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Felisa Villan: [Interpreted] Good morning, ladies and gentlemen, and welcome to Enagás' earnings presentation for 2025. We will also be sharing 2026 targets with you. The documents have been filed with the stock exchange authorities at 7:36 this morning and are also available on our website, www.enagas.es. Arturo Gonzalo, Chief Executive Officer of Enagás, will be running this call, which we expect should take about 20 minutes. And after that, we will open the Q&A session in which we will try and answer your questions in as much detail as possible. Thank you very much for your attention. I'm going to hand it over to Arturo Gonzalo now. Arturo Aizpiri: [Interpreted] Good morning, ladies and gentlemen. Thanks very much for your attention. I'd like to welcome you to this earnings presentation in which I am joined by our CFO, Luis Romero; our Board Secretary and CLO, Diego Trillo; our Chief Officer for Institutional and Investor Relations and Communications, Felisa Martín; our Head of Investor Relations, César García; and our Head of Management Control and Business Analysis, Natalia Mora-Gil. I'll start my presentation covering the main milestones in the implementation of our strategic plan this year. And then I will speak about the main highlights of our financial results, which, as you will have noticed, have outperformed the year's budget targets. And finally, I will go over the progress made in our ESG commitments, and I will present the company targets for 2026. It's been a year since we disclosed our strategy update. And 2025 has been a year of consolidation for Enagás in which we have made rapid progress along the 3 main lines of our strategy, which you may recall, are supply security for Spain and Europe, financial and operating expense control under our efficiency plan and the development of green hydrogen infrastructure. Today, we are sharing yearly performance exceeding the targets we had set, demonstrating our ability and the speed at which we can execute our strategy. As you can see, 2025 was a year full of key milestones in which we have proven more than ever what a key role we play in supply security and decarbonization for Spain and Europe. The gas system had a 100% supply guarantee and availability, and made a decisive contribution to getting the electricity grid back up in operation after the blackout here in Spain. The critical role of natural gas and gas infrastructures in ensuring the security of the energy system overall has remained evident throughout the year within a robust operational framework, which will continue to apply in 2026. The total demand transported by the Spanish gas system, that's domestic demand plus exports, increased by 7.4% in 2025. This figure includes a 33.4% increase in gas demand for electricity generation. According to the grid operator, combined cycle plants have increased their contribution to average daily cover of the Spanish electricity system from 10% to 20% since March 2025. There has been a 2.2% fall in conventional demand, mainly due to the lower use of cogeneration and an increase in total gas exports of 17.3%, especially to France, which increased 58.9%. And these figures clearly show that gas infrastructures are critical, not just for supply security in Spain, but also for the rest of Europe. Spain is increasingly consolidating its strategic role as an entry port for gas into Europe, and the Spanish gas system continues to stand out for its enormous flexibility. In 2025, we received natural gas and LNG from 16 different points of origin. In January 2026, total demand transported also went up 11.9%. Also, the gas system has showed enormous resilience in the face of extreme weather phenomena, which have taken place both in 2025 and in 2026 so far, and gas supply has not failed under any of these adverse circumstances. There's also tremendous interest in the long-term outlook for the Spanish gas system. Currently, there's 2,100 of loading slots for LNG in Spanish regasification plants and about 1,000 loading slots between now and 2040. All of these numbers reflect just how sound the Spanish gas system is, generating an EUR 800 million surplus between 2022 and 2024. This robust financial health has had a knock-on effect, bringing tolls down by 42% for domestic consumers and 70% for industry between 2021 and 2024 according to Eurostat figures. All in all, our gas system is an outperformer in Europe. Spain is one of the EU countries with the most competitive tolls, and Enagás, according to the European Council of Energy Regulators, is the most efficient TSO in Europe. As you know, the CNMC is shortly going to announce the 2027-2032 regulatory framework for the gas system. Both the standards laid down by the regulator and the government's energy policy guidelines explicitly highlight the need for the Spanish gas system to be properly remunerated so that it can go on playing its crucial role in guaranteeing supply security in Spain and supporting the energy transition whilst also facilitating the incorporation of renewable gases into the system. Enagás' regulatory vision is completely aligned with the guidance provided by both the CNMC and the government. We need a remuneration framework similar to that of our European peers with an after-tax IRR of between 6.5% and 7% approximately. And for this, the following parameters must be applied: A financial rate of return of approximately 6.5%, identical to that of the electricity system. Sufficient return to cover the maintenance and operation expenses of gas assets, calculated prospectively to cover the expected OpEx of future years plus a suitable margin. The cost of the current regulatory period for gas were set using real numbers for 2018 and 2019, and they've not been updated since despite a cumulative inflation of over 20%. An incentive promoting the extension of the useful life of assets so that facility owners will maintain these assets available to the system in spite of their regulatory useful life being over without needing to carry out replacement or substitution investments, a mechanism to allow the gas system to contribute to the overall security of the energy system, focusing especially on the role of gas in providing continuity and backup for the electricity grid, taking into account the growing impact in maintenance of infrastructures of extreme weather events. Having a reasonable remuneration framework is crucial for the sustainability of gas infrastructures. Industrial competitiveness, the security of the energy system as a whole and the development of renewable gases such as biomethane and green hydrogen. In 2025, green hydrogen has also achieved crucial milestones and its deployment continues to move forward at speed as showcased in the 4th Enagás Hydrogen Day, where we could see the enormous political, regulatory and industrial backing for hydrogen. The third Vice President of the Spanish Government and Minister for Environmental Transition and Demographic Challenge, Sara Aagesen, announced the presentation of a draft bill to establish a national Spanish hydrogen system, a new regulated market, and the tools needed to develop the infrastructure required as well as to boost hydrogen demand. Teresa Ribera, Executive Vice President of the European Commission for a Clean, Just and Competitive Transition, stressed the full commitment of the European Commission towards H2med and to green hydrogen development. And Cani Fernández, the Chair of the National Committee for Markets and Competition, explained that the CNMC is already working to align the Spanish framework with European targets. Spain and Europe are showing unprecedented financial support as well. The Spanish Government has already awarded around EUR 3.2 billion to projects, representing a total of 4.1 gigawatts of electrolyzer capacity in Spain. Spain is set to produce the most competitive green hydrogen in Europe as confirmed by the first 2 European Hydrogen Bank auctions. In the next funding round, Spanish projects will receive an additional EUR 415 million approved by the Ministry for Environmental Transition and the Demographic Challenge under the Auction-as-a-Service mechanism. For these projects to materialize, infrastructures are crucial. 64% of the projects presented to the latest European Hydrogen Bank auction require hydrogen pipelines. That is a European Hydrogen Network to connect them up. Green hydrogen is an essential pillar of the European project, as the European Commission has demonstrated with each of its major initiatives in 2025 in its road maps such as the Competitiveness Compass and the Clean Industrial Deal as in the 2028-2034 multi-annual financial framework to be agreed by the member states this year in which the commission proposes to increase funding for cross-border energy infrastructure fivefold to EUR 30 billion, with hydrogen infrastructures playing a prominent role. Also in the European Grids Package and in the 8 top priority major energy infrastructures, the so-called Energy Highways, with a dedicated fast-track procedure to speed up their delivery. One of these Energy Highways is the H2med, which, together with the Spanish Hydrogen Backbone, forms part of the Southwestern Hydrogen Corridor. These infrastructures, both developed by Enagás, in 2025, secured the Connecting Europe Facility funds requested from CINEA for studies and engineering for a total of EUR 75.8 million. A connected Europe is crucial for a truly decarbonized competitive European Union with full energy sovereignty. And it's something that cannot wait because nowadays, there's already industries that need these infrastructures and that are already incorporating hydrogen into their investment decisions and strategic plans. According to the Hydrogen Council's Global Hydrogen Compass 2025 Report, the hydrogen industry globally has already committed USD 110 billion in investments with over 500 hydrogen projects at an advanced stage of maturity. In 2025, Europe led in global hydrogen investments with $12 billion committed. But this is just the beginning. Europe has embarked on a major investment cycle that will continue to build momentum. According to ACER, it will increase operational production capacity sevenfold over the next 12 months up to 2.7 gigawatts. And in the last 2 years, final investment decisions have been taken for 2.6 gigawatts of electrolyzer capacity and a further 7 gigawatts are expected to reach financial close or enter construction in 2026. And Spain has a great deal to contribute in the construction of a European hydrogen economy, with highly significant investments that have been announced in recent weeks, are scheduled for this year. One of the most recent and most notable transactions was the Repsol Petronor FID to install a second 100-megawatt electrolyzer in Bilbao as we roll out hydrogen infrastructures in line with our calendar. 2025 was a pivotal year for the H2med Corridor. No other pan-European hydrogen infrastructure is showing progress on this scale, with 4 decisive milestones hit in 2025. Strong backing from Europe and the member states as well as receiving CEF funding and being included amongst the Energy Highways, H2med has been recognized by France and Germany as a flagship project as part of the Southwestern Corridor. Recently, the French Minister for Environmental Transition and Sustainable Development stressed that H2med, "is much more than a simple transport infrastructure. It is one of the keystones in France's strategic planning." Sound interest from Europe's industrial ecosystem as demonstrated in the launch in Berlin of the H2med Alliance, bringing together 50 leading partners from across the European value chain. Thirdly, H2med has now become a business reality. And together with our partners, we have established a clear corporate structure through the BarMar SPV and the appointment of the CEO and the executive team. And fourthly, in the technical level, progress has been truly remarkable. We have successfully completed the geophysical studies for BarMar and confirm that the subsea route is technically viable, and we are carrying out pre-FEED engineering, working with leading European engineering firms. We've also deployed the public participation plan for the CelZa interconnection in Spain. In short, we continue to take all necessary steps to ensure that H2med can connect the immense renewable energy potential of the Iberian Peninsula with Europe's major industrial centers. To this end, Spain will have fully operational domestic infrastructure, the Spanish Hydrogen Backbone, which continues to grow on schedule. We have already completed the conceptual engineering and awarded the basic and detailed engineering contracts for the network and for the 3 compression stations. We are working with 6 Spanish engineering firms to develop the backbone network. We have launched the public participation plan, the largest such process ever undertaken in Spain. It has already been set in motion across 9 autonomous communities and over 300 municipalities with institutional backing at the highest level from regional presidents and the Government of Spain, underscoring that it is a truly strategic nationwide project and with strong support from industry and civil society. In 2026, we will complete this public consultation -- participation plan. We will finalize the extended basic engineering for the compression stations and develop the detailed engineering for all the pipeline sections. And moreover, Enagás has proposed the inclusion of a further 4 additional sections in the network. These were submitted last October to the 10-year network development plan or TYNDP with a view to their inclusion in the third PCI list. And as for H2med, in 2026, we will launch the FEED phase for BarMar, complete the environmental studies and the conceptual engineering for the Barcelona Compression Station and complete the detailed engineering and the environmental impact assessment for CelZa. Progress in the infrastructure will be accompanied by further progress on the political investment, regulatory and technical fronts. Just to mention a few, this week, we have the deadline for the third European Hydrogen Bank auction with EUR 1.3 billion in funding to which we will add, apart from the EUR 415 million I've already mentioned, provided by Spain, another EUR 1.3 billion provided by Germany. And the results will be announced between May and June. In the second quarter of 2026, the European Commission will publish the final second PCI list, and it will also be the year in which the third renewable energy directive, RED III, will be transposed as well as the hydrogen and decarbonized gases package into the legislation of the member states, a crucial step for the European Hydrogen Network. All of this goes to show that 2026 will be a crucial turning point for the takeoff of hydrogen. Before going into the detailed results of our earnings, let me speak to what's going on with our arbitration cases in Peru. As you know, on May 23, ICSID once again found in our favor in the arbitration on the gas pipeline in Southern Peru or GSP, and in fact, increased the amount of the award to USD 303 million. In this way, they updated the fair value of the claim generating an immediate net capital gain in our books at that time of EUR 41.2 million. Subsequently, on June 2, ICSID, as predicted, launched a request for annulment of the award filed by the Republic of Peru, which meant enforcement was automatically suspended on a provisional basis. The ad hoc committee and the schedule for the court's annulment proceedings have already been defined, and the hearings have been set for the end of June 2026. So this year, we also expect ICSID to notify us of its ruling on the TGP award. Let me now go over the most relevant figures of our 2025 financial performance. Our core after-tax profit was EUR 266.3 million and our EBITDA, EUR 675.7 million, both above our budget targets. If we consider one-offs, 2025's net profit was EUR 339.1 million. There are 4 factors underlying this excellent 2025 performance. First, the effectiveness of Enagás' efficiency plan, which has brought down core operating expenses by 0.6% versus 2024 levels. Second, improved financial revenues, with financial expenses down 20.5%. We ended the year with our net debt at EUR 2.47 billion, well within our annual budget forecast. Over 80% of this debt is at a fixed rate. As for the financial cost of our gross debt, it is 2.1% lower than 2.6%. The rating agencies, Standard & Poor's and Fitch, have rated Enagás BBB+ with a stable outlook. Our FFO to net debt ratio is 25.7%, and we maintain an extraordinarily solid liquidity position of over EUR 2.51 billion. Thirdly, our subsidiaries have contributed EUR 155.3 million to our EBITDA, which shows excellent performance in the year. The Trans Adriatic Pipeline continues to be vital for supply security. And since it went into commercial operation, it has transported over 52 bcm of natural gas to Europe. The company has completed the expansion in Greece adding an additional 1.2 bcm in capacity since January 2026. DESFA was awarded a tender for EUR 174.4 million in grants for its projects of common interest or PCIs. And last year, we set up Scale Green Energy to develop infrastructures that will contribute to the decarbonization of shipping and overland transport and to the rollout of logistics chains around CO2 and ammonia. Scale Green Energy has signed a grant agreement with CINEA, the European Climate, Infrastructure and Environment Executive Agency to develop hydrogen refueling stations within the ECOhynet project. In addition, in the LNG bunkering business, construction on the Alisios carrier has been completed, and the final investment decision has been made to develop the Mistral tanker, which will start operating in 2028. And fourthly, our asset rotation operations have had a very positive impact on our earnings. The sale of our stake in the Soto La Marina Compression Station in Mexico for EUR 15.2 million has brought in net capital gains of EUR 5.1 million. The acquisition of 51% of AXENT's share capital for EUR 37.8 million, bringing our stake to 100%, has triggered a positive impact on after-tax profit of approximately EUR 17 million, due to a revaluation of our previously held stake on our books, and the sale of Sercomgas has brought in a net capital gain of EUR 9.6 million. In 2025, we have continued to meet our ESG commitments, environment, social and corporate governance. Thanks to this, as you can see in the presentation, we continue to hold leadership positions in the key sustainability indexes worldwide. Just to mention 2 recent examples, in the latest assessment by the Dow Jones Best-in-Class Index, we were given a score of 91 out of 100. That's 4 points higher than the previous year. And the company has also been recognized as the best company in the world in our sector in gender equality by Equileap. We also took significant steps forward in 2025 to become a net zero company by 2040. And this year, we will continue to move towards achieving this goal. On the basis of these figures, today, we are announcing our targets for 2026. Core after-tax profit of approximately EUR 235 million and to close the year with net debt at a similar level to that of 2025 of around EUR 2.4 billion and an EBITDA of EUR 620 million. We will keep our FFO over net debt ratio above 15% and therefore, in line with our BBB+ rating. We expect to carry out net investments of EUR 225 million, and we reiterate our commitment to continue to remunerate our shareholders with a EUR 1 per share dividend. Now I will finish with a few conclusions. This has been a year of consolidation for Enagás in which we have enhanced our risk profile, both for our financial and business positions, maintaining a robust balance sheet compatible with paying out a sustainable dividend. We are posting annual results above our targets, where we've achieved a high degree of execution with regards to our 2025-2030 strategic update. And our investee companies have had an outstanding performance. The gas system and gas infrastructures have demonstrated more than ever they play a decisive role in guaranteeing Spain and Europe's energy security under critical circumstances and consistently throughout the year. In line with what the CNMC has already published and the government's energy policy guidance, we expect a regulatory framework for 2027-2032 that will establish a reasonable return comparable to that of our European peers, which will support the long-term sustainability of gas infrastructures. Europe and Spain are intensifying their commitment to green hydrogen with the designation of Hydrogen Corridors as Energy Highways and the announcement of the creation of a regulated national hydrogen system. Whatever harbingers of a hypothetical slowdown in hydrogen may say in the transformation of this scale, it is to be expected that as projects mature, time lines become clearer and need to be adjusted. But what is beyond a doubt is that we are currently witnessing a growth phase in investments and the consolidation of infrastructure deployment, which will form the European hydrogen network. Hydrogen is essential for Europe's competitive decarbonization and Europe's strategic autonomy, and it's already growing strongly in other parts of the world. The European Union is deploying new mechanisms to avoid falling behind and to reinforce this investment cycle. From Enagás, we've already begun developing our own infrastructure, achieving significant technical business and commercial progress. Hydrogen is a strategic project, as recognized by European and national institutions, regional administrations and major industrial players, Enagás will continue to do its utmost so that this project, crucial for Spain and for Europe, will become a reality as soon as possible. Thank you very much. And now we are, of course, at your disposal to answer your questions. Felisa Villan: [Interpreted] We're opening the Q&A session, please go ahead. Operator: [Interpreted] [Operator Instructions] Thank you. First question from Ignacio Doménech from JB Capital. Ignacio Doménech: [Interpreted] I have several questions about the regulation review and part of your earnings call. As part of the regulation review, I would like to understand which elements and remuneration risk not growing for the '27-'32 period? That's my first question. The second one deals with provisions. I have seen a shift of approximately EUR 70 million. I would like to understand where that shift comes from. And third, about hydrogen. My question is, do you expect any additional delays in the Backbone Network FID? And would this allow for a broader or more interesting dividend payout policy? Arturo Aizpiri: [Interpreted] Thank you, Ignacio. I will now answer your questions. First of all, about the elements for the next regulatory and remuneration period. We consider that in the energy policy guidelines approved by the government last November, it was considered convenient to maintain high regulation stability. So we can expect adjustments for certain parameters, but no big changes in the regulatory landscape. We believe that to deal with or to meet the guidances from this government policy and in the preliminary consultation by the CNMC for the gas system, 4 elements need to be considered to turn that principle of sufficient payout maintained, to provide optimum maintenance of the gas system, to support the entire energy system and electricity system, while at the same time, deploying natural gases. These 4 elements are the following: First, paying close attention to operating expenses. We know that most investments have been made in the gas system. So most operations are optimum maintenance and running of the assets. We believe that this element must be contemplated under a prospective view. Otherwise, we would have to face, as we did in the latest period, cost increase. Second, we believe that we need to maintain a certain margin in OpEx as happens in other regulatory systems. Third, the government's guidelines on energy policy focus intently in setting up incentives, extending assets useful life once they've come to the end of their regulatory life cycle. In other words, encouraging or incentivating operators to extend the life of assets rather than investing in substitutions. So we believe that the critical life cycle will be a key element. At the same time, a similar mechanism to the present RCS needs to be maintained, to remunerate the availability of the gas system, to participate in the general energy system, specifically in the electricity system, particularly since OpEx come mostly from dealing with extreme weather events, which can be contemplated in this continuity figure for compensation in terms of sustainability for the energy system. Second, you were asking about a shift in the provisions in our note. Well, 2025 financial statements do include a provision of EUR 116 million under the line other long-term obligations. This provision is connected to a right of collection for the same sum, booked as an asset deriving from a possible tax break generated by the settlement of the companies in Tallgrass Energy. I must highlight that both elements are directly related, Ignacio. Therefore, the impact for Enagás would be positive if this tax break is materialized and the provision is reverted or at most neutral if this tax break did not come to happen and both the provision and the asset were reverted. At any rate, there would be no negative impact in any scenario. And to reinforce the materialization of this positive scenario, we got insurance covering the contingency from several POVs. And last, you were asking about additional delays in hydrogen structures leading to a better dividend payout. Well, the company's strategy entails maintaining a sufficiently solid balance to organically tackle the investment plan for hydrogen CapEx and at the same time, keep our rating and our dividend policy stable. If any delays should happen, basically arising not from a change in targets or strategy either in Europe or Spain or Enagás but stemming from administrative tasks like permits and environmental impact assessment, we will save that spread for future years when the investment ultimately takes place. So our commitment is a sustainable competitive dividend to be paid out. And if our conservative assumptions are met, it will go beyond 2026. But the elbow room we might eventually get from some punctual delay in hydrogen infrastructures, we would save as a margin to keep deploying that CapEx in future years. Felisa Villan: [Interpreted] Well, thank you for your question, Ignacio. Next question, please. Operator: [Interpreted] Thank you. No more questions in Spanish. Felisa Villan: [Interpreted] We will now take your questions in English, please. Operator: Thank you. Moving on to questions on the English side. First question is from Julius Nickelsen with Bank of America. Julius Nickelsen: Just 2 questions for me. First one also on regulation. Could you just provide us with an update on the time line? I know that the draft has been delayed, but any indication would be really useful for when we have to look out for the draft to come out. And then the second one is on capital allocation as well. You just talked about the dividend. But in terms of M&A, is that something that you assess at the current moment given the balance sheet strength? Or do you want to keep the buffer for any hydrogen investments? It would be interesting to hear your thoughts. Arturo Aizpiri: Thank you very much for your questions, Julius. First of all, talking about the regulation, and you were asking for some update on the time line. This past week, the Director of the Energy Services of the CNMC in a public event announced that the draft circular proposals will be subject to public consultation in the coming weeks. So she was not more precise than that. But she said that this was not going to happen in a few days, but just in a few weeks. So we expect that this could happen, Julius probably in March or April. And this would be necessary to have the circulars approved, finally approved, let's say, something like by October, by the start of the next gas year as we define it. So I think that the CNMC is following the calendar, and we will have the proposal in March, April, and we will have the final version before the summer, and we will have the circulars finally approved in October. This is our best estimate, of course, Julius, and this is absolutely up to the CNMC. Regarding capital allocation and the possibility of considering opportunities in M&A, well, 2 strong messages here. First of all, the absolute priority of Enagás is ensuring, as I said, the development of the company's organic plan in renewable hydrogen, the sustainability of the dividend policy and the maintenance of solid credit ratings. This is our -- these are our red lines. Second, if we consider any investment opportunity, this would have to meet the criteria defined in our strategic plan, including reasonable profitability and alignment with the established investment requirements, a focus on Spain and Europe and on regulated assets. So we are assessing the opportunities that may arise in the market, but with nothing specific in our plans and always considering these strict requirements. Felisa Villan: Many thanks for the answer. Many thanks, Julius, for your questions. We are ready to move on to the next one, please. Operator: Next question is from Arthur Sitbon with Morgan Stanley. Arthur Sitbon: I have 2. The first one is on your net financial debt target for 2026. It's broadly flat with the net debt achieved in 2025. So I just wanted to check, basically, it seems to me that there is no cash inflow expected from Peru in 2026, and that would come later. I was just wondering if this is just a conservative assumption that you're making or if it's a genuine expectation that you won't receive cash in 2026? That's the first question. The second one is just thinking a little bit in -- about the bigger picture of the regulatory review in Gas Networks. I see that consensus expects significant growth in net income in 2027, close to 9%, at around EUR 255 million. I imagine a lot of the contribution from hydrogen networks investments will be after 2027. So in that context, I was wondering what would be needed to have so much net income growth in 2027? Is it that the increase in allowed return that you're getting, close to 100 bps, is going to be enough to have this 9% of net income growth? Or do you need other improvements in the regulatory framework to reach these types of numbers? Arturo Aizpiri: Thank you very much, Arthur. Regarding our net debt, I will ask Luis, our CFO, to give you a detailed net debt bridge for this year. But in general terms, we are not counting on getting cash inflows from the GSP award in 2026. We are counting on those for 2030. So we are being conservative. You are right. But we are putting ourselves in a very prudent, very conservative stance. So we think it's better to not to count on this money coming earlier, just for the sake of being conservative, as you said. But what I would like to mention here is that we expect to continue optimizing our cash in Peru coming from the dividends of TGP. As I said, we are expecting that the final hearing for the GSP annulment appeal will take place in June, July this year. And the ad hoc committee created by ICSID should release their resolution 6 months later. If not, they have to inform every month about the expected date of this resolution. So when this happens, and we are pretty sure that the result will be positive for Enagás, we can continue optimizing our cash in the country or when the award for the TGP arbitration is received and provided that it's positive for Enagás as we are sure it will be, then this can happen as well. Whichever things happens earlier, we can continue optimizing our cash in the country. According to what the tribunal has said for the TGP award, this should be released in the second quarter of this year. So that would be probably what would happen first. So Arthur, we are not counting on cash inflows this year for our rights to be paid by the GSP award. But yes, we are expecting to continue optimizing our cash in Peru once the TGP award is released or once the annulment appeal is resolved by the ICSID Committee. And regarding the big -- I will let -- I will give the floor to Luis in a minute for a detailed net debt bridge. But addressing the bigger picture you were requesting for our 2027 OpEx remuneration, we are not giving any guidance for 2027 yet. We think that this is not the moment for that. We are still in the process of knowing the circulars for the next regulatory period, and we are still in discussions with the regulator. What we are pretty comfortable and we are able to say is that we consider that EBITDA and BDI will start to improve at the beginning of the next regulatory period. So Luis, please? Luis Romero: Thank you, Arthur. Just to understand well what is the expected evolution of the net debt between 2025, 2026, that we expected that it's going to be maintained really flat, no, probably close to EUR 2.4 billion, as always has been our commitment, no, when we present the update of the solid plan in February 2025. The main 4 steps are the following. I think we have a fund from operation of EUR 550 million. On top of that, we account with an investments that are going to be close to EUR 220 million, as you see in the material that we report. Of course, the dividend of EUR 1 per share count with around EUR 260 million of cash flows for dividends, and we have working capital -- a negative working capital of EUR 72 million. This is going to be the results of, first, the cash inflow of the O&M for the hibernation of Castor that we expect to collect this year after the positive sentence of the court. And also, it's true that we are going to suffer also the lower tariff during the year, that is going to be the final year where all the adjustments made by the regulator is going to be allowed to practically eliminate all the surplus generating in the natural gas system between 2021 and 2024. So this is the main figures. I think it's important that at the end of 2026, we will finalize with our funds from operation net debt adjusted by the rating agencies higher than 20%. And this is something that give a lot of comfort, and the company will be really unleveraged with the capacity to face all the CapEx program in hydrogen and also sustain the dividend policy. Felisa Villan: Thank you very much for your question, Arthur. We are ready to take the next one. Operator: Next question is from Beatrice Gianola from Mediobanca. Beatrice Gianola: Just had a quick follow-up on the regulatory front. Just wondering if you can provide us with an indication on the rate of return that you are expecting would be approved by the CNMC or at least proposed by the CNMC. I remember you indicated something around 6.5% to 7% as a whole, a rate of return. So just wondering if this number is still valid? And then I just wanted to understand which are your expectations in terms of a regulatory framework for the hydrogen part, meaning how would you expect the authority to reflect -- to somehow reflect in the new regulatory update, the development of the hydrogen grid? Arturo Aizpiri: Thank you very much, Beatrice. Regarding the expected rate of return, we are considering a value very, very close to 6.5%. You know that the methodology of the rate of return has already been approved, being in general terms, this methodology common to the electricity and gas systems. However, the last circular approved by the CNMC determines precisely the exact value for the allowed return for the electricity system, which is, I think, 6.58%. But it doesn't give the final figure for the gas system because there is one adjustment coefficient that has not a final value and that will be determined in the circular for the gas system remuneration. If we maintain the value initially disclosed in the initial public consultation of this methodology, we would be around 5 -- sorry, 6.48%, something like that. But this is not final. So we consider that we will be between 6% -- or 6.45% to 6.58%. So this is why we've said in our speech, in my initial statement that we are counting on a rate of return very close to 6.5%, which is the value that is included in our financial projections as approved in February 2025 in our strategic update. So I think this is a good message that Enagás is being very conservative when assessing what the new regulation is going to bring. And I think that this same idea may be extended to the other elements of the remuneration period. So we are being very conservative, and we think that our regulatory vision is very much aligned to the criteria set by the CNMC and by the Ministry, the Spanish Government, in their respective position documents that were published last year. And regarding our expectations for the regulatory frame for hydrogen investments, I think that the next important step will be the draft law for the transposition of the European Hydrogen and Decarbonized Gas Package. You know that this is where the regulatory framework is going to be established in the member states. And in the case of Spain, the Vice Prime Minister, Sara Aagesen, in the 4th Enagás Hydrogen Day, as I have mentioned in my speech, she announced that in the coming -- she said, in the near future, it will be subject to public consultation, the draft law transposing all these elements of the European Hydrogen and Decarbonized Gas Package. So we will know there the initial model of the Spanish government for all the elements of the regulatory framework for hydrogen. And in that law, the new tasks that have to be developed by the CNMC regarding hydrogen will also be established. So we cannot give you, Beatrice, first version of which the model will be, except the European directive itself in which many aspects of the regulation, the access mechanisms, the balance mechanisms for the system, the planning aspects also of the hydrogen infrastructure will be determined. So I insist on the 4 elements: The Vice Prime Minister Aagesen mentioned for this draft law, which are the creation of the hydrogen Spanish system, the national hydrogen system; second, the creation of the regulated hydrogen market; third, the mechanisms to develop the infrastructure; and fourth, the incentivization -- or incentivizing of the hydrogen demand. But we will know this in, we think, in the coming weeks or a few months because the Vice Prime Minister Aagesen said that this will happen in the near future. Thank you, Beatrice. Felisa Villan: Thank you very much, Beatrice, for your questions. We are ready to take the next one, please. Operator: Next question is from Ella Walker-Hunt from Citi. Ella Walker-Hunt: My first question relates to the 2026 guidance and the EBITDA guidance. Can I ask how much of that EUR 620 million will be coming from affiliates versus the underlying business? That's my first question. And my second question relates to green hydrogen. So in your slides, you mentioned that 145 megawatts of FIDs took place in 2025, and you expect 780 megawatts to take place in 2026. On those 2 points, can I just ask how many megawatts are actually operational today? And how do we reconcile these things to the 12 gigawatts with target in 2030 in the national plan? Arturo Aizpiri: Thank you for your questions, Ella. Regarding our EBITDA guidance, we estimate that in 2026, the contribution from our affiliates will be around EUR 165 million. Regarding the current operational capacity of electrolyzers in Spain as of today, I cannot give you right away the exact figure. I can tell you that the Spanish Government has already awarded public funding to -- amounting to EUR 3.1 billion to an approximate amount of 4 gigawatts. Some of those have already taken FID. Last year, in Spain, 100 megawatts project by Repsol in Cartagena took FID plus this second project of Petronor of an additional 100 megawatts. Those projects are already under construction. Other projects that have taken FID in recent months were the 10-year -- the 10-megawatt project in Bilbao, the first one. The 100 megawatt is the second one. This 10 megawatts is reaching the final stages of construction. And there are -- there is one Iberdrola project in operation in Puertollano, which is, if I'm not mistaken, a 20-megawatt project. And there is also, under construction, one project by BP in their Castellón refinery together with Iberdrola, which is also, if I'm not mistaken, 20 megawatts project. In addition to that, we have our Mallorca project in operation, which is a small project. I think the capacity is 2.5 megawatts, and there are other small projects in Spain. So I would say that under construction or in operation, we have around 300 megawatts. And in this year, 2026, we expect that at least 650 megawatts are going to reach FID. 100 megawatts coming from this Repsol Petronor project that took FID last month in January. Repsol has also announced that their Tarragona project with a capacity of 150 megawatts will be taking FID. You know that Enagás Renovable is also a partner in this project. And Moeve has announced that they intend to take this year the FID for their Onuba project in Huelva with a total capacity of 400 megawatts. So we think that at least in this 2026, an additional 650 megawatts will take FID and will initiate construction, bringing the figure for projects under construction or in operation to 1 gigawatt in Spain in 2026. This is what I can tell you now, but our IR team can share with you more precise figures and estimates. Thank you, Ella. Felisa Villan: Thank you, Ella, for your questions. Let's move on to the next one, please. Operator: Next question comes from James Brand with Deutsche Bank. James Brand: Apologies if there's a bit of background. I'm in an Airport. Hopefully, you'll be able to hear me okay. I had just kind of one new question and 2 clarifications. So the new question is, for the EUR 225 million of investments that you're planning for 2026, could you give us a breakdown of the different areas that's going into? So how much is going into the natural gas business, regulated business, how much is going into kind of hydrogen stuff, how much is going to other stuff? That would be great. And then on the clarifications, the first one is on the GSP time line. I just want to clarify, you said the hearing would be in June. And then I think you then expect a resolution within 6 months. So is it that we should expect kind of a full decision kind of by the end of 2026 or maybe early 2027? Or did I mishear you? And then the other clarification is just on the time line for hydrogen regulation. You said you expect this law for the Spanish Government to be coming in the coming months, I guess. Do you expect that to also have kind of details on how the regulation will work? I'm guessing not. So I'm guessing, for you to have full visibility on the regulation, you need this law and then the CNMC needs to start a process of determining the regulatory framework after that. And if that's the case, are we looking into 2027 before we get that? Or might we get that earlier? Arturo Aizpiri: Thank you very much, James. Regarding the planned investment amount for 2026, those EUR 225 million. The breakdown is as follows: The natural gas infrastructure, meaning the regulated business, we estimate something around EUR 97 million, mainly CapEx, something like EUR 47 million, and the rest going to the GTS, CapEx, Musel and others. For hydrogen infrastructure, we are planning around EUR 49 million. We are entering the main phase of the FEED engineering investments for BarMar, and we are entering also the detailed and extended engineering for the Spanish Backbone. So that's why the investment in hydrogen infrastructure increases in 2026. For the new businesses and what we call the adjacent businesses, those close to our regulated business but not being regulated themselves, we are planning around EUR 55 million, mainly for Scale Green Energy, around EUR 28 million for the new bunkering vessel, the Mistral LNG bunkering vessel and the rest in other concepts. And others, meaning innovation funds and some international business, especially our investments in Stade in Germany, around EUR 22 million. This is more or less the breakdown of that EUR 225 million. And regarding the clarifications, if I took my notes correctly, first of all, you were asking about GSP. You know that for the annulment appeal, the ICSID designates an ad hoc committee. This committee approved the calendar for the process, and this was already communicated to the parties in the process. And in that communication, the committee established that the resolution should take place 6 months after the hearings. The hearings will take place in late June, early July. So we should get the resolution of the committee before year-end. But if there is any delay that may happen, then the committee will inform every month of the expected date of the resolution. So we expect that it should happen perhaps after that 6 months period but not extending too much that period because this has been the intention declared formally by the tribunal. Regarding the regulation, the hydrogen regulation time line, as I said, the draft law should be subject to public consultation by the government in the near future, meaning that a few weeks or a few months. After the law is passed, then the CNMC has to create the detailed regulatory framework through circulars similar to those of natural gas. But the CNMC is already aware that these future responsibilities are around the corner, and the CNMC has declared the President of the CNMC, Cani Fernández in our Hydrogen Day on January 28, said that the CNMC is already working to be prepared to comply with the European framework. So the CNMC doesn't have a formal mandate yet and doesn't have the final regulatory framework that will arise from the transposition of the directive, but he's already aware that these new tasks are going to be assigned to the CNMC and is starting as they deem it necessary, the initial or preliminary works. Thank you. Felisa Villan: Thank you, James, for taking part. We are ready to take the next question, please. Operator: We have no further questions on the English side. Handing back over to the Spanish room once again for further questions. [Interpreted] Thank you. We have one more question. This question is from Jorge Alonso. Jorge Alonso Suils: [Interpreted] I have 2 questions. The first is considering the situation -- well, the talks that you're having with the regulator and gas demand levels and so on. Do you think it might be conservative or very conservative to have set the targets that you have in the strategic plan? Could you have some upsides over those targets in the plan? And the second question is, what are your expectations for your affiliates or your subsidiaries in the next couple of years, your investees, both in terms of earnings, but also in terms of cash flow generation? And my final question, do you still think, although you don't deem it necessary for the plan, that Peru is no longer going to be a core geography and that you might divest, I suppose, at some point? Arturo Aizpiri: [Interpreted] Thank you very much, Jorge, for those questions. As for your first question, I think that as far as we're concerned, what we should do is to provide some guidance about how the regulatory model might evolve, but to always be very conservative look at the actual needs of the gas system and comparable with our peers in Europe and their remuneration levels, considering that Enagás is the most efficient TSO in Europe. And so I think that our forecast is definitely prudent and conservative, but it's also very well founded, and we do hold on to the same guidance that we presented last year with our strategic review. I think that's the best guarantee for investors. We don't include in our financial forecast a sort of tactical take on how we think regulation should evolve or where we think it will go. We are always very much aligned with the views expressed by the regulator and the government, which is also a regulator since, as you know, underground storage is the responsibility of the government in this regulatory framework. And so we've not updated our guidance, which we shared in February of 2025, because we think it's very solid and well supported by data and benchmark of other regulatory systems and other operators in Europe. And so we think the best thing we can do for the market is to be rigorous and conservative and maintain stability in our guidance in terms of our financial forecasts. As for the contribution of our investees, I mentioned that, next year, we expect them to contribute EUR 165 million to the EBITDA approximately. I wouldn't extend that guidance to following years, but I do want to make a comment because it has a lot to do with the sustainability of our dividend policy, how we see the average FFO for the 2030 period, where the legacy businesses come in as well as the regulated businesses and the gas businesses and the investees, and also we will start to see revenue from the new hydrogen businesses. Our expectation for the average FFO between '27 and '30 is EUR 520 million on average in that period. And as I said, starting to see growth in our EBITDA and our BDI during that period. And we would -- without hydrogen, that's -- the EUR 520 million is without the contribution of the hydrogen business and the Enagás investees would contribute about EUR 170 million, EUR 180 million of that total per year. We think that's a prudent conservative outlook, which is well aligned with our concept of a sustainable dividend beyond 2026 as long as, of course, as these conservative assumptions apply with regards to the regulatory model. And as for possibility of divesting of our Peruvian business. It's true, as you said, Jorge, that Peru is not a strategic core investment for Enagás and it doesn't really align with our focus on Spain and Europe, which underlies our strategic vision since the 2022 strategic plan. However, we still have ongoing litigation in Peru. And so we will focus on the correct resolution of this litigation. And after that, we might consider the possibility of a divestment. But our priority now is to complete the process, which is about to come to an end. But as I've said, there's still some appeals and some milestones that we have to go through in the arbitration process. Thank you very much, Jorge. Felisa Villan: [Interpreted] Thank you very much, Jorge, for your question. There are no further questions in this call. Thank you very much, everyone, for participating in this Enagás earnings presentation and for your questions. And of course, we're always available in Investor Relations. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
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.
Operator: Good day, and thank you for standing by. Welcome to the Enlight Renewable Energy's Fourth Quarter and Full Year 2025 Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Limor Zohar Megen, Director of Investor Relations. Please go ahead. Limor Zohar Megen: Thank you, operator. Good morning, everyone, and thank you for joining the Fourth Quarter and Full Year 2025 Earnings Conference Call for Enlight Renewable Energy. Before beginning this call, I would like to draw participants' attention to the following. Certain statements made on the call today, including, but not limited to, statements regarding business strategy and plan, our project portfolio, market opportunity, utility demand and potential growth, discussions with commercial counterparties and financing resources, pricing trends for material, progress of company projects, including anticipated timing of related approvals and project completion and anticipated production delays, expected impact from various regulatory developments, completion of development, the potential impact of the current conflict in Israel in our operations and financial conditions and company action designed to mitigate such impact and the company's future financial and operational results and guidance, including revenue and adjusted EBITDA, are forward-looking statements within the meaning of U.S. Federal Securities laws, which reflect management's best judgment based on currently available information. We referenced certain project metrics in this earning call and additional information about such metrics can be found in our earnings release. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our 2024 annual report filed with the SEC on March 28, 2025, and other filings for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Additionally, non-IFRS financial measures may be discussed on the call. These non-IFRS measures should be considered in addition to and not as a substitute for or in isolation from our results prepared in accordance with IFRS. Reconciliations to the most directly comparable IFRS financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our Investor Relations website. With me this morning are Gilad Yavetz, Executive Chairman and Co-Founder of Enlight; Adi Leviatan, CEO of Enlight; Nir Yehuda, CFO of Enlight; and Jared McKee, CEO of Clenera. Adi will provide a summary of the business results and turn the call over to Jared for a review of our U.S. activity. And then Nir will review the fourth quarter and year-end 2025 results. Our executive team will then be available to answer your questions. I will now turn the call over to Adi Leviatan, CEO of Enlight. Adi, please begin. Adi Leviatan: Good morning and good afternoon, everyone. Thank you for joining us to review Enlight's fourth quarter and full year 2025 results and business performance. 2025 was another record year for Enlight. Across the U.S., Europe, and Israel, our teams delivered exceptional performance as developers, builders, owners and operators of large-scale renewable energy and storage projects. Our results reflect best-in-class execution, disciplined capital allocation, and the strength of our diversified multi-technology global platform. We are operating in a uniquely favorable environment for the energy sector, structural tailwinds, reindustrialization, electrification, and rapidly rising power demand from data centers are driving unprecedented long-term growth across global electricity markets. These trends continue to reinforce the competitive edge of our technologies. Enlight scale, portfolio depth, and proven execution position us to deliver fast, low-cost, clean energy where it is needed most. The fourth quarter capped an exceptional year. Revenue and income increased 46% year-over-year for both the quarter at $152 million and the full year at $582 million. Adjusted EBITDA in 2025 grew 51% to $438 million or 36% excluding the Sunlight sell-down. In Q4 alone, adjusted EBITDA accelerated to $99 million, up 51%. With this strong finish, we exceeded our full year revenue and EBITDA guidance by 4% and 7%, respectively. The fourth quarter also capped another record year of execution during which we significantly expanded every component of our portfolio and advanced projects across all stages of development. Our total portfolio expanded 26% during 2025, growing by 7.8 factored gigawatt to reach 38 factored gigawatts. The mature portfolio grew 33% to 11.4 factored gigawatts, and the operating portfolio increased 30% in the past 12 months. In Q4, two major U.S. projects, Quail Ranch and Roadrunner achieved COD ahead of schedule, delivering over 800 factored megawatts combined at approximately 13% unlevered returns. These additions doubled our U.S. operating portfolio to 1.6 factored gigawatt, underscoring our ability to deliver large solar-plus-storage projects on time and with attractive economics. Our under-construction portfolio, a significant contributor to our short- and medium-term growth has doubled over the past year. During the past 12 months, we started construction on the projects totaling 2.6 factored gigawatts. This reflects our capability to systematically mitigate development risks and push projects towards maturity. The most significant addition during the quarter was CO Bar 1 and 2, with a capacity of almost 1 factored gigawatt. CO Bar is a 2.4 factored gigawatt flagship project. Our largest to date. It comprises of five and a total investment of $3 billion. It is expected to generate an unlevered return of more than 13% as a result of a well-executed connect and expand strategy. Another notable project that started construction earlier in the year was Snowflake A, also in the U.S. with a capacity of 1.1 factored gigawatt. We also added more than 2.5 factored gigawatts to our pre-construction portfolio over the past 12 months. The most notable additions were Phase 4 and 5 in the CO Bar complex with a combined capacity of 0.9 factored gigawatt. Advancing CO Bar is a major achievement for Enlight and for our U.S. subsidiary, Clenera, and Jared will elaborate more on this shortly. Our U.S. platform continues to demonstrate best-in-class development expertise, providing strong visibility into our growth beyond 2028. 100% of preconstruction projects, 89% of advanced development and 53% of development projects have completed their system impact study, a critical step for interconnection certainty. We continued to proactively manage tax incentive eligibility in the U.S. by safe harboring more than 4 factored gigawatts over the past quarter leading to more than 13 factored gigawatt that were eligible for tax equity investments before 2026. We expect that all of our advanced development portfolio and up to 40% of our development portfolio will be safe harbored by June 2026. Energy storage remains a core pillar of our growth strategy. In Europe, the rapid growth in renewable energy generation capacity has not been matched by a corresponding build-out of storage capacity, creating a meaningful shortage of battery energy storage systems and a significant opportunity for fast growth supported by attractive returns. Our expansion momentum in Europe continued in the fourth quarter and into 2026 with the acquisition of Project Jupiter in Germany, a 2-gigawatt hour energy storage project paired with 150 megawatts of solar generation capacity expected to generate unlevered return of about 15%. This acquisition follows the acquisitions in Germany and Poland we disclosed in the previous quarter and further strengthens our position in the largest and one of the fastest-growing renewable markets in Europe. Overall, during the year, we expanded our mature storage portfolio in Europe by 3.5 gigawatt hour. We are highly committed to continuing our expansion in Europe. Leveraging our expertise and execution capabilities to capture the significant opportunities in the market. Our mature storage portfolio globally reached 17.5 gigawatt hour. An increase of over 50% from the previous quarter and over 6x its size, just 3 years ago. This expansion is yet another testament to Enlight's entrepreneurial DNA and our ability to recognize opportunities and act decisively. Our mature storage portfolio represents annual run rate revenues of approximately $1 billion. Nearly 50% of the revenue is currently reflected in our overall mature portfolio, positioning Enlight to benefit from power price fluctuations, optimization management, capacity services and ancillary grid services across markets. In Israel, we added meaningful storage capacity and continued to advance our solar-plus-storage build-out. Reinforcing local system flexibility and resilience. Over the past 12 months, high-voltage storage projects, totaling 1.35 gigawatt hour progressed from the advanced development portfolio to preconstruction. In addition, during the quarter, we signed an agreement with Mivne, a leading Israeli real estate firm with more than 550 assets nationwide to supply electricity for approximately $500 million over 15 years and to form a partnership, which will develop energy storage facilities at Mivne Properties across the country. The agreement follows dozens of similar distributed storage agreements signed over the past 12 months with leading real estate companies and other organizations. We are also expanding our agrivoltaic presence in Israel with 49 deals signed only in the past 12 months, reflecting a future solar generation capacity of approximately 2 factored gigawatt and growing synergies between solar and agriculture. As I mentioned earlier, we see a step change in power demand from AI and data centers. Industry outlooks indicate U.S. data center electricity consumption could roughly triple by the end of the decade. This demand must be met with scalable, cost-effective and clean energy, precisely where solar-plus-storage deliver superior levelized cost of electricity and time shifting capability. Our development capabilities position Enlight to be a partner of choice for large utilities and corporates as this build-out accelerates. We will share additional details on our strategy and plans to capture the data center opportunity at our upcoming virtual investor event on March 9. Looking forward, our strategy remains consistent and ambitious to triple the size of the business every 3 years by advancing high-quality projects through a derisked development funnel, while maintaining discipline on returns and capital structure. The continued growth of our operating portfolio and cash flow generation, combined with our differentiated global access to capital and execution capabilities enable us to further accelerate investment and Enlight's long-term growth. Commensurate to this, I'm excited to share that 2026 will be a record year of construction for Enlight with the expected beginning of construction of 3 to 4 factored gigawatts resulting in a record level of approximately 7 factored gigawatts that will be under construction during the year. In fact, almost all of our current mature portfolio will be either income-generating or under construction during 2026. By the end of 2026, we expect to add about 1.1 factored gigawatt to our operational capacity, primarily in the fourth quarter of the year. That will contribute annual run rate revenue and income of $137 million and adjusted EBITDA of $109 million. By year-end 2028, we expect to achieve 12 to 13 factored gigawatts of operating capacity, predicted to generate annual run rate revenue and income in the range of $2.1 billion to $2.3 billion. Over 11 factored gigawatts out of this capacity is in our mature portfolio. Underscoring the significant progress we made this year in increasing the visibility and certainty of our pipeline. Compared to our estimates in the previous quarter, 2028 revenue and income annual run rate increased by approximately $150 million and the planned capacity expanded by 1 factored gigawatt at the low end. The unlevered return on investment reflected in our under construction and preconstruction projects is expected to range from 12% to 13%, up from the 11% to 12% range we referenced last quarter, highlighting our continued focus on disciplined accretive growth. We now expect to deliver a return on equity of more than 18%. Before I hand over the floor to Jared, I would like to reiterate the key takeaways. We delivered a strong finish to 2025. Exceeding guidance by growing revenues and EBITDA meaningfully and continue to rapidly expand and derisk our pipeline. We are positioned for a record construction year in 2026 and remain on track to reach 12 to 13 factored gigawatt of operating capacity by 2028 at attractive returns, supported mainly by our current mature portfolio and underpinned by disciplined returns. With that, I will hand the call over to Jared. Jared McKee: Thank you, Adi. In 2025, we continued to execute our growth strategy in the U.S. We doubled our operational capacity to 1.6 factored gigawatts and we have close to 5 factored gigawatts of additional projects under construction or in preconstruction expected to come online by the end of 2028. In fact, a recent analysis by S&P placed us in the top 10 solar companies in the United States. In the fourth quarter of 2025, we commissioned two new co-located PV and battery facilities and have fully mobilized construction on three more. The Roadrunner solar and storage facility in Southeast Arizona has been successfully commissioned. This facility has a generation capacity of 290 megawatts and energy storage of 940-megawatt hours. We achieved an early COD on the PV portion of the project, bringing an earlier-than-expected revenues for the quarter. We also achieved COD on our Quail Ranch solar and storage facility. This includes the 128-megawatt PV site and 400-megawatt hour battery storage. These projects bring our operational portfolio in the U.S. to 888 megawatts of generation and 2,540 megawatt hours of energy storage. Combined, these facilities are delivering enough energy to the grid to power over 220,000 American homes. We are in full construction on the first phases of two mega projects in the American Southwest, the Snowflake and CO Bar complexes. First, on the CO Bar complex, I am excited to announce that we have received full approval for the 1-gigawatt interconnection for the facility. The CO Bar project is a special project. and indicative of what the Clenera team can accomplish through their development expertise, tenacity and grit. The executed LGIA provides certainty on the interconnection and enabled a full construction mobilization. The construction team is mobilized in the first two phases of the project, CO Bar 1 and CO Bar 2. CO Bar 1 includes 254 megawatts of PV generation and 824-megawatt hours of battery storage with commercial operations scheduled for the second half of 2027. CO Bar 2, a 480-megawatt PV project anticipates commercial operations in the first half of 2028. We have also signed energy storage agreements with Salt River Project for the storage Phases, CO Bar 4 and 5. With these energy storage agreements in place, the entire 1,211 megawatts of solar and 4,000 megawatt hours of battery, the CO Bar complex is fully subscribed. Full mobilization of the CO Bar 3, 4 and 5 projects totaling 473 megawatts of PV and 3,176 megawatt hours of BESS is targeted over the next 6 to 12 months with commercial operation anticipated between the second half of 2027 to the first half of 2028. Moving on, Phase 1 of the Snowflake complex, Snowflake A includes 595 megawatts of PV and 1,900 megawatt hours of energy storage. The complex is located in Northeast Arizona, near the city of Holbrook. More than 300 skilled workers are mobilized on-site, advancing construction of the solar, battery, substation and transmission infrastructure. They have completed site mass grading installed about half of the PV and best piles and over 1/3 of the racking. The civil work for the substation energy storage facility is complete, and we will be receiving shipments of batteries soon. Once operational, the two complexes will generate enough clean energy to power over 325,000 Arizona homes. These mega projects exemplify our belief that utility-scale solar can deliver clean, reliable energy, while advancing responsible land stewardship. Early construction at CO Bar 1 and 2 removed hundreds of acres of invasive vegetation to be restored with native grasses, forms and flowers to enhance biodiversity. We are also funding a multiyear study to monitor large mammal migration around the complex, demonstrating the multidimensional opportunities our projects create in Arizona. We have also started construction at our Crimson Orchard project in Elmore County, Idaho. This project includes 120 megawatts of PV generation and 400-megawatt hours of energy storage. We expect it to be commissioned in the first half of next year. Once it is online, it will generate enough energy to power over 20,000 Idaho homes. The final project under construction is Country Acres, a 403-megawatt solar and 688-megawatt hour battery project near Sacramento. The mobilized construction crew is similar in size of Snowflake A with over 300 workers on site. They have completed site mass grading and installed nearly all PV and best piles along with half of the PV racking and 1/3 of the modules. The site substation is about 2/3 complete. The project remains scheduled for commercial operations by year-end, briefly reflecting on 2025. I want to thank everyone at Enlight and Clenera, as well as our customers, suppliers and contractors for their dedication and excellence throughout the year. We have once again demonstrated strong execution reinforcing the solid fundamentals of our energy market as utility and large load customers continue to seek new sources of generation. Global and U.S. power demand is expected to grow by more than 80% between 2025 and 2028, and Clenera and Enlight are well positioned with the financial strength, operational excellence, and mature projects to capitalize on this growth. In 2026, we will continue to build on this success and execute our U.S. growth strategy. I'll now turn the phone over to Nir. Nir Yehuda: Thank you, Jared. The fourth quarter of '25 has been a strong quarter for Enlight, mainly resulting from the operation of new projects in the U.S. as we continue to materialize our growth plan. In the fourth quarter of '25, the company's total revenues and income increased to $152 million, up from $104 million last year, a growth rate of 46% year-over-year. This was compared of revenues from the sale of electricity, which amounted to $124 million, an increase of $31 million from the same period of '24, as well as recognition of $28 million in income from tax benefit, an increase of $70 million from Q4 '24. The growth in revenues from the sale of electricity is mainly attributed to newly operational projects, which contributed a total of $18 million to the growth in revenue. This project included Atrisco in New Mexico, which started commercial operation in December '24 and contributed about $11 million to sales of electricity, as well as Square Range in New Mexico and Roadrunner Arizona, which started commercial operations towards the end of '25 and contributed $2 million in the sale of electricity. Additionally, Project Pupin in Serbia started commercial operation towards the end of '24 and contributed $5 million to the increase in sale of electricity compared to Q4 '24. Additional notable items include an increase of $7 million in the sale of electricity in Israel attributed to electricity trade activity and contribution of $7 million from exchange rate fluctuation, mainly the depreciation of the U.S. dollar compared to the Israeli shekel and the euro. The increase in income from tax benefit is mostly attributed to Atrisco, which contributed $11 million, of which $3 million is attributed to the eligibility for domestic content. Roadrunner and Quail Ranch contributed an aggregate amount of $6 million to income from tax benefit. Revenue and income was distributed between MENA, Europe and the U.S. with 32% from Israel, 37% from Europe and 31% from the U.S. The company's adjusted EBITDA grew by 51% to $99 million compared to $65 million for the same period in '24. The increase in revenue was offset by an additional $12 million in cost of sales linked to new projects, while SG&A and project development expenses was by $3 million. Fourth quarter net income increased by $13 million compared to Q4 '24, amounted to $21 million. An increase of $34 million in EBITDA was partially offset by an increase of $12 million in depreciation and amortization attributed to the start of operation of new projects, as well as share-based compensation. Additionally, net financial expenses increased by $4 million and tax expenses increased by $7 million. Enlight secured a significant amount of new funding due in '25. At the project level, we secured $2.9 billion of project finance, as well as tax equity in the amount of $470 million, and the mezzanine loan amounted to $350 million. At the corporate level, we raised $300 million in equity, $245 million in debenture, and $50 million in an asset sale. Altogether, since the beginning of '25 Enlight raised $4.3 billion, providing the financial underpinning for our ambitious expansion plan with particular focus on the U.S. In addition to these funds, we have $525 million of credit facility at several banks, of which $360 million was available for use at the balance sheet date. In addition, we have approximately $1.5 billion in LC and surety bond facility, supporting our global expansion, of which $790 million were available for use at the end of the quarter. This further increases our financial flexibility as well continue to deliver on our growth strategy. Moving to 2016 guidance. We expect revenues and income between $755 million and $785 million, and adjusted EBITDA between $545 million and $565 million, reflecting annual growth of 32% and 27% at the midpoint, respectively, compared to '25 results. Our revenues and income guidance for '26 includes recognition of an estimated $160 million to $180 million in income from U.S. tax benefit. 90% of '26 generation output is expected to be sold at fixed prices, either through PPA or hedging of our total forecasted revenues and income, 39% are expected to be denominated in U.S. dollars, including tax incentives, 34% in Israeli shekel and 27% in euros. I will now turn the call over to the operator for questions. Operator: [Operator Instructions] And your first question today comes from the line of Justin Clare from ROTH Capital Partners. Justin Clare: So I first wanted to just start out, you had increased your expected annualized revenue and income run rate for 2028 to $2.1 billion to $2.3 billion, up from the $1.9 billion to $2.2 billion. So just wondering if you could walk through the drivers of the increase in that outlook? How much of that was attributable to the acquisition of the Jupiter project in Germany? And then just more broadly, how should we think about the potential role of acquisitions and the growth strategy here and whether there could be additional opportunities to accelerate the 2028 growth or beyond as a result of M&A? Adi Leviatan: The acquisition of the Jupiter project contributed in and of itself. $150 million to the overall sum of the 2028 run rate revenues. In addition to that, CO Bar 4 and 5 were moved from the -- if you note that little dotted line on the 2028 annual revenue rate, it moved up from the advanced development into the preconstruction. So it moved into the 2.0 number, which did not extend the top range, but it does increase the level of certainty that it is now in the mature portfolio. And Justin just to also pick up on the second part of your question, we are always looking at opportunities also for acquisitions of projects and pipelines where it makes sense. Specifically, in the case of the storage markets in Europe, and specifically Project Jupiter in Germany, it is an opportunity to enter the market relatively quickly. That would be a reason why we would go for an acquisition of a project that is relatively mature. We are still a greenfield developer, but we do have the flexibility to acquire projects when we want to come into the market early, and you can see about the Jupiter project that they still -- it does not come at the expense of the project returns. As we mentioned in the presentation deck, it is a 15% unlevered project returns. So even when we acquire projects that are relatively mature, it does not come at the expense of the returns. Justin Clare: Okay. Got it. Sounds good. And then just maybe shifting over to the safe harbor. You had indicated, I think, 13.2 factored gigawatts have currently been safe harbored. I think 4.3 over the last 3 months. So just at this point, can you talk about the potential to safe harbor additional capacity, is there a possibility to get beyond the 14 to 17 factored gigawatts targeted range. I'm just wondering if you could speak to any constraints. Are you limited more by just the pipeline of projects that you have? Or are there any limitations in equipment access or interconnection progress or other factors? Adi Leviatan: I will answer the question, and then I will also refer it onwards to Jared. I will just answer that we do plan to still safe harbor, 0.5 to 3.5 factored gigawatt in this first half of 2026. And after that, of course, the safe harboring of PV solar projects will be capped. But safe harboring of energy storage projects is still available for 3 more years. So in that sense, we will be continuing to safe harbor specifically best so battery energy storage projects. But I will hand it over for Jared to complement my explanation. Jared McKee: Yes. Thanks, Adi. We stand behind the 14 to 17 factored gigawatt range of safe harbor. As Adi mentioned, there are additional projects that we're looking at for 2026 that we'll be able to have full tax credits through 2030. The 14 to 17 factored gigawatt range is something that we're actually very proud of. It's been a significant undertaking from the team, as you all know, we include physical work of a significant nature, both off-site and offsite, offsite and on-site for our projects. And really, this gives us a very broad base to be able to pull from over the next 4 years as we're out there constructing and finishing our projects over the next 4 years. Operator: And the next question comes from the line of Mark Strouse from JPMorgan. Mark W. Strouse: Just a follow-up -- just a follow-up on Justin's question there. Just kind of given the outperformance in the stock that you've seen over the last several months, I understand that you're always looking at potential project acquisitions. But, just kind of curious how to think about the potential for kind of platform acquisitions. Are there other companies that you could potentially accretively acquire either to expand your capabilities, expand your geographic reach? Any comment there would be great. Adi Leviatan: Thank you for the question. We are in a, I would say, potentially enviable position. We do have the flexibility and the ability to raise significant amounts of funds were liquid, we have various sources, including some that you've seen. I mean, that our projects are fully funded through 2028. So we're always looking at opportunities to acquire not only projects and platforms of projects, but also potentially if we need those missing capabilities also potentially more than that. And we will act accordingly in the various markets where we are operating, which is the U.S., Europe and Middle East, North Africa and approach these kinds of opportunities with great care for overall growth trajectory and for the shareholder value. Operator: And your next question today comes from the line of Maheep Mandloi from Mizuho. Maheep Mandloi: Congratulations on the quarter and the guidance here. And just going back to the question on safe harbor. With the new rules, the guidance, which came out last week, has that been more or less in line with expectations? Or does that change anything for you for safe harbor in the next few months here? Adi Leviatan: Jared, do you want to take this one? I think it's regarding FEOC. Jared McKee: Yes, I can take it, Adi. Just to confirm, this is the recent publication that was provided on FEOC did provide some clarifications regarding population methodology and the share of equipment originated from FEOC countries. They are in line with our previous guidelines and our estimates, and they help reduce uncertainty somewhat. The guidelines define the calculations, but they're still -- there's still more information that we expect to come. And so we do not expect any impact on our current estimations on our mature portfolio, as well as any projects, obviously, that we safe harbored already in 2025. As you know, those projects are not subject to FEOC. We don't expect a significant impact on any projects that we will safe harbor through the end of -- through the middle of this year, really, we do expect some additional guidance on FEOC. Maheep Mandloi: Got it. Got it. And you guys kind of talked about almost $1 billion of cash, I think, between the HOLDCO and the subsidiaries and unrestricted restricted cash. So the question is more on the capital plan for equity needs. Does the cash on hand fund your projects through 2028? Or how should we think about equity needs for '28 and potentially even post '28 as well? Adi Leviatan: I'm going to ask our Chief Corporate Development Officer, Itay Banayan to take the question. Itay Banayan: o yes, the -- we have all of the available sources in our hands to fund the growth that we're presenting through the end of 2028. So if you'll see in the presentation, we're showing that we have a significant amount of projects already under construction as part of the mature portfolio, and these were already funded, obviously, and a significant portion that we're expecting to start construction this year. So basically, almost all of our mature portfolio will be either generating or under construction this year. And all of the sources needed to take us through the business plan towards the end of '28 are already available. On the corporate level, obviously, some of the projects will need to do the project level financing, which is a part of the ordinary of doing business, but the corporate side we are fully funded. Operator: [Operator Instructions] And the next question today comes from the line of Michael Mcnulty from Deutsche Bank. Michael Mcnulty: My first question relates to partial asset sales. Obviously, you did that last year with the Sunlight cluster. Can you touch on your expectations of partial asset sales into 2026, if anything is embedded in guidance? And then what we would need to see for that to happen. Adi Leviatan: Thank you for the question, Mike. I will refer this one to our Chief Corporate Development Officer, Itay Banayan. Itay Banayan: Mike, so we've mentioned it several times before. It is part of our strategy to contemplate minority sales or sell-downs of some of our projects where it makes sense and where it's accretive to the company. We have a lot of flexibility on our sources. So it did contribute to the numbers in 2025, and we don't see it as a onetime event. We think it will be part of the ordinary course of doing business. And also, when you can see on the road map to 2028, we are increasing -- gradually increasing the weighted average of our holding in our portfolio. We're going all the way to 91%. So there is a lot of meat on the bone. And when it will make sense, we might do like additional transactions like the one we did in Israel in '25. Michael Mcnulty: Okay. That's helpful. And then my second question is a lot of the expansion in 2026 is weighted towards the latter half, I believe, 4Q. So with your overall guidance, can you talk about the key drivers of the growth within your guidance given a lot of the capacity is weighted towards the back half? Adi Leviatan: Thank you for the question again, Mike. So the U.S. projects that we just connected in Q4 of 2025, Quail Ranch and Roadrunner are going to have their first full year of revenues in 2026. So -- and as you stated correctly, the projects we're connecting in 2026 will mostly -- I mean, they will have their full year of revenues in 2027. Thankfully, we are, I mean, well diversified across different geographies, different projects, different technologies. And so in addition to the ones I just mentioned in the U.S., there's also a very significant projects in Israel that are also -- have also been connected in 2025 and will have their first year of full revenues, project called Bar-On, which is a floating PV plus storage. So we have projects in Europe that we're also working on that will be connected earlier in the year. So overall, that is what's contributing to the growth in revenues and EBITDA in 2026. Operator: There are no further questions. I will now hand the call back to Adi for closing remarks. Adi Leviatan: We would like to thank you very much for supporting us for dialing into this call for asking questions. We highly appreciate the engagement with all of you, and we look forward to continuing to deliver excellent results and to see you in the next quarter. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by and welcome to Ceragon Networks Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I must advise you that this call is being recorded. I'd now like to hand over the call to our first speaker today, Rob Fink, Head of Investor Relations. Rob, please go ahead. Rob Fink: Thank you, operator, and good morning, everyone. Hosting today's call is Doron Arazi, Ceragon's Chief Executive Officer; and Ronen Stein, Chief Financial Officer. Before we start, please note that today's discussion includes forward-looking statements within the meaning of the Securities Act of 1933 as amended Securities Exchange Act of 1934 as amended and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, projected financial performance, future initiatives, business outlook, development efforts, anticipated results, time lines and other matters. Forward-looking statements are based on current expectations and assumptions and involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, among other things, global and regional economic admissions, conditions in Israel and the region, fluctuations in exchange rate, customer concentration, ordering patterns, and supply chain challenges as further detailed in Ceragon's most recent annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. Forward-looking statements are accurate only as of the date they are made, and Ceragon undertakes no obligation to update them. Ceragon's public filings are available on the Securities and Exchange Commission's website at sec.gov and on Ceragon's website at ceragon.com. Also, today's call will include certain non-GAAP measures. For reconciliation between GAAP and non-GAAP results, please see the table attached to the press release issued earlier today, which is posted in the Investor Relations section of Ceragon's website. With that, I will now turn the call over to Doron. Doron, the call is yours. Doron Arazi: Thank you, Rob. Good morning, everyone. As expected, the results we are reporting today align with the preliminary results we shared in January. Revenue in Q4 2025 was $82.3 million, consistent with the range we previously provided and non-GAAP EPS for Q4 was $0.02. For the full year, revenue was $338.7 million, and non-GAAP EPS was $0.09. We ended the year with $38.4 million in cash and equivalents and a net cash position of $19.4 million, up from a net cash position of $10.1 million at the end of 2024. Our balance sheet improvement reflects disciplined execution and stronger cash generation over the course of the year. Given that we provided a detailed update in January, today, I'll focus on confirming execution and discuss what we are seeing early in 2026. Our view on 2026 is unchanged from a month ago. Early activity in the year supports our confidence that we remain on track with the outlook we shared in January. Execution in North America continues to be solid, supported by CSP activity, and we see numerous emerging private network opportunities. In India, activity continues to track at the run rate we discussed with early bookings in the year, reinforcing our confidence in the base level of demand. We are not seeing anything today that changes our business view over the year or introduces new dynamics relative to what we previously discussed. In 2026, we plan to launch 4 new products with some expected to generate initial revenue this year. These launches are driven by clear recently observed demand in our addressable markets and aligned with tangible revenue opportunities. Our R&D and go-to-market investments remain focused on execution, differentiation and conversion. We continue to prioritize opportunities where we see clear potential customer demand and a path to revenue. Mobile World Congress in March is an important industry event for Ceragon and for the broader ecosystem. We will be showcasing several products we plan to introduce in 2026 and the level of inbound interest and meeting activity heading into the show has been strong. Historically, MWC has been a meaningful demand generation event for us, helping convert customer engagement into trials and over time, revenue. We expect it to be a constructive commercial catalyst again this year. Based on our current visibility, we are reiterating our full year 2026 revenue guidance of $355 million to $385 million. This guidance is based on us advancing our backlog in North America, assumes a baseline of $100 million in annualized revenue from India and additional demand from our 2 existing customers, potential timely RFP wins and reasonable recoveries in other regions. I would like to give one brief example of how execution is showing up in the private network space. We recently booked a multimillion dollar private network order in APAC with an electricity transmission utility following a competitive win announced last year. The award reflects our ability to deliver a full turnkey solution and provides both near-term revenue in 2026 and long-term expansion potential as additional sites are deployed. This represents how private network opportunities are moving from pipeline to backlog and into revenue. In summary, we are focused on execution, not reinvention. We delivered results in line with what we communicated in January. Our outlook for 2026 remains intact and early activity in the year supports our confidence in continued progress on revenue cadence, margins and cash generation. With that, I'll now turn the call over to our CFO, Ronen Stein, to review the financial results in greater detail. Ronen Stein: Thank you, Doron, and good morning, everyone. Q4 2025 was another profitable quarter on a non-GAAP basis with positive free cash flow in excess of $7 million. To help you understand the results, I will be referring primarily to non-GAAP financials. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures, we refer investors to today's press release. Let me now review the fourth quarter results. Revenues for the fourth quarter were $82.3 million, down 23% from $106.9 million in Q4 2024. Our strongest regions in terms of revenue for the quarter were North America and India at $32.3 million and $24.7 million, respectively. We had 2 customers in the fourth quarter that contributed more than 10% of our revenues. Gross profit for the fourth quarter on a non-GAAP basis was $28.2 million, a decrease of 23.2% compared to $36.7 million in Q4 2024. Our non-GAAP gross margin was 34.3%, the same as the non-GAAP gross margin of 34.3% in Q4 2024. Turning to operating expenses. As a reminder, the 2025 operating expenses include the impact of E2E, whereas last year's results do not. Research and development expenses for the fourth quarter on a non-GAAP basis were $7.7 million, down from $8.8 million in Q4 2024. As a percentage of revenue, our non-GAAP R&D expenses were 9.3% in the fourth quarter compared to 8.2% in the fourth quarter last year. Sales and marketing expenses for the fourth quarter on a non-GAAP basis were $11.4 million, up from $10.6 million in Q4 2024. As a percentage of revenue, sales and marketing expenses on a non-GAAP basis were 13.8% in the fourth quarter compared to 9.9% in the fourth quarter last year. General and administrative expenses for the fourth quarter on a non-GAAP basis were $5.8 million compared to $5.1 million in Q4 2024. As a percentage of revenues, non-GAAP G&A expenses were 7% in the fourth quarter compared to 4.8% in the fourth quarter last year. Operating income for the fourth quarter on a non-GAAP basis was $3.4 million compared to $12.2 million for Q4 2024. As a percentage of revenues, non-GAAP operating income was 4.2% in the fourth quarter compared to 11.4% in the fourth quarter last year. Financial and other expenses for the fourth quarter on a non-GAAP basis were $1.4 million as compared to $3.5 million in the fourth quarter last year. Our tax expenses for the fourth quarter on a non-GAAP basis were $0.6 million. Net income for the fourth quarter on a non-GAAP basis was $1.4 million or $0.02 per diluted share compared to $7.7 million or $0.09 per diluted share for Q4 2024. Turning to our full year results. Revenues were $338.7 million, a decline of 14.1% from $394.2 million in 2024. Gross profit for 2025 on a non-GAAP basis was $116.8 million, a decrease of 15.5% compared to $138.2 million in 2024. Our non-GAAP gross margin was 34.5% compared with gross margin of 35.1% in 2024. Operating income for 2025 on a non-GAAP basis was $18 million compared to $48.8 million in 2024. As a percentage of revenue, non-GAAP operating income was 5.3% in 2025 compared to 12.4% in 2024. Net income for 2025 on a non-GAAP basis was $8.2 million or $0.09 per diluted share compared to $36.4 million or $0.41 per diluted share in 2024. As for our balance sheet, our cash position at the end of 2025 was $38.4 million compared to $35.3 million at the end of 2024. Short-term loans at the end of 2025 were $19 million compared to $25.2 million at the end of 2024. Thus, at the end of 2025, we had a net positive cash position of $19.4 million as compared to a net cash position of $10.1 million at the end of 2024. We believe we have cash and facilities that are sufficient for operations and working capital needs. Our inventory at the end of 2025 was $61.6 million, up slightly from $59.7 million at the end of 2024. Our trade receivables at the end of 2025 were $99.7 million, down significantly from $149.6 million at the end of 2024. Our DSO now stands at 107 days. With respect to our cash flow, net cash flow generated by operations and investing activities was $7.3 million in Q4 2025 and $15.1 million in 2025, excluding the cost of acquisition of E2E. Turning to our 2026 guidance. As Doron reiterated, we expect 2026 revenue to be between $355 million and $385 million, consistent with the guided revenues range we shared in early January. We also see an improvement of approximately 1 percentage point in our non-GAAP gross margin at the midpoint of our provided revenue range, primarily driven by improved revenue mix between North America and India as well as additional cost reduction initiatives we are working on. This effort also includes a plan to overcome the recent spike in the price of memory components in the market. All in all, we expect our non-GAAP operating margin for 2026 to be between 6.5% to 7.5% at the midpoint of the revenue range. This margin outlook reflects the currency assumptions established in January, and we will closely monitor and evaluate currency fluctuations as the year progresses. That concludes my prepared remarks, and I'd like to now turn the call back over to Doron for any remaining comments. Doron? Doron Arazi: Thanks, Ronen. In closing, we continue to see steady traction across our markets, reflected in customer engagement, awards and initial orders. Our priorities in 2026 are clear: execute on conversion, improve revenue cadence and continue strengthening profitability and cash generation. We are reiterating our 2026 revenue guidance, and we believe our balance sheet strength gives us the flexibility to invest behind highest ROI opportunities while remaining disciplined on capital allocation. With that, I now open the call for questions. Operator: [Operator Instructions]. Our first question comes from Christian Schwab from Craig-Hallum. Christian Schwab: Great. I just have one question. Doron, what would be needed to hit the high end of your '26 guidance? Would that be stronger strength in North America, given that the backlog is materially greater than where we started last year? Would that be India coming in a little bit better? Or geographically, would it be a different area? Just looking for what you're thinking about the 1 or 2 things that we can monitor that might get us towards the high end of the guidance. Doron Arazi: Thanks, Christian, for this question. Actually, I see various scenarios where we can reach the high end of the range. Obviously, it could be a combination of both. And -- but I can also see a situation where we get to the high end of the range by only having one of the regions being strong. I would say that in essence, we need North America and India to be relatively stronger. And obviously, with some recovery, we expect in other regions, we can get to this high end of the range. I don't think it's beyond reach. Operator: Our next question is from Scott Searle from ROTH Capital. Scott Searle: Maybe just quickly in terms of just some of the financial management, Ronen, could you talk about dollar to shekel issues and how you guys are handling that and what kind of challenges that poses? And then Doron, just in terms of the update, it's nice to see that nothing has changed and it sounds like it's on the margin getting a little bit better from the January update. But in terms of the first half outlook versus the second half, kind of how are you seeing the balance right now? And given some of the orders that have started to come in and where the backlog is, how are you feeling about traditional seasonality in the first quarter and the first half? And then I have a follow-up. Ronen Stein: Scott, thank you for the question. I'll start with the issue of the foreign exchange. We are monitoring that, and we have a hedging policy. So we are hedged. The longer the period is we are less hedged at this point, but we continue to monitor that. I would say as a rule of thumb that on an annualized basis, any 1% change would take 0.1% on an annualized basis from our operating margin. But we continue to monitor that with a combination of hedging, and this is where we are. Hopefully, we do have enough time also for changes in the ForEx also to the other direction. Doron Arazi: Scott, to your second question. Yes, we started the year with a relatively strong booking. But obviously, it's not something that usually impacts the same current quarter that dramatically. And we do believe that Q1 in terms of revenue will take into account the regular seasonality we've seen in Q1 and maybe some delays in orders that were supposed to come in Q4, but were only received in Q1. I think that -- I still believe that the second part of the year will be much stronger than the first part, but I'm very much encouraged by the business that has already come from India and supposedly also coming in the upcoming months or so. This increased our level of confidence in the -- at least in the low end of the range for India very much, which is very encouraging. Scott Searle: Very helpful. And if I could, just a follow up. Private network win in Asia Pacific is interesting because I think most of the activity has been North American focused and European focused. I'm wondering if you could comment in terms of the level of activity that's going on in that region for private networks and kind of the magnitude of some of those opportunities? Are they bigger? Are they smaller? How quickly do they deploy just in terms of some of the characteristics around it? And then if I could just put on the back end of that, looking at point-to-multipoint solutions available in new frequencies, how is just the general tone there for Siklu and some of these other bands, be it India and/or North America? Doron Arazi: Sure. So let's start by saying that in private network, we see multiple opportunities basically in all regions. Obviously, taking more of a staggered approach and making sure that we develop our business while still looking at the bottom line, we are putting more focus in certain regions as opposed to other regions. Particularly in APAC, there's many opportunities we see. We see opportunities in mining. Some of them were already won. We see opportunities in the energy business. And therefore, I'm quite encouraged by the number of opportunities we see in this region. By the way, it's not only that region. We also see very nice opportunities in Europe and so on and so forth. So all in all, this is not a North America strategy. This is a global strategy that we execute on. And I'm quite encouraged by the progress both in North America and in other regions. Referring to point-to-multipoint solution. So I would say that we see a few use cases that are creating demand for us, and I would even say that the demand is growing as the customers realize that this solution is probably the most cost-effective one. So the 60 gigahertz point-to-multipoint product that was bought as part of the Siklu acquisition, is primarily getting traction in what I would call security and safety use cases. And that is something that we see globally. The other use case that this particular product is kind of creating an increased level of interest is either small cell backhaul or fixed wireless access in certain areas where the distances are short, and it doesn't make sense economically to put anything but these boxes that are very small. And this is with regard to the 60 gigahertz. We also see an increased demand and interest in basically similar product in FR2. And obviously, we are in advanced discussion with different customers about this potential business. And accordingly, we are moving forward in terms of research and development of this product. I believe that once we feel comfortable that demand is large enough and there, we can basically come very fast in relative terms with such product in FR2. Operator: Our next question is from Ryan Koontz from Needham. Ryan Koontz: Maybe focusing on your North America larger opportunities here. Your major Tier 1 in North America. Can you maybe expand on what you see happening in that account for you in terms of budget and the competitive landscape and customers' willingness to spend? It seems like kind of around press reports that the customer has been in a relatively positive spending trajectory. Maybe you can expand on how you see your market opportunity there with your big U.S. Tier 1. Doron Arazi: So Ryan, thank you for this question. Look, generally speaking, we see the customer continuing to invest in their network. And obviously, we are also attentive to the news and publications that this customer is giving us. We know from the past that this customer has some, so to speak, trends or tendency to make short-term decisions, whether for much higher volumes or much lower volume. So far, based on what we know today, we think that 2026 can be as good with this customer as 2025. One thing that is encouraging is that we basically see an opportunity that is materializing gradually for new use case with this customer, which is around network resiliency or fiber backup. And if we will see some slowdown in the traditional rollout, this could augment the volume of the business to be similar to the average we've seen in previous years. Ryan Koontz: Helpful. And with regards to your second North American Tier 1, can you update us there on your progress and expectations for the year in terms of progressing with the trials, et cetera? Doron Arazi: Look, we are moving forward. We are making progress. The level of engagement is very high. We are actually having weekly and biweekly follow-up discussion with the customer as they are looking into, so to speak, tuning the solution to be the best solution for their specific case. And in parallel, we are moving and discussing with the customer other opportunities. And generally speaking, I'm quite satisfied with the progress and with the level of intimacy we have created with this customer. Ryan Koontz: That's great to hear. Maybe just one last one, if I could get in. With regards to supply chain and memory costs, it sounds like you have some hardware cost reductions kind of moving through the process. How are you thinking about availability of memory? Any risk there around supply chain for this year? And what are you doing to compensate for the skyrocketing costs? Doron Arazi: So, so far, the issue of the memory is more of a price issue rather than a supply issue. And I hope that this remains the same. And we have a plan that is combined of building second and third source to our main vendor and some quick changes we can do in our products to basically accommodate for this situation while still having the performance of this product unhurt. And that's what we are doing. It will probably take us something like a quarter or so, but this is something that we are on top of and obviously watching closely the evolution and the development in the market. Operator: Our next question is from Theodore O'Neill from Hills Research. Theodore O'Neill: Doron, I was wondering if you could give us some color on how you're able to improve accounts receivable by 30% year-on-year? Doron Arazi: Well, I will hand over this to Ronen because this is something that is on his shoulder and he was doing an amazing job. So Ronen, please go ahead. Ronen Stein: So, Theodore, thank you for the question, and good morning. We have done a lot of work in -- with customers, mainly in India to improve and catch up on payments. As you know, India is sometimes a challenge. And it's a lot of focus, a lot of focus and follow-ups to ensure that we reduce it, whether with new projects and improving the DSO in new projects as well as older projects. Theodore O'Neill: Okay. And a follow-up question here on the memory costs. Just what could the impact be financially? I mean, I can't believe it's a huge part of the build for your equipment. But just can you give us a sort of 30,000-foot view in terms of the dollar impact if -- say, if memory prices stay where they are relative to where they've been in the past? Ronen Stein: I don't think it's material enough, and we don't want to disclose exactly because it discloses information that is competitive -- has competitive implications. It's not material enough. And with our plans to mitigate this challenge, I don't think it's something that we need to disclose exact numbers. Operator: Okay. There are no further questions. Doron, I'd like to hand back to you for closing remarks. Doron Arazi: So thank you, everyone, for joining this call. Those who are planning to be in MWC, please come and visit us in our booth, and I wish a good day to everyone. Thank you.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. I'd like to welcome everyone to the Canaccord Community Group, Inc. Fiscal 2026 Third Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference call is being broadcast live online and recorded. I would now like to turn the conference call over to Mr. Dan Daviau. Please go ahead. Daniel Daviau: Thank you, operator, and welcome to everyone joining today's call. As always, I'm joined by our Chief Financial Officer, Nadine Ahn. Our remarks today are complementary to the earnings release, MD&A and supplemental financials, copies of which have been made available for download on SEDAR+ and on the Investor Relations section of our website at cgf.com. Within our update, certain reported information has been adjusted to exclude significant items to provide a transparent and comparative view of our operating performance. These adjusted items are non-IFRS measures. Please refer to our notice regarding forward-looking statements and the description of non-IFRS financial measures that appear in our MD&A. And with that, let's discuss the third quarter fiscal 2026 results. Supportive monetary policy, lower interest rates and elevated fiscal spending helped lift broader markets during the third quarter, and this contributed to a continued improvement across our Wealth Management and Capital Markets businesses. Firm-wide revenue of $616 million for the 3-month period increased by 37% year-over-year and by 16% sequentially, representing our second highest quarterly revenue on record. Contributions were evenly split between our Wealth Management and Capital Markets divisions, which recorded year-over-year increases of 30% and 43%, respectively. Most notably, our third quarter financial performance benefited from an excellent environment for mining sector activity, driven by record gold prices and solid demand for industrial metals. On an adjusted basis, capital markets revenue increased by 43% year-over-year to $301 million, mostly from new issue activity. This translated into a substantial growth in corporate financing revenue across all regions, led by an exceptional quarter from our Australia operations, which accounted for almost 50% of total investment banking revenues for the 3-month period. More than 80% of this amount was linked to natural resource sector activity. Approximately 13% of investment banking revenue in our Australian operation was attributed to realized and unrealized gains on inventory positions, which are an important component of doing business in the market. We do employ a disciplined execution strategy to monetize these positions while preserving capital and continuing to meet client needs. Although we are pleased with the current and prior quarter's activity levels, I would caution against assuming these activity levels represent a normalized run rate. Certain sector-driven revenues are benefiting from unusually strong conditions that we would not expect to persist at the same levels and they are more likely to moderate in the future. Revenue growth from our Wealth Management division was driven primarily by a 32% year-over-year increase in commission and fees, along with 154% year-over-year increase in investment banking revenue, largely reflecting higher new issue activity in our Canadian and Australian businesses and bolstered by contributions from our acquisition of Wilsons Advisory, which was completed on October 1. We ended the quarter with client assets of $145 billion and new records set in each of our geographies. Excluding significant items, firm-wide pretax net income for the third fiscal quarter doubled when compared to the same period of the prior year to $81 million, which translated to diluted earnings per share of $0.36. I will note that our Australian business contributed $0.09 to the adjusted EPS in the third quarter with $0.08 coming in the Capital Markets division. As disclosed in our quarterly filings, our beneficial ownership in this business will decline beginning in the fourth fiscal quarter. We continue to advance our strategic priorities during the quarter. On November 7, we completed the sale of our U.S. wholesale market making business, allowing us to sharpen our focus on our integrated M&A and investment banking capital markets capabilities while reducing the cost base and risk profile of our U.S. capital markets operations. We also completed our acquisition of the leading renewable energy advisory firm, CRC-IB, which has enabled the formation of a new energy transformation group, deepening our commitment to the sustainability sector clients in all geographies. Finally, we completed our acquisition of Wilsons Advisory in Australia, adding meaningful scale and establishing a truly national footprint in our wealth management business in the region. Before handing things over to Nadine to discuss our financial results in more detail, I'd like to briefly highlight a few additional disclosures from our quarterly results press release. Firstly, we continue to engage with our U.S. regulators on the content and substance of a potential unified resolution of our previously disclosed regulatory enforcement matters. However, the timing of the resolution of these matters remains uncertain. Secondly, at the request of regulators, on October 17, the company issued a statement in response to media coverage speculating about a potential transaction involving our U.K. wealth management business, which has contributed to increased volatility in our stock price. The company continues to assess options for this business in the context of, among other things, the rights of its strategic and financial minority partner and that partner's investment horizon as noted in prior company disclosures, prevailing market and execution conditions and other relevant industry factors. At this time, there can be no assurance that any discussion will result in a transaction or that such transaction would occur at valuations implied by recent market and transaction activity. With that in mind, we do not intend to comment further on these matters, except as required under applicable regulatory obligations. And with that, I'll turn things over to Nadine. Nadine Ahn: Thank you, Dan, and good morning, everyone. As Dan mentioned, we delivered exceptionally strong revenue in the quarter, which resulted in meaningful earnings growth. Firm-wide pretax net income for our third fiscal quarter rose 103% year-over-year to $81 million, bringing our fiscal year-to-date net income to $174 million, up 49% year-over-year. This translated to adjusted diluted earnings per share of $0.36, up 112% year-over-year, reflecting strong revenue growth across all businesses and lower non-compensation expenses as a percentage of revenue. We continue to focus on cost efficiency initiatives to drive firm-wide margin expansion. While certain costs increased in connection with higher revenue generation, our total expenses as a percentage of revenue declined by 4.3 percentage points compared to the same period of last year. Firm-wide non-compensation expenses, excluding significant items, decreased by $5 million or 3.2% year-over-year to $152 million, representing 25% of third quarter revenue. This decline was largely driven by lower interest, trading and general and administrative expenses. Trading, settlement and technology costs decreased by $2.5 million or 5% year-over-year to $48 million, primarily reflecting a $6.5 million reduction following the sale of the U.S. wholesale market making business, which was completed during the third fiscal quarter. This was partially offset by higher trading costs in our Australian wealth operations, driven by increased commissions and fees activity. Interest expense declined by $5.2 million or 16.8% year-over-year to $26 million, reflecting lower interest rates and the sale of the U.S. wholesale market making business. General and administrative expenses also declined by $2.5 million or 6% year-over-year due to onetime items in the prior period. Firm-wide compensation ratio on an adjusted basis for the fiscal year-to-date was 61.1%. The timing of bonus accruals as well as the impact of changes in the value of certain unvested stock-based compensation awards negatively impacted the compensation ratio in the third quarter. Turning to business unit performance. Capital Markets contributed pretax net income of $51 million, representing a 248% improvement from the same period last year. The adjusted pretax profit margin improved by 10 percentage points year-over-year to 17%, with the most notable increases in our Australian and U.S. businesses. On a consolidated basis, Capital Markets revenue increased by 43% year-over-year to $301 million. And as Dan had mentioned, the primary driver of this increase was the 170% increase in investment banking revenue. In connection with higher investment banking activities, commissions and fees revenue also increased by 42% year-over-year to $54 million, the highest level since Q4 fiscal 2021. Advisory revenue of $65 million declined by $6 million or 9% year-over-year. Our U.S. operations contributed $43 million, representing a 38% year-over-year increase, which was partially offset by declines in our Canadian and U.K. businesses, where results reflected a more challenging year-over-year comparison period due to several significant mandates completed in the prior year period. Trading revenue declined by 48% year-over-year, primarily due to the sale of the U.S. Market Making business, which was completed on November 7. Contributions from this business reflect approximately 5 weeks of activity prior to the completion of the transaction. With the sale of the U.S. Market Making business and the acquisition of CRC-IB now complete, the revenue mix, cost base and risk profile of our U.S. Capital Markets business will shift meaningfully, and we expect this will drive a sustained improvement in operating margins in this business. Turning to our Wealth Management businesses. Revenue of $304 million and adjusted pretax net income of $57 million increased by 30% and 57%, respectively. Included in these amounts are contributions from Wilsons Advisory of $16.1 million in revenue and $1.8 million in adjusted net income before tax. The key drivers of revenue growth during the quarter were a 32% year-over-year increase in commissions and fees revenue to $240 million, driven primarily by higher contributions from our Australian and Canadian operations and a 154% increase in investment banking revenue to $25 million, with 64% of that amount contributed by our Canadian operations and the remainder from Australia. While our U.K. business remained the largest contributor to pretax net income, our Canadian and Australian businesses delivered substantial increases as stronger revenue translated into improved operating leverage. Our Canadian business contributed $23 million in adjusted pretax net income, representing a 155% year-over-year increase, while Australia more than tripled its contribution to $7 million. Client assets at the end of the quarter reached a new record of $145 billion, representing a 26% year-over-year increase, driven primarily by market appreciation, acquisitions and supported by positive net flows. Measured in local currency, assets in our U.K. Wealth Management business grew 13% year-over-year to GBP 40 billion. This translated into CAD 75 billion, representing a 16% increase compared with the prior year, driven primarily by market appreciation, acquisitions and foreign exchange movements. Client assets in Canada increased 25% year-over-year to $53 billion, largely reflecting higher market values with additional contributions from recruiting. While the business experienced positive net flows during the quarter, fee-generating accounts represented a lower proportion of total client assets, reflecting the higher level of commission-based assets in connection with the increased investment banking activity in this business during the 3-month period. Assets in our Australian business also reached a new record, increasing to $17 billion from $8 billion a year ago. Approximately $6.7 billion of this increase was attributable to the acquisition of Wilsons Advisory. Strong revenue performance in the current quarter, together with our continued focus on organic and inorganic growth initiatives has strengthened profit margins across the business and positioned us well relative to our targeted single-digit growth objectives. Our 9-month year-to-date performance has exceeded this target, and we remain well positioned relative to our single-digit growth objective for the full fiscal year. Turning to the balance sheet. We maintain sufficient working capital to meet our regulatory commitments, support our strategic priorities and expanded business activity while preserving the flexibility to reallocate capital as market conditions evolve. Reflecting this confidence, our Board of Directors has approved a quarterly common share dividend of $0.085. With that, I will turn things back to Dan. Daniel Daviau: Thank you, Nadine. We are very pleased with our third quarter performance, which was driven by elevated client activity, strong execution and improving market conditions. Looking ahead, we remain focused on executing our strategic priorities to deliver attractive returns for our shareholders. While we anticipate some moderation from the revenue levels achieved in Q3, we expect market conditions to remain broadly supportive. Commodity prices and improving conditions for small and mid-cap equity markets continue to underpin improving capital raising and advisory activities across our core capital market sectors. We continue to see strong momentum in advisory, supported by active pipelines and increasing client engagement. Regionally, we expect continued solid performance in our Canadian capital markets business and improving performance in the U.S. and U.K., partially offset by the seasonally slower summer period in Australia. In Wealth Management, we anticipate sustained growth in client assets bolstered by positive net flows. That said, the increased new issue revenue and some commission revenue remain highly market dependent, making our Canadian and Australian businesses more sensitive to market conditions. Even with the intermittent periods of volatility, broadly speaking, markets are functioning well with strong investor engagement. With that, Nadine and I would be pleased to take your questions on the quarter. Operator, you may now open the lines. Operator: [Operator Instructions] Your first question comes from Jeff Fenwick from Cormark Securities. Jeffrey Fenwick: I wanted to start off on Australia first in the Wealth Management area. Obviously, that Wilsons Advisory acquisition was a very complementary addition and gave you some good scale in the market. Could you speak to the opportunity to continue to find other firms like that? Is this a market that's going through consolidation similar to other markets? And how are you thinking about that going forward? Daniel Daviau: You're going to kill my Australia team, Jeff, with questions like that. It's a big acquisition for us. And there are 3 new offices plus integrating 3 offices into our existing facilities. I think they're capped out on acquisitions for the time being, but your question isn't, hey, what about next quarter? I hope it's about long term. Long term, I think we've always said we see the opportunity in Australia similar to the opportunity we see in Canada. I guess the only difference between the 2 markets is from time to time, we'll find complementary acquisitions in Australia, which are more difficult to come by in Canada. We do have an active recruiting pipeline in Australia. We continue to recruit into that. We've got a bunch of advisers who joined us last quarter and a bunch more that are going to be joining us. And it's a similar kind of take-on program, maybe a little bit cheaper than it is in Canada to bring on advisers, but we continue to see that. So we really like the Australian wealth space and are going to continue to invest significantly into it. And I think as the business scales up, you'll see margins improve. I'd caution you a little bit on the Australian wealth business. It tends to be a little bit more transactional. Like Canada, we see a lot of new issue business flow through our wealth business. They're very complementary businesses. They're not segregable. They're one combined business, our capital markets and wealth businesses. So you may see a little bit more volatility in that business than you typically see in a wealth business. simply because as the business transitions to fee-based, we still continue to play in the new issue business. And obviously, when things are active, particularly in the resource square, you'll see an increase in commission revenue as assets flow into deals and flow out of deals. But like I said, the business continues to scale up. We've got now 400 people in our Australia wealth business. It's not a small business anymore. So it's pretty exciting, and we like it. Jeffrey Fenwick: That's very helpful color. And then I guess, associated with this, you made reference in the release to a rights offering underway in Australia. I guess, more of the employees wanted to gain exposure to a business that's doing well down there... Daniel Daviau: Yes I think that's right. As I've said before, Jeff, managing a business that's the antipode of Toronto, the furthest point on earth away from another point on earth. It's good to have local ownership, and it's exciting when our employees want to own more of that business, which they do. We funded the Wilsons acquisition with debt and free cash flow that we had sitting there. But with a significant chunk of debt, we want to bring down that debt as part of that. We are looking at an equity raise to employees and ourselves, although we see our ownership coming down, as I think we disclosed, we'll retain control. It's a complicated process on how you do a rights deal in Australia to employees. So what exactly our equity ownership is, we can't disclose that yet, but it will be coming down from its existing 65%. Jeffrey Fenwick: And then maybe we'll pivot to Canada. Obviously, in the Wealth Management group there, quite a strong performance and just continuing some positive trends. But I guess the one thing maybe to take on here is just not -- really haven't seen much in the way of actual adviser team growth over the last couple of years. And you've spoken to the desire to recruit. And I think there's been some recruiting, but it's often gain one, lose one. What's the challenge there? Are you happy with the footprint today? Is there a reason why it's a little difficult to roll in teams? Is it maybe just the nature of the profile of the offering versus maybe other platforms they could be on in the market? Or just any color there you could offer? Daniel Daviau: Fair questions. I mean, we do continue to recruit teams, although the pipeline goes up and down in terms of the level of activity. Generally speaking, you don't see growth because we're recruiting a bigger adviser and cycling out a smaller adviser or a smaller adviser retires or what have you. So the average book per adviser continues to grow significantly, and it's at a record, Nadine, it's currently... Nadine Ahn: $369 million. Daniel Daviau: $370 million. So -- and that number is at all-time records. So our average advisory teams are up. You also see we disclose teams. So sometimes 2 advisers will combine into 1 team. So that activity is going on, and that's an activity we strongly encourage. So we probably should disclose a number of advisers, too, to be honest, Jeff, because I think it will give you a better transparency on that. But yes, we're in the market of continuing to bring over great new partners into our franchise. We brought over a couple of last quarter. We continue to have a good pipeline. We're in that business, and we continue to be in that business. So no real color. We're very excited by our Canadian wealth business and its pace of activity and its recruiting pace, but it takes time to bring people over. Jeffrey Fenwick: Fair enough. And maybe one last one here, just on the announced acquisition of the environmental focused or energy transition focused boutique in the quarter. I mean, just given the tone and the actions of the current U.S. administration, doesn't exactly feel like a growth area right now. So maybe just give us a sense of what you see there, where the opportunity lies longer term and why you choose to make that acquisition. Daniel Daviau: Yes. So CRC, we had an option to acquire them for a period of time in a completely different environment. They significantly performed over what we had expected. So we certainly exercised our option. We're very cognizant of the tax and other changes in the U.S. It's a business -- the -- how you define sustainability and how you define energy transition, I mean that's going to go on no matter what. Is it tax-driven financing activity? Or is it fundamental M&A activity? That business kind of evolves. And just like your own M&A business at your firm or anywhere else, you kind of go where the market is active. And this is a team -- a young team, a phenomenal team of partners. that have really shown a remarkable ability to transition their business, and we see that in their existing business. So we're very confident in their ability to keep on delivering at or better than they've delivered in the past. So it's certainly an exciting opportunity. And again, even if some of the tax-driven financing disappears, we see their M&A business significantly increasing. So I mean, energy needs aren't going to disappear. And how you facilitate those energy needs, particularly in the U.S. will be important. Add to that the fact that we'll have an equity business that flows through -- flows from that advisory practice that they have and stapling on the international capabilities. So as we've always said, we're going to grow in core sectors where we think we've got a unique global advantage, and this is one of the sectors where we think between our U.K., Canadian and Australian practice that we can really outperform. And so we're excited by it. Operator: And your next question comes from Rob Goff from Ventum Capital. Rob Goff: Congrats on the quarter. I hope there's no need for caution on continued momentum in the markets out there. Daniel Daviau: You haven't been doing this business long enough, Rob, if you don't think there's caution on continued momentum. Rob Goff: I'm still a newbie. Daniel Daviau: Yes. No, you're not. Rob Goff: I can pretend. In terms of the wealth advisers when you're out recruiting like from the banks, risk tolerances and such are key considerations. How are you finding the flow of either advisers or assets from Canadian banks over to your wealth arm? Daniel Daviau: Yes. Like I mentioned a little bit with Jeff. I mean, the pipeline ebbs and flows. Sometimes it's massive, and we're talking to literally a new team every week. And sometimes it's a little lighter. Arguably right now, maybe it's a little lighter. That being said, I'll have a meeting tomorrow and I'll decide, it's very active again. But it's fundamentally part of our strategy. It's not -- it doesn't happen by accident. It happens because we've got a whole recruiting momentum here. So I don't think much has really changed. The cost of acquisition hasn't changed. The pace of acquisition hasn't changed. I think it's just going to be more of the same. Certain quarters will be bigger and certain quarters will be smaller. That's probably the best way I'd frame it. Is that your question? Or is it something deeper than that? Rob Goff: I'm not that deep. Daniel Daviau: Yes, you are. Operator: And your last question comes from Graham Ryding from TD Securities. Graham Ryding: If I could touch on the U.S. regulatory review, I'm sure it's your favorite topic... Daniel Daviau: Yes... Graham Ryding: The commentary seemed to change slightly from last quarter where you suggested expectation of a resolution in the coming months. It seems like you're describing it now as remaining -- continue to remain uncertain. Am I reading too much into this? Or is the progress on this front slowed somewhat? Daniel Daviau: Yes. It depends on what data you get us. The -- no, I don't think the progress has slowed. I think it's taken longer than I would have expected. I think you're right that our commentary in the last couple of quarters would have suggested that at any point in time, we'd be kind of done and over with. I think we're comfortable with the financial provisions we put in. I don't think -- if we weren't comfortable with them, you would have seen a change to that. Those are estimates, obviously. We didn't make a change to our financial provisions. I think the difficult part is coming to -- I think we used the term, terms and form or form and terms of the regulatory settlement. It's just coming up with the right words and you've had multiple government shutdowns and you've got three regulators that we're dealing with. So I'm still optimistic about getting to a resolution. There's -- the alternative isn't very attractive. So hopefully, over the -- I would have said this last quarter, hopefully, over the next quarter, we'll get it solved, but you could have heard me say the same thing over the last couple of quarters, too. Graham Ryding: Yes. Okay. Fair. There was a deal recently in the U.K. on the wealth side with NatWest and Evelyn Partners. Would you consider Evelyn a decent comparable for your U.K. business? Any reason why we should not be viewing that deal as a read-through into your U.K. business? Daniel Daviau: It didn't I say I'm not going to talk about the U.K. -- yes, I won't talk about our U.K. business. But yes, the Evelyn transaction, I mean, Evelyn was a bigger firm than ours, arguably, probably double our size, probably a little bit more mature and probably had better organic growth than we had. And probably a slightly stronger influence on planning than -- although we have that, they were probably a little bit more mature from that perspective. So it fit better in with a strategic buyer like a bank. That doesn't mean that ours wouldn't. So you asked, is it comparable? Sure, it's comparable. If you're asking me, hey, would you apply that multiple to your business? That's something I'm not going to comment on, but -- because I think that's what you really were asking. But -- so I won't get into that. But yes, it's not a completely dissimilar business, if that's your question. Graham Ryding: Yes, that's helpful. On the U.K. wealth side, it looked like your pretax earnings were a bit lower than what we were looking for and sort of moved sideways a little bit over the last sort of year relative to your AUA growth. So I think the margins come down a bit this quarter. Any commentary on just the pretax earnings and the margin profile of that business? Nadine Ahn: Yes, I'll take that. You're correct. We did note that our pretax margin is down by about 2 points or 3 percentage points. Primarily, that was driven -- we are running a bit of a higher cost base. You'll recall, we had a number of acquisitions closing just towards the tail end of the year as we're working through the integration of those, which resulted in a bit higher in terms of our pro fees, legal fees, et cetera. So we're running a bit higher on that basis. So we would have seen our expenses increase relative to what you would have seen on the revenue growth. We obviously benefited on an AUA standpoint from the market growth, and we're continuing to see positive net flows in that business, but the expense creep up is really what drove the shrinkage in margin, but we expect that to pivot as we get through some of that cost base. Graham Ryding: Understood. And you flagged that on the net flow side that there was some intentional outflows due to acquisitions. Have those slowed or stopped? Or are those continuing to come through? Nadine Ahn: Yes. We referenced there would have been one exceptional outflow that we had been signaled to us quite early on that would have come out in the quarter. So outside of that, we are seeing to see positive net flows in the low single digits. Graham Ryding: Okay. Great. And my last one, if I could. Just on the Australian ownership piece, I appreciate that you can't put a pin on what your stake is going to move down to. But will you maintain more than 50% ownership in that Australian business after this rights offering? Daniel Daviau: Yes. yes, we'll retain control, more than 50% ownership. Graham Ryding: Okay. That's it for me. Thank you. Daniel Daviau: Sorry, I wish we could be more precise, but it's just impossible at this stage. Operator: And there are no further questions at this time. Mr. Dan Daviau, you may continue. Daniel Daviau: Okay. Well, thank you all for joining us today. And again, our apologies for reporting on Friday, February 13, on the afternoon. We just had some real scheduling problems with our Board this time around. So I appreciate you all being on the call this morning. And hopefully, we didn't broke good long weekend. Appreciate your continued support, as always, and Nadine and I are certainly available for further questions on the quarter as needed. So with that, operator, if you can close the lines. Thank you very much. Operator: Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation. You may now disconnect. Have a great day.
Operator: Good morning. Welcome to the Dye & Durham Second Quarter Fiscal 2026 Results Conference Call. [Operator Instructions] With me on the call today are George Tsivin, Dye & Durham's Chief Executive Officer; and Sandra Bell, Interim Chief Financial Officer of Dye & Durham. Q2 Fiscal 2026 earnings release, financial statements and MD&A are available on SEDAR+. Please note that statements made during this call may include forward-looking statements and information and future-oriented financial information regarding Dye & Durham and its business; and disclosure regarding possible future events, conditions or results that are based on information currently available to management and indicate management's current expectations of future growth, results of operations, business performance and business prospects and opportunities. Such statements are made as of the date hereof. And Dye & Durham assumes no obligation to update or revise them to reflect events, disclosures or circumstances, except as required by applicable securities laws. Such statements involve significant risks and uncertainties and are not a guarantee of future performance or results. A number of these risks and uncertainties could cause results to differ materially from the results discussed today. Given these risks and uncertainties, one should not place undue reliance on these statements and information. Please refer to the forward-looking statements section of our public filings, including, without limitation, our recently filed MD&A and earnings press release. For additional information for authorized details regarding Dye & Durham's cost savings, expectations, including relating to annualized EBITDA savings, please refer to the disclaimer in Dye & Durham's Q2 fiscal 2026 results. Presentation and Dye & Durham's press release dated November 12, 2025 and November 26, 2025. In addition, certain financial results discussed on this call are non-IFRS financial measures namely adjusted EBITDA. This measure is not recognized measure under IFRS does not have a standardized meaning prescribed by IFRS and is, therefore, unlikely to be comparable to similar measures presented by other companies. Please refer to the non-IFRS measures section of our public filings, including, without limitation, our recently filed MD&A and earnings press release. For additional information on the company's use of non-IFRS measures, including the company's definition of adjusted EBITDA and the applicable reconciliation of adjusted EBITDA to its most direct comparable IFRS measures. I'll now turn the call over to George Tsivin. George Tsivin: Good morning, and thank you for joining us to review our second quarter fiscal 2026 results. When I took on this role in June 2025, it was clear the business had strong assets, but there is meaningful work to be done. Since then, we have focused on 3 priorities: building the right leadership team, completing a rigorous diagnostic and defining a disciplined path forward. Let me start with the fundamentals. Dye & Durham has a strong core legal software franchise serving small and midsized law farms across the central high-frequency workflows. We also operate a high-margin financial services business that continues to grow organically. Our products are embedded in daily operations across practice areas, creating recurring usage, durable relationships, unique data assets, opportunities for AI-enabled efficiency and meaningful switching costs. Those foundations are solid. What we have lacked is integration, consistency and operational scalability. Over the past several years, the company expanded rapidly through acquisitions, materially increasing customer and geographic reach. That expansion created a broad portfolio and global platform potential. It also increased operational complexity and fragmented systems. At the same time, pricing actions, cost reductions and leadership volatility introduced disruption for customers, employees and shareholders. The pricing actions the company took in our core product offerings, combined with minimum volume commitments and limited investment in our products resulted in a disconnect between perceived value and cost for our customers. While improving margins in the near term, these actions also allowed competition to enter the market. Those lofty margins have proven to be unsustainable in the long term. Our responsibility now is to restore balance and discipline. Since joining, we have completed a comprehensive diagnostic, several priorities became clear. Historically, growth leaned heavily on acquisitions, limiting visibility into underlying organic performance portfolio breadth and product fragmentation diluted customer focus and slowed innovation. Reduced customer retention in certain segments reflects the misalignment in our products price to value. And while prior cost actions supported margins, further structural efficiencies and stronger data infrastructure are required to create operational leverage to allow us to improve margins even in a competitive market. Margin improvement will come from rationalizing products and investing in operational improvements to drive global scale and operating leverage. While our acquisitions added customers and product offerings and opened new markets, which was positive, we now have the hard work to do to rationalize and integrate those platforms to drive growth. We did not get here overnight, and the path forward will also not happen overnight. Our plan will involve reinvestment of margin and cost savings, none of which is without risk that we will need to manage, including the potential loss of certain customers as we transition from legacy products to our new global product offerings. These findings reinforce our conviction in the underlying assets. They also clarify where focus is required. We believe the solution to turning around the business, leveraging the strong underlying assets and establishing sustainable growth is to execute a multiyear transformation to simplify, modernize and integrate our legal software portfolio into a unified global operating platform for small and midsized legal practices. We want to reduce our SKU count significantly and converge our fragmented product portfolio into global product lines. We believe doing so will drive growth in volumes, improvement in margins and improved shareholder value as a result. The objective is straightforward, an integrated practice management platform, embedded legal workflow applications, API-enabled data and due diligence and a unified customer experience. For customers, this creates a single source of truth across firm operations, standardized workflows, improved leverage of staff and real-time insight into performance and risk. For Dye & Durham, it drives higher retention and average revenue per customer as workflows become embedded, lowers customer acquisition costs through in-platform expansion diversifies revenue away from cyclical housing through expanded software-as-a-service penetration and improves capital efficiency through shared infrastructure. Integration and simplification are the growth strategy. It allows us to accelerate innovation, strengthen customer alignment and create operating leverage that compounds over time. We are already seeing early proof points. The launch of Unity in British Columbia on February 9 demonstrates how modernization and integration improve automation, adoption and engagement while strengthening retention. It reflects the direction of trial for the broader portfolio. In parallel, we are strengthening the operating foundation of the business. The savings from which we will use to reinvest in our global platform initiative. We have identified $15 million to $20 million in annualized EBITDA savings from structural efficiency initiatives with approximately 60% targeted to be actioned by the end of this fiscal year. Approximately 40% will come from consolidating global delivery and service teams, leveraging our international capabilities more effectively and rationalizing our footprint over time. Another 60% will come from automation and process standardization, including reducing manual workflows, eliminating duplicative systems and improving operational consistency. It has been an active start to fiscal year 2026. We have navigated accounting reviews, addressed regulatory matters, completed the divestiture of the non-core Credas business and used proceeds from the Credas sale to reduce debt. At the same time, we have built a new executive leadership team, completed our portfolio review, initiated product rationalization, approved the global platform road map, launched cost initiatives, introduced a refreshed sales process and successfully launched Unity in British Columbia. There is more stabilization work required. Pricing decisions, cost actions and organizational disruption over the past several years affected trust and operating rhythm. Our focus now is consistency, strengthening governance and rebuilding credibility through execution. After our AGM next month, we will be aligning with the new Board on our detailed strategy. With the Board behind a disciplined plan of action to achieve these objectives, we can focus on executing what is needed to deliver on our strategies to drive shareholder value. From that foundation, integration and modernization will drive growth. I would like to sincerely thank our customers, employees and shareholders as we work through this period of transition. Your patience, professionalism and partnership are deeply appreciated. We are committed to earning that trust every day to consistent execution and improved performance. I will now turn the call over to Sandra to review the second quarter financial results. Sandra Bell: Thank you, George, and good morning, everyone. Thank you for joining us. For the first half of fiscal 2026 revenue was $215.3 million, representing a decline of $16.8 million or 7% year-over-year. The decrease was primarily driven by continued market softness and customer turnover affecting us legal software platforms, partially offset by growth in banking technology and contributions from Affinity in Australia. Adjusted EBITDA for the 6 months ended December 31, 2025, was $100.8 million, down 24% year-over-year. The decline reflects revenue pressure in legal software, targeted reinvestment in labor and IT infrastructure and a lower capitalization rate as certain expenditures were temporarily shifted from capitalized software development to maintenance expense. These reinvestments are deliberate and focused on stabilizing the business, strengthening customer retention and improving platform resiliency. Looking at the mix of revenue in the first half of fiscal 2026 Legal software contributed $161.5 million, while Banking Technology contributed $53.8 million. Banking Technology continues to provide stable, recurring infrastructure-like cash flows, which helped offset softer transactional volumes in parts of legal software. From an operating segment perspective, performance varies by segment. In Canada, revenue declined 10% in the 6 months ended December 31, 2025, year-over-year, driven by the broader market downturn and reduced customer volumes and pricing in practice management and data insights. Segment adjusted EBITDA declined 25%, reflecting the revenue impact, a lower capitalization rate and investment in sales, customer service and IT infrastructure to stabilize the core legal software operations. In the U.K. and Ireland, revenue declined 6% in the 6 months ended December 31 due to softness in search platforms. Segment adjusted EBITDA declined 26% year-over-year. Australia delivered revenue growth of 2% in the 6 months ended December 31, 2025, year-over-year, primarily driven by the Affinity acquisition, partially offset by declines in search and mortgage services. Segment adjusted EBITDA declined 14%, largely due to higher labor costs. Importantly, operating cash flow remains strong. Net cash provided by operating activities was $73.8 million for the 6 months ended December 31, 2025, compared to $62.3 million in the prior year period. The improvement reflects lower cash taxes, lower net interest paid and favorable working capital movements. We ended the period with $37.8 million of cash on hand excluding cash held for sale and the $185 million in investments held in escrow to settle the outstanding convertible debentures. Capital expenditures for the 6 months ended December 31, 2025, were $9 million, reflecting disciplined investment in platform development and maintenance. Subsequent to quarter end, we completed the sale of Credas for approximately $146.3 million in gross proceeds. We have already applied a portion of these proceeds to debt reduction, including a $30 million repayment on the revolving facility, reducing utilization below 35% and a USD 27.3 million repayment on the Term Loan B. We're using the remaining proceeds in accordance with our debt agreement through an excess proceeds offer, which we launched on February 9 and which will expire on March 9. These actions are aligned with our clear priority of deleveraging the balance sheet and strengthening financial flexibility. In summary, while legal software revenue remains pressured in certain markets, we are generating solid operating cash flow, reinvesting to stabilize the business and taking decisive action to reduce leverage and simplify the business. Our focus remains on disciplined execution, operational efficiency and restoring sustainable, profitable growth. With that, I'll turn the call back to George. George Tsivin: Thank you, Sandra. To conclude our remarks, before we open it up to questions, let me summarize where we are today. First, we are focused on stabilizing the core legal software business and strengthening customer retention and execution across our platforms. In parallel, we are advancing targeted cost and efficiency initiatives designed not merely to reduce expense, but to create sustainable operating leverage. These efforts give us the flexibility to deliberately reallocate and where appropriate, increase investments in areas that directly drive organic growth, including sales capacity, product innovation and customer experience while maintaining disciplined profitability. At the same time, we are strengthening our systems and internal controls and enhancing transparency into the drivers of organic performance. Together, these actions position us to operate with greater discipline, sharper execution and a clear line of sight to sustainable growth. Dye & Durham has meaningful scale, deeply embedded workflows and a recurring revenue foundation. The opportunity now is to better integrate our products, restore consistency and allow the underlying economics of the business to perform as designed. We are moving from complexity to clarity from scale without integration to scale with discipline. The path forward is clear and we are executing against it. Thank you. I will now turn the call over to the operator for questions. Operator: [Operator Instructions] Joining us for this part of the call is Edward Smith, Chairman of the Board for Dye & Durham; and Nikesh Patel, Dye & Durham's Chief Product Officer. [Operator Instructions] Your first question comes from [ Stephen Michelson with BMO Capital Market ]. Unknown Analyst: It's been a minute since we talked, so there's a lot of ground to cover here. I guess with the strategic review process, can you share anything incremental on the status, scope or time line of the process? And just maybe give a bit of color into how that dovetails with the portfolio review you recently completed? George Tsivin: Sure. Thank you for your question. Nothing meaningfully incremental other than to say we're looking at strategies to delever the business because we've accumulated a lot of debt. We're also looking at opportunistically opportunities that we have to sell the entire business and run it in the private markets. But we also are going to have to see what kind of bids we get on the company or on pieces of the company. And in the meantime, we need to be prepared to operate the company, and that's why we have laid out a plan to do so. Unknown Analyst: Okay. And on the Canadian legal business. Can you provide some color on how much of the decline came from customer losses versus pricing actions versus the macro factors? I'm just trying to get a sense of, I guess, where this business is in terms of stabilizing? George Tsivin: Sure. The market decline is playing a smaller role, 2% to 3%. Most of the decline is actually coming from a combination of price and volume. So in certain cases, we're losing volume. In certain cases, we're giving up price to preserve volume. Unknown Analyst: Okay. So does that mean that there's less revenue coming from like unfulfilled minimum volume contracts? George Tsivin: Yes, that's correct. Unknown Analyst: Okay. And if I can ask one more. Which parts of the business would you say has stabilized? And I guess, additionally, where do you think the most work is to be done in terms of stabilizing the rest? George Tsivin: We're seeing more stability and opportunity in the Search business in the U.K., and we have more work to be done in the Search business in Australia. Operator: Your next question comes from Erin Kyle with CIBC. Erin Kyle: I just wanted to follow up on one of the last questions there. Just on the Canadian legal business stabilizing here. Are you able to provide us with sort of an update here on where customer retention rates are sitting? And then is the 2022 renewal cycle now complete? Or so where do you stand in terms of renewal here? George Tsivin: Not at this time, there's no further information that we're going to provide. But we will be coming out with a strategic plan in the coming weeks after reviewing with the Board. And so we may be able to share more at that time. Erin Kyle: Okay. And then maybe I will ask then on the competitive dynamics in the legal business as well as the fintech business and whether you've seen any changes in the competitive landscape, particularly from any new entrants or any existing competitors in your core markets? George Tsivin: In the Canadian conveyancing business, we continue to face competition from entrants with lower pricing that are delivering more value. Our financial technology business remains strong and is actually benefiting from the wave of refinances from post COVID. Erin Kyle: Okay. And then I just wanted to quickly ask here on the OSC review, if we could maybe go back to that. And just if you could expand since it's been a while, discuss how that came about? And then the audit process, why that took as long as it did? And have you implemented any new internal controls here in the areas where misstatements occurred? George Tsivin: Sure. I'll take that a few pieces at a time, and then I'll also have Sandra chime in, particularly on the OSC piece. The audit had several pieces to it, including the OSC, as you mentioned. It also had some long-standing issues with external parties that we had to address. I, as the CEO, have a very high standard for financial reporting, and I needed to make sure, particularly for periods that I was not employed by the company that I had comfort in the results that we were putting out. And so it took time to bring the results in those periods up to the level of standard of the current management team and also to satisfy the external authorities, including auditors and regulators in terms of their review. And part of the issue of driving this complexity is that in the minimum volume contracts that your colleagues referenced, we -- towards the end of implementing those contracts, we actually had many, many different variations of them to accommodate customers who could not meet those commitments. We had to go through every type of variation of those contracts to make sure that we're comfortable in the way that we're accounting for that revenue. Sandra, would you like to comment on the OSC? Sandra Bell: Sure. As we mentioned publicly, there were 2 areas of the initial review. The first area was purchase accounting disclosures. And you'll see in the documents that we have filed subsequently that we have expanded our disclosures around acquisitions, and that came out of that review. The second piece was around goodwill impairment, and it was at the level at which we took our analysis of goodwill impairment. We resolved that with them as we were going to operating segments, and that had us do our goodwill impairment at the lower levels of the operating segment and the result of that was an impairment in South Africa, roughly $14 million. Operator: [Operator Instructions] Your next question comes from Stephen Boland with Raymond James. Stephen Boland: I just want to clarify the contract renewals, those are ongoing, right? This is not just one like 2022, like 2023 contracts are getting renewed. I just want to make sure that's clear and that those terms that were given to other customers are favorable terms are giving to these contracts that are ongoing, and being renewed. Is that correct? George Tsivin: So just to tackle your question in 2 parts. Yes, the contract renewals are ongoing. We're typically on a 3-year cycle, because of when we started implementing the minimum value contracts, many of those contracts came up for renewal during the fiscal year 2025, but others are coming up for renewal in future periods. With regards to those terms that were given to other customers, we've actually implemented controls to simplify the way that we contract, one, to be fair to customers across the Board and make sure everybody is getting the same margin; and, two, to make it easier for our internal controls to be able to account operationally for those contracts. Stephen Boland: Okay. And that kind of leads me into my second question, and I'll be probably a little bit direct here. A lot of plans been -- you've spoken about a lot of things in innovation and product redesign. But at the same time, your free cash flow is definitely, I presume thinning with these contracts renewing. I'm just -- are you confident that you're going to be able to sustain this business going forward and actually get these initiatives in place? George Tsivin: Yes. We're very confident. Yes. I appreciate the direct question. We're very confident in being able to sustain the business. But we need to do what we need to do, which is simplify from 40 products down to 1 platform. We need to be able to deliver on the customer value proposition, and we need to be able to do so quickly and we've already had success in place with the launch of Unity BC. So here in a couple of months, the launch of our Wills & Estates platform as well as accounting in Canada, and then we're going to scale those capabilities across the world. And most importantly, doing so with 1 platform is going to create operating leverage. So when you simplify from 40 platforms down to 1, that's much cheaper to operate. We also have tailwinds coming from the fact that we've gone through a majority of our holdback and contingent payments and we're past those. So that will make it easier to preserve cash flow and reinvest in the business. Operator: Next question comes from Gavin Fairweather with ATB Capital Markets. Gavin Fairweather: Maybe just to start on the U.K. Search business. Interesting that you called out opportunities to grow there. Maybe you can expand on what you're seeing in the market and maybe also touch on the government review of kind of search processes in the U.K. and what you're seeing there? George Tsivin: Sure. So a few points on the U.K. business and where we have opportunity. We have gone through a consolidation effort on to a single platform from a high-touch franchisee model into a low-touch centralized service model. And as part of that transition, which finished in fiscal year 2025, we lost some customers. We've been building back by listening to our customers and delivering the level of service that they expect. And as a result of that, the customer attrition and churn has stabilized. We have a few opportunities there. The first is customers that we do have getting higher share of wallet. So there are customers that have active contracts with us, but the actual users within those customers that are not using us, they're using a competitor. And so we're investing in customer success and training to redirect the usage to our products. As we also expand our global products reach, we're going to improve how that product works and the workflow, which will drive more usage. And finally, the biggest opportunity we have is actually scaling practice management and having practice management workflows drive search usage. Gavin Fairweather: I appreciate that color. Maybe just on financial services or banking technology. Can you discuss the outlook for that segment from a pricing perspective or a share perspective? And maybe just comment on the performance this quarter. It looked like it obviously still produced a nice organic growth about 4%, but it was down a little bit from what we've seen in previous quarters. George Tsivin: Yes, the outlook of that business is positive. It's locked into long-term contracts. This is an infrastructure like business, and we believe we're going to continue to benefit in the mortgage solutions part of that business from the increase in volumes as well. Gavin Fairweather: Maybe I'll just squeeze one more in for Sandra. Onetime costs are bit higher this quarter. Can you give us a run rate for going forward? Sandra Bell: Could you repeat the question? I apologize, you went out a little bit. Gavin Fairweather: On the onetime costs, M&A and restructuring were a bit higher this quarter. Can you guide us going forward? Sandra Bell: Yes. A lot of that, frankly, was related to 3 things, the OSC review, the restatement and the waiver process with the banks. So I would expect those numbers to come down fairly significantly going forward. Operator: [Operator Instructions] Your next question comes from Robert Young with Canaccord Genuity. Robert Young: Just an extension of the last question. The onetime costs, I mean, you said there are 3 buckets. Can you allocate it to those 3 buckets? And then I think the bulk of it is in Canada based on the disclosure. So I assume none of that is related to the Credas transaction. Is that correct? Sandra Bell: I'll answer your second question first, correct. None of that's related to the Credas transaction. The costs there were built into the net proceeds we received. As to the others, we haven't allocated publicly. But frankly, in my opinion, they're all related to the restatement and the waiver is directly related to the delay in the financials. So you can pretty much take all of that and throw it in that bucket. Robert Young: Okay. Great. And then on the -- you noted at the very end of the commentary that the volume of contingent payment and holdback you've reduced. I think in the disclosure, it looks like there's $38 million current and long term. Has that changed subsequent to the quarter? Sandra Bell: Basically, we paid a number of those during the course of '25. That number is roughly what we have less, but it's spread over this year and next, not all at once. Operator: Your next question comes from Stephen Boland with Raymond James. Stephen Boland: Just one more. I guess the change in reporting segments, I guess why was that initiated now? And does that make it easier to sell pieces of the business? Like when you talk about the strategic review, is it like non-core products or non-core geographies that's being reviewed? I'm just -- I'm trying to get an idea why you did this segment change at this point? George Tsivin: Yes. Sandra, why don't you take the question about the reporting. Sandra Bell: Yes. George and Matt manage the business differently. And what drives segments is really about how P&L responsibility resides and the visibility he had -- George has in making his decisions. And so what drove this, frankly, was the change in CEO. It was helpful in the OSC review because the fact that we were going to segments and looking at impairment at a lower level really took one of the issues they had off the table. George Tsivin: And just regarding the non-core asset question, most of the assets as part of the global platform strategy will be core. right? But we're going to look at opportunistically where we can simplify the business, whether that be product line or geographically and be able to reinvest. We're going to make smart decisions, right, if it's going to result in deleveraging such that the loss of profit is more than compensated by the decrease in interest payments and is positive from a cash flow basis that we're going to pursue those opportunities. Otherwise, we're going to hold on to them and run them like best-in-class businesses. Stephen Boland: Okay. And just going along with that, is that part of this change, is that part of the reason like all the other non-GAAP measures were kind of removed, like average revenue, ARR, all the ones that were, I guess, previous, is that related? And will some of those metrics come back or different metrics be added over time? George Tsivin: It's a different reason. So the main reason why we're no longer relying on that ARR metric is because we fundamentally actually dug into the business. At this point, we fundamentally running a volume and not a subscription business. And the ARR and the minimum contracts created complexity and created the impression that we had more subscription customers than we actually do. As we migrate to the global platform, we are actually going to pursue opportunities to get clients on to subscriptions by adding more value to their bundle, and that will effectively reduce our exposure to the housing market globally. Right now, about 80% of our business has some form of exposure to housing volume. So the removal of some of these metrics is not tied to the operating segments or the restatement. It's tied to a change in strategy. And yes, over time, we will look to introduce new metrics to measure our progress in terms of rolling out our products globally. Operator: There are no further questions at this time. I will now turn the call over to George for closing remarks. George Tsivin: Thank you, everyone, for joining us and for the thoughtful questions, and we look forward to speaking to you in Q3 in the spring. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Enlight Renewable Energy's Fourth Quarter and Full Year 2025 Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Limor Zohar Megen, Director of Investor Relations. Please go ahead. Limor Zohar Megen: Thank you, operator. Good morning, everyone, and thank you for joining the Fourth Quarter and Full Year 2025 Earnings Conference Call for Enlight Renewable Energy. Before beginning this call, I would like to draw participants' attention to the following. Certain statements made on the call today, including, but not limited to, statements regarding business strategy and plan, our project portfolio, market opportunity, utility demand and potential growth, discussions with commercial counterparties and financing resources, pricing trends for material, progress of company projects, including anticipated timing of related approvals and project completion and anticipated production delays, expected impact from various regulatory developments, completion of development, the potential impact of the current conflict in Israel in our operations and financial conditions and company action designed to mitigate such impact and the company's future financial and operational results and guidance, including revenue and adjusted EBITDA, are forward-looking statements within the meaning of U.S. Federal Securities laws, which reflect management's best judgment based on currently available information. We referenced certain project metrics in this earning call and additional information about such metrics can be found in our earnings release. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our 2024 annual report filed with the SEC on March 28, 2025, and other filings for more information on the specific factors that could cause actual results to differ materially from our forward-looking statements. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Additionally, non-IFRS financial measures may be discussed on the call. These non-IFRS measures should be considered in addition to and not as a substitute for or in isolation from our results prepared in accordance with IFRS. Reconciliations to the most directly comparable IFRS financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our Investor Relations website. With me this morning are Gilad Yavetz, Executive Chairman and Co-Founder of Enlight; Adi Leviatan, CEO of Enlight; Nir Yehuda, CFO of Enlight; and Jared McKee, CEO of Clenera. Adi will provide a summary of the business results and turn the call over to Jared for a review of our U.S. activity. And then Nir will review the fourth quarter and year-end 2025 results. Our executive team will then be available to answer your questions. I will now turn the call over to Adi Leviatan, CEO of Enlight. Adi, please begin. Adi Leviatan: Good morning and good afternoon, everyone. Thank you for joining us to review Enlight's fourth quarter and full year 2025 results and business performance. 2025 was another record year for Enlight. Across the U.S., Europe, and Israel, our teams delivered exceptional performance as developers, builders, owners and operators of large-scale renewable energy and storage projects. Our results reflect best-in-class execution, disciplined capital allocation, and the strength of our diversified multi-technology global platform. We are operating in a uniquely favorable environment for the energy sector, structural tailwinds, reindustrialization, electrification, and rapidly rising power demand from data centers are driving unprecedented long-term growth across global electricity markets. These trends continue to reinforce the competitive edge of our technologies. Enlight scale, portfolio depth, and proven execution position us to deliver fast, low-cost, clean energy where it is needed most. The fourth quarter capped an exceptional year. Revenue and income increased 46% year-over-year for both the quarter at $152 million and the full year at $582 million. Adjusted EBITDA in 2025 grew 51% to $438 million or 36% excluding the Sunlight sell-down. In Q4 alone, adjusted EBITDA accelerated to $99 million, up 51%. With this strong finish, we exceeded our full year revenue and EBITDA guidance by 4% and 7%, respectively. The fourth quarter also capped another record year of execution during which we significantly expanded every component of our portfolio and advanced projects across all stages of development. Our total portfolio expanded 26% during 2025, growing by 7.8 factored gigawatt to reach 38 factored gigawatts. The mature portfolio grew 33% to 11.4 factored gigawatts, and the operating portfolio increased 30% in the past 12 months. In Q4, two major U.S. projects, Quail Ranch and Roadrunner achieved COD ahead of schedule, delivering over 800 factored megawatts combined at approximately 13% unlevered returns. These additions doubled our U.S. operating portfolio to 1.6 factored gigawatt, underscoring our ability to deliver large solar-plus-storage projects on time and with attractive economics. Our under-construction portfolio, a significant contributor to our short- and medium-term growth has doubled over the past year. During the past 12 months, we started construction on the projects totaling 2.6 factored gigawatts. This reflects our capability to systematically mitigate development risks and push projects towards maturity. The most significant addition during the quarter was CO Bar 1 and 2, with a capacity of almost 1 factored gigawatt. CO Bar is a 2.4 factored gigawatt flagship project. Our largest to date. It comprises of five and a total investment of $3 billion. It is expected to generate an unlevered return of more than 13% as a result of a well-executed connect and expand strategy. Another notable project that started construction earlier in the year was Snowflake A, also in the U.S. with a capacity of 1.1 factored gigawatt. We also added more than 2.5 factored gigawatts to our pre-construction portfolio over the past 12 months. The most notable additions were Phase 4 and 5 in the CO Bar complex with a combined capacity of 0.9 factored gigawatt. Advancing CO Bar is a major achievement for Enlight and for our U.S. subsidiary, Clenera, and Jared will elaborate more on this shortly. Our U.S. platform continues to demonstrate best-in-class development expertise, providing strong visibility into our growth beyond 2028. 100% of preconstruction projects, 89% of advanced development and 53% of development projects have completed their system impact study, a critical step for interconnection certainty. We continued to proactively manage tax incentive eligibility in the U.S. by safe harboring more than 4 factored gigawatts over the past quarter leading to more than 13 factored gigawatt that were eligible for tax equity investments before 2026. We expect that all of our advanced development portfolio and up to 40% of our development portfolio will be safe harbored by June 2026. Energy storage remains a core pillar of our growth strategy. In Europe, the rapid growth in renewable energy generation capacity has not been matched by a corresponding build-out of storage capacity, creating a meaningful shortage of battery energy storage systems and a significant opportunity for fast growth supported by attractive returns. Our expansion momentum in Europe continued in the fourth quarter and into 2026 with the acquisition of Project Jupiter in Germany, a 2-gigawatt hour energy storage project paired with 150 megawatts of solar generation capacity expected to generate unlevered return of about 15%. This acquisition follows the acquisitions in Germany and Poland we disclosed in the previous quarter and further strengthens our position in the largest and one of the fastest-growing renewable markets in Europe. Overall, during the year, we expanded our mature storage portfolio in Europe by 3.5 gigawatt hour. We are highly committed to continuing our expansion in Europe. Leveraging our expertise and execution capabilities to capture the significant opportunities in the market. Our mature storage portfolio globally reached 17.5 gigawatt hour. An increase of over 50% from the previous quarter and over 6x its size, just 3 years ago. This expansion is yet another testament to Enlight's entrepreneurial DNA and our ability to recognize opportunities and act decisively. Our mature storage portfolio represents annual run rate revenues of approximately $1 billion. Nearly 50% of the revenue is currently reflected in our overall mature portfolio, positioning Enlight to benefit from power price fluctuations, optimization management, capacity services and ancillary grid services across markets. In Israel, we added meaningful storage capacity and continued to advance our solar-plus-storage build-out. Reinforcing local system flexibility and resilience. Over the past 12 months, high-voltage storage projects, totaling 1.35 gigawatt hour progressed from the advanced development portfolio to preconstruction. In addition, during the quarter, we signed an agreement with Mivne, a leading Israeli real estate firm with more than 550 assets nationwide to supply electricity for approximately $500 million over 15 years and to form a partnership, which will develop energy storage facilities at Mivne Properties across the country. The agreement follows dozens of similar distributed storage agreements signed over the past 12 months with leading real estate companies and other organizations. We are also expanding our agrivoltaic presence in Israel with 49 deals signed only in the past 12 months, reflecting a future solar generation capacity of approximately 2 factored gigawatt and growing synergies between solar and agriculture. As I mentioned earlier, we see a step change in power demand from AI and data centers. Industry outlooks indicate U.S. data center electricity consumption could roughly triple by the end of the decade. This demand must be met with scalable, cost-effective and clean energy, precisely where solar-plus-storage deliver superior levelized cost of electricity and time shifting capability. Our development capabilities position Enlight to be a partner of choice for large utilities and corporates as this build-out accelerates. We will share additional details on our strategy and plans to capture the data center opportunity at our upcoming virtual investor event on March 9. Looking forward, our strategy remains consistent and ambitious to triple the size of the business every 3 years by advancing high-quality projects through a derisked development funnel, while maintaining discipline on returns and capital structure. The continued growth of our operating portfolio and cash flow generation, combined with our differentiated global access to capital and execution capabilities enable us to further accelerate investment and Enlight's long-term growth. Commensurate to this, I'm excited to share that 2026 will be a record year of construction for Enlight with the expected beginning of construction of 3 to 4 factored gigawatts resulting in a record level of approximately 7 factored gigawatts that will be under construction during the year. In fact, almost all of our current mature portfolio will be either income-generating or under construction during 2026. By the end of 2026, we expect to add about 1.1 factored gigawatt to our operational capacity, primarily in the fourth quarter of the year. That will contribute annual run rate revenue and income of $137 million and adjusted EBITDA of $109 million. By year-end 2028, we expect to achieve 12 to 13 factored gigawatts of operating capacity, predicted to generate annual run rate revenue and income in the range of $2.1 billion to $2.3 billion. Over 11 factored gigawatts out of this capacity is in our mature portfolio. Underscoring the significant progress we made this year in increasing the visibility and certainty of our pipeline. Compared to our estimates in the previous quarter, 2028 revenue and income annual run rate increased by approximately $150 million and the planned capacity expanded by 1 factored gigawatt at the low end. The unlevered return on investment reflected in our under construction and preconstruction projects is expected to range from 12% to 13%, up from the 11% to 12% range we referenced last quarter, highlighting our continued focus on disciplined accretive growth. We now expect to deliver a return on equity of more than 18%. Before I hand over the floor to Jared, I would like to reiterate the key takeaways. We delivered a strong finish to 2025. Exceeding guidance by growing revenues and EBITDA meaningfully and continue to rapidly expand and derisk our pipeline. We are positioned for a record construction year in 2026 and remain on track to reach 12 to 13 factored gigawatt of operating capacity by 2028 at attractive returns, supported mainly by our current mature portfolio and underpinned by disciplined returns. With that, I will hand the call over to Jared. Jared McKee: Thank you, Adi. In 2025, we continued to execute our growth strategy in the U.S. We doubled our operational capacity to 1.6 factored gigawatts and we have close to 5 factored gigawatts of additional projects under construction or in preconstruction expected to come online by the end of 2028. In fact, a recent analysis by S&P placed us in the top 10 solar companies in the United States. In the fourth quarter of 2025, we commissioned two new co-located PV and battery facilities and have fully mobilized construction on three more. The Roadrunner solar and storage facility in Southeast Arizona has been successfully commissioned. This facility has a generation capacity of 290 megawatts and energy storage of 940-megawatt hours. We achieved an early COD on the PV portion of the project, bringing an earlier-than-expected revenues for the quarter. We also achieved COD on our Quail Ranch solar and storage facility. This includes the 128-megawatt PV site and 400-megawatt hour battery storage. These projects bring our operational portfolio in the U.S. to 888 megawatts of generation and 2,540 megawatt hours of energy storage. Combined, these facilities are delivering enough energy to the grid to power over 220,000 American homes. We are in full construction on the first phases of two mega projects in the American Southwest, the Snowflake and CO Bar complexes. First, on the CO Bar complex, I am excited to announce that we have received full approval for the 1-gigawatt interconnection for the facility. The CO Bar project is a special project. and indicative of what the Clenera team can accomplish through their development expertise, tenacity and grit. The executed LGIA provides certainty on the interconnection and enabled a full construction mobilization. The construction team is mobilized in the first two phases of the project, CO Bar 1 and CO Bar 2. CO Bar 1 includes 254 megawatts of PV generation and 824-megawatt hours of battery storage with commercial operations scheduled for the second half of 2027. CO Bar 2, a 480-megawatt PV project anticipates commercial operations in the first half of 2028. We have also signed energy storage agreements with Salt River Project for the storage Phases, CO Bar 4 and 5. With these energy storage agreements in place, the entire 1,211 megawatts of solar and 4,000 megawatt hours of battery, the CO Bar complex is fully subscribed. Full mobilization of the CO Bar 3, 4 and 5 projects totaling 473 megawatts of PV and 3,176 megawatt hours of BESS is targeted over the next 6 to 12 months with commercial operation anticipated between the second half of 2027 to the first half of 2028. Moving on, Phase 1 of the Snowflake complex, Snowflake A includes 595 megawatts of PV and 1,900 megawatt hours of energy storage. The complex is located in Northeast Arizona, near the city of Holbrook. More than 300 skilled workers are mobilized on-site, advancing construction of the solar, battery, substation and transmission infrastructure. They have completed site mass grading installed about half of the PV and best piles and over 1/3 of the racking. The civil work for the substation energy storage facility is complete, and we will be receiving shipments of batteries soon. Once operational, the two complexes will generate enough clean energy to power over 325,000 Arizona homes. These mega projects exemplify our belief that utility-scale solar can deliver clean, reliable energy, while advancing responsible land stewardship. Early construction at CO Bar 1 and 2 removed hundreds of acres of invasive vegetation to be restored with native grasses, forms and flowers to enhance biodiversity. We are also funding a multiyear study to monitor large mammal migration around the complex, demonstrating the multidimensional opportunities our projects create in Arizona. We have also started construction at our Crimson Orchard project in Elmore County, Idaho. This project includes 120 megawatts of PV generation and 400-megawatt hours of energy storage. We expect it to be commissioned in the first half of next year. Once it is online, it will generate enough energy to power over 20,000 Idaho homes. The final project under construction is Country Acres, a 403-megawatt solar and 688-megawatt hour battery project near Sacramento. The mobilized construction crew is similar in size of Snowflake A with over 300 workers on site. They have completed site mass grading and installed nearly all PV and best piles along with half of the PV racking and 1/3 of the modules. The site substation is about 2/3 complete. The project remains scheduled for commercial operations by year-end, briefly reflecting on 2025. I want to thank everyone at Enlight and Clenera, as well as our customers, suppliers and contractors for their dedication and excellence throughout the year. We have once again demonstrated strong execution reinforcing the solid fundamentals of our energy market as utility and large load customers continue to seek new sources of generation. Global and U.S. power demand is expected to grow by more than 80% between 2025 and 2028, and Clenera and Enlight are well positioned with the financial strength, operational excellence, and mature projects to capitalize on this growth. In 2026, we will continue to build on this success and execute our U.S. growth strategy. I'll now turn the phone over to Nir. Nir Yehuda: Thank you, Jared. The fourth quarter of '25 has been a strong quarter for Enlight, mainly resulting from the operation of new projects in the U.S. as we continue to materialize our growth plan. In the fourth quarter of '25, the company's total revenues and income increased to $152 million, up from $104 million last year, a growth rate of 46% year-over-year. This was compared of revenues from the sale of electricity, which amounted to $124 million, an increase of $31 million from the same period of '24, as well as recognition of $28 million in income from tax benefit, an increase of $70 million from Q4 '24. The growth in revenues from the sale of electricity is mainly attributed to newly operational projects, which contributed a total of $18 million to the growth in revenue. This project included Atrisco in New Mexico, which started commercial operation in December '24 and contributed about $11 million to sales of electricity, as well as Square Range in New Mexico and Roadrunner Arizona, which started commercial operations towards the end of '25 and contributed $2 million in the sale of electricity. Additionally, Project Pupin in Serbia started commercial operation towards the end of '24 and contributed $5 million to the increase in sale of electricity compared to Q4 '24. Additional notable items include an increase of $7 million in the sale of electricity in Israel attributed to electricity trade activity and contribution of $7 million from exchange rate fluctuation, mainly the depreciation of the U.S. dollar compared to the Israeli shekel and the euro. The increase in income from tax benefit is mostly attributed to Atrisco, which contributed $11 million, of which $3 million is attributed to the eligibility for domestic content. Roadrunner and Quail Ranch contributed an aggregate amount of $6 million to income from tax benefit. Revenue and income was distributed between MENA, Europe and the U.S. with 32% from Israel, 37% from Europe and 31% from the U.S. The company's adjusted EBITDA grew by 51% to $99 million compared to $65 million for the same period in '24. The increase in revenue was offset by an additional $12 million in cost of sales linked to new projects, while SG&A and project development expenses was by $3 million. Fourth quarter net income increased by $13 million compared to Q4 '24, amounted to $21 million. An increase of $34 million in EBITDA was partially offset by an increase of $12 million in depreciation and amortization attributed to the start of operation of new projects, as well as share-based compensation. Additionally, net financial expenses increased by $4 million and tax expenses increased by $7 million. Enlight secured a significant amount of new funding due in '25. At the project level, we secured $2.9 billion of project finance, as well as tax equity in the amount of $470 million, and the mezzanine loan amounted to $350 million. At the corporate level, we raised $300 million in equity, $245 million in debenture, and $50 million in an asset sale. Altogether, since the beginning of '25 Enlight raised $4.3 billion, providing the financial underpinning for our ambitious expansion plan with particular focus on the U.S. In addition to these funds, we have $525 million of credit facility at several banks, of which $360 million was available for use at the balance sheet date. In addition, we have approximately $1.5 billion in LC and surety bond facility, supporting our global expansion, of which $790 million were available for use at the end of the quarter. This further increases our financial flexibility as well continue to deliver on our growth strategy. Moving to 2016 guidance. We expect revenues and income between $755 million and $785 million, and adjusted EBITDA between $545 million and $565 million, reflecting annual growth of 32% and 27% at the midpoint, respectively, compared to '25 results. Our revenues and income guidance for '26 includes recognition of an estimated $160 million to $180 million in income from U.S. tax benefit. 90% of '26 generation output is expected to be sold at fixed prices, either through PPA or hedging of our total forecasted revenues and income, 39% are expected to be denominated in U.S. dollars, including tax incentives, 34% in Israeli shekel and 27% in euros. I will now turn the call over to the operator for questions. Operator: [Operator Instructions] And your first question today comes from the line of Justin Clare from ROTH Capital Partners. Justin Clare: So I first wanted to just start out, you had increased your expected annualized revenue and income run rate for 2028 to $2.1 billion to $2.3 billion, up from the $1.9 billion to $2.2 billion. So just wondering if you could walk through the drivers of the increase in that outlook? How much of that was attributable to the acquisition of the Jupiter project in Germany? And then just more broadly, how should we think about the potential role of acquisitions and the growth strategy here and whether there could be additional opportunities to accelerate the 2028 growth or beyond as a result of M&A? Adi Leviatan: The acquisition of the Jupiter project contributed in and of itself. $150 million to the overall sum of the 2028 run rate revenues. In addition to that, CO Bar 4 and 5 were moved from the -- if you note that little dotted line on the 2028 annual revenue rate, it moved up from the advanced development into the preconstruction. So it moved into the 2.0 number, which did not extend the top range, but it does increase the level of certainty that it is now in the mature portfolio. And Justin just to also pick up on the second part of your question, we are always looking at opportunities also for acquisitions of projects and pipelines where it makes sense. Specifically, in the case of the storage markets in Europe, and specifically Project Jupiter in Germany, it is an opportunity to enter the market relatively quickly. That would be a reason why we would go for an acquisition of a project that is relatively mature. We are still a greenfield developer, but we do have the flexibility to acquire projects when we want to come into the market early, and you can see about the Jupiter project that they still -- it does not come at the expense of the project returns. As we mentioned in the presentation deck, it is a 15% unlevered project returns. So even when we acquire projects that are relatively mature, it does not come at the expense of the returns. Justin Clare: Okay. Got it. Sounds good. And then just maybe shifting over to the safe harbor. You had indicated, I think, 13.2 factored gigawatts have currently been safe harbored. I think 4.3 over the last 3 months. So just at this point, can you talk about the potential to safe harbor additional capacity, is there a possibility to get beyond the 14 to 17 factored gigawatts targeted range. I'm just wondering if you could speak to any constraints. Are you limited more by just the pipeline of projects that you have? Or are there any limitations in equipment access or interconnection progress or other factors? Adi Leviatan: I will answer the question, and then I will also refer it onwards to Jared. I will just answer that we do plan to still safe harbor, 0.5 to 3.5 factored gigawatt in this first half of 2026. And after that, of course, the safe harboring of PV solar projects will be capped. But safe harboring of energy storage projects is still available for 3 more years. So in that sense, we will be continuing to safe harbor specifically best so battery energy storage projects. But I will hand it over for Jared to complement my explanation. Jared McKee: Yes. Thanks, Adi. We stand behind the 14 to 17 factored gigawatt range of safe harbor. As Adi mentioned, there are additional projects that we're looking at for 2026 that we'll be able to have full tax credits through 2030. The 14 to 17 factored gigawatt range is something that we're actually very proud of. It's been a significant undertaking from the team, as you all know, we include physical work of a significant nature, both off-site and offsite, offsite and on-site for our projects. And really, this gives us a very broad base to be able to pull from over the next 4 years as we're out there constructing and finishing our projects over the next 4 years. Operator: And the next question comes from the line of Mark Strouse from JPMorgan. Mark W. Strouse: Just a follow-up -- just a follow-up on Justin's question there. Just kind of given the outperformance in the stock that you've seen over the last several months, I understand that you're always looking at potential project acquisitions. But, just kind of curious how to think about the potential for kind of platform acquisitions. Are there other companies that you could potentially accretively acquire either to expand your capabilities, expand your geographic reach? Any comment there would be great. Adi Leviatan: Thank you for the question. We are in a, I would say, potentially enviable position. We do have the flexibility and the ability to raise significant amounts of funds were liquid, we have various sources, including some that you've seen. I mean, that our projects are fully funded through 2028. So we're always looking at opportunities to acquire not only projects and platforms of projects, but also potentially if we need those missing capabilities also potentially more than that. And we will act accordingly in the various markets where we are operating, which is the U.S., Europe and Middle East, North Africa and approach these kinds of opportunities with great care for overall growth trajectory and for the shareholder value. Operator: And your next question today comes from the line of Maheep Mandloi from Mizuho. Maheep Mandloi: Congratulations on the quarter and the guidance here. And just going back to the question on safe harbor. With the new rules, the guidance, which came out last week, has that been more or less in line with expectations? Or does that change anything for you for safe harbor in the next few months here? Adi Leviatan: Jared, do you want to take this one? I think it's regarding FEOC. Jared McKee: Yes, I can take it, Adi. Just to confirm, this is the recent publication that was provided on FEOC did provide some clarifications regarding population methodology and the share of equipment originated from FEOC countries. They are in line with our previous guidelines and our estimates, and they help reduce uncertainty somewhat. The guidelines define the calculations, but they're still -- there's still more information that we expect to come. And so we do not expect any impact on our current estimations on our mature portfolio, as well as any projects, obviously, that we safe harbored already in 2025. As you know, those projects are not subject to FEOC. We don't expect a significant impact on any projects that we will safe harbor through the end of -- through the middle of this year, really, we do expect some additional guidance on FEOC. Maheep Mandloi: Got it. Got it. And you guys kind of talked about almost $1 billion of cash, I think, between the HOLDCO and the subsidiaries and unrestricted restricted cash. So the question is more on the capital plan for equity needs. Does the cash on hand fund your projects through 2028? Or how should we think about equity needs for '28 and potentially even post '28 as well? Adi Leviatan: I'm going to ask our Chief Corporate Development Officer, Itay Banayan to take the question. Itay Banayan: o yes, the -- we have all of the available sources in our hands to fund the growth that we're presenting through the end of 2028. So if you'll see in the presentation, we're showing that we have a significant amount of projects already under construction as part of the mature portfolio, and these were already funded, obviously, and a significant portion that we're expecting to start construction this year. So basically, almost all of our mature portfolio will be either generating or under construction this year. And all of the sources needed to take us through the business plan towards the end of '28 are already available. On the corporate level, obviously, some of the projects will need to do the project level financing, which is a part of the ordinary of doing business, but the corporate side we are fully funded. Operator: [Operator Instructions] And the next question today comes from the line of Michael Mcnulty from Deutsche Bank. Michael Mcnulty: My first question relates to partial asset sales. Obviously, you did that last year with the Sunlight cluster. Can you touch on your expectations of partial asset sales into 2026, if anything is embedded in guidance? And then what we would need to see for that to happen. Adi Leviatan: Thank you for the question, Mike. I will refer this one to our Chief Corporate Development Officer, Itay Banayan. Itay Banayan: Mike, so we've mentioned it several times before. It is part of our strategy to contemplate minority sales or sell-downs of some of our projects where it makes sense and where it's accretive to the company. We have a lot of flexibility on our sources. So it did contribute to the numbers in 2025, and we don't see it as a onetime event. We think it will be part of the ordinary course of doing business. And also, when you can see on the road map to 2028, we are increasing -- gradually increasing the weighted average of our holding in our portfolio. We're going all the way to 91%. So there is a lot of meat on the bone. And when it will make sense, we might do like additional transactions like the one we did in Israel in '25. Michael Mcnulty: Okay. That's helpful. And then my second question is a lot of the expansion in 2026 is weighted towards the latter half, I believe, 4Q. So with your overall guidance, can you talk about the key drivers of the growth within your guidance given a lot of the capacity is weighted towards the back half? Adi Leviatan: Thank you for the question again, Mike. So the U.S. projects that we just connected in Q4 of 2025, Quail Ranch and Roadrunner are going to have their first full year of revenues in 2026. So -- and as you stated correctly, the projects we're connecting in 2026 will mostly -- I mean, they will have their full year of revenues in 2027. Thankfully, we are, I mean, well diversified across different geographies, different projects, different technologies. And so in addition to the ones I just mentioned in the U.S., there's also a very significant projects in Israel that are also -- have also been connected in 2025 and will have their first year of full revenues, project called Bar-On, which is a floating PV plus storage. So we have projects in Europe that we're also working on that will be connected earlier in the year. So overall, that is what's contributing to the growth in revenues and EBITDA in 2026. Operator: There are no further questions. I will now hand the call back to Adi for closing remarks. Adi Leviatan: We would like to thank you very much for supporting us for dialing into this call for asking questions. We highly appreciate the engagement with all of you, and we look forward to continuing to deliver excellent results and to see you in the next quarter. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of the team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of the team will be happy to help you. Please standby, your meeting is about to begin. Good morning. Operator: Welcome everyone to the Vulcan Materials Company Fourth Quarter 2025 Earnings Call. My name is Angela, I will be your conference call coordinator today. Please be reminded that today's call is being recorded and will be available for replay later today at the company's website. All lines have been placed in a listen-only mode. After the company's prepared remarks, there will be a question and answer session. Now I will turn the call over to your host, Mr. Mark Warren, Vice President of Investor Relations for Vulcan Materials Company. Operator: Mr. Warren? Operator: You may begin. Mark Warren: Thank you, operator. With me today are Ronnie Pruitt, Chief Executive Officer, and Mary Andrews Carlisle, Senior Vice President and Chief Financial Officer. Today's call is accompanied by a press release and a supplemental presentation posted to our website vulcanmaterials.com. Please be reminded that today's discussion may include forward-looking statements which are subject to risks and uncertainties. These risks, along with other legal disclaimers, are described in the company's earnings release and in other filings with the Securities and Exchange Commission. Reconciliations of non-GAAP financial measures are defined and reconciled in our earnings release, supplemental presentation, and other SEC filings. During the Q&A, we ask that you limit your participation to one question. This will allow us to accommodate as many as possible during the time we have available. And with that, I will turn the call over to Ronnie. Thanks, Mark, and thank you all for joining our call this morning. I am honored to be leading this great company. Ronnie Pruitt: Representing the men and women of Vulcan Materials Company. What an outstanding safety year and delivered another year of robust growth in earnings and cash generation. I am proud of the way our teams executed 2025. Their accomplishments position us well to take advantage of the growth opportunities ahead of us. We are committed to continue to improve our underlying business and expand our industry-leading aggregates franchise both in our current footprint and new geographies. In 2025, we delivered $2,300,000,000 of adjusted EBITDA, a 13% increase over the prior year. Adjusted EBITDA margin expanded 160 basis points to 29.3%. Importantly, our aggregate cash gross profit per ton grew to $11.33, achieving our previously established target of $11 to $12 and driving operating cash flow of over $1,800,000,000, a 29% increase over the prior year. As expected, aggregates unit profitability continued to expand and public demand continued to grow. However, single-family residential activity was weaker than we initially anticipated, yielding a full-year volume and price at the lower end of our initial expectations. I was pleased with how our operating and sales teams adjusted to a dynamic environment by carefully managing inventories and tightly controlling cost even with several fourth-quarter timing impacts outside of their control. Our aggregates units cash cost of sales increased less than 2% for the full year. This performance is a great example of the Vulcan Way of Operating at work, allowing us to use our tools and disciplines to remain focused on what we can control. With implementation ongoing, incremental opportunities ahead of us, I am certain VWO will continue to enhance our results. Aggregate shipments of approximately 227 million tons increased 3% for the full year. With growth driven by prior-year acquisitions, same-store aggregate shipments for the full year were slightly lower than the prior year. In the fourth quarter, aggregate shipments increased 2% compared to the prior year, despite nearly 30% lower shipments in East Tennessee and North Carolina that had outsized shipments in the prior year's fourth quarter as we supported the rebuilding efforts after Hurricane Helene. Aggregates mix-adjusted price improved 6% for the full year and 5% in the fourth quarter. Geographic mix from the acquisitions the prior year elevated shipments in two of our higher-priced markets and a shift in product mix all impacted year-over-year reported pricing in the quarter. While an acceleration in bookings for large projects with a wide complement of products and a quick conversion to shipments impacted sequential pricing in the fourth quarter, these activity levels bode well for 2026 demand and highlight our position as a supplier of choice on large projects that need to move quickly. Through the combination of our commercial and operational execution throughout 2025, aggregates cash gross profit per ton improved 7% for the year. This performance gives me confidence in our operating and sales team's abilities to continue compounding our industry-leading unit profitability. Now I will turn the call over to Mary Andrews to provide some additional commentary on our 2025 performance. Mary Andrews Carlisle: Thanks, Ronnie, and good morning. Operator: Our 2025 results are a clear depiction of the Mary Andrews Carlisle: powerful combination of our two-pronged approach to growth. Through the continued expansion of our aggregates cash gross profit per ton across the franchise, and the contribution of prior-year strategic acquisitions, we increased our free cash flow by over 40% after reinvesting $678,000,000 of total capital expenditures for operating and maintenance needs and internal growth projects. The strong cash generation allowed us to quickly delever the balance sheet after issuing $2,000,000,000 of new long-term notes in the fourth quarter of last year, positioning us well to capitalize on future growth opportunities. We also returned $260,000,000 to shareholders through our steadily growing dividend and $438,000,000 through share repurchases. At year end, our net debt to adjusted EBITDA leverage was 1.8 times. In March, we redeemed our 2025 notes at par for $400,000,000 and throughout the second half of the year, we paid down $550,000,000 of commercial paper balances to reduce interest expense while maintaining the flexibility to reissue at any time. SAG expenses for the full year were $564,000,000 and 10 basis points lower than the prior year as a percentage of revenue at 7.1%. We remain pleased with the results our investments in technology and talent are yielding in the business. Through compounding improvements in our business and strategic portfolio optimization, over the last three years, we have improved our adjusted EBITDA margin by over 700 basis points and our return on invested capital by over 200 basis points. We anticipate further expansion in both metrics with the closing of the pending ready-mix divestiture and attractive profitability improvements in our underlying businesses in 2026 that I will now pass back to Ronnie to highlight. Ronnie Pruitt: Thanks, Mary Andrews. In 2026, we plan to continue our track record of compounding growth in what we expect to be an improving demand environment. We expect continued growth in public demand will now be complemented by improving private demand, resulting in modest overall growth in 2026. Growing demand is a beneficial backdrop for both the pricing and operating environments. Trailing twelve-month highway starts continue to grow and at three times the rate in Vulcan markets compared to the U.S. overall. IIJA dollars continue to drive increased spending in addition to funding from state DOTs and local initiatives. While the current highway funding programs authorized by IIJA continue through September, over 50% of the funding is yet to be spent and will continue to flow through over the next several years. Efforts are already underway in Washington for a reauthorization bill. Public non-highway infrastructure investments also continued to grow. Starts in Vulcan markets for water, sewer, and other infrastructure projects increased double digits in 2025, supporting shipments growth in 2026. On the private side, the affordability issue in single-family housing has yet to be resolved but appears to be a priority of the administration. We expect that residential activity will be limited in 2026, but we will be monitoring closely for any improving opportunities in the second half of the year. While private non-residential activity continues to vary across categories, we are encouraged by the prospects of a return to modest growth in Vulcan served markets in 2026, led by industrial and non-residential categories. Data centers remain the biggest catalyst with over 150,000,000 square feet under construction and another nearly 450,000,000 square feet announced. Over 70% of this activity is occurring within 30 miles of a Vulcan aggregates facility. Our footprint, scale, reliability, and logistics capabilities make us particularly well suited to partner with our customers and serve these fast-moving projects. Based on the demand expectations I just described, we expect aggregate shipments to grow between 1–3% in 2026. We expect aggregates freight-adjusted average selling prices to increase between 4–6% and aggregates units cash cost of sales to increase by low single-digit percentage. These expectations equate to another year of at least high single-digit expansion of our aggregates cash gross profit per ton, which will drive attractive earnings growth and cash generation. We expect to deliver between $2,400,000,000 and $2,600,000,000 of adjusted EBITDA in 2026. I will now pass to Mary Andrews again to provide a few more details around the 2026 guidance before we take your questions. Mary Andrews Carlisle: Thanks, Ronnie. To complement the solid aggregates outlook Ronnie just shared with you, we expect our downstream businesses to contribute approximately $290,000,000 in cash gross profit. Roughly 85% of the earnings are expected to be derived from the asphalt segment given our pruned ready-mix footprint. Forecast SAG expenses of between $580,000,000–$590,000,000. We project depreciation, depletion, amortization, and accretion expenses of approximately $700,000,000, interest expense of approximately $225,000,000, and an effective tax rate between 22–23%. Consistent with our initial plans for 2025, we plan to reinvest in our franchise through operating and maintenance and internal growth capital expenditures of $750,000,000 to $800,000,000 in 2026. This year's CapEx includes approximately $50,000,000 planned spending that shifted from the prior year into 2026 on the large plant rebuild projects underway. Operator: Overall, we expect to deliver another year Mary Andrews Carlisle: of expansion in adjusted EBITDA margin, growth in adjusted EBITDA, and attractive cash generation in 2026. Now, Ronnie and I will be happy to take your questions. Operator: Thank you. Operator: Our first question comes from Trey Grooms with Stephens. Your line is open. Please go ahead. Trey Grooms: Hey, good morning, everyone. So Ronnie, given the 4Q and where it landed and then looking into the guide for this year, it clearly suggests that 4Q 2025 is not the trend. So could you talk about your confidence levels there and the puts and takes around the end-market demand as well as your expectations around pricing and profitability and your outlook there for 2026, please? Ronnie Pruitt: Yes. Good morning, Trey. Thanks for the question. Ronnie Pruitt: Let me start with saying the business is executing well and we are in a position to leverage demand growth and, I think, a very healthy pricing environment for 2026. First, on the demand side, public starts remain solid. It is also reflected in the strength of our backlog. And then the other public infrastructure outside of highways is also a really good story for us as we continue to see that in our backlog as well. So overall, we expect really steady growth in the public side. On the private side, let us start with private non-res. We are seeing most of this activity in the industrial categories. Data centers continue to be a bright spot and we are seeing increasing levels of activities reflected in our bookings as well. Importantly, these data centers projects are quickly converting to shipments, which we also anticipate growth in the power generation side as these data centers continue to get built out. Warehouses, we think they are finding the bottom. We are seeing some potential green shoots in a number of our markets. Now on the residential side, we are expecting the currently soft demand environment to improve somewhat in 2026, but this assumes that we get some help from interest rates and affordability, so we will see how that plays out through the remainder of the year. Ronnie Pruitt: So after really three years of muted growth, Ronnie Pruitt: we expect 2026 to really return to a year of some modest growth, so an improving demand backdrop could provide both help on our cost side as well as even more upside on our pricing. With our Vulcan line of selling disciplines, they are helping us really efficiently manage project leads and maximize pricing as we expect those efforts to continue to be catalysts for pricing and profitability realization. On the fixed plant, price increases have largely been accepted and improved visibility in the private side will help that and also be helpful as we think about mid-years throughout the year. On the cost side, we are seeing really good traction on the Vulcan Way of Operating disciplines focused on plant production. And these efforts will, along with some volume growth, also be a tailwind to our cost in 2026. So as we look at 2026 as a year of potential growth, we think we are in a really strong position to capture more profitability and really drive that to our cash gross profit. Mary Andrews Carlisle: Yeah. And Trey, maybe I can just give you a little extra context Mary Andrews Carlisle: on the fourth quarter that may be helpful. We obviously had a very solid performance for 2025 overall and knew the fourth quarter would have some unusual year-over-year comparisons. But where we ultimately landed, which I would think about as essentially flat year-over-year on EBITDA, absent the geographic headwind that we had from the prior-year hurricane relief activity. And so, where we landed was really impacted by three main factors that affected both revenue and cost and accounted for really most of the difference between that flat EBITDA and the growth that we anticipated. So primarily, first and foremost, residential activity, which was a challenge for the year, continued to weaken. We also, secondly, had weather. Winter came early in some of our seasonal markets, and Southern California was just extremely, extremely wet, which is unusual. And then, we also had some incremental costs related to timing on both repairs and insurance costs. So, I think you will see in our 2026 guidance that, as you mentioned, clearly reflects a continuation of the compounding improvements that we expect for our business moving forward. Trey Grooms: All right. Well, thank you for all the color there. Super helpful. I will pass it on. Thanks, Mary Andrews. Thanks, Ronnie. Have a good day, and take care. Ronnie Pruitt: You too. Operator: Thank you. Our next question comes from Tyler Brown with Raymond James. Your line is now open. Tyler Brown: Hey, good morning. Ronnie Pruitt: Good morning. Tyler Brown: Hey, I want to come back to the pricing maybe a little bit different angle. So I appreciate you guys gave the 5% mix-adjusted number. But could you kind of help bridge the three-point difference between what you reported and mix, because it seems like conceptually, you guys really benefited from storm work in high ASP markets last year that did not reoccur. So geography was definitely working against you. It sounds like at the same time, you did a lot of quick, call it, book and burn, base and fill work that comes in at a lot lower ASP. So product was a headwind, and then M&A was also a drag. So it felt like kind of maybe a triple whammy, if you will. But first, is all that right? And how much did each of those buckets have on the three-point difference? And then secondly, Mary Andrews, just from a shaping perspective, I appreciate the 4–6% pricing, but should we expect to be on the low end early in the year and maybe higher later? Just I assume some of these mix headwinds will persist. Sorry for the long question there. Mary Andrews Carlisle: Yeah. No worries. First, you do have the triple whammy as you called it right as it relates to the mix impacts on pricing in the fourth quarter. The 300 basis points was about two-thirds the geographic mix from the strong shipments last year in those profitable markets. And then, I would say the other third was about fifty-fifty continued impact from the acquisitions, which was actually lower in the fourth quarter than the full-year 100 basis points that we called out and did happen in 2025. And then the other half of that third was the product mix that was really based on those projects. And, I think you are right to be thinking about pricing in 2026 as probably toward the lower end the first half of the year, moving toward the higher end as the year moves on. And I think that is reflective of the improving demand that we expect to see and just comps from last year. Ronnie may want to comment more on the types of projects that we are shipping on. Yeah, Tyler. Ronnie Pruitt: I think as we look at going into 2026, one, our backlog and bookings are at a much better spot than they were year-over-year. And so remember, our backlog does not account for 100% of our shipments, but it is typically around 40% to 45% of our forward-looking backlog is what our shipments are going to look like. And so that is a good healthy spot for us to be as we think about demand. And also remember the trends on a lot of these large projects, which we categorize as 25,000 tons and above. Historically, that makes up about 30% of our bookings. Today, it sits at about 45% of our bookings in large projects. It is really reflective of that data center work. Remember, we talked about these data centers. The first part of them is going to be base and fill, so that is where we are seeing the mix impact. But as those projects continue to mature, then we will see the clean stone and the clean size stones be shipped through the remainder of the project. So in our 4–6% guide, we anticipate these shipments of these projects being more weighted heavily on the front end for base, but as those projects mature out, and to Mary Andrews’ point, that is why I think the pricing will play out through the year at the lower end of the first of the year and then it will play up at the higher end. Second, when we talk about our fixed plant, we sent out our fixed plant price increases at 2025 for January. And the implementation of those and acceptance of those have gone as expected. And so I think we are in a healthy position as far as what those increases were accepted and announced first part of the year. And then third, as I continue to think about the steady growth in public, the continued positive improvements on the private non-res side, and then the potential recovery on single-family. And I have talked about this in the past, these improving demand, the backdrop of that is going to be a tailwind for us as we move forward. And so, again, we do not have mid-years baked into these increases or our guidance. We would anticipate definitely going forward with mid-years. And I think that momentum in demand will help us Tyler Brown: Perfect. Excellent color. Thank you for indulging me. Thank you so much. Thanks. Thank you. Operator: Thank you. Our next question comes from Anthony Pettinari with Citigroup. Please go ahead. Foden: Hi, this is Foden on for Anthony. Thanks for taking my question. Foden: I just wanted to ask, what kind of gives you the confidence that you can kind of keep costs down to low single-digit inflation? Is that sort of what you are seeing in underlying inflation or maybe Vulcan Way of Operating and cost takeout? And then just dovetailing off some earlier mix questions. Is there a mix impact baked into that low single digit from the kind of base stone? Ronnie Pruitt: Yes. So on the cost side, what gives us confidence on cost is definitely Vulcan Way of Operating. So as I look at where we finished the year up less than 2% for 2025 overall, I think 2025 was a really good year on cost. And we anticipate that to continue. When I look at the maturity of Vulcan Way of Operating, we said we are focused on our 120-plus plants that represent about 75% of our production. So we are very mature on the process intelligence, on our labor scheduling tools, and really on the focus on our critical size production. And where we are going to continue to focus is the development of our people. So our plant operators are really adapting to using these screens and really driving more efficient production in our plants. But when I look overall, I am very pleased where we are at. I think labor is going to continue to be one that, as labor increases will happen in markets, our ability to control that and our ability to outperform the market with our labor control is going to be critical, and that is a big part of Vulcan Way of Operating. So I am very pleased with that. And to your point, what we talk about on the mix side with our drag on pricing, the mix is a benefit to us in the way we operate our plants. And so our plants are in a really good shape on yield, the amount of fines that we have, and the way we mine in our pits, we are in a really good position. We have gone through three years of muted demand, and we really have not built any inventory. And so we have really managed through three years of this muted demand in a way that puts us in a very good position when demand starts to recover, that our costs are going to be just as much of a tailwind as it will be on price. Foden: Great. Thanks, guys. Operator: Our next question comes from Kathryn Thompson with Thompson Research Group. Please go ahead. Hi, thank you for taking my question today. Focusing on the policy side, with IIJA expiring in September, but states also taking Kathryn Thompson: greater Operator: control of their own financing destiny, how is the dynamic of the messiness that inevitably happens with the reauthorization bill, how is that baked into your guidance? Mary Andrews Carlisle: And then also perhaps clarify a little bit more Operator: how states are taking control for the ones that matter for you. And how are you thinking about that with your public end market? And then Mary Andrews Carlisle: one cleanup question, just as we are assuming that Operator: the divested assets in the Bay Area are not included in the guide. Thanks so much. Ronnie Pruitt: Yeah. I will let Mary Andrews talk about the guide on the divested assets. She can give you some color on that. On the public side, I mean, I think we are going into the year with a couple of assumptions. One, that a bill will get done. Will it be on time or will it be in the form of a continuing resolution? Who knows? But historically, we are going to get a bill done. And two, based on historic measures, the bill will always be higher than the previous bill. So we are expecting that. But the good thing for us, Kathryn, is that 50% of the money has yet to be spent. And so we will see the tail of IIJA continue through 2026 and well into 2027. When I look at our markets and I look at Vulcan served markets, our trailing 12 starts dollars in Vulcan served markets were up 24% year-over-year 2025 versus 2024. And so those dollars are going to be put into work in 2026 as far as the demand for our products. If you go back to the start of IIJA, our markets are up 80% in starts dollars. And so it is a really good tailwind, but we have said the entire time that IIJA would be slow and steady and we continue to see that. In California, one of our standout markets, highway starts are up 47% in 2025 versus 2024. And so that is another market that we will see 2026 continue to see strong demand from highway dollars being put in place. In the Southeast, we have seen significant jumps in bookings in Alabama and Georgia and South Carolina and Tennessee. And so again, right in the heart of our Southeast group. And I think those dollars are going to continue to be put to work. We have also seen other public works like beach restorations, port renovations, airport projects, those kinds of starts in Vulcan served markets. Two-thirds of our GM areas, which we have 19 GM areas, so 14 of our 19 GM areas, we are seeing double-digit increases in starts in those other public works. And so I would say public, all things considered, public is probably the most clarity we have, and I think we are very confident in that. And I will let Mary Andrews talk about the modeling on the divested assets. Mary Andrews Carlisle: Yeah. Kathryn, you are right. The ready-mixed assets we have excluded from the guidance. So I think the best way to think about that is the guide at the midpoint on a same-store basis is really over 10% growth in 2026. Kathryn Thompson: Okay, great. Thanks so much. Ronnie Pruitt: Thank you. Operator: Thank you. Operator: We will go next to Angel Castillo with Morgan Stanley. Please go ahead. Angel Castillo: Thanks and good morning everyone. So you outlined big opportunity from data centers on the slide, and I just wanted to unpack a little bit more, particularly the comments around the base versus clean stone timing. I think the timing of mix drag versus maybe the uplift, as you start to ship more clean stone in the latter stages, makes a lot of sense. But could you maybe talk about this more holistically as to whether a data center project, all-in, is higher or lower margin than a traditional manufacturing project, if you kind of ignore the timing of some of these things? And then just as we think about data centers being such a big growth factor in the next few years, is the right way to think about the DC opportunity here as perhaps a bit of a drag for price/margins until the number of projects being completed starts to really exceed those starting up? And if so, can you just quantify that? I do not know if I missed this, but how much of a drag that is in your 2026 guide? I am just trying to think about how to model this and how to understand this just given so much growth in this vertical. Ronnie Pruitt: Yeah. I think you summed it up right. I mean, we look at the continued demand for data centers. You are going to continue to see the mix issues. And so if I would look at base pricing across multiple geographies, and geographies can have a big impact on that as well, but on average, base can sell for $8 to $10 below what our clean stone products are. On a margin basis, it is not that big of an impact. And so I think we will continue to see tailwinds on the cost side as we continue to ship that. And so a lot of the base shipments that we have had will start to turn into clean stone as we ship those projects as far as what we are shipping in 2025. But I would tell you the opportunities in 2026 will continue to be a lot of base opportunities, which we want to take advantage of. I mean, those are great projects. They, again, play really well into the shape of our pits, our plants, the productivity of our plants, so I think it is going to continue to play out, but I do think it will be more of a uniform mix as we start to see clean products shipped to those same projects because they are going vertical. And once they start going vertical, that is where the concrete shipments kick in. Operator: Thank you. Operator: Thank you. Our next question comes from Michael Dudas with Vertical Research. Please go ahead. Michael Stephan Dudas: Good morning, Mary Andrews, Mark, and Ronnie. Hey. Good morning. Michael Stephan Dudas: Ronnie, you guys and Mary Andrews have done a great job on the balance sheet. It is below your targets. Maybe you could share your thoughts on, as you come out of the box here, the pipeline for M&A, what your early indications of opportunities are, and you did mention in your, I think, first couple of statements of current and new geographies. Just maybe a little bit more thought on that. I am sure you will be discussing more of that with your Investor Day next month. Thanks. Ronnie Pruitt: Yes, thank you. If you look back over what we experienced in 2025, I mean, if you remember, we closed two really big deals in 2024. And so 2025 for us was a year of integrating those deals and executing on that. And we also said during times of uncertainty, we saw at the end of 2025 with tariffs and interest rates and those headwinds that both sides, the seller side as well as the buyer side, there was just a pause in a lot of the markets and we did not see a lot of activity in 2025. As I look at 2026, I do think it is going to be a very active year on the strategy side and the M&A front. And I would tell you for us, what you will see out of Vulcan will be, one, it is going to continue to be aggregates-led. We are going to be very disciplined around that. We are going to continue to look at things within our geography. But when I say new geographies, we have to be able to expand that footprint because, at the end, if we are going to be that particular on what we want, we have to be able to expand that look and open that market up for some new looks and geographies. And so I would say our pipeline is very healthy. We are in some really good conversations with some potential sellers. Again, it is something we have to be very disciplined in. We do not want to force that. We do not want to end up overpaying for things that we do not have to. So it takes two sides. But I would anticipate 2026 being a very active year. Mary Andrews Carlisle: And you are right, Mike, we absolutely have the balance sheet well positioned and the cash generation of this business just positions us very well for the long term to be able to continue to pursue the M&A opportunities that make sense for us. Michael Stephan Dudas: Excellent. Thank you. Operator: Thank you. Our next question comes from Timna Tanners with Wells Fargo. Please go ahead. Yes. Hey, good morning. I wanted to dive in a little bit more on your positive private demand view and ask how much of your mix is data centers and what is embedded in your volume forecast for the housing recovery that you mentioned in the second half? Ronnie Pruitt: So we are anticipating recovery on the single-family side to be really flat. So it will be very slow, and even with some help from interest rates, we will be lagging that. And so as we start to see starts increase on the residential side, I would say we will be several months behind that. And so that will be, if we get some help on affordability through interest rate cuts, that will be definitely second-half cuts. Opportunity for us. And I think that opportunity would come in the form of very geographically driven by where jobs are being created. So markets matter. That is why I love our footprint, because I think our markets will outperform the rest of the country when it comes to recovery in residential. And then with data centers on the private side, they are a very, very large piece of the private side and what we are seeing on the private non-res recovery, and I would expect that to continue. I think, Timna, what we will start to see as we play this out though is the energy demand that these data centers are creating. So I think we will start to see some energy projects. We are in some talks on those now. Some of those are included in the data centers as we look at those. So there are some energy pieces of that that these data centers are being required to build out, some of their own energy infrastructure. But there are also some other things as far as some LNG projects that are going back. When those things kick in, they are very heavily aggregate intensive. But we also have some $6,000,000,000 Eli Lilly project here in Alabama that is kicking off. And so we have got some other things on the private non-res side that are going to be kicking in. But I would say at the start of the year, they are still very heavily weighted towards data centers. And I think other types of manufacturing will kick in as we go throughout the year. But that is what gives us confidence in really returning to growth: our bookings pace is really strong. Those forward-looking indicators will start to improve. Timna Tanners: Okay. Did you have the percentage of your mix that is data centers for us, please? Ronnie Pruitt: Yes. I mean, we do not break that out in our backlog just because it gets too wonky when it comes to the differences in those mixes. But it is, I would just tell you, heavily influenced by data centers as of today. Timna Tanners: Okay. Thank you again. Mark Warren: Thank you. Operator: Thank you. Our next question comes from Garik Shmois with Loop Capital. Garik Shmois: Hi, thanks. Ronnie, you mentioned a couple of times about midyear price increases, recognizing it is not in your guidance, but what kind of demand do you need to see, whether it is big picture or in a local market, to start thinking about implementing midyear price increases? Ronnie Pruitt: Yes. I think it is twofold there. I think it is some visibility into demand improving, but when we talk about mid-years, I mean, it is really talking about mid-years, two sides of our business. On the fixed plant side, it is talking about the concrete side of our business as well as the asphalt side of our business. I would single out that on the concrete side of our business, we need to see some recovery on single-family. Our concrete customers have had a lot of pressure on them around the muted demand on single-family. And so that side of it, that visibility into some help on affordability, some help with relief on the interest rates, gives us some tailwinds on midyear with the concrete side of our business. On the asphalt side, it really is more of the public and private non-res continuing. So we have seen great momentum there. And so I would say as we go into the year, I think we are in a good position. I would say we are in a better position in 2026 for the success of those mid-years than we were as we looked at how 2025 developed. So I think it is a combination of both single-family and public. But single-family will be weighted more towards the concrete side of our business and the public will be weighted more towards the asphalt side of our business. Sounds good. Thank you. Thank you. Operator: Thank you. Our next question comes from Adam Thalhimer with Thompson Davis. Adam Thalhimer: Hey, good morning, guys. Hey, Adam Thalhimer: I was hoping you could comment on the cadence of EBITDA this year, and I am curious if we should bake in another EBITDA decline in Q1 followed by strengthening as the year goes on? Or if you actually see the year starting off faster than that. Mary Andrews Carlisle: Yeah, Adam. I will start on that one. I think the best way to think about 2026 EBITDA would be to think about seasonality and not year-over-year comparisons. Operator: And Mary Andrews Carlisle: so if you think about normal seasonality to spread EBITDA in 2026, the year-over-year comp, as you referenced, will look different in the first half versus the second half, but I think that is the best way to go about it. Okay. Thanks. Operator: Our next Operator: question comes from David MacGregor with Longbow Research. Please go ahead. David Sutherland MacGregor: Yes. Good morning, everyone. I guess my question is on price/cost. And in the guide, you were very specific about your price assumptions, characterized cost as up low single digits. So it seems like maybe there is still some uncertainty there with respect to your perspective on cost. And so I guess I was just going to get you to walk through what are the biggest sources of uncertainty for you within your cost structure as you look forward into 2026? Ronnie Pruitt: Yes. I think we are confident in that low single digit, which is kind of how 2025 played out. And so I think the things we can control when we talk about our labor, our energy, our fuel, I think we have got a lot of visibility into that. I think we have a lot of confidence in that. And I think the rest of the pieces are really tied to continued performance on the demand side of our business. And so, again, when you think about three years of downward or muted demand in our markets, our ability to control, even with the variability of our cost structure, falling volumes is a tough headwind to continue to drive lower cost in an inflationary environment. So I look at it overall, and I think we are in a really good position as far as Vulcan Way of Operating and the things we are focused on, and our men and women out there every day show up dedicated to continue to drive efficiencies and continuous improvement in all of our operations. And so I am excited about that. And I think we have a good runway ahead of us as markets continue to improve, and demand again will give us as much tailwind on cost as it will on price. And so I think we are in a good position and I am confident in our ability to deliver that. Mary Andrews Carlisle: Yeah. And importantly, that price/cost spread that we expect to deliver another year of cash gross profit per ton growth at the high single-digit percentage level. So another demonstration of the way the business continues to compound. David Sutherland MacGregor: Great. Thank you. Operator: Thank you. We will go next to Steven Fisher with UBS. Please go ahead. Steven Michael Fisher: Thanks. Good morning. It sounds like you have a bigger mix of larger projects in backlog this year. Just curious what you are seeing in terms of project delays. Has anything been delayed in, say, the fourth quarter relative to the start timing that you were expecting? And have you baked those further or any further delays into your guidance in 2026? I know we are hearing that labor is a real issue. And I just want to make sure we are not going to be surprised by any sort of further delays on projects. Ronnie Pruitt: No. I think it is a mix. I would tell you, as we look at our bookings in those large projects, one, there is a mix between private side as far as the data center work and then the public side with highways. And I would really tell you it is the tale of kind of two different stories. On the private side, the data center stuff is actually moving faster. And so our times from bookings to actual shipments has accelerated on that side. On the public side, it has been a mix. I mean, it really is very geographic depending on weather impact and other things as far as playing with the DOTs and, throughout the evolution of IIJA, we saw a very slow kickoff. I do think as it has become more mature, those dollars are being put to work. Time from booking to actually shipping has become more of a normal pace back to about a six-month time frame from the time we book to the time we ship. Public sometimes can drag out a little longer than that. But as we go into 2026, I do not anticipate the timing of those to be impacted by anything. We think they will be back to kind of a normal flow. Steven Michael Fisher: Thank you very much. Thank you. Operator: Thank you. Our next question comes from Ivan Yi with Wolfe Research. Ivan Yi: Hey, good morning. Thanks for the time. Ivan Yi: You guided to 2% aggregate volume growth this year, and that is the same as Martin. But looking at the contract award data, you seem to have a more favorable geography with greater exposure to California, Georgia, Tennessee, and some other states. So I guess I am just wondering why your volume guidance is not a little bit higher than that 2%? Thank you. Ronnie Pruitt: Yes. I think coming off of three years of down volume and what we have seen as far as conversion of the bookings to shipments. I mean, like I said, our backlog is in a really good spot, but that backlog, again, only represents about 40% to 45% of our shipments. And if you look at the balance of it, it is kind of fifty-fifty between public and private. And so we really just need single-family to recover. And until we continue to see some relief on affordability and interest rates, I do not think we want to get out ahead of ourselves in thinking that demand can get back to anything really good. Single-family just has to kick in. And so we are going to continue to be very conservative as we look at that. Operator: Thank you. Thank you. Operator: Thank you. And we will go next to Brent Thielman with Stifel. Your line is open. Please go ahead. Brent Thielman: Yes, thanks. Good morning, everybody. Appreciate you taking the question. You mentioned in some of your comments some repairs and insurance costs that impacted the quarter. I think you also mentioned some plant rebuilds. Can you size the impact from some of these costs that you had mentioned that impacted the quarter? Should we be thinking about these as more one-time or ongoing? And then is there any reason to think that some of these costs linger into the first quarter? Thanks. Ronnie Pruitt: Yes. Let me start. I will turn it over to Mary Andrews, and she will give you a little more color on some of the numbers. But as you think about how the year played out in 2025, I mean, we went into 2025 saying we would anticipate low single-digit increases in cost. We finished the year at less than 2%. Now as we started 2025, we had a lot of weather impact at the first part of the year. Seasonality as far as really the first two quarters were tremendously impacted. And so a lot of the work, when we talk about project work, those are expenses that we are doing within our plants. It just got pushed throughout the year. And even in the third quarter of last year, we said do not measure cost with one quarter because it can be so lumpy. That is how the year played out. And so I think as we go into 2026, we plan these things out based on we would love for everything to be very uniform and like we spend the same amount every month. That is the way we would love to plan it out, but, unfortunately, it is an outdoor sport. And weather does impact that and weather does impact the timing of those. As far as the plant rebuilds, we call those out because we have several rebuilds going on, large projects. But they are all accounted for in both our cost as well as our CapEx plan for 2026. So I think we have really good visibility there that gives us a lot of confidence. Anything, Mary Andrews, you want to add on the lumpiness of that? Mary Andrews Carlisle: No. I would say, as we called out, really timing. Our 2026 guidance includes what we anticipate for this year. If you do think about the fourth quarter, I would think about it being kind of fifty-fifty revenue and cost in terms of where we landed versus expectations. And the majority of that cost was related to those timing issues that Ronnie described. Brent Thielman: Very helpful color. Thank you. Ronnie Pruitt: Thank you, Brent. Operator: Thank you. At this time, there are no further questions in queue. I will now turn the meeting back to CEO, Ronnie Pruitt. Ronnie Pruitt: Thank you, operator. As I said at the start, I am honored to be leading the men and women of Vulcan Materials Company to continue a track record of creating value for all of our stakeholders. When I reflect back on just four and a half years ago when I had the opportunity to join this organization, our trailing twelve months aggregate cash gross profit per ton was $7.33. In 2025, it was $4 or 55% higher and within the range of our long-term range that we set of $11 to $12 that we provided at our last Investor Day in 2022. We look forward to sharing with you our plans, continuous improvements, and future growth at our upcoming 2026 Investor Day next month. Again, thank you all for your interest in Vulcan Materials Company. Operator: Thank you. Operator: This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. We will be getting started in about two minutes. Once again, please stand by. We will be getting started in approximately two minutes. We do thank you for your patience. Please continue to hold. Greetings, and welcome to the Eagle Point Credit Company Inc. Fourth Quarter 2025 Financial Results Conference Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press 0 on your telephone keypad. It is now my pleasure to turn the call over to your host, Darren Dougherty with Prosek Partners. Please go ahead, Darren. Thank you, Kevin, and good morning. Darren Dougherty: Welcome to Eagle Point Credit Company Inc.’s earnings conference call for the fourth quarter and full year 2025. Speaking on the call today are Thomas Majewski, Chief Executive Officer, and Kenneth Paul Onorio, Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to remind everyone that the matters discussed on this call include forward-looking statements or projected financial information that involve risks and uncertainties that may cause the company’s actual results to differ materially from such projections. For further information on factors that could impact the company, the statements and projections contained herein, please refer to the company’s filings with the SEC. In addition, because we are holding this call prior to filing our annual report, the financial results discussed today are preliminary and unaudited, and remain subject to completion of our year-end audit procedures. Actual results included in our annual report may differ from the information discussed on this call, and those differences could be material. Each forward-looking statement or projection of financial information made during this call is based on the information available to us as of the date of this call. We disclaim any obligation to update our forward-looking statements unless required by law. A replay of this call will also be made available later today. I will now turn the call over to Thomas Majewski, Chief Executive Officer of Eagle Point Credit Company Inc. Thomas Majewski: Thanks, Darren, and good morning to everyone. We appreciate your joining the call today. We decided to hold our call earlier than usual this quarter to provide shareholders with a timely update on our fourth quarter results and recent activity at the company. Our annual report will be filed later this month. During 2025, CLO equity faced difficult market conditions, and the company was not immune to these market-wide conditions. While defaults remain below long-term averages, both spread compression in the loan market and a general negative sentiment towards credit, which we believe is overdone, weighed on both our financial performance and the total return for our shareholders last year. Our disciplined focus on portfolio management and long-term value creation through CLO resets and refinancings helped mitigate some of the headwinds that CLO equity faced. In addition, throughout the year, we leveraged our adviser’s broader origination capabilities and opportunistically increased the company’s exposure to credit assets beyond CLO equity. The strong demand for loans was fueled in part by captive CLO equity funds, which are often return-insensitive buyers of new CLOs. We believe these funds also led to loan spreads compressing faster than CLO liabilities tightened as their CLO issuances created more CLO debt supply than the market might have otherwise had appetite for. This significantly reduced the CLO equity during the year. These factors among others, drove what Nomura Research estimated to be a median CLO return of negative 15% for 2025. With that as a backdrop, the company generated a GAAP return on common equity of negative 14.6% during 2025, and this is modestly better than Nomura’s market-wide assessment. As of December 31, the company’s NAV was $5.70 per share, which is down from $7.00 per share on September 30. The 2025 saw a net investment income, or NII, less realized losses of negative $0.26 per share, which was comprised of net investment income of $0.23 per share and offset by realized losses of $0.49 per share. This compares to NII less realized losses of $0.16 per share in the third quarter. For 2025, recurring cash flows from our portfolio increased to $80 million, or $0.61 per share, and that is up from $77 million, or $0.59 per share, in the prior quarter. We paid total cash distributions of $1.68 per common share during 2025. As majority CLO equity investors, our ability to direct resets and refinancings helped offset some of the loan compression. In the fourth quarter alone, the company completed 10 resets and three refinancings of its CLOs. Over the course of 2025, we participated in 34 resets and 27 refinancings, making us one of the more active CLO equity investors in the market last year. This robust activity led to 42 basis points of CLO debt cost savings on average across our portfolio. The weighted average remaining reinvestment period, or WARP, of our portfolio stayed roughly flat, moving from 3.4 years at the beginning of 2025 to 3.3 years at the end of 2025 despite the passage of the year. This is due both to our reset activity and our new investments that we made during the year. During the fourth quarter, we invested $184 million in gross capital at a weighted average effective yield of 15.4%. We continue to selectively add exposure to asset classes such as regulatory capital relief, portfolio debt securities, and other opportunistic private credit investments which complement our core CLO equity portfolio. During the quarter, of the $184 million that we deployed, new investments in other credit assets totaled $147 million. At year end, the non-CLO portion of our portfolio was approximately 26% of our total investment portfolio. We have been selectively making private credit investments beyond CLOs since 2022 within ECC. The company has been served quite well by these investments. Of the $97 million of investments that have gone full cycle and been fully realized, our gross IRR on those investments has been approximately 18%. Thomas Majewski: This portfolio strategy of increasing assets away from CLO equity reflects an intentional decision on our part and is designed to maximize total return for our shareholders. Importantly, our adviser has expertise in these other credit strategies and has invested in them for some time for other funds and accounts that are managed. Over time, we could expect to see the portion of our portfolio invested in credit assets other than CLO equity to increase further based on where we see the most attractive investment opportunities. We advanced strategic initiatives in our portfolio both last year and into 2026, continuing our support of Muzinich’s U.S. CLO collateral management platform, and separately, we backed the firm’s launch of a new European CLO collateral management platform. Our investment commitment of over $40 million in the U.S. business fully deployed, and recently had its first close on a fund designed to support their further U.S. CLO issuance. This should help grow the value of our top line revenue share. The European partnership is in its beginning stages with the first loan accumulation facility open and ramping. Due to Muzinich’s strong presence in Europe, we anticipate a faster growth trajectory compared to the pace of the growth in the early stages of our U.S. venture with them. We also launched a new joint venture with a strategic investment partner in the first quarter. This joint venture will invest in more regulatory capital relief transactions. You will see the JV appear in our Q1 financials when published some point in the second quarter. We are seeking to add other JVs to our portfolio over time, and believe, like many of the other private and non-CLO investments we have made, they can be return enhancing for the company. During the fourth quarter, we implemented several initiatives aimed at continued optimization of our capital structure. We announced the redemption of our 8% Series F term preferred stock. The F’s were our highest cost of financing, at 8%, and were fully redeemed on January 30. Additionally, we proactively repurchased $9 million of our other $25 par securities in the open market at discounts to par during the fourth quarter. From an issuance perspective, we issued approximately $29 million of our 7% Series AA and BB convertible perpetual preferred stock during the quarter. We believe the 7% distribution rate on this perpetual preferred stock represents a very attractive cost of capital for the company and provides additional flexibility to support our investment strategy. We are aware of no other publicly traded entity that invests primarily in CLO equity with perpetual financing and consider this to be a material competitive advantage for the company. We issued a total of $155 million of this Series AA and BB convertible perpetual preferred stock through 2025. We concluded that offering at the end of the year and plan to evaluate other perpetual preferred issuance opportunities with potentially even lower costs in the future. We distributed $0.42 per share to holders of our common stock in the fourth quarter, paid in three monthly distributions of $0.14 each, and in the fourth quarter, we declared the same distributions for 2026. Earlier today, we declared three monthly distributions of $0.06 per share for 2026. When determining the new distribution level, the company’s board considered several factors such as GAAP earnings, recurring cash flow, and our requirements to distribute substantially all of our taxable income. We believe this new distribution rate is in line with the company’s near-term earnings potential. The board also authorized a $100 million common stock repurchase program. The repurchase program will allow us to opportunistically buy our stock in the open market if it trades at a material discount to NAV. Looking ahead to 2026, we see attractive opportunities for capital deployment in both CLO equity and other credit asset classes. By resetting the distribution rate, we plan to retain more capital for investments with attractive risk-adjusted returns. We believe this approach supports sustained cash flow and long-term total return with an important goal of contributing to a stable, or hopefully growing, NAV over time. I will now turn the call over to Kenneth Paul Onorio for the financial results. Kenneth Paul Onorio: Thank you, Tom. Thanks everyone for joining our call today. For 2025, the company recorded net investment income less realized losses from investments of negative $33 million, or negative $0.26 per share. Net investment income was $0.23 per share, and was offset by realized losses of $0.49 per share. This compares to NII less realized losses from investments of $0.16 per share in the third quarter and NII less realized losses of $0.12 per share in 2024. Realized losses recorded for the quarter were comprised of $0.40 attributable in large part to the rotation out of underperforming collateral managers, and $0.09 associated with the reclassification of unrealized losses to realized for 10 called legacy CLO equity positions. Including unrealized losses, the company recorded a GAAP net loss attributable to common stock of $110 million, or $0.84 per share, for the fourth quarter. This compares to GAAP net income of $0.12 per share in the prior quarter and $0.41 per share in 2024. The company’s fourth quarter GAAP net loss was comprised of investment income of $51 million, offset by net unrealized losses on investments of $69 million, realized losses on investments of $64 million, financing costs and operating expenses of $20 million, distributions and amortization of offering costs on perpetual preferred stock of $6 million, and net unrealized losses on certain liabilities recorded at fair value of $1 million. In addition, the company recorded another comprehensive loss attributable to changes in the mark-to-market of certain liabilities recorded at fair value of $5 million for the fourth quarter. Our leverage ratio, a measure of our debt and preferred equity over total assets less current liabilities, was 48% at the end of the fourth quarter, which is above our target range of generally operating the company between 27.5% to 37.5% under normal market conditions. As of January 31, our leverage was 46% based on the midpoint of management’s unaudited estimated range of the company’s January NAV, which reflected the redemption of the Series F term preferred stock. We plan to bring the company’s leverage ratio back to our target range over time. Importantly, the company remains in compliance with all applicable regulatory and financing covenants. Consistent with our disciplined financing strategy for the company, all of our financing remains fixed rate and we have no maturities prior to April 2028. In addition, a significant portion of our preferred stock financing is perpetual with no set maturity date. So far, in the current quarter through January 31, we have collected $57 million in recurring cash flows and expect additional collections throughout the balance of the quarter. Additionally, management’s unaudited estimate of the company’s NAV as of January month end was between $5.44 and $5.54 per share. With that, I will turn it back to Tom for market insights and closing thoughts. Thomas Majewski: Thank you, Ken. Loan market fundamentals remain largely stable through the year despite occasional bouts of volatility due to headlines concerning tariffs, interest rates, and geopolitical factors. Corporate revenues and EBITDA growth remain positive throughout the year for leveraged loan borrowers, contributing to relatively healthy credit performance. Thomas Majewski: The S&P/LSTA U.S. Leveraged Loan Index posted a 1.2% return for the fourth quarter and a 5.9% return for the full year 2025. Demand for loans remained strong, though they were tempered by ongoing spread compression. Total loan repayments reached $294 billion, or approximately 19% of the market in 2025, resulting in a twelve-month trailing prepayment rate of 21%. Gross issuance of $400 billion translated into net new issuance of $106 billion for the year. Importantly, the maturity profile of the loan market continues to improve, and only 3.1% of loans underlying our CLO equity positions are scheduled to mature prior to 2028. The trailing twelve-month default rate decreased from 1.5% in September to 1.2% as of December 31, still considerably below the 2.6% long-term average. As of December 31, our portfolio’s exposure to defaulted loans was 24 basis points. Anticipated rate declines should continue to support the low default rate environment, as issuers are able to save somewhat on interest costs. CLO new issuance volumes rose slightly to $55 billion in the fourth quarter, bringing the total to $209 billion for all of 2025, surpassing 2024’s record of $202 billion. The fourth quarter resets and refinancings totaled $54 billion and $20 billion respectively. Combined full-year CLO issuance, including resets and refinancings, hit $546 billion for 2025, exceeding last year’s total of $511 billion. Thomas Majewski: Our CLO equity portfolio metrics continue to stand out versus the broader market. As of quarter end, CCC-rated exposures within our CLO equity portfolio stood at 4.1%, which is lower than the market average of 4.3%. In addition, only 3.6% of the loans in our CLOs were trading below 80 compared to 4.4% across the market. Similarly, our weighted average junior OC cushion stood at 4.5%, significantly above the market average of 3.9%. Put simply, we believe our CLO equity portfolio is materially better than the market. These quantitative measures show the quality of our CLO equity portfolio and its strength relative to the broader market. Changes in base rates, including the Fed’s current easing cycle, tend to have limited direct impact on CLOs since it is principally a spread arbitrage product. In fact, lower base rates can be constructive at the margin as borrowers have reduced interest expense. Looking ahead, we remain excited about a robust pipeline of refinancings and resets of CLOs in our portfolio. We do see value in new CLO equity issuances selectively, particularly where we have a top line revenue share or are otherwise able to take advantage of the recent AI-driven volatility in the loan market. We are also excited about our existing investments in credit sectors beyond CLO equity as well as our adviser’s origination pipeline in other sectors of the credit markets. In fact, this is where we see some of the most attractive risk-adjusted returns available today. Our objective remains consistent: to generate steady cash flow and long-term total return for our shareholders, including focusing on a stable or even growing NAV. We thank you for your time and interest in Eagle Point Credit Company Inc. Ken and I will now open the call to your questions. Operator: Thank you. We will now be conducting a question and answer session. If you would like to be placed into the question queue, please press star 1. You may press star 2 if you would like to remove your question from the queue. We ask you to please ask one question and one follow-up, then return to the queue, and that is star 1 to be placed in the question queue. Our first question today is coming from Mickey Max Schleien from Clear Street. Your line is now live. Mickey Max Schleien: Yes. Good morning, Tom and Ken. Tom, in your remarks, you mentioned the increasing amount of captive CLO equity funds and I have heard anecdotally they were the vast majority of last year’s CLO creation. Last week, two large credit platforms announced a new JV for captive CLOs with no fees at either the CLOs themselves or the JV. How do you see this type of structure impacting fee structures for third-party CLOs? And what is your outlook for the ability of third parties to even compete with captive funds at this point? Thomas Majewski: A very good question. We are aware of the, I think, the same joint venture you are talking about. Obviously, there is still, based on my understanding of the funds buying those, putting the capital into the JV, the fees are borne at the shareholder level of the different shareholders of the JV. So that is where we see the economics getting formed. And I think I know the reasons why they set the vehicle up, although I will not speculate to it. And indeed, CLOs without the burden of internal management fees, all else equal, will have the potential to outperform those that would have internal management fees. Against that, your point is correct. A significant portion of the market last year of newly created CLOs was purchased by captive funds, different fee structures in all of those different entities for sure. What none of them are immune to, regardless of their fees, is spread compression. And we consider those funds broadly to be unsponsored private equity in that the people who make fees, and even in the case of the venture you are referring to, the investment managers make fees at the funds that are investing in the JV. They earn those fees when the money goes on the ground. And what we have seen again and again, this is very reminiscent of 2017 and 2018, when we were in what we call the risk retention period in the United States for syndicated CLOs, where you, so let us say $10 billion hypothetically was raised, that creates approximately $100 billion of incremental demand for loans. And I will, you know, in a $1.25 trillion, $1.5 trillion market. The loan market has headlines that there was $500 million or $1 billion of mutual fund inflows sometimes, and that moves it in the hundreds of millions. Now we are talking $100 billion. So we are definitely seeing the distortion both on the asset side and liability side driven by those vehicles. Thomas Majewski: Interestingly, back in the risk retention days, there were not a lot of fund twos. There were a few, but not too many. In many cases, those vehicles, while they did invest in primary often with no or reduced underlying fee load, what they did not do, in my opinion, well enough was proactively manage the ongoing life of a CLO. And there is a natural conflict between doing a reset and doing a new issue CLO. If you are a collateral manager and you are doing a new CLO, you are raising AUM. If you are doing a reset, you are merely extending. And in my opinion, some CLOs held in captive vehicles, going back to the last batch of them, probably were not properly stewarded or called when they should have been as well. Thomas Majewski: That said, a question we have asked ourselves is this a short-term blip in the market? Is this a permanent shift in the market? And in my opinion, it is somewhere in between. It is an other-than-short-term phenomenon in the market. Which is why we are pivoting some of our investment strategy to areas where we have top line revenue shares in the CLO collateral managers. So we will benefit from the growth of those platforms through revenue shares even beyond just CLOs that we are involved in. I was discreet and did not use the word captive fund when I described our joint venture launching a fund to invest in their own CLOs, but indeed that is a captive fund. And we hope that one does tremendously well, of course. But a lot of our focus has been, and I think we said 26% of the portfolio at present is in credit assets other than CLO equity at this point. And while we are not completely moving away from CLO equity by any stretch, where we are seeing the best return opportunities in general in many cases today is away from the CLO equity asset class. Thomas Majewski: And indeed, we believe a super majority, probably more than 75% of all CLOs created in 2025, were taken by captive funds. And that is distorting to the market. Our job is, first and foremost, to deliver strong returns for our shareholders, and the way we think we can do that the best in the medium term is increasing our allocation to credit asset classes beyond just CLO equity. Importantly, these are all asset classes that we have 14.6%. That is obviously, we are a levered vehicle, as you are aware. There are costs in our vehicle. Despite the cost and leverage, you would think with leverage we would be down more than the market. Our total return was actually modestly less bad than Nomura’s estimate of the total market. So I think in that regard, our strategy of rotating the portfolio somewhat away from CLO last year has certainly helped us. A levered vehicle, in theory, should be down more than the unlevered index if it is owning those assets, and we think both the quality of the CLOs we have and the portfolio rotation strategy that we have put in place served us well as a strong statement in a negative year but helped us versus had we not done that. And we expect to increase that allocation somewhat over time as opportunities present themselves. Mickey Max Schleien: And, Tom, in terms of that shift that you have described, how does the board feel about potentially changing the fund’s investment objective to allow for even more of a move away from CLO equity? Thomas Majewski: We have had preliminary talks with the board, and we certainly discussed this broad change. Obviously, everyone follows the schedule of investments. Every single quarter, you know this has been increasing slowly since 2022 in our portfolio. Once we got to this mid-20s, it warranted having a further discussion with the board. You know, we are not buying gold mines or crypto or things like that. We are sticking within core credit competencies in asset classes that we invest in broadly at Eagle Point. And the proof is in the pudding. Of the investments that have gone full cycle, fully realized, we got all our money back. It has been about an 18% IRR coming into ECC. I wish every investment we had in ECC generated an 18% IRR since 2022. Simple as that. So in a goal of making money with credit investments for our shareholders, our board has been supportive and is supportive of gradually increasing the asset allocation away from CLOs as the opportunities present themselves. We are not completely moving away by any stretch, and should we see a big sell-off, which we are not predicting, but if we saw a big dip, we would certainly buy a bunch of CLOs or CLO BBs, but the board has been supportive of the gradual realignment of the portfolio. Mickey Max Schleien: And, Tom, lastly, in terms of the opportunity set for this year, which you just mentioned, just looking back at last year, loan default rates, including LMEs, which are effectively a default, were about 3.4%, and looser deal terms over time have driven recoveries down to around 60%. So the loss given default rate was relatively elevated at around 135 basis points, which impacts CLO equity, obviously. And cash flows were also impacted by the tighter arbitrage that you talked about. Fundamentally, that resulted in the negative performance in that asset class last year. How do you expect those trends to develop this year? Thomas Majewski: So no one can repeatedly and accurately predict the future. So we will start with that. This is my opinion about the future. If I were to wake up and guess are loan spreads at 300 or 340 on July 1, my expectation is they would be at 300 versus 340. I see a trend towards continuing spread compression. There has been some volatility in the market, and the people who are investing in AI, their stocks are volatile. Maybe they are investing too much in AI. The companies that have the risk of AI disruption, their loans move around tremendously and rapidly. But overall, they seem to rebound quite quickly, and then the next sector gets attacked. So I net see a path to spread compression continued. I do see CLO tightening, but not at the same pace of loans, is my crystal ball, but that is just one person’s outlook. In terms of credit expense, indeed, when you bring in the LME factor, the default plus LME rate is higher than just the default rate. What I will say, LMEs come in two flavors. A bunch are pro rata where all lenders are treated equally, and others are non-pro rata, where different lenders in the same loan have divergent outcomes. And certainly, a number of the loan managers in our portfolio have a good track record of being on the winning end of the non-pro rata loan modifications in LMEs. So while LMEs in some cases are bad for sure, and ideally we had none, in some cases, our CLOs have actually been able to be the net winner, almost a reverse Robin Hood situation. So in many cases, the bigger holders of the loans do better than the smaller holders. It is not a direct one-to-one comp between LMEs and performance. It is certainly a factor. I wish we had fewer, but the devil is in the details on the LMEs. And for some CLO collateral managers, maybe they have been a net benefit shifting the credit problem to weaker hands. I do not see that trend going away in the interim. Mickey Max Schleien: But if you were to just, at a high level, describe your outlook on credit this year, how do you feel about credit quality and trends in credit expenses this year? Thomas Majewski: My tea leave is it is about the same as last year, which is not that bold of a call. Companies continue to work through things at a slow and measured pace. Weaker documents give them more runway to sit. Lower rates marginally help. The more troubled companies are not the ones doing the spread compressing, unfortunately, but they will benefit from lower rates. We are not predicting a significant uptick in credit expense, and we are also not seeing a significant improvement in it either. Mickey Max Schleien: I appreciate your patience. I just want to make sure I understand. To summarize, I think I heard you say that you would not be surprised if loan spreads continue to tighten, liability spreads do not tighten as quickly, and the credit environment looks similar to last year. So that sounds a lot like 2026 mirroring 2025. Is that fair? Thomas Majewski: Or 2018 mirroring 2017. Mickey Max Schleien: Okay. I appreciate it. Thanks for your time, Tom. Thomas Majewski: Great. Thank you. Operator: Thank you. The next question today is coming from Erik Edward Zwick from Lucid Capital Markets. Your line is now live. Erik Edward Zwick: Thanks. Good morning, Tom and Ken. I wanted to start quickly with a question on the new stock repurchase program, and I think the kind of language you used that you would potentially be active there when the stock is trading at a material discount to NAV, which, I guess, material can have different definitions, but I would think potentially today’s stock price would fit that definition. So just curious if you agree with that characterization and how active you could potentially be with the stock repurchase program, and how you weigh that relative to investment that you are using capital for investment opportunities. Thomas Majewski: It is a collage of a number of factors that go into the decision to use that. From the other vehicle we manage, EIC, we have used the phrase aggressive in how we have used it. And there are daily limits as to how much you can buy, and we have said we have been an aggressive user in the case of EIC. Within ECC, we will balance all of the collage of share price. Looking at our leverage ratios is something we look at. And looking at relative investment opportunities. I will compare it again to EIC. In a world where, when the stock was at a 10% discount and BBs were at par, that was a pretty easy decision. Here, we have situations where we might be able to put investments in that hopefully perform as well as or even maybe better than some of our historic non-CLO investments, in which case maybe we would lean more that way. It is an art, not a science. There is not a formula that we have. But Ken and I watch it very closely. And when it makes sense to use, we will definitely plan on using it. Erik Edward Zwick: Thanks. And then in terms of, I believe it is towards the end of maybe your prepared comments, Tom, you mentioned that some of the actions and the strategy shifts you are doing or you are hopeful for are kind of growing or stable NAV over time. And maybe just kind of riding on the coattails of Mickey’s last question in terms of 2026 kind of shaping up to look more like 2025 at this point where asset repricing seems to run ahead of the opportunities for resets and refis. So the arbitrage opportunity remains challenged, and that obviously had an impact on NAV. What would it take, in your mind? What needs to change for that NAV to be more stable? And are you seeing any signs of that in the near term? Thomas Majewski: Sure. Well, one immediate thing is paying out cash well in excess of net investment income. That we have changed, for better or worse. But the new distribution rate at $0.06 a month becomes $0.18 a quarter. Our net investment income was, what, $0.23 last quarter. So we baked in some cushion there, frankly. So we are husbanding capital a little bit, in a way to keep capital on the balance sheet. So a nontrivial part of NAV from last year was simply from paying out cash to shareholders. And while we know shareholders value cash, we are shareholders ourselves, we have also heard from shareholders they value a stable NAV. And our view is a company that is earning a distribution and that distribution is in the mid-teens, that is something that deserves to exist, frankly. So while we look at there are probably some more headwinds in the CLO market if we had to read the tea leaves today, although that can snap very quickly as we know, and when loans get cheap, that is why we focus on having as much weighted average remaining reinvestment period in our portfolio. When loans get cheap, we are able to capitalize on those within our CLOs and potentially add to our CLO portfolio. When we look at assets away from the CLO market, other private credit investments that we are making across the firm, we see paths for those in many cases to actually create gains, sometimes through warrant upside and other things like that. ECC does have some capital loss carryforwards that, to the extent we are fortunate to realize gains, if we do, in general can be offset against those carryforwards, so it would not create a distribution requirement related to those. And that could be one of our paths to increase NAV. Erik Edward Zwick: Thanks for taking my questions today. Thomas Majewski: Great. Thank you very much, Erik. Operator: Thank you. Next question today is coming from Timothy D’Agostino from B. Riley Securities. Your line is now live. Timothy D’Agostino: Yes. Hi. Thank you. Good morning. For all the commentary before, I guess, kind of piggybacking off the whole conversation where 2026 could look like 2025. In terms of resets and refinances, you did 34 resets and 27 refis in 2025. The outlook for 2026, could we see a similar amount of resets and refinances from ECC? I guess it is obviously hard for you guys to predict and say what is going to happen, but the outlook of what you could or can do for resets and refis in 2026. Thomas Majewski: It is nontrivial. I cannot say we are going to be at the same level we were last year, and some of it depends on where AAA spreads move and the steepness of the curve for refinancings, which are often tighter than resets but have a different buyer base. There are some investors who focus just on the refis because they are shorter bonds. So it is difficult to predict for sure. But there are dozens of CLOs in the portfolio. To the extent we see AAAs continue to trickle tighter, and you can see when we publish, if you even look at the Q3 report, which has each position of our CLO equity portfolio with the AAA spread, market today kind of 115 to 120. So if you look across those, we list the AAA for every single one. You could count and say how many of those are five to 10 basis points or more wide of the market. And those would be, generally, the ones we would be focused on first. If AAAs tighten 15 bps, that list gets a lot longer. If AAAs widen 15 bps, which I do not think they will, but lots of things can happen, if they were to widen that much, then obviously the list shortens significantly. If we have AAAs widening 15 bps, we have loans probably at a discount and loan repricing stopping. So we have got a pretty robust calendar of investments slated, and you can kind of form your view. We give the portfolio with AAA spread and non-call date for every investment and kind of think of it at a 1.15, 1.20 bogey today that we would be refinancing or resetting into. Timothy D’Agostino: Okay. Great. Thank you so much. And then as a second question, touching on the private credit investment outside of CLOs, as we look going forward, could you talk to maybe some of the private credit products or just private credit instruments that you are interested in, or you see good opportunity in 2026 or 2027? Putting a little bit more color around what we could see in private credit investment as we look forward. Thomas Majewski: Sure. I am just going to pull up our Q3 schedule of investments here. Bear with me one second. So this is all on our website for those who are interested. And I am looking at our September 30 schedule of investments. And I apologize, we do not have the Q4 schedule out yet, but we just wanted, in light of all the things going on with other CLO funds and chatter in the market, we just wanted to get this information out as quickly as possible. We will have the full report published in the normal time. But when we look across our schedule of investments, you can see asset-backed securities, which includes Carvana and Chase autos, PenFed autos. That is about 8.4%. This is as of September 30 of our portfolio. Collateralized fund obligations, which are a pretty interesting thing. These are pools typically of private credit funds, represents about 5% of the portfolio. Other areas, I wish we had more of some pretty attractive equipment leases. We have got stuff with Applied Digital. That is only about 35 basis points right now, although there are other leasing things going on in the portfolio. You can see our other kind of financial services-type investments total about 3.86%. Notably, we have, just looking across here, one other joint venture we are invested in, Senior Credit Corp 2022 LLC. Here, we have a senior note, and we have equity in that entity. That has been a very strong performer. That is actually sort of a venture lending joint venture we have with another partner who does direct origination of those assets. And then moving a little further down, you can see some degree of regulatory capital relief. That totals about 5% of the portfolio. And in general, these are corporate and, in some cases, consumer assets. These are synthetic securitizations by banks which behave a little differently than CLO equity. They have some similarities in that typically they are the residual class against a pool of credits. Once in a while, the bank has a little bit subordinate to you, but that is the exception. It could be similar levered exposure to credit. A drawback of these regulatory capital relief transactions is there is not a discounted reinvestment option. Think about one of the things we love with CLOs. If loans go to 80, CLOs can buy those loans really cheap. These regulatory capital options, because those transactions do not have that. Against that, when the regulatory capital relief transaction reaches its maturity date, if the loan has not had a default, the bank unwinds the transaction at par. So you are immunized to some degree from NAV volatility. In a CLO, if at the end of the reinvestment period all the loans are at 95, let us say, you are going to have a lower CLO price than if all the loans are at 100. Thomas Majewski: So you lose on the ability to reinvest cheap in a regulatory capital transaction, but you take away a big part of NAV volatility in that any loan that does not default is worth par. So we have been investing in these certainly since 2022, and actually even further back than that. As a firm, we have invested certainly over $750 million at this point. And, frankly, some of these assets that we have been balance sheeting we plan to contribute to that joint venture with an outside strategic partner. We may be able to get a little bit of financing on those as well, which might further help the returns. But those, if you look through the SOI from September 30, and then when you see the December 31 SOI, will give you the flavor of stuff that we are investing in. In general, we are not making loans to companies at SOFR plus 475 or something like that that BDCs are doing. But these are typically mid-teens type return investment opportunities. Obviously, some higher, some lower. But it gives you a broad flavor of other kind of private credit, a little bit not mainstream, a little bit of structural complexity for sure, but asset classes we have a lot of experience in, and asset classes that have, as we have shared with you from our track record of everything that has gone fully realized, performed well for us. Timothy D’Agostino: Okay. Great. That is super helpful. And then just quickly, you said financials will be out in a normalized time. Could we expect it to be out around EIC’s earning release? Kenneth Paul Onorio: Yes. That is the plan. By the end of next week, they will be out. Timothy D’Agostino: Okay. Great. Thank you so much for the time today. Thomas Majewski: Thank you. Operator: Thank you. Next question today is coming from Christopher Nolan from Ladenburg Thalmann. Your line is now live. Christopher Nolan: Hi. Thanks for taking my questions. Tom, are you seeing higher provisioning at the banks originating the loans in the CLOs? Or is the bank simply funneling these new originations into the CLOs, and in that case you might get adverse selection? Thomas Majewski: So the syndicated loan market for all major banks is an originate-to-distribute model. While they invariably keep some of the loan on their balance sheet, the vast majority is distributed. But there is not a decision, or very rarely is there someone saying make a decision should we syndicate this one or keep this one. If, you know, XYZ bank says we are going to originate, underwrite a $2 billion loan for KKR’s next LBO, the loan syndication head is involved in that underwrite because it is essentially always a plan to distribute. Do they sometimes bridge things for a little while or stuff like that? Yes. But I do not think it is an adverse selection situation from banks keeping the good ones and syndicating the bad ones. By and large, if I could wave my wand and change one thing from last year, I would keep loan spreads flat. I would accept the credit expense, be it the defaults, some of the shadow defaults from LMEs, and just keep spreads flat. If I could have retroactively waved my magic wand and changed 2025, that is the principal driver. And it is banks out promulgating these reset lower pricings on loans, and it is loan managers buying them for whatever reason. They need the loans. They need to roll. That is the bigger issue facing the market right now is the tightening of loan spreads versus the tightening of AAA spreads. We could take any loan spread as long as AAAs are tight enough. We have just not seen the AAAs tighten as fast as the loans. But if I could change one thing, I would take another year of last year’s credit performance if I could keep spreads flat. Christopher Nolan: Great. And then, you mentioned earlier, if I heard correctly, that your new dividend policy of $0.18 for the second quarter is a bit on the conservative side. Given that, is there a possibility of dividend supplements going forward? Thomas Majewski: Obviously, the board will consider all factors, and we have to distribute substantially all of our taxable income. We do have some degree of spillover income possibility. So if we had a bunch of spillover, we could certainly roll that into 2027. As we talked about the policy, one of our board members, it certainly came up at the board, are we going to now have to pay a big special at some point in the future? That is not a prediction. I would love for that to be my biggest problem in the future. Right now, that is unfortunately an aspirational issue for us. But we will make the decisions at the right time as we have the information. We certainly are not expecting a special or supplemental distribution anytime this year. And there is obviously the potential in the future if we are under-distributed, although we would also consider the ability to use the spillover and pay the small excise tax. Operator: Thank you. Our final question today is coming from Gaurav Mehta from Alliance Global Partners. Your line is now live. Gaurav Mehta: Yes, thank you. Good morning. I have a question on the balance sheet. Just wondering if you could touch upon your leverage expectations and, given where your stock is and where your leverage is, what kind of sources of capital would you have available to deploy capital this year? Thomas Majewski: Sure. The portfolio generates gobs and gobs of cash. That is the important measure. I think we had $80 million or so last quarter. We have high 50s in the bank so far this quarter, and more investments still to pay. Stuff gets paid off. Stuff gets called. Our expectation is we will have a bunch of excess cash flow from our portfolio well in excess of expenses and distributions to be able to continue to invest as well as make portfolio rotations where it makes sense. We have sold investments, and we will continue to sell where we see better relative value. In general, across our investments, both the CLO equity and then the 26% away from CLO equity, by and large, the vast majority of those generate a lot of cash flow, so the portfolio should organically create enough cash to continue to invest. And where we see value, we will make relative value trades, liquidating some investments, moving on to others. I am not particularly worried. I am not thinking about issuance of stock or preferred or debt as a source of capital for new investments. The one exception to that, to the extent we have one or more joint ventures which may use financing, those perhaps could be a source of capital, but I am not particularly focused on raising new debt or common stock at ECC itself. The portfolio should organically generate enough cash. Gaurav Mehta: Thanks for that detail. As a follow-up on the balance sheet, I do not know if you talked about it, but the redemption of the preferred stock that you had, was it done with cash? Thomas Majewski: Yes. So the ECCF was paid in full January 31. It was our highest cost of financing, and while we did conclude the 7% perpetual program at the end of last year, we raised about $155 million on that. And part of our strategy was paying off 8s and issuing perpetuals with a 7. That seems like a good long-term decision. At some point, could we consider adding a new perpetual program with rates falling perhaps even at a lower rate? I think that is a possibility at some point in the future, but we have not made any specific plans or any arrangements to that end. We do have other financing with nontrivial costs as well. One of the things we like to do is keep as long of a balance sheet as possible. I think our nearest maturity is 2028. Not that that is anywhere near term, but continuing to get as much tenor as possible in our portfolio is something we are going to keep focused on. Looking here at our chart, the ECCX is due in 2028. That is our nearest. Then the one after that, the V’s, are due in 2029. Those are 5 3/8%. So that is pretty cheap money. But will we seek to lengthen the balance sheet as much as possible while slightly reducing the overall financing at the company are things we will be working on over time. Gaurav Mehta: Alright. Thank you. That is all I had. Operator: Great. Thank you. We have reached the end of our question and answer session. I would like to turn the floor back over for any further or closing comments. Christopher Nolan: Great, thank you very much everyone. We recognize the, you know, some challenging developments for the company. We wanted to get the news out as quickly as possible. We saw the stock moving around as other companies in our sector made other changes. We want to get the information in the hands of investors as quickly as possible to avoid speculation. We are very excited about the investments going in the ground. I shared certainly a candid outlook on the credit markets for this year. Obviously, those are opinions. If nothing else, we live in interesting times for sure. Things could get better or things could get worse there. We are very excited about the non-CLO component of our portfolio. We plan to, as opportunities present themselves, increase that. And then we will also, as we continue to evolve and expand that portfolio, provide additional detail and transparency on it. As the non-CLO portion was smaller, it becomes less relevant. As it is getting bigger and bigger, we will seek to provide more information in the coming quarters around that portfolio. So appreciate your time and questions. We know there is a lot of news today. If there are follow-up questions, Ken and I will be available throughout the day. Thank you very much for your time and interest in Eagle Point Credit Company Inc. Operator: Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, and thank you for standing by. Welcome to the quarter 2025 Louisiana-Pacific Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, we will open up for questions. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's call is being recorded. I would now like to hand it over to your speaker, Aaron Howald, Vice President, Investor Relations. Please go ahead. Thank you, operator. Good morning, everyone. Aaron Howald: Thank you for joining us from the International Builders' Show in Orlando to discuss Louisiana-Pacific Corporation financial results for the fourth quarter and full year of 2025, as well as our outlook for 2026. Hosting the call with me this morning are Jason Ringblom, Chief Executive Officer, and Alan J. Haughie, Chief Financial Officer. After prepared remarks, we will take a round of questions and then we will be available for follow-up calls and visits to LP's booth at IBS. During this morning's call, we will refer to a presentation that has been posted to LP's IR web page which is investor.lpcorp.com. Our 8-K filing, earnings press release, and other materials are also available there. Finally, I will remind you that today's discussion contains forward-looking statements and non-GAAP financial metrics as described on Slides 2 and 3 of the earnings presentation. The appendix of that presentation also contains reconciliations and is further supplemented by this morning's 8-K filing. Rather than reading those materials, I will incorporate them herein by reference. And with that, I will turn the call over to Jason. Thank you, Aaron, and thank you all for joining us. First of all, let me start by offering thanks and congratulations on behalf of the entire LP team to Brad Southern for a well-earned retirement after more than 25 years of transformative leadership at LP. It is truly an honor to be succeeding Brad as LP's next CEO. I am confident that LP has the right strategy and the right team to make a seamless transition. We remain fully committed to driving growth, gaining market share, delivering product and process innovation, and generating shareholder value in the years to come. 2025 was a difficult year for homebuilding and aspiring homeowners. Tariffs, economic policy uncertainty, and deteriorating consumer confidence all contributed to affordability challenges. Housing starts decelerated throughout the year. In fact, single-family starts, a key demand indicator for both Siding and OSB, were down roughly 10% in the third quarter according to the Census Bureau. Unfortunately, the Census Bureau has yet to publish fourth quarter housing data, but I suspect when that data is available it will confirm further weakness. Despite these challenges, LP grew the Siding business by 8% for the full year while expanding margins, particularly in Expert Finish. In the fourth quarter, LP delivered $567,000,000 in net sales, $50,000,000 in EBITDA, and $0.03 in adjusted diluted earnings per share. LP Siding business showed resilience in a weakening market. For the full year, we achieved 4% higher net selling prices and 4% higher sales volumes, resulting in 8% revenue growth. This allowed us to deliver a 26% EBITDA margin. Major contributors to these results were growth in the Shed segment, which reinforces the power of LP's diverse end-use applications, and Expert Finish. Not only has product innovation helped us expand the addressable market to reach new repair and remodel customers, but as Alan will describe in a few minutes, we have also seen significant margin improvement. 2025 saw significant volume growth with our largest shed customers, particularly in the first half of the year. It is hard to be precise given the broad range of uses for SmartSide lap, trim, and panels, but we estimate that shed volumes were up slightly more than 20% year over year. We estimate that products sold into new residential construction saw volumes decline by roughly one to three points, which significantly outpaced the decline in single-family starts. LP's repair and remodel sector was likely flat to up a point or two with impressive 18% growth in Expert Finish. To be fair, Siding also enjoyed some geographic advantages in 2025. We have stronger market presence in the Upper Midwest where construction activity remained comparatively strong, and we were modestly insulated from softer markets in the Southeast due to our lower market penetration in this region. One consequence of recent market uncertainty is that dealers adopted a more cautious stance with regard to their inventory positions, holding fewer weeks of supply than normal. This adjustment coincided with a volume allocation prior to LP's price increase that we now realize was somewhat larger than necessary. Unfortunately, the combined effect of these phenomena appears to have resulted in some pull-forward at year-end, leading to elevated channel inventories with some of our two-step distribution partners. Consequently, and as Alan will detail in the guide section, Siding order files have been a bit weaker than anticipated to begin 2026. OSB results tracked housing demand more closely as they generally do, with commodity prices softening alongside housing starts. Unfortunately, at their trough, OSB prices, adjusted for inflation, were the lowest we have seen in 20 years at LP. Despite that, LP's OSB mills operated safely and efficiently in the fourth quarter. We managed costs and capacity with care and discipline, and while we did not break even for the quarter, we did overcome softness in the second half of the year to achieve a positive EBITDA for the full year. As you all know, we cannot control OSB prices, so we focus our efforts instead on executing our strategy. Speaking of strategic execution, the integration of LP under a Chief Commercial Officer and Chief Operating Officer structure rather than two business general managers is beginning to show its value. For example, aligning OSB and Siding go-to-market strategies has enabled unique sales synergies that provide new pathways for ongoing Siding growth. Integrating operations has improved best-practice sharing, uncovering opportunities for enhanced safety, OEE, and system-wide capacity utilization. Operating efficiency in the OSB business increased by one point to 79%, which is remarkable given the operating challenges of a soft demand environment. While total Siding OEE was flat year over year at 77%, OEE at LP's Expert Finish facilities improved significantly. This not only contributed to our ability to come off of a managed order file a bit earlier than previously anticipated, but as Alan will detail in a moment, the extra volume helped deliver margin expansion. LP also executed our capital investments efficiently and flexibly, adjusting in response to slowing demand, and accelerating Expert Finish expansion to meet strong demand. Most importantly, we operated safely and responsibly. LP achieved a total incident rate of 0.62 in 2025, which was incrementally better than 2024's level. We also had two mills, Newberry, Michigan in Siding and Jasper, Texas in OSB, reach three years without a recordable injury in 2025. As a result, LP earned the APA's Safest Company Award for the third year running. I will now turn the call over to Alan J. Haughie for a more detailed review of LP's financial results for the quarter and the year as well as a discussion of our outlook, after which we will take a round of questions. Alan J. Haughie: Thanks, Jason. Alan J. Haughie: Slide 7 of the presentation shows the fourth quarter year-over-year waterfall for Siding. Revenue increased by 6% with prices, including mix effects, up 8% on a 2% volume decline. Aaron Howald: And while these price increases added $24,000,000 to sales and EBITDA year over year, Alan J. Haughie: some of that benefit came from volume rebate thresholds not being met. But within this modest volume decline, Expert Finish jumped 35% while Prime volumes fell by 5%. This creates a slight adverse mix effect within EBITDA because Expert Finish still has a lower margin than Primed products. Having said that, Expert Finish margins have improved by about eight points year over year thanks to leverage on increased volume and manufacturing efficiencies. The only other items to note for Siding in the fourth quarter chart are the absence of tariffs on the Expert Finish we are importing into Canada, and the non-recurrence of last year's effects from production and cost timing due to the delayed maintenance project last fall. As a result, the EBITDA margin for the quarter was 25%, up five points year over year. For the full year on Slide 8, net sales were up 8%, evenly split between price and volume, as Jason said, adding $131,000,000 to revenue and $91,000,000 to EBITDA. Selling and market expenses increased by about $11,000,000 while raw material cost tailwinds mostly offset freight and labor cost headwinds. SG&A increases, tariffs, and other factors totaled about $23,000,000. As a result, Siding finished 2025 with $444,000,000 in EBITDA, which is $54,000,000 higher than 2024, a one percentage point rise in the EBITDA margin to 26%. OSB charts on Pages 9 and 10 are dominated by price, as they so often are, sadly, this time to the negative. In the fourth quarter, unfavorable supply-demand dynamics resulted in multiyear price lows and volume reductions across the OSB portfolio. Volume and price movements are harder to parse in OSB than they are in Siding given its commodity nature, and they combined for a year-over-year decrease of $129,000,000 in revenue and $95,000,000 in EBITDA. Given these headwinds, the OSB operations team made the best of a very difficult market, found every opportunity for savings and efficiency. Their efforts and diligence allowed the segment to achieve $7,000,000 of EBITDA for the year, as detailed on Slide 10. To summarize the financial results for the full year, we had $2,700,000,000 in net sales, $436,000,000 of EBITDA, and adjusted earnings per share of $2.65. These are the net effect of Siding growth and margin expansion offset by lower OSB prices. As you can see on Slide 11, we consistently executed our capital allocation strategy. Adjusted EBITDA of $436,000,000 generated $382,000,000 of operating cash flow after $42,000,000 in cash taxes and a small increase in working capital. We invested $291,000,000 in sustaining maintenance and growth capital, and this was about $25,000,000 less than we anticipated spending on the last call, made possible by the deferral of some of the nonessential projects in OSB as well as the decision to slow down capacity investments in Siding. We returned $139,000,000 to investors through $78,000,000 in quarterly dividends and $61,000,000 in share repurchases. At year-end, LP's cash balance was $292,000,000, and with an undrawn revolver of $750,000,000, LP has over $1,000,000,000 in liquidity. For housekeeping, we have $177,000,000 of Board authorization remaining to repurchase shares. Guidance: LP's OSB guidance is algorithmic and relatively straightforward, so let me dispense with that first. Random Lengths prices have climbed recently to levels that are near enough to OSB breakeven that, should we extrapolate current prices for the full year, OSB results will be very similar to 2025. I should also note, for sensitivity modeling purposes, we currently anticipate LP's utilization rate for OSB to be a few points below our longer-term average rate of 85%. For 2026, LP's realization has lagged the rising market price, which is typical. Assuming prices hold at current levels, OSB EBITDA in the first quarter should be a loss of between $25,000,000 and $30,000,000. Unlike OSB, our Siding guidance is not algorithmic. Rather, it is informed in the near term by our order file and in the longer term by macroeconomic data and customer sentiment. As Jason said in his remarks, an acute lack of data, particularly housing starts, added uncertainties to our planning for volume allocations following the announcement of our 2026 price increase last October. Despite our best intentions, we overshot, resulting in some pull-forward of demand from the first quarter of this year into the fourth quarter of last year, especially with our shed customers. To be fair, it is difficult to precisely separate this impact from that of a severe winter storm that hit the Southeast in late January. Suffice to say, as a result, our order file is weaker today and inventories are higher. So far in the first quarter, our order files contain significantly weaker shed activity than we experienced this time last year, with demand in the new residential construction and repair and remodel sectors roughly in line with the year-over-year decline in single-family housing starts but exacerbated by our current inventory position. Accordingly, we currently anticipate total volumes in the first quarter will be down 15% to 20%, with shed volumes down 25% to 30%, new residential construction and R&R volumes down about 10% to 15%, consistent with single-family starts. However, we expect average selling prices in the first quarter to be up six to eight points as a result of list price increases and the positive mix effect of ongoing Expert Finish growth. This would result in a first quarter year-over-year decline in net sales of 11% to 13%, with the EBITDA margin coming in at between 23% and 25%. Given the exit rate from Q4 of last year, flat housing consensus for 2026 implies meaningful improvement after a difficult first quarter. Presuming the consensus is correct, and starts do indeed end the year flat to 2025, we would expect to see demand improve sequentially, especially as shed demand returns to prior-year cadence as inventories normalize. As such, by year-end, we would expect Siding volumes to be down low single digits, selling prices to be up mid-single digits, and, as a result, net sales to be up low single digits, for an EBITDA margin of around 25% to 26%. With regard to capital expenditures, consistent with the same general market assumptions I just mentioned, we currently anticipate investing about $400,000,000 split equally between sustaining maintenance and strategic growth. The spending will probably be back-end loaded with about percent of the investments occurring in the second half. Should the market demand environment diverge meaningfully, for better or worse, we have significant flexibility in our plans such that we could accelerate investments somewhat or reduce them substantially. As I said a moment ago, LP certainly has the balance sheet to weather further market weakening or support accelerated investment as needed. We are facing a very uncertain market backdrop at the moment. However, rather than dwelling on what we do not know, LP's teams will focus on what we do know. LP SmartSide has consistently gained share with innovative products that expand the addressable market. That growth, coupled with the pricing power that comes with a premium specialty product, brings leverage and margin expansion. While not linear, that growth has, over time, outperformed the underlying markets we serve. We are confident that these fundamentals remain intact and that we have a long runway ahead of us and the right strategy to guide us. With that, we will be happy to take a round of questions, after which we look forward to seeing you at LP's booth at the International Builders' Show. Operator: Thank you. As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please limit yourself to one question and one follow-up. In the interest of time, please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Matthew Bouley from Barclays. Your line is now open. Matthew McKellar: Hi. Good morning. I have Anika Dallacia on for Matt today. Thank you for taking my questions. First off, Brad, congrats, and, Jason, look forward to working with you. First, with 1Q Siding revenue guidance, it implies a step up through the rest of the year to get to $1,700,000,000 guidance, maybe somewhere in the mid-single-digit range. I know you talked about shed normalizing. Is that the main driver you are looking at in the year-over-year comps, or any details around how you are thinking about the cadence of revenues? Operator: Thanks. Alan J. Haughie: Yeah. Hi. It is—We are expecting some improvement in shed. That is probably the dominant piece, but really, we are expecting improvement across the board as housing normalizes. Matthew McKellar: Okay. Got it. I am curious on the affordability pressure today. Are you seeing any risk of mix down to vinyl or other siding materials that have a lower upfront cost? What are you hearing from contractors, and are there any differences by channel, either builder or R&R? Aaron Howald: Thanks for the question. I would say affordability remains a primary headwind and all the builder customers that we are working with are focused on meeting a price point that will allow them to turn more homes. There has been a little bit of a move to vinyl, but we think with the broad product offering that we offer with SmartSide that there is tremendous value there, and with a relatively low share position there are plenty of opportunities for us to continue on our growth trajectory. Operator: Thank you. One moment for our next question. Our next question comes from the line of Ketan Mamtora from BMO Capital Markets. Your line is open. Good morning, and thanks for taking my question. Coming back to Siding, Jason, can you talk a little bit about what you are seeing Ketan Mamtora: in terms of demand in your Expert Finish product? I saw volumes were pretty good in Q4. Are you still in allocation on that business? Any trends you can talk to? Aaron Howald: Thanks, Ketan. Appreciate the question. In regards to Expert Finish, what I would say is macro trends remain in our favor here. Labor is tight. Labor is expensive. Homeowners expect a durable and resilient solution that comes with a warranty. Our value proposition for Expert Finish and Expert Finish Naturals really addresses all of those needs. As a result, we are continuing to see this product category outperform in both new construction and repair and remodel. In regards to the allocation question, we did come off allocation, I believe, February 1, so a couple of weeks ago. That is due to the OEE improvements that we were able to realize across our network. We thought that we would have to wait until our new Green Bay facility came online in early Q2 of this year, but through great work from our operations folks, we have been able to come off slightly in advance of what we had planned on. Ketan Mamtora: Understood. That is helpful. Can you remind us how you are thinking about additional capacity in Siding? Last quarter, you talked about it as being one of the options. How should we think about timeline on that? In the meantime, how are you thinking about managing production in OSB? Aaron Howald: I will start with Siding and say we are very excited to be ramping up our new 70,000,000-foot line in Green Bay in early Q2. Regarding broader capacity expansion opportunities, we are continuing detailed engineering work for future Expert Finish and Primed capacity expansion projects. Some of that capital spend is in the figures that Alan shared earlier, a little more back-end loaded. Big picture, we want to be prepared to execute with projects that are essentially ready for plug and play when the timing is appropriate, with a heavy bent towards being early versus late. Second question, Ketan, I believe, was around how we are managing OSB capacity. I would say largely consistent with what we have done in prior years, very focused on managing capacity to demand. We are pleased to see the nice rebound in prices to begin the year and have been able to keep a healthy order file across our network. It feels more optimistic that supply and demand are a little more in balance than they had been for the majority of last year. Thank you. Operator: One moment for the next question. Our next question will come from the line of George Staphos from Bank of America Securities. Your line is open. Hi. Good morning, everyone. This is Brad Barton on for George. Jason, congrats on the new role. We look forward to working with you. Aaron Howald: Thanks, Brad. Operator: Starting off, I know you touched a little bit on vinyl and affordability concerns and maybe some shifts there. But George Leon Staphos: could you speak to more of the broad competitive environment that you are seeing in Siding right now? Aaron Howald: What I would say, Brad, is broadly we are very confident that we are gaining share in all of the segments that we focus on. I think there is strong evidence of that if you look back at the last couple of years, with 2025 supporting that as well. Right now, with starts ticking up in the back half of 2025, it comes with its challenges. But we feel like in the new construction and repair and remodel segments, in particular, we have a relatively low share position and a very large field sales organization that is focused on winning new customers. That does not stop in a softer market, and we believe there are plenty of opportunities in front of us. George Leon Staphos: Great. Thanks. As a follow-up, as you bring Expert Finish capacity online, can you speak to how you will have to ramp your marketing spend and investments, both in terms of the timeline and the magnitude, maybe compared to the $11,000,000 investment that you saw in 2025? Aaron Howald: Over the last several years, you have seen an increase in both marketing spend and the addition of field sales resources to support the growth of Expert Finish. We did not put any of that on pause as we experienced allocation back in September or October. Those investments will continue going forward. We are very pleased with the growth we are seeing in Expert Finish and excited to bring on one of our newest state-of-the-art lines in Green Bay, Wisconsin. George Leon Staphos: Great. Thanks for taking the questions. Operator: Thank you. One moment for our next question. Our next question will come from the line of Mark Weintraub from Seaport Research Partners. Your line is open. Mark Adam Weintraub: Thank you. Last year, you mentioned sheds up a little better than 20% by your best guess estimate, obviously slowed in the first quarter. What are you embedding for sheds for the full year in 2026 versus 2025? To the extent that you have information, where would you say your shed business was last year relative to, say, the last ten years, or another appropriate time frame? Aaron Howald: I will start with the first part of the question. In regards to shed, there has always been a bit of lumpiness to our order intake. Although inventories are higher than we anticipated, we are hearing anecdotally from several of our largest shed fabricators that underlying demand in this segment remains on a firm footing and trending very similarly to 2025 levels. This positive news, coupled with some new product innovations—specifically our Everyday Flooring series and SilverTech roofing that we launched to begin the year—gives us confidence we can get back to a normal trajectory quickly once inventories are depleted throughout the first quarter. Mark Adam Weintraub: I am just—Because you were up 20% last year, was that getting you to what you consider to be normalized, or was that substantially better than what you consider normalized? Aaron Howald: Last year was a bit of an anomaly because our shed distributors came into 2025 with inventories very lean. We had an inventory build throughout Q1 and Q2, and then, obviously, overshot the allocation prior to the 2026 price increase. We feel like the underlying demand is very stable in shed, and with new products we brought to market, we feel like there is growth opportunity in that segment even though we own a relatively high share position. Ketan Mamtora: Thank you. Operator: Thank you. One moment for our next question. Our next question comes from the line of Steven Ramsey from Thompson Research Group. Your line is open. Thanks for taking my question. I wanted to start with higher Siding EBITDA in the guidance Matthew McKellar: and then breakeven OSB. Does that point to operating cash flow being somewhat near the 2025 results, Steven Ramsey: and if so, CapEx points to free cash flow being roughly breakeven? Maybe you can talk to the assumptions there on free cash generation. Alan J. Haughie: That is about right. Yes. You nailed it. Steven Ramsey: Okay. Sounds good. Appreciate that. Is there an expected pace on the Siding margin ramp through the year? The last year or two, Q1 and Q2 EBITDA margin were in the same zone. Is it expected to be a steeper ramp upward going through 2026? Alan J. Haughie: I would think of it as more seasonal. We had very strong Q1 and Q2s last year; hence the seasonality was tilted towards that first half. The seasonality of the volume—volume provides such huge leverage that the cadence of the EBITDA margin, while being on a modest rising curve, will follow the seasonality of volume. That is really the factor that most influences it, the leverage we get from the volume. That is helpful. Thank you. Thank you. One moment for our next question. Operator: Our next question will come from the line of Casia Trasky from TD Cowen. Your line is open. Michael Andrew Roxland: Hi there. It is Sasha. Great effort, though. I am on the call for Sean Steuart from TD Cowen. First question is around Siding. Can you comment what kind of Steven Ramsey: Siding volume Michael Andrew Roxland: pull-through you are seeing from your homebuilder channel right now? Please provide broader commentary about how any specific homebuilder relationships might be evolving. Aaron Howald: Sorry, Kasia. You cut out a bit on the keyword. Could you repeat the question, please? Repeat the question. Michael Andrew Roxland: Hi. Can you hear me better now? Aaron Howald: That is much better. Yes. Thank you. Michael Andrew Roxland: Great. The question was around Siding. I am curious about any thoughts on what kind of Siding volume pull-through you are seeing from your homebuilder channel and if you could provide broader commentary about how any specific homebuilder relationships might be evolving. Aaron Howald: I will take that one. Thanks for the question, Kasia. Speaking to the homebuilder community, it is very different depending on region. There is certainly more strength in the northern markets where historically Siding has been strongest and softer in the Southeast, Texas, and some Western markets. It depends on geography. In terms of where we are with our relationships, I mentioned earlier the integration of LP. We are focused on leveraging our full portfolio of solutions to drive growth in the homebuilder segment. We know we are a very relevant supplier to this market, and that strategy is allowing us to offer greater value and be more creative and responsive to our customers' needs. We are still in the early stages, but we are encouraged by the reception we have received from builders in response to the integration of LP. Michael Andrew Roxland: Thanks for that, Jason. I want to make sure I did not mishear earlier. Ketan Mamtora: Did you say that the Michael Andrew Roxland: inventory buildup in the channel right now, you expect that to unwind over the course of Steven Ramsey: Q1, Michael Andrew Roxland: bringing us back to a more normalized steady state in Q2? Aaron Howald: I will shed a little bit of light on that. We believe the dealer channel, those closest to the builder, did not necessarily increase inventories throughout the fall; they are focused more on working capital. However, our two-step customers, the folks we transact with most, took advantage of the allocation in advance of the price increase. We see that in their inventory reporting requirements looking backwards. Based on what we see—roughly two to four weeks of inventory at the two-step level—we believe that can be consumed heading into Q2 with the historical uplift in seasonal demand. So yes. Michael Andrew Roxland: Got it. That is helpful context. Last one for me, on OSB, the segment EBITDA margins of negative 29%—is that largely attributable to the low mill operating rates in Q4, which presumably would have had a significant impact on your overall mill cost structure? Or are there any lumpy items in there? In particular, any one-time inventory write-downs? Alan J. Haughie: The only inventory write-down that occurs is a mark-to-market on inventory that we carry on the books because the selling price is at times lower than the standard carrying cost. Nothing exceptional or out of the ordinary, or that has not occurred at various points over the last 20 years. Aaron Howald: We did have a couple of reasonably large maintenance projects in the quarter that added a bit of expense, but it was mostly utilization rates and price that drove it. Ketan Mamtora: Yeah. Aaron Howald: Thank you. Operator: One moment for our next question. Our next question will come from the line of Susan Maklari from Goldman Sachs. Your line is open. Susan Marie Maklari: Thank you. Good morning, everyone. Steven Ramsey: My first question is staying on OSB. Can you talk a bit about how you are thinking of the outlook for demand? The builders have largely talked about their starts this year being up low single digits. What does that imply in terms of the potential ramp for OSB? Then can you talk about your approach to capacity relative to that? Aaron Howald: Thanks, Susan. Appreciate the question. Our focus is on matching our supply with customer demand. As mentioned earlier, we have seen a nice rebound to begin the year, but we feel like it is a supply-driven rebound. A couple of our competitors announced mill closures in Canada. There have also been some maintenance outages and some unscheduled downtime associated with the winter storm that is playing into the favorable pricing environment. Looking forward, we will need an improvement in demand to stay in balance as we head into Q2 and Q3. I am optimistic that will carry through as we head into the building season. Okay. Susan Marie Maklari: That is helpful. Turning to the margin in the Siding segment, can you talk about what you are seeing in terms of input costs and freight? How should we think about any startup costs associated with Green Bay and how that will flow through as well? Alan J. Haughie: In our guidance for the full-year Siding EBITDA margin, we have included some significant inflation. It is about $20,000,000 of raw material inflation, which is on our resin and paper overlay, largely contractual. So, $20,000,000 of raw materials plus $7,000,000 of labor and then some modest freight inflation. That inflation is baked into the full-year margin. We will see some of that already baked in in Q1. Was the other part of the question ramp-up costs for Aaron Howald: Green Bay? Nothing significant. Susan Marie Maklari: Okay. George Leon Staphos: In that respect. Susan Marie Maklari: Okay. Thanks for the color, guys. Operator: Thank you. One moment for our next question. Ketan Mamtora: Our next question will come from the line of Operator: Kurt Yinger from D.A. Davidson. Your line is open. Kurt Willem Yinger: Great. Thanks. Jason, you referenced the portfolio solutions approach. I was hoping you could talk about a couple of examples of how you are marketing that with the Siding business and the value-add component of that go-to-market strategy. Aaron Howald: I will touch on that. The approach is to leverage our entire portfolio to drive growth for LP, and specifically our Siding business. The focus primarily is on the new construction segment to start with, but we also see opportunities within the shed segment and repair and remodel segment as well. We are in the early stages. We have a couple of builder wins that came as a result of this focus, and there are a few more on the horizon that I am not prepared to speak to today. I believe within the next quarter we will be able to highlight material wins that were a result of an enterprise approach to the segments we play in. Okay. Kurt Willem Yinger: That is very helpful. In terms of the outlook, it sounds like at least in Q1, R&R versus the new residential pieces within Siding are performing similarly. Is that how you expect the whole shape of the year, or would you think that R&R could perhaps be a little more stable, notwithstanding the weather here in the first month and a half? Can you talk a bit about that, please? Thank you. Aaron Howald: I feel like the repair and remodel segment is the most stable for us right now, followed by shed. Shed is a challenge for us in Q1 as we work through the channel inventory situation. We need to see a rebound in the new construction segment right now. It is softer than it was this time last year, and we are planning for an improvement throughout 2026. Alan J. Haughie: Thanks, Jason. Aaron Howald: Thanks, sir. Thank you. Operator: This concludes the question and answer session. I would now like to turn it back over to Aaron for closing remarks. Aaron Howald: Thank you, everyone, for joining us to discuss LP's results for 2025 fourth quarter and the full year. For those of you who are at IBS in Orlando, we look forward to seeing you in our booth later this afternoon and are available for follow-up calls for those who are not able to join us in person. Everyone, stay safe, and we will talk to you soon. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Good day, and thank you for standing by. Welcome to the Sunoco LP and the Sunoco Corp LLC Fourth Quarter 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. 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 speaker today, Scott D. Grischow, Senior Vice President of Finance. Please go ahead. Scott D. Grischow: Thank you, and good morning, everyone. On the call with me this morning are Joseph Kim, President and Chief Executive Officer; Karl R. Fails, Chief Operating Officer; Austin B. Harkness, Chief Commercial Officer; Brian Hand, Chief Sales Officer; and Dylan Bramhall, Chief Financial Officer. Today's call will contain forward-looking statements that include expectations and assumptions regarding Sunoco LP's future operations and financial performance. Actual results could differ materially, and we undertake no obligation to update these statements based on subsequent events. Please refer to our earnings release as well as our filings with the SEC for a list of these factors. During today's call, we will also discuss certain non-GAAP financial measures, including adjusted EBITDA and distributable cash flow as adjusted. Please refer to the Sunoco LP website for a reconciliation of each financial measure. Before reviewing our fourth quarter and full-year 2025 financial results, I would like to take a moment to briefly discuss some changes to our financial reporting format, which is included in today's earnings release. First, we have incorporated Parkland's legacy operations into our three segments and have also added a fourth reporting segment for our newly added refining operations. Second, today's and future earnings releases will include select financial information for Sunoco Corp LLC, which we will refer to by its New York Stock Exchange ticker symbol of SunC. As a reminder, SunC's only asset is its limited partner interest in Sunoco LP. Because of its limited partner interest in Sun, SunC consolidates Sunoco LP into its financial statements. Accordingly, on today's call and future calls, we do not intend to cover SunC's results. Instead, we have included a schedule in our earnings release that reconciled SunC's distribution from Sun with SunC's distributable cash flow as well as a summarized consolidating balance sheet. SunC began trading shortly after we closed the Parkland transaction, and will be an attractive option to invest in Sunoco, especially for investors outside of the United States, institutional investors, and in personal retirement accounts. We expect minimal corporate income taxes at SunC for at least five years, which will allow for the SunC distribution to remain very similar to the SunC distribution for this period of time. Moving to this quarter's results, the fourth quarter marked the end of a transformative and record-setting year for Sunoco. We closed the Parkland transaction on October 31, and our team is now fully engaged in integration efforts that are progressing well. The partnership delivered record adjusted EBITDA of $706,000,000 in the fourth quarter, excluding approximately $60,000,000 of one-time transaction expenses. Karl will discuss the segment performance in his remarks, however, this consolidated result reflects the ongoing strength of our operations and the contribution from the Parkland acquisition. During the quarter, we spent $130,000,000 on growth and $103,000,000 on maintenance capital. Fourth quarter distributable cash flow as adjusted was $442,000,000. On January 27, we declared a distribution of $0.9317 per common unit for both Sunoco LP common units and Sunoco Corp shares. This represents a 1.25% increase over the prior quarter and marks our fifth consecutive quarterly distribution increase. Our trailing twelve-month coverage ratio finished the year at a strong 1.9 times. We continue to see a multiyear path for an annual distribution growth rate of at least 5%. Looking at the full-year 2025, adjusted EBITDA, excluding transaction-related expenses, came in at a record $2,120,000,000, a 36% increase over the prior year. This record year reflected solid underlying growth in our base business, a full year of contribution from our NuStar acquisition, and approximately two months from Parkland. Our balance sheet and liquidity position remains strong. We had $2,500,000,000 in availability under our revolving credit facility at the end of the year, and leverage at the end of the quarter was approximately 4 times, in line with our long-term target. In summary, our financial position continues to be stronger than at any time in Sunoco's history, which we believe will provide us with continued flexibility to balance pursuing high return growth opportunities, maintaining a healthy balance sheet, and targeting a secure and growing distribution for our unitholders. With that, I will turn it over to Karl to walk through some additional thoughts on our fourth quarter performance. Thanks, Scott. Good morning, everyone. Our results this quarter capped another record year for Sunoco. As we meaningfully expanded our operations and significantly grew our cash flows. With the addition of the Parkland and Tankwood assets, we now operate a diversified footprint spanning 32 countries and territories Karl R. Fails: and have become the largest independent fuel distributor in the Americas. Each of our segments delivered strong performance in 2025, and are well positioned to contribute meaningfully toward achieving our 2026 guidance. Let me share some more perspective on our fourth quarter results by segment as well as some thoughts on our 2026 guidance we released last month. Starting with our fuel distribution segment. Adjusted EBITDA was $391,000,000 excluding $59,000,000 of transaction expenses. This compares to $238,000,000 last quarter and $192,000,000 in 2024, both excluding transaction expenses. This growth reflects continued strength in our legacy Sunoco operations, coupled with two months of contribution from Parkland. We distributed 3,300,000,000 gallons, up 44% versus last quarter and up 54% versus the fourth quarter of last year. We continue to see volume growth in our legacy Sunoco business with an increase of more than 2% over prior year, compared to a relatively flat U.S. demand profile. This growth is a result of effectively deployed capital via our growth capital plan and roll-up M&A transactions. We have begun the work to optimize our volumes in Canada and the Caribbean, as we implement our gross profit optimization approach that we have evolved over the years. Reported margin for the quarter was 17.7¢ per gallon, compared to $0.01 $0.07 per gallon last quarter, and 10.6¢ per gallon for 2024. The much higher margin is a result of the addition of the legacy Parkland business to our portfolio that consists of higher margin geographies and channels. We have also begun the process of evaluating the channels of operation in each to ensure the business is matched with the appropriate channel to optimize return on capital. When we step back and look at our fuel distribution business, we have a proven track record of delivering results in the U.S.; the Parkland assets easily fit into our business strategy there. The Caribbean business is proving to be just as good as we thought: stable income with the opportunity for growth, especially when it couples with our scale in supplying our East Coast business from the water. In Canada, as we dig into the operation, the business is even better than we expected, with higher stability and higher margins than our U.S. business, which we have proven is very stable. When you put the pieces together, the business is strong, and we are confident that we will continue to grow both fuel profit and EBITDA in this segment going forward. That confidence comes from a foundation of strong underlying businesses with good industry fundamentals. Higher breakeven margins and market volatility continue to support our fuel profit. Adding on our proven gross profit optimization approach, quick and thoughtful channel management evaluations, and our capital deployment strategy only increases our optimism. The final layer comes from the greater scale, enhanced geographic diversity, and improved supply optionality delivering synergies and enabling continued EBITDA growth. We are very excited about the future of our fuel distribution business. In our pipeline systems segment, adjusted EBITDA for the fourth quarter was $187,000,000 compared to $182,000,000 in the third quarter and $193,000,000 in 2024 excluding transaction expenses. On the volume side, we reported 1,400,000 barrels per day of throughput, up from the third quarter and consistent with fourth quarter of last year. Like last year, the fourth quarter was our strongest quarter of the year with seasonal strength in our agricultural-supported markets, as well as good performance across the rest of the system. Moving on to our terminal segment. Adjusted EBITDA for the fourth quarter was $87,000,000. This compares to $76,000,000 in the third quarter and $61,000,000 in 2024, all excluding the impact of transaction expenses. We reported around 715,000 barrels per day of throughput which is up from both last quarter and the fourth quarter of last year. Earnings and volumes in this segment were boosted by the inclusion of terminals income from our Parkland acquisition. This segment continues to deliver stable results, and we are looking forward to the positive addition of our recently closed Tancwood acquisition in the first quarter. Turning to our new refining segment. Adjusted EBITDA for the fourth quarter was $41,000,000 excluding $1,000,000 of transaction expenses. This reflects approximately two months of operations following the close of Parkland transaction at October. Refinery performance was much improved in 2025 compared to previous years, and we look forward to that trend continuing under our ownership. As we have stated before, the refinery is an important piece of the supply chain supporting our market-leading fuel distribution business in Western Canada. Our goal is to stabilize and improve operations regardless of what the market crack provides in terms of earnings. Before I wrap up, let me talk a little bit more about 2026. In early January, we shared our full-year guidance. On the last call, we highlighted our confidence in the highly accretive value Parkland brings to our Scott D. Grischow: operations. Karl R. Fails: And the guidance reflects this confidence with an adjusted EBITDA range of 3.1 to $3,300,000,000. Supporting that EBITDA guidance were a few assumptions. Scott D. Grischow: First, Karl R. Fails: we would close on our Tancwood acquisition in the first quarter and we accomplished that in January. Operator: Second, Karl R. Fails: expect to realize $125,000,000 of the total $250,000,000 annual synergy target in 2026. And as Scott mentioned earlier, the integration is going well, and we are well on track to deliver on synergies. Third, the guidance includes a planned 50-day maintenance turnaround at the refinery that began in late January. Turning to capital allocation, we expect maintenance capital to be in the $400,000,000 to $450,000,000 range consistent with our much larger footprint and the refinery turnaround in the first quarter. Additionally, we continue to see very attractive opportunities to grow our business. Will come from a portfolio of at least $600,000,000 of generally quick-spend, quick-return capital projects as well as acquisitions, which we included an expected floor on for the first time. To summarize, 2025 was another record year for Sunoco, and we are well positioned for another record year in 2026. Our outlook is supported by disciplined expense management, a proven strategy of optimizing gross profit, and effectively and accretively deploying capital. We entered the year with strong momentum and confidence in our ability to deliver sustained value for our investors. I will now turn it over to Joseph Kim to share his final thoughts. Joe? Thanks, Karl. Good morning, everyone. Joseph Kim: We came into 2025 financially healthy, and we finished the year bigger and stronger than where we started. Within a very eventful year, there are a few highlights I want to point out. First, our legacy Sunoco business remains resilient. All segments performed well in 2025, and we delivered on our guidance. And more importantly, we expect continued strong performance. All segments are off to a good start, and independently, 2026 would have been another record year for Sunoco legacy assets. Second, we expect the Parkland acquisition to be a home run. Karl and Scott have already discussed the material progress we have made on creating value for our stakeholders. I think it is worthwhile to take a step back and look at the bigger picture. The Parkland acquisition will be another example of our ability to deliver on value-creating growth year after year. There is growth and there is value-creating growth. We delivered value-creating growth for our unitholders. Let me provide a couple of examples. First, our DCF per common unit continues to grow. Sunoco is the only Alerian MLP Index constituent to grow DCF per common unit each of the last eight years, and we expect this to continue. Second, our credit profile continues to improve. We are already ahead of schedule with our leverage back to 4 times. Our balance sheet is in a very good position. I will finish with a final thought. We have earned a solid reputation as a defensive play within the midstream sector, given our ability to deliver strong results in volatile commodity environments as well as macro challenges such as inflation and even pandemics. I think it is well deserved, and we remain well positioned to differentiate ourselves within future challenges. But let us also recognize that we are an attractive growth play. The products that we move and distribute will continue to fuel the U.S. and other economies across the world for decades to come. We have positioned ourselves as a consolidator. With the addition of Parkland and Tancwood, we are now a bigger company. In our case, bigger means more scale, more scale equates to more synergies, and more synergies mean continued value-creating growth. We have a strong track record of identifying and delivering on growth, thus, we stated in our January guidance that we have at least $500,000,000 of bolt-on acquisition opportunities each year for the foreseeable future. This is beyond our growth capital. Simply put, we are uniquely positioned as both a thoughtful defensive play as well as an attractive growth story. As a result, we have never reduced our distribution, but instead have increased our distribution for the last three years. With Parkland and other investments, we are in an even better position to continue distribution growth for both Sun and SunC unitholders. Expect a minimum of 5% annual growth in 2026 and continued growth over a multiyear period. Operator, that concludes our prepared remarks. You may open the line for questions. Operator: And wait for your name to be announced. To withdraw your question, please press 11 again. Scott D. Grischow: Our Operator: first question comes from the line of Theresa Chen from Barclays. Good morning. Maybe beginning with the of the fuel distribution business, how demand trending across your footprint pro forma Parkland? And on the $0.01 $77 per gallon metric, can you walk us through the drivers of the result this quarter here? And how much of that performance was driven by structural versus maybe more transient factors in your view? From your perspective, is this CPG sustainable over the medium to long term or what would you consider as a good run rate or a normalized CPG? And to completely close this loop, is there a specific CPG level underlies your $250,000,000 synergy target as well? Joseph Kim: Yeah. Hey hey, Theresa. This is Austin. Yeah. Let me maybe start in in sort of reverse order in Karl R. Fails: your question. So, you know, starting with CPG, you know, as you pointed out, Joseph Kim: as a result of the transaction, our margin profile has evolved higher. Scott D. Grischow: You know, whether to put stock in 17.7 as Elias Max Jossen: and pegging that as the new waterline, I think, you know, is is, you know, probably, it directionally accurate. And in terms of direction and magnitude, but with precision, I think, you know, we have always said a couple of caveats. One, there is going to be quarter-to-quarter variability in our CPG numbers. And then second, you know, as Karl shared in his prepared remarks, as a result of this acquisition, we are going to be breaking out and executing against our playbook on gross profit optimization and channel management. And so for those reasons, there might be movement in both our volume and CPG numbers independent of what the market might afford. You know? And and in terms of, you know, do we have a specific number in mind? You know, historically, we you know, we do not target or solve for a CPG number. What we solve for, you know, as we have shared in the past is fuel profit and sustained EBITDA growth over time. And so so with that said, you know, in terms of drivers, it might make sense to walk through the different geographic regions in our kind of newly expanded portfolio now, and what is driving that. Because, essentially, what you are going to what we found is, you know, Parkland had more street margin exposure in their portfolio than the legacy Sunoco business. And we have always said, we are very specific and selective in where we want that street margin exposure, and the geographies that Parkland had exposure to we really like. So starting with the U.S. business, I think the story is pretty familiar. You know, demand from an EIA standpoint has been flat to slightly off toward the end of the year on a year-over-year basis. Obviously, Sunoco outperformed those trends given our deployment of growth capital. And then on the margin side, we continue to see a bullish margin environment buoyed by elevated breakevens. And so, you know, if demand moves one way or the other relative to trend, if it exceeds trend, we are well positioned to participate in that environment. If it underperforms trend, obviously, as we have seen in the past, you guys know that that creates a pretty bullish margin environment for us to operate in. And so so we feel really good about the U.S. business. And and then turning to Canada, you know, as we shared and Joseph and Karl shared in the prepared remarks, we are really excited about the Canadian business. And the closer we get to it, the more we like it. And and then that is for a couple of reasons. If you think about demand, you know, from a trend standpoint, Canadian refined product demand tends to mirror that in the U.S., albeit on a relative basis, it has been stronger in recent years. So, you know, where the U.S. has been flat to slightly off on a year-over-year basis, Canada has been flat to slightly up over the last couple of years. And the margin environment is actually very strong. So where we have street margin exposure in Canada are markets that structurally look and feel very similar to the West Coast in the U.S. and the Northeast, where you have high barriers to entry, highly regulated markets, high real estate costs, high labor costs. And and if you followed our story, you know that those things are highly correlated with strong margin environments. So we feel really good about the business. And and overall, the Canadian business is going to be an outstanding addition to our portfolio. And then moving on to the Caribbean. Man, we continue to be really excited about the Caribbean. I think, you know, it is important to remember that we talk about the Caribbean as if it is this singular monolithic region. The reality is we deliver refined products to 25 different jurisdictions in the region, 22 of which we have onshore business in. And so those are going to come with their own specific volume and margin profiles. What I will say largely is volume is very strong in the region. A lot of that is driven by markets where we have exposure, like in South America, where, for example, a country like Guyana where we are the major share player has had 20+% GDP growth over the last three years. And Suriname is likely up next given the offshore oil in both of those countries. But across the region, we have seen demand. And then on the margin side of things, you know, the market has kind of fallen into one of two categories. What we have seen is there are highly regulated pricing environments, which has actually had the result of stabilizing margins higher for all participants in those markets. And then there are the more kind of free market, open competition markets where our share, our global supply chain, and our scale allow us to enjoy and command a significant margin advantage over other participants in the market. So just to wrap it all up, I think, overall, you know, I think we have proven over the years the consistency and resilience of the fuel distribution segment and our ability to grow EBITDA year over year. And now with our addition of the Canadian business and the Caribbean business, we are better positioned than ever in the segment to continue to grow EBITDA going forward. Operator: Thank you for that detailed answer, Austin. Maybe turning to the infrastructure outlook. Can you walk us through the pro forma terminalling portfolio post integration of Parkland and Tancwood. And how do the assets now position you across the Atlantic and Pacific Basins amid evolving product flows? And where do you see the most attractive growth opportunities from here within your portfolio? Karl R. Fails: Yeah, Theresa. This is Karl. Yeah. We have got our, as you point out, across the geographies Austin just talked about, in each one of those geographies, and then if you add Europe into the mix, we have critical infrastructure in each of those markets. And I think it varies by market, but our general approach and view is, in many of those markets, I would say the Caribbean is probably the easiest one to think about. Our infrastructure really supports and is foundational for our fuel distribution business. In other markets, take Europe, you know, we do not have a fuel distribution business yet, but the assets that we have picked up are highly utilized and very important infrastructure in the supply chain of those markets. And then we have other geographies, whether it is in the West Coast or in the Northeast, where our terminal and pipeline network supports other people’s moving product around as well as our own business. And so I think we have examples of each end of that spectrum, and we have talked about the opportunity for this vertical integration between our fuel distribution business and our assets. But we have also talked about how all parties are welcome, and we have customers because our overall approach is fully utilize the assets that we have. So as we go forward, I think the same playbook is applicable. We think there is more runway to go. I think there is more opportunity, whether it is through kind of quick-hitting capital projects that we talked about or additional M&A opportunities to grow that footprint. Operator: Thank you. Thank you. One moment for our next question. Scott D. Grischow: Our next Operator: question comes from the line of Jeremy Tonet from JP Securities LLC. Elias Max Jossen: Hey. Good morning. This is Eli on for Jeremy. Just wanted to start on the outlook for bolt-on M&A, which I know you touched on in opening remarks. Not sure if this has historically been part of forward guidance, but if we think about the $500,000,000 annual target with respect to your guide, should we think about sort of execution there as upside to the guide and the long-term outlook? I know you guys executed a roll-up earlier in the year, so just thinking about contributions from that and any overall strategy with respect to guidance? Thanks. Joseph Kim: Hey, Eli. This is Joe. Hey, like I said in my prepared remarks, I think we have a highly attractive long-term growth story. The foundation of that is we are in a very good financial position. We have invested wisely, and our free cash flow continues to grow. So we have more dollars to spend on growth on a going-forward basis. And as Karl and Austin talked about, the Parkland acquisition and with our entry into Europe we have greatly expanded our scale and our geography. So not too long ago, we were basically a U.S.-only business. Now we have investment opportunities in U.S., Canada, Greater Caribbean, and Europe. The U.S. is going to still remain our foundation. Like, for example, last year, we did over 10 small bolt-on acquisitions in the U.S. alone. And then we could have probably done a lot more, but we kind of slowed down because we had the Parkland acquisition we were closing on. So the runway of doing these, you know, we gave the guidance of $500,000,000, could probably do that alone in the U.S. Then you add on Canada, Greater Caribbean, and you add on Europe, you can see why we think that providing guidance of doing at least $500,000,000 we think is a floor and is very reasonable for us for next year and for multiple years to come. On the valuation standpoint, you know, the landscape has not changed that much for us. We think the valuations are still highly attractive. And the reason why we believe that is because we are one of the very few, maybe only, company in this sector that can bring material synergies to the table. So valuation remains in the same ballpark. But as we get bigger and we have more scale, we remain efficient, being a low-cost provider. We get advantage economics. That is why we felt very comfortable this year providing a bolt-on guidance for our investors. As far as you mentioned a question about guidance, the way I think you should think about it: if we do materially more than $500,000,000 in 2026, that gives us some upside for '26. It depends on the timing of that. But I think the way you should think about it is that that is the floor, and that is a sustainable floor on a multiyear basis which gives us kind of a year-after-year growth in our story. Scott D. Grischow: Awesome. Appreciate the color there. And then thinking about the impact of these bolt-ons, Elias Max Jossen: maybe with respect to the SunC dividend and Sun distribution equivalents. I know you extended that equivalence recently. But if we think about sort of these bolt-ons helping avoid any tax leakage, you know, has the team considered extending that guidance? Again, I know you already extended it, but just in the context of Sun and SunC, the way they trade, just thinking about the long-term kind of tax protection there. Thanks. Scott D. Grischow: Yes. Eli, this is Scott. In our investor materials that we published last year, we talked about the fact that we expect minimal corporate income taxes for at least five years. A lot of that was predicated on our outlook for the business itself and certainly continuing to invest in the business either through acquisitions or growth capital will help us manage that tax profile going forward. So as we sit here today, there is really no change to that minimal corporate income taxes for at least five years, which, again, has given us confidence that the distribution between SunC and Sunoco LP continue for that period of time. Joseph Kim: Eli, let me add one other thing to that. I think where you are going with the question is that we gave the five-year, at least five years, with, I would say, probably a modest assumption of growth. We believe we are going to grow materially. So any type of material growth on top of that will put us in an even better position on a going-forward basis. Elias Max Jossen: Great. Thanks, guys. Operator: On your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. Our next question comes from the line of Selman Akyol from Stifel. Thank you. Good morning. Selman Akyol: So just a point of clarification real quick. On the $500,000,000 in bolt-on acquisition, would that all be U.S.-based, or would that be across your entire footprint now? Joseph Kim: No, this is Joe. It will be across the whole footprint. I guess the point I was trying to make earlier is that the U.S. is kind of the foundation. And on a U.S. alone, we may be able to do that just on U.S. alone, but the way we are going to look at it is best projects win. So now we get to choose between U.S., Caribbean, Europe, Canada, so the best projects are the ones we are going to look at first. But in totality, it is the whole kind of global perspective. Selman Akyol: Got it. And then last week was a rescission on the greenhouse gases endangerment finding. So rolling back sort of greenhouse gases as a threat to public health. Can you guys just talk about how that may be impacting you or what you think that might do? Joseph Kim: Yeah. It is early stages, so more clarity is going to come out in the future. But here are some initial thoughts. In the short run, there is no effect on Sunoco. Longer term, it is bullish for refined products, all other variables equal. Additionally, anytime there is any legislation that creates potentially state-by-state specs, adds complexity, that is always going to be good for Sunoco. We thrive in those environments whenever there is complexity, and we have the team and scale to source from all different areas. So that is going to be bullish for us. On a personal level, and I think I speak for many people, the elimination of the annoying start-stop engine cutoff function, I think, is going to be a really good development. Scott D. Grischow: Okay. And then last one for me. And Selman Akyol: you have kind of teased it up several times where you talk about distribution growth of at least 5%. And then, you know, listening to all your comments, things seem to be going exceedingly well. Your outlook seems to be very confident and very bright. So what does it actually take to see something on the plus side of 5%? Joseph Kim: Yeah. So, you know, here is the most important takeaway. We have a multiyear growth in distribution. For this year, we raised to 2% three years ago, 4% two years ago, and we raised a little bit over 5% last year. And this year, we stated a minimum 5%. As far as an exact amount, we have not determined that yet, but the takeaway is it is going to be on a multiyear basis. We are in a really good position. You know, it is not just distribution. We are going to take care of our balance sheet. We are going to remain a growth company. So you can tell from our results, and you can tell from the guidance, you can tell from the tone of this call, we think that we are going to continue to grow our business. And we are going to grow DCF per common units. Our cash flows are going to expand. We are in a very good position from a capital allocation standpoint. We are going to have more dollars to deploy to all three areas. The exact allocation, that is our job to optimize that to make sure that we do not just take care of the short run for the long run. So stay tuned. As the year goes on, we will provide more clarity as to the exact allocation. But the takeaway should be the number is growing. We are going to have more options to deploy that in all three areas. Selman Akyol: Alright. Thank you very much. Operator: Thank you. One moment for our next question. Our next question comes from the line of Elvira Scotto from RBC Capital Markets. Hey. Good morning. On M&A, I have a couple of questions on M&A. I guess, first, where do you see the greatest opportunity? Is it terminals, fuel distribution? And then my second question on M&A is, is there a gating item on M&A? You talked about sort of a $500,000,000 floor. You have become a much bigger, more diversified company. I mean, is there a ceiling or anything that would, you know, keep you from doing, you know, more substantial M&A? Joseph Kim: Yeah. Elvira, it is Joe. As far as the greater opportunity, the answer is all of the above. We are going to grow our midstream business. We are going to grow our fuel distribution business. We are going to grow in all the geographies that we are in right now. So that is the position that we like being in, where we are not, you know, so focused on a single geography or so focused on a single segment of our business. And the way we are going to do it is that we have growing growth capital. Some of the Parkland acquisitions that we acquired, for example, like in Guyana, Suriname, we already have three terminal projects in the works in those markets, so we are going to get some natural growth from being in the right market with the right business. From a decision between which one, I always go back to capital discipline and choosing the best projects. And we have got a wide range of opportunities, and we will pick the best projects. As far as your question about a gating item or a ceiling, probably a little bit of clarification on the guidance we gave. We said at least $500,000,000 of bolt-on acquisition. That is not saying that we think that is a target acquisition number. And, you know, based on the fact that we are already back to our 4x leverage within two months, so we are going to take care of our balance sheet. If we were, you know, I think after the Parkland transaction, we said we will be back between 12 to 18 months. Well, we got back a lot quicker. So now we are in even a better position to grow on a going-forward basis. $500,000,000 is, I thought, was a pretty low bar for us to at least give the street that these bolt-on acquisitions are not just sporadic, that we may pick up, you know, a few this year, maybe a few a couple of years. Now they are rateable. And the fact that U.S. is a super highly fragmented market on the fuel distribution side. So we have ample opportunity. As far as Canada and the Greater Caribbean, it is not as fragmented as the U.S., but there is plenty of opportunities. And I keep emphasizing scale matters in this business. Whenever you are the biggest player with the most efficiencies, regardless of what the market valuation is, we have an opportunity to take a turn or two or more down from that acquisition. So that becomes highly attractive to us. So I would give guidance to the street that we think that $500,000,000 of bolt-on acquisitions, this does not include growth capital, this does not include bigger opportunistic acquisition, but as a baseline, I think you should view us as that we have a solid layer of organic growth capital, and we have a solid layer of bolt-on M&A. Operator: Thank you. That is very helpful. And then my next question is, now that you have closed on Parkland, you know, you have had it for a few months. How do you feel about your synergy target? And you have a very good track record of, you know, exceeding these targets on your acquisitions. So do you think there is a possibility of exceeding your target here? Karl R. Fails: Yeah, Elvira. This is Karl. Yeah. We are very excited about Parkland. I think Austin gave a good rundown of the various geographies from a fuel distribution side, and I would say from the other parts of the business that we picked up I think we are equally excited. Yeah. I think our past history would show if you were deciding to take the over or the under, I would take the over on us delivering on our synergies also. I think our main focus is Elias Max Jossen: delivering on the synergies quickly. Karl R. Fails: And so for us to deliver in year in 2026, $125,000,000, clearly, we will be ramping up through the year. Some of those activities already started in the fourth quarter. And so we should exit the year well north of that $125,000,000 on a run-rate basis. But the other thing that is super important is the base business. And so our view on how strong that base business is and the sustainability of that going forward is just as important. And so it is really the combination of those factors that gives us confidence in the '26 guidance. And then going forward in '27 and '28. So Joseph Kim: you know, Joe mentioned in his last answer the two metrics Karl R. Fails: that we look at in totality that are the most important. It is really where our leverage sits, and are we delivering on our commitments on growing the DCF per LP unit. And we are very confident in those for this year and beyond. And, I guess, bottom line is I think NuStar was a home run acquisition, and Parkland could be another home run acquisition for us. Operator: Great. Thank you very much. Elias Max Jossen: Thanks. Operator: Thank you. At this time, I would now like to turn the conference back over to Scott D. Grischow for closing remarks. Scott D. Grischow: Thanks for joining us on the call today. There are a lot of exciting things to look forward to in 2026 for Sunoco and we look forward to updating you across the year. In the meantime, please feel free to reach out if you have any questions. Thanks for tuning in, and we appreciate your support. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Itron, Inc.'s Fourth Quarter 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. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host for today, Paul Vincent, Vice President of Investor Relations. Please go ahead. Paul Vincent: Good morning, and welcome to Itron, Inc.'s Fourth Quarter 2025 Earnings Conference Call. Thomas L. Deitrich, Itron, Inc.'s President and Chief Executive Officer, and Joan S. Hooper, Senior Vice President and Chief Financial Officer, will review Itron, Inc.'s fourth quarter results and provide a general business update and outlook. Earlier today, the company issued a press release announcing its results. This release also includes details related to the conference call and webcast replay information. Accompanying today's call is a presentation that is available through the webcast and on our corporate website under the Investor Relations tab. Following prepared remarks, the call will open for questions using the process the operator described. Before Tom begins, a reminder that our earnings release and financial presentation include non-GAAP financial information that we believe enhances the overall understanding of our current and future performance. Reconciliations of differences between GAAP and non-GAAP financial measures are available in our earnings release and on our Investor Relations website. We will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations because of factors that were presented in today's earnings release and comments made during this conference call, as well as those presented in the Risk Factors section of our Form 10-Ks and other reports and filings with the Securities and Exchange Commission. All company comments, estimates, or forward-looking statements are made in a good-faith attempt to provide appropriate insight to our current and future operating and financial environment. Materials discussed today, February 17, 2026, may materially change, and we do not undertake any duty to update any of our forward-looking statements. Now please turn to page four of our presentation as our CEO, Thomas L. Deitrich, begins his remarks. Thomas L. Deitrich: Thank you, Paul. Paul Vincent: Good morning, and thank you for joining our call. Itron, Inc. delivered another quarter of record earnings and profitability Thomas L. Deitrich: underscoring the durability of our model and accelerating demand for grid edge intelligence. Highlights on slide four include revenue of $572,000,000, adjusted EBITDA of $99,000,000, non-GAAP earnings per share of $2.46, and free cash flow of $112,000,000. These financial results reflect strong execution as our customers modernize the grid and rely more heavily on Itron, Inc. solutions. Modern civilization depends on energy and water systems that cannot fail, and increasingly, those systems depend on intelligence. Itron, Inc. is the provider of intelligent infrastructure that underpins reliability, resilience, and safety. Our value has grown significantly, as demonstrated by increased adoption of grid edge intelligence, outcomes growth, record financial results, surging annual recurring revenue, and the expansion of our offerings through strategic acquisitions. Turning to slide six. Our fourth quarter bookings were $737,000,000 with a total backlog at quarter end of $4,500,000,000. Continued momentum in grid edge intelligence demand results in a record backlog for our Outcomes segment. Our fourth quarter bookings were driven by numerous grid edge solutions supporting grid modernization and reliability of infrastructure. These include the expansion of a long-standing relationship with Exelon through a new multiyear, multi-application agreement. This extension underscores the business benefits, technical flexibility, and proven value of our solutions, including security, consumer privacy, and operations optimization. Another meaningful fourth quarter win involves collaboration with a large early adopter AMI customer to responsibly address operational continuity, business risk, and affordability. Aging legacy systems and readiness for next-generation technologies are often misaligned, and our customers turn to us to help them bridge this gap. Itron, Inc.'s UtilityIQ solution reinforces our commitment to open ecosystems and customer flexibility and is designed around interoperability across technologies. Our product and service offerings provide a clear path forward to maintain an aging system while smoothly transitioning to more capable and consumer-oriented services. Additionally, we are expanding our partnership with a large Canadian utility by providing additional grid edge capabilities focused on distributed intelligence, enabling real-time grid visibility, analytics, and control. As an expansion to our commitment to utility resiliency, we announced during the quarter the acquisition of Urbint, a provider of AI-enhanced solutions for emergency preparedness and response, damage prevention, and worker safety. We also announced the acquisition of LocusView, a provider of solutions for digital construction management which automates the process from planning to closeout, deploying field-based capture of as-built infrastructure to enhance the speed and integrity of grid build-out. With both acquisitions now closed, we are introducing a new reporting segment named Resiliency Solutions. We are thrilled to welcome these teams to Itron, Inc. Resiliency Solutions expands our reach, allowing Itron, Inc. to support our customers through every step of the asset life cycle from planning to build-out, to operations, to maintenance and protection. Itron, Inc. is a long-standing industry anchor in the operations space providing grid edge technology. Additionally, our leading energy forecasting products are used by 90% of the independent system operators and over 70% of the electricity operators in North America. Over the past years, we have added power flow analysis and planning software solutions to support detailed grid planning and interconnect analysis. The addition of Urbint's emergency preparedness and response, worker safety, and damage prevention solution augments our planning, maintenance, and protection offering. Most recently, LocusView provides leading digital construction management solutions. In total, Itron, Inc. supports our customers through the asset life cycle. Proactive resiliency is a top priority for our customers, which aligns well with our strategic investments and drives higher margins and recurring revenue growth in 2026 and beyond. I will now pass on to Joan to cover the financial results for the company. Joan S. Hooper: Thank you, Tom. I will review Itron, Inc.'s fourth quarter and full year 2025 results before discussing our financial outlook for 2026. Financial performance was strong in the fourth quarter and set company records for gross margin, non-GAAP earnings per share, EBITDA, and free cash flow as a percentage of revenue. Please turn to slide eight for a summary of consolidated GAAP results. Fourth quarter revenue of $572,000,000 was higher than the range we expected and lower than the prior year due to planned portfolio changes and the timing of large project deployments. Gross margin was 560 basis points higher than last year due to favorable customer and product mix. GAAP net income of $102,000,000, or $2.21 per diluted share, compared to $58,000,000, or $1.26 in the prior year. The improvement was driven by higher operating income and lower tax expense. Regarding non-GAAP metrics on slide nine, adjusted gross margin of 40.7% was a record and increased 580 basis points versus Q4 2024. Non-GAAP operating income of $91,000,000 increased 28% year over year. Adjusted EBITDA of $99,000,000 increased 21% and, both the dollar amount and the percentage of revenue at 17%, were new records. Non-GAAP net income for the quarter was $113,000,000, or $2.46 per diluted share, versus $1.35 a year ago. This is a new quarterly record for the company. Free cash flow was $112,000,000 in Q4 versus $70,000,000 a year ago. The increase reflects year-over-year earnings growth and improved working capital. Year-over-year revenue growth by business segment is on slide 10. Device Solutions revenue decreased 7% on a constant currency basis due to the expected decline in legacy electricity products in EMEA and the timing of project deployments in North America. Network Solutions revenue decreased 15% year over year primarily due to the timing of project deployments. Outcomes revenue increased 22% on a constant currency basis due to an increase in delivery services and the continued growth of recurring revenue. Our new segment, Resiliency Solutions, which includes revenue from November 3 when our acquisition of Urbint closed, contributed $3,000,000 of revenue. Beginning with the Q1 reporting, the combined LocusView and Urbint results will be reported in this segment. Moving to the non-GAAP year-over-year EPS bridge on slide 11, our Q4 non-GAAP EPS of $2.46 per diluted share increased $1.11 year over year. Pre-tax operating performance contributed a $0.45 per share increase driven by the fall through of higher gross profit. Lower tax expense had a positive year-over-year impact of $0.69 per share. Turning to slides 12 through 15, I will review Q4 segment results compared with the prior year. Device Solutions revenue was $105,000,000. Adjusted gross margin was 34.4%, and operating margin was 26.6%. Both margin results are segment quarterly records. Adjusted gross margin increased 780 basis points year over year due to favorable customer and product mix, and operating margin was up 670 basis points. Network Solutions revenue was $352,000,000 with adjusted gross margin of 42% and operating margin of 32.2%. Adjusted gross margin increased 690 basis points year over year due to favorable customer and product mix, and operating margin was up 620 basis points. Outcomes revenue was a record $112,000,000 with adjusted gross margin of 41.7% and operating margin of 27%. Adjusted gross margin decreased 230 basis points year over year due to lower software license mix, but operating margin increased 420 basis points due to higher operating leverage. Resiliency Solutions, with revenue of $3,000,000 and adjusted gross margin of 76%, had a negative operating margin of 3.6%. For a recap of full year 2025 results please turn to slide 16. Revenue of $2,370,000,000 was down 3% year over year. Recall 2024 results included catch-up of previously constrained revenue that did not occur in 2025. As our business continues to evolve, we are introducing a new measure of annual recurring revenue, or ARR. For 2025, we ended the year with approximately $368,000,000 of ARR. Profitability and cash generation performance were very strong in 2025, and we set several new annual records. They were gross margin of 37.7%, adjusted EBITDA of $374,000,000, or 15.8% of revenue, non-GAAP earnings per share of $7.13 per share, and free cash flow of $383,000,000, or 16.2% of revenue. Turning to slide 17, I will review liquidity and debt at the end of the fourth quarter. Total debt was $1,265,000,000. Cash and equivalents were $1,020,000,000. Our cash balance was down $312,000,000 versus last quarter due to the acquisition of Urbint for $325,000,000 and $100,000,000 of stock buyback, partially offset by Q4 free cash flow of $112,000,000. The previously announced $525,000,000 acquisition of LocusView closed during 2026 and therefore is not reflected in this balance. As of December 31, net leverage was 0.7 times. Please turn to slide 18 for our full year 2026 financial outlook. We anticipate 2026 revenue to be within a range of $2,350,000,000 to $2,450,000,000. The midpoint of this range represents 1% growth versus 2025. We currently anticipate 2026 non-GAAP earnings per share to fall within a range of $5.75 to $6.25 per diluted share. The EPS outlook assumes an effective tax rate of 22% for the full year. Quarterly rates could fluctuate based on jurisdictional mix and the timing of tax settlements. At the midpoint of this EPS range and after normalizing the tax rate to 22% for both years, we expect 2026 year-over-year earnings to be down by approximately $0.32, which is driven by our two recent acquisitions. Although we do not issue forward outlooks by segment, we are providing some information on the size of our two recent acquisitions that will make up our new Resiliency Solutions segment. In the full year 2026 range I just provided, we included a revenue contribution of approximately $65,000,000 to $70,000,000 with gross margins of approximately 70% for this new segment. Resiliency Solutions is expected to be immediately accretive to Itron, Inc.'s revenue growth, gross margins, and EBITDA, but will be dilutive to 2026 earnings per share due to less interest income given the $850,000,000 we spent for the two companies. In the full year outlook I just provided, the dilutive impact to earnings per share from the two acquisitions is approximately $0.38 per share. We expect the two acquisitions will be earnings per share accretive by 2027. Now please turn to slide 19 for our first quarter outlook. We anticipate Q1 revenue to be within a range of $565,000,000 to $575,000,000, down 6% versus Q1 of last year. We anticipate first quarter non-GAAP earnings per share to be within a range of $1.20 to $1.30 per diluted share, which at the midpoint is down approximately $0.27 versus last year. Lower interest income driven by the two acquisitions is reducing Q1 2026 earnings per share by approximately $0.13 per share. As Tom noted, the environment our customers operate in is evolving rapidly, which creates new opportunities but also new challenges and complexity. Our teams are working collaboratively with our customers to keep up with the pace of change, and we are executing our strategy. Although our business will never move in a straight line in the short term, the future looks very bright. We are confident in the course we are on. Now I will turn the call back to Tom. Thomas L. Deitrich: Thank you, Joan. Utilities today are no longer simply asset operators. They are real-time system managers balancing electrification, decentralization, affordability, and resilience. Grid transformation is structural, not cyclical, and it requires trusted data, secure networks, and operational intelligence embedded directly into the grid. This is where Itron, Inc. competes, and Itron, Inc. wins. Our heritage is rooted in hardware and network, and our future combines high-growth, durable annual recurring revenue driven by data, AI, software, and services. Intelligence only matters when it is built on trusted data that is tightly integrated into operations. Itron, Inc. provides that foundation, helping customers move from reaction to visibility, automation, and prediction. We remain focused on backlog quality, revenue growth, margin expansion, and cash generation. Our strategy delivers durable earnings growth and compounds shareholder value through customer trust and solution relevance. Grid scaling and transformation is structurally unavoidable and cannot happen without greater intelligence. Itron, Inc. is the intelligent infrastructure provider of modern energy and water systems. We provide real-time intelligence our customers require to operate efficiently. With more than $1,000,000,000 of durable Outcomes backlog, rapidly growing annual recurring revenue, and expanding solutions for critical customer problems, Itron, Inc. is well positioned for the multiyear grid build-out in the years ahead. Thank you for joining our call today. Operator, please open the line for some questions. Operator: Thank you. To withdraw your question, simply press 11 again. Please standby while we compile the Q&A roster. Operator: Now first question coming from the line of Noah Duke Kaye with Oppenheimer. Your line is now open. Well, good morning. Thanks for Paul Vincent: taking the questions. I have a lot to get to, but I will keep it to two in consideration of others. I think the key question here in terms of the market environment and the behavior you are seeing, Tom, is maybe to get an update on how utility demand and behavior are trending now. You talked in past quarters about some shifting dynamics in terms of how utilities go to market. I guess, to what extent are you seeing some of that stabilize or inflect here? Kind of give us an update on the pipeline and what KPIs you are really paying attention to to understand the shape of the demand environment from here. Thank you. Thomas L. Deitrich: Thanks, Noah. The fourth quarter bookings were strong as we had expected. $737,000,000, and that is composed of several hundred unique wins. So the market is very constructive and moving forward. Second point I would make is around some of the slips or the delays that we saw back in the middle of last year. We have not seen any further movement. Those things did move out of the year as we expect, but the externalities that really caused that, some of the froth around data center siting and government programs slipping out or funding being uncertain, that stuff has not continued on. It is still there on those individual projects, but it has not caused additional slips. So what we see today is bookings moving at a much more normalized pace. It is lumpy, but it is always lumpy, so call it normal. There are always some customer-specific phasing types of things inside of there. Relative to the metrics or the KPIs that you ask about there, I would say pipeline growth is certainly a key metric. That was up 27% from 2024 to 2025. We continue to see that pace thus far into 2026. We looked at Outcomes backlog growth, which was up 58% year over year and now over $1,000,000,000. And certainly, we are really focused on the stability of revenue and revenue growth for the future with ARR as the metric and the way to think about that. So $368,000,000 ARR at the end of Q4, that is up 20% year over year from the end of 2024. So there is a lot of really good stuff happening underneath all of that. And I would say the environment continues to be really constructive for us through fourth quarter and into 2026 and beyond. Paul Vincent: And that is a segue into the second question Noah Duke Kaye: just on this ARR metric. So just so we all understood, this is an ARR run rate that you were at at the end of Q4? The $368,000,000? Noah Duke Kaye: Yeah. It is. So $368,000,000 at the end of Q4. Noah Duke Kaye: Right. And, as we think about what the 2026 guide implies, where do you think that could be at the midpoint as we get into the end of this year? Operator: You mean, specifically, what does it mean for ARR? Noah Duke Kaye: Yep. Operator: Yeah. I would expect we would still see mid-teens to maybe up to 20% growth. And, again, that would be calculated from year-end 2025 to year-end 2026. Thomas L. Deitrich: So that was a fourth quarter annualized number. Noah Duke Kaye: Yep. And that is organic, not including the acquisitions. Right? Joan S. Hooper: Well, it does include for 2024 just a little bit of Locus—sorry, of Urbint, but for the 2026 expectations have both acquisitions in there. Noah Duke Kaye: Great. I will turn it over. Thank you. Operator: Thank you. Joan S. Hooper: Our next question coming from the line of Operator: Mark Strouse with JPMorgan. Your line is now open. Mark, check your mute button. Noah Duke Kaye: Nope. I am so sorry. Can you hear me now? Joan S. Hooper: Yes. We can hear you. Paul Vincent: Yep. Okay. I am sorry about that. Good morning. Thank you for taking our questions. I wanted to ask, we have seen some investor concerns lately about AI disrupting traditional software companies. I am curious when you look at your Resiliency Solutions business and your Outcomes business, can you talk about the barriers to entry and, at a high level, what you see as your right to win within those markets? And then I have a quick follow-up. Thank you. Joan S. Hooper: Both of the Thomas L. Deitrich: components inside of Resiliency Solutions, digital construction management as well as the protection solutions that we have, both of those components really rely on field service tools and the usage of those tools. So when you have thousands and thousands of workers in the field using the tool to capture the data, you have a really, really sticky solution overall. So I will give you an example. The big winter storm that went across the United States, Winter Storm Fern, what was this, two weeks or so ago, really put ice and snow from Texas to Maine all the way across. What we saw was 3.5 million hours of restoration usage of the solution that we have for emergency preparedness and response. That data capture, that field service use, those tools are incredibly, incredibly sticky. When you look at it from the value that the customer gets, there is a really interesting clip of the CEO of Southern Company talking about the use of AI models to predict where to position crews and understand what weather patterns mean for their business. A really good example of how that tool, because of field use and the stickiness associated with it in terms of data capture, generates real value in terms of reduced restoration times and improved performance for communities and for our customers. So there is a perfect example as to why the tools that we have and why when we apply AI, it really comes down to how the data is captured, how it is processed, and making sure that the results are trusted, which our customers clearly do. Paul Vincent: Great. Thanks, Tom. And then a quick follow-up, Joan. I appreciate the color with the Resiliency Solutions contribution in 2026 guide. Just given it is a new segment, can you talk about seasonality that we should expect in revenue and margins if you do not mind? Thank you. Joan S. Hooper: Yeah. I do not see it as a seasonal business. I think it will be pretty steady. And obviously, as they sign new contracts that have subscription-based revenue, you will see it grow over time. But I do not see a big swing in one quarter versus another. Noah Duke Kaye: Thank you. Operator: Thank you. Noah Duke Kaye: Our next question coming from the line of David Sunderland with Baird. Your line is now open. Paul Vincent: Hey, good morning, guys. Thank you very much for taking my question. Lots of questions recently from investors about utility ordering patterns and if it is structural disruption versus just lots of woody chop in the near term and wondering specifically if you could talk about what you are seeing in the book-and-ship business trends, maybe how much is assumed for this year or how we think about the bookings needed throughout this year to set up and underpin your 2027 targets? And then I have one brief follow-up. Thomas L. Deitrich: Yeah. I would say that the trends in terms of ordering patterns have really started to normalize. Some of the delays that we saw in the middle of last year, which were exogenous events, those have played through. We have not seen any cancellations because of those types of things, maybe some project timelines stretching out. But I would consider it much more normalized today. On the book-and-ship business, we definitely continue to see good book-and-ship business as customers are coping with some of the environment that they operate in. Book-and-ship oftentimes tends to be a go-to tool that customers have to cope with uncertainty in their business model if they do not have the right things in place from a regulatory standpoint. For example, the ability that we have to bridge our customers through a transition in terms of technology is really important. I referenced that in some of the prepared remarks of working with customers to smooth transitions of technology so they do not have to do a rip and replace, but more find ways to grow the capability over time. So certainly in the electricity space, I would say book-and-ship alive and well. Water in the US probably has slowed down a little bit. You have seen that in probably some of the competitive landscape that is out there, but that is probably a less important trend for us. Book-and-ship in Europe continues to operate on a normalized level. So again, overall market very constructive in terms of what to expect in the year ahead. Paul Vincent: That is super helpful, thank you for that, Tom. Maybe just a follow-up. I appreciate the commentary you gave qualitatively about the Distributed Intelligence, some of the new offerings, the commentary from Southern and what you are seeing there and from customers out there in the market. But wondering if you could give any more color on penetration of these and maybe attach rates, which I know is not a formal metric. But thinking about core customers and adopting some of these new things, maybe the endpoints that you could Thomas L. Deitrich: see converted over, I guess, I do not know the time frame, but thinking about how this may trend in the near to longer term and the rate of adoption specifically? Paul Vincent: Thank you very much. Thomas L. Deitrich: Yeah. The trend for DI adoption continues to be very good and very strong. So endpoints up 25% year over year. The number of apps up 70% year over year. So it continues absolutely at the pace we would have expected. We still have $10,000,000 in backlog ready to move out the door approximately. So things are continuing to be normalized in that area. And if you happen to be at Distributech, a large show, you certainly would have seen the notion of grid edge intelligence everywhere across the industry. So this is not an if, it is inevitable. It is absolutely happening. It is the way our customers need to cope with the world around them and the complexity of the environment that they operate in. We have seen particular growth in things like distributed energy resource management. So we are over 3,000,000 devices, things like thermostats and load control switches and that sort of thing that are connected up, dispatching about 70 gigawatt-hours a year in terms of activity, things like VPPs and other programs to manage it. We have seen tremendous growth in analytics as to how to make sense of all of the data. Those are the things that really do underpin the growth. And I think the right way to think about it from a financial perspective is ARR. There are lots of different models that our customers use to procure these types of solutions, and that is why we think ARR is a meaningful metric for the business, something to watch. Noah Duke Kaye: Super helpful. I will pass it on. Thank you, Tom. Operator: Appreciate it. Our next question coming from the line of Jeffrey David Osborne with TD Cowen. Your line is now open. Paul Vincent: Thank you. Just a couple of quick ones on my side, Tom. Can you share when you typically start the year, what level of the forward guidance is usually in backlog? And then maybe how that changed this year as you approached giving guidance? Thomas L. Deitrich: It will always be a bit varied. So it depends on the timeline that you are looking at. We would go into the quarter probably something on the order of 80% in backlog. And I would say that we are not so far off of that in terms of what is happening. It clearly has a tail to it, so it is lower the further you go out in time, but that is the normal flow. So as I mentioned in one of the questions earlier, certainly the environment is leading customers to have probably a slightly higher percentage of book-and-ship. And that is really what we are thinking about as we set guidance for the year. Paul Vincent: Got it. My last question is, I think you mentioned the pipeline that you are pursuing is up 27%. I was wondering, a metric that you do not give, but just to give us a sense of are you gaining share or not, can you articulate relative to the backlog which has regulatory approval, the awarded technically contracts to Itron, Inc., but not through the regulatory process, is that funnel or pool of awards, so to speak, larger than anticipated or past trends? Or what is the general trend on share gains and then you being technically awarded something and then still working its way through that regulatory process. Thomas L. Deitrich: Yeah. I think it is hard to judge that in any one moment of time. If you look at the trend the last several years, yeah, I definitely think you see our share trending up in the core markets that we are driving to participate in, and the level of content that we have. If you focus in on the US specifically and in the electricity space, I think that it is very fair to say the big are getting bigger and the smaller are definitely getting squeezed, and we, being the largest, are clearly a beneficiary there. Noah Duke Kaye: Got it. That is all I had. Thank you. Operator: Thank you. And our next question coming from the line of Chip Moore with Roth Capital Partners. Your line is now open. Paul Vincent: Hey. Good morning. Thanks for taking the question. I wanted to ask another on the normalization you are seeing on project activity. Just maybe, understanding it is inherently lumpy, but is there a way to help us think about, if you did not see those slips last year, how we might be thinking about organic growth here in 2026, mid- to high-single digits still the right way to think about that? Thomas L. Deitrich: Yeah. I would take a step back and focus on the bigger picture. The business structure is fundamentally different now than what it used to be. We clearly still have a significant portion of our business which is large project deployments and networking overall. And that absolutely has some level of lumpiness to it in terms of the bookings. How that flows through is generally over the next three to four years in terms of how it expresses itself for the revenue itself. But the piece of the business which clearly is growing nicely for us, we continue to see good pace of growth, 20% year over year in Outcomes, for example, in Q4. And the notion of annual recurring revenue that is most of Resiliency Solutions, a good portion of Outcomes, and a sliver of the Networks business falls into that category. That really is a significant structural difference in our business overall. So that is how I would focus on it and think about the business itself. We will continue to be beneficiaries of a market that is structurally, inevitably going to grow when it comes to grid deployment. There is just no way modern society will fulfill anything close to where the money is going in terms of data centers and reshoring and manufacturing and electrification of everything unless distribution spend continues at pace. Paul Vincent: Very helpful, Tom. And I think you called out surging ARR in the prepared remarks. Help us think about where that could be going as we get more normalization, and perhaps changes in rate-making dynamics. Where could Outcomes—how much has that been held back, and where could that go? Thomas L. Deitrich: Well, we certainly, what we saw in some of the network slowdown, I am going back a couple of years now when we had component constraints, the Outcomes business would still grow, call it 10% year over year. As those components became available and we did fulfill that networking revenue, you saw Outcomes growth rates pick up. And certainly, the 20% plus year over year in Q4 is good evidence of that. We are confident Outcomes can continue to grow, and now we have a new leg in the stool with Resiliency Solutions, adding another tool in the toolbox to help our customers cope with some of the real challenges that are out there. If we are going to see grid deployment, you are going to have to figure out how to build this stuff faster, and that is where digital construction management helps. If you are going to have more floods and fires and storms, you are going to have to respond to disasters. And again, that is where Resiliency Solutions really helps. We can move it to a much more proactive environment that is absolutely going to benefit what our business can and will be in the future. Paul Vincent: Maybe just one last follow-up to that, Tom. Just on those new capabilities, is there a way to help us think competitively? Is this helping you to land new proposals? Obviously, there is more TAM there. And then competitively, some of your competitors, I think, are backing down on some of the more complex deployments. Just a broader update. Thank you. Thomas L. Deitrich: Sure. Maybe take a perspective on the customer concentration specifically. Itron, Inc. has 8,000 customers worldwide. Urbint and LocusView, think of it as tens of customers each. So we clearly have the ability with the sales reach that we have to move those solutions into a broader landscape and really help our customers solve a different set of problems globally. The notion of how we are better together—one of the slides in the investor deck showed that circle diagram—but think about the ability to help your customer all the way through the asset lifecycle from when you are doing the planning through the build process and into the operational piece. Itron, Inc. has traditionally known for a long period of time what is inside of pipes and wires. Now we know where pipes and wires are. So we can help with solutions for restoration and improve the overall offering. So those are the types of things that I think will continue to drive growth for our business and how we benefit compared to perhaps some of the other offerings that are out there. We feel really good about our competitive position and expect to be able to support our customers using it. Noah Duke Kaye: Thanks very much. Operator: Thank you. Our next question in queue coming from the line of Scott Graham with Seaport Research Partners. Your line is now open. Noah Duke Kaye: Hey. Good morning, and Thomas L. Deitrich: thanks for taking the question. Tom, I was wondering where you now believe the 2027, where you land in the next couple of years in terms of revenues. And I think last time I asked you if maybe $2,600,000,000 to $2,800,000,000 in 2027 as a revenue goal, that maybe the Scott Graham: lower half of that made more sense. You know, your response, if I recall, was maybe the lower end of that range because of some of these scope reductions, the complexity, the deployment complexity reductions, and what happened in 2025. Is the lower end of the 2027 goal more appropriate? Thomas L. Deitrich: Thanks, Scott. I would say that it is really important to point out that gross margin, EBITDA, and free cash flow for the 2027 targets we already achieved in 2025. So we feel really good about that, and we are sure we can continue forward on those types of metrics. So on the revenue side of things, the 2027 revenue number, we still see that target as standing. Yeah, perhaps to your point, it will depend on the pace of network deployments as to where we land in the range, probably towards the lower end. But because we have achieved most of that 2027 model by the time we got to 2025, I think it is appropriate to reset long-term targets with an investor day. We have not really picked a date yet, but I would suspect sometime in the next year or so, we will set that up and set up some new longer-term targets. Scott Graham: That is fair. I appreciate that. My follow-up question is around the bookings. I know you said that bookings were strong. They were down on a year-over-year basis. Obviously, you had the crazy fourth quarter year-ago comp. But on a full-year basis, they were still down versus the 2024 level by about 4%. I was wondering when we can start to see bookings really inflect upward. And is it another quarter or two away? Are you seeing things move through a pipeline like you did a year ago? If you could help us on that, that would be great. Thomas L. Deitrich: Sure. I think I covered a lot of the points that are really important on this topic earlier on. So forgive me if I get a little bit repetitive. But pipeline growth being up dramatically, we think, is a good signal of where things are really trending. The business is absolutely structurally changing with Outcomes backlog now being above $1,000,000,000 and continuing to outpace the growth on some of the other businesses, exactly as we had planned. Bookings will always be a little bit lumpy on the networking side of things just because of the nature of the business itself, but the environment we find ourselves in now is, I will say, normal lumpy rather than some of the exogenous things really starting to delay the overall profile. So we still feel really good about the trajectory of the business and how we will continue to support our customers. We have the solutions they need, and we are a trusted partner. So the future continues to be bright. Scott Graham: Thanks very much. Operator: Our next Operator: question coming from the line of Joseph Amil Osha with Guggenheim Partners. Your line is now open. Noah Duke Kaye: Hi, and thanks for taking my question. I only have one. Tom, you have talked about lead times for the business kind of marching out a bit. Historically, when you did disclose it more precisely, your twelve-month backlog had been around 35% or so of the total backlog. I am wondering if you can give us some color on that currently. Noah Duke Kaye: The Thomas L. Deitrich: twelve-month backlog is right around $1,600,000,000 right now. That will be in the 10-K when it is published. That is up meaningfully over where it was at the end of Q3, so I think it is roughly, from the prior quarter, $150,000,000 or so higher. As I commented earlier, business is structurally different now. We do expect book-and-ship is a bit higher during the interim period overall. So what I would say is it is very difficult to try to come up with a historical compare that is meaningful just because there has been so much noise in how things have flowed through from the COVID days to the post-COVID supply constraints to where we are today. Our guidance absolutely reflects the best view that we have for the year, and we feel really good about the trajectory of the business. Noah Duke Kaye: Thank you. Operator: Thank you. And I am showing no further questions in queue at this time. I will now turn the call back over to Mr. Thomas L. Deitrich for any closing remarks. Thomas L. Deitrich: Thank you, Lydia. Thank you, everyone, for joining, and we look forward to updating you on the next call. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Knife River Corporation Fourth Quarter and Full Year 2025 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you need 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 Dara Dirks, VP of Investor Relations. Please go ahead. Thank you, and welcome to everyone joining us Sarah Dirks: for the Knife River Corporation Fourth Quarter and Full Year Results Conference Call. My name is Sarah Dirks, VP of IR at Knife River. I'm joined by our president and chief executive officer, Brian Gray, and chief financial officer, Nathan Ring. Today's discussion will contain forward-looking statements about future operational and financial expectations. Actual results may differ materially from those projected in today's forward-looking statements. For further detail, please refer to today's earnings release and the risk factors disclosed in our most recent filings with the SEC available on our website and the SEC website. Except as required by law, we undertake no obligation to update our forward-looking statements. During this presentation, we will make reference to certain non-GAAP information. These non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in today's earnings release and investor presentation. These materials are also available on our website. For today's call, first, Brian will begin with an overview of our 2025 results followed by a segment recap and areas of focus for 2026 and beyond. After that, Nathan will provide quarterly details, a capital update, and our 2026 guidance. At the conclusion of our prepared remarks, we will open the line for a question-and-answer session. With that, I'll turn the call over to Brian. Thank you, Dara. Brian R. Gray: Morning, everyone, and thank you for joining us. 2025 was a year of meaningful strategic progress. At the start of the year, I mentioned three focus areas, and today, I am pleased to report strong progress in all of them. First, said that we were in a position to have our most profitable year ever. And we did. Growing adjusted EBITDA 7% to $497,000,000. Second, we highlighted that our acquisition program was ramping into full swing. We completed five deals in 2025, expect to have another busy year in 2026. And third, that we will continue to invest in our competitive edge initiatives to support long-term growth, we have, and our results reinforce that this strategy is working. There's no question we are a better company today than we were a year ago. While 2025 started slower than anticipated, we finished strong. Our teams advanced our edge initiatives throughout the year, building momentum in the second half that resulted in a very good fourth quarter. We entered 2026 with confidence and clear sense of momentum. We believe we are well positioned to continue growing our business. We have built the right team. We operate in the right markets. And we're executing the right strategy. Are four components to our growth strategy that we believe differentiate Knife River as the employer, supplier, acquirer, and investment of choice. Versus our markets. Second is vertical integration. Third is the opportunity for self help to improve margins. And fourth is our life and knife culture, a relentless drive for excellence. These factors are key to growing our business and creating long-term shareholder value. Let me tell you how. First, our markets. Knight River states are forecasted to grow twice as fast as non Knight River states over the next twenty years. Our strong position in these higher growth areas present many opportunities for expansion, whether it's through the organic growth as people migrate to our states, or growth through M and A. There are literally hundreds of opportunities to expand within our territory. As family owned vertically integrated companies look to sell. Often, NiFiRiver is the first call they wanna work with a company they know and they trust. 2025 was an active year for acquisitions, we expect an equally busy year in 2026. We've completed one bolt on deal already in Montana, and expect that we'll be announcing more deals before the busy construction season starts. We will maintain a disciplined focus on aggregates based, vertically integrated opportunities in mid sized higher growth markets. Knife River is truly the acquirer of choice in our expanding markets. Moving from markets to vertical integration, we believe our strategy to be an aggregates based end to end provider enhances our value. Our balanced mix of aggregates, ready mix, asphalt and contracting services supports resiliency through economic cycles. In addition, being vertically integrated gives us multiple opportunities to win work. Either as a general contractor, subcontractor, or materials provider. For our customers, being vertically integrated means greater supply chain reliability and improved job site coordination. For us, it enhances our financial performance by generating more gross profit and capturing higher margins on the pull through of upstream materials. Vertical integration also provides more acquisition opportunities as we look to add aggregates, ready mix, and asphalt companies to our integrated portfolio. Our next focus area is self help. We believe in continuous improvement in all aspects of our business. We are taking actions intended to drive EBITDA growth and margin expansion for all of our product lines. We are standardizing best practices, optimizing prices, and controlling costs. Our commercial excellence teams are utilizing our pricing and quoting tools to get the most value for our materials. Our dynamic pricing strategy helped drive 9% improvements in aggregates in 2025, and we'll continue to focus on optimizing pricing in 2026. At the same time, we are intent on managing our costs. In the Western Mountain segments, our aggregates cost per ton down in the 2025 compared to the same period last year. We continue to find opportunities to lower variable operating costs in aggregates. And this is a major focus of our pit crews and production teams in 2026. Finally, differentiates Knife River and makes this company so special to me is our life at Knife culture. We believe that putting people first will retain and attract team members, who are driven to win and who are committed to helping us be excellent in everything we do. We believe an engaged team is a safer team and a more profitable team. We just had our safest year ever, and I look forward to the ideas, improvements, and growth opportunities that our engaged team will help us achieve 2026 and beyond. Combined, believe these factors will help us generate unprecedented growth for Knife River. Moving from our strategy to our markets, we continue to enjoy a favorable backdrop, in addition to population growth, we stand to benefit from increased federal, state and local funding to maintain and rebuild America's infrastructure. Our states are investing in infrastructure at record levels. DOT budgets across our segments are very healthy, and in our 14 states, approximately 46% of IIJA funding remains to be dispersed. Strong public budgets provide multiyear visibility, and we fully expect Congress to reauthorize another long-term infrastructure bill. Because of these strong budgets, we entered 2026 with record backlog of $1,000,000,000. A 38% increase from this time last year. While approximately 90% of our backlog is public work, we're beginning to see more private opportunities. This includes data centers as well as distribution and manufacturing facilities. But again, the bulk of our backlog is lower risk public paving projects with contract values of less than $5,000,000. Next, I'll discuss what we see ahead in each of our segments. Starting with the West, excited with the progress we made in 2025. Record profitability in our legacy Pacific operations more than offset a softer economy in Oregon. We continue to view the West as being well positioned for growth, in 2026. In California, Alaska and Hawaii, are seeing elevated levels of public activity, including heightened military spending. An example of this is the p two zero nine dry dock project in Hawaii. Where the Navy is investing approximately $3,000,000,000 on much needed infrastructure improvements. We began supplying cement and ready mix to this project in the fourth quarter, and anticipate strong volumes in 2026. We're also seeing opportunities on the private side, including residential in California, and work on the North Slope in Alaska. Moving to Oregon, I'm happy to report that our financial results were once again better this quarter than a year ago. And EBITDA margins for the year remained above 20%. The DOT funding landscape continues to be fluid, but Oregon's approved construction budget for 2026 is comparable to 2025. And the state forecast a similar amount of asphalt paving this year. The legislature is currently discussing the future of infrastructure funding, and although there are differences of opinion on the next steps, they agree on one thing. Oregon needs funding to fix its deteriorating roads and bridges. Meanwhile, we are seeing encouraging signs in the private market. Including increased activity in data centers, warehouses, and pockets of residential development. We'll continue monitoring conditions closely. But based on what we know today, we expect Oregon's performance in 2026 to be broadly in line with 2025 results. While the remainder of the West segment continues to grow. In the Mountain segment, we closed out 2025 with a strong fourth quarter. This was driven largely by good weather, which allowed us to work late into December. Construction revenue was up almost 20% for the quarter, compared to the same time last year. The work performed included asphalt paving, positively impacted our upstream materials division. Asphalt margins for the quarter improved 400 basis points, and we stand to benefit from record backlog entering 2026 which contains more asphalt paving than we performed in all of 2025. We also had a strong quarter in ready mix. Pricing outpaced costs, resulting in margin improvements of 400 basis points, we continue to strengthen our leadership team with more materials focused talent, and we believe these actions have put the region in an even better position to perform work on a growing list of private projects. In particular, days under work in Wyoming and semiconductor construction in Idaho are creating significant new bidding opportunities for the mountain region. Turning to central segment. 2025 was a pivotal year. We completed three acquisitions. Combined the legacy North Central and South regions and made important progress with several competitive edge initiatives. These efforts are enhancing operational success and setting the stage for improved performance this year. The addition of Strata was Knight River's largest acquisition ever, we are pleased with the integration. We expect Strata to continue performing well in 2026, as we fully leverage our synergies and take advantage of North Dakota's record DOT budget. We're also expecting meaningful volume growth from the addition of Texcrete, new ready mix operations in Central Texas. The Central Region continues to see improved public infrastructure spending. Is expected to have its busiest contracting services year ever, our team start construction on the $112,000,000 Highway 6 project in Texas the $62,000,000 Highway 85 project in North Dakota. Lastly, turning to energy services, this segment remains margin accretive and an important component of our vertically integrated business model. We look forward to the second full year of operations at Albina Asphalt. We begin to fully implement and realize the operational improvements we've been making. Also in 2026, we'll continue targeting the sale of higher margin value added products which we manufacture through one of our nine terminals. All in all, we are well positioned for growth in 2026. With that, I'll turn the call over to Nathan to walk through our financial results for the fourth quarter. Thank you, and good morning, everyone. As Brian mentioned, we finished 2025 with an impressive fourth quarter that produced 47% higher adjusted EBITDA and a three forty basis point improvement in adjusted EBITDA margin. Across our product lines, gross profit was up 27% for the quarter, and we achieved record gross margin of nearly 19%. These positive results were driven by a combination of our cost controls, acquisition contributions, and more favorable weather. The quarter was especially strong for aggregates, with volumes increasing by 17% partly related to our recent acquisitions along with improved market conditions in the West. Aggregates pricing increased by 8% supported by the Strata acquisition. Even without Strata, prices at our legacy operations Nathan W. Ring: would have had a solid increase of mid single digits. And aggregates gross margins increased by 200 basis points related to our ongoing pit crew improvements and recouping preproduction costs incurred earlier in the year. For 2026, we expect our aggregates volumes to grow mid single digits, as market demand continues to improve and the amount of our internal paving work increases. We also expect that pricing will increase mid single digits as we continue our dynamic pricing discipline. With this backdrop and the continued focus on cost control and operational efficiencies, we anticipate continued aggregates margin expansion in 2026 of approximately 200 basis points. Moving to ready mix, we saw strong volume increases in the quarter of 20% and gross margin lift of two thirty basis points. Similar to aggregates, the volume increase was supported by improved market conditions in the West, as well as the acquisitions of Strata and Texcrete in the Central. We see these contributions continuing into this year with volumes improving in the mid teens. Margin improvement was balanced across all geographic segments, with mountain showing the strongest gains, driven by the implementation of operational efficiencies identified by our pit crews. Asphalt benefited from more paving work in the quarter, producing an increase in internal sales volumes of more than 8%. Lower input costs of liquid asphalt put downward pressure on pricing, Brian R. Gray: However, Nathan W. Ring: we managed the price cost spread effectively and maintain margins comparable to the prior year. Looking ahead, we anticipate volumes will increase mid single digits as we expect more paving work in 2026 than we performed last year. In contracting services, revenue grew 15% with many locations enjoying favorable weather, and availability of work. Mountain had the largest upside related to this extended season. With almost 20% more contracting services revenue. Overall, we did experience an anticipated decline in contracting services gross margin. Largely related to lower margin on backlog as well as the timing of project completion and job performance incentives compared to last year. Looking forward, backlog increased 38% to approximately $1,000,000,000 with 75% expected to be completed in 2026. While expected backlog margins are lower than a year ago, we anticipate higher gross margin in contracting services in 2026, as we expect to self perform more asphalt paving which typically results in project performance gains, and the opportunity for quality incentives. The increased paving in our backlog also provides the benefit of pulling through our higher margin upstream materials positively impacting product line gross margins. Switching to SG and A, the increase over fourth quarter year was in line with our expectations and primarily related to business development costs associated with acquiring companies and the administrative costs that came with those acquisitions. In 2026, we expect SG and A to be in line with 2025 as a percentage of revenue and then begin trending lower in future years as we scale, and fully capture synergies from acquisitions. Continuing with our growth strategy and capital deployment, we had a very productive year. As we invested $789,000,000 across our growth initiatives. Including five acquisitions, four aggregates reserve expansions, and multiple organic projects. We expect these investments to be accretive to our margin profile and help us achieve our EBITDA targets for 2026 and beyond. We also allocated capital to maintain our rolling stock and plants. As well as invest in improvements, to increase production and efficiency. Our maintenance capital expenditures of $170,000,000 or 6% of revenue were in line with their range of 5% to 7% given earlier in the year. For the full year 2026, the company expects capital expenditures for maintenance and improvement to remain between 57% of revenue and organic growth projects and reserve additions to be approximately $131,000,000 Capital expenditures for future acquisitions and new organic growth opportunities would be incremental to the outlined capital program. Because of our disciplined capital management, we are in a strong position to continue our strategic growth program. We ended the year with almost $75,000,000 of unrestricted cash, approximately $475,000,000 available on our revolving credit facility, and a net leverage position of 2.2 times, which is below our long-term target of 2.5x. Looking at 2026, we have solid cash flow, balance sheet capacity, and liquidity to support our growth strategy. Turning to our guidance. As Brian mentioned, we have a lot to be excited about for this year. With a strong infrastructure backdrop, ongoing self help initiatives, and the continued growth of the company. For 2026, we expect consolidated revenue between $3,300,000,000 and $3,500,000,000 and adjusted EBITDA between $520,000,000 and $560,000,000 which implies an adjusted EBITDA margin of approximately 16% at the midpoint. As usual, this guidance assumes normal weather, economic, and operating conditions. With that, I'll turn the call over to Brian to share his closing comments. Brian R. Gray: Thank you, Nathan. Nightmare has enjoyed considerable growth over the last three years. With revenue improving by 24%. Adjusted EBITDA by 58%, and adjusted EBITDA margin by three forty basis points. Our growth strategy has been working, and we believe we are just getting started. We like our growing markets, which present both organic and acquisition opportunities. We believe vertical integration enhances our value by supporting resiliency, and being a profit multiplier. We have opportunities to keep improving our operations, and our laser focus on controlling costs and optimizing prices. And we have a skilled team dedicated to making it all happen. We have built good momentum, and we are well positioned to deliver solid growth in 2026 and Nathan W. Ring: beyond. Brian R. Gray: I am very excited about our future. We'll now open the call for questions. Sarah Dirks: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Decline from the polling process, please press star followed by two. One moment for your first question. Your first question comes from Brent Edward Thielman with D. A. Davidson. Please go ahead. Nathan W. Ring: Hey. Thanks. Good morning. Congrats on a great finish to the year. Brian, I guess, question was just on I mean, look, you got a great backlog here. Entering 2026. But the West does carry the highest margins for you. It was a bit lower. Maybe you could just talk about the opportunities to build on that backlog for that particular region just given its relevance to margins. Brian R. Gray: Yeah, Brent. We we like the position we're in right now. Record backlog up 38% at a billion dollars. But you're right. We definitely have seen a shift, a geographic shift of that work more in mountain with a record backlog and central with a record backlog. But we have very solid funding in California, Hawaii, and Alaska. Now we don't Operator: perform Brian R. Gray: per se contracting services in Hawaii and Alaska. But we definitely supply a lot of contracting materials. To subcontractors and supplier contractors up in The States, in Hawaii, Alaska, California, we benefited from a a great year in California, and that momentum and funding is continuing in our markets. Oregon was down, and and it continues to our backlog is down. But like I mentioned in my prepared remarks, the the fortunate thing is the DOT budget in Oregon is about flat, slightly up a little bit, and the asphalt paving tonnage is also slightly up for this year in 2026 versus '25. And we're out looking for work. And, you know, our crews have shown this last year to be nimble and pursue work that is them. And that's you can see that in the the strong second half that Oregon had. a geographic And so I'm not worried, Brent, about the backlog in the West, but there definitely is shift of that backlog to states in the mountain and the central region. Yep. Okay. Understood. Nathan W. Ring: And I guess my follow-up Brian or Nathan, this is the second year in a row you've been able to drive aggregates average pricing at you know, 9%. I know there's m and a sprinkled in there and yours and the industry expectations in the mid single digit range. Here for 2026. But maybe if you could just talk about the potential levers to outperform that, just given what you've been able to do here in the last couple of years on the pricing front? Yes. Good morning, Brent. This is Nathan. I'll take the first part of that question with the increase that we've seen here in 2025 on the aggregate pricing and then turn to Brian for levers that we see going forward. You're right. Very strong year for us in terms of aggregate pricing. Pricing, high single digits. And as you maybe heard in the prepared remarks, part of that has to do with strata. Strata does have higher pricing part of that does relate to the way which we account for delivery revenue. So they do have areas that they reach, and there's revenue included. In their average selling price. So it is higher as strata laps itself here year over year. That's what I mentioned in the prepared remarks. We see that still continuing mid single digits. So very strong for ongoing operations, but you're right. High single digits, this year, mid single digits next year. Part of that just has to do with strata overlapping us or lapping itself year over year. As far as the levers that we'll pull pull on, I'll turn that over to Brian. Brian R. Gray: Yeah, Brian. Our commercial excellence teams have been very active implementing the new dashboards and bidding tools to support our dynamic pricing. And we spent a amount of time in the classrooms this year going through a lot of training focused on commercial excellence. So as you know, our dynamic pricing allows us to bid work throughout the year, and so we don't have a single letter that goes out of November December, or second ones midyear. We'll do that throughout the year. And continue to optimize prices And so that that rollout has been very successful. All of our legacy sites now have fully implemented dynamic pricing. As we bring on acquisitions, we'll roll that out into those new sites. But right now, very good traction our dynamic pricing going into 2026. Operator: Okay. Thank you. Nathan W. Ring: Yep. Operator: Thank you. Just a reminder to limit yourself to one question and one follow-up. The next question comes from Trey Grooms of Stephens Inc. Please go ahead. Nathan W. Ring: Yes. Hey, Brian and Nathan. This is Ethan on for Trey. Thanks for taking the question. I wanted to dive further into the puts and takes on the margin outlook that's baked into the guidance because full year guidance seems to imply relatively modest EBITDA margin improvement. I know you've mentioned that there's a geographic mix shift within the backlog, but it sounds like materials margins will be strong and and and services margins will will also see a step up. And, of course, we know weather was a pretty large headwind to 2025. So so any more color on on the puts and takes on the on the margin guidance 2026 would be helpful. Brian R. Gray: Yeah. I'll I'll take that one. And so good talking to you. Yes. Our EBITDA mid margin for that midpoint is going up, you know, 10, 20 basis points from last year. And so if you look at our individual product lines, gross profit, as Nathan mentioned, expecting to see somewhere in that 200 gross basis points margin improvement in aggregates. And frankly, we're seeing, you know, margin improvements in our budgets in all of our product lines. And that really is coming from our dynamic pricing model and our pit crew initiatives feeding into that. Because of the shift, I mean, and that's it is we've mentioned, Oregon being flat, this year and energy services being flat. We're definitely shifting more of our EBITDA contribution as a percent of you know, total contribution to the mountain and the central regions. And those have slightly lower EBITDA margins even though they too are seeing a good traction and good movement margin expansion in those regions. They are at a lower margin in the West. And so that's what's going on with that. But good traction, good movement on all of our product lines for gross profit improvements. Nathan W. Ring: Got it. That that's super helpful. And for the follow-up, quickly, just a question on Oregon. So at what point could we return to year over year growth in Oregon and how important is funding clarity to to achieving this sort of leveling out given that the easy comps, especially in the the 2Q and and the 3Q of of 2025? And, also, considering the private side in Oregon, Kathryn Ingram Thompson: seems to be doing pretty well. So so any more color there would be Thank you. Yeah. The private side definitely, Brian R. Gray: rebounded well in the late third quarter and benefited us well into the fourth quarter. And was a big part of the success that we had in Oregon of year you know, over quarter improvements in the fourth quarter and third quarter. You know, public funding is a big part of our our success. Also, in Oregon, and clarity on that will be important. I can, I think, relatively safely say that we don't expect any major shifts at all at this point in time for 2026? And that a stable budget in Oregon with the tons that have already either been let or or in the bidding schedule to be relatively flat. To last year. And so I feel comfortable saying that, you know, the results for Oregon in 2026 should be in line with what we had in 2025. And so yeah, we're very hopeful. The legislature is currently discussing infrastructure funding literally in their short session. It's in session now. And expect that that conversation will really build into next year's longer session where we anticipate they would have robust conversation and pass a longer term much larger build in the $4,300,000,000 stop gap bill they passed earlier. That should happen in 2027 if you talk to the legislators in Salem, Oregon. Kathryn Ingram Thompson: Got it. That that's very helpful. Thank you, and I'll pass it on. Operator: Thank you. The next question comes from Kathryn Thompson at Thompson Research Group. Please go ahead. You had in your prepared commentary talked a bit about self help versus pricing and transitioning from not just focusing on pricing, but also acute focus on cost controls to drive margins. When you look at a regional standpoint for for both your West and your mountain divisions, which showed barely outsized performance in the quarter. What drove these outside gains? And how much was self help versus pricing? Thank you. Brian R. Gray: I appreciate that, Catherine. Yes, we had a fantastic fourth quarter. It was up 47% over last year. And I would say, Catherine, I think you could just put that in three big buckets that variance year over year The first one is we certainly had favorable weather. And in particular, in the mountain region, which allowed us to do more asphalt paving We also it benefited really a lot of our regions as it relates to just staying out working. Aggregate sales, ready mix sales were solid. We were able to utilize our equipment pool more efficiently in that fourth quarter. And so one of those large benefits and variances for the fourth quarter was definitely favorable weather. The second one was we had good contributions from our acquisitions led by Strata, but we also had another you know, four other very nice acquisitions last year Tech Creek came in mid December, and very excited about that acquisition and then other contributions from the acquisitions. That was part of our positive variance for the fourth quarter. And the last one was what you mentioned, just just the operational execution and implementing edge initiatives. Now we obviously had a partial full benefit of, you know, recouping some of those preproduction that we incurred earlier in the year. This came back to benefit us in the fourth quarter. But more importantly, it was our teams executing on our edge initiatives and really looking at their costs and controlling our costs very tightly and very proud of the team and the work they did and the focus on cost controls that really are gonna bleed into this year. As a big part of our focus in 2026 to continue those cost controls measures. And looking at KPIs and just really focus specifically on aggregates, frankly, all the product lines of benefit from that this year. Operator: Okay. Great. Thanks. Also talked about you know, getting capital allocation or capital plenty of capital to deploy into calendar 2026. Kathryn Ingram Thompson: Could you just tell us a little bit more or give some broader stroke color on what you're seeing in your pipeline for M and A for so inorganic and then other organic initiatives that you're hoping to execute and to share. Thank you. Brian R. Gray: Yeah. We're very excited about our growth strategy, and I'll start off talking about the pipeline and the organic opportunities and turn it over to Nathan talk about our strong balance sheet and capacity to go out and continue our growth strategy. So we have a very disciplined approach and we're looking for strategic fits that fit, you both our cultural fit and a financial expectation that we'd have. The deals we did last year, Catherine, and the deals we were looking in our pipeline. And our pipeline, when I say it looks looks very similar, to last year, I'm talking about the types of deals in there, the size of the deals, and the location of the deals. They're aggregates based. Many of them are vertically integrated. Most of them are infill bolt ons to our existing operations. We certainly will look at states adjacent to our current footprint or current states or regions that we do business in. They're in these mid sized higher growth markets and we are, you know, looking to continue to balance our portfolio And the nice thing about this is it all starts at the local level with local relationships. And just like all of the deals we did last year, negotiated deals directly with the sellers. At those high single digit multiples, very attractive multiples. So the pipeline is robust. The pipeline is full. I've talked about the hundreds of opportunities. In our states that we do business in. Because we're vertically integrated, we will look at aggregates, ready mix, asphalt, and contracting services opportunities as long as we can continue to focus on the supply of aggregates to those operations, either from new resources or from our existing resources. I would say that the last thing before I turn it over to to Nathan that you know, that is very important part of this process is just a playbook that is proven and one that we've been using for over thirty years. We continue to refine it. We've done almost a 100 deals now since the early nineties. And really, it's just it's very focused on getting the right deals in the pipeline, being very disciplined, at the deals we put in the pipeline and going out and courting those relationships, The second part of that is doing a very thorough job, disciplined job of due diligence. And both of those activities are led by our local Operator: regional teams, which then feeds into the third phase, which is integration. Brian R. Gray: And that is also, you know, heavy influence with the local team at the regional level with oversight and support from corporate. So very proud of our m and a program, our growth strategy, what we've done in the last two years since the spin. Organically, we have identified a number of very exciting projects that have, frankly, higher than even our m and a opportunities and continue to go out and execute on the organic growth. We've we are entering new markets in Idaho, and we've expanded our capacity as we see more asphalt paving coming on. We've added capacity to Texas. South Dakota. So it's certainly spending some money organically as well. So with that, Nita, I'll just let you talk a little bit about the capacity. Nathan W. Ring: Yeah. Good morning, Catherine. So good news here is that support the capital deployment, all the the good things we've got going on that Brian talked about, we've we've been disciplined in how we've maintained our balance sheet, and we have solid cash flow. So, Catherine, I'll put it in the three buckets for you that give me confidence in what we've got from a balance sheet or support perspective for this growth that we've talked about. First, we have the liquidity to act quickly. As I mentioned, we've got ended the year with $75,000,000 of cash on hand. $475,000,000 available on our revolver. So as deals come up, we have the ability to move quick on them. Secondly, we expect solid cash flows from our operations. In fact, for this year 2026, we expect our cash flow from operations to be about close to the historical average of, two thirds of EBITDA. So we've got cash flow coming from operations. And then the third part is the balance sheet itself, the net leverage position. We ended the year at 2.2 times net leverage. As I've shared before, our target is 2.5 times, so we're below that. And I think for the right deal, fits our strategy, has the right financial metrics with it, we'd be willing to go higher than maybe closer to three for a short duration. And then see that long term go back to 2.5. So we got the liquidity, the cash flows, and the balance sheet, all the support deals, and that's where we wanna put our capital to work is growing this company that Brian outlined for us. Kathryn Ingram Thompson: Great. Thanks very much for that color. Good luck. Brian R. Gray: Thank you. Thank you. The next question comes from Garik Shmois at Loop Capital. Operator: Please go ahead. Brian R. Gray: Congrats on the quarter. Garik Simha Shmois: First off, just on SG and A, just Nathan W. Ring: to piggyback off on the last set of questions. How should we think about SG and A inflation this year both from an underlying standpoint plus any incremental that you have with respect to the inorganic growth plan? Nathan W. Ring: I'll take that one. Good morning, Garrett. Good to hear from you. So SG and A, the the first part here is we take a look at 2025 and the increase that we had this year. I'll just identify the key buckets there. We we talked about them a fair amount throughout the year. And kinda back to the last question, they all relate to growing this company, which is the exciting part of it. So the the largest increase that we had, the largest bucket for the increase we had in s g and a, was really related to the administrative cost that came with our acquisition Did five acquisitions last year, and they brought some s and A with them. So that was the largest piece. The second largest also relates to growth, and we talked about this throughout the year, that one time step up related to our business development team and getting them in place to pursue acquisitions as well as our edge teams to pursue, like, the pit crew and the opportunities they're going after. So the two largest components really of our s g and a increase relate to growing the company. The next piece really is, as I shared before, the the ongoing cost, so call it, of the operations or the s g and a. Grew mid single digits, which is what I shared at the beginning of the year. So Garrett, '24 to '25, those are the three buckets that caused the increases as we look forward, I mentioned earlier that we expect SG and A as a percent of revenue to be in line year over year. If you look closer at that, again, similarly, the ongoing costs in there, we see growing mid single digits, very comparable to what we see throughout the organization. Mid single digit increase in cost, maybe towards the lower end of that range. And if you're wondering, well, what else could be impacting that? One thing that I'd add to it is that in '25, we did have higher gains on the sale of assets, most notably that, East Texas sale that we started a few years ago we finished that. So that's a gain that we don't obviously anticipate for '26. That would be part of the increase you see going from '25 to '26. But outside of that, the underlying cost increasing or maybe in the low end of that mid range single digits. Hopefully, that's helpful. Garik Simha Shmois: No. That is. Thank you. My follow-up question is on volumes. Your guidance is considerably stronger than other public peers. I was wondering if you could unpack that a little bit more. You talked a little about the regions, a little bit about you know, some of the infrastructure projects and the the pull through from contracting services. Wondering if there's anything else maybe on the private side. And then also, is there any weather catch up considering there that was such a headwind particularly through the '25? Brian R. Gray: Garrett. This we had that benefit a little bit in the fourth quarter with positive, you know, favorable weather in the fourth fourth quarter. And so I would say that the backlog that we've got going into next year would not be a a lot of, you know, delayed work It certainly impacted the beginning of the year and causes some challenges beginning of the year, but we had a a strong fourth quarter and have good backlog going into next year. The volumes being up mid single digits for aggregates, I'll start with that one, really is also related to ready mix volumes being up mid teens. The addition of Texcrete more than doubles our supply in the Texas Triangle And so that would be a large part of our mid teen increase. And being supplying aggregates to that operation also be part of the mid single digit increase on aggregates. But it's not just text create. Nathan and I've talked about the additional asphalt paving that we have in our backlog as we see strong pull through of aggregates going into our asphalt plants. And then the the aggregate sales are just are becoming stronger in markets like Oregon. And you saw that again in the fourth quarter results those higher margin third party aggregate sales the metropolitan market in, you know, Portland certainly benefited us. So we continue to to focus additional third party sales in Central Region. So I'd say all of those factors gives me good confidence in our volume projections of mid single digits for aggregates and the mid teens on ready mix. Garik Simha Shmois: Great. That's helpful. Thank you very much. Operator: You. The next question comes from Ian Alton Zaffino at Oppenheimer. Please go ahead. Nathan W. Ring: Yeah. Great. Thank you very much. Why don't you just kinda drill in on the comment about data centers? You give us a little bit more color there? You know, be it you know, growth rates that you're seeing kind of portion of the backlog you're seeing, or maybe how quickly these jobs convert, you know, so so so what's happening as far as backlog and into conversion? And then the other kind of margins and any other type of color you could give Kathryn Ingram Thompson: us on that? Thanks. Brian R. Gray: Yes. Thanks, Ian. I would say that virtually, zero amount of dollars in our backlog are related data centers. We have a lot of data centers that we're working on right now, but most of that would be in the material supply of the business. Have just some very small paving projects, but that would not move the dial at all on our record backlog of a billion dollars. Are currently working on 21 data centers And, again, most of that would be through the supply of aggregates or concrete mostly to those projects. And, you know, I think that is the tip of the iceberg. If you look at the amount of work that we have out there pending, bids that are out there that we have provided in the last you know, say, two months is significantly more than what we currently have supply contracts for. And so a very big upside, you know, each one of our states, several of our states are Wyoming has a lot of opportunities. North Dakota is currently working on some data centers. Oregon is working on data centers. So know, we're in the heart of our some of our home operations where we have local aggregates and ready mix plants. Data centers are being built. And so we see that as a very bright spot, frankly, all anything that we would be securing as new work would be on the upside of our range as a guidance. And so we've not baked in any expectations for our midpoint of our guide on data centers. But I can tell you that in my career, I mean, just even the last two years, we've never seen this level of pending work and visit we've got out there. And very good negotiations going on right now. And you know, they're higher margin upstream materials. For the most part, it's aggregate supply ready mixed supply with either an on-site batch plant or a local batch plant close by. And then asphalt paving going into some of these new greenfield sites. So very excited about the opportunities in data centers. Kathryn Ingram Thompson: Okay. Thanks. So so then, you know, how do we then think about just margins going forward, right? So you're getting a favorable mix from this. You're getting your success on the edge program. There's a lot of other initiatives that are kinda Isaac Sellhausen: firing on, call it, all cylinders. And so how do we kinda put this all together as you try to hit your 20% margin target? You know you know, it's just are you accelerating it? Or you know, when do we actually kinda see you achieve those levels? Thanks. Brian R. Gray: Yeah. I think we are proud of the progress we've made in you know, call it two and a half years since we've spun and three years really since we started implementing our edge initiatives. And let me just give you the success, you know, some or some numbers here of the progress we've made in those three years. For gross profit margins on aggregates, we've improved 450 basis points in three years. On ready mix, we've improved 300 basis points Nathan W. Ring: Asphalt, Brian R. Gray: five seventy basis points, liquid asphalt 450 basis points, contracting services two eighty basis points. From the 2022 to the 2025. And so, Ian, mean, I think we've been pulling hard on, obviously, the the the pricing dynamic commercial excellence levers. Shifting our attention more focus on the operational excellence and the cost controls. And it's not linear. As you know, I mean, you you pick up some lower hanging fruits sometimes. And so we do expect margin expansion to continue in all of these product lines. And know, we're very excited about that. Now yeah, I I just I would leave it at that. Ian Alton Zaffino: Alright. Thank you very much. Yep. Operator: Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press 1. The next question comes from Garrett Greenblatt from JPMorgan. Please go ahead. Garik Simha Shmois: Hi. Good morning. Thanks for taking my question. Nathan W. Ring: Just as we think about 2026 and the outlook you provided, I was wondering if you could go into a little more detail or quantification around the impact of acquisitions you did in 2025. And what that organic assumption look like in 2026? Isaac Sellhausen: Thanks. Ian Alton Zaffino: Yeah. So I think that the acquisition that we did late Brian R. Gray: in the year, Texcrete, you could look at the contributions from TEXCRETE in 2026, all of 2026, to offset the seasonal losses that we did not incur earlier in the year last year in the first quarter from the acquisition of Strata. That was in March. And so that comes with a headwind. In the first three months that we will experience this year. And the benefits of the full year of tax credit more than offsets that. And so if you look at our growth year over year, really, you could look at all that growth as being organic at this point in time. I mean, we've not included any future acquisitions in our guidance. And our guidance of midpoint of five forty would imply about a 9% growth rate really on that organic business. And then you know, I've mentioned that Oregon is going to be flat and you take, you know, Oregon being flat, that would imply that, you know, we're mid single mid teens, you know, 14, 15% on the remainder part of that business, which would be Central Mountain, Legacy Pacific, And so we see solid growth going into this year as it relates to you know, the organic business and the contributions from the acquisitions we did last year. Very helpful. Thank you. Operator: Thank you. The next question comes from Ivan Yi at Wolfe Research. Please go ahead. Ian Alton Zaffino: Yes. Good morning. Thanks for the time. Now I know you guys don't provide quarterly guidance, but can you give some color on the trajectory of your full year guidance for '26? What should we expect in terms of ag volumes, price or margins? In 1Q specifically? Anything outside of normal seasonality? Any additional color would be great. Thanks. Nathan W. Ring: Yeah. I'll start with the seasonality piece of that, and then we can get into the the ad volumes and the outlook for the maybe quarter and for the year. So we did share last year at this point, Ivan, you might be able to go back and take a look of the seasonality change that we did have coming with strata. And so that did increase at that time we said, 8%, would be the the seasonal loss that we have for the first quarter now with strata in place. Now Brian just mentioned two pieces that do kind of offset each other. He mentioned TechScrip for the full year. But he had mentioned that we do have that loss with Strata. That was baked in last year. So maybe some of the benefit from tax creep this year softens that 8%. But that does give you an idea of what the seasonality would be for the first quarter. And then the benefit of that coming later in the year probably predominantly in the third quarter, maybe a little bit in the Brian R. Gray: Thank you. Is that it, Ian Alton Zaffino: Yes. Okay. Okay. As of my follow on, you you've got you're you provided guidance on the volumes for ready mix and asphalt. Can you give more color and expectations for the pricing for those two segments? Thank you. Brian R. Gray: have a Yep. So as you know, the input cost pretty big impact on our costs and therefore pricing. And so on ready mix, the two biggest factors that really are outside of our control is the the cement pricing and then the products that are customers are asking for, which would be mixed design you know, different mixed designs. And so you could look at a job like we have right now that p two zero nine project that I I mentioned. In Hawaii, the the price of that material is much, much higher than it would be for, let's say, residential, which is a lot of what the TEXCREET acquisition does. And so what I can tell you on ready mixed pricing and asphalt pricing because it's a big influence by liquid asphalt is that our commercial excellence initiatives, our teams, our sales teams, our totally focused on optimizing prices. They're continuing to use dynamic pricing and we see that momentum that we've had in the previous years you know, continue forward as we roll out and continue to implement the new dashboards and tools that we've given our sales team. So solid traction on pricing going forward, but heavily influenced by product mix and by input costs such as cement and liquid asphalt. Ian Alton Zaffino: Great. Thank you. Operator: Yep. Thank you. We have no further questions. I will turn the call back over to Brian Gray for closing comments. Brian R. Gray: Well, thank you again for joining us today. Thank you to our Knight River team members. A fantastic job last year. We really appreciate that. We have good momentum going into 2026. I'm excited for what we accomplished in the year ahead. With that, I'll say goodbye. Thank you. Operator: Ladies and gentlemen, this concludes your conference call for today. Thank you for participating, and we ask that you please disconnect your lines.
Operator: Good day, and welcome to the Watsco, Inc. Fourth Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. 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 call over to Albert Nahmad. Please go ahead. Good morning, everyone. Welcome to our Fourth Quarter Earnings Call. This is Al Nahmad, Albert Nahmad: chairman and CEO. With me is A.J. Nahmad, President, Paul Johnston, Barry Logan, and Rick Gomez. Before we start, a cautionary statement as always. This conference call is forward-looking statements as defined by SEC laws and regulations that are made pursuant to the safe harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements. As we all know, 2025 marked the year of significant regulatory change to next generation equipment containing A2L refrigerants. This transition follows several busy, volatile years beginning after 2019. We navigate navigate it through the COVID supply chain disruptions. Steer an energy rated transitions, refrigerant changes, and now the conversion to new A2L equipment. It has certainly been an adventure, and we look forward to a simpler operating environment this year. Through it all, Watsco, Inc. achieved terrific results, and created immense value for our shareholder. We grew our scale and market share and we adopt added 12 business acquisitions, representing over $1,600,000,000 sales. As announced today, we boosted our annual dividends by 10% to $13.20. This marks Watsco, Inc.'s fifty second consecutive year of paying dividends. And speaks to the confidence we have in our business. We also continue to build and expand our technology platforms. Which provide an immense long term competitive advantages. We believe we operate in a great industry, with strong long term fundamentals and the industry most accomplished leadership team. All with focus on building our long term success. The building on our long term success. Turning to our fourth quarter results. We achieved double digit pricing gains on the new A2L products and raise gross margins by 40 basis points to 27.1%. We have several ongoing initiatives to enhance gross margins with the long term goal of achieving 30%. Unit volumes declined during the quarter, which does not come as a surprise given the strong 20% comparison unit growth rate last year. Let me repeat that. Unit volumes declined during the quarter. Which does not come as a surprise given that last year, unit growth was had a 20% growth rate. Operating efficiency improved as SG&A dropped 2% and this included newly acquired and open look new locations. I expect overall sales performance and operating efficiency to improve now that A2L product transition is largely behind us. We continue to fortify our balance sheet, and we were debt free for the entire entirety of 2025. We also met our $500,000,000 inventory reduction goal established at the end of the second quarter and generated record fourth quarter cash flow of $400,000,000 Looking forward, we are focused on improving inventory turns and generating incremental cash flow. We expect margins to gradually improve as the transition matures, the balance of the SEER. We continue to invest in innovation and technology that separate us from competitors. We have made terrific progress in driving adoption. Ecommerce continues to grow and accounts for 35% of sales. And exceeds 60% in certain US markets. This year, contractors engagement with our mobile app expanded 15% to 73,000 users. The annual run rate of sales through OnCallAir, which is our digital selling platforms used by contractors, saw a 20% increase in gross merchandise value. Of products sold through the platform and reached $1,800,000,000 for the year. We've also made incremental investments to enhance our competing competitive position and add to our long term growth. Yeah. And margin profile. For example, we are developing new technology aimed at capturing more sales to institutional customers. We are accelerating the use of our pricing optimization tools to make the further further progress toward our 30% plus gross margin target. We have launched a new initiative to compete in gross sales in the fragmented nonequipment market. It's parts and supplies we're talking about, which today is roughly only 30% of our sales. And we have begun to harness the power of artificial intelligence, offering potential to further transform our customer experience improve operating efficiency, and create new data driven growth strategies. These investments, along with our scale, entrepreneurial culture, capacity to invest, unmatched in our industry. With that, let's turn to Q and A. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you were using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from David Manthey with Baird. Please go ahead. Albert Nahmad: Good morning, David. Thank you. Good morning, Al. First question on on the pricing dynamic. Obviously, with the mix shift that happened materially last year, We had a big increase in in the the price of units. I think, there's been some hesitancy on the Barry Logan: on the part of OEMs when they're talking about 2026 and price increases. And maybe not getting the typical increase. But beyond that, I think last year, there was also some commentary around some of the contractors maybe not feeling comfortable with the new product, etcetera. And the broad question here, Al, is as we enter 2026, do you feel like we're in a year of sort of normalization and and that the channel is prepared to sell this new technology completely as opposed to last year where there was sort of this this hesitancy around the transition? Albert Nahmad: That's a terrific question. I'm gonna let several people here answer that. Do you wanna start, Barry? Barry Logan: Sure. Morning, David. Yeah. Well, first, it it it is a a, you know, Paul Johnston: the product line is in place. There aren't two product lines in place. There's one set of pricing for our customers, not two sets of pricing. So I I won't belabor that point other than saying it's a much more stable channel this year than really as as we said in the press release almost at any time over the last probably four or five years. Secondly, I think contractors you know, when they have one thing to sell, are going to be better at it and and more likely, to to sell product If we try to evaluate just the overall trend of things and where the year ended and try to sift through the unit decline in 2025 and parse it out and say, where are we now? We feel better about it. First, new construction had, you know, an impact into that 17%. Oh oh, by the way, overall, 17% unit decline in 2025, just to level set. The conversation. New construction, you know, had a impact on that percentage. Clearly, in the fourth quarter a year ago, when we say unit growth in the fourth quarter a year ago was 20% plus, That plays a role in 2025's analysis. And and in fact, it it's about a 7% component of the 17% just talking about what happened in the fourth quarter of last year. So if I try to summarize that in some way, and other people should chime in on this because a critical question. We think, you know, my my best guess, I should say, is the aftermarket and on replacement market was down 6%, and in in 2025. In parsing out the Barry Logan: the actual pieces. Albert Nahmad: Yeah. And and so 6% is that disruption of Paul Johnston: the channel? Yes. It is. Is that a weaker consumer? Yes. It is. Is it a contractor who's uncertain of themselves doing this stuff? Yes. It is. And so it's probably a better starting place again, than we've seen in the last several years Time will tell, Dave, that we're not ready to call the season yet because it's not the season But I would say that the the the beginning line is is in a much better place. Yeah. The and I would say the the contractors been well trained. He understands the the A2L product. He knows how to do the installation now. He knows he's gotta replace the indoor and the outdoor unit. So I think the the training part of it is behind us. I think they're they're ready to go and and and offer consumers a good installation on the product. So I don't think there's any issue on that side right now. Albert Nahmad: Yeah, Dave. I think you know as well as all of us that the last five years have been a wild ride. You know, there there's been macroeconomic issues. There's been geopolitical issues. There's been industry specific stuff. There's been wild supply and demand dynamics. There's been, you know, regulatory changes, etcetera, etcetera. You use the world normalization. That's what we're hoping and expecting. And, obviously, we can't control the macroeconomic or geopolitical, but it doesn't seem like the industry has anything teed up to the extent certainly that it did over the last five years. I mean, the regulatory changes are behind us. Paul Johnston: Hopefully, there won't be another shortage refrigerant canisters. I mean, that kind of thing is behind us. Albert Nahmad: So we don't have a crystal ball, but we certainly like the starting point than we more than we do others or less. Paul Johnston: Years. And no no matter what, though, our job is to grow and to Albert Nahmad: inroads with our customers and in this industry. Paul Johnston: And control what we can control and that we should be investing. Albert Nahmad: That's what we're focused on is finding ways to win given this environment or any environment. Way to be able to balance sheet as clean as ours. Feel very limited. Paul Johnston: And Dave, you mentioned pricing. The face of all this. And a year ago, when we commented on pricing, we we thought that the new product would would would end up being 8% to 10% higher in price. Our price benefit in '25 for the year was 9%. For the fourth quarter 11%, And and so pricing as a as just a general theme and it's it's of course, it's the mix of the new products that's that's accounting for most of that. That's been a very stable part of our business. And and the margin opportunities in flows from that has been yielded in a good result this year. And that maturity didn't stop January 1 this year. It it continues into 2026. As the as the full maturity of the new products, you know, alphabetically play out So so I think pricing and margin and discipline and industry discipline and OEM channel partner discipline across the board has been pretty consistent and good this year I don't think that that changes or stops I just think maybe the yield is lower, just as as, again, as things become more normal. But price in general has been a a good theme for a while now. Barry Logan: Alright. Thanks for all that context. I'll pass it on. Operator: Our next question comes from Tommy Ma with Stephens. Please go ahead. Albert Nahmad: Morning, Tom. Morning, Al. Thanks for taking my questions. Sure. Operator: I want to start on the dividend increase you announced Paul Johnston: today, another 10%. Operator: Increase. This Albert Nahmad: has been a key part of the Watsco, Inc. story for a long, long time now, over years. I think you called out Yeah. My question is, if if we just look at what was announced today, the annualized rate is a little bit above the earnings you just generated in 2025, so the LTM period. Granted, that was an abnormal year, but I don't know if you've ever been in this situation before Paul Johnston: where the outlook for the dividend exceeds that earnings rate From a cash flow standpoint, Albert Nahmad: clearly, you can do it without breaking a sweat. But I just wanna wanted to ask what's the message here Paul Johnston: on, on the confidence on the earnings line going forward? Thank you. Albert Nahmad: That's a very good question, and I'm gonna go to my number one adviser on dividends, which is Barry Logan. Paul Johnston: Hey. Good morning. Well, I think 2020, by the way, is the last year where that kind of ratio, if you will, earnings per share to dividend was was near 100% And I I would like for what happened after 2020 to occur again to to, to, you know, relax people on that theory. Barry Logan: Mhmm. Because because that Paul Johnston: the dividend was $7 and 10 and 10¢ 10¢, and earnings per share was $7 in 2020. So, yeah, I I think it is a track record that's important and and somewhat sacred to us. And your consistency that means you should own Watsco, Inc. forever. So that's the pretense of what the board discusses in sustaining that. And you're right. Cash flow is actually how the dividend is paid and cash flow is probably closer to $16.18 dollars a share today And, you know, that's, you know, that's the pool of of capital that we look at to say, can we you know, can and how much and and when? And we're satisfied with with that that concept. And I I like that Watsco, Inc. was not just debt free at December 31. In fact, we didn't borrow a penny every day of 2025 And we're looking for acquisitions. We're looking for investment. We're looking for what our imagination can do with OEMs to grow our business. At the same time, the dividend is is a critical theme, and we're going to raise it if we feel comfortable, and we do. So let's hope earnings, you know, is a reset following this past year. Time will tell. Comfortable with cash flow. And keep the track record in that, you know, that that important part of the Watsco, Inc. story going Albert Nahmad: Thank you, Barry. Mentioned OEMs. And for my question, I wanted to hit that theme Paul Johnston: If we look back at what Rick Gomez: carrier communicated to the market regarding their 2026 outlook for resi, They're calling for industry unit volumes down 10 to 15%. They're calling for their own residential sales down 20%. In the first half of the year. What are we to make of how to translate those kind of comments to what you might expect. Are these reasonable proxies for Watsco, Inc., or are there some differences that you wanna call out today? Thank you. Operator: Go ahead, Barry. Paul Johnston: Yeah. I I think well, first, there's always and forever a disparity in the timing of OEM, you know, seasonality versus distributor and contractor seasonality. And that's even been more amplified or magnified by the 14 a conversion, which started this time last year for for us, but had already begun three months before for the OEM. So so that the channel has not been a easy thing to analyze at any time. I I think, if my memory is right, carriers unit volumes were down in the 40% range this past quarter. If you if you look at our our math, it's it's somewhere down in the twenties, mid twenties. And a year ago, we were up 20. So it's just a different it's not not not simple to analyze when there's that type of variation in the spectrum. Spectrum. But I think if I look forward, two things I know is we will we will sell the exact number of systems that contractors are going to install in people's homes or businesses. We're not selling into inventory. We're not waiting for inventory to clear. We're not wondering if inventory is going to clear. You know, our business is is selling into the contractor channel in real time based on what's being installed. And that's comforting because that's always going to be more stability you know, a much higher level of stability than otherwise. Now, of course, you know, with unit volumes down in the fourth quarter, they don't instantly start going up January 1. We're still working through some of the four ten a kinda conversion and activity and pull in the fourth in the first quarter but I think that begins to clear on our our on our side of the ledger, you will, sometime by the second quarter. So I think it's just always a lag or always a a leading indicator or a lagging indicator and and it's been impossible for anyone to analyze this in the last you know, few years. But I think the the curvature and the and the spectrum will narrow and and be a little simpler for everyone as the year goes on. Tommy, I'll add some color too, which is not Rick Gomez: data driven, but it's culture driven and focus driven, which is and this is what we're talking about internally with our leadership teams is the last ten, fifteen years, I think it's safe to say Albert Nahmad: a good job of modernizing its its people, its team. Teams, systems, its processes, technology. Rick Gomez: And then as I said earlier, the last five years, I've been Albert Nahmad: think it's fair to call chaos between all the implications of the pandemic and everything else that's been solved now. So here we are in these days where it worked. We're hopefully reaching some level of normalization Rick Gomez: And so what is our priority? It's sales. Albert Nahmad: It's take all this new skill and muscle and capabilities that we have as a company and focus on taking it to the street, driving more customer relationships, driving more sales and more products, and winning in the marketplace. That's our focus. That's where 90% of our conversations are about right now. And so in this new environment, whatever it may bring, that's what we're that's where our priority is sales. Rick Gomez: Thank you both. I'll turn back. Paul Johnston: Yeah. Just just to up even a to to to completely exhaust that. You know? We have about 15 primary equipment OEMs. And it it to start a year where we can have strategic growth market share driven you know, tactical discussion in our markets about product, about, you know, how how how does this market grow How do we grow the market? You know? That's refreshing. I can assure you a year ago, it wasn't about that. It was about getting the product and and and then having the panic attack of having over half our business change into new products. Yeah. That's done. And so now it's about growth. Albert Nahmad: I hope that was helpful. Operator: Our next question comes from Ryan Merkel with William Blair. Albert Nahmad: Hi, guys. This is Mike Francis on for Rick Gomez: for Ryan. I I don't know. How are you doing? Albert Nahmad: Yeah. Paul Johnston: Great. Rick Gomez: I wanted wanted to start just asking how January and February are going to date. Now there's still some some softness on the on the compare side of things. We'd just love to see how the year's off to or how the year's starting off. Albert Nahmad: Well, Barry, you're my go to guy so far. Alright. I I can answer that, but I'd rather you answer it. Barry Logan: Yeah. It it's down in the mid single digit range, so it's better than Paul Johnston: if I wanna feel better, I I don't feel good, but I feel better. It's down 5% or so in in the first part of the year. And That's what it is. Very clearly you know, there's very clearly some some severe weather that closed in stores that you know, for now, I believe it could have been a bet bit better than that, but it's still not indicative or an inference into the season. And Watsco, Inc. becomes a 40% larger business. In about ninety days when the summer season hits. So that's that's the data, but I try to draw important inference out of it. Albert Nahmad: K. And then, s g and a, nice job on that. Rick Gomez: In April. It's down 2% for the next couple of quarters, a good assumption, or are there any sort of puts and takes that would swing that higher or lower? Albert Nahmad: Very Paul Johnston: Yeah. I I think, it's progress. Right? So a lot of reduction, and and really taking make making taking action happen during the fourth quarter. It didn't start January October 1. It was throughout the quarter. So I think there's an opportunity for further reduction especially out of season As we get into season, we'll calibrate what we think we need and what we have and serve customers a proper way. And calibrate our SG&A then. But I do think some of our growth investments, new branches, new technology, you know, investments we are making can largely be offset by some of the reductions that are in place. So time will tell. What can make it go up would be variable expenses like commissions, bonuses, that would be driven by volume. I I want SG&A to be higher as a result of that discussion. Because earnings would be a multiplier against that type of growth. But in terms of calibrating and starting the year, I think we're in a a lower place than a year ago. And again, we'll recalibrate that as we get closer to the season and see. Albert Nahmad: Alright. I appreciate it. Again. Let's Rick Gomez: add a little color there too. I mean, we we our business unit leaders did a good job rightsizing the business for the current market environment. And we hope and expect, and they are certainly planning using Albert Nahmad: technology and so forth to drive efficiencies for now and forever. We are a continuous improvement business. Like Barry says, we're we're not gonna be shy to invest where we see growth opportunities. Alright. Passing on. Thanks, guys. Our next Operator: question comes from Brett Linzey with Mizuho. Please go ahead. Rick Gomez: Hey. All. Wanted to come back to gross profit margin, so up 40 bps in the quarter. For the full year, I was hoping maybe you could give us some of the building blocks to get to the 28. How much was the pricing optimization versus maybe mix on parts versus equipment And then do you think this 28% is is the new bouncing off point as we look into 2026 here on gross margins? Hey, Brad. It's Rick. I'll Albert Nahmad: I can take a I can take a stab at that. Yeah. I think, first of all, you know, Rick Gomez: the Albert Nahmad: the importance of margin, I think, really shows over the course of a year. And, so so you're right that, you know, we should focus on that as as being Barry Logan: the the starting point for what comes next. It's not a floor. Albert Nahmad: It's not a you know, we're not saying that 28 is the new 27. We're saying we've done good at many things over the course of a year to help improve margins. Yes. OEM price increases springtime last year helped, Yes. We made more progress on all the pricing technology The the we're we're very excited about it because it's not yet touching every customer, every branch, every SKU. There's still more to go there. And and then the third component that I think is is exciting is Paul Johnston: we we talked at our Investor Day about Albert Nahmad: a new initiative that we're affectionately calling VCR, and and that has to do with getting smarter, more strategic about purchasing within the nonequipment space and not just purchase purchasing really, but how we bring it in and how we redistribute it across our network. We think that's ultimately margin enhancing at the end of the day, and, and that initial is early days. But good progress so far. So so I think the the the controllables of margin that we are that are within our portfolio, let's say, we feel relatively good about And if this is a year where you could have know, conventional OEM pricing, Paul Johnston: I think that that also is favorable to margin. Albert Nahmad: So so no no no flashing red. I think there's there's you know, good optimism and Paul Johnston: and also just a a well thought out strategy to Albert Nahmad: know, grind at this over the next several years to get to our ambition of 30%. Yeah. We we don't wanna swing for the fences on this. Paul Johnston: We wanna do it responsibly, and we wanna do it in a measured and and make Barry Logan: just Albert Nahmad: love to be able to say, Rick Gomez: we grew x to y every year for the next, you know, y number of years and Albert Nahmad: we'll get to 30%. So it's not that linear, but, that's what we're aiming for is is is progress along the way and and, someday we'll tell you we got to 30%. Rick Gomez: And then the goal will be over 30%. Albert Nahmad: Yep. No. Appreciate that. And then then maybe just Rick Gomez: a follow-up on on inventory and more Watsco, Inc. inventory. From an equipment standpoint, where do you think you guys are on units as you enter 2026 and exit last year? From a from a a positioning standpoint? Do you think there's more rightsizing that needs to take place, or you think you're in pretty good shape? Paul Johnston: There's yeah. There's always going to be right sizing taking place in our inventory. Know, there are there are things that we need to do to to further improve the quality of our inventory, which we're constantly working with our subsidiaries on. However, when you look at the number of Albert Nahmad: if you just take residential units residential units, Paul Johnston: you know, ended the year down. Dollars ended up know, pretty close to what they were last year. At this point, you know, I would say our inventory is in in great shape. Compared to where it was a year ago. A year ago, we were we were in the transition period. And now we're out of the transition period. We're pretty much through with the 04/10. We've got some left that needs to be moved. But I I think overall, our inventories in in in a great position right now to face the market. Barry Logan: And and, Paul, why don't you say also that our OEMs and Rick Gomez: a nice position Albert Nahmad: getting through all the noise of the regulatory changes and so forth and getting back some level of normalization in terms of lead times. Rick Gomez: Etcetera. And I think that provides a good base on top of which we can Albert Nahmad: further optimize our Barry Logan: turns and Albert Nahmad: be a more efficient business in that regard. Yeah. We've Did you guys hear me? Rick Gomez: Yeah. Albert Nahmad: Don't you tell them what I do? Tell tell tell everyone what our dream plan goal is? In terms of inventory turns. And where we are now, where we like to be. Our our dream plan, which is which is very well acclimated amongst our business units, is to get to a total of five turns. You know, we used to operate pre pandemic around four. That dropped into the low threes given all the the the noise. Rick Gomez: And we're gonna climb up that ladder. And when we do that, you guys can do the math. Albert Nahmad: Every turn of inventory, what that means in terms of free cash flow. Rick Gomez: Can then be used to reinvest in the business. Paul Johnston: Appreciate all the detail. Yeah. Just to add one one analytical thought to it. You know, units units are down double digits at the end of this year. Equipment units are down double digits, so that's okay. You know, that's where you know, the progress we've made. But if you look at it analytically, I think in the in the inventory now is is around 18, 19% of the prior twelve month sales. Just use that as an index. And if you looked at ten years, that's the average. So I think that the beginning the beginning, you know, point is a good beginning point. Where the turns come is is trying to not spike inventory know, as we go through the year. Work with our OEMs, count on lead times, have dependable lead times, replenish to what we're selling, then you have a much, you know, again, simpler curve you're managing throughout the year for reframeatory. And it it may take a year or two to have that full confidence in in lead times and dependability of lead times. But that's that's what we're up to, and and that's how it could happen. Won't happen in one quarter all at once. But over the next couple of years, as as the simplicity is now in place, that's the big opportunity. Thank you. Operator: Our next question comes from Jeff Hammond with KeyBanc Capital Markets. Please go ahead. Paul Johnston: Hey. Good morning, guys. Barry Logan: Just back on gross margin. So I understand that Jeffrey David Hammond: the 30% target and and can you continue to drive for that. But you know, it seemed like the second half, you were kinda getting back down to kinda low 20 sevens, and you had some maybe temporary goodness in the first half. So I'm just trying to level set you know, if we take out that Rick Gomez: maybe Jeffrey David Hammond: pricing arbitrage in in January, you know, are are we looking at you know, gross margins flat, down 50 basis points, or or just you know, level set us a little more know, given that that benefit last year? Paul Johnston: Well, the reason that you see that variation in Albert Nahmad: GPM is the seasonality that they and and the product mix that goes along with that seasonality. Anybody else wanna add something to that? Yeah. Yeah. Rick, why don't you fill in some because you and I had a good chat earlier. Yeah. I think that that that what what Al just said is is correct, Jeff. You have to look at this firstly on a seasonal basis, which is know, my preference for then looking at the overall year to smooth that out. And 28% is is great progress versus last year. If if your question is, did the OEM price increases earlier in the year distort that in some way that would be a headwind going forward? The answer is not really. If it you know, if if if that round of springtime OEM price increases amounted to mid single digits, that's been exactly what's what's been announced so far. Coming in in a little bit later, in the season. So so nothing that I think would distort or that we need to tell you about, as a watch item on on gross margin. Fundamentally, what drives gross margin is, remember, the the the pricing and inflation and all that, that that is not something we control, and that's really a function of timing Rick Gomez: at the end of the day. Albert Nahmad: What really derives a gross margin is the transactional margin Barry Logan: at which we sell the customers, 130,000 of them out in field in 700 locations. Albert Nahmad: That'll be over a longer period of time, the more important ingredient whether we can sustain and grow gross margins. Paul Johnston: And as I said earlier, I think there's there's Albert Nahmad: optimism and and upward bias to that because that technology is still proliferating and and still scaling as we go. Paul Johnston: The other, Albert Nahmad: again, just component to that that I think is underappreciated margin is the of the mix between your equipment and your nonequipment. Right? So, obviously, we saw just a a relative difference there in sales trends and that that, you know, is good for margin. What we wanna do, forget about twenty five, whatever the market grows on equipment, great. Let's do better than that. Rick Gomez: But Albert Nahmad: the whole point of ECR is not just to get smarter about purchasing and redistribution, It's about growing the nonequipment base. It's a $2,000,000,000 segment of our business and 1 and a half billion in purchases. If we're you know, some percentage there bigger, going forward, that will be helpful to margin along you know, just just from a from a growth and volume standpoint in addition to all of the the purchasing and redistribution benefits we gain along the way. So so that transactional margin, the pricing technology, and the success of VCR is what really will, I think, govern our long term success on gross margin. Rick Gomez: I also think whenever we have this conversation, it's important to reiterate that Albert Nahmad: the mission to expand gross margin does not necessarily mean raise prices across the board and suffer the consequences of Rick Gomez: of Albert Nahmad: higher prices, meaning lower sales. That that does not the mission. That is not the approach. The approach is to match the right price for the right products for the right customer given that market's dynamics and that product's dynamics and that for that customer's purchasing behavior with us. And because we have such scale across so many different products, There's a lot of detail around that, a lot of complexity in that analysis. And so what our tools and our teams are able to do more than ever, and by the way, AI is helping with this now, is identify opportunities to match the right price for the right product for the right customer. And and when we do that at scale, it's a lot of slices at the apple that add up over time. But it's not just dry price and some of the consequences of elasticity. That's not it. Jeffrey David Hammond: Okay. Great. And then Barry, maybe you can give four q what international and commercial was and then just speak to you know, what trends you're seeing or or what the outlook is. So, you know, I think international is particularly challenging Paul Johnston: last year and and maybe Jeffrey David Hammond: you know, commercial started the year better and then and then softened. But but maybe just update us. I mean, commercial, was Paul Johnston: for the for the quarter, Jeff, is that what you asked? Yep. Yeah. Commercial for the product was down single digits. High single digits, and and know, obviously, not as no giant influence there the way that residential was influenced by the four ten a change. So a little better result in the fourth quarter with with with light commercial. And and that includes a a weaker international business. So just overall, let's call it 9%. International, again, we have to be clear, we have really two international businesses, Canada and Latin America, including Mexico. And and Canada did have a better a better quarter, and Latin American business, which has kinda been weak all year, was kind of the same kind of quarter. The planning, the the the programming for next year is better in in both markets. Albert Nahmad: But Paul Johnston: again, that that we we we said the word geopolitical earlier in the call. Those were two markets that certainly had some influence with geopolitical issues and tariffs and and the like. But not necessarily much better, but not certainly not worse. As we as we closed out this year. Albert Nahmad: Okay. Thanks. Operator: Our next question comes from Steve Tusa with JPMorgan. Please go ahead. Albert Nahmad: Morning, Steve. Rick Gomez: Good morning. How are you? Albert Nahmad: Good. Paul Johnston: Good. Rick Gomez: The can you just parse out the the resi performance a bit Was there like on the ductless side, how did that perform versus kind of the traditional ducted products? Paul Johnston: Well, they were affected by know, 14 a and A2L as well, Steve. So I'm not sure there's any any real divergence in result in the quarter. Rick Gomez: And for the year as well? Jeffrey David Hammond: For the year. Paul Johnston: Let me look at the quarter. For the year, And, I mean, kind of as it should, Douglas has been outgrowing No. I'm sorry. No. So It's it's exactly the same. Albert Nahmad: Yeah. Okay. Interesting. The decline in, yeah, decline in ducted ductless is identical. Paul Johnston: You know? Barry Logan: And and and as far as the the, like, the parts and the repairs and things like that, Rick Gomez: was there any sort of like trade down in that channel that you're seeing at all? I mean, we're just trying to kind of gauge what what appetite is from an inflationary perspective from your customers really across a range of products, not just the boxes. Was there any sign of like a trade down on that front at all? Barry Logan: Well, if you look at Like like more like more price sensitivity, you know, Rick Gomez: from the contractor and and not just on the box side? Paul Johnston: I don't think there was price sensitivity. I think, you know, if you look at the you know, compressors and motors really represent the bulk of our of our part sales, not our supply sales, but our part sales. And if you look at that, overall, they're up for the year. Sales are up double digit. But for the quarter, they were actually flat to down. It only represents about eight fourth quarter only represents about 18% of the of the annual sales of parts and parts business. So it it's not a significant quarter. Rick Gomez: Okay. And then just one final one. I'm not sure anybody asked, but Stephen Volkmann: the kind of prevailing consensus from your OEMs or from the OEMs out there is for them a down unit market so far, again, like that may be conservatism. What is your market call kind of for this year? For for the industry? The you know, if I think trains down zero to five, Lennox down zero to five, and then, I mean, Carrier put out like a down 15 or something like that or down to 10 to 15. What is kind of your call on sell through volumes this year? Are we just kind of like starting it flat? Or do you think it can grow? Paul Johnston: Oh, that's like the most that's like the most difficult crystal ball question of all, Steve. And I I I never I I I never answered that the answer it in normal years in in February. Albert Nahmad: Do you do you have the answer? No. We we we know the answer. We're just not gonna Paul Johnston: tell you. Right. Yeah. Stephen Volkmann: Alright. Well, I I I guess I guess I had to ask. Rick Gomez: Thanks a lot for all the details. We'll we'll be very we'll be we'll be very Paul Johnston: you know, have better information in ninety days. Like, I I I wanna take one of those, like, eight ball Remember the eight balls when you're a kid and you shake it and it gives you an answer? That's It's it's too early to tell. If I shake the eight ball, it's gonna say too early to tell. Stephen Volkmann: I've I've got a broken clock in my in my room and it's it's right, you know, twice a day. So, that that that's what I'm shooting for. Thanks, guys. But I but but I Paul Johnston: but I again, I'll just say this just to have a little bit of fun with with this. I I wanted to to understand our day our data, not Hardy data, Barry Logan: OEM data, not HR ID, our data. Paul Johnston: So I went back to 2018 said how many units did we sell in The United States? I compounded that at 3% through '25. I added up the numbers and said we should have sold x number of units. And then I I glanced over, and I used 3% compounding, which is less than the twenty, thirty year long term average. Unit growth rate in this industry. I use 3% just to pick a number. That was more conservative than than that, the long term average. So then I said, how many units did we sell the last eight years? And it's within 1%, if not half a percent, of the linear compounding at 3% for eight years. Now it took this year's unit decline of 17% for that algebra to come in line. It took the correction of this year for the data to work. Where the beginning part beginning point seems where it should be. But then but then if I know, say the rest of the sentence, I have no idea if that will if it's right. But, intellectually, I feel a lot better looking at our data and that kind of that kind of projection I don't feel intellectually worse. I feel better. Albert Nahmad: Right. So it's so it's so it's normal. Stephen Volkmann: So so you're at kind of a normal you're you're you're at a normal level is the point. Paul Johnston: Yeah. And and and nor normal meaning that if there was an oversold market in our markets coming into the into '25, this year's correction helps that equation for sure. There are other variables than just the ones that I'm thinking of, but I would say I don't like the word normal. I think it's a more conventional starting place. This year than after this year this past year's correction. The data suggests that but we don't know it until we see it play out. Stephen Volkmann: And so you're making it a yeah. Go ahead. Sorry. Say, Steve. Yeah. Which is it it it Albert Nahmad: feels more normal. I'm not sure it actually is normal yet. But it is it it does feel more normal. And and the balance of the season will kinda tell us if that theory holds or not. Stephen Volkmann: And and sorry. One one more for you on this front. Do you finally kinda have visibility into, like, what the actual number for pre buy you think in the industry was? Is that what you're saying basically? It's like 7%. Or or less than that? Like like, what what do you looking back, what do you now think the pre buy was last year? Paul Johnston: Yeah. Well, it's not no no one no one pre bought them. We sold we sold them and they installed them. Barry Logan: Right. Our contract For you guys. Right? Paul Johnston: Right. So so last in in last year in the fourth quarter, our guess is we sold you know, four ten a systems as we closed out the year. 20% unit growth was the metric that we gave you this this quarter. Happened a year ago. And and if if we do the algebra and saying what would have been normal a year ago, and project that into this year as a 7% you know, change in actual unit The actual unit change is 17%. Got it. Stephen Volkmann: Okay. And Alright. Thanks. Thank you very much. And we can Rick Gomez: So I I sorry. I can't help myself here. I have to make a central point, which I think we do every quarter, which which is that these are these are the right questions and good conversation, but Albert Nahmad: what we're here for is not Q1 or Q2 or even 2026. Our north star, our guiding light is long term, long term, long term. So you know, we certainly do our best each quarter, each day, each month, each in year. But our our decision making, our investments, our our leadership philosophy, is all about the long term. We will never the long term for some short term benefit. So just know that that's at the core of Watsco, Inc.'s culture. Stephen Volkmann: Loud and clear. Amen. Albert Nahmad: Well said, mister president. Paul Johnston: Alright. Are we done? Operator: Next question comes from Chris Snyder with Morgan Stanley. Please go ahead. Jeffrey David Hammond: Thank you, guys. I I think earlier, you talked about, you know, consumers or homeowners having to buy two units. Now with the, you know, Ford 10, I guess, fully in in the rearview at point. And and I think that that comment was was tied to the April transition. Yeah. So I guess, you know, I think the question is I guess I understand that's positive would be positive for your volumes, you know, selling the homeowner two units more so now than in the past for selling them one. But do you also think it could just keep the homeowner in repair mode for longer because it feels like the the replace bill in that example would be effectively doubled Rick Gomez: and it would just be a wider delta versus the the repair. Jeffrey David Hammond: And any any way you can help me think through that? Thank you. Barry Logan: Yeah. When we say two units, we mean Paul Johnston: you're gonna have your outdoor unit, and then you're gonna have to install a separate coil on the inside. The four fifty four and the 32 a product that we sell, it's powering these units now. Is slightly flammable, so it has to have a detector on the inside in the event of a leak. So that the gas is then dispersed by a blower fan switch. That goes on in the coil. So there there's that two units you have to buy. It's just you have to buy the entire system. You can't just replace the outdoor unit. Okay? And and and, Chris, I think it's it's important definitionally The ARTI data that is published Those are the outdoor units that have a compressor in it. That's the definition of a unit in in the industry is is a compressor bearing unit And all the OEMs and HRI and in in our comparison data when we talk about units, that's what we're talking about. So it's definitionally consistent And and what will happen is as distributors run out of four ten a indoor and outdoor systems, where maybe a Band Aid could have been put in place to sustain an existing system longer Maybe maybe my indoor unit is fine. My outdoor unit is is is condemned. A year ago, I could fix that by only replacing the outdoor system. Today, with the new systems, my choice is is to repair or maybe I can't repair. Maybe it's chronically broken. And this coming year, the contractor will must replace both indoor and outdoor And I can tell you even more certainty next year, twenty seven, distributors will not be really carrying any product that can sustain the old system it's chronically failed. So it's it's a migration. It's a it's a progression. But that gives you some color on it. Jeffrey David Hammond: Thank you. That's really, really helpful. And it I guess, do you have any idea as to how often the contractor repairs the entire system versus, say, a year ago just repairing the outdoor unit. Because it does feel like we're you know, in in your example, if your indoor unit's still fine, they have to replace both. So the replacement bill is going up materially versus a year ago. Was just trying to get a sense for, like, Albert Nahmad: how common is that Jeffrey David Hammond: you know, that you you you maybe a year ago would only just replace one of the two. Paul Johnston: But you you gotta remember, a unit has a warranty to it. And that warranty on the the compressor and the motor goes for five years in most cases, it moves to ten years. Albert Nahmad: So if if Paul Johnston: the average lifespan of a product, let's say, in the in the entire US is fourteen to fifteen to sixteen years, only got a window of of five to six years where the consumer's gonna be paying for for the replacement Albert Nahmad: of the compressor or the motor. Jeffrey David Hammond: Thank you. So, yeah, it it really Paul Johnston: yeah. You know, a lot of probably 50% of the compressors that we move will go to warranty. 50% will be sold. Yeah. Don't think we would have data to answer how many chronic failures were replaced by half a system. I don't think we have that data. No. No. We don't. But but what we but what we know is as as we move away from 04:10 a availability, which is near zero today and will be at zero soon, that capability, you know, you know, moves away and contractors' preference is to is to upgrade a system, not put a Band Aid on it because if there's a warranty issue on a repair, it's his warranty issue. And so so, you know, you're right. That the affordability and consumer, you know, capability of paying for things is still important. But as we move away from 04:10 a availability, the choices become less, not not more. Jeffrey David Hammond: Thank you for all that color. Really helpful. Albert Nahmad: Our next question comes from Patrick Baumann with JPMorgan. Operator: Please go ahead. Good morning, Patrick. Thanks for Barry Logan: good morning. Thanks for letting me sneak in here. Steve asked questions earlier, but I appreciate you Jeffrey David Hammond: Let me hop on. A quick one on the volume Barry Logan: for the year, the 17%. Can you give us any information on the disparity you're seeing in some of your major ducted OEMs there? I'm I'm really just trying to understand if you've seen volumes recover for the noncarrier vendors. We had, obviously, some issues at, Bank and Goodman with the transition, I think, in '24, and then as well with with Rheem just curious if those OEM volumes have had fully recovered now or if there's more room to go kind of normalize their share? Paul Johnston: Yeah. The the opportunity for for Breen and and Daikin, they're performing very, very well for us right now. Albert Nahmad: This lady Were they able did they grow their volumes last year? Paul Johnston: Not gonna get into that. No. Operator: Okay. Barry Logan: And then last one for me on the HVAC product segment side. Can you remind us what the commodity related product exposure is there as a percentage of the total You you've historically talked about, like, copper tube and and ductwork and refrigerants and things like that. Being more commodity sensitive And and I'm just curious what you're seeing in terms of inflation driven price there currently. Okay. Copper is always Paul Johnston: up and goes down daily. So it's copper is a a hard one to track. You know? Today, it's down two and a half percent. Down to $5.72. It's been as high as $6 a pound. Refrigerant has been holding its pricing. It's not been increasing yet. So we really haven't seen a lot of fluctuation on the refrigerant side. Albert Nahmad: Hey, Pat. In the aggregate, just to just to dimensionalize it, in the aggregate, it's about 5% of total volume. So it's really not not significant. And we very deliberately keep or, you know, we we we count inventory in in in days and weeks, not months there because we don't want any of that price volatility to creep into sales and and margin. So it's very conservatively managed, and it's only 5% of the business. Paul Johnston: Understood. Yeah. Well, thanks for the color. I'm just going I'm going just glancing at some volatility across four quarters this past year, and there there's none. I mean, it it's as as Rick is suggesting, it's a little bit of a real time inventory turn for those products and Albert Nahmad: is is Paul Johnston: precisely 5% of overall revenue. Albert Nahmad: Yep. Let's move on, Barry. Let's move on. Thanks a lot, guys. Operator: This concludes our question and answer session. I would like to turn the call back over to Albert Nahmad any closing remarks. Albert Nahmad: I appreciate your interest in Watsco, Inc.. Some of you have been with us for decades, and I appreciate that. So thank you very much for your interest, and we'll speak to you next quarter. Paul Johnston: Bye bye now. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Daniel Amir: Hi. My name is Daniel Amir, Head of Investor Relations. This webcast is being recorded and will be available for replay in the Investors section of eToro's website. Our earnings press release, investor presentation and January monthly spreadsheet, is now available on our website at investors.etoro.com. Today, I'm joined by Joni Assia, our CEO; and by Meron Shani, our CFO. [Operator Instructions] But before we begin, I want to note that today's discussion contains forward-looking statements, including statements about goals, business outlook, industry trends, market opportunities expectations for future financial performance and similar items, all of which are subject to risks, uncertainties and assumptions. And you can find more information about these risks and uncertainties in the press release that we issued today and the Risk Factors section of our filings at sec.gov. Actual results may differ, and we take no obligation to revise or update any forward-looking statements. Finally, during today's meeting, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Definitions and reconciliation of GAAP to non-GAAP measures is available in our press release, investor presentation and on the sec.gov website as applicable. With that, I will pass the call to Joni. Jonathan Assia: Thank you, Daniel, and thank you, everyone, joining us here today. Welcome to our fourth quarter 2025 earnings call. After Meron and I finish our prepared remarks, we'll open the call for questions. 2025 was a defining year for eToro. We became a publicly traded company on NASDAQ. We accelerated innovation and AI adoption across our platform, broadened and localized our product offering and expanded our presence in key markets such as the U.S., while continuing to strengthen our global footprint. More importantly, we made amazing progress towards the financial super app we're building, all while delivering growth across our primary KPIs. We're operating at a pivotal moment for financial services. AI is advancing at an unprecedented pace, reshaping how people access information, make decisions and interact with markets. At the same time, financial services are continuing to move on chain, enabling a more continuous, transparent and borderless global market infrastructure. Along these technological shifts, we're seeing a structural increase in retail participation in markets across the globe and the largest generational transfer of wealth in history. Together, these forces are driving demand for a seamless digital first investing experience that is more personalized, more intuitive and available at all times. At eToro, we're at the forefront of this evolving financial landscape, using technology and community to power our users to become better, more confident and more engaged investors. Our focus is on expanding access to global markets, moving towards 24/7 trading, bringing financial assets on chain. Broadening our crypto and decentralized finance offering, while continuing to provide the full suite of investing in savings products in traditional markets, enabling partners to build and trade through our eToro APIs and interact with the eToro apps, leveraging AI to help users make smarter investment decisions. All of this is delivered through a simple and transparent investing experience in line with our mission to democratize investing and give anyone anywhere the tools they need to grow their knowledge and wealth. While we're proud of the progress we've made, we see a significant opportunity ahead. We are confident in our ability to capture this opportunity for the benefit of our shareholders, users and partners. Turning to our results. We delivered a strong fourth quarter that reflects continued momentum and the strength of eToro's diversified offering. For the year, net contribution increased 10% to $868 million and rose 6% sequentially in the fourth quarter to $227 million. Adjusted EBITDA grew 4% year-over-year to $370 million and 11% quarter-over-quarter to $87 million, delivering a 38% adjusted EBITDA margin in the quarter. We achieved these results despite the current crypto market environment, underscoring the strength of our multi-asset model and the benefits of our global diversification across geographies and asset classes. We first offered crypto trading on eToro in 2013, and since then, we've been through several crypto market cycles. We've seen people right off crypto, we've kept building. Over time, we have built a truly global multi-asset platform, spanning crypto, equities, commodities and currencies. That breadth allows us to adapt as market activity shifts and to perform in any market condition. In 2025, we continue to execute across our four product pillars: Trading, investing, wealth management and neobanking. In trading, our focus remains on expanding product reach, flexibility and global market coverage. Since 24/5 equity trading, we've seen very strong adoption, reinforcing our belief that investors around the world want the ability to engage with the markets on their own time and terms. We now offer 24/5 trading across all S&P 500 and NASDAQ 100 stocks, which has contributed to a doubling of our total stock trading volume over the past two years. We continue to listen closely to our active traders across 75 different markets as we accelerate toward 24/7 trading and expanded margin capabilities. This quarter, we're introducing a round-the-clock access to a selection of popular assets with plans to expand 24/7 trading across additional asset classes. We're already seeing traditional capital markets begin to follow the always-on 24/7 model pioneered by crypto. In Q4, we surpassed 150 supported crypto assets with plans to expand to more than 300 in the near term. In the U.S., we significantly broadened our crypto offering in 2025 to over 100 crypto coins, adding a wide range of new assets and enhancing our staking capabilities. These milestones mark an important progress in our localization strategy and broader asset expansion. By the end of 2026, we plan to support over 100,000 tradable assets across equities and crypto. In investing, we continue to broaden access to global markets. In 2025, we expanded coverage to include Hong Kong, Nordic and Middle East stock exchanges. And today, we provide access to 25 exchanges from across the world in over 12,000 assets on the platform. It was also a year of continued innovation in smart portfolios with a focus on localization, partnerships and alpha. This quarter, we launched two new smart portfolios in partnership with Amundi, Europe's largest wealth manager. These portfolios provide access to professionally managed strategies to combine broad market exposure with forward-looking investment themes available in local currencies. At the same time, our pro investor community continued to expand, growing from about 3,200 at the end of 2024 to now over 5,000, reflecting strong momentum in copy trading and community-driven investing. This caps a year in which we also introduced our Alpha Portfolios, our AI-powered quantitative strategies and established new partnership with Franklin Templeton, BlackRock and WisdomTree. Today, we have more than 127 smart portfolios in our platform. In Q4, we also expanded our stock lending program in the U.K. and margin trading in Europe, enabling users to earn additional buying power and yield on their equity holdings, thereby enhancing passive income opportunities. In Wealth Management, adoption of our long-term tax advantages savings solutions continue to accelerate, expanding our presence across trillion-dollar addressable markets in Australia, U.K. and France. In the U.K., we strengthened our ISA proposition with assets under administration in Q4, increasing sevenfold year-over-year. In France, we launched new savings products extending our reach into another large and structurally attractive tax-advantaged investment market. Together, these markets represent a multitrillion dollar long-term opportunity. As we look ahead, we remain focused on further localizing and scaling our wealth offering to capture that opportunity. Turning to neobanking. Momentum continues to build with Toro money, which is now fully integrated into the core platform delivering seamless end-to-end money management experience. The past year was a breakthrough year for eToro Money with multiple product launches driving a 29% year-over-year increase in total money transfers. We also expanded our debit card footprint. In this past quarter, we saw a 650% increase from Q4 2024 to Q4 2025 in transaction volume. We are rolling out our noncustodial crypto wallet, which bridges traditional finance and decentralized finance, enabling users to hold stake and transfer crypto as well as accessing the centralized finance markets such as swaps of 100,000 different assets. As we discussed in our last earning calls, we see a consistent set of themes driving eToro's continued growth and supporting the democratization of investing. These themes continue to guide our strategy as we move on to 2026. Firstly, innovation. As I mentioned at the start, we had a pivotal moment for financial services with advance of AI and the move on chain progressing at rates we could not have anticipated a few years ago. Innovation has always been at the core of Toro. From the beginning, our goal has been to use technology to remove barriers, simplify investing and give individuals access to opportunities that were previously reserved for institutions. That philosophy hasn't changed. What has changed is the scale of the opportunity and the power of the tools now available to us. We're committed to staying at the forefront of this revolution. We're now an AI-first company. We're embedding AI across our business to accelerate product development to improve efficiency and enhance how we operate at scale. AI is becoming a core part of our operating model, helping our teams to move faster and focus on delivering the most impact. Processes that historically took months or even years are not achievable in a matter of days, if not hours. We're building now our eToro super app 100% with AI. All of the eToro apps are developed 100% by AI, but it's not just the code rather the entire way how we operate and plan. AI means we can move 10x faster. It is accelerating our growth, enabling us to innovate more rapidly without a corresponding increase in complexity or headcount. AI is now core to the eToro experience. It enables us to deliver smarter tools and more personalized insights at scale. [ TorE, ] our AI analyst, continues to evolve as new AI models come online, becoming an increasingly powerful companion for investors. Across the platform, AI helps users interpret market dynamics as per value performance and risk and ultimately make better investment decisions. Through our public APIs and a suite of AI-powered tools, users and partners can build, share and scale strategies and apps creating a growing ecosystem. We are launching apps as part of our new upcoming launch of our app store, which will bring enforced capabilities into a retail trading experience. eToro apps will include additional AI tools like BASE-44, an open claw, and we already have nearly 1,000 apps in the pipeline. In parallel, we're actively building as finance moves increasingly on chain. With a long history in [ cryptoentoconization, ] eToro is already part of this transition. Our holistic crypt offering positions us to continue bridging digital assets and traditional markets, supporting the evolution from crypto trading today to tokenized markets and new forms of fontal participation over time. To be clear, this is not about or dependent on the spot price of crypto assets at any given point in the cycle. This is about building a platform that is poised to lead the inevitable shift to on chain market infrastructure. This will unlock for our users new types of tokenized real-world assets already in 2026, such as tokenized private markets and real estate. Our noncustodial wallet is the gateway to Web 3. Over time, the wallet will expand to support tokenized assets, swaps, lending, prediction markets and perpetual where applicable. Throughout the year, we plan to roll out a broad range of new products across these areas. Taken together, these innovations are about empowering smarter investing. It's about leading the next evolution of investing, opening the global markets, connecting people to better tools and insights enabling everyone anywhere to participate in a simple and transparent way. Secondly, global expansion. Our global footprint continues to be a key differentiator, and we remain focused on strengthening that advantage. We will continue to expand our product offering in existing regions while selectively entering new markets. By combining a global platform with a localized user experience, we're able to grow in markets where we're still early, while deepening engagement and increasing our share of wallet in more established regions. To this point, in 2025, we saw an 80% year-over-year trading volume in non-U.S. stock activity. In Asia, establishing Singapore as a regional hub last year provides a strong foundation to produce more investors to eToro from the region. We expect to introduce additional products and increase targeted marketing activity as the year progresses. In Europe, where we already have a meaningful scale, our focus is on deepening relationships with existing users and increasing share of wallet. We continue to enhance our localized offering, particularly in savings and long-term investing as we work to capture a greater share of wallet across our core European markets. In the U.S., the world's largest retail investing market, we are in the process of bringing the fully to experience to the U.S. As a global pioneer in social investing, we have spent more than a decade building community-driven tools such as copy trader, which enables investors to learn and invest alongside the smarter investors. Furthermore, we plan to roll out additional crypto products and smart portfolios to drive engagement and momentum over the coming quarters. More broadly, we continue to evaluate new market opportunities, prioritizing regions with strong financial literacy, digital adoption and sustained demand for trading and investing. Thirdly, macro trends. We continue to align with powerful long-term market trends that are reshaping global investing. We are at the early stages of the largest wealth transfer in history with more than $120 trillion expected to move to younger generations over the next 20 years. These investors are digital first, more self-directed and more engaged with equities and crypto than any generation before them. This shift aligns directly with our platform and positions eToro to support how the next generation builds and manages it well. At the same time, our global footprint provides meaningful exposure to structurally underpenetrated retail investing markets. In the United States, around 60% of households have some exposure to equities while in Europe, retail participation remained significantly lower with brokerage account penetration still in the single digits in some markets. This gap highlights the long-term opportunity ahead and reinforces why we believe eToro is well positioned to lead the next phase of global retail investing growth. To summarize, we delivered resilient net contribution and strong adjusted EBITDA performance in 2025 and in the fourth quarter, we continued to see positive KPI trends in January, largely driven by strength in commodity trading activity, demonstrating the strength of our diversified multi-asset model. Looking ahead to 2026, we're confident that our strategy continuing to leverage technology to innovate, expanding globally and aligning with long-term macro trends position us to capture significant opportunities. We see 2026 as a year of accelerated momentum growth. We're uniquely positioned as both native crypto company and a global equities trading platform and believe we're building a strong foundation for long-term sustainable value creation for our shareholders, users and partners. With that, I'll now turn the call over to Meron to walk us through the financial results. Meron Shani: Thank you, Joni. Fourth quarter net contribution was $227 million, a 6% sequential increase demonstrating the continued momentum and durability of our diversified business model. Adjusted EBITDA was $87 million, an 11% improvement quarter-over-quarter, reflecting strong execution and disciplined cost management. The year-over-year adjusted EBITDA decline was impacted by the crypto tailwind and unique market conditions that follow the previous year's U.S. presidential elections. In line with our focus on diversified profitable revenue growth, our adjusted EBITDA margin was 38%. AUA for the quarter increased 11% year-over-year to $18.5 billion. The increase was driven by record net deposits and improving customer retention metrics. Our funded accounts grew 9% year-over-year to 3.81 million. This growth reflects the strength of our multi-asset business model and our disciplined data-driven marketing approach. Let's take a closer look at the fourth quarter financials by business lines compared to a year ago. Net rating contribution from capital markets, including equities, commodities and currencies, increased 43% year-over-year to $116 million driven by investor rotation between crypto and traditional asset classes with particularly strong performance in commodities. This pattern is consistent with historical behavior and highlights the strength of our diversified multi-asset platform. In contrast, net trading contribution from crypto declined 72% year-over-year to $26 million due to the crypto tailwinds in the fourth quarter of 2024 that I had mentioned before. The decline was primarily driven by lower investor demand per trade and softer trading activity, particularly in November and December. As we have seen in prior crypto cycles, these periods of volatility are expected and our diversified business model continues to demonstrate resilience across market conditions. Net interest income contributed $59 million, up 18% year-over-year, largely driven by a 29% increase in higher interest-earning assets due to an increase in customers' cash deposits customers' margin book, staking and corporate cash. This growth was achieved despite a moderating interest rate environment, reflecting the strength of our balanced growth. eToro money's contribution declined 6% year-over-year to $23 million, largely driven by higher year-over-year cash redemption in crypto in 2024 due to market conditions we had mentioned before. In the fourth quarter, adjusted OpEx was in line with our expectations at $140 million. Our adjusted selling and marketing expense was $46 million or 20% of net contribution. Our marketing strategy continues to generate strong and disciplined returns with shorter payback periods, delivering ROI within the same year and cohorts driving sustained commission growth over time. Notably, our 2024 cohort has already achieved a 1.8x return on investment, while our 2020 cohort has delivered 5.6% return on investment, demonstrating the durability of our model. Importantly, we continue to see cohorts generating meaningful revenue even after 8 years underscoring the long-term lifetime value of our customers. Given the strength of our cohort returns and our objective to accelerate growth in 2026, we plan to increase our sales and marketing investment from 21%, scaling gradually to 25% of net contribution. Importantly, this spend remains highly flexible and can be adjusted based on market conditions and performance. We are making this decision from a position of confidence as the ROI profile supports incremental investment, and we expect this increased spend to drive accelerated growth across our key KPIs in the year ahead. Adjusted R&D and G&A and operating expenses were $37 million and $57 million, respectively. Our adjusted diluted EPS for the quarter was $0.71 compared to $0.79 in the fourth quarter of 2024. Moving to our balance sheet. We ended the quarter with $1.3 billion in cash, cash equivalents and short-term investments and generated $42 million in free cash flow from operations. Furthermore, we do not have any material exposure to crypto or commodities on the balance sheet. In the fourth quarter, we repurchased 1.5 million shares with $59.5 million pursuant to our previously communicated share repurchase program. Lastly, alongside today's earnings release, we announced an additional $100 million authorization under our share repurchase program, increasing total authorization to $250 million. To date, we have deployed $100 million under the program. This reflects our confidence in the long-term outlook and our commitment to driving shareholder value. Given our strong cash generation and balance sheet, we have the flexibility to continue executing buybacks, while also evaluating selective M&A opportunities to support disciplined inorganic growth. Now let me share a few comments on our first quarter trends. As part of our quarterly results today, we also released our January monthly KPIs. The month of January saw improved KPIs versus November and December. Our Capital Markets business saw significant year-over-year growth in both total number of trades and invested amount per trade. This was largely driven by equities and commodities. Both our AUA at $18.4 billion and funded accounts at $3.85 million were up year-over-year. These solid KPIs are a testament to our multi-asset strategy support of strong results despite a soft crypto pricing environment. To summarize, we are excited to start the year with solid January KPIs and are looking forward to driving meaningful profitable revenue growth in 2026. With that, Daniel, let's move to Q&A. Daniel Amir: Thank you, Meron. So the first question comes from our list of questions that we have been pre-submitted by our retail investors. This question is for Joni. Joni, so how has eToro manage the current volatility in commodities? Jonathan Assia: So we're very excited to see a lot of engagement and very high volumes the highest volumes we've seen actually are in October last year and now January as well as gold rise to $5,500 and then seen significant volatility, and we've seen significant engagement of our customers and high trading volumes in commodities both in October and in January this year. Daniel Amir: Thank you, Joni. Operator, we'll now open the queue for questions from our institution analysts. Operator: [Operator Instructions] Our first question comes from Dan Fannon with Jefferies. Daniel Fannon: I was hoping you could just provide a bit more context on the current crypto market backdrop, and how this compares to maybe other downturns? And then in that, how you guys are potentially operating differently this time versus previous periods? Jonathan Assia: Sure. So first, this is our first crypto cycle. We've seen these crypto cycles in the past as well. We remain extremely bullish on crypto, on Bitcoin's future as well as other leading blockchains as well as what we're seeing is the friendliest administration and regulatory environment towards crypto innovation and towards tokenization and capital markets moving on chain. We have seen in the past the volatility or corrections happening in crypto markets. They are correction. So as a volatile asset class corrections that are sort of more significant or have a higher amplitude usually than capital markets. And in the past, what we've done, as always, is shifted focus. When we see less interest in crypto, we shift the focus from a marketing perspective to basically equities to commodities, which we're seeing very high engagement levels on. And we keep on building constantly new products in crypto. So we've actually developed a very significant crypto road map with our noncustodial wallets with new products coming into crypto, and we have no doubt that we'll see more and more engagement, especially by the way, of younger crypto-native generations into crypto despite the price of Bitcoin right now at lower than Q4 2025. Daniel Fannon: Great. And just as a follow-up, you mentioned marketing -- sales and marketing going from 21% to 25% as a result of what you see as opportunity. Can you talk the time period for which you expect that to occur. And then more broadly, just about the expense outlook for 2026 would be helpful. Daniel Amir: Sure, Meron? Meron Shani: Yes, sure. So we expect to grow gradually. So in Q1, we -- you should not expect to see 25%. We are looking to grow there, looking at the right opportunities, but conceptually, as we've seen great results in the history also as we shared on the slides that are the investor deck as well we have the ability to scale up. So we're going to look into new opportunities in new markets. We've already seen some early signs in the U.S. that the marketing is working. So we're looking to expand over there. We're looking to expand in the new regions as well that we launch, where it is Singapore that we launched last year or it is UAE, we launched a few years back. We're seeing some great results. So we are happy to scale there. So it will not happen necessarily in Q1, but gradually throughout the year, we will get to 25%. And if we see opportunities, we have the right flexibility in the model to be able to scale even further than 25%. Operator: Our next question comes from Devin Ryan with Citizens Bank. Devin Ryan: Question on AI. Obviously, a lot of talk on the call here, good to hear that you guys are ahead of the curve. As we think about AI being further integrated into the model and even kind of the next kind of iteration with genetic AI. When we think about that combined with more trading on chain, instant settlement 24/7, what does that mean for the outlook for trading at eToro over time? Like should we see a step function here with kind of integration of those two themes. Jonathan Assia: Well, in the medium term, I definitely believe this is a significant step function with advancements in AI, whether it's things like open clot, the new models, our APIs, the launch now of the app store, which actually all cater to more sophisticated investors and more sophisticated in automating trading strategies. I do believe over time, we'll see a significant uplift in the algorithmic or the automated trading activity on eToro, moving basically from click to trade to many of our customers using automated strategies over time, and that will lift significantly over time, trading volumes and trading clicks. Devin Ryan: Okay, great. And then a quick follow-up here to Dan's question. Just on the increased marketing. What does that mean for the equation for kind of new account additions? How should we think about account growth over the next couple of years here? And should we think about the same [ CAC ] math? Or is it going towards something else? Jonathan Assia: So [ CAC ] math, I believe, is very similar. That's basically how we've always managed our increase in scale of marketing is over roughly 3.5% to 4.5% expected ROI of [ CAC 2 ] LTV. We are expecting double-digit account growth, and that's also where we see opportunities right now to scale up marketing activities to basically scale up account growth over time. Operator: Our next question comes from Alex Kramm with UBS. Alex Kramm: Also just another follow-up from Dan's question. I don't think you answered the other expense outlook. So maybe talk a little bit about the pace of G&A and R&D expansion that you're expecting for 2026. Daniel Amir: Meron? Meron Shani: Thank you. Yes, so while we don't publish any guidance with regards to our operating expenses, besides marketing. We do expect our G&A and R&D to be roughly at the levels where we are these days maybe with a few minor percentages of growth. We don't expect any significant growth over there and any growth over there we have the levers to generate more efficiencies also within the existing cost base. Jonathan Assia: I would just comment on -- yes, that in my view what we're seeing in AI internally is significant opportunities of scaling the business without scaling expenses over time. We did do about a month ago, an adjustment to headcount as well. And I believe as we're using more and more AI, we will be able to scale the business significantly over time without the need to basically increase adjusted cost basis. Alex Kramm: Okay, great. And then maybe just secondly, I don't think you proactively addressed M&A unless I missed it, but that was a big part of the story to go public. Obviously, your currency, meaning your stock has not been favorable. So maybe that hasn't helped. But just wondering what your appetite is. You talked about global expansion. We haven't seen much yet. So maybe talk about what we should be expecting in 2026, and what the target companies are saying in terms of purchase prices, et cetera? Jonathan Assia: Sure. So first of all, we do expect to see several M&A deals in 2026. We have been in active discussions with several target companies over the last 6 months since the IPO, I would say we have a high appetite for M&A, but we want to make sure we're selective and find the right accretive opportunities. And I think also, right now, we do see opportunities both in the crypto space, both in the U.S. but also globally as well as in the new brokerage and wealth management space. So we've been in this space for a long while for 18 years. We know a lot of the great founders, great teams, great companies, and we are looking for the right teams and the right opportunities to join eToro in scaling 10 and 20x. Anything to add there? Meron Shani: You covered it. Jonathan Assia: And I think, obviously, we have a significant balance sheet. We have our revolver as well. So we feel comfortable in looking at sizable deals. But again, at the right price and being accretive. Operator: Our next question comes from Dan Dolev with Mizuho. Dan Dolev: Great results here, really, really strong across the board, congrats. I have a question and then a quick follow-up. So just really quickly, Joni and Meron, on the crypto take rates obviously down and you spoke to some of that? Like how should we think about this for the rest of the year? And then I have a follow-up. Meron Shani: Yes, so there was a slight decline in the take rate in Q4. We had a small exposure on the balance sheet, which is less than $20 million, but caused the take rate to a decline from the usual 1% to 0.7%. So it's really immaterial going forward, and we don't expect that to deviate much from the usual 1% that we have delivered so far. Dan Dolev: Okay, great. And then maybe as a follow-up, the -- can you talk a little bit about your app store and app strategy, that would be really, really helpful. Jonathan Assia: Sure. I think we've been early to realize that our community of pro investors are people that are super passionate about capital markets and wanted more advanced tools. And that coincides with the ability of AI to actually write amazing software. So we started with BACE 44 since then acquired by Wix and basically enabled our pro investors. Now there are almost or about 1,000 apps developed by 800 of our popular investors from the pro investor program and they're developing really amazing tools. And those tools basically reflect sort of how a smart investor looks at the market. We started publishing these apps this week, and we'll be embedding them inside the app. So think about sort of scaling up significantly. eToro's ability to innovate towards the rest of the users and building a subscription model on top of that. So just as an example, we've had somebody build basically tighten invest where you can actually talk to the grated investors of all times about what's in your portfolio, and what's the recommendation around your portfolio. So we could actually get their views from their personalities. And we've seen many, many amazing innovations from people building their own Chief Investment room with risk management and geopolitical risk to people who are actually building add-ons, which are quite cool, like swapping assets on the eToro platform. So we expect a lot of these apps to be useful, not only to the pro investors building them, but actually to the rest of the eToro community, expanding significantly or accelerating product innovation scale to our customers. And I'd say that we've seen another step function just over the last two weeks with OPUS 4.6 with [ Open Clone. ] Suddenly, we've seen a lot of our customers actually using [ Open Clone ] on top of eToro's APIs and MCPs, which are the AI-based APIs. And again, unleashing another wave of creativity from our Pro investors who've been with us, 65% of them, more than 5 years, all of them passionate about capital markets and building very, very cool things for themselves and then being able to share them and monetize them with the rest of the eToro customers. Operator: Our next question comes from Brian Bedell with Deutsche Bank. Brian Bedell: Maybe just shifting back to the U.S. strategy, if you could just update us on the customer traction. I think you were at 300,000 customers in the -- around 300,000 customers in the U.S., and how that's going? And especially on the copy trading side, you've ruled that out. I think you said you've gotten pretty good reception so far. Any numbers you could share on that? And then related to that -- both on the pro investor side and also the appetite for those in the U.S. that want a CopyTrader from investors. And then any update on the plan for the U.S. pro investors to be paid, I think you have to get the fiduciary license, but I think you had a couple of different routes for that. Jonathan Assia: Sure. So we've been very active since the IPO on expanding eToro's U.S. product launches and product road map. Since then, we've launched CopyTrader. We plan to launch in H1 this year smart portfolios, which is based on our RIA license, which is in process. We're looking at prediction markets as well for the U.S. We've seen a significant uptake as we started scaling some of the marketing activities from Q4 to Q1. So we are seeing a significant uptick to something that's still early stages of the U.S. business, but we're very excited about continuing to launch all of eToro's global product road map here in the U.S. I do believe that now with being able to accelerate product development, we'll be able to actually launch more of our products than we expected originally in 2026 here in the U.S. And we're making sure we are, I'd say, selective in how we scale our marketing budget. Here in the U.S., we want to see [ CAC ] to LTV while not at the same levels as globally. We want to see that ratio between [ CAC ] to LTV increase. We've seen the best ratio we've seen to date last year, especially by the way, moving forward into the year. And that basically gives us the ability to continue scale up marketing activity and then funded accounts, where we believe product engagement will then follow as well. Brian Bedell: SP-30 Okay. And then just timing of when you think you'll have the fiduciary license in the U.S. And then you mentioned prediction markets as well, just any timing on rollout of prediction markets for U.S. customers this year. Jonathan Assia: So as everything in product, we are working on the RA license. We hope to be able to launch the smart portfolios product, which will be based on the RA license in H1 this year. We are in active discussions on the launch of prediction markets, which, of course, requires an additional regulated entity here in the U.S., which is NFA regulated. So we believe that will be probably later in the year towards Q3, Q4. Operator: Our next question comes from Brett Knoblauch with Cantor Fitzgerald. Brett Knoblauch: Congrats on the quarter. Just maybe on the split between kind of where you're spending marketing dollars for the year on maybe U.S. and ex U.S.? And I know when you guys IP, maybe disclose some kind of market share statistics on different key countries. Do you have an update to that? Or just maybe qualitatively on kind of where share has progressed throughout 2025 and maybe expectations for 2026? Jonathan Assia: Sure. So first of all, when you look at the size of marketing budget, it's a significant marketing budget globally. The U.S. is still a small part of it. And if we scale, let's say, 25%, 30% over the year roughly in 2025, we basically select where to scale more based usually on the [ CAC ] to LTV ratio, which we see higher right now in other markets where we have a more developed product in those markets. We have scaled the percentage higher in the U.S. in 2025 versus the rest, and we expect that percentage increase in 2026 to be higher as well, but not extremely high as to sort of bridge the entire gap from the U.S. to our more mature markets. So what is a part of scale up? Anything to add on that, Meron? Meron Shani: No, we are looking carefully, obviously, at the ROI against each of the investments very closely and scaling up as we scale in the market in the U.S. will continue to scale by high percentages, as you mentioned, Joni. We'll continue to do that this year and next year as we've seen some good results, but it's still not as a material number to quote compared to the entire budget globally. Operator: Our next question comes from Ed Engel with Compass Point. Edward Engel: It looks like there was a nice rebound in the revenue per trade within the ECT segment in the fourth quarter. Was that uptick driven just by mix of commodities versus equities trading? Just maybe a bit more tilted to commodities? And then is it fair to assume, as I think about January, was revenue per trade likely remain elevated just alongside the string in the commodities? Jonathan Assia: So both Q4 and January, we've seen significant commodities activity, gold and silver, very popular as obviously we've seen unprecedented volatility and price of both gold and silver. We also now are expanding the 24/7, which we believe will continue to expand activity in commodities as a very unique new product to trade alongside crypto assets on the platform, 24/7. Regarding the net contribution per trade, I don't think we can still comment on... Meron Shani: Yes, I'll comment my usual comment like when you look at our revenue per trade on ECC, you should always count at the range of $0.60 to $0.75 per trade. That's how we always look into it. And in the long term, this is where it's converged normally. It is impacted by the higher commodities part of the mix. Also on the other side, we have higher contribution. We've seen tremendous volumes coming on our copy product, which is our USP, that drives the revenue per trade to be slightly lower as part of the mix. But overall, as you should look into it is almost the $0.60 to $0.75 per trade. Jonathan Assia: It's actually very interesting because we're seeing something that we haven't seen before, which is crypto-native customers or people who came into too add to trade crypto, and treated mostly crypto suddenly trading commodities. So I do think there's somewhat of a convergence or a shift from crypto, which now has lower volatility to now basically gold, silver and other commodities that have higher volatility. And that's a unique part of eToro also because when people trade only crypto at only crypto companies versus in eToro, where they can now trade equities and commodities as well, what we see over time is that customers that actually trade multiple asset classes onto are more active, more engaged, higher lifetime and higher lifetime value on the eToro platform. Edward Engel: SP-39 Great. And then, I guess, just from our point of view, I mean, it seems like there's a pretty big divergence between just underlying strength of the business and then the stock price, has the Board considered any other ways to kind of unlock value beyond the stock buyback? I know you've been public the last in a year, but I mean is there any other types of strategic alternatives that have been considered? Jonathan Assia: So I think, first of all, from a corporate strategy point of view, as we discussed before, we do believe in buybacks, and we do believe we'll see M&A opportunities manifest this year. So that's more on corporate strategy. I think from a business perspective and product strategy, very focused on AI-first unleashing AI to our customers to increase product velocity and making sure that we also expand our entire product offering in crypto as well as increase the margin capabilities. So we've launched margin trading now in Europe alongside futures in the U.K., so enabling our customers to trade also more on exchange. On exchange leveraged products, which obviously will increase velocity as well. So I think -- all in all, that's the strategy we believe that providing great service, great product and accelerating our product [indiscernible] and innovation to our customers and scaling up, as we mentioned before, also marketing activities to bring on new more funded accounts that will eventually lead to a larger base of funded accounts that drive activity, increased revenues, profitability over time, and the stock will follow. Operator: Our next question comes from Craig Siegenthaler with BofA. Craig Siegenthaler: I hope everyone is doing well. So we have a follow-up on M&A on some of your previous comments. But I'm curious on your desire to expand to new geographies versus focusing on keeping your leading share in the Continental Europe. So why not in Europe, deepen your moats keep taking share versus the legacy brokers and banks, build on your first-mover advantage and hold off on expanding in new markets where you're probably going to be subscale for some time or at least until the eToro stock valuation improves, so then the M&A math becomes more attractive. Jonathan Assia: Sure. So first of all, the M&As we're looking at to expand regionally are not sort of, I'd say, significant in scale or we expect them to potentially impact EBITDA margin. So we are looking at this very selective. We're very focused on, first and foremost, to deepen the existing eToro product in the existing both mature markets such as Europe, U.K., Australia as well as new markets, which we've already unlocked, which is Singapore and Asia and of course, the U.S. So we're not looking to dilute attention from our existing markets. But as we said, looking at selective opportunities if they arise, and create for us basically a local moat, which is a regulated activity where we believe, if we bring our products to that market we can actually scale our business relatively easy without increase the cost base. I think that's an interesting opportunity, especially as I do believe that now AI is actually accelerating the gap between traditional banks and insurance companies and eToro's product offering. Craig Siegenthaler: Great. My follow-up is just on promotions. I know you have a bunch out there, but I want to make sure I'm not missing anything, but on the debit card, I believe there's a 4% bank option, but not on anything. So maybe help us with that one. And then also, I think, crypto deposits in the U.S. there's like a sliding scale, but you deposit more than $5,000 of crypto you get $500 initially. And in Europe and parts of Asia, you have something similar on a stock basis. But do you mind summarizing kind of what you have live out there today on the promotional front? Jonathan Assia: Sure. So I won't go into all of the details because we do operate in 12 different regions. Each of them have their own incentive plans. But the same way that we're looking at [ CAC ] to LTV on the acquisition front, where you mentioned some of those, which is basically providing an incentive to open an account and deposit. We also provide incentives on product engagement. So we do an analysis. And when we find out that, as an example, a customer in the U.K. if they deposit and bringing transfer their ISA, which is the equivalent of IRA roughly into eToro, is it increases significantly over time, their lifetime value. So we calculate basically the same on existing customers on what's the cost of promoting a new product, what is the LTV added to that customer if they actually use that promotion over time. Is that profitable? And if it's profitable, how basically do we move the needle and scale up product engagement using incentives. And in different markets, we have different products and different incentive strategies. Do you want to add anything into that from the breakdown of the financials. Meron Shani: No, the numbers are insignificant at this stage to quote it out and in general. Jonathan Assia: Yes, it's still a small part out of the total marketing budget. When it does become significant, we'll break it down. Meron Shani: Yes, it's definitely part of our strategy to make sure that we increase customer acquisition. We decreased the churn of customers by combining those acquisition campaigns and incentivized campaigns also for CRM purposes. Operator: Our next question comes from Joseph Vafi with Canaccord. Joseph Vafi: Great results here for Q4. Just maybe we double-click on the noncustodial wallet rollout the strategy there and maybe intersection with some of the sales and marketing spend? Jonathan Assia: Sure. We're taking more of a product-first approach to crypto-native into the noncustodial wallet. So we -- and by the way, that is generally true. We, first and foremost, promote always sort of the eToro platform of equities, of crypto of commodities. So that's the forefront and the window, including, of course, CopyTrader and Smart portfolio. And then as we add more products, for example, the card program or now the noncustodial wallet, we use these products to basically offer them to existing customers. So we don't expect our crypto wallet to increase in any way the marketing activities of eToro. I'd say also it's a bit of a different target audience. So what we are seeing is that more of the crypto native younger audiences, actually, I'd say, Gen Zeders are much more active on noncustodial and in crypto wallets. The equivalent, of course, is Metamask and wallets where basically people actually have their custody in crypto. It, by definition, means it's a higher-risk product because the responsibility on custody sits with the customers but it actually unlocks a lot of products that are very hard to unlock and Tread.fi. So just as an example, Solana has now 1 million tokens. It's very hard to unlock 1 million tokens in Tread.fi, But when you look at the noncustodial wallet, you'll be able to actually swap into hundreds of thousands of assets that are out there, and we do see that interest coming from a younger audience that has a higher, I'd say, risk appetite and also is more SEFI on what does it mean to be a crypto-native to move between chains to swap between chains to look at opportunities that some of them are mind boggling, like 40,000 new coins launched on Solana and thousands of coins launched on other blockchains as well. So these opportunities are out there, not only for the U.S. market, but outside the U.S. as well. And we want to make sure that our younger audience can that within the eToro framework. Joseph Vafi: Great. And then Meron, I know you quickly mentioned that net retention was was pretty good in the quarter. Is there anything to call out on that? Meron Shani: No, it's part of our strategy to always look at the funded accounts and see how we can grow there from acquisitions. So adding customers and on the other side is making sure that our churn rates are getting lower and lower. We deploy different strategies into that. We've seen great results. on that, that support us into our plans into the future of growing the marketing spend into 25% gradually throughout the year and making sure that we have and that we achieved a double-digit growth of funded accounts on a constant basis. Operator: Our next question comes from Bill Katz with TD Cowen. Unknown Analyst: This is Robin Holly on for Bill Katz. I wanted to ask a question on the ROI on the cohorts. Could you unpack what is driving the faster payback period for the newer cohorts, specifically the 2025 ones. It looks like the payback periods are accelerating. Is this more -- are the customers more engaged, or is it something on the marketing side? Jonathan Assia: So we are constantly evolving marketing strategy being more active in identifying both opportunities also looking at the higher LTV or the higher payback period cohorts we've seen in 2025, a 23% year-over-year increase on what is the first time deposit average amount of customers. So when you look at online marketing can actually target and see what campaign to which product brings better customers, the deposit more and generate revenues more. And then, of course, we always want to balance that across what's happening in the markets. Anything to add to that? Meron Shani: Yes. I would say that our -- call it, the marketing machine is very flexible in a way to identify different trends. So when there is a trend in the gold or silver, we can very quickly turn the machine to into what's really interesting in the market. So have better results coming there. And if the customers are coming with the intent because they are looking for gold, and that really helps us improve the ROIs and the year return as well. Jonathan Assia: Basically, the direct correlation between volatility in a specific market where gold silver indices usually are -- it doesn't matter where the price direction is volatility increases significantly initial LTV and therefore, payback period. And the same happens in crypto, where there's a significant crypto rally. We're seeing basically customers that come in to eToro much more engaged better cohorts. Operator: Our next question comes from James Yaro with Goldman Sachs. James Yaro: Some of your competitors are building similar products to cope trader, which clearly reflects the success that you've had in building this product over time. What does the landscape look like today for Copy trader in your view? And what can you do to stay ahead of these competitors, some of which are quite scaled? Jonathan Assia: So first of all, we are seeing and have seen over the past 19 years, a lot of the competitive landscape talking about social trading. So far, we haven't seen anybody actually executing on it. So that's one. Second is, we have a significant moat, which is customers that have been on eToro for the past 5 years, 10 years with very, very solid track record that have their basically AUC already on eToro. So if you look at our top two investors on eToro, the first one has more than 30,000 people copying him more than $300 million of assets under copy, the second one, $200 million, both by the way, have a track record of, if I remember correctly, over 29% over a tenure of 6 years and 12 years, respectively. So that moat is a time-based mode. Nobody replaces Warren Buffet that fast and nobody replaces 10- and 12-year 10-year on eToro, I do think, of course, we've innovated and created a category that will eventually change a lot of how people think of general portfolio management in the RIA industry. And we'll see younger audiences. There's a big app, by the way, across the world that financial intermediaries are getting older and that younger audiences are not looking for their advice. And I do believe that our product category as a category will significantly scale in the moat that we have is the track record of those customers and again, bringing them new tools now where they can actually build their apps. They can monetize them eventually in a subscription model in eToro, to basically -- and we already have significant communities of customers, so popular investors in France are actually meeting our customers in France, popular investors, again, Germany and Australia and the U.K. And that is something that the competitive landscape doesn't have. James Yaro: Excellent. Very clear. You touched on prediction markets already. Given the vast majority of your customers are outside the U.S., could you touch on whether you see a prediction market opportunity for your non-U.S. customers? Jonathan Assia: So it does seem like prediction markets right now, at least from our analysis is very much U.S. the on-chain regulated one -- sorry, the off-chain, the regulated prediction markets is very much a U.S.-led business and very high interest in the U.S., which is why from a regulated perspective, we're looking at the U.S., a lot of the activity outside the U.S. actually sits more with crypto-native customers. So again, those younger audiences that are crypto native, that know how to move their crypto and basically trade directly on chain. So I'd say that's roughly what we're seeing U.S. with the regulated infrastructure to offer production markets, where it's an NFA, CFTC regulated activity towards which we'll build in the U.S. and globally more of an on-chain activities of prediction markets happening in basically noncustodial wallets. Operator: And our next question comes from John Todaro with Needham & Company. John Todaro: Congrats on the strong quarter. I guess first one, just as it relates to crypto regulation and in particular, the Clarity Act. Is there just kind of anything in the current iteration of the bill, where maybe you would like to see adjusted -- just kind of any additional thoughts there we've been getting from some of your peers. Jonathan Assia: We usually try not to comment on sort of regulations and sort of where they are in the process as we are regulated in many places under different regulators across the globe. We do believe that clarity in regulation helps significantly in industry to mature. We've seen that in Europe with Mika. We've seen it already, I'd say, in the environment right now here in the U.S. And the biggest driver, by the way, what is going to drive, in our view, is the path towards new types of asset classes moving on chain. So the more clarity, there is in an industry, and we're seeing in Europe now banks, insurance companies, private equity firms, basically tokenizing different types of assets to be able to distribute them into that new audience. So as we'll see clarity in regulation here, in the U.S., we believe we'll see also more opportunities to bring in more new products to our customers. And we've seen the largest wealth managers in the world already working today with eToro, whether it's BlackRock Flink, Templeton, WisdomTree now, Amundi as well ARC. So we are seeing the interest of basically the large financial institutions, asset managers that are issuing new products, and they want to deliver those products into a global audience and into a younger audience, very early days of that, but there is no doubt that more clarity and regulation will expand that. John Todaro: Great. That's very helpful. And then just kind of going back to prediction market. It sounds like from your prior comments that you guys would still look to work with a partner like a causal market, whether in the U.S. or outside the U.S. Is there an avenue where you could kind of go at this alone though and offer something more direct? Jonathan Assia: We're currently looking at the industry. I think the industry is evolving very fast, both in predictions and in per different regulatory environments across both categories. We do believe that working with partners, and there's now an emerging by the way, new type of what's called a prediction aggregator. So you can actually use aggregators to find the best prices on predictions, for example, the same with perps. So we are looking in that space right now to partner versus to build the entire stack on our own. Operator: And that's all the time we have for questions. I'd like to turn the call back over to Daniel Amir for closing remarks. Daniel Amir: Yes. Thank you for attending the call today. And we're looking forward to seeing you at the upcoming investor conference during the quarter. You're welcome to follow up with me directly. Thank you, and have a great day. Operator: Thank you for your participation.
Operator: [Audio Gap] beyond cash, we're also making material progress with Simplicity Spiral for hypertension and Ulta Viva for urge urinary incontinence. Symplicity delivers a onetime durable minimally invasive treatment for hypertension and represents one of our largest growth drivers. Now this is going to be a contributor for years to come given the 18 million U.S. patients with uncontrolled hypertension. We're seeing strong patient outcomes in the field and the already in value proposition, it resonates with both physicians and patients. Now we've got strong and growing clinical data, a broad label and expanding reimbursement all in hand Look, we've built the foundation. Now we're focused on growing this new segment and transforming the hypertension treatment paradigm. We've recently activated our direct-to-consumer Go Beyond campaign in key markets around the U.S., which is resulting in a 50x increase in website visits versus the prior quarter. So a lot of interest coming in from patients. Building a new market, it does take time, but that is something Medtronic knows how to do exceptionally well. And in parallel to building out this new market, we're innovating for the long term. First, with our Transradial Catheter, which is on track to launch in the second half of fiscal year '27 and with our Spiral Gemini trial evaluating multi-organ ablation to further boost efficacy. Now similarly, we are scaling Altaviva, our tibial neurostimulation device. Altaviva is a simple yet transformational option for treating urge urinary incontinence, which is a condition that affects 1 million people in the U.S. Altaviva is a very small device that requires no imaging, no sedation, activates the same day, is MRI ready and offers up to 15 years of battery life, the longest in its category. Again, we are receiving great early interest and feedback from both physicians and patients. And we are training doctors. We're educating and supporting hospital staff and investing in omnichannel consumer activation. Look, it's early days for both of these launches, and we are focused on disciplined execution to convert early traction into procedures. Now pivoting to Hugo. This quarter, our Hugo robot received FDA clearance for urologic surgical procedures, enabling us to begin our purposeful U.S. launch. And today, I'm excited to share that we've already completed our first installations and initial cases. As noted in our release this morning, last week, we completed our first cases at Cleveland Clinic, where surgeons echoed the strong feedback we continuously receive on Hugo's differentiation across multiple areas. This includes its flexibility, portability, open console and of course, our trusted instrumentation. Hugo is especially compelling when paired with our Touch Surgery Digital Ecosystem, an AI-powered data connectivity and analytics technology that is unique to Medtronic. This quarter, Touch Surgery installations increased over 20% sequentially and have now surpassed 1,000 systems globally. Further, we continue to evolve our Hugo system with the fourth-generation software release and continuous system improvements. We are planning to expand into additional indications in the U.S. like hernia, part of our broader general surgery indication where this system really shines. Customers value. I mean they really value having a partner that spans the full continuum of surgical care. And Medtronic is the only company that has approved offerings across open, laparoscopic and robotic-assisted surgeries, which matters as hospitals build and expand their surgical practices. Now we are thrilled with these 4 generational growth drivers, but our innovation pipeline is far broader. And we are committed to driving sustained innovation across our portfolio and advancing a steady cadence of new technologies across high need, high-growth categories, where we are well positioned, like MMA, carotid stenting, thrombectomy, coronary DCB, cardiac rhythm management, spine surgery as well as many others. And to that point, I am extremely excited to highlight a major milestone in our Neuroscience business. Just last week, we secured FDA clearance for our Stealth AXiS surgical system for spinal procedures. Stealth AXiS is a new transformative platform that unifies AI-powered planning, robotics and navigation into 1 seamless system, elevated by the entire able ecosystem. Stealth AXiS was designed around navigation, which is paramount to surgeons workflow in the OR. Today, navigation, which we pioneered and we lead, drives 70% of U.S. spine procedures. And really, it just dictates the workflow in the spine OR. So Stealth is really 2 things. It's about taking share as a new platform with improved functionality, and it brings down barriers for physicians to step into robotics without disrupting their workflow. Now building on our 10,000 unit installed base, we are expanding and opening this segment and extending our leadership, and we're not stopping at spine. We anticipate pursuing future cranial and ENT indications for Stealth AXiS. This is an important driver for our CST business and an exciting step forward to improve precision, predictability and personalization of care. And we're executing our M&A strategy as well with the Cat Works acquisition and CRDN, and we continue to build out our venture and minority investment portfolio with the Enteris investment in structural heart. Both transactions underscore our long-term strategy to digitize, enable and build effective and efficient ecosystems within our core markets. So before I turn it over to Thierry to walk through the details of our business performance, our financials and the guidance, I would like to close with the following remarks. At Medtronic, we are translating the breadth and the depth of innovation across the portfolio into durable growth. We have businesses at different stages of their growth journey, but the cadence of innovation across our portfolio suggests a steadily improving growth outlook for total Medtronic. We have businesses that are executing exceptionally well today and are positioned to be meaningful contributors for a very long time. This includes CAS its strong PFA pipeline, CST with Stealth my, and of course, CRM, a large and steady growth engine with meaningful innovation in defibrillation, in leadless and in conduction system pacing. We have businesses where the pipeline is now just activating, where we have clear line of sight to meaningful tangible opportunities that will enhance growth from CRDN with the ramp of Simplicity, pelvic health with Altaviva, peripheral vascular health with NeuroGuard and Libero and neurovascular with innovation like Artis, Neurogard and expanding indication for Onex into MMAE, and surgical, where the launch of Hugo in the U.S. is just beginning. These are all real drivers with tangible reasons for improvement and the potential to impact growth in the coming quarters and years. We also have areas where there is work to do, and we have defined plans underway like in structural heart, where we're taking specific actions to fill out the portfolio and improve the trajectory. So with strong contributors delivering today, business is on the cusp of step change improvement and segments where we're taking deliberate actions to strengthen long-term competitiveness, we are confident in our ability to deliver durably. So with that, I'll turn it over to Thierry to walk through the details of our business performance. So over to you, Thierry. Thierry Pieton: Thanks, Geoff, and hi, everyone. I appreciate all of you joining today. Let's start with our Cardiovascular portfolio, where this quarter, we delivered 11% year-over-year revenue growth, with 13% growth in the U.S. This represents the strongest growth we've seen in cardiovascular in the last 10 years, excluding COVID comps. CAS grew 80% year-over-year, with PFA accounting for 80% of that revenue. Beyond CAS, the remainder of the cardiovascular portfolio delivered combined mid-single-digit growth. Cardiac Rhythm Management also had a strong quarter. CRM continued to contribute 15% of our total revenue, and it grew a healthy 5%. This was primarily driven by continued double-digit growth in Micra, mid-teens growth in 3830 CSP lead and over 70% growth in Aurora EV ICD. In peripheral vascular health, we posted high single-digit growth driven by broad strength across our endovenous portfolio. We look forward to the continued launch of NeuUrOGARD-IAP carotid stent and the full market release of our Librac mechanical thrombectomy system. In structural heart, Q3 was a little softer as expected and grew low single digits. We had a stronger quarter internationally and continue to gain share in Europe. This was partially offset in the U.S. where we annualized our Evolut FX Plus launch and saw some competitive pressure. I'll now pivot to our Neuroscience portfolio, which grew 3%. Growth was a little below our expectations this quarter, but Neuroscience is also where we have 1 of our broadest pipelines and some of our most exciting opportunities. Importantly, we expect that pipeline to begin impacting growth in the fourth quarter. Cranial and Spinal Technologies continues to be a powerful engine for Medtronic. This large business delivered mid-single-digit growth, including 8% growth from strong pull-through in core spine. We're excited to offer customers our new navigation and robotics platform, Stealth AXiS, which Geoff just mentioned. With FDA clearance achieved, we expect to see Stealth AXiS contribute Neurosurgery and CST overall as soon as the fourth quarter. Specialty Therapies delivered flat results in the third quarter. This is an area where we expect improved performance in the coming quarters given the series of new product developments. Neurovascular has been challenged over the last quarters due to China VBP and to the recall of Vantage, both of which are now mostly behind us. We also have line of sight to a higher level of growth from the contribution of Onex's expanded indication. The NeuroGuard carotid stent launch will also contribute as it's being commercialized by both our Neurovascular and Peripheral Vascular businesses. In Pelvic Health, we saw a slightly softer sacral nerve stimulation market environment, but look forward to seeing the increased contribution from Altaviva. In Neuromodulation, we grew 4%, driven by the continued rollout of our differentiated, fully closed-loop technologies, in septive SCS and brain sends ADS. Next, our Med Search portfolio grew 3% ahead of expectations. First, endoscopy and ACM had strong quarters. Endoscopy revenue grew 10%, led by mid-teens growth in our esophageal portfolio, driven by Next Powder and strong market adoption of Endoflip 300. Acute care and monitoring saw a 7% growth, led by strength in blood oxygen management and airway access. And finally, our Surgical business grew by 1%. We saw strength in energy and wound management and hernia with expected softness in stapling. The next phase of growth for this business is the rollout of Hugo, and we're thrilled to see our first installations and first cases so swiftly after the U.S. launch. Wrapping up our business performance is MiniMed, our diabetes business, which delivered 15% reported and over 8% organic growth. Performance was led by double-digit strength in international markets, but we also saw acceleration in the U.S. with strong sequential lift driven by Simplera Sync and Instinct, which both just launched in December. Our Diabetes business continues its strong innovation cycle, supported by multiple recent regulatory and pipeline milestones. In addition to introducing Instinct and Simplera to the market, we secured several FDA clearances that further expands 780G's indications. We also announced that 780G system is now available through pharmacy with agreements that cover the majority of commercially insured lives in the U.S. And we submitted MiniMed Flex to the U.S. FDA and began the U.S. pivotal study for Vivera, our third-generation fully closed loop algorithm, which we believe will help maintain our leadership in delivering industry-leading outcomes. Finally, our MiniMed Fit patch pump remains on track, and we intend to submit it to the U.S. FDA by this fall. The planned separation of MiniMed is perfectly on track. Our preferred path continues to be a 2-step, IPO and split. We continue to expect the separation to be complete by the end of calendar year '26. Now turning to the financials. This quarter, revenue of $9 billion grew 8.7% reported and 6% organic, a 50-basis-point acceleration from prior quarter and 50 basis points above our guidance. Geographically, this performance was balanced, led by high single-digit growth in Western Europe, with mid-single-digit growth across the U.S. and Japan. U.S. growth was 6% year-over-year, the strongest performance we've delivered since fiscal year 2019, excluding COVID compns. In China, we delivered low single-digit growth while navigating ongoing but manageable volume-based procurement in a few businesses. Excluding DBP, our growth rate in China was mid-single digit. Our adjusted gross margin was 64.9%, ahead of expectations. As I've done in the last several quarters, let me walk you through the rough breakout of the components. We realized 30 basis points of benefit from pricing. Net of inflation, cost down was negative 20 basis points as the third quarter is typically our lowest quarter for generating cost efficiency savings, and we had some prior year nonrecurring items. Mix was negative 100 basis points, mostly driven by CAS and Diabetes. As discussed in prior disclosures, with CAS in the early stages of launch, this business is currently impacted by the mix of lower margin capital to higher-margin catheters, and Diabetes is in the -- in its early manufacturing ramp-up of Simplera. Over time, as you know, we expect this mix dynamic to improve as we scale CAS and separate the diabetes business. Tariffs impacted the business $93 million or 110 basis points, in line with forecast. And finally, foreign exchange provided an approximate 40 basis points tailwind. Adjusted R&D was 8% of revenue and increased 7.4%. On an organic basis, this outpaced revenue by 50 basis points. Our adjusted SG&A was 32.3% of revenue, which is 30 basis points lower than the third quarter of last year. We continue to fuel our PFA launch and develop and build the markets for Simplicity, Altaviva and HUGO, but at the same time, we delivered disciplined leverage in G&A. Our adjusted operating profit was $2.2 billion, resulting in an adjusted operating margin of 24.1% ahead of expectations again. Our adjusted tax rate was 17.3%, about 100 basis points higher than forecast, largely due to jurisdictional mix of profits. All in all, adjusted EPS was $1.36, and $0.03 above the midpoint of our guidance range. Now turning to guidance. On the top line, we're reiterating fiscal '26 organic revenue growth guidance of approximately 5.5%. In the fourth quarter, we expect revenue growth similar to Q3, so around 6% off a stronger Q4 '25 comp. Moving down the P&L, we expect our fiscal '26 gross margin to increase slightly ex tariffs. Pricing, FX and COGS efficiency programs are expected to more than offset the negative impacts of business mix, primarily from CAS and Diabetes. We anticipate a tariff impact to COGS of approximately $185 million, including $75 million in the fourth quarter. Including tariffs, we expect fiscal 2016 gross margin decrease of roughly 30 basis points. We expect fiscal '26 adjusted operating profit to grow approximately 5% or 7% excluding tariffs. Our fiscal 2016 operating margin is expected to be roughly flat, excluding tariffs, and down about 50 basis points, including the tariff impact. In totality, we expect these results to deliver gross margin and operating margin leverage ex tariffs in the second half of the fiscal year '26 as we stated last quarter. Turning to EPS. This quarter, we saw a beat of $0.03. This was largely due to a slightly better-than-expected revenue in the quarter, mainly from CRM and ACM. This was partially offset by the aforementioned tax pressure that we saw in the quarter. As we expect CRM and ACM to normalize and the tax pressure to carry into Q4, we are maintaining our fiscal '26 EPS guidance in the range of $5.62 to $5.66. Look, we're excited about the quarter, and we think Q4 is going to be another robust quarter and that we will sustain our growth at a high level and into the next year. We're making progress on margin expansion, and the negative mix effect from CAS and Diabetes are going to get better. We're going to continue to invest in growth areas like R&D, sales and marketing and M&A to capitalize on the opportunities ahead of us. And we will also continue to drive efficiency in functional areas. All told, we are committed to our guidance, and we maintain our expectation for high single-digit EPS growth in fiscal year '27. Back to you, Geoff. Geoffrey Martha: Okay. Thanks, Thierry. Now before we go to Q&A, let me close with a few final thoughts. So we're encouraged by the progress across the business, as Thierry just said, and we remain committed to stronger, durable revenue and earnings growth. Our PFA trajectory is strong, and we're progressing on multiple billion-dollar opportunities. We're reinforcing our future pipeline, and we're committed to organic and inorganic investment to further bolster the portfolio. Bottom line, we are delivering. Now to our Medtronic colleagues around the world, thank you for your unwavering commitment to our mission and to the patients we serve. You are delivering for customers and for patients, and you're turning our strategy into performance. So thank you. With that, let's turn to Q&A. So first, Ingrid, welcome to your first earnings call. And now can you please provide the instructions and queue up the analysts. Ingrid Goldberg: [Operator Instructions] We'll take our first question from Travis Steed at Bank of America. Travis Steed: First, I'll start on just the comments on accelerating revenue growth next year and growing earnings, high single digits. When you think about CAS obviously -- can you hear me okay? Can you hear me okay? Geoffrey Martha: There we go. Thierry Pieton: Yes. Travis Steed: Okay. I just wanted to ask about the accelerating revenue growth for next year and also the the commitment to grow earnings in high single digits. I guess when you think about the overall portfolio, obviously, CAS is starting to hit tougher comps and this quarter, surgical is only growing 1%. So just trying to think about how you get that business accelerating with Hugo and just like the commitment to be able to deliver on the commitments that you've kind of laid out for FY '27? Geoffrey Martha: Well, thanks, Travis, for the question. I'll give it a start and then hand it over to Thierry. I mean, look, on the top line, obviously, as you mentioned, we had a really strong quarter with CAS. We still -- we think that growth is going to continue and become a larger part of the company, obviously. We're well positioned there. And then we -- our other big growth drivers, particularly Simplicity for hypertension and Altaviva for overactive bladder, we see them beginning to kick in here even in Q4. And then you've got a number of other businesses here that are going to start growing faster than they have been here recently. One is CST with the Stealth AXiS. I'm sure we'll get some questions on that. But I do think this is kind of underappreciated, quite frankly, by the Street. This is not just a new robot. It's not just an extension of [indiscernible], it's a whole new platform that has a lot of benefits to it, and I think that's going to create growth for the short and long term for CST. And then Neurovascular is going to kick up as well. Neurovascular has got a number of new products like the Onyx indication for MMAE as well as our carotid stenting product NeuroGuard. And then it's anniversaries, BBP and a few other things. So you're going to see a kickup in neurovascular as well. So I think we feel good about the growth continuing here out not just in Q4, but into FY '27. Thierry Pieton: Yes. And on the EPS side, so as I mentioned in the comments, the algorithm is clear, right? So we have the accelerated growth. The things are getting better at the gross margin level, in particular, in the second half, as we'll see the mix effect from CAS getting better and the separation of Diabetes. We'll continue to drive the leverage on the functional areas, in particular, in G&A. And we'll then continue to invest in R&D and in M&A. So we're reiterating the high single-digit EPS growth guidance for '27. We do have a couple of meaningful puts and takes in the number next year. And as we're getting more visibility, we'll keep you posted on what the impacts are. But to name a few, so we'll have the carryover from the tariffs settlement going into next year. This year, we had about 2.5 quarters of tariffs, and that will carry over into the full year. I think the way to think about that is about $75 million per quarter. So on a full year basis, it means around $300 million of our headwind versus the $185 million we had in -- what we're having in '26. We'll have a little bit of help from the fact that there's 53 weeks in fiscal year '27 as opposed to 52 usually. And then the Diabetes deal, we fully expect the deal to be accretive. But between the moment we do the IPO and the moment we do the split, you should expect some dilution to the tune of $0.01 to $0.02 per month. The reason behind that is that most of the stock -- the Medtronic stock retirement that we will do that drives the accretion happens only upon the separation. And so we'll see the accretion later. But initially, we've got a little bit of pressure coming from that. And we've also embedded in the guidance $0.04 to $0.05 of dilution coming from M&A activity. So we've already announced Cath Works and Antares. And so we've embedded that in the guidance. So it's all in as we get more visibility to the timing of Diabetes and the closing of the M&A deals, we'll give you more specifics on the different impacts in the Q4 release. But as you can see, we're committed to the growth acceleration. We're committed to the investment with M&A and with R&D, and we're committed to the guidance. Geoffrey Martha: Yes. And just on [indiscernible] acceleration. Go ahead, Travis. Travis Steed: There's an extra selling week next year. Is that -- is the growth acceleration excluding the extra selling day? Thierry Pieton: So that will be part of it. That will be part of it. And again, we'll give you the details of the impact as we go into the Q4 announcement. Geoffrey Martha: When I think about the growth acceleration, you mentioned cash in Q3. I mean beyond cash, you saw our CRM business and our Peripheral Vascular Health business, both step up in Q4, like I said and beyond, CS -- think about CST and neurovascular starting to accelerate. And then as you get into FY '27, that's when the Ardian and Altaviva really kick in and also Hugo. So we feel good about that acceleration. Operator: Our next question comes from Vijay Kumar at Evercore Vijay. Vijay Kumar: Geoff, congrats on a nice spin. I had 1 product question and 1 clarification on the guidance. On the product, you mentioned already in [indiscernible] and Altaviva, those will be growth accelerators in fiscal '26. How should we monitor the progress? Are there any goalposts that we can look forward to in tracking the launch curves for RDN and Altaviva? Geoffrey Martha: It's a good question. I think we'll start to lay out more concrete goal posts as we go forward. Right now, we've been talking a lot about the leading indicators that we're seeing with both, and we're seeing really strong leading indicators like with Altaviva, we talked about training 500-plus physicians. You have strong demand, training 500-plus physicians. And like I said last quarter, I mean, these are -- this is over the weekend often traveling. It just shows the commitment here. And then things like in renal denervation, I'd say it's things like the opening of new accounts. Like this quarter, we opened 200 -- over 200 new accounts, our physician finders up to 150 physicians. And remember, that's a low -- it's a high bar to get in. You have to do 5 cases and plus opt-in. So there's a lot more physicians doing cases today. And we'll continue to track like the covered lives, like for Ardian. We're already up to like 100 million covered lives. It's about 1/3 of the population here in the U.S. So those are all leading indicators, and we'll start putting more other, as you put, goalpost out there as this starts to mature a little bit, both of these launches. I don't know if you have anything to add to that, Thierry? Thierry Pieton: No. Vijay Kumar: Great. And just 1 clarification on the extra week Geoff, we're looking at exit rates of 6% organic, right? And let's assume next year is north of 6%. The extra week is almost 2 points of growth. So are we looking at base organic excluding extra week somewhere in the 5%-ish range or any thoughts on how to think about extra week contribution? Thierry Pieton: So maybe I'll take that one, and thanks for the question. Look, first, it's a little bit less than 2 points of full growth. And again, we'll give you the specific calculations as we close the year, but the way to think of it is that there's going to be growth acceleration, excluding the extra week, right? So it should be upside. So we should have better growth than we have in fiscal year '26, in '27 and the extra week should be on top of that. Geoffrey Martha: that clear, Vijay? Vijay Kumar: Crystal clear, yes. Operator: And our next question comes from Larry Biegelsen at Wells Fargo. Larry Biegelsen: Geoff, I wanted to ask about cash and your growth continued to accelerate this quarter to 80% worldwide, which implies the worldwide EP market grew about 20% in calendar year Q4. So my question is, how are you thinking about the EP market growth in calendar year '26, and your CAS growth going forward now that you're lapping the Affera U.S. launch? I think to achieve the trailing 12-month $2 billion goal, it looks like your CAS growth has to kind of sustain about 80% in the next 2 quarters. Is that directionally accurate? Geoffrey Martha: Well, first, I'd say you're -- we agree with you on the market growth in our fiscal Q3 or Q4 here of around 20%. And we think the market will continue to be like that in the near term. And for our fiscal '27, we think it's going to be at least high teens and thereafter, a strong double-digit market. So we see the market growth continuing, and then we believe we're really well positioned with our portfolio of catheters that we have as well as mapping. In terms of our business growth, we do see it sustaining here in Q4, and we haven't provided guidance beyond that. But again, I'd like to say, I think we're very well positioned here. When you look at the 4 players in PFA, I think we got 2 that are really, their value proposition right now is setting around mapping. And we feel like we're very well positioned against them because we still think the catheter carries the day, and we have integrated mapping. And then when you look at our competitor that's really their value proposition centers around catheters, we believe we have a better portfolio of catheters. Our Sphere-9 has, like I said in the commentary, proven to be quite versatile. And I know initially, our competitor here did a pretty good job of putting out a narrative that Sphere-9 was more of a niche. And I think as that's gotten out there, that's proven not to be true as it's being used in across persistent and paroxysmal. It's new cases, redos. It's simple versus complex. It's being used across the board. And then we've got SER-360 got CE marked and it's a single shot catheter. And again, that's probably the one catheter that's got more excitement than Sphere-9, and we started the U.S. trial. And then, of course, we're going to have mapping upgrades on a regular basis. So feeling pretty good about our position today as well as tomorrow. And like I said, the underlying markets were really strong. Operator: Our next question comes from Patrick Wood at Morgan Stanley. Patrick Wood: I'll keep it to one, just given there's so much going on. Obviously, the [indiscernible] deals. I know you were close to [indiscernible] for a long time. How are we thinking about capital allocation and M&A? There's a lot of other companies doing very large deals in the space. I'm just trying to work out directionally, do you guys feel still more that it's kind of bolt-on M&A, technology tuck-ins, that kind of things relative to larger deals? And how are you thinking about capital allocation going forward? Geoffrey Martha: Well, thanks for the question, Patrick. And like as we've stated, we're very committed to accelerating M&A, and you're starting to see that with Cathworks and [indiscernible]. And again, it's very focused tied to our strategy venture investments that might lead to -- ultimately to M&A and then M&A. And we are focused on more like what we would define as tuck-in deals. They can get up to several billion dollars. But tuck-in, in or a close adjacency to our existing business and a number of them though. I mean that's the other thing. I think it's a fairly meaningful amount of capital among several different tuck-in venture and tuck-in opportunities across our portfolio. Again, prioritizing maybe the higher growth areas, and in some cases, maybe having multiple shots on goal, like we did with [indiscernible] ablation, right? We've done an organic program. We went out and got Affera. We may see us do that again in some of these high-growth really must-win markets where, but that's how I would say, a tuck-in across many of our different segments and subsegments as well as venture. Operator: So Robbie Marcus from JP Morgan will be our next question. Robert Marcus: Great. Can you hear me okay? Geoffrey Martha: Yes. Thierry Pieton: Yes. Robert Marcus: Great. Two for me. Maybe I'll ask them just as one. Jeff or maybe Thierry. As you think about the fiscal '27 guidance and especially, I imagine you'll have you go in renal denervation and tibial spend to support those launches and continued investment in CAS, how do you think about getting to the high single-digit EPS growth? If you could give us some high-level drivers there? And then second part, the Street is sitting at 8.5% EPS growth. I know traditionally, you do something like 6.5% to 9.4% as high single. Do you think the Street at 8.5%, is that a good midpoint of the range to start here? Thierry Pieton: Robbie, thanks for the question. So again, on EPS, the high-level drivers. We talked about the accelerated growth. And obviously, that's going to help from a leverage standpoint. If you look at the gross margin line, what you've seen so far is operational improvements in pricing and cost out that have been offset by the mix effects on CAS and Diabetes, and as I've stated a couple of times already, those are going to get better. So the CAS improvement comes from the mix shifting towards more catheters and less capital equipment, which will help from a margin perspective. And then on the Diabetes side, it comes from the separation, right? So Diabetes has a lower gross margin rate than the rest of the business. And so once that business go away, it will give us a natural lift from a gross margin perspective. If you start looking at overhead, look, we're going to continue to lean into R&D and sales and marketing to develop the franchises that you mentioned. So we're putting resources in Ardian. We're putting resources in CAS. We're hiring the mappers that are necessary. We're doing the direct-to-consumer marketing on -- in particular, on renal denervation and Altaviva. And we'll continue to do that. But net-net, the SG&A line will provide leverage because we -- as we're having this quarter, for example, Q3, what you see is the leverage that we get on the G&A line more than offsets the resources that we're putting from our sales and marketing perspective. So look, that will provide some improvement on operating margin. And then below the line, we'll continue to have a little bit of a headwind on the interest line because we're refinancing debt that was contracted almost at 0% 4 or 5 years ago with debt that's now sort of 3.5%, 4%. And we'll continue to have some pressure on tax. But the tax line is kind of getting to where it's going to stabilize now. And then look, I mentioned we have a few puts and takes where we need to understand the timing between now and your ends. One is the timing of the Diabetes separation. And as I said, between the IPO and the split, we get about $0.01 to $0.02 of dilution from the fact that we're losing 20% of the profit of diabetes, but we don't have the benefit from the share count reduction yet. That share count reduction is calculated on a 12-month rolling average. So you'll see that gradually get better. And then we'll have some dilution coming from M&A. So the guidance is all in at high single-digit EPS growth. Now the second part of your question on the 8.5%, it feels like some of the latter items that I mentioned, so the sort of temporary dilution that we get from Diabetes and and some of the M&A dilution that is maybe not fully embedded in what the Street sees right now. And as we get more visibility, we'll help clarify that. Operator: Our next question comes from Matt Taylor at Jefferies. Matthew Taylor: I wanted to follow up on the question around capital allocation in TAVR. I guess it was interesting to see the investment in tariffs. I was wondering if you could comment about why you didn't just buy the whole company versus invest? And we also saw over the weekend, the results a longer-term follow-up for CoreValve published in JAK. And similar to the Edwards trials, there was some late catch-up in mortality. I was wondering if you could comment on that in the TAVR arm? Geoffrey Martha: Sure. I think on your first call on [indiscernible], I mean, it's just -- we feel the structural heart space is one of the spaces we help pioneer. We have a really strong position, great reputation, but we want to expand in that. We've got some organic program. Obviously, we have our Evolut platform. We've got mitral and tricuspid replacement programs, but we still think there's an opportunity here to expand. And in the case of TAVR, the balloon expandable is the larger piece of the market and this is an opportunity to get into that market. And again, we may have multiple shots on goal here. But I think [indiscernible] is a good one to invest in and partner with, and we'll see where we go from here there. And then in terms of the JAK article, I would say here that, look, this is -- I just want to emphasize that this is an old valve that's no longer commercially available, and it's an old procedural technique that we've provided guidance. So basically, all that communication did is reiterate the guidance that we provided back in 2020. And so that's what's happening there. And like I said, we're collaborating with our physicians to make sure they understand all of this and moving forward from here. So that's -- I don't know if you have anything to add there, but bullish on the structural heart space, and I would -- the [indiscernible] investment and who knows maybe more following that. Ingrid Goldberg: Our next question comes from Matt Miksic from Barclays. Matthew Miksic: Great. And congrats on the Antares investment, by the way. So on cash, I'll just ask 1 question. You mentioned generator sales or kind of a headwind to gross margins at this point, the mix is maybe shifting a little more towards capital you can give us a sense of when that starts to normalize? And then also in terms of the runway, I think we understand that hiring mappers is maybe the bottleneck here if there if you want to put it that way. You need more people to open more centers to get more catheter use. Any sense of where you are in that continuum through the academic centers or into the general centers in the U.S. and some sense of the pace that you're able to maintain for hiring centers? So helpful color. Geoffrey Martha: Thanks, Matt. On the last part of it, where are we? I still think we're kind of relatively early in our launch here where we still have a long runway to go, which is good, in penetrating some of these high-volume academic centers as well as getting out beyond that. And to your point, the mappers -- hiring mappers has been critical. It's not the topic, if you will, but it is an important topic here. We've been able to stay ahead of it, but it is the thing that we're probably the most focused on right now is continuing to hire mappers. And a lot of these mappers tend to be pretty dedicated to the space, and they're seeing where the direction of travel is or to use the Minnesota term where the puck is going. And so that helps a lot as well. So that's how I would comment on there. And what was the first part of the question? Thierry Pieton: The first part was on the dilution that comes from the capital equipment and when does the mix turnaround? So first what I want to say is CAS is a fantastic business from an operating margin perspective, right? So it is slightly dilutive because of this mix issue at the GM level, but it's driving significant profitability at the total business level at the operating margin level. When it's going to turn around between capital equipment and catheters, I want to say it's almost a good problem to have. So I hope it turns around as late as possible because as we're building the installed base, it's always going to be good news going forward. That being said, I think you'll start to see an inflection in the second half of next year. The mix is starting to improve with the catheter sales increasing. And look, year-over-year, CAS is going to drive gross margin improvement as early as '27. So look, it's a great business to be in, and it's all good news going forward. Ingrid Goldberg: Our next question comes from Chris Pasquale at Nephron. Christopher Pasquale: I wanted to ask about Hugo. Geoff, you talked about the impact of Simplicity and Altaviva really beginning to kick in as soon as next quarter. I don't think you included Huge in that group. So I would love to hear how you're thinking about the time line for Hugo to really begin to move the needle within the surgical business? And any qualitative comments you can make about the system pipeline right now? Geoffrey Martha: Well, first of all, look, super excited about where we are with Hugo. Big quarter for us this past quarter, getting the FDA approval. We just announced this morning we did -- we completed our first cases in the U.S. in February earlier this month in Cleveland Clinic. We got more scheduled this week, got other centers and all the leading indicators of Hugo. And by the way, on those cases, we got great feedback in terms of how the system is performing and and its future opportunity in the U.S. market. The leading indicators are all positive in terms of the smooth case rate, procedure growth globally and utilization, they can both continue to be really strong. We watch those every week. I know the business watches it every day, I see them every week. And we're seeing a pretty meaningful step-up in installations around the world, especially as U.S. kicks in. And so look, we expect a step up in Q4. Now the surgical business is a big business, has some puts and takes. So you may not move the needle on the surgical business quite yet. But underneath the covers there, Hugo is growing and growing pretty fast now. And it will -- eventually, you'll see -- you'll start to see this move that big $6 billion business. But we like where we sit. Really excited about getting into the U.S. market and the reception that we're getting and the orders that we have. Ingrid Goldberg: Next question comes from Danielle Antalffy at UBS. Danielle Antalffy: Geoff, I was hoping you could talk a little bit more about how we should think about renal denervation, Simplicity and the market development that you're talking about? We've talked to some referring physicians who've been involved in renal denervation since the very beginning, and she sounds like she's getting a lot of calls from folks. I'm just curious what goes into actually developing this market, building out -- helping centers build out referral networks, et cetera. And if you any color on actual numbers to date even directionally? Geoffrey Martha: Sure. Thanks, Danielle. I mean, I appreciate that question. I mean, first of all, in terms of physicians getting a lot of calls, that is really starting to kick in. Just to give you -- again, I appreciate that it's a leading indicator, but it's pretty powerful. So on our direct-to-consumer website around Simplicity, I'm just double checking, last quarter, we had maybe 50,000 -- or Q2 rather, we had about 50,000 visits. In Q3, we had 2.5 million visits. So the consumer demand is really spiking here, and we're just getting started. Like I said earlier, we opened up over 200 accounts, the Physician Finder is up, reimbursement is strong, we're getting that strong consumer demand. And most importantly, we're getting terrific patient results, patient outcomes, right, with the blood pressure coming down meaningfully. It's staying patients -- and it's really resonating with patients, and that in and of itself is getting doctors excited. And so what we're doing is we've been hiring a lot of people in terms of market development. And there are several different roles here, right? One is building that referral pathway from the general practitioners in the hypertensive specialists into the hospital, into that procedure list. We've got a lot of people around health economics, around coding and billing as well helping the hospitals. So it's a number of roles like that, right? Health economics, coding, billing as well as some of the other roles I said in terms of the market development, building those referral pathways. And that's really where things are right now. I'd say, all the market, like the initial foundational elements have all been like the chips have turned over green, right? The FDA approval is breakthrough approval, and it's broad. The CMS reimbursement, it's a good number and it's broad. We -- the commercial payers are falling in line and the competitive dynamics are way better than we thought. We -- initially here, we're doing -- I saw different analysts' over the last couple of years predictions on the mix between us and the other competitor on the market. We're doing way better than any of those models. And so now we just got to build this market. It's all those things we said, Danielle. But again, where we're really excited where you feel the energy is it all starts with those patient outcomes and how this is resonating with consumers. So the other thing we're going to do over time besides building the referral pathway, working with hospitals is building the brand around Simplicity, right? So all of the 50,000 to 2.5 million I talked about of site visits, that's all about lead development, lead generation. We'd also like to build the brand of Simplicity and make it synonymous with hypertension management. So that's going to be an investment that Thierry talked about for FY '27. So a lot of exciting -- a lot of excitement right now in Ardian. And It'll start to -- the numbers will be more meaningful in FY '27 for us, the actual revenue, the lagging indicators. And again, it will be -- it's very profitable right out of the gate for us. Ingrid Goldberg: And as we reach the top of the hour here, our last question is going to come from Joanne Wuensch from Citi. And before we move to Joanne, please, of course, e-mail us for any of those we did not reach today. Sorry, and thank you, and we'll look forward to talking to you soon. Joanne Wuensch: I'm going to ask the Stealth AXiS question and what you can share with us about the product and why you're so excited about it? Geoffrey Martha: Well, thanks, Joanne, for that question. I -- first of all, like I said, I do think this is -- has been -- is meaningfully underappreciated in the not so much maybe in the clinical community from spine surgeons, but maybe in the investment community because, look, this robot does 2 things. First of all, it's not an extension of Mazor. It's a new platform with a ton of new functionality that's going to be very value added. But the other thing that's really important here is how it fits into the workflow. So today, 70% -- I mentioned the commentary, 70% of procedures in the U.S. are navigated. That's like navigation and arm, which we invented and we lead by far. And today, robotics doesn't work well with that that workflow. So that's why robotic penetration is a lot smaller than the 70% that we're seeing with navigation. The Stealth AXiS fits right into that workflow. So it's one seamless system from the initial imaging to the AI-based surgical planning, right into the case, navigation, imaging and now robotics, 1 seamless workflow that trust me, surgeons really have been waiting for. So you got a better robot with more functionality and then you've got a much, much, much better workflow that, as you know, is super important to physicians and health systems. And this is just effectively lowering the barriers to step into robotics for spine surgery, and it's going to grow the market, I believe, and we are definitely going to continue to take share. And this really lengthens or extends our lead, in my opinion, from our primary competitor in this space. The competitive dynamics have dramatically changed over the last couple of years. We're enabling technology and our AiBLE suite is key to winning. And this is, like I said, extends our lead over our competitor. And so super excited about that, but in closing here, I'd say beyond some of the big generational growth drivers we mentioned, we talked a lot about CAS and Ardian in a little bit about Altaviva and Hugo, I would add to that robotics piece, I would add Stealth AXiS. But we've got a breadth of innovation right now in Medtronic, which is why you -- we are getting the excitement here. Whether you saw from this quarter, like I mentioned from CRM and peripheral vascular health, which we didn't get any questions on, their growth has meaningfully improved here from a number of new products like carotid and thrombectomy. We talked about CST accelerating, neurovascular is accelerating with new products, that they've got between the NeuroGuard carotic product as well as MMAE, it's a mouthful. And then you've got these -- like I said, these bigger growth drivers like Ardian and Altaviva that are at the very, very -- and Hugo that are at the very early stages. So you're starting to see the breadth kick in, which is beautiful to see. I know that in this business, innovation is key. And we've got a depth of innovation with these big generational growth drivers, but we also have the breadth. And as Thierry walked through, I think it was Robbie's question, we're pulling different levers to make sure that we're investing appropriately in these organically, whether it's increasing R&D, funding direct-to-consumer, hiring a ton of mappers, and if you're a mapper out there, hit our website up, and then kicking in the M&A, right? So we're really shifting our stance, moving into more of an offensive footing here, and it's based on just the momentum that we have and the momentum we see coming. Ingrid Goldberg: All right. Thank you, everyone, and I'll turn to Geoff for some closing remarks. Geoffrey Martha: I thought that was the close. Okay. Thank you. Thank you all for joining today, and all of your questions, and appreciate your support and continued interest in Medtronic. And we hope that you'll join us for our Q4 and our full year fiscal '26 earnings broadcast, where we're going to update you on the continued progress that we just talked about against our short- and long-term strategies. With that, have a great rest of your day. Thank you.
Operator: Good morning. Welcome to USA Compression Partners, LP Fourth Quarter 2025 Earnings Conference Call. During today's call, all parties will be in a listen-only mode. At the conclusion of management's prepared remarks, the call will be opened for Q&A. At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. This conference is being recorded today, 02/17/2026. I now would like to turn the call over to Clint Green, President and Chief Executive Officer. Clint Green: Good morning, everyone, and thank you for joining us. With me today is Christopher M. Paulsen, Senior Vice President and Chief Financial Officer, Christopher Wauson, Senior Vice President and Chief Operating Officer, and other members of our leadership team. This morning, we released our operational and financial results for the year and quarter ending 12/31/2025. Today's call will contain forward-looking statements based on our current beliefs and certain non-GAAP measures. Please refer to our earnings release and SEC filings for reconciliations, definitions of non-GAAP measures, and related risk factors. Please note that the historical information presented excludes the results of the JW Power acquisition, which closed on January 12. With that, I would like to congratulate the team for closing the JW transaction. With this transaction, we are leaning into the USA Compression Partners, LP name, with broader reach all across this great country. The transaction makes us a clear choice for operators who want a provider with a reputation of high-quality, reliable service in every major oil and gas basin in the U.S. and across all horsepower classes. I want to highlight the tremendous year we had across our operations, commercial, and finance organization. On the safety front, we recorded a TRIR of 0.39, which is approximately half of the industry average. We delivered full-year adjusted EBITDA of $613,800,000 and DCF of $385,700,000; both are records for the company. We maintained high average utilization in excess of 94% throughout the year and ended the year at 94.5%. Finally, we refinanced our ABL and one of our senior notes, significantly reducing our weighted average borrowing cost and improving strategic flexibility. These accomplishments occurred as the company embraced a new leadership team, a change in headquarters, a new shared services model, and a new ERP platform. The resilience and grit showcased across our organization in 2025 gave us confidence to pursue and now integrate the JW acquisition in 2026. Last year, the energy macro environment stabilized following early tariff discussions, but the development pace slowed in the Permian as rigs continued to reduce throughout the year in response to lower oil prices. Of note, while oil production flattened in the last half of the year, natural gas continued to move upward, ending approximately 9% higher year-over-year. We continue to be bullish on the Permian longer term. With the acquisition of JW, we maintain a large presence and have increased our active horsepower in the Permian to around 1,700,000. We have also increased our horsepower in oil and liquids-rich basins, as well as major gas basins like the Marcellus, Utica, and Haynesville, which returned to growth in 2025. This growth was tied to increased local demand, additional infrastructure debottlenecking, and a higher average natural gas price of $3.52 per MMBtu. This is a 56% increase from the prior year. We are encouraged by these fundamentals and believe the acquisition of JW strengthens our leadership within these natural gas basins. The broader compression industry continues to forge ahead with strong margins and a disciplined approach to new compression capital, and USA Compression Partners, LP is no different. Of note, lead times for new equipment have increased to over two years, which presents a new set of opportunities and challenges that our team continues to work through. In 2026, we have budgeted approximately 105,000 new horsepower, representing a 2% increase in active horsepower, with half of that new horsepower under contract. We also have new units contracted for 2027 and are in active discussions to procure additional horsepower in 2027. With that, I will turn the call over to Christopher Wauson, our Chief Operating Officer. Christopher Wauson: Thanks, Clint. Since the close of the transaction on January 12, we have begun planning to optimize route management, inventory, contracts, and operational structures to begin to realize synergies as early as this year. As we have previously noted, we move forward with the go-live of a new ERP system in 2026 for the legacy USA Compression Partners, LP assets and now plan to integrate the JW assets during 2026. We will have modest one-time costs associated with the transaction in 2026 but expect to lay the groundwork for substantial synergy capture by 2027. Our assessment is still ongoing, but at this time, we anticipate approximately $10,000,000 to $20,000,000 in annual run-rate synergies that will be achieved by 2027. We expect these synergies to create improvements in both operating margins and G&A, with the additional potential for commercial synergies as we better serve our combined customer base. As we discussed in our announcement, we are excited about increasing the extent and depth of our asset offering and customer base. Customer retention and review of existing contracts are top of mind, and we have already begun moving contracts under USA Compression Partners, LP MSAs and will work to extend average contract duration throughout this year. We hope our customers will realize the best of both organizations. I am personally excited to see the strength of our organization grow, especially across the Mid-Continent, the Rockies, and Northeast, with the addition of the JW assets. We will focus on continuing to be the operator of choice across these basins and others, providing customers commercial and operational consistency across the U.S. No other contract compression company in the market can support its customers’ diverse horsepower and geographic needs like USA Compression Partners, LP can today. Finally, with the acquisition of JW, we acquired approximately 200,000 idle horsepower that will undergo significant review over the course of the next year. As we indicated in December's JW acquisition call, we believe approximately 50,000 horsepower is readily deployable with limited capital spend. As it relates to the remainder, we will analyze best path, including potential monetization of a portion of the horsepower. We also acquired a manufacturing business that provides strong optionality, third-party sales, and internal reconfigurations. I will now turn it over to Christopher M. Paulsen to discuss our 2025 financial results in detail and our 2026 guidance. Christopher M. Paulsen: Thanks, Chris. In Q4, we increased pricing to an all-time high, averaging $21.69 per horsepower, a 1% increase in sequential quarters and a 4% increase compared to the year-ago period. Average active horsepower increased approximately one relative to Q3 to 3,579,000. Our fourth quarter adjusted gross margins came in at 66.8%, right on historical trend. Regarding the consolidated financial results, our fourth quarter 2025 net income was $27,800,000, operating income was $76,600,000, net cash provided by operating activities was $139,500,000, and cash interest expense, net, was $43,400,000. Our leverage ratio at the end of the fourth quarter was 4.0x. Turning to operational results. Our total fleet at the end of the quarter was approximately 3,900,000 horsepower, adding approximately 21,000 horsepower as compared to the prior quarter. Our average utilization for the fourth quarter was 94.5%, a slight increase compared to the prior quarter. Fourth quarter 2025 expansion capital expenditures were $40,000,000 and our maintenance capital expenditures were $7,800,000. Expansion capital spending in Q4 primarily consisted of new units. Turning to 2025 full-year results, we ended the year with adjusted EBITDA of $613,800,000. We also ended the year with distributable cash flow of $385,700,000, above the recently increased guidance, in part due to the final preferred unit conversion in December. Maintenance capital ended at $39,400,000, and expansion was $117,600,000, both towards the lower end of previously provided guidance. Looking ahead and with the contribution full year of JW, we are forecasting adjusted EBITDA of $770,000,000 to $800,000,000 and distributable cash flow of $480,000,000 to $510,000,000. Maintenance capital range is forecasted to be $60,000,000 to $70,000,000, allowing for consistent preventative maintenance intervals across our combined fleet. Expansion capital range is $230,000,000 to $250,000,000, which includes just over 100,000 new horsepower, or over 2% of our active fleet being added, and panel upgrades for improved telemetry practices. The expansion capital range also includes approximately $40,000,000 of other capital, including vehicles, tools, investments in technology, and other items. This expanded growth capital budget relative to prior years will enable us to better respond to the needs of our broader customer base and enable us to get new horsepower in both the Permian and the Northeast. The net result of our budget should enable us to improve upon our debt metrics, with our near-term targets at 3.75x debt to EBITDA, a quarter-turn improvement over the next twelve. We remain committed to managing debt levels and will remain open to transactions that further delever the balance sheet and are accretive to unitholders. We also continue to evaluate our capital structure and its fixed versus floating proportion as it relates to DCF and business certainty. Today, at current Fed rates, our borrowing costs are improved by approximately 50 basis points. By utilizing our ABL relative to our most recent notes refinance. We also have approximately a half a billion capacity, not including the $300,000,000 of additional accordion. Overall, I am very pleased with the operational momentum we carry into 2026 with the legacy USA Compression Partners, LP business and the JW Power assets. In the near term, the addition of JW assets will reduce our aggregate gross margins for the contract compression business. Our clear goal is to more closely align those margins with our own over the next two years, contributing to the synergies Christopher Wauson spoke of earlier. And with that, I will turn the call back to Clint for concluding remarks. Clint Green: Thank you, Chris. I want to thank all of our employees for the advanced planning and early integration efforts that have taken place across the two companies. We are honored to be part of the JW Power legacy and are confident it will be improved going forward given the broader reach and resources of USA Compression Partners, LP. It is our goal to provide the same level of excellence throughout every region in the U.S., something that continues to set us apart. I will now open the call up to questions. Operator: At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad. We request that you limit yourself to one question and one follow-up. Your first question comes from the line of Douglas Baker Irwin with Citigroup. Your line is open. Douglas Baker Irwin: Hey, thanks for the question. I just wanted to start with the growth CapEx guidance here. Could you maybe just help dissect a bit how much of that $250,000,000 growth budget is tied to kind of organic base growth versus maybe the backlog from JW Power? And then just curious if this level is kind of the right way to think about run rate moving forward for CapEx, particularly as we kind of think about potential impact of two-year lead times here? Christopher M. Paulsen: Great question. Appreciate that. So just to break down the growth capital this year a little bit, you know, about $205,000,000 of growth capital is tied in with the typical compression business, both new units, make ready, and reconfigurations. Approximately $150,000,000 of that $205,000,000 is tied to new units. So as we mentioned in the call, approximately 105,000 new units overall. And we have another just less than $40,000,000 in other capital tied to vehicles, IT tools, etcetera. We are really trying to add consistency across our fleet as it relates to the other capital; we think there is a scenario by which that can come in lower, but, hopefully, overall, that kind of breaks down what we call growth in expansion capital. Douglas Baker Irwin: Got it. That is helpful. And then on the back relates to your other question, and apologies, it relates to your other question in terms of percentage growth going forward, as we mentioned, you know, this year is approximately around 2% growth overall relative to our active horsepower. As it relates to 2027, those long lead times do make for difficult planning. The beauty of our manufacturing entity is that it does allow us to start to dissect some of that a little bit differently than we have in the past. We have kind of been beholden to packagers. Today, we do have manufacturing capacity in 2027. We are trying to load up that relative capacity. We have about 10,000 horsepower already contracted for that capacity. We are looking to utilize probably the remainder of that capacity for our own compression this next year. And certainly, as it relates to smaller horsepower, and when I say smaller, it is still, you know, around 1,500 horsepower or so. The lead times are less. It is really some of those really large 2,500 horsepower plus packages that are the long lead times. So we do have some flexibility as it relates to that. And, frankly, this year, we have even packaged smaller horsepower than 1,000 horsepower. So we will continue to listen to our customers talk about their needs and be responsive as it relates to kind of horsepower for 2027 and decide whether or not that number is kind of 1.5% to 2% range that we have been in over the last several years. Douglas Baker Irwin: Got it. That is helpful detail. And I just wanted to follow up on some of the comments made in the prepared remarks about just some of the actions you have taken to improve the balance sheet. JW Power is obviously accretive from a leverage perspective as well. Just curious if these actions impact the way you think about the right level of distribution coverage moving forward and whether they might give you some runway to start thinking about potentially growing the distribution from here? Christopher M. Paulsen: Great question. So, you know, last year was really about, as you noted, kind of making sure that our balance sheet trajectory was set up along the right path. You know, we were able to do that transaction and able to put the cash forward because we did go through the process of a notes refinance beforehand. We went through an ABL restructuring and grew that relative ABL. And as I mentioned, you know, we also have capacity to even expand it further with our accordion feature around $300,000,000. So we are on the right track as it relates to our balance sheet and the relative improvement there. You know, 3.75x, I think, is a worthy goal in the near term. You know, the question is, do we move down further from there to 3.5x? I ultimately would like to be there, but we also need to balance, as you noted, the fact that our distribution coverage has continued to improve. You know, net of the dividends that were, or distribution, excuse me, that were paid in, you know, a week ago, our number on normalized basis is 1.55x. We did pay, you know, the Westerman family some units associated with Q4 that was factored into that 1.36x, and those units were ultimately repaid. So our normalized number is about 1.55x on Q4. We are looking for that number to be in the 1.6x plus range next year, or this coming year, that is. And as that number starts to expand beyond 1.6x and grow beyond there, you know, we need to continue to have conversations with all of our unitholders as to what the right answer is in terms of distribution growth. Operator: Your next question comes from the line of James Rollyson with Raymond James. Your line is open. James Rollyson: Just to circle back to the capacity adds of 105,000, it is in the budget for year. Maybe just kind of given this can really sway how things lay out across the quarters, if you could talk about the timing of delivery and when you expect that capacity to actually be in the field. And then maybe a follow-up on equipment cost trends given lengthening lead times. Clint Green: You know, I think most of what is coming on this year is in the back half of the year. I will start, and then Christopher Wauson will probably add into that. You know, July 4. Chris, do you have anything to add to that? Christopher Wauson: Yeah. So thanks, Clint. So majority of the horsepower, you know, there is a little bit that trickles in in Q3, but mainly, you know, the bulk of horsepower comes in late Q3 into Q4. So we will see good numbers of growth in the back half of the year. James Rollyson: Gotcha. And maybe just kind of following up, Clint, on your comments. Seems like every call I hear on compression lately, the lead times getting longer and longer. Wondering if that is showing up. You know, you go back two, three, four years, and obviously, you guys like Cat had really ramped up the cost of equipment, which was translating into higher pricing for everybody on new orders. And then it seems like because we were originally kind of late last year, prices were just more inflationary, like typical annual Cat increase. But I am curious, as lead times continue to stretch out, are you seeing that, or do you expect to see that translate at some point into higher equipment cost again, like a bigger step up? Clint Green: I do not think that any manufacturer ever misses opportunity to increase prices, but, yeah, you know, the main driver in the lead times is Caterpillar engines, and the data center demand for generation has driven that lead time out. You know, we still have some other options with some other manufacturers out there. They are not as sought after, what have you. I expect we will see some type of increase at some point this year. I have not heard of one yet, but I am sure one will come down later on this year. Operator: Your next question comes from the line of Gabe Moreen with Mizuho. Your line is open. Gabe Moreen: Obviously, one of your competitors recently announced a pretty big step out into the distributed power space. Just wondering kind of your latest thinking on potentially evaluating that space, whether it is something you are looking at or reconsider. And then if I can pivot, on the 50% of the new HP for 2026 placed, what are expectations for placing the rest of it and timing? Clint Green: Yeah. Hey, Gabe. It is Clint. Yeah. Absolutely. You know, we believe the distributed power business and the compression business are a lot alike. You know, we have mechanical equipment that has to run or has a guaranteed run time, several synergies with the type of folks you need to work on it. So we have definitely evaluated several of those over the last eighteen months or twelve months, what have you. We put them into our model. The ones we have looked at have not quite met the requirements that we wanted for whether, you know, it to make our model like we wanted it to be. And we have not jumped out there yet, but we are always evaluating that. It is a business we think that we could drive the same type of margins out of that we do in the compression business. Christopher Wauson: On the placement of the remaining 2026 new horsepower, we strive for kind of consistent margins, and our new unit growth has primarily been focused on our tier-one customers. So I am pretty confident that the remaining balance of what we have available will get contracted up here in the near future. So we look forward to working through that for our customers. Operator: Your next question comes from the line of Nate Pendleton with Texas Capital Bank. Your line is open. Nate Pendleton: Good morning. Congrats on the strong year. Wanted to go back for a moment to the new unit timelines. How do those timelines impact your longer-term horsepower growth strategy, be it organic or inorganic? And could we see the timelines impact contract compression pricing with customers in the near term? Clint Green: Yeah. Hey. Thanks. It is Clint. You know, with the lead times pushing out for a new package at 120-plus weeks, you know, it gets challenging. Right? It is not going to affect our 2026 growth, but in 2027, you know, we are working to secure that and figure that out. You know, picking up the manufacturing business with JW, that gives us a lot of optionality that Christopher M. Paulsen spoke to earlier. We do have around 10,000 horsepower already contracted in the '27. So we are looking at every angle to work through that and add growth. You know, I want to add that the size of the JW manufacturing business is, you know, it is almost the exact same size as our expected growth over the next couple of years. We are not looking to expand that manufacturing facility or go out and try to sell a huge amount of packages, but we want to be able to fund some of our own growth internally and give us that flexibility that we need to when packages move out to 100 weeks that we can still provide for our customers. Nate Pendleton: Got it. I appreciate that detail. As my follow-up, in the prepared remarks, Christopher M. Paulsen mentioned expansion CapEx, including the new telemetry being added to units. Can we get any more detail on what that can entail for customers? Christopher Wauson: Yeah. I will take that. You know, one thing we are looking at is always looking for efficiencies to drive efficiencies. And with that, we have to invest in our units. You know? So panel upgrades, unit upgrades, is huge. So it allows us to have some dashboards to really see what is going on without having employees out there on-site 24/7. So, you know, that gives you a little color as to what that looks like, but it is our eyes and ears, basically, without folks on the ground. Clint Green: I am going to add to that too. You know, it also gives us the ability to manage how our folks, you know, when they leave to go work on a piece of equipment that is down, maybe it got called out in the middle of the night, they can have the right parts. You know, that is where we are trying to get to with this with some form of AI going forward. And this is the first step in our business to move that direction. Nate Pendleton: Got it. Appreciate it. Operator: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. I will turn the call back over to Clint Green, President and Chief Executive Officer, for closing remarks. Clint Green: Yeah. Just to add a little bit there, you know, I want to explain how happy we are with the JW acquisition, how excited we are to be able to get into all those basins, and then, you know, the excitement that we have for the overall gas industry. And the way that, you know, the demand from data centers and LNG, and, you know, it is real. It is coming online, and we are excited to be in this business at this time and look forward to creating unitholder value as we move forward. Thank you all for joining our call, and good day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Roger Schrum: Let me make sure we're there. Again, good morning, everyone, and thanks for joining us at today's Sunoco's 2026 Investor Day. I'm Roger Schrum, I'm Head of Investor Relations for the company. And it's been my honor to work for Sunoco for 20 years, although I did have a couple of years off for good behavior. This morning, Howard Coker, our President and CEO; and Paul Joachimczyk, our Chief Financial Officer, will start with a brief review of our fourth quarter and full year results. Sunoco issued a news release and posted a presentation on our website at sonoco.com yesterday evening, which provided detailed information on our financial results. We also will post today's presentation on our website after we conclude prepared remarks. Once we finish with our review of 2025 results, Howard will come back on the stage and do our strategic review and follow that with our presentations from our 3 business unit presidents on our industrial and consumer businesses. We're then going to take a short break, and Paul will come back up and provide further financial review and present our targets for 2026 through 2028. Howard will close our formal presentation, and then we'll take your questions. For those of you that are listening virtually, we do have an option for sending us questions as well. After we conclude Q&A, we'll be hosting a short modeling session across the hall over here and Harvard Room 1 to answer any your detailed question than you may have. With that in mind, we hope that you limit your financial modeling questions during the Q&A, we'll take care of them over there. But before we get started, let me remind you that during today's presentation, we will discuss a number of forward-looking statements based on current expectations, estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. The company undertakes no obligation to revise any forward-looking statements. Additionally, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations. Further information about the company's use of non-GAAP financial measures, including definitions and reconciliations to GAAP measures is available in the Investor Relations section of our website. Now with that, let me turn it over to Howard. Robert Coker: Okay. Well, good morning, and thank you, Roger. It's really great to see so many of you who I've come to know over so many years, and I'll certainly look forward to getting to those that don't know through the course of this conversation and others. Before Paul and I review fourth quarter and full year 2025 financial results and present our '26 guidance. Let me open with a few comments about what you will hear today. First, our portfolio transformation is complete. In fact, what differentiates us from so many in our industry today is that the most difficult part of our transformation journey is behind us and we're poised to create greater value for our customers and shareholders going forward. Second, there was a purpose behind our portfolio changes and we have built global market-leading franchises in both metal and paper, consumer and industrial packaging. And while our portfolio is set -- we have plans to further improve profitability and cash flow generation. Finally, we believe we are in the best position to deliver consistent earnings growth going forward. Our Sonoco team executed well in the fourth quarter despite a difficult macroeconomic environment, delivering strong operating results we reduced net debt by approximately 40% year-over-year and lowering the company's net leverage ratio to approximately 3x. And we concluded our portfolio transformation following the successful divestiture of ThermoSafe and further simplified our Consumer Packaging segment by consolidating our global metal packaging and rigid paper containers business into a single integrated structure driven geographically. Which we believe enhances our go-to-market strategy and will drive additional synergies across global channels. I'll let Paul go through the numbers in detail, but we improved revenue, operating profit, adjusted EBITDA and adjusted EPS above consensus and our own expectations. We achieved this improvement despite the divestiture of ThermoSafe earlier in the quarter. Providing some context for the quarter. October was a strong month for all of our businesses, while November was a bit weaker than we had expected. December is always a difficult month to predict due to our customers' inventory management practices and consumer demand at year-end. But overall, the month was better than we had planned. Productivity, favorable price cost environment and structural cost savings throughout the quarter improvement, meaning we were effective in controlling the controllables. Demand was about what we expected with volume mix overall down just under 2%. Metal Packaging U.S. had a record quarter and a record year. U.S. food can units were up 10% in the quarter and 9% for the full year exceeding reported industry averages. Results from metal packaging EMEA exceeded our expectation, although food can units were down about 3%. Some of our customers manage inventories below what they had done historically. Rigid Paper Containers were down in North America on soft construction, stack chip and other food categories while unit volumes in Europe were flat. Industrial had another solid quarter on top of a record year and margins expanded for the ninth consecutive quarter. As mentioned, we completed the sale of ThermoSafe, our temperature-assured packaging business in early November and received $656 million in cash which equates to a valuation of approximately 13x. We used net proceeds and free cash flow in the fourth quarter to reduce debt by $966 million. Year-over-year, we reduced net debt by approximately $2.7 billion, if you include the proceeds from our TFP divestiture and free cash flow. This debt reduction effort lowered our net leverage ratio from 6.4x starting the year to approximately 3x at year-end. As you recall, we had targeted to reduce our leverage to 3.3x to 3x by the end of 2026. So we are tracking ahead of our expectations. Net-net, it was a good end to the year, an excellent setup for 2026. Now I'm going to turn the podium over to Paul to go over the numbers in more detail and review our 2026 guidance. Paul? Paul Joachimczyk: Thank you, Howard, and thanks, everybody, for being here today. I'll walk through our fourth quarter and full year 2025 financial performance. All of the results are presented on an adjusted basis, with growth on a year-over-year basis unless otherwise noted. The GAAP to non-GAAP EPS reconciliation is included in the appendix and in our press release. As Howard noted, 2025 was a pivotal year for Sonoco. With our portfolio transformation complete, we now have global market-leading positions across 2 focused segments, positioning the company for more consistent execution and sustainable long-term performance. Turning to the fourth quarter. Results reflected strong execution across the businesses despite a mixed demand environment. From a revenue perspective, fourth quarter net sales for continued operations increased 30% to $1.8 billion, driven by the metal packaging EMEA acquisition, strong pricing and favorable FX. This was partially offset by volume and mix which declined approximately 2%. Adjusted EBITDA increased 10% to $272 million with margin expansion of 51 basis points, reflecting strong operational discipline, despite softer volumes. Adjusted EPS was $1.05, up 5% year-over-year, driven primarily by favorable price cost largely in our consumer segment. Continued productivity gains were evenly split between consumer and industrial. FX tailwinds and lower SG&A also contributed to that. These benefits were partially offset by softer volume and mix, slightly higher interest expense and lost net earnings from our divestitures. Operating cash flow was $413 million for the quarter, while that includes a onetime tax payment from divestitures, it also demonstrates the strong seasonal cash generation of our Med can businesses. Turning to the full year results. Full year net sales for continued operations increased 42% to $7.5 billion, driven by the metal packaging EMEA acquisition, favorable FX pricing, which was partially offset by volume and mix. Adjusted EBITDA of $1.3 billion increased 28% with margin expanding 120 basis points to 16.9%. This improvement was driven by the metal packaging EMEA acquisition, strong price/cost execution, continued productivity, lower fixed costs and favorable FX partially offset by volume softness, primarily in our converting and Consumer business. We also had lost earnings from our divested businesses within the year. Adjusted EPS was $5.71, representing a 17% increase year-over-year. This improvement was driven by metal packaging EMEA acquisition, favorable price cost productivity gains and FX, partially offset by divested businesses, unfavorable volume, a higher tax rate and interest expense. Operating cash flow was $690 million, including $216 million of onetime items, primarily $196 million in taxes paid on capital gains from our divestiture. On a normalized basis, full year operating cash flow was $906 million, underscoring the strong cash generating capability of the portfolio. Looking ahead to 2026, we expect continued earnings growth, supported by improving volume and mix, disciplined pricing, strong productivity and lower interest expense. We are projecting sales of $7.25 billion to $7.75 billion, adjusted EBITDA of $1.25 billion to $1.35 billion and adjusted EPS of $5.80 to $6.20. Operating cash flows of $700 million to $800 million. This includes approximately $100 million of taxes related to our capital gains from the businesses divested in 2025. Before reviewing the 2025 to 2026 bridges, let me clarify our definition of pro forma. It reflects our 2025 reported results adjusted to exclude divested businesses and represents the comparable asset base for growth in 2026. Relative to the 2025 pro forma sales of $7.3 billion, we expect low to mid-single-digit sales growth driven by favorable volume mix, pricing and FX. We are also projecting EPS growth of approximately 20% versus our 2025 pro forma EPS of $4.97, driven by our operational improvements, favorable volume mix, lower year-over-year interest expense and FX. This growth will be partially offset by 150 to 200 basis points increase in our effective tax rate. In summary, 2025 was a year of disciplined execution and strategic processes. We entered 2026 with a stronger portfolio, improved margins and enhanced cash flow generation, positioning Sonoco well for durable earnings growth. This concludes our recap of 2025 and our outlook for 2026. At this time, we invite you to watch a short video transitioning into our Investor Day, where we will focus on 2026 and beyond. [Presentation] Robert Coker: Again, thank you for joining us today. I really, really am looking forward to the next portion of our presentation, which, as you just saw, is all about our focus towards the future. Sunoco has transformed over the last several years to create a more focused, simplified business. This focus allows us to move faster, allocate capital, with greater discipline and hold ourselves accountable for returns. After reviewing our strong finish to 2025 and our outlook for '26. We now want to take a step back to talk about our transform portfolio, our focused strategy and the experienced leadership team that we have in place, which you'll hear from today. Importantly, what is different today is not just where we are but how decisively we will run the business going forward. Focusing management attention, capital and resources on fewer but scale businesses, we have a strong competitive advantage. I've been at Sunoco for over 4 decades and have experienced a wide range of economic cycles, changing competitive dynamics and shifting consumer trends, but I've never been more excited about the opportunities we have for the next phase of our growth. What gives me confidence today is not simple optimism, but clarity, clarity around our portfolio, our strategy and our ability to execute through cycles. Our scaled well-capitalized asset base underpins our belief that Sunoco is the investment of choice in packaging. We are a global leader in high-value paper and metal cans as well as uncoated recycled paperboard and associated converted products. Significant prior investments in our operations, systems and people position us to drive improved profitability. Our streamlined portfolio supported by our proven operating model enables accelerated margin expansion and consistent earnings growth. We focus on essential center of the store food categories and partner with large growing brands and private label customers. Through strong relationships, product quality and service excellence core to Sunoco's culture, we continue to gain share. With more than 125 years of value creation, strong cash flow generation and disciplined capital allocation, we are investing for growth, strengthening our balance sheet and returning capital to shareholders, including 100 consecutive years of sector-leading dividends. Today, Sunoco has grown to become a $7.8 billion global packaging leader with 22,000 team members working in 265 facilities across 37 countries, serving some of the best known brands around the world. Guided by our purpose of better packaging, better life. We strive to foster a culture of innovation collaboration and excellence to provide solutions that better serve our customers. Over the past several years, we have balanced our geographic sales mix, growing in the EMEA region, which now accounts for approximately 40% of sales. while still maintaining more than half of our revenue right here in the United States. We believe there are significant economies of scale in our global platform, particularly in consumer packaging, that are a significant competitive advantage to serving large global customers with complex needs. In 2020, only 42% of of our sales came from Consumer Packaging, while 44% was industrial, and the remainder of sales came from a variety of diversified businesses. Since then, we purposefully shifted our mix to more consumer-focused packaging where today, more than 2/3 of sales are generated by our leadership positions in paper and metal. The remaining 1/3 of our sales come from our leading position in uncoated recycled paperboard and converted products. Furthermore, in our URB business, approximately 70% of our paper and converted product sales are, in fact, in consumer staple and durable end markets. Both our consumer and industrial businesses are strategically aligned around technology, innovation, of course, customers, service and sustainability. During our transformation, we followed a set of principles that helped us determine what markets we would participate in and how we expect to win. We focused on value-added packaging where we can drive a competitive advantage to advanced material science and technology expertise, where our products possess high functionality and where we can best leverage continuous process manufacturing to drive efficiency and scale. Our operating model leverages our quality and partnership approach to help our customers respond to a dynamic marketplace for customer preferences and buying habits, along with regulations are indeed constantly changing. Today, we have developed a focused portfolio serving a mix of large growing global customers who value the competitive advantages that we provide. I've been asked many times why we went through this transformation. The objective was straightforward: to improve the quality predictability and durability of our earnings and cash flow over the long term. Early in our transformation, we increased investment in technology and innovation in our core operations to drive growth and efficiency. We then reshaped our portfolio by exiting noncore businesses, and we recycled that capital to acquire and create scale in our market-leading segments. By the end of our journey, we reduced a number of our highly diversified businesses from 20 to 2 core segments. And we simplified our operating systems and concentrated our resources where we could best drive profitable growth. Today, our foundation is set, and the transformation of our portfolio is complete. Since we began this journey in 2020, we have grown revenue by 50%. We've increased adjusted EBITDA by 67% and expanded EBITDA margin by approximately 200 basis points. Adjusted earnings grew 50% during this period, and we generated over $3 billion of operating cash flow. And returned $1.2 billion to shareholders through dividends and share repurchases. We believe there is much more we can accomplish by focusing on our strategic priorities, sustainable growth, margin improvement and efficient capital allocation. During their upcoming presentations, each of the business unit presidents will detail specific actions that we'll be taking to drive these strategic priorities. But let me provide an overview of each of these initiatives. First is sustainable growth. We have a targeted strategy to take advantage of long-term trends and believe we can grow organic sales by focusing our customer partnerships to gain share, not by chasing volume, but by improving mix, strengthening customer service and relationships and achieving fair value-based pricing. We have a track record of improving profitability and margins by deploying our operating model. Our model is centered around structural transformation, operational improvement, including commercial, supply chain and operational excellence, strategic capital allocation and maintaining excellence and sustainability. This model allows Sunoco to add $533 million in adjusted EBITDA since 2020 at a greater than 20% margin. Also, we've been able to reduce net debt by approximately 40% in the past year while achieving our sustainability goals. We're excited about the early results we're experienced in deploying this model across a more streamlined and simplified organization. We have an opportunity to further improve our business through structural transformation. As an example, we recently announced we are simplifying our consumer segment, by consolidating our global metal and rigid paper container businesses into a single integrated structure divided geographically. This action, which you'll hear much more from our business unit presidents will enhance our consumer go-to-market strategy, focus our technology and service model to respond to changes in the marketplace and drive additional cost savings across our global footprint. We are targeting an additional $150 million to $200 million of cost savings, which translates into roughly 200 basis points of adjusted EBITDA margin improvement by the end of 2028. And importantly, this improvement is driven by actions within our control, not portfolio exit or large acquisitions. Paul will provide more color on the specific initiatives when he reviews our KPIs and financial targets later in the presentation. But this is the path the team, our team is working on to control the controllables and deliver on our long-term financial goals. Sonoco has consistently generated strong operating cash flow and we're expecting that trend will continue. Efficiently allocating capital remains a key element of our operating model. Our top 3 priorities going forward will be to invest in high-return growth and margin expansion projects, maintain a strong balance sheet by focusing on further debt reduction and continuing to return capital to shareholders. Our focus on sustainability excellence remains an important initiative for many of our customers and shareholders. Earlier this month, we announced that a virtual purchase power agreement developed between Sonoco and NG North America, consisting of 60 wind turbines and Crockett County, Texas has become operational. This project is another step in Sonoco's integrated sustainability efforts to reduce our global carbon emissions by 25% before 2030 by improving packaging design, installing energy-efficient equipment and renewable energy sources, such as solar power installations. Let me close by focusing on high-level strategic targets for '26 through '28 and Paul will build on these with a more detailed framework in his section. To achieve our strategic priorities of sustainable growth, margin expansion and efficient capital allocation, we have set specific targets, develop detailed plans and will measure our progress and will hold ourselves accountable. We expect our future organic growth for our consumer and industrial business to be around GDP in aggregate. As I mentioned earlier, we're targeting 200 basis points of margin improvement, which will result in between $150 million and $200 million in savings by the end of 2028. And finally, we expect to achieve accumulated 3-year operating cash flow of $2.5 billion while reducing our long-term net leverage ratio of below 2.5x. I'm proud to say that Sonoco has one of the packaging industry's best and most experienced leadership teams to drive our focus mission going forward. Simplifying our structure also means we now have a simplified business and functional leadership team. I'd like to take a minute and provide you some background on our 3 business unit presidents. All 3 of which have long tenures with Sunoco as well as deep experiences in the businesses they run. Let me start with James Harold. James is President of our Industrial Paper Packaging segment, which successfully completed a record year in 2025. James is 41 years for the company, leading the industrial segment since 2020 and is considered one of the leading experts in the global URB industry. Sean Karnes as President of Consumer Packaging, EMEA, APAC, and -- he's been with Sunoco for 17 years and previously was President of our global rigid paper container operations. Before coming to Sonoco, Shawn was a business unit leader for Crown's EMEA can business, which, of course, we now own. Sean is an engineer by training but he has strong commercial skills and led the team that significantly grew our paper can business internationally. Ernest Haynes as President of Consumer Packaging Americas, Ernest has 28 years of experience with Sonoco and was previously President of Metal Packaging U.S., which is coming off a record year of performance. Prior to that role, Ernest was General Manager of our rigid paper container operations in North America. Also an engineer by training, Ernest started as a shift supervisor in our rigid paper container business, later serving as Head of Operations for our North American Industrial Paper Packaging business before taking the leadership role in consumer. Ernest also has strong commercial skills and led his team to more than double EBITDA for our U.S. metal packaging business since it was acquired in early 2022. I'd also like to recognize our functional leadership team who has manufacturing and operational leadership and experience in addition to being an expert in their fields. Andrea Way is our Chief Human Resource Officer and has 20 years with Sonoco. Andrew is also an engineer by training and started out our career as a manufacturing excellence expert and has used her process improvement skills to simplify our global HR function. John Florence, our General Counsel, has more than a decade with the company, although he did outside legal work for Sonoco for nearly 10 years. John also recently was a General Manager of our U.S. and Canada industrial paper and packaging operations, working very closely with James. Finally, as you know, Paul Jounce is our Chief Financial Officer. Paul joined the company in July with a proven track record of successfully leading financial functions for large multinational publicly traded companies in the building materials and manufacturing industry. Paul is comfortable in both finance and manufacturing and is taking on the task of helping drive our profitability performance plan, along with developing and tracking the companies key performance indicators. Before I turn the podium over to James, I want to leave you with one final thought. Today, Sonoco is a simpler company. running fewer but market-leading businesses with clear priorities, consistent earnings growth, stronger cash flow generation and a management team focused on execution, not reinventing the strategy. So with that, let me turn it over to James. James? James Harrell: Thank you, Howard, and good morning, everyone. I'm incredibly proud to introduce you to our Industrial Packaging group. As you heard from Howard, I've spent more than 40 years at Sonoco in the last 30 with the industrial team, I absolutely love being the industrial guy. Very proud of this team and what they have accomplished. This is Sonoco's oldest business spanning our full 125-plus years. generation after generation of team leaders and team members have found ways to keep reinventing this business, and this team is no different. I know I'm biased that I wake up every day knowing I am competitively bringing the best talent to task to continue to create value for our customers and our shareholders. Our best is still ahead of us. There's a number of key themes I would like for you to consider as I take you through this business. We are the URB global leader focused on vertically integrated, low-cost system producing paper and converted paper products. We have a proven track record of EBITDA growth, cash generation and high returns on investment. With our focus on customers and solutions through R&D and technology, we expect to achieve better than industry growth rates. As you have heard from Howard, we have been focused on simplifying our portfolio and structure. And this business has gone through those same filters. Five years ago, this business operated at 7 separate P&Ls and leadership teams. Today, it operates as one. From 2021 through 2024, we consolidated all the converting platforms, tubes and cores, post, partitions and corns together into paper converting. Early last year, we brought together paper mills and paper converting groups as 1 team. This has removed the silos and focused our single leadership team on value creation along the full supply chain and significantly reduced our critical decision-making time lines. Complementing our paper business, we have a wood metal and poly fiber business, driven by the growing power demand in North America. Today, we're a $2.4 billion business operating across 25 countries with around 9,000 focused team members. 73% of our sales are from North America and 16% from EMEA. Now we do call this the industrial business. But as you can see from the graphic, over 65% of our products support customers and consumer-facing end markets. As mentioned, our paper business is vertically integrated from fiber collection through paper mills to paper converting producing over 2 million tons per year which are split 52% internal and 48% external. Our internal versus external sales balance is the result of positioning to deliver the highest value from the products that we make based on the end markets we choose to serve. We target trade URB markets that are less correlated with our converting markets and allow us to use product development and tech service capabilities to add value to both our customers and our business. In some end markets like tissue and tau, the majority of value-add in paper making is in the paper making and less in converting. In other markets like tubes and cores and paper cans, we deliver critical value-add across both papermaking and converting. As a result, we have reoriented our business toward more sustainable consumer end markets. The mix of internal versus external tons is managed to reflect where we believe we can deliver the most value. It is not directed or dictated by the need to cover tons through internal consumption. More than half of the URB that we produce is utilized by our converted paper products business that produces tubes and cores, protective post, partitions, comes and paper for the paper can side of our consumer business, which you will hear more about from Sean and Ernest. Our converted paper business is focused on partnering with customers that have leadership positions in markets they serve and where we have the right to win. With approximately 2/3 of our converted paper product sales in the consumer staple and durable end markets. The URB that we sell externally is focused on the following markets: tissue and towel, food packaging, floor paper and coal board. These markets provide long-term stable growth and are aligned with our differentiated capabilities. We are biased to markets that are less cyclical and consumer-facing. Based on estimates from RISI, URB markets are expected to grow annually at just over 1% through 2028. RISI is also projecting that mill operating rates which averaged around 90% in 2025 should continue to improve to the mid- to the mid-90s as URB production levels increase through the expected growth. The industry has adjusted capacity to better align with post-COVID demand levels. The industrial team has driven solid EBITDA results through strong customer value focus, acquisitions like [ skarn ] and RTS, footprint leverage and a robust internal productivity process. Capital is driven by a disciplined allocation process, focused on keeping our system operating at high yields and delivering automation solutions in our converting operations. our operation model is strong and it is resilient. The bottom line of this slide is, you can depend on us. to continue to deliver strong EBITDA and margin results. We expect the macroeconomic backdrop to continue to present both challenges and opportunities. As you will see later in the presentation, we believe the preference for sustainable recycled packaging, power grid reinvestment Power growth from data centers and AI will provide us continued opportunities to grow. Geopolitical uncertainties will continue to drive volatility in tariffs, will put upward pressure on equipment-related expenditures. We are also seeing efforts to lightweight packaging, and this could adversely affect some markets. investments that allow us to drive greater efficiency and better service customers will continue to be a priority in how we allocate capital. Forward margin improvement will be driven by getting our European and APAC regions to higher return levels, along with opportunities to further simplify and streamline our processes. We continuously pursue new opportunities for growth through innovation, entering new markets that reward us for delivering the highest quality levels and service to our customers. Our entry into the high-pressure laminates market is a great example of this. Recognizing an unmet need in the market, we develop URB replacement for saturated kraft that supports high-pressure laminate products in countertops, flooring, composite boards and decorative panels. We are in final testing and expect to have our product in the market early this year. We believe this market opportunity is in the range of 20,000 to 30,000 tons per year. This is another great example of how our chemists our process engineers, our paper engineers can develop new value-added products in our URB converted paper space to meet new and evolving customer and consumer preferences. Our entry into the high-pressure laminates market is a great example of this. Recognizing an unmet need in the market, we develop URB replacement for saturated kraft that supports high-pressure laminate products in countertops, flooring, composite boards and decorative panels. We are in final testing and expect to have our product in the market early this year. We believe this market opportunity is in the range of 20,000 to 30,000 tons per year. This is another great example of how our chemists, our process engineers, our paper engineers can develop new value-added products in our URB converted paper space to meet new and evolving customer and consumer preferences. An absolutely exciting area for us and the strongest organic growth engine we have in the Industrial Group is our Reels business, focused on the wire and cable markets in North America. We have seen a doubling of revenue over the last 5 years in this business, driven by North American power demand, greening of the grid, infrastructure rebuild and the AI data center boom. We continue to invest capital in this business and to expand capacity, to increase automation to ensure we stay ahead of demand. And yes, that reel is real. It is truly that big. We have now moved the Industrial and Specialty Packaging business into our Industrial group as there are product overlaps and internal supply chains that allow our paper converting, reels and I&S business to leverage from each other. We will continue to build on these internal supply chain elements and cross-selling opportunities. I&S also has a strong foodservice product portfolio that we will continue to drive for growth. In summary, I am truly excited about this team, the opportunity to continue to deliver on the business we have built. We are committed to continued top line and EBITDA growth through strong value-based relationships with our customers, 1% to 2% growth in our URB markets and between 5% to 8% in our reels business. We will remain focused on being the best operators in the URB space, driving internal productivity and managing our footprint versus market needs. We will also continue a strong focus on improving returns in both our European and APAC regions, along with continued investment in our reels business to drive growth. In closing, you can count on us to be disciplined in how we allocate capital. As we focus on creating customer value with great products, maintaining a strong mill system and using automation and data to support optimization and decision-making. I want to thank you for your time this morning, and I hope I've created for you that same excitement and confidence that I feel every day about this business. We have a great team, capable of adjusting to whatever challenges we face and will continue to deliver and win for both our customers and our shareholders. I am honored to represent this team and this business for you here today, and I do love being the industrial guy. I'll now turn the podium over to Sean Cairns. Sean Cairns: Good morning, everybody, and thank you, James. So I'm actually super excited to be here today to share with you my passion for this business. As over the past years, my team and I have helped reshape how Paper Packaging perceived globally by inventing, commercializing and scaling all paper packaging solutions that resonate with both brand owners and consumers. Late last year, Howard asked me to lead our newly combined consumer packaging business in EMEA and APAC. And after my early career as a Merchant Marine, I spent 13 years at Crown in the [indiscernible] Metals business that we acquired. Today, I'll walk you through how we're going to integrate these 2 businesses and continue to grow in this region. We're the only player in EMEA and APAC that produces both paper and metal packaging, the 2 most sustainable and circular packaging substrates. Our customers require packaging solutions to meet increasing regulations and unique sustainability demands and, of course, their performance requirements. The streamlined organization improves flexibility, lowest cost to serve and strengthens customer partnership. Our consumer [indiscernible] APAC business is around about $2.9 billion in revenue with about 8,000 employees across 65 facilities. That scale creates meaningful advantages from procurement leverage, operational agility, supply security and, of course, capital efficiency. I'm proud to say we serve many of your most iconic brands across food, household and health and beauty with an innovative and versatile portfolio. In fact, I challenge any of you to look into any European household and not see many of our products. Rigid Paper continues to grow strongly, now enhanced by our ability to deploy assets across both paper and metal networks. And our market leadership in innovation and service helps us position that growth in both metal and paper with new and existing customers. Importantly, we can excel combined resources to deliver the highest service and value to our customers. What is unique about this region is when I've got the opportunity to sit down with customers and brand owners, sustainability is at the forefront of that conversation. And the good news is we've got the right sustainable fit for purpose solutions to meet our consumers' needs. No one else delivers packaging solutions across the region in metal and paper and that makes us unique in this market. We actually have over 200 years of experience in can design, innovation and our customers come to us to meet their design objectives. -- which actually significantly vary by country. Trust is actually essential in this business and our technical and service support teams enhance quality, improved consistency for our customers to reduce their waste and contamination risks. And as I said before, our manufacturing footprint and scale allows us to respond to variations in design, all while constantly delivering on productivity. Our footprint allows us to optimize our -- across our network to drive better value to our customers. And finally, our dedicated R&D and regulatory teams are a clear differentiator in the business. Our footprint is a key strategic advantage. Our can network needs to be located close to our customers' fill-in operations. For example, if you think about vegetables from the time to pick into packaging is incredibly important to lock in that very freshness that consumers demand. However, of course, we centralize operations where it makes sense to exploit our share economies of scale. A great example of this is our new can bottom for Pringles. We will produce all the world's demand out of 2 locations, 1 in Europe and 1 in Asia. Importantly, we're not simply merging these 2 businesses. since November, we've been undertaking a real deep dive structural review from the very top of this combined organization directly down to the shop floor to reduce the organization's layers while establishing best practices. I'm proud to say we've already implemented changes, and we expect further actions as we complete this review. Finally, it would be [indiscernible] if I didn't mention APAC. APAC is a meaningful growth vector for us as new all paper packaging solutions are being launched within this region. In fact, as we sit here today, in the coming weeks, we will launch yet another new innovative product within the APAC region. Our new factory, which we just recently opened in Thailand is actually directly connected to the Mass Pringles plant. And this facility is being built to serve this region and has the capability of being the world's largest paper can plant, and it's a perfect example of disciplined customer-backed expansion. I'm proud that our portfolio spans metal and metal and closures rigid paper visas and premium specialty packaging. Metal provides over 80% recycling rates, unmatched shelf life and exceptional food protection, making it essential for the food security, flexibility and quality. Meanwhile, paper cans delivers high recycled content, full recyclability and strong consumer appeal, which is driving rapid brand adoption. While premium cans deliver high margin and emotional brand engagement for our customers, particularly in gifting and luxury. This balanced portfolio creates resilience, premium upside and powerful substrate conversion opportunities for Sonoco. So from Pate to pet foods, stack chips to infant formula household to health, this portfolio unlocks opportunity with some of the highest growth end markets. And we're incredibly proud to operate across more than 70 countries, with all those differences in languages constant changes in regulation and customer requirements, formats and supply chains. Put simply, our job is to manage thatcomplexity. So effectively, our customers don't have to. Regulation across EMEA and APAC is ever-changing and accelerating conversions away for more difficult to recycled substrates, such as plastics and that unlocks up rail opportunity for us. Sunoco has been at the forefront of this movement by developing mono-material packaging solutions even before mono-material was a requirement. [indiscernible] extended producer responsibility program or ERP, puts in place higher fees for manufacturers and brand owners to cover the cost of collecting recycling and disposing of product packaging. These fees are designed to incentify sustainable designs shifting the burden of waste management from local governments to producers. This means as our customers require solutions to reduce their exposure EPR exposure. So now because of the knowledge the solutions in both paper and now metal to enable them to have a smooth transition. And I'm incredibly proud of because right now, we've got brand owners and retailers coming directly to us. asking for us to create solutions to reduce their environmental exposure. There is a classic example with Icopal. It's a Sonoco innovation, and it shows how regulation and innovation translates into growth. It reduces CO2 emissions by 20%, improves the consumer experience and simplifies production. APIs adopted it for Pat. And today, we're the only company globally that can produce this product. And we see broad adoption potential for this. Across mean APAC private labels are growing, while pet food premiumization and plant-based protein diets and trends are accelerating. All of these trends are influenced by continuous emphasis on sustainability, a key differentiator related to the U.S. Private label brands and owned brands are constantly looking for differentiation, and we're partnering directly with retailers and brands to meet these shifts often before they become mainstream. The result is diverse, resilient growth across categories and geographies. Pringles is a flagship example. Together, we moved the can from over -- to over 90% recycled paper content without compromising shelf life, manufacturing speed or most importantly, consumer experience. This is the single largest change to 1 of the world's most iconic packs in the past 50 years. And in effect, we future-proof the brand. And now with Mars and in Pringles, we are their partner for the next phase of growth. As I mentioned earlier, technology underpins our competitive advantage. Beer automation, artificial intelligence and analytics, they improve our quality, help us improve our safety and, of course, our productivity while reducing our energy use and waste. As an engineer, I could tell you productivity is a never-ending process. It's simply a must do in order for us to remain competitive for our customers. And we will continue to protect and scale proprietary platforms like ECPL and our all paper can solutions such as green can or orbit closures, which you can see all at the bottom of this slide. In fact, Orbit is a great example of how we use innovation to meet or met consumer needs. Who in the audience has not struggled to open a glass dark jar, while all bits the solution to that problem. Orbit's the only vacuum closure for glass jars that makes opening jars easy for anybody, how it works the outer ink rotates separately from the center panel. And this is another great creative innovation from Sonoco. Kicker costs started with 1 SKU and due to its success in the marketplace, they're currently rolling this out across the entire product range. And we see this as yet another growth vehicle as other brands realize its value. We're going to drive growth across the region by focusing on 3 levers. As we've been discussing, driving immediate paper can adoption, we expect to grow faster than any other substrate by catching sustainability and substrate conversion trends. While combined commercial teams, we have the right people and the right resources to approach the market with solutions that are sustainable and agnostic across paper and metal. And lastly, by creating a disciplined approach to our commercial processes, which will include standardization and improve our value-based pricing. And I'm really pleased to say our teams will stay deeply embedded with our customers as they constantly evolve. Capital investment will prioritized by customer back programs, such as the Mars example that I mentioned earlier. We will invest with regulatory demand and commitments align across both metal and paper. Another example of our consumer -- our customer-backed investments includes our all-new 60-millimeter all paper can line in France. A brand-new product to serve a new market with an entirely new product. Similarly, our 2-piece aluminum Patti line in France was built to support the growing preferences for single-serve formats. And of course, every project is evalued through strict return on invested capital criteria to ensure long-term value creation. To summarize, we're driving growth through the region's obsession with having sustainable packaged solutions driven by changing consumer preferences and regulation. We're expanding margins through integration and operational excellence. Strategic sourcing and materials remains a key competitive advantage, with which we can leverage to deliver value for our customers. Continuing to drive footprint optimization, standard processes and procedures with automation will be accretive to our margin profile. And we're allocating capital with disciplined where it's aligned with our customers or drives productivity enhancements. As I close out the section in my 31 years in the packaging industry, I've never experienced so much demand for change. This is mainly driven by the region's unique sustainability demands. And I'm incredibly proud that Sunoco is ahead of the curve with our proprietary sustainable packaging solutions. As you can see, I'm extremely excited about the future a consumer package in EMEA and APAC and the value it will bring and deliver for Sonoco and its shareholders. Thank you for your time this morning, and I'll now hand over to my friend, Ernest. Unknown Executive: Thank you, Sean, and good morning, everyone. I'm Ernest Haynes and it's really good to be with you all in New York. As Howard mentioned, I've had the great fortune to spend over 28 years with Sonoco between both our consumer and industrial businesses. and I feel positioned well to now lead Consumer Packaging Americas. No matter the economic climate, 1 principle remains constant, consumers vote with their wallets every time they shop. That vote is shaped by where they are today and more specifically, how they think about grocery decisions, affordability and value and brands must meet them where they are. We have a really clear view of how consumers are shopping, how retailers are responding and how our customers are adjusting to win those choices. My team's role is to help our customers earn that shopper's choice by making our packaging a competitive advantage through quality, service, advanced technology and sustainability. [Audio Gap] each facility is equipped with advanced automation, affording us significant cost efficiencies. In addition, we implement lean technologies to promote operational excellence throughout our entire network. Today, we produce over 3 billion steel food and aerosol cans in both 2-piece and 3-piece formats, whether you're in the center aisle of a grocery store or working on your DIY projects on a Saturday afternoon at home, our cans are likely very well represented. Within our leading paper can portfolio, we provide solutions for addressable markets like baby formulas, snacks, chilled dough and nuts. For decades, we have partnered with global CPGs to innovate every single component of our cans to satisfy the sustainable packages consumers both want and need. In addition to our metal and paper cans, we've also invested in expanding our footprint and capacities to provide cartridges that serve the adhesives and sealant space within the construction markets. At Sonoco, sustainability is an integral component of our approach to both material selection and product development. Steel remains the most recyclable consumer packaging material globally. Approximately 85% of all steel ever produced is still in use, supporting a genuinely circular economy that ensures long-term material availability and contributes to decarbonization. Our rigid paper cans feature approximately 85% post-consumer recycled content directly supporting brand objectives related to recycled content and performance on many important retail sustainability metrics. From a market standpoint, these attributes are incredibly significant. Sonoco's metal and paper can solutions enable customers to lead with confidence by mitigating risk, safeguarding shelf visibility and ensuring consistent supply. The macroeconomic environment significantly influences our industry and our market dynamics. Whether we're mitigating the high impact cost of steel-related tariffs, for our entire domestic customer base or adapting to evolving extended producer responsibility regulations, our strategies are specifically designed to manage those challenges and enable our customers to capitalize on emerging opportunities. Our global tinplate procurement capabilities guarantee continuity of supply, a critical factor for all of our clients. while our ongoing investments to innovate mono material paper cans, demonstrates our commitment to reducing environmental impact. While additional challenges are likely to arise. We remain steadfast in our mission to lead the industry by delivering sustainable solutions. As we look towards 2026 and 2027, shoppers are not pulling back, but they are rebalancing, inflation, slower job growth in tighter markets are reshaping budgets, while about 5 million U.S. adults are now using GLP-1 specifically for weight loss, driving diverse shopping baskets and new eating behaviors. But this is actually where Sonoco thrives. The majority of our Consumer Americas volume sits in the center of the store, where consumers turn for value, substance and meals that stretch further. As budgets tighten and eating patterns change, we're uniquely positioned to help brands rethink pack sizes, formats and shelf execution. These moments of disruption actually create opportunity, and they play directly into Sonoco strengths and helping our customers win the shelf and protect volume. Commercial excellence forms a fundamental component of our strategic initiative to drive earnings growth. The newly implemented organizational structure enables deeper analysis of customer requirements, and facilitates the optimization of internal processes. Our sales teams are now equipped to represent our entire can portfolio, irrespective of substrate, ensuring that the customer remains central to all commercial initiatives. Additionally, we have recently launched a global CRM system within our business technology suite that enhances collaboration and operational efficiency across every work group. Our customers rely on our capacity for collaboration and innovation to sustain competitiveness in their respective markets. Crop production costs remain a primary consideration for all can makers. Our operating model is distinguished across the Americas by its commitment to superior quality and service. We foster long-term partnerships with our customers, enabling value creation and supporting their growth in market share. A few partnerships illustrate this better than ours with Bush. -- where we are co-located on their site. As the market has evolved, Bush is protecting volume through premium promotions, like its new Blue Beans collaboration designed to bring younger consumers into the category. Our co-located model has expanded our 2-piece food can capabilities and enables daily collaboration with their teams, helping move faster on shelf, drive demand and create value for both companies. Within our aerosol segment, we've recently introduced a digital case study featuring CRC a globally recognized and trusted brand with Sonoco serving as a key contributor to their ongoing reliability. Sonoco provides supply assurance and tailored aerosol solutions ensuring that CRC products remain available on shelves even amidst significant external challenges. This partnership demonstrates Sonoco's commitment to creating lasting value for our customers, through a combination of global scale, dependability and operational excellence. Within South America, Brazil represents a high-value growth vector for the business. The country's dietary supplement market is expanding at nearly 10% annually, evolving rapidly from a sports nutrition focus to a broader everyday health and wellness category. Sonoco was positioned to capitalize immediately supported by established end-market capacity, strong customer and market intelligence and a purpose-built team capable of scaling powder supplement formats without the need for incremental platform investment. Investing in ourselves is something you've often heard Howard refer to. As a part of our greater strategy to drive long-term earnings and profitability. Our commitment to this philosophy is most evident in our Consumer Americas platform. where we have invested millions to enhance capacity, increased output across multiple lines raising OEE and installed advanced automation that continues to reduce our production cost. Additionally, we've recently adopted AI technologies within our manufacturing networks, aiming to further expand capabilities across various back-office processes. Over the next 3 years, we're focused on driving growth by expanding our market share through strong customer partnerships. We aim to increase EBITDA through commercial excellence and the use of efficient capital allocation, focused on the highest returns. Combining metal and paper solutions makes it easier for our customers to work with us. speeds up execution and strengthens margins. Our portfolio matches current consumer trends, supporting both private label growth and targeted premium products and what is expected to be a challenging 2026 marketplace. As the leading supplier in the Americas, we provide dependable supply through disciplined operations and smart capital investment. We're ready for market pressure, backed by a long-range plan designed to navigate tariffs and drive innovation-based growth. I have confidence in our new organizational structure, and our capacity to implement this growth strategy. But most importantly, I trust in the dedication of Sonoco's employees who've been instrumental in shaping our company over the past 125 plus years. I feel certain their commitment will remain a driving force in our continued success. Thank you. Now we'll take a short break. So please join us back in just a few minutes for our financial review, led by Mr. Joachimczyk. Thanks, everybody. Paul Joachimczyk: All right. As we gather back here. Thanks again, everybody, for taking your time for being here today. We do not take your time lightly at all. The fact that you're here reflects the long-term relationships we're focused on building as we continue to strengthen Sonoco. Again, I'm Paul Joachimczyk, Chief Financial Officer. I joined Sunoco after 3 decades across global manufacturing, building products and consumer businesses. All environments were capital discipline, execution and cash flow matter. Today, I'll walk you through our financial strategy and our 3-year outlook. It's grounded in discipline, shaped by transformation and designed to deliver durable long-term value. I'll focus on 3 things. First, how our recent financial performance reflects the transformation you've heard about today. Second, how we think about growth, margins and capital allocation going forward. And third, how our financial discipline underpins everything we do as we execute our strategy, what we call focus. As you heard from James, the Industrial business is a clear example of what happens when strategy and execution truly align. Five years ago, this was a collection of assets in markets that didn't always move together. Today, it's a focused, integrated business with a clear operating model. Since 2020, Industrial has added $190 million of EBITDA with margins expanding by more than 600 basis points. These aren't incremental gains. There are structural step changes driven by discipline, customer focus, operational rigor and smart asset investments. This is what repeatable value creation looks like at Sonoco. On the consumer side, the story is leadership, focus an opportunity. Sean and Ernest bring deep experience and long-standing partnership to this business, which has brought clarity and speed to our decision-making. Financial progress is already visible. EBITDA is expanding. And while margin expansion remains the largest opportunity, the leadership structure and operating rigor are now firmly in place. Over the next 3 years, that progress increasingly shows up in the numbers. Across the enterprise, the last 5 years, fundamentally reshaped Sonoco. We simplified the portfolio, aligned our resources, built scale and eliminated complexity and the financial results reflect that work. Top line growth of 50%, EBITDA growth of 67%, margin expansion of 200 basis points. In total, we added more than $530 million of EBITDA at margins above 20%. Those aren't onetime gains, the result of a company that is clear about where it competes and what drives value. Underlying every part of this transformation is a simple truth. Sonoco generates cash consistently. Since 2020, we've generated $4.4 billion in cash flows through a period of macro uncertainty and significant portfolio change. That reflects strong market positions, disciplined execution and alignment across the businesses. This cash flow allows us to invest in the business, reduce leverage and return capital to shareholders all at the same time. Over the same period, we invested above our historical average to strengthen capabilities, drive our productivity and grow alongside our customers. The most visible example is Project Horizon completed in 2023, it wasn't simply a mill project. It reset the economics of our industrial business. Today, we operate the largest, most cost-competitive mill in our system with differentiated capabilities. With Horizon behind us, capital needs normalize. Going forward, investments will focus on what drives competitiveness, automation and AI, international growth and selective technology upgrades with capital spending steady at roughly 4% of sales. Balance sheet discipline has been a constant at Sonoco, including through the transformation. Following the Evosys acquisition, we reduced net debt by approximately 40%, and we remain on a clear path for continued deleveraging through 2026. Long term, we view the leverage below 2.5x as the right target to balance flexibility and returns. Strong liquidity underpins every capital allocation decision we make. We maintain an investment-grade portfolio with a total cost of debt of approximately 3.6%, supported by disciplined treasury management. And with $1.6 billion of liquidity at the end of 2025, we're positioned to invest even in uncertain environments. Being able to move when others can't is a real competitive advantage. One thing that hasn't changed at Sonoco is our commitment to the dividend. We've increased the dividend for 42 consecutive years, placing us among the top 1% of dividend payers on the New York Stock Exchange, which makes us a dividend aristocrat. That consistency reflects the simple philosophy, long-term value creation requires long-term trust. Our capital allocation approach is dynamic and return driven. In 2025, debt reduction was the priority. And more than 80% of our cash flow and divestiture proceeds went towards deleveraging. Debt reduction remains important as we strengthen the balance sheet, but we're not anchored to a timing model. We're anchored to risk-adjusted returns. If the best return comes from buybacks or dividends, will shift. If it comes from a growth investment, we'll invest. The objective is always the same: maximize long-term shareholder value. As we look ahead, margin expansion remains 1 of the most important value drivers in our financial outlook. And we are approaching it with the same discipline that has underpinned our performance over the past 5 years and the same discipline I intend to reinforce in how we plan, invest and measure the results going forward. We are targeting approximately 200 basis points of margin expansion by the end of 2028, which equates to $150 million to $200 million of incremental value. This is not dependent on a single initiative or step change in market conditions but rather the result of a coordinated enterprise-wide productivity system that is already embedded in how we operate. Roughly $20 million to $30 million of this improvement is expected to come from structural simplification and cost alignment. As we continue to reduce complexity and align our cost base with the portfolio we operate today. Beyond that, the majority of the opportunity sits within operations, where we are targeting $130 million to $170 million through commercial excellence and operational improvements. These targets are embedded in our operating plan, reviewed regularly through our finance governance processes and tied directly to management accountability. Importantly, these are not new concepts of Sonoco. Commercial excellence has been a long foundational element of our value proposition. And we see continued opportunity by partnering closely with customers, pricing for the value we deliver and maintaining service and quality standards that support margin integrity. On the operational side, continuous improvement remains core to our operating model with deeper focus across supply chain productivity, footprint optimization, and synergy capture as we bring our consumer businesses together. What is different this time is the integration and governance around these efforts. Rather than treating synergies, standard cost reductions and productivity initiatives as separate programs, we have consolidated them into a single coordinated framework with clear ownership, accountability and tracking. That structure gives us confidence not only achieving the targeted margin expansion, but also sustaining productivity momentum beyond the current planning horizon. This is how we make margin improvement repeatable. When you put it all together, growth, margin expansion and disciplined capital allocation, the financial profile is compelling. We see a path to $1.5 billion in EBITDA and $2.5 billion in cumulative operating cash flow through the end of 2028. That profile gives us the flexibility, resilience and the ability to invest while continuing to reward our shareholders. Everything you heard today ties back to focus, sustainable growth, margin expansion of 200 basis points, disciplined capital allocation, generating more than $2.5 billion in cumulative operating cash flows. But beyond the numbers, the story is simple. We are a more focused organization. We're deploying capital where it matters most, and we have more levers to create value than ever before. We are positioned not just to compete but to win. Thank you for your time and your partnership. Our focus is clearly in the future. Now let me turn the podium over to Howard for a few closing comments. Robert Coker: All right. Well, on behalf of the entire Sonoco team, I want to thank you. Thank you for your time today, your presence and interest in our company. We believe we have the right strategy at the right time. Let me close by summarize what we laid out today. Our portfolio transformation is complete. And the most difficult part of our journey is behind us. and we believe we're poised to create greater value for our customers and our shareholders. There was purpose behind our portfolio changes, and we have built global market-leading franchises in both metal and paper cans and industrial packaging, which we believe provides us with a competitive advantage in the key markets that we serve. While our portfolio is set, we have plans to further improve profitability and cash flow generation. Finally, 2025 was a good year. But we were setting the foundation for a stronger '26, and we believe we're in the best position to deliver consistent earnings growth going forward. Now let me call on the management team, if you would join me. And we would love to entertain any questions that you possibly may have. Roger Schrum: [Operator Instructions] But let me start with questions from the audience. And George, I see you have a microphone. So would you like to start? George Staphos: Appreciate all the details today. Two questions. One first on consumer for Ernest and Sean. Generally, when I was looking at the slides, I was coming up with kind of a rough sort of $2 million average revenue per customer, give or take. And I recognize customers are all over the range in terms of size. Obviously, Part of the logic of putting metal and paper together is that you're serving the same customers, and there's going to be synergies from that. Can you talk right now about how many of your customers are buying, I don't know, $1 million each from both sides of the house and what the expectation is going forward? Are you -- how are you going to track that marriage that's going to lead to the revenue synergies there? And then a question for Paul. Again, thank you for taking us to the bridge to 2028 and the $2.5 billion, recognizing you're confident in, otherwise, and the $1.5 billion, excuse me, on EBITDA, you're confident in that, otherwise, you've not have provided it. How much of your pressure tested this, Paul? What are the biggest concerns you have recognize you're confident in terms of being able to achieve that over the next number of years. Roger Schrum: Well, we start with Ernest and Sean. Unknown Executive: Sure. I think speaking for the Americas, there are a number of customers that -- from a legacy standpoint, George, that have bought paper cans and the associated metal components that go with a paper can. And so the addressable market is going to be a little bit different between the Americas and Europe. But we see quite a bit of turnover between the 2. If you think about baby formula. There are customers that buy both metal and paper in that baby formula space. If you think about some of the legacy, what I call coffee and/or snacking products, there are some of both. I think what's more important is we have a much simpler commercial organization. It's just easier to do business with. So almost regardless of the substrate, we have 1 commercial asset that is leading those work groups. I think the level of customer intimacy is much greater in the go forward. So we will continue to kind of shape out our go-to-market strategies. But I do think you see some. Obviously, there's differences in processable foods, which is the lion's share of what we would put inside of a metal can and what I call baby formula snacks, child that would be in a paper can. But a lot of those procurement assets with the customers we serve are the same individuals. So when we're selling a can, irrespective of substrate, we're generally talking to those same individuals and make sure we have all the options in front of them in a really simple way going forward. Roger Schrum: Sean, anything to add? Unknown Executive: Yes, to be honest, it's the same in Europe as well as the U.S. We do have customers who buy both products, been through about it, the metal cans bag for processed food, the paper can is very good for dry products. So there is some clear boundaries between them. As we progress the paper canning to be monomaterial, that's brought the growth. I think 1 of the things I would say is there's a lot behind the scenes that the same. So we're the largest buyer template in the world, which is great, and that's what we both enjoy that side of the portfolio. But it's down so we can give a solution that is right and fit for purpose. But whilst in the back office, computers are computers, indirect spends indirect spend. So we can leverage all of that type of rationalization. And at the same time, as I explained earlier on, we've got an extensive program looking at structural review. We're about 20% through right now in Europe. That's going to give us a huge amount of cost out initiatives. And we've got 1 face to the customer. We've been -- you do pass 1 another as you go into the customer base, that has to stop and that will stop. Roger Schrum: Paul? Paul Joachimczyk: Yes, George, I'll say I'll start with profitability first. We broke that out targeting $150 million to $200 million that's out there. So right off the gate, those are things that we can control. We're looking at our structural realignment going in and, I'll call it, simplifying our business to match what we are today, which is 2 segments. So we're in industrial and more consumer business as we go forward. So right out of the gates, we will go get $20 million to $30 million just out of structural savings alone. Now if we go into the next phase of that, we look at operations, which is really broken into the commercial side and then our operational footprint. The teams have done a great job being really disciplined around our pricing mechanics, how we provide value to our customers. So there is a little bit of element going on there, but it's deeper than that, and it's really focusing on our footprint, leveraging that agnostic material that's there, looking at opportunities to combine a metal on a paper can into 1 location is going to be something that will be a game changer for us as well, too, because before, we didn't have the opportunities to actually think about that. Now it is, let's treat it as 1 business. It's agnostic. And as we ship our cans out paper or metal, it doesn't matter. They're going to go to the same customer base that's out there. So that's really how we feel confident in the, I'll call it, the profitability side. Profitability is a key driver then to the cash flows second part of your question that was there. We do feel if you look at next year, our guide of $700 million to $800 million, that does include $100 million of onetime payments related to taxes on the gain on sale of assets in 2025. That puts us back into the range of roughly around $900 million plus of a normal operating cash flow basis. So we do feel confident that after 2026, we will get back to north of that $900 million on a consistent basis that's out there. Robert Coker: Let me add 1 final comment. You may have covered it. But you heard over and over, the portfolio is complete. Now we still have a tremendous opportunity as it relates to how we support that portfolio and what I mean by that is that we've got back office, be it HR, finance, IT, that are -- we're working on it today, but it's part of that road map over the next couple of years, how do we rightsize the back office to support this much simplify. We're no longer supporting 20 disparate business. with each one, the squeaky wheel, you know where I'm going with that pulling, now it's going to be focused, and that's going to drive a lot of things to include productivity, better service to our customers and cost outs. And that is part of what you're saying, do we have, I think, do we have a checklist of what are we going to do over the next 2 to 3 years to get the type of savings that we're... Roger Schrum: Okay. Any next question? Gabe? Gabe Hajde: I had a question about change in behavior across your customer base and thinking about -- I mean, there's been a reasonable change in tone from their perspective to address some of the things you guys all talked about today, affordability, GLP-1, et cetera, population trends. and really attacking the cost side of the equation, right, as they try to promote and/or lower absolute cost levels for consumers on the shelf. Maybe more of a near-term question, if you've been engaged in some of those conversations or have heard [indiscernible] teams and how that sort of informs your 2026 outlook. And then as you've seen, of course, this evolve over the past, let's say, 10 years, pre-pandemic comparing to where we are today. Does that typically make it more challenging for your business to drive cost out or to drive margin expansion when your customers are being a little bit more aggressive on the cost front. Unknown Executive: I'll start. So look, it's a different market from pre-Covid to now. So -- and all the customer base is seeing there's price pressure, of course. So and population growth, except in Ernest has pointed out, in terms of the job, et cetera, that's having is challenging in terms of the the base business. However, there's opportunity. I mean, so speaking for Europe, that sustainability drive is huge. Now are the customers going to pay more for sustainability? No. It's a very price-sensitive market. However, it's a place for innovation. I think that's the biggest opportunity we've got is continue to be ahead of the competition. R&D is essential to us. But for me, everybody in this business, everything we do, there's an opportunity to do anything. Whether or not that's the back office or the products or whatever, that's where we'll win. If we're going to just compete to be the same as everybody else, then it just becomes a price discussion. And that's not what we're here for. So for me, I'm super excited with the products we've got. They're very cost effective. We've got -- in Europe now, I mean, I can tell you, the retailers, we've we've been invited into the retailers to go around the shelves, look at all the private label products that they've got and come up with more cost effective, more innovative solutions. And that in itself is incredibly powerful. I've never seen that in 31 years in the business. So yes, is it a price-sensitive market? Yes, the right -- but that's a place for [indiscernible]. We're not victims. Our destiny is in our hands. Ernest Haynes: Yes. Gabe, for me, I'm really encouraged by some of the early signals we're seeing from CPGs. One, a real recognition that affordability is a challenge, right? And so some of the pricing pressure that consumers have had to bear over the past couple of years has put pressure on volumes. And I think we see CPGs really recognizing that and leaning more into promotions. And we've seen kind of end of 2025 early '26 much more promotional velocity. So that gives me confidence in some of the underpinnings of the volume. We've seen some resets or reset recommendations relative to the retailers of pricing of some of our products. So all of that encourages me the kind of late stage as we get into 2026. There's more optimism around a recognition that affordability is an issue, price on shelf has to be challenged. We recognize tariffs are a big part of that input cost. But I think our brands are beginning to realize the trade-off between margin and volume, and we're encouraged by some of that recognition. Roger Schrum: James? James Harrell: Yes. And I think when you look at our business, it's no different from what you've heard. It's always been competitive. This paper world has been competitive. I know for the 30 years that I've been in it. But we are making changes internally working on our footprint, working on our processes. You've heard about how we have restructured the business to bring a more focused group in and what Paul has talked about of how the cost to support us, and we'll continue to work on service and quality. So I think putting all that together, yes, we will have to be competitive we will have to understand customers, but we drive strong value. And when we need to adjust our costs, we're very good at doing that. So I think we're positioned well for whatever battles may be ahead of us. Roger Schrum: A question over here, and we'll do this 1 first. Matthew Roberts: Howard and team. Thank you all very much for the event and all the great content in the presentation. If I may ask about the sustainable growth profile, particularly the consumer packaging, EMEA, APAC, now Sean you've led a lot of the growth on the RPC side. Now you've round tripped your experience in metal and you're certainly tasked with 1 of the, I would think, higher growth areas. If I compare this to 2024, I think RPC was more of a high single-digit grower. Now is the low single-digit plus type growth in consumer EMEA, is that now mostly a function of just a larger metal shift? Or any other updates you could give us? Is there any other impact from capacity expansions, particularly any updates from Thailand or your conversations with Mars now that the merger has closed there. So any confidence or what you're expecting on that side in 2026 and beyond even. Unknown Executive: So it depends on the market. So if you look at Asia, you're talking of significant double-digit growth. For Europe, the sustainability drive is huge. The antiplastic movement has gathered so much momentum. For North America, the drive is not as much as we probably thought it was a few years ago. I just spent the weekend in New York buying food product and seeing how much plastic waste had compared to what, again, Europe is dramatic. So you've got to look at -- you can't look at it in isolation. So Ernest showed you Brazil. We've seen exceptional growth in terms of rigid paper. Asia unbelievable growth. Europe, it's not slowing down. You're talking mid-single digit at least. For the metals business, it's a different type of argument as well. For paper, we dominate the market. So for us, in the rigid paper market, the only way we can grow is to create new markets, and that's what we've been doing for the best part of 17 years. For the metal can business, in the market, we've got a number of competitors in there. The nice thing is you can compete to be different and take share like what Ernest has been doing in North America incredibly successfully. I think 1 of the things I would say for the metals business, the substrate is infinitely recyclable. I think with the antiplastic movement, you can see trays, single-serve units. There's a lot of opportunity out there. So there's a lot of products that we've got in Europe that we don't have in North America. And again, that's what we'll share going forward. So -- is it double digit? No, it's not going to be double digit, but it's going to be GDP. And in fairness, we've not put in the plan anything too aggressive. I think personally, I think we've got tremendous opportunity. I don't like being a victim. I think everything is in our hands. And I'm convinced with the getting the business rightsized. Look, I came from this metals business. I know it incredibly well. Being back in the hands as a strategic is really important to the customer base. Somebody is investing in not just in the next 3 months or the 12 months to sell it, but investing into the future. And I think that's what's going to give us the competitive advantage in the marketplace compared to everybody else. And I don't take the fact that we're in the market lightly. We're the custom in our brands we deserve to be there, but we've got to show in our actions. I'm pleased to say, I think in the next 12, 18 months, we will start seeing significant growth again. Roger Schrum: We had a question over here. You got a microphone. Okay. Go ahead. Unknown Analyst: Maybe one for James on the Industrial Packaging segment. Just from a high-level standpoint, just -- could you just walk us through just over time, how you've thought about your strategic evolution of the Industrial Packaging segment as it relates to growth. More specifically, how you think about capital deployment? I know about some innovation that you've -- that you guys are working through right now, some investments you're making. But just any high-level thoughts on how that's kind of developed over your time in the job, that would be great. Unknown Executive: Yes. Thanks. It's a great question. And if I think back over the last 15, 20 years the industrial side has we've been able to grow through bringing innovative products or when our customers innovate themselves and need bigger faster examples or paper meals when they get wider, when they get faster when packages get larger is when we have an opportunity to bring our tech and R&D to task to answer those questions. We talked about the reals business. We think the reels business has entered a a new growth phase with power generation and transmission, the rebuilding of that infrastructure, but also the growth that coming forward from there. And then when you think back about the evolution of the industrial side of the company, as I talked about, we operated in silos. We were stand-alone leadership team, stand-alone P&Ls, even though we were an integrated supply chain, we all self-optimized rather than optimizing from end to end. It took us 120 years to figure that out, but we only figured it out. And now it's unbelievable, the power that we're seeing as we put -- I mean, there's no reason why you have to have a post plant in a 2 plant and a partitions plant separate. They're paper converting and then bringing the P&Ls and the thought process of the paper makers and the adhesives makers in with the paper converting groups is just unlocking a lot of opportunity for us internal and allowing us to put structures in from a supply chain standpoint to really optimize from start to finish and it's a low-growth area, but I think that puts us in the best opportunity to either innovate for the growth when it's there or have a right to win on pricing because of how we're operating. So I'm as charged up at any point in my career of the opportunity that's still ahead of us, both to capture growth and are to capture internal opportunities for profitability. Roger Schrum: Michael, why don't we bring a microphone up to you. And then in the meantime, I've got a question Howard because he's feeling lonely up here [indiscernible] Robert Coker: I'm absolutely in great confidence. Roger Schrum: But I had a question from online, a virtual question about we're into the first quarter, how are things looking so far? Robert Coker: I would say better than we expected in January, but 1 month does not make a year, as you all know, little disappointed as it related to the amount of downtime we had to take. We are fairly dense in terms of operations in the Southeast. So through the Tennessee value Carolinas, we lost significant days in January. But even still, I was pleased with what the team was able to deliver and the expectation is we'll catch that up as we get through the quarter. Unknown Analyst: Great presentation today. Two questions. First, we heard a lot about commercial capability, commercial excellence and that you're looking to build out your commercial team. What capabilities have you added? Or do you intend to add, whether it be commercial go-to-market approach, plan structure -- and what products are you targeting for that growth? And can you also talk about how you intend to penetrate end markets where your peers already have entrenched and strong market shares. So that's question one. Question 2 is we've heard a lot also about you're trying to drive better returns in Europe a couple of times it was mentioned during the presentation. To that extent, can you comment about opportunities to consolidate self-manufacturing in EMEA similar to what was done in the Americas a couple of decades ago, whether that's part of your strategy in terms of driving better returns in Europe. Roger Schrum: We start with Ernest. Ernest Haynes: Sure, Mike, a great question. Relative to the commercial teams, in large part, that structure has been codified as we looked at what will be important in the go-forward, if you think about how we restructured before, we probably had legacy assets more focused on aerosol within the tinplate space or more focused on food within tinplate and then paper. Today, we have one unified structure. So there is 1 commercial team a group of leaders that sells everything in the portfolio. So no longer do we have any silos relative to food, aerosol metal paper, that's all agnostic under 1 umbrella within our commercial strategy. We think that simplifies our approach. We've got immediate feedback from our customer base, particularly in the Americas that have really warmed up to that structure. And so we're where we need to be from a structural standpoint. Relative to different go-to-market strategies, my good buddy here, Sean, over the past couple of years has really worked hard on innovating on the paper can and he's been at the tip of the spear. So there's certainly more opportunity for us on our paper can business relative to the Americas in terms of our green can, all paper can, paper bottom strategies. We're just beginning to unlock some of those opportunities where customers are looking for different options. So lots of opportunity there. And then certainly, what we've done on the Metalpack side over the past couple of years still have a lot of growth lanes on the metal can side. So I'm bullish about our outlook. And certainly, that commercial team is at the front of that. Unknown Executive: Yes. What I would say is, commercially, it's a very different marketplace than it was. So you look back in the day when I started in this industry 3 years ago, the sales guy would speak with the buyer and it was very bot-type or approach. As you're developing new markets and new products, it involves a lot more of the organization. So we use CRM systems, et cetera, to keep the data there. But more importantly, everybody is trained on project management schools. So when you're doing a new product or launching a new product, whether it's a design, et cetera, you're involved in a lot more people within the manufacturing scope speaking directly with their counterparts. I think that's a significant change. And I do think that's a competitive advantage that we have as well. So more or less, everybody is a salesman in some way. So that's what we're focused on, particularly with the acquisition in EMEA, changing that dynamics and getting it more aligned to what we've been doing in RPC for a number of years. So that's the challenge. In terms of market where we will grow, again, it's innovation in not just the product, but everything we do. So being different from everybody else gives us an opportunity and that's where -- I don't want to start go in and just compete on price. That's -- there's no benefit to that. For us, it's going in the best product fit for purpose, whether it's paper, metal, et cetera. And again, innovation. Is there a way of getting the consumer more brand awareness, more shelf space, et cetera, with new products. So that's where the driver is. But in summary, our freebody works and Sonoco's a salesperson in effect. Robert Coker: How about soft manufacturer profiling. Unknown Executive: Yes, self-manufacturing. I mean there is there's some very, very large players in self-manufacturing. Converting them. Is there anything in the plan. We've got a couple of things in the pipeline, nothing solid yet for people to realize the real cost to self-manufacturing is difficult. A lot of people don't see the real or true cost of it. But right now, we haven't got anything -- we haven't got a hockey stick in there of conversion, but we are working on them. We've got 2 in particular, we're working on quite aggressively, but I can't go into any more detail than that right now. Robert Coker: I think innovation plays into that as well. Unknown Executive: Yes. Of course, yes. Roger Schrum: Next question? Why don't we come up here with Anojja And Anojja you while you're doing that. I had a question come in from a virtual question that came in, this is for Paul. On the EBITDA bridge through 2028, how much volume growth is anticipated and what is the sensitivity to shortfalls or upsides and how much visibility do you have to -- on achieving possible business wins to supplement overall market growth? Unknown Executive: Yes. If we go back to the EBITDA bridge that we provided, that was out there, not a lot of growth was baked in, low single digits that's out there. You've heard from both Sean, Ernest and James about the growth opportunities that are there, but we want to provide a plan that basically was within our control, something that we could deliver upon irregardless of the market conditions around growth. So if there is a macroeconomic change to the upside for us, that will all be incremental gains for us from that projected that's out there. So strong performance expected. Anojja Shah: My question was actually pretty similar to that, but I'll ask a follow-on hole. You mentioned that you're approaching operational improvement a little differently now from how you've done in the past. Can you talk about what you're doing? And also if there's any sort of quantification of upside that you expect from that? Unknown Executive: Yes. So I'd say the different side of it is really the approach. So we're installing new KPIs across the board, working with the business senior presidents and the BU CFOs that are out there, creating that clear accountability pattern that's there. I'd say that's a little bit different than what we've done in the past is they were all there. The enhancements were there. We had tools like SPS and continuous improvement. But now it's exactly is and I hate to say it is we've created a detailed P&L for each business unit president, we went line by line and said this is your targets for each 1 of those areas. And then on a quarterly basis, we're going to be I'll call painstakingly antagonistic on there every single quarter. How did you do? How did you track against it? And then if we're short, is there another business unit that could actually cover that. So I'd say it's the discipline around it and the consistency of how we're going to go execute that is going to be a little bit of a difference. Roger Schrum: Okay. Gabe, you have a question? -- follow-up, I should say. Gabe Hajde: Two, hopefully, they're quick. Would you say -- maybe, Paul, you talked about taking a little bit more of, I guess, maybe a homogenous approach to the productivity? And can you give us kind of the -- I think it was $130 million to $170 million in and cost breakout of the margin improvement. I think you also mentioned 20 to 30 of what I'll call, G&A improvement sort of back office, maybe shared service type operations. And if memory serves, maybe on the synergy -- legacy synergy realization associated with Eviosis, I think there was about 60 remaining. And so if we combine those together, let's say, on there's $100 million of sort of what we knew bringing to the table, which may appear conservative and maybe you can disagree or agree with that. And then on the cost side, I think you have roughly between SG&A and COGS, let's call it, $6.7 billion of spend. I figured 2% annual inflation, $130 million inflation treadmill. Thinking about kind of gross versus net, I know you presented at $1.5 billion, but just if there's other productivity that we should expect to offset that? And sorry, last one, anything to think about with what I think was low double-digit metal price increases coming into 2026, if there was any movement between customers pulling forward into Q4 and/or impacts on H1 profitability. Roger Schrum: Paul, do you want to start on the [indiscernible] Paul Joachimczyk: Okay, that was more 1 question. He's giving you room for your money, George. Unknown Executive: Thank you beat you, George, right now. So Gabe, if you really think about the stranded costs. This is why we have shifted away from that to try to get away from all of those buckets that are out there. But you're absolutely spot on is about $60 million was going to carry over into the future plan. so that you could take that right off the top. And so now your plan goes from $90 million to $140 million of additional incremental upside for us. But what we want to try to do is, as we look at the businesses, as we try to drive 1 business, 1 consumer it's no longer like, let's give Sean a target, let's give Ernst target. It's like we have one target for consumers, and that's how we needed to approach the business as we did the realignment of those organizations that were there. So it may look like it's a I'll call it, maybe in your eyes a little bit of a less lofty goal. I think it's a very aggressive goal still to go tack out another $90 million to $140 million of savings. To the second part of that question around productivity, those are all net those are going to drop to the bottom line. So we're going to go and offset all the inflation and everything else that is out there with our normal productivity gains. So everything that we're showing there is above and beyond just the normal productivity -- so this will be truly incremental wins for us and our shareholders. Robert Coker: And Gabe, I think to the second part of your question, there was no material pull ahead into what I call Q4 2025 that would negatively impact '26, nothing appreciable there. Roger Schrum: Next question. I do have 1 on George, why don't we grab my phone. I'll give you -- we do have a fan of the industrial guy who has asked a question in Industrial on saturated kraft, does the exit of some producers in that area boost that market opportunity for you? And is it actually larger than you depicted? Rodger Fuller: Answer is yes, yes. So yes, that's what created the opportunity was closure of some mills that focused in that area and the industry needs alternatives, and we feel -- we're being conservative in our estimate on the opportunity, and it could be larger if we're very successful with our product. Roger Schrum: Great. George. George Staphos: A couple of questions. Again, I appreciate the details. First, I want to come back to the growth question in paper and metal. How much capacity do you think you have right now to be able to grow before you'd have to reinvest significantly? What I heard was you're pretty much set, but I just wanted to test that and ask relatedly, what the incremental profit might be across both metal and paper and consumer. So that's part 1 of the question. Part 2 again would be, it sounds like you see right now, even though it's the same purchasing manager on the customer side, you're really not doing a lot of cross-selling at the moment. And feel free to correct me if I misstated that. So the synergies are really on the back end. How are you -- Paul, what are you doing to make sure that that transmission, that commercial effort that tracking isn't messed up to the customer because you're now combining entities. So capacity and incremental margin back in -- last question, Howard, for you. When you announced [indiscernible] and Grumettol,a even though Sonoco has been involved in metal packing for years, a lot of people took a step back and said sort of Sonoco metal what's that all about? How is the growth here similar and your view to what Sonoco did, whatever, 30-plus years ago when you did composite cans and everybody said, composite cans, what's that, tubes course paper, what's Sonoco doing that business? What's similar? What's different? And what do you think the -- I mean I'm -- we know you're posing because you made the acquisition, what do you think the sort of untapped market opportunity is there in metal that's similar composites many years ago? Unknown Executive: I'll take part 1 and Paul, on that you can talk about profitability from pure capacity, and I'll just speak to the Americas, Sean can touch on Europe. We have available capacity on both our paper can and metal cans as match what we anticipate our growth trajectory through 2028. So some of that obviously depends on customer specification, geography of where that capacity would be filled -- but in large part, we have the available capacity to meet our needs through 2028 without incremental capital of installing new lines or new assets. So we feel really good about that. Certainly, we evaluate any outside opportunities and look at the return on investments that, that would take. But fundamentally, we have the available capacity, both in paper and in metal. Paul Joachimczyk: Yes. So if you -- what I could say for paper, we've invested quite substantially over the last few years, increasing capacity, particularly on stack chips. We have a major customer who let's just say, slowed as they were being acquired. And that acquisition took longer than probably anybody expected. As they come out of that now, we've got an awful lot of capacity to fill. So we can grow substantially overnight with no investment. If you look at the metals business, the metals business, the vast -- it's a very seasonal business in Europe. It's food. So there's a lot of capacity that's ramped up for the summer period. So you've got weekend shifts, you've got night shifts, et cetera. So again, we've got a lot of latent capacity there, which won't require a lot of investment to realize. So I think that's quick growth when the market changes, particularly as people go and do more promo. I think post COVID, that's one of the things I want to say. There's not been as much promotional opportunity. The CPGs are seeing a real opportunity to do that, to grow volumes. And the nice thing is we've got the asset base in there now that can grow with it. But of course, on top of that, we are investing in future products. Robert Coker: Yes. I'd say just to add on to that, the investments we've made similar investments have been made by customer as well that have slowed down in the past year. The other part of your question, I think, to these guys as margin profile. They're relatively on top of each other in terms of the profitability metal versus paper. George, what I'd say is the parallels between where we were in the late 70s, 80s on the paper can side, pretty crowded marketplace. We've been in it since 1962. And lots of players. What happened was we started seeing markets such as motor oil change to plastics, blow-molding was a new thing coming out. And A lot of the strategics that were involved said, this is the end, I need to get out. We leaned into it. So direct peril and I should say that during -- from that time to our acquisition 3, 4 years ago, we've constantly said, this is -- the metal side of the business is a natural fit for what we do. It meets those core elements that makes a successful business where Sonoco has made a successful business. But there wasn't a need for another provider. So fast forward to 3, 4 years ago, we looked and said, guess what? There's a lot of strategics or several strategics that are moving out of the space. We think there is a tremendous opportunity for us to come in and put our playbook in place, just as we did in the 1980s when we consolidated on the paper can side. And the truth of the matter is that thesis has played out even greater and better than what we anticipated, if you look at our North American business. It wasn't the -- ones will probably say, "Hey, we're the funnest first year or so, but we put a playbook in. And so here we are showing and Ernest working very closely from a global perspective. We're as excited as -- we're as excited as we were in 1986 when we acquired Boise Cascade out of the paper can business. So it's a recognition of a market that is a necessary important market. It's large and consolidated concentrated. And it checks all the right boxes which absolutely layers right on to what happened in the mid-1980s or so on the paper against side of the business. Unknown Executive: Yes. I think 1 of the things I'd just add to that. since the major acquisition of [ Biodenama ], we've grown the rigid paper space in New York by 60% in 10 years. So it's easy to look at a market and say it's mature, but there's another -- for me, there's markets out there we've never been in before. And we're going into markets that we've never experienced before. So again, it's about innovative, it's about going into places that you just don't know. And I think that's been where we've got real opportunity. Roger Schrum: Do you have an online question, then we'll take this 1 up here quick. But this is from Ghansham Panjabi with Baird, and he's asking industrial. He's asking what is -- what -- with productivity and strategic changes you have implemented over the years in industrial packaging. Will the segment be more resilient from an EBITDA margin standpoint relative to historical baseline, especially due to price cost variability. Unknown Executive: Yes. We believe we've made fundamental changes in both the way we price the market and underlying manage our capacity, and I think it won't take completely away the volatility, but we believe we've significantly changed that profile. Roger Schrum: I had a question up here. Unknown Analyst: This is [indiscernible] at Jefferies on for John Dunigan. I have 2 questions. One is based on your $150 million to $200 million of potential profitability initiatives. What would drive you to the top end or maybe above the target line -- the second one is more focused on consumer parts. You guided for low single-digit growth. So maybe -- just curious what's the breakout between the business win versus what's been already locking relative to the underlying market growth? Unknown Executive: Yes. I'll take the first part of that question and turn it over to the rest of the panel. I'd say to get to the top end of that range really is going to be dependent on a few things as one, as we look at our overall portfolio of assets that are out there, in our footprint optimization. Some of those changes do take a little bit longer to enact and you actually cut into full fruition for us on savings. Especially when you look at the European market, there is a little bit longer drawn out tail. We do have a road map and a plan already in place today. There may be an ability to accelerate that plan, which would allow us to get to the top end of that range. But right now, the plan is basically built off of a conservative approach. But if there is the optionality to go faster and drive more return for our shareholders, we will absolutely do that. Ernest Haynes: Yes. From a growth standpoint, I think Paul articulated this earlier, we expect to be around that GDP number. So we were not anticipating a bunch of macro health, particularly in 2026. The volume we've had today, we feel pretty confident in in the go forward. And we'll certainly be chasing volume, this is the right fit for our portfolio long term. But there are no outsized expectations in the volume growth for '26. Roger Schrum: Other questions? Unknown Analyst: When I looked at the slide deck, I see a lot of commentary around value-added pricing. And I'm curious, as we go from $1.3 billion of EBITDA to $1.5 billion, -- how much of that increase is driven by value-added value-based pricing, excuse me. Unknown Executive: Yes. So in that guidance, there is an element of that. It is not the largest element of those operational changes out there by any way, shape or form. And I believe George asked the question, we probably didn't answer from a back office perspective, we are giving the tools right to these business unit presidents. Their market is changing at a fast pace. We have to align the back office support to do that as well, too. So our teams, it doesn't matter on the finance side, customer service side, we have to align to 1 tool. So we're going through, I'll call it, the buzzwords of master data management cleaning up those records, those elements. We're giving the standard financial processes and commercial disciplines to arm all the business unit presidents that's out there. So the discipline is really going to come from our own internal house and cleaning up those kind of like idiosyncrasies that were there to make sure we're consistently driving value for our customers as well. Unknown Analyst: And with respect to the value-based pricing, each of you has said it's a very competitive market. So why I imagine the only reason you bother with value-based pricing is because you'd like a better price. So why should we expect to get that better price given the competitive nature of the markets? Robert Coker: So service quality and the way we approach the market and the value that we deliver to our customers and making sure we're getting the appropriate recognition and understanding where the call leakage can be, and that's exactly what Paul is talking about, but it is being the best provider in the eyes of your customer. I'm not sure all of the procurement folks would tell you that these guys already talked about it in terms of how we are approaching our relationship with our customers to ensure that from the shop floor all the way to the conference run that the Sonoco image value is fully recognized within the customer. Unknown Executive: Yes. I think what I'd say is we don't sell on price. We sell on value. And fundamentally, there's more towards than the [indiscernible] commodity market and that's essential. Having that pride, going into the customer being different in the face of the customer matters a lot. Roger Schrum: I have a couple of online questions. First one for Howard. You've talked -- you've spoken with regards to the importance of debt reductions. But when will share repurchases come into the picture. Robert Coker: I think what we kind of went through that in pretty great detail. #1 focus is making the appropriate capital investments associated with growth and profitability, getting our debt down. So we're not really going to consider anything until we get our debt at that 2.5-ish type of range, and then we'll see what opportunities come from that point on. Roger Schrum: And a question from Mark Weintraub with Seaport Research. Is there any metal overlap impact in 2026? And if so, is it embedded in your 2026 guide? Robert Coker: Nothing material. SP47135678 Yes. I was going to say there's really from an MTO perspective, you're not going to see -- like after the Bull acquisition, there was this massive uplift. So from our perspective, we really will be balanced out some minor impact, but it's nothing material that will change our results. . Roger Schrum: Further questions in the audience? Anojja? Anojja Shah: Thank you. I just wanted to get an update on pet food. I know that was an area of focus. You had pretty low exposure when you first bought the business, and it was an area you were trying to build -- where are you now? And also what drove that 10% volume increase number in Q4? Was pet food part of that? Unknown Executive: Yes, I'll take that. Pet food is obviously 1 of the highest compounded annual growth rate subsets in the food category. It's not something we had a large presence in dating back -- so we've been really intention in getting our feet wet in that space. So we'll have some pet-related products on shelves in 2026 that we're excited about and we'll continue to try to grow out that footprint relative to food can, we've just been very, very successful with organic growth with our existing customer base. We kind of call that core growth. So we've seen the customers we serve, continue to have good shelf presence, and we've grown with them. And we've had some opportunistic share gain wins along the way. So we feel good about the persistency of that growth into 2026. Paul Joachimczyk: Yes. What I'd also add is if you look at the sort of pet premiumization, some people just -- since COVID, I think [indiscernible] bought themselves a dog. So there's a lot more pets, a lot more smaller pets. Gone are the days of buying a 13-millimeter dog food and spooning out. So there's a lot more single serve out there, and we've come up with new products that go into the single-serve market. On the rigid paper side, we've seen really good success in going into new markets for dog treats. So a sustainable dog treat package that can go into the waste stream, a paper waste stream, that's where we're seeing growth. So it's not just looking at the Pet segment as sort of wet pet food. It's much broader because to be honest, some people are spending more money on their pets than their kids. So we need to be positioned. Roger Schrum: Any further questions? Wolf, we've got 1 more question? Unknown Analyst: Just curious, with respect to footprint optimization, how much will we have to spend to achieve that? Because I know how France can be. Robert Coker: Yes. So Paul talked about it in detail. We are taking I look at -- typically, we talk about capital dollars and not so much of our own restructuring. Now it's all 1 pool. So when we evaluate for the James comes in and says, I've got a 5-year great IRR on an investment that is not customer related, something can wait, and then we look at consolidation in France. And so for the same amount of capital, I can get a 2-year return or cash. So that's how we're looking at it. When we talk about our cash capital allocation included in that is restructuring. And Certainly, if you look at the $150 million to $200 million, there's -- Sean and his team, especially are laying out what potential opportunities we have and making sure that we're managing our cash flow accordingly and choosing the best returns for our shareholders. Paul Joachimczyk: Yes. And I won't pick out France, but we know what your works like. I mean, restructuring is is a burden. However, the 1 thing I'd say is in my -- I've spent the majority of my career on the mainland of Europe, it makes you think differently. So for me, 1 of the big opportunities we've got particularly for the rigid paper business. We've had opportunities to say, build a rigid paper plant in Italy for a customer, but we'd have to employ a plant manager, a quality manager, et cetera. So utilizing the assets that we've got and putting some paper assets in those facilities is a massive opportunity for us. And that will give us a much lower cost of entry. So we look -- we've got a couple of projects that we're looking at right now, which are encouraging. Roger Schrum: All right. Any further questions? If not, I would remind everybody we're going to have a brief modeling session for those that are interested in and getting to a little bit more detailed information. Jerry Cheetham will lead that session. But again, thank you very much for your time. Please give the management team of Sonoco around of the applause. Thank you very much for your time.
Operator: Good morning, and welcome to the Otter Tail Corporation Fourth Quarter 2025 Earnings Conference Call. Today’s call is being recorded. We will hold a question-and-answer session after the prepared remarks. I will now turn the call over to the company for their opening comments. Good morning, and welcome to our fourth quarter 2025 earnings conference call. Beth Eiken: My name is Beth Eiken, and I am Otter Tail Corporation’s Manager of Investor Relations. Last night, we announced our fourth quarter and annual financial results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording of this call will be available on our website later today. With me on the call are Charles S. MacFarlane, Otter Tail Corporation’s President and CEO, and Todd R. Wahlund, Otter Tail Corporation’s Vice President and CFO. Before we begin, I want to remind you that we will be making forward-looking statements during the course of this call. As noted on Slide 2, these statements represent our current views and expectations of future events. They are subject to risks and uncertainties, which may cause actual results to differ from those presented here. So be advised against placing undue reliance on any of these statements. Operator: Our forward-looking statements are described in more detail in our filings with the Beth Eiken: Securities and Exchange Commission, which we encourage you to review. Otter Tail Corporation disclaims any duty to update or revise our forward-looking statements due to new information, future events, developments, or otherwise. I will now turn the call over to Otter Tail Corporation’s President and CEO, Mr. Charles S. MacFarlane. Operator: Thank you, Beth. Good morning, and welcome to our fourth quarter earnings call. Charles S. MacFarlane: Please refer to Slide 4 as I begin my remarks with an overview of recent highlights. We are pleased with our 2025 financial results as they exceeded our original expectations for the year. Our team members continue to deliver for our customers and shareholders amidst dynamic market conditions, and I am grateful for their efforts throughout the year. Otter Tail Power continued to deliver on our significant rate base growth plan while executing on our regulatory priorities. Interim rates went into effect December 1 in South Dakota, and we obtained approval from the Minnesota Public Utilities Commission to implement interim rates beginning on January 1. Phase two of final tech expansion project continued to progress as well. We expect the new line to be fully operational in early 2026, and we look forward to bringing this incremental capacity online. Earlier this year, we increased our dividend by 10%, producing an annual indicated dividend of $2.31 per share. This was the second year in a row we announced a double-digit increase to our dividend, reflecting our financial health and commitment to delivering value and returning capital to our shareholders. 2026 will mark the 88th consecutive year we have paid dividends to our shareholders without interruption or reduction. Slide 5 provides a summary of our quarter-to-date and annual earnings. For the year, we produced diluted earnings per share of $6.55, a decrease of 9% from last year. The decrease in earnings was expected as our earnings from our segment receded from record levels achieved last year. We ended 2025 in a position of financial strength with a strong balance sheet and ample liquidity to fund our customer-focused growth plan. We are initiating our 2026 diluted earnings per share guidance range with a midpoint of $5.42. Following my operational update, Todd will provide a more discussion of our 2025 financial results and our outlook for 2026. Transitioning now to our operational update for Otter Tail Power. As noted on Slide 7, we received approval from the Minnesota Public Utilities Commission to implement interim rate revenues of $28,600,000 effective 01/01/2026. Interim rates are subject to refund at the conclusion of the proceeding. The procedural schedule has been set, and we continue to anticipate final rates being implemented in mid-2027. Turning to Slide 8. Our South Dakota rate case continues to progress. Interim rate revenues of $5,700,000 went into effect on December 1, subject to refund. There were no intervenors in our South Dakota rate case, and earlier this year, we reached settlement in principle with the South Dakota Public Utilities Commission staff. We continue to work towards finalizing the settlement and appreciate the collaboration with the commission staff to date. Turning to Slide 9. Our customer-focused rate base growth continues to be robust. We refreshed Otter Tail Power’s five-year capital spending plan with the total remaining unchanged. Key changes to the plan include the addition of a battery storage project, the acceleration of solar investment, and the shifting of a portion of our transmission investment outside the planning period due to updated project timing. Todd will provide more details as it relates to our five-year capital spending plan in a moment. We are reaffirming our five-year rate base compounded annual growth rate of 10% and continue to expect Otter Tail Power to convert rate base growth into earnings per share growth near a one-to-one ratio. Slides 10 and 11 provide an overview of ongoing and future capital projects. We recently completed our wind repowering project, upgrading the wind towers at four of our owned wind energy centers. These upgrades are expected to result in a 20% increase in output and, due to the benefit of an additional ten years of renewable energy tax credits, are very economical for our customers. Our two solar development projects are underway. Solway Solar is in the early stages of construction, and in January 2026, we completed the acquisition of development assets for Abercrombie Solar. We continue to expect Solway to be operational toward the 2026 or early 2027, and Abercrombie in 2028. Throughout 2025, our team members evaluate options for a battery storage project that would meet the requirements of our approved Minnesota integrated resource plan, which authorized us to add up to 75 megawatts of battery storage by 2029. Near the 2025, we identified an opportunity to add this battery near our Hoot Lake Solar facility. We advanced this project so it would be operational in the approved timeline and qualify for available tax credit, making it economical for our Minnesota customers. Our team’s preparedness, experience, and agility enabled us to capitalize on this opportunity, allowing us to accelerate the timing of the project for the benefit of our customers. The battery project is under development and is expected to have a storage capacity of 75 megawatts and a storage duration of four hours. Our total capital investment associated with the project is approximately $120,000,000, and in November 2025, we received Minnesota commission approval for rider recovery. We currently expect the battery storage facility to be operational in 2028. Turning to our transmission projects. Development work continues in our MISO Tranche 1, MISO Tranche 2.1, and JPIQ portfolio projects. We continue to work through landowner and local government resistance associated with siting and certain permits for one of our MISO Tranche 1 projects. We continue to monitor a FERC complaint filed in mid-2025 against MISO’s Tranche 2.1 portfolio of projects, citing a concern with benefit calculation. We currently expect the projects to move forward due to their reliability-related benefits, but believe there could be delays. Turning to Slide 12. We refreshed our large load pipeline, removing the 155 megawatt load that went into service in 2025. We continue to engage with companies looking to add large loads to our system. We believe we have attractive opportunities to add new customers, but we are being prudent in our approach to mitigate potential adverse implications to our existing customer base. We remain optimistic about the 430 megawatt data center opportunity currently sitting in phase two. We continue to engage with the customer in an effort to advance this load to a signed electric service agreement. As a reminder, we have not made any adjustments to our load growth forecast for the opportunities sitting in phase one and two of our pipeline. Further, our current five-year capital spending plan does not include any capital related to new large loads. We remain committed to providing low-cost electric service to our customers and have demonstrated our ability to do so for many years. Slide 13 illustrates Otter Tail Power’s electric rates have remained well below the national average and regional average for many years. Our 2025 residential electric rates were 34% below the national average and 19% below the regional peers. Looking ahead, we remain committed to managing customer bills. We currently project bills to increase between 3%–4% on a compounded annual growth rate over the current five-year planning period. This is made possible by MISO system-wide recovery of regional transmission and the availability of renewable energy credits, reduced energy costs, and other factors. There could be some variability in terms of annual bill increases with some years experiencing higher increases and others lower. This is due to the timing of rate case filings, capital spend, and related recovery. We also expect that the five-year CAGR may vary between jurisdictions. Transitioning to our manufacturing platform, Slide 15 provides an overview of the industry conditions impacting our Manufacturing segment. BTD continues to face end-market demand-related headwinds as sales volumes remain below historic levels. End-market demand continues to be negatively impacted by higher levels of new and used inventory at the dealer level, as well as a challenging economic environment. The end markets most heavily impacted by these dynamics include lawn and garden and agriculture. The construction and recreational vehicle end markets seem to be improving as inventory levels are normalizing at the retail level. The industrial end market remains strong, as our products are ultimately used to support the growing energy demand. We have seen some improvements in T.O. Plastics’ horticulture end market but continue to face competition from low-cost importers. Slide 16 provides an overview of our Plastics segment pricing and volume trends. Our sales prices of PVC pipe continue to steadily decline, decreasing 15% from the 2024 average. The rate of decline accelerated during 2025, with the average sales price being 20% lower than the same time last year. The rate of price decline can be impacted by a variety of factors, including product mix and seasonal demand patterns. Sales volumes increased 8% from 2024 levels. The increase was largely driven by the incremental capacity added at Vinyltech in late 2024. Material input costs, including PVC resin, decreased 14% from 2024 levels as domestic supply remains elevated. Turning to Slide 17. Our manufacturing platform remains well positioned to support future growth opportunities. Our new BTD Georgia facility is ready to support our customers in the Southeast part of the United States, and phase two of our Vinyltech expansion project is nearly complete. Further, Northern Pipe Products is also pursuing a project to increase their nameplate production capacity by approximately 20,000,000 pounds by enhancing the efficiency of an existing line. We expect this incremental capacity to be available beginning in 2028. I will now turn the call over to Todd for the financial results. Todd R. Wahlund: Thank you, Chuck, and good morning, everyone. Turning to Slide 19, we are pleased with our consolidated 2025 financial results. We generated $6.55 of diluted earnings per share, which was towards the upper end of our 2025 earnings guidance range. Please follow along on Slides 20 and 21 as I provide an overview of annual financial results by segment. Electric segment earnings increased over 7% year over year with an increase of $0.16 per share. The increase in earnings was driven by recovery of our increased rate base investments, higher residential and commercial sales volumes, the impact of favorable weather relative to 2024, and lower operating and maintenance expenses through prudent cost management-related efforts. While weather conditions were slightly negative in 2025 compared to normal levels, they were much closer to normal levels than the mild 2024. These drivers were partially offset by higher depreciation and interest expense related to our rate base investments and associated financing costs. Manufacturing segment earnings decreased $0.06 per share, or 16% year over year, primarily driven by lower sales volumes, the impact of product mix on average pricing, and higher SG&A expenses. Sales volumes were negatively impacted by soft end-market demand and inventory management efforts by manufacturers and dealers throughout 2025. These drivers were partially offset by lower production costs as our team members did a great job aligning our cost structure with the current demand environment. We finished the year strong with higher year-over-year sales volumes in Q4, and this momentum is carrying into 2026. Turning to Slide 21. Plastics segment earnings decreased $0.72 per share, or 15% year over year, as earnings receded from the historic high reached in 2024. The decrease in earnings was largely driven by lower average sales prices. Sales prices decreased 15% from the 2024 average. We continue to offset some of this decrease in average pricing with higher sales volumes and lower input material costs. Turning to Slide 22. We ended the year in a position of financial strength with $386,000,000 of cash on hand. We produced a utility sector-leading return on equity of 16% on an equity layer of 63%. Our balance sheet continues to be capable of funding our significant customer-focused growth plan without external equity through at least 2030. On Slide 23, we are initiating our 2026 diluted earnings per share guidance range of $5.22 to $5.62. The midpoint of our 2026 earnings guidance is expected to continue producing an above-average return on equity of 12%. Our 2026 earnings guidance is premised on the following assumptions by segment. Electric segment earnings are expected to increase 14% in 2026 due to higher returns generated from an increase in average rate base of 14%, as well as interim revenues from our Minnesota general rate case. The double-digit increase in average rate base is primarily driven by our wind repower and solar investments. We expect these drivers of increased earnings to be partially offset by higher operating and maintenance expenses as well as increased depreciation and interest expense. We expect Manufacturing segment earnings to increase 7%, primarily due to an improved sales outlook across the segment. The projected sales growth is being driven by a modest increase of sales volumes at BTD Manufacturing and higher sales volumes of horticulture products. We also expect improved productivity to be a positive contributor to earnings in 2026. For BTD, we anticipate a strong first half of sales relative to 2025, but are being more cautious on our projection for the second half of the year due to continued challenges with certain end markets. Plastics segment earnings are expected to decrease 36%, as average PVC pipe prices continue to recede from the peak reached in 2022. This is expected to be partially offset by the impact of higher sales volumes driven by the phase two capacity coming online at Vinyltech in early 2026. Input material costs, including the cost of resin, are expected to be largely flat year over year. Corporate costs are expected to increase in 2026, driven by lower investment income and higher labor costs. We updated Otter Tail Power’s five-year capital spending plan, which is included on Slide 24. Despite the updates made, Otter Tail Power’s five-year capital spending plan continues to total $1,900,000,000 and continues to be expected to produce a rate base compound annual growth rate of 10%. Our updates included increasing the investment amount for renewable generation and battery storage to include the Hoot Lake battery project. We shifted approximately $140,000,000 of transmission-related investments outside the current five-year planning period due to updated timing of capital spend. Additionally, we continue to have potential incremental investment opportunities for Otter Tail Power. We have approval in Minnesota to add up to 200 megawatts of additional wind generation and continue to seek the least-cost option for our customers, whether that be a power purchase agreement or a rate base investment. With our large transmission projects, there is still some uncertainty on the precise timing of some of the spend, so there could be some shifting of spend back into this five-year planning period. We also could have incremental investment opportunities if we successfully secure new large loads. We continue to project every additional $100,000,000 incremental capital investment opportunity increases Otter Tail Power’s rate base compounded annual growth rate by approximately 65 basis points. Slide 25 summarizes our updated five-year financing plan. Even with our significant utility capital spending plan, we do not have any external equity needs through at least 2030. We plan to issue debt at Otter Tail Power on an annual basis to help fund the investment plan and maintain its authorized capital structure. We have $80,000,000 in parent-level debt that matures later this year and expect to retire and not replace this debt. We will have no outstanding parent-level debt upon retirement. On Slide 26, we are reaffirming our expected long-term Plastics earnings profile. We believe Plastics segment earnings will continue to decline through 2027 such that 2028 is our first full year of earnings within our $45,000,000 to $50,000,000 range. This assumption is based on the average sales price of our PVC pipe continuing to decline at a rate similar to what we experienced towards 2025, higher sales volumes due to our expanded production capacity, and cost changes generally in line with the rate of inflation. For 2026, we expect our average sales price of PVC to be approximately 20% lower than the 2025 average. Due to seasonality and other factors, the rate of margin compression could vary from period to period. Additionally, it continues to be difficult to predict with certainty long-term Plastics segment earnings. The timing or level of earnings could vary materially from this projection. However, our Plastics segment is an important component to our overall strategy, with the enhanced returns, cash flow, and earnings it generates. Even as earnings continue to recede, we expect the segment to produce an accretive return and incremental cash to help fund our electric utility’s rate base growth plan. Slide 27 summarizes our investment targets. Underpinned by the significant growth in our electric segment, we continue to target a long-term earnings per share growth rate of 7% to 9%, resulting in a targeted total shareholder return of 10% to 12%. We anticipate delivering on those targets once Plastics segment earnings normalize in 2028. As we continue to execute on our customer-focused growth plan, we are well positioned to deliver on our investment targets over the long term. Otter Tail Power continues to be a high-performing electric utility, converting its rate base growth into earnings per share growth at near a one-to-one ratio. Our Manufacturing and Plastic Pipe businesses consistently produce accretive returns and incremental cash, enabling us to fund our rate base growth plan without any external equity needs through at least 2030. It is this intentional strategic diversification that has and will continue to provide benefits to our customers and investors over the long term. We look forward to what the future holds and are grateful for your interest and investment in Otter Tail Corporation. We will now open for questions. Operator: Thank you. As a reminder, to ask a question, please press. There are currently no questions in the queue, but we will wait a brief moment in case anyone is experiencing technical difficulties. As there are still no questions in the queue, I will turn the call back to Chuck for his closing remarks. Charles S. MacFarlane: Thank you for joining our call and your interest in Otter Tail Corporation. If you have any questions, please reach out to our investor relations team. We look forward to speaking with you next quarter. Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect.
Operator: Thank you for standing by, ladies and gentlemen, and welcome to the Seanergy Maritime Holdings Corp. Conference Call on the Fourth Quarter and Year Ended December 31, 2025 financial results. We have with us Mr. Stamatios Tsantanis, Chairman and CEO, and Mr. Stavros Gyftakis, Chief Financial Officer of Seanergy Maritime Holdings Corp. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. At which time, if you would like to ask a question, please press 11 on your telephone keypad. You will then hear an automated message advising your hand is raised. Please be advised that this conference call is being recorded today, Tuesday, 02/17/2026. The archived webcast of the call will soon be made available on the Seanergy website, www.seanergymaritime.com. To access today's presentation and listen to the archived audio file, visit the Seanergy Maritime website following the webcast and presentation under the Investor Relations page. Please now turn to Slide two of the presentation. Many of the remarks today contain forward-looking statements based on current expectations. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that can cause the actual results to differ materially from those in the forward-looking statements is contained in the fourth quarter and year ended 12/31/2025 earnings release, which is available on the Seanergy website, www.seanergymaritime.com. I will now turn the call over to the Chairman and CEO of the company, Mr. Stamatios Tsantanis. Please go ahead, sir. Stamatios Tsantanis: Thank you, Operator, and welcome, everyone. Today, we are pleased to present our financial results and company updates for the fourth quarter and full year of 2025. 2025 marked our fifth consecutive year of profitability and another important milestone for Seanergy. We delivered strong earnings, generated meaningful cash flow, advanced our fleet renewal strategy, and continued returning capital to our shareholders, all while further strengthening our balance sheet. For 2025, we reported earnings per share of $0.68 and for the full year period of 2025, we reported earnings per share of $1.28. Both our net income as well as the appreciation in value of vessels acquired since 2021 underscore the operating leverage embedded in our platform. Our profitable track record validates our long-term consistent strategy of focusing exclusively on larger bulkers, Capesizes and Newcastlemaxes. Seanergy is optimally positioned in what we believe is a favorable Capesize environment supported by expanding long-haul demand while fleet supply growth remains constrained, aging tonnage, limited new ordering, and environmental regulations creating a structurally tighter supply environment. With respect to fleet renewal and optimization, we have made significant progress. To date, we have secured three high-specification eco newbuildings, two Capesize and one Newcastlemax at leading Chinese shipyards with deliveries between Q2 2027 and Q2 2028 totaling approximately $226,000,000. At the same time, we recently concluded the sale of a 2010-built Duke ship at a firm price, in addition to the sale of a 2010-built Genoa ship earlier in 2025. Both transactions released significant capital for the company. The current strength in secondhand values allows us to execute our fleet transition in a disciplined and measured manner while maintaining a strong balance sheet. At year end, our fleet loan-to-value stood at 43%, reflecting a conservative leverage profile supported by disciplined balance sheet management. As a pure-play Capesize operator, we maintain balanced leverage that preserves financial resilience while retaining meaningful exposure to market upside. I will now turn to Slide four for an overview of our capital distributions. In this profitable market environment, our capital allocation priorities remain clear: return capital to our investors, modernize our fleet, and preserve financial strength. In 2025, we declared total dividends of $0.43 per share, including $0.20 in the fourth quarter. Since Q4 2021, we have returned approximately $96,000,000 to our shareholders through dividends, share buybacks, and note repurchases. Based on our track record and current market strength, we remain constructive on future distributions subject to market conditions and capital commitments. Slide number five, commercial snapshot. Turning to slide number five, 2025 demonstrated the strength of our chartering strategy. During the fourth quarter, Seanergy achieved a daily time charter equivalent of approximately $26,600, while our full year time charter equivalent was approximately $21,000 per day. Fleet utilization exceeded 96% despite the intense dry-dock schedule, reflecting our strong operating efficiency. In what was an extremely volatile year for the Capesize market, we are very pleased with our balanced commercial strategy combining index-linked exposure with selective forward fixtures that has allowed us to participate in market upside while securing cash flow visibility and reducing volatility. Looking forward for 2026, we expect our time charter equivalent to be about $25,300 per day based on the FFA curve for the remaining days of February and March. We are closely tracking Capesize Index during the period of counter-seasonal strength. As the market remains on a clear positive trend, we aim to selectively fix a percentage of our available days at attractive rates, securing high cash flows and returns on invested capital. For the period from Q2 until 2026, we have fixed approximately 32% of our available fleet days at an average gross rate of $27,300, subject of course to further increase as a result of the profit-sharing scheme for two of our vessels. Looking further ahead, the upcoming delivery of our newbuildings will further improve the commercial profile of Seanergy. We are currently considering our options with regards to their employment. Slide six. Since our previous quarterly update, we have taken decisive steps towards fleet renewal and placed orders for two additional newbuildings at first-class shipyards based in China. For now, we have two sister Capesize newbuildings for mid-2027 and one Newcastlemax for Q2 2028. Combined contract cost stands at approximately $226,000,000, which we believe represents a very competitive value given the prompt deliveries and the quality of the yards. Our three newbuilding vessels have already attracted strong interest from both existing and prospective charterers. However, given the continued strengthening of the market, we remain flexible and have not yet committed to any long-term employment agreements. Their superior fuel and environmental performance enhance their attractiveness to major dry bulk charterers and position them very well as regulatory requirements will continue to tighten the market. On that note, I would like to turn the call over to Stavros for an overview of our financial performance as well as our financing developments with regards to our existing and newbuilding vessels. Stavros, please go ahead. Thank you, Stamatios, and good morning to everyone joining us. Let us begin with slide seven where we will review the key highlights of our financial performance. Before turning to the numbers, I would like to emphasize the continued strength and resilience of our platform as 2025 marks our fifth consecutive year of profitability. For 2025, the strong Capesize market supported robust financial results. Net revenue for the quarter totaled Stavros Gyftakis: $49,400,000 while adjusted EBITDA and net income reached $28,900,000 and $12,500,000, respectively, reflecting the strength of the second half of the year. For the full year, net revenue amounted to $168,100,000, adjusted EBITDA reached $81,700,000, and net income was $21,200,000, translating into earnings per share of $1.02. These results underscore the effectiveness of our chartering strategy and risk management framework. Turning to the balance sheet. We maintained a strong liquidity position with $62,700,000 in cash and cash equivalents or approximately $3,100,000 per vessel. This liquidity provides operational resilience and supports the execution of our fleet modernization strategy. Now regarding our newbuilding program, the investment plan has been carefully structured with a laddered schedule to ensure alignment with our shareholder reward strategy and financial flexibility. Approximately $— million is expected to be deployed this year, $100,000,000 in 2027, and $50,000,000 in 2028. Financing for two of these vessels has been secured on attractive terms while we are in active discussions for the third. Our debt capital ratio remained well below 50%. This conservative leverage profile, combined with strong cash generation, provides flexibility as we enter 2026 and supports the funding of our newbuilding program. Overall, 2025 was characterized by consistent profitability, disciplined balance sheet management, and solid cash generation, positioning us well to continue delivering value to our shareholders moving forward. Moving on to Slide eight. For the full year, our TCE averaged $20,937 per day, closely aligned with the annual BCI average. This reflects the effectiveness of our chartering strategy which balances index exposure with selective forward fixtures to manage volatility while preserving upside. Adjusted EBITDA is $81,700,000 for the year, significantly above our five-year average. The strong performance in the second half demonstrates the operating leverage inherent in our fleet. Our EBITDA margin of approximately 50% and operating cash flow margin of roughly 33% highlight the quality and resilience of our earnings. Even amid a volatile freight market, we generated meaningful and recurring cash flows supporting both shareholder returns and fleet modernization. Daily operating expense per vessel averaged approximately $7,100, only modestly higher year over year despite the inflationary pressures and the aging profile of our fleet. Moving on to slide nine, let us look at our leverage profile and overall debt position. We closed the year with approximately $294,000,000 of total debt, close to $50,000 in deferred finance fees. Fleet loan-to-value declined to about 43% with net LTV at 34% supported by financing activity and resilient vessel valuations. This places us in a comfortable position relative to both historical levels and industry benchmarks. Debt per vessel stands at about $14,700,000 versus an average market value of $34,100,000, reflecting substantial embedded equity. Additionally, approximately 7% of our total debt is covered by value, offering meaningful downside protection. Daily cash interest expense per vessel decreased to approximately $2,570 per day, representing a 6% year-over-year improvement and enhancing our cash flow profile entering 2026. Before moving on, let me briefly touch on our recent refinancing activity. Over the past month, we executed several refinancings that strengthened liquidity, lowered margins, and extended our maturity profile. At the same time, we secured competitive funding for two of our newbuilding vessels, locking in attractive pricing well ahead of delivery. These facilities were structured with prudent amortization, even covenant restrictions, and enhanced flexibility, including purchase and prepayment options. Overall, our actions reinforce balance sheet resilience and provide the financial flexibility needed to support fleet renewal while maintaining disciplined leverage. Specific details of these financings are outlined in our earnings release. With a strengthened balance sheet and enhanced financial flexibility in place, let us now turn to slide 10 to illustrate the operating leverage in our platform and the sensitivity of our earnings to movements in the Capesize market. At current FFA levels, we estimate full-year EBITDA of approximately $122,000,000. At 2025 average BCI level, EBITDA would approximate $95,000,000, providing a reference point based on current market assumptions. At rates above $30,000, EBITDA would increase materially, reflecting the operating leverage embedded in our platform. That concludes my review of our financial results and updates. I will now turn the call back to Stamatios, who will provide insights in the Capesize market and his concluding remarks. Stamatios, Stamatios Tsantanis: Thank you, Stavros. Slide 11. 2025 was another strong year for the Capesize market despite the initial volatility. The Baltic Capesize Index averaged approximately $21,300 per day. The year began on a softer note during the first half before iron ore and coal restocking activity in China supported the strong recovery in the second half of the year. Record iron ore exports from Brazil and record bauxite exports from Guinea provided a meaningful tailwind to Capesize ton-mile demand, reinforcing the constructive long-term demand outlook for the segment. In addition, market sentiment and broader trade fundamentals were further supported by strength in the Panamax market driven by increased grain exports from Brazil and the United States as well as additional coal restocking towards the year end. Moving to 2026, in regards to Capesize demand, we have started very strongly with the BCI averaging $22,000 over the first two weeks of the year, marking one of the strongest first quarters of the past decades. Guinea bauxite exports have grown by 14% year over year while dry weather in Brazil and Australia has resulted in high iron ore cargo activity during a traditionally weak seasonal period. For the rest of 2026, the demand outlook remains constructive with bauxite trade expected to continue its growth path and iron ore miners’ production and sales outlook pointing to resilient trade volumes. This trend looks set to continue into 2027 with the Simandou mining project in West Africa ramping up its output. China’s demand for high-grade iron ore remains healthy, supporting demand for imported iron ore versus lower-quality domestically produced one. Moving on to Capesize supply. The supply picture for the larger bulkers, especially Capesizes, points to further tightness and limited vessel availability for the next two years. The orderbook currently represents 12% of the fleet compared to about 9% of the fleet being 20 years or older. Moreover, what is significantly important is that right now, 40% of all the larger bulkers—Capesize, Newcastlemaxes, and VLOCs—exceeds 15 years of average age. So we are talking about an excessively aging fleet. At the current pace of vessel ordering and given the limited capacity of shipyards to deliver newbuildings, it becomes clear that the supply tightness is likely to continue over the next many years. As regards our near-term forecast, 2026 and 2027 are also likely to be affected by the extensive drydocking of the current ships that usually entails considerable downtime. With more than 20% of the world Capesize fleet built in 2011–2012, a significant portion of vessels will undergo their fifteen-year special survey in 2026–2027, temporarily reducing the effective supply, plus, of course, a significant cost. This is expected to result in a fleet capacity reduction of more than 1.5% both years, with some estimates calling for a 2% to 2.5% reduction. This should not be underestimated as it would counteract the 2.2% expected fleet growth due to newbuilding deliveries and could continue to contribute to periods of significant market tightness during the next two years. To summarize, as we have seen in the past, the Capesize market will always be subject to considerable volatility stemming from multiple unpredictable factors, but the limited vessel supply that is shaping up over the next few years along with increased ton-mile demand should result in a positive trend for charter rates. We are pleased to see this positive trend unfold over the past two to three years and we are confident in our view of a strong market in the following years. As I mentioned before, Seanergy is optimally positioned to deliver our stated priorities of capital returns and fleet growth while maintaining a sustainable balance sheet throughout the cycle. We are, in our view, very well placed to deliver strong financial performance over the next few years and we are therefore excited about our prospects. On this note, I would like to turn the call over to the Operator to answer any questions you may have. Operator, please take the call. Thank you. Operator: Thank you. Once again, it is 11 on your telephone and wait for your name to be announced. We will now open for questions. We are now going to proceed with our first question. The question comes from the line of Liam Burke from B. Riley Securities. Please go ahead. Your line is open. Liam Burke: Thank you. Good afternoon, Stamatios. Good afternoon, Stavros. Hello, Liam. Good morning. Liam, you have been very nimble in terms of managing your fleet and maximizing the rate environment. I mean, a year ago, you were outdistancing the BCI even when rates are low. But are you seeing anything in the market where it is more prudent to add longer-term time charters versus moving more of the fleet into the spot market? Stamatios Tsantanis: Well, we constantly are. If you see the release, we have about 35% of our days already pretty much in some sort of long-term contracts that carry all the way to the end of the year. As you know, we are progressing after the Chinese New Year that we expect to see more strengthening in the market. We will continue switching more and more ships from floating to fixed. So already, we have 35% at around $27,000. And, as the year will be progressing, we will do some more. Liam Burke: Okay. You have gotten—well, how are you balancing going forward the inflated asset values, some of your older vessels, versus what looks to be a fairly attractive rate environment for the next two to three years. Stamatios Tsantanis: Well, that is exactly what we are doing right now. We were able to secure very prompt delivery slots for newbuildings. First of all, let me step back a little bit. The five-year-old ships, as you know, have been very much inflated. So for five-year-old ships, it is kind of a no-go for acquisitions. It is pretty much identical to newbuildings or a bit lower than that. So we decided to seek newbuildings at high-quality shipyards, but then the question was whether we are going to have debt capital in these orders or not. And then due to our connections and excellent relationships, we were able to secure very prompt, for the Capesize market, delivery slots. We went ahead, and we placed ships—two ships within 2027 and one for 2028. So that is how we manage. So once we identify prompt slots for newbuildings, we will likely continue doing a few more, while at the same time, we might be disposing some of our older assets, the way that we did it right now with the Duke ship. From Seanergy to United or some other, let us say, interesting ideas. But that is how we are going to do it. So if we are able to add three ships and dispose of a couple, or even add a few more, that is how we are going to do it. Liam Burke: Great. Thank you, Stamatios. Appreciate it. Stamatios Tsantanis: Very welcome, Liam. Operator: We are now going to proceed with our next question. The question comes from the line of Mark Reichman from Noble Capital Markets. Mark Reichman: Thank you, and good morning. Stavros Gyftakis: Maybe Slide six would be the slide to look at. But just following up on the last question, how it is a favorable financing environment. You are able to get these sustainability-linked loans. But when you think about the high asset values of the existing fleet versus the newbuilds, what are your expectations in terms of your weighted average cost of capital and your return on invested capital on maybe some of these newbuilds, and would you expect the difference to widen, or how are you thinking about that and managing that into your decisions? Stamatios Tsantanis: Well, that is an excellent question, and thank you. The answer is yes. We are seeing inflation and inflated prices all across the shipping newbuilding assets. So it is not only a Capesize or a Newcastle situation. We are seeing that all over the place. You see that on tankers, containers, LNGs, and, of course, on other dry bulk, smaller dry bulk ships. At the end of the day, however, the amount of money you spend for the CapEx is basically what you expect to make in return, like you very well asked. Thanks to the excellent efforts from our finance department, we are able to secure financing terms that will keep the all-in cash breakeven of these new acquisitions at around $20,000 a day. So the forward rate now stands anywhere between, let us say, $26,000 and $30,000 for a standard Cape. If you count in the premium of these modern ships, that exceeds $30,000 a day. So if we are able to secure anywhere between $8,000 and $12,000–$13,000 a day on a net cash flow basis, you do the math, you can automatically see that the return on equity on these assets is quite significant. That is how we approach it. Mark Reichman: That is very helpful. And then I always ask this question on the conference calls. What are your expectations in terms of operational off-hire days for 2026? Stamatios Tsantanis: I believe it is going to be consistent with 2025, but maybe a little lower than that. We have a much softer dry-dock schedule in 2026 compared to 2025. I believe it is going to be a bit lower than 2025. Mark Reichman: Okay. And then just the last question. This is really a client-driven question. Could you speak to the limited shipyard availability? I guess the question was really the low orderbook versus the limited shipyard availabilities. Stamatios Tsantanis: Well, again, that is an excellent question. There is no such thing as a limited shipbuilding capacity. I believe that the global shipbuilding capacity coming from China, as well as Korea and Japan, is at all-time highs. But the good thing is that it is pretty much covered by other types of ships. We have tremendous orderbook on containers, also on the tankers, as well as smaller bulkers and other ships. So the orderbook for the standard Capesize and the Newcastlemax is quite limited because it is pretty much covered by all the other asset classes. Also, it is too far down the road. I mean, if you ask for a CPP today, you are likely going to come back with 2029 or 2030. So given the fact that a very big percentage of the current fleet is already quite old, I do not expect to be in a position to be replaced with modern tonnage until well before 2031–2032, just to have a normal churn rate, to put it this way. Mark Reichman: Oh, that is great. That is very helpful. Thank you very much. Stamatios Tsantanis: You are very welcome. Thank you. Operator: As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced. Once again, it is 11 on your telephone and wait for your name to be announced. We are now going to proceed with our next question. The question comes from the line of Tate H. Sullivan from Maxim Group. Please ask your question. Tate H. Sullivan: Hi, thank you. Good day and great comments and congratulations on the newbuilds. And in light of the newbuild program, can you comment and remind us on the current dividend policy and how you are looking at evaluating the dividend with the newbuild expenditures going forward, please? Because I think there is a discretionary cash reserve element in the dividend, but wanted to double check. Stamatios Tsantanis: Good morning, Tate. Thank you very much for your question. We do not expect the dividend policy to be affected by the newbuildings. The sale of the Duke ship plus some other planned things that we intend to make, if we are to put additional newbuildings, will likely be more than sufficient in order to cover all the cash expenditure and, of course, the efforts of Stavros and the finance department to get the financing in place. We will it is going to be unlikely to affect our dividend policy. So we will, and we expect to be in a position to start renewing our fleet without affecting the operating cash flow and the dividend that we will continue to pay to our shareholders. Tate H. Sullivan: Good. Thank you. And the second question, you mentioned already having some very early contracting discussions regarding the newbuilds. It seems like in the last five years, maybe the tanker sector would lock in multiyear contracts at below-market fixed rates, maybe at the behest of the lenders. How are you strategizing those of contracting the newbuilds? Are you considering the multiyear, or is that a dynamic part of the conversation you have with the lenders? Stamatios Tsantanis: Well, not so much. Our lenders are very comfortable with the fact that our sheet is very solid. We have very low loan-to-value right now. We have a very significant cash balance. So as far as we keep our orderbook in a well-managed situation, I do not think that any of our existing lenders is going to have an issue. And we see a very strong appetite from new lenders in order to provide additional financing. So I do not see that as an issue altogether. Now fixing the ships for five years or seven years, we are of course considering them. We feel that these ships are in very high demand from our charterers. I think closer to the delivery, maybe in a few months from now or end of the year, we will be in a position to fix some of these ships in long-term periods. But I do not want them to be below market, just to sacrifice the operating cash flow of the ships. Tate H. Sullivan: Okay. Thank you very much. Stamatios Tsantanis: Thank you, Tate. Operator: Thank you. This concludes the question and answer session and today’s conference call. Thank you all for participating. You may now disconnect your line. Speakers, please stand by.