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Operator: Thank you for standing by, and welcome to the Reliance Worldwide Corporation Half Year Earnings Call. [Operator Instructions] I would now like to hand the conference over to Mr. Heath Sharp, CEO. Please go ahead. Heath Sharp: Good morning, everyone. Welcome to RWC's Financial Year 2026 Half Year Earnings Call. This is Heath Sharp. I'm joined here in Atlanta by Andrew Johnson, our CFO. Today, we'll cover our results for the 6 months ended 31 December 2025. Then we'll move to Q&A. Before I get into the numbers, I want to recognize the effort behind this half. This has been a demanding period. The results are in line with the tariff impact we forecast, but they're not at the level we aspire to deliver. Notwithstanding, they required tremendous execution to achieve. Our teams have worked incredibly hard. I'm very proud of their efforts. They have navigated an ever-changing tariff environment with discipline and speed, and they've continued to progress major strategic initiatives at the same time. That combination matters, and it positions us very well as markets recover. With that, let's get started on Slide 3 with some details on the first half. We continued to face headwinds during the period. U.S. tariffs impacted earnings and margins. End markets in the U.S. and U.K. remained soft. As we previously guided, the FY '26 tariff impact on operating earnings is expected to be $25 million to $30 million. That impact was weighted to the first half, and that is reflected in today's results. Even in this environment, we delivered strong cash generation. Cash flow remained a key strength of the business. I want to recognize our finance teams across all 3 regions. Their discipline on working capital enabled a further reduction in net debt. Operationally, we made strong progress on major projects, and we executed well across multiple product initiatives at the same time. In EMEA, our New Poland assembly plant was commissioned and began production during the half. That was a major achievement delivered at pace. In the U.K., customer service performance improved meaningfully. Order lead times reduced and fulfillment rates lifted. In the Americas, we finalized plans to augment U.S. manufacturing with a new facility in Mexico. The team did a comprehensive job in evaluating options and selecting the best path forward, and we are now actioning that plan. In Australia, we launched SharkBite Max across our customer base. It was a substantial rollout and implementation was excellent. Finally, our tariff mitigation actions remain on track. Diversification of sourcing away from China continues, and pricing actions have now been completed and will flow through the second half. Turning now to Slide 4, and the financial overview for the half. Reported net sales were down 4.6% versus the prior corresponding period. Underlying sales were down 1.9% after adjusting for several items. Those adjustments include demand pull forward in the Americas in the prior first half, the exit of selected product lines in the Canadian market and the sale of our manufacturing operations in Spain. For the balance of this presentation, we will refer to underlying sales. This is consistent with the guidance we provided in August. Adjusted EBITDA was down 22.5% to $111.4 million. This reflects tariffs and lower volumes. Adjusted NPAT was $52.2 million, adjusted EPS was $0.067 per share. The distribution declared for the half totals USD 0.04 per share. That is evenly split between a $0.02 interim dividend and an on-market buyback equivalent to USD 0.02. I will now hand over to Andrew to take you through the results in more detail. Andrew Johnson: Thank you, Heath, and good morning, everyone. Moving to Slide 5. Let me start by saying this was a tough half. Although we are not satisfied with the financial results, we did perform in line with our top line guidance. We maintained strong cash discipline and have positioned the business for materially better performance in the second half. Underlying net sales were down 1.9% versus the first half of FY '25, which is in line with our guidance in August. Underlying net sales adjust for items we have called out in prior periods. Number one, the demand pull forward in the first half last year in the Americas. Number two, the exit of low-margin product in Canada; and number three, the sale of our manufacturing operations in Spain. The real story of the half is in the margin compression driven by tariffs and weaker end markets. Adjusted EBITDA of $111.4 million was down 22.5% on PCP, with our margin falling from 21.3% in the first half last year to 17.3% this year. The 400 basis point margin hit breaks down into 3 pieces. First of all, roughly 250 basis points is derived from the tariff impact, about 100 basis points from lower volumes and operational deleverage and the balance from the EMEA investment and service capabilities, and the competitive pressures on the DWV market in Australia. I'll walk you through the regional details in the following slides. Despite the earnings pressure, we delivered $4.4 million in cost savings during the period through procurement, manufacturing efficiencies and distribution optimization. These actions, combined with our tariff mitigation measures, will deliver improved margins as we move through the second half. On a housekeeping note, we had 2 nonrecurring items during the period. These were a profit on sale of our warehouse in France and final Holman restructuring and integration costs. The net effect of these 2 at the EBITDA line was $0.3 million. Before I move on to the regions, I just want to reiterate that the first half absorbed the worst of the tariff impact, approximately 2/3 of the FY '26 annual impact of $25 million to $30 million. Our mitigation actions are working, and we expect improvement in margins across every region in the second half. Turning to Slide 6 and the performance of the Americas segment. Americas, as you know, is ground 0 for the tariff story. Underlying sales were 3.4% lower than the PCP, but more significantly, EBITDA margins compressed 410 basis points to 16.9%. Adjusted EBITDA was down 25.4% on PCP to $69.1 million. In the U.S., we continue to experience weak markets and are not assuming a significant improvement in FY '26. U.S. existing home sales remain near multi-decade lows, while long-term mortgage rates have eased, we believe long-term rates need to decline materially further before we see sustained turnover improvement. However, we remain confident that we are well positioned to benefit when the recovery does come. Also negatively impacting revenues by approximately $7 million was the movement in inventory weeks on hand by some of our major customers versus the PCP. Channel inventory appears broadly normalized now, and we are not expecting further material reduction. But we are also not assuming weeks of stock to increase in half 2. On a positive note, on tariff mitigation, we are executing well across a very complex set of initiatives, despite what has been at times of moving goalpost on tariffs. We've made good progress on 3 critical work streams. First, we've diversified sourcing away from China to lower tariff countries. This is well underway and accelerating. Second, we've implemented pricing adjustments across the entire U.S. customer base. Those are now in place and flowing through. Third, we're executing on cost reduction initiatives that will build momentum in H2. As Heath has referenced, we intend to augment our U.S. manufacturing operations with a new facility in Mexico. This new facility is about manufacturing flexibility, cost optimization and, of course, tariff mitigation. The Mexican operation will be focused on lower volume, manually assembled products that will complement our high-tech, high-volume Cullman facility. We are partnering with a local operator to derisk execution, keeping capital requirements modest and within our existing guidance. We expect to be operational in 2027. Looking at the results for the Asia Pacific region on Slide 7. APAC delivered 0.6% sales growth in local currency, but margins were under significant pressure. EBITDA margins fell 340 basis points to 8.6%. Two factors drove this. First, competitive intensity in PVC pipes and fittings impacted both volumes and margins. We address pricing discipline aggressively during the period, and we're already seeing sequential improvement in PVC margins in Q3. Second, we had lower manufacturing overhead recoveries as we source more from third parties, which impacted manufacturing volumes. Also impacting earnings in the half was wetter-than-usual weather in some of the states in Australia, which meant a delay in the spring selling season for watering products. On the positive side, SharkBite Max launch across the Australian market has performed well. Looking forward, we expect APAC margins in the second half to be higher than both prior year and the first half. So the PVC market has stabilized. We're recapturing overhead efficiencies. Pricing continues to move through and SharkBite Max momentum continues. Moving on to Slide 8 and EMEA. EMEA showed resilience with underlying sales down just 1.3% in local currency, but we made deliberate investments that compress margins. In the U.K., sales were down 1.6%, with plumbing and heating down 1.3% on weak remodel demand. But our focus for the half was on fixing service levels. We've achieved substantial reductions in order lead times and meaningful improvements in fill rates. These improvements came at a cost. We incurred incremental expenses that we view as short-term investments. As we optimize these processes and commission our New Poland facility, we expect to manage out these excess costs. Continental Europe was the bright spot with underlying sales up 5.7% after adjusting for the Spain disposal in the previous year. We saw growth in Germany, France and Italy driven by new product launches with key distributors. These are early-stage wins that should build momentum. U.K. minimum wage increases also pressured margins. This is exactly why the Poland plant is strategic. It gives us competitive cost structure flexibility as U.K. labor costs rise. For H2, we expect EMEA margins to be higher than H1 as service delivery costs normalize and Poland ramps up. On Slide 9, despite earnings headwinds, we delivered good cash performance. Cash generated from operations was $102.6 million, down 19% on lower earnings but operating cash flow conversion was 92.1%, beating both PCP and our 90% target. This is a testament to disciplined working capital management. We reduced net debt by $21.2 million in the half and $70.2 million over the past 12 months. Net leverage declined to 1.39x maintaining strong covenant headroom and financial flexibility. Turning to Slide 10. On working capital, the story is really about inventory. The balance increased $33 million during the half, predominantly from tariff impacts on inventory values, strategic positioning ahead of sourcing transitions and inventory build to support customer initiatives. Importantly, this was largely offset by working capital management elsewhere. Receivables were down through tighter collections and payables were up through improved supplier terms. Net working capital as a percentage of sales was 29%, up only modestly from 27.4% in the PCP. Capital expenditure continues to trend down $12.6 million or just 2% of sales. We're maintaining discipline here while funding critical projects like Poland and Mexico within existing guidance. Looking ahead to H2, we expect inventory levels to normalize as tariff transitions complete and we optimize stocking positions. Cash generation should remain strong. And with that, let me now hand back to Heath. Heath Sharp: Thanks, Andrew. Turning to Slide 11. This is our tariff update. The key message is clear. We are executing strongly across the full set of mitigation actions. We continue to make robust progress reducing purchases from China. And we are shifting sourcing to lower tariff countries largely in line with plan. Pricing actions have now been completed, and those increases are flowing through the current half. We have delivered this progress despite shifting tariff conditions over the past year. While the goalposts have continued to move, our approach has remained disciplined. For FY '26, there is no change to our expected tariff impact. We still anticipate a net EBITDA impact of $25 million to $30 million. Looking to FY '27, there is a small change. We now expect a residual net EBITDA impact of $5 million to $7 million. Our previous target was 0 FY '27 impact. This reflects changes in country and material tariffs and points to our decision to invest in manufacturing in Mexico. Importantly, the Mexico facility strengthens the business. It improves manufacturing flexibility, and it supports our long-term tariff mitigation strategy. Over time, the Mexico plant and final sourcing changes will deliver a full tariff offset. On Slide 12, we set out our assumptions and outlook for the remainder of FY '26. As Andrew said, we are not assuming a material improvement in end market demand in the second half. However, we are targeting improved operating margins in each region. In the Americas, we expect second half underlying sales to be up mid- to high single digits on the PCP. That is partly driven by pricing flowing through and it also reflects a softer comp due to last year's pull forward. We also expect Americas EBITDA margin to improve in the second half versus the first. Margins will still be lower than FY '25 due to tariffs, but the trajectory improves as mitigation actions take hold. In Asia Pac, we expect second half sales to be broadly flat to up low single digits. We expect operating margins to improve meaningfully. This reflects stabilization of our PVC fitting segment, and it reflects the actions we have already executed. In EMEA, we expect broadly flat underlying sales. We expect EBITDA margin to improve in the second half. We are now bedding in the customer service improvements, and we expect some of the incremental first half costs to unwind. We will also begin to see benefits from the Poland assembly plant. At a consolidated level, we expect second half external sales to be up mid-single digits, and we expect full year FY '26 external sales to be broadly flat on the PCP. We expect second half EBITDA margin to improve versus the first half. Full year EBITDA margin will be lower than FY '25. This sequential improvement reflects tariff mitigation and operational actions. Slide 13 sets out our priorities for the second half and beyond. A major focus, of course, is copper. Copper volatility is an industry-wide issue and it is 1 we are tackling directly. In the near term, we will execute the traditional offsets. That includes supply chain optimization, tight cost and overhead control and pricing actions into the market. We expect these actions to largely offset the copper impact for FY '27. At the same time, we are accelerating longer-term actions. These actions will structurally reshape the cost base. We are progressing material substitution that includes polymers and it includes alternative metals. We are also progressing product and component redesign, and we are assessing alternative manufacturing processes. Internally, we have set a clear goal. By FY '29, we aim for copper to no longer be a material part of the RWC P&L. This will influence our manufacturing footprint over time, and it will strengthen our long-term competitiveness. The investments we have already made in automation and assembly create flexibility and it will be augmented by our new plants in Poland and Mexico. On Slide 14, let's take a step back for just a moment. As we look beyond this half, it's worth coming back to what RWC is built to do. Our strategy is unchanged. We are executing against a clear vision to be the complete plumbing global leader across repair and remodel, new construction and commercial plumbing serving both residential and commercial buildings, distributed through wholesale, retail and OEM channels. Now I'll wrap up on Slide 15 before we open to Q&A. The core message is simple. RWC is well positioned for long-term growth. We have a strong leadership team, and we are aligned on global priorities. Across the organization, execution remains strong, and collaboration across regions continues to strengthen. Our differentiated position is a real advantage. We have strong channel partnerships built on value creation. We bring products that earn their place on the shelf. We also have industry-leading brands they are recognized for innovation and service. We have a clear strategy. We will grow through product innovation. We will grow through customer experience and service levels and we will grow through industry-leading execution. We also remain well positioned from a manufacturing capacity perspective. We have invested significantly since 2021. As volumes recover, we will see meaningful operating leverage. We continue to see strong long-term macro drivers, aging housing stock supports repair and remodel. Under building supports new construction over time and labor shortages continue to favor smart product solutions. Finally, RWC has a strong balance sheet. That gives us flexibility. It supports organic growth, it supports M&A and it supports ongoing shareholder returns. With that, I'd like to open up the call to questions. We will take questions first from those on the conference call line, then Phil will read any questions received via the webcast. Operator: [Operator Instructions] The first question comes from Niraj Shah with Goldman Sachs. Niraj-Samip Shah: Just a couple on copper for me. Firstly, can you remind us of what the process is with your customers in terms of taking the price action, how that might vary by channel? And then secondly, where you have copper intensity in the portfolio like SharkBite or valves. Can you talk about how this might compare with competitor or alternative products, just thinking about the risk of substitution as the copper price is reflected in product price? Heath Sharp: Sure. So we've talked a little bit over the years of the mechanism for pushing through pricing. Ultimately, it's just a little bit different by channel. But fundamentally, in the case of copper, where it's a clear index, and that information is available to everyone. That's the foundation of the submission and you provide the information in the standard format that, that particular customer wants. It's a process we're pretty familiar with. We've gone through it now all too many times. So pretty comfortable that we know what to do there. And can run through that process. The question on alternatives in the marketplace. I think -- I think we've got a good idea of what our end users need. I think that's absolutely a differentiator for us. Niraj, You've been to our training center here in Atlanta and we talk a lot about spending time in the field. So any changes we make to our product will be based on knowledge of the market, what our end users value, what's important for them. We're also not going to make any changes without having undertaken the appropriate trial and focus groups and field tests and whatever else. Obviously, right now, with copper, we're in the same position as everyone else. So it's not a commercial disadvantage for us. It's just time and effort to handle that. I actually see the project to move to alternative materials. That's a real opportunity for us. It's a sort of project I think we do very well. It's a sort of project that energizes our people. And I think it's an opportunity for us to show that innovation and disruption that we're known for and to solidify the strength of our brands. So it's clearly going to be our #1 priority for the next few years. And I think that's entirely appropriate. Operator: Next question is from Ramoun Lazar with Jefferies. Heath Sharp: Gary, I think we lost Ramoun. Operator: The next question comes from Lee Power with JPMorgan. Lee Power: Can you maybe talk to the level of pricing that you actually, got? So how much is it contributing in that second half mid- to high single-digit growth, Heath? And then I get the kind of the weaker PCP in Americas and a few other moving parts, but maybe just your view on how the core U.S. market is actually tracking? Are things stable? Or are we still seeing declines? Heath Sharp: So I think on the market generally, it's -- I think it declined just a little bit further in the last period. It's a little tricky at the moment to look through pricing moves in the market to determine exactly what's happening with volumes. I think pricing is only just starting to move through now. So overall, the market feels like it was off by another few points at least over the last 6 months. Look, in terms of the pricing action we've taken, I think as we've set out in August and then earlier last year, we've got a very comprehensive model of all our cost imports literally by SKU. We then cross reference that to the particular channels and the particular markets. And we'll take the pricing action that we feel is appropriate. Based on the nature of the product, our position in the market and a whole host of other factors. So I don't want to point to any specific numbers on pricing. I don't think we've called that out anywhere, and that's quite a quite a sensitive issue. So I think we revert to, again, what we've talked about a few times is all those combined activities with sourcing, cost saving, pricing has yielded the result in line with what we guided to in August. Lee Power: Okay. And then just on EMEA outlook, can you confirm that that's constant currency? Because I guess the currency has moved a lot and it would seem very conservative if it was in constant currency. Andrew Johnson: It is in constant currency. Lee Power: And then just a final one. Your point, Heath, that you were chatting about material substitution and alternative metals, like SharkBite's obviously very well known as a brass fitting brand, and there's a lot of other products out there where they're plastic resin based. So how do you -- like how do you think it actually -- like how do you manage what has been core for Sharkbite for a long period of time. And then you try and strip out what customers know the product as if you looked at polymers or some other materials? Heath Sharp: I think carefully. But I also would point to the tremendous amount of work we did during the SharkBite Max transition. We learned a lot there. And I would say the heart of that project was to disconnect assembly from the body manufacturing. And that's what allowed us to bring assembly to the U.S. as you know, Lee. But if you think that through to the next level, disconnecting the body from the assembly process also disconnected the choice of material for the body from that assembly process. So that was in our mind all along. So it has been part of what we've tested. So we've got a range of options there. I think we've got a pretty good handle on the right direction to go. I don't really want to provide anymore information on that at this point, but we'll be making those trials and making -- and taking the right action, we believe, over the coming months. Operator: The next question is from Harry Saunders with E&P. Harry Saunders: Firstly, just wondering with about 2/3 of the tariff impact has been in the first half or sort of $18 million roughly. Therefore, sort of implies a $9 million to $10 million step up in the second half, all else equal before other factors. Should we then be factoring in some other positive or negative factors in the second half, such as seasonality and maybe some of those one-off factors you discussed in some of the regions rolling off? I mean could we maybe just step through a bridge to the second half given more complex than most sort of second half movements, please? Andrew Johnson: Thanks, Harry. This is Andrew. I'm not going to bridge it, but let's just kind of talk through it. You are absolutely right. We will see a reduced impact in the second half in terms of the tariff impact. We're still sticking to the $25 million to $30 million. And so roughly 1/3 of that would hit in the second half. So that will certainly be an improvement over the first half. Some of the other items that we've called out, APAC PVC margins are already recovering. We expect that to continue. And in EMEA, we're working really hard to optimize those service costs that flowed through. And of course, we'll have more of an impact of Poland as those volumes ramp up. And I think lastly, we are executing well on cost savings. We've called out $8 million to $10 million. So you could take another round of cost savings in the second half very similar to what we achieved in the first half. So overall, we think that's going to support the margin improvement in the second half. And that's pretty clear line of sight, at least on those 4 things that I mentioned. Harry Saunders: That's helpful. Maybe asking another way. I appreciate you may not be able to answer. The second half margin clearly should be up on the first half, but lower than PCP. I mean is there any indication at all which one we're closer to in the second half, just given a lot of movements today. Andrew Johnson: Yes. Look, I think volume is going to be the wildcard. I think if we can see a good volume uptick, although we're not planning on it, volume is going to move that needle either closer to last year, or closer to the first half. So it's really hard to say, Harry. Harry Saunders: And maybe just a comment on cost out measures. Just to be clear, are you sort of indicating there's some incremental cost out versus the first half run rate in the second half potentially? Andrew Johnson: No. What I'm saying is that run rate will continue. So we'll see another roughly $4 million or $5 million in the second half to get you that $8 million to $10 million for the full year. Harry Saunders: And just lastly, can you just talk through, I guess, in that Americas guidance for sales versus volumes? I know we touched on this, given the tariff pricing impact? Or is that something you can't answer. Andrew Johnson: No, we're not going to talk specifically about the tariff pricing actions and the impact. But that certainly drives a significant part of that guidance we've given in Americas for the top line. Operator: The next question is from Brook Campbell-Crawford with Barrenjoey. Brook Campbell-Crawford: I just had 1 on volume in the second half. Andrew, you noted that's the key swing factor in the second half in Americas. I'd love just to hear your thoughts around elasticity relating to all these prices that have gone through for, I presume, tariffs and copper. What's your kind of assumptions there and impacts to demand from prices going up? And have you kind of thought through that one providing the second half guidance. Andrew Johnson: Yes, it's really hard to say, Brook, I think that certainly, there is some point where pricing will impact demand. I'm not sure we're seeing it at this point because you have to remember that the whole industry has had to push price related to either tariffs or copper tariffs. And so we're kind of all in the same boat. Not saying it won't impact demand at some point, but it's just not something we're really seeing at this point. Heath Sharp: Look, I also point you to the fact that, that a really good chunk of what we do, particularly here in the U.S. is absolutely repair and maintenance. So far less discretionary, which helps. I think the bit of the market that's more susceptible, of course, is that remodel and particularly the larger -- the larger remodel. The other issue that works in our favor to a degree is the fact that our products, particularly in that repair and maintenance area are a pretty small percentage of the overall cost of the project. So I'm not sure where we're at and what our pricing is dramatically moves the needle on demand. Brook Campbell-Crawford: That's helpful. And just one on the Mexico facility. How should we think about the cost reduction from that relative to I presume things being done at Cullman at the moment that will get shifted across. And then just bigger picture, how do you get comfort that there won't be sort of further changes in tariffs that would impact Mexico and sort of, I guess, become a complicating factor on planning this new project? Heath Sharp: Yes. Look, I'm not sure we have any comfort whatsoever with regard to tariffs being stable. It's an ever-moving -- an ever-moving target. But we took this action with that in mind. We've been considering a facility in Mexico for a while now. And the opportunity from tariffs was, I guess, the last catalyst to get us over the line to make that move. But our view is solidly that having a flexible lower labor cost production facility pretty close to our markets is going to be a useful thing for the fullness of time irrespective of tariffs. So I'm very comfortable with where we're headed. We've also taken, and we talked about this in Sidney at the Investor Day last October, we've taken a no-regrets approach, if you like. So low CapEx, fast and reversible. So this is not a $100 million project. We're talking about couple of million dollars, a few million dollars' worth of sort of OpEx, CapEx. That's the order of magnitude. But I think the optionality it gives us is pretty significant. So yes, at the moment, there would also be some additional tariff benefit, and that's great. But long term, we think it's a pretty useful facility to have regardless. Operator: The next question is from Peter Steyn with Macquarie. Peter Steyn: Perhaps just furthering that line of questioning briefly, Heath, the $5 million to $7 million impact that you've called out in '27, you sort of suggested that that's as a consequence of moving goalpost in tariffs more so than perhaps as a consequence of you not taking price associated potentially with some of the production that you moved to Mexico. Is there an impact like that, so very much like what we've just seen over the last 6 months? Heath Sharp: I think there's a few factors that converge there, Peter. Look, we were looking at the history of tariffs last week as we were getting ahead around this call. And even though we've lived, we were surprised when we put it down on a sheet of paper, how much has changed. I think there was of the top 12 countries we source from, it was 9 or 10 of them, the number had changed from the original number. Perhaps more significantly, some of the materials tariffs have changed, whether that be steel or copper. And then even beyond that, once you get into the detail of what the funds locally manufactured, whether it's melt and pour or whether it's processed or subsequently processed, also changed during the period. So if you put all that together, is there were a handful of items in our original plan, where moving them was not going to yield as much of a benefit as we first thought. It was going to take some effort, and there's risk in all of that. So we simply decided to look closer to home for a longer-term solution as opposed to moving -- only to have to move it again. I think there are some things we've moved that we will subsequently move again and perhaps bring to Mexico. And I think -- the final point I'd make there is -- there's some low-volume production we will take out of -- ultimately take out of Cullman, move to Mexico, but only some we're definitely eyeing some other things we're now doing in other parts of the world, whether that be Southeast Asia or even the U.K. and Europe that we may ultimately bring to Mexico. So there's a lot of factors at play there. And in the end, we thought it was prudent to reduce risk just a little bit and make that sort of not have a secondary move, but only have an initial move. And that's really what's led us to that change in the FY '27 guide. Peter Steyn: That's useful. And then just curious, obviously, around the inflationary pass on perspective, if you could just give us a sense of how customers are reacting. You're obviously -- or maybe channel partners are reacting. You're obviously moving things around a fair amount. How are you managing that process? And how are they responding? Heath Sharp: Peter, I'd say no one's real happy right now. It's us, our peers, our customers, our vendors, our end users, I mean, there's everyone along the way is absorbing just a little bit. Everyone's passing on as much as they can. It is having somewhat of an inflationary impact on the very final product. Ultimately, we all do what we have to do. I mean this has got complete visibility. It's not a thing that's unique to us or unique to our product or our category. So that helps. I think everyone's just frustrated that it's taking a whole lot of time and effort that ultimately we'd all prefer to be putting into something else. So there's nothing specific that I'd call out there in terms of big over the odds wins or big problems. We're just working through it. Operator: The next question is from Daniel Sykes with Jarden. Peter Steyn: I just wanted to touch on APAC and the EBITDA margin there. Whether you could provide some color on what drove the decision to source more externally versus manufacturer. It seems from the guidance around look-forward EBITDA margin for APAC, it seems transitory. But I just wondering if you could help us understand why it was so acute this half. Heath Sharp: Look, ultimately, it's a cost-driven decision. Volumes in the Aussie market are really quite low relative to the rest of the world. You'll recall that back when we were doing all of the U.S. manufacturing and assembly in Australia, we were able to do the volume for Australia as well within that context. But now we've taken that volume -- assembly volume out of Australia. It makes it very hard to justify that level of cost and overhead to an Australian-only product. And hence, we've outsourced it. And it was an approach similar to what I just mentioned for Mexico. So low capital, fast and ultimately just gave us flexibility, and that's the direction we've gone and obviously, a unit cost advantage as well. Peter Steyn: Great. And just in terms of the comments around inventory levels in Americas, obviously, the $7 million hit from customer destocking. Is that something that's finished now? Or how does it look forward through to H2? Are you expecting some kind of inventory drop again through H2 in the guidance? Andrew Johnson: We are not expecting further reduction. And I think I mentioned that in my prepared comments, what -- but at the same time, we're not expecting those weeks of stock to increase either. From where we sit today, we feel like it's normalized and we should be fairly stable from here forward. Operator: The next question is from Keith Chau with MST Marquee. Keith Chau: First question, Heath, just going back to the point around elasticity. It certainly seems to me that at least part of the answer to demand elasticity due to cost impulse is answered by actions taken by Reliance with substitute materials alternative manufacturing change in product design. And I think you made the point in the presentation that the goal is to make copper a nonmaterial part of the P&L by FY '29. So these actions actually seem a lot more significant than the changes that have been made to the core product set over the course of history. Is it as extreme as substituting a metallic fitting with the plastic fitting? Or is it more about changing the alloys and the production process and [indiscernible] push to connect products? Heath Sharp: Look, it's going to vary by product. I mean in some cases polymer solution will be the answer. I think in many cases, we'll probably end up with a stainless steel solution. I think the bigger question is how you actually go about processing that metal and which particular version of stainless you choose. I mean there's a little bit in it, but I think it's all [ handlable ]. That page I think it was 13 -- the copper page in the deck is there's really 2 parts of that slide. There's the near term on the left-hand side and then the long term. And near term, as we put there, it's the same levers we've had at our disposal previously. I mean that's when copper is at where it is today, plus or minus a little bit, I think those mechanisms are fine. We just have the view that -- well, look, it's volatile right now, and we're a little bit tight on dealing with that. That makes it hard. But we also have the view that data centers, electrification of vehicles and whatever else is not going to make it any easier for us to source copper at sensible prices going forward. So we really have put a stake in the ground and then pivoted to the right-hand side of that page is how do we remove the volatility, how do we protect ourselves from that long-term -- long-term impact. That's the approach we're taking. To some extent, someone from the Americas team made this comment the other day is copper is the new China. We took action over the last 12 months or so to sort of decouple ourselves from China. We're taking a similar approach to copper right now. It will take longer. It's a multiyear project. It's got some challenges in it, but I think we can pull those off. And I think it actually helps us in the marketplace. We'll have to do it carefully at pace, but carefully. And of course, none of that, though, in the event, heaven forbid, copper precipitously dropped in price. We can always get back to making these products in copper. So it is reversible, although I don't expect that will be an issue for us. I very much don't want to be sitting here in a few years' time and talking about copper at 18,000 or 20,000 or 21,000 because elasticity -- all those conversations are going by that point. Keith Chau: And Heath, just thinking about this on the longer term because I guess when you're talking about product substitution or material substitution, it's always a discussion to be raised around the earnings power of the business and what it means if you do move to polymer for some products from metal because effectively, the embedded value of the product -- sorry, the embedded cost in the metallic product is higher than a plastic product, but Reliance has always been a business that sells value. And I think in the past, you've talked about putting labor on the shelf. So maybe simplistically, the question is, can you retain the current earnings power of the business, all else being equal, if there are changes to the product design and material substitution, are you confident that you can still generate the same dollar -- the same unit dollar profit per product sold? Heath Sharp: Keith, we're acutely aware of that model. We live it every day and have fought for you. So we're not about to make decisions that upend that. I would also say, and you've seen this firsthand over many years, this is a super conservative market in the U.S. Clients don't like changing full stop, and they certainly don't like changing to a material that's perceived as a less robust material. All of those things will factor into our consideration as we make these changes. I'm pretty comfortable that we can make the appropriate moves here. Your question is absolutely valid and one that we're absolutely all over, I believe. Keith Chau: And maybe if I can, a couple of quick ones for Andrew, just to cover off. Andrew, I think it was asked before around some of the costs that will come out of the P&L for EMEA as those investments to improve service levels and establishment of the Poland facility kind of come to an end. So if we just isolate it to those 2 factors, is the quantum of cost reversal in the second half or FY '20 somewhere in the range of like low single-digit millions in pounds? Andrew Johnson: We think so. I mean, look, if you look at that 270 basis point drop that we saw in the first half, the majority of that margin drop, you can tie back to those production inefficiencies. I'm not saying we're going to get -- we'll be completely clear of those in the second half, but the team is making really good progress to get the overhead recoveries and the labor recoveries back to where they were. So that's going to get most of that back that you just mentioned. Inflation is still an issue in the U.K., and it has been for years now, of course. But gosh, when you take a step back and look at it, we've seen significant increases and the national minimum wage, and it has impacted our business. We do push through price. We'll push through price again in the second half, which will certainly help. So we're on our way back to kind of, of course, getting towards 30%. I'm not saying we'll get to 30% in the second half. I think we'll need volume to get all the way there. But at least covering off on those 2 things that hit us in the first half, you should see a significant improvement in the second half. Keith Chau: And then the final couple is, one, whether you can update us on the copper sensitivity for the business? And secondly, again, a small point, but any fee benefits factored in for the second half of FY '26 guidance? Andrew Johnson: Yes. So from a copper standpoint, we're at USD 900,000, and that's the EBITDA impact for every $100 movement in the LME. And that's pretty consistent with where we were last year. I think you also have to factor in that there's a tariff cost, a copper tariff cost that's not in that number, and there's -- that's probably another 25% on the number that I just gave you. So that's kind of what we're looking at. We -- because of the lag, we can tell you what copper will be in the second half. Copper on average will be about $10,600 a ton in the second half. It was about $9,600 last year. So that gives you the relative movement in copper. We'll see $4 million, $4.5 million in additional copper costs in the second half. And Keith, what was the second part of that question? Keith Chau: Just whether there were any freeze benefits factored for the second half of the FY '26 guidance. Andrew Johnson: It did get quite cold. I don't think it was any more significant than some of the colder weather we had last year. We're tracking kind of the impact. We always have more clarity the further we get through the second half and kind of look back because, obviously, customers have inventory levels that have to be drawn down and then you see reorders. So it's it tends to kind of flow through later than you would think. So sitting here today, I don't have a perfect visibility on what any freeze impact may have been. So we'll just have to see how the half progresses. Right now, it would be very marginal in terms of the difference this year versus last year. Operator: The next question is from Ramoun Lazar with Jefferies. Ramoun Lazar: Just a couple of follow-ons from me. Just on APAC, maybe Andrew can answer this. I guess just with the changes in the manufacturing and sourcing, where could we expect those margins to get to now that you've made those operational changes, Andrew? Andrew Johnson: Well, we're working through those. I mean I think that the team has done a really good job of getting their hands around price. And that's started to flow through on DWV in the first half. And then we've got other pricing initiatives that we'll see come through in the second half. From a volume standpoint, I mean, you've been following our business for a while now. And you can -- as you can imagine, intercompany volumes in terms of the product being shipped to the U.S., I don't expect that to increase year-over-year. And that's always a big variable in that APAC P&L because essentially, it's a manufacturing business when it comes to that copper production and the SharkBite bodies that are provided to the U.S., where this goes from here, I think volume, and I always have to go back to that. Volume is always a big driver. Our target for that region, we haven't lost sight of the mid-single-digit EBITDA margin target, but I do think it's going to take us a couple of years to get there. Ramoun Lazar: Yes. That's helpful. And then just a follow-on from Keith's question just around the U.S. growth in the second half to get to that high single digit, are you assuming for that to happen, you need to see some benefit from the freeze or is that just predicated on potentially a broader volume recovery gets you to that high single-digit top line growth number in the Americas? Andrew Johnson: No, we're not in really banking any big benefit from the freeze in the second half. And as I mentioned earlier, the majority of that's going to come from pricing. Ramoun Lazar: So no sort of major volume recovery expected in that mid-single to high single-digit top line growth in the second half for Americas? Andrew Johnson: Not really. I mean the team is doing some good things. Nothing I really would call out. There's some business we've -- on the OEM side that we've been able to move forward with that's going to help out. And Heath mentioned the softer comp last year because you recall, revenue was pulled ahead to the first half last year. So that's going to create a favorable comp. And those are the primary things that I would call out in terms of what's going to get us to that top line guidance that we provided. Operator: Next question is from Shaurya Visen with Bank of America. Shaurya Visen: Just a quick follow-up on copper, for Andrew, perhaps. Andrew, look very detailed in terms of the steps you have taken to reduce the impact of copper. I was just curious to understand whether hedging is something you've looked at? And if yes, could you help us with some numbers on what's hedged and at what price? Andrew Johnson: Yes. We have looked at hedging and actually, we're going through a very small hedging trial as we speak. It's something we want to have potentially as a tool in the future, but it's not something that we're currently doing. And again, if we do decide to hedge, it's really just -- it's not going to be opportunistic. It's really just going to be to take some of the commodity volatility out of the P&L. But we haven't made a decision on how we're going to move forward, but it is something we've considered and actually conducted a small trial and currently doing that as we speak. Operator: The next question is from Daniel Kang with CLSA Australia. Daniel Kang: Andrew, just -- probably just a housekeeping question here. Just wanted to clarify your guidance for Americas and EMEA. You called out some adjustments to the exit of low-margin products in Canada and then I guess, the sale of the manufacturing plants in Spain. Can you just quantify for us these 2 adjustment factors? Andrew Johnson: Sure. I think -- so let's walk through those. So we had -- last year, we had an S/4 HANA implementation as would typically happen. Some customers bought inventory ahead of that. And then we had a load-in of some appliance connectors into one of our customers. If you take those 2 together, it's low double-digit millions. And then if you take the low-margin product that we exited, that's mid-single digits. And hopefully, that gives you enough information to get you where you need to be. I'm not going to give you exact numbers, but that will get you really close. Daniel Kang: That's great, Andrew. And just in terms of APAC Holman, can you help us with the level of contribution Holman provided in the period and the level of synergies that you've been able to extract? Andrew Johnson: Sure. I'm not going to -- look, Holman, we've had the business now, and this is our second financial year. We've done a lot to integrate those 2 businesses. So pulling out profit and EBITDA margins, it's pretty difficult. Nicole and her team are managing as one business today and the accounting obviously follows that. Revenue was down slightly versus the prior year. And as we've mentioned, there was a really slow start to the watering season, it started to pick up late in half, but it's still left us with slightly lower volumes than we had in the first half last year. Overall, we're still excited about the business. It's really driven revenue opportunities and synergies on both sides. So that's not only RWC selling more products into Bunnings. But of course, selling some of that Holman product through some traditional RWC customers. Daniel Kang: Just last one, if I may. I realize market conditions obviously fairly tough at the moment. It is for the entire industry. Wondering, Heath, if you can talk about the M&A outlook? And are you actually seeing more opportunities come about because of the current conditions? Heath Sharp: No, I'd say it's the opposite. Everyone over here is positioning, taking the view that it's better to be early than late. So valuations are pretty spicy, unfortunately. Operator: The next question is from Sam Seow with Citi. Samuel Seow: Just 1 on material substitution. I think that's obviously a great initiative. But in terms of the profile, could you perhaps outline the rough shape when you expect that sensitivity of copper to start really dropping away the most, maybe make reference to that $900,000 you've given us. But yes, just any rough approximation on the shape of that sensitivity and when you think it will start to materially drop away. Heath Sharp: So look, I don't -- no small thing we're jumping into here. I would like to think -- look, I'm not sure we'll catch anything in '26. So certainly, we'll start catching some things in '27. But Sam, there's a reason we pegged it as '27, '28, '29 project because there's some work in it. But we think during the course of those 3 years, it will sort of incrementally yield benefits. Samuel Seow: So just back-end weighted '28, '29, you suspect? Heath Sharp: I think that's the goal we've set for ourselves, yes. Samuel Seow: That's helpful. And then I'm going to try a question then on FY '27. I know in a normal year, we wouldn't talk about it. But given it's not really a normal year and the copper price we're seeing now is likely to hit your P&L in first half '27. Just wondering if there's any reason, your bigger customers reopen contracts out of cycle? Or is the percentage of copper in your fitting is just too low a percentage? Just anything to consider about first half '27. Heath Sharp: So look, there's not a whole lot else to -- there's no magic answer here. No silver bullet is. We're pretty comfortable we can offset the number in the copper impact in '27 based on our estimations for copper for the '27 year. All I can really say, absolutely, it's in focus for us, and we believe the whole industry. The good question you asked, the volatility at the moment makes aggressive moves a little bit difficult, but there must be pricing. There's no question. There has to be pricing here. And we believe, as in the past, it will be an industry-wide move, and we'll move as part of that. So very attuned to that, spending some good time and effort on it. But at the same time, working really hard on the cost saving side of things and the supply chain side of things and continuing to pull those levers that are absolutely at our disposal today. Samuel Seow: That's helpful. And then maybe then on the cost side of things, maybe a more holistic question, but there's plenty of things eying on at the moment, the tariff mitigation and et cetera. Is there any kind of cost that might reverse when things settle down or anything you can kind of help us or point to. I mean there's obviously a lot of non-BAU work happening within your business. Just if there's anything you can kind of point to or quantify that might kind of reverse as we kind of go through the next couple of years. Andrew Johnson: Look, I mean, it's hard to point out anything specifically. Costs are really only going in one direction these days, at least from what we can see. But I just want to remind you that we've done fairly well over the last few years on cost reduction initiatives, and we've got our $8 million to $10 million pretty much in hand for this year. We're working on more for the following year, and that's outside of Poland and Mexico, and those will certainly bring cost savings for the business. We're -- we don't expect it to be easy. In fact, we expect it to be hard, and we're going to have to work on costs every day and we have, and we'll continue to do that. And I just want to look at -- if you look at our SG&A for the first half, which really as the CFO is something it's pleasing to see and that I think we've kept a really tight grip on our SG&A costs, and they've been flat to down in the regions, even more so than the cost savings that we've called out, and that's just indicative of us controlling those discretionary costs and keeping things really tight, and we'll continue to do that. Operator: The next question is from Nathan Reilly with UBS. Nathan Reilly: Just zeroing in on your decarbonization project. I'm just trying to get a bit of a sense of the scale of the [indiscernible]. So maybe just help me just in terms of what proportion of your SKUs might be sort of subject to that redesign and material substitution project. I'm also curious to understand what level of sort of step-up in R&D or other costs you might be looking at just to sort of test and implement that project. Heath Sharp: Thanks, Nathan. Look, I must admit it to here. I haven't got an exact number in terms of a number of SKUs or a percentage. I mean it's -- there's a pretty decent chunk of our business that or a large number of our products that have copper in them. So it's not an insignificant thing. I mean there's [indiscernible] pipe, a lot of polymer fittings, all the [indiscernible] business is polymer. So there's also, I guess, a chunk that isn't. I mean it's a U.S. story here, by and large, isn't it? So I think -- so not insignificant. It's not the entire business by any stretch. We will have to invest a little bit, but I mean, we're talking about low single-digit millions of investment we'll have to put in this. This is not a whole new office and a whole new raft of engineers or so on. We're pretty comfortable we can handle it by and large with the people and the teams that we have. It just means that becomes the priority doesn't it? And honestly, it's -- as we sit here, it's difficult to think of something that's potentially more valuable to us, not just from a cost point of view, but from a market leadership and innovation disruption point of view. So we're pretty positive that it's a project that can serve us on multiple fronts. So we'll put the effort in. Nathan Reilly: And would you anticipate you'd be running kind of parallel SKUs, 1 sort of. Heath Sharp: No. Operator: The next question is from James Casey with Ord Minnett. James Casey: It's been a long call, so I'll keep this brief. Just in terms of the CapEx profile, CapEx to sales kind of looks to be a tad over 2% this year, kind of peaked in FY '22 at around 5%, I think. If you kind of -- are you underinvesting at the kind of low point in the cycle? And would you flex that up as the cycle improves? Am I reading that incorrectly? Andrew Johnson: Look, I think we invested a significant amount back in 2021 and '22. I think we're very well placed. If we hadn't, then we would need to be -- or the question of being concerned would be valid. I think we're in a really comfortable position at the moment, James. James Casey: And then I understand your comments around the second half '26 looking the same as the first half '26 just in terms of outlook. Just in trading for the first 7-odd weeks this year, with interest rates heading lower, albeit slowly. Have you seen any improvement in the U.S.? Heath Sharp: No, not really. Operator: There are no further questions at this time. I'll now hand back to Mr. Sharp for any closing remarks. Heath Sharp: Okay, do we have any questions online? Philip King: They've all been answered, Heath, with the extensive Q&A we've already had. Heath Sharp: Okay. Very good. Look, I'd like to thank everyone. It was a long call as someone mentioned, but I thank you all for your interest this morning, it's certainly been an interesting half for us. But as we sit here, we're actually really quite optimistic and energized as we head into the second half. I think a whole lot of externalities, which have impacted us over the last little bit and a whole lot of direct action that we have taken and are taking that's going to set us up really quite well to do better in the second half and beyond. So with that, we will get back to it. Appreciate everyone's time. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good morning, and thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kerry Group Full Year 2025 Results Call. [Operator Instructions] I would now like to turn the call over to William Lynch, Head of Investor Relations. Please go ahead. William Lynch: Thank you, operator. Good morning, and welcome to Kerry's Full Year 2025 Results Call. I'm joined on the call by our CEO, Edmond Scanlon; and our CFO, Marguerite Larkin. Edmond and Marguerite will take you through today's presentation. And following this, we will open up the lines for your questions. Before we begin, please take note of our disclaimer regarding forward-looking statements. I will now hand over to Edmond. Edmond Scanlon: Thanks, William. Good morning, everyone, and thank you for joining our call. Beginning with the overview of 2025 on Slide 4 and starting with performance. We're pleased to report that we delivered another year of strong end market volume outperformance, margin expansion and earnings per share growth. While overall market volumes remained relatively subdued through the year, we continue to demonstrate our ability to consistently outperform our end markets with volume growth of 3%, highlighting the strength and relevance of our business. This growth was driven by a strong performance in the Americas throughout the year, led by foodservice innovation and increased nutritional renovation across a broad range of customers, given our positioning as a leader in sustainable nutrition with customers looking to address nutrition, taste, cost or sustainability aspects. We also delivered strong margin expansion of 80 basis points, with EBITDA margins just under 18%. And we're well on track to achieve our margin targets, which we will give you more color on later. Moving to earnings. We delivered constant currency EPS growth of 7.5% in 2025, which is stated after the dilution from the Dairy Ireland disposal in the prior year. This was on top of the 9.7% growth we delivered in 2024, and we're looking to achieve another year of high single-digit EPS growth in 2026. Earnings compounding has always been an important part of Kerry's story, and we reaffirm this with our high single-digit plus EPS growth target out to 2028 when we refreshed our margin and EPS targets last year. From a strategic perspective, we continue to evolve our business through targeted capital investments and portfolio development activity, enhancing our technology capabilities, supporting new innovations and delivering even more value for our customers. Just to touch on some of the key developments in the year. Firstly, on technology capabilities. These included the opening of our new state-of-the-art Biotechnology Centre in Leipzig in Germany, and a number of other technology developments, which I'll outline later when we look at each of the regions. On innovations, key innovations in the year included our next generation of fermentation-derived Tastesense Sweet and Salt reduction technology ranges; the launch of our new Plenibiotic postbiotic for digestive and skin health; a breakthrough enzyme system, which delivers significantly more effective natural sweetness; new fermentation-based solutions under our Kerry experience portfolio; and new natural cocoa replacement systems, which replicate authentic cocoa taste using less than half the cocoa raw materials. And on footprint and customer access, we extended our APMEA manufacturing presence into Egypt, and within East Africa while expanding our capacity in the Middle East and Southeast Asia. And we strengthened our customer innovation network through new centers in Frankfurt, Indonesia and Dubai. So to summarize, 2025 was another year of strong market outperformance, combined with continued strategic developments. Moving next to the business performance overview. We achieved group revenue of EUR 6.8 billion and EBITDA of EUR 1.2 billion. Volume growth was 3% for the full year and 2.8% in Q4, well ahead of food and beverage end markets, driven by good innovation activity and continued product renovation activity with our customers. Pricing was pretty flat in the year, with input costs turning deflationary in Q4. EBITDA margins were up 80 basis points, driven by accelerated efficiencies, portfolio developments, operating leverage and mix. Across our technologies, we had good growth across savory taste, Tastesense Salt and Sugar reduction technologies, botanicals, natural extracts, proactive health ingredients, taste solutions for high-protein applications, enzymes and biofermented ingredients. From a channel perspective, foodservice achieved volume growth of 4.6%, supported by strong innovation activity, including new menu items and seasonal launches. Growth in the retail channel was supported by a step-up in retailer brand innovation and renovation activity to enhance the nutritional profile across a range of customers. And finally, growth in emerging markets of 5.3% was led by a strong performance in Southeast Asia and LatAm. Moving next to our end-use market breakdown. Starting with the food EUM, where all categories delivered volume growth. In snacks, we had good growth, driven by our savory taste and Tastesense Salt reduction technologies. And in bakery, growth was driven by our enzymes preservation and taste systems. Moving to beverage, where growth was supported by the performance of our Tastesense Sugar reduction technologies, natural extracts and proactive health ingredients. And we had good growth in pharma through our proactive health technologies into supplement applications. Turning next to performance by region and starting with the Americas, where we had continued strong performance across both North America and LatAm. Revenue for the region was EUR 3.7 billion, with full year volume growth of 3.8% and 4.4% in Q4. EBITDA margins increased by 60 basis points to 20.3%. In North America, growth was again led by snacks, along with the dairy and bakery end-use markets as we enabled our customers to innovate and renovate within categories. By channel, we had good growth in foodservice through strong innovation activity despite soft traffic in places, and with good growth in retail across global, challenger and retailer brands, particularly around the area of improving nutritional profiles. Within LatAm, strong growth was achieved in Brazil and Central America across the snacks and meals end markets in particular. And in business developments in the region included investment in enhancing our coffee taste extraction capabilities in Pennsylvania, which continues to be an area of innovation focus for our customers across many different food and beverage applications. Moving to Europe, where a soft finish to the year meant volumes were slightly back in 2025. Revenue in the region was EUR 1.4 billion, with EBITDA margins increasing by 90 basis points. We had good volume growth in beverage across nutritional and refreshing beverages, with our integrated taste technologies and proactive health ingredients. Volumes in the retail channel reflected subdued market conditions, while foodservice achieved good overall growth despite a soft finish to the year. And business investments in the region included the expansion of our enzyme capacity in Ireland and our cocoa taste capabilities in Grasse in France. Moving next to the APMEA, where we had a good overall performance given market disruption in places. Revenue for the region was EUR 1.6 billion, with volume growth of 4.2% and EBITDA margin expansion of 70 basis points. Growth was primarily driven by Southeast Asia with solid growth in the Middle East and Africa and volumes in China remaining challenged. Across our end markets, growth was led by bakery through food protection and preservation systems as well as reformulation activity in areas including cocoa. Growth in our channels was led by foodservice with leading regional coffee chains and quick service restaurants, while growth in retail was led by good performance in taste with regional leaders. Finally, business developments across the region included new manufacturing facilities in Egypt and Rwanda, combined with continued expansion of capacity in the Middle East and Southeast Asia. And with that, I'll hand you over to Marguerite for the financial review. Marguerite Larkin: Thank you, Edmond, and good morning, everyone. Turning to Slide 12 and beginning with our financial overview. We achieved group revenue of EUR 6.8 billion in the year, reflecting volume growth of 3%, which represented a strong end market outperformance. EBITDA increased to EUR 1.2 billion, reflecting 5.7% organic growth. We delivered strong EBITDA margin expansion of 80 basis points, adjusted earnings per share growth of 7.5% in constant currency and 3% in reported currency. Return on capital employed was 10.6%, with underlying improvements being offset by a negative year-on-year currency effect of 20 basis points. And we achieved good free cash flow of EUR 643 million, representing an 81% cash conversion. Turning next to our group revenue bridge on Slide 13. Volume growth was 3%, as I mentioned, with slightly lower pricing of 0.3% and a transaction currency benefit of 0.1%. Foreign currency translation was 3.9% adverse due to the significant movement in the U.S. dollar and emerging market currencies versus the euro in the year. And acquisitions net of disposals was a net decrease of 1.4% in the period with disposals primarily relating to, firstly, the prior year revenue associated with the exit of a manufacturing agreement with Kerry Dairy Ireland, as previously communicated. And secondly, disposal of some noncore activities in Europe and North America to enable the efficient execution of our Accelerate 2.0 footprint optimization strategy and the contribution from acquisitions, primarily relating to the lactase enzyme business. Moving now to our group margin bridge on Slide 14. We are pleased with the strong EBITDA margin expansion of 80 basis points in the year. Looking at the key moving parts. Firstly, on operating leverage and mix, we had a 20 basis points improvement, with both operating leverage and mix contributing to the expansion. Our Accelerate programs contributed 40 basis points. This was primarily attributable to Accelerate Operational Excellence, which was successfully completed in the year, delivering annual recurring benefits ahead of expectations. We also initiated Accelerate 2.0 with initial benefits coming through in the final quarter. Foreign currency was a headwind of 10 basis points, and acquisitions and disposals contributed to a net positive 30 basis points, with 10 basis points from acquisitions and 20 basis points from disposals, as mentioned. Overall, we are well on track to achieve our targeted margins of 19% to 20% by 2028. Next, to free cash flow on Slide 15. We generated good free cash flow of EUR 643 million in the year, representing cash conversion of 81%. The main drivers were, firstly, our EBITDA increased year-on-year, as I just mentioned, noting that 2024 free cash flow comparative includes the contribution from Kerry Dairy Ireland. On the average working capital, the increase was driven by lower trade payables, mainly attributable to sourcing alternatives implemented as part of our tariff mitigation strategy and new procurement initiatives with some strategic suppliers. Point-to-point working capital was higher due to exceptionally low working capital days at the prior year-end and timing of other receivables at the year-end. The increase in net finance costs paid is principally due to the timing of bond interest payments across 2024 and 2025. And our net capital investment aligned to our strategic growth areas was EUR 300 million as we continue to invest to support our growth through the extension of our technology capabilities and capacities in all 3 regions, as Edmond referenced. Now turning to our debt profile and credit metrics on Slide 16. As you can see, the profile of our EUR 2.2 billion net debt is good, with a weighted average maturity of 6.5 years and no significant repayments until 2029. Our credit metrics are strong with a net debt-to-EBITDA ratio of 1.9x, and we have a very strong balance sheet, which will continue to support the further development of our business. Now to update you on Accelerate on Slide 17. In 2025, we completed Kerry Accelerate Operational Excellence, which focused on delivering manufacturing and supply chain excellence and efficiencies. The program's successful completion is delivering recurring annual benefits ahead of projections and has established a strong foundation for Accelerate 2.0, which will run until 2028, driving continued margin expansion through footprint optimization and embedding digital excellence across the organization. We initiated Accelerate 2.0 as planned during the year with good progress in both North America and Europe with the commencement of footprint optimization, including the disposal of some related business activities. We have reduced our manufacturing footprint from 124 facilities in 2024 to 119 at the end of 2025, and we will continue to optimize this appropriately over the coming years. Our digital excellence program is well underway, and we are making good progress. Some of the digital initiatives we advanced during the year include continued expansion of decision intelligence capability, utilizing agentic AI to automate a substantial volume of operational decisions in key areas of the business, including supply chain, new product development and enablement functions. At our GBS centers, we increased the use of robotic process automation to improve efficiencies and unlock capacity. In our manufacturing operations under connected plant, we are rolling out a number of initiatives, including digital-enabled predictive maintenance to optimize efficiency, related spend and asset reliability. And we commenced the use of digital manufacturing twins to simulate and standardize execution, reduce variability and increase production yields and throughput. From a commercial perspective, we are continuing to drive improved customer experience, leveraging our KerryNow customer portal, which provides our customers with real-time 24/7 access. These initiatives will improve our customers' and employees' experience, drive improved productivity and profitability while supporting growth and business development. Our continued progress on digital automation and accelerating how we scale AI across the business, supported by our recognition as a Microsoft Frontier firm will be an important enabler of our margin expansion targets. We will continue to update you as we progress on Accelerate 2.0, which, as a reminder, is expected to deliver a projected recurring annual saving of circa EUR 100 million by 2028 as a total net cost of circa EUR 140 million. Now moving to Slide 18 and other financial matters. Finance costs of EUR 52 million in the year reflected good cash generation and interest income. Non-trading items were an overall net charge of EUR 74 million, primarily relating to the progress we made under our Accelerate programs with the balance relating to disposals and acquisition integration activity. On the input costs, there was deflation in the final quarter, leading to small overall deflation in the year. We are currently expecting limited overall deflation in 2026. For taxation, we had an effective tax rate of 14.1%, and the current outlook is for a tax rate of 14% to 15% in 2026. Capital returns for the year included share buybacks of EUR 500 million and dividends paid of EUR 215 million. And we have announced we will be initiating a new EUR 300 million share buyback program today. On currency, the translation headwind on earnings per share in 2025 was 4.5%. And based on prevailing exchange rates, we are forecasting a headwind of circa 4% on the EPS in 2026. Finally, to summarize our financial performance for 2025. We are pleased with our overall performance where we delivered volume growth well ahead of our end markets, strong EBITDA margin progression, which supported continued good earnings per share growth. And with that, I'll pass you back to Edmond. Edmond Scanlon: Thanks, Marguerite. Before we move to our outlook for 2026, we'd like to give a progress update on our key metrics and medium-term targets on Slide 20. Having just completed the fourth year of our plan, we've made good progress across each of the key pillars of growth, return and sustainability. Starting with volumes. We've averaged 3.8% growth in this time frame. And while it's a little lower than where we'd like it to be, it's important to recognize that this represents a significant market outperformance of over 300 basis points. On EBITDA margins, we've delivered strong progress over the past number of years. We will achieve our 2026 target range in the year ahead, and we are well on track to achieve our 2028 target of 19% to 20%. You'll recall, we reinstated EPS growth as a key measure last year with our targets of high single-digit plus EPS growth up to 2028. Earnings compounding has been a key feature of Kerry's history, and we're laser-focused on delivering consistent high single-digit plus earnings growth. On returns, we stepped up our cash generation with cash conversion above 80% and ROACE improvements in recent years. And on sustainability, we've made great progress against our targets, reducing carbon by 52%, food waste by 54% and increasing our nutritional reach to almost 1.5 billion consumers globally. Finally, moving to the 2026 outlook. Our continued strong end market outperformance highlights the strength and relevance of our strategic positioning across our markets, channels and customer base. We will continue to further advance our strategic business development while supporting our customers as their innovation and renovation partner. We remain strongly positioned for volume growth and margin expansion with a good innovation pipeline despite the soft consumer demand environment. And we expect to deliver constant currency adjusted earnings per share growth of 6% to 10% in 2026. Before we move to Q&A, on behalf of the Board and the senior management team, I'd like to acknowledge our outgoing Board Chair, Tom Moran, who will be retiring following our AGM this year. Throughout his tenure as Chair, Tom provided strong Board leadership, particularly through the business transformation we undertook in recent years. We'd like to sincerely thank him for his valued contribution to Kerry over his tenure, and wish him the very best in the future. Fiona Dawson has been named Chair Designate. Fiona has been a Non-Executive Board Director since 2022, and brings deep industry experience given her executive career in the consumer food and beverage sector. A full announcement has been published this morning with further details. So with that, I'll hand you back to the operator, and we look forward to taking your questions. Operator: [Operator Instructions] Our first question comes from the line of Patrick Higgins with Goodbody. Patrick Higgins: A couple of questions on top line kind of outlook, maybe one for Edmond and one for Marguerite. Just in terms of volumes, Edmond, how should we think about volume growth for the year ahead? How should we -- how are you viewing end markets versus the kind of flattish that you've been flagging in the past year? And maybe talk through the regional outlook. And then, Marguerite, on input cost inflation, you flagged limited, so I assume that means limited pricing as well. How should we think about pricing? But then also disposals, obviously, disposals a bit of a feature in '25. KDI now has been lapped. Should we expect more disposals associated with the Accelerate program? Edmond Scanlon: Thanks, Patrick, and I'll kick off here. So just in terms of the volume outlook, we're taking a similar approach in 2026 as how we approach 2025 at this time of the year. So currently, we're seeing overall market volumes being similar to last year. Against the backdrop, we're looking at our volumes being in the same zone as we had in 2025. In terms of the outlook by region for 2026, as you can see, the Americas had a very good year in 2025 with volume growth of 3.8%, 4.4% in Q4, and we look to continue that strong market outperformance in 2026. I think then in Europe, let's say, volumes are back overall in 2025, and we would expect to be in growth in 2026. And in the APMEA region, we're looking to make progress in 2026 well into that mid-single-digit volume range and moving towards high single-digit volume growth for the region over the next year or 2. And maybe just I'll finish in terms of channel. We're looking at volumes in the foodservice channel to continue to outperform and to be ahead of retail in 2026 as well. Marguerite Larkin: And Patrick, just on your 2 other points. Firstly, on the input costs and pricing. For 2026, we currently expect some limited overall deflation in the year on the input costs. And as you say, consequently, some limited deflationary pricing. In terms of the disposals and the outlook for 2026, we made very good progress, as you will have seen on our footprint optimization plan during 2025. And in terms of the impact of those in 2026, you should expect disposal revenues of circa EUR 60 million or less than 1% of revenues from those divestments. Based on current plans, we expect limited further business disposals in connection with the footprint optimization. Operator: Your next question comes from the line of Ed Hockin with JPMorgan. Edward Hockin: My first one is on Europe that took a bit of a step back in volumes in Q4, whether you could elaborate a bit how you're expecting this region to perform going forward, especially now you've got the new President of the region, Marcelo. What is it you think he can be doing to try to stimulate volumes growth in the region, which has been flat to slightly negative for the past 2 years? And then my second question, please, is coming back on the channel mix, it looks as though foodservice accelerated a bit in Q4, and you say foodservice should be ahead of retail in 2026. Can you maybe give us an indication how you're seeing some of the kind of KPIs of traffic and reformulation activities, limited time offerings, promotional intensity with your customers and how you'd expect some of those leading indicators, how they're looking now and expect them in 2026? Edmond Scanlon: Thanks, Ed. The key change in Europe in the quarter was soft volumes in the foodservice channel towards the very end of the year. So year-to-date September, foodservice in Europe achieved mid-single-digit volume growth, and then volumes turned negative at -- towards -- in Q4, and that was partly due to year-on-year performance of seasonal products and LTOs in the channel as well as traffic in general. And retail volumes were slightly back in the quarter and in the full year as well. I think in terms of, let's say, our approach to Europe, I mean, obviously, it's going to take a little bit of time. The dynamics in Europe versus North America are quite different. That said, we do expect 2026 to be better than 2025. We will be in positive territory in 2026. And look, let's see how the year progresses. Then maybe your question with regards to foodservice. And let's say, North America being a key driver of that. Despite flat to negative traffic in North America, we had very, very strong growth, and we're very pleased with the overall performance in foodservice in the final quarter. And maybe just to give some details on that on the quarter itself, we did have significant launch activity in Q4. We had flagged that, that level of activity was quite elevated. The second thing was the performance of LTOs was strong and slightly ahead of expectations. The reality is that limited time offerings and seasonal offerings are actually at an all-time high in the foodservice channel as players continue to strive to connect and reconnect with as many consumers as they possibly can and to try and bring as much excitement to the menu as they possibly can. And then the third point is we did see also an increased level of customer promotion activity as well also in the quarter, and that promotional activity for sure impacted -- positively impacted our performance in Q4. In terms of let's say, the go forward, I think it's fair to say, look, we had an exceptional Q4 in foodservice. We don't expect, let's say, every quarter to repeat what we saw in Q4 2025. With that said, we do expect another strong year of performance in foodservice. And like we've said in the past, we believe we can deliver at least 400 basis points on average market outperformance in that channel, and our view hasn't changed. I think in terms of, let's say, the key underpins there, we have to wait and see. Will that level of promotional activity continue into 2026? I think based on, let's say, what we saw at the end of '25, I think customers would be encouraged to continue on that promotional activity, and we don't see any let-up in LTOs. In terms of reformulation, specifically within the foodservice channel, reformulation there is more kind of around value offerings. And it's also about -- it's also about, let's say, trying to bring excitement to the menu. So probably less of a feature is nutritional reformulation within the foodservice channel, that's more so in the retail channel. And I would say, reformulation in foodservice is around cost and around bringing as much efficiency to that operator as possible. And we don't see that changing as we look out into 2026. Operator: Our next question comes from the line of Alex Sloane with Barclays. Alexander Sloane: A couple of questions from my side, if that's okay. Edmond, if I can just sort of dig in on Europe a little bit further. So obviously, slightly weaker in the fourth quarter. You've explained that was kind of foodservice, but an outlook to be in growth for '26. Could you just talk to the kind of phasing there? I mean, could we be expecting it in the first half to be in growth? Or is this more kind of a second half phasing to that recovery? And the second one for Marguerite. The net debt was a bit higher than consensus for the full year, free cash flow a bit lower. I wondered, is there any kind of one-offs or phasing impacts within that free cash flow delivery, perhaps on working capital? Or is it just a case that consensus was in slightly the wrong place? Edmond Scanlon: Thanks, Alex. I'll kick off here. I would say, from an overall perspective, so from a total group perspective, we wouldn't be calling out any phasing as we look into 2026 across the quarters as we sit here today. But in Europe, we do see, let's say, that, let's say, improvement of that progression basically happening over the course of the year, probably slightly second half weighted rather than first half. But at a corporate level, we wouldn't be calling out any kind of phasing H1, H2, but specifically in Europe, maybe slightly more H2 weighted. Marguerite Larkin: And Alex, just on the free cash flow and working capital, yes, there are some timing impacts at the year-end. Our working capital days are a little bit higher than we expected. And maybe just to give you a little bit of color and context. Firstly, it's important to note that the 2024 year-end working capital days of 29 days were exceptionally low. And we said at the time, you might recall, that working capital days in the mid-30s was a more normalized level. And our working capital days at the year-end came in at about 41 days, which as I referenced, is a little higher than we expected. A couple of drivers on the year-on-year increase. Firstly, lower trade and other payable days. And 2 primary drivers within that. Firstly, mainly due to business decisions taken on sourcing alternatives implemented primarily as part of our tariff mitigation strategy and also reflects some new procurement initiatives with certain strategic suppliers. The second component, more of a timing one, reduction year-on-year in relation to performance-related incentives. And then the second component on our working capital, we had higher trade receivables just given organic revenue mix in the second half of the year, which was driven by the Americas and APMEA and some timing on other receivables, which will reverse in 2026. In summary, I would say, Alex, we expect working capital days to move back to between circa 35 and 40 days in 2026. And we expect FY '26 to be a year of good cash conversion of 80% plus and similar or better on a point-to-point basis. So hopefully, that gives you some better context on the moving parts. Operator: Our next question comes from the line of Fulvio Cazzol with Berenberg. Fulvio Cazzol: Yes. I suppose most of my questions have been answered, but I was just going to ask a question on capital deployment, how your M&A pipeline is looking? Are you looking to potentially add any other technologies or businesses in some of the more strategic developing markets? If you can just add a bit of color on anything you see there. Edmond Scanlon: Yes. Thanks, Fulvio. In terms of M&A, we did make 2 small bolt-on acquisitions through the course of 2025, one in the area of coffee extraction that we talked about earlier in the year, and that helped us to increase both our capability and capacity for coffee extraction, a key, I would say, a growth area and focus for us now and into the future. And the second bolt-on was a -- or basically our first manufacturing footprint in Egypt. And Egypt is an important market in itself, but having a manufacturing footprint there not only gives us access to that market, but also gives us the opportunity to serve better the North African markets. In terms of the pipeline going forward, basically, we're calling out 3 areas. Firstly, we will continue to look at expanding our presence in emerging markets, similar to what I just described with that bolt-on in Egypt. The second area is around proactive health. We have had a very strong performance in the year in proactive health. We see supplements as a space that has been growing close to double digits. And we feel we have already a nice portfolio in our proactive health portfolio, but we are out there looking for technologies that have strong science and clinical foundations and those opportunities are continuing to be evaluated. And the third area then is around fermentation. Again, it's a space where we have invested in recent years. We continue to invest organically, but we continue to be out there also looking for opportunities to build out our capability and capacity in fermentation. Operator: [Operator Instructions] Our next question comes from the line of Matthew Yates with Bank of America. Matthew Yates: Just a couple of small ones really around the Accelerate program. Just wondering, on the European performance, is there any effect here from either the footprint rationalization or a more sort of proactive and conscious decision from the management there to sort of focus on the margin at the expense of volumes? Or is this purely an illustration of sort of end market conditions? And then just in terms of the 2026 guide, I think your bridge, your waterfall chart showed about 40 basis points of margin improvement last year from the Accelerate program. Are we talking a similar order of magnitude in '26? And associated with that, a similar order of magnitude in exceptional costs, I think it was EUR 47 million last year. Edmond Scanlon: I might kick off there, Matthew, and Marguerite might want to add. As we think about Europe, and bear in mind -- or when we think about Europe, it's a Western Europe geographic, let's say, footprint that we're talking about here. Our expectations for Europe at the best of times is that we expect volume growth to be in that 1% to 2% zone. Clearly, we're shy of that at the moment. And like I said previously, we do expect Europe to be in positive territory in 2026. In terms of margin development in Europe, despite the lower volumes, we had very strong performance in margin expansion in Europe, and that was down to the Accelerate program. We are running that program extremely well. The execution of that program is very, very strong. We closed and exited 7 facilities throughout the course of the year. That was ahead of expectations, and a significant portion of that was in Europe. But like I said, the dynamics in Western Europe have been challenging. We believe we have the right team in place. We believe they're focused very hard on the right level of customer engagement, being super proactive with customers. And we expect all that work to start paying off here as we move towards the -- as we move towards 2026. Marguerite Larkin: And maybe just to add on the contribution from Accelerate. So in the context of the costs that we expect in FY '26, we expect circa EUR 50 million in the year in relation to Accelerate 2.0, as Edmond has referenced. We're making very good progress on Accelerate 2.0. It will be the primary driver of expansion in 2026. And looking overall from a margin perspective, we're looking at another year of good margin expansion of 60 basis points or greater for 2026. And as I say, Accelerate 2.0 will be the primary driver of this expansion with some operational leverage, mix and portfolio benefits coming through. So well on track in terms of that margin expansion delivery. Operator: Our last question comes from the line of Cathal Kenny with Davy. Cathal Kenny: A quick follow-up on margin, Marguerite, is it the expectation that all 3 regions will see a margin increase in '26, just in the context of that 60 basis points or greater? And one question on the regions, China. Just interested to know the outlook for the Chinese business is for '26. Edmond Scanlon: Thanks, Cathal. I might kick off here. In terms of, I guess, maybe the APMEA region, when we look at the APMEA region, we kind of look at it in 3 portions. Middle East, Africa, we continue to see solid performance there; Southeast Asia, quite strong performance; and China, while volumes were slightly back on the prior year, we did see some progression H2 versus H1, but probably not the level of progression that we expected, so slightly short of expectations. We do feel that 2026 will be a year of progression in China. We feel that there's 2 areas in particular that we're really focusing on in terms of driving that progression. Number one is there is a shift in China with some of our key customers on the retail side that they are putting more of an emphasis on export markets. And we feel we're very well positioned to enable those customers to be successful in those export markets, whether it's into Southeast Asia or back into the Middle East and Africa. And the second area is that there's been, I would say, a very fast acceleration from a consumer perspective around clean label and healthier products, and this is coming from some government guidelines around the 3 lows, meaning low salt, lower sugar and low saturated fat. And again, you can see based on our performance in North America and the Americas, especially around snack and bakery, we're exceptionally strong as it relates to reformulating. That has been driving growth in those end-use markets, and we expect to be deploying those types of technology solutions, both from a portfolio perspective and a capability perspective, the similar opportunities that we expect to see in China. So the market seems to be moving in our direction in China, which is a real positive. And we believe we have the portfolio and the capability to help on that reformulation drive. And that has been a key underpin of growth for us in the Americas in 2025 and 2024, and expect that to continue into 2026. Marguerite Larkin: And in terms of the margin expansion, no major call-outs by region. You should expect all regions to have good margin expansion in the year ahead. Operator: And at this time, we have no further questions. I will now turn the call back over to Kerry for closing remarks. William Lynch: Thank you, everyone, for joining us on the call today. We just wanted to note that we are presenting at the CAGNY conference this Thursday, and hopefully, you get the opportunity to join us or to listen into that conference presentation where we will give further insight in terms of the strategy and the execution thereof over the year ahead and the following years. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Have a pleasant day.
Operator: Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company results for the fourth quarter and full year 2025. My name is Victor, and I'll be your coordinator for today. I would now like to turn the presentation over to your host for today's call, David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy. Please proceed. David Ryzhik: Thank you, operator. This is David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy. And with me today is Russell Low, President and CEO; and Jamie Coogan, Executive Vice President and CFO. If you have not seen a copy of our press release issued earlier today, it is available on our website. In addition, we have prepared slides accompanying today's call, and you can find those on our website as well. Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC's safe harbor provision. These forward-looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our annual report on Form 10-K and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. Given the pending merger with Veeco, we will not be addressing questions related to the transaction. Please note that today's call is neither an offering of securities nor a solicitation of a proxy vote in connection with our previously announced transaction with Veeco. During this call, we will be discussing various non-GAAP financial measures. Please refer to our press release and accompanying materials for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures. Now I'll turn the call over to President and CEO, Russell Low. Russell Low: Thank you, David, and good afternoon, everyone, and thank you for joining us for the fourth quarter and full year 2025 earnings call. Beginning on Slide 4, we generated solid results in the fourth quarter with revenue of $238 million and non-GAAP earnings per diluted share of $1.49, both exceeding our outlook. Our better-than-expected results were primarily driven by stronger CS&I aftermarket revenue in the quarter, which had a favorable mix impact on our gross margins. Bookings in the fourth quarter improved significantly on a sequential basis, primarily led by power, general mature and memory, specifically DRAM. Before I provide more details on the trends we are seeing by market segment, I'd like to provide a brief update on our pending merger with Veeco. We continue to make meaningful progress towards securing all the approvals required to close the merger. We are pleased that shareholders of both companies voted in favor of the transaction at our special meetings on February 6. We have also received regulatory clearance in several important jurisdictions and are actively engaged with the regulatory authorities in China for the final approval needed to complete the merger. We continue to expect closing in the second half of 2026. In the meantime, we are working closely with Veeco on integration planning to help ensure the combined organization is fully aligned and ready to hit the ground running on day 1. As we collaborate more deeply with our Veeco counterparts, we are increasingly impressed by the clear alignment in our cultures, values and our shared commitment to innovation and customer satisfaction. The integration planning process has reinforced our confidence in the potential of this merger and in our plans to come together as one company to unlock even greater value for all of our stakeholders. Turning to Slide 5. In the quarter, as well as the full year, sales to mature-node applications accounted for the majority of our system shipments, in particular, power and general mature. Now on Slide 6, let me review our trends by end market. Within our power business, shipments to silicon carbide moderated slightly on a sequential basis. Consistent with our commentary over the past several quarters, customers continue to take a disciplined approach to capacity investments following the significant build-out a few years ago with many customers now prioritizing the technology transitions. As an example, a key driver of our CS&I strength in the quarter was driven by system upgrades for a number of our silicon carbide tools at a customer location where a customer converted their tools from 150 millimeter to 200 millimeter and chose to do this with our recently introduced Purion Power Series+ platform while staying within the same footprint. We also continue to see select customers in China expanding their silicon carbide device capacity and capabilities, while customers in other regions are focused on the next-generation technology investments such as trench and superjunction. We are seeing growing interest for our newly developed high-energy channeling capabilities, which are essential and necessary for superjunction development. Broadly speaking, while near-term ion implant demand for silicon carbide applications is anticipated to remain muted as customers absorb their capacity, we expect strong long-term demand through the cycles, driven by clear secular trends such as the growing penetration rate of silicon carbide into electric vehicles, particularly as we see more 800-volt models released, growing content of silicon carbide within EVs, the growing overall volume of EVs on a global basis and the growing adoption of silicon carbide outside of the automotive sector such as solid-state transformers, circuit breakers, solar battery inverters, HVAC systems, industrial motor drives, aerospace and defense, just to name a few applications. Adding this all up, we remain excited about the long-term demand profile for silicon carbide, and we believe we are well positioned in ion implant for this application. In our other power market segment, ship system revenue also moderated slightly on a sequential basis, primarily due to a muted demand trends in silicon IGBTs. In general mature, revenue improved sequentially as customers made select investments, particularly in our high current tools. Overall, customers continue to manage capacity investments amid stabilizing auto industrial demand. However, we noticed a continued improvement in implant tool utilization rates across multiple customers in the fourth quarter. While we are not yet seeing signs of a cycle recovery in CapEx spending for general mature process technologies, we are encouraged with the improved utilization rates. Turning to Slide 7. In advanced logic, we generated revenue on a follow-on order from an existing customer and we continue to work closely with customers on next-generation technology needs, including implant for backside power contacts as well as other material modification implant applications. Moving to our memory market. Demand improved sequentially for DRAM and HBM applications, and we expect this momentum to extend into 2026 as customers expand capacity to address growing demand for AI-related applications. I'm also pleased to say that we secured an order for a high current system from a leading North American memory manufacturer, which is an important customer win that broadens our presence beyond our strong position in Korea. Interestingly, we received this new order prior to the completion of an existing system evaluation, which we view as an endorsement of our technology. In NAND, customers remain focused on higher layer counts, which does not drive incremental ion implantation demand. As a result, we continue to expect demand for NAND applications to remain muted in the near term. That said, recent improvements in NAND bit demand and pricing are encouraging, and we believe we are well positioned once our customers resume wafer capacity additions, which we expect is a matter of when, not if. On Slide 8, let me wrap up my thoughts on 2025. I am pleased with our team's focused execution given the changing macro environment throughout the year. We navigated the cyclical digestion period across our markets exceptionally well and focused aggressively on product development and customer engagement. Early this month, we announced the introduction of the Purion H6, our next-generation high current ion implanter. The Purion H6 incorporates a series of notable technology advancements across the beam line, source, particle control and dosimetry subsystems. The system delivers industry-leading dose repeatability as well as significant advancements in purity, precision and productivity, supporting high current applications across advanced logic, memory and mature process technology nodes. As devices scale and architectures become more challenging, customers are demanding tighter implant control, lower contamination, higher uptime and lower overall cost of ownership requirements that Purion H6 was engineered specifically to meet. In the fourth quarter, we delivered our strongest quarter of high current shipments in 2 years and the introduction of Purion H6 builds on that momentum. We also delivered double-digit year-over-year growth in our CS&I aftermarket business, supported by our growing installed base and a deliberate strategic focus on upgrades and services both of which reached record levels in 2025. Despite overall revenue declining in 2025, our non-GAAP gross margins grew by 30 basis points. In combination with disciplined cost control, we delivered strong profitability and cash flow in 2025. Now on Slide 9, let me discuss our initial perspectives on 2026. We expect our memory business, led by DRAM to grow as customers invest in capacity to meet accelerating AI-driven demand. In the power and general mature markets, while utilization trends are improving, customers are continuing to manage existing capacity following a strong investment cycle over the past several years. As a result, we expect this to result in slightly lower year-over-year revenue in these end markets. However, over the long term, we anticipate power and general mature to be a key beneficiary of electrification and the increasing demand for efficient power generation delivery and use. Importantly, while the rapid growth of AI large language models has been a strong catalyst for advanced compute and memory demand, we expect the power semiconductor market to also benefit from the growing need for power associated with AI. And this includes silicon, silicon carbide and gallium nitride applications, distributing power all the way from the grid to the core. Moreover, we also anticipate the emergence of physical AI such as robotics, autonomous vehicles and many other devices on the edge to become yet another sector driver of power devices as well as general mature technologies such as MCUs, image sensors, analog and others. And finally, in advanced logic, we anticipate relatively similar revenue levels in 2025. We are making progress in our long-term strategy to penetrate this market, but it will take time before our evaluations translate into meaningful volume as we engage with customers on next-generation logic architectures. Taken together, we currently anticipate overall revenue to be relatively flat compared to 2025 levels. With that, let me turn the call over to Jamie for a closer look at our results and outlook. Jamie? James Coogan: Thank you, Russell, and good afternoon, everyone. I'll first start with some additional detail on our fourth quarter and full year results before turning to our outlook for Q1. Starting on Slide 10. Fourth quarter revenue was $238 million, with systems revenue at $156 million and CS&I revenue reaching another quarterly record of $82 million, both above our expectations for the quarter. Our better-than-expected CS&I revenue was primarily driven by strong demand for upgrades as customers look to optimize their technology within the same footprint. In addition, the quarter also benefited from some pull-in activity given improving utilization rates. We are pleased with our execution in CS&I and our aftermarket offerings are resonating with customers. For the full year, CS&I revenue grew 14% on a year-over-year basis, led by strong growth in upgrades and services revenue. A key driver here is the deliberate strategic initiatives we've undertaken over the past few years to drive better adoption of upgrades and service contracts. Moving to consolidated revenue. From a geographic perspective, China decreased sequentially to 32% of total revenue, down from 46% in the prior quarter, which was consistent with our expectations as customers continue to digest the robust investments they've made in mature node capacity over the past few years. Turning to the other regions. We saw revenue in Europe at 15%, the U.S. at 14%, Korea at 13%, Japan at 9%, Taiwan at 3% and the rest of the world at 13%. For the full year 2025, our revenue from China was 42% of total revenue, while U.S. came in at 16% and Korea at 13%, Europe at 11%, Taiwan and Japan at 5% and the rest of the world at 7%. As Russell mentioned, bookings increased notably on a sequential basis to $128 million, and we exited the fourth quarter with a backlog of $457 million. Now turning to Slide 11. I'd like to share some additional detail on our GAAP and non-GAAP results. GAAP gross margin was 47% in the quarter. And on a non-GAAP basis, gross margin was 47.3%, above our outlook of 43%, primarily due to a higher mix of CS&I as well as a more favorable mix of upgrades within CS&I. GAAP operating expenses totaled $76 million. And on a non-GAAP basis, operating expenses were $62 million, above our outlook of $56 million, primarily due to higher variable compensation expenses associated with the better-than-expected fourth quarter performance. Our non-GAAP results exclude transaction-related expenses associated with the pending Veeco merger, along with other typical non-GAAP adjustments such as share-based compensation and restructuring charges. In this context, the fourth quarter reflects an expense from a onetime voluntary retirement program, and we recorded a portion of that expense in the period. As a result, our GAAP operating margin was 15.2%, while our non-GAAP operating margin was 21.1%. Moreover, in the fourth quarter, we delivered adjusted EBITDA of $55 million, reflecting an adjusted EBITDA margin of 22.9%. We generated approximately $4 million in other income with the sequential increase primarily due to foreign currency. Our tax rate was approximately 14% in the fourth quarter, both on a GAAP and non-GAAP basis. Our weighted average diluted share count in the quarter was 31.1 million shares. This all translates into GAAP diluted earnings per share of $1.10, which was higher than our outlook of $0.76. Non-GAAP diluted earnings per share was $1.49, also exceeding our outlook of $1.12. The higher-than-expected non-GAAP diluted earnings per share was primarily due to better-than-expected revenue and a favorable mix. For the full year, we delivered GAAP gross margin of 44.9% and non-GAAP gross margin of 45.2%, a 30 basis point increase year-over-year despite the lower revenue. This was due to favorable mix and a continued focus on cost control. For the full year, adjusted EBITDA was $177 million, reflecting an adjusted EBITDA margin of 21.1%. We generated approximately $19 million in other income this year, and our tax rate was approximately 13% for the full year on a GAAP and a non-GAAP basis. This all translates into GAAP diluted earnings per share of $3.80 or a non-GAAP diluted earnings per share of $4.88. Moving to our cash flow and balance sheet data shown on Slide 12. In the fourth quarter, free cash flow was negative $9 million, driven by the timing of our sales, which were skewed more to the month of December. In turn, this increased our days sales outstanding. In addition, our cash flow was negatively impacted by approximately $5 million in cash transaction expenses associated with the pending Veeco merger. For the full year 2025, however, we generated robust free cash flow of $107 million. And despite the decline in our revenue, this reflects strong cash generation of our business. Turning to share repurchases. In the fourth quarter, we repurchased approximately $25 million in shares and have $110 million remaining under the share repurchase program previously authorized by the Axcelis Board of Directors. For the full year, we repurchased approximately $121 million of shares. We exited the fourth quarter with a strong balance sheet, consisting of $557 million of cash, cash equivalents and marketable securities on hand. It's important to note that this includes $182 million of long-term securities. With that, let me discuss our first quarter outlook on Slide 13. All measures will be non-GAAP with the exception of revenue. We expect revenue in the first quarter of approximately $195 million. The sequential decline is expected to be across both systems and CS&I. In systems, we have seen a few pushouts due to the timing of available cleanroom space. And in CS&I, there's some seasonality at play, which typically results in higher volume in the fourth quarter given customers like to manage their budgets into year-end. In addition, as Russell noted, we saw a large customer upgrade in the fourth quarter that we do not expect to recur in the first quarter. And finally, a portion of the CS&I upside we saw in the fourth quarter was pulled forward from the first quarter. We expect non-GAAP gross margins of approximately 41%. The sequential decline is primarily due to less favorable mix and lower volume relative to the fourth quarter. More specifically, we anticipate a higher volume of sales into the memory market, which typically carry lower gross margins due to the nature of the systems they are buying. In addition, we anticipate a sequential decline in CS&I revenue, combined with a lower mix of upgrades, which typically carry higher gross margins. And finally, to a lesser extent, we anticipate a modest incremental impact from tariffs as a greater mix of our inventory includes the tariff impact and older inventory is cycled out. We expect non-GAAP operating expenses of approximately $59 million in the first quarter. Adjusted EBITDA in the first quarter is expected to be approximately $26 million. And finally, we estimate non-GAAP diluted earnings per share in the first quarter of approximately $0.71. As Russell indicated, we anticipate full year 2026 revenue to be approximately flat compared to 2025 levels. We expect revenue to be second half weighted. We anticipate growth in our memory market to offset a decline in our power and general mature markets. We currently estimate full year 2026 non-GAAP gross margins of approximately low to mid-40%. The year-over-year decline is primarily due to the anticipated stronger mix of memory business in 2026 relative to our other markets. In addition, as I referenced earlier, we anticipate a modest year-over-year impact from tariffs, which we estimate at less than 100 basis points. As we think about operating expenses for the year, we expect to continue to balance investments in product innovation to drive organic growth in our business while remaining disciplined on cost. As a result, we expect quarterly non-GAAP operating expenses for the balance of the year to remain relatively similar to anticipated first quarter levels. And finally, we anticipate our tax rate to be approximately 15% for the full year. In summary, we're pleased with how we performed in 2025 despite a softer demand backdrop in our power and general mature markets. While systems revenue declined on a year-over-year basis, we delivered strong growth in our CS&I business. We grew our gross margins, and we delivered robust free cash flow while opportunistically increasing our pace of share buyback. We enter 2026 in a solid financial position and are excited to close our pending merger with Veeco, which we believe will enable us to unlock the full potential of the combined company and drive long-term value creation for our shareholders. With that, let me hand the call back to Russell for closing remarks. Russell? Russell Low: Thank you, Jamie. As we look ahead, we remain focused on disciplined execution and advancing our technology road maps that differentiate Axcelis across our end markets. The progress we made in 2025 from product innovations to acceleration in our CS&I business to operational excellence positions us well as we enter an important year for the company. With respect to our pending merger with Veeco, we anticipate significant long-term opportunities as a combined company. Together, we expect to be even better positioned to capitalize on the secular tailwinds driven by AI and electrification and expect to leverage the complementary strengths across our portfolios and our people to deliver greater value for all stakeholders. I want to thank our customers, employees, partners and shareholders for their continued support and trust in Axcelis. With that, operator, we are ready to take questions. Operator: [Operator Instructions] Our first question will come from the line of Jed Dorsheimer from William Blair. Jonathan Dorsheimer: Congrats on Q4. I guess a question for me is just in the memory market, congratulations on getting the high current into the U.S. memory manufacturer. I'm wondering if you might be able to provide a bit more color is to whether or not this was more of a second sourcing opportunity? Or I just look at the Q4 to Q1 transition, and I know you said that memory is going to be stronger. Do you anticipate that, that new customer is ramping up on that capacity expansion? Or how to think about that? And then I have a follow-up question. Russell Low: Jed, it's Russell. So when I think about memory, obviously, I'm talking about DRAM specifically, and the demand is going up and up, pretty much driven by AI. What we're seeing right now is that basically, it is cleanroom space limited. So we're seeing many, many customers trying to slide an extra couple of tools in to increase their capacity, but you won't really see large numbers of tools until you actually open up the new fabs that are coming through. So I think you've seen them in the press. Each one of the really large DRAM manufacturers have plans to open new factories in the near term. So I think what you'll see is that, that's -- we'll see DRAM significantly up in 2026 compared to 2025, although somewhat of a lower base in '25. But we're looking to see that momentum continue into 2027 as the -- basically the bottleneck, which is cleanroom space starts to dissipate and there'll be more tools coming out. And that will be across all the DRAM manufacturers. Jonathan Dorsheimer: That's helpful. And then just on this CS&I and specifically the silicon carbide, if you look at your base that's out there, what percentage has converted from the 150 mm to 200 mm already? And where I'm going with this is just to try and understand sort of that conversion premium in the CS&I business that you saw in Q4, what's left out there to kind of run through or capture? Russell Low: That's a great question, Jed. So I guess the question is, what is the market potential for a 6-inch to 8-inch transition in terms of upgrades? Jonathan Dorsheimer: Yes. Yes. Russell Low: So I would say that only a very small part of our installed base has gone up to 200-millimeter. It's still very much in that transition phase and kind of the leaders are trying to get there. And I'd say the leaders typically outside of China are trying to get there first. I think that's where they're going to have the biggest cost advantage. So I think there's ample opportunity to continue to provide these really high-value upgrades into fill them. I think I should just clarify that, yes, there was a large customer going from 6-inch to 8-inch, but they also upgraded the system as well to our Purion Power Plus Series, which was kind of an upgrade on top of an upgrade. So that really did reduce the cost of ownership. And like Jamie said in his prepared remarks, that was within the same footprint of the tool. So this really is a field upgradable system that gives -- continues to give value. Operator: Next question comes from the line of Denis Pyatchanin from Needham. Denis Pyatchanin: So regarding the strong bookings that you guys are seeing, can you tell us maybe a little bit more about which 2 or 3 segments are driving this growth? Russell Low: I'd say that it's actually -- so if you look at our revenue history and where those segments have been, I'd say that our bookings have pretty much matched our prior. So it's nothing unusual. And while we're seeing a bump up in memory, I just want to mention that memory typically books and ships in the same quarter. So you don't typically see a lot of memory in our backlog. There's a little bit there depending on where the quarter ends. But ultimately, it's still general mature and power are the main parts of our bookings. Denis Pyatchanin: Understood. And given the outlook for approximately flat revenue year-over-year for 2026 versus 2025, and given the strength that we're seeing in DRAM from both HBM and DDR5, can we assume that both general mature and both segments within power are showing some weakness throughout the year? Russell Low: So I think we've kind of said that general mature is slightly down but we are seeing the utilization rates coming up. So obviously, our customers are seeing hopefully a rebound in revenue but that's because they're now getting to utilize the tools they already have. Once those tools are up to high utilization rates, that's when they'll start to buy more tools. So certainly a very positive sign is just that we are further down the supply chain. So I would say that we're slightly down year-over-year with raising utilization rates. Regarding power, I'd say power is slightly down, although it's still a large part of our revenue and is still doing, I'd say, relatively well. And when I look at power, I think about the long-term secular trends, electrification, for example, all the way from generating efficient energy, transporting efficient energy and using less of it, I really do think that there's a great opportunity in the long-term secular trends for power. So while they're taking a bit of a pause, and I say sort of slight down, you're seeing the slack being picked up by memory. And like I said before, memory, right now, the bottleneck is the cleanroom space. Denis Pyatchanin: Understood and... James Coogan: Go ahead, Denis. Denis Pyatchanin: I was just going to say, is there any way you could provide a little bit more color on like whether power SiC or other power is looking a little bit stronger over the next few quarters or even throughout 2026? James Coogan: Yes. I would say our current view is it's like what we're really talking about is a handful of systems, Denis, right, in probably both of those segments, right, lower than the year-over-year prior year. And as we look out, what we're trying to just be cautious on is calling the timing of a recovery, right? We're seeing those encouraging signs, as Russell said, in utilization rates. That's helping to contribute to some of the incremental CS&I volume that we are seeing as well. So we are getting some beneficial financial performance from those improved utilization rates. And similar to our approach last year with calling a memory recovery, we wanted to kind of see it in the data before we kind of -- we're willing to put that out there. What I'd suggest is we're seeing those encouraging signs, but we're not yet seeing those -- the order rates pick up at that rate just yet for us to call that a slight recovery in the cycle for those markets. Operator: Our next question will come from the line of Christian Schwab from Craig-Hallum. Christian Schwab: I just want to get back to memory for a second. So your largest customer in Korea is taking some capacity off of NAND for DRAM for high-bandwidth memory plus we really need a substantial increase of wafer starts in DRAM specifically, not NAND, given layer count increases in order to get supply and demand more in balance. So are you suggesting that you think others in the space are talking about a super memory CapEx cycle since you really only have one competitor and are leading supplier to the largest. Are you suggesting that you don't have the orders in hand for the second half of '26 yet? Or are you suggesting that '27 should be a fantastic year? Russell Low: So a couple of things there, Christian. So I think what we're saying is that typically, we build to forecast, which is why we often get the PO, i.e., the booking in the same quarter, the tool shifts. So just to kind of clarify where we are with 2026. We believe that we're going to have significant improvements in our DRAM business in 2026, and that's based upon staying very close to our customers and understanding what their needs are. However, I think it's also clear that while they're kind of begging and borrowing space, they have made public announcements of really significant increases in their capacity. So if you think about the Yongin cluster, for example, with SK hynix, it's going to be 4 mega fabs of 200,000 wafer starts a week and that's where they've been investing a lot of money for quite some time. So they've got the CapEx going into building the fabs and then they'll be looking in, I think, early 2027, for example, for taking systems to then start ramping up that factory. And I think you've seen in the public disclosures multiple companies saying they're looking to build more capacity. But right now, that's what you're seeing with DRAM is that the prices are spiking because the supply is very constrained. Christian Schwab: Right, right. Can you -- on the capital intensity, can you remind us how much ion implant equipment is needed for every 100,000 wafer starts? Russell Low: Yes, sure. So I think NAND and DRAM are slightly -- are mostly similar in terms of the requirements, but the mix with inside that number would vary between high energy, high current and medium current. So if I go with DRAM, for example, typically, it's about $150 million to $200 million worth of capital for implants for every 100,000 wafer starts that are bought online. And that, I would say, is there's a little bit of high energy in there. There's -- but a large amount of that is high current. So when we talk about growth in memory, we have a very good position in high energy and we're looking to get -- to build upon our good position in high current as well. So that's why we've been positive about high current. James Coogan: Important note, Christian, is that all this commentary really is around DRAM at this point in time, right? And our expectations are for NAND to continue to be relatively muted as we go through '26. That could free up as we go into '27, depending on how those NAND -- what those NAND producers need to increase their capacity. So... Operator: Our next question will come from the line of Craig Ellis from B. Riley Securities. Craig Ellis: Guys, I was hoping to get a better understanding of what you're seeing in the mature foundry business with some insight geographically. We're hearing from companies that they're seeing foundry utilization approaching 90% in China in the 80% area in Southeast Asia, I suspect it's much lower than that in mature in the U.S. and Europe. But as you're engaged with your many customers in mature, can you help us understand where we're getting closer to levels where they need to really start adding more capacity versus areas where there may be less very near-term pressure? Russell Low: Craig, it's Russell. So yes, so utilization rates do obviously vary by customer. I'd say that high utilization will then drive to high CapEx or use of CapEx. And you've seen some of our customers state that their CapEx may not be that high this year. I think there's been a couple of very vocal customers about that. So obviously, they've got to fill up what they have and they may be slightly behind where they would like to be and then they'll start spending. But are you focusing on China? Yes, they certainly want to provide more chips for domestic use. So this is very much about the self-sufficiency. So they're going to -- and I believe they're quite a long way behind their goal. So they're going to continue to buy equipment and ramp up factories. And since these are quite demanding technologies, it may take them a while to get the cost down as they kind of get the yields up and ramp up the factory. But yes, you're seeing that in China, there are certainly still high utilization rates and also a demand for additional growth. The other thing is, I think we said this many times before, I mean, our Chinese customers behave like any of our other customers. They absolutely want the best technology. They want world-class service and support. And we've got great relationships in China. We spent over $100 million last year on R&D, and that goes to innovation and our Chinese customers are looking for innovation as much as anybody else. They're looking to do basically they need cutting-edge technology to give them the benefit in their own businesses that they're looking for to survive. Craig Ellis: Russell, that's really helpful. And just sticking with the China theme versus the 32% of revenues in the fourth quarter or if we want to baseline off of the 42% for 2025. And I know the company is not giving full year guidance, but can you help us understand where you feel the demand intensity would be from that region in 2026, given in part that we've heard a number of companies suggest trends could be flattish rather than down year-on-year. I know you have over 20 customers, but as you look at what's possible in China, what does it look like for 2026? James Coogan: Yes. We see it to be relatively flat to down slightly, right? And I kind of maybe stress the word slightly there, Craig, to some extent. When we start to think about the ASPs and the number of units we ship, right, you're not talking about massive number of, I'll call it, quantity-wise down. We do expect China to continue to remain a really durable part of the overall market and business for us as they build out that capacity. As Russell said, they're still really far away from their self-sufficiency goals and targets and the conversations that the team is having over there with those customers continue to sort of stress the expansion that they continue to plan with more fabs coming online in order to meet those self-sufficiency goals and targets. So we're prepared to continue to support that ramp in the market. And as they work through that, we call this digestion of capacity, we really have seen that more as a mixed bag outside of China, more so than really inside of China. Craig Ellis: Very helpful. And if I could sneak in one more. Jamie, with regard to the 41% gross margin guide for the first quarter, clearly, CS&I less of a tailwind than that spectacular fourth quarter gross margin number. But are there any one-offs impacting gross margin is coming in a little bit lower than I would have otherwise expected? James Coogan: Yes. No, it's a good question. And sort of we dissected the sort of the dip we're anticipating here. I think that, again, the strength of that margin in Q4, right, was driven by really record levels of CS&I volume that we saw in the period as well as the mix within the upgrades, right, upgrades being a larger mix of CS&I load. So on a normalized basis, right, I would say that, that margin decrease is not as material as it might otherwise look from Q4 to Q1. Within that, we do see a higher mix of memory systems making up the systems volume in the period as well as sort of the moderation of CS&I and expectation for moderation of CS&I volume given that there's some seasonality that happens from Q4 to Q1 as our customers will use up some of their budgets to buy incremental CS&I in the period. And then I don't want to overstress this, but we are seeing a Q1. There's a little bit of a tariff impact in Q1, just given the way our inventory flows out from -- we procure inventory last year, which gets used in Q1 of this year. That is now at a slightly higher cost. We anticipate that to be a little less than 100 basis points for the full year, but the impact in Q1 is higher and we expect that to moderate over the course of the year as we sort of catch up with our sort of Q4 COGS levels. Operator: Our next question will come from the line of Jack Egan from Charter Equity Research. Jack Egan: So the first is on power and general mature. I just kind of want to make sure I understand your guidance correctly. So because based on -- if you look at a lot of the commentary from the big analog and power companies in -- just from this quarter, it seems spending will come down pretty materially across the Board. But then as you mentioned, there are some tailwinds like the higher utilization and some onetime upgrades to larger wafers or in other areas and then some build-outs by newer Chinese customers and I. So I mean, does that kind of encapsulate the situation where I think you said it's going to be down slightly year-over-year, and it's mainly capacity investments being down and then offset a bit by some of those other idiosyncratic factors. Russell Low: Jack, it's Russell. So I think the question was we're saying it's kind of like flat to slightly down, you're saying what are the factors in there. And I think it's -- I think China is still looking to add capacity, but they're adding it carefully, I'd say. They've got to absorb the got and make sure they ramp up effectively with costs in control. And I think you're finding some of the non-Chinese people are also -- the utilization rates are definitely going up. And it matters which customer you're talking about, the utilization rates are going up. And since we're a little bit further down the supply chain, they need to get their utilization rates up before they start thinking about new tools. So I think that's kind of like we'll see a lot of customers this year start to recover their capacity. And then that's what we'll then see hopefully as an opportunity going into 2027. Jack Egan: Okay. Sure. That's helpful. And then as you've said earlier for memory, those orders come in with a really short lead time, but something that we're seeing like at the memory companies is that their customers are kind of becoming more willing to sign these unusually long LTAs just given the severity of the shortage. And so I was just kind of curious on is any of that trickling down to Axcelis, just maybe in kind of your customer discussions with customers, have they indicated that maybe we'll give you longer lead times? Or is it largely the same as it has been for Axcelis in recent quarters? Russell Low: Yes, Jack. So whenever I hear about long-term contracts being signed, it always makes me a bit worried because I've kind of seen these happen before. And I think somebody in the newspapers [indiscernible] as kind of the demand for RAM is so, so high. And you're absolutely right, you're seeing people buying up large amounts of RAM in long-term contracts. So yes, the price is spiking up. I think that you're definitely seeing that. But I also -- we're talking about RAM, right? James Coogan: I think it's important we do maybe just like a process check on how our customers order with us just to clarify. Sorry you talked about short order cycles it's PO placement, Jack. But what we do get from our customers in this space is we get a long-range forecast that can cover sort of multi-quarters. So we're getting multi-quarter forecast. Our historic experience has been that those forecasts are very sound, right, in terms of what the needs and requirements are. And sometimes we actually will see requirements go above what is in that initial forecast as they are able to free up incremental capacity in space. That activity is occurring, continues to occur with these customers. This is why when we talk about our confidence of memory recovery, right, it's founded in those discussions that we're having relative to our customers' needs for the period. What follows short behind that is I'll call it, the legal framework for which we enter into the purchase order. That is just the timing of that purchase order can be a week, a month and maybe if we're lucky, a quarter ahead of time. Russell Low: Yes. That's exactly what I'm sorry. I think [indiscernible] last week, that's the jet lag kicking in. And I think [indiscernible] talking to our customers about what they see going on. And yes, Jamie is absolutely right. We work on forecast. The forecast, as you can imagine, are quite positive. But -- and we're making sure that we're ready for that demand. James Coogan: Yes. It would be interesting to see, Jack, is that as they free up their constraints, how quickly they can free up their constraints if those buying patterns accelerate, right? But as of right now, that's why we're forecasting an acceleration of memory into '27 as we'll see higher volumes here and then we'll see acceleration into '27. We're going to watch pretty closely our customers' expansion as we move through the course of the year as they try to pull in some incremental fab space. So we want to position, leverage the balance sheet and position ourselves to take advantage of incremental opportunities for '26 if they're able to free up some incremental space. Operator: Next question will come from the line of Duksan Jang from Bank of America Securities. Duksan Jang: I have a question on the Q1 guide of $195 million sales. So I think that's about a $20 million delta from your -- what you alluded to last quarter. I know you talked about some pull-ins. But at the same time, I think you said memory has gotten much stronger in your bookings, which is more of general mature and power, that has also improved a lot. So I'm curious what the puts and takes are into that $195 million guide? How much is pull-in versus how much is real end demand? James Coogan: Yes. So it's actually a combo factor. And Duksan, thanks for asking the question. I think it's important to get it clear. So we did see some incremental volume in the fourth quarter for CS&I that probably would have floated into Q1 had it not come into -- not overly material, but enough to sort of move our expectations for Q1 relative to that. On top of that, we saw some pushout of systems from Q1 into later in the year, given fab readiness for our customers and not necessarily focused on any one specific market. We just have these things happen. So as we look ahead, timing, right, of system delivery is always one that we manage very closely with our customers. Again, we don't want our systems sitting in parking lots or warehouses, we want the fabs to be ready. We want our installation teams to follow closely thereby. So what we really saw was some pushout of systems, coupled with some modest pull-in activity on the CS&I front. Duksan Jang: Got it. That sort of leads into my second question, which is on your 2026 outlook of being flattish. When you say it's going to be second half weighted this year, is that mostly coming from memory? Or is it also more broad-based? And what's giving you really the confidence into that visibility? Russell Low: So I think...go ahead for it Jamie. James Coogan: Go ahead, Russell. Duksan Jang: No, it is really... Russell Low: Yes. Both of those things are occurring, right here for us. At the end of the day, we're seeing some incremental memory volume at a higher rate than we expected coming in the back half of the year. So that when we talk about those encouraging signs relative to memory and some of our ability to seeing the recovery occur, it is that memory volume coming in that we anticipate going higher. We are also anticipating just based on the timing of customer needs, we're seeing systems volume weighted towards the back half of the year. And then we are forecasting sort of similarly a little bit of CS&I uptick over the course of the year as we introduce upgrades and upgrade activity that can occur as customers take those things on. Operator: Next question will come from the line of David Duley from Steelhead Securities. David Duley: I guess, first off, if I listen to you carefully about your memory business, it sounds like you're going to have higher growth in memory in 2027 than you're going to have in 2026, driven by the cleanroom space constraint. But in 2026, do you think this business can get to like 12% or 15% of revenue? I'm just kind of curious how much growth you think there will be in '26? James Coogan: Yes. So we're not giving a specific number, Dave, just yet on that. But I would say, again, we're coming off a fairly low base in 2025, and we do expect the volumetrically to see an increase here to kind of keep the revenues, call it, flattish as we see some downward trajectory in the power and general mature space overall. We do anticipate acceleration of memory activity as we move into 2027. And obviously, the growth rate from '25 to '26 to '27 is all going to predicate on the volume that we're able to deliver within 2026. But as of right now, I would say the growth rate in '26 is a healthy number. David Duley: And do you think 2027, since that's probably going to be the higher growth year and the higher dollar amount of memory systems shipped, do you think you can get back to your historical range? I think that was 18% to 20% a long time ago when there was a memory cycle? Russell Low: Sorry, let me -- okay. So Dave, I think if you go back to historic records, it's probably better to do it in absolute dollars than it is market share because I think as a company, we've progressed significantly. I mean, when I joined 10 years ago, we were selling tools to Korea, right? And I think since then, you've seen us getting into silicon carbide power, silicon power, got a nice business in general mature, image sensors. So I think it's more about the absolute numbers. Our last highest memory year, I think, was like -- I want to say, Jamie, it's like $120 million, but that was NAND and DRAM. So you then have to pare it out to what was the highest amount of revenue we ever made within a year on DRAM alone, that will probably get you close to where we would be wanting to get plus some, right? I mean I'm always the optimist and I'm always looking to take on more market share. And I think you've also got to look at the size of the market. And I don't think I've ever seen the DRAM market in such sort of supply before. So I think as ever, you're going to start to see a large amount of supply come on. And we know how the cycle works, but I think we're looking to get a piece of that action. And like we've said, we're very pleased with the fanning out of our memory into a large North American manufacturer. I think that gives us an even bigger footprint and bigger opportunity going forward. James Coogan: I think Russell, that's really important is that last DRAM high was $90 million, right? And that was before the introduction of these systems into the North American memory manufacturer. And then as we think about the number of wafer starts, right, that predicated the $90 million build-out, right? I think the projections for that are higher. But again, we're going to -- again, we'll be sort of moderate in our tone here because, again, we need to see those wafer starts occur. We need to see the customers expand their fabs. We need to see the orders and the forecast come in. But all the signs right now are encouraging for that, that '27, we will accelerate out of '26 into '27. David Duley: Okay. And then final thing for me is, I think you've already answered, but I just want to make sure, I think you said you had record demand for high current systems or tools in the quarter. Is that just because the memory business is turning on? Or maybe you could elaborate a little bit about that. Russell Low: So we do have -- so there's a couple of things. Yes, memory business is turning on. But like I say, it's still on a pretty low base in 2025. I'd say that we're actually moving out. So the goal was always, Dave, is to get in on an application that was critical that really had value and then start to fan out within a customer and then also take on new customers where we know our products will have significant value like we did with the North American memory manufacturer. So we are seeing a broader base in memory, a broader base in general mature and power. And I think that's also a testament to the value that our tools bring to our customers. So we are seeing an uptick in our high current market share. James Coogan: David, just to add to that, that's the highest we've had in the 2-year time frame, not an all-time record for high current. But so over the -- if we look over the last 2 years, this was a record for high current product. Operator: And this concludes the question-and-answer session. I would now like to turn it back over to David for closing remarks. David Ryzhik: Thank you, operator. I want to thank everyone for joining the call and your interest in Axcelis. Operator, you can close the call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Aubrey Moore: Good morning, ladies and gentlemen, and welcome to Somnigroup International Inc Fourth Quarter 2025 Earnings Call. At this time, all lines are in a listen-only mode. If anyone has any difficulties hearing the conference, I would now like to turn the conference call over to Aubrey Moore, Investor Relations. Please go ahead. Thank you, operator. Good morning, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President and CEO, and Bhaskar Rao, Executive Vice President and Chief Financial Officer. This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filings, including its annual Aubrey Moore: reports on Form 10-Ks, and quarterly reports on Form 10-Q. Any forward-looking statement speaks only as of on the date it from which it is made. The company undertakes no obligation to update any forward-looking statements. This morning's commentary will include non-GAAP financial information. Reconciliations of this non-GAAP financial information can be found in the accompanying press Aubrey Moore: release. Aubrey Moore: Which has been posted on the company's website at www.familygroup.com and filed with the SEC. Our comments were supplement with detailed information provided in the press release. Finally, before I turn the call over to Scott, I want to take a moment to share that this is my final earnings call in this role. I am transitioning to Somnigroup International Inc vice president consumer and market intelligence. I am pleased to say that Lauren, many of you know well, will be leading investor relations going forward. It has been a privilege to work closely with our investor community and I am confident Lauren will continue to serve as a strong partner going forward. And with that, it is my pleasure to turn the call over to Scott. Scott Thompson: Aubrey, you for your outstanding contributions to investor relations. Maybe even a bigger thank you for you jumping into your new role at SGI. Bhaskar Rao: That is important to our future success. Moving on to today's earnings call. Good morning. Thank you for joining us on our fourth quarter and full year 2025 earnings call. I will begin with highlights the quarter and full year and then turn the call over to Bhaskar to review our financial performance in more detail and discuss our 2026 guidance and our updated three-year EPS targets. After that, I will open the call up for Q&A. In 2025, we achieved record net sales and adjusted EBITDA. While our adjusted EPS increased a robust 20%. Year over year, net sales were up approximately 55% to $1,900,000,000. Adjusted EBITDA was up approximately 59% to $349,000,000, adjusted EPS was $0.72 per share. This financial performance was particularly notable given it was achieved while the industry is at a record low and underperformed our expectations. 2025 proved to be another challenging year for the bedding industry. We estimate the US industry trend declined mid-single digits in the fourth quarter and full year. The non-US markets we operate in were similarly challenged. After multiple year headwinds, we are confident the bedding industry will normalize to at least historical growth trends in the near future. Our conviction in our industry outlook is supported by our demand-driven innovation, compelling advertising, the industry's pent-up product demand, growing health and wellness trends, consumer confidence, and future growth in housing formation. We will continue to strive to win market share gains, drive cost efficiencies, and prudently allocate capital, all to deliver shareholder returns. Before turning the call over to Bhaskar, let me highlight several notable achievements in 2025, which marked a transformational year for Somnigroup International Inc. Our first highlight is the successful execution of the Mattress Firm combination and transition to Somnigroup International. We made significant progress with the combination in our first year, and we are still in the early stages of realizing all of the benefits. We brought all of our business units together through a holding company structure with unified management and a shared business strategy and focus. This structure allows us to operate effectively while maintaining a large degree of independence at the business unit level. Building upon the successful combination of Mattress Firm, we were able to accelerate the pace of sales and cost synergies, exceeding our initial expectations. We now expect to deliver $225,000,000 in total EBITDA synergies. Scott Thompson: Dollars 125,000,000 in cost synergies, Bhaskar Rao: and a 100,000,000 from sales synergies. Bhaskar will provide more color on the increase in our cost synergy outlook in just a moment. We have seen in it our position as the largest bedding company in the world, allowing us to drive economies of scale, streamline operations, reduce product cost, invest in advertising, and fully support industry partners. Lastly, this transaction drove earnings derisk distribution volatility, as we are now 65% direct to consumer, and positioned us for sustainable growth. Our second highlight is the strength of our operating model, which allows us to aggressively execute its long-term growth initiatives while remaining responsive to current market conditions. In 2025, we drove share gains across all business segments, extending our lead as the world's largest bedding company. Our competitive advantage underpin these strong results and include our diverse portfolio of trusted brands and innovative products, unmatched global scale and vertically integrated business model, a broad omnichannel reach, with our products sold through tens of thousands of third-party retail stores worldwide, and direct to consumer. And finally, our strong cash generation and disciplined capital allocations, which supports it reinvestment in the business, returning cash to shareholders, deleveraging, and providing dry power to capitalize on compelling opportunities, such as our recent investments in Full Power and Kingstown. The third highlight is the outperformance of our US Tempur-Sealy business, supported by innovative new products, targeted advertising initiatives, expanded distribution. In 2025, we launched our all-new Sealy Posturepedic line, the largest launch in our history, with over 65,000 more samples shipped. The launch is performing well, and the new collection is driving meaningful sales growth. This year also marked the first national advertising investment to support the Sealy brand and product, amplifying Sealy's share of voice and driving valuable customer traffic industry-wide. As we look ahead to 2026, we are excited to continue investing in national advertising designed to drive traffic to retailers and reinforce our commitment to innovation with the launch of our new Stearns & Foster products in the back half of the year. Fourth highlight is that Mattress Firm's full year performance outpaced the broader US market, driven by our refined merchandising strategy, strengthened supplier relations, and exceptional in-store execution. Since closing the acquisition, we have elevated Mattress Firm's merchandising. Our focus has been on curating a portfolio of complementary products that deliver exceptional quality and value across all price points. We deepened partnerships with some suppliers who not only met our quality standards, but also actively supported Mattress Firm success through differentiated offerings and traffic-driving advertising initiatives. We also activated multiple initiatives to deliver retail excellence including optimizing marketing strategies, enhancing the in-store experience, and leveraging our best-in-class retail talent, supporting them with quality sales tools, and training to provide customers with targeted sleep solutions. Additionally, we are making steady progress on our plan to invest $150,000,000 between 2025 and 2027 to refresh certain Mattress Firm stores bringing them up to our brand standards. Further, we have ramped installation of Tempur brand walls which lead to improved customer engagement and education. These brand walls placed at both Mattress Firm and other retailers have proven to be a worthwhile investment by driving higher retail ASP. We made substantial progress in expanding this initiative in 2025, and we remain firmly on track to complete the rollout across all Mattress Firm stores nationwide at the end of the year. As previously mentioned, we undertook a new advertising strategy for Mattress Firm to harmonize the message with Somnigroup International Inc initiatives, culminating in the launch of our new Mattress Firm advertising campaign, Sleep Easy. In 2025, we introduced new campaign iterations into the marketplace over the last quarter and continue to achieve all-time high market research scores. Key performance indicators consistently indicate the campaign is having a measurably positive impact on customers' impression of Mattress Firm and brands being presented, enhancing awareness and triggering consumers' interest in bedding, benefiting all bedding retailers. Campaign's strong performance has already prompted two non-Somnigroup International Inc vendor partners to commit additional advertising dollars directly to Mattress Firm. To capitalize on the opportunity both our scale and our new messaging platform now clearly represents for bedding brands. We are pleased with these preliminary results and expect to see additional momentum as the campaign becomes more established in the market. Our fifth highlight is related to our international business. We saw impressive sales growth, demonstrating the long-term global growth opportunity ahead. Our Tempur International business delivered low double digit sales growth in the quarter or on a constant currency basis Scott Thompson: by single Bhaskar Rao: digit sales growth in the fourth quarter and full year, outpacing the broader industry while navigating a challenging market. This marks our third consecutive year of solid growth across all key international regions, driven by the refreshed Tempur product lineup, standard distribution reach, and enhanced marketing investments. Dreams, our UK-based retail brand, also posted another solid year of market outperformance driven by conversion and increased order volume. Full year performance was supported by robust same-store sales and strategic new store openings. The team continued to deliver operational efficiencies Scott Thompson: Into 2026. And with that, I will turn the call over to Bhaskar. Thank you, Scott. In 2025, consolidated sales were $1,900,000,000 and adjusted earnings per share was $0.72, up 20% over the prior year. There are approximately $10,000,000 of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. As a reminder, we have aligned accounting for store occupancy cost across Somnigroup International Inc, which resulted in Tempur Sealy reclassifying their store occupancy cost from operating expense to cost of goods sold. We have adjusted prior year Tempur Sealy financial information included in today's earnings release to reflect the change for ease of comparability. As a reminder, year-over-year comparisons are impacted by the acquisition of Mattress Firm in 2025 and the related divestitures of Sleep Outfitters and certain Mattress Firm retail locations in 2025. I will be highlighting like-for-like comparisons defined as reported numbers adjusted for the acquisition and divestiture impacts to normalize for these items in our commentary. Declined mid single digits in a quarter Mattress Firm's adjusted gross margin was 32.4% and adjusted operating margin was 5.4%. Turning to Tempur Sealy North American results, like-for-like net sales through the wholesale channel increased approximately 6% in the fourth quarter. Normalizing for the previously disclosed Orkos distribution, our sales with third-party retailers were flattish on a like-for-like basis, outperforming the broader industry by a solid margin. Like-for-like net sales through the direct channel declined 7% in the fourth quarter as our direct Tempur stores underperformed our expectations and our e-commerce sales faced comps. North American adjusted gross margins increased 2,000 basis points to 59.5%, primarily driven by the elimination of the intercompany sales to Mattress Firm from Tempur Sealy. On a like-for-like basis, points versus the prior year. North American gross margins increased 250 basis points, primarily driven by operational efficiencies and mix as the premium consumer demonstrated continued resilience. North American adjusted operating margins improved 1,300 basis points to 27.6%, primarily driven by Mattress Firm intercompany sales elimination. On a like-for-like basis, North American adjusted operating margins increased 450 basis points versus the prior year, primarily driven by the improvement in gross margin and fixed cost leverage. Now turning to international results. International net sales grew a robust 13% on a reported basis and 9% on a constant currency basis. Our international gross margins increased 40 basis points to 51.1%, primarily driven by operational efficiencies, offset by modest headwinds from a competitive UK marketplace. Our international operating margin increased 110 basis points to 22.4%, driven by the expansion in gross margins and fixed cost leverage. Now turning to our sales and cost synergy targets. In 2025, we achieved a $60,000,000 benefit in adjusted EBITDA from sales synergies ahead of our initial expectations. We exited the year at a low 60% of Mattress Firm's total sales, averaging mid-fifties for the full year. At the same time, Purple and Kingsdown both grew share at Mattress Firm. We will see the wraparound effect of Tempur Sealy share gains in 2026 resulting in an incremental $40,000,000 of EBITDA benefit and positioning us to confidently deliver on our $100,000,000 run-rate sales synergy target. Since we have held Mattress Firm sales flat and estimating this balance of share opportunity, we expect the synergy benefit to grow as we start to see the US bedding industry normalize. On cost synergies, I am excited to share that we are increasing our estimate to $125,000,000 with $20,000,000 realized in 2025, $55,000,000 expected in 2026, and an incremental $50,000,000 in 2027. Our increased cost synergy outlook is principally being driven by increased expected savings from logistics and supply chain activities. Now moving on to Somnigroup International Inc's balance sheet and cash flow items. At the end of the fourth quarter, consolidated debt less cash was $4,600,000,000 and our leverage ratio under our credit facility was 3.2 times, down nearly a third of a turn versus the Mattress Firm acquisition date, demonstrating our strong cash flow generation and disciplined capital allocation. We expect to return to our target leverage range of two to three times in the next six months. We also expect lower market interest rates will drive improved cost of our variable rate debt, which will add to future EPS growth. Finally, as we announced this morning, we are increasing our quarterly dividend 13% to $0.17 in 2026. This marks the sixth consecutive year of dividend increases reflecting our confidence in sustained cash generation. Now turning to guidance. As a reminder, our guidance considers the elimination of inter sales between Mattress Firm and Tempur Sealy, which we expect to represent approximately 23% of global Tempur Sealy 2026 sales. Intercompany eliminations in accordance with GAAP will reduce Tempur Sealy sales but be margin accretive and neutral to dollars of operating profit. Please also note that we acquired Mattress Firm in February 2025. As a result, our first quarter and full year 2026 reported results will reflect the impact of a little over one additional month of Mattress Firm financial results. We expect adjusted earnings per share to be between $3.00 and $3.40. This guidance range contemplates the sales midpoint of approximately $7,900,000,000 after intercompany eliminations. Our annual guidance also reflects our expectation that the global bedding industry will go slightly versus the prior year driven by low single digit growth in the first half of the year, Tempur Sealy North America sales growing mid single digits on a like-for-like basis, and reported sales to be impacted by the intercompany elimination I referenced a moment ago, international business growing mid to high single digits, as our legacy international continues to drive new distribution through its product strategy and Dreams continue to drive share in a competitive UK market, and our like-for-like Mattress Firm sales to grow low to mid single digits. We also expect reported gross margin slightly above 45%, driven by approximately 100 basis points of net margin expansion from operational efficiencies including synergies and fixed cost leverage. Our 2026 outlook also contemplates our assumption for Tempur Sealy brands and private labels to be in the low 60% of Mattress Firm total sales, this represents about an incremental $40,000,000 of EBITDA benefit for 2026 compared to 2025, and approximately $720,000,000 of advertising investments, all of which we expect to result in adjusted EBITDA of approximately $1,450,000,000 at the midpoint. Regarding capital expenditures, we expect 2026 CapEx of approximately $250,000,000, which includes $75,000,000 of investments in Mattress Firm store refreshes and brand wall installations. We expect our CapEx to normalize to $200,000,000 in future years, and for at least 50% of our free cash flow in 2026 to go to quarterly dividends and share repurchases. Now I would like to flag a few modeling items. For the full year 2026, we expect D&A of approximately $315,000,000, interest expense of approximately $225,000,000, on a tax rate of 25%, with a diluted share count of 214,000,000 shares. Lastly, we are raising our 2028 target EPS to $5.15 representing a 24% compound annual growth rate from 2025. We are also targeting mid-single digit annual sales growth and double-digit annual adjusted EBITDA growth over that period. With that, I will turn the call back over to Scott. Thank you, Bhaskar. Well done. Now I want to quickly address our proposed position of Leggett & Platt before opening the call up for Q&A. We welcome Leggett & Platt's board willingness to engage in discussions and conduct customary due diligence, which is currently underway. Somnigroup International Inc remains committed to pursuing a transaction that will deliver substantial value to shareholders of both companies. They are further. I would like to headline let's lastly, topic. that we will be hosting an Investor Day in New York on March 4. During that day, we expect to share more information on our three-year EPS target, our strategic vision for Somnigroup International Inc, discuss growth initiatives for Tempur Sealy, Mattress Firm, and Dreams, and provide additional details on our capital allocation strategy. With that, operator, that ends your call. Please open the call up for questions. Operator: Thank you, ladies and gentlemen. We will now begin the question and answer. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your first question is from Susan Maklari from Goldman Sachs Canada. Your line is now open. Good morning, everyone. Scott Thompson: Good morning. Operator: Good morning, Scott. My question is around the outlook for demand. Can you talk a bit about the state of the consumer, how you are thinking about the shape of demand as we come into 2026 and how you are thinking of the drivers and the potential for out or underperformance relative to the guide for Tempur North America sales to be up low single digits on a like-for-like basis? Scott Thompson: Sure, Susan. Thank you for the question. I mean, first thing, in demand, I would say our estimates are for our $3.03 for 2026. You know, one of the foundations of it is is basically a flat market. We did not call a turn in there. And if we had obviously, the flow-through on that guidance would be significant. But we thought considering the fourth quarter came in a little light from the industry standpoint from our expectations, that probably flat was the right way to go into the year. And then we will we will see how how demand develops. If you are talking about how what are we thinking about? Jeez. Fourth quarter, again, came in a little bit less from an industry standpoint than we expected. And if you look at the start of the first quarter, it is kind of a tale of two cities. If you look at the pre-President's Day holiday period, call it January 1 to, I do not know, February 10 or so, you know, we had tough weather, and I hate talking about weather obviously. But if you talk about short periods, you always have to think about it. And it was tough weather in the US. And the way I always look at that is I look at loss days, and if you look at Mattress Firm, we had 5,000 days of store losses that were incremental to last year. So to be clear, that is not like rain or something. That means this weather was so bad, the store did not open. So we lost 5,000 days of sales during that period off of a possibility of 90,000 days. So it is about a 6% headwind incrementally in store closings. So as you would expect during that period, Mattress Firm's same-store sales were were slightly down. But then as soon as you get into the present holiday period, which we will call that, you know, February 11 forward, sales have been very robust. When I say very robust, I mean double digits, robust. Driven by strong AOV, driven by Tempur, and the result is looking at US Mattress Firm sales because that is kind of the best index for consumers and it has real-time data, is now we are running positive. Clearly, a customer is in the market wanting to buy. Same-store sales at Mattress Firm to start the quarter. So when I look at it, looks like a bedding market and a consumer that that wants the market to grow. And we have got to get out of our way, whether it be some drama in Washington or whether it be, you know, an unusually strong storm, slows you down a little bit. But it it does feel like it is a market that is that is poised for growth. If I could add on to that, then the way to think about the quarter, when you put all that together, is from a first quarter sales standpoint, we would expect something in and around positive 14% or a little over $1,800,000,000 with EPS growing in and around 20%. Operator, next question. Operator: Your next question is from Robert Kenneth Griffin from Raymond James. Your line is now open. Scott Thompson: Good morning, guys. Thanks for taking the questions. And Aubrey, congrats on the new positions. It has been great working with you over the last few years. I guess Bhaskar and Scott, for my question, I want to maybe unpack the guide a little bit. And, Bhaskar, can you help us and just kinda clean some things in the model in terms of, like, what is left on the customer transition as well as I know we have the wraparound benefit of Mattress Firm and some of the divestitures. And I guess I am asking in the context, if I take the cost synergies, the EBITDA benefit from, the floor shift, as well as our guest at what the one month, the Mattress Firm is, we can walk our way pretty close to the midpoint just on those. So is there anything I am missing on an offset, or is the way to view that more just conservative the model? Like, just want to make sure we are thinking about all the parts the right way. Sure. Let me let me give it a try, and then you can, follow-up as necessary. So when I think about this fundamentally, it is all based on a industry that is flat to slightly up. On top of that, what we have is share gains in in all of our geos. So internationally growing high single, and in in North America, call it that mid single. And that would get you, let us call it, in and around $7,900,000,000. When you go forward from a gross profit standpoint, well, let us talk about the stub period. So the stub period, you are correct, is about one month shy relative to prior year and call that in and around, call it $280 or so million dollars net. When you think about from a profitability standpoint is we are going to continue to support those brands. We call that about $720,000,000 of advertising to continue to support from a launch standpoint. What is embedded in there is, is very nice gross profit improvement, let us call it about 100 basis points, on a year-over-year perspective. And the principal drivers of that is couple of things. One is productivity through the plans, and on top of that would be the the the synergies that we have. And as noted in the prepared material, we have taken that number up. About $25,000,000 on a year-over-year basis. There is a bit of a headwind associated with, let us call it, commodities. That would offset from a gross profit standpoint. But if you add all those pieces up, I think fundamentally, the the foundation being industry, market share gains, and margin expansion, it gets you to in or around the midpoint. Operator, next question. Operator: The next question is from Rafe Jadrosich from Bank of America. Your line is now open. Hi. You have Victoria on for Wave Research. Thanks for taking taking our question. I was wondering if you could talk a little bit more about the elasticity of demand and, how did price increase impact your volume? Scott Thompson: Yeah. You know, we we took quite a bit of price over the last couple of years. And I cannot really see any significant impact from from a volume standpoint. This is an industry that has always been very efficient in passing actual cost, commodity cost increases through the channel. And it looks like it is continued to do that. Operator: The next question is from Daniel Arnold Silverstein from UBS. Your line is now open. Scott Thompson: Thank you and good morning. Appreciate you taking our question. Maybe just to build on Robert’s question, if we kind of expand that out to 2028 target, is the raise there just the additional synergies? Or has anything else changed on kind of the outlook on the pace of an industry recovery or Somnigroup International Inc's growth against that industry? Thank you. Great question. Some of it is synergies and the success that we have achieved in synergies. Plus what we see going into the funnel from from a synergy standpoint, primarily in the area of logistics. Mhmm. And and advertising. The other probably big driver would be when we look at our relative competitive position, and it is a little early in the reporting quarter to have all the numbers and have the industry fully analyzed. But we think we took a major step forward from a competitiveness and and everywhere we look, I would highlight that we are growing in all of our geos. And those are in markets that we believe had a tough tough fourth quarter. Again, I guess it is confidence in our competitive position and synergies are the main drivers. And I mean, again, if the if the industry turns in '26, which we did not embed in our our guidance. Our guidance range would be light. Now to wrap around the the perspective of $5.15, what we are excited about is the ability to take it up in light of an industry in 2025 that did not achieve what we thought it would be when the original April was put out there. So we did have some wins, as Scott said, competitive positioning, revenue synergies, cost synergies, etcetera, that allowed us to take the number to $5.15. And then at the conference in New York, here in a few weeks, we will we will give you more detail in the buildup to to that $5.15. To I think it will give you more confidence that that raise was appropriate. Operator: Thank you. The next question is from Peter Jacob Keith from Piper Sandler. Scott Thompson: Thanks. Good morning, everyone. And congrats to Aubrey and to Lauren. Want to just ask about the lack of product launches in the first half. With the gross margin guide of 100 basis points, could we see a little bit of excess gross margin expansion in the first half with no product launches and then the opposite of that in second half. And then, Scott, also, product launches usually are a big sales driver, so you are anticipating gaining market share, Tempur North America. I guess, can you walk us through the rationale on that? Because product launches usually are nice sales accelerating. Yeah. Lot in that question. I will start with it, and, Bhaskar, you can you clean me up. You know, when you do a product launch, yeah, you do get more sales. But those sales are obviously much lower profit margin closer more to breakeven. So it is kind of a mixed bag. If if you look what is in the marketplace, we have got great products in the marketplace. The Sealy Posturepedic launch, the Tempur stuff. We do have a small launch later in the year, Stearns & Foster. But from a competitive standpoint, we feel very good about our the launches. So I think we are well positioned to continue to take share of what we have got in the market back with advertising. You want to talk to gross margin? Absolutely. Peter, good question. So when I think about the full year, if I were to step back, on the sales and, let us call it, the EBIT or the fall-through line, it is effectively a push. But there is some first half, back half phasing. So think about it as a sales headwind in the first half, call it about $20,000,000 or so. And effectively reversing in the back half. And from a margin standpoint, you are correct. There is the if you look at it in isolation, the gross profit will be impacted more so in the first half of the year versus the back half of the year. However, we are also, again, as we announced the synergy opportunity and the productivity is, is that that as the year progresses, is those things will progress as well. Fundamentally, when you look at the full four models in and of itself, yes. First half, back half impact. Net full year, basically nothing. Operator: Thank you. Your next question is from Bradley Bingham Thomas from KeyBanc Capital Markets. Scott Thompson: Hi, good morning. Thank you for taking the question. The question is about the changes at Mattress Firm from a consumer and an operational perspective. Scott, it does feel seem like even with same-store sales having slowed a bit in the fourth quarter that that is more a function of the industry and that Mattress Firm is still really outperforming. But I was hoping you could just comment a little on how you measure the new lineup is resonating with the consumer and then how we should think about kind of the pace of change that we are putting in place and then maybe just finally, any more details that you could share on the timing of Purple, Kingsdown, some of the other changes that you are doing here this year? Thank you. Sure. So I mean, to summarize the question, can you tell me everything you know about Mattress Firm? Just kidding. Look, from everything we see Mattress Firm continues to take share, both in the fourth quarter and start of the first quarter. So I would say that is evidence of, resonating with with with customers. As far as performance, you are seeing share growth, and we will call the family brands, the Tempur Sealy brands, particularly Tempur. You are seeing growth in Kingsdown, which is doing a great job for us. And you are seeing growth in Purple. And there is, some there is a test going on in Kingsdown. Considering expanding it. And then the new Purple high end bed will be hitting the floor Mattress Firm, I think, late late first first quarter. We get a lot of feedback from our RSAs and I think the merchandising changes have been well received both in store and with consumers. And Nectar is doing well. I to mention Nectar. Has been has been doing well in the floor. So overall, I could not be happier with our merchandising changes both the way they have been executed, the pace they have been executed, and and how the market that has received Operator: Thank you. Your next question is from William Reuter from Stephens. Good morning. Thanks for taking my question. Aubrey and Lauren, congrats on the new roles. And Scott, nice to reconnect with you. It has been a long time. Scott Thompson: Question, Scott, I was wondering now that you have had Mattress Firm, pretty much for an entire year, you had mentioned on your prepared remarks about some marketing step up from some of your partners. Just curious, you know, how you are seeing, you know, know this is a little sensitive, but just owning Mattress Firm that, you know, the competitive dynamics or the strategic dynamics, any any thoughts there on how that kinda meshes with your original expectations when you bought it? Yeah. I have got a couple of things. Great question, and and good to hear from you. I guess starting starting with the advertising. You know, we completely changed the the advertising message and the approach. It is kind of it is built in in a way that, there is a Mattress Firm message. And then you can kinda plug in a branded product into into the ad and get a, you know, a one two punch. Obviously, we are doing that with the family brands, the Tempur, Sealy, Stearns & Foster. But we are also doing it with with other brands. Well, third-party brands. And that has been effective. In fact, it has been so effective that other manufacturers are giving us incremental support incremental outside of, we will call it, normal support to take some positions in those ads. Because they are seeing when they do, it it drives traffic not only on the Mattress Firm floor, but it also drives their brand at other third-party retailers. So it is become a very it is a very effective way for them to get to market and so could not be happier with the way that program has worked. And I I think, I think the third-party manufacturers who participated in it are happy with that too. As it relates to, I will call it, channel dynamics or those kind of things, we we have a term called other other, because it is a short way to say, how are the other retailers doing in the US that are not Mattress Firm? And how are the sales of Tempur Sealy products? We call it other other. And if you look at other other, our other other sales, we think that they are outperforming the general market. So we think we are taking share in the other other area too. And so I am not seeing any significant channel conflict. I think everybody understands that advertising we are doing is helping drive product not just at our retail stores, but throughout the industry. And found good support. It is probably gone better than I probably initially thought. Was not too worried about it, but you have got to work work through it. So no. I think I think the Mattress Firm acquisition, you know, you could take the price, you take the performance, you take the synergies that have been realized. I think we would say that it has been very good from our standpoint. Thanks very much for taking the question. Best of luck. Operator: Thank you. Your next question is from Robert Kenneth Griffin from Raymond James. Hey, guys. Thanks for holding me back in the queue. Scott Thompson: Scott, I just you know, we spent a lot of time on North America, but, honestly, international could just continues to be a a bright spot there with robust kind of constant currency growth on top of a really good quarter last year. Understand you guys did a lot of work on the product portfolio, but help us understand, like, how much is new door growth versus how much is throughput or slot velocity? And then when we think about the international, like, you still see a robust amount of new door potential, or is it more discontinuing the velocity? Just help us think about the sustainability of what is turning into a nice bright spot in the story. Yeah. I mean, great call out. International has been growing for a couple of years. Very strong, again, in not a great market, which is is particularly impressive. As as you know, from an international standpoint, we do not have a large balance of share internationally. So it is a long-term growth trajectory that we we could very, bullish on. Bhaskar, do you know the split between new distribution and because we are getting both internationally. Ask Absolutely. So when you think about the growth over the last couple of years, it is been principally at its existing distribution. And what existing distribution looks like is perhaps a few more slots in in in stores that we are in. But really improving the velocity per slot on where we are at. And really what that does is that we have to prove we have to prove ourselves in the international market. As Scott said, we have relatively low share relative to the US. Also, a very difficult execution. The borders, they are not states. They are countries. So it is a it is a it is a tougher slug. So the key there is making sure you have the right product, advertise ahead of that, to educate the retailers and the consumers. Therefore, you get the incremental slots within the store. Prove yourself in those stores, and then get into new. So when I think about the next leg of growth internationally, continue to do what we are doing, but also expand the distribution outside of our historic footprint. Operator: Thank you. There are no further questions at this time. I will now hand the call back over to Scott Thompson for the closing remarks. Scott Thompson: Thank you, operator. To our 20,000 associates around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in the company's leadership and its board of directors. This ends the call today, operator. Thank you. Operator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may now disconnect your lines.
Nathan Fast: Hello and welcome to today's webcast on HIVE Digital Technologies Ltd. Financial Results for the Quarter Ended December 31, 2025. My name is Nathan Fast, Director of Marketing and Branding at HIVE. I will be your moderator for today's call. Before we get started on slide two, we would like to briefly note the disclosures in today's presentation. Except for statements of historical fact, this presentation contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” and similar expressions identify these statements. Actual results could differ materially, and we disclaim any obligation to update them except as required by law. For a full discussion of risk factors, please refer to our most recent SEC filings at sec.gov. In addition to discussing results that are calculated in accordance with GAAP, we will also reference certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income, and free cash flow. Management uses these metrics to evaluate operating performance and believes they provide investors with additional insight. They are presented for supplemental purposes only and should not be considered in isolation from GAAP results. Reconciliations to the nearest GAAP measures are included in the appendix of this presentation and in the press release and Form 8-Ks furnished to the SEC. I will now turn the call over to Frank Holmes for a macro recap of the quarter. Frank? Thank you, Nathan. And Frank Edward Holmes: Welcome to the show by HIVE. I have a lot to share with you as the Co-Founder and Executive Chairman and give you sort of an overview of what I am seeing in the geopolitics around the world and some of the glitches that have happened that have really impacted the crypto ecosystem. And I will give you also some what we would like to call the standard deviations that this is a great buying opportunity based just on the math of markets, that when things become overextended on the downside or upside. But before getting into this detail, I want to share with you that volatility is incredible. And it is also predictable when you take a look at it. You update this every quarter. But the S&P daily is 1% of the time. That means 70% of the time, it is a nonevent for the S&P to go up and down 1%. And over ten days, 3%. Gold is the same as the S&P 500, but Bitcoin is three times greater. That is something just to recognize that the stocks that are in technology a new innovation like Bitcoin, it just will experience greater volatility. Tesla used to have this 21% volatility over ten days until it became part of the S&P 500, but you can still see that on a daily basis, it is four times greater than the volatility of the S&P 500 or gold bullion. And we can also see here that over ten days, it is 11% is a normal volatility. Strategy, which is interesting for me is because Strategy was always higher volatility than HIVE, and now it is the daily basis is plus or minus 5%. But over ten days, HIVE has a greater volatility, which surprises me because we do not have the same balance sheet. We have a very conservative balance sheet and a very conservative, pragmatic way of managing the company's growth. So here is the team. They are all working hard. Aydin Kilic, Darcy, our CEO and CFO, the longest standing, I think, CEO and CFO in the industry. So I am very happy about that. And Nathan has joined us a little over a year ago. And now let us get into this macro recap. Here is the picture. And this picture is really important in respect that we grew our business from 6 exahash to 25 exahash in 2025. And we are 2% of the global network, and you can see that one of the investment bankers there, Jamie Brown, was on the ground floor of the creation of the idea of HIVE. And then you can see some of our directors are there. And other key employees, our Chief Operating Officer, the President of Paraguay's operations, and you can see Nico is in there. And you can see Aydin Kilic, our CEO, and Johanna Thorblat, who is the President of Operations in Sweden. We are very proud and happy that we have been able to grow this business and we still have more growth ahead in 2026. Very pragmatic and thoughtful expansion. And behind there is a five kilometer, but it is a total length of seven kilometers, five mile dam. It is the largest dam in the Western Hemisphere. It is able to generate about 14 gigawatts of electricity, half to Brazil, half to Paraguay. So we recently came up with our production in January, and that was Bitcoin produces a 191% year-over-year growth. Even though the difficulty went up, we have been able to maintain this substantial growth. And it is helped us with Bitcoin coming off over the past four months because we have these economies of scale. We have also been able to drive down our fleet efficiency. And when you see joules per terahash, that really is the amount of energy that you have to pay for that is running those machines and how if you went back the ASIC machines, how we fuel efficient. And it is really remarkable ten years ago, it was above 300 joules and now we are down with, like, Moore's law. It is only 17.5 joules. And the next generation is going to take this down to 11. So it is able to manage if you have new chips, you are able to manage the halving that takes place in the Bitcoin ecosystem. And so we are more than 2% and we are happy with that. Steve Jobs had this wonderful speech. And in that speech at Stanford, he said, you cannot you cannot connect the dots looking forward. You can only connect the dots looking backwards. So if you have to trust that the dots will somehow connect in your future, it is important that you look back. So let us look back at some of the dots that would happened to the Bitcoin ecosystem the past four months. On October 10, called 10/10, Bitcoin knockout, this is a total crypto market cap fell at $350,000,000,000 because it is alleged that is the Tyson punch, but Binance had a faulty algo that basically triggered wrong accounts whatever, and they blew out $19,000,000,000 worth of Bitcoin. And this knocked off and created a contagion. What I did not see it in front page of publications. I heard about it. I thought it was more noise, but, actually, it has come out to be quite significant. And so I am going to show you how by connecting the dots. So October 10 and our CEO, Aydin Kilic, has been at the Bitcoin conference in Hong Kong. And this made the center stage. And there was lots of combination a conversations and interviews regarding it. It is been dismissed by Binance. Naturally, would. But what I want to explain to you is that there was this flash crash. It was only $19,000,000,000. No. It is more than 10 times FTX blow up. It is really quite significant. And that triggers margin calls in North America. And then we have ETFs. The ETFs get amplified because almost $200,000,000,000 of institutional money rolled into a suite of different asset managers with their Bitcoin ETF. And they have been really hurt with a 50% decline. They just become they lose this thing called trust. And really, the fact find out that supposedly a hedge fund made $1,200,000,000 on this flash crash and other funds that were not supposed to $100,000,000 injection. Hurt, they got hurt, but Binance made them whole with there is no big positive amplification to all the ETFs that felt this stress. So this was a big conversation, and Binance comes out at the January and discusses it. But what is really important is that we have seen this before, and I know I have seen this in the futures market. Back in the early eighties. We have seen it in the gold markets, where major banks would turn around and spoof. But you would have a court system and a court system that go after those traders, and then they got charged. And they were found guilty. And then fines were paid by firms like JPMorgan. There was a that builds trust. So it is the it just there has to be a mechanism to if you have a rogue they call this algo, but I always ask why did that algo did not work on April 2? Oh, it is all because of Trump, and Trump went anti China during that time period. I think that is just too easy to go blame Trump. Because on April 2, those algos did not cause this crisis that it the magnitude that took place on October 10. 10/10. So that is what is happened. So I went back and looked at what happened in one hour with how fast it just turned around and hit. And it only grew that day. So in Consensus, Hong Kong this past week Binance's Richard Tang breaks down the 10/10 nightmare that rocked crypto. But, really, does not explain to, what hedge funds and a lot of the chatter that was there that our CEO was listening to, and giving us more color on it. It never made the front page of the Wall Street Journal, but Sam Bankman-Fried did. And this is about a factor of 10 times greater. So it is really disappointing, but it is what it is. And the CEO, he is worth $88,000,000,000 according to Forbes, and other people say he is worth 30 to $4,050,000,000,000. He has got this brilliant mind, what he has been able to do. But it does not make sense that this is an unregulated combination where the exchange and this and the investment broker is combined. You cannot really do that. The New York Stock Exchange does not own money management. It is like merging the New York Stock Exchange with BlackRock, and all of a sudden, then BlackRock has access to what the trades are and the traders know what the fund flows are doing. That is the difficulty in this unregulated finance exchange, which say they trade trillions of dollars in notional value in the Bitcoin ecosystem. So I hope that there is a better clarity on what takes place. But it is four months later, and, you know, it is interesting that they come with a explaining at the January. And, usually, when these crises happen, it is about four months later that we get a bottom the ecosystem. But what happened after this it is interesting to me in connecting the dots, is Jim Chanos comes out and short the Bitcoin miner, short the Nvidia, short the HPC, the hyperscalers. There is too much debt. And Michael Burry is coming out. He came out a couple weeks ago again. He short this market, and it really starts to grow that this negativity on the ecosystem. And you can see all these headlines. Chanos warns of AI pull back. It is Bitcoin treasury companies, Michael Burry's latest argument. Chanos is going after Michael Saylor, shorting them. Michael Burry's same thing. And all these legendary people. And to me, I just looked at I remember commenting that there is something weird that there is just so many people that are all of a sudden negative on the AI but I know that the demand is so big and the ability to build out is going to more time. So I do not see this the level of this negativity but the Binance breakdown of the ecosystem that flash crash was part of this. And I always loved this scene. It is from the Superman movie at the time, and it is basically saying where they have these monkeys that are out there making all the chats on Instagram and YouTube and X and and this is about Superman's credibility is being destroyed. Well, the same thing happened out of nowhere. All this negativity was showing up on Instagram and YouTube and X. And so I just it was a short-term fuse, but you look for as a money manager, is this sustainable? Is it real? And it became the trade. Well, let us look and connect the dots. We go back to October 10, and you can see starting at the October, the stocks have this big rise and CoreWeave goes through the roof. And we see HIVE is on a tear rising up, and Marathon has the bounce, and we see Core Scientific is rallying. But then after October 10, starts this Binance algorithm. It is like COVID contagion to tech stocks. And you can see what took place with this domino effect, and this impacted Bitcoin prices coming off. And I still see every day on CNBC, regarding the negativity of the hyperscalers, and the Bitcoin treasury companies. There are these inflection points that happen. They last about four months, and then we have another cloud that happens at the same time. The U.S. Senate committee delays the crypto bill after opposition from Coinbase, Brian Armstrong. Why? It is because a lot of the banking system in America is not really cognizant of China's war against the U.S. dollar. They are just not aware that China has taken the BRICS nations and weaponized that trade is not in U.S. dollars. It is in the yuan. And do not own one, enforcing and pushing that these central banks devalue basically, sell their U.S. dollars, and now we are seeing gold become the biggest foreign exchange in many of these countries' central banks. And we are seeing now the thought process of offering a reward mechanism, or would it be like a money market fund for stablecoins so that the U.S. government would be able to have their stablecoin and places like Coinbase, they would be able to pay, they call it rewards, but, really, to me, in the money management business it is like a money market fund. But it is very significant for the growth of mutual funds and then ETFs. This would be very significant for the crypto ecosystem and also for the U.S. dollar because we have seen the success of Tether. Tether's phenomenal that bad countries, bad policies, like Venezuela, like Argentina, Lebanon. You can see that Turkey, the currencies are being devalued, and so people turn around. They bought Tether stablecoin, and they are protected with U.S. dollars. Now they have been the Tether gold coin basically has been growing at a phenomenal rate. So we could see hundreds of billions of dollars going into those the success of what Tether has. But Tether does not pay a coupon and therefore, it is not a money market fund, and therefore, it is not a security, so it is able to become a dominant, like a U.S. dollar currency that people can digitally move money all around the world without the big banks turning around and delaying the payments and saying they are AML, KYC concerns, etcetera, which is rightfully so. But it is becoming just so onerous to move money around. Especially between countries, and repatriating. So if I am a worker here from Mexico and my family needs money back in Mexico, I can do it much faster with a stablecoin. I can much faster than any other way, and the repatriation of that money helps these other families in other countries. Well, along comes the stablecoin, and Coinbase wants to pay rewards. They want to basically make it it is a money market fund. The banks do not want that because they want their stablecoin to get big before they turn around to allow a coupon, and they keep saying, what will cause a or a crash, people will leave the banks, and they will go to the stablecoins because they are paying a coupon. It will hurt banks. You know what? I listened to this, and it happened a long time ago. When banks were not able to pay the coupon in 1980. As interest rates soared to 20%, but money market funds were. And money market funds grew dramatically, which only helped the growth of mutual funds and equity funds. So there was not a big loss to banks. But what did happen is the S&Ls they were allowed to pay a higher yield, and the banks did like that, and they grew. Then you had an S&L crisis. So I think it was not a bank crisis so much as the banks do not want competition. They do not want this fintech and really Bitcoin is a spoke in the wheel of fintech. Coinbase is a critical spoke in that wheel of building fintech around the world. It is the way in my opinion, as a money manager looking at what is going on. We are just going through this process. I think that paying rewards it will win, it will get through, and this will be the reprieve. But it is a battle between self interest of the banking industry and lobbying groups and fintech growing. So we have this backdrop. We have the carry trade unwinding, which is about $500,000,000,000 throughout the month of December, especially January. So that is been behind us now. We have the Binance igniting a huge meltdown in the Bitcoin ecosystem breaking that trust factor. And then we have this last bit Coinbase. Well, let me share with you. We are down two standard deviations. And it is only happened a couple of times. You can see when China did its attack on the crypto ecosystem, and we had Bitcoin fall and the miners fall, America ended up benefiting becoming the biggest Bitcoin miners in the world. Then we had the Celsius, the FTX blowed up, and we saw the prices fall one and then two standard deviations. Now we are down to 1.64 standard deviations, and that says to me that mathematically, what is one standard deviation over a 20 rolling date period? It is about 17%. So it is suggesting here that we could get from here a rise of 30 to 40%. We could get a higher rise if the act gets passed and where they can pay rewards on stablecoins, that would be a big boom, and we would probably see this go up two standard deviations. You can see that in a bullish cycle, goes up two standard deviations more than it falls. But we are at a point of accumulation as the smartest option not to capitulate and sell out. So then I asked, let us look at HIVE. Same thing you can see that HIVE was up at the very top here, going into the October. We had a big run because we went from 6 exahash to 25 exahash, and the world loved it. And we are going through this rerating until the Binance faulty bot they have, blew up their system. And then we fell. And we had a rally, and we are down once again over one standard deviation. And I think that we are an attractive buy from based on just the math of markets. Something else that is really important, we have never leveraged our balance sheet with incredible debt to go buy Bitcoin, or to go and do, contracts with for high performance computing. We have not done that. Because we are conservative, because we know the volatility. We know that building out tier three data centers is fraught with construction difficulty. You have to be very pragmatic and thoughtful. And so we have not done this huge debt financing on our balance sheet. But what we have done is is what we make the press release today is is that we are HIVE is not chasing AI fairy tales. It is building towards a $140,000,000 annualized GPU cloud revenue from measured steps. Today's $30,000,000 two-year contract secures the initial 504 GPU managed to to over rollout. In partnership with Bell Canada, lifting HPC ARR and reason why I share this with you because a year ago, we had a run rate of about $1,000,000 a month, then we got it up to pushing $2,000,000 a month. And this is going to take us to $3,000,000 a month, and our long-term vision is $2,000,000 million dollars a month. And we are doing it in a measured way. This is a tier one data center we bought. It is going through the transformation to tier three, and we get people knocking on our door that we know that if we had it up and running today, we have contracts for five years to buy just give us big contracts. So it is interesting. Our strategy is just different than other people that are going out, getting a hyperscaler, giving you about a $0.14 look at the math of this, a ten-year contract, a fifteen-year contract, but we are trying to get as much of the upside besides a tier HPC, colocation that we know we have been able to build with high margin that people around the world. We have built 10,000 customers in 80 countries are using our chips and mining by the hour. Some give us contracts for longer time periods. What we are seeing now is that once this is built, this will be solved. That I mean, we will sell the asset, but the demand for our GPU chips at much higher prices than where Bitcoin revenue is per hour will be done. So we feel very excited about it and straightforward of how our vision it is just different than other people. And that is where we are staying focused. This is another build out. This is the data centers that we have. And as you can see, we have them in New Brunswick, and this will go through a conversion. We bought more land. And this will go from 70 megawatts. What is interesting is it will be about 50 megawatts. We will actually be able to do the HPC because a lot of people do not realize that when you go from a Bitcoin mining to tier three HPC or tier four, the bulk of your energy is used for air conditioning. 40%, not 5%, but you are now 40% of the electrical bill because those NVIDIA chips consume a lot of power. They give off tremendous amounts of heat. You have to be up 24/7. It is a very different business model. But we are plotting along, and we feel very good about and our President is seeing nothing but big demand coming in. If we were up and running today, everything would be taken for our chips at very attractive contract prices. So it is now about being pragmatic. You get your chillers you start, you have to preorder because the transformers, there is a backlog for transformers. There is a backlog for the for the equipment you need for building substations today. There is a backlog for the special server racks in which you find now with HPC with the NVIDIA chips, the server racks are heavier. So now you have to build cement floors that are thicker. And so it is not easy to say, okay. We will just convert. No. It is very thoughtful. And that is what we are doing as we are managing our cash. This is to share with you that data centers are continuing to grow. And they are a very big part of the GDP growth in America. And the GDP growth in Canada. And what people have to be listening to is that it is not just OpenAI that is looking for these data centers. It is also the military spend, and the NATO countries have now gone to 5% of their GDP. Well, a lot of the new weaponry needs data centers that are high performance computing. And if it is military, they need tier four, which is another level of security and backup. So we see globally the demand for these data centers is not just these wonderful new platforms like Perplexity or Claude and Grok, I love Grok, I love Claude, and OpenAI. It is military spending, and then you have countries are saying, you know, we only want our data centers and data in our country. We want it sovereign. So this creates another pent up demand. And so we think we are in the sweet spot of being the biggest player in Canada at this stage, and we will grow this and move this and we will become the biggest player in Paraguay is our vision. This is just to give you some color about the hyperscalers are ramping up their CapEx and this gets all this negative news. And I think that who is making this negative news is just really helpful for a short-term trade of being short. But the Metas and the Microsoft, they have not been spending, a web that there was Oracle too and CoreWeave. That spending will continue, and I see the reason for it is the backup demand is just immense. So here is to give you an idea of the future shock, the scale and speed of AI's disruption. A $100,000,000,000 hyperscalers are pouring into the AI infrastructure. That is just in America. You have to think about the rest of the world. $25,000,000,000 market impact revenue shift from NVIDIA dominance to Chinese domestic chip makers. These are all big real issues in the global race. What China has done for the past ten years has exploded in sources of energy. They have been building hydro dams. Spain has been unwinding hydro dams, 2,000 of them. Relying only on solar and wind, and that is created their own energy crisis. But you are not seeing that in China who continues to build from hydro and dams a rerouting water from the Himalayas down the rivers to basically create these massive dams and this hydro so now they can ramp up their data center business. Here in America, we have got more HPC data centers, but we have got to ramp up both sources of energy and be innovative and creative with that. And now it is nuclear energy is cool. Now nuclear energy is not the bad word. So things are changing, but the idea, it is unprecedented, and every year I spend a week at Harvard with 180 CEOs from 80 countries doing cases, and it is interesting to see that AI dominated all the cases. A leadership disruption, what Microsoft had to do in Europe, Greece is now trying to do a huge educational push. OpenAI is partnering with them. The Onassis Foundation is partnering, a former McKinsey consultant went to Harvard. They are doing everything to fast track the kids' education so that they can participate in this growth in OpenAI. And anything to do with AI. This is recognized in the future demand for accelerated computing and graphics processing, and NVIDIA began designing GPUs specifically tailored for the meet these needs. You know, their big move was for pivot was 2010, and then Harvard one of the cases was on Jensen. And what I did know is that Jensen's parents sent him to a private school in America and they did not realize it was a reform school, a Baptist reform school. So that made it really get tough and resilient, and that is what the whole idea of NVIDIA. But they made this big pivot in 2010. We are talking about, what, sixteen years ago. And then AMD is now related at the CEO of AMD was a part of another case, and she is related to Jensen. And she has a PhD electrical engineer from MIT. And as part of their pivot in AMD is to go in this space, but they are still far behind where NVIDIA is. So I think we really are in a secular bull market on the adoption and the build out necessary for AI. And to stay you know, look to buy the dips. I want to think of these investors Two Sigma Investments. There is a quant shop and Chicago Park Employees, and Tidal Investments. Citadel Advisors, Schwab Corporation, that is individual investors. And it just amazes me that Schwab gets sold down and all the fintech just recently, this negative narrative because fintech going to be disruptive with AI for all their client business. I do not think so. I think if anything, AI is going to probably help on the overall compliance and the complexity of compliance and monitoring and things like that. And we are seeing KPMG has to be honored by independent auditors, and KPMG is going after their auditors for not getting lower audit bill for but the KPMG is ahead in using AI. So to say that AI is a bubble and it is all over, is just market chitter chatter for trading, to short. And so I remain very, very bullish. There is Aydin with Chief Minister in Paraguay. Very important in the overall business development. To be very close. We regularly go meet with ministers in Paraguay. Our President, Gabriel Lamas, and I met with the ambassador from Paraguay, who is based in Washington DC, what their vision is, and they have a big vision of making Paraguay the dominant AI infrastructure build out for all of Latin America. They need other sources of electricity. They know that. They hope to attract solar farms and solar independent electrical grid. They are looking at they changed totally, the cost of energy is dropping. Long-term contract, something they did not give when we first went there, but now they are. We are building out tier one data centers so that they are the runway for tier three. During this process from tier one to tier three, you need to get dark fiber built with the country, just like we know this has to happen in Eastern Canada. You cannot move the data from tier three data centers around the world unless you have dark fiber because these large language models have so much compression of data in them. So that is what we are doing. Now I want to turn it over to Aydin Kilic to really give you an in-depth analysis of the company. And I hope that my presentation today is to give you some color about this incredible meltdown that is happened, what was the catalyst, we are probably mathematically at the bottom. And, hopefully, going forward, I believe that we are going to trade much higher and HIVE is in a strong balance sheet position to monetize that growth with 10 exahash, in Paraguay and huge upside in Canada, Sweden, and the HPC business. Aydin take it away. Nathan Fast: Frank, thank you very much for the insightful macro summary. And now for an executive overview Aydin Kilic: Of this quarter. Now it was a really exciting quarter for us, and this is a photo from a recent visit to Paraguay. This is Minister of Foreign Affairs for Paraguay, Ruben Ramirez Lescano, who you may have recognized in the recent Status of Forces Agreement signing between Paraguay and the USA, with, of course, Secretary Marco Rubio. More on that later. Okay. So it was a record quarter for HIVE. $93,000,000 of total revenue. Of that, $32,000,000 of gross operating margin. Now while we did have a $91,000,000 net loss, that was mostly non-cash charges, $57,000,000 in depreciation. Of course, we brought on a lot of new hardware online in Paraguay. We scaled to 300 megawatts. And also a $31,000,000 non-cash charge on change in fair value derivatives, a multi driven by changes in Bitcoin price. On an adjusted EBITDA basis, $5,700,000 and ending the quarter with 481 on the treasury. So again, Nathan Fast: Record Aydin Kilic: Revenue for HIVE, and really proud of the team. Let us jump into the next slide. On an annualized basis, we realized $385,000,000 ARR for the quarter. 879 Bitcoin mined, we realized 25 exahash of installed capacity operate an average of 22.8 exahash for the quarter, as we had ramped up towards 25 exahash. And with the colder months, you have some temporary curtailments due to the very cold weather in the Canadian operations. New Brunswick can occasionally Le Chute, but very happy Paraguay was performing with nearly a 100% uptime. And of course, being the Southern Hemisphere, when it is cold and there is cold snaps in the North, in the Southern Hemisphere, it is actually summertime. So being geographically diversified has its benefits. Ladies and gentlemen. 440 megawatts of operating capacity with an additional 100 megawatt PPA. We announced the signing of that late last year and long lead items such as transformers have been ordered, and we expect that to come online September. Now on the Buzz side, another very solid quarter. Looks like $5,000,000 revenue for the quarter, keeping track to the $20,000,000 ARR. And we are on track to reach our target of 11,000 GPUs on the BuzzCloud by the end of this year. Currently, 5,000 GPUs will be adding 6,000 this year. As well that target of $225,000,000 ARR between the GPU cloud business and the 70% increase to our HPC ARR the $20,000,000 ARR will be at $35,000,000 ARR at the end of this quarter. And that comes from the signing of a two-year contract for our incoming NVIDIA Blackwell B200 GPUs. So we announced November that we ordered a 63 node cluster of NVIDIA Blackwells. Were destined for Manitoba, our first site with BEL. These GPUs are now fully contracted. We are receiving a deposit this week. And the GPUs will go live this quarter in March. And therefore be cashless. We will be ending the current quarter period in March 31 with $35,000,000 ARR again, which is a 70% increase from the current quarter or reporting quarter of December 31. So huge news. Darcy Daubaras and the Buzz team have done a phenomenal job. And I also want to point out that this is a very nimble, agile, CapEx-light strategy that allows us to scale the GPU cloud business with the infrastructure that BEL Fabric is bringing online and we have had very, very attractive single digit lease-to-own financing on the GPUs themselves. So no CapEx upfront for the GPUs. The entire full value of the GPUs we are effectively leasing with a $1 buyout. So it works out like a finance like, when you finance a car, with zero down and single digit interest. So very attractive. Again, Craig and the Buzz team have done absolutely tremendous job. And more great news to come. Please stay tuned. Let us hop into the next slide. We have a vertically integrated growth strategy. We have the land, the power, the data whether it is ASICs or GPUs. We build, we operate, and we optimize. So on the Bitcoin mining business this quarter, we realized $150,000,000 ARR, mining approximately 10 Bitcoin a day in our tier one data centers globally. In the HPC business, as mentioned, our new benchmark is $35,000,000 ARR in the current quarter. March 30 and March 31. And that will scale to $225,000,000. We are going to have a closer look at that very shortly, and that is a tier three data center strategy. Another nice Easter egg that we are providing this treat an update on is we realized $14,000,000 of value from our Bitcoin pledge. You may recall we had a substantial amount of Bitcoin almost 1,400 Bitcoin pledged at 87,000. What that meant was we put up our Bitcoin at 87,000 to buy our ASICs, which was for expansion to 25 exahash in Paraguay. Once that Bitcoin was pledged, at 87,000, that was it. However, we had option to buy back the Bitcoin at 87,000, when Bitcoin rallied above that price. And so we did that and realized $14,000,000 of values, which is great news. And call that our dynamic HODL strategy. We are going to provide a bit more color, but I just want to clarify. There is no cash call. There is no obligation. There is nothing like that. It is a free call option is what it was. Locked in the price at 87,000. Any upside beyond that, it was at our discretion, our call option to exercise. We crystallized the $14,000,000 of value. So very exciting news. Next slide, please. An overall footprint of the HPC various operating jurisdictions, data centers, and you can kind of see how it ramps up $225,000,000, which is the target for the end of this year, between GPU cloud and HPC. The HPC conversion would be for New Brunswick to be converted to 50 megawatts of critical IT load as a tier three data center, adding $85,000,000 of ARR to $140,000,000 coming from the GPU cloud spread out over the various Canadian facilities. And showing how we increment from the current 5,000 GPUs to 11 GPUs. Again, we recently announced that 504 GPU contracts. So let us go to the next slide. So here is what the growth of the HPC revenue looks like on a time series basis. We provided this projection last quarter as well. And as you can see here, for every 1,000 V200 GPU cluster, we would be adding $20,000,000 of ARR. Now keep in mind, the prevailing market rate at the time was about $2.20 per GPU per hour. And so this ramp from $20,000,000 to a $140,000,000 ARR came along with 6,000 NVIDIA V200s being brought online. And then in addition to that, the $85,000,000 estimated ARR from the conversion of New Brunswick to hyperscalable colo. However, next slide, please. Due to the very strong market demand the realized value of the GPU contract that the Buzz team secured was 30% above forecasted prices. So what that means is where we previously projected $20,000,000 ARR per thousand GPUs, we realized $15,000,000 of ARR for 500 GPUs. So that is tremendous. 30% above forecasted. Again, this is liquid cool GPUs. And this works out very well. Here is an illustration of what that does for our projected revenue. Let us hop to the next slide. I do want to say this is a potential and the team did a tremendous job. There is strong market demand right now. And so this is a blue sky slide where if we were to scale the rest of the 6,000 GPUs at the same rate that the current deal was secured at, it would actually bring the GPU cloud ARR potentially up to $200,000,000 by the end of this year. And then in addition to that, roughly $85,000,000 from the NB colo $285,000,000 potential. Now again, we are going to stick with our baseline projections on the previous slide. Just tremendous job by the Buzz team, where they realized the 30% higher contract value due to driven strong market demand. But it is not just having strong market demand. Let us hop to the next slide. Craig and the team have done a phenomenal job building out the Buzz HPC cloud, which was awarded bronze on ClusterMax, which is in very good company with other very reputable clouds in the bronze category, and you will note a lot of peers actually were in underperforming or even unavailable and some very well known clouds in those categories that Buzz outperformed. Next slide. And you know, I recently had a call with an analyst who did not quite grasp what that meant. Well, when you are just renting GPUs bare metal, what that means is you know, the user has to use an SSH key to get secure access into a GPU environment. They have to install the operating system, and really, it is just bare bones. And so not everybody, if you are a model builder or researcher, that is different. That is you know, loading up an operating environment and festering GPUs yourself is different than actually doing your LLM work. So what you want is this to be done for you. So you are getting a managed AI service. You have Kubernetes. You have Slurm, and these are two integral components to having a proper cloud. So it is very easy for you to have this elastic GPU resource for whether you want one, eight, 32 GPUs, when they are properly orchestrated, they all work as one elastic computing resource. And so that is virtue of having proper cloud technology, which the Buzz team has done a remarkable job. And so that is how we are able to attract these great clients and have strong demand. So, again, phenomenal job by the Buzz team, and really I think there is going to be some more exciting announcements in the months to come. So stay tuned as we execute and march toward those revenue growth targets. Next slide. So on the Bitcoin mining side of the business, for the recent month of January, we did about 9.6 coin a day, again, 440 megawatts globally. We lead the sector in low G&A per Bitcoin mined. Maintaining optimized ROIC Bitcoin mining model. Let us go to the next slide. So as you know, we have got another 100 megawatt PPA that was announced in Paraguay. Paraguay is very strongly aligned with the U.S. In December, Minister Ruben Ramirez Lescano signed the Status of Forces Agreement with Marco Rubio Secretary of State for the U.S., in a very momentous occasion. So it just shows a very strong alignment between Paraguay and the U.S. And Paraguay is really emerging as I believe, one of the strongest U.S. allies not only in Latin America, but globally. The SOFA, Status of Forces Agreement, is only held by a handful of countries globally with the U.S., and so really emphasizes Paraguay as a stable and safe jurisdiction, for foreign investment, and we see a very bright future tier one and tier three data centers in Paraguay. Stand by for some very exciting updates over the course of the next few months as well as we continue to have very bullish outlook on our investment and expansion into Paraguay. Next slide, please. This is a summary of course, our 440 megawatts of operating capacity worldwide. And then the additional 100 megawatts will be bringing on. It is actually phase three of our Iwazoo site in Paraguay. Next slide. Frank Edward Holmes: Okay. Aydin Kilic: Here, we are going to talk about that $14,000,000 in realized value from Bitcoin pledge. So as we previously discussed, we had pledged Bitcoin at numerous prices and we had a large pledge of approximately 1,400 Bitcoin at 87,000. So what that meant was we purchased our ASICs, we put up Bitcoin, it was 87,000. And we had the opportunity to buy it back at that same price. We redeemed our Bitcoin at 93,000, at 110,000, and at $123,000 with respect to the pledge and on that we realized a value of approximately $14,000,000. Then we took that realized value and translated it into approximately 3,800 Bitmain S21 XP air cooled, which then replaced our BuzzMiners, which very recently, as we have seen a contraction, has price, those Buzzminers have faithfully served us for years and years. Approaching end of life. They have been upgraded. And so what it did is it upgraded and increased our global fleet efficiencies from 17.5 to 15.7 joules per terahash. What does that mean? We used our pledge strategy to get a cashless realized value of $14,000,000, turn that into over 3,800 new generation ASICs, and effectively lowered our global cost of mining in a bear market by 5% through dynamic HODL treasury management. And so it is just how we operate at HIVE. We are again, deeply analytical. We very much study hash price. And a dynamic collateral strategy that allows us to realize value beyond our mining, but also through treasury management. So I hope this is really helpful for the analysts. And in addition to that, we still have 540 Bitcoin at the 87,000 strike price. Now with Bitcoin at about 66,000 as of time recording, mean we have to put up any money. It is downside protection. We already did not pledge a Bitcoin at that price. So in the current climate, it is downside protection. If Bitcoin happens to rally in the next couple months beyond 87,000, we can realize further value. So really happy with how this all played out again in been through numerous bear markets. I have just been through Bitcoin halvings. And Ethereum. We built our own ASIC miner with Intel. You learn a lot along the way. When you have been through it all. So let us hop into the next slide. Of course, mining economics have contracted a bit. We had the calamity from 10/10. You know, the structural errors where you know, the collateral coins held by Binance were effectively shorted and that led to auto deleveraging on October 10 and Bitcoin dropped from under 2,620 a 105,000. But moreover, all those auto deleverage positions you know, a lot of people got washed out. Binance put up $300,000,000 to make some people whole. A lot of retail investors took a hit, though. And recently Binance put a $1,000,000,000 to help Bitcoin at the $60,000 floor. So really, it was worse than the FTX crash. And it is just for people to be aware why did why did Bitcoin sell off. And, again, there is obviously broader market headwinds where we have seen a risk-off environment. And so as a result, we have updated the annualized mining margin analysis for all the shareholders and anyone watching this podcast. So at $30, $35, and $40 hash price, here are your projections. So current difficulty of a 126,000,000,000,000, with Bitcoin at 60,000, the left column, you have got a $30 hash price. Walpole where it is today, Bitcoin is about $35 hash price. And if and then with Bitcoin at 80,000, via $40 hash price. So let us just start on the left call. Even in a more bearish scenario, $30 hash price the way, we did see hash price flip down to $27 in last week when Bitcoin hit down to $63,000. Keep in mind, difficulty was still a 141 back then. We saw flash crash at $27 hash price. And so, anyway, I just want to give context. Where has hash price been? Has it been as low as 30? Yes. For a moment in time. Nevertheless, we project it. Even at $30 hash price, we still have an annualized mining margin after direct operating costs of about $90,000,000. So it is still healthy margins. At $35 hash price, that 90 margin is under $135,000,000. And at $40 hash price, $180,000,000. So, this helps you have an outlook of what it could look like in a contracted Bitcoin environment. You know, like, you know, I saw Richard Tang, the CEO of Binance, actually speak Consensus Hong Kong. Today, actually. And you know, his accounting of it, he was quite stoic, and he mentioned that you have these near term measured in months and these calamities that that happen in crypto. But, you know, when you look at the year's horizon, you know, the asset class consolidates and has grown in value. So it is another headwind that we will navigate. Again, having low G&A you know, a very best-in-class mining operation amongst our global sites. And great fleet efficiency. Again, that upgrade of ASICs was done on a cashless basis, $14,000,000 in realized value. I am very proud of the HIVE team for all of the great scaling and very judicious and, in my opinion, expert level Bitcoin mining. Next slide. Just again, this is a really helpful visual, just sort of like a math textbook. What is the fundamentals of Bitcoin mining? You know, a lot of people understand it, but do they truly understand it? And so really, what you are trying to do is ROI in the first year to year and a half, and that is shown in the blue section. Your hash price does eventually commodify as more hash rate comes online. And there is an implicit breakeven and therefore end of life cycle. So your power cost, as that goes up and down, the higher power cost, the shorter your x axis, your horizon of useful economic life, lower your power cost, the longer you can mine. Therefore, the longer you can free cash flow. So anyways, it is just something to be aware of of how does crypto mining work. And by design, yes, you do. Upgrade your machines every three to four years, but we run them for as long as possible. Keep in mind, our BuzzMiners, those came online in 2022. So all those BuzzMiners have been mining for almost four years now. Let us hop into the next slide. Again. You know, a big part of our ROIC driven ethos also having low G&A. And so let us go to the next slide. Not all of our peers have reported yet, but just based on those that have, again, lowest G&A in the sector. By the way, I do want to point out, if you compare on our on a year-over-year basis, our G&A is up about 80%. However, our revenue is up over 300%. It is over tripled. And our corporate margin is about $30,000,000 this quarter. It is up about 40x from a year ago when the corporate margin was $700,000. So the point is even as we have scaled the business dramatically, our G&A has not grown nearly as much. And so, again, we maintain that lean and mean mindset. And by the way, we have a Bitcoin mining business and an HPC business. So very proud of the entire executive team. We have had a couple over nine time zones every single day. We are in two hemispheres. We are in multiple continents. Let us go to the next slide. Also, best value. If you look at our peers where they are trading on a EV to exahash, it would place HIVE with a $3,000,000,000 multiple. Everybody is going to say, yeah. But everybody else has HPC and landing power. So do we you know, refer back to the tremendous growth that we are experiencing and that we further have projected for the rest of the year on the HPC business. Even in the and stable and steady cash flows. Sort of temporary bearish Bitcoin mining climate that we see. And, of course, Bitcoin, a very cyclical asset class, you really make hay when the sun shines. And so we will be ready for the next bull run when it comes. But in the meantime, we will be cash flowing. Next slide. Darcy. Longest standing CFO and crypto mining, over to you. Thank you. Frank Edward Holmes: Thank you, Aydin. Darcy Daubaras: And good morning, everyone, and thank you for joining us today. I will be walking you through the highlights of the quarter. We are providing certain non-GAAP measures in our presentation today. The company believes that these measures, while not a substitute for measures of performance prepared in accordance with U.S. GAAP, do provide investors with an improved ability to evaluate the underlying performance of the company. These measures do not have any standardized meaning prescribed under U.S. GAAP and therefore may not be comparable to other issuers. Further details are found in the Management Discussion and Analysis for the three and six months ended 12/31/2025. Starting on the next slide, HIVE ended the 12/31/2025 quarter with 243,100,000 shares, 2,600,000 options, 13,600,000 RSUs, 3,000,000 warrants outstanding. I will now walk through our financial results for the quarter ended 12/31/2025 beginning with key operational and financial metrics. Q3 represented a quarter where we continued to execute operationally while navigating market volatility in digital assets. Our focus remains consistent. Disciplined capital allocation, operational efficiency, and cash oriented returns on invested capital. Let us start with the headline financial outcomes on the next page. For Q3, we generated $93,100,000 in revenue, approximately 95% coming from hashrate services on our Bitcoin side and nearly $5,000,000 contributed by HPC operations, demonstrating the scale we have achieved as we continue ramping toward higher hashrate HPC expansion. Adjusted EBITDA remained positive at roughly $6,000,000 reinforcing that our operating model generates cash, despite cyclical pricing conditions. Operational output remains strong with approximately 1,184 Bitcoin equivalent produced, which is up from 719 in the prior quarter, supported by stable operations, strong uptime across our sites and the execution of our Paraguayan expansion. At quarter end, we held 481 Bitcoin on the balance sheet, reflecting our hybrid strategy of liquidity management and strategic digital asset exposure. These numbers reflect disciplined cost management, a focus on efficiency, and the benefit of our diverse global footprint. Now let us, on the next slide, take a look at how this operational performance translates into our balance sheet. HIVE takes pride in maintaining a healthy balance sheet. Turning to liquidity, we closed the quarter with approximately $14,000,000 in cash, and $14,000,000 in digital currencies, bringing total current assets to about $91,000,000. Current liabilities stood at approximately $52,000,000 providing us with a healthy working capital position. This balance sheet supports our dual growth strategy, expansion in Paraguay and scaling our subsidiary Buzz HPC while maintaining financial flexibility. Our strategy remains conservative on leverage and disciplined on capital deployment. With that context, let us look at how our earnings metrics have evolved starting on the next slide. Shifting our focus to our gross operating margin, on a year-over-year basis, comparing the results of this quarter to Q3 last year, our gross operating margin, which is calculated as total revenues, minus direct operating and maintenance costs and HPC service fees, increased to $32,100,000 in the most recent quarter compared to $5,300,000 in Q3 last year. In this most recently completed quarter, we are reporting a basic loss of $0.38 per share compared to a net income of $0.53 per share reported for Q3 last year. This reduction in earnings per share is largely driven by non-cash accounting impacts such as the accelerated ASIC depreciation tied to our expansion in Paraguay, unrealized losses on investments and digital currencies held on the balance sheet, and changes in the fair value of derivatives. Taking a look at our revenue increases year over year on the next slide, we generated total revenue in fiscal 2026 of $93,100,000 versus $29,200,000 in the previous year's third quarter. On a year-over-year basis, revenue growth was supported by higher production scale and operational uptime. Year over year, we saw a significant improvement in gross operating margin expanding from roughly 18% to about 35%. This reflects the benefit of our efficiency initiatives, though it continues to move with Bitcoin pricing and network difficulty. It is important for investors to understand that our margin profile is heavily influenced by external variables. Whether this be hash price, power costs, and market volatility, while internally, we continue to focus on controllable drivers like uptime, fleet efficiency, and SG&A discipline. Even in volatile market conditions our goal is to maintain a structurally stronger operating model. We are focused on expanding the structural margin, not chasing cyclical upside. And if we zoom in to just the last two quarters, you will see our continued strength on the next slide. Comparing our current fiscal Q3 quarter to the previous Q2 quarter, we generated revenue in fiscal 2026 Q3 of $93,100,000 versus $87,300,000 in the previous quarter. A slight increase in revenues versus the prior quarter was impacted by continued increases in exahash capacity from Paraguay in spite of digital asset price movements and changes in network difficulty. Our gross operating margin decreased to $32,100,000 or 35% in the most recent quarter compared to $42,400,000 or 49% in the prior quarter's comparative. These quarter-over-quarter comparisons show margin compression relative to Q2 primarily reflecting digital asset price movements, and timing effects rather than structural changes in our business. Operationally, our facilities continue to perform well, strong uptime and efficiency metrics. What you are seeing here is market sensitivity. This is economics of the cycle, not a change in the trajectory of the business. As we scale toward higher hashrate, benefit from ongoing efficiency upgrades, we expect operating leverage to improve over time. And on the next slide, I would like to remind our stakeholders our net income is comprised of our operational earnings, or cash flow, plus our investment earnings, which includes realized and unrealized earnings, which often includes non-cash charges. Our adjusted EBITDA for this quarter ended 12/31/2025, was $5,700,000 compared with adjusted EBITDA of $82,900,000 for the 12/31/2024 period. The largest contributor to the high adjusted EBITDA in the prior year was a $77,400,000 unrealized gain on digital currencies. I will highlight again that adjusted EBITDA is a non-GAAP figure. For this completed quarter, we experienced a loss of $91,300,000 compared to a net income of $68,200,000 the previous year comparative. On earnings, year-over-year comparisons include significant non-cash impacts. Specifically, we have accelerated ASIC depreciation tied to the Paraguayan expansion which reduces accounting earnings in the near term. This accounting treatment aligns depreciation with asset utilization and does not materially impact cash generation. Adjusted EBITDA, therefore, often provides a clearer representation of underlying operating performance. On the next slide, the quarter-over-quarter view tells us a similar story. Quarter-over-quarter earnings are affected by depreciation timing and fair value adjustments related to digital assets. Our adjusted EBITDA in this 2026 was a profit of $5,700,000 versus adjusted EBITDA profit of $31,500,000 in the previous 2026 Q4 quarter. In the 2026, we experienced net loss of $91,300,000 compared to net loss of $15,800,000 in the previous 2026 Q2 quarter. Operational KPIs, including uptime, efficiency and production remained strong throughout the period. Our internal focus squarely on cash, ROIC rather than accounting volatility. Accounting noise should not be confused with operating performance. Q3 fiscal 2026 was a solid quarter for HIVE. We delivered strong revenue, expanded margins, maintained a robust balance sheet. Our discipline, fleet expansion and cost control measures continue to position us well to compete in a challenging environment and capture opportunities for growth, both on the hashrate side and on the high performance computing side in our data centers. I want to thank our local loyal stakeholders and encourage them to continue to follow our dual engine expansion efforts both in Hashrate Services and HPC operations. Nathan Fast: Thank you, Darcy. That concludes the presentation for today. We will now begin the question and answer portion of our call. Analysts on the line, if you could please click raise hand when you are ready with your questions. We will begin to choose and ask you to unmute. Our first question comes from the line of Darren from Roth. Darren, if you kindly unmute, the floor is yours. Darren Aftahi: Good morning. Can you hear me? Aydin Kilic: We can hear you. Yep. Aydin Kilic: Got you. Yeah. Congrats on all the progress. Two questions, if I may. Darren Aftahi: Just as you kind of you know, push forward on your on your HPC strategy, can you kind of maybe benchmark how you are thinking about the thought process of returns with AI cloud versus colocation, and maybe what specific metrics, whether it is payback period, return on invested capital, etcetera, that you are you are you are kind of making those decisions off of. Then second question, you mentioned in the, I think, release about New Brunswick, and you kind of mentioned specifically tier three hyperscaler. Is that put in there to sort of benchmark the level you want to build to, or do you actually have interest from hyperscalers? And I would be kind of curious about the level of interest there. Thank you. Aydin Kilic: Yeah. Thanks for those questions, Darren. This is Aydin here. Aydin Kilic: The ROI is typically on the GPUs are approximately two and a half years. After direct operate Darcy Daubaras: Costs, and we have a lot of experience operating GPUs. Aydin Kilic: Going back to the Ethereum mining days, moreover, having had AI cloud revenue on our income statement for the past three years, we had 38,000 NVIDIA A-series GPUs A40s, A6000s, A5000s, A4000s. We are still running 4,000 of those cards and 34,000 of those cards we were able to sell at 80 to 90% of face value, and that is what those proceeds went to upgrading and buying H100s and H200s. The point is do not just talk about it, we have done it and so we have seen that demand ebb and flow in GPUs, but they have strong residual market value. And so where you are able to ROI in call it, two and a half years, but have these cards potentially be worth 60, 70, 80% of their value after three or four years. We have seen a huge uptick in demand for H100s. As you have likely heard. And so the demand comes in two ways. One is the hourly rate that the GPUs rent for goes up. But in turn, the market price for people purchasing the GPUs goes up because people realize you can get more cash flow from them. Aydin Kilic: So Aydin Kilic: it is a attractive business, I believe, because if you have the proficiency to do so, if you have the cloud technology platform, which we have and we have demonstrated, and there will be a lot more, updates and exciting news to come as we bring more GPUs online and march towards that 11,000 GPU cloud target and hit that, you know, crest over that $200,000,000 ARR target. In the slides. We believe that it is an accretive business, because the residual value that the a a are aligned the GPUs plus you have GPUs that have strong residual value. So you come out ahead. So I think that Aydin Kilic: Answers the first half of your question. The second half of your question, we actually talked about the conversion of New Brunswick in the previous quarter. We bought 32 acres of land adjacent to the site. Engineering design has been advancing since then and so we have been we have been in talks with groups that are interested. And so there are different ways to deliver power, power shell built to suit. And so I cannot get into any more specifics other than what we have already disclosed, but a sort of market rate of what gets us about a $130 a kilowatt a month for New Brunswick as a secondary. You have primary secondary markets. New Brunswick is a secondary market, and so that is where that run rate of approximately $80,000,000 ARR comes from. Do about 53 megawatts of IT load, but do stand by for updates. As we advance our designs. Aydin Kilic: And Aydin Kilic: our conversations. We just wanted to acknowledge to the street that that is moving forward. And is not to be forgotten. It is still part of the road map and part of the game plan, but stay tuned for more updates on that. Does that cover it all for you, Darren? It does. Appreciate it. I am You bet. Thank you. Thank you, Darren. Next, we will go to the line of Nathan Fast: Fedor from B. Riley. Fedor, please unmute. Floor is yours. Frank Holmes: Thank you very much, and good morning, good afternoon to everyone. I wanted to just, like, ask about current breakeven price for Bitcoin mining operations Mike Colonnese: Assuming all in cost to mine not only power? And, additionally, I would like to understand how Bitcoin and current levels influences your capital allocation decisions for AI and infrastructure? And if you could outline your expected CapEx spending over the next one and or two quarters with any detail on the split between mining and AI HPC investments, also would be super helpful. Thank you. Aydin Kilic: Yeah. Definitely, Fedor. So I think it is quite evident that 2025 is the year of scaling. Our Bitcoin mining business, having brought on the 300 megawatts in Paraguay, scaling to 25 exahash. So that reflects a lot of capital deployment in that business. Aydin Kilic: Unit. And what you will note from our investor presentation, Aydin Kilic: This that we just debuted and, of course, last quarter, this year, 2026, our focus is on scaling. The HPC revenue from $20,000,000 ARR to $225,000,000 ARR. So for 10x, and how do we accomplish that? Expanding the cloud, from 5,000 GPUs to 11,000 GPUs, which in my section, was detailed growing that revenue from 20 to $140,000,000 ARR. And then, of course, bringing on the conversion of New Brunswick to tier three Aydin Kilic: HPC for hyperscale colocation, which at a $130 a kilowatt 53 megawatts of IT load gets you to about $80,000,000 ARR. So directionally, you can see where Aydin Kilic: The capital deployment is being scaled. I do want to take a moment to acknowledge though that with OEM vendor financing on our GPUs, we are able to get lease-to-own. So effective equal lease payments over thirty months with a $1 buyout, so effectively a finance, with single digit interest rates which is very, very attractive. Nothing funky like some of our peers have done with pref shares and warrants and all this, you know, convoluted mezz financing. It is just very attractive. And once we have been able to scale that GPU cloud business course and with Bell AI Fabric Canada, that data center capacity we are building the cloud Frank Edward Holmes: On Aydin Kilic: Colocated premises with Bell. So, again, that allows us to operate a CapEx-light, high margin GPU cloud business. And so we do have the 100 megawatts in Paraguay that we announced, and we announced that PPA late last year. And so long lead is been ordered the substation, the design. So that is a long tail project because you know, of course, Bitcoin mining economics right now, we are looking at 30 to $35 hash price. So we, of course, are proceeding, very carefully. But what I do want to point out is just remind everybody that we had our recent press release where we sent where we are sending nodes to the large telco player in Paraguay. She could do a proof of concept for HPC AI. We are going to be launching GPUs out of an existing tier three telecom center in Asuncion, which is the capital of Paraguay, of taking meaningful strides to actually realize and bring HPC compute to Latin America by partnering with an existing data center oh, sorry. Telco provider with two or three data centers. Much like we found success doing that in Canada with Bell. We are doing it with the largest telco player in Paraguay. They are actually Mike Colonnese: Owned by a Aydin Kilic: Multinational NASDAQ listed company. So that is directionally where we are also taking things in Latin America. So 100 megawatts that we are bringing online, we are really looking at the ability to build the tier one infrastructure today. So the high voltage switchgear, all the power distribution and that infrastructure can be used for tier one. I.e. Bitcoin mining, or can be expanded upon with chillers and gensets and everything else that you need for tier three for future HPC conversion. So we are looking at evaluating a road map where we could do both in Latin America. But for right now, we are building the power infrastructure to power that additional 100 megawatts of land. But that is not massively CapEx intensive to buying compared to buying ASICs or certainly not building tier three. So I would say the biggest CapEx will be building out New Brunswick for converting it to tier three. Hope that answers your question. Mike Colonnese: It does. Thank you very much. And just if you allow me to squeeze one related follow-up on Brunswick HPC facility, specifically, I would like to understand. You already outlined the total CapEx for this project roughly in previous broadcasts. But if you can outline current construction status and milestones completed to date for each related portion of the facility and what is remaining milestones and maybe spending. Thank you. CapEx for for this or next quarter just just to understand the CapEx Nathan Fast: Not sure if we lost Aydin. Fedor, we will follow up with you after this. Yeah. No. No. I am here. So sorry. Aydin Kilic: The question was, I do not know. Some I was put on mute for some Aydin Kilic: Reason. The question was, Aydin Kilic: What are the milestones for the New Brunswick tier three conversion? Mike Colonnese: Yeah. Yeah. I just I just can I just can can quickly repeat? Pardon me. It is just like for specifically for HPC portion of the this data center, what is what is what is already completed to date, and what is what is the near term plan? With associated CapEx for next or next two quarters, let us say, this way. Thank you. Aydin Kilic: Yeah. So, where what we have put out is we have worked we have bought the additional land. We are going through design development, so we have design and permitting underway for that site. The next step would be ordering long lead items. Aydin Kilic: But beyond that, I do not want to provide Aydin Kilic: Any more specificity at this time. We will provide the market with announcements as those milestones are realized. So that is what I got for you right now, Fedor. Good question. But I know you want to know more, but you have got to hang tight, buddy. Mike Colonnese: I appreciate your feedback, and continue. Best of luck. Thank you very much. Thank you. Nathan Fast: Thank you, Fedor. We have got time for two final questions. Mike from Northland, I know you have had your hand raised for quite some time. If you would kindly unmute. The floor is yours. Aydin Kilic: Yeah. Hey. Thanks. First question is just for Aydin. If your OEM financing is for three years, can you talk a little bit about why you are signing two-year deals that mismatch? And then secondly, for Darcy, could you help us think about depreciation expense the next couple quarters? Mike Colonnese: Because Darcy Daubaras: We have a longer term. Aydin Kilic: Your payments are less. So you cash flow better. Mike, Aydin Kilic: And so we know that these GPUs have great residual value in the market. Aydin Kilic: So at the end of the two-year term, we may elect to sell them for a gain. Aydin Kilic: We could simply prevent them out. There is lots of optionality. That is all. But it is mostly you just want to structure payment so Aydin Kilic: You cash flow nicely. Darren Aftahi: Got it. And then on the depreciation, maybe? Darcy Daubaras: Yeah. On the depreciation side, I think you can take a look at what we have got in for for the Q3 right now. For the nine months. As we have noted, there was some catch up depreciation in there. So if you sort of take the incremental amount that you have got from sort of Q1 to Q3, you can probably take that as running forward. Through Q3, we had all of our ASIC equipment up and running within Paraguay. So that is the best driver moving forward. Aydin Kilic: Got it. Thank you. Darcy Daubaras: Of course. Nathan Fast: Excellent. Thanks, Mike. Gareth Garcetta from Cantor. Close us out with your final question. Aydin Kilic: Hi, guys. I just wanted to dig in on any potential CapEx for the remaining GPUs you have at Manitoba. Nick Giles: So I know you said about 500 have been or will be deployed in 1Q. So wanted to figure out kind of have the remaining 100 GPUs been purchased and if not, how are you thinking about the funding for those? And lastly, is there any CapEx on the data center side of things at Manitoba? Thank you. So the 504 the purchases of those were announced in November. Aydin Kilic: And Aydin Kilic: The leasing or contract Aydin Kilic: Contract to term of those GPUs, was really announced last week. And so those GPUs should be, they are being delivered to the facility now. Aydin Kilic: And they are expected to go live. Sort of the focus is to let the the street know that Mike Colonnese: That Aydin Kilic: First cluster, 63 node cluster, is being commissioned Aydin Kilic: InfiniBand and, you know, all the bells and whistles and is going to be Aydin Kilic: Live with the client. And, you know, this quarter ends March 31, so Aydin Kilic: Very soon. We have got six weeks left in this quarter. And so I would say, you Aydin Kilic: Know, standby for updates on that. And so once that first cluster is deployed, Gareth, then we intend to reload very quickly. And this model is shaping up to prove to be very successful. And so our is to reload and repeat as we rent a cluster get order another one, finance it in a similar way, get it delivered, rent it out, rinse and repeat. Hope that is helpful. What was the second half of your question? Nick Giles: Just if there is any potential CapEx needed on the data center side of things at Manitoba. Nope. No. I mean, there was, some Aydin Kilic: Deposits upfront, but that was all taken care of. Nick Giles: Six months. Great. Aydin Kilic: Yep. Yep. Thank you, guys. Thanks for sneaking me in. Nick Giles: You bet. Nathan Fast: Excellent. Thank you. That concludes our Q&A session. Our Q3 2026 earnings call. Thank you for joining. We look forward to sharing more exciting announcements very soon and speaking to you again Aydin Kilic: Soon. Nathan Fast: Thank you.
Operator: Good day, everyone. My name is Stefan, and I will be your conference operator today. At this time, I would like to welcome you to the Allegion fourth quarter and full-year 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 and if you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. At this time, I would like to turn the call over to Joshua Pokrzywinski, Vice President of Investor Relations. Thank you, Stefan. Good morning, everyone, and thank you for joining us for fourth quarter 2025 earnings call. With me today are John H. Stone, President and Chief Executive Officer, and Michael J. Wagnes, Senior Vice President and Chief Financial Officer of Allegion plc. Our earnings release, which was issued earlier this morning, and the presentation, which we will refer to in today's call, are available on our website at investors.allegion.com. This call will be recorded and archived on our website. Please go to slide two. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Please see our most recent SEC filings for a description of some of the factors that may cause actual results to differ materially from our projections. The company assumes no obligation to update these forward-looking statements. Today's presentation and commentary include non-GAAP financial measures. Please refer to the reconciliation in the financial tables of our press release for further details. Please go to slide three, and I will turn the call over to John. Thanks, Josh. Good morning, everyone. Thanks for joining the call. Allegion delivered a strong year marked by high single-digit enterprise revenue growth more than $600,000,000 of accretive M&A, and solid execution in a dynamic and inflationary environment. I am proud of the Allegion team's performance in 2025. I see our results as a testament to the talent and dedication of our people, the strength of our brands and channel partnerships, and our sound strategy as we deliver on our commitments to shareholders. As we enter 2026, our broad end-market exposure supports continued growth led by Americas nonresidential. U.S. residential markets were softer than expected in the fourth quarter and our outlook contemplates residential remains soft in 2026. However, our team has a proven track record of execution across a variety of macro conditions. We are initiating fiscal year 2026 adjusted EPS guidance of $8.70 to $8.90 per share. I will provide more detail on our outlook later in the call. Please go to slide four. Let us take a look at capital allocation for 2025 starting with our investments for organic growth. A core element of Allegion’s portfolio strength is our brands’ legacy of innovation. Brands like Schlage, Von Duprin, and LCN invented their product categories a hundred years ago and are known as pioneers in our industry. Allegion is built on that legacy by expanding our offerings of mid-tier commercial product lines. Last September, we launched our Schlage Performance Series locks providing more ways to win in the nonresidential aftermarket alongside the mid-price point Von Duprin 70 Series exit devices released in 2024. These are complemented by our mid-tier offerings with LCN closures. We now have a full suite of commercial-grade offerings from the industry's leading brands at more price points to meet customers' needs. As you know, 2025 was an active year for acquisitions for the company with approximately $630,000,000 of capital deployed. These acquisitions aligned to the strategy we outlined at our May Investor Day, including additions to our core mechanical portfolio, as well as electronics and complementary software solutions that meet end-user needs for safety and convenience. As we enter 2026, the pipeline is active and we will remain disciplined to drive returns and continue positioning Allegion as a leading pure play in security and access. Allegion continues to be a dividend-paying stock. In 2025, we paid $175,000,000 in dividends to shareholders. Looking ahead to 2026, we have also just announced our twelfth consecutive annual increase in dividends. While we did not repurchase shares in the fourth quarter, share repurchase was part of our capital allocation in 2025 totaling $80,000,000. At a minimum, we intend to offset the creep from share-based compensation. You can expect Allegion to be balanced, consistent, and disciplined with capital deployment over time with a clear priority of investing for growth. Michael will now walk you through the fourth quarter financial results. Thanks, John, and good morning, everyone. Thanks for joining today's call. Please go to slide number five. As John shared, our Q4 results reflect continued strong execution from the Allegion team as we delivered high single-digit revenue growth for the enterprise. Revenue for the fourth quarter was over $1 billion, an increase of 9.3% compared to 2024. Organic revenue increased 3.3% in the quarter, led by our Americas nonresidential business. The organic revenue increase was driven by price realization partially offset by volume declines in our Americas residential and International businesses. Q4 adjusted operating margin was 22.4%, up 30 basis points compared to last year. Pricing and productivity exceeded inflation and investment by $12,000,000, driving 20 basis points of margin expansion in the quarter. Favorable mix also benefited margin rates. Adjusted earnings per share of $1.94 increased $0.08 or 4.3% versus the prior year. Operational performance and accretive acquisitions contributed over 10 points of EPS growth. This was partially offset by higher tax. Finally, year-to-date available cash flow was strong at $685,700,000, up 17.6% versus the prior year. I will provide more details on our balance sheet and cash flow a little later in the presentation. Please go to slide number six. Our Americas segment was resilient in Q4 despite a weak quarter in residential markets. Revenue of $795,500,000 was up 6.1% on a reported basis and up 4.8% on an organic basis, led by our nonresidential business. Our nonresidential business increased high single digits organically, driven by a combination of price and volume growth. Demand for our products remains healthy, supported by our broad end-market exposure. Our residential business declined high single digits, as favorable price was more than offset by volume declines as residential markets remain soft. Electronics revenue was up low double digits for the quarter and for the full year 2025, and continues to be a long-term growth driver for Allegion. Additionally, reported revenues include 1.3 points of growth from acquisitions. Americas adjusted operating income of $216,200,000 increased 5.4% versus the prior year. Adjusted operating margin was down 30 basis points in the quarter. Pricing and productivity net of inflation and investment were a 30-basis-point headwind to margin rates in the quarter; however, they were positive on a dollar basis as we were able to offset higher inflation in a dynamic environment. Additionally, mix was favorable to margin rates and offset volume deleverage in residential. Please go to slide number seven. Our International segment delivered revenue of $237,700,000, which was up 21.5% on a reported basis and down 2.3% organically. Growth in our Electronic businesses was more than offset by weaknesses in Mechanical. Net acquisitions contributed 16 points to segment revenue. Currency was also a tailwind, positively impacting reported revenues by 7.8%. International adjusted operating income of $39,400,000 increased 27.5% versus the prior-year period. Adjusted operating margin for the quarter increased 90 basis points driven by accretive acquisitions, and favorable price and productivity net of inflation and investment. We continue to drive portfolio quality in the International segment through self-help, selective pruning of non-core assets, and adding high-performing businesses where we have a right to win. Please go to slide eight, and I will provide an overview of our cash flow and balance sheet. Year-to-date available cash flow was $685,700,000, up over $100,000,000 versus the prior year, primarily driven by higher EBITDA. I am pleased with the cash flow performance in 2025. For 2026, we anticipate our available cash flow conversion will be approximately 85% to 95% of adjusted net income. Next, working capital as a percent of revenue increased in 2025 due to acquired working capital, which does not impact cash flow. Finally, our balance sheet remains strong, and our net debt to adjusted EBITDA is at a healthy ratio of 1.6 times, which supports continued capital deployment. I will now hand the call back over to John. Thanks, Mike. Please go to slide nine. And before we discuss the 2026 outlook, I want to provide an overview of our key end-market assumptions. In the Americas, we see continued volume growth in nonresidential markets similar to 2025 levels and this is supported by our spec-writing trends. A broad end-market exposure and large installed base make for a resilient business, one that is less reliant on any single end-market vertical to drive growth. We do expect a more modest price contribution, however, to reflect slightly lower inflation as compared to last year. If inflation were to remain higher, the business has proven our ability to manage inputs and drive the necessary pricing as you saw in 2025. Residential markets were weak throughout 2025. Demand is likely to remain soft in 2026, and we expect Americas residential to be down slightly. For International, we see modest organic growth primarily driven by our Electronics businesses. We have been focused on improving portfolio quality in International through a combination of self-help and acquisitions, which we believe supports growth in markets that remain sluggish. Please go to slide 10, and I will discuss our outlook for 2026. We expect total Allegion revenue growth to be 5% to 7% and organic revenue growth to be 2% to 4%. Total growth includes approximately one point of foreign currency translation and two points of carryover contribution from M&A primarily on Allegion International. We expect organic growth of low to mid single digits in the Americas from a combination of price and volume led by our nonresidential business. We expect Electronics to outpace Mechanical growth consistent with our long-term performance and customer trends. In the International segment, our outlook assumes low single-digit growth led by Electronics with largely stable Mechanical markets. Our adjusted EPS outlook is $8.70 to $8.90. This represents growth of approximately 8% at the midpoint inclusive of an approximate $0.10 headwind from a higher tax rate. You can find more details on our outlook slide and in the appendix. Please go to slide 11. In summary, Allegion is executing at a high level while staying agile and steadily delivering on the long-term commitments we shared with you at our Investor Day. Our strong performance is led by an enduring business model in nonresidential America, double-digit Electronics growth, and accretive capital deployment as we acquired good businesses in markets where we have a right to win. I am proud of the Allegion team and appreciative of our strong channel partners. With that, we will take your questions. Operator: We will now move to the Q&A. For today's session, we will be utilizing the raise hand feature. If you would like to ask a question, simply click on the raise hand button at the bottom of your screen. Once you have been called upon, please unmute yourself and begin to ask your question. We will be taking one question and one follow-up question only. Thank you. We will now pause for a moment to assemble the queue. Our first question will come from Joseph John O'Dea from Wells Fargo. Please unmute your line and ask your question. Joseph John O'Dea: Good morning. Can you hear me? John H. Stone: Yep. Hi, Joe. Joseph John O'Dea: Good morning. Can start on the resi side in the fourth quarter? I think you touched on it being kind of softer than anticipated. And so just what you saw develop over the course of the quarter, the degree to which that extends into the early part of this year, whether that was more kind of destocking events or sell-through demand, and then on the pricing side of things as well if there was any need to adjust price there based on the demand you have. John H. Stone: Yeah, Joe, thanks for the question. I think certainly, resi in the Americas ended the year softer than we had contemplated. And honestly, resi throughout the year was a little choppy. Let us say, we put up mid single-digit growth in the third quarter really largely on the heels of a very successful new product launch, then a pretty soft Q4. I would say ’26 started off better, let us just say. But just looking at resi, it did end softer than we had contemplated. And I think that is part of the things that just cause us to at least take what we think is a very prudent assumption into 2026 that we would expect resi to be soft, and certainly, should there be an uptick in that market, we are positioned very well to capture upside there. I would say with your question around pricing, no, there was not any short-term reaction on pricing nor do I think that contributed to any of the demand softness. The last point would be our channel does not hold a lot of inventory, and so any inventory correction-type actions are usually very short lived. Joseph John O'Dea: Got it. And then on the Americas organic outlook, and the low single digit, mid single digit, just any color as we think about price and volume components of that? Is that a little bit more price than volume, the price carryover tailwind, and then how you think about that volume progression over the course of the year? Is the volume growth expected to get better, and is that a function of comps or anything that you are seeing in the spec activity that would suggest a little bit better demand environment as we go through 2026. Michael J. Wagnes: Yeah, Joe. So thanks for the question. I would say as you think about Americas for ’26, we expect to see both price and volume growth, but as you suggested, more pricing than volume growth for the year. I do not like to give quarterly outlook, but I would be happy to unpack it qualitatively for you. As you know, the Americas, as you start the year in Q1, revenue levels are similar to the revenue in Q4 in total historically, and then from there, we tend to have higher revenue in the middle two quarters. We expect that same seasonality where the middle two quarters are our largest quarters, and obviously, Q4 a little less. So as you model this, I think that could help you qualitatively. In addition, you do have to look at the prior-year comp as you think about pricing and margins for that matter. You have to consider how we finished in each quarter for 2025 as you think about that pricing impact for the next year. Obviously, ’25, we had not yet felt the inflationary impacts from tariffs, so you did not have the pricing or the inflation. So hopefully, that helps you as you think about unpacking the year from a top line. Joseph John O'Dea: It does. Thanks, Mike. Operator: Our next question will come from Tomohiko Sano from JPMorgan. Please unmute your line and go ahead. Good morning, everyone. Michael J. Wagnes: Good morning. Joshua Pokrzywinski: Thank you for taking my questions. Joseph John O'Dea: So you maintained secular leading margins despite the higher cost, repricing, productivities, and acquisition synergies. Can you break down the contributions from each of these levers and which will be most important in 2026, please? Michael J. Wagnes: Yeah. Tom, we put all that information in our 10-K. So when you get a chance, you can look at it for the fourth quarter and full year. I guess the full year is in the K. I will share, obviously, on the enterprise level, we did get some margin tailwind from that pricing and productivity in excess of inflation and investment. There was a headwind in the Americas. That is a function of the tyranny of the math we have been talking about all year long. We also had some slightly favorable mix, but the residential volume deleverage we experienced kind of mitigated that in the Americas region as we highlighted. As you think about 2026, you could back into the full-year margin expansion. You know we have all the components at the enterprise level. As you know, the Americas is our largest business, and we cannot drive the margin expansion without the Americas being in the similar ZIP code. So it kind of provides you at least a framework for the Americas as well. And then as far as the components, I would expect to have pricing and productivity in excess of inflation and investment on a dollar basis, and from a rate basis, I would not expect that to be a headwind in 2026. It was obviously in the Americas in ’25. We do have that first quarter where you have that carryover impact, that last quarter as I mentioned in the previous answer. But for the full year, expect the price and productivity to be positive on a dollar basis and certainly not negative on a margin rate basis. Tomohiko Sano: Thank you, Mike. And a follow-up on International markets. So these markets are expected to see continued spike with growth primarily from acquisition and electronics. Can you provide more color on specific geographies, particularly Western Europe and Australia, and when you expect the demand recovery, please? John H. Stone: Yeah. Tomo, this is John. I appreciate that. And I think, yeah, we do see our Electronic businesses leading the way. That is primarily a Western Europe-based business, and then within that, primarily a DACH region business, but we are expanding pan-Europe with that. And those businesses performed very well in 2025, and we expect continued growth out of them in ’26. I would say Australia, New Zealand, the end markets have not been great, and, you know, so a little bit of improvement there off of pretty weak comps I think is not totally out of the question. We will have to see. And then largely, I would just say Mechanical market remaining a little sluggish, like we said in the prepared remarks, and Electronics will lead the way for us, along with again some carryover contribution from M&A. Tomohiko Sano: Thank you, John. Operator: Our next question will come from Brett Logan Linzey from Mizuho. Please unmute your line and ask your question. Brett, please unmute your line and ask your question. Tomohiko Sano: Okay. We will move on to the morning, Jay. Good morning. Sorry about that. Brett Logan Linzey: So, yeah, I just want to come back to the pricing dynamics for this year. So it looks like the industry implemented a conversion of the surcharge to list and then some incremental list above that. Maybe just talk about the pricing capture you expect this year on a net basis and what you are calibrating within the guidance framework? Michael J. Wagnes: Yeah, Brett. So, obviously, our business does do, as you know, a combination of some surcharges, mostly list price increases. We expect 2026 to be more list price increases. Obviously, we will be agile and deal with the environment. We have learned a lot over the last few years that if things change, we will just adjust accordingly, but our going-in assumption is that inflation will be a little less than what you saw in 2025. So, therefore, we will get a little less pricing in total as we mentioned in the prepared remarks. I already talked about the rate benefit of that in a previous question. And then total revenue enterprise and in Americas just expect a little more pricing than volume. And then if you get the organic within the framework we provided, you can kind of have an idea of each component. Brett Logan Linzey: I appreciate that, Mike. And then maybe just a follow-up on investments. The $9,000,000 tailwind in Q4 within Americas, is that just a function of the timing of some projects and some spending? Then how do we think about the investment allocation this year and if there is some flexibility around that budget? Michael J. Wagnes: Yeah. Well, as I like to look at it, I like to look at it in combination of price and productivity has to fund the investments and the inflation. We have been talking about that a few years. Quarter to quarter, that can move around a little, but I would say in general, think of it as we are going to take the necessary pricing actions and drive productivity to fund both. And as I mentioned earlier, I do expect that to be a positive on a full-year basis. Obviously, as I mentioned as well, Q1 we do have that tough comparable in the prior year where you did not have the inflation or the investment. So the ’26 you do have the carryover of that last quarter where you did not have the inflation investments. So that will weigh on margin rates. But full year, you can back into the enterprise margin expansion and just remember that the Americas will approximate that enterprise total as well from an expansion perspective. Brett Logan Linzey: Appreciate the detail. Pass it on. Operator: Our next question will come from Robert Schultz with Baird. Unmute your line and go ahead. Brett Logan Linzey: Hey, guys. Thanks for taking the question. Maybe as you think about ’26, in the Americas, what are you assuming for institutional and commercial volume growth? You think they are pretty similar, or do you expect outperformance in one of those verticals? Michael J. Wagnes: You know, Bobby, when we think about our business, we would not want to give volume growth nonres versus res, so I certainly do not want to dive into select verticals within the nonres market. I will just refer you back to John’s prepared remarks where he talked about that broad end-market exposure and just understanding our business, our outlook supported by our spec activity as well. But I really do not want to give subvertical details of volume. Robert Schultz: Understood. And then just on M&A, how does your pipeline look today, and are you seeing any increasing competition for deals now? John H. Stone: Yeah. It is a good question. This is John. Pipeline is very active, I would say, in both our International and our Americas segments, and largely in line with the strategic overlay we shared with you at our Investor Day last May in terms of core Mechanical portfolio, Electronics, and even complementary software. So I think pipeline is busy. I think it is a very encouraging outlook. And with all that being said, you can still count on us to be quite disciplined and making sure we are sticking very close to our strategy, understanding where we have got competitive advantage, right to play and a right to win, and very much focused on our shareholder returns. Robert Schultz: Got it. Thank you. Operator: Our next question will come from Andrew Obin with Bank of America. Please unmute your line and go ahead. Andrew Obin: Hi. Yes. Good morning. Michael J. Wagnes: Hi. Good morning, Andrew. Andrew Obin: Just a question on, I guess, M&A and capital allocation. I mean, you know, the markets have been sort of sluggish for a while. You guys have been able to deliver consistent EPS growth in pretty tough markets. You know, you chose to allocate a lot more capital to M&A this year. I am just wondering, given that you are laying a foundation, why do you not think that Allegion stock is a better sort of use of cash? Why did you not think your own stock is the best value out there? And just maybe give us some insights how you and the board have gone through the thought process where you chose M&A acceleration versus Allegion stock this year? Thank you. John H. Stone: Yeah. Andrew, this is John. Appreciate the question. And, you know, I think that is why we have taken the time to put together a very consistent view of capital allocation across all of the different areas in our quarterly earnings deck as just a standard piece that we speak to. And so, I would say the priority is towards profitable growth. And that is why we will take time each quarter, this quarter too, talking about some highlights around investing for organic growth. That is the top priority for our use of cash. And then as you look to what are the other elements of capital allocation, we are a dividend-paying stock. We will continue to be a dividend-paying stock. You can expect that dividend to grow commensurate with our earnings growth. And then, again, an orientation towards profitable growth. And so, yeah, as we started the year, we did have some share repurchase. We do have an open authorization with our board. And as that is the right decision at the right time when the conditions are there, we can do that, and we have a supportive board there. When we have very attractive acquisition targets that we can bolt on and integrate into an existing business unit structure and drive synergies and drive accretive returns to the shareholders, we are going to do that. And so I thought what you saw in really the last two years is this whole theme of expect Allegion to be balanced and disciplined and consistent with our capital allocation to drive shareholder returns. Andrew Obin: Thank you. And maybe a little bit more color on markets growth. You know, you sort of highlighted DACH. How is Interflex business doing? And maybe a little bit more color what is happening in—thanks so much. John H. Stone: I am thrilled that you asked that question, Andrew. I am so proud of our Interflex team. You know, it is kind of an interesting business. It tends to kind of ramp up its revenue and profitability as the year goes on. So, you know, September is kind of slow and December looks great. Right? It is just kind of an interesting business that way. Blue-chip customer base. We have put in resources to grow the Flex and the plano solutions across Europe. Doing very well. They had a bang-up year. They are really delighting their customers. We are finding ways to get AI into the software offerings just to help our customers get all the reports and the data that they need. And they are growing very, very nicely. Just super proud of that business. Andrew Obin: So we are making progress moving beyond the core sort of German manufacturing base? Absolutely. So much. John H. Stone: Thank you. Thank you. Yeah. Operator: Our final question in the queue comes from Christopher M. Snyder with Morgan Stanley. Please unmute your line and ask your question. Christopher M. Snyder: Thank you. Hopefully, everyone can hear me. I wanted to ask around Americas margins. Q4 came in down year on year modestly. I understand that obviously, margin—zero margin revenue via—when you guys were growing margins. Tariffs is a headwind, but that does not seem all that dissimilar from Q2 and Q3. So did the Q4 decline just a function of resi volumes turning lower versus Q3? There still seems like there was a lot of tailwinds in the quarter between mix and then the productivity, what seems quite positive as well. So just any other kind of color unpacking the year-on-year margin for Americas in Q4? Thank you. Michael J. Wagnes: Yes, Chris, you are thinking about it the right way. If you look at residential in the fourth quarter, down high single digits, and we did, as I mentioned in the prepared remarks, have some positive pricing. So when you think about volume, volumes were even worse than the total residential. So that is a pretty substantial volume decline. That is the delta when you think of Q3 versus Q4. Q3, right, you are growing mid single. And so that is a 10 to 15, depending on how your rounding works, delta between the two quarters. And that explains why the margins were different. Christopher M. Snyder: Thank you. I appreciate that. And then I know you have kind of flagged a couple times that Q1 has this tough margin comp, and we can certainly see that. But I guess if we look past Q1 and kind of think Q2 to Q4, does the guide assume that Americas kind of get back to that target 35 or so incremental margin rate, Q2 to Q4, once we have all the tariff revenue in the comp? Thank you. Michael J. Wagnes: Yeah. If you think about the fundamentals of the business, right, that core incrementals we laid out at Investor Day, after we get through Q1, that still holds. Think of that core incrementals being strong once we get through that Q1. So as you think about the full year, margin expansion in the Americas, like I mentioned earlier, just that one more quarter we need to get through. But the business fundamentals remain sound and consistent with what we talked about at Investor Day where we can leverage that volume once we get through this last quarter of the tyranny of the math. Christopher M. Snyder: Thank you. I appreciate all the help. Have a great rest of the day. Thanks, Chris. Operator: At this time, I see no callers in the queue. So I will hand the call back to John H. Stone for closing remarks. John H. Stone: Thanks very much. Thank you all for the great Q&A. We look forward to speaking with you on our Q1 earnings call in April. Be safe, be healthy.
Operator: Greetings. Welcome to Leidos Holdings, Inc. Fourth Quarter Fiscal Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. 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 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Stuart Davis, from Investor Relations. Stuart? You may begin. Thank you, operator, and good morning, everyone. Stuart Davis: I'd like to welcome you to our fourth quarter and fiscal year 2025 earnings conference call. Joining me today are Thomas A. Bell, our CEO, and Christopher R. Cage, our CFO. Today's call is being webcast on the Investor Relations portion of our website where you will also find the earnings release and supplemental financial presentation slides that we are using today. Turning to Slide 2 of the presentation, today's discussion contains forward-looking statements based on the environment as we currently see it, and as such does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Finally, as shown on Slide 3, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the two is included in today's press release and presentation slides. With that, let me turn the call over to Thomas A. Bell, who will begin on Slide 4. Thank you, Stuart, and good morning, everyone. I am pleased you have been able to join us to discuss another strong quarter for Leidos Holdings, Inc. capping off an outstanding 2025. Of course, 2025 was a very dynamic year. The complexities of Doge early and the longest U.S. government shutdown toward the end. Despite these challenges, we were able to deliver on our promises. Importantly, first, to our customers, and as a result, to our shareholders. We are pleased to have recorded 2025 revenue toward the top of our guidance. And earnings and cash ended the year above our guidance. 2025 adjusted EBITDA margin was 14.1%, a year-over-year increase of 120 basis points. Non-GAAP diluted earnings per share grew by 17%, and free cash flow grew by 26%. Q4 revenue was $4,200,000,000, a year-over-year decrease of 3.6%. But normalized for the extra week in our 2024 and the six-week government shutdown in 2025 Q4 revenue would have grown approximately 4%. Later on this call, Chris will give you all the details on our financials. In addition to those financials, another significant highlight of our fourth quarter was net bookings of $5,600,000,000 delivering a book-to-bill ratio of 1.3 times. This matched the 1.3 book-to-bill ratio we also delivered in the 2025. And our year-over-year funded backlog is up 15%. This momentum illustrates our North Star strategy's strong alignment with administration priorities, and enduring trends. Let me mention a few of our key awards in the quarter. The Air Force awarded us a five-year $2,200,000,000 contract to deploy Leidos' passive radar systems for base defense against fixed and rotary wing aircraft and cruise missiles. This award validates years of investment in our Alps and Marado systems that detect threats without emitting a signal. Our continued IRAD investment in this powerful technology is precisely what the administration is asking for. And Leidos is pleased that the U.S. Air Force has recognized our capabilities with this order. Leidos also won a new six-year $455,000,000 Air Force Cloud One Next architecture and common shared services program. Leveraging our experience in zero trust, automation, and multi-cloud brokering, we will deliver the ubiquitous secure, commercial-grade technology that Department of War requires across the globe wherever the mission calls. And we secured positions on two key ten-year IDIQs, the Missile Defense Agency's $151,000,000,000 SHIELD program supporting Golden Dome, and the Defense Microelectronic Activities $25,000,000,000 program to modernize military technology through advanced engineering and prototyping. Though neither of these IDIQs are counted in our backlog numbers, both vehicles provide streamlined access for Leidos to bring innovative solutions to top priority national security missions. I am also especially pleased with the building blocks of profitable growth we are assembling. We are maintaining a productive working relationship with this administration, increasing the rate of investment in our growth pillars, and realigning our organization to best implement our North Star 2030 strategy. 2025 has proven that our efforts to anticipate the uniquely challenging national security environment we are in were spot on. Our customers need a new kind of national security company that delivers cutting-edge hardware and software combined. To tackle challenges quickly and at scale. They need the best commercial tech integrated into those solutions. From undersea to space to cyber, and they need industry partners that can secure the homeland while enabling global operations to secure the peace. Leidos brings the speed, scale, security, and portfolio that uniquely responds to today's environment. We are redefining what it means to be a national security company and we are excited to be accelerating outcomes. So we are now firmly in strategy execution mode for our North Star 2030 strategy with a strong bias for velocity, and a strong productive sense of urgency. As evidence of this, let me recap a couple of the bigger steps we have taken in line with our North Star 2030 strategy. In May, we acquired Kudu Dynamics, bringing exquisite cyber capabilities to our cyber growth pillar and providing deep differentiators across the company. Kudu represents a highly focused technology-rich company through which we had a clear strategy to drive increased Leidos value. The acquisition is already performing exceptionally well. Generating rapid growth, providing entry into new markets, and sustaining robust profitability. And we have taken steps to tightly align our business around our energy growth pillar. In October, we divested Barrick, a noncore legacy energy asset, and last month, we agreed to acquire Entrust Solutions Group. Entrust is a top energy engineering firm with a consistent track record of growth and strong profitability. Together, we have the scale to be a power engineering and design leader in the U.S. And with the deal's clear cross-sell revenue opportunities, and cost synergies along with the deployment of our powerful AI-enabled tools we will increase our competitiveness in this high-growth market. These actions improve our business mix, while maintaining our strong balance sheet. And in keeping with our strategy, we are also investing organically in support of our national security priorities. In 2025, we invested $312,000,000 in IRAD and capital expenditures to fund amazing innovations and develop radical solutions. As a result, programs like IFPIC, wide field of view, and maritime autonomy are ready to scale up to meet customer demand. In fact, we have increased our investments in solutions in each of the last three years. And that will continue in 2026. As I said earlier regarding the U.S. Air Force award, the administration is looking to partner with firms that are willing and able to lean into innovation and put their money behind their technical prowess. We are currently negotiating several important, exciting co-investment opportunities with this administration around critical warfighting and national needs. Where we have unique capabilities in the defense tech and mission system space. So to continue to seize on the opportunities in front of us, we will triple our capital expenditure investments this year to $350,000,000. This will be used to make key capitalized investments, expand production capacity, and expand and upgrade our classified facilities. These investments are for key national priority high-return projects our customers that we expect to accelerate our growth in the near term. And we will accomplish all this while holding on to the profitability that we have proven for this business over the recent years. With our North Star 2030 strategy in place and gaining traction, organic and inorganic investments will become more prevalent. Our capital management strategy. Also, I am pleased to advise that I have realigned our organization to best execute our growth strategy. Form follows function. We will continue to operate in five sectors that roll up into four reporting segments. And we believe this North Star 2030 organizational construct will best align how we report financial performance in line with our North Star strategy, and business priorities. Defense led by Cindy Grunsfelder, takes our portfolio of defense tech programs and adds Department of War programs in the areas of force protection, mission software, and logistics that were formerly in our National Security sector. This will better enable Cindy to prosecute integrated defense efforts like Golden Dome, and C5ISR. This segment will continue to house our space and maritime growth pillar. Homeland brings together all Leidos business that play a key role in securing the homeland. The number one priority of this administration. It combines our commercial and international business with our homeland security work and air traffic management portfolio previously in National Security, and Health and Civil, respectively. This segment also includes our energy infrastructure growth pillar, for a more resilient American energy infrastructure, and our mission software for key customers like the FAA. With Vicki Shemansky retiring, Roy Stevens will lead Homeland. Intelligence, sharpens our focus on innovative technologies and services for the U.S. intelligence community. This sector leads full spectrum cyber growth pillar and aggressively advances mission software for our IC customers. Smartest government on the face of the earth serving our intelligence agencies and making sure that we have the is a real passion for me. And that passion is shared by Jason O'Connor, a longtime Leidosian who also spearheaded the Kudu acquisition, and has stepped up to lead our Intelligence sector. Digital Modernization led by Steve Hull continues as a stand-alone growth pillar delivering IT modernization services and solutions for all customers, while also providing CIO and CSO functions for Leidos. Steve and his team are embracing our AI-first to exploit AI for a more efficient Leidos, for more effective solutions to our customers. For financial reporting, the Intelligence and Digital Modernization sectors roll up into the Intelligence and Digital segment. And last but certainly not least, Health is led by Liz Porter. Liz is sharpening our focus on accelerating our Managed Health Services growth pillar. Managed Health is of keen importance to Leidos and the nation. And we are positioning to expand this business by improved to rural care, and growing our health footprint with both the Department of War and the Veterans Administration. I have also made two other changes to our leadership team. First, Ted Tanner has joined us to be our new Chief Technology Officer. A veteran of multiple Silicon Valley startups, Ted brings a proven track record of bold innovation. He has led the development of AI and machine learning capabilities for the Department of War, Intelligence, and civilian agencies. Ted embraces the hardest problems, brings clarity to complexity, elevates the teams around him, and delivers outcomes that matter. Ted succeeds Jim Carlini, whose leadership laid the technical foundation on which we are building our robust future. I have asked Jim to remain at Leidos as a special adviser to me on national security and other matters. Will Johnson, another longtime Leidosian, has taken on a new role as our Enterprise Transformation Leader. I am charging Will with driving significant out in workplace efficiency through business process reengineering, unlocked via the power of technology. Particularly AI. Will's mission is to deliver measurable transformational cost reduction outcomes for us and then help transfer them into our customer solutions. So in summary, 2025 was another very positive year for Leidos. And given that, what is past is prologue, I am convinced that 2026 will be a year that traction from our strategic action becomes even more evident. We will lock in the cultural and financial gains from 2023, 2024, and 2025. Demonstrate the power of North Star 2030 strategy, its growth pillars, and our alignment with this administration's priorities. And propel ourselves into 2027 with even stronger success and momentum. With that, now I will pass the call over to Chris for a deeper look at our 2025 results and our financial guidance for 2026. Chris? Good morning, everyone. Operator: Thanks, Tom. Stuart Davis: As Tom highlighted, 2025 was an outstanding year for Leidos Holdings, Inc. Marking the third straight year of double-digit non-GAAP earnings and cash flow growth. We are focused on and delivering sustainable growth over the long term. Also, as Tom mentioned, despite external market pressures, performance exceeded initial projections across nearly all key metrics. Enabling us to raise guidance twice this year and exceed the top end of our margin, earnings, and cash flow ranges this quarter. Our performance stands as a testament to the strength of our differentiated portfolio, the precision of our North Star 2030 strategy, and the discipline and agility of our entire team. Please turn to Slide 5. For the year, revenues of $17,200,000,000 were up 3.1%. For the quarter, revenues of $4,200,000,000 were down 3.6%. Year-over-year comparisons include the impact of two major factors. The six-week government shutdown in 2025 and an extra work week in 2024 as part of our 4-4-5 financial calendar. These impacts were concentrated in the fourth quarters and the extra work week is about twice as impactful as the shutdown. Together, these two factors decreased revenue growth by about seven percentage points for the quarter, and two percentage points for the year. The underlying business grew strongly across the entire portfolio, with especially robust demand in integrated air defense, Intelligence Community mission support, energy infrastructure, and full spectrum cyber. Adjusted EBITDA margin for the fourth quarter was 13.2%, up 160 basis points year over year. On a full-year basis, adjusted EBITDA margin increased 120 basis points to 14.1%. Exceeding the top end of our high-13s guidance from the last call. Our margin expansion journey has meaningfully changed how we view what is possible. And that change permeates the entire company. The sectors are more focused on program execution, with six consecutive quarters of positive net EACs, and all of our functional organizations are continually pursuing operating efficiencies. Non-GAAP diluted EPS was $2.76 for the quarter and $11.99 for the year. In 2025, non-GAAP diluted EPS was up 17%. $1.78 above 2024, $0.24 above the high end of our prior guidance range. The primary driver of the robust EPS growth was consistently strong EBITDA. Growth was propelled further by accretive capital deployment. We retired 4.4% of our diluted share count over the year which contributed about $0.50 to EPS. Turning now to an overview of our segment results on Slide 6. I am proud that all four segments contributed to our strong results. Every segment grew revenues for the year, and improved margins for the quarter and the year. Looking at the year-over-year revenue comparison, the extra work week and shutdown had roughly the same impact on the sector as the company as a whole. With one exception. Commercial and International was unaffected by the shutdown. And the extra work week lowered growth by about five points for the quarter and one point for the year. National Security and Digital showed strong and consistent underlying growth. In addition to contributions from Kudu, we had sustained uplift from the robust business development results over the past year. Segment non-GAAP operating income margins rose 160 basis points in the quarter and 20 basis points for the year, reflecting a more profitable business mix and excellent execution. Health and Civil revenues were up a bit for the year and down a bit for the quarter absent the extra work week and shutdown. The Managed Health Services business was a moderate headwind in the quarter and a moderate tailwind for the full year, and volumes on DHMSM were lower as the electronic health record transitioned to a sustainment phase. Health and Civil non-GAAP operating margins increased 80 basis points in the quarter and 170 basis points for the year, as the result of strong program and cost management, as well as technology-driven efficiencies. Accounting for the extra work week, Commercial and International revenues grew nicely in the quarter and the year. Segment growth was led by improved performance in the UK, and increased engineering support for commercial utilities, which offset the Barrick divestiture. Segment non-GAAP operating margins jumped 180 basis points in the quarter and 230 basis points for the year with better performance across the C&I portfolio driven by strong execution and business mix in the UK and Australia, operational gains in SES, and increased use of AI to accelerate grid engineering execution within commercial energy. Lastly, Defense Systems remains aligned with administration priorities and sustained robust revenue growth throughout 2025. Q4 performance was bolstered by accelerated production of small glide yacht emissions and IFPIC Increment 2 systems as well as preparing for 2026 production on a range of systems. Segment non-GAAP operating margins rose 680 basis points in the quarter, and 160 basis points for the year, as we moved into the production phase on several key programs. Turning now to cash flow and the balance sheet on Slide 7. Cash generation is a hallmark of Leidos. And we generated record fourth quarter and full-year operating cash flows of $495,000,000 and $1,750,000,000 respectively. Outperforming our cash flow guidance by $100,000,000 reflects our commitment to profitable growth, and $150,000,000 in cumulative Section 174 cash tax savings, of which $75,000,000 was realized in Q4. Netting out capital expenditures, free cash flow for the quarter was $452,000,000 or 127% of non-GAAP net income. For the year, free cash flow was $1,630,000,000, a 104% conversion rate. In the fourth quarter, we repurchased $305,000,000 worth of shares and paid $55,000,000 in dividends to end the year with $1,100,000,000 in cash and cash equivalents, $4,600,000,000 in debt, and a leverage ratio of 1.9 times gross debt to adjusted EBITDA. As Tom mentioned, we are excited to take advantage of our balance sheet to further the strategy through the acquisition of Entrust. We plan to pay the all-cash purchase price of $2,400,000,000 with $500,000,000 of cash on hand, $500,000,000 in commercial paper, that we will pay down during 2026, and $1,400,000,000 in new bonds. We expect the transaction to close in Q2 subject to regulatory approval and other customary closing conditions. At the time of close, our pro forma gross leverage will be 2.6 times, comfortably below our three times target. Affording us the capacity to capitalize on organic growth and potential future M&A opportunities in line with North Star 2030. Now on to the forward outlook on Slide 8. In 2025, our diversified portfolio proved resilient in evolving market conditions. As Tom said, 2026 will be the year that the impact of concentrating corporate investments and shaping the portfolio towards the growth pillars shows clear dividend as we accelerate growth throughout the year and further separate from the pack in 2027. Getting to the specifics, for 2026, we expect revenues between $17,500,000,000 and $17,900,000,000. Reflecting growth of up to 4% over 2025. We expect revenue growth will build throughout the year ending with sustained momentum approaching double digits. We are guiding to mid-13s adjusted EBITDA margin in 2026. This level normalizes some of the onetime benefits of 2025, and secures a sustainable baseline. We expect to continue to invest to accelerate our growth pillars, uphold our high level of program execution, maintain strong cost management, and drive indirect cost efficiencies through the enterprise transformation initiative. We expect non-GAAP diluted earnings per share between $12.05 and $12.45 which assumes interest expense of approximately $200,000,000 and an effective tax rate of about 24%. We are also assuming a weighted average share count of approximately 129,000,000. We expect another robust year of operating cash flow at $1,750,000,000 despite a $90,000,000 year-over-year headwind from 174 timing. Free cash flow will be down a bit as we triple our CapEx spend to $350,000,000. This guidance does not include any accommodation for the Entrust acquisition. We plan to update the guidance post close, likely on our first quarter call. In 2026, we will be operating in our new segment structure, and to help your modeling, we recast 2024 and 2025 financials in the new structure and filed them with our press release. Let me spend a few minutes outlining these segments and how we see them performing in 2026. The largest, Intelligence and Digital, was $5,700,000,000 in revenues in 2025, at 10.1% non-GAAP operating income margin. In 2026, we see mid to high single-digit revenue growth at steady margins. This trajectory is supported by a full year of Kudu, the continued phase-in of several large cyber and IT awards, and an increasing velocity in our bid pipeline. Longer term, we expect to sustain mid-single-digit growth opportunities for margin improvement. Last year, the Health segment generated $4,700,000,000 in revenues, with non-GAAP operating income margin of 25.5%. In 2026, we expect modestly lower revenue and margin from the additional vendor on the VBAMDE work and continued transition on DHMSM. Beyond 2026, we see Health inflecting to growth and sustaining robust profitability above 20% as administration priorities to unlock make opportunities in rural and behavioral health as well as enhanced automation to deliver better, faster, and cheaper solutions for our veterans. Homeland delivered $3,100,000,000 in revenues, with non-GAAP operating income margins of 9.2% in 2025. We expect growth to track the corporate average and keep that pace through the decade as global imperatives unfold. While margins are likely to be relatively stable in 2026, this portfolio's blend of fixed price work and commercial exposure provides a clear opportunity for margin expansion over the longer term. In 2025, Defense accounted for $3,700,000,000 of revenues, with non-GAAP operating income margin of 10.1%. We anticipate revenue growth above our corporate range in 2026, with a modest decline in margins as some high-margin airborne programs ebb. Looking further out, this segment, with its more robust investment profile, offers significant opportunity for growth and margin expansion through 2030, as increased homeland defense opportunities come online. With that, operator, we are ready for questions. Operator: Thank you. To ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please stand by while we. Our first question will come from the line of Seth Michael Seifman with JPMorgan. Your line is open. Please go ahead. Thomas A. Bell: Hey, Lisa. Hey. I wanted to ask start Seth Michael Seifman: starting off, do you could talk a little bit about the the investment areas that you are expecting to put additional CapEx in and the way that that supports and I assume supports some of the ramp in the defense business. And to the extent that that may or may not be related to the co-investment opportunities, you talked about with with DOD? Thomas A. Bell: Sure. Let me start by saying yes and. We are investing in potential co-development opportunities with the Department of War, but it is not exclusively with the Department of War. The Department of Transportation, the FAA has significant program opportunities as I am sure you are aware. And, we are very keen on investing in our health business to ensure that we continue to accelerate away from the pack in that important business to Leidos. So yes, as I said in my prepared remarks, Seth, we are negotiating several framework agreements with the Department of War when it comes to co-investment opportunities for exciting franchise programs for Leidos going forward. But that is not where all of that CapEx and all of that investment is going. We are investing in all the growth pillars now that we have a sound key strategy to grow this company into the future. Yeah. Seth, I mean, just to and just to Christopher R. Cage: dive a little deeper and certainly in the defense area, that is the area that over the last few years, we have continued to ramp up our level of Thomas A. Bell: you are seeing the results of that with the increasing growth rates. Looking ahead to 2026 certainly, our Maritime Growth Builder is an area where you will see an expansion of some of our facility space there. What we are doing in integrated air defense the awards is, again, a reinforcement that we have products that the government wants and how do we ramp up our production capacity hypersonics, etcetera. So there is a number of programs there that we will support that investment, and we are looking forward to realizing the returns on those. Seth Michael Seifman: Great. Great. And then maybe just as a quick follow-up a little bit more, model oriented. You talked about growth accelerating through the year, exiting double digit. Or approaching double digit, so strong exit rate. But I guess the implication is, much softer growth in the beginning of the year. Kind of how should we think about the early part of the year and which of the segments is seeing that weakness? Christopher R. Cage: Yes, Seth. So I mean, I think the pattern is right. I mean, lower growth in the first half of the year, acceleration in the back half of the year, some of the things that we have been talking about over the last several quarters we have not seen you know, any significant money yet put towards some of the Golden Dome initiatives the FAA modernization, etcetera, those are catalysts that can help propel the second half. We have got some new program wins that we will be starting up Tom talked about a couple of those, so you will see that pattern increase in the back half of the year. And then, you know, we have got a very robust business development pipeline. Obviously, we are pleased with the 1.3 in Q4. Back-to-back quarters of 1.3 book-to-bill, and the team, that is despite the fact that we saw a lot of slippage into 2026 from the award. So you will see some of those across a number of the business segments drive growth in the second half of next year. Yes. And just to put a little added context on that, Seth, we saw about $7,000,000,000 in awards slip Thomas A. Bell: from Q4 into this quarter. And our we have now $20,000,000,000 of pending awards and a $49,000,000,000 of backlog. So we have a high proposal activity, Christopher R. Cage: yes. There is a lag probably because of that long government shutdown we Thomas A. Bell: in the in the fourth quarter. But we expect those awards to start coming in, and that will feed growth through the end of the year as those programs get on to execution. Thanks, Jeff. Seth Michael Seifman: Great. Thank you. Thank you. And one moment for our next question. Operator: Our next question comes from the line of Kenneth George Herbert with RBC Capital Markets. Your line is open. Please go ahead. Thomas A. Bell: I wanted to pick up on those last comments that I am Seth Michael Seifman: book-to-bill. When I think of what we have seen from other services players, we have seen a dip and then an Christopher R. Cage: expectation of a bounce in book-to-bill. You guys have performed very well. So there is no there is no dip. But despite that, it sounds like you still think that the award activity Seth Michael Seifman: and and the bookings backdrop is gonna accelerate from here based on what you just said. And and I was just hoping you can maybe elaborate on that and and shed some additional color on what the shape of that might be through the year. Thomas A. Bell: Thanks, John. Certainly. Well, first of all, let us put this in context. Christopher R. Cage: We have been investing in our growth segment and our growth function Thomas A. Bell: for the better part of two and a half, three years now. We recognize that this was an area where we needed to make sure we had the best-in-class capabilities to help our customers understand how Leidos can make their solutions better, faster, and cheaper. And so we have been investing in in this function. We have brought in a lot of new leadership. And so the 1.3 book-to-bill ratio in both the third and fourth quarters of last year is no accident. It is no it is not happenstance. It is the it is the purposeful effect of a purposeful plan to invest in our growth function and then the manifestation of those efforts coming through to pass. Yes. As I just said to Seth, we still see a robust pipeline an order backlog, and we expect those orders to continue. We are very happy with both our recompete win rate and our takeaway win rate. And so we feel very good about, capacity we have built in our in our growth function, and Christopher R. Cage: we expect that to continue to pay dividends. Yeah. John, I would only add that, I mean, looking at the trends here, the the next twelve month pipeline of submittal activity is the highest point of the year in the fourth quarter. So we have seen that Crexendo, and looking at the percentage of activity, we expect the bulk of that, three quarters of that to be geared towards new business and takeaway. So there is know, some recompete turf to protect, but that is, again, like we like to see a smaller percentage in next year's bid pipeline. And all of our segments have a robust number of opportunities that they are pursuing. Thanks, John. Seth Michael Seifman: That is fantastic. Thank you. Operator: One moment for our next question. Our next question comes from the line of Gautam J. Khanna with TD Cowen. Your line is open. Please go ahead. Thomas A. Bell: Yes. Thanks. Good morning, guys. Operator: Good morning. Wanted to just ask you about the Thomas A. Bell: VA medical exam recompete. What your expectations are for you know, how the terms might change, what you guys are doing to maybe, you know, sustain the profitability of it because typically recompetes, you know, gotta sharpen the pencil. And and any view on, you know, timing, Seth Michael Seifman: any updates on that? Thomas A. Bell: Thank you. Sure. Well, first of all, we are very proud of Liz and Larry and the LQTC and Health business that we run. We have got a fantastic, machine there that has helped our customer decrease backlog of veterans awaiting exams by almost 60%. And so Christopher R. Cage: we are very proud of what we have been able to do to Thomas A. Bell: serve that customer and serve this nation. Certainly, as we announced Health as being one of our growth pillars, we have no intention to to seed this market space despite, as Chris mentioned in his commentary, the entry of the fourth fender and the possibility of a work share reallocation. That being said, we see volume continuing to go up. Christopher R. Cage: And, therefore, we think we have everything to compete and win Thomas A. Bell: to continue to serve our customers best and the this nation's veterans best. We have, as we have said, a two prime focuses for how we are gonna grow our Health business. One is rural health transformation, and the other is behavioral and integrated health exams and and and services. Christopher R. Cage: But on your specific, Thomas A. Bell: question on the medical disability exams. We we do see that in the middle of this year, we expect an RF and a bid for the the the next phase of that program. Details at this point are pretty light about exactly what customer is looking for, but we are actively engaged with them as we speak. And as we have been saying for a number of years now, we continue to invest differentially in our medical disability exam business to make sure that Christopher R. Cage: we can make sure veteran exams are done better Thomas A. Bell: are done faster, are done less expensively for the Veterans Administration. And we expect those will be the three things that, the the Veteran Benefit Agency wants to see. Christopher R. Cage: They wanna see cost come down. They wanna see the number of, veterans that get services go up, and they wanna see the efficiency and effectiveness of those exams be Thomas A. Bell: less mistake prone. And so that is everything we are focused on, and and what we expect to see. We will we will update you as the year goes on. As we say, we expect a a a a recompete and a bid somewhere in the summer. Christopher R. Cage: And we will keep you very well informed on that. Chris, anything to add? Just two quick points, Gautam, I would add. Number one, we just recompeted the program and look at our performance. Right? So we have we have proven that every time we can sharpen the pencil, we can deliver for the customer and and for Leidos and our shareholders. Number two, if you go back to my prepared remarks, you know, we kinda gave a horizon view in looking at Health beyond 2026, robust profitability above 20%. That certainly contemplates how we envision this recompete unfolding over time. Right? This is an area that we can sustain very attractive returns in, and we are excited to demonstrate that. Seth Michael Seifman: Thank you, Gautam. Thank you. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Colin Michael Canfield with Cantor. Your line is open. Please go ahead. Colin Michael Canfield: Hey. Thank you so much for the question. Maybe turning to the FY 2026 growth guidance as well as margin. Perhaps if you could talk us through where you are forecasting the greatest degree of Christopher R. Cage: in order to lift both Colin Michael Canfield: conservatism and what are the key milestones that you need to see Christopher R. Cage: growth and margin guidance Colin Michael Canfield: and then essentially, as we think of that bridging into next year, is it fair to assume any outperformance of this year's guidance Christopher R. Cage: is a higher basis for next year Stuart Davis: or Colin Michael Canfield: are there any kind of onetime things in nature that might pull in this year versus next year? Thank you. Christopher R. Cage: Yeah. Hey, Colin. This is Chris. You know, the conservatism, I like the way you frame that. I mean, there is certainly a lot of irons in the and a lot of make market opportunities that we are chasing. Clearly, Defense has demonstrated a robust track record. That is probably the area that you know, some decisions get made, if, beautiful bill funding rolls out, Golden Dome activities accelerate. Especially in Maritime, you could see that growth trend pick up more quickly. So there is some opportunities there that we are just monitoring. And then the FAA one, as Tom mentioned, you know, the teams are ready to execute. We have put in very compelling offers to the customer. We you know, built demonstration-ready capabilities. We are ready to go. So those things could be pulled forward, and we could see some uplift. On the margin front, I think, you know, the commentary we just had on on Health certainly is the area that we, you know, we built into what we believe that the business will be running at from a reduced volume and accommodated that if that plays out a little differently, there could be some upside there. So, you know, we think we factored all that in as it relates to one-timers. None of those are contemplated in this guide that we have rolled out. So, you know, as we deliver over the course of the year, I do believe that points the direction of how the momentum will carry into 2027 and beyond for North Star 2030. That is great, Chris. Thank you. Stuart Davis: Thanks. Operator: You. And one moment for our next question. Our next question is going to come from the line of Tobey O'Brien Sommer with Tru. Your line is open. Please go ahead. Christopher R. Cage: Thank you. In the Operator: sort of product and defense tech area, I was wondering if you could Thomas A. Bell: give us an update on the areas that you think have hit their stride with sort of programs of record and in areas that Seth Michael Seifman: are are still developing that may that may demonstrate some progress here in 2026 in that direction. Thank you. Thomas A. Bell: Yeah. Sure. Thank you, Toby. Let us see. Well, first, let us start with Ipiq. You know, we were awarded a $4,100,000,000 IDIQ to ramp production, and that is going well. We have a target procurement of some 317 systems to be delivered by 2030, and we think that, with the the readying of the defense industrial base FMS, possibilities, and, of course, Golden Dome, that is a, a very good bet for us to continue to grow. So we are very bullish on IFPIC. You see the customer investing in a second interceptor. That that solidifies their seriousness of the system as a whole. Christopher R. Cage: And as the lead systems integrator for that Thomas A. Bell: we sit in in service to our customer to make sure that that system is all that they want it to be. Hypersonics was mentioned earlier. Obviously, we the the Department of War is fast tracking some six tech priorities to include scaled hypersonics. So that shows you that they are serious about it. And our recent awards of, Slickham N and Jahato OTAs, those those mirror the Army's success of the the Dark Eagle program. And so we are very happy with where that program is going from here. I mentioned in my prepared remarks the ABADS award, although we cannot say much more about that, Christopher R. Cage: again, homeland security and base defense are where Thomas A. Bell: those programs excel, and both of those things are very high priorities for the Department of War. Wide field of view in the space area. You know, we we are we are very bullish on our opportunities to serve, the Space Force's needs there. They are they have a budget climbing toward $40,000,000,000, and we are a vital partner for the technical contributions across the Space Development Agency and all their tranches to date. So we have been in accelerating internal investment there. The FDA's Tranche 0 mission has been successful, and we are a key part of that. We have delivered two Tranche 1 payloads to Northrop with the remaining ones coming this year. Following a successful critical design review, which we published in the press. We remain on track to deliver 18 satellites for the SDA for Tranche 2 by the end of the year. And we are positioning for growth with for Tranche 3 and for Tranche 4 to make sure that our payloads that are serving this nation now in space continue to do so into the future. What I am not talking about is that two IDIQ I mentioned, the SHIELD IDIQ where we have been investing in. The Microelectronics IDIQ. Again, these are areas. Us being in those IDIQs gives us the opportunity to help the customer serve the nation through task orders therein, and we we are very bullish about that. And so we are we are very excited about several of the framework agreements that we have in negotiation and conversation with the Department of War to, as I said earlier, continue to build programs of records for our defense business. So we are very bullish on being a defense tech company. And we are very excited about the opportunities for us to continue to grow that business under Cindy's leadership. Christopher R. Cage: Yeah. Toby, I would only add, you know, Tom had a robust list there, and there is others. Maritime certainly is one of those areas with our SEDAR product, ADC Mark 5, what we are talking about with medium unmanned surface vessels. Those are the ones that you know, have more runway and variants for the UK and Australia customer as well. So excited about the prospects in our maritime part of the portfolio there too. Thank you very much. Seth Michael Seifman: Thank you. Thank you. And one moment for our next question. Operator: Our next question will come from the line of Kenneth George Herbert with RBC Capital Markets. Your line is open. Please go ahead. Thomas A. Bell: Yes. Thank you. Good morning, Tom and Chris. Seth Michael Seifman: Good morning, Ken. Yeah. Maybe if you could address Thomas A. Bell: capital allocation. I think you said you will be gross, gross levered about 2.6 times. On a pro forma basis after Entrust. How are you thinking about incremental M&A opportunities this year? Where are your priorities and what does the guidance imply for buybacks this year? Christopher R. Cage: Yeah. Thanks. So first of all, again, Thomas A. Bell: this is a long arc that I think if you go back to the earnings calls past I have, transmitted pretty clearly. That while we were searching for our growth strategy, we would have a capital deployment strategy that was very shareholder friendly. We still have a rigorous return on investment capital analysis for any investment and any outflow of, Leidos dollars, and we will continue to do that. But now with our, North Star 2030 strategy, in hand and we have been firmly in strategy execution mode, meeting the moment also of this administration. We are very well poised to deliver on and invest in those growth pillars that we have discussed. So Christopher R. Cage: we have Thomas A. Bell: increased investment over the last three years, we will continue to increase investment. And, yes, inorganic and organic investments will be the lion's share how we deploy our capital in the near term. That being said, we will continue to our our dividend program, and we will look opportunistically for other shareholder friendly deployments of capital as the as the need arises. Christopher R. Cage: Chris? Yeah. I mean, Ken, to get to your specific question on the repos, we have not baked any into the guide that we gave you for this year. I mean, you can see that with interest coming online, there is a lot of capital going to that. But we have more capacity, and the priorities are what Tom laid out. And we will monitor things as the year unfolds. Thomas A. Bell: Thank you. Operator: Thank you. You. And one moment for our next question. Our next question comes from the line of Scott Mikus with Melius Research. Your line is open. Please go ahead. Christopher R. Cage: Morning, Tom and Chris. Seth Michael Seifman: Morning, Scott. Tom, we have seen a lot of software stocks come under pressure year to date. Because of concerns that AI could drive down the cost for companies Christopher R. Cage: develop software internally. Also hear from defense companies that AI will accelerate the shift towards outcome-based contracting. But are you concerned that AI could cause a race to the bottom on price particularly for digital modernization programs? Thomas A. Bell: Thanks. Yes, Scott. I I Christopher R. Cage: I see and hear and certainly Thomas A. Bell: see the stock market effect of the fear of AI overtaking the world. And understand why some people might say that. But for us, the proliferation of AI is not a threat. It is a force multiplier for everything we have always wanted to do. So we continue to lean into all commercial technologies. It is Christopher R. Cage: part of the business model that has made Leidos successful, we do not see AI as being any different. We want to look at it understand it, exploit it, and be able to serve our customers with it no matter which model of AI they want to, they want to embrace. Thomas A. Bell: That is why Will Johnson and, our our Digimon business embrace AI internally. We are very keen to make sure that Christopher R. Cage: we are the beta tester of how AI makes organizations faster and more efficient. And we expect that, beta testing AI internally to Leidos will not only deliver Thomas A. Bell: bottom line results for us, but also help us prototype and then deliver top line benefits for our customers as they seek to exploit AI to make their operations more efficient. So ultimately, we see AI as an opportunity to help our customers shift budgets away from maintenance Christopher R. Cage: and into high value mission outcomes Thomas A. Bell: which is, of course, the business we are in. Making their their outcomes smarter and more efficient. I hope that helps, Scott. Christopher R. Cage: Yeah. It does. And then a quick question. You noted the backlog figures do not include anything from the Golden Dome, IDIQ, or the microelectronics IDIQ. But does the guide assume that you will receive task orders this year that would, convert to revenue, or is that purely upside to the guide? Thomas A. Bell: Yeah. We we we do not ever include IDIQs. We only include the task orders when they come in. Of course, our business development and our sectors all want to assume that they get task orders that deliver revenue and profit in the year, and that is that is what they hunt for every year. And, Scott, just, I mean, Christopher R. Cage: as with any annual guide that we put out, there always is some element of new business has to be won throughout the year, whether that comes from Golden Dome or comes from the robust number of other submittals that we have in the pipeline you know, it it can be any number of those sources. But, yeah, if Golden Dome ramps up in any material way, we see upside from that. Golden Dome, FAA, Thomas A. Bell: the microelectronics all of them. There is a ton of opportunities out there where we are poised to exploit over the coming months. Seth Michael Seifman: Thank you. Operator: Thank you. One moment for our next question. Our next question will be from the line of Jonathan Siegmann with Stifel. Your line is open. Please go ahead. Jonathan Siegmann: Good morning, Tom, Chris and Stuart. Thanks for taking my question. Good morning, you you highlighted Maritime as an area that could be potential for this year incrementally. Can you talk a little bit about where the government is and the progress in the in identifying programs and when we might expect to actually hear something on some of these? Thank you. Yeah. Thank you. Yes. The Department of Navy has a well understood and publicized MUSV program for a large quantity of medium unmanned surface vehicles. We have had robust dialogue with the Department of NATO department of the Navy and INDOPACOM, the the combatant commanders who want to have this capability. And what we are actually talking about Jonathan, is not only how we can help make sure that there are vessels built but the critical key sauce for Leidos that we have been talking and has been exciting customers greatly is the payload and mission packages that makes those vessels effective in a war scenario. And so, what our secret sauce is is not only how we can partner with private equity and shipyards around the United States to either retrofit or new build unmanned surface vessels. Frankly, that is not hard. The hard part is how do you make those vessels effective in the battle of the future? What INDOPACOM and other combatant commanders are are anxious about. And that is where Leidos' long term investments in our our Christopher R. Cage: our R&D Thomas A. Bell: in C4 C5ISR, in space, really give us a differentiator in terms of how that vessel becomes effective for the combatant commander. Now far as timing, we are eager also. The dialogue in the Department of Navy is robust. We expect them to come forward with their firm plans soon, but we are we are still waiting. I hope that helps, Jonathan. Thank you very much. Good luck for the year. Christopher R. Cage: Thank you. Operator: Thank you. And as a reminder, if you would like to ask a question, please press. One moment for our next question. Our next question comes from the line of Gavin Eric Parsons with UBS. Your line is open. Please go ahead. Thank you. Good morning. Christopher R. Cage: Hey, Gavin. I really appreciate all the guidance by segment. If I wrap all that up, can you hold and expand the mid-thirteen percent EBITDA margin beyond 26. Yeah. I think we dropped some breadcrumbs for you there, Gavin, to see that the best is yet to come on margins in our newly formed Homeland segment and certainly with additional upside in Defense. So those are the areas that I would point to on a longer term horizon where we would expect some additional margin expansion opportunities. I mean, you know, clearly, we have talked a lot about Health today and the work that they have done, the great work that they have done to demonstrate the value they are bringing to the Veterans Agency. So the expectation is, yeah, we are not done with margins, but consolidate the gains we have made reprioritize. Fund the critical investments for growth, and then deliver exceptional results on that in 2027 and beyond. And do not, and and do not negate the Thomas A. Bell: effects of our transformation office. We are very bullish about that being able to help Leidos become more efficient. And as a result, obviously, there could be some margin uplift there as our overheads come down. And as the year goes on, as we bring in Entrust, we expect that to be margin accretive. So we are very excited about portfolio that is laying out for the year to come. Operator, looks like we have time for one more question. One moment for our last question. Operator: Our last question will come from the line of Craig Conrad with Jefferies. Your line is open. Please go ahead. Seth Michael Seifman: Good morning. Just wanted to follow-up on the investment conversation. I mean, you talked about 3x CapEx in 2026 and continuing to increase investment. I mean, how do you think about that stepping up, you know, beyond this year. How much of that is kind of in backlog and scaling versus future decisions? And then you know, with that, you know, how do you think about cash on cash returns? Because Greg: you know, with some of these deals, we have seen better working capital offset those investments. Christopher R. Cage: Thanks. Greg: Yeah, Greg. So, I mean, we have not Christopher R. Cage: you know, mapped out the the 2027 and beyond yet. I mean, clearly, the items we are investing in this year are to scale up, for the most part, scale up capabilities that are in programs that we are executing on or see clear line of sight demand for expansion. We are, you know, we are finding ways to accommodate a higher ramp up on those than perhaps was previously contemplated. And you are right. As you think about, you know, with any investment outlay that we make, clearly, how do we get cash back in the door to make the cash on cash return more attractive? You know, interest will be an example of that. How do we bring cash in from that business more rapidly, find ways to optimize their working capital performance. I think that is a a strength of Leidos, an an area that Tom alluded to, our transformation office, one of the initial things they are gonna be taking on are ways that we can look to even streamline our DSO process. And if we could take a day or two out of there, that really moves the needle for Leidos. So we are gonna be focused on that heavily. We are gonna be looking to realize attractive returns on all the investments we make. But I do not I do not think that you would say the $350,000,000 of CapEx is the new normal you know, going beyond this year. It was situation dependent, we have the capacity to do that if if the business case is there, but not necessarily what we see on enduring basis. Operator: Thank you. Christopher R. Cage: Thank you. Seth Michael Seifman: Thank you. Operator: And I would now like to hand the conference back over to Stuart Davis for closing remarks. Stuart Davis: Operator, appreciate your assistance on this morning's call, and you all for tuning in this morning and your interest in Leidos Holdings, Inc. We look forward to updating you again soon. Have a great day. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Michael Koehler: We want to introduce you to the Hillman Group. Who we are, what we do, and the customers we serve. Founded in 1964, in Cincinnati, Ohio, the Hillman Group is a leading provider of hardware-related products and solutions to home improvement, hardware, and farm and fleet retailers across North America. Hillman’s products include hardware solutions, like fasteners, screws, nuts, and bolts, protective solutions like work gloves, job site storage, and protective gear, and robotic and digital solutions like key duplication, auto key solutions, and tag engraving. Hillman distributes over 100,000 SKUs through its vast distribution network to its customers’ retail locations and distribution hubs across North America. Hillman has differentiated itself with its competitive moat built on direct-to-store shipping capabilities, a dedicated in-store sales and service team, and over sixty years of product and industry experience. Renowned for its commitment to customer service, the team. Team. And service. Built on its legacy of service, Hillman believes that the building never stops. We want to introduce you to the Hillman Group. Who we are, what we do, and the customers we serve. Founded in 1964 in Cincinnati, Ohio, the Hillman Group is a leading provider of hardware-related products and solutions to home improvement, hardware, and farm and fleet retailers across North America. Products include Hillman’s hardware solutions like fasteners, screws, nuts and bolts, protective solutions like work gloves, job site storage, and protective gear, and robotic and digital solutions like key duplication, auto key solutions, and tag engraving. Hillman distributes over 100,000 SKUs through its vast distribution network to its customers’ retail locations and distribution hubs across North America. Hillman has differentiated itself with its competitive moat built on direct-to-store shipping capabilities, a dedicated in-store sales and service team and over sixty years of product and industry experience. Renowned for its commitment to customer service, Hillman regularly earns vendor of the year awards from its customers for delivering value and service. Built on its legacy of service, Hillman believes that the building never stops. We want to introduce you to the Hillman Group, who we are, what we do, and the customers we serve. Founded in 1964, in Cincinnati, Ohio, the Hillman Group is a leading provider of hardware-related products and solutions to home improvement. Hardware, and farm and fleet retailers across North America. Hillman’s products include hardware solutions, like fasteners, screws, nuts and bolts, protective solution Operator: Good morning. Operator: And welcome to the fourth quarter and full year 2025 results and 2026 guidance presentation for Hillman Solutions Corp. My name is Liz, and I will be your conference call operator today. Before we begin, I would like to remind our listeners that today’s presentation is being recorded and simultaneously webcast. The company’s earnings release and earnings presentation were issued this morning. Documents and a replay of today’s presentation can be accessed on Hillman’s Investor Relations website at ir.hillmangroup.com. I would now like to turn the call over to Michael Koehler with Hillman. Thank you, operator. Good morning, everyone, and thank you for being with Michael Koehler: us for our earnings call. I am Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today’s call are Hillman’s President and Chief Executive Officer, Jon Michael Adinolfi, or JMA as we call him. Michael Edward Francis: And our Chief Financial Officer, Rocky Krafts. I would like to remind our audience that certain statements made today may be considered forward-looking and are subject to safe harbor provisions of applicable securities laws. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions, and other factors, many of which are beyond the company’s control and may cause actual results to differ materially from those projected in such statements. Some of the factors that could influence our results are contained in our periodic and annual report filed with the SEC. For more information regarding these risks and uncertainties, please see slide two in our earnings call slide presentation, which is available on our website. In addition, on today’s call, we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results are available in our earnings call slide presentation. JMA will begin today’s call by providing some commentary on our full year 2025 results, briefly introduce our 2026 guidance, and then discuss our performance for the year by business. Rocky will then provide a more detailed walk through our 2025 financial results and our ’26 guidance before turning the call back to JMA for some closing comments. Then we will open the call up for your questions. It is now my pleasure to turn the call over to our President and CEO, Jon Michael Adinolfi. JMA? Thanks, Michael. Good morning, everyone, and thank you for joining us. Let me start by saying how proud I am that the Hillman team successfully navigated the impact of tariffs in this dynamic environment during 2025. The entire organization worked extremely hard taking care of our customers during the year, and our team rose to the occasion to put the best year in this company’s sixty-two year history, delivering record net sales and adjusted EBITDA. In 2025, net sales increased 5.4% to $1,552,000,000, and adjusted EBITDA increased 13.9% to $221,753,000 versus 2024. We are pleased with our results for 2025, and remain focused on the growth opportunities that lie ahead. Looking to 2026, we estimate full year 2026 net sales will be between $1,600,000,000 and $1,700,000,000. The midpoint of $1,650,000,000 represents top-line growth of 6.3% compared to 2025. Additionally, we expect to generate between $275,000,000 and $285,000,000 of adjusted EBITDA for 2026. The midpoint of $280,000,000 represents growth of 1.7% compared to 2025. And finally, we expect to deliver free cash flow between $100,000,000 and $120,000,000 for 2026. The midpoint of $110,000,000 reflects a 90% plus conversion of adjusted net income into free cash flow. The main contributor to our top line growth during 2026 will be the rollover Jon Michael Adinolfi: from pricing that went into effect during 2025. Our sales team is focused on winning new business, and we are confident that new business wins during 2026 will outpace last year. As for the markets, we are yet to see any meaningful changes in the macro that could produce tailwinds for Hillman, and therefore, do not expect any help from the market this year. Rocky will provide more details on our guidance shortly. But for now, let us turn back to our financial highlights for 2025. Net sales for 2025 increased by 5.4%, or $80,000,000, over 2024, even during a challenging market. Driving the increase in net sales was three-point contribution from InTech DIY, which we acquired in August 2024, a two-point contribution from new business wins as we continue to steadily win new business and take market share. Price contributed 5.5 points in growth during the year, which covered the higher cost resulting from tariffs. Partially offsetting these were market volumes, which were down about 5% in 2025. Existing home sales remain soft, and unchanged from the thirty-year lows we saw during 2024, totaling 4,060,000. This figure is well below the average of 5,000,000 existing home sales per year over the last ten years. We believe this number of existing home sales is a headwind to home improvement projects, which impacts our sales. That said, during the year, we grew our top line to a record high. This is a testament to our resilient business model and the hardworking folks at Hillman and strong partnerships we have with our customers. Turning to the bottom line, our record adjusted EBITDA for 2025 increased by $33,600,000 to $275,300,000, marking an increase of 13.9% over 2024. This puts our compounded annual growth rate for adjusted EBITDA since coming public at over 7%. The increase was driven by the timing of price increases and tariff cost hitting our income statement. For most of the second half of the year, we had price increases in place, which lifted our top line. At the same time, we had pre-tariff and thus lower-priced goods flowing through our income statement. The results were record margins and outsized earnings. This benefit peaked in the third quarter, moderated in the fourth, and will be fully normalized in 2026. Another main contributor to our record profit were our global supply chain and operations team. We are running this business efficiently and effectively. We are taking care of our customers, shipping orders on time and in full, and delivering fill rates that are as high as I have seen in my six plus years with Hillman. Now let us drill down by business segment. Hardware and Protective Solutions, or HPS, is our biggest business and delivered excellent results during 2025. HPS net sales increased 7.8% to $1,200,000,000, while adjusted EBITDA increased by 26% to $196,300,000. Driving this strong performance were our outstanding sales and service teams, which successfully managed pricing for tariffs while executing new business wins in PowerPro screws and rope and chain, to name a few. Leveraging our moat with our long-term retail partners drives consistent performance and growth regardless of macro market conditions. Robotics and Digital Solutions, or RDS, returned to growth during 2025. Net sales increased 1.6% to $220,200,000 when compared to last year. Operator: During Jon Michael Adinolfi: 2025, we installed over 1,800 MinuteKey 3.5 kiosks, and we continue to be pleased with the performance of these new machines. We completed the rollout with one of our top customers before the end of 2025, and expect to complete the rollout with another top customer by 2026. The rollout is tracking to our expectations, and we are pleased so far. The enhanced capabilities of these machines, including auto key duplication and endless aisle, are driving comparable net sales increases versus older generation machines. As of today, we have nearly 3,500 MinuteKey 3.5 machines in the field, and we feel really good about the business and how it is positioned for 2026. Adjusted gross margins and adjusted EBITDA margins were both near historical norms, totaling 73% and 30%, respectively. Turning to Canada, net sales in our Canadian business were down 0.6% compared to the prior year. New business wins were partially offset by another quarter of soft market volumes, and FX was over a two-point headwind. Adjusted EBITDA margins came in just shy of 10% in Canada for the year. This Hillman team executed very well during 2025, and I am proud of the team for their performance. Looking to 2026, we will continue to control the controllables. Our teams are performing at a high level, and we will continue to win with our customers and in the market. The M&A pipeline is healthy. We have several exciting bolt-on acquisition opportunities that we are working on. We continue to invest in taking great care of our customers and delivering increased value to our stakeholders. We are confident we will capitalize on the opportunities ahead of us as we expand our focus on the pro. This will broaden our go-to-market channels, diversify our customer base, and provide meaningful white space for growth. We have recently assembled an experienced team with deep pro knowledge that is focused on growing our pro business. We are confident we have the right to win and are excited about the opportunities in this channel. We look forward to providing you our detailed plans to win the pro during our first Investor Day which will be held next month on March 19. With that, I will turn it over to Rocky to talk financials and guidance. Rocky? Operator: Thanks, JMA. Jon Michael Adinolfi: Let us start with our fourth quarter and year-end results before I get into our guidance for 2026. Fourth quarter 2025 net sales increased 4.5% to $365,100,000 versus the prior-year quarter. 2025 full-year net sales totaled $1,552,000,000. Fourth quarter adjusted gross profit margins were 47.6%, which stepped down sequentially as expected. Compared to last year, margins were down 10 basis points. For the full year 2025, adjusted gross profit margin increased 60 basis points to 48.7% from 48.1% during 2024. Adjusted SG&A as a percentage of sales for Q4 2025 increased to 31.8% from 31.5% during the year-ago quarter. For the full year 2025, adjusted SG&A as a percentage of sales decreased to 31% from 31.6%. Adjusted EBITDA in the fourth quarter increased 2.3% to $57,500,000. Adjusted EBITDA for 2025 increased 13.9% to $275,300,000. Our adjusted EBITDA to net sales margin during the quarter was 15.8%, which compares to 16.1% a year ago. Adjusted EBITDA to net sales margin for the full year was 17.7%, which compares favorably to 16.4% a year ago. Now turning to our cash flow and balance sheet. During 2025, operating activities generated $105,000,000 versus $183,000,000 in 2024. Impacting our operating cash flow and therefore free cash flow was about $65,000,000 of tariff impact. Free cash flow for the year totaled $35,100,000, which included the $65,000,000 of tariff impact versus $98,100,000 in 2024. We ended the year with $665,800,000 of net debt outstanding versus $674,000,000 at the end of 2024, an improvement of $8,000,000. Liquidity available totaled $306,000,000, consisting of $279,000,000 of available borrowing under our revolving credit facility, and $27,000,000 of cash and equivalents. At the end of the year, our net debt to trailing twelve-month adjusted EBITDA ratio was 2.4x, which improved from 2.8x at the end of 2024. Our strong balance sheet allows us to play offense. We can invest into organic growth opportunities, execute M&A, and be opportunistic when it comes to using our balance sheet to add stockholder value. Let me turn to capital allocation. During 2025, we invested $70,000,000 in the form of CapEx back into the business. This compares to $85,000,000 in 2024. The decrease is a result of our MinuteKey 3.5 investments slowing. During 2024 we had an accelerated capital spend to build MinuteKey 3.5 machines that were placed in the field during 2025. We continue to build and retrofit machines but the pace of capital spend has moderated. Additionally, during 2025, we invested $12,400,000 to buy back 1,400,000 shares of stock at an average price of $9.07 per share. Let me now talk about our 2026 guidance. Michael Koehler: Will be a combination of new business wins and a mid-single-digit contribution from price. The high end of our guide assumes that market volumes are flat, and the low end of our guidance assumes that market volumes step down from where they were in 2025. There are a lot of variables that drive our top line performance, but as we have seen over the last twenty years, we usually see mid-single-digit growth on our top line. We expect the same for 2026. Going forward, we will not provide explicit price and market volume performance on a quarterly basis. We will stay away from providing quarterly specifics on price for competitive reasons in order to protect our customers. For our bottom line, we expect full year 2026 adjusted EBITDA to total between $275,000,000 and $285,000,000. The midpoint of $280,000,000 represents an increase of 1.7% versus 2025. As we have talked about, we expect margins to normalize following robust results in 2025, which will prove to be a difficult comp. The result is that we expect our 2026 net sales growth to outpace our 2026 adjusted EBITDA growth. We expect our full-year adjusted gross margins to be between 46%–47% for 2026. The step down from last year is the result of tariff pricing and costs being fully realized in the P&L. This will result in margins being fully normalized starting in 2026. Lastly, free cash flow during 2026 is expected to come in between $100,000,000 and $120,000,000 with a midpoint of $110,000,000, which reflects a 90% plus conversion of adjusted net income. We expect to invest between $70,000,000 and $75,000,000 of CapEx into our business in 2026, which is comparable to our 2025 spend. We continue to make necessary investments into the expansion of our MinuteKey 3.5 fleet as well as invest in merchandising solutions across our customer base. For 2026, we expect to continue repurchasing stock under our stock repurchase program. Our objective remains to offset any dilution caused by employee equity grants and opportunistically buy back stock. Excluding M&A, we expect we will end 2026 around 2.1x levered. This assumes that we fall near the midpoint of our guidance and that 2026 is a somewhat uneventful year, unlike 2025 when we had to deal with tariffs. During 2026, we expect to use cash and our leverage will likely tick up as we build inventory to support our busy spring and summer seasons. This is typical for Hillman in a normal year. Following Q1, we expect to generate free cash flow during each of the remaining quarters of 2026. Hillman is in a great position to build on the success we had in 2025 and we are confident we can achieve the targets we have laid out for you today. Our focus remains taking great care of our customers while growing the top and bottom lines of our business. With that, let me turn it back to JMA. Thanks, Rocky. We are optimistic about the year ahead and energized to keep pushing forward. We expect to grow share and achieve solid revenue and earnings gains throughout 2026. Our unwavering focus is on taking care of all of our stakeholders—customers, suppliers, team members, and investors—and we will work diligently to deliver on that responsibility. We look forward to updating you during the year with our progress. With that, we will begin the Q&A portion of our call. Operator, please open the call for questions. Operator: Press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. We ask that you limit yourself to two questions and rejoin the queue for any additional questions. Our first question comes from Lee Jagoda with CJS Securities. Line is now open. Hey. Good morning. Jon Michael Adinolfi: Morning, Lee. Where are Lee? Rocky, can we just—I know you gave the full year gross margin Operator: expectations. Can you kind of walk through the cadence of the gross margins? And I guess, given Michael Koehler: here. Heading into the, you know, Q2 spring busy season. Operator: Secondarily, we actually have, in the first quarter, we will probably have the highest-cost inventory flowing through the system that we probably had in the history of Hillman just given the timing of where receivables were last year and the timing of flowing through. So I would expect that we will be slightly below that 46%–47% in the first quarter. Should see it step up sequentially in Q2. And in the back half, I would expect we will be at the high end of that range as we think about the second half of the year. Lee Jagoda: You were talking pretty positively on new business Operator: Got it. And then—and then, Rocky, I think you Lee Jagoda: wins and looking for them to be higher year over year in ’26 versus ’25. Can you talk to kind of what gives you the confidence there? How much of the new business wins anniversary, you know, on stuff that you have already started to load in in ’25? And then on the stuff that is not anniversarying, what have you won already, and what should we be looking forward to? Operator: Sure. I am going to throw that over to JMA and let him comment. Alright. Thanks, Rocky. Yeah. We are excited for several reasons. First off, we have got a solid set of initiatives this year. We have some nice wins that we are building off of in ’25 that will cascade into ’26, to your point. I am really fired up because we have actually national sales meeting this coming week, Friday, Saturday, Sunday in Colorado. So we will be in Denver with 300 of our sales folks getting really fired up about the year. We have got some great new products. We have got business development. While it was a core function inside of Hillman, we have actually grown and invested that. We have got a business development team that is focused on a number of our brands where we have got some exciting products and then the pro. You heard us sprinkle a little bit of that into the presentation, but, you know, the real exciting thing is we are actually here this week in Orlando for the International Builders Show. We are actually broadcasting live from here. We have got our booth. We have got PowerPro. We have got a lot of great pro product that we are showing off. And our business is over, you know, $400,000,000 of it is pro, and we are really fired up about the team that we have assembled that is driving it. So we have got a lot of reasons to be confident that we are going to go win new business in a tough environment in ’26, and we look forward to talking more about that when we are together on March 19 for Investor Day. Lee Jagoda: Great. Thanks very much. Operator: Thanks, Lee. Thanks, Lee. Appreciate it. Michael Koehler: Our next question comes from W. Andrew Carter from Stifel. Your line is now open. Operator: Thank you. Good morning. I wanted to ask about the deterioration in sales Jon Michael Adinolfi: Protective Solutions. Correct me if I am wrong. That is the business that can be subject to some channel load because it goes through the DCs. But anything else going on there besides just some near-term dynamics? Thanks. Operator: Hey, Andrew. Thank you. Yeah. I mean, near-term dynamics, I think, is probably the right way to think about it. Yeah. There is a little bit of a channel inventory balancing that we went through in the fourth quarter. That business actually has quite a few new products coming out in 2026, so we feel good about the trajectory as we move forward. We have also successfully integrated our Intex DIY business, and that platform is performing pretty well in a tough market. So nothing else to really share at this point. Rocky, unless you had any—No. I mean, again, as we have said many times, that business is more subject to timing around when products launch, when they come into the market, if—when, you know, like off-shelf activities are happening. And so I think that is what we saw in the fourth quarter. And we think as we, you know, as you go into ’26, it should be growing like the rest of the business. W. Andrew Carter: Thanks. Second question, to kind of think about RDS. And kind of the machine rollout, you also have customer transition in that business. You quantify the headwind from that customer transition—did that peak in 4Q? Therefore, it slows during next year. Anything else to help with modeling, or how to frame expectations on RDS? Thanks. Operator: Yeah. The customer transition, Andrew, will continue between Q1 and Q2, and then we will anniversary that, and that will be behind us finally. So that would be one way to think about that as you are putting your numbers together for 2026. I think the big thing with that business is 3.5 rollouts, as we—as I have, you know, framed in my prepared comments, is actually doing well. Our RDS team and our field teams are doing a great job. We have actually been out in the field now that we have got scale in several markets, really focusing on driving the business, fine-tuning the technology, which we feel really good about, and we are confident that that business will continue to grow after putting up a year of growth in ’25. We will build on that in 2026. So, we are excited about where that business is moving to, and we look forward to reporting more as those results come in W. Andrew Carter: Thanks. I will pass it on. Operator: Thanks, Andrew. Appreciate it, Joe. Michael Edward Francis: As a reminder, if you would like to ask a question at this time, please press 11 on your touch-tone phone. Our next question comes from Stephen Volkmann. With 2026, we are sort of transitioning to what we might Stephen Volkmann: consider sort of a more normal year from an operating perspective. So I am trying to think about leverage when things do start to come back. So what is the right way—if those existing home sales come back that you talked about, JMA—to think about sort of the incremental EBITDA margin, sort of based on where we are starting from here? Operator: Yeah. Hey, Stephen. It is Rocky. I think the way to think about it is we would expect, you know, anything and everything that we do to be above fleet. The easy way to think about it is plus 20%. When you think about most of the business—obviously RDS, a little bit better than that, probably plus 30% when you think about incremental sales. But when we think about the business, that is what we are looking for as we grow. Stephen Volkmann: Okay. Thank you. And then any thoughts on sort of Canada as we model 2026? Operator: Yeah. I think Canada is still under a fair amount of pressure. We actually have our sales team up there really fired up about the new year. We have got some exciting things we are doing in pro and other areas. So, not a lot more detail to go into there. We think that economy, as we get through into the spring season, will be better. So we expect that the return to growth in ’26. Stephen Volkmann: Okay. Thank you. Michael Edward Francis: Our next question comes from David John Manthey with Baird. Line is now open. Stephen Volkmann: Thank you. Yeah. Good morning, guys. Good morning, David. Jon Michael Adinolfi: First off, on the sort of the long-term David John Manthey: targets here, the 6%–10% organic revenues and EBITDA growth, I guess, I look over the past couple of years, the top line has been pretty consistent with that view. EBITDA has tracked a little bit below that. And I guess philosophically, when we think about when you set those targets initially, I think RDS was expected to be a bigger contributor maybe to growth, but definitely to contribution margins. Can you just talk about that, the six and ten? And going forward, you are still feeling comfortable that those are the right targets for the company? Operator: Yeah. Hey, Dave. It is Rocky. I think you hit the nail on the head. When you talk about—we would have expected coming out of the IPO that RDS would have been a bigger growth driver. And because of that, you would have seen higher growth relative to EBITDA from an organic perspective. Again, 7% if you look back since the IPO compounded growth in EBITDA in the business, which we feel pretty good about. I think what I would say is, in March, we are going to do our first Investor Day. I think you are going to hear us at Investor Day talk a lot about those longer-term targets. I do not think it is going to be a revolution. It will be an evolution of those targets, but I think we are going to give you the building pieces about how we think about the business, how we think about it over the next three to five years. And I really do not want to steal the thunder, as you can imagine today, from Investor Day. So I look forward to talking to everyone about that. David John Manthey: Yeah. Fair enough. And, minor point here, but we are starting to hear out in the market about chip shortages. And I do not know if that is the same type of chips that you guys use in your machines. But how are you situated relative to supply, versus your growth goals in RDS and the MinuteKey 3.5? Operator: Yeah. I think we are in good shape, Dave. I think as you think about the wind down of having to do retrofits and new builds for 3.5, we are in good shape. As you think about once we have completed the entire fleet onto 3.5 by the end of 2026, then we are going to go into more maintenance mode around those. And I have not heard anything from our teams around chip issues, and I do not expect that that will be a challenge going forward. David John Manthey: Great. Thanks very much. Operator: Thanks, Dave. Michael Edward Francis: Our next question comes from Brian Christopher McNamara with Canaccord Genuity. Your line is now open. Brian Christopher McNamara: Hey. Good morning, guys. Thanks for taking the question. Just had a question on the guidance overall. I think it implies a bit of a step down. I think you Jon Michael Adinolfi: prior—prior gave a Brian Christopher McNamara: directional guidance of plus high single to plus low double digits. And I think you are at plus six at the midpoint. Just trying to figure out what drove the change there. Operator: Yeah. I think, Brian, it is Rocky. I mean, you know, obviously, the fourth quarter was a little softer than we expected. And we would tell you even early in the year, what we saw in January and what we have seen because of weather in February has been a little softer, probably than we would have anticipated. And so we are going to come out with conservative guide given just what we have seen in the markets. It kind of puts you down a few points. We are not going to give exact guidance, but if you think about the midpoint, which if, you know, you go back a few quarters ago when we talked about directional guidance, we talked about a flat market. That was the hypothetical that we used to get to the high single or the low double digits. And so if you assume, you know, a few points down in market, that gets you down to kind of a mid-single-digits kind of number at the midpoint. Brian Christopher McNamara: Great. That is helpful. And then second, is there, like, a magic existing home sales number where it would meaningfully impact your business? You know, we are at, you know, 4.1 right now. January is a rough month. Anything where you are like that number, you know, our business starts to hum along a little bit better? Operator: Right. I do not know that there is a magic number, but we do, you know, we do like—in the mid four to five feels like the right, you know, better spot for us where you will see some of that home improvement, whether putting houses on the market or you are looking to buy a house and you are making some, you know, some modifications to it. So that is really where we would like to be. So I do not know if there is really a sweet spot, if you will, but we would like to see a bit of improvement from where we are today. Our repair and maintenance side of our business is actually humming along pretty nice. Just love to see a little bit more of that, you know, get houses ready and also, you know, getting homes ready to be lived in, if you will. We will see a little benefit in that one group. So stay tuned, but we are excited to capitalize on that. It is why we are excited about the pro side of our business as well. Brian Christopher McNamara: Great. And if I could just squeak in one last one on M&A. It sounds like you guys are—it sounds like you are a little more constructive on the M&A environment. I am just curious how that environment looks relative to last year. I am assuming a lot of talks were kind of paused because of tariffs and policy uncertainty. Is it just a function of maybe some targets coming back to the table? Is it new opportunities or anything you could—more color there would be helpful. Yeah. You guys. Operator: Yeah. We are more excited now than we were last quarter or the quarter before that. So I think, you know, we feel confident we will do, you know, one to two deals in 2026. So we are excited about what we see in front of us. To answer your question where they are coming from, it is—there are, you know, some opportunities that are coming back to the table that were put on pause. We are also seeing some new ones, and we see some activity and definitely more M&A opportunities coming our way. So our M&A team is actually quite busy right now, looking at a lot of deals, and we are excited about what is in front of us. Brian Christopher McNamara: Excellent. Thank you, guys. Operator: You are welcome. Thank you. Michael Edward Francis: This concludes the Q&A portion of today’s call. I would like to turn the call back over to Mr. Adinolfi for some closing comments. Operator: Thank you, Liz. We look forward to hosting our first Annual Investor Day on March 19, so please keep an eye out for more information as the date approaches. Thank you for joining us this morning, and I hope everybody has a great day. Take care.
Operator: Good day, ladies and gentlemen, and welcome to Genuine Parts Company Fourth Quarter 2025 Earnings Conference Call. Note that today's call is being recorded. At the conclusion, we will conduct a question-and-answer session. At this time, I would like to turn the conference over to Tim Walsh, Vice President of Investor Relations. Please go ahead, sir. Thank you, and good morning, everyone. Welcome to Genuine Parts Company’s fourth quarter 2025 earnings call. Tim Walsh: Joining us on the call today are Will Stengel, Chair Elect and Chief Executive Officer, and Bert Nappier, Executive Vice President and Chief Financial Officer. In addition to this morning's press release, a supplemental slide presentation can be found on the Investors page of the Genuine Parts Company website. Today's call is being webcast, and a replay will also be made available on the company's website after the call. Following our prepared remarks, the call will be open for questions, the responses to which will reflect management's views as of today, February 17, 2026. If we are unable to get to your questions, please contact our investor relations department. Please be advised this call may include certain non-GAAP financial measures which may be referred to during today's discussion of our results as reported under generally accepted accounting principles. A reconciliation of these measures is provided in the earnings press release. Today's call may also involve forward-looking statements regarding the company and its businesses as defined in the Private Securities Litigation Reform Act of 1995. The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest SEC filings, including this morning's press release. The company assumes no obligation to update any forward-looking statements made during this call. With that, I will turn it over to Will. Thank you, Tim. Good morning, everyone, and thank you for joining our fourth quarter and full year 2025 earnings call. Before we start, as always, I want to thank our 65,000 global teammates for their efforts in serving our customers. Our employees are at the core of our success as they work every day to deliver solutions and service to our customers. Our 2025 achievements are a result of their hard work and dedication. We shared a significant and exciting update for Genuine Parts Company this morning: our intent to separate into two independent publicly traded companies. Our automotive businesses will continue to be the largest global automotive aftermarket replacement parts and solutions provider in the world, and our global industrial businesses will create a standalone best-in-class industrial solutions platform. I will start this morning by sharing additional perspective on the announcement, and then discuss our full year performance. Bert will discuss the financial results for the fourth quarter, trends to start the year, and our 2026 outlook before we open it up for questions. Will Stengel: For nearly a century, Genuine Parts Company has a proud history of leadership and driving change in its industries, always focused on serving our customers and taking action to strengthen the business as markets evolve. Over the last decade, we have established leading global footprints in attractive geographies, simplified our business mix, and accelerated strategic investments to further advance and differentiate our business. More recently, despite dynamic markets, we have focused on a broad-based supply chain and technology transformation effort, and we have simultaneously invested in talent and capabilities across the company. We have complemented our work with significant acquisition activity to add scale and local service in our priority markets. We have leveraged a global team approach to evolve the business and increase the intrinsic value of the company. As we shared last September, throughout 2025, we conducted a strategic and operational review of the business with the objective to understand how best to unlock our full potential and maximize shareholder value. Our work in partnership with our advisors included an extensive review. Following the detailed review, we have concluded that separating our Global Automotive and Global Industrial businesses is the best path forward for the company, our people, our customers, and our shareholders. Today, we have two scale, market-leading companies with compelling but different growth strategies. This new business structure will enable each to capture the opportunities most effectively. We believe that separating automotive and industrial into two public companies will set both up for significant long-term success. The transaction provides clarity in many important ways, with business-specific investments that are directly aligned to their respective customers and market needs. Each will be well capitalized and have greater strategic and operational focus with clear differentiated value propositions. Will Stengel: Global Automotive, with its globally recognized NAPA brand, will be a pure-play automotive aftermarket replacement parts and solutions provider. The separation will allow Global Automotive to more effectively capitalize on common automotive customer needs and market trends, particularly with the growing commercial customer. Its geographic diversity creates a balanced and global platform with identified market share opportunities. NAPA’s unmatched loyalty, built on trusted product quality, deep relationships, and a vast global network, will continue to be core differentiators as it competes in an over $200 billion addressable market that is non-discretionary in nature. There are more than 550 million cars on the road used in the markets we serve, with an average age of more than 12 years, which creates compelling opportunities. Our global automotive business is currently executing a transformation program to deliver growth in excess of the market and margin expansion while optimizing working capital and increasing return on invested capital. These will remain hallmarks of the business on a standalone basis. Significant progress has already been made in each geography, with investments deployed and capability building. Regarding its capital structure, the business is targeting to maintain an investment-grade credit rating to support the strategic vision, including organic investment, accretive bolt-on acquisitions, and returns to shareholders. Will Stengel: Turning to Global Industrial, Motion is a leading diversified industrial distributor serving over 180 end markets. Motion provides value-added solutions to keep manufacturing facilities operating and efficient. We differentiate with technical product and industry expertise and go to market with a unique omnichannel sales strategy that leverages deep, long-standing supplier and customer relationships. Motion operates in a highly attractive approximately $150 billion global market and has substantial opportunities to extend its industry-leading position. Motion will build on its best-in-class financial performance by delivering profitable sales growth and operating leverage that translates into improving double-digit EBITDA margins, strong free cash flow generation, and attractive returns on invested capital. Motion is targeting to maintain an investment-grade rating, and with strong cash flow characteristics and the backing of a dedicated balance sheet, will be well positioned to make strategic growth investments. Motion will continue to pursue strategic and bolt-on M&A. The businesses already operate independently. There are no shared customer-facing roles, there are limited shared facilities, and there is an ongoing body of work to finalize all the separation details. There are a select number of IT, sourcing, and back-office support functions that we will manage and transition. The initial estimates of the dis-synergy costs associated with the separation are manageable, and we will share more information as we finalize our estimate. The separation is planned to be tax-free to GPC shareholders. We will provide further updates on leadership and governance, standalone financial profiles and long-range targets, capital structure and capital allocation strategies, and other separation matters as we move through our process. We are working at pace and targeting to complete the separation in 2027, subject to customary approval processes. We contemplate holding investor days for each business in 2026, and we look forward to sharing more about the exciting vision for these two companies as we progress. Will Stengel: With that, as we reflect on 2025, it was a dynamic year across the businesses and geographies, marked by tariffs, global trade policies, interest rates, and a cautious consumer. To start the year, we built plans that assumed sequential market improvement as the year progressed. Despite the environmental realities, we advanced our strategy and delivered growth, expanded gross margins, took proactive action to offset cost inflation, and continued to invest in strategic capabilities. A few highlights from the year include total GPC sales were $24.3 billion, an increase of over $800 million, or 3.5%, compared to 2024. Gross margin expansion for the third consecutive year driven by pricing, sourcing, and acquisitions. Global restructuring initiatives and cost actions provided an approximately $175 million benefit in 2025, above our expected range of $110 million to $135 million, and investments of approximately $470 million. We announced a 3.2% increase to our dividend, which marks the 70th consecutive year GPC has increased the dividend. While we have many accomplishments in 2025, our full year results came in below our expectations. In the quarter we saw weakening of market conditions in Europe and sales below our internal forecasts for U.S. independent owners. There was sequential improvement through the year across many areas of the business that are encouraging, and in 2026, we have started strong and will look to build on that momentum as we progress. Bert will provide more commentary. Will Stengel: Before we touch on our results by business segment, you will see in this morning's earnings release that we made a change in the way that we report our global automotive results. We made this change to provide increased transparency and better align with how we manage the business. We are now reporting three business segments: North America Automotive, which contains our automotive businesses in the U.S. and Canada; International Automotive, which contains our automotive businesses in Europe and Australasia; and Industrial, which as a reminder is predominantly North America. Now turning to our full year results by business segment. During the year, total sales for Industrial were $8.9 billion, an increase of $200 million, or up approximately 2% versus the same period in the prior year, with comparable sales up 1.5%. Recall that in 2025, the U.S. had one less selling day, which impacted sales by 40 basis points. We believe our Industrial business grew in excess of the market in 2025, despite a sluggish industrial and manufacturing economy, as evidenced by PMI being below 50 for the last ten months of the year. This performance reflects Motion’s diverse end markets, and strong execution focused on customer service and an extensive product offering via technical and solution-based selling. Looking at the performance across our end markets, we saw growth in seven of our 14 end markets during the year, which is up from four in 2024. We saw notable improvement within one of our largest end markets, equipment and machinery, and growth in food products, pulp and paper, aggregate and cement, and fabricated metals, amongst others. This growth was partially offset by softer demand in automotive, lumber and wood, and oil and gas. Each value-add solution segment such as automation, conveyance, and repair services saw improvement throughout 2025. Our core MRO business, which accounts for approximately 80% of Motion sales, was up over 3% during the year, with shared strength in both our local account and corporate account customers. We have seen an increase in planned outage projects as we closed the year, where customers stop operations to do maintenance and repair work, as deferred maintenance needs are starting to be addressed. In the fourth quarter, we were also encouraged with the outsized strength with small and medium-sized customers driven by targeted second half sales initiatives. The remaining 20% of Motion sales, originating from more capital-intensive projects, was up approximately 1% during the year as customers continue to selectively pursue larger projects. E-commerce had another strong growth year in 2025, with penetration as a percent of total sales up over 800 basis points, underscoring our ability to engage with our customers via technology. While one month does not make a trend, we are also encouraged to see January PMI above 50 for the first time since February 2025. The Motion team showed outstanding operational discipline during the year as they navigated tariffs, managed to soft demand, and optimized cost. The cost structure is set up nicely for the rebound in industrial demand, and we expect to see strong operating leverage as the market improves. Will Stengel: Turning to our Automotive segments. Starting with North America Automotive, total sales for the year increased approximately 3%, with comparable sales growth up approximately 0.5%. In 2025, North America Automotive segment EBITDA was $672 million, which was 7.1% of sales, representing a 70 basis point decrease from the same period last year. The decrease year over year reflects ongoing pressures from cost inflation in higher salaries and wages, healthcare, rent, and freight, which was partially offset by our restructuring initiatives and cost actions. Within North America, sales in the U.S. were up approximately 4% for the year, with comparable sales up approximately 0.5%. Reminder that in the first quarter, the U.S. had one less selling day, which impacted sales by 40 basis points in 2025. We saw strong sales growth from our company-owned stores, with comparable sales up approximately 2.5% for the full year and approximately 4% in the second half. Independent purchases during the year were down approximately 1%. We remain pleased with our progress on running better company-owned stores and the sequential improvement throughout the year. Looking at the comparable sales performance of NAPA to the end customer, which includes our company-owned sales as well as the sales to the end customer from our independent stores, the NAPA system delivered sales growth of approximately 1% for the full year, and approximately 2% in the second half. By customer type, comparable sales to our commercial customers for the year were up approximately 2%, while sales to our retail customers decreased approximately 4%. We saw the strongest growth with our Auto Care and major account customers, which were up mid-single digits. Across our product categories during the year, we saw solid growth in our non-discretionary repair and maintenance and service categories, which were both up low to mid-single digits. As a reminder, combined, these categories account for approximately 85% of our U.S. Automotive business. Discretionary categories remained softer and were flat to slightly positive for the year, with specific category initiatives in our tool and equipment offering helping to offset some of the weakness. Our value and service proposition were key to our success in winning business during the year despite the tariff-driven inflation environment. Customers continue to use discretion and are looking for value. However, deferred maintenance will ultimately need to be addressed, as you can only defer for so long. Lastly, in 2025, we further advanced our acquisition strategy in our U.S. Automotive business to continue to strengthen our relative footprint in strategic priority markets by acquiring over 100 locations from both independent owners and competitors. Additionally, in October, we closed on the acquisition of Benson Auto Parts, one of the largest independent aftermarket players in Canada. Looking at our performance in Canada, our team had a strong year with total sales increasing nearly 5% in local currency versus the same period last year, with comparable sales increasing approximately 3%. We believe our business grew in excess of the market in 2025, and we are proud of the team’s execution throughout the year to deliver solid results. Will Stengel: Moving to our International Automotive business, total sales during the year increased approximately 5% with comparable sales up slightly. International Automotive segment EBITDA for the year was $544 million, which was 9.3% of sales and represents a 90 basis point decrease from the same period last year. Similar to North America, the decrease year over year reflects ongoing inflation cost pressures from higher salaries and wages, healthcare, rent, and freight, which was partially offset by our restructuring and cost actions. By geography, in Europe, total sales for the year increased slightly in local currency, with comparable sales down approximately 2%. These results were below our expectations due to moderated market conditions across our geographies in the second half of the year. Through the year, we took aggressive actions in Europe to align the business with market realities. For example, we closed underperforming locations, consolidated distribution centers, reduced headcount, and reduced general and administrative costs. Despite a challenging environment, we believe we performed in line or better than the market in 2025, driven by strength with key account customers, the continued expansion of the NAPA brand, sourcing initiatives, and accretive bolt-on acquisitions. The difficult work completed in 2025 will position the business well as the market recovers. Finally, our team in Asia Pacific had another strong year in 2025 and further distanced themselves as the market leader. Our team delivered double-digit growth in local currency, driven by both organic initiatives and contributions from acquisitions. Total sales increased approximately 10% during the year, with comparable sales up approximately 5%. Both trade and retail businesses posted strong results for the year. Repco grew sales 20% versus 2024, as it continued its multi-year track record of impressive accretive growth. Our in-flight initiatives are working as designed, and the local team is energized to build on the strong momentum in 2026. Will Stengel: Before I close, I want to provide a quick update on First Brands Group to ensure operational and service continuity. As the situation evolved, we methodically executed the plans following their bankruptcy filing. Our teams quickly mobilized plans with alternative suppliers. Thanks to the readiness, we do not expect any operational or product disruption in 2026. Bert will share additional comments on the accounting implications of the bankruptcy in his remarks. In closing, thank you to our customers, owners, supplier partners, and shareholders for your continued trust and support. This is an exciting time for Genuine Parts Company as we are proactively pursuing a strategy to unlock value and position each business and geography for long-term success. Today, we have two leading distribution platforms in attractive industries with defined plans to capture exciting opportunities. The clarity this transaction provides will accelerate our ability to deliver performance and extend our leadership positions in our industries for years to come. I want to reaffirm my sincere thanks to our GPC teammates for your effort and commitment this year. While we have more to do in 2026, we will navigate the market and focus on doing what we have done for a long time: take care of our customers and teammates every day. Thanks for all you do for Genuine Parts Company. I will now turn the call over to Bert. Bert Nappier: Thanks, Will, and thanks to everyone for joining the call. We closed 2025 with fourth quarter sales growth of 4% and adjusted gross margin expansion of 70 basis points. Our sales performance was highlighted by a near 5% increase in sales within Industrial, as well as strength in our U.S. NAPA company-owned stores, with approximately 4% comparable sales growth in the quarter. Despite these tailwinds, our fourth quarter adjusted earnings of $1.55 were below prior year, as the benefit from higher sales and gross margin expansion was offset by our previously communicated headwinds from depreciation and interest expense and lost pension income. Our fourth quarter results have been adjusted for one-time items, including the settlement charge associated with the plan termination of our pension plan. Bert Nappier: Before turning to the specifics of the quarter, I would like to share a few thoughts on our performance relative to our original outlook. As we began the quarter, we expected stronger fourth quarter sales growth to offset the collective headwinds from depreciation, interest, and lost pension income, resulting in earnings growth. However, our results fell short of our expectations, entirely driven by weaker sales in Europe and lower sales to independent owners in our U.S. NAPA business. Our gross margin expansion and absolute dollars of SG&A expense were right on our forecast, and the underlying fundamentals driving our segments remain solid. With respect to Europe, underlying market conditions deteriorated sequentially from September to October and then again in November, leaving the underlying market growth down mid-single digits for the quarter. This deterioration led to a decrease in sales relative to our expectations, and the impact of these weaker market conditions had an estimated $0.10 negative impact to the quarter relative to our initial view. Despite the tough market conditions, we believe our performance was aligned with general market trends across the region. While overall sales at NAPA were up in the fourth quarter, our sales to our independent owners fell below our expectations. Comparable sales to our independent owners were flat in the fourth quarter, down from the 1% growth we delivered in the third quarter. While we had a tough comparison to last year due to a promotional event that did not repeat this year, we anticipated the momentum from the third quarter to carry over. Our independent owners continue to navigate a challenging backdrop in the U.S., balancing numerous headwinds while serving the needs of our customers. The lower-than-expected sales to independent owners created an estimated $0.10 negative impact relative to our expectations for the quarter. Bert Nappier: Before I take you through the details of the quarter, my comments this morning will focus on adjusted results, which, as I mentioned, include several nonrecurring items recorded in the fourth quarter. In total, these adjustments amounted to $1.1 billion of pretax costs, or $825 million after tax. These adjustments related to the following. First, as previously communicated, the termination of our U.S. pension plan was successfully completed in December. The termination required us to immediately recognize a one-time noncash settlement charge of $742 million, which represented the accumulation over many decades of the actuarial gains and losses on the plan and had been recorded as an unrecognized loss on our balance sheet. The final settlement charge was in line with our expectations. Second, we recorded a charge of approximately $150 million for expected losses on amounts due to us from First Brands Group. The amounts owed to GPC, including rebates on purchases, were subject to long-term supply agreements across our automotive businesses. While we made extensive efforts to recover the amounts owed, the bankruptcy and the financial challenges at First Brands were significant. Given the financial and operational difficulties, during the fourth quarter, we moved our business away from First Brands and executed our contingency plans with alternative suppliers. This was the right decision for our customers and moves us into 2026 with confidence in our supply chain and inventory availability. Third, not reflective of our current operations, during the quarter, we had $87 million of costs related to our global restructuring program. And lastly, we incurred $30 million in charges related to accounting adjustments in the fourth quarter, largely related to the accounting for asset retirement obligations. Bert Nappier: With that backdrop, let's turn to the performance of the underlying business. As we look at the fourth quarter, total GPC sales increased 4.1%, including a 170 basis point improvement in comparable sales, a 150 basis point benefit from acquisitions, and a 130 basis point benefit from foreign currency. As we expected, the tariff landscape normalized as we closed out 2025, with a low single-digit pricing benefit in revenue and a low single-digit increase in cost of goods sold, resulting in a slight benefit to our consolidated results for the quarter. Turning to our quarterly sales results by business unit. Starting with Industrial, sales in the fourth quarter increased 4.6%, with comparable sales up 3.4% in line with the third quarter. During the quarter, average daily sales were solid and improved sequentially, with December being the strongest month despite declines in PMI throughout the quarter. Sales inflation during the fourth quarter was 4%. Looking at the performance of our end markets, we experienced sequential improvement with growth in nine of our 14 end markets and strength in automotive, iron and steel, food products, and fabricated metals, which were offset by softer demand in lumber and wood, chemicals, and oil and gas. Bert Nappier: As we look at North America Automotive, total sales in the fourth quarter increased 2.4%, with comparable sales up 1.7%. Within North America Automotive, total sales and comparable sales in the U.S. were up approximately 2% in the fourth quarter. At a high level, the comparable sales performance in the fourth quarter looked very similar to the third quarter. Average daily sales were positive in all three months. Sales inflation during the fourth quarter was slightly over 3%. We continue to see strong sales to our commercial customers, which represent over 80% of sales in the U.S. Comparable sales out to commercial customers increased approximately 3.5%, while comparable sales to retail customers declined low single digits. Looking at the performance of our company-owned stores to our commercial customers, comparable sales grew nearly 6% with strength in Auto Care, major accounts, and fleet and government. As Will mentioned, we closed on the acquisition of Benson in Canada in October, which provided a nice benefit for the two months they were included in our results. Turning to our International Automotive business, total sales in the fourth quarter increased approximately 6%, with comparable sales down approximately 1%. In Europe, during the fourth quarter, total sales decreased approximately 2% in local currency, with comparable sales down approximately 3% as a result of weak market conditions, which were partially offset by the NAPA private label product expansion across the region. In Asia Pacific, sales in the fourth quarter increased approximately 5% in local currency, with comparable sales also up approximately 5%. Our team continues to outperform and take market share in both the trade and retail customer segments. Bert Nappier: As we turn back to our consolidated results, our adjusted gross margin was 37.6% in the fourth quarter, an increase of 70 basis points from last year. The improvement in our gross margin was primarily driven by the ongoing execution of our strategic pricing and sourcing initiatives, with all three segments expanding gross margin in the fourth quarter. Our adjusted SG&A as a percentage of sales for the fourth quarter was 29.7%, an increase of 30 basis points from the prior year. On an adjusted basis, SG&A grew year over year in absolute dollars by $88 million, including $60 million from acquisitions and foreign currency. However, our acquisitions continue to have a positive impact to net operating profit margin. Our core SG&A increased 1.7%, or $28 million in the quarter. Our rate of core SG&A expense growth improved from the 2.7% growth we experienced in the third quarter. Sovereign cost inflation continues to be a challenge, impacting people costs, including high single-digit inflation in U.S. healthcare costs, as well as rent and freight. The growth of our core SG&A was mitigated by a $75 million benefit related to our restructuring and cost initiatives, as our actions work to mitigate cost inflation. We made significant progress on our global restructuring efforts in 2025. During the year, we incurred restructuring costs of approximately $255 million, and through the team's hard work, we exceeded expectations, realizing approximately $175 million of cost savings for a benefit of $0.95 per share. This was above our target of delivering $110 million to $135 million of cost savings in 2025. Bert Nappier: For the quarter, total adjusted EBITDA margin was 7.6%, up 10 basis points year over year. The improvement was driven by gross margin expansion and the benefits of our restructuring activities, which offset cost inflation in wages, healthcare, and rent. Our fourth quarter adjusted net income, which excludes nonrecurring expenses of $825 million after tax, or $5.94 per share, was $216 million, or $1.55 per share. Our full year adjusted net income was $1.0 billion, or $7.37 per share. Turning to our cash flows, for the year, we generated approximately $890 million in cash from operations, with $380 million in the fourth quarter, and $421 million of free cash flow. Our operating cash flow in 2025 was impacted by lower earnings and higher interest payments. Our cash flows were also impacted by working capital changes associated with commercial activity in 2024 from inventory investments made at NAPA, and the associated build of accounts payable and receipt of supplier incentives, which did not repeat in 2025, creating a tough year-over-year comparison. This headwind was concentrated in the first half of the year, and our cash generation accelerated to over $700 million in the second half of 2025. In 2025, we invested approximately $470 million back into the business in the form of capital expenditures, as we continue to modernize our supply chain and IT systems. In addition, we invested approximately $320 million in M&A, highlighted by our Benson acquisition in Canada. Bert Nappier: Now let's turn to our outlook for 2026. We expect diluted earnings per share, which includes the expenses related to our transformation efforts, to be in a range of $6.10 to $6.60. We expect adjusted diluted earnings per share to be in the range of $7.50 to $8.00, up 5% at the midpoint of the range versus 2025 adjusted EPS of $7.37. Overall, our 2026 outlook has been developed based on our expectations for underlying market conditions, modest price inflation, and further gross margin expansion. We have also assumed continued cost inflation, partially offset by the benefits of our restructuring and transformation programs. Depreciation and interest expense will be a headwind of approximately $30 million in 2026 as we continue to invest in the business for growth. Let me take a few moments to review the individual elements of our outlook in more detail, which we have expanded in light of our separation announcement. We expect total GPC sales growth to be in the range of 3% to 5.5%. Our outlook assumes that market growth will be roughly flat and that the benefit from pricing, including inflation and tariffs, will be approximately 2%. As we look at sales for the individual business segments, we expect total sales growth in our North America Automotive segment to be 3% to 5% with comparable sales growth of 1.5% to 3.5%. Our total sales growth in North America in 2026 benefits from our Benson acquisition in Canada, which closed in 2025. For International Automotive, we expect total sales growth of 3% to 6% and comparable sales growth of 1.5% to 3.5%. For the Industrial segment, we expect total sales growth of 3% to 6%, with comparable sales growth in the 3% to 6% range. Bert Nappier: For gross margin, we expect 40 to 60 basis points of full year adjusted gross margin expansion, driven by our continued focus on our strategic sourcing and pricing initiatives. Our outlook assumes that adjusted SG&A will deleverage between 30 and 50 basis points for the year. Despite the restructuring actions we have taken over the past two years to reduce our cost structure, our SG&A outlook is driven by persistent cost inflation. We expect ongoing cost inflation in salaries and wages, driven primarily by mandatory pay increases in international jurisdictions and continued headwinds from inflation in U.S. healthcare costs, which are growing at a high single-digit rate. As we begin 2026, and as Will shared in his remarks, we are continuing key transformation programs globally, including in our U.S. NAPA business, that further strengthen our businesses moving forward. In addition, given the persistent cost inflation headwinds, we are taking further actions to adjust our cost structure to market conditions. We expect expenses associated with transformation activities and cost actions to be in a range of $225 million to $250 million, with an anticipated benefit in 2026 of $100 million to $125 million. These expenses do not include any costs associated with the separation of the businesses. We expect consolidated adjusted EBITDA in 2026 to be in a range of $2.0 billion to $2.2 billion, an increase of 2% to 9% compared to prior year. In our North America Automotive segment, we expect segment EBITDA of $700 million to $730 million, an increase of 5% to 9% versus last year. For International Automotive, we expect segment EBITDA of $560 million to $600 million, or an increase of 4% to 10% compared to last year. And finally, for Global Industrial, we expect segment EBITDA of $1.2 billion to $1.3 billion, an increase of 7% to 12% versus last year. For corporate, we expect expenses to be in a range of 1.5% to 2% of total sales. Bert Nappier: Two additional areas to highlight. For 2026, we expect depreciation and amortization expense to be in a range of $515 million to $540 million, as continued growth investments in technology and supply chain drive the year-over-year increases. Of note, our investments in technology generally have shorter useful lives, typically ranging from three to five years. For interest expense, we currently expect to be in a range of $180 million to $190 million, as we expect debt levels to remain consistent with 2025 but anticipate higher borrowing costs in 2026. With those details, I would like to share some thoughts on the start of 2026. As we consider the range of outcomes for the year, our opportunities to achieve the high end of our expectations center on improving market conditions in Europe and sustained PMI readings above 50 driving a tailwind in our Industrial business. Conversely, should market conditions deteriorate further in Europe, or we experience downside variability in sales to our independent owners, we would expect to be in the lower end of our range. Near-term market conditions remain mixed. Our sales in January on an average selling day basis were strong, highlighted by strength at Motion, with an improved PMI reading in January but continued soft market conditions in Europe. Europe remains a watch point, and we do not expect an improvement in market conditions in Europe through the first quarter from those that we experienced as we closed out the year. With the backdrop of an improved PMI reading in January, we are encouraged by the start of 2026, but are remaining prudent in our outlook. Bert Nappier: Turning to a few other items of interest. We expect to generate cash from operations in a range of $1.0 billion to $1.2 billion for the year, up approximately 20% from 2025 at the midpoint of the range, inclusive of the cost of transformation and other actions that I shared. For CapEx, we expect approximately $450 million to $500 million, or approximately 2% of revenue in 2026 at the high end of the range, in line with our 2025 levels. As we look at M&A, our global pipeline remains robust, and we will continue to remain disciplined, pursuing opportunities that create value. We expect our M&A capital deployment to be consistent with 2025, and in a range of $300 million to $350 million. The fourth quarter required us to navigate many areas, including unexpected sales headwinds, the bankruptcy of First Brands Group and transition of our supply chain to new suppliers, and the one-time adjustments I outlined. However, we maintained tight control on our expenses and drove continued expansion in gross margin, themes we will carry into 2026 alongside solid industry fundamentals. Bert Nappier: As we turn to 2026, we are excited to begin a new chapter in our history with the announcement this morning of our plan to create two industry-leading public companies. Our strategic initiatives, investments in supply chain and technology, and efforts to drive productivity over the past few years have positioned both businesses for long-term success. We are encouraged by the initial positive indicators to start 2026, but we will remain prudent on our views on the full year outlook given the early stages of the year. Thank you. I will now turn the call back to the operator for your questions. Excuse me, sir? Operator: If you wish to decline from the polling process, please press star followed by two. If using your speakerphone, you will need to lift the handset first before pressing any keys. To be considerate to other callers on the line as well as time allotted, we ask that you please limit yourself to one question and one follow-up. Thank you. Your first question will be from Scot Ciccarelli at Truist. Please go ahead, Scot. Good morning, everyone. Scot Ciccarelli. Scot Ciccarelli: I think separating the businesses is a good idea, but with that on the table, can you help us better understand the margin pressures on the North American auto business? A 14% EBITDA decline against pretty soft performance in the prior year and a 0.5% margin just seems quite a bit lower than what we would have anticipated. And then related to that, part two, with the improved disclosure, can you give us an idea of how much the earnings contribution in North America is coming from your company-owned versus how much from the independents? Thanks. Tim Walsh: Thanks, Scot. Good morning. I will start off on the— Bert Nappier: EBITDA margin for North America, and maybe take it up just a little bit at a consolidated level, we think about what happened during the quarter. We talked a little bit in my prepared remarks about our expectations coming in short both in Europe and with independent owners. I think when we think about the fourth quarter, we also had profit growth. We also had sales growth that came from FX in the quarter. Very little profit benefit on that as well. So when we look at the movement through the P&L, I think we did a nice job of controlling costs. Despite some inflation in wages, core cost growth in the quarter was 1.7%, which excludes acquisitions and FX. I think the benefits of the restructuring program have performed nicely, and in looking at the core, we have really tried to control it pretty well. That left us with an EBITDA level that was not enough to offset some of those headwinds we talked about at the beginning of the year, and then it persisted through the course of the year with depreciation, pension, and interest expense. When I look at North America Auto or the North American business more specifically, I think the themes are similar to the ones I talked about in my prepared remarks. We had that wage pressure with cost inflation. U.S. healthcare has been a particular challenge here in the fourth quarter. For the full year, it was up $32 million, about $20 million more than our expectations for the full year, and that particular cost is growing at a very high clip, I would say high single digits for the full year. Beyond that, we had some rent and freight pressure in the North American business in the fourth quarter from cost inflation. And on IT, a disproportionate level of our IT investments are happening in the North America business, and that is challenging in P&A because, as you know, those investments as we modernize and move to cloud-based, cloud-based technology, move the rest into SG&A. Scot Ciccarelli: Okay. Thank you for that. And can you give us an idea about the earnings contribution company-owned versus independents? Obviously, the independents have been under pressure for a while. Bert Nappier: Yes, Scot, that is probably something we will get into more detail when we have an Investor Day for Global Automotive. As you know, the stores are split 65/35 now. Sales is probably more 50/50. But we would say that both are contributing to our profit, and we will get into a little bit more color on the model, I think, as we look ahead and move to an investor day. Will Stengel: Scot, I would just add one other thing in terms of operationally the improvements we are making with our company-owned stores. There has been a lot of good work through the year. We made some organization structure changes to make sure that we had the right resources and leadership over top of our company-owned stores, both at an executive level and in the field. And that is really all around driving discipline and standardized processes and all the things that we need to do at a very basic and fundamental level every day to take care of our customers. So whether it is pricing strategies, inventory strategies, payroll mix, we have made a lot of really nice progress. I think our payroll in our company-owned stores was as good as it has ever been in the fourth quarter. So a lot to like as we go through the transformation around all things company-owned stores and then working with these owners to get everybody in a better spot competing in the market. Tim Walsh: Okay. Thanks, guys. Operator: Next question will be from Greg Melich at Evercore. Please go ahead, Greg. Tim Walsh: Thanks. My first question was— Greg Melich: On the inflation trend— Tim Walsh: As we look across— Bert Nappier: The balance of the entirety of the year, you will remember that the lapping of benefits will come as we get through the first half. So I would expect pricing benefits to be a little bit more compressed in the second half. About one point of the 2% we are expecting for the full year comes from tariff when we look out across the full year. I think as I look at the two individual businesses, we will just keep it where we have kept it, which is at the 2% low single digit. I do not think they are really disproportionately weighted between the North American Industrial business and the NAPA business. So I do not know that there is a distinction to make between the two. I think the 2% holds for the full year for both, and about half of that comes from tariff as we look across the full year. Will Stengel: Greg, I might just also comment that the tariff anomalies in terms of interacting with our suppliers have all largely moderated. So we are back into a more ordinary-course commercial discussion with suppliers about how to think about standard price increases as we go through a new calendar year. And in some instances, given all of the activity that happened in 2025, those discussions are noncontroversial and in some cases not even happening given all the stuff that happened in 2025. So I think we are coming on the backside of all things tariff inflation, and we are back to a more standard, structured inflationary environment from a price standpoint. Greg Melich: Thanks. And my follow-up is on the separation of the businesses. Given that you just had, or announced, the 70th year of a dividend increase, you talked about investment-grade capital structure for both businesses. How are you thinking about dividends, either having one or keeping a growth rate given the history of Genuine Parts Company with that? Thanks. Bert Nappier: Yes, Greg, thanks for the question. I think there is a lot more to come on the capital structure of the two businesses and the capital allocation policies. We are working on refining those details internally, and we will get that to you in due course. I think we will stay focused on, one, the capital structure side, as Will mentioned in his remarks, making sure that we have strong balance sheets for both businesses and that we maintain investment-grade rating on both. When we think about capital allocation, it will start with the business strategies of each individual business and where we think we need to invest, and at the same time being very balanced on shareholder returns and making sure we are thoughtful about how to do that and the right strategies for those two things that attract the right investor bases based on the business strategy. It will be an important conversation as we go forward. I think there is no change to the GPC dividend policy for this year. In 2026, we announced a 3.2% increase this morning. That is in line with last year, and I think it is the right decision for the business as we go through this transition. Tim Walsh: Great. Thanks, and good luck. Thanks, Greg. Operator: Next question will be from Bret Jordan at Jefferies. Hey, good morning, guys. Will Stengel: Hey, Bret. On that capital allocation comment, if you look at the two sides of the business, do you see one of them needing more catch-up investment than the other? It does seem like— Bert Nappier: Yes, the Motion business might be a bit more modern given more significant recent M&A there. Is there a big difference in capital needs between the two? I think they have different priorities, Bret. I do not know that they have different overall investment needs. As you point out, Motion business is inherently capital light, and I think Motion has really invested in the business smartly, and as Will mentioned in his prepared remarks, I think Motion is positioned to continue to grow through bolt-on and strategic acquisitions. When you think about the Global Automotive business, we will continue to do bolt-on M&A there looking ahead. But I also think that we have interesting, exciting, and compelling investment opportunities on the capital side that provide medium-term margin expansion. Some of those we have been making. As you guys know, we have put $3.0 billion of capital into the business over the last five years and put it to work. That is why we are so excited about the opportunities that we have ahead with the separation, because we think that business—and do not forget Global Automotive will be a $16.0 billion top-line business with $1.3 billion of EBITDA at the midpoint to the ranges we gave you for the year. So we are excited about what that business can do, and I think its investment might tilt a little bit more towards CapEx versus M&A, but I do not want to prejudge the capital allocation policy for either company. Hopefully, as we look ahead, that will give you a little color. Will Stengel: I guess then a quick follow-up. European regional performance—it sounds— Bert Nappier: Like it is all weak, but is there anything to speak of around performance dispersion? Will Stengel: Yes. I would say it was certainly weak relative to our expectations, as we have commented, with particular weakness in the UK and France and Germany, which are big three markets. Interestingly, one of our steady performers in our Benelux business—it is a small business for us—but it actually sequentially weakened through the year as well. A bright spot for us is the great work happening in Spain and Portugal, which has been a really nice case study for how we bring the NAPA brand to a new geography in Europe. We have essentially doubled that business. We have essentially doubled the EBITDA rate of that business, and the NAPA brand is really carrying the day to, even in a tough market, win share. Generally weak across the board, but as Bert said in his prepared remarks, we have put a lot of capital into Europe. We have really nice supply chain investments in the UK, really nice supply chain investments in France, supply chain investments in Germany and Spain. So as that market recovers, we are going to have a very differentiated platform relative to the balance of the market. It is a great operating team with a lot of focus and a lot of urgency to make hard calls in a tough market. We feel good about the future. We are just working through a soft moment in time. Bert Nappier: And, Bret, I would just add to that that I think for the region, for the fourth quarter, our performance was right in line. Everybody had a bit tougher experience, and I think if you look at the balance of 2025, I would say that our European business performed in line or better than the region for the full year. Bret Jordan: Great. Thank you. Appreciate it. Will Stengel: Thanks, Bret. Operator: Next question will be from Chris Horvers at JPMorgan. Please go ahead, Chris. Chris Horvers: Thanks. Good morning, guys, and congratulations on the announcement. Tim Walsh: The new reporting frame— Chris Horvers: In the new reporting framework, you are breaking out now between North America and International. Tim Walsh: As you have gone through— Chris Horvers: This process and just the broader separation announcement, how are you thinking about the synergies of operating a global automotive business? Obviously, there is the NAPA brand and the sourcing, but is there something to having a dedicated North American company and a dedicated European/Australia/Asia business? Will Stengel: Chris, I would say it is incrementally easier to extract a global harmonization with just an automotive platform versus auto and industrial. Part of that logic was as we thought strategically about what we call One GPC. We have made a lot of progress on that front, but for a combined entity to take that next phase of what does One GPC mean and how do you extract value, it gets complex across both an industrial and automotive platform, and I would say it gets incrementally less complex for a standalone automotive business. Having said that, I do think we have come to really appreciate the importance of having specialized expertise down at the geographic level, meaning Asia Pac needs to be close to those customers and make the right customer-level decisions. Europe has customer-specific decisions to make. And so we will continue, even in the Global Automotive platform, to pursue One GPC synergies, but we made good progress, and it is probably not the value driver as we think about the value, the multiple expansion, and the margin expansion as we move forward. Tim Walsh: And then following up on Bret’s question— Chris Horvers: Can you break out for us your expected CapEx and D&A in Motion and the Automotive business as you are planning 2026? What is the split there? Bert Nappier: Yes, Chris. We do not really get into that kind of level of detail. I would just say that when we think about CapEx, we think about it more from an activity perspective. As I look at the year, about 50% of the upcoming investment for 2026 will be in IT, with about another 30% to 35% in what we would call supply chain modernization, and that might be buildings and DCs and things like that. I would say that in general, because Motion is a relatively capital-light business, the orientation, if you want to think about it from the two business units, would weight more towards the Global Automotive business. Will Stengel: Hey, Chris, I also just wanted to follow up on another thought that I had as it relates to North America. As you know, we put Alain Masse in a leadership role running both our Canadian and our U.S. business, and I would say in that situation, we are excited about the opportunities to continue to extract value from working more closely together as a North America platform. So in that geography, I think we have intra-geography opportunity, but my comments still hold for the cross-global opportunities. Those are a little bit harder to get and will take some time. Tim Walsh: Thank you. Operator: Next question will be from Michael Lasser at UBS. Please go ahead, Michael. Tim Walsh: Good morning. Thank you so much for taking my question. If we look at the North American auto business, it does appear that market share took a step back in the fourth quarter, largely related to the independent business. Michael Lasser: So, A, why was that the case? And, B, if we look at your guidance, it does indicate that you expect that business to accelerate in 2026. Would that be predicated on an improvement in the independent business? And what would be responsible for that? Tim Walsh: Thank you. Bert Nappier: Hey, Michael. I will take that one. I think when we look at the performance of the business in the fourth quarter, I would start with the strength of the company-owned stores in North America and in particular in NAPA. 4% comp sales—I think they are performing nicely. Sequential improvement, and we continue to control the things that we can control. As I mentioned with the independent owners in my prepared remarks, we had a quarter in Q3 in which we had built some nice momentum—sequential improvement for independent owner performance through the course of the year—and we flatly expected that to maintain in the fourth quarter, even with the promotional comp that I mentioned in my prepared remarks. Unfortunately, that was not the case, as I shared, and they did not meet our expectations for what we thought would happen in Q4. The independent owners continue to be an important part of our model, and I think they are just continuing to deal with the headwinds that we are all dealing with, whether it is cost inflation, persistent elevated interest rates, all the different dynamics we have mentioned before. As we look ahead to 2026, as I mentioned in my prepared remarks, we are being prudent and cautious. I would say that as we look into the early part of the year, we are not expecting or anticipating any material improvement in performance there. That is not because we are doubting what they are doing. It is more about just being smart about the trajectory as we came out of the fourth quarter. As we move through the balance of the year, Will mentioned this a few minutes ago, we are going to continue to work very closely with them on positioning them for strength in the marketplace and making sure we are staying balanced on investing with them, growing with them, and pushing them forward. We have done a lot of great work in this space. I think we will continue to see more benefits, but in the early part of the year, I think we are being a bit prudent not only about the performance of the independent owner, but also in Europe. Tim Walsh: Okay. Michael Lasser: My follow-up question is, as you look forward to the separation, you provided some helpful detail on the process profitability of the North American auto business versus the International auto business. Do you think it would be prudent—and I am recognizing that it is still very early, you are likely to give some information over time—but just conceptually, do you think it would be prudent to take down the profitability of the North American auto business as a manner in which to stabilize or maybe improve the overall market share of that segment? Will Stengel: Michael, if I am following your question, I do not think that is necessary for us to take down the margin profile of the North American business to compete more effectively. I think we feel really good about the work that has been done and that is planned to be done as we move forward, and that should position that business to be a very enticing and compelling value creation story. Part of our assessment and the work that we did in 2025 was to get very granular and tactical on what are the initiatives and what is the pathway to creating and earning our entitlement in North America Automotive. We are looking forward to sharing all of that great work at an investor day to get everybody really excited—as excited as we are—about the potential of that business. Tim Walsh: Thank you very much, and good luck. Will Stengel: Thanks, Michael. Operator: Next question will be from Chris Dankert at Loop Capital Markets. Please go ahead, Chris. Bert Nappier: Hey, morning. Thanks for squeezing me in here. Again, first off, just congrats on the announcement—very exciting times. Chris Dankert: I guess just to move more operationally here, the streamlining—you guys called out, I think, $100 million to $125 million of restructuring benefit for the year. Can you break out what the mix is of the attribution? I assume most is Automotive, but any color there would be helpful. Bert Nappier: Yes, Chris, actually it is pretty split between both businesses. Both have really compelling opportunities on the transformation side as we look ahead. I would say if you are thinking about the benefit that we will see in year one, the benefit will move through the P&L partly through gross margin and partly through productivity in SG&A. So it is not all a cost play. As we think about it, we are getting more and more weighted towards transformation activities, which are the more exciting and the more compelling things that are going to drive opportunities in the medium term. We will still do some restructuring through the course of the year. We will have some things that we focus on in terms of facilities and store optimization, branch optimization, DC optimization. But the transformation initiatives, again, are thematically aligned to where we have talked about investing. We have great opportunities in the NAPA supply chain. We are working really hard on sales effectiveness both at NAPA and the Industrial business, and that gets back to Will’s comments on partnership with independent owners. We think we can make some really nice moves with sales effectiveness not only at company-owned stores at NAPA, but also with independent owners, and those are going to be compelling. Motion is doing great work on just doubling down on how great they already are, and when you look past that, we have some opportunities in the commercial space at Motion. I think we will be smarter and much sharper on pricing tools and capabilities that are going to be in this set of transformation initiatives. Finally, we have great opportunities in technology. What Naveen is doing with the team around the world to drive productivity both in terms of back office, store technology, catalog and search, but also inside of a facility, are really compelling. So we are excited about the future. I think the benefits come through multiple prisms and split between the two business units, and set us up for even further success as we move into 2027 and beyond. Chris Dankert: Got it. That is good stuff. Look forward to hearing more detail about that at the Analyst Day for sure. And I guess just a quick follow-up. On the guidance, you mentioned the real baseline assumption is pretty flattish market growth. Any shape to the year there? Is the assumption negative first half, slight positive back half, or just pretty ratable? Bert Nappier: Yes. I think it is a great question, and it is a good chance to give you a little color on the shape of the year. I think we will expect earnings growth to accelerate sequentially as we move through the quarters. The first quarter and first half will be a bit more muted. I have mentioned a few times European market conditions, and I think we are being prudent on very modest expectations for the independent owners given the exit levels on both areas as we came out of 2025. Flat market growth throughout the year—we are not planning for an acceleration in market conditions throughout 2026, even though we have had a little positive reading here in January on PMI. We started the year last year with two positive readings, and so I think we are just being smart about lessons learned there. I will be watching gross margin rate very closely. It is an important part of our profit profile, and so we are moving through a year in which we are lapping tariff benefits and normalization of the tariff landscape, and we will be watching that closely. The interest expense headwind I mentioned for 2026 is weighted more in the first half of the year, and so we will be thinking about that as well as we shape out the year. Having said all that, we are very confident in our full year guidance, and we are focused on driving benefits and additional benefits wherever we can. Chris Dankert: Thanks so much for the color there, and best of luck, guys. Bert Nappier: Thanks, Chris. Operator: Ladies and gentlemen, we have time for one more question. Our last question will be from Kate McShane at Goldman Sachs. Please go ahead, Kate. Hi, good morning. Thanks for taking our question. It is just kind of a housekeeping question at the end of this call, but just with regards to growth in failure, maintenance, and discretionary, I know you gave numbers for the year, but we just wondered if you could talk to how each category performed in Q4 and what your expectation is, if any—if there was deferral in the back half of this year—what that looks like into 2026? Bert Nappier: Say the last part again, Kate. Will Stengel: You cut out just a little bit on our end. Operator: Sorry. Just about any kind of deferral that you may have seen towards the end of 2025—if you think in 2026, and when it would be in 2026, you can make up some of that deferral. Will Stengel: Yes, Kate. In terms of non-discretionary repair, that was, call it, mid-single digits for the fourth quarter. That has been pretty consistently improving as we have gone through the year. I would say the same for maintenance and service. Actually, in the fourth quarter, the discretionary part of the business was also kind of mid-single digits as well. For the full year, you had non-discretionary repair at mid-singles, maintenance and service going from low to mid-singles, and then discretionary going from flat to slightly up, as we look at the math for the full year. I think those trends probably continue to improve as we go through into 2026. I would tell you customers are still looking for value as we look at all of our assortment strategies and where we are seeing good traction. There are obviously people emphasizing our value lines in some of the categories that we have below better and best line. I think all those trends will carry into 2026. That lines up with this concept that Bert is talking about, which is kind of a flattish volume market slightly down, with some price benefit to be kind of neutral overall for the market in 2026. Tim Walsh: Thank you. Operator: This does conclude today's Q&A. I would now like to turn the call back over to Will Stengel, CEO. Please go ahead. Will Stengel: Thank you, everybody, for joining us today. We look forward to updating you on the transaction and our progress as we move through the quarter on the April earnings call. Thanks again for being with us, and thanks for your support. Tim Walsh: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference for today. Once again, thank you for attending, and at this time, we ask that you please disconnect your line.
Operator: Good day, ladies and gentlemen, and welcome to the first quarter fiscal 2026 financial results conference call for NeuroOne Medical Technologies Corporation. Today’s call will be conducted by the company’s Chief Executive Officer, David A. Rosa, and Ronald W. McClurg, the company’s Chief Financial Officer. Before I turn the call over to Mr. Rosa, I would like to remind you that this conference call will include forward-looking statements within the meaning of U.S. federal securities laws with respect to future operations, financial results, including our 2026 revenue guidance, events, trends, and performance, which are based on management’s beliefs and assumptions as of today’s call. Forward-looking statements may involve known and unknown risks, uncertainties, and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. Please refer to NeuroOne Medical Technologies Corporation’s financial results press release and SEC filings for information regarding specific risks and uncertainties that could cause actual results to differ. Except as required by law, NeuroOne Medical Technologies Corporation undertakes no obligation to update such forward-looking statements. I will now turn the call over to David A. Rosa. Thank you, operator, and thank you to everyone for joining us today. David A. Rosa: I would like to welcome you to our first quarter fiscal 2026 financial results conference call. The company continued the positive momentum from fiscal year 2025 by making progress in a number of different areas of the business. Our first quarter sales were sequentially higher than the previous quarter and down slightly as expected from the initial stocking order that was placed in 2025 with the launch of the 1RF brain ablation system. We are also projecting fiscal year 2026 sales to be at least $10,500,000, which is a minimum 17% increase from fiscal year 2025. With respect to our existing product portfolio, we continue to make exciting progress across all of our programs. First, regarding our 1RF brain ablation system, the number of ablations performed in fiscal Q1 2026 was nearly half of all ablations performed since the launch of the technology. This demonstrates continued penetration and adoption of the technology in the market. We also reported that Mark Burnell, a professional pianist from Chicago, was able to resume his career after receiving an ablation with our system. These types of success stories are not only exciting to hear, but also confirm our enthusiasm for future potential growth with this platform. As previously mentioned, we are also establishing a registry to capture these outcomes and hope to enroll the first patient by the end of the third fiscal quarter. We also attended the American Epilepsy Society meeting in December where our system was exhibited at Zimmer Biomet’s booth. In addition, doctors from the Mayo Clinic in Jacksonville, Florida provided their experience with the system at the booth. We also believe there is an opportunity internationally for our technology and continue to work towards receiving ISO 13485 certification as a first step towards commercializing internationally. Moving on to our 1RF trigeminal nerve ablation system, we previously disclosed that in August 2025, we received FDA 510(k) clearance for this system to treat facial pain by ablating the trigeminal nerve. In 2026, we initiated a limited commercial launch and reported that the first two patients were treated at University Hospitals Cleveland with both patients reporting pain relief from the procedure. To date, nine total patients have been treated at three centers and all are reported pain free, which is extremely encouraging. As a reminder, unlike traditional ablation systems, our probe was intended to be placed once due to the multiple contacts present on the device. Traditional systems typically require multiple probe placements, which can cause additional patient discomfort. Given the positive outcomes to date, we expect to complete this limited launch by 2026. We are currently in diligence discussions with a strategic to potentially license this technology and look to conclude these discussions as quickly as possible. Regarding our drug delivery program, we were able to accelerate the program and expect that we will have devices available for commercial use in investigational clinical studies or animals in Q3 fiscal 2026. This is approximately six months sooner than originally expected. We are currently organizing an advisory board of leading oncology experts that treat challenging brain tumors such as glioblastomas, to provide guidance in utilizing the system to deliver therapies to the brain for this application. We are also continuing discussions with various pharma and biotech companies regarding the potential use of the device for animal and/or investigational human studies for gene and cell therapies in development. As reported last quarter, we are evaluating opportunities with two organizations interested in forming a partnership to use our drug delivery technology to deliver their experimental therapies to the brain to treat a variety of different neurological conditions. Moving on to our two lower back pain management programs, I will first provide an update on our 14-gauge needle eliminating the need for an incision in the patient’s back. We plan to initiate a long-term animal study next month in preparation for our first human implant. We are actively engaged in diligence discussions with strategic organizations regarding their interest in this platform. The second technology in development to treat lower back pain is our basivertebral nerve ablation system. This past quarter, we held multiple advisory board meetings with leading pain experts to confirm the product requirements as well as to validate the system’s potential benefits compared to existing technologies. We are confident in our strategy to leverage our existing 1RF and sEEG probe for this application. We are also in diligence discussions with strategics regarding this product technology and the potential partnership. Next up in development is to firms that can provide manufacturing or required access tools for the system. Finally, we were excited to announce the appointment of Jason Mills to our board of directors. Jason is currently the Executive Vice President of Strategy for Penumbra Incorporated which was recently acquired by Boston Scientific for $14,500,000,000. Prior to that, Jason was Managing Director at Canaccord Genuity and has held similar roles in other investment banks over his career. We believe his expertise will translate smoothly into helping address the company’s business development opportunities currently in process. I will now turn the call over to Ronald W. McClurg, Chief Financial Officer, to provide a review of our first quarter fiscal 2026 financial results. Thanks, Dave. Product revenue was $2,900,000 in 2026, compared to product revenue of $3,300,000 in 2025, which included Zimmer’s initial stocking. On a sequential basis, revenue increased 5.5% from $2,700,000 in 2025. The company had no license revenue in 2026, compared to license revenue of $3,000,000 in 2025. Ronald W. McClurg: Which was derived from the expanded David A. Rosa: exclusive distribution agreement with Zimmer. Product gross profit was $1,600,000, or 54.2% of revenue, in 2026 compared to product gross profit of $1,900,000, or 58.9% of revenue, in the same quarter of the prior fiscal year. On a sequential basis, product gross profit increased 2.6% from $1,500,000 in 2025. Total operating expenses were $3,300,000 in 2026 compared to $3,200,000 in the same quarter of the prior year. Research and development expense in 2026 was $1,400,000 compared to $1,200,000 in the same quarter of the prior year. Selling, general, and administrative expense in 2026 decreased 7.7% to $1,900,000 compared to $2,000,000 in the same quarter of the prior year. Net loss in 2026 was $1,400,000, or a loss of $0.03 per share, compared to net income of $1,800,000, or $0.06 per share, in the same quarter of the prior year. Net income in 2025 included the license revenue of $3,000,000 related to the distribution license granted to Zimmer for the 1RF product in October 2024. As of 12/31/2025, the company had cash and cash equivalents of $3,600,000 compared to $6,600,000 as of 09/30/2025. Of note, NeuroOne Medical Technologies Corporation is funded through fiscal 2026, potentially longer if key milestones are hit. The company had working capital of $6,800,000 as of 12/31/2025, Ronald W. McClurg: compared to working capital of David A. Rosa: $7,900,000 as of 09/30/2025. NeuroOne Medical Technologies Corporation had no debt outstanding as of 12/30/2025. I will now turn the call back over to Dave for his closing remarks. Thank you, Ron. As I mentioned at the top of the call, we continued the positive momentum from fiscal year 2025 by making progress across all of our programs. In addition, we are projecting revenues of at least $10,500,000 in fiscal 2026 and look forward to providing updates on our progress in other areas of the business as well throughout the year. In addition, we will be attending the Oppenheimer 36th Annual Healthcare MedTech and Services Conference and invite investors to meet with NeuroOne Medical Technologies Corporation in March and join our presentation at 1:20 p.m. Eastern Time on Tuesday, March 17. Lastly, before we move into the Q&A portion of today’s call, I and everyone at NeuroOne Medical Technologies Corporation would like to extend our sympathies for the unexpected loss of Dr. Sanjit Grewal, a brilliant neurosurgeon, valued collaborator, and friend to NeuroOne Medical Technologies Corporation. Our deepest condolences to his wife, Angela, his children, and the entire Mayo Clinic family. Operator, at this time, we can open up the call for questions. Operator: Thank you, sir. At this time, we will be conducting our question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. And you may press 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is coming from Jeffrey Scott Cohen with Ladenburg Thalmann. Your line is live. Hey. Good morning, Dave and Ron. How are you? Good. David A. Rosa: Great, Jeff. Good morning. Operator: Couple questions from Aaron. So could you talk about trigeminal firstly? I know Jeffrey Scott Cohen: congrats on getting up to nine cases. Could you give us a sense of number of physicians or number of centers that did the nine cases, and then maybe talk about interest from Zimmer and/or others trigeminal, please. Sure. I will take that. David A. Rosa: So the nine cases that we have done were done at three centers. One of those centers, by the way, was Dr. Grewal’s, that I mentioned just recently passed away. But in all nine cases, the patients were reportedly pain free. That is really the objective of this therapy. So that was very encouraging to see. And really, one of the major advantages of the technology is that due to the multiple contacts on the electrode itself, you are able to place the device once instead of multiple times to really find the area of the nerve that is triggering the pain. So it is a much more comfortable procedure, let us say, for patients, and may require less time because you are only placing the device once. And in terms of strategic interest, yes, there are discussions underway. Obviously, you would always like to conclude those discussions as soon as possible, and that is really the goal. But right now, we are in diligence with the company, but would be prepared, if we do not move forward in diligence, to commercialize this ourselves. Jeffrey Scott Cohen: Okay. Got it. And could you give us a sense—I do not know how much clarity or transparency you have—could you give us a sense of number of physicians or number of centers for which Zimmer is present domestically? David A. Rosa: Yes, we do not have that information. The information that I referred to earlier in the discussion was that they told us that the first fiscal quarter, in terms of number of patients, that there were almost half of all the patients they have treated since they launched this, actually completed in the first fiscal quarter. But we do not have clarity on the number of centers or the number of cases. Jeffrey Scott Cohen: Okay. Got it. And then one more if I may. Maybe a question for Ron. Could you talk about OpEx generally speaking, would you expect that to be fairly flattish off of Q1 levels for the balance of the year? David A. Rosa: We—thanks, Jeff—we would expect that the SG&A would be fairly flat the rest of the year, but we do expect that the R&D may fluctuate, depending on what phase of the projects that we are working on. As Dave mentioned before, we did accelerate our drug delivery project and made significant progress there. And so, we are not sure exactly—there will be some near-term expenses, and then that project will start to taper off a little bit. Jeffrey Scott Cohen: Got it. Okay. So did you—the animal studies for drug delivery and also spinal cord will pick up in the back half the year, it looks like Q2 and Q3. Operator: Yes. Yes. David A. Rosa: Not significantly, but it will pick up a little bit. Jeffrey Scott Cohen: Okay. Perfect. That does it for me. Thanks for taking the questions. David A. Rosa: Thanks, Jeff. Operator: Thank you. Our next question is coming from Jeremy Perlman with Maxim Group. Your line is live. David A. Rosa: Thank you. Good morning. Question regarding any clinical feedback you may have received from neurologists or surgical teams that are using the installed products so far that you could share? Operator: Thank you. David A. Rosa: So, yes. In general, what we are finding is that the device has been successful in either reducing the number of seizures that patients are having, or completely eliminating them. Now, those metrics are really measured over time, so one of the reasons why we want to capture those, despite our enthusiasm for it, this is the main reason why we started the registry, as a way to really capture what the results are long term. But I think the results speak for themselves. The feedback that we have is the actual generator, the device that creates the ablation, it is very easy to use, and the system itself is very easy to use. And these procedures do not require patients in the operating room. At least from what we know, all of them to date have been done at the patient’s bedside. That is the actual ablation itself. So I have never seen a surgical procedure done by a patient’s bedside, so it is kind of exciting to see the results that we are getting and really the feedback on ease of use. Okay. That is great to hear. And then maybe, again, you might not have the information, it might be more at Zimmer’s end. But is there a specific region in the U.S. where they are seeing the most traction and adoption of the technology? And then maybe how do they replicate that across the rest of the Operator: country? David A. Rosa: Yes. That information, we do not have. Okay. And then just last question. Sales and marketing—your expectations for 2026—is that going to be, are you going to share that burden with Zimmer to promote the products? Or is that Chris Volker: fully on Zimmer’s shoulder? David A. Rosa: Yes. Part of our agreement that we signed way back in 2020, the responsibility for all marketing and sales costs lies with Zimmer. We are obviously responsible for providing all the training and field support as is reasonable. And it has worked very well, but it is actually their responsibility to cover all commercialization and marketing costs. Chris Volker: Okay. Alright. Great. And then just last question. The revenue breakdown for the first quarter, was that just predominantly or all just restocking? Or was there any additional purchases that Zimmer made, maybe beyond what they had originally expected to use the device, and they were restocking even within the quarter. Most of the revenue—yeah, I will take that, Dave. David A. Rosa: Most of the revenue is what you are calling restocking, which is replenishing and selling into the market. Chris Volker: A year ago, if you remember, in 2025, David A. Rosa: that was their initial stocking order. And pretty much everything since then has been the continuation and restocking. Jeffrey Scott Cohen: Okay. Chris Volker: Got it. Understood. Alright. Thank you for taking my questions. Have a nice day. David A. Rosa: Thank you, Jeremy. Jeremy. Operator: Thank you. That appears to be the last question at this time. I would like to turn the call back over to Mr. David A. Rosa for any closing remarks. David A. Rosa: Thank you, operator. I would like to thank everyone again for attending the call, and we look forward to connecting with the investor community throughout the quarter. If we were unable to answer any of your questions today, please reach out to our investor relations firm, MZ Group, who would be more than happy to assist. Operator: Thank you. Ladies and gentlemen, this concludes today’s conference. We thank you for your participation. You may now disconnect your lines at this time and have a great rest of the day.
Operator: Thank you for standing by. My name is JL, and I will be your conference operator today. At this time, I would like to welcome everyone to the Herc Holdings Inc. Fourth Quarter and Full Year 2025 Earnings Call and Webcast. 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 withdraw your question, simply press star 1 again. I would now like to turn the conference over to Leslie Hunziker, Head of Investor Relations. You may begin. Leslie Hunziker: Thank you, Operator, and good morning, everyone. Today, we are reviewing our fourth quarter and full year 2025 results with comments on operations and our financials, including our view of the industry and our strategic outlook. The prepared remarks will be followed by an open Q&A. Let me remind you that today's call will include forward-looking statements. These statements are based on the environment as we see it today and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, factors identified in the press release and our annual report on Form 10-Ks, as well as other filings with the SEC. Today, we are reporting financial results on a GAAP basis which includes the H&E results for June through December 2025. In addition, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations to these non-GAAP measures to the closest GAAP equivalent can be found in the conference call materials. Finally, please mark your calendars to join our first quarter management meetings. And last, we will be attending the JPMorgan Industrials Conference in Washington, D.C., on March 17. Then we will be back in Miami on March 3 for the JPMorgan Leverage Finance Conference, at the Barclays 43rd Annual Industrial Select Conference, and Citi's Global Industrial Tech and Mobility Conference in Miami tomorrow and Thursday. This morning, I am joined by Lawrence H. Silber, Chief Executive Officer, Aaron D. Birnbaum, President, and W. Mark Humphrey, Senior Vice President and Chief Financial Officer. I will now turn the call over to Lawrence H. Silber. Lawrence H. Silber: Thank you, Leslie, and good morning, everyone. Lawrence H. Silber: 2025 was a truly transformational year for our company. In June, we completed the largest acquisition in our industry's history, a milestone that expands our scale, strengthens our capabilities, and accelerates our long-term growth strategy. From day one, our focus has been on thoughtful integration, moving with urgency where it matters while remaining disciplined in preserving the strengths of both organizations. I am extremely pleased with how well the collective Team Herc has executed against our integration priorities in the eight months since closing. Employees across the company stepped up with extraordinary effort and commitment. Successfully integrating a transaction of this size while continuing to serve customers at the highest levels requires focus, collaboration, and execution, and our teams have delivered. The integration action taken in the fourth quarter further bolstered the critical work done in the third quarter where we expanded our field operating structure to 10 U.S. regions, adding key leadership roles to ensure operating continuity and scalability, completed a comprehensive sales territory optimization exercise to restructure coverage, and transitioned the acquired branches under Herc’s technology stack in record time. As you can see on slide five, during the fourth and first quarter seasonal shoulder periods, we have continued our focus on four key priorities to complete the integration of the acquired assets. This work positions us to ramp into peak season from a new, stronger foundation allowing us to execute more effectively and drive accelerated growth in the back half of the year. First, the branch network optimization. One of our core integration priorities is expanding specialty solutions capabilities across a combined network to support the cross-selling opportunities created by the acquisition. We have made great progress selectively consolidating general rental equipment within facilities in the same market to open up space for stand-alone specialty branches. While in other general rental locations, we are adding specialty fleet to expand branch capabilities. Through these actions, we will increase the number of stand-alone or co-located branches by approximately 25%. As of the fourth quarter, we have completed 80% of the planned branch optimization which will be finished next month. Integrating the fleet was another critical milestone following the acquisition. Right out of the gate, we began a comprehensive restructuring of the combined assets addressing size, age, category classes, and brands to ensure alignment with customer demand and market opportunities. By year-end, the fleet was realigned, the right equipment in the right locations. This positions us well as we move through 2026 with a stronger product portfolio and enhanced flexibility while setting us up to be able to improve time utilization as we scale our sales force and as demand evolves seasonally across regions and end markets. Along that vein, salesforce assimilation is showing good progress. Integrating the sales organization has been a major focus since the transaction closed. We have been scaling the sales team to align with larger market opportunity while investing in training, leadership support, and deeper adoption of our CRM systems, sales models, and our broader fleet offering. We are now seeing improvement in proficiency across the go-to-market strategy and pricing systems which is beginning to translate into more consistent execution, better customer engagement, and early cross-selling success. Productivity improvement and cost efficiencies across the entire organization are the fourth area of focus. By operating from unified systems and aligning to standardized processes, we are already recognizing meaningful results. On a pro forma basis, employee productivity increased year over year in 2025. New team members across the organization are becoming more adept on our logistics and operating systems resulting in more consistent execution. And we are leveraging Herc’s broader fleet offering to capture synergies by reducing external sourcing and bringing rerent activity back in line with our historical levels. As a result of these actions and the progress we have made in eliminating redundant costs, optimizing procurement, and streamlining corporate functions, cost synergies are now tracking ahead of plan. On slide six, equally important to our integration success is our unwavering commitment to safety across the combined organization. Safety is at the core of everything we do, and as an immediate priority, we onboarded 2,500 new Herc team members into our health and safety program in the second half of last year. Our major internal safety program focuses on perfect days, and we strive for 100% perfect days throughout the organization. In 2025, on a branch-by-branch measurement, all of our operations achieved over 97% of days as perfect. Also notable, our total recordable incident rate remains better than the industry benchmark of 1.0, reflecting our high standards and commitment to safety of our people and our customers. As we continue to work through the integration of H&E, we are following the same playbook that has served us well over time, positioning the business to perform across the cycle and generate sustainable long-term growth. While there is still work to do, the progress we have made to date gives us confidence that the combined company is on track to deliver the operational and financial benefits of a large-scale acquisition while accelerating our strategic growth plan which is summarized on slide seven. Over the course of the last year, we made meaningful progress expanding our footprint through the acquisition and strategic greenfield openings, adding scale, and gaining share in key geographies. We also continued to direct a greater portion of our gross capital investment toward higher-return specialty fleet supporting revenue synergies and advancing our goal of increasing specialty as a percentage of our total fleet. At the same time, we strengthened our digital capabilities to maintain our market leadership in innovation and support of our customers' productivity. Our digital revenue grew by more than 50% last year with hercrentals.com giving our customers an easy way to reserve gear 24/7. Our acquired customer base has full access to ProControl and is already using it to order equipment, manage fleet, and handle account activities. And when it comes to telematics, today, approximately 80% of eligible gear is equipped, providing utilization and performance metrics to help reduce downtime and drive job site efficiency, all visible within our ProControl system. Further, our E3OS business operating system continues maturing, helping to drive greater consistency and efficiency across the organization for our customers. Throughout all of this, capital discipline remains a management imperative. We are investing responsibly, prioritizing returns, and strengthening the foundation of the business while integrating a transformational acquisition and sharpening our strategic focus. I will now turn the call over to W. Mark Humphrey, who will take you through the recent financial performance and 2026 guidance, and then Aaron will talk about macro trends and operating initiatives supporting our growth plans for this year. Mark? W. Mark Humphrey: Thanks, Larry, and good morning, everyone. I am starting on slide nine with a summary of our key financial metrics. For the fourth quarter, on a GAAP basis, equipment rental revenue was up 24% year over year, driven by the acquisition of H&E, strong contributions from mega projects, and sales of specialty solutions. Adjusted EBITDA increased 19% compared with last year's fourth quarter, benefiting from the higher equipment rental revenue as well as 53% more used equipment sales. The increase in used equipment sales, which have a lower margin than the rental business, impacted the adjusted EBITDA margin. Also affecting margin was lower fixed cost absorption as a result of the ongoing moderation in demand in certain local markets where H&E was overweighted, as well as the acquisition-related redundant costs preceding the full impact of cost synergies. REBITDA, which excludes used equipment sales, was up 17% during the fourth quarter. The REBITDA margin was 45%, impacted year over year by the lower-margin acquired business. Margin improvement will come from equipment rental revenue growth, a shift over time to a higher-margin product mix, and a return to selling used fleet through the more profitable retail and wholesale channels as well as delivery of the full cost synergies and improved variable cost management from the increased scale. Our net income in the fourth quarter included $14,000,000 of transaction costs primarily related to the H&E acquisition. On an adjusted basis, net income was $69,000,000, or $2.07 per share. For the full year, our results were reasonably aligned to our early expectations. In any large-scale acquisition, integrating the acquired and acclimating new team members is a phase-in ongoing effort. It takes time to get a clear read on the pace and effectiveness of change. But after six months, we have better clarity and I like where we sit. W. Mark Humphrey: Using a baseball analogy, in addition to many singles the teams delivered in a short period of time, there have been some home runs in key areas like cost management, systems transfer, and fleet optimization. Let me take a minute to walk you through how our fleet optimization plan has evolved and what that means moving into 2026. If you turn to slide 10, in just six months, we rebalanced our combined fleet by market to drive capital efficiency and set the stage for improving fleet productivity. At the same time, we made initial targeted investments in specialty equipment to unlock revenue synergies, ensuring we are not just leaner, but also more capable and better aligned with high-value opportunities. In 2025, fleet expenditures were roughly 22% higher than the second half 2024, and fleet disposals at OEC were 65% higher. Overall, for the full year, 2025 expenditures were flat year over year, while full-year disposals increased 67% reflecting the acquisition fleet realignment. Of the $342,000,000 of disposals in the fourth quarter, realized proceeds were 44% of OEC, up from 41% in Q3 2025 as more equipment was sold through the higher-return wholesale and retail outlets in the last quarter of the year compared with the third quarter. With the enormous amount of work done last year to optimize the fleet, including significant investments in synergy fleet, this year we shift our focus from rightsizing fleet to extending the average age of the younger acquired fleet and improving utilization. We expect to be able to address the growing demand in national and regional accounts and specialty solutions while meeting our 2026 revenue synergy goals with increased capital efficiency. On that topic, let me quickly run through capital management on slide 11. Here, you can see that we generated $521,000,000 of free cash flow net of the transaction costs for the year ended 12/31/2025. Our current pro forma leverage ratio is 3.95x, which is in line with our expectation as H&E's 2024 quarters roll out for the trailing twelve months calculation. We still expect to return to the top of our target range of 2x to 3x by year-end 2027 as revenue and cost synergies drive higher EBITDA flow-through. On slide 12, you can see our initial 2026 guidance. Our plan is to invest roughly $950,000,000 of gross at the midpoint of that guide. That, combined with a significantly lower level of dispositions this year, would bring net CapEx to approximately $650,000,000 at the midpoint, relatively flat with last year. Our fleet plan is aligned to generate rental revenue growth of 13% to 17% this year. As you would assume, given the significance of the H&E acquisition in June 2025, the rate of growth slows on a GAAP basis from Q1 to Q2, as the second quarter has one month of the H&E acquisition in its base. Lawrence H. Silber: On a pro forma basis, W. Mark Humphrey: quarterly revenue and fleet metrics improved sequentially from negative to positive growth from first half to second half, driven by higher fleet efficiency and utilization as we work through the seasonal shoulder period and build into the peak season. After we cross over the acquisition anniversary, results in the third and fourth quarters will be measured against comparable periods in the prior year. While our business sustained front-loaded revenue dis-synergies in 2025 versus the original plan, our goal for generating roughly $390,000,000 of gross revenue synergies through 2028 has not changed. Capturing the revenue synergies will happen over time, as fleet investments take hold, the new specialty branches mature, annual contracts renew at higher values, and the local market recovery supports increased customer demand and improving spot rates. For 2026, we are forecasting incremental revenue synergies of approximately $100,000,000 to $120,000,000. Cost synergies are running ahead of expectation, and we expect to recognize a total of $125,000,000 of cost synergies in 2026 supporting REBITDA margin improvement across the rental revenue guide. We estimate adjusted EBITDA will be between $2,000,000,000 and $2,100,000,000, representing profitable growth ranging from 10% to 16% as cost synergies are delivered and fleet productivity improves throughout the year, and the higher-return specialty revenue gains momentum in the back half. This is partially offset by the lower sales of used fleet year over year. And finally, we are guiding to another year of free cash flow in the range of $400,000,000 to $600,000,000. With that, I will turn the call over to Aaron, who is going to walk through the macro and operational drivers behind our outlook. Aaron D. Birnbaum: Thanks, Mark, and good morning, everyone. We entered 2026 as one team, Operator: one company, and one of the leading equipment rental businesses in North America. The hard work of bringing our companies together is largely behind us. The work ahead is about fully realizing the value of our integrated team, capturing synergies, optimizing our new stronger foundation, and translating scale and capability into consistent performance and results. Aaron D. Birnbaum: Turning to slide 14. This year, our priorities are clear. First, we plan to complete the integration by the end of the first quarter. The execution on the branch network optimization plan has been best-in-class, so I am confident all the 50-plus additional specialty locations will be staffed, Operator: fleeted, and open for business as we move into the peak season. Aaron D. Birnbaum: We are starting to see stronger contributions from the new sales professionals and we will continue supporting their efforts so they are on a good trajectory as demand picks up. At the same time, scaling our salesforce for our larger company is a priority Operator: to ensure we have the resources we need to execute our plan. And execution remains the top focus. We have a defined go-to-market strategy that all of our sales professionals have been trained on. Aaron D. Birnbaum: We measure progress against that weekly. As you know, what gets measured drives performance. We are tracking data on revenue synergies, customer recovery programs, and cost synergies around maintenance and transportation among other things. Operator: In addition to weekly meetings at the regional and district level, Mark and I have been on the road getting in front of the teams for synergy report-outs, and helping to prioritize solutions for any pain points. Engagement level in the field is really strong, which gives me confidence in the next phase of value creation. Last year, we invested over $100,000,000 of capital specifically to capture the early revenue synergies from this transaction, with a significant portion directed toward expanding our specialty fleet. That investment is now being put to work across a larger customer base, Steven Ramsey: and provides a full-year run rate benefit as we move through 2026 and into 2027. As we deploy specialty fleet into our larger specialty location network and continue to expand the salesforce’s offerings, Aaron D. Birnbaum: we expect to drive incremental revenue synergies. Steven Ramsey: Our specialty lines generated double-digit rental revenue growth in December, so we are seeing the progress, and it is clear that the product training, team-selling approach, and shift to solution selling are starting to pay off. We believe we are well positioned as we move from integration into the acceleration phase. The fundamentals of the combined company are stronger. The team is executing with increasing focus and urgency. Our markets are stable. Turning to slide 15, the resiliency of our business model remains supportive as mega project activity continues to be robust and the shift from equipment ownership to rental offers plenty of opportunity for specialties penetration. In the local market, we expect 2026 will be relatively neutral to 2025 with government infrastructure, MRO, and institutional construction demand offsetting the still moderate commercial sector. On the national account side, funding for new large-scale projects is still robust. Mega project activity in 2025 centered around manufacturing, LNG, renewables, and data center growth. We are winning our targeted 10% to 15% share of these project opportunities with even more new mega projects on deck and current projects still ramping up. In 2025, local accounts represented 51% of rental revenue compared with 49% for national accounts. As a combined company, we will continue to target a 60% local and 40% national revenue split long term, knowing that this diversification provides for growth and resiliency. The scale we have gained through the acquisition bolsters our ability to respond to near-term trends in local markets, while also leveraging efficiencies to prepare for the start of the cyclical recovery. But it is important to remember that a pickup in local demand typically lags interest rate reductions. With that in mind, for 2026, we are being thoughtful and disciplined in our planning, balancing our short-term responsiveness with long-term readiness. Turning to slide 16. In a disproportionate demand environment like the one we are operating in today, diversification is an important strategy for fostering sustainable growth and navigating economic cycles. As Herc has diversified into new end markets, geographies, and products and services over the last nine years, we have reduced our reliance on a single industry or customer. We have become more resilient to downturns and more adaptable to emerging opportunities like the mega project developments, technology advancements that support customer productivity, and the sector shift from ownership to rental. We believe we are well positioned to manage dynamic markets and the acquired scale further bolsters our capacity and therefore our opportunities. Sticking with the topic of resiliency, let us turn to slide 17, where you can see that despite the uncertain sentiment in the general market around interest rates, industrial spending and nonresidential construction starts still show plenty of opportunity built on a foundation of mega project development and infrastructure investments. Taking a look at the updated industrial spending forecast in the top left, strong capital and maintenance spending is projected through the end of the decade with a 4% increase in 2026. Dodge's forecast for nonresidential construction starts in 2026 is estimated at $473,000,000,000, a 1% increase year over year, with 5% to 7% growth continuing in successive years. Additionally, the mega project chart in the upper right quadrant gives you a snapshot of the total dollar value in U.S. construction project starts over the last three years and an early projection for 2026 that reflects another $573,000,000,000 of investment. I expect that number to grow as more projects get assigned a start date, as there is a trillion-dollar pipeline that is working through the planning stages. As a result, we estimate we are only in the early to middle innings of this multiyear opportunity. Finally, there is another $369,000,000,000 in infrastructure projects estimated for 2026 after a record year in 2025. That is down slightly year over year because of some very large project starts last year, as well as some volatility around funding. But infrastructure construction activity is expected to remain steady at strong levels through the end of the decade. Of course, there is some overlap in projects among these four data sets. No matter how you look at it, for companies with the safety record, scale, product breadth, technologies, and capabilities to service customers at the local, regional, and national account level, the opportunities for growth remain significant. In closing, I want to thank our team for their extraordinary efforts during this transition, our customers and shareholders for their continued trust and support. We are confident that the steps we are taking today will enable us to deliver sustainable long-term value as we move forward together. With that, Operator, we will take our first question. Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press 1 on your telephone. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking a question. And finally, we do ask for today's session that you please limit yourself to one and one follow-up. Your first question comes from the line of Mircea Dobre of Baird. Your line is open. Mircea Dobre: Good morning, thank you for taking the question. My first question is a bit of a clarification on the guidance. So W. Mark Humphrey: we have got $235,000,000, I believe, in additional EBITDA Kenneth Newman: relative to 2025. Is there a way to maybe give us a little bit of a bridge here in terms of how this additional $235,000,000 is being generated? How much of this is from incremental savings that you have from synergies integrating the businesses? Maybe, obviously, there is a little bit of a carryover from H&E for five months of the year that that business was not in your P&L in 2025. And I am sure there are some other moving pieces there too. Steven Ramsey: Yeah. So W. Mark Humphrey: a few things, Mircea. So if you think about my prepared remarks, I said that we expect the cost synergies to be in, in their entirety, for 2026. So that is a cost synergy increase, or EBITDA, of about $125,000,000. Then you sort of take the other piece of that, which is the revenue synergies, which I said was going to be in the neighborhood of $100,000,000 to $120,000,000. Operator: And W. Mark Humphrey: that would then have an EBITDA flow-through in the 60% to 70% range. So you are sort of talking about incremental EBITDA of $60,000,000 to $70,000,000 from a revenue synergy perspective. So those are the two big bridge components between the two years. And then, obviously, if you are looking at this on a GAAP basis, you are going to have five months of EBITDA contribution from a comp perspective as you work your way into June of 2026 as well. Kenneth Newman: And would you be able to help me with that last component in terms of what is incremental for those five months? The EBITDA? W. Mark Humphrey: Well, I mean, I think if you are talking about it from a GAAP perspective, right, you are going to have an increase of Lawrence H. Silber: point of Leslie Hunziker: you know, between $2,000,000,000 and $2,100,000,000. So W. Mark Humphrey: sort of the run rate coming out, the incremental, without getting too pointed, I think you just have, as I said, on a pro forma basis, and then it is going to work its way, Q4 is going to be negative, Steven Ramsey: sequentially W. Mark Humphrey: and year over year improve as you work your way through the year. Operator: Your next question comes Kenneth Newman: from Steven Ramsey: from Mark, I just wanted to touch on how we should Operator: think about the cadence of dollar utilization as we move through the year. For the first quarter in particular, maybe just some help given some of that color you gave on the Steven Ramsey: pro forma Kenneth Newman: performance. I mean, should we assume Steven Ramsey: something more than normal seasonality quarter to quarter from Q4 to Q1? And then Operator: maybe at the midpoint of that guide, would you expect LRU to be, Kenneth Newman: could it get over 40% in the second half of this year? W. Mark Humphrey: Alright. Let me pull that apart a little bit. I think, and I will answer this from a pro forma perspective. And so from a pro forma perspective, you would anticipate negative pro forma Q1 year over year from a dollar utilization perspective. And then the rate of that decline improves as you work your way out of the shoulder period, Ken. And then you would look for improvement sequentially and year over year as we work ourselves through the peak season and back half, 2H in totality. So, with that, our top-end performance from a dollar utilization perspective in 2025 was 40 points in the third quarter. Based on what I just said, the anticipation is you would be above that 40 Operator: seasonally W. Mark Humphrey: in the back half. Kenneth Newman: Yep. Okay. Operator: That helps. And then Steven Ramsey: maybe I know you are expecting the fleet disposals should be lower versus last year. I guess Operator: give or take $700,000,000 of disposals. So, you know, a pretty significant decrease year over year. With the intent of sort of aging the fleet out to something that looks more like a historical average age for Herc Rentals. And with that, I think you will see mid-40s from a disposal to proceeds to OEC, which would probably run you into the 30s, give or take, from a margin perspective on that used equipment activity, Ken? Your next question comes from the line of Kyle David Menges of Citigroup. Your line is open. Leslie Hunziker: Your line is open. Thanks, guys. Maybe we can start, and I would love to hear a little bit more color on the revenue synergies, that $100,000,000 to $120,000,000 you are targeting for 2026 and what is embedded in there and just your visibility to achieving that as well? Operator: Yeah, Kyle. This is Aaron. Well, there are several areas in there. I will take you back in time a little bit. We have got a broader breadth of fleet that we are pushing into the acquired branches. That is part of the revenue synergy. If you recall, we had roughly 6,000 more cat classes that we are pushing into that network so that our sales teams can go generate Leslie Hunziker: revenues off of those. And then, of course, we have got our specialty businesses. And as you heard in the remarks, we are opening up 50 new specialty locations. Those will be up and running, 80% of them are done now. The rest of them will be up and running over the next month. And that grows our network of specialty locations by 25%. So those are two big components. We need the, there is a pricing component in there too. We have our own, you know, prior, our own pricing tool that we use for salesforce, and we have assimilated that into our new sales team. And that is going to help move the needle on that over time. We are not expecting that to be a 2026 big move, but over time, over three years of our synergy run, that is where we are going to get that. So those are the big components that are in the revenue synergy go-get for us. Operator: That is helpful. Thanks, Aaron. And then just on the mega projects, Aaron D. Birnbaum: it would be helpful to hear what you are seeing as far as competitiveness to get on these projects and how you are winning. And then you talked about getting that 10% to 15% share that you have targeted. I am curious just if there could be some upside to that as you are integrating H&E. Leslie Hunziker: Right now, we have, as we said, 10% to 15% share on the mega projects. We are right at that midpoint. Our goal is to move that to the upper end. The activity on the mega project landscape is very robust. So you asked about competitiveness. You know, it really comes down, these are mission-critical jobs that the contractors are operating in, and they need to have a trusted supplier to make sure that these mission-critical pieces are functioning the way they are supposed to. We measure our position kind of as a primary or secondary player, not just measuring how many pieces we have on the landscape overall on the mega projects. But the competitiveness has really been very stable, I would say. When I mentioned the word mission critical, what I am talking about is the ability to execute the safety protocols they need, the technology that is required for the project. There is a big specialty component that goes into these projects. You have to have the capabilities and solution selling to provide the right solutions and provide it in a mean and economic fashion that the customer can realize to the benefit of the project. So, it is a complex landscape, but it is not more competitive, and we feel like we are in a really good position. And then the expanded network of our H&E locations really allows us to scale that even further to our customers. And we have seen benefits from the new scale all through 2025, and it really makes us even more competitive as a solutions provider as we roll into 2026. Next question comes from the line of Neil Christopher Tyler of Rothschild & Co. Redburn. Your line is open. W. Mark Humphrey: Good morning, guys. Just wanted to actually, first of all, follow up on that question and maybe ask you, Aaron, to talk a little bit about the softer factors that you need to put into place to realize those synergies in terms of training around extended cat classes, the specialty business, and how you are confident that the employees can appropriately push those into customers in order for the new specialty locations to reach maturity, for example. And then the second question, I wonder if you could talk a little bit, Mark, about the assumptions aside from the synergy component of rate, the other assumptions or expectations around rate progress this year and also anything within the sales mix? I am thinking in my mind about a sales bridge within the mix that might contribute to the 2026 on 2025 moves. Thank you. Leslie Hunziker: Okay, Neil. I will take the first part. To lean in on the softer side of achieving those synergies, a few components. One is expanding our footprint. You know, 50 new locations certainly helps get it into markets where we might not have been as dense that H&E helped us. So that is a big piece of it. And leaning into providing the capital to deploy in those new 50-plus markets as well as our existing specialty network that we already have. We started that last year, as I said, to get to the early beginnings of the synergy story, and we will do that again as we roll through 2026. I think what is interesting, and I want to underscore, is that we have a very large sales team now. We do not need our new sales professionals to be experts at specialty. We need them to know how to ask the right questions to their customers, and then they can bring in one of our subject matter experts in specialty to help kind of solution-sell that. And that is really what we are teaching our new team to do. Of course, we are taking them through product knowledge awareness and bringing them into our locations to show them different offerings they have now. Then, of course, we also highlight the compensation piece of this and how they can yield up on their compensation by selling into the specialty business. So we have grown our specialty team by these 50-plus locations, but we also already expanded our SMEs that are out there and our specialty sales reps that are out there to help get this all done. We have seen some early success Operator: with Leslie Hunziker: some of the general rental fleet that we introduced. Right? Because this is some of the stuff that H&E did not have in their portfolio, and a lot of those new salespeople, they really were able to grab that pretty quickly and put that on rent. The specialty piece is just an element of this, and it is kind of the soft side, so it takes a lot of forethought and planning. But we do not need our new salespeople to be experts. That is the key thing. They can lean into the operational excellence and our sales teams on the specialty side to get that done. W. Mark Humphrey: And then, Neil, in terms of forming a bridge, if you will, from a revenue guidance perspective, I think if you are sitting at the top of the guide, you would think about that as sort of revenue synergies on target, continued mega growth, pricing slightly positive year over year, and local market stable, meaning sort of low single-digit growth. I think as you walk off of the top of that guide down, the biggest swing factors in that would be market demand and price. Leslie Hunziker: Your next question comes from the line of Tami Zakaria of JPMorgan. Your line is open. Aaron D. Birnbaum: Hey, good morning. Thank you so much. I wanted to ask a follow-up question on specialty. Steven Ramsey: I think you increased the footprint by 25%. That is very impressive. I wanted to understand what is the go-to-market strategy for specialty with the existing general rental customers. Can you offer some examples of such stories where you saw a quantifiable uptick in total rental volume from a particular customer once they began taking specialty from you but were not taking in the past? So any quantification would be helpful, unless it is too early to comment on this. Leslie Hunziker: Oh, no. So as I mentioned, if you just take a look at the past six months of 2025, we already had roughly 150 specialty locations in our network in Herc. And so we quickly connected with the sales team on the H&E side to identify opportunities. And with human nature, sometimes there are early adopters that lean into it and are excited that there is a new opportunity to go rent something they could not rent before. So there were a lot of opportunities in Q3, Q4 that came in for our power generation business that is under our ProSolutions umbrella as well as our pump business. The trench opportunities are starting to escalate now. That is a little bit of a different sales cycle. But we had a lot of those happen in the third and fourth quarter, which really helped us absorb some of that capital that we deployed early on because we knew that that was going to be something we want to get the wheels turning on fast. So as we roll into 2026, now we go from roughly 150 specialty locations to 200. W. Mark Humphrey: And Leslie Hunziker: a bigger sales force and some more fleets being deployed, a larger specialty subject matter expert team. We really like where we are positioned here at the beginning of 2026. And I think the specialty story for Herc Rentals is going to be a solid one as we progress through the year and these other 50 locations get up and running as we get into the second half of the year. Steven Ramsey: Understood. That is helpful to know. And a question on the CapEx guide. Can you give some color on how to think about growth versus net CapEx as the year progresses, the four quarters versus the four quarters last year? Operator: Yeah. Tami, this is Mark. So I think really you have got two components here. Right? You sort of have $700,000,000, give or take, of fleet that needs to be rotated out, will be rotated out. And then on the flip side of that, if you are just sort of running down the middle, you have got about $1,000,000,000, give or take, of gross CapEx spend. I do not necessarily view it as maintenance versus growth because there is probably mix shift, there will be mix shift, in the disposed items as we bring it back on board. So really, we are thinking about being more capital efficient with the next $1,000,000,000 fleet that we are bringing in across the gen rent landscape as well as the specialty landscape as we work our way through Q2 and Q3, which will hold about 65% to 70% of those fleet adds as we walk through the year. Leslie Hunziker: Next question comes from the line of Jerry Revich of Wells Fargo. Your line is open. Aaron D. Birnbaum: Morning, guys. This is Evan on for Jeremy. Jerry Revich. Just had a question on Leslie Hunziker: general rental. We are seeing really strong demand for earthmoving equipment, but aerials are lagging. Are you seeing that disconnect? And is that a function of large projects and data centers being less aerials-intensive? No. I would say in earthmoving there are two categories. One is excavators and one is compact earth. And then aerial. As you go through the winter period, it is pretty much what we thought it would be. Of course, we did a lot of fleet optimization in the back half of the year. But one area you do see it is in the used equipment market where the excavator or earthmoving product had bottomed out and the values are starting to go north a bit again from the trough, whereas aerial has not really maybe troughed out, or I should say has not turned back up. It has kind of been bouncing along this trough period. So, but what is interesting is, right after the business came back after the pandemic, the excavators were the ones that went down the hardest in the used equipment market. So I think you are just seeing a natural balancing of fleet and demand in the used equipment. But on the rental market, it is all pretty much where we think it should be for this time of year, and with your question about big projects, the civil part of that typically takes very, very large equipment, some of it not equipment that we carry in our earthmoving fleet, but the aerial demand in a mega project is pretty large. Operator: Got it. Understood. And then on Q4 dollar utilization down quarter over quarter, how do we think about the moving pieces, rate, mix, time utilization, and how do we think about that into Q1? Well, I think, reasonably speaking, the back half collectively sort of met our expectations from a dollar utilization perspective. I do not think that the fall-off from Q3 to Q4 was anything that we did not necessarily anticipate. I think as you take that and you are looking at that on a year-on-year basis, I do believe that into Q1, from a pro forma perspective, your dollar utilization will be down Q1 to Q1 and then build, and the rate of decline improves as you work your way out of the shoulder period. And the other piece of that just is Q4 2024 had a hurricane in it, which was worth about three points of growth to us. And, obviously, that mix of gear to service an emergency or hurricane need is very specialty intensive, which also drives dollar utilization. Operator: Your next question comes from the line of Robert Cameron Wertheimer of Melius Research. Your line is open. W. Mark Humphrey: Yeah, thanks. Good morning. My question is around mega project profitability. And you Aaron D. Birnbaum: hit on this earlier, obviously, in the discussion around competitiveness. But you are winning in out market share versus your traditional market share. Capabilities, as you touched on, are different for large projects. You add more value. Are margins higher or lower there? Because it looks like from industry results that margins are not higher as the mix goes up in mega projects and margins do not go up. Thanks. Leslie Hunziker: Rob, typically, when you get started on a mega project, it depends what is going in first. Right? Is it a bunch of specialty equipment or is it a bunch of general rental equipment? If it starts with general rental equipment, yes, as we have said before, you are getting the benefit of volume, but the rental rate is a little bit more competitive. And so you want a project that allows you to get the special equipment in at the midpoint all the way through the rest of the project. And then it becomes a very typical margin business for us. That has been our history in the past and it currently is as well. Now, if you start the project with a lot of specialty equipment, your margin can move up pretty quickly depending at what point you inflect and get some general rental equipment. And these projects for us, at least, they have started these two different ways. Right? Sometimes our specialty solutions is kind of our entry point and sometimes our location, our relationship, and our general rental scale is our entry point. One thing is for sure is that all projects typically use a big chunk of general rental and a big chunk of specialty. It depends what comes first. But the margin always ends up, if you are talking about a three-year project, always ends up like the rest of our business. W. Mark Humphrey: Perfect. Okay. Thank you. And then just on the kind of sequential from Q3 to Q4 move, fleet growth is still ahead of rental revenue growth by about the same amount. You used that phrase shoulder period where you have lower seasonality, I guess, Kenneth Newman: in Q1 especially a couple of times. Is there anything with the mix that was kind of hurting you as you move into Q4 and Q1? Or are you just sort of saying, when you get more volume back overall, you will be able to sort of see the effects of the management you have done? Operator: Do get W. Mark Humphrey: No. That is a good question. There is certainly an element of Operator: time utilization in that ultimate dollar utilization, right? Stabilizing that acquired fleet as we worked our way through the back half of the year, the fleet actions that we took. I think, Rob, as you think about 2026, you will have improving fleet efficiency as you work your way through the year, and the intent would be that your revenue growth would outpace your fleet growth Aaron D. Birnbaum: as you get into the seasonal component Operator: of 2026. Leslie Hunziker: Your last question comes from the line of Sherif El-Sabbahy of Bank of America. Your line is open. Hi. Good morning. Kenneth Newman: Just wanted to put a bit of a finer point Aaron D. Birnbaum: on outlook. Leslie Hunziker: You have outlined about $230,000,000 of EBITDA expansion. There is about $190,000,000 of synergies contributing to that. And you have mentioned positive pricing, stable local markets, Aaron D. Birnbaum: a bit of growth in mega projects. Leslie Hunziker: If we think about the lapping of H&E in Q1, it seems to account for the remainder of that $40,000,000 expansion. So can you help me kind of reconcile some of that commentary on markets Aaron D. Birnbaum: with the EBITDA guidance? Operator: I mean, I think if you are looking at it from a pro forma perspective, Sherif, you will be down Q1 year over year. Right? We are sort of walking into the year, if you want to adjust the hurricane out of Q4 2026, you are walking into the year down minus six. And so the forecast is you are going to be down Q1 and then begin to come out of that as you exit the shoulder period of Q2 and then ramping into growth in the back half of the year, which sort of coincides with all of the incremental synergy fleet, etc., rolling into these optimized branches as you work your way through and out of the second quarter. Leslie Hunziker: Thank you. I would like to now pass it back over to Leslie for closing remarks. With no further questions, that concludes our Q&A session. Steven Ramsey: Thank you for joining us on the call today. We look forward to updating you on our progress in the quarters to come. Of course, if you have any further questions, please do not hesitate to reach out to us. Have a great day. W. Mark Humphrey: This concludes today's conference call. You may now disconnect.
Operator: Good morning, and welcome to the NeoGenomics, Inc. Fourth Quarter and Full Year 2025 Financial Results Call. Please be advised that today's conference is being recorded. I will now turn the call over to Kendra Webster with NeoGenomics, Inc. The floor is yours. Thank you, Kelly, and good morning, everyone. Welcome to the NeoGenomics, Inc. Fourth Quarter and Full Year 2025 Financial Results Call. With me today to discuss the results are Anthony P. Zook, Chief Executive Officer, Jeffrey S. Sherman, Chief Financial Officer, and Abhishek Jain, EVP of Finance. Additional members of the management team will be available for the Q&A portion of our call. This call is being simultaneously webcast. For reference, concurrent with today's call, we posted a short slide presentation to the Investors tab on our website at ir.neogenomics.com. During this call, we will make forward-looking statements regarding our future financial and business performance, business strategy, the timing and outcome of reimbursement decisions, and financial guidance. We caution you that the actual events or results could differ materially from those expressed or implied by the forward-looking statements. These forward-looking statements made during the call speak only as of the original date of the call, and we undertake no obligation to update or revise any of these statements. Please refer to the information disclosed on the Safe Harbor Statement slide in the deck posted on our website as well as the information under the heading Risk Factors in our most recent Forms 10-Ks, 10-Q, and 8-K that we filed with the SEC to identify important risks and other factors that may cause our actual results to differ materially from the forward-looking statements. These documents can be found in the Investors section of our website or on the SEC's website. During this call, we also refer to certain non-GAAP financial measures that include adjustments to GAAP results. The non-GAAP financial measures presented should not be considered an alternative to the financial measures required by GAAP, should not be considered measures of liquidity, and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measures in a table available in the press release we issued this morning and in the slide deck available in the Investors section of our website. I will now turn the call over to Tony. Anthony P. Zook: Thanks, Kendra. Well, good morning, everyone. Thank you for joining us today. As been our practice, I will begin with a discussion of Q4 highlights and key business growth drivers before turning the call over to Jeff for a deep dive into our 2025 financial results. Our new EVP and incoming CFO, Abhishek Jain, will then introduce our 2026 guidance. Afterwards, we will open up the call for your questions. Our mission and vision guided us through 2025 to deliver improving results throughout the year. Let us get into the recent highlights. As we covered in our preannouncement, during 2025, we delivered record revenues while making meaningful progress advancing our NGS and MRD long-term growth initiatives, including preparing for a full clinical launch of our RADAR ST MRD this month. I will cover these initiatives in more detail shortly. Total revenue for Q4 was $190 million, representing double-digit growth of 11% year over year. Representing double-digit growth of 11% year over year. Our clinical business continued its robust growth with revenue increasing 16% year over year. The clinical performance was driven by effective execution of our key commercial strategy, enabling volume and share gains in key segments. In the fourth quarter, we again saw a sequential improvement in AUP, continued growth in test volumes, and NGS revenue growth of 23%, well ahead of NGS market growth rate. The five NGS products launched in 2023 contributed 23 of clinical revenue in the quarter. We continue to see demand for our non-NGS modalities as well, with all modalities continuing to grow at above market. Our full full year total revenue was $727 million, which represents 10% growth over full year 2024. We ended the year with significant momentum, and I attribute this to several factors. One, a pure play oncology solutions provider driving rapid dissemination and adoption of innovation through our best-in-class commercial organization in the community setting. Studies have shown that as much as 80% of all cancer care is now delivered in the community setting, which has historically lagged NCI-designated cancer when it comes to introducing the latest in cancer testing innovation. How are we winning in the community? We believe community oncologists are guideline driven and focused on certainty not possibility, and they choose partners that remove friction and enable confident treatment decisions under operational, economic, and time pressures. Reimbursement coverage also is critical. The results of several meetings of our scientific advisory board as well as independent market research that we commissioned reveal several reasons why community oncologists look to us. NeoGenomics, Inc. offers ease of ordering, simple-to-interpret test reports, fast and consistent test turnaround times, access to medical expertise, and most importantly, our comprehensive test menu spanning diagnosis, therapy selection, FRD. Our net promoter score of 79 reflects strong physician satisfaction among our current customer base with our NPS score continuing to improve in 2025, even with record test volumes. Two, we enjoy a leadership position in the hematology testing market, with greater than 25% share across diagnostics and therapy selection. And as pathologists and oncologists consolidate the number of vendors they use, we are successfully leveraging this team leadership position to create enhanced test demand, particularly in high-value areas such as therapy selection, MRD. In fact, in 2025, we saw 14% growth in the total number of pathologists and oncologists ordering five or more tests from NEO. On top of that, we estimate that approximately 40% of all active pathologists and oncologists have ordered five or more tests of ours during the year. While we are proud of that reach, it also means that over half the practice providers are still available to us to bring over to Neo. Three, we built a geographically balanced lab network that allows us to be responsive to customer needs, including offering some of the fastest test turnaround times in the industry, when faster, more accurate treatment decisions can have a material impact on patient outcomes. This network was further strengthened by our acquisition of New Jersey-based Pathline last year, which gives us a meaningful presence in the number three cancer market in the country. We are on track to capture operational efficiencies and synergies from the Pathline acquisition that we anticipate will be accretive to profitability beginning this year. And four, we have one of the broadest cancer test menus in the industry, spanning diagnosis to therapy selection to MRD, for both heme and solid tumor cancers, including over 300 commercial payer contracts, which enables us to be the partner of choice among community hospitals and community oncologists. We are highly differentiated from both large reference labs as well as specialty oncology labs, and this optimally positions us to address underpenetrated markets in therapy selection and MRD in excess of $30 billion while potentially improving outcomes for patients as they advance along the cancer care journey. We are enabling precision oncology in the community setting. Turning now to RADAR ST. November, we presented new research for the RADAR ST assay for circulating tumor DNA detection across solid tumor types. The data from this bridging study showed that RADAR ST demonstrated 97% concordance, maintained equivalent sensitivity with RADAR 1.0. This bridging study was used to secure MolDX reimbursement in the two previously approved indications, HPV-negative head and neck cancer, and a subset of breast cancers. This decision paves the way for us to broadly commercialize RADAR ST, formerly 1.1. To that end, we are on track to execute a full clinical launch of RADAR ST by the end of this month. As part of our go-to-market strategy, we are expanding our sales force to help us penetrate the head and neck market. We believe adding feet on the ground will help us penetrate this market with the only MolDX-approved HPV-negative test currently available to patients. To ensure that we are well positioned to capture more of this large and rapidly growing MRD market, we have also submitted two additional solid tumor cancer indications for MolDX for approval. While we are not disclosing these cancer types yet for competitive reasons, we believe that upon securing coverage, we will effectively double the market opportunity of patients eligible for RADAR ST testing. To expand our reach, we secure additional MolDX approvals, we expect to add more than 25 oncology sales specialists, or OSSs, by the third quarter. From a financial perspective, we believe 2026 will see modest revenue contributions from RADAR ST as adoption ramps, and we gain reimbursement approval in the additional indications. We expect revenue growth to accelerate in 2027 and beyond. In parallel with our RADAR ST launch preparedness activities and efforts to gain coverage for additional indications, we also continue to focus our R&D investment in next-generation MRD, setting cancer types. This assay will be an ultra-sensitive whole genome solution for lower. We are working on product development now with data generation and MolDX submissions slated for next year, and a potential clinical launch as early as 2028. Turning now to our PANTRASER portfolio of products for solid tumor therapy selection. Pan tracer is designated is designed for solid and liquid to work together empowering oncologists with actionable genomic insights for confident, real-time treatment decisions. The test can be ordered independently or as complementary tests depending on a patient's individual needs. Pan tracer LVX is a noninvasive blood-based test that analyzes circulating tumor DNA to identify key genomic alterations that inform treatment decisions in patients with advanced stage solid tumors. Importantly, pan tracer LBX fills a gap in our portfolio that providers keep been asking for, allowing them to further consolidate the number of labs they use. We have submitted to MolDX for clinical reimbursement coverage of the LVX test and are awaiting a decision. Assuming a favorable decision, we anticipate that LVX will contribute modestly to revenue in 2026 as adoption ramps throughout the year. Another product in the Pantracer family, pan tracer tissue had strong growth throughout 2025. We doubled the volume of tests ordered from 2023 to 2024, and then nearly doubled again from 2024 to 2025, while continuing to grow AUPs. This represents another proof point of our ability to pull higher value tests through our community channel, leveraging our e leadership position. 75% of community oncologists who were new to NEO in 2025 ordered five or more tests, a strong leading indicator of our continued growth and success penetrating the community channel. I am pleased to share today that Pantracer portfolio is growing. Last week, we launched Pantracer Pro as part of the expanded solid tumor therapy selection portfolio. The test integrates broad genomic profiling with diagnosis-directed IH and ancillary testing, intelligently selected based on tumor type and clinical context, to provide oncologists with actionable insights for therapy selection in a single order. PanTracer Pro runs rounds out the portfolio it will help streamline the ordering and testing process, delivering timely, relevant results, helping clinicians personalize treatment strategies, and improve patient outcomes. At the end of 2024, moving into 2025, we invested in our commercial organization, specifically our oncology sales specialists. We added 35 people to this group who target community oncologists, and as these individuals mature in their roles, we are seeing a continued uptake in NGS testing accounting for a larger portion of our total clinical revenue. As we increase our reach and frequency. This penetration speaks to the strength of our commercial channel as well. We have launched five eNTS products since March 2023, and even though we were later to market to some of our peers with these products, we are still seeing very good uptake. Pan tracer tissue highlighted earlier was one of the five products which reflects the breadth and strength of our menu, and our ability to capture market share when we introduce new products. With the success of our NGS products, we now have the to be more selective with the volumes that we prioritize. We are intentionally shifting testing capacity towards more guided and higher value testing, which is expected to make AUP expansion a more significant driver of revenue growth relative to volume. And with that, I will hand it over to Jeff to further discuss our results for the quarter and full year. Thanks, Tony, and good morning. Jeffrey S. Sherman: Fourth quarter total revenue increased by 11% over prior year, $190,000,000. Total clinical revenue continued with strong double-digit growth and increased 16% from prior year. As expected, nonclinical revenue declined by over 25% in the fourth quarter. Adjusted gross profit improved by $5.8 million, or 7% over prior year, and adjusted EBITDA was $13.4 million, up 10%. Q4 was the tenth consecutive quarter of positive earnings, with adjusted EBITDA and margins improving sequentially each quarter in 2025. Clinical volumes and revenues continued with robust growth in the quarter. Public test volumes increased by 11% in the fourth quarter with AUP growth of 5%. Same store revenue without Pathline was $170,000,000, representing growth of 14%, driven by a 6% increase in test volumes and a 7% increase in AUP. Volumes were negatively impacted in the fourth quarter as we intentionally rationalized our exposure to higher volume, lower value test clients. We are continuing to see strength across our portfolio with above market growth rates across modalities we offer. NGS revenues grew by 23% over prior year in the quarter and accounted for around a third of total clinical revenue. Average revenue per clinical test increased sequentially from Q3 by $12, or 3%, and was up 5% from prior year. Excluding Pathline, AUP increased by $15, or 3% from Q3, and was up 7% over prior year. A larger percentage of higher value tests, including NGS, as well as recent managed care pricing increases and RCM initiatives are helping to drive higher AUP. Total operating expenses in the quarter were $97,000,000, an increase of $1,000,000 or 1% over prior year. Cash flow from operations was a positive $1,000,000 in the quarter. We ended the quarter with total cash of $160,000,000, down slightly from Q3. Our balance sheet and expected cash flow will enable us to continue to invest in our business to drive organic growth through new product development and Salesforce expansion, while also increasing operating efficiencies through investments in technology and automation. Turning to full year 2025 results. Revenue is up 10% versus prior year to $727,000,000, driven by deeper penetration into the community setting, a continuing shift to higher margin modalities, and execution of revenue cycle management initiatives. Total clinical revenue increased 15% and growth was 13% excluding Pathline. Nonclinical revenue declined 24% for the year, in line with our revised expectations. Adjusted gross profit increased $23,000,000, or 8 percent, $335,000,000. This represents an aggressive adjusted gross margin of 46%, or decline of 111 basis points mostly driven by Pathline, the decline in nonclinical revenue, and the operating cost of the clinical liquid biopsy launch. Cash flow from operations was positive $5,000,000 in 2025 with free cash flow improving by over 35% as compared to 2024. Adjusted EBITDA increased by $4,000,000 to positive $43,400,000.0, an improvement of 9% over prior year. And now I will hand it over to Abhishek to introduce our 2026 guidance. Abhishek Jain: Thank you, Jeff. I would like to begin by thanking my colleagues at NEO for their warm welcome. Over the past month, I spent time with investors and analysts, attended our global sales meeting, visited our labs, and gained deeper insights into our strategy and the opportunities ahead. It has been a productive and energizing first month. With that context, let me share our 2026 guidance. For the full year, we expect revenues of $793,000,000 to $801,000,000. The midpoint of our 2026 revenue guidance assumes RADAR ST revenue in mid-single-digit millions for our approved indications, a modest revenue contribution from PANCRACER liquid, and sustained softness in nonclinical through the year, exiting 2026 down low to mid-single digits. While we do not provide quarterly guidance, let me provide some color on quarterly cadence that is impacted by the Pathline acquisition and revenue assumptions for RADAR ST and PANTRASER Liquid, which are weighted towards the back half of the year. I suggest modeling approximately 10% year-over-year growth in the first quarter, 8% to 9% in the second, 9% to 10% in the third, and slightly above 10% in the fourth quarter of 2026. Regarding the extreme weather throughout the country so far this year, we know some providers had to close their offices and appointments have been rescheduled. As a result, there will be some impact on volumes and revenue for Q1. This has been contemplated in our full year 2026 guide and cadence by quarter. We expect adjusted EBITDA to be in the range of $55 million to $57,000,000 for 2026, representing year-over-year growth of approximately 27% to 31%. We expect adjusted EBITDA to grow by low 20% year over year in the first and the second quarter, and low 30% year over year in the third and the fourth quarter, respectively. We will continue to take a balanced approach to investments, strategically increasing sales and marketing and R&D spend for new product initiative and clinical programs that support payer reimbursement and drive top-line growth while improving liquidity with the goal of becoming free cash flow positive this year. Now let me turn the call back to Tony. Anthony P. Zook: Thanks, Abhishek, and welcome to the team. To recap, during the fourth quarter, we again delivered very strong clinical volumes and revenue, while advancing NGS and MRD initiatives that we believe will contribute to accelerating our growth for years to come. Looking forward to 2026, in our clinical business, the focus is on strategic, profitable growth driven by continued expansion of NGS revenues and market penetration for the PAN TRACER family and RADAR ST. Simultaneously, we are implementing tools and solutions we believe will enhance the productivity of the entire sales organization and working to enhance customer workflows through solutions like our EPIC four integrations. In parallel, with our product and service offerings to grow revenue, we are making targeted investments to drive top-line growth and margin expansion. There is a very strong financial discipline embedded throughout the organization, we are going to build on that as we continue to grow revenue and improve operating efficiencies and margins. Thank you for your continued interest in NeoGenomics, Inc. And Operator, this concludes our prepared remarks, so please open the line for questions. Operator: Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a few moments while we poll for questions. Your first question is coming from David Michael Westenberg with Piper Sandler. Please pose your question. Your line is live. Jeffrey S. Sherman: Hi. Thank you so much, and good morning. David Michael Westenberg: So I will just ask one question, but it will be, you know, kind of on the longer side. I will just ask it upfront. You talked about the intimate intimate launch of RADAR SP. Can you provide a little bit more specifics? You mentioned specific or submissions to MolDX. Can you give us more specific timing? I get that, you know, this is trying to predict government, but, you know, is this end of the year? Is this, you know, potentially dragged into the next year, etcetera? And then you mentioned also 25 sales reps. I just want a clarification that is specific to MRD or esoteric tests in general. And then on those sales reps, do you plan on just going after the head and neck, the sub indications of breast, or are you actually in fact, thinking about some of those future MolDX exhibitions that you have there. And then lastly, I get this is really long, but, you know, just talk about the complementarity with PANTRASER liquid. Thanks so much. Jeffrey S. Sherman: Okay. So, David, there is a lot to unpack there. Anthony P. Zook: Why do I not I will I will try and start it and kick us off and then look to Warren to address, follow-up questions six, seven, and eight. Okay, Warren. So get ready for that. Relative to RADAR ST, Dave, you were right that the intention is we go out the end of this month for our full launch. Relative to focus, it will be focused, Dave, on the initial indications of head and neck and the subsets of breasts that we have articulated. HPV negative, and the HR HER2 negative breast. So that will remain the focal point for the initial launch activity. So that was one of your questions. As far as additional indication flow, as you say, you know, all we can do is submit and put the best packages forward that we believe are are possible for MolDX to work their way through. For our own assumptions, we believe, Dave, that those additional indications will be available in the latter half of this year for us. And so it is still possible to potentially generate some revenue from those in this year, but that would be upside against our guide. We are not counting on those and certainly will help fuel additional robust growth going into 2027. Relative to the actual field force expansion, I am going to turn that over to Warren because what we wanted to do, Dave, was do two things. First and foremost, we wanted to take advantage of the HPV-negative indication because we believe we will be the only MolDX-approved product for HPV negative. And it is a very specialized group of physicians that account for that bulk of that business. There is a fairly clear road map to how we can get to those. And so Warren’s team is initially now expanding to cover that group. And then he will build the additional reps over time for the added indications that we have. And yes, Dave, they are intended to be complementary to MRD and NGS. They will not be specific only to MRD. So, Warren, maybe a little bit more color on the coverage aspect. Abhishek Jain: Absolutely. Thanks, Tony, and and morning, Dave. So, yeah, Warren Stone: the the expansion is taking place. There is an initial expansion happening sort of as we speak that is to to really address the RADAR ST launch and particularly head and neck, HPV negative. And the reason why we felt we needed to do small initial expansion is one of the primary call points for head and neck HPV is the ENT, and that has not been a traditional core point for us up until now. So we actually are investing in a small team dedicated towards ENTs, and they will be almost exclusively focused on the RADAR head and neck indication. They will have an option to represent other parts of the portfolio, but we feel that their focus will be largely focused on the RADAR ST. The as we have done in the past, and very successfully, I might add, as we expect new products and, in this case, new indications to come to market, we do expand our sales force because we want to increase reach and frequency. And we will be doing that in in quarter two and in quarter three in anticipation of the additional indications that we expect from from MolDX. Again, these these team members will be oncology sales specialists. They will be responsible for selling our oncology portfolio, which is therapy selection for heme and solid tumor, as well as MRD. It is probably a bundle of about 12 or 14 tests if you really look at it. But we see a 100% call point overlap between our portfolio for therapy selection as well as MRD. And today, based on our size of our sales team, we feel we get more value by consolidating sales activities within one resource versus having specialized sales teams. Although we will get some good lessons from our dedicated ENT group that we are establishing as we speak. Jeffrey S. Sherman: Thanks, Dave. Alright. Thank you, guys. Operator: Your next question is coming from Bill Bonello with Craig Hallum. Please pose your question. Your line is live. Andrew Brackmann: Hey, guys. Hoping to sneak in a couple of the Michael Stephen Matson: but the first would be just on the on the clinical volume. Is any chance you could quantify the impact of exiting the low value business and then maybe clarify whether there is, you know, more business that that you will still be exiting in future quarters so we can have some sense of of how to think about volume growth as we progress through the year. Anthony P. Zook: Sure, Bill. I will I will kick that off. And, again, if I I will look to Abhishek or or Jeff to add in any additional color. Bill, can you just step back and you look at us historically? Right, and if you looked at how the revenue models were built, you know, volume represented for us typically, you know, this upper to single digits growth, and and AUP was more in the low single digit growth. There are two factors that are driving our thinking now. First of those is this constant and purposeful penetration into therapy selection in MRD. With that, we will be the beneficiaries of higher AUPs, and therefore a better impact on our margins and business overall. So that is point number one. We expect our AUPs to continue to grow. And then the second point, Bill, was this idea we want to make sure we secure the right ball. We want to be a business that is growing our revenue as well as our margins over time. And you recall that we had we talked about a contract throughout last year that was a high volume, low value added opportunity for us. The AUPs still in that were, like, in the low $200 range. We entered into that with the potential opportunity to secure longer-term growth into higher value tests. But if things do not materialize, we had to look at it in the macro sense. And for us, we believe the better course of judgment here was to say, our resources are better used and focused in the areas where we are seeing higher margin opportunities and higher growth. And so the model now kind of inverts a little bit. What you should be expecting is AUP now in the upper single digit range with volume in the lower to mid single digit range. But that being said, I just want to make sure we clarify this, Bill, because it is an important point. We are still growing all the right volumes. Right? We are going to continue to grow by modality. We we have no desire to pull back in that area. We continue to expect NGS to have robust growth as well. And so that is going to continue. We saw robust NGS volume and AUP growth in 2025. We would expect similar results in 2026, and so the right volume will come through. And on that MTS business, again, you know, it is over a third of our clinical business. And an interesting fact, Bill, is that, you know, that third of our clinical revenue gets actually being supported with only 9% to 10% of our laws. And and so it is the right volume that is generating these kinds of growth numbers. So I would expect most of this to be evident through Q1 and Q2. And then from that point on, we will be back to kind of normal growth trends. That help, Bill? Michael Stephen Matson: It it it it does. And I mean, it should we think even a bit lower perhaps as as we get into Q2 and Q3 just then on the the volume growth, sounds like maybe a little to still come? Is this a pretty good proxy? Abhishek Jain: So let me take that one, Bill. So we are like, for example, what we have seen in Q4 results are sequential volume growth was slightly down. And we are anticipating as we kind of go in Q1, our numbers will be sequentially down in similar vein, as we kind of start to focus on these high margin high value tests. And this is very intentional from our strategy standpoint, and that is the reason we are moving in that direction. But as we get into Q2, we will basically be year over year flattish, and that is where we will start to grow our volumes in Q3 and Q4 on a year over year as well as on the basis. Michael Stephen Matson: Okay. That is really helpful. Thank you. Anthony P. Zook: Thanks, Bill. Operator: Your next question is coming from Andrew with William Blair. Hi, guys. Good morning. Thanks for taking the questions. Anthony P. Zook: Maybe just also a similar line of questioning to Bill here just sort of around guidance. By my math, it looks like the core clinical business when I exclude Pathline and some of these new contributions from LBX and MRD, it looks like that core is called the sort of growing that high thing digit to maybe 10% year over year. You maybe just unpack some of the underlying assumptions there for the export book of business. And I guess, in particular, just sort of reconciling that to the I think you did 14% same store sales growth in Q4. Just sort of reconciling that to that to that high single to 10% growth. Thanks. Yeah, Andrew. Again, I will I will kick it off, and and I will look to Abhishek and and Jeff to add additional color. So, yes. In 2025, you saw, you know, ex Pathline, we were about 13% growth on the clinical side. And, you know, we are anticipating, you know, double-digit growth on the clinical. And so what is within there? First, there will be the full year of Pathline that will be built into the numbers as well. As I just mentioned with Bill, that one contract that we exited that has an impact in the totality of the clinical side. And then of course, in the guide itself, Andrew, just to be clear, we wanted to be prudent relative to the back half with LDX. Since we still do not have LBX approval in hand, we thought it better to only pack in revenue for the second half of the year at a modest rate. And so we do not really see the benefits of that coming through in the current guide. If we, in fact, get LDX support for LDX earlier than that, then it would represent upside in our total growth and of course, that would be on the backs of the total clinical business. And so, again, I hope that gives you some color and, Abhishek, if I missed any key points, please. Call out for Andrew. No. I think you have covered it well, Tony. And, Andrew, Abhishek Jain: we are expecting the clinical business to be growing at about 11 points based on our low mid single digit on the nonclinical side. So it is kind of in the range that we have been expecting the company to be growing in, like, at about 10. That is what we have called out, and that is where our midpoint currently is $797,000,000. Is pretty close to that 10%. I think the guide is pretty prudent to the extent that it gives us a very high degree of confidence to be able to meet these numbers. And then we will, of course, see if the people pan out as we are anticipating, it gives us some room to actually do better than the expectation. Operator: Yeah. Okay. That is helpful. And then Anthony P. Zook: yeah. That that is very, very helpful. Thanks for thanks for all that color. Then just just on the LIMS rollout here, you know, obviously, that is a that is a multiyear process for for that rollout. But anything you can maybe share with respect to how that might be impacting the model or sort of just sort of the the workflow in 2026? Thanks. Yeah. Yeah. Great question. Thank you for that. As you know, historically we were built for effectiveness, not necessarily for efficiency. And moving to a common LIMS system, we think, is foundational for us to continue to advance towards ever improving margins and efficiencies for the company. What we will see through the course of 2026, Andrew, we have these eight existing LIMS systems. We will be on a path to migrating to one common system. What we want to do, though, is manage that effectively over time. And so we are going modality by modality, site by site. We are not going to just do kind of a big bang theory and put any risk at all into the business. And so that means the benefits of LIMS only start to become evident for us in the latter part of this year. Now there are some natural efficiencies that Warren’s team are already seeing, and I will look to him to add some of that added color for you. But the more pronounced impact will be in 2027 and 2028 as we can retire all the legacy systems and build upon the existing LIMS architecture. So you already added color. Warren Stone: Yeah. Thanks, Tony. Andrew, I think, yeah, in terms of sort of technical debt benefit, that is coming in 2027, to be clear. But yeah, as we put the LIMS system in now, we are actually not just replacing our existing eight LIMS with a new LIMS. We are actually looking at the workflows and optimizing the workflows based on on how we understand the business and how it is likely to develop over time. So as we get each modality in place or in in each site, we start to see workflow efficiency there. So that is sort of well, something that will start to come through in operational efficiency. I think the other big benefit that we are getting is is far greater capability inefficiencies lie from an analytics and insight point of view to really understand where within our workflows, and and that analytics and and sort of transparency will also help us translate a better customer experience by providing visibility to real-time sample tracking, etcetera, which is one of our key initiatives for 2026. Anthony P. Zook: And I would say, Andrew, again, this is foundational for us because it affords us then the opportunity to build on that which is why I maintain that we are still in the early innings relative to gross margin expansion opportunities for ourselves. So, you know, we throw in LIMS and then we look out of the platform off opportunities like, you know, TX and things that Warren and his team can do with digital pathology and automation. We believe that the gross margins are in early, and we can continue to build not just revenue, but margin expansion as well. Okay. Appreciate all the color. Thanks, guys. Jeffrey S. Sherman: Thank you. Okay. Operator: Your next question is coming from Subbu Nambi with Guggenheim. Please close your question. Your line is live. Hey, guys. Thank you for all the color in different businesses. Andrew Harris Cooper: Given some longer selling cycles and maybe some evening of the funding pressure, where do you see pharma ordering playing out this year between first half and second half? And what products do you expect to leave the order book from Carmel? Anthony P. Zook: Could you repeat the second half of the question, please? Andrew Harris Cooper: What products do you expect to lead the order book for pharma? Anthony P. Zook: Okay. Got it. So relative to pharma, I would say that my views certainly have not changed from where we were about six to eight months ago. We we anticipated, you know, that there is some erosion that we were experiencing on the pharma side of the business would continue into 2026, albeit not at the same rate we saw in 2025. So I have always been of the belief that it would be 2027 before we would see a return to growth for that book of business. And that is how we built the guide. So we expect still to see modest erosion in the pharma book of business for 2026. Certainly, it will be much reduced from where it was, but still in that, you know, mid to upper, you know, 5% to 10% range for the pharma side of business. I think the big part of return to growth there is based on RADAR ST. That will be one of the key growth drivers for us in that book of business. There, you know, we have had, you know, pretty good conversations. We have been well received. Know, we are back at the table with RADAR ST. There seems to be a really good sense of interest in it. And that portfolio of opportunities continues to grow. And so relative to the year, again, the guide would still anticipate a modest erosion in the pharma side of the business. If we can get that back flat, that would then represent upside opportunity for us. Warren, I know the long lead cycle times, but perhaps you talk about RADAR ST and how that is being received. Yeah. Tell you, maybe a couple of Warren Stone: comments there, Suvi. So first and foremost, in terms of the focus, you know, a little bit like on the clinical side, really our focus is to protect our position in diagnosis, but really look to grow in therapy selection in MRD. We we look at pharma in a very similar way. You know, we are we are very well known from an IH perspective, and we continue to focus on IHC because it is very relevant for pharma from an antibody drug conjugate perspective. And it is a it is a good door opener for us, but expect our focus to really lie towards therapy selection and MRD. So there is a strong a strong alignment here between what we are doing in clinical and with pharma. As Tony said, robust opportunity pipeline that developing with regards to RADAR ST and pharma. Some legacy users and many new users, and expect first bookings to materialize shortly. And and I do appreciate the question. You know, this gives us the opportunity to clarify. The other thing I just would remind the group, this is Anthony P. Zook: a relatively small portion of our overall business talking it is about 5% to 6% of our overall business. And so we continue to put the primary focus and energies on the clinical side of the business with the intent to stabilize this business and return to growth in 2027. So thanks for the question. Andrew Harris Cooper: Absolutely. Thank you for clarifying this. Can you talk about the framework for LIMS integration this year? What is being finished? What is left to go? And then maybe how that will show up in earnings in 2026. Warren Stone: So I I would say where our focus is today. So we have completed flow. So one of our our key modalities. Our next step right now is around accessioning, and NGS is really where our focus is. Again, aligning to our strategic priority, looking to be able to provide increased value both from an efficiency perspective and customer traceability. Those would certainly be things that you would look to conclude in 2026. Probably for other modalities as well rolling into that. But we can certainly take it offline and provide more granular detail if you like. But those are the key focus areas for us from 2026 is molecular and and accessioning. Andrew Harris Cooper: Okay. You so much, miss. Operator: Your next question is coming from Mike Matson with Needham. Please pose your question. Your line is live. Anthony P. Zook: Hi. Thanks, everybody, for taking our questions. This is Joseph on for Mike. Just, I guess, in terms of the guide for RADAR for 2026 in the mid single digit millions, I am just kinda wondering framing up your guys' confidence and the ability to hit that mid single digit number. I guess just trying to understand how much of that is is the clinical side versus the the bio side. You know, maybe for both of those, you know, which do you see to have the the the higher potential to drive upside to that mid single digit number? Yeah. Thanks for the question, Mike. I I would say, first and foremost, we do have a high degree of confidence in that. That is why it is in the guide at the midpoint level. So we we do have a high degree of confidence Operator: there. Anthony P. Zook: Relative to the mix, you know, I I think it would be fair to say in the early part of the launch, you would expect a heavier component of that to probably be more on the pharma side, Abhishek Jain: than the clinical side, Anthony P. Zook: only because the clinical launch just takes time to build. Right? Know, we will have the indications of head and neck and breast, and then you will build and you will start to see a slow build of that activity. And and just with the lead times of the product, you start to see the clinical effect of that probably in the latter part of the year. Whereas pharma have the opportunity to take on a little bit more of a pan orientation and can secure pricing sooner. And then as we build the indications over time, you are going to see the clinical side of the business certainly accelerate, and that would be the largest of the drivers moving into the outer years with RADAR ST. Abhishek, anything else of No. I think, Tony, you have covered it very well. Abhishek Jain: As I basically discussed in our prepared remarks, we are actually launching RADAR ST by the end of this month, and that gives us very high degree of confidence of the numbers that we are putting in in our guide. Anthony P. Zook: Thank you. Jeffrey S. Sherman: Okay. Yeah. Great. And then maybe just Anthony P. Zook: one more quick one. Can you maybe just talk about the know, the potential for continued ASP growth? You know, I I think you guys were Warren Stone: kind of, talking about high single digits. Anthony P. Zook: Or, you know, upper single digits maybe for 2026. But you know, the the the potential for that to continue with with any additional reimbursement announcements. So you know, what is currently approved and reimbursed in your pipeline, you know, of the NGS products, pan tracer, as it stands today without, LBX. Jeffrey S. Sherman: Yeah. I will start, and, Abhish, I can join you. This is Jeff. So I think, look, the the shift in the NGS is going to be continue to be the big driver of our AUP growth as it was in in 2025 as well. So I think that that is one factor. We expect to continue to have success with direct line bill pricing increases, which only going into the first quarter of the year. And we also are continuing to have success with managed care pricing which started in the back half of last year. We are expecting full year impact of those that hit in 2026 as well as new new agreements and new increases approved. And then finally, we are we are still working on other RCM initiatives to kind of close that gap between what we expect to be paid and what we are being paid. And so, you know, that AUP growth will come for those drivers. To the extent we get additional, you know, indications or or tests approved, that will be incremental on top of that growth. Abhishek Jain: Thank you. Operator: Your next question is coming from Tycho Peterson with Jefferies. Michael Stephen Matson: Hey. Thanks. Maybe one for Warren. Just on on the Salesforce, I your color on go forward additions. But as we look back over the last year, obviously, ramping the sales force was a big focus. Maybe with that cohort matured, can you just talk about where they are in terms of productivity? I think you called out over five tests ordered. You know, on providers, but maybe just any other metrics we can know, look to to to track, you know, the the the scaling up of the Salesforce over the last year. And then separately, are you baking anything in for, you know, Adaptive-related revenues this year and any metrics, you know, you can provide there? Warren Stone: Thanks, Tycho. Yeah. Absolutely. As you out, we did expand our sales force late 2024 and into the 2025. We kinda see that sort of six to nine month ramp up period, and I would say that that sort of maturing or that productivity of those resource was a big contributor to our success in next year of 2025. And we anticipate that that is going to be a tailwind for us in in the first half of the year, for sure, as that sort of momentum continues to annualize into this year. Again, the focus of those resources, they are oncology sales specialists, so they are really focusing in on therapy selection, and they are going to be supporting our launch from a RADAR ST perspective in MRD. So that is that is where where where the focus is. I would say that those resources are at productivity now, so sort of in stride. The positive is we have seen very, very low attrition as well. It is not like there has been a high churn or anything. So I feel we are we are executing well, and we are starting to see general increased productivity across our entire sales team, not just the 35 that we brought on board in 2025. The the sort of entire 140 or so that we have within our our complement today. Abhishek Jain: And, Tycho, the only other Jeffrey S. Sherman: few points, I will do a little bragging for Warren and his team. Anthony P. Zook: He may be a little humble here. I think if you look to how that expansion has taken place, there are some proof points that we could look to. I mean, first foremost, you do got to look at that NPS score. Right? You know, to have an NPS score of 79, which is a step up from where it was already, and that is heavily basic now with feedback from oncologists. So I think that is a really positive sign that the reaching frequency model is beginning to have an effect. And then within the subsegments of our own data, when you start to see your 14% of oncologists and pathologists are now ordering five or more NEO tests. I mean, I think that is another proof point that this model is taking effect, and we have now over 40%, we estimate, of oncology pathologists prescribing five or more tests. I think these these things are what is fueling the NGS growth opportunities for us, and I think to take the Salesforce on that journey over the past, you know, 12 to 16 months has been an incredible one and one we are proud of and one we are going to continue to build on. And then relative to your second question, I I would say that from a revenue perspective, we look at the Adaptive partnership much probably more strategically than economically. We see it as an offering that we can offer our customers. It offers them then an expansive portfolio of opportunities for us. Over time, we will see we will be a company that can offer flow MRD. We can offer EM MRD. We will have RADAR ST. We will have next-gen MRD. And so that that whole suite of product, we think, is an important one to offer and to have an outstanding partner like Adaptive is is more strategic than I would say it is economic, at least for us. But we are going to continue to work and manage that relationship to the best of our ability. Thanks for the questions. Abhishek Jain: I can Operator: Your next question is coming from Dan Brennan with TD Cowen. Please pose your question. Your line is live. Jeffrey S. Sherman: Great. Thank you. Michael Stephen Matson: Just to start off just on Pantracer. I understand the conservatism there. Just any more color about Daniel Gregory Brennan: kind of the back and forth. It sounds like it is imminent. But the blood market is growing a lot faster than the tissue CGP market. So you have had really good success on tissue volumes. Just, you know, is is it just conservatism, or, like, what do you expect, you know, once that is really dialed in? For that pan trace of liquid to grow at from a volume basis? Anthony P. Zook: Yeah. I will I will I will kick us off and then have a second Warren could add a little bit more. So, yeah, Dan, we have responded to all the questions that MolDX had relative to LBX, and so we are just, you know, kind of in a waiting a response mode. Now what we have seen is across it is not just us, but across the sector. It has been averaging about four to five turns through MolDX new offerings. And so that puts us right around, you know, four turns is right around the 12-month mark. And so that is kind of where we sit today. You know? So we are confident. We we see this as a when we get it, not an if we get it. Then we that is why we thought, yes, it was prudent to not include revenue for the first half of the year and then just kind of a modest and slow build in the second half of the year? And anything that would come before that will then be opportunistic upside for us. Relative to kind of modeling at the high level, again, you called it out 2023 to 2024 doubled. We saw the same, almost nearly doubling in 2024 to 2025. We think that is probably a a decent predicate as a way to look at LBX over time. And so we look to our total NGS portfolio, of which the 2026 and beyond. It is certainly in line with 2025. And then depending on MolDX time, it could be better than 2025. So hopefully, that gives you a little bit more color. And and, Warren, I if you want to get any more specific to the hubs you are seeing with LBX and tissue Warren Stone: Yeah. I I would say the following. I think, Dan, you are you are right that the liquid market is growing faster. Since the the launch of a PANTRASER liquid, we have actually seen a good acceleration across the category. We saw increase in utilization of PANTRASER tissue, and we have seen attractive uptake of PAN tracer liquid as well. And we feel and, actually, we launched PANTRASER Pro very late last week and and expect that be another inflection point in terms of how this solution for solid tumor therapy selection is positioned for the market. So we are I am very confident in terms of the outlook here. It is really just around an unknowns with regards to MolDX reimbursement timing, I think, what you are you are seeing within the thought process from a guide’s point of view. Yeah. We launched PANCRACER Tissue in end of Q1 of 2023. Jeffrey S. Sherman: And, you know, it started to build throughout 2023. And then we really saw a big uptake in the first and second quarter 2024. And and that was a big driver of our NGS growth during that time. Abhishek Jain: Thanks, Dan. Great. Operator: Your next question is coming from Puneet Souda with Please pose your question. Your line is live. Andrew Brackmann: Yes. Hi, guys. Thanks for the questions here. So just clarifying, given the guide here, Vidyun Bais: is the long term, LRP that you had put out earlier, I believe, 12% to 13%, is that still in consideration, or is that off the table? And then if I look at the same store sales versus new test, 5% revenue per test growth reported versus 7% same store sales. Can you elaborate on how do you expect to convert these new customers to sort of higher value test? How long would that take for us to, you know, start to see an impact there? Thank you. Anthony P. Zook: Okay. So, for me, first on the first question, you know, we are we are not talking LRP. We have tried to make it clear as we can that, you know, we are taking our feet and firmly planting them in the year we are in. And so I am not projecting it out. I would simply say that I believe that we will this guide are very confident in. I think we will end the year in a very strong position with accelerated growth opportunities as we head into 2027, and we would start to then see the full benefit of RADAR ST and Pan Tracer LBX coming through the system. So I have I will not go into any more relative to LRP discussion. The second question, Jeffrey S. Sherman: Yeah. From from an A AUP perspective, you know, with, you know, with the guy going on I think adding those tests, and and coming in the back half of year, you should expect AUP will will grow as we add those incremental tests over time. And I think that is 2025 was kind of a good example of that. Abhishek Jain: Yeah. No. But my sense is also that AUPs, we kind of move into these high value tests. Right? Because in any case, these are going to be priced at a much better rate, and we expect the AUP will grow as we move in this direction. Andrew Brackmann: Yep. Jeffrey S. Sherman: And as you said, you know, Pete, so the same store, excluding Pathline, was was higher. It is in the mid single digit, and the quarter. And I think over time, adding these tests in the back half of of 2026 will will help drive AUP growth as well. Yeah. Warren Stone: So and and, Pradeep, maybe building on this sort of opportunity to penetrate and how long again, coming back to that commercial strategy to protect, expand, acquire, a really good job of protecting that sort of hole in the bucket is really something that has improved and the NPS score sort of helps to to drive that. But the expand element of the strategy is very much around taking new products and selling them to existing customers. That is an active part of the strategy. And we do that both on the the the pathology side of the business for the TVMs where relevant, but very specifically, on the oncology side as well with oncology sales specialists. And as we bring on more and more new oncology practices, you know, we we we typically lead in with a heme solution because that is where we differentiate it, and then we use that as a basis to expand into solid tumor. Yeah. It is difficult to give you a finite example of exactly how long it takes because every practice is different. But sales cycles here are relatively quick. And as as soon as we can put sort of interfaces in place to streamline workflows, introduce things like Pantracer Pro, we expect that acceleration to to or the speed to accelerate through 2026 and into 2027 as well. So the active part of the strategy, I am very confident in our ability to pull that through based on past experiences. Abhishek Jain: Thank you. And on the thank Vidyun Bais: And and and just very quickly on on the leading with heme and then entering with solid tumor into those accounts. Could you just elaborate on sort of what you see as the competitive landscape in tissue CGP today and also liquid, obviously, significant penetration in the market, multiple competitors out there. Maybe just give a sense of how you think your position today in the community setting versus the competition that you are seeing in the community setting. Thank you. Warren Stone: Puneet, I would say that we have not seen a marked change in terms of what is happening from a landscape perspective on the solid tumor side as things in the community setting where we are focused. As we have said before, we we tend to bump into most of the the normal competitors in different parts of the country, etcetera. We find our portfolio to be very well received based on the fact that we focus on actionability and a high degree of service. And and you know, a stat that Tony shared earlier that 75% of three out of four new oncologists that try us tend to stay with us. And that is not only unique in in the heme side of things. It happens through on the solid tumor side of things as well. So certainly, is a competitive landscape, but I cannot say I have seen any material changes. And we are seeing success on the liquid side of things as well despite the fact that we are a late entrant. And I have put that down to the fact that we have a broad portfolio and physician practices are looking to to simplify their workflows and standardize on vendors, and that places NeoGenomics, Inc. in a very favorable position. Daniel Gregory Brennan: Thank you. Thank you. Operator: Your next question is coming from Mason Owen Carrico with Stephens Inc. Please pose your question. Your line is live. Jeffrey S. Sherman: Hey, guys. Anthony P. Zook: On MRD for the two indication that you submitted, do you plan on launching RADAR for those indications ahead of MolDX approval to start building that volume stream? Or do you plan on launching you gain coverage? Yeah. As I tried to convey earlier, we are going to stay focused on the two initial indications of head and neck and the subsets of breast in the initial launch period. And then we will expand accordingly as we get MolDX coming through the system. You know, there there is certainly be enough on our plate in the short term with just those two. And then we will build in the latter half of the year. Abhishek Jain: Got it. Anthony P. Zook: And then on the 23% NGS growth in the quarter, could you provide any additional detail, I guess, on how much of that may be came from the core existing business versus pull through tied to the Pathline acquisition? Jeffrey S. Sherman: The bulk of it would still be the business with with with top line starting to ramp is how I would characterize it. Daniel Gregory Brennan: We are certainly seeing, increased, Warren Stone: activity and penetration in Northeast, but just the the the center of gravity lies towards the other business. So therefore, that is where the lion's share is still coming from. Anthony P. Zook: Got it. Okay. Thanks. Operator: Your next question is coming from Mark Massaro with BTIG. Please pose your question. Your line is live. Anthony P. Zook: Hey, guys. Thanks for taking the questions. Vidyun Bais: I will keep it to one. Can you just speak about Jeffrey S. Sherman: how we should think about gross margins in 2026? Vidyun Bais: 2025 was obviously down. When we put sort of the Jeffrey S. Sherman: different, you know, increase in NextGen, I could see how there could be a path to gross margins increasing in 2026, but however, there are some other headwinds as well. So can you just give us a sense if Vidyun Bais: if you think gross margins can grow this year and any Daniel Gregory Brennan: ability to quantify that would be helpful. Abhishek Jain: Sure. Absolutely, Mark. Let me take this question. So most of us are just stated with the margin expansion in the current year. In in 2026, is is going to be coming from the gross margin. So we are anticipating the gross margins to at about, like, 100 basis points, and that is going to basically drop to the adjusted EBITDA margin expansion as well. And there are multiple reasons, of course, on the margin expansion as we kind of look at our price increases as well as we rationalize our portfolio to the high value, high margin products as well as the the the work that our labs are doing to be more efficient being there. So the gross margin is expected to improve about 100 to 120 basis points in 2026, and most of that is going to be dropping to our bottom line on the adjusted EBITDA. Anthony P. Zook: Great. Thank you. Andrew Harris Cooper: Thanks, Paul. Your next question is coming from Andrew Harris Cooper with Raymond James. Please pose your question. Your line is live. Daniel Gregory Brennan: Hey, everybody. Thanks for the question. Maybe first, Tony, I think you said you expected NGS growth to look pretty similar in 2026 to 2025. I know the target Anthony P. Zook: is 25%. You know, you were you were almost there, but not quite. Andrew Harris Cooper: You had some of these tailwinds when we think about NTRASE or liquid coming on at least in the back half. I do not know if you will count MRD in kind of that bucket with NGS when you think about the target. But how do we think about that trending through the year, especially in context of Anthony P. Zook: a Salesforce that will be essentially tripled or quadrupled by the time you are done adding? Abhishek Jain: Yeah. I I think Anthony P. Zook: as you you rightly put it out, we showed about 23% for the quarter, about 22% year over year for NGS growth. I I would expect that we should be able to do that in 2026. If not, we are have slightly better than that. And that is going to be driven, as you say, by the momentum of the Salesforce that we have, the addition of LDX into the portfolio, PANCREAZE for PRO. So we expect that we should do at least as well as we did in 2025. We ought opportunity to maybe even meet that slightly. And much of that will be dependent on the timing of LVX. And so I think that is a safe assumption to take into the year. Andrew Harris Cooper: Okay. That is helpful. And then maybe just lastly, for for Jeff or Abhishek or Tony, if you want to chime in as well. But Jeffrey S. Sherman: know, when we think about that shift of growth being Andrew Brackmann: heavier volume versus ASP to the other way around and more ASP or AUP driving that growth? How does that change the way you think about that margin drop through over Anthony P. Zook: longer term? It sounds like when we think about 2026, there is certainly some Vidyun Bais: that is probably eating up a bit of the flow through that would be there otherwise. But Anthony P. Zook: how does that change the way you think about sort of the long-term trajectory from a margin perspective, if at all? Warren Stone: Yeah. Great question. No. That is a great question, Andrew. And, that is that is Abhishek Jain: I think, the key strategic question that we have with Neo that we have a broad range of portfolio here. We have tested, like, $102,100 dollars AUP, and then we have very high value tests of the NGS side. Now that also basically kind of differentiates us from some of the other specialty diagnostic labs as to how we are thinking about our volumes. Now when we look at our capacity, when we are in when we are looking at our full, we would definitely would want to be selling to the customers that are giving us the business, which is not only the low value, but also either there is a portfolio which combines the low value test with the high value testing. And then that becomes more positive for us. But if a client is only giving us the low order value test, then this is a natural shift that we do not want to be kind of taking those up particular business. And that is where we are looking at more carefully as to, okay, what is what are those tests that we would want to be in. So from the margin standpoint, in the long term, as we kind of shift towards the high value, high margin test, that could definitely be accretive for our gross margins as we kind of also going to be able to improve our operational efficiencies using our lab infrastructure. Thank you. Okay. Thank you. Operator: This does conclude today’s question and answer session. I would now like to turn the floor over to Tony Zook. Anthony P. Zook: I would just like to thank everybody for joining us on the call, and I would also like to thank our roughly 2,400 teammates for their unwavering commitment to our mission and their hard work throughout all of 2025. I am very excited for the year ahead for our company, our oncology physician customers, and their patients. I look forward to our next quarterly update in April, where we will report our first quarter results. Thank you again, and have a great day. Operator: Thank you, everyone. This does conclude today’s conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Operator: Good day. Operator: And welcome to the CEVA, Inc. fourth quarter and year-end 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence and Investor Relations. Please go ahead. Richard Kingston: Thank you, Betsy. Good morning, everyone, and welcome to CEVA, Inc.'s fourth quarter and full year 2025 earnings conference call. Joining me today on the call are Amir Panush, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer of CEVA, Inc. Before handing over to Amir, I would like to remind everyone that today's discussion contains forward-looking statements that involve risks and uncertainties as well as assumptions that, if they materialize or prove incorrect, could cause the results of CEVA, Inc. to differ materially from those expressed or implied by such forward-looking statements and assumptions. We will also be discussing certain non-GAAP financial measures, which we believe provide a meaningful analysis of our core operating results and comparison of quarterly results. For reconciliations of our non-GAAP financial measures, please see the earnings release we issued this morning. Our earnings release can be found in the SEC Filings section of our Investor Relations website. And with that said, I would like to turn the call over to Amir, who will review our business performance for the quarter and provide some insight into our ongoing business. Amir? Thank you, Richard. Welcome, everyone, and thank you for joining us today. 2025 was a landmark year for CEVA, Inc. We strengthened our foundation, reinforced our leadership position in wireless connectivity, and accelerated our expansion into AI for the Smart Edge. Amir Panush: Throughout the year, we continued executing on our long-term strategy, partnering closely with customers to solve their most critical technology challenges through a comprehensive, best-in-class portfolio of IP platforms that enable smart edge devices to connect, sense, and infer data locally. This strategy matters now more than ever. The shift of AI inference from the cloud to the edge and toward hybrid AI continues to accelerate, and the next wave of innovation is increasingly about physical AI, where devices must connect to and sense their environment, process data locally, and infer in real time to make decisions. CEVA, Inc. is uniquely positioned for the physical AI era. By offering a comprehensive portfolio of IP building blocks spanning connect, sense, and infer use cases, we provide the flexibility our customers need. Whether licensed individually or in multi-IP configurations, these technologies drive superior customer outcomes and strengthen our long-term economic model. Before reviewing the year and our key achievements, I will first provide an overview of our fourth quarter performance. For the fourth quarter, we delivered the highest quarterly revenue in CEVA, Inc.'s history, which was 7% higher year over year excluding the Intrinsix design services business, which we divested in 2023. Licensing revenue increased 11%, exceeding our expectation through strong execution across all three of our technology pillars and reflecting broad demand across multiple end markets. In the quarter, we signed eighteen licensing agreements, including three NPU licensing deals, multiple our portfolio. Richard Kingston: Of the 18 deals signed, Amir Panush: five were with OEMs. Turning to licensing high PC OEM. Richard Kingston: Category. This win underscores our ability to set the standards for high-performance AI integration into next-generation computing. This partnership is allowing them to focus their engineering talent on software, model optimization, and user experience differentiation. Second, it competitive AI performance. As AI features proliferate across operating systems, creative workflows, productivity applications, and local LLM acceleration, the ability to deliver superior performance per watt is the new strategic differentiator, and CEVA, Inc. is a key player in this transition. Importantly, our AI momentum is also increasingly reflected in our financial mix as well as deal activity. AI processor licensing represented a meaningful portion of our licensing revenue in 2025. While AI design cycles can be longer than traditional connectivity deployments, these agreements typically carry higher per unit and longer-term royalty potential, expanding content per device and strengthening the durability of our royalty model over time. As for licensing highlights in connectivity, our connectivity business delivered another strong performance in the fourth quarter, highlighting the depth and durability of our wireless franchise. Bluetooth and Wi-Fi IPs continue to see strong demand as customers upgrade to Wi-Fi 7 and Bluetooth High Data Throughput. This quarter's deals include Wi-Fi 7 for IoT, a multiuse Bluetooth HDT agreement, and three Bluetooth Wi-Fi combo wins. One notable win was with the semiconductor division of one of the world's largest white goods manufacturers, which licensed our Wi-Fi 6 and Bluetooth IP for a combo connectivity chipset supporting smart home applications. This illustrates a broader trend. Consumer, industrial, and automotive OEMs are increasingly designing their own connectivity silicon to deliver tightly integrated another stand-out deal in the fourth quarter was a software licensing agreement with a leading TV platform planning to integrate our MotionEngine technology into its smart TV operating system used by multiple global TV brands. As TVs evolve into interactive experience hubs, motion-based inputs and enhanced user interactions are becoming increasingly important. CEVA, Inc.'s long-standing presence in this market provides deep now turning to royalties. This was our strongest royalty quarter in more than four years. Growth across our diversified Smart Edge royalty customers more than offset mobile softness, underscoring the strength and resilience of our business model. In the fourth quarter, Wi-Fi shipments reached a record high, up 31% year over year, reflecting increased deployment, often as part of combo connectivity chips. Cellular IoT shipments were up 30% year over year, driven by Smart Edge application apply constraints. Continue to impact smartphone shipments. Now turning for the full year 2025 review. For the full year, total revenue increased two year over year. Licensing and related revenue grew 6%, reflecting strong demand across AI and advanced connectivity. Royalty revenue was down 2%, primarily due to smartphone softness and memory supply shortage impacting overall unit shipment. Importantly, royalties grew sequentially each quarter, and we exited the year with our strongest royalty quarter in more than four years. CEVA, Inc.-powered devices shipped in 2025 reached a record 2,100,000,000 units, up 6% year over year, with record Wi-Fi shipments, which grew 48% year over year, and a record cellular IoT shipment, up 42% year over year. Overall, we signed 54 licensing agreements in 2025 across our extensive IP portfolio, including 10 OEMs agreements. Importantly, 12 customers licensed multiple CEVA, Inc. technologies, a clear indication that our strategy to offer a broad portfolio across connect, sense, and infer is resonating, enabling customers to address multiple requirements within a single engagement. Taking a step back, 2025 featured several important milestones that reinforce our long-term opportunities. The strength of our connectivity franchise is defined by deep customer integration and scale. During the year, we signed nearly 30 new engagements for our Bluetooth and Wi-Fi IPs, underscoring continued relevance across Smart Edge markets. We also secured Wi-Fi severance agreements with two of our largest connectivity customers, who together have shipped more than 3,000,000,000 CEVA, Inc.-powered devices, effectively establishing long-lived royalty engines that we expect to drive billions of units and tens of millions of dollars in royalties in addition, over the life of these programs. Continues to differentiate us our ability to deliver integrated combo solutions and engagements with a leading global PC OEM, underscoring our traction across embedded consumer, automotive, industrial, and compute to market. This moment licensing agreements we signed during 2025 are building long-term royalty trajectory and visibility. Based on these signed agreements and our insights into customers' roadmaps, we estimate that they represent an aggregated lifetime royalty potential of $125,000,000 over their expected product life. While this value will be realized over multiple years and is dependent on customers' deployment and market adoption and accelerating momentum of the licensing and royalty flywheel we are building. In terms of scale and credibility, we celebrated reaching 20,000,000,000 cumulative CEVA, Inc. power end of the fourth quarter. These milestones reflect the trust we have built with the industry over decades and position CEVA, Inc. strongly for the physical AI era now underway. A key strength of our business that is often underappreciated is our diversification across Smart Edge end markets. In 2025, Smart Edge applications generated 86% of total revenue, driven by market share gains by CEVA, Inc.-powered customers across consumer, automotive, industrial, and infrastructure markets. As intelligence continues to move into physical devices, this diversified and expanding customer footprint from enabling the Smart Edge to enabling physical AI, where connectivity, sensing, inference positions CEVA, Inc. to evolve naturally converge to drive the next phase of growth. Entering 2026, we are focused on extending our leadership in established categories and deepening our integration with our customers' roadmaps. By providing a more complete IP stack, we are becoming an even more essential partner to our customers, effectively increasing the value per device. Now I will turn the call over to Yaniv to review the financials. Thank you, Amir. Good morning. I will now start by reviewing the results of the operations for 2025. Revenue for the fourth quarter increased 7% year over year and 10% sequentially. Licensing and related revenue increased 11% year over year and 9% sequentially to $17.5 million, reflecting 56% of our total revenue. Royalty revenue increased 2% year over year and 12% sequentially to $13.8 million, reflecting 44% of our total revenue. Quarterly gross margin were 88% on GAAP base Amir Panush: and 89% on non-GAAP Operator: basis. Amir Panush: Amortizations of intangibles and deal costs, total GAAP operating expenses for the fourth quarter were $28,000,000, and total non-GAAP operating expenses for the fourth quarter, excluding equity-based compensation expenses and more, were $22,200,000. GAAP operating loss for the fourth quarter was $400,000 as compared to GAAP Operator: and income were 18% of revenue Amir Panush: and $5,700,000 and grew 20 and 26% year fourth quarter of 2024, respective. Financial income was $1,400,000 compared to a net loss of $100,000 for the fourth Richard Kingston: deals and royalty revenues in the quarter. Yep. Net loss for the fourth quarter was $1,100,000 and diluted loss per share, $0.04, as compared to a net loss of $1,700,000 and diluted loss per share of $0.07 for the 2024. Non-GAAP net income and non-GAAP diluted income per share for 2025 increased 86% and 71% to $4,900,000 and $0.18 year over year, respectively, compared to non-GAAP net income of $2,700,000 and non-GAAP diluted income per share of $0.11 for 2024. With respect to other related data, shipped 606,000,000 units of CEVA, Inc.-powered devices, down 3% from the fourth quarter of last year. Of the 606,000,000 reported, 108,000,000 units, or 18%, were for mobile handset modems. 479,000,000 units were for consumer IoT products, up from 459,000,000 for the fourth quarter of last year. 19,000,000 units were for industrial IoT products, down from 35,000,000 units the fourth quarter of last year. Bluetooth shipments were 303,000,000 units for the quarter, down from 343,000,000 units portfolio of 2024. Cellular IoT shipments were a quarterly record 60,000,000 units, up 30% year over year. And our Wi-Fi shipments were a record 86,000,000 units, up 30% year over year. As for the year, total unit shipments were a record 2.1 billion devices in 2025, up 6% year over year, which equates to approximately 66 CEVA, Inc.-powered devices sold every second in 2025. Annual modem shipments were down 18% year over year to 280,000,000 units, reflecting softness in smart Bluetooth shipments were 1,100,000,000 units, similar to last year. Annual consumer IoT-related shipments were 1,700,000,000 units, up 14% year over year. Annual industrial IoT-related shipments were 87,000,000 units, down 31% year over year. Wi-Fi, cellular IP, and audio AI shipments all showed strong year-over-year growth of north of 40% each. In terms of royalty contribution, Wi-Fi royalties were up 70% year over year, reflecting higher volumes and ASPs from our Wi-Fi 6 customers, and cellular IoT royalties were up 20% year over year. On annual financial metrics, revenue increased 2% to $109,600,000, in line with our updated outlook we shared in May. Non-GAAP gross profit remained strong at 88%. Our non-GAAP net income increased 20% year over year, and diluted EPS increased 17% year over year, all contributing to sustainable and gradual growth in profitability. As for the balance sheet items at the end of the year, cash, cash equivalents, marketable securities, and bank deposits were approximately $222,000,000. In the fourth quarter, we successfully executed a 3,500,000 share follow-on offering for approximately $63,000,000 net to strengthen our balance sheet. Our DSO for the fourth quarter was 57 days. During the fourth quarter, we generated $8,700,000 of cash from operating activities. Our ongoing depreciation and amortization was $1,100,000, and purchase of fixed assets was $1,500,000. At the end of the fourth quarter, our headcount was 424 people, of whom 343 were engineers. Now for the guidance. Amir highlighted our achievements in 2025 and the strong fundamentals we have in place to build long-term growth and profitability. From a financial perspective, this execution translates into solid progress across key metrics, with annual non-GAAP net income increasing 20% year over year and non-GAAP fully diluted EPS growing 17%. These results were supported by record high revenues in 2025 and non-GAAP operating margin of 18%, reflecting both operating discipline and improving mix. Building on the consistent progress we have made over the last two years gives us the confidence as we enter into 2026. Expect growth to be driven by continued expansion of AI adoption across multiple industries, an increasing mix for integrated engagements, and our leadership in wireless connectivity of connectivity, AI, and sensing IPs, supported by the diversified product portfolio. On the royalty side, we are encouraging momentum. We are encouraging the momentum across our connectivity product lines, including 5G handset modems, Bluetooth, Wi-Fi, and cellular IoT as deployments broaden, license in recent years, and program continue to ramp. While we do not have the control on the precise timing of royalty growth and continue to monitor factors such as memory pricing and broader market condition, the underlying trajectory for our business and our diversified end market exposure positions us well, moving into 2026. Operator: On an annual basis, our total revenue is Richard Kingston: expected to grow 8% to 12% over 2025, with lower growth in the first half of the year and higher in the second half, similar to prior years in seasonal trends and subject to the memory pricing fluctuation and supply challenge. Operator: The expense side, Richard Kingston: we continue to demonstrate, excluding currency impacts, our overall 2026 non-GAAP expense base Operator: including both cost of goods Richard Kingston: and operating expenses, is expected to increase in the range of 1% to 3%, significantly below our expected top-line growth, reflecting the scalability of our business model but excluding any FX costs. During 2025, and so far this year, the strengthening of the euro and the Israeli shekel against the US dollar has created foreign exchange headwinds across the industry, particularly for companies with globally distributed engineering teams. As a result, our non-GAAP, our non-US dollar-based expenses, which are mainly the research and development teams in Europe and in Israel, are expected to increase by approximately 10% year over year, representing an incremental impact of around $5,000,000. Taking both factors into account, modest organic expense growth with FX impact, we expect total non-GAAP expenses in 2026 to be in the range of $104.4 million to $108.4 million, with non-GAAP cost of goods sold increasing by approximately $500,000 and non-GAAP operating expenses $6,100,000. Importantly, this outlook reflects our continued focus on disciplined investment, efficiency, and maintaining flexibility as we support growth across our diversified Smart Edge markets. From the guidance and active activities we have just discussed, we Operator: significantly by approximately 35% to 40% year over year. Annual Richard Kingston: 2026 equity-based compensation expenses are forecasted to be between $22,000,000 and $23,500,000, and the amortization of acquired intangibles and costs associated with business acquisition approximately $400,000 to $500,000 each. Gross margin is expected to be approximately 88% on a non-GAAP basis Operator: specifically for the '26. Richard Kingston: With traditional seasonality in shipments of consumer IoT and mobile products post the holiday season, revenue is forecasted to be between $24,000,000 to $28,000,000, sequentially lower than the record fourth quarter we just reported but still significantly higher than the 2025 at the midpoint. Gross margin is expected to be approximately 86% on GAAP basis and 87% on non-GAAP basis due to lower seasonal royalties, excluding an aggregate of $200,000 of equity-based compensation and $100,000 of amortization of acquired intangibles. Mainly Operator: GAAP OpEx for the first quarter is expected to be between the range of $27.6 million to $28.6 million, higher than the level we just reported for 2025. At the midpoint of our guidance range, Richard Kingston: due to the FX effect that I just Operator: of our anticipated operating Richard Kingston: walked through. Expenses for the first quarter, $5,200,000 is expected to be attributed to equity-based compensation expense, $100,000 for the amortization of acquired intangibles, and another $100,000 of costs associated with business acquisition. Operator: Non-GAAP OpEx, Richard Kingston: is expected to be in the range of $22.2 million to $23.2 million. Operator: Is expected to be approximately one Betsy, you could now open the Q&A session, please. We will now begin the question and answer session. Amir Panush: To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Kevin Cassidy with Rosenblatt Securities. Please go ahead. Operator: Yes. Thanks for taking my question, and congratulations on the great results. For your NPU pipeline, can you Richard Kingston: just give an idea of the scale? You know, how much Kevin Cassidy: how many more engagements do you have right now compared to, let us say, this time last year? And maybe even what the end market exposures are? Operator: Yeah, Kevin. Thanks a lot for congratulating Amir Panush: us and for the question. First, I will start that I am very, very encouraged by how we executed in 2025 our penetration into AI, and that was a year of very significant market share to capture, gain as well as more than 10 deals that we have enabled, basically, to with that, we have built a complete portfolio of NPUs for all the different types of edge Smart Edge markets, and as that transition to physical AI. So overall, we are well, well positioned right now going to 2026. The pipeline overall keeps growing across pretty much all the different types of submarket segments that we see across the market. This is true for consumer, different types of computing devices, different types of embedded MCU-type applications, as well as in the industrial, as well as in automotive. Really, we see a very healthy pipeline across all these submarkets. Very encouraged with how we have executed and how we see the future going to 2026 on that. Okay. Great. And Kevin Cassidy: just as a follow-up, a little clarification on the PC OEM, congratulations on that. But I just wanted to make it clear. I think you said a dedicated NPU. So is this a separate chip, or is it integrated in a CPU package too? Or, like, in the same silicon with the CPU? Amir Panush: Yeah. So first, it is definitely a design win or a deal we are extremely, extremely excited about. This is with one of the top PC OEMs out there. And this is for an OEM that decided to build so-called their own internal AI and NPU functionality within so-called SoC platform that are integrated into. So, basically, what we are delivering them is the whole core NPU functionality, and then they integrate it into the SoC that they are building. Richard Kingston: So a separate chip? Yeah. Separate chip for Amir Panush: for NPU. For NPU. Kevin Cassidy: Okay. Great. Thank you. Richard Kingston: Thank you, Kevin. Amir Panush: The next question comes from Ruben Roy with Stifel. Please go ahead. Kevin Cassidy: Thanks, and echo the congrats on a nice end to 2025. Ruben Roy: Amir, maybe I could follow up on Kevin's question and just talk a little bit more about the NPU win. Can you talk a little bit about the competitive dynamics for that? Because you have others like Arm sort of integrating NPUs. So how should we think about the functionality? Are there going to be multiple NPUs, do you think, in PCs going forward as the AI workloads evolve, or is this something where from a competitive basis you guys were able to displace, you know, sort of the, you know, existing solutions maybe that are available to the OEM? Thank you. Amir Panush: Yeah. Definitely, Ruben. So first, I would say that the way that we see it right now, the landscape, and definitely for the high-end compute devices, Operator: is that there is stronger and stronger need to really best-in-class performance. Amir Panush: And by that, I mean, the power per watt that you can generate, the so-called the latency or the performance of throughput per token that you generate. This really requires so-called a core architecture and flexibility of the core architecture to deliver best-in-class what we call PPA: power, performance, area. Deliver basically a very competitive landscape for our customers. With this specific OEM, they looked at what is available out there, and they wanted to make sure that they have complete internal integration between the hardware and the software to drive the so-called the high performance that they need. But what they need is the underlying core silicon IP technology with the softwares come on top of that that deliver for them the best-in-class performance. And I think we are well, well positioned competitively, basically, and that is why they picked us in this specific design. Ruben Roy: Right. Okay. Very helpful. And then as a follow-up, just to go through the guidance again a bit here. You guys talked a little bit about recovery in China from a handset customer, and obviously, there are some moving parts with memory pricing, etc. So in thinking through sort of the first half versus second half commentary, can you just give us a little more detail on how you are thinking about sort of end demand relative to dynamics out of your control like memory pricing, etc., on first half? Is it much different, would you say, from typical seasonality? I mean, if you look at, as Yaniv said, you are up year over year at the midpoint, and so seasonally, it looks pretty similar to what you saw last year. So I am just wondering what some of the assumptions on things out of your control might be in the first half, if that is much different from typical seasonality? Thank you. Amir Panush: Yeah. I would start first that our business, a significant portion of our business, is really not so-called on mobile. It is well, well diversified across different submarkets of the Smart Edge. And in that market, we keep gaining market share. Our customers keep ramping with our different types of technologies. And, overall, we expect similar seasonality as we have seen in previous years. But with that seasonality, we keep increasing our market share. Now more specifically on mobile, where potentially there is so-called more dependency of some impact related to the memory supply, first, again, we are going to see increase in market share thanks to the mobile OEM that is going to integrate more and more the internal modem, at least that is our expectation moving forward. And but on a so-called integrated basis, with the other smartphone OEM that we have, definitely again, there is potential impact coming from the memory shortage. And even there, we do expect meaningful seasonality between the first half and the second half. And so on an aggregated basis, we are still expecting quite strong seasonality in 2026 as well, while driven by market share again across all the different markets. Operator: Right. Richard Kingston: Ruben, I will maybe add to that that our customer in China that you referred to, most of his sales are export to the rest of the world. India, a big market, Latin America, Africa, Eastern Europe type. So it is not necessarily domestic use. And, therefore, the end demand is good. The question is how they will perform with the memory shortages in price. That is just a little bit of another anecdote with regards to demand and end demand at least for the products. Operator: And Richard Kingston: back to your first question, another reference is to the NPU. We came up with another press release highlighting the entire, not just Q4, but the entire activity and results and achievements we had with AI. Here and then probably, or hopefully, royalty contribution in 2027 for us from this relative new product line. So that is quite encouraging, and we will wait and continue to monitor their progress. Ruben Roy: That is really helpful, Yaniv. And I guess you just made me think of another question, so apologies, but I would just love to follow up on that last point that you made, which is Amir talked about the $125,000,000 in lifetime royalty potential, and you have got a PC NPU deal here. PC design cycles maybe are a little bit quicker than some of the stuff that you might expect from, let us say, a microchip that is much more broad-based into a lot of different markets. So if we think about waterfall of the $125,000,000, it sounds like you are going to start to see some of that in 2027. Any way to think about that pipeline relative to how it will flow into the model outside of what I just said? You know, PCs may be a little bit faster than the broader markets or anything else you can add on the pipeline, that would be great. Thank you. Richard Kingston: I think that over time, and not necessarily these first six, part of them, yes, we are going to see, on one hand, the high royalty contribution because, as Amir explained, our offering today is both high end and low end—very sophisticated automotive, PC-type of application as well as IoT and the wearables and the low-power type of devices. So the most important thing is higher volume for these new royalties. But on top of that, also higher ASPs of at least the higher-end stuff. It is all a mix, and this is a little bit more difficult to predict exactly how 2027 would look like and when it is going to hit, the first half or the second half. But when we monitor these customers of ours and when we support them in their design cycle, these are the dates and the opportunities we see in front of us. Overall, an increase in dollar revenue content from a relatively new market for us. This is on top of the connectivity. This is on top of the IoT and mobile. It is essentially the third leg of the AI. We did very well in licensing. Just over 20% of our license revenue for the first time ever in 2025 came out from that market, and potentially 2027 we could see also those royalties start to kick in. Indeed, exciting times. Amir Panush: Yeah. I would just add to that, Ruben, that definitely we are extremely excited and encouraged by the fact that those design wins are going to generate, our estimation, $125,000,000 in terms of royalty potential. And you pointed out, very correct, that in consumer PC and so on, the time to royalty is shorter, and definitely, we expect with that market type of design wins that it will also start generating in 2027. Ruben Roy: Perfect. Thank you. Operator: Thank you. Amir Panush: The next question comes from Suji Desilva with ROTH Capital. Kevin Cassidy: Hi, Amir. Hi, Yaniv. Congratulations on the strong year and the progress here. Amir Panush: The PC OEM win, just keeping up on that, Ruben Roy: is it more likely that it was a one-off special case for this OEM, or would you think, on the other hand, there is a pipeline potential for additional OEMs to Amir Panush: follow suit, considering CEVA, Inc.-based solutions as well? I would say first, the PC landscape is such that the number of customers, of course, is not super large versus, let us say, the other more diversified IoT market segments that we are addressing as well. But within that landscape, having the ability to internalize hardware integration and the specific optimization to the use cases they want to drive the AI capabilities, and with that, the software, it is a big value add. So, definitely, there is potential that others will follow suit with the same type of configuration. And regardless of that, of course, we are extremely excited by the fact that after very significant lengthy evaluations, we came at the top based on very, very strong performance metrics that we can provide in this case to the PC OEM but for potentially other PC customers as well as in other high-end devices that need their high-performance type of metrics. Operator: Thanks, Amir. Very interesting. Ruben Roy: And then separately, you highlighted in your prepared remarks, Amir, physical AI. I was curious what pipeline opportunities there are there or current opportunities there are in physical AI that you would call out in terms of apps? Amir Panush: And which physical AI app categories are the largest incremental royalty opportunity for you as that ramps up. I think what is emerging more—and this goes far beyond our traditional market segments—is everything related to robotics. And we are already addressing. We will keep gaining market share in the type of automotive and industrial applications and the broader IoT. But what is really exciting right now, specifically related to physical AI, is the expansion of those capabilities. Only, of course, wireless connectivity, the need, of course, to sense and understand the environment, and then make an inference or decision based on all that information. That really is going to happen across robotics. And now robotics moving from a small volume in, let us say, warehouses to potentially be everywhere and supporting all human beings worldwide. So there is very big potential there. Of course, as the year progresses, we will see the real impact of that. Excellent. Thanks, Amir. Operator: Thanks, Suji. Amir Panush: As a reminder, if you would like to ask a question, please press star. The next question comes from Alex Valero with Loop Capital. Please go ahead. Amir Panush: Hey, guys. Thank you for taking my questions. This is Alex on for Gary. Alex Valero: My first question is on your fiscal 2026 guidance. Operator: What Alex Valero: specifically would need to improve in fiscal 2026 to trend toward the high end of your guidance range or even above the high end of the guide? Richard Kingston: Yeah. Obviously, in guidance, you have the two aspects, revenue and expenses. On the revenue front, 8% to 12% was our long-term growth trajectory back from the analyst day that we did back in December two or so or three years ago. So that is still intact. Maybe we have been behind in 2025, but we are back to stronger. Stronger licensing could help us. The royalty ramp up for many of these markets that we talked about. This year, no less or more effect from memory. Those are the normal typical events that could influence the royalty level, obviously, the timing of different product ramp-ups and things like that. On the expense side of different product ramp-ups and things like that. On the expense side, plans and running the company. It is more of a macro thing, which is less associated to the organic, which I talked about earlier, the currency exchange rate differences between this year and last year. Some of the biggest elements for us this year is the dollar compared to many other currencies around the world. And while most of our R&D is held outside the US, this is hurting us. If there will be some type of future change throughout the next six months or so, one way or the other, that could shorten or increase the gap. But on the other hand, we are fully in control to still offset that or enjoy that if it is on the positive side. So I think these are more or less the moving pieces in our business from a cost and management. We came out with a pretty low expense increase and are managing our investment very, very tight and efficient to try to maximize shareholder value. Amir Panush: But maybe just to add on that, Alex, in terms of unpacking what are the drivers for the top-line growth as we look at 2026. First, definitely, our very strong leadership in wireless communication. We see us keep gaining more both on licensing, and the royalty keeps increasing very, very nicely across all those different types of submarkets. And the second, of course, is our momentum in AI. Extremely encouraged about what we have seen in 2025, and we have all the capabilities from a product portfolio and engineering capabilities to drive that momentum even further in 2026. And then last but not least is, overall, our expectation we will keep gaining market share both in mobile and Wi-Fi from a royalty basis. Mobile coming from the US mobile OEM, and on the Wi-Fi coming from just the continued penetration of our technology and the transition into Wi-Fi 6 and 7 and Bluetooth 7, driving high royalty per unit. Alex Valero: Got it. I really appreciate all that color. Just a quick follow-up. Richard Kingston: So Alex Valero: with your recent equity capital raise, I believe you are about at $200,000,000 in the balance sheet. Are you thinking about M&A today, and what do you think about current valuations? Operator: I Richard Kingston: think you guys are the experts for that. Right? We wanted to strengthen our balance sheet. We are looking for non-organic growth to grow faster and gap that licensing-to-royalty, 8- to 24-month time frame. That is the merit in raising that cash. And that is our goal. That is our goal for the next twelve months: to find the right fit technology-wise, market-wise, business-wise, to increase that. Hopefully, if we do well and continue to execute and the market understands that CEVA, Inc. is a very interesting AI play, which I am not sure we are yet being recognized for that, I see a lot of value for shareholders. But that is your forte, not ours. We will manage Operator: the business. Amir Panush: Yeah. One thing to add—thanks, Yaniv. One thing to add to that, Alex, in terms of the balance sheet or the cash position, strongly believe we really have built an excellent, excellent IP enterprise Operator: to extend it further. Got it. Super helpful. Thank you very much. Well, congrats. Amir Panush: Great. This concludes our question and answer session. Would like to turn the conference summary? Alex Valero: Yeah. We are back to think Amir has some closing remarks. Amir Panush: In closing, I want to thank our employees worldwide for their dedication and execution through 2025. We enter 2026 from a position of strength with a diversified business model and deep customer integration across the markets driving the emergence of physical AI. With leadership in connectivity, accelerating traction in AI, and a portfolio designed to scale across connect, sense, infer, we believe CEVA, Inc. is well positioned to continue building long-term value for our customers and shareholders. Richard, I will hand over to you to wrap it up. Operator: Thank you, Amir. As a reminder, the prepared remarks Alex Valero: for this conference call are accessible through the Investors section of our website, and with regards to upcoming conferences, we will be participating in the events: Mobile World Congress, March in Barcelona, Spain; Loop Capital Markets Seventh Annual Investor Conference, March 10 in New York. Kevin Cassidy: The Stifel 2026 New York City Technology One-on-One Conference, March 11 in New York; and the 38th Annual ROTH Conference, March 22 in California. Further information on these events and all events we will be participating in can be found on the Investors section of our website. Alex Valero: Thank you, and goodbye. Amir Panush: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Waystar Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Edward Parker, Investor Relations. Please go ahead. Edward Parker: Thank you, Operator. Good morning, everyone, and thank you for joining Waystar Holding Corp.'s fourth quarter and fiscal year 2025 earnings call. Joining me today are Matthew J. Hawkins, Waystar Holding Corp.'s Chief Executive Officer, and Steven M. Oreskovich, Waystar Holding Corp.'s Chief Financial Officer. This morning, we issued a press release announcing our financial results and published an accompanying presentation deck. You can find these materials at investors.waystar.com. Before we begin, I would like to remind you that this call contains forward-looking statements, which are predictions or beliefs about future events or performance, growth, and margins. Examples of these statements include expectations of future financial results. These statements involve a number of risks and uncertainties that may cause results to differ materially from those expressed in these statements. For a full discussion of the risks and other factors that may impact these forward-looking statements, please refer to this afternoon's press release and the reports we file with the SEC, all of which are available on the Investor Relations page of our website. Any forward-looking statements made on this call are only as of today and will not be updated unless required by law. We will also discuss certain non-GAAP financial measures. These measures are intended to provide additional insight into our performance and should not be considered in isolation or as a substitute for financial information prepared in accordance with GAAP. We have provided reconciliations of the non-GAAP financial measures included in our remarks to the most directly comparable GAAP measures, together with explanations of these measures, in the appendix of the presentation slide deck and our earnings release. With that, I would like to turn the call over to Matthew. Thank you, Edward, and good morning, everyone. Thank you for joining our Q4 2025 earnings call. Today, we are pleased to share Waystar Holding Corp.'s strong Q4 and full year 2025 results, reflecting the durability of our business model, the execution of our team, and the trust providers place in our platform. 2025 was a defining year for Waystar Holding Corp. We crossed $1 billion in revenue, exceeded both our revenue and EBITDA guidance, and achieved Matthew J. Hawkins: strategic milestones that strengthened our competitive position. We completed the acquisition of Iodine Software, adding more than 1,000 hospitals and health systems, deep clinical intelligence, and significantly expanding our addressable market. This combination positions Waystar Holding Corp. as the only platform with both clinical encounter visibility and financial outcome intelligence at scale. We also extended our AI leadership. In 2025, Waystar Altitude AI prevented more than $15,000,000,000 in denials for our clients, reduced appeal time by 90%, and drove double-digit increases in denial overturn rates. We launched new agentic capabilities that cut documentation analysis by 40%, powered by data from one in three U.S. hospital discharges and more than 7,000,000,000 annual transactions. These results demonstrate accelerating demand for mission-critical AI revenue cycle software and validate Waystar Holding Corp.'s ability to deliver meaningful ROI for providers. I am proud of what our team accomplished in 2025. We entered 2026 with strong momentum, a clear leadership position, and a platform we built to sustain durable, profitable growth while delivering exceptional value to our clients. Let me walk through our fourth quarter performance. Q4 revenue reached $304,000,000, growing 24% year over year and 12% organically. Both subscription and volume-based revenue contributed to this strength. These results underscore the mission-critical nature of our platform, elevated patient utilization, and the successful onboarding of new clients. Waystar Holding Corp. added 85 clients with trailing twelve months spend above $100,000, up from 30 a year ago and more than double last quarter. Win rates improved beyond our historical average of more than 80%, reflecting sustained competitive momentum and clear provider preference for Waystar Holding Corp.'s cyber-secure unified platform. We delivered a 112% net revenue retention with 97% gross revenue retention and a net promoter score above 70. Cross-sell and upsell momentum in our large installed base drove this performance and reinforces how deeply Waystar Holding Corp. is embedded in our clients' daily operations, serving as the central infrastructure for getting paid. Waystar Holding Corp. delivered a record bookings quarter in Q4, and we closed several sizable deals to cap off a strong 2025. We enter 2026 with a robust sales pipeline and the largest implementation backlog in our history. This demand signals strong customer confidence in our platform and reinforces our conviction in the durability of our low double-digit long growth outlook. Adjusted EBITDA reached $129,000,000, up 29% year over year, with an adjusted EBITDA margin of 42.5%, exceeding our long-term target of 40%. Waystar Holding Corp. continues to operate as a rule of 50 business, pairing strong revenue growth with increasingly efficient operations. Our core business delivers durable organic growth. Iodine extends that strength through disciplined platform expansion, moving Waystar Holding Corp. into the mid-cycle, a critical stage where payers deny roughly 60,000,000 claims each year. Together, we deliver full revenue cycle visibility through our unified financial and clinical platform. Iodine adds more than 1,000 hospitals and health systems with only 35% customer overlap, expanding our addressable market and cross-sell opportunity. Integration is ahead of plan, and we now expect to realize over 90% of committed cost synergies in fiscal 2026. We fully integrated our commercial teams and they are already producing results. In Q4, we generated cross-sell traction in both directions and built a robust new business pipeline. Market demand for the Waystar Holding Corp. platform is strong. Unified financial and clinical data unlocks unique value and accelerates our innovation roadmap. Our next-generation prebill anomaly detection solution demonstrates this opportunity. We expect a midsized health system to recover $7,000,000 annually in previously missed reimbursement, a 5x return over three years. This is the first of many innovations only our integrated platform can deliver, advancing us toward a fully autonomous revenue cycle, including using clinical data to prove medical necessity for prior authorization and overturn denials requiring clinical documentation, all without human intervention. Now let me take a broader view on AI because it is core to who we are and where we are headed. While many new AI entrants add lightweight tools that sit on top of fragmented revenue cycle workflows, Waystar Holding Corp. takes a fundamentally different approach. Our end-to-end platform gives us full visibility across the revenue cycle, including authorizations, claims, denials, and payments, and deep into the layers where complexity resides: payer policy, adjudication logic, diagnosis-related grouping, and denial reasoning. This breadth and depth makes Waystar Holding Corp. the system of action, identifying issues upstream, resolving them inside the workflow, and closing the loop on payment with minimal human intervention. For more than a decade, Waystar Holding Corp. has deployed AI, including machine learning and advanced decisioning engines across revenue cycle workflows at scale, grounded in proprietary data and embedded processes few in the industry can match. We are extending those capabilities with LLMs, generative and agentic AI, while maintaining control of the data, decisioning logic, and outcomes that matter most to providers. Today, approximately 50 of our solutions leverage AI, and nearly 40% of our revenue is driven by AI embedded in mission-critical reimbursement workflows. In 2025, roughly 30% of new bookings came from AI-powered capabilities. This signal is clear. Clients trust Waystar Holding Corp. to deliver AI that goes beyond assistance to enable agentic, outcome-driven revenue cycle automation. We believe Waystar Holding Corp. is well positioned to lead the next era of health care revenue cycle automation. The foundations of software moats are shifting in the age of AI, from workflow stickiness and switching costs to a new set of structural advantages. Our strength comes from four interconnected pillars: mission-critical infrastructure, unmatched proprietary data, an extensively deployed network and scale distribution paired with deep domain expertise. First, our platform is the mission-critical infrastructure providers need to get paid. Waystar Holding Corp. is embedded directly in the flow of dollars, decisions, and denials, and our 97% gross revenue retention proves it. Once clients implement Waystar Holding Corp., they stay. We reduce administrative burden, prevent billions in avoidable denials, accelerate cash flow, and ensure reimbursement accuracy at scale. Our commercial model is aligned with consumption, which is a function of providers seeing patients. As agentic AI streamlines workflows and reduces manual work, the durability of our model strengthens. Pricing is tied to claims, payments, or prescribing providers, directly matching how value is created in the revenue cycle. Operator: Our multiyear partnership with Google Cloud Matthew J. Hawkins: Gemini LLM accelerates innovation and we retain control of the data, decisioning, and outcomes providers care most about. As RCM moves toward agentic AI and autonomous workflows, our role deepens. Our agents act on behalf of providers, resolving issues, correcting errors, and closing the loop on payment. Second, Waystar Holding Corp. has an unmatched proprietary data advantage. AI strength ultimately comes down to data: its scale, richness, structure, and proximity to action. We operate one of the largest health care payment datasets in the United States, processing more than 7,000,000,000 transactions annually. With Iodine, we pair that financial depth with unmatched clinical data, and our models now learn from approximately one third of U.S. hospital discharges each year. We deploy AI across the full revenue cycle continuum, from authorization and eligibility to denials and appeals. Our data advantage is self-reinforcing. Every claim, denial, and payment improves our models. When a provider uses Waystar Holding Corp., they benefit from the learnings of tens of thousands of organizations like theirs: similar size, similar payer mix, similar challenges. And because our data spans the full care continuum—hospitals, physician practices, outpatient surgery centers—our models see patterns no single organization or new entrant can match. General purpose model vendors lack this real-time closed-loop proprietary data. Third, Waystar Holding Corp.'s platform is a deeply deployed multisided network, creating scale and connectivity that others cannot replicate. We sit at the center of the payer-provider-patient ecosystem, connecting over 1,000,000 providers to every major payer, powered by more than 100,000 live integrations across EHRs, practice management systems, clearinghouses, and clinical platforms. We touch approximately 60% of the U.S. patient population each year and process billions of dollars in patient payments across our network annually. We built this network over more than a decade. It represents scale, trust, and connectivity that cannot be bought or quickly engineered. Every transaction flowing through Waystar Holding Corp. increases network intelligence, sharpens model accuracy, and expands our distribution advantage—the result: a platform that strengthens continuously with every client we serve and every workflow we power. Fourth, Waystar Holding Corp. combines scale distribution with deep domain expertise. We serve providers across all care settings with low concentration; our top 10 clients represent approximately 11% of revenue, driving resilience, reach, and durable bookings growth. Our go-to-market organization consistently delivers strong win rates, rapid time to value, and compelling client ROI. Forward-deployed teams—product management, revenue integrity, clinical documentation, and client success experts—work directly alongside real workflows. Dozens of clients co-develop and pilot new AI capabilities with us, validating outcomes before broad release. We have already seen our AI-enabled engineering tools reduce manual work, in some cases by more than 75%, and we expect further improvement as we scale these capabilities in 2026. These pillars enable our AI to deliver outcomes at scale. In less than a year, Waystar Altitude AI has prevented $15,000,000,000 in denials and accelerated appeal package generation by 90%, turning work that once took days into minutes. Our network consistently achieves approximately 99% clean claim and first pass acceptance rates, driving faster, more accurate reimbursement. These outcomes expand our footprint, build trust, and help providers improve margins while freeing staff for higher-value work. Last month, we shared our vision for Waystar Holding Corp.'s autonomous revenue cycle—a dynamic, end-to-end agentic network that acts continuously within workflows, learns from outcomes, and delivers meaningful financial results with minimal intervention. Providers do not want point solutions. They need trusted cybersecurity platforms that unify financial, clinical, and operational outcomes. Our product roadmap is robust, and we expect to launch several new AI agents this year on Waystar Holding Corp.'s platform. We have the data, the deployment, the distribution, and the discipline to lead this next era of health care revenue cycle automation. We are moving with the urgency and the mindset of a disruptor because this moment demands nothing less. With that, I will turn the call over to Steve. Steven M. Oreskovich: Thanks, Matthew. Matthew J. Hawkins: Note that my comments regarding fourth quarter and full year 2025 results Steven M. Oreskovich: include a full quarter of contribution from Iodine. Revenue increased 24% year over year in the fourth quarter to $304,000,000. Organic revenue grew 12%, Matthew J. Hawkins: and Iodine contributed $31,000,000 in the quarter, slightly ahead of our previously communicated expectation. Steven M. Oreskovich: The growth reflects strong client retention and expansion, healthy patient utilization of the health care system, Matthew J. Hawkins: and new client implementations. The quarterly results highlight our durable, predictable model of low double-digit revenue growth annually on a normalized basis, and the highly recurring volume aspect of health care provides us predictability, Steven M. Oreskovich: creating a notable differentiation compared to most consumption models. For the full year, Matthew J. Hawkins: revenue increased 17% year over year to $1,100,000,000. On an organic basis, revenue increased 13%, consistent with our long-term target of low double-digit growth. Clients generating more than $100,000 of LTM revenue increased by 85 in the fourth quarter, to 1,391 at quarter end, an increase of 16% year over year. Steven M. Oreskovich: Roughly one half of the increase in the fourth quarter from the inclusion of Iodine clients. On an organic basis, the year-over-year growth rate is consistent Matthew J. Hawkins: with the quarterly average over the past three years. Our net revenue retention rate, or NRR, was 112% for the last twelve months, compared to 13% organic growth rate over the same period. Steven M. Oreskovich: As we have discussed over the past several quarters, Matthew J. Hawkins: NRR benefited from the rapid time to revenue from clients impacted by a competitor's cyber event in early 2024. Subscription revenue of $168,000,000 for the fourth quarter increased 38% year over year and 25% sequentially. On an organic basis, subscription revenue grew sequentially at a similar pace as the past few quarters. Steven M. Oreskovich: From a mix perspective, Matthew J. Hawkins: subscription revenue was 55% of total revenue, which aligns with previously communicated expectations. For the full year, subscription revenue of $558,000,000 increased 22% year over year. Steven M. Oreskovich: Volume-based revenue of $134,000,000 for the fourth quarter increased 11% year over year and 1% sequentially. Consistent with our seasonality expectations, revenue from patient payment solutions was lower than the prior quarter, Matthew J. Hawkins: this was more than offset by sequential growth from provider solution volumes. For the full year, volume-based revenue of $535,000,000 increased 11% year over year with steady double-digit growth from both provider solution transactions and patient payment dollars. Steven M. Oreskovich: Adjusted EBITDA was $129,000,000 for the fourth quarter at a 43% margin and increased 29% year over year. On a full-year basis, Matthew J. Hawkins: adjusted EBITDA was $462,000,000 at a 42% margin and increased 21% year over year. Our adjusted EBITDA margin of 43% for the fourth quarter benefits from approximately $2,000,000 of realized acquisition cost synergies, reflecting 1% of margin improvement for the quarter. Steven M. Oreskovich: Turning to the balance sheet and cash flow. We ended the quarter with $86,000,000 in cash, equivalents, and short-term investments, and $1,500,000,000 in gross debt. Unlevered free cash flow is $80,000,000 in the fourth quarter and $365,000,000 for the full year. We converted 79% of adjusted EBITDA to unlevered free cash flow, enabling us to continue sustained deleveraging. Matthew J. Hawkins: As of December 31, net leverage was three times, which is down almost a half turn since the beginning of the quarter when we closed the Iodine acquisition. We expect to run the business at or below a three times leverage ratio and delever in line with our historical rate of approximately one turn annually. Steven M. Oreskovich: We continue to maintain flexibility within our overall capital structure, and our allocation priorities remain unchanged. Matthew J. Hawkins: Invest in the business to drive top-line growth, evaluate disciplined acquisition opportunities, and explore ways to enhance shareholder value. Looking ahead to 2026 full-year guidance, we expect revenue of $1,274,000,000 to $1,294,000,000, with a midpoint of $1,284,000,000, representing 17% year-over-year growth. Steven M. Oreskovich: Our full-year guidance at the midpoint assumes normalized organic growth of approximately 10%, with a similar implied growth rate for Iodine. Matthew J. Hawkins: We also expect revenue to grow 1% to 3% sequentially throughout the year, with the third quarter at the low end due to seasonality of patient payments. Further, Steven M. Oreskovich: we assume utilization of the health care system by patients remains healthy throughout 2026, as the diversity of our client base, Matthew J. Hawkins: and ROI from our solutions insulate us from the reimbursement rate pressures that may impact our clients. Lastly, Steven M. Oreskovich: as Matthew mentioned, Matthew J. Hawkins: the record level of bookings and several sizable deals we generated this quarter contribute to our forward visibility. As a reminder, these larger agreements typically take six to eighteen months to fully ramp. Steven M. Oreskovich: And we would expect many to land towards the longer end of that range. Matthew J. Hawkins: Supporting our confidence in a normalized low double-digit revenue growth profile Steven M. Oreskovich: for 2026 and beyond. Please note that we have included a bridge from the 17% growth rate at the midpoint of guidance Matthew J. Hawkins: to the 10% normalized organic growth rate in the IR deck on our website. We expect adjusted EBITDA of $530,000,000 to $540,000,000, with a midpoint of $535,000,000, representing 16% year-over-year growth and a margin of approximately 42% for 2026. Steven M. Oreskovich: This includes gross margins of approximately 68%. Matthew J. Hawkins: Which is consistent with 2025. The 42% margin also includes an uplift of approximately 1% from realizing acquisition cost savings. Said differently, we expect to realize approximately $14,000,000 of savings in 2026, which is over 90% of the committed $15,000,000 we previously communicated and well ahead of the prior timeline. This reflects our commitment to quickly and successfully integrate Iodine. We are focused on reinvesting in the business in key areas we expect to drive long-term top-line growth and remain confident in our ability to do so while being mindful of our long-term adjusted EBITDA margin target of 40%. This concludes our opening remarks. With that, we are ready for your questions. Operator, please open up the call. Operator: Certainly. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. In the interest of time, please limit yourself to one question. Our first question will be from Brian Christopher Peterson of Raymond James. Your line is open. Matthew J. Hawkins: Congrats on the quarter. Matt, maybe I want to start off on AI, and I appreciate all the color you gave, the advantages you have in an AI world. But I wanted to understand, when you talk to your customers and say, looking at RCM specifically, what is their appetite to use LLMs and build on their own versus buy from somebody like Waystar Holding Corp.? I just wanted to understand how those conversations are going and how you can unlock some of that AI opportunity over the long term. Thanks, guys. Operator: Okay. And one moment for our next question. Our next question will be coming from Elizabeth Hammell Anderson of Evercore ISI. Your line is open. Hey. I will just let you respond to Brian's question, and then I can go. Please stand by. Matthew J. Hawkins: Because we are muted. I do not understand. You are not muted. Operator: Your line is open. Matthew J. Hawkins: Okay. Can you hear us okay? Operator: Yes. We can hear you. Matthew J. Hawkins: Excellent. Let me go back to Brian's question about AI. I appreciate his comments regarding our quarter and also our position and our strength and the opportunity that we see in front of us to win in the delivery of AI. I would note that the vast majority of clients we talk to would rather integrate AI capability into their systems of record or action that run the backbone of their business. And while there is some experimentation willingness and some exploration around how we can deploy AI or do some type of science experiment within our organization, what we see is the vast majority of providers want to work with a trusted partner where they have a history of deploying AI in a cybersecurity environment that is integrated and interoperable with other systems that they are utilizing. And quite frankly, most provider organizations do not have the abundance of engineering talent that they need to test and deploy AI, and it really is not true to their core competency of taking care of patients. So we feel like Waystar Holding Corp. is very well positioned to deliver AI as we have done so far and to continue that track record. Thank you, Brian, for the question, and sorry for the sound confusion. Elizabeth Hammell Anderson: Hey, guys. It is Elizabeth from Evercore now. Thanks for the question. You have mentioned several new AI agents launching this year. How do you think about that launching? Are those individually incremental revenue opportunities for Waystar Holding Corp. or combined with Iodine too? Or is that something that you see as helping to increase the moat of your current AI offering, or maybe some of both? Thank you. Matthew J. Hawkins: I believe it is a bit of both, Elizabeth. We are very excited about the product roadmap that we have in place, what we have ahead of us as far as delivering agentic capability to our clients and on our platform. Some of that will be brand new. It will be a new SKU with new price to value, reflective of the value that that agent is delivering to our clients. Other AI capability will add on to existing software modules that will bring incremental automation, and we are excited about that as well. As we think about monetization in general, the way to think about monetization of AI is this. Operator: First, Matthew J. Hawkins: if we deliver AI, it tends to drive retention and an elongation of a relationship with the client. So that tends to show up in strong retention results like the ones that we produce. We also can impose an annual price increase that is reflective of the value that we deliver. And in this case, we are watching closely and seeing that when AI delivers incremental automation, we are able to reduce Elizabeth Hammell Anderson: headcount. Matthew J. Hawkins: associated with a manual task that is now automated given the agent capability that we launched. We have the opportunity to price to value in that setting. And then the third, as I mentioned a moment ago, is the introduction of a new SKU, a new pricing, putting it in the hands of our go-to-market teams and selling it that way. So we look forward to further monetizing AI, but a lot of that is already showing up and monetizing through our core business model. Elizabeth Hammell Anderson: Great. Thank you very much. Operator: And our next question will be coming from Kevin Caliendo of UBS. Your line is open, Kevin. Matthew J. Hawkins: Hi. Thanks for taking my question. Just looking at the fourth quarter, you had G&A, R&D, D&A all stepped up. I am assuming that is largely Iodine coming into the numbers. And I appreciate you gave us the $14,000,000 in expected synergies to get to the margin guidance for the full year. Should we look at the Q4 margin as the run rate for those individual cost centers and take out the synergies? I am just trying to think about modeling the margins and where you might have additional leverage above and beyond that $14,000,000 in synergy, thinking through the fourth quarter? Steven M. Oreskovich: Yes, Kevin. Thanks for the question. This is Steve. I think to answer your first part of that question, you are correct. The step up there does include the additional cost of one full quarter of Iodine. As you think about the guide for 2026, a couple of things to think about, and as mentioned in the prepared comments, we would expect similar gross margin in the high 60s for 2026 as we saw in 2025. In addition, to your point, there are opportunities that we are continually focused on to improve the overall margin profile. We have set guidance at the midpoint of about 42% Matthew J. Hawkins: EBITDA. Sorry. Steven M. Oreskovich: of 42% for 2026, which includes about 1% benefit from those cost synergies. And again, we are continuing to look and will find additional opportunities for cost savings. So that does exist. But right now, the focus, from a capital allocation approach, and I mentioned it in the prepared comments, is to continue to reinvest in the business for long-term revenue and growth expansion. We have set the target, and we have probably beat it for the drum for quite a while now, low double-digit revenue growth, long-term target. But obviously, the opportunities we see in front of us—how do we reinvest now to expand that ultimately in the years going forward. Kevin Caliendo: Thank you. Operator: And our next question will be coming from Ryan McDonald of Needham & Company. Your line is open, Ryan. Kevin Caliendo: Hi, thanks for taking my question. Congrats on a great quarter. I would be curious, Matt, as you are having customer conversations, you talked about, obviously, there are a lot of new vendors in this space that are trying to overlay generative AI functionality on top of their existing systems versus your approach, which obviously is deeply integrated and built in an end-to-end platform. As you look at how budgets are being developed and being allocated, are you seeing more demand or conversations heading towards one-off, more point solution functionality or SKUs from a generative AI perspective? Or is this creating a broader refresh cycle where we might look at a full end-to-end modernization within RCM, and how do we think those conversations develop over the next twelve to eighteen months? Thanks so Matthew J. Hawkins: Yes. Thank you, Ryan. We are not necessarily seeing a clear delineation between a normal technology budget and an AI-specific budget. We are seeing willingness from clients to embrace AI. And again, speaking to the prepared remarks, they want to consume AI, but they want to do it in a very thoughtful way. I point to our recent Q4 results: the best quarter in our history, a really nice mix of new clients, cross-sell opportunities, AI embedded in those conversations, and we have, as we start 2026, a very robust pipeline of opportunities. And what we are seeing is not necessarily just a point solution willingness. We are seeing clients wanting to embrace, to your proper question, Ryan, more and more of the platform approach where there is an assumption that AI will be included in part of that platform. If you looked at our last two quarters of bookings in 2025, the number of $1,000,000-plus bookings in the last two quarters of 2025 were more than two times the quarterly average of the past three years. And so what this signals to us is that our platform approach is working. It is displacing, oftentimes, point solutions and multiple vendors, and there is willingness by clients to embrace and explore AI in that context. We do not necessarily see that being purely partitioned as a separate budget. Operator: And our next question will be coming from George Robert Hill of Deutsche Bank. Your line is open, George. Kevin Caliendo: Yes. Good morning, guys, and thanks for taking the question. I guess, Steve, I would ask you to break apart Iodine a little bit. The business did $31,000,000 in the fourth quarter. The back-of-the-napkin math looks like you are guiding to $125,000,000 to $130,000,000 for full year '26. So I guess it implies a little bit of flattening there. I know that you guys are historically conservative as it relates to guidance. I would like you to talk about that a little bit. And then maybe, Matt, the question that goes with that is, what do you feel like you are seeing for AI market growth in the health care space? I know that health care has historically been slow to adopt new technology solutions. It would seem like the macro AI market may be growing faster than the AI market in health care, which is probably to talk about those dynamics. Thank you. Steven M. Oreskovich: Yes. George, I will go first. We did, in the prepared comments, mention we expect an Iodine year-over-year growth rate to be similar to the 10% normalized organic growth rate that we set aside, or I commented on, for Waystar Holding Corp. for 2026. So I think our expectation would be a little higher than what you had mentioned, but somewhat in the ballpark there. And I think we see really good opportunities as it pertains to the totality of the solution set from the bookings that we saw in the fourth quarter that Matthew had mentioned, and especially as we think through the $1,000,000-plus bookings, the metric that Matthew had provided. Maybe I will just give a little bit more color on that before turning it to Matthew to answer the second part of the question because I figured you guys are going to ask at some point. Maybe to put a range for you on the account for the Q4 and Q3 $1,000,000-plus bookings number, that was in the 15 to 20 count range for each of the individual quarters. And as Matthew had indicated earlier, that is two times the amount we had typically seen on a quarterly basis for the past three years. So a healthy mix of both Iodine legacy Iodine solutions Matthew J. Hawkins: in that fourth quarter number as well. Matt? Steven M. Oreskovich: Yes. Great. Matthew J. Hawkins: George, and let me speak to the general question about AI. We feel like it is the biggest opportunity in our lifetime, and we are seizing it and making the most of it. What I would say is LLMs are great tools, and they are needed. And specific to health care, it is time for the industry to embrace technology, perhaps instead of services and manual work that has taken place for far too long. We see curiosity and interest there. This underscores, when you think about the LLMs in general, how important it is for us to have this now multiyear relationship with Google. I think we talked about our relationship with Google's LLM even a couple years ago in 2024 on one of our earnings calls. And we are delivering AI, and I think there is some real interest. A few thoughts come to mind. While some software may be displaced by AI, other software platforms like Waystar Holding Corp. are actually being strengthened, and AI is accelerating our ability to deliver capability. It is delivering strong results for our clients, and that is very important. I think trust, reliability, and scalability matter more than ever, especially in regulated environments like health care. Production-grade software has to be secure, scalable, and accurate. Kevin Caliendo: And Matthew J. Hawkins: so we are really grateful for the relationship that we have with Google. As I think about the things that are required, a few things to keep in mind with respect to the mission-critical problems within the revenue cycle. I will not opine broadly on health care. But just within the mission-critical problems in revenue cycle management, there are a number of things that are required. First, it is required to have Kevin Caliendo: rich and real-time proprietary data. Not Steven M. Oreskovich: publicly available data. Kevin Caliendo: And Matthew J. Hawkins: you need a payment source of truth. And we have that at Waystar Holding Corp. What else is required? Well, cybersecurity is required when you are thinking about deploying AI. Regulatory compliance is required. Deep subject matter expertise is required. Deep integration and connectivity, strong distribution, and client trust are required. And so when you think about this opportunity that we are seeing in health care, LLMs by themselves cannot deliver those things. But companies can. Companies like Waystar Holding Corp. can, so we are excited about the AI opportunity before us. Operator: And our next—excuse me. Our next question will come from Steven James Valiquette of Mizuho Securities. Your line is open, Steven. Kevin Caliendo: Yes. Good morning. Thanks for taking the question. I was curious if you could provide a little more color on your assumption around the utilization of health care by patients to remain, you said, I think, healthy throughout 2026. How should we think about that in the context of your historical baseline assumption of that 1% to 2% that you have talked about previously? Thanks. Steven M. Oreskovich: Yes, Steven. This is Steve. We have been on the higher side of that 1% to 2% historically. That aligns with what we have seen coming through the fourth quarter and the prepared comments as well that I made surrounding that. And we would expect continued nice healthy growth in both that volume-based aspect as it pertains to both patient payments revenue, which has historically been about 30% of our total revenue—mixing Iodine in going forward, it probably gets closer to 25%—but also then from those provider solutions, as Matthew had mentioned in the prepared comments, the transaction volumes that come from processing claims, eligibility checks, etc. So hopefully, that is helpful commentary. Steven James Valiquette: Yes. That is helpful. Thank you. Operator: And our next question will come from Alexei Gololobov of JPMorgan. Your line is open. Steven James Valiquette: Hello, everyone. Thank you for letting me ask a question. I was wondering if you can double-click on some of the comments you made last quarter about the timeline for patients meeting their deductibles, which impacted the patient volumes that we see you just talked about. What trends did you see at the end of Q4, and maybe how are you thinking about 2026? Steven M. Oreskovich: Yes. Certainly, Alexei. We did see sequential decrease from Q3 to Q4 as patients on high deductible health plans continue to hit their deductibles. That was more than nicely offset by the volumes coming through the provider solutions aspect of the business that led to less of an impact Q3 versus Q4 than we would have expected in the commentary that we had made last quarter. As we think about that aspect into 2026, I provided some commentary surrounding quarterly sequential growth expectation. As you hit on, Alexei, typically, with that 30% of revenue from patient payment solutions now getting closer to 25% going forward, we typically see a first half, second half of the year dynamic. Obviously, with the change in revenue mix, we would expect that to be not as notable as prior years. And we would expect nice sequential growth throughout the quarters in 2026. I mentioned a range of sequential growth of 1% to 3%, with calling out specifically the third quarter of the year being closer to that 1% of the range, and that is typically due to the dynamic expectations of over the past number of years, we typically see those patients that are on high deductible health plans start to hit those deductibles in the second half of the year, tend to see it most notably between the second and third quarter. So that is contextually a little bit more detail surrounding the sequential growth expectations in 2026. Steven James Valiquette: Appreciate it, Steve. And our next question would be Operator: will be coming from Allen Charles Lutz of Bank of America. Allen, your line is open. Steven James Valiquette: Good morning, and thanks for taking the questions. Matt, you mentioned 35% of bookings are now coming from AI-related products. You are speaking to these health system customers and prospects, and they are exploring AI. Does this, in your conversation, make them more hesitant to spend in the near term because they are trying to figure out where they want to put dollars to work? Or is this actually accelerating total spend? And I guess I am asking that question in the context of what you saw in the fourth quarter and how you think about 2026. Thanks. Matthew J. Hawkins: Yes. What we see is some constants. First, decision makers want efficiency. They want cost takeout. They want cybersecurity. They want to work with partners that can help them get paid faster, accurately, and efficiently. And so within that, what we are seeing is we continue to get prioritized in their decision-making process because the revenue cycle is mission critical. It is truly mission critical. Allen Charles Lutz: And Matthew J. Hawkins: you take a system of record, system of action like Waystar Holding Corp.'s, it is easier for clients to think through how do we work with Waystar Holding Corp. to deploy more AI. Obviously, very interested in using AI because it can drive efficiency, reduce cost, and drive automation—those things we talked about. And so where we tend to focus is on the ROI nature of the conversation. That is what is driving these types of record bookings and strong pipeline of opportunity. We highlight the fact that our prior authorization, for example, is 90% touchless and Allen Charles Lutz: can Matthew J. Hawkins: actually do the work that previously it took 12 employees to do in a mid-sized hospital. We highlight the fact that our Coverage-to-Care solution, which also uses AI capability, is helping to discover more than $20,000,000 of incremental insurance coverage to help aid these hospitals’ reimbursements, and that is in a typical-sized setting. We also highlight things like—I will give you one more example—for our digital patient payments and patient financial care suite, we use AI to help automate and create self-service for 80% of the patients that are interacting with our digital payment suite, Allen Charles Lutz: and Matthew J. Hawkins: that is lifting patient payments by 20% because we are driving better patient payment plan adherence. That typically is finding more than $8,000,000 of annual impact for a typical hospital. So these are the types of things that we highlight as we go and engage with clients, where they know they are going to be able to use AI in a setting, in a platform that they trust. That is why you are starting to see it show up in the bookings the way that we are. Operator: And our next question will be coming from Ryan Scott Daniels of William Blair. Your line is open, Ryan. Matthew J. Hawkins: Good morning. Thanks for taking the question. Maybe just sticking with questions about AI and the competitive landscape. A lot of the color you provided today so far has been incredibly helpful, but maybe to dig in a little further on the competitive landscape, when you are presenting your ROI, are you hearing any feedback from your customers about the competitive nature of some of the ROI that these other platforms are potentially offering, or these other solutions—maybe not necessarily platforms—that they are offering? How should we think about your ROI versus what maybe others are putting out there? Well, we will not disclose exactly what our ROI is. What I will say, Ryan, and thank you for the question, we have a very robust ROI calculator. We go through and go through a rich discovery process with clients, and we present to them a platform. Oftentimes, as you have heard us talk in the past, there is a compounding benefit when a client uses more and more of our solutions together on the platform. Again, those solutions are AI-infused, AI-enabled, and are driving tremendous results. I am sure that those clients are going through a process of Ryan Scott Daniels: comparing what Matthew J. Hawkins: Waystar Holding Corp. offers versus what an upstart or a newcomer or a point solution may offer. But I think what stands the test of time and what we are seeing is really robust win rates. We noted improvement in the quarter above our strong 80% win rates. We noted that even higher in the last little bit. And so we feel like our ROI is very compelling, Ryan Scott Daniels: and Matthew J. Hawkins: more and more clients are buying into this idea of the importance of a platform approach as they begin, and they want to consume AI on a platform. Operator: Our next question will be coming from Ryan Scott Daniels of William Blair. Your line is open, Ryan. Ryan Scott Daniels: Yes. Thanks for taking the question. Matt, maybe a Matthew J. Hawkins: strategic one for you on AI and the improvements you are seeing in the platform, especially with Iodine and their solutions and data assets. You have talked about the perfect claim, and I am curious if this can provide you with a contracting advantage longer term strategically where you can go in with a fully integrated platform but maybe increase the total value add, maybe share in some of those savings. So are there any potential thoughts on risk-based contracts or tying to other KPIs you know you can improve on an accelerated basis and maybe see not only a win rate delta from doing that versus some of your peers but also maybe greater revenue enhancement or an accelerated timeframe with novel contracting? Thanks. Ryan Scott Daniels: Thanks, Ryan. Matthew J. Hawkins: Appreciate that thoughtful question as well. You know, we talk a lot at Waystar Holding Corp. about building the autonomous revenue cycle platform. This dynamic, end-to-end agentic network that acts continuously within workflows, learns from outcomes with real sources of payment truth, and then delivers the perfect, undeniable claim—real financial results with minimal intervention. It is on our roadmap. We have teams of people focused on how we create, with minimal intervention, this environment where we keep a human in the loop appropriately as AI continues to learn from our massive proprietary data. How do we march toward that perfect, undeniable claim? We are absolutely willing to explore some performance-based pricing opportunity in this space. It is something that we will not talk a lot about in the public domain here, but it is something that we contemplate internally as we think about how to price to the value that we are delivering to our clients. Operator: And our next question will be coming from Brian Scott Daniels of William Blair. Your line is open, Brian. Steven M. Oreskovich: Hey, good morning, guys, and congrats on the quarter. I really appreciate all the comments today, Matt. But as I think about Adam R. Hotchkiss: you talked about how important the platform is and the one-stop shop approach from your clients. One question we are getting a lot is when we think of the traditional EHR players or vendors trying to build AI capabilities that touch into RCM, how do you think about that? And maybe how does the clearinghouse factor into that decision, which platform your clients—these hospitals or provider groups—would build on when they choose the one-stop shop solution going forward? Thanks. Right. Yes. Matthew J. Hawkins: Thanks for the question, Brian. We are very focused on revenue cycle, Ryan Scott Daniels: clearinghouse, Matthew J. Hawkins: successful payment. And so as you know, we connect to over 500 different instances Ryan Scott Daniels: of Matthew J. Hawkins: practice management and electronic health systems, including some of the largest in the United States. We have not seen a successful test or result of anybody creating an EHR system and creating a clearinghouse. It tends to be a different development motion, a very different set of capabilities required to build and sustain a network. We have been building Waystar Holding Corp.'s Ryan Scott Daniels: cloud-native modern clearinghouse Matthew J. Hawkins: for over a decade. And we monitor it and pressure test it and update it continuously, Ryan Scott Daniels: intradaily. Matthew J. Hawkins: That is very different from developing an electronic health record solution or a practice management system, quite frankly. And so as we stay focused Steven M. Oreskovich: on Matthew J. Hawkins: our platform, and being highly interoperable and deeply deployed with all the electronic health record systems in the market, we think that is the winning approach. We can specialize in what we are doing. We can be a linchpin solution to those EHR systems and a great partner to our clients in helping them get paid. Operator: And our next Richard Collamer Close: will be coming from Richard Collamer Close of Canaccord Genuity. Your line is open, Richard. Matthew J. Hawkins: Yes. Thanks for the question. Congratulations on the year. Just Sandy Draper: maybe a little bit more on the AI, and Richard Collamer Close: OpenAI, Cloud for Healthcare, both had some notable organizations listed in their press releases on the launches, like HCA, Boston Children’s, Stanford, and some, I assume, are Waystar Holding Corp. clients. I am just curious what your thoughts are. Do you see situations where clients will have multiple vendors for certain AI functionality, meaning it is not necessarily a zero-sum game, which the market seems to be pricing in? And then also just your thoughts on the health care landscape overall. There are a lot of the haves and the have-nots, and maybe some of these larger AI companies are not necessarily good fits for certain customers. Richard Collamer Close: Yep. Sandy Draper: Thank you, Richard. Matthew J. Hawkins: I would say, Sandy Draper: again, Matthew J. Hawkins: it is an exciting time in health care. This is the moment of a lifetime where generative AI capability is available to hospitals and health systems and any organization. LLMs are great tools to develop and deliver features and functions. We see that internal to Waystar Holding Corp., again, as we utilize Google's LLM. What I would say is having a heterogeneous deployment of technology is not a new phenomenon in health care. It tends to not be a zero-sum game in health care. There may be some misunderstanding or a lack of appreciation for how heterogeneous health care technology is being deployed. But again, to solve the mission-critical problems that are demanded in the revenue cycle that, quite frankly, Waystar Holding Corp. solves, you have to have a deeply deployed, multisided network to connect organizations to payers and to patients. It is required to have rich and real-time data that you can use to real-time train your network so that you do not have the luxury of having a science experiment in your revenue cycle. There is a limited tolerance for any type of fault. RCM has to be 100% right; otherwise, there are penalties. There are fines. There are all sorts of other things that can go bad. So having rich and real-time data is important. Having subject matter expertise—It is tough to get all of that within one hospital or health system. Most hospitals and health systems, to your second part of your question, do not necessarily have the abundance of engineering talent that they need to build and then sustain and support AI capability. So we think the longer-term Richard Collamer Close: benefit is really Matthew J. Hawkins: what Waystar Holding Corp. can do, and vendors like Waystar Holding Corp. can do, to help deliver AI that can be consumed thoughtfully in workflows that employees understand, etc. The last thing I would say is speaking of the haves and have-nots that you highlighted, Richard, I think there are very few hospitals and health systems that have the resources to deploy AI and sustain it and manage it themselves, and meet regulatory requirements, and do all the things that you are obligated to do if you are working and using technology inside a hospital and health system. The vast majority of our clients, for example, especially on the ambulatory side, the non-hospital side, Adam R. Hotchkiss: they are Richard Collamer Close: we are bringing Matthew J. Hawkins: we are bringing equity and fairness and modern AI capability to them that they would never be able to develop by themselves. There is something really cool about that that inspires our work. Operator: And our next George Robert Hill: question will be coming from Michael Cherny of Leerink Partners. Your line is open, Mike. Michael. Matthew J. Hawkins: Good morning, and thanks for taking the question. Steven M. Oreskovich: Another AI one for me, but Adam R. Hotchkiss: along all those same lines, as you think about your role, your integration with various different Sandy Draper: partners, Matthew J. Hawkins: how do you make sure that your organic, inorganic R&D investments Steven M. Oreskovich: stay on top of the curve so that you are continuing to deliver value? You are continuing to make Adam R. Hotchkiss: sure that you box out Steven M. Oreskovich: other providers, be it purpose-built or some of these larger companies relative to their ability to try and deploy AI either to disrupt you, to intermediate you, or whatever term you might want to use. Thank you. Matthew J. Hawkins: Yes. I would say we have talked a lot about LLM tools right now. They are good for coding efficiency. We are deploying LLM tools, as I have mentioned. We feel like basically everybody is using LLM tools. Ryan Scott Daniels: It is the LLM advantage. Matthew J. Hawkins: Is the use of the LLM the advantage? We would argue that you need other capability to be competitive and to deliver value to clients. So from an organic perspective, how do we stay ahead? We are investing in innovation. We are using LLM capability ourselves. We are seeing productivity gains amongst our development teams as we highlighted in our prepared remarks. We are delivering hundreds and hundreds of feature improvements in any typical quarter that help our clients achieve fantastic results. We also have a dedicated corporate development team, and we scan the market all the time to look at some of the startups that are creating novel and unique AI capabilities that may not have the distribution or the deeply deployed network that we have. We think we can be a great home for the right types of companies. But it is a very exciting time, and Waystar Holding Corp. is very motivated to continue to deliver value to our clients and to our shareholders. Operator: I would now like to turn the conference back to Matthew J. Hawkins, CEO, for closing remarks. Matthew J. Hawkins: Great. Okay. Thanks so much for the time and the thoughtful questions today. To summarize, Waystar Holding Corp. is executing from a position of strength. We are delivering durable growth, strong margins, and meaningful cash generation while extending our leadership in AI-powered revenue cycle automation. Our AI is not experimental. It is embedded, monetized, and delivering measurable outcomes inside mission-critical workflows our clients rely on every day. With unmatched data, deep deployment and domain expertise, strong distribution, and a disciplined operating model, we believe Waystar Holding Corp. is exceptionally well positioned to compound value over the long term. I would especially like to thank our outstanding team for their dedicated and impactful work. They are the reason that Waystar Holding Corp. continues to perform at this level. We appreciate your interest and support, and we look forward to updating you on our continued progress. Thank you, everybody. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
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Please stay on the line, and we will be back in just a moment. Operator: Thank you for holding. We sincerely appreciate your patience. Please stay on the line, and we will be back in a moment. Operator: Thank you for holding. We look forward to talking with you soon. Please hold the line, and we will be right back with you. Operator: Thank you for holding. We look forward to talking with you soon. Please hold the line, and we will be right back with you. Operator: Thanks for holding. We appreciate your time and patience. Please stay on the line, and we will be back in just a moment. Operator: Thanks for holding. We appreciate your time and patience. Please stay on the line, and we will be back in just a moment. Operator: Thank you for waiting. Your patience is appreciated. Please hold the line and we will be right back with you. Operator: Thank you for standing by, and welcome to the Krystal Biotech, Inc. 4Q 2025 Conference Call. At this time, all participants are on a listen-only mode. After the speakers’ presentations, there will be a question-and-answer session. As a reminder, today’s conference is being recorded. I would now like to hand the conference over to your host, Stephane Paquette, Vice President of Corporate Development. Good morning, and thank you all for joining today’s call. Stephane Paquette: Earlier today, we released our financial results for the fourth quarter and full year of 2025. Stephane Paquette: The press release is available on our website www.crystalbio.com. We also filed our earnings 8-Ks and 10-Ks with the SEC earlier today. Joining me today will be Krish S. Krishnan, chairman and chief executive officer, Suma M. Krishnan, president of research and development, Christine Wilson, senior vice president and head of US commercial, Geraint Goeks, senior vice president and general manager for Europe, and Kathryn A. Romano, chief accounting officer. This conference call will and our responses to questions may contain forward-looking statements. Are cautioned not to rely on these forward-looking statements which are based on current expectations using the information available as of the date of this call and are subject to certain risks and uncertainties that may cause the company’s actual results to differ materially from those projected. A description of these risks, uncertainties, and other factors I will turn the call over to Krish. can be found in our SEC filings. Krish S. Krishnan: With that, thanks, Stefan. Krish S. Krishnan: Before I begin, I want to recognize Suma for being named to the innovator list. The concept of enabling repeat dosing of a genetic medicine in a home setting Krish S. Krishnan: by the patient is truly innovative. So congrats, Suma. Krish S. Krishnan: Stepping back, Krish S. Krishnan: I am very pleased with where we are at Krystal. On the commercial side in 2025, Krish S. Krishnan: we have made meaningful progress across all geographies. In the US, we added sales capacity and successfully reaccelerated demand. In Europe, despite the country-by-country nuances, we launched a genetic medicine that can be applied in a home setting by a patient. In Japan, we leverage the attributes of Visevac to establish a strong value proposition for patients. And we continue to broaden BIZUVEC access Krish S. Krishnan: To date, Krish S. Krishnan: we signed distributor agreements covering more than 20 countries and our goal is to expand to over 40 countries in 2026. More importantly, the patient stories that we continue to hear about how Vizureka is changing lives remains deeply motivating for our entire team. On the pipeline, we are currently in the middle of two registrational trials in NK, and in treating eye lesions in deaf patients. With the potential to initiate two additional registrational programs in CF and Haley Haley later this year. Together, that positions us well the next five years and we believe that if approved, we have the capabilities to self-launch these four indications. Meanwhile, the oncology and the one trials continue to progress well. None of this would be possible without the dedication of the Krystal team. And I am grateful for their commitment and execution. Krish S. Krishnan: Overall, Krish S. Krishnan: Krystal is building a durable commercial gene therapy company with disciplined capital allocation. We are generating strong gross margins, and operating profitability while expanding global access for Vizurevac. And advancing a focused pipeline. Our operating principle is straightforward. Invest behind measurable execution milestones, compound value without relying on dilution, and work diligently to get the next pipeline medicine approved. Turning now to results. We are pleased to report another quarter of revenue growth with net Vysovic revenue of $107,100,000 in Q4. That brings total net Vysoebec revenue since launch to over $730,000,000. The net revenue reported this quarter includes contributions from Europe and Japan as we build momentum in our initial overseas markets. Christine and Laurent are both here today and will share more country-level color in a moment. Gross margin was 94% for the quarter, and 94% for the full year. We continue to expect gross margins in the 90% to 95% range for the foreseeable future. Krish S. Krishnan: With that, Krish S. Krishnan: I will turn it over to Christine to provide an update on the US commercial performance. Christine Wilson: Thank you, Krish. We remain very encouraged by the VYJOVAC launch and the momentum we are seeing in the US. Christine Wilson: Which continues to support our long-term commercial outlook. I am pleased to share that we have now seeing reimbursement approval acceleration for three consecutive quarters with over six sixty since launch. Reflecting strong execution by our commercial organization. As we continue to expand our reach into the community setting, we added over 50 new prescribers in Q4 2025 and have reached over 500 unique prescribers since launch. With our expanded sales force now fully trained and deployed, we are also seeing continued improvement across key demand metrics. The impact of our expanded sales force is supporting broader patient identification across the United States. Including patients with DDEB. That are being treated by local dermatologists or primary care physicians. It is encouraging to see the benefits that Visovac providing to patients across the full spectrum of disease severity. From severe cases to mild and moderate presentations. Patients are achieving durable wound closure. Which in many cases is allowing them to transition to as-needed of Vidubic over time. Importantly, our commitment to the deaf community remains unwavering. As the market continues to evolve as expected through the launch, we remain focused on optimizing our processes to better support patients and providers. We continue to execute on this through strong partnerships with advocacy and centers of excellence, ongoing feedback from HCPs and patients gathered through objective market research, and a continued focus on driving operational improvements and advancing the standard of care. I will now hand the call off to Laurent to share updates on the Vizurevag launch overseas. Laurent? Laurent Goux: Thank you, Christine. Laurent Goux: It is my pleasure to share the latest on our operations outside the US, including an update on Japan on behalf of our colleagues. I am proud to report that our global Vidirect launch continues to progress very well. The high patient demand we are seeing across our very different markets validates the transformative impact VYJUVEC brings to the dystrophic epidermolysis bullosa patients and their families. We now estimate that over ninety TED patients have been prescribed by Jureka across Germany, France, and Japan combined. Laurent Goux: Our long Laurent Goux: in Germany continues to build momentum since late August of last year. We are sustained prescription growth and good prescribing breadth. The initial centers of excellence are now routinely prescribing VituVec, and we are expanding it to the broader community setting. This geographic distribution is critical for patient access, as it allows the patients to initiate therapy closer to home, reducing the burden on both patients and individual treatment centers. After initiation in a center, most of the patients are already benefiting from home administration. In France, our launch is progressing well, under the AP2 early access program. The AP2 program is functioning exactly as designed, providing eligible patient access to VYJUVEC while we complete our negotiations with the French health authorities. Importantly, subject to the early access conditions, physicians and patients are demonstrating strong confidence in VITUVEX clinical profile. Please note that pricing negotiations in Germany and France are ongoing and progressing well. We expect this negotiation to continue until at Laurent Goux: least the 2026 in Germany, and 2027 in France. Our colleagues are also achieving early launch successes in Japan after successfully negotiating pricing in October. This include this includes building a unique in-country distribution model to enable home delivery while addressing the many strict regulation regarding the handling of gene therapies in Japan. Leveraging this infrastructure, our team is driving YJUVEC adoption and patient treatment in the home setting. Looking ahead to our next launch market, we currently expect to finalize pricing and launch in Italy in the 2026. Italy represent another significant dead patient population, and we are working diligently to ensure timely access to these patients. Additional pricing negotiations are advancing on schedule in Europe and the UK. I would like to highlight another important validation of VITUVEC’s clinical impact. In December, Vajuvac was awarded the Prix Galien in France, for innovation and clinical impact in the treatment of dystrophic bullosa. This recognition from the French medical and scientific community underscores the transformative nature of Vidrovec and strengthen our position in ongoing reimbursement discussions across Europe. Looking beyond our direct markets, I am also pleased to share that we have expanded our distributor network to now include Israel. This expansion demonstrates our commitment to serving the patients across various geographies, and positioned us well for continued growth. While it is still early in our commercialization journey outside the US, we are seeing the foundation being established for sustainable revenue growth in these markets. The successful pricing negotiations we completed in Japan have been very encouraging and we believe provide a positive benchmark for our ongoing European discussions. With that, I will turn the call over to Suma to share the latest on pipeline development at Krystal. Suma M. Krishnan: Thank you, Loran, and good morning, everyone. It is my pleasure to share today’s update on our development efforts. Thanks to the hard work of our dedicated R&D team, we are making rapid progress on our rare disease pipeline, generating breakthrough clinical data, and moving quickly towards multiple registrational data readouts later this year. I would like to start by highlighting one such breakthrough recently achieved with our KB407 program for the treatment of cystic fibrosis. A little over a month ago, we announced a successful delivery and expression of full-length wild-type CFTR protein following KB407 administration to the lung of patients with CF. Not only could we confirm full-length protein expression in CF patients, with class one mutations we also saw that HSV1 airway cell transduction was consistent across all patient biopsied. In a diverse patient population, including four modulator ineligible patients, Suma M. Krishnan: with Suma M. Krishnan: uncorrected lung disease we consistently observed transduction rates ranging from 29% to 42% and all usable biopsies were positive for transduction. Taken together with encouraging apical CFTR expression observed in class one patients as well as durability of expression out to at least 96 hours these results give us high conviction the potential of KB407 to fill the treatment gap that exists today for modulator ineligible patients. We are working closely with the CFFTDN and the FDA on a repeat dosing study design and streamline pathways to support registration. We look forward to sharing updates once we have aligned with the agency and expect to start repeat dosing in the first half of the year. Our KB407 results also have profound implications for our platform. Showcasing the versatility of HSV1-based gene delivery to epithelial tissues beyond the skin. Another important advantage of our HSV1 is the potential for convenient at-home dosing. Although it took us a few years, we are very proud that VIGIVEC is now approved in the United States, Europe, and Japan administration in the home setting with the option for caregiver or patient administration. This is a fantastic breakthrough for that patient and one, we want to secure as many of our pipeline programs as possible. Including our ophthalmology program, KB801, and KB803. To that end, we have updated the protocol of EMERAL one our registrational study, evaluating KB801 for the treatment of NK. Our updated AB801 study protocol is briefly summarized here. To expedite the potential path to registration, we have up ized the study and now expect to enroll approximately 60 patients in the study. And to enable flexible administration options from launch while also mitigating the risk of human error when administrating an eye drop, we have updated the KB801 dosing regimen. Patients enrolled in EMERALDE one will receive KB801 or placebo once daily. Importantly, KB801 or placebo may be administered either by HCP or by a caregiver or the patient after receiving appropriate training. We believe that this change will provide maximal flexibility to patients and their caregivers and ultimately support superior real-world outcomes. It is also a change that is only made possible that we have observed to date across by the clean safety profile both KB801 and KB803 programs. We do not expect these changes to meaningfully affect our timelines to data readout. Thanks to the rapid expansion of our clinical trial site network, already over half the number of sites have been activated. And we are well on our way to target 30. We continue to expect data before the end of the year. to our KB803 program we have made similar updates again, with goal of maximizing flexibility and real-world outcome for patients from the day of launch. Our KV803 protocol is summarized here. Patients enrolled in the study will receive KV803 or placebo three times weekly. As with KV801, KB803, all placebo may be administered either by HCP or by a caregiver or the patient after receiving appropriate training. With our existing trial network and patients available for rollover, from the natural history study, we expect to complete enrollment the first half and report data before end of the year. We are also making tremendous progress across our broader pipeline. Working towards our registrational study start, and multiple additional clinical data readouts before year end. Our clinical development efforts for KB111 our latest rare skin disease program, for the treatment of Hiri Hiri disease are progressing well. Our team is in the process of developing our HHD-specific scale and is on track to complete the study in the first half of the year enabling a registrational study start in the second half. We expect many of our patients from the scale validation study to enroll into the registrational study. We are actively enrolling patients with AATD lung disease in our KB408 repeat dosing study and expect to be able to issue a data update before year end. This study includes multiple bronchoscopies, both at baseline and after four week week KB408 doses. And will help us better understand the illicit effects of repeat KB408 dosing on lung AAT and bound neutrophil elastase levels. These are key data points that will support accelerated approval discussions with the FDA. We are also enrolling patients on our phase 1/2 KYNITE1 evaluating inhaled KB707 in patients with advanced NSCLC. Here as well, we are on track for clinical data updates later this year with an opportunity to move quickly into a registrational study having already received FDA input, on a phase 3 study design, to support a potential filing. Finally, I would like to make a special mention of the two program designations we recently received from the FDA. In January, the FDA granted us a Fast Track designation for KB111 and earlier this month, we received Suma M. Krishnan: These designations underscore the potential of our programs a RMAT designation for KD707. Suma M. Krishnan: to address urgent unmet needs for patients with rare and serious diseases. We also provide important advantages to accelerate our program including opening the door to accelerated approval, based on surrogate or intermediate endpoints. Having received similar designations for Vigevac in the past, we are well versed in the many benefits they can provide and how to best leverage them. We look forward to working closely with the FDA to accelerate KB111, KB707, and a broader pipeline of redosable genetic medicines. With that, I will hand the call over to Kate. Thank you, Suma, and good morning, everyone. I will now provide some highlights from our fourth quarter and full year financial results reported in our press release and 10-Ks filing earlier this morning. We previously announced preliminary Q4 2025 Vigebeck net revenue of $106,000,000 to $107,000,000. Our final net revenue from global sales of VYJEVEC during the 2025 was $107,100,000 which includes sales from our Q4 launches in both France and Japan. Kathryn A. Romano: This marked growth as compared to the prior quarter of almost 10% and approximately 18% growth when compared to the prior year’s fourth quarter. Year to date, Vigevec net revenue was $389,100,000, an increase of approximately 34% compared to full year 2024 revenue. Gross to net revenue percentages remain consistent with prior quarters. Cost of goods sold was $6,600,000 compared to $4,300,000 in the third quarter and $4,900,000 in the prior year’s fourth quarter. Gross margin for the quarter was 94%, as compared to 96% in the third quarter and 95% in the 2024. This change in gross margin is in part due to the volume of products sold outside of the U.S. increasing which still carries a higher cost per unit ahead of our planned manufacturing process optimizations for products sold in these markets. were $14,800,000 R&D expenses compared to $13,500,000 in the prior year’s fourth quarter and SG&A expenses were $41,400,000 compared to $31,300,000 in the prior year’s fourth quarter. This increase was primarily due to increased headcount, legal and consulting services, and marketing costs to support our global launches of Vigebec. Operating expenses for the quarter included noncash stock-based compensation of $13,800,000 compared to $13,400,000 in the fourth quarter of last year. Consistent with the prior year, we are providing guidance on our non-GAAP operating expenses. For 2026, we anticipate approximately $175,000,000 to $195,000,000 in non-GAAP R&D and SG&A expenses. This represents an increase over year-to-date 2025 actual non-GAAP R&D and SG&A expenses of $150,300,000 and is the result of our continued planned spend on VYJEVAP global launches and further development of our pipeline. Kathryn A. Romano: As we discussed in the third quarter, Kathryn A. Romano: we released a majority of the valuation allowance that was previously recorded against our deferred tax assets. We also benefited from the reversal of the Section 174 R&D capitalization requirement under the One Big Beautiful Bill legislation. This resulted in a onetime noncash tax benefit that increased reported EPS for this year. Kathryn A. Romano: Net income for the quarter was $51,400,000 which represented $1.77 per basic and $1.70 per diluted share. Kathryn A. Romano: Net income for the year was $204,800,000 which represented $7.08 per basic and $6.84 per diluted share, reflective of the previously mentioned onetime benefits. And finally, we ended the year with $955,900,000 in combined cash and investments which positions us well to support our commercial launches globally as well as our upcoming pipeline milestones in the year ahead. Stephane Paquette: Thanks, Kate. And now I will turn the call back over to Krish. I would like to reiterate a few key points before we open for questions. First, geographic expansion is a meaningful tailwind for Vizureka and for Krystal. Krish S. Krishnan: There are more DEP patients outside the United States than within it, and we are still early in addressing global demand. In 2026, we will continue on a disciplined international rollout and we look forward to adding our third European market, Italy, in the second half of the year. With large identified patient pools, strong demand, and favorable product labels in Europe and Japan, we expect our overseas expansion to be the predominant driver of revenue growth in 2026. In the US, demand continues to grow, but we are also seeing an evolution in utilization patterns among some longer tenured patients shifting toward more intermittent treatment cycles as their disease management stabilizes over time. Second, as we add patients overseas, it is important to note that revenue may not track linearly with patient counts this year, due to accruals, timing effects, and ongoing pricing negotiations. That said, having completed strong successful negotiations in Japan, we believe we have a strong value proposition to present to European payers and we look forward to reaching final alignment on pricing. On the clinical front, we understand the importance of our registrational programs and we are executing methodically to drive the desired outcomes. We remain on track to move KB407 into repeat dosing in the months ahead, and we strongly believe the updates to the KB801 and KB803 protocols position these programs to deliver tangible real-world benefit, maximizing convenience, and building resilience to account for the inevitable human factor that comes with self-dosing. We were also pleased to receive RMAT for KB707 and Fast Track designation for KB111, two designations we know well, and that can meaningfully shorten development timelines. We are excited to advance both of those programs along with KB408 for alpha one deficiency which is progressing through the redosing phase of the initial study. Krish S. Krishnan: Overall, Krish S. Krishnan: 2026 is shaping up to be a busy and an important year and we are approaching it with a lot of enthusiasm. But that let us open the call for questions. Operator: Certainly. At this time, we will be conducting a question and session. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Operator: Your first question for today is coming from Roger Song with Jefferies. Excellent. Roger Song: Thanks, team, for the update, and congrats for the successful 2025. A couple of questions from us. On VEGIVAC, I heard you said a couple comments around the US versus the US. Given two months in the 1Q, any visibility into the 1Q and then looking ahead of 2026, particularly contribution Roger Song: from ex US versus US on dollar value? Because I hear you say the revenue driver predominantly will come from the ex US in 2026. Thank you. Krish S. Krishnan: Yeah. Thanks, Roger. Thanks for the question. I want to clear out a couple things. While I did say that the predominant growth driver will be from ex US, I do want to highlight that demand in the US is accelerating. Mean, you heard Christine talk about the number of reimbursement approvals being up Q over Q. And the the the the one comment on while demand in the US is accelerating, you should also assume that patients are now starting to settle into a start stop regime. Which is kind of tough. It is nuanced, the kinetics of that is kind of a bit hard to predict. But in Europe, which, for the launch is recent, definitely, it is an accelerating growth driver. When you think about without without exception. That all said, in terms of breakdown of US versus ex US, we at the moment, pretty strongly believe that when we report 1Q, we will be breaking them out. Roger Song: Got it. Yeah. Thank you. And then in terms of the pipeline, I just noticing you adjusting the dosing regimen for both ocular and NK. Be a little bit more frequent. Just curious any data to support I I heard you said that yeah, avoid that human error. So any data to suggest more frequent dosing may be resulting better outcome and any plan to test less frequent dosing later on? Thank you. Suma M. Krishnan: Yeah, I can take this. I mean, with 801, weekly dose was deliberate. I mean, obviously, we have seen our blinded data from, you know, and we feel pretty confident about that data. The reason with initially we started the talk with, you know, in-clinic dosing for 801 and we realized commercially for this to be a viable product, we have to you know, it has to be home administered. So again, there was, you know, interactions with the agency to get that home dosing. I mean, obviously, now it is implemented. The change was deliberate because now that the dose is being administered by the patient at their home, obviously, train the patient. I mean, there is always nuances with it. Right? I mean, our concern is you want to make sure that, you you know, in the in the event of daily administration, you know, there is a dose that they you know, does not get into the eye. They blink. You know, all kind of sort of administration administration errors. So we thought it would be easy. We have a very safe profile. And the drug is clean. So we figured, you know, it is better to avoid and also you know, more it is easy for the patient to remember. Right? Daily one dose in the morning, you can drop it in the eye. I think it was deliberate for to make sure that dosing is know they comply and we get the right dose in AI. Got it. Yep. Yeah. Makes sense. Thank you. Your next question is from Sami Corwin with William Blair. Good morning. Thanks for taking my questions. Samantha Danielle Corwin: I was curious if you could provide any insight into the compliance rate so far in the EU and Japan. And then, Chris, previously, you have commented on giving Krystal’s growing profitability the company could potentially explore. Stock buyback options. So I guess I just wanted your updated thoughts there versus increased investment in the pipeline or M&A? Samantha Danielle Corwin: Thanks. Samantha Danielle Corwin: Thanks, Tammy. Krish S. Krishnan: When you when you talked about compliance, were you referring primarily to the United States compliance number, or was it outside? Outside. Outside. In the US. Yeah. Look. In Europe, compliance has been just as compliance has been had been in the US when we first started the launch, the only comment on Japan I would make is by law, in Japan, in the first year of launch, the patient has to the patient only gets a two week prescription. And so one of the things which is a bit burdensome in the early days of the launch is for the patient to have to go back to the physician to get a new prescription every two weeks. Today, patients have been pretty compliant. It is the early days of launch, but when you look out over the next six to nine months, one could imagine a situation where some patients may drop off on compliance purely based on this burden but if there are any such dropouts, our expectation is by the time year two rolls out, which is the late second half of this year, we expect compliance to come back up. To normal levels. Samantha Danielle Corwin: Okay. And for for Japan, that that Samantha Danielle Corwin: two week prescription burden, you said that lasts for the first year? Yep. Krish S. Krishnan: Yeah. Okay. And on your second question on profitability and share buyback, Krish S. Krishnan: look, Krish S. Krishnan: we understand we have a few research programs you know our pipeline. We have a few rare diseases that are in registrational and have to launch. We have a couple large indications, one being oncology, one being an alpha one, one being in aesthetics. And until we kind of have a better sense of how those larger indications are gonna go. In terms of having a partner having some support, either in development or in commercialization. It is difficult to be very definitive on a timeline for a stock buyback. But that said, one thing I have made clear in the past is we are not intending presently to use any of our cash towards in-licensing or buying any kind of third party technology or company at the moment. Samantha Danielle Corwin: Makes sense. Thank you. Operator: Your next question is from Alex Stranahan with Bank of America. Alec Stranahan: Questions, and congrats on the close to the year. Two questions. Maybe first on ex US. Could you just remind us what is left on the pricing negotiations? And how you expect the balance of price and volumes to trend over the course of this year into next in France, Germany, and Japan? Yeah. Krish S. Krishnan: I think our present expectation is that we would have reach some kind of pricing agreement with Germany in the second half of this year. It is tough, Alec, at this point to say if it is a 3Q or a 4Q, but our expectation is sometime in March. With respect to France, clear expectation that we will not reach pricing agreement this year and probably be shipped shifted to sometime in the first half of next year. That is our present expectation. Japan, we already have a price. The only thing to remember is in Germany, we will be accruing until the pricing is definite. We will also be accruing in France until the pricing becomes definitive. And in general, and I have reiterated this in the past, we tend to be a bit conservative when it comes to accruing. For a future price. Alec Stranahan: Okay. That makes sense. And then just maybe on ophthalmology, curious what kinds of updates you can get from these studies at this point given they are both actively enrolling? I guess just a bit more on specifically what drove the modified dosing regimens and given the protocol amendments, curious if your comfort with the study powering has changed at all as well. Either an NK or or or DDEB. You. Suma M. Krishnan: Yeah. No. As you can see, the powering and the number of patients have not changed. Because, I mean, we clearly know that, you know, from oxalate and what the effects is. So know, give us confidence on from our data. With regards to you know, again, 801, we have 50% of our sites. We mean we are targeting 30 sites. You know, we can maximize and optimize speeding up the process of enrollment. So with 60 patients even, you know, on average of two patients per site, we should be good to go. So we have 50% of our sites up and running. And we are aggressively working on getting the other Samantha Danielle Corwin: 50, which we should be, you know, I think Suma M. Krishnan: all of them done by in the next couple of months. I think with all of those sites up to speed, we feel confident in our enrollment. As we as announced that we would enroll this complete enrollment of study by end of the year. And for 08/2003, Samantha Danielle Corwin: and also potentially announced, I mean, you know, it is eight weeks and then Suma M. Krishnan: we have Kathryn A. Romano: know, Samantha Danielle Corwin: hopefully, the data all comes in and we can get data by end of the year. For 08/2003, again, we feel very good from what we saw in our initial blinded study. Again, same thing. Initially, it was designed to do administered by patient by, you know, clinic physicians in the clinic. And, obviously, we realized that this has to be home for the study to be enrolled in patient’s convenience. So we shifted from, you know, from in clinic to home dosing. And as a result, again, for the same logic goes beyond, we wanted to make sure that you know, we know from the data we saw that you know, some flexibility flexibility for dosing for the patients because every day can be burdensome. I mean, it can be so they they have a volume, and then they can administer the entire volume couple of times a week. So that gives us some flexibility. This is what we learned from. I mean, there were lessons learned, and that will helped us, you know, optimize the dose for 803 in the clinic. Very clear. Thank you. Appreciate the color. Your next question for today is from Ygal Nochomovitz with Operator: Citigroup. Yigal Dov Nochomovitz: Hi. Thank you very much, and congrats on the progress. I was just curious if you could speak in a little bit more detail with respect to the 90 patients, that have been prescribed VIGIVIC in in Europe, how that splits out across the Yigal Dov Nochomovitz: geographies, Germany, France, and and then also in Japan. If you could speak to, just more specifically, the cadence in terms of patient adds month over month in in the recent quarter? Thank you. Yigal Dov Nochomovitz: Hey, Gal. Krish S. Krishnan: Thanks for the question. It is really it is really difficult to estimate number of patients in Europe. We do not I mean, they the laws are different. Between US and Europe and more just making an estimate based on vials being shared then. Pharmacies being disclosed. So while it is a close enough proxy, the number 90 itself is somewhat of an approximation, segment that further into France versus Germany versus other countries just makes it that much more irrelevant at the moment. Samantha Danielle Corwin: But Krish S. Krishnan: it provides a directional guidance until we break out revenues. So our expectation is Yigal Dov Nochomovitz: starting in January, we will have an idea Krish S. Krishnan: mean, you will have an idea of how US is doing versus the rest of the world. But until then, the only reason we provided patient estimates is to give people a sense of how some sense of how launch is going. And, honestly, in all these three countries, given all the different nuances, Europe is definitely a bit more burdensome in terms of figuring out supply chain logistics, getting the medication to the patient. We feel really good about the way it has gotten started. Fingers crossed, hopefully. That it continues to go in the right direction. Yigal Dov Nochomovitz: Okay. Understood. And then I was just curious in Italy, how does the reimbursement work there? I know in Germany, have sort of this three phase negotiation. And then in France, you accrue from the beginning. What what is the setup in Italy as far as how you do the reimbursement? Krish S. Krishnan: Italy, we will launch once the pricing is finalized. So we are not expecting any accrual type situation in Italy. Yigal Dov Nochomovitz: Okay. Thank you. Operator: Your next question is from Ritu Baral with TD Cowen. Joshua Seth Fleishman: Hey team, this is Josh Beishman on the line Joshua Seth Fleishman: Ritu. Congrats on the quarter, and thanks for taking our question. Just curious, was patient compliance also the major factor required to get at-home self-dosing for 803 and ocular DEB? And what was the differentiating factor that resulted in three times a week dosing schedule for 803 and the once daily dosing schedule for 801. Suma M. Krishnan: Yeah. I I mean, I think one of the main deciding factor was obviously home administration. And the reason was we as I said, is we learn from. I mean, from what we see from patient feedback, they have asked that can we administer the drug multiple times during the week. You know? So I think want to give them the flexibility. So we decided that yet let us have a volume and then give them the flexibility to you know, administer it as couple of times during the week. That was the best regimen for these patients. Again, based on the data that we saw before, we feel pretty confident that this should not, you know, make any difference. So again, convenience for the patient’s home. We give them a volume, and they can administer it. That volume during the week. Joshua Seth Fleishman: Okay. Very helpful. Joshua Seth Fleishman: You. And then I just have one follow-up, please. On the Italian discussions, we recall that the original guidance for the Italian launch was in mid 2026. Now it is second half. Is the delay associated more with rescheduling? Or is it more on pushback than VITIVEX efficacy? Krish S. Krishnan: This is that I would not use the word delay. It is tough to predict. Whether it is in June or whether it is going to be in July, but I would not frame that as any kind of delay with respect to the Italian launch. Whatever we said in the past, we continue to believe that is the timeline. Thank you. Operator: Okay. Your next question for today is from Gavin Clark. Operator: Gartner. With Evercore ISI. Gavin Clark-Gartner: Hey, guys. Thanks for taking the questions. Also on the ocular modified dosing regimens, what happens to the data generated to date on the prior regimens? Like, does this all get pulled into the primary analysis of the study? And then can I just also confirm, you did not change the PFU or the volume of dose in in either of the study? Right? It is just the frequency. Correct. No. Yeah. No. None of that changes. The dose is correct. So what happens is, basically, when we the first study goes towards safety, Suma M. Krishnan: and then we you know, we started the phase 3 protocol with the SAP. We had to go through back and forth with the agency on the statistical analysis plan. There was a couple of iterations. So this helped us do that too. It is a combination. Now we have the final protocol, the agreed upon statistical analysis plan, with the agency, which they agree and concurred. All of this is important as we start the study. So it is all set, and now it is in the in the process of execution. Gavin Clark-Gartner: Okay. So, like, just to be clear, like, if if we just take the the NK study? For for, 08/2001, like, all all of those 60 patients, those are all going to be enrolled on a go forward basis at this modified regimen. Correct. Suma M. Krishnan: That is correct. Yep. Gavin Clark-Gartner: Okay. Gavin Clark-Gartner: Really helpful. Thank you. Operator: Once again, if there are any questions or comments, please press 1 on your phone at this time. Operator: Thank you. Operator: We have reached the end of the question and answer session and today’s conference. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Operator: Greetings. Welcome to the Orion Engineered Carbons S.A. Fourth Quarter 2025 Earnings Conference Call. At this time, participants will be in listen-only mode. A question and answer session will follow the formal presentation. Anyone requiring operator assistance during the conference, please note this conference is being recorded. I will now hand the conference over to Christopher Kapsch, Vice President of Investor Relations. Thank you. You may now begin. Thank you, Rob. Good morning, everyone. This is Christopher Kapsch, VP of Investor Relations at Orion Engineered Carbons S.A. Welcome to our conference call to discuss our fourth quarter full year 2025 earnings results. Christopher Kapsch: Joining our call are Corning F. Painter, Orion's Chief Executive Officer, and Jeffrey F. Glajch, our Chief Financial Officer. We issued our fourth quarter results this morning, and we have posted a slide presentation in the Investor Relations portion of our website. We will be referencing this deck during the call. Before we begin, we are obligated to remind you that some of the comments made on today's call are forward-looking statements. These statements are subject to the risks and uncertainties as described in the company's filings with the Securities and Exchange Commission, and our actual results may differ from those described during the call. In addition, all non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the tables attached to our press release and the quarterly earnings deck. Any non-GAAP financial measures presented in these materials should not be considered as alternatives to financial measures required by GAAP. All forward-looking statements are made as of today, 02/17/2026. Orion Engineered Carbons S.A. is not obligated to update any forward-looking statements based on new circumstances or revised expectations. With that, I will turn the call over to Corning F. Painter. Good morning. Thank you, Chris, and thank you all for taking the time to join our conference call. Before getting into our Q4 review commentary, I'm excited to introduce our new Chief Financial Officer, Jeffrey F. Glajch, who joined Orion in early December. Jeffrey has over thirty years of financial leadership experience including fourteen years in the chemical industry. Some of you may know him from his tenure at Stelleny's, where he most recently served as a Vice President and CFO of the acetyl segment. Jeff, it has been a few months, but welcome again to Orion. Moving to our results discussion. Starting on slide three. We finished 2025 with better Q4 results than we had contemplated early in November. The upside was primarily a function of higher volumes than customers had forecast. In Rubber, tire factory curtailments were not as pronounced as customers had indicated. A larger factor, however, was our Specialty segment, where volume and mix were better than expected. I am particularly pleased with our free cash flow of $55,000,000 for the full year. Thanks to a concerted effort from our team to drive working capital we will discuss in a moment why we expect positive free cash flow to continue in 2026 despite lower EBITDA low. One of Orion's core values is our emphasis on safety. And 2025 was a near record year for employee safety within our company global. With only three incidents across our network of plants, last year was the second best year since Orion became a public company. And based on industry-standard metrics, our performance was about nine times better than the broader chemicals space. A huge congratulations to our team on this distinguished achievement. Moving to slide four. And really for the next few slides, my intent here is to touch on three key points. First, what the industry has endured leading to the guidance we have conveyed today. Second, the actions we have taken to navigate these trough conditions including what is needed to ensure we deliver positive free cash flow this year, next year, and in the future. And third, tire industry data which is indicating our business' fundamental drivers are setting up for recovery. On slide four, we recap a few dynamics that translated into a uniquely difficult backdrop for the carbon black industry in 2025, leading to challenging negotiations for 2026 supply agreements. We have talked for some time about the elevated imports of tires into key Western regions. These generally persisted throughout the year, and some auto industry experts have argued that tariff uncertainty only magnified this surge throughout much of 2025. Corning F. Painter: I will share encouraging data in a moment Corning F. Painter: that suggests an inflection could now be at hand. Part of what fueled the import surge was a lingering consumer response to higher inflation, resulting in a trade down to lower value brands, which are mainly imported. We believe this trade down has occurred in the truck and bus category as well, especially with smaller fleet operators. Encouragingly, industry trade journals have reported this trend reversing. Corning F. Painter: In the past couple of months, Corning F. Painter: tier two and tier one tires outsold tier three brands for the first time last year. This trade up reversion is a positive trend for our customers and more consistent with historical consumer preferences. Shifting from passenger car to truck tires, freight activity has been a drag for the tire industry for the past few years. This may surprise some on the call, but it is an important point. Truck and bus tires account for about one third of all carbon black that is consumed in tire production globally, and more than 40% of the tire market in the U.S. Of course, this suggests that the freight industry's recession has also been a headwind to the truck tire demand and therefore carbon black volumes. The Specialty portion of carbon black has been affected by persistently weak PMI. Corning F. Painter: In addition, Corning F. Painter: broad uncertainty has discouraged investment, encouraged lean inventories, and weighed on consumer confidence. Collectively, these soft demand conditions have been a significant factor in the carbon black industry's challenging contract negotiations. On slide five, we highlight the actions Orion has taken to ensure our resilience through today's conditions. We are relentlessly focused on managing costs. On top of the cost reductions last year, we are taking additional actions which should drive $20,000,000 in productivity, efficiency, and headcount savings. We are sharply reducing CapEx, which is a key lever that will enable us to deliver positive free cash flow again this year. We executed on the plan we announced last summer to rationalize three to five production lines and have already closed the lines we to. We are also pleased that our operational initiatives are building momentum and bearing fruit. For example, the reliability of our North American plants improved more than 200 basis points over the course of 2025, enabling markedly improved on-time order metrics. Corning F. Painter: We are focused on replicating our early successes here across Corning F. Painter: our plant network worldwide. Efforts include adopting a variety of capital-light but novel process technologies, and at least one AI tool is being leveraged for greater process efficiency. Corning F. Painter: As you know, Corning F. Painter: Orion believes we are entitled to earn a fair return when selling our products. In prior years, we have traded off some volume and end share to achieve this. However, in early negotiations last year, it became clear that this approach was not going to work for us, or our customers. We pivoted to a more win-with-our-customer strategy to maintain share. At the same time, we found that our customers with weaker demand themselves were looking to consolidate suppliers. This approach favored global suppliers like Orion. We believe that we emerged from this process having defended our overall share and gotten closer to a few of our key customers. Finally, we successfully negotiated an amendment to our credit agreement that provides flexibility as we navigate through this cycle. Jeff will elaborate more on this in a moment. Moving to slide six. Underlying carbon black indicators are improving. Passenger car, truck, and off-road tire categories each comprise about a third of the carbon black consumed as a reinforcement material in the tire market on a global basis. The upper right chart with U.S. import data depicts the above-normal level of imports starting in 2023 and persisting during 2024 before surging throughout much of 2025. The more recent trends suggesting import levels are subsiding is encouraging. In Europe, an investigation into the dumping of Chinese tires is now expected to conclude in June, and the European Commission has simultaneously launched a probe into the subsidizing of Chinese-made tires exported to Europe. A bit more of a leading indicator for imports is the export data from key tire manufacturing countries. Thailand is the single largest exporter of both passenger car and truck and bus tires to the U.S. And as depicted in the lower left chart, exports from Thailand have been trending favorably, generally declining, since the initial framework for a country-specific trade deal with Thailand was announced August 1, and subsequent to new Section 232 tariffs on truck parts, including tires, effective as of November 1. We are also monitoring potential positive outcomes from changes to the USMCA trade agreement likely this summer. On this slide, we also show a sharp decline in tire exports from India, the largest exporter of off-road tires including construction, mining, and ag equipment tires. On slide seven, I merely wanted to remind investors just how pronounced the downturn in the key truck and bus category has been as gauged by freight activity. The Cass Freight Shipment Index shows three straight years of progressively lower freight activity in North America, including 2025 levels below the 2020 lows. There are indicators, including a rebound in spot freight rates, Corning F. Painter: suggesting this market could be at an inflection. Corning F. Painter: And with that, let's turn the call over to Jeff. Thanks, Corning. On slide eight, we highlight our 2025 results. We delivered full year EBITDA of $248,000,000, which exceeded our most recent outlook. The main driver for the overperformance was better-than-expected Q4 volumes, primarily in Specialty and to a lesser extent in Rubber. Our Rubber segment generated full year adjusted EBITDA of $155,000,000. Rubber's full year results were impacted predominantly by lower tire production rates in key Western markets due to elevated levels of lower-tier tire imports and soft freight industry conditions. Volumes increased 4% mainly on higher demand in South America and APAC, partially offset by lower demand in EMEA. Net sales decreased 3% on lower pricing. Adjusted EBITDA decreased 20% primarily due to adverse customer and regional mix, as well as the unfavorable effect from the pass-through of lower oil prices. Our Specialty segment delivered adjusted EBITDA of $94,000,000. Specialty's full year results reflect soft global industrial activity, particularly in transportation and polymer markets, and macro uncertainty and a lack of clarity around global trade policy. Volumes decreased 5% owing to lower global demand. Net sales decreased 4% on lower volumes and pass-through pricing, partially offset by favorable foreign currency translation. Adjusted EBITDA of the Specialty Carbon Black segment decreased 14% primarily due to the lower demand. Most notable achievement here is our free cash flow results for 2025. We generated $55,000,000 of free cash flow on higher-than-expected EBITDA in the fourth quarter, working capital initiatives, and a little help from lower oil prices. 2025 demonstrates our ability to generate positive free cash flow in a challenging environment, and we expect this to continue in 2026. Let's move to slide nine for Rubber segment highlights and outlook. Jeffrey F. Glajch: On a year-over-year basis, Jeffrey F. Glajch: fourth quarter demand softness was due to higher-than-normal seasonality. The key driver was lower tire production rates in the West, impacted by import levels as well as channel inventories that remain high due to the surge in imports throughout 2025. This headwind was only partially offset by higher volumes from additional life. Jeffrey F. Glajch: In terms of outlook, Jeffrey F. Glajch: we are assuming higher build rates in our key markets will remain subdued. Contract pricing for 2026 is set and baked into our outlook. Our strong and improved relationships with key tire makers position us well to take advantage of better industry and demand conditions, particularly in North America, as they materialize. Let's move to slide 10 for Specialty highlights and outlook. The segment's adjusted EBITDA of $27,000,000 improved 6% year over year and 23% sequentially despite lower volumes. This was largely attributable to positive mix, including the benefit from new production qualification. In terms of outlook, we assume flat to slightly lower volumes as PMI readings in key Western markets and global auto build rates remain muted. It is important to note order trends are smaller and more frequent, often with just-in-time urgency. This tells us that inventory levels are quite lean, and should the macro backdrop improve, we could benefit from a restocking cycle. Now on slide 11 for cash flow and balance sheet metrics. Working capital initiatives were a key driver of positive free cash flow for the year, delivering $64,000,000 during the fourth quarter alone. On a year-over-year basis, operating cash flow improved by $91,000,000 to $2,000,000 for 2025. We also spent $46,000,000 less on CapEx in 2025 than in 2024. Our focused efforts drove $55,000,000 of free cash flow, and I am confident we will continue to pull all levers available to continue this trend in 2026. Strong cash flow performance in the quarter enabled $40,000,000 in net debt reduction. We finished the year with $920,000,000 of net debt and a leverage ratio of 3.7x, down from 3.8x at the end of the third quarter. Finally, given the anticipated downdraft in our EBITDA in 2026, we proactively addressed potential issues related to leverage with an amendment to our credit agreement. Our banking group was very supportive with unanimous approval, and our revised first lien leverage ratios ensure ample headroom even when considering scenarios more severe than those implied in our guide. With that, I will turn the call back to Corning to discuss our outlook. Thanks, Corning. On slide 12, we provide 2026 guidance ranges for adjusted EBITDA, free cash flow, and capital expenditures as well as some key sensitivities. For the full year, we expect to generate between $160,000,000 and $200,000,000 of adjusted EBITDA. For the first half of 2026, we expect to generate adjusted EBITDA between $90,000,000 and $110,000,000. This additional guidance measure is based on past seasonality weightings where we have historically generated about 55% of total EBITDA in the first half of any given year and about 45% in the second half. In 2026, we anticipate generating free cash flow between $25,000,000 and $50,000,000 as we continue to execute on our working capital initiatives and reduce capital expenditures. We expect $90,000,000 of CapEx in 2026, down $70,000,000 from 2025 levels. Finally, on slide 13, I have a few concluding remarks before moving to your Q&A. No doubt about it, 2025 was a difficult year for the broader chemicals industry. In our case, the surge in tire imports was a pain point. However, we have entered 2026 with a number of corporate strengths. You can see it in our safety performance as well as our employee engagement scores. We see it commercially through customer loyalty. Our plant reliability is improving sharply. Just yesterday, EcoVadis awarded Orion its platinum rating, putting us in the top 1% of all companies surveyed in 2025. From a market perspective, while leading indicators suggest conditions may be set up for a broad recovery, we remain cautious about the business environment for now. Moreover, we have taken aggressive actions on footprint rationalization, cost, productivity, and efficiency based on the planning assumption that the backdrop will not improve. Our single highest priority after safety is to generate free cash flow again in 2026 through the actions we have taken on cost and capital. We do see several potential upsides over the balance of 2026, including a favorable shift in trade flows, burgeoning reshoring activity, and the inevitable freight industry recovery. In addition to helping our financial performance in 2026, a pronounced inflection in any of these dynamics would help set the stage for decidedly improved prospects heading into 2027. In the meantime, we pulled a variety of levers and are prepared should the trough-like conditions persist. And with that, Rob, let's open up the call for the Q&A session. Operator: Thank you. We will now be conducting the question and answer session. If you would like to ask a question at this time, please press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. Press star 2 if you would like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please for our first question. Thank you. The first question comes from the line of Josh Spector with UBS. Please proceed with your question. I had a couple of questions around the guidance and specifically Rubber. So if you look at the bridge, you talked about flat to slightly down volumes and the rest being contract negotiation. So it seems like you are pointing towards maybe a $60,000,000 impact negative from contract outcomes. And, one, is that right? And, two, when you talked about that in your prepared remarks, you seemed to talk about improved customer alignment and good outcome for Orion. Does that mean that you guys gave up pricing to gain some volumes? And I guess it does not appear that you are baking in the volumes into the guidance. So just trying to square all those moving parts if you can help me out. Corning F. Painter: Yeah. So I think you broadly have it for in terms of the walk. Price is definitely the largest amount. There is some regional mix in that. As you said also, there is some volume in there as well. Specifically, though, to the negotiations, what we pivoted to was just let's hold share. So I would say is the tone and where we ended up with a few customers coming through. It is a difficult period for them. It was a difficult period for us. Together is where I put that, and we felt there was, you know, an element of collaboration in that. But to be clear on this, we do not see ourselves as having clogged volume. I think our volumes will be down with the overall industry. It is just that compared to previous years, we are not going to be down more than the overall industry. We did not do the trade-off of sucking up a lot of volume loss ourselves. Josh Spector: Understood. That makes sense. And if I could just follow up then. So how do you think customers approach kind of this outcome? So, you know, obviously, was up a good amount over the last five years. Is this a normalization or is this to how you phrased it, you know, your customers had a tough year last year, kind of sharing in some of the pain. Do you get some of this back if the industry improves into 2027? Or, you know, how would you frame that? Corning F. Painter: Yeah. I would definitely expect to get some of this back in '27. Operator: Okay. Thank you. Our next question is from the line of Laurence Alexander with Jefferies. Please proceed with your questions. Dan Rizzo: Good morning. It's Dan Rizzo on for Laurence. Thanks for taking my question. Dan Rizzo: So you have gotten to roughly like $50,000,000 in free cash flow. I was wondering if that is what we could expect at kind of at the bottom of the cycle. And how we should think about if things were to improve or what the top of the cycle looks. I mean, should we just look at historical averages? Jeffrey F. Glajch: Yeah. Dan, you know, the range that we put on free cash flow for next year is 25 to 50. And, you know, this is through active management of the business, active management of working capital, active management of CapEx. So this did not happen on its own. This is because we are taking actions on things like payment terms. We are working through inventory and trying to keep inventory at a low level Dan Rizzo: Without Jeffrey F. Glajch: risking anything in safety stock or customer deliveries. And we are managing CapEx down to a much lower level than what it has been. And so, you know, this is where we expect to be for 2026. And we expect to continue to generate positive free cash flow as we go forward. And maybe just specific. If we saw conditions reverse and some of these things that we have talked about, there is maybe early signs of, obviously, that would be additive to our desk position for '26. Dan Rizzo: You mentioned, you know, negotiating with your customers about pricing given, you know, the current environment. Is there anything in the contracts that if things were to kind of snap back or turn around by the middle of the year that there could be some sort of pricing escalator involved? Corning F. Painter: To be clear, I think the good thing about this industry, the contracts are honored. I think back to 2020, when it cut the other way and customers honored them. I think that to a large degree, unfortunately, the Rubber area, we are somewhat locked in. Yep. There can be spot opportunities. There can be people going above their contracts. There can be some opportunities around that. But by and large, I think we are in this pricing range. Operator: Alright. Thank you very much. Our next question is from the line of Jonathan E. Tanwanteng with CJS Securities. Please proceed with your questions. I was wondering if there is any change to how much capacity you have under contract versus a normal year. How much you are leaving open for spot, number one, or if there are any minimums Jonathan E. Tanwanteng: in the contracts that you may have that may not have been there before. Corning F. Painter: Sure. First of all, take those in reverse order. In minimums, there are sometimes contract structures that do not really create a, let's say, take-or-pay environment around minimums, but do give them a financial incentive around minimums. So we have that in place. I am sorry, Jonathan. Can you take me through your two other parts to that question? Jonathan E. Tanwanteng: Yeah. The first part was how much do you have under contract, capacity versus your capacity versus a normal year? Corning F. Painter: Yeah. Well, so I'd say it is slightly lower in that, like, if you look at the key markets, North America, for example, like, tire manufacturing trended down through the course of last year. And I'd say they put out their forecast for this year sort of based on second-half run rate. So, like, that just naturally puts you at a little bit lower level than last year. Now the flip about loading for us since we took out, you know, maybe 3%, 5% of our capacity. If volumes go down by the same amount, our loading itself remains on a percentage basis pretty similar. Operator: Okay. Jonathan E. Tanwanteng: Makes sense. And then I think you had a couple of items in Q4. If you could touch on those. The first was a large tax item. Maybe talk about that, number one. And number two, I think you mentioned in the prepared remarks in the press release there is a timing benefit in Specialty that you may have addressed that. I might have missed it. But if you could talk about that as well, that would be great. Thank you. Jeffrey F. Glajch: Yeah. And I will be glad to cover the tax item. Primarily, the single biggest item that we have in our effective tax rate for the year is the goodwill impairment charge that we took in Q3 and the non Jonathan E. Tanwanteng: deductible nature of that Jeffrey F. Glajch: and so that was the main driver. There is some movement in valuation allowances as well. But we would expect we return to a more normal level going forward from a tax rate standpoint. And if I think about on the volume side where we saw the upside, and, you know, we also said mix, so, like, one element of that was areas like coatings where we saw stronger demand than we had anticipated. And, of course, that is very additive for us in terms of the overall margin. Jonathan E. Tanwanteng: Great. Thank you. Operator: Our next question is from the line of John Roberts with JPMorgan. John Roberts: Please proceed with your question. Jeffrey F. Glajch: Thanks very much. Your accounts John Roberts: payable? to think, a 197,000,000. Come Does that have to come down? Well, Jeff, we are Jeffrey F. Glajch: we are actively managing the different elements of working capital. So we look at it with John Roberts: accounts risk. I'm sorry. Jeffrey F. Glajch: We are getting a little feedback from your line. Did not know if you were continuing. No. No. It is okay. I was just wondering because your receivables and inventory receivables year over year were a bit flat, and inventory came down a little bit. John Roberts: Yeah. Jeffrey F. Glajch: But payables really jumped. And so John Roberts: Yeah. Jeffrey F. Glajch: I was wondering whether that was a sustainable number or that had to come down. Yeah. Jeff. So, yeah. Sorry. We just got a little bit of feedback. So I did not know if that is the John Roberts: yeah. Jeffrey F. Glajch: We, so we are actively managing all the elements of working capital, and we are looking at all those as different levers as we go through the year and through each quarter. And, you know, one of the things that we are doing in accounts payable is to look at terms extensions. And so I would not say that the accounts payable has to immediately reverse. There will obviously be some quarterly activity that happens there. But we are really looking at it as a whole with inventory and how do we manage inventory levels given the current demand situation. And also on accounts receivable, we have taken an active stance on accounts receivable to manage that going forward as well. So we look at it altogether. And we will make decisions about the whole depending on how we are tracking the report. John Roberts: K. Secondly, can you give us an update on the La Porte plant and what is going on in conductive carbons? Corning F. Painter: Sure. So the conductive carbons market is a dynamic place right Corning F. Painter: now with obviously a slowdown in EVs, some pickup in the large battery energy storage area, ESS. For our part and part of the way we have been able to reduce the capital for 2026 is that we have slowed down our time period on it. We would now expect to complete and be starting up the project in 2027. And our feeling is this just better aligns with the end market demand for John Roberts: Okay. And then lastly, you guys really John Roberts: provided a lot of data on higher shipments. I was wondering, what about tire shipments into Europe? Are they up a little bit or a lot or decline? I mean, is it a similar trend to the United States, or is it different? How would you assess the European market? Dan Rizzo: Sure. And so one thing is you just do not get Corning F. Painter: quite as rapid data in the European market as you do in the U.S. But we would say that it include it rose, let's say, in the 2023, 2024 time period, the tire imports to Europe were Operator: Of John Roberts with Mizuho. Please proceed with your questions. Thank you. And I will just ask one here. Could you tell us where the three lines were that you have closed? And the other two lines that were under review, have you concluded that they are long-term competitive now? Yeah. So we intentionally said that they were in the Americas than in EMEA. From a competitive perspective, we thought it was advantageous not to be totally clear on that. So we are sticking with that we have closed what we intend to close. We did something, obviously, in the range of three to five. And it cuts across those two ranges. And, or those two regions. Excuse me. And I just think that is the best approach for Orion on that and our shareholders. Okay. Thank you. Next question is a follow-up from the line of John Roberts with JPMorgan. Please proceed with your question. Thanks very much. I think Cabot on its conference call said that it expected tire black prices to be down 7% to 9% for them. Is that the level that you are experiencing, or is it more, or is it less? Hey, John. Excellent question there. But the difficult thing is, like, it is hard to know exactly what one company is dividing the price change by. You know, like, how big is the denominator. So that is, I think, the limitation to making these comparisons. As we make the comparison for ourselves, we do come up with a lower number in terms of what is the price cut. I would say, more or less, say, the 3% to 5% range. But I am not sure, you know, exactly how comparable those two things are. And then lastly, you have that interesting chart about Thailand tire exports by month and Indian tire exports. But the tire imports actually go up. And I think part of that is Cambodia, which is a smaller producer. You know, do you have any sort of general comments about the areas in which tire imports are, you know, sort of going up from as well as the ones where they are coming down. Yeah. So I think rather so I think we picked those two countries. They are very large. Right? So Thailand, the number one to the U.S. And I guess I am not really prepared, John, to go through country by country, how to get both from here and from there to be honest with you. I would say in general, though, the pattern of trade flows and the pattern of that underlying consumer behavior going back to tier two being the biggest, and tier one being the second, like, that is what it used to be. And so I think that is a really fundamental positive shift in terms of the underlying demand. I think that is going to be good for our customers. I would also say, I think the general pattern of trade flows and tariffs, yeah, are moving this in a similar direction. But, you know, from our perspective, we are not banking on that at this point. We are taking action. Maybe as a last question, when La Porte comes on, how much depreciation will that add, in annual terms? I'd say the neighborhood of maybe $10,000,000. 10? Okay. Great. Yeah. Alright. Thanks. Yeah. Thanks so much. Sorry for so many questions. Yeah. John, it is always a pleasure. Yep. Thank you. Our last and final question is from the line of Josh Spector with UBS. Please proceed with your question. Yeah. Hi. Thanks for taking my follow-up. I wanted to ask just on the cost Corning F. Painter: side of things. I mean, I think when I was looking at particularly Rubber over the most of 2025, you know, between some outages in 1Q, and inventory revaluations through the 2Q and 3Q, there is maybe about $20,000,000 of cost that last year we were calling more one-timey. Are you adding that back into your guidance? Or is there other offsets to that that we should be considering in the 2026 bridge? Corning F. Painter: Yeah. So I think as we about it, I am not sure we would come to the same conclusions about the number of one-offs. Certainly, inventory revaluation, for all our listeners, I know you know this, Josh, is really based on the movement of oil price and therefore the value of our inventories. So that will move with the overall oil situation. There is no other, like, really dramatic fundamentals moving that other than the general leaning out of the company even further this year. We took actions last year, and we take additional actions this year. Does that help, Josh? Oh, Josh Spector: yeah. That does. And I can follow up more offline. The other one I wanted to ask about kind of the same line of thinking is just with La Porte, when you are talking about a 2027 start, does that mean there is no real start-up costs in 2026, that mostly remains in capital and we will see that in '27, or is some of that layered into '26 at all? Corning F. Painter: No. That will be mainly '27. Josh Spector: Okay. Thank you. Operator: Thank you. Operator: This concludes our question and answer session. I would like to turn the floor back over to Corning F. Painter for closing comments. Corning F. Painter: Alright. Hey. We appreciate everyone's time today, and for the analysts, we appreciate your insightful questions. Thank you very much for that. We are looking forward to speaking with many of you over the couple days, and we will be out on the road at a couple investor forums in March and hope to see some other people there. Anyway, have a good rest of your day. Thank you very much. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's conference. You may now disconnect your lines at this time, and have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to the Armada Hoffler Properties, Inc. Fourth Quarter 2025 Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Tuesday, 02/17/2026. I would now like to turn the conference over to Chelsea D. Forrest, Vice President of Investor Relations. Please go ahead. Good morning, and thank you for joining Armada Hoffler Properties, Inc.'s Fourth Quarter 2025 Earnings and 2026 Guidance Conference Call and Webcast. On the call this morning, in addition to myself, is Shawn J. Tibbetts, Chairman, President, and CEO; Matthew T. Barnes-Smith, CFO; and Craig Romero, EVP of Asset Management. The press release announcing our fourth quarter earnings along with our Chelsea D. Forrest: supplemental and guidance packages were distributed yesterday afternoon. A replay of this call will be available shortly after the conclusion of the call through 03/19/2026. The numbers to access the replay are provided in the earnings press release. For those who listen to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, 02/17/2026, and will not be updated subsequent to this initial earnings call. During this call, we may make forward-looking statements, including statements related to the future performance of our portfolio, the potential dispositions of our multifamily portfolio, our real estate financing programs, and our construction business, and the use of the proceeds from such dispositions, our rebranding and the efforts thereof, the consequences of our strategic transformation, the impact of acquisitions and dispositions, our liquidity position, our portfolio performance and financing activities as well as comments on our outlook. Listeners are cautioned that any forward-looking statements are based upon management's beliefs, assumptions, expectations, taking into account information that is currently available. These beliefs, assumptions, and expectations may change as a result of possible events or factors, not all of which are known and many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the forward-looking statement disclosure in our press release that we distributed yesterday and the risk factors disclosed in the documents we have filed with or furnished to the SEC. We will also discuss certain non-GAAP financial measures, including, but not limited to, FFO and normalized FFO. Definitions of these non-GAAP measures as well as reconciliations to the most comparable GAAP measures are included in the quarterly supplemental package, which is available on our website at armadahoffler.com. I will now turn the call over to Shawn. Good morning, and thank you for joining us. Yesterday, we formally announced the rebranding of the company as A H Realty Trust, effective March 2, which marks the defining moment and more about the transformation of the company and our path forward. Shawn J. Tibbetts: This past year marked a pivotal period for the company, particularly with respect to capital allocation, balance sheet strategy, and how we operate the business. I will begin this morning by discussing the strategic decisions we announced yesterday and the rationale behind them. I will introduce Craig Romero, EVP of Asset Management, to talk through highlights from the portfolio and Matt will cover our fourth quarter results and provide details on 2026 guidance. I stepped into this role one year ago with a clear objective to evaluate every aspect of our business: our portfolio, capital structure, operating model, and long-term positioning. Over the past twelve months, we have done exactly that, reviewing every layer of the business, challenging long-held assumptions, and focusing on where we believe we can create the most durable value for shareholders. This comprehensive process, backed with full support from the Board, resulted in a clear path that we believe positions the company to maximize shareholder value over time. Chelsea D. Forrest: At our core, Shawn J. Tibbetts: we are a public REIT focused on well-positioned retail and office assets in growing markets. Alongside the relaunch of Armada Hoffler Properties, Inc. as A H Realty Trust, we announced the planned exit and divestitures of our multifamily portfolio and fee income businesses, including construction, to improve the quality and predictability of our income stream and meaningfully reduce leverage. I am pleased that we have already made substantial progress on these initiatives. We are under a LOI for 11 of our 14 multifamily assets with a global real estate investment and management firm, following a disciplined and targeted marketing process that began months ago, drawing strong interest from multiple credible parties. These negotiations are materially far along and we believe we are approaching final terms at an attractive price point and value. Despite the high quality of our assets, public market valuations do not reflect the underlying private market value of the portfolio. Exiting the multifamily portfolio unlocks significant embedded value by harvesting the arbitrage between public and private market valuations and accelerates our deleveraging program. In addition, the exit of our construction business is effectively complete, and we are substantially finalized on terms with the buyer. Lastly, we have executed a LOI with an institutional buyer to acquire the interest in two of our four real estate financing investments, and we are in discussions with our partner to exit a third. The remaining investment is currently in the market with comparable cap rates in the low five cap range. We expect that transaction to be completed in the near term, derisking the business. Given this progress, we have removed the associated revenue streams from our 2026 outlook. With this transition, we believe we will improve the company's long-term growth trajectory and position this Operator: with inconsistent income Shawn J. Tibbetts: and no longer deploying capital towards sectors where our scale and advantage were limited. We believe in a streamlined operating model, with significantly reduced leverage, we will be a stronger, leaner, and more agile firm. Chelsea D. Forrest: Better positioned, Shawn J. Tibbetts: to produce predictable earnings and sustainable cash flow growth in 2027 and beyond. At the same time, we are intensely focused on the operation of the company's retail and office portfolio. We believe the best way to drive durable value is to be the best operator in our markets, maintaining rigorous and fee income businesses. Our operating team holds a strong conviction that exiting the multifamily sector, strengthening the balance sheet, and concentrating on sustainable cash flow and disciplined growth most benefits the long-term value of the company. While the quarter itself is not the focus of today's call, it reinforces the stability of our retail and office assets and provides a strong foundation as we enter 2026. As we discuss guidance for the new year, as previously mentioned, it is important to note that 2026 guidance reflects the discontinued operations of the multifamily portfolio and the fee income portions of the business. While 2026 represents a transition year for the company, I want to underscore that throughout this period, we continue to maintain full dividend coverage from the cash flows generated by our operating properties while also meaningfully reducing debt. To provide added transparency around this shift, we included an FFO bridge in our guidance materials posted to our investor website. The bridge walks from reported 2025 FFO to a pro forma 2025 FFO that removes discontinued operations, and then to post-transformation FFO, which reflects the company as it will operate going forward. By removing contributions from the construction management business, the real estate financing platform, and the multifamily assets, investors can clearly assess the value of the streamlined retail and office portfolio. Importantly, by the end of the transformation, leverage is expected to improve by approximately two full turns, further strengthening the balance sheet and enhancing long-term resilience. Matt will discuss the guidance in detail. As we look ahead, our focus is on discipline, high quality, consistent growth, and a simplified operating model. With lower leverage and a clearer operating model, we are in a stronger position to pursue accretive acquisitions that offer embedded upside in key growth markets that meet our fundamentals. This transformation only happens with a dedicated team. Over the past year, we have stripped the company down to its foundation and are building it back up with the right people, the right focus, and the right operating discipline. It begins with our people, and we are confident in the team we have assembled to execute this plan. This marks a new day for the firm, and I am excited about reducing risk and positioning the company for future growth. As we enter this next chapter, we do so with a clearer strategy, a more focused portfolio, a streamlined organization, and a stronger financial foundation. We are not simply repositioning the company; we are fundamentally changing the quality of the business. We believe this transformation will result in a significantly stronger foundation that positions us to deliver predictable earnings, sustainable cash flow growth, and long-term outperformance. With that, I will turn it over to Craig Romero, EVP of Asset Management. Craig has been with the company for more than a decade and has been deeply involved in every aspect of our real estate operations. In addition to his extensive real estate experience, he brings a Big Four public accounting background, which further strengthens his strategic and financial oversight. He leads our asset management team with exceptional focus and discipline, and his deep expertise continues to be instrumental in driving our success. Given his experience and intimate knowledge of the portfolio, I am pleased to have him join the call for the first time to walk through the portfolio highlights. Thank you, Shawn, and good morning, everyone. As Shawn outlined, with the portfolio now fully focused on retail and office, our attention is squarely on execution at the property level. I will briefly cover fourth quarter operating performance, and then spend time on what we see ahead for the portfolio. Retail same-store NOI for the quarter was up 5.6% on a GAAP basis and 3.4% on a cash basis, driven by new leasing and rent commencements across the portfolio as well as positive renewal spreads of 15% GAAP and 10% cash. Specifically, fourth quarter cash results reflect rent commencements for long-term backfill tenants of anchor spaces in Atlanta, Durham, and Virginia Beach. Retail same-store results year-over-year were up 1% GAAP and down 1% cash. Weighing on both fourth quarter and full year same-store results was anchor space vacancy resulting from the bankruptcies of Conn’s, Party City, and JOANN Fabrics, totaling 92,000 square feet across the portfolio. These vacancies are reflected in year-end occupancy just under 95% that was temporarily elevated in the third quarter by short We anticipate rent commencing on roughly a third of the backfill space in 2026, with the balance starting by mid-2027. Looking ahead, we expect retail same-store NOI growth in 2026 to be supported by rent commencement at The Interlock, including Atlanta’s first and only F1 Arcade that opened earlier this month, as well as our successful redevelopment of Columbus Village. In the fourth quarter, both Trader Joe’s and Golf opened in the former Bed Bath & Beyond box at Columbus Village. Since opening, the new Golf Galaxy location ranks in the top five nationwide in terms of foot traffic, and the new Trader Joe’s store has seen more than double the number of visits. Successfully, we released all of Columbus Village at 60% higher rents. At full occupancy, the redeveloped Columbus Village is expected to generate over $1,000,000 of new ABR, the majority of which we anticipate realizing in 2026. Operator: At Town Center Shawn J. Tibbetts: The NOI impact is diminished, given the below-market rent structures of both leases. Market conditions continued to favor existing brick-and-mortar retail with tenant demand far exceeding new supply. Our portfolio of shopping centers and mixed-use retail assets remains well-positioned to capture this demand as demonstrated by our team’s ability to lease space at Operator: spreads. We are Shawn J. Tibbetts: in our team’s ability to relet both West Elm spaces at two to three times rent commencements in Town Center, specifically to Columbus, as well as Wills Wharf and Harbor Point. Renewal spreads during the quarter were positive 9% GAAP to 2.5% cash. Over the course of 2025, occupancy at The Interlock increased nearly 600 basis points, ending the year at over 94% leased. Year over year, office same-store NOI increased 6%, increased 500 basis points during the fourth quarter, partially offsetting our recapture of 8,000 square feet of space in 4525 Main. Decrease in occupancy during the quarter to 96.4% but we are already at lease with a backfill tenant at a double-digit re-leasing spread with lease execution anticipated by the middle of this year. By the second quarter of this year, we expect to complete the downsize and relocate. Our intentional move to occupy the most cost-effective space in A H Tower unlocked 38,000 square feet of premier workspace, all of which has been re-leased at an average rate of $35 per square foot, the highest rents in the market, creating $1,300,000 of new ABR that we expect to fully realize in 2027 with partial recognition in 2026. Looking ahead, we expect same-store NOI Matthew T. Barnes-Smith: growth Shawn J. Tibbetts: at One City Center in Durham, and Wills Wharf in Harbor Point. As a reminder, we reclaimed 30,000 square feet of space from WeWork at One City Center in the second quarter of this past year. In the fourth quarter, we negotiated the recapture of 9,000 square feet from an existing tenant at Wills Wharf in exchange for a $3,100,000 upfront fee and, in the process, consolidated most of the vacancy in the building onto a single floor. This proactive and intentional move allowed us to accommodate an existing tenant’s desire to rightsize their footprint while also giving us the flexibility to pursue larger floor prospects in the market. While we are not forecasting any new rent commencements at either One City Center or Wills Wharf in 2026, we are seeing good activity and interest in the market and remain confident in our team’s ability to re-lease the space. At Southern Post, we expect full rent commencement by existing office tenants in 2026 and we are seeing strong interest and activity on the balance of the office space. Office portfolio fundamentals are strong with nearly eight years of WALT, high-credit tenancy, only 1.7% rollover in 2026, and our team’s demonstrated ability to lease space and grow rents. We see continued growth opportunity across both our retail and office portfolios through proactive leasing and tenant retention, disciplined expense management, mark-to-market adjustments on new leases, and targeted redevelopment and capital investment for the next year, and the strategic transformation of the business. I will close with an update on our balance sheet and debt strategy Matthew T. Barnes-Smith: as we position the company for the next phase. This quarter and full year represents an important inflection point for the company, both in terms of financial performance and in the ongoing evolution of our platform, portfolio composition, and capital structure. Starting with the fourth quarter, our results reflect continued operational excellence across the portfolio against a complex macroeconomic and capital markets backdrop. For the fourth quarter of 2025, normalized FFO attributable to common shareholders was $29,500,000 or $0.29 per diluted share, above our expectations and guidance. Jonathan Petersen: FFO Matthew T. Barnes-Smith: attributable to common shareholders was $23,100,000 or $0.23 per diluted share. AFFO came in at $17,800,000 or $0.17 per diluted share. Same-store NOI for the portfolio increased 6.3% on a GAAP basis and 7.1% on a cash basis. Turning to the full year, 2025 was defined by foundational work repositioning the company with a strong focus on balance sheet discipline. For the full year 2025, normalized FFO attributable to common shareholders was $110,100,000 or $1.08 per diluted share, above guidance. FFO attributable to common shareholders was $79,400,000 or $0.78 per diluted share. AFFO came in at $75,600,000 or $0.74 per diluted share Jonathan Petersen: shift to Matthew T. Barnes-Smith: simplification of the platform, higher quality and more predictable earnings streams, and enhanced balance sheet resilience through positive cash flow. Starting the year with rightsizing of the dividend represents not merely a financial transaction, but a structural evolution of the company. As we look forward, we are evolving into a more focused, more transparent, and more predictable operating platform. Shawn discussed the planned disposition of the multifamily portfolio, the real estate financing platform, and the construction Jonathan Petersen: entity. Shawn J. Tibbetts: I will now walk through Matthew T. Barnes-Smith: management’s estimates related markets, and easier to value and more closely aligns with long-term institutional capital. Post transformation, we will be positioned as a simplified pure-play retail and office REIT characterized by focus on recurring contractual cash flows with no reliance on fee or non-recurring income. This year, we report our results in the most fundamental and transparent way, using NAREIT-defined FFO for our earnings metric, cash same-store growth metrics to be consistent with other REITs in our space, and leverage at a net debt to EBITDA level. We will be guiding towards NAREIT FFO less the discontinued Shawn J. Tibbetts: of the general Matthew T. Barnes-Smith: contracting and real estate services business in 2026, disposition of the multifamily portfolio with the exception of Smiths Landing in 2026, realization of The Allure at Edinburgh in mid-2026, exit of the real estate financing portfolio in 2026, blended retail and office same-store NOI cash growth of just over 1.7%, acquisitions of approximately $50,000,000 of retail properties with a cap rate range of 6.25% to 7% in 2026, secured debt paydowns of approximately $270,000,000 as a result of the multifamily disposition, net unsecured debt paydowns of approximately $400,000,000. Page four of the guidance presentation illustrates an FFO bridge starting at our reported 2025 NAREIT FFO of $0.78 per diluted share and walking through the transition, ending with management’s estimated NAREIT FFO for the full year post transition of $0.64 per diluted share. As you can see, post transition, we expect to significantly reduce our leverage into a net debt to EBITDA range Operator: That gives some context to the expected FFO growth post transformation. There is no question that deleveraging brings some dilution that dramatically decreases risk and backstops the dividend. Most importantly, page six illustrates our AFFO payout ratio both in 2026 and post transition. Management committed to the market that the cash from the properties would cover the cash dividend going forward and we do not intend to waver from that sentiment. You will see in the post transformation column of the table that there are no non-cash entries in the change in fair market value of derivatives. I will discuss our x-rate long-term debt as our hedges mature at the 2026. Finally, the guidance presentation focuses on growth. The reduction of debt enables the company to have a balance sheet that will unlock our ability to grow. Page seven shows post transformation, our earnings profile will consist of roughly 50% retail and 50% office NOI with 94% of that NOI in mixed-use communities. Page eight demonstrates the potential opportunity and estimated NOI trends, organic growth, planned 2026 acquisition basis, demonstrating strong retail and office NOI performance, prioritizing earnings quality, durability of cash flows, and balance sheet strength over short-term growth metrics. Turning to the balance sheet, our capital strategy is anchored in three principles: resilience, discipline, and proactive risk management. We are actively managing our upcoming maturities with three scheduled maturities in the near term: a $95,000,000 unsecured term loan maturing in May 2026, Cane Street Wharf maturing in September 2026, and the Constellation Energy Building maturing in November 2026. Our approach to addressing these maturities is structured and multifaceted, centered around placing long-term fixed-rate debt either at the property or the corporate level. We are currently already in the market with each of these loans, receiving preliminary pricing and terms similar to our inaugural debt private placement, which closed last July. This long-term fixed-rates approach is designed to reduce volatility in our cash flow and earnings, enhance financial resilience, and ensure the company operates from a position of balance sheet strength. As the transformative initiatives are finalized and we use the capital to pay down debt, the company will be in a much better position to ladder in long-term debt private placements and other long-term fixed-rate debt, extinguishing our reliance on derivative products as they mature. I will now turn the call back to Shawn. Thank you, Craig and Matt. I will close by paraphrasing something Nick Saban often says. Chelsea D. Forrest: The key to sustained success is getting the right people on the bus, aligned around the same principles and standards, and focused on executing at a high level. Over the past year, that is exactly what we have done. We are no longer the company we once were. We have streamlined, refocused, and rebuilt the organization in a way that reflects who we are today: aligned, disciplined, and operating with clarity of purpose. The days of being a sprawling, complex octopus are behind us. We are a new company with a sharper strategy, a stronger team, and a more accountable operating model. When focus, accountability, and alignment come together, results follow. With that, Operator, we are ready to open the line for questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Thank you. And your first question comes from the line of Viktor Fediv from Scotiabank. Viktor Fediv: Good morning, everyone, and thank you for taking my question. Matt and probably Shawn as well. So in terms of your long-term growth trajectory, on page eight of your guidance presentation, you highlighted the potential for, like, $10,000,000 of annualized commercial NOI addition starting from 2027 and beyond, which implies around $150,000,000 of acquisitions if you just Jonathan Petersen: ask him six and a half cap rate. So how do you plan to finance this, and what are your key assumptions, particularly around share price and debt cost? For these to be achievable? Shawn J. Tibbetts: Viktor, good morning. Thank you for the question. I think this starts with the theme here, right? We want to maintain the appropriate leverage point. Right? So we, I think, have done what we said we would do here and demonstrated we are willing to do what is needed to unlock the value of the existing portfolio. That said, we want to be balanced in our approach. We want to be disciplined in our approach, and we want to be consistent in our growth. So there is a balance here. To your point, we think there is obviously debt capital available, but at the right time, we would like to balance the capital stack by continuing to add equity. But we are not going to do that at any cost. Right? And so at the end of the day, the shares need to be trading at the right level relative to NAV for us to even think about that. So what you are seeing us project here is we think we can get to that point, and we think it makes sense in the out 2027 years, if Jonathan Petersen: Got it. And then if you look, let us say, five years from now, where do you see A H’s real detract in terms of retail to office NOI split Shawn J. Tibbetts: Yeah. I think as we have talked about here, and thank you for the question, we like to operate and we intend to operate going forward where we can add the most value. I think it is pretty clear that we add the most value in both retail and office. In the short run, we are focused on retail and specifically the type of retail that we have in our portfolio, right? And we are somewhat agnostic, agnostic in that regard because again, we add the most value there. I think if you talk to Craig, and I am going to ask him to chime in here, you know, we have our eye on a couple of opportunities now. It does not mean we are going to pull the trigger. But as you are aware, we have embedded in the model about $50,000,000 of capital to outlay to go into acquisition mode if, in fact, that makes the most sense for us. But we are not beholden to that. Craig, do you want to add a little more color there? No. I think that is good context, Shawn. I will only add that, look, our team has shown the ability to continue to lease space and grow rents. And so we will look for acquisition opportunities that display those same fundamentals in the right target market: population growth, income growth, below-market rents, and the ability to drive and create value. So our eyes are open. We are always active in the market. And we look forward to executing on our strategy. Jonathan Petersen: Got it. And then just a quick follow-up on that. So, obviously, you are looking within geographies where you have some expertise and competitive advantage. Just trying to understand how wide your opportunity set is now in terms of you have kind of plans to acquire $50,000,000 this year but how wide is kind of under consideration pool now for you, and what are the key metrics you are kind of paying the most attention to? Shawn J. Tibbetts: Sure. I think, Viktor, the answer is best rooted in that we like and meet our markets that have fundamentals our investment thresholds. A little more deeply there, markets with growth, markets with population growth. You know as well as I that we operate in secondary markets. That way, we can build a moat and be the best operator. We are not intending on going into Tier 1 cities and, you know, battling it out with folks that are 50 times our size. Our cost of capital and our expertise primarily exists in the secondary market. So we like markets that are a reflection of the markets that we are in today. Jonathan Petersen: Markets and Shawn J. Tibbetts: what their growth looks like on a go-forward basis. Jonathan Petersen: Got it. Thank you. Operator: Thank you. And your next question comes from the line of Andrew Berger from Bank of America. Andrew Berger: Great. Good morning, and congratulations on putting these plans into motion. Could you just talk maybe high level about your latest thoughts on mixed-use communities and whether these retail investments that you are targeting are still within mixed-use communities or are these separate? And I guess also to that point on the office side, you know, it sounds like you are not looking to invest in office at the moment. You know, maybe just any more Matthew T. Barnes-Smith: color there as you think over the next couple of years about that split that you were talking about before with the retail versus office, you know, if office is something you would be willing to sell if you get, you know, the pricing on those assets a bit more in favor. Shawn J. Tibbetts: Morning, Andrew. Yeah. We are, obviously, capable in the mixed-use space, right? We have quite a significant chunk of our portfolio that sits in mixed-use. So we like mixed-use. But that said, as I mentioned earlier to Viktor, we like all of retail. And we are willing to look at all of that retail. In terms of office, I will answer the latter part of your question first. We are capital allocators in the end. Matthew T. Barnes-Smith: And Shawn J. Tibbetts: that is what we focus on. So if there is an opportunity to harvest capital at an appropriate price, we will do so. We do not have intentions of doing so as we sit here today. But we think that the office market does recover, specifically the high-quality trophy-type assets that we hold. And so we will take a look Matthew T. Barnes-Smith: color on the multifamily dispositions. Just maybe anything around the pricing for that and any more color on the timing? Shawn J. Tibbetts: Sure. As you are aware, we are under LOI with 11 out of the 14 assets. To be clear, the remaining two, notwithstanding the Smiths Landing asset, we will take to market in near future. So I think the best way to describe this is, number one, we are looking at fair and competitive pricing relative to market comps on the assets that we own. We are thinking in the mid-5% cap range, just to give you a number. In terms of progress, we feel really good about this. The buyer as well as ourselves have been leaning in heavily here, and we have been working feverishly to get there. We made tremendous progress. Obviously, the goal is to derisk the company, remove the uncertainty, set ourselves up for healthy growth. So we want to make sure we keep kind of as our north star here, the deleveraging aspect: selling these assets, harvesting the arbitrage, and applying that to the leverage, driving down that leverage on our balance sheet. But, yeah, we feel good. I mean, we hope to come back to the market very soon and talk more definitively about the deal that we are able to get. So we are excited about that. Actually, I just want to say while I have an opportunity here, I am proud of this team and the amount of progress we have made, and we feel good about it, and that is why we chose to share this with the market today. Matthew T. Barnes-Smith: Great. Thank you. And maybe just one final one for me on the dividend. You did address the 95% payout ratio earlier. I guess the question is where would you like to see that trend over time? You know, it is 95% in 2026 as well as post transformation. Should we be thinking about it, you know, just over the next couple of years as trending lower from there? Like, can you just talk a little bit? Like, is there any other metric we should be looking at besides AFFO payout ratio just to kind of get a sense of, you know, how you and the Board are thinking about the dividend? Shawn J. Tibbetts: Sure. I think it is important to note that we were cash flow positive in 2025, which is great. Happy to get us there. Obviously, it was a challenging environment to get there, but I think that is the first sign of health. We expect to be cash flow positive in 2026, which is good. I think you should be thinking about this with us being conservative with our capital, right? And we want to pay out a nice dividend, but we do not want to overpay a dividend. So at the end of the day, you are not going to see us aggressively hike that. You are going to see us stay in compliance with the REIT standards, right? But also put the capital back to shareholders in an appropriate manner. I guess that is a long way of saying we are not in a hurry to hike the dividend. We are in a hurry to simplify this company and delever this company. And the dividend will fall into place as the company grows and as the cash flows grow. Operator: Thank you. And your last question comes from the line of Jonathan Petersen from Jefferies. Please go ahead. Jonathan Petersen: I was hoping you could talk about development as part of your long-term strategy for growth. It seems like in the near term, the focus is maybe more on acquisition of retail properties, but do you anticipate being a developer in the future? Shawn J. Tibbetts: Good morning, Jonathan. Thank you for the question. Great question. Obviously, development has helped build a good piece of the portfolio that we own today. That being said, as you are aware, cost of capital are up relative to where they were in our past. And although we are willing to do development where it makes sense, we believe there is a risk-adjusted spread that is required there. So we think the most accretive, given the timing, would be acquisition in the short run. That said, we are willing to do development surgically and in the right space, and I will just offer as a proxy the Bed Bath & Beyond conversion to Trader Joe’s, right? That was a quick conversion of an existing box. And as Craig mentioned, we experienced almost 60% increase over the former rents in a relatively short duration. So we are looking for surgical development opportunities, really thinking redevelopment. We do have conversations frequently about development with partners, but I think you are going to see us partner with others to do development as opposed to large-scale development pipelines as you have seen us deploy in the past. Jonathan Petersen: Okay. That makes sense. I was hoping to maybe also get more context on the growth from your core businesses, retail and office, that is expected in 2026. I think the guidance is for 1.7% same-store NOI, but your fourth quarter growth number was quite a bit higher than that. So are there any sort of headwinds or move-outs in the office portfolio? And maybe are you able to parse out expected growth in office versus retail in 2026 on a same-store basis? Shawn J. Tibbetts: Sure. I will start by saying the team has done a tremendous job working ahead of the curve on move-outs and vacancies. And I think Craig can give you some more color here. But at the end of the day, we see upside. I think Craig mentioned the West Elm in the comments previously. We see opportunity there given the very low rent relative to the market there. So Craig and his team have been working on this. As you know, we take very seriously the rollover and vacancies, and we like to stay ahead of those. I think, if you do not mind, would you add a little more color on what you are seeing out in 2026 and beyond? Yes. Happy to, Shawn. And Jonathan, thank you for the question. Yeah. In my prepared remarks, I mentioned the anchor space that we got back with the bankruptcies of Conn’s, Party City, JOANN. We made a ton of progress there in terms of backfilling and leasing. Matthew T. Barnes-Smith: Still have a little bit of work to go. Shawn J. Tibbetts: Of course, with tenant build-out and move-in, there is lag in between former tenant exiting and new tenant commencing rent. So 2026 we are in that in-between period for the most part, and that is what you will see weigh Matthew T. Barnes-Smith: a bit on 2026 growth. With anticipated growth coming Shawn J. Tibbetts: in 2027 in the beginning and throughout 2027. So that is really what is dragging on retail results for next year. Matthew T. Barnes-Smith: Shawn mentioned West Elm. That is basically we did take back this first quarter. Shawn J. Tibbetts: At below-market rents, so we are excited, actually really excited, about taking that space back. Matthew T. Barnes-Smith: And the ability to re-lease at two to three times rent, bringing those spaces to market. Shawn J. Tibbetts: On the office side, not a ton of rollover there, right? So near-term risk is low. Matthew T. Barnes-Smith: And well-diversified across the portfolio. Shawn J. Tibbetts: The two things really Matthew T. Barnes-Smith: causing headwinds for us: the space at One City Center in Durham, which we have all known about and have been proactively managing, trying to mitigate, seeing good interest in the market there, as well as a little bit of space we took back at Wills Wharf to accommodate our existing anchor and to offer greater flexibility to prospects in the market. So all told, I think 2026 will be a little bit of a gap year in terms of that, with expected greater growth in 2027. Operator: Thank you. That ends the question-and-answer session. I will now hand the call back to Shawn J. Tibbetts for any closing remarks. Shawn J. Tibbetts: Sure. Thank you very much. Thank you all for joining us today and your interest in our company. I just want to share with you, we could not be more excited about this. Our team is focused. Our team is intentional. And we are looking forward to putting the company on a growth trajectory. And that is really our message here, right? We are working feverishly to put the balance sheet in the place that it should be and set ourselves up for growth for the coming year. So thank you all for your interest today. We appreciate your time and your investment in us. Operator: And this concludes today’s call. Thank you for participating. You may all disconnect.
Operator: Good morning, and welcome to Fluor Corporation's fourth quarter and full year 2025 earnings conference call. Today's call is being recorded. At this time, all participants are in a listen-only mode. A replay of today's conference call will be available at approximately 10:30 AM Eastern Time today, accessible on Fluor Corporation’s website at investors.fluor.com. The web replay will be available for 30 days. A telephone replay will also be available for seven days through a registration link, also accessible on Fluor Corporation’s website at investors.fluor.com. At this time, for opening remarks, I would like to turn the call over to Jason Landkamer, Vice President, Investor Relations. Please go ahead, Mr. Landkamer. Jason Landkamer: Thank you, Sarah, and welcome to Fluor Corporation’s 2025 fourth quarter earnings call. James R. Breuer, Fluor Corporation’s Chief Executive Officer, and John C. Regan, Fluor Corporation’s Chief Financial Officer, are with us today. Fluor Corporation issued its fourth quarter earnings release earlier this morning, and a slide presentation is posted on our website that we will reference while making prepared remarks. Before getting started, I would like to refer you to our Safe Harbor note regarding forward-looking statements which are summarized on Slide 2. During today's presentation, we will be making forward-looking statements which reflect our current analysis of existing trends and information. There is an inherent risk that actual results and experience could differ materially. You can find a discussion of our risk factors which could potentially contribute to differences in our 2025 Form 10-K, which was filed earlier today. During this call, we will discuss certain non-GAAP financial measures. Reconciliations of these amounts to the comparable GAAP measures are reflected in our earnings release and posted in the Investor Relations section of our website at investors.fluor.com. When discussing revenue and related margin, we are introducing disclosure for adjusted net revenue and adjusted net margin which we determine by reducing GAAP revenue to exclude at-cost revenue, which we define in the 10-K. James? I will now turn the call over to James R. Breuer, Fluor Corporation’s Chief Executive Officer. James R. Breuer: Thank you, Jason, and good morning, everyone. Thank you for joining today. I want to start by sharing my perspective on 2025, what is ahead of us in 2026, why we are excited about our strategy, and the business conditions supporting our growth. Please turn to Slide 3. When I think about our current state, it is helpful to reflect on the progression of our strategic journey over the past few years. We executed our fix-and-build chapter early in the decade where we prioritized actions critical to our long-term success. These included creating a robust capital structure, reestablishing disciplined pursuit principles, and diversifying our mix of revenue. Last year, this management team launched the next chapter of our strategy, grow and execute, with a focus on growth, project delivery, and returning value to shareholders. Since then, we deployed $754 million in share repurchases in 2025, plus an additional $335 million to date in 2026. We achieved a monetization solution for our investment in NuScale, with $2 billion received since September 2025 and more to come in the next few months. We completed the sale of Stork and signed an agreement for the sale of the CFHI yard. We maintain our discipline around contract terms, ensuring that we get paid for the value we provide. And we have much to be proud of in our three business segments. In Energy Solutions, in 2025, we completed and expanded in key markets including a major award related to the largest pharmaceutical project in the world, a rare earth project in the United States, copper and iron ore projects across multiple continents, and a semiconductor tool install. And in Mission, we saw a significant extension for nuclear remediation work, and continue to make inroads in the intelligence space. Please turn to Slide 4. As we stand in early 2026, we are seeing improved confidence across our client base. This confidence is a result of high levels of new front-end work, as well as detailed negotiations on projects that we see converting to backlog in the next several quarters, weighted towards 2026. The uncertainty and hesitation that we saw last year, furthermore, after last year's disruption, is abating. The Fluor Corporation team has been very active in finding new opportunities in our target market and progressing the ones already in house. We are actively pursuing and shaping prospects across LNG, mining and metals, advanced technologies, and nuclear fuels. We also saw an increase in prospects in both gas-fired and nuclear power projects. Based on our conversations with clients, and their current expectation of FID timing, we anticipate that new awards for 2026 will be significantly higher than in 2025, with a book-to-burn ratio in excess of one. On Slide 5, we have listed the major opportunities we are tracking for 2026, showing the diversity of our end markets. I will provide more detail in my commentary on each segment. Now let us turn to our review of our results for 2025, beginning on Slide 6. John will cover the majority of the financials, but I would like to cover a few highlights. Consolidated new awards for the year were $12 billion and 87% reimbursable. New awards last year were affected by clients’ concerns around geopolitical and trade uncertainty, and in the case of SRPPF, the client's evolving approach for tendering the centimeters scope. Jason Landkamer: I am encouraged by the earnings potential of our current backlog. We saw an improvement in new award margin and in total backlog margin. These improvements are supportive of the operating margin range that we discussed last year at our Investor Day. Having these projects in hand, we are now focused on delivering at or better than as sold. Moving to our business segments, please turn to Slide 8. Urban Solutions reported a profit of $205 million for 2025, compared to $304 million a year ago. Segment profit reflects $108 million in cost growth on three infrastructure projects, offset by $54 million of positive developments on other infrastructure projects, including a favorable negotiation on the project completed in 2019. Specific to our four infrastructure projects in the loss position, we are still on track to hand over three projects in 2026 and one in early 2027, and we continue to aggressively pursue recoveries and change orders from clients and subcontractors. New awards in Urban for the year were $8.7 billion and included the previously mentioned pharmaceutical project, two significant mining projects, and two highway projects. This is the third year in a row of new awards in the $9 billion range in Urban, validating the benefits of our diversification. Ending backlog for Urban Solutions is $18.7 billion. Please turn to Slide 9. We see opportunity to grow in 2026 with large copper, aluminum, and green steel projects in mining and metals, rare earth material production facilities and manufacturing, and life science facilities for two new clients. In advanced technologies, we brought in additional industry-experienced leadership to support our offering in both semiconductors and data centers. As a result of our increased efforts in these markets, we are in advanced discussions with a client for a major data center in the United States. We are pursuing project management work on a data center project in Europe, and are well positioned for semiconductor work in the United States. Moving to Energy Solutions. Please turn to Slide 10. For full year 2025, Energy Solutions reported a segment loss of $414 million compared to a profit of $256 million in 2024. These results reflect the Santos ruling, the completion of several large projects, and a temporary slowdown in execution in Mexico. Excluding the Santos effect, the segment performed extremely well, exceeding our internal expectations for the year. New awards in Energy Solutions totaled $1.4 billion in 2025. Awards for the year were primarily related to higher-margin engineering services that will enable larger EPC awards in the next two years. Ending backlog was $4.6 billion. As a final point, we recently celebrated the mechanical completion of our work in BASF's largest investment to date in China. Our scope was delivered with more than 75 million work hours without a lost-time injury, and Fluor Corporation provided full engineering, procurement, and construction management services. This proud achievement across multiple facilities is another example of our ability to deliver successful projects no matter the size and complexity. Please move to Slide 11. For large-scale project with a potential to add two additional facilities for the same client, these projects will start on a reimbursable basis and then convert to a negotiated fixed price once the execution plan and estimate are completed in late 2026 or early 2027. We are very excited about these opportunities. On the Cernavodă project, we continue to advance the front-end planning with the client and our JV partners, and expect to finalize all deliverables and EPC estimate by 2026. This project could result in a multibillion-dollar award next year. On the RoPower SMR project, we are actively coordinating with a client, the U.S. and Romanian governments, and with NuScale to obtain the next stage of funding to progress that project beyond the recently completed FEED. We are also pursuing additional opportunities in conventional nuclear and SMR projects in partnership with several technology providers. So as you can see, we continue to expand and diversify. Our LNG team also recently started a FEED package for a portion of a U.S. LNG facility. Turning to Mission Solutions, please go to Slide 12. This segment reported a profit of $94 million for the year, compared to $153 million a year ago. Results for the year reflect $60 million in the aggregate for the recognition of reserves on the DoD project and a previously disclosed ruling on a project completed in 2019. New awards totaled $1.8 billion, similar to 2024. Awards included the start of a six-year contract to extend our presence at the Portsmouth site. Backlog was $2.2 billion compared to $2.7 billion for 2024. As previously explained, these numbers exclude the work performed under the equity investment method. For 2026, we see opportunities in the civil agency market, including FEMA and the National Cancer Institute, pursuits in our national security business, additional LOGCAP work, and support services for the intelligence community. Mission is very well positioned for nuclear fuels work, combining our EPC expertise with our extensive nuclear experience with the government. We expect this market to expand as the United States drives investment to increase domestic production. In this sense, we are extremely excited with last week's announcement of the Centrus award for the EPC of a major expansion of its Ohio uranium enrichment plant. We are proud of our long-standing partnership with Centrus and our contribution to rebuilding the U.S. nuclear fuel supply chain. We recognized an early engineering award in Q1, and expect meaningful EPC awards in the second half of 2026 and into 2027. We continue to have a full team deployed on the SRPPF project, which is part of our scope at Savannah River. While we had previously anticipated a full release in 2026, we are awaiting additional information from the U.S. government as to timing of next steps. Before I hand the call over to John, I wanted to briefly discuss artificial intelligence, which is a topic of great interest in our industry. Please turn to Slide 13. When it comes to AI, Fluor Corporation was an early adopter. We began our AI journey in 2018 by developing a predictive analytics platform built on data from more than 200 of our largest EPC projects. This foundational work allows us to benchmark schedule, planning, and cost performance using proven historical outcomes, so projects are planned with greater accuracy and discipline from the start. At Fluor Corporation, we view AI as a strategic advantage that strengthens our fully integrated EPC model. AI will enhance our ability to plan, design, procure, and build, improving decision timeliness and quality, accelerating execution, and sharpening our competitive edge. As of today, we have deployed AI across the project life cycle, from predictive analytics on capital projects to intelligent pricing insights across the supply chain. These applications are already embedded in how we plan projects and engage with suppliers across key markets. We have also implemented AI applications across individual functional roles, including HR, finance, legal, and procurement. Building on these capabilities, and looking ahead, we are evolving our project delivery platform into what we call the project of the future. While still in the early stages, this next evolution of our platform is intended to deliver shorter schedules and greater cost competitiveness for our clients. We look forward to sharing more details in the future. With that, John will give us the financial update. John? John C. Regan: Thanks, James. Good morning, everyone. Today, I would like to complete the picture of 2025 results and share our view on the year ahead, including some thoughts on capital returns. Please turn to Slide 15. There are some key things to consider within our full year GAAP results, including: one, the $643 million charge related to Santos, which we booked as a reduction to revenue. Now in Q4, we saw a modest clawback of $10 million as we further tightened the earlier estimates coming out of the judgment, and we saw more contribution from our insurance carriers. Two, we recorded $210 million in equity method earnings, driven mainly by our investment in NuScale and the Q1 NTTA impact. The accounting for NuScale in Q4 is very nuanced, so we will comment more on that in a moment. Three, we recognized $108 million in cost growth across three infrastructure projects, including a $30 million effect during Q4. And finally, we had $43 million in restructuring costs to better optimize our operating platform for the current execution window. We recognized $16 million of this in Q4 with all year-to-date amounts included in our SG&A. Coming back to equity method and NuScale, because we had not completed the forward sale program until last week, we kept all 111 million shares on our balance sheet through year-end. The $2.2 billion loss in the quarter represents the $22 decrease in NuScale carried across all 111 million shares, but offset by the $200 million we recognize for the derivative asset associated with the forward sale, which amounted to roughly $3 per share for the 71 million shares within the program. As I said, nuanced. All in, our carrying value for the 71 million shares in the program completed last week was $1.2 billion, and we received $1.35 billion, so the difference becomes a realized gain in Q1. Please turn to Slide 16. In 2025, our 10-K reported a consolidated segment loss of $109 million which was significantly impacted by Santos. Adjusted EBITDA for 2025 was $504 million compared to $530 million a year ago. Our adjusted EPS of $2.19 compares to $2.32 in 2024. G&A for the year was $196 million, down from $203 million reported a year ago. This reflects a decrease in stock-based comp expense but was offset by the restructuring costs of $43 million. Net interest income in 2025 was lower at $67 million compared to $150 million a year ago, as a result of both lower interest rates and the level of cash balances at our more significant JVs. Moving to Slide 17. We ended 2025 with $2.2 billion in cash and marketable securities, compared to $3 billion a year ago. Remember, we had several outsized items impacting year-over-year cash, including share repurchases, the NuScale monetization in September and October, plus the Santos payment in Q4. To provide more clarity, we have included an adjusted balance sheet on Slide 24 to illustrate the impact of share repurchases and NuScale monetization that we have already completed this year. It shows a $1 billion augmentation of our cash balance, and positions us to execute the capital allocation that we headlined in today's earnings release, and to do so with supreme confidence. We ended 2025 with operating cash flow of negative $387 million, largely due to the $642 million paid to Santos. Absent that, cash flow remained robust. As a reminder, our payment to Santos in Q4 enabled us to move ahead with our appeal, which is currently slated to be heard in mid-2026. While we are hopeful for a more positive outcome via the appeal, we do not see any material downside to pursuing it. As it stands, we do not expect any meaningful updates regarding the appeal or any insurance recoveries until the second half of the year. On the lost project front, we funded $238 million for all of 2025, with $80 million reported as operating cash flow and the remainder in investing. By virtue of the further widening in Q4, we now expect that 2026 will see approximately $220 million in funding including $90 million within OCF, compared to $700 million last year. Backlog for legacy projects now stands at $250 million. Please turn to Slide 18. We are very proud of 2025 on several meaningful fronts. We had over $750 million in share repurchases in the calendar year resulting in an 11% decrease in float. We converted all of our NuScale holdings and embarked on a comprehensive plan to monetize them. Excluding the 40 million shares that we still hold, the already accomplished monetization means that we have a MOIC of over three and a half times and an IRR of over 13% since our initial investment in 2011. The final chapter of the monetization will only turbocharge these results. We finalized the agreement to sell our ownership in the Chinese fabrication yard for over $120 million, which upon closing will enable us to further reinvest in our business. We had $37 million in debt retirements, which generated a million dollars in gains because of how we attacked them. We do not see a need to refinance any of our outstanding indebtedness in 2026, but if these types of small-scale opportunities continue to present themselves, we will be poised to act. And lastly, we completed the divestiture of Stork. Looking ahead for 2026, we expect to spend approximately $1.4 billion for share repurchases across all four quarters, which includes $400 million for the first two months of the year. We also expect to conclude our NuScale monetization efforts during Q2. By virtue of the NuScale proceeds and our operating results, we will continue to put a priority on investing in our capabilities and our people, with a focus on building additional expertise and depth, reviewing tuck-in M&A opportunities that directly advance objectives within our target markets, and continuing meaningful share repurchases beyond 2026 based on free cash flow performance. Moving to Slide 19 and the outlook for 2026, we are establishing our initial adjusted EBITDA guidance in the range of $525 million to $585 million. When we think about adjusted EPS in 2026, the significance of the share repurchases will play a big role in reducing outstanding shares. Assuming we complete the entire program at $45 per share, which was Friday's close, 2026 operating results are weighted a bit more heavily towards the second half of the year. Our expectations for operating cash flow are $300 million, but that figure excludes the over $400 million for the tax bill on last year's NuScale conversion which comes due in Q2. It does, however, reflect the lost project funding I discussed earlier. Our key assumptions and expectations for 2026 are shown on the slide, including the new awards book-to-burn above one based on the continued optimism that you heard in James’ commentary, corporate G&A expenses of approximately $175 million to $185 million. Now this range excludes up to $10 million we could incur for early work on a potential replacement of our ERP. An income tax rate of approximately 26% to 28%. And while revenue is increasingly difficult to predict, in part due to the impact of varying levels of at-cost revenue, we expect our split to be approximately 20% in Energy Solutions, approximately 65% in Urban, and approximately 15% in Mission. Assuming these splits, our expectations for reported segment margins are approximately 3% to 4% for Urban Solutions, approximately 4% to 5% for Energy Solutions, and approximately 6% for Mission. An alternative view to margins and using the definitions outlined in our 10-K filed earlier today, I wanted to highlight Slide 25, where we have presented our view on consolidated adjusted net margin, including the growth we saw in 2025. In the spirit of transparency, we expect to elevate our disclosure in this area for 2026. And with that, Operator, we are now ready for our first question. Thank you. Operator: If you would like to withdraw your question, simply press 1 again. We ask that you please limit yourself to one question and one follow-up. Thank you. Your first question comes from Steven Fisher with UBS. Your line is open. Steven Fisher: Thanks, and good morning. Congrats on all the progress in 2025. James R. Breuer: Just to focus a little bit on the initial guidance, it seems like it was a little bit better than what you were thinking back in November, December when we were talking about sort of a flat to maybe modestly higher. Just curious what changed. It sounds like maybe you are hearing a little bit of confidence from your customers. Just if you could talk a little bit about that. Then what specifically still has to happen to hit those targets? Are you requiring some of these bookings in the second half to make a meaningful contribution? Thank you. James R. Breuer: Morning, Steven. This is James. Let me start and then I will ask John to supplement. We feel good, Steven, about where we are. We feel good about the diversity of prospects we have in front of us and the— John C. Regan: —and as— James R. Breuer: —going to be modest, I would say. So a lot of our confidence is also what is in backlog. And so it is a combination, but where we sit today in February, John, I would say in the 70% plus or minus is already in backlog, maybe a little bit higher. The rest would have to come from what we call book and burn, Steven. But we feel, given the quality of prospect and given the, I would say, the maturity of these opportunities, we feel pretty good about it. John? John C. Regan: Yeah, I think you are spot on, Steven. Good morning. In respect of what is coming from backlog for the EBITDA guide, James is right, it is probably in that two-thirds to three-quarter range. And the rest of it is kind of a comfortable book-to-burn for us based on historical trends. So no major concerns there. And then, look, I think the slightly uplifted guide is based on some of the confidence that James referenced, and in part due to some better execution. We spent so much time talking about our problem projects, we forget that so much of the portfolio continues to execute at greater than as sold. And so as we are seeing uplift of margins in some of those backlog projects, the drop-through into the income statement in 2026 is meaningful. Steven Fisher: Great. Thanks very much. Operator: The next question comes from Jamie Lyn Cook with Truist Securities. Your line is open. Hi. Good morning, and lots of accomplishments in 2025. Jamie Lyn Cook: James, I guess just my first question, it seems like the opportunity on power you see going forward relative to where we were last year seems to improve quite a bit. So is there any way you can help me understand if, given the prospects you are seeing today, what percent of your business could be power, let us say, in the next three years on a backlog basis? And just are you seeing any improvement in terms and conditions with utilities given they have historically been a difficult customer to work with before, understanding the contract will be hybrid, cost plus, then go into fixed price. But just any commentary on the terms and conditions or competitive environment that makes you comfortable going in this market? Thank you. James R. Breuer: Good morning, Jamie. Let me answer first the second part of the question. The power market in the United States has evolved significantly in the last few years, driven by the huge demand for power that translates into demand for reliable EPC services. And we have that. We have the experience to do these complex projects. And so in our conversations with the primarily utilities, they recognize that, and the conversation is very different now. It is, like I explained, it is starting reimbursable, working together on the execution plan and the estimate, and then converting to lump sum. And even that lump sum is going to have better conditions than what we saw eight, nine, ten years ago. This is what we are calling smart lump sum where the risk allocation is properly balanced between both sides. I feel good about the market. I think I can see ourselves executing at least two or three large projects simultaneously. We do not want to—I mean, we like our diversification in Fluor Corporation, so we want to grow in Urban, we want to grow in Mission, we want to grow in Energy. The two large growth engines in Energy are LNG and power, and in the shorter term, it is going to be gas-fired power. Again, several small projects at the same time is what I would like to shoot for by 2027. With this one confidential client that I mentioned, we are starting on one project, but the agreement is for an additional two sites. So you can see us managing that relationship as a program with different sites, and the efficiencies and the economies of scale that that drives. So, yeah, multiple projects by next year, Jamie. I do not have in my mind what percentage of the backlog it is, but it is going to be certainly one of our growth engines. John C. Regan: Yeah. Probably a little less focused on the nuclear side in terms of— James R. Breuer: —backlog growth over the next two years. But, again, that is a market that we continue to stay close to— Steven Fisher: —and to hone our CV so that if— James R. Breuer: —if the renaissance does, in fact, materialize in a meaningful capital way, we will be hanging around the hoop for that. Jamie Lyn Cook: Thank you. I will get back in queue. Operator: The next question comes from Sangita Jain with KeyBanc Capital Markets. Your line is open. John C. Regan: Good morning. Thank you for taking my question. So first, can I— Sangita Jain: —start with the FEED on the U.S. LNG plants? I think in the past, you have referenced hesitancy on taking express risk on U.S. LNG projects. So if this project does turn into EPC, will it be fixed price, or are you thinking cost reimbursable? James R. Breuer: Good morning, Sangita. This is a FEED for a scope that is not a train. This is an ancillary scope. It is still significant in size, but it is not in the magnitude that you are thinking a train or two trains would be. We are working on the FEED. And, again, this would be another example where the eventual EPC contract would be negotiated in a way that risk is properly allocated. There probably will be some elements of it lump sum, but, again, it would be what we call smart lump sum to make sure we are not taking blanket risks. But it is not, by any means, of the scale of, say, an LNG Canada. It is much smaller than that. Sangita Jain: Got it. And then on the Urban Solutions margin outlook of 3% to 4% for 2026, I think in the past you have referenced a higher margin range. So just some color on whether it is a function of the projects that are burning this year or if there is a recalibration on your part on your Urban Solutions margin trends going forward. James R. Breuer: Yeah. And nothing in the macro there that is causing that. As we had in the prepared remarks, we do have the legacy projects that are scheduled for handover. So it is pushing the finality of those out the door with maybe a little bit longer of a horizon than we had expected in earlier years. So it is really just the drag of those things here in the final stages. Sangita Jain: Got it. Thank you. Operator: Your next question comes from Andrew J. Wittmann with Baird. Your line is open. James R. Breuer: Okay. Thanks for taking my questions. I guess I am going to ask one on cash flows and then I am going to ask one on corporate costs. So, guys, just on cash flows, it looks like you have kind of articulated some of the moving pieces, John. Thank you for that. You talked about the legacy burn. You talked about the cash tax payment here coming early in the second quarter for the NuScale. One thing you did not talk about was some of the JV cash, and this has been a number that a couple years ago was very large, and it is beginning small. But maybe if there are other moving pieces on the cash flow that we maybe understand even if they are a little bit more minor, but particularly JV? Maybe you could talk about that, please. John C. Regan: Yeah. So you are spot on. So taxes are a big driver of cash flow, and it is that nuance of I pay in the succeeding year the tax bill for the earlier year. So having consumed a fair bit of those tax attributes that we have talked about, we are going to be a little more regular-way taxpayer, beginning in 2026. So we will see some cash outflow there. On the JV distribution front, not much in the way of expected changes coming out of Mexico. We are expecting a slight uplift in an almost nuisance percentage, but roughly comparable to slightly up, coming out of Savannah River. And then in LNG Canada, we are expecting that to come backwards. We are expecting probably $60-ish million less in distributions coming out of Canada as that project is winding down, and we make the final distributions accordingly. But, given the lower effort that we have had in recent quarters, not surprising that the distributions themselves are coming down as that project nears completion. Andrew J. Wittmann: Okay. John C. Regan: And then I guess maybe it is a little bit of a moot point because you gave guidance on your G&A expense. And I am just trying to understand the moving pieces in the fourth quarter as well. Andrew J. Wittmann: Okay. You had an environmental liability in there. You had your normal FX number in there that are both notable items. It feels like there was a reversal on incentive comp because, otherwise, your corporate— Andrew J. Wittmann: Excuse me. Do you expect that there will be more restructuring in 2026 at all that we should be contemplating? John C. Regan: Yeah. So a lot in there. So the corp cost guide, you are correct. There was some reversal of the stock-based compensation. That was related to, in part, overall corporate performance vis-à-vis our internal targets. That also was a factor from the decrease in share price during quarter four. And so we have several of our equity awards that received the liability treatment, so those are constant mark-to-market. So we did see some impact there. Andrew J. Wittmann: And— John C. Regan: I think our expectation for the 2026 guide is that we are at something closer to the targets for 2026, which is why you do see a little inflection there. You called out the restructurings that were in there. With respect to 2026, I would say our restructurings in 2025 were largely geographic. There was a little bit of a tail on some of the Stork stuff. But we looked at where we were operating and the offices we needed, and we took some restructurings around those. I think as we get into 2026, we may still have some modest tail of those things, but I would not expect them to be anywhere close to the $40-ish million we spent in 2025. So, again, a bit of a nuisance, but there will be some, but I do not expect them to be material. Andrew J. Wittmann: Sorry, if I could just sneak one more in here. Just the Mission Solutions margin guidance seems to have perked up here at 6%. Obviously, there are lots of factors that can go into this one as well, but I was wondering if there is anything too discrete that we should be thinking about as to driving that margin higher than what we have seen maybe over the years? John C. Regan: Yeah. Essentially, it is the performance on Savannah River, which receives that equity method treatment. And so you are picking up some of the profit without corresponding revenue. Andrew J. Wittmann: Right. Thanks, guys. Operator: Your next question comes from Michael Stephan Dudas with Vertical Research Partners. Your line is open. James R. Breuer: Morning, gentlemen. Michael Stephan Dudas: Good morning, James. In your prepared remarks on Urban Solutions, you highlighted a couple of newer pharmaceutical clients. You called out data center, semis. So is the market demand for those services picking up to the point where it is coming into your ballpark on securing those types of terms and conditions that will lead to booking growth this year? And on pharma and just around the pharma, how much is Lilly? They have mentioned that new plant in Pennsylvania and all. Is that—are they still—you are still able to help aid to their cause given all the work that you have done? James R. Breuer: Michael, thanks for the question. Let me go in pieces here. Yeah, we continue to be very excited about the Urban markets and ATLS. Semiconductors, that is in our flywheel, those large complex projects. We are talking to clients about those projects, other multibillion-dollar complex facilities. So that is something we are pursuing very actively. Data centers, we have had, as you know, many comments in this forum around the data center market and Fluor Corporation’s role in it. We continue to be very interested in data centers. We are pursuing data center work. John C. Regan: We have two very good opportunities. One in the United States for a large project, one in Europe for— James R. Breuer: —project management services that we are in advanced negotiations. We will remain selective in that market. A lot of the data center work in the United States is better suited for regional contractors or commercial construction-type contractors. But we think there are still good opportunities to pursue there, and we intend to grow in that market. And similarly in pharma and life sciences, right now we are executing a massive project for Lilly in Indiana. It is actually two projects in one. And we are fully committed to making sure that project is successful. We are also chasing some other smaller facilities, still sizable projects, but not in the same scale. And as the Indiana job gets further ahead and there is line of sight on the completion, then I am sure we are going to continue to do more work in that area. Michael Stephan Dudas: Thank you, James. And my follow-up is you have made terrific progress on your financial discipline and certainly the contract terms, and it is very good to hear how the utilities are being more accommodative. In your term here, in your longer-term goals that you set out, when you set out—how do you feel about the growth aspect, the adjusted EBITDA growth over the next few years, the new business opportunities? Is the demand in the market, increased confidence, leave you some more added confidence of achieving those goals as we move forward? James R. Breuer: Michael, I feel very good about them. I feel very good because I am confident that we have the right capabilities aimed at the right markets. The uncertainty and the disruption we saw last year in Q2, Q3 has gotten a lot better. I think our clients are getting used to the trade policy flux, and I think it is perhaps a new normal. So they are looking past that and making plans for their CapEx programs. We have great end markets, and we talked about power. We talked about copper in the past. The copper demand—I think there is going to be an increase in copper demand 30%, 35% in the next five to ten years. Someone needs to build those facilities. We are the world leader in copper projects. In the United States, the manufacturing boom on life sciences, data centers, semiconductors, and other types of facilities. Our work in government, fairly diversified across multiple agencies. So I feel very good. I think we, in our projections, Michael, we are still targeting the 2028 objectives that we— Michael Stephan Dudas: Yes. James R. Breuer: —laid out a year ago. A quarter slide, if you will, due to 2025 events. But we feel very good about our 2028 objectives. Michael Stephan Dudas: Excellent, James. Thank you. Operator: Again, if you have a question, it is star one on your telephone keypad. Your next question comes from Andrew Alec Kaplowitz with Citi. Your line is open. Sangita Jain: Hi. Good morning. This is Natalia on behalf of Andy Kaplowitz. John C. Regan: Hey. Good morning. Jamie Lyn Cook: Hello, Natalia. Sangita Jain: Maybe first question that I will ask: backlog ended over $25 billion. Can you provide more color on the conversion rates by segment for 2026? And how much of that backlog do you expect to convert to revenue in the next twelve months would be helpful? John C. Regan: Well, I think in terms of how much of the backlog will convert to revenue, that is in that 50% to— John C. Regan: —execution, and of that, backlog will drop. Operator: Got it. That is helpful. And then just curious, with the significant NuScale proceeds expected, how are you weighing share repurchases against your capital allocation framework? Or, in other words, just curious about maybe an updated color on your tracking order? And just as a follow-up to that, you mentioned strategic investments in M&A. Just curious if there are any specific gaps in your current portfolio that you would like to fulfill with M&A? James R. Breuer: Yeah. I will take that one. So I do not think we have a material shift in the way we were thinking about it and what we presented last April. And so, back then, we said at the early part of the capital returns, we were going to be weighted towards share repurchases, and I think we delivered on that in 2025, and I think we have got a lofty goal in 2026 with respect to the $1.4 billion. I think as we get later into the planning cycle— John C. Regan: —then we will have— James R. Breuer: —increasing EBITDA and free cash flow, and we will look to redirect those back to shareholders. And so there is probably some diminishing— John C. Regan: —pecking order is kind— James R. Breuer: —of reinvesting in our own business. As I said in the prepared remarks, building additional expertise and depth inside our capital structure, and then reviewing the tuck-in opportunities— John C. Regan: —and so the tuck-in opportunities should not be viewed as— James R. Breuer: —expanding into brave new markets, but, again, adding depth to the markets that we have placed a priority on. And we have chosen the word tuck-in carefully, so as not to convey an inappropriately large size of an acquisition. So we do see opportunities on smaller-scale acquisitions in several of our businesses. So that is how we are thinking about it. Sangita Jain: Okay. That is helpful way to think of it. And maybe one last question on my end. Just taking a step back, as you advance from a fix-and-build approach to grow-and-execute strategy, I am just curious, can you talk about which end markets you feel you regain competitive advantages and which markets you are still seeing maybe more competition and pricing pressure? James R. Breuer: Let me start with that, Natalia. We try to pick only markets where we think we have an advantage. And so if you look at LNG in Canada, if you look at copper, if you look at nuclear fuels, if you look at DOE work, if you look at other large projects and other technologies, but projects that really demand Fluor Corporation scale set of complex project execution from front end all the way to construction, that is what we are targeting for. We had, as you know, Natalia, we have had a lot of discussions on data centers. That is a fairly new market to us, and we are a little bit behind catching up there. I will admit to that. But, again, we are maintaining that discipline where we are only going to go after projects where we think we have a high chance of success. So what am I most excite— John C. Regan: —about and where do— Sangita Jain: Got it. That is helpful. Thank you so much. Operator: This concludes the question and answer session. I will turn the call to CEO, James R. Breuer, for closing remarks. James R. Breuer: Thank you, Operator. Many thanks to all of you for participating today. As we enter 2026, we are excited about the future, given our capabilities, the macro environment for EPC services, and our competitive positioning. We appreciate your interest in Fluor Corporation, and thank you for your time. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Thank you for your continued. Your meeting will begin shortly. Star zero, and a member of our team will be happy to help you. Please standby, your meeting is about to begin. Good day and thank you for standing by. Welcome to the TPG Mortgage Investment Trust Inc Fourth Quarter 2025 and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's remarks, there will be a question and answer session. In order to ask a question during the session, please be advised that today's conference is being recorded. If you require any. I would now like to turn the call to counsel for the company. Please go ahead. Jenny B. Neslin: Thank you. Good morning, everyone, and welcome to the full year and fourth quarter 2025 earnings call for TPG Mortgage Investment Trust Inc. With me on the call today are T.J. Durkin, our CEO and President, Nick Smith, our Chief Investment Officer, and Anthony W. Rossiello, our Chief Financial. Before we begin, please note that the information forward looking statements. Any forward looking statements made during today's call are subject to certain risks and uncertainties, which are outlined in our SEC filings including under the headings Cautionary Statement Regarding Forward Looking Statements, Risk Factors, and Management's Discussion and Analysis. The company's actual results may differ materially from these statements, we encourage you to read the disclosure regarding forward looking statements contained in our SEC filings including our most recently filed Form 10-Ks for the year ended 12/31/2024, and our subsequent reports filed from time to time with the SEC. Except as required by law, we are not obligated and do not intend to update or to review or revise any forward looking statements whether as a result of new information, future events or otherwise. During the call today, we will refer to certain non-GAAP financial measures. SEC filings for reconciliations to the most comparable GAAP measures. We will also reference the earnings presentation that was posted to our website this morning. Return to our website, www.mittpg.com, and click on the link for the Q4 2025 earnings presentation on the homepage. Again, welcome to the call, and thank you for joining us today. With that, I would like to turn the call over to T.J. Thank you, Jenny. I am pleased to report our fourth quarter and full year financials. T.J. Durkin: Which show our continued execution of our core business strategy and industry leading results for the second year in a row. We were able to deliver these strong outcomes in this amidst a challenging macroeconomic backdrop proving the company has a more differentiated strategy than the average REIT. Highlighting MITT’s financial performance, during the fourth quarter, we saw book value remain stable, increasing from $10.46 to $10.48, and we produced an EAD of $0.25, covering our most recently declared dividend of $0.23. When including our newly declared $0.23 in equity of 2.4% for the quarter, although it is too early to comment on our process, for February, value is approximately flat for the month of January. Taking a step back and looking at the year as a whole, believe it is hard to argue with the results driven by the hard work of the MITT team. We have remained steadfast to our disciplined programmatic securitization strategy, issuing 10 times throughout the year, allowing us to keep our economic leverage low versus our peers at just 1.6 turns to end the year. For the full year 2025, we were able to increase our quarterly dividend 3x by a total of over 21%, deliver a 6.5% economic return on equity. Most important, MITT’s total return to shareholders, including dividends and stock price appreciation, through today is a standout 42%, meaning the market is starting to understand both MITT’s story and future potential. We were able to raise our dividend due to we executing on a few key action items, which we have been transparent to the market about dating back almost two years since the close of the WMC acquisition. First was optimizing legacy WMC financings, which we did by refinancing the 11.5% structured repo in July and unlocking $55,000,000 of equity proceeds to be reinvested in our core securitization strategy. Equally as important is to continue to return to profitability at Arc Home, where it was a tale of two halves this year, and we are excited about where the company is heading in 2026. We have also maintained good discipline on G and A and cost controls with which Anthony will touch on later. Lastly, we have been able to deliver all the positive results while still carrying the legacy WMC CRE loans on nonaccrual status as we work with the lender groups towards successful dispositions of the assets. We have approximately $28,000,000 of equity remaining in these assets, which when reinvested will only further bolster MITT’s earning power. As I reflect on those key themes that drove 2025 success, and turn the page to 2026, let me be clear on the team’s objectives. First, resolve the legacy WMC CRE loans in the first half of the year and quickly reinvest into our core higher ROE strategies. Second, work with Arc Home’s management team to continue and build a upon the earnings momentum we were able to achieve in the 2025. Third, drive further earnings power and capital rotation through focusing on our legacy deals, which become callable in 2026. Now before I turn the call over to Nick to go into more details, I would reiterate that we have consistently executed on our stated objectives and believe we have clear line of sight into more powerful ROEs and EAD as we look ahead into 2026. While I recognize there are some headwinds of being a smaller cap company, I think those are outweighed by the meaningful impact our stated objectives have on driving earnings for our common shareholders. For all those reasons, I am looking forward to another great year for MITT as we remain committed to our growth initiatives and creating greater value for our shareholders. I will now turn the call over to Nick. Thanks, T.J. The company had an extremely active fourth quarter and a milestone year in 2025. We have made significant progress in rotating equity into our core strategies, growing the investment portfolio and scaling profitability of our portfolio company Arc Home. These steps have allowed us to increase our dividend by over 21% this year and 9.5% this quarter, supported by a clear growth in earnings power. Getting into specifics. Starting with rotation and investment growth. For the full year 2025, we grew our investment portfolio 27% compared to 2024, ending the year at $8,500,000,000. This growth was driven by over $3,000,000,000 in total loan purchases throughout the year. In the fourth quarter alone, we securitized over $1,300,000,000 of residential mortgage loans across three transactions, our strategy remains focused on rotating capital on a legacy WMC residential and commercial exposures, into higher yielding home equity and agency eligible strategies. This disciplined rotation was a primary driver of our earnings growth. Moving on to our securitization activity. We executed a total of 10 seconduritizations in 2025, representing $4,200,000,000 in total. We have become a programmatic issuer in the home equity space, securitizing $2,400,000,000 across five transactions this year. In Q4, we remain highly active securitizing $1,300,000,000. This included partnering with top mortgage originations totaling $960,000,000 where we retained $55,000,000 of securities. We achieved this growth while maintaining a disciplined leverage profile. Our economic leverage standing at just 1.6. 2025 highlights the rapid success of our expansion into home equity space since late 2024. Today, our home equity portfolio includes $1,100,000,000 of loans, $107,000,000 of non-Agency RMBS, representing 35% of our total equity allocation, which includes approximately $70,000,000 of HELOCs we currently hold unlevered. Moving on from financing and investment activity to Arc Home. We are reiterating our commitment to this business as we begin to see our strategy strategic investment payoff. During 2025, Arc Home remained focused on growing origination volumes and improving profitability resulting in what we describe as a tale of two apps. While the company overcame a turbulent April, marked by tariff rated volatility, it reached a clear inflection point in the second quarter when achieved breakeven earnings. This set the stage for a very consistent second half of the year, where the platform generated a 10% annualized ROE. Our confidence in the business was further signaled by our acquisition of an additional 21.4% ownership interest in August. Following this, the company achieved record lock volumes with 34% year over year growth. This growth was primarily driven by 42% increase in non-QM mortgage fundings versus 2024. An increase of over 79% year over year. In total, Arc Home originated over $3,400,000,000 for the year, 2025. The strong earnings at Arc Home driven by steady gain on sale margins, and high lock volumes, have positively contributed to our earnings available for distribution. As Arc Home continues to execute its plan, its contribution to EAD should rise. And with our increased ownership, this will be an important driver of future earnings. We are encouraged by the start of 2026, with January marking Arc Home’s strongest month since returning to profitability generating monthly earnings in excess of $1,000,000. We believe this growth is sustainable as Arc Home continues to gain share in this increasingly attractive corner of the mortgage market non-Agency originations expand their share of the aggregate mortgage market. Touching upon our call rights and future strategy. As alluded to in our previous remarks, we see significant embedded value in our 2022 and 2023 vintage issuances. In Q4, we acted on this by exercising the optional redemption of a 2022 vintage non-QM securitization with $316,000,000 in UPB. Subsequently selling approximately $277,000,000 of. Intend to remain aggressive in exercising call rights on in-the-money securitizations to return capital that can be opportunistically redeployed in our core, higher returning investment strategies. We see significant EAD upside in rotating approximately $35,000,000 of equity this year. This time last year, we spoke in-depth about the MITT advantage. The past year’s results are evidence of this advantage playing out and we believe it is as relevant today as it was then. To summarize this advantage briefly, the MITT advantage is driven by extensive capabilities of its manager, TPG, which provides MITT with unparalleled access to capital, sourcing expertise within the presidential mortgage finance sector. This provides MITT an edge through its vast network of relationships, with investment banks, and nonbank originators, alongside the support of over four dozen specialized professionals and a state of the art data science and technology department. Furthermore, TPG provides dedicated resources like Red Creek, a custom built asset manager, along with expert support for portfolio companies like Arc Home. All this allows MITT to be uniquely agile and effectively rotating capital but not limited to non-QM home equity and agency eligible credits, to name a few. Allowing MITT to deliver superior risk adjusted returns compared to traditional mortgage REITs. Before passing the call over to Anthony, I will summarize by saying we entered 2026 with strong momentum in earnings growth. This growth will be fueled by exiting legacy residential and commercial holdings, executing call rights and rotating this capital into the company’s higher returning strategies along with the tailwinds that Arc Home and its focused market, NonQM. Anthony W. Rossiello: Anthony, over to you. You, Nick, and good morning, everyone. MITT finished 2025 with strong momentum, maintaining book value stability and raising our quarterly dividend for the third time this year by over 21% to $0.23 per share. During the quarter, we sponsored three securitizations, and continued deploying capital into our home equity portfolio. This investment activity, coupled with sustained strength in origination volumes at Arc Home, delivered a strong economic return and earnings available for distribution that exceeded our increased dividend level. Moving to our financial results. Book value increased by 0.2% during the fourth quarter to $10.48 per share. Including our $0.23 dividend, we generated a 2.4% economic return for our shareholders. GAAP net income available to common shareholders was $8,000,000 or $0.25 per share, primarily driven by EAD, as net unrealized gains on our investment portfolio were partially offset by transaction related expenses which are mainly associated with securitization activity. During the fourth quarter, we recognized EAD of $0.25 per share, up from $0.23 in the prior quarter and fully supporting our newly increased dividend. Our investment portfolio continued to produce strong results, with net interest income increasing by 4% this quarter. This growth is driven by our ongoing rotation of capital into higher earning target assets, and a full quarter of benefit from the legacy WMC debt refinancing completed in Q3. Overall, net interest income, inclusive of interest earned on our hedge portfolio was $0.68, which exceeded $0.45 of operating expenses and preferred dividends to generate net earnings of $0.23 per share. To round out EAD, Arc Home contributed an additional $0.2 per share supported by continued strength in origination volumes. For the full year 2025, EAD of $0.86 per share gains of $0.85. On a year over year basis, EAD increased by 17% to $26,300,000, driven by a 6% increase in net interest and hedge income, alongside a meaningful turnaround in our home. Specifically, Arc Home contributed $1,900,000 to EAD in 2025, all of which is recognized in the second half of the year, as compared to a loss of $3,300,000 in 2024. This was further supported by non-investment related expenses remaining flat year over year, highlighting a large portion of our expense load being fixed. Lastly, income earned from our strategic capital deployment throughout 2025 was well in excess of the added investment related expenses. Looking ahead, our earnings power will be further enhanced as we execute our call strategy and redeploy capital from legacy WMC commercial loans currently on nonaccrual or cost recovery status into residential investments during 2026. Lastly, we ended the quarter with total liquidity of approximately $109,000,000 consisting of $58,000,000 in cash, $50,000,000 of committed financing available on unlevered home equity loans, and $1,000,000 of unencumbered agency RMBS. This concludes our prepared remarks, and we now would like to open the call for questions. Operator: Thank you. To leave the queue at any time, press 2. Once again, that is 1 to ask a question. And we will pause for just a moment to allow everyone a chance to join the queue. Thank you. We will take our first question from Crispin Elliot Love with Piper Sandler. Your line is open. Please go ahead. Crispin Elliot Love: Thank you, and good morning, everyone. First on Arc Home, originations increased in the fourth quarter and you called out momentum in the 2025 and also early 2026. But can you just give a little more detail on what you are seeing so far in the first quarter as it pertains to Arc Home volumes and gain on sale margins relative to the fourth quarter? And then I just want to make sure I heard you right. Did you say Arc Home generated $1,000,000 in EAD in January? Or was that something different? Nick Smith: That was their individual profitability. Arc Home’s ownership of. So you have to take into consideration of of Arc. Continent. Commenting on the volumes they continue to gain market share. There has been tailwinds from a margin standpoint insofar as you have a CPE yield curve and tighter credit spreads and more liquidity. So as a niche originator in a space, where there is a lot of demand, margins have been healthy, we have been able to pass that on to our our lending partners, origination partners, and that is really driving future growth. Hopefully, looking forward, as the continues to scale, we can take in more margin. But volumes have been continuing to increase sequentially month over month, quarter over quarter as the company grows. Crispin Elliot Love: Perfect. Appreciate the color there. And then can you discuss where you are most interested in investing investing incremental capital today? Just looking at Slide nine and the pie chart as of 4Q. Just home equity non-QM, agency eligible, which areas are you most interested in adding? And then are there any areas of pockets within those or other areas that you are more cautious or stepping back at all? Nick Smith: Yes. So the focus has been home equity. We started this in earnest call it, year plus ago. The performance has continued to be very very good relative to other asset classes out there. From sort of a delinquency standpoint. Which speaks to just it being very up in credit borrower. We have not seen any degradation of that relative to other portfolio other sort of segments. Similarly, we’ve been very focused on agency eligible credits. That continues to be outstanding performer relative to other segments in the non agency space. So our expectations that we will be we will continue that thematically. Through this year and likely into the next. Crispin Elliot Love: Great. Thank you, and I appreciate taking my questions. Operator: Thank you. We will now move on to Douglas Michael Harter with UBS. Your line is open. Douglas Michael Harter: Hoping you could touch on, it seems like spreads in securitized financing markets have tightened a lot. Can you just just talk about kind of how or why that has not resulted in kind of increases in book value and then also is that kind of a key factor in the attractiveness of the of the ability to call legacy deals? Nick Smith: Yes. So maybe taking each of those in their components. The maybe taking well, first of all, good morning, Doug. The calls definitely benefit from lower nominal yields and tighter and flatter credit curve. Which is given where we are locally, that looks more and more attractive from a loan execution standpoint and a potential relever standpoint. Regarding book value, there has been some drag on IOs from, call it, some of the acquisitions in the past. So residuals is faster speeds. Into the slightly lower nominal yields and much tighter credit spreads. If you think about when some of this book was originated, talking about credit spreads that were and loan spreads or nominal yield loan spreads that were 100 wider than today. Douglas Michael Harter: Got it. And I guess that has impacted, I guess, the liability side as much as kind of your residual piece? Just trying to understand why kind of that does not the benefit improve to the kind of your residual piece? Nick Smith: So the credit spreads benefit insofar as it could potentially favorably impact the execution on the calls? A future date. But the faster speeds mean that there will be less collateral to call at that point, which which is offsetting. Douglas Michael Harter: That makes sense? Nick Smith: Yes. That makes perfect sense for this. For the explanation. Operator: Thank you. We will now move on to Trevor Cranston with Citizens. Your line is now open. Trevor Cranston: Hey. Thanks. Good morning. You guys talked about the equity you can free up through the exercise of call rights this year. You maybe give us a little more kind of detail on how you guys are thinking about the pace of executing call rights over the course of the year and maybe expect to do any in the first quarter? Nick Smith: Yes, perfectly. So in the prepared remarks, we mentioned that there were two transactions transactions we were focused on, which free up, call it, $35 ish million of equity we think that those are focused deals. A lot of that will come through sort of in this quarter and then the rest will come through in subsequent quarters, whether it be Q2 or Q3. Trevor Cranston: Got it. Okay. That helps. And then looking at Page 12 in the slide deck, I think there is a new line item there. I was curious if you could help us understand, which is the the unlevered home equity equity loans? Just curious to see what those are. Nick Smith: So they are exactly what it sounds like. Loans that we hold unlevered as a cash substitute against favorable financing that is not being utilized. Help offset some of the cash drag. Trevor Cranston: Got it. Okay. That makes sense. Operator: Thank you very much. Thank you. We will now move on to Bose Thomas George with KBW. Your line is now open. Bose Thomas George: Hey guys, good morning. Prishan from the WMC. As the debt capital rolls up. Should we just look at that the $50 odd million and use kind of a mid teens ROE. Or is there any sort of like impairment risk as that runs off or essentially, should we just flat to mid teens return as that capital is freed up? So on the CRE loans, those Yes, on the legacy. So we have yes, we have $28,000,000 of equity right? We still have some we still have very modest financing on those loans. And so I think to your point, yeah, we are we are basically showing you kind of a minus six ROE there by paying that financing and they are on non accrual. I think converting them to whether it is 15% or 20% ROE is we think it is worth approximately $0.20 on an annualized basis. As we are able to rotate that $28,000,000 in full. Okay, great. Thanks. And then actually switching over to Arc, can you just talk about the competitive dynamics in the non-QM space? Obviously, demand is very high, but we see more supply as companies come in as well. So just can you talk about that balance? Nick Smith: Yes. That is a great question. We talk about this a lot. So it is both the headwind both the increased visibility and increased competition is both a headwind primarily wholesale lender, Arc Home leverages the broker community as more and brokers get familiarity with this product. We see the pie growing. So as the pie grows because these these these products are meeting most consumers in the United States it is making the access to that customer easier, which is growing the pie. We do not see any any supply issues. You know, we still think it is a modest portion of the overall aggregate or the aggregate mortgage market. As the supply has continued to increase. Has been well absorbed by both the loan securitization as well as like company or insurance companies' balance sheets. So hopefully that answers your question. Bose Thomas George: Yes, that is great. Thank you. Operator: Thank you. We will move on now to Matthew Erdner with Jones Trading. Your line is open. Matthew Erdner: Hey. Good morning, guys. Thanks for taking the question. Yes, I would like to kind of turn to securitizations and, you know, the ROEs that you are seeing in the environment today compared to where they were in the fourth quarter. And then as a follow-up to that, kind of the expected pace that you guys are gonna have throughout the the first half of the year? Nick Smith: Yeah. So breaking those into their components, some of that, the pace will be dependent upon the equity capital that we get back. Maybe breaking those in their components, we do think that there is a decent amount of organic equity capital that can be rotated. Call that to $20,000,000 throughout the year is the commercial T.J. just alluded to. And then there is the calls of $35,000,000 of equity. So in aggregate, we a decent amount of dry powder this year. All of which we can rotate at meaningfully higher ROEs. I think generically to address the ROEs, I think a lot of our competitors and maybe, you know, some of the more main mainstream more commoditized products are low mid teens, mid teens. Our ROEs on securitizations, we believe we are clock in a decent amount higher than that call it anywhere from five to 10%. Given, you know, sort of the unique way we are attaching the marketplace. Matthew Erdner: Right. That makes sense. So kinda in line with historically where you guys have been at? Nick Smith: That is right. Operator: At this time, there are no further questions in queue. I will now turn the meeting back over to our host for any closing comments. Jenny B. Neslin: Thank you to everyone for joining us this morning and for your questions. We appreciate it as always and look forward to speaking with you again next quarter. Have a great day. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: [Operator Instructions] And I will now hand over to Elie Maalouf to introduce the Q&A session. Elie Maalouf: Thank you, and welcome to this Q&A session. I'm Elie Maalouf, Chief Executive Officer of IHG Hotels & Resorts. Hopefully, you've all had a chance to watch the results presentation, which we made available at 7:00 U.K. time this morning, featuring myself and Michael Glover, our Chief Financial Officer. Michael and I are in different locations today. Michael is at our headquarters in Windsor and I am currently with our business in the U.S. So do bear with us as we coordinate sharing the questions. Before we open the line to take the first questions, I will briefly summarize our excellent performance in 2025. Our RevPAR grew by 1.5%, reflecting the breadth of our geographic footprint, the depth of our brands and the resilience of our operating model. We delivered gross system growth of 6.6% and net system growth of 4.7%, driven by outstanding development activity and record hotel openings. We signed over 102,000 rooms across 694 hotels, a 9% increase with over 2024 when excluding the Ruby acquisition in 2025 and the NOVUM Hospitality agreement in 2024. We expanded our fee margin by 360 basis points, driven by operating leverage and step-ups in ancillary fee streams. EBIT grew 13% and adjusted EPS grew 16%, supported by the completion of 2025's $900 million share buyback. In summary, we made excellent progress on our strategic priorities and we are confident in the strength of our enterprise platform and the attractive long-term growth outlook. Touching briefly on 2026, while very early in the year, we have seen and are pleased with the trading performance to date in all three regions. We have also announced a new -- today, a new $950 million share buyback program and formally launched our latest brand, Noted Collection. And with that, let me turn it over to the operator to take the first question. Operator: Thank you, Elie. And your first question comes from the line of Richard Clarke of Bernstein. Richard Clarke: If I'm allowed, I'll do three. I guess, if I look back at 2025, if I was to strip out the cost savings and the boost on card revenues and points revenues, I think your EPS would have grown off algorithm about somewhere in the mid-single digits. I appreciate it wasn't the best RevPAR year. If RevPAR doesn't play role in 2026 or going forward, do you have other levers to pull to kind of make sure you hit your algorithm? I guess second question, you said a couple of times, Michael, that there's some key money that's been deferred into the first quarter of 2026, just the scope of that and whether that should make us quite optimistic about unit growth and sort of luxury unit growth in 2026? And then thirdly, I think there was -- your margins down in China. You talk -- made a comment about improving unit economics or owner returns in China. I guess Holiday Inn Express now a $22 RevPAR brand in China? I don't think you'd open a $22 RevPAR brand in the U.S. So do you need to improve those RevPAR numbers? Do you need to improve owner returns? Does the brand work at that level of RevPAR? Elie Maalouf: Thank you, Richard. I'll take the key money question first. And then I'll turn over the fee margin triangulation while I'll touch on it briefly, then hand over to Michael for some details and turn over to him the margin question on China. So first on key money, as you saw in Michael's presentation, we have been very prudent and thoughtful deployers of capital across a range of places we -- and manners in which we deploy capital, whether it's key money, recyclable maintenance and, of course, our capital returns to shareholders. If you go back over an extended period of time, our capital has been fundamentally stable, up some years, down some years, because some of it's lumpy, but it's been pretty stable, while our revenues and profits have grown significantly, something we're very pleased with. But some of these investments, whether it's key money, whether recyclable, can be lumpy instead of happening towards the end of 1 year, they may happen in the other. So we're flagging that, some of it may roll over from '25 into '26, but then you never know what rolls over from '26 to '27. Nonetheless, we are confident in the growth track record that we have. Our 4.7% system size growth in 2025 is the 4th year of acceleration. Our 6 -- our best in 6 years. Our signings were strong, as you can see, up 9%. Our pipeline grew 4.4%. Our openings were strong at 10%. And that just shows that we have a lot of firepower. Now, we have more brands with Noted Collection being announced today. We're not putting a ceiling on our growth potential for 2026. The consensus is 4.4%. I would say there's more upside than downside to that number, but we're comfortable with it where it sits. And we think we have even more potential to continue to accelerate that system size growth. Michael will touch on the fee triangulation for 2025. Before he takes on the China margin thing, look, we have a lot of confidence in our trajectory in China. I've been saying for 2 years now that China is bottoming out gradually. It turned out to actually be true at some point, right? And we saw it gradually bottom out in 2025 quarter-after-quarter, turned positive in the fourth quarter. Indications are that, that will continue in the first quarter of 2026 and into the year. We have a bigger system now with over 880 hotels open, over 550 underdevelopment, record signings and openings again. And the economics at a general level, Michael will take you through the details. Our economics work across our brands. That strong signings, strong performance, strong openings of Express in China last year, where we keep the full economics, economics work for our owners. Now different tier markets have different rates, as you know. But because of the very strong openings that we have, that RevPAR is also influenced by the ramp-up, right? So many of those hotels are new in the year in China. Express is our fastest-growing brand. It was our latest growing brand, too, the one that started growing the latest because we started with Holiday Inn, Crowne Plaza, and InterContinental. So a lot of these brands are still in ramp-up. And some of them -- in fact, some of the hotels are still ramping up post pandemic. So I think that, that is influencing the RevPAR. If you look at the RevPAR in total in China, it's about half of where it is in the U.S., which is a good place to be for a GDP that's per capita that's probably 1/8 of what it is in the U.S., right? So you actually see leverage on the RevPAR from the GDP per capita economy, it's growing at 5%, the technology sector that is actually competitive with the U.S. technology sector, leaders in renewables, leaders in many industries, exports again at a record last year. We're confident in the Chinese economy. We're confident in our business in China. We're confident in how our hotels are going to perform in China. Michael, over to you. Michael Glover: Thanks, Elie. Yes, let me -- Richard, let me first go to your first question on kind of 2025 in earnings per share without the ancillaries and cost savings. I guess the first thing I would say there is the ancillaries are not going to stop growing. And so, if you look at what we've said kind of moving forward, while we don't have the step-ups next year, we do see strong growth there and at a rate in the double digits, above 10%. So we do still see that moving forward. The second thing around cost, obviously, we've talked about this a bit at the half year. When Elie and I came in, we really started to focus and look at how we could look at this cost base and how we could change the curve and really be able to take more dollars of revenue to the bottom line. And obviously, you've seen us do that in 2025 with costs being down about 3%. Now next year, we're -- in 2026, what we're looking at, is that being coming back and being around an increase of 1%, but still having some of that savings come through that we've been doing with our programs. And so we still feel like we'll have strong cost control as we move into 2026. And then, I think the other thing that we also mentioned at the half year was really around the fee triangulation where I think we talk about and many of you will know where you look at RevPAR and system size and look at the fee revenue growth. And we mentioned kind of a few things that were really impacting us in 2025. First and foremost, which is a really -- is a good thing, is that we've had a record number of openings. And obviously, as those hotels open, they're not fully ramped. So you don't get the fee income as quickly as you would normally because you're actually accelerating those openings. So it's not normalized yet year-over-year. And so you're having a bit of that impact in there as well. We also mentioned we have a large number of hotels under renovation that obviously has a fee impact as those hotels close and renovate and then come open again. And then the third thing was we mentioned at the half year was that we had a few large exits, particularly two hotels in New York, where the replacement hotel hasn't come in, but will be coming in and ramping up soon. So that's affected that fee triangulation and fee growth in the Americas. So we expect that to normalize as we move into this year and not have some of those effects. The other effect is you have the NOVUM Hotels, who came in and are in the process of ramping up. That was a large impact as they -- because a large set of hotels have come in over the last year or so. And then some smaller things like you had one less day with leap year this year. So a few smaller things there. I think we feel confident over the medium to long term, we can still get back to our growth algorithm, and that's still going to grow. I think what we showed this year is really the breadth of our organization and how we can actually, even in a turbulent time, as we've said, we can still deliver that growth algorithm, and we feel confident that we can continue to do that. And just I'll just add to, Elie's key money point. It is lumpy. And certainly, we have not changed that guidance at all that we're going to be in that $200 million to $250 million range. So same as what we said last year. And that overall capital will be around that $350 million a year mark. So we'll continue with that guidance and view there. In terms of China, the margin was down very slightly. And -- but yet overall profit was still up by $1 million. So overall, a good result in a year where you had RevPAR negative. And so, I think as we go forward, we've talked about and been saying for quite some time that China RevPAR is bottoming out. And we really saw that happen throughout the year with the fourth quarter actually turning positive, 1.1%. And as Elie mentioned, we're really pleased with how RevPAR is starting to shape up in Q1. We mentioned last year at the Q3 announcement, we felt like Q4 could -- sorry, Q1 into 2026 might look negative because of some of the tougher comps. As we sit here today, it looks like all three regions will be positive, and that includes China. And so early training indicating that it looks good. So let me pass back to Elie and just see if he wants to add anything on there. Elie Maalouf: No, Michael, that was great. Just on those factors affecting the fee triangulation for 2025, just note that most of those are positive things, right? Strong openings way above the prior year's renovations, then all those other factors, whether it was a leap year or whatever, all those -- we start to comp against in a better way. So they were good factors in one end and then they become tailwinds as we go forward. Operator: And your next question comes from the line of Jaafar Mestari of BNP Paribas. Jaafar Mestari: I have two, if that's okay. The first one is just on the fee business overheads. Those $23 million of cost efficiencies in '25, should we assume they were broad-based across the three regions, across central costs? Or was the restructuring this year particularly targeted in one region, thinking specifically Americas, were you able to flex the costs more in response to what's been a turbulent here? And then on credit card fees and ancillary fees in general, when you announced your two big renegotiations 18 months ago, loyalty point sales and the credit card fees, you are the only major global company to have something of that materiality going on really. It looks like you were closing the gap with U.S. peers who had historically more material contribution from those, and it's great that you're able to have a bit of a mark-to-market with issuers as you're much stronger today, et cetera. But since then, we've now seen Hyatt last November and then Marriott just last week, also announced their own major renegotiations, big explicit millions of dollars targets for increase in fee contributions over the next few years. My question is, once everyone is fully ramped up, so you've had your step up, it will continue to grow. They will have their step-up in the next 12, 18 months. When everyone's fully ramped up, where do you think that gap will be? Because historically, you were saying, well, we're a bit behind. We can convince insurers and increase that and catch-up. Where do you think that will be? Will the gap have closed over 36 months as everyone gets the renegotiations? Or will it have just translated your level of ancillaries and their level of ancillaries, please? Elie Maalouf: Thank you Jaafar, let me take those questions, and Michael, of course, jump in and build on that. So on the fee business cost, I think we just have to pull back and touch on what Michael said in his presentation earlier, what he mentioned when speaking to Richard's questions. We've always maintained a highly disciplined approach to cost management. If you look at the presentation, our cost growth over a long period of time has been well below revenue and profit growth. But since Michael and I came in, we've taken a more philosophical view of how do we just shape the whole cost structure for the future, make it future-ready, scalable, using technology, new processes, shared services, locations and now artificial intelligence. So we can continue in the future to grow revenues and profits at a much higher gradient than cost. This was not a reaction to last year because actually, we started our work, our strategic work when he and I assumed our positions in 2023. And it took some time to really design it strategically. We had outside help. We have inside teams. We had a long runway of work that we started deploying in 2024. We saw our cost growth in 2024, be only 1%. Then you saw cost reduction of up to minus 3% in 2025. So there's been a trajectory of us bringing in these initiatives in a thoughtful strategic way, not a reaction to a market that was up, for a market that was down. It's just really reshaping our cost base and our processes and our technology and taking advantage of new technologies like AI. So that is generally how we achieved the benefits of 2024 plus 1%, 2025, minus 3%. And we're saying that going forward, low or very low single digits is what would happen on average. It could be a little bit different from year-to-year, but we're not actually done with the opportunities in cost efficiency as technology continues to give us more opportunity. On the credit card fees, look, I won't comment on what others have renegotiated. Are we negotiating? Will we renegotiate? Those are questions for them, and we don't have the particulars of all the arrangements or where they plan to be in the future. What we do know is we have a lot of upside and a lot of exciting upside. Maybe the most upside, I don't know about other businesses, but we believe we have a lot or maybe the most upside in the industry. And we started delivering that in 2025 by doubling the fees and credit cards earned from 2023. And then we continue to be on the right track to triple it by 2028. We're not putting a ceiling on it. Whatsoever, we think it continues to grow from there. And I think that the -- as we grow our system, a number of hotels, as we grow our membership and IHG One Rewards is now 160 million members at a fast growth rate from 145 million. As we grow the engagement of our guests, it's not really how many members you have, it's how engaged you are. And now we're at 66% of our members constituting our nightly stays, 72%, 73% in the United States. So we're right up there in the industry. So we've got more members. They're more engaged, they're spending more. They're taking out more credit cards. Our sign-ups are up double digits for cards. And that is all fueling our growth in card fees, and that will continue. We don't see a ceiling to it. How it compares to others, I'm confident we compare very favorable to others. And frankly, the more potential others reveal, the higher our ceiling goes. So I'm not discouraged by what others are doing. In fact, it encourages me. Michael, do you want to -- just want to comment on overheads? Michael Glover: Yes, let me jump in on both of those actually. And Jaafar, great question on the overheads. And Elie mentioned it is broad-based, but he also mainly covered the P&L. And I'd say we've also done this within the system fund as well. Because that gives us more firepower as well. And so actually in terms of total dollars, we've saved more as a part of this program in the system fund than we have in the P&L, which is actually great, because it allows us to reinvest and go after things that drive revenue. And then if you look at kind of by region and being broad-based, it was across every region and every function within IHG, but we also had investment. And I think that's important to note as well. Certainly, we had the investment about integrating Ruby coming in EMEAA. That's why you might see some of the costs a little -- not as much down in EMEAA actually, I think it was slightly up. But we're also investing in places like India. And I think that's really important that it's not just about cost reduction, it's about investing our dollars where we can get the most growth in the future and repurposing those dollars. And that's what we want to do. Because we've said many, many times, our biggest risk is not capturing our share of that growth in the future because this is a growth industry, it's an industry that's going to achieve higher highs and higher lows. And we want to be a part of that, we want to participate. We want to compete in that. On the credit card fees, the only thing I'd add there is we announced a new credit card, Revolut, a deal here in the U.K. with Revolut, we have more countries we can go to, and it doesn't bring the quantum for sure that the U.S. does, and it's much smaller. But that just shows the power of the loyalty program as it grows. We have more opportunity in different countries around the world to continue to launch that. It's great to launch one here in the U.K., and we're in the process of launching others around the world and as we get those agreements done, we'll let you know about them. I'll pass it back to you, Elie. Elie Maalouf: Thank you, Michael. Thanks for Jaafar. I'll just add that in addition to credit cards and our ancillaries, let's not forget our point sales business, which grows very nicely and also has no ceiling to it and our emerging and rapidly growing branded residencies, all of which are high margin accretive to our bottom line. Next question. Operator: Your next question comes from the line of Jamie Rollo of Morgan Stanley. Jamie Rollo: Three questions too, please. First, just on that Branded Residence income. I don't think you've quantified it yet. I know you've got 30 projects, both open and in the pipeline. But what did those generate for you last year? And when you say substantial increase in '27 and beyond, could you sort of give us some numbers behind that, please? Secondly, on the removals rate, I think it was 1.9% ex the Venetian. Should we expect that to fall back towards sort of 1.5% this year? Is that what's giving you confidence to the upside to the consensus 4.4% net unit growth? And then just coming back, if I may, on the sort of gap between the comparable and the total RevPAR and then looking at the fees, you've got a helpful slide on Slide 56. So there's about a 2-point gap between comparable and total RevPAR. And there's also another couple of points in the three regions between underlying fee income and the sum of total RevPAR and available rooms. Are you saying that those timing issues mean that those negative figures turn positive this year or at some point in the future? Just to, sort of, clarify the algorithm. Elie Maalouf: Thank you, Jamie. I'll take Branded Residences, removals, I'll turn over the fee income to Michael, and anything else he wants to build on. So look, Branded Residences, we're very excited about that business. It builds on the power of our Luxury & Lifestyle portfolio, that just keeps growing with the six brands we have now, mainly the ultra-luxury brands: Six Senses and Regent. I mean, just let me just give you an anecdote. I was -- I've already been to six countries, it's not even mid-February yet and -- or it is just mid-February. And I was in Bangkok early this month, late last month, and we have an InterContinental Residence project that had just started sales in the heart of the city, in December, of speaking to the owner, they were 40% sold by mid-January that raised prices 4x. I told them they have to raise prices again to slow these sales down. So -- and that's InterContinental, not even Regent and Six Senses, where we have most of our projects. So there's more coming across more brands. Yes, we have 30 projects today. We have many more that are going into the sales space. They are in London, when Six Senses is London is opening this coming month. The Branded Residences are all sold out or maybe there's one left I understand. Up to now, I'd say the fees range have not been that material. It's been $5 million to $10 million. However, we see substantial increase in that starting in 2027 and beyond. So again, we're not putting a ceiling on that. We think it's totally accretive, and we're very excited about where it's going. On the removals rate, yes, we're confident it will go back towards the 1.5% over the next few years. There was just a lot of lumpiness going on right now, especially in China as things normalize post-pandemic, but we see a path to clearly back to the 1.5%. I don't think that's the only thing that can give us -- it is lumpy, but I don't think it's the only thing that can give us more upside in 2026. The strength of our signings, the strength of our brand portfolio, the proven enterprise to get more openings going, whether it's conversion or even new build, all of that put together gives us more confidence in our system growth over the medium to long term. Yes, there's opportunity also in lower removals, but that's not the primary thing. It's a combination of everything. Michael, if you want to build on those and answer the question on fee income. Michael Glover: Yes, sure. I mean, I was going to say the similar on the net system size. I mean, we've been saying consensus is at 4.4% for next year. We certainly feel like there's more opportunity on the upside of that. Then there is risk to the downside as we move into the year based on the visibility we have. And really, Jamie, it's not just about removals coming down, which we do believe they will. It's really about those openings and how things are proving out and what we look at, we see really strong growth across EMEAA and China. You saw that in our results this year. We see -- if you exclude the Venetian, the U.S. at 1.5%, we're on the right track record or the Americas at 1.5%. We're on the right track there. So I think, we feel confident in that, and that's why we're willing to say that there's more opportunity to the upside to that 4.4%. And then when you look back -- and on your third question regarding the table in the chart -- in the presentation, thank you. We thought that would be helpful. It is. It is helpful, but it also goes back to what we talked about earlier and the reason for that total RevPAR being less than the comparable RevPAR, particularly the ramp-up of hotels. So it takes sometime for hotels once they open to build that base business and then begin to yield as you open more hotels, and we have that acceleration in openings, you've got more hotels in that as a percentage of your system than you used to have. And so that's affecting that. You also have the renovation effect. There's also, of course, the leap year effect, but then also the mix effect of when -- as hotels are opening around the world. So I think over time, yes, that gets back and that normalizes. We're going to still open as many hotels as we can. So we want to continue that as you see that acceleration. And really, you go back to Elie's point, of us growing our system size over the last 4 years. It just puts more openings in there and more hotels ramping up as a percent of the system size versus what we used to have. And so I do think that normalizes over time, and we get to a better position. And I'll pass back to Elie, if there's anything else. Elie Maalouf: Thank you, Jamie. Next caller. Operator: And your next question comes from the line of Ricardo Benevides Freitas of Santander. Ricardo Benevides Freitas: Two questions from my end. Firstly, on the brand portfolio, we've seen these two recent additions to your collections brand portfolio, right? What I wanted to ask is what other thematics, let's say, are you willing to approach on further brand acquisitions or entering? Is it more collections or any other specific team? And I wanted to ask you regarding -- I mean, you've had a very strong cash flow generation this year. Your net debt seems to be very under control. Why not a bit more allocated towards your share buyback program? Elie Maalouf: Thank you, Ricardo. I'll take the two questions and Michael, if you can build on the cash generation and leverage, if you wish. Look, obviously, we don't comment on what else we're going to launch until we launch and tell you, like today. And so actually, we indicated this collection in Q3, and we just named it today and formally launched, and we're very excited about it, reaching 150 hotels. We're starting in EMEAA with Noted Collections really because EMEAA has the largest percentage of unbranded hotels and we've typically launched our collection and conversion brands in EMEAA before going to east and west from there. So that's the future of the brand. It won't be just in EMEAA, but we'll go east and west, but establishes itself in EMEAA first. We do look at M&A from time-to-time, as you know, and we did Ruby acquisition last year. We don't need M&A to grow. It's helpful if we find the right opportunity in the portfolio. It's most likely -- although I won't say exclusively, it's most likely to be in premium and above premium, upper upscale luxury lifestyle, and we tend to launch our own brands, when it's a soft brand like Noted Collection or whether it's a mainstream brand like Garner, those we tend to launch on our own, although there could be exceptions to that. But we don't need M&A to grow. We have 21 very strong brands now. 11 of which launched in the last 11 years with a lot of runway. So those are still new. Those are basically still new and new to new countries. I think in 2025, there were 32 or 33 instances when we took one of our existing brands to a new country. As far as that country is concerned, that's a new brand launch, right? That's a new brand launch. So we have many more of these new country launches ahead of us for our brand portfolio, while we look at what else we could be interested in. What are some territories it could be appealing to us? We've been very successful in ultra luxury with the Regent and Six Senses. I'd say extremely successful, not just in the hotel brand itself by expanding it, also expanding into Branded Residences. If there was a right opportunity, we could add more there. We've talked before about looking at branded shared home rentals. It's something we'll continue to explore. Anything in premium, lifestyle like Ruby is interesting. Only if it's accretive, if it's different and differentiated from the brands you already have, if it's at the right valuation also, or the right trajectory if we launch it ourselves, we don't need it given the strength of our portfolio. But look, it's a dynamic industry, right? Guests interest are dynamic, owner, investment interests are dynamic. So our strategy can't be static. That's why we've added to our portfolio thoughtfully, but we're not competing with anybody to have a most number of brands, I don't think that, that is a recipe for success. We're competing for having the right brands for the right guests and the right owners. On cash generation, we have a very clear capital allocation policy and philosophy. First, we invest in the business, just like launching Noted or buying Ruby to grow the business because that's where the highest returns on invested capital come from for our shareholders. Number two, we maintain and grow our ordinary dividend. And number three, we return surplus capital to shareholders. And only when it's surplus. Fortunately, we have a strong asset-light growing cash-generating business that converts 100% on average of adjusted earnings into cash flow. And again, in 2025, we did that. And so we can return surplus capital. And we wanted to get it back into the stated leverage range of 2.5% to 3%, and we are. So we're confident that our business model can continue to generate surplus cash flow over the years and that we can return surplus cash flow to shareholders. But we're not commenting on where else our share buyback will go in the future. Michael, do you wish to build on that? Michael Glover: Yes. I mean, you said that really well. What I would also just say, if you go back and look at kind of where we were in -- when we first started the buybacks again, back in 2023, we were well below the leverage range. And so a lot of what you had going on in our buybacks was a step-up to get back into the range. And we finally have arrived in that. And I think what's exciting about this buyback is that we're able to actually grow the buyback again this year and be in the range. So we're no longer getting that -- delivering the buyback and having any of the step-up come in as part of that buyback, which is really a good indication of the kind of cash generation that this business can do. I'm very happy with that. And I'm also -- there's just a couple of other things, kind of nuanced in there that are really, really helpful. One, we've eliminated that we've greatly eliminated the currency translation on our debt. That's a huge benefit for us. And by the end of this year in the first quarter of next year, we will have completely eliminated that many of you who have followed us for many years have known about that. The other thing was we refinanced our RCF this year and have taken out and no longer have debt covenants on that. That gives us a lot of flexibility. And as we've said many times, with our shareholders, and the expectation is that we will continue to do buybacks. And so whether it's delivering cash this year or at the next one, we will do that and we're committed to do that. You've seen our track record on that from the $500 million we did in 2023 to the $750 million we did in '24 and -- excuse me, the $750 million we did in '23, the $800 million we did in '24 and then $900 million we did in '25. We've built that track record, and we'll continue to do that. Operator: Your next question comes from the line of Jaina Mistry of Barclays. Jaina Mistry: I have three questions as well, two follow-ups. So the first follow-up is around Branded Resi. When we're thinking about your growth algos of 100 to 150 bps on the margin or roughly 10% EBIT growth, should we think about Branded Resi next year is contributing to growth over and above that algo? And then second question is around net unit growth. I mean, your commentary sounded really quite confident and bullish around it. If we're thinking about net unit growth being around the 4.5% mark in 2026. Is this the run rate going forward for the medium term as well, somewhere between 4.5% and 5%? And then very lastly, just on RevPAR, I wondered if you could set the stage for '26. Why are you confident in an inflection? Or indeed, are you confident in an inflection? And could you give some color by region about what you're expecting? Elie Maalouf: Thank you, Jaina. Let me start with your last question and then work our way back. Michael, please build on my responses, if you wish. So let me start with RevPAR outlook. Understanding we don't give guidance either by quarter or by year, but just give you some context also by region. Let's start where I'm sitting today in the United States, although by tomorrow morning, I'll be back in London. And if you look at 2025, we're very pleased with our performance in 2025 in the United States. We believe it was competitive, but we also know there was some burden on the industry 2025, which started very well in January and February. And then we had a series of things that became sort of headwinds. You have the tariff anxiety and uncertainty. You had reductions in government spending. The Dodge project, which affected government travel down, say, 20% on average. Then you had reductions in inbound, mostly from Canada, but a little bit also from Mexico and from Europe. Inbound for the U.S. ends up being down 4%. And then you had a record government blend shutdown in the fourth quarter. You take all those things, and yet, I think we performed competitively in 2025. Those things either don't reappear in 2026 in the U.S. or they don't get worse. We don't think government travel gets worse, it may not get better. We don't think there's going to be a government shutdown at that length or maybe not even one or whatsoever. Instead of reduced international travel, we got the World Cup. We've got [ USD 250 ]. In many cases, we've got a weaker dollar, which is not unhelpful. And so the comps get better going into 2026. But on top of that -- on top of that, the structural reasons to be confident in the U.S. are not a few. You have strong GDP growth as an exit rate from 2025. You have strong employment. Some months, the job report is higher than others, but January was surprisingly strong. Regardless, we're still at a record number of people employed in the U.S., low unemployment, real wage growth, diminishing inflation, improving trajectory for interest rates, they're at least stable to going down. Consumers are still spending up in October, November, 2.6%. Wages are outpacing inflation. The corporate area has clarity on tax after last year's tax bill, and that starts to be beneficial to individuals and to corporations this year with accelerated depreciation and higher refunds coming back. And so you put those things together, in addition with the super cycle of capital investment from technology companies, not just in AI and in technology, but also in the energy to provide that and infrastructure to provide that. That's just private sector investment. I mean, four companies have announced spending $660 billion. That's just four companies, let alone the others. So we've got a lot of capital investment going in. So I think that gives you confidence that the U.S. starts to comp against some negative factors last year. It's got a lot of positive factors. We're not putting a number on where the U.S. could be this year, but you have to -- you have to be a big pessimist to believe it doesn't have better fundamentals in '26 and 2025. Then I flip to the other side of the world. In China, I think it's visible, right, that we bottomed out. We've always said it won't be a V-shaped recovery, and we don't think it will be, but it's a recovery. It's a U-shaped recovery. We think the gradient is upward from where we are now ready. And that becomes a tailwind for us with a much bigger system, strong signing, strong openings, a leading position in the industry across all tiers. So we're confident about what's happening there. And then that China outbound that was up 22% last year at high rates, that is fueling our growth in Southeast Asia, big numbers in RevPAR, whether it's in Vietnam, Japan, South Korea, Indonesia, all those markets are strong for us because of the Chinese outbound. The Middle East strong double-digit to high single-digit RevPAR whether it's in UAE, in Dubai, regardless of the uncertainty, Middle East, our RevPAR was very strong there. So that region is doing well. In Europe, yes, low GDP growth, but what do you know? Strong travel growth. Mid-4s RevPAR last year, strong exit rate in Q4. And people travel to Europe from the U.S. was up 3% last year, Middle East going to Europe, Chinese travelers come back to Europe. So when I look across the globe, everything seems to be favorable compared to 2025, where we were negative in China returning positive, where things were flat in the U.S. there's fundamental for a little more optimism. And our EMEAA region continues to move at a good pace. So that's kind of why we are constructive about RevPAR going into 2026. And the early indicators, while early, and I'll say that we have a short booking windows, 60% of our bookings come in the last week, but early indicators so far are positive in all regions. On net unit growth, I think I talked about it earlier. We -- we've had a consistent trajectory now for 4 years of growing net unit growth, best in 6 years. In 2025, our strong signings and strong construction starts with 50% of our pipeline now under construction give us confidence in more openings. Our strong signings give us confidence in owner demand for our brands. Our brand portfolio is stronger. We're not putting a ceiling on where our net unit growth can be. We're comfortable with consensus where it is, Michael and I have both said that we think there's more upside than downside. But we're really more focused about the long-term trajectory for that to be sustainable so that we're not just doing say, unproductive uneconomic things to increase or not to work. You've heard me speak for years now, but keys with fees, not just keys. That's what we're focused on in all of our markets, but we think that's what we're achieving. We're not putting a ceiling on where we can go. We're very ambitious, but we're comfortable with the consensus. And Branded Residences. It's going to be a significant contributor over time. I think that probably starts in '27, given the time it takes for some of these projects to come for sale. And we -- when you start to look at it within the growth algorithm, all these things start to fall in it. We have a range of 100 to 150, sometimes, some years, some things will push us to the upper end of the range or slightly above the range. Some years, it won't happen quite like that. But at some point, it all starts to work within the algorithm. So we're comfortable that Branded Residences just gives us more confidence about our growth algorithm going forward. Michael, please jump in. Michael Glover: Elie, no, I mean I think you covered it in detail. Nothing more for me to add. Elie Maalouf: Let's take the next caller. Operator: Your next question comes from the line of Alex Brignall of Rothschild & Co Redburn. Alex Brignall: I'm just going to stick to one, if that's okay. It's a similar vein to Richard and Jamie earlier. If I take your fee revenues less your non-RevPAR fee revenues than your sort of take rate as a percentage of gross revenues was down 8 basis points this year, and it was down 6 basis points the year before and is down sort of 25, 30 basis points from pre-COVID levels. There was some noise in the COVID years. I can't imagine that this is from existing contracts. So how do we solve for that in terms of the contribution of new properties? The same trend is exactly as seen at Marriott and actually also Hilton this year. So how do we -- how does that not mean that new rooms are coming with a slightly lower sort of effective royalty rate? Elie Maalouf: Alex, thank you for your question. I'll take it, then Michael build on it. Our take rate is not reducing. I can tell you that. So there may be -- there are a few factors working into it. As we moved into more luxury lifestyle premium, and we've been very open about it, our key money has moved up too, because we're now participating by strategic choice in a sector that has more key money to plan it, but also has higher fees. So that key money amortization is starting to come through and affect a little bit of the fee revenue, and we've quantified that actually for you. And so I think that there is that factor and the -- but our fee rates that we get, whether it's mainstream, whether it's some premium, with a Luxury & Lifestyle have not been diminishing. And so you might be seeing some year-over-year fluctuations due to normalization of key money or other factors, but it's not a headline fee rate change. Michael? Michael Glover: Yes. I mean, I just would go back to the same factors I said when -- on Jamie's question, and Richard's question as well. I mean, it's just a bit of noise, Alex, right now. It goes back to these record level of openings being incrementally more than what we've had in the past. And just to give you an idea, it takes time for a hotel to ramp up. And because we've had such strong openings, you've got a greater percentage of that in your system. Over time, if those are normal -- openings are normalized, and it equals, it equals. But you've got more hotels earning less fees as they come in. And so that's affecting your fee triangulation and some of that fee growth. Now that normalizes over time. So that's why I say it's a bit of noise. Elie discussed the key money, which we talked about as well. We've talked about leap year, we've talked about renovations. There's a number of things like that, that are -- that's kind of in there that's affecting this. As we look out and we look forward and we model this business, there is nothing to suggest that we will not still be able to hit that high single-digit fee revenue growth over time. I go back to the algorithm. There's no reason to believe we can't generate the 100 to 150 basis points of margin improvement. We've been demonstrating that over the past several years and including that EBIT growth of around 10%. And that earnings per share growth in the 12% to 15% range. Everything we do, everything we look at how we model the business, nothing of that has changed with this noise that we're kind of seeing right now. Elie Maalouf: I mean, if you look at the pace of openings, Alex, not only was it a record in a number of hotels last year, but a lot of our openings tend to be skewed to the second half. Our fourth quarter tends to be our biggest opening. So from an arithmetic point of view, you're not really even getting 6 months of fees in that given year for those openings while the unit now accounts for the full year. Now that's okay if you have the same percentage increase in openings year-over-year because you start to lap all the same amount. But when you have a surge of openings like we've had, then you get a bit of dislocation, which normalizes. We're happy with that. We'd rather have more openings happening sooner. And as the hotels ramp up, the fees will come through. That doesn't concern us. Alex Brignall: I just -- that's why I didn't ask the question like Richard and Jamie, I asked it as a percentage of the gross revenues, which would be, I guess, -- is there a reason for the fee revenues, just the net fee revenues and the gross revenues to have different timing? I wouldn't have thought that, that would affect in a year. Elie Maalouf: No, I mean, I think gross -- I mean, you get the fee -- Michael, maybe you can help with that, but the -- you get to the net fee from the gross fees and you're not earning the gross fees if the hotel opens in October. You're not earning the same amount of gross fees from a hotel that has a partial year of revenue but has a full year of denominators and net unit growth. So I think that it's -- you're not earning the full fees yet. So it's the same thing. Alex Brignall: But the gross revenues would be -- and the gross fees are counted in the same way. That's why I'm not looking at it versus NUG. I'm just looking at it versus gross revenues, which you've disclosed in the release and the net revenues that you've disclosed in the release, and that's where the royalty rates has come down a bit. But we can take it offline. Elie Maalouf: Yes. Just I want to conclude that there is nothing that we see where our royalty rate is decreasing across any of our brands or our management fees neither. Thank you, Alex. Operator: Your next question comes from the line of Andre Juillard of Deutsche Bank. Andre Juillard: Just two follow-up questions for me. First is on segmentation. Could you give us some more color about the trend you're seeing segment-by-segment? And do you see a pickup in the MI segment especially? Second question about AI. I really appreciate the Slide 40, 41. Could you give us some more granularity about the disruption you're expecting from AI? Is it mainly a top line driver, a mix of top line and cost optimization? Is it a real change in the yield management? So I would appreciate any information you could give us. Elie Maalouf: Okay. Well, thank you, Andre. I'll start with your second question on AI. I'll turn over the question on segmentation to Michael, okay? So just bear with me because when we talk about artificial intelligence, we shouldn't just focus on one small thing, because our strategy around artificial intelligence and what we're seeing is broad and enterprise-wide. Yes, there is disruption, but I want to start by saying that there are two things that we fundamentally believe are not changing. The first one is that there will always be a guest that will want to travel for business or for leisure. We absolutely see no change in that. In fact, we see more interest in that. And on the other hand, they want to go to a destination that has a live real experience. The more people experience the virtual, the artificial, the digital, the more they favor live experiences. Sports events, theater, restaurant, bar and hotel, people want live experience, everything in between, the distribution, how you get there, how you book, how you view it, how you share it, how you search it, that is changing. We don't think it's a disruption for us. We think it's an opportunity for us. And we feel like we're in a strong position to capitalize on these opportunities and to actually deepen our competitive moat because of the huge strides we've made in recent years to modernize our tech stack. We're in a fortunate position because of the work we've been doing over 5, 6 years. You've heard me talk about our guest reservation system on the call. We're the first to roll out this industry-leading guest reservation system. Then we migrated our core enterprise data to the cloud and that allows to quickly plug AI powered systems into our tech ecosystem. Since then, we were the first to deploy machine learning AI revenue management to all of our hotels. So to your question about revenue management, we're already doing it. It's all of our hotels, AI Powered. Then we added new cloud-based DMS platform that will be most of our hotels by the end of this year. And now we're adding new loyalty and digital content platforms. So this foundation of systems, platforms, data solutions, places us in a very strong place and to be AI ready. And the areas of focus are generally the ones that you touched on, guest acquisition, commercial optimization, cost efficiency. So on guest acquisition, yes, it's about delivering top funnel visibility, driving booking conversion and deepening guest loyalty. I mean today, 66% of our global room nights come through IHG One Rewards. So strengthening that incredible foundation is a big opportunity. And we do that. First, in search, with this new content platform that we discussed in my presentation today, now we're going to be able -- which we're launching this content platform at scale this year. We already started launching some elements this year. You're going to be able to take all that digital information, the right information, put it in the right channel at the right time, that strengthens those digital hooks needed for our hotels to be recommended by AI agents. This matters as travel search patterns evolve. It will also create new ways to combine information digitally, move it around, shift it, recombine it, unlocking the greater flexibility and how this content is created, deliver, personalized. So it makes it an even more powerful factor when layering AI-generated search on top of it. And you're going to have more engaging types of content, which we don't have today, but we will, video, 360 images, virtual tours, automated language translation, floor plans, everything to get the attention, a, of guests searching directly or of their agents doing it. And we're going to begin deploying this platform this year. Second, in discover sort of we're working on trip planning capabilities in partnership with Google. It's not a stand-alone project for us. It's an evolution of how our guests plan trips and enabling a more conversational search experience on IHG's owned websites and apps. So we are going to be leaders ourselves in this. And we're going to be testing these capabilities with external customers later this year. And then we're adding AI-powered marketing across all of our tools for more targeted, more personalized, meaningful improvements on click-through rates and on ROI. Then, we mentioned in my presentation, a brand-new CRM system powered by Salesforce that launches this year for our loyalty platform, unifying all of our customer data in a new cloud-based system. This gives us a seamless view of our loyalty members, all their experiences, whether they're calling a customer care center, checking into hotel, requesting a copy of their bill, we can provide more personalized experiences, more relevant promotions, better benefits, loyalty rewards faster, more efficiently. And so we can scale our platform across the state. We're going to take this CRM platform and scale it across the state in 2026. And there are many other things that build around these tools to rapidly analyze huge amounts of data, guest feedback and be more responsive to our guests. Lastly, we talked about the commercial optimization. This, through the revenue management system that we have launched already is already creating revenue uplifts. You asked about cost efficiency. You see it in our results in 2025, with our cost being down 3%. We're using the latest technology, new ways of working, automating routine tasks, delivering insights through AI across the business. You've heard us say this technology, together with the process redesigns and greater leverage of our centralized support, it's unlocking a more efficient, more scalable cost base for us. In addition to the step change savings we delivered in 2025, we believe those are sustainable for the long term. So we think this actually is an opportunity to make our business stronger, more scalable, more efficient, build a deeper and wider moat and give us a competitive advantage. So Michael, do you want to address Andre's question on segmentation? Michael Glover: Yes, sure. Happy to do that. Well, first, I'll just start with where we ended up the year. As we discussed in my presentation, that business was up 2%, Leisure was flat for the group and groups were up 1%. And that's been very pleasing to see in as Elie described a turbulent year across, particularly the U.S. And so as we look forward in what we're seeing right now, as we started 2026, we actually saw really solid business demand coming in. Obviously, in the U.S., that then began to get affected by the storms in the cold weather that hit the U.S., but overall, still positive and moving forward. And so, then if you then look at groups and what we see right now, what we see on the books is still almost double digits up year-over-year. So it looks like groups are going to be strong. And remember, particularly in the U.S., 2025 was lapping against the election year, which had the big events like the Democratic National Convention and the Republican National Convention and then all the other events that happen as part of the election. So you're now out of that, and so you should have better comparables there as well as you get in it. So we look groups continue to be strong. We have less visibility in leisure as, of course, the booking windows on that are shorter. However there's nothing right now to indicate things would be slowing down there. If you go back to Elie's comments on the different markets and how we're seeing things shake up, it seems to be more positive than the previous year. Now we're obviously very early in the year, so we'll need to see how that progresses. But that's how we're seeing it shape up as we sit today. Andre Juillard: Maybe one additional question, which is a follow-up. If you consider that you have 2/3 of your clients, which are a part of the loyalty program, what is a reasonable target for you? And what is proportion of new clients you're welcoming every year? Elie Maalouf: We're very pleased with the progress of our IHG One Rewards program hitting 160 million members. We believe that on a member per room, we're right up there and the leadership across the industry. The important thing is that they're very engaged too. You go back 5 years, we're below 50% room nights contribution from our loyalty plan now. We're over 66% globally, over 72% in the U.S. That's a remarkable move up. So they're engaged, they're staying more. They're spending more. They're joining our co-brand products. They're spending on those core brand products. So it's a whole flywheel of virtuous behavior that we're fostering. So we're not putting a ceiling on what our membership could be. We're not putting a ceiling of what our contribution could be. We're a growing business. Look, we -- with all of this, we still have only 4% of the rooms in the world with 10% of the pipeline. So as we grow our openings to grow our brands, to grow our system around the world, the opportunities for greater membership and greater penetration just continue to expand. We're ambitious, but we're not putting a ceiling on it. Operator: And we have one more question in the queue, and this comes from the line of Kate Xiao of Bank of America. Kate Xiao: Just a quick follow-up question from me. I wanted to ask about your pipeline, obviously, 33% relative pipeline size. And you mentioned over 50% of that is under construction. Is it possible to give some color around which bit of the pipeline is new build versus conversion? I'm asking that because in the context of conversion accounting for over 50% of the new openings last year and obviously, the 4.7% underlying, excluding the [ nation ] impact was helped by a bit of conversion and some conversion deals. I'm just thinking your visibility into kind of conversion this year. Are you looking at new conversion deals that could help kind of maybe give you a bit more confidence to really hit that 4.7% kind of run rate and maybe accelerate after that? Elie Maalouf: I'll just touch on conversions in general and Michael can take you through the proportions and what that's been. I just want to address, sort of, conversion opportunity and tell you that what we firmly believe is that the conversion opportunity is not as limited as some in the industry might have mentioned, the analyst industry might have mentioned. It is not for us strictly converting from independents. The addressable market is much larger. Most of our conversions actually come from branded operators, whether large or small or regional, it's owners who see the strength of our enterprise, the strength of our brand portfolio, the strength of our -- support of our people and want to join a stronger system. So we don't think it's limited just independence and therefore, we think that the addressable market is very large. And we have now more conversion brands and products with the addition today of Noted Collection. The success of voco, Vignette, of Garner, all of which are way ahead of our initial projections and are many more markets than we thought they would be early on. So -- and many of our conversions actually come from our non-specific conversion brand. So we can convert across most of our brand portfolio already, and we have more dedicated conversion brands and the addressable market is broad, and it's not just the U.S. It's actually EMEAA, where there's a large -- the largest unbranded proportion of hotels. And in China, conversions are picking up. So we think there's a lot of runway in conversions. And we're not looking at it as a percentage of signings and openings. Actually, I don't really care about the percentage. What I cares is that both grow. I care that new build signings grow, and they grew globally and that conversions grow, and they grow in absolute figures and the proportions can fall wherever they may. Michael, let me turn it over to you for the detail. Michael Glover: Sure. Thanks, Elie. Just to give you the numbers here, I think it may be a little surprising to say and to hear that only 20% of our pipeline is typically conversion around that. But there's logic behind that. It's because they come in and out of the pipeline much quicker as obviously, it takes not as much time to get those open as it does a new build. And so -- but if you look at 2025, just to give you a feel of that, if you look at our openings, roughly 40% of those openings around the world were conversions with 50 -- roughly 54% being new build, and then there were some other items in there as well. And then, of course, our signings were 52% conversion and 43% new build. So the reason you see those higher numbers in the signings and openings is that they come out quicker. And so that's why we would see overall the pipeline having a smaller percentage over time than what you see opening and signing. Operator: And this does conclude our Q&A session. I would like to hand the call back over to Elie for closing remarks. Elie Maalouf: Thank you, everyone. It's been great to connect with you today. We are very proud of what our teams have accomplished in 2025, and we remain confident in our ability to continue delivering on our strategy and driving shareholder value creation going forward. Our next market communication will be our first quarter trading update on Thursday, the 7th of May. Thank you for your time and your interest in IHG, and I look forward to catching up with you soon.