an economy-wide issue, that really needs to touch all sectors, everything from upstream, securing of buildings, hardening of buildings, decreasing the risk of ignition, decreasing the risk of spread and a consequence focusing as well on shoring up the insurance market, focusing on having ultimately solutions that if heaven forbid, there's another catastrophic fire in the state that there's a way to equitably socialize that impact across the economy. Those are all constructive, our themes that keep coming up. I would also point to the report that the CPUC issued a couple of weeks ago. We thought that, that was very constructive, and acknowledged that central theme that ultimately utilities, and therefore, their customers and shareholders simply cannot continue to be the insurers of last resort, the bearers of all this risk that even if you have a catastrophe that starts with the utility ignition, the catastrophe has so many other components, right? The tragedy can include, weather conditions, can include, challenges in mitigating the fire can include issues that led to faster spread. And so recognizing those kind of things is really important, and it was good to see that show up in the CPUC's conclusions. Maria, anything you'd add? Maria Rigatti: Maybe just one other thing, Carly, and it's really not an add. It's just -- it's underscoring. Pedro talked about sort of the focus on safety and risk reduction on timely and fair recovery for the people who are impacted by an event. But also, it's very important and part of the conversation that we're having is that you need a predictable framework that supports access to well-priced capital. Because at the end of the day, it's about affordability for customers. And so having that conversation and making sure that we are emphasizing that is a really important part of what the IOUs are doing. Operator: And the next question comes from Paul Zimbardo with Jefferies. Paul Zimbardo: The first one I had was just a follow-up on Nick's question a little bit. If I have the maths right, and it's late in the day, so I might not. But if I have the maths right, it looks like about an 8% rate base growth from that '28 to 2030. So I don't know if there's any other factors we should be considering, because kind of your rate base growth is translating into the net income and earnings growth. Should we think about a potential faster trajectory in the back end of that plan from 2028 to 2030? Maria Rigatti: Paul, I think you know how we approach this. We definitely run a lot of different scenarios. We plan conservatively. Looking at all various outcomes and how they play together allows us to have confidence in the 5% to 7%. I would focus on that now. I think we're not seeing anything other than rate base growth as we move out in time. We're always going to be doing things to help benefit the growth, but -- and also benefit affordability. So we'll be focusing on efficient financing. We'll be focusing on over time, further operational excellence efforts. But I think that's how I really view the entire five-year period. It's based on a lot of scenarios, a lot of scenario planning, a lot of scenario analysis and some conservative valuations. Paul Zimbardo: Okay. That is clear. And then I do want to follow up a little bit on the 2026 drivers and the variances you mentioned. I understand on the regulatory true-up. But could you elaborate a little bit on why we shouldn't think about the depreciation and kind of those tax other items that $0.14 is recurring, that would be helpful. Maria Rigatti: Sure. So while they are variances in this year like relative to '25, but now that they're built in, they're just going to -- they continue on a go-forward basis, but they won't actually be affecting or diminishing the growth year-over-year. So maybe that's a clarification that might be helpful. What are they with more specificity as you get into any rate case cycle, and I know we've chatted about this in the past, you can start to deploy assets or invest in assets at a slightly different pace or in slightly different buckets than are in the GRC authorized revenue requirement. You get those depreciation and then also property tax-related variances. Again, built in now. So on a go-forward basis, they don't expect the year-over-year trajectory. Tax and financing. There were some tax law changes last year around charitable contributions. There's a couple of pennies around that. And then because year-over-year, we have more wildfire debt outstanding, you see just a variance in the financing cost, again, because the average amount outstanding changes as we continue -- as we continue to pay claims back in 2025. Again, now built in. We also have a lot of visibility into that with the settlements behind us, so not a variance going forward, which brings you back to rate base growth as the driver for our earnings growth. Paul Zimbardo: Okay. They're very comprehensive and thank you for giving the 2027 as well. Operator: And the next question comes from Ryan Levine with Citi. Ryan Levine: As the compensation program continues to execute, would you look to continue to tweak the program to achieve your objectives? And any color you could share around the rationale for the recently announced changes? Pedro Pizarro: I had a little hard time picking up. Maria Rigatti: Yes. So Ryan, we did -- Pedro did mention earlier some small changes or some changes we're making in the program. I think all of that ties to the information gathering and the community feedback we continue to get. But I think, Pedro, if you want to... Pedro Pizarro: I'm sorry, Ryan, it was just a little bit of static when you're asking the question, so I had a hard time picking it up. Yes. So we made a couple of modifications to the WRCP program. One is to provide some added support for tenants. The original protocol provided three months of compensation at the actual rent level that the tenants were paying prior to the event. But as we dug into this more and got more feedback, it became clear that there was at least some number of tenants in Altadena, who perhaps have been longer-term tenants, and were continuing to pay rents that were under market levels. So now we are making an adjustment to use the calculator or the engine that we have to calculate or estimate fair market value for rent, and allowing tenants to recover three months of either the higher of their actual rent payments or that fair market value rent. The second adjustment we made was you might recall that the program provided support for attorney fees, voluntary program, you can participate without an attorney, but if claimants choose to use an attorney, then the program provided 10% of net damages as an increment to help cover attorney fees. We were also hoping that the attorney community would recognize that this program represents a fairly straightforward approach and hopefully, less work for -- less effort for them, and perhaps they could provide lower fees for clients. But as we got feedback from the clients themselves, from the claimants themselves, we decided there was appropriate to increase the -- what we're providing for legal fees to 20% from the 10% of net damages. Both of these changes will be applied retroactively as well. So we have claimants who have already received their compensation or -- we've already received an offer, we'll be making the adjustment for them automatically and won't require effort on their part. Maria Rigatti: And Ryan, I think you asked about what we continue to tweak to meet our objectives. The objective here is to have fair timely compensation, which also helps preserve the funds in the wildfire fund, reducing interest costs, reducing escalation, et cetera. The objective -- that is the objective. And then in terms of additional changes, we really are trying to respond to the community, but we think we've gotten a lot of feedback at this point. Pedro Pizarro: I think our advisors on this. Also I've highlighted the importance of having a stable, understandable program. So I don't think it would be helpful to have a constant stream of changes either. Operator: The next question comes from Aidan Kelly with JPMorgan. Aidan Kelly: Just wanted -- just wondering if you could elaborate a bit more on the L.A. District Attorney's investigation to determine whether criminal violations occurred. I noticed the new 10-K disclosure here. So I'd appreciate any color on how you think about the scope of this investigation. Any thoughts on the potential magnitude? Pedro Pizarro: Yes. Thanks for the question. And as you might imagine, investigations, I think are often to be expected when you have events of the scale of the Eaton fire. We don't have a lot of visibility into timing, et cetera. Certainly, our team will be collaborating with the attorney's office as they ask for any steps. But importantly, as we continue our investigation, and I think as I said earlier, as we look at the events here, we continue to be confident that SCE will be able to make a good faith showing that its actions were those of a reasonable utility operator. And so that gives us a lot of comfort as we look at whether it's that investigation you mentioned or just the broader investigations into the event and looking ahead to ultimately looking for the CPUC to affirm -- CPUs -- SCE's prudency in the future. Aidan Kelly: Understood. And just one last one for me. Can you confirm whether the out-of-service transmission tower in Eaton is grounded or not? Pedro Pizarro: We have shared before that transmission line, the idle line was grounded at both ends. We have also shared that we had photographic evidence at the far end of the line that showed some anomalies and potential issues with that grounding and we've been transparent about all this from early on. We have also shared that as you take a look at practices across the utility industry, there really is no common practice or standard for grounding of idle lines. In fact, we've identified at least a couple of utilities that choose not to ground idle lines at all. In an abundance of caution and in the spirit of continuous improvement, and it's one of our values as a company, as we continue to learn and or hypothesize too about what may or may not have happened here, you might also recall that probably it's like a month or two after the event, we also disclosed publicly that we were going -- in fact, we already did this, change SCE's protocols and policies to now require the grounding of idle lines at not only the endpoints, but for longer lines at least every two miles. And that could be shorter depending on the particular topography of any line. It's probably more than you wanted on idle lines there, but I want to make sure you have the complete picture. Operator: And that was our last question. I will now turn the call back over to Sam Ramraj. Sam Ramraj: Thank you for joining us. This concludes the conference call. Have a good rest of the day. You may now disconnect. Operator: Thank you. This concludes today's conference call. You may now disconnect at this time, and have a good rest of your day.
Operator: Good day, and thank you for standing by. Welcome to Sonic Healthcare's Financial Half Year Ended 31 December 2025 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 first speaker, Dr. Jim Newcombe, CEO and Managing Director of Sonic Healthcare. Please go ahead. James Newcombe: Thank you, and good morning. My name is Dr. Jim Newcombe. I'm the CEO and Managing Director of Sonic Healthcare. I'm joined by Mr. Chris Wilks, Chief Financial Officer of Sonic Healthcare; and Mr. Paul Alexander, Deputy Chief Financial Officer of Sonic Healthcare. We will be available for questions after the presentation. It's my pleasure this morning to give the financial and operational review for Sonic Healthcare for the half year ended 31st of December 2025. In the first half of FY 2026, Sonic Healthcare had revenue of $5.445 billion with EBITDA of $907 million and net profit of $262 million. Earnings per share were AUD 0.531. We are on track to achieve full year earnings guidance with strong revenue growth, including organic growth of 5%. EPS is improving and remains a top management priority, which will drive improvements in return on invested capital. Operating leverage and synergy realization are demonstrated by EBITDA margin enhancement for the majority of the business. Management has an ongoing focus on cost control across the business, including labor. An operating review of the U.S. business is underway, including rationalization of anatomical pathology operations. Several capital management initiatives are progressing, which we will update you on today. Today, we are maintaining EBITDA guidance previously issued in August and reaffirmed in November of $1.87 billion to $1.95 billion on a constant currency basis. In other guidance, depreciation expense is forecast to be $770 million to $780 million on a constant currency basis, which has been reduced from previous guidance. Interest expense has been tightened to be an increase of 15% on a constant currency basis versus the prior year with an effective tax rate of 27%. This guidance excludes any gains from sale of properties, includes completed acquisitions only with no regulatory changes assumed and current interest rates assumed to prevail. Operating leverage and synergy realization is demonstrated by EBITDA margin enhancement for the majority of the business. This table shows adjusted EBITDA margins when accounting for, first, acquisition costs of $8 million in the first half of 2026; second, the German KV fee quota minimum level change, which took effect from 1 January 2025 and is now cycling through as of 2026 calendar year; the LADR acquisition, which settled on 1 July and has had a lower initial margin than Sonic's average as expected and previously advised. The HWE, Herts and West Essex contract margin is improving, but still dilutive as expected and also previously advised. We experienced a margin decline in the U.S. operations due to low organic revenue growth and restructuring costs. This has less impact on the group margin expected to take place in the second half of this financial year, and we will provide further details later on in the slides. Overall, the adjusted EBITDA margins show a 30 basis point increase from first half 2025 to first half 2026. Our capital management priorities remain: first, to maintain an investment-grade balance sheet; then to maintain a progressive dividend with medium-term target dividend payout ratio of 70% to 80% of net profit. We are focused on strategic selective synergistic acquisitions; and finally, on share buybacks using surplus capital, for example, from sale and leaseback or other property sales. Today, we announced a progressive dividend of AUD 0.45, an increase of 2.3% on the previous financial year interim dividend. This interim dividend is 60% franked with a record date of 5th of March and a payment date of 19th of March. Our credit metrics remain strong with a debt cover ratio at historic levels of 2.5x. Recent increases in net debt relate to the acquisitions of the LADR Group and Cairo Diagnostics. Our currently available headroom is at $1 billion before the interim dividend payment. We would like to advise of several capital management initiatives, including a series of sale and leaseback transactions. A process is underway for the sale and leaseback of our Brisbane hub laboratory with a targeted completion of June 2026. We are expecting a significant gain on sale with potential tax capital gain partially sheltered by past capital losses. Further property sale and leaseback transactions are under consideration also with potential gains on sale. In addition, we have a conditional heads of agreement in place to sell a separate surplus Australian property with expected settlement next financial year. These capital management initiatives present an opportunity to use proceeds from property transactions to fund a possible on-market share buyback in the future. Our first half FY 2026 revenue split highlights the diverse global portfolio of medical practices in Sonic Healthcare. All of our positions are leading in stable and growing markets, which all present attractive growth opportunities. In Germany, we achieved 40% revenue growth on a constant currency basis with organic growth of 5%. Organic growth was impacted by the change to the minimum KV quota for statutory insurance fee schedule, or EBM, effective from the 1st of January with a 1% revenue impact as expected. Our LADR Laboratory Group acquisition settled on 1st of July, and integration is proceeding well across 16 separate work streams and proceeding to plan, including our first laboratory merger completed in Berlin. A large cycle of laboratory infrastructure investments has now been completed with the new Bremen National Reference Laboratory go-live planned for April 2026, and this follows laboratory projects and mergers in Biovis, Hamburg, and Munich. The combination of strong organic growth, synergy capture and strict cost control is driving significant margin expansion in our German market. We are successfully diversifying into high-value medically led direct-to-consumer testing through our dedicated [indiscernible] brand, which importantly is leveraging existing national infrastructure. We are aware of the proposed reform of the GOA private fee schedule. At this point, there is no certainty that reform will proceed nor its potential timing or impact. Moving to Australian Pathology, where we achieved strong organic revenue growth of 5% in H1. Annual indexation of 2.4% occurred on 30% of the Medicare schedule fees for Pathology from the 1st of July. and we have had successful ongoing implementation of private billing for selected tests, including vitamin B12. We are showing particularly strong growth in the specialist and hospital segments with the commencement of services at Australia's largest private hospital, the Hollywood Private Hospital in Perth from this month. We have recently acquired and commenced fit out of our new hub laboratory in the Docklands region of Melbourne, which will consolidate 4 Sonic Healthcare facilities and create vital capacity for future growth in this important market. A major laboratory platform procurement process was completed in this half, delivering substantial savings, which will continue into the future. We are awaiting the final determination from the Fair Work Commission's gender undervaluation review. Our industry association is in good faith discussions with the Department of Health on offsetting funding options. In the U.S., underlying organic growth once adjusted for the Alabama major payer contract loss and planned restructuring of anatomical pathology operations was 2%. An operating review with multiple improvement initiatives is underway across all U.S. operations. This includes the rationalization of 9 anatomical pathology practices with the aim of improving profitability and completing this financial year. Our wind down of Alabama operations has now been completed. The enhanced revenue collection system previously advised to the market is delivering benefits, but this is slower and likely less than previously expected. We are very excited to discuss our expanded advanced diagnostics division, which combines Cairo Diagnostics, ThyroSeq and other highly specialized reference and esoteric testing, which is maturing to a nationwide product offering. In addition, our ongoing digital pathology rollout is supporting optimization of workload distribution and productivity and proceeding according to schedule. Over 60% of our dermatopathology volume is now on our proprietary PathologyWatch platform. Finally, PAMA fee cuts were recently deferred and industry group lobbying for a permanent solution continues. In Switzerland, we achieved organic growth of 2% on a constant currency basis. Important to remember, there was a very strong organic growth of 6% in the previous comparison period due to respiratory illness epidemic at that time. Synergy realization in Switzerland is proceeding to plan with margin expansion achieved following the acquisitions of Synlab Suisse and the Dr. Risch Group. This includes laboratory mergers already completed in Geneva, Lausanne, Zurich and Ticino. The 2 largest mergers in this schedule for the hub laboratories in Berne and Lucerne are on schedule, including Berne in the second half of this financial year and Lucerne next financial year. And these include major upgrades to laboratory infrastructure and automation. As in Australia, we had continued strength in the specialist and hospital segments in Switzerland, including winning a new hospital contract in Zurich last month. We have harmonized core IT platforms, including our laboratory information system and ERP, standardized instruments and our logistics network, all of which lay the foundation for further integration and ongoing organic growth. In the United Kingdom, strong organic growth of 24% was driven by the Hertfordshire and West Essex NHS contract, which commenced in March with integrations proceeding well to plan. Our new hub lab in Watford is expected to go live in July, servicing the HWE contract and creating additional capacity for further growth in this important region. We continue to successfully bid for new pathology contracts in both the public and private sectors. For example, the prestigious Royal National Orthopaedic Hospital, where we commenced service for another 11-year term in November, and we won a large private specialist outpatient group contract from October. We announced the acquisition of Cellular Pathology Services, a small anatomical pathology laboratory in London, which completed in November. This creates important capacity for growth in the private AP market moving into the future. In our Radiology division, we achieved organic revenue growth of 7% with EBITDA growth of 5% once normalized for IT cost reallocation. Annual Medicare fee indexation of 2.4% occurred from 1st of July, and we continue to have an ongoing focus on higher-value growing modalities such as CT, MRI and PET/CT. 7 greenfield sites opened last financial year and a further 3 are planned for this financial year with one already completed in H1, all of which are initially margin dilutive as expected. 23 of our existing MRIs became fully licensed from July 2025 following changes to Medicare licensing. We are very proud to partner with the Australian government on the National Lung Cancer Screening Program, which has added to CT revenue growth from July 2025 and already has shown life-saving benefits for our population. We continue to invest in AI and other systems to drive productivity gains across radiology, including in CT chest scans. Finally, Sonic Clinical Services showed revenue growth of 5%, primarily driven by the recent acquisition of the National Skin Cancer Clinics and EBITDA growth of 20% off a low base. National Skin Cancer Clinics are now integrated with our existing skin business and performing well. Recent increases to Medicare funding for general practice from November are showing initial benefits to revenue and consultation numbers in general practice and increasing accessibility of general practice across our population. Within Sonic Clinical Services, a range of cost management initiatives underway, including site rationalizations and realization of operational synergies, including in back-office functions. To conclude, I'd like to discuss Sonic Healthcare's value proposition. Our value proposition is centered around our unique medical leadership culture. First, Sonic Healthcare's focus on and delivery of personalized service for doctors and patients makes us a trusted partner for doctors, patients and health care systems around the world. Respect for our people leads us to being an employer of choice, including in highly competitive specialized labor markets and creates a passion for service excellence that helps our people go the extra mile. Sonic Healthcare's company conscience is our mission to care for our global communities, making us an integral part of our communities and a critical component of health care systems. Our well-known operational excellence drives operating leverage through organic growth, efficiency gains and innovation at a global scale. And finally, our unmatched professional and academic expertise creates a leading position in highly specialized diagnostics and personalized medicine, both of which are high-growth areas in a time of rising complex and chronic health care needs. Before we go to questions, I would like to take a moment to thank our management teams and 45,000 staff for their dedicated service and commitment to patient care. Our amazing people care for our communities' day in and day out and have delivered these excellent results. Thank you for your attention, and over to you for questions. Operator: [Operator Instructions] And I show our first question comes from the line of Andrew Goodsall from MST Marquee. Andrew Goodsall: Welcome, Jim. Just starting with phlebotomist wages. I know you're still waiting on details there. Your competitors have given us a little bit of detail talking about the 1.8% impact in the fourth quarter. They've got variation between because of where their current EBAs are. I was wondering if you could talk to where your EBAs are versus Fair Work Commission, just talking more broadly. James Newcombe: Yes. Thank you, Andrew, for that question. So there's a few things to unpack there in that question. The first thing is to say that we have particular strength and growth in the specialist market in Australia, and that does mean that our volume and revenue growth are less tied to collection centers than perhaps our competitors are. And we have gone through a strategic rightsizing of our ACC network, which has continued through H1 but slowed down. And during that process, significantly improved the productivity of our collection centers, including through our supercenter strategy. And then finally, we do have a higher baseline of pay for our phlebotomists, and that comes from really valuing their contributions. They're very important frontline workers for us, caring for our communities. And we've also significantly invested in their skills training and development over decades. So all of that leads to our expected impact for this financial year for the phlebotomist changes being sub-$2 million, and that includes a one-off readjustment for leave provisions. So that has been taken into account with the guidance we've just talked about. And we believe the impact is proportionately lower than competitors because of the reasons that we've just gone through. Andrew Goodsall: And sorry, just to stick with that a little bit. Obviously, there's still the health service professionals to pick up. Are they sort of reasonably material to you? And I think that's more of a '27 impact. And just flagging overnight, I think we have a bit of crossover with an award that the Victorian government has generously made to their health services professionals of about 12.5% over 2.5 years. So just any color you can add there would be great. James Newcombe: Yes, it's a good question. As has been mentioned earlier in the week, we don't have a final determination from the Fair Work Commission on the health professionals component of the gender undervaluation review. We know it won't affect this financial year, as you've rightly said. So we await that determination before we can model out the impact and particularly the phasing of it is up in the air. As we talked about, our industry body is in discussion with the Department of Health about possible offsetting funding options, and we know they've done that for other industries with similar changes. Andrew Goodsall: And final one for me. Just maybe this one for Paul, but just trying to get a sense of FX impacted spot, just what that might look like in the second half, obviously, being a lot of movement in some of the key peers. Paul Alexander: Andrew, yes, there certainly has been some movement in the exchange rates. So if we were to assume current rates prevail for the rest of the year, we certainly won't see the level of tailwind that we've seen in the first half. But we haven't sort of tried to express that in our presentation, et cetera, because the rates are moving around quite a bit. more recently. But yes, the tailwind will be less for the full year than it has been in the half based on current rates. Operator: And I show our next question comes from the line of Sacha Krien from Evans & Partners. Sacha Krien: Can I just clarify that answer to that last question, Paul. Are you saying that it will still be a tailwind. I think you were talking about a $70 million tailwind in August. It sounds like it's still going to be a tailwind, but a more modest one. Paul Alexander: That's correct. Tailwind for the full year. I can just reiterate based on current rates, which can move every day, of course. Sacha Krien: Yes, sure. My main question was just on some of the proposed German private market reforms. I'm just wondering if you can take us through some of the potential range of outcomes there. And is it fair to say this is going to be a bigger risk for you than the changes that came through for the public market on 1 Jan '25? James Newcombe: Yes. I mean thank you for the question. And to reiterate, there really is no certainty at the moment that, that reforms of the GOA, if we're talking about the GOA will proceed. And underlying that is also total uncertainty about any timing or potential impact. These are broader changes for health care remuneration than just pathology. They have much broader implications for other health care professionals as well. And there's a political process underlying that, that needs to play out. So at this time, it is -- it will be premature to speculate on what those impacts might be. Operator: And I show our next question comes from the line of Craig Wong-Pan from RBC. Craig Wong-Pan: Just wanted to ask about the German and Switzerland businesses. In the slide, it talks about margin expansion. I know you don't like disclosing actual margins, but could you talk about what sort of margin expansion you've seen in those markets? Christopher Wilks: Yes, Craig, you're right, we don't normally disclose that sort of information. And so I guess in this Q&A, we don't want to be providing information that hasn't been provided more broadly. But I think what we have said is in both of those countries that the synergies that we expected to achieve are on target for both Switzerland and for the LADR acquisition in Germany. And when we did announce those transactions, we gave some indication of where we're aiming to get to. So I think probably I'd head you back to some of those previous disclosures and our confirmation now that we're on target to achieve those outcomes. Craig Wong-Pan: Could you remind us, when you expect to achieve those? I mean, I guess, I'm trying to get a sense of how much did you achieve in the second half [indiscernible] how much. Christopher Wilks: Yes. Look, there are some early wins that you get from things like procurement by bringing these businesses onto our purchasing contracts. I think with LADR, we said that we would get to an after-tax ROIC of something like 11% within 3 years. That's still our plan with that one. With Switzerland, it's a bit more complicated because there's 2 acquisitions there, and they've each got kind of 3-year plans. We've spelled out in the slides a little bit about what we're doing there with mergers. Again, there's some benefits that come from procurement quite early, although in Switzerland, there needed to be some changes to platforms to achieve those. So that takes a little longer. But look, I probably don't really want to be drawn into talking about margins, but all of that's on track, and you'll see more of it flow through into the second half, which then flows into our guidance. Craig Wong-Pan: Just second question, the sale and leaseback for the Brisbane site, I just wanted to understand why that site and yes, I guess, the potential for other ones? And what kind of, I don't know, details for that sale and leaseback, like kind of is like the time frame for that? Yes, if you could provide any color around that, that would be great. Christopher Wilks: Yes. Look, the Bowen Hills is one of our largest property holdings. We recently just spent $80 million doing an extension to that. So it's pretty -- that finished in 2024. And the project, the sale and leaseback process will be launched early next week. We've been preparing for it. You might see some press about it next week. And it comes down to just a broader capital management strategy with properties like this. There's yields of kind of circa 5%. I think our view is that with that extra capital, we should be able to get a much better return than that. And with things like triple net leases, we can still effectively control the building. It's any repairs, maintenance. It's kind of like ownership without the capital tied up. So that's the first one. We alluded to the fact that there could be others. I think you're probably aware that we've bought the old Costco site at Docklands. So that did have an effect on our CapEx in this period because it settled on the 1st of July, circa $100 million for the site. The builders FDC are in there now. That's something like an $80 million spend between now and April, May '27. So that's another site when it's finished that we -- that might be a sale and leaseback. And likewise, with our site up here in New South Wales. So we've had a fair bit of property on the balance sheet for a while. And I guess we've made a decision that we can control them as we need to operationally without having to own them and that will provide some nice capital to hopefully drive better returns to the shareholders over time. Operator: And I show our next question comes from the line of David Stanton from Jefferies. David Stanton: Perhaps we could talk to the U.S. Firstly, how much is anatomical pathology as a percentage of total U.S. revenue? Would you be willing to give us that number? Paul Alexander: David, it's about 1/3 of our U.S. revenue. So something like $400 million out of $1.4 billion-ish. David Stanton: And what's the longer-term view of those U.S. operations? Where do you see that going over the medium to longer term in terms of the splits and willingness to earn, please? James Newcombe: So our focus, as we've said today, is on the operating review there. There's a lot of work, really positive work going on there on that, including already completed work in terms of withdrawing from loss-making operations in Alabama, a lot of work in rationalizing those AP operations as well. Important to point out, we've got a lot of strength there in advanced diagnostics with the recent Cairo acquisition, and we're expanding that in that advanced diagnostics division, cross-selling that in our geographic regions and markets to make sure we get this more national penetration of that offering, and it really is market-leading what we offer there in those areas. So there's a lot of opportunity for top line growth there. The digital pathology rollout is really successful and a positive thing, not just in terms of quality of the medicine that we deliver, which is, of course, really critical in terms of particularly the AI tool with PathologyWatch, but also workload optimization. It's a great marketing tool as well to enable dermatologists in the U.S. to themselves see the slides virtually through the PathologyWatch platform. So we're seeing a lot of really good success there. And again, just to go back to the organic growth, we've reported at 0% constant currency, but the underlying organic growth is still at 2%, and that's after adjusting for that Alabama major payer contract loss and the restructuring costs that we're doing there, and we expect that will continue to -- in terms of the impact of those changes, we'll continue to see improvements in terms of margin impact moving forward. So we're invested in that operating review and moving forward on that basis. David Stanton: Understood. And I guess moving on to radiology, which I must admit I don't ask about that often, but organic revenue growth of 7%. But I do note that Medicare is talking to -- with a caveat here, review, Medicare is talking to a growth of 9% in the Medicare market in the 6 months. Firstly, where do you think you'll -- are you growing in line to above market? Or -- and if not, is it because the MRIs, you have less MRIs, as a percentage of total revenue in that space than perhaps your peers? James Newcombe: So we have seen strong growth in MRI revenue as well, and we'd say that 7% is in line with long-term growth rates for the industry. And we are, as you would know, cycling much stronger organic growth in recent years. So we still see a lot of positivity. We believe the change in MRI licensing has effectively grown the market and not impacted our business negatively. And as I said, we actually are growing in that space as well. David Stanton: Understood. And would you be willing to give us some CapEx guidance then, Chris, for the full year, please? Christopher Wilks: Yes. Look, in answer to a previous question, I've mentioned a few things. So our CapEx for this year was higher than the PCP, mainly because of property-related costs, the Docklands acquisition, which I mentioned, also some costs associated with building out the Watford facility for HWE in the U.K. and some of the Swiss lab work as well. I think in the second half, there will still be some effect from property, particularly the build-out of Docklands. So over the course of the next 6 months, I don't know exactly know what that is, but it's probably $20 million, $30 million, something like that in the next 6 months. But underlying CapEx, if you adjust for those properties, those property transactions, underlying CapEx is kind of growing at about the rate of the growth of the business. So I think that's probably the -- that's it in a nutshell. And I think going forward, as we alluded to with the focus on some sale and leasebacks, the property cost side of things will probably start to in future years drop off a bit, and you probably get a bit more transparency on the underlying CapEx, the maintenance CapEx, if you like. David Stanton: Understood. Sorry, just a follow-up just to make it clear for me. So first half is going to be slightly above second half, it sounds like in terms of CapEx, , total CapEx. Christopher Wilks: Yes, quite a bit above because it had the $100-plus million for the purchase of the Docklands site. Operator: And I show our next question comes from the line of Laura Sutcliffe from Citi. Laura Sutcliffe: One on the U.S. to start with, please. You mentioned you're expecting margin improvement in the second half and you've mentioned a few things connected to that. But is that expected improvement mainly driven by the closure of the anatomical pathology centers that you've mentioned? Or are some of those other factors material? I'm just keen to understand the scope of the review in the U.S. and just to confirm that it's an operational review rather than a strategic review, where you might consider divesting all of the U.S. James Newcombe: Yes. Thank you for that question. There's a bit to unpack there. I think the first thing to say is that we it is indeed an operating review of the U.S. operations, and that's our focus. In terms of the particulars, what we're talking about is less -- what we've unpacked in that slide in the presentation today is a decrement in margins impacted the group margins. And I think for not just for the U.S., but for the other points listed in that slide. And the point we really want to make there is to really expose just how strong the majority of our business is in terms of operating leverage that we are exercising and that we are -- we have grown adjusted EBITDA margins of 30 basis points in the majority of those operations outside of those adjustments. Looking at the U.S., what we're -- the point we're trying to make is that the decrement moving forward is expected to be significantly less because of that work that's been done in Alabama, and that's not just AP in Alabama, it's pretty much all operations because of the loss of that major payer contract loss. Two of those AP practices were in Alabama, but 7 were not. And the important point to make there is that there may be some closures there, but really, what we're doing is rationalizing moving that work to other centers and retaining the top line as much as possible, whilst doing the cost control at the bottom. So that will have significant benefits to margin, as you would expect. In terms of the top line, we are seeing great growth in the Advanced Diagnostics division that's really driving top line growth and margin growth. So they're all important. They're all reflective of great discipline in our management teams. And the operating review is widespread. We're telling you today about some details, which have happened and are happening. So you have some detail around that, but it is across all U.S. operations as we've advised. Laura Sutcliffe: And if I may, one on the possible buyback that you've mentioned. Would you plan to put most of the cash from any property transactions that you could achieve towards a possible buyback? And if you don't know, what are the main decision-making factors for defining that? Christopher Wilks: Yes. Good question, Laura. Look, we haven't come to a landing on that, and that's something that would need to be discussed with our Board, obviously, once that transaction has completed, but that's a possibility that the majority of that could be used for that purpose. But as things unfold, there might be -- we mentioned some of the prior capital management priorities. There might be acquisitions that we're considering that might change our view on the scale of a buyback. So it will be considered at the time when the cash is in the bank. And -- but we just thought it was worthwhile letting the market know what we're planning with this because it will become public about the sale pretty quickly and to let people -- let the market know one of the thoughts we had in terms of the use of the proceeds. And balancing the investment-grade structure of our balance sheet is also important. And I think our gut feeling is that with what we're expecting in the second half that we're going to be in good shape on that front. So it should probably free up that capital for the purpose we've mentioned. Operator: And I show our next question comes from the line of Davin Thillainathan from Goldman Sachs. Davinthra Thillainathan: Jim, maybe a question for you to start off with. Clearly, you've made some changes here with the U.S. review property sale and leaseback changes as well. But curious sort of what other observations you've perhaps come out with having looked at the business as CEO over the last few months? James Newcombe: Yes. Thank you for that question. I think the first thing to say, which is remarkable is that going around and meeting people and seeing our operations around the world, just how strong our medical leadership culture is and what a great competitive differentiator that is. I think so much of our value medically comes from our values internally and our culture, which drives this incredible contribution we make to our communities around the world. And it really is kind of humbling to go around and see the amazing work that we're -- that all of our staff are doing for their communities. And building on that, really, our focus has to be -- has always been and has to be continuing delivering that high-value medicine, and that will drive continuing financial value and shareholder returns. I think as long as we're focused on that and looking after our people and looking after the medicine, the rest will flow. But we are prioritizing margin accretion, as we mentioned at the AGM, which, of course, will drive EPS growth and improve return on invested capital. We've talked a lot today about the work that -- some details about the work ongoing in that area, which is really exciting and promising, and I've seen it firsthand in going into the operations that we're realizing the synergies from the past acquisitions, that we're having great organic growth. We're partnering with governments and other health care systems around the world in a really positive way. And we're focusing on that operating leverage, which I think has been the cornerstone of Sonic Healthcare's success through cost control and a focus on innovation. And you mentioned capital management, and again, that's -- we've talked a bit about that today. I think that's very important to understand that we have a very disciplined focus on capital management and looking at maximizing shareholder return through that capital management strategy as well. Davinthra Thillainathan: And my next question is -- if I look at the EBITDA margin -- sorry, EBITDA guidance for the year, consensus numbers would suggest you would land towards the top end of that range. Can you perhaps sort of help us understand what drivers we should be thinking about from a half-on-half split for that guidance range, please? Christopher Wilks: Yes. Look, we don't want to put too much more detail into the guidance that we've already given. But I think you're probably well aware that there's a seasonality to our business, particularly with our Northern Hemisphere operations, where the summer period is fully in the first half. And so look, I probably don't want to add too much more than the detail we've already given. We've given a bit more below the EBITDA line, some more detailed guidance on depreciation and interest. than we had -- have in the past. But look, we remain confident that we should be in for a solid second half with the various initiatives. Jim has talked about some of the stuff that's happening in the U.S. Australia is looking very solid with its growth rates and some of them move to some private billing. So I probably don't really want to add any more than what we have given. Otherwise, we'd be changing the guidance we've set out in the deck. Paul Alexander: Certainly, the biggest factor in terms of where we might end up within our range is, as usual, organic growth. If we see even stronger organic growth in markets, then that has -- the operating leverage will add that to the bottom line. And so that's probably the biggest swinger, if you like, in terms of where exactly we'll end up across the different markets. Operator: And I show our next question in the queue comes from the line of Steve Wheen from Jarden. Steven Wheen: I just wanted to go back to the U.S. At the time when it was originally raised that the Alabama contract was going to be lost. It was indicated that New Jersey was a potential offset to that. Just wondering what has played out within that state and whether you are actually seeing some offsetting factors there from that payer contract? James Newcombe: Yes. Thank you for that and for raising New Jersey. So we have won that contract, as you pointed out, and we're really excited about the growth in that quite large state, which has a fantastic location in terms of our operations there already with a lot of automation there that's looking for -- that can handle increased capacity. So our local teams are really focused on that in the Northeast. We have a lot of business development efforts going on, particularly in the northern part of the state that we're excited about. So it's absolutely a focus there, and we're building up to move strongly into that state based on that contract win. Steven Wheen: Can you give us an indication as to timing when we might actually see some benefit from that? James Newcombe: I think it's fair to say that we can't expose more at the moment in terms of exact timing. I think we just have to say that, listen, it's a real focus. We're seeing some early gains there in terms of contracts, but I can't give you more detail around that at this point. Christopher Wilks: Pretty fair to say, Jim, that it will take a little time to build up. One is lost immediately. The other one takes some time to build up. So it will take a little while before there's an offset there. Steven Wheen: Second question was also in the U.S. And again, just sort of going back to earlier sort of commentary, there's been a fairly strong expectation that the revenue collection system was going to generate USD 20 million to USD 25 million of earnings benefit, which you're now, I guess, going a little bit more cautious on since the review. Just -- if you could help us understand why you're backing away from that guidance and what the issue is? And is this something that's even longer dated or it's just not going to happen? Christopher Wilks: Look, it is happening, Steve. It's taking a bit longer than we'd expect, and some of the benefits are offset by some other little changes that are happening in the market that affect PPA as well. So the team -- we just spent some time over there a few weeks ago. The team is working with -- it's a product called [indiscernible] that I think we've probably mentioned before to work out the best ways to continue to push those benefits and optimize them. It's quite -- it's not just a matter of using the software. It's a matter of us setting up customer portals and directing patients to those portals. So information is made available more easily. So it's quite an implementation process, and it's probably just taking in our biggest lab, CPL, which was the last to go live. It's taking a bit longer than we thought. But we still remain optimistic that, that sort of benefit will ultimately flow through, but it will probably be more into '27 than what we're hoping was going to be into '26. Steven Wheen: So we're not -- that's not part of the reason why you've got expectations of a stronger second half in '26. I just -- Christopher Wilks: It's a little bit of -- but I think there's lots of initiatives. There's multiple initiatives that are happening. Even the acquisition of Cairo, which is performing well, we'll own that for the whole second half. So that will be contributing to the second half performance as well. Growth in ThyroSeq, there's multi factors that probably give us confidence that the second half should be reasonably strong. Steven Wheen: Just while I got you, I wonder if with this sale and leaseback focus, I'm just curious as to [ your thoughts ] on what you're anticipating with regards to the terms of those arrangements. what that will do to the AASB 16 accounting for rent in FY '27. Is that likely to change the depreciation and right-of-use asset interest costs? Christopher Wilks: It's a good question. It's -- in terms of the -- Paul Alexander: The short answer is yes. I mean, clearly, part of the sale and leaseback is that we're taking on a significant lease in the case of the Bowen Hills one -- Christopher Wilks: It's pretty -- it's circa $25 million is the rent. But I think the way we'll be structuring it is that I don't think there's not going to be an adverse impact on the AASB 16, but there will be more cost than we're currently paying because we own it now. And so there's just the interest associated to the cost. So there will be an impact going through that effect. But then we'll have the benefit of a chunk of money in the bank as well. So there's offsetting benefit. Steven Wheen: Yes, that's clear. So roughly, we'd be anticipating $25 million for that lease alone potentially being a delta shift in depreciation and interest in FY '27? Christopher Wilks: The way AASB 16 works is that in the early years of a lease, your actual expense through the D&I lines is higher than the rent you pay. It obviously evens out over the period of the lease. But initially, the impact will actually be higher than the [indiscernible]. Operator: And I show our next question comes from the line of Andrew Paine from CLSA. Andrew Paine: Just coming back to previous guidance that you had, I think, at the AGM where you were talking about a 45% to 46% split for EBITDA in the first half. Just wondering if that's still the case? And is that in relation to constant currency or reported expectations? Christopher Wilks: It's definitely on a constant currency basis. That's the basis of all of our guidance. And we said at the time, approximately 45%, 46%. And if you work on either of those 2 numbers and the result from the first half, you'll get a constant currency number that is within our guidance range. So yes, probably not much more to say. Andrew Paine: Could I also just ask about -- I know you've touched on it, but the FX there. And just you mentioned before it will still be a tailwind for FY '26. But does that mean it's flat or negative or a little bit of a tailwind in the second half? Are you able to give any insights there? Paul Alexander: It's -- you can look at the rate -- like we've given you the rates in the first half. It is a headwind in the second half, which is why the tailwind for the full year will be less than the tailwind in the first half if rates continue, where they are today. Andrew Paine: And just on depreciation and interest, are you able to give us an indication of the magnitude of the FX there as well? Paul Alexander: We -- again, you can look at what's happened in the first half, and we obviously do have our natural hedge in place, where our borrowings are largely in the currencies of our operations. And so the effect of the FX at net line is significantly less than at revenue or EBITDA, but we haven't given any specific numbers around that. So I probably can't help you too much further. Andrew Paine: And just on the Swiss acquisitions, I know you didn't want to get drawn into margins around these businesses. But just keen to know how far you have progressed in terms of the integration of those businesses there. I believe you said there was a 0% margin business or acquisition to begin with. So just really trying to understand the ramp-up and the ramp-up into our outlook and get a sense of if you're a quarter way there, halfway there or further progressed in terms of that contribution to margin? James Newcombe: So yes, thank you for that. So the -- I think we said at the time that we would like to see the EBITDA margin heading towards 20% over 3 years for each of those acquisitions, and we are tracking to target on that. That's the 3-year time frame as advised and everything is proceeding on track. Andrew Paine: Are you able to give us -- are you halfway there or more? Or you want to be drawn into that. James Newcombe: I think it depends on the acquisition. So I mean, Chris alluded to earlier that there's not a totally linear process. It's punctuated as well as probably weighted forwards rather than towards the front rather than the end. So it's really hard to give you that total detail. But in terms of the broad analysis of it, we're tracking to target on track for that 3-year time frame for each of those acquisitions. And we've given you some detail today about some punctuations in terms of lab mergers and new hub labs, which will be important on that journey. Christopher Wilks: I think maybe just to add, Jim, that we mentioned in the slide that the 2 biggest mergers are still yet to come. So you probably appreciate that that's probably where you're going to get more bang for your back out of those larger mergers. And so there's one in late in the second half of '26. and then in '27. So there's still a bit of a journey to go. Operator: And I show our next question comes from the line of Lyanne Harrison from Bank of America. Lyanne Harrison: Thank you very much for solid result today. I was wondering if I could come back to the United States, 2% organic growth there. Do you think that's reflective of the market? And also with some of your initiatives that you have in place in the United States around operating review, do you think you could grow ahead of that for the second half? James Newcombe: I think -- thank you for that question. And of course, our focus is on driving organic growth. We do have a lot of -- in the U.S. and across the business, we do have some tailwinds, as we mentioned, in terms of our Advanced Diagnostics division, which is performing really well and the dermatopathology division. So it's -- we're not forecasting to organic growth, but certainly, we'd like that to grow over the 2%. And the efforts that we're making both at top line, in particular, will, we think, drive that. Paul Alexander: I think it's probably worth mentioning that Quest and LabCorp sort of quote larger organic growth numbers, but we don't know for sure, but they also do quite a lot of hospital deals. And I think there's some aspects of those that find their way into organic growth that it might be the specialist referral testing and the like. So I don't think to the extent that you're looking at some of their growth numbers, you should think of that as necessarily the market growth. Lyanne Harrison: And if I could come to Australia, 5% organic growth, that was certainly ahead of your peers, they reported this week. Can you comment on your pathology trading to date? I know some of your peers in their results commented on maybe some softness in January. Are you seeing the same thing? Or are you seeing solid growth through the first part of this half? James Newcombe: Well, I think we have -- we're very, very happy with the organic growth that we've seen. There's nothing to change in terms of that story that we can see. It does come, we believe, from a few different initiatives, which are really bearing fruit. I think at base, it's the fact that we are focused on the quality of the medical diagnostics that we deliver, and that's a true competitive differentiator. But it also comes back to our logistics and operational excellence. Our collection center network and particularly that focus on supercenters in terms of a great patient experience has been a real differentiator in the market. And so, we continue down that strategy. But that specialist market growth, we talked about the hospital market today and our partnership with Ramsay at -- in Perth is really exciting. And that's a real trend that we're seeing continuing and not slowing down at all. In fact, the opposite. So we're excited about that because we're focusing on that high-value medicine, and that's really delivering that growth that we're confident about into the future. Operator: And I show our next question comes from the line of David Bailey from Morgan Stanley. David Bailey: Just a very quick one for me. Paul, you mentioned those currency impacts. If I run the average of the second half, I'm getting an EBITDA headwind of $20 million in the second half. If I run spot, it's about a $35 million headwind. So can you just confirm for the full year, we should be thinking of an FX impact to EBITDA in the range of flat to maybe up [indiscernible]. Paul Alexander: We're not guiding to that. So I won't be drawn on a precise number. You've done the numbers yourself. Christopher Wilks: I think those are a bit overcooked. I think -- Paul Alexander: Well, I don't know what today's rates are. Christopher Wilks: I guess, it moves around. But if you're using today's rates or the last few days rates, I think that sort of headwind for the second half is a bit more than I think we were thinking. David Bailey: But just to be clear, it's a headwind in the second half versus a benefit of [indiscernible] in the first half. Paul Alexander: Yes. Christopher Wilks: Yes. Correct. Operator: And I show our next question comes from the line of Saul Hadassin from Barrenjoey. Saul Hadassin: Just a quick question for me as well. The revenues that you generate in Germany, can you remind me what percentage is now funded through EBM versus the GOA? Paul Alexander: So the GOA represents about 30% of our German revenue with the EBM more like 40% to 45%. And then the balance is a bucket, if you like, of work where we can effectively set or negotiate prices, hospital outsourced contracts, clinical trial works, work we source from outside Germany, et cetera. So that's kind of the split. Saul Hadassin: Sorry, Paul, you're a bit soft when you mentioned the GOA percentage. Can I just check what you said there for GOA? Paul Alexander: About 30%. Operator: And I show our next question comes from the line of David Low from UBS. David Low: Jim, you commented on the Fair Work Commission and talking with the government. I mean, the impression I got from your answer was that you're pretty confident that the government will step up and help fund the additional wage pressure. Just wondering whether that's the right interpretation. James Newcombe: Thanks, David. Listen, I think that the -- these are good faith discussions. It's positive that there's engagement there from our industry body. I can't speculate about outcomes. I think it'd be very premature. We are focused on doing the right thing by our employees, always have been and we'll continue to do so. We are focused also on the high-quality medicine and sometimes that will require increased funding in order to deliver that. So we're making those points. But at the moment, they're just good faith discussions. Christopher Wilks: I think you alluded to the fact there were some precedents in aged care and child care, but whether or not that's relevant, who knows? Time will tell. David Low: Would you care to put a time frame on it? I mean, you said it's premature at the moment. I mean, are we talking about this budget coming up? James Newcombe: I honestly can't say. We're not -- personally in those discussions, they're being led by Australian Pathology, which is our industry group, and I think it would be unfair of me to speculate on those. David Low: But the wage pressure come through pretty much back end of this financial and into next year. So frankly, if you're going to get -- if the industry is going to receive it, presumably, it needs to come in FY '27 for not to lead to that reduced quality of medicine that you've spoken about. James Newcombe: Yes. I mean that's the facts of the Fair Work Commission decision. We know the phlebotomist change comes in from 1 April and it's phased through 1 January next year. And then the facts as they are is that the health professionals is likely to come in on 1st of July this year and then be phased in an unknown way. So we do have some uncertainty still around that, as we mentioned, in terms of the timing and impact. But absolutely, the initial impact that we know of is going to happen this financial year, and we've quantified that. So yes, it's something which we're keen to progress, but I can't comment on how that's progressing. David Low: Just changing topics. Slide 5 sets out 140 basis points of headwinds, can I need to talk to what we should expect second half go forward? I mean, which of those items is going to no longer be a headwind? I think in particular, the U.S. looks like a 350 basis point or margin hit roughly on my numbers, but some of it's restructuring. So it's a little hard for me to unpick what's ongoing and what's perhaps really weighted towards the first half. James Newcombe: Yes, it's a great question, David. So we can go through them in turn. Clearly, acquisition costs were particularly high in H1 because of the LADR acquisition, in particular. The German KV quota change is cycled through. So we don't expect any margin decrement in H2. The LADR acquisition, we've talked about some of the great synergy realization work that we're doing and there's improvements in margin there. And similarly, with the Herts and West Essex contract. So in the U.S., we've unpacked a lot today about what we're doing there. So all of them, we expect to improve in terms of the year-on-year margin decrement. I'm not sure if Paul or Chris, you want to comment. Christopher Wilks: Yes, that's a good summary. David Low: Can I just push a little bit more on the U.S. because given there's a restructuring charge, are we going to see restructuring charges in the second half? Or is that done? James Newcombe: Yes is the answer to that. There is still work to do there that we're working hard to do. And so there will be some restructuring costs in H2. Paul Alexander: But it's probably fair to say de minimis in the scheme of Sonic so. James Newcombe: Yes. Paul Alexander: It's a few millions rather than anything more significant. David Low: And that could commence on the first half or just on the second half? Paul Alexander: That's the second half. Operator: And I show our last question in the queue comes from the line of Sacha Krien from Evans & Partners. Sacha Krien: Look, I just got a question on the balance sheet. It looks like net debt, excluding lease liabilities, is come in a fair bit above market expectations, and it looks like it's working capital and CapEx. I think you touched on the CapEx question. But if you could maybe remind us what you think maintenance CapEx is for the business mix you now have? And then also address the big step-up in working capital as a percentage of sales, if there's anything that might reverse out there? Or is that just the new business mix? James Newcombe: Just maybe on the maintenance question. Look, I talked a bit about it in answer to a previous question, but I think the maintenance percentage of revenue, maintenance CapEx percentage of revenue ignoring properties is probably kind of somewhere between 3%, 3.5%, excluding intangibles as well. So that's probably kind of a little bit of a rule of thumb without excluding any property investments. Just your second part of the question, just remind me. Sacha Krien: Just looks like -- it just looks like working capital has stepped up and really on a big decent decline in payables. Just wondering if there's something that's going to reverse there? Or is that the sort of new normal? Paul Alexander: Yes. So there are -- obviously, we've had the growth of the company, including the addition of LADR. But the other thing, and you'll see some discussion about this in the 4D in relation to cash flow, there is this Change Healthcare issue that is ongoing in our U.S. business, where Change Healthcare, which is an outsourced billing and payments provider that we use for a large part of our anatomic pathology business and in fact, has some connections with our clinical pathology business as well in the U.S. had a cyber breach way back in February 2024, which meant that parts of our business were unable to bill and/or collect revenue for a very extended period of time. And so, our debtors balances and to some extent -- and so Change Healthcare and its related parties loaned us funds to offset that loss of debtors collections and those advances are sitting as a liability in our creditors. We've repaid part of it, as you'll see in the commentary, but we've still got some sitting there. And our debtors balance is still inflated in relation to that. So we think that situation will resolve itself by 30 June, but that is an issue affecting the balance sheet at the moment. Sacha Krien: And do you think that's still a drag on the organic growth of the U.S. business, that Change Healthcare issue? Paul Alexander: There's no doubt it upset our referrers during that period when we couldn't bill. And so patients would get a bill late and they'd be upset by that and they complain to their referrers, et cetera. So it hasn't been helpful that that's true, but we're probably moving on from that now. Christopher Wilks: We've pretty much cycled collections and the effect that, that would have had. Operator: This concludes the Q&A session and today's conference call. Thank you all for attending. You may all disconnect at this time.